Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 16810 IMPLEMENTATION COMPLETION REPORT ZAMBIA SECOND COFFEE PROJECT (CREDIT 1743-ZM) June 27, 1997 Agriculture Operations Eastern and Southern Africa This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURENCY-QUIVALENTS Appi,isal,[ US$ 1.0 K 7.2. K 1(1 = US$ 0.139 (mv>lcti. IUSQG 1.h K 1,300.0 K 1.0 US$ 0.0008 FISALYEAR GRZ, January I December 31 !DA July I June 30 AAIREXIAuONS-AND ACRONYMS ASIP Agri :.ulr ral Sector Investment Program BOZ [lank .if Zaiibia CBD Ct f Berty Disease CLR C-oflee I saf Rust CP F A(/World Bank Cooperative Program DBZ Developaient Bank of Zambia GRZ Pie Oovernment of Zambia ICR 'rrj jpicnt.tation Completion Report LINTCO LIN4 Coriipaniy of Zambia MAFF N11nistyv of Agriculture, Food and Fisheries PB Partikipating Bank PC Pi-oject Coordinator PMCC Pro'jct Management and Coordination Committee PMU Projec. Mianagement Unit PPF Proiect Preparation Facility PS Pcx,riu-ut Secretary TA TecInical Assistance ZANACO Zaiicbia National Commercial Bank ZCB Zamibia Coffee Board ZCCL /afi hia Coffee Company Limited ZCGA far:bia Ceffee Growers Association Vice Pm;dent Callisto E. Madavo Coutmnt, [irec~tor: Phydlis Pomerantz T 'eclmhic lariager. Sushma Ganguly Staff -.-1. n;ew Rajah Ranasinghe FOR OFFICIAL USE ONLY IMIPLEMENTATION COMPLETION REPORT ZAMBIA SECOND COFFEE PROJECT (Cr. 1743-ZA) TABLE OF CONTENTS PREFACE ....... .................................................................. j EVALUATION SUMMARY ........................................................................ ii PART I: PROJECT IMPLEMENTATION ASSESSMENT .................................................................I A. STATEMENT/EVALUATION OF OBJECTIVES .........................................................................I B. ACHIEVEMENT OF PROJECT OBJECTIVES ......................................................................... 2 C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT ..........3 D. PROJECT SUSTAINABILITY .........................................................................7 E. BANK PERFORMANCE ......................................................................... 8 F. BORROWER PERFORMANCE .........................................................................8 G. ASSESSMENT OF OUTCOME ........................................................................8 H. FUTURE OPERATIONS ..........................................................................9 1. LESSONS LEARNED ........................................................................9 PART II: STATISTICAL TABLES .......................................................................11 TABLE 1: SUMMARY OF ASSESSMENTS ......................... ............................................... I I TABLE 2: RELATED BANK LOANS/CREDITS ................................... ..................................... 12 TABLE 3: PROJECT TIMETABLE ........................................................................ 13 TABLE 4: CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL ..................................... (US$ MILLION) ..................................................................... 13 TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION ........................................... ................. 14 TABLE 6: KEY INDICATORS FOR PROJECT OPERATION ..................................................................... 15 TABLE 7: STUDIES INCLUDED IN PROJECT ..................................................................... 15 TABLE 8A: PROJECT COSTS ..................................................................... 16 TABLE 8B: PROJECT FINANCING ..................................................................... 16 TABLE 9: ECONOMIC COSTS AND BENEFITS ..................................................................... 17 TABLE 10: STATUS OF LEGAL COVENANTS ...................................................................... 18 TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS . ............................................... 20 TABLE 12: BANK RESOURCES: STAFF INPUTS ..................................................................... 20 TABLE 13: BANK RESOURCES: MISSIONS ..................................................................... 21 APPENDICES A. AIDE MEMOIRE ..................................................................... 23 B. NOTE ON COFFEE AND CUT FLOWER DEVELOPMENT AND IMPACT ................ ........................ 31 C. BORROWER CONTRIBUTION TO THE ICR ..................................................................... 54 This document has restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization - i - IMPLEMENTATION COMPLETION REPORT ZAMBIA SECOND COFFEE PROJECT (Cr. 1743-ZM) PREFACE 1. This is the Implementation Completion Report (ICR) for the Second Coffee Project in Zambia for which Credit 1743-ZA in the amount of SDR 16.9 million (US$ 20.4 million) was approved on November 25, 1986 and became effective on March 16, 1992. Credit effectiveness was delayed by about five years due to the Bank's suspension of disbursement to Zambia in May 1987, following arrears in debt service payments. 2. The Credit was closed on December 31, 1996, about two and half years ahead of the expected closing date of June 30, 1999. The decision to close was based on the need to incorporate project components into the on-going Agricultural Sector Investment Program (ASIP). Total disbursement was SDR 14.9 million and SDR 2.0 million remained undisbursed. 3. The ICR was prepared by staff of the FAO/World Bank Cooperative Program (CP) on behalf of the AFTAI Division of the Africa Region of the World Bank. The ICR is based on information obtained from the project files and on the findings of an ICR mission1 which visited Zambia in January/February 1997. Contributions to the report were made by Jacomina de Regt (AFTS I) and Fred King, Rajah Ranasinghe (AFTA 1); and it was reviewed by Sushma Ganguly (AFTA 1). 4. The Borrower contributed to the preparation of the ICR by providing input to the Aide Memoire. In addition, a "Project Completion Report" was prepared by the Borrower. A summary of the Borrower's contribution, as well as a letter from the Borrower, are included as Appendix C. P. Kidane (Mission Leader/Economist, FAO) and A. Finney (Coffee Production and Processing Specialist, Consultant). - ii - IMPLEMENTATION COMPLETION REPORT ZAMBIA SECOND COFFEE PROJECT (Cr. 1743-ZA) EVALUATION SUMMARY Introduction 1. Since the 1960s, the Bank has been active in assisting Zambian agriculture. The Bank's support was comprehensive, comprising projects in subsectors such as forestry, livestock, fisheries and crop development; provincial-based area development projects; input supply and marketing projects; research and extension; and export promotion programs. The Second Coffee Project (Coffee II) falls within the export promotion category. 2. The main objectives of Coffee II were to expand Zambia's agricultural base, diversify its sources of foreign exchange earnings and provide an additional source of income to the rural population. The project proposed to meet these objectives by assisting the development of about 3,200 hectares of coffee by smallholder and commercial farmers with an annual production target at full development (about 1999) of about 4,700 tons of high quality arabica coffee. The five project components were: provision of credit to farmers for coffee production and processing; strengthening of coffee extension services; strengthening of coffee research at the Misamfu Regional Research Station; support to improve coffee marketing; and assistance to the Zambia Coffee Company Limited (ZCCL), a parastatal, to improve management and expand coffee production. The ZCCL was later privatized, and no project support was provided. Unlike the First Coffee Project, which concentrated solely on parastatal-based coffee production, Coffee II focused on farmers for both coffee production and processing. This change of direction towards private sector development was appropriate and was based on experience gained under the first project, which had suffered from the poor performance of the ZCCL. Project Implementation and Results 3. Project implementation was postponed by about five years due to a delay in Credit effectiveness. This delay was due mainly to the Bank's suspension of disbursements to Zambia in May 1987, following arrears in debt service payments. Instead of June 1987, the Credit became effective in March 1992 after the suspension was lifted in late 1991 and the project was reviewed for its continued relevance. The new project closing date was set for June 30, 1999. The closing date was brought forward to December 31, 1996 because the project components were incorporated into the on-going Agricultural Sector Investment Program (ASIP). In addition, the major component, credit, was fully committed. 4. The period of implementation also coincided with major political and economic transformation in Zambia. The new government which came into power in 1991 was determined to introduce market- based economic reforms in which budget austerity and reduced government intervention, including privatization of parastatals, were the main elements. The project was, therefore, restructured to replace - iii- the two parastatal organizations initially designed to implement some project components. To obviate the difficulties associated with high inflation and the rapidly depreciating Kwacha, the project was modified to enable the participating banks to lend in foreign exchange. Since disbursement for coffee development was slow in the two years following effectiveness, coverage was extended to all other agricultural crops, including cut flowers. This flexibility allowed the project to respond positively to the changing economic environment and thereby accelerate project implementation. 5. After a slow start in 1994, implementation of the credit component moved rapidly. The turn- around came after the following changes: expansion of coverage to all agricultural crops, incentives given to the participating banks (PBs), and the initiatives taken by the Project Management Unit (PMU) in following up on implementation issues. At completion, the project had been successful in achieving the objectives of expanding the agricultural base and diversifying the sources of foreign exchange earnings. Full development (about 1999) annual production of coffee is likely to approach the appraisal estimate (4,100 tons compared to 4,700 tons), while cut flower production, not envisaged at appraisal, is expected to reach 22 million stems annually. Incremental foreign exchange earnings at full development are projected at US$19 million, compared to the appraisal estimate of US$12 million, on an annual basis. Re-estimates of financial and economic rates of return for the project are favorable. However, the objective of raising rural incomes was not achieved to the extent envisioned. Commercial farmers benefited, since they were able to obtain loans under the credit program, but smallholders did not benefit to the extent anticipated, mainly because they did not have access to credit since they were considered by the participating commercial banks as not creditworthy. Financing for smallholders is a part of a larger issue of rural finance. The Government is presently considering a range of options, including outgrower schemes and input credit through stockists and processors. 6. The credit component was the largest part of the project. Some 40 commercial farmers participated: 28 coffee farmers, 10 cut flower producers, and 2 soybean farners. About 1,550 ha of coffee and 20 ha of cut flowers were established. The coffee farms were equipped with drip irrigation and wet-processing facilities for producing high-quality washed coffee. Cut flower producers adopted high-technology production systems, consisting of greenhouses and automated irrigation, imported on a turnkey basis from Europe. 7. The project supported the establishment of export-based coffee and cut flower industries through the adoption of modern technology and sound marketing. The Zambia Coffee Growers Association (ZCGA) was instrumental in strengthening the marketing of coffee through the assessment of coffee quality, negotiation of prices on behalf of its members, and development of a marketing strategy. 8. Of the research and extension components, extension was the more successful. Coffee research lacked a clearly-defined program for responding to the needs of the coffee industry. The reorganization of the national agricultural research system under ASIP is expected to address this basic problem in research. Under a pilot scheme, the extension service assisted smallholders to form groups and provided them with inputs and marketing support for the establishment of about 320 ha of coffee. This scheme demonstrated the viability of smallholder coffee production, but the lack of access to credit limited expansion to other smallholders. 9. Except for the handling of the credit at the early stages by the Bank of Zambia, coordination has been satisfactory. The decision to transfer the coordinating role from the Project and Coordinating Committee (PMCC) to the Zambia Coffee Board made coordination effective and sustainable. - iv- 10. Overall, the project is considered to be marginally satisfactory. The objectives of expanding the agricultural base and diversifying sources of foreign exchange were met, and the re-estimated rates of return for the project are favorable. (The financial rates of return are estimated at 26% for coffee and 43% for cut flowers; the economic rate of return is estimated at 44%.) However, the objective of raising rural incomes was not achieved to the extent expected. Commercial farmers were successful in adopting new technology packages with access to credit, confuting earlier beliefs by financing institutions that long-tern lending to agriculture was not feasible. But the participation of smallholders was limited. Until recently, smallholders did not have access to improved, disease-resistant planting material, and will have to bear relatively high maintenance costs in the future. They are now receiving improved varieties, but the problem of access to credit remains and may be resolved only over the medium term as a result of the pilot schemes involving outgrowers and input credit supply through stockists and processors. Sustainability and Future Operations 11. Export-based coffee and cut flower production is sustainable, given access to modern technology and credit, and the existence of an effective, industry-based, marketing organization. In terms of smallholders, progress has been achieved in demonstrating the viability of coffee production, and in identifying the ingredients necessary for sustainable production, but access to credit is still a problem. The prospects remain uncertain, and much will depend on the results of the pilots involving outgrower schemes and input credit supply through stockists and processors. Lessons Learned 12. Major lessons learned from Coffee II are: (a) The flexible design and project's ability to respond positively to the changing economic environment resulted in accelerated project implementation, albeit through commercial farmers. It would have been desirable to extend this flexibility to the exploration of further options for smallholder participation. (b) It is important for export-based agricultural enterprises to have the best available technology to ensure quality, and to have sound marketing strategies. Access to credit greatly facilitates the acquisition of technology. (c) Lack of access to credit was a major reason for the limited progress of the smallholder component. However, financing for smallholders needs to be addressed as part of the broader issue of rural finance, and may include elements such as outgrower schemes for cash crops and input credit through stock ists and processors. (d) Quality is of utmost importance in the export market and becomes a common goal for all exporters regardless of their scale of operation. Smallholders growing disease- prone varieties could cause an adverse reaction in the market, and therefore they need to adopt the same cropping packages (including improved planting material) as commercial farmers. (e) Research should be oriented to the needs of the farmer. Disease-resistant coffee varieties from neighboring countries should be utilized, and recommendations should be made available to farmers in a timely manner. - v - (f) Industry-based institutions such as the Zambia Coffee Board are more likely to be effective on a sustainable basis than public sector institutions with a similar purpose. -1- IMPLEMENTATION COMPLETION REPORT ZAMBIA SECOND COFFEE PROJECT (Cr. 1743-ZA) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. STATEMENT/EVALUATION OF OBJECTIVES I. The collapse of copper prices in the 1970s, made Zambia realize that dependence on one commodity, copper, for foreign exchange earnings made the economy highly vulnerable. This has strengthened the need to diversify Zambia's export base by producing commodities in which the country has a comparative advantage. Government development plans have since devoted considerable resources to export diversification programs. The two coffee projects financed by the Bank were an integral part of this strategy. 