ReportNo. 58W ImpactEvaluation Report Malaysia-First, Secondand Third JengkaTriangleProjects (Loans 533,672and 885-MA) December 23,195 Department OperationsEvaluation FOR OFFICIAL USEONLY .X~~~~~~~~~~~~~~~~~~~- - ----- 7- * Document of the World Bank Thisdocumenthasa restricteddistributionand maybe used by recipients only in the performanceof their official duties.Itscontents maynot otherwise be disclosed withoutWorld Bankauthorization. ABBREVIATIONS BOD - Biological Oxygen Demand CIF - Cost, Insurance and Freight DID - Drainage and Irrigation Department EIA - Environmental Impact Assessment ERR - Economic Rate of Return FELDA - Federal Land Development Authority FFB - Fresh Fruit Bunch FOB - Free on Board GDP - Gross Domestic Product GOM - Government of Malaysia GPW - Gerakan Persatuar. Wanita (Women's Institute) HYV - High Yield Variety JKKR - Jawatankuasa Kemajuar. Rancangan (Scheme Development Committee) JKR - Public Works Department KTDA - Kenya Tea Development Authority OEA - Office of Ecvironmental Affairs, World Bank OED - Operations Evaluation Department PCR - Project Completion Report PPAR - Project Performance Audit Report RISDA - Rubber Industry Smallholders Development Authority RRIM - Rubber Research Institute of Malaysia SDA - Social Development Officer WEIGHTS AND MEASURES 1 Acre 0.405 Hectares 1 Mile 1.601 Kilometers 1 Square Mile 640 Acres 2,204 Pounds I Metric Ton THEWORLDBANK USEO[LY FOR OFFICIAL D.C 20433 Washington. USA Nice Domctcv-c,rSal OpewagfEvaution December 23, 1985 TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT MEMORANIDUM SUBJECT: MALAYSIA Impact Evalulation Report First, Second and Third Jengka Triangle Projects (Loans 533-MA, 672-MA, and 885-MA) Attached for information is a copy of the report entitled "Tmpact Evaluation Report - Malaysia First, Second, and Third Jengka Triangle Projects (Loans 533-, 672-, and 885-MA)" prepared by the Operations Evaluation Department. Shiv S. Kapur by Yukinori Watanabe Attachment This document has a restrtd distribution and may be used by recipients only in the performance - of their official duties. Its contents may not otherwise be disclosed without World Dank authorzation. FOR OMCIAL USE ONLY IMPACT EVALUATION REPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 and 885-MA) TABLE OF CONTENTS Page No. Preface ......... ....... . ........... i Summary and Conclusions ........... ........................... iii I. BACKGROUND ....................................... 1 A. Malaysian Economy 1966-1984 .................... 1 B. Agricultural Sector ...... *..*.*...........* * 2 C. Projects' Design, Implementation and Outcome ... 7 II. AGRICULTURAL AND ECONOMIC IMPACT ................... 10 A. Agricultural Production ........................ 10 B. Economic Impact ... ............................. 19 III. . ......... SOCIAL IMPACT ............................ 23 A. Settler Selection System ....................... 23 B. Settler Identity ............................... 24 C. Social Infrastructure and Quality of Life 6 6...... D. Settler Attitude Towards Current Status ........ 27 E. Role of Women ....... .......... , 28 F. Future of Settler and Settler Family .... 30 IV. FINANCIAL IMPACT ...................... ... .......... 32 A. Settlers .......................... 33 B. 37 FELDA ..................................................... C. State of Pahang ................................ 37 D. Federal GovernmenL .... ......................... 38 V. INSTITUTIONAL IMPACT ............................... 40 A. Extent of Institutional Effectiveness .......... 40 B. How Institutional Effectiveness Has Been 41 Achieved .................................................. C. Limitations to Institutional Effectiveness ..... 43 D. Reasons for Institutional Effectiveness ........ 46 E. FELDA and the Kenya Tea Development Authority 47 (KrDA) ................................................... F. Role of the Bank .......................... . 49 IThs do_ment has a restied distibution and may be used by recipients only the performance of in their offica duties Its contents may not otheriise be dislosed withoutWorldBankauthoriation. r TABIE OF CONTENTS (Cont'd) Page No. VI. ENVIRONMENT ............................... 50 A. Projects' Design: Adherence to Government and Bank Regulations ... .......................... 51 B. Projects' Environmental Impact ................. 51 C. Projects' Impact on Environmental Policies and Institutions ....... **....**..*......... 54 VII. CONCLUSIONS ................................. 56 A. Sustainability ................................. 56 B. Future Prospects ...... ...... ................... 60 C. Replicability .................................... 63 Appendix: Methodology of Socio-Economic Survey of FELDA Settlers in Jengka Triangle, Pahang ............... 67 ANNEXES: 1. Background .......................................... 69 . Agricultural and Economic Impact .................... 77 3o Social Impact ....... o............................... .83 4o Financial Impact ............................... 93 5. Institutional Impact . . 101 ................................. 6. Government Comments ........... 109 Map - 19177 (PPA) - i - REPORT IMPACT EVALUATION MALAYSIA- FIRST, SECONDAND THIRD JENGKATRIANGLEPROJECTS (LOANS 533, 672 and 885-MA) PREFACE This impact evaluation report spans a period of seventeen years in which the Jengka Triangle was developed from essentially forest and swamp lands to successful palm oil and rubber schemes providing livelihood for about 9,400 families drawn from the landless poor. This development was sup- ported by three Bank loans totalling US$52.0 million on-lent to the Federal Land Development Authority (FELDA) in three stages: Loan 533-MA provided US$14.0 million, became effective in 1968 and closed in 1975; Loan 672-HA of US$13.0 million became efieactive in 1970 and closed in 1978; and Loan 885-MA for US$25.0 million became effective in 1973 and closed in 1981. This series of projects is particularlysuited for an impact evalu- ation. First, the importanceof the oil palm and rubber sector in Bank lend- ing operations: by April 1985, the Bank had lent more than US$2.0 billion to the oil palm/rubber sector, supporting some 62 projects in total. Second, the strategy employed in Malaysia: of the five largest borrowers for oil palm/rubber: Indonesia, Malaysia, Ivory Coast, Cameroon, and Nigeria, Malaysia is the only country which has based its strategy entirely on small- holder development. Most borrowers have supported estate plantations sur- rounded by outgrowers, as was the case in Ivory Coast, Nigeria and parts of Indonesia, or estate plantations exclusively as was the case in Cameroon and some ragions of Indonesia. Third, the successful outcome of these projects: in economic terms, as a result of high yields rather than high international commodity prices alone, in social terms with the stable settlement of land- less poor drawn from all states of Malaysia, and in financial terms with high returns to Government, FELDA and settlers themselves. This impact evalua- tion, undertaken at a time when most of the oil palm and rubber schemes are in full production, purposely concentrates on the sustainability which accounts for the successfuloutcome of the three projects and on their repli- cability for future Bank/donor projects supporting smallholderdevelopment of oil palm and rubber in countries and regions beyond Malaysia. In view of the substantial change in land use wrought by these projects, particular atten- tion is given to their environmentalimpact. This report is based upon a review of the three appraisal reports (Nos. TO-617A dated March 28, 1968; PA-31A dated April 29, 1970; and 28A-MA dated February 26, 1973); the project performance audit reports (Nos. 2122 dated June 30, 1978; 3024 dated June 18, 1980; and 3978 dated June 25, 1982), other relevant documents published by the Bank from 1968 to 1984; the results of a socioeconomicsurvey of oil palm and rubber settlers in the Jengka Tri- angle undertaken from January to March 1985 by Mr. Sinnatamby Selvadurai, - ii - formerly Chief Economist, Ministry of Agriculture;and on the conclusions of two missions to Malaysia in November 1984 and April-May 1985 by the Opera- tions Evaluation Department. In addition, a follow-up survey was undertaken by the OED mission while in the field on the role of women. Mission members held numerous interviews, both in Kuala Lumpur and in the field, with manage- ment and FELDA staff, as well as with Bank staff associated with these projects. The draft report was sent to the Borrower for their comments on September 13, 1985. Comments received have been incorporated into the final report and have been reproducedas Annex 6. The valuable assistance provided during the preparation of this report by the Government of Malaysia, FELDA, and Mr. Selvadurai is gratefully acknowledged. - iii - IMPACT EVALUATION REPORT MALAYSIA: FIRST, SECOND, ANDTHIRD JENGKATRIANGLEPROJECTS (LOANS 533, 672 AND 885-MA) AND CONCLUSIONS SUMKARY 1. The three Jengka Triangle projects were the first of a series of six Bank loans to the Governmentof Malaysia for the development of new lands to be planted to oil palm and rubber and settled by landless people. The projects were part of a large government development and settlement program which started in 1956 with the Federal Land DevelopmentAuthority (FELDA) as executingagency, and which, by the end of 1984, had achieved the settlement of about 89,000 settler families on more than 600,000 ha. 2. The three projects, approved in 1968, 1970 and 1975 respectively, consisted of the clearing of about 40,000 ha of jungle, the planting of 26,000 ha of oil palm and 13,800 ha of rubber, the constructionor expansion of 4 palm oil mills, the constructionof roads, villages and related social infrastructureand the settlement of about 9,200 smallholder families on a 4-ha plot each. Settlers were to repay investment costs related to land development and housing over a period of 15 years. 3. The projects were implemented from 1968 to 1980, and were audited by OED in 1978, 1980 and 1982, respectively. The main findings of the PPARs were that planting targets had been met or exceeded. Settlement has been somewhat delayed by late constructionof roads, houses and social infrastruc- ture. Despite time and cost overruns, project ERRs were satisfactory and significantlyhigher than appraisal estimates, mostly due to palm oil and rubber prices higher than those projected at appraisal. The PPARs also noted the good performance of FELDA, the efficient, but costly, settlement system, a significant improvement of settlers' incomes, a satisfactorycost recovery from settlers, the need for improvement of oil mill operations and the insufficient attention paid to environmental and wildlife aspects during project implementation. Contrary to expectation, no socio-economic survey was carried out by the Government at project completion. 4. By the time of this impact evaluation, seventeen years after the first investment and four years after completion of the third project, two thirds of oil palm and about 20% of rubber plantings have reached the full production stage, thus allowing for a more accurate estimate of the agricultural, economic, social, financial and institutional impact of the projects. 5. The recalculatedERRs for oil palm and rubber hav^ been found to be equal or higher than projected at appraisal, although slightly lower than estimated at project completion. High yields, mostly of oil palm, have partly compensated lower-than-expected prices for both commodities and increased operating costs. - iv - 6. The socio-economic survey of settlers showed a general satisfaction of FELDA settlers. Settlers' incomes are about 3- to 3.5-fold above the rural poverty level, and significantlyhigher for oil palm settlers than for rubber settlers. A large number of commercialactivities have been developed by settlers and encouraged by FELDA. However, incomes derived from these activities are lower than expected. The survey showed that settlers' increased incomes have been translated into significant improvementin living conditions. Social infrastructure, particularly education, has been an important factor in both attracting and retaining settlers. 7. Although women play a major role in the agricultural activities, rubber in particular, overall wo-men'srights have not been fully recognized (but see FELDA's views in Annex 6). Urban development in the Jengka area was planned since the early 1970s, but is still at its early stage, resulting in a lack of job opportunitiesfor settlers' children. 8. The financial impact of the projects has been positive for all parties involved in Jengka. While settlers have increased their living standards, FELDA enjoys a healthy financial position and the State of Pahang and the Federal Governmenthave been able to obtain substantial revenues from the projects through land taxes and export duties. The cost recovery rate from settlers has been excellent for oil palm but less satisfactory for rubber, resulting in the need to extend repayment periods beyond the initially planned period for rubber settlers. 9. The project's negative impact on the environment was found to be less severe than expected at project completion. Soil erosion due to land clearing was minimal; all oil palm mills have been equipped with efficient treatment plants; there is no indication that climatic change has resulted from the development of Jengka. The clearing of forest land, however, had a considerable effect in termr of reduction of wildlife populations, as protectionmeasures now used in some countrieswere not known at the time the projects were implemented. 10. Institutionaleffectivenesshas been the most striking feature of the projects. FELDA has grown into oae of the most successful land organizations in the world, combining the efficiency of the private sector with the public service of a government agency. Although FELDA's settlement system has been criticizedas too costly, it was designed to eliminate risks and proved successful. However, FELDA's approach has its limitations. The extent of control exerted by FELDA over settlers' lives has been one of the reasons for project success but has also resulted in stifling the settlers' sense of initiativeand self-management(the latter view is not regarded as quite accurate by FELDA-see Annex 6). It is not desirable that settlerswho have been assisted for so many years continue to absorb scarce resources which could be better used for helping the remaining poor. It is also unlikely that the tight system of management control currently exerted by FELDA will be readily accepted by settlers' children, who will have had more education than their parents. - v - 11. The most important factors accounting for project success and sus- tainability of benefits have been: project design, Borrower support, ade- quate project organizationand a sound settlement system. 12. The projects were designed to make the best use of Malaysia'scom- parative advantages--oil palm and rubber-and was based on a development approach minimizing all risks and combining the best of the smallholderagri- cultural sector with that of the private sector. 13. The projects benefitted at all times from supportive government policies with clearly identified and long-term strategic plans. As an instrument of the Government's policies, FELDA has been able to perform remarkably well thanks to the continuity and high quality of its senior management and the motivation of its staff. The projects illustrate that a parastatal organization can successfully combine both commercial and social objectives. FELDA's management style, however, has considerable implications for the future: it cannot last forever and will have to evolve into a settler self-managementsystem (but FELDA states that it is not its intention to keep control over scheme management forever--Annex6, page 4). 14. The social benefits of the projects have been achieved because i) FELDA's settler system was modelled after the structure and organization of the Malay villages, and (ii) the size of holdings and adequate social infrastructurewere able to satisfy aspirations and ensure incomes of the landless poor on a long term. 15. Although it is difficult to assess whether project success relies mostly on Malaysian conditions,some lessons for replicabilityin other coun- tries can be drawn from the Jengka projects: (a) a high value crop and a sound technical package are essential for providing sufficient financial returns to all parties involved in this type of project; (b) conditionality attached to land ownership is a key incentive in settlement projects; it induces settlers to accept discipline, which is essential in the early settlement period for eventual project success, and gives Government good leverage to develop an orderly settlementsystem; (c) combining an improved social infrastructurewith some aspects of the traditional village system is an important factor for both attracting and retaining settlers; (d) when other sectors of the economy are growing rapidly it seems almost impossible for new job opportunities to develop within a rural environment for the second generation;integrated rural-urban development is difficult and time-consuming; (e) settlement projects have a better chance of success if they are executed by a strong autonomous agency with a clearly identified plan and strategyand the full support of Government. REPORT IMPACT EVALUATION MALAYSIA: FIRST, SECONDANDTHIRD JENGKATRIANGLEPROJECTS (LOANS 533, 672 AND 885-MA) I. BACKGROUND A. Malaysian Economy 1966-1984 1.01 The striking record of economic growth in Malaysia over the period 1966-84 can be attributed to its rich endowment with natural resources and government poli-ics which have (a) encouraged private investment and technologicalinnovation, (b) promoted the optimal allocationof resources by encouraging production according to specializationfor trade, and (c) reacted quickly to changing international economic circumstances. These have combined to give Malaysia a commanding position in a region characterizedby abundance of natural resources and a record of sustained economic growth. 1.02 Since the beginning of the century, rubber production and tin mining for overseas markets, encouraged by free movement of labor and capital, have been the main forces of economic growth in Malaysia. By the mid sixties, the commodity concentration of domestic production reflected this historical development process: rubber and tin accounted for over 50% of commodity exports, which in turn comprised about 45-50% of GDP. Growth in GDP has continued strong, increasing at an average annual rate of 6.5% between the period 1960-70 and by 7.7% during the following decade. This togetherwith its small, 15 million population have combined to give Malaysia one of the highest per capita incomes in the region: US$1,860 in 1983 compared with US$2,010 in Korea and US$820 in neighboring Thailand. Malaysia's population, 60% of whom are literate, is ethnically rich, comprising48% Malays, 34% Chinese and 9% Indians. 1.03 The strong growth in GDP has been encouraged by sound macroeconomic policies. First, the domestic economy is particularlyvulnerable to changes in the terms of trade (a vulnerabilityaccentuated by the fact that 80% of agricultural land is cultivated to treecrops and thus cropping patterns cannot quickly respond to international price signals), but considerable emphasis has been given to improving productivity and maintaining competi- tiveness of the important export commodities to counter the effects of cyclical world prices. Second, attention has been given to diversification of the productionstructure in the export sector, by a shift towards palm oil productionin the early seventies and, more recently, towards cocoa. At the same time, import substitution has proceeded rapidly both in agriculture, notably in respect of rice production, and in industry, while manufactured exports are now expanding,particularlyelectronics and textiles. Third, the Government has provided the necessary supporting infrastructure while at the same time creating a financial climate generally conducive to private initia- tive: stable prices with relativelyfree movement of goods and services. - 2 -I 1.04 Since 1980, the rate of growth in GDP has slowed, in large part due to the effect of the international recession which has had a significant impact on the Malaysian economy because of its openness. Government efforts to counter the recession's impact by increasingpublic spending have contri- buted to high deficits on the current account of the balance of payments. As a result, renewed attention is being given to the agricultural sector which has traditionallybeen the bulwark of Malaysia's favorable trade balance. B. Agricultural Sector 1. Background 1.05 Unlike many countries where national development plans tend to be statements of intent only with little guidance as to what strategies support government objectives,Government has alway3 had clearcut goals in respect of development of the agriculturalsector. 1.06 In keeping with overall economic objectives, public agricultural policy in Malaysia has been formulatedwithin the framework of: - poverty alleviation; - protection/diversification of the production base; and - provision of infrastructuralservices. The Government is particularly committed to increasing rural incomes, since some of the largest concentrationsof poverty are to be found in this sector, and creating opportunitiesto reduce the incidence of rural-urban migration. The principal focus, however, has been to formulate a series of detailed development plans on a nationwide, crop-specificbasis to be implemented by single commodity agencies. These plans are essentially production oriented in that production targets and strategy are set for each crop, for example, in terms of protecting world market shares or achieving self-sufficiency. Land is gazetted according to which crop is to be grown, funds are budgeted and supporting services mobilized by crop, e.g., rubber, coconut, etc. 1.07 Development expenditure for the agricultural sector between the period 1966-84 concentrated on three main areas. First, the provision of adaitional irrigation and drainage facilities to inc:rease volume produced through double cropping of rice and increase yields, since water control would permit the use of high-yieldingvarieties (HYVs), fertilizersand pest- icides. Second, financial and other assistance for replanting with high- yielding rubber trees on smallholdingsin order to retain Malaysia's competi- tive edge in world markets. Third, development of virgin jungle for land settlement to assist in diversificationof crops for export and overcome one of the major constraint_of the rural sector: subeconomic land holdings. 1.08 Physical production expanded rapidly in the years up to 1976 with the sources of agriculturalgrowth arising largely from increased yields of rubber, rice and oil palm per hectare, together with a substantial increase in area cultivated to oil palm. The sector continued strongly thereafteras a result of the commodity boom between 197b-80. Since 1980 there has been a slowing due to a decline in output as well as changes In the terms of trade. The reasons for this downturn are largely due to the long-term strue-tural shifts in the economy where resources are moving to higher-valutc occupa- tions. Labor costs in the rural areas are rising rapidly, rePalting in low returns to labor and declining output of crops. 1.09 The net result of this strong showing overall in the agricultural sector has been a decline in poverty incidence in the rural areas: from 68.3% i-.1970 to 46.1% in 1983. Since the largest incidence of rural poverty is to be found amongst padi and coconut farmers as well as fishermen, public inve&tmpnt in major irrigation works, new land development, technical and financial .3upportfor rubber replanting and the overall high growth rate in total output of the economy have clearly been responsible for this improve- ment. 2. Rubber and Oil Palm Development 1.10 The Government has always been strongly committed to encouraging Malaysia's natural comparative advantage. Her four principal exports-palm oil, rubber, tin, timber--all reflect her factor endowments. Malaysia is uniquely suited to the production of treecrops. The undulating slopes which typify much of peninsularMalaysia are best suited to perennial crops which are similar in requirementsto that of the indigenous jungle and much less Suited,because of potential soil erosion, for either annual crops or pastur- age. Moreover, climatic conditions, with well-distributed annual rainfall of 2,000 to 2,500 mm and average temperatures of 25°C to 30°C are particularly favorable to cultivation of oil palm and rubber. These topographic and cli- matic advantages were recognized early in the twentieth century. Large areas were opened up to rubber, both by large estates and smallholders, when demand increased rapidly in the industrialized countries. Research organizations were established and developed advanced technologies. 1.11 This climatic and ecological advantage in cultivatingtreecrops has since been reinforcedby economic considerations,particularlythe landilabor ratio in Malaysia which has continually favored treecrops over annual clops. Land pressure has not constrained large estate plantations from being devel- oped by foreign interests, encouraged by government policies allowing the free movement of labor, capital and technology. 1.12 Little replantingof rubber occurred between the depression in the 1930s and the end of the emergency in the 1950s with the result that when the Government established the Rubber Industry (Replanting)Board in 1952, two- thirds of the rubber trees were over 25 years old. The Act provided for two funds, one to provide incentives for estates and the second aimed at small- holders. The estate fund returned cess monies to those estates implementing a satisfactory replanting program, whereas the smallholder fund financed major field activities in promoting and supervising replanting. Between 1950-60, much of the estate sector was replanted to rubber. It was not until the following decade that trees were replanted in the smallholdersector when the financial returns were improved through increased subsidies. 1.13 As a result of this investment, rubber output expanded steadily from 700,000 tons in 1960 to 1.5 million tons in 1982, largely due to the increased yielding clones which offset a decline in area planted. Thus rubber output per wort-r increased from 1.2 tons in 1960 to 2.2 tons in 1982. Much of the land taken out of rubber--overall area declined from 69% of cultivated land in 1965 to 44% in 1983--hasbeen planted to oil palm where area planted rose from 2.4% in 1965 to 26% by 1983. Output increased from 90,000 tons of crude palm oil in 1960 to 3.3 million tons in 1983. Output per worker has increased from 8.8 tons in 1960 to 25 tons in 1983. This rapid increase in area combined with high yields obtained under Malaysian conditions has served to make oil palm the wonder crop of the agricultural sector in particularand the economy in general. In 1965, 73% of world palm oil output was produced in Africa; Malaysia's palm oil production now accounts for more than 50% of world output and more than 60% of world exports. Malaysia is also the biggest rubber producing and exporting country in the world, accounting for 35% of world production. 