Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 28261-KE PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDIDA CREDIT INTHEAMOUNTOFSDR 18MILLION (USD27 MILLIONEQUIVALENT) AND PROPOSEDIDA GRANT INTHEAMOUNT OFSDR8.7 MILLION (USD 13 MILLIONEQUIVALENT) TO THE REPUBLIC OF KENYA FOR A KENYA AGRICULTURALPRODUCTIVITYPROJECT(KAPP) INSUPPORTOFTHEFIRSTPHASEOFTHEKENYA AGRICULTURAL PRODUCTIVITYPROGRAM JUNE 17,2004 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCYEQUIVALENTS (ExchangeRateEffectiveMarch22,2004) CurrencyUnit = KenyaShillings 76 = US$1 US$.67 = SDR1 FISCALYEAR July1 - June30 ABBREVIATIONS AND ACRONYMS APL Adaptable ProgramLoan A R I S Agricultural ResearchInvestment Service ASARECA Association for Strengthening Agric. ResearchinEastern and Central Africa ATIRI Agricultural Technology and InformationResponseInitiative AWP Annual Work Plan CAG Controller and Auditor General CAS Country Assistance Strategy CBO Community Based Organization CBS Central Bureauo f Statistics CF Client EmpowermentForum CFAA Country Financial Accountability Assessment CIP Community IntegratedPlan CRL4 Community Resource Assessment C M C Centre ResearchAdvisory Committee CRF Coffee ResearchFoundation CSIC Community Sub-project Implementation Committees CSP Community sub-projects DFID Department for International Development (UK) DFA DevelopmentFinancingAgreement DIP District IntegratedPlan DSU District Service Unit ERS Economic Recovery Strategy EU EuropeanUnion FA0 Food and Agriculture Organization FFS Farmer Field School FMR FinancialMonitoringReport FMS FinancialManagement Specialist FRR FinancialRates o f Return FSA-RET Farming Systems Approach -Research ExtensionTraining GDP Gross Domestic Product GEF Global Environment Facility CIGs Common Interest Group(s) GOK Government o f Kenya GTZ German Technical Assistance HIV/AIDS Human Immunodeficiency Syndrome/Acquired Immunodeficiency Syndrome HRD Human Resource Development ICB InternationalCompetitive Bidding ICR Implementation Completion Report ICT InformatiodCommunication Strategy IDA Intemational Development Association .. 11 FOROFFICIAL USEONLY IFAD International Fundfor Agricultural Development ISC Inter-ministerial Steering Committee JKUAT Jomo Kenyatta Universityo f Agriculture & Technology KAPP Kenya Agricultural Productivity Project KARI Kenya Agricultural ResearchInstitute KEFRI Kenya Forestry ResearchInstitute KEMFRI Kenya Marine and Fisheries ResearchInstitute KENFAP KenyaNational Federation o f Agricultural Producers KIOF Kenya Institute of Organic Farming KIRDI Kenya Industrial ResearchDevelopment Institute K S W P Secretariat I LSP Letter of Sectoral Policy LVEMP Lake Victoria Environmental Management Project M&E Monitoring and Evaluation MDG MillenniumDevelopment Goals M O A MinistryofAgriculture MOF Ministryof Finance MOL&FD Ministry of Livestock andFisheries Development MTEF MediumTerm ExpenditureFramework MTP MediumTerm Plan NAEP National Agricultural Extension Policy NFF National Farmers Forum NALEP National Agricultural Livestock Extension Project NARP National Agricultural Research Project NARS National Agriculture Research System NCB National Competitive Bidding NPV Net Present Value OED osc Operations Evaluation Department One-stop-centre PLAR Participatory LearningAppraisal for Research PRSP Poverty Reduction Strategy Paper PSMTA Public Sector Management Technical Assistance R&E Research & Extension REARC Regional Extension and Research Committee SESA Sectoral Environmental and Social Assessment SIDA Swedish InternationalDevelopment Agency SIL Specific Investment Loan SOE Statement o f Expenditure SRA Strategy for Revitalizing Agriculture SRA-ICC SRA- Inter-ministerial Coordination Committee SRA-NF SRA- National Forum TIC Technical Inter-ministerial Steering Committee TRF Tea Research Foundation UNDB UnitedNations Development Business USAID United States Agency for International Development - Vice President: Callisto Madavo Country Managermirector: Makhtar Diop Sector Manager: Karen McConnell Brooks Task Team Leader: Moctar Toure This document hasa restricteddistributionandmay be used by recipients only in the performanceof their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. - CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 Country and sector issues............................................................................................................ 1 Rationale for Bank involvement................................................................................................. 1 Higher level objectives to which the project contributes. ........................................................... 2 B . PROGRAMDESCRIPTION ............................................................................................... 2 Lending instrument..................................................................................................................... 2 Program objective andphases..................................................................................................... 2 Project development objective andkey indicators...................................................................... 3 Project components .................................................................................................................... 4 Lessons leamed and reflected inthe project design.................................................................... 7 Altematives considered and reasons for rejection ...................................................................... 8 C. IMPLEMENTATION .......................................................................................................... 9 Partnership Arrangements ........................................................................................................... 9 Institutional and ImplementationArrangements ........................................................................ 9 Monitoring and evaluation o f outcomeshesults........................................................................ 11 Sustainability............................................................................................................................. * . . 12 Critical risks andpossible controversial aspects....................................................................... 12 Credit conditions and covenants ............................................................................................... 13 D APPRAISAL SUMMARY . ................................................................................................. 14 Economic and financial analyses.............................................................................................. 14 Technical................................................................................................................................... 15 Fiduciary ................................................................................................................................... 16 Environment and social............................................................................................................. 16 Safeguard policies..................................................................................................................... 17 PolicyExceptions andReadiness.............................................................................................. 17 Annex 1: CountryandSector or ProgramBackground ......................................................... 18 Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies .................22 iv Annex 3: Results Framework and Monitoring ........................................................................ 24 Annex 4: Detailed Project Description ...................................................................................... 31 Annex 5: Project Costs............................................................................................................... 46 Annex 6: Implementation Arrangements ................................................................................. 47 Annex 7: Financial Management ............................................................................................... 51 Annex 8: Procurement ................................................................................................................ 61 Annex 9: Economic and Financial Analysis ............................................................................. 70 Annex 10: SafeguardPolicy Issues ............................................................................................ 77 Annex 11: Government Letter of Sectoral Policy .................................................................... 82 Annex 12: Project Preparation and Supervision ..................................................................... 88 Annex 13: Documents inthe Project File ................................................................................. 89 Annex 14: Statement of Loans and Credits .............................................................................. 90 Annex 15: Country at a Glance ................................................................................................. 93 Map: Number 33228 . KAPPLearning Pilot Districts: Phase One V A. STRATEGICCONTEXT AND RATIONALE Countryand sector issues Despite steady growth inthe immediate post independence period, Kenya's economy has performed considerably below its potentialinrecent years. For the past two decades productivity has declined, competitiveness eroded, and international financial support diminished. Poverty and food insecurity have increased. Average GDP growth declined from about 7% inthe 1970stojust over 2% inthe 1990s. Underlyingfactors include persistent and pervasive governance problems, poorly implementedreforms, and low, illtargeted investments insocial services, infrastructure, and economic services. Kenya's agricultural sector generally mi.rrored the poor performance of the economy duringthe same period. Average annual agricultural GDP growth fell from 3.5 percent duringthe 1980sto 1.0 percent duringthe 1990s. External factors such as declining global agricultural commodity prices andvulnerability to climatic shocks explain part, but not all of the decline. Domestic policy shortcomings created distortions ininput andoutput markets. Inadequacies inthe legal andregulatory framework raised costs ofbusiness. Poor infrastructure increasedcosts o f marketing. Highincidence o fHIV/AIDS contributed to reduced labor productivity. Dysfhctional public support services slowed the renewal o f agricultural technology. The end result has been increased rural poverty and food insecurity, decline incompetitiveness, and virtual cessation o fbothprivate andpublic investment inthe agricultural sector. The new Government's development strategy to address the above issues was most recently articulated in the Economic Recovery Strategy for Wealth and Employment Creation (ERS) (2003-2007). The strategy identifies agriculture, trade and industry and tourism as the prime movers o f the recovery program and places particular emphasis on sustainable agricultural growth as a critical element inpoverty reduction. The Government has also launched a Strategy for Revitalizing Agriculture (SRA) whose objective is "to provide a policy and institutional environment that i s conducive to increasing agricultural productivity, promoting investments, encouraging private sector involvement inagricultural enterprises and agribusiness." The proposed Kenya Agricultural Productivity Project ( W P ) will contribute to the revitalization o f agriculture by: (i) facilitating empowerment o f farmers to access and apply profitable and sustainable technologies; (ii) laying the groundwork for a pluralistic agricultural extension and learning system; (iii)integrating and rationalizing the national agricultural research system; and (iv) supporting analytical work to inform policy andinstitutional reform. Rationalefor Bank involvement Kenya's agricultural performance must turn around quickly and effectively ifthe country i s to recover lost ground andmake progress toward meeting the MillenniumDevelopment Goals (MDG) for eradicating poverty andhunger. Thepublic sector must play a significant role inthis process, but over the past decade many external partners withdrew support, both technical and financial. As a consequence, recent and existing donor interventions have been fragmented and piecemeal. The new Government has recognized the need for ambitious reforms to improve 1 agricultural productivity, and seeks partnership rich inideas, coordination andinvestment. The Bank is well qualified to provide leadership on all three elements, buildingon a foundation o f support for agricultural research inKenya and intellectual leadership inreforms o f agricultural services inthe region and globally. Perhaps more importantly, no other major partner is ina position to provide the needed partnership ina timelymanner. Higher level objectives to which the project contributes The project will contribute to the Bank's overarching CAS goal o fhelping to reverse Kenya's decline ineconomic growth and equity. Specifically, the project will contribute towards achieving the CAS sectoral goal o f increasing agricultural productivity. The project is closely aligned with Kenya's ERSPRSP, which is centered around three pillars: economic growth with macroeconomic stability, equity and poverty reduction, and improved govemance. The project supports these goals by contributing to: (i) higher farm real incomes through increasedadoption o fprofitable and environmentally soundtechnologies, particularly among smallholders and subsistence farmers; (ii) raising the productivity o f public investments; (iii) improving the climate for private investment inagriculture and for private provision o f agricultural services; and(iv) developing options and actions to improve the policy andregulatory framework in agriculture. The project will also support the Government's effort to decentralize authority and responsibility for service delivery to local governments as part o f the process o f devolution. B. PROGRAMDESCRIPTION Lendinginstrument A phasedAdaptable ProgramLoan(APL)lendinginstrument isproposedinlight o fthe long periodrequiredto succeed with reforms o f agricultural services, and the logic o f separating the credit period into distinct phases with identifiable triggers. The APL combines both IDA credit and grant facilities. This would be supplemented by a de-linked but associated GEF grant which will support sustainable landmanagementpractices andtechnologies. Propramobjective and phases The long-term objective o f the program is to contribute to sustainable increase o fKenya's agricultural productivity and improvement o fthe livelihoods o f its rural communities through the improved performance o fthe agricultural technology supply and demand system. To achieve this objective, three project phases o f 3,4, and 5 years periods are anticipated. Phase I(2004-2007) will support continuation o f ongoing reforms inagricultural research, initiation o f aparticipatory process o f change inextension services and farmer empowerment, pilot testing o f extension methods and delivery systems, and adoption o f improved farming systems for natural resource management inselected areas o f highrisk. More specific activities will include: (i) progress toward establishment o f a pluralistic research system, with continued support for reform o f KARI; (ii) a process to buildconsensus for the reform o f extension services and the empowerment o f client; (iii) pilot interventions in20 districts (see map) to test innovative and decentralized extensiodresearcWeducation activities; and (iv) initiation o f 2 activities for improved management o f soil andwater (expected to be supported by an associated GEFproject) in5 selected catchment areas. Subsequent phases o f the program will focus on consolidating reforms inresearch, implementing reforms inextension, andbuildingthe basis for sustainable financing o f the entire system. Phases I1andI11haveanticipatedbudgets o fUS$ 70millionandUS$ 100millionrespectively. The Government has confirmed the acceptance o fthe objective and scope o fthe overall program ina letter o f sectoral policy (LSP) to the Bank (Annex 12). Triggers for moving into the second phase include: National extensionpolicy and related institutional andimplementation framework approved by GOK Two cycles ofproject monitoring and evaluation completed, with at least 85% o f the district intervention impacts evaluated At least 60% o fthe KARIcomponent implementedandevaluated as satisfactory Triggers for moving from the second to thirdphase will be refined duringproject implementation butwill include: Implementation o f a demand driven andpluralistic national extension system countrywide NARS responsible for allocation o f 25% o fpublic agricultural researchbudget Client fora created and active inall districts inKenya Proiect development obiective and kev indicators The project's development objective is to improve the overall system by supporting generation, dissemination, and adoption o f agricultural technology through: (i)reforms inextension to increase pluralism, responsiveness to clients, andparticipation byprivate providers; (ii)an evolutionary change inthe existing system o f agricultural research to improve accountability and impact; and (3)increased empowerment o f producer organizations to influence the planning, design, implementation, funding and monitoring and evaluation o f research, extension, training andcapacitybuildingactivities. Key performance indicators: Phase one results will be monitoredby the following key performance indicators: NARS action plan adopted inyear two and implementation initiated by year three Collaborative activities occupy 50% o fproject financing to n o n - U research institutes Inventory o fKARItechnologies andinstitutional capabilities carried out and database developed by end o f year one, andupdated annually thereafter Progressive devolution o f KARIresource allocation and accountability for adaptive research programs to centers and center research advisory committees Six extension approaches tested andproven cost effective 3 Twenty client fora created and functioning at district and divisional level Forty producer organizations investing intechnology multiplication Annex 3 details the proposed indicators for different project components and hierarchy. Proiectcomponents Component 1: Facilitationof PolicyandInstitutionalReforms(US$7.90million, including 6.93 millionIDA credit and0.97 Governmentcontribution) The first component will support establishment o fthe institutional framework requiredto increase agricultural productivity inKenya. It will be organically linkedto the institutional framework set up bythe Government to implement the SRA. Activities will include creation o f coordination structures and consultative fora, andprovision o f resources for these entities andthe Government more generally to develop and/or access the informationbase required to guide action. The project will also support the MOA andMOLFD inbuildingnationalcapacityandbyprovidingtechnical assistance for policy analysis, and targeted investments for public extension services bycapturing the lessons being generated by project activities, and to draw on existingnational and international experience andknowledge. The project will support two Government structures created to implement the SRA: (i) an Inter- ministerial Coordination Committee (SRA-ICC) composed o f Permanent Secretaries o f all sector related ministries (Agriculture, Livestock and Fisheries Development, Cooperatives, Water, Environment andNatural Resources, Local Government andLands), to provide coherence and direction to the reform process; and (ii) a National Forum (SRA-NF) to ensure that proposedreforms follow a common and coherent overall framework inlinewith stakeholder analysis and views. Three project organs will be funded to carry out the following activities: (i) the KAPP Secretariat (KS),whichprovides overall coordinationofthe program, while overseeing the Monitoringand Evaluation and Information and Communication functions; (ii) the KAPP Steering Committee (withchief executives anddirectors o fthe concerned ministries andagencies) which act as a liaisonbetween the Ministries andpublic institutions, and the KAPP; and (iii) District Service Units (DSU) to coordinate and implementtargeted pilot interventions that feed into the reform process and capacity buildingactivities inthe selected 20 districts. Component2: Supportto ExtensionSystemReform(US$3.46 million,including3.42 millionIDA grant and 0.04 millionGovernmentcontribution) The component will build on achievements made under the National Agricultural Extension Policy (NAEP) framework by facilitating the development and internalization o f a shared vision, strategy andpolicy that will help establish a new system ofnational agricultural extension, Extension related activities supported under the project will leadto the formulation and adoption 'see Annex 4 for detailed description and Annex 5 for detailed project costs. 4 o f a revised extension policy andits implementation framework by 2007. The activities under this componentwould: (i) andrationalize theroles and functions o fpublic, private and clarify civil society organizations; (ii) streamline and develop more effective andresponsive public services; (iii)enhance capacity among non-public extension service providers; and (iv) increase performance and sustainability o f the system. Sub-component2.1: Support to Extension Svstem Reform - Inputs into the Policv Formulation Process. The National Forum, ledby anExtensionTask Force, will coordinate the overall extension reform initiative, through a broadly representative consultativeprocess including all the major agricultural extension players as well as clients (research, farmers and market agents). Activities will also include: (i) establishment o f a internet-based database that would act as comprehensive inventory and institutional assessment o fthe main extension and education service providers operating inthe country, as well as a reference base on the various extension methodologies/approachesused; and (ii) organization o f learning events including study tours. Sub-component2.2: Learning Pilots and Cauacitv Building. Pilots will be established intwenty districts to support targeted extensionactivities which will be implemented usinginnovative delivery systems and extension methodologies. The pilots would be selected through a participatory assessment o f needs and resources, which would be used to develop divisional Community IntegratedPlans (CIP) as the planning basis for broader District IntegratedPlans (DIP). These CIPs andDIPSwouldthen determine the extension approaches anddemand-driven research activities to be pilotedthrough Farmer Grants for service provision. KAPP will pilot up to six different permutations o f delivery systems and extension approaches, andprovide training andfhding to strengthenthe district level capacity o fextension service providers to carry out the pilots. These could be public staff, NGOs, CBOs, or private sector service providers. A training needs assessment will be conducted ineach district to define specific plans and curricula on participatory approaches, public role reorientation, planning, coordination andM&E, institution building, marketing, information and communication, technical and financial related skills. Component3: Supportto ResearchSystemReform(US$53.71 million, including20.08 millionIDA Credit, 4.28 millionIDAGrant, and 29.35 million Governmentcontribution) The objective under KAPP's research component will be to reform the agricultural research sector so that it encompasses a plurality o f actors andbecomes more efficient and accountable. Reforms would: (i) increase the role o f end-users inplanningo f activities, resource allocation, and monitoring o f implementation; (ii) promoteperformance/result based resource allocation; (iii) greatercollaborationandsynergybetweenandamongpublicandprivateresearch induce institutions; (iv) ensure effective integration o f research, education and extension services at local levels; and (v) increase the volume o f appropriate technologies andknowledge generated and applied. This would be achievedthrough establishment o f a National Agricultural Research System (NARS), pilot collaborative research activities, and firther support to KARI. Sub-component3.1: Development of a NARSPolicv and Institutional Framework (IDA Grant financed) A Research Task Force (RTF) will be established, composed o frepresentatives from all major agricultural research actors as well as clients (extension and farmers). The RTFwill 5 report to the National Forum andbe supported inits activities bythe KAPP Secretariat. As the primarydriver o fthe reformprocess, the RTFwould undertake aninitialwork program that includes: (i) a comprehensive inventory and institutional assessment o f all research institutions operating inKenya, including assessment o f technologies generated, methodologies and approaches, and institutional capacity, presented ina report and database; (ii) through leaming study tours; (iii)a vision for a NARS, including a framework for prioritization and operation; and(iv) a roadmap andtime-bound implementationplanto move towards the NARS (including a rationalizationplan). Targeted activities, which will buildupon the findings o f the inventory will include: (i)piloting o f collaborative research programsthrough Research Grants across institutions focused on thematic areas o fhighpriority, selected bythe National Farmers' Forum (NFF) (e.g., HN/AIDS, landandwater degradation, market development andtrade andrural credit); (ii) developing tools for collaboration; (iii)targeted capacity buildingo f the scientific community outside KARI; (iv) development o f an operational and sustainable funding mechanism for the entire NARS; and (v) initial investments inthe NARS rationalizationprocess. Sub-component 3.2: Support to the Kenva Agricultural ResearchInstitute (KAIU) (IDA Credit financed). This sub-component will finance the implementation ofpriority researchprograms in crops (food, horticultural and industrial), animal production andhealth, land andwater management, agricultural biotechnology, socio-economics andbiometrics, as well as cross- cutting programs inadaptive research, and indeveloping sustainable sources of funding for KARIresearch. Investments will be targeted to support KARI's transition into amore effective institution with increased field impact and capacity to extend and expand successful methodologies. Reforms and activities will buildupon the results o f recent external reviews o f KARTprograms, which will be disseminated widely amongst KARIstaffprior to KAPP effectiveness. These activities are targeted at: (i) enhancing KARI's ability to demonstrate sizable field impact by addressing shortcomings inits capacity and approaches to extend andup- scale successful technologies (including grants to farmers through the ATIRI program); (ii) improving its research planning, review and approval processes to reflect changes prompted by feedbacks from end-users and or emerging challenges andto improve accountability; (iii) revising the quality review and assuranceprocess; (iv) paying greater attention to socio- economic aspects within a biologically-dominated research system; (vi) buildingan adequate ICT infrastructure; and (v) improving KART'Sworking environment andthe incentive structure for scientists. The consolidation of KARIwill need to be progressively consistent with the envisaged integratedrationalization plan o fthe NARS and with the new extensionpolicy framework. Component4: Support to FarmerKlientEmpowerment(US$5.32 million, including 5.31 millionIDA Grant and 0.01 millionGovernmentcontribution) The component will help develop institutional and financial mechanisms that will give farmers control over extension andresearch services and increase their access to productivity enhancing products. As a first step, KAPP will help facilitate direct involvement by farmers inthe reform process through client consultative structures at all levels, andprovide means for improved access to information on technology and services. Inaddition, KAPP will provide targeted 6 support to: (i)scale-up application o ftechnology innovations through establishment o f farmers networks as they grow into producer organizations; and (ii) buildcapacity o ffarmers' umbrella associations and commodity organizations. Training activities to buildfarmers' institutional, management and technical capacities are also planned. Sub-component 4.I:Institutions-for Farmer Organization and Empowerment. Farmers Fora (FF) will be established at national, district andgrassroots level as the principal consultativeorgans for farmers and other clients to articulate their demands. Farmers fora will guide and support farmer empowerment. Inorder to strengthenaccess to information, mass communication tools (radio, print media andnewsletters, television programs andwebsites) will be utilized to increase participationinthe farmers fora. Divisional fora farmer leaders would be supported to enhance their access to a transparent andcontinuous flow o f information at the district level. Client training aimed at improving production, managingthe natural resource base, processing andnetwork marketing skills and developing farmer capacityto access andmanage financial resources will be carried out. Training needs would be assessedusingparticipatory methods and compiled indistrict training plans. FF will be assisted to develop their own network o f trainers, Agricultural education institutions that also register as service providers will have opportunity to access funds to deliver training2. Sub-component 4.2: Targeted interventions-for Client Emuowerment. The project will support through grants to qualified producer organizations to buildtheir capacity to offer services that: (i) help farmers meet registration requirements; (ii) enhance client capacity to meet national and internationalmarketing and certification standards andrequirements; and (iii) market link offer networking services to client members. Onthe basis o f EnterprisePlans, the KAPP will also finance through farmer grants the scaling-up o f technology innovations through the establishment of approximately 80 client networks and help make investments that will scale up access to agricultural services for production, agro-processing, marketing andmanagement o f finances. GEFcross-cuttinp interventions. TheKAPP-GEFactivitieswould addvalue to the KAPP-IDA baseline investments by supporting incremental investmentsthat enhance local capacity to support sustainable landmanagement (SLM) and address land degradation ina manner that preserves or restores ecosystem integrity, functions, and services. GEF activities would includepromotion of specific SLMbest management practices and technologies for enhanced ecosystem integrity, alignment o fpolicies and incentives to empower poor f m e r s and communities to adopt S L Mpractices, information exchange and awareness creation, participatory and multidisciplinary SLM, andpromotion o f appropriate public-private sector stakeholder partnerships for enhanced catchment management, Lessons learned and reflected in the proiect design Past performance of public systems of research and extension globally has ledto a number o f lessons of experience that are incorporated inthe design o fthe three phased APL. Many of the * Forexample, Farmers Training Colleges, Dairy Institutes and Beekeeping Institutes. 