2. The Second Coffee Project (Coffee II) had three main objectives: to expand Zambia's agricultural base, to diversify its source of foreign exchange earnings, and to provide additional income to the rural population. It consisted of the following components: provision of credit for coffee production and processing; strengthening of coffee extension services by providing technical assistance, training and mobility; strengthening coffee research through the provision of training, technical assistance, material and equipment; improving coffee marketing and; assistance to the Zambia Coffee Company Limited (ZCCL), a parastatal, to improve its management and expand coffee production. The ZCCL was later privatized and no project support was piovided. The project aimed at producing 4,700 tons of high quality arabica coffee annually at full development, estimated to be around 1999. 3. The Ministry of Agriculture, Food and Fisheries (MAFF), then Ministry of Agriculture and Water Development, was to have overall responsibility for the project. A Project Management and Coordination Committee (PMCC) was to be established, under the chairmanship of the Permanent Secretary of MAFF. Its members were to be the Ministry of Finance, the National Commission for Development Planning, and the implementing agencies, i.e. Participating Banks (PBs), the Lint Company of Zambia (LINTCO) for coffee extension, the coffee research establishment of MAFF and ZCCL. LINTCO was expected to provide the secretariat to the PMCC, and to the Project Coordinator. A Project Preparation Facility (PPF) was provided to prepare an implementation plan for the extension and research components. 4. A distinguishing feature of Coffee II, compared to its predecessor, was the change of its production approach from public sector orientation to individual farmer-based industry. The main thrust of the First Coffee Project was the establishment of the publicly owned and managed coffee estate with modem wet coffee processing facilities and a dry mill. However, the estate, which was managed by ZCCL, was from the outset beset with serious problems stemming from poor management. This resulted in considerable financial losses. The estate was sold under the Govemment privatization program. Coffee II learned a lesson from this experience, and focused on private sector coffee development. This -2- approach succeeded in laying the foundation for a sustainable coffee industry, by involving commercial farmers in coffee production and processing. B. ACHIEVEMENT OF PROJECT OBJECTIVES 5. The objectives of broadening the agricultural base and diversifying sources of foreign exchange earnings were satisfactorily met, although in a different manner than expected at appraisal. At that time, it was envisaged that the project would produce about 4,700 tons of coffee annually and raise annual foreign exchange earnings by about US$ 12 million at full development. With the change in product mix, current estimates are that annual production will be about 4,100 tons of coffee and 22 million cut- flower stems (roses), and foreign exchange earnings US$ 19 million on an annual basis, at full development in about 1999. The objective of raising rural incomes, however, was only partially met. Commercial farmers benefited, since they were able to obtain loans under the credit program, but smallholders did not benefit to the extent anticipated, mainly because they did not have access to project credit because they were not considered creditworthy by the participating commercial banks. Smallholders did benefit to a limited extent through assistance provided by the extension service, based on the experience of the commercial farmers with the new technology packages, and from improved planting material provided by the commercial farmers. However, smallholders generally were not able to introduce the full packages because of the lack of access to credit to finance the purchased inputs. Nevertheless, while smallholders were not able to benefit to the full extent under the project, the viability of smallholder coffee production was demonstrated, and the Government is presently considering options for greater smallholder participation, including outgrower schemes and input credit through stockists and processors. Employment opportunities have also been lower, at about 120 skilled and 3,000 unskilled laborers compared with the appraisal estimates of 300 and 7,000, respectively, because of the change in product mix. 6. In terms of transfer of technology and introduction of new development approaches, the project succeeded in demonstrating that important technological transfer takes place indirectly through the credit component. The commercial farmers use improved technology such as drip irrigation, high quality disease resistant hybrid cultivars, and adopted advanced coffee management practices, often by importing these from neighboring countries. In this regard, the impact is even more pronounced for cut flower production, because the project was instrumental in expanding the high technology production system, under a controlled environment. 7. Improvement in marketing know-how has also been achieved by the project as ZCGA now has a better capacity to advise growers on grading procedures and standards. The liquoring equipment provided to the Association has improved assessment of cup quality standards. All these factors enabled ZCGA to negotiate better prices for its members. The project, however, did not provide the Association with instantaneous access to international coffee prices; therefore markets are still being contacted by telephone or fax, at high costs. 8. Although the project's environmental impact was not monitored systematically, adverse effects are considered to have been minimal. Small farmers have been using small quantities of agrochemical, and their processing is based on dry pulping of cherry in situ, with little adverse effects on the environment. Commercial farmers use substantial quantities of chemicals and appear to be conscious of the hazards of their uncontrolled use. They apply a systemic carbamate pesticide (aldicarb), which is highly toxic. The farmers believe that a 90-day withholding before harvest is a sufficient precaution to -3- avoid any effects on the crop. The commercial farmers are equipped with adequate pollution control systems for coffee processing. 9. Coffee production has resulted in attractive economic returns. The economic rate of return is currently estimated at 44%, approximately double that of the estimates made at appraisal. Financial returns to investors are also attractive, 26% for commercial coffee, and 43% for cut flowers. At appraisal the yield for commercial coffee farmers was underestimated and the high returns on cut flower investments were not included. Although the smallholders as a group did not benefit from the project's credit line, it has been demonstrated by the extension services that the potential income per hectare of a smallholder coffee farmer participating in the group program is about US$ 800, which is severalfold higher than that of maize, the staple crop (Appendix B). C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT General 10. The Bank's suspension of disbursement to Zambia in May 1987, due to arrears in debt service payments delayed credit effectiveness by about five years. Following resumption of disbursements by the Bank in the second half of 1991, and a review of the project in November 1991, the project was declared effective on March 16, 1992. Project Review and Restructuring 11. Both GRZ and the Bank decided to review the project in November 1991, in order to ascertain whether the design objectives and assumptions made at appraisal were still valid. The review confirmed the validity of the objectives and the financial and economic viability of the project. At the same time, cognizance was taken of the need to restructure the project to reflect the changes that took place in the interim. The most crucial change was the political and market-based economic reforms, including budget austerity measures, cutting of subsidies and privatizing parastatal organizations that took place in 1991 under a new Government. This led to the exclusion of two implementing agencies i.e. LINTCO, which withdrew from smallholder coffee activities and ZCCL. Other changes were the promulgation of the Coffee Act by Parliament in 1989, thereby establishing the Zambia Coffee Board (ZCB) to regulate and promote the coffee industry and to advise GRZ; and the creation of the Zambia Coffee Growers Association (ZCGA), which was empowered by the Coffee Act to register coffee producers, roasters and exporters. 12. The restructuring of the project entailed: the creation of a Project Management Unit (PMU) under MAFF to take up LINTCO's coordinating role; the substitution of ZCCL by ZCGA to implement the coffee marketing component; the inclusion of the Bank of Zambia (BOZ) to channel project credit funds to farmers through the Participating Banks (PBs); and the defacto substitution of the PMCC by ZCB. The credit component was also modified to allow the PBs to operate in foreign exchange and hence avoid difficulties associated with the high inflation rate and rapid depreciation of the Kwacha. The credit component was further modified to include other export crops such as cut flowers and soybeans. 13. When the project was restructured and declared effective, its completion date was set at June 30, 1999. However, the closing date was brought forward to December 31, 1996, because all agricultural projects were incorporated into the Agricultural Sector Investment Program (ASIP). In addition, the funds allocated to the credit components were fully committed, and the other two components, coffee -4- extension and research, were being implemented by the relevant departments in MAFF, which are implementing the ASIP. Coffee Development Finance 14. After a slow start in 1994, implementation of the credit component moved rapidly as the PBs gained experience in coffee lending over time. The two PBs, i.e. the Development Bank of Zambia (DBZ) and Zambia National Commercial Bank (ZANACO), each delivered credit worth US$ 15.8 million and US$ 3.9 million, respectively. This is more than the amount originally planned because of the appreciation of the SDR and the reallocation of funds from other components to credit. The sub-loans were generally given to farmers for 10 years, with a 3-year grace period, and interest charges varied between 2.5 to 3% over LIBOR. The latter was the rate BOZ charged the PBs. While borrowing farmers appear satisfied with these terms and conditions, they consider other expenses, such as legal fees, loan arrangement fees and transaction charges, as costly. All the credit was disbursed to commercial farmers because they could meet the security requirements of the PBs. Smallholders were not considered creditworthy by the PBs, since they could not meet the security requirements and had arrears on past input loans (in general). In reacting to the ICR, the Borrower raised two concerns relating to credit: that PBs may delay repayment of loans to the Bank of Zambia and not relend the repayments of sub- borrowers, and that smallholders have not benefited from the credit. The terms of the Subsidiary Loan Agreement between PB and Bank of Zambia address the first concern. According to these terms PB repayment schedule coincides with that of the sub-borrower, and additionally the PB shall relend such repaid principal amount under the same conditions as governing the first disbursement. A sustainable solution to smallholder credit still needs to be found. Ongoing studies and pilot rural finance programs including outgrower schemes are under consideration to address smallholder credit problems. 15. The credit funds were disbursed to 40 commercial farmers: 28 coffee farmers, who established about 1,550 hectares of coffee; 10 cut flower growers, who established 20 hectares of rose farms; and two farmers for producing soybeans. The commercial coffee farms planted disease-resistant hybrids, bought from neighboring countries, and are equipped with drip irrigation and facilities for wet coffee processing. Production of cut flowers is based on high-technology greenhouses, with automated irrigation. This technology, which is imported from Europe, is linked with input supply and marketing of the flowers. Availability of credit enabled the commercial farmers to access advanced technology and to become competitive in the export market. Extension and Smallholder Coffee 16. Some extension activities in organizing farmers had commenced in 1987 using the PPF for recruiting consultants and procuring vehicles, but these were stopped when the credit effectiveness was deferred. The collapse of the pilot-scale smallholder coffee established by the First Coffee Project, occurred when LINTCO withdrew its extension and marketing services. When the extension service under this project started during the second half of 1993, almost all of the 200 hectares of smallholder coffee established under the First Coffee Project had either died out or been up-rooted. Under the Coffee II Project the extension service assisted smallholder coffee growers, willing to form into groups with technical messages and with limited support with input supply and marketing. 17. The extension service focused only on smallholder coffee in the Northern, Luapula and Copperbelt Provinces. A Senior Extension Specialist was recruited and positioned in the Northern Province, while two Extension Specialists were placed in the other two provinces. These Extension Specialists worked full time on coffee, but their extension agents were general MAFF extension staff, -5- who were given training and mobility to extend messages on coffee development. The basis for delivering the extension service was a farmer group, and the initial task of the project had been to identify and organize farmers who were willing to produce coffee into registered farmer groups. The project organized 44 such groups, each comprising an average of 25 members, located within a 5 km radius. Each farmer group was provided with a nursery, constructed and maintained by the project. The extension service also provided agricultural inputs and hand pulpers in order to obviate the financing difficulties, with the understanding that repayments would be made by the farmer groups who signed for these inputs. The potential for earning by these group participants is estimated at about $800 per hectare. It is unlikely that the input and marketing activities will be sustained by the MAFF in the future, and may have a negative effect on prospective participants by raising unwarranted expectations and hence the need for smallholders to be able to directly access credit and marketing channels. Despite the lack of progress in smallholder coffee development because of poor access to credit, benefits to smallholders arising out of developments in the commercial fanning sector have been recorded. In 1997 commercial farmers have provided extension service with imported disease resistant varieties for planting by smallholders. 18. The smallholder coffee appears to be in good condition, although some plots have signs of moisture stress from insufficient irrigation. Unlike the commercial farms, all of the smallholder plantings up to 1996 consisted of varieties which are susceptible to Coffee Leaf Rust (CLR) and Coffee Berry Disease (CBD), because research did not produce or release resistant varieties. Hence, maintenance costs will be high in the future. Although the project has demonstrated that the coffee extension service and other inputs could be successfully delivered through farmer groups, the wide dispersion of the groups makes the delivery of services costly. Since the coffee has to be irrigated, the groups had to be formed according to the availability of a water source, which may not facilitate clustering. As a continuing development effort, the extension staff has paid special attention to the coffee farmers who gave up coffee production when they were abandoned by LINTCO. Coffee Research 19. The research component has not made adequate progress, mainly because it was not planned with a view to servicing producers. The program undertaken by the Misamfu Research Station was not well focused on the needs of the industry, and hence poorly prioritized. Most of its programs consisted of trials on fertilizer, spacing, irrigation and spraying, which are not top priorities for the large commercial farmers or for the smallholder. Basic standards and recommendations for these activities already exist. However, growers wanted planting material that is resistant to CLR and CBD, and services in soil fertility analysis, which were not available to them. Research on the old SL28 variety, which is known for its disease susceptibility continued. Management of research remains weak and the trial plots are poorly maintained. 