3. FELDA: Objectives,Organization,SettlementPolicy 1.14 Private investment in the treecrop estates sector slowed after World War II and at the same time Government was keen to secure land rights for smallholders. Government envisaged that large-scale alienation and development of new lands would provide smallholderswith opportunities to cultivatehigh-value crops employing modern production techniqueson economic size holdings /. This was a significant departure from earlier colonial government policy--particularly noticeable in the rubber industry--when smallholderswere, in effect, given little encouragementto plant HYVs. 1.15 The principal mechanism for this program has been the Federal Land Development A;athority (FELDA)--a statutory body established in 1956. FELDA operates within the Ministry of Land and Regional Development receiving pol- icy guidance and supervision from a Board of Directors which includes repre- sentatives from botn Government and the pri-ate sector.)j Total FELDA staff in 1984 stands at 8,000, of which about 75% are in the settlement schemes, 13% in operating departments,9% in head office and 2% in training facilities and school,. Since 1972, FELDA has established eleven subsidiary corpora- tions 3 / and has entered into six joint ventures with the private sector to undertake downstream activities related to its agricultural activities. These are operated on a commercial basis, largely independent frou FELDA and with their own staff and resources. 1/ As late as 1976, it was estimated that in peninsularMalaysia 40% of the landholdingswere less than 1 ha, for which no available technology was available to generate incomes above the poverty level. 2/ Eighteen settler leaders are now on the FELDA Board and the Boards of FELDA corporations (as detailed in Annex 6, page 4). 3/ FELDA settlers throughout the country are now holding equity shares in these eleven FELDA subsidiary corporationswith a total paid up capital of M$143.1 million (Annex 6, pages 3 and 9). 1.16 FELDA's principal objective is to combine the management system of the plantation sector, on which much of the economy depends, with the socio- economic objectives of Government. FELDA has evolved a policy whereby pro- duction is paramount and, or.e agriculturalproductionis secured, changes in living patterns and in social organization of settlers have followed. The strategy by which this is accomplished is an integrated package. Land is vested in FELDA for development. The ownership of the land still lies with the state government who will issue land title to the settlers upon comple- tion of their loan repayment to FELDA. First, detailed land use plans are prepared for schemes of between 1,600 and 2,000 hasI. Jungle is cleared using contract labor who are also employed to plant and maintain the young stands until about 3-4 years from initial planting.ŽI Contract labor is also engaged to construct settler hlouses,community centers and mosques, while the Public Works Department (JKR) is responsible for provision of rural roads, clinics, and schools. FELDA provides processing facilities for oil palm because the fresh fruit bunches (FFBs) must be processed shortly after harvest to maintain good extraction rates. FELDA also prevides processing facilities and collecting centers for rubber. New settlers, selected by FELDA from amongst the landless poor, ate brought ir shortly before the first harvest and provided with - house, a 0.1-ha garden plot and potential title to a 4-ha treecrop plot. In the case of oil palm, the plot has to be culti- vated as part of a larger 80-ha block and in both cases cannot be sold or subdivided once title is obtained, since settlers have right of usufruct only; the land is not freehold. Rubber settlers cultivate their 4-ha plot individually. Settlers receive a guaranteed minimum income until farm incomes reach breakeven. This, together with the loan for the plot, is repaid over a period of 20 years plus a premium for credit, marketing, tech- nical assistance, inputs, and processing services provided by FELDA. By the end of 1984, FELDA schemes covered more than 600,000 hectares. About 89,000 settler families, representingabout a half million people, have been settled in 367 FELDA schemes. 4. Bank's Contribution to Agriculture and to the Oil Palm/Rubber Subt,ector 1.17 Bank lending to Malaysia for agriculture as of April 30, 1985, reached a total of US$685.9 million, or almost 45X of the total lending to Malaysia. These loans supported 24 projects, beginning with Nuda 4/ These schemes were expected to support about 400 settlers and their families--regarded by FELDA as a viable minimum. Since the early seven- ties, however, e.nd in keeping with Government's urbanization policy, FELDA is now developing centers with upwards of 1,000 settlers which, it is hoped, will offttrmore amenities and job opportunities. 5/ Settlers for both cil palm and rubber are scheduled to be replaced 3 to 4 years after initial planting. However, delays in the preparation of basic infrastructu:ehave affected this timing in a number of schemes in the past (Annex Z, page 6). - 6 - I rigatioan/ in November 1965. Early Bank lending concentrated on irriga- ion in the northern padi growing areas and on support to FELDA for land set- tlement: the three Jengka projects being the first followed by two projects to the south--Johore Land Settlement proiect ±i in the state of the same name and Keratong Land Settlement project,J located, like Jengka, in Pahang state. Bank lending accelerated in 1978 with five projects approved in that Year alone, the portfolio also diversified with additional emphasis being given to national programs of agricultural research and extension as well as to area development. Further support was given to poverty alleviation: the Coconut Smallholdersproject?] was expected to provide alternative opportun- ities for coconut farmers, while the series of integrated area development projects was targetted towards these farmers operating on scattered and frag- mented smallholdingswith little access to modern technology. IFC has made a total of six equity investments and/or loans to private companies engaged in cement, steel, textile and pulp and paper activities. All these investments were undertaken in the 1960s. IFC has no projects under active consideration at present. 1.18 The global context to Bank support for the rubber and oil palm sub- sector in Malaysia is relevant. As part of Bank lending throughoutthe world for oil palm and rubber development, consisting of some 62 projects in 14 countries for a total lending of US$2,075 million (Annex 1.1), the six proj- ects in Malaysia constitute 10% of the total project effort and 7.5% of the Bank's overall lending in the oil palm and rubber sector. Bank support in Malaysia has been exclusively directed to the smallholder sector in contrast to that of other major borrowers which have either combined smallholder development with nucleus estates or concentrated almost entirely on estate plantations. 1.19 Increasing smallholder production of oil palm and rubber in Malaysia has been either through the medium of FELDA or more indirectly in seeking to remove some of the constraints to production, e.g., by drainage improvement on existing land planted to oil palm or rubber. Between the period 1968-84, Bank support for FELDA has been on a scheme-by-schemebasis. Six loans totalling US$156 million have been made to Government and on-lent to FELDA on concessionary terms, representing about 20% of FELDA's land development program. These Bank-supported projects cover 66 settlement schemes in which a total of 120,750 ha has been developed, 29,450 families settled and 15 palm oil mills established. As of March 1984, FELDA's 367 settlementschemes consisted of 66% oil palm, 30% rubber and 10% cocoa. 6/ Which, combinedwith the Kemubu Irrigation Project, has been the subject of an impact evaluation (OED Report No. 3587, dated August 24, 1981). 7/ OED Report No. 4221, dated December 17, 1982. 8/ OED Report No. 5780, dated August 5, 1985. 9/ OED Report being circulated separately. 1.20 Current Bank support to FELDA is changing in keeping with develop- ments in the treecrop sector in Malaysia. Between 1980-84 the annual area developed by FELDA declined from 40,000 ha p.a. to 30,000 ha p.a., princi- pally because much of the land most suitable for large-scale development to oil palm has already been alienated (FELDA has now adopted a policy of limi- ted planting to rubber in areas which are not suitable for oil palm and cocoa-Annex 6, page 7). As a result, apart from new land development in Sabah and Sarawak, FELDA is consolidatingrather than expanding its agricul- tural activities. Bank assistance to the oil palm and rubber subsector is now more towards financing individual components of FELDA's land settlement Program, ftp: example, oil palm mills or physical infrastructure,rather than supporting the development of new settlement. 1.21 Parallel to Bank support to FELDA has been a program of investment in land improvement which has enabled smallholder rubber and oil palm to be rehabilitated/replanted. Considerable attention has been given to drainage improvement and flood control in the smallholder sector, for example, the Western Johore Agricultural Development, North Kelantan and North West Selangor projects. These have benefitted rubber production and to a lesser extent oil palm, since cultivation must be undertaken in some proximity to processing facilities. C. Projects' Design, Implementationand Outcome 1. The Jengka Triangle Master Plan 1.22 The Jengka Triangle, situated 120 miles northeast of Kuala Lumpur in the state of Pahang, covers an area of about 120,000 ha, of which about one-half was considered suitable for agriculturaldevelopment,with one-third of that already being leased or occupied. Jengka was identified in the earlY sixties as having potential for large-scaletreecrop development and settle- ment. While land settlement had proceeded previously in Malaysia, the pattern had tended to be on a small scale close to existing facilities and infrastructure;Jengka was to be the first such effort to develop undisturbed forested areas. 1.23 The project was initially prepared by FELDA; discussions with the Bank began in 1963 when an identification mission proposed further study by a consultant team to be funded by the Bank. Accordingly, various studies assessing the natural resources of the Jengka Triangle and its potential for land use were carried out by land use/agriculturaland engineering consul- tants between June 1965 and January 1967 concurrently with the preparation of an inventory of human and financial resources. 1.24 Recommendationswere summarized in the first regional master plan for such development in the country. The plan called for the development of almost 45,000 ha comprising (a) the settlement of about 9,000 landless poor cultivating about 40,000 ha of oil palm/rubber; (b) the exploitation of forest resources; (c) urban development including the establishment of three new townships;and (d) extensive infrastructure development. Bank assistance to the program was to be confined to the land development component, which would be implemented by FELDA in a succession of three projects or stages" - 8 - over the period 1966-77, and to the forestry complex funded under a separate project (Loan 673-MhA). Responsibility for the urban component was not ini- tially allocated but was subsequentlygiven to the Jengka Development Corpor- ation, a state agency. Infrastructure development was to be implemented by the Public Works Department (JKR) of the Federal Government. 2. Project Description 1.25 The first stage assisted by Loan 533-MA of 1968, called the Jengka Triangle project, comprised about one-third of the total land development program and covered most of the unoccupied area on the eastern side of the triangle where about 11,000 ha of oil palm was to be developed in seven schemes (see map) settled by 2,770 families. Each settler was to receive a 4-ha plot of planted oil palm, a house and a garden plot of 0.1 ha. Settle- ment was to be grouped in villages of about 400 families; delivery of the FFBs to the FELDA processing facilitieswas compulsory. Settlers were to be charged for the cost of land development,house construction,farm inputs and processing. Bank assistance also provided for the expansion of an existing mill and constructionof a new mill. Infrastructure development,included in project costs, was to be undertaken by JKR without Bank assistance. Costs of urban development were not included and were the responsibilityof Govern- ment. The project also provided for the establishmentof an agricultural research station and training for FELDA staff. 1.26 T.e second stage, referred to by the Bank as the Second Jengka Land Settlement project (Loan 672-MA of 1970), comprised the northwestern portion of the triangle. This project called for the development of 6,800 ha to oil palm in four schemes and 5,500 ha to rubbei in three schemes, the housing and settlement of about 3,000 families, a town site to serve as regional center, construction of an oil palm mill and crop diversification trials at the research center. 1.27 The third stage, appraised as the Third Jengka Triangle project (Loan 885-MtSof 1975), expected to complete the program with the planting of 8,600 ha in the southwest corner to oil palm and 7,300 ha to rubber, each under four schemes; the settling of 4,000 families; and providing the neces- sary physical infrastructureand an oil palm mill. The program was scheduled for completion in 1981. 3. Project Implementation 1.28 This impact evaluation refers to the three projects as Stages I, II, III, in keeping with FELDA terminology. The three Stages were indistin- guishable and together covered a series of 23 contiguous schemes grouped under a management unit established by FELDA in 1968 to implement the three Bank-supported projects in the Triangle. 1.29 At completio,n,the PPARs concluded that all three projects had been implementedas planned. The core of the Bank-assistedprogram, the planting and settlement activities, proceeded largely on schedule with planting targets being generally met or exceeded: Stage r - 10,500 ha planted to oil palm and 1,400 ha to rubber, due to steeper slopes than expected in scheme 7; - 9 - Stage II - 6,800 ha to oil palm and 5,200 ha to rubber; Stage III - 10,400 ha to oil palm and 6,800 to rubber, with Scheme 23 changed to oil palm due to more favorable soils than expected. Almost 9,400 smallholderswere settled, although intake was delayed due to late construction of roads, houses and village infrastructure. Details on the agriculturaldevelopment and the main social infrastructure constructed under the three projects is contained in Annex ,.2. The three oil palm mills were constructed as planned; the exist- ing mill increased its capacity. The three tnwns planned for the triangle did not develop (para. 3.37). 1.30 Project costs for all stages were higher than expected at apprz:sal: Project Costs (US$m) Appraisal Completion Stage I 29.1 34.5 Stage II 25.4 33.8 Stage III 43.3 69.6 Cost increaseswere a result of unforeseen increases in unit costs compounded by delays in constructionof basic infrastructure,as well as increased plan- ted area in Stage I. Despite time and cost overruns, the economic rates of return of all three projects at completionwere satisfactoryand in line with appraisal estimates. This, however, was mostly due to palm oil and rubber prices higher than those projected at appraisal. The rates of return were also higher for oil palm than for rubber (para. 2.18). 4. Projects' Outcome at Completion 1.31 Yields of oil palm were revised downward at completion of Stages I and III; no reestimate was made at completion of Stage II. The explanation given in the PPARs referred to over-estimation at appraisal, uneven soil quality, poor coordination of harvesting and transportation of FFBs, and delayed plantings due to damage from elephants and other fauna. The revised estimates in the completion report of the first project were, however, rejec- ted by FELDA as being too low. Production of palm oil was affected by low extraction rates experienced in both the old and new mills financed by the projects-initially due to inefficient management and later to problems at the farm level. Rubber yields were similarly below appraisal expectations due to quality of tapping and wrong assumptions made at appraisal regarding the benefits of ethrel stimulation;LO/production was also affected by lower area planted, particularlyin Stage II. 1.32 At completion of the first Stage in 1978, oil palm settlers' incomes were calculated at an average of US$2,200 per family; incomes were adversely affected by the low level of mill utilization. Incomes for rubber 10/ Production figures do not include -unofficially"sold rubber (Annex 6, page 7 and para. 7.03). - 10 - settlers were less easy to determine, as the one rubber scheme in Stage I was only in its first tapping year. Estimates expected that rubber incomes would be about 20-30Z lower than those obtained from oil palm. Consumption stan- dards in the schemes were high with motorcycles, durable goods and radios commonly seen. At completion of the second Stage, these same trends observed during the first phase were also noted. Yields continued to be satisfactory, but oil palm settlers benefitted less than their neighbors in the first Stage because oil palm prices had dropped in the meantime. Overall incomes in the second Stage were also lower on average because this Stage has a greater area planted to rubber and rubber prices remained lower than those of oil palm. At completion of the third Stage, it was concluded that settlers were enjoy- ing considerablybetter living standards compared to pre-project levels, but no socioeconomicsurvey had been undertaken as planned and thus incremental benefits were hard to quantify. 5. Findings of the PPARs 1.33 Three major findings of the PPARs concern institutionalaspects, the costs and benefits of smallholderdevelopment and outlook for the future, particularly the phasing out of FELDA management and opportunities for settlers' children. 1.34 The PPARs noted that FELDA as a state-owned enterprisewith its own distinctive management style and with a good cost recovery record was perhaps a more suitable entity for smallholder development than the more traditional project unit. Considerable attention was given to the costs of settlement, (about US$15,000 per family reflecting all expenses including processing facilities) the highest of any Bank-supported rainfed settlement schemes. FELDA's paternalistic style, which tended to preclude self-help activities, was noted particularlyin the context of the question of detachment once the settlers repay their loans and receive title. A related issue raised was opportunitiesfor settlers' children. II. AGRICULTURALAND ECONOMIC IMPACT A. AgriculturalProduction 2.01 As harvest only starts in the third year from planting to oil palm, and the sixth year for rubber, agricultural production at projects' comple- tion was difficult to estimate. By the time of this impact evaluation, two- thirds of the fifteen oil palm schemes are at full production, five rubber schemes started producing in 1980 and the three others in 1983, thus allowing for a more accurate estimate of yields and production. In addition, the a'ea of some schemes,wrongly estimated at completion,has now been corrected. 1. Oil Palm 2.02 Integration of agricultural productionand processing is important in the oil palm sector. The fruit of the oil palm contains two separate sources of oil: the pulp from which palm oil is extracted and a nut kernel in a hard shell from which palm kernel oil is obtained. Oil in the pulp of the fruit deterioratesrapidly and extraction r-eedsto be carried out Immedi- ately after harvest in nearby mills. In contrast, palm kernels deteriorate slowly after drying and extraction of their oils may be carried out later, often in the mills of importing countries. Quantity and quality of palm oil, kernel or kernel oil, depend on the yields of fruits and oil and kernel extraction rates. These in turn are related to the degree of fruit ripeness at harvesting, quick transportationto mills, and mill efficiency. 2.03 Total Fresh Fruit Bunch production of the three Stages since 1971 has been about 4.5 milli3lktons, or 98% of completion and 81% of appraisal estimates. Charts 2.1 and 2.2. show FFB yields per harvest year and FFB pro- duction up to end of 1984 for each stage. At appraisal, FFB yields were expected to peak at 24.7 t/ha in the eighth harvest year and to decline slightly thereafter up to the 25th planting year, considered the end of the economic life of oil palms. At project completion,yields were revised down- ward by 15% due to overestimation at appraisal, uneven soil quality, poor timing and coordinationof harvesting and transport of FFBs, deficient polli- nation and bad road conditionsduring the wet season. 2.04 In 1985, the six schemes of Stage I have reached their 12th, 13th or 14th harvest year and the yields are different from the PPAR's projec- tions. Chart 2.1 shows that while yields were slightly below projections up to the sixth harvest year,L_/ they have been significantly higher since then. Between 1979-84,yields have been constantlyhigher (20%) than projec- ted at project completion and even slightly higher (6%) than original esti- mates. Although yields have tended to peak in year 9, the decline thereafter is less pronounced than anticipated. As a result, Stage I FFB production, which remained lower than projected at completionup to 1978, strongly caught up thereafter (see Chart 2.2). Average production has been significantly higher than projected for the past years, with wide year-to-year variations probably due to the introductionof an insect (Cameroon weevil) for pollina- tion. 2.05 Production of Stage II and III showed a similar pattern, with the yields below projections up to the sixth harvest year and catching up there- after. The highest yields recorded (31.7 t/ha and 29.5 t/ha) of the three Jengka projects were obtained in Stage II, while Stage III has performed rel- atively poorly during the first harvesting years, mostly due to problems encountered during the planting period. 11/ Agricultural production in all three projects has also been adversely affected in the early years when a number of seedlings were destroyed by animals, mostly elephants, after planting, requiring replacement during the following years. - 12 - MALAVSA JENGKA TRIANGLE & III 1.11 PROJECTS 2.1 CHART StageI-01- Palmlb YIds/Ha/Honet Year 30 ,10 H-avsYeor 1 M.~~I 2 3 G 5 6 7 8 9 10 11 12 13 Stage11-Oil Palm estYear IroYields/Ha/Han III Stage 0l Palmfib YIeod/Ha/HafvesYeor Actual,,,-7 _;; Acl HaovesYeor 1 2 3 4 5 6 7 8 1 11 1'2 1¶3 30 10 * 0* HaivestV E 1 2~// 3 4 5 6 7 8 9 10 11 12 13 Shge III1-011l Palm ffb Yields/Ha/Hornest Year 30 1_ CopWa Esfin-ee 209 HonsYbor 1 2 3 4 5 6 7 8 9 10 11 12 13 UkAd Om*-2762 - 13 - MAIAYSIA 2.2 CHART JENGKA TRANGIE & III PROJECS 1.11 SNge I-011 Palmlb Producion (MD) Amaestmat kat CCO1~MtDIOA172 ha Amawtmdgr hoNa,Wm 10.4o21 n _-- s __o--_ (C) E~~~~Ahid 200 ' Ca,flon Eslkmae (B) VO iA D i 9 80 S T6h 0~~~ Ywtr71 72 73 7475767n778 7Q8081 82 8384 StageIl-Oil Palmflb Production(MT) 300. 1254 ~~~~~Argo Iride hravest 6.923ha3 200 ;CtC) (AjB) / XEsMWe (AB) ActuLK(C) 100- YeWri 72 73 74 75 76 77 78 79 80 81 82 83 84 Sags Ill - Oil Palmlb Production(MT) ACcuiiaotedProduim Toa5 Amae o 1472 ha ixg AeAO xxt remst ha 10421 I~~~~~~IlZP1B98I ~~~~~~~~~~APPnO EstTimae Cgk) .ComaWistn EstiMate(B) 200 , ACtuaI(C) (A) CB) (C) , ..* 100 / // 0 YWe 71 72 73 74 75 76 77 78 79 80 81 82 83 84 WId Bark-27027 - 14 - 2.06 As the oldest schemes of Stage I have shown that yields are signif- icantly higher after year 9 or 10, total FFB production is expected to increase in Stages II and III and to exceed projections made at completion. It is worth noting the project yields are close to those obtained in private estates and among the highest yields obtained in all Bank-supportedoil palm projects. 2.07 Oil extraction rates for the past five years have averaged 18% com- pared with 19% estimated at completion and 22% estimated at appraisal, a shortfall of 10% and 19% respectively(see Annex 2.1). The lower than antic- ipated extraction rate is no longer attributed to mill management, which improved over time despite high staff turnover, but more to underriperessof fruits and water supply problems for some mills. As a result, while overall FFB production has been almost equivalent to projections, total oil produc- tion for the three Stages in the past 14 years amounted to 811,000 tons, or respectively 93% and 75% of completion and appraisal estimates (Chart 2.3). A gradual improvement of extraction rates has been noted however, and is expected to continue for the three new mills, which have now achieved a 18.5% extraction rate. 2.08 The extraction rate for kernel remained lower than estimated at completion (3.5%) up to 1980 and increased significantly thereafter up to 4.5% in 1984. (Annex 2.2). This increase in kernel production is attributed to better pollination following the introduction of the Cameroon weevil (ElaedobusKamerunicus). Total production of kernel was estimated at 164,300 tons at the end of 1984, or about 99% of the revised completion projections (Chart 2.3). 2.09 Due to higher FFB yields and lower production decline than antici- pated at full maturity, and improving extraction rates of oil and kernel, total agriculturalproductionof oil palm and kernel over the project life is t expected to be equal or higher than expected at completion. The projects good agricultural performance for oil palm can be attributed to three main reasons: first, the excellent climatic and soil conditions of the project area for oil palm undoubtedly result in high and steady FFB production. Second, FELDA has developed an excellent research and extension system which has resulted in rapid transfer to settlers of technologicalinnovations. A good example is the FELDA Agricultural Services Corporation, operating com- mercially,which provides guidelines for fertilizer and pesticide application for each Jengka scheme, based on leaf and soil analysis, field observations and past trends. Another example is the quick introductionby FELDA of the Cameroon insect pollinator which had a beneficial impact on both yields and production costs. In addition, FELDA keeps close contact with international research organizaticnsand is in the forefront of new technologies like clon- ing oil palm through tissue culture. Third, the integration of harvesting, transportand processing operations,a key element of success in the oil palm sector, has been adequately achieved. In this respect, much progress has been made since 1978, when the PPAR on the first project mentioned managerial deficiencies related to a lack of discipline in fruit collection, and timing and coordination of harvesting and transport to the mill. -15 - 2.3 CHART MALAYSIA JENGKA 11 1, PROJECTS TRIANGLE & IlIl and IlIl- Palm Oil Production (MT) Stages1.11 1200n AMC eskoted at co letion:26972 ho AMa under harvest. 2783 ha Appraisl Esmate (A) J4P ir'- 't- Completion Estimate(B) Actual (C) 800 (A) (8) ( -pc)o( Yew 71 72 73 74 75 76 77 7'8 79 80 81 82 8'3 84 1. 30Stages and III 11 -Kernel Production (MT) A OIsiaeA Actual (C) 20 - _,aJ[,,.*^w°--. Conmpletion Estimate (B) 2 / , / otd ACrxed r~~~~00, Pmducshn 10 1o / ~~~~~~~~~~~~~~~~165.4 1643 Year 71 72 73 74 75 76 77 78 79 80 81 82 83 84 WorldBank-27630 - 16 - 2. Rubber 2.10 As rubber has the potential to produce acceptable returns from soils of limited fertility,it has generally been planted in the steeper ter- rains and poorest soils of the Jengka Triangle. At project appraisal,rubber was considered particularlywell suited for cultivation by smallholders,as rn ,ber tapping provides year-round employment. Rubber processing facilities, in,.ludin1 latex collecting centers and a central factory using the crumb processl / were coastructed to serve the Jengka area. The quantity of latex produced depends on adequate fertilization of rubber trees, disease control and technical standards of tapping: cutting too deep or consuming excessive bark will cause damage to trees and reduce yields. Excessive tapping inten- sity may increase yields and incomes in the short run, but reduces both total yields and the economic life (25 tapping years or 32 planting years) of the trees in the long run. Settlers have been encouraged by FELDA to deliver fresh liquid latex that produces a better quality rubber, rather than cup- lump. However, cuplump can be marketed easily (unlike the liquid latex) and settlers are inclined to sell cuplump to private traders, a practice consid- ered illegal by FELDA, as it permits settlers to avoid repayment of their loans. This has encouraged close supervision of rubber settlers. 2.11 For the three projects, total production of rubber has been about 53,800 tons up to the end of 1984, compared with 82,900 tons projected at completion, a shortfall of about 35X (Chart 2.4). This difference can be attributed to smaller (14%) area planted to rubber, and to lower yields during the first harvest years than estimated at completion. There is strong evidence, however, that a part of the rubber production, estimated by FELDA at 10 to 15%, is sold to private traders and therefore is not accounted for in FELDA statistics. This is reinforced by the fact that some schemes have reached or exceeded expected yields and productionwhile others have remained continuously below projections. However, as yields per hectare obtained in Jengka 7 (Chart 2.5) and 8, the two older schemes, are now higher than pro- jected, comparing favorably with average yields (1,600 kg) of well-managed private estates and being much higher than those (880 kg) of many small- holders in Malaysia, annual production of rubber is expected to be equal or close to expectationswithin a few years. 2.12 Nevertheless, it must be concluded that the agricultural impact of the projects' rubber components has been unimpressive so far when compared with that of oil palm. It is worth noting that the three Bank appraisal reports did not follow the yields estimated in the regional master plan--with appraisal adopting a 23% higher figure, on the grounds that ethrel stimulant would be used by Jengka settlers. In fact ethrel is used, but wrong assump- tions were made about the benefits of ethrel stimulation. FELDA is also facing problems with excessive and poor tapping techniques by settlers, while women tappers receive no systematic extension advice (para. 3.28). In 12/ In the crumb process, both latex and scrap extracted from rubber trees are broken down into small granules before drying and packing. This process produces a rubber of high and even grade. -17 - CHART 2.4 MALAYA JENGKATRIANGLE PROJECTS1.If & III Sage I- RubberProduction(tons) Scheme7 300- _______________________........ Conipi Es,irnote (B) 2500 Actuol (C) 2500- 'd~~~~~~~~~~~~~~O ACCuf g I oop* Areae0lmaleda c0rnpkIeil lAW ho underharwet Ageca 1A10ho (C) () Year 77 78 79 80 81 82 83 84 Slage11- RubberProduction(tons) 1000D- ToI1 ACoaTulted Poduclion AppMbc & comipweion 31J..................... . - w F~pO~SC"OStThOg011(' .- - ~~~~~~~~~Wmof StageIs (130) 200 4 1AVprdo psa.....lt to8(v73) _ X- - >-**-*9-99-u*^''-e---- ^---^-0w'*-'5 (inplgWaayI d Stap Ac7(7) I ' 78 I0 B 82 84 86 ' 8 9 9 ' - 21 - CHART2.7 MALAYSIA JENGKATRIANGLE PROJECTS I, II& II C.I.F Rubber Price: Esfimated and Actual (1981 constant US$/ton) 200- co!w tion, odstageIII urn ......... ~c4riplellorsi u............s.......;e.~dI. fSage I (up to 1984) & Bank ACtUOI ForecstThereafter 150- ---------- _-------------_- Cormpbtlonof Stage II Appridsalof Stage11 100- Appraisl of StageIli 50- ,vear 76 78 80 82 84 86 88 90192 94 World BDrr*-27631 - 22 - the PCRs. On the basis, however, of FELDA's estimates of the production costs of one ton of palm oil in 1985 (M$658.40), which includes management overhead costs, compared with the PPAR estimate in 1981 (M$375.90),operating costs have risen by 40% in real terms since project completion. This high increase is partly due to higher wages as a result of the tightening of the labor market following the most sustained commodity boom in Malaysia's history. Reestimated Economic Rates of Return 2.18 On the basis of the above assumptions,ERRs have been reestimated as follows: % % X Actual at At appraisal At Completion Impact Evaluation Stage I /a 16.0 21.0 (16.0) 16.0 (12.0) Stage II: /b Oil Palm 18.3 23.4 23.0 Rubber 11.1 15.2 14.0 Stage III: /b Oil Palm 17.5 25.8 18.0 Rubber 12.5 16.8 12.0 /a Excluding schools, health and other social infrastructure. If included, the project ERR would be 16% at completionand 12% at impact evaluation. /b Including schools, health and social infrastructure. The analysis is moderately sensitive to variation in yield and price assumptions. For example, had the higher prices estimated at completion of Stage I prevailed, the ERR would have been 20% instead of 16%. Conversely if oil palm yields had been lower than they are, equivalent to those esti- mated at completion including a decline after the 8th harvest year, the ERR of Stage I would have been 13% instead of 16%. Including or excluding social infrastructureaffects the projects' ERRs by 2-4%. The analysis is rela- tively sensitive to increases in operating cost: every 10% variation in operating cost affects the rate of return by about one percentage point. For the rubber component of Stage III, the estimated 12% ERR would fall to 11% and 10% respectivelywhen revenue drops by 10% and 20%. 2.19 The analysis shows that: (i) the three projects continue to exhibit a satisfactory rate of return; (ii) oil palm has been and continues to be mere profitable than rubber, which however, remains economically viable despite production and price lower than anticipated;and - 23 - (iii) the assumptions underlying the success of oil palm have reversed themselveswith increased yields now making up the shortfall caused by lower than expected commodity price. 2.20 It is worth noting that secondary benefits have also been generated by commercialactivities of settlers and settlers' wives (paras. 4.06-4.14). About 450 small business enterprises were reported in Jengka schemes in 1985. Other off-farm activities open to settlers are contracts with FELDA (maintenance of roads or establishment of nurseries) and transport coopera- tives. Although the economic returns of these secondary activitiescannot be quantified for lack of data on their costs and benefits, it can be assumed that these activities have positively affected the economic impact of the projects. III. SOCIAL IMPACT 3.01 The settlers are the nucleus of FELDA's program, being both the reason for, and the means of, development. In determining the extent to which FELDA has had some impact on poverty alleviation, this chapter first examines the selection system used by FELDA and the background of the settlers themselves. The settler survey (see Appendix) undertaken as part of this impact evaluation provides valuable insight into how the settlers regard their quality of life since joining the schemes; the constraintsand oppor- tunities facing women in the schemes; settlers' attitude towards their present and future status as FELDA settlers and what expectation they have for their children. A. Settler Selection System 3.OZ FELDA has developed certain guidelines for the selection of settlers for its schemes; particular preconditions are to be met and poten- tial settlersare also evaluated according to certain criteria. 3.03 Over the period, both the preconditions and the criteria have been adapted by FELDA in response to changing socioeconomic conditions. When the system was first introduced in 1961, the preconditions requiredapplicants to be Malaysian citizens; between the ages of 21-50 years, married and either landlessor owning less than 1 hectare of farm land. Points were awarded to the settler and his wife for three criteria: degree of good health enjoyed; occupational background, with preference to farmers, fishermen and ex- servicemen;and family size--the more children the better. In 1969, the age requirementschanged. The ceiling was lowered--to ensure that there was a reasonable charce that the twenty-year loan taken out by a settler would be repaid during his economically active life--but increased again in 1984 when settler demand for placement in FELDA schemes fell off.13 / Over the period the criteria for selection have also been expanded. To the original three 13/ This is largely a result of the introduction of the shareholdingsystem in place of land ownership. - 24 - preconditions of health, occupational background and family size have been added education and special skills, e.g., in commercial or artisanal activities. 3.04 The background of the settlers in Jengka schemes shows that these preconditionsand criteria have been met. Of the 229 settlers interviewed, 55% joined the schemes when they were the "ideal age" according to FELDA rules: between 21-30 years old. The gradual relaxation of the rules on age is reflected in Stage III where almost 10% of settlers are between the ages of 41-50 compared to only 1% In this age group for the previous two Stages, (Annex 3.1). Of significancefor poverty alleviation objectives is the fact that 72% of the settlerswere landless when they joined the schemes-an inci- dence which increased rather than decreased over time with 66% of the settlers in Stage I being landless, but the percentage rising to 76% in Stage III. Settlers tended to be drawn from the rural areas: the majority were former rubber tappers (31%), padi farmers (25%), and oil palm plantation workers (6%) (Annex 3.1, Tables 2 and 3). Rubber and padi farmers are tradi- tionally among the most disadvantagedpeople in rural Malaysia: in 1967 the average GDP per capita for Malaysia was M$1,000, in the rural areas M$500, and for padi and rubber smallholdersbetween M$150-200. Educational attain- ment was below the norm for Malaysia, 68% of settlers and 55% of settlers' wives having accomplished 4-6 years of schooling whereas the number of chil- dren enrolled in primary schools as a percentageof age group in 1960 was 96. 3.05 From the survey it can be concluded that the settler selection system developed and implemented by FELDA has resulted in these new land development schemes providing an effective means for alleviating poverty in Malaysia. B. Settler Identity 3.06 The survey reveals that settlers in Jengka trace their origin to all states of peninsular Malaysia. Seventy-five percent of settlers have been attracted from states other than Pahang (Annex 3.2). Almost all settlers are Malay rather than Chinese or Indian, and, for many, coming to Jengka was the first move away from the kampung of their birth, while very few have left the schemes over the seventeen year period. 3.07 The diverse background of settlers in Jengka is atypical of the situation in other FELDA schemes where over 90% of FELDA settlers tend to be from the same state as the scheme site. This reflects policies of the indi- vidual states which have responsibility for disposition of leasehold land. In the case of Jengka, located in the lightly populated Pahang state, the state governmentagreed to accept migrants from other states with the guaran- tee that, if demand warranted, a minimum of 50% of places would be allocated to Pahang natives. 3.08 Of the first 14 of the 23 schemes developed in Jengka which com- prise Stages I and II, only three have 50% or more settlers drawn from Pahang state, the average being 30%. Moreover, in less than half of these 14 schemes did Pahang natives comprise the largest proportion of settlers by state. The states which have provided the greatest numbers are the land poor states of Kelantan, Kedah, Selangor, Perak and Malacca. - 25 - 3.09 At appraisal of Stage I, it was expected that at least 50% of settlers would be of Malay origin, reflecting the ethnic divers'ty of Malaysia with its Malay/Chinese/Indianratio of 53/35/9. At completion of the 14 schemes of Stages I and II there are only 6 settlers of Chinese origin and 46 of Indian oiigin; 99% of settlers are of Malay extraction. The higher than expected percentageof Malays reflects both that the rural populationof Malaysia comprises 70% Malays, 17% Chinese and 11% Indians and the Govern- ment's policy to reduce poverty pockets, mostly consisting of Malays. 3.10 The survey shows that for many settlers, migrating to Jengka was the first time they had moved away from their state of birth: for 90% of settlers, the state of residence at the time of application to join the scheme was also their place of birth. Moreover, rural Malays have little experience in treecrops except in traditional rubber and labor in estates. The colonial government had encouraged Malays to cultivate padi; much of the labor for the private estates had been imported from India. Settler turnover is low: only 2% of settlers have left the schemes either voluntarily or have been expelled. Many clearly regard Jengka as their permanent home: only one quarter of all settlers surveyed undertook four or more trips to their state of origin in 1984 for social visits, festivals, etc. This is in contrast to experience in other land development schemes, notably Ivory Coast and Indo- nesia, where trips home are frequently made during the planting/harvestingof food crops. 3.11 The fact that FELDA was able to attract and retain large numbers of settlers from a variety of states at a time when mobility across state borders was not a frequentlyobserved phenomenon leads to the conclusionthat FELDA has exerted a strong pull effect. FELDA'S ability to meld peoples of diverse backgrounds to a point where the new scheme is regarded as a perma- nent home has clearly been helped by the fact that the overwhelmingmajority of settlers are Malay, which undoubtedly contributes to the cohesion of Jengka's population. 3.12 Farm households have a number of distinguishing characteristics. Average household size among the settlers surveyed is above the national average of 5 persons per household, with oil palm settlers having an average of 6.7 and rubber settlers less at 5.9 (Annex 3.3 Table 1). Heads of house- holds are mostly male: 96.5% of those surveyed; women heads of households are mostly widows. In 1984, the average age of settlers was 44 years old, although this varies by scheme. 3.13 The higher than average family size raises the question as to whether this indicates triggered settlement, a phenomenon which has been observed in other Bank-assisted land settlement projects' 4 / but the survey shows that families in Jengka consist of dependent children rather than rela- tives/friendsfrom home villages. Once the children finish their education, almost all leave the schemes. Although the schemes essentially comprisecne economically active generation only, settlers interviewed said they would 14/ Senegal Casamance Rice, OED Report No. 2056 dated May 12, 1978. - 26 - prefer their children to be living nearby but cited lack of off farm opportu- nities as a major reason why children emigrate from the schemes. The urban component envisaged at appraisal has not yet been developed (paras. 3.36-3.37).This outmigration has implications for future cultivation of the rubber or oil palm holding once the first generation of settlers has retired. The fact that settler families are larger than the national average suggests, however, that it is likely that one heir--which is all that FELDA requires--will be found from amongst each family. C. Social Infrastructureand Quality of Life 3.14 FELDA has continually emphasized production, but since the settler is both the reason for and the means of development,FELDA'S package extends beyond provision of technical supporting services necessary for increased production, and equal attention has been given to the settler. This has resulted in a striking degree of planning and control of settlers' day-to-day lives. 3.15 FELDA has designed its settlement schemes very much in the style of the traditional village, the kampung, with wooden houses built on stilts and surrounded by fruit trees. A 4-ha olot was settled because it was thought sufficient to ensure that each family would derive an income above the poverty line, yet still within the family labor availability; farm budgets were not built on the basis of using hired labor. In fact, FELDA considered the standard 4-ha plot insufficientto provide year-roundemployment for the settler and his family. Thus one-room houses were provided by FELDA so that when income levels increased, settlers would be occupied in expanding their house--plansfor which were also provided by FELDA. Settlers are encouraged to plant flowers around their houses and vegetables on the household plot. Women recelve visits from female social development assistants. FELDA has set up lines of credit whereby settlers may receive loans to engage in small business enterprises,has provided shops where settlers can purchase goods on credit, and has encouraged savings in FELDA downstream activities. 3.16 What then has been the settler reaction to the social infrastruc- ture provided by FELDA and how has this benefitted FELDA in terms of contrib- uting to Its success in new lands development? 3.17 The survey shows that schools are considered the most important facility (Annex 3.4). Only the mosque receives a higher ranking than the primary school or kindergarten. Kindergartenswere not part of the original plan, but strong settler demand led to their establishment. They are managed by the Scheme Development Committee (JKKR), partly financed by FELDA with classes being held in the community centers, which also serve as headquarters for the Women's Institutes and Youth Clubs, library and reading rooms. Settlers are also satisfied with the FFLDA shop; its credit is particularly attractive to settlers and prices are reasonable. Profits are used to provide educational or welfare benefits to settlers, e.g. the kindergarten. 3.18 Services zonsideredunsatisfactoryby the settlers are, in ranking order, farm roads (over two-thirds dissatisfied),water supply (45%) and the environment (42%). The access roads within the schemes were far below - 27 - settler expectationsin both the wet and dry seasons. Some schemes reported that poor road conditionshave led to delays in crop extractionto the detri- ment of palm oil yields. Dissatisfactionwith the environmentconcerns the problems of water supply. Taps frequently run dry for several weeks during the dry season. Drinking water is transported by FELDA in lorries and rations are distributed to each household. Water available from streams for domestic use is unpopular due to a perception by settlers that it is polluted either from effluent from the oil palm mills or from pesticide run off.15/ 3.19 Settler initiative in providing social infrastructurehas been con- fined to the small shops to be found in the schemes and, for some settlers, the provision of electricity. The privately owned eating shops are highly rated by settlers. Farm work for rubber tapping begins at dawn and breakfast will invariably be in the eating shops which sell hot and cold soft drinks, snacks and daily newspapers. Although the National Electricity Board has not yet linked the Jengka Triangle to the national grid, the better-off farmers have pooled resources with two or three neighbors to purchase a generator. Another frequently-usedsource of power is 12-volt car batteries, charged weekly at local shops. 3.20 In conclusion, the high ranking given to certain social facilities illustrates that provision of such services strengthens the attractionof new settlement schemes. The perceived advantages of such facilities can offset the lack of, or inadequate supply of, other social infrastructure,which, if deemed important enough can often be supplied by the settlers themselves after a period of years. D. Settler Attitude Towards Current Status 3.21 There is strong settler satisfactionoverall with their status as FELDA settlers, (Annex 3.5 Table 1). Ninety percent of oil palm settlers and 75% of the rubber settlers are satisfied with their status. Disparity in satisfaction between the two is essentially related to disparity in current income levels (para. 4.05). 3.22 In terms of how current status compares with settlers' expectation4 prior to joining the schemes, the conclusions are also positive. Settler expectations in respect of raising income levels, improving the quality of rural life, providing housing and health services have been adequately met for more than 70% of settlers. The degree of satisfaction varied again between oil palm and rubber settlers with the percentageif oil palm settlers expressing satisfaction tending to be 10% higher than those of rubber settlers, the margin being somewhat wider for that of raising levels of income. Only 64% of oil palm settlers and 55% of rubber settlers expressed satisfactionwith job opportunitiesfor their children. 15/ This aspect was investigatedwhen analyzing the environmentalimpact of the projects, but in fact no evidence could be found in either respect (para. 6.10). - 28 - 3.23 Settlers were asked to name the three most important benefits in a FELDA scheme. Twelve benefits were grouped in three categories: (a) access to material goods, which included an improved house, vehicle ownership, household facilities such as a television; (b) access to services, including education of children, health services, clean water, roads, transportation and community centers; and (c) access to security, meaning future home owner- sihip, land title, guaranteedminimum income and non-agricultural job opportu- nities. Surprisingly,the most important benefit overall to the majority of settlers is the education of their children, next in importance is an improved house, followed by a guaranteed minimum income and fourth, future ownership of land (Annex 3.6). Compared to living in the traditional vil- lages, FELDA schemes provide good educational facilities and assistance from kindergarten right up to tertiary education. There are also religious classes for both childrenand adults. 3.24 Improved housing is the second most important benefit, which is directly correlated to increased incomes. Sociologicalstudies undertaken in rural Malay villages have shown that the first call on increased earnings in the event of periodic prosperityis the constructionor expansion of the fam- ily's home, regarded as a major investment for the future. This tradition has continued in Jengka where settlers have renovated and enlarged their houses. To any visitor, the age of the schemes can be determined immediately by looking at the size and development of the houses. This is confirmed by the survey which reveals that in Stage I 83% of settlers have improved or renovated their houses; 78% in Stage II and 42% in Stage III (para. 4.16). 3.25 Higher income was considered the third most important benefit: settlers who had an average pre-project income of M$211 have increased their incomes by between 2.6- to 6-fold depending on the principal crop cultivated and the stage of scheme development (paras. 4.03-4.05). Future ownership of land has also proved an important attraction, not a surprising conclusion given that 72% of settlers were landless prior to joining the schemes. 3.26 In conclusion, settlers' expectations have been met and their status, in almost all cases, is fully satisfactory with the most important benefits being educational services and the security provided as a FELDA settler. Such an accomplishmentmust in part be due to FELDA's ability to identify what is important within the socio-cultural context of rural Malaysia. E. Role of Women 3.27 Women settlers play a major role in the agricultural activities of rubber schemes in particular. Seventy-five percent of settler wives are engaged in rubber tapping (compared with 56% of oil palm settler wives engaged in harvesting of oil palm) spending 5-6 hours in the field each day. This percentage rises in the school holidays when older children are free to look after the infants. Forty-one percent of women also reported being engaged in maintenance activities. Women, therefore, constitutean important part of the workforce on rubber plots--where 88% of the rubber settlers (vs. 68% of oil palm settlers) relied entirely on family labor for completion of the farm work. - 29 - 3.28 Despite this high proportion of women working on the rubber plot, FELDA's extension services provide advice on a systematic basis to male settlers only; women receive visits and advice only if specifically requested. Although social activities in the schemes are divided by sex, women settlers reported that there would be no difficulty in their receiving extension visits from male extension officers. Women underwent training in tapping with much success in the Ivory Coast.1 6/ A result of this differing level of involvement in agricultural activities is that women settlers in oil palm schemes have more time to engage in secondary economircactivities. These tend to be home based, for example, sewing the traditionalstyle muslim dresses. The survey confirmed that over one-half of settler wives have a sewing machine, ownership of which is regarded as a major ambition of settler wives. These activities rely on the market within Jengka itself. Secondary activities which are less self contained--for example small backyard poultry/livestockoperations--have fared less well, reportedlybecause of the difficulties in developing marketing channels. Income from secondary eco- nomic activities fluctuates, but is not insignificant(paras. 4.06-4.14). 3.29 Women's involvement in the social activities in the schemes con- forms to, and is organized in accordance with, Islamic principles reflecting overall management of the schemes, particularlyat the settler level. FELDA has seen the common religious affiliation of its settlers as providing an underlying homogeneity to its new schemes. Consequently FELDA's social development officers responsible for supporting the JKKR and its subsidiary organizationsare assigned on the basis of sex.1 7/ Hale officers deal only with "male- responsibilities such as the JKKR and mosque committee (women rarely attend the mosque) and female officers coordinate and support women's committees. There is no mixing of social activities between men and women. Participation of women in social activities in Jengka varies considerably between oil palm and rubber schemes with women in the rubber schemes having less time and being less often at home to receive visits. The striking divi- sion of social activity between male and female on the schemes with essen- tially no mechanism whereby men and women can convene to discuss matters of mutual interest, e.g., agriculturalextension services, family planning, mar- ital disputes, etc., has resulted in many of these matters being overlooked partly for lack of any constituency. 16/ Project Completion Report, Ivory Coast Second Grand Bereby Rubber Project (Loan 1575-IVC), OED Report No. 5758, dated July 19, 1985. 17/ FELDA states that this is not quite correct (Annex 6, page 5). -The Women Institute is being represented in the scheme's JKKR where all matters including agricultural extension services, family planning and marital disputes are discussed. There are now 4 women representatives sitting in the settlers National Consultative Council, that is the high- est level of JKKRs. - 30 - 3.30 Women's rights under the FELDA system have been downplayed. 18 / Settlers cannot enter the scheme unless they are married, but the loan title is in the name of the husband only. In the event of divorce, or the husband taking a second or third wife, generally the first wife has to leave the scheme having no right or potential right to land title. FELDA has tried to address this by introducing a system whereby 50% of the amount of the loan already repaid is remitted to the divorced wife in monthly payments. This system has worked relativelywell in the case of the oil palm schemes where loan recovery is about 96% but much less so in rubber schemes where the cor- responding rate is in the region of 65%. Remittance of loan payments does not, however, address the issue of compensationfor the land value. 