PE Supporting Agriculture Innovation ASA (P173848) Summary Report October 16, 2020 FINAL Agriculture and Food Global Practice Latin America and Caribbean Region Contents 1. Introduction ......................................................................................................... 3 2. Objective ............................................................................................................. 4 3. Activities .............................................................................................................. 4 3.1. Stage 1: Experience sharing and consensus building ........................................... 4 3.2. Stage 2: Concept Note preparation ..................................................................... 6 3.3. Stage 3: Concept Note socialization ..................................................................... 6 4. Outputs ............................................................................................................... 6 4.1. Consultation process ............................................................................................ 6 4.2. Reports and presentations ................................................................................... 6 5. Key insights from the ASA .................................................................................... 7 5.1. Lessons learned from PNIA implementation experience .................................... 7 5.2. Insights to inform the design of an eventual PNIA2 ............................................ 9 6. Proposed design of PNIA2 .................................................................................. 12 7. Next steps .......................................................................................................... 13 ii 1. Introduction The National Program for Agricultural Innovation (Programa Nacional de Innovación Agraria – PNIA1) was launched in 2014 with the aim of transforming Peru’s national agricultural innovation system. As the completion of the first phase approaches, considerable progress has been achieved in strengthening the National Institute for Agricultural Innovation (Instituto Nacional de Innovación Agraria - INIA) and building a dynamic, multi-actor market for innovation services. The reform agenda remains unfinished, however, as additional efforts will be needed to complete the institutional transformation of INIA, transfer innovations to greater numbers of end users to achieve impact at scale, and boost the competitiveness of Peruvian agriculture. With the goal of building on the achievements of PNIA1, the Peru Ministry of Agriculture and Irrigation (Ministerio de Agricultura e Riego - MINAGRI) requested assistance from the World Bank in identifying challenges and formulating possible operational responses as it seeks to consolidate the national agriculture innovation agenda. Areas in which analytical support and advisory services were requested included: 1. Assessing the performance of PNIA1 and drawing lessons learned; 2. Identifying the target population for an eventual PNIA2 operation; 3. Designing potential components for an eventual PNIA2 operation; and 4. Developing a preparation timeline, including identification of the various background studies required under Peruvian law. 5. Identifying opportunities to promote the innovation agenda through regional development projects (e.g., in Loreto region) PNIA1 is being financed jointly by the Government of Peru, the World Bank, and the Inter- American Development Bank (IDB). At the outset of the ASA, senior management within MINAGRI confirmed the Ministry’s satisfaction with the technical assistance and financial support that have been provided by the two banks and expressed strong interest in seeking approval from the Ministry of Economics and Finance (MEF) to request financing from both banks to support an eventual follow-on operation. The prospect of continuing to collaborate is also appealing to the two banks, but additional effort will be needed to harmonize the visions of both organizations, agree on a common project design and implementation arrangements, and coordinate financing instruments. The distinctive nature of the process used by the Government of Peru to identify, prepare, appraise, and approve public investment programs made this ASA very timely. In most of the countries in which the World Bank provides Investment Project Financing (IPF), the Government through its Ministry of Finance sends a formal request to the World Bank to support a proposed operation, and if the World Bank accepts, the Government works with the World Bank task team to prepare the operation. In Peru, however, the process 3 is different: MEF sends the formal request to the World Bank for financing only after the project concept has been proposed by the line ministry, a concept note prepared, and a feasibility study carried out and approved by MEF. This means that by the time the formal request for financing reaches the World Bank, many features of the operation (including the development objective, target population, activities to be financed, and expected results) have already been decided. This greatly reduces the ability of the World Bank to contribute to the project design and participate in decisions concerning the implementation arrangements. For this reason, the resources provided for the ASA came at a very opportune time, because by allowing the World