20. At the recommendation of an IDA mission, a two-day workshop was held in July 1996 to provide coffee research with guidelines for the future. Although this meeting analyzed coffee research and indicated priorities, it fell short of preparing a precise action plan with an agreed timetable and follow-up responsibilities. However, under ASIP, special efforts will be made by ZCGA and MAFF to improve communications between research, extension and farmers so that research will better address farmer needs. Under ASIP, the annual work plans for research are expected to be set in consultation with farmers. If implemented, the problems now facing coffee research should be resolved. -6- Coffee Marketing 21. ZCGA has received assistance in terms of training and the supply of office and liquoring equipment. This assistance has enabled the Association to improve its assessment of coffee quality and to enhance its understanding of the international coffee marketing. Project management has not provided technical assistance to ZCGA, since such assistance has been given by the European Union. Technical Assistance 22. Technical assistance (TA) was provided to support small-scale growers in the area of coffee agronomy, irrigation and processing. This consisted of three TA contract staff - a coffee agronomist (team leader), an irrigation engineer and a processing specialist, recruited towards the end of 1986, using PPF funds. They were based in Kasama, Northern Province, where the majority of small-scale coffee growers are located. The TA staff worked under LINTCO and achievements were made in training the MAFF extension staff in coffee production technology, and in preparing extension literature. A total of 15 extension staff were trained in three courses over a 12-month period. The TA ended abruptly when the Bank stopped disbursing to Zambia in 1987. The impact was, therefore, only partial. A short-term consultancy was also provided in 1993 in order to review coffee research. The impact of this TA was, however, limited as it failed to recognize the immediate needs of the industry. Studies 23. One study concerning an implementation plan with an emphasis on the extension and research components, was carried out by TA personnel under the PPF in 1987. The study provided a framework for recruitment of staff and procurement of vehicles and equipment. However, the plan fell into abeyance in 1987 when the project was suspended, but was used when the project came back on stream in 1992. 24. Three studies involving research and extension were carried out during project implementation. An extension plan was drawn up by the extension staff in 1993 for the operations of the service. This had a positive impact as it provided an operating document for a re-organized coffee extension under a manager. In the same year, a study provided an extension manual for the design and management of smallholder nurseries. This study was useful since it covered clonal technology which was used later in the project. A research study in 1993 provided an outline for a revival of coffee research at Misamfu. The impact was minimal since it tended to emphasize on long-term research but not focused on the needs of the industry and hence not sustainable. It also overlooked the capacity of research personnel and the immediate needs of coffee growers, particularly smallholders. Project Organization and Management 25. The PMCC, established before the project became effective, met a few times in 1986 and 1987. It was instrumental in expediting the fulfillment of conditions for the credit by opening special accounts, and in implementing the PPF through LINTCO. 26. The PMCC was dropped in favor of the newly established ZCB as a management and coordination body for the project. The argument used was that ZCB would be in a better position to guide and coordinate project activities, since its very mission is coffee development. Furthermore, all the members of the PMCC were also members of ZCB, except the PBs. It was, therefore, decided to invite -7- the PBs when issues concerning credit arose. This coordinating arrangement appears to have worked satisfactorily, because the PMU functioned as a bridge between the PBs and ZCB until it was dissolved. 27. In retrospect, the wisdom of this arrangement should be recognized, because the preference for an existing and permanent institution rather than an ad hoc one is paying off now after the credit has closed. Had the PMCC managed the project, its activities would have ceased after the closure of the IDA credit for which it was established. In the case of ZCB, its role in promoting coffee development is continuing, and will remain so, until this responsibility stays vested in it. ZCB is a stakeholder in the country's coffee development drive. 28. The substitution of LINTCO by the PMU for the coordinating function, albeit not by design, under the overall responsibility of the Permanent Secretary (PS) of MAFF, was the right decision. This is so, because it provided the head of the PMU, the Project Coordinator (PC), with continuity in the line of command, as the PS of MAFF was also Chairperson of the Board. This situation has given the PC a unique opportunity to swiftly alert project authorities on any difficulties that might arise, often by proposing solutions, and soliciting their decision. In particular, the PMU became an important linkage between the PBs on the one hand, and ZCB, BOZ and borrowing farmers on the other, thereby becoming instrumental in resolving issues concerning credit. The PMU was largely responsible for coordinating activities that brought about the turn around in project implementation. The PMU has also endeavored to keep implementation records and accounts, and for arranging their auditing. The PMU is to be credited for having a lean setup, as it consisted of the PC and his secretary, operating from a two-room rented office. Project Costs and Financing 29. Total project costs, including those contributed by farmers (25% of the sub-loans) amounted to US$ 27.06 million, equivalent to about 78% of the appraisal estimates. The costs at completion were lower than what had been envisaged at appraisal, mainly due to the exclusion of the ZCCL component, but also due to lower than expected expenditures in extension, research and marketing support components. Total IDA disbursement amounted to SDR 14.86 million (88% of the credit) and SDR 2.04 million remain undisbursed. In US Dollar terms, however, disbursement amounted to 22.06 million as opposed to 20.4 million envisaged at appraisal, because of the appreciation of the SDR against the US Dollar over the past years. D. PROJECT SUSTAINABILITY 30. The commercial farming of coffee and flowers, on which the bulk of project investments were directed, will remain sustainable ventures. Commercial coffee farmers have planted disease-resistant, high-yielding varieties and have established wet coffee processing facilities. They are producing high quality arabica coffee, the price of which hardly drops below production costs, even in the case of international market crises. When the prices dropped following the collapse of the International Coffee Agreement in 1989, the average price received by Zambian growers during the critical years of 1989-90 to 1992-93 was about US$ 1,600 per ton, which was the lowest price ever received, but was still higher than the prevalent production costs of about US$ 1,000 per ton. The cut flower business is also well shielded from any such risks because it is operated under arrangements of continuous agriculture input supply and is geared towards a specific and assured market. The support given to marketing of coffee is sustainable, since ZCGA has acquired expertise in improved marketing under the project. -8- 31. The sustainability of extension service is expected to be guaranteed by integrating coffee extension with ASIP. However, the modalities for this have to be worked out. Extension services will be adversely affected if the three coffee extension specialists, recruited by the project, are not allowed to continue working with the MAFF extension staff. 32. Sustainability of smallholder coffee will be uncertain until suitable credit and marketing systems evolve. As the coffee matures and disease and pests build up, the smallholder will need access to funds to purchase fertilizers and other agrochemicals, especially since smallholders have planted varieties that are susceptible to diseases. Since credit is a part of a larger issue of rural finance, GRZ is attempting to address it by designing pilot rural finance schemes that would facilitate the development of sources of credit and marketing channels. E. BANK PERFORMANCE 33. The Bank's performance was generally satisfactory. The project was prepared by GRZ, and the Bank maintained a continuous dialogue with the preparation team and facilitated the change in orientation from the public to the private sector. The Bank's policy discussions with GRZ were also useful, as they led to the preparation of a coffee policy and the preparation of the Coffee Act, and its subsequent promulgation by the Parliament. All these contributed to a much smoother appraisal. The concept of expediting project implementation by undertaking preparatory activities through the PPF was also useful. Through no fault of the project, this work was interrupted by the delay in Credit effectiveness. As the pace of implementation was affected by political and economic transformation in the country, supervision missions assisted the project by adopting a flexible approach and cooperated in resolving the issues. Nevertheless, when it became apparent that only commercial farmers had access to credit, the Bank could have been more active in working with the Government to find alternatives for smallholders. F. BORROWER PERFORMANCE 34. The performance of the Borrower is considered satisfactory, although the delay in debt service payments to the Bank negatively affected the project by delaying effectiveness by about five years. In preparation for credit effectiveness, GRZ had met the conditions required under the Development Credit Agreement when the suspension for disbursements was lifted by the Bank. The PMCC was established and met several times when implementation of the PPF was underway. When the project became effective, GRZ showed flexibility in reviewing the implementation arrangements, thereby, facilitating the pace of development. It also complied satisfactorily with the legal covenants. G. ASSESSMENT OF OUTCOME 35. Overall, the project is considered to be marginally satisfactory. The objectives of expanding the agricultural base and diversifying sources of foreign exchange were met, and the re-estimated rates of return for the project are favorable. (The financial rates of return are estimated at 26% for coffee and 43% for cut flowers; the economic rate of return is estimated at 44%.) However, the objective of raising rural incomes was not achieved to the extent expected. Commercial farmers were successful in adopting new technology packages with access to credit, confuting earlier beliefs by financing institutions that -9- long-term lending to agriculture was not feasible. But the participation of smallholders was limited. Until recently, smallholders did not have access to improved, disease-resistant planting material, and will have to bear relatively high maintenance costs in the future. They are now receiving improved varieties, but the problem of access to credit remains and may be resolved only over the medium term as a result of the pilot schemes involving outgrowers and input credit supply through stockists and processors. Therefore, on balance, the project rated as marginally satisfactory. H. FUTURE OPERATIONS 36. The commercial coffee and cut flower farms established under the project will be run on a commercial basis, as they are now operated. The marketing of coffee will be carried out by the ZCGA. Cut flower growers will also benefit from the support services provided by the producer's association - Zambia Export Crop Growers Association - for domestic handling and air-freighting. 37. The future of smallholder coffee is not yet clear. The MAFF will continue to provide the extension service by integrating smallholder coffee within ASIP. With regard to marketing of their coffee, however, the MAFF is still exploring several possibilities, including that of using the Fair Trade Initiative. Under the fair Trade initiative, NGOs and other development oriented marketing entities promote selected commodities in niche markets. Smallholder coffee is a potential candidate for this initiative. If the collection and bulking of smallholder coffee is resolved, export can be carried out by ZCGA in the same manner as that of commercial producers. 1. LESSONS LEARNED 38. The following lessons can be drawn from the implementation of Coffee II: Lessons Learned 39. Major lessons learned from Coffee 11 are: (a) The flexible design and project's ability to respond positively to the changing economic environment resulted in accelerated project implementation, albeit through commercial farmers. It would have been desirable to extend this flexibility to the exploration of further options for smallholder participation. (b) It is important for export-based agricultural enterprises to have the best available technology to ensure quality, and to have sound marketing strategies. Access to credit greatly facilitates the acquisition of technology. (c) Lack of access to credit was a major reason for the limited progress of the smallholder component. However, financing for smallholders needs to be addressed as part of the broader issue of rural finance, and may include elements such as outgrower schemes for cash crops and input credit through stockists and processors. (d) Quality is of utmost importance in the export market and becomes a common goal for all exporters regardless of their scale of operation. Smallholders growing disease- -10- prone varieties could cause an adverse reaction in the market, and therefore they need to adopt the same cropping packages (including improved planting material) as commercial farmers. (e) Research should be oriented to the needs of the farmer. Disease- resistant coffee varieties from neighboring countries should be utilized, and recommendations should be made available to farmers in a timely manner. (f) Industry-based institutions such as the Zambia Coffee Board are more likely to be effective on a sustainable basis than public sector institutions with a similar purpose. - 11- PART II: STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMENTS A. Achievement of objectives Substantiial Paial Negligible NotApplicable 09) (60 09) 09) Macro policies FLI FZI L Sector policies FI] FI E0 Financial objectives [ ] E L Institutional development ED FE El Li Physical objectives [n] Fg1 El ED Poverty reduction l E ED ED Gender issues E-l ED El L Other social objectives Fl El [P1 ED Enviromnental objectives [I El FE ID Public sector management El [I] El [ID Private sector development [El ] El El Other (specify) El El El El B. Proiect sustainability LikeY Unlikely Uncertain (E9) 09) 09) I 91 El El C. Bsank erformance satisfactory Satisfactory 12eficin 09) 0`0 (s Identification El F31 El Preparation assistance El [ Appraisal El El Supervision El [F] El -12- D. Borrowerperformance satisfacoy Safisfactorv Deficien 09) (9,1) 0:0 Preparation a[ EH Implementation E ] a Covenant compliance E ] E Operation (if applicable) ED W E] HihIY Hillv E. Assessment of outcome satisfacto Satisfactory Unsatisfactory unsatisfactory Oi_) W;0 09) 09) El] [I'1 ' ] TABLE 2: RELATED BANK LOANS/CREDITS Loan/Credit Title Purpose Year of Status approval Preceding operations 1. Coffee Technical Assistance Establish a coffee estate and a pilot 1978 Completed smallholder coffee scheme Following operations 1. Agricultural Research and Strengthen extension by introducing training 1986 Completed Extension and visit system, and establish linkage with research 2. Agricultural Marketing and Support road infrastructure and the private 1992 On-going Processing sector to be involved in marketing and processing of agricultural commodities 3. Agricultural Sector Invest- Sector development by making more 1995 On-going ment Programme effective use of donor and GRZ resources. Marginally satisfactory. -13- TABLE 3: PROJECT TIMETABLE Steps in project cycle Date planned Date actual/ I _ ___ ___ ___ __ ___ ___ ___ __ ___ ___ ___ __ _ ___latest estim ate Identification/Preparation a/ 1985 1985 Appraisal March 1986 March 1986 Negotiations October 14, 1986 October 21-24, 1986 Board presentation December 1986 November 25, 1986 Signing January 9, 1987 January 9, 1987 Effectiveness June 9, 1987 March 16,1992 Project restrucWring - November, 1991 Project completion June, 1999 December, 1996 Credit closing June 30, 1999 December 31, 1996 a Prepared by Govemment with the assistance of consultants and World Bank Staff during varying periods of 1985. TABLE 4: CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL (US$ MILLION) Yr I Yr2 Yr3 Yr4 Yr 5 Yr6 Yr7 Yr 8 Yr9 FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 - - - Appraisal 1.0 2.40 4.60 7.80 11.60 14.40 16.80 19.2 20.4 estimate i Actual 0.60 1.60 2.29 7.57 10.96 22.06 Actual as % of 60 67 50 97 94 153 estimate Undisbursed 2.606i Balance Date of final disbursement a The appraisal estimates referred to above as years I to 9 were expected to begin in FY 1987 and finish in FY 1995. However, this did not materialize due to the suspension of disbursement to all World Bank assisted projects during the period 1987-91. Only US$ 0.67 million were disbursed in 1987 under the PPF. b/ As of January 1997. -14- TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION Indicators Unit Estimated Actual Participating Farmers Small Farmers No. 1, 100 985 Commercial Farmers No. 105 40 Farmers Groups formed No. 28 44 Planting Targets Small Farmers Ha. 450 320 Commercial Farmers Ha. 2,800 1,550 Production Targets Small Farmers Tons 520 258 Commercial Farmers Tons 4,180 3,875 Employment Creation a) Skilled Small Farmers No. 59 42 Commercial Farmers No. 280 155 b) Unskilled Small Farmers No. 540 386 Commercial Farmers No. 3,640 2,015 Training a) Farmers Training Field Days No. of farmers 0 2,178 Leadership Seminars for Groups No. of farmers 0 36 Mobile courses No. of farmers 0 1,209 Study Tours to other province No. of famers 0 18 b) Staff Training Number Attendance Seminars at Farm Institutes Staff in Seminar 0 83 Short-term overseas Kenya coffee industry Staff in Tour 3 11 Uganda coffee industry Staff in Tour 1 2 South Africa coffee industry Staff in Tour 1 6 Tanzania coffee industry Staff in Tour 1 9 Annual Extension Workshops Staff in Seminar 3 55 c) Marketing Number Study Gourmet Market Staff in Tour 1 2 Coffee liquoring - Kenya Staff in Tour 1 5 Market facilities tour Staff in Tour I I I.T.C. Seminar, Lusaka Staff in Seminar 1 34 (attended by Banks, Farmers, Govt. Officials, Coffee Board ZCGA and ZNFU) -15- TABLE 6: KEY INDICATORS FOR PROJECT OPERATION 1. Key operating indicators in SAR/President's Report Estimated Actual I NOT APPLICABLE TABLE 7: STUDIES INCLUDED IN PROJECT Purpose as defined Study at appraisal/redefined Status Impact of study 1. Project Facilitation Enable start-up Completed The study could not be used because Study on Research and it fell into abeyance in 1987. Extension 2. Extension Planning Plan extension ope- Completed Was the basis for preparing the Study rations Coffee Extension Programme 3. Research Planning Design research pro- Completed Minimal impact because emphasized Study granume long-term research. 