3.31 Of further concern is the fact that women's involvement in the labor force is not generally recognized in respect of earnings. Although women are heavily involved in rubber tapping, payment for the latex of cup- lump which they deliver to the collection centers is made to their husbands unless the women have express written permissionenabling them to collect the proceeds of their work. Moreover, the traditional Islamic principles in respect of land inheritance,whereby all male and female siblings receive a share in the inheritance, are not applicable in FELDA schemes as the land cannot be split up for economic reasons (para. 1.16).19/While FELDA is try- ing to establish a new community and not create a situation of radical social change, the survey also revealed that the majority of settler wives have achieved the same educational level as their husband. 3.32 In conclusion, because of higher average incomes from oil palm, wives of oil palm settlers have been more able to undertake economic activi- ties of their own and to improve their status than rubber settlers wives. But despite an undeniable improvement of women's standard of living and edu- cational level, the inconsistentapplication of Islamic principles in Jengka has probably served to erode women's rights overall when compared with those prevailing in the traditionalkampung. F. Future of Settler and Settler Family 3.33 A large majority of settlers wish to remain part of the FELDA system when their loans have been repaid and at the time of replanting,with a slightly higher proportion of rubber than oil palm settlers wishing to be independent of FELDA (Annex 3.7, Table 1). At the same time, settlers are also overwhelmingly against any change in their existing system of land ownership. Only 1.8% of settlers would rather become shareholdersunder the system that FELDA is now introducingas the basis of its new land development schemes (Annex 3.7, Table 2). 18/ FELDA has provided additional information on the role of women (see Annex 6, page 5). 19/ FELDA indicates that in almost all cases the land is assigned to the widow (Annex 6, page 6). - 31 - 3.34 Settlers' aspirations for their children reflect the success of these schemes and the desire of parents to see their children progress beyond their own accomplishments. Forty percent of settlers would like their chil- dren to remain in the schemes either engaged in agriculturalactivities or in commerce. This is a surprisinglyhigh figure, given the fact that the educa- tional attainment of these children is also high, with over 80% having com- pleted secondary education. The 60% of settlers who wish their children to leave the schemes illustrate, through their aspirations, their risk-averse nature: 51% would like their children to be goveriament servants, reflecting the perceived advantages of job security, pensions, etc. Only 23% wish their children to enter private business and 2% to continue in farming (Annex 3.8). 3.35 A puzzling finding of this impact evaluation is that there have been so few multiplier effects within the Jengka Triangle. The survey shows that there is considerable settler demand for job opportunitieswithin the schemes both for themselves (55% would like to go into business full or part time in the future) and for their children. At the same time there has been a considerabledemand for goods and services correspondingto rising incomes over a ten-year period. Yet development of secondary economic activitieshas been limited (paras. 4.12-4.14) and the urban development component has failed to become established as planned. 3.36 The regional master plan prepared in 1967 provided for urban devel- opment to complement rural development in the Jengka area. Three towns were proposed: Bandar Pusat in the center of the Triangle to serve a population of about 50,000 by 1975, and two smaller towns in the southeast and southwest of the Jengka area. In 1971, the regional development authority of Pahang state, responsible for urban development, undertook planning and began con- structing basic infrastructurein Bandar Pusat. By 1983, however, the area remained in the initial stage of development while the two other towns existed only on paper. At the same time, unplanned spontaneous and dynamic development occurred in Tongkiaet on the edge of the Triangle. About 90% of these shops and businesses are owned by Chinese, most with previous business experience. The experience with urban development is succinctly summarized in a recent paper. 2 LC/ Given that Jengka settlers are almost all Malay, this has had the effect of spreading some of the benefits arising out of the schemes to the rural Chinese. 3.37 Since 1983, responsibilityfor urban development in the Jengka area has been shifted from the state to the federal level since being taken over by the Jengka Development Corporation which reports to the Federal Ministry of Land and Regional Development. A budget has been allocated for the devel- opment of Bandar Pusat and new infrastructure and about 1,000 houses have been constructed. The population is now about 8,000, mostly civil servants 20/ -The failure of Bandar Pusat brings into focus the problems of artificiality of the urbanization programme" while "the success of Tongkiaet reflects the success of the Jengka Triangle and the potential for urban development in the rural settlementschemes," Land Development and Settlementin Malaysia, Tunku Shaumsul Lahrin, p. 355. - 32 - and employees of a timber factory. Plans have been prepared to resettle within Bandar Pusat a number of illegal settlements which have grown up over the years and which are now to be destroyed. Tongkiaet shop and business owners are to be resettled in the two smaller towns since it is considered that if they were brought into Bandar Pusat the competition would be too strong for Malay rraders. Training centers for mechanics, welders, etc., have been established. The question remains as to whether these efforts will finally permit the new town to emerge from its long lethargy. 3.38 In conclusion, the perception of a rirm link with FELDA held by a majority of settlers illustrates the system's success. Equally clear is that the manner in which FELDA has created opportunitiesfor this first generation of landless poor has caused problems for future prospects in that settlers want FELDA to continue management responsibilityfor the schemes even after loans have been fully repaid. At the same time, settlers are not prepared to relinquish land ownership in favor of becoming equitv holders which is now an inherent part of any future FELDA management contract. 21 / Lack of job opportunitiesfor the children in the schemes has compounded the problem of future prospects in that the transitionto the second generationwill be less easily accomplishedgiven that almost all children, whether they wish to or not, will have to spend a period of time outside of the schemes in gainful employment (since only 25Z of settlers wish to retire in the immediate future) and thus are likely to find it difficult readjusting,both to farming and to FELDA's system of management control. The failure of the urban development component within Jengka may well be more associatedwith the fact that this was not a FELDA responsibilityand FELDA had little control over its development or otherwise, but it may also be symptomatic of the difficulties inherent in trying to create new towns from scratch and the perhaps more workable alternative of encouraging and controlling the spontaneous urban development which does emerge. IV. FINANCIAL IMPACT 4.01 The principal beneficiariesof the three projects are the settlers established in the Jengka Triangle. At the same time, FELDA, the state of Pahang and the Federal Government also obtain revenues from the projects through repayments of loans, payments for services, land taxes, replanting cesses, and export duties levied on production. This chapter analyzes the financial impact of the projects on all parties involved in the Jengka Triangle. 21/ FELDA clarifies (Annex 6, page 8) that it is not its intention to make the existing settlers relinquishtheir land ownership in favor of becom- ing equity holders. The share system is applicable only to those new projects taking settlers in beginning January 1, 1985. - 33 - A. Settlers 4.02 Settlers derive incomes from various sources, the most important of which is the oil palm or rubber plot. Other sources of income are subsidiary activities which comprise: economic projects, household garden, dividends from investmentsand off-farm work. 1. Incomes from Oil Palm and Rubber Plot 4.03 Settlers receive a monthly payment for their delivery of FFB or rubber to the mill or collecting center. The gross income is calculated by deducting from the value of the FFB or rubber produced the cost of goods and services provided by or through FELDA (para. 4.20). The net income is derived after further deduction of the loan payment. land tax, quit rent, and replanting cess. 4.04 The following table shows yearly gross and net incomes received by oil palm and rubber settlers for the past three years. There is a large sea- sonal variation in monthly gross and net incomes. For oil palm, the highest net income is in November and the lowest in February, while for rubber, the highest income is in May and the lowest in September. 1982 1983 1984 Oil palm settlers Gross Net Gross Net Gross Net -- US$ equivalents -- Stage I 3,264 2,542 4,904 4,375 7,310 6,487 Stage II 4,/77 3,527 4,694 3,808 6,035 5,102 Stage III 3,828 2,227 3,596 2,650 5,217 4,337 Rubber settlers Stage I 4,044 3,295 5,388 4,085 6,600 5,300 Stage II 3,025 2,299 3,622 2,608 4,705 3,500 Stage III 1,544 1,105 2,092 1,460 2,761 2,000 4.05 These figures illustrate: (a) net incomes derived from planting at full production (Stage I) are 30% higher for oil palm settlers than for rubber settlers; (b) incomes of both oil palm and rubber settlers are high--between 3- and 3.5-fold above tne rural poverty level of US$289 equivalent per capita in 1982 for Stage I, and 2- to 2.7-fold for Stage II. For Stage III, incomes of some rubber settlers are still below the pov- ertv level as three schemes started producing only in 1982; (c) the differencebetween gross and net income is significantlylarger for rubber settlers (US$1,078 on average for 1984, or 23% of their gross income) than for oil palm settlers (US$878 on average for the same year, or only 14% of their gross income). This difference is - 34 - explained by the longer investment period and consequently higher investment cost and loan repayment for rubber cultivation; (d) as many rubber schemes are not yet at full production in Jengka, the average annual income of rubber settlers in 1984 is about one- half the income of oil palm settlers; (e) as labor requirements are significantlyhigher for the 4-ha rubber plot, (640 mandays/year) than for the 4-ha oil palm lot (360 mandays/year), the net return per manday is much better for oil palm (US$18 equivalent) than for rubber (US$8 equivalent) at full production. 2/ 2. Incomes from Subsidiary Activities 4.06 The 4-ha oil palm or rubber plot in Jengka provides the family with year-round, but not full employment. Consequently, FELDA encourages the settlers to undertake off-farm work, and particularly to develop commercial activities. The settler survey revealed the following subsidiaryactivities. 4.07 Economic projects include the cultivation of fruit trees on vacant land as approved by FELDA, the rearing of livestock, aquaculture, etc. Work ou economic projects was reported by 9.6% of the settlers, with yearly incomes equivalentto US$155 in 1985. 4.08 The household garden is the 0.1 ha of land surrounding the home. Most settlers cultivate fruits and vegetables in their gardens, but only 26% reported sales and the annual amount received is the equivalent of US$28. 4.09 Dividends from savings and investments in FELDA corporations and the National Trust Fund were reported by 1OOZ of settlers, providing an aver- age income of US$23 in 1984 (US$28 for oil palm settlers and US$12 for rubber settlers). 4.10 Incomes from off-farm work were reportedby 22.3Z of the households and constitute the major source of off-farm income. The percentage of settlers reporting off-farm work was about the same for both oil palm (21.9%) and rubber settlers (22.9%). Most were confined to the Jengka area (76% reporting), while a few of the oil palm settlers and sons worked outside the Jengka area (24%). The different types of off-farm activities and the pro- portion of settlers involved in these activitiesare the following: 22/ This difference could be considerably reduced if less days tapped and high stimulation techniques with lower labor requirements were introduced in Jengka (para. 2.12). - 35 - Type of activity Z oil palm X rubber Z all settlers settlers settlers Inside Jengka Employed by FELDA 2.4 4.1 3.5 Public Service 4.8 2.O 3.0 Commercial Activities 6.2 3.4 4.4 Odd Jobs 4.8 4.1 4.4 Outside Jengka AgriculturalWork 3.6 6.2 5.2 Non-agriculturalWork 1.2 2.1 1.7 Total 23.0 21.9 22.3 4.11 In view of the importance of secondary economic activities as an indicator of multiplier effects which in turn are a reflection of the sustainabilityof the projects, the survey paid particular attention to this aspect. Commercial activities are encouraged by FELDA through a revolving fund to provide loans, shops for rental to settlers and business training courses. 453 small businesses were reported in the 23 Jengka schemes, an average of about 20 per scheme (Annex 4.1). Commercial activities are limited to settlers, as outsiders are not allowed to operate businesses within the schemes. The most common types of business are provision shops and coffee shops, which constituterespectively 48% and 21% of all commercial activities. Motor repair, taxi, workshop, barber, tailor and small hardware enterprises account for the remaining 31%. Other commercial activities open to settlers are contractswith FELDA. 4.12 The settler surv-y showed that despite the high number of commer- cial activities in the Jengka Triangle, such activitiesprovide low incomes. This has been confirmed by a case study of a general grocery shop which indi- cated a daily turnover of US$33-42, with a daily net profit of only US$8 (Annex 4.2). Commercial activities are not diversified,resulting in compe- tition among settler businesses,mostly general stores and coffee shops, and to a lesser extent with FELDA shops. No constructionand only a few repair workshops have developed although house improvements and motorization are widespread in Jengka and have been for the past decade. This seems to indi- cate a lack of activity and skills on the part of the settlers to develop such enterprises. 4.13 Tailoring and handcrafts represent a significant source of income for settler wives, mostly in oil palm schemes where women are less involved in field work than in rubber schemes. Some women interviewed reported incomes ranging from US$500 up to US$2,500 per year, although the monthly incomes fluctuate widely. 4.14 The net incomes of settlers from all sources in 1985 can be summar- ized in the following table. - 36 - Source of Incomes Average income X (US$) Oil palm or rubber plot 5,252 94.1 Economic projects 11 0.2 Houiehold garden 28 0.5 Dividends from investments 23 0.4 Off-farm employment 269 4.8 Total /a 5,583 100.0 /a Settler wives' incomes derived from tailoring and handerafts cannot be estimated, as insufficientdata are available. These figures confirm that the agricultural a.:tivities provide the bulk of settlers' incomes. Despite the expressed wish of settlersfor additional job opportunitiesfor themselvesand their children, settlers are not inclined to take off-farm jobs. With a fairly high income, many of them are attracted only by highly remunerative work and p:efer to spend their non-working hours relaxing in their house. 3. Progress Indicators 4.15 The settler survey analyzed the extent to which increased incomes have been translated into improved living conditions for the settlers' families. Housing, household facilities, means of transportationand owner- ship of selected assets were reviewed. 4.16 Housing has been given high priority by settlers. The survey showed that over the last fifteen years since the first settlers arrived in Jengka, 66% of the settlers have completely rebuilt o- extensively modified their homes, at an average cost of US$1,700 (Annex 4.3). Family labor and assistance from relatives provided most of the labor requirementswith about one-third of the households using hired workers and contractors. 4.17 Household facilities have been considerablyimproved. Most houses (76.5Z) have outdoor running water, and many settlers are extending the water supply to inside their houses. The original houses were not provided with electricity, but a third of the houses (40% for oil palm settlers and 20% for rubber settlers) now have access to private generators. 4.18 Transportation is important as settlers have to travel about 2 miles to their rubber and oil palm plot. Nearly all the settlers (95.2%) reported the use of motorcycles; 24X of the oil palm settlers and 13% of the rubber settlers own cars, not used for travel to work but for outings and leisure. 4.19 Annex 4.4 indicates the ownership of selected assets such as radio (79% settlers reporting), television (6'Z), electric fan (25%), lounge set (38Z), etc. Of note is the ownershi. of a sewing machine, reported by more than half of the settler families. - 37 - B. FELDA 4.20 The value of all goods and-servicesprovided by or through FELDA to settlers is deducted at source from settlers' accounts. These goods and ser- vices consist principally of: agricultural inputs (fertilizer, pesticides, etc.), processing and transport of production. Costs of farm road mainte- nance, foliar analysis and technical advice provided by the research station are also recovered. Part of the salaries and overhead costs of regional and scheme staff are paid by settlers through a management fee of M$247 (about US$107) per hectare.L 3/ FELDA also recovers from settlers their contribu- tion to the settlers' development fund, crop insurance, and all advances and loans made by FELDA to individualsor groups of settlers. 4.21 FELDA staff in Jengka consist of 376 persons, an average of 16 per scheme. A typical scheme staff, which would be responsible for about 400 to 500 settler families, includes one scheme manager, 10 supervisors and exten- sion agents and 5 support staff. All production statistics and settler accounts are kept at the scheme level and centralized in FELDA headquarters in Kuala Lumpur. Although insufficient data exist on FELDA's management costs at the scheme and headquarters levels, it can be assumed that part of FELDA's expenditures are recovered from the management levy, the remainder being financed from governmentbudgetary allocations. FELDA enjoys a healthy financial position, as the following table shows: FELDA: Statement of Income and Expenditure MS million) Excess of Income Income Expenditure over Expenditure 1981 - 168.9 65.3 103.6 1982 188.2 75.5 113.0 1983 - 195.4 87.2 108.1 Other sources of income for FELDA are its return on investments in corpora- tions and joint ventures and the spread on loans (para. 4.24). C. State of Pahang 4.22 The state of Pahang recovers (a) an annual land premium equivalent to about US$24 per ha of oil palm or rubber and to US$1 for the household garden, and (b) quit rent, equivalent to about US$10 per ha of oil palm and rubber and to about US$3 for the settler house, another important source of state revenue. The revenues obtained by the state of Pahang from the Jengka Triangle amounted to about US$1.4 million in 1984. 23/ FELDA indicates (Annex 6, pages 6-7) that the imposition of the manage- ment levy had been lifted as of January 1983. Before that it was M$5 per ton of FFB if the price of crude palm oil was M$700 per ton (FOB) or more. - 38 - D. Federal Government 4.23 Government revenues from Jengka consist of recovery of loans to settlers througn FELDA, of replanting cess and of export duties on produc- tion. 1. Recovery of Loans 4.24 Scheme development was financed by loans from Government to FELDA. Government loans carry an interest-free grace period of five years, and another five-year period of repayments during which simple interest of 5.5% accrues. After this 10-year period, loans are repaid at a 5.5% compound rate during a 15-year period. 2 4 / Loans are on-lent by FELDA to settlers, who repay FELDA over 15 years at 6.25% compound interest, after a five-year grace period for oil palm and seven years for rubber. Loans are repaid by settlers through monthly deductions made by FELDA from their gross incomes (paras. 4.04-4.05). 4.25 For the 20 schemes now under production, the total amount to be recovered was originally M$169 million (US$73.6 million), corresponding to the cost of agricultural development, housing and houselot development as well as subsistance loans to settlers until harvest begins. The average loan per ha and per settler was equivalent to US$2,086 and US$8,344 respectively. However, as investment costs have increased over time and harvest starts later for rubber, the amount of the loan varies from one Stage to another and is much higher for rubber than for oil palm, as shown in the following table. Average loan per ha and per settler (US$) Oil palm Rubber per ha per settler per ha per settler Stage I 1,387 5,548 2,895 11,580 Stage II 1,631 6,524 2,944 11,776 Stage III 2,427 9,708 3,052 12,208 Average 1,815 8,647 2,967 11,854 In the same Stage and for the same crop, the loan also varies from one scheme to another, reflecting different investment costs. 4.26 In September 1984, the recovery of loans for each Stage and each crop was as follows: 24/ These terms are equivalent to a loan with about 3.75% interest repayable over 25 years. - 39 - Repayment Repaid as X Stage Crop Total Loan Due X Repaid Repayment Due (US$m) I Oil Palm 14.40 12.25 (85) 12.22 (100) Rubber 4.08 1.23 (29) 1.05 (85) II Oil Palm 11.29 6.10 (54) 6.10 (100) Rubber 15.30 4.38 (29) 2.50 (57) III Oil Palm 23.64 3.81 (17) 3.67 (96) Rubber * 4.80 1.39 (29) 0.76 (55) * Scheme 16 only, as repayment is not yet due for schemes 20, 21 and 22. The table shows that: (i) the loan recovery rate is excellent, and close to 100% for oil palm; (ii) loan repayment due to date for oil palm varies from 17% for Stage III to 85% for Stage I (with a maximum of 92Z and 98% for Schemes 1 and 4); consequentlyfull repayment for Stage I will be completed, and settlers will be given their land title, within three years; and (iii) for rubber, the loan recovery rate is significantly lower (55% to 85%) than for oil palm, reflecting low yields and low settler incomes during the first tapping years, and possibly illegal rubber sales in some schemes. Since the repayment due to date does not exceed 29% for any of the schemes under pro- duction, FELDA will probably have to expand the repayment period beyond the initially planned 15-year period. 4.27 Compared with a number of projects of this nature 2 5 / the recovery of loans appears particularlygood in Jengka projects. It is worth noting, however, that the subsidized interest rates and interest-free grace periods in effect result in about 60% of total development costs being recovered in constant terms. 2. Replanting and Research Cess 4.28 A replanting cess equivalent to US$75 and US$43 for rubber and oil palm respectively is deducted from settlers' gross incomes at full produc- tion. While the replantingcess for rubber has been in existence since 1952, that of oil palm was recently introduced. Payment of the replanting cess will permit settlers to benefit from government grants when aging stands have to be replaced. Rubber settlers also pay a research cess of M$0.0385 per kg. 3. Export Duty 4.29 Export duty is the major source of revenue for the Government. Above a certain floor price, export duty is levied which is progressive and calculatedaccording to gazetted FOB prices of palm oil and rubber. When the average export duty for crude oil palm was M$134 per ton in 1983 and M$556 25/ See in particular Impact Evaluations of Ivory Coast Oil Palm and Coconut Development Projects OED Report No. 5072 dated May 7, 1984 and Benin Hinvi AgriculturalProject OED Report No. 5029 dated April 5, 1984. - 40 - per ton in 1984 (due to increase in price), Jengka palm oil production con- tributed to the government exchequer M$36 million per year (US$15.6 million) on average. In other terms, the government revenue from oil palm generated by Jengka was about US$576 per ha per year on average for the past two years, the equivalent of about 43% of the settlers' net incomes or 27% of the gross revenue of the holding. For rubber, export duty is currently payable only when FOB price is above 180 Malaysian cents/kg. As prices have seldom risen above this limit during the past two years, the rubber export duty generated by Jengka has probably been small. Nevertheless, the overall revenues derived by Government from Jengka largely exceed the amount of subsidies on agricultural investments (para. 4.27) and of Government's contribution to FELDA's operating costs. 4.30 In conclusion, the financial impact of the projectshas undoubtedly been positive for all parties involved in Jengka. Settlers have considerably improved their living standards, although the income disparity between oil palm and rubber settlers is notable. Given current international prices, this disparity,which will decrease to some extent when rubber schemes reach full pzoduction,is likely to remain a constant feature of Jengka, as returns per ha and per manday from oil palm are, and will be in the foreseeable future, higher than for rubber. Despite high income levels and high demand for consumption goods, subsidiary activities have been less important than expected; contributeonly marginally to employmentof settler family members; and have intrinsic limitations within the essentially rural environment of Jengka (para. 3.35 et seq.). The projects have had a favorable financial impact on FELDA, the state of Pahang and more particularly on the Federal Government,which was able to capture a substantialpart of the project reve- nues. The above analysis shows that the financial success of the projects is mostly due to oil palm, the golden crop' of Malaysia. V. INSTITUTIONALIMPACT 5.01 Previous chapters have illustrated one of the major findings of this impact evaluation report: that much of the economic, social and finan- cial sustainabilityof these three projects is directly attributed to insti- tutional effectiveness. Measuring accomplishments in institution building and isolating the reasons underlying its development is difficult within the confines of a single five- to seven-year project since the process itself is intrinsically a longer-term undertaking. Consequently, the seventeen-year span covered by this impact evaluationoffers a unique perspectivefrom which to isolate the extent of institutionaleffectivenessover the period, the manner in which it has been accomplishedand the reasons behind such effec- tiveness. The contributionof the Bank is also examined. A. Extent of InstitutionalEffectiveness 5.02 Over a period of about twenty-fiveyears, FELDA has grown into one of the most successful land settlement organizations in the world, an achievement which gains in importance when it is recalled that FELDA is a state-owned enterprise. This record has been accomplished without recourse - 41 - to proto.ted markets or monopolies. FELDA has always competed with the private sector and has demonstrated that it can produce an equally satisfac- tory performance--this at a time when parastatalsare often viewed as organi- zations with poor operating performance, a low or non existent capacity to recover costs and/or generate self financing,which usually results in rising debt and a concurrent heavy burden on government account. 2 6 / FELDA stands, therefore,as a clear example that publicly funded agencies can be efficient users of resources and can play an important role in poverty alleviation,a mantle rarely assumed by the private sector. Although the developmentof the Jengka Triangle represents only a small portion of FELDA's total operations (about 40,000 ha out of about 600,000 ha developed overall), the 17-year per- iod togetherwith the fact that it was FELDA's first major undertaking and a prototype for subsequent large-scale regional land development, combines to provide a suitable context within which FELDA's institutional effectiveness can be analysed. 