Report No. 11126-YEM Republic of Yemen Agriculture Sector Study: Strategy for Sustainable Agricultural Production Volume I Main Report September 8, 1993 Agriculture Operations Division Country Department II Middle East and North Africa Region FOR OFFICIAL USE ONLY DokumntM of doe World Bank A - ~ hsdocumen has a resticted distribution and may be used by recipients on ly ~-~te peformnceof their official duties. Its contents may not otherwise be dislosd wthut orl Bnk authorization CURRENCY EOUIVALENTS (As of June 1993) US$1.00 - Yemeni Rials (YRls) 12.00 YR1 1.00 - US$0.0833 YRls 1.0 mlllion - US$83,333 Yemeni Dinar (YD) - YRls 26.00 WEIGHTS AND MEASURES 1 millimeter (mm) - 0.039 inches 1 meter (m) - 3.28 f-ot 1 square meter (m2) - 10.76 square feet 1 kilometer (km) - 0.62 mile. 1 hectare (ha) - 10,000 sq. meters (2.47 acres) 1 metric ton (ton) - 2,205 pounds 1 liter (1) - 0.264 gallons 1 l a - One liter per second 1 m Is - One cubic meter per second 1 MmH - One million cubic meters PRINCIPAL ABBREVIATIONS AND ACRONYMS USED AREA - Agricultural Research and Extension Authorlty ASMSP - Agriculture Sector Management Support Project BC - Block Centers CACB - Cooperative and Agriculture Credit Bank DRC - Domestic Resource Cost (Analysis) DRE - Department of Research and Extension EC - Extension Centers EPC - Environmental Protection Council ES - Extension Supervision ETD - Extension and Training Department FAO - Food and Agriculture Organization FAS , Financial and Administrative Subministry (MAWR) FFYP - First Five-Year Development Plan GDM a General Department for Marketing (MAWR) GDPM a General Department for Planning & Monitoring (MAWR) HWC - High Water Council IDD - Information and Documentation Department LCCD - Local Council for Cooperative Development LWCP - Land and Water Conservation Project MAWR a Ministry of Agriculture and Water Resources MDRT - Multidisciplinary Research Team MECO S Military Economic Cooperation Organization MOC a Ministry of Construction MOE - Ministry of Education MPD - Ministry of Planning and Development MSMMC - Municipal Slaughterhouses & Meat Market Corporation MST - Ministry of Supply and Trade NADP - National Agricultural Development Program PDRY - People's Democratic Republic of Yemen ROY a Republic of Yemen RDA - Regional Development Agency SMS - Subject Matter Specialist T&V - Training & Visit System TFDP - Third Five-Year Development Plan TS - Technical Secretariat UNDP - United Nations Development Program WRAY - Water Resources Analysis Project for Y-men WRS ' Water Resources Subministry (MAWR) YAR - Yemen Arab Republic THE REPUBLIC OP YEMEN FOR OMCL41 USE ONLY AGRICULTURE SECTOR STUDY VOLUME I - MAIN REPORT Table of Contents Page No EXECUTIVE SUMMARY i-xvii I. BACKGROUND TO THE AGRICULTURE SECTOR . . . . . 1 A. Introduction ..1 B. The Agriculture Sector. . 1 II. ECONOMIC ASPECTS.. . .. 4 Macroeconomic Setting. . 4 Agriculture in the Economy. .. . 5 Impact of Fiscal and Monetary Policies on Agriculture 8. . . . . . Impact of the Trade and Foreign Exchange Policies on Agriculture.. . 9 Third Five-Year Development Plans .. .10 Priority Actions for Macroeconomic Policies . ... 12 II. TECHNICAL ASPECTS ..15 A. Resources and Production Systems .15 Land Resource Base .15 Water Resource Base . . . . . . . . . . . . . . . . 16 This Study was prepared by an IDA team consisting of Michael Nightingale (Agricultural Economist - Team Leader), Christopher Ward (Financial Analyst), Tiaart Schillhorn (Livestock Specialist), Oskar Honisch (Agronomist), Sawal Boonmaw(Macroeconomist), Abdul-Karim Sadik (Privatization Specialist) and Srish Kumar (Statistician) working in collaboration with a Yemeni counterpart team led by Mr. Isam Luqman, Assistant Deputy Minister of Agriculture and Water Resources. A series of subsector studies were made in 1991 and the main mLisLon was flilded in February 1992. The report was reviewed ln a workshop in Yemen in February 1993. Peer reviewers were Hamdy lisa (Agronomlit), Cornelis de Haan (Livestock Specialist) and Kutlu Somel (Economist). This report was prepared under the supervision of Mrs. Ngozi Okonjo-Iweala (Division Chief, MN2AG), and approved by Mr. Ram K. Chopra, Director, Country Department II, Middle Bast and North Africa Region and Mr. Caio Koch-Weser, Vice President, Middle East and North Africa Region. Report presentation was coordinated by Mary Gallagher. This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. III. TXCHNICAL ASPXCTO (Continued) 3. Agricultural Production . . . . . . . . . . 16 Status of Rainfed arming . . . . . . . . . . . . . 16 Status of Irrigated Farming . . . . . . . . . . . . 16 C. The Crop Subsctor .opSubu.....r........ 17 Crop Production . . . . .. . . . . . . . . . . is Analysis of Crop Production and Potential . . . . 19 Priorities for Crop Production . . . . . . . . . . 23 D. Livestock Subsector ... ........ . . . . . . . 24 Trends in Demand for Animal Products . ...... ..25 Analysis of Livestock Production . . . . . . . . . . 26 3. The For-try Subsctor .y. 8ubs.ec...t.r.... 27 Analysis of Forestry Production . . . . . . . . . 28 P. Agricultural Inputs Supplio . . . . . . . . . . . . 29 0. Rural Infraftructure . . . . . . . . . . . . . . 32 rv. AGRICULTURAL INSTITUTIONS ASPECTS . . . . . . . . . . . 35 Introductlon . . . . . . . . . . . . . . . . . . . . 35 Ministry of Agriculture and Water Resources . . . . . 3S HeadquartersOrganization . . . . . . . . . . . . . . . 35 MAWR Field Operations . . . . . . . . . . . . . . . . . 38 MAWR Support Servic*s . . . . . . . . . . . . . . . . . 39 Recommendations for Agricultural Research . . . . . . . 40 Feld Bxtnnsion oervicesr . . .i. .xd .xte .s o .ces. 40 Analysis and Recommendations for Extension Services. . 41 Analysis of Agricultural *ducation . . . . . . . . . . . 42 Rural Finance . . . . . . . . . . . . . . 9 .* 43 Cooperative and Agriculture Credit Bank (CACB) . . . . . 43 Issues of Rural Finance . . . . . . . . . . . . . . 45 Recommendations for Rural linance . . . . . . 45 Cooperatives . . . . . . . . . . . . . 46 Agrlcultural Miark ting 47 Analysis of Market Opportunities . . . . . . . . . . . . 48 Parastatal Organizations in Agriculture . . . . . . . . 48 V. A8PFCTS OF ENVIRONMENT AND RURAL SOCIBTY . . . . . . . . S1 A. Natural Resources 9.......... 51 asic Challenge . . . . . . . . . . .. .. . . . 51 Water Resources ...... ...... 51 Land Resources . . . . . . . . . . . . . . . 9 . . . 53 3. Environmental Pollcy and InstLtutLons . . . . . . . S5 Recommendations on the Environment . . . . . . . . . 56 C. Poverty and dquty . . . . . . . . . . . . . . . . . 57 Indlcations of Poverty . . . . . . . . v . . .. . . S7 Policies and Programs Affecting the Poor . . . . . . 60 Recoaundations for A Poverty Roduction Program . . 61 O. The Role of Women . . . . . . . & . * . . . . . . . 61 RecommendatLons for Promoting Effective Assistance to Women Farmers . . . . . . . . . . . 63 VI. STRATEGY FOR SUSTAINAULI AGRICULTURAL DEVELOPMENT . . . 65 AgrLcultural Development PolicLes . . . . . . . . . . . 65 Prioritil for Investment . . . . . . . . . . . . . . . 68 Potential Develoyment Impact . . . . . . .. 72 Strategy for Aid CoordLnation ............. 72 TABLES IN TEXT: 2.1 Trends in Selected Economic Parametors 1985-1991 . . . . 4 2.2 Agricultural Imports and Xxports (1980 and 1990) Kajor Comodities and Percent of Total . . . . . . . . 7 3.1 Trends in Production Areas for Major Crops . . . . . . . 18 3.2 Comparative Advantage - Water at Marglnal Cost . . . . . 21 3.3 ComparatLve Advantage - Water at Shadow Price . . . . . 22 5.1 Poverty Indlcators . . . . . . . . . . . . . . . . . . . 59 Figure 3.1 Livestock Chart . . . . . . . . . . . . . . . . . 25 GRAPH 5.1 Percentage of Total Farmland in Six Sampled Governorates by FarmSize . . . . . . . . . . . . 54 MAP IBRD NO. 22546 ANNEXES IN VOLUMS I ANNEX 1 Table 1s Population and Labor Force 74 Table 2 Estimated Land Use Area . 75 Table 3: National Accounts . . . . . . . . . . . . . 76 Table 4: Food Balance Sheet . . . . . . . . . . . . 77 Table 5: Agricultural Exports . . . . . . . . . . . 78 Table 6: Product Values . . . . . . . . . . * . 79 Table 7: Istimated LLvestock Population . . . . . . 80 Table 8t Agrlcultural Imports . . . . . . . . . . . 81 ANNEX 2 AnalysLi of Comparative Advantage for Crop Production . . . . . . . . . . . . . . . . . 82 ANNEX 3A Numbers and Costs of Permanent Staff (June 1991) . . 87 ANNEX 3B Numbers and Costs of MAWR Associated Staff (June 1991) ... . . . . . . . . . . . . . 8s ANNEX 4 Crop Productlon . ................... 89 ANNEX 5 Mlnistry of Agrlculture and Water Resources - Present Organization Chart . . . . . . . . . . . . 91 ANNEX 6 List of Annexes in Volume I ............ 92 ANNEX 7 List of Selected Documents and Data AvaLlable in the Projct lile . . . . . . . . . . . .6 . . 93 REPUBLIC OFY AGRICULTURE SECTOR STUDY STRATEGY FOR SUSTAINABLE AGRICULTURAL DEVELOPMENT EXECUTMV SUMMARY Introduction 1. In 1990, the Yemen Arab republic (YAR) and the Peoples' Democratic Republic of Yemen (PDRY) united to form the Republic of Yemen (ROY - Yemen). Yemen is one of the oldest agricultural civilizations in the world. Over 60 percent of the population lives in rural areas and more than half of the working pepulation depends on agriculture for its livelihood. During the last decade, there has been considerable public investment in agriculture, largely in civil works and in institutions, matched by private investment, especially in tubewell irrigation and farm mechanization. However, agriculture output grew at only about 2 percent per annum in the decade, well below the population growth rate of 3.3 percent per annum. This was due largely to inadequate focus of agriculture sector policies, weak implementation capacity for development projects and, in recent years, poor macroeconomic policies. At the same time, environmental deterioration threatens the resource base. Yet agriculture does have potential for increasing output in a sustainable way. This report examines possible adjustments in policies and programs that Government could adopt to tap this potential. The Resource Base 2. Although harsh, the resources and climate of Yemen are better suited to diversified agriculture than most other countries in the Arabian Peninsula. In the highlands and on the escarpments, there is about one million hectares of rainfed arable land and approximately half of this area is developed as terraces. Irrigated land totals some 320,000 ha. More than half of the geographic area is arid or semiarid rangelands. Deforostation and neglected maintenance of the traditional water harvesting terraces threaten the basis of rainfed agriculture and increase the risk of erosion. The potential for livestock development has been underexploited. 3. Groundwater extraction has increased dramatically in recent years. Aquifer levels are declining in most watersheds (the drops range from 1 to 6 m per annum) and the incidence of salt water intrusion is increasing in some coastal areas. Spring-fed irrigation has reduced significantly as groundwater tables have dropped. It is estimated that current withdrawals of water for all purposes are 138 percent of renewed resources, and this means that water reserves are being "mined*. Some 90 percent of total withdrawals are for agriculture and it is paramount that'actions be taken to halve current levels of abstraction. 4. The threat to sustainable agriculture from the eroding resource base is great. Yet, in the near to medium-term, agriculture is likely to remain an - Li - Lmportant Doctor, sp cially ln view of the limLted known oll and mLneral reserves and tho restricted potential for LndustrLal development. Economic Contezt 5. Since 1960, Y-omn ln lts constLtuent parts made remarkable progr es ln developlng a modern economy. However, Ln the last decade, both parts of the country began experlinclng economic problms LnvolvLng slower growth and growlng external debt, declLning remlttances from emlgrant workers, large budget deficits, unemployment, inflationary pressure and negatlve savings from domestic earnlngs. At unification ln 1990, the Government elected to follow free market economic polLcls;l however, the combLned economy was weak due to slgnLficant short-term economic problems. Per capLta GDP li estimated at US$540 (1992). 6. Whlle physical unlflcatlon has proceeded quite smoothly, probl em remain on the macroeconoilc front, and 1lttle has been done to reduce the large fiscal deflclt or inflation. SLmilarly, there has been little progress towards trlmLng the unwleldy amalgamated clvll servLces. The Lnflux of som 750,000 emigrant workers durLag the Gulf crLsiL led to losses Ln remlttances, a rise Ln unemployment, and addltlonal soclal costs. The effects of the Gulf crLsis also led to reduced external assLtance. In 1991, CDP declined ln real terms by about 4 percent, inflation was runnlng at 44 percent, and the gap between the official and the market exchange rate wldened (YRls 12/US$1 vs. YRls 30/US$2 - 1/92). 7. Desplte thli bleak plcture, unLfLcatLon created greater potential for long-term development of the country than had existed ln either of the constltuent parts. The unlfled country has some modest known oll and gas reserves, underutliLsed agrlculture and flihery resources, unexplolted tourism potential, a dynamLc prlvate sector, and an expanded domestic market wlth greater scope for economies of scale. The main problem ln exploLtLng this potential Ls the serLousness of the macroeconomlc imbalances. These dlstortlons are havLng an unfavorable Lmpact on the on the agrlculture sector ln several ways: - the offLcial exchange rate has led to LmplicLt subsidies on prlces of lmported food, making lt dlffLcult ln the caso of som food items _lke cereals for domestlc producers to compete; - ratLonLng of Governmnt-held foreign exchange, together with offlcLal licensing procedures, has reduced Liports of lnputs and equlpment; and - recurrent budget constraints have constrLcted the recruLtment/retentlon of traLned personnel wlth experience, limited field operatLons and starved development projects of operating funds. 8. Prlorlty should be given to the followlng adjustments Ln economic and LnstLtutLonal pollcles Ln order to create an envLronment conducLve to agrlcultural growth. Changes should be lntroduced ln phases but ln the shortest possible perlod: - ill - on the fiscal front, a combination of revenue enhancing and expenditure control measures should be adopted to reduce the present high budget deficits to a level that can be financed without resorting to large- scale borrowing from banks, concomitant monetary expansion, and resultant inflation; priority should be given to adopting a unlfied, market-based foreign exchange rate for all foreign exchange transactLons; any allocation of foreign exchange by Government for imports of food and inputel/, and any grant imports should be at the market exchange rate On the output side, this would allow domestic production to compete. On the input side, the absence of foreign exchange rationing should allow more private sector competitLon and increased supply. If needed, a safety not program (e.g. food stamps) should be devised to protect the poorest segments of the population; licenses for imports of all agricultural inputs should be eliminated, with the exception of parts for drilling rigs and pesticides which should be controlled for environmental or safety reasons; interest rates should move towards market levels; - action plans are needed with the Xinistry of Agriculture and Water Resources (MAWR) for reduclng staff numbers, for inducing better work ethics, for retraining remaining staff so as to raise the efficiency of support services, and for improving the management of MAWR's budget, xpenditures and financial control procedures; and - the Government's famLly planning policy should be translated Lnto urgent programs for relieving demographic pressures. 9. on the revenue side, agriculture could contribute to tax revenue, and in several cases the application of tax measures could help achieve important sectoral objectives. In particular, water charoo should be introduced. The existing g &t_t could be raised and shifted to an area basis. Analysis shows that these two moasures taken together could help conserve water and discourage qat consumption but would reduce average farm incom only marginally (under 4 percent). Finally, in pursuit of water conservation, eiuoment taxes could be levied on parts for drilling rigs, pumps and lrrigation equipmnt. Aaricultural Growth and Potential 10. Acriculture in the Zoonomy. Agriculture is a major sector, employing about 58 percent of the labor force. In the period 1986 to 1989, agriculture 1/ The World Bank report, "A Medium-Term 3conomic Framework" (Report No. 9172-YTI), suggested the elimination of all economically motivated quantitative restrictions on all imports. - iv - contributed 28 percent and 16 percent, reopectively, to the YAR and PDRY economies. For the decade to 1991, it is estimated that the annual growth rate for agriculture was 2.2 percent, while population grew at an estimated 3.3 percent. There was a *lowdown even from this low level from 1990 as input supplies were disrupted by the Gulf War. Farmers also began to feel the impact of the macroeconomic imbalances in terms of unfavorable terms of trade for cereals; for example, in 1992, Government was introducing imported wheat into the market at an effective 250 percent uubsidy, thereby undercutting local production. In the market for agricultural inputs, the limited official supplies were being valued at the official exchange rate. This discouraged private trade and exacerbated the shortages that have persisted over the last decade. In addition, extension and other services have been dislocated by budget restrictions in recent years. 11. The production figures for agriculture exclude oa, whose added value is double that of conventional agricultural products. By adding qat, total GDP for 1991 would rise by 35 percent. Qat occupies some 25 percent of the controlled irrigation area and provides employment for some 500,000 people (16 percent of the working population). By any measure (including DRC analysis), qat is a very profitable commodity. The official policy towards qat is to restrict cultivation to low potential areas. However, in practice, due to its profitability and widespread consumption, nothing has been done to restrict production. 12. Trends in Crop Outputs and Yields. During the two decades 1970-1990 the area planted to wheat and millet increased by 230 percent and 250 percent, respectively, while the sorghum area decreased by 250 percent. Traditional cash crops of cotton and coffee have declined in the last decade. Production of vegetables, fruit and forage increased significantly, and output of qat increased dramatically. Despite considerable Government investments, yields of most crops have not changed significantly since 1970, reflecting the low availability of inputs and the lack of real impact by research and extension on modernizing farm technology. 13. Food Balance. In the north, the self-sufficiency ratio for food declined from 80 percent in 1975 to 52 percent in 1990. On current population and production trends, the annual bill for food imports -- already US$540 million in 1990 -- would exceed US$1 billion by the year 2000. This represents a rapid increase in demand for foreign exchange that will strain the economy, and government needs to look at policies that could relieve the burden. Action is needed on the supply side, to ensure that there are higher yielding technologies and free markets and prices that will allow optimal production. Attention is needed, too, on the demand side to couple improved health services with attention to population policy, including family planning. Obiectives and Strategv for Sustainable Growth 14. The objectives of agricultural policy are to improve the economic efficiency of the sector, to foster sustainable growth and to increase mployment opportunities and incomes in agriculture. Target growth rates have to be above the rate of population growth to avoid pauperization and migration to towns. But if growth is to be sustainable, it will depend on increasing the productivity of water, as abstraction must decline, and on developing modern techniques for managing range and terrace lands. Strategies for containing demographic pressure will also be important, as will equity and special focus on poorer farmers and women. Increasing value added in agriculture will have a favorable impact on the balance of payments, too, substituting for imports and possibly contributing more to export earnings. Reducing qat production would release resources (especially water) for other high-value production. Strategies to achieve sustainable growth are proposed in the report and summarized in the following paragraphs. Common thmes throughout are: - the need to apply better macroeconomic management is paramount; - the need to adopt "bottom up" planning that focuses on farmers' needs; - the need to develop specific programs for improving rainfed farming is a key for ensuring long-term food security; - the need to emphasize the central role of research and extension to promote better use of resources; - the need to foster private sector operations and the need to privatize state owned farms and service organizations; - the imperative need to improve natural resource management; - the need to adjust MAWR operations to play a smaller but more strategic planning and coordinating role and to better delegate project management; and - the need to design development programs with farmers to mobilize community participation. Subsectoral Strategies 15. Although it employs over half of the population, rainfed aariculture has received little development attention. However, on the technical side, much could be done to improve productivity. In view of the water constraint, research and extension on rainfed farming should be a priority, With regard to irriaated farming, overall efficiency is low (about 35 to 40 percent) and could be economically increased to 60-80 percent by applying sound water management practices and adopting advanced irrigation technologies; these actions would contribute significantly to the essential reduction in volume of water applied. Farmers are becoming increasingly conscious of the depleting groundwater resource, and there is a strong need to strengthen research and develop precise extension messages in order to achieve sustainable irrigated agriculture in Yemen. - vi - 16. Comoarative Advantaa- in Croo Production. Domestic Resource Costi' (DRC) analyses of crops were carried out and provides one indLcator of efflciency. By this analysis, some crops are currently attractive in terms of economic returns to the factors of land, water, labor and foreign exchange -- vegetables, grapes, qat, bananas, cotton, sesame, alfalfa and the rainfed cereals. Of these, tomatoes, bananas, and perhaps grapes, cotton and sesame could be viable exports under present water costs. Some crops have significant agronomic and economic potential -- forage, potatoes, sesame, cowpeas. Conversely, irrigated wheat ham a high DRC and should, as far an possible, be replaced by more profitable crops. In this context, the national food policy should be adjusted to include actions for promoting rainfed cereals and reducing the emphasis on irrigated wheat. When the overriding constraint of water scarcity is factored in, vegetables, forage, and rainfed crops, are the only consistently viable crops under present technologies. This emphasizes that production will have to move to a more intensive and higher yielding systems and it underlines the need for focusing research and extension on rainfed crops and irrigation management. 17. Priorities for Croo Production. The agriculture sector will continue to havo an important role in providing income and employment, in feeding the country and in saving foreign exchange. Yemen should emphasize production of high-value crops where the country has a comparative advantage. An agenda for action on crop production should focus on the following: - increasing productivity from existing areas by improving wat-r manaaement and by optimizing other inputs; - giving priority to develooina strateaies for imorovina croo production in rainfed areas; - diminishing the dominant role of irricated wheat in the national food strategy and formulating a policy for cereal production; - focussina research and extension on crops that can remain viable under the water constraint such as potatoes, sesame and cowpeac and on alternative production packages for areas that depend on crops with poor long-term prospects given the water constraint, such as cotton, grapes, coffee or irrigated cereals; and - imorovina the suoolv and distribution of inputs would raise economic output levels of many crops without need for subsidy. 18. Priorities for Livestock Production. Traditionally, most rural households have livestock. Livestock populations are static or diminishing due to pressure on land and water resources. There is expanding demand for 1/ STh Domestic Resource Cost measures how much domestic resources (like labor, land and water) are used to earn or save a unit of foreign exchange. A DRC of lese than one, e.g. for tomatoes with a DRC of 0.87, implies that Yemen has a comparative advantage in producing this crop. If the DRC is greater than one, it is better to import that commodity and to use those domestic resources for crops with a smaller DRC. - vii - animal products. Intensive poultry meat and egg production, however, increased substantially in the 1980s, but productivity of ruminants is low and rangelands management is deteriorating. The sector holds great potential for growth and an agenda for action should be agreed, emphasizing private sector participation. This would include: - a rangelands management policy based on a participatory approach through herders' associations; - research and extension on broed selection, forage production, stall- feeding methods, and small-scale processing and marketing; - animal health care for epidemic diseases should be modified to cost- effective levels in favor of programs for reducing diseases that have a direct impact on production, emphasizing private veterinary services and herder technicians; - changes in trade regulations and import licensing to encourage the private sector to handle the procurement, manufacture and distribution of compound feeds and supplements; and - modernizing abattoirs and promoting community dairies and fostering valued added from tanning and other byproducts. Agricultural Inputs 19. Seeds Production of improved seeds has concentrated on wheat and potatoes. Seed is sold below cost, production capacity is inadequate, both in quantity and range of products, and there is a lot of potential demand for improved seed that is at present unsatisfied. Better seed supply could contribute to productivity and would require: - transferring responsibility for improved seed multiplication to the private sector, working out joint ventures and privatization arrangements with the local private sector and international seed companies, and restricting Government involvement to policy setting and quality control; - research work to expand variety screening, breeding and agronomy trials and to increase output of breeders' seed; and - setting up an indepe ndent seed quality control unit. 20. Fertilizer. Fertilizer applications give good crop returns. Technical absorptive capacity for fertilizer is in the range of 70,000- 100,000 t annually. The average annual supply, largely of grant aid, has been around 10,000 t, although recently up to 48,000 t have been available. Government institutions dominate the market because they are the beneficiaries of external aid. Private traders are frequently discouraged as their prices are undercut by the grant fertilizer -- priced at the official exchange rate. A program to improve supply is well justified and requires Government to: - viii - publish information about grant supplies, and price those supplies at market exchange rates. As far as possible, grant fertilizer should be distributed by the private sector -- an auction would be the best wayl encourage commercial import and distribution by removing all licensing or other controls and by forging working links between MAWR, the RDAs and commercial firm.; and promote on-farm and adaptive research on fertilizer, as well as extension advice. 21. Insecticides and Pesticides. Yemen is relatively free of pests. Annual requirements are about 300 tons of insecticide; however, availability and types have fluctuated, mostly as a function of concessional supplies. The main problem is the entry of banned chemicals and their unsupervised use by farmers. Concerted attention should be given to: - a plant protection program covering education in pest management, licensing of suppliers and strengthening of the Plant Quarantine Service. 22. Farm Mechanization. Rising wage rates in the last two decades have made labor-intensive systems less profitable and tractors have steadily replaced animal-drawn and manual implements. There is an efficient and competitive private hire market. The main problems are: (i) excessive numbers and range of makes and models of tractors and concomitant servicing difficulties and (ii) the shortage and suitability of implements. Actions to resolve the problems should include: - adopting a mechanization policy, involving specific ranges of appropriate farm machinery, that could be implemented through private sector suppliers; a working group from MAWR and the private sector could define policy and associated strategies; and - developing research and extension programs in farm mechanization to focus on small-scale equipment suited to smaller cultivation areas. Agricultural Institutions 23. The Ministry of Acriculture and Water Resources (MAWR) is responsible for formulating policies for water resources and for crops, livestock and forestry, and for coordinating public investments and services in the sector. MAWR services are intended to support the development of agricultural production by individual farmers. Most field services are provided to farmers through decentralized Regional Development Agencies (RDAs), supported by technical services at national level. Following unification, MAWR's operations became unwieldy: management layers are cumbersome and obstructive, the number of staff at all levels is excessive and unsustainable, and the financial management and administration operations are inappropriate for effectively addressing farmers' needs. The division of responsibility between MAWR, the Agricultural Research and Extension Authority (AREA) and the - ix - decentralized RDAs is unclear. Some technical departments in MAWR headquarters contribute little to sector development. A plan for improving MAWR's performance should include: - Reorganization to provide more cost-effective services based on clearly defined farmers' needs. This will require: (i) simplifying the structure; (ii) strengthening planning, statistics and monitoring operations; (iii) reducing the number of departments and concentrating technical operations under AREA; and (iv) reorganizing the administrative, budget and financial control operations. A review of MAWR budget is necessary as a prelude to these changes. MAWR also needs to develop capacities for policy analysis, strategy and investment planning, and for monitoring and evaluation, particularly of research, training and extension. A start is being made in this direction under the IDA-supported Agriculture Sector Management Support Project (ASMSP), but further support will be required. - Staff reduction to fit the reorganization and to ensure sustainable services within Government's budget constraints. This will require: (i) a human resources study to determine the size and profile of the staff needed for MAWR to do its job; (ii) retraining and reassigning staff, e.g. to extension services; (iii) design of a training program to ensure essential technical qualifications, to develop management skills, and to prepare released personnel to work in the private sector; and (iv) provision of incentives to leave public sector employ, e.g. transfer of social benefits and seed money for establishing small businesses. - Decentralization of full responsibility for field operations to the RDAs, leaving MAWR headquarters to concentrate on: (i) policy formulation, strategic planning, and impact monitoring; (ii) overall management of water resources; (iii) planning for forestry and rangelands management; and (iv) plant and animal protection. 24. MAWR Field Ooerations are mostly carried out through the five semiautonomous RDAs created since 1978. Overall the RDAs have been successful in establishing basic rural infrastructure at a time when Yemen had virtually no capacity in this area. Some measurable increases in output can be traced to RDA interventions, but they need to better target their actions on activities where they can have an impact on farmers' incomes. The concept, size and operation of RDAs, should be reassessed in line with Government's policy for decentralization, to better suit them to the needs of 1990. and to ensure sustainable operations by limiting fiscal support. 25. Acricultural Research and Extension Authority (AREA). Created from the two previous national research organizations, AREA is responsible for research and research/extension linkages. Programs exist in all five agro-ecological zones, with good facilities and competent staff. However, programs have boen - x - overambitious, preventing adequate focus. The cadre of research scientists has been slow to build, and there have been persistent shortages of recurrent funds, especially for operating expenses. The coordination between research and extension has been slow to develop and, therefore, the impact of new technologies on farmers has been suboptimal. Given the existing constraints on water and agricultural resources, attention should be paid to: - focusing research on high value, low water intensity crops, with emphasis on rainfed crops; - giving research a farmer focus, by developing systems research and strengthening the research/extension link with the RDAo; - strengthening the regional focus of research, to emphasize activities with high technical potential, improving efficiency of livestock production to help poorer farmers or women, and relieving the water constraints and pattern of environmental degradation (forestry); - developing realistic research programs geared to tho limitations in manpower and budget resources. Possibilities for private sector funding should be explored; and - raising the productivity of research scientists through development of a cadre of research technicians. 26. xtension. The Government's initiative in developing extension operations through the RDAs has been good. However, the impact of these services is constrained by lack of clear messages, inadequate service training, the limited number of farmers being reached, low accountability, poor quality of communications, and inadequate operating funds. The focus has mphasized irrigated crops, and guidance on rainfed crops, animal husbandry or forestry production has been minimal. Raising the efficiency of the extension system to promote and transfer new technologies and management systems to a larger number of farmers would have a major effect on improving productivity of the agriculture sector. Actions are neededs - on extension methodology bys (i) formulating a national extension strategy with specific programs for target groups such as women and the poor; (ii) adopting a strategy for each agro- ecologic region based on farmers' needs and using local teams (including farmers) to establish basic information on farming systems, to diagnose the major problems and to specify priorities for extension; (iii) develop audiovisual and other low-cost methods; and (iv) monitor adoption and impacts to feed back into improved programs; - on human resources by: (i) preparing an inventory of existing MAWR staff and their qualifications and skills, and making a master plan for reorganization, reassignment, and (re)training; - xi - (ii) improving the quality of training, especially for women agents; and (iii) paying incentive rewards to extension agents -- with farmers playing a central role in assessing performance; and - on management and operations by: (i) specifying extension objectives for each RDA, with detailed annual work programmi (ii) enhancing physical facilities and transport; (iii) ensuring adequate operating budgets; and (iv) contracting printing to private companies. 