Document of The World Bank FOR OFFICIAL USE ONLY Report No. 12274-HA STAFF APPRAISAL REPORT MALAYSIA SECOND RUBBER INDUSTRY SMALLHOLDERS DEVELOPMENT AUTHORITY (RISDA) PROJECT DECEMBER 23, 1993 MICPOGRAPHICS Report No: 12274 MA Type: SAR Agriculture and Natural Resources Operations Division Country Department I East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not othenvise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (As of June 1993) Currency Unit = Ringgit (M$) US$1.00 = M$2.55 M$1.00 = US$0.39 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile 1 hectare (ha) = 2.47 acre (ac) 1 kilogram (kg) - 2.2 pound (lb) 1 metric ton (ton) 1,000 kg = 2,200 lb ABBREVIATIONS AND ACRONYMS CPO - Crude Palm Oil ERR - Economic Rate of Return ESPER - Estet Pekebun Kecil Sdn Bhd FELCRA - Federal Land Consolidation and Rehabilitation Author I.ty FELDA - Federal Land Development Authority ffb - Fresh Fruit Bunches of Oil Palm GOM - Government of Malaysia LITS - Low-Intensity Tapping Systems MAMPU - Malaysian Administration Modernization Planning Unit MARDEC - Malaysian Rubber Development Corporation MIS - Management Information System MRELB - Malaysian Rubber Exchange and Licensing Board NARSCO - National Rubber Smallholders Cooperative PK - Palm Kernel PORIM - Palm Oil Research Institute of Malaysia PORLA - Palm Oil Registration and Licensing Authority RISDA - Rubber Industry Smallholders Development Authority RRIM - Rubber Research Institute of Malaysia GOVERNMENT OF MALAYSIA FISCAL YEAR January 1 - December 31 FOR OMCIL USE ONLY MALAYSA IACOND RUBBKR INDUSTRY SMpLLNOLDERS DEVELOPMENT AUTEORITY IRISDA) PROJECT Loan and Proiect summary Borrow rs Malaysia BeneficLary RISDA Loan Axmounts US$70.0 Million Termss tRepayable in 15 years, including five years of grace at the Bank's standard variable interest rate. Onlendina Terms: Prom %.he Borrower to RISDA: US$69.0 million equivalent as grants and USS1.0 million equivalent onlent at 40 p.a. interest rate, repayable in 25 years, including a 10-year interest-free grace period. Proiect Obiectlj:, The project would build on the overall positive results of RISDA I Project (Ln. 3139-MA) and continue to puraue the objectives of increasing the productivity and efficiency of the rubber smallholder subsector, improving RISDA's institutional effectiveness, and helping develop human resources and the private sector in rural areas. Proiect Description: The three-year project (1994-96) would supports (1) replanting of 90,000 ha of old rubber; maintenance during immaturity of this area and an additional 200,000 ha replanted prior to the project; and rehabilitation of 5,000 ha; (ii) upgrading and maintenance of about 1000 km of agricultural access roads; (iii) extension and smallholder training; (iv) applied research by RRIM; (v) mini-estate development and improvement, mainly through the introduction of low-intensity tapping systems (LITS); (vi) strengthening and restructuring of cooperatives; and (vii) institutional strengthening through further development of computerized MIS; human resource development; and improved monitoring and evaluation. Benefits and Risks: The project would increase the productivity and incomes of about 150,000 rubber smallholders who constitute Malaysia's biggest poverty group. The project would also help raise export earnings, primarily from rubber; broaden popular participation and help develop the rural private sector through strengthening of cooperatives; improve public sector management by increasing RISDA's operational efficLency; and enhance income-earning opportunities of women smallholders and workers through trai:4ing. The main project risk relates to effective introduction of LITS. This labor-saving technology is critical to the long-term viability of the rubber subsector in Malaysia but is new to RISDA and the smallholders. Its successful introduction would, therefore, require closely-supervised and phased implementation. This document has a restricted distribution and may be used by recipients only in the performance of their offcia duties Its contents rosy not otherwise be disclosed without World Bank authorization. - il - Estimated Cost Local Forgn TotJ --------- (U8$ mLllion) - Replanting and Maintenance 150.0 80.8 230.8 Rehabilitation 2.3 1.2 3.5 Infrastructure Dev. and Maintenance 4.0 1.9 S.9 Extension and Smallholder Training 5.3 0.6 5.9 Applied Research (RRIM) 0.8 0.2 1.0 Mini-ENtate Development & Improvement 3.0 0.5 3.5 Strengthening of Cooperatives 0.5 - 0.5 Computerized MIS 0.3 1.0 1.3 Human Resource Development 0.2 0.2 0.4 Monitoring and Evaluation 0.1 - 0.1 DBae Costs 166.5 86.4 252.9 Physical Contingencies - 0.1 0.1 Price Contingencies 0.1 0.1 0.2 Total Proiect Costs 1166, 8. 253.2 rinancina Plan ZERD - 70.0 70.0 Government of Malaysia 84.6 16.6 101.2 Rubber Smallholders VJ 82.0 - 82.0 Total 166.6 86.6 2532 Estimated Disbursements BankY 1994 l99S 1 …$-------------(US$ million)… Annual 0.3 11.7 21.0 32.0 5.0 Cumulatlve 0.3 12.0 33.0 65.0 70.0 Sconomic Rate of Returns 14% Poverty Cateoorvs The project belongs to the Program of Targeted Interventions since the incidence of poverty among the project beneficiaries (42%) is substantially higher than the poverty incidence in all of peninsular Malaysia (14%). Ma2 1BRD 25169 J/ Including taxes and duties of US$O.4 million equivalent. VJ Through replanting cess payments. - iii - MALAYSIA SECOND RIJB2ER INDUSTRY MM.LtHOLDERS DEYELOPMENT AUTHORITY (RISDA) PROJECT Table of Contents race No. LOAN AND PROJECT SUIMMARY . . . . . . . . . . . . . . . . . . . . . I. SECTORAL CONTEXT .. . . . . . . . . . . .1 Agriculture in the Malaysian Economy . . . . . . . . . . . 1 The Tree Crop Sector . . . . . . . . . . . . . . . . . . . 1 Bank Sector Experience and Strategy . . . .. . . . . 3 Rubber Smallholder Subsector . . . . . . . . . . . . . . . 3 II. RUBBER INDUSTRY SMALLHOLDERS DEVELOPMENT AUTHORITY (RISDA) 5 RISDA's Mandate and Organization . . . . . . . . . . . . . 5 Financing . . . . . . . . *. *. *. . * . 9 * .. ...... . . . . 6 Replanting Grant ..... ........... ...... . 7 Syvtems of Replanting ... . . . . . . . ............ . 8 Replanting Performance . ..... ......... ... . 9 Performance of Bank-Financed RISDA operations . . . . . . . 10 Lessons Learned from RISnA I Project . . . . . . . . . . . 10 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . 10 Project Origin . *. . . . . . ...... . . * 10 Rationale for Bank Involvement .. . . . . . . . . . .9 10 Project Objectives . . . .... . . . .. . . .... 11 Detailed Project Description . . . . . . . . . . . . . . 11 Project Costs . . . . . . . . . . . . . . . . . . . 18 Financing .. . . . . . . * . . . . . 19 Procurement .9. .*. ** . . . . . . . . . . . . . . . . . . 20 Disbursement . . . . ..* . . . . . . . . . . . . . . . . . 21 This report is based on the findings of a Bank appraisal mission to Malaysia in June 1993. The mission comprised Messrs. S. Z. Husain (Economist), K. Templeton (Tree Crops Specialist), P. Boyer (Tree Crops Specialist), C. Maguire (Training specialist), V. Raswant (Consultant -- Financial Analyst) and J. M. Eschbach (Consultant -- Tree Crops Specialist). Ms. Yun Sun provided the statistical analysis for the report. Peer reviewers were Messrs. D. Meadows (Tree Crops Specialist), A. Byrne (Financial Analyst) and C. Rees (Ecologist). Mr. C. Madavo (Director, EA1) and Ms. Pamela Cox (Chief, EAIA") also endorsed the project. Nmes. Brenda Phillips and Sandra Ginyard provided secretarial support. - iv - IV. PROJECT ImpLEMNTATION .................. 22 Status of Preparation and Implementation Arrangements . . . 22 Project Coordination and organization . . . . . . . . . . 22 Accounts and Audit . . . . . . . . . . . . . . . . . . . . 23 Monitoring, Evaluation and Reporting . . . . . . . . 23 V. AGRICULTURAL PRODUCTION. MARKETING AND PRICES . . . . . . . 24 Crop Production, Processing and Marketing . . . . . . . . . 24 International and Domestic Market Prospects . . . . . . . . 24 Commodity Prices .. 25 VI. PROJECT BENEFITS AND JUSTIFICATION . . . . . . . . . . . . 25 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 25 Financial Analysis . .. 26 Economic AnaLysis . . . . . . . . . . . . . . . . . . . . . 26 Environmental Effects . . . . . . . . . . . . . . . . . . . 27 Risks . ........... . . . . . . 28 VII. AGREEMENTS REACHED AND RECOMMENDATION . .... . . . . . . 28 TEXT TABLES Table 3.1 Project Cost Summary . . . . . . . . . . . . . . . . . 19 Table 3.2 Procurement Arrangements . . . . . . . . . . . . . . . 21 Table 6.1 Farm Income . . . . . . . . . .. . . . . . . 26 ANNEXES 1. RISDA's Organization Chart .. . . . . . . . . ... . . 31 2. RISDA's Financial Condition. . . . . . ... 33 3. Tax/Subsidy Implications of Replanting Cess/Grants and Export Duties . . . . . . . . . . . . . . 42 4. RISDA's Replanting Program: Achievements and Targets . . 47 5. Breakdown of Grant Payment by Crop . . . . . . . . . . . . 57 PAaN N2o 6. Processing Steps for RISDA's Field Program . . . . . . . 58 6.1 Flow Chart of Processing Steps for Replanting . . . . . . 58 6.2 Flow Chart of Rehabilitation Process . . . . . . . . . S9 7. Rubber Nursery Improvement ......... . ....... .. . . . 60 8. CloneChoiceandLITS .................. . 73 9. Extension lntensification Program . . . . . . . . . o . 76 10. RRIM Research Component ............ . ... 81 11. Introduction of Low-Intensity Rubber Tapping Systems (LITS) . . . . . . . .84 12. RISDA's Mini-Estates in Production: Production and Financial Aspects 90 13. Strengthening/Rationalisation of Cooperatives . . . . . . 106 14. Computerization of RISDA's HIS . . . . . . . . . . . . . . 123 15. Human Resource Development Conmponent . . . ..135 16. Project Cost Tables . . . . . . . . . . . . . . . . . . . 152 17. Financing Plan, Bank Loan Disbursement Categories and Disbursement Schedule 154 18. Supervision Plan: Bank Supervision Mission Schedule . . 157 19. CropYieldProfiles ........... 158 20. Comnodity Prices . . . . . . . . . . * . . *... . . *.. 160 20.1 Derivaticn of Rubb-r Economic Farmgate Prices . . . . . . 160 20.2 Derivation of Oil Palm Economic Farmgate Prices . . . . . . 161 21. Economic Costs and Benefits . . . . . . . . . . . . . . . . 162 22. Supporting Documents Available in Project File . . . . . . 163 M^P IBRD 25169 MALAYSIA SECOND RUBBER INDUSTRY SMALLHOLDERS DFIVELOPMENT AUTHORITY (RISDA) PROJECT I. SECTORAL CONTEXT 4 riculture in the MalayRian EconomV 1.1 Malaysia's agricultural sector continues to play a key role in the economy, although its relative importance is naturally declining as the country proceeds towards industrialization. In 1992, agriculture's share of GDP was 152, down from 24% in 1980. However, the sector still employs 25S of the workforce and contributes 102 to direct export income, while also providing raw materials to other export industries. Malaysia's long-run agricultural growth rate has been high by international standards. During the 1960s and most of the 1970s, the growth in sectoral output at cons ;ant prices averaged 72. This declined to a lower, but still very respectable, 52 during the 1980s as expansion of the land frontier slowed. The sector (including forestry and fisheries) has slowed further in the early 19909, growing rc about 2.62 in 1992. 1.2 About one-third of Peninsular Malaysia and 52 of East Malaysia (5 million ha' are under cultivation, with the remaining area under forest or scrub regrowth. Abc_. 862 of the cultivated area is planted with tree crops, mainly rubber and oil palm. About 1.8 m ha were estimated to be under rubber in 1992. Rubber's share of cropped area has thus declined from 66Z in 1960 to about 362 in 1992. Oil palm has overtaken rubber as the largest crop because of its greater profitability in the last two decades and relative ease of management (though its price prospects are now much less attractive than for rubber). Cocoa has also expanded rapidly from only 2,000 ha in 1960 to 370,000 ha in 1992. Most of the balance of the area under cultivation is devoted to rice, Malaysia's main food crop. Food production jumped as a result of the spread of irrigation and high yield varieties of rice during the 1970s, but has since stabilized. 1.3 The 1990 Household Expenditure Survey estimates the number employed in agriculture to be about 1.84 million. Of the approximately 850,000 households involved, the largest number are rubber smallholders (155,000), followed by paddy farmers (116,000), oil palm growers (1009000) and estate workers (81,000), vith the rest divided among mixed farming and fishing. There &re also large numbers of undocumented immigrant laborers, particularly in the tree crops estate sector. The Tree Crop Sector 1.4 Present Performance. Malaysia's climate and soil conditions provide a strong natural comparative advantage for tree crops. The country has long been the world's largest producer and exporter of oil palm, and, until recently, of rubber, and is one of the major producers of cocoa. In 1992, Malaysia provided 1.22 million tons of the world output of 5.2 million tons of rubber and 6.4 million tons of the total world output of 12.5 million tons of palm oil. Malaysia remains the industry leader for palm oil in terms of area, yields, production, technology and downstream processing. For rubber, this position has changed over the past decade, as decreasing wcorld prices and increasing real labor costs have begun to erode relative profitability. Although Malaysian rubber production has been on a gradual long-term decline, high prices in some years evoke a strong output and a resurgence of interest in replanting. Par from being a sunset industry, indications are that a firming of long run prices, improvements in production and processing technology, and maintenance of high ant consistent quality will ensure that Malaysia remains a major force in the world rubber market. 1.5 Malaysiant tree crop yields are high, both on total planted and mature areas. Overall, yield of rubber is about 760 kg/ha compared with 400-500 kg/ha for Malaysia's two neighbors. By planted areas, the overall yield of oil palm fresh fruit bunches (ffb) averages 18 tons/ha, compared with 9.5 tons/ha for Indonesia and 11.9 tons/ha for Thailand. However, these average figures do not reflect the higher yields of mature plantings: in Malaysia, average yields for mature estate oil palm are about 25 tons ffb/ha, for estate rubber about 1,400 kgiha, and for smallholder rubber about 1,000 kg/ha. Malaysia's yield superiority reflects the good institutional performance of research, extension and marketing based on individual comodity specialization. 1.6 Tree Crop Strateat. Government sector policy aims to ensure the supply of food and agricultural commodities for industry and export, while eradicating rural poverty. The tree crop subsector is seen as the principal vehicle for achieving the non-food objectives. The development strategy has been to provide high quality support services, replanting programs and settlement schemes, as well as to set and regulate product quality standards. The results of strong Government support to institutions serving the tree crop sector have been recognized internationally. Of note is the Rubber Research Institute of Malaysia (RRIMh, which has a long history as a world leader in advancing rubber production technology. The Rubber Industry Smallholders Development Authority (RISDA), through a replanting program of 30,000-40,000 ha per annum, has ensured the availability of advanced clones in the smallholder subsector. The Federal Land Development Authority (FELDA) has resettled over 100,000 smallholder families in estate-type schemes planted to rubber, oil palm and other crops to close the gap between smallholder and estate performance levels. As the supply of new land for FELDA schemes has diminished, Government policy has emphasized intensive rehabilitation of existing smallholdings through a group development approach by the Federal Land Consolidation and Rehabilitation Authority (FELCRA), which had developed some 240,300 ha (of tree crops) by the end of 1990. The Second Outline Perspective Plan (1991-2000) confirms that the policy emphasis for the future will continue to be on consolidation and rehabilitation of existing smallholdings, rather than on the settlement of new lands. 1.7 Diversification. Both the private and public sectors are actively involved in crop and product diversification. Rubber is increasingly manufactured into final products before export. Little palm oil is now exported in crude form, and even refined oil is increasingly exported as manufactured products. Government agencies are also involved in the expansion of pepper, pineapple, fruitw and vegetables among smallholders, as well as the increase of small animal production. Strong private sector investment has resulted in high growth rates for poultry, pork, mutton and beef. The Malaysian Agricultural Research and Development Institute (MARDI) concentrates on widening the rauge of - 3 - crops adapted to the local environment and on Improving crop processing technology. Bank Sector Exoerience and Stlategy 1.8 The Bank has consistently supported the Government's growth and income objectives and strategies in the agricultural sector in Malaysia. For the future, the Bank will continue to assist smallholder programs aimed at eliminating pockets of poverty and productivity improvements to help maintain Malaysia's international competitiveness. This assistance will emphasize institutional deve3opment and support for the devolution of management activities to farmer beneficiaries, and the privatization of activities which no longer need to be carried out by the public sector 1.9 To date, the Bank has made 33 loans for agriculture and rural development, amounting to US$1,050.6 million, or nearly 40X of total lending to Malaysia. Within the food crop sector, the most successful was the MUDA I Irrigation Project (Ln. 434-MA) which led to a doubling of croppinj intensity, increased yields and strong institutional development. Within the treecrop sector, seven loans have been made to PELDA to assist implementation of its land settlement schemes. Six of these have been completed, and five Project Performance Audit Reports (PPARS) and an Impact Evaluation Report (IER) by the Operations Evaluation Department (OED) concluded that all these FELDA projects were quite successful in meeting their objectives. Achievements in land development, crop yields, income and economic returns were satisfactory. The Bank has also made four loans for FELCRA-led development, of which three achieved or exceeded targets and were considered successful and sustainable, and the fourth is under implementation. The Bank made one loan to RISDA under the RISDA Project (Ln. 3139-MA), which was satisfactorily completed in 1992 (para. 2.17). Rubber Smallholder Sub-sector 1.10 Characteristics. Rubber production in Malaysia grew rapidly in the sixties and through the mid-seventies. Thereafter, from 1977 to 1985, both production and exports stagnated at about 1.5 million tons annually. However, because of the upturn in world rubber prices, Malaysia's rubber production increased to 1.58 and 1.65 million tons in 1987 and 1988, respectively. Since then the production has declined and was about 1.22 million tons in 1992. Over the past 25 years, there has been a significant change in the relative importance of the large private rubber estate sector vis-a-vis rubber smallholders. The estates' contribution to national Tubber production fell from about 60Z in 1965 to about 292 in 1992, while the contribution of the rubber smallholder sector increased from 40S to about 71X over the same period. 1.11 The rubber smallholder sector is defined to include all holdings up to 40 ha. However, about 612 of smallholders applying to RISDA for replanting grants have farms of less thsn 2 ha, with the majority having holdings of less than 1.2 ha, and own 34X of total land devoted to smallholder rubber; 29% have farms betweea 2 and 4 ha and own 372 of total land; and only 101 have farms over 4 ha and own 29X of total land. The total number of smallholder households which derive their living primarily from rubber is 155,000 (para. 1.3), thus makinc rubber .mallholders the largest group in agriculture. They are also the biggest poverty group in the country, accounting for about one-third of the rural poor. The total area under mmallholder rubber in 1992 was about 1.2 million ha in peninsular Malaysia and about 0.3 million ha in Sabah and Sarawak. The majority of rubber smallholders operate their own farms; however, part-time, seasonal of f- farm jobs and sharecropping are common. 1.12 Institultonal Framework. The Ministry of Primary Industries is the main Federal policy-making body for rubber, oil palm, cocoa and some other exported primary commodities. It also controls technical and regulatory institutions such as the Malaysian Rubber Researeh and Development Board (M BDS), Rubber Research Institute of Malaysia (RRIM), Malaysian Rubber Exchange and Licensing Board (MRELB), Palm Oil Research Institute of Malaysia (PORIM) and Palm Oil Registration and Licensing Authority (PORL). However, the principal implementing institutions in the primary commodities sector viz. RISDA, PELDA and FELCRA are under the Ministry of Rural Development (MRD). 1.13 nlIM. The BRIM, established in 1975, is the largesi research institute in the world devoted to a single crop. The RRIM conducts research ani development on all aspects of natural rubber cultivation, production, processing and product manufacturing. In more recent years, it has given special attention to adaptive agricultural research for the rubber smallholder sector. It has a staff of about 190 research officers and 1,780 support staff, and comprises 17 research, development snd advisory divisions, two experiment stations in Selangor and Johore with a total area of 3,041 ha, and a field station in Pahang of 1,039 ha run as a commercial rubber mini-estate. Funding for the RRIM is provided by a research cess on rubber exports which currently accounts for about 50Z of total budgetary requirements of k$50 million, the shortfall being met by an annual allocation from the Government. With the recent decline In Malaysian rubber production and exports, and the consequent decline in research cess collections, the RRIM is facing financial problems. The RRIM is represented on the RISDA Board of Directors and takes a lead role in RISDA's Transfer of Technology Committee,p which reviews and selects promising innovative technology for adoption by small farmers or group farming systems and arranges for its testing and demonstration by RISDA under RRIM guidance. 1.14 Future Prosnects. Given the present and projected relative prices of rubber and palm oil, the rate of conversion from rubber to oil palm in the estate sector may be slowee. Rubber is generally the crop choice for areas of broken terrain and less fertile soils, and, therefore, is the most appropriate crop for replanting in the northern areas of the Peninsula. It also has the advantages of familiarity for many smallholders and less price volatility than palm oil. Finally, rubber is also more suitable for smallholder marketing than is oil palm, which is a plantation-type crop requiring nearby processing facilities. Malaysiats comparative advantage in rubber ia expected to continue: costs of production are estimated at US$700-750/ton (for RSS 1), compared to the average 1992 world price of US$1,OOO/ton and projected year 2000 and 2005 prices of US$1,231 and 1,220/ton, respectively, in 1993 constant dollars. Labor costs, which account for 60-70X of rubber production costs (compared with about 301 of crude palm oil production costs), would be the major issue for rubber in Malaysia over time. To avoid the possibility that real wage increases may erode Malaysia's competitive edge in rubber in the foreseeable future, utmost emphasis has to be placed on capturing potentially important cost reductions which can be - 5 - realised (e.g. through the adoption of low-intensity tapping systems with stimulation). Government strategy for the rubber subsector, particularly the smallholder subsector served by RISDA, now fully supports this efficiency thrust. 11. RUBBER INDUSTRY SMALHLOLDERS DEVELOPME. AUTHORITY (RISDA) RISDA'S Mandate and Ormanization 2.1 Concerned about the relatively large number of poor rubber smallholders, the Government initiated efforts to improve their socioeconomic status by establishing the Rubber Industry Replanting Board (RlB) in 1952. RIRB assisted rubber producers to replant their low yielding and debilitated trees with higher yielding materials, and through 1972, about 600,000 ha of old rubber had been replanted. Efforts to alleviate poverty among rubber smallholders were intensified by the establishment of RISDA in 1972, which took over the duties sad functions of RIRB beginning January 1, 1973. 2.2 RISDA's mandate is exceptionally broad and it hae undertaken a wide range of activities, which inter alia, have included developmental activities (assistance for replanting, development of mini-estates, extension, infrastructure construction, provision of smallholder credit and admiuistration of input supply schemes); commercial activities (marketing of rubber, rubber processing, and product factories, rubber smokehouses, palm oil processing, and refining mills, planting material nurseries, and oil palm and rubber production on estates); and social activities (cooperative development, scholarships for smallholders' children, nursery schools, hostels, education loans, insurance schemes, etc.). The organizational structure to handle these diverse tasks is complex, including not only RISDA itself, but also subsidiaries and cooperatives. Under the RISDA I Project (Ln. 3139-MA), RISDA'. commercial activities were hived off to subsidiaries, its developmental and social activities narrowed down and focussed on rubber and rubber-related activities, and its cradit activities stopped (except for mini-estate loans). 2.3 Head Office and Field Ortanization and Staffina. Management of RISDA is vested in a Board of Directors appointed by the Minister of Rural Development. The Director General (DC) reports to the Board and has the overall responsibility for implementing policy and for the day-to-day administration. He is supported by two Deputy Director Generals (DDGS) for Operations and Planning and Corporate Services, and 11 State Directors (Annex 1). The responsibility for planning, monitoring, and supervision of RISDA's field programs rests with the State Directors (SDs). Under the RISDA Project, implementation responsibility was transferred to the District Offices, which became Responsibility Centers (currently 60 in number). District Officers reporting to the State Directors are responsible for coordination of field activities through Station Officers, each of whom supervises on average seven to eight Extension Officers. There is thus a four-tier field structure involving 11 State Offices, 60 District Offices, 179 Stations (or one District Office supervising every two Stations), and 1,300 extension staff. As of June 1993, RISDA's total staff strength stood at 4,865, of which 677 (14%) were located in the Head Office and the balance 4,086 in the field and 102 in the subsidiaries. 2.4 Subsidiaries. RISDA has three subsidiaries, the most important being Estet Pekebun KRcil Sdn Bhd (ESPEK). ESPEK is a management company, managing plantations and planting material production on RISDA's behalf. The plantations generate about M$40 million in profits annually. 2.5 Co"oeratives. Having initiated 64 smallholder District level cooperatives, RISDA maintains very close operational linkages with the apex body to the cooperatives - the National Rubber Smallholders Cooperative (NARSCO), which reports to the Department of Cooperatives under the Ministry of Land and Cooperative Development. NARSCO, though technically not a subsidiary of RISDA, is very closely aligned with it: RISDA is a shareholder of NARSCO; the Director General of RISDA is the Chairman of NARSCO's Board of Directors; and the Deputy Director General, Planning and Corporate Services, of RISDA is NARSCO's Managing Director. NARSCO's activities are diverse. While NARSCO is engaged in input supply and marketing, its subsidiaries are engaged in real estate development, insurance and travel, and rubber glove manufacturing. RISDA's rubber purchasing activities and operation of rubber smokehouses were transferred to NARSCO in 1990. Financing 2.6 RISDA's sources of funds include a rubber replanting cess, accounting for about 50% of all replanting expenditures, and direct government budgetary allocations. The cess of M$99/ton (and also a research cess of M$38.50/ton) is levied on all rubber exports. In 1992, replanting cess collections were about M$89 million. Of these, about M$20 million were to be refunded to the estate sector, leaving about N$70 million for replanting by smallholders. Government grants covered the remaining 50% of replanting grants and the full cost of RISDA's agricultural inputs program, rehabilitation, smallholder development center, infrastructure development, extension, vehicles and equipment and RISDA's administrative costs. Government loans to RISDA, at 4% p.a. interest for 25 years including a 10-year interest-free grace period, cover supplementary mini-estate development costs and mini-estate housing schemes. Government budgetary allocation for RISDA's development program was about M$162 million in 1993 (excluding expected cess collection) and for the operating budget about M$80 million. RISDA's financial condition is discussed in detail at Annex 2 and the financing of RISDA's operating budget in para. 3.25. 2.7 Since the present value of the replanting cess paid over the productive life of trees exceeds the present value of the replanting grant (Annex 3), theoretically there should be no need for Government contributions and ;-he cess fund should be self-financing. However, the cess fund was established in 1952 when significant rubber areas already needed replanting, although no cess had previously been paid. Therefore, initial funds were contributed by the Government. By 1977, RISDA had achieved a highly liquid positions 802 more was collected from the replanting cess than was paid to rubber producers for replanting. But RISDA's subsequent investments in a variety of undertakings and loans to smallholders (which were mostly not repaid) in late 1970s and early 1980s resulted in deficits which had to be covered by Treasury subventions. At about the same time, the Government decided to increase the replanting rate to eliminate the backlog of areas never replanted, and this also increased the extent of RISDA's operating deficit. The annual replanting rate increased from - 7 - an average 20,000 ha in the late 19709 to about I1,000 ha over 1981-88 and further to 40,000 ha p.a. over 1990-92. 2.8 As of end-1992, there were about 355,000 ha of registered smallholder rubber which had never been replanted. In addition, 255,000 ha were ready for second and third-round replanting. An acceleration of the replanting rate to about 40,000 ha p.a., with provision for up to 30,000 ha p.a. for first-round replanting and the balance for second and third-round replanting, should enable the backlog of never replanted areas, for which the owners may still maintain an interest in rubber production, to be cleared by year 2009 (Annex 4). However, since rubber exports are projected to grow to only about 1.5 million tons by year 2000 (compared with 1.1 million tons in 1991) and assuming that the replanting cess rate remains at its present level, the replanting cess collections would be inadequate to cover 40,000 ha p.a., or even the lower 30,000 ha p.a. assumed for the RISDA II Project (para. 3.4(a)). The current replanting program would, therefore, necessitate continued Government contributions early into the next century. Reglantina Grant 2.9 The system of replanting grants, funded by a replanting cess levied on all exported rubber (para. 2.6), was established to ensure replanting of old and low yielding rubber and thereby the continual rejuvenation of the industry. Smallholder areas are eligible for the grant at a frequency of not less than 20 years, provided they are registered as rubber growing areas. The grant may be utilized for replanting old rubber, either with rubber or any of 18 other crops (Annex 5), among which oil palm is the most popular alternative. As they no longer pay cesses, farmers choosing crops other than rubber lose the r_..ght to future replanting grants and RISDA services three to four years after planting vhen grant payments for those crops are completed. 2.10 The grant is paid in installments of both cash and kind over the development period of the crop (7-8 years for rubber, 4 years for oil palm and 4-5 years for other crops). The grant finances the average estimated costs of the standard agricultural inputs over the immature period of the crop and A part of the imputed labor costs. Currently the value of the grant for replantb up to 4 ha i8 M$6,l78/ha for rubber and M$4,448/ha for oil palm and other crops, reflecting the considerably shorter imaturity period of the latter. Details are given at Annex 5. There are 17 defined processing steps prior to the first grant payment. A flow chart is given at Annex 6. Installment payments depend initially on the stage reached in land preparation and planting. and later on the stage of growth of the crop, each stage being subject to coniLrmation by RISDA field inspectors and their report of a satisfactory standard of field conditions, particularly in respect to the maintenance of the crop. 2.11 The replanting cess/grants system has worked well in Malaysia over the years compared to other countries, which have relied on alternative approaches to financing of replanting programs from general Government revenues or by credit. It has played a significant role in ensuring replanting of large areas of old rubber (para. 2.14), in improving smallholder productivity (para. 2.15) and in alleviating poverty in the smallholder sector. A significant feature of the Malaysian system is the choice available to farmers to replant old rubber - 8 - with any of the 19 eligible crops, subject to agro-climatic suitability. The resulting crop mix has, therefore, been responsive to market signals (para. 2.14 and Annex 4). Another important point to note is that the system results in full cost recovery over the productive life of trees (about 25 years) since the present value of payments of replanting cess and rubber export duties exceeds the present value of the replanting "grant" (Annex 3). Systems of Replantina 2.12 RISDA's smallholder replanting program for old and low yielding rubber is implemented through several different systems of land development, which are distinguished by the degree of RISDA's involvement in implementation and management at the development and production stages: (a) individual replanting; (b) simultaneous replanting; (c) group replanting; and (d) mini-estates. Individual reylanting was the only system operating until 1973, but has accounted for about 502 of RISDA's annual replanting in recent years. Individual owners approved by RUSDA for a replanting grant take full responsibility for implementation of their replanting. The simultaneous revlanting system was introduced in 1986 and was about 152 of total RISDA replantings in 1992. The system was developed by RISDA to increase the efficiency of replanting operations through better programming of RISDA field staff. Simultaneous replanting involves organizing farmers on scattered holdings into groups which follow the same replanting schedule under RISDA guidance. RISDA arranges the contracting of all land preparation and the schedules and implementation of subsequent works covering the initial six months of maintenance after planting, as well as the delivery of inputs, as an integrated operation for all participating farmers in the scheme, thereby achieving benefits of scale for them. Once the planting contract has been completed, including the first six months of field maintenance after planting, the group participants assume responsibility for all further maintenance and other work in their holdings throughout the crop immaturity period. Group renlantina was the first type of group operation introduced (in 1973) by RISDA into the smallholder sector. This system accounted for about 352 of total replantings in 1992. This replanting is by a group of farmers on contiguous land of at least 20 ha with RISDA taking responsibility for implementation of the first two years of land development through contractual arrangements on behalf of farmers. (For replanting by FELDA and FELCRA, which is included in the group replanting category, RISDA only makes the grants available and has no implementation role). Afterwards, RISDA withdraws from further direct management of the field works and encourages members to continue functioning as a group. RISDA, however, closely supervises the standards and timing of work for the remainder of the immaturity period. Like simultaneous replanting, this system facilitates more concentrated RISDA extension services. 2.13 Mini-estates. Mini-estates, the most organized of the RISDA group farming systems, were developed to bring the benefits of estate-type technology and management to smallholders through the formation of large centrally-managed units of production. Mini-estates were initiated by RISDA in 1979, and some 391 units with an area of about 41,800 ha (33,000 ha of rubber and 8,800 ha of oil palm) had been developed through 1992. Of these, 269 (30,240 ha) were in production. In this system, farmers agree to combine, for operational purposes, contiguous or near contiguous lots of land, scheduled for replanting, into a single and integrated estate unit under direct RISDA management. The minimum - 9 - size of estate at formation is 20 ha - the average size of existing mini-estates is about 107 ha. RISDA organizes and assures the operation of each mini-estate entity through the transfer in trust of the individual land titles to RISDA (title caveats) for the period of land development and for such further period as necessary for recovery of development expenditures over and above the replanting grant entitlement of the participants. Unlike participants of other replanting systems, mini-estate participants are given loans by RISDA for supplementary development costs to cover terracing, drainage, development of vacant pocket areas, internal roads and perimeter fencing. Recognizing some of the problems in mini-estate development and operation (para. 2.15), RISDA decided in February 1989 that its main emphasis will be on group and simultaneous replanting and only in areas where these replanting systems are not feasible will the mini-estate approach be adopted. As a result, no new mini-estates have been developed over the last two years. Improvement of the viability of existing mini-estates would be a major thrust of the project (para. 3.14). Rellantina Performance 2.14 Since the inception of the cess-funded rubber replanting program in 1952, some 1.16 million ha of old smallholder rubber have been replanted (Annex 4), of which about 934,000 ha was first time replanting, representing about 70S of the total registered smallholder rubber aroa in the Peninsula. Most of the balance is second round replanting. The annual replanting rate has varied from 10,000 ha to 46,000 ha, subject mainly to rubber price fluctuations. Rubber has accounted for about 77% of all replantings since the inception of the program compared to about 121 for oil palm and 11% for other crops, mostly fruits (non-citrus). Annual proportions have varied considerably in response to market signals (Annex 4). 