5.03 Institutionaleffectivenessis much less pronounced at the settler level. Settler self management, 2 7 / which is a vital ingredient to continua- tion of project success in the future, can only be described as in embryonic form. Although settler participationin scheme based associations is high, the types of decisions entrusted to these organizationsremain largely proce- dural rather than substantive. Responsibilityfor the latter continues to rest with FELDA with the consent of the settlers themselves. After fifteen years in the FELDA schemes, settlers tend to see themselves as the junior members of FELDA's family carrying little responsibilityfor scheme manage- ment overall. This raises the question as to whether and to what extent FELDA's management style, which has contributedto successful project imple- mentation, has precluded settler initiative which is the nucleus of the longer-term sustainability of project benefits. B. How InstitutionalEffectivenesshas been Achieved 5.04 FELDA's approach covers two distinct aspects. First, it has devel- oped an overall plan, one which is innovative: essentially combining the strengths of smallholderagriculturewith those of the estates. Second, this plan has been systematically carried out in a manner in which risks have been minimized. Thus, the monitoring of performancehas been undertakenby a sys- tem of management hierarchy rather than settler self supervisionand control. 5.05 Drawing on the advantages characterizing smallholder agriculture, FELDA has sought: (a) equality of treatment generally found in the rural areas, for example, the opportunity to participate in decision making through the medium of village associations and (b) ownership of productive resour- ces. Management of the Jengka schemes is a FELDA, not settler, responsibil- ity, but at the same time EELDA has encouraged the formation of settler asso- ciations whose objective is to encourage decision making at the local level 26/ "Managing State Owned Enterprises&M. Shirley, SWP No. 577. 27/ FELDA has differing views on settler participationin management (Annex 6, pages 2-4). - 42 - and to take over responsibilityfor scheme management, particularly in the period following loan recovery when title has been passed to the settlers. To achieve this, FELDA has laid particular emphasis on two types of settler management in particular. First, the establishmentof the Scheme Development Committee (JKKR). This is chaired by the scheme manager and includes repre- sentatives from the settlers, FELDA, and various government agencies. The JKKR is modeled on the village development committee originally established by Government for security purposes and responsible for establishing local development priorities, forwarding project proposals to the district offices and implementingsuch projects. The committee comprises the village headman, officials from the local school and mosque as well as from relevant govern- ment departments, reflecting FELDAts policy of developing its settlement schemes following the same size, structure and organizationas in the tradi- tional flalayvillages. 5.06 The second means by which settlers are to be involved in scheme management is the oil palm block system. FELDA requires that each block seiect a leader from among the 20 settlers to be responsible for organizing work within the block and for coordinating activities with other blocks in the scheme. By incorporatingownership of land, FELDA has sought to overcome one of the principal constraints in the rural sector-subeconomic size of landholdings. FELDA has in turn benefitted from being charged with develop- ing new lands, as it is unhampered by the complex land tenure issues which confront ether agencies charged with in situ development. The impact evalua- tion for Muda and Kemubu 28 / found that the existing land tenure system is such that if the vital ingredienton which a new technologyis based is land, development arising out of the introductionof technologicalinnovation will result in patterns of income distribution widening and existing income ine- qualities being reinforced. FELDA, in being able to allocate a 4-ha plot to settlers, sought to satisfy aspirations of many of the landless poor while also avoiding the potential problems of ever-wideningincome disparities. 5.07 At the same time, FELDA has adopted from the estates sector the priority given to production in which technologyis applied using specialized and highly developed techniquesof managementwhich has the effect of turning crop production into a system resembling an industrialprocess: (a) the use of a detailed routine in which each tree is tended regularly and with the same treatment; (b) incorporating the best known technological practices, which requires links with international research to ensure that the tech- niques are constantly being improved or updated; and (c) links with commer- cial and marketing opportunities, which in turn requires attention to grading and processing. 5.08 The second aspect of the FELDA approach has been to implement its plan using a system in which almost all risks have been minimized. Risks have been minimized first in respect of the settler. FELDA's policy is to provide the settler with the maximum of support during the early years to help the settler overcome initial adaptation problems including the need to 28/ Impact Evaluation Report Malaysia: Muda and Kemubu Irrigation Projects (OED Report No. 3587 dated August 24, 1981). - 43 - ledrn new skills and a daily routine. Risks have also been minimized in respect of production and yields in that FELDA, as far as is possible, con- trols all factors in the production process, beginning with the quality of the planting material right through to the marketing of the final product. After the early years, FELDA abandoned the idea of settler self help. Work organization at the farm level is the responsibility of settlers but is closely supervised. FELDA introduced the block system 2 9 / for agricultural management of oil palm cultivationessentiallybecause first, modern cultural practices are more complex than for rubber while oil palm at that time was a relatively new crop for smallholders and it was considered easier to teach farmers on a group basis. Second, farming practices such as weeding, ferti- lizer application,and pollinationare better supervisedand considered to be more efficiently carried out when the work is done in a group. Third, oil palm mills demand a strict timetable of coordinated harvestingand transpor- tation operations,made more necessary by the wide fluctuationsin production from month to month. 5.09 FELDA has not organized agricultural operations for rubber on a group farming basis. From the beginning, rubber settlers in Jengka were allocated an individualplot, as the crop does not require a strict harvest- ing timetable. Thus the transfer of technology to rubber smallholders has been more the improvement of existing cultivation practices and harvesting techniques rather than the introductionof a new crop. Consequently,there is less need to coordinate and group agricultural activities as in the case of the oil palm. The design of these land settlement projects lends itself to efficient research extension services. FELDA is also responsible for the processing,refining and export of the end products. 5.10 Finally, FELDA has taken care to reduce its own financial risks by linking future land ownership to recovery of the loan amount-only when full repayment has been secured will leasehold title pass to the settlers. C. Limitations to InstitutionalEffectiveness 5.11 FELDA's approach has limitations, however, most particularly ins the lack of settler institutionaleffectivenessaffected by the risk minimi- zation strategy. Settler self management can be gauged by settlerst percep- tion of where responsibilityshould lie: with the settlers themselvesor with FELDA. Indicationsof this are settler views of the respectiveroles of the scheme associations, since all were originally established by FELDA; the 29/ This is an example of successful features of FELDA's system being diffused into national programs: government extension programs throughout Malaysia are now actively promoting mini-estates or group farming particularly for smallholder oil palm, cocoa and padi which are essentially based on this concept promoted by FELDA, and intended to both overcome small and fragmented landholdings and secure better management (forthcoming audit of Malaysia, Western Johore Agricultural Developmentproject). - 44 - degree of settler participation; the nature of the decisions entrusted to 3 0/ these organizationsand settlers' perception of FELDA. 5.12 Throughoutthe rural areas, JKKRs tend to be regarded as government rather than village institutions but nearly 70% of settlers surveyed in Jengka stated that they regarded the JKKR as a settler organization, (Annex 5.1). Moreover, participation in the JKKR is the most active of all the eight settler associations--88Z of settler households reporting (Annex 5.2). In terms of the degree of responsibiltyheld by the JKKR, as measured by the types of decisions made, however, the JKKR has a much reduced managerial role when compared with FELDA. Typical duties involve: calling for tenders for certain agricultural tasks; preparation of a nursery or improvement and repairs to farm roads; expressing settlers' views and suggestions and orga- nizing social activities. For important decisions, for example, regarding the time for replanting, utilization of waste land, or use of funds from settler savings, over 50% of settlers prefer the decision to be taken by FELDA. Only 12% felt this should be a settler responsibility (Annex 5.1, Table 3). 5.13 At the agricultural working level, particularly in the block system for oil palm, the settlers assume more responsibility. FELDA outlines the overall agricultural program for each of the schemes and the blocks within each scheme; the block leader then prepares a monthly program of work which is discussed with members of the block. In 76Z of cases, the work pro- gram is then endorsed after general consensus has been reached; in 15% of instances it is the block leader who finally decides the program, while in 8% of cases it is FELDA which decides (Annex 5.1, Table 3). Although the block system was designed as a cooperative organization,whereby the group of 20 settlers were supposed to work collectively within the block, there is, in practice, great flexibility. According to the results of the survey (Annex 5.3) for more than 85% of the settlers the working pattern is individual and members of the block are responsible for completing the various activities within the agreed timetable. In the event of the work being unsatisfactory, the block leader can request the work be redone. If still not satisfactory, the block leader may impose a penalty and also engage hired labor to complete the task, the cost of which is then deducted from the settler's revenues. FELDA management staff undertake monthly inspections to ensure that a satis- factory standard of work prevails. Payment to settlers from the proceeds of the FFBs varies from block to block. In some instances wage payments are made for different tasks and the balance is divided equally amongst all members of the block. In other cases, where the field work is mainly indi- vidual, the receipts from the produce are equally shared-a feature which recognizes that soils vary throughoutthe block and some settlers have access to better land than others. In conclusion, therefore, it is evident that field organizationis a mixture of block and individualwork with the alloca- tion between the two largely being determinedby the settlers themselves. It is worth noting that the block system, despite its apparent constraints,has been found by the survey to be satisfactory for 88% of the oil palm settlers (Annex 5.3, Table 4). 30/ For FELDA's views on these subjects see Annex 6, pages 2-4). - 45 - 5.14 Other settler associations,functional in nature, which have social rather than income generating objectives have high participationrates. 31/ The survey reveals that participationin the parent-Leacher association,the woments institute and the cooperativesis high--each about 75%. Less active is involvement in the community center, youth brigade and mosque corimittee- about 50% each, while the political organization attracts the lowest at 42%. At the same time, these associations have been heavily supported by FELDA through its provision of staff, usually in an executive capacity, for their day-to-day administration. Overall, participation by oil palm settlers in all associations is higher than those of the rubber settlers, probably explained in large part by the fact that the agriculturalactivitiesare less demanding in terms of labor requirements. Although oil palm settlers are more active, the settler survey shows that these settlers are more dependent on FELDA than are the rubber settlers. Over 50% of oil palm settlers regarded FELDA as a father figure, rather than as a technical adviser or employer whereas a lesser percentageof rubber settlers (38%) regarded FELDA in this light. Moreover, only 18% of oil palm settlers have a clear idea how their incomes are computed, while 40% have no idea at all how these are con- structed. Twenty-eight percent of rubber settlers understand clearly how their incomes are derived. Eighty-threepercent of oil palm settlers want FELDA to continue once their loan repayments have been made--63% of rubber settlers wish to remain in the FELDA system, (Annex 5.4). Finally, 90% of the oil palm settlers and 76% of the rubber settlers are satisfiedwith their current status as FELDA settlers. Only about 8% of oil palm settlers and 5% of rubber settlers perceive FELDA's control on their daily activitiesas too strong. 5.15 This limited acceptanceof responsibilityraises the question as to the extent to which training has been used to stimulate/developsettler interest in scheme management. FELDA has a formal training program which complements the phasing of the schemes themselves. First, orientation courses are intended to acquaint newly arrived settlerswith FELDA's policies and programs and with individual settler responsibilities. Next, technical courses deal either with aspects of farm management, for example in financial control, or wirh the agricultural aspects of palm/rubber cultivation. Finally, leadershipcourses are expected to foster a sense of self-management and prepare settlers to take over running the schemes. Attendanceat these courses was reported by settlers to be high for the orientationprograms, but rather less so for the technical or leadership courses (Annex 5.5). 5.16 It is evident, therefore, that institutionai eff'ictiveness is clearly demonstratedin the sense that FELDA has developed into an efficient organization able to sustain operations. What is also evident is that despite the existence of a range of settler associationswith high participa- tion rates, the settlers are still lagging behind in exhibiting managerial capacity, except where this enables them to work individually in their 31/ FELDA notes that since 1973 a total of 23 settlers' cooperativeswere established in the Jengka complex with a total paid-up capital of M$2.64 million, dealing in the transportationof oil palm FFBs (Annex 6, page 5). - 46 - plots. This brings into question the outlook for future prospects of these schemes. The fact that 87% of settlers report that they are happy with the degree of control exerted by FELDA over their daily lives indicates the down- side risks to FELDA's approach in that the settlers appear to have become more, not less, dependent on the system over time. The consequences of such lack of self management at the scheme level is that scarce human and capital resources continue to be tied up and are not available to create opportuni- ties for the remaining rural poor in Malaysia (para. /.18). D. Reasons for InstitutionalEffectiveness 5.17 The reasons underlying FELDA's effective project design and imple- mentation can be attributed in part to the supportive environmentin which it operates, i.e., factors external to FELDA, and in part to internalmanagement practices. External factors essentially cover two aspects. First, support- ive government policies. Although FELDA has multiple objectives reflecting that as a state-ownedenterprise it has both social and commercialgoals, the priority among these objectives has always been clearly defined by Govern- ment. Production has been accorded the first priority. FELDA was not expec- ted to substitute for the private estates but to operate in parallel with them. As a result, although the Government has chosen not to use profits to measure FELDA's operating performance, accountability is determined by achievements of annual targets for land development and settlement,as laid down by Government. 5.18 In addition to clear-cut goals, FELDA has been given sufficient autonomy. This was evident right from the early years when FELDA, because of the close links between its senior management and the federal executive,was able to experiment with various alternative land settlement approaches free fron political interference. The Government has been careful to ensure that the proceeds from the development of this high-value crop which have proved to be of benefit to all parties alike (Chapter 4) have continued to benefit all parties. Thus, while Governmenthas reaped substantialeconomic benefits from these projects, it has generally exercised fiscal restraint. Although taxes on rubber are known to be higher in general than for oil palm, produ- cers have not been penalized by excessively high export taxes as has been the case in many other countries where high-value crops have been regarded as a useful source of government revenue. The importance of clear-cut objectives as between the role of Government and the parastatal enterprise to the latter's good operating performance is a factor which has been noted in the Bank's analysis of state-ownedenterprises.32/ 5.19 A second external factor explaining FELDA's success has been the existence of private oil palm and rubber estates in Malaysia. These have served as a catalyst in that their presence in the market has acted as a challenge to FELDA. Other benefits have been more tangible. Some staff have been recruited from the estates sector. FELDA has not hesitated to use the private sector for short-termmanagement contracts as needed. FELDA has also 32/ Seminar on Selected Public Enterprises Issues, March 1984, Annapolis, Maryland. - 47 - followed the practice of the larger estates which have provided an effective channel between developmentsfrom internationalresearch findings in oil palm research stations in West Africa, for example, and their use and adaptation to Malaysian conditions.33/ 5.20 There are several factors internal to FELDA which in large part also explain its institutionalstrength. First and most important, the crop lends itself to fully integratedoperations, providing FELDA with justifica- tion for a hierarchicalsystem of management. As has been pointed out else- where,3 4 / for an Iusti..jion to be successful,where it does not control all the resources for successful project outcome, it must at least appreciate the role that other actors play within the environment in which it operates in order to be able ro influence these key actors. It is evident to this impact evaluation that FELDA has fared better where it can exert outright control; when it has been necessary to influence other agencies/settlers this has been less successful, a finding noticeable not only in respect of rubber small- holders vis- -vis oil palm. The implications,however, are that by relying on a system of control, such an approach may be ultimately self defeating. The demonstrated economic/agricultural success argues in favor of continua- tion of the system but at the same time this approach can foster passivity and dependence amongst settlers which precludes development of the necessary self-management. 5.21 A second internal factor which can be attributed to FELDA's perfor- mance has been the style of management. It has had a leadershipwith clear- cut goals, which has developed a long-term strategic plan and has been able to attract and retain staff in contrast to the more rapid staff turnover which is a feature of governmentextension services. E. FELDA and the Kenya Tea DevelopmentAuthority (KTDA) 5.22 In view of FELDA's success in the short and medium term, it is interesting to compare its performance with another state-owned enterprise which has also been successfully associated with- smallholder treecrop development:the KTDA. Analysis of this institution'seffectivenesswas also traced to internal and external factors. Key external reasons were: (a) favorable domestic and international economic conditions for the crop, in this instance tea; (b) supportive government policies which are somewhat linked to the third factor; (c) financial autonomy from Government, including operational independence. Internal factors include: (a) institutionalstruc- ture; (b) control over strategic processes;and (c) incentives and accounta- biiity. 33/ An interesting counterpoint is rubber: labor-saving techniques are being used throughoutWest Africa, but are much less evident in Malaysia where the large private estates have for some time been diversifyingout of rubber. Line responsibility for this crop continues to rest with RRIM and RISDA. 34/ 'The Design of Organizationsfor Rural Development Projects--A Progress Report- W. Smith, F. Letham, B. Thoolen, SWP# 375. - 48 - 5.23 Clearly, FELDA experienced a similarly supportive external environ- ment. Of interest is the importance to KTDA of financial autonomy, and the direct financial relationshipbetween KTDA and its growers whereby KTDA earns revenue through the provision of services. FELDA has had much less financial autonomy in the sense that it is dependent on budgetary allocation, but it too has incorporatedthe principle of levying management fees for its serv- ices and ensuring that its costs are recovered. 5.24 In respect of internal factors accounting for succesq, KTDA also drew heavily on the experience of the commercial tea estates in Kenya. The institutionalstructure of KTDA was carefully designed to ensure operational control over key aspects of production, subsequently extended to field and factory operations. FELDA's degree of control and conditionalityhas already been noted. As a reinforcing mechanism to the operational control, KTDA's sequencing of strategic control focussed most of the management effort on the most critical activity at the particular point in time. Thus, in the early years when the quality of the planting material was crucial, emphasis was placed on this aspect, but when the important operation became the quality of the plucked leaf, management attention shifted to inspection of harvesting operations. This shift in effort was also influenced by the increasing experience of the growers and KTDA was gradually able to relax control. This clearly has not been the case in the FELDA system. Finally, KTDA perfected a system oi sanctions and incentives among all parties involved in the undertaking: "there is an incipient tension betwen different stakeholders-growers, field staff, factories,senior management-in which it is within each group's interest to evoke high performance from others and in which each group has some power and sanction to do so effectively.- 35/ While this is evident between FELDA and the state and federal governments,it is not the case between FELDA and the settlers. There is much more of a sense of dependency rather than a spirit of interchange with management whereby the latter's control over production is checked and balanced by grower control over the agency-in KTDA's case through the ownership of shares. Indeed the FELDA corporate style has been to regard the settlers much more as a family, i.e., as junior partners, with the result that in the problem-solvingand other aspects of management, the responsibilityhas been seen by FELDA and settlersalike to rest with FELDA. 5.25 FELDA argues that the inherent high cost involved in land develop- ment to oil palm mitigates against any less control. The question must still be raised and has to be left open as to what extent this control is really necessary,particularlynow that the oil palm settlers have demonstratedthat they can be as productiveas the private estates and certainly when teamed up with the efficient supporting services provided by an agency such as FELDA. The question as to whether the FELDA system can or should continue as in the past is of utmost importance. There is no example in the developed world where farmers have not wanted--and Dbtained--responsibility for managing their own activities. There is no doubt that if the first generation of 35/ -Control, Accountability and Incentives in a Successful Development Institution, The Kenya Tea Development Authority", G. Lamb and L. Muller, SWP# 550. - 49 - settlers has readily accepted FELDA's managementstyle, the second generation will likely reject this. Of more importanceto Government is the fact that this continuing mobilization of the scarce government financial and human resources to sustain benefits which could be the responsibilityof the bene- ficiaries themselves is not justified in a country where so much remains to be done for landless poor and farmers with subeconomicholdings. F. Role of the Bank 5.26 The Bank's contribution to FELDA's institutionaldevelopment over the period is difficult to assess precisely. Positive contributionsfrom the Bank center on first, the decision to carry out the regional master plan on which the projects were based. This has proved an excellent feature and reinforces the importance of careful project preparation. Although this can be a time-consumingprocess, the benefits to be obtained more than outweigh the effects of the lack of such a plan as has been noted in other rural development projects.36/ Second, the strengtheningof financial monitoring and management performance has also been beneficial and is to be commended given that this is an area which is often overlooked in Bank-supportedproj- ects. And third, the technical assistance has improved the extraction rate of the mills. 5.27 The Bank has often been critical of FELDA's achievements, partic- ularly in respect of the cost per family, plot size and income targets which have generally been considered to be above the limits normally calling for Bank assistance.37 / This impact evaluation concludes that while there are advantages in having Bank guidelines, they should be implemented flexibly after careful analysis of local conditionswhich might argue against uniform application. The fact that these projects have produced important lessons of success would indicate that the Bank can also learn from its Borrowers, if only for wider application of the lessons learned to similar projects in other countries. It is one of the findings of this impact evaluation that little is known among Bank staff and other Bank Borrowers about FELDA's suc- cesses, settlement methodology and technical achievements, when many coun- tries are trying to develop similar undertakings. 5.28 It is generally recognized that the FELDA schemes are the most expensive rainfed settlement projects in the Bank's portfolio. FELDA does, however, include all costs of social and physical infrastructure,unlike many settlement projects where these are subsumedunder government budgetary allo- cations or are included as part of another project. Given, however, that Malaysia has a distinct comparative advantage in producing oil palm, which 36/ See PPAR on Haiti Rural Development in the Northern Department, OED Report No. 5775, dated June 28, 1985. 