7 lessons have beenpainful, and have led to new thinkingindesign o f agricultural services. Separate andpoorly linked systems o f research and extension yield low retums. The content o f extensionis impoverished when poorly linked with research, and the applications o f research are thwarted when poorly linked to extension. Neither researchnor extension can achieve high retums, even ifwell linked, ifboth are not attuned to the needs o f actual clients. Effective systems o f technology generation, dissemination, and adoption require feedback loops through which farmers have a real voice indecisions. Although the public sector should finance and remain active inresearch and extension, private firms can deliver these services ina more effective andresponsive way. Research and extension must address productivity increase, ina range o f highto marginal production environments. Also, special emphasis needs to be given to strategic commodity crops. Inall cases, natural resources must be managedoptimally. An integratedapproach i s envisaged inthis project inorder to synchronize research, extension and farmer empowerment initiatives for maximal synergies. Incontrast, consistent under-funding of agricultural research and extension, especially inAfrica has led to low measured impact on the ground, as modest efforts have been spread very thinly, and have worked independently, The lessons o fNARP Iand 11, including the recent ICR of NARP11, also influencedthe project design, particularly the need for: greater focus on end users; effective monitoring and evaluation; empowerment o f regional research entities; and greater integration with the broader agriculture sector. Inaddition, the generally positive experience inimplementation o f NARPIand I1has influencedthe proposedarrangements for implementation, and the decision to use the administrative capacity within KARIto best advantage, particularly inthe early phase. Alternatives considered and reasons for reiection A follow-up project to the NARPI1to consolidate the gains made under the two previous agricultural research projects was considered but rejected. A follow-on project would be poorly able to capture the lessons o f experience noted above, andwould most likely be characterized by: (i)narrowtechnologicalfocuscompoundedbymoderatetolowadoptionratesofoutputs;(ii) a a centralized andtightly compartmentalizedresearch system; (iii) poor ability to retain researchers because of limited career opportunities; (iv) a sub-optimal use o f assets and/or redundant capital investment; and (v) poor overall accountability o f the entire system. A simple continuation o f past support to KARIwould not capitalize on the readiness o f KARIand other entities to create a more effective research system. Nor would such an operation address the challenge implicit in the ERS andits demands on agriculture. The proposedproject incorporates the emphasis on technical excellence embodiedinpast support under NARPIand 11,but moves beyond it to promote institutional change and greater impact on growth and poverty. The selection of an Adaptable Program Loan (APL), insteado f a Specific Investment Loan(SIL) derives from several reasons. Development o f institutions andpromotion o f generation and adoption o ftechnology are long-term processes that require sustained effort and support. Creation o f a pluralistic research and extension system andthe establishment o f client empowering mechanisms require flexibility throughout the project life. The change inculture represented by the proposed approach requires a period o f leaming, generalized acknowledgement andrefining as strategies andplans are developed. The structure o f an APL allows the project to proceed sequentially, with triggers for each phase. 8 C. IMPLEMENTATION PartnershipArrangements The SRA has set up the objectives, framework and principles for effective partnership inthe sector. Itrecognizes and values the role o f development partners inproviding not only resources but also technical assistance, training andinternational experience, but advocates for apro-active andconsistent Government-led donor coordination. KAPPwill buildonthis framework to define and organize its partnership arrangements with other donors. Partnership through the entities created under KAPP is likely to expand, as other donors clarify their approaches to increased support for Kenyan agriculture. The EU, DFID andDANIDAhave indicated an interest to coordinate their future interventionswith the KAPPprocess. KAPP will also work andsupport where necessary the extension initiatives supported by SIDA under the NALEP project. InstitutionalandImplementationArrangements Sector Wide Coordination: KAPPwill be implementedunder the framework o fthe Kenya Government Strategy for the Revitalization o fAgriculture. KAPP will receive inter-ministerial coordination and policy guidance from organs already set up by Government to implement the SRA andother Government initiatives inthe sector, namely, a broad based Inter-ministerial Coordinating Committee (SRA-ICC) initially composed o f Permanent Secretaries from the seven ministries o f Agriculture, Livestock and Fisheries Development, Cooperative Development, Water, Environment andNatural Resources, Lands, and Local Government. A National Forum (NF)will also be established, consistingofall stakeholders operatingthe sector. Project Coordination: A KAPP Steering Committee composed o f the Directors o fKARI, NEMA, Veterinary Services, Livestock andAgriculture, Fisheries, representatives o fKENFAP, andrepresentatives o fthe Ministries o fCooperativeDevelopment, Ministryo fNatural Resources and Wildlife Mgmt, Ministry o f Finance, civil society, NGOs and CBOs will be appointedby the SRA-ICC, to oversee project implementation. Project Implementation: KAPPwill be implementedby 3 agencies, the Ministryo fAgriculture, the Ministryo f Livestock and Fisheries Development andKARI. Overall coordination o f the implementationwill beassumed by the KAPP Secretariat (KS). Responsibility for implementation o f all non-KARI components will formally rest with the K S but KARIwill retain responsibility for financial management andprocurement inbothKARIandnon-KARI components. The K S will be responsible for managing the consultative processes, as well as coordinating the information, monitoring, evaluation and analytical input into those processes, information communication andpublic relations associated with KAPP. The K S will also be secretary to the KAPP Steering Committee, andconvener o f project specific consultative processes at the national level that could include extension andresearch taskforces related to the NFF. The secretariat will be staffedbyprofessionals, recruitedthrough an open and competitive process. 9 Implementationinthe districts will be the responsibility o f20 District Service Units (DSU). DSUs will undertake the district-delegated functions o f the KAPP Secretariat. They will: (i) be the secretary to the District Farmers Forum; (ii) coordinate, inconsultation with the District Development Committee (DDC), all consultative, planningandimplementationprocesses at the district anddivision levels; and (iii)assume monitoring and evaluation, financial management andpublic relations functions. EachD S Uwill have at least two professional staff, a District Coordinator and a Monitoringand Evaluation Specialist, and a supporting accountant, secretary and driver. The D S Uwill be steered by an expanded District Agricultural Committee (DAC), composed of representatives o f line departments and implementing agencies, local NGO's CBO's andprivate sector representatives. The District Coordinator will play an active and supportive role inDDC's and DAC. However, the project specific organs (KARI, KS and DSU) will take fullresponsibility for the implementationo fproject activities and accounting for project funds. Administration of Farmer and Research Grants. Inorder to guide implementationo fpilot extension activities, the government will prepare separatemanuals for research a farmer grants. The Farmer Grant Manual (FGM) andResearch Grant Manual (RGM) will set out details of: (i) activities to be financed by farmer or research grants, beneficiaries and eligibility criteria; (ii) arrangements andprocedures for preparation, appraisal, approval, implementation and supervision o f activities to be financed by grants; (iii) procurement, financial management and disbursement arrangements; (iv) performance indicators; (v) standardformats for Farmer or Research Grant Agreements; and (vi) such other administrative, financial and organizational arrangements as shall be required for providing grants. The D S Uwill provide farmer grants to farmer groups inaccordance with procedures and eligibility criteria set forth inthe FGM. Individual farmer grants will have a ceiling of $15,000 per year while individual research grants shall not exceed $20,000 for individual scientists and $ 75,000 for research institutions and universities. Financial Management and Procurement. Financialmanagement andprocurement arrangements will be based on the successful procedures put inplace by KARI.Thus, for phase one, the day to day financial andprocurement management responsibilitieswill be delegated to KARI. Although KARIwill retainthe ultimateresponsibility for project financial management and procurement for the duration o fphase I,KARIwill buildfinancial and procurement capacity withinthe KS and other implementinginstitutions with the view o f gradually devolving responsibility to them by the end o f the first phase. Flow o f funds and financial reporting will buildonKARI's existing system whichhas provedreliable underprevious IDAcredits. GOK will establish two US $ special accounts, one for the IDA credit andone for the IDA grant. The special accounts will receive dollar deposits from the main IDA credit or grant. Three local currency project operatingaccounts will be opened. Two will be operated bythe KS andKARI (one for IDA Credit and the other for IDA Grant) andthe other byKARIalone ( IDA credit). These will form the primary source o f financing for project activities to be implemented (managed) directly by the respective implementing agencies, who will be responsible for the proper use and accountability o f the funds. Every district will open a local currency project account with a commercial bank at the district level, to be operated by the authorized signatories (refer to Annex 7). 10 Initially, disbursements will be made on the basis o f SOEs, direct payment and special commitments. The report-based disbursements (FMR) will be progressively introduced and shouldbe fully effective by the end o fphase one. The responsibility for presenting KAPP annual counterpart budget proposals to the Ministryo fFinancewill be delegated to KARIduring phase one. The devolution o f financial and procurement management responsibilities from KARIto the KS shouldbeeffective before the closingofphaseone. Tyingthe KAPP Secretariat closely to KARIshould limit disbursement and procurement bottlenecks duringphase one, and facilitate capacity buildinginpreparation for phase two. MonitorinP and evaluation of outcomes/results The M& E framework was developed duringproject preparation andwill be fully operationalizedprior to project effectiveness. Performance indicators have been established for the project and its components. These are presented inthe Results Framework inAnnex 3. The system for determining project baselines andperformance against those indicators has been designed using a two-track approach that documents program and institutional results. There will be institution-basedinternalplanning,monitoring and evaluation activities that arepart of the normal internal management process on the one hand, and independent outsourced external reviews and impact assessments on the other. The contracted out activities have been explicitly built into the project design. The consultative nature o f the project will help to ensure the participatory nature o f M&E activities. The principle o fparticipation will be carried through the planning process as an integralpart o fthe project. Individual managers and institutions at the national as well as district anddivision levelwill play arole indeterminingthe detailedindicators for their specific activities. This principle extends down to common interest groups invillages determining in advance, what they expect from interventions under the project andreporting after the interventionwhether or not the target was achieved. This process will use the range of participatory monitoring systems available including some developed under NARPI1for ATIRI. The proposed M&E system i s built on a cascading set o f goals, purposes, results and activities. The goals o f a higher-level project activity (e.g. component vis a vis sub component) become the purposes o f the lower level. The result i s an interlocking results framework that ensures that all project activities can be traced interms o f how they contribute to the project development objective. The use o f a management information system ensures that project managers know quickly whether activities are on or off track. This i s the essence o f the internal monitoring processes. KAPP is making specific investments that needto demonstrate people and community level outcomes. Agricultural productivity will be measured through externally contractedhousehold surveys. Panel data exists for 1980, 1991 and 1997 that measured the impact o f the Bank's last investment inagricultural extension inKenya. The project will fund similar surveys to establish a pre-projectbaseline, and a post project assessment o f impact, inproject as well as non-project areas. 11 The KAPP Secretariat will have overall responsibility for the monitoring and evaluation system centered on one full time professional. The project also will fund capacity buildingfor M&E. KAPP will make use o fexisting capacitybothlocally and abroad to supplement the internal co- ordination o f M&E. The aim i s to use data generated bythe M&E system to continuously improve project outcomes. Sustainability Two major issues affect sustainability o f the project: Future financing-for project initiated activities: A sustainable base o fpublic fundingfor agricultural research and extension requires an effective effort at monitoring and evaluation, and regular public education about the benefits achieved. Stakeholders will support the needed appropriations for agricultural research and extension only when they see tangible benefits. The NARSneeds to ensure that other financial resources are made available inaddition to funds from the Government and donors. The project will further support initiatives aiming at enhancing the sustainability o f research activities andthe diversification o f income generating sources. The rationalization process within the NARS will also aim to promote economies of scale and efficient use o f available resources. The sustainability o f extension delivery mechanisms promoted by the project will depend on the level o f public funding, increased willingness of clients to share costs, and investments made by the private sector. It is expected that reforms will reduce the cost o f services and incorporatecost-sharing mechanisms. Itis anticipated that some o fthe extension services being offered by the Government will be taken over byproducer groups and commodity bodies as has happenedwith tea andto some extent dairy production. The associated GEF component addresses landdegradation ina manner that preserves or restores ecosystem integrity, functions and enhance agricultural productivity. Institutional capacity: KAPP relies on institutional capacity to undertake reform and devolve control over resources to lower levels. As the program expands inphases I1and111, capacity may become a constraint. The KAPP will attempt to avoid this by operating through existing structures andmechanisms enhancedby task groups and additional resource persons to buildthe required capacity, facilitate the reform process and eventually mainstream the program. Additionally, the KS would tap into emerging Regional arrangements to share experiences with other agricultural service systems, as an integral part o f the reformprocess, Critical risks and Dossiblecontroversial aspects Risks RiskMitigationFactors RiskRating with Mitigation Toproject development objective GOK experiences difficulty The project gives particular attentionto: (i) S inactingoncommitmentto making stakeholders the drivers o f the reform public sector reform and processthrough the fora; (ii) hamessing and devolution to private sector engaging all channels for information and and civil society communication to make the public service accountable; (iii) informingthe reformprocess 12 Reforms are delayed due to lack o f capacity to meet the and internationalsources are envisioned inthe strict timetables impliedby project; (ii) will createa performance project the triggers basedsvstem Triggers are met but Bank Bank commitment to future phaseshas been M managementjudges other strong, as indicatedby the minutes ofproject priorities to behigherand meetings and other Bank documents. does not keep commitment implicit inthe choice of APL Exogenous weather shocks or KAPP activities will be complemented by other M other events that sidetrack interventions such as the Arid Lands Project in sustained attentionneededfor order to ensure a strengthenedcapacity to reforms. anticipate and respondto droughts/floods and other external events. Some risks are o f anature that cannot be mitigatedwithinthe scope o fthe project. To component results I Failureto achieve inter- The project makes provisions to create inclusive M ministerial linkage and coordination structures at all levels. collaboration Insufficient involvement o f The project foresees a direct involvement o f the M civil society, private sector civil society, private sector and farmedclients in and clients. the reformprocess. Provisionsare also made to buildthe capacity at all levels. Public resource allocation Project envisagesinall its phases the central role M remains centralized. o f the districts. Increased role and capacity o f decentralized levels builtinto triggers (see above). Inability sufficiently to KARIwill take aleadrolewithintheNARS in I M emphasize income order to ensure quality and relevance of generation, bothat the farm developed technology. KARIwill also level inadoption of collaborate with other NARSactors inits technologies, and within the commercialization activities. Extensionpilots research system, incapturing will emphasizemarket opportunities, andnot appropriate returns to just increasedproduction. intellectual property created. Overall RiskRating M Risk ratings:HighRisk (H)-greater than 75 percent probability that the outcome/result will not be achieved; Creditconditionsandcovenants Conditions o fEffectiveness The Subsidiary Grant Agreement has been executed on behalfo f the Borrower and KARI 13 The Borrower has prepared and furnished to the Association a PIP inform andsubstance satisfactory to the Association The Borrower has established and operated the Inter-Ministerial Coordination Committee andthe Project Steering Committeeina manner satisfactory to the Association TheBorrower has established the Project Secretariat andrecruitedthereto staffwith qualification andexperience satisfactory to the Association including a coordinator, a research specialist, an extension specialist and a farmer and client empowerment specialist The Borrower has established a financial management system for the Project inform and substance satisfactory to the Association, including the Borrower's ability to produce FMRs The Borrower has opened the Project Account and has deposited therein the InitialDeposit referred to inSection 3.03 ofthe Development FinancingAgreement Conditions ofDisbursement N o withdrawals shall be made inrespect o fpayments made for expenditures: (a) prior to the date of the Development FinancingAgreement (DFA); (b) under category (5) unless the Borrower has fumished to the Association the RGMinform and substance satisfactory to the Association andthe Research Grant has beenmade inthe accordance with the provisions o f Schedule 4 to the DFA andthe RGMincludingthat eachResearchGrant shallnot exceed an amount o f$20,000 equivalent for an individual scientist and an amount o f $75,000 equivalent for institutions and universities; and (c) under category (6) unless the Borrower has furnished to the Association the FGMinform andsubstance satisfactory to the Association andthe Farmer Granthasbeenmade inthe accordance withprovisions of Schedule 4 to the DFAandthe FGMincludingthat each Farmer Grant shall not exceed an amount o f $15,000 equivalent. Legal Covenants None. D. APPRAISAL SUMMARY Economic and financial analyses. The analysis has beenbroken into two parts: a costhenefit analysis for the investments into K A R I ' s research programs since their estimated outputs could be quantified, and an efficiency andsocial analysis for the investmentso faninstitutional nature. The analysis has focused on four representative research enterprises, namely maize, potato, mango and dairy cattle, because of their importance innational andhousehold food security andnutrition, income generation, export earnings and employment. The details are given inAnnex 9. Economic. Inundertakingthe Economic Analysis, the financial data were adjusted to reflect opportunity cost for labor, import parity prices, and the time horizon for the investment. Cost benefit analysis assumingconservative estimates o fbenefits o f the four representative enterprises shows that research into food crop technologies would yield an Economic Rate o fReturn (ERR) on the order o f 38% (maize), 33% (potato) and20% (mango) over a 20 year period. The ERR for dairy technology was estimated at 28%. The total net present value (NPV) o fthe considered 14 food crops and dairy amount to US$90 million based on a 20 year cash flow and at 12% opportunity cost o f capital. Based on these illustrative results it i s likely that the economic benefits from the project will be sufficient to justify proceeding, even ifnot all research results yield equally highreturns. The emphasis on enhancing disseminationwhile investing inresearch will increase the likelihood of achieving andsurpassing estimated returns, since adoptionrates for successful technologies may exceed those assumed inthe analysis. Although there is no reliable andwide-spread data that can be used to quantifythe impact o f extension inthe country, the results so far achieved throughthe extension pilots initiated underNARPI1(through ATIRI) indicates major productivity and income benefits that can be derived from technology adoption. Financial. Financial analysis shows the four representative KARIresearch enterprises to be viable with attractive Financial Rates o fReturn (FRRs) andpositive Net Present Values (NPVs). Research inmaize yielded the highest rate o freturn (48%); followed by dairy (40%); potato (35%) andmango (30%). The NPVs at 12% ranged between US$3.2 million for dairy andUS$ 327,000 for potato. These returns confirm the financial soundness o fthe program and demonstrate that farmers will be able profitably to adopt the new technologies developed by the research system. Fiscal Impact. The project investment constitutes 0. 6% o f annual agricultural GDP. Kenya is not yet investing inagricultural research and extension at a level required to attain a strong position of competitiveness with major other players inworld agriculture, such as China, India, andBrazil, but this is the positionto whichthe country should aspire. The reforms undertaken through the twelve year APL should result inan overall increased level o f investment inKenya's agricultural technology system, andinhigher returns to those investments. The KAPP i s not expected to result insignificant additional fiscal obligations for the Government, although as noted above, continued public support for agricultural research and extension should be expected andreflected inthe MTEFfor the foreseeable future. Inthe short run,the project is not expected to generate substantial public revenues but may do so inthe longrun.Despite this lag, short term recurrent costs are sustainable and are expected to be absorbed inthe Government budget for most o f the project components Nevertheless, KARIremains heavily dependent on donor funds andGovernment transfers but efforts arebeingmade to increase revenue generation to reduce this dependency. The project is largely institutional inits objectives, but also responds to the major technical constraints affecting agricultural productivity growth. It proposes a number o f interventions to improve the efficiency o f the country's solid network o f research, education, financial, extension, agro-industrial and market andcommunity-based organizations towards productivity and incomes increase objectives. The following specific technical issues, related to the existing outdated and ineffective legal andpolicy framework, will needpriority attention: (i) bio- technology, andthe use o f genetically modified organisms; (ii) intellectual property and patentingrights; (iii)protection o f indigenous flora and fauna species as well as indigenous knowledge; (iv) land tenure particularly o fthe commons; (v) use o f pesticides andtheir impact on humans and the environment; and (vi) the forecasting, prevention andmitigation o f natural 15 phenomena such as floods, and drought. (iii), and (v) will be coveredby the KAPP-GEF (iv), component Fiduciarv Financial management. Project financial management risk inimplementation is assessedas moderate, because o fthe adoption o f a KARI-based financial management, accounting and auditing system. However, success inthis critical setup phase is subject to a well defined and documentedProject ImplementationPlan, and an effective trainingprogram for all K S staff. KAPP will be tasked withproducing a financial management timeline to effectiveness that includes realistic timing for the procurement of, (i) KAPPpersonnel, (ii) accounting systems, (iii) auditors,aswellasthepreparationofproceduresmanualsandstafftraining. external Procurement. Inline with the proposedinstitutional arrangements for the implementation o f the project, procurement will be carried out directly by, or under the guidance and supervision o f KARI. Procurement decisions underthe KARIproject component willbe executed throughthe existing institutional management structure o f KARL Procurement o f inputs to non-KARI components will be carried out or supervised by KARIwith the KAPP Secretariat, KAPP District Offices (DSU), with the participation o fbeneficiary communities. The proposed minimumnumbero fpeoplethat wouldberequiredfor managingthe procurement function at the three levels, the minimumprocurement capacity, and their duties are summarized inAnnex 8. Recruitment andretentiono f qualifiedprocurement officers byKARIwill be crucial for the implementation o f its component under the project as well as the envisaged institutional support to the KAPP Secretariat. Environment and social KAPP has an environmental rating o f C anda social rating o f S3. KAPP aims to strengthen Kenya's agricultural research and extension system inways that contribute to environmentally andsocially sustainable growth andresource management. The project has beenproactive, and following best practice, a sectoral environmental and social assessment (SESA) was carried out to establish a framework for effective response to environmental and social sustainability considerations ina reformed agricultural technology system. Environment issues identified include: (a) loss o fnatural habitat; (b) use o f inappropriate farmingpractices; (c) agriculture/wildlife conflicts; (d) agro-processing pollution; (e) misuse o fpesticides; and (f) proneness to climatic fluctuations (especially drought). Social issues identified under KAPP include: (a) resource poor farmers inabilityto access extension services and inputs; (b) inappropriate technology and thus poor adoption; (c) inadequate access and control ofproduction functions for women; (d) HIV/AIDS impact production systems and livelihoods, and; (e) Importanceto monitor impacts on indigenous people at the end o fphase one, and incorporate special measures Was deemed necessary. Following on (e), it was envisaged that KAPP activities may have a longer term impacts on indigenous peoples indirectly affectedbyproject activities (e.g. through change indiet, livestock related activities). It was agreed that such impacts will be monitoredthrough the project, andre- considered at the end o fphase one, and appropriate approaches designed if/as deemed 16 necessary. A number of these activities are expected to be financed under an associated KAPP- GEFproject presentlyunderpreparation. Safemard Dolicies No safeguard policies are triggeredbythe project. Policy Exceptions andReadiness Policy exceptions: Nopolicy exceptions are sought. Readiness: A draft Project Implementation Plan(PIP) was prepared beforeNegotiations andwill be finalized before effectiveness. 17 Annex 1: CountryandSector or ProgramBackground KENYA: KenyaAgriculturalProductivityProject(KAPP) Context Since independence, Kenya has experienced gradual but slow decline ineconomic growth. Annual GDP growth averaged 6.5 percent inthe 1960s and 70s and declined to 4.3 percent in 1980s and 2.2 percent inthe 1990s. Real GDPper capita growth, already low at 0.7 percent between 1980 and 1990, became a negative 0.5 percent between 1990 and2001. Economic performanceimprovedwhen reforms inthe mid 1990's removed trade restrictions and eliminated most price and exchange controls. But as interest in further reforms waned, corruption, poor governance andweather andprice related shocks ledto a retum to low growth inthe late 90's. Inthe past three years a renewed commitment to macroeconomic stability and improved external environment has produced generally positive trends, inflation has declined andGDP growth increased modestly. One consequence o fpoor GDP growth has been steadily increasing poverty, which rose from 48 percent in 1992 to 56 percent in2000. Sector Performance Duringthe last two decades Kenya's agricultural sector performedpoorly as a result o f both extemal and internal factors. Average annual agricultural GDP growth fell from 3.5 percent duringthe 1980s to 1.0 percent during the 1990s. Unfavorable external environment affecting agricultural commodity prices and access to markets as well as climatic shocks explain some o f the decline. However, domestic policy shortcomings leading to distortions inboth input and output markets, erosiono f the natural resource base, poor legal and regulatory framework, andneglect o f infrastructure, as well as dysfunctional o fpublic support services have beenthe main reasons for poor performance. The endresult has been increased ruralpoverty and food insecurity, decline incompetitiveness, andvirtual cessation o f bothprivate andpublic investment in the sector. The poor performancewithinthe agriculture sector has affected almost all livestock and crops. Tea, floriculture and horticulture are, however, notable exceptions as their export volume and value has beenincreasing. Both export and domestic production are dominated by smallholders, but at very low levels o fproductivity. An estimated 50 percent agricultural output does not reachthe market at all andis consumed for subsistence. Key challenges to productivity The new Government has committed itself to restoring growth inagriculture. A key challenge to this commitment will be the transition from subsistence to commercial production and from low to highlevels o f productivity. Institutionalandpolicy reforms aimed at moving subsistence farmers to market based production systems will be affected bythe following keychallenges: (i) tenure anddegradation: a highproportion of land Kenya's small farms are below two ha and competition for resources is increasing; (ii) low technolow adoption: low utilization o fimproved technology and limited access to extension or research services are linkedto a lack o fresponsiveness to farmer needs and 18 priorities on the part o f Government service providers; (iii) market access: poorly poor developed internal and external market structures limit farmer access to physical and financial inputs such as seeds, fertilizer and credit services while underdeveloped external markets linkages constrain output marketing; (iv) underdeveloped infrastructure; and(v) increasingimportance o f social issues: highincidence o fHIV/AIDS, malaria and waterbome diseases result inloss inlabor productivity and diversion o f resources for investment andcontinuous incidence and prevalence o fpoverty among women and other vulnerable groups which constitutes the bulk o f labor force for the sector. Governmentresponse The new Government's development strategy, as articulated inthe recently released Economic Recovery Strategyfor Wealthand Employment Creation (2003-2007) (ERS), i s to restore and sustain economic growth, generate o f 500,000 jobs per year to absorb over 2 millionKenyans who are currently unemployed, andreducepoverty. The productive sectors o f agriculture, trade and industryand tourism are to be the prime movers inthe recovery program. Inorder for the macroeconomic targets to be met, the agriculture sector is expected to grow by 3.1 percent per annum. Taking agriculture back on a sustainable growth path is identified as a critical element towards a broad-based growth needed for poverty reduction. This is also inline with the findings o f the consultative PRSPprocess which identified agriculture andrural development as the number one priority inpoverty reduction. Both strategies call for investing more resources inrural areas especially targeted at smallholder farmers. These investments are requiredto sustainability increase crop and livestock production and, catalyze shifts towards higher-value farm enterprises while unlocking the potential inthe arid and semi- aridlandswhich havebeencomparativelyunderdeveloped despite accounting for 80 percent o f the total land area. At the sectoral level, the Governmenthas developedthe Strategyfor Revitalizing Agriculture (SRA), which highlights the need for a multi-sectoral approach to rural development. The theme o f improving agricultural sector productivity and competitiveness through enhanced adoption o f appropriate technologies andpractices is echoed inthe strategy. The vision o f the Government as contained inthe SRA is "to transform Kenya 's agriculture into aprofitable, commercially oriented and internationally and regionally competitive, productive economic activity thatprovides high quality gainful employment to Kenyans". This has to be achievedwithin a framework o f improved agricultural productivity and farm incomes while conserving the landresource base andenvironment. The SRA aims to achieve this visionby providing a policy andinstitutional environment that is conducive to increasing agricultural productivity, promoting investments, encouragingprivate sector involvement in agricultural enterprises and agribusiness. Key to this environment is creation o f the legal andregulatory frameworks fair andjust to all farmers, producers, processors, and marketers o f agri-products; availability o f efficient agricultural advisory and extension services that are pluralistic, responsive to farmers' needs and dynamic enough to cope with changing environment; availability o f efficient agricultural research system that is providing appropriate technologies, knowledge and information to sustain improved agricultural productivity, competitive, and cost efficient agricultural production system; 19 anda working and apluralistic agricultural inputssystem that is amenable to farmers and producers and agro-processors. Sector issuesto be addressed by the project and strategic choices Enhancing agricultural productivity will require development and application o fmodem crop and livestock technologies inorder to increase the value added per unit o f landand labor. This will require revitalization o fboth agricultural extension and agricultural research services. Makingboth agricultural extension and research demand-driven, pluralistic andinclusive will be cardinal pillars inthe modemization o f agriculture. Farmers and other key intermediaries also need to be empowered for them to set the pace indemanding andapplyingthesemoderntechnologies. Increasesinproductivity canonly be sustainable ifsafeguards are taken to maintain or enhance the naturalresource base. There are already indications that land degradation is becoming a major problem insome highpotentialareas as well as inthe fragile arid andsemi-arid lands.Water shortages and pollution have become a nationalproblem affecting large segments o fthe country and population. The developmental challenge on how to increase agriculturalproductivity without compromising the long-term productive capacity o fthe soil andwater resource base. This challenge can only be met through a cost effective system that generates and disseminates technologies andpractices that meet the needs o f farmers backedby a sustainable institutional mechanism. The project will address the institutional, technical and policy issues identified above by: Facilitatingfarmer empowerment. Kenya has many organizationsrepresenting farmers at various levels. None o f these has a comprehensive coverage and capacity to reachthe large majority o fthe small scale farmers. At national level, the Kenya National Federationo f Agricultural Producers (KENFAP) which is the largest apex farmer organization represents less than 10percent o f the total farmingpopulation. Over the years the Government has encouraged and promoted the formation o fproducer organizations such as cooperatives and farmer groups. These organizations have primarilybeencharged with processing, marketing andprovision o fservices as input delivery and credit to their members. CBOs andNGOs have also actively taken up the role o f mobilizing farmers into groups and occasionally into producer associations. In recognition o f this fact KENFAPhas initiated strategic plans and a policy orientation that will encourage it to buildup membership among small scale farmers from district level. KENFAPis also mindfulo fprovidingproduction, storage, processingandmarketing services to small scale farmers through rural collection centers inthe near future. KENFAP acknowledges that it is requiredto provide tangible services to rural farmers if it is to beginto have any major increase inthe recruitment of small holder farmers. It is therefore engaged ina series o fmeasures aimed at deepening its roots inthe rural areas. Laying thegroundwork for apluralistic extension and learning system. The Government remains the largest provider o f extension services with a staff o f 9,000 using a top-down extension model designed to deliver extension services with presence in every province, district, division, location and village. However, Government has not been able to use this asset efficiently inproviding adequate andquality services to 20 farmers. As a result largenumber o f Civil Society, NGOs, CBOs and religious groups have come into fillthe gap, providing extension services at the farmer level. There is no framework to guide and coordinate these interventions. Many o fthese alternative providers employ civil servants without any guidelines. There i s also highdemand for education as well as an extended infrastructure for farmer and extension staff training, mostly located inhighpotential areas. However, these are not utilized at their optimal capacity, because o f lack o fresources and tailored services. The residentialmode o f training is not suitable for fanners andparticularly for women. Government is moving away from certificate level training focusing on diploma and graduates. However, there are a large number o f graduates unable to secure ajob. There is also a needto move training from a current productionorientation to align it with fanners' need for information on marketing and value-addition. There i s therefore a great role for higher education institutions intraining graduates for future responsive and demand-driven extension services, above andbeyond the public service. The capacity o f CBOs, NGOs andother service providers remains wanting andrequire major improvement. Integrating and rationalizing the national agricultural research system. Kenya's agricultural research involves a wide number o f institutions, different innature, mandate andsize. The degree o fcollaborationbetweenthese institutions is limited inscope andad hoc innature. There is a clear disconnect between the level o f the investment made to buildup andoperate the above listed institutions andtheir actual impact on improving the performance o fthe sector. The efficiency and impact o f the current institutional set up i s constrained by its fragmentation, a supply driven culture andweak links to extension and end users. GoK's call for the rationalization and greater integration o fthe various institutions involved inagricultural research and extensionwas echoed and shared by all stakeholders. KAPP is viewed as an ideal platform to address ina holistic and systematic way all the structural issues that are constraining the system to operate efficiently. KAPP has an opportunity to build synergy by linking civil society initiatives with KENFAP's efforts. There i s therefore a need for a shared vision andnew agricultural policy for both research andextension to be formulated through a consultative process engaging the stakeholders o fthe entire research-extension and education continuum needs. The . policies wouldbe implementedthrough a new institutional and organizational framework which will, proposejoint planning, implementation andmonitoring instruments, develop a code o f conduct, funding instruments andincentive structures that would promote effective collaboration between all players. The consolidation o f the gains achievedby KARIduringthe first andsecondNARPwould enable the leadnationalagricultural research institution to play a catalytic and drivingrole inthis challenge and would as well maximize the potential o fthe existing assets and investment. 21 Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies KENYA: KenyaAgriculturalProductivityProject(KAPP) Sector Issue Project datestSupervision {PSR) Ratings Bank-financed IP DO Drought Management and Arid Lands Resource Management Project (second ClDD phase ongoing) S S 4gricultural Research Second NationalAgricultural S S ResearchProject (closed ) Environment Lake Victoria Environmental Management Project S S (ongoing) Western Kenya Integrated Ecosystem Management Project (under preparation ) Water management Watershed resources Development and management (planned) Civil Society Westem Kenya CDD (planned) EmDowerment, Local Government Reform(planned) Decentralization Other Development Agencies SIDA e National Agriculture and Livestock Extension Project (NALEP) EU e Agricultural Research Support Project (ongoing and planned) IFAD e Horticulture and traditional Crops project e Central KenyaDry Area Smallholder 0 S. Nyanza CDD (planned) F A 0 e Special Program for Food Security (SPFS) e Environnent & Natural Resource Management USAID e Kenya Dairy Project e KenyaMaize Development Project e HorticulturalCrops Development Project e Kenya agriculture biotechnology support program 0 NorthEastern Pastoral Development Program 0 Smallholder Dairy Development Project DFID e Agriculture Policy ReformProject (planed) e Promotion o f Private Sector development in GTZ Agriculture 22 DANIDA Agricultural Sector Support Project (ongoing andplanned) JICA Smallholder Horticulture Empowerment Project (planned) Smallholder IrrigationProject (planned) Baringo IntegratedRDProject (planned) AfDB Support to livestock development 23 Annex 3: ResultsFrameworkandMonitoring KENYA: KenyaAgriculturalProductivityProject(KAPP) Planning,MonitoringandEvaluationFrameworkFor KAPP Increasing agricultural productivity inKenya will involve a wide array o fplayers, both individuals and institutions, rangingfrom the Economic sub-committee o f Cabinet chaired by the Vice President all the way to an individual small-scale farmer implementing an activity inhis field. Inbetweenthese two extremes are an inter- ministerial steering committee o f 6 PermanentSecretaries, a Technical Boardcomposed o f Directors o f the implementing agencies from within and outside o f Government, line ministries and their constituent departments, research institutions, universities. NGOs and CBOs at the national level and on down to districts, divisions and locations will also play a role. The planning, monitoring and evaluation framework needs to meet the needs o f this diverse group. The framework to be adopted byKAPPwill reflect the followingprinciples: Planningmonitoring and evaluation (PM & E) is an integralpart o f good project management The PM&E processes at different levels needto be linked through a hierarchy o f objectives where achievements at one level contribute to the objectives o f the next higherlevel PM&E at all levels will be a mix o fparticipatory processes that directly involve the implementers and clients, andindependent periodic external reviews and assessments An effective PM&E will requirebaseline data and information for bothM&E activities as well impact assessment The details o f the PM&E system will be finalized inthe Project ImplementationPlan. That plan will be an integral part o f the KAPP operational manual, by elaborating on the key performance indicators andhow they are to be measured. The planwill also detail how the data will be generated, the type andprofile of those to be charged with generating that information at the different levels, how often different activities will need to be undertaken, and indicative costs for the activities. Certain activities are already planned. These include a baseline survey o f rural households to determine the impact and effectiveness o fthe technology generation and dissemination system. Panel data already exists for 1980, 1991, and 1997 that were used to evaluate the Bank's last investment inagricultural extension inKenya, the Training and Visit system. The last o fthese surveys was undertakenby OED incollaboration with Tegemeo Policy Research Institute that has already indicatedwillingness to update the data with a repeat survey that would form a baseline for KAPP. Re-implementing the survey at periodic intervals during the life o fKAPPwill provide a very comprehensive set o f data for evaluation and impact assessment. Baseline data will also be obtained from the plannednational welfare monitoring survey o f 2005. 24 Intemal management reviews with regular reporting to the next level inthe hierarchy will be another element o f the monitoring and evaluation framework for KAPP. Divisions will report to districts, districts to the KS,onup to the reports to the inter-ministerial steering and cabinet sub-committees. Details o fhow this information will be formatted into management plans at each level will be part of the PM&E implementationplan. Two distinct but complementary exercises undertaken recently will assist the design o f the monitoring and evaluation framework for KAPP. Under NARP 11, KARIhas recently developed a framework for developingbaselines andbenchmarks for activities under the ATIRI initiative. That framework integrates research and extension interventionswith a focus on farmer participatory assessments o f levels o f awareness about technology, behavioral change as a result o f interventions, and outcome indicators resulting from adopting the demonstrated technologies. At project management level, ASARECA has recently been involved indeveloping a results monitoring framework that guides managers as to how to link project goals to strategic objectives, intermediateresults, outputs and activities. The integration o fthese different threads into a coherent Planning andmonitoring andevaluationframework for KAPPwill be completed as part o fthe PIP. The PM&E implementation plan will also give guidelines on how to undertake an independent technical based impact evaluation o fKAPP. It i s preferred that such an assessment be out-sourced from an independent organization, not involved inKAPP. Attached below are the Results framework and arrangements for results monitoring for phase one o f the project. 25 ResultsFrameworkfor Phase I PDO OutcomeIndicators Use of OutcomeInformation Improvedperformance o f the Increased uptake o f technologies and To contribute knowledge and agricultural technology supply and practices .essonsleamed to ongoing reform demand systemthrough: (i) reforms igenda. Outcome information will inextensionto increase pluralism, Integrated research and extension ielp shape the future phases ofthe responsiveness to clients, and policy and institutional framework 4PL. participationby privateproviders; inplaceby2007 (ii)evolutionarychangeinthe an existing systemo f agricultural Pilot activities in 20 districts testing researchto improve accountability pluralistic extension approaches and and impact; and (iii) increased supporting client empowerment empowerment o f producer activities organizations to influence the planning, design, implementation, funding and monitoringand evaluation of research, extension, training and capacity building activities. ResultsIndicators Use of ResultsMonitoring ~~~ IntermediateResults Component One: Facilitation of ComponentOne: Component One: Sector InstitutionalReform To determine the effectiveness o f Coordinating structures at national coordination and consultative Improved coordination and and district level established and process at national and local levels. enhanced linkages between operational Inadequate progress will indicate stakeholders inthe agriculture low levels o f integration and sector. Monitoring and evaluation system participation among stakeholders. that feeds into planning and implementation processes ComponentTwo: Supportto ComponentTwo : ComponentTwo: ExtensionSystemReform Adoption of a pluralistic, efficient, Increased uptake o f technologies and To determine the viability o fpilot farmer-led extension system. productivity inthe pilot areas extensionreformactivities and test whether incentives for private National ExtensionPolicy reviewed, extensionproviders are adequate. revisedandenacted To help shape the broader extension 6 extensionapproaches tested and reform agenda inphase two o f the provencost effective project. # and types o f service delivery agents operating inpilot districts Component Three: Support to ComponentThree: ComponentThree: ResearchSystemReform NARS rationalization action plan To determine effectiveness o f Establishment o f an institutional adopted inyear 2 and initiatedby research in reaching broader framework for NARS coordination year 3 audience and degree o f integration and financing with other institutions Collaborative activities occupy 50% Cost effective and highquality o foroiect financine: to nonKARI To identifv effective modes o f end 26 researchprograms located research institutes by year 2 user participation, collaboration in framework and research, and integration o f service stakeholder defined MISandM& Eestablished, provision at the local level to help outputs disseminated integrated and functional by year 1 shape the Phase I1program. andresults utilized inmanagement To determine the effectiveness of Inventory o f technologies and management reforms for NARSin institutional capabilities carried out realizing improvements inresearch and databasedeveloped by end o f performancelefficiency. year land updated regularly Two thirds KARIresearchprograms rated satisfactory by internal and external reviewersby year 2. Progressive devolution o f resource allocation and accountability for adaptive researchprograms to centers (CRACs) Devolutiono f ATIRI proposal review and implementation (M& E) modalities to centers and grass-root fora by end o f year 1 Component Four: Supportto Component Four: ComponentFour: FarmerKlientEmpowerment Growth and increasing specialization To determine how much access and Increasedability o f farmers o f farmer organizations influence farmers have inshaping organizations to effectively participating inclient fora agricultural services. mobilize, scale up agricultural technology, and influence research # o f client fora created and To assessperformance of different and extension service delivery. functioning at district and divisional approaches (processes and level organizational models) for increasing effective farmerlclient # o f advocacy policy and service demand for and influence on I delivery initiatives generated by agricultural services client fora To help identify future initiatives for # o fproducer organization investing producer organizations and intechnology multiplication commercial production inthe next phases o f the APL 27 U 5 9 9 4- .e 0 3 Ill Fi 0 d -0 8 x 0 I c-4 n x rc 0 0 M 3 d d 3 N m 0 N N I Annex 4: DetailedProjectDescription KENYA: KenyaAgriculturalProductivityProject(KAPP) Projectcomponents The project will have four components: 1)Facilitation o f Sector Institutional Reforms; 2) Support to Extension System Reforms; 3) Support to Research System Reforms and 4) Support to FarmerKlient Empowerment. The overall project takes a three pronged approach to reform: policy dialogue and stakeholder consultation, capacitybuilding, and piloting. Component 1: Facilitationof PolicyandInstitutionalReforms(US$7.90 million,including 6.93 millionIDA credit and 0.97 Governmentcontribution) A key element o fKenya's agricultural strategy willbe to transform previously disparate and disjointed development efforts into a coordinated system that results inimproved outcomes and more efficient resource allocation. Institutional capacity will be built under KAPP to strengthen existing Government structures andwill have a dual function: to facilitate implementation o f specific KAPP activities at national and district levels, and to act as a forum for advancing further policy dialogue. The coordinating structures created inthe Govemment's Strategy for Revitalizing Agriculture (SRA) encompass Government, private sector agribusiness service providers, marketingand inputsupply firms, civil society and farmers' organizations, commodity groups andnon- governmental organizations. Activities inthe first component will therefore establish mechanisms for better Government coordination o f existinginstitutions and also new consultative structures that will create more integrated systems o fresearch, extension and farmer empowerment. Subcomponent I.I:KAPP CoordinatingBodies The project will support a number o f coordinating bodies, some already inexistence and others created for the purpose o f KAPP implementation (see organogram below). At the ministerial level the project will support the SRA-proposedInter-ministerial Coordinating Committee (SRA-ICC) composed o f Permanent Secretaries o f all 7 sector ministries -Agriculture, Livestock and Fisheries Development, Cooperatives, Water, Environment andNatural Resources, Local Government, and Lands. The SRA-ICC will guide overall implementation o f KAPP and its monthly meetings will be financed bythe KAPPproject. The SRA-ICC will improve Government co-ordination o f activities inthe sector and allow quick resolution o f issues that cut across ministries and departments. The SRA-ICC reports to the Economic Sub- committee and also has oversight o f the KAPP steering committee, whose members it shall appoint. The SRA-ICC's links with the Economic Sub committee will give the KAPP project organs access to decision makers at a highlevel and added clout to carry difficult decisions that may be required for reform. As the apex body for KAPP, the SRA-ICC agenda would be determinedby members and the output o f stakeholder consultations sponsored by KAPP. The KAPP steering committee shall report to the SRA-ICC and will be responsible for the oversight 31 of KAPP secretariat's management o f operations and apportioning o fbudget allocations among the key program components o fKAPP, research, extension and farmer empowerment. The KAPPsteering committee will ensure the KAPP secretariat reports annualprogress andperiodic reviews o f all programs andmaintains fiduciary accountability for all KAPP finances and assets. The membership for the KAPP steering committee will be drawn from the six line Ministries represented inthe ICC (Agriculture, Livestock andFisheries Development, Cooperatives, Water, Environment andNatural Resources and Land) andwill include Director o f KARIand representatives o f the Universities and other stakeholders. The KAPP steering committee with approval of the SRA-ICC may commission and dissolve ad hoc task forces that are necessary to assist KAPP to achieve its objectives. The members o f task forces shall be drawn from the chief executives and directors o f all the concerned ministries andother agencies. Specialists may also be co-opted from the various fora that will be established bythe KAPP secretariat. The SRA-ICC shall directly establish a permanent KAPP Secretariat (KS) and appoint a national coordinator througha competitive andtransparent recruitment process that is also fully complaint with the terms o f reference stipulated inthe project implementationplan.Members o f the steering committee shall form an appointments selection committee to recruit the key professional staff (specialists) from the open market on renewable contract basis. The K S will be staffed by a Coordinator assisted by Extension, Research, FarmedClient Empowerment, M&E, Finance and Procurement specialists. The project will provide the KS transport, office equipment, connectivity, capacity buildingand support staff. The functions o f the K S include responsibility for project Monitoring and Evaluation andInformation and Communication. The M&E system will entail databasedesign (general andtheme related), baseline surveys, system establishment, periodical reviews, participatory tools and training, evaluation and impact assessment exercises. The KS will have a project management fundto runactivities both at national and at district level. The agricultural services reforms for extension, research and farmer empowerment that are supported by the KAPP secretariat will draw on subject related experimental activities implemented in20 pilot districts. At district level, the KAPP Secretariat will be linked to District Service Units(DSU) acting as local secretariats. The D S Uwill be formed by a district coordinator that will liaise with a co- opted group o f district administrationofficials3.The DSUwill interact with farmer andclient consultative organs to facilitate the activities they demand. Whilst keepingthe district informed o fthe project's progress through a consultative process, the D S Uwill be directly accountable to the KAPP secretariat for operational and accounting purposes. The D S Uwill coordinate and facilitate the creation o f institutional structures through which farmers will articulate demand and receive services. The D S Uwill buildcapacity of service providers to meet approved standards andto conform with the principles outlined inthe reformed policies. The D S U coordinator will coordinate the conduct o f experimental approaches to improve extension andresearch delivery to farmer's groups. Subcomponent 1.2: Support to the National Reform Process The DSU would liaise with the institutional set-up at District level following a mode applied by the Arid Lands Resource Management Project where the project units interact with the District Steering Groups that are a streamlined decision making units emanating from the District Developing Committees. 