2.15 Replanting of old low-yielding rubber with improved clones and better production technology has helped raise the average yields in the smallholder sector (in peninsular Malaysia) to about 1,000 kglha in 1992, compared to the 400-500 kg/ha for unimproved smallholder rubber. However, there is little systematic data on the relative efficiency of RISDA's various replanting systems. Available information about mini-estates suggests that their performance has been rather mixed. Some mini-estates show yield averages for both rubber and oil palm much below expectations. On the other hand, there are individual mini-estates with good yield performance more in line with estate-organized production. Although a number of possible factors related to management could help explain the cases of unsatisfactory mini-estates, the most serious problem is that of incomplete and protracted establisbment of the crop at planting, leading to a low percentage of producing trees in the early production years. The development cost of mini-estates is high, averaging M$10,000/ha for rubber and M$7,000/ha for oil palm for those rubber and oil palm mini-estates which entered into production by the end of 1992. These costs are significantly above those estimated for the other replanting systems and above replanting grants of M$6,178/ha for rubber and M$4,448/ha for oil palm. High costs are partly the result of intensive inputs including terracing, fencing and roads, and partly that of above average planting losses requiring repeated supply plantings. In view of the above factors, RISDA decided to de-emphasize mini-estates (para. 2.13). - 10 - Performance of Bank-Financed RISDA Ooerationc 2.16 In addition to the free-standing RISDA Project (Ln. 3139-NA), the Bank has financed RISDA components under four area agricultural development projects coordinated by other Government agencies (starting from 1980 and expected to continue through 1994): Kelantan Land Schemes Rehabilitation (Ln. 1899-MA), Malacca Agricultural Development (Ln. 2A47-MA), Kedah Valley Agricultural Development (Ln. 2220-MA) and Second Western Johor Agricultural Development (Ln. 2740-MA). Project completion reports (PCRs) have been issued for three of the above projects with RISDA components: Kelantan, Malacca and Kedah Valley. The PCRs point to satisfactory performance of RISDA. Lessons Learned rrom RISDA I ztoiect 2.17 The RISDA I project, for which a Bank loan of US$71 million was approved on December 12, 1989, was satisfactorily completed in December 1992. The replanting target of about 40,000 ha p.a. was met. Marketing and processing activities of RISDA were divested and institutional development initiated. A significant achievement of the project with respect to the women-in-development (WID) component was the development of a gender-specific database and an almost doubling of the number of women smallholders trained from about 19% of the total trainees in the pre-project year (1989) to about 32% in 1992. The only project component which could not be implemented successfully was that for transforming the 64 district cooperatives formed by RISDA into self-financing entities. Only 36 cooperatives had become self-financing by end 1992. The economic rate of return of the project is provisionally estimated at about 12%. The following important lessons learned from the project have been incorporated in the design of the Phase II project: (a) development of cooperatives is a complicated process and needs more focussed attention; and (b) RISDA needs more intensive support for the improvement of mini-estate management and the development of the computerized MIS. TII. THE PROJECT Proiect Oriain 3.1 The Government and the Bank began discussions on the Phase II project in 1992, the last year of the RISDA I Project (Ln. 3139-MA). RISDA prepared a draft project proposal which was briefly reviewed by a Bank mission in May 1992. The first Bank preparation mission visited Malaysia in September/October 1992. Appraisal took place in June 1993. Rationale for Bank Involvement 3.2 The project would be consistent with the Bank's agricultural sector lending strategy for Malaysia which emphasizes reduction in rural poverty by raising smallholder productivity and incomes, institutional improvements, development of human resources and the private sector in rural areas, nd progressive privatization of schemes and activities handled by agricultural parastatals. There is a need for continued Bank involvement with RISDA to address some of the problems in the rubber smallholder subsector, including shortage and high cost of labor, availability of high-quality planting materials, - 11 - development of cooperatives, and improvement of mini-estate management. A follow-on project can help address the above problems and continue the institutional development process initiated under RISDA I. For the first time since the Bank started lending for the agricultural sector in Malaysia, the Bank can help implement a reorientation of rubber research in the country through the proposed Rubber Research Institute of Malaysia (RRIM) component for clonal reevaluation (para. 3.13). Moreover, after having introduced low-intensity rubber tappl.ng technology on FELCRA schemes (para. 3.15), the Bank is in a unique position to widen this technological change through RISDA and benefit hundreds of thousands of rubber smallholders in the long term. Prolect Objectives 3.3 Building on the overall positive results of RISDA I Project (Ln. 3139- MA), the Phase II project would continue to pursue the objectives of increasing the productivity and efficiency of the rubber smallholder subsector, improving RISDA's institutional effectiveness, and helping develop human resources and the private sector in rural areas. Detailed Proiect DescriDtion 3.4 The three-year project (1994-1996) would cover the entire peninsular Malaysia and would have the following components: (a) cron development (934 of project costs): replanting of about 90,000 ha of old rubber with rubber and other crops, and improvements in rubber nursery operationsa maintenance during immaturity of areas to be replanted under the project and an additional 200,000 ha replanted prior to the project; and rehabilitation of about 5,000 ha of young replanted areas; (b) infrastructure development (2% of project costs); upgrading and maintenance of about 1000 km of agricultural access roads; (c) extension and smallholder training (2% of project costs): reorientation and strengthening of extension and smallholder training programs, with continued emphasis on training of women smallholders and workers; (d) applied research (0.4% of project costs): mainly a clonal reevaluation by the RRIM to test the responsiveness of its various clones to stimulation with low-intensity tapping systems (LITS); (e) mini-estate develot .t and improvement (1.4% of project costs): increased viability mini-estates through the introduction of LITS, transfer of management mainly to cooperatives, expanded tappers' training, and Improvement of data base and the monitoring system for mini-estates; (f) strenathenina and restructuring of RISDA cooperatives (0.2% of project costs): implementation of a rationalization/restructuring plan for - 12 - cooperatives and provision of technical assistance and training for plan implementation; and (g) institutional develoiment (1% of project costs)t further development of RISDA's computerized MII8 a reoriented human resource development program for RISDA; and support for monitoring and evaluation (M&X) activities. Crol Develotment 3.5 Reolantino. The project would support replanting of about 90,000 ha of ole rubber over the project period. This target includes cess-financed replantings by FELDA and FELCRA (about 15,000-18,000 ha). This target is considered feasible on the basis of demand for replanting from farmers as well as RISDA's implementation capacity. Based on recent experience, replanting is expected to be approximately 80% with rubber, 12% with oil palm and 8% with other crops. Crop choice would continue to be the prerogative of the replanters, except in cases where such choices are agroclimatically unsuitable, and RISDA would recommend alternative choices in these cases. Assurances to this effect were obtained at neaotiations. In line with current Bank policy, development costs of any cocoa planting chosen by smallholders would not be eligible for reimbursement. However, cocoa plantings have been virtually nil in the last two years (Annex 4, Table 5) and are expected to remain so during the project period due to unfavorable price prospects. 3.6 Rubber Nursery Improvement. To ensure provision of quality planting material to the smallholder replanters, the project would provide for the supervision and training costs of rubber nursery improvement. The current arrangement whereby planting material is produced on cooperative nurseries scattered throughout the country has made it extremely difficult to ensure high quality (quality being defined not only in terms of clonal integrity but also vigor and uniformity of the plants ensured through culling of slower-growing and other undesirable plants at each stage of preparation). RISDA management subsidiary, ESPEK, is currently responsible for the quantitative and qualitative aspects of planting material supply but has faced problems in ensuring proper supervision and quality control of nurseries not located on its 7 existing central sites (approximately 60% of rubber planting material production is currently outside the 7 central nurseries). Quality nursery production requires high-level technical skills and management, which are more easily provided on large production units. The project would initiate a program for rubber nursery improvement (details are at Annex 7) including, inter alia, refresher training courses in planting material production and management to be conducted by RRIM for MSPEK, RISDA and cooperatives nursery staff. Training of a cadre of seed inspectors would also be provided. The followinG agreements were obtained at neotiations: (a) The rubber planting material production by RISDA or its subsidiary ESPEK would be confined to about 15 sites. cooperatives would still get contracts from ESPEX for planting material production but the nurseries would be under ESPEK supervision and control. Since nursery contracts to 28 cooperatives have already been given for the 1994 planting season in line with normal practice, the reduction in nursery - 13 - sites to about 15 would be implemented for the 1995 planting season, that in, from 1994. Thereafter, the number of nursery sites would be agreed with the Bank. (b) To ensure the highest-quality planting material production on about 15 nursery sites, RRIM (o- another institution acceptable to the Bank) would agree with RISDA under a contractual arrangement to carry out an asseement of performance at each critical stage of planting material preparation. The reports produced by the MRIM (or another institution) after each visit to the nurseries would be sent to ESPEK and RISDA, with copies to the Bank, Ministry of Rural Development and any other interested Government agencies. The contractual arrangements between RISDA and MRIM (or another institution) would incorporate the guidelines shown at Annex 7. (c) Since ESPE$ has the responsibility for planting material production, it would have the authority to take appropriate action should the cooperatives fail to comply with ESPEX's standards for nursery management. ESPEK's incremental costs foL' enhanced supervision would be met by increasing its own share of planting material production to about 20% (cooperatives getting 80% of the contracts). (d) Since the improved nursery arrangements, particularly more rigorous culling of low-quality material, may lead to increased cost of production, the cost-price relationship for rubber planting material would be kept under review by the Government and RISDA and price adjustments would be made, if and when required. 3.7 Clonal Composition. The clonal composition of RISDA's replanting program would be reoriented under the project. First, RISDA's regular replanting program would be with Class I and II clones only, with the percentage of Class 1_ clones not more tha7a that recommended by RRIM from time to time (currently 50%). Class III clones would be recommended by RISDA for use by smallholders only under RRIM and RISDA supervision and control, as these clones are still in the experimental and observation stage. Second, since the need for the introduction of LITS (see para. 3.15 for details) as a means to overcome the growing shortage of tappers has already been recognized by RISDA, RISDA would reorient its replanting program beginning with the 1996 plantings and increasingly use clones which are known to be responsive to stimulation with LITS, as determined by MRIM and satisfactory to the Bank. Only nine clones are at present in this category (details are at Annex 8) while further information on clonal responses to stimulation with LITS would be generated over the next few years through the tapping trials included in the research component (para. 3.13). It is possible that some smallholders will choose clones which are not or not yet known to be responsive to stimulation with LITS. In this case, RISDA would explain to the smallholders the risk that these clones may be unhelpful to them in case of labor shortage. RISDA would attempt to keep the use of these clones not yet tested for responsiveness to stimulation with LITS to less than 20% of its replanting of rubber with rubber. Aareements on the above clonal 1olicv were obtained at neaotiationg. - 14 - 3.8 Crol Maintenance. The project would support crop maintenance of all existing smallholder replant areas (excluding cocoa) on which grant installments would be paid during the project period. Total area under maintenance would change yearly as the earlier planted areas mature and would range from 202,280 ha in 1994 to 198,800 ha in 1996. 3.9 Rehabilitation. The project would provide rehabilitation assistance for failed replantings or those with unsatisfactory field conditions due to events outside the control of farmers (e.g., natural disasters like fire, floods, wind damage, etc.), and for which grant payments are deferred within the first two years after planting. The cost of assisted rehabilitation may not exceed the amount of grant paid up to the time of deferment. It is estimated that some 5,000 ha would be rehabilitated during the project period. Infrastructure Development 3.10 The project would provide for upgrading and maintenance of minor agricultural access roads, estimated at about 1000 km, including bridges and drainage works, in support of the replanting program. Under the RISDA I Project, the very low level specifications which were earlier being used for access roads and which often resulted in the roads being unusable after a single rainy season, were generally upgraded to those for agricultural roads (such as those constructed by FELDA). The same specifications would be generally followed under the RISDA It project. Agricultural access roads would be constructed to minimum geometric standards following contour lines. Gravel pavement would be 4.2 m wide and 15 cm thick, for an average of 630 m3 compacted material per km. The road sub-base and gravel surface would be rolled over 3 to 4 times by passing a 6-ton roller. Bridges would be built mostly of timber and cement pipe culverts would also be provided where needed. 30 cm wide ditches would be cut alongside the roads as required. As the condition of existing roads varies, the extent of upgrading required and the costs also vary. However, average cost of upgrading under the RISDA I project ranged from M$10,000 to 13,000/km and is expected to remain at that level under the RISDA II project. For reasons of construction standards, RISDA access roads are not accepted as part of the State network and, therefore, do not qualify for State maintenance funding. To ensure that the access roads remain in operative condition, a specific allocation of about M$1.0 million was added to RISDA's development budget under the RISDA I project for maintenance of roads and other infrastructure constructed by RISDA. This arrangement would continue under the RISDA II project. Extension and Smallholder Trainina 3.11 The project would help reorient and intensify RISDA's extension program for rubber smallholders. The key feature of this extension intensification program is that it devotes about two-thirds of the extension time and budget to mature rubber and thus orients RISDA's extension services for the first time towards increases in productivity of mature rubber (details are at Annex 9). The other notable feature of the program is that for the first time it lays down a target number of rubber farm operators (defined to include active smallholders and/or hired tappers) in mature rubber areas to be reached every year by RISDA's extension program. The initial target is 20,000 operators every year. This target is based on an assessment of RISDA's current capability in the - I5 - field. The target will be adjusted upwards in future .5 experience with the initial target accumulates and as field extension time and capability increase. If the conservative target of 20,000 operators a year is met, RISDA should be able to extend interalia TS technology to 40-50% of omallholder mature rubber areas by the turn of the century. Acreement was obtained at neaotiations that RISDA would reorient its extension services as described above. The extension component would finance equipment and materials for demonstration plots and pilot projects, and expenditures incurred in organizing field workshops, demonstrations and meetings for smallholders. 3.12 Both formal and in-situ training programs for smallholders would be restructured to correspond to the priority extension topics included in the extension intensification program (Annex 9, Tables I and 2). The project would also provide agricultural training for women smallholders and workers. Women as a group make an important input into rubber production in the smnallholder sector and up to 40% of tappers in certain States are women. Under the RISDA I Project (Ln. 3139-MA), RISDA began to record number of trainees by gender at its Training Institutes as well as in the field and met the project target of increasing the number of women trainees to about 30% of the total smallholder trainees in formal and in-situ training courses by the end of 1992. Assurances were obtained at necotiations that this proportion of women trainees would be generally maintained under the project, with fine-tuning of the target according to women's role in rubber in different States and women's needs for different types of training. Amolied Research 3.13 The project would provide for materials, equipment and incremental operating costs for clonal reevaluation by RRIM to test the responsiveness of its various clones to stimulation with LITS; development of physiological/biochemical parameters as early warning indicators of stress in rubber trees under stimulation; a study of nutritional aspects in relation to low-frequency tapping systems; a survey oW the performance of Class II clones on progressive umallholdings; and research on mixed cropping systems using rubber with fruit trees (details are at Annex 10). Mini-Estate Development and Improvement 3.14 The project would provide for supplementary development costs of mini- estates initiated prior to the project and not yet in production (averaglng 4,000 ha p.a. over the project period), and initiate a program to improve the performance of mini-estates in production (about 30,000 ha). The supplementary development costs are over and above the participating smallholders' replanting grant entitlement (para. 2.13). They would be charged to participating smallholders as loans (para. 2.6), which would be repaid to RISDA as the estates come into production. The major initiative to improve the performance of mini- estates in production would be LITS, which is expected to have a significant impact on the financial viability of mini-estates through reduced labor costs and by bringing currently untapped areas into production. Other initiatives include transfer of management of an increasing number of mini-estates mainly to cooperatives, increased tappers' training, database improvement and implementation of an improved monitoring system. - 16 - 3.15 Low-Intensity TaplLna SYvtems (LITS . The project would introduce LITS on all mini-estates facing tapper shortages and reorient RISDA's extenoion program for introduction of LITS to emallholdings in the post-project period (para. 3.11). Compared to the current labor-intensive alternate day tapping (d/2), LITS can reduce labor requirement by 33% with third day tapping (d/3), by 50% with fourth day tapping (d/4), or even more with lower Lntensities of tapping. The feasibility and benefits of LITS have been demonstrated by the results of the pilot program launched by FELCRA in 1991 and supported by the Bank under the Second and Third ?ELCRA projects (Loans 2917-MA and 3484-MA). Ths technique has been successfully used in West Afrlca for about 20 years. 3.16 Experience with LITS in other countries and in Malaysia points inexorably to the need to start carefully with LITS under very controlled conditions. Although the technology is simple in principle, its successful application requires high management inputs, close coordination and monitoring, and high tapping quality. Replication of LITS on a wider scale would, therefore, be done only after experience has been gained in a pilot program on seven selected mini-estates in the firot year. LITS is considered critical for the future viability of the rubber smallholder subsector in Malaysia and, as such, utmost care has to be taken to ensure successful introduction of the system. Annex 11 provides a detailed description of LITS, an action plan for its introduction, names of mini-estates to be included in the pilot phase, and coordination and monitoring requirements. More intensive training is also required for the introduction of LITS and a proposal has been included in the training program for the project. The followina agreements were obtained at (a) The coordinator for LITS already appointed at RISDA head&uaf:ers would be full-time, with full authority on the technical aspects of the program, assisted in every State by a full-time field officer, responsible for the coordination and monitorLng of the program in the State. Since the introduction of LITS is now part of RISDA's long- term extension program, the Extension Division would continue to have the overall responsibility for this program, even while it was being implemented only on mini-estates; (b) A phased program satisfactory to the Bank would be followed for the introduction of LITS (Annex 11, para. 2); and (c) Appropriate allocations in RISDA's operating budget would be made for the operating expenses of the LITS program and for LITS training. 3.17 Transfer of Mini-Estate Manaaement. The project would help transfer mini-estate management, mainly to cooperatives, by assisting development of the management capability of cooperatives (para 3.19). Two mini-estates have so far been transferred to ESPEK and one to a cooperative for management. About 50 mini-estates are expected to pay off their debts by 1996, the end of the project period. This group and some other mini-estates would be considered prime candidates for transfer of management from RISDA, particularly to cooperatives. - 17 - 3.18 Other Initiatives. Other initiatives to improve the performance of mini-estates would include increased tappers' training (para. 3.21), database improvement and implementation of an enhanced monitoring system. The database improvement is particularly required since many mini-estates are shown to have huge operating losses and it la not clear why such huge operating losses are being incurred (Annex 12). Agreement was_ obtained at negotiations that by the end of 1994 RISDA would develop a consistent, reliable set of data on mini- estates and implement an improved monitoring system for mini-estate performance with respect to production, dividend payments, debts and debt repayment, etc. Strenothening and Rationalization of Cooperatives 3.19 Thw project would strengthen cooperatives by helping implement a rationalization/restructuring plan, and by providing training for cooperative staff and Board members and technical assistance (details are at Annex 13). The rationalization plan is based on the principle of specializations about 15 cooperatives would specialize in nursery management, 11 in input supply and 38 in infrastructure works (including land development contracts for group replantings) to generate a minimum of Z$50,000 in net profits per cooperative annually. Assurances were obtained At neaotiations that the draft plan (Annex 13) would be refined and discussed further by RISDA and NARSCO with the cooperatives and implementation of a firm action plan would commence by July 31, 1994. Technical assistance (about 24 person-months) and training has been included in the project in support of the rationalization plan. Draft terms of reference for technical assistance are at Annex 13, Appendix 1. lnstitutional De-veloprent 3.20 Comouterized MIS. The project would support further development of RISDA's computerized MIS initiated under RISDA I project by providing hardware and software, training and consultancy. A phased program for the development and implementation of various modules has already been drawn up by the Information Technology Unit (ITU) of RISDA. Most modules would be operational by early 1994 Annex 14) and would provide the basis for a significant improvement in RI8DA's institutional efficiency. Consultant services (about 12 person-months) would be employed for specific tasks from time to time, as the need arises. It is anticipated that the following applications would require consultant supports (a) smallholders information systems on personal computers with local area network (4 person-months); (b) financial application for cost centers (4 person- months); (c) communications (1 person-month); (d) graphical interface programming (1 person-month)i and (e) geographic information system (2 person-months). specific terms of reference would be drafted by the ITU for Bank review before consultants are hired. 3.21 Human Resource Develongent. The project would support three major new thrusts in training: (i) training of ESPEK, RISDA and cooperative staff in improved nursery techniques and management, to be done in collaboration with RRIM (para. 3.6(c)); (ii) training of a large number of staff in LITS (para. 3.16); and (iii) a comprehensive training program for cooperative staff and Board members (para. 3.19). In addition, the training in infrastructure upgrading an'. maintenance, improved communication skills of extension staff, and improve* training management at the State level, initiated under RISDA I project, would~ - 18 - be continued; computer training would remain a high priority; and tapping training would be increased. The women-in-development (WID) component initiated under RISDA I Project would be maintained under RISDA II (para. 3.12). The project would also provide equipment and materials and technical assistance (about 18 person-months locally hired) to develop and institutionalize a human resource management system in RISDA and to strengthen the graphics capability of its communication unit. Draft terms of reference for consultants are at Annex 15, para. 26. The management of training in RISDA would be improved by the provision of a modular In-house Training Management course for six Training Unit staff and four Directors of Training Institutes. In addition to the technical assistance, overseas training for staff, smallholder training, and training equipment and materials included in project costs (Annex 15), the incremental costs of local training for staff amounting to about M$l.5 million over 1994-96 (including training for nursery ataff, LITS, infrastructure, communications skills, etc.) would be met from RISDA's operating budget. 3.22 Monitoring and Evaluation. The project would provide for 8 person- months of consultancy (locally hired) for monitoring and evaluation (Man), specifically for a study of the agricultural performance of RISDA's replanting and extension programs in immature rubber areas in terms of tree girting rate, tree survival rate for the first two years after planting, time elapsed from planting to first harvesting, etc. under different replanting systems (individual, simultaneous, group and mini-estates). This study will be based on the data generated from the computerized modules currently being developed (see further para. 4.6) and will include all responsibility centers. Assurances were obtained at necotiations that detailed terms of reference for the study would be drafted by RISDA for Bank review by end-September 1994 taking into account the quality of data and coverage of the computerized modules and that the study would be completed by July 31, 1995. Project Costs 3.23 Total project costo over 1994-96 amount to M$645.9 million (US$253.2 million), including a foreign exchange component of M$221.1 million (US$86.6 million) equivalent to about 34% of total costs. Identifiable taxes and duties amount to M$l.1 million (US$0.4 million). Base costs were estimated using 1993 prices. Physical contingencies of 10% were included for equipment only. Price contingencies at 2.8% p.a. for foreign costs and 4.5% p.a. for local costs were included for equipment, applied research and technical assistance. Contingencies for other items were not included since, in the case of replanting and maintenance, grant rates are fixed and not expected to change during the project period, and in other cases, expenditures are small, will be undertaken only when needed, and will be limited by the budget. Project costs exclude RISDAs annual operating budget, which covers salaries, supplies, travel, local training for staff, etc. (para. 3.25 and Annex 2, Table 4). Project costs are detailed at Annex 16 and summarized in Table 3.1 below: - 19 - Table 3.1: PROJECT COST SUMMARY Local Foreign Total Local Foreign Total X X Copnent (..MS million)--- .. -----US* million)--- Foreign Base Replanting & Maintenance 382.7 206.1 588.8 150.0 80.8 230.8 35 91.3 Rehabilitation 5.8 3.2 9.0 2.3 1.2 3.5 35 1.4 Infrastructure 10.0 5.0 15.0 4.0 1.9 5.9 33 2.3 Ext. & SmalIholder Training 13.5 1.5 15.0 5.3 0.6 S.9 10 2.3 Applied Research 2.1 0.5 2.6 0.8 0.2 1.0 20 0.4 Nini-Estate Development 7.6 1.4 9.0 3.0 0.5 3.5 15 1.4 and lIprovement Strengthening of Cooperatives 1.2 - 1.2 0.5 O.S 3 0.2 Computerized IS 0.8 2.4 3.2 0.3 1.0 1.3 74 0.5 Humn Resource Development 0.5 0.5 1.0 0.2 0.2 0.4 51 0.2 Monitoring and Evaluation 0.2 - 0.2 0.1 - 0.1 - - TotalE ase Costs 624. 220.6 64.AQ 166.5 86.4 252.9 a 100 Physical Contingencies 0.1 0.3 0.4 - 0.1 0.1 80 Price Contingencies 0.3 0.2 0.5 0.1 0.1 0.2 30 Totat Project Costs la 424.8 221.1 645.9 166.6 fl.4 253.2 34 La Includes taxes and duties estimated at USS0.4 million equivalent. Financina 3.24 The proposed Bank loan of US$70.0 million to the Government of Malaysia (GON) would finance 812 of the estimated foreign exchange component and about 28X of total project costs, exclusive of taxes and duties. The Bank loan amount was determined on i1a basis of the Government request. The GOM would contribute US$101.2 million equivalent through annual development budget allocations to RISDA. The contribution of rubber smallholders through replanting ooes payments would be US$82.0 million equivalent. The financing plan is shown at Annex 17, Table 1. Transfer of Bank loan proceeds to RISDA would be on the same terms and conditions as currently followed by the Government (para. 2.6) and consistent with arrangements under the RISDA I Project (Ln. 3139-MA). 3.25 The current Government policy of increasing self-financing of parastatals has resulted in severe cuts in the budgets of agricultural parastatals, including RISDA, for which the earlier approved 1993 operating budget of M$80 million was about 202 less than the 1992 budget of M$102 million (Annex 2, Table 4). This budget would not have covered even RISDA's personnel costs. RISDA has been drawing on sources other than Government grants to meet its operating expenses (Annex 2, paras. 8-9). However, this is not a satisfactory situation since, on the one hand, it has eroded budgetary control and, on the other, it has reduced funds available for replanting. RISDA's 1993 operating budget was subsequently increased to H$101.8 million. Since problems with the operating budget could seriously affect RISDA's ability to carry out its development activities during the project periodt, assurances were obtained at negotiations that, beginning with the 1994 budget, the Government would provide adequate financing of RISDA's operating budget. - 20 - Procurement 3.26 Works. Works for replanting, maintenance, and rehabilitation, amounting to some US$163.4 million equivalent would be undertaken by the beneficiaries themselves. RISDA has established procedures for selection of beneficiaries, processing of grant payments, and monitoring of work performed (para. 2.10, and Annexes 6.1 and 6.2). Works for agricultural roads, bridges and drains, at an estimated U$2.0 million equivalent, would be procured through local competitive bidding (LCB) procedures which have been reviewed by the Bank and are considered acceptable. These contracts, all relatively small, geographically widely dispersed and scattered in time over the project period, would be of little interest to foreign bidders who would, however, be eligible to compete. Agricultural works for mln-estates (non-major maintenance works during crop immaturity costing less than US$20,000) totalling about US$3.5 million equivalent and non-major works (costing less than US$20,000) for agricultural roads, bridges and drains totalling about US$3.9 million equivalent would be procured by limited tendering involving bid invitations from at least five contractors of good standing. 3.27 Goods and Services. Computer equipment (US$1.3 million) would be procured through international competitive bidding (ICB) procedures in accordance with Bank Guidelines. A margin of preference equal to 152 of the c.i.f. bid price of imported goods, or the amount of customs duties and taxes, whichever is less, would be allowed for domestic manufacturers for bid evaluation purposes. Fertilizers (US$49.0 million) and chemicals (US$3.5 million) will not be financed by the Bank since the Government may continue with the current sole-source procurement arrangements for these items. Planting materials valued at about US$17.0 million would be procured from ESPEK and cooperatives through direct contracting, and other inputs and training equipment would be procured through LCB in which foreign suppliers would be eligible to participate. Small tools, Inputs and materials costing less than US$20,000 each and totalling not more than US$1.0 million would be purchased under the prevail'wg procedures of limited tendering involving quotations from at least five suppliers. All goods procurement would be grouped to the extent practicable. Consultant services (US$1.0 million) would be procured according to Bank Guidelines for the Use of Consultants, with terms of reference, qualifications, and contract terms and conditions satisfactory to the Bank. 3.28 Procurement Review. All ICB and single-source consultant contracts, other consultant contracts above US$100,000 equivaleat per contract, any other contract exceeding US$2 million, and all overseas traiuing proposals, would be subject to prior Bank review. Other contracts would be subject to selective post-award review. Procurement rrrangements are summarized in Table 3.2. - 21 - Tabte 3.2: PROCURUEMET ARRANGEtNTS (USS Million) Lr Doj ice LCD Other N.G.F./b Total '- Yorks 1.1 Replanting3 Maintenance - 163.4/c - 163.4 and Rehabilitation - - (56.3) - (56.3) 1.2 Mini-Estate Development - - 3.5/d - 3.5 and laprovement - - (1.2) - (1.2) 1.3 Agr"tultura1 Roads, - 2.0 3.9/d 5.9 Bridges, etc. - (0.7) (1.3) (2.0) 2. Goods 2.1 Coaputer and Training 1.3 0.2 - - 1.5 Equfpment (1.1) (0.1) -- (.2) 2.2 Fertilizers and Other Inputs - - 18.0/e 52.5/f 70.5 - - (6.2) (6.2) 3. Consultancies - - 1.0 1.0 - - (0.9) (0.9) 4. Niscellaneous 4.1 Extension and Training - - 6.3 - 6.3 (2.2) - (2.2) 4.2 Research - - 1.1 1.1 Total 1.3 2.2 196.1 53.6 253.2 (1.1) (0.8) (68.1) - (70.0) Percentage of Procurement 0.5 0.9 77.4 21.2 100.0 La Includes physical and price contingencies. Figures in parentheses show Dank financing. - Not Bank-financed. Lg Undertaken by rubber smallholder beneficiaries. :d Limited tenderfng procedures (equivalent to ushopping"). e Includes limited tendering (shopping) of US$1.0 million for small tools and materials and direct contracting of about US$17.0 mitlion for planting moteriat from nurseries. Lf Reserve procurement of fertilizers and chemicals. Disbursement 3.29 Disbursement of the proposed loan would be as follows: (a) 271 of expenditures on works, goods and services for crop replanting and asintenance through maturity, rehabilitation of replantings, infrastructure, extension and smallholder training, and supplementary costs of mini-estate development; (b) for computer and training equipment, 1001 of the foreign exchange cost of directly imported items, 1002 of the ex-factory cost of locally-manufactured items net of taxes and 801 of the cost of items procured locally; and (c) 902 of the cost of overseas training and consultants (Annex 17, Table 2). 3.30 Disbursements for (a) all expenditures on crop replanting and maintenance through maturity, rehabilitation of replantings, and extension and amallholder training; and (b) oxpenditures under contracts valued less than US$200,000 equivalent for mlni-estate development, infristructure, and equipment would be made on the basis of Statement of Expenditures (SOEs); documentation - 22 - supporting these withdrawal applications would be retained by RISDA for review by Bank supervision missions. All other disbursements vould be made against full documentation. 3.31 The loan is expected to be disbursed over four years in accordance with the schedule of disbursements shown at Annex 17, Table 3. Since the project is an expenditure time-slice of an ongoing development program, disbursements are projected to be significautly faster than the standard profile of Malaysian agricultural projects. This is borne out by the experience under the RISDA I Project (Loan 3139-MA), also a time-slice operation, where the entire loan has been disbursed within three and a half years of loan effectiveness. Loan closing date would be December 31, 1997. IV. PROJECT IHPLHEVTATION Status of Preparation and Implementation Arrangements 4.1 Since the project covers a time-slice of RISDA's ongoing development program, no significant pre-project implementation arrangements are required. RISDA has over 20 years' experience in the implementation of its programs and is fully geared up for the planned 1994-96 program. 4.2 For the replanting program of 30,000 ha in 1994, implementation arrangements were reviewed at the time of appraisal and were found to be satisfactory. Preparation and processing of 1995 and 1996 programs would be initiated up to one year before field implementation. All maintenance work on immature areas established prior to the project would continue on a routine basis, using contracts or smallholder family labor. The physical implementation targets for the remining two years or the project would be set by budget allocations for those years. Assurances were obtained at neRotiations that, by September 30 of each year, the Government and the Bank would review and agree to RISDA's annual work program, including training program, and its funding for each following year of the project. The processing steps involved in the implem' atation of the replanting and maintenance component and the rehabilitation component are shown at Annex 6. Proiect Coordination and Organization 4.3 The Ministry of Rural Development would be responsible for overall project performance and the Director General, RISDA, would have implementation responsibility. Specifically, RISDA's Replanting Division would be responsible for implementing the replanting and maintenance, rehabilitation, and mini-estate components; Extension Division for the extension, training, and infrastructure components; and Supplies and Procurement Division for the procurement of equipment (in consultation with the Computer Steering Committee for office tecbnology equipment) and agricultural inputs. The Planning and Development Division would assist in the supervision of consultants. The Finance Division would be responsible for preparing withdrawal applications for loan disbursements and would maintain all documentation supporting withdrawal applications. - 23 - Accounts and Audit 4.4 Accounts. RISDA's financial accounts are in the process of being computerized. Project disbursement categories are designed to coincide with RISDA accounts, which eliminates the need for separate project accounting. RISDA will, however, maintain records on the uses of project funds which would trace and relate project expenditures to its overall financial accounts. 4.5 Audit. The Office of the Auditor General is responsible for the annual auditing of RISDA's accounts through 1992. However, auditing is considerably behind schedule because of serious management problems in the early 1980s. RISDA has submitted its accounts through 1992 and accounts through 1991 have so far been audited. Starting with the 1993 audits, auditing will be done by a leading private international auditing firm, which will be expected to follow the normal official schedule of completing the audit within nine months of the close of the fiscal year. Assurances were obtained at neftotiations that audited accounts for 1992 would be available to the Bank by June 30, 1994 and, thereafter, audited financial statements would be available to the Bank within nine months of the close of the fiscal year. The audit reports of 1994 and later years would include a separate opinion as to whether funds disbursed against SOEs were used for the purpose for which they were provided. The audit reports on SOEs under the RISDA I project were timely and unqualified. Monitorina. Evaluation and Reportina 4.6 Monitorint and Evaluation (M&E). While monitoring of the physical and financial implementation of RISDA's development programs is generally satisfactory, monitoring of field performance in terms of planting and maintenance standards achieved, yields of rubber and other crops, relative efficiency of different replanting systems, effectiveness of different RISDA programs, etc., is very weak. The project, by supporting further development of a computerized MIS (para. 3.20), would improve monitoring of development programs. The computerized replanting modules 1, 2, and 3 (Annex 14) will generate the necessary data for improved monitoring. In addition, the M&E module, based on the M&E study completed under RISDA I Project, would provide the framework for qualitative monitoring of RISDA's programs. Under the project, physical monitoring at the headquarters would continue to be performed by RISDA's various implementing Divisions and the financial monitoring by the Finance Division. However, the Planning and Development Division (PDD) would assist the other Divisions in improved physical and financial monitoring and, in addition, concentrate on qualitative monitoring using the M&E module. In this connection, the PDD will be responsible for the study of the agricultural performance of RISDA's programs in immature rubber areas (para. 3.22). 4.7 Reporting. RISDA would prepare and submit to the Bank semi-annual progress reports on project implementation using the same general format as under the RISDA I Project (with some adjustments for the new project components). The reports would be submitted by March 1 and September 1 in each year. The Bank's Supervision Plan is shown at Annex 18. - 24 - V. AGRICULTURAL PRODUCTION. MURKETING AND PRICES Crop Production. Processing and Marketing 5.1 Rubber. Production from the replantings under the project would peak at about 112,000 tons around year 2009. This is based on the crop yield profiles at Annex 19. This production would be about 72 of Malaysia's projected rubber production at that time. Rubber latex would be sold in the liquid form, as cup lump or processed into sheets for air or smoke drying, the choice depending on the market facilities available to the producer and the prices of the different forms of the commodity. 5.2 Palm Oil. Production from the replantings under the project would peak at about 205,000 tons of ffb, which would yield some 41,000 tons of crude palm oil (CPO) at an average extraction rate of 202, and 9,200 tons of palm kernels (PK) at 4.5Z recovery rate, around year 2007. This production would be less than 0.52 of Malaysia's CPO and PK projected production at that time. Fresh fruit bunches would be sold individually or under contract to local processing mills either of the private or parastatal sector. Mill facilities are generally adequate throughout the country. International and Domestic Market Prosoects 5.3 World consumption of natural rubber is expected to rise from 5.2 million tons in 1992 to about 7.6 million tons by year 2005, with supplies coming mainly from established producers. Increased demand for natural rubber, particularly in developing economies, relative to that for synthetic rubber, comes from recent technological developments and availability of more types and grades of natural rubber of stringent specifications. Much will depend on the economic performance of Asian ard East European countries with high income elasticity for rubber products. Malaysia's production is expected to regain recent levels of 1.5 million tons through technology innovations, including low-- intensity tapping and replanting with high performance clones, and its market share will remain at about 252. World demand for palm oil is expected to grow at about 4S per annum through the year 2005. Malaysia's share of world production is expected to decrease from about 502 in 1992 to 472 in year 2005, and exports from 56Z to 50X during the same period. In absolute terms, Malaysia's national production and gross exports of palm oil are expected to reach 11.0 million tons and 8.6 million tons, respectively, in fear 2005 compared to the actual 6.4 million tons and 5.8 million tons, respectively, in 1992. The above projections for rubber and palm oil by the Bank's International Economics Department (IEC) include incremental production from RISDA's replanting programs. 