4. Nursery Design & Expand nursery capa- Completed Major impact in introducing clonal Management city technology. -16- TABLE 8A: PROJECT COSTS Appraisal estimate Latest estimate (US$'000) (US$'000) Component Local Foreign Total Total costs costs 1. Credit 7,738 11,607 19,345 19,677 Farmers Contribution a/ - a/ - a/ 4,919 b/ 2. Extension 920 1,652 2,572 1,525 3. Research 204 397 601 518 4. Marketing 57 356 413 165 5. Assistance to ZCCL 1,130 3,023 4,153 6. Project Management Unit - - - 251 7. Physical Price 3,018 4,805 7,823 Contingencies TOTAL 13,067 21,840 34,907 27,055 hiIncluded under the credit component. bi Estimated at 25% of the credit disbursed. TABLE 8B: PROJECT FINANCING Appraisal estimate Latest estimate l_____________________ (US$'000) (US$'000) Source GRZ 1,200 77 a/ Participating Banks 3,900 l Farmers 6,400 4,919 ZCCL 3,000 IDA 20,400 22,059 TOTAL 34,900 27,055 a/ GRZ contribution in US Dollar terms is low because of the marked depreciation of the local currency during the project implementation period. In addition, the staff costs related to extension and research are not included as they are part of the existing government programme. -17- TABLE 9: ECONOMIC COSTS AND BENEFITS At project completion, an Economic Rate of Return (ERR) of 44% has been estimated. Assumptions and basis for the analysis are given in Appendix B. The newly estimated ERR is about double the rate estimated at appraisal because of the higher coffee yields that are being achieved by the commercial farmers and of the considerable production of cut flowers. The production of cut flowers was not foreseen at appraisal, as this was introduced during project implementation. -18- TABLE 10: STATUS OE LEGAL COVENANTS (Page 1) Agreement Covenant Present Original Revised Description of covenant Comments Section type status fulfillment fulfillment date date DCA 2.02 (b) I C (i) Open Coffee 11 Special Account for Part A at the Bank of Zambia 2.02 (b) I C (ii) Open Special Account (Coffee Extension Marketing Special Account) for Part B (extension) and D (marketing) of the project at the Zambia National Commercial Bank 2.02 (b) I C (iii) Open a MAFF (Coffee Research Special Account) to carry out Part C (Research Component). 2.02 (b) I C (iv) Open ZCCL Special Account for Part B ZCCL has been pri- at the Zambia National Commercial Bank. vatized, the account is non-operational 3.01 (b) 5 C (i) Borrower shall cause participating banks to carry out Part A of the project. 3.01 (b) 5 C (ii) Cause ZCB to carry out Part B & D of the project. 3.01 (b) 5 C (iii) Cause ZCCI to carry out its obligations ZCCL is privatized. under the credit. Its obligations are reverted to MAFF. 3.03 (a) 5 C Establish and maintain a Project Mana- gement Coordinating Committee to be chaired by PS of MAFF with the secretariat in ZCB. 3.04 (a) 3 C (i) Relend the amount allocated to and withdrawn under Category I of Schedule I to participating banks to carrying out Part A of the project under Subsidiary Loan Agreements between borrowers and each PB. 3.04 (a) 3 CP (ii) Relend in foreign currency amounts Not valid since allocated to and withdrawn under Category 5 ZCCL is privatized. to ZCCL for carrying out Part B of the project under the Subsidiary Loan Agreement between Borrower and ZCCL. 3.05 3 C The Borrower shall make available to ZCB a grant not exceeding US$ 2,000,000 to carry out Part B of the project and an amount not exceeding US$ 400,000 to carry out Part D of the project. -19- Agreement Covenant Present Original Revised Description of covenant Comments Section type status fulfillment fulfillment date date 3.08 10 C 6/30/87 (a) Enact a Coffee Act not later than 6/30/87 3.08 10 C 12/31/87 (b) Not later than 12131/87 to establish Coffee Board 3.09 10 C Borrower to open 2 Project Advance Accounts in the Bank of Zambia to carry out Part B & C of the project 3.12 6 NC Borrower to submit list of pesticides and herbicides to be used by ZCCL and sub- borrowers 4.01 1 C Annual audited accounts not more than 6 months after the end of the financial year 4.02 1 C Cause participating banks to maintain accounts for Kwacha and foreign currency loans. Sch. 1 I CP (a) Borrower to submit to the Association a Agreernent has cea- Part 3 signed Subsidiary Grant Agreement with sed to be operational ZCCL. since ZCCL is pri- vatized. Sch. I , I CP (b) Expenditures by ZCCL to be incurred Not valid since Par 3 only after: (i) an irrigation plan of the ZCCL ZCCL was privatized plantation is prepared acceptable to IDA; (ii) and not part of the an electrification plan of ZCCL coffee project. factory, acceptable to IDA; (iii) a ZCCL corporate plan acceptable to IDA and adopted by ZCCL; and (iv) satisfactory equity financing agreements for ZCCL to have been executed. Convenant Typ Present Status I Accounts/audit C = Covenant complied with 2 Financial Perfornance/operating revenue from beneficiaries CD Complied with after delay 3 Flow and utilization of project funds CP Complied with partially 4 Counterpart funds NC Not complied with 5 Management aspects of the project or of its executing agency 6 Environmental covenants 7 Involuntary resettlement 8 Indigenous people 9 Monitoring, review and reporting 10 Implementation II Sectoral or cross-sectoral budgetary or other resource allocation 12 Sectoral or cross-sectoral regulatory/institutional action 13 Other -20- TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS Agreement Loan/Credit Text Convenant Status Description Comments Number Reference Class (es) of Covenant NOT APPLICABLE TABLE 12: BANK RESOURCES: STAFF INPUTS Stage of Planned Revised Actual project cycle Weeks US$' 000 Weeks US$'000 Weeks US$' 000 Preparation to 202.0 251.2 appraisal Negotiations through 28.2 34.6 Board approval Supervision 182.2 191.3 Implementation 11.0 n.a. Completion TOTAL 412 477.1 -21- TABLE 13: BANK RESOURCES: MISSIONS Perfonnance rating Stage of Number Specialized Implemen- Develop- project cycle Month/ of Days m staff skills tation ment Types of year persons field represented i status objectives b/ problems l Preparation d/ 10-11/85 Appraisal 03186 7 126 A,C,E,F,M,PP,T Negotiation 10/86 2 8 E, F Supervision I (start-up) 11/86 1 9 A HS ei HS ' Supervision 2 03/87 1 9 A S S PM Supervision 3 9-10/92 2 42 PP, E 5 5 PM, FU Supervision 4 03/93 2 32 PP, E U U PM, FU, P Supervision 5 10/93 2 tO A, E Supervision 6 12/93 4 45 PP, E, E, E S S PM, L, P Supervision 7 05/95 2 18 F, F 5 5 PM, FU Supervision 8 06/96 | 2 28 PP, E 5 5 PM, FU Supervision9f 11/96 2 10 F,DP A = Agriculturalist; C = Credit Specialist; E = Economist; F = Financial Analyst; M = Marketing Specialist; PP = Coffee Production and Processing Specialist; T = Training Specialist; DP = Disbursement and Procurement Analyst. HS = Highly Satisfactory; S = Satisfactory; U = Unsatisfactory. d PM = Project Management; FU = Availability of Funds; P = Procurement; L = Compliance with legal covenants. / Prepared by Govemment with the assistance of consultants. No details available. d Refers to the implementation of the PPF. fFonm 590 was not completed. -22- APPENDIX A IMPLEMENTATION COMPLETION MISSION AIDE MEMOIRE -23- IMLEMENTATION COMPLETION REPORT ZAMB& SECOND COFFEE PROJECT (Cr. 1743-ZA) AIDE MEMOIRE A. INTRODUCTION 1. A mission' from the FAO/World Bank Cooperative Program visited Zambia from 16 January to 6 February 1997 to prepare an implementation completion report (ICR) for the Second Coffee Project (Coffee II). The mission worked with the Ministry of Agriculture, Food and Fisheries (MAFF), the Project Management Unit (PMU), Bank of Zambia (BOZ), Zambia Coffee Board (ZCB), Zambia Coffee Growers Association (ZCGA), Development Bank of Zambia (DBZ) and with Zambia National Commercial Bank (ZANACO). Field visits were undertaken in the Northern, Copperbelt and Central Provinces and discussion were held with farmers. 2. The mission is grateful to the Project Coordinator and to the Staff of the MAFF for their assistance and cooperation. The Mission's preliminary findings and conclusions are presented below, and are subject to confirmation by IDA Management. B. BACKGROUND 3. Coffee II was appraised in March 1986 and approved in November of the same year. A credit of SDR 16.9 million (US20.4 million) was signed on January 9,1987, but became effective about five years later. Effectiveness was delayed until the suspension of the World Bank disbursement to Zambia, which had commenced in May 1987, ended in the second half of 1991. Following the resumption of disbursement to Zambia, and a review of the project in November 1991, the project was declared effective on March 16, 1992, with a closing date of June 30, 1999. 4. The project's main objectives were to expand Zambia's agricultural base; to diversify its source of foreign exchange earning and to provide an additional income to the rural people. This was to be achieved by establishing about 3,300 ha of irrigated coffee plantations, capable of producing 4,700 tons of high quality arabica coffee, annually. The project, to be implemented over a seven-year period consisted of: (a) Provision of credit to farmers for coffee production and processing through participating commercial banks (PBs); P. Kidane (Mission Leader/Economist, FAO) and A. Finney (Coffee Production and Processing Specialist, Consultant) -24- (b) Strengthening the Coffee Development Division of the Lint Company of Zambia (LINTCO) by providing technical assistance, training and vehicles in order to provide extension service to small farmers. (c) Strengthening the MAFF's coffee research through the provision of civil works, technical assistance, training, equipment and supplies. (d) Provision of technical assistance, equipment and training to strengthen coffee marketing. (e) Provision of funds to Zambia Coffee Company Limited (ZCCL) to strengthen its management and expand coffee area. 5. Overall project implementation responsibility was to be vested with the MAFF, and coordination among the implementation institutions was to be effected by a Project Management and Coordination Committee (PMCC). Apart from the implementation agencies, i.e the PBs, LINTCO, ZCCL and the Coffee Research Establishment, the Ministry of Finance and the National Commission for Development Planning were also members of the PMCC. LINTCO was designated to provide a Project Co-ordinator and secretarial services to the PMCC. A Project Preparation Facility (PPF) was given to LINTCO to finance technical assistance, equipment and vehicles necessary to plan and prepare extension service. C. PROJECT REVIEW AND RESTRUCTURING 6. Several changes had taken place since project appraisal, the most important of all being the political reform in which a multi-party system was introduced, and the subsequent defeat of the ruling party in November 1991. After taking office, the new Government introduced budget austerity measures which included cutting subsidies and privatizing parastatal organizations. This has affected two implementing agencies, i.e. LINTCO, which withdrew from handling smallholder coffee, and ZCCL which was targeted for privatization. Other changes were: the promulgation of the Coffee Act in 1989, which instituted the ZCB to be responsible for regulating and promoting the coffee industry, and for advising the government on coffee matters; and the establishment of the Zambia Coffee Growers Association (ZCGA), which was empowered by the Coffee Act to register coffee growers, roasters and exporters. 7. Given these changes, the Project was restructured to take account of the new situation. The major restructuring consisted in the establishment of a Project Management Unit (PMU), under MAFF, to replace LINTCO in carrying out the coordination role; the substitution of ZCCL by ZCGA in implementing the coffee marketing component; the inclusion of BOZ to channel funds to farmers through the PBs; and the de facto substitution of the PMCC by the ZCB. D. PROJECT IMPLEMENTATION AND RESULTS General 8. Project implementation did not start until about a year after effectiveness, when the MAFF established the PMU with the appointment of the Project Coordinator. The delay was mainly due to lengthy deliberations on how to channel project funds to the PMU, without subjecting it to time -25- consuming and bureaucratic ministerial procedures. When a decision was made, in mid 1993, to channel the funds through the ZCB, implementation of all project components started to move rapidly except credit. The delay for this component was due to difficulties faced with regard to Kwacha lending, given the galloping inflation and the rapid depreciation of the Kwacha. Therefore, adjustments were made to the credit component to allow the PBs to operate in foreign exchange. Further, the PBs were made free to fix their own interest rates, removing the maximum interest margin established at appraisal. After these adjustments, the credit component also started to move and sub-loan approvals were made in early 1994. In the same year, the credit component was restructured to include other export crops such as cut flowers. Cognizant of the need to incorporate the coffee project into the Agricultural Sector Investment Program (ASIP) and being aware of the accelerated utilization of the credit component, the Bank suggested bringing forward the credit closing date. As a result, the closing date was set for December 31, 1996. Coffee Development Credit 9. In terms of money, credit was the largest component, accounting for about 55% of total project costs and 76% of the IDA credit. At appraisal, it was estimated that 92% of the credit would be channelled to commercial farmers and 8% to small farmers. At completion, all the credit, US$ 19.3 million, was taken up by commercial farmers. About 65% of the credit went for Coffee development and the remainder for cut flowers. Smallholders could not benefit from the credit, because the PBs did not consider them creditworthy, given their large scale defaulting records and their inability to furnish tangible security in terms of land based property. This has reduced the participation of smallholders who could not make investments as foreseen at appraisal. 10. The total credit supplied was higher than planned, because of the appreciation of the SDR vis-a-vis the US$ over the past years, and the reallocation of funds from other components to credit. The two PBs which implemented the credit component, DBZ and ZANACO, have disbursed about 80% and 20% of the credit respectively. ZANACO's share is lower due to a management decision not to overstretch their agricultural lending as they were under a re-structuring program. The entire credit was disbursed in about two and a half years, and approval and disbursement of sub-loans was faster during the last year, indicating an improvement of performance over time. Other commercial banks chose not to participate, apparently feeling uncomfortable with long-term lending to agriculture. The lending experience, as explained by borrowers, is described as costly. According to borrowers, the legal, loan arrangement and transaction fees were expensive. 11. The credit funds have benefitted 28 commercial coffee farmers and 10 cut flower producers. Total area established under coffee and cut flowers amounted to 1,550 and 20 ha, respectively. The majority of coffee planted by commercial farmers consisted of disease resistant hybrids, imported from neighboring countries. Most of the commercial farms are equipped with drip irrigation and benefit from modern production and management practices. Commercial growers have also invested in modern processing facilities to produce high quality, washed coffee. Producers of cut flowers employ high technology and automatized, irrigated greenhouses. The technology, which is imported from Europe on a turn key basis, is linked to the marketing of flowers, which are generally roses. Extension and Smallholder Coffee 12. In 1986 LINTCO had commenced preparatory work in organizing smallholders using the PPF. This had created high expectations with farmers, but these were dampened when the project -26- did not continue as expected, and LINTCO pulled out abruptly in early 1992. Smallholders with about 200 ha of coffee established under the First Coffee Project, were therefore left to themselves. Since LINTCO was also doing the marketing, they were unable to sell their coffee. As a result, all the coffee was abandoned, and within two years 95% had died. Things started to turn round with the revival of the extension service under Coffee II. In the second half of 1993, the Extension Manager was appointed and installed in the Northern Province. Subsequently, two extension specialists were also recruited for Luapula and the Copperbelt to organize coffee extension in these provinces. With the assistance of the Project personnel, the MAFF extension staff in Northern, Luapula and Copperbelt provinces took up coffee extension service as one of their tasks. To this effect, they were given training and transport facilities to organize farmers and to train them in coffee production. Coffee extension focussed on smallholders only, as the commercial farmers were able to access coffee production and processing technology on their own account. 