Bank to support a consultant charged with preparing the concept note for an eventual PNIA2 operation, they allowed the World Bank team to be actively engaged in the early conceptualization stages and influence the Government’s thinking about the design of the operation. This synthesis report describes the process that was followed during the implementation of the ASA, summarizes very briefly key insights and lessons learned from the PNIA1 implementation experience, identifies challenges on the road ahead, and introduces the concept for a PNIA2 operation that reflects the consensus views of key partners and stakeholders. The purpose of the synthesis report is to provide a flavor of the process that was followed to bring about a convergence of views reflected in the PNIA2 Concept Note, which is attached as an annex, along with other materials generated during the preparation of the ASA. 2. Objective The Development Objective of the Supporting Agriculture Innovation ASA was to support the Government of Peru in advancing its agriculture innovation agenda. More specifically, the ASA supported a participatory, consultative process involving key partners and stakeholders, with the goal of forging a shared vision around an eventual follow-on operation to PNIA1 that would have broad ownership and enjoy strong political support. A second objective was to identify opportunities to include in the integrated rural development project being planned for the Loreto Region a component to support scaling up of successful agricultural innovations identified under PNIA1. 3. Activities 3.1. Stage 1: Experience sharing and consensus building (a) PNIA2 Project During the first stage of the ASA, the World Bank team in collaboration with INIA convened a series of meetings that brought together key staff from the PNIA1 Project Implementation Unit, senior management of INIA, MINAGRI, and MEF, and counterparts from IDB to share impressions about the implementation experience of PNIA1 and to brainstorm about the parameters of an eventual PNIA2 operation. 4 (b) Loreto Region Project In parallel to the engagement to explore opportunities for an eventual PNIA2 operation, a series of meetings was held to discuss the design of an integrated rural development project in Loreto region that could potentially serve as a vehicle to finance local validation and eventual upscaling of promising innovations developed under PNIA1. In late 2019, the then Vice Minister of Territorial Governance (the Vice Ministry of Territorial Governance is under the Presidency of the Council of Ministers - PCM) approached the World Bank and requested guidance about how best to respond to Supreme Decree No. 139-2019-PCM, which mandated the PCM to prepare a plan to close the development gaps in 25 districts in Loreto Region, in the area of influence of the North Peruvian Oil Pipeline. The Vice Minister expressed interest in receiving expert advice on how to strengthen the provision of public services in these districts, which are characterized by a lack of infrastructure and are home to widely dispersed, mostly rural and indigenous populations with significant development needs. The Vice Minister had heard about the IBRD-financed Acre Social and Economic Inclusion and Sustainable Development Project - PROACRE (P107146) currently under implementation in Brazil, and he had asked his team to assess the potential relevance for Loreto Region of the types of interventions being supported under the Acre Project. The World Bank team engaged with the technical team from PCM charged with implementing the mandate of Supreme Decree No. 139-2019-PCM to close the development gaps in Loreto Region. The PCM team described their proposed approach, which is structured around four pillars: (i) productive investments (e.g., value chain development, technical assistance, asset transfer, strengthening of producer organizations); (ii) investing in human capital (e.g., education and health investments to increase coverage and improve quality of public spending on those areas); (iii) providing infrastructure for remote areas (e.g., water and sanitation, electricity, rural roads) and (iv) improving logistics (e.g., river transport facilities, improving access to various government services to citizens). The World Bank team arranged for participation in a series of meetings by colleagues and Government counterparts involved in the implementation of the Acre project and other IBRD-financed projects in Brazil that have generated important lessons learned that can help inform the design of similar projects in Peru. Based on the experience in Acre and elsewhere, the World Bank team provided comments on the design and implementation arrangements of the planned Loreto project. After learning about the Brazil projects, the PCM team expressed interest in hearing as well about the centralized approach to project implementation being used by Argentina’s Ministry of Agriculture, which maintains a central project implementation unit charged with implementing multiple projects -- the Dirección General de Programas y Proyectos Sectoriales y Especiales (DIPROSE). Additional meetings were scheduled, during which the World Bank team facilitated exchanges with DIPROSE staff. 