5.4 Domestic absorption of rubber was only about 150,000 tons in 1992. The Government is assessing the prospects of making Malaysia a major exporter of tires which will help achieve the objective of reaching local consumption of 300,000 tons of rubber by the year 2000. Domestic market prospects for Malaysia's palm oil are bright due to a quickly expandlng local downstream processing and considerable ongoing research, principallv at PORIM, in new uses of palm oil. The most promising development of the industry is in the area of oleo-chemicals. Since 1984, Malaysian palm oil processing has moved downstream and an estimated 200,000 tons of oleochemicals (fatty acids, mothyl esters and - 25 - glycerines) were produced in 1992. The projection for the end-1990s io 600,000 - 700,000 tons a year. Commodity Prices 5.5 As projected by the Bank, rubber prices would be about 171 higher in real terms in year 2000 compared to 1993, palm oil prices about 202 lower and palm kernel prices &bout 151 higher. For economic analysis, the Bank's projected prices, converted to 1993 constant terms on the basis of the HUV index, were used. Rubber, palm oil and kernel are exportables and economic farmgate prices were, therefore, estimated from f.o.b. prices (Annexes 20.1 and 20.2). 5.6 Domestic rubber prices follow the NRELB daily quotations with appropriate deductions for transport, processing charges and duties and cesses. The financial farmgate prices for rubber are lower than economic farmgate prices due to exclusion of export duties and replanting cess from the latter. Financial farmgate prices for oil palm ffb also diverge, though to a much lesser extent, from economic farmgate prices due to export duties on CPO, with graduated duty exemption on processed palm oil according to the stage of processing. Domestic ffb prices are based on PORLA gazetted price,J/ less processing. CPO and PK transport cost and other incidental costs. VI. PROJECT BENEFITS AND JUSTIFICATION Benefits 6.1 The main project benefits would be: (a) improved productivity and farm incomes for rubber smallholders, who are the biggest poverty group in the country and many of whom are at present earning less than the poverty income of M$380 (US$150) per month per family of five; (b) increased export earnings, primarily from rubber, and increased production of diversified crops; and (c) increased institutional efficiency of RISDA in delivery of services to the rubber smallholder subsector. Some 150,000 rubber smallholders are expected to benefit from the project, including new replanters and those who replanted prior to the project, but whose farms would receive early maintenance support from the project. At full development around the year 2009, net foreign exchange earnings and savings from project incremental production (including production only from new replantings under the project and using projected world market prices for the year 2009 in 1993 constant dollars) would be about US$110 million per year. The improvement in RISDA's effectiveness as an institution would be an important contribution to the government's poverty alleviation program and would improve the productivity of governmont expenditures. The project would also directly benefit women smallholders and workers in the rubber subsector, and broaden popular participation and help develop the rural private sector through strengthening of cooperatives. 1/ POLA gazetted price is published monthly based on the industry-wide average price of traded CPO in the preceding month. - 26 - Financial Analysis 6.2 Smallholder Incomes. Since replantings would be overwhelmingly for rubber and, to some extent, for oil palm, farm income analysis has been done for these two crops only. The farm model, based on individual and simultaneous replanting, assumes that about two ha would be replanted and labor during the production phase would be provided by the family. Net monthly farm incomes from rubber would peak at M$542 in the 16th year after planting and from oil palm at M$183 in the 14th year after planting. These incomes from replanting, compared to the alternative of abandoning the old rubber areas, would provide incentive to smallholders to participate in the replanting program. Net farm incomes would be lower if hired labor is used, as is common on group replantings. It should be stressed that household incomes, as distinct from the above farm incomes, could be higher depending on the availability of additional farm land and off- farm employment opportunities. Table 6.1: FARM INCOME (M$) Averate Annual Aver&ae Monthly Year of Develonment Year of Development 10 11-20 21-30 10 11-20 21-30 Rubber 3,082 5,657 3,708 257 471 309 Oil Palm 2,128 2,075 1,718 177 173 143 6.3 Cost Recovery. As discussed in para. 2.17 and Annex 3, the export duty and replanting and research cesses on rubber, compared to the replanting grant, imply full cost recovery over the life of the rubber trees. Supplementary mini-estate development costs (para. 3.14) are to be fully recovered from participants after mini- estates reach the production stage. Economic Analysis 6.4 Economic Rate of Return {ERR). The ERR for the project is estimated at about 14S (Annex 21) with the following methodology: (a) only replantings from 1994 onwards are included. If prior plantings to be maintained under the project were included, the ERR would increase to about 25X, assuming costs before 1994 as sunk costs; (b) the economic costs and benefits of diversified crops were not included since together they would be less than 10% of the project replantings; (c) sale of rubber wood has been added to the benefit in the first year; (d) the benefits of LITS introduction on mini-estates in terms of reduced tapper costs and an assumed 15S increase in yields due to improved tapping and reduced bark consumption have been added to the benefit stream; (e) the adoption of LITS and consequent reduction in tapper costs on smallholdings (mainly group replantings) is conservatively assumed to reach 100,000 ha or 10X of mature smallholder rubber areas in Malaysia by the year 2002; (f) costs are estimated in 1993 constant Malaysian ringgits and benefits from rubber and oil palm are calculated on the basis of economic farm-gate prices (Annexes 20.1 and 20.2) - 27 - derived from the Bank's price projections of May 1993, adjusted to 1993 constant US dollars using the MUV ine..x, and converted to ringgits at the official exchange rate; and (g) market wage rates have been used as no significant distortions in the labor market are evident. 6.5 Sensitivity Analysis. The results of a sensitivity analysis show that the project remains viable across a range of assumptions on costs and benefits. The switching value test shows that costs would have to increase by 21% or benefits decrease by 18% to lower the project ERk from 14% to 102, the estimated opportunity cost of capital in Malaysia. While the probability of cost increases is low, a decline in benefits, particularly if prices turn out to be lower than projected, cannot be ruled out. However, a price level 18% lower than projected for both rubber and palm oil, while possible in some years (particulalgy for palm oil, given its high price volatility), appears unlikely over the entire 30-year period of analysis. The project can also withstand a three-year delay in the benefit stream without the ERR going below 10%. If there is no adoption of LITS, the project ERR would still be about 112. On the positive side, if the adoption rate of LITS on smallholdings reaches 20S of mature rubber areas by the year 2002, the ERR would be over 16%. Environmental Effects 6.6 The project poses no major environmental risks. Since the project provides for replanting of existing cultivated areas, no deforestation is involved. The small access roads component of the project includes only upgrading and maintenance, which would not have any adverse environmental impact. Indeed, the project would have a positive environmental benefit in that the timber from the felling of old rubber trees could be utilized by the wood industry, thus taking some of the pressure off the natural forests. Moreover, the development of tree crops is basically protective of soils in equatorial climates due to the standard practice of establishing legume cover crops immediately after land clearing, which rapidly cover the soil surface with a thick protective mat of vegetation, and due to the protection of fully closed tree canopies within a few years after planting. Areas planted to crops other than rubber, and especially oil palm, will almost always be on gentler terrain with a low risk of erosion. However, under the project, RISDA would put greater emphasis on conservation-related activities. In hilly areas in particular, RISDA would promote the establishment of vetiver hedges, which are effective in controlling surface erosion on steep slopes. Vetiver grass would also be promoted to protect road cuttings. Though maintenance of rubber and oil palm, particularly in their immature years, routinely involves the use of herbicides, Malaysia has strict and effectively-implemented regulations on the use of agricultural chemicals and, therefore, risks from the use of herbicides under the project are considered minimal.2/ For farmers receiving chemicals, RISDA arranges training sessions on the safe application of chemicals. The project will not construct any crop processing facilities; production will be channeled 2/ Malaysian law bans the use of harmful chemicals and pesticides, and none of those currently used by RISDA is included in the Bank's Checklist of Pesticides not Recommended for Use in Agriculture or Suitable only for Restricted Use (OPN 11.10). - 28 - to existing public and private sector factories which are subject to stringent and well-enforced pollution control laws. Rlsks 6.7 The main project risk relates to effective introduction of LITS (pars. 3.16). This labor-saving technology is :ritical to the long-term viability of the rubber subsector in Malaysia but is new to RISDA and the smallholders. Its successful introduction would, therefore, require closely supervised and phased implementation, placing considerable demands on RISDA and Bank superF.sion resources, VII. AGREEMENTS REACHED AND RECOMMENDATION 7.1 The execution of a Subsidiary Loan Agreement between the (sovernment and RISDA and the Project Agreement between RISDA and the Bars would be conditions of effectiveness. 7.2 During negotiations, agreement was obtained on the followings (a) crop choice will continue to be the prerogative of replanters (para. 3.5); (b) rubber planting material production by RISDA or its subsidiary ESPRE would be confined to no more than 15 sites; RRIN (or another institution acceptable to the Bank) would regularly assess the performance of these nurseries and the contractual arrangements between RISDA and RRIM (or another institution) for this assessment would be satisfactory to the Bank; ESPEK would have the authority to take appropriate action should the subcontracting cooperatives fail to comply with ESPEK's standards for nursery mangements ESPEK's incremental costs for improved nursery management would be met by increasing its own share of rubber planting material production to about 202; and the Government and RISDA would keep under review the cost-price relationship for rubber planting material and make price adjustments, if and when required (para. 3.6); (c) RISDA's rubber planting would be with Class I and II clones only, ivth the percentage of Class II clones not more than that recommended by RRIM from time to time; Class III clones would be recomended for use only under RRIM and RISDA supervision and control; and beginning with the 1996 plantings, RISDA would increasingly use clones which are known to be responsive to stimulation with low-intensity tapping systems (LITS) (para. 3.7); (d) RISDA would reorient its extension services towards increases in productivity of mature rubber (para. 3.11); (e) RISDA would maintain the present overall proportion (302) of women trainees (para. 3.12); - 29 - (f) the coordinator for LUTS already appointed at RISDA headquarters would be full-time, with full authority on the technical aspects of the program, assisted in every State by a full-tim field officer; a phased program would be followed by RISDA for the introduction of LITS; and appropriate operating funds would be allocated by RISDA for the expenses of the LITS program and for LITS training (para. 3.16); (g) by the end of 1994, RISDA would develop a consistent, reliable set of data on mini-estates and implement an improved monitoring system for mini-estate performance with respect to actual production, dividend payments, debt repaid, debts outstanding, etc. (para. 3.18); (h) implementation of a plan for strengthening and rationalization of cooperatives would commence by July 319 1994 (para. 3*19); (i) RlSDA would draft detailed toems of reference for a study of the qualitative results of RISDA's programs in Immature rubber areas for Bank review by end-September 1994 and have the study completed by July 31, 1995 (paras. 3.22 and 4.6); (j) beginning with the 1994 budget, the Government would ensure adequate financing for RISDA's operating budget (para. 3.25); (k) the qualifications, terms of reference and conditions of employment of consultants would be satisfactory to the Bank (para. 3.27); (1) by September 30 of each year, the Government and the Bank would review and agree to RISDA's annual work program and its funding for each following year of the project (para. 4.2); Sm) RISDA's audited accounts for 1992 would be available to the Bank by June 30, 1994 (para. 4.5); and (n) RISDA would prepare and submit to the Bank a semi-annual progress report on project implementation (para. 4.7). 7.3 With the above assurances, the proposed project would be suitable for a Bank loan of US$70.0 million to Malaysia. The loan would have a repayment period of 15 years, including a grace period of five years, at the Bank's standard variable interest rate. 0 MALAYSIA RISDA 11 PROJECT RISDA ORGANIZATION CHART | ~BOARD I Z ~~~~~Commrdees DirectorGeneral Inpcoae& Internil AdtDlvisi eratons) (g nt 1. Planrng & Development Division 2. Cowpotate Development Unt 3. Public Relatons Unit - 4. Legal Advisory Unit 5. RISDA Infomfation Technology Uni RePbnthg Supply and Engineerhg Extenslon Estate Adrministraton Fia Dvisonn Oivision Dvision Division Dvision Division RSO RSO N| RO ll RO ll RO ll RO 1l PS S S S Johor Malaoca SemSlan | Selangof 1| Pexak 1| PenarX 1| Pers Pahang Kedah Kelntan Te engaC Note: RSO R RISDA State Oftrce saeWvS4572 - 33 - ANX 2 Page I of 4 MbLAysIA RISDA SI PROJECT RISPb'S FINANCIAL CONDITION 1. RISDA's audited accounts for fiscal years ending December 31, 1991 and 1992 are not available for the following analysis although the 1991 accounts have now been audited (December 1993). The following analysis is, therefore, preliminary but nevertheless indicative of RISDA's financial condition. 2. As of December 31, 1992, based on provisional accounts, RISDA's total assets amounted to M$1156.9 million (Table 1). Of this, fixed assets (M$215.3 million) and investments in plantations (MS210.3 million) accounted for about 19% and 18% respectively; smallholder and staff loans ({$315.7 million) for 27%; and bank deposits (X$308.9 million) for 27%. About M$297 million of the bank accounts were in fixed deposits. The remaining M$106.7 million (9% of total assets) is accounted for by other net current assets. The accounts indicate that RISDA continues to remain reasonably liquid. 3. Of the MS315.7 million in loans, approximately M$220 million was granted in long-term loans to smallholders (of which approximately M$140 million was lent to smallholders under the mini-estate program and M$80 million under income maintenance loans called SEPENTAS), while the balance represents loans to taff. 4. RISDA's assets have been largely financed through subventions from the cess fund, which is recorded under two subheadings, namely the smallholder cess account and the estate cess account. These two accounts represented some 38% (M$444 million) and 7% (X$77 million) respectively of the total resources as of end 1992. The staff housing loan revolvirg fund (M$l00 million) and loans from the Government (M$204.2 million) accounted for 26% of the total resources. 5. As of December 31, 1992, Government had committed a total of N$258 million in loans to be made available under the various loan schemes outlined above. As of the same date, RISDA had drawn down K$204 million of this amount. The terms and conditions of the loans are given in Table 2. 6. The total payments for amortizing the debt on the amounts drawn down so far and for which the loan repayment terms have been fixed do not exceed M$7.5 million in any year between 1993 and 2000. In previous years this would not have proved problematic as RISDA earned over X$40 million on its plantation investments. However, since 1991, RISDA has faced occasional difficulties in securing an adequate operating budget. The shortfall between the allocated budget and operating expenditures is being met from the cess account to which the plantation profits are credited. As long as plantation profits were large enough to offset occasional charges, RISDA was in a reasonably safe financial condition. However, the charges are now getting large enough and RISDA may actually begin to dip into cess funds to meet its expenses -- a situation that will begin to adversely affect the replanting program. - 34 - ANNEX 2 Page 2 of 4 7. The annual allocations for the development expenditure, inclusive of cese, have varied between M$290 million and M$330 million (Table 3). The sources of funds have been the cess, Government grants for replanting and other smallholder schemes, and Government loans. In recent years the proportion financed through the various sources ham altered. In 1989, for example, coos accounted for 56% of resources, grants for 36%, and loans for the balance 8%. In 1993, cess funds will finance 45% of the development budget, grants 53%, and loans the remaining 2%. 8. The annual operating budget has rlsen sharply between 1991 and 1992 from M$90.3 million to X$107.4 million. As already mentioned, the allocation from the Government is usually below this amount and RISDA has financed the shortfall from the cess account. In 1990 RISDA charged M$10.8 million to the cess account. In 1991, RISDA received X$87.0 million in budgetary allocations while the expenses were M$9S.4 million. similarly, there was a budget deficit of M$4.5 million in 1992. These shortfalls do not include expenditures that are recurrent in nature but are separately charged to the cess account (staff medical expenses, allowances to farmers, and interest on loans). If adjustments are made for these expenditures, RISDA's operating expenses would have risen by an additional M$2.8 million in 1992. 9. For 1993, the picture was worrying. RISDA's recurrent expenses, inclusive of interest payments on loans, were projected to be M$122.5 million. Against this the Government had originally allocated MS80.0 million, leaving a shortfall of M$42.5 million which RISDA would have met from the profits on plantations (cess account). The budget allocation was later increased to M$l0l.8 million. Issues 10. The various financial and accounting issue are: (a) delays in accounting and auditing; (b) under/overstated assets8 (c) improper matching of liabilities and assets; (d) repayment of Government loans; and (e) weak operating controls. 11. (a) Delays in Accounts and Audit: As of December 1993, accounts through December 1991 had been finalised and audited. RISDA had also completed and submitted the 1992 accounts to the auditors. Accounting problems arose because of uncleared backlog of accounts since the early 1980s. The auditors also found it difficult to complete the audits becauae it was not easy to reconcile the control and subsidiary ledgers due to lack of supporting documents dating from the early 1980s. 12. In 1986, following the audit of RISDA's 1979 accounts, the Government established two committees: (a) the Jawatankuasa Harta Tetap (Assets Committee) and (b) the Jawatankuasa fapuskira Wang RISDA (the Write-Off Committee). These committees were to help reflect the proper value of RISDA's assets and to reconcile the accounts and write off the difference in assets that could not be reconciled. Substantial work has been done and a more reasonable picture of RISDA's balance sheets is expected to be reflected in future accounts. - 35 - ANNEX 2 Page 3 of 4 13. The number of qualifications in the auditors' reports has been reduced. It is expected that the backlog of audits will be cleared by December 1993. Realizing the problem of delayed audits, the Government has appointed a private auditing firm to audit RISDA's accounts for 1992 and later which is expected to result in more timely audits in the future. 14. (b) Under/Overstated Assp_U. The discrepancies have arisen because of (i) changes in accounting procedures; (ii) lack of reconciliation between control and subsidiary ledger accounts; and (iii) inadequate provisions for losses either for loans granted to smallholders or accounts receivable. 15. With respect to (i) above, prior to 1984, RISDA, in compliance witl Government regulations, followed the practice of charging all capital assets regardless of size as an expense in the year of purchase. The only exceptions to this accounting procedure were land and factories purchased for marketing or the properties managed by ESPEK. These procedures were modified in 1984. Under new accounting practices, RISDA is to expense all purchases below M$5,000 while capitalizing all the assets above this amount. The Assets Committee (para. 12), comprising the Accountant General, the Auditor General, an Audit Company and the Inspectorate Division of RISDA was established to look into the recording of all assets. The Committee concluded its investigation in 1988 and recommended that some M$136 million in assets should be written back into RISDA's books. However, audited accounts do not yet reflect this asset write-up. 16. Wich respect to para. 14 (ii), due to problems in the early 1980s, it has been difficult to reconcile control and subsidiary accounts resulting in the qualification of opinion in auditors' statements. The auditors could not verify the accuracy of balances amounting to about K$260 million for the year ended 1990, which involved differences in balance of about M$26.7 million between the control record and the 35 subsidiary records. The Write-Off Committee (para. 12) was established to examine these accounts and recommend either adjustments to the stated values or write off the assets as deemed necessary. The Committee has concluded its deliberations and adjustments to the various accounts are expected to be reflected in the future audited accounts. 17. With respect to para. 14 (iii), little, if anything, has been done to reflect losses on loans granted to smallholders under SEPENTAS scheme, on loans granted to subsidiaries, or on goods sold on credit which may now be non- recoverable. The Write-Off Committee remains active to make periodic adjustments to RISDA's accounts, but it must now seriously look into making provisions for non-performing loans so that RISDA's balance sheet reflects its true financial condition. 18. (c) ImproDer Matching of Liabilities with Assets. RISDA has occasionally drawn down funds earmarked for specific purposes for different uses. In particular, the Estate cess collections are used for RISDA's expenditures. Similarly, smallholder cess funds were used to provide housing loans to staff. In future, RISDA should attempt to match its assets with liabilities to avoid a potentially problematic situation of having to settle claims in excess of the assets. - 36 - ANNEX 2 Page 4 of 4 19. (d) Repayment of Loans to the Government. RJSDA has considerable non-performing assets on its books. These include some N$80 mi.lion in SEPENTAS loans and other smaller loans to subsidiaries or in accounts receivable that may now be non-recoverable. In particular, the SEPENTAS loans have been financed by loans from the Government. It is not clear how RISDA will repay these loans. As mentioned earlier, theoretically RISDA could easily repay the loans out of earnings from estates but in practice this may prove difficult as RISDA increasingly relies on these funds to meet operating expenses. In all probability, the Government will have to write off some of the non-performing assets. The auditors recommended that a provision for doubtful debt of M$81 million should be made on the loan balances as of December 31, 1990. 20. (e) Weak Operating Controls. There are a number of areas where RISDA's operating controls could be improved. In particular, budgetary control and stock control procedures need to be streamlined. However, prior to considering any of these aspects seriously, it would be necessary to bring the accounts up to date and develop a suitable computerized m3nagement information system. The operationalization of the latter, in particular, would be necessary prior to developing a meaningful control system. - 37 - Table I Y :allaX 01 M RSDA'. Financial Condition December-31. 1989-199 ..-----Adited -..... .......sudited-- 1989 1990 1991 1992 kbMw Inwm~y fud. Smtlholders Casa Account 448.9 386.6 48.6 444.6 Estate Cess Account 133.7 140.9 76.8 77.3 _nexped Devltqmnt Fund 17.5 12.1 20.6 15.8 unexwded Opereting Fu 0.5 (10.8) mtlIholders Credit Schea (Rwolving Fumd) 1S90 15.0 1S.0 21.3 lousing Loan Revolving Fund 100.0 100.0 100.0 100.0 Vehicle Loon Revolving Fund S.9 5.9 S.9 5.9 3taff Loans a Store tNot Allocated 19.0 19.0 21.0 21.0 3ini-Estate Loa 4.8 6.S EISDA Prfnting Facility an Trafning - 0.7 0.2 0.7 Instf tute R-er Marketing Fund 37.1 26.2 24.3 24.3 G rnent Loan for R1nI- 167.8 192.6 196.4 200.0 Estate and Sepentes C=omitted Funds - 138.5 157.0 215.3 Replanting Furds -- RISOA Estates 12.3 18.1 24.5 30.7 TOrAL RwS 964.5 1,051.3 1,090.3 1,156.9 Representd nbys Fixed Assets - Not 112.5 138.S 157.1 215.3 Ptlntation Developmnt - E3591 195.3 208.1 208.7 210.3 Investwant in Subsidlries 6.3 7.2 8.4 8.8 Lo*-Term Leas: SelIholders 214.2 221.2 223.0 220.4 t Stff 75.2 81.9 89.3 95.3 Trust Fund - - 8.8 OaTe AMets: Sundry Debtor, Desits nd Acca 119.9 167.7 229.1 130.2 Stocks 13.5 8.6 11.1 9.9 Bank fixed deposits 24S.3 259.7 200.9 27.0 Dank current account 26.? 11.9 18.3 11.9 Current Liabilities (44.4) (53.6) (SS.6) (1.0) ~ .~, u&.A It -los A In. - 38 - Table 2 NALAYSIA RISDA II PROJECT Purpose AmaMt Interest Repayment Grace Anal Repayment _(WmillMon)__ Rate (Z) Period Period Installment Perfid (Years) (Years) Committed Drawn RarketingA 11.3 11.3 4.0 15 3 12 1987-1998 3.0 1.9 4.0 15 3 12 1990-2001 Subtotal 14.3 13.2 Nini-Estates 6.6 6.6 0.0 25 10 15 1994-2008 3.1 3.0 0.0 25 10 15 1995-2009 4.1 3.8 4.0 25 10 15 1997-2011 3.9 3.9 4.0 25 10 1S 1997-2011 11.6 11.6 4.0 25 10 15 1997-2011 20.8 9.0 4.0 25 10 15 1998-2012 30.0 29.4 4.0 25 10 15 1998-2012 4.9 4.9 4.0 25 10 15 2004-2014 27.6 27.0 4.0 2S 10 1S not fx 3.3 - 4.0 25 10 15 not fir @ 30.0 5.2 4.0 25 10 15 not f @ Subtotal 145.9 104.4 Sepentav 43.4 43.4 0.0 25 10 15 1994-2008 33.1 33.1 0.0 25 10 1S 1995-2009 12.8 5.4 0.0 25 10 15 1997-2011 2.7 - 0.0 25 10 1S not fix a Subtotal 92.0 81.9 Kg. Terauau 1.7 0.8 4.0 25 2 23 1991-2013 Purchase of 3.9 3.9 4.0 10 10 1992-2003 KTENXG, EqpR ty Total 257.8 204.2 1/ The marketing loan was used to purchase plant and equipment, mostly rubber smokehouses, to market smallholder produce. The smokehouses were transferred to NARSCO in 1990. v The Government generally follows the procedure of fixing loan repayment annuities only when the funds have been fully drawn down. 31 Sepentas means income maintenance loan to smallholders during the immaturity phase of the replanted crop. it Represents purchase of the equity share of the partner in a palm oil mill, which was jointly owned by RISDA and the State of Terengganu. - 39 - ANNEX 2 lable 3 Page 1 of 2 RISDA II PROECT RISDA's DEVELOPMEN BUDGET 1982-1993 1989 1990 1991 Cesa 6OV. Gov. TotaL Ctos GOv. Gov. Total Coss Gov. Gov. Totat Grant Loan Grant Loan Grant Loan Replanting- 104253 72000 176253 112075 68658 180733 69303 103051 172354 Smai tholders Reptanting-Private 5500o 55000 S0000 50000 S5C00 50000 Estates (Cesa refund) Rehabf ftatfon 3000 3000 3000 3000 4851 4851 infrastructure 3000 3000 12750 12750 10077 10077 Extension Services 253 2500 2753 217 4150 4367 108 3754 3862 Production tnewntives 15000 1S000 17000 17000 178B23 17823 (Agricultural Inputs) Smaltholder Servce 3200 3200 5147 5147 200 2000 Center Mini-Estate (N.E.)- 27800 27800 27589 27589 14345 14345 Supplementary Dev. Cost N.E.-Uorkers Housing 2100 2100 146 146 200 200 N.E.-Privatizetion 0 0 376 376 Cost N.E.-Perfmster Survey 0 0 1200 1200 Management Facilities 7584 78 25188 25188 23915 23915 Overseas Staff a 0 308 308 Training Studies & 0 800 800 280 2800 Consultancles Poverty Eradication 0 1440 1440 400 400 Atltoance for Key 880 880 881 881 1800 1800 Farmers (PPPK) Land Premium Credit 58 58 1950 1950 0 Income Guarantee 1000 1000 415 415 212 212 Schm Staliholders Training 0 0 3100 3100 Administrative Program 72 72 92 92 700 700 TOTAL 161516 106284 29900 297700 165630 138133 27735 331498 122499 173479 14345 310323 - 40 - Page 2 of 2 MALAXIA RISDA 11 PROJECT RISDA a DLOPMM MET 1982-1293 1992 1993 Ceo Gov. Gov. Total Coss Gov. Ow. Total Grant Loan Grant Loan Replentin-Smtaltholders 65925 113592 179517 76600 118328 194928 Replantin-Private Estates 49500 49500 30 38000 (cess refud) Rehabilitation 4500 4500 439 4639 Infrastructure 8077 807' 7919 7919 Extension Servfces 108 4600 4708 3580 358 Production Imeentiwes 16123 16123 6226 6226 (Agricultural Irpts) Sallholder Service Center 924 924 300 300 Mini-Estate Supplemantery 5152 5152 7489 7489 Development Cost M.E.-Workers Housing 200 200 600 600 M.E.-Privatfzation Cost 176 176 370 370 N.E.-Perimeter Survey 990 990 639 639 Management Facilities 10637 10637 11169 11169 Overseas Staff Training m m 0 Studies & Consultancies 7153 7153 111 111 Poverty Eradication 40 400 400 400 Alloae for Key Farmers CIPK) 1800 1800 1800 1800 Land Premium Credit 0 0 Inome uarantee Schm 0 0 SnusIholders Training 300 300 600 600 Administrative Progrm 700 700 15000 15000 Total 118209 168273 5152 291634 131770 154511 7489 29370 - 41 - Table 4 RISDA II PROJECT RISDA's OPERATING BUDGET (1990-1993) (MS ' 000 1990 1°.91 1992 1993 Budget Actual Budget Actual Budget Actual Budget 50000 50000 54124 52795 64200 63795 54356 Salaries Fixed Allowanems 5564 5564 5568 5550 6200 5642 5100 Employees Provident Fund 7639 7639 8070 8113 10550 10834 8500 Overtim Allowance 729 729 725 675 400 740 350 Other mnefits 27 27 44 27 30 31 30 Trawl Allowance 6345 6345 7029 7137 4800 6554 1800 Transportation AlLowance 259 259 300 172 IS0 373 63 Utilities and Co.mmuications 3030 3030 3211 3227 2800 3432 1000 Repair and Maintenance 1339 1339 1576 1519 1300 1414 500 Naterials Other Supplies 1270 1270 1429 1379 1200 1760 600 Repairs and Naintenanme Costs 3947 3947 3799 4580 2900 3506 1320 Professional and Other Services 4831 4831 5326 5174 3700 5281 2000 Rental 1558 1558 1660 1488 1300 1557 1858 Other Expenses 3729 3729 4179 3531 2505 2453 2523 Total 90267 90267 97040 95365 102035 107372 80000 Note: Actual expenditures shown above exclude nnual interest payments to the Government (1$0.5 million) and staff medical expenses CNM15.0 mi llion in 1992 shon under Administrative Program in Anrex 2, Table 3) charged to the cess account. - 42 - ANNEX 3 Page 1 of 3 MALAYSIA RISDA II PROJECT Tax/Subsidy Implications of Replanting Ces8/Grants and Export Duties 1. Two-thirds of the applicants to RISDA for replanting assistance own less than 2 ha. More specifically, 61S of smallholders are in the 0-2 ha group, with an average holding size of 1.2 ha. It is perhaps reasonable to assume that the larger the holding, the greater the ability and likelihood of undertaking a replanting program in stages, and the smaller is the problem of the prolonged period (6-7 years) of loss of income which accompanies replanting.1 Through 1992 , a total of 1.16 million ha had been replanted by smallholders. Of this replanted area, approximately 412 and 44Z was replanted by smallholders owning less than 2 ha and between 2 to 6 ha respectively, while the rest was by holding of over 6 ha. Because of the large concentration of smallholdings in the smaller size group, it a#pears that replanting assistance was indeed Provided to the smallest of smallholdinrs. despite the fact that farmers in this troup are less able to suffer losses of income over a proloneed period and. therefore. less prone to replant their plots. This is perhaps explained by the fact that off- farm income accounts for a substantial proportion of household income in smallholdings. 2. The welfare issues arising from government assistance schemes need to be examined in relation to the system of replanting cess collections, replanting grants and rubber export duties. The first implication of the replanting cess is that smallholders who do not replant because of individual circumstances relating to loss of income or lack of land titles are perpetually subsidizing those who undertake replanting and avail themselves of the government replanting grant. A more important question that arises is whether the net effect of the replanting cess and "grant" scheme finally represents a tax or subsidy to producers. In the very few cases where the producers had not paid any cess and were newly planting to rubber, the initial planting grant could be thought of as a loan, for which the future payments of the cess could be regarded as ex post amortization. In this uncommon case of an initial planting, the scheme may well imply a subsidy, especially if the productivity of the rubber is low. For the more typical smallholder producers who did not start with a Note that this is a loss of income from land, but not necessarily from labor, if alternative employment opportunities are available during the crop development period. - 43 - ANNEX 3 Page 2 of 3 planting grant,2 the scheme has the character of an (enforced) savings scheme into which payments are made in the form of the cess, and interest accrues until the final withdrawals are made. 3. The calculation of whether the farmer has been taxed or subsidized by the scheme is relatively easy in the above case. It merely requires the comparison of the implicit yield or interest rate of the scheme with the farmer's own time preference rate, or with the interest rates to which he is exposed in rural financial markets. Calculations of this sort (see Table 1) reveal that even for interest rates substantially lower than those typically c.curring in rural areas, and even for those producers with relatively low rubber yields (who have thus made far less than average cess payments), the scheme has represented a tax. Using a real interest rate of 52, the break-even average yields below which a farmer is subsidized and above which he is taxed, is only 600 kg/ha; for yields of above 600 kglha, which epply to all but the most inefficient smallholders, a net tax is implied. This analysis assumes that trees have a productive life of 25 years prior t replanting. If the trees have been in production longer, so that the cess aas been paid for more than 25 years prior to replanting, the break-even yield is even lower. Since the replanting grant is the same on a per hectare basis, regardless of the size and duration of cess payments, the more productive farmers, and those who delay replanting, are particularly heavily taxeu by the scheme. An additional issue that arises in the welfare context is that the estates receive annually the full refund of paid out replanting cess (although without any accrued interest payments), instead of receiving the grant spread out as yearly installments, with a stipulated per hectare maximum, as in the case of smallholders. However, in an analysis of equity considerations of rubber smallholder assistance, it is necessary to give due recognition to the many RISDA schemes which operated in the past or are continuing, such as the interest-free income maintenance loans, the K5A programs which paralleled the above schemes for smallholders who did not have title to the land, and the mini-estate program. All these were at least partly funded from the replanting cess fund, and in some measure contributed to alleviating poverty amongst rubber smallholders on a selective, individual basis. But many of these programs were costly and the number of smallholders benefitting was very small relative to the rubber replanting program. Only the mini-estate management program is still continuing, while the development of new mini-estates has been virtually discontinued. 4. Table 1 takes into account only replanting cess collections (M$99.20/ton) compared to the replanting grant. When export duty collections are 2 From 1953 through 1992, only about 52,229 ha or 42 of the total replanted area of 1.16 million ha were newplanted and eligible for cess assistance. About 935,000 ha or 812 of the total replanted area were first round replantings and 148,000 ha or 13Z were second round replantings. An additional 21,200 ha (2% of total) were not eligible for cess assistance but included for replanting as extensions of eligible rubber areas. - 44 - ANNEX 3 Page 3 of 3 taken into account, in addition to replanting cess,3 subsidies even for producers with low rubber yields and at lcr interest rates may disappear, depending on the amount of export duties. Given the present export duty structure (see Table 2) and world prices of rubber (about M$2,200/ton average for RSS 3 and SMR 20 in May 1993), rubber producers pay virtually no export duties. However, in years with relatively good world rubber prices, such as in 1988, rubber producers vere paying export duties amounting to M$140-160/ton (4 to 52 of f.o.b. prices). Thus, though export duties can be zero or negligible with low world rubber prices such as in 1985-1987 and 1990-1993, rubber export duty collections vere as higb as M$1.1 billion in 1979/1980 and even in relatively unfavorable years (1982-:.984) averaged M$180 million annually compared to average annual replanting cess collections of M$140 million in the 1980s and M$110 million in early 1990s. Adding export duties in the years with relatively good world rubber prices to replanting cess collections in Table 1, therefore, would result in a net tax cn rubber producers, even those with low yields and at low interest rates. In the case of smallholders, this net tax is lowered through some current RISDA programs such as free inputs for mature rubber, infrastructure construction, construction of central and group processing centers, etc., financed from Government budget. S. A question arises whether rubber producers are overtaxed in some years and whether export duties on rubber should be removed. Available estimates show that, in absolute terms, rubber export duties in Malaysia are not excessive even in years with relatively good world rubber prices. The optimal export tax that would maximize short-term revenues from rubber exports (based on short-run import demand elasticities) could be as high as 35Z of the export price, whereas the optimal export tax based on long-run import demand elasticities has been estimated at about 8X of the export price.4 Thus the export duty of 4-5Z of f.o.b. prices even in a relatively good year like 1988 did not exceed the estimated optimal level based on long-run elasticities. However, relative to its main competitor at the farm level, oil palm, rubber was taxed significantly in 1988 since export duties on processed palm oil were suspended in August 1986 due to extremely low world prices of palm oil. The issue of relative taxation of rubber and palm oil is non-existent at this time and will remain so unless world rubber prices improve significantly in the near future. 3 Rubber producers also pay a research cess of M$38.5Olton, which has not been included in the present analysis. 4 Mudassar Imran and Ron Duncan, "Optimal Export Taxes for Exporters of Perennial Crops", International Economics Department, The World Bank, WPS 10, June 1988. - 45 - AEx 3 Table 1 SMALLHOLDER RUBBER - REPLANTING CESS AXD GRANT a/ Rate of Present value Present value of cess payments (1) interest of replanting at alternative rubber yields (kg/ha) d/ (1) b/ grant £/ -_- 500 600 700 800 900 1,000 1,100 1,200 3 1171 629 755 88l 1,006 1,132 1,258 1,384 1,510 5 684 523 628 732 837 941 1,046 1,151 1,255 8 312 411 .93 575 658 740 822 904 986 10 187 356 427 498 570 641 712 783 854 Ml Combinations to the right of the heavy line represent net taxation of smalIholders; to the left net subsidization. The table excludes research cess (N$38.50/ton) and export duties, which fluctuate from year to year with world prices (see Table 2). If these were included in the analysis, the net taxation will be higher and the net subsidization lower. hL As future payments of both the cess and grant are stated in 1993 ringgits (co.stant value), this interest rate should be considered to be a "real" rate. In 1993, real deposit rates in financial institutions were 1.5-22. Lending rates ranged from 9 to 13S (for eommercial bank lending). Real lending rates in the informal credit sector (mainly shopkeepers and traders) were estimated to range between 102 and 302 p.a. eL Replanting grant: M$6,177.62/ha (M$2,500/acre) for holdings of 4.05 ha (10 acres) or less; ES4,200.78/ha for smallholding of more than 4.05 ha. AL Replanting ceoss: M$99.20/ton (4.5 sen/lb). For the purpose of calculations in this table, it was assumed that while the economic life of a rubber tree is 32 years, the replanting cess is only paid during the years of maturity (25 years). Yields are average yields for the 25 year production cycle. - 46 - ANNEX 3 Table 2 RUBBER EXPORT DUTY STRUCTURE Gazetted Price Rate of Export Duty On the first M$2.10/kg Ad valorem nil Plus on the next M$0.40/kg Ad valorem 102 Plus on the next M$0.O5Ikg Ad valorem 20% Plus on the balance Ad valorem 30% NOTE: All duty is to be calculated in Malaysian cent (sen) per kg to the nearest 118 of a sen according to the formulae shown below (where "P" represents the gazetted price): Gazetted Price Exoort Duty Formulae (sen/kg) 210 and below -0- 210 118 - 250 0.10 P minus 21.00 250 1/8 - 300 0.20 P minus 46.00 300 1/8 and above 0.30 P minus 76.00 The various grades of rubber are classified into one dutiable category. A "Gazetted Price", which is used for the calculation of duty, is gazetted and published in the press. The "Gazetted Price" is derived by averaging the prices of the RSS 3 and SNR 20 grades for the period between the 16th day of the month preceding the previous month, and the 15th day of the pervious month. The effectiveness of the "Gazetted Price" commences on the first day of the month for a period of one calendar month. - 47 - AMEX 4 Page 1 of 6 IMALAYSIA RISDA II PROJECT RISDA's Replanting Program Achievements and Targets 1. Replanting of rubber provides for the replacement of areas of old, low yielding trees with trees of modern clones of enhanced growth vigor, higher yield potential and improved disease and pest resistance. It enables the industry to take advantage of the latest results of research in a structured way and particularly of the new clone recommendation which are triennially issued to the industry by the Rubber Research Institute of Malaysia. Old rubber trees continue to yield at low levels for many decades but at that stage their exploitation is not economic. Thus the annual rate of replanting of old rubber is a useful indicator of the vigor and, to some extent, the productivity of the industry. The industry norm for rubber is a crop production cycle of about thirty years, equivalent to an annualized replanting rate of about 3S. Under good field conditions, this 30 year crop cycle comprises some 5 years of immature crop and 25 years of production. In the smallholder sector, however, the average immaturity period is about 7 years and plantings often remain in production, at a low level, for thirty or more years. Renlanting Performance to Date 2. From its inception in 1953 up to the end of 1992, Malaysia's cess- financed rubber replanting program has supported the replanting of a total of 1,156,293 ha of smallholder rubber (this figure includes small areas of new plantings on vacant land within smallholder areas). The replanting performance for each year of the program is given in Table 1. The annual rate has fluctuated quite widely over the years. Prom a moderate beginning in 1953, it climbed within a few years to more than 20,000 ha/year and remained above 30,000 ha/year during most of sixties. The all-time annual peak of 46,041 ha was in 1965. Through the seventies, annual replanting levels were generally lower but they rose again in the eighties. Since 1987, the annual rate has remained consistently above 35,000 ha. In the RISDA I project period 1989-1992, annual replanting was above 37,000 ha and exceeded 40,000 ha in 1992. By totals, the first half million hectares was replanted by 1973 while the million hectare mark was passed in 1988 (Table 2). 3. Eliaibilitv for Renlanting. To be eligible for replanting grants, smallholders must have registered their rubber holdings with RISDA, have ownership title to the holdings, and at registration the areas must be growing a specified, low minimum number of rubber trees per hectare, regardless of condition or whether they are in production. Holders are eligible to replant with rubber or any of 18 other crops but areas planted with the assistance of the replanting grant to other crops become ineligible for future assistance and are eliminated from the register. Areas replanted with rubber are - 48 - AM 4 Page 2 of 6 eligible for repeat replanting grants on a 20 year minimum cycle although longer intervals would be more normal. 4e Catories of Replantinx. Each registered rubber area is recorded as a first, second or, to date, third round replanting according to the number of times it has been replanted under the grant program. RISDA has also assisted smallholders with grants or credit for the planting of rubber or other crops in pockets of land on which they also have title; these areas are usually located within or close by the main holding and without replanting assistance, would remain out of production. RISDA's total performance across these various categories, as at end 1992, was as follows: - total replanted area 1,156,293 ha - first round rep:antings 934,761 ha (811) - second round replantings 148,112 ha (131) - third round replantings 2ha - new plantings, eligible for grant 52,229 ha (42) - other plantings, not eligible for grant* 21,189 he (21) * program terminated from 1985 5. At the end of 1992, the total area replanted at least once was 934,761 ha. This compares with the 1,289,678 ha of old rubber registered with RISDA up to the end of 1991. Thus it would appear that some 355,000 registered hectares remain to be replanted, or about 272 of the total; however, many of the registrations date back to 1972 and many of the areas may ave been converted out of agriculture. Even though the replanting program has been operating for 40 years, first round replanting continues to be a major feature of the annual replanting program. Thus in each year of the RUSDA 1 project, there were 24,000 ha or more of first round replantings, about 601 of the total. In 1992, the area of first round replanting reached 309908 ha, 751 of the total and the largest annual area since 1973. These high levels of first round replanting reflect the focus and emphasis given by RUSDA to first round replanters in an effort to clear the substantial backlog of never replanted old rubber on smallholdings, and also indicate the continuing interest of these smallholders to replant. The earliest incidence of second round replanting of rubber, that is of rubber which had been replanted once under the grant in the early years of the program, was in 1974 with 474 ha. This was 21 years after commencing the replanting program in 1953, just over the minimum 20 year period for eligibility. This early replsnting indicates that the trees were in a less than satisfactory condition, whether due to poor quality of the original plantings or subsequent poor field maintenance. The annual area of second round replantings increased to around 10,000 ha by 1982, but despite an increasing demand for second grants, RISDA has stabilized the annual rate of second round replanting to the 10-12,000 ha range to ensure adequate funding for the priority first round replanting program. The first occurrence of third round replanting, involving only about 2 ha, was in 1992, just 40 years after launching the replanting program* - 49 - ANNEX 4 Page 3 of 6 6. Replantinr by Cron. Replanters have the choice of replanting their old rubber with rubber or any of 18 other eligible crops. The choice is vigorously exercised, largely in response to fluctuating commodity prices and market perceptions, but agroclimatic considerations in certain arcas of the country also affect decisions. To date, rubber has been the crop for about 772 of the total replanted area with most of the balance planted in oil palm. The distribution of the total replanted area by principal crops is : - 893,281 ha (772) of rubber, - 144,682 ha (12.52) of oil palm, - 54,498 ha ( 52) of fruits (non-citrus), and - 63,832 ha ( 5.51) of other crops. Details are given in Tables 1 and 2. Table 1 reveals that for the years 1953 through 1966, but excepting 1954 for which data does not appear reliable, rubber accounted for about 902 of the total annual area of replanting. In 1967, the combined annual percentage for other crops jumped to 202 and has stayed largely above that mark since that time. The rubber proporticn fell to 682 in 1972 when the planting of oil palm started to assume importance. The rubber share then remained in the 60-70S range through to 1985 when it suffered a further major decline. In the three years 1985-87, the rubber share vent below 502 of RISDA's replanting program, reaching its lowest point in 1986 at 412. Since then, however, the rubber replanting percentage has increased to about 802 as a result of erratic palm oil prices and most importantly, RISDA's efforts of encouraging smallholders to stay with rubber, giving highest priority to applications for replanting rubber with rubber and favoring applications from the predominately rubber growing northern and eastern states. Table 2 shows the planting levels of other crops over various years. Oil palm is now well established as the most important alternative crop to rubber but it did not feature in the early years of the progrsm. It has lost significant relative importance in the last 2-3 years. Non-citrus fruits have been fairly consistently favored by smallholders throughout the span of the program and recently have had iz'reasing popularity. The demands for coconut and cocoa have fluctua,.ad widely over the years but these two crops are now almost totally neglected; the period of active replanting with coconut was in the first twenty years of the program while for cocoa the interest was a 1980's phenomenon. The demands on RISDA over the years for crops other than rubber, and particularly oil palm and cocoa, have been largely driven by co-modity price differentials with rubber, along with the perception in very recent years as a result of the severe shortages of agricultural labor, that rubber production is a sunset industry. The recent strong demand for replanting with fruits may be an indication of the uncertainty that smallholders have as to the future of agriculture in the country, the direction of crop commodity prices and the longer term viability of rubber. 7. Reglantint Performance and Rubber Crornint Cycles. The normal thirty year crop cycle for rubber assumes that the planted stand remains economically productive throughout the period. To ensure this condition, the trees must be of good provenance, remain as a relatively high density stand, be healthy and vigorous, and have a history of careful exploitation so that there is an adequate reserve of good quality renewed bark available for - 50 - ANNEX 4 Page 4 of 6 tapping. These conditions have not generally prevailed over large areas of smallholder replantings, particularly those replanted in the first two decades of the program when there were shortcomings in the provenance of the planted trees and a generally low level use of production technology. From 1953 to 1971, seedlings were used in 165,000 ha or 362 of re1lantings (Table 3) as they were readily available and easy to distribute and use under smallholder conditions. However, the seedling provenance had only a very moderate yield potential which is unsatisfactory by current standards, and further, it waa difficult to assure their provenance because of difficulties of supervising seed collection and distribution. In hindsight, from the generally less than satisfactory production levels of those areas, it is believed that many of the plantings were not true to label, being seeds of unselected stocks. Even yields of areas planted with genuine seed were below those of the clones being distrib,ited and well below the best clones being widely adopted at that time by the estate sector. With low yields and little profitability, smallholders opted for minimal field maintenance and large areas of seedlings were either abandoned or allowed to revert to a rubber jungle. For the purposes of estimating the replanting requirements of these old seedling areas, their productive crop cycle is assumed to be only twenty years after which the areas should be replanted. In 1972, the Replanting Board, anxious to improve the potentials of smallholder production, ceased distribution of seedling rubber for replanting in smallholdings. 8. In the period up to 1971, 295,000 ha were planted with clones. Most of the clones were first generation with a lower yield potential than those of the more modern series which started to replace them from about 1971. Further, as for seedlings, many of the smallholder areas planted with clones in those years were subject to low levels of field technology resulting in trees of generally poor vigor and badly tapped. Their economic life, therefore, was shortened and many areas, if not already replanted, are likely to have gone out of production. It is RISDA's view that farmers should replant these stands as soon as possible. For planning purposes, all these pre-1972 areas are assumed to have a 25 year crop cycle. 9. From 1972, clonal materials of increasingly better quality became available and were distributed to smallholders. Standards of field technology also Improved. However, RISDA considers that the production potential of many of the plantings of the seventies is unsatisfactory relative to those with more recently distributed clones and thus many of the areas will almost certainly be in need of replanting after about 25 years. A generalized thirty year economic life for these plantings would not, therefore, be appropriate for planning purposes. In estimating the scope of RISDA's future replanting program, the post-1972 replants are considered as several groups to take account of gradually improving provenances and technology. For the 1972-1976 plantings, it is assumed that 50Z should be replanted after 25 years and 502 after 30 years, while for the 1977-1980 plantings, the percentages are 25% and 75X respectively. For all plantings from 1981, the full thirty year replanting cycle is taken as appropriate. On the basis, some areas would be ready for third round replanting from 2003. In practice, there will be many variations as evidenced by the first and tiny area of third round replanting completed in 1992 after a minimum of two 20 year cycles. Based on the above - 51 - ANNEX 4 Page 5 of 6 assumptions, the estimated annual areas falling due for replanting and the cumulative totals by year, for the period 1973-2020 are shown in Table 4. The figures are derived from the annual areas of first round replanted rubber (the very considerable first round areas replanted to other crops are not eligible for further replanting grant assistance). Estimates indicate that half a million hectares will be due for second round replanting by the year 2000; 75,000 ha will be due for third round replanting by 2020. Future Levels of Renlantinz 10. First Round Replanting. At the end of 1992, the estimated registered area of old rubber still to be replanted was of the order of 355,000 ha (para 5). However, the agricultural condition and current land use of these areas is not known. Many of the plantings may have been abandoned to urbanization or industrial estates, or other civil works and there may also be significant areas of disputed title. In planning for the replanting program in the years ahead, priority must be accorded to all the unimproved areas which remain in agriculture. Additionally RISDA believes that there may be as many as a further 150,000 ha of old rubber, particularly on lands of disputed or no title, which have not yet been registered. A portion of them may qualify for replanting grant assistance. However, in the absence of data on these latter areas and without any clear action program for bringing non- titled, but settled, areas into the replanting cycle, these unconfirmed 150,000 ha have not been taken into account in estimating the scope of RISDA's future replanting program. 11. Current policy gives replanting grant priority to areas in need of first round replanting and up to 1992, RISDA achieved about 30,000 ha per year, leaving funds available for 10,000 ha of second round replanting. This rate is expected to continue through 1993. For 1994/5 the annual replanting rate is expected to be reduced to about 30,000 ha due to insufficient funds available in the last two years of the Sixth Malaysia Plan, so that first and second round replantings on a proportionate basis would be about 22,000 ha and 89000 ha respectively. Although the program could continue high annual levels of first round replanting until the backlog of never replanted rubber is cleared, it is likely that the quantum of such areas coming forward each year would diminish as the size of the core area reduces. In estimating future performance, it has been assumed that after 1994-5, total annual replanting will return to 40,000 ha/year but that the levels of first time replanting would ease down to 28,000, 22,000, 15,000 and 10,000 ha per year over the following 13 years. The replanting of about 300,000 ha, 852 of the backlog, by that time should virtually complete that phase of the program. Thus from year 2009, replanting should be able to go over totally to second and third round needs. The scenario would have to be reviewed from time to time in light of replanting performance and evidence on outstanding registered lands remaining in agriculture. 12. Second Round Replanting. Table 4 shows that up to 1992, only 148,115 ha or 37% of the total estimated area of 402,797 ha due for second round replanting had been replanted. The estimated backlog was a little over a quarter of a million hectares. Table 4 indicates the future scope for - 52 - ANNEX 4 Page 6 of 6 second round replanting predicated on the priorities assumed for first round replanting up to year 2009. The backlog for second and third round replantings would continue to increase for a few years, peaking at around 275,000 ha in 1996, and thereafter slowly decline and be finally eliminated in 2016. At that time, the total cumulative area of completed second and third round replanting would be about 772,000 ha, some 624,000 ha more than at present. After 2016, the scope of the annual replanting program would be determined by the annual rubber area falling due for replanting which in turn would reflect the replanting levels of one and two planting cycles earlier. The program could decline to below 30,000 ha/year for a year or two (the low point would be about 21,000 ha in 2017) but would strengthen again because of the higher replhating rates of the late eighties and would soon return to annual levels of about 40,000 ha/year. This fluctuating program could leave RISDA with an excess of staff resources for a few years. Future Reilantina Poliev 13. Although Government's replanting policy is to rejuvenate old rubber expeditiously, agreed implementation rates are determined by availability of replanting cess funds and budget and, at the margin, RISDA's operational resources. Cess collections have fallen with declining national rubber production and the rapidly increasing consumption of local manufactured rubber on which cess is not levied; budgets are increasingly constrained by the many competing demands of the industrial sector, while recent replanting rates are considered to be close to RISDA's operational capacity. Under the Sixth Malaysia Plan an annual replanting rate of 40,000 ha has been defined but budget realities indicate that the rate will have to be reduced to about 30,000 ha/year for 1994-1995. The rate for the Seventh Plan has not yet been decided but under current economic conditions in Malaysia it is not likely to be expanded beyond 40,000 halyear. Thus the impact of the Sixth Plan is likely to be a reduced area awaiting first round replanting but an increased backlog of area requiring second round replanting. It is not clear how policy will be translated into action to rejuvenate the more than 750,000 ha currently in need of second round replanting. Decisions will be taken in the framework of the perceived importance of rubber in the future economic condition of the country, the welfare of the smallholders concerned, and the comparative returns to investments in rubber and industry. Other critical factors that will have to be taken into account include the severe labor shortages in rural areas, particularly in the rubber sector, and declining cess collections. An action plan of accelerated replanting could be considered to -duce the backlog of replanting as quickly as possible so as to rapidly increase the productivity of the industry. Thus if the annual replanting rate were increased to 60,000 ha, the combined backlog of never replanted rubber and overdue second round replanting could be eliminated by the year 2005. Conversely an annual program of just 30,000 ha would prolong the backlog for many years beyond 2020. The formulated policy as it affects the replanting rate and the extent and condition of the smallholder sector, will be in the context of moulding the future rubber industry to suit national objectives. - 53 - Malaysia ANNEX 4 Table I RISDA II Project Replanring Performance 1953-1992 Area (ha) Area (ha) Rubber Planted Planted Total as % with Other Area (ha) Total Year Rubber Crops Planted By Year Planting 1953 11923 55 11978 99.6 1954 9144 3073 12217 74.8 1955 10226 44 10270 99.6 1956 18690 1347 20037 93.3 1957 20163 1278 21441 94.0 1958 24131 1192 25323 95.3 1959 29884 1166 31050 96.2 1960 30896 703 31599 97.8 1961 26930 687 27617 97.5 1962 31337 958 32295 97.0 1963 37729 1756 39485 95.6 1984 36958 2792 39750 93.0 1965 41407 4634 46041 89.9 1966 21263 1694 22957 92.6 1967 32251 8555 40806 79.0 1968 15838 4961 20799 76.1 1969 15147 3434 18581 81.5 1970 21531 3990 25521 84.4 1971 23257 7480 30737 75.7 1972 23383 10919 34302 68.2 1973 28563 12295 40858 69.9 1974 23621 9427 33048 71.5 1975 21099 12559 33658 62.7 1976 14301 5519 19820 72.2 1977 12878 5474 18352 70.2 1978 13315 6038 19353 68.8 1979 14225 8228 22453 63.4 1980 15325 7694 23019 66.6 1981 22207 6867 29074 76.4 1982 23418 7783 31201 75.1 1983 22737 8980 31717 71.7 1984 17398 10959 28357 61.4 1985 10715 12516 23231 46.1 1986 12905 18628 31533 40.9 1987 16809 18418 35227 47.7 1988 22617 14116 36733 61.6 1989 25662 11955 37617 68.2 1990 29064 8659 37723 77.0 1991 31499 7782 39281 80.2 1992 32497 8287 40784 79.7 Total 892943 262902 1155845 Average 22324 6573 28896 77.8 - 54*- MALAYSIA ANNEX 4 Table 2 RISDA 11 Project Total Area (ha) Replanted and New Planted by Crop, 1953-1992 Year Rubber Oil Palm Fruits' Cocoa Coconut Other Total Total Non-Rubber All Crops 1889-6 124161 0 1992 0 2238 3925 8155 132316 1960-69 289757 7845 5656 0 5340 11384 30175 319932 1970-79 196173 43597 15985 443 9865 12039 81929 278102 1960-89 189793 77191 22802 14747 1271 1906 117917 307710 1090-92 93397 18049 8063 399 42 283 24836 118233 ToW 893281 144682 54498 15589 18756 29487 263012 1156293 77% 12.5% 5% 1.5% 1.5% 2.5% 23% Detai for Yearm 1988-92 1096 12905 11635 3219 3591 58 125 18628 31533 41% 37% 10% 11% 59% 1967 16809 10673 3252 4240 53 200 18418 35227 48% 30% 9% 12% 52% 168B 22617 8183 2911 2691 59 273 14117 36734 62% 22% 8% 7% 38% 106 25662 8131 2667 932 35 190 11955 37617 68% 22% 7% 2% 32% 1000 29064 6130 2205 214 20 90 8659 37723 77% 16% 6% 1% 23% 1001 31499 4959 2549 143 13 118 7782 39281 80% 13% 6% 20% 1902 32834 4960 3309 42 9 75 8395 41229 80% 12% 8% 20% Non-citus - 55 - Malaysia ANNEX 4 jbbe 3 RISDA II Project Rubber Replanting 1953-1998 Area (ha) by Crop Cycle of Replanted Clones Area (ha) Cumulatfve Planted Area (h) Seedlings Old Clones New Clones Year with Rubber Planted 20 Years 25 Years 30 Years 1953 11923 11923 3041 6882 1954 9144 21067 7088 2056 1953 10226 31293 9866 360 1956 18690 49983 14232 4458 1957 20163 70146 13171 6992 1958 24131 94277 14458 9673 1959 29884 124161 16949 12935 1960 30896 1550S7 9241 21655 1961 26930 181987 9346 17584 1962 31337 213324 9748 21589 1963 37729 251053 11172 26557 1964 36958 288011 8540 28418 1965 41407 329418 8450 32957 1966 21263 350681 6146 15117 1967 32251 382932 3355 28898 1968 15838 398770 5276 10562 1969 15147 413917 4545 10602 1970 21531 435448 6181 15350 1971 23257 458705 3862 19395 1972 23383 482088 11691 11692 1973 28563 610651 11781 11782 1974 23621 534272 11810 11611 1975 21099 555371 10549 10550 1976 14301 569672 7150 7151 1977 12878 582550 3219 9659 1978 13315 595865 3329 9986 1979 14225 610090 3556 10669 1980 15325 625415 3831 11494 i196 22207 647622 22207 1982 23418 671040 23418 1983 22737 693777 22737 1984 17398 711175 17398 1985 10715 721890 10715 i986 12905 734795 12905 1987 16809 751604 16809 1988 22617 774221 22617 1989 25662 799883 25662 1980 29064 828947 29064 1991 31499 860446 31499 1992 32834 893280 32834 1993 32000 925280 32000 1994 24000 949280 24000 1985 24000 973280 24000 1996 32000 1005280 32000 -56 - Malaysia ANNEX4 Table 4 RISDA II Project 2nd/3rd Replantlng 1973 - 2020 (all areas In ha) Newv New Cumubtive Area Cumulative Area Area due Area due Area due replanted Area Replanted waiting for Year for 2nd for 3rd for 2nd/3rd 2nd/3rd 2nd/3rd 2nd/3rd Replanting Replantin Replanting time Time Replanting 1973 3041 3041 0 0 3041 1974 7008 10129 424 424 9705 1975 98W 19995 1820 2244 17751 1976 14232 34227 1699 3943 30284 1977 13171 47398 2671 6614 40784 1978 23340 70738 3603 10217 60521 1979 19006 89744 5175 15392 74352 1960 9601 99345 5914 21306 78039 1981 13804 113149 7617 28923 84226 1982 16740 129889 9226 38149 91740 1083 20845 150734 10098 48247 102487 1984 21475 172209 10081 583k8. 113881 1985 30105 202314 9086 67414 134900 19W6 23730 226044 12141 79555 146489 1987 24944 250988 12070 91625 159363 1988 31833 282821 12345 103970 178851 1989 32963 315784 12899 116869 198915 1090 39138 354922 11022 127891 227031 1991 18979 373901 10039 137930 235971 1992 28896 402797 10185 148115 254682 1093 10562 413359 7885 156000 25s359 1094 10602 423961 8000 164000 255961 1995 15350 439311 8000 172000 261311 1998 19305 458706 12000 184000 268706 1997 11691 470397 12000 196000 268397 1998 11781 482178 18000 208000 268178 1099 11810 493988 18000 226000 261988 2000 10549 504537 18000 244000 254537 2001 7150 511687 25000 262000 243687 2002 14911 526598 25000 287000 233598 2003 15111 541709 25000 312000 223709 2004 15637 321 557397 30000 337000 214397 2005 14381 1177 572955 30000 367000 199955 2008 7151 1318 581424 30000 397000 178424 2007 9659 2004 593087 30000 427000 160087 2008 0968 2428 605501 40000 457000 142501 2009 10689 3183 619353 40000 497000 116353 2010 11494 3573 634420 40000 537000 91420 2011 22207 5430 662057 40000 577000 79057 2012 23418 6100 691575 40000 617000 68575 2013 22737 6050 720362 40000 657000 57362 2014 17398 4489 742249 40000 697000 39249 2015 10715 2877 755841 40000 737000 12841 2018 12905 3441 772187 29187 772187 0 2017 16809 4298 793294 21107 793294 0 2018 22617 6179 822090 28796 822090 0 2019 25662. 7506 855258 33168 855256 0 2020 29064 6950 891272 36014 891272 0 -57 - ANNEX S MALAYSIA RISDA II PROJECT Breakdown of Grent Payment by Crco 1/ Installment per Ha (M$) TOTAL Crop Type M___ IM$) First Second Third Fourth Fifth Sixth Seventh Rubber (A) 1828.57 1013.13 741.31 741.31 741.31 617.76 494.23 6,177.62 (B) 1359.07 617.76 555.98 555.98 432.43 432.43 247.13 4,200.78 Oil Palm (A) 1729.73 1359.07 864.86 494.23 . 4,447.89 (a) 1482.63 988.42 691.89 296.53 3,459.47 Cocoa (A) 2100.39 864.86 741.31 741.33 . . 4,447.89 (B) 1729.73 593.05 568.34 568.35 3,459.47 Cloves, (A) 1482.63 741.31 741.31 741.31 741.33 4,447.89 Nutrnags, CS) 1235.52 617.76 617.76 494.21 494.22 . 3,459.47 Coffee, and Non- Citrus Fruifts_ _ _ _ _ ___ _ _ _ _ Coconuts (A) 1729.73 741.31 741.31 617.78 617.78 4,447.89 and (B) 1482.63 543.63 543.63 444.78 444.80 . 3,459.47 Sago Pepper (A) 1976.84 1482.63 494.21 494.21 4.447.89 (9) 1729.73 988.42 370.65 370.67 . 3.459.47 Padi (A) 1482.63 1235.52 864.86 864.88 4,447.89 (B) 1235.52 741.31 741.31 741.33 . . . 3,459.47 Citrus (A) 2100.39 864.86 741.31 741.33 4,447.89 Fruits. (B) 1729.73 593.05 568.34 568.35 . . 3,459.47 Tea, Pineapple, and Manmil (A b aca)__ _ _ _ _ ___ _ _ _ __ _ _ _ _ Sugarcane (A) 1976.84 1235.52 1235.53 4,447.89 (a) 1729.73 864.86 864.88 . . 3,459.47 Orchid (A) 1976.84 1606.18 864.87 . . . . 4,447.89 (B) 1729.73 1111.97 617.77 . . . . 3459.47 Ginger & (A) 1976.84 1482.63 988.42 . . 4,447.89 Fodder (B) 1729.73 1111.97 617.77 . . . . 3,459.47 Crops .1I Effective Januery 1, 1991. (A) For owners of 4 ha (10 acres) or less. (B) For owners of more then 4 he (10 acres). -58 - A 6.1 RISDA II PROJECT iLOW OaT OF PR SPS RWUNTM Applicatt ei R0Iegletretion of Application 1-2 rRept applilection or 0-10 Cech Greant Index, Lot, Now- I I - ~~Not In O"ordvsie2r «IOoli ln or Prept visit formsa 21-80 Itnitial Visit aNd "be visit 1 |8a;tion of ldity 14-0 Lamination of S/SW fom carried out sisuita- partersbip p8p0r, neacalY with visit lndxities f InecessaY 7Evaluate aN advise 30-46 Accotemset for payment film app licat and F "All If appropriat er opation of It (Fund A) Change of crop imitation (oncarried out elsuita- 30-135 title) it nocoomry aou~~~neoly git). 8960CU1 e t for Fund 'A' lEvaluate visit rport 2-3 Eotify approval of application 12 rLan prearation by fanor 90120 Notification that land is ledy Ezaination (InspOction) Great visit of Land after farer 10-14 advises land Is ready 0 Evaluate Great Visit Report |otponsM j 2-3 Ii' Preparo romrd card, inden, 4-5 P lot and no and transfer for U IIPIrat Vogr r, ant | INotify PaysontI Order matoriols, prpaPre :f w~~~~~~~~~~~~~~~owehara and areon lT-2C Ordor planting eaterlale, vouchlg of cderralne at * fortilieors, Prepao payment sending of pestrii t p_Esatt vouchor Succeeding great processing Elapse time (total) Is 2349 sad p.yma*a & 5-1/2 to 7-1/2 omaha 238-29 8SP I if nO legal difficulties Pr_o Coploted Applicetion Rejted - 59 - KALiYLA AUEU 6.2 RISDA II PROJECT P1wo Chart of zProcoao Occurrence of Disoater Farmer reports disaster and applies for Rehbblitation Regietration of Application j JISDA inspector visits subject area tIspector iseues report & est- imtad cost of rebab. (F.?181) Application approved by AppliCation approvod by Re- State Officer for rehab. at g1anal Officer for rehab. at 2adi3rd replant. 8rent otag 4 th-7th replant. grant stage fIssue of Provisional Approval to Farmr (Form T27) to Farmer accepts rehab. assistanoe by return of Form TSS8 _ _ ~~~~~~~~I Inputs of Rehabilitation eoomeDce State Off. reports_ applications & ap- provals xnathly to_ HQ (Form TS55) Every trimester State Office re- ports on status of all rohab. approvals to HQ (Form TS92) Replanting Division regularly reports an status of rehab. program to RISDA Board. Completion of rehabilitation attested by Inspector's report Parmer continues replant under reg. grant program from stage disaster occurred - 60 - ANNEX 7 Page 1 of 6 MALAYSIA RISDA 11 PROJECT Production of Oualitv Planting Materials and Rubber Nursery Improvement The Concept and Achievement of Oualitl 1. Trees of a good field planting of rubber are vigorous and uniform in size. The key to achieving a good stand is the planting of quality planting material regardless of its type (budded stumps, young buddings etc). Without quality there will be higher planting losses, less uniform tree growth, a longer immaturity period, fewer productive trees and reduced yields. 2. The Characteristics of Oualitv. Good planting material consists of uniform, healthy, vigorous and desirable plants of the same age. If they are not of the same age, uniformity of vigor of the plants cannot be assured despite being of the same size. To ensure uniformity of vigor of budded rubber, the rootstock and scion components must each be of similar age. Nursery plants are normally supplied at the same stage of scion growth (2- whorl) and so to that extent, appear uniform. Commonly, however, the rootstock section of the plants are very variable in size (thickness of the stem) and thus are of variable vigor. But even if uniform in size, they may not be similar in vigor because of age differences. Big stocks do not necessarily equate with vigorous stocks - they may be older, slower growing plants of low vigor. Quality planting material of uniform vigor is only assured when the rootstocks and scions in a population of budded plants are each of uniform size and of similar ages. To be rigidly avoided is the mixing of populations of stocks or scions of different ages to achieve similarities in sizes particularly in field consignments as these will inherently be of mixed vigor and would become apparent in subsequent unevenness of tree growth. 3. Technologv of Oualitv Production. Nursery operators must know more than the basic techniquei ot raising budded plants if they are to produce quality materials. They must understand the concept of quality, know the necessary production techniques for it and have the objective (and incentive) to produce it. Achieving quality requires appropriate nursery production technology and management with a strong emphasis on plant selection which must be rigorously applied at all stages of the nursery cycle and particularly at germination, during growth of the seedling, budgrafting and during the growth of the budding. At each of these stages, the plants must be examined and selected for uniformity of vigor and all plants not meeting the criteria must be discarded. A list of critical criteria in the production of quality material is given in Appendix 1. 4. Training for Quality Production. Nursery production is a skilled process. It looks fairly simple but unless properly done, the results, especially after field planting, can be very adverse with important implications for the economic life and productivity of the plantings. Success requires knowledge of appropriate technology and adequate physical resources. These essentials are generally more available in large-. nurseries than in small scattered nurseries particularly at the village lerel but there is a dearth of operators at RISDA nurseries who have been well trained and have the - 61 - 7 Page 2 of 6 skills to produce quality plants. It is equally essential that RISDA staff concerned with the program of production and distribution of planting materials understand quality of plantiog materials and carry out meaningful monitoring for quality during their routine supervisions of nurseries and field deliveries - it is not just a matter of checking plant numbers and plant size (2-whorl plants). To these ends, the project will include a comprehensive training program for all concerned in the production of planting materials. An outline of the proposed training course is given at Appendix 2, while further details of the categories and numbers of trainees and costs are given in Annex 15, Table 2. Nursery Production in 1992 5. Ouantitv of Production. Over the past few years, the production of RISDA's planting materials has been decentralized from the Scheme 56159 nurseries to ESPEK nurseries on RISDA lands and, increasingly, to cooperative nurseries in line with RISDA's policy to support the development of RISDA cooperatives. The cooperative nursery managements, in turn, have contracted out considerable volumes of production to their individual members to be produced on their own holdings under the umbrella nursery concept. The total number of nurseries involved is not precisely known but including the many small umbrella nurseries was probably in excess of 150 in 1992. ESPEK coordinated production from their own and main cooperative nurseries but they were not responsible for ensuring production levels from other cooperative sources. Details of 1992 production are given in Table 1. Table 1: Supply of Planting Materials 1992 (millions of plants) TVDO of Planting Material Polybag Polybag Budded Young Budded Core Stump Budding Stump Stump Total Z Nursery Source RISDAI/SPEK nurseries 4.06 0.85 4.95 37 Cooperative nurseries 5.88 0.64 6.52 50 Others 1.65 0.05 1.70 13 Total 9.94 1.49 1.65 p.O5 13.13 100 76 11 13 1 100 Class of Clone Used Class I 4.73 0.53 0.80 0.01 6.07 46 Class II 5.19 0.93 0.83 0.04 6.99 53 Class III 0.02 0.03 0.02 0.07 1 Total 9.94 1.49 1.65 0.05 13.13 X 76 11 13 100 - 62 ANX 7 Page 3 of 6 Cooperative nurseries produced at least half of the requirements. About 762 of the supplies were in the form of budded stumps in polybags with most of the balance going out as polybag young buddings or bare-root budded stumps, often to cooperative nurseries for polybag production. Quantity and quality of the polybag young buddings has been critically inadequate (para 7). By clones, nearly all the production was from Classes I and II with little more than half from Class 11. 6. Quality of Production. With the rapid and large increase in the number of nursery sites, RISDA's overall supervision of the program became more difficult, less intensive and less effective. Adequate technical production skills at the nursery level were not assured and the overall quality of plants supplied to smallholders declined significantly. Sample observations on the quality of polybag budded stumps, the standard planting material produced, revealed that it ranged from very good to very bad according to management arrangements. In central nurseries operated and managed by ESPER, where production techniques and facilities are generally adequate, quality has been decidedly better than in cooperative nurseries. One very serious shortcoming, however, is that there has been very little plant selection and thus it cannot be assured that the plants received by smallholders are of high vigor even though they are otherwise generally healthy and up to size. In the cooperative nurseries and particularly in their umbrella offshoots, the basic production techniques are generally not in place and there is little evidence that there is any significant selection of plants on vigor of growth and overall quality is far from satisfactory. The losers in this system are the smallholder replanters who receive planting material of very variable quality, who are not sensitive to quality issues and who are not aware of the potential production losses from use of such variable materials. 7. The Production of Polvbaa Younit Buddings. In the last 2-3 years, RISDA has promoted pilot programs through the cooperatives for the production of polybag young buddings, a relatively new and more advanced type of planting material. Its production involves new production skills and more stringent physical facilities, especially for watering which, if not in place, generally result in poor quality plants. The unit plant production cost is also higher than for standard materials. The results of RISDA's young budding program, both in the ESPEK and cooperative nurseries, have been unsatisfactory, particularly in the cooperative nurseries and their umbrellas. Plants have been poorly grown and highly variable in vigor and losses have been high. Production levels have severely underrun targets. The problems have arisen from a lack of understanding of the new production system and the skills and physical inputs needed for its successful implementation. These deficiencies can only be rectified through a comprehensive training program. Meanwhile, to protect the interests of the smallholder replanters, young buddings should not be part of RISDA's regulae planting material production and distribution program. Further, their production must be centralized and restricted, at this stage, to those few ESPEK nurseries which have the production skills, necessary nursery infrastructure and resources to produce materials of quality. 63 ANX 7 Page 4 of 6 Production Arrantements Under the Proiect 8. A move to more centralized production arrangements where appropriate levels of skills, input facilities, management and RISDA supervision could be provided is *uecessary to ensure that RISDA's nursery production targets vill be achieved and, most importantly, to reverse the decline in quality of planting materials going to smallbolders. To this end, production will be refocussed on central nurseries under the project. 9. ArranBements for 1993. RISDA has made ESPEK responsible for arranging production of the year's requirements of about 14 million plants. For most of the production, contracts will be awarded to cooperatives to maintain their strong role in the program. Most of the production in the ESPEK nurseries will be undertaken by selected cooperatives or consortia of cooperatives under contract working under the supervision of ESPER supervisors. There will also be contracts for production at specified cooperative nurseries which will be subject to some ESPEK supervision. The cooperatives will continue to have the facility to subcontract production to umbrella nurseries which will not be supervised by ESPEK. The total number of nurseries for the year will remain large but fewer than in 1992. There will be about seven large central nurseries on RISDA/ESPEK lands, about 19 nurseries on cooperative lands and an undetermined number of umbrella nurseries. The seven nurseries will be in the States of Kedah, Perak, Johore, Pahang, Terengganu and Kelantan. An ESPEK nursery may also be developed in Melaka. These ESPEK managed central nurseries are targeted to produce around 5 million plants or 352 of RISDA's requirements. Production in the 19 cooperative nurseries in various States and in the umbrella nurseries will amount to about 60Z of RISDA's requirements (Table 2). All production in Negeri Sembilan will be from umbrella nurseries. The balance of RISDA's requirements will be produced directly by ESPEK who will also produce an additional amount of about 201 of RISDA's total requirements to provide a buffer for supply shortfalls from the cooperative and umbrella nurseries. Table 2: Planned Type and Source of Planting Materials for 1993 (millions of plants) Cooperatives at Other Type of RISDAIESPRK RISDA/ESPEK Cooperative Material Nurseries Nurseries Nurseries Total Polybag budded stumps 1.70 0.95 3.61 6.26 Polybag young budding. 0.30 3.57 4.75 8.62 Others 0 0.15 0.87 1.02 Total 2.00 4.67 9.23 15.90 - 64 _ ANNEX 7 Page 5 of 6 10. Arranaements for 1994 Onwards. The number of nursery sites will be further centralized and decreased to about 15 total. These will consist of 9 or 10 nurseries on ESPEK sites but operated by consortia of cooperatives, and a few cooperative nurseries in areas not well served by the proposed ESPER/cooperative nurseries. The actual number in these remoter areas will depend on RISDA logistics of being able to distributu plants to smallholders in all parts of the country and particularly in areas of difficult access such as Ulu Kelantan and North Perak (Grik). A list of the proposed sites is gliven in Appendix 3. ESPEK will be responsible for the production of RISDA's total requirements and will keep all sites under supervision. ESPEK will have management responsibility for performance of the contracted cooperatives on ESPEK sites, the large production areas, and will maintain full time supervisors on site who will be closely involved in day to day operations. In the remoter nurseries on cooperative member lands, ESPEK will supervise periodically but will not be involved in the daily operations. In addition to the buffer supply of planting materials, ESPEK will also get 20X of the regular planting material contract and use the profits from the contract to cover its incremental cost of supervision of improved rursery arrangements. 11. Consultant Assessment of Nursery Operations. In a move to assure quality of planting materials, RISDA will contract with RRIN as consultant to provide an independent assessment of performance of the nurseries. The consultant will regularly monitor nursery operations at each critical stage in the plant production cycle and will report observations and recommendations to RISDA and ESPEK as well as official agencies. There would be about 8 visits to each nursery in the production cycle. The proposed schedule of visits in relation to stages of growth of the nursery materials and the critical criteria for assessing the quality of nursery performance are at Appendix 4. Choice of Clones 12. RISDA/ESPEK nurseries maintain a total of about 854,000 clone source bushes for use in budgrafting. At a conservative estimated production of 25 buds per bush per year, total production would be about 21 million buds which, after allowances for losses, would be sufficient for program needs. This assumes, however, that virtually all clones represented would be desirable for smallholders. A fairly large but unknown number of source bushes are also available in cooperative nurseries but with general concern over the reliability of their labelling, they will not be used in the ESPER managed program starting 1994. The ESPEK nursery source bushes comprise all 6 of the Class I RRIM recommended clones and 17 out of the 20 Class II clones. There is a small selection of 16 Class III clones but none of this category is recommended for smallholder use other than for trial purposes under controlled conditions. In light of the RRTM's view that future plantings should be with clones suitable for LITS exploitation cystems, it is necessary to e"aluate the source bush numbers in respect to snitable clones for the technology. The distribution of source bush numbers by clone classes and suitability categories for LITS are shown in Table 3. _ 65 - ANNEX 7 Page 6 of 6 Table 3: Clone Source Bush Numbers in ESPEK Nurseries (thousands) Suitable for Clone Suitable for LITS with Not Class LITS Restrictions Classified Total S I 195 90 0 285 33 II 0 290 258 548 64 III 0 0 21 21 3 Total 195 380 279 854 100 2 23 44 33 100 13. Although 97% of the source bushes comprise Class I and II clones, only 67% of the bushes are of clones suitable for LITS, indicating that there is a potentially serious program supply problem. The potential undersupply is particularly serious for Class I clones. The numbers of source bushes of Claos I clones recommended for LITS without limitations (195,000) meets only 23Z of total requirements, a very inadequate proportion in relation to the recommendation that smallholders should be planting not less than 50X of their area with Class I clones. For the 50% balance of area, smallholders may use all Class II clones; these should be suitable for LITS but in the case of progressive farmers, 20S could be speculative clones in that they have not been evaluated for LITS. The nursery population of 548,000 source bushes of Class II clones includes 290,000 source bushes of the three Class II clones suitable for LITS with restrictions; these could provide about 33% of total Class II replanting requirements. Therefore, there is a deficit in the Class 1I category to cater for general smallholders requirements. There would be no difficulty in meeting the additional clone requests from progressive farmers. Clearly ESPEK will need to adjust their source bush nursery clone populations as a matter of priority to meet project requirements. In particular, the numbers of Class I clones without restrictions need to be increased and proportions changed smong the Class II clones, particularly stressing those clones which have already been provisionally identified as suitable for LITS. Numbers of other Class II clones should not be expanded without signals from the RRIM as to their performance with LITS. There should be no further expansion of Class III clones. _ 66 _ A=7 hooedix I Page 1 of 2 MALAYSI RISDA II PROJECT Critical Technical Factors in Production of Qualitv Rubber Plantinft Materials Production Stage Critical Factors Seeds Use seeds of clones CT I, ERIM 605, 623, 712 and 901, PB 5151, 217 and 235. Avoid seeds of clones RRDH 600 and PB 260. Use fresh viable seed only. Germination Transplant seedlings as soon as radicals emerge. Discard all seedlings with twisted roots. Discard all seeds germinating after 15 days. Young Seedlings Discard genetic yellows, runts and unhealthy plants. Seedlings up to Carry out regular selection rounds. budgrafting Eliminate undesirable seedlings to produce population of uniform and vigorous plants (discarding 30 - 40% at this stage is normal). Use only slow release fertilizer for polybag seedlings and young buddings. Budgrafting Bud only well-grown stocks. Discard all unbudded or unsuccessfully budded stocks in ground nursery or polybags ifter two budding rounds. Cutback Cut short snags for green buddings, long snags for young buddings. In green budded stumps, cut back sna& to below stem bud clusters (nodes) where pructical. Cutback first and second round buddgrafings at the same tim for more even growth of buddings. - 67 - A 7 A&pendix I Page 2 of 2 Production Stage Critical Factors Clear col _ marking system for all plants of each clone. Polybags Avoid re-cycled polythene. Fill bags with quality soil. Do not over-crowd bags in nursery - double rows of bags preferred. Install sprinkler watering system. Planting of Stumps Use only stumps with straight taproots. All twisted roots must be discarded. Cut back tap root to about 20cms long. Insert firmly into polybag with wet soil to the full length of the root to ensure lateral root zone covered by soil. Maintain frequent inspection rounds for stock shoots (twice per week) and remove. Eliminate all plants with weak or undesirable scions. Budding. in bags Remove plants with weak, abnormal and semi- dieback scions. Maintain selection pressure on population and remove all plants lacking vigor. Firm soil around the plant collar. Have clones verified as appropriate. Field planting Tail polybag plants suitable for field planting at least one week before. Transplant only uniform and vigorous plants with two or, at most, three whorls of hardened, healthy leaves, not counting any short first whorl with yellow or fallen leaves. _ 68 - Appendix 2 Page 1 of 2 RISDA II PROJECTT Trainina in Production of Planting Materials 1. Training of key personnel is a first and critical step in the program to upgrade quality of rubber planting materials produced for RISDA's replanting program. All will be required to undergo a broad and intensive 10- day course on the production of rubber planting materials to be provided by the RRIN. They include ESPEK nursery managers and supervisors, cooperative nursery managers and supervisors involved in the production of planting materials under cooperative contracts in central and cooperative nurseries and the few cooperative umbrella nurseries in isolated areas, and selected RISDA staff involved in the overall performance of the program. RISDA staff will include extension staff concerned with monitoring of production and supply of materials in individual nurseries and in the overall program, and for refresher training, the RISDA trainers in planting material production at the RISDA training institutes. The focus of the course vill be on understanding the full meaning of quality planting material, particularly in respect to uniformity of vigor, and the technologies required to produce such materials of the types used by RISDA. In this, there will be a strong emphasis on plant selection as the key tool in the process. 2. The outline schedule of the proposed RRIM course is given on the following page. In format, it is a combination of lectures, discussions, and, in most morning sessions, hands-on practicals. A visit to a commercial nursery is also included. The courses will be conducted at Sungai Buloh and for training effectiveness, they vill be limited to about 15 participants each. Fees charged cover tuition, lodging and food, and transport. _69 _ ANNEX 7 Anpendix 2 Page 2 of 2 Outline and Curriculum of Training course Day Subject Matter Day I Assemble Day 2 Course orientation Rubber seed collection and identification Seed selection Seed germination, seedling selection and planting Day 3 Types of planting materials Principles of selection Preparation and planting of ground nursery Day 4 Establishment of polybag nurseries Production of budded stumps in polybags Day 5 Production of young polybag buddings Production of core stumps and other advanced planting materials. Day 6 Establishment and maintenance of source bush nursery Source bush production Harvesting and packing of budsticks Day 7 Free Day 8 Manuring of nurseries and polybags Clones and clone recommendations Day 9 Visit to commercial nurseries Day 10 Chemical weed control in nurseries Pest and disease control. Day 11 Departure - 7O0 ANNEX ? Appendix 3 Page 1 of 1 MALAYSIA RISDA II PROJECT ProDosed Central and CooDerative Nurseries from 1994 No State Nursery Location Management 1. Kedah Bukit Perak ESPEK 2. Kedah Baling Cooperative 3. Perak Gunung Tunggal, Sitiawan ESPEK 4. Perak KS.Changkat Sulaiman ESPEK 5. Perak Crik Cooperative 6. Melaka Kesang Pajak ESPEK 7. Johore Kg. Sekijang ESPEK 8. Pahang KR. Awak ESPEK 9°. Pahang Gambang ESPEK 10. Terengganu Bt.17, K.Berang ESPEK 11. Terengganu Proposed, Kemaman (Cooperative) 12. Kelantan Gading Galoh ESPEK 13. Kelantan Proposed, Ulu Kelantan (Cooperative) 14. Kelantan Proposed, Ulu Kelantan (Cooperative) 15. Kelantan Proposed, Tanah Merah (Cooperative) 16. Negeri Sembilan Proposed, to be determined (ESPEK) - 71 - ANNEX 7 Agpendix 4 Page 1 of 2 MALAYSIA RISDA II PROJECT fRODUCTION OF PLANTING MATERIALS Visit Schedule and Assessment Criteria Visit Stage of Sequence Nursery Operations Assessment Criteria First Land/polybag (i) Soil suitability preparation (ii) Irrigation facility and water source (iii) Polybags: plastic material, size, placement, soil quality and filling Second Seed germination (i) Seed freshness and viability, germination tests (ii) Seed planting, days to germination (iii) Budwood nursery: capacity, vigor and health of source bushes, pruning, clone demarcation Third Transplanting of (i) Handling techniques for germinated germinated seed seed (ii) Adequacy of watering polybag nursery (iii) Organization and maintenance of ground nursery, control of weeds (iv) Condition of source bushes Fourth 1 month after (i) Culling program for runts, genetic transplanting yellows and undesirable seedlings (ii) Watering of polybag nursery (iii) Condition of ground nursery (iv) Adherence to recommended fertilizer prograe Fifth Time of budding (i) Percent seedling buddability (ii) Seedling vigor and uniformity (iii) Status of budwood nursery, quality and quantity of budaticks (iv) Color coding for clone identification (v) Fertilizer program: manuring of ground nurseries and foliar application in polybag nurseries _ 72 _ aNRE 7 Aogendiz 4 Page 2 of 2 Visit Stage of Sequence Nursery Operations Assessment Criteria Sixth Cutback and planting (i) Snag length of budded of budded stumps stumps and young buddings (ii) Stem size of budded stumps, length of cut tap root, culling of undesirable tap roots (iii) Discarding of all budding failures and all unbudded smaller plants after two budding rounds (iv) Adequacy of manuring and watering Seventh I - 1 months (i) Bud sprouting, condition of scion after cutback growth (ii) elimination of undesirable buddings (iii) Pruning of stock shoots (iv) Adequacy of manuring and watering Eighth Tvo-whorled polybag (i) Census of quality two-whorled plants polybag plants by clones (ii) Color coding of clones (iii) Culling of small and undesirable plants (iv) Tailing of plants ready for dispatch (v) Packaging of plants (vi) Adequate watering of tailed plants _73 _ ANNEX 8 Page 1 of 3 MALAYSIA RISDA 11 PROJECT Clone Choice and LITS 1. Field experience of many years including two years in Malaysia has confirmed that LITS technology (reduced frequency tapping with stimulation) is effective in eliminating problems of severe shortages of tappers, a particularly relevant factor threatening the viability of the rubber industry in Malaysia at this time. It is also a powerful technology for improving the efficiency of crop production and economic returns above the levels normally achieved with standard alternate daily tapping. For these reasons, the RRIM has described LITS technology as the way of the future for the rubber industry. 2. The critical factor in determining the success of a LITS program, apart from the influences of implementation arrangements and agroclimatic conditions, is the suitability of the rubber clones used with the technology. Some clones respond well to stimulation, an integral part of LITS technology, while others do not. Yield responses to stimulation vary according to the inherent physiological characteristics of clones and particularly their levels of metabolic activity. Clones with high activity are easily stressed by atimulation, which by its nature promotes higher metabolic levels, and may develop serious problems of bark dryness. Thus, in introducing LITS, it is imperative to know the suitabilities of the clones to be used. It is equally important for the industry and the farmers that the clones chosen for the planting of rubber areas from now onwards will be suitable for the technology and will be able to sustain long term productivity to ensure the economic viability of the rubber smallholdings. The appropriate clone choice requires a knowledge of the relevant characteristics and suitability of the currently recommended clones for planting by smallholders. It will be 6-7 years before clones planted now will enter into production; at that time LITS is expected to be standard exploitation technology. 3. The current RRIM clonal recommendations published in late 1992 recommend only Class I and IT clones for smallholder planting. From these groupings, the RRIM's recommendations to RISDA for their replanting program are the Class I clones and 10 out of the 20 clones of Class II. Details are given in Table 1. The recommendations provide no guidelines on clone suitability for LITS. The limited information on clone responses to stimulation is in the context of the use of stimulant to increase yields under standard tapping systems, a concept which is not compatible with LITS technology as the purpose of the stimulation is to compensate for otherwise reduced production as a result of less frequent tapping. RRIM has, however, some limited unpublished information from their own tests on clone responses to stimulation with LITS and, in the case of some clones, documentation of responses from trials and commercial practice in other countries. A broad based review by RRIM senior technical staff of this information for the Class I and Class II clones of the RRIM recommendations enabled the identification of an interim list of clones which could be expected to respond suitably to _ 74 - ANNEX 8 Page 2 of 3 stimulation with LITS and which could therefore, be recommended to smallholders for planting at this time. 4. RRDX stresses that the list is interim. During the project they will accelerate efforts to define the suitability of most, if not all, their recommended Class 1 and 2 clones for use with LITS technology and particularly the clones of Class II, many of which are highly popular for planting. For this purpose, they will mount a series of short term trials to evaluate the responsiveness to stimulation with LITS of the 10 Class II clones especially recommerded for RISDA smallholders and also clone PB 260 of Class I, the one clone of that class which may not be suitable for unrestricted use with the technology. Out of this program, RRIM hopes to be able to provide RISDA with more definitive planting guidelines within the next 3 years. Results would be supplemented by researches on physiological aspects of stimulation and a survey to determine the production performance of Class II clones planted by progressive smallholders, that will be undertaken by RRIM under the project in support of the LITS initiative. Clone Recommendations for LITS 5. The RRIE review of all Class I and II clones identified only 9 clones which, at this time, could be recommended with reasonable confidence for use with LITS. The list includes all 6 current Class I clones and 3 clones from Class II. There are agroclimatic restrictions on the use of LITS with three clones, one clone from Class I and two from Class II, because of concerns of their responses when growing in regions less favorable to vigorous growth and production. The current list of 9 clones recommended for use with LITS is as follows: Class I RRIM 600 RRIM 712 PB 217 PR 255 PR 261 PB 260 (with regional restrictions) Class II PB 280 RRIM 901 (with regional restrictions) PB 235 (with regional restrictions) 6. The three clones subject to agroclimatic restrictions are PB 260, BRIM 901 and PB 235. These restrictions are based on observations of increasing levels of bark dryness when the trees of these clones are growing under more stressful conditions, such as in poor and sandy soils, areas of pronounced and prolonged vater deficits and possibly low soil potassium levels. Also, clone PB 235 should not be planted in wind prone areas. The BRIE will prepare an enviroumax map to delineate the soil type and rainfall areas of the Peninsula where the planting of these three clones for future axploitation under LITS is not recommended. 7. The remaining Class II clones which RRIM recommends to RISDA for uallholder plantings, viz. ERIM 805, 936, 937, 938, PM 10, PB 255, RRIC 100 - 75 - ANNEX 8 Page 3 of 3 and BPM 24, are not included in the LITS list despite their good growth vigor and high early yields, because of either insufficient information on their responses to stimulation or concerns over the incidence and levels of tree dryness with stimulation. However, until more definitive data is available on stimulation responsiveness, progressive smallholders could continue to consider these seven clones for planting on a limited basis. These smallholdere could be particularly those who do not foresee tapping labor problems, who put a very high value on clone vigor, who believe they are unlikely to adopt LITS, and who are prepared to take the risks of any future problems arising with these clones. Table 1: RRIM Clone Recommendations for Smallholders Class Clone Response to Resistance to Stimulation 1/ Tree Dryness 1/ IRIM 600 5 5 RRIM 712 3 3 PB 217 3-4 4 PB 260 4 2 PR 255 4 3-4 PR 261 4 3-4 II RRIM 623 5 3 RRIM 701 1-2 3 RRIM 728 NA 2 RRIM 729 NA 2 RRIM 805 NA 3 BRIM 901 - a/ 2 RRIM 905 NA 2 BRIM 936 NA 3 RRIM 937 NA 3 RRIM 938 NA 2 PB 28/59 3 1 PB 235 3 2 PB 254 NA 3 PB 255 3 2 PB 280 - a/ 4 PM 10 3 1 RRIC 100 NA 3 RRIC 110 NA 3 Nab 17 NA 3 BPM 24 NA 3 Sources RRIM Planters' Bulletin, Second Quarter 1992, No. 211 Scale 1 to 5: 1 poor, 2 below average, 3 average, 4 good, 5 very good NA - Not available aL Results not yet published. _76 _ ANNEX 9 Page 1 of 3 MALAYSIA RISDA II PROJECT Extension Intensification Program 1. Based on the prioritization of extension activities in Table 1, it is projected that RISDA's extension activities over the next ten years will cover at least 100,000 smallholdersloperators annually, of which about 35,000 smallholders/operators would be new entrants into the extension fold. Of the 100,000 smallholders to be covered, about 80,000 would be under immature rubber and other crops (15,000 new every year) and about 20,000 new smallholders/operators every year under mature rubber. These numbers are based on assumptions and extension policy detailed in the following paragraphs. The term operators has been included to cover hired tappers on mature rubber holdings where smallholder owners may be absentees or unable or unwilling to work. 2. In the last few years, RISDA's annual replanting rate has been about 40,000 ha with all crops. In addition, in 1992 about 150,000 ha were under second and subsequent grant payments. Assuming about 1.73 ha per smallholder (which was the average in 1991), the total smallholders served in 1992 were about 110,000. However, about 15,000 smallholders were estimated to be under FELDA and FELCRA, and they were not given extension by RISDA. In addition, about 152 are assumed to be absentees or non-participating in active work (this figure may be a gross underestimate and needs to be verified later). The RISDA coverage was thus about 80,000 smallholders for immature rubber and other crops, of which about 15,000 were new replanters (40,000 ha of replanting divided by 1.73 and then excluding FELDA/FELCRA). If the replanting rate is 30,000 - 40,000 ha p.a., the number of smallholders covered is expected to be more or less the same as above in future years. However, if the number of absentee or non-active smallholders turns out to be much more than the assumed 15X. as it may. then the number of smallholders reached through RISDA's extension for immature rubber and other crops would be substantially less. 3. Unlike immature rubber and other crops, where the number of smallholders covered is automatically determinci by the replanting rate (given the average farm size and barring the cases of absentee or non-active smallholders), it is necessary to set a target for smallholders/operators to be reached through mature rubber extension. An initial target of 20,000 new smallholders/operators every year has been derived from the proportion of extension time expected to be devoted to the extension topics of low intensity tapping and standard tapping system (Table 1). Additional smallholders would be reached every year through other extension topics and these numbers would be known at the end of the year through the new monitoring module being developed for smallholder training, but no targets would be sat for these topics since the proportion of extension time and budget allocated to these is small (Table 1). - 77 - Ah xL9 Page 2 of 3 4. The initial conservative target of 20,000 new smallholders/operators every year for mature rubber is based on the following assumptionst (a) It is estimated that about 40 staff weeks for extension staff is available every year (that is, excluding leave, holidays, etc.) for all activities including pre-replanting campaigning, replanting inspection, input supply, infrastructure supervision, mini-estate management and extension. (b) There are over 1300 extension staff in RISDA. However, 114 are assigned to cooperati-es. They perform management functions and are not available for other RISDA activities. Moreover, about 300 mini- estate supervisors also perform primarily management functions and have a limited extension function for smallholder participants only. Thus it is estimated that only about 1,000 staff are available for RISDA's general activities including extension. (c) Since at present about 50% of replanting is on individual holdings, which are scattered and sometimes very isolated, a significant proportion of RISDA staff time is spent on input supply, replanting inspection, and extension for immature rubber and other crops on individual holdings. With increasing TSB and TSS replantings, less time would be required for these activities in future and more would be available for extension for mature rubber. At this stage, it is estimated that non-extension activities of RISDA extension staff consume about 30 staff weeks a year, leaving about 10 staff weeks for extension per extension staff. (d) If 50% of extension time is devoted to low intensity tapping and standard tapping system (Table 1), about 5 staff weeks or 25 days per extension staff would be available for these techniques. (e) Method demonstration is considered the key communication method for extending technology by the extension staff. It is estimated that about half a day is required for method demonstration but another day or day and a half may be required for pre- demonstration organising activities. Thus it has been assumed that about 12 method demonstrations a year could be organised by an extension staff for low intensity tapping and standard tapping system (assuming separate target groups for each technique). (f) For each method demonstration, about 5 smallholders/operators are considered an optimal group. However, method demonstrations need to be repeated to the smallholders/operators at intervals for an effective transfer of technology. Thus, if it is conservatively assumed that the method demonstration needs to be repeated 3 times in the year for the same smallholder(operator group and, say, 6 method demonstrations each for the low intensity tapping technique and standard tapping system were held by each extensioa staff in a year, 4 groups of 5 smallholders/operators each or 20 smallhulders/operators in a year could be effectively reached by an extension staff. This - 78 ANNEX 9 Page 3 of 3 means that if about 1,000 extension staff are available in RISDA, about 20,000 new smallholders/operators could be reached every year at least for the low intensity tapping technique and the standard tapping system. (g) The smallholders/operators reached for the low intensity tapping technique would be different from those reached for the standard tapping system but could be the same as for manuring, disease/pest/weed control, latex processing, polybag collection of latex, cooperative campaigns, PWPK, etc. Additional small numbers of smallholders would be reached through extension for upward control tapping. The coverage of RISDA's extension for mature rubber would, therefore, be actually higher than the target of 20,000, which only indicates the minimum number. (h) The target would be distributed among States according to the area under mature rubber and the number of extension staff available in each State. (i) The target would be adjusted upwards in later years as more information becomes available through the smallholder training module next year and as extension time and capability increase. _ 79 _ TABLE 1 MAIAYSL RISDA It Proiect Extension Intensification Progtram Prioritization of Extension Activities for 1994 - 2003 Percentage of Exte:.sion Time & Budget to be Objective Allocated Extension Topic (a) Mature Rubber i) Increasing 30% a-3 i) Low Intensity Tapping System productivity (including stimulation, tasking, recovery tapping, bark consumption and tapping quality) 20% aJ ii) Standard Tapping System (including bark consumption, tapping quality, tasking, recovery tapping and stimulation as booster and for panel C/D cly) { iii) Upward Control Tapping 10% { iv) Manuring { v) Disease/Pest/Weed Control ii) Improving 5% { i) Latex Processing processing { ii) Polybag Collection of Latex efficiency (b) Immature rubber and { i) Pre-Planting Activities other cro)s { ii) Land Preparation Technique i) Decreasing 25% { iii) Planting Technique immaturity period { iv) Weed Control & ensuring { v) Manuring vigorous developmen' { vi) Disease/Pest Control vii) Pruning TechniquejBranch Induction (c) Coonerative development and other activities i) Supplementary { i) Cooperative Membership, Shares, income generation Farm Management, Contract and smallholder Management, and Nursery entrepreneurship Techniques and Management 10% { ii) Cash Cropping { iii) Small Industries { iv) PWPK { v) Hedgerow Planting and any other experimental activities aT This is the expected approximate proportion in year 1997. In years 1994-97, low frequency tapping extension will gradually increase from about S to 30% as it spreads from mini-estates to TSBs to ISSs and individual holdings (see Table 2). StandarcA tapping system extension will correspondingly decline from about 45% in 1994 to 20% in 1997 and onwards. MALAYSIA RI8DA II PROJCT ZxmS OR wrMTNSIXFcATION PROG PHASING OP THE 10-YEAR EXITES IOU PROGRAM (a) Mature Lubber 1IM l995 .1996 1997 1998 1999 2000 2001 2002 2003 i) Low IntensLty Tapping system (LITS) (a) Mini-Estates aJ * bl *J * - (b) TSBs( D3 or D4) - * dJ * * * * * * * * (c) TSSu/Individual Holdings - - * eJ * * * * * * (D3 or D4) ii) Standard Tapping System * * * * * * * * * * iii) Upward Control Tapping * * * * * * * * * * iv) Manuring * * * * * * * * * * v) Disease/Pest/Weed Control * * * * * * * 5 * * vi) Latex Processing * * * * * * * * * * vii) Polybag Collection of Latex * * * * * * * e * * (b) Immature Rubber and Other Crops * * * * * * * * * * (e) Coop,erative Develooment and * * * * * * * * * * Other Activities ° * moans extension program will be undertaken. - means extension program not undertaken. aJ Testing of D3 on selected mini-estates. The program began around mid-1993. bl Adoption of LITS with D3 and D4 tapping frequency on several mini-estates and testing of lower frequencies on a small number of selected mini-estates. ci Adoption of LITS with 03 and D4 on all mini-estates affected by tapper œhortages and continued testing of lower tapping frequencies. di A few large TSBs with tapper shortage to be selected for a pilot program. eJ A few TSSs with tapper shortage to be selected for a pilot program. Notes Only D3 and D4 have been covered above since these technologies can be readily implemented on a large scale. D5 and D6 will only be tested on a pilot scale during the RISDA II project period (1994-1996). Should other new technologies become available in the future, they would also become part of the extensior. program. 10rn _ 81 _ AN 10 Page 1 of 3 MALAYSIA RISDA II PROJECT RRIM Rearch Component 1. The RRILM will pursue five research studies under the project, including four experimental programs and a survey, all supportive in various ways of project long term objectives of improving the performance of smallholder rubber and the economic condition of the smallholders. Four of the studies are concerned with clone performance particularly in relation to LITS technology; of these, two are concerned with the production performance of Class II clones and should yield significant information within the project period; and two are longer term, more fundamental researches on physiological and biochemical parameters of rubber production linked to yield performance with stimulation. The fifth study is a long term experiment on mixed cropping systems with tree crops involving rubber. Details of the proposed studies follow. Study 1: The Responses of Class II Clones to LITS Technology 2. Current RRIM clone recommendations do not address the suitability of the clones for LITS with stimulation. Further, RRIM has very few test results on responses of their recommended clones to this type of exploitation, particularly of Class II clones, and thus is not in a position to provide strong guidance in this matter for intending replanters. With LITS identified as the technology of the future for rubber exploitation, it is imperative to provide clone planting guidelines in respect to LITS as a matter of urgency. Low frequency tapping with stimulation trials will be conducted in four different agroclimatic regions, including dry northern and wet eastern regions, on at least 7 of the most promising recommended clones but up to a total of 12 clones if facilities are available. Of the 7 clones, two are from Class I (RRIM 712 and PB 260) and 5 are Class II (RIDM 901 and 937, PB 235 and 280, and PM 10). The additional 5 clones, all Class II, make up the balance of Class II clones that RRIM currently recommends to RISDA for smallholders, namely RRIM 936 and 938, PB 255, RRIC 100 and BPM 24. The clones would be evaluated over three years in replicated treatments of at least 20 trees per treatment. The trials would test the clone responses to third, fourth and sixth daily tapping with 2.52 ethepon stiDulation applied 6,8,and 12 times/year respectively, on virgin and renewed bark. The controla would be alternate or third daily tapping without stimulation. Estimated Cost MR 0.70 million Study 2: The Production Performance of Class II Clones on Smallholdinms 3. Progressive smallholders have been planting Class II clones from the early eighties largely on the basis of their attractive and sometimes precocious yields in RRIM large scale clone trials. Many of these plantin*g are now in tapping. An extensive survey, based on RISDA replanting records, will be conducted over three years to determine the performance of these _ 82 _ AN_X10 Page 2 of 3 clones under smallholder conditions with a view to determining their current suitability for smallholder planting. The main assessments, based on small farmer information and records where available, will be on yield and incidence of tree dryness in relation to tapping system and agroclimatic conditions. Estimated Cost MRO.24 million Study 3: Physiological/Biochemical Parameters of Tree Stress to Stimulation 4. Over stimulated trees go into a yield decline and develop bark dryness. The purpose of this research program is to identify physiological and biochemical parameters indicative of the health of trees in tapping and particularly in conjunction with the use of stimulant that could be used to develop a tree health monitoring system. In particular, it would be used as an early warning indicator of impending stressed physiological functions and tree dryness. The study will involve regular measurements of levels and ratios of various (12 cited) tree physiological factors and biochemical constituents of latex and their changes in trees under fairly intensive tapping with stimulation. The study would be conducted on 50 to 100 trees of one or possibly two clones sensitive to stimulant - induced dryness and exploited intensively, with samplings about every month. Estimated Cost MR0.44 million Study 4: Nutritional Asvects of Tree Dryness S. This study aims to better define clone suitability for low frequency tapping with stimulation with a focus on nutritional factors that have been linked with the occurrence of tree dryness and precoagulation of latex on the tapping cut. The study, carried out over three years, will focus on the influence of foliar levels of the macroelement potassium, which is believed to affect latex flow properties, and the microelement copper which at low levels might predispose trees to dryness. it will involve the application of various quantities of potassium and copper nutrients to trees of two clones recommended for LITS, including PB 260 in which latex flow has been observed to be sensitive to potassium levels, with about 12 field trials on the sme soil type in two distinctive climatic regions and tapped third daily with stimulation. Observations will be made on yield performance, dry rubber content, tapping cut precoagulation and incidence of tree dryness in relation to foliar and latex nutrient levels. Estimated Cost MR0.23 million Study 5: Mixed CropDing of Rubber with Fruit Trees 6. The growing of rubber as a monocrop on very small holdings is at best marginally economic, generally generating an income below the poverty level for the holders and leaving them exposed to fluctuations of the commodity markets. The situation is exacerbated by the long gestation period of rmbber after planting. The objective of this research program is to identify mixed tree cropping systems based on rubber as the main component with various varieties of fruit trees, which would be sustainable and enhance _ 83 _ AN1NEX 10 Page 3 of 3 the long term economic returns of theae smallholders. The systems involve planting the rubber in widely spaced hedge rows at 80X of the normal tree/ha density and filling the interrows with fruit trees, such as durian, chempedak and duku, in various arrangements and combinations. A number of rubber clones would be included to gauge the effect of rubber canopy structure on cropping performance of the systems. The experiments which would be long term and encompassing at least 10 years of rubber production, would be established at six sites in six different agroclimatic regions. Evaluations would include agronomic requirements of the crops, the agro-economic compatibility of the mixtures, crop economic returns and labor requirements. Estimated Cost MRl.0 million 7. The total estimated cost of the RRIM research component of the project is MR2.61 million. -84 ANNEX 11 Page 1 of 5 MMALASI-A RISDA II PROJECT Introduction of Low Intensity TaoRint Systems (LITS) for Rubber Exploitation 1. Increasing labor shortage is adversely affecting the rubber plantation sector in Malaysia, causing large areas of mature rubber to remain untapped. It is currently estimated that about 20% of individual rubber smallholdings are abandoned and that as much as 20% of tapping tasks may be lost on RISDA mini- estates due to the lack of tappers. Labor requirements for rubber exploitation, however, can be reduced by using low intensity tapping systems (LITS) which combine a reduction in tapping frequency with chemical yield stimulation. Starting from the time of opening, trees are tapped every third day (d/3), fourth day (d/4) or at even longer intervals (d/5, d/6) in place of the traditional alternate daily (d/2), while Ethrel stimulation is applied at frequent intervals to maintain yields. The adoption of lower tapping frequencies reduces the number of tappers required (by 33% with d/3, 50% with d/4 and more with d/5 or d/6). It also reduces bark consumption, thus extending the economic life of the trees. Labor productivity increases, tapping costs decrease and the overall profitability of rubber exploitation is improved. This labor saving technology is not new. it has beer successfully used on a large scale by estates and smallholders for over 20 years in West Africa and has been introduced in Malaysia in 1991 by PELCRA under the Bank financed Second and Third FELCRA projects (Loans 2917-MA and 3484-MA) to overcome increasing labor shortages. Under the proposed UISDA II project, LITS would be evaluated and progressively introduced in RISDA rubber mini-estates. Program of Introduction of LITS 2. Experience has shown that, although LITS appears simple in principle, its successful implementation requires high management inputs, close coordination and monitoring, and good tapping quality, in view of the risks of damage to the trees through the uncontrolled use of stimulation. LITS therefore is not suitable for individual smallholders without adequate training and close supervision, and it was agreed with RISDA that, under the proposed project, LITS would only be introduced in mini-estates according to the following phased programs a. dUrina the first year, RISDA would test LITS (mainly d/3) in a small number of mini-estates selected in different agro-climatic regions; b. during the second sear, RISDA would introduce LITS (d/3 and d/4) in suitable mini-estates for large scale evaluation, and test the use of lower frequencies (d/5, d/6); and c. durina the third year, depending on the results of the first two years' evaluation, RISDA would decide on the general introduction of LITS (mainly d/3 and d/4) in all mini-estates facing labor shortage. - 85 - ANNEX 11 Page 2 of 5 Evaluation of LITS 3. Selection of Mini-Estates. Seven mini-estates were selected during appraisal in Kedah, Pshang, Negeri Sembilan and Terengganu for the initial evaluation of LITS, based on the following criteria: labor shortage or possibility to reduce tappers' number without creating social problems, good control of tappers by RISDA supervisor, good tapping quality, absence of severe leaf disease, latex collection for reliable recording of production and easy access to facilitate monitoring. Other pre-selected mini-estates were found to be unsuitable due to no labor shortage and severe leaf disease (Darat Lintang), insufficient control of tappers (Batu Papan), poor tapping quality (Tebak, Kuala Kepi.), insufficient girth of trees at opening (Seginyeh), and difficult monitoring of production due to cuplump collection (Bukit Gelugor, Lapang Sawa). The difficulty of identifying suitable mini-estates for the initial evaluation of LITS clearly demonstrates that, in view of the current lack of experience of RISDA staff with the technology, LITS should only be tested in the seven selected mini-estates during the initial evaluation phase. Table 1: Mini-Estates Selected for the Evaluation of LITS State Mini-Estate Tapping Z Tasks Tapping Tapping Yield ._________ _Area (ha)Arc a Lost * Panel Quality in 1992 PAHANG Bukit Penak 126 27 BO 1 Good Medium BO 2 Bukit Rok 63 37 BO 1 Good High ___________ ______ ~~~~BO 2 NEGERl- Ampang Tinggi - - BO 1 at _ - SEMBILAN opening l KEDAN Telaga Batu 148 41 BO 1 Very Not Good Avail. Rimba Teloi I 63 30 BO 2 Good High BO2 Bukit Paya 84 65 BO 2 Very Low Merbau Good TEEENGGANU Pancur Buloh 158 38 BU 1 Good Medium * due to rain or lack of tappers (in 1992) 4. Detailed Guidelines. The third daily (d/3) tapping frequency combined with stimulation would be established in six mini-estates and compared to d/2 in three of those, while the fourth daily tapping frequency (d/4) combined with stimulation would be compared to d/2 in one mini-estate (Table 2). Stimulation would be applied using Ethrel at low concentration, with a frequency ranging from four to six times per year with d/3, and eight times with d/4, depending on the age of the trees and the panel exploited (see Table 1 and detailed guidelines in Appendix 1). To monitor the performance of d/3 and d/4 as compared to d/2, the - 86 - ANNEX I 1 Page 3 of 5 production of each task (kg of dry rubber) would be recorded for each tapping day. Daily production data would be reported on a monthly form to be sent each month to the LITS Coordinator in HQ. Table 2: Guidelines for LITS Evaluation State Rini-Estate Totat Tapping Stimulation Onubeer Jimbr of Tasks Frequency Frequncy of tappers _______ ,(6iV7) tasks PAHANG Buhit Penak 120 d/2 No stim. 80 40 dl4 8/year 40 10 Bukit Rok 48 d/3 6/year 48 16 NEGERI- mpang Tinggi 32 d/2 No stim. 20 10 SEMBILAN d!/ 4/year 12 4 KEDAH Telaga Batu 60 d/3 4/year 60 20 Rimba Teloi I 40 d/2 No stim. 28 14 dl3 6/year 12 4 Bukit Paya Merbau 48 d/3 6/year 48 16 TERENGGANU Pancur Buloh 84 d/2 No 72 36 d/3 6/year 12 4 Recuirements for Successful Introduction of LITS 5. Adoption of Full Technology Package. The LITS labor saving technology is a package comprising foar inter-related components. These should be simultaneously implemented to ensure the successful introduction of LITS: a. Use of Stimulation. The use of stimulation with lower tapping frequencies is aimed at maintaining, and not increasing d/2 production levels. The long term adverse effects of excessive stimulation on yield hlave been well demonstrated and the use of stimulation in Malaysia has been largely restricted to olJ trees until recently. In the last few years, however, the estate sector has started using stimulation combined with reduced tapping frequency but only on trees already tapped for several years. To avoid possible confusion about the objectives of stimulation with LITS, RISDA should not promote stimulation as a means of increasing production, while simultaneously introducing LITS. In particular, stimulation should not be used on a regular basis to boost yields when combined with high tapping frequencies (more than 10 tappings/month or 100 tappings/year). Guidelines for the amount, method and frequency of stimulation with LITS should be strictly followed, as any deviation would result either in possible long-term damage to the trees or lower production. - 87 - ANNEX 11 Page 4 of 5 b. Control of Taoning Quality. The use of stimulation requires good tapping quality as the application of Ethrel on tapping wounds would damage the trees and jeopardize their future production potential. Wherever tapping quality is poor, it should be improved before introducing LITS and then systematically monitored. In view of the difficulty of controlling tapping quality under contract tapping, RISDA should not introduce LITS in rubber mini-estates contracted out for tapping. c. Anoropriate Tappers' Payment System. Under the current RISDA share system, both tappers and owners would benefit from the productivity gains which are expected with LITS and could amount to an increase in production per tapper per day of up to 502 with d13, as compared to d/2. When introducing LITS, however, RISDA should adjust the crop sharing ratio accordingly to avoid large differences between incomes of tappers with d/2 and d/3 on the same or between neighboring mini-estates, which could cause serious social problems. d. Field Monitoring. The intensity of stimulation to be applied with LITS depends on the age, condition and yield level of the trees, as well as on local agro-climatic conditions, which vary and need to be frequently reassessed. Field visits are therefore required before deciding on the implementation of LITS and determining the specific regime of stimulation to be applied. During implementation, field conditions should be closely monitored so that the regime of stimulation can be adjusted to suit changing conditions. 6. Other Technical Aspects of LITS: a. Effect of LITS on Rubber Grades. The application of stimulation causes latex to flow for a longer time (late drip). If the time of -ol ection remains unchanged when applying stimulant, a lower proportion of the rubber will be collected as latex and quantities of cuplump will increase as compared to d/2. The late drip will become particularly pronounced with tae more intense stimulation regime associated with the lower tapping frequencies (dl4, d/5 and d/6). Collection, processing, and marketing arrangements should therefore be reviewed when implementing LITS to take into account the different proportions in the types of raw rubber produced. b. Use of Suitable Clones for LITS. The effects of stimulation on yields vary between the clones depending on their physiological characteristics. Some clones are known to respond well to stimulation and are suitable for LITS (RRIM 600, PB 217). Others do not respond well to stimulation or are prone to bark dryness, and therefore are less suitable for LITS. Specific tapping frequencies cnd stimulation regimes are required for such clones. It may therefore be difficult, and in some cases impossible, to implement LITS in areas planted with a mixture of clones responding differently to stimulation. To enable smallholders to fully benefit from the technology in the future, RISDA should ensure that, from now, only monoclonal fields are established with suitable clones for LITS. - 88 - A hNEX ll Page 5 of 5 7. Central Coordination. It was noted at appraisal that, following recent instructions from RISDA Headquarters, field officers were making preparation, and sometimes had already started, to implement LITS in a few mini-estates. There seemed to be some confusion regarding the concept and objectives of LITS and particularly the role of stimulation, the amounts of stimulant to be appliee, frequencies and methods of application. Thus, given the current inexperience of RISDA staff with LITS implementation, the introduction of LITS should be progressive after an initial testing phase and strong central coordination would be required. RISDA should appoint a full time coordinator at Headquarters, with clear authority on the technical aspects of LITS, assisted in every State by a field officer responsible for the introduction of LITS in that State. The coordinator should prepare general implementation guidelines, visit every mini- estate before finalizing detailed implementation arrangements based on local conditions, and closely monitor the performance of LITS. To this end, RISDA should make the appropriate budgetary allocations to enable the LITS coordinator to visit each mini-estate selected for the evaluation of LITS every three months. Annual monitoring budget requirements are estimated around M$5,000 in year 1, and M$10O000 in years 2 and 3. 8. Trainint of Staff and TaDpers. Ex,erience with LITS in and outside Malaysia has shown that most implementation problems occur due to an incomplete understanding of the technology, with participating managers and staff often implementing part of the package only and failing to realize that all four components are required for successful implementation. RISDA should therefore organize the training of all managers and supervisors of mini-estates concerned before testing and later introducing LITS. Given the critical importance of good tapping quality for LITS, RISDA should also seek to organize the systematic training of tappers to upgrade their tapping skills. Conclusion 9. The experience gained with the recent successful introduction of LITS by FELCRA in Malaysia and twenty years' overseas experience with the technology, clearly shows that the successful introduction of LITS in RISDA rubber mini- estates over the project period of three years will require the full commitment of RISDA senior management and close coordination and field monitoring by RISDA Headquarters technical staff. It is important that RISDA doea not underestimate the difficulties of implementing LITS successfully at the field level. Moreover, given the past negative experience with stimulation in Malaysia, RISDA should at this time only promote the use of stimulation combined with LITS in mini- istates according to a single, well focussed program and not on individual smallholdings. - 89 - ANNEX 1 1 Appendix 1 Guidelines for Application of Stimulant 1. Stimulant. Use only ETHREL ready mix at 2.5? concentration, as Ethrel at 5% concentration is not viscous enough, when diluted to 2.5% concentration with water. Dilution with palm oil is unstable. Other brand names than ETHREL should be avoided until more complete information is available on their suitability. 2. Quantity. Stimulant should be prepared for one task (550 to 600 trees), based on 0.7 to 0.8 gram/tree, on panel BO-1 or BO-2 (about 450 ml/task), and 0.9 to 1 gram/tree on panel Bl-i or BI-2 (about 500 ml/task). 3. Application. Panel application on at least 1 cm of renewing bark just above the tapping cut. No lace removal. Brush should be lield horizontally. Stimulant should not be applied on tapping wounds. Stimulant should be applied on all the trees of the task, with large trees receiving more stimulant than small treee. The stimulant should be applied by a specialized team at the rate of 2 tasks or about 1,100 to 1,200 trees per man/day. Each application should be closely controlled by supervisor. 4. Freguency. Should be adapted to clone and year of tapping (panel, position of the cut on the panel and tapping frequency). The frequencies of stimulation shown in Table l are recommended for downward tapping with less than 10 tappings per month or 100 per year, clones GT 1 and RRIM 600, trees with a good quality of tapping, ETHREL at 2.5 Z, panel application of 0.7 to 1 g/tree on 1 cm. Table 1: Frequency of stimulation Year of tapping Panel d/3 d/4 r1 BO-1 4/y 6/y 2 BO-1 5/y 7/y 3 to 5 BO-1 6/y 8/y 6 to 12 BO-2 6/y 8/y 12 to 24 BI-l, BI-2 8/y 10/y 5. Schedule of Applications. Stimulation should be applied outside the wintering period and, in the East coast (Terengganu), outside the heavy rainy season. The first stimulation should be done as soon as possible after complete refoliation, then every one, one and a half or two months. The application should be done two or three days before the tapping day. If rain comes less than one hour after stimulation, stimulant must be reapplied. Table 2: Schedule of stimulation Month 1 2 3 4 5 6 7 8 9 10 11 12 4 .t/mly 1 1 1 1 6 stim/y 1 1 15 1 15 1 (Terengganu) 1 - - T F i T a - - 8 stLm/y 1 1 1 1 1 1 1 1 lote: I means begn ule m tot Wte mIS mea: iEVIeN oIt 3 montr. - 90 - ANNEX 12 Page 1 of 16 MLWAYSTA RISDA II PROJECT RISDA'S Mini-Estates in Production Production and Pinancial Aspects 1. RISDA's mini-estate program, started in 1979 based on the estate system of production which has been so successful for treecrops in Malaysia, aims to bring the benefits of estate-type technology and management systems to smallholders. Each mini-estate is a legal entity formed by RISDA with the consent of the owners of a number, often large and averaging about 50, of contiguous or near contiguous individual small farms which at the time vere in need of replanting. With agreement of the farm owners' committees, RISDA undertakes replanting of the mini-estates with modern high yielding varieties of rubber or oil palm, maintains the plantings through immaturity, brings them into production and harvests and sells the crop for the benefit of the owners. Development costs over and above replanting grants, but excluding investments in infrascructure, are charged as loans to the individual farmers in proportion to the land area contributed by each of them to the mini-estate. The loans are to be repaid from net proceeds of production. At full loan repaymernt, RISDA is expected to return the land titles held under lien to the owners w:'th the assumption that they would retain their mini-estate structure and integrated management system for the economic benefits of scale and better levels of technology. However, apart from the transfer of two mini-estates to ESPEK management and one to a cooperative, no action plan is in place. So far 10 mini-estates are loan free. Government policy for smallholder development is that the integrity of the mini-estates should be maintained as they represent more efficient production units than individual smallholdings. However, many participants of mini-estates in production and particularly those working on them, are confronting the RISDA position by taking over harvesting of the crop on their individual holdings for their own account. Absentee farmers probably generally prefer long term RISDA management and a routine monthly dividend check. 2. In the early years of the mini-estate program, the development phase was perceived as a relatively straightforward operation for RISDA and there had been little concern for the management of harvesting. At preparation of the RISDA I project in 1987, it was clear that major problems had been experienced in the development phase as evidenced by high land development costs which would compromise future benefits of the program. Therefore, under the institutional strengthening activities of that project, a recommendation was made for the curtailment of the mini-estate program. In early 1989, RISDA decided to de-emphasize mini-estate formation in favor of group (TSB) and simultaneous individual (TSS) replanting arrangements. The last mini-estate was established in 1990. 3. Working Paper No. 2 of the Appraisal Report for RISDA I project (Loan 3139-MA) analyzed the achievements of the mini-estate progr m up to the end of 1987. Details were provided on the physical progress of the program (number, area, distribution by State, crop, number of participants), production performance, and the status of development loans. At that time, - 91 - ANNEX l. Page 2 of 16 there were 340 mini-estates covering 37,265 ha with 77% of the area planted with rubber and the balance with oil palm. A total of 101 mini-estatea were in production but yield levels, especially of rubber, were low. Total development costs were M$197 million and RISDA carried a portfolio of MS146.6 million of development loans. 4. This Annex briefly updates the overall status of the mini-estate program and then proceeds to aiialyze the performance of mini-estates in production, as at the end of 1992, focussing particularly on crop yields and financial aspects. The impact of changing management arrangements are also discussed and there are some comments on the quality of RISDA's data base. Total Proxram Performance S. Number and Area of Mini-estates. For the period 1979-1990, RISDA developed about 390 mini-estates with a total area of about 41,800 ha. Details given in Table 1 are best estimates of achievements. There are many inconsistencies in RISDA's data bank and even the actual total size of the program is not clear. There are also difficulties with the figures on the number of mini-estates in development and in production. Table :s Mini-Estates: Number, Area and Participants (As of End-i992) Rubber Oil Palm Total No. of ME 312 78 390 Area (ha) 33,000 8,800 41,800 HaJME 106 113 107 No. of Participants 17,500 4,500 22,000 Ha/Participant 1.89 1.96 1.90 No. of NE in development 102 5 107 Area (ha) 8,980 260 9,240 S of Total ME Area 26% 3% 22% Apparent Area (ha) in Production 24,020 8,540 32,560 About 33,000 ha (79% of the total mini-estate area) is planted with rubber and the balance of 8,800 ha (21S) planted with oil palm. Most mini-estates are monocrop but there are about 5 planted with both crops to take better advantage of soil types. The program has about 22,000 participants, each contributing on average 1.9 ha of land. By States, Pahang has the largest mini-estate area in rubber (7770 ha, 24Z of the national total), with Terengganu and Kedah accounting for a further 12,500 ha (39%). Johor has the largest area of oil palm (2,870 ha, 33%) with Terengganu and Perak having a further 2,590 ha, 30%). At the end of 1992, RISDA reported that 107 mini- estates totalling 9,240 ha were in the development stage, 26% of the total - 92 - ANNEX 12 Page 3 of 16 mini-estate area in rubber and 32 in oil palm. The balance area of 32,560 ha should therefore be in production but this figure does not match that provided by RISDA for the analyses of this paper. Discrepancies may arise from confusion over mini-estate names, development failures or the elimination from production records of some mini-estates which are no longer under RISDA management. 6. Costs and Loan Balances. Total development coats of mini-estates include the costs of land preparation, planting and crop maintenance during immaturity, and where provided, the costs of income support programs of the early to mid-eighties for participants and their families. Grant expenditures used for mini-estate infrastructure are not included. Loans to cover the development costs were provided net of replanting grants which were M$3,735 per ha for rubber and M$2,988 for oil palm in 1979-80 and M$5,436 per ha for rubber and M$3,707 per ha for oil palm until 1991. Total development costs and loan balances as at the end of 1992 are given in Table 2. For mini- estates in development, the costs are interim in that full costs and loan requirements are only determined when crops are ready to come into proluction and the development accounts closed. Development costs shovn for mini-estates in production, on the other hand, are full costs; loan balances are net of the M$15.85 million of repayments from production revenue (para 9). Table 2: Mini-Estates - Development Costs and Loan Balances at End 1992 (M$ million) Develo=ment Costs Loan Balances Total Per Ha Total Per Ha ME in Development Rubber 49.8 5,550 17.1 1,900 Oil Palm 0.8 2,910 0.i 920 Sub-Total 50.6 5,470 17.i 1,870 ME in Production Rubber 230.0 10,400 106.1 4,800 Oil Palm 67.0 8,200 31.0 3,810 Sub-Total 297.0 9,800 137.1 4,530 Total 347.6 154.4 The estimated total cost to date of mini-estate land development, inclt.ding the discontinued family income support program, approaches M$350 million, while the total loan amount assumed by the smallholders is M$154.4 million, equivalent to M$7,013 per participant. Of this loan amount, 89 (tM$137.1 million) is attributable to mini-estates in production. It was earlier estimated that a further M$50 million of loan could be required to complete the mini-estates still in the process of development. Loan levels would, however, be lowered by the recently announced 13-14X increases in replanting grants to be paid retroactively from the beginning of 1991. - 93 - AMNEX 12 Page 4 of 16 Performance of Mini-estates in Production 7. The analysis is based on RISDA data which gives details for 269 individual mini-estates for crop type, area, number of participants, original development loan, family income oupport payments, net operating costs, dividends paid, loan repayments, loan balance and csop production for each year of harvest. 8. Number and Area of Mini-estates. At the end of 1992, 269 mini- estates were in production, 692 of all mini-estates. Their total area was 30,240 ha, 74% of the total mini-estate area. There were 198 mini-estates planted with rubber and 71 planted with oil palm, and there was a total of 15,226 participants (Table 3). Table 3: Mini-Estates in Production at End 1992 a/ Rubber Oil Palm Total Number of ME 198 71 269 Total area (ha) 22,094 8,146 30,240 No. of Participants 10,896 4,330 15,226 Ha/ME 112 115 112 Ha/participant 2.03 1.88 1.99 a/ As explained in para. 5, there are inconsistencies of data in this Table and Table 1. 9. Develovment Costs and Loans. Table 4 shows the original tctals of development and income benefit loans provided by crop to the 269 mini-estates in production and the current total outstanding amounts. All mini-estates except four in oil palm started out with development loans while about 138 (521) of these 265 estates also incurred loans for family income support. Loans for income support totalled about 6% of the land development loans in rubber but 22Z in oil palm. Estimated total development cost of all mini- estates in production was M$297 million, made up of M$10,400 per ha for rubber and M$&,200 per ha for oil palm, against which there was a replanting grant credit of M$145 million. The M$15.85 million of repayments has reduced the outstanding total loan to M$137.1 million with the average loan amount now N$4,850 per ha for rubber and M$4,072 for oil palm. One rubber estate and five oil palm estates have repaid their loans in full, making a total of 10 mini-estates now loan free. The better repayment performance of the oil palm estates, 20.9% of the original loan amount, as against 6.72 for rubber, reflects their shorter immaturity period and relatively better production performance as measured against appraisal yield profiles (para. 16). - 94 - ANNEX 12 Page 5 of 16 Table 4: RISDA Loans to Mini-Estates in Production at End 1992 (M$ million) Rubber Oil Palm Total No. of ME originally with loans 198 67a/ 265 Total Area (ha) 22,094 7,840 29,934 Total No. of participants 10,896 4,185 lt,081 Original Total Development Loan (M$ mil) 107.039 32.038 139.077 Income Benefit Loans (M$ mil) 6.654 7.179 13.833 Original Total Loan Amount (M$ mil) 113.693 39.217 152.910 Total Loan/ha (M$) 5,146 5,002 5,108 Loan Repayments (M$ mil) 7.643 8.207 15.850 7 Repaid 6.7% 20.9% 10.42 Total Loan Balance (M$ mil) 106.050 31.010 137.061 No. of ME vith Loan Balance 197 62 259 Total Area (ha) 21,866 7,615 29,661 Total Participants 10,876 3,949 14,825 Loan Balance/ha (M$) 4,850 4,072 4,621 Loan Balance/participant (M$) 9,751 7,853 9,245 a/ Four oil palm mini estates did not take development loans. 10. Loan Amounts. Table 5 reports on the distribution of loans by amount per hectare. Mini-estates with the highest levels of loan are identified. Although the average loan level per hectare is not dissimilar for the two crops (Table 4), there is a bigger number of smaller loans for oil palm than for rubber (69S of less than M$5,000 per ha as against 50% respectively). More than a third of all loans to rubber is M$5,000-7,500 per ha which is a high debt load. There is a small but similar number of loans for rubber and oil palm which is even in excess of M$10,000 per ha. Overall, the loans assumed by many mini-estates are excessive in view of the fact that they are net costs after replanting grant credits which assume total development costs of not more that M$5,000-6,000 per ha for oil palm and M$6,500-M$7,500 per ha for rubber. High costs could be the result of many factors but do suggest inter alia development of marginal lands and some rather low developmental efficiency. The loan burdens are going to greatly compromise the potential crop profits of many smallholders. - 95 - AM.. 12 Page 6 of 16 Table 5s Mini-Estates: Distribution by Loan Size (M$/ha) Loan (M$Iha) No. of ME Area (ha) S by Area Rubber Mini-Estates 0 1 48 0 1-999 14 936 4 1000-2999 54 5,202 23 3000-4999 42 5,062 23 5000-7499 60 7,947 37 7500-9999 21 2585 11 10000 and above 7 541 2 Total HE 198 22,094 Oil Palm Mini-Estates 0 9 531 7 1-999 16 19420 18 1000-2999 28 2,839 36 3000-4999 6 617 8 5000-7499 5 19552 20 7500-9999 1 102 1 10000 and above 5 821 10 Total HE 71 8,146 Nishest Loans vr ha for Rubber ME M$15,182 Bukit Perah, N.S. M$12,845 Kg. Makam Mahsuri, Langkavi, Kedah M$12,659 Pasir Kemudi, Pahang Hiuhest loans ier ha for Oil Palm ME M$12,121 Lamir 1, Pahang M$11,739 Cermin Kane.a II, Trengganu M$10,916 Cerain Kanan 1, Trengganu 11. Cumulative Oueratina Losses. An analysis of the net balances of the mini-estate operating accounts revealed a high incidence of net operating losses for both rubber and oil palm estates. No less than 74 rubber and 24 oil palm mini-estates, 392 and 49S of their respective total numbers, were burdened with such losses at the end of 1992. The magnitude of the losses and some other relevant analyses are shown in Table 6. In both cases, data for the aini-estates with a positive not operating balance are included for comparison. 12. Cumulative operating losses for mini-estates in this category are high, having reached a total of M$26.3 million (M$18.6 million for rubber and M$7.7 million for oil palm), and average about H$2,000 per ha. Many of the - 96 - ANNEXL12 Page 7 of 16 Table 6s Financial Condition of Mini-Estates at end 1992 HE with CumulatIve NE with Cumulative Operating Profits Operating Losses Rubber Mini-estates No. of ME 124 74 Area (ha) 13,474 8,620 2 by area 612 39S No. of Participants 6,886 4,010 Ha/participant 1.96 2,15 Cumulative Net Operating Profit 10.351 (18.599) (Loss) (M$ million) Profit (Loss) per ha (M$) 768 (2,158) Total Dividends Paid (M$ million) 5.426 1.787 Dividend/ha (M$) 403 207 Total Loan Repaid (MS million) 5.442 2.200 Loan/ha (M$) 404 255 Loan Balance (MS million) 59.105 46.944 Add Net Operating Loss (M$ million) 0 18.599 Total Debt (M$ million) 59.105 65.543 Loan Balance/ha (all MEs) (M$) 4,387 5,446 Loan Balance/ha (MEs wIth Loans) (M$) 4,399 5,446 Total Debt/ha (M$) 4,399 7,604 Total Debt/participant (with loans) (M$) 8,622 16,345 Oil Palm Mini-estates No. of ME 47 24 Total Area (ha) 4,160 3,986 % by area S1S 49Z No. of Participants 2,536 1,794 Ha/participant 1.64 2.22 Total Net Operating Profit (LOss) (M$ million) 7.960 (7.667) Profit (Loss) per ha (1$) 1,913 (1,923) Total Dividends Paid (M$ million) 8.122 0.527 Divideud/ha (1$) 1,952 132 Total Loan Repaid (M$ million) 6.182 2.025 Loan Repaid/ha (N$) 1,486 508 Loan Balance (M$ million) 9.154 21.859 Add Operating Loss (MS million) 0 7.667 Total Debt (M1 million) 9.154 29.526 Loan Balance/ha (all MEs) (M$) 2,200 5,484 Loan Balanceiha (MEs with loans) 2,522 5,484 Total Debt/ha (1$) 2,522 7,407 Total Debt/participant (with loans)(N$) 4,248 16,458 - 97 - ANNEX 12 Page 8 of 16 estates are running losses far in excess of this average figure. Modest annual perating losses are a normal feature of the early production years of both crops and cumulatively may persist for a further two years or so. But the level of the reported losses raise some serious questions on mini-estate performance, or alternatively, the validity of the data. The magnitude of some of the losses has prompted RISDA to first look into the accuracy of its data base and whether mini-estate managers have mixed development and operating costs in their data submissions. The matter has yet to be resolved. Despite production losses, participants of loss-making mini-estates have re"eived dividends amounting to some M$2.3 million. This arises from RISDA's practice of assessing monthly dividends on the individual monthly returns, not taking into account prior net operating losses. The practice, unfortunately, sends false signals to participants on the financial condition of tLoir enterprises. Loss making estates have managed to repay M$4.225 million of their loans, these payments being handled on the same monthly basis as dividends. Table 6 indicates that the average participant holding is higher in loss-making estates of both rubber and oil palm, and that the average per hectare loan balance for these estates is considerably higher than for the profit making units. Adding operating deficit to the development loan amounts raices the average debt load for both crops to over M$7,000 per ha and to over M$16,000 per participant. 13. Table 7 provides information on mini-estates with a cumulative net operating loss of more than N$1,000 per ha. The 32 rubber and 10 oil palm mini-estates concerned ha:e accumulated average operating losses of M$5,872 and H$3,010 per ha respectively. These amounts, added to development loans, raise total debt to a very high level with the prospect that the debt will never be paid off. Table 7: Mini-Estates with Cumulative Net Operating Losses Above M$1,000/ha Rubber Oil Palm No. of ME 32 10 Total Area (ha) 2,794 2,183 Net Operating Loss/ha M$5,872 M$3,010 Add Loanslha M$5,428 M$6,283 Total Debt/ha M$11,300 M$9,293 Worst Cases (Total Debt/ha) Kg. Miakam Mahsuri, Bukit Betong, Langkawi, Kedah Pahan8 M$26,052/ha M$13,889/ha - 98 - ANNEX.12 Page 9 of 16 Owner Management Take-overs 14. Under the mini-estate agreements, RISDA would manage the mini- estates until the development loan has been fully repaid. In practice a very different situation is emerging with an increasing number of owners, individually or as groups, assuming the management of their lands in place of RISDA. Essentially, they take over crop harvesting and sell the product for their own account. As of end 1992, the managements of 46 of the 269 mini- estates in production had reverted to participants even though in all cases, there is an outstanding loan balance. Of this total, 45 mini-es_ates are in rubber (23Z of rubber mini-estates in production) and one in oil paln, the disparity reflecting the ease of transporting and selling rubber to private traders as compared to oil palm fresh fruit bunches. It is reported that the situation is worsening as more owner groups see the opportunity for control in fece of RISDA's apparent inaction. RISDA, however, is seeking legal redress. 15. Loan Status and Manaaement Arrangements. The quality of RISDA's loan portfolio could be seriously compromised by owner harvesting as it denies the agency its mechanism for receiving regular loan repayments. Tables 8 (rubber) and 9 (oil palm) compare the loan status of mini-estates under owner and RISDA management. For rubber, the total loan balance at risk is M$23.8 million and debt on a per hectare as well as participant basis is hivh though it is less than for mini-estates with RISDA management. Although there is no apparent link between loan size and the takeover of crop management, total apparent debt of the owner managed groups of M$27.5 million is very significant in that it represents some 22Z of total apparent debt of rubber mini-estates. T--; one oil palm mini-estate under owner management has almost fully repaid its loan and so does not present any risk to RISDA. - 99 - ADIX -I2 Page 10 of 16 Sb_l St Loan Status of Rubber Mini-Estates by Management Arrangements RISDA Management Owner Management No. of ME 153 45 Area (ha) 16,424 5,670 2 by area 751 252 No. of Participants 8,063 2,833 No. of HE with Loan Balance 152 45 Total Loan Balance (M$ million) 82.214 23.835 Loan Balance/ha (M$) 5,006 4,204 Loan Balancelparticipant (1$) 10,010 8,413 ODeratinM Account Qperating Account Net Profit Net Loss Net Profit Net Loss No. of ME 99 53 24 21 Area (ha) 10,593 5,783 2,833 2,837 Total Loan Balance (M$ million) 47.180 35.034 11.827 12.008 LcA Balance/ha (1$) 4,454 6,058 4,175 4,233 Cumulative Operating Profit/Loss (M$ million) 8.515 14.944 1.671 3.672 Operating Profit/Loss per %a(M$) 804 2,584 590 1,294 Total Debt (M$ million) 47.180 49.978 11.827 15.680 Debt/ha (1$) 804 8,642 4,175 5,527 ME. with Loan Pull_ Paid No. 1 Area (ha) 48 Participants 42 Cumlative Operating Profit M$0.165 million or M$3,438/ha. - 100 - APNEX 12 Page 11 of 16 Table 9: Loan Status of Oil Palm Mini-Estates by Management Arrangements RISDA Management Owner Management go. of ME 70 1 Area (ha) 8,125 21 No. of Participants 4,314 16 No. of ME with Loan Balance 61 1 Total Loan 'lalance (M$ million) 31.008 0.007 Loan Balance/ha (M$) 3,816 357 Loan balance/participant (M$) 7,188 468 0peratinx Account ODerating Account Net Profit Net Loss Net Profit Net Loss No. of ME 37 24 1 0 Area (ha) 3,610 3,984 21 0 Total Loan Balance (M$ million) 9.152 21.859 0.007 Loan Balance/ha (M$) 2,535 5,487 357 Cumulative Operating Profit/ Loss (M$ million) 5.250 7.667 0.032 Profit/Loss per ha (M$) 1,454 1,924 1,524 Total Debt (M$ million) 9.152 29.526 0.007 Debt/ha (M$) 2,535 7,411 357 MEs with Loan Fully Paid No. 5 Area (ha) 531 Participants 381 Cumulative Operating Profit M$2.678 million or M$5,043/ha. - 101 - ANNEX 12 Page 12 of 16 Production of Mini-estates 16. Table 10 reports the average yield of mini-estates by year of production and compares crop performance with yield profiles. The mean yields are derived from RISDA data after eliminating a number of irregular figures and others suggesting crop leakage from RISDA's account. Also excluded are yields for outer production years when there are less than 5 reporting mini- estates, because of likely distortionary effects. Overall, the emerging picture is one of rubber yields below expectations and oil palm yields which are satisfactory. Table 10: Mini-Estate Yields - Actuals and Profile Production Rubber Mini-Estates (kg/ha) Oil Palm Mini-Estates (ton ffb/ha) Year Profile Actual No. HE Profile Actual No. ME 1 250 245 145 4 2.2 51 2 600 540 148 8 7.3 56 3 950 641 118 12 10.9 46 4 1,100 824 96 15 14.7 31 5 1,200 1,018 51 17 16.1 26 6 1,250 1,037 11 19 19.2 16 7 1,450 1,153 7 20 21.6 14 8 20 22.3 9 9 20 21.4 5 Total 6,800 5,458 135 135.7 Z of Profile 80 100.5 17. Rubber Yields. Over the first 7 years of production, rubber yields have been consistently below profile and increasing slowly. They appear to be levelling off prematurely and are little better than the estimated average performsace of individual smallholders as a group. At year 7, yield is some 300 kg/ha, 202 below profile. Total yield per hectare is also 20% below expectations. This poor performance could be the result of any number of factors during the periods of crop establishment, maintenance in immaturity and production management. Field observations indicate major problems of incomplete and uneven stands of trees, delayed tapping due to labor shortages and poor tapping quality resulting in high levels of bark wounding and bark consumption. Disappointing production is likely to continue as owners and tappers try to compensate low yields by tapping more deeply and with thicker bark shavings, both being practices which seriously shorten the productive life of the trees. 18. Oil Palm Yields. The overall performance of the oil palm mini- estates is satisfactory with total production to date at 100X of expectations. Average yields of fresh fruit bunch follow the yield profile closely for the first few years and then in years 7-9, at peak productions exceed it by 1-2 - 102 - ANKU 12 Page 13 of 16 tons/ha. It can be anticipated that crop performance vill continue to be better than profile provided good field conditions, including adequate use of fertilizer, are maintained. Income ProsDects of Mini-Estates 19. To determine the potential of the mini-estates to generate adequate family income, estimates were made of the average incomes per hectare of the rubber and oil palm mini-estates that could be generated over the next 20 years of production from 1993, using yield profiles, crop production costs from the farm budgets and projected commodity prices. Year of production in 1993 was derived as a mean of the dates of first harvest of all mini-estates of each crop. These were mid-1989 for rubber and mid-1988 for oil palm. Net total mini-estate income per hectare was determined after deducting current average loan balances per hectare. The resulting total income was assumed to be available for distribution as equal monthly dividends to participants over the full 20 year (240 month) period, although in practice, RISDA apportions net monthly income equally between loan repayment and dividends until loans are repaid so that monthly amounts are variable. The results of the analysis are given in Table 11 showing mini-estates with operating profits and losses separately. Table 11: Mini-Estates: Projected Monthly Dividends over 20 Years (M$) ME with Cumulative 14M with Cumulative Operating Profits Operating Losses Rubber Total Production Revenue 58,715/ha 58,715/ha Total Production Costs 22 730tha 22,730/ha Total Yet Income 35,985/ha 35,985/ha Average Total Debt 4,387/ha 7,604/ha Balance for Dividends 31,598/ha 28,381/ha Average Monthly Dividend per ha 132 118 Average Monthly Dividend per participant 259 254 Oil Palm Total Production Revenue 39,395/ha 39,395/ha Total Production Costs 20,715/ha 20,715/ha Total Net Income 18,680/ha 18,680/ha Average Total Debt 2,200/ha 7,407/ha Balance for Dividends 16,480/ha 11,273/ha Average Monthly Dividend per ha 69 47 Average Monthly Dividend per participant 113 104 - 103 - AMNEX 12 Page 14 of 16 20. Overall, the income generating prospects of all mini-estates are not good. In those with cumulative operating profits, participants can look forward to dividends of only $259 per month from rubber and $113 per month from oil palm, levels which are eroded for estates with cumulative operating losses to because of their higher average land holding per participant. These monthly returns fall much below Government's poverty benchmark income of $380 per month per family. Clearly, therefore, the average mini-estate will not lift poor participant smallholders out of poverty, although individually, the better mini-estates should achieve that objective The prospect of the average mini-estate providing income which would have to be supplemented from other sources to meet family needs is not in bccord with the original objective of mini-estates, but in more recent years, the rationale for Government investment in smallholder tree crop rehabilitation has been more towards raising national crop production levels while significantly supplementing smallholder incomes. The disappointing results of mini-estates, despite a higher commodity price projected over the next decade, can be attriouted to high development costs and less than satisfactory yields. The low returns to oil palm, despite satisfactory yields, are a combination of very high average per hectare development costs and a forecast marked decline in the oil market price over the next decade. Years to Full Loan Repayment 21. From individual development loan balances and average yield and production cost data, a projection has been made of the number of years required for each mini-estate fully repay its existing development loan. Net returns were determined on the basis of production costs for group replantings in the RISDA II project and for rubber, yields under LITS technology. Mini- estates under owner management were excluded. Also excluded from the calculations were cumulative operating losses because of the uncertainty surrounding their validity. Thus to this extent, the findings could be optimistic for many mini-estates. The results for the years 1993-97 are given in Table 12. The mini-estates are identified by name and State in Table 13, the information being of relevance to the project component for strengthening the income generating opportunities of cooperatives through mini-estate management contracts. In the years 1993-96, 56 mini-estates covering 5,114 ha and almost equally directed between rubber and oil palm, are projected to complete repayment of their development loans. These are in addition to the 10 mini-estates which were free of loans at the end of 1992. The number may be augmented in 1996 by some of the 24 mini-estates covering 2,404 ha projected to complete loan repayment in 1997. - 104 - ANE 12 Page 15 of 16 Table 12: Mini-Estates: Number and Area Expected to Repay Development Loans Over 1993-97 Rubber _ Oil Palm Total No. Ha No. Ha No. Ha 1993 2 66 6 655 8 721 1994 2 129 9 797 11 926 1995 15 1187 6 686 21 1873 1996 LO 1011 6 583 16 1594 Total 29 2393 27 2721 56 5114 1997 19 1990 5 414 24 2404 ImDrovint RISDA's Mini-estate Data Base 22. During the course of the RISDA I project, RISDA made very significant progress in developing its mini-estate data base. Rowever, there is still much scope for improvement. In the course of this analysis, many data shortcomings and inconsistencies came to light which preclude a full and clear picture of the status and achievements of the program. Some of the data were clearly errors of inputS other discrepancies, such as in the size of the mini-estate program, could be the result of confused data bases, mis- identification of mini-estates, development failures or the elimination from records of areas no longer under RISDA management. The XISDA II project will provide the opportunity to more accurately define and revise the data base so that it can function as a powerful management tool for the benefit of the mini-estate program. Recommended actions include: - maintain data base listings in a fixed sequence by name of mini- estate so as to facilitate easier working of data; - compile a complete list of mini-estates by crop and Stateg - check all inputted data of mini-estate performance for errors and ensure consistency of entries betwcen files; - reconfirm yield records by year of production; - determine the validity of cumulative operating costs for every mini-estate and, as necessary, provide clearer instructions to field offices on data submissions; and - institute a system of on-going data analyses and result summaries as a means to better understand mini-estate performance, to more quickly capture changing performance, and as a tool to identify critical areas for management attention and action. - 105 - AXNEX 12 Page 16 of 16 Table 13: Mini-Estates ExDected to Fully Repav Development Loans in 1993-97 Rubber Oil Palm Year State ME Name Ha State ME Name Ha 1993 Kedah Lubok Legong II 43 Selangor Gesir Tengah I 87 N.S. Rembang Panas 1 23 Johor Maju Jaya 91 Pt. HJ.Abd.Rabman 66 Pt. Selangor 119 Permas Ulu 55 Teck Wah Heng 119 1994 U.S. Air Rawa 94 Perak Katior Dalam 133 Penajis 35 Selangor Sg. Gumut 119 Melaxa Bukit Lanchang 66 Bukit Perah 57 Bukit Tembakau 80 Tj. Rimau Dalam 165 Johor Kg. Sehari 62 Tongkang Pecah 58 Trengganu Pelajat II 57 1995 Perlis Kg. Bilai Udoh 58 Kedah Kg. Dingin II 25 Kg. Bukit Gerengga 81 Perak Kg. Rasa,... 259 Kedah Rimba Teloi I 66 Sg. Jambu II 176 Perak Rg. Balun 42 Johor Kg. Chokoh 74 Kg. Beng Lenggong 123 Pt. Marjunit 31 Selangor Bukit Ibol 71 Pt. Pemuda 121 Cangkat Bintang 43 H.S. Air Melintang 120 Melaka Lubok Kepong I 28 Pahang Batu Papan 42 Bukit Kenau 44 Salong 69 Ulu Sempalit 127 Trengganu Taylor I 59 Tok Fakir 214 1996 Kedah Kg. Changhai 256 Kedah Kg. Dingin I 82 Selangor Sg. Hiuau 124 P. Pinang Keluargs Pertsma 65 N.S. Mentaus 83 Johor Pt. Seraya I 125 Melaka Brisu 97 Pt. Sialang 58 Lubok Keong II 27 Trengganu Bukit Nangka 210 Padang Sebang I 33 Cerang Sepulau 43 Pahang Darat Lantang' 154 Machang Gelap 51 Trengganu Batu Hampar 114 Kelantan Sg. Sok 72 1997 No. No. Melaka 1 48 Kedah 1 41 Johor 1 195 Perak 2 262 Pahang 12 1220 Melaka 1 82 Trennganu 4 414 Johor 1 29 Kelantan 1 113 - 106 - ANNEX 13 Page 1 of 16 MALAYSIA RISDA II Project Strenathening/Rationalization of Cooperatives I. Background 1. The Rubber Smallholders Cooperatives (RSCs) were established in 1979 to support the operation of the Group Processing Centers which were formed to assist smalIholders to jointly process and market rubber. Since then, the mandate and the types of the activities undertaken by these cooperatives have expanded. At present there are 64 RSCs, undertaking a wide range of activities including: (a) management of mini-estates; (b) storage and distribution of inputs; (c) transport, processing and marketing of rubber; (d) supply of planting material; (e) the development of infrastructure on a contractual basis; and (f) other social activities. 2. Most of these activities are being undertaken with considerable managerial and financial support from RISDA, which is keen to develop these cooperatives further to achieve the following objectives: (a) generate financial resources to enable the cooperatives to provide social services to its members; (b) assist in implementing some of RISDAs' activities as a part of the privatization policies pursued by the Government. In this context, it is intended that the RSCs should ultimately Implement all land related development programs leaving RISDA to concentrate on monitoring, evaluation, extension, training and other services; and (c) support the Government's objective of promoting the cooperatives as a major economic force in Malaysia. II. Institutional Responsibilities 3. There are three institutions directly or indirectly involved in the development of the cooperatives: (a) the Registrar of Cooperatives; (b) RISDA; and (c) National Rubber Smallholders Cooperatives (NARSCO), an apex body of the RSCs. 4. Registrar of Cooperatives. Under the revised Cooperative Societies Act (1993), the Registrar General (RG) is inter alia responsible for registering (or revoking) societies, encouraging and promoting cooperatives and improving their efficiency. While the RG has undertaken these functions with respect to other - 107 - ANNEX 13 Page 2 of 16 cooperative societies in Malaysia, the development of the 64 RSCs has been largely left to RISDA. With respect to the RSCs, the RC h4b played a passive role, confining its intervention to registering RSCs and approving their audited accounts. More often than not, the clearance of the audited accounts has been delayed, in part because the RG has been unable to approve the accounts on time - - a procedure that has often delayed the annual general meeting (AGM) of the members. The latter, albeit a formality, nevertheless interferes with the operations of the RSCs as up-to-date accounts cannot be presented to the members and neither can the new Board members be elected. Although this is a relatively minor inconvenience in terms of day-to-day operations of the RSCs, attempts need to be made to present the accounts to the members on time to ensure greater participation. Under the revised Cooperatives Act, the RG is no longer required to approve the audited accounts -- a step which is expected to improve the time lag between the annual audit of the accounts and their presentation to the members. S. RISDA. RISDA continues to play a direct role in developing the RSCs, providing contracts 'or various activities as well as the staffing for running them. As of December 31, 1991, of the 435 staff working with the 62 older RSCs, 176 were on RISDA's payroll. In fact, until very recently, RISDA staff, who were assigned to the RSCs, were responsible for the day-to-day management of the RSCs. The 176 staff included Contract Executives, personnel who are eventually expected to replace the RISDA General Managers as they are withdrawn from the RSCs in an effort to make the RSCs self-financing. 6. Until recently, the overall policy guidance for the development of the RSCs was established by a Cooperatives Unit (CU) located in the Extension Division in RISDA. However, the CU has now been transferred to NARSCO to monitor the progress of the cooperatives and assist them in becoming self-managing autonomous entities. The CU has a total of seven positions of which two, both clerical, are vacant. The remaining five positions comprise the Unit Head, a Budget OfficeS (responsible for Training, Administration, and assisting the RSCs to operate the welfare schemes), a Projects Officer (responsible for assisting the RSCs to handle various projects) and two other supporting staff who are responsible for preparation of reports and analyses of data. 7. NARSCO. NARSCO, which is largely owned by the 64 RSCs (os: share is nominally held by RISDA), is the apex body of the RSCs. Although NARSCO is meant to be closely affiliated with the RSCs, providing financial support and advice, this role has been played by RISDA. As a key player in the development of the RSCa, RISDA has directed the operation of NARSCO on the one hand and formulated the policies of RSCs on the other. However, there is very little coordination between NARSCO and the RSCs. NARSCO undertakes many activities, but only one, input supplies, complements the various income generating activities undertaken by RSCs. 8. HARSCO is organized in the form of two separate companies, NARSCO and NARSCO Holdings. The NARSCO Board directly supervises the recently transferred CU (para 6) and operations of NARSCO Holdings, which, in turn, oversees the operations of six separate subsidiaries. These include: NARSCO Trading Sdn. Bhd. (input supply on behalf of RISDA); NARSCO Commodities Sdn. Bhd. (smallholder - 108 - ANNEX 13 Page 3 of 16 rubber marketing); NARSCO Plantations and Services Sdn. Bhd (provision of services on ESPEK plantations); NARSCO Transport Sdn. Bhd. (trucking services for distribution of inputs); NARSCO Management and Travel Services Sdn. Ehd. (travel agency); and NARSPRO Sdn. Bhd. (manufacturing of rubber gloves). 