13. The extension service commenced by identifying and organizing farmers willing to produce coffee into registered groups so that this could become the vehicle for delivering the service. A farmer group comprises on average 25 members, located within a 5 km radius. Each group is provided with its own coffee nursery constructed and maintained by the project. Since viable coffee farming depends on irrigation, the groups are often widely dispersed according to the availability of water resource. In addition, the project has endeavoured to include the farmers who had coffee under the previous project regardless of their location. This factor makes extension services relatively expensive. A farmer group is expected to be a focal point for primary processing with shared hand-pulpers. At project completion, some 980 smallholders have been trained and organized into 44 registered fanner groups. About half of these farmers are those which were abandoned by the LINTCO extension service in earlier years. Some 0.93 million seedlings have been produced by the groups, which were used to establish a total coffee area of about 320 ha. To mitigate the effects of the non-availability of credit, the extension service distributed hand-pulpers and minimal agricultural inputs for nursery and coffee development, with the understanding that they would be repaid back by the farmers who have signed for these inputs. It should be recognized, however, that this input supply system and the provision of nurseries free of cost, are not sustainable. These are not the functions of extension, and their continuation will be costly and not in line with current development policies. Further, they could create a problem for future development by raising false expectations on the part of prospective coffee farmers. 14. The coffee established by smallholders appear to be in good condition, although some plots show signs of stress from insufficient irrigation during dry periods. All plantings up to 1996 have been with varieties that are susceptible to coffee leaf rust (CLR) and coffee berry disease (CBD) both of which are prevalent in the Northern Province. This is because the coffee research was not able to supply resistant varieties or release them in agreement with other research institutions in the region. At completion the mission observed that extension activities had declined to a low level through lack of operational funds following the closure of the IDA credit. Government has decided to allocate K 200 million to enable the continuation of the extension and smallholder coffee development, until the time that the costs related to this component are fully integrated within ASIP. Coffee Research 15. Project efforts were to be concentrated on Misamfu Regional Research Station. The station, which was also supported under the First Coffee Project, was to be strengthened by improving its capacity to carry out research that is relevant to the country's coffee industry. To this -27- effect, the project provided books and other publications, office equipment and vehicles, operational funds, technical assistance and study tours to the staff. 16. In spite of the support provided however, there has been little progress to improve the research capacity at Misamfu. An expanded program was undertaken based on project funding with the emphasis on long-term research rather than focussing on a few but critical needs of the farmers. These included, fertilizer trials, spacing trials, irrigation intervals and efficiency, for which there are alrady basic recommendations. The researchers lack of focus and poor prioritization is illustrated by the delay in releasing disease resistant planting material, although CLR is endemic in northern Province where Misamfu is located and CBD has been observed there since the mid-eighties. In addition the station has does not provide a service for soil sample analysis, even though the facilities for this are in place. Presently, with the closing of the IDA credit, Misamfu is not able to sustain the expanded program or even maintain basic upkeep of existing experimental plots, because of lack of funds. According to the coffee industry, the Misamfu research program is not in line with their immediate needs, and they believe that important programs, such as the release of new disease resistant varieties, should be carried out in collaboration with other countries in the region. 17. Following a suggestion by a World Bank supervision mission of April/May 1996, that coffee research policy be defined by the concerned bodies, a two day meeting was held in July 1996. The meeting, in which all the relevant institutions participated, provided general guidelines for research policy, the priorities for short- and medium-term research and the possibilities of financing research from a levy on coffee. The meeting also recognized the need for public and private sector research and for regional co-operation, but made no clear demarcation as to which topics would be suitable to each sector. Moreover, no action plan was prepared, and follow-up responsibilities and activities were not spelled out. Development of Coffee Marketing 18. The project's objective to strengthen coffee marketing was accomplished by developing the capability of ZCGA to export coffee profitably. The Association's understanding of international coffee marketing and assessment of coffee quality have been enhanced under the project. This was achieved through the provision of training, office and liquoring equipment. ZCGA is now able to confidently advise its members on quality control, grading and export preparation, and to negotiate for the best prices. Project Management Unit 19. The PMU, which consisted of the Project Coordinater and a secretary, was the pivotal point of the project. The PMU was able to coordinate the activities of the implementing agencies and signal any difficulties encountered to the project authorities, often by proposing solutions. By becoming an important linkage between BOZ, PBs and borrowing farmers, the PMU has succeeded in facilitating the resolution of credit related issues as they arise. Regarding extension and smallholder coffee development, it has endeavored to mitigate the effects of lack of financing by convincing project authorities to provide some inputs under the project to start the development of smallholder coffee. The PMU was an efficient setup, using limited resources. -28- Project costs and financing 20. Total project costs amounted to K28,2 10 million or US$26.4 million, equivalent to 76 % of the appraisal estimates, in dollar terms. The costs were lower because of the exclusion of the ZCCL component and the reduced expenditures on extension, research and marketing. IDA disbursed U$2 1.2 million, slightly higher than US$20.4 million envisaged at appraisal. In SDR terms, disbursement amounted to 14.86 million, and 2.04 million remain undisbursed. Project Impact 21. The project has made a significant contribution to the country's economy in expanding its agriculture base and diversifying the source of foreign exchange earnings. The coffee and cut flower farms developed under the project will yield attractive financial and economic returns to the farmers and to the country, respectively. However, the project's impact within smallholders was limited, as all the development credit was provided to the commercial farmers. This has minimized the attainment of another objective, which was to increase income of the rural population. Although the project did not monitor possible environrmental hazards, this is believed to have been minimal. Smaliholders use small quantities of agro-chemicals, because they cannot afford them, and they practice dry pulping of cherry in situ, with no adverse effect on the environment. Commercial farmers appear to be conscious of the effect of agro-chemicals on the land and on the crop produced. However, they use a carbamate based, systemic insecticide (Temik), which is toxic; believing that a 90 day withholding before harvest will minimize risks. The validity of this approach is doubtful, considering the log-term effect on the crop and on pest resistance. Commercial fanns also have systems for separation of coffee pulp and disposal of processing effluent. Bank and Borrower Performance 22. The performance of both the Borrower and the Bank during project formulation and throughout the implementation has been satisfactory. The Bank's supervision missions were supportive to the project and responsive to calls for assistance in resolving problems. The several amendments to the DCA were made in this spirit. The flexibility shown by the Government in modifying project management arrangements, the redesign of the credit component, and the compliance with all the legal covenants are examples of the Government's commitment to the project. However, the inability to come up with some imaginative ideas for channelling credit to smallholder coffee producers should be considered as their major shortcoming. E. FUTURE OPERATIONS AND LESSONS LEARNED 23. The large coffee units developed with project support will continue to be operated commercially in a sustainable manner. Being specialized in producing high value arabica coffee under irrigation, commercial coffee producers will not be affected seriously in the case of a decline in international prices. Little risk is also foreseen for the cut flower producers, because they are strongly linked with inputs and technology suppliers and flower buyers in Europe. As long as the marketing arrangements remain in place, cut flower production will be a sustainable business. 24. Coffee extension and research are expected to be integrated within ASIP. In the interim, funds for coffee extension have ceased flowing to the field after the project closed, thus putting smallholder coffee at risk again. The MAFF has allocated some extraordinary funds to continue the -29- extension service and proposes to support smaliholder coffee in the future as part of its normal operations. It should be noted, however, that the sustainability of smailholder coffee is also dependent on the availability of reliable credit and a marketing system for the output. So far, such systems have not developed. Hence there is a question mark on the future of smallholder coffee development. 25. The following lessons can be learned from the implementation experience of the project: smallholder production can be revived if farmers are approached by a convincing extension service; the collapse of smallholder coffee established by the previous project is a clear indication that sustainable coffee development will not emerge without an assured market outlet; smallholder coffee growing will be limited if credit for financing investments does not reach these producers; long term agricultural credit for export crop development can be enhanced if it is foreign exchange based; expansion of commercial coffee will be limited in many areas by labour supply; research should aim to adopt results obtained by extemal research instead of committing resources to produce the same results domestically; and commercial farmers are apt to import new technical know-how if the crop they will produce is financially attractive and sustained by adequate credit. F. NEXT STEPS 26. The mission will prepare a draft ICR upon return to Rome. This will be submitted to IDA by the end of February, 1997. -30- APPENDIX B NOTE ON COFFEE AND CUT FLOWER DEVELOPMENT AND IMPACT -31- IMPLEMENTATION COMPLETION REPORT ZAMBIA SECOND COFFEE PROJECT Cr. 1743-ZA NOTE ON COFFEE AND CUT FLOWER DEVELOPMENT AND IMPACT A. COFFEE General I . Zambia emerged as a producer and exporter of mild arabica coffee during the 1980s. Up to 1980, coffee was a minor crop, with production below 300 tons per year. Expansion then took place, starting with two parastatal companies (both subsequently privatized), which together planted 750 hectares of irrigated coffee in the North and in the Copperbelt. Commercial farmers who were already engaged in maize and other crops, began planting coffee from 1984, reaching an area of 1,600 ha by 1990. The collapse of coffee prices in 1990 slowed down coffee development, but with the recovery in prices in 1993, commercial farms started expanding coffee once again. This received an additional stimulus when credit became available under Coffee II project. By the end of 1996, commercial coffee had reached a new level of about 2,600 ha. About 95% of production is from Northern, Copperbelt and Central provinces. Growing conditions in these zones are generally favourable. Disease incidence is moderate and high yields are possible with irrigation. At the current costs of inputs, Zambia is a relatively low-cost producer and has a comparative advantage over many producers of mild arabica coffee. 2. During the 1980s, the Government also encouraged smallholder coffee growing. Under the First Coffee Project, assisted by the World Bank, a pilot smallholder coffee development program established about 200 ha. However, the Lint Company of Zambia (LINTCO), which had been responsible for marketing smallholder coffee, ceased its involvement in 1992 and smallholder production, which had reached 50 tons per year, rapidly collapsed. Planting re- started in 1994 with Coffee II, reaching an area of about 320 ha by the end of 1996. The Commercial Coffee Sector 3. Production systems. Coffee is usually cultivated as one enterprise in an agri-business that includes maize, soyabean, wheat or beef. Production technology is generally modelled on Zimbabwe coffee farming where conditions are similar to Zambia. Commercial blocks vary beetween 30 to 80 ha, with drip irrigation systems, and 60 ha is the most prevalent farm size. Larger blocks are the exception because of labour scarcity at peak harvesting periods. Management standards are excellent, and include high levels of fertilizing, disease control (for leaf rust and cercospora) and a six-year production cycle before ratooning. Commercial coffee in Zambia is estimated to employ about 0. I skilled persons per ha and 1.3 unskilled persons per -32- ha of mature coffee. However, commercial farms experience a scarcity of labour, and therefore avoid labour-intensive, annual pruning as found in other countries. Hence, a short cycle of six years with little or no pruning until ratooning. With this method, about 16% of the blocks are out of production at any one time. Yields are high in the middle of the cycle in years 3, 4, 5 and 6 (3 to 3.5 ton per ha) but very little in the two years after ratooning. Taking into account the ratooning coffee and the low yields during the two years after ratooning, average yields over the six-year cycle are about 2.5 tons per ha. At this level of yields, production costs are estimated at about US$ 920 per ton of clean coffee (Table 1). All commercial farms have a program of replacing the old varieties with new disease resistant hybrids which require no fungicide applications. This is expected to reduce costs by about 15%. These farms all have a pulpery and practice wet processing to produce good quality coffee parchment. Almost all farrns own a dry mill to have green coffee prepared, graded and sorted, ready for the market. The average price is US$ 2,800 per ton FOB Dar-es-salaam or Durban, giving a farmgate price of US$ 2,550 per ton (para. 25). 4. Marketing. All producers are members of the Zambia Coffee Growers Association (ZCGA). This Association provides a marketing service and also negotiates short-term crop financing for growers, based on recorded production levels. Prices obtained during the past three crop years have been attractive and close to those achieved by Kenya, which has a reputation for high quality. This reflects both improved quality of the product and improved marketing skills on the part of ZCGA. Comparative Coffee Prices for Zambia and Kenya Coffees Zambia (ZCGA) Kenya Year US $/Ton (1) US S/Ton (2) 1991/92 1,495 1,925 1992/93 1,527 2,245 1993/94 1,973 2,968 1994/95 3,856 3,565 1995/96 2,485 2,585 1996/97 (Est) 2,550 2,715 (1) Port price Durban or Dar Es Salaam. (2) Port price Mombasa. 