Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB4777 Project Name Additional Financing to the Second Agricultural Technology Project (ATP-II): Strengthening of the National Seed System Region LATIN AMERICA AND CARIBBEAN Sector Crops (70%); Agricultural extension and research (30%) Project ID P114375 Borrower(s) GOVERNMENT OF NICARAGUA Ministry of Finance and Public Credit Avenida Bolivar, frente a la asamblea Na Nicaragua Implementing Agency Ministry of Agriculture and Forestry Km 8 1/2 Carretera a Masaya Nicaragua Tel: (505) 276-0329 Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared November 13, 2009 Date of Appraisal Authorization November 16, 2009 Date of Board Approval January 14, 2010 1. Country and Sector Background Promotion of productivity, food security and food sovereignty among small holders is at the center of the Government’s new agricultural policy priorities as stated in the 2008 National Human Development Plan (NHDP). The Government strategy aims at reactivating the economy, stimulating productivity and competitiveness. The NHDP also calls for public institutions to provide efficient technical and organizational support, business development services, credit, agricultural inputs and access to export markets. The agricultural sector is now developing its sector strategies and has recently launched a National Food Plan (NFP). The sector is focusing on increasing the production of basic grains (maize, beans, sorghum, and rice) for its vital importance in the diet of poor households accounting for 46 percent of the total population. Staple foods in Nicaragua remain a mainstay for most households, many of them poor. The recent jump in world grain prices highlights the importance of staples not only for food security, but also to the overall economic well-being of people. Price increases hold promise for small farmers, but obstacles stand in the way of realizing that promise for many. Staple food markets in Nicaragua do not perform efficiently, as they are hampered by poor infrastructure, inadequate support services, and weak institutions, increasing transaction costs and the volatility of prices. It is estimated that for Nicaragua the total effect of food price increase (2005-2008) on poverty averages 4.5 percentage points on poverty rates. The increase of food prices directly affects the poorest population in the county. Page 2 Nicaragua’s basic grain production has been increasing annually due to an expansion of the planted area rather than an increase of productivity. In the last decade, crop yields have not increased due to lack of technological innovations. Availability of and access to certified seeds and crop management practices that allow for certified seed to reach its potential are key to enhancing agricultural productivity. It is estimated that only 12% of planted area uses certified seeds . Producers that use certified seed are usually better endowed and have the means to access improved technology, and due to this technological advantage are able to obtain higher returns. Producers who have tried certified seeds want to continue using them. It is therefore essential to enhance the availability of certified seed in farming communities in order to boost crop productivity. In order to address the country recurrent lack of a key agricultural input such as certified seed, the Government has decided to strengthen the National Seed System (NSS). The objective of the NSS is to stimulate the production, processing, added value and commercialization of certified seed by small producers and their organizations. The system is led by the Ministry of Agriculture and Forestry (MAGFOR) and has the support of several international development partners in an attempt to contribute to increasing local production of basic food and the fight against food price increases. 2. Objectives The objective of the additional financing (AF) operation is to improve the availability, access and use of certified seed in order to increase agricultural productivity in a sustainable manner in the medium term. This objective is fully compatible with the overall objective of the Second Agricultural Technology Project (ATP-II), which is to provide rural households and communities with broader access to sustainable agricultural, forestry, and resource management services and innovations, thereby stimulating higher agricultural productivity. In addition, this objective is compatible with component III.A.1 of the Global Food Crisis Response Program (GFRP) to improve smallholder access to seed and fertilizer through investment and training to strengthen existing systems for seed and fertilizer quality control. 3. Rationale for Bank Involvement The proposed AF responds to the Government’s request for donor support to address the impacts of the 2008 food price crisis. The Bank is responding through two operations under the Global Food Crisis Response Program (GFRP) framework. The first operation, an Emergency Food Price Response Project was approved by the Bank on 21 January 2009 and provides immediate relief for the most vulnerable population groups in the amount of US$7.0 million. The project addresses short-term needs of the populations most affected by the crisis by providing school lunches to children and seeds, fertilizer and technical assistance to small producers. The proposed AF aims to increase the sustainable supply of basic grain seed, thereby reducing the chance of future shortages and increasing future agricultural productivity. Page 3 The AF is part of a broader effort from other international development partners to support the NSS as part of the sector-wide agricultural development program, PRORURAL. Several development partners and technical agencies are supporting the Government’s efforts to establish a National Seed System. The European Commission (EC) is preparing with MAGFOR and INTA a 10.5 million seed production and processing project that would start implementation in 2010. FAO has drafted a proposal for a Special Project for the Strengthening of Small and Medium-size Basic Grain Producers in Nicaragua, focusing on market integration of small and medium producers in the value chain. The Spanish Government is considering financing this project valued at US$2.69 million for a period of three years (2009-2011). Coordination between the different initiatives will be done through PRORURAL. 