27. Rural Financial Markets. The rural economy is characterized by a high degree of monetization; by a fairly high degree of financial autonomy within the extended family system; and by a well-developed network of informal financial sources. The parastatal Cooperative and Agriculture Credit Bank (CACB) provides only thin coverage of rural financial needs and it has not functioned as an effective intermediary: it does not mobilize domestic savings; and it has experienced constant administrative inefficiencies and high operating costs. Furthermore, its profitability has been impaired by negative real interest rates and it is experiencing d-capitalization due to operating losses and a low loan recovery rate. The following actions could contribute to developing rural financial markets: - encourage the development of private cooperatives and rural savings and loans groups; this would require revised legislation and selection of promotional institutions; and - transform CACB (progressively over, say, five years) into a private sector rural savings and credit bank not limited to agriculture and not necessarily accessing transfers of concessional money from donors or Government. 28. Acricultural Marketino. Produce markets in Yemen are generally well integrated and efficient, with relatively low regional and seasonal price variations and reasonable margLns. Over the medium and long t-rm, growth in domestic demand should provide good market outlets for increased production. Agriculture contributes less than one percent of total exports. A few products could have export potential but this would require market analysis, major lnvestment and concerted efforts to ralse quality and to ensure reliability of supplies. Recommendations for future development of agricultural markets (in addition to the macroeconomic measures already recommended) are as follows: - the import ban on fruit and vegetables should be rescinded and markets liberalized; duties might be applied when clearly justified on the basis of fair international trading practices; - domestLc market operations could be cheaply and effectively strengthened by improving information flows; MAWR's system for collection of price information should be improved (eventually as a private sector operation) and results should be diffused daily through the media; and - xii - a market-oriented research and development program could identify ways to help expand market opportunities, e.g. by prolonging growing *easons, or developing processing and cold storage (managed by the private sector). 29. Parastatal Orcanizations in Aqriculture The former state trading and production monopolies, mostly in the Southern Governorates (previously PDRY) exhibit typical parastatal characteristics of poor management, overstaffing, lack of cost control and run down physical assets. In the absence of monopoly positiong and subsidies and in the face of competition, they have proved to be quite uncompetitive and most have significant debts. The Government's goal of divestiture is, therefore, correct and the challenge is to make the best use of the existing physical and human capital, to stop the financial losses and to maximize the financial returns to Government from privatization. There should be: - an orderly winding down of parastatal operations and a transfer to the private sector, preferably on a going concern basis, otherwise by sale or lease of assets. This process would include: (i) preparing an inventory, valuation and audit of assets and liabilities of each enterprise; (ii) assessing the business opportunities of each enterprise; and (iii) devising a staff redeployment program, including retraining, transfer within the public service, small enterprise creation and staff buyouts of enterprises being divested. The cost of consultants and of the staff redeployment programs could be paid as priority claims from the proceeds of the divestiture exercise. 30. There are also two large processing and marketing firms, MSMMC and )ZCO, which enjoy quasi-monopolistic privileges. There is no justification for maintaining them as parastatal organizations; a study should be made to determine how they might be broken up into manageable entities and privatized. Natural Resource Management 31. Basic Challence. Over the centuries, farmers have built bench terraces which form a unique water harvesting system with tillable land. This colossal effort conserved the nation's soil and surface water resources. However, total water resources are now extremely vulnerable due to the explosion in groundwater pumping for irrigated food production. At the same time, the old bench terraces have been deteriorating due to changing socioeconomic patterns. The degradation of natural resources is the greatest constraint to sustainable agriculture. Soil, water and forest cover are interdependent and require an integrated conservation policy. 32. Water Resources. Water requirements for domestic, municipal and industrial purposes are estimated at less than 10 percent of the total consumption. However, demand for these purposes is increasing and conflicts are developing between sectoral water users. There are currently some 200 unregulated well drilling rigs in the country. In order to reverse the mining of groundwater and provide for increasing domestic and industrial demands, - xiii - abstraction must be reduced to the level of natural recharge. This would require halving current abstraction for irrigation, from 2,500 mm3 to 1,350 mm3/annum. This presents a formidable challenge for the 1990s, centered on raising water management efficiency sufficiently to maintain or increase agricultural output. 33. Information for a water sector strategy in deficient, and long-term hydrological and meteorological data are incomplete. There is no national water plan and abstractions are not regulated. In an effort to rationalize water policy and investments and to improve coordination in the water sector, the High Water Council (HWC) was established in YAR in 1981. Little has been achieved; and it is vital to rationalize the dispersed efforts on collection and analysis of data, to coordinate the activities of the various organizations involved in the water sector, to plan for the sector, and to regulate water abstraction. Priority must be given to areas where water depletion is worst, e.g., Sana'a and Sadah basins. The IDA-assisted Land and Water Conservation Project (LWCP) supports important first steps towards better management. Government's program for soil and water conservation should include: a) the following short-term actions: - accelerating the preparation of an integrated, multi-sector national water master plan for all water basins; and the definition of charges for licenses and abstraction; - agreeing an action plan for creating a Water Authority; - implementing registration of all drilling rigs and licensing of all drilling operations; - defining a priority research program for investigating appropriate irrigation technologies in each agro-ecological region; - giving priority to extension messages and demonstrations for improving efficiency of water management; and - creating a multi-media education program to: (i) inform the rural population of the serious state of water resources and to indicate possible actions for improving efficiency of water management; and (ii) encourage individuals and rural communities to plant trees and shrubs; b) the following medium-term actions: - completing the multi-sector national water master plan, delineating water basins according to the severity of resource diminution and with specific measures for regulating abstraction for irrigation; - xiv - enacting a water law and applying regulatory and enforcement measures; introducing water charges and other fiscal and administrative measures to restrict well-drilling and promote efficient utilization of existing irrigation facilities; enforcing a program for O&E for irrigation works and for cost recovery; and - introducing incentives for encouraging maintenance of traditional terraces, e.g. by planting trees, shrubs and vetiver grass. 34. Forestry. Centuries of overcutting, expansive stock grazing and clearance for crop production have caused the degeneration of Yemen's natural closed forest into open woodland or low scattered shrubs. Natural woodlands are now virtually restricted to wadi sides; it is estimated that the cover of about 2.5 million ha of woodlands in 1970 has shrunk to about 1.5 million ha and its quality severely diminished, as a result of increasing population pressure and rising demand for fuelwood -- that provides some 90 percent of household energy. At thin pace without accelerating replanting, Yemen would be devoid of trees by the end of the century. Exploitation of oil and gas reserves is facilitating transition to bottled gas and kerosene for cooking, but it is likely that at least half of the population will continue to rely on fuelwood while it is still available. Considerable potential exists for agro- forestry developments; however, in view of the competition for scarce water resources, strong extension efforts are necessary to convince farmers of the benefits. Strategies for forestry development should focus on private sector operations. The following actions are required: - applying a national energy policy to promote use of alternatives to wood and to create incentives for conservation and replanting; - developing a multi-media education program, and specifying an extension program through the RDAs for natural woodland management, for increasing public awareness of the value of trees, and for accelerating tree planting by individuals and communities; - developing skills in the Forestry Department and the RDAs to carry out these programs (a start on this is being made under the LWCP); and - transferring tree nurseries to the private sector. 35. Environmental Protection A strategy for promoting sustainable agricultural growth and conserving the dwindling environmental resources should be at the center of Government policy. The focus should be on planning for sustainability rather than reacting to problems as they reach critical magnitudes. In addition to action on land and water conservation and forestry, a national strategy requires: - xv - - making the Znvironmental Protection Council (NPC) more proactive with emphasis ons data collection for planning and for environmental impact analysis; education programs; and stimulating donor support and coordinating assistance programs; - supporting MAWR units responsible for environmental protection, especially the Water Resources Conservation and Environmental Protection Department (currently unstaffed) and the Porestry and Rangelands Departments; - mandating urgent action for safe disposal of accumulated stocks of old pesticides; - detailing plans through research, extension and local communities fort (i) watershed management, (ii) integration of dry farming and irrigation systems, (iii) revitalization of indigenous farming practices, and (iv) rangelands managementl - specifying research and education programs in environmental protection; and - making a feasibility study for conserving the dwindling gazelle herds, including the rare Queen of Sheba Gazelle. Poverty and Women's Development 36. Povert Despite its per capita income level of US$540, which puts it in the lower middle income category along with Egypt and Syria, Yemen has many of the characteristics of a poor country, in particular in social indicators like health and education. Despite remarkable advances in recent years, access to education drops sharply in rural areas and for women (female literacy in rural areas is estimated at only 3-4 percent). Only 25 percent of the rural population has access to modern health facilities, and only 10 percent of rural children are immunized. The total fertility rate is amongst the highest in the world (7.7), while life expectancy is amongst the lowest and is the worst for women. Nutritional status of some 20 percent of rural women is below safe levels. Although there is an implicit poverty focus in many Government policies and programs, macroeconomic policy may have a negative impact on the poor; e.g. the overvalued exchange rate and import licensing; subsidized food does not benefit the rural poor; the targeted and subsidized agricultural credit and the policy on water resources have favored income inequalityl and the size and inefficiency of the public sector, which consumes some 35 percent of GDP. The following action plan would give more poverty focus: - refocusing social programs (health, education) on to the poor by: (i) improving operational efficiency; and (ii) creating specific pro-poor interventions like the successful child immunization programs in the southern governorates; - xvi - redesigning agricultural programs to provide "positive actions" in each agro-ecological region for poorer people in the chain research-extension-farmer and in the provision of inputs and credit; developing the basic tools for poverty analysis in the form of income and consumption surveys -- the latest national sample survey should be brought rapidly into the public arena and a safety net mechanism should be considered; and analyzing the anti-poor bias of the incentive framework and creating a pro-poor bias. 37. Development for Rural Women. Despite recent legislative changes in their favor, women's role in society is largely determined by tradition and by economic activity. Some 98 percent of working women are in agriculture. In general, women have low income-generating capacity and have access only to low-yielding technologies and poorly-paid activities. As the major producers and household managers, women are at the heart of the rural economy and any credible strategy to reduce poverty must focus on them; however, interventions must also be socially feasible. Government has pursued a notable effort for women through the RDAs, but the effect has been dulled by lack of focus in the programs (supply driven rather than problem solving) and by problems in delivery (social access and availability of female extensionists), and implementation has consistently fallen short of expectations. Improvements in such a difficult context will inevitably be gradual, but the following pilot actions should be adopted as priorities in one or two RDAs: - developing a demand-driven approach focused on the needs expressed by women and with special attention for poorer families, e.g. by introducing labor-saving devices; - designing decentralized programs and management linked to central research, training and monitoring and evaluation, and coordination and programming services; and - expanding and improving extension approaches for women, through strengthening management and training; emphasis should be given to recruiting middle aged married women from local communities, fostering the involvement of NGOs and exploiting mass media techniques. Investment Priorities 38. Priorities for public investment within the strategies outlined above should cover natural resource management, research and extension, strengthening of essential public services, education and training and rural infrastructure. EmDhasis should be Dlaced on rainfed and irricated croDoina centered on raisina output from existina resources. Areas for private sector investment would include seed production, inputs supply, forestry and rangeland improvement, and crop processing and marketing. Government sale of parastatal organizations would provide some opportunities for private - xvii - investors. A special role in investment will also be played by aid agencies where past efforts have, in general, fallen short of targets. Government should play a stronger leadership role so as to improve coordination and maximize aid financing high priority projects. Implementation 39. One of the most striking features of development efforts in Yemen over the last decade has been the generally weak implementation Derformance. If the policies and programs proposed above are to work, major improvement in implementation will be necessary. Areas where action can be taken include: - fostering agreement and collaboration between all of the ministries involved; ensuring that all aspects of project management are based on agreed project objectives with supporting annual work programs and budgets; - delegating full responsibility for project implementation to the project manager, within the parameters set by the agreed objectives, work programs and budgets; - accelerating the procurement of goods and services by appointing trained personnel, adopting standard bidding documents and procedures, and delegating full responsibility to the project management unit; - fostering private sector involvement in procurement and distribution of inputs; - ensuring adequate and timely provision of operating funds, both during project implementation and for subsequent sustainability; - revising staffing procedures to provide adequate incentives for recruiting and retaining qualified and experienced personnel for project implementation (including accounting and audit staff); and - facilitating recruitment of required technical assistance specialists. Conclusion 40. The strategy for sustainable growth proposed in this report presents a formidable challenge. The absence of significant opportunities for growth in other sectors obliges the Government to make radical adjustments. The removal of economic constraints, reorganization of public services, the freer hand given to the private sector and the support through research and extension to productive and sustainable use of natural resources should stimulate increases in output and productivity and create a surer foundation for sustaining agricultural production. The alternative is grim. Without adjustment, the resource base will continue to erode and growth will lag behind population increase, pauperizing the countryside. THE REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY I. BACKGROUND TO THE AGRICULTURE SECTOR A. INTRODUCTION 1.01 The creation of the Republic of Yemen (ROY), in May 1990, heralded a period of comprehensive policy review and legislative change. Much has been achieved to chart a course of further development for the enlarged sovereign state. The purpose of this study is to present a comprehensive assessment of the achievements and opportunities for the agriculture sector in the new era and of its prospects for the future. This is the first such study since unification. The study focuses particularly on economic, technical, institutional, and environmental actions which would stimulate sustainable improvements in agricultural productivity. Chapter I discusses the main features and characteristics of the agriculture sector; Chapter II considers economic aspects of agricultural production; Chapter III reviews the technical and economic aspects of crop, livestock, and forestry production; Chapter IV analyses the institutional aspects of the sector; Chapter V assesses environmental and social aspects of agriculture and the rural sector and, particularly, sustainability of natural resources and social needs; and Chapter VI presents proposals for future development of the sector. B. THE AGRICULTURE SECTOR Resources and Performance 1.02 Aariculture Resource Base. The Republic of Yemen (ROY) has an estimated population of 11.5 million and a geographic area of 555,000 sq. km. The land, ranging from coastal plains to highlands with an altitude of about 3,750 m, consists mostly of barren rock or scrub. Annual rainfall is largely in the range 100 mm to 500 mm but rises to 1,200 mm in higher areas. Scarce and diminishing supplies of fresh water restrict the annually cultivated area to 1.3 million ha, including 320,000 ha irrigated from spate flows (60 percent) or groundwater (40 percent), and 1 million ha rainfed. The specter of diminishing water resources is imposing demands for a coordinated policy to assure domestic supplies and to control abstraction for irrigation. For land resources, massive deforestation and neglected maintenance of the traditional water harvesting terraces threaten the basis of rainfed agriculture and increase the risk of erosion. Yet agriculture is likely to remain an important sector, especially in view of the limited oil and mineral reserves and the restricted potential for industrial development. 1.03 Rural and Agricultural Povulation. An estimated 7.3 million people (63 percent of the total population) live in rural areas and some 1.8 million people work and depend directly on agriculture (equivalent to 58 percent of the total labor force). Demographic analyses (Annex 1 and Working Papers) indicate that 37 percent of the rural population is under 20 years of age and a further 20 percent is between 20 and 30 years. The rapid population growth rate raises a massive challenge on three levels: national food production, employment opportunities, and environmental protection. When taken in the context of limited resources, this challenge becomes the critical focus for economic policies and development planning. Agricultural output would need to increase at 3.3 percent per annum simply to keep up with population growth. 1.04 Aaricultural Production. Output from crops, livestock and fisheries accounts for 20 percent of GDP (para. 2.06). The estimated crop production breakdown is: cereals and by-products, 47 percent; tree crops (coffee, fruit, etc.), 12 percent; vegetables, 8 percent; forage, 20 percent; and other crops, 13 percent (para. 3.14). Livestock is an important and expanding resource, largely nomadic/sedentary sheep and goats production (para. 3.22). Rangelands cover some 15 percent of the territory. A modern poultry industry has developed since 1975. In the past, Yemen had significant forest cover; however, due to uncontrolled felling and lack of a national forestry policy, woodlands is being consumed for domestic fuel faster than it is being replaced (para. 3.31). In addition to the conventional agricultural crops, although not included in the national accounts statistics, it is estimated that qat (occupying 80,000 ha, output of some 280,000 tons) has an added value of YRls 34 billion, or double the value from conventional agricultural products (para 2.07). Constraints 1.05 Economic and Strategic Constraints. Several aspects of macroeconomic policy are constraining growth of the agriculture sector. First, the continuing, unrealistic official exchange rate (para. 2.03) has distorted prices of imported food, while foreign exchange rationing, together with licensing procedures, has reduced importation of inputs and equipment. Second, constraints on the Government's recurrent budgets have constricted the recruitment of trained personnel, limited field operations and starved projects of operating funds. Third, the resource base is vulnerable and there is no real national policy or practice on conservation, particularly of water and woodlands. Fourth, Government's interventions have not been guided by any clear objectives, and the tools for supporting policy makers (statistics, economic analysis and monitoring) are weak. Fifth, by maintaining food self- sufficiency as a central development objective (as opposed to a food security policy), the Government has promoted a lopsided development in which irrigated cereals have an exaggerated place.V 1.06 Institutional and Technical Constraints. A number of institutional and technical constraints have held up agricultural development. These are explored in detail in the following chapters. Among the most important are: (i) excessive centralization and bureaucratic inefficiencies in MAWR, which have seriously delayed project implementation and restricted potential output from development investments; (ii) an overambitious agronomic research program with inadequate attention to technological initiatives (water management and appropriate mechanization), farming systems analyses, and outreach for solving 1/ There is active dialogue between Government and IDA to find solutions to these problems, particularly under the economic report, "A Medium-Term Economic Framework" (Report No. 9172-YEM, 1/21/92). - 3 - farmers' problems; (iii) limitations in field extension services (and few incentives) and messages which inadequately address target group requirements; (iv) insufficient technical training for extension staff and farmers; (v) absence of O&M for irrigation structures; (vi) neglect of the potentially important livestock sector; and (vii) persistent shortages of inputs, particularly for crop production. The Impact of Recent Political Developments 1.07 At their emergence as sovereign states in the 1960s, the two parts of Yemen adopted different development philosophies. In the northern governorates, the Yemen Arab Republic (YAR) adopted largely market oriented policies, while in the southern governorates, the People's Democratic Republic of Yemen (PDRY) adopted a controlled economy based on centralized planning. At unification, the Government of ROY elected to adopt free market economic policies, similar to those followed by YAR (para. 2.02). While physical unification has proceeded quite smoothly, on the macroeconomic front, problems remain and little has been done to reduce the large fiscal deficit or inflation. Similarly, there has been little progress towards trimming the unwieldy civil service since its amalgamation at unification. II. ECONOMIC ASPECTS Macroeconomic Settin2 2.01 The economy of YAR grew rapidly in the 1970., supported by remittances from emigrant workers and by external loan. and grants. Economic growth in PDRY was slower in this period, although the Government was successful in providing basic needs and services. However, subsequent to 1982, both parts of the country began experiencing economic problem. involvings slower growth and growing external debt; declining remittances from emigrant workers and external aid; large budget deficits (financed extensively by bank credit as well as by the respective central banks); accelerating unemployment and underemployment; intense inflationary pressures; and negative savings from domestic earnings. The two countries launched themselves into unification in 1990 with a combined economy which was weak and had little immediate prospects of growth. Per capita GDP is estimated at US$540. 2.02 The unified Government opted for a market approach to the economy, based on the system previously followed by YAR. Transition has faced a number of major challenges, some of which have been compounded by the outcome of the Gulf crisis. The fusion of the two civil services created administrative constraints and incurred additional expenses, worsening the budget deficit. This was further aggravated by the influx of some 750,000 emigrant workers during the Gulf crisis, with concomitant losses in remittances, rise in unemployment, and additional social costs. The effects of the Gulf crisis also led to reduced external assistance, especially from traditionally significant regional sources. Trends in key economic parameters in the years immediately prior to unification and in 1990, are shown in Table 2.1: table 2.1: TRENDS IN SELECTED ECONOMIC PARAMETERS 1985-1991 (Current Values) 1985 1989 1990 1991(est.) YAR PDRY Yemen Yemen Yemen GDP Growth (%) 5.2 -3.8 N.A. -3.7 -3.9 Agriculture GDP (% GDP)* 25.9 11.5 22.4 17.7 20.8 Per Capita Income (US$) 550 530 N.A. N.A. 540 Budget Deficit (% GDP) 16.2 34.6 20.9 20.9 14.7 Balance of Payments (USS M)** (161) (116) (239) 23 (106) Workers' Remittances (US$ M) 809 426 410 1366 800 External Aid (MLT disb.) 167 151 618 479 190 Food self-sufficiency (%) 58 56 56 55 53 * Excluding Qat. ** (Deficit). Sources Ministry of Planning and Development and World Bank staff estimates. 2.03 Deterioration in the economic situation since unification is shown by the following indicators for 1991: (i) GDP declined in real terms by about - 5 - 4 percent -- only the oil sector did not shrink; (ii) imports, at current prices, dropped by almost 17 percent (adversely affecting consumption, investment and output); (iii) monetary expansion continued at a rate higher than 20 percent, partly reflecting the need for bank credit to finance the budget deficit; (iv) inflationary pressures intensified, with the increase in the average consumer price index (Sana'a) accelerating to 34 percent in 1990 and 44 percent in 1991; (v) the gap between the fixed official exchange rate (YRls 12/US$l) and the fluctuating parallel market exchange rates widened (YRls 18/USSl end 1990 and YRls 40/US$l late 1992); and (vi) the country was unable to service foreign debt obligations fully, and large arrears have been built up. This deterioration is largely due to inadequate fiscal measures, but also reflects the significant impact of the Gulf crisis on Yemen's economy. 2.04 Despite this bleak picture, unification created greater potential for long-term development of the country than had existed in either of the constituent parts. The unified country has some modest oil and gas reserves, significant underutilized agriculture and fishery resources, unexploited tourism potential, a dynamic private sector, and an expanded domestic market with greater scope for economies of scale. The main problem in exploiting this potential is the increasing seriousness of the macroeconomic imbalances. In this regard, agriculture is mostly affected by application of the official exchange rate on major imported food commodities, which creates bias against domestic production, and by the pricing and licensing mechanisms for imports, which reduce the volume of inputs imported and increase prices (para. 2.19). 2.05 The prospects for exploiting the long term development potential depend on the Government making three types of adjustment: (i) reducing the budget deficit to a sustainable level; (ii) relaxing control measures over the foreign exchange rate and import licensing; and (iii) encouraging production of import substitutes and export crops for which Yemen has a comparative advantage. Agriculture in the Economy 2.06 Agriculture's Share in GDP. Agriculture was always a major sector: in the period 1986 to 1989, it contributed 28 percent and 16 percent, respectively, to the YAR and PDRY economies, and sectoral growth is estimated to have escalated to 6 percent annually. There was a sharp downturn in 1990, when the contribution from agriculture is estimated to have declined to 21.3 percent of total non-oil GDP. The main causes for this deterioration were: (i) the Gulf crisis, which reduced input supplies; (ii) persistent, widespread droughts (1989-91), that caused declines in major crops (para. 3.16); (iii) distortions from exchange rate and import policies, which discouraged private sector traders from importing input, and discouraged farmers from investing to improve production; and (iv) disruption in MAWR services following unification. For the decade to 1991, it is estimated that the annual growth rate for agriculture was 2.2 percent. 2.07 Subsectors. Among the subsectors, conventional crop production is the most significant, accounting for some 75 percent of the total agricultural -6- GDP (excluding qat), followed by livestock (about 20 percent) and fisheries (5 percent); forestry contributed less than half a percentage point. All subsectors have potential for further growth through actions to improve productivity. Oat is a perennial shrub whose leaves are chewed as a mild stimulant and, similarly to more extreme drugs in other countries, it is virtually excluded from the calculation of national income (para 3.13). By adding qat, it is estimated that total GDP for 1991 would rise by some 35 percent, to YRls 130 billion. 2.08 Agricultural Labor. About 58 percent of the national labor force is engaged in agriculture. However, off-farm employment, such as construction and trade, is important to the rural community. Since the early 1970s, many men from rural areas migrated (generally for short periods) to the Gulf, mostly for artisanal employment, leaving women and young family members to work on the farms. Most of these workers returned with the Gulf crisis, and it is estimated that 50 percent of the returnees (375,000 people) have been re-absorbed into rural areas. This labor pool could conceivably be mobilized for agriculture or for land conservation activities. However, factors against this are: limited scope for expanding production areas (due to water constraints); and limited absorptive capacity - agriculture already employs a large work force (estimated at 1.3 persons per ha); traditionally, wage rates have been high; and there is a high level of mechanization (1 tractor per 225 ha cropped land). Therefore, the capacity for the agricultural sector to absorb workers is limited and most of these workers will ultimately have to be absorbed by other sectors. 2.09 Imoorts and Exports. Agriculture accounts for less than one percent of total merchandise exports and there have been no strategies for emphasizing import substitution for agricultural products. Table 2.2 below shows that agricultural imports went up in the decade 1980-90 from 21.9 percent of local imports to 34.5 percent. Exports dropped from 2.8 percent to 0.7 percent of total exports during the same period. Agricultural food imports alone reached US$540 million (42 percent of total merchandise imports), including wheat at US$192 million, dairy products US$86 million, live animals and meat products at US$75 million, sugar US$64 million and rice US$45 million. The remaining agricultural imports were inputs (fertilizer, plant protection chemicals, machinery, feedstuffs and veterinary materials), which totaled US$78 million in 1990. Table 2.2: AGRICULTURAL IMPORTS AND EXPORTS (1980 AND 1990) MAJOR COMMODITIES AND PERCENT OF TOTAL (USS million) IMPORTS EXPORTS Million USS Million USS 1980 X of 1990 X of 1980 X of 1990 X of ITEM Total TotaL ITEM Total Total Cereals 170.2 5.5 252.8 14.0 Cotton 16.9 2.1 2.1 0.2 Lint Sugar 103.5 3.3 64.3 3.6 Coffee 1.2 0.2 6.1 0.4 Beverages 41.4 1.3 28.5 1.6 Others 4.2 0.5 1.4 0.1 Tobacco 24.8 0.8 36.3 2.0 Tot.Ag. 22.3 2.8 9.6 0.7 Exports Veg.& Nuts 89.1 2.9 10.6 0.6 Total 799.0 100.0 1400.0 100.0 Exports Dairy Products 98.2 3.2 86.2 4.8 Others 150.1 4.8 143.1 8.0 Tot.Ag.Imports 677.6 21.9 621.8 34.5 Total Im2orts* 3098.0 100.0 1800.0 100.0 2.10 Food Balance. In the North, the ratio of self-sufficiency for cereals declined from 72 percent in 1975 to 40 percent in 1990 and the overall self-sufficiency ratio for food declined from 80 percent in 1975 to 52 percent in 1990. At the same time, the value of food imports (in current terms) went up threefold, from US$180 million in 1975 to US$540 million in 1990, or an increase from about US$32 to US$60 per capita. Although comparable data for the South are not available, the trends in agricultural production would indicate a similar but less marked evolution. The trend, especially in the North, reflects a combination of factors, including: slow growth in food output (para. 3.14) accompanied by an accelerating rate of population growth and increasing standards of living. At current rates of population growth and in the absence of improvement in domestic production, the annual bill for food imports would exceed US$1 billion by the year 2000. While there is nothing inherently undesirable about importing food, the rapid increase in the cost will strain the economy and government needs to look at policies that could relieve the burden. Action is needed on the supply side, to ensure that there are higher yielding technologies and free markets and prices that will allow optimal production. Attention is needed, too, on the demand side to couple improved health services with attention to population policies, including family planning. ImDact of Fiscal and Monetary Policies on Agriculture 2.11 Cacital Formation. Due to data limitations, estimates of private sector expenditures in agriculture are only indicative, especially for the northern governorates where, for example, investments for groundwater irrigation developments (para 3.07) have been mostly private sector. During 1986-88, gross fixed investment averaged about 13 percent of GDP in YAR, of which agriculture is estimated at about 11 percent. An estimated two-thirds of this came from the public sector and represented about 10 percent of total public sector investment. No estimate is available for private sector investments in PDRY, but it is believed to have been small, as the economy was centrally planned. Total gross fixed investment by the public sector in PDRY during 1986-88 is estimated at about 32 percent of GDP, of which agriculture accounted for some 16 percent. 2.12 Current Budget. The unified budgets of 1990 and 1991 contain no breakdown of government current expenditures; therefore, it is not possible to ascertain the exact share of agriculture. Since unification, gross fixed investment is estimated at YRls 12.7 billion, or about 14 percent of GDP, of which about 2.3 percent was devoted to agriculture. It is estimated that 50 percent of the total investment came from the public sector and, of this some 10 percent was allocated for agriculture. 2.13 Taxation. There are no taxes on agricultural incomes, land, or water. In principle, two types of tax are levied: (i) zakat, a (voluntary) religious tax calculated as a part (typically 10 percent for rainfed and 5 percent for irrigated crops) of output from different crops; and (ii) consumption tax -- which is essentially the tax on the value of marketed qat. Actual revenues from these taxes are relatively small: in 1990, total z.akat yielded about YRls 207 million, equivalent to about 0.8 percent of total budget revenues, and consumption taxes yielded about YRls 294 million, or 1.2 percent of total budget revenues. 2.14 Agricultural Credit. There are two sources of private credit for agriculture: the use of informal sources for short-term credit operations appears to be significant (para. 4.30), while the use of commercial bank sources was YRls 76 million in 1990, or about 1 percent of their total loans. Farmers also have access to credit, at preferential interest rates, from the Cooperative and Agriculture Credit Bank (CACB - para 4.29). CACB offers both short-term credit (60 percent of lending) mainly for fertilizer, and medium- term loans. It also lends to cooperatives, although the amounts are small, in the range of 2-3 percent of total lending. Interest rates on loans vary between 7 and 10 percent per year. This is lower than market rates, which range up to 17 percent, and well below the inflation rate which averaged some 39 percent during 1990-91. ImRact of the Trade and Foreign Exchange Policies on Agriculture 2.15 Trade Controls. There are no regulations or taxes on agricultural exports and no controls over the use of foreign exchange earned. Similarly, there are no subsidies for exporters and no concerted export promotion policy. As with all other commodities, importation of food is restricted by license, with priority being given to strategic commodities. Imports of fruits and vegetables have been officially banned since 1987; however, lax border controls prevent enforcement and imported fruits are readily available alongside domestic products. The mandatory licensing procedures have become increasingly burdensome for agricultural inputs, with variable tariff rates determined by the Ministry of Supply and Trade (MST) and cumbersome processing with little transparency. Recently, the Ministry of Industry has been intervening in imports for poultry equipment. By contrast, in the case of agricultural chemicals (notably pesticides), despite the existence of clear guidelines, the absence of controls over actual imports and the subsequent lack of monitoring and enforcement pose real environmental and health dangers. Theoretically, the Investment Authority (established in 1992) could direct efforts to encourage agricultural production; however, this has not yet occurred. 2.16 Official Foreign Exchange. Currently, there are four strategic commodities whose importation is under government control (wheat, wheat flour, rice and medicines). For these commodities, successful traders are guaranteed the necessary foreign exchange from the Central Bank at the official exchange rate. In recent years, there have been about five private traders who bid for importing these commodities, in addition to the parastatal General Corporation for Trade and Grains. This procedure was overridden in 1992, when part of the total cereals requirement was purchased by MST on direct contract. The Government is considering expanding the list of strategic commodities to seven (adding sugar, vegetable oil and LPG). For 1990/91 it is estimated that 40 percent of imports were at the official exchange rate. 2.17 Market Foreign Exchanae. All other imports, including agricultural inputs, must be financed by private foreign exchange, either from private accounts maintained abroad or from the local parallel market. For these imports, the granting of licenses depends on proven deposits with commercial banks of sufficient foreign exchange. The Military Economic Corporation (MECO), a private food trading company (with 40 percent government holding) is an exception to this rule insofar as it occasionally benefits from foreign exchange allocations at the official exchange rate. This represents significant unfair competition (and disincentive) for the private sector. Plainly, the dual exchange rate system, which creates inefficiencies and rents, should be phased out. 2.18 Imoort Taxes. In general, the tariff rates on imports are modest. Rates for basic essentials, such as wheat and agricultural inputs range between 5 and 10 percent, while other imports are charged within the range of 25-50 percent. Tariffs are designed to generate budget revenues as well as to protect domestic production. However, due to the dual exchange rate, the - 10 - tariffs have been ineffectual in both objectives. This has become particularly important under the influence of the growing gap between the official and the market exchange rates. Until January 1992, the exchange rate applied to value imports for customs was the official rate of YRls 12/USsl. With continued depreciation of the exchange rate in the parallel market, from which most importers obtained foreign exchange, the effective tariff rates declined by more than half 1990-1992. In January 1992, the rate applied for customs purpose was adjusted to YRls 18/US$l. While this has partially restored the effective tariff rate, the gap with the market rate (ranging from YRls 30 to 40/US$l in 1992/93) remains large. 2.19 Domestic Prices and Incentives. The current trade and exchange regimes entail significant consumer subsidies for wheat and rice. Under the depreciating free market exchange rate, valuing imports at YRls 12/US51 has, in effect, increased the subsidies. In 1991 the average import price of wheat was about $200/metric ton, equivalent to a CIF price of YRls 2,400/metric ton at the official exchange rate. However, at the parallel market exchange rate of, e.g., YRls 30/US$l (1/92), the CIF price would be YRls 7,826/metric ton. Wheat production in Yemen is currently estimated to cost between YRls 2,300 and YRls 6,960/metric ton for rainfed and irrigated crops, respectively (excluding family labor costs). In the most suitable growing areas and under optimal husbandry, it is estimated that production of irrigated wheat in Yemen would currently cost YRls 6,200/metric ton. Thus, wheat production in Yemen could be competitive in financial terms at the market exchange rate.!/ The introduction of wheat into the market at an effective 250 percent subsidy has undercut local production. In 1991/92, while Government was distributing imported wheat at subsidized prices, domestic production was going unsold. The impact was also felt in other cereal crops like sorghum and millet whose price has some relation to the wheat price, since they are substitutable. A different but equally undesirable effect has been produced in the market for agricultural inputs, where supplies purchased by the Government or obtained from concessional sources are currently valued at the official exchange rate. This has effectively eliminated private traders from the market. More recently, this distortion has affected the importation of ingredients for animal feeds, thereby reducing poultry production and eroding the previous high level of self-sufficiency in broiler meat and eggs. Third Five-Year Develogment Plans (TFDP) 2.20 Both parts of Yemen had implemented three five year development plans since becoming sovereign states in the 1960s. In PDRY, the TFDP ended in 1990 and in YAR in 1991. However, at unification, it was agreed to extend the operations of these plans until a new First Five-Year Development Plan (FFDP) could be prepared for the Republic of Yemen; this should come into force in 1994/95; meanwhile, Government is applying interim annual plans. As a prelude, the sector ministries drafted initial proposals under the / Irrigated wheat, however, is not a viable crop for Yemen if water is priced either at marginal cost or at its opportunity cost. - 11 - coordination of the MPD in preparation for a "Round Table" with the principal donor organizations in late 1993. 2.21 For the TFDP, despite differences in ideology and approach, the basic objectives for the agriculture sector were similar in both countries. For example, Government's stated objectives for agriculture in the YAR plan were: (i) to raise agriculture's share in GDP through increasing efficiency of agricultural production and support services; (ii) to increase crop and livestock production to satisfy domestic demands and to expand exports; (iii) to focus on self sufficiency and food security; (iv) to develop the skills and capacities of farmers and to modernize technical operations; (v) to optimize resource utilization and to limit expansion in qat production; (vi) to foster public, private and cooperative sectors as a means of increasing production; and (vii) to ensure supplies of adequate raw materials for agricultural processing industries. 2.22 The strategies (in technical terms) for meeting these objectives were set as follows: (i) raise farmers' knowledge by developing the administrative and technical aspects of research, extension, demonstration and information/audio visual services; (ii) improve varieties and expand production and supplies of seeds and seedlings; (iii) provide adequate supplies of inputs (fertilizers, chemicals and machinery) for ensuring increased production; (iv) expand forest planting and provide special incentives for sand dune stabilization; (v) encourage animal breeding to increase meat, dairy and egg production; and tighten quarantine controls; (vi) expand pasture production and protect rangelands; (vii) rationalize irrigation water utilization, organize well drilling and improve standards of water management; (viii) establish a network of marketing facilities, expand wholesale markets and market regulation, build cold stores, encourage the private sector, and ban importation of fruits and vegetables; and (ix) stimulate the operations of private cooperatives. Both plans were notable for the absence of complementary economic policies for meeting their objectives. 2.23 The total investment budget earmarked for Agriculture (and Fisheries) in the TFDP in YAR was YRle 3.1 billion (10 percent of Plan total); the corresponding budget in PDRY was YD 100 million (17 percent of the Plan total). These budgets provided the basis for development support by aid agencies, which assisted with contributions estimated at US$250 million - 12 - equivalent, or 50 percent of the total. Investments accounted for approximately 70 percent of these budgets. 2.24 Assessment of Performance of the Third Develonment Plans. Under the Plans' agricultural components, both governments largely met their investment obligations. However, these were not matched by the expected increases in outputs. In fact, physical output of most products stagnated at mid-1980s levels. The reasons for the disappointing results are particularly to be found in technical (para. 3.16) and institutional (para. 4.10) problems and, to a lesser extent in limitations on funds and administration of recurrent budgets. At the end of the Plan period, economic constraints became particularly obstructive. 2.25 Impact of Aid Agencies. Bilateral aid during the Third Plans' period was predominantly from East European countries in PDRY and from western countries in YAR; multilateral agencies worked in both countries. Bilateral aid was focused on specific areas or subsectors, by and large with positive effect. Multilateral agencies focused more on institution building, with emphasis on developing agricultural research capacity and regional development agencies as a means of decentralizing operations and coordinating rural development. Priority Actions for Macroeconomic Policies 2.26 Clearly, the macroeconomic distortions are increasingly undermining agriculture sector performance. Recent dialogue with Government (para. 1.05) has highlighted the policies that would restore economic stability and promote economic growth. On the fiscal front, a combination of revenue enhancing and expenditure control measures should be adopted to reduce the present high budget deficits to a level that can be financed without resorting to large- scale borrowing from banks. A market-guided rate should be adopted for all foreign exchange transactions and the import licensing procedures should be liberalized. Interest rates need to move towards market levels. 2.27 The First Five-Year Development Plan (FFDP) should emphasize policies and strategies for preserving the country's resource endowment. This particularly relates to the potential for increasing productivity (economically) from the existing but fragile natural resources, especially water. An equally important aspect is the demographic pressures of a rapidly growing population, the expanding labor force and high level of unemployment, and the lack of opportunity to export labor. 2.28 The specific macroeconomic policies that are required to allow the agriculture sector to grow are as follows: (a) Prices and Incentives. Priority should be on moving to a unified market-based foreign exchange rate. Any allocation of foreign exchange by Government for imports of food (wheat, flour, rice, edible oil, etc.) and production inputs should be valued at the market exchange rate. The same ruling should apply to grant-aided supplies and MECO's operations which, excepting military support, should be privatized. For social consideration, a safety net program (e.g. food stamps) should be devised to protect the poorest segments of the population; a precise targeting mechanism would be an - 13 - essential adjunct for such a system. In this way, consumers who could afford it would pay full market prices and farmers would receive an incentive to increase production. Government should eliminate licenses for importation of all agricultural commodities, except those banned for health/environment-related reasons, e.g. pesticides, which should be controlled for environmental or safety reasons, with appropriate tariff imposed for revenue purpose. The exchange rate applied for customs calculation should be the market- determined rate so as to encourage private sector operators. (b) Fiscal Measures. Agriculture could contribute significantly to tax revenue, and in several cases the application of tax measures could help achieve important sectoral objectives, Clearly the impact of taxes on production incentives and on the consumer would have to be reckoned. Some suggestions are listed below: (i) Water charoes should be introduced. Ideally, abstraction should be metered; however, it would be more practicable initially to levy charges based on the size of irrigated area and cropping regime for each farm. A supervisory system, between the MAWR Water Sector and the RDA concerned, would be essential. Estimates show that, with a tariff of YRls 50/1000 m3 (based on typical cropping pattern), farmers' water charges would range from YRls 200 per crop for sesame to YRls 1,750 for bananas (at this rate, the charge on qat would be YRls 900/ha/annum). The impact of this on farm incomes would vary with the intensity of water use; e.g. high consuming crops like sesame would be up to 4 percent.-v Tariffs could be varied to reflect the strategic priority of the commodities concerned; qat is the obvious example for such differential treatment. An alternative approach of selling irrigation licenses for a period -- say, three years -- may be more practicable but would impact less on resource conservation. (ii) Revenues from aat tax should be raised and its method of assessment and collection should be shifted to taxing producers on an area basis as well as maintaining the excise tax on sales to consumers. For example, a tariff of YRls 15,000 per ha annually, together with the water charge, would yield some YRls 2 billion over the total estimated qat area. In addition to increasing tax revenues, these measures would help to conserve water and discourage qat consumption (assuming charges are passed on to consumers). It is likely that civil administration forces would need to be strengthened to help To calcuLate the effect of water charge on the net benefit an additional cost for water tariff was included along with the other input costs, in the budgets for irrigated crops. Changes in the net benefit for a wide range of crops, at full potential, have ben calculated. The farmers are expected to have only 1 crop per year of cereals, sesueo, and banana, however, there are generally 3 pickings of qat per year. The percentage decrease in net benefits is from 0.4 for a high value crop like qat and up to 3.8X for low value but high water using crop like sesame. - 14 - enforce collections. Therefore, a significant part of revenues (especially in the initial years) would be absorbed by regulatory costs. (iii) In pursuit of national water conservation policy, sauinment taxes could be levied on water pumps (loaded against higher capacities) and spare parts for drilling rigs, pumps and irrigation equipment. (Importation of drilling rigs should be banned.) (iv) The introduction of grazina fees should be considered as a means of raising revenues for rangelands rehabilitation and to help control overgrazing. (v) Import duties might be considered for specific commodities which have a clear comparative advantage for domestic production. As a first step, the ban on imports of fruits and vegetables should be rescinded and, where justified on international pricing standards, import duties could be applied. (vi) Land taxes could be introduced, especially in areas benefitting from the public sector investment projects, notably as a means of recovering investment costs of civil works in irrigation projects. Such a system had been proposed (as a pilot) for Wadi Hadramawt but implementation was delayed by unification; these proposals should be reconsidered. (c) Efficiency of Public Services. Government's decision that all civil servants should be absorbed into their respective post-unification ministry has created overstaffed institutions where operating budgets are inadequate to maintain services. This situation is unsustainable and, with the election of a new Government, priority should be given to devising an action plan and incentives for reducing staff and making the public service more efficient [para. 6.04(c)). - 15 - III. TECHNICAL AND ECONOMIC ASPECTS A. Resources and Production Systems 3.01 As one of the most ancient agricultural societies in the world, Yemen maintains some of the oldest cultivation techniques. The country's agricultural areas consist of a complex mosaic of agro-ecological conditions. Rainfall is generally low and erratic and the climate varies from humid subtropical in the Tihama coastal plain to cool montane in the highlands. The variable climate, diverse physical and chemical soil properties and difficult communications encouraged the evolution of many cropping patterns based on self sufficiency for rural communities. Variations in rainfall, and in quantities, depths and quality of groundwater water resources represent the most significant factors for sustained agricultural development. Despite these constraints, Yemen enjoys water resources and a climate more suited to diversified agriculture than most other countries in the Arabian Peninsula. The status of natural resources is reviewed in Chapter V. Land Resource Base 3.02 Yemen has ample high grade soils; however, their utility is totally determined by water availability. In the highlands and on the escarpments there is about one million hectares of rainfed arable land and approximately half of this area is developed as terraces. Irrigated land totals some 320,000 ha, of which, 250,000 ha is controlled irrigation (mostly from tubewells) and 70,000 ha is from spate. The typical farm is the owner- occupied small holding, although about 10 percent of farmers (predominantly in the northern governorates) are sharecroppers. In the previous PDRY, the land was mostly nationalized and about 15 percent of cultivated land was state farms. These lands are now being returned to their former private owners and the state farms are being privatized (para. 4.46). 3.03 More than half of the geographic area is arid or semiarid rangelands: (i) the northern ranaelands cover the dry areas of Tihama and Sadah; (ii) the uDland rangelands cover the foothills of the central highlands (Sana'a and Dhamar) and the southern uplands (Lahej and Abyan -- which have better rainfall and vegetation cover); and (iii) the eastern rangelands cover the eastern foothills of the mountains and northern Hadramawt. In addition to providing catchment areas for wadis, these rangelands provide forage for sheep and goats (mostly daytime herds from villages) and firewood from small shrubs. The upland rangelands are mainly used by sedentary flocks of sheep often herded by women or children. Natural woodlands now mostly grow only on wadi sides; it is estimated that the cover of about 2.5 million ha of woodlands in 1970 has diminished in density and the area has shrunk to about 1.5 million ha. - 16 - Water Resource Base 3.04 Annual precipitation is approximately 1.3 billion m3 and Yemen has modest underground water resources. Rainfall varies between 50-100 mm in the eastern desert to more than 800 mm in the Central Highlands; however, most of the country receives less than 200 mm annual precipitation. At the same time, evapotranspiration is high, which underline. the value of water harvesting on terraces. The precipitation is mostly utilized within the country, either passing to groundwater in the form of deep percolation, or to the atmosphere through evaporation and evapotranspiration. Data on the extent of reserves is limited; however, aquifer levels are declining in most watersheds (the drops range from 1 to 6 m per annum) and the incidence of malt water intrusion is increasing in southern coastal areas. It is estimated that current withdrawals of water for all purposes are 138 percent of renewed resources; which means that water reserves are being "mined" in many areas. Furthermore, it appears that spring-fed irrigation has reduced significantly as groundwater tables have dropped due to pumping. Some 90 percent of total withdrawals is used for agriculture. 3.05 Water Development Reaulations. As a result of these developments, the groundwater potential in most areas will increasingly be limited by economic pumping depth, and in coastal areas by increased salinity from sea water intrusion. This overutilization of groundwater, coupled with erratic rainfall and drought, threatens the sustainability of irrigated agriculture in Yemen. Recognizing this fact, the Government has drafted a Water Law which provides for a National Water Authority, and creates powers of regulation of drilling and abstraction (paras. 3.20 and 5.08). B. Agricultural Production Status of Rainfed Farming 3.06 Despite being the traditional basis for agriculture and providing occupation for more than 50 percent of the population, rainfed agriculture has received little development attention. In fact, over the last two decades, economic changes, notably the rise in wage rates, have put pressure on the labor-intensive traditional terrace farming and contributed to the reduction in sorghum production -- a mainstay of rainfed agriculture. By necessity, farmers in these areas have always made their own varietal selection (an FAO gene bank survey in 1990 identified more than thirty strains of sorghum), and in this context even the international research centers (notably ICRISAT and ICARDA) had little to contribute. However, on the technical side, much could be done to improve cultivation and crop storage techniques, while organizationally, there is need to emphasize farming systems research to broaden the scope of rainfed crops. This kind of research should be able to show ways of improving the profitability of rainfed farming, which should be a priority for sector development. Status of Irrigated Farming 3.07 Controlled Irriaation. Until 1970, farmers followed traditional irrigation practices using shallow, hand-dug wells (with hand or animal lifting mechanisms) or springs. This effectively limited extraction within sustainable yield levels and significant seepage occurred from wadis and spate - 17 - irrigation to discharge to the sea and the desert. Since 1970, groundwater development has been predominantly by tubewells. There are an estimated 45,000 wells irrigating some 250,000 ha, giving an average command of about 5 ha per well. Some 40 percent of these developments are in the Tihama region and a further 10 percent in the southern governorates. Many new wells are replacements for those which have gone out of production because of declining water tables. In the uplands, the irrigable area from each well has commonly diminished to 1-3 hectares. 3.08 Spate Irrigation. Traditionally, farmers in the vicinity of wadis relied on simple earth built diversion systems and irrigation networks. With small to medium spates, the temporary embankments (uamas) can be effective; with large spates, they are often swept away. These schemes are operated and maintained by traditional systems and are quite effective in making reasonably good and equitable use of the water. In order to give better control of the flood flows, a series of public sector investments, involving construction of permanent diversion weirs and canal distribution structures, have been made in the main wadis since the early 1970s. Most of these systems have experienced maintenance and water distribution problems because scheme designs have conflicted with traditional water rights. 3.09 Existing Irrigation Practices. In the absence of technical planning or guidance, the overall efficiency of on-farm controlled irrigation systems is about 35 to 40 percent. However, it is estimated that this could be economically increased to more than 60 percent by installing pipe distribution. Furthermore, raising efficiency to over 80 percent can be achieved by adopting advanced irrigation management practices, such as sprinkler, bubbler and drip systems. These are particularly suitable for horticultural crops (and qat). Farmers are becoming increasingly conscious of the depleting groundwater resource; however, wider application of these technologies has been restricted by limited technical skills, unavailable materials and absence of extension strategy, regulation or incentives)1 3.10 Irrigated cereals (mostly wheat) are cultivated in bunded basins whose size is usually determined by the plot and farm size. Border irrigation of cereals occurs mainly in the southern governorates. Potatoes and vegetables are irrigated in basins or in furrows. Irrigation rates are generally to be above optimum due to the absence of professional water management and irrigation scheduling. There is little research or extension on irrigation, particularly due to the shortage of irrigation agronomists in the Agricultural Research and Extension Authority (AREA) and the RDAs. Strengthening irrigation technology, in both research and extension, is vital for the sustainability of irrigated agriculture in Yemen, and is a major focus of the LWCP. C. The CroR Subsector 3.11 Agro-ecoloaical Zones. The large diversity of agro-ecological conditions permits cultivation of a wide variety of crops, ranging from bananas and cotton in the lower elevations with tropical to subtropical 1/ The IDA-assisted Land and Water Conservation Project (LWCPs Cr. 2373-YEM) is designed to help in developing this potential. - 18 - climate, to wheat, potatoes, and fruits in the higher areas with subtropical to temperate climate. The higher value crops, such as vegetables, fruits, coffee, forage crops and qat, are irrigated except in the higher rainfall areas of the southern highlands. Some lower value crops, such as wheat in the highlands, are also irrigated, but some 80 percent of cereal cultivation is rainfed, with supplemental irrigation from wadi flows or other sources, if available. Crop Production 3.12 Cropped Area. Over the last two decades, the total cultivated area increased by an estimated 200,000 ha to a total 1.34 million ha. At the same time, crop production underwent significant changes, as is illustrated by Table 3.1. Table 3.1: TRENDS IN PRODUCTION AREAS FOR MAJOR CROPS ('000 ha) Crops 1970 1980 1985 1988 1989 1990 Cereals 1,082 851 861 868 859 845 Legumes 65 75 32 31 45 50 Tobacco 5 7 3 4 4 4 Coffee 7 8 17 20 22 25 Vegetab. 25 31 23 41 50 53 Fruits 14 44 46 51 54 57 Fodder 40 50 58 60 73 60 Others 20 25 30 30 35 36 Qat 8 70 75 75 78 80 Source: Central Statistics Office and Mission Estimates. 3.13 Oat production is a significant industry, occupying some 25 percent of the controlled irrigation area. The crop provides employment for some 500,000 people (16 percent of the working population) and generates large incomes.!/ By any measure (including DRC analysis), qat is the most profitable agricultural commodity; its value-added in 1991 was estimated at about YRls 34 billion. The official policy towards qat is to restrict cultivation to low potential areas and to levy sales tax. However, in practice, due to its exceptional profitability and widespread domestic consumption, nothing has been done to restrict production and tax revenues are estimated to be less t A more detailed analysis of qat production is presented in Volume II, Annex 3. - 19 - than 10 percent of dues. A more pragmatic approach, focused on taxing inputs (notably water) and outputs (at source) would have a greater chance of being implemented and earning revenues. Although this implies acknowledging the undesirable consumption, if enforced, this plan could help to boost other agricultural production and would have significant impact on conserving scarce natural resources. 3.14 Trends in Crop Outvuts and Yields. Based on available statistics, the main changes in crop outputs since 1970 involved: (i) total cereals production area was constant in the 1980s: annual outputs of sorghum declined (1981: 300,000 tons; 1988/89: 250,000 tons), millet production increased and output of wheat, barley and maize doubled to about 250,000 tons per annum, mostly under irrigation and in high rainfall areas. Of the cereals, sorghum and millet, the traditional staple foods, are the most important, particularly in the rainfed areas. However, analysis of cropping data shows that the largest changes have occurred in the area planted to wheat which increased by 230 percent since 1970, and to millet which increased by 250 percent; (ii) other field crops include limited quantities of pulses and oil seeds and steadily expanding areas of irrigated forage crops (especially alfalfa); (iii) traditional cash crops of cotton (Lahej, Abyan and Tihama) and coffee (highlands) have declined in the last decade; (iv) production of vegetables, fruit and forage increased significantly; and (iv) output of qat increased dramatically. In areas of assured water supply, farmers have become increasingly market oriented since 1980, as evidenced by the explosion in fruit and vegetable production. 3.15 Yields of most crops have not changed significantly since 1970: average yields of wheat improved, but for maize, barley and some vegetables, they declined. These figures may reflect the emphasis of research, extension and inputs for wheat relative to other crops.31 Vegetable yields mostly declined; some of them, such as watermelon, sweetmelon, and cucumber by a quarter. With the exception of grapes and bananas, where yields have been stable, yields of all other fruits are reported to have declined. A similar situation exists in grain legumes, where yields of cow peas, beans and peas remained stable, and yields of lentils and broad beans declined over the period 1988-90. Analysis of Crop Production and Potential 3.16 Reasons for Declinina Yields. There are four technical reasons for the discouraging yield developments: firstly, shortages of the most essential inputs (improved seeds, fertilizers, pesticides, water, and mechanization); secondly, the lack of focus by research and extension, especially for developing the most essential elements of modern technologies, such as higher yielding varieties, water application, pest management and crop-specific technical recommendations; thirdly, constraints in farm mechanization and storage; and lastly neglect of the potential for value added from major crops (import substitution, processing etc.). 