32 Three consultative mechanisms will be established and funded bythe project at national level consultations as part o f a broader stakeholder consultations and consensus buildingto help define and support KAPP's reform agenda. These will include two ad hoc Task Forces for extension(ETF) and research (RTF) respectively and a National Farmers Forum (NFF) for the farmer empowerment. The consultative process will embrace opinions from officials in Government, relevant parastatals ,NGOs, private sector and civil society. They will ensure that leadership emerging from KAPP institutional organs (for instance inthe umbrellaNational Forum) are fully involved inthe consultationprocess. The ETF andRTFwill have organic links to SRA- National Farmers' Forum, KAPP Steering Committees andKAPP Secretariat. Strong KAPP representation inthe SRA-NF would not only ensure that KAPPoperates within a common and coherent overall conceptual framework, but would also facilitate the endorsement andenactment o fnew extension andresearchpolicies once agreed upon. The Task forces shall be established by the KAPP steering committee with approval o fthe SRA-NF andupon request o f the KS.The K S will help to define the terms o f reference and exact composition o fTask forces. The consultations by Task forces would be relatively open allowing for free and open dialogue o f ideas as for how to improve research, agricultural extension and the empowerment o f clients. Ideas generated at these fora will betargets for fundingby the KAPP initially on experimental and pilot basis as a precursor to adopting best practices widely across the country. The consultations bythe Task Forces will help to buildconsensus as to the best ways o f delivering agricultural research, extension and to pursuingfarmerklient empowennent. Ultimately, the consultations would he the places where the policy and institutional reforms and relatedimplementation and organizational frameworks o f the Kenyan agricultural services will be shaped. Itis envisaged that the needfor the Task Forceswill diminish once the new policies and institutional frameworks are developed and enacted. However, they could continue to serve act as K S think-tank to understand and guide the evolutionary nature o f the reform process. Inlightofthe time requiredfor effective farmer empowerment to grow, theNationalFarmers Forumwill continue to exist to the end o f phase 1and focus on its advocacy function. A single consultative forum will be formed at the district anddivisional levels where the bulko f actual interventions will take place. These district farmers fora will enhance dialogue, allow the development o f shared visions, share leaming and thrash out implementation issues. These fora are expected to constituted through a bottom-up representative aggregationprocess generated by lower levels (see component 4). Extraordinary meetings o f the District fora that include other clients such as NGO's, local agribusiness representatives and rural market intermediariesmaybe convened to assist coordinate planning and marketingneeds o f farmers and clients. At least two such meetings are envisaged and are expected to coincide with planningandmarketing periods, Component2: Supportto ExtensionSystemReform(US$3.46 million, including3.42 millionIDA grant and0.04 millionGovernmentcontribution) KAPP aims to facilitate a consultativeprocess that will buildconsensus among stakeholders for a new extension concept andpolicy. The component will buildon achievements made under the NAEPframework by facilitating the development and internalization o f a shared vision, strategy 33 andpolicy that will helpestablish anew system o fnational agricultural extension. Extension related activities supported under the project will lead to the formulation, and adoption o f a new extensionpolicy and its implementation framework by 2007. The activities under this component would: (a) clarify andrationalize the roles and hnctions o fpublic, private and civil society organizations; (b) streamline anddevelop more effective andresponsive public services; (c) enhance capacity among non-public extension service providers, and; (d) increase performance and sustainability of the system. The above outputs would be achievedthrough two subcomponents that include institution building, leaming altemative extension approaches and capacity buildingo f service providers to carry out altemative extension approaches. Universities andother institutions ofextension education will play akeyrole inaddressing the new types of educational needs o f the agricultural sector Sub-component 2.1: Facilitation of Consultationsfor Extension Reform. The KAPP steering committee shall commissiona Task Force o f experienced extension experts andstakeholders to consult with abroadrange o f stake holders from public institutions including related line ministries, universities andother educationproviders. It will also include agribusiness industry, farmers andofficials o f agencies that specialize inextension services. Its actual composition will be defined ina national workshop that will be convened by the KS. Thereafter the Extension Task Force (ETF) would manage itself with input form the K S extension specialist. The Extension Task force will meet on regular basis with support o f KS. A total o f 11national level meetings are assumed over the course o fthe consultative process. Meetings o f the Extension Task force will held bi-monthly inthe first year and quarterly thereafter. The KS will seek to ensure representation o f the Extension Task Force leadership in the National Forum to ensure representation o f extension issues at the highest level and also permit cross-fertilization o f ideas that will be relevant to the policy reform process. The KAPP secretariat will comprise o f four specialists o f whom one will be an Extension Specialist. Additional expertise may be sought from co-opted members o f the extension task force either individually or as members o f task forces that are commissioned to assist the KAPP secretariat to carryout specific extension related activities. The Extension specialist will play a leadrole to ensure the KAPP coordinator provides all necessary means o f mobility, connectivity andoffice equipment to support all extension related activities. The KAPP secretariat will support the Extension Task Force for the first 18 months anduntilit is subsumed or transformed into another organization .The KSwill liaise withthe DSU's to monitor andevaluate extension services delivered to farmers' fora. Quality assurance will be evaluated interms o f performance, work audits and financial accountability. Service providers will be evaluated andrated based on their performance. The ETFwill assist the K S to compile andmaintain a register o f approved service providers. The ETFwill annually vet the approved list o f servicedproviders, this process will help check the integrity o fthe selectionprocess for extension service provision byDistrict service Units. Inventory and databaseof extension organizations. At the outset of the project, the K S will undertake a comprehensive inventory and institutional assessment o f all agricultural extension organizations and o fthe educational service providers operating inKenya. This activity, which will buildon existing analytical work, inparticular, the work done bythe NALEP.The inventory 34 will serve as an analytical instrument for the ETF.The inventory and assessmento fextension organizations will provide a detailed institutionalprofiles o f existing extension service providers including their missions, mandates and geographical coverage, curricula, governance structures, programplanning, budgeting, implementationand M&E/IAprocesses, physical andhuman assets, and financial resources. The specific output would be a state o f the art report on the current extension and education set up andthe establishment o f a live-database that i s supposed to evolve andbecome an on-line operational tool at the disposal o fthe DSUs. that would advise on up-to-date information. Database maintenance would be the responsibility o f the M&Eofficer o fthe secretariat. The ETFwill use the output o fthe inventory together with other expert sources o f knowledge to set standards o f delivery that are achievable given the nascent state o f development o fprivate sector service providers. Inventory and database would become available inthe fifthmonthofthe project. Study Toursfor Forum Members. Study tours for ETFmembers will be organized to permit the reform process to benefit from cross fertilization o f ideas. Emphasiswill be given to gaining experiences o fbest practices inAfrica and elsewhere. Four study tours will be organizedto countries (two inAfrica, one inLatinAmerica and one inAsia) that have had similar development conditions and have tried similar approaches for reforms. The composition o f study tour groups for intercontinental visits should permit opportunity for thorough studies by observation and interaction. The first study tour visits will focus on the extension approaches and involve policy makers, whilst the latter visits should include more district level staff andfarmers andbemore focused on the learningapproaches o fpilots inother African countries. Scheduling, o f travel destinations andparticipation would be decided duringinitial ETFmeetings in consultation with the K S Formulation of the NAEP The KAPP secretariat will assist the ETFto review the existing national extension policy and formulate a new extensionpolicy. The NAEPpolicy and framework document will form the startingpoint for the consultations. The ETFwill develop the corresponding institutional and implementation framework for the new policy and support its enactment inparliament, The consultativeprocess leading to the formulation o f a revised extension policy will draw on a diagnosis o fthe inventory and assessment o f extension service providers, the information gathered duringthe study tours and above all, the lessons from the piloting activities (see sub- component 2.2). The expected output i s a broader and reoriented policy document whose vision is more consistent with a demand driven, pluralistic, market oriented extension service for all Kenyan farmers. The secretariat will avail the ETFthe necessary legal advice. The policy document will be forwarded to the National Farmers Forum for endorsement before it i s sent to parliamentfor discussion and legitimization. The new policy will be formulated over the first year o fthe project and should be enacted by 2006. The implementation framework for the policy would need to include amongst others the following aspects: Regulatory andJinancial 35 0 Quality control and assurance o f service delivery 0 Provider skills register Service economy and cost recovery systems Standards and approach Public andprivate roles and hnctions 0 Fundingsystems 0 M&E and accountability Technical 0 Development planning Information access and delivery Education andcapacity building 0 Productivity andcompetitiveness 0 Post-harvest and agro-processing 0 Agri-business andmarketing 0 Phyto-sanitary, animal health 0 Bio-safety Sub-component 2.2: Learningpilots and CapacityBuilding The DSUs will support innovative extension approaches and targeted interventions though grants to farmers for extension service provision, inorder to provide lessons that will aid the formulation o f a national extension policy and corresponding implementation framework for extension services. Pilot extension approaches will be conducted intwenty (20) districts to determine the most appropriate, effective and efficient delivery systems andmethodologies for extension services, withthe objective o fincreasingproductivity o f small scale farmers. Up to ten extension approaches may be tested with a maximumof two approaches inany one district. Within each district, extension approaches will be tested inselected pilot areas so that each approach covers at least two divisions; and serves a minimum300 farmers. It is expected that each approach will cover at least 30 villages with no fewer that 10 farmers per village for a period o f two andhalf years consecutively (30 months). The types of learning approaches to be tested will be derived from current delivery systems andmethodologies tested inKenya and also elsewhere as may be revealedby study tours. The enterprises that will form a core part o f the extension testing approaches will be determined through a planningprocess coordinatedby the DSUinliaison with the public sector district planningprocess for agriculture, livestock, forestry, environment, andwater. The planning process will involve all stakeholders andbegin with individual farmers and farmers incommon interest groups as represented through their farmers' fora at Village, Divisional and District level. The planningprocess will culminate ina District Client Forummeeting where farmers will invite representatives o fresearch workers, private sector, extension service providers and development agencies inthe district. The D S Uwill support this integratedplanningprocess at all levels and outputs will be community integratedplans (CIPs) at sub location level, consolidated 36 into divisional integrated plans at divisional level andDistrict integratedplans (DIPs) that are approvedby the District farmers forum. District Plans. The D S Uwill contract/delegate the planningprocess to specialized service providers that are proficient inworking with farmers through a participatory approach. The District plans will be based on participatory assessments o f community needs and resources. The DIPs will provide the multi-sectoral strategic development options for the district andwill comprise farmers' demands on preferred type o f extension approaches to be tested. The plans will focus on prioritized enterprises andthe D S Uwill need to engage technical service providers to provide translation o f the stated priorities into enterprise activities taking into account productiodproductivity constraints to be overcome through research and technology innovations. The type o f technology innovations to be tested through the extension approaches would be clearly indicated by extension service providers inconsultation with researchers and subsequently validated through a CRAC-like system4with KARIscientists. The DIPs o f each district are expected to cover an average o f four divisions per district, with several CIPs per division. This would result ina total o f 80 divisional plans and 20 DIPs. The plans approved at district level andendorsed at national levelbythe National Farmers Forumwould become the reference plans for implementation. The project will support through grants to farmers for extension service provision, as many CIPs per division as deemed possible for any one extension approach. The decision on numbers o f CIPs to support will be taken inconsultationwith the extension service provider andthe local communities involved inthe pilot areas. Capacity Building A demand drivenagricultural service system needs to be drivenby information about the demands o fpotential clients. Present extensionplayers need refresher courses to familiarize themselves with new approaches and attitudes relevant for a more pluralistic system. Public sector operators need reorientation towards a change to planning, coordination, management and monitoring roles. Private sector service providers need to enhance capacity indelivering relevant market information to the clients. Business management training will support extension officers that opt to become private service providers. The KAPP secretariat and the D S U inconsultation with the farmers' fora andbased onneeds emerging from the CIPs andDIPs, will strengthen district level capacity byproviding training support o f different kindto public staff, NGOs and CBOs and to the private sector service providers. The training programming will include a national level workshop promotedjointly by the K S andETFthat would identify overall system needs, target groups, education and skill gaps, resource institutions andpersons, training modalities andbroad curricula areas. Training needs assessment will be conducted ineach district to define specific plans and curricula. Service providers that qualify for delivering KAPP activities will undergo specific training on extension approaches and a general orientation training. It i s assumed that some 50 public sector, 50 NGO, 100CBO and 30 to 50 private sector staff per district would require anddemand such training. Center ResearchAppraisal Committee. 37 Component3: Supportto ResearchSystemReform(US$53.71 million,including20.08 millionIDA Credit, 4.28 millionIDA Grant, and29.35 million Governmentcontribution) The objective under KAPP's research component will be to reformthe agricultural research sector so that it encompasses a plurality o f actors andbecomes more efficient and accountable. The key challenge i s to make the national investment inresearch commensurate to real sectoral productivity increases. To this end the project will focus on the identification and application o f agreed rules andmechanisms for a responsive, demand driven and market oriented technology generation system that makes the best and most sustainable use o f the available resources. The aim is also to develop and enact a policy instrument andrequired framework for the institutional and operational functioning o f the entire National AgriculturalResearch System (NARS). The system would be coherent and interfacedwith the extension and education system. Research end- users, primarilyagricultural producers, would be the maintarget group o fthis component. The reform will concern scientists, managers and administrative staff o f the NARS inKenya and farmers. A muchmore efficient, value adding and accountable agricultural research system will result eventually to the benefit o f the entire Kenyanpopulation. Reforms would: (i) increase the role o f end-users inplanningo f activities, resource allocation, andmonitoring ofimplementation; (ii) performancehesultsbased resource allocation; promote (iii) greatercollaborationandsynergybetweenandamongpublicandprivateresearch induce institutions; (iv) ensure effective integrationo fresearch, education and extension services at local levels; and (v) increase the volume o f appropriate technologies andknowledge generated andapplied. This would be achieved through establishment o fa national agricultural research system, pilot collaborative research activities, and further support to KARI. Sub-component 3.1: Facilitation of a consultativeprocessfor the establishment of a NARS The country is endowedwith a considerable number o f agencies (about 28) engaged in agricultural research. There has however beenan insufficient investment towards the creation o f anintegrated andholistic national agriculturalresearch andtechnology generationsystem. The Research Task Force established by the KAPP secretariat would aim at buildinga consensus on the vision o f the NARS outlook and the various mechanisms and organs needed to foster synergy andintegrationbetweenthe various actors o fthe technology supply system. Operation of consultative organs. The Research Task Force (RTF) would be composed of representatives o fthe main actors inresearch as well as research clients5. Members o f international organizations involved inresearch activities could be included inthe RTF.The forum would be part o f and interact with a broader constituency dealing with the entire research- extension and education continuum. The RTFwould convene with a variable frequency A provisional and non-exhaustive list o f institutions to be representedinthe RTFincludes: KART,KEFRI, KIOF, KIRDI,KenyaMarineandFisheries ResearchInstitute, Tea ResearchFoundation, Coffee ResearchFoundation, Sugar Research Foundation, National Council for Science and Technology, Ministries (Agriculture, Livestock and Fisheries, Water, Land, Natural Resources and Environment), Universities (Nairobi, Egerton, Kenyatta, Bakura, Maseno, Moi, Methodist), Tegemeo Institute, NEMA,Kenya Veterinary Association, Agricultural Finance Corporation, Kenya National Farmer and Agricultural Producers Association, Kenya Seed Company. 38 dependingon program and reform process phase and evolution. The KAPP Secretariat will provide operational support to the RTF. Comprehensive technology inventory, and institutional assessment of the research system and establishment of a database.The entire set o f agricultural R&Dorganizations operating inKenya would be assessedinterms o fmissions, mandates andgeographical coverage. The key technologies generated over time would be assessedand categorized providing information on development time, cost, adoption rates andwhere available impact. Research agenda formation andappraisal methodologies, dissemination andtechnology delivery systems, M&E/ML/IA/ICT systems, general and researchmanagement, physical assets, infrastructure, research and support staff, human and physical capacity, financial andprocurement management systems, budgets and work plans, fundingmechanisms, national-regional-internationalpartnerships would all form parto fthe organizations' assessment. The inventory anddiagnostic report should be started prior to credit effectiveness. The information gathered inthe inventory would be presented inthe form o f a database. The databasewould constitute a live consultation instrumentto be kept continuously updated. Inthe interim prior to NARS establishment, the KAPP Secretariat would assume responsibility to keep the databaseupdated. Learning sessions through study tours. Representatives o fthe RTFwould undertake learning travel sessions (four) to assess successful experiences andbest practices inAfrica andelsewhere. NARS Vision and Frameworkpaper. The progress of the consultative process and the analyses o f the issues and outstanding gaps, would enable the RTFto define the guidingprinciples for the operation o f a NARS inKenya. The vision would outline policy andlegal implication as well as an institutional and implementationframework. A common functional framework would needto include amongst others: Cost-effective and output value-enhancing networking mechanisms and instruments a shared and interrelated communication strategy, M I S and ICT a common research agenda formation and planningplatform joint or complementary human resources development strategies and systems asset and investment development and utilizationprocedures a unifiedmonitoring & evaluation andimpact assessment system quality control and assurance systems a fundingmechanisms for the entire NARS its interactions with the players o f the research-extension-trainingeducation continuum The framework would comprise liaison systems o f the KenyanNARS with the regional and intemational ARS and a set o f coordinating rules and mechanisms for management o f extemal fundingfromthe donor community. The common general framework would also entail embedded thematic networking mechanisms (water, agriculture, livestock, fisheries, forestry, environment-NRM and, extension, education, policy, etc.) with all the relevant concemed institutions. Roadmap and time-bound implementationplan to move towards the NARS, including a rationalization action plan. Inconjunction with the development o f the NARS Vision and 39 Framework, the RTFwould draft a roadmap and a timebound implementationplanto move from the status quo to the structure envisaged by the NARS Vision. The implementation planwould include a specific action planfor the rationalizationo fthe KenyanNARS inline with the NARS Vision. The planwould include phased interventions for the restructuring o f the staff, physical assets, infrastructure apart from the management and researchprogramming adjustments o f the several research organizations. The KAPP Secretariat would provide guidance and support to the implementation o f the Vision andFramework through the roadmap and implementationplan, andwould assume M&E functions. Piloting of collaborative researchprograms. Buildinguponthe results o f the inventory, the RTF would identify a number o fpriority thematic areas inwhich to pilot collaborative research programs across institutions, including on strategic, cross-sectoral and cross-cutting themes (e.g., HIV/AIDS, landandwater degradation, market development andtrade andruralcredit). The priority thematic areas would be endorsed bythe National Forum. Buildinguponthe experience o fthe ARF under NARP 11, a competitive process to allocate funds would be managed bythe KAPP. The experience gainedby different collaborationmechanisms would provide lessons to feed into the consultative reform process. Toolsfor collaboration. Development and activation o f specific tools for collaboration which will contribute to the implementationo fthe NARSVision andFramework. These will include policy instruments, institutional mechanisms and an incentive system to forge collaboration and integration (common HRD strategy, ICT network, physical asset management policy, governance policy, monitoring and evaluation mechanisms etc.) Capacity building. Targeted capacitybuildingo f the scientific community (other thanKARI),in areas o f need and weakness identified through the inventory, focussed on priorityresearch areas andresearch collaborationmechanisms identifiedbythe RTF. Sustainable Funding. Development o f an operational sustainable funding mechanism for the entire NARS . Rationalization. Potential financing for initial investments for the NARS rationalizationprocess as defined inthe Action Plan. Sub-component 3.2: Support to the Kenya Agricultural Research Institute (KARI) This sub-component will consolidate the investmentsmade duringNARPIand I1and further evolve KARIinto a leaner and more efficient institution focussed on well identifiedpriority research programs. The activities buildupon KARI's ThirdMedium Term Plan (MTP 111) as well as specific findings and recommendations made by various external reviews on the scientific quality of KARI's programs, the Beneficiary Assessment andthe NARPI1Implementation