5 The PCM team for quite some time expressed interest in exploring financing opportunities with the World Bank. However in May 2020, following a change in government, the decision was taken by MEF to seek alternative sources of funding for the Loreto Project through the Government to Government Program. Following this development, the World Bank and PCM teams agreed mutually to discontinue the conversation. 3.2. Stage 2: Concept Note preparation During the second stage of the ASA, the World Bank team engaged a consultant who was charged with preparing a concept note for an eventual PNIA2, as well as a preparation timeline for several related studies required by MEF. The World Bank team prepared terms of reference for the consultancy, which went through multiple rounds of discussion and revision before being declared acceptable by all the key partners (PNIA, INIA, MINAGRI, MEF, IDB). 3.3. Stage 3: Concept Note socialization During the third stage of the ASA, the World Bank worked with the PNIA PIU to familiarize key partners and stakeholders with the contents of the concept note, with the goal of securing their buy in and building ownership. Multiple meetings were held with the Head of INIA to review the concept note, as well as an accompanying PPT. Another meeting was held with the Minister of Agriculture and his staff to secure the Minister’s buy-in and talk through the process needed to secure approval for the project concept by MEF. 4. Outputs 4.1. Consultation process One important achievement of the ASA was that it allowed the World Bank team to engage productively with the large and diverse group of partners and stakeholders who have an interest in advancing the agriculture innovation agenda in Peru, reflect on the lessons learned during the implementation of PNIA1, forge a common vision of what an eventual PNIA2 operation would look like, secure their agreement to a particular set of objectives and specific project design, and sensitize them to the preparation time line that will have to be achieved to avoid a loss of momentum after PNIA1 ends. A list of the institutions that participated in the meetings convened as part of the ASA appears in Annex 1. 4.2. Reports and presentations Another important achievement of the ASA was that it supported the production of a detailed PNIA2 Concept Note and several associated PPTs describing an eventual PNIA2 operation that reflects the shared vision of the many partners and stakeholders, has been deemed acceptable to senior management in INIA and MINAGRI, and incorporates to a large extent the views of the World Bank and IDB. 6 The PNIA2 Concept Note is attached to this report as Annex 2. Two PPTs produced as part of the ASA are attached as Annexes 3 and 4. 5. Key insights from the ASA The ASA provided many valuable insights into the lessons learned under PNIA1 and how these might shape the design of and eventual PNIA2. 5.1. Lessons learned from PNIA1 implementation experience The discussions with key stakeholder and partners about the PNIA1 implementation experience led to the identification of many achievements, along with some areas in which the agricultural innovation agenda remains unfinished. Achievements of PNIA1 • Establishment of a competitive grants program to finance innovation sub-projects • Human capacity strengthening through scholarships and internships • Rehabilitation of many INIA agricultural research stations • Drafting of a national agricultural innovation policy and strategy • Launching of a national agricultural innovation prize program (CARAL) • Conversion of INIA to Organismo Técnico Especializado (OTE) status • Development of many INIA administration and management systems Unfinished agenda • Transferring innovations developed under PNIA1 to end users at scale • Ensuring the financial sustainability of the competitive grants program • Rehabilitation of the remaining INIA agricultural research stations • Ratification by Parliament of the national agricultural innovation policy and strategy • Preparation of a new organizational charter for INIA to take advantage of its OTE status. 5.1 Highlights from the PNIA 2 Concept Note The PNIA2 Concept Note begins with a brief analysis of the recent performance of Peru’s national agricultural innovation system, including a review of what has been achieved by PNIA1 during its initial phase and an assessment of the status and capacity of the National System For Agricultural Innovation (Sistema Nacional de Innovación Agraria – SNIA). The analysis takes into account the evaluation criteria used by the Peruvian National Investment System: National System of Multi-year Programming and Investment Management (Invierte.pe). The Concept Note highlights the significant progress that has been made under PNIA1. Noteworthy achievements include the modernization of many public research and extension facilities, the strengthening of human capacity through 7 training and capacity building activities, and the improvement of many strategic agricultural innovation services. The performance of INIA is compared to the performance of innovation agencies in a set of national and international peers. This benchmarking exercise reveals that that INIA has not yet made the transition from being an entity that mainly carries out research to being an entity that promotes innovation by serving as the coordinating body for a multi-agent innovation ecosystem. In addition, INIA does not yet have in place the instruments for planning and orienting policies, strategies, and plans in a way that can align the interests of different actors in the innovation ecosystem to ensure