5. Project impact. Twenty-eight commercial farmers have accessed the credit provided under Coffee II, and planted out 1,550 ha of new coffee from 1994 to the end of 1996. The incremental production from commercial farm coffee will be about 3,900 tons annually at full development, with a value of about US$10 million. The establishment costs for new coffee, where no infrastructure already existed, is estimated at US$ 7,390 per ha (Table l). For this type of investment, the financial rate of return for a typical 60 ha farm is estimated at about 26% and a net income of US$ 3,200 per ha can be expected (Table 1). However, for many of the investments there was already a considerable infrastructure in the form of irrigation, access roads, field equipment, and cleared land. In these cases, the establishment costs for coffee were -33- considerably less than the figure given above and the rate of return for these investments was correspondingly higher. The project also provided essential equipment for quality assessment and training on marketing methods to the ZCGA. This resulted in improved quality assessment, grading and export presentation, and developed a wider range of selling techniques, which, from 1996, included know-how on "forward selling" part of the Zambian crop. 6. Outlook for commercial farm coffee. This is generally very favourable. Commercial coffee is run as an agri-business with high management standards which maximize yields and quality, while aiming to maintain or reduce unit costs. Risks are hence low. Even with a 30- 40% drop in prices, commercial farm coffee would remain a profitable enterprise. However, expansion of the area under coffee will be limited by the availability of labour, especially for seasonal tasks such as harvesting. This may encourage some commercial growers to adopt mechanical harvesting, which could lower quality. The Smallholder Coffee Sector 7. Production systems. Generally, this is a low input/low output farming system in which coffee is the cash crop cultivated with other food crops such as maize, beans, groundnuts and cassava. The most representative farm size of coffee is about 0.4 ha, which is the estimated limit that can be properly maintained by one family. Coffee plots are irrigated from a furrow usually maintained and shared by a registered farmer group of about 25 members. Use of inputs, such as fertilizers, is less than optimal, because farmer groups are far from supply sources, which increases costs. Poor furrow maintenance often results in water stress, and mulching is practiced by a minority of farmers. Yield levels from mature coffee are about 0.8 tons per hectare of clean coffee. Processing is done with manually operated pulpers, which can produce an acceptable quality of coffee, provided subsequent fermenting and drying by farmers is carefully done. Establishment costs are estimated at US$ 1,053 per hectare - about 14% of the corresponding cost for commercial coffee (Table 2). At yields of 800 kg per hectare, production costs are estimated at US$ 0.90 per kg, as compared to US$ 0.92 for commercial coffee (Table 2). Smallholder coffee is milled and graded, and the green coffee sorted by the nearest private dry mill. At present, the gross margin per hectare of smallholder coffee is US$ 1,354. The returns per man day for coffee are estimated at US$ 2.70, almost three times the on-going labour rate. 8. Marketing. During the period 1986-91, LINTCO provided coffee marketing services to small growers and also the provision of inputs and extension. However, the costs in 1991 amounted to about 60% of the value of the crop, which discouraged many farmers from growing coffee. After LINTCO abruptly ceased its coffee activities in 1992, there was no channel for marketing the smallholder production, with the result that fields were abandoned, and small- scale production collapsed until the start-up of Coffee II. About 70 tons of coffee will be produced in 1998. Due to the scattered nature of smallholder farms, the collection, transporting and bulking of small lots is a major problem. In the absence of any marketing arrangements, the extension service acquired a vehicle to collect and bulk these small lots on behalf of the growers. This is not a function of extension and is not sustainable. Continuation of smallholder production will depend on the farmer groups being able to organize the collection, transport, bulking and milling of coffee ready for sale. International marketing will be assured through ZCGA, where small growers are also represented. ZCGA is exploring the possibility of registering smallholders with the Fair Trade Initiative (Max Havelaar organization), which would offer them a stable price for their output. -34- 9. Project results. These are summarized in the Implementation Completion Report (ICR), Part II, Table 5. Due to the late start-up, the smallholder planting are well below target, as noted below. Some of the targets have been exceeded, for example formation of farmer groups. All of the vehicles and office equipment were procured and 40 nurseries were established, which have produced about 930,000 seedlings for distribution to farmers. Some 44 farmer groups, with a total of 984 growers, have planted out 320 ha of coffee by the end of 1996, with sufficient seedlings in the nurseries to plant out an additional 95 ha in 1997. Development of the nurseries, and supply of basic inputs for establishing the plantings, has all been financed by project funds, including hand pulpers sufficient to process about 350 tons of coffee. Unit Target at full Item development Actual (1996) Farmer group No 28 44 Participating farmers No 1,100 984 Area planted ha 450 320 Yields kg/ha 750 900 Production tons 430 N.A. Training of farmers No 4,900 984 Skilled employment jobs 58 42 Unskilled employment jobs 540 386 10. Status and sustainability. The extension component has re-created an infrastructure for small-scale coffee production in Zambia. From virtually zero in 1994, the small-scale growers now account for about 10% of the total area under coffee. Although appreciable, in terms of coffee area planted, the smallholder sector has several features which make sustainability precarious. Firstly, coffee is a new crop for many of the growers. Extension support is needed to ensure that the current plantings are brought into bearing. If this is not forthcoming, the momentum could be lost, leading to poor production performance. Secondly, credit is not available to smaliholders to procure inputs necessary for mature, producing coffee - in particular fertilizers, and in the case of the SL28 varieties, fungicides. The project did supply small amounts of inputs on credit for the establishment of the coffee on the understanding that this would be deducted from the first coffee production. This supply has ceased on the termination of the project, and no system has been established in its place. Thirdly, marketing arrangements for smallholder coffee are not in place. The extension services made provisions for collecting and bulking the small scattered amounts of parchment produced by the farmer groups. About 3 tons were marketed in 1996 and about 10 tons are expected until mid-1997. However, this marketing arrangement is not sustainable in the long run, and the future of smallholder coffee depends heavily on the farmer groups acquiring the capacity to organize their own local marketing. I Still immature Coffee. -35- Coffee Research 11. The national research activities for coffee are concentrated at the Misamfu Regional Research Station (Northern Province) which has sub-stations at Lucheche and Malashi. Meaningful research started in 1959 with the evaluation of imported varieties from Kenya and Tanzania. Subsequent research topics included pruning systems, evaluation of irrigation, mulching, spacing, nutrient requirements and crop protection. A coffee handbook was published in 1974 with emphasis on smallholder production which had started in the north of the country. Some limited support came from the First Coffee Project which closed in 1985. In 1985, there was one agronomist and three junior staff involved in coffee research. The commercial farmers who started planting coffee in the Southern Province from 1983, being in a different agro- climatic zone from the research station, tended to adopt the research results available from Zimbabwe and Malawi. 12. The main objectives of the research component were strengthening coffee research capacity, principally at Misamfu. Although the project became effective in March 1992, there was a one year delay in starting implementation until the Research Agronomist had been appointed. Recruitment was completed in early 1994 and implementation took place during the period 1994-96. The equipment, vehicles and technical assistance (TA) were supplied by the project, research visits were made to neighbouring countries, and the coffee handbook was revised. Mechanical field equipment was deemed unnecessary by research management. Lastly, based on project funding, an ambitious research program for coffee was launched in 1994 with emphasis on long term results: (a) Some 14 new field experiments and trials were laid out with corresponding irrigation furrows. A further three new field experiments are scheduled for 1997. (b) An irrigated nursery was established with traditional SL28 variety and, from 1996, new catimor hybrids sourced from the commercial farms. (c) A seed garden of 0.5 ha SL28 has been established. The Research work plan for 1996 alone was budgeted to cost US$ 0.31 million and the 1997 budget is approximately US$ 0.14 million (as against a total allocation in the Development Credit Agreement of US$ 0.60 million). 13. A serious problem of financing the expanded work program exists. During 1996, only 13% of the research budget was actually provided. Similarly, only 4% of the estimated sum for inputs was received, and only 3% of the estimate for rehabilitation work. The proposed rehabilitation of the processing facilities and housing was not done. No funds of any kind were provided after October 1996. Field staff have been reduced and only 14 remain to look after about 9 ha of trials and experimental plots. Essential field work, such as pruning, fertilizing, mulching and pest control in the existing field trials, is more or less at a standstill. 14. A planning seminar in mid-1996 has provided useful guidelines on policy and the principle of collaborating with regional coffee research. In addition, the priorities for coffee research as viewed by commercial growers and small-scale producers have been set out. -36- However, no clear demarcation of research areas appropriate to national as opposed to regional research has yet emerged. The possible extent of coffee research to be carried out by the private sector has not been clearly identified. Hence, it is not clear if the current research program at Misamfu is appropriate or not for the coffee industry. For example, the trials at Misamfu on the control of fungus diseases with chemical sprays, would seem to merit a low priority now that there is widespread use in Zambia of resistant varieties which have been brought in from neighbouring countries. 15. The expanded research program at Misamfu was based on project funding which has terminated, and research activities are now expected to be integrated within ASIP. The sustainability will depend on the level of funding allocated under this program. The uncertainties outlined earlier still remain, particularly long-term versus short-term oriented research, and the question of defining the areas to be left to regional research (and the corresponding funding needs) and those areas which are more appropriate for the national coffee research efforts. When these are clarified, then a realistic national program could be defined. B. CUT FLOWERS Background 16. Cut flower production is based almost entirely on roses for export. Investment in Zambia started in 1989, and expanded steadily, reaching 45 ha by 1995 and 65 ha by the end of 1996, including the 20 ha established under Coffee II. Development has accelerated during the past two years, as shown below, and is expected to increase by 20 ha during 1997: Total Cut Flower Area (1989-96) Year 1989 1990 1991 1992 1993 1994 1995 1996 Ha 3 7 14 21 28 35 45 65 Production Systems 17. Production is based on controlled environment, greenhouse technology. Most of the investments are a "turn-key" type. Structures, equipment, growing technology, planting material and marketing arrangements are supplied as an integrated package for the investor. The greenhouses are usually highly automated, with computerized systems for irrigation, fertilizer and pesticide application. The most common type of investment is 2 ha, expanding to 4 ha after six years to gain economies of scale. There is an intensive technical service included in the investment cost, which enables investors to maintain the high standards of growing and packaging required by the market. The quality of Zambia cut flowers is at par with established cut flower exporters from Zimbabwe and South Africa. 18. Production begins within about seven months of start-up. Output is geared towards the European market from September to May, during which time the average production is estimated at 1.1 million stems per hectare. Investment in the past three years has favoured capital intensive enterprises using the latest technology - steel structures, automated irrigating and fertilizing -37- systems - which costs about US$ 405,000 per hectare brought into production. Re-investment, together with expansion during year 3 and year 6 of operations, at a cost of US$ 126,000 per hectare, has been found necessary to optimize the investment, bringing the standard enterprise to 4 ha. Operating costs at this level are about US$ 0.22 per stem. The average selling price in Europe throughout the nine-month marketing season is estimated at US$ 0.42 per stem. Handling and marketing costs are about US$ 0.08, and the farmgate price for the producer is estimated at US$ 0.34 per stem. The financial rate of return for a 2 ha farm, such as the one established by the project, is estimated at 43% (Table 3). Marketing 19. Producers are linked closely to the major European flower markets and plan their production schedules according to the dictates of these markets. The Zambia Export Crop Growers Association, to which all flower growers belong, coordinates air-freighting and negotiates competitive rates. A current constraint is that there are only three cargo flights per week from Lusaka, which means that some consignments have to be cool-stored for up to two days. This shortens the shelf life of the blooms, causing a price discount of about 15%. This constraint is expected to decrease as production increases and other cargo carriers make scheduled stops at Lusaka. In this event there would be about six flights per week, which would improve the end quality and price of Zambia cut flowers. Project Impact and Outlook 20. Some 10 cut flower growers have established 20 ha of roses under the project. These generate export earnings of about US$ 7.5 million annually, and provide about 600 full-time jobs (30 new full-time jobs per hectare). 21. Outlook is favourable for the immediate future. Zambian producers have a reputation for quality, which is important for retaining their foothold in the market. Cut flower producers run the risk of a general decline in prices, as a result of increased supply from other exporters such as Zimbabwe, South Africa and Kenya. However Zambian production costs are low, and hence these growers are in a position to absorb price falls. As production increases, there should be additional freight space which will reduce current losses through temporary storage. These factors are all in favour of cut flower production remaining a sustainable business. C. ECONOMIC IMPACT General 22. The project has attained its objectives in broadening the country's agricultural base, and improving its foreign exchange earning capacity. Instead of producing only one export crop, as envisaged at appraisal, it assisted growers to produce two crops - coffee and cut flowers - thereby enhancing the diversification of Zambia's export commodities. The project output (para. 23) will enable the country to earn foreign exchange of about US$ 19 million annually at full development. Production and Prices 23. Coffee and cut flower production are estimated as follows: -38- Yield and Production of Coffee and Cut Flower At Full Development Area Yield Production (ha) (kg/ha, stem/ha) (tons/stems) Smallholder Coffee 320 800 256 Commercial Coffee Farmers 1,550 2,500 3,875 Cut Flower 20 1,1 million 22 million 24. Yield estimates are based on what is being achieved now by growers. Smallholders achieve yields of over I ton per hectare if they apply sufficient inputs, but they are guarantied at least 0.8 ton per hectare with low input use but with adequate farm tending. Yields of commercial farmers are impressive, and they reach up to 4 tons per hectare during the peak years. However, as one sixth of the commercial farmer's coffee area is out of production at any given time during ratooning, and given the low yields the two years after ratooning, average yields are about 2.5 tons per hectare. The yields of cut flowers are 110 stems (roses) per m . In the case of coffee, which is irrigated, full development is achieved during the 5ih year after planting. About 10% and 50% of the full development yields are also achieved during the third and fourth year of the project, respectively. The full development yields of cut flowers are achieved in the second year. 25. The project's coffee production is mild arabica, which commands high prices internationally. If care is taken in the wet processing and successive fermenting and drying, it can fetch premium prices, now that marketing of coffee has been improved under the project. At completion, some farmers were receiving prices well over US$ 3,000 per ton, benefitting from the current favourable international prices. The average FOB price of coffee for the period 1994- 95 to 1996-97 was slightly under US$ 3,000 per ton. According to ZCGA, an average FOB price of US$ 2,800 per ton can be realistically expected for the next several years. This price was, therefore, used to calculate farmgate prices for economic analysis as follow: Economic Price of Coffee Item US$/ton FOB Price Durban/Dar as Salaam 2,800 Port charges 30 Railage & insurance 190 Transport to railhead 30 Sub-total charges 250 Farm gate price 2,550 aThere are no duties on the export of agricultural commodities. 