Completion Report (ICR). KAPP would assist to address the key structural issues that need decisive corrective measures: (i) enhancing KARI's ability to demonstrate sizable field impact by addressing shortcomings inits capacity and approaches to extend andup-scale successful 40 technologies; (ii) improving its researchplanning, review and approval processes to reflect changes promptedby feedbacks from end-users and or emerging challenges andto improve accountability; (iii)revising the quality review and assuranceprocess (iv) paying greater attention to socio-economic aspects within a biologically-dominated research system; (vi) buildingan adequate ICT infrastructure; and (v) improving KARI's working environment and the incentive structure for scientists. The consolidation o fKARIwill need to be progressively consistent with the envisaged integrated rationalization plan o fthe national agriculturalresearch system andwith the new extension policy framework. Thus, the activities under this sub- component would be reviewed annually inorder to adjust its content and thrust to KAPP's evolving agenda. Activities will be carried out in four main areas: 1) Institutional Strengthening; 2) Research Program; 3) Information Dissemination; and 4) Research and Development Funding. Prior to KAPP effectiveness, KARImanagement will initiate meetings to disseminate the findings o f the Beneficiary Assessment, the ExtemalProgram Review, the NARPI1 Implementation Completion Report andthe ATIRI Extemal Review to the scientists inall KARI research centers. The purpose o fthese meetings will be to ensure that all staff are aware o f findings andrecommendations made, and for scientists andmanagement to agree on the appropriate steps to address shortcoming andbuildupon the identified strengths. Institutionalstrengthening. Under institutional strengthening, KARIwould pursue the following activities with project support (for a fuller discussion o f each issue, see the KARIProject Description Report inthe Project File): Prioritization and resource allocation. Monitoring and Evaluation and Management Information Systems Quality review and assurance Human ResourceDevelopment Information and Communication Technology Decentralization Improved working environment and incentive structures. Infrastructure and upgrading The project would also provide for targeted investment geared to the rationalization process o f KARI's National and Regional research centers inline with the new overall research-extension- education framework. ResearchProgram. KAPP will support priorityproductiodfarming system-based commodity, factor andcross cutting researchprograms andprojects identified inKARI's Medium Term Plan (MTP) 111, subject to an annual review process to align KAPP funding with priorities. Across the programs, there will be an effort to focus on factors limitingproduction incrops and livestock, Abiotic andbiotic stresseswill be identified and addressed accordingly. Crop and livestock commodities will be handledmore as an enterprise where linkages to industryand other related commercial components at farm level will be promoted and strengthened. This notion is supported by the views embraced inthe Eco-regional study report highlightingthe Key 41 Enterprises Systems (KESs). This approach will shift attention to increasingprofits at farm level. KAPP fundingwould helpto correct the current imbalances notedbythe various external reviews inKARI's program structure and geographical coverage. The project will target shifts andrebalancing on livestockvs. crop researchinvestmentparticularly to addressboth, animal production andhealth issues o f the arid and semi-arid ecologies o fthe country; breeding vs. animal husbandry; food vs. cash and industrial crop research. Programs that address food security andincome enhancing issues would be planned at RegionalResearch stations according to the best enterprise suitability andinterest o f the specific mandated areas. The MTP declared ratio o f adaptive vs. appliedstrategic research interms o f 60:40 will be used as an initial guideline bythe project subject to the review o fpriority setting and resource allocation processes. Highprioritywillbe given to the socio-economic programboth, interms o fsupport to the research programperse, andas an instrument to understand prevailing economic, marketing and social issues to improve the relevance o fthe research agenda. To this effect, inthe first year o f KAPP operations, KARIwill develop a simple manual for basic financial analysis andimpact assessmentto be usedby scientists inthe development and evaluation o f research proposals and eventually their results. The manual will be accompanied by a training program for scientists in all centers. A further area o fpriority will be bio-technology research activities conducted in collaboration with other national and international research institutions. At the same time the project would promote all collaborative research activities enhancing the rationalization process o f the NARS. Activities addressing landandwater degradatiodmanagement (including water catchment protection) issues, bio-safety, low environmental impact agriculture, disease andpest resistance breeding andIPM, germplasm, genebank and seedvariety maintenance will all form part o fthe KAPP agenda. Priority would be given to off-farm research issues such as processinghalue-addition,storage and utilization, and marketingo fproducts. Inorder to makeKARIresearchefforts morerelevantto theKenyanfarmingreality, allresearch programs will mainstream approaches whereby technologies are tested ina wide range of agronomic conditions, including low input conditions which characterize the majority of Kenyan household farms. A preliminary researchprogram to be funded byKAPP, whichwillbe subject to annual revisions, is attached inthe Appendix. Information dissemination. Under KAPP, KARIresearch programs will include a planfor dissemination o f results inevery research proposal. This planshould be assessedduring the approval process and funded accordingly. KARIwill also enhance collaboration with extension andother intermediaryorganizations. This will be achievedthrough increased contacts between KARIandthe extension andclient community inthe KAPPfora andplanninginstitutions. Greater collaborationwill also be ensured bymodified implementation modalities of the Agricultural Technology and InformationResponse Initiative (ATIRI). ATIRIproposals will no longer be solicited from groups directly to the KARIcenters, but will arise from thejoint planningprocesses for 0 s and DIPS(community, divisional, district levels) that capture the farmer needs and demand interms o f extension and research activities to be implemented and are validated by the Client Fora (see component 2.1). The ATIRI program under KAPP would thus 42 not be a stand-alone KARIactivity but become the main means for planning, implementing, monitoring and evaluating farmer demanddrivenresearch activities. To this endmixed forms o f ATIRIwith extension approaches andthe integration inATIRI o fvalidated farmer developed innovations, would improve the learning scope o fthis experience. Through the increased linkages, ATIRI will also be able to buildupon the capacitybuildingand empowerment o f farmer groups under Component 4, and will also respond to demands from farmers under the technology up-scaling activity. ATIRI implementation modalities and institutional arrangements would be streamlinedinline with the recommendations o f the recently conducted ATIRI External Review as well as the BAYICR and ER, inparticular regardingthe decentralizationof approval, allocation o f funding, disbursement and accountability to the centers. Research and Development Funding. KAPP will continue to support on a selective basis MI'S income-generatinginitiatives that provide foundation for the institution's long-term financial viability and sustainability. The project will support selected enabling measures to assist KARI inestablishing the Agricultural ResearchInvestmentService (ARIS), awholly owned subsidiary private company. ARIS would undertake a number o f commercial activities to capitalize on the over the institute's land resources and other assets. ARIS would also managethe commercialization ofKARIcenters' consultancies and contractual work. However ARIS activities would not compete with, or undercut other private sector players. Nor will ARIS drift KARIaway from its core mandate and functions. ARIS activities shouldbe geared to generating sustained demand from business intermediaries that serve farmers. When dealing directly with final demanders, the activities would include exit plans andmechanisms to promote private sector intermediaries. Activities to be funded by KAPP include capacity buildingfor scientists in biddingfor contracts, the development o fa corporate business strategy and anaudit of intellectual property rights. Component4: Supportto FarmerElientEmpowerment(US$5.32 million,including 5.31 millionIDA Grant and0.01 millionGovernmentcontribution) The empowerment o f farmers to demand and access to agricultural services is central to the reorientation from a supply driven to a demand driven service system. Farmer empowerment increases by developing institutional and financial mechanisms that will give farmers effective control over extension and research services. This would start through their direct involvement inthe envisagedreformprocess. This component aims at establishing andsupportingclient consultative structures at all levels, providing means for improved access to information on technology and services. Farmer empowerment will also foster farmers' capacity to plan enterprise development with increased amount of information. Inaddition, provisions are made for targeted support to: (i) scale-up application of technology innovations through establishment o f producer organizations even when they are emerging as networks o f farmers' groups; and(ii) augment relevance and capacity o f associations and commodity organizations to provide services to their members. Finally, it is foreseen that farmer empowerment will demand training activities that will help to build farmers' institutional, management and technical capacities. Sub-component 4.1: Institutionsfor Farmer Organization and Emuowerment. 43 Farmers will be supported to buildtheir own consultative institutions at national andgrass root level (farmers' fora at village, division, district and national level). The national Farmers' Forum (NFF) launchedby the K S (see component 1) will be a principal organ for farmers and other clients to articulate their demands and will take into consideration other stakeholders interests byconvening extraordinary meetings that include a broadrange o f agricultural service users (farmers' representatives and associations, CBOs, agri-business entrepreneurs, etc.). The farmers' forum will seek to mobilize support for farmer empowerment andinteract with the other fora on the development of a comprehensive policy framework and strategy for farmer empowerment within the scope o fthe agricultural service reforms. The National Farmers Fora would quarterly meetings per annum except inthe first year when it will holdbi-monthly meetings, resulting ina total o f about 20 meetings inthree years. A farmer empowerment specialist at the KSwill support and operationalize the NFF. The KS will draw on members o f the NFFto form a Task force to undertake specific assignments that will assist the NFFto articulate farmers views inthe context o fnational policy andalso keep abreast o f trade issues that affect its members. The NFF will draw from the inventory o fnational agricultural service organizations to advise and interact inthe ETF and RTFon measures that need be taken to reflect farmers' interests intheir respective reform processes. The DSUs will be the secretariat o fthe farmers' for at the district level. The K S will support the D S Uto deepen the consultative process to the grass roots farmers invillages. The process will require contracted service providers to facilitate fora buildingat Village, LocatiodDivisional and District levels through a bottom-up approach. The village forum would consist o f as many Common Interest Groups (CIGs) that appoint two representatives per group to the village fora. The village fora will inturn send two representatives to the divisional forum. For effective functioning the divisional fora will comprise o f no more than 50 members. The district fora will be comprised o f a maximumo f thirty members. Agri-business dealers andmarketing agents mayjoin any level o f farmers' fora suited to the operation o f their services. Farmers will leam through the client fora meetings how to manage their institutions. They will also leamhow to identify, prioritize and select enterprises and services that match their needs. Strengthening access to information. The KS will support the NFFto buildeffective communication links betweenNational farmers' organizations and grass roots farmers' institutions. The KSwill employ use o f interactive mass media communication strategies to ensure that rural farmers have access to information through a broad range o f mass media tools (radio programs, pamphlets, stickers, T-shirtsetc). The K S will support the NFFto establish electronic connectivity with district service units andprovide trainingfor users. Sub-component 4.2: Targeted interventionsfor Client Empowerment Farmers Forawill be involved intargeted interventions inresearch methods, extension approaches and client empowerment as well as learning to operate the fora as an institutional mechanismto determine demand for services through a demand driven process. Activities that enable farmers direct involvement inthe reform process (see component 1andabove sub- component 4.1) and demanddriven access to extension andresearch services are described 44 elsewhere (see component 2- Extension learning pilots and component 3- Support to W I n f o r m a t i o n Dissemination). Interventions specifically targeted to farmer empowerment will focus on the transition o f informal groups to producer organizations and subsequently scaling-up the level o f technology interventions to meet market demands. Targeted interventions through farmer grants, on growth o f informal groups into networks and producer organizations, will specifically aim to increase the capacity o f the farmers' forum to (i)strengthen existing farmers organizations from the small farmers dispersed groups at village level up to commodity organizations and apex farmers organizations at national level and (ii)as part o fthe consolidation o f grass roots groups KSwill help emergingproducer groups to scale-up their investment inthe applicationoftechnology innovations as they buildbigger andmore formally recognizednetworks, 45 Annex 5: ProjectCosts KENYA: KenyaAgriculturalProductivityProject(KAPP) Project Cost By Component and/or Local Foreign Total Activity us us us $million %million $million 1. Facilitation of Policy and Institutional Reform 6.0 1.5 7.5 2. Support to Extension System Reform 1.7 1.5 3.2 3. Support to Research System Reform '' 41.9 8.9 50.8 4. Support to FarmerKlient Empowerment 3.5 1.6 5.1 Total Baseline Cost 53.1 13.5 66.6 Physical Contingencies 0.9 0.5 1.4 Price Contingencies 1.9 0.5 2.4 TotalProjectCosts'2 55.9 14.5 70.4 ProjectCosts By Category Local Foreign Total US$ million U S $ million US$ million Works 1.3 1.2 2.5 Goods 5.5 2.6 8.0 Consulting Services 3.2 1.7 4.9 Training andWorkshops 3.4 2.4 5.8 Grants 5.1 4.8 9.9 Operating Costs 11.3 1.9 13.3 KARISalaries 26.0 0.0 26.0 Total Project Costs 55.8 14.6 70.4 Includes KARIsalaries o f 26 million 21dentifiable taxes and duties are US$m 2.7, andthe total project cost, net o f taxes, is US$m 67.6. Therefore, the share o fproject cost net o ftaxes is 96 %. Does not include US$ 10MillionGEF financing expected. Specific activities to be assigned to components during GEF processing. 46 Annex 6: ImplementationArrangements KENYA: KenyaAgriculturalProductivityProject(KAPP) Implementationo fKAPP will be achieved through an institutional framework set up bythe Government to implement its Strategy for Revitalizing Agriculture (SRA). Manyo f these institutions have already beenset upbythe Government, others are to be set up through the project. There will be three lead institutions, the Ministry o f Agriculture, the Ministry o f Livestock andFisheries Development, and the KenyaAgricultural Research Institute- KARI. Overall coordination will be under a KAPP Secretariat. Because KAPP is will be implemented at different levels and across different ministries it relies on several institutional structures. The following is a short description o fthe composition and function o f each o f the KAPP structures followed by implementation arrangements by component. KAPP Institutional structures: Inter-ministerialCoordinatingCommittee (SRA-ICC) composed o fthe Permanent Secretaries o f seven sectoral ministries Agriculture, Livestock and Fisheries Development, Cooperatives, Water, Environment andNaturalResources, Local Govemment and Lands will provide linkages to line ministries, policy and administrative support to KAPP. This body was set up by the Government to oversee the implementation o f the SRA andwill appoint a KAPP Steering Committee. KAPPSteeringCommitteewill be one o f2 bodiesbeing created specifically for purposes o f KAPP. The KAPP-SC will be appointed by TIC and is composedo f chief executives and directors o f all the ministries represented inthe ICC. Ad hoc task forces will be formed as needed bythe steering committee which will create links with the operational level inthe ministries. KAPPSecretariat.KAPP Secretariat will beresponsible for the implementation o fthe project. The Secretariat will be secretary to the KAPP Steering Committee, and convener o fproject specific consultative processes at the national level that could include the National Forum, but will also include extension and researchtaskforces. The KAPP Secretariat will be responsible for managingthe consultativeprocesses, as well as coordinating the information, monitoring, evaluation and analytical input into those processes, financial management, information communication andpublic relations associated with KAPP. The secretariat will be staffed by professionals recruitedthrough an open and competitive process, including the Project Coordinator, specialists inresearch, extension, farmer and client empowerment, monitoring and evaluation, communications, finance andprocurement. KARI. KARImanagement willberesponsible for implementationofthe KARIsub-component andwill have a centralrole infinancial management o f all project components. KARIwill have ultimate fiduciary responsibility over the project's financial, auditing andprocurement functions. However, KARImay delegate and supervise some o f the financial andprocurement functions to the KS and DSUs andwill buildtheir capacity for financial andprocurement management over the project implementationperiod. 47 NationalForum. The SRA envisions aNationalForum o fagricultural sector stakeholders meeting once a year under the chairmanship o f the President to ensure political will and visibility, to review implementationo f the SRA o fwhich KAPP is an integral part. This forum will bringtogether leadandcooperating ministries inthe agriculturalsector, implementing institutions, farmers organizations, civil society, private sector and development partners. The KAPP secretariat will support this forum inanumber o fways -financially, with information, with adequate representation from the districts, andby supporting specific taskforces on improving agricultural research and agricultural extension. The Extensionand Research taskforces will draw from the National For a and report to them on insights gained through pilot activities, regional and international studytours, analytical work, and databases generated by the project. By the end of 2007, it is the intention to have the work generated by these task forces codified into policy for nationwide implementationinthe second phase o f the APL. DistrictService Units.District Service Units(DSU) will act as localKAPP secretariats. They will be the secretariat o fthe District Farmers Forum, coordinate the tasks under the project including consultative processes at the district and division level, planning, generation and monitor o f workplans, monitoring and evaluation, financial management and public relations. EachD S Uwill have 2 professional staff, a District Coordinator and a Monitoring and Evaluation Specialist, and support staff including an accountant, secretary and driver. The D S U will be steeredby an enhanced version o fthe District Agricultural Committee, whichwill be composed o frepresentatives of line departments and implementing agencies, local NGO's CBO's andprivate sector representatives. While Government representation should not be a majority, it i s expected that at least the Departments o f Agriculture, Livestock Production, Veterinary Services, Cooperatives, and Environment will be represented Implementationresponsibilityby component: Component1:Facilitationof InstitutionalReforms.The institutional reform component will be implementedby the KAPP Secretariat under the technical guidance o f the TIC andthe political guidance o fthe Inter-ministerial Coordinating Committee - ICC. Component2: Supportto ExtensionReform.The extensioncomponent will beimplemented by two ministries- Agriculture, andLivestock andFisheries Development. The Extension Taskforce under the National Forumwill bringinput from private and civil society service providers, and any others interested in, or able to make a contributiontoward improving extension services inKenya. Universities, commodity organizations, NGOs and private input suppliers can be expected to become membersof this forum. be implemented by KARIunder the guidanceo f the TIC . A taskforce to look at wider issues in Component3: Supportto ResearchReform.The KARIpart o fthe research component will agricultural researchwill bringinput fiom other Government and commodity research intuitions, anduniversitiesto deliberate on how best to organize anintegratednational agricultural research system. The non-KARI parts o f the research component will be implemented by the KAPP Secretariat. 48 Component4: Supportto Farmer andClientEmpowerment. This component will be implementedby the KAPP Secretariat through District Services Unitsat the district level. KENTAP, private sector and commodity specific umbrellabodies as identifiedbythe KAPP Secretariat will also undertake activities. Capacity buildingactivities will be going at boththe district andnational level. District Farmers Forums will help determine which organizations are best placedto deliver specific capacitybuildinginterventions inthe districts. Rationalefor ImplementationArrangements The institutional arrangements foreseen under the project are centered on the KAPP Secretariat. The Secretariat is composed o f carefully identifiedselected individuals able to add value to the process while bringingexperience, insights and contacts from line departments. The secretariat isplaced inrelatively new institutional territory. Currently, no entity inthe agricultural sector has such a wide-ranging mandate. However it was felt necessary for KAPP to be outside of individual line ministries because of the cross cutting nature o f interventions foreseen that range fromfarmers involvedinbothcrop andlivestock activities to issues inwater, forests andother natural resources. Inthe Kenyanbureaucracy cross-cutting issueswere not adequately addressedwhentakenby one particular ministry. This is reflected inthe SR4, and some o f the new cross-Government institutions involved inoverseeing its implementation. Linkingthe KAPP secretariat to the institutions created inthe Strategy, an inter-ministerial coordinating committee o fministers and a technical coordinating committee of Permanent Secretaries as well as the agricultural sector working group inthe Ministry of Planningprovides the necessary cross cutting links needed to make such a far reachingproject work. The KAPP secretariat will face capacity constraints. The skills needed to guide a policy reform process, interact at highlevels, network and lobby for desired outcomes respectfully but successfully, does not come naturally to manypublic sector employees Kenya. This kindo f skill is more common inadvocacy NGOs andresearch institutes that do not operate under traditional Government bureaucracy, which i s why the maximum level o f stakeholder consultation and participation will support the process and those who will be working on it full time. The project's reliance on KARIfor financial management is also meant to address the capacity constraints that currently exist within the line ministriesand at the district level. 49 KAPPIMPLEMENTATIONFRAMEWORK I I I I District Farmers District Service \ Forum Unit / Divisional Farmers Forum Village Farmers Forum Legend 0 Government institutions WP institutions -Supervisoryrelationship Oversight relationship 50 Annex 7: FinancialManagement KENYA: KenyaAgriculturalProductivityProject(KAPP) A: FinancialManagementArrangements Countryissues The results of the latest Kenya Country Financial Accountability Assessment (CFAA) dated April, 2001indicatedthat ...fiduciary risk inpublic spending is assessed as high. whilea lack " of compliance with establishedfinancial andprocurement regulations have completely rendered many initiatives aimed at strengthening the control environment ineffective, issues of limited execution, inadequate monitoring, insufficient capacity and lack of enforcement also need to be resolved. 'I There are highfinancial management risks due to a weak control andlow capacity environment. Government accounts are regularly late and incomplete. Inter-agencyreporting i s slow and sometimes difficult to achieve, where hierarchical lines are blurred or are foreign to the day-to- day structures and management o fthe institution. Accountability chains are weak, andpenalties are extremely light or nonexistent. Mitigatingmeasures A new Government is now inplacewith a commitment to ensuring compliance with legislation, strengthening regulatory institutions and fightingcorruption. With the support o fa number o fdonor assisted initiatives, including the IDA-hndedPublic Sector Management Technical Assistance (PSMTA) project, Government is seeking to rapidly enhance the financial accountability framework inorder to: Mitigate fiduciary risk inpublic expenditure management Achieve economy, efficiency and effectiveness inthe use o fpublic funds Enhance transparency and accountability Enhance staff capacity inpublic financial management A number o f project-specific risk mitigation arrangements have been proposed in order to address noted country concerns: a) An Inter-ministerial Steering Committee has been established with membership comprising senior management o f respective implementing agencies. The Committee i s responsible for overall project implementation supervision, monitoring and reporting. b) Institutional arrangements during Phase Iplace all fiduciary responsibility with KARI with the KAPP secretariat "seconded" to KARI, duringwhich time it is expected to draw on the fiduciary compliance experience o f KARIfor capacity building. c) The independent annual audit o f the project will be subcontracted to a private firm of auditors who will report to the Government CAG. This arrangement is intended to ensure effectiveness and efficiency o f the audit process. 