dynamic and innovative development of agriculture in the country. Despite the progress that has been achieved, much work remains to be done. When the situation in Peru is compared to the situation in national and international peers, important gaps are evident that must be addressed. For example, spending on agricultural R&D as a percentage of agricultural GDP in Peru stands at only 0.1%, far less than spending in comparators such as Uruguay (1.3%), Colombia (0.5%), Chile (1.2%) and Uruguay (1.3%), The low level of investment in agriculture is reflected in a weak human capital base and a lack of agricultural services. Skilled knowledge workers remain scarce in Peru’s agricultural innovation ecosystem relative to the number of farmers: in Peru, there is only 1 agricultural researcher for every 1,000 farmers, while in Brazil there are 31.7 researchers for every 1,000 farmers. Following from the scarcity of skilled knowledge workers, the supply of training, advisory, information and technical assistance services is low, ranging between 64% and 84% of the supply of services found in comparators. The Concept Note emphasizes that PNIA2 is expected to contribute to solving Peru's challenges in the area of innovation, but also to contributing to the economic reactivation of the agricultural sector in the wake of the COVID-19 pandemic. The pandemic has had a significant impact on the Peruvian agriculture, affecting especially the smallholder farmers who make up the majority of the family farming sub-sector. While the full impacts of the pandemic on agriculture remain unclear, it is estimated that in 2020 the gross value of agricultural production (GVP) will fall between 2 and 3%, resulting in losses of around S / 1,611 million. Given the current situation – lagging performance if INIA and the SNIA, and additional pressures caused by the COVID-19 pandemic – the Concept Note stresses the importance of consolidating INIA as the governing body of a dynamic and productive SNIA that can promote increased generation and transfer of agricultural technologies; accelerate the introduction of new processes, products, services and businesses in the agricultural sector; and drive rapid productivity growth in the agricultural sector to enhance profitability and improve competitiveness. Making this happen will require strong political commitment to make institutional changes and to back those changes with sustained resources. 8 5.2. Insights to inform the design of an eventual PNIA2 The discussions about the accomplishments and shortcomings of PNIA1 generated many important insights that can help shape the design of an eventual PNIA2. Four insights in particular stand out: 1. The competitive grants program supported under PNIA1 has generated many innovations, but further effort is needed to ensure that these innovations are taken up at scale. The competitive grants program supported under PNIA1 has succeeded in mobilizing SNIA actors in many key agricultural value chains, promoted a wealth of applied and adaptive research, supported piloting of promising innovations, and enabled extension services to generate, transfer and absorb knowledge and technologies to improve productivity and competitiveness. The competitive grants program has also contributed to the development of a thriving market for innovation services, which now features a large cadre of well-trained and experienced technical professionals working at national and regional level who are well placed to ensure that innovations generated and implemented under PNIA1 can be replicated ad scaled up. The focus under PNIA1 has been mainly on identifying and validating innovations, as well as determining the demand for those innovations once they have been validated. Under PNIA2, it will be important to continue mobilizing key actors in the various value chains to continue refining innovations and adapting them to local circumstances, but above all working to ensure that validated innovations whose value has been confirmed during PNIA1 can be transferred to new beneficiaries and replicated at scale. It is important to recognize that INIA does not have a comparative advantage in taking innovations to scale, so the emphasis during an eventual PNIA2 will have to be on leverage resources from other actors, particularly the private sector. The Mobilizing Finance for Development (MFD) approach being adopted under many World bank projects provides a good model for taking innovations to scale. By definition, innovations that have been validated under PNIA1 deliver benefits for producers and generate attractive economic returns, so potential beneficiaries will have incentives to adopt them. The emphasis under PNIA2 for these validated innovations should be on identifying and removing potential constraints to adoption, such as a lack of technical knowledge, lack of access to key inputs, and possibly lack of access to financing. 2. INIA has been significantly upgraded, but additional effort is needed to bring all INIA research facilities into the 21st Century. 