1/ Statistical data are inconsistent: only for cereals and cash crops are data reported for 20 years, other crops are mostly only three years. - 20 - 3.17 Economic Analysis of Croo Production. An economic analysis of crop production costs and benefits was carried out to discover crops which Yemen has a comparative advantage in producing. The analysis also looked at the agronomic potential of crops under improved husbandry. Two sets of indicator. were thus derived: returns to factors at present yield levels, and returns to factors at potential yield levels. The analysis is presented here in terms of the Domestic Resource Cost (DRC) of production. The DRC is a useful indicator of whether a country has a comparative advantage in producing a crop (DRC less than 1) or whether resources would be better used for something else (DRC greater than 1).1I The explanation of how DRC is calculated, together with the analysis of returns to labor, water and foreign exchange, are presented in full in Volume II Annex 2. The analysis was first carried out with water priced at marginal cost - i.e. at the financial cost of pumping one extra m3 of water in the production area. The analysis for principal crops, which reflects the current prices facing farmers, is summarized in Table 3.2. Given that water is the scarcest factor, the analysis was also made of how attractive crops would be if water were priced to reflect its true scarcity. This was done by pricing water at the highest return that water can give for any crop that can be grown in a particular area (i.e. at opportunity cost) and the results are shown in Table 3.3. The prices derived varied between YRls 1.60/m3 and YRls 10.00/m3, compared with the current marginal financial cost of water of YRls 1.90/m3 in the Highlands and YRls 0.70/m3 in the Tihama. ;/ The Domestic Resource Cost measures how much domestic resources (like labor, land and water) are used to earn or save a unit of foreign exchange. If the DRC is less than one (for example, the DRC for tomatoes in Yemen is 0.87) it is better to produce in Yemen than to import - Yemen has a comparative advantage in producing this crop. If the DRC is greater than one, it is better to try to produce something else that uses domestic resources more efficiently. - 21 - Tobe 3.,2: COMPARATIVE ADVANTAGE WATER AT MARGINAL COST Production -- ---- DRC l zone Present Potential Yields Yields Yemen has Comparative Advantage for: Tomatoes | HighLands 0.26 0.22 Oat HighLands 0.36 N.A. Bananas Tihama 0.36 0.31 Cotton Tihama 0.37 0.22 Tomatoes for Export Tihama 0.37 N.A. Sesame Tihama 0.39 0.26 Grapes HighLands 0.53 0.44 Rainfed Wheat HighLands 0.59 N.A. Bananas for Export Tihama 0.60 W.A. Rainfed Sorghum Tihama 0.62 W.A. Rainfed Millet Tihama 0.68 N.A. AlfaLfa Highlands 0.86 0.52 CUT OFF 1.00 Yemen has No Comparative Advantage UnLess Husbandry and Yields Improve for: Potatoes Highlands 1.52 0.60 Cowpeas Highlands 1.99 0.81 Coffee Highlands 2.45 0.74 CUTOFF 1.00 Yemen has no Coaparative Advantage Even Under lInproved Husbandry for: Irrigated Wheat Highlands 2.20 | 1.46 Maize Tihama | 2.89 [ 1.95 Source: Annex 2 and Working Paper IC - 22 - Table 3.3: COMPARATIVE ADVANTAGE - WATER AT SHADOW PRICE Production ----------- DRC ---------- Zone J Present Potential Yields Yields Yemen will have Comparative Advantage for: The Rainfed Crops Highlands . |/ | Atfalfa Highlands 0.86 0.52 l_Tomatoes Highlands/Tihama 0.87 0.52 | Qat Highlands 0.93 N.A. | CUT OFF 1.00 Yemen wiLl have no Conarative Advantage Unless Husbandry and Yields Improve for: Bananas Tihama 1.25 0.70 Potatoes HighLands 1.52 0.60 Sesame Tihama 1.61 0.84 Cowpeas Highlands 1.99 0.81 CUTOFF 1.00 Yemen has no Conparative Advantage Even Under Improved Husbandry for: Cotton Tihama 1.58 1.26 Grapes Highlands 2.18 2.18 Irrigated Wheat Highlands 2.20 1.46 Coffee Highlands 21.54 4.03 Maize Tihama 22.80 6.04 jj There is no imputed cost of water for rainfed crops; hence, their DRCs remain the same in both analyses. Source: Annex 2 and Working Paper 1C. 3.18 Interpretation of the CroD Analyses. From the analyses, only a few crops retain their comparative advantage at current yield levels. Most crops would need to move to higher productivity levels to be viable. Nonetheless, it appears that a number of crops are currently attractive in terms of economic returns to the factors of land, water, labor and foreign exchange -- vegetables, grapes, qat, bananas, cotton, sesame, alfalfa/forage grasses and the rainfed cereals. Of these, tomatoes, bananas, and perhaps grapes, cotton and sesame could be viable exports, although this would need to be confirmed by market analysis. These crops should be promoted through extension and market development. Some crops have significant agronomic and economic potential for improving returns to factors. Research, extension, and seed and - 23 - input supply would be particularly justified on these crops -- alfalfa/forage, potatoes, sesame, cowpeas. In the light of declining water availability and the lower wages currently prevailing, the rainfed cereals merit research to identify any agronomic potential they may have. Irrigated cereals are generally less viable and, despite its significance as a national staple, irrigated wheat production, should be discouraged wherever apportunities for more profitable crops exist. For example, the possibility of introducing hybrid maize seed should be investigated. In the longer term, the overriding constraint will be water availability. The imperative will be to focus research and extension on crops that can remain viable under this constraint, and to prepare alternative farming packages for systems involving crops with poor long-term prospects, such as cotton, grapes, coffee or irrigated cereals. Priorities for CroR Production 3.19 Policy Implications. Recent experience suggests that, if present trends continue, food supplies in Yemen would experience further erosion of self- sufficiency and even greater dependency on imports. This situation could be acceptable if it were part of sectoral or national strategies whereby, either: (i) expansion in output of high value export crops is sufficient to compensate for imports of food staples; or (ii) the trend in foreign exchange revenues from other sectors is sufficient to provide sustainable funds for imports of food staples. Neither of these scenarios is tenable under current Government policies or proven potentials in other sectors. The best option is to emphasize production of high-value products where the country has a comparative advantage. An agenda for action on crop production should focus on the following: (a) Crop production is controlled by limited water supply; however, there is significant agronomic and economic potential for increasing productivity from existing areas by: (i) emphasizing optimum water management; (ii) improving the focus of research and extension operations; and (iii) giving equal attention to rainfed areas and production systems. (b) The policy for National Food Security should be based on a comprehensive strategy for cereal and pulse crops, with emphasis on rainfed production. (c) There is a comparative advantage in quite a wide range of crops for import substitution, and in a few cases for export. This is currently enhanced by declining nominal rural wage rates and inherent substantial devaluation. However, few crops have viable DRCs once water is shadow priced at its true scarcity value, unless production shifts to a more intensive and higher yielding system. All this underlines the importance of well-focused research and extension. The focus should follow the advantages revealed by the analysis. (d) The positive returns to foreign exchange for a range of crops are enhanced at higher levels of productivity, showing that the crops can absorb higher level of inputs. Yemen thus has interest to improve the supply and distribution of inputs. In all cases the crops are profitable enough to bear the cost of inputs without subsidy. - 24 - 3.20 Water Management. The shortcomings in water resource management were provoked by the absence of a national policy for planning and coordination of water resources, and they emphasize the need for a comprehensive strategy for the irrigation sector. The following are the priorities for action: - complete a national water master plan and enact associated legislation; - adopt strategies for restricting well drilling and for emphasizing efficient utilization of existing controlled irrigation facilities; - create a program for adapting traditional systems to improve efficiency of spate irrigation works, focused on small scale farmers and on communities and self-help structures; - develop a national program for O&M of irrigation works within the RDAs; - devise incentives for encouraging maintenance of traditional terraces, e.g. by planting trees, shrubs and Vetiver grass; and - pilot and demonstrate new technologies for irrigation and wastewater recycling in the main urban centers. These recommendations have, in principle, been adopted by Government and represent the basis for actions under the LWCP. D. The Livestock Subsector 3.21 Livestock Resources. Traditionally, most rural households have livestock, with husbandry practices being centered on penned cattle, communally grazed sheep and goats, and free-range poultry. The national livestock population is estimated at: 1.0 million cattle, 3.5 millon sheep, 3.0 millon goats, 0.5 million donkeys and 0.2 million camels; the national poultry flock is estimated at 40 million. Cattle, the main source of milk, are mostly kept in the highlands -- each house typically having one or two stall-fed cows. Sheep and goats, the main source of red meat, are reared 40 percent by nomadic rangeland systems and 60 percent by households. Poultry are 60 percent small, indigenous household flocks and 40 percent intensive, commercial systems. Figure 3.1 shows the contribution of the different subsectors. It appears that livestock populations are now static or diminishing (particularly in the northern governorates) due to pressure on land and water resources and consequential shortages of feed.1' 3.22 Livestock OutQut and Productivity. Production of red meat and milk stagnated in the 1980s, due to the low priority in technical support programs and increasing pressures on feed supplies, whereas broiler production increased ninefold and egg production sixfold [although this recently declined due to constraints on foreign exchange for feed imports]. Livestock productivity is low compared to similar countries in the Middle East and East Africa. For example, average milk lactation yields of local cattle average 500 liters (1) compared to 4,000 1 from exotic breeds; and red meat production is only 25 percent of comparable levels in other developing countries, due in large part to poor feeding and premature slaughter. Lack of breed selection and poor feeding and 1/ A more detailed analysis of the livestock subsector is given in Volume II, Annex 5. - 25 - husbandry restrict output from indigenous poultry, although intensive flocks are efficient. NNW _ _ P 3.23 Animal Traction. There are some 100,000 draft LutO s) animals, which play an Oh" m& $" important role in land (l c ) preparation, leveling and sowing, both on terraces inaccessible to machines and for the more delicate work DF" * On) on mechanized farms. Donkeys and camels are used for the transportation of farm supplies, products, and firewood. Although it is expected that utilization of Figure 3.1: Relave importance of the vestock sector in the Highnds animal traction will decline (excluding manure). steadily, tractorization will always be restricted by topography, terracing, field *ize and financial viability. The economic importance of draft animals has not been assessed in detail; however, provisional budgets indicate that owning a pair of oxen can be profitable, particularly in terraced areas. 3.24 Foraae Production. Forage supplies are the major constraint on ruminant production. Limitations on land and water resources restrict the size of herds and flocks; and forage production is a significant cash crop, especially in the Tihama. Traditional forage crops are alfalfa and fodder sorghums. Alfalfa is an important component of crop rotation; however, it requires high levels of water application. Sorghum is the major feed for cattle. Attention is now being given to cultivation of forage grasses, e.g. Napier grass, which have significantly higher productivity. 3.25 Human Resources. Most livestock is owned by sedentary farmers who have a vew small ruminants or cattle and follow a mixed farming system; in addition, some 400,000 nomadic families in the drier areas raise camels, sheep and goats. Women and children play the dominant role in livestock rearing. Scarcity of labor for herding is a major constraint (6-7 hours for daily herding is typical in the highlands). Furthermore, it appears that women on higher income farms (e.g. qat producing farms) are moving away from the house cow/sheep system, which may partially account for declining numbers. Stall feeding systems save herding time but require more labor for harvesting, collecting, storing and feeding forage and supplements at home. The creation of a modern poultry industry by the private sector demonstrates the interest for financing developments which have proven technical merits. Trends in Demand for Animal Products 3.26 (a) Meat. Due to lack of forage, there is a trend for slaughtering domestic livestock immature. Half of domestic cattle slaughterings are calves. Sheep and goats constitute the major part of the livestock economy and an estimated 2.5 million head are slaughtered annually (including some - 26 - 1 million animals that are imported to satisfy the highly seasonal domestic demand). The gap between domestic production and demand for red meat and milk is widening. Since 1980, imports of cattle have increased tenfold and small ruminants tripled. However, imports of fresh and frozen meats declined, from 38,000 to 12,000 tons in this period, with the value of these imports declining slightly, to US$73 million per annum; conversely, dairy products increased to US$103 million. In addition to economic implications, the imports of live animals, which mainly originate from Africa, carry a risk through introduction of contagious diseases. (b) pairyina. Milk products are mainly produced by the traditional sector (modern dairies contributing some 4 percent of the total 200 million liters annual production). This level of output does not satisfy demand and imports of milk powder and other dairy products doubled in the 1980s, to a total of 13,340 tons in 1991, despite the market premium on local produce (typically 50-100 percent). (c) Hides and skins are the third largest agricultural export; from slaughter data, it is estimated that some 10,000 tons (120,000 hides and 2,000,000 skins) are produced annually. Although basically good, the potential quality of these hides and skins is halved by improper handling during slaughter and by poor preserving practices. The hides and skins trade is concentrated on some eight large, private sector trading houses. Analysis of Livestock Production 3.27 Livestock in Yemen represent an underexploited resource with significant potential for sustained economic growth. There is a high and expanding demand for animal products (milk, milk products, manure etc.) and a marked consumer preference for fresh milk and animal products. On the negative side, rangelands management is being disrupted and there is a major risk of degradation; intensive forage production is neglected; and livestock work is time-consuming for women. In addition, there are shortages of forage, feed and labor, and inadequate planning and support services. An agenda for action on livestock production should be founded on raising efficiency and encouraging private sector participation. This should include the development of policies and strategies for rangelands management. A program for expanding livestock productivity within the bounds of land, water and labor resources would give high priority to improving fodder and feed production, increasing labor saving technologies, and modernizing processing of animal products. Constraints to be considered include: the widely dispersed farms (often in rugged terrain), dearth of attenytion (research and extension) for forage crops, the traditional stall-fed techniques, and the social constraints on women. Priority is needed (by the public service) for improving data on livestock numbers, productivity and marketing, so as to be able to develop a well-focused program of research and extension. 3.28 Priorities for Livestock Production. In order to exploit the potential for developing the livestock sector and for obtaining significant economic benefits from relatively small extra investments, an aaenda for action should focus on the following policies and strategies: (a) Complete a socioeconomic and physical survey of principal rangelands and adopt a rangelands management policy based on optimum carrying capacities for each area, and rehabilitation and management programs for increasing productivity through a strong participatory approach based on herders' associations. - 27 - (b) Develop strategies (founded on indigenous breeds) for upgrading ruminants (in particular for meat), for selecting superior strains of ruminants and for producing commercial breeding stock for farmers. (c) Adopt a program for intensifying the research program and the extension system, aimed at: improving efficiency of forage production (emphasizing grass type-species, irrigation efficiency and better conservation techniques -- dried and ensiled), better feeding methods, and schemes for small scale processing and marketing of animal products. (d) Revise animal health policies to ensure cost effective control of major epidemic diseases and focus on reduction of production diseases (emphasizing a greater degree of cost recovery through private veterinary services and herder technicians) through decentralization of veterinary services to RDAs and private sector operators. (e) Adopt trade regulations and phase out import licenses in order to encourage the private sector to handle the procurement, manufacture and distribution of compound feeds and supplements. (f) Emphasize the development of small-scale, forage-based stall feeding, centered on simple structures and labor-saving feeding techniques for women farmers. (g) Adopt a strategy for improving the health and efficiency aspects of livestock slaughtering, for modernizing livestock slaughtering practices, encouraging the development of community milk collection, and raising earnings from hides and skins. E. The Forestry Subsector 3.29 Yemen's natural wooded vegetation comprises: maritime mangroves, wadi and desert shrubs, and savanna and mountain trees. However, centuries of overcutting, expansive stock grazing and clearance for crop production have caused the degeneration of Yemen's natural closed forest into open woodland or low scattered shrubs. It is estimated that in the early 1970s there were some 2.7 million ha of wooded vegetation, but this has halved in the intervening period. Although the country is mostly mapped, there is no inventory of national forest resources, no gazetted forest or wildlife reserves, and no forest legislation. Current consumption of fuelwood is estimated at 6 million m3 annually, with a value of some YRls 10 million. 3.30 Through lack of active policy and strategies, the forestry departments in YAR and PDRY had little impact, apart from the operation of some 30 seedling nurseries. Because of the "low-key" approach of the forestry departments prior to unification, there has been no organized forest management. Most of the existing forest or woodland areas are owned by individuals or communities which, under traditional management systems, retained a proportion of indigenous trees in their cultivation areas to provide shade and a source of fuelwood and fodder. Fuelwood collection was restricted to dead branches of trees collected from the ground. However, these practices have begun breaking down over the last ten years as a result - 28 - of increasing population pressure and rising fuelwood prices; now much of the fuelwood is derived from felled trees and roots. 3.31 Aoro-forestry. A socioeconomic study (ODA-1989) of forestry development in Yemen concluded as follows: (i) considerable potential exists for agro-forestry developments; however, in view of the competition for scarce water resources, strong extension efforts are necessary to convince farmers of the benefits of cultivating wood trees; (ii) tree planting could be accelerated through training and extension, linked to demonstrations of the potential of trees as a cash crop; and (iii) established farmers are more amenable to long-term developments. These points indicate the importance of establishing programs for increasing awareness of farmers of the benefits of tree cultivation, both for their productive and protective functions. 3.32 In recent years, fruit tree production has developed rapidly, and there has been little interest in tree planting for fuelwood. Nonetheless, financial estimates indicate that fuelwood production can be a profitable cash crop for farmers as well as offering substantial ecological benefits. An output of 20 tons/ha, provides an estimated financial return of over YRls 250,000/ha." Even at half this level, the return is higher than most field crops. Analysis of Forestry Production 3.33 There is no significant forest policy. Hitherto, Government's only intervention had been to provide tree seedlings from forest nurseries in strategic locations. The existing forestry nurseries could produce several million seedlings each year, but in the absence of incentives, of subject matter specialists (SMS) for forestry and of concerted extension efforts, farmers have shown little interest in planting trees for wood. However, since the mid-1980s, private sector planting of fruit trees has increased significantly. Government is evolving strategy, which emphasizes agro- forestry and the use of the RDAs for extension. This is being supported under the LWCP and major actions include: a program for strengthening forestry institutions; sand dune fixation by shelterbelts and windbreaks, a program of natural woodland management; efforts to increase public awareness to promote public tree planting, training of subject matter specialists in extension; greater women's involvement in forestry activities; and watershed management in priority areas. 3.34 Priorities for Forestry Production. A Government study assisted by UNDP/IDA in 1990, focused on alternative energy sources, particularly LPG. It is critical that a national policy be adopted, specifying demand/production strategies for wood and alternative sources of energy. Strategies for forestry development should focus on private sector operations (including transfer of MAWR tree nurseries). A comprehensive extension support program is needed, to focus on the benefits of tree planting, wood production, and allied forest industries (e.g., honey production). Environmental considerations are also important. In common with depleting water resources and erosion on terraces, sand encroachment on agricultural areas represents a serious environmental loss. In the medium to long-term, the biggest challenge 1/ See Budget: Annex IB, Table 26. - 29 - is to reverse the degradation of woody biomass through a strategy of afforestation and management of existing woodland cover. Fuelwood still provides at least 70 percent of household energy. At the current rate of cutting and in the absence of a program for accelerating replanting, there is a high risk that Yemen will be devoid of trees by the end of the century. Exploitation of oil and gas reserves is facilitating transition to bottled gas and kerosene for cooking, but it is likely that at least half of the population will continue to rely on fuelwood whilst it is still available. Considerable potential exists for agro-forestry developments; however, in view of the competition for scarce water resources, strong extension efforts are necessary to convince farmers of the benefits. Strategies for forestry development should focus on private sector operations. An aaenda for action on forestry should focus on: (a) Setting a national energy and forestry policy to promote use of alternatives to wood and to create incentives for conservation and replanting. This would include enactment of forest legislation and initiation of strategies for watershed management; in addition, it should include the production of mangroves and for fauna and flora. (b) Identifying priority indigenous woodland and initiate a program of natural woodland management, including programs for increasing public awareness of the value of trees, and for accelerating tree planting by individual farmers and communities. (c) Developing a national rangeland policy and production strategy involving adaptation of traditional practices, landownership, water rights, and encouraging pastoral/herders' associations. (d) Developing a program of maritime sand dune fixation by shelterbelts and windbreaks. (e) Strengthening forestry and natural resources management institutions to support a forest policy, with prime focus on private sector operators. F. Agricultural Inputs Supplies 3.35 In the 1970s, both parts of Yemen initiated support services to farmers, including: research, seed production, input supply, field extension, crop protection, and marketing. In PDRY, these services were organized on parastatal lines, while in YAR, the private sector played a significant role. Both parts of the country experienced difficulties in providing these services, for a variety of reasons. The supply of seeds, fertilizers, chemicals, feeding stuffs and mechanization are dealt with in this section, support services are reviewed in Chapter IV. 3.36 Agricultural Seeds SuDDlies. Production of improved seeds in Yemen started in the 1970s and has mainly concentrated on multiplication of imported varieties of wheat and potatoes. In 1990, about 8 percent of wheat and 6 percent of potato production were grown with improved seed. The amounts of improved seed produced for other crops, such as barley, maize and sorghum are negligible and domestic production of vegetable seed is almost nonexistent. This is a major drawnback to raising crop productivity. - 30 - 3.37 Organization and Management of Seed Production. There are three organizations responsible for producing quality seeds. Their total output is about 1,800 t of cereal seed (mainly wheat) and 2,000 t of potato seed. The Agricultural Research and Extension Authority (AREA) provides breeder seed and two projects (Netherlands and EEC) are organizing production of foundation seed and a network of contract growers produces registered seed. In the absence of certification, the projects provide their own quality control. Selling prices for cereal seeds (stipulated by MAWR) are approximately half of production cost and the organizations are losing money. Production capacity is inadequate, both in quantity and range of products, and output should be expanded to satisfy the demand for improving cereal production and to provide seeds for other crops with high economic potential. Conversely, potato seed production is commercially viable and provides a good model. 3.38 National Seed Requirements and Domestic Production Potential. The following action plan is proposed for developing a more viable seeds production industry: (a) Formulate and implement a national seed policy backed by appropriate legislation; and expand production (ideally through joint ventures with international seeds companies) of improved seeds to satisfy demands for staple crops and to provide seeds for other crops with high economic potential in each agro-ecological region (e.g., grain legumes, oilseeds, and possibly some vegetables). (b) Reorganize research work to: (i) expand the variety screening, breeding and agronomy work on cereals, grain legumes and oilseeds (starting with cowpeas); and (ii) expand production and release adequate quantities of breeders' seed (e.g., the best tested wheat varieties) to the Seed Multiplication Project. (c) Establish an independent seed quality control unit (SQCU), under MAWR jurisdiction, to replace the current self-controlling practices of the seed multiplication organizations. (d) Adopt a plan for making existing seeds production operations commercial with a view to privatizing improved seed multiplication. At the same time, Government involvement should be restricted to: policy setting, technical supervision and financial control. 3.39 Fertilizer Supplies. Yemen's soils are low in available nitrogen, and nitrogen and phosphorus applications give good crop returns. Technical absorptive capacity for fertilizer in areas of adequate rainfall or water control is in the range of 70,000-100,000 t annually. Past supplies, consisting mostly of urea and triple superphosphate, have fluctuated wildly as a result of being unplanned and depending heavily on grant aid. The average annual supply has been around 10,000 t, with the maximum of 48,300 t in 1991. Nitrogen fertilizer has always predominated and phosphatic fertilizers have always been in very short supply; therefore, nutrient supply has never been adequate for optimum crop production. As a result, at least 40 percent of potential output is sacrificed. 3.40 Although fertilizer import and distribution is theoretically in private hands, in practice, Government institutions (especially the CACB) - 31 - dominate the market because they are the beneficiaries of external aid. Government has hitherto priced grant aid fertilizer on the basis of the official exchange rate, which is inaccessible to private traders. Therefore, with the deterioration in the market exchange rate, private sector interest for importing fertilizer has been stifled. There is now a concerted effort with aid agencies to price all inputs at the market exchange rate. Given the good responses to fertilizer application, a program for improving sustainable supplies is vital. An action plan for improving fertilizer supplies should focus on: (a) creating a transparent system with the private sector, whereby: (i) the General Department for Planning and Monitoring (GDPM - para. 4.09) in MAWR would estimate annual requirements and coordinate any aid supplies; and (ii) private sector traders would be involved in procurement and distribution (all transactions being calculated at market exchange rates) -- with CACB's involvement being phased-out; (b) streamlining procedures (CACB/commercial banks) to ease the provision to farmers of seasonal credit for inputs; and (c) enhancing research programs to provide information on fertilizer response (including more on-farm trials and economic assessments); and extension should educate farmers on fertilizer usage. 3.41 Plant Protection Practices. Yemen is relatively free of pests and, by international standards, requires low pesticide applications. However, demand for plant protection chemicals has increased in recent years as a corollary to other technical innovations in crop production. Annual requirements are about 300 tons of insecticide; however, availability and types have fluctuated, mostly as a function of concessional supplies. Public and private outlets are involved with distribution and there is little practical control over selling, packaging or end use, and a significant part of supply is smuggled goods of doubtful provenance and suitability. Based on the current levels of pest infestation and the status of pest management and constraints in Yemen, an action vlan for plant protection should focus on: (i) strengthening regulation of all plant protection chemicals (including establishing a pesticide testing laboratory and random enforcement teams; (ii) expanding education in pest management for research and extension agents, suppliers and farmers, and enforcing licensing of suppliers; and (iii) strengthening the Plant Quarantine Service. 3.42 Livestock Feed Supplements. Supplies of ready-mixed concentrates and feed supplements are managed by private sector producers or importers -- mostly for poultry production. Apart from significant possibilities for increasing total feed production from rangelands and forages, economies could be made by utilizing crop by-products and from substituting local grains (especially sorghum and millet) for imported ingredients and compounds -- as part of a national cereals policy. Maize and soybean are currently the main feedgrain imports which are mixed with protein supplement and local wheat - 32 - bran. Some promising progress has been made with locally produced protein meals from slaughterhouse wastes as a substitute for imported concentrate. An action .lan should focus on: (i) removing price distortions on cereals and licensing controls for importing ingredients; and (ii) developing least cost feed supplements based on products/by-products which can be commercially produced in Yemen. 3.43 Farm Mechanization. Rising wage rates in the last two decades have made labor-intensive systems less profitable and tractors have steadily replaced animal-drawn and manual implements. In principle, the estimated 9,000 tractors now in Yemen are sufficient to cultivate about 1 million ha. Because of topographic limitations, some 85 percent of farms still use draft animals for some operations. There is an efficient and competitive private hire market and machinery hire stations in the southern governorates are being privatized (para. 4.44). The main problems are: the proliferation of models and the inherent servicing difficulties (some 30 percent of the national fleet is out of commission), and shortages and suitability of implements. In addition, the potential for small cultivators has been neglected. 3.44 Priorities for Farm Mechanization. It is important to devise an agricultural mechanization policy, emphasizing private sector enterprise, based on the following action plan: (a) Establish an agricultural mechanization working group involving agricultural mechanization specialists from relevant MAWR and private sector suppliers to: define a national agricultural mechanization policy (specifying ranges of appropriate farm machinery for Yemen) centered on private sector suppliers. (b) Reorganize the MAWR Department of Agricultural Mechanization (DAM) to provide coordination and support agricultural mechanization nationwide. (c) Establishing an Agricultural Mechanization Adaptive Research and Extension Center (AMAREC) under AREA, to improve techniques in animal traction and to provide a focus for testing, survey, and information on agricultural mechanization. (d) Create extension capability for farmer training in preventive tractor maintenance. G. Rural Infrastructure 3.45 Access roads and water supplies in rural areas are critical for efficient agriculture, and rural electrification is important for enhancing living standards and for accessing audio-visual communications. Steep and difficult terrain and dispersed rural areas creates a major constraint for the timely delivery of inputs and evacuation of produce from rural areas. Adequate and accessible potable water supply is important for healthy rural populations and for avoiding wasted time in carrying (largely a woman's job). Similarly, rural electrification is important for communications as well as for conserving wood resources. For most rural areas in Yemen, none of these services is adequate and there have been no coordinated policies for their development. - 33 - 3.46 Feeder roads. There are some 40,000 km of feeder roads in Yemen, which link to the highway network (tarred roads) of 6,500 km. For a country with a geographic area of 555,000 km2 and a dispersed population, this network is relatively small and represents a significant constraint to rural economic development. The feeder road network has mostly been constructed by the Local Councils for Cooperative Development (LCCD - para. 4.37) in the northern governorates, and by district councils in the south. In both cases, construction was mainly supported by local taxes. Since unification, responsibility for coordinating feeder road construction has been given to the Ministry of Construction (MOC) which has created a feeder road unit. However, MOC has no budget for feeder roads and, therefore, continues to give priority to highway construction and maintenance. At the same time, the independence of LCCDs has been eliminated by transfer under government control. 3.47 Rural Water Supplies. It is estimated that about 40 percent of the rural population in the northern governorates and one third in the south have some form of pumped water supply. However, there is no record of the extent of existing facilities for all rural areas in Yemen. Many of these installations have been provided through the Ministries of Agriculture and Public Works in the previous governments; they were frequently financed from development projects. Others have been developed by LCCDs with community involvement. Upon completion, the water schemes have traditionally been handed over free of charge to local communities (e.g. to LCCDs) which are responsible for operation and maintenance. At unification, responsibility for coordinating rural water supplies was given to the Water Supply Department of the Ministry of Water and Electricity (MWE) and, in early 1992, legislation was passed for creating a Rural Electricity and Water Supply Authority (REWSA). There is no clear policy at present; although in practice, Government is giving priority to areas of dense population, in association with the development of schools and health centers. 