51 d) The project will be subject to regular IDA supervision missions aimed at closely monitoringperformance and the timelyresolution of issues. Financialmanagementsystem The objectives of the project's financial management system are: To ensure that funds are used only for their intendedpurposes inan efficient and economical manner To ensure that funds are properly managed andflow smoothly, adequately, regularly and predictably inorder to meet the objectives o f the project To enable the preparation o f accurate and timely financial reports, including financial monitoring reports To enable project management to monitor the efficient implementation o f the project To safeguard the project assets andresources Furthermore, the following are necessary features o f a strong financial management system: KAPPshould have an adequate number andmix o f skilled and experienced financial management staff capable of producing FMRs The internal control system should ensure the conduct o f an orderly and efficient procurement andpayment process, andproper recording and safeguarding o f assets and resources The accounting system should support the project's requests for funding andmeet its reporting obligations to the GOK and IDA The system should be capable o fproviding financial data to measure performance when linked to the output o f the project An independent, qualified auditor should be appointedto periodically review the Project's financial statements and internal controls Strengthsandweaknesses The notable financial management strength is that the financial management andprocurement capacities o f one of the principal implementing agencies, KARIhas been assessedand found to be generally satisfactory. Weaknesses infinancial management have been identified inthe following areas: Adequate counterpart funds may not be allocatedina timely fashion. Mitigationmeasures comprise advance assurance from GOK o f its commitment to ensuring fundingobligation compliance and an up front deposit o f one quarter's GOK requirement as a condition o f effectiveness. Inaddition, arrangements for quarterlyjoint reviews with MOF, implementing agencies and IDA are proposed. GOK continues to suffer major financial reporting weaknesses, notably delays insubmission of audited accounts. It is proposedthat KAPP's annual financial statements be subject to independent private auditor onbehalf o f the Government CAG. The Inter-ministerial 52 Steering Committee will also be assigned the responsibility o f overseeing the project's compliance with financial reporting obligations. The KAPP secretariat i s a new organization without experience inBank financed projects. This will be mitigated by delegation of financial management to KARI and the proposed "secondment" o fthe project's keymanagement and accountingpersonnelto KARIduring phase I. this time secretariat staffwill be expected to gain experience inmanaging During Bank-financed projects and developing strong accounting and internal control systems based on KARI's experience. It is further proposedthat close involvement o f the Bank project management andCountry team members will center on conducting training sessions and regularly supervisingperformance. Institutionaland implementationarrangements KARIwillberesponsible for the overall financial management o fthe project, inaccordance with soundandstandard guidelines acceptable to IDA.KAPP andKARIwill oversee the management o f Special andProject Accounts, the preparation o f financial reports and annual financial statements, withdrawal applications and other financial reports for IDA, e.g FMRS. KARIwill oversee the statutory audit of project's financial statements, ensuringthat the process is carried out efficiently and inline with the terms o f funding agreement. It will also be responsible for ensuringthat matters arising from audits are dealt with expeditiously. The proposedproject will be fully integrated into the activities o f the KAPP secretariat and KARI, the principal implementing agencies. Respectiveaccounting andbudgetingsystems will therefore be fully compatible with the Government systems andIDA Financial Management Guidelines. The KAPP Secretariat andKARIwill have accountants on the project team to handle financial management matters. Flow of Funds Special Accounts -GOK will establish two U S dollars special accounts, one for the IDA Grant andone for the IDACredit. The special accounts will receive dollar depositshransfers from the main IDA credit or grant accounts. Project Operating Accounts - Three localcurrency project operating accounts will be opened, two to be operated by the KAPP Secretariat, and one byKARI. The KAPP Secretariat requires two accounts because activities implemented under the K S will be financed byboththe IDA Credit and Grant. The operating accounts will form the primary source o f financing for project activities andwill be managed directly bythe respective implementing agencies. District Project Accounts - Everydistrict will open a local currency project account with a commercial bank at the district level, to be operated by the authorized signatories. This will form the primary source o f financing for project activities to be implemented at the respective districts. 53 The authorized signatories to operate the above accounts inrespect o f KAPP secretariat components will be as follows - Account Signatories Comments 1 Special Accounts Permanent Secretary (MOF). Any one o fthe Authorized under IDA Credit Director -ERD (MOF) Desk Officer Representatives (Signatories) and IDA Grant World Bank, ERD (MOF), Accounts to be valid authority for SOEs Controller (MOF) and Form 1903, for the purpose o f withdrawal o f Credit or Grant proceeds. 2 Project Operating Director - KARI, Any two signatories tojointly Account under IDA DeputyDirector F & A -KARI sign cheques and other bank Credit Chef Accountant - KARI documents and IDAGrant 3 District Project A: District Accountant, One signatory from class A to Accounts under District Coordinator jointly sign with the signatory IDA Grant from class B B: ProjectAccountant Chief Accountant KARI Inthe case ofJSARI, the localprojectsaccounts at the headquarters andresearch centers willbe operated based on the current procedures and signatories. Fundsflow arrangements for the project shallbe as follows: IDA will make aninitial advance disbursement from the proceeds o fthe Credit bydepositing into the Borrower-operated Special Account Actual expenditure will be reimbursed through submission o f Withdrawal Applications together with FMRs. GOK counterpart funds andtransfers from the SpecialAccounts (for payment o ftransactions inlocalcurrency) willbe deposited inrespective agencies' project accounts inaccordance with GOK exchequer control and funding arrangements. Counterpart funds will be allocated through the normal central government budgetary process. District remittances -Activities inrespective implementingDistricts will be finded through periodic funds transfers from the Special Accounts as outlined under the Flow o f Funds. Each District will open a project account to receive and disburse remittances. Funds will be remitted on the basis of an analysis of funding proposals vetted by District Services Units and approved bythe secretariat. Districts' requests for funds will be receivedon a monthlybasis and remittances made duringthe followingmonth. Accountability An initial advance equivalent to three months projected expenses will beremitted to the bank account o fthe individual districts. The districts will utilize the funds to meet the eligible expenditure based on approved budget and work plans, following the accounting procedure outlined inthe KAPP Financial Management Manual. At the end o f the month a request for reimbursement o f the amount disbursedwill be submitted to the KAPP secretariat along with the appropriate supporting documents, which will include (a) paidvouchers for 54 expenditure incurred inoriginal (a copy is retained at the district), (b) Bank Statement for the current month (c) bank reconciliation statement for the month (d) Original o f the cash book folio (e) statement o f expenditure (SOE) inthe prescribed form, and a copy o fthe progress report on the activities carried out duringthe month, showing the actual progress against the agreedtarget for the individual monitorable indicators. This will be submitted to KAPP secretariat by the first week o f the following month. The Secretariat will review this information, reconcile amounts submitted against advances, and together with respective Districts' workplans, determine the 1 amount to be advanced insubsequent periods. The Secretariat will prepare and submit quarterly FMRs to IDA on the basis o f this information. Reporting to GoK will be on a monthly basis in the form of SOE, prepared inaccordance with Treasury guidelines. Staffing The KAPP secretariat and KARIhave respectively assigned Finance Officers to be responsible for project financial management. Respective Finance Officers will have various level accounting personnel reporting to them and assigned various accounting responsibilities as detailed ina Project Financial Operations Manual. District accounting personnelwill report to the KAPP secretariat through District Services Units. The project's key accountingpersonnel will be expected to attend procurement, financial management anddisbursement training sessions conducted by the Bank Country Office. Description of Financial Management Arrangements Internal Controls and Financial Management Manual The project's internal controls will be based on the established KARIand GOK accounting and intemal control systems anddocumented inthe Project Financial Operations Manual. The manual will be subject to review by the Bank FMS. The procedures to be usedby the project to maintain its records will include the requirement for cross references to supporting documentationinthe SOE supporting schedules inorder to facilitate the inspection o fthese schedules andimprove the maintenanceof the project's records, Project Financial Operations Manual The Manual will describe the accounting system: the major transaction cycles o f the project; funds flow processes; the accountingrecords, supporting documents, computer files and specific accounts inthe financial statements involved inthe processingo f transactions; the list of accounting codes used to group transactions (chart o f accounts); the accounting processes from the initiation o f a transaction to its inclusion inthe financial statements; authorization procedures for transactions; the financial reporting process usedto prepare the financial statements, including significant accounting estimates anddisclosures; financial and accounting policies for the Project; budgetingprocedures; financial forecastingprocedures; procurement and contract administration monitoring procedures; procedures undertaken for the replenishment o f the Special Account; and auditing arrangements. 55 Planning and Budgeting Budgeting for the project has beenundertaken centrallybythe KAPP secretariat andKARIin consultation and extensive detailed inputby respective implementing agencies. IDAreporting guidelines provide for periodic activity, cash flow andprocurement projection analysis and review on an ongoing basis byway o f Financial Management Reports. At the District andcommunity level, theDistrict Coordinators willberesponsible for authorizing expenditures for their respective components inaccordance with the agreedbudgets. To facilitate standardization, the Project Financial Operations Manual will include templates o f budget proposals. Books of accounts and list of accounting codes The project's accounting records will be maintainedon computerized accounting systems. A list of accounts codes (Chart ofAccounts) for the project will be integrated. This will match the classification o f expenditures and sources and application of funds to be sat out inthe Credit Agreement. The Chart o f Accounts will be developed ina way that allows project costs to be directly related to specific work activities and outputs o fthe project. This process is required to be inplace by Credit Effectiveness, along with the Project FinancialOperational Manual. Audit arrangements Internal Audit KARI's existing internal audit arrangements are considered satisfactory for purposes o fthe project, The KAPP secretariat will, duringPhase I, develop an internal audit function based on KARI's experience. The internal audit functions carry out periodic reviews o f activities, compliance with accounting andinternal control procedures and carry out ad hoc investigations andreviews underthe direction o fthe KAPP SteeringCommitteeto whom they will report. The Committee will be responsible for ensuring that audit recommendations and followed up and implemented. Internal Audit activities will cover KARI, the KAPP secretariat andDistricts. External Audit The Office o f the Controller & Auditor General (CAG) i s primarilyresponsible for the auditing of all government projects. However, it was agreed, inline with the findings o f the December 2003 Country Portfolio Performance Review, that the Controller andAuditor Generalwould identify and appoint a qualified external auditor for the project on agreed terms o f reference. It i s recommendedthat the project audit be subcontracted to a private auditor for reasons that: 0 IDAhas continuedto experience delays inreceipt o f auditedfinancial statements, largely owing to lack o f technical capacity inthe office o f the CAG; and 0 The project entails multiple implementing agencies, requiring multiple audit locations. The existing setup and audit process o f the office o fthe C A G is considered unsuitable for such an arrangement. The firm o f auditors subcontracted to carry out the audit should meet the IDA'Srequirements in terms of independence, qualifications and experience. Separate Annual Audited Financial Statements covering the activities o f the KAPP secretariat and KARI, takinginto consideration 56 the new Audit Policy Guidelines o fthe World Bank should be submitted to IDAwithin six months after end of each financial year. Reportingand monitoring Financia1Monitoring Reports Formats o f the various periodic financial monitoring reports (FMR) to be generated from the financial management system will be developed. There will be clear linkages betweenthe information inthese reports and the Chart o fAccounts. The financial reports will be designed to provide quality andtimely information to project management, implementing agencies, and various stakeholders on project performance. The following contents o f quarterly FMRs will be producedbythe KAPP secretariat andKARI:- Financial Reports: - - Sources andUses of Fundsby FundingSource Uses o f Funds byProject ActivityKomponent PhysicalProgress (Output Monitoring) Report Procurement Report The formats for FMRswere defined as part o f the draft PIP and agreed upon duringnegotiations. The PIP will be finalized by Credit Effectiveness. Financial Statements DuringPhaseI, Consolidated Annual Financial Statements comprising the activities ofthe KAPP secretariat and KARIwill be prepared. The financial statements should be prepared in accordance with InternationalPublic Sector Accounting Standards (which inter alia includes the applicationo fthe cash basis o f recognition o f transactions). The IDA Credit Agreement will require the submission o f audited financial statements to the Bank within six months after the year-end. Project Financial Statements will comprise: A Statementof Sources andUses of Funds/CashReceiptsandPaymentsfor each funded phase which recognizes all cash receipts, cash payments and cash balances controlled by the entity; and separately identifies payments by thirdparties onbehalf o f the entity. The AccountingPoliciesAdopted andExplanatoryNotes.The explanatorynotes should be presented ina systematic manner with items on the Statement of Cash Receipts andPayments being cross referenced to any related information inthe notes for each funded phase. Examples o f this information include a summary o f fixed assetsby category of assets, and a summary o f SOE Withdrawal Schedule, listing individual withdrawal applications; and 57 3. A ManagementAssertion that Bank funds have been expended inaccordance with the intended purposes as specified inthe relevant World Bank legal agreement for each funded phase. Indicative formats o f these statements will be developed inaccordance with IDArequirements byCredit Effectiveness. Supervisionplan A FinancialManagement supervision missionwill beconductedat least every six months. The mission's objectives will include that o f ensuring that strong financial management systems are maintained for the project throughout its life. Reviews will be carried out regularly, upon receipt o f quarterly FMRs to ensure that expenditures incurredbythe project remain eligible for IDA fbnding.The Project Status Report (PSR) will include a financial management rating for the component. This will be arrived at bythe Country Office FinancialManagement Specialist after an appropriate review. ProjectRisks The critical risk facing this project is GoK's commitment to see through the implementation o f reforms inresearch and extension as envisaged under the project. Specific Project risks here include: The large number o fparties andtransactions involved, the small value and multiplicity o f contracts, and the scattered locations o f the subprojects that render problematical ex-ante controls across all individual sub-projects Accounting difficulties arising fi-om disbursement to the beneficiaries' bank accounts or to District accounts is based on progress reports while the supporting documents are best kept at the level where the expenses are incurred Community/fanner groups may lack the necessary financial management capacity Community/farmer representatives may not be truly representative o f the community (Le. elite capture o f institutions andpolitical interference) Risks associatedwith the handlingo f substantial cash transactions including theft and fiaud Additionally, risks often faced byProjects inKenya include: Shortage of liquidity at the central treasury delaying project implementation through lack o f counterpart funds andor inability to access counterpart funds because the project is not "inscribed" inthe national budget; Weak financial management andprocurement capacity delaying implementation; Country andProject risks canbe summarized as follows: 58 * These will be mitigated by adoption o f a comprehensive Project Financial Operations Manual, Supervision by the KART finance officer, Community ownership and direct implementation o f planned activities, ** regular audits, and inclusion o f capacity building components inthe Project. These items are considered non significant as long as mitigating factors, as described in the FM Action *** Plan, are put inplace. The new Government i s currently implementing major reforms in corruption, governance and the judiciary, with the expectation that these risks will be mitigated. Overall RiskAssessment 1. The project financial management risk is assessed as beingmoderate providedthat the financial management arrangements are properly implemented andthe following financial management action plan satisfactorily addressedinpractice. The Bank's report-based disbursements instrument "financial management reporting" (FMR)will be progressively introduced and should be hlly effective by the end o f Phase I. 59 FinancialManagementAction Plan Action Due Date Conditionality Final Project Implementation Plan (PIP) Effectiveness Condition of accepted by IDA. Effectiveness .. Financial management system established. This Effectiveness Condition of includes: Effectiveness . Procedures Manuals Information System Training Project accounts opened and initial deposits o f counterpart funds made. Effectiveness Ability o fKAPP andKARIto prepareFinancial Reports and o f implementing agencies to Effectiveness prepare FinancialManagement Report input. B: DisbursementArrangements Disbursements from IDAwill be made on the basis o f Withdrawal Applications accompanied by FMRs, direct payment andspecial commitments. Appropriately approvedproject work plans, including detailed procurement plans will determine the level o f the special accounts. IDA would make disbursements from the proceeds o f the Credit by depositinginto Borrower-operated Special Accounts to expedite Program implementation. Advances to the Special Accounts would be usedby the Borrower to finance IDA'Sshare ofprogram expenditures under the proposedCredit. Another acceptable method o f withdrawing funds from the Credit is the direct payment method, involving direct payments from the Credit to a thirdparty for works, goods and services uponthe Borrower's request. Payments may also be made to commercial banks for expenditures against IDA special commitments covering commercial banks' Letters o f Credit. IDA'SDisbursementLetter stipulates aminimumapplication value for direct payment and special commitment procedures. The flow o f funds from respective Special Accounts to project accounts, districts andproject activities will be as detailed under the preceding Flow o f Funds section. IDAwill have the right, as reflected inthe Development Credit Agreement, to suspend disbursement o f the Funds ifreporting requirements are not complied with. 60 Annex 8: Procurement KENYA: KenyaAgriculturalProductivityProject(KAPP) The last Kenya Country Procurement Assessment Review (CPAR) was conducted in 1997. Followingthe findings andrecommendations o fthe CPAR, the Government o fKenya (GOK) applied for the Bank's support to implement the recommendations o fthe CPAR, and subsequently received from the Bank an IDFgrant which was approvedin 1998. Usingthe proceeds o f the grant, GOK started a procurement reform program. One of the main outcomes o f the reformprogram was the establishment and gazettment inMarch 2001 o f National Public Procurement Regulations, which govern all public procuring entities, and production of standard biddingdocuments for works and goods. The Public Procurement Regulations allow the Bank procedures to take precedence over any contrary provisions in the national regulations. The Government's standard biddingdocuments andprocedures for N C B have been reviewedby the Bank andfound to be acceptable. Procurement of goods andworks for all IDA financed components will be carried out in accordance with the Bank's Guidelinesfor Procurement under IBRD Loans and IDA Credits (January 1995and revised in January and August 1996, September 1997 and January 1999). Consulting services by firm or individuals financed by IDA will be awarded inaccordance with the Bank's Guidelines: Selection and Employment of Consultants by WorldBank Borrowers (January 1997, revised in September 1977and January 1999, and May 2002). The appropriate World Bank standardbiddingdocuments will be used for all International Competitive Bidding(ICB), and the World Bank's standard Request for Proposals (RFP) for the selection o f consultants. ProcurementPlan A procurementplancovering the goods, works consultancy service contracts for the first year of project implementationwas finalized during appraisal. The planincludes relevant information on goods, works and consulting services under the Project as well as the timing of each milestone inthe procurement process. The procurement schedule will be updated once every six months andreviewedby IDA duringsupervision missions. As community/farmer demand-driven investments cannot be identified up-front, an operational manual that provides all the guidelines that will be used inpreparing, screening, and implementing sub-projects i s under preparation (using ATIRI module) and will be finalized before project effectiveness. Advertising Two General Procurement Notices (GPN), one for consulting services and one for goods, will be prepared for the Project and published inthe UnitedNations Development Business (UNDB). GPNswill describe all ICB for goods, as well as consulting assignments costing U S $200,000 equivalent or more per contract. 61 ProcurementImplementation Ultimate responsibility for procurement will rest with KARI, who will supervise procurement bythe KAPP Secretariat and DSUs. Consultancy services andtechnical assistance, ICB and N C B contracts for goods andworks will be procured centrally by the KAPP Secretariat (KS) and KARI. However, procurement of goods, works, and services for community-related activities under the Farmer Empowerment Component will be carried out by beneficiary communities/farmer groups under the guidance and supervisionof the respectiveDistrict Services Units (DSUs). Procurement of community-based requirements could be classified into two categories. Simple procurements which communities can carry out themselves with minimumexternalassistance, andrelatively complex procurements for which communities would needtechnical expertise may not exist . For the latter category o fprocurement, communities will seek assistance from KARIand the KS through the DSUs. DSUs will be responsible for the procurement o ftheir unit-specific needs, but will also be overseeing the smooth implementation o f community procurements andpreparingperiodical reports on the procurement status o f their respective communities, and submitting suchreports to KARIand the KS. Goods Withouttakinginto account expenditures onprocurement o finputs incommunity sub- projects or research activities, the total cost o f goods under the IDA credit is estimated at US$ 5.6 million. Vehicles andoffice equipment including computers, copiers, etc., costing US $150,000 equipment or more per contract will be procured centrally by KS andKARI under I C B contracts. Procurement for community sub-projects will be carried out by beneficiary communities inseparate small contracts. Goods estimated to cost less than U S $150,000 equivalent per contract may be procured throughN C B procedures. Goods that are estimated to cost less thanUS $50,000 equivalent per contract may be procured through Shoppingprocedures inaccordance with the procedures set forth inthe OperationalManual. The request for quotations will be made inwriting to at least three qualified suppliers. Direct purchase. Procuring directly from the supplier without getting other quotations may be allowed, uponprior clearance with the Bank, when there is only one supplier and/or the amount i s small as prescribedinthe Operational Manual. Works IDA will finance the costs o frehabilitation of laboratories androads as well as maintenance of buildings at the total estimated budget o fUS$2.2 million over a period o fthree years. Contracts for rehabilitation works costing more thanUS$50,000 equivalent per contracts will be awarded through the National Competitive procedures. Contracts o f works estimated to cost US $50,000 or less equivalent per contract may be procured under lump-sum, fixed- price contracts awarded on the basis of quotations obtaining inwriting from at least three local contractors. The request for quotations will include description o f the works, including 62 plans and technical specifications as appropriate, requiredcompletion time, and a standard form o f contract acceptable to IDA. Force account. Communities may implement subprojects using its own resources (skilledunskilled labor, materials, equipment), or hiringlabor andpurchasingmaterials themselves and subcontracting the rest o fthe work to petty contractors by obtaining three quotations. Direct Contracting. Direct contracting o f one contractor without getting other quotations may be allowed, uponprior clearance o fthe Community Sub-project Committee, when there i s only one qualified contractor and/or the amount is small as prescribed inthe Operational Manual. Consultantservices The total cost of IDA-financed consultant services andtechnical assistance, excluding costs o f services o f trainers, external facilitators o fworkshops, or TA that may be needed for community sub-project, i s estimated at about US$4.3 million equivalent for the entire Project. Except as detailedbelow, consulting services will be selected through competition among qualified short-listed firms based on Quality- and Cost-BasedSelection (QCBS). Consultants for financial audits and other repetitive services estimated to cost less thanUS$ 50,000 equivalent per contract will be selected through Least Cost Selection (LCS) method. Consultants' services for training estimated to cost more than US$50,000 equivalent per contract will procured through the Selection Based on Consultants' Qual@cations (CQ) method. Inexceptionalcaseswhen selection of consultants through competitive process is not practicable, the borrower may, uponprior clearance with the Bank, hire consultants through the single-source selection method stipulated inparas 3.8-3.1 1o f the Guidelines. Consultants for services meeting the requirements of Section V o f the Consultant Guidelines will be selected under the provisions for the Selection of Individual Consultants (IC) method. Individual Consultants will be selected through comparison o fjob description requirements against the qualifications of those expressing interest inthe assignment or those approached direct1y . Communities which may not be capable o f implementing their sub-projects may procure the assistance o fNGOs and other consultants to provide technical assistance andhelp them manage the community sub-projects. K S or DSUs will assist such communities inthe selection o fNGOs following the procedure prescribedinparagraph 3.14 o f the Consultants' Guidelines. To ensure that priorityis given to the identification o f suitable and qualified national consultants, short-list for contracts estimated under US$200,000 equivalent per contract may be comprised entirely o f national consultants (inaccordance with the provisions o fparagraph 63 2.7 of the Consultant Guidelines), provided that a sufficient number o fqualified firms (at least three) are available. However, ifforeign firms have expressed interest, they will not be excluded from consideration. The RFP as developed by the Bank will be used for requesting proposals, and for selection and appointment o f consultants. Simplifiedcontracts will be used for short-term assignments - simple missions o f standardnature (i.e,, those not exceeding six months) carried out by individuals consultants or firms. Bank Reviews Procurement o f IDA-financed civil works contracts estimated to cost US$200,000 equivalent or more and goods as well as consulting contracts o fUS$ 100,000 equivalent or more for firms andUS$50,000 equivalent or more for individual consultants will be subject to prior review by IDA. Post reviews o f contracts awarded below the above threshold levels will be carried out selectively by IDA during supervisionmissions and/or by an independent procurement auditor. Terms o fReference (TOR) for all consultancy contracts as well as all single source selections, irrespective of the contract value, will be subject to prior review. K S will prepare and submit to the Bank for its prior review an annual training program, as part o fthe project annual work plan. The training will, inter alia, identify: (a) the training envisaged; (b) the personnel to be trained; (c) the selection methods o f institutions or individuals conducting such training; (d) the institutions which will conduct training, if already selected; (e) the duration o fproposed training; and (0 the cost estimate o f the training. Report by the trainee upon completion o f training would be mandatory. 