26. During the past two years, the international prices of Zambian roses in Europe averaged at US$ 0.42 per stem, and the total handling, transporting and marketing costs after the farmgate -39- amounted to US$ 0.08 per stem. This gives a farmgate price of US$ 0.34 per stem, and has been adopted as the economic price for the analysis. Project Costs 27. The financial farm budgets (Tables I to 3) have been used as the basis for the economic analysis, and were adjusted to derive economic costs. Major adjustements consisted of conversing local costs to border prices using a factor of 0.8; costing of labour 50% of its financial rate, to reflect its opportunity cost; and exclusion of duties and taxes. Normally an import levy of 5%; import duty of 25% and a VAT tax of 20%, are imposed on imported machinery and material, including planting material. On average, costs have been adjusted by 10%, 20% and 30% for smallholder coffee producers, for commercial coffee farmers, and for cut flower producers, respectively. The latter have higher taxes as they have to import planting material. All costs have been re-instated to January 1997 prices using consumer price index for the local costs (63% of total costs) and manufacturing unit value for the foreign exchange component. Since commercial coffee farmers and cut flower producers are paying for the importation of production technology and technical advice, project extension and research costs have been excluded from the computation of the economic analysis. Economic Rate of Return 28. An Economic Rate of Return (ERR) has been computed for the project over 20 years. The phasing of benefits and assumptions on the derivation of economic values are shown in Table 4. Based on these, an ERR of 44% has been calculated for the project. The ERR is about double the rate estimated at appraisal, because firstly the yields of commercial coffee farmers were underestimated at appraisal, and secondly, there were no provisions for cut flower production. Sensitivity Analysis 29. The project is not sensitive to a reasonable increase in costs and a decrease in benefits. A 30% decrease in benefits or increase in costs would reduce the ERRs to 29% and 32%, respectively. -40- Table 1. a 60 ha, Commercial Coffee De' elopment Budget - Input Requirements (Page I) A EA 50 HA YIELO 2,500 KGVA ANNUAL PROOUC.;OhN I50 TONS ESTABLSHMENT 00 GENERAL CHARGES UNIT OUANTrT LABOUR tOTAL COST COST COST UNITS DAYS US S YEAR 2 YEAR 3 101 MANAGER - SALARY (12 UTHS) 5S0 12 S.720 LEAVE I MONTHS 580 1 550 PENSION CONTRIBUTION 56O 33 SUB-TOTAL 7,516 7816 102 ASST MANAGER - SALARY(USS.WTH) 2t0 12 3.30 LEAVE I MONTH 280 1 2S0 SUB-TOTAL 1.i40 3540 103 F;El SUPERVtSOR (1) 30 12 380 280 104 SOCIAL SECURITY (LABOUR) a 5% 1 0 30.000 1.500 t500 t15 TRAVELLING a TRANSPORT PtCK-UP 20.000 KM 0 2 20.000 4 000 ESTATE CAR 20.000 KM. 0 2 20a000 4.000 SUB-TOTAL 80.000 00 I50 INSURANCES & UCENCES 20 S0 1.200 1200 107 RENT a 0 0 108 OFFICE & ADMINISTRATION CLERKS (USVtMONTH) 30 24 720 TELEPHONE (USVYEAR) 192 t 192 POSTAGE & STATIONARY 9f 1 96 SUB-TOTAL 1.008 1008 109 aANK CHARGES 2.0 60 120 120 110 HCUDAYS (10 DOAYS) 1.0 10 800 500 LU AVE PAY (21 DAYS) I a 21 12a0 1.250 SUB-TOTAL 1.S60 tw50 1 1 MEDICAL (US S/A) 5.0 60 300 SICK DAYS (10W PERMANENT) 1.0 00 00 SUB-TOTAL 900 900 112 UPKEEP FACTORY BUILDINGS (US51NA) 40 0 80 2.400 2400 113 UPKEEP ROADS (USS/HA) 20 0 60 1200 1200 t14UPKEEPWATERSUPPLY(USSIHA) 100 80 SW0 M00 115 LGHTING POWER (USS.tAj) 8.7 i0 403 40S2 116 SECJRITY LAsOUR (5) I c 5 ¶.800 1.300 ¶600 11t7 YCRKSMOP TOOLS (USSMA) I 9 o0 t15 115 2 I11AC_3UNTS&AUDIT(USSAA) 24C 12 28M 28! 119MANAGEMENTFEE(USSdNA) 0.0 60 0 a 120 AGENCY FEE Z 2% 0.0 150 0 0 TOTAL GENERAL CHARGES *.260 13030 23.030 0 -41- Table 1. a 60 ha, Commercial Coffee Development Budget - Input Requirements (Page 2) UNIT QUANTrT LABOUR TOTAL COST 2C0 UPKEEP & CULLT.VAT;ON COST UNiTS OAYS ZOI WEEDING (MANUAL & HERBICIDE) (US S us s HAND-WEEDING C 15 MO/AH(HA.) 1.0 60 900 900 PARAQUAT 3 APPL X I ULTrHAI(LM 7.0 160 1.2s0 GLYPHOSATE 0.5 APPL Z I UT (LTM 9.0 30 270 LABOUR 3 2.5 MIAROUND (HA.) 1.0 210 525 525 TRACTORMIATER BoWSER (HOURS) 2.4 TO 1U HEADMAN (MAN OAYS) 1.3 i9 1tl uS-TOTAL 1,514 3.234 1.517 1.617 202 PEST & OISEASE CONTROL DISYSTON @20 GRAMS/ALTERNATE TREES 4 0 1200 4,500 DIPTEREX ONE APPL . 2KG / HA 2.5 120 300 DISEASE COPPER 4 APPL3 4KG,1NA(KG) 5.0 1.200 6.000 CCNTROL TRACTORISPRAYER iZ 1.5 HR/HIA(HRS) 3.0 396 1.188 COSTS TIDRrVERS 5 s T/NRSWAN DAY 1 3 79 n 7356 LABOUR (SPRAY MIU0ER) 1 a 79 79 MEALYBUG.'SCALES PATROL Z 5 MCD`A 1.0 300 300 DIELCRIN i 1 0 UTrHA (LTRES) 9 0 60 540 SUB-TOTAL 458 13.305 2.661 4.435 203 PRUNING I X MAiN a 50 TREES57`O iWDAYS) 1 0 2.400 2.400 2 X HANOUNG @ 90 TREES,74O(MiDAYS) 1.0 2.587 2.667 2 X OE-SUCKERING a 300(VMO (MWVAYS) 1.0 800 lOO HEADMAN (MAN OAYS) 1.3 196 244 SUB-TOTAL 6.062 5.111 0 1.523 204 MULCHING (50% OF BLOCKS) TRACTOR MOWING 100 HA GRASS (HRS) 2.4 120 288 TRACTOR RAKJNG 100 HA. GRASS (HRS) 2.4 g0 216 TRACTOR TRANSPORTING GRASS (HRS) 2.4 90 216 ORrVERS MOWINGIRAKJNTRANSP (MO) 1.3 50 75 LABOUR MOWINGRAKJNGCTRANSP (MO) 1.0 240 240 LABOUR SPREADING @ 40/MO (MWOAYS) 1.0 1E013 1.013 HEACMAN (MAN DAYS) 1 3 29 36 SUB-TOTAL 1.341 2,084 2.084 2.0C4 205 FERTILUDNG 20:10:10 a 300 KGMHA (TONS) 300 24 7.200 CAN. 26% @ 300 KGrHA (TONS) 300 1i 5.400 15:1t:15 Z 100 KG4A (TONS) 300 12 3.506 D.S P (46%) @ 100 KG,HA (TONS) 300 9 2.700 MAGMAX (16%) @7 300 KG/HA (TONS) 60 21 1.2eo LABOUR 7 APPLO 2 MD/HA (IVDAYS) 1.0 4 840 (ALT TRACT`SPREADER 1 5 MRS/HAI TRACT TRANSP. 0 IHRrHA (T/HOURS) 2.4 420 1.008 DNC SULPHATE A BORAX a sKGrHA EACH 0 8 120 72 HEADMAN (MAN DAYS) 1.3 24 30 SUB-TOTAL 864 22.110 5.528 7.370 206 IRRIGATION 9 ROUNOS @ 20 MAYS PER RCUND 160 DAYtX ls!RS X 60KW(KWHy- s.03 324,ooo 10.368 UPKEEP EQUIP 0 US 320 JHA 20 60 1 200 LAcOUR (a 2 MUOhLROUNO (MiAYS) 10 1.200 1.200 HEACMAN (MAN DAYS) 1.3 So 1oo SUB-TOTAL 1.280 12.68 68.434 5434 207 INFILUNG 5% ANNUALLY 0 1 4 050 405 LAWOUR HOUNGIPLAwING/MANURiNG I a 81 81 SUB-TOTAL 81 46e 0 486 TOTAL UPKEEP & CULTrVATION 11.601 60.199 18.323 23.954 -42- Table 1. a 60 ha. Commercial Coffee Development Budget - Input Requirements (Page 3) UNrT OUANTrr LABOUR TOTAL COST 300 C_UItCTION & MANUFACTURE CCST UNhTS DAYS uS S 301 PICKING (US S) LABOURPICKIJNG 20% oF CRCP (OSEEES) 1.0 15.000 6.000 o .000 CONTRACT PICI0NG 80% CROP (DEBES) 0.3 60.000 15.000 SUB-TOtAL s.000 21t000 0 0.0000 302 PICKING ECUIPUAENT (SUMA) 250 0 125 303 TRANSPORT CHERRY TRACTORMtRAJLER 130 DAYS (TIIOURS) z24 225 540 ORrVER @ 9T/MO X SHS 50/. (MOAYS) t 113 141 SUB-TOTAL 113 681 0 340 305 FACTORY LABOUR PROCESSING @9 15 MDITON (M/DAYS) 1.0 2.250 2.250 MECHANIC(MAN OAYS) 1.3 312 390 HEAoMAN (MAN DAYS) 1.3 312 390 SUB-TOTAL 2.174 3.030 0 1.5t5 30l FUEL & UTENSILS aRUSHES.PADOLES ETC. (SUM) 1.000 0 500 307 UPKlEEP MACHINERY @M US S10 PER TON PROCESSED 10 t50 1.500 0 750 308 POWER S WATER SUPPLY (KWH) WATER @ 20 KW1TrON CLEAN COFFEE MKWH) 0.0 3.000 96 FACTORY POWER C 3S KVA.vTONNE (KWH) 0.0 5.400 173 SUB-TOTAL 269 0 134 309 PACKING MATERiALS (SISAL BAGS) REPLACE25S%0F3.000ANNUALLY 068 450 350 0 180 310 ORYING TABLE MATERIALS 33% OF 2.400 M SISALCLOTH (METRES) 1' 46 0 74o 25% Of 2.400M tUNYLfEX (METRES) 04 380 '44 SUB-TOTAL 912 311 TRANSPORT PARCHMENT COFFEE (BAGS) 0.4 3.750 1.500 0 750 312 MILLJNG; GRAOING: BAGGING - 92 150 13.500 5.900 313 FACTORY MANAGER'S BONUS 3.2 ISO 4.6 0 240 TOTAL COLLECTION & MANUFACTURE 6.987 44.781 a 21.935 TOTAL GENERAL CHARGES 4.280 33.030 24% 33.030 0 TOTAL UPKEEP&CULTIVATION 1101 8o0.199 44% 16.323 23.954 TOTAL COLLECTION s MANUFAC-URE 8.987 "47a1 32% 0 21.935 TOTAL LABOUR DAYS ANO COSTS 24 647 138t.010 10o0% 51.354 45.86a COST (US S PER HECTARE) 2.300 a5m 755 COST IUS S PER TON) 920 342 306 NET REVENUE (US SITON) 2.550 0 0 OPERATING SURPLUS (US 1/TON) 1.6t0 (342) (306) _ ~~~~~. _............. -.-.......... -43- Table 1. b Summarx of Costs YIELD LEVEL 2500 KG CLEAN COFFEE/HA AREA I PRODUCTION 60 HA 150 TONS US S USS / HA USS / TON DIRECT COSTS (UPKEEP & PROCESSING) 104 980 1.750 700 INDIRECT COSTS 33.030 551 220 TOTAL COSTS 138,010 2.300 920 CROP FINANC:NG AT 10% INTEREST 10,351 173 69 ANNUALIZATION OF CAPITAL COSTS 24,275 405 162 TOTAL COSTS -ALL CHARGES 172,636 2.877 1.151 DISEASE CONTROL - COSTS (SHSITON) 7.366 123 DISEASE CONTROL - % OF DIRECT COSTS 18'S DISEASE CCNTROL - C OF TOTAL PRODUCTION COSTS 13% Table 1. c Fertilizer Application Rates (MNature Coffee) YIELO 2.500 KGC,`A KG NUTRIENT,7A KQ(- !WTRES N P K s Ca Ug 20-013 40 0o 40 *0 S 2 0 CAN 2%2300 78 0 0 00 60 is 05 1S 20 30 Is 2 a 8 0 S P 48%I ISO 0 so 0 g 0 0 UAGMAXA '116 CR SUPERt.AG (52%) 350 0 0 0 0 8 G 56 OTAL APPUrCATION 400 1* 139 ss 20 III 70 YIELZ 2.0C KCHA KG.IA GWrREE N P K S C. Mg 10 10)0 2X 30 a0 6 0 0 CAN 26% 030 78 0 0 0 00 61 15 15I5 0 I 5 o 5 a 0 o o3s P t4I 50 0 o S 0 0 0 0 UAGMAX AI5%CR SUPERMAGO(52% 300 0 o 0 0 e9 46 TOTAI.APPUCATION I 150 100 114 5 '0 SS 56 YTELO - IXXO KCjIA KGIiIA GYMTREE N P K S Ca Mg 21010 2 3 40 20 I0 0 0 0 -.A NI 2% 250 e5 0 0 o 25 5s s is so 2 .s s 0 OSP '46%I '3 0 e8 0 0 0 3 UAGIAA 15%) OR SUPERMAG (52-% 240 3 0 2 15 38 OTAL APPUCATION 870 117 8 O5 9 so 47 Y'IEL - 120 KGHA KaHA GM/TREE -4 P K S C0 Mg 20 l010 200 40 20 20 * 0 0 C.AN (0a%i :X 52 0 0 0 20 4 15i 15 i05 0 0 4 a 3 OsP4 .a") 50 0 37 0 0 0 0 MAGMAXI164% OR SUPERUAG z%) 2o 0 0 0o 4o 02 TOTALAPPUCATION 745 102 07 05 a G6 39 SALARIES hWAGES ANPUT COSTS I PRICES us sU5 S MANAGER (ALLCCATION TO COFFEEIUSWS 560 20 10 10 US s 0TON) 300 ASST MANAGER _ 250 CA N 26% (US I I TONI 300 FSELO SUPERV1SOR (US IMONTH) 30 is 15 s I(US SU JTONI X00 CLERKS (US SI MONTHS 00 o.S P 14% (US S I TONI 300 ORrVERSrMECMANICS (US 0) MAAN GAY) 1 3 MAGMAX (16% MG) (US S1 TONS S TRACTOR OR1VERS (US S/ MAN OAYr 3 ZINC SULPHATE & EORAX RUS s I KG) 086 FIEL::/fACTORY HEAOMEN (US S I MAN DAY) 1 3 3 PHASE ELECTRIC POWER (US S KSSIHo 050 tASIC LASOUR COST (KWACHAI MAN DAY) 1250 FACTORY POWER 20 KAWHTON 06 IAS C LA6OUR (US I UMAN OAY) to PARCHMENT SAGS (US S EACNI 0o COFFEE SEEDUNGS (EACH. US o 0 1 SISAL CLOTH (SJSALTEXII (US * / METRES 6 TRANSPORT PICKERS (US S / PICKER) 00 MIoLUNG. GRADING. BAGGING . US SITON S2 TRANSPORT PARCHMENT (US S I BAG) 04 A YLEX PVC -1 METRE WVOE (US I/ IMETRE) 0 4 CONTRACT PICKING (US S I OEtSE) 0 TRACTOR TRAILER (US s I HOURI 24 PARAOUAT (US .LITREl 7 TRACTORJSPRAYER (US I IHOUR) s0 GLYPHOSATE IUSSILITRES 9 TMACTOR1C1WER(USI/IHOUR1 2.4 COPPER OXYCHLORPOE (US s I KG) s MANAGER'S PROOUCTION SONIS (US 1) TON'l 02 OELAIO CACONIL IUS5/KG) 15 PROCUCERPRICENETOFMARRKEfNGCMARGES 2.550 OIELDRIN t C (US s I UTRE) 2 MANAGEMENT FEE (US I HA) 2.4 DlSYSTONI FIURAGAN (US S/KG) 4 AGENCY FEE @ I 5% JUS S I TONI 06 0 OIPTEREX INSECTICMOE IUS 10 KG) 25 PCX-UP RUNNING COSTS (US s/ I.41 02 ExCHANGE RATE 1ZK_ USS 001 12!0 ESTATE CAR RUNNING COSTS (US SI KMS 02 U LLAR FINANCING INTEREST RATE 0% REAL RATE OF INTEREST 2% TlableD 1. it CapIlilal C osts - Fjieldl EqulTipmllfcl UNITS PRICE OST(US s) OTIIER EOlJIPMENT CAPITAL DEPRECIATION VINEYARD TRACTOR 2 12,500 25.000 DEPRECIATION 1o YRS COST COSr ]RAILER 1 5o000 5.000 -------- --------------- WATER BOWSER 1 2,500 2,500 lRACTOR DRAWN SPRAYER 1 4,000 4,000 fERTILIZER SPREADER I 2 000 2o000 IIARROW 1 4o000 4,000 SUB SOILER 1 1.500 1.500 KNAPSACK SPRAYER 10 20 200 NOTARY GRASS CUIIER 1 2o000 2.000 SAWS. SECATEURS. JEMBES ETC (SUM) SUM 1.500 TOTAL VALUE 47.700 ANNUAL DEPRECtATION OVER 1O YEARS 7.763 DEPRECIATION IRRIGATION EQUIPMENT (DRIP SYSTEM) COST @US .2,500 / .IA 150.000 11.674 (Is YEARS) COFFEE FACTORY BUILDINGS & CIVIL WQRKS 25.000 1.116 (30 YEARS) COFF-EE FACTORY MACIiINERY a EQUIPMET 25.000 1.529 120 YEARS) COFFEE ESTABLISIIMENT 60.000 2.193 (40 YEARS) IOTAL DEPRECIATION COST US S) 24.275 Mectlanical fqu p4fenI US $ US S Vehcle - Pickup 12.000 I 12.000 12,000 5Ohp kctcIw 15,000 2 30.000 30.000 Coae. spa,e Ivecal boom) 71.000 1 7.0 7.000 7.000 Disc hafow 6.000 I 6.000 l1a.e 1inm purpose) 7.000 I 7.000 7.000 7V000 Bush hog gymonower 2.000 1 2.000 2.000 WInb,ower 3.000 1 3.000 3.000 Sub kloal mchanica equIpnmnt 46,000 12.000 7,000 14,000 0 0 0 12.000 0 37.000 12.000 46.000 12.000 7.000 14,000 Ta ble I .C. 61) IiI, (:1llillet-1 rd ('eOffce DeveloPlic"alI lli lgl - ( ashi Flow U,4 u co V YR I T *2 yH* a Y4 YNa * H a * 7 Vt a Vt * IC la v1 11 Yt 12 WIt s VP4 V H1F I.,.ld.le-,,nIc C..~U.S Ou. C.. Cot Ct.. Coet Ceet Co.' Cal Cel Co." Coot Co- C-o Coa ca.' Co- I.-A P..Pm.l.iof 44 60° 2.640 6.--.oy .4-1- 2.746 3 2.741 M64.4n p-.... * l 12.000 1 12.000 I..I.4a,onqi.tl 2.600 60 71.000 76,000 P.d 40.000 10.000 *0.000 D0. ... 60.000 12.600 317.600 M-1l.eMcd SAIqinA-tl 49.000 12.000 7.000 14.000 ° 0 0 12.000 0 37.000 12,000 49.000 12.000 7.000 14.000 PdtA- p:, :-"' I 0 07 0 *.400 6zZnAA,,epl.ia. y.. I 40.0 60 2.400 Ral1d ... Ve. 2 610 60 20.600 F eld o. Va. t* 1.041 g0 62.460 1.5.1 c.u,Is.p 102.166 117.600 91.660 01,000 0 0 0 12,000 0 *7000 12.00 *0.000 12.000 7.000 14.000 Ul.kep 6t.o,dodie bhooa 1- 4 2.732 60 61.263 46.66 1*6010 12.010 126.010 11.010 1*6.010 136.010 18.010 1 23. 16.010 11.010 12.1 .0 10 1..s.1 ...U 162.016 166.663 127.646 216.650 136.010 126.010 1*2.010 160.010 1*1.010 176.010 160.010 107.010 160.010 146.010 12.010 71.44 * P.od -c:4o 26 60 0 16 76 160 160 160 160 160 160 160 160 160 160 060 t,s V.t .l P,ed.O, 2.660 60 0 47. 112 161,270 282.600 3I2.600 lOl.t00 32.600 262.-00 2I2.600 *61.600 *O2.600 161.600 *62.600 362.600 N.11,,. l,.. t.- 1162.1051 (1611.9621 10.0J71 170.2U01 244.400 244.400 244.400 222.400 244.400 207.400 232.460 166.460 232.460 237.40 230.460 1 17% .-- ..OA A-.el 41.663 41.663 41.603 31.625 41.S63 36.2713 30,623 3.222 32.623 40,173 32.153 Nat IKl- It..0-6 1161.1691 4116.0931 410.0271 132.2601 202,.27 202.627 202.627 1622.67 202.027 172.217 162.667 162,261 192.667 187,117 161.307 16TAUS WENT1 COSIB 160 "A I 443.246 ES IABUSImIENI CO IS 4UStiAl I.327 TAL VALUIE OF P*ODOUCI1OII US3IHA 6.372 N11 INCOME UFOll tAX AT FUtt DIV. lUtt $I a.642 NET INCOME Al FUt DIV. 1W $W) 2.163 IIOOOUCIIOk COSI NH lOw 620 YHDOUCUI MCK P"a TO" 2.660 PINANIAL It 26 6% -46- Table 2. a I ha. Smallholder Coffee Budget Input Rates for Labour, Fertilizers and Farms Chemicals, Tools and Equipment F.O.8. WSAKA PRICE 1996 2.8 USS/KG ESTIMATED SMALLHOLDER PRODUCER PRIC 2.6 USS/KG PLANTING DENSITY (TREES PER HECTARE) 2.000 2.000 2.000 2.000 VERY LOW LOW MEDIUM HIGH YIELD LEVEL - KG/CLEAN COFFEE'HA 180 360 600 800 LABOUR INPUTS AN DAYS AN DAYS AN DAYS AN DAYS PRUNINGiHANDLING/DESUCKERINGiCONVER 47 93 93 93 FUNGICIDE / PESTICIDE APPLICATION 16 24 40 40 FERTILIZER APPLICATION 1 4 6 8 HAND-WEEDING 27 40 53 67 NURSERY & ANNUAL INFILLING 5 5 5 5 MULCHING 4 4 8 12 PICKING 26 51 86 114 PULPING CHERRY 7 14 24 32 DRYING PARCHMENT 5 9 15 20 TOTAL MAN DAYS 137 245 330 391 FERTILIZERS & CHEMICALS - APPLICATION RATES C.A.N. FERTILIZER (KGIHA) 25 100 150 200 20:10:10 FERTILIZER (KG/HA) 25 100 150 200 COPPER (KG/HA) (1) 10 10 10 10 DELAN OR DACONIL (KG/HA) (2) 0.0 0.0 0.0 0.0 FENITROTHION (LITRESIHA) (3) 1.0 1.0 2.0 2.0 (1) COPPER OXYCHLORIDE @0 \Kg/HAfROUND (3) FENITROTHION ;@ 1 LITRE/HA/ROUND (2) DELAN @ 0 KGiHA/ROUND Tools and Equipment - Annual Costs (KSHSIHA) YIELD LEVEL (KG/HA) 180 360 600 800 KNAPSACK SPRAYER (CP3 TYPE) 9 9 9 9 SECATEUR (BLADE & ANVIL TYPE) 1 1 1 1 PRUNING SAW 2 2 2 2 FORK JEMBE / SPADE JEMBE / PANGA 3 3 3 3 PICKING BASKETS / BAGS 2 2 2 2 SUB-TOTAL TOOLS AND EQUIPMENT 16 16 16 16 -47- Table 2. b I ha, Smaliholder Coffee Budget (Page 1) Returns and Operating Costs 800 Unit Cost Cost UsS Uss NO OF TREES PER HECTARE 2.000 YIELD (KG/CLEAN COFFEEiHA) 800 PRODUCER PRICE (USS/KGI) 2.55 GROSS INCOME (USS/HA) 2.040 LABOUR PRUNING/HANDLING/DESUCKERING;CONVERSION 93 1 93 FUNGICIDE / PESTICIDE APPLICATION 12 1 12 FERTILIZER APPLICATION 6 1 6 FERTILIZER APPLICATION 8 1 8 HAND-WEEDING 67 1 67 NURSERY & ANNUAL INFILLING 5 1 5 MULCHING 12 1 12 PICKING 114 1 114 PULPING CHERRY 114 1 114 DRYING PARCHMENT 32 1 32 TRANSPORTING / MARKETING 32 1 32 SUB-TOTAL LABOUR DAYS 495 495 OTHER INPUTS C.A.N. FERTILIZER (USS/HA) 200 0.3 60 20:10:10 FERTILIZER (USS/HA) 200 0.3 60 COPPER OXYCHLORIDE (USS/HA) 10 5.0 50 FENITROTHION (USS/HA) 5 1.0 * 5 TOOLS AND EQUIPMENT (USS/HA) SUM 16 SUB-TOTAL OTHER INPUTS COSTS 191 TOTAL COSTS (USS/HA) 686 GROSS INCOME (USS/HA) 800 3 2,040 GROSS MARGIN`(USSIHA) 1,354 RETURNS LABOUR (USS/MAN DAY) 2.7 PRODUCTION COSTS (USS/KG OF CLEAN COFFEE) 0.9 -48- Table 2. b I ha. Smallholder Coffee Budget (Page 2) Establishment Cost M/D OR Unit Cost COST QUANTITY USS USS YEAR I REPAIR OF IRRIGATION CANALS 30 1.0 30 LAND PREPARATION 70 1.0 70 MEASURING & STAKING 5 1.0 5 DIGGING HOLES @ 80 PER MAN DAY 25 1.0 25 PLANTING 2,000 SEEDLINGS 6100 PER MD 20 1.0 20 MULCHING SEEDLINGS ( 80 PER MAN DAY 25 1.0 25 SPRAYING PESTICIDES 5 1.0 5 SUB-TOTAL MAN DAYS 180 180 OTHER INPUTS D.SP. @ 100 Grms PER PLANTING HOLE 0.3 2C0 60 COFFEE SEEDLINGS 2000 0.1 200 TOOLS AND EQUIPMENT 8 1.0 8 SUB-TOTAL OTHER INPUTS 268 TOTAL COSTS YEAR 1 448 YEAR 2 MAINTENENCE OF IRRIGATION CANALS 30 1.0 30 HAND WEEDING 53 1.0 53 PRUNING 20 1.0 20 MULCHING 8 1.0 8 FERTILIZER APPLICATION 6 1.0 6 FUNGICIDE APPLICATION 16 1.0 16 SUB-TOTAL LABOUR 2 103 1.0 133 OTHER INPUTS C.A.N. FERTILIZER 150 0.3 45 20:10:10 FERTILIZER 150 0.3 45 COPPER (CERCOSPORA CONTROL) 10 5.0 50 FENITROTHION INSEC7ICIDE 3 1.0 3 SUB-TOTAL OTHER INPUTS 143 TOTAL COSTS YEAR 2 276 YEAR 3 MAINTENENCE OF IRRIGATION CANALS 30 1.0 30 HAND WEEDING 67 1.0 67 P5UN1NG 63 1.0 63 MULCHING 12 1.0 12 FERTILIZER APPLICATION 8 1.0. 8 FUNGICIDE APPLICATION 40 1.0 40 SUB-TOTAL LABOUR 3 190 190 OTHER INPUTS C.A.N. FERTILIZER 60 0.3 18 20:10:10 FERTILIZER 60 0.3 18 COPPER OXYCHLORIDE 10 5.0 50 FENITROTHION INSECTICIOE 3 1.0 3 SUB-TOTAL OTHER INPUTS YEAR 3 89 TOTAL COSTS YEAR 3 279 ESTABLISHMENT COSTS - LABOUR 503 ESTABLISHMENT COSTS - OTHER INPUTS 500 TOTAL ESTABLISHMENT COSTS 1,003 Smallholder milling charges 105 Smallholder storage & insurance 95 Smallholder bulking/recording 50 Smallhoder collection & transport 200 Subtotal smajlholder cntarges 450 Table 2. c I ha, Smaliholder Coffee Btidget Casbt Flow Uat Toa VA 3 Toi4 T o V I TRII Ti Ni v to10 Vat vita vati it VO 1 aI 1Z.___ ._ ~~ ~ ~~~ ~~U., 0., C.. C_. C_ c_ C- C-I C_ C ~ C- C-I C.. f- 1 41 14 * -- T. *- U 445 *4 U.N,.... b..& . 6 .- I..W T, 2 216 U 270 A".M.--- t..&.d ...A.. *3 2 a11 U i _t..d P.4.. 133% . .-_I 60 s o0 6... -. .- 445 li7 275 6O KI9- 460 410 460 460 450 460 460 460 460 460 4o0 460 460 460 ,Dk.. A V , "s 242 "a *i "a "6 o8n "5 A ass aI aIS m ass "aa f.- 1.64. 31 1.. . "4 its tAIl Ut. t .3 t tt3i 1.135 1.136 1.130 t .3i t t3 .13 1.136 1t3U 4i Ustim go U.4.v... .d... 6 5000 204 1,020 2.040 2.040 2.040 2.040 2.040 2.040 2.040 2.040 2.040 2.040 2.040 Mm .. _6. 