9 INIA owns and operates a national network of agricultural research station including field experiment facilities and laboratories. Decades of underinvestment and deficient maintenance had left many of these research stations in extremely poor condition. Under PNIA1, 13 INIA experimental stations distributed throughout the national territory were successfully upgraded, through the renovation of buildings and greenhouses, rehabilitation of irrigation structures, replacement of laboratory equipment, acquisition of agricultural machinery and transport equipment, etc. The degraded state of INIA’s physical facilities is paralleled by the low capacity of its human resource endowment. Over time, deteriorating working conditions and non- competitive salaries have made it difficult for INIA to attract the best young talent; as a result, the INIA labor force has aged, with the average age of researchers now approaching 60 years. Under PNIA1, a start was made in reversing this longstanding trend: 65 international scientists have been hired, including 32 highly qualified researchers with master's degrees and doctorates. In addition, the skills of many current INIA scientists have been upgraded through their participation in national and international internships focusing on a range of research topics. The capacity of INIA has clearly been strengthened under PNIA1, but further strengthening is needed to bring the institute fully into the 21st century. In addition to additional investments an research facilities and research staff, it will be critically important to modernize research planning, execution, and evaluation processes to ensure that resources invested in promoting research and innovation more broadly are strategically focused on areas of greatest need, managed efficiently, and properly accounted. This will mean not only improving internal systems, but also further enhancing the capacity to serve as an effective mechanism for bringing together the entire range of partners and stakeholders, efficiently identifying common priorities, and coordinating collaborative work. 3. The national agricultural innovation system has been strengthened, but ratification of the national agricultural innovation strategy is needed to consolidate the gains and clarify the roles and responsibilities of different actors going forward. One important objective of PNIA1 was the development and ratification of a National Agricultural Innovation Policy and Strategy, which is needed to establish long-term objectives for the national agricultural innovation effort, define medium- and short- term objectives, and structure the roles of different key actors. The draft National Agricultural Innovation Policy has been developed under PNIA1, but it has not yet been ratified, and without a strong champion to move it through Parliament, its prospects remain uncertain. Ratification of the National Agricultural Innovation Policy will be an important step forward, but it will not be sufficient to guarantee progress. If the measures outlined 10 in the plan are not implemented, little will have been gained. Implementation of Policy will be the responsibility not only of MINAGRI and INIA, but more importantly it will depend on strong support from the actors who make up the regional agricultural innovation systems Local governments at regional and even municipal level will need to be incentivized to address the priority needs that have identified locally, which will require a strong outreach effort from the centralized authorities combined with a willingness to decentralize authority to decide the allocation of public resources. In short, revitalizing the national agricultural innovation system and empowering it to fulfil its role as the driver of productivity growth in the agriculture and food system will depend on the way in which the different actors of the SNIA can be integrated for better decision-making and provide tools that help to manage current and future processes for the development of the agricultural sector. 4. Conversion of INIA to OTE status is an important step, but preparation of a new organizational charter is needed to power the institutional transformation of INIA. An important achievement of PNIA1 was to achieve a change in the status of INIA on February 12, 2018 to that of Organismo Técnico Especializado (OTE). This opens the door to changes in the governance arrangements and operating procedures of INIA, which if implemented smartly could both improve the performance of INIA while at the same time providing a measure of autonomy from MINAGRI, which in recent years has experienced frequent changes in leadership that have made it difficult to maintain continuity in many policies and programs. In order for these changes to occur, the President of the Republic would have to issue a Supreme Decree authorizing a new Regulations of Organization and Functions (Reglamento de Organización y Funciones – ROF), which would require prior approval by MINARI and MEF. To date, a new ROF has not been issued, so the opportunity provided by the conversion to OTE status has not been realized. The need to process an new ROF for INIA is especially urgent in view of the prevailing uncertainty regarding the future evolution of national policies and programs to support innovation. The Government has approved a National Competitiveness and Productivity Plan (Plan Nacional de Competitividad y Productividad) that calls for a National Innovation Agency charged with coordinating innovation activities economy- wide. The role of INIA and other agencies involved in promoting innovation at sectoral level remains somewhat unclear. Legal analysis carried out as part of the preparation of the PNIA2 Concept Note concluded that Legislative Decree No. 1060, which lays out the regulatory framework for the national agricultural innovation system, empowers INIA to implement competitive grant schemes for the purpose of promoting research, training and technology transfer in agricultural matters. Thus it will be important to develop the new ROF for INIA in such a way that it will complement and add value to any new initiatives set out under the National Competitiveness and Productivity Plan, rather than leading to duplication of effort. 