3.48 Rural Electricity Supplv. Electrification is the least developed of all rural supply services. Where these facilities have been installed, it has depended principally on the initiative and resources of the local communities concerned. With the institutional developments since unification, responsibility for coordinating these services has also been given to REWSA. 3.49 A major weakness in the arrangements for rural road, water and electricity services has been the absence of balanced policies and an effective institutional structure with trained technical staff to assist local communities in the operation, maintenance and financing. Proper planning is hindered by the paucity of data on existing systems, and attention has not been paid to adoption of appropriate cost recovery policies. The creation of a working capacity in the central government units is a priority for providing planning and technical support and for coordinating and channelling financial resources to the local level. Ultimately, the development of these services requires the mobilization of local communities for implementation and for operation and maintenance. The development of these services has a vital role to play in sustaining the vitality of the countryside and in helping to stem urban growth. 3.50 Priorities for Rural Infrastructure. The development of rural infrastructure requires organization at central and local levels, and good - 34 - interactions between the two. An action plan for rural infrastructure should focus on: (a) creating a working party involving key personnel from the governorates, MAWR, MOC and community organizations, to advise a policy for planning, construction and maintenance of feeder roads. A program of works within this policy should be included in the FFYP, together with necessary funding; and (b) working parties should be established to formulate policies for accelerating the installation of rural water and rural electricity supplies; in all cases, the policies should specify procedures for community participation to finance installations and operation and maintenance costs. - 35 - IV. AGRICULTURAL INSTITUTIONS ASPECTS Introduction 4.01 Oriains of the Agricultural Ministry. Despite the fundamental differences in economic philosophy, the ministries responsible for promoting agricultural production in YAR and PDRY were organized along similar lines. Each included planning and statistics departments, specialist technical departments, and supporting services departments. The one major exception was that the Ministry in YAR handled fisheries as well as other natural resource subsectors, whereas PDRY had a separate Ministry for Fish Wealth. At unification, the separate Ministry of Fish Wealth was maintained, while all other services from the two agriculture ministries were brought together in a new Ministry for Agriculture and Water Resources (MAWR). Ministry of Agriculture and Water Resources 4.02 Role of MAWR and its Partner Organizations. MAWR is responsible for formulating policies for water resources, for food security and for crops, livestock and forestry production, and for coordinating public investment and services in the sector. Within the Government, its principal relations are with the MPD, which is responsible for coordinating development activities and (starting in 1992) for managing investment resources; with the Ministry of Finance (MF) for the provision of recurrent funds; and with the MST, for import licensing and for pricing of strategic commodities. 4.03 Orientation of MAWR Services. MAWR services are intended to support the development of agricultural production by individual farmers. Most field services are provided to farmers through decentralized regional development agencies (RDAs - para. 4.13), supported by technical services at national level. Government's program for building on this structure in the medium-term includes three main elements: (i) in the context of Government's Reform Program, MAWR is expected to further decentralize its activities and intends to formalize the five RDAs in the north and establish three more RDAs in the southern governorates; (ii) national organizations will be retained for research and research- extension coordination (AREA, para. 4.17) and for agricultural credit (Cooperative and Agriculture Credit Bank -- CACB (para. 4.29)]; and (iii) state farms and public corporations (mostly in the south) are required to become commercially oriented in readiness for being 'privatized"; those which cannot will be closed down. Headguarters Oreanization 4.04 The post-unity reorganization of MAWR created three layers of decision making. At the top, MAWR is headed by a Minister and a Vice Minister. At the second level are the three subministries: Water Resources, Plant and Livestock Production, and General Administration, each of which is headed by a deputy minister supported by assistant deputy ministers. The - 36 - third level in the structure is the eighteen general directorates (GDs): two planning oriented, ten technical, and six administrative (Annex 5)11. Each GD is theoretically divided into a number of specialist departments and sections. However, this level of organization is largely nominal as there are few qualified staff and little specialization or delegation below directorate level. 4.05 MAWR is headquartered in Sana'a and the Aden office operates as the center for the southern governorates. There is an office of MAWR in each governorate, most of which in the North have been incorporated into the RDAs. It has a total of approximately 6,700 permanent employees (Annex 3) of which, some 40 percent are in administrative roles. A further 6,300 are employed on contract basis and, of these about 80 percent are involved with state farms and corporations in the South. 4.06 Water Resources Subministrv (WRS). Prior to unification, there were effectively no policies or regulations over water resources or irrigation (either in YAR or PDRY). Acknowledging that water resources are critical to sustained economic development, the post-unity Government designated MAWR to coordinate national water resources and the Ministry's title was changed accordingly. The WRS consists of four general directorates and 17 departments; however, the latter structure is impracticable and the LWCP includes provisions for rationalizing the organization. 4.07 Plant and Livestock Production Subministrv (PLPS). The largest subministry contains the departments responsible for supporting crops, forestry and livestock production. The creation of AREA, with a coordinating role for research and extension and associated outreach contacts to farmers through the RDAs, brings into question the role of PLPS and an institutional study is planned under the ASMSP. However, some general technical departments would need to be retained because of their essential regulatory or coordinating role (e.g., pesticides regulation and livestock health regulation). 4.08 Finance and Administration Subministrv (FAS). This subministry is responsible for all functions relating to MAWR's personnel, budget, financial control and internal audit activities. Its personnel are poorly qualified and its equipment and procedures are quite antiquated for the needs of a complex ministry. Much investment in organization, training and reequipment is necessary to fit FAS to its task of managing large financial and human resources and to provide more proactive support in attending to farmers' needs. A start is being made through assistance under the ASMSP. 4.09 General Deoartment for Plannina and Monitorino (GDPMI and General Department for Statistics (GDS). The key planning function is assigned to GDPM, which is responsible for designing policies, analyzing commodity trends and preparing investment programs. The staff of GDPM are generally young and enthusiastic; however, they mostly lack advanced training and experience. .11 A more detailed description of MAWR services is given in Volume II, Annex 6. - 37 - Management and analytical procedures are weak; there is no work programming and little delegation, and most work is of a reactive nature. GDS is responsible for collection and analysis of statistical data. It works inclose collaboration with the Central Statistics Office and, although it has been supported by various aid organizations, the date is uncertain and the interpretation and dissemination of information is lacking. Both of these departments operate out of cramped offices in MAWR headquarters, with insufficient transportation and equipment and too few support staff and operating funds. Under the ASMSP, a start is being made to address these challenges; however, more changes will be required and there should be a comprehensive study into the collection and analysis of national statistics (CSO and GDS). 4.10 General Analysis of MAWR. The structure and operations of MAWR conflict with the philosophy for decentralizing operations: firstly, the management structure is impossibly complex, the central organization and the personnel force is excessive for the needs of the sector, and financial management and administration are inadequate for so large an operation; secondly, the number of staff (at all levels) is excessive; thirdly, the division of responsibility between MAWR GDs and the decentralized RDAs is unclear; and fourthly, since unification, day-to-day administration has deteriorated, thereby exacerbating delays in MAWR's decision making processes. Together, these constraints have been the major reason for the shortfall in development achievements and project implementation. The Government recognized that the organization would be organizationally and economically unsustainable and vowed to resolve the situation by the end of the (post unification) interim period (11/92). In the context of the Reform Program and the associated revision of administrative boundaries, urgent attention should be given to analyzing and redefining the roles of MAWR headquarters, provincial offices and the RDA structure. This should be part of a comprehensive human resources study. 4.11 Analysis of the Technical DeDartments. By and large, the ten technical departments in MAWR headquarters contribute little to sector development. Certain services are obviously best suited to central coordination, like: (i) policy formulation, strategic planning and monitoring of water resources; (ii) operations for planning and coordinating forestry and rangelands management; (iii) market guidance (para. 4.43); and (iv) specialist operations for plant and animal protection. Conversely, the GDs for Plant Production and Animal Resources are redundant, and these resources should be transferred to AREA. 4.12 Proposals for MAWR Headauarters Onerations. Meeting the challenges outlined above will require that fundamental changes be adopted to augment MAWR's existing strengths. Fstly, it is paramount to streamline MAWR's organization to provide more cost-effective services that focus on farmers' needs. This will require: (i) simplifying the structure and reducing the number of posts reporting directly to the Minister; (ii) reducing the number of departments and centering all technical operations under AREA; and (iii) completely reorganizing the administrative, budget and financial control operations (if necessary, by contracting a commercial organization to ensure the essential levels of qualified and experienced personnel); a comprehensive review of MAWR expenditures is necessary as a prelude to these changes. - 38 - Secondly, it is vital to (i) strengthen statistical analyses and (ii) develop capacities for policy analysis, strategy and investment planning -- all of which are rudimentary at present. Thirdly, it is essential to reduce MAWR staff numbers to facilitate the streamlined organization and ensure sustainable services within government's budget constraints. This will require: (i) a comprehensive human resources study to determine the size and qualification of the staff force necessary for assisting farmers, and for providing back-up services to identify those sections requiring additional resources and others from which reassignment could be made; and (ii) design of a training program to ensure essential technical qualifications, to develop management skills, and to prepare released personnel for private sector work. Fourthlv, it is critical to redefine the role of RDAs and operations in the governorates. This will require more effective delegation of authority from MAWR headquarters and to promote all RDAs to "authority" status, giving them complete responsibility for all aspects of organization and financial management, within the limits of agreed strategies and annual work programs and budgets. This will also facilitate project implementation. Lastly, in order to ensure a dynamic role for MAWR, it requires developing the existing monitoring department into a strong and independent unit assessing the impact of research, training and extension operations. MAWR Field Operations 4.13 MAWR field operations are mostly decentralized. In the north, five semiautonomous RDAs have been created since 1978. Covering the main ecological zones (Map IBRD 22546), they are legally established organs of MAWR and have considerable delegated power, including the autonomy necessary to attract and retain technical and managerial talent. Most RDAs have boards of directors and their chairmen/general directors report directly to the Minister of Agriculture and Water Resources. In the south, regional agencies were not formally established; however, the basic structures for such units exist in the four main agricultural areas (Wadi Hadramawt, Wadi Tuban, Wadi Abyan and Wadi Beihan) through a series of projects. These should all be converted to semiautonomous authorities as with the RDAs. 4.14 Analysis of the Reaional Development Agencies. The institutional capacities of the RDAs are still growing, and their impact on initiating and accelerating rural development is variable. They have established extensive physical facilities, together with administrative capabilities for planning, organizing and monitoring development. Their farmer training and field extension units include a core of middle-management technicians who are able and motivated. Some measurable increases in output can be traced to RDA interventions, but they need to target their actions on activities where they can have an impact on farmers' incomes. There is also a need to further strengthen the planning, budgeting and monitoring of RDAs' operations. A program should be considered for privatizing certain of their operations over time. Overall the RDAs were successful in establishing basic rural infrastructure at a time when Yemen had virtually no capacity in this area. Now is the time to reassess the RDA concept and to fit it to the needs of 1990s and to complete their decentralization in the context of Government's Reform Program. - 39 - MAWR Support Services 4.15 Agiricultural Research and Extension Authority (AREA). Two research organizations were established in the 1980s: the Agricultural Research Authority (ARA) in YAR (with a network of regional stations and centered in Dhamar) and the Department of Research and Extension (DRE) in PDRY (with two regional stations and centered in Aden). Both were charged with planning, coordinating and implementing adaptive research, training a cadre of research scientists, and developing and strengthening links with institutions engaged in education and extension. In this they have been supported by multi- and bilateral aid organizations. 4.16 Both organizations made progress in selecting improved crop varieties and associated technical packages for the major field and vegetable crops, e.g. the introduction of new varieties of millet, wheat, maize, grain legumes, and vegetables and new fruit tree varieties; and improved plant protection practices both through crop selection of resistant varieties and the development of cultural practices or chemical control. There were modest forestry and livestock research programs, with the latter focused on selection of local breeds and upgrading nutrition of sheep and goats. Other activities have included soil and water analyses and mapping. 4.17 At unification, responsibilities for agricultural research were combined with national coordination of extension services to form AREA whose operations are controlled by a Board of Directors and managed by a Director General, a Deputy Director General and three assistant deputy directors and regional directors at each station. The General Department for Research (GDR) consists of Departments for Livestock, Plants and Agricultural Economics. There is an Extension and Training Department (ETD) and an Information and Documentation Department (IDD). Some 50 research scientists have been trained at post-graduate level and research operations are based on multidisciplinary research teams (MDRTs) linked to research/extension coordinators. 4.18 Research programs have, in principle, been based on the country's development plans, i.e., directed towards increasing agricultural production with the focus on strategic crops. Programming is based on a medium-term master plan and progress is reviewed annually at national agricultural research coordination workshops that involve a spectrum of MAWR managers. A National Agricultural Research and Extension Council has been established to approve research programs and budgets and to review results and close liaison is maintained with relevant international research centers, especially ICARDA. 4.19 Analysis of Research Operations. Agricultural research exists to varying extents in all agro-ecological zones and involves a comprehensive series of facilities and competent staff. The research policy, based on multidisciplinary research teams (MDRTs), national coordinators and extensive field trials, is excellent. However, research programs have tended to be overambitious and fragmented, preventing adequate in-depth focus on priority topics. Insufficient liaison with RDAs has slowed transfer of information and technologies to farmers. Research scientists have been absent for long periods of overseas training; there have been persistent shortages of recurrent funds, especially for personnel and operating expenses; and the work - 40 - ethics are lax. Linkages between research and farmers have varied; however the system of direct liaison, developed through experienced personnel assigned full time as research-extension coordinators is commendable. Recommendations for Aericultural Research 4.20 General Organization. The ASMSP will help to consolidate AREA's or- ganization facilities, improve programming, strengthen operations and training, and develop close monitoring. In order to provide realistic research programs geared to the limitations in manpower and budget resources, special attention should be given to actions for raising productivity of research scientists; developing realistic research programs geared to the limitations in manpower and budget resources; and strengthening planning, analysis and dissemination of research findings. The system of research- extension coordinators should be extended as the best means for transferring messages in both directions. These personnel also liaise with MDRTs and organize research/extension committees. Research training should be focused to develop competence in key areas which are not yet covered. Furthermore, the development of a cadre of research technicians would increase the efficiency of researchers. The shortages in the recurrent budget was partially rectified in 1990; however, a guaranteed level of research funding is important and possibilities for private sector involvement to augment fiscal resources should be explored. 4.21 Research Operations. Improving the impact of research will depend on the following action plan: (a) Developing programming procedures to focus on priority topics; this will require: (i) emphasizing system. research (in collaboration with GDPM); and (ii) creating a full-time "outreach unit" to liaise with RDAs, both for relaying proven findings and to collect information on farming problems. (b) Developing technical research programs specific to each region, giving special attention to: (i) prioritizing rainfed cropping; (ii) improving livestock production; (iii) exploring alternative production technologies suited to Yemen's environment (especially for irrigation and mechanization); and (iv) improving crop handling to reduce post-harvest losses. (c) Introducing research networking systems and computerized information links to improve data exchange and accelerate information gathering. (d) Strengthening research administration and operating efficiency -- including the stipulation of a work ethic, and development of a cadre of research technicians. Field Extension Services 4.22 The present structure of extension services (in RDAs and ETD) varies between regions, but basically consists of regional headquarters (currently 5), block centers (currently 22) and extension centers (currently 226). These services have expanded rapidly since their inception in the 1970s and there - 41 - are currently some 500 extension agents throughout the country, backed-up by 120 subject matter specialists (SMSs), 57 extension supervisors (ESs) and 42 extension heads. Extension operations follow a modified training and visit (T&V) system, which is organized from block centers (BC) and extension centers (EC) and is based primarily on field demonstrations for groups of farmers and training visits by extension agents. The focus has been on irrigated crops, and guidance on rainfed crops, animal husbandry or forestry production has been minimal. Under ASMSP, AREA will work with the RDAs to help them improve the programming and management of extension, to emphasize training and to provide expert technical advice on the agronomic problems and packages for each area. However, each RDA will continue to be fully responsible for extension services in its region. 4.23 Information Needs and Extension. Competent extension operations require information on three themes: (i) genetic production resources (new crop varieties and breeds); (ii) technical inputs (promotion of fertilizers, pesticides, feeds, etc.); and (iii) cultivation and production practices (planting dates, irrigation techniques, seeding density and livestock husbandry). Such information, where available, is provided almost exclusively by the public sector; it is excessively focused on irrigated crops, and it lacks economic or farm management dimensions. 4.24 Extension Communications. The output of printed information materials by the central communications unit in Sana'a is limited, despite large investments in modern presses and paper handling machinery. Eventual privatization of communications services would mean a considerable cost saving and would free managers to concentrate on the content of the printed material that is presently theoretical and contemplative. The impact of printed matter has been limited (partly due to literacy limitations) and prospects for dissemination of information would be better by greater emphasis on TV and radio (estimated at 1.5 sets per household). Equipment for television production, both in Aden and Sana'a, is sufficient to cover present needs and maintenance is of good quality. Support is required for AREA to consolidate a professional central audiovisual service with capability of providing speedy, efficient and attractive support for RDAs' field operations. Analysis and Recommendations for Extension Services 4.25 The Government's initiative in establishing the RDAs and the associated investment in buildings and equipment has been excellent. Raising the efficiency of the extension system to promote and transfer new technologies and management systems to the largest number of farmers would have a major effect on improving productivity of the agriculture sector. The impact of the extension system is constrained by lack of coordinated national approach, the limited number of farmers being reached, low accountability; poor quality of communications; and inadequate operating funds; all of which have affected impact and cost-effectiveness. Problems are centered on: (a) Unclear obiectives due to: insufficient knowledge of target farmers (in terms of numbers, farming systems and problems); ineffective programs for women farmers; inconsistent themes for changing farming practices; weak organization, monitoring and reporting; supply-driven training programs that neglect skill gaps among staff; and - 42 - uncoordinated radio and television programs. An action plan for improving the objectives is: (i) establish basic information on farmers and farming systems and typical problems in the area of each extension agent; (ii) formulate a national extension strategy under AREA with specific programs for women farmers; (iii) create teams for each BC, including extension and research staff and men and women farmers from the area, diagnose the major problems of all types of farmers in each region and specify priority programs for field extension operations; (iv) design annual work programs to address the extension priorities; (v) prepare an inventory of present levels and numbers of extension staff and make a comprehensive human resources analysis to determine the requirements in numbers and types of extension agents (and associated qualifications), and devise a master plan for reorganization, recruitment, and (re)training; and (vi) improve the quality of pre-service technical training, develop a positive action program for women; and strengthen in-service training, in both technical and management topics. (b) Lack of accountability due to: failure to match extension messages to farmers' needs; limited applicability of demonstrations; biased contact farmer selection; neglect of natural resource management (rainfed agriculture and livestock production in particular); and bad management routines (short working days and a lack of incentives or sanctions). An action Plan to overcome this constraint is: to select representative farmers to participate in the diagnostic surveys, and to create a group of representative farmers to assess the merit for incentives for positive performance by extension agents. (c) Weak overations due to: inadequate facilities and communications. An action Dlan to overcome this constraint is: to redress shortages in physical facilities and transport and develop procedures for ensuring the provision of adequate operating budgets; to develop a dynamic, two-way outreach program between research and extension operations; to investigate the best means for contracting printing to private companies so as to free time for communication staff to improving the content and appeal of printed materials; and to develop procedures for disseminating focused information through a range of audiovisual methods -- for both men and women farmers. Analysis of Agricultural Education 4.26 Vocational Training. The Ministry of Labor and Vocational Training is responsible for coordination and supervision of vocational training. Donor assistance has played a major role and is partially responsible for the uncoordinated systems. For agriculture, two formal multisectoral programs are offered: the Agricultural Education Program and the Agricultural Training Program, sponsored by MOE and MAWR, respectively. Vocational training has generally been fragmented due to lack of coordination by institutions concerned and differences of approach. In particular, the supply of ESs and SMSs is severely constrained, resulting in the absence of effective programming and coordination. Overall, the existing systems are not preparing students for productive employment, and focussed pre-service and in-service - 43 - training programs are required at national and regional levels. To this end, the ASMSP will help to establish an Agricultural Training Institute. 4.27 The agriculture faculty at Sana'a is extensive and modern. The faculty at Aden is smaller and with older facilities. The undergraduate programs lack three key functions: (i) outreach programs for analyzing needs of farmers and agribusinesses; (ii) collaborative linkages to the research network; and (iii) contact and work with the public extension services. Output of agronomy graduates is excessive for the needs of the country, although the number of women graduates is inadequate for the needs of the extension service. The colleges and universities suffer from management and financial problems; and a careful study of long-term needs is required, as well as an assessment of how these should be economically achieved. Rural Finance 4.28 Overview. The rural finance system comprises the commercial banks, the Cooperative and Agricultural Credit Bank (CACB) and a wide variety of informal financial operators. Until 1990, rural liquidity was buoyed up by remittances from overseas workers. This provided the major source of financing for investments in irrigation, farm mechanization, and for establishing perennial crops. The capital needs of the sector are mostly provided by informal lenders or from self-financing, including extended families. The relative importance of informal sources has been estimated as follows: Input suppliers/traders 27% other farmers 13% Friends and relatives 60% 100% Loans from the formal sector are less than one percent of agricultural output, which is very low compared to similar countries. It is estimated that 80 percent of farmers have no loans outstanding. Interest rates in the informal sector are up to 200 percent p.a., but often credit costs are rolled up in other transactions and cannot be disaggregated. In common with most informal credit systems, farmers questioned in a survey confirmed that service charges are less important to them than ready access when needed. Savings in the rural economy are characterized by a high level of monetization of transactions and a high degree of liquidity, but virtually none of these funds reach the formal financial market. Cooperative and Agriculture Credit Bank (CACB) 4.29 General. By charter (enacted in 1982), CACB is authorized to perform all banking services. However, it does not mobilize resources from the rural public, relying instead on Government and donor resources, and some captive institutional depositors. It operates a business for importing and distributing fertilizer and equipment. CACB's operations include 21 branches organized into four regional groups, and it employs about 650 staff. Its administrative costs were about 14 percent of its portfolio in 1989JI, mostly 1' This administrative cost is the highest in the region. It compares with 2 percent in Jordan, 3 percent in Syria and Morocco, and 5 percent in Egypt. - 44 - due to excessive levels of staffing (with a ratio of only 9 loans to each employee). This high cost of operations wiped out the advantage CACB has of low-interest cost due to the large capital base and the soft terms of external financing. 4.30 Sources of Funds. Share capital provides about a third of CACB's funds. The other two sources are current account deposits (22 percent), largely from the LCCDs (local development associations -- which are obliged by law to place their funds with CACB), and long-term soft loans from external sources (43 percent). Apart from current accounts, CACB does not seek deposits in the market, as commercial interest rates are well above its own, subsidized rates on its lending. External resources include financing from various agencies under several area development projects. 4.31 Lendina and Recoveries. Typically, CACB makes up to 10,000 loans annually. Lending is exclusively for agriculture and fisheries. Most loans are medium term, and typically for irrigation wells or for equipment. CACB collects only about 60 percent of loans falling due, and subsequently recovers about another 25 percent. Of the outstanding loans in the 1989 balance sheet, 40 percent were past due (including 26 percent for more than a year). This level of non-recovery renders CACB unprofitable and the institution has had to build up a bad debts reserve equal to 20 percent of the portfolio. Causes cited by CACB for poor loan recovery included the inherent riskiness of agricultural lending, and the obligation to act on behalf of the Government for special programs in areas with inadequate preparation. 4.32 Profitabilitv. CACB lending rates are set by the Central Bank of Yemen and for some time have been less than 10 percent per annum. The combination of low interest income and high administrative costs has resulted in persistent losses since 1988. Despite this difficult situation, CACB was obliged by Government to reduce its overall lending interest rate to 7 percent in 1991. 