37/ The Bank's issues paper on agriculturalland settlement (1978) promotes a strategy of (a) lower costs, (b) lower incomes, (c) more work for families in the initial development period, (d) less work for families in the production period and, consequently,and (e) more poor people settled (OED Report no. 2122 dated June 30, 1978). - 50 - requires a high investment because of the vertically integrated processing operation which this crop demands, it can certainly be argued that the incre- mental costs involved in assuring that productionwill reach targets are out- weighed by the high returns obtained to all parties in the undertaking. Concern about plot size has been closely linked to the issue of high income levels. In Malaysia, with its comparativelyhigh per capita income and cor- respondingly high relative poverty levels, income from these schemes needed to be attractive to get the traditionally immobile rural Malays to move. Providing a plot of sufficient size to provide an adequate income, given the declining rubber prices, enabled settlers to devote their entire effort to rubber and not to revert to subsistence rice production. This kept the earn- ing potential high, not only for the first generation,but for future genera- tions as government policy had intended. At the same time, concern over high income levels has increased with the benefit of hindsight, but the Bank did not forecast the extent to which oil palm prices would rise over the period. This in large part explains the currently high income levels. Furthermore, the Ba-k, in its suggestions to Government for a national agricultural policy3 8 / over the next two decades, gives strong support to the maximiza- tion of net farm incomes to overcome the structuralweaknesses which have been caused in part by the rapid rise in non-farm incomes since 1975. 5.29 In conclusion, if Governmen- x to assist those below the poverty level in Malaysia, it is difficult to see, given the situation prevailing in Malaysia, how else this can be accomplished successfullyand particularly in terms of lower cost per famiiy, smaller plot size, lower income levels, etc., to conform to Bank guidelines. What is of concern to this impact evaluation is, given that FELDA has devised a successful formula, greater attention should be given to ensuring that FELDA does not merely consolidate its opera- tions but continues to provide opportunities for the remaining landless poor in Malaysia, for whom few alternative opportunitiesexist in their tradi- tional coconut/padi/fishing occupations. VI. ENVIRONMENT 6.01 When che Jengka projects were prepared in 1965 the greater part of the Triangle was forested, most gazetted as a reserve. This reserve, largely undisturbed forest and swamp land, was surrounded by logged forest which had been exploited in varying degrees over many years; logging was then the prin- cipal economic activity of the triangle. Some settlement had taken place largely by smallholders on the banks of the Sungai Pahang, cultivating rice in the swamps, grazing their buffaloes and obtaining casual employment in nearby rubber/oil palm estates or in the towns of Temerloh, Maran and Jerantut. 6.02 With the substantial change in land use in the Triangle with land settlementand development to treecrops, this impact evaluation paid particu- lar attention to first, the extent to which such developmentwas carried out in accordance with prevailing Government and Bank guidelines; second, the 38/ Considerationfor a National AgriculturalPolicy, June 23, 1982, p.4. - 51 - environmental impacts of converting these forests were assessed particularly with regard to watershed protection, wildlife populations, consequences for the existing population and side effects such as pollution; and finally, the degree to which this large-scale land development has been instrumental in strengthening environmental policies in Malaysia in general and its institu- tional capacity in particular. A. Projects' Design: Adherence to Government and Bank Regulations 6.03 The regional master plan specifically advised the adoption of gov- ernment guidelines and it is to the credit of FELDA that these were adopted and in some cases later improved upon based on experience gained. Regula- tions were in existence dating back to 1922 with the Silt Control Enactment and subsequent statutes governed soil and water conservation, forests and wildlife. The Silt Control Enactment together with the 1960 Land Conserva- tion Act provide for the prohibition of vegetation clearance on steep slopes to prevent soil erosion and siltation. Forestry enactments govern the remo- val of timber while the Wild Animals and Birds Protection Ordinance of 1955 gives adequate direct protection to wildlife. State water enactments regu- late the abstraction of water, modification of channels and construction within certain limits of either bank. Despite the fact that enforcement of these regulations over the years has tended to be lax, in part because responsibility has traditionally been vested with state and local officials rather than those with more direct interests such as the Department of Agri- culture and DID, this impact found no evidence that the Jengka projects con- travened existing legislation at the time the projects were prepared and appraised. 6.04 The Bank had no enunciated environmental policy during the proj- ects' planning and implementation although a considerable number of policies have since evolved which would govern the design of these projects. 3 9 / B. Prnj ects' Environmental Impact Wildland Conversion 6.05 The loss of forest resources with the development of the Jengka Triangle has to be placed within the national context. The development of Jengka did not by itself represent a particularly serious loss of forest resources, but it was one of many projects under federal and state policies which required the clearing of extremely diverse lowland forest. In 1958, 80% of peninsular Malaysia's 13.1 million ha was forested; in 1985 less than 49% is forested and it is generally accepted that all the country's lowland forests outside of the delineated national parks and reserves will have been logged if not cleared by 1990. 39/ These include "Tribal Peoples and Economic Development: Human Ecologic Considerations", World Bank 1982; "Environmental Policies and Procedures of the World Bank", World Bank 1984; 'Wildland Management in World Bank Projects: A Policy Proposal", World Bank 1984 and -Managing Elephant Depredation in Agricultural and Forestry Projects" J. Seidensticker, 1984. - 52 - 6.06 About 80 of Malaysia'smammals live in lowland forest, so clearing of these forests has a considerableeffect in terms of reduction of wildlife populations and represents the major threat to their continued survival. The clearing of the forested area in Jengka has resulted in almost all species of forest animals becoming rarer. Large mammals which lost their traditional habitat include about 24 elephants, 40 forest ox and 5 Sumatran rhinos, all these species being protected by law. Most of these animals have moved east, but this area is now being settled and the nearby forest reserves are likely to have their own resident animal populations. The projects, through defor- estation, have also had a negative impact on freshwater fish, but since no inventory for the area was made against which present conditionscan be com- pared, it is not possible to ascertain the effects of turbidityand increase in temperature. 6.07 Conversely,wildlife have had a significant impact on the projects' development: elephants alone have been responsible for the destruction of nearly 79,000 young oil palms, equivalent to an area of 530 ha and costing over M$300,000 to replant. The 13 elephants responsible had been pocketed in the eastern forest reserve and, faced with habitat loss, had ventured into the eminently suitable newly-planted areas of oil palm. In addition to replanting costs, the game department spent almost MS1 million capturing these elephants which were then sent to other reserves. As a result, ele- phants are no longer a problem in the Jengka Triangle, and the experience gained has been put to use elsewhere (para. 6.22). There is no doubt that the projects had a negative impact on wildlife, but it is worth noting that at the time of project implementation,wildlife conservationstrategies were much less well developed than they are today. 6.O8 The master plan made provision for land unsuitable for agriculture or settlement to be left as forest reserves. These have been included as planned, principally for watershed protection, but their role as wildlife reserves is also relevant. Logged forests not subject to continual distur- bance as is the case in Jengka are able to support a considerablenumber of the smaller species found in undisturbedforests. 6.09 In accordance with guidelines issued by DID, areas of forests have been retained along certain river banks. It was found, however, that these areas are less well protected near the villages and the regional center of Bandar Pusat, although it should be noted that forest reserves in Jengka are not used as sources of fuelwood, because most settlers cook with gas or kero- sene stoves. 2. Watershed Protect3L.n 6.10 Watershed protection has been carefully followed in Jengka. In its land classification, FELDA established a rational and reasonable division between the different potential land uses with degradation and the clearing of steep land avoided. Furthermore,small areas of low potential for agri- cultural use between areas of steep or otherwise unsuitable land were not developed but included in the forest reserves. The impact also found that the land clearing procedures used by FELDA with emphasis given to labor intensive manual felling have resulted in less damage to the environmentthan - 53 - would have occurred with mechanized methods. The conversion from forest to plantation was carefully managed. It was undertaken rapidly and as far as possible took into account weather conditions,while clearingwas also spread over several years, ensuring that large areas of soil were not left unprotec- ted for long periods of time. Virtually all componentswere imglementedwith consideration given to possible soil loss and erosion, although some soil erosion is evident along roadsides requiring implementation of the protective measures developed elsewhere in Malaysia. An inevitable consequence of the change from forest to plantation has been the increase in water yields which has resulted from lower evapotranspiration rates in the plantations compared with the forested areas. However, much of this water is 'lost" during (increased)peak flows, which partly explains occasionalwater shortages in the Jengka area during the dry months. Another explanation is the increasing water demand resulting from settlers' expanding their houses as well as poor operation and maintenance of the water distributionsystem. The effects of this have to some extent been overcome by building temporary sandbag dams and transportation of water by tankers. 6.11 The mission found no evidence of climatic change as a result of the development on Jengka. Rainfall data for the period 1972-79 recorded rela- tively low levels which could have been caused by greater reflectivity of unforested land. Since then, annual rainfall figures have fluctuated greatly and, when viewed against natural variation,very little can be concluded from the available rainfall, temperatureand other weather data. Thus evidence is not availablewhich would either support or counter the U.S. General Account- ing Office (GAO) finding in 1974 that clearing of natural forest in areas such as Jengka has resulted in changing climate characteristics. 3. Human Ecology 6.12 Although the appraisal reports indicated that the Jengka Triangle contained "no permanent population", the Department of Orang Asli Affairs indicates that about 110 families of tribal peoples or a total of about 330 people were affected by these projects, with about 75 orang asli actually being displaced from an area now occupied by scheme 6. It is not clear whether the orang asli were not classified as permanent because of their practice of shifting cultivationor whether they were disregarded because of their small numbers. There are no orang asli settlers in Jengka, probably because of the large differences between their traditional way of life and the required lifestyle of settlers in a FELDA scheme. The Semoq Beri tribe, which constitute the majority of the orang asli affected by these Jengka projects, live traditionallyin individualfamily houses rather than the long houses like other groups, and so settlementin villages is not a considerable change for them. At the same time, however, they do not have a notion of land ownership, but rather the idea of the right to cultivate certain areas--a concept which would be hard to reconcilewith FELDA's system either for rubber or oil palm cultivation. Instead, provision was made for their resettlementnearb3 and compensatoryland has been provided. - 54 - 4. Pollution 6.13 Effluent from oil palm mills when untreated and discharged directly irto a river not only has a devastatingeffect on fish and other animals, but also on the earnings of fishermen--traditionally one of the poorest groups in Malaysia. Location of mills was not regulated at the time of project imple- mentation and it is to FELDA's credit that the mills were sited relatively far off their water source. This was beneficial in that the raw effluent, by having to travel a similar distance and often being dischargedinto a swamp, then had a lower biological oxygen demand (BOD), avoiding to some extent the effect of reducing the concentration of dissolved oxygen in streams and rivers to below that required by most aquatic animals. Since the introduc- tion of the Environmental Quality Act in 1974, FELDA has taken steps to ensure that the BOD of the effluent from its existing palm oil mills has been progressivelyreduced in keeping with the guidelines. Six of the palm oil treatment plants in the Jengka area became fully operational in 1982, two in 1983 and one each in 1984 and 1985. 6..L4 The settler survey revealed that settlers perceive the rivers in Jengka to be polluted. This was investigatedby the mission and after dis- cussions with palm oil mill staff, settlers, and staff of the Department of Environment,it was concluded that no evidence was available to support this contention. One incident of raw effluent being discharged from a private mill occurred in 1974 and similar events have also been reported from near Sungai Pahang, but none have been reported in Jengka itself. 6.15 Nor are there indications of fertilizer being leached into the rivers: water quality measurements undertaken betwepn 1977-79 revealed that there was little evidence of inorganic nutrients in the water, well within the guidelines for drinking water in developed countries. Pesticides have been used, but now only in very low quantities with natural control being the preferredmethod. 6.16 In conclusion, it is evident that FELDA adopted guidelines and closely adhered to the then existing regulations regarding the means of clearing land, of choosing the best areas for planting, determining which areas were to remain uncleared and siting of the mills. As a result, much less environmentaldepredation occurred than might have been expected. Envi- ronmental aspects which have suffered the most as a result of Jengka's devel- opment have been the lowland forest and its land and water fauna. These changes have not been monitored and a detailed assessment of the seriousness of this impact is not possible. Strategies have since been developed in Malaysia and in neighboring Indonesiawhich would today have resulted in the elephant problem in particular being resolved in a more satisfactorymanner. C. Projects' Impact on EnvironmentalPolicies and Institutions 6.17 An important impact which these projects had on governmentpolicies was the mission mounted by the Bank's Office of EnvironmentalAffairs (OEA) in early 1975. As a result of the GAO team's findings (para. 6.11) this mis- sion was charged with assisting in the preparation of environmental guide- lines, identifyingpriorities to be incorporatedinto the Third Malaysia Plan - 55 - and establishing a mechanism which would ensure a continuous Bank-Government dialogue on environmental issues. The mission itself worked closely with government officials in carrying out its terms of reference. 6.18 In other respects, these three projects have had only limited impact on government policies for two principal reasons. First, from the beginning they were not expected to be lesson learning; there was no environ- mental monitoring initiated in Jengka. The regional master plan considered environmental objectives only in terms of determining land capability and suitability and encouraged adherence to national guidelines for the maximum slopes to be cleared and for riverbank protection. Factors such as loss of forest resources,wildlife populations and tribal peoples were not addressed 0/ An opportunity was either in this plan or in the appraisal documents.4 missed by not charging the agriculturalresearch station in the trianglewith monitoring environmentalchanges. The results would have greatly helped the preparation of these later land use plans both within and outside of Malaysia. 6.19 A second reason was the existence of sufficient statutes on the books reflectinggovernment policies ranging over many aspects of environmen- tal control and protection. What had been missing from earlier government legislation was the protection of wildlife habitat deemed to be the main threat facing most species. This was addressed, to a large extent, in the 1974 EnvironmentalQuality Act charged with enhancement of the environment, particularly the preparation and review of Environmental Impact Analyses (EIAs) of development projects. The Act was also aimed at the prevention, abatement and control of pollution, particularly palm oil effluent with cri- teria established to be progressivelyenforced and fully effective by January 1984. 6.20 Nevertheless, it is evident that the institutional capacity to translate these policy directives into action is weak. This is largely due to a diffusion of responsibilityfor environmentalaffairs between many agen- cies operating at both the state and federal levels. States are responsible for land, agricultural, forest and most water affairs. Public pressure and the need to have legislation enforced nationwide resulted in a Division of Environment being established within the Ministry of Science, Technology and Environment following the 1974 legislation. This division, however, is still a long way from being able to deal with or speak effectively to environmental management problems. It has not taken the leadership in environmentalissues despite the expectations of the 1974 legislation, tending to confine its scope and responsibilitiesto pollution prevention, undertaking spot checks and levying fines. EIAs are not yet required by law and, while several agen- cies have voluntarily conducted their own assessments, no formal government machinery exists to review and implement their findings. 40/ This is in contrast to the master plans subsequently developed for both Pahang Tenggara and Trengganu which defined environmentalissues in much broader terms--most likely as a result of increasing awareness world- wide. - 56 - 6.21 This is in contrast to neighboring Indonesia where responsibility for environmentalaspects is vested at the federal level with no provincial offices. Under a dedicated and strong leadershipit has been able to achieve the cooperation and coordinationof different agencieswhich is still missing in Malaysia. It has worked closely with a range of departmentalministries, universitiesand non-governmentalorganizationsand taking as its underlying assumption that developmentaland environmentalmanagementmust cooperate,it has achieved remarkable success in environmental management, education and awareness. While the situation is somewhat different in Malaysia, where the power of the states over land issues is a major concern, the fact remains that even if the focus is shifted to the state level, there is still a need for the cooperationand coordinationof many agencies. The state bodies con- tinue to be organized as line agencies primarily concerned with revenue col- lection and thus no single entity can assume responsibility for a range of environm ntal concerns. 6.22 Against this background, therefore, the role of FELDA, including the guidelines which it has developed from these projects' experience, is noteworthy. FELDA secured interagency coordination with the Forestry Research Institute,Universiti Malaya, DID, and the Department of Environment to undertake a watershed study of the Sungai Tekam area just north of Jengka. At the same time, FELDA has worked closely with the Wildlife and National Parks Department in developing the -felephence-,an electric fence of which about 1000 km are now in use in FELDA and other schemes in the peninsula. Finally FELDA, in conjunction with the DID, produced guidelines on the clearing of forests--azaina direct result of FELDA's involvement in the development and management of schemes such as the Jengka Triangle. VII. CONCLUSIONS A. Sustainability 7.01 The recalculated rates of return for all three projects and the findings of the settler survey demonstrate that, seventeen years after the first investment, these projects have sustained a net flow of benefits. This section recapitulatesthe findings of this impact evaluation in terms of the evidence of sustainability, then analyzes the reasons behind such sustain- ability. 1. Sustainabilityof Projects' Operations 7.02 The five recalculated economic rates of return for oil palm and rubber were, in all instances, equal to or higher than projected at apprai- sal, although slightly lower than expected at the respective projects' com- pletion. Of interest is the fact that this satisfactoryoutcome is due not to commodity prices being significantly more favorable than projected at appraisal and completion. Prices have, in four of the five instances, been lower than forecast at completion and only slightly higher than estimated at appraisal. Rather, these satisfactory results are due to high yields, par- ticularly for oil palm, which have been significantlyand constantly higher - 57 - than those obtained either by smallholdersoutside of the FELDA schemes or in Bank-supportedoil palm projects in other countries and comparable to those obtained in the private estates in Malaysia. Such returns have been strong enough to offset not only adverse price effects but also lower than expected palm oil extraction rates and lower than expected area planted to rubber. The differencebetween the rates of return calculated at completionand those recalculated for this impact evaluation--lower in all five inctances--is explained by the lower than expected price for both commoditiestogether with increased operating costs. 7.03 The higher than expected yields already noted explain the sustain- ability of agricultural benefits. Both the oil palm and rubber are well established and the excellent climatic and soil conditionsundoubtedlyresult in high and steady FFB productionin particular. Since two-thirdsof the oil palm schemes are now at full production,and total production for each stage is in line with appraisal estimates, there is no reason to doubt that oil palm in immature schemes will not follow the same pattern. Yields of rubber in the first two stages were also lower than estimates in the initial years, but have gradually improved, although not to the extent illustrated in the oil palm sector. Rubber schemes now at full production, however, have exceeded yield forecasts while others have remained continuouslybelow pro- jections. This yield variation is unlikely to be due to climatic, soil or management conditions; one explanation is unofficial sales, which would not be reflected in FELDA's official figures. Production of rubber has tended overall to be below estimates, in part due to the apparently lower yields and in part to lower area planted, but is expected to reach projectionswhen all schemes attain maturity. 7.04 Sustainability of the social benefits has been achieved; it is, however, open to question for the longer-term developmentalimpact of these projects (chapter 5). On the one hand, the settlement schemes are permanent establishmentswith low settler turnover, which is of considerablecredit to FELDA given the diverse backgrounds of settlers and their traditional immo- bility. Social infrastructure, particularlyeducation, has been an important factor in both attracting and retaining settlers. Settlers report a satis- factory quality of life; the schemes were intentionallysized to take advan- tage of government-sponsored facilities. The financial benefits have rein- forced the schemes' attr-activeness.On the other hand, the dangers of such a dependence (95X of se:tler incomes are derived from either oil palm or rubber) on internationalprice movements are evident in the steady fall in rubber prices over the period. Such a high percentage of incomes from one source is an unusual precedent in rural Malaysia where diversity of income 4 1 / Despite high sources among on- and off-farm activities is the norm. levels of consumption over the period, however, there has been little devel- opment of secondary economic activities within the Triangle, a feature which 41/ The initial FELDA farm model combining tree crops and other crops was never developed due to potential problems of marketing and technology. - 58 - was also noted in the settlement projects in Papua New Guinea. 4 2 / Settlers continue to see FELDA as a father figure and have little interest in scheme management, which raises questions regarding the settlers' future. 7.05 The sustainability of the institutional benefits, in terms of FELDA, is not in doubt. Despite rapid growth, FELDA has constantly used its experience to accelerate its development program. Loan recovery from settlers is good, while FELDA in turn has funds available either to repay its loans to Government or to invest in downstream activities. These projects illustrate that a parastatal organizationcan indeed combine both commercial and social objectives successfully on a continuing basis. The potential problem is FELDA's management style which has precluded spirit of enterprise and initiativeamong its settlerswho must, in the future, manage the schemes themselves.43/ 7.06 Most of the indirect benefits are clearly sustainable. There are considerable economic and social linkages between Jengka and the surrounding economy. The importance of oil palm and rubber production to the economy overall highlights the backward and forward linkages, the former in respect of fertilizer use, most of which is manufacturedin Malaysia, and the latter in terms of transportation and bulk handling facilities required as well as development of refining capacity. These are likely to continue, given his- torical production trends. Multiplier effects are noticeable in respect of the non-settler commercial development on the fringe of the Triangle, a development which will continue, given the settlers' high propensity to con- sume. Moreover, studies have shown that 70% of settlers' consumption is satisfied by local production. The fact, however, that job opportunities have not developed within the schemes for settler children will result in problems in the future. At present, the second generation are leaving the schemes and agricultural activitiesmay be less attractive after some years spent in other applications. 7.07 FELDA has generally shown itself sensitive to environmental aspects: satisfactorystandards in respect of land clearing resulted in mini- mal soil erosion, the original land use plan was flexibly implementedwhen it was found that slopes were too steep to be planted to oil palm and the mills were sited far enough from water sources to prevent pollution. The adverse effect of the projects on human ecology was partly offset by the resettlement and provision of compensatoryland to displaced tribal peoples. Wildlifewas definitely harmed by the projects, particularly elephants, which used to inhabit the project area. As with all agricultural development of this nature, the clearing of forest has resulted in almost all species of forest animals becoming rarer. 