9. In concept the profits from NARSCO subsidiaries are supposed to be ploughed back to the RSCs in the form of dividends or soft loans, but in practice the profits are, at present, too low for NARSCO to fulfill this objective. In fact if the profits and losses from all subsidiaries are taken into account, NARSCO is expected to lose money in 1992. The preliminary sales, net profits and margins for each of the subsidiaries and NARSCO Holdings (excluding NARSPRO and NARSCO Travel) for fiscal year (PY) ending December 31, 1992 are as follows: Table 1: Profit and Loss of NARSCO and Subsidiaries (M$ million) Trad- Commod- Plant- Trans- NARSCOHo NARS- Travel j______ ging ities ation port ld. PRO* Sales 30.7 24.6 5.7 1.0 62.0 0.16 0.02 Net 0.06 0.06 0.06 - 0.28 (0.6) (0.3) Profit Gross 6.8 9.3 14.0 18.2 S.7 NMF NMF margin Net 0.2 0.2 1.0 - 0.5 NMP NiM Margin Resuits tor 1991 NMf: Not a meaningful Figure 10. Although NARSCO is meant to operate as an apex body of the RSCs, in reality it operates under RISDA's supervision and as one of its subsidiaries. Of the 15 members in NARSCO's Board, three are from RISDA. RISDA's Director General is the Chairman of NARSCO, the Deputy Director General (DDG), Operations, is the Vice Chairman and the third member is the Director of Extension. NARSCO's Managing Director is seconded from RISDA, as are 12 other senior staff. In fact, the staff seconded from RISDA account for 122 of the 103 staff in NARSCO. These figures do not include the participation of other RISDA staff in NARSCO's operations. The Chairmen of the Boards of all NARSCO's subsidiaries, for example, are all senior RISDA staff. III. Progress to Date 11. The audited accounts of the RSCs are generally in arrears, which impedes a comprehensive analysis of their performance. However, a study of Smallholder - 109 - AM= - 13 Page 4 of 16 Cooperatives and HARSCO, financed by the Bank under RISDA I, concluded that the average assets per RSC had increased both in real and nominal terms. In nominal terms, the average total assets per RSC had increased from M$ 214,000 in 1983 to M$ 443,000 in 1989, representing a growth rate of 13X p.a. during this period, and 11S p.a in real terms. 12. The growth in assets has been financed by increase in capital (paid-up, retained and reserves) as well as increase in payables. Betweet 1983 and 1989 the average total paid-up capital per RSC had risen from M$ 43,000 to M$ 93,000, while the average accumulated profit had increased from V$ 25,000 to M$ 54,000 and the statutory reserves from N$ 11,000 to M$ 40,000. The remaining -rowth in assets was largely financed by increase in current liabilities, but not to urmanageable levels. overall, the average current ratio (current assets: current liabilities) remained healthy, between 1.6 and 2.0 during this period. 13. There has been a similar increase in reported gross profits, which, on average, rose from M$ 36,000 to M$ 93,000 between 1983 and 1989, while the average net profits rose from M$ 22,000 to M$ 51,000 over the same period. However, it should be emphasized that the profits are overstated. The figures do not include: (a) salaries of staff paid by RISDA; (b) the rent for offices and stores, both of which are borne by RISDA; and (c) inventory losses or deficits arising from sales extended on credit. 14. These average figures also mask significant variation in performance. In 1989, five of the 37 reporting RSCs had assets below M$ 100,000, 22 had assets between M$ 100,000 and M$ 500,000 while 10 reported assets in excess of 1$ 500,000. In 1988, 14 of the 56 reporting RSCs in the aforementioned study had accumulated losses, while 14Z of the 37 reporting RSCs reported a similar picture in 1989. Overall, the study concluded that 13 RSCs had accumulated sufficient losses to erode the paid-up capital of the members. 15. The variation in performance arises from differences in contracts given by RISDA, which provides over 50S of their business (the balance being in marketing, which generates little or no profits). Thus RSCs perform better in areas in which RISDA has a strong replanting program. This is evident from the sales levels of the various cooperatives. Of the 62 older RSCs, seven had recorded business in excess of M$ 4.0 million in 1991, while another 17 had reported business in excess of M$ 1.0 million in the same period. However, the remaining 38 older cooperatives were less fortunate as 19 had recorded sales of between M$ 0.5 million and M$ 1.0 million, while the remaining 19 had conducted an even lower volume of business, between M$ 0.25 and M$ 0.5 million. 16. The aforementioned study concluded that 32 RSCs would face financial difficulties. Of these 8 would never be able to generate adequate profits to pay the salaries of RISDA staff assigned to the cooperatives (about M$ 30,000 per annum), another 24 would barely manage to pay the salaries but not generate any surplus. The remaining 30 would generate proUits to varying degrees to cover the staff salaries, provide statutory reserves, and in some cases (16 RSCs), in addition to meeting all operating expenses, also manage to pay the 102 dividend and accumulate some reserves. - 110 - ANNEX 13 Page 5 of 16 IV. Issues 17. In formulating any strategy to make the RSCs viable, it is essential to recognize that: (a) regardless of their individual performance, all RSCs are substantially dependent on RISDA ; (b) despite the fact that RISDA is the major oource of the contracts, the performance of the individual RSCs varies considerably; and (c) although tne total volume of business generated by the cooperatives is substantial (M$ 69.2 million in 1991), which would normally be adequate to make them viable, most RSCs do not generate adequate profits to cover their costs. Even the larger and more profitable RSCs continue to be dependent on RISDA. 1e. Even using the vary narrow definition of viability -- adequate profits to cover costs of RISDA staff assigned -- only half of the RSCs would be considered viable. If one used the broader definition of whether the RSCs' managements are sufficiently competent to run their businesses without supervision, very few would qualify. In fact, the attitude survey of the members confirms this observation. Despite the fact that over 85Z of the members indicated that they were satisfied with the services provided both with respect to the quality of the services and their prices, almost 70% of the members felt that the RSCs would not b9 able to stand on their own without continued support from RISDA. Some 85% of the same sample felt that it would take the RSCs up to ten years to become fully independent. 19. After 14 years in existence, the RSCs continue to face operating difficulties arising from a number of factors. These inter alia are: (a) Lack of Clear Policy and Direction. In this context two issues are evident. First, the institutional responsibilities between RISDA and RARSCO are not clear. RISDA has continued to provide policy guidance and contracts to the RSCs and NARSCO, but the apex body and the RSCs have few direct operational linkages. As a consequence, the RSCs do not view NARSCO as their own organization, but perceive RISDA as the prime source of their assistance. The recent decision to allocate all responsibilities for the development of RSCs to NARSCO is a step in the right direction. However, NARSCO, as already noted, is operating at a loss and would be unable to bear the educational cost of supporting these cooperatives. Second, hitherto the emphasis has been on making the RSCs viable by providing contracts and staff support rather than approaching the problem within the framework of a well conceived strategy. As a consequence, despite considerable financial support, the RSCs remain dependent on RISDA. Although RISDA has withdrawn the General Managers in 48 RSCs, even now most of these staff continue to supervise the RSCs fr=m the nearest RISDA District Office. (b) Disgroportionate Allocation of Contracts. Although some RSCs are performing better than the others financially, barring few exceptions, the difference arises more from apportionment of contracts between the RSCs rather than better management. Except for marketing, which is a non-profitable activity (see (d)), even the - 111 - Page 6 of 16 better managed RSCs depend on RISDA for contracts for over 99S of their other business, just like the poorer performing RSCJ. The tendency is to confine business activities within a particular district to the district cooperatives, which naturally places cooperatives in areas where RISDA has limited development activities at a disadvantage; (c) Too Many Unrelated Activities Undertaken by RSCs. As all contracts within a District are given to the nearest cooperatives, the RSCs undertake a vide range of activities. In fact some 17 different types of activities are listed and it is common for each RSC to urdertake eight to ten activities, although over 802 of the total sales of the RSCs are generated from five activities: marketing (491 of sales), infrastructure contracts (171), input supply (52) and nurseries (102). The staffing is too limited (each RSC operates with six to eight staff) and most of the staff lack the experience to effectively handle such a diverse range of activities. The general tendency, therefore, is to take the job offered by RISDA and sub- contract it. As a consequence, the margins realized are even lower. Moreover, the management's attention is diverted to too many activities resulting in lower profits. (d) Low Overatin2 Margins. Margins usually vary between 15 and 201, resulting in occasional losses in activities undertaken. Such low margins require very good management to squeeze a profit. However, as already noted, this cannot be provided for reasons mentioned in (c), and, as a consequence, the actual gross margins realized by the RSCs vary considerably, from activity to activity, and even within the same activity, from year-to-year. A comparison of the margins, expected versus realized, for various economic activities commonly undertaken by the RSCs illustrates this point. As can be seen from Table 2 below, although the amount of margins provided by RISDA and NARSCO is more or less the same to each RSC, the gross margins realized by the RSCs vary considerably. Table 2: Gross MarEins Realized by Selected RSCs Activity Expected Gros Actual Margin Actual Margin Margin (Z) Realized Realized Min. (Z) Max. (1) Rubber nla 0.0 1.3 Marketing Nurseries 17.0 1.9 17.0 Agric. Inputs 6.0 4.4 6.0 Stockists n/a (30.0) 80.0 Infra. 15.0 or more (25.0) 40.0 Contracts - 112 - hHNE la Page 7 of 16 (e) Lack of Manazement Expertise in cooperatives, both at the Board and the management level; (f) Lack of Relevant SuDgort from RISDA or NARSCO, neither of which have the staff with the right qualifications to provide such back-up. As is evident, the CU is severely understaffed to play an effective role in monitoring and assisting the RSCs; (g) Undertaking Activities Without Experience. The general tendency of the cooperative managers/boards is to diversify without taking into account their ability or experience to handle the business. In some cases, the RSCs have taken contracts to construct/rehabilitate apartment complexes, while others have started taxi and transport services or even insurance operations -- more often than not with adverse financial consequences; (h) Lack of Distinction Between Profit and Social Motives. The RSCs' involvement in marketing illustrates this point. Marketing, as noted earlier, is not profitable. However, most cooperatives undertake this activity, in the belief that their involvement leads to better prices for their members; and (i) Delays in Preparation of Accounts which hinder proper analysis of the data. V. ProsDects 20. Projections indicate that RISDA can provide adequate business to all 64 cooperatives to generate some M$ 50,000 - 60,000 per annum in profits for each RSC after meeting all operating expenses (Table 3), provided the cooperatives can manage the business effectively. Of the 17 activities undertaken by the RSCs, three, namely, nurseries to supply planting materials, input supply and infrastructure development can provide the necessary margins and volumes to generate the level of profits indicated above. The fourth major activity, marketing, is not lucrative and the cooperative should undertake this activity only if it is demanded by the members. 21. With a potential sales volume of H$ 12.6 million and a gross margin of M$ 0.15 per plant, nurseries could support 15 RSCs (Table 4). Similarly input supply and trading (chemicals, fertilizers and a new product line of canned foods) could support 11 RSCs (Table 5) with the present margins (M$ 1.0/bag for stocking fertilizers, 62 on chemicals and 10% on canned food). Infrastructure contracts (land development under group replanting and other infrastructure) have adequate margins (15%) to meet all operating costs and provide the level of income indicated above to support the remaining 38 RSCs (Table 6). Specialization in a particular activity would have other advantages as well. As the RSCs become more efficient managers of their chosen enterprise, they could solicit other business leaving them less dependent on RISDA. RSCs specializing in nurseries could, for example, diversify into producing other plants. Similarly, the RSCs involved in - 113 - ANNEX 13 Page 8 of 16 infrastructure development could expana into other land development activities, while those specializing in input distribution could diversiify into general trading. 22. It is, however, essential to recognize that all three above mentioned activities have relatively small margins and require intensive management to realize their profit potential. It is important, therefore, that each RSC concentrate on one potentially profitable activity, generating income from it to finance its social programs. If the members demand that the cooperative undertakes other functions as well, such as mini-estate management (see para 32) or marketing, the RSC may undertake these activities, but it should confine its efforts to only two additional activities to ensure effective management. 23. The development of the concept outlined above, however, would require some support. This would be provided under the proposed component. VI. The Proposed Component 24. The principal objective of the component is to strengthen the RSCs to make them autonomous, self-financing institutions, capable of effectively managing their business and undertaking selected activities on behalf of RISDA profitably. The project would develop and implement a comprehensive rationalization plan, and finance two related activities to ach,eve this objective, namely technical assistance and training. Technical assistance would be required to provide back- up and support from NARSCO to assist the cooperatives to understand the business aspects of activities undertaken. Proposed Rationalization Plan 25. As analyzed in Table 3, given RISDA's requirements and development budget, no more than 15 cooperatives could specialize in nursery management, 11 in input supply and 38 in infrastructure development to generate a relatively equitable M$ 50,000 - 60,000 in profits annually. It would be advisable, therefore, to allocate these core profitable activities among the various cooperatives, taking into account their experience, asset base and the need to ensure an even spread between the various activities in each State. Based on the recommended plan, the CU has allocated an activity to each RSC (Table 7). The proposed list is tentative and cannot be finalized as the approval of the Boards is required to ratify the plan. As proposed by the CU, 15 RSCs would specialize in nurseries, 13 in input supply and 36 in infrastructure development: a slight, but not significant, departure from the numbers recommended in para 21. The difference has arisen as CU feels that 13 RSCs would be required to handle input distribution, rather than 11. As already noted, the list is preliminary and no final conclusions can be made at present. It is recommended, however, that as the list is finalized, the number of RSCs specializing in any activity should be close to the numbers suggested to ensure equal profitability for all RSCs. It is expected that the approval of the Boards of the RSCs would be obtained and the list finalized no later than July 31, 1994. - 114 - ANNEX 13 Page 9 of 16 26. With respect to the stores involved in input supply and food distribution, it is a requirement from RISDA that each District office work in close cooperation with a store. The 11 cooperatives specializing in this activity would, therefore, need to operate, on average, 5.8 stores each. In order to maintain their profit levels, the RSCs in input supplies would need to expand their product lines. NARSCO is already planning to enter into canned food distribution and could assist the RSCs in this respect. 27. The implementation of the plan would require considerable backing from NARSCO staff, not only in revising the business strategy of each cooperative, but also in familiarizing the cooperative staff in all aspects (technical, managerial, financial) of managing their respective businesses. Because of budgetary limitations, the expertise would have to be developed from internal resources. In this context, NARSCO would be provided with suitable back-up support and training. Moreover, of the 62 staff assigned by RISDA to work with the cooperatives as General Managers, 18 would be given training (para 33) and support and re-oriented to supervise and direct the operations of the RSCs. Nine of these staff would be required to improve the business of the RSCs and the other nine to assist the RSCs with accounts and audits. All these staff would report to the CU and be located at RISDA State offices. They would supervise each cooperative visiting it quarterly, assessing its operations and preparing detailed reports on the operations or accounts. The reports would identify areas of weakness and recommend appropriate measures to address them. These staff would, in addition, help the cooperatives prepare an annual budget and work plan and monitor the performance after the work plan has been approved by the Boards of the RSCs. 28. As NARSCO does not have the financial resources to pay the salaries of these 18 staff, it is recommended that RISDA second these staff to NARSCO for a period of three years, after which NARSCO should pay their salaries and related expenses. 29. In order to ensure proper management of the RSCs, it is essential that they have up-to-date accounts as this would facilitate monitoring as well as preparation of annual plans. It would be a condition of further assistance from RISDA that all RSCs bring their accounts up-to-date, paying the auditors from their own sources. Nine of the staff assigned from RISDA (para 27) would help the RSC8 in accounts preparation. Technical Asaistance 30. As there is little or no expertise in RISDA or NARSCO to guide the RSCs in managing the business and improving the profits, the project would finance two years of technical assistance (TA), to be located with the CU, to direct the activities of the staff that would work closely with the RSCs (para 27). The TA would review the work of the 18 staff and guide them in preparing regular supervision and annual work plan reports for each RSC. The terms of reference of the TA are given in Appendix 1. - 115 - ANNEX 13 Page 10 of 16 Traininat 31. The project would finance the training of selected NARSCO and RSC staff and Board members to strengthen their capacity to manage the RSCs. Generalized traiuing in cooperative and business management would be provided to all Board members. In addition, two board members that serve on the internal audit committees of each RSC would be given training in internal audit procedures. Moreover, all RSC managers would receive training in general business management while the accounts clerks would be given refresher courses in bookkeeping. Most of this training would be initiated in Year 1 and some of it, particularly the training for the Board members, would continue in Years two and three as some 768 members need to be trained. The training of staff and the members of the cooperatives' Boards would follow standard courses prepared by the Cooperative Training Institute, Angkasa. 32. After the cooperatives have selected their core profitable activity that they wish to undertake, the RSC staff would be given intensive one to two week courses in technical and business aspects of their respective activities. Thus, the managers of RSCe specializing in nursery management would be given specific training in managing the nursery and cost control. Similarly, the managers of RSCs specializing in store management would be given courses in inventory control, stock taking, product pricing and sales techniques, while the staff of RSCa involved in infrastructure management would be given training in job costing, bidding for new contracts, supervision of jobs and cost control. The managerial and supervisory staff of all cooperatives would also be trained in mnagement and maintenance of mini-estates as this could be a potential area of eXpansion for all cooperatives. 33. The selected 18 staff that would operate at the State level would be given specialized courses in accounts and business management. Nine staff specializing in accounting would be given intensive training in accounting, bookkeeping, and auditing, while the other staff would be given training in business management, cost control, financial managerient and business planning. It is anticipated that these 18 staff would be given intensive training for a period of one month each, which would be repeated in Years 2 and 3. VII. Comnonent Costs 34. The costs of the component mainly include those for training and TA. The Costs of training would be about 1$ 0.5 million (Annex 15, Table 3). The cost of TA would be about US$ 0.1 million per annum for two years or a total of 4$ 0.5 million over the project period. Incremental costs of travel for NARSCO and CU staff assigned by RISDA would be negligible and would be borne by NARSCO. I Also see Annex 15, Table 3 and para. 13. - 116 - ANNEX 13 Page 11 of 16 VIII. Phasing of Activlties 35. The phasing of the various activities is given in the chart below: Activity PY1 PY2 PY3 Selection of 18 staff _ Provision of TA ----- ________ Finalization of Plan -------- Training - NARSCO staff _ _ _ _ (Business Mgmt). Training - NARSCO staff (Accts & __ __ Audit) Training - RSC (Business Mgmt __ __ for Managers) Training - RSC (Bookkeeping) __ _ Training - RSC: Nursery Mgmt __ (Managers & Supervisors) Training - RSC: Store Mgmt __ (Managers) Training -RSC: Contract Pricing __ and Mgmt. Training -RSC: Mini-Estate Mgmt. __ Training - RSC: Land Dev & Group __ Replanting _ Training - Board Members _ __ (Internal Audit) Training - Board Members _ _ __ (General) - 117 - Annex 13 Page 12 of 16 Table 3: Proflt and Loss ProJections for Cooperatives (M$ 000) Nurseries Trading nfrastructure Income Total sales 12600.00 53000.00 36000.00 Gross Proi Nurseries 1/ 2100.00 input Supplies Fertlizers 2/ 1600.00 Chemicals 3/ 474.00 Food 41 300.00 Infrastructure S/ TB 4200.00 Others 1200.00 Total gross margin 2100.00 2374.00 5400.00 No of cooperatives 15.00 11.00 38.00 Gross marainIcoop 140.00 215.82 142.11 Less: expenses Salaries Manager 13.50 13.50 1S.50 Supervisors 6/ 7.50 0.00 15.00 Storekeepers T/ 0.00 34.80 0.00 Drivers 0.00 4.00 0.00 Accounts Clerks 4.00 12.00 4.00 Guards 4.00 23.20 8.00 Sub-total 29.00 87.50 40.50 Utilities 1.00 1.00 1.OQ Stationery 5.50 10.00 5.50 Travel allowances 5.00 5.00 5.00 Telephone 2.50 5.00 2.50 Postage 0.50 1.50 0.50 Operation & main. 1.00 11.00/8 1.00 Audits 1.20 1.20 1.20 Annual Gen. Meetng 10.00 10.00 10.00 Depreciation 5.00 15.00/9 5.00 Ucenses 0.50 0.50 0.50 Extemai audit 1.20 1.20 1.20 Miscellaneous 6.50 6.50 6.50 Training 1.00 1.00 1.00 Insurance 2.00 5.00 2.00 sub-total 42.90 47.90 42.90 Total expenses 71.90 135.40 83.40 Net profit 68.10 80.42 58.71 1/ @ M$0.15lplantat peak profit 2/ @ M$1.00/bag 91 @ 6% of annual sales of MS 7.9 million. 41 New line of food produicts. Projected sales M$3.0 million annually with a gross margin of 10%. 5/ 15% of contract value. 6/ Assumed that the cooporatives working on infrstucture handle two contracts at a time. 7/ 5.8 outlets per coopoetivo. 8/ Cooperativ handling inputs has one 1.5 ton truck at a cost of M$50,000. O&M costs are estimated at 20% of the Investment cost. 9/ @ 20% of the Investment cost fbr the truck. - 118 - Annex 13 Page 13 of 16 Table 4: Profit and Loss Prolections for Cooperatives Engaaed In Nurseries (M$ oo0) Year 1 Year 2 Year 3 Income Total sales 12600.00 12600.00 12600.00 Total gross margin 1/ 1400.00 1750.00 2100.00 No of cooperatives 15.00 15.00 15.00 Gross margin per coop. 93.33 116.67 140.00 Less: expenses Salaries Manager 13.50 13.50 13.50 Supervisors 7.50 7.50 7.60 Storekeepers 0.00 0.00 0.00 Drivers 0.00 0.00 0.00 Accounts Clerks 4.00 4.00 4.00 Guares 4.00 4.00 4.00 Sub-total 29.00 29.00 29.00 Utflities 1.00 1.00 1.00 StatIonery 5.50 5.50 5.50 Travel allowances 5.00 5.00 5.00 Telephone 2.50 2.50 2.50 Postage 0.50 0.50 0.50 Operation & main. 1.00 1.00 1.00 Audits 1.20 1.20 1.20 Annual Gen. Meeting 10.00 10.00 10.00 DepreciatIon 5.00 5.00 5.00 Ucenses 0.50 0.50 0.50 Extemal audit 1.20 1.20 1.20 Miscellaneous 6.50 6.50 6.50 Training 1.00 1.00 1.00 Insurance 2.00 2.00 2.00 sub-total 42.90 42.90 42.90 Total expenses 71.90 71.90 71.90 Net prom 21.43 44.77 68.10 1/ @ M$0.10/plant In year 1, M$0.125/plant In year 2 and a peak profit of M$0.15 per plant In year 3 - 119 Annex 13 Page 14 of 16 Table 5: Profit and Loss Prolections for Cooperatives Engaged in Trading (M$ 000) Year 1 Year 2 Year 3 Income Total sales 51000.00 52000.00 53000.00 Gross Profit Input Supplies Fertilizers 1/ 1600.00 1600.00 1600.00 Chemicals 21 474.00 474.00 474.00 Food 3/ 100.00 200.00 300.00 Total gross margin 2174.00 2274.00 2374.00 No of -^ooperatives 11.00 11.00 11.00 Gross marcin/coop 197.64 206.73 215.82 Less: expenses Salaries Manager 13.50 13.50 13.50 Storekeepers 4/ 34.80 34.80 34.80 Drivers 4.00 4.00 4.00 Accounts Clerks 12.0n 12.00 12.00 Guards 23.20 23.20 23.20 Sub-total 87.50 87.50 87.50 Utilities 1.00 1.00 1.00 Statlonery 10.00 10.00 10.00 Travel allowances 5.00 5.00 5.00 Telephone 5.00 5.00 5.00 Postage 1.50 1.50 1.50 Operation & main. 5/ 11.00 11.00 11.00 Audits 1.20 1.20 1.20 Annual Gen. Meeting 10.00 10.00 10.00 Depreciation 6/ 15.00 15.00 15.00 Ucenses 0.50 0.50 0.50 External audit 1.20 1.20 1.20 Miscellaneous 6.50 6.50 6.50 Training 1.00 1.00 1.00 Insurance 5.00 5.00 5.00 sub-total 73.90 73.90 73.90 Total expenses 161.40 161.40 161.40 Net profit 36.24 45.33 54.42 1/ i M$1.00/bag 2/ @ 6% of annual sales of M$ 7.9 million 3/ New line of food products. Projected sales M$1.0 million In 64 outlets In Year 1, increasing to M$3.0 million annually by year 3. The gross margin Is 10%. 4/ Costs are based on 5.8 outlets per cooperative. S/ Each cooperative has one 1.5 ton truck at a cost of M$50,000. The O&M expenses are estimated at 20% of the investment cost 6/ @ 20% of the investment cost of the truck. - 120 - Annex 13 Page 15 of 16 Table 6: Profit and Loss Prolections for Cooperatives Enaaged in Infrastructure (M000) Year 1 Year 2 Year 3 Income Total sales 36000.00 36000.00 36000.00 Gross Profit Infrastructure 1/ TSB 2800.00 3500.00 4200.00 Others 800.00 1000.00 1200.00 Total gross margin 3600.00 4500.00 5400.00 No of cooperives 38.00 38.00 38.00 Gross margin/coop 94.74 118.42 142.11 Less: expenses Salaries Manag'r 13.50 13.50 13.50 Supervisors 2/ 15.00 15.00 15.00 Storekeepers 0.00 0.00 0.00 Drivers 0.00 0.00 0.00 Accounts Clerks 4.00 4.00 4.00 Guards 8.00 8.00 8.00 Sub-total 40.50 40.50 40.50 Utlities 1.00 1.00 1.00 Stationery 5.50 5.50 5.50 Travel allowances 5.00 5.00 5 n0 Telephone 2.50 2.50 2.50 Postage 0.50 0.50 0.50 Operation & main. 1.00 1.00 1.00 Audits 1.20 1.20 1.20 Annual Gen. Meeting 10.00 10.00 10.00 Depreciaton 5.00 5.00 5.00 Ucenses 0.50 0.50 0.50 Exernal audit 1.20 1.20 1.20 Miscellaneous 6.50 6.50 6.50 Training 1.C J 1.00 1.00 Insurance 2.00 2.00 2.00 sub-total 42.90 42.90 42.90 Total Menses 83.40 83.40 83.40 Net profit 11.34 35.02 58.71 1/10% of contract value in Year 1; 12.5% in Year 2; and 15% in Year 3. 2/ Assumed that the cooperative handles tNo contracts at a time. - 121 - ANNEX 13 Page 16 of 16 Table 7. Specialized Activity Tentatively Assigned to Cooperatives Nurseries Input SupPlv Infrastructure Dev. 1. Pendang 1. Kubang Pasu 1. Neg. Perlis 2. Padan& Terap 2. Sik 2. Langkawi 3. Lenggong 3. Penang 3. Kota Setar 4. Dinding 4. Larut Matang 4. Baling 5. Big. Padang (U) 5. Kelang 5. Kuala Muda/Yan 6. Ulu Selangor 6. Sepang 6. Bandar Bahru 7. Negri Sembilan 7. Kluang 7. Kinta 8. Segamat 8. Johore Selatan 8. Selama/Kerian 9. Batu Pahat 9. Kauntan 9. Grik 1O.Temerloh 10.Bentong 10.Parit 11.Jerantut 11.K. Terengganu 11.Big. Padang (S) 12.Raub 12.Machang 12.Hilir Perak 13.Besut 13.Pasir Mas 13.Kg. Gajah 14.K.Baru/Bachok/Tumpat 14.Sg. Siput 15.Kelantan Selatan 15.Neg. Perak 16.Hulu Langat 17.Kuala Langat 18.Petaling 19.K. Selangor 20.Gombak 21.Neg. Malaka 22.Muar 23.Pontian 24.Pekan 25.Kuala Lipis 26.Rompin 27.Hulu Terengganu 28.Marang 29.Dungun 30.Kemaman 31.Pasir Puteh 32.Tanah Merah 33.Kulim 34.Selama/Kerian 35.Mersing 36.Kota Tinggi - 122 - Annex 13 Appendix 1 Terms of Reference of the Technical Assistance Oualifications and Experience The Consultant would have at least a Bachelor level degree in Business Administration and a minimum of 10 years' experience in managing a business enterprise or in financial analysis and management. Experience in assisting cooperatives would be an advantage. Res2onsibilities The Consultant would be responsible for: (a) advising the RSCs and NARSCO staff involved with RSCs in all financial, accounting and business management matters; (b) assisting the RSCs and NARSCO staff in planning and implementing the measures required for the RSCs to become self-financing, autonomous entities. To this end, the Consultant would assist in the implementation of the Rationalization Plan; (c) supervising, together with NARSCO staff, all RSCs, ensuring that their annual work plans are prepared on time and that they perform according to plan; (d) assisting the RSCs in preparatior. of annual accounts and ensuring a timely audit of all RSC accounts; (a) preparing a monitoring format and training the NARSCO staff to prepare supervision reports baited on the format; (f) training a counterpart staff to undertake his/her responsibilities when the tenure expires; and (g) undertaking any other relevant job that the Head of the Cooperative Unit may request from time-to-time for strengthening the RSCs. - 123 - ANNEX 14 Page 1 of 2 MAIAYSIA RISDA II PROJECT Comouterization of RISDA's Management Information System (MIS) 1. The operationalization and improvement of the computerized MIS at RISDA, supported under the RISDA I Project, would be given special emphasis under the Phase II project. RISDA's computerized MIS was initiated in 1979, when a mainframe was installed. The major work was on general acrounting besides processing of the Smallholders Survey of 1977. The payroll system was also implemented. In 1981 RISDA purchased an additional mini computer. By the end of 1986, it was found that the maintenance cost of the mainframe was high and the system had become obsolete. RISDA decided to write off the hardware and then bought a direct data entry machine in August 1986. In 1988, RISDA decided to upgrade its mainframe computer at its headquarters and introduce mini-computers for the State offices. For this purpose, a Steering Committee was established and the requirements of the operational units were considered. A proposal was submitted to the Government for computerizing information on finance and accounts, stock control and store management, mini-estates operations, and smallholders. The proposal also called for computerization at the State level over about four years. The proposal was approved in principle by the Malaysian Administration Modernization Planning Unit (MAMPU) in early 1989. The approved proposal envisaged a step-by-step implementation beginning in late 1989 with a one-year pilot project involving a new mainframe computer at RISDA headquarters and a terminal in Malacca State. 2. The RISDA I Project provided financing for the computerized MIS program as detailed above. The financing was for a mainframe computer, 11 mini- computers at States, and 70 personal computers (PCs) for the head office, Training Institutes and the new responsibility centers to emerge from RISDA's field level reorganization. In addition, the project provided for training of the computer unit staff and training of RISDA staff in the computerized MIS and a technical review of the pilot smallholder information system which had been in development at the Muar Regional Office since 1987. 3. During project implementation, some significant changes in the computerized MIS program took place. The 11 mini-computers at States were no longer considered necessary; instead, the number of PCs to be procured was increased. This was done in view of the field level reorganization of RISDA, whereby the States retained only a planning, monitoring and supervision role and all significant operational responsibilities were transferred to the new 60 responsibility centers which, consequently, had a greater need for computer facilities. The technical study of the Maur pilot project was dropped, since the system was considered outdated and no longer repltcable in other areas of the country. - 124 - Page 2 of 2 4. Substantial hardware and 30ftware have been purchased under the RISDA I Project, including a mainframe computer, procured through international competitive bidding and installed in 1992, and 421 PCs. Tables 1-3 show the costs of hardware and software purchased, type of software procured, and distribution of PCs by State and Headquarters, respectively. 5. The RISDA II Project will continue support for the computerized MIS. Additional hardware and software to be financed under the project for the computerized MIS is shown in Table 4. The training requirements for the computer unit staff are summarized in Table 5. Most of the training requirements will be met locally. However, some provision would be made under the project for overseas training of computer unit staff in selected subjects (see Annex 15, Table 5). The various modules (Smallholders Information System including Smallholders Training, Stock Management, Finance and Accounts, Personnel Information System, Monitoring and Evaluation, Executive Information System, Communication and Geographic Information System) will be developed and implemented during the project period as shown in Chart 1. Module 1 (Basic Information on Smallholders) is already completed and is, therefore, not shown in Chart 1. 6. Consultancy services would be needed for operationalization of the computerized MIS. However, the services would be employed for specific tasks from time to time, as the need arises. It is anticipated that the following applications would require consultant support: (1) Smallholders Information Systems PcLAN Version - 4 persons for 1 month each (2) Financial Application for Cost Centers - 4 persons for 1 month each (3) Communications - 2 persons for 2 weeks each (4) Graphical Interface Programming - 2 persons for 2 weeks each (5) GIS - 2 persons for 1 month each The estimated costs for the above expertise would depend on years of experience of the consultants as follows: Years of Experience Ms/&_y MS/month A. > 10 1,500 30,000 B. 6 - 10 1,000 20,000 C. 3 - 6 700 14,000 D. < 3 400 8,000 Assuming that services are obtained from type B professionals, the estimated costs are as follows: (1) Smallholders Information Systems PcLAN Version - M$ 80,000 (2) Financial Application for Cost Centers - 80,000 (3) Communications - 20,000 (4) Graphical Interface Programming - 20,000 (5) GIS - 40.000 Total M$ 240,000 - 125 - ANNEX 14 Table I Page 1 of 2 NALAYSTA RISDA 1U PROJECT Costs of Hardware and Software Purchased Under the RISDA Proiect lLn. 3139-NA) Al 3tardware $I*. N~.o 0eom4U mom e bOm IIAO Told Pn. ^~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a .tk"edni AM. Oonbd PMOOemEng IMa AI. tm MM0 MOM 4 P0470MS t 1.400.07L0 14A.072.00 . mxC NtW 6 BUC o SW * Svoton Trantormar * system Coned. o Pi! to e UIA AdrW A1.2 0d~s. A1.21 i hta 0ok Coedb f170061 1 1014340O 101.440 .4. Od Di W4dodMb 11 P64236W4 1 220.70*0 320.74040 f.l fPhd Oick UbO 2.5 3B P0426064 1 13.738.00 153.73 At£1.3 TOpO &eYS A1.31 Fq4lu M4mof Tooe uIW fNISA 1 100,#32.00 tO O332.O A1.32 FPW Mogfls TAM Uni Fal80 I 68.13500 63133.0 A1.33 NPiu Ceado TOOe CO_W P17311 1 13540.00 136.229t 0 A1.34 Pfbu C~ TIwo 0,1w C2 civand P0476A I 102*22.00 102.*2.00 AtA upO A£.41 hVt$ UL. Ues ( 3001.o) fP7310 I 8,01.000 01,e00.0o A1.43 ROM rwn Pink" (mOw P7330 1 72.12340 72.1*300 A1A TO_eRMID AtJt WI" 120 T To,mdo MAne 120 25 1re.00 34.s75.00 At.0 K 1eweed SqmEoe A1.01 TI tlUwn _ Came . 100 10.00 1,000.00 A1.02 Trarw hr hbok a * 0 7AO 4600.00 £2.03 Tad. SWo, (10 p.e) *4 4,80000 1w.0000 A1.04 AIJI Omo COWd a 736.00 4.410t0 A£16 1MC C*oWi adS Sok 20 112.00 2.812*0 part tumib ow oumeoiotm A1.t0 AMs Modem 24OOW . 2 1.S60.00 3.18040 moiwek hwndoraos cards I 600000 At.7 Uo.hdedbrAl"s 34ap0M A1.71 UPSO 20 KVt w022 I 71tt0.O0 71.600*0 A1.72 34 V u cOoi C_II . 1 20.10*0 *0.1 .m.. -g- ,- - 126 - ANNX 14 Tale I Page 2 of 2 a2 Software No. Software Description Qty Unit Price Total Price .__ _ _ _ _ _ _ _ _ _ __ (M $) (,4$) A2.1 operating System and Utilities A2.11 UXP/M (Unlimited Users) 1 228,424.00 228,424.00 A2.2 Database Management System (64 Users) A2.21 Informix - Online (Development) 1 241,280.00 241,280.00 A2.22 Informix - SQL (Development) 1 102,512.00 102,512.00 A2.23 Informix - 4 OL C Compiler 1 160,346.00 160,346.00 A2.24 Informix - 4 GL RDS (Development) 1 160,346.00 160,346.00 A2.25 Informix - 4 GL ID (Development) 1 -44,706.00 44,706.00 A2.3 Language A2.31 Micro Focus COBOL 1 66,444.00 66,444 00 A2.4 PC Software A2.41 ProComm Plus 1 424.00 424.00 A2.42 PC TCP/IP Plus (with NFS support) 1 1,760.00 1,760.00 A2.5 Statistical Package A2.51 SPSS-X (4-6 users) 1 41,580.00 41,580.00 Others A3 Freight and Delivery Free of Charge A4 Installation and Testing 30,000.00 A5 Training Free of Charge A6 Conversion Free of Charge o Payroll System o Staff Loan Deducation Subsystem A7 Documentation Free of Charge GRAND TOTAL 3.832.8s8.00 - 127 - ANNEX 14 Table 2 MALAYSIA RISDA II PROJECT Type of Software Purchased Under the RISDA Project (ELn. 3139-MA) 1. LOTUS 123 Release 2.4 2. MS-EXCEL ver 4.0 3. 800 XENIX 4. MS - WINDOWS 3.1 5. Harvard Graphics for Windows 6. Flowcharting ver 3.0 7. MS - Project for Windows 8. MS - Word for Windows 2.0 9. Central Point Anti-Virus 10. PCTOOLS ver 7.1 11. Superbase 4 Windows (LAN) 12. FOXPRO 2.0 (LAN) - 128 - AMNEX L4 Table 3 MALAYSIA RISDA II PROJECT Distribution of PCs Purchased Under the RISDA Prolect (Ln. 3139-NA) by State and Headquarters State PC PC PC PC Total 386 386SX 286 486 PERLIS - 2 1 3 KEDAH 9 17 11 37 P. PINANG - 2 1 .3 PERAK 11 13 11 35 SELANGOR 5 9 5 19 NEGERI SEMBILAN 8 15 8 31 MELAKA 4 7 5 16 JOHOR 9 15 14 2 40 PAHANG 9 15 10 1 35 TERENGGANU 8 13 9 30 KELANTAN 11 12 9 32 HEADQUARTERS 16 40 82 2 140 TOTAL: 90 160 166 5 421 . . _- - 129 - ANNEX 14 Table 4 MALAYSIA RISDA 11 PROJECT Costs of Computer Hardware and Software To Be Purchased Under the Prolect Estimated Total Cost/Unit No. of Urit Cost Cost M9 M8 M8 1. Local Area Network (LAN) at Cost Center (PT) end Wide Area Network (WAN) to link PT to HQ.....____-____ . _________ . ___a_____ 1.1 Server (For National Level) 1 50,000 50.000 PC-488 or higher 24 Mb - memory 1 Gigabyte SCSI Harddisk 1.2 Networking Software 254.000 Netware 3.11 (100 users) HQ 24.000 Netware 3.11 I5 users) PRD kL 3,600 60 210,000 Gateway 8,000 2 18,000 Fresh Utility 1,000 2 2,000 0 Assist 1,000 2 2,000 1.3 Communications Cards 1,465,500 Ethemet 2 1.000 200 200,000 (pailr) Microcomm 16,500 75 1,237,500 Terminator 140 200 28,000 (pair) 1.4 Other Network Hardware Cost 482.500 Modem 2,000 75 150,000 UPS 3,000 75 225,000 Wiring & Cabling 70,000 Powerchute for Novell S00 75 37,500 2. Other Software 282,200 Carbon Copy Plus 1,000 75 75.000 X/Window 7.200 1 7,200 GIS 40,000 5 200,000 3. Mainframe Hardware 500,000 Laser Printer (4000 1pm) 250,000 1 250.000 DASD (triple density) 250,000 1 250,000 GRAND TOTAL 3.034.200 i PT means the responsibiiity centers flncluding the State Offices, District Offices and Traidning Institutes of RISOA). k PRD Is the District Office of RISDA - 130 - ANNEXM14 Table S HALAYSIA RISDA II PROJECT Training Requirements for RISDA's Comouter Unit Staff 1. Network Management - Understanding - Administration - Implementation 2. Data Communications - Understanding - Administration - Management 3. Geographical Information System (GIS) 4. Project Management 5. Strategic Information Planning 6. Financial Management for IT personnel 7. Teleprocessing Database Design & Implementation 8. Computer operations - Security Management (Hardware & Software) 9. PC Maintenance 10. INFORMIX RDBMS Administration 11. Graphical User Interface - Windows Programming - Implementation - Management - Windows communication across networks MALAYSIA RSDA 0I PROJECT __________________ConWptd~e MIS Progrm PROGRAM 1993 -1995 [ 1111111:1111: I IIIII I - - ACTIVITY 94~~ J FMAM ASON JM JAONDJ F M A M J |J |A iS ON DJF MA JJ ASOND 1. Smaliholders Information 1.1 Module 2 - User's Tralning 1.2 - Implementation. 1.3 Module 3 - Developfment 1.4 - Pilot TesUing 1.5 - User's Training 1.8 -- nimpemertation 1.7 HO Database - Development 1.8 - Testing 1.9 - Implementatlon 1.10 RC Database - Installation LAN 1.11 - Pilot Test 1.12 - Training 1.13 - Implementation 1.14 Smallholders Training 1.14.1 Feasibility study 1. 1 4.2 development 1.14.3 testIng / pilot 1.14.4 IrmplemnentatlonO RC =ResponsibUity Center ACT1IVITY 2. Stock Mmtneagemnt 2.1 Fixed Assets - Development I 2.2 -Testing 2.3 - Implementat"on 2.4 Asset Valuation - Study 2.5 - Development i 2.6 -Testing 2.7 -Training 2.8 - Implementation 2.9 Stock Management -Training. 2.10 -implementation 2.10 Stock Convtrol at HO 2.11 Office Supplies - Development 2.12 * Training/implementation 3. Finance 3.1 Acoounting at RCs - Developrnenl, Li 71 _ 3.2 - Testing 3.3 -Training 3.4 -Implementation 3.5 Consolidated Accounts - Development FP T V 3.6 - Testing 3.7 - Implementation o 4. Personal InformatIon System 4.1 PIS at RCs - Development 4.2 - Testing 4.2 - Implementation 4.3 PIS at HO - Development I Ml 4.4 -Testing 4.5 Implementatlonm 4.0 Staff Loan - Development 4.7 - Testing 4.8 - Implementation S. Monitorlng and Evaluation 5.1 Studying of M & E 5.2 Development I I 1n 5.3 Testing I I I 5.4 Imiplementation ACTIVITY ' . . .. . '> ;4* . ExeulIve lnfofmation System 6.1 Study 6.2 Development 6.3 Testing 6.4 Implementation I I t l1 6.5 Training of Senior Management _ __ 6.6 Graphic Representation- Development 6.7 - Training and Irplementation 7. CommunlIcalon 7.1 Study, Testing & Procurement 7.2 Training of Computer Unit Staff 7.3 Phased Implementation of Lan v 7.4 Pilot WAN 7.5 Implementation of WAN S. GIs 8.1 Iniial Study 8.2 Approval for Procurement 8.3 Pototype Development 18.4 nImplementatIon at HO - 135 - ANNEX 15 Page I of 7 MALAYSIA RISDA II PROJECT Human Resource Development ComDonent Component Objectives 1. The human resource development component has two main objectives: (a) To support, through training, the provision of skills and knowledge required to enable project component objectives to be met; and (b) To increase RISDA's capacity to implement human resource development (HRD) and to introduce the systematic practice of human resources management (HRM). In order to achieve these objectives the project would support the strengthening of RISDA's capacity to manage training, training of staff and smallholders in improved tapping technology, cooperatives management, nursery management, computer technology and communications techniques. The project would also provide support for training programs begun under the RISDA I project but not fully completed. Trainins Activities Included in the HRD Component A. Training for Improved TaDPing Technologv 2. The project will support the introduction of Low Intensity Tapping Systems (LITS) with stimulation as a means of overcoming the problem of labor shortages in the rubber subsector. While the technology underpinning LITS is relatively simple, the effective implementation of LITS requires high levels of skill and supervision. The RISDA II project will, therefore, place great emphasis on ensuring that the management, technical and tapping skills of those engaged in the project-supported LITS program reach the highest possible level. During the first year of project implementation, a pilot introduction of LITS in seven mini-estates would be undertaken. 