11 6. PNIA2 project concept It is important to understand that the PNIA2 Concept Note is a document that was prepared to meet the needs of MINAGRI as it seeks to mobilize resources to support an operation that can sustain the momentum that has been achieved under PNIA1 and continue the transformation of INIA and the SNIA. The project concept laid out in the PNIA2 Concept Note conforms to the requirements established by MEF for the preparation of public investment projects in Peru. The development objective, project design, and implementation arrangements are generally speaking consistent with what the World Bank and the InterAmerican Development Bank would like to see in an eventual follow-on operation, but significant modifications would likely be needed to conform with all applicable policies and procedures of the two banks. The general objective of the PNIA2 program is to improve the performance of the National Agricultural Innovation System. The specific objectives of the PNIA2 program include: 1. Contribute to increasing the generation and transfer of agricultural technologies. 2. Contribute to increasing innovation in new processes, products, services and businesses in the agricultural sector. 3. Consolidate INIA as the governing body of the SNIA. The program will consist of three technical components, each structured as a separate public investment program, as well as a project management component. Component 1: Promoting research and technology transfer The objective of Component 1 is to promote research and technology transfer in a collaborative and / or participatory manner between research institutes (public or private), universities (public or private), agricultural producer organizations, as well as other actors, for the purpose of generating scientific information, knowledge and technologies, on crops and breeding in the different regional areas of the country that generate impact on the development of family agriculture and Peruvian agro-exports. Competitive grants will be used to finance the following types of activities: • Applied and adaptive research projects. • Technology transfer projects. Component 2: Promoting agricultural Innovation The objective of Component 2 is to strengthen linkages between research institutes (public or private), universities (public or private), regional governments, local governments, agricultural producer organizations, among other actors, for the purpose 12 of promoting innovations via new business models and commercially oriented institutional arrangements that can benefits both the family farming sector and the agro- export sector. Competitive grants and targeted investments will be used to finance the following types of activities: • Projects to promote innovative commercial and organizational schemes. • Projects to promote innovative business models. • Projects designed to take validated agricultural innovations to scale. Component 3: Reform of INIA The objective of Component 3 is to continue the reforms of INIA, to enable it to effectively fulfill its role as coordinating body of the SNIA. The emphasis will be on strengthening the technical, human, and institutional capacity needed by INIA to become a modern, efficient and effective innovation agency. Targeted investments will be used to finance the following types of activities: • Design and implementation of innovation policies, strategies, and plans (at national, regional, and local level) • Design and implementation of innovation management instruments (e.g., regulations, guidelines, manuals, toolkits) • Design and implementation of knowledge management systems to support agricultural innovation (e.g., advisory services, decision-support tools, monitoring and evaluation systems, technological surveillance, etc.) • Capacity building (Follow-up and monitoring of the SNIA, intellectual property, etc.). For additional details, see the complete PNIA2 Concept Note in Annex 2. 7. Next steps The PNIA2 Concept Note developed under the ASA with input from a wide range of partners and stakeholders sketches out the design of a coherent and compelling program that if well executed would continue the processes that have been initiated under PNIA1 to modernize INIA and consolidate the SNIA. Armed with the Concept Note and the associated PPTs, the Minister of Agriculture is now in a position to make a compelling case to the Minister of Finance that promoting agricultural innovation will be critical both in the short run as the Peruvian economy is reactivated following the COVID-19 crisis, as well as over the longer term during the “Building Back Better� phase. 13 The Minister of Agriculture, having confirmed his agreement with and strong support for the project design as laid out in the Concept Note, is seeking an opportunity to meet with the Minister of Finance to discuss the additional steps that will be needed to include PNIA2 among the list of public investment programs approved for financing in the coming budget cycle. 14