34451 t is 112t1l fleet 004 *04 *04 604 504 604 904 904 504 604 504 It m ALIGHWIll COaTv US (Al 1.053 PRODUCTION COSTS UG $lMA U.1ti IOtAL VAIUL Of PIODUCTIOM US 4AM 2 040 Mfg tCOAI AT fUIt DIV. UW SA 904 POODUCIK CotIn us sd Uo 45 lOODUCiS MCEI US 4MG 2 66 1`96APICIAL n 23 6% -50- 0o U *~~~~~~~~~~ (*nn^ D-nonD-n * - D8 X 8 8 8 G ° - - n -041 -~ ~~~~~~~~~ _0 - O-888 D 6 0 ., 0- C~~~~'Ct¶0(~sN n 0 D _ 1 - S 8o 88 Co CN0( COo 00 D'D' 0 U ,00 o .CCN , OD .00GD 4nDc o~~~~~~~~~~ C n00 000_G 00n0D_ D - 'U G 8 *08° 000D0000Q e~~~~~~0 U _ > U D So D O § t° ~~5NC(D8 DD Dt. Or, -3 _ 0. 8Do DG 88ttR3__o , z ,> 2 su D- U 0 °, iO° 0 0) 0) 0 ge°°= 338 o G o 5D5 00 0 8 8,,8D Cn 4 ~ ~ ~ ~ 0 >- U 0- C 0 0-O O 8 0 88w9=°<2' C,~~~~~~~~~ ~~~~~~~~~~~ -t" u - C~~~~~~~~~~~ - S N 8 a 82 0C c 00 0 5°8R 888n55n800D05 D_ O vN Cl~~~~ ~~ NN~ 4100NN 34__ §n 3DRD N S8a R5 000 0G.GO w 0 ~~~~~~~~ (N CC~~~~~~~~~~~~ a U (NNC i 9flOOOn(32 .N9a 0S41 Tablcl 4. Economnic Anialysis (Page I) 1994 -1995 19W8O 1997 1998 1999 200;0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Cornmercaal Farmewig Ilolal Value o1 Produiction (000 US$S) 0 00 0 00 4 4780 -191 30 382 50 382 50 392 50 38250O 382 50 382 50 382 50 392 50 382 50 382 50 382 50 382 50 382 50 382 50 38250U lolal Cosi 152 20 168 90 1378 -O 219 50 13800O 138 00 13800o 150 00 138 00 17500U 150 00 187 00 150 00 146 00 15200O 152 00 -152 00 152 00 152 00 -Adjustedfor Labour (50%) 149 30 162 80 --133 20 --214 90 133 40 133 40 133 40 145 40 133 40 1 70 40 145 40 182 40 145 40 141 40 147 40 14 740 147 40 14 740 147 40 -Adjusted tol97ncs/ 374 74 218 502 214 90 133 40 133 40 133 40 14 540 133 40 170 40 145 40 182 40 145 40 14 140 14 740 14 740 147 40 147 40 147140 *Adtusleed ftoDut.es[Taxes(-20%) 299 79 217 50 120 41 171 92 106 72 106 72 106 72 116 32 106 72 136 32 116 32 145 92 116 32 11312 117 92 117 92 117 92 117 92 117 92 Adjust ed by sct(O ) 3D9 84 174 00 9633 1'37 54 85 38 85 38 853:8 93 06 85 38 109 06 93 06 116 74 93 06 90 50 94 34 94 34 94 34 94 34 94 34 Nei lncomre 66Oha -23984 .174 00 -48 5b 53176 297 12 29712 297 12 289 44 297 12 273 44 289 44 265 76 289 44 292 00 288 16 208816 288 16 286816 288 16 Net lncoine Iha -4 00 -2 90 -081 00 go 4 95 4 95 4695 4982 4 95 4 56 4 82 4 43 4 82 4 87 480 480 4 80 4 80 4 80 Phasing ha 302 00 --302 00 302 00 -302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 302 00 30200O -- 838 00 83800O 838 00 _838 00 838 00 838 00 _838 00 838 00 83800O 838 00 838 00 838 00 838 00 838 00 038 00 838 00 838 00 838 00 l- - ______ - ~~~~~~oo32 -0 320 0 - 320 00 320 00 320 00320 00 320 00 320 00 320 00 320 00 320 00 -320 00 320 00 32000 32 000 320 00 32000o 9000o 90 00 90 00 9000O 90 00 90 00 9000O 90 00 90 00 90 00 90 00 9000O 90 00 90 00 90 00 9000r Phased Income -1207 17 -875 80 -244 27 270 61 1495 52 1495 52 1495 52 1456 81 1495 52 1376 33 1456 87 1337 68 1456 87 1469 75 1450 43 1450 43 1450O43 1450 43 1450 43 -3349 70 -24 30 21 -677 81-75090 6 4149 83 4149 83 4149 83 4042 57 4149 83 3819 10 4042 57 3711 84 4042 57 4078 32 4024 69 -4024 69 4024 69 4024 69 -1279 12 -928 00 -258 83~ 286 74 1584 66 1511466 1 584 66 1543 70 -15860l6 1458 37 154370 1417 41 1543 70 1557 35 1536 87 1536 87 153687/ I 1 ~~~~~~~~~~~~~-359 75 -261 00 -72 80 80 65 446 69 445 69 445 69 434 17 445 69 410 17 434 17 398 65 434 17 438 01 432 25 432 25 Itotal Nt4eI ncome Commiercial Farmving 1207 17 -4225 51 -3953 60 -1694 95 1726 60 585930 73106 6 7637 05 7568 44 75155i5 7294 80 7284 30 7122 57 7363 90 7471 10 7466 64 7450 00 744424 7414424 Smaltholder Farmfng ToalatValue of Poduclioti (000US ) 000a 0 00 0 00 0 20 --162 2 04 2 204 2 04 2 04 2 204 2 204 2 04 2 04 2 04 2 04 2 04 2 204 -2 04 2 04 Total Costs 0 00 0 45 0 62 1 42 119 11V4 1 14 1 14 1 14 1 14 1 14 1 14 1 14 1 14 -114 1 14 1 14 1 14 1 14 -Adjusted for abouw(-50%) - 0900 0O36 0 55 1 32 109 1 04-1 04 1 04 1 04 1 04 -104 1 04 1 04 1 04 1 04 10-4 1 04 1 04 1 04 *AtSell9pics400 - 02 i2 0 14 14 14 10404 4 I10-0 4 104 1 04 1 04 1 04 I104 1064 1 04 ¶Adjusled for ulesfraxes( 10%) 0 00 0 54 0 56 118e 0 98 0 93 0 93 0 93 0 93 0 93 0 93 0 93 0 93 0 93 0 93 0 93 0 93 0913 0 93 -Adjusted byscld(08) 0 00 0 43 _ 0 45 0 95 0 78 075 0 75 075 0 75 0 75 0 75 0 75 0 75 0 75 0 75 0 75 0 75 0 75 0 75 Necli Icornelha 0 00 -043 -0 45 -0 74 0 24 1 29 1 29 1 29 1279 1 29 - 129 I 29 1 29 1 29 1 29 1 29 1 29 1 29 1 29 Phrasing ha - 45 00 - 45 00 45 00 45 00 45 00 4500O 45 00 45 00 45 00 45 00 45 00 45 00 45 00 45 00 45900 450 45 00 45 00 75 00 75 00 -75 00 75 00 75 00 75 00 75 00 75 00 75 00 75 00 7500O 75 00 75 00 75 00 75 00~ 7500 -75 00 20000 200.00 200 00 20 000 20 000 200 00 -20000O 200 00 2000DO 200 00 200 00 200 00 20 000200 00 _200060 200 00 Phased Income 0 00 -I -1i 37 -20 10 -33 43 107T1 .5823 583 58 23 -58 23 58 23 5823 58 23 58 23 58 23 58 23 58 23 -58 23 58 23 000 -32 28 -33 56 -5571-7 86 916 9706 97 06 97 06 97 06 97 06 97 06 97 06 97 06 90 76 90 - - - -- ~~~~~~~ ~~-- -- 0600--860 -i 89 33 --148 56 47 62 282- 2588 282 2 258258 5882 58822 258 288 82 2 8-25882 Total Net incomfe Smiaiholdr Fa v0 00 -19 37 --52 38 -153 02 - -34 33 - 72 47 202 91 414 11 414 I1 414 11 -4141I1 414 11 41411I 414 11 414 It 414 11 - 4141 4141I1 Table 4. Ecoiioitmic Anialysis (I'age 2) 1994 1995 19S6 1997 1998 199t 2000 2001 2002 2003 2004 2005 20061 2007 2008 2009 2010O 2011 201? o.t Flowet Developrnenl Tolal Value ul ProductoE (000 US1 000 378 50 681 30 757 00 1135 50 1135 50 1135 50 1514 00 1S14 00 1514 00 1514 00 1514 00 1514 00 1514 00 1514 00 1514 00 1514 0O 1514 00 1514 00 lolal Cost 0 00 1165 50 399 90 444 40 832 50 68010 680 10 06d 30 1I5 90 I I90 628 20 82U 20 828 2t 828 20 828 20 828 i0 828 20 828 20 828 20 *AdjuMIedu lt Iabout 1 50%) 0 00 1149130 381 OI0 423 40 801 00 648060 648 6(1 930i 41) 084 01) 1,84 ((( (¶10 :10 08 116 8 11 l76 80 1 (680U 11 080 (180 717680 11680 7 0 77ig Adjusled to 1997 puces It 0 00 1918 33 430 53 423 40 801 00 648 60 648 60 93(G 40 684 00 GB4 00 /96 30 7/6 80 11/6 d 7116 80 7 /6d80 | 6 80 716 80 776 80 716 8u Adjusted tus DulreslTaxes (-30%) 0 00 1342 83 301 37 296 38 560 70 454 02 454 02 655 48 47B 80 478 80 557 41 543 76 543 71 543 76 543 76 543 76 543 76 543 76 543 7t Adjusled by scl (0 8) a 00 1074 26 241 1p 237 10 448 56 363 22 363 22 524 38 383 04 383 04 445 93 435 0l 435 01 435 01 435 01 435 01 435 01 435 01 435 01 NetdnconI ha 3 000 -68576 44 0 5199 0 68894 11228 17228 989062 13096 00 3000 0 0807 107889 07899 (0788 1078399 100 89 1078099 103 09 1078 9 Phased lia ~3 00 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 3001 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 3 00 r. 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 I P liased Ilicolc 0 00 2087 2b1 1320 61 1559 69 2060 82 2316 85 2316 85 2068 85 3392 88 3392 88 3204 22 3236 98 3236 98 3236 98 3236 98 3236 98 3236 98 3236 98 000 208729 132061 155969 206082 231685 231685 296885 339288 339288 320422 323698 323698 323698 323698 323698 323698 0 00 2783 06 1760 81 20/9 58 2747 76 30M9 14 3089 14 3958 46 4523 84 4523 84 4272 29 4315 97 43 1597 431597 4315 97 4315 97 Iloa) Net Incomne Cuti Flower Dev 0 00 0 00 -2087 29 -66 68 97 24 5381 32 6457 26 7381 46 8374 84 9450 86 10744 22 11120 94 10965 03 10746 24 10789 92 10789 92 10789 92 10789 92 10789 92 G(and 1o4al NelIncome -1207 17 -4225 51 6060 26 -2514 02 1670 82 11106 29 13695 45 15221 42 16357 38 17380 52 18453 13 18819 34 18501 71 18524 24 18675 12 18670 66 18654 02 18648 26 18648 26 1/ Assum tIocalmtnla8onaltesof 90% 616%. 616/ 35%, andFE ofO 365%. 451%. 29% forlhe years 1993, 1994, 1995. and 1996. respec6lvely _ ~~~~ ~ ~ ~ ~ ~ ~~44%1 - I I I - I I' - - _ I I_ - -53- APPENDIX C BORROWER CONTRIBUTION TO THE ICR -54- IMPLEMENTATION COMPLETION REPORT ZAMBIA SECOND COFFEE PROJECT (Cr. 1743-ZA) BORROWER CONTRIBUTION TO THE ICR Evaluation Summary 1.0 The overall objective of the Coffee 1I Project is to produce annually, 4,700 tons of high quality arabica coffee from a hectarage of about 3,300 which would be established under the Project. Specifically, the Project aims to provide credit facilities to smallholder, emergent and comnmercial farmers for establishment and expansion of coffee plantings: to establish an efficient coffee industry in Zambia; and to build up national expertise in management. production and marketing of coffee. The Project's components are credit provision to coffee farmers, coffee extension support, strengthening coffee research. technical assistance and training in coffee marketing, and financial assistance to the then parasratal. Zambia Coffee Company Limited (ZCCL). 2.0 The Project's objectives are clear and realistic as the countrv has alreadv established a base for coffee production. The objectives are also in line with the overall long-term economic and sector objectives and the Bank's strategy for agricultural development in Zambia. The project's life cycle of seven years is also realistic. 3.0 The Project is being assessed half way through the initial planned implementation time frame when the full impact is yet to be felt. However, the project has established a base for increased coffee (and flower) production for both smallholder and commercial farmers. There has been great response from smallholder farmers who have, with the support of project extension staff, established sizeable coffee fields in the northern parts of Zambia. Two banks have participated in the credit component. Those commercial farmers who have accessed credit funds have been able to increase their coffee and cut flower hectarage. However. smallholder farmers have not benefited from the credit funds. They also have not yet realized financial rewards from their coffee plantines. This is due to the nature of the crop (3-4 years before maturity). The extension component has performed verv well in establishinz coffee nurseries and ensuring that smallholder farmners take up coffee production. The research cornponent has not been effective due to lack of qualified personnel in coffee agronomy. The Project has been able to train some ZCGA personnel in coffee marketing and liquoring, and has procured laboratory equipment for the Association for coffee liquoring. The PMUL' has also performed well in facilitating Project implementation. -55- [.0 The Project can be sustainable provided certain conditions are met. These include the :'ollowing: need to ensure focussed extension support to smaliholder farmers that should cover not only coffee nursery preparation. but coffee processing, storage. and marketing as well; research efforts should address pressing problems of disease control, higher yielding varieties and environmental management: smallholder farmers will need targeted credit that takes into account their status. and credit funds should revolve for increased coffee, cut flower, soybeans, and wheat production.Calculations of Economic and Internal Rates of Return for commercial farmer coffee and cut-flowers enterprises indicates that they are both financially and economically viable. Although the smallholder coffee does not come out well in terms of the two ratios due to variances in assumptions. overall, one can say that the Coffee II Project is sustainable. 5.0 According to the SAR. total costs of the Project. including physical and price contingencies were estimated at US $34.9 million, with a foreign exchange component of US $ 21.8 millior or 63 percent. The Project provided for an IDA credit of SDR 16.9 million. 6.0 The financing of the Project was to come from the Project itself, participating farmers anc financial institutions contributions, government contribution and ZCCL. The PMU was tc administer the extension. research, and marketing component funds, while the credit funds were to be channelled through the participating banks. ZCCL was to be funded directly. The original timetable for the Project was that it would be executed over a period of seven years from 1987 to 1994. The actual implementation period of the Project is now 1993 to Decembei 31, 1996. In January. 1997, the Project is to be integrated into ASIP. 7.0 The Project was approved in 1987 and declared effective five years later in 1992. The delay in effectiveness was as a result of changed circumstances, notably suspension ol disbursement by the World Bank to Zambia, and policy and institutional changes by the government of Zambia. Even after being declared effective, there were delays in commencinc implementation which can largely be attributed to the Government of Zambia. There were modifications to the project to take account of changed circumstances. notably with regard tc the change in the executing agency. LINTCO was dropped out of being the promoter o smallholder coffee production. Further, when implementation started, the Project was openec up to carter for crops other than coffee such as cut-flowers, soybeans and wheat. 8.0 The Bank's performance in Project identification, appraisal and implementation has generally been satisfactory. However, a lot more could have been achieved had the Bank done better in speeding up disbursement and in helping to remove any bottlenecks in this area. Tht borrower's performance was rather very unsatisfactory especially with regard to Project start up and in removing impediments to the speedy implementation of the Project. However, once implementation started. things began to move, particularly when the PMU was put in place 9.0 It is too early at this stage to give an accurate assessment of the Project outcome as th. Project has just entered the third year of implementation. Most farmers who are participating under the Project have not yet realized any earnings from their coffee and cut-flower fields IHowever, the response from both smallholder and commercial farmers in terms of coffee an( tlower production has been verv encouraging. -56- 10.0 The group approach for smallholder coffee farmers is good for sustainability. Proje Extension staff are applauded here for establishing nurseries and for being innovative t giving the groups a small amount of credit in form of inputs (seedlings, chemicals, fertilizer Smallholder farmers' response to coffee production has been very good. This is in spite 4 lack of credit from PBs. It is anticipated that once smallholder farmers start realizing earnint from their coffee, more will take up coffee production. 11.0 Plans for future project operations are that the Project be integrated into ASIP in 199' The Research and Extension components will easily be integrated into ASIP. However, it important that the project extension staff are retained during integration. The ZCGA hz expressed willingness to assist in marketing the smallholder coffee. The Credit component wi have to operate within ASIP but as part of the private sector development. Once repaymen start coming in, the credit funds will have to revolve. The revolving fund mechanism shoul be administered on the basis of an appropriate institutional framework. The Coffee Board wi have to play its regulatory role in ensuring that all players in the Coffee industry play their ro. in accordance with the provisions of the Coffee Act. 12.0 Major lessons learnt from Project implementation so far include the fact that fc smallholder farmers, the group approach is the most ideal way of encouraging increased coffe production.There is need for simplified disbursement arrangements for credit funds for suc a Project. The disbursement set-up under the Coffee II Project (from IDA to BOZ, from BO. to PBs, and from PBs to the target group-farmers) has rather been slow, cumbersome an costly to farmers. -S7- ' .bp:mk- 2D393 RIC AORIMZA 43990 MRC. ZA 4009I ,Wmc AGRiM uEPBULIC OF ZAM3U MINISTRY OF AGRICULTURE, FOOD AND FISHERIES MULUNGUSHI HOUSE, NEPENDNC AVEUE P.O. BOX 50191 15 100 GEWAY LUSAXA 4th June, 1997. .Mfr. Raiah Ranasinghe World Bank Internarional Finance Corporation Multilateral Investment Guarantee Agency Washington D.C. U.S.A. Re: ZANXBLA COFFEE II PROSECT: IRLEMENTATION CONOLETION REPORT (ICER. Refer to your fax message and the phone conversation we had vesterdav regardin tilhe above suoject. We have read the ICR and find it acceptable. ?iowever, a key question that the Report does not adequately address aind for which we have great concern is the mechanism of how the Credit funds (US S20.06 million) given out to 28 commercial coffee and 10 cut flower producers will revolve. Farmers have insisced that thie funds should revolve. particularly to support further cotree oroduction. Our other major concern is tlat smallholder coffee farmers have not benefitted from the credit funds. It is therefore imperative that some mechanism is found on how we can assist them- given zbat he Project has created a good momernum that we should keep aoing by making available credir funds, taking into account cheir starus. You may wish to note that alread , we have information that some commnercial farmers who received their loans earlv have already started repaying their loans to the two participating ban,cs, Zambia National Commercial Bank and Development Bank of Zambia, who in turn are not remitting this money to Bank of Zambia. Further, can you piease advise on whether it is possibie to acctss the balance of the money remaining from the Project so that we can make it available to small scale farmers. Our view is that these funds could be channelled to the Coffee Board which could then make them available to th-e smail-holder coffee farmers. Finally, you may also wish to consider some of the conclusions from the Borrower's -58- own ICR which was an input in the Bank's ICR. Yours ely, £aw~1a Acting Deputy Director Economics and Marker Development Department ForiPermanent Secretary MINISTRY OF AGRICULTURE, FOOD AND FISHEREES. cc. Mr Alex Mundia Operations Officer (Agriculture) World Bank Office, Lusaka. IMAGING Report No.: 16810 Type: ICR