42/ Impact Evaluation Report on Papua New Guinea: New Britain Smallholder DevelopmentProject, OED Report No. 3070 dated July 7, 1980. 43/ For FELDA's views on settler participationin management see Annex 6, pages 2-4. - 59 - 2. Factors Accounting for Projects' Sustainability 7.08 Reflecting the findings on sustainability in OED's Tenth Annual Review of Project Performance Audit Results 4 4 / the most important factor accounting for project sustainability in these Jengka Triangle projects is institutionaleffectiveness. A striking finding of this impact evaluation, however, is that the remarkable growth and success of FELDA has been accom- plished largely through its own efforts. 7.09 FELDA's approach can be summarizedas, first, strategic planning to combine the best of the smallholder agriculture sector with that of the estates sector. The value of this approach has been confirmed in the find- ings of a recent review of experiencewith 34 Bank-supportedland settlement projects4 5 / which highlighted that greater attention should be given both to the settlers themselves and to production priorities. Second, it has per- fected a system in which risks are minimized. Problems which have been encountered in some other countries (Ivory Coast, 4 6 / and neighboring Indo- nesia for example) have been avoided. In Ivory Coast, the basic errors were to (a) overestimate growers' ability to adapt to modern treecrops and (b) grant agricultural credit to farmers unfamiliar with the constraints credit entails and who tend to evade repayment without compunction. In Indonesia, delays occurred prior to first harvest because the crop was poorly planted by settlers inexperiencedin oil palm. Settlers are also reluctant to move to the new schemes until harvest begins because of the lack of employment/income earning opportunities, which in turn has adversely affected yields. The cost implications of FELDA's risk minimization strategy have attracted considerable criticism. FELDA argues, and this impact evaluation agrees, that in view af the high initial investmentcosts for oil palm, the high ben- efits obtained from the successful development of new land to oil palm and rubber more than outweigh the incremental costs attached to providing social infrastructure and ensuring the productiveaspects are correctly in place. 7.10 A second important institutionalfactor explaining project sustain- ability is the adequacy of management provided by FELDA. FELDA's management style exhibits certain characteristicswhich have been noted in respect of successful institutionalperformanceof another parastatal organizationdeal- ing with tree crops: Kenya Tea Development Authority.47 / Unlike this insti- tution, however, which has phased out its control, FELDA's control of both on- and off-farm activities continues. This may be viewed as an integral part of FELDA's success, but is also a matter of concern for the future (see below on future prospects). 44/ OED Report No. 5248 dated August 30, 1984. 45/ OED Report No. 5625 dated May 1, 1985. 46/ Impact Evaluation Report: Ivory Coast Oil Palm and Coconut Development Projects, OED Report No. 5072 dated May 7, 1984, op. cit. 47/ SWP No. 550, 2p. cit. - 60 - 7.11 FELDA has also provided the mechanism for the effective transferof another factor which has provided a key role in sustainability: technologi- cal adoption. The technologicalsuccess of these projects, particularlyfor oil palm, wh-reby smallholders are producing yields comparable to those reached in the private sector, is in part due to FELDA providing the neces- sary institutionalframework to assure both timely and reliable delivery of elements of the technical package as well as the necessary processing and marketing capability. The importanceof FELDA's role in this regard is high- lighted when it is recalled that no other institutionalmechanism exists at present in Malaysia to assist smallholderoil palm production. This finding of the impact evaluation is contrary to that reported in the OED review of sustainability4 8 / which concluded on the basis of experience analysed from 25 impact evaluation reports that there is "an enhanced probability of failure inherent in the wholesale introduction of a technology with which there has been no prior experience within the region or the country. The complex beha-ioural changes required and the results produced through inter- actions with existing cultural practices are inevitably extremely difficult to predict with an entirely new technical package." This highlights the projects' technologicalsuccess given that only 6% of settlers had any prior experience in oil palm. 7.12 Project sustainability can also be explained it.terms of supportive government policies (para. 5.17) and changes in the economy during the time these projects were being implemented,particularly the commodity boom which led to overheating of the economy (pa-;a.1.08). FELDA schemes, therefore, are in the enviable position of producing oil palm and rubber without facing either shortages or increased costs of labor, a situation encountered increasinglyin the estates sector. B. Future Prospects 7.13 While sustainabilityof these three projects is not in doubt, ques- tions remain as to the future prospects for both the existing settlers after loan repayment and the second generation of settler children. This particular timeframe is beyond that normally analyzed for an impact evaluation. In view, however, of the importance of both the nil palm/rubber sectors to the economy in general and FELDA's production of each commodityin particular, combined with the important poverty alleviation objectives achieved, this aspect requires analysis. 7.14 Questions regarding the future prospects for existing settlers essentially concern what will happen once loans have been repaid and titles pass to settlers. This is likely to happen within the next three years in the case of the existing oil palm settlers, most of whom have no arrears on their loan accounts. 7.15 In the short run after title has been ceded to settlers and before the oil palm needs to be replanted, settlers could probably continue with 48/ Annual Review of Project PerformanceAudit Reports, OED Report No. 5248 dated August 30, 1984, op cit. - 61 - light FELDA management and with the block system continuing to coordinate agricultural activities. A few years after, however, there will be a need for replanting. This assumes that 45 to 50 year-old settlers (accordingto the survey, only 25% are willing to retire at that time) will want to take out another long-term loan. As the replanting cess for oil palms has only been in existence for a few years, a substantial part of the replanting cost will have to be covered through new loans to settlers. The loan principal is likely to be smaller than that granted under the three projects under review as the development costs would essentially consist of replanting, and not housing, garden plots, etc. The settlers,however, will need new subsistence loans as they will be deprived from the revenues for some years before the oil palm bear fruits. ThIesurvey showed that the majority of settlers want FELDA to continue managing the schemes when replanting time arrives, which raises the question as to whether and how FELDA is going to be bound to Jengka oil palm settlers for a new cycle of 25 years. 7.16 The future prospects for existing rubber settlers are somewhat different. These settlers appear less dependent on FELDA. This may be due to the individualnature of their agriculturaloperations. In the short run, the future prospects of rubber settlers are less of an issue because the greater incidence of loan arrears means that FELDA management will continue for a number of years until outstanding payments are fully recovered. Moreover, the time until replanting is considerably longer for rubber than for oil palm, unless there are further breakthroughs in technology which would justify earlier repLanting. In the longer run, if FELDA management continues, the questions will revolve around what crop to replant to (see also Annex 6, page 8). 7.17 Consideration of the second generation essentially covers two aspects. First, whether there will be sufficient interest among settler children to take over title to the plot and second, if there are, whether they will accept.the FELDA hierarchicalmanagement style. Doubts have been raised as to whether children will wish to return to Jengka to inherit title from their settler parents. The survey clearly showed that only a few settlers wished their children to continue in farming. Consequently,chil- dren have been conditioned from a young age not to look to Jengka for their livelihood. In view of the lack of job opportunitiesavailable in the Trian- gle for settler children, the majority will have left the schemes for about 5-10 years to live in cities between the time of completing their education and the time of their parents' retiring. For children who would return to Jengka, this way also lead to problems in readjusting first to living in the country and second to agricultural activities. Given the fact that family size in Jengka is above the national average, however, it seems likely that there will be one child interested in inheriting title-as required by FELDA. Potentially more significant is the fact that it is unlikely the tight system of management control currently exerted by FELDA over settlers will be readily accepted by settler children; all have had more educationand have access to greater opportunitiesthan their parents. 7.18 The extent of control exerted by FELDA over every aspect of settlers' lives has stifled the sense of initiativeand self managementwhich prumpted the settlers to move in the first instance. This type of management - 62 - style has been one of the reasons for project success, but self management of the scheme will be essential as it is part of the development process and because the strict FELDA control system just cannot last forever. Although the settlement study4 g/ concluded that the type of management in any settle- ment scheme is much less important than the fact of adequate management, equity considerationsin Malaysia mitigate against the continuation of the existing managementstyle. There are still large numbers of landless poor or farmers with subeconomic holdings for whom few alternative opportunities exist.50 / It is untenable that settlers who have been assisted by FELDA for twenty years, and who will shortly have title to both a 4-ha plot of land, which yields an income considerablyabove the poverty level, and a house with access to a range of social amenities, should continue to absorb scarce resourceswhich could be better deployed in reaching the remaining poor. 7.19 The involvementof the second generation in the schemes would pre- sent an excellent opportunity for settler self management. At the same time, however, the question has to be further explored as to whether FELDA regards its management style as a precondition to achieving economic success or as necessary because the settlers are viewed as having only limited capacity for self management. 7.20 It seems unlikely that FELDA would have taken the latter view as project experience reinforces earlier evidence available, that smallholders can be efficient low-cost producers of treecrops with adequate training. A comprehensivestudy of the rubber industry 51 highlighted this and concluded that there are considerable advantages to smallholders growing rubber: the technique of production is simple, there are no economies of scale to be obtained, the product is highly standardized, easily marketable and the buying competition is usually keen. The project experience has also shown that oil palm smallholders have been able to organize themselves and to become progressive farmers, the major drawback being the difficulties in replanting. This, however, would not have been an issue in Jengka with the schemes comprising only the development of new lands to rubber and oil palm. Clearly, therefore, since smallholders are known to be efficient producers, the FELDA management style will have to change unless it is a reflectionof a corporate culture which takes as its basic assumption that to achieve the productionobjective successfully,a regimentedand tightly controlled system is necessary. If there is indeed a tradeoff between economic/agricultural success and longer term project sustainability,then it is evident that for FELDA to continue to provide opportunities for the rural poor and also to accommodate the second generation will require a more fundamental and deep- rooted change than if it had merely been a style of management which had reflected the needs of the time--and which could be changed again once the existing settlers with their apparent inherent limitations had given way to the second generation. 49/ OED Report No. 5625 dated May 1, 1985, op cit. 50/ Forthcoming audit, Malaysia Coconut Smallholders'Developmentproject. 51/ Bauer, P. The Rubber Industry: A study in Competition and Monopoly, 1948. - 63 - C. Replicability 7.21 In view of the success of these three projects the question has to be asked what lessons can be distilled from project experience which can be applied to other Bank-supported projects of a similar nature. In other words, what factors of success rely on Malaysian conditionsand thus would be difficult to transplant elsewhere and what factors are of a more general nature which could have wider applications. 7.22 The first lesson that can be drawn from project experience is that the presence of a high-value crop has been a strong factor in (a) attracting and retaining government support at both the federal and state levels where revenues generated from the Jengka Triangle have been considerable;and (b) providing sufficient financial returns to settlers which has helped retain settlers in the schemes and has assured a cost recoveryrecord of 98% for oil palm settlers and 65% for rubber settlers. 7.23 The factors of success behind this high-value crop are first and foremost high yields, which have offset price variations. The high yields are due to conditions particular to Malaysia (the climate, soils and pest- free environment),and to technological developments,in terms of disseminat- ing basic research and an effective institutional framework for adaptive research and extension. The lesson for replicabilityof settlement projects of this nature is the importance of a high-value crop which derives its return not from high prices but from high yields, based upon a sound techri- cal package well adapted to local conditionsand taking labor requirementsat the farm level. The projects also showed the danger of minimizing or not fully understandingthe positive role of women at the farm level. 7.24 The second lesson to be drawn from project experience is the impor- tance of land ownership. This has been a major factor in the success of land settlement both in attracting and retaining settlers. Project experience demonstrates the powerful incentive that potential ownership of a 4-ha plot of land conveys to landless and traditionallyimmobile rural poor, particu- larly when this is backed up by social infrastructure. When settlers first took the decision to move to Jengka, neither they, nor FELDA for that matter, realized the financial returns that would be gained from the increased yields and prices of oil palm, which was then an essentially untried crop in Malaysia with low price forecasts. 52/ Three lessons for replicability can be drawn. First, the availabilityof distributablelands (uncleared jungles or state-owned land are still available in many countries); second, where ownership of land is a key incentive to potentialsettlers, an important pre- requisite is to have a settler selection system which ensures that the land- less benefit. In many countries, new settlement schemes are taken up by those who already have landholdingsor occupation elsEwhere and thus become absentee landlords with little incentive to develop the schemes with their own productive rssources. Third, potential ownership of land induces settlers to ac. discipline, which is essential in the early settlement 52/ As late as 1970, the Governmentwas being advised by FAO not to continue with oil palm because of weak profitability. - 64 - period for eventual project success. Conversely, the conditionalityattached to land ownership, uncommon in settlement projects, 5 3/ can give Government good leverage to develop an orderly and satisfactorysettlement system. 7.25 A third lesson from project experience is the importance of a settlement system which combines improved social infrastructurewith some aspects of the traditional village system. This has also been an important feature in both attracting and retaining settlers. Settlers described educa- tion for their children as the single most important benefit, above increased incomes, land ownership or improved housing. Despite settler complaints of inadequate water supply, no electricity, and sub-standard roads, settler turnover is low. 7.26 At the same time, FELDA has designed the settlement schemes very much in the tradition of the kampungs. An important cohesive force has been FELDA's support for the settlers' religious beliefs. Most Malays are adher- ents to Islam; FELDA has provided a mosque in every scheme and the organiza- tion of the social associationsis in keeping with the muslim religion. In this respect, FELDA has mirrored the pattern of life which is followed in the traditionalvillages. The lesson of replicabilityis first the importance of identifying the principal constraints prevailingin the rural areas, so that the provision of such benefits-in this case children'seducation-offers the necessary incentive to attract potential settlers and second, that cultural/ religious support provides a cohesiveness to the community which helps to establish and reinforce its sense of permanence. The danger in respect of the latter is that it can be difficult to adopt some elements of religious beliefs and not others; for example, women's rights have been to some extent eroded under the FELDA system, particularlyin respect of succession. 7.27 A fourth lesson, and one which is contrary to the findings of OED's review of Bank experience with land settlement,is that there have been con- siderably fewer multiplier effects than might have been expected in terms of either the emergence of secondary economic activities or urban development. Both had been expected. 7.28 The failure of multiplier effects to develop cannot be attributed to lack of demand. The schemes have experienced high income levels over a sustained period of time, much of which has been spent on consumption goods or has resulted in an increased demand for services. And, studies have shown that most consumptiongoods purchased by settlers in the rural areas have not been imported goods; 70% of goods pu-chased are of Malaysian manufacture. Furtnermore, many settlers would like their children to remain close to Jengka-children who, with the benefit of education,are surely in a position to see and exploit the opportunitiesfor providing such goods and services. The Government is strongly committed to stemming rural outmigration and thus to the idea of integrated rural-urban development. The lesson for replica- bility is that, in cases where so much importanceis attached by settlers to education of their children, where parents' aspirations for their children tend towards off-farm employment, and when there are other sectors of the 53/ See particularlyMexico Panuco IrrigationProject (OED Report No. 5191). - 65 - economy which are growing rapidly, it seems almost impossible for job oppor- tunities to develop within a rural environment for settler children, as was tried in Jengka. 7.29 In conclusion, to the five successfullessons of replicabilityout- lined above, namely, - availability of crops allowing for relatively high returns to investment; - availabilityof distributableland; - a selection system ensuring that the landless benefit; - conditionalityof potential land ownership; and - settlementmethods modelled after FELDA's but adapted to the socio- cultural context of the country; a sixth must be added, replicability: the need for strong government support and for an autonomous settlement agency with clearly identified, long-term strategic plans. It is a striking feature of these projects that FELDA has benefited for fifteen years from strong political support at both the federal and state level. FELDA has maintaineda good coordinationwith several other ministries and departments. Comparedwith many public agencies, FELDA bene- fited from the continuityof its senior management and its staff are motiva- ted and energetic. The most striking aspect of FELDA is that it is and has always been a Malaysian-runorganization. The identifiable drawback about such an agency is the fact that it is precisely this sense of pride and cor- porate loyalty demanded of FELDA staff and settlers alike which is creating problems for self managementof the settlementschemes; there is little room in the FELDA philosophy for individualism. I% T., '5)fl, x I q\ k I - 67 - Appendix Page 1 SOCIO ECONOMIC SURVEY OF FELDA SETTLERS IN JENGKA TRIANGLE, PAHANG METHODOLOGY Objectives At completion of the second Stage of these Jengka triangle projerts, it was expected that a comprehensivereview of settler's incomes would be undertaken. It was considered that whilst the projects had been efficiently implemented from an economic point of view, only fragmentary information was available on the impact of these projects on the settlers themselves. Despite this, however, no studies were undertaken during the third Stage to evaluate the socio-economicbenefits to settlers. As part of the impact evaluation of these three projects, undertaken when most of the oil palm and rubber schemes are at full production, a socio-economic survey was commissioned with the following objectives: (i) determining the economic and social impact of the project on a sample of about 200 settlers in the Jengka area; (ii) analyzing the perceptionof settlers on their current and future welfare and quality of life; (iii) a detailed analysis of some subsidiary activities developed by settlers in the project area. Sample Design A sample survey of 229 settlers was carried out in January-February 1985 by a local consultant, assisted by two lecturers and 23 students from the UniversitiPertanian Malaysia. The sample size covered about 2.5% of the populationof settlers in the Jengka, selected at random in proportionto the actual settlementof the three stages as follows: No. of settlers Jengka Jengka Jengka interviewed Total Stage I Stage II Stage III Oil palm settlers 146 57 45 44 Rubber settlers 83 12 31 40 Total settlers 229 69 76 84 - 68 - Appendix Page 2 Questionnaire The survey was based on a questionnairewith the following seven subject headings: - settler identity; - settler's and settler family's activities and incomes; - participationin settler organizations/associations; - settler family progress indicators; - settler perception of social infrastructure and quality of life; - settler perception of, and attitude towards, current status and management in the schemes; - future of settler and settler family. The sample survey was based on interviews with heads of household only, no family members were present. Since all heads of household were men, follow up interviews with twenty women settlers were conducted in four schemes: two old and two new rubber and oil palm schemes respectively. The findings on the role of women in the settlement schemes are also based upon observations made at the quarterly meeting of social development officers of the twenty-three Jengka schemes, a monthly meeting of the GPW (Women's Institute)of one scheme and discussions with FELDA staff. Other sources of data In addition to this socio-economic survey, an analysis was made of 3 or 4 of the most important subsidiary activities (shops, workshops, and other business enterprises)developed by the Jengka settlers. Information on the settlers' gross and net incomes for the year 1984 from both oil palm and rubber was obtained from FELDA where income records of individual settlers are computerized. Production and yield data for rubber and oil palm was also collected from FELDA together with ancillary background informationon settlers' and FELDA's development program. - 69 - AINIEX1: BACKGROUND N 1-) 1 V '0 (N - 71 - Annex 1.1 Page 1 of 2 REPORT IMPACT EVALUATION MALAYSIA: JENGKATRIANGLEPROJECTS (LOANS 533, 672 AND 885-MA) Bank ContributionOverall to the Oil Palm/Rubber Sector The World Bank Group has helped finance 62 oil palm and rubber development projects in 14 countries (see list below). Twenty-five projects consist of oil palm, 22 projects of rubber, and 15 projects include both. Some of these projects also include a coconut or other treecrop component. By April 1985, the Bank had lent more than US$2 billion to the oil palm/rub- ber sector. Twenty-six projects (42X of the total number of loans), represent- ing US$440 million (21% of total lending to the sector), were carried out in Africa. Thirty-four projects (55%), representing US$1.59 billion (71%), were in Asia and two projects (3%), representingUS$45 million (2%), in Latin America. The largest borrowers in the sector were, in order: Indonesia (15 projects), Malaysia (10 projects), Ivory Coast (8 projects), Cameroon (7 projects) and Nigeria (4 projects). The development strategy based on estate plantations surrounded by outgrower plantings was adopted in Ivory Coast, Ghana, Liberia, Nigeria and partially in Indonesia. Estate plantations predominated in Cameroon, Zaire, Burma, Panama and some regions of Indonesia. A strategy focusing on small- holders was implemented in Benin, Sri Lanka, Thailand, Brazil, Malaysia and Papua New Guinea, project strategy in the last two countries,as well as the transmigration projects in Indonesia,being to clear virgin forest and settle farm families. OED issued performance audit reports on 25 of the 62 projects (1 in Benin, 1 in Papua New Guinea, 3 in Cameroon, 5 in Indonesia, 6 in Ivory Coast, 5 in Malaysia, 1 in Ghana, 2 in Nigeria and 1 in Thailand). On comr- pletion, all except those in Benin and Nigeria were considered reasonably successful,with economic rates of return above 1OZ. Since oil palm prices were higher than projected, they generally offset cost overruns. The Benin project, with an ERR of 5%, was an exception, but on completion its social impact was considered enough to have made it worthwhile. The two projects in Nigeria had negative ERRs and failed, partly because of certain of the coun- try's internal problems and partly because organization in the oil palm sector was not integrated. An impact evaluation of the Papua New Guinea New Britain Small- holder Development project was issued in 1980 and largely confirmed the proj- ect's success. In 1984, four oil palm/coconut projects in Ivory Coast were the subject of an impact evaluation, the findings of which are that the - 72 - Annex 1.1 Page 2 of 2 oil palm components remained relatively successful while the coconut compo- nents failed to sustain their benefits. In addition, estates proved to be more successfulthan smallholders. An impact evaluationwas also carried out for the Benin Hinvi project, which proved to be an economic and social failure. For the majorityof projects, including smallholders,beneficiaries were granted loans for oil palm and rubber plantings. The problem of credit recoverywas universal,though varying in degree, except in Papua New Guinea, where early, high yields made advance repayment possible, and in Malaysia and Thailand, where growers pay a replantingcess during the production period of the trees and receive a governmentgrant for replanting. The 37 projects still being implementedare affected by political and economic difficulties in some countries (Nigeria and Zaire), lower oil palm yields than anticipated(Cameroon),and depressedworld rubber prices. page I 61l mm UWPSU OIL P 4618 10m1x P60.13Cm Imlar of Iasuo/ctsditu ~~~~~Ahproa. krm plustsd/rspliatod bat.t anlisidur At"'i. a 42 440 "1I IIs I4 53 3,30 77 oi1 Pals 336,000 334,00 Ltles Lurt. 2 5 2har 1312.00 429.001 Tots' 1Y 15In IN TBo Amount of lftettwu datlI u-lu~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ urt (Cr. 344) 3.2 199-76 _1ltwldor cooportis al11 Palo plauntha (34.000 is): ac rtlmt of oil m11. ist CUNia c. 490 _u Cr. 300) 10.0 3447-73 ltat. .11 pi. plsrtIng (4.350 be). Itt 0C118U1 (La. 3913 sa Cr. 564) 9.4 *6-74 Rotate oil pals plamtrlg (1.440 be). 