64 TableA: ProjectCosts byProcurementArrangements (US$ million equivalent) ProcurementMethod' 15. Grantsto Farmers I I andResearch I 0.00 I I 0.00 I I 9.94 I I 0.00 I I 11 Figures inparentheses are the amounts to be financed by the IDA Credit. All costs include contingencies. 21 Includes civil works and goods to be procured through national shopping, consulting services, services o f contracted staff of the project management office, training, technical assistanceservices, and incremental operating costs relatedto (i)managing the project, and (ii) re-lending project funds to local Government units. 65 Table A1: Consultant Selection Arrangements (optional) (US$ million equivalent) I I I I I I I I I I Category QCBS QBS SFB LCS CQ Other N.B.F. Cost1 A. Firms 1.9 0.00 0.00 0.00 0.00 0.00 0.00 1.9 (1$62) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (1.62) 0.00 1.2 0.00 1.80 0.00 3.0 (0.00) (0.00) (0.00) (1.0) (0.00) (1.57) (0.00) (2.57) Total 1.9 0.00 0.00 1.2 0.00 1.80 0.00 4.90 (1-62) (0.00) (0.00) (1.0) (0.00) (1.57) (0.00) (4.19) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS =Quality-based Selection SFB = Selection under a FixedBudget LCS = Least-Cost Selection CQ = SelectionBased on Consultants' Qualifications Other = Selectionof individual consultants (per SectionV of Consultants Guidelines), Commercial Practices, etc. N.B.F.=Not Bank-financed Figures inparentheses are the amounts to be financed by the Bank Credit. Table B: Thresholds for Procurement Methods and Prior Review1 66 1 Contract Value I Procurement 1 Contracts Subject to 1 Expenditure Category Threshold Method Prior Review 1.Works > 150,000 NCB >50,000 >200,000 I 2. Goods 1I >=150,000 ICB I >150,000 I >50,000<200,000 1I NCB =<50,000 LCS =50,000 CQ 3.(a) Individual IC >50,000 consultants Totalvalue of contractssubject to prior 8.85 US$ million review: OverallProcurementRiskAssessment: High Frequencyof procurementsupervision One every six months missionsproposed: (includes special procurement supervision for post- reviewlaudits) 67 Procurementassessmentandrisk mitigationstrategies. Inlinewiththe proposedinstitutional arrangements for the implementation ofthe project, procurement will be carried out directly by or under the guidance and supervision o fKARI. Procurement decisions under the KARIproject component will be executed through the existing institutional management structure o fKARI. Procurement o f inputs to Non-KARIcomponents will be carried out at three levels bythe KARI/KAPP Secretariat (KS),KAPP District Offices (DSU),andCommunity Sub-project ImplementationCommittees (CSIC). Theproposed minimumnumber of people that wouldberequired for managingthe procurement finction at the three levels, the minimumprocurement capacity, and their duties are summarized inthe Matrix below. KARI, as an institution, has a longexperience inBank procurementprocedures as ithas completed implementation o ftwo Bank-funded projects (i.e. NARPIandNARP11) and is currently implementing the Lake Victoria Environmental Management project (LVEMP) - which is financed by a GEF grant administered by the Bank. KARItemporarily lost its only experienced procurement officer as a result o f a Government directive issuedinMay 2003 on the suspension o f all procurement officers inthe public sector. The suspension has been lifted and some procurement officers were reinstated. KARI's procurement officer resumedduties in March2004 As KARIis expected to carry out centralprocurement o fthe project, and supervise andgive guidance to other institutions inprocurement procedures and decisions, .itis imperativethat special consideration be given to buildingthe capacity o fprocurement personnel at KARIand the KS. The overall procurement risk assessment is rated"high". For this reason, KARIwas given ultimate responsibility over procurement inall project o fthe components. To mitigate risk, KAFUwill expandits procurement staff as needed andtrainthe KAPP Secretariat. The staffto be employed at the KAPP Secretariat will include a procurement manager and a number of procurement assistants to be based inthe districts. 68 Institutional Arrangements and Responsibilitiesof ProcurementActivities At district leveland below Institution No o fproposed Timing o f Duties procurement personnel and appointment capacity KARIKS Preferably 2: one o f them To supplement Procurement o f goods and services for has to be well conversant existing KARI benefiting ministries, common with Bankprocurement Staff as requirements o fDSUs activities, and procedures needed, as special inputsto Community Sub-projects project (CSPs) that cannot be purchased locally workload Selection o f consultants for (i)services increases and assignments to be carried out under benefiting ministries, (ii) or services assignments that are not specific to one DSU or CSP Support to DSUs and CSPCs including facilitation o f procurement training courses Oversight o f compliance to agreed procedures at all levels o f the project Preparationo fprocurement plans for central procurements Submissiono fprocurement progress reports to IMSC and WB Productiono f txocurement manuals for DSUs and CSPs DSU 1per district -with Before funds Procurement o f all goods for DSU, where adequate knowledge inWB are disbursedto centralprocurement arrangement has no and GOK procurement the districts. comparative advantage rules Goods for more than one CSP where packaging is more economical than individual purchases Selectiono f service providers for DSU activities and CSP commonactivities in the district Support to CSPCs, including training Preparationand submission o f DSU procurement plans to K S Assistance and oversight o f procurement implementation under CSPs inthe district CSPC 1 who can through training After Assistance inacquiring required inputs to be able to assist CSPC in establishment CSP inaccordance with the procedures of procurement matters, o f CSPC and the Community sub-project (following agreed identification implementation manual procurement procedures) o f Community Preparationo fperiodical procurement sub-proj ects progress reports (CSP) Advising CSPC on inputs that can be purchased locally and inputs that are not available inthe local market 69 Annex 9: EconomicandFinancialAnalysis KENYA: KenyaAgriculturalProductivityProject(KAPP) A: Introduction This Annex details the economic and financial analysis undertaken for KAPP within Phase One o f the APL. The aim of the analysis i s to assess the economic and financial soundness o fthe APL.A two-pronged approachhasbeen adopted: (i)costhenefit analysis to evaluate the a soundness o f the investments whose associated future benefits could be reasonably estimated, in this case, the KARIresearchprograminvestments; and(ii) efficiency analysis for the an institutional support investments whose future benefits cannot be reasonably quantified now. Firstly, the analysis assesses the farm-level financial viability o fthe investment inresearch. Secondly it assessesthe national level economic viability o f investing inresearch. Finally, within the sustainability and equity considerations, it examines the impact o fthe investments on the national fiscalbudget. An exhaustive analysis was not attempted given the difficulty inquantifying all o fthe project's benefits. The long-term objective o fthe KAPP is to contribute to the sustainable growth o f Kenya's agricultural productivity andimprovement o fthe livelihoods o f its rural communities through the development, acquisition and applicationo f improved andprofitable agricultural technologies and productionpractices. The KAPP will support reform o f the Kenyan agricultural system through reforms inpublic services andbetter coordination between public andprivate stakeholders. The KAPP i s expected to generate two types o f benefits: institutional benefits such as improved efficiency and effectiveness o fpublic services, and household level benefits such as higherfarm incomes or enhanced food security. To fully capture the impact of the project it would be necessary to analyze the KAPP program in its entirety as it i s intendedto develop consensus around institutional reform inthe first phase andmoves toward widespread implementationonly inthe second and thirdphases. However, analysis of the larger program is complicated by the need to estimate outputs inthe second and thirdphasesthat are dependent onthe reform process initiated inthe first. For this reason, the bulko fthe economic andfinancial analysis is concentrated onthe onthe agricultural research component financed inthe first phase o f the program. The analysis also includes a brief discussion on the soundness of investments inthe project's other components (institutional reform and pilot interventions inagricultural extension and farmer empowerment) but it should be noted it most likely understates the benefits inthese areas. Inundertakingthe costhenefit analysis, the assessmenthas focused on four representative enterprises for the research program as follows: 1. Maize researchto represent cereals because maize is the dominant food security crop in Kenya andit is also a source o f income for many farmers 2. Potato researchbecause potato is the next dominant food security after maize, is a source of cash income for farmers and i s also the dominant research crop among roots andtubers 70 3. Mango to represent horticulture which i s an important element o fKARI's research program under KAPPproposals, i s a significant fruit eaten inmany rural and urban families andis the second most important horticulture export for Kenya 4. Dairy cattle to represent livestock becauseo fthe crucial role o fmilk as a source o f animal proteinto Kenyans and it is an important element ingenerating regular cash flow for many families B: FinancialAnalysis The analysis was done over 20 years including the period it takes to develop and release the research product andthe time taken by the farmedend users to adopt the technology to its expected full impact (the crest) under farm (as opposed to researcwtrials) conditions. The rates of adoptionwere adjusted based on field data to reflect each enterprise's uniqueness. For example the rates of adoption o f improved potato varieties varied across various agro-ecological zones as shown the figure below. Improvements incrop yields were taken as the overall indicative benefit inthe case o fmaize, potato andmango research ;incremental amounts inmilk output was taken as the overall indicativebenefit from dairy research. Investment costs were taken as the cost of doing research, plus a proportionate allocation o f KARIheadquarter overhead costs, tillthe product is releasedto the farmers. The cost/benefit calculation does not include any replacement costs andthis is debatable. The reason why they have not included is the argument that once a research product is released to the users, what follows is extension andnot research. Whatever researchwork takes place thereafter, should be attributed to the next (improved) product. On-farm operating costs have beenestimated using current reported levels o f inputuse andexpenditures. Technology adoption rates have been estimated usinginformation and experience from KARI, agriculturalpractitioners, agro-economists and available publications. The Table 1below summarizes the main assumptions for the individual enterprises andresults o f the analysis. 71 Table 1:Summaryof Assumptions andResults I Maize I Potato I ManPo I Dairv Cattle Results inTable 1demonstrates that althoughthe analysis has assumed conservative technology adoption profiles for the different enterprises, the financial retums are attractive for all the enterprises. This means that farmers would profitably adopt the new technologies while at the same time enabling research to recover the technology development costs. C:EconomicAnalysis Evidence from ex-post analysis shows that investmentsinagricultural research and extension, in both developed anddeveloping countries, can generate highreturns. The 2002 World Development Report13indicates that the sum o fprivate and social retums on agricultural research and extension inAfrica for the period 1953-1998has been around 34%. The success of the Green Revolution in South Asia duringthe 1960sand 1970sclearly demonstrates the benefits andretums o f agriculturaltechnology development anddissemination. Furthermore, increased agricultural productivity arising from technology adoption has a large multiplier effect in agricultural based economies such as Kenya. Nevertheless, the estimation o f retums to investments inagricultural technology development and dissemination is inmost cases constrained by lack of accurate information and complications inestimating the extemalities arising from technology adoption. '*IIPer I Per CBS Statistics, MinistryofAgriculture and technical publications Per Ministryo f Livestock KARIandmissionestimates I Per technicalpublications andmissionestimates lo I Excludes200,000 cattle ofpurebreed l1 1 Rangesbetween 15 - 25% depending on agro-ecological zone l2 I A bagweighs average90 kgs. l3 World Bank (2002): World Development Report 2002: Building Institutions for Markets. OxfordUniversity press, New York. 72 A comprehensive evaluationofeconomic benefits o fthe whole project cannot easily bedone for several reasons. Benefits from three o f the project components focusing on extension and research intuitional reforms as well the component dealing with farmedclient empowerment are difficult to quantify inmonetaryterms. The investments inthese components are not well known ex-ante, since most o fthe activities will be identifiedthrough a participatory process. Technology improvements that will be developed through the support provided to KARI, their rates of adoption by farmers, andthe productivity gains expected from their application cannot also be accurately predictedas they will vary significantly across the wide ago-ecological zones inthe country. Benefitsfrom improvedtechnologies couldalsobeinfluencedbyexternal factors such as availability o f agricultural inputs and efficiency o f the marketing and distribution system. As indicated above, a limitedeconomic analysis focusing on determining the benefits arising from development and dissemination o ftechnologies on a number o f farm enterprises (maize, potato, mangos anddairy) assessedto some detail. These enterprises were chosen to represent the maincrop andlivestock activities undertaken bya majority o f smallholder farmers inKenya. The economic value o f research and on-farm investments, as well as recurrent costs are derived from financial cost estimates by excluding all taxes, duties and other forms o ftransfer payments. Most agricultural inputs inKenya are zero-rated and hence they do not attract import duties but are inmost cases subject to VAT at the point o f sale, at the current rate o f 16%. As indicated above, it was not possible to account for the residual values o f investment. This is however not a major factor given the 20 year periodconsidered inthe analysis. The prevailing wage rate is adjusted by a factor o f 0.75 to arrive at the opportunity cost for labor at the farm level. The import parity prices for maize, reconstitutedmilk, fertilizer and diesel are applied to arrive at their respective economic prices. The benefits o f the farm enterprises are expressed interms o fnet value added by the incremental production or technology adoption arising from the project investment. The withoutproject scenario i s equated to the situation where the farmers have not adoptedthe technological package inquestion. For example, inthe caseo fmaize, the withoutproject situationisrepresentedbythe production system using local (non-hybrid) maize varieties while the hybridmaize represent the withproject scenario. Table 2 summarizes the incremental costs and benefits as well as the estimated economic rate o f return (ERR) for the enterprises considered. The analysis shows that research into food crop technologies, be they genetic improvements or production technologies would yield an ERR o f 38% (maize), 33%(potato) and20% (mango) over a 20 year period. The ERR for dairy technology was estimated at 28%. The total net present value (NPV) o f the considered food crops and dairy amount to US$90.5million based on a 20 year cash flow and at 12% opportunity cost of capital. Based on these results it is clear that the economic benefits from the project would be similar to the usualbenefits expected from projects o f similar nature. The emphasis on enhancing technology development and dissemination takenbythe project will increase the likelihood o f the achieving and even surpassing these benefits. Although there is no reliable and wide-spread data that can be used to quantify the impact o f extension inthe country, the results so far achieved through the extension pilots initiated under NARPI1(through ATIRT) 73 indicates major productivity and income benefits that can be derived from technology adoption. Since its inception inJune 2000, ATIRI has supported 235 community-based organizations (CBOs). Proposals involving some 310 agricultural technologies havebeenapproved and funded, benefiting some 14,000 farmers directly andover 150,000 indirectly at a cost o f approximately Ksh.50 million. The achievements o f the ATIRIhave been well-documented in the NARPI1Beneficiary Assessment study and ATIRI extemal reviewI4.Achievements worth mention are the improvements o f food security arising from improved yields. Insome o f the cites maize yields were reported to have increased by over 60%, while yields o fbeans and green grams increased by 32% and 1OO%, respectively. Apart from yield increase farmers covered by the initiative were also able to diversify productioninto highvalue crops thereby increasing their incomes while generating employment. Table 2: Cost, Benefits and Economic indictors for the four enterprises. Year rota1Incremental Cost IncrementalBenefits Net IncrementalBenefits Maize Mango Potato Dairy Total (1) (2) (2-1) 1 242.9 1 0 1 1 0 1 0 I o -242.8 2 245.8 -245.8 3 247.3 -247.3 4 251.1 -251.2 5 247.6 -247.6 6 253.3 423.2 7 697.8 827.2 8 889.1 1,23 1.1 9 1,111.3 1,666.2 10 1,333.6 2,019.8 11 1,333.6 2,449.1 12 1,333.6 2,624.6 13 1,333.6 2,750.1 14 1,333.6 2,875.6 15 1,333.6 3,001.1 16 1,333.6 3,126.6 17 1,333.6 3,252.1 18 1,333.6 3,377.6 19 1,333.6 3,503.1 20 1,333.6 3,503.1 NPVat 12% (million KSh) NPVat 12% (million US$) E M I I/C Ratio1 8.4 I 8.4 I 1.8 I l4Beneficiary Assessment (BA) o f KARIdeveloped technologies (2003), and Drafi ATIRI external review report (2004). 74 D:Efficiency and Sustainability ofInstitutionalReformand PilotingActivities The cost effectiveness o fKAPP's institutional reform and piloting sub-components should be evaluated against the benefits they are expected to generate and the financial soundness o fthe proposed activities. The project's investments ininstitutional reform occur at the beginning stages o f the reformprocess andtheir impact on improved service delivery, uptake o fprofitable technologies andhigher farm income will depend on the direction and scale o f reforms adopted. Nonetheless, institutional reform i s expected to have a significant impact on the efficiency and effectiveness o f public services inagriculturalresearch and extension. Public expenditure benefit, A review o f Kenya's agriculture sector performance andpublic expenditure demonstrates the need for improving the effectiveness o fpublic expenditures. KAPP's investmentsinextension and researchreform target one o fthe core functions o fthe Ministry o f Agriculture andMinistry o f Livestock Development and is an area where improved performance i s needed. The bulk o f MOA/MOLD expenditures are spent on recurrent costs, with relatively little allocated to investments. Although MOA/MOLD increased the share o f development expenditure significantly inthe past year, the recent separation o f the two into separate ministries i s likely to result insome backsliding. Recurrent costs represent the largest share o f the MONLDbudget, averagingnearly 84 percent o fMOA/LD expenditures inthe past four years (Table 3). Salaries andwages, o fwhich nearly halfare for extension workers, are among the biggest expenditures item inthe recurrentbudget, averagingnearly 47 percent o f the total budget inrecent years. Any increase ineffectiveness o f salaried employees can be expected to have a significant impact on the overall performance o f the ministries. Table 3: MOAand MOLDexpenditure 1 Breakdown I I I of recurrent expenditure ("! oftotal recurrent budge;) All salaries andwages 60.7 54.6 53.8 54.4 Agricultural and livestock extension salaries 29.0 26.9 27.5 27.9 and wages Operations andmaintenance 13.5 22.5 19.6 21.7 Plant and equipment 0.5 0.5 0.4 0.4 Transfers and subsidies 25.3 22.4 26.1 23.4 A-I-A 2.9 6.3 5.9 5.6 I I I I Expendituredatafor 1999-2002basedonactuals, 200212003 arevisedestimate Source: Public Expenditure Review, draft report 75 Reforms inthe agriculture sector also have the potential to reduce the burden o f service provision on the public sector. KAPP will support increased private sector participation in extension services, which, ifsuccessful, may enable widespread expansion o f extension services outside the public wage bill. Private providers will be paid with public funds, but this is recognized as being more cost effective thanprovision o f similar services by civil servants. Cost effectiveness and sustainability of pilot activities are also increased by an element o fcost sharing element to many of the interventions. Positive externalities. Inaddition to shaping the reform agenda, KAPPhas the potential to improve govemance at the district level andbelow. The project's investments inpilot activities will greatly increase the resources available at the district level and decentralize control over their allocation to the district, divisional and community level. The funds available for pilot extension and farmer empowerment activities comprise around 6 million K S hfor each o f the 20 districts. Kenya is currently undergoing a constitutional review and i s likely to decentralize govemance to the lowest levels. Investments at the district level will buildcapacity o f district officials to better manage resources and coordinate below the district level. Fiscal impact. KAPP i s expected to have a positive fiscal impact on Government expenditures through increased effectiveness and efficiency o fpublic services, particularly agricultural and livestock extension andresearch. The test for sustainability o f the project is its ability to generate incremental public revenues to meet its recurrent costs. Inthe short runthe project is not expected to generate substantial public revenues but is likely to do so inthe longrunas agriculturalproductivity increases and incomes rise. Inthe medium term the project, is not expected to generate substantial fiscal obligations outside o f the KARIresearch sub-component. The recurrent costs associated with investments ininstitutional reform and coordination are expected to be absorbed into the general budget o fthe project's associated ministries as reforms are mainstreamed. Project investments inKARIare also intendedto improve the efficiency and impact o f research services. Although KARIis heavily dependent on donor funds and Government transfers (around 46% o f overall funding is provided by donors), it is acknowledged inthe Medium Term Expenditure Framework and Public Expenditures Review as having a core poverty reducing function. KARIhas enjoyed relatively strong support within the Ministry o f Agriculture since it was placedunder MOA control in 1999. Continued support is likely and its status as a Government parastatal allows it some flexibility inmanaging expenses and generating revenue. 76 Annex 10: SafeguardPolicyIssues KENYA: KenyaAgriculturalProductivityProject(KAPP) KAPP activities have beenjudged to likely have minimal to no adverse social and environmental impacts. The Project i s classifiedas EA Category C (Environment) and S3 (Social) and therefore, there are no Safeguard Policies that would be triggered bythe Project. Consequently, the Project has been transferred from the Africa Region safeguard unit (ASPEN) to the Sector Manager AFTS2 who is now responsible for: (i) clearing and disclosing o f any safeguard document, (ii) ensuring that environment and social issues are appropriately addressed inthe project, and (iii)ensuring that competent environment and social staff are included on the team. The associated GEF component has been de-linked from KAPP-IDA andwould therefore be processed as a separate project with its own safeguard policy requirements andprocessing. While KAPP has no mandated assessment and disclosure requirements, as part o f an early good practice effort to enhance project design, a SectoralEnvironmental and Social Assessment (SESA) was conducted and submitted to the Bank andBorrower ina manner and content that has been formally accepted. The SESA was prepared so as to provide information, analysis and guidance to ensure andstrengthen environmental andsocial sustainability o fthe project. The SESA sets out the framework for mainstreaming environmental and social considerations during KAPP implementation, focusing on Phase I(Le. the first three years). It also summarizes considerations that would need to be factored into the design ofPhases I1and I11to ensure the continuation o f the mainstreamingprocess. Entry pointsintoKAPPinstitutionalstructures The SESA ensured insertion and wider consultation andparticipation o fkey environment and social agencies into the design and implementation arrangements o fKAPP activities. KAPP's sector-wide coordinating body would be a) the inter-Ministerial Coordinating Committee (ICC) andb) a Technical inter-Ministerial Committee (TIC) which wouldbe composedo fMinisters . andPermanent Secretaries from the 7 Ministries o fAgriculture, Livestock andFisheries Development, CooperativeDevelopment,Water Resources Management and Development, Environment,NaturalResourcesandWildlife, Lands and Settlement, and Local Government. Project coordination is providedby a Steering Committee composed o fDirectors o f line departmentshmplementingagencies andincludes the NationalEnvironmentalManagement Authority (NEMA).Inorder to enhance project impact and sustainability, KAPPwould broaden andfacilitate engagement byappropriate institutions with environmental andsocial entry points. The most relevant institutions fall out o fthe analysis o f environmental and social stakeholder institutions presented inthe SESA; the rationale for their involvement inKAPP is provided in Table 1below. Table 2 below defines which of the stakeholder institutions would needto be engaged with different KAPP institutions, and specifies the environmental and social expertise and responsibilities for each o fthe KAPP institutions. 77 Table 1: Rationale for selection of national environmental and social stakeholder institutions Institution Rationale a Ministryo fEnvironment, principal agency assigned with responsibility for formulating NaturalResources and Wildlife environmentalpolicy (inthe broad sense) a NationalEnvironmental a principal g o v e k e n t institution responsible for the implementation Management Agency o f all policies relating to the environment a responsible for EIA a Kenya Wildlife Service a responsible for management o fwildlife issues inKenya, including inputto policy formulation, management ofparks andreserves and provisionof extension to localpopulations and authorities a Department o fForests a Responsible for key resource sector with strong linkages to agriculture a NationalAids Control Council a overall responsibility for HIV/AIDS control and prevention a NationalBiosafety Council a regulates biotechnology research, development and implementation -includingGMOs a NationalPest Control Board a regulates pesticide markets and use a MinistryofGender, Sports, a responsible for gender policy framework, promotion o f gender Culture and Social Services issuesinlandownership, women's accessibility to markets and land use, etc social security and welfare, needs o f marginalized and disadvantaged groups (including AIDS orphans) Ministry of Cooperative a responsible for facilitating farmer access to profitable markets Development Department o f Trade a responsible for regulation and licensing o fmarkets, and promotion o ftrade liberalization Department o fNutrition a promotion o f humanhealth and well-being through improved nutrition Work Program and Budget during KAPPPhase I As anoutput o fthe SESA,KAPPwould pro-actively support consultative and local in-country capacity buildingmeasures that aim to a) fbrther mainstream environment and social issues in agriculture production, research and extension activities, andb) strengthen local andnational capacities to address environmental and social requirements. The key activities to be supported are identified inTable 3 below, and cover: a Preparation o f relevant environmental and social briefing papers to inform KAPP processes Environmental and social sustainability auditheview o f KAPP Phase I a A Strategic Environmental Assessment ofthe KAPP Ipolicyreformoutput Capacity building: awareness-raising, sensitizationand training Specific and selected technical analyses a Capacitybuilding(where needed) for stakeholder organizations (see Table 1) to participate effectively inKAPP processes 78 Considerationsfor KAPPPhasesI1andI11 Duringthe third andlast year o fKAPPPhaseI, preparationactivities for KAPP PhaseI1would be initiated. Inorder that the lessons o f environmental and social mainstreaming inPhase Iare documented and understood, an environmental and social sustainability auditheview would be carried out. The results o fthe auditheview would be fed into PhaseI1designprocess, and captured within a SESA ofKAPPPhase11.The scope o f work for the Phase I1SESA would broadly follow the scope of KAPP ISESA, incorporatingany lessons from Phase I implementation over the first two years that would sharpen Phase I1SESA's focus on key issues. The SESA process would be repeated again inpreparation for KAPP Phase 111. 