4.33 Analysis of CACB ODerations. CACB has a double role: first, it is the official vehicle for intervention in rural financial markets for making capital transfers to stimulate agriculture sector growth; and second, it is a financial institution, which should maximize recovery of funds. Its impact should be evaluated both as an agent to promote growth and as a financial institution: First, as an agent of development, CAC8 performs quite poorly. It provides only thin coverage of rural financial needs; its operations have not always been directed to the highest potential agricultural activities; and the real value of its financing has been declining. Moreover, its lending is limited to agricultural production, whereas the farm economy is quite diverse and the share of agricultural income in total household income is declining. Finally, CACB's occasional operation as an input distribution service is inefficient and has crowded out private sector traders by unequal competition. Second, as a financial institution, CACB has not functioned as an effective intermediary: the institution depends passively on external transfers and on quasi-captive deposits from the cooperative sector; it does not mobilize domestic savings; it has experienced constant administrative inefficiencies and high operating costs (due to excessive staff numbers which have continued to increase in spite of CACB's - 45 - unprofitability); its profitability has been impaired by negative real interest rates (imposed by Central Bank of Yemen and inadequate even to cover administrative costs); and it is experiencing decapitalization due to operating losses and a low loan recovery rate. Issues of Rural Finance 4.34 Issues of Rural Financial Markets. The rural economy is characterized by a high degree of monetization; by a fairly high degree of financial autonomy within the extended family system; and by a well-developed network of informal financial sources, especially adapted to meeting short term and working capital needs. Demand for additional credit is mostly focused on land improvement through irrigation, on farm machinery, and on equipment, e.g. for poultry production. Within this largely self-propelled informal financial sector, there are a number of issues which affect rural development: (i) Dwindlina of CaDital Inflows: the return of migrants workers has severely depleted the flow of liquidity into rural areas and this is likely to constrain credit supply in the informal sector. (ii) Assistance for Small and Female Farmers: the fragmented financial market is prone to market failures and tends to exclude small farmers and women. (iii) Linkaaes with Extension Services: in the absence of systems research and knowledge of farm cash flow, the development of credit channels has been ignored by the RDAs. (iv) Cooperative Financial Institutions: there has been no attempt to promote the development of private cooperative financial institutions in rural areas, yet the high liquidity and monetization of rural areas suggest that this could be feasible. Recommendations for Rural Finance 4.35 The short-term credit needs of the rural sector are reasonably served by the informal market. However, there are some failures in this market. One is that some segments of the rural communities, especially women farmers, are ignored. Another is that informal financing is overwhelmingly short term, and access to medium- or long-term credit is generally restricted. A third is the rather fragile institutional structure characterized by weak intermediation -- the slowing-up of the remittances highlights the fact that the rural financial markets should be a self-sustaining financial system capable of recycling funds from savers to borrowers. An action plan for developing rural financial markets should: (i) encourage the development of private cooperatives, rural savings and loans groups; this would require revised legislation and selection of promotional institutions; and (ii) transform CACB (progressively over, say, five years) into a private sector rural savings and credit bank not limited to agriculture and not necessarily accessing transfers of concessional money from donors or Government. - 46 - 4.36 The transformation of CACB would require a policy decision and sustained commitment. It would entail institutional and organizational changes that would require CACB: (a) to become managerially and financially independent by: (i) phasing out subsidies (including concessional lines of credit); and (ii) recruitment of financial specialists and inclusion of private sector representatives on the CACB Board; (b) to operate as a financial institution by: (i) paying market rates for any external lines of credit; (ii) developing programs for mobilizing rural savings; (iii) discontinuing trading activities; (iv) developing training and management systems; and (v) creating a competent, professional management organization and installing a management information system centered on the quality of the portfolio and the costs of lending; and (c) to provide broader loan and savings services to a larger part of the rural community. Steps along this path could include: (i) developing a business plan centered on reducing administrative costs (inevitably involving staff reductions); (ii) developing pilot actions for broader-based rural credit, innovative collateral requirements, and relations with community groups to help develop savings and loan schemes. To achieve this fundamental reorganization will require agreement on a comprehensive program supported by highly experienced technical assistance personnel. Cooperatives 4.37 Cooperatives were a mainstay of the centralized agricultural production system in PDRY and formed part of the provincial agriculture office. Their function was to provide services for inputs and outputs and to coordinate crop production; their performance varied and, while most had weak management and were not commercially oriented, some outstanding examples exist (e.g. Hadramawt). There were no agricultural cooperatives in YAR, although the Local Councils for Cooperative Development (LCCD) played an important role in mobilizing community development efforts. At unification, three events occurred: (i) it was mandated that the cooperatives in the south should operate within the private sector; (ii) the LCCDs were brought under the Ministry of Municipalities (therefore becoming government agencies); and (iii) the creation of a national Union of Cooperatives was decreed to provide a central focus for private rural cooperatives. The traditional community- based spirit of LCCDs has, therefore, been lost. The framework for future cooperative operations will be contained in the Cooperatives Law, which is under preparation. 4.38 Assessment and Recommendations. The adjustments initiated at unification could provide a framework for development of an autonomous cooperative sector. In order to be economically viable, cooperatives must: (i) be totally disconnected from government operations; (ii) offer farmer. services that are both needed and complementary to private sector traders; and (iii) be able to demonstrate actual or potential managerial competence. As few cooperatives currently fulfill these requirements, a study should be made of organizations which are both interested in change and can demonstrate - 47 - potential farmers' support. It should focus on assessing the present physical status of the cooperatives (particularly on staffing) and their financial resources and on preparing a business plan. On this basis, possible project assistance might be mobilized for developing facilities and providing technical assistance and training. The move concerning the LCCDs appears to put further strain on what was once a vigorous local institution but which has lost its independence and initiative over the years. Agricultural Marketing 4.39 General. Marketing systems in YAR were strongly laissez-faire, which encouraged an explosion of markets and the rapid shrinking of subsistence agriculture. By contrast, PDRY followed an interventionist system with market monopolies and price regulation. At unification a liberal marketing regime was adopted, and monopolies and controls have largely disappeared. Although some products, e.g., sorghum grain, millet and milk, scarcely enter the market and are produced almost entirely for home consumption, most products are produced for the market, and some intermediate goods are produced entirely for the market: cotton, tobacco and nuts. 4.40 Market Organization. The main channels for farmers to sell produce are either through the local assembly markets or to mobile traders. Wholesale markets operate in the big towns. In 1990, volumes of fruit and vegetables marketed in the northern governorates were estimated as 400,000 tons, of which over 70 percent passed through the four largest centers (Sana'a, Hodeidah, Taiz and Hadjaa), which are all owned by municipalities and commercially managed. In the southern governorates, marketing previously controlled by the administration, cooperatives and public corporations, has, since 1989, passed almost entirely to private traders. The MAWR General Department for Marketing (GDM) is intended to promote development of markets in agricultural produce. Its current activities include collection (but not the publication) of data on produce prices; workshops with exporters; and links with overseas operators to identify new markets and products. 4.41 Market Integration and Local Demand. Three studies since 1985 have shown that produce markets in Yemen are generally well integrated and efficient, with relatively low regional and seasonal price variations and reasonable margins. This is consistent with the quite large volumes being traded and the competitive nature of markets. In terms of food consumption, basic cereals and meat products are the largest items, respectively accounting for 35 and 39 percent of household food expenditures; fruit and vegetables account for a further 26 percent of food expenditures. Per capita consumption of higher value products is low by regional standards suggesting a high income elasticity of demand. Internal demand for agricultural products, especially higher value ones, is thus likely to grow faster than simple population growth; and over the medium and long term, growth in domestic demand should provide good market outlets for increased production. This is supported by the strong consumer preference for many baladi (locally produced) items over competing imports. 4.42 Export Demand. Cotton exports have declined steeply since 1980, but Yemeni coffee maintains a preferred place and premium in the world market; however, neither looks like a viable export in the long term if account is taken of the opportunity cost of water (Chapter III). Export demand could be developed for a few products where Yemen appears to have a comparative economic advantage (tomatoes, bananas, grapes and sesame). However, this - 48 - would require market analysis and a big effort and investment by the industry to get quality up and to meet contracts. Analysis of Market ORRortunities 4.43 Thanks to the generally liberal policy and to the high volumes traded, agricultural markets are generally efficient; exceptions to this overall picture include Government imports, especially wheat/flour (Chapter II) and the vestiges of the old monopolies in the South. Recommendations for future development of agricultural markets are as follows: (a) the practice of allotting foreign exchange at the official rate for food imports should be abolished; (b) the import ban on fruit and vegetables should be abandoned; domestic production does not require protection, and even if it did, a tariff related to economic border prices would be more efficient than an import ban; (c) the roles of MSMMC, MECO (paras. 4.46-4.47) and CACB are important exceptions to Government's generally noninterventionist policy towards markets; it is likely that consumer prices would be lower and producer prices higher if these administratively-determined quasi- monopolies were fully privatized; (d) domestic market operations could be cheaply and effectively strengthened by improving information flows; GDM's operations should be strengthened to ensure that collection of price information is reliable and that it is diffused through daily radio/television/press announcements; and (e) future internal demand for agricultural products looks strong, but a market-oriented research and development program could identify ways to help expand market opportunities, e.g. prolonging growing seasons, developing small-scale processing and cold storage (managed by the private sector), and improving access to rural areas. Parastatal Organizations in Agriculture 4.44 Yemen is a largely private enterprise economy. There are, however, a number of parastatal organizations operating in the agriculture sector. These can be divided into two classes: the former state trading and production monopolies in the old PDRY, and the new parastatals that have been created since unification. Among the most important of the old PDRY parastatals are: (a) Public Corooration for Aaricultural Services (PCAS - with 23 branches and 112 staff) was formerly the input supply monopoly; however, private sector operators and the CACB have effectively taken over input supply since 1990. (b) Public Corporation for Marketina Fruit and Veaetables (PCMFV - with 28 retail branches and 1,408 staff), the former monopoly wholesaler and retailer of fresh produce, manages warehouses, collection centers, cold storage and trucks. Its retail outlets have largely been taken over by former employees and the company's principal - 49 - income now is from leasing its remaining facilities to the private sector. (c) Public Poultry CorDoration (PPC - 826 staff) used to run five units for producing broilers and eggs and for manufacturing poultry feed. Two installations have been rented to private sector operators. The others are either closed or are operating at a very low level of activity. (d) Farm Machinery Rental Stations (FMRS) provided land preparation and harvesting services. There were thirteen stations with a large inventory of equipment and a big work force. Hire charges were low and the operation is carrying large loans. However, some stations operated efficiently, e.g., Hadramawt. Since unification, most FMRS operations have ceased and tractor drivers have purchased some of the equipment to create private hire services. (e) State Farms, created on nationalized land in the southern governorates, occupy some 10,000 ha. There are 28 crop farms and seven livestock farms employing 1,728 staff. Activity is minimal: five of the farms are closed due to water shortages, but the staff are still on the payroll. Three parastatal crop and livestock (dairying and sheep rearing) farms exist in the northern governorates. These businesses exhibit typical parastatal characteristics of poor management, overstaffing, lack of cost control and run down physical assets. In the absence of monopoly positions and subsidies and in the face of competition, they have proven to be quite uncompetitive and their considerable indebtedness and losses have been emphasized. 4.45 The Government's goal of divestiture is, therefore, correct and the challenge is to make the best use of the existing physical and human capital, to stop the financial losses and to maximize the returns to Government from privatization. There should be an orderly winding down of parastatal operations and a transfer to the private sector, preferably on a going concern basis, otherwise by sale or lease of assets. An action olan for this transfer should focus on the following: (a) complete an inventory, valuation and audit of assets and liabilities of each enterprise by professional valuers and accountants; (b) make business assessments of each enterprise, examining options for sale as a going concern, or for break up of assets for sale or lease. The assessments should be done by Government in conjunction with international consultants; and (c) devise a staff redeployment program, including retraining, transfer within the public service, small enterprise creation, staff buyouts of enterprises being divested. The program should be prepared by Government with consultant assistance. The cost of consultants and of the staff redeployment program could be paid as priority claims from the proceeds of the divestiture exercise. 4.46 The second class of parastatals comprises two large processing and marketing firms which enjoy quasi-monopolistic privileges. The Municipal - 50 - Slauahterhouses and Meat Markets Corooration (MSMMC} was established in 1990. It took over the operations of the Meat Corporation (PDRY) and those of the municipal abattoirs in the northern governorates. It is the official organization responsible for meat slaughter, quality control and waste processing. It has an annual turnover of some YRls 50 million and operates five abattoirs (Sana'a, Dhamar, Taiz, Ibb and Al Baida) which annually slaughter approximately 80,000 cattle, 50,000 calves and 300,000 small ruminants. MSMMC also owns marketing facilities and allows butchers to use the facilities for a fee. It is trying to control the hides and skins produced at the abattoirs and has developed a pilot unit (at Sana'a) for producing blood/bons meal. MSMMC reports to the Minister of Housing and Urban Planning. The centralization of control over animal slaughter and processing has not achieved the objective of ensuring sanitary meat. Most plants are located away from both cattle markets and consumers, and butchers continue to slaughter traditionally on their own premises. Therefore, the lack of hygiene control and difficulties of waste disposal continue. 4.47 The Military Economic CorDoration (MECO), the main importer of frozen meat and of live animals from Europe, Australia and Africa, is a private company in which Government has a 40 percent shareholding. Originally established to supply the military forces, MECO it is now a major player in the nation's food supply and involves a conglomerate of various enterprises mostly relating to food supply, storage and agro-processing. In 1990, MECO imported some 10,000 cattle and 100,000 sheep, which were slaughtered in MSMMC facilities and sold through its own retail outlets in urban markets. It sells at fixed prices which are slightly lower than those of the MSMMC (60 YRls versus 80 YRls/kg for beef; 80 YRls versus 120 YRls/kg for mutton and lamb). 4.48 Recommendation. There is no justification for maintaining MECO or MSMMC as parastatal organizations. They should be fully privatized. MECO, as a conglomerate, is too large to privatize as a single company. Each main branch of activity should be floated off as a separate company. MSMMC should also be broken up or it would have too dominant a position in the market. - 51 - V. ASPECTS OF ENVIRONMENT AND RURAL SOCIETY A. Natural Resources Basic Challenge 5.01 Yemen is endowed with a wider variety of natural resources than any other part of the Arabian peninsula. Over the centuries, wherever rainfed agriculture was possible, farmers have molded this endowment, creating bench terraces (extending over some 500,000 ha) which form a unique water harvesting system with tillable land. This colossal effort conserved the nation's soil and surface water resources. Since 1970, total water resources have been subject to increasing risk due to the explosion in groundwater pumping for irrigated food production. At the same time, the bench terraces have been deteriorating, some have gone out of production and erosion of upstream watersheds and siltation on the coastal plains are becoming problems. The factors at work in this degradation include: (i) economic chanoes -- agriculture has developed rapidly with the growth of market opportunities, and the standard of living has gone up considerably. Both these factors have favored a more mechanized, less labor intensive agriculture. Government credit and foreign exchange policies have favored this shift to a market- oriented, more capital-intensive system; (ii) technoloaical chanaes -- the advent of tractors, chemical inputs and -- above all -- tubewell technology has made possible the shift away from age old farming practice based on careful husbandry and family labor; (iii) demoaraphic chanaes -- the population has doubled in the last twenty years, and Yemen currently has one of the highest rates of increase in the world; (iv) climatic chances -- there has apparently been a drop in the average rainfall, and droughts are more frequent and pronounced; and (v) social chances -- for centuries, traditional society managed common resources like water and pasture in a sustainable way. The opening of markets, the advent of education and migration for work have been vectors of change, creating a society in which the roles of traditional authority and responsibility have diminished. However, the Government has not stepped in to replace traditional controls with modern strategies and technologies. 5.02 The degradation of natural resources is the greatest constraint to sustainable agriculture. Soil, water and forest cover are interdependent and require an integrated conservation policy. Sustainability and continued economic development also demand that growth in human population should reflect resource limitations. Restraining population growth depends primarily on education (particularly for women) backed-up by appropriate family planning and health facilities. Water Resources 5.03 The precipitation is almost wholly utilized within Yemen, either passing to groundwater in the form of deep percolation or to the atmosphere through evaporation and evapotranspiration. This implies that conventional dam construction should cease because it: (i) diverts water from existing users; (ii) prevents recharge of aquifers; and (iii) encourages additional - 52 - loss by evaporation. Exception to this ruling might be applied to the small, simply constructed and community operated structures for supplementary irrigation. This fact is endorsed by economic considerations, which consistently show that, in Yemen, any dam construction exclusively for agriculture is uneconomic. Concerning the considerable underground water resources, the estimate of 138 percent utilization of annual recharge underlines the severe overdevelopment and mining which is occurring in many areas. 5.04 Water Riahts. Under Islamic and customary law, a freeholder has "precedence" for surface and spate water on his land but not for groundwater. This latter point directly relates to depleting supplies and has been enshrined in the constitution of ROY (1991) which specifies that the state has jurisdiction over water resources. Enforcement of a water law will be critical to sustained improvement in irrigation efficiency and to reduced groundwater abstraction. 5.05 Watershed Manacement. The steep and rugged highland areas are vulnerable to erosion, and changes have occurred in farming practices and in management of pastures and woodlands that threaten these areas. Firstly, there is growing awareness within local communities and government of the seriousness of the problems of abandoned terraces, and the need to foster watershed rehabilitation. Secondly, the weakening of traditional pasture management practices and a decline in associated social discipline is leading to overgrazing that threatens both rangelands and hill slopes. Thirdly, pressure of population is leading to deforestation and destruction of natural vegetation which increases runoff and erosion. In coastal areas, there is some problem of desertification and salt water intrusion. Awareness by planners of socioeconomic realities and direct involvement of local communities in planning and execution are crucial for sustainable watershed management. 5.06 Competition for Water Resources. Water requirements for domestic, municipal and industrial purposes are estimated at less than 10 percent of the total consumption. However, demand for these purposes is increasing and conflicts are emerging between sectoral water users. Near the larger urban centers, there are limited opportunities for recycling wastewater from domestic and industrial uses for irrigation. Quantities of waste water currently being produced are estimated at about 10 million cubic meters per annum and are projected to increase to around 40 million cubic meters by the year 2005. However, this offers little relief for the growing water scarcity. In order to reverse the mining of groundwater and provide for increasing domestic and industrial demands, abstraction must be reduced to the level of natural recharge. This implies that a clear policy must be adopted for allocating water between sectors, with a precise strategy for halving the quantity utilized for irrigation (from 2,500 mm3 to 1,350 mm3/annum) over the next decade. 5.07 There are currently some 200 unregulated well drilling rigs in the country, with a theoretical capacity for constructing two wells per month. Many new wells are replacements for those which have either gone out of production or had to be deepened because of declining water tables (between one and seven meters annually) and the incidence of salt water intrusion is increasing in some northern and south-western coastal areas. Information on - 53 - tubewells, pumpage and irrigation efficiencies relates to limited sampling areas; therefore, priority should be given to completing a national inventory of tubewells and to regulating all drilling. 5.08 Water Resources Planning. Information for a rational water sector strategy is quantitatively and qualitatively deficient, and long-term hydrological and meteorological data are incomplete. Although various watersheds in Yemen have been studied, no national water plan has yet been formulated and there is no regulation over abstraction. The Water Resources Analysis of Yemen Project (WRAY) within the Ministry of Oil and Minerals has been particularly active in creating a data base on water resources in the northern governorates. In an effort to rationalize water policy and investments and to improve coordination in the water sector, the High Water Council (HWC) was established in YAR in 1981, under the chairmanship of the Prime Minister and with an advisory Technical Secretariat (TS). The latter has been supported by a UNDP technical assistance project for: (i) developing a comprehensive data base/information system leading to a water resources master plan; (ii) coordinating an action program for implementing master plan strategies; and (iii) preparing a proposal for national water policy and legislation. The HWC was rarely convened, and effective operation by the TS only started in 1989; progress has been slow and restricted to the northern governorates. The agenda, however, is clear. It is vital to rationalize the dispersed efforts on collection and analysis of data; to coordinate the activities of the various organizations involved in the water sector; to plan for the sector; and to regulate water abstraction. Priority must be given to areas where water depletion is worst. 5.09 Cost Recovery and Sustainabilitv. Irrigation developments for both spate and groundwater extraction have been financed and maintained predominantly by the private sector. For spate areas, water masters were hired for each wadi to resolve disputes relating to spate water rights and to supervise the rebuilding of canals and dikes following heavy floods. Starting in 1965, the two governments embarked on a series of projects involving the construction of permanent spate diversions in the main wadis. The investment and O&M costs of these schemes are intended to be paid by beneficiaries; however, only about 10 percent of dues are collected (through a religious "Zakat" tax based on agricultural production). At the same time, government budget allocations for prefinancing this work are inadequate, thereby threatening the sustainability of the investments. Introduction of a national system of direct O&M cost recovery is essential; furthermore, water charges should be used, both to finance administrative costs of water regulation and to encourage water conservation. Similarly, taxes, for example, on drilling equipment and diesel fuel, should be considered as a means to discourage further exploitation. Land Resources 5.10 Land Tenure and Ownership. Land can be classified in four groups: agricultural land, rangeland, bare land and urban land. Although formal land registration occurs only in urban areas, most land in the northern governorates is privately owned and the subject of documented title. Adjudication and reprivatization is ongoing in the south. Two main types of communal land exist: tribal ownership (marginal grazing lands) and watershed ownership (alongside cultivated wadis). Land disputes are generally resolved - 54 - using Islamic or customary law. There is discussion about the feasibility of establishing a cadastre and registration for all lands. This would be closely linked to water rights and could be addressed in the context of the Water Law (para. 5.17). 5.11 Farm Size. There are an estimated 819,000 farms in Yemen (173,000 are in the southern and 646,000 are in the northern governorates). Some 20 percent of the total farming area is microfarms (under 2 ha); 24 percent is economic small holdings of 2-5 ha; and 56 percent is larger farms (mostly in the 5 to 50 ha range). Distribution of farms by size can be represented in a Lorenz Curve (Graph 5.1). The deep-bellied concave shape of the curve shows a highly unequal distribution -- 37 percent of farms are under 1/2 ha in size, and take up only 10 percent of the farmed area, while farms over 10 ha account for only 4 percent of the number but 34 percent of the area. 5.12 Implications GRAPH 5.1 of Farm Size. The predominance of very Preantagp of miam Farmland In six small farms suggest Sam Od Ya nrnorabt by Farm Sim that many farmers S of b I 0 depended on too remittances and diverse off-farm 90 activities within the *0/ extended family; this 70 - type of farm could be 6 called the mixed 60 / microfarm. In other so / cases, high value- / - added products like 40 oat or market garden S0 2 crops could make even 20 - these microfarms the principal source of 10 / income; this group v I I I - I I I could be called the 0 10 20 30 40 so 60 70 s0 90 t00 economic microfarms. 6 of Ibtal # of farm A third situation may be that farming is the principal source of income but profitable crops are not cultivated, and the family is poor; this type of farm could be called the subsistence microfarm. The fact that small farmers are most numerous should not, however, obscure the fact that some 80 percent of the land is in farms of over 2 ha; this provides the productive engine of Yemeni agriculture. 5.13 Fraamentation and Consolidation. According to the 1983 agricultural census, 20 percent of farms comprised a single parcel, and 40 percent were in four parcels or more. Land consolidation has never been formally organized. About 10 percent of all farms are sharecropped; the tenancy is generally renewed annually; and although there is no security of tenure, some contracts are heritable. Studies suggest that despite the theoretical disadvantages of sharecropping (less incentive to produce than under fixed rent, and no incentive to invest) the system is not inefficient - sharecroppers (and small - 55 - farmers in general) cultivate more of their land than large farmers and have a higher gross margin per hectare than owner occupiers. 5.14 Fuelwood. It is estimated that fuelwood provides at least 70 percent of household energy and annual fuelwood consumption is about 6.0 million m3. If this is maintained without accelerating replanting, Yemen would be devoid of trees by the end of the century. Exploitation of oil and gas reserves is facilitating some transition to bottled gas and kerosene for cooking, but it is likely that at least half of the population will continue to rely on fuelwood whilst it is still available for collection. A national energy policy is needed to promote use of alternatives to wood and to create incentives and controls for conservation and replanting. 5.15 Forage. It is estimated that ruminants obtain about half of their grazing and dry season requirements (some 2 million tons annually) from rangeland. The latter is generally held in common by a defined community, which agrees on and enforces range resource utilization. In recent years, the range management system has been coming under pressure due to social changes and as traditional pastures have dried up because of the drop in the water table. It is important to complete the review of national rangelands and to adopt precise development policies, including long-term usufruct management arrangements to prevent overgrazing. B. Environmental Policy and Institutions Institutions 5.16 The Environmental Protection Council (EPC) was established in YAR in 1987 as a technical secretariat in the Prime Minister's Office, to develop environmental policy. Although it has set up seven specialist committees, the EPC has limited technical capabilities and resources. Responsibilities for specific environmental issues are assigned to different institutions (e.g., MAWR for land and water resources). The Supreme Council for Afforestation was established in ROY in 1975 to safeguard forestlands. Other departments of MAWR deal with use of pesticides, and wildlife conservation. There is also a non-governmental Yemeni Society for Environmental Conservation that intends to be a lobby group for promoting awareness of national conservation issues. For environmental education, Sana'a University has a number of Yemeni professionals who have experience in scientific research and education relevant to the environment. A course is currently taught in the College of Education on environmental education. Legis lation 5.17 MAWR took the initiative in drafting a Water and Irrigation Law; this, currently under review by the Council of Ministers, includes regulation of drilling rigs and of well drilling and restrictions on the import of new rigs into the country. A forest policy was established for YAR in April 1989 and adopted, at unification, as the basis for the Forest Law, which has been submitted to Parliament. It emphasizes land conservation (including anti- desertification), woodland management and community tree planting, development of education and forest extension, and substitution of alternative fuels to wood. A parallel law is proposed for rangelands. - 56 - 5.18 Pesticides Use and Reculation. The GD Plant Protection (MAWR) is responsible for approving and regulating imports of plant protection chemicals. It has established guidelines on handling, application and disposal of chemicals, and provides training on integrated pest management practices. Imports are, in practice, difficult to control and MAWR regulations are generally disregarded. However, excess utilization or pollution is not a problem at present, as Yemen has low pesticide (and fertilizer) application. Nonetheless, there is a problem for disposal of an existing stock of outdated pesticides (300 tons); and urgent technical assistance is required to help MAWR dispose of these chemicals. Recommendations on the Environment 5.19 Prioritization of Conservation Issues. A strategy for promoting sustainable agricultural growth and conserving the dwindling environmental resources should be a central pillar of the FFYP. A clear Government policy framework should be established specifying responsibilities of the EPC to develop guidelines for critical protection measures. While that overextraction of groundwater is the single most important environmental constraint to agricultural production, the ecosystem as a whole functions as a balance of the environmental and social variables. The focus of a national conservation strategy should be on planning for sustainability rather than reacting to problems as they reach critical magnitudes. 5.20 Maior Recommendations. The national strategy for resource conservation should encompass the following actions: (a) enact legislation and enforce regulations for water and land conservation, including registration and licensing of drilling rigs, enforcement of charges on irrigation water and for O&M of communal works. (b) EPC operations should become proactive, with emphasis on: - creating systems for data collection for planning and for environmental impact analysis; - coordinating and promoting education programs directly involving community groups, provincial administration, religious leaders, and schools; - developing research and extension programs for farmers, including the revitalization of indigenous farming practices and religious and cultural traditions, especially for management of rainfed and spate irrigated land; and - stimulating donor support and coordinating assistance programs. (c) Provision of comprehensive support for the MAWR units responsible for environmental protection, especially: - developing GDWR's "Water Resources Conservation and Environmental Protection Department" (which is currently unstaffed); - 57 - - developing the Forestry and Rangelands Departments; and - developing operations within AREA for diagnosing farmers' indigenous knowledge and developing environmentally sensitive farming systems operations. (d) Develop procedures for community-based planning procedures, and for providing support, and monitoring for implementation of: (i) watershed management (including maintenance of terraces); (ii) integration of dry farming and irrigation systems; and (iii) rangelands management. (e) Develop research and education in environment, building on the existing capacity at Sana'a University. (f) Carry out a feasibility study on how to conserve the country's dwindling gazelle herds, including the rare endemic Queen of Sheba Gazelle. The Government's environmental policy should stipulate a timeframe for fulfilling these measures. C. Poverty and EauitX Indications of PovertX 5.21 Incomes Yemen's per capita income level of US$540 puts it in the lower middle income category along with Egypt and Syria. At the same time, Yemen has many of the characteristics of a poor country, particularly in social indicators like health and education. Unskilled wages have dropped since 1990 due to the influx of "returnees", and overt unemployment has grown. over the last decade, it appears that relative consumer prices have moved unfavorably for poorer groups: cereals, fruits and vegetables have gone up in price faster than the average, whereas meat has declined considerably in price in real terms. 5.22 There is no assessment of poverty in rural areas in Yemen, and income and expenditure data have never been analyzed to draw a poverty profile. However, Table 5.1 provides some social indicators can give a picture of the possible incidence of poverty: (a) Education. Great advances have made in education. Some 13 percent of Government expenditures go on education. Primary enrollment has gone up from 13 percent twenty years ago to 67 percent in 1988. Adult literacy has gone up from 5 percent to 25 percent in the northern governorates, from 20 percent to 42 percent in the south over the same period. Yet access to education drops sharply in rural areas and for women. Only 8 percent of women in the north are literate (27 percent in the south); in more rural provinces (Sa'ada, Mahweet, Al-Jawf) female literacy drops to only 3-4 percent. - 58 - (b) Health. The total fertility rate is amongst the highest in the world (7.7), while life expectancy is amongst the lowest (48 years -- against 60 for Egypt). Life expectancy is lower for women than for men. Perinatal mortality is one death per hundred births. Infant mortality (to one year) is thirteen deaths per hundred births (twice the rate of Egypt). Yemen has done much since independence to set up a health infrastructure. Government currently devotes 3 percent of public spending to health (1 percent of GDP). However, investment is biased towards urban centers. only 25 percent of the rural population has access to modern health facilities, and only 10 percent of rural children are immunized. (C) Nutrition. Overall, the traditional diet is reasonable and total food supplies are generally adequate. However, there are problems of low income giving inadequate access to food and an estimated 20 percent of rural women are below nutritionally safe levels. Health status also impinges on nutrition, especially intestinal diseases, and frequent qat consumption causes loss of appetite and a drug-induced thermogenesis. - 59 - TbLe 51: PERTY INDICATORS Yemen Egypt Somalia Twenty Years Ago Most Recent iMost Recent Situaton) Situation Poveriy Lires LI Absolute Poverty Line USS -Urban n.a. 223 (1988) -Rural 100 (1975) 179 (1988) GOP Per Capita (USS) 140 (1975) 550 (1992) 640 (1989) 170 (198) Socal Indlicators Daily Calorie SuppLy (per CapIta) 1994 11965) 2322 (1988) 3213 (1988) 1736 (1988) GDP Share on Public Expenditures for Basic Social Services 1%) n.a. 6 (1990) 6 (1986) 6 (1986) Rural Access to Safe Water tX) n.a. 25 (1987) 56 (1987) n.s. RuraL Access to Health Facilities (X) n.a. 24 (1987) n.a. 15 (1987) Wet Primary Enrollment IX) 13 (1965) 67 (1988) 90 (1988) n.a. *Adult Literacy Rate CX) 5/20 (1970) 25/42 (1985) 45 (1985) 12 (1985) Life Expectancy at Birth 37 (1960) 48 (1989) 60 (1989) 48 (1989) Ouldren in Development Infant Mortality (per 1000) 197 (1965) 125 (1989) 68 (1989) 128 (1989) Under-Five Mortality (per 1000) 378 (1960) 184 (1989) 106 (1989) 215 (1989) *Immunization tX) 26/6 (1980) 32/37 (1988) n.a. 28 (1988) RuraL ITmninization CX) n.s. 10 (1987) n.a. n.a. Child MaLnutrition (X) 61 (1979) n.a. 17 (1988) n.a. Low Birth Weight IX) n.a. 13 (1989) 7 (1985) n.a. Women in Developmen Female Primary EnrolLment (as X of MaLe) 611965) 25 (1988) 79 (1988) 13 (1988) *Female-to-Male Life Expectancy 41/39 (1965) 49/48 (1989) 61/59.(1989) 49/46 (1989) Total Fertility Rate 7.0 (1965) 7.7 (1989) 4.2 (1989) 6.8 (1989) Maternal MortaLity (per 100,000 births) n.a. 1000 (1989) 500 (1980) 1100 (1984) Women Using Contraceptives (X) n.s. 3 38 (1987) n.s. FemaLe Literacy CX) 1 (1970) 8/27 (1985) 33 (1985) 7 (1985) Percentage of Governmm Enpendhurew On Defense n.s. 26 (1990) 14 (1989) n.a. On Education n.a. 13 (1990) 12 (1989) n.a. On Health n.s. 3 (1990) 3 (1989) n.s. On Agriculture n.s. 35 (1990) n.a. n.a. As Share of GDP n.s. 35 (1990) 40 (1989) n.s. * Figure shown separately for YAR, PORY. I/ In 1987, it was estimated that 20 percent of the PDRY rural popuLation was below the poverty Line. - 60 - Policies and Programs Affecting the Poor 5.23 General Policy AnalysiB. Traditional structures like the extended family, the tribe and the religious establishment have always taken more responsibility than Government for ordering society and making up for its shortcomings. Nonetheless, in recent years, Government has intervened increasingly in economic and social affairs as part of the activity of a modernizing state, and although there is no specific policy on poverty issues, there is an implicit poverty focus in many Government policies and programs, notably those in education, health and agriculture. In addition, there are some special programs which de facto have an impact on the poor or the potentially poor. These programs include those for the Gulf returnees and the programs for public and para-public employees affected by unification and subsequent privatization. 5.24 The following existing policies are distorting relative prices and may have a negative impact on the poor: - an overvalued exchange rate creates a bias against labor; - import licensing tends to create income inequality by pushing up prices while the reduction in the availability of inputs depresses production and incomes; and - the sale of concessionary wheat, wheat flour and rice priced at the official exchange rate provides food at below market cost; however, this offers little benefit for the rural population, which relies mostly on self-production of sorghum and millet. If the poor are the consideration, targeted systems, e.g. food stamps, could be a more efficient way of achieving the welfare effect desired. 5.25 Public ExDenditures. On aggregate, Government spends a proportion of its budget on social services and agriculture that is comparable to that of other lower middle income countries (Egypt, for example). The issue is, however, not the quantity but the quality of public spending: in education, health and agriculture, productivity of public spending is remarkably low. The principal impact of Government on the poor could, in fact, be said to be the size and inefficiency of the public sector, which consumes 35 percent of GDP for quite mediocre results. 5.26 Development Proarams. Several Government programs have had an effect in increasing inequality of income distribution. One is government's support of targeted and subsidized agricultural credit through CACB. In effect, it is the better off who generally succeed in getting hold of this cheap money, and then often failing to repay. Another is spate irrigation, where development has benefitted largely the bigger upstream landowners. A third area is in groundwater drilling. Here, government's policy hitherto has been "hands off", and the absence of any administrative or traditional controls on drilling has concentrated a valuable resource in the hands of landowners. In addition, Government policy has given the landowners access to the cheap credit and equipment that enable them to drill. The poor who lack the means to develop their own water resource then have to pay for irrigation or rely on rainfed cultivation. - 61 - Recommendations for a Poverty Reduction Program 5.27 The most notable immediate problem is the lack of basic tools for poverty analysis in the form of income and consumption surveys. The MPD is proposing to undertake a new national sample survey; progress of this should be followed closely and the results brought rapidly into the public arena. The Universities of Sana'a and Aden should be encouraged to carry out surveys of living standards. At the local level, each RDA should undertake sample surveys to identify target populations and to define their problems. The surveys should act as baselines for future monitoring of the evolution of incomes and welfare. 5.28 The anti-poor bias of the incentive framework should be further analyzed, and the shift to a pro-poor bias should be the object of policy dialogue. The impact of social programs on the poor can be improved by: (i) improving overall efficiency of these program.; and (ii) programming specific pro-poor interventions like the current successful child immunization programs in the southern governorates. 5.29 Agricultural programs should be redesigned in the light of such surveys, to provide "positive actions" in the chain research -- extension -- farmer and in the provision of inputs and credit. Government should coordinate donors' assistance to take account of poverty and equity aspects in each region. In addition, to special focus by research and extension, topics where development assistance could change include: (i) emphasizing resources for promoting rainfed farming systems; (ii) fostering community development, cooperatives and NGOs, and mutual credit groups; (iii) stimulating employment- intensive activities, including off-farm employment; and (iv) giving more attention to livestock production, which is oriented to small-holders and women. D. The Role of Women 5.30 Women in Rural Society. Despite recent legislative changes in their favor, women's role in society is largely determined by tradition and by economic activity. Women's ability to interact with outsiders like male extension or marketing agents is limited, and their powers in economic decision making are limited by custom. Migration of menfolk increased women's role in decision-making to some extent, although the extended family system usually left a male relative "in charge". In general, women have low income- generating capacity and have access only to low-yielding technologies and poorly-paid activities. As the major producers and household managers, women are at the heart of the rural economy and any credible strategy to reduce poverty must focus on them; however, interventions must also be socially feasible. For the short term, development approaches that promote improvements in health status, family planning, education and household management must be coupled with those that attempt to directly raise cash incomes. Among economic themes, those that reduce the drudgery of traditional activities will be as highly or more appreciated than those that increase earning power. 5.31 According to a 1982 MPD income survey, 68 percent of women aged over 10 are economically active. This activity is overwhelmingly rural -- 98 percent of these women work in agriculture and livestock raising, - 62 - 88 percent on their own plots. Women's usual occupations in rural areas cover: collecting water and fuel, grinding and preparing food and bringing up the children, in addition to a fair degree of regular production work (e.g., harvesting alfalfa, tending animals, and weeding). These activities are laborious and, where time saving technologies are available, women's lives can change radically. Rural women can obtain wage employment in agriculture; however, this is mostly intermittent and wages are typically one-third of those paid to men. 5.32 Women's Development in Rural Areas. The Government has long recognized the special role of women in agriculture, the difficulty of helping to make women's activities more productive and therefore the need for special programs targeted at women. MAWR is active in programs aimed at improving the status of rural women. The Ministry adopted a women's development strategy in 1989 and set up a Women's Department (WD) responsible for implementing the women's strategy and for coordinating programs affecting rural women, both public and NGO. In the research and extension unit AREA there is a section responsible for women's programs. A recent analysis of this structure concluded that: - the strategy for rural women has not been translated into a national program or linked to actual projects; and the WD organization which existed in Aden has been dissipated since unification; - the contacts between WD and project operations lack focus and there is no monitoring of impact nor any responsibility of RDAs to attend to headquarters; and - the respective responsibilities of the WD and the AREA unit are not defined. Outside of government, there is some NGO activity, including a new Union of Yemeni Women; this is in the process of establishing itself and as yet has no activities in rural areas. 5.33 Proiects in Aid of Rural Women. Since 1973, several donors, including IDA under several projects supporting the RDAs, have financed components in area development projects to support women's development. Originally the focus of these actions was on home economics, but recently they have moved towards extension themes for increasing agricultural productivity. Problems encountered in these actions include: - social problems of access -- local cultural attitudes are not favorable to independent contacts between village women and outside agents; - rural women work long, hard days and have little time available for meeting with extensionists, and hence innovative approaches have to be used, with thematic emphasis on increasing productivity, income generation, and time saving; - recruiting women to do extension work is difficult: special emphases are needed in the training opportunities for female - 63 - agriculturalists and extension agents, especially for assisting new recruits who tend to be young and inexperienced and with academic rather than practical skills; lack of well-adapted and focussed programs: these must correspond to the real priorities of rural communities, e.g., research on labor-saving techniques for women's activities or the design of extension programs adapted to their primary activities, such as livestock management and processing. The ASMSP will contribute through provisions for adaptive research on women's farming, for training of female extension staff and for a multi-media information center to reach women in rural areas. However, a much larger program is required. Recommendations for Promoting Effective Assistance to Women Farmers 5.34 Coordination within Government between MAWR initiatives and those of other ministries and with NGO organizations needs to be strengthened. At field level the various projects have taken initiatives, but the effect of this has been seriously dulled by lack of focus in the programs (supply driven rather than problem solving) and by problems in delivery (social access and availability of female extensionists. Improvements in such a difficult context will inevitably be gradual, but the following should be tried: (a) Move to decentralized approaches that focus on the needs of local people, and give special attention to poorer families. (b) Mobilize research, training and extension facilities to prepare programs that meet identified needs. These are likely to have a strong content of: (i) domestic technology, e.g., fuel and water supply; (ii) health and nutrition education; (iii) labor saving technology for animal husbandry and product processing; (iv) use the mass media; and (v) alternatives to public service delivery systems. (c) Ensure the maximum decentralization of program content and organization so that local needs and possibilities are always respected. At the same time, field operations must have direct linkage to central support resources like research, training and monitoring and evaluation, and with central coordination and monitoring services to ensure that their operations are accurately understood and represented within Government and to donors, and that provide adequate flows of resources. (d) Match programs to human resources available. Given the paucity in women extension agents at present, priority should be given to limited programs that are feasible, focusing on a few projects initially with a very strong management and training emphasis for staff. Expansion of numbers of staff should be postponed until the existing structure can be made to work. Particular attention should be given to testing other ways of recruiting extensionists, especially the recruitment of middle-aged married women and women from within local communities. - 64 - 5.35 To achieve these objectives, MAWR should first coordinate responsibilities of WD, AREA and the RDAs, and establish a joint task force. An experienced practitioner in participatory women's development should be recruited to assist the task force to draw up and initiate an action plan, which can then be implemented in ongoing and new projects. In addition, lessons -- successes and failures -- need to be learned from past projects. - 65 - VI. STRATEGY FOR SUSTAINABLE AGRICULTURAL DEVELOPMENT Agricultural Development Policies 6.01 General. Agriculture sector development has fallen short of expectations, despite commitments in successive Development Plans backed by major Government investments. The study indicates several key reasons for this shortfall: first, policy has been vague and played no role in designing development programs; second, policy has been top down and little attempt has been made to identify farmers' needs; third, macroeconomic policy has introduced distortions that have been detrimental to agricultural development; fourth, although qat represents a quarter of GDP, it is almost totally excluded from policy thinking; and finally, Government has neglected the environment and allowed the erosion of the fundamental production resources. 6.02 Yet agriculture is vital to Yemen's economy. Considered in the context of scarce known oil reserves, limited scope for industrial development and a population which will total 20 million by the year 2010, the challenge is clearly to develop strategies for raising output from existing agricultural resources (notably land and water). There is potential to achieve sustainable increases in production; however, this demands a series of strict measures requiring full political, fiscal and legal support by Government. 6.03 A first requirement is policies on resource conservation and agricultural production. This must be matched by comDlementarv economic and institutional suDDorts for farmers and rural communities, focused on inducing sustainable incremental production. 6.04 Policy Framework. Agricultural policy for the next decade should focus on encouraging sustainable increase in output based on raising productivity from existing resources and investments. Sector developments should concentrate on programs which address priorities for economic, production, institutional and environmental operations. Conservation of water and land resources must feature centrally in all developments. The key policy and strategy aspects for the development program are discussed below: (a) Economic priorities include: (i) moving to a free market exchange rate and revising the price setting mechanism for imported staples; these moves should include arrangements for ensuring adequate and timely supply of foreign exchange (at market exchange rate) in order to guarantee procurement of essential production inputs; (ii) rescinding the ban on imports of fruit and vegetables and abolishing the licensing system for imports of agricultural inputs, apart from the restriction on drilling rigs and screening of pesticides; (iii) levying significant water charges on aat producers and taxes on farmgate sales of gat; - 66 - (iv) reorganizing agricultural credit operations on a commercial basis, to ensure efficient and economic access to a majority of farmers; and (v) introducing procedures for encouraging private sector involvement in all aspects of agricultural production, including replacement of government assistance, e.g. in research, extension, and facilitating procurement and supply of inputs over the next decade. (b) Production oriorities should focus on: (i) relinquishing aims of self-sufficiency and, instead, promoting a comprehensive cereals policy centered on rainfed cropping; and (ii) encouraging farmers to produce commodities for which Yemen has comparative advantage (including fostering import substitution and exports); specific technically and economically viable agricultural production packages (systems research, inputs, extension and marketing) should be developed for each agro-ecological region, with the following priorities: - for crov Droduction, programs for both rainfed and irrigated cropping, with emphasis on increasing productivity from existing investments (by both public and private sectors) through programs for optimizing water management at both organizational and technical levels and for ensuring optimum levels of inputs and support services; - for livestock, programs for ruminants: to optimize output from natural resources (notably by participatory rangelands management, emphasizing more efficient forages, improving indigenous breeds, raising average slaughter weights, and developing smallholder dairy units); and for intensive poultry: to increase efficiency, both through product quality (notably production systems and finished broiler weight) and through economizing on costs (notably chick and feed supplies), as well as programs for improving output from baladi poultry; - for forestry, programs for promoting production of appropriate species of woody biomass for each agro-ecological area; this should emphasize the financial benefits both for individual farmers and communities (from firewood sales) as well as demonstrating the ecological gains; and - for rural infrastructure, programs for helping communities to develop rural infrastructure (access roads and village water and electricity supplies), and for stimulating rural industries. (c) Institutional priorities should focus on: (i) streamlining MAWR and defining its responsibilities in relation to the decentralized agencies. Specifically, MAWR at headquarters should handle policy and investment planning and administration, : 67 " budget and financial controls. AREA and the RDAs should be responsible for regional planning, research and extension; (ii) defining MAWR responsibilities in relation to the private sector. Specifically, parastatal organizations should be urgently privatized and the private sector should be encouraged to take over inputs supplies; (iii) reorganizing MAWR's structure and staff to match the revised responsibilities. This will require a human resources study and will inevitably highlight the current overstaffing and would, therefore, need to include a program for reassignment and disengagement -- including retraining and other inducements (seed money for small businesses and flexible social security arrangements) to encourage transfer to the private sector; (iv) accelerating the implementation of a separate strategy for agricultural research in each agro-ecological zone, focused on farmers' needs and encouraging the technical and economic potential of each region; (v) expanding training for farmers and extension workers, so as to improve efficiency and commitment, with special emphasis on women farmers; (vi) developing the RDA extension services in each agro-ecological zone to ensure there are: - specific actions for improving land and water management; - production packages for the main crop and livestock enterprises in each agro-ecological area; - messages on technical and management aspects; and - advice to women farmers on forage production and feeding techniques and on the organization of community milk collection; and (vii) it will be necessary to have a policy on: (a) procedures for introducing inputs provided (by aid agencies) on concessional terms into market channels without creating either "rent" or disincentives for commercial distributors; and (b) procedures for promoting development of the private market in inputs with no Government intervention. Given the current disorganization of the market, these are formidable challenges. Probably the best way of finding solutions is to hold a national workshop with Government, university, private sector and farmer participation. (d) Environmental lriorities should focus on: (i) enacting a Water L and a Forestry Law and adopting and enforcing a National Master Water Plan that would: - specify priorities for abstraction between domestic, industrial and irrigation use for each water basin; - 68 - - make provisions for monitoring water abstraction and supervising maintenance of communal irrigation works and for enforcing regulations; - provide for national education programs on water resources and irrigation management; and - introduce a nationwide scheme for levying charges on water users; (ii) integrating soil conservation, range management and forestry themes into research and extension work in each region. Explore means for fostering conservation of the traditional terraces -organized on communal lines; in addition, forestry as a cash crop for fuelwood and the use of stabilizing grasses like Vetiver should be key themes; and (iii) population policies are important and a national program for education and support of family planning practices (directed at both men and women) will be critical for achieving sustained economic growth. Priorities for Investment 6.05 The First Five-Year Plan for the new Republic provides unique opportunity for establishing new policies and programs to meet the challenges described above. The National Agricultural Development Program (NADP) provides the vehicle by which MAWR can put the plan and programs into action in the form of a coordinated series of projects: (a) Conservation of Natural Resources. Because of the fragile nature of Yemen's natural resources, developments for all sectors should be required to include specific provisions for avoiding degradation and for promoting conservation. For the agriculture sector, programs for improving irrigation efficiency, for promoting soil conservation, and for encouraging rangelands and forestry development should be highlighted. Education programs are needed to inform the nation of the critical status on natural resources and to indicate the types of measures which are available for combatting the situation. Programs should normally be conceived and coordinated by MAWR headquarters; this points to the need for institutional strengthening for the General Departments in the Water Resources Sector (MAWR) and the General Department of Forestry and Rangelands. Actual implementation should normally be the job of the RDAs through a series of investments. Two factors are key for success of such developments and to ensure eustainability: Firstly, they should receive no direct fiscal support; and secondly, they should be wholly dependent on community involvement to ensure that target groups own the project. A first, pilot project is planned to commence in 1993/4; this should subsequently be consolidated into a national program with a plan for each water basin. (b) Development of Productive Subsectors. Priority for livestock and crops development should focus on improving productivity from existing investments. This would be achieved by developing programs for each agro-ecological region (emphasizing actions to support - 69 - private sector operations) in the production, processing and marketing chain, all centered on sustainable packages. (i) Livestock Develovments. Programs for livestock development should give priority to: - reorienting MAWR planning, research and veterinary support for the livestock subsector; developing the capabilities of existing field extension agents in RDAs to provide specialist livestock services (notably for women farmers); and emphasizing private sector operations and cost recovery; - developing a breed improvement scheme based on selected indigenous stock; - rehabilitating rangelands (through planting traditional and new species of fodder crops and browse trees) and extending enhanced grazing management systems through herders' associations; - improving scale and productivity of forages and feeding systems; expanding opportunities for small/medium-scale production/fattening units for poultry, small ruminants and dairying (including privatizing the state farms where relevant); - improving and economizing the production of concentrate feeds (as a private sector operation); and - studying opportunities for modernizing slaughter facilities (especially in rural areas), expanding the processing of meat by-products, and for processing hides and skins (as a private sector operation). (ii) Crop DeveloDments. Programs for crop development should give priority to: - improving production in rainfed areas; - improving efficiency of water management in irrigated areas; - research on improvements in varieties and production techniques for crops with agronomic potential where Yemen has comparative advantage; - developing systems for ensuring timely and adequate inputs supplies; with priority on: expanding quantities and qualities of seeds/seedlings production (as a private sector operation) and putting in place an environment that will allow the private sector to take over the fertilizer business; and - developing appropriate technologies for farm mechanization and crop storage and handling (especially for export markets). (c) Institution Strengthening - MAWR. In order to ensure the provision of appropriate support services for crop and livestock production at sustainable cost, priority should be given to the following programs for modernizing MAWR operations and rationalizing parastatal operations: - 70 - (i) MAWR Headquarters Operations. Priority should be given to defining the essential services MAWR has to provide and to reducing the work force to sustainable size. The following will be priorities: - strengthening and improving the statistics, planning and monitoring operations; - developing the physical monitoring and supervisory services for water resources and forest management; - eliminating technical crop and livestock departments and transferring qualified personnel to AREA; and - creating modern administration and finance operations focused on providing efficient support to MAWR's decentralized services. Two ongoing projects (ASMSP and LWCP) provide support for these actions; however, additional actions will be required in order to complete the process. (ii) Privatization of Parastatal Organizations. At unification, the Government allowed thirty months for making readjustments in the organization of the civil service and public sector businesses. In addition to modernizing MAWR operations, this involves restructuring of state farms and parastatal organizations. A first phase removed the fiscal advantages from these organizations, leaving them to compete in the open market. This has highlighted the problems of overstaffing, weak management and low efficiency; and, for social and economic reasons, it is important that decisions be taken urgently on their future, through programs for privatizing and/or winding-up their operations. State farms occupy some 10,000 ha of prime agricultural land and include considerable infrastructure investments. These farms cover a wide range of commercial crops and seed production, as well as dairying and meat production. The following action plan is required to counter the poor management, overstaffing and unprofitability: - completing ownership adjudication (southern governorates), audit of assets and liabilities, and assessment of optimum development program; - preparing production and business plans for each site; and - finalizing arrangements for settlement, (re)training or other assistance to release the work force from public service. Public corporations (mostly in the southern governorates) exhibit typical parastatal characteristics of poor management, overstaffing, lack of cost control and run down physical assets. In the absence of monopoly positions and subsidies and in the face of competition they have proved quite uncompetitive and their inherited losses have been emphasized. The Government's goal of divestiture is, therefore, correct - 71 - and the challenge is to make the best use of the existing physical and human capital, to stop the financial losses and to maximize the financial returns to Government from privatization. There should be an orderly winding down of parastatal operations and a transfer to the private sector, preferably on a going concern basis, otherwise by sale or lease of assets. A program for this transfer could be as follows: (a) complete an inventory, valuation and audit of assets and liabilities of each enterprise by professional valuers and accountants; (b) make business assessments of each enterprise, examining options for sale as a going concern, or for break up of assets for sale or lease. The assessments should be done by Government in conjunction with international consultants; and (c) devise a staff redeployment program, including retraining, transfer within the public service, small enterprise creation, staff buyouts of enterprises being divested. The program should be prepared by Government with consultant assistance. The cost of consultants and of the staff redeployment program could be paid as priority claims from the proceeds of the divestiture exercise. (d) Rural Skills Development. In order to more effectively support the development needs for rural skills, especially for women, specific programs should be initiated, to provide training and education in health, and agricultural production, storage and processing technologies. In addition to strengthening the relevant Government departments and RDAs, the provision of facilities, training, technical and organizational support for implementation through self- help groups, especially private cooperatives and community groups, should be highlighted. (e) Rural Infrastructure Development. Accelerating the rate of rural infrastructure development is a priority for three reasons: (i) for raising levels of economic activity and improving overall living standards in rural areas; (ii) for invoking better resource conservation; and (iii) for trying to discourage rural depopulation. In order to overcome the sporadic and uncoordinated actions of the past and to accelerate the construction of feeder roads, village water supply and rural electrification schemes, nationwide strategies are needed. These strategies should identify priority programs and locations, specify design requirements and decide on construction schedules. The Ministries of Construction and Water and Electricity should establish systematic planning procedures and ensure that adequate supervisory resources and operating funds are provided. Investments would require facilities, equipment, materials, training and technical support to ensure a coordinated and sustainable - 72 - approach for construction, operation and maintenance, and auto- financing of these works. The RDAs would play a coordinating role- however, private cooperatives or other community groups which capacity for such developments, would play a prominent role in implementation. Systematic, nationwide preparation studies are needed to identify a priority program, design requirements and construction schedule. (f) Consolidating Rural DeveloRment. In the wake of unification and Government decision on realignment of administrative boundaries, there will be need for: (i) realignment of the operations and consolidation of the facilities of the existing RDAs; and (ii) the creation of new RDAs in the southern governorates. In all cases, there will be need for extra resources to consolidate existing developments and to expand facilities and services, so as to improve agricultural production in areas and communities not being reached by existing operations. Potential Development Impact 6.06 The strategy for sustainable agricultural growth portrayed in this report presents a formidable challenge for Yemen. The limited known mineral reserves and restricted opportunities for industrial developments obliges the Government to make radical adjustments. The removal of economic constraints, the adoption of supportive production strategies, and the reorganization of government services would stimulate increases in output and productivity from existing resources and create a surer foundation for sustaining agricultural production. It is estimated that these actions would permit annual growth rates in total GDP of 3 percent in the medium term. This would allow for realizing national GDP growth targets of 4-5 percent. Per capita agricultural growth, assuming a population growth rate of around 2.8-3.0 percent, would however remain slim. With further (feasible) increases in productivity and greater private sector initiatives, annual growth in total GDP should rise to 4 percent, which would give a boost to individual incomes in the rural sector. conversely, without these adjustments, agricultural productivity would continue to decline, thereby provoking further deterioration in economic performance and living standards. Strategy for Aid Coordination 6.07 Past Exoeriences. The Agriculture Sector has benefited from considerable external assistance over the last twenty years, mostly in the form of investments in equipment and technical assistance and training. The performance has been mixed: infrastructure developments, the creation of decentralized RDAs, and the evolution of AREA have been mostly successful. However, these achievements represent the "means to an end". To a large extent the element of sustainable increase in production has not occurred, due to: (i) inadequate delegation by MAWR headquarters to development agencies and projects, linked to excessive intervention and insufficient operating support; and (ii) lack of adoption by intended beneficiaries. The liaison between different project activities has mostly been ad hoc and the capacity for benefiting from "lessons learned" has been limited. GDPM needs to - 73 - strengthen its reporting and monitoring procedures to better share development experiences. 