2ad CUNS (La 1303) 3.0 139762 noets .11 -u osd (4600 ha) nbbr p lasts. ad acwIUt C. 1392) 13.0 1317-52 utce s_d Outgower oil palw plautig (7,000 ha). Ulalt t-ber bstst tCr. 314) 34.0 1973I .hhr Esmte (C5.00 hs). 2nd NIre_s Rubber (Cr. 975 ad 31.3 295043 obber state (9.300 ha) robber prusaisg factoly. oi1 fisI sad Rubr Cso2lldatum 20.0 195-27 btunteou of pl_tatoug t susso of proesesing (Cr. 2160) farfitlsel. 3rd Robber (Cr. 2465) _wecam 8.3 39I 90 i.. seato pl tlan (1.400 be) snd u (9.430 hal mud procsstrs facIl . Iron Coast lot 011 Pals an Ccarust (L1. 4t1. 413 17.1 1949-75 batst. (4.00 hae) _ ad outwea 32.600 ao) o4l psl. sad 413) plasttgg sats- (3.300 be) sod _srewr (3.000 ha) cces't pr ti_; rstrtio f oil t111. 2nd Olil Pao ad cuae_t (tl. 73. 7.0 1972-79 4troe_r oil pals (4.500 ha) u scoust (4.300 ba) 740) plsutitg u mars coDmet (3.000 ba) Plautus. ruottuctles of oil sil. 3rd oil Pals (I 3034) 2.4 197m-77 eraser (t.O00 ks) u_d -tar (5.230 h.) at pu1. plautiut. 4th Oil P.ls sad Corset ("Lu1342) 35.3 1930-64 barst OIL pals C6iaB ha) sd coemet (6,724 ho) Ciad ambry Mibor (La. 636) 3.4 1972-79 rSit "utote (7.,50 is). 2ad Cod Smby Sbior (Is 1375) 20.0 1975-65 hor emats ptU- t lt (4.500 ha)- _iatomuca of thu first proj-et pl-stiuW (7.000 ha); prrcessing fuellitlU. UPS bbhr (Lm, 14332 7.4 19754 Rhbisr otprear pIstbiL (3.500 ha): _tetoeca of meaDt (7.000 ha). 4th Rubbhr (Lu. 2323) 32.2 1953469 Rohbr mars (3.500 ho): crdt. to utgrsouru (7.000 lial factory. Oil rIal (Cr. 331) 13.4 197463 atat (4.000 bh) sad ourtwer (1.200 ba) oil pdsi platrgg: _cootrwetis Of ti sill. 2ld Oel r1. (Cr. 149) 25.0 1us-90 Ourtg oil r pdu (3n03,50 ho): _epson of oil sil. Ecort. OLil Pals (La. 3745) 12.0 1391-47 best. (5.0W ha) asd outgreor (2.300 ba) oil pale ploutius: cooerseIso- *f *11 sill. Robber Esalopmaut (Cr. Dt34 13.0 197645 hhsr seibeldors pluts ha): sd (9_5,400 roplsetluw (5,770 ha). Iut Oil Pal (Le, IL53) 29.s 1973-54 iscors (5.000 ba) snd otarer G.Mbe ) oll pa plsatlui; esottius of oil 511. 2ld Oil Pals Cl II1S) 39.0 I -1744 Oetzrsser oil Pals plesties (14,000 ha); mtrrttios of 2 oil sill. 3rd Oil Pam (la. 1192) 17.0 197944 baa l6.000 ha) sAd ourtrer (,6000 ha) oil pals pUqarlu; crutrreron .f 2 *oi sll. rthOtl Pa (L 1391) 30.0 19794 bat. C10.000 1a) _d eseterr (30.000 ha) *Il polo OtlPnl (Cr. 70) 9.0 1977W5 baa (113.000h) odl pals plautcltlrspLamtis; SbahIlltatitoe of all .111. saiha saiilltlos (Cr. 676) 4.3 1979-55 Sutbbr mars pleactug (3.370 ha). rplsiewig C455 bh) no prdesslus fctitiris.. 2.e Shhur bubhtllaeti. (Cr. IMS) 9.0 119530 har _CnDs panti tl.200 1,I). replan,i" 4.,4 bh). und procotuw fucil2tit. 74 U UKp" D 0s, tUIMAND ou"a"ets nt if Ift etsa lit.) Pni.et 1.../eridtt *Ilsyu dii Pmnlit MistrItlm aot Mirth _MitT, but.. (oC. 133) 1.0 199-7h6 EAtet. .1 pdit plaI.e1.muarOhNelSs (36.230 hi). and oirth Mistri rAtgt. (Cr. 139) 17.0 1970-77 atswri- itt pit. pIatting (3.0 ha). Birth _tri Illhl. (Cr. 335) 3.0 197241 bntats . s_althilr r pt..uttaJripl.attss (23.900 hi) .1I p1. iS robims. 4t1 Nwli. bstute. (a. 2393 11.0 197243 btit. pleatslusieptaIrt (23.000 ha) .11 p1it sA e-bh_ proesitigs fatlttla.. Tr.s Irratla 1 CLn. 3335) 30.0 1977-43 9bbev 0Isllhdldr platIRg (7.100 h*)l d load "ttlemost. ittl.. btatsi _ iSlthi.d.tr 03.0 197142 i.t.t. ai iteremat oil Pa1 (3.000 ha) A tarObs (La. 34993 (1*700 ha) pl-tlwq es-erital iris rnbs to ill Palms. IalM bu*t. .5 isillbldsra 02.3 13915 3.0br svtatem 0.300 ha) Md 1m3heldsr. (La. 16043 (315200 IA). tnuItr sttss It C 1105) 90.0 39195 baIt fans partly plait t rt.Uhr. 3rd NI-a but-ti Ms balIhildr. 99.0 919-0 amsr stitr iAmilttiidi, a" d pliatsin (35.000 bh) (Im. 1751) Set _ll 31 pat.. -tots cs-peiat (2.135 ha). 4th Mitt... d _tat. m.t11b.1hular 42.0 192040 Oarmar d11 paIn plastli (54.000 sl canstriattea (La. 1523) srI .l111 SW tbor fartat. slleU.ld-r Mhbb-r es-l-amnt (Cr. 9902 43.0 195044 tohr aslildirT pl-tant (36.300 hi). Mhitt .At-t- .5d Ihat.11 dr T 393.0 195142 9ilIildsr planinis .00 b. o11 p1.1t 0.700 bn (La- 2007) scimetl 3.700 hi TfIs; aid pr-acle fatltilaa. bal_* itt. aNd SmIlhIldrr 09.3 192-88 5.1Sr seta t3.3001 hi) MA -sllldsr eawci ILa. 2120) (0.000 hi). Macla. itt. aSd baillthldara 154.4 195245 tet..a M5 .. lIhild.r p1-tlIm of 39.200 hi. rabr (La. 2232) *.d 21.000 hi .11 pwis sallhsldir U bar 1 11 I-int 131.0 199543 sulildaUnr rakr plantlig (39.300 h.) *d (La. 2094) *it_i - c(133..000 a). li JMSk TrMSal L 2S -ttlseet 14.0 1906-75 Ss 4lbldir sll pl. (10.450 hi); aS r ir plKltt5 (L 533) (1.400 h).: caaetracti of *11 .1l. 2ed hagl. Trlta.la l_n t-tela-att 32.0 1970-75 5a.tol-dr sdl pisi (4.iOe ha). MA riobbr pIml- (t.. 672) (3.200 hi); um-erietvt if .11 d11. 3rd Juigs Trtiils LaS Istiss-t 23.0 19723-1 S_sitLldr oit paI. (5.900 nd) :5 ndr-l. pli-tina (ta U5) (0.500 ha): if oer a11 .111. Jhob I_d Mttlisst (La. 97 40.0 197-3 sbIlFoldor all pals (20.2D0 b.) pl3.ng5: sasetraceta c 3 .11 .11s. . bat J-4re CIL. 973) 43.0 197443 Car ii -f Oser_mr rA r plantint (10.00 hi) C. .11 pal. NW _t. tntoo Lan Stdl_ott Ct. 3044) 26.D 3975243 SslIhaldr .11 psl. (22.000 h) pltiaatg; cooitr-etia of 3 Itt III.. pLiv VL asdSittldt (L. 1290) 2M.0 19n795 Iollhtldar nl pa. (1.100 hi) MA ruhbh p I-atl.z. Ta-ftrah C". 1900) s0.0 393349 Sallbsldar pI-elm CS.400 ha) it st. pil. IUM I C("a 2013) 37.0 1395346 Sallihld-r pl-tifrtlrpliauIs .1 rbbar (26.00o hi) iS oil p. (5.100 ba. tatrnettan if 2 sit .1110. bdAh Vit.7q AgriCaltoral SastnPlaot 36.9 195315 balhiud tbIs rr rplsntlvg (33.100 hi). (L.. 222D) llree hsritmtnral Dir.l.-isn 25.4 1945 J_lhoU ir v.b1t rplp-tiss (9.000 h.). tin. 2167) r _p-N C.-i_ Wa Biltii saS bttI-st iA 4.9 1901-73 M71llbhld-r *il p.. plIsalog (3.830 hi). 8-alawnt, (Cr. 3371175) SisS_d tt a l_ Sittla t (La 312) 32.0 1974 1ntlIh d-r (5.40 hi) o MA wues (4.000 ha) pl_tla if il. pal-: eciatraetoi -i Mi.11 ill. 2ed Cr5: (C" 1149) 33.0 1959244 Agieclarrl rSit fi platt.g if oil pVsI. rb4r i_ itbir triptVl tro.ie. Sri tank baalholdir tbb b heihlinttui 36.0 1900-16 SalInt.dsr robber rap-attus (35.000 ha). (Cr. 3037) Tha ll_d Mif- Mpl-tllg (La. 1323) 30.0 1976-B2 hbbhr aaltbOolder n,s.t3a (130.00 hi). SS T r_s eripi (La. 2075) 162.0 195247 Mhbbir .alhildr roplistlg (262.000 hn). L- A ICI Satll Anm.s Aaril..le.nl niritpais 26.4 399-527 S1.sllhldir ill p1. pLantli (3.800 hi). (Cr. 2163) Trplx T1r6p/ t C 12) 19.0 197943 KrS a all psa (3.000 h). rft. _ a c.trnttcta if - setl .111. ANNEX1.2 IHPACT EVALUATIONREPORT KALAYSIA - FIRST, SECOND AND THIRD JENCKA TRIANGLE PROJECTS (LOANS 533, 672 AND 885-NA) DEVELOPMENT AGRICULTURAL HAIN SOCIAL INFRASTRUCTURE -- -- ~~~~~~~~~~~~~~ ~~~~~~ ~~~~~~~ 3omque Stge Area under Year of Start of Settlet Primary Secondary Health Community Supply and Schem_ Crop harvest development harvest fa-mli.e achool school center/clinic Center Access Road VtILImeRoad Syate. Temple Jengka I oil pals 2,234 1967 1971 543 1 1 1 4.0 11.6 1 I Jengka 2 oil pals 1,877 1967-68 1971 436 1 1 2 1 1.6 7.3 1 1 Je*Zk3 3 oil pals 1,817 1966 1972-73 409 1 1 1 1.6 11.6 1 1 Jengka 4 oil palm 1,453 1967-68 1972 340 1 1 1 1.6 10.9 1 1 Jengka 5 oil palm 1,328 1969 1973 324 1 1 1 1.4 8.7 1 1 Jengka 6 oil palm 1,712 1968-69 1973 367 1 1 1 1 4.8 10.5 I I Jeng}a 7 rubber 1,410 1967 1975 332 1 1 1 4.8 9.8 1 1 StageI s enJka 8 rubber 1,472 1968 1977 350 1 1 1 15.0 9.4 1 1 Jengka 9 otl pals 1,396 1970 1974 335 1 1 1 4.0 11.0 1 I Jengka 10 oil pale 1,702 1970 1974 415 1 1 1 1 0.1 11.5 I I Jengke 11 oil pals 2,187 1970 1975 501 1 1 1 1.1 11.2 1 1 Jengka 12 rubber 1,717 1971 1974 .04 1 1 1 15.2 8.6 1 1 Jeangka 13 oil pals 1,638 1972 1975 370 1 1 1 15.2 10.4 1 3 Jengka 14 rubber 2,022 1971 1980 465 1 1 1 1.6 11.9 1 1 Stage111 IJengka15 oil palm 1,470 1972 1976 385 1 1 1 5.9 9.5 1 1 Jengka 16 rubber 1,574 1972 L980 422 1 1 1 4.9 5.9 1 1 Jengka 17 oil pale 1,748 1973 1977 404 1 1 1 4.9 4.9 1 1 Jengka 18 oLl pals 1,976 1973 1977 456 1 1 1 1 4.9 9.8 1 1 Jengka 19 oil palm 2,657 1974 1977 583 I 1 1 10.6 9.8 1 1 Jengka 20 rubber 1,193 1974 1982 482 1 1 5.6 10.6 1 1 Jeangka21 rubber 1,457 1974-75 182 413 1 1 1 1 4.8 5.6 1 2 Jengka 22 rubber 1,218 1975 1982 301 1 1 1 15.5 4.7 1 Jeangka23 oil palm 1,888 1974 1978 434 1 1 1 15.5 1 1 rotal 39,146 9,471 22 5 24 23 129.1 220.7 23 25 'I i i9 A X) i - 77 - ANNEX2: AGRICULTURAL ANDECONOMICIMPACT I \\t I l Q-1 - 79 - ANNEX2.1 IMPACTEVALUATION REPORT MALAYSIA- FIRST, SECONDANDTHIRD JENGKATRIANGLEPROJECTS (LOANS 533, 672 AND 885) Oil Extraction Rate T( of ffb) M IL L S Ulu Jempul Jengka 4 Jengka 9 Jengka 18 Average 1974 18.77 17.54 - - 18.15 1975 17.22 17.28 - - 17.25 1976 18.23 18.57 17.84 - 18.21 1977 18.28 18.72 17.64 - 18.21 1978 18.21 18.46 13.76 - 18.48 1979 17.59 17.44 18.23 17.53 17.70 1980 16.92 17.59 17.70 18.44 17.66 1981 17.14 17.76 17.68 18.61 17.80 1982 17.08 18.16 18.65 18.43 18.08 1983 16.98 18.26 18.62 18.70 18.14 1984 16.30 18.03 18.49 18.93 17.94 - 80 - ANNEX2.2 REPORT IMPACT EVALUATION MALAYSIA- FIRST, SECOND AND THIRD JENGKATRIANGLEPROJECTS (LOANS 533, 672 AND 885) Kernel Extraction Rate (Z of ffb) M I L L S Ulu Jempu_ Jengka 4 Jengka 9 Jengka 18 Average 1974 3.14 2.50 - - 2.82 1975 2.45 2.50 - - 2.47 1976 3.46 3.08 3.11 - 3.22 1977 3.49 3.37 3.05 - 3.30 1978 3.96 3.27 3.64 - 3.62 1979 3.51 3.36 3.71 2.89 3.37 1980 3.02 3.73 3.31 3.45 3.37 1981 3.76 3.64 3.64 3.33 3.59 1982 3.73 3.63 3.85 4.55 3.94 1983 4.51 5.03 4.39 4.55 4.62 1984 4.88 4.86 4.38 4.08 4.55 - 81 - Annex 2.3 PALMOI L S PRICES) (1981 CONSTANT 1948-81 ACTURL;1982-95 PROJECTED 14 am5 1955 1960 965 1970 IS75 19|0 19e6 1990 199 YERRS (MY)I INOEX UNIT VFILLE OEF lRTO BY rRNURCUlIRINC ___ ErFUEO BY OECDMP OEFLATOR Source: Price Prospects for Major Primarv Cormrditids, Vol.II, July 1982. 82 - - Annex 2.4 RUBBER (19S1CONSTRNT S PRICES) 1948-81ACTURL; 1982-95 PROJECTED cn 9I 59-~~~~5 .19- 1945 1950 1955 1960 1965 1970 1975 1990 19915 1990 1995 YEARS OEFLATED BY MRNUFRCTURINGUNIT VRLUE IMUVI INDEX - ---. OEFLRTED BY OECO GOP OEFIRTOR Source: Price Prospects for Major Primary Commodities, Vol. III, July 1982. - 83 - ANNEX3: SOCIAL IMPACT -AM/ -'s9T - - ANNEX3.1 IMPACTEVALUATION REPORT HALAYSIA- FIRST, Sr.CONDANDTHIRD JENCKATRIANGLEPROJECTS (LOANS533, 672 and 885-HA) Table 1: FIRST JOINING FELDA AGE OF SETTLERWHEN LOCALITY SETTLERSIN THE FOLLOWINC AVERAGE PERCENTACE ACE GROUPS AGE WHENFIRST JOINING FELDA YEARS Below 21-25 26-30 31-35 36-50 41-50 51 & 20 over Jengka Stage 1 1.4 23.2 37.2 23.2 13.0 1.4 - Jengka Stage II 2.6 22.4 31.6 30.3 11.8 1.3 - Jengka Stage III 3.6 14.3 40.5 20.2 10.7 9.5 1.2 Total 2.6 19.7 36.7 2-.5 11.8 4.4 0.4 Table 2: LAND AREA OWNED PRIOR TO JOINING FELDA Area owned Total Jengka Jengka Jengka in acres Stage I Stage II Stage III Zero 72.1 66.7 72.4 76.2 LAs. than one acre 1-1.9 2.2 1.4 3.9 1.2 2-2.9 4.4 1.4 5.3 6.0 3-3.9 4.8 4.3 3.9 6.0 4-4.9 5-5.9 16.6 26.1 14.5 10.7 6 & over Table 3: Settler and Wife's Main OccupationPrior to Joining Scheme Main Occupation Percentage Reporting Settler Wife Not working; unemployed 3.0 83.4 Trade, small busines 3.9 1.3 Padi planting 24.9 6.1 Rubber tapping 31.0 5.6 Oil pals plantation worker 5.7 1.3 Laborer, odd job worker 20.1 2.2 Fisherman 1.7 - Ex-merviceman I.7 - Government servant 2.2 - Others 5.9 0.1 Table 4: Average Monthly Income Earned by Settler Prior to Joinnl;o FELWA Monthly X Settlers Reporting Income All settlers Ol Palm Settlers Rubber Settlers 1-49 1.3 1.3 1.3 50-99 0.8 0.7 1.2 100-149 15.3 20.5 6.0 150-199 26.6 24.0 31.3 200-249 19.2 17.1 22.9 250-299 7.4 4.8 12.0 300-349 14.0 15.0 9.6 350-399 3.0 4.1 1.2 400-449 2.2 1.4 3.6 500-9C0 4.8 4.8 4.8 Average Monthly IncomeUS$ 211 86 ANNEX 3.2 REPORT IMPACT EVALUATION - FIRST, SECOND MALAYSIA AND THIRD JENGKATRIANGLEPROJECTS (LOANS 533, 672 and 885-MA) Place of Origin /a of Settlers Place of Origin Type of Settlers: X Reporting of Settlers Total Oil Palm Settlers Rubber Settlers Johor 6.1 5.5 7.2 Kedah 15.3 13.0 19.3 Kelantan 12.2 13.0 10.8 Melaka 1.7 2.7 0 Negeri Sembilan 2.2 2.7 1.2 Pahang 23.6 17.1 34.9 Perak 13.1 14.4 10.8 Pulau Pinang 3.4 5.4 1.2 Selangor 14.9 15.8 13.3 Terengganu 4.8 6.8 1.2 Perlis 2.2 3.4 - /a Place of origin is the place of residence at time of application to joir.FELDA. _ 87 - ANNEX 3.3 IMPACT EVALUATION REPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 and 885-MA) Table 1: Average Household Size Average % Households in tie Following Household Size Type of Household 10 & Settler Size 1 2 3 4 5 6 7 9 10 over Oil Palm 6.7 - 0 3.4 8.2 12.3 26.7 15.1 16.4 11.0 6.8 Rubber 5.9 - 2.4 4.8 16.9 20.5 19.3 6.0 3.6 6.0 6.0 Total 6.4 - 0.9 3.9 11.4 15.3 24.5 16.6 12.7 8.3 6.6 Table 2: Age of Settler in 1985 % Settlers in the Following age Groups Type of Average 60 & Settler Age 21-30 31-40 41-50 51-60 over Oil Palm 47 4.1 53.4 38.4 3.4 0.7 Rubber 38 14.5 47.0 37.3 1.2 0 Total 44 7.9 51.1 38.0 2.6 0.4 _88_ ANNEX 3.4 IMPACT EVALUATION REPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 ard 885-MA) Settlers' Perception of Social Infrastructure and Quality of Life Settlers' Rating: X Settlers Reporting Infrastructure Very Unsatis- Not Avail- Not Nec- Do not Good Good factory Ba-I able essary Know Community Center 2.6 77.3 17.9 0.5 - - 1.7 Primary School 3.9 88.6 4.8 0.4 - 0.4 1.7 Secondary School 3.- 56.3 10.0 0.4 19.7 0.4 9.2 Religious School 2.6 80.8 10.0 0.9 2.2 0.4 2.6 Kindergarten 0.9 87.3 7.0 - 0.9 0.9 2.6 Mosque 5.2 90.0 3.1 - - - 1.3 Maternity Clinic 1.7 79.5 14.0 1.3 1.7 - 1.3 General Clinic 1.3 51.5 13.1 1.7 29.7 0.4 1.7 Private Clinic - 20.1 3.1 0.4 66.8 0.9 8@3 Govt. Hospital 0.4 21.4 9.6 0.9 59.4 0.4 7.0 Water Supply 3.1 51.1 37.6 7.0 0.9 - - Electricity Sup. - 17.9 19.7 5.7 55.0 - - FELDA Shop 0.9 75.1 19.2 1.7 2.2 - 0.4 Provision Shops - 61.6 17.5 0.9 4.8 - 1.7 Eating Shops 0.4 85.6 8.3 - 1.3 0.4 3.5 Roads jithin Scheme 1.7 31.9 55.9 9.6 0.4 - - Roads from Scheme to Town 1.3 69.4 27.1 1.3 0.4 - - Cinema - 2.6 0.9 0.4 72.1 22.7 0.9 Children's Playground - 40.6 24.5 3.5 25.3 1.3 4.4 Games and Sports Facilities - 75.5 15.3 1.7 1.7 1.3 4.4 Women's Institute - 67.2 14.8 - 4.4 0.4 13.1 Youth Brigad2s - 52.0 23.6 0.9 11.4 0.9 11.4 Postal Services 3.1 61.6 29.7 3.5 0.4 - 1.3 Telephone 0.4 12.2 15.3 3.1 68.1 - 0.9 Bank - 37.1 8.7 - 50.7 0.4 3.1 Information Services - 50.7 28.8 4.4 7.9 0.4 7.9 Environment 0.4 51.5 35.4 6.1 2.6 - 3.9 Transport to School 0.9 58.5 16.2 0.9 18.8 0.4 4.4 Transport to Shopping Ctr. 0.4 29.7 17.5 0.9 48.0 2.2 1.3 Transport to Work 04 19.7 10.5 0.4 57.2 9.2 2.6 IMPACT EVALUATIONREPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 and 885-MA) FELDA's Progress and Settlers'ExpectationsBefore Joining FELDA % of Settlers Reporting All Settlers Oil Palm Settlers Rubber Settlers Very Good Unsatis- Bad Very Good Unsatis- Bad Very Good Unsatis- Bad Good factory Good factory Good factory Raising Levels of Income 11.8 76.0 11.8 0.4 11.6 84,2 4.1 0 12.0 61.4 25.3 1.2 Improving Quality of Rural Life 7.0 83.8 8.9 0.4 7.5 86.3 6.2 0 2.2 79.5 13.3 1.2 Job Opportunities within Sclheme for Children 1.3 59.6 34.2 4.4 2.1 62.1 30.3 4.8 0 55.4 41.0 3.6 Providing Housing 2.6 76.0 19.7 2.1 4.1 78.1 15.8 2.1 0 72.3 26.5 1.2 Health Services 1.7 70.3 24.5 3.5 2.1 74.7 19.2 4.1 1.2 62.7 33.7 2.4 Living in a Clean Environment 1.3 72.1 24.0 2.6 2.1 73.2 21.9 2.8 0 69.9 27.7 2.4 Unity among Settlers 7.9 82.5 8.7 0.8 6.8 88.4 3.4 1.4 9.6 72.3 18.1 0 U - 90 - ANNEX 3.6 IMPACT EVALUATION REPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 and 885-MA) Most Important benefits of Being a FELDA Settler: Percentage Settlers Reporting Possible X Settlers Reporting Benefits Oil Palm Rubber All 1. Improved House 20.0 14.5 18.3 2. Vehicle Ownership 4.8 1.2 3.5 3. Household Facilities, T.V. 0.7 0 0.4 4. Educaticn of Children 34.0 36.0 35.4 5. Health Services 0.7 2.4 1.3 6. Clean Water 0 0 1.8 7. Roads and Transportation 0 3.6 1.3 8. Community Centers and Facilities 2.7 1.2 2.2 9. Future Ownership of House 5.5 10.8 7.4 10. Fugure Ownership of Land 13.1 18.1 14.4 11. Guaranteed Minimum Income 17.8 12.0 15.7 12. Non-agricultural Job Opportunities 0 0 0 _91 _ ANNEX3.7 REPORT IMPACTEVALUATION - FIRST, SECONDAND THIRD JENGKATRIANGLEPROJECTS MALAYSIA (LOANS 533, 672 and 885-MA) Table 1: Settlers' Preferences of Their Future Type of Farming Organization After Loan Repayment and at Time of Replanting Z of Settlers Who After Repayment and at Replanting would like to Remain in the Be Independent Type of Settler FELDA System of FELDA Oil Palm Settlers 73.1 26.9 Rubber Settlers 63.4 36.6 Total 69.6 30.4 Table 2: Type of Tenurial ArrangementsPreferred by Settlers Z Settlers who would prefer their tenurial arrangement to be: Type of Settler Individual Block Land Share of Leave the Land Title Title the Scheme Scheme Oil Palm Settlers 69.2 28.6 1.4 0.7 Rubber Settlers 92.7 4.9 2.4 0 Total 77.6 20.2 1.8 0.4 - g2 - ANNME3.8 IHPACT EVALUATIONREPORT MALAYSIA - FIRST, SECONDAND THIRD JENGIK TRINGLE PROJECTS (LOANS 533, 672 and 885-NA) Table 1: Work Aspirations of Settlers Aspirations of Settlers: Z Settlers Reporting Type of Settler Go into Fulltime Work in FELDA Settler Leave Scheme Retire and Business Work with FELDA & and Open and Work Leave Farm Outside Business Elsewhere to Children Oil Palm Settler 19.9 19.9 9.6 24.7 0.7 24.7 Rubber Settler 19.3 18.1 12.0 24.1 1.2 24.1 Total 19.7 19.2 10.5 24.5 0.9 24.5 Table 2: Settlers' Aspirations for Children Living in Scheme Aspirations of Settlers with Regard to Their Children: 2 of Settlers Reporting Type of Settler Live and Work Do Other Work on Migrate Out in the Scheme/ Scheme: Commercial of the Scheme Agricultural Work Activity Oil Palm Settler 26.6 13.3 60.1 Rubber Settler 27.2 13.6 59.3 Total 26.8 13.4 59.8 Table 3: Children Who Migrate Out of the Scheme - Type of Work They Intend to do Preferred Work for Children Who Migrate Out: Z Settlers Reporting Type of Business % Who Prefer Government Work in Farm in Join FELDA Children to Business Employment Private New Place Scheme in Other Migrate O-t Sector New Area Of Scheme Oil Palm Settlers 60.1 26.7 47.6 6.7 1.9 3.8 13.3 Rubber Settlers 59.3 16.1 57.1 7.1 1.8 7.1 10.7 Total 59.8 23.0 50.9 6.8 1.9 5.0 12.4 - 93 - ANNEX4: FINANCIAL IMPACT - 9a C - X s -.z- qr- : /, X//j - 95 _ ANNEX 4.1 IMPACT EVALUATION REPORT KALAYSIA - FIRST, SECOND AND THIRD JENK;KA TRIANGLE PROJECTS (LOANS 533} 672 AND 885-HA) Stationery Provision Coffee News Motor Barber Fish Jengk- Scheme Shops Shops Vendors Workshops Shops Tailors Vegetables Pecrol Hardware Others Total Jengka I 10 3 1 1 - - - _ _ - 15 Jengka 2 8 5 2 1 2 1 2 _ - - 21 Jengka 3 7 6 - 2 I 1 2 2 1 1 23 Jengka 4 9 3 1 3 1 1 - 3 - - 21 Jengka 5 6 3 - I I I _- - - 12 Jengka 6 11 6 - - - I I - 19 Jengks 7 10 5 1 2 I 1 _ _ I - 21 Jengk- 8 14 6 - I I 2 _2 _ 27 Jengka 9 5 3 - I I - I - - 1 .2 Jengka 10 6 4 1 1 I _- _ - - 14 .engka 11 8 0 - 2 1 - 3 - _ - 20 Jengka 12 11 5 - 3 1 1 - - I _ 22 Jengka 13 14 4 1 4 1 1 - - I _ 26 Jengka 14 8 4 - 3 - 2 - - I _ 18 Jengka 15 15 3 1 1 - I - - I _ 22 Jengka 16 10 2 - 2 I I - - 2 - 18 Jengka 17 5 3 - 2 2 - - - L - 13 Jengka 18 11 3 1 2 1 - 2 2 _ - 22 Jengka 19 11 9 - 3 1 2 2 1 L - 30 Jengka 20 7 3 - 1 I 2 1 - I - 16 Jengka 21 9 2 - 2 1 - - - _ - 14 Jengka 22 10 4 - I I I 0 I I - 25 Jengka 23 12 - 2 3 1 _ - I - 22 TOTAL 217 94 9 41 23 20 20 9 17 3 453 | - 96 - ANNEX 4.2 Page 1 of 2 IMPACT EVALUATION REPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 AND 885-MA) CASE STUDY OF A GENERAL GROCERY SHOP Encik X occupies one of the end lots and the block of five shops built by FELDA in the business square of Jengka Scheme No. 2. The shop is of the usual standard size 60 feet by 20 feet and the current rental is $30 per month. FELDA built in 1970 only one block of five shops in scheme No. 2. The shop is of half brick with a wooden frame and its appearance will be considerablyimprovedwith painting and repairs which are long overdue. Encik X, wife, and son aged 15 operate the shop and live in the premises. His settler house which is nearly one mile away is occupied by a distant relative and family who do the field work in Encik X's oil palm plot. Encik X pays the relative $300 per month for this help in the farm work. This arrangementwhereby Encik X and family concentrate on the general grocery shop while the work on the oil palm lot is attended to by the hired workers has been going on since 1974, after 3 years in the scheme. The standard of work on the agricultural lot has been satisfactory and Encik X has not received any warning letter or been reprimanded for poor field maintenance by the FELDA field staff. The field staff report that hired workers make it a point to comply with the cultivation standards that are required by FELDA. Encik X and wife are from Kelantan. Approximately7 out of the 30 shop-lots in Jengka Scheme No. 2 are operated by settlers from Kelantan, a state where the local men and women are active in small businesses as the productivity from agriculture is low. However, neither parents of Encik X and wife were engaged in business and therefore they have had no previous business experience. Encik X was a trishaw-peddlerin Kota Baru prior to joining the scheme and was earning $3 to $5 per day. Their ties with people in Kelantan are being fully utilized to earn supplementary income and this will be explained later. Both husband and wife had hardly completed their primary education. What made them go into business? Both of them noticed very early after their arrival that a new land development scheme with 440 families had considerablepotential for business; there were no other shopping areas in those days where the settlers could buy their daily requirements. The availability of a built shop was of great assistance. He had no savings to invest but a loan of $2,000 from MARA was sufficient. MARA has been the most important source of loan capital for Bumiputra businessmenand has a special program for this purpose. Profits have been ploughed back and the variety of goods sold is sufficient to meet the requirements of the limited number of customers from the scheme. The shop sells the typical goods in daily use: rice, sugar, cooking oil, cigarettes,condensed milk and milk powder, tooth paste, talcum power, soaps, detergents, torches and batteries, etc. Supplies are brought in by itinerant traders in travelling vans who come mainly from the nearby small towns but - 97 - ANNEX 4.2 Page 2 of 2 also from more distant states. There is no shortage of these suppliers of goods who specialize in the products they distribute for there are separate vendors for cigarettes, milk products, plastic goods, biscuits, spices and general goods, etc. Encik X has his business dealings with a small number of them. He could obtain his stocks on credit but he prefers to make cash payments for he believes that he could get the best offers in this way. All his goods are supplied by individual chinese wholesale suppliers and he is satisfied with both the price and quality of the goods supplied. These distributors have served a large number of settler shops in Jengka and elsewhere and they in turn obtain their goods from larger wholesalers. Thus these goods pass through a number of middlemen and the price could be lowered if there is direct distribution from the wholesalers and importers. This will involve purchases in large quantities e.g., a lorry load of rice. But Encik X's business is small and he faces severe competitionnot only from other small shops but also from FELDA Corporation'slarge store. FELDA Corporation stores are much larger with a wide variety of goods (a supermarket in the scheme area). They provide credit to settlers and by doing so, have drawn most settlers as its customers. This Corporation shop is supported by FELDA which makes deductionsfrom the pay sheets for the credit given to settlers and there are therefore no bad debts. However Encik X because of personal ties and individual preferences has his regular customers of about 30 households. He provides limited credit to about 10 of them and in this way is able to meet the competitionfrom the FELDA and other provision shops. An advantage of the private shop is that it is open from 8 a.m. to about 10 p.m. seven days of the week while the larger and better organized FELDA shop keeps to office working days and working times which are not always convenient for customers. In addition to the usual items sold in a general grocery, Encik X also retails petroleum and engine oil to motorcyclists. He is one of four retailers of petroleum in the Jengka 2 area. With nearly every settler owning a motorcycle, there is a steady demand for fuel, although selling the item without some form of fire protection adds to the risks of business. The daily turnover is modest and on average amounts to M$80 to M$100. This will provide him a net profit of about M$20. But he has other side-line incomes. Encik X maintains close ties with Kelantan, the state of origin of he and his wife. They now own a car and make a trip and sometimes two trips per month during the peak oil palm harvest season. The travelling costs are more than covered by small businesses that are undertaken in these trips; they bring from Kelantan sarongs, batik cloth, Thai fancy goods, silver and brass ware and jewelry and these are retailed to the women folk at the scheme level in installmentswith easy payments. There is a good profit margin although collectionof small installmentsrequires patience and trust and there are occasional bad debts. In April and November oil palm yields are high and the settlers receive maximum incomes. It is in these months that Encik X and wife will make two or more trips to Kelantan, for much of the increased incomes are used for the purchase of semi-luxury goods rather than set aside as savings in one of the many saving institutions that could be used by the settlers. - 98 - ANNEX 4.3 IMPACT EVALUATION REPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 AND B85-MA) Percentage Settlers Who Have Improved or Renovated their House % settlers Z settlers Average total who have who have cost ($) of Type of improved not renovated renovations, settler house house improvement Oil Palm settlers 72.6 27.4 4,540 Rubber settlers 54.2 45.6 2,727 All settlers 65.9 34.1 3,939 Percentage Settlers Who Have Improved or Renovated their House by Stage of Development Stage I Stage II State III % ($C) CS) ($) settlers Average settlers Average settlers Average who have cost of who have Cost of who have cost of Type of improved improve- improved improve- improved improve- settlers house ment house ment house ment Oil Palm settlers 78.9 6,035 88.8 4,155 47.7 2,069 Rubber settlers 100.0 5,208 61.3 2,382 31.8 1,066 All Settlers 82.6 5,861 77.6 3,584 41.6 1,725 Expenditure on Renovations: Percentage Settlers Reporting Expenditure on renovations (M$) % settlers reporting Less than 2000 38 2001- 4000 31 4001- 6000 13 6001- 8000 8 8001-10,000 4 Over 10,000 6 Total 100 - 99 - ANNEX 4.4 IMPACT EVALUATION REPORT MALAYSIA - FIRST, SECOND AND THIRD JENGKA TRIANGLE PROJECTS (LOANS 533, 672 AND 885-MA) Ownership of Selected Assets by Type of Settlers Oil palm settlers Rubber settlers Purchase Purchase % reporting price X reporting price (M$) (MS) Car, van 23.9 10,240 13.2 5,136 Motor cycle 93.2 1,692 95.2 1,335 Bicycle 46.6 178 20.5 135 Radio, Transistor 82.8 186 71.1 165 T.V. Black & White 63.0 1,021 67.5 938 T.V. Color 37.6 1,655 14.5 1,645 Video 1.4 1,440 Sewing machine 58.9 582 36.1 578 Refrigerator 7.5 1,242 1.2 1,200 Electric iron 19.9 39 8.4 41 Electric fan 24.7 118 14.5 133 Jewelry 20.5 646 14.5 400 Gas cooker 6.9 502 27.7 702 Lounge set 37.5 502 27.7 702 )/ -- ~~ __9-xs or p/v -j~ / tc~~~~~~~~~~~~~~~~~~~~t *'K~~~~~~~ K.~~~~ ~~~~~~~~~ * >1~~ I. -4--~~~~~~~~~~~~~~