79 Table3: Scope andbudgetfor support to environmentalandsocial mainstreaming Activity Scope outputs Budget,!$ - - - ___ Baseline studies analysis by agro-ecological zone o f 1.Baseline Study 80,000 environmenthocial issuesrelatedto 2. TORSfor further agriculture, including policy issues studies (perverse incentives, etc); 3. Briefing papers identification o f M e r studyneeds -to informlearning pilots & community discussions: e.g. lessons learned in, resource conservation, effective community mobilisation, etc; preparation o fbriefing papers on key issues for policy makers, and fora, as required, to informtheir discussions. SEA o f new A strategic environmental assessment o f 1. SEA report 10,000 policy the outcome o f the KAPP policy reform process: the new agricultural research and extensionpolicy. The SEA will comply with KenyanEIA Regulations (Regulation 42: see Section 1.2.2); See Annex D o f the SESA for a summary o f considerations to be taken into account during preparationo fthe SEA. Capacity building 0 sensitizatiodawareness-raising covering 1.Awareness- 55,000 environmental and social issues inrelation raising sessions/ to agriculture, for KS, KAPP Task Group materials and secretariat staffat national level, and 2. Induction KAPP coordinator at district level; sessions awareness and training at selected community levels; 3. Focalpoint training sessions 0 inductioninto environmental and social issues for all o f above (1 day); 4. training sessions further training for national and district level environmenthocial focal point -2 days at start, 2 days mid-term. Furthertechnical 0 technical analysis o f specific 1.technical papers 40,000 analysis environmental and social issues which and may be specific policy determinants, on Recommendations an as required basis; on appropriate preparation o f W h e r briefing papers as measures. necessary, to informKAPP processesand decision-making; specific research onprimary issues. Environmental environmental and social sustainability 1.Environment and 15,000 and social auditheview o f KAPP Phase Ito inform social audit report auditheview o f KAPP I1design and implementation. KAPP PhaseI TOTAL $200,000 81 Annex 11: Government Letter of Sectoral Policy REPUBLICOF KENYA MINLSTRY OF FINANCE TelegraphicAddress: 22921 THE TREASURY FINANCE NAIROBI - P.O. Box 30007 Telephone: 338111 NAIROBI When replyingpleasequote KENYA Ref No. =/FA 62/189/012/1/(19) March 19,2004 Mr. JamesD. Wolfenson President The World Bank 1818Stmet NW Washington DC20433 LEA Dear RE: KENYAAGRICULTURALPRODUCRVHYPROJECTPHASE 1; LETTEROFSECTORALPOUCY The Government of Kenya greatly appreciates the. World Bank's resumption of Budget Support, which will go along way in facilitatingthe implementationof the Economic Recovery Strategy for Wealth and Employment Creation (ERSWE) whose main objective is to resuscitategrowth and reducepoverty. Today, agriculture remains the most important sector of Kenya's economy as it contributes 26% of GDP and as much as 60% of the export earnings. Furthermore, close to 80% of the population lives in the rural areas and derlve their livelihood largely from agriculture. It is currently estimated that about 56% of Kenyans live below the poverty line, the majority of whom reside in the rural areas. Among the poor households, subsistence farmers and pastoralists account for over 50% of the poor households. The incidence and prevatence of poverty is highest among women, whose vulnerability is heightened by their dependence on subsistence farming. In addition, food insecurity in Kenya is still widespread and it is estimated that about 50.6% of the population either lack access to adequate food or the availablefood is of low nutritionalvalue and quality. In order to find a lasting solution to the problem of food insecurity, it is imperative that we work towards achieving sustainable growth of the agricultural sector, which in turn, will contribute to economic recovery. In this regard, the new Government`s development strategy, as articulated in the recently released EconomicRecoveryStrategy for Wealth and Employment ci-eation (ZUU3-2000?3(ERSWEC), is to restore and sustain economic growth, generate 500,000 jobs per year and reduce poverty. The productive sectors of agriculture, trade and industryand tourism will bethe prime moversinthe recovery program, In order to meet the macroeconomic targets, the agricultural sector is expected to grow by 3.1% per annum. Bringing agriculture back on a sustainable growth path is, therefore, identified as a critical element towards a broad-based growth needed for poverty reduction, This is also in line with the findings of the consultative Poverty Reduction Strategy Paper (PEP) process, which identified agriculture and rural development sector as the core priority in poverty reduction. Both strategies call for investing more resources in rural areas especially targeted at smallholder farmers. These investments are required to sustain increased crop and livestock production and to catalyze shifts towards higher-value crop and livestock farming while unlocking the potential in the arid and semi-arid lands which have been comparatively underdevelopeddespite accounting for 80% of the total land area in Kenya. At the sectoral level, the Government has launched the Strategy for Revitaking Agriculture (SRA), which highlights the need for a multi-sectoral approach to rural development. The theme of improving agricultural sector productivity and competitiveness through enhanced adoption of appropriatetechnologies and practices, is emphasized in the Strategy. The vision of the Government as contained in the SRA, is to transform Kenya's agriculture into a profitable, commercially-oriented and internationally and regionally competitive economic activity. This has to be achieved within a framework of improved agricultural productivity and farm incomes while conserving the land resource base and the environment. The SR4 aims to achieve this vision by providing a policy and institutional environment that is conducive to increasing agricultural productivity, promotinginvestments, encouraging private sector involvementin agricultural enterprises and agribusiness. Importantfactorsthat are necessaryto createthis environment include: 0 Establishment of legal and regulatory framework that is fair and just to all farmers, producers, processors, and marketers of agriculturalproducts Availability of efficient agricultural advisory and extension services that are pluralistic, responsive to farmers' needs and dynamic enough to cope with the changing environment 0 Availability of efficientagricultural research system that would be providingappropriate technologies, knowledgeand informationto sustain improved agricultural productivity, competitive, and cost efficientagricultural production system; and Setting up a working and a pluralistic agricultural inputs' system that is amenable to farmers, producers and agro-procesars. 2 83 The new Govemment has committed itself to restoring growth in agriculture and the main challenge will be the transition of farming enterprises from subsistence to commercial productionand from lowto high levels of productivity. Institutionaland policy reforms have to be undertakento transform subsistencefarmingto market-based produdionsystems, This transformation is faced with dauntingchallenges key among them being: Land tenure and degGdafion: 80% of Kenya's small farms are below 2 ha and pressureon existing land is increasing Low t&#o/ogy adoption.'low utlllzatlonof Improvedtechnologyand limitedaccess to extension or research services are linked to a lack of responsivenessto farmer needsand prioritieson the partof Governmentservice providers Poormarketacces poorlydeveloped internal and external market structures limit farmer access to physical and financial inputs such as improved seeds, improved livestock breeds, quality fertilizer, and credit services while underdeveloped extemal marketlinkages constrain output marketing; Underdevelopedinfrrastrucre: poor rural infrastructure such as electricity and roads hinder the development of agro-industries and make agricultural production costly; and Ima5jng impor&nce of social isues: high incidence of HIV/AIDS, Malaria and waterbornedlseases cause loss in labour productivity and diversionof resourcesfor investmentand continuous incidenceand prevalenceof povertyamong women and other vulnerable groups which constitutes the bulkof labourforce for the sector, StrategicActions The vision of the Govemment is to transform Kenya's agricultural sector into a profitable economic activity capable of attracting private investmentand providing gainful employment for the Kenyan people. This transformation calls for fundamental policy change and Instltutlonal, legal and regulatoryreformsso that individual farmers feel encouraged to shift from subsistence productionto marketoriented productionand adopt greater use of modern farming practices while increasing integration of agriculture with other sectors of the economy, In order to facilitate the needed transformationof the agriculturalsector, the following five criticalareas have been identifiedas necessaryin modernizing the sector: (i) Reform of the legal and regulatory frameworks governing agricultural operations (ii) Promotion of researchand technology development 3 84 (iii) Reform of the extension service system to create a more effective linkage betweenresearch, extension and the farmers as the ultimate beneficiaries, (iv) Establishmentand development of a market-basedagriculturalcredit and inputs system. (v) Promotion of domestic processing of agricultural produce in order to provide increased oppofiunities for value adding, employment creation and foreign exchangeearnings, One of the elements identified in the SRA as vital to increasing agricultural productivity will require the development and applicationof modern crop and livestock technologies in order to increasethe value added per unit of land and labour,This will requirerevitalizationof both agricultural extension and agricultural research services. Making both agricultural extension and research demand-driven, pluralistic and inclusive will be the cardinal pillars in the modernization of agriculture. Farmers and other key intermediaries also need to be empoweredfor them to set the pace in demanding and applyingthese modern technologies, This challenge can only be met through a cost-effective system that generates and disseminates technologies and practices that meet the needs of farmers backed by a sustainable institutional mechanism. The Kenya Agricultural Produaiv-tyProject (KAPP) is designedto assist the Governmentto addressthese challenges. Kenya ha5 a long history of agricultural research and well-developed agrkultural research infrastructure that covers all ecological zones and caters for crops, livestock, fisheries, and related fields. There are a number of agencies engaged in agricultural research, including publicly-funded institutions, such as the Kenya Agricultural Research Institute (WRI), the Kenya Marine and Rsheries Research Institute (KEMFRT), the Kenya Forestry Research Institute (KEFRI) and the universities; and commdity-funded institutionssuch as the Coffee Research.Foundation (CRF), theThe Research Foundation (TRF), and the Kenya Sugar Tea Research Foundation (KESREF). research outputs from these institutions are not well coordinated becausethey undertakeagricultural research on diverse activities. This situation and lack of prioritization of research activities, poses the risk of duplication and sub-optimal utilization of available limited resources. Furthermore, the impact of research findings and technologicalbreakthroughson agricultural productivity has been limited because of lack of a comprehensive approach for disseminating findings arising from poor research-extension- farmer linkages. Considerable work has been done over the last 15 years through the National Agricultural Research Programme (NARP), with support from the Government and several donors including the World Bank However, research being a long-term and continuous process, more needsto be doneto acquire contemporaryknowledgeand adapt itfor the several agro- ecological systems in the country. The consolidation of the gains achieved by KARI during the first and second phase of NARP would enable the lead national agricultural research institutionto play a catalytic and driving role inthis challengeand would as well maximizethe potential of the existing assets and investment. With regard to the research agenda, more priority will be given to applied research and problemsof small-scale holders, most of whom 4 85 are women. The diversification in Arid and Semi-Arid Lands (MAL), integrated natural remurces management and the development of foreshy products will be emphasized in addition to encouraging partnershipsand collaboration. The KAPP is the main instrumentto support the Govemment to achieve the desired technological advances and institutional reformsthat will consolidate these gains. Inthis regard, the Government intends to develop and adopta comprehensive NationalAgricultural ResearchSystem byJune 2007. Efficientand effective agriculturalextension, which is a key objective of the SRA, is perhaps the most important factor for increasing agricultural productivity. The Government remains the largest provider of extension services and technology delivery due to irs large staff compliment. However, the Government has not been able to use this asset efficiently to provideadequateand quality servicesto farmers. As a result, a large number of CivilSociety Institutions, Non-Governmental Organizations (NGOs), Community-Based Organizations (CBOs) and religious groups have come in to fill the gap by providing extension services at the farmer levelm The provision of extension services will, therefore, need to be strengthened using well- coordinated, decentralizedand multi-disciplinary approaches that respond to user demands. Public extension will play a facilitative and linkage role among all stakeholders( i.e. farmers, pastoralists, fishermen, researchers, inputsuppliers and service providers). This will requirea change of role so that the publicextension service becomes a catalysing agent for others to carry out the bulk of the work. The Govemment is, therefore, committed to reforming the system, through development and of a National Extension Policy, and to carry out the requisite institutional reforms in order to put in place a new extension framework by June 2007. The knowledge base and organizational capacity of Kenyan farmers, which is vital for agriculturaldevelopment, has been seriously eroded over the last two decades. While Kenya has many organizations representing farmers at various levels, none has a comprehensive coverage and capacity to reachthe large majorityof small-scale farmers. Over the years, the Government has encouraged and promotedthe formation of producer organizations such as cooperatives and farmer groups but they have been plagued by mismanagement, corruption and low human and organizationalcapacity. mere is also high demand for education as well as an extended infrastructure for farmers and extension staff training. The Government is committed to empowering farmers and farmers' organizations so that they can play their rightful role in demanding for services and utilizing these services appropriately. This empowerment will includerevival of farmer training colleges as interactionpointsfor farmers, extensionas well as researchservice providers. The capacity of nationalfarmer organizations, CBOs and NGOs involved in agricultural services will be enhanced through direct support, training and farmer to farmer interactions, with W P supporting the Governmentto achieve its objectivesof empoweringfarmers andfarmer organizations. In order to achieve the objectives set out in the strategy, it will be important to have an effective implementation, monitoring and evaluation framework. An appropriate institutional frameworkthat utilizesexistingdepartmentsand institutionsto implementactions specifiedin the strategy and which facilitatesthe active participationof the privatesector, the civil society 5 86 and communities, is beingdeveloped. At the national level, there will be the Annual National Forum of the slakeholders in the sector, organized by the lead ministries. This will ensure politicalwill and to give the strategyvisibility and provide a platformfor reviewing progress in the implementationof the strategy and the extent to which its objectives are being achieved, An Inter-Ministerial Coordination Committee will provide the linkage between national and local level implementationof the strategy, and technical support and coordination between Ministries. Conclusion The implementation of the Kenya Agricultural Productivity Project is a vital element of a broader framework for the Govemment to deliver economic growth, poverty reduction and food security. The Govemment believes that this project will play an important role in facilitatingthe implementation of some priority reform actions contained in the new Strategy for Revitalizing Agriculture. Itwill in particularfacilitatethefollowing: Execution of critically needed capacity bulldlng In agricultural policy, legal and institutionalreforms Support generation of new technologies and knowledge base that is required for the currentand future agricultureneeds Development of a new way of delivering agricultural advisory and extension services that Iscost effectiveand efficient, and Buildthe capacity of farmers engage in farmingas a viable economic activity, The GOve"!nt is committed to working with the World Bank in ensuring that the project will be implemented successfullyand meet all itsdevelopment objectives, Yours MINISTER FOR FINANCE Mr. MakhtarDiop Country Director World Bank, Kenya Office HillPlaza, Upper Hill Road Nairobi 6 87 Annex 12: ProjectPreparationandSupervision KENYA: KenyaAgriculturalProductivityProject(KAPP) Planned Actual ~~ PCNreview 10117/03 InitialPID to PIC 12/09/03 InitialISDS to PIC 01/06/04 Appraisal 03101/04 03/01/2004 Negotiations 03/24/04 03/24/2004 BoardRVP approval 06/17/2004 Planned date o f effectiveness 09115/04 Planned date o f mid-term review 12115/05 Plannedclosing date 06131/07 Key institutions responsible for preparation of the proiect: MinistryofAgriculture Ministry o f Livestock and Fisheries Development KenyaAgricultural ResearchInstitute Bankstaff andconsultantswho worked onthe proiect included: Name Title Unit Moctar Toure Lead Specialist, agricultural services AFTS2 Andrew Karanja Agricultural Economist AFTS2 Christine Comelius LeadOperation Officer AFTS2 TuriFileccia Senior Agriculturalist FA0 FredBitanihirwe Project Analyst FA0 MichaelFoster Senior Agriculturist SasakawaGlobal 2000 GemKodhek Agricultural Economist Tegemeo Institute Dahir Warsame Procurement Specialist AFTPC Enos Esikuri Environment Specialist ENV Moses Wasike Financial Management Specialist AFTFM Tesfaalem Gebreiyesus Senior Procurement Specialist AFTPC HyacinthBrown Senior Finance Officer LOAG2 HishamAbdo Kahin Legal Counsel, Consultant LEGAF JohnBoyle Environment Safeguards Specialist AFTS1 Roxanne Hakim Social Safeguards Specialist AFTS2 Melissa Brown Junior ProfessionalAssociate AFTS2 Sandra Jo Bulls Team Assistant AFTS2 Lucie Muchekehu Team Assistant AFMKE Bankfunds expendedto dateonproiect preparation: Bankresources: 86,000 FAO: 61,000 Total: 147,000 EstimatedApproval and Supervision costs: Remaining costs to approval: 50,000 Estimated annual supervision cost: 90,000 88 Annex 13: Documentsinthe ProjectFile KENYA: KenyaAgriculturalProductivityProject(KAPP) BankDocuments 1. Project Concept Note 2. Project Information Data Sheet (PCN stage) 3. IntegratedSafeguards Data Sheet (PCN stage) 4. Minutes o f the PCNReview Meeting 5. Project Appraisal Document 6. Project Information Data Sheet (PAD stage) 7. Integrated Safeguards Data Sheet (PAD stage) 8. Terms of Reference for the Social Assessment, and the External Evaluation o fthe ATIRI pilot program 9. Letter from the Government o fKenya requesting support for KAPPpreparation and funding 10.PPFrequest package Project Studies andReports 1. DetailedProject Descriptiono fKARIComponent 2. Monitoringand EvaluationReport 3. Draft Project Implementation Manual 4. Sector Environmental and Social Assessment (SESA) General Documents 1. KARIThirdMediumTermPlan 2. Strategy for Revitalizing Agriculture (SRA) 89 Annex 14: Statementof LoansandCredits KENYA: KenyaAgriculturalProductivityProject(KAPP) Difference betweenexpected and actual Original Amount inUS$ Millions disbursements Project FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. ID Rev'd PO78209 2004 Development Learning 0.00 0.00 0.00 0.00 0.00 2.86 0.00 0.00 Center- LIL PO78058 2003 KenyaArid Lands I1 0.00 60.00 0.00 0.00 0.00 56.99 -1.72 0.00 PO82378 2003 FreePrimary Educ. Support 0.00 0.00 0.00 0.00 0.00 22.83 1.80 0.00 PO66490 2002 PUB.SEC.MGMT.TA 0.00 15.00 0.00 0.00 0.00 9.81 10.18 0.00 PO69501 2001 Kenya Economic & Public 0.00 150.00 0.00 0.00 0.00 107.93 97.62 52.99 Sector Reform PO66486 2001 Decentr. Reprod. Health & 0.00 50.00 0.00 0.00 0.00 38.70 20.50 4.18 HIV/AIDS PO70920 2001 HIV/AIDS DisasterResp. 0.00 50.00 0.00 0.00 0.00 29.18 10.23 0.00 (Umbrella) PO70718 2001 Regional Trade Fac. Proj. - 0.00 25.00 0.00 0.00 0.00 20.07 8.75 0.00 Kenya PO01354 1997 NARP I1 0.00 39.70 0.00 0.00 0.00 0.84 0.88 0.00 PO01344 1997 KEENERGY SECTOR 0.00 125.00 0.00 0.00 0.00 36.71 45.28 0.00 REFORM PO34180 1997 Early Childhood Dev. 0.00 27.80 0.00 0.00 0.00 9.61 11.11 9.92 PO46871 1997 LAKE VICTORIA ENV. 0.00 9.80 0.00 9.80 0.00 6.07 6.45 0.00 PO35691 1996 KENYA - NAIROBI 0.00 50.00 0.00 0.00 0.00 6.16 10.30 8.75 MOMBASA ROAD PO01319 1996 URBANTRANSPORT 0.00 115.00 0.00 0.00 0.00 24.45 35.28 0.00 Total: 0.00 0.00 9.80 0.00 372.21 75.84 717.30 256.66 90 KENYA STATEMENT OF IFC's Held and DisbursedPortfolio InMillionsofUS Dollars Committed Disbursed IFC IFC FYApproval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2000 AEF AAA 0.55 0.00 0.00 0.00 0.55 0.00 0.00 0.00 Growers 1998 AEF AAR 0.00 0.50 0.00 0.00 0.00 0.50 0.00 0.00 Clinic 1997 AEF Ceres 0.93 0.00 0.00 0.00 0.93 0.00 0.00 0.00 1997 AEF Deras 1.oo 0.00 0.00 0.00 1.00 0.00 0.00 0.00 Ltd. 1996 AEF 0.28 0.12 0.00 0.00 0.28 0.12 0.00 0.00 Equitea 1992 AEF Future 0.13 0.00 0.00 0.00 0.13 0.00 0.00 0.00 Hotel 2000 AEF 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00 Lesiolo 1998 AEF 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00 Locland 2000 AEF 1.27 0.00 0.00 0.00 1.27 0.00 0.00 0.00 Magana 1997 AEF 0.23 0.00 0.00 0.00 0.23 0.00 0.00 0.00 Makini 1997 AEF 0.25 0.00 0.00 0.00 0.25 0.00 0.00 0.00 Redhill Flrs 1999 AEF 0.06 0.00 0.00 0.00 0.06 0.00 0.00 0.00 Transenergy 1999 ANSPAR 2.00 0.67 0.00 0.00 2.00 0.67 0.00 0.00 1980183198 DBK 3.00 0.00 0.00 0.00 3.00 0.00 0.00 0.00 1982 Diamond 0.00 0.80 0.00 0.00 0.00 0.80 0.00 0.00 Trust 1998 GBHL 3.30 0.00 3.00 0.00 3.30 0.00 3.00 0.00 2001 Gapco 15.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 Kenya IPS(K)- 0.00 0.3 1 0.00 0.00 0.00 0.31 0.00 0.00 0 Allpack 0 IPS(K)- 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00 Frigoken 0 IPS(K)- 0.00 0.11 0.00 0.00 0.00 0.11 0.00 0.00 PremFood 1994 IntlHotels- 4.16 0.00 0.00 0.00 4.16 0.00 0.00 0.00 91 Ken 1996199 K-Rep 0.00 0.43 0.00 0.00 0.00 0.12 0.00 0.00 Bank 2003 Kenair 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1983191 LIK 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 2000 Mabati 5.50 0.00 4.50 0.00 5.50 0.00 4.50 0.00 19701'74177179181188189194196199 Panafrican 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1972 TPS 0.00 0.04 0.00 0.00 ' 0.00 0.04 0.00 0.00 (Kenya) Tsavo 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0100 Power Total 3.07 7.50 0.00 35.48 2.76 7.50 0.00 portfilio: 55.48 Approvals PendingCommitment FY Company Loan Equity Quasi Partic. Approval 2002 Eberege Tea 0.00 0.00 0.00 0.00 2002 Itumbe Tea 0.00 0.00 0.00 0.00 2003 Kenair 0.00 0.00 0.00 0.00 Total pending 0.00 0.00 0.00 0.00 commitment: 92 Annex 15: Countryat a Glance KENYA: KenyaAgriculturalProductivityProject(KAPP) Sub- POVERTY and SOCIAL Saharan Low- Kenya Africa income 2002 Population, mid-year(millions) 313 688 2,495 Lifeexpectancy I GNIpercapita (Atlas method, US$) 360 450 430 GNI(Atlas method, US$billions) T 113 306 1072 Average annual growth, 1996-02 Population (%) 2.3 2.4 19 Laborforce (%) 2.9 2.5 2.3 GNI Gross per primary M o s t recent estimate (latest year available, 1996-02) capita nrollment Poverty (%of populationbelownationalpoverty/he) Urban population(%oFtotalpopuiation) 35 33 30 Lifeexpectancyat birth (years) 46 46 59 1 infant mortaiity(per 1OOOlivebirths) 80 0 6 81 Childmalnutrition (%ofchildren under5) 22 Access to improved water source Access to an improvedwatersource (%ofpopulation) 57 58 76 llliteracy(%ofpopulationage a+) B 37 37 Gross primaryenrollment (%of school-age population) 94 86 95 --Kenya Male 95 92 a3 Female Low-incomegroup 93 80 a7 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios' GDP (US$ biilions) 6.4 8.0 114 P.1 Gross domestic investmentlGDP 8.2 0.7 P.8 16.8 Exports of goods and serviceslGDP 25.0 26.9 26.0 25.5 Trade Gross domestic savings/GDP 14.5 0.7 4.2 8.7 Gross national savingslGDP 110 9.7 9.6 0.1 T Currentaccount balancelGDP -4.7 -2.3 -2.8 InterestpaymentslGDP 13 2.5 0.7 0.5 Total debt/GDP 0.0 86.2 49.5 511 Total debtservicelexports #.5 311 0.9 9.8 Present value of debWGDP 38.7 Present value of debtlexports 146.6 Indebtedness 1982-92 1992-02 2001 2002 2002.08 (average annualgrowlh) GDP 4.4 2.1 11 18 3.5 -Kenya GDP percapita 10 -0.4 -10 -0.2 18 Lowincomegroup ~ ~~ STRUCTURE of the ECONOMY 1982 1992 2001 2002 1:Growth of investment and GDP (%) I (%of GDP) Agriculture 33.4 26.6 s9.0 8.1 n T Industry 8.9 18.9 18.2 8.3 Manufacturing P.2 111 P.5 P.7 Services 46.7 54.5 82.9 62.8 Private consumption 67.1 70.2 79.0 811 -5 Generalgovernment consumption 8.4 B.1 16.8 0.2 Imports of goods and services 28.7 26.9 34.6 316 1982-92 1992.02 2o01 2o02 (average annualgrowlh) -Growth of exports and imports ( O h ) Agriculture 2.7 16 12 10 20 Industry 4.3 18 0.7 14 Manufacturing m 5.1 18 0.8 3.5 Services 4.9 2.9 13 3.6 Private consumption 5.1 2.2 -4.4 0.0 - Generalgovernment consumption 3.6 8.6 4.3 6.2 -20 Gross domestic investment 1.5 4.3 2.3 3.8 Imports of goods andservices 5.7 5.5 -12 2.9 -Exports -1rrports I 93 Kenya PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflation (%) Domestic prices (%change) 2oT I Consumer prices 27.3 3.9 5.0 Implicit GDP deflator 117 8.5 113 4.9 Government finance I (%of GDP,includes current grants) Current revenue 25.1 27.5 22.5 22.4 97 98 99 00 01 Current budget balance -t5 13 15 2.4 Overallsurplus/deficit -13.2 -3.3 -0.9 -0.9 --GDPdeflator -CPI ' " W T I TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 694 1013 1732 $742 Fuel 223 69 115 131 Coffee 227 P6 66 97 Manufactures 137 144 274 313 Total imports (cif) 1,415 1,866 3.182 3,137 Food 63 n6 290 300 Fueland energy 523 4 P 613 809 I Capital goods 250 411 756 603 Export price index(S95=WO) 77 76 74 74 96 97 98 B9 00 01 02 Import price index(SSSWO) 1P 91 130 134 m Exports Inports Terms of trade (S95=WO) 69 64 74 71 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balance to GDP (%) Exports of goods and services 1,715 2,149 2.966 3,001 Imports of goods and services 2,030 2,252 3,939 3,650 Resourcebalance -315 -3 -973 -846 Net income -254 -355 -60 -70 Net current transfers 63 66 761 576 Current account balance -305 -180 -318 Financingitems (net) 139 255 509 Changesinnet reserves '67 -75 -B1 256 Memo: Reserves includinggold (US$ millions) 248 182 1,097 1,84 Conversion rate (DEC,ioca//US$) 13.9 32.2 76.6 76.7 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ mill.) Total debt outstanding anddisbursed 641 6,898 5,644 6,207 iBRD 0 656 24 13 A: W IDA 0 1411 2263 2,447 I G:883 Total debt service 256 670 4 8 299 IBRD 1 n g 26 13 IDA 0 '6 51 60 B 2,447 Compositionof net resourceflows Official grants 143 376 252 Official creditors -15 155 62 1 Privatecreditors -136 20 -133 -18 Foreign direct investment 13 6 5 Portfolio equity 0 0 0 D: 526 World Bank program Commitments 0 176 93 2 - Disbursements 0 92 1'6 66 A IBRD E- Bilaterd 8-IDA D-Othermltilateral F-Rivats Principalrepayments 0 134 56 54 C-IMF G- Short-ten 94 MAP SECTION