3. Proiect Year I. The trainee target groups in project year 1 would be the following: (i) The RISDA Coordinator of the LITS program plus one other person from the Extension Division and two staff from the mini-estates Division (4 persons). (ii) Mini-estate Managers at State level (4 persons). (iii) District Officers - ROs (5 persons). - 136 - ANNE 15 Page 2 of 7 (iv) Assistant mini-estate managers responsible for districts (5 persons). (v) Supervisors of each mini-estate - AR0s (7 persons). 4. The total for LITS training in Project Year I is 25 persons or two courses. Training would be conducted by RISDA at selected ILRs and RRIM staff would serve as resource persons. 5. High quality tapping is essential for a successful LITS program. The project will provide training for all mini-estate tappers involved in the pilot introduction phase (7 mini-estates) during 1993 or at the latest in early 1994. The target group for the first seven mini-estates is 160 tappers who will be trained in situ for a period of three days by a training team from the ILRs. Each training group will have ten tappers and two trainers. For the pilot phase of LITS a total of 16 courses will be conducted (Table 1). 6. Proj1ec Year 2. With the addition of 50 additional mini-estates in about 20 districts during PY 2 the target groups for training would be: (i) RISDA headquarters staff in charge of mini-estates and extension (5 people). (ii) Mini-estate managers, one per State (9 persons). (iii) Assistant mini-estate managers (to be future trainers) (20 persons). (iv) Supervisors of mini-estates - AROs (50 persons). (v) District Officers - ROs (20 persons). 7. About 700 tappers from the additional 50 mini-estates would be trained in situ by teams of trainers from the ILRs. Each course for ten tappers would run for three days, with a total of 70 courses. 8. Project Year 3. An additional 100 mini-estates would be included bringing the total number to 167. Trainee target groups would be: (i) Mini-estate managers at State level (7 people). (ii) Assistant mini-estate managers (40 persons). (iii) Supervisors (100 persons). (iv) District Officers (40 persons). (v) District Extension Officers (124 persons). - 137 - ANNK 1 Page 3 of 7 9. Tapper training would be provided for about 1,000 tappers from the additional mini-estates. About 100 in situ courses of three days duration would be managed by ILR training teams. 10. LITS training would be conducted by RISDA staff certified by RRIM as trainers. Approximately 8 RISDA staff should participate in the RRIM tapping LITS course which has been specially designed for the LITS program (Table 1). B. Training for Nursery Improvement 11. The RISDA II project will put special emphasis on the improvement of the quality of planting materials. The number of nurseries will, by the second year of project implementation, be reduced from 28 to approximately 15 and the capacity to manage, operate and supervise will be increased through training. Four target groups have been identified for nursery related training (Table 2): (i) Approximately 15 nurseries under management of ESPEK will require training for the supervisor of each nursery (15) and a nursery manager for a cluster of nurseries. The total size of the trainee group is 20 persons. This group must understand nursery operations and the objective of producing quality planting material. The course of 10 days will be offered by RRIM. (ii) The second target group includes nursery managers in charge of operations and their key assistants. The course would emphasize technology of nursery management and include some practical budgrafting training. Included would be 15 nursery managers plus one assistant per nursery (30). In addition, the 15 cooperative managers should also attend the course. (iii) Another target group would be RISDA staff with responsibility for planting materials (clone inspectors), especially those who will visit nurseries to see that planting material is ready for distribution. This target group includes RUSDA headquarters and State officers and 8 ILR trainers (8). The group totalling about 15 persons should attend the 10 day RRIMl course as for groups (i) and (ii) above. (iv) Budgrafters are essential to nursery operations and they are in short supply in some States. Approximately 100 budgrafters will be trained over a period of seven days at ILRs. 12. Timing of Nursery Training. Groups (i), (ii) and (iii) should be enrolled in the RRIM course as soon as possible and preferably during 1993. RRim has indicated willingness to offer the training if financing can be arranged. Training for budgrafters (Group IV) will take place in Project Years 1 and 2. - 138 - AME6 15 Page 4 of 7 C. Strengthening of Cooperatives 13. Training will be provided for staff and Board members of cooperatives to be strengthened under the project (see Annex 13 for details, particularly paras. 31-33 for training). Topics in the training program include business management and planning, and accounts and audit for NARSCO staff; and management and accounting, bookkeeping, and store management for cooperatives staff. Mini-estate management and land development and group replanting training will be given to selected staff from cooperatives which are likely to have mini-estate responsibility. Training for cooperatives Board Members will also be provided to expose them to internal audit, cooperatives management, policy making and cash management. Training will be provided by ANGKASA, MKN and ILR depending on specialization (Table 3). D. Communications Skills Training 14. Weakness in communications skills amongst the AROs was identified as a serious weakness in RISDAs extension programs during RISDA I project appraisal. Funding was provided for the development of a communications skills course and a number of AROs were trained. However, due to the short implementation period of RISDA I, a considerable number of staff have yet to be trained. 15. Communications skills training will be provided for about 1330 staff including --icultural officers, PRD and ROs (300 persons) in courses of 6 days' duration and for extension and mini-estate personnel (1,000 persons) in courses of 14 days' duration. The training courses will be offered by the ILRS (Table 4). B. Overseas Training 16. The project will finance limited overseas training for staff of the RISDA Computer Unit in order to increase their capacity to provide management support for the RISDA. It is envisaged that the overseas training of short duration will mostly take place in the region and will be limited to a total of five persons (Table 5). F. Technical Assistance 17. Targeted technical assistance will be provided to strengthen the capability of the Communications Unit which has responsibility for the design and production of extension support materials, journals and teaching aids. Five months of technical assistance for strengthening the Unit's graphics capability will be funded. TA will also be provided to strengthen training management and to assist RISDA management establish a human resource development system. The period of TA involvement will be spread over twelve months in the case of training management and nine months in the case of HRD and the consultant-months would be 6 and 7, respectively (Table 6). - 139 - ANNEX 15 Page 5 of 7 G. Eim=nt 18. Funding will be provided for upgrading teaching and communications equipment and materials to ensure that the quality of training and management information remains as high as possible. A total of US$9,000 will be allocated for Communications Unit equipment and software and US$200,000 for the Training Unit, ILRs and Wisma RISDA (Table 7). H. Manaqement of Training 19. The scope and scale of training required by RISDA personnel has broadened with the advent of the RISDA 1 and RISDA II projects and with the intensification of male and female smallholder training. RISDA's in-house training capacity through its four Training Institutes (ILRs) and one Kuala Lumpur-based training center (Wisma RISDA) is already reaching a point where capacity is fully stretched and indeed considerable amount of staff training is implemented on behalf of RISDA by other agencies. Thus the emphasis has shifted in RISDA from being primarily a supplier of in-service training to identifying training needs and negotiating for training services with appropriately-qualified institutions and firms. 20. RISDA now needs to manage training activities to a greater extent than before. Management of training implies systematic needs assessments undertaken in consultation with the Directorates and other RISDA units, design of training programs, evaluation of proposals from suppliers of training, implementation administration, and training impact evaluation. In addition, the administration and management of the RISDA training centers and on-site training activities supervised by the ILRs requires management input. 21. The project will support the strengthening of training management capacity in RISDA by providing funds for an in-house Training Management course to be offered by local consultants specializing in such training. It is envisaged that the consultants would conduct the course in modules over a period of, say, one year. After each module, trainees would be able to seek advice based on their experiences prior to the subsequent module. The target group for the Training Management course would be six persons from the Training Unit and four ILR Principals. The estimated cost of providing the Training Management course is US$48,000 (Table 6). Detailed terms of reference for the consultants are at Appendix 1. I. Human Resource Development 22. One of the lessons learned from the implementation of the RISDA I project was the need to strengthen the management of human resources within RISDA. Consultants hired to develop a communications skills course and to strengthen training management also undertook a human resources management study and made recommet.dations based on their observations and findings. 23. K'SDA does not have a fully-implemented human resource development (HRD) system in place and human resource management is weak. By HRD is meant the normally accepted activities which deal with recruitment based on specific - 140 - Page 6 of 7 job descriptions, training based on training needs assessments, appointment of qualified staff to positions requiring specific skills, career development, promotion on merit and some form of manpower planning. 24. Human Resource Management (HRM) is, in effect, an indication that managers are using the output of the HRD system to actively and effectively manage their human resources. One important outcome of good human resources management from the manager's point of view is a workforce which can achieve objectives assigned to a particular unit, division or department. In achieving these goals, managers gain in terms of their standing in the organization and motivation of the staff improves. 25. The manager who manages his/her human resources, anticipates vacancies or new skill needs, hires on the basis of clear job descriptions, observes and itacusses skill competence with staff, trains only on the basis of need, and identifies staff with potential for positions of greater responsibility. The expected outcome of active HRM is greater work efficiency and effectiveness, higher staff morale and usually less but better-focussed training. 26. RISDA now needs to institutionalize HRD/HRM. The project will provide funding for the hiring of technical assistance to help guide the process for developing awareness, appreciation and adoption of an HRM approach within RISDA. The TA would be expected to take the RISDA I human resource management report as a starting point and, after analysis of the existing situation, design a series of activities for senior, middle and junior managers which would clarify the meaning and advantages of adopting a HRM approach in RISDA. Once this phase of awareness raising and clarification is complete, the consultants would: (a) Review and make recommendations on the HRD function in RISDA, with special reference to strengthening RISDA's capacity to actively support HRD. Recommendations should also include the location of a HRD entity in the organizational structure; (b) Examine RISDA's training activities and make recommendations on how best they can be managed; (c) Develop HRM guidelines for RISDA managers to facilitate their practice of HRM; and (d) Set targets with indicators to assist managers in introducing and practicing HRM. 27. The estimated cost of the technical assistance to develop RISDA's HRD and introduce HRM is US$56,000 (Table 6). Detailed terms of reference for the consultants are at Appendix 2. - 141 - A 15 Page 7 of 7 Cost of the Human Resu2re Develo96 ent= Cogmnnt 28. The estimated cost of the HRD component is US$1.207 million including US$144,000 for technical assistance and US$27,000 for overseas training (Table 8). Of this, the incremental costs of training for LITS, nursery improvement and communicatiens skills amounting to US$551,000 would be financed from RISDA's operating budget and have not been included in overall project costs, which relate only to RISDA's development budget. MALAYSIA RISDA 11 PROJECr LUTS TRAINING Caouse Unit Trainee Trainhg TARGET GROUP Duralion Cost Number PYI PY2 PYS Total Cost Responsibitiy RISDA LrTS Coordinator HO Eension DMslon 6 days US$180trainee, 25 4.5 4.5 ILR Mini Estates Dlvision Oourse State and Distrc St HO, State, and Disct Mini Estate Supervisors for 6 days US$180Anee1 104 18.72 18.72 ILR Additioa 50 Mini Estas course HO, State, and Distict Mini Estate Supervisors for 6 days US$180itraWnee/ 311 55.98 55.98 ILR Additkoa 100 Mgi Estates course RISDATrainems 10 days US$300ramIr/course 8 2.4 2.4 RRIM Tapper Training for7 3 days US$624/couse (10 160 10.0 10.0 ILR Mini Estates (Pre-effetveness) tappers and 2 trainers) Tapper Training for 3 days US$624/course (10 700 (est 43.68 43.68 ILR Additional 50 Mini Estates (Year 2) tappers and 2 trainers) (est Tapper Training for 3 days US$624/course (10 1000 (est) 62.40 62.40 ILR Additional 100 Mni Estates (Year 3) tappers and 2 trainers) (est) TOTAL 2308 16.9 62.40 118.38 197.68 ILR = RISDA's Training Institutes RRIM = Rubber Research Institute of Malaysia VIl MALAYSIA RISDA 11 PROJECT NURSERY IMPROVEMENT TRAINING Coutse Unit Trainee TARGET GROUP Topic Duration Cost Number PYI la PY2 PY3 Total Cost Espek Supervsor Numsery Management US$235/trainee 20 4.7 /b 4.7 Nursery Manager for Clusters of 10 days Numeses Nursery Managers in Charge of Numery Management tO days US$235/trainee 30 7.1 /b 7.1 Operations and Assistants Technology Cooperatlws Managers Nursery Management 10 days US$235/tralnee 15 3.53 /b 3.53 RISDA Staff (HO). State Officers and Nursery Management 10 days US$235/tralnee 15 3.53 /b 3.53 ILA Trainers Budgraftlers Techniques 7 days US$100trainee/course 100 5.0 5.0 10.0 I TOTAL 180 23.86 5.0 28.86 W /e If central nursery program Is detayed. the training schedule may shift to PY2 and 3. lb If central nursery program is on schedule, training should take place before July/August 1994. Note: Nursery Improvement training is to be carried out by RRIM and budgrafting by the ILRs. Fn M6ALAYSIA RISDA U PROJECT COOPERATIES STAFF TAINING (USSU Cours Uni Tradnee Treb* TARGETGROUP Topic Duration Cost Number PYl PY2 PY3 Totsl Cost Provider A. NARSCO Supsom Sf (ARO) Busness Manageme One moiyar USS600Imonth 10 6.0 6.0 6.0 18.0 ANGKASA and Pnning Accots and Audit One morn/e US$600lmonth 10 6.0 6.0 6.0 18.0 AHGKASA . cooperate Skal Swnes Manageewnt 2xS da Vyear 1. USS600month 64 38.4 38.4 76.8 AMGKASA Ind. Accouning I mo. yer 2 (accouning) Bookkeepig 16 days US$00/traInee/course 64 19.2 19.2 ANGKASA (Accounts clerks) Store Management 7 days USS140tralneescourse I5 2.1 2.1 ANGKASA Contract Pricin and 7 days US$140/trahmecoumse 40 5.6 5.6 ANGKASA 4 Managwemen MiWn Estate 7 days US$t401tralneeiourse 64 5.6 5.6 ILR Manmament Land Devebpment and 7 days USI140/tralneel/ourse 40 5.6 5.6 ILR Group Replanting C. Board Membrs intenal Audit 7 days US$1401traine/course 128 (Z64) 8.96 8.96 17.92 MKM Cooperative Management. days US$140/tralne/course 768 (1a44) 42.0 42.0 23.52 107.52 MKM Poly. Cra Management and Business Applications TOTAL t203 120.56 120.26 35.52 276s4 AGiiA - Cooperdiv College - MKM- urn MALAYSIA RISDA II PROJECT COMMUNICATIONS SKiLLS TRAINING /a diSy) Course Unit Trainee TARGET GROUP Duration Cost Number PYI PY2 PY3 Total Cost A. MANAGERS Agricultural Offcers 6 days $120/trainee/course 11 1.32 1.32 PRD 6 days $120/trainee/course 62 2.40 2.40 2.64 7.44 RO (extension) 6 days $120/trainee/course 223 9.60 9.60 7.56 26.76 B. EXTENSION AND MINI ESTATE STAFF ARO 14 days $280/trainee/course 700 84.0 84.0 28.0 196.00 Mini Estate Superisor 14 days $280/trainee/course 332 49.0 35.0 8.96 92.96 TOTAL 1328 146.32 131.00 47.16 324.48 /a Training to be offered at RISDA ILRs. In MALAYSIA RISDA II PROJECT OVERSEAS TRAINING /a (US$'009) Course Unit Trainee Topic Durtion Cost Number PY1 PY2 PY3 Total Cost Network Management 1 month US$5.0 2 10.0/b 10.0 Data Communications 1 month US$5.0 2 10.0 /b 10.0 Teleprocessing Data Base Design 1 month US$7.0 1 7.0 /c 7.0 and Implementation TOTAL 5 27.0 27.0 /a All trainees from RISDA Computer Unit. /b Courses in region. /c Course in USA. I|- U' MALAYSIA RISDA II PROJECT TECHNICAL ASSISTANCE FOR HRM (US$.O00) Rom Unit Cost Duration PYl PY2 PY3 Total Cost A. Communications Unit Graphics Expert 8.0/mo. 9 months 40.0 40.0 B. Trainina Unit In House Training Management 8.0/mo. 6 consultant-months 16.0 16.0 16.0 48.0 Course for 10 People (Modular) over a 12-month period a C. HRD Strengthen RISQA HRO capacity 8O/mo. 7 consultant-months 20.0 18.0 18.0 56.0 and asit management with over a 9-month period Human Resource Management (HRM) TOTAL 76.0 34.0 34.0 144.0 Q M MALAYSIA RISDA 11 PROJECT TRAINING EQUIPMENT (US$'OM item Number Unit Cost PYI PY2 PY3 Total Cost A. Communcations Uni Computer (486) One 4.0 4.0 4.0 Graphics Sotware Several 2.0 (Sum) 2.0 2.0 Laser Printer One 3.0 3.0 3.0 Subtotal 3.0 6.0 9.0 B. Tmining UnltIlLRs Video/Computer Projector (ILRs) 4 16.0 64.0 64.0 Photocopier (iLRs) 4 5.0 20.0 20.0 Risograph 1 24.0 24.0 24.0 Overhead Projector (High Powered) 8 1.60 6.4 6.4 12.8 Slide Maker 1 10.0 10.0 10 0 Computer Software Several 10.0 (Sum) 5.0 5.0 10.0 Training Reference Books (ILRs, RISDA HQ) Several 12.0 (Sum) 6.0 6.0 12.0 Video Teaching Aids (ILRs) Several 10.0 (Sum) 5.0 5.0 10.0 Plotter 1 14.0 14.0 14.0 Text Scanner 1 3.0 3.0 3.0 Network Accessories 4 Sets 5.0 20.0 20.0 Subtotal 55.4 144.4 199.8 TOTAL 58.4 150.4 208.8 m x -4,- iUn _ 149 - Annex 1 5 Table 8 MALAYSIA RI8DA If PROJECT HUMAN RESOURCE DEVELOPMENT COMPONENT COST iUSSOOO) Item Cost UTS Training /a 197.7 Nursery Improvement Training /a 28.9 Cooperative Strengthening 276.3 Communications Skills Tralning /a 324.5 Overses Training 27.0 Technical Assisbnce 144.0 Equipment for Training and Communications 208.8 TOTAL 1,207.2 a/ These costs are to be financed from RiSDA's operating budget and have not been Included In overall prolect costs, which relate only to RISDA's development budget. - 150 - ANNEX 15 Appendix 1 Terms of Reference for Consultants Manatement of Training 1. The volume and variety of training programs required by RISDA have increased to the point where the institutional emphasis is on the management of training programs delivered in house and by outside agencies rather than solely in house through the RISDA Training Institutes (ILRs). The RISDA II project, which plans to introduce new and improved technology for nursery management and tapping and strengthen cooperatives will, in addition to a comprehensive routine training program, place new demands on RISDA's ability to manage its training programs efficientlv and effectively. 2. The services of an experienced consultant group are required to design and implement an in house training management course for RISDA headquarters, field and ILR staff who will have responsibility for training program implementation. The course, which could be designed as a number of modules delivered over a period of, say, one year with monitoring between modules would be offered to about six persons from the RISDA headquarters Training Unit and approximately four ILR principals. 3. Qualifications and Experience of Consultina Firm. The firm should have a proven record of successful activity in the area of training and training management. Experience with training in the agricultural sector, while not critical, would be advantageous. The firm should be able to assign a team of ,well qualified and experienced persons for the duration of the assignment. 4. Main Responsibilities. The consultants will be expected to create within RISDA the capacity to manage training programs and to provide RISDA with the necessary systems, procedures, and guidelines required to support staff in sustaining the management of training in RISDA. 5. Main tasks. The main tasks of the consultants would be as follows: (a) Review progress with strengthening training management achieved during the implementation of the RISDA I project. (b) Undertake an analysis of RISDA's present and future requirements for training management. (c) Identify RISDA personnel who should be included in the training management activity. (d) Propose training management program. (e) Implement agreed program. (f) Provide necessary monitoring/supervision of on-the-job application of skills in the event that the program is in modular form. (g) Evaluate progress based on agreed indicators. (h) Provide RISDA with an end of assignment report. _ 151 _ ANNEX 15 AppendiS 2 Terms of Reference for Consultants Human Resource Development/Human Resource Manaeement 1. RISDA management is concerned about the effectiveness of its largely vell-educated staff and vishes to strengthen its approach to human resource development and to begin to actively practice human resource management. Management's concern stems in part from government's initiative on quality management and from the implication of decreasing public support for institutions such as RISDA which are expected to generate more of their own revenues. 2. The services of a suitably qualified and experienced firm vill be required to review RISDA's human resource management system, strengthen the system where appropriate and plan and implement a program of human resource management. The assignment, which should be completed over a period of about 9 months, may consist of a number of linked activities or modular training sessions supported by work place assignments and supervision. 3. Qualifications and Experience of Consultina Firm. The firm should have a proven record of successful consulting in the area of HRDIHRM and be able to assign suitably qualified and experienced staff for the duration of the consultancy. 4. Maior Responsibilities. The consultants will be expected to institutionalize a workable system of HRD which meets the needs of RISDA and to assist RISDA managers in introducing a system of human resource management. 5. Main Tasks. The main tasks of the consultants would be as follows: (a) Review present RnD arrangements and documentation. (b) Propose a program of HRD strengthening which may include organizational adjustments, changes in responsibility, modified procedures and new or updated regulations. (c) Implement the strengthened system. (d) Sensitize senior management to the need for HRM, indicating the benefits likely to be obtained from adoption of systematic HRM. (e) Design a RISDA-specific approach to HRM including training programs for managers. (f) Help RISDA management incorporate HRD and active HRM in its corporate culture through updated mission statements and job descriptions. (g) Monitor progress in adapting HRD and HRM approaches by workplace observations and use of indicators. (h) Prepare end-of-assignment report. - 152 - Annex 16.1 MALAYSIA RISDA II PROJECT PROJECT COMPONENTS BY YEAR Foreign 1994 1995 1996 Total Exchange (%) Replnti and Mai_tnance (a) Grant Payments/a 200.220.0 195,670.0 191,700.0 587,5f90.0 35 (b) Rubber Nursery lmprovement/b 400.0 400.0 400.0 1200.0 a RehabiliUan 3,0m0.0 3,000.0 3,000.0 9,000.0 35 Infrastructure (a) Upgrading 4,000.0 4,000.0 4,000.0 12,000.0 35 (b) Mantence 1,000.0 1,000.0 1,000.0 3,000.0 25 Exension and Smaliholder Trainn 5,000.0 5000.0 5,000.0 15,000.0 10 Appled Reech (RAM)U le 800.0 1,000.0 810.0 2,610.0 20 Min-Esate Dev. & Improvement/d 3,000.0 S,000.0 3,000.0 9,000.0 15 Strenghsning of Cooperatves (a) Technid Assistance / 120.0 240.0 120.0 480.0 (b) Traini /f 307.0 307.0 90.0 704.0 a CGomputerid MIS (a) Equlpment/g 2,500Q0 534.0 - 3,034.0 60 (b) Tecical Assiance h 120.0 120.0 - 2400 - Human R weoure Delpment (a) Training Equipment & Mateis /I 150.0 380.0 - 530.0 8o (b) Tecnical Asisance a 200.0 60.0 80.0 360.0 - (c) StaffTrainn (Overs") /k - 70.0 - 70.0 100 Manitring and Evaludon Il 40.0 120.0 - 160.0 - es"2code.L857.0 214.921.0 209t200.0 644Z978.0 34 Physica Contlinenles/im 265.0 91.4 0.0 3564 60 PriceaCnngendes /n 147.0 200.0 134.0 481.0 30 Tol Project Costs /o 221,269.0 215,212.4 209,334.0 645,815.4 34 af From Annex 16.2. b/ RRiM supevision costs. a/ Prom Annex 10. dl Suppbmentay development costa (ovir nd above grant entlemnets) of mini-esates stbished pfior to the projet end not yet In poducion, averWi 4,000 ha pa. ever the projct period. el Twenty-four person-monrha. VJ From Annex 15, Table 3. W1 From Annex 14, Table 4. hl 8e Anrtnex 14. pam IL I/ FrPrnAnnexKI5,Tsbl7. V Fromn Annex 15, Tablo. kI From Annex 15, Table 5. IV Egt peron-monts oonaf sncy. ni 10% for computer and taning qment. nl For computer an trnin equipment applied resewrch an tecica asslstance wih the Ihtn rat assumed at 2L% p.s for foreign costs and 4.5% p. for local coss. oJ Induee txes an dute estiated at MSIA mlon for Infastructure (5% d eoa and equipment (10% of cost). MALAYSIA RtSDA II PROJECT COSTS OF REPLANTING AND MAINTENANCE I/ (M$ milion) 1004 10NS 1906 YEAROF RUBBEFR OIL PALM OTHERCROPS RiBBER OIL PALM OTHER CROPS RU8BER OIL PALM OTHER CROPS REPAWLN` HA INSTAiLMENT COST HA INSTALLMENT coST HA nSTLLmEw COST HA COST HA COST ItA COST HA COST HA COST HA COST 1968 22617 469.3 10.61 0 0 0.00 0 0 0 1989 25668 599.22 15.S8 0 0 0.00 0 0 0 2566 12.04 0 0 0 0 1990 29063 710.1 20.64 0 0 0.00 2530 716.301 .81 29Q 17.42 0 0 0 0 29063 13.64 0 0 0 0 1991 31489 722.5 22.75 4859 474.25 2.30 2833 716.30 2.03 31489 22.S6 0 0 2833 2.03 31489 18.87 0 0 0 0 1992 328S3 722.5 23.72 4969 846.7 4.21 3426 728.68 2.50 S2838 23.72 4969 2.36 3426 2.45 32833 23.31 0 0 3426 2.45 1993 33230 073.48 32.35 5272 1321.9 6.97 3498 728.70 2.55 33230 24.01 5272 4.46 3498 2.55 33230 24.01 5272 2.50 3498 2.51 1994 24000 1781.64 42.76 3600 1705.3 6.14 2400 1457.99 3.50 24000 23.3 3600 4.76 2400 1.75 24000 17.34 3600 3.05 2400 1.75 1995 24000 42.76 36W 6.14 2400 3.60 2400D 23.36 3600 4.76 2400 1.75 1998 24000 42.76 3600 6.14 2400 3.50 TOTAL 168.21 19.62 12.39 165.67 17.72 12.28 163.29 16.45 11.96 1/ Based on grant payment instalments as shown at Annex Sand sumrarized in columns for the year 1994. For bother crops the grant rate for non-citrus fruts has been used. The grant Instatments are welghted, assuming that 909 of smalholdera would receivegrants applicae to holding size of 4 ha or less and 10% would receive granst applicable to holding size of more than 4 ha. The crop proporton for replantings in 1994-1996 Is assumed to be 608% ubber 12% oit palm and 8% other crops in thelight otrecent experience. The crop proporton for 993 is estimated and figures for replanftings In 1992 and earlier are actuals. U' w- _ 154 _ Annex 1 7 Table 1 ,Milavasla RISDA It PMiogle Financinq lPULa (S$s million) Rubber Component WQrld Bank GOM Smallholders/8 Total Armount % Amount 96 Amount % Amount Replanting and Maintenance (a) Grant Pavments e2 70 27 8S 70 37 82.00 38 230.40 (bl Rubber Numryer Improverment/b 0.38 90 0.04 10 -- 0.40 Rehabilitetion 0.95 27 2.55 73 -- 3.50 Infrastruoture Development and 1.00 27 4.30 73 - - S90 iMaintenance Extension and Smailhoi4er Training 1.00 27 4.30 73 - S SO Applied Research (RRliUI - - 1.10 100 1.10 fd-nEsate Developrnent oW0.93 27 2.154 73 -- 3.1SO Improvetnent Strenothernin of Cooperetiws (a) TechricaliAsWeitence 0.18 90 0.02 tO - 0.20 (b) Tradring 0.30 100 -- 0.30 Cwomuterized PAiS (a) Equipment 1.04 80 0.26 20 -- 1.30 lb) Technical Assistnce OOS9 90 0.01 10 -- 0.10 Hurnan Resource Development (a) Tradrdno Equipmnemndat Mieterial t0 80 0.04 20 -- 0.20 (b) Technicai Assstance O t8 SO 0.02 10 -- 0.20 (el StaffTtaining (Overseas) 0.09 90 OOt1 tO - 0.10 Moritoring and Evaluation 0.09 90 O Ot 10 -- 0.10 (Cofnsultano y) TotaliFRnancina 70.00 28 101.20 40 82.00 32 253.20 a/ Thmough toepantng cass panents. b/ RRIM supervision costs. _ 155 _ Annex 17 Table 2 Mlalaysia RISDA II Proiect IBRD Loan Disbursement Cateaories Disbursement Category Amount IUS$ million) % of Expenditures to be financed (1) Replanting and Maintenance, 67.8 27 Rehabilitation, Infrastructure, Extension and Smaiiholder Traidning. & Mini-Estate Development and Improvement (2) Computer and Training Equipment 1.2 80 a/ (3) Consultants' Services lb 1.0 90 and Overseas Training Total 70.0 28 a/ It is assumed that these Items would be procured locally and would be financed at 80% by the Bank. Otherwise, Bank disbursement would be 100% of foreign exchange expenditures of imported equipment and 100% of the ex-factory cost of such items manufactured locally. bl Includes RRIM supervision costs for rubber nursery improvement, and consultant services for strengthening of cooperatives, computerized MIS, human resource development, and monitoring and evaluation. _ 156 - Anoex 17 Tebl 3 Malaysia RISPA II Prolect Schedule of Loan Disbursomentsla Cumulative Standard Disbursement IBRD Period Ending Disbursements Profile for Malaysian Agricultural Fiscal Year Amount (US$ Million) % Projects 94 June 30, 1994 0.3 0 95 DeOember 31, 1994 4.0 8 3 June30, 1995 12.0 17 e 96 December31, 1995 21.0 30 14 June 30, 1998 33.0 47 22 07 Decenber 31, 1996 48.0 es 30 June 30, 1997 65.0 93 38 98 December 31, 1997 70.0 100 46 a/ Loan Closing Date: December 31, 1997 _157 - ANNX18 MALAYSJA RISDA II PROIJECT SuNrvision Plan: Bank Supervision Mission Schedule Project Approximate Expected Staff Ieputs Year nission Dates Areas of Concentration Skill Requirements (staff-waeks) 1 (1994) Feb 1°94 Loan effectiveness; recruitment Agriculture (Tree Crops) 6.0 and appointment of consultants for Economic/Financial Analysis cooperatives and human resource LITS Specialist management; review of arrangements for 1994 agricultural program, LITS program, rubber nursery Improvement arrangements, research, progress on the strengthening/ rationalization plan for cooperatives, progress in computerized MIS, and arrangements for local staff and smaltholder training; accounting and auditing; disbursement procedures; and procurement arrangements. 1 (1994) Aug./Sept. Review of LITS progress; progress Agriculture (Tree Crops) 6.0 1994 in computerized HIS; review of HiS work program and budget for 1995; Financial Analysis/ procurement arrangements; Cooperatives Operations monitoring and evaluation (m&E) LITS Specialist arrangements; and implementation of the plan for cooperatives. 2 (1995) Feb./March Retrospective review of 1994 Agriculture (Tree Crops) 4.0 1995 agricultural program; work program Rural Engineering and budget for 1995; progress in Nursery Specialist computerized HIS and K&E; Rubber Research Specialist improvements in extension services and infrastructure; and progress in LITS, research and nurseries. 2 01995) August/ Progress In LITS; acconiting and Agriculture (Tree Crops) 4.0 September 1995 auditing; progress in staff and Training smaliholder training; work program LITS Specialist end budget for 1996; and progress with computerized NIS and plan for cooperatives. 3 (1996) Feb./March Retrospective review of 1995 Agriculture (Tree Crops) 4.0 1996 program; progress in LITS; Nursery Specialist progress in plan for cooperatives; nursery Improvement; research; and extension effectiveness. 3 (1996) August/ Progress In LITS; research; Agriculture (Tree Crops) 4.0 September 1996 accounting and auditing; progress LITS Specialist of 1996 agricultural program; Rubber Research Specialist staff and smallholder training; strengthening of cooperatives; and extension progran for the post- project period. (1997) Nov./Dec. 1997 Project Completion Report. Economics/Financial Analysis 4.0 Agriculture MIS Malaysia RISDA 11 Prolect Rubber Yield Profiles Rubber (Kg Dry Rubber/hal With Project (Without LITS) With Project (With LITS) Years lndividualfTSS Group and Mini-Estate IndividualfTSS Group Mini-Estate 2 3 4 6. 7 200 200 250 8 300 600 300 600 600 9 600 900 600 900 950 10 800 1100 800 1100 1100 11 1000 1200 1000 1200 1200 12 1100 1300 1100 1300 1350 13 1300 1400 1200 1400 1450 14 1400 1600 1300 1600 1600 IS 1500 1700 1400 1700 1700 18 1500 1600 1500 1700 1700 1 17 1400 1600 1500 1700 1700 18 100 1 500 1400 1500 1600 19 1400 1400 1300 1500 1600 20 1200 1300 1400 1400 1600 21 1000 1200 1300 1400 1500 22 900 1300 1300 1300 1500 23 1000 1200 1200 1300 1400 24 900 1100 1200 1200 1400 25 900 1000 1100 1300 1300 -o 800 900 1200 1300 1300 27 700 1100 1100 1200 1200 28 1000 1000 1000 1200 1200 29 800 900 900 1100 1100 30 600 700 900 1000 1100 Tota Yield CTone) 23.6 27.7 26 30.1 31.4 Years of Production 23 24 23 24 24 Mean Annual Yieldih 1026 kg. 11S4 kg. 1130 kg. 1254 kg. 1308 kg. LITS - Lowintenerty Tapping Systems IndMdual - Indvidual Replanting TSS - Slmultaneous Repling Group - Group Replanftin al Fromn lnd preparation to planting. Ii - 159 _ Annex 1 92 Malaysia RISDA 11 Prodect Oil Palm Yield Profile Oil Palm Extraction (Ton ffb/ha) Rate M%) Years lndividual/TSS Group Mini-Estate Oil Kernel 1/a - - - 2 - - - 3 . _ 4 - 2 12 4 5 3 4 5 12 4 6 6 8 8 14 4 7 10 12 12 16 4 a 12 15 15 18 4.5 9 14 17 17 19 4.5 10 16 19 19 20 4.5 11 17 20 20 20 4.5 12 18 20 20 20 4.5 13 18 20 20 20 4.5 14 18 20 20 20 4.5 15 18 19 19 20 4.5 16 17 1s '9 20 4.5 17 17 19 19 20 4.5 18 16 18 18 20 4.5 19 16 18 18 20 4.5 20 16 17 17 20 4.5 21 15 17 17 20 4.5 22 14 i6 16 20 4.5 23 14 16 16 20 4.5 24 13 15 is 20 4.5 25 13 15 15 20 4.5 26 12 14 15 20 4.5 27 12 14 14 20 4.5 28 11 13 14 20 4.5 29 11 12 13 20 4.5 30 10 11 12 20 4.5 Tota Yield (tons) 356 408 415 Years of Production 26 26 26 Mean Annual Yield/ha 13.7 15.7 16.0 Individual d Individual Replanting TSS = Simultaneous Replanting Group = Group Replanting la From land preparation to planting. MALAYSIA RISDA II PROJECT RUBBER ECONOMIC FARMGATE PRICES 1994 1995 1998 1997 1998 1999 2000 2001 2002 2003 2004 2005 RSS 1 SPOTNY(US$I1ON) t/ 1080 1156 1170 1185 1200 1220 1231 1230 1228 1225 1222 1220 LESS: FREIGHTAND INSURANCE t50 IS0 150 150 150 150 150 150 150 150 150 150 FOB MALAYSLAN PORT (US$JIDN) 930 1006 1020 1035 1050 1070 1081 1080 1078 1075 1072 1070 EXCHANGE RATE 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 255 2.55 FOB MALAYSIAN PORT (M$fTON) 2371.5 2565.3 2601 2639.25 2677.5 2728.5 2756.55 2754 2748.9 2741.25 2733.6 2728.5 LESS: RESEARCH CESS 40 40 40 40 40 40 40 40 40 40 40 40 MARKETING, PROCESSING ETC. 120 120 120 120 120 120 120 120 120 120 120 120 FARM-GATE PRICE FOR RSS 1 2211.5 2405.3 2441 247925 2517.5 2568.5 2596.55 2594 2588.9 2581.25 2573.6 2568.5 WEIGHTED FARM-GATE PRICE 2/ 1990.35 2184.77 21969 2231.33 2265.75 2311.65 2336.90 2334.6 2330.01 2323.13 2316.24 2311.65 1/. IBFD May 1993 prie projetions adjteW to consttnt 1999 dollars using the MuV index. 21. WeIgteed prioe esthuded at 90% of RSSI prie. C.. 0 x MALAYSIA R1SDA II PROJECT OIL PALM ECONOMIC FARMGATE PRICES 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2006 Palm Oil In US$ton 1/ CIFNW Europe Pice 424 370 960 3S0 340 335 827 320 815 310 300 288 Ocean Freight, Insurance, etc. 45 45 45 45 45 45 45 45 45 45 45 45 FOBprice.PortKlang 379 325 915 805 296 290 282 275 270 265 255 243 Palm Oil In M$/ton Exchange At 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 Port chage and trmnsport 40 40 40 40 40 40 40 40 40 40 40 40 .Ex-mfil price 926.45 788.75 763.25 737.75 712.25 699.5 679.1 661.25 648.5 635.75 610.25 579.65 Palm Kemds h US$Itcn 1/ CIF NW Europe Price 243 252 260 26 260 260 264 260 250 250 250 245 Ocean Freight, Insuranc,. etc. 45 45 45 45 45 45 45 45 45 45 45 45 FOB price, Port lKang 198 207 215 215 215 215 219 215 205 205 205 200 Palm Kernels In M$/ton Exchange /rde 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 2.55 Port charges and transport 35 35 35 35 35 35 35 35 35 35 35 35 Ex-mill price 469.9 492.8S 513.25 518.25 5t1.25 513.25 523.45 518.25 487.75 487.75 487.75 475 1 FFB In M$Aon 20% oil +4.5% Kemels 206.44 179.93 175.75 170.65 165.55 163.00 159.36 155.35 151.65 149.10 144.00 137.31 Processhg cost 30 30 30 S0 30 S0 30 30 30 30 30 30 MlilPurchateprice 176.44 149.93 145.75 140.65 135.55 1S3.00 129.38 125.35 121.65 119.10 114.00 107.31 Tranaporttomill 15 15 15 15 15 15 15 15 15 15 15 15 FFShrm-gate price 161.44 134.93 130.75 125.65 120.55 118.00 114.38 110.85 106.65 104.10 99.00 92.31 11 IBRt May 1993 price projectins adjusted to constant 1999 dllars using the MWV Index. MALAYSIA RSO8A 1I PROJECr ECONOMIC OSTS AND BENEFaIS I S4 MILLION) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2006 Benm Rkbet 5.61 28.02 69.9 117.08 155.04 180.34 202.53 224.73 246.02 ON Palm 1.52 4.46 8.82 12.47 15A1 17.41 18.35 18.22 18.71 18.8 18.71 ITSonMI-Esb/a 0.2 3.1 8.2 8.2 8.2 82 8.2 82 6.2 8.2 8.2 8.2 8.2 8.2 82 US on SmahdIw,s 1.25 3.75 7.5 12.5 18.75 25 25 25 25 25 25 25 SobOfeAewozIc 15 15 15 fAbtot 15.2 18.1 232 9.45 13.47 20.16 85.13 67.44 118.51 167.69 207.19 231.76 254.44 27.8t 298.83 Coa On-farmCols oflber 73.26 95.34 105.6 42.54 30.84 30.72 358 58.74 82.92 104.64 109.02 113.S2 11958 112.88 110.14 On-barmCostsotOfl Palm 8.7 11.71 14.34 879 9.t3 1022 11.17 11.76 12.21 12.41 12.65 12.61 12.42 12.13 11.84 fhber NM"y bIprmot 0.4 0.4 0.4 In*asuctwe 5 5 5 1 1 1 1 1 1 1 1 1 1 1 1 Irput Trnspoft and SW iTravel S 3 3 1 1 1 1 1 1 t 1 1 1 I I E,deonndT,ab*tg 2 2 2 1 1 1 1 1 1 1 1 t 1 1 1 &Sbtow 92.16 117.45 130.S4 54.33 42.97 43.94 50.05 73.5 98.13 120.06 124.67 129.13 129 127.9s 125.18 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Rkber 258.02 258.02 252.47 244.15 230.28 208.09 191.43 183.11 177.56 16924 155.37 149.82 152.59 152.59 138.72 on Pdm 18.38 18.05 17.55 17.22 16.56 1623 15.57 1524 14.57 14.24 13.58 13.25 12.59 12.09 1126 LSonWn-Esebtha 8.2 8.2 8.2 8.2 82 8.2 8.2 82 &2 8.2 82 82 8.2 82 82 UT ona8mullholgs A 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 Sab of RbbeMrwod c Sdcbta 309.6 309.27 303.22 294.57 280.04 257.51 240.2 23t.55 225.33 2t6.68 202.15 196.27 198.36 197.88 183.16 Comb On-4rmCotsdotRLber 107.46 102.78 98.16 94.74 92.52 89.82 86.94 84 81.24 78.72 76.26 73.98 72.06 68.94 84.08 On-formnCost of OR Palm 11A. 10.94 10.41 10.04 9.58 9.22 8.75 8.42 8 7.69 6.84 6.09 523 4.81 424 Rber NtMeery kovwnp t Ir*asghte 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1pu Tianupwand SWI Travel 1 1 t t 1 1 1 1 t 1 1 1 1 t e Extdslo and TrainIg 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Sibtsta 121.67 116.72 111.57 107.78 105.1 102.04 98.69 95.42 92.24 89.41 86.1 83.07 80.29 76.75 71.32 Economic lae of P tun 14% a/ Thesearebenefits natocosis. 8enefi ncludelabor eavlge a n asumed 15%kea In iedsdutoreduoed brk onsumpion and rowed tpp. bl MsIr*groprqAIanlgs (TSBs). Bneft wlde abor sovirns and are net d costs. c/Al MSSOOJY. _ 163 - ANNEX 22 Page 1 of 2 MALAYSIA RISDA II PROJECT Selected Documents and Data in the Proiect File A. Profject PreDaration ReDorts and Related Documents 1. Proposal for RISDA II Project --- Prepared by RISDA, Feb/March 1992 2. Defining Priorities for National Extension Intensification Programme under RISDA II --- Prepared by RISDA (undated) 3. Proposal for Smallholders Extension Irtensification Program --- Prepared by RISDA, February 1993 4. Progress of RISDA MIS Program --- Prepared by the Information Technology Unit (ITU) of RISDA, March 1992 5. Proposal for RISDA MIS Program (1993-95) --- Prepared by the ITU of RISDA (undated) 6. Problems and Future Management of Mini-Estates --- Prepared by RISDA, November 1992 7. Proposed Nursery Management System --- Prepared by RISDA (undated) 8. Proposal to Develop the National Smallholders Institute for Development (NASHID) --- Prepared by RISDA, February 1993 9. RISDA II Project Training Program Proposal --- Prepared by RISDA, March 1993 10. Strengthening of Smallholders Cooperatives --- Prepared by the Cooperative and Social Development Unit of NARSCO, December 1992 11. RISDA II Project: Training Program Proposal for Rubber Smallholders Cooperatives --- Prepared by NARSCO, June 1993 12. Collaborative Development Projects for Malaysian Rubber Smallholder Sector --- RRIM Project Proposal (Original Proposal: November 1992; Revised Proposal: February 1993) 13. Proposed Planting Material Production for Smallholder Sector: Additional Option --- Prepared by RRIM, March 1993 _ 164 _ ANNEX 22 Page 2 of 2 14. Collaborative Development Projects for Malaysian Rubber Smallholder Sector --- RRIM's Responses to the World Bank's Aide-Memoire, June 1993 15. Proposal for Studies on Nutritional Aspects in Relation to Low Frequency Tapping Systems --- Prepared by RRIM, June 1993 16. Proposal for Study of Clonal Performance and Tree Dryness Incidence in Progressive Smallholdings --- Prepared by RRIM, June 1993 17. Proposal for Development of Physiological/Biochemical Parameters as Early Warning Indicstors of Stress in Hevea Trees --- Prepared by RRIM, June 1993 B. Working Papers 1. Tables on Crop Budgets for Rubber and Oil Palm, Production, Farm Incomes, Project Costs, and Economic Analysis 2. RISDA's Staffing Position as of January 1993 IBRD 25169 .. t 0_. I 'plotr ir ZMALAYSIA PENINSUIAR MALAYSIA RISDA 11 PROJECT ) ISCA SW. Office E e . bbe. Nue A eSP mnnOe Scme 1959 Esae (9 EPK Maage Elkta"e I IN' THAILAND \K I W .MS ,dOl Its RLd4kawi n 0 ® )t 3 STATE CAWf.ALS AJor Setar NATION4. C4AP sTATE \OUNMES 6 KEDAH J ERAT )NxLBoUNDAW GA 0 20 30 40 5 6 BUKIT I-GD. ° 2 PERA& (,A;0 I tsMA' utferworth PERK Kuf P PINANG KELANTAN G-aW3 Trsnggonu PADANG 11 IE N G-4-1 TRENGGANU >GUNuNS A WNGGAL @IPOH 0 g BK KOTA C) SOUTH CHINA Li-,I) SOM 0 P4lN SEA S U!t) SUA4O PAHANG /S CHANGAT 447.8A;GA F I\Z SUtAN1/S &F O U. g BSQE ,4KA - SIR \ \ SELANGOR A A I AI WISNMA KA') Thm mp im bwn owwW R~~~~~ISDA edxu IO,T t6t tt k Ct O@KU ALAKA fof i tofhWO LUMPUR e 0 G-.emd use of Theo KFr,,d8A* oshd. bawdlriss dAaer -f :.', f) ~~NEGRI Vk 0 SEMBILAN 0 - ' EPATTNC" eesaeeet moccfteece o tedsU bcs.esdstls Serembon D 100' AHStND \< \ MELAKA A A DO C, O r \SEonL ThAiLAND PA' C cYnooF < "4UPPEPAJA JOHOR 7 1 % ~~~~CHINA_ ° IJAJh4 \ SEA ~~~~~~~~~~~~~~~JOHOR SEPT EB1993