6.08 It is evident that the constraints on economic resources will be an obstacle to realizing the development program for agriculture. Furthermore, there are major constraints on aid funds. Therefore, in order to ensure adequate funding for the FFYP, the Government should develop a coordinated and proactive approach for obtaining external assistance. In this context, the Government intends to hold round table discussions to initiate more effective collaboration and to elicit commitments from aid agencies in support of its development program. It is important that this be presented as a forum for expounding development strategies and for explaining the associated macroeconomic policies. However, to achieve maximum effect, dialogue would best be organized on a sector basis. In preparation, MAWR should prepare its program and suggested investment priorities. 6.09 Strategy for Improvina Implementation of Development Proiects. Improvements in implementation will be a complement to the adjustments in policies, strategies and operations discussed in this report. Firstly, ensure that all aspects of project management are based on agreed project objectives with supporting annual work programs and budgets. Secondl, delegate full responsibility for project implementation to the project manager, within the parameters set by the agreed objectives, work programs and budgets. Thirdly, accelerate the procurement of goods and services by appointing trained personnel, adopting standard bidding documents and procedures, and delegating full processing responsibility to the project management unit. Fourthly, ensure adequate and timely provision of operating funds, both during project implementation and for subsequent sustainability. Fifthly, revise staffing procedures to provide adequate incentives for recruiting and retaining qualified and experienced personnel for project implementation (including accounting and audit staff). 6.10 Monitorina and Evaluation. In order to improve development controls, it is essential that MAWR develops its monitoring and evaluation (H & E) capabilities, both for individual projects and for MAWR. At vroiect level, this process should be based on diagnostic procedures which would signal deviations from annual work programs and budgets. A complementary mechanism should be established for ensuring swift remedial actions. To be of maximum effect, the following refinements should be introduced: (i) responsibility both for analyses and for remedial actions in all cases should be specifically designated; and (ii) a system of inducements should be introduced for rewarding timely success in achieving development objectives. Within GDP, H&E activities should be developed as a guide to comparative implementation performance (between projects) and to measure impact on sector objectives. REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY POPULATION AND LABOR FORCE UNITS 1970 1975 1980 1985 1987 1988 1989 1990 POPULATION * MILLION 5.80 6.50 7.30 9.86 10.49 10.81 11.14 11.51 POPULATION OUTSIDE YEMEN MILLION 1.00 1.20 1.50 2.00 2.00 2.00 2.00 1.30 POPULATION GROWTH PCT/YEAR 1.85 2.25 2.55 2.80 3.00 3.10 3.15 3.20 POPULATION/SOKMTOTALAREA NUMBER 11 12 13 18 19 20 20 21 TOTAL LABOR FORCE MILLION 1.75 1.77 1.94 2.61 2.78 2.88 2.97 3.10 OF TOTAL POP PERCENT 30.17 27.23 26.58 26.47 26.50 26.64 26.66 26.93 AGRIC POPULATION MILLION 4.48 4.63 4.90 6.43 6.71 6.88 7.07 7.29 % OF TOTAL POP PERCENT 77.24 71.23 67.12 65.21 63.97 63.64 63.46 63.34 AGRI LABOR FORCE MILLION 1.24 1.17 1.20 1.55 1.62 1.66 1.74 1.80 % OF TOTAL LAB FORCE PERCENT 70.86 66.10 61.86 59.39 58.27 57.64 58.59 58.06 Includes Yemenis outside Yemen. Based on the census of 1986 for the Northern Governorates & 1988 for the Southern Governorates. (D The decrease in population outside Yemen from 1989 to 1990 are due to the gulf war returnees. Estimates based on data from Saudi Arabia. x SOURCE: Central Statistical Office of Yemen m:Vroy\sector\report\yem-stat\yemen.wk1 REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY ESTIMATED LAND USE AREAS UNITS 1970 1975 1980 1985 1987 1988 1989 1990 TOTAL LAND 1000 HA 55,500 55,500 55,500 55,500 55,500 55,500 55,500 55,500 OF WHICH ARABLE&PERMCROPLAND 1000HA 1,140 1,150 1,162 1,178 1,196 1,269 1,356 1,338 OF WHICH IRRIGATED CROP LANDS 1000 HA 260 282 289 302 308 312 314 320 RAINFED CROP LANDS 1000 HA 880 868 873 876 888 957 1,042 1,018 FOREST(1) 1000 HA 2,000 2,000 2,000 2,000 1,850 1,700 1,600 1,500 RANGE & PERMANENT PASTURES 1000 HA 22,360 22,350 22,338 22,322 22,454 22,531 22,544 22,662 DESERT, MOUNTAIN & URBAN 1000 HA 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 (1) Forest land Is mostly shrubs or small woody blo-mass. SOURCE: Central Statistical Office of Yemen and World Bank Estimates m:\roy\sector\report\yem-stat\yemen.wk1 o M x a) I REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY NATIONAL ACCOUNTS Million YRIs PREL. PROJ. (Current Prices) 1985 1986 1987 1988 1989 1990 1991 GDP AT MKT PRICES 39.905 46,436 53,572 62,080 65,049 81.780 95,478 GDP AT FACTOR COST 35.389 41,219 48,923 56.528 60,049 77,784 90,283 MINING & OUARRYING - - - - 400 480 648 CRUDE OIL & GAS (1) - - - - 7,155 11.171 8,902 MANUFACTURING (2) - - - - 5,861 6,586 8,450 ELECTRICITY & WATER - - - - 1,191 1,400 1.540 CONSTRUCTION - - - - 2,838 3.394 4,355 WHOLESALE & RETAIL TRADE - - - - 7,784 9,590 11.029 TRANSPORTATION & COMMUNICATION - - - - 5,202 6.015 7,386 SERVICES - - - - 14,936 23,047 28.089 AGRICULTURE 9,161 12,337 13,171 13,882 14,682 16,101 19,884 of which CROP - - - - 9,895 11,867 14,790 FORESTRY - - - - 632 656 680 FISHERIES - - - - 1,061 696 855 UVESTOCK - - - - 3,094 2,882 3,559 OAT* - - - - - 34,000 - INDIRECTTAXES(NET) 4,516 5,217 4,649 5,552 5,000 3,996 5,195 (1) Includes an estimate of the foreign contractor's share of oil. (2) Including oil refining Note: Figures for national accounts from 1985 to 1988 have been derived by combining the figures for The Yemen OQ Arab Republic & The Peoples democratic Republic of Yemen at the official exchange rates. D 3" Oat is not included in the official estimate of the national accounts. Each bundle of Oat Is estimated to have 0.5 Kgs of edible material. It is estimated to cost 50YRks/bundle. Fh m x SOURCE Central Statistical Office of Yemen; and staff estimates m:roy%sectorreport\yem-stat\yomen.wkI REPUBUC OF YEMEN AGRiCULTURE SECTOR STUDY FOOD BALANCE SHEEr UNiTS 1975 1980 1985 1987 1988 1989 1990 SELF-SUFFCIENCY RATIO CEREALS PERCENT 72.5 69.0 54.5 40.5 42.5 40.5 40.0 SELF-SUFFiCIENCY RATIO FOOD PERCENT 80.0 63.5 58.5 60.0 59.0 56.5 56.0 PER-CAPITA UTI-CEREALS KGS/YEAR 177.0 179.0 172.0 189.0 178.0 175.5 167.2 CAL INTAKEIPER/DAY CALORiES 2,033.0 2,253.0 2,364.0 2,380.0 2,41&0 2,462.0 2,467.0 PROT INTAKEIPERIDAY GRAMS 59.0 67.0 70.0 69.0 71.0 62.5 66.8 SOUiRCE Central Statistical Office of Yemen and Worl Bank Estitmates m:roorsecoreportayem-stayemen.wk1 0 M o es, x o0o X_ REPUBLIC OF YEMEN AGRICULTURAL SECTOR STUDY AGRICULTURAL EXPORTS UNITS 1970 1975 1980 1985 1987 1988 1990 OIL CROPS & FEED 1000 USS 1,205 789 56 90 - - - VEGETABLE OILS 1000 US$ 135 0 29 0 - - - COTrON UNT 1000 US$ 4,304 8,277 10,928 1,170 2,525 2,800 2,165 TOBACCO 1000 US$ 87 227 2.226 2,460 890 890 728 VEG. FRUITS & NUTS 1000 US$ 271 170 250 260 270 270 328 SUGAR* 1000 US$ 197 0 13 3 - - - BEVERAGES 1000 US$ 2,942 3,662 1,223 3,562 7,008 8,130 6,233 OF WHICH x COFFEE 1000 US$ 2,752 3,662 1.180 3,278 6,978 8,100 6,119 TEA 1000 US$ 190 0 43 261 30 30 32 FRUITI&JUICES 1000US$ 3 3 1,371 3 3 3 - UVE ANIMALS 1000 US$ 0 89 144 180 185 185 190 MEAT PRODUCTS 1000 US$ 0 0 653 41 - - - DAIRY PRODUCTS 1000 US$ 172 0 802 286 - - - * INCLUDING RE-EXPORTS. SOURCE: Central StatIstal Office of Yemen & Ministry of Trade. OQ m:VoysuoVeport\yem-stat\orts.wk1 o a x L0 i' .- REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY PRODUCT VALUES ^ (Current Prices) UNITS 1987 1988 1989 1990 TOTAL AGRICULTURE MIL. YRls 17,362.4 19,106.0 19,711.1 23,394.3 TOTAL CROP MIL YRIs 13,940.0 14,780.0 14,681.8 18,442.2 TOTAL LIVESTOCK MIL YRIs 3,422.1 4,325.3 5,029.3 4,952.1 CROP PRODUCTION/HA YRls 13,004.0 13,437.0 12,736.0 16,457.0 AG. PROD/AG. WORKERS YRIs 10,718.0 11,510.0 11,328.0 13,069.0 GROSS AG INCOME/AG FAMILY YRIs 14,232.0 15,274.0 15,334.0 17,650.0 Note: Contribution of Agriculture GDP In Table 5 includes only the value added to the National Accounts from each of the sectors. It differs from this Table due to variation on the basis of calculation as It does not deduct the cost of production. Excluding qat cultivation. SOURCE: Agricultural Statistical Office of Yemen m:VoAsectorVeportnyom-stat\yemen.wk1 0 0 o ° D X PULJC OF YEMEN A.CULTUBf SECTOR STUtY ESTlSATED LITOCK POPULATION 136B 1o" 1967 tlw low lws SHEEP CM HEAD) 3.383 sue SAM 3.02 3,g2 3,765 OTh CM HEAD X,IS 2.9K6 2,66 2.170 J200 3.3 CATTLE CM HEM l1, 1.106 1.126 1,137 1,170 1,170 CAMEL CM HEM le6 162 163 le6 170 175 POULTRY CM HEAD) 13.026 16.3e6 16,516 29662 16.111 17.43 Eff8MTED LWESTOCK PROUCTlON 170 1376 190e lo" 192K 1o" logo MEAT 1000 MT 4.488 212 270 3a3 360 43 420 BEEFVAL 000 MT 1tsm 20 34 36 36 36 36 MUTTON & LAMB 1000 MT 166 I.8 1,606 1,s6 1'M 0 - POULTRY 1660 MT 16 136 60 a 77 60 3a EBB ML. E S -220 279 23 316 336 336 MILK 1000 MT - 129 126 136 14 161 164 o HES & SKN 1000 VT * 6 7 7 7 7 FRH 1000 T - - - 3.6 61 3.2 YELDS LNESTOCK PROOUCTS UNIrS 1970 175 1960 1096 lo"K 129 160 V&VEAL KBIAL 144.6 133.5 129.6 140.0 140.0 140.0 140.0 WTON & 8LAM KOfANWAL 16.0 160 16.0 I6.O 16.0 16.0 16.0 MILK KEBANAL 2.6 296.6 30 327.6 327.6 327.5 327.5 EBSOoMMERCIAL NOJAIM - - - 2330 230 2360 240.0 EBB LOCAL NOJANI. - - - 7.0 90.0 90.0 90.0 Damo eefa produam ea*kdhM9 MEO hforl. SOURCE: AUIuIwq awisSod OMo0 of Yamns OQ = _ * 1~~~~~~~~~~~~~~~~~~~~~~~~~~ s DX REPUBLIC OF YEMEN AGRICULTURAL SECTOR STUDY AGRICULTURAL IMPORTS UNITS 1970 1975 1980 1985 1988 1990 CEREALS 1000 US$ 25,712 81,284 170,219 233,770 230,000 252,827 OF WHICH WHEAT 1000 USS 17,829 61,643 141,323 178,395 151,200 192,414 RICE 1000 USS 7,830 18,033 24,137 47,974 47,500 45,435 MAIZE 1000 USS 51 1,608 4,459 2,406 31,300 14,969 BARLEY 1000 US$ 2 0 300 4,995 0 9 OIL CROPS & FEED 1000 USS 3,041 2,354 12,761 11,206 8,300 13,426 VEGETABLE OILS 1000 USS 803 2,746 16,596 53,103 49,810 31,790 TOBACCO 1000 USS 2,470 8,399 24,802 40,432 33,450 36,277 VEG. FRUITS & NUTS 1000 US$ 1,961 6,761 89,190 13,969 9,291 10,635 SUGAR 1000 USS 7,805 50,397 103,497 53,112 86,000 64,276 BEVERAGES 1000 US$ 5,120 11,926 41,381 32,477 28,870 28,516 OF WHICH COFFEE 1000 USS 403 2,505 895 2,567 3,350 3,308 x COCOA BEANS 1000 US$ 0 5 14 0 0 0 TEA 1000 US$ 4,465 8,924 14,989 23,216 19,700 19,144 OTHERS 1000 US$ 252 492 9,179 1,234 1,150 1,131 FRUIT&JUICES 1000US$ 0 0 16,304 5,460 4,670 4,933 UVE ANIMALS 1000 US$ 3,426 3,544 22,843 39,160 34,010 35,054 * MEAT PRODUCTS 1000 USS 209 552 53,790 49,571 39,100 40,444 DAIRY PRODUCTS 1000US$ 7,275 11,999 98,181 93,641 103,075 86,191 FARM INPUTS 1000US$ 1,007 6,421 33,072 33,269 - 22,322 TRACTORS & MACHINE 1000 US$ 487 2,249 9,263 4,666 6,500 - FERTILZERS 1000 US$ 40 2,517 2,029 - - - PESTICIDES 1000 US$ 283 1,214 - - - - Based on import licenses, total Imports for 1990 Included about 100,000 cattle and one million sheep/goats; at conservative value ot USS 1.0A( & USS 0.91Ko respectively, the total value ot °Q sheep/goats; at conservative value of US$ 1 .0dKg & US$ 0.9/Kg respectively, the total value of Imports Is US$ 43 million. Adding other livestock Imports (e.g. chicks) would Increase this amount. 00 3 o i-in SOURCE: Central Statistical Office of Yemen & Ministry of Trade. " X m:V,oysectorVeport\yem-statUmports.wk1 - 82 - ANNZS 2 Page 1 of 5 3EPMLMIC Or 3DmZ cmR1 029M Analysis of Cosnarative Advantaae for Cron Productiot Sarv Findinas 1. A number of crops are currently attractive in terms of oconomic returns to the factors of land, water, labor and foreign exchange - vegetables, grapes, qat, bananas, cotton, sesame, alfalfa and the rainfed ceroals. Of these, tomatoes, bananas, and perhaps grapes, cotton and sesame could be econosically viable exports, although this would need to be confirmed by market analysis. These crops should be promoted through extension and market development. Some crops have significant agronomic and economic potential for improving returns to factors. Research, extension, and seed and input supply would be particularly justified on these crops -- cotton, alfalfa, potatoes, sesaae, cowpeas, coffee. In the light of declining water availability and the lower wages currently prevailing, the rainfed cereals merit research to identify any further agronomic potential they may have. 2. Irrigated wheat is not attractive. Therefore, strategic research and extension strategies, and pricing and input policy should reflect this. National food policy should take a comprehensive approach to food staples: encouraging rainfed cereals and pulses (both for human food and animal feed), minimizing irrigated wheat production, and highlighting more profitable alternatives, e.g. hybrid maize. 3. Given the extreme scarcity of water, the return to water is an important factor to consider. The current marginal cost of water in the highlands is YRls 1.90 per *3, in the Tihama YRls 0.70. Crops that have higher net returns to water than these costs are bananas, grapes, potatoes, qat, sesame, Tihama maize, cotton, potatoes and tomatoes. In addition, some crops that are not sconosic in torms of water use at current yield and cost lvels do have potential to do better -- alfalfa, cowpeae. Research should concentrate on developing production systems that reduce factor costs for water-economical crops. Domestic Resource Cost Analyses Group 1 - Rainfed Cereals 4. Rainfed cereals -- millet, sorghum, wheat -- are efficient in terms of foreign exchange use and saving, and are viable import substituting crops. They are not very profitable; they provide low returns to land and labor. There is not known to be much agronomic or economic potential for expansion of output but in view of the water and foreign exchange constraints, these crops m:\roy\s.ctor\report\amneX2.rw - 83 - AiNX 2 Page 2 of 5 will look increasingly attractive and research is justified, especially on millet and sorghus which pay higher returns to labor (equal to or above the current wage rate). CROP DRC RETURN/ RETURN/ RETURN/ RETURN/ HA LAND M3 WATER LABOR DAY DOLLAR MILLET Actual 0.68 3898 n.a. 201 110 SORGHUN Actual 0.62 6908 n.a. 70 106 RAINFED WHEAT ActuaL 0.59 2489 n.a. 57 48 Groun 2 - Perennial and High Value Upland Crops 5. Of the perennial and high value upland crops - grapes, qat, coffee, vegetables -- qat and vegetables are efficient in terms of foreign exchange even when water is scarcity priced at RIO/Il3 (five times the marginal cost). Under all conditions tested, these two crops are profitable and pay excellent returns to land, labor, water and foreign exchange. Coffee at present yield levels is not a viable crop, although it has good agronomic potential and Yemen could have comparative advantage in exports if yields could move up fron the present 500kg/ha towards the 1 ton level, which is perfectly feasible. However, future development is dependent on water availability; if water is scarcity priced, coffee becomes quite enviable. In any case, where qat and vegetables can be grown, they far out-perform coffee. Grapes are at present a very attractive crop, paying good returns to all factors. If water is shadow priced, which represents future water scarcity, grapes which are very heavy water users lose their comparative advantage. In this group, therefore, it seems likely that the shift to fruit and vegetables away from coffee will continue, and that in the long run grapes will become less attractive. Research and extension are certainly justified for vegetables, grapes and coffee, and development of the internal sarket for vegetables, and of the external market for coffee and grapes, could push up revenue by raising prices. CROP DRC RETURN/ RETURN/ RETURN/ RETURN/ HA LAND M3 WATER LABOR DAY DOLLAR WATER ( COFFEE Actual 2.45 neg 1.11 rng 18 AT ( Potential 0.74 29957 2.64 93 45 COST O GRAPES Actual 0.53 88203 4.03 248 66 ( PotentiaL 0.4 138435 5.94 395 93 C QAT Actual 0.36 236107 10.85 706 177 C TOMATOES Actual 0.26 92166 11.55 561 163 ( PotentIal 0.22 128914 24.37 866 245 WATER AT C COFFEE ActuaL 21.54 neg 1.11 neg neg SHADOW C Potential 4.03 neg 2.64 neg n g PRICE G GRAPES ActuaL 2.18 neg 4.03 neg nag C GRAPES Potential C QAT Actual 0.93 90307 10.85 123 46 t TOMATOES Actual 0.87 30606 11.55 127 53 C Potentiat 0.50 90844 24.37 569 168 m:\roy\sector\report\armex2.new -84 - ANXX 2 Page 3 of 5 grouo 3 - Perennial and Sumer-grown Tihama Croos 6. Among perennial and summer-grown Tihama crops, bananas and vegetables are at present attractive both for the local and the export market. Both have significant agronomic potential and could retain comparative advantage for export even if water is shadow priced at five times present marginal cost. This would, however, require higher productivity in the case of bananas. Traditional maize is unattractive under all assumptions; however, introduction of high-yielding hybrids could possibly sake saise a viable crop for Yemen. CROP DRC RETURN/ RETURN/ RETURN/ RETURN/ HA LAND H3 WATER LABOR DAY DOLLAR B BANANAS Actual 0.36 121127 3.08 541 132 WATER ( Export 0.60 68627 1.56 192 69 AT ( PotentiaL 0.31 192670 6.43 725 222 COST M MAIZE ActuaL-TIha.m 2.89 5583 1.09 116 49 ( Potentfal-Tfhmm 1.95 11758 2.03 188 59 C TOMATOES Tthm Export 0.37 39983 4.52 243 125 ( BANAAS Actual 1.25 4232 2.99 neg neg MATER C Export 2.06 neg 1.47 neg neg AT C PotentIal 0.70 112810 6.43 332 113 SHADOW ( MAIZE ActuaL-Tihm_ 22.80 nag 0.95 nag neg PRICE ( Potentlal-T1hm_ 6.04 nag 2.03 nag nag ( TOMATOES Tihara-Export 0.87 16423 4.52 77 49 group 4 - Winter-Grown Tihama Croos 7. Among the winter-grown Tihama crops, bananas and vegetables are again the best performers in returns to all factors Cotton and sesame both have comparative advantage as import substitution crops, and both crops have substantial scope for improvements in agronomic and econosic efficiency that would enhance their attractiveness. Neither crop can retain its comparative advantage long term, as under scarcity pricing of water, returns to all other factors become negative. The economic attractiveness of cotton runs counter to the experience of the last few years, where farmers have been reducing production. The economic calculation gives superior returns because the import parity price is about three times the domestic procurnment price. There would be a benefit to farmers and to the country from allowing the cotton price to move to world market levels. Research, extension and market development is certainly justified for all this group of crops. m:\roy\sector\report\annex2.new - 85 - ANMX 2 Page 4 of 5 CROP DRC RETURN/ RETURN/ RETURN/ RETURN/ HA LAND M3 WATER LABOR DAY DOLLAR ( COTTON ActuaL 0.37 11149 2.21 130 112 ( Potential 0.22 39726 2.81 309 123 WATER ( SESAME Actual 0.39 8401 2.28 167 87 AT ( PotentiaL 0.26 20590 4.87 374 122 COST ( BANANAS Actual 0.36 121127 3.08 451 132 C Export 0.60 68627 1.56 192 69 ( Potentifl 0.31 192670 6.43 725 222 ( TOMATOES Tihama-Export 0.37 39983 4.52 243 125 ( COTTON Actual 1.58 rng 2.21 rng neg ( Potential 1.26 rog 2.81 rng rng WATER ( SESAME Actual 1.61 rng 2.28 neg nag AT ( PotentiaL 0.84 7390 1.57 110 50 SHADOW B BANANAS Actual 1.25 4232 2.99 rng neg PRICE ( Export 2.06 neg 1.47 reg neg ( PotentiaL 0.70 112810 6.43 332 113 C TOMATOES Tihame-Export 0.87 16423 4.52 77 49 Groun 5 - Uoland Summer Crops S. Of the upland sumer crops - potatoes, alfalfa, cowpeas - alfalfa pays good returns to factors and has significant potential for increased yields which improve returns. Potatoes are not efficient users of inputs at present yield levels but are a comparative advantage crop at the highor potential yield levels tested. Cowpeas as a pure stand pay low or negative returns and cannot compete with the other two crops. Cowpeas do, however, have agronomic potential that can make them more attractive Research and extension on these crops could certainly pay dividends. CROP DRC RETURN/ RETURN/ RETURN/ RETURN/ KA LAND N3 WATER LABOR DAY DOLLAR C ALFALFA Actual 0.86 35499 1.62 83 34 WATER C Potential 0.52 89241 3.18 232 66 AT C COWPEA Actual 1.99 rng 1.01 nrg 17 COST ( Potential 0.81 10134 2.29 87 38 C POTATO Actual 1.52 7066 0.87 neg 24 C Potential 0.60 52906 5.26 308 47 C ALFALFA Actual 0.86 35499 1.62 83 34 WATER ( Potential 0.52 89241 3.18 232 66 AT C COWPEA Actual 1.99 rng 1.01 rng 17 SHADOW ( Potential 0.81 10134 2.29 87 38 PRICE ( POTATO Actual 1.52 7066 0.87 rng 24 C Potential 0.60 52906 5.26 308 47 grouo 6 - Upland Winter Crops 9. The two co mmonly grown upland winter crops - wheat and alfalfa - present a sharp contrast. Alfalfa is a profitable year-round crop, that pays good returns to all factors; irrigated wheat, by contrast, lacks comparative advantage, even under optlmistic assumptions at the margin. It is unlikely that research, extension or any form of promotion would be able to change this picture. U:\roy\s.ctor\report\anr*x2.new - 86 - ANhX 2 Page 5 of 5 CROP DRC RETURN/ RETURN/ RETURN/ RETURN/ HA LAND N3 WATER LABOR DAY DOLLAR WATER ( IRRIG. WHEAT ActuaL 2.20 neg 0.68 neg 16 AT ( PotentiaL 1."6 1929 0.94 neg 22 COST C ALFALFA ActuaL 0.86 35499 1.62 83 34 C PotentiaL 0.52 89241 3.18 232 66 WATER AT ( IRRIG. WHEAT ActuaL 2.20 neg 0.68 reg 16 SHADOW C PotentiaL 1."6 1929 0.94 neg 22 PRICE ( ALFALFA ActuaL 0.86 35499 1.62 83 34 ( PotentiaL 0.52 89241 3.18 232 66 C. ameral Policy I-nlicatios General characteristics euerging from the analysis are: i) The existence of significant agronomic and econouic potential, which underlines the importance of well-focused research and extension. The focus should follow the advantages revealed by the analysis. ii) The comparative advantage that Yemen possesses in quite a wide range of crops for import substitution, and in a few cases for export. This is enhanced by stable or declining nominal rural wage rates at a time of substantial devaluation. The long term viability of sany crops is jeopardized by rising water costs - only a handful of crops have viable DRCs once water is shadow priced at its true scarcity value. iii) The positive returns to foreign exchange for a range of crops, which are enhanced at higher levels of productivity, showing that the crops can absorb higher level of inputs. Yemen has interest to improve the supply and distribution of inputs. The crops are profitable enough that they can bear inputs with no subsidy lement. iv) The general alignment of domestic and international prices, except in the case of cotton, where domestic production appears to be significantly undervalued by the monopoly procurement price. m: \roy\sector\report\anrex2. rw REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY MINISTRY OF AGRICULTURE & WATER RESOURCES NUMBERS AND COSTS OF PERMANENT STAFF (JUNE 1091) 1 TIlEe AfI(3 TIZ0 a0s HODIDAH DHAMA AL MAHVWELT ADM (11 LAA4J HADAMAWrT "SYAM IAAWA AL 64044A TOTAL aILARY I AMOUNT f AMOUNT I AMOUNT I AMOUN* T A AMOUNTr AMOUNT 0 A n640420 A TUNT f AMOUNT I AMOUN T A AMOUMT f AMOUNT A AMOWr m 1 2 264,0 - - - - _ _ _ _ - -4.000 VCE-Mh6ErR I 120.00 - - - - - - - - - - - - - - - - - - - - - - 1 a3,e00 A r1 a 244.44 - - - - - _ , - _ _ _ _ 3 s44,s44 101. -o6 7Ms44 0 0 a 0 0°0 0 0 0 0 0 0 0 0 0 0 0 6 o 0.*44 3DIN IECM&TARY o 430,0 - I 7 0 -o - 6 440.0 AMT. UOE UIC a 2XO0O - - - - - 73,20 - - - 4 _ _.2,x 009XAL D0. 317 .6_ 14.000 1 00.000 1 I 4,000 - S I 14.000 22 1,471,440 2 121.400 S U3200 6 341,10 4 204,000 1 70,000 e 4 4,70.,970 TOTL - 45 &21lm2 1 U4.00 I 00.0C I 54.000 0 0 I 14.000 24 3.637.640 2 1l2,400 0 013.200 1 141.0 4 204,000 1 70.00 04 1,o0.071 0D66143040 04 76 4.3$t* 6 3 t4060 I 6,ooo I 0,o000 4 205.200 0 14o 5 .410,052 *5 3.22.440 0 4.127,502 4 4.018,6.6 I2 1.101.704 2 n111.00 476 27.W,010 WUcITrs 40 2,326.264 is 77,20 0 0 0 to 473.4o 1 43.200 so 3,345.42 20 310,00 22 (, 7.r7A 21 1.164.102 11 52s,00 7 67.600 201 13,40.3 T. SPEC 412 17.171.710 n 240,20 15 727.200 3 1,274,400 29 1,320,000 14 51.400 75 3*6105140 4 S3.20.040 02 4,283,312 54 4.367,202 26 1.101,14 1 40.0 32 30,114.077 ITSA2 20.30.30 7: _2,07000U2A n a e 7ato 22 2to 11242,4 42 t 1.2O W ,600 t0. O I e 61.6.an4 3SO 0.140.000 213 O6.30. 174 1,117.277 0 oo,4"I.9 u0 120.30 I,60 70 a o.40o 0 THIR LEEL TEC(SIC,l HEAII 37 l,OIO,10 0 0 1 49.00 a Is5400 0 0 0 0 361 10,779,612 250 11,71U.204 133 7.026,0 167 too T 3.121.004 4 17.00 1.070 SZ421,117 TEC6UMAN0 26 iow.0713 If M302 225,900 33 200.000 0 6 0 0 e0 o.042.01 oo 3,600,540 133 4.000,000 137 *.5,00.2 a3 2,021.30 30 403.760 - 27.26.00 AOOT TCH 264 I3.3,01n00 73 2,133,20 20 0,400 72 2.400.00 13 406.100 12 316.040 72 2,477.00 22 3.400 00o 2.37.0154 22 I3.M2 36 1.34.04 6 126052 014 n9.nt$33 101*4. 420 36,070.421 *7 2.1T,4400 *0 .V274.100 *7 62..Zoo 13 406,400 12 316.10 _# 231.0.667 MO 6,o04,742 3 4,401131 32 14.424,130 7.03.083 17 701,040 2.771. OU1r4TH LEVEL CPAAFT1AN HEMD 7n 1.73.200 Is 0,0 30 240.40 17 460600 1 120.400 6 131,400 3 12,720,464 271 1,201,120 332 6.9544.5 706 26,01.340 26 1.11.6o I 1 443.60 1,011 73.032. CrAFTSUO o 16,040,505 13 204,400 6 46,400 14 104,600 o 10,000 6 103,Ot 6 200.620 2 100,100 37 1.000I,O 0 24 700.72 55 .1s44.940 0 0 242 0.516,463 T-A. 12 L2,43.746 27 63200 I6 266,0010 31 32400 30 266.400 3 2 2300 M 121,104 30 14,16.= l4 7,60,3 1w 6n,1 n 2,73,30 11 44,540 3,32 11,30,412 LAaO 2 072"400 0 o 4 N,0 32 1,200 0 0 0 0 o 00 o.600.640 II 4,454.52 so I,3.30 123 $5,371,30 36 34,442 2 40.400 442 36,30,30 UNCIaED 2 i30,0o0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 I300o. TOTAL - 40 3,070,400 a 6 4 1,600 32 332,200 0 0 0 0 105 1,660,640 III 4,434.020 10 1,30,0 320 1,171,310 is 026,432 2 ".4,4 40 11,66,30 SO-S .TOTAl. O1,7 9 t 70 2,163630 33 66o 23 I 0000 a 1 2.304 1 t al 423201644 327 24,740 A " 4. 3. M 4140,3 4L 1,10,20 J04 nt , 2 SOURCE: MAWR RECORDS (1) kchudes MIoinisy of Aucufture & Water R ources (MAWR) hOdqularw udts staff also; Sanm Aden were #e MAWR heedquartero for tw Nosihm & Sou8hn Go.emortso reopedvlys barxe unifcain. l OX Ml o- REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY NUMBERS AND COSTS OF MAWR ASSOCIATED STAFF (JUNE 1991) CONTRACT STAFF STAFFING OF PARASTATAL ORGANIZATION PROJECT NAME AMOUNT NUMBERS PUBLIC CORPORATION NUMBERS RIALS Southem Uplands 580,976.0 223 Agricultural Services 112 Central Uplands 621,215.0 232 Marketing Fruits & Vegetables 1,408 Veterinary Services 117,398.0 51 Poultry 826 Construction of Dams 78,582.0 33 Machinery Rental Stations 1,068 Rural Development in Mahweet 125,513.0 48 Horticulture, Coffee & Bee 151,806.0 71 Totals 3,414 Rural Development Ridah 451,379.0 210 Plant Protection & Locust 62,875.0 49 STATE FARMS Uvestock 17,915.0 16 00 Marketing Agri. Products 30,678.0 13 Southem Governorates Forestry Development 101,109.0 45 Aden 51 Seed & Crop Multiplication 133,107.0 46 Lahej 569 Mechanization 34,675.0 13 Abyan 803 Agricultural Statistics 55,993.0 26 Shabwa 71 Information & Documentation 47,524.0 21 Hadramawt 184 Modem Irrigation Systems 18,312.0 9 Sub-Total 1,678 Sanaa Basi & Kharid Dam 44036 19 Northem Governorates 80 TOTAL 2,673,093 1,125 TOTAL ROY 5,172 * No more contract staff were used after June, 1991. Projects in the previously Southern Governorates only had permanent staff. OQ ox _ - - 89 - ANNEX 4 Page 1 of 2 REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY CROP PRODUCTION Agriculture Sector Study -- Preliminary Note QAT SUBSECTOR V Output Estimates o*l 1. Qat has been cultivated in Yemen for five hundred years. Annual production estimates include: total area of qat plants 80,000 ha, total holdings 100,000 (about 33 percent national holdings), total water consumption 0.8 billion m3 (approximately 25 percent of total controlled irrigation area), total harvest 250,000 tons, and total farmgate value of YR10 23 billion. The cultivation and marketing processes for qat provides employment for an estimated 500,000 people (16 percent of total working population). The GDP from qat is estimated at YRls 34 billion (US$1.2 billion at market exchange rate), which is equivalent to 25 percent of total GDP and nearly double the agricultural GDP. Assessment of Oat Cultivation 2. Although qat is an ancient crop in Yemen, dramatic expansion in production area only occurred since 1960, giving a total estimated production area of 80,000ha. It is cultivated as a permanent crop on highland terraces and requires moderate quantities of irrigation water, generally applied by flood or furrow methods, either directly from tubewells or from water tankers. On average, qat is probably "chewed" by 60 percent of the adult population (50 percent of males and 10 percent of females) three or four times each week. 3. There are serious deleterious aspects in the qat sub-sector, i.e., consumption of scarce land and water resources, inducement of renal, pre-natal and other health hazards, intrusion into domestic life, and diversion of family budgets. Conversely, the sub-sector has significant positive factors, i.e., it is the most profitable cash crop, stimulation of employment opportunities and economic activities, provides basis for urban/rural balance and income distribution, thereby helping to maintain rural communities, and promotion of conservation on traditional hillside terraces. I/ For detailed analysis of qat subsector, see Volume II, Annex 3. - 90 - ANNEX 4 Page 2 of 2 4. In the absence of religious intervention or strict government enforcement of controls, qat will continue to be cultivated for the foreseeable future. 5. Given this scenario, the Government should adopt a partnership approach for qat production. This should involve the following: (i) formal registration of qat farms in key production areas and establishment of basic production packages, including specific guidance on water management, promotion of inter-row cultivation of vegetables, fruits or pulses; (ii) adoption and enforcement of volumetric water charges (e.g.,YRlslO/m3/year [**]); and (iii) collection of taxes at point of production (YRLslO/tree/year). 6. This policy would have advantages in: encouraging water conservation, yielding revenues (estimated at YRlsl.75 billion per year at current estimated production levels), and curbing consumption (due to increased prices). [*l Coefficients for production of one hectare of qat are estimated as follows: 1,200 trees/ha, 2 harvests per year Q 3 bundles/tree per harvest, each bundle weighing 0.5kg. Qat value averaged at YRls4O/bundle at farmgate and YRls60/bundle retail. l**] consumption of irrigation water for qat production estimated at 10,000m3/ha/year. m:\roy\sector\report\anx4-qat REPWLIC OF YEMEN AGR IaCLTUtE SECTOR STUDY MINISTRY OF AGRICULTURE AID WATER RESORJCES PRESENT ORGANIZATION CtURT | CUNSLLOS |--------------- mms FMIISTERIAL IWNC LI MI Vll ER MINISTER (3) + AN TYI F OFFICE OF THE MINISTER + | CONTROL AND ASS ISTANT DEPUTY PLANNING AND MONITORING INSPECTION LEGAL AFFAIRS MINISTERS (4) ,~~ELATION~] iNGENERAL DEPARTMIETS PUBL IC RELAT IONS * . *** AUTHORITIESAN . ORGANIZATIONS WATER RESOURCES PLANT PRODUCTION IRRIGATION AND MAINTENSANCE FINANCE AND ADMINISTRATION OF WATER INSTALLATIONS LIVESTOCK RESOURCES FARMMECHNIZTIO AND 4 FETY-N MEAD PERSONNEL AND TRAINING J LAND RECLAMATION FORESTRY AND RANGELANDS IRRIGATION STUDDIES PLANT PROTECTION + Focus for project actions AGRICULTURAL MARIETING * Undersecretary for General Adminis., one Assist. Undersec. and three generat directors. COOPERATIvES AND * Undersec. for Irrigation and Water Resources, RURAL DEVELOPMENT one Assist. Undersec. and 3 general directors. *** Urdersecretary for Plant and Livestock > Production, two Assistant Undersecretaries and seven general directors. INFORMATION o 1AGRIULTURAL STATISTICS IAgriculturaL Research & Five Rurat Devet- AND DOCUMENTATION Extension Authority + opment Agencies - 92 - Annex 6 Page 1 of 1 REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY STRATEGY FOR SUSTAINABLE AGRICULTURAL PRODUCTION VOLUME II - ANNEXES AND STATISTICAL DATA Table of Contents 1. (A) Basic Statistics (B) Financial Analyses for Crops and Livestock Products 2. Comparative Economic Analyses for Crops 3. Qat Production 4. Forestry Resources 5. Trends in Livestock Production 6. The Principal Agricultural Institutions 7. Public Corporations in the Agricultural Sector 8. Agricultural Services 9. Agricultural Marketing 10 Mechanization 11. Environmental Policy and Institutions 12. Land Tenure 13. Human Resources 14. Women in Agriculture 15. Poverty - 93 - ANNEX 7 Page 1 of 1 REPUBLIC OF YEMEN AGRICULTURE SECTOR STUDY List of Selected Documents and Data Available in the Proiect File Background Subsector Studies - PDRY - Towards a National Agricultural Development Program (1990) - YAR - Agriculture Strategy Paper Irrigation Sector Study (North) IDA 1989 - Livestock Sector Studies (North) FAO 1988 (South) - Forestry Sector Study (North) IDA 1989 (Davis) 3 Land & Water Conservation Proj. - Farm Mechanization Study (North) IDA 1989 (Cree) (South) - Agricultural Research - IDA 1989 & 1991 - Extension Services - IDA 1991 (Zjip) - Resource Conservation - IDA 1991 (Varisco) - Women in Development - IDA 1991 (Fouad) - Fertilizer Study (North) - USAID 1988 - Agricultural Production & Pricing - USAID 1988 - Agricultural Export Potential -- IDA 1988 (Sherbini) - Agricultural Training Study -- IDA 1988 (Brewin) - Ministry of Agriculture Structure -- USAID 1986 - Poultry Sector Study -- IDA 1991 IBRD 22546 SI dory NATIONAL RESEARCH AND EiTENSION CENTER (AREA) REPUBLIC OF YEMEN deiMcd bOu~ BOUNDARIES OF AGRICULTURAL DEVELOPMENT REGIONS REPUBLIC OF YEMEN p b / O SELECTED TOWNS AND VILLAGES AGRICULTURE SECTOR - GENERAL FEATURES N A*ONALCAPITAL -8 IB'- + AIRPORTS PORTS I ~~~~~~~~WADIS GOVERNORATE BOUNDARIES SAUDIzj ARABWAH "IIIIIIII'm S_ ' REGIONALDINTERNATIONAL BOUNDAGIES ISOHIYETS IN MILLIMETERS ELEVATIONS IN MFrERS: 2000 200 2100 MrzdeidrJe | ;; s r!w^.tSp! Egoy_tMud Zv Qv«r,ayir 1 AGRICULTURAL AND RURAL DEVELOPMENT t 31-t {ii; Xi_ E 0 , w iD ~~~~~~~~~~~~~~~~~~~AUTHORITY - SANA'A-SAADAH--HAJJAH DRA A y ;7£ sRawdoh \ \ /njibor ~~~~~~~~~~~~~~~~~~~~~6. WADI TUBAN DEVELOPMENT ET1aIA ZADt rh; mrephostwn preporedbyTh WorldEG straff exc/usiw/yfor 7. WADIO7 ABYAN DEVELOPMENT \ I \ ~~~~~~~~~~~~map do not imply, on the port of The World Basnk Group. any judg;ment,=- DJ I B O UTt .v ~~~~~~~on the. legal st,otus of any territory or any endorsement or ocrceptonceoof99.WWDIDHAHRDRAWTWTDADP _Su'- 1 1 I JULY1991 AUTHORITY - SANNA-SAADAH-HJULY 199