4. Description The project covers four departments of the country (Jinotega, Matagalpa, the North Atlantic Autonomous Region, RAAN, and the South Atlantic Autonomous Region, RAAS, in addition to the institutional strengthening of the National Center for Agricultural Research and Biotechnology (CNIAB) center in Managua. The AF operation will strengthen the quantity and quality of the seed supply system, from genetic seed to certified seed. It will last three years (2010-2013). It will focus on the basic food grains (beans, maize and rice) because these are the most important elements in the diets of the rural and urban poor most affected by the food crisis, and because Nicaragua has excellent conditions to increase production of these staple crops. The experience of the food crisis accentuated the fact that the country had a shortage in the supply of basic grain seeds and that the Government was unable to provide the public services associated with a dynamic national seed system. The present operation aims at improving relevant technology generation and transfer, with an increased focus on marketing, competitiveness, sustainability and natural resource management. The additional financing to Sub-component 1.3: “Foundation Seed Production and Certification” of the current ATP-II, aims at increasing the sustainable supply of basic grain seed by small and medium producers at the national and regional level in the medium term especially in years of crisis when seed availability often constrains production, thereby reducing the possibility of future shortages and increasing future agricultural production. To this end, the AF will scale up component 1.3 on three dimensions: (1) fostering certified seed production capacity and business development of 1,200 seed producers organized in cooperatives or producer associations; (2) providing credit for production, commercialization and processing of certified seeds, and (3) improving seed certification processes, and strengthening the capacity of the CNIAB for basic seed production and for the protection of the genetic resources of the country. The expanded operation will continue helping the National Institute for Agricultural Technology, INTA to produce high quality seeds and address weaknesses observed in the INTA seed unit. The Ministry of Agriculture and Forestry, MAGFOR will continue to be the executing agency for the AF project. 5. Financing Page 4 Source ATP-II (US$M) Proposed Additional Financing Loan (US$M) Total Revised Project (US$M) Borrower (Government of Nicaragua) 7,236.00 00 7,236.00 IDA 12,042.00 10.00 22,042.00 IFAD 8,248.00 0.00 8,248.00 Beneficiaries 1,472.00 00 00 TOTAL PROJECT Total 28,997.00 10.00 38,997.00 6. Implementation 1. The AF operation will use the same implementation arrangements under ATP-II. For the purpose of up-scaling subcomponent 1.3 Foundation Seed Production and Certification , the Ministry of Finance (MHCP) and MAGFOR will sign an addendum to the original Subsidiary Agreement dated 13 June 2006. The Addendum will indicate, inter alia , that (i) the MHCP will transfer to MAGFOR through the National Treasury (IDA funds for the additional financing of subcomponent 1.3 of ATP-II. MAGFOR will transfer funds to (i) INTA for the implementation of Component 1: Capacity development for the production, organization and management of certified seeds enterprises, and Component 3: Strengthening of public services within the National Seed System. MAGFOR will transfer Grant funds to the RCF to implement Component 2: Establishment of a credit line for the production, processing and marketing of certified seed, based on the demand for credit by certified seed cooperatives and producer associations and on a forecasting of agricultural cycles. Overall financial management and administration will be the responsibility of MAGFOR’s Administrative Directorate. To ensure that the technical, economic, fiduciary, social and environmental issues are adequately addressed, Government will prepare annual implementation plans to be jointly reviewed, discussed and agreed with the Bank so as to fulfill the PDO and to fine tune any implementation issues that might arise. The project Operational Manual used under ATP-II has been updated only on those items related to the up-scaling of sub-component 1.3 of ATP-II in order to take into account the new institutional, financial and procurement arrangements as well as the incorporation of RCF Operational Manual. Coordination among the various implementing agencies and with other parts of PRORURAL will be a key to success. Participating agencies need to collaborate with each other to move forward and support the National Seed System. INTA will coordinate and closely monitor communication and dissemination efforts, through their different extension and training methodologies, to ensure that its target audience becomes aware of certified seed benefits. Coordination will be addressed at the PRORURAL platform and led by MAGFOR’s Policy Directorate. The AF is also supporting the establishment of a Project Manager position at MAGFOR’s Policy Directorate to facilitate harmonization and synergies among the different participating agencies in the AF operation 7. Safeguard Policies The parent project is classified as Category B. The AF operation maintains the same environmental category. Scale-up activities under the AF trigger the same environmental safeguards as the parent project (OP/BP 4.01 Environmental Assessment, OP 4.09 Pest Page 5 Management) with the exception of OP/BP 4.36 Forests. Additionally, the AF may trigger OP/BP 4.04 Natural Habitats, since increased seed production may increase the use of water and agrochemicals, in irrigated rice cultivation in particular. To avoid such impact, enhanced water management practices have been agreed upon for rice seed production, including regular water quality analysis, recycling of irrigation water on other plots, and the inclusion of an environmental management plan in the Cooperative Development Plans of the participating cooperatives or producers’ organizations. The AF triggers the same Indigenous People policy (OP 4.10) as the parent project since IPs will be beneficiaries of the up-scaled activities. A Social Assessment and an Indigenous Peoples (IPs) Plan have been prepared for the scale-up activities (May and June 2009). The IPs Plan has established specific targets for IPs population participation. The Environmental Management Plan (EMP), Integrated Crops and Pest Management plans, SA and the IPs Plan are available to the public through INTA and MAGFOR’s Documentation Centers and web pages. These documents are also uploaded in the Bank’s Infoshop. 8. Contact point Contact: Wilhelmus Gerardus Janssen Title: Lead Agriculturist Tel: (202) 458-8732 Fax: Email: wjanssen@worldbank.org 9. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop