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Folder Title: Agricultural Marketing and Estate Development Project - Malawi - Credit1966 - P001650 - Supervision Reports

Folder ID: 30065021

Project ID: P001650

Dates: 03/31/1994- 08/10/1994

Fonds: Records of the Africa Regional Vice Presidency

ISAD Reference Code: WB IBRD/IDA AFR

Digitized: 2/28/2020

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THE WORLD BANKWashington, D.C.

© International Bank for Reconstruction and Development / International Development Association orThe World Bank1818 H Street NWWashington DC 20433Telephone: 202-473-1000Internet: www.worldbank.org

CREDIT No. 1966-MW MALAWI - AGRICULTURE MKTG &PRODUCT ID No. MW-PA-1650 ESTATE DEVELOPMENTMIS TASK No. 3MALPA064 0 SUPERVISION REPORTS

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P008 51

WBG Archives

THE WORLD BANK/FC/MIGA

OFFICE MEMORANDUM

DATE: August 10, 1994

TO: Fred King, Acting Chief, AF6AERobert Christiansen, Country Operations Manager, AF6C3

FROM: Richard Anson, Task Manager, AF6AE1

EXTENSION: 3-4397

SUBJECT: Malawi- Agricultural Marketing and Estate Development Project (Cr. 1966-MAI)Agricultural Services Project (Cr. 2514-MAI)Full Supervision Report

1. Attached please find the full supervision report for the above two projects. This reportcontains:

• Forms 590- Implementation Summary for each project;• Follow-Up letter to Government, endorsing the mission recommendations (Attachment 1);• Final Aide Memoire (Attachment 2);• Latest Status of Covenant Compliance for AMED Project (Attachment 3);• Latest Status of Covenant Compliance for ASP (Attachment 4);• AMED Performance Indicators (Attachment 5);• ASP Performance Indicators (Attachment 6).

2. The Agricultural Marketing and Estate Development (AMED) Project is making satisfactoryprogress, and is focusing on implementing the recommendations arising from the mid-term evaluationin late 1993. A major area of focus is to support measures which will expand competition in inputand produce trading, but the recent drought is delaying the full implementation of various marketingand pricing reforms recently initiated. The project is also supporting measures which will promotegreater agricultural diversification, especially by expanding access to finance to small and mediumestates.

3. The Agricultural Services Project (ASP) is making satisfactory progress, especially given thatit was launched in late 1993. It is focusing on reforming national systems of research, extension,input supply and budgetary and management systems in the sectoral Ministry. Given the recentdrought, ASP is focusing efforts helping smallholders prepare for the upcoming crop season as part ofa drought recovery program. Other donors are also co-financing ASP and its national programs.

4. In both projects, the Resident Mission (particularly the local staff) are playing effective roles inproviding implementation assistance and enhancing capacity and confidence for securing results in thefield.

cc (* 590 Form only): Messrs./Mmes: Denning*, De Azcarate*, Edstrom, Tidrick*(AF6DR);Aksoy*, Ahsan, Folkerts-Landau*, Schafer and Bruns (AF6MI); Racki*, Seibert, Sherpherd(AF6IN); Grawe*, Ribe, Chaubey, Mugwagwa, Salah (AF6PH); Zulfiqar, Pohland, Hiwa, M'buka,Sibale (AF6ML); Chausse, Asibey, Bunyasi, Fullerton, Jaffee, Macklin, McNamara, Okidegbe(AF6AE); Cleaver*, Otten*, Sharma, Rietbergen, Spurling, Toure, Venkatesan (AFT); Freese(LOAAF); Zerabruk (AFLEG); AF6AE Files and Africa Files.

THE WORLD BANK Run Time: 08/08/94 at 11.55.51'form 590 Page 1 of 2 IBRD and IDA - Implementation Summary

. -. - .-.--.---- ------------------------------------- () the initial summaryDetailed instructions on completion of This Summary is (X) part of a mission reportThis Form are in Annex 0 of OD13.05. *** Working Version *** (_) an update

Regional Office: Project Name: Loan/Credit Numbers: L/C Amt ($XX.XM/SDR) IType of LendingVP - AFRICA AGRI.MARKETING & EST C19660 Original: 18.3 / 14.2 Instrument:

Project Code:3MALPA064 Revised: SIm

Country: Borrower: Board Date: | Signing Date: | Effective Date:MALAWI I GOVT. j 12/01/88 03/31/89 06/09/89

Managing Dept/Div Name: Dept/Div Code: Task Manager: Mission End Date: 07/16/94 Last 590: 04/12/94AGRICULTURE & ENVIRONMENT DIVISN | 23220 Anson | Next Mission (mo/yr): 11/94 | This 590: 06/30/94

Program Objective Category(POC): PA - Poverty Red. and Human Resource Dev.SECTION 1:Summary of Project Development Objectives:

The project aims to improve the marketing system for small smallholder farmers' crops by helping to develop a multi-channel marketing system. The project is also designed to improve resource utilization and productivity on estates anddevelop agricultural processing through providing 'medium term credit through the banking system. During the drought of1992, the project was restructured to support drought recovery efforts by providing seasonal credit to smalLholders.

SECTION 2:Summary of Project Components:

~ project, which is being implemented over a seven-year period, includes the following components: seasonal and medium-m credit through Malawits two commercial banks and INDEBANK for development of estates and agricultural processing;

short and medium-term credit through SEDOM for a pilot credit program for rural traders; strengthening the Pricing &Marketing Section of the Ministry of Agriculture Planning Division; introducing a crop export quality control systemthrough the Malawi Bureau of standards; and development of market infrastructure. The project also extended a line ofcredit to SACA, for on-lending to smaltholder farmers, following the 1992 drought.

SECTION 3: Project Data and Performance Ratings:--------- ------------------------------------ (mo/yr)Basic Data Closing Date Project Cost Disbursement 06/94

($XX.XM) (SXX.XM) (% of L/C)Original (from SAR/PR): 06/30/1996 $28.3 Original SAR/PR Forecast: $16.0 87.4%As Formally Revised: 06/30/1996 $28.3 Formally Revised Forecast:Expected-Last Form 590: 06/30/1996 $28.3 Actual Disbursement: $16.7 91.5%Expected-This Form 590: 06/30/1996 $28.3 Disb. Forecast for CFY: $2.3 12.6%Number of formal closing date extensions: 0 Undisb. Credit Bal.(SDRs) $2.0 14.4%Date of last closing date extension (mo/yr):Project Age: 5.6 years or 73.6% of elapsed time between Board approval and Expected-This Form-590 closing date.

Reporting: End of period covered by last project progress report (mo/yr): 03/94

Indices This Form 590 Last Form 590 Audits and Accounts Number

ing Delay .0% .0% Overdue Fin. Stmnts/Project Accounts: 0L-< Overrun .0% .0% Overdue SOE Audits: 0Disbursement Lag (4.7)% (5.2)% Overdue Special Account Audits: 0

Qualified and Unsatisfactory Audits: 0

Mandatory Ratings This Form 590 Last Form 590 Other Ratings This Form 590 Last Form 590

Suimmary Ratings: Procurement Progress 1 1Project Development Objectives S 2 Training Progress 2 .2Implementation Progress S 2 Technical Asst. Progress 2 2Other Ratings: Studies Progress 1 1Compliance With Legal Covenants 2 2 Environmental Aspects NR NRProject Management Performance 2 2 Financial Performance 2 2Availability Of Funds 2 2

SECTION 4: Supervision Management: Participated In---------------------------------- The Previous (mo/yr)Names Of Mission Members Member Specialization Mission (Yes/No) Time Spent On Supervision 06/94

RICHARD ANSON AGR. ECONOMIST Y S/W Up To Current FY : 50.6STANLEY HIWA AGR. ECONOMIST Y S/W Planned During Current FY: 13.0ASHOK CHAKRAVARTI CREDIT SPECIALIST Y S/W Actual During Current FY -

Total : 12.3In Field : 2.7

Reflects June/July 1994 Mission.

THE WORLD BANK Run Time: 08/10/94 at 10.59.28Form 590 Page 2 of 2 IBRD and IDA - Implementation Surmary.......- ......... . .-.--- ..-----------.-------------- C_) the Initial sumary

Detailed instructions on cmplpetion of This Sumarry is (X) part of a mission reportThis Form are in Annex D of CD13.05. *** Working Version *** (_) an update

Project 10: 3MALPA064 I Form 590 date: 06/30/94 (

Explain the various factors on which the above Project Developnent Objectives rating is based:

AMED is supporting improvements in marketing policies, market information and advisory services, and exparded avail-ability of credit fonds (within the framework of inprovements of a more sustainable rural finance system) to promote amore efficient and copetitive trading sector involving key inputs and produce. Achievements, although delayed andbelow expectations, are contributing to the implementation of Government's market policy reforms (as reflected byMOALD's recently prepared Agricultural and Livestock Strategy docunent and Action Plan) through providing enhancedmarket information, expanded cmpetition and access to rural finance to enable enhanced farmer (smalLholder and estate)productivity and agricultural diversification. The main risks refer to sustained Government comitment to implementingstated market reforms, including a revised role of ADMARC and coplete removal of trading restrictions for domestic andexport markets.

-- - -- --- --- --- --- ---- --- --- --- --- --- ---- --- --- --- --- --- ---- --- --- --- --- --- - -

IMPLEMENTATION SUMeARY (CONTINUED) 1/PAGE 2 OF 2

COUNTRY/PROJECT NAME: Agricultural Marketing and Estate Development ProjectPROJECT CODE: 3MALPAO64DATE: 06/30/94

SECTION 5: ACTIONS PREVIOUSLY AGREED OR RECOMMENDED (SECTION 8 OF LAST FORM 590):

(a) Government to finalize participating financial institution (PFI) arrangements with Indefund and MRFC in order toexpand lending to small estates for diversification;

(b) Government to formally approve and implement key actions to further liberalize inputs and commodity trading;(c) Treasury and ADMARC to start implementing the provisions of the Memorandum of Understanding (MOU);(d) Government to fill key posts in Pricing and Marketing Section;(e) MOA to finalize design of marketing' extension service;(f) Project Management to improve financial management and project reporting systems; and(g) RBM/SEDOM to arrange management audit and expand lending to traders.

SECTION 6: ACTIONS TAKEN BY (a) BORROWER AND (b) BANK SINCE PREVIOUS FORM 590:

(a) Reserve Bank finalized PFI agreement with Indefund, which is in the process of appraising several loan proposalswhich appear promising. Limited balance in the line of credit and MRFC's limited capacity to tend this cropseason do not justify the inclusion of MRFC as a PFI.

'b) MOALD recomended to Cabinet policy of removing all domestic and export restrictions on inputs and commoditytrading (with the exception of maize and beans in the drought year); GM has agreed to phase policyimplementation over the next 1 year, to account for drought situation.

(c) Treasury has started to reimburse ADMARC for social functions based on the MOU guidelines. There still is anoutstanding amount of more than MK90 million in arrears to be paid.

(d) The Principal Economist post in Marketing Section is still vacant. EP&D has held interviews for vacant posts andintends soon to select a suitable candidate to fill the vacant post.

(e) GON has produced a draft design of a market extension service and plans to initiate implementation this comingcrop season (which will also support domestic diversification);

(f) MOALD has recruited a Planning and Budget Adviser who has developed initial improved procedures for improvingexpenditure monitoring and reporting (as part of the ASP, which will apply to AMED.

(g) RBM/SEDOM finalized TOR for management, is making arrangements for audit, and expanded lending to traders in thefor the 1994 marketing season.

SECTION 7: SUMMARY OF CURRENT PROJECT STATUS AND MAJOR PROBLEMS:

The project is making satisfactory progress, including progress in: formulation, decision-making and implementation ofimprovements in marketing policies which is expanding competition in produce (and eventually input) trading, arrangementsto expand credit activities for small-estates (especially with entry of Indefund's participation), pilot scheme forprivate traders as reflected by good recovery levels, expanded marketing infrastructure, and improved arrangements forvoluntary export standards. The main problems refer to the small estate credit sub-component which supportsdiversification activities, financing arrangements for market infrastructure, and delay in improving financial managementand accounting, and the delay in the posting of a Principal Economist to head the Pricing and Marketing Section.

SECTION 8: SUMMARY OF AGREEMENTS WITH BORROWER, AND FURTHER ACTIONS RECOMMENDED TO BE TAKEN BY (a) BORROWER AND (b)BANK:A. The Government (primarily through MOALD) has agreed to carry out the following key actions (not later than end-

September, 1994): (a) announce input and produce prices of maize and fertilizer for this next crop season, basedon price review analysis; (b) formally approve and publicize (this crop season, and to be in effect not laterthan 1995 harvest) expanded liberalization of input and commodity trading, including seed production and retail,fertilizer retailing, exports of produce (except maize); (c) strengthen the market price information system tobroaden the geographical coverage and to include price data on inputs; and, (d) permit SEDOM to pilot tending tosmall/mediun scale traders for input trading in the upcoming crop season, and to allow SEDOM to hold the pilotscheme funds in a revolving account; (e) Ministry of Local Government to finalize arrangements for getting localcouncils to self-finance O&M of market facilities financed by AMED.

B. The Bank (a) issued (07/29/94) mission letter to GOM (see Attachment 1) highlighting key actions; (b) willcontinue to provide implementation assistance, especially to focus efforts on above key actions; and (c) willcarry out joint supervision mission in about November/December 1994.

TASK MANAGER: R. Anson ' WED BY: (DIVISIONAL MANAGER) REVIEWED BY: (DIR/RVP)

.Anson, Acting Chief, AF6AENAME OF PREPARING OFFICER: . Anson/S. Hiwa

R. Christia , ountry OperationsManager, AF6C3

THE WORLD BANK Run Time: 08/08/94.at 12.14.18-Form 590 Page 1 of 2 IBRD and IDA - Implementation Summary

...----- ...-. .---- ------------------------------------- ( ) the initial summaryDetailed instructions on completion of This Summary is (X) part of a mission reportThis Form are in Annex D of OD13.05. * Working Version *** (_) an update

Regional Office: Project Name: I Loan/Credit Numbers: L/C Amt (SXX.XM/SDR) jType of LendingVP - AFRICA AGRIC SERVICES C25140 Original: 45.8 / 33.0 Instrument:

Project Code:3MALPA074 Revised: SIL

Country: Borrower: Board Date: Signing Date: Effective Date:MALAWI GOM | 06/15/93 10/01/93 01/21/94

Managing Dept/Div Name: Dept/Div Code: Task Manager: Mission End Date: 07/16/94 Last 590: 04/12/94AGRICULTURE & ENVIRONMENT DIVISN | 23220 | Anson I Next Mission (mo/yr): 11/94 This 590: 06/30/94 *

Program Objective Category(POC): PA - Poverty Red. and Human Resource Dev.SECTION 1:Summary of Project Development Objectives:

The objectives are to improve smallholder fa-rm incomes and food security by increasing productivity and diversifyingproduction on a sustainable basis. The project will support institutional and management reforms of research, extensionand input supply with the aims of providing cost;effective, relevant and sustainable technologies suitable for adoptionby a high proportion of smaltholders.

SECTION 2:Sumary of Project Components:

'he project is part of a long term national programto reform and integrate key agricultural services for smalLholders,nd comprises four main components: (i) Agricultural Research. The research system will be strengthened through

-formation and implementation of research plans that reflect user priorities; (ii) Agricultural Extension. The efficiencyof extension services will be improved to expand smallholder coverage in crops/agro-forestry, livestock, seeds andfurtilizer, resource conservation, irrigation and nutrition; (iii) Agricultural Inputs. Implementation of seeds andfertilizer policy reforms to increase use of inputs by smaltholders; and (iv) Institutional Strengthening. To improvefinancial management, transport, procurement, policy analysis, monitoring and evaluation.

SECTION 3: Project Data and Performance Ratings:------- - I------------------------------- ---- (mo/yr)Basic Data Closing Date Project Cost Disbursement 06/94

(SXX.XM) (SXX.XM) (X of L/C)Original (from SAR/PR): 09/30/1999 S64.8 Original SAR/PR Forecast: $5.4 11.8%As Formally Revised: 09/30/1999 $64.8 Formally Revised Forecast:Expected-Last Form 590: 09/30/1999 $64.8 Actual Disbursement: $1.9 4.2%Expected-This Form 590: 09/30/1999 $64.8 Disb. Forecast for CFY: S5.4 11.8%Number of formal closing date extensions: 0 Undisb. Credit Bal.(SDRs) $31.6 95.8%Date of last closing date extension (mo/yr): 09/30/1999Project Age: 1.0 years or 16.5% of elapsed time between Board approval and Expected-This Form-590 closing date.

Reporting: End of period covered by last project progress report (mo/yr): 04/94


sing Delay .0% .0% Overdue Fin. Stmnts/Project Accounts: 0-st Overrun .0% .0% Overdue SOE Audits: 0

Disbursement Lag 64.3% 66.7% Overdue Special Account Audits: 0Qualified and Unsatisfactory Audits: 0


Summary Ratings: Procurement Progress 2 2Project Development Objectives S 2 Training Progress 2 2Implementation Progress S 2 Technical Asst. Progress 2 2Other Ratings: Studies Progress 2 2Compliance With Legal Covenants 2 2 Environmental Aspects 2 2Project Management Performance 2 2 Financial Performance 2 2Availability Of Funds 2 2

SECTION 4: Supervision Management: Participated In--------------------------------- The Previous (mo/yr)Names Of Mission Members Member Specialization Mission (Yes/No) Time Spent On Supervision 06/94

RICHARD ANSON AGR. ECONOMIST Y S/W Up To Current FY : .6MICHAEL MACKLIN AGRICULTURIST Y S/W Planned During Current FY: 68.0FRANCIS M'BUKA EXTENSION SPECIALIST Y S/W Actual During Current FY -PICKFORD SIBALE RESEARCH SPECIALIST Y Total 49.1STANLEY HIWA AGR. ECONOMIST Y In Field : 14.8ZELIG MATMOR EXTENSION SPECIALIST YLISA SCHWARTZ AGR. ECONOMIST N

Reflects June/JuLy 1994 Mission.

THE WORLD BANK Run Time: 08/08/94 at 12.14.18Ftrm 590 Page 2 of 2 IBRD and IDA - Implementation Summary

.....- ------------------------.------------ () the initial summaryDetailed instructions on completion of This Sumnary is (X) part of a mission reportThis Form are in Annex D of 0013.05. * Working Version *** (_) an update

Project ID: 3MALPA074 I Form 590 date: 06/30/94 1

Explain the various factors on which the above Project Development Objectives rating is based:

ASP is supporting improvements in Malawi's national programs involving agricultural research, extension, input supplysystems and supporting management mechanisms to provide more cost-effective delivery of services to a Larger range ofsmalLholders. These actions also support in explicit manner the implementation of Government's recently prepared Agri-cultural and Livestrock Strategy and Action, which confirms the soundness of ASP design. Notwithstanding some start-updelays and shortfalls in operating funds, the agreed Action Plans for most components are proceeding satisfactorily. Arecently revitalized M&E system is expected to monitor and quantify implementation progress toward meeting keyimplementation and developmental targets (by component and sector, such as adoption rate of improved maize varieties).Government's strong comnitment to implement their recently prepared Strategy document is also expected to enhance theprospects for meeting the ASP developmental objectives. The main risks refer to fiscal constraints which couldjeopardize MOALD capacity to provide needed -funds for key research and extension activities, and to the effectiveness ofMOALD management in carrying out the agreed Action Plans.

- - -- - -- - -- - -- - -- - -- - -- - - - - -- - -- - -- - -- -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- -

IMPLEMENTATION S2M(ARY (CONTINUED) 1/

COUNTRY/PROJECT NAME: Malawi - Agricultural Services PAGE 2 OF 2

PROJECT CODE: 3MALPA074DATE: 06/30/94


The Borrower (MOALD) agreed that (by end-June, 1994):

(a) three regional ASP launch workshops would be held by June 1994;(b) each MOALD department would implement the updated implementation schedules as agreed at the main ASP launch

workshop;(c) adequate budgetary funds would be allocated by Treasury/MOALD for the remainder of FY94 and for FY95 to cover

priority activities;(d) research and extension departments would devote priority to developing an action plan which will promote site-

specific fertilizer recommendations;(e) MOALD to begin implementation of the' approved motorcycle ownership scheme, including sufficient mileage

allowances;(f) MOALD would fill key staffing and technical assistance posts;(g) an ASP facilitator would be recruited;(h) a consolidated civil works construction plan would be developed;(i) Bunda College would finalize and sign Memorandum of Understandings (MOUs) with MOALD and IFPRI; and(j) MOALD would reconcile interventions proposed under the UNOP Fifth Program with those of ASP to ensure consistency

and complementarity.

CTION 6: ACTIONS TAKEN BY (a) BORROWER AND (b) BANK SINCE PREVIOUS FORM 590:

iMost of the agreed start-up activities for all ASP components outlined above are being implemented smoothly, despiteinitial problems primarily associated with the shortage and flow of budgetary funds. (a) the 3 regional ASP launchworkshops were held; (b) research and extension components have devoted priority to developing site-specific fertilizerrecommendations and to improving research-extension-farmer linkages through the monthly technical review meetings, (c)MOA initiated implementation of the motorcycle ownership scheme; (d) MOALD has filled some of the key posts in alldepartments and upgraded others; (e) MOALD Procurement Unit prepared a consolidated procurement plan and initiated thebid documentation process for vehicles and motorcycles; (f) MOALD has selected an ASP facilitator who initiated work inJune; Bunda College finalized MOU with MOALD and IFPRI; (g) MOALD is reconciling proposed UNDP interventions with thoseof ASP to ensure consistency.

Bank has provided implementation assistance (especially through Resident Mission staff) and carried out joint supervisionmission in June/July, 1994.


The project became effective in early 1994, and continues to make satisfactory progress since the project launch missionin November/December, 1993. The main achievements by major component are supporting improvements in national programsand are outlined below. Research: DAR is making good progress in implementing and updating research action plans,giving top priority to site-specific fertilizer recommendations; Ag. Sciences Committee is establishing itself as aneffective body to prioritize and coordinate research. Extension: its activities were adjusted to help smalLholdersminimize the effects of a major drought in 1994, and the extension system is currently focusing on key messages toupport drought recovery efforts by smalLholders, and continuing to improve extension methods to reach larger numbers of.maLLholders with an improved menu of technical messages. Inouts: recent collapse of smaltholder credit system hasresulted in sharp decrease in smalLholder use of improved seeds and fertilizer; ASP is supporting Government efforts tofurther reform seeds and fertilizer policies, taking into account the recent collapse of the smallholder credit system.Institutional Strengthening: good progress is being made to improve the following systems involving the entire the MOAL:budget management, procurement, M&E (e.g., improved reporting format and procedures), policy analysis training with BundaCollege.Main problems in project implementation are related to severe fiscal constraints at the macro level, shortfall in non-operating funds for research and extension, weak.linkages between component work plans and budgets, and absence of clearguidelines to secure timely claims to enable effective use of IDA's special account; delays in posting a number of keyofficers (especially for M&E and irrigation), delay in posting of transport management advisor, and delay in start-up oflivestock activities. Some of these delays are contributed by the delays in meeting a few conditions of effectivenessfor the Credits financed by ADB and IFAD.

- SECTION 8: SUMMARY OF AGREEMENTS WITH BORROWER, AND FURTHER ACTIONS RECOMMENDED TO BE TAKEN BY(a) BORROWER AND (b) BANK:

A. The Borrower (mainly through MOALD) agreed that

(a) extension staff (especially field assistants) will focus on promoting five key extension messages andimplementing agreed improved extension methods (including improved research-extension linkages and use of contactgroups) in the forthcoming drought recovery crop season, supported by an improved monitoring system;

(b) MOALO will secure approval from DPMT and Treasury for the required motorcycle allowance (Kw 1.44/km) by August30;

(c) Treasury will provide an additional M Kw 6.0 million to support essential non-salary costs for improved extensionservices and the MOALD Chief Accountant will issue clear guidelines to all relevant accounts staff (by end-July,1994);

(d) MOALD/Treasury to provide an additional M Kw 3.2 million to support essential research activities (with emphasison extension-research linkages and site-specific fertilizer reconmendations) this crop season (by end-August);

(e) M&E unit to develop and implement improved monthly reporting format (by September 1), with emphasis on keyindicators and relating field activities to work plans;

(f) ASC to finalize procedural and funding arrangements (including initial deposit of M Kw 1.0) for improved contractresearch system (by end-August);

(g) Goverrnent to finalize formulation of improved fertilizer policy reforms to enable needed actions in upcomingcrop season and foundation for full libbralization within 2-3 years (by end-August);

(h) MOALD to issue and begin implementation of improved operational guidelines for improved budget management system(by end-August);

(i) Treasury to issue letter of invitation for procurement reform study (by end-August) and expedite steps forselection of consultants;

(j) GOM to meet conditions of effectiveness *for IFAD and ADB Loans/Credits (by mid-August).

B. The Bank: (a) issued (7/29/94) mission letter.to MOALD (see attachment 1) highlighting key actions; (b) will folLoup closely and provide needed implementation assistance on key actions (including any needed revisions in the DCA), withactive collaboration from the Resident Mission staff; and (c) carry out a supervision mission in about November/December,1994.

For further details on project status and agreed actions, see attachment 2 for the final mission Aide-Memoire.

TASK MANAGER: REV ED BY: (DIVISIONAL MANAGER) REVIEWED BY:Richard Anson (DIR/RVP) 2/

9. Anson, Acting Chief (AF6AE)\NAME OF PREPARING OFFICER: .Anson/F. M'buka

R. Christiansen, Country Opera ger,AF6C3

j/ This part of Form 590 (from Section 5 onwards) is prepared on the word processor until the MIS provides asuitable word processing capacity. The length of each section is variable but the total should not exceedtwo pages. The norm should be one page.

2/ As may be appropriate for the Annual Review Implementation and Supervision.

Attachment 1

The World Bank 1818 H Street, N.W. (202) 477-1234INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRADINTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS

July 29, 1994

Dr. S. KamvazinaPrincipal SecretaryMinistry of Agriculture of Livestock DevelopmentLilongwe

Dear Dr. Kamvazina:

Re- Joint Agricultural Review MissionFinal Aide Memoire

Attached for-your review and appropriate actions is a copy of the final Aide Memoire involvingthe recently completed joint agricultural review mission carried out during the period June 27-July 16,1994. The donor team included representatives from the World Bank and part-time participation fromthe African Development Bank (ADB) and the International Fund for International Development (IFAD),who are co-financing the on-going Agricultural Services Project (ASP). On behalf of R. Anson (WorldBank team leader) and the rest of the World Bank/ADB/IFAD team, we would like to give a specialthanks to Mr. Kalemera for his wise guidance (your predecessor who also chaired the wrap-up meeting)and to your senior Managers and other staff in MOALD who participated in the mission's activities tohelp ensure close collaboration in addressing the various issues. We are also appreciative of theguidance and support provided by Honourable Dr. Nankumka, Minister of MOALD and Mr. R. Kavinya,Secretary to the Treasury. As you know, the mission took place before you were posted to became thePS of MOALD, and therefore, you may find the Aide Memoire as useful background informationinvolving a major part of the World Bank assistance in Malawi's agricultural sector. As you and Mr.Chawani assume the day-to-day management of the MOALD, I would like to reassure both of you thatour staff (especially in the Resident Mission) stand ready to collaborate closely.

The mission focused on the following tasks:

• Discussion of the Agricultural Sector Memo and Agricultural Strategy Options (includingparticipation in the discussions of the Policy Framework Paper (PFP);

• Supervision of the Agricultural Marketing and Estate Development Project (AMED);

• Supervision of the Agricultural Services Project (ASP) (which also includes support for the IFAD-financed Smallholder Food Security Project (SFSP); and

• Identification/Preparation of the proposed Agricultural Diversification Program (ADP).

I concur with the mission's findings and recommendations/agreements reached as outlined in theattached Aide Memoire. It also incorporates the relevant points which arose during the wrap-up meetingheld on July 15, which was well represented by officials from MOALD (including ADD ProgramManagers), ADMARC, Treasury, EP&D, Reserve Bank of Malawi, and MIPA. Since the work of theagricultural diversification team had not yet been completed by the time the draft Aide Memoire was

RCA 248423-WUI 64146

Dr. S. Kamvazina - 2 - July 29, 1994

issued (on July 13), Attachment 2 of the Aide Memoire provides further details on the team's findingsand recommendations on this important program. In this letter, I would like to highlight some of themore important recommendations/agreements reached which involve policy and/or senior managementdecisions (paragraph references to the Aide Memoire are shown for further details). Your leadership andactive support in addressing these points will make a tangible difference in getting results in the field,which, as you know, is especially important as Government focuses its efforts on effective droughtrecovery and tapping Malawi's agricultural potential. The attached Aide Memoire provides further detailson these selected points as well as others which are primarily under the direct control of the relevantsenior official(s), especially within the MOALD.

Agricultural Sector Memo (ASM) and Strategy Discussions

As you may know, on July 12, Government held a review meeting of the ASM (chaired by thePS of the MOALD). The meeting focused on four key policy issues and options involving landutilization, inputs, tobacco reform options and smallholder credit. Based on the fruitful discussion ofthe ASM, and any additional comments and suggestions to be provided through the Planning Division(say, by mid-August, 1994), the Bank team will finalize the ASM for wider distribution and referenceby Government and donors. We are, also very pleased that the MOALD has used the relevant findings,recommendations and consultative process generated by the ASM as inputs to Government's ownAgricultural and Livestock Strategy and Action Plan, which Government plans to present and discuss ata national agricultural symposium in September, 1994. We strongly support the MOALD taking the leadin developing and implementing this document, based on Malawian solutions (in content and phasing),which Government can use to coordinate multi-donor assistance. During the visit, Mr Anson was alsoable to participate in joint Government/IMFfBank discussions of the Policy Framework Paper, which alsoprovided an opportunity to develop agreed approaches to addressing some of the more critical policyissues, drawing on the relevant points from the ASM and Government's draft strategy document. Wealso support Government's efforts to ensure greater consistency among the above documents (and otherdonor documents which are also proposing assistance to Malawi) through the consultative process whichthe Planning Division is taking. Your active leadership, under the overall direction of the HonorableMinister Nankumka, in guiding the on-going strategy discussions will be very timely, as the newGovernment seeks to chart its course of reducing rural poverty through tapping Malawi's agricultural andlivestock potential.

Supervision of AMED Project

In general, the AMED Project is proceeding satisfactorily, although there are some delays in

implementation. The following issues require your guidance and attention:

• Pricing and Marketing Policies: Government to finalize its decision-making process to removeand announce this crop season all bans/export licenses on all agricultural commodities (except maize, andto be in effect not later than the 1995 crop harvest), to announce soonest incentive maize producer pricesto help restore maize production and increased consumer prices which are consistent with market prices,and to announce input prices which are consistent with phasing out maize seed and fertilizer fiscalsubsidies (by the end of 1994/95) (para. 7);

• Credit Scheme for Input Traders: Government (Treasury and Reserve Bank) to allow SEDOMto hold the pilot credit scheme for traders in a revolving facility, and to encourage SEDOM (and otherfinancial institutions) to extend seasonal credit to input traders during the upcoming season; this actionwill help compensate for the gradual recovery of the smallholder credit system following its collapse.In this regards, it will be important for SEDOM/Reserve Bank to expedite finalization of the


arrangements for SEDOM's management audit to help ensure the needed mechanisms are in place to helpensure lending activities and revolving fund (paras. 14 and 15);

• Marketing Infrastructure: While generally good progress is being made by the Ministry of LocalGovernment (MOLG) in arranging the construction of the local markets, the MOLG has delayed infinalizing the arrangements for getting the local councils to self-finance the operation and maintenanceof local markets. We would like to urge the MOLG to address this matter on an urgent basis, as this willdetermine the sustainability (and hence benefits) of these facilities (para. 17).

Supervision of the Agricultural Services Project (ASP)

In summary, the implementation of the ASP is proceeding satisfactorily. While there are somedelays in the implementation of the agreed action plans for most components, MOALD DepartmentDirectors and staff are committed to implementing their respective components which are supportingimprovements in the national programs of research, extension, input supply, small-scale irrigation andbudget management, and monitoring and evaluation systems. We are pleased that the MOAL has selectedthe ASP Facilitator (Mr. Chanza), who demonstrated his effectiveness as facilitator during the reviewmission. We would appreciate your helping to ensure early finalization of the contractual arrangementsso that he can formally assume his post of ASP facilitator. We also urge Government to take the neededactions to expedite the start-up of the components/subcomponents being financed by the AfricanDevelopment Bank (ADB, which is reviewing the fulfillment of the conditions of ADB effectiveness).Some of the more critical drought recovery and policy agreed actions include the following:

Extension Component

• Drought Recovery: there are five key extension messages that should be actively implemented(primarily by the Field Assistants/FAs) and closely monitored to ensure effective drought recovery effortsin the forthcoming crop season: (i) promote expansion of area planted to drought recovery crops (e.g.,cassava, sweet potatoes and sorghum); (ii) ensure wide availability of improved sorghum seed; (iii)promote improved soil and water conservation practices; (iv) promote the dissemination of a menu oftechnical recommendations that account for agro-ecological and financial constraints; in this regards, forsmallholders with limited resources, FAs should encourage the use of hybrid maize without fertilizer,coupled with improved practices (especially weeding and soil fertility measures); and (v) Department ofAgricultural Research (DAR) and Department of Agricultural Extension and Training (DAET) to carryout the action plan for developing and disseminating site-specific fertilizer recommendations which alsoaccount for smallholder financial constraints; these actions are especially important as Government isphasing out fertilizer subsidies and attempting to restore and progressively increase the proportion ofsmallholders using fertilizers, essential for needed increases in crop yields (para. 23);

• FA Action Plans to Expand Scope of Coverage: each FA to develop an action plan (say, bySeptember 1, 1994) that will include targets for disseminating priority extension messages (as suggestedabove) and how he/she will work with farmer group and block committees, rather than through contactfarmers only (para. 24);

• Field Mobility/Motorcycle Allowances: MOALD to liaise with relevant officials (especiallyTreasury) to expedite approval of the required motorcycle mileage allowance (to about M Kw 1.44/km)for this upcoming crop season in order to help ensure the success of the motorcycle ownership pilotscheme agreed with Government (para. 27);


Enhanced Operating Funds and Management: increased smallholder production and droughtrecovery efforts will be positively influenced by increased and timely allocation of non-salary operatingfunds (Treasury to provide soonest MOALD an additional M Kw 6.0 million which will be passed onto the ADDs), supported by improved budgetary management practices (e.g., improved "yardsticks" andwork plans, and actions to file for reimbursement from IDA) (paras. 34 and 35);

Research Component

• Increased Non-Salary Funds: Treasury/MOALD to provide DAR (say, by end-August, 1994)an additional M Kw 3.2 million to support essential non-salary operating funds to carry out the priorityresearch action plans, project review and planning meetings, and researcher participation in extension-research-farmer linkages (para. 40);

• Contract Research Funds: Based on agreed procedures (to be confirmed by the ASC Board) forcontract research funds, MOALD to arrange to channel ASP funds (an initial deposit of M Kw 1.0 in1994/95) to the Agricultural Sciences Committee (ASC) to promote and supervise priority contractresearch activities (para. 45);

• Institutional "Home" of the ASC: Given that Government has made a decision to re-locate theinstitutional "home" of the Department of Agricultural Research and Environmental Affairs (whichincludes the ASC), it is requested that Government give due priority to ensuring an appropriate neutral"home" for the ASC to enable it to perform its strategic function of helping to coordinate and prioritizeall agricultural research (para. 47);

Inputs Component

• Fertilizer Policies: Government (with MOALD and EP&D providing joint leadership) to bringto closure as soon as possible an updated and operational fertilizer policy reform program (including therevised role of the Smallholder Farmers Fertilizer Fund of Malawi) which will outline the policies toattain full and sustainable liberalization of pricing and marketing arrangements to better meet foodsecurity and fiscal objectives, taking into account the recommendations of the Fertilizer Policy Study(June, 1994). This action could also help ensure the disbursements of ASP funds for fertilizer imports(e.g., urea is needed in 1994/95) and additional funding from several donors (including the EC, subjectto agreements reached) (para. 48);

Institutional Strengthening Component

• Budgetary Management: Chief Accountant and Chief Planning Officer of MOALD (andsupporting staff) to ensure that there is the implementation of improved mechanisms to link allocationsof funds according to agreed and monitored work plans (para. 50);

• Procurement Study: Treasury to expedite the consultant selection process (with initial emphasison finalizing and issuing the letter of invitation to approved short of firms) for carrying out the inter-ministerial procurement reform study (para. 52);

• Monitoring and Evaluation: various actions are urgently needed to significantly improve theimplementation of a M&E system that will serve senior MOALD management needs, including the earlyposting of evaluation officers in headquarters and the ADDs and the implementation of improved monthlyreporting forms (paras. 54-57);


Smallholder Food Security Project

The SFSP is a component of ASP and is being financed by IFAD, and supervised by IDA. Itis anticipated that LFAD will be declaring this Credit effective any day. While the mission is pleased thatMOALD staff are steering the project start-up activities in the right direction, it is important that theagreed actions for the several components be implemented in time for the forthcoming crop season.Paras. 61-70 outlines the specific agreed actions. One of the urgent actions needed prior to the upcomingcrop season refers to the need for the MOALD, in liaison with SACA/Malawi Rural Finance Company,to formulate and implement (over the next few weeks) a credit management training program to enablethe resource-poor burley/hybrid maize farmer groups to initiate their activities (para. 63). In principle,it has been agreed that the first full review mission will be carried out in early October, 1994.

Proposed Agricultural Diversification Program

The mission is pleased that Government and private sector have joined efforts in an AgriculturalDiversification Steering Committee, supported by a Secretariat in the form of existing staff from theMOLD Planning Division, MIPA, and by four working groups comprised of persons from the privateand public sectors. The participants have initiated preparation of a broad-based private sector-ledprogram. The mission. has confirmed the production and agro-processing potential of numerousdiversification activities and strong entrepreneurial interest in making the needed investments, providedthat'various constraints are removed and facilitation is provided. Attachment 2 of the Aide Memoireprovides further details on the mission's findings, and para. 75 outlines the recommended/agreed nextsteps in supporting a Malawian-driven preparation process. One of the more urgent actions required isthe broadening of the composition of the working groups, as this will enhance the prospects of a broad-based diversification process. As chairman of the Steering Committee, you may wish to act on thismatter as soon as possible. Subject to further progress in preparation, it is suggested that there be a jointGovernment/private sector/donor preparation mission in about October/November, 1994. We wouldappreciate your response on how you would wish the Bank to assist in the next steps, as well as the mostappropriate timing of the proposed joint mission.

We look forward to forging close collaboration with you, Mr. Chawani, staff from MOALD andother participating agencies, together with our donor colleagues. In the meantime, please let us knowhow we can assist, especially through our staff in the Resident Mission. As I was able to visit Malawifor part of the mission activities, I was able to observe the dedication of your Ministry staff to providingimproved agricultural services to a larger proportion of smallholders. I look forward to meeting you inmy next visit to Malawi.

With best regards,

Sinc y urs,

Chaim HelmanChief, Agriculture and Environment Operations

Southern Africa Department


cc:

Honorable Dr. J. NankumbaMinister of Agriculture and Livestock Development

Mr. R. KavinyaSecretary to the TreasuryMinistry of Finance

Mr. B. S. ChawaniPrincipal SecretaryMOAL

Mr. C. NthendaPrincipal Secretary of EP&DMinistry of Economic Planning and Development

Mr. KalemeraPrincipal SecretaryMinistry of Community Services and Social Welfare

Dr. MaidaPrincipal SecretaryMinistry of Forestry and Natural Resources

Mr. PhanghaphanghaPrincipal SecretaryMinistry of Local Government and Rural Development

Principal SecretaryDepartment of Research and Environmental Affairs (DREA)

General ManagerADMARC

Senior Deputy SecretaryMinistry of Finance

Mr. A. GomaniChief Planning OfficerPlanning DivisionMOALD

Mr. ChiteyeyeDeputy SecretaryMinistry of Finance

Mrs. M. NyirendaPrincipal EconomistEP&D

Dr. S. Kanvazina - 7 - July 29, 1994

Mr. MhangoCASMOALD

Mr. HassanChief AccountantMOALD

Dr. MunthaliCAROMOALD

Mr. KabuyeCAETOMOA

Dr. MsiskaChief Veterinary OfficerMOALD

Mr. MwakalaghoChief Land Husbandry OfficerMOALD

Chief Irrigation OfficerMOALD

Mr. G. JereDeputy Chief Planning OfficerPlanning DivisionMOALD

ADD Program Managers

Dr. ChilembweHead of Agricultural Sciences Committee

Mr. Ben NkombaSenior EconomistPlanning DivisionMOALD

Mr. C. ChirwaSenior EconomistPlanning DivisionMOALD

Mir. Ian KumwendaSenior EconomistPlanning Division


Mr. MphandeSenior EconomistPlanning DivisionMOALD

Mr. M. TsokaSenior EconomistEP&D

Mr. John KumwendaDepartment of ResearchChitedze Research Center

Dr. Davies Ng'ong'olaBunda College

Mr. ChinkhwangwaReserve Bank of MalawiLilongwe

Dr. Ngo'mbeChief, Human Resource Planning OfficerDPM&T

Mr. MakokoMinistry of Local GovernmentLilongwe

Mr. J. PhiriGeneral ManagerMIPA

Mr. NyirendaSenior OfficerMIPA

Mr. Fred MwanthengereSenior EconomistMOA

Mrs. NambaActing HeadWomen's Progranne SectionDAET, MOA

Mrs. Ruth AyoadeChief Food and Nutrition OfficerFood and Nutrition UnitMOA

Dr. S. Kanvazina - 9 - July 29, 1994

Food and Nutrition UnitMOA

Mr. SiddiquiManaging DirectorMalawi Rural Finance Company

Dr. JohnstonAdvisor (UNDP Fifth Country Program)MOA

Mr. Michael HeynResident Coordinator/RepresentativeUNDPLilongwe

Mr. A. ZulfiqarResident RepresentativeWorld BankLilongwe

Mr. SanveeDirector, SARDAfrican Development Bank (ADB)Abidjan, Cote D'Ivoire

Mr. FallDirector of Programs, SARDADBAbidjan, Cote D'Ivoire

Mr. MansuriDirector of Africa RegionIFADRome, Italy

Ms. Cynthia RozellDirector of USAID Malawi MissionLilongwe

Mr. Peter ChristiansenDelegateEuropean CommunitiesLilongwe

Mr. MikkolaFAO Resident RepresenativeLilongwe

Attachment 2

AGRICULTURAL REVIEW MISSION(June 27-July 16, 1994)

FINAL AIDE-MEMOIRE

TABLE OF CONTENTS

INTRODUCTION 1

AGRICULTURAL SECTOR MEMO AND STRATEGY DISCUSSIONS 1

AGRICULTURAL MARKETING AND ESTATE DEVELOPMENT PROJECT (AMED) 2

Pricing and Marketing Polidies 2Price Information and Market Extension 2Credit Component 3Pilot Scheme for Private Traders 4Pilot Scheme for Agricultural Diversification 5Marketing Infrastructure 5Private Trader Association 5Malawi Bureau of Standards 6

AGRICULTURAL SERVICES PROJECT 6

EXTENSION COMPONENT 7

Drought Recovery and Future Protection Measures 7Support and Management of Field Activities, the Role of Block Committees 7Field Mobility 8Research-Extension Linkages 8Women's Program 8Food and Nutrition Unit 9Cash Flow and Relationship of Expenditures to Work Plans 9Monitoring and Evaluation 10

RESEARCH COMPONENT 11

Department of Agricultural Research 11Agricultural Sciences Committee 12

INPUTS COMPONENT 13

INSTITUTIONAL STRENGTHENING COMPONENT 13

SMALLHOLDER FOOD SECURITY PROJECT (COMPONENT OF ASP) 16

PROPOSED AGRICULTURAL DIVERSIFICATION PROGRAM 18

ATTACHMENT 1: Project Completion Reports: Lessons LearnedNational Extension and Planning ProjectNational Agricultural Research Project

ATTACHMENT 2: Agricultural Diversification Program: Discussion Note andSuggested Inputs for Preparation Work (attachments are available on request)

AGRICULTURAL REVIEW MISSION

FINAL AIDE-MEMOIRE

INTRODUCTION

1. During the period June 27-July 16, 1994, a World Bank agricultural team visited Malawi tocarry out with Government of Malawi, IFAD and African Development Bank (ADB) various activitiesinvolving the following operational activities:

• Discussion of the Agricultural Sector Memo (ASM);• Supervision of the Agricultural Marketing and Estate Development Project (AMED);• Supervision of the Agricultural Services Project (ASP) (which also includes support for the

IFAD-financed Smallholder Food Security Project (SFSP);• Identification/Preparation of the proposed Agricultural Diversification Program (ADP).

2. The World Bank team was comprised of: R. Anson (Team leader), D. Fullerton, M. Macklin(Task Leader for the SFSP), S. Jaffee (Task Leader for the ADP) (from Headquarters), Z. Matmor(from Resident Mission in Kenya), F. M'buka (Task Leader for ASP), S. Hiwa (Task Leader forAMED), P. Sibale (RM in Malawi), A. Chakravarti, L. Schwartz and G. Bintein (Consultants).Mr. C. Dickerson, Project Controller from IFAD, and Mr. J. Rushemeza, from the ADB, alsoparticipated part-time, given the cofinancing of their respective agencies of the ASP. TheGovernment team was comprised of various officials from especially the MOALD, coordinated byMr. A. Gomani, Chief Planning Officer, and involved the active collaboration of Dr. T. Munthali,Chief Agricultural Research Officer (CARO) and Mr. Kabuye, Chief Agricultural Extension andTraining Officer (CAETO), Mr. Hassan, Chief Accountant. The mission also benefitted from theguidance of Mr. J. Kalemera, Secretary for Agriculture Livestock Development. The mission wishesto express its appreciation to these officials and working level counterparts from MOALD (HQ andADDs) for their cooperation and participation in the various agricultural activities. Special thanksgoes to Mr. Nyirenda, from the Malawi Investment Promotion Agency (MIPA), and Mr. Mwale,from MOALD, who participated full time with the Agricultural Diversification team, and to Mr.Chanza, Deputy Chief Agricultural and Training Officer (and proposed ASP Facilitator), for his full-time participation on the ASP mission (including extensive field visits to numerous ADDs and fruitfuldiscussions with smallholders), and for his demonstrated effectiveness in facilitating ASP progress.

3. This Aide-Memoire highlights the mission's main findings and recommendations/agreementsreached; the draft version of the. AM provided the basis for the wrap-up meeting held on July 15,chaired by Mr. Kalemera, PS of MOALD. This final Aide-Memoire incorporates the relevant pointsreached during the wrap-up meeting, and the mission's recommendations are confirmed by the Bank'smanagement. For each of the tasks carried out, the sections below highlight the status, main issuesand recommended/agreed next steps to secure sustainable tangible benefits.

AGRICULTURAL SECTOR MEMO AND STRATEGY DISCUSSIONS

4. On July 12, Government held a review meeting of the draft green cover ASM (dated June 23,1994). The meeting was well attended by senior officials from MOALD (including several ADDProgram Managers), EP&D, Treasury, Reserve Bank of Malawi, and chaired by Mr. Kalemera (PSof MOALD). The discussion focused on four key strategy/policy issues and options involving land

utilization, inputs, tobacco reform options and smallholder credit. As indicated in the reviewmeeting, the mission views one of the major roles of the ASM as providing inputs to MOALD's on-going preparation of its agricultural and livestock development strategy and action plan, whichGovernment plans to present and discuss at a national agricultural symposium in September 1994.Based on the very fruitful discussion of the ASM, and any other comments and suggestions to beprovided through the Planning Division (by mid-August 1994), the Bank team will finalize the ASMfor wider distribution and reference by Government and donors.

5. During the mission, R. Anson, together with the PS of MOALD and the Chief PlanningOfficer, also participated in the joint Government/IMF/World Bank discussions of the PolicyFramework Paper (PFP), as it involved the agricultural policies. Since these discussions were goingon simultaneously with MOALD's work on its Agricultural Strategy document, it is understood thatthe updated Agricultural Strategy and Action Plan document would be consistent with the outcome ofthe PFP discussions and agreements reached.

AGRICULTURAL MARKETING AND ESTATE DEVELOPMENT PROJECT (AMED)

6. In general, the AMED is proceeding satisfactorily, although there are some delays inimplementation. A general recommendation is that Government proceed to improve implementationperformance in line with the recommendations of the mid-term evaluation report prepared byMOALD, supplemented by the recommendations/agreements arising from this joint mission. It isalso agreed that MOALD finalize and disseminate by end-July 1994 the mid-term report as areference document for the remaining implementation period (Credit is due to close by end-June1996).

Pricing and Marketing Policies

7. The mission observed that recently MOALD made a key policy recommendation to remove allbans and export licenses on the private trade and export of all commodities except maize. However,there has been no formal decision and announcement as of yet. It is agreed that MOALD, in liaisonwith Treasury and EP&D, expedite the decision, and provide any additional supporting information tohelp ensure approval of this important policy decision; it would enhance producer and trader activitiesand generate substantial benefits for Malawi at large. In regard to maize prices, there is agreementthat the producer price for maize would be increased in two stages in response to the devaluation anddrought. The first increase of up to 25% would be announced immediately and would apply to thismarketing season. This has not yet been done. However, the annual commodity price review hasbeen finalized and is providing a basis for making price recommendations for various commoditiesand inputs. It is agreed that finalizing the price review exercise would be expedited, and that theGovernment was aiming to announce the producer prices by end-July 1994. The mission noted thatannouncing the new maize prices (producer and consumer) as soon as possible is necessary to enableADMARC to capture the remaining marketable maize crop and to help ensure that limited stocks arenot run down by speculators, given that the current ADMARC prices are well below marketconsumer prices. Higher maize producer prices will also provide farmers with additional income andpurchasing power which would facilitate cash purchases of inputs, especially fertilizer.

Price Information and Market Extension

8. Currently price collection is being done through the enumerators under Agro-economicSurvey and is managed by them with some assistance from the evaluation officers. The system

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provides farmers information through radio and provides MOALD with price information. The priceinformation currently being collected is not yet being fully utilized as a management tool. Inaddition, the farmer advisory service has limitations in terms of the usefulness of the currentpresentation format on radio. It is agreed that the Pricing and Marketing section focus on improveduse of the information being collected. If the section concludes that there is a need for short termtechnical assistance in this area that can be provided under the project. In terms of additionalinformation, it is agreed that the system broaden its coverage to include more markets in each RuralDevelopment Division (RDP) and to include price data on inputs (particularly fertilizer and seeds).

9. In regard to the proposed extension marketing service, the mission observes that there is aneed to reconsider this concept. The post of Credit and Marketing Officer (CMO) was focused ondealing with credit issues. As these staff are now being transferred to the newly established MalawiRural Finance Company (MRFC), it seems likely that the key marketing messages needed bysmallholder farmers can best be covered by the Senior Agricultural Officer (SAO) and disseminatedthrough the existing extension system. More complex and specialized marketing extension required,for example, by traders would best be provided through the private traders associations with thesupport of the MOALD HQ Pricing and Marketing Unit. Thus, it is agreed that there be no separatemarketing extension service through the Agricultural Development Divisions (ADDs). Rather, thePricing and Marketing Unit may focus its efforts on developing suitable marketing messages and re-orienting the SAOs to help assist the field assistants in developing and delivering appropriatemarketing messages to farmers. Along these lines, it is important to involve farmers in identifyingtheir marketing problems through participatory extension methods. In this way, information from thefield will filter up through system and provide the unit at HQ the basis for developing a set ofmarketing messages appropriate to the needs of Malawian farmers.

Credit Component

10. Estate development and agro-industries. Overall lending from this component has proceededwell. The agro-industries component has been fully disbursed, while there is an available balance ofSDR 0.99 million in the estates sub-component. The table below gives the details in SDR's.

Category Allocation Disbursed Balance Committed RemainingFunds

la & b 6,255,000 5,153.045 1.101,954 109,897 992,057

Since no funds have been disbursed by the existing Participating Financial Institutions (PFI's) to thesmall estates since the beginning of the project, the remaining funds have been reserved for the smallestates. To facilitate lending to the small estates it was recommended in earlier supervisions thatMRFC and INDEFUND be included as PFI's under the project. Due to the problems in thesmallholder credit situation, and the time that it will take MRFC to become operational, thisorganization cannot be considered as a viable vehicle to lend AMED funds during the upcomingcrop season. INDEFUND, however, recently has signed a subsidiary loan agreement with RBMsince the December 1993 supervision.

11. Small estates sub-component. INDEFUND has an existing client base in the small estatessub-sector. As a part of its future business development plan, it has decided to give priority toprojects involving non-tobacco estate diversification and livestock. It has already appraised 4 projectswith a total credit requirement of about MKw 1.0 million in the areas of sun flower seed production,commercial maize and livestock. Four more similar projects are in the pipeline. INDEFUND has

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also been working closely with Estate Service Trust (EEST) and advertising in the EEST magazine.Lending from the small estates sub-component can therefore now be expected to progress in animproved manner. It is agreed that INDEFUND should be encouraged to expedite its appraisal of theproposed loans in time for the upcoming crop season.

12. Assessment of Impact of Estate credit sub-component. As part of previous supervisionmissions it had been recommended that the RBM Apex Unit carry out a more substantive managementof the credit component rather then merely monitoring the commitments and disbursements.However, due to limited staff in the Unit, it has not been possible for these functions to be carriedout. Since this is an issue of relevance to the overall manner in which monitoring and evaluation isdone by the RBM, it is agreed that a policy-level discussion on this matter be undertaken with MOFand RBM management. As an initial step to evaluating the impact of AMED loans, the MOALDrecently interviewed about 15 borrowers who had received loans from different PFI's under theproject. The firms represented a wide spectrum of activity including tea, coffee, tobacco, seedproduction, poultry, and flowers. All respondents stated that the funds provided under the facilityhad been important to improving or expanding their infrastructure and equipment. An indicativeassessment it terms of certain financial and economic variables shows that:

- loan servicing has been good. This can be taken as a proxy showing that theborrowings have had a positive impact on profitability.

- employment creation has not been significant. Much of the expenditure has beencapital intensive.

- production increases have been significant, especially for the smaller enterprises.

- a significant proportion of the investments have been in export oriented activities,e.g., tea, coffee, flowers.

It is agreed that the Apex Unit of RBM should be supported (e.g., strengthening staffing and possiblysome short-term consultancy inputs for greater analytical capacity) to carry our a more detailedassessment of the economic impact of the estates and agro-industries component of the credit, basedon a sample of firms, considering that the RBM will continue to play an important role in managingvarious lines of credit. It is agreed that MOALD/Planning Division and Reserve Bank of Malawidiscuss the above matter with the aim of working out the needed details.

Pilot Credit Scheme for Private Traders

13. The pilot credit scheme has been expanded from 5 traders who received MKw 683,830 in1992/93, to 51 traders who are borrowing MKw 3,589,510 during the 1993/94 crop season.Repayments of these loans, which are expected in the 13th month after disbursement, have been ontarget. 92% of the 1992/93 loans and 77% of the 1993/94 loans have been repaid. Recovery hasbeen the best in the smaller category of borrowers with loans between MKw 5,000 andMKw 110,000. With these disbursements, most of the SDR 1.3 million allocated to this sub-component has been exhausted. All the traders have used their borrowings as working capital forproduce trading. Most of the traders start the season by trading in maize. Later in the season theyget involved in crops such as rice, pigeon peas and sunflower. The funds available have beeninadequate to provide borrowers with medium term loans. During the 1993/94 season, some loanapplications were received for input trading. However, these were not considered in preference toproduce trading.

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14. SEDOM has stated that it has received 102 applications for credit during the 1994/95 season.However, as most available funds have already been used and repayments have to be made to theRBM in the 13th month after disbursement, the organization has no further resources to continue itslending program. It has therefore requested permission to hold the funds available in the creditscheme in a revolving fund and re-cycle the resources to traders. In view of SEDOM's success ofSEDOM in carrying out this scheme so far, it is agreed that SEDOM should be: (a) permitted tohold the pilot scheme funds in a revolving facility until such time as the first repayment of the AMEDcredit falls due from GOM; and (b) encouraged to extend the scheme to input traders during theforthcoming crop season.

15. During the previous supervision, it had been agreed the a management and operations audit ofSEDOM should be undertaken to increase its operational efficiency and thereby increase RBM'sconfidence in SEDOM's capabilities. SEDOM has agreed to such an audit and has contacted Ms.Graham Carr Auditors & Accountants, who have expressed their willingness to carry out thisexercise. The terms of reference of the audit are being finalized at present and it is expected that theaudit will be carried out by mid-August 1994. It is agreed that the arrangements for establishing theloan re-cycling facility should be operationalized in parallel to carrying out the management audit,which should aim to ensure that SEDOM has adequate capabilities and control mechanisms to sustainthe loan facility. The context of this agreement was the recognition of the need to expand supplierscredit to input distributors/stockists this coming crop season, given the collapse of the smallholdercredit system, and the understanding that the RBM would help ensure effective implementation of therecommendations arising from the management audit. The World Bank, in close collaboration withthe RBM, will monitor closely SEDOM's performance to help ensure sustainable lending activities.

Pilot Credit Scheme for Agricultural Diversification

16. The mission is currently examining options for possible pilot credit scheme(s) which couldsupport Malawi's goal of promoting agricultural diversification. The preliminary findings of thisexploration will become clearer by the end of the mission visit, and will be reflected in the final Aide-Memoire.

Marketing Infrastructure

17. This component provides for the construction and rehabilitation of sixteen rural producemarkets. The Ministry of Local Government is the implementing agency and generally good progressis being made in implementing the program. It is agreed that the Ministry of Local Governmentupdate its action plan to implement this component, including finalizing the arrangements for gettingthe local councils to self-finance the operation and maintenance of local markets.

Private Trader Association

18. Since the last supervision, the proposed Malawi Private Trader Association has just receivedapproval from the OPC to use the name Malawi. This has taken some time, but now it appears thatthe registration of the Association is on track. The Association still needs to produce a business planand budget before they can access AMED funds. The plan is especially important in terms ofdescribing how the Association intends to move towards functioning as an autonomous and self-financing institution within 1 year of beginning their activities. Thus, it is critical that the Associationplan for collecting dues from its members to finance operating costs (rent, communications,secretarial services and so on). It is agreed that making the Association sustainable without externalfunds should be given the highest priority. For example, an alternative to salaried officers may be

5

voluntary officers who rotate on a basis to be decided by the Association. Thus, the use of AMEDfunds should be devoted primarily to start-up costs (such as initial promotion activities, and one-timeequipment purchases) and as little as possible to on-going operating costs.

Malawi Bureau of Standards (MBS)

19. The Export Quality Control Unit, the establishment of which has been supported by theproject, has been functioning smoothly. The Board of MBS has taken a decision to absorb this unitinto the permanent structure of the organization within the Quality Assurance Department. Thequality control standards have been elaborated for most export and local agricultural crops. As aresult of the decision by government to make the quality control scheme voluntary, MBS has beentaking every opportunity to publicize these standards. It has participated in seminars for producers,exporters and forwarding agents, and begun issuing a quarterly newsletter. New activities are to beundertaken during the current year to make the smallholder more aware of quality standards throughthe ADD's and EPA staff.

20. The advice of the technical assistance expert who was attached to the unit has been utilized tothe extent that it was relevant to local conditions. Operational manuals have been prepared with hisassistance and are being used. However, a significant part of the expert's recommendations.related tomaking the quality control scheme mandatory. As this was found to be contrary to the liberalizationprocess, much of the advice cannot be used. MBS has stated that the service being provided is underutilized, and additional resources are required to undertake further publicity and informationdissemination. It is agreed that (a) the MBS provide the details of the funds required for thepublicity; and (b) MOALD, through the Planning Division in liaison with the Chief Accountant, makethe necessary arrangements to allocate the needed funds for this dissemination.

AGRICULTURAL SERVICES PROJECT

21. In summary, the implementation of the ASP is proceeding satisfactorily, although there arevarious delays in the implementation of the agreed action plans for most components. Nonetheless,the mission is pleased to note that MOALD's Department Directors and staff (also managing thevarious ASP components/sub-components) are committed to the implementation of the action planswhich were updated at the ASP launch mission in December 1993. Various constraints outlinedbelow are outside the immediate control of the department heads and/or field staff, and most of theneeded decisions/actions are within the control of senior MOALD officials. The mission's review ofthe extension and research components of the ASP has focused both on key issues currently facingMalawian farmers as part of the drought recovery efforts, and concerns related to projectimplementation raised by MOALD HQ staff (department, unit and section heads) and by ProgramManagers and their staff in the ADDs. Each of the key areas covered is discussed below in terms ofcurrent status, recommendations made and agreed actions.

22. Attachment I presents the main lessons learned from the recently completed ProjectCompletion Reports for the National Agricultural Research Project and the National ExtensionPlanning Project; it is agreed that MOALD will consider seriously the application of the lessonslearned to the implementation of the ASP, which is building on these two projects; it is furtherrecommended that, during one of the management meetings, the CARO and CAETO arrange todiscuss the lessons learned arising from the PCRs, with the aim of ensuring that the extension andresearch components implement the relevant lessons.

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EXTENSION COMPONENT

- Drought Recovery and Future Protection Measures

23. The mission trip to the field focused on extension program preparations at field level for theupcoming agricultural season following the drought of 1994. Special attention was given to 5 keyareas:

a. Expansion of area planted to the key drought tolerant crops (cassava, sweet potato, sorghumand millet) is critical. It is therefore agreed that FAs guide farmers on the collection of sweetpotato and cassava planting material from this season to be multiplied in a moist environmentuntil planting time in October/November.

b. Improved sorghum varieties are important drought protection for some areas. It is thereforeagreed that subject matter specialists for crops place priority on ensuring wide availability ofimproved sorghum seed.

c. Soil and water conservation is a key area and attention should be devoted to it during theoff-season period of July - October. The mission noted that the planned annual soil and waterconservation campaign has not been implemented yet. It is agreed that this subject be givenhigh priority on the agenda for training (e.g., contour pegging, vetiver growing and using theA-frame or line-level) of all FA staff, beginning this crop season.

d. Hybrid maize without fertilizer. The recently completed Fertilizer Policy Study highlightedthe benefits (especially relative to local varieties, in areas having "reasonable" soil fertilityconditions) of promoting restored and expanded smallholder adoption of the improved hybridmaize varieties, even for smallholders who cannot afford chemical fertilizers. It is agreed thatextension messages should encourage practices which will add organic fertilizers to enhancethe benefits of such varieties. The additional yields using the improved maize hybrids (about300-500 kgs. per ha, provided improved cultural practices are also followed) could make asubstantial contribution to Malawi's drought recovery efforts this upcoming crop season.

e. Development and Dissemination of site-specific fertilizer messages. The recentlycompleted fertilizer policy study highlighted that the single most important action to ensureprofitable and expanded use of fertilizer is to improve the site-specific fertilizerrecommendations. MOALD has prepared an action plan to develop such recommendations,and extension messages should endeavor to provide smallholders with a menu of technicalrecommendations that account for varying agro-ecological conditions and financial constraints.

Support and Management of Field Activities and the Role of Block Committees

24. In the World Bank's Aide-Memoire of January 18, 1994, it was recommended that moreeffort be focussed on working with regular farmer groups, credit clubs, religious and other interestgroups instead of confining extension activities to contact farmers only. This mission observed thatvery limited action has been taken on a countrywide basis. It has been agreed during this missionthat: every FA should develop an action plan (by September 1, 1994) that will.include targets fordisseminating key extension messages and show that he/she is working with block committees ratherthan through contact farmers only; and that this matter would be discussed and firmed-up at theupcoming meeting to review the improved monitoring formats (scheduled for July 25). Staff skills in

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this area will be strengthened through on-the-job training in both participatory methods and trainingon work with groups -- both areas will be covered by the extension training program.

25. In addition to strengthening staff skills, it is important to activate block committees and theirfunctionaries to work with the FAs to identify farmer problems and constraints, prepare the extensionprogram, and assist in its implementation. It is therefore agreed that visible positive support fromsupervisors be provided to FAs (at Blocks and/or On Farm Demonstrations) to enhance their effortsto build a participatory working relationship with the block committees and the community overall.

Field Mobility

26. The mission observed that there has been continued delay in regard to the repair and sale ofmotor cycles which can be rehabilitated within the framework of the motorcycle ownership scheme.It was noted during the wrap-up meeting that the rehabilitation program has a limited role in resolvingthe mobility problem. Nonetheless, it is agreed that MOALD, with the active participation of theProgram Managers, would prepare (say, by August 30, 1994) and implement shortly thereafter anaction plan to rehabilitate/sell the suitable motorcycles, and that an appropriate mechanism wouldneed to be worked out (with Treasury) to ensure the use of funds for purchasing additionalmotorcycles.

27. At a wrap-up meeting January 18, 1994, an IDA extension team was informed that thePS/MOALD would address the need for an increase in mileage allowance. It is agreed that theMOALD will: (a) re-submit (say, by end-July 1994) a request to Treasury/Department of PersonnelManagement and Training for MKw. 1.44 for review and approval; and (b) expedite the approvalprocess of the required level of funding (say, by August 30, 1994). It is vital that this-matter beresolved immediately given that motorcycles have arrived and are needed for field work this cropseason. It was noted in the wrap-up meeting that Government is viewing the motorcycle ownershipscheme as a pilot initiative, which could then provide the basis for replication in other Ministries.

Research-Extension Linkages

28. The mission followed-up on activities subsequent to the workshop on Monthly TechnicalWorkshops (MTWs), held in May-June at Namiasi training center and the Research - Extensionlinkage implications of the workshop. A key outcome of the workshop was that SMSs andresearchers should work together to review recommendations printed in the GAP throughout the yearto improve their area specific relevance and to discuss possible alternatives based on local experienceof extension staff and farmers. It is agreed that CARO and CAETO institute this research/extensionlinkage in every ADD as has already happened in Mzuzu ADD and Lilongwe ADD,(and possiblyother ADDs). Following the workshop, the formation of the professional groups consisting of therelevant SMSs and researchers remains to be completed and a schedule of MTWs agenda and contentsneeds to be finalized. In this regard, it is agreed that each group will formalize it's plans accordingto the guidelines of the manual prepared at Namiasi by the end of August 1994. During the wrap-upmeeting, it was also noted that the research-extension linkages should give due emphasis to improvedlivestock messages.

Women's Program

29. The Women's Program has worked closely with the mission to define explicit areas of supportfor its activities under ASP. Key actions agreed include increased attention to women's program fieldstaff (WPS) mobility (especially specialist field home assistants/SFHAs), continued training upgrades

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for FHAs in agriculture, improved curriculum at the National Resources College (NRC) for FieldAssistants/FAs and Field Home Assistants/FHAs, workshops on gender issues in agriculturaldevelopment for all WPS staff as well as MOALD high level staff (details and budget to be completedby July 22nd). The FHAs and SFHAs job descriptions were extensively discussed and it was agreedthat, following upgrade training, they will function as field level SMSs on gender issues (and somehome economics issues) who are fully competent in technical areas to the same degree as an FA.Thus, it was agreed that the post of FHA and SFHA will continue to exist and be strengthened toenable them to support all FAs (male and female) in improving gender sensitivity in their work andincorporation of basic messages on nutrition, commodity processing and some utilization. It wasagreed that an overall review of home economics messages will be completed by May 15, 1995. Thegoal of the review is refocus home economics messages on critical issues for rural women -especially poorer households.

30. The mission participated in an informal inter-ministerial meeting on supporting rural womenin the field in a wide range of areas. The goal of the meeting was to start an on-going dialogue toencourage coordination and sharing of experiences between all relevant Ministries. A short reportsummarizing key issues discussed will be prepared by the group and available by the end ofJuly 1994.

Food and Nutrition Unit

31. The Baseline National Nutrition Survey on Attitudes and Awareness has been reviewed andfinalized by the mission, the FNU and the local consultant and will be underway during the next 9weeks. It is agreed that a draft report of the findings will be available by December 1994.Coordination has been carried out with nutrition related sections in other Ministries to avoidduplication of efforts. The mission is pleased with progress made under this component and notesthat things are generally running smoothly. The output from the Baseline Survey will be used toprepare training modules by March 15, 1995, which will focus on enabling field staff to incorporaterelevant nutrition messages into their work in with farmers.

32. MOALD agrees to follow-up with the Department of Personnel Management and Training(DPMT) regarding the progress on posting a Food and Nutrition Officer to each ADD. A request hasbeen made and the response given was that the manpower requirements review will cover this areaand decisions have not yet been finalized.

Cash Flow and Relationship of Expenditures to Work Plans and Budgets

33. The mission has fully reviewed a range of issues related to cash flow and relationship to workplans. There are a number of critical issues which require clarification which are reviewed in thissection.

34. The mission understands that the ADD bank accounts were not financed at the beginning ofthe financial year. MOALD had to revert to the use of the special account to provide the neededresources in place of advance funding from Treasury. While this mechanism has provided some reliefin that funds have started flowing to the ADDs. There is still concern that the use of the specialaccount will not provide an effective solution. Agreement has been reached that Treasury willprovide 6 million Kwacha (equivalent to 12 months expenditure) as an initial deposit to an MOALDdeposit account. MOALD should confirm that this deposit has been made. This money will beallocated by the MOALD chief accountant to the ADDs. From now on the flow of funds willproceed as follows:

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a. The ADDs will spend their money and submit claims every month. The compiledADD level claims will be used by Treasury/World Bank to replenish the MOALDdeposit account.

b. MOALD will then replenish ADD/RDP/EPA funds. It must be clear that funds willnot be replenished to the ADDs without timely monthly claims.

c. The Development Officer (DO) will maintain a memorandum ledger to record allrelevant expenditures (e.g., fuel).

It is agreed that a critical action to ensure smooth cash flow is for the Chief Accountant to sendclearly defined guidelines to all relevant staff regarding funding procedures and timetable (includingthe CVO, all PMs/FCs/SAEOs at ADDs, PjOs at RDPs and DOs at EPAs).

35. In regard to relating expenditures to the annual work plans and budgets, the mission has notedthat work on applying the financial yardsticks is still in its initial stages. The mission has received aconcept paper on yardsticks. While this is commendable, there is a need to finalize action plans forthe complete development and application of the yardsticks by August 15, 1994.' Further, it isagreed that a ledger system be introduced at EPA level (as is already in use at RDP and ADD) withassistance from the Chief Accountant's office to make the use of operational funds clear. The DOmay use this system to keep track of expenditures and will provide an improved basis for his/herplanning for the following season as well as a mechanism for him/her to submit estimates to be usedin the calculation of national yardsticks. It is important to note that in addition to these estimates, theyardsticks will also be updated annually by the Chief Accountant and Financial Controller for theDepartment of Agricultural Extension and Training (DAET) based on a continuing dialogue betweenADD staff and MOALD HQ and Treasury in terms of where funds are inadequate or in excess. It isalso agreed that the Chief Accountant would clarify to the ADDs the specific cost items which fallunder the category of non-salary operating costs to be funded (and reimbursed) by the IDA Credit,within the broad definition outlined in the Development Credit Agreement. The thrust of the IDAdefinition is to support essential non-salary operating expenses to ensure improved delivery of servicesto smallholders. This clarification from the Chief Accountant would provide the basis to determinewhether there is a need for IDA to make any additional clarification in the DCA to ensure smoothreimbursements. The mission is pleased to note, based on communication received after the wrap-upmeeting, that the Chief Accountant is making good progress in clarifying the above points to theADDs.

Monitoring and Evaluation

36. The mission, Central Monitoring and Evaluation Unit (CMEU) staff and Program Managersagree that regular monthly extension monitoring tasks are in large part disconnected frommanagement decisions in the ADDs. In particular, monthly monitoring reports do not reflectextension problems and accomplishments clearly or in a form easily used by management. Further,there is little connection between the Central Monitoring and Evaluation Unit (CMEU) and the MEUs

Because the concept of yardsticks may be new to some, the following example is offered as a practical application ofthe concept as laid out by the Accounts Section. A development officer (DO) in supervising extension activities would preparean estimate of goods and services required for work in the EPA (e.g.. stationary, mileage claims based on distance covered.bicycle and night allowances, Day Training Center operating costs and so on). This sort of estimate is prepared by each DOand an average is calculated across all EPAs. The average is then taken to represent the cost to a DO of EPA goods andservices and thus is used as a national yardstick for budgeting and allocating funds to the EPA.

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in the ADDs. The mission collected various field level monthly evaluation reports covering extension(and other subjects). These reports, overall, were found to be inadequate as a tool for managementdue to unclear presentation as well as a proliferation of vague statements. These findings reinforcethe assessment done during the appraisal of ASP.

37. A key element relevant for extension, as well as other departments, is to improve the qualityof the monthly reports. To this end, it is agreed that a new monthly reporting format will beprepared (for use starting this year) by the MOALD Planning Unit\CMEU, in collaboration with thePM's and evaluation officers in the ADDs. The new format (at the FA level) will focus reports onpresentation of data for key indicators and relating activities in the field to work plans. The newformat will incorporate the information collected in the Extension Monitoring Survey. It will alsodevelop self-evaluation tools for staff (especially FAs) and act as a management tool for supervisors.Two key agreed goals are to connect the process to work plans and provide feedback at all levels ofthe system. It is agreed that a discussion/launch meeting for the new format will be held by thePlanning Division/CMEU on July 25, 1994 to be attended by MOALD Department Heads, allProgram Managers, and senior evaluation officers from the ADDs. It is recommended that theCMEU follow-up on the agreed actions arising from this meeting.

38. The mission agreed that many problems related to the effective functioning of the CMEU aredue to lack of staff. Actions to remedy this situation are largely determined by the designation ofeconomists, a process for which EP&D plays a major role. It is recommended that the PS ofMOALD liaise with the PS of EP&D to expedite the posting of the needed economists.

RESEARCH COMPONENT

39. In general, the research component is proceeding satisfactorily. The main issues are relatedto the need to secure additional non-salary operating funds to support the implementation of priorityresearch action plans, and for the commodity teams to finalize the research action plans for theupcoming crop season, in line with agreed criteria (especially the need to respond to farmer's priorityproblems).

Department of Agricultural Research (DAR)

40. The DAR has observed that there are insufficient funds for full implementation of approvedresearch programs. The additional requirement is MKw 3.2 million, comprised of the following:MKw 2 million for operational budget, MKw 1 million for project review and planning meetings inAugust and September, and MKw 0.2 million for scientist participation in research extension linkageactivities. In addition, initial start-up funds need to be increased by MKw 1.1 million (fromMKw 1.4 million to MKw 2.5 million). The mission supports the additional requirement of non-salary operating funds; it is agreed that the MOALD, in liaison with Treasury, will increase the non-salary operating funds by MKw 3.2 million in 1994/95 to support the effective implementation ofresearch action plans as outlined above. Given the need for these additional funds within the next fewmonths, there is a need for the MOALD Chief Accountant to take actions immediately.

41. Since the last supervision mission, the staffing situation in DAR has improved with theposting of two Deputy Chief Agricultural Research Officer's (CARO's) at MOALD HQ. MOALDhas to be commended for this effort as it will allow strengthened field supervision of stations and on-farm research by the CARO, his deputies and the National Research Coordinators. It is agreed thatMOALD will exert more effort in filling the remaining vacant established posts in DAR.

II

42. Commendable progress has been made by DAR in developing a program to carry out sitespecific maize-fertilizer verification trials throughout the country. The funding of this program hasbeen secured mostly from the Rockefeller Foundation. However, efficient implementation of thisprogram depends on adequate staffing of the maize agronomy and soils teams. For the soilscommodity team, it is agreed that ASP could usefully contribute towards the recruitment of additionalstaff to the soils laboratories, and the upgrading of existing laboratory technicians through short termtraining at the Malawi Polytechnic.

43. The mission also reviewed DAR's resource allocation to the various commodities and toadministration overheads in DAR. The mission noted sound prioritization by DAR in allocating moreresources to priority areas reflecting the importance of major crops and the new opportunitiesparticularly in relation to agricultural diversification. For the first time, the allocation to NRC's insupport of their monitoring and supervision roles, has been increased. The mission would thereforelike to urge DAR management to ensure that NRC's undertake frequent monitoring and supervision ofresearch programs under their control (see section on research indicators).

Agricultural Sciences Connittee (ASC)

44. Good Progress has been made in establishing the ASC as an effective national researchcoordinating unit. The ASC Board of Trustees has met twice and has adopted a workableconstitution; and the Boards mandate has been agreed by all parties concerned. The procedures formanagement of contract research funds are at an advanced stage and it is hoped that the ASC will bein a position to commence awarding contract research by the end of August 1994. Taking intoaccount the Special Program for Agricultural Research (SPAAR), ASC is fostering discussions for thedevelopment of a consolidated research funding mechanism for Malawi. During the wrap-upmeeting, it was noted that MOALD recently prepared and submitted to Cabinet a proposal for asimilar consolidated funding mechanism. It was agreed that DAR and ASC managements would meetto discuss ways of integrating and coordinating, as appropriate, both proposals.

45. It is agreed that a contract research fund of about MKw 2.0 million should be arranged byMOALD/ASC for 1994/95, to be administered by ASC. However, prior to establishment of thefund, processes for prioritization, evaluation, and award have to be agreed by the ASC board.Initially, it is agreed that a deposit of MKw 1.0 million be made in 1994/95, to be increased onperformance and demand. The ASC has already prepared drafts of the proposed procedures and theseneed to be finalized by August 4th, 1994, when ASC has its next board meeting.

46. The original 1994/95 budget for ASC recurrent costs was estimated at MKw 981,900 in1993/94. Maintaining the MKw 981,900 budget level will mean cutting down or reducing thenumber of planned activities. The reduction is not desirable because it means ASC cannot easilyachieve its proposed and planned activities, which are considered to be essential for achieving theobjectives of the ASP research component. There is a need to maintain the ASC budget in realterms. Accordingly, ASC management has updated the budget to take into account the additionalcosts of goods and services incurred due to the recent sharp devaluation; the revised figure is about MKw 1.5 million. It is recommended that DREA/ASC approach Treasury to obtain these additionaloperating funds (possibly as part of the supplemental budget).

47. An additional issue is the final institutional "home" of DREA/ASC, which is currently beingreviewed by the new Government (as part of a broader Ministerial reorganization). Given thestrategic role of ASC to establish research priorities and funding, it is agreed that the GOM decision

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should take into account the need for DREA/ASC to be located in a "neutral" Ministry/agency toensure that it retains the capacity to fulfill its strategic mandate.

INPUTS COMPONENT

48. The effective implementation of the inputs components hinges on Government updating andimplementing its seed and fertilizer policies. These policies should provide the operational basis forfully liberalizing fertilizer pricing and marketing within the next few years, based largely on therecommendations of the recently completed Fertilizer Policy Study (final reported dated June, 1994).The early finalization of the updated policies would also provide the basis for Government securingadditional proposed assistance from the EC to support the implementation of these additional policyreforms. The mission was informed that Government held an internal technical review meeting onJuly 15 to review various policy options which are being formulated for Government consideration; itis understood that this review process is actively underway, with the aim of coming to closure on thespecific policy actions in the near future (presumably by end-August 1994). The mission notes thatthere is growing convergence between Government and several donors (especially EC, USAID andthe Bank) on the content of the fertilizer policy reforms; the mission strongly supports a consultativeprocess driven by the Malawians to bring the pending issues to closure (e.g., including clarity on therevised role of the SFFRFM and the transitional measures toward full price and market liberalizationover the next 2-3 years). Once GOM has completed this updating and initiated implementation, ASPfunds available for financing fertilizer imports can be used. Regarding seeds, there is a need forGovernment to confirm its commitment to eliminate hybrid maize seed subsidies (general) in thecurrent fiscal year; in this regards, it is understood that Government would will consider theappropriate design and implementation of a targeted hybrid seed inputs program to promote droughtrecovery and expand the base of smallholders using the maize hybrid seed. It is recommended that(a) due attention be given to the implementation arrangements and likely benefits to smallholders ofsuch a targeted program; and (b) that efforts be made to implement at least a pilot effort this comingcrop season, which will provide the basis for determining scope for possible expansion in future yearsas part of a strategy to disseminate more widely smallholder us'age of the improved hybrids.

INSTITUTIONAL STRENGTHENING COMPONENT

Small-Scale Irrigation Sub-Component

49. In general this component (being co-financed by ADB) is proceeding well, although the delayin meeting the conditions of effectiveness for the ADB Credit has contributed to this delay. It isagreed that: (a) MOALD would formally consult (by end-July 1994) ADB on the most expedientprocedure and arrangements for selecting the SSI irrigation expert; the Department of Irrigationalready has taken various actions in the selection process, which if confirmed and endorsed by ADB,could result in the posting of the needed expert very soon, and thereby greatly enhance the DOI'scapacity to implement this component; and (b) proceed with implementing the agreed action plan forthe SSI (as updated at the ASP launch workshop). It is understood that the conditions of effectivenessfor the ADB Credit are about to be fulfilled, and therefore, this will make funds available to enablethe full start-up of this sub-component. The mission recommends the need to ensure closecoordination with the IFAD-financed SSI under the Smallholder Food Security Project, and any otherdonor-supported SSI programs under consideration (e.g., GTZ from Germany).

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Budgetary Management Sub-Component

50. Good progress is being made in improving MOALD's budgetary management systems, underthe direction of the MOALD Chief Accountant, and assistance of the Financial Management FinancialAccountant. It is agreed that the financial TA will establish close working relationship with theFinancial Controller's (FC's) from DAR and DAET and with the Planning Division (budget planningofficer and CMEU) to support the development and application of improved yardsticks as the basisfor determining the required non-salary operating funds to ensure that the staff are fully utilized, andto ensure that there is a close linkage between work plans and allocation of budgetary funds for allASP components/sub-components.

Procurement Sub-Component

51. Commendable progress inimplementation activities has been achieved by the ProcurementUnit in MOALD. It has prepared procurement plans for vehicles/equipment, civil works andTechnical Assistance/consultancies for all major components under ASP. However, the ChiefVeterinary Officer (CVO) has yet to submit information required by the Ministry of Works (MOW),as regards the locations of dip tanks and houses. The mission would like to urge the CVO to submitthe information as a matter of urgency. Procurement of Technical Assistance in the ASP isproceeding satisfactorily, with several TA positions already filled (Financial Specialist, ProcurementSpecialist, Project Facilitator, Head of ASC and Research Officer for ASC). A procurement issuerequiring MOALD attention is the provision of additional office space to the procurement unit. The

. unit plans to recruit an additional three people to strengthen the unit's capacity in drawing uptechnical specifications. It is recommended that MOALD management review and support the postingof additional staff needed, and assign additional office space as required.

52. Treasury is responsible for commissioning and supervising a procurement reform study whichwould provide the basis for improving procurement procedures and effectiveness in all Ministries.Unfortunately, Treasury has delayed in finalizing and issuing the letter of invitation to a short list offirms. It is agreed that Treasury will expedite the finalization and issuance of the letter of invitationto the approved short list of firms (taking into the comments already provided by IDA on the initialdraft version), with the aim of selecting the best proposal in accordance with selection proceduressatisfactory to IDA. It is hoped that this study can start not later than end-September 1994.

Policy Analysis Sub-component

53. This important sub-component is being implemented by Bunda College. While there is somedelay in its start-up, Bunda College is making progress in preparing the training modules-with the aimof initiating the training this September 1994. Bunda is currently making good progress in carryingout the training needs assessment, and is awaiting MOALD to indicate the proposed officers toparticipate in the initial training module. It is agreed that Bunda College will expedite the actions tocomplete the training needs assessment and the training module for this September, and, together withMOALD and participating Ministries/agencies, will arrange for the selection of the trainees,beginning with those to begin this year.

Monitoring and Evaluation Sub-Component

54. The mission has worked closely with the CMEU to identify key areas for strengthening thathave not yet been addressed in practical terms since the launch of ASP. The primary issue is fillingthe two empty posts of Senior and Principal Economists. A short list has been developed by CMEU

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for the Senior Economist post and it is agreed that the post be filled as a matter of urgency, ifpossible by end-August 1994. The current senior economist has agreed to develop a proposed planfor division of labor to be implemented as soon as the new senior economist is in place. It is agreedthat the Principal Economist post also be filled as soon as possible; this will require the PS ofMOALD to liaise closely with the PS of EP&D.

55. It is agreed that a critical first step required to improve monitoring and evaluationperformance in the field is to develop a new unified national monthly reporting format for the fieldand accompanying analysis and overall use methodology (discussed under the extension component).This new format will also incorporate the monitoring needs of the Smallholder Food SecurityComponent. On-the-job training will be provided simultaneously with the introduction of the newformat to ensure that the format is used properly for management purposes. To this end, it is agreedthat Planning Unit/CMEU will prepare a training plan to aid in implementation of the new formatduring 1994/95. It is agreed that the first year of use of the new format will be a test year and that areview meeting will be organized by Planning Unit/CMEU at the years end to be attended by thesame participants involved in the launch meeting (July 22, 1994). To ensure adequate support forfield implementation of the new format, it is agreed that two local consultants will work with CMEUto form a task force to introduce the new reporting format. The local consultants will be identifiedand retained by mid August using ASP TA funds allocated to the CMEU.

56. In order to develop incentives for monitoring and evaluation field staff, it is agreed thatCMEU will work with NSO to develop training opportunities; and will submit to IDA (by mid-October 1994) for review/approval initial proposals for such training.

57. CMEU agrees to follow-up with DPMT progress on posting a senior economist to each ADDMEU. A request has been made and the response given was that manpower requirements review willcover this area and decisions have not yet been finalized. If there is a further delay in the posting ofthese persons, it is recommended that CMEU work out a transitional plan to ensure that the essentialwork is carried out (e.g., possibly with some additional input from the CMEU in the affected ADDs(assuming it obtains additional staff and/or short-term consultancy input).

58. Ad-hoc survey proposals and budgets have been prepared in some ADDs and they are beingsubmitted to CMEU for content review prior to release of funds.

59. The CMEU has completed the Extension Monitoring Survey and will complete (bySeptember 15, 1994) the on-going efforts to prepare the summary of the results, and is arranging toorganize a national workshop (sometime in August or September 1994) to discuss the results. In themeantime, the information gathered will be used as an input to the preparation of the new format formonthly reports.

60. In regard to short-courses -

a. A course was held for half the evaluation officers (under ADDFOOD) in rapid ruralappraisal. The other half will be trained in the same under ASP (by Nov., 1994).

b. Computer training should be proceeding in the Statistical Package for Social Sciences(SPSS) in conjunction with the DPU. There is a need to finalize the rescheduling oftraining due to lack of access to ASP funds, with the aim of holding the courses notlater than January 1995.

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c. At the current time the CMEU may require some assistance in the area of dataprocessing and analysis. However, the exact TOR has not yet been defined. It isagreed that the Senior Economist of the CMEU will finalize (not later than mid-October 1994) the TOR for short-term TA to the CMEU/DPU.

SMALLHOLDER FOOD SECURITY PROJECT (COMPONENT OF ASP)

61. The SFSP is a component of the ASP, and is being financed by IFAD, which has requestedIDA to supervise it and provide implementation assistance. Although the Credit is still not yeteffective, the MOALD is making generally good progress in meeting the conditions of effectivenessand laying the ground for start-up. The Mission reviewed land conservation, agro-forestry programsand proposed irrigation dam and stream off-take sites in Kasungu ADD. In Lilongwe ADD, theMission met three recently formed resource poor Burley/Hybrid Maize farmer groups, sweet potatomultiplication nurseries and a credit club. In Lilongwe, meetings were held with the CAETO, ProjectFacilitator, Chief Accountant, Procurement Officer, Procurement Adviser and General Manager,MRFC.

62. The IFAD Loan is not yet effective due to the fact that one condition on the recruitment of agroup management specialist is outstanding. Earlier attempts to recruit a suitable candidate throughGTZ failed .Whilst early implementation has proceeded using funds under IFAD's Special OperationsFacility, these funds are mostly committed and implementation of all components is now constrainedby lack of funds. To resolve this issue, GOM submitted to IFAD/IDA a formal request that thisCondition of Effectiveness be amended to become a dated covenant, whereby the group managementspecialist be appointed no later than September 15, 1994 (date to be confirmed). This is justified bythe fact that beneficiary farmer groups are already being formed in the field as per criteria establishedin the SAR to reach the intended target group. This positive momentum should not be lost because oflack of funds. With IFAD's agreement to this request, all conditions for Loan Effectiveness wouldhave been met. It was also agreed that recruitment of the group management specialist be donethrough local advertising and interview, and that this selection process proceed immediately.

63. Conditions for disbursement against expenditures on fertilizer, seed and planting materials,namely the de-linkage of credit from extension and the arrangements for channelling credit and farminputs to project beneficiaries, have still to be fully met. It was agreed in March 1994 that writtenguidelines for de-linking credit from extension would be issued to all ADDs, but this action has notyet been taken. It was agreed that MOALD would: (a) prepare and issue (by August 10, 1994) aformal notice to the ADDs confirming their decision to completely de-link credit management fromextension by October 1, 1994, and thereby facilitate this transition; (b) prepare an implenentationnote (by August 10, 1994) providing guidelines on how credit and farm inputs are to be channelled tothe new resource poor burley/maize farmer groups in 1994/95, taking into account the current statusof MRFC/Mudzi/SACA transitional operations and lending criteria; and (c) prepare (by August 10,1994) an intensive training program of these groups in credit and group management and the trainingstarted immediately using available SACA staff. The training plan would also be reviewed byMRFC. It is further agreed that MRFC staff review the status of each group in early October 1994to determine credit-worthiness for production credit.

64. Special Operations Facility (SOF). It is estimated that about USS 130,000 of the USS200,000 facility is either spent or committed. It was agreed that first call on the uncommitted balancebe used to fund training of ADD staff in the Soil Management/Fertility component (Kw. 265,000).Expenditures on the Credit Study (about USS 48,000), presently charged to the IDA PPF, would be

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adjusted and charged against this IFAD SOF. The balance of SOF funds would be used to fundsmallholder burley registration up to USS 10,000 as per the SOF budget.

65. Irrigation Component. Progress has been good until recent months when fund availabilitybecame a constraint. The main achievements include: Key positions, including that of the ChiefIrrigation Officer have been filled; an acceptable draft implementation plan has been completed; initialsurveys of dam and river diversion sites are completed; recruitment of short term technical assistantdam engineer, sociologist and marketing specialist is underway with advertisements placed and awardsexpected shortly; a contract for topographic surveys of proposed dam and irrigated sites has beenagreed; and a task force constituted to formulate an adaptive research program for sustainable dambodevelopment. To overcome the funding issue and avoid implementation delays, it was agreed that thefollowing critical next steps would be taken by MOALD: (a) re-orient training of field staff involvedin irrigation development, (b) carry out topographic-survey of proposed dam and irrigation sites (firstphase), (c) procure drip demonstration kits; (d) provide operating funds for the dambo adaptiveresearch task force (estimated at about US$44,000, with IDA providing such funds until IFADbecomes available, based on an internal bridge-funding arrangement; and (e) extending the damboadaptive research program outside of Kasungu district. It is agreed that: (a) demonstration small-scalefarmer-managed shallow tube well developments be included under this component in the highirrigation potential central lak'eshore region; and (b) that MOALD's Irrigation Department prepare (byend-September 1994) a concept note and proposed action plan for early review by IDA/IFAD.

66. Monitoring and Evaluation. GOM is required to submit a proposal for the management andorganization of monitoring and evaluation of the project, including the implementation of a nutritionand beneficiary income baseline survey. The overall M&E management plan being prepared as partof the overall ASP, which will encompass national, ASP and SFSP monitoring requirements,incorporating critical data on key performance indicators. Revised monitoring formats reflectingADD management needs and program key indicators would be formulated prior to the next croppingseason. The nutritional/income baseline survey for SFSP is being incorporated into the survey beingplanned by the Food and Nutrition Unit of the MOALD, and to be conducted'by Professor Mtimuniof Bunda College. It is agreed that the Project Desk Officer and Project Facilitator should ensure thatthe above mentioned study adequately covers the baseline survey needs of the SFSP, guidelines forwhich are included in the SAR.

67. Soil Management and Fertility Component. This component is to be implemented in 32 EPAsby some 380 Field assistants in 1994/95. National and Regional workshops have been completed.Training of field staff at ADD level have been delayed due to lack of funds. To ensure timely start upof this component it is essential this training is completed as a matter of urgency so selection ofcatchments and sensitization of farmers can proceed immediately. It has been agreed that fundsavailable in the SOF be used for this vital training requirements. Arrangements for the supply ofVetiver planting material and self-inoculating soya seed have also be secured in time for next season.It was previously suggested that agronomic practice of growing the Magoye soya bean in conjunctionwith maize be released as a technical recommendation rather than as a varietal release this has notproved possible so far. Given the pilot nature of this first years program and as farmers alreadycommonly used this soya, it is agreed that MOALD continue discussion on this matter internally toarrive at a practical solution that is responsive to smallholder requirements. Very strong technicalsupport of this program is essential in the first year to ensure that ridge re-alignment, Vetiver and tree

planting is done correctly and on time. Successful high quality demonstration in this first yearessential to ensure future replicability.

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68. Burley/Hybrid Maize Program. The 1994/95 program is to be implemented in 14 EPA's of 8RDPs, and is planned to reach up to 1400 farmers in about 28 clubs. A total burley quota of 140,000kgs has been allocated to the beneficiaries of this program in 1994/95. Good progress has been madein Lilongwe ADD where four new clubs with 200 members have been formed. The agreed criteriahave been applied in selection of beneficiaries and over 60% of members are women farmers. It isagreed that: (a) MOALD/MRFC prepare (by mid-August 1994) an intensive group training programin credit and group management using available SACA staff, and after review by MRFC, and that itis implemented as a priority; and (b) MRFC should determine the credit worthiness of the groups inearly October 1994 for production credit.

69. Small Ruminant Proposal. The Project Facilitator agreed to follow up with CVO on thepreparation of the small ruminant proposal and to submit it (by mid-October 1994) to IDA for review.

70. Next Review Mission. It is agreed that a full supervision mission for this the SFSP be carriedout in early October 1994; the review will focus on the preparations for the 1994/95 crop season andidentify and resolve any constraints to smooth project start-up.

PROPOSED AGRICULTURAL DIVERSIFICATION PROGRAM

71. The mission is pleased that the Agricultural Diversification Steering Committee has beenreconstituted with combined private and public sector representation to drive the preparation ofMalawi's national agricultural diversification program. The Committee, under the chairmanship ofthe PS of MOALD, met on June 28, 1994, at which time agreement was reached on the followingitems: (a) the overall terms of reference for the preparation of the proposed AgriculturalDiversification Program, although there is still a need to ensure that all of the committee memberswould have taken the time to review and comment on the draft TOR and to further focus and adjustthe TOR in the light of the recent mission activities; (b) TOR of the Steering Committee, theSecretariat, and working groups; and (c) formation (including designation of tentativemembers/chairpersons) of four working groups related to: markets/marketing, technology/inputs,finance, and infrastructure. During the present mission, there were further discussions on the finalcomposition of the working groups as well as their detailed TOR and work plan (and some initial. Apreliminary assessment was also made of the short-term consultancy assistance and budgetaryrequirements of the working groups, which would direct the preparation work, under the guidance ofthe overall steering committee. These funding requirements would be met by the available grantfunds mobilized by the World Bank to support Malawi's preparation efforts. Arrangements would bemade by the Bank to help ensure an expedient access to such funds, and to help mobilize additionalfunds from other interested donors, in the event such funds are needed.

72. The mission is also pleased with the progress made thus far by a Comparative AdvantageWorking Group (being coordinated by MOALD's Planning Division, with inputs from otherMinistries/agencies) in analyzing Malawi's comparative advantage in a range of crops and livestockactivities. This analysis, though preliminary and requiring further refinement and field confirmation,points to a wide variety of commodities which Malawi can produce efficiently and at the same timecontribute to increased income and employment opportunities (e.g., oilseeds, dairy products, poultry,sugar, rice, vegetables, spices, horticultural seeds and cut flowers). Based on the mission'sassessment of available reports (especially prior to the visit) and field visits and interviews withrepresentatives from the private sector, the mission's detailed findings are contained in Attachment 2;it provides a discussion/concept note on Malawi's Agricultural Diversification Program,diversification activities demonstrating high potential in the medium term, preliminary elements of a

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national diversification program, recommended next steps (including a proposal for promotingimproved linkages and domestic diversification). Further details are contained in several annexeswhich are available on request to those persons directly involved in the SteeringCommittee/Secretariat/Working Groups (of special interest is a suggested implementation plan forpromoting domestic diversification). Chart I of Attachment 2 outlines a summary of indicativediversification commodities and key characteristics, market prospects and likely participants. Themission's interviews with Malawian agro-entrepreneurs confirms a strong degree of interest indeveloping trading and/or processing ventures. It is likely that Malawi's entrepreneurs, includingcommercial smallholders and estates, processors and traders, will be the leading engines for Malawi'sbroad-based diversification; other groups (financial institutions, large corporate estates, agricultural-related associations) will also contribute. There is also recognition that the development of suchdiversification ventures will require stronger linkages with primary producers, especially smallholdersand small-scale estates.

73. The mission's findings reconfirm the need for a detailed assessment of the policy, institutionaland infrastructure-related constraints related to agricultural diversification. The mission's findings alsopoint to the need to design instruments for the provision and/or improvement of services related tomarket and technical intelligence, agribusiness/marketing training, external product promotion,facilitating foreign investment/collaboration, and the conduct of (pre-)feasibility studies. Only throughthe availability of these services to agro-entrepreneurs, is it likely that the local financial institutionswill provide the necessary investment funding.

74. It is agreed that, in parallel with the on-going analysis and formulation of proposals of theworking groups, that the Diversification Secretariat organize a series of workshops (2 days each inMzuzu, Lilongwe, and Blantyre) to bring together existing and prospective Malawian agro-entrepreneurs and international experts in various commodity fields. At such workshops practicalguidance would be provided on market opportunities, alternative types and sources of technology, etc.Follow-up activities might include guided visits to successful ventures in other countries, theidentification of technical and/or investment partners, and the conduct of full feasibility studies.

75. Suggested/Agreed Next Steps: The identification mission highlighted the followingsuggested/agreed next steps in supporting Malawi's efforts to prepare a national agriculturaldiversification program:

(a) Secretariat (MOALD Planning Division, with active inputs from MIPA) to update the ADPterms of reference (say, by mid-August 1994), taking into account the findings from this mission andadditional comments and suggestions from members of the Agricultural Steering Committee andWorking Groups, and the MOALD's recently prepared Agricultural and Livestock DevelopmentStrategy and Action Plan (draft of July 1994). This updated TOR will provide an updated and overallframework to guide the various activities running in parallel.

(b) Secretariat, in liaison with the Chairperson of the Steering Committee and designated WorkingGroups, expand the composition of the 4 working groups to ensure adequate representation ofinterests and disciplines (by mid-August 1994);

(c) Working Groups to initiate systematic preparation work (say, by mid-August 1994), givingemphasis to: developing detailed TOR for their respective work (Annex 2 provides somesuggestions), identifying constraints, developing detailed proposals and solutions, timetables foractions, roles of different parties (and linkage with on-going projects);

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(d) the Secretariat (including active collaboration from MIPA), under the direction of the SteeringCommittee, to make arrangements for the proposed 2-3 day diversification workshops (which couldbe held by early October 1994, as a planning date, subject to progress in the preparations). Thisplanning should give special emphasis to ensuring adequate mechanisms for follow-up to ensure thatthe various diversification ideas are given the needed support.

(e) subject to continued progress in the preparation of the diversification program, a jointGovernment/private sector/donor preparation mission review and facilitate progress in the preparationwork in October/November 1994 (with the precise date to be firmed-up according to the progressover the next few months).

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ATTACHMENT 1

PROJECT COMPLETION REPORTS: LESSONS LEARNED

A. NATIONAL EXTENSION AND PLANNING PROJECT

Lessons Learned

The major lessons to be derived from the implementation of the project are the following:

- a comprehensive pre-project/pre-program analysis within country of farming systems andtechnology needs of the main farmer types, the available sock of technology, and thetechnology generation capacity are needed to ensure cost-effective and sustainableinterventions;

- an improved program budget system for recurrent cost funding should be developed andimplemented within MOA, and this should be coordinated with an ongoing review of stafflevels and job description;

- more thorough assessment of the borrower's financial and procurement capabilities is neededduring project preparation/appraisal, as well as operational requirements for theirstrengthening;

- it is important to establish effective project management and coordination arrangements beforeproject implementation;

- field supervision of financial, technical and management aspects of projects with IDA donorassistance is extremely important;

- a detailed review of the various NRDP is needed to ascertain whether there are sustainableand effective alternatives to cost-intensive staff and operating requirements of the extensionsystem;

- greater attention needs to be devoted to ensuring that improvements in extension methods arecomplemented by ensuring strong research-extension-farmer linkages;

- the importance of separating extension and credit activities to ensure extension workers devotetheir time to extension activities; and

- monitoring and evaluation of project activities are essential in order to communicate thepositive results of extension activities to Government and obtain Governmentcommitment/support (particularly financial).

The design features of the follow-up project (ASP), have taken into account all of the abovelessons. It is important that ASP implement effectively the various action plans prepared to addressthe key lessons from MAESP. Regarding improved and sustainable extension services, ASP is givingemphasis to:

- improved mechanisms to ensure a constant flow of improved technologies to a broader rangeof smallholders through greater emphasis on low-cost technical messages and more effectiveresearcher-extension-farmer linkages;

- improved MOA budgeting and planning procedures and capacities, including development andapplication of improved "yardsticks" for determining the level of non-salary operating fundsfor ensuring effective extension services; and

- improved monitoring and evaluation of the effectiveness and impact of improved extensionservices.

B. NATIONAL AGRICULTURAL RESEARCH PROJECT

Lessons Learned

The major lessons learned include:

- Institutional reforms require a long-term commitment and should be phased, build on existinginstitutions where possible, and based on detailed actions plans and broad consensus;

- Project scope should take into account realistic budgetary, institutional and human resourcesconstraints;

- An independent body with adequate financial autonomy is needed to coordinate research, andsuch a body should have the authority and influence to set research priorities;

- An improved program budget system for recurrent cost funding should be developed andimplemented in MOA, this should be coordinated with an ongoing review of staff levels andjob description;

- In order to improve the relevance of research to farmers' needs, there is a need for apromotion and rewards scheme to encourage scientists to re-orient more of their work towardson-farm research and form closer links with extension, aside from the provision ofmechanisms such as ARTs and research/extension workshops, etc.;

- Field supervision of financial, technical and management aspects of the project with IDAdonor assistance is extremely important, especially the need to supervise procurement, andstrong government procurement arrangements and capacity are also essential;

- More cars should be taken in drawing up terms of reference, selection and supervision oftechnical assistants;

- Overseas degree training should not be emphasized, especially when incentives are weak inthe public sector, in addition, future training programs should be designed to allow fewertrainees away at one time, if research activities are not to be impeded; and

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- Sustainability may be improved if the new varieties of crops produced by DAR scientistscould generate an income by a formal sale of appropriate material to seed or agriculturalmerchants under a royalty or similar agreement.

The design features of the follow-up project (ASP) have taken into account all of the abovelessons. It is important that ASP implement effectively the various action plans prepared to addressthe key lessons from NARP. Regarding the development of a cost-effective and sustainable researchsystem that is geared to serving the needs of the majority of the farmers in Malawi, ASP action plansgive emphasis to:

- formulating and implementing research plans consistent with realistic budgetary constrains thatwill generate technologies responsive to farmers' needs; especially those of the resource poor(many of whom are women), and improving mechanisms to promote research-extension-farmer linkages;

- improving the mechanisms to update research priorities, diversifying participation in publiclyfunded research through the commercialization of some research activities, and improving theallocation of funding by strengthening the DAR; and

- improving DAR's management systems and the motivation and accountability of itsresearchers.

ATTACHMENT 2

AGRICULTURAL DIVERSIFICATION PROGRAM

IDENTIFICATION MISSION DISCUSSION NOTE:SUGGESTED INPUTS FOR PREPARATION WORK

1. The joint Government[World Bank team carried out discussions (including field visits) with awide range of individuals in the private and public sectors. The main findings of the mission aresummarized below. These findings are intended to serve as a discussion note and further planninginputs for consideration by the Diversification Steering Committee, which is being supported by theSecretariat and Working Groups. Further planning inputs were prepared by the mission, and will beprovided to the persons directly involved in the preparation of the national agricultural diversificationprogram.

What is Agricultural Diversification?

2. Agricultural diversification--at the farm level, in processing, and in trade--can be an importantsource of economic growth and sustainable poverty reduction for Malawi. Agricultural diversificationis a process of structural change. It can encompass the introduction of non-traditional, high-valuecrops and livestock products, an expansion of secondary food crop production and trade, adding valueto primary commodities through processing, and/or the development of new market outlets. Theprocess of diversification entails some combination of improved resource use, increased farm andmarketing productivity, and improved response to (changing) market demand.

What is the Rationale for Accelerating Malawi's Agricultural Diversification?

3. Agricultural production in Malawi is dominated by two crops: tobacco and maize. Tobaccoproduction - based on a combination of tenant and direct labor, has been the backbone of thecountry's estate sector for many years. The emergence of the "graduated smallholder" estates overthe past decade has also been driven by tobacco production. Presently various types of tobaccoaccount for nearly 70% of Malawi's merchandise exports. Maize, Malawi's staple food, occupiesabout 80% of the cultivated area in the smallholder subsector. In terms of planted area, maize is alsothe second most important estate crop, grown both for commercial purposes and for the maintenanceand remuneration of laborers.

Malawi's Comparative Advantage: Preliminary Prospects

4. Expanding tobacco production has provided the primary, engine for economic growth inMalawi since Independence. This is unlikely to continue. Declining demand for tobacco products inNorth America and Western Europe is expected to result in a 10% decline (in real terms) ininternational prices over the next decade. Such a trend will have an adverse effect on the profitabilityof most estates and on Malawi's current account balance. Monocrop maize production has notresulted in sustained food security within the smallholder sub sector and has contributed little to thealleviation of poverty in such areas. In order to increase rural incomes, improve food security andnutritional levels, and reduce Malawi's vulnerability to the short-term fluctuations and long termdecline in the international price of a single commodity, there is an evident need to diversify thestructure of agricultural production, processing and trade.

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5. The recently completed analysis of comparative advantage (driven by a DiversificationWorking Group of MOALD's Planning Division supporting the Diversification) developed a 'MultipleObjective Policy Analysis Matrix' (MOPAM). These preliminary findings indicated that there are awide range of crops and livestock commodities for which Malawi has a comparative. advantage inproduction as measured by domestic resource costs (DRCs). That analysis also shows that many ofthe production options offer scope for increases in rural incomes and employment. This MOPAManalysis does not, however, take into account the existing and potential market demand for individualcommodities. The analysis assumed that in most (if not, all) commodities, Malawi's market sharewould be relatively small, and hence, in the initial years, would probably not face insurmountablemarket constraints. To be profitable and sustainable, agricultural diversification must be a market-driven and private sector led process. Hence, the next phases of detailed work will need to devotegreater emphasis to ascertaining the precise market requirements and processes by which Malawi cangain access to these markets.

6. Based on the MOPAM analysis, coupled with a preliminary assessment of domestic andinternational demand, the mission considers that Malawi's best prospects for agriculturaldiversification during the short- to medium-term (i.e. 1 to 5 years) lie with:

* .Oilseeds (sunflower, soybean, groundnuts, sesame): large current imports; known crops;high nutrition benefits

* Pigeon Peas and Pulses: a considerable number of smallholder already grow these crops;because of their relatively low returns, they probably will be less attractive cash crop thanother alternatives listed here;

* Dairy products: large unmet demand; nutrition benefits; steady income flow

* Poultry (meat and eggs): large unmet demand; nutrition benefits; high income potential

* Sugar/Rice: unmet demand; nutrition benefits; low cost producer

* Vegetables (fresh and processed): known crops; dietary variety; high income potential,export windows

Spices (chilies, black pepper, turmeric, paprika): known crops; local, regional, internationaldemand; low cost producer (sun-drying)

* Horticultural seeds (vegetables, flowers): large international market; apparent agro-climaticcomparative advantage (rain during vegetative stage followed by appropriate dry spell)

• Cut flowers (especially roses): high-income and employment potential; large Europeanmarket; suitable agro-climatic conditions

7. Table 1 summarizes some of the likely farm-level entry barriers and market prospects for theabove commodities. It also indicates what types of farming enterprises are likely to be able toparticipate and profit from these lines of production. The table indicates the technical, investment andmarket levels, in accordance with the different parties concerned. The Table indicates that whilemany of the promising commodities could be profitably produced by commercial smallholders, smallestates, and larger estates, resource poor smallholders are likely to have a more narrow range ofdiversification options (especially until their food household security needs are met).

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Table 1. Indicative Diversification Commoditiesand Key Characteristics, Market Pospects, and likely Participants

Oilseeds Dairy Poultry Sugar. .' Vegetables Spices Seeds Cut flowers

Entry Barriers

Technical Level Med Med Med Med Med Low Med High

Farm Investment Low Med Variable Low . Low Low Low High

Gestation Period Short Med Short Med Short Short Med Med/High

Market Prospects -

Household Subsistence Good Excellent Excellent Good Excellent Fair Poor Poor

Domestic Market Excellent Excellent Excellent Good Good Good Fair Poor

Regional Market Good Poor Fair Poor Fair Good Fair Fair

International Market Fair Poor Poor Fair Good Good Good Excellent

Likely Participants

Resource Poor (<I ha) X X X

Commercial Smallholder (1-5 ha) X X X .,. X X X

Small Estates (10-30 ha) X X X X X X X X

Large Estates (100+ ha) X X X X X

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Who are the Likely "Players" in the Diversification Process?

8.- Concerning the likely players at the national level, the mission's findings have highlighted thefollowing preliminary views:

A. Malawi's financial institutions have a narrow client base and their involvement inagriculture has been dominated by tobacco. Competition within the banking system is weak,lending criteria is restrictive, and loan processing fees are high. Financial institutions havehad some adverse experience in lending for non-traditional agriculture and agro-industry.They are therefore unlikely to play a pro-active role in generating agricultural diversificationventures. A line of credit will not, by itself, provides the dynamic spark for investments inagricultural diversification. Still, given the limited scope of their current market reach,several financial institutions would be responsive to well-conceived and substantive proposalsby credible investors/investor groups.

B. Large corporate estate companies have been the backbone of Malawi's economy sinceIndependence. They continue to account for a very large proportion of the country's exportearnings and formal sector employment. The operations of these companies center aroundtobacco and selected tree crops and this is likely to continue in the future. Over the years,some such companies have experimented with other crops (i.e. spices, vegetables) or acquiredfarms where other crops and/or livestock activities were undertaken. The experiences in thesediversification' activities have been mixed, with losses recorded in several areas (i.e. cashewproduction).

In view of the decline in tobacco, some further diversification efforts are likely. Butthis will not change the basic operating focus of these companies. While these efforts mayhave a positive impact on export earnings, they are unlikely to provide the engine for broad-based agricultural diversification for Malawi.

C. Malawi's agriculture-related associations can be divided into two distinct categories.One category consists of associations catering for traditional export-oriented crops with well-established systems of support services (i.e. research, promotion, market intelligence), andadministration. Such institutions are well-financed and have effectively lobbied on behalf oftheir members. With the exception of the tree nut development, these institutions have notfostered a significant movement into new lines of production amongst their membership. Thesecond category of associations consists of recently-created, donor-supported institutionswhich are still in a primary stage and have yet to develop a sustainable set of services fortheir members. These associations have been formed in order to support income-earningactivities among smaller scale producers, processors, and traders. As such, they have apotentially important role in supporting agricultural diversification by linking their members tonational level institutions and policy-makers and by improving their members' access toinformation (on finance, markets, technology).

D. Malawi's private entrepreneurs, including processors and traders, will be the leadingengine for broad-based diversification. Until recently, such firms/individuals faced a morassof restrictions and controls and had limited access to the formal financial sector. In manycases, they were unable to expand or diversify operations due to such constraints as well asthe dominance of ADMARC and other parties in many commodity areas. With the changingpolicy environment, these entrepreneurs will actively search out new opportunities. Theiracquired skills and expertise will need to be supplemented through improved support services,

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especially marketing training and intelligence, and technology. In addition, suchfirms/individuals will need to become more concretely involved in supporting raw materialproduction. As this will involve potentially large numbers of smallholders and small estates,these entrepreneurs will need to work with intermediary institutions-including associations,farmer clubs, Estate Extension Service Trust and MOA extension staff.

E. Several public institutions, in particular MIPA and MEPC, have a mandate to promoteinvestment and trade. The mission considers that there is a need to consolidate the activitiesof such institutions within a single entity which can provide a 'one-stop' center for prospectiveinvestors and trade partners. This center needs to be results-oriented and driven by the .requirements and expectations of its clients. As part of this consolidation, there is a need torefine the current strategy for agricultural product promotion, both internationally and in thedomestic market.

9. The mission reaffirms the need for a careful analysis of existing policy and regulatoryconstraints on private agribusiness activity. These cover a broad range of areas, including marketcontrols, employment restrictions, utility charges, lack of incentives, land leasing/buyingarrangements and others.. These issues need to be tackled first and foremost in order to create anenabling environment for the private sector to respond. The delineation of such policy/regulatoryconstraints and the development of a program and time table for policy reform therefore, should beone of the primary functions of the Agricultural Diversification Working Groups.

Preliminary Elements of a Possible Agricultural Diversification Program

10. Given the currently available information, the mission envisions the following elements of anational agricultural diversification program which the working groups may wish to keep in mindduring the course of preparation. During the course of preparation these elements would be furtheradjusted and integrated into program components, with clearer institutional arrangements and linkswith on-going activities. The tentative elements include:

(a) a program of policy/regulatory reforms;

(b) an expanded product promotion strategy and apparatus (building on the work done byMOALD in preparing the draft Agricultural and Livestock Development Strategydocument);

(c) an Agribusiness Information Unit;

(d) a 'know-how' fund for feasibility studies/promotion/ market testing/technicalsupport/prospective missions

(e) training and broader educational programs in marketing, food technology, etc.

(f) strengthening of extension staff skills in smallholder organization and building ofcommercial approaches.

(g) a line of credit for agro-industrial activities (and supported by mechanisms to helpreduce risks, at least during the take-off stage);

(h) a revised product promotion strategy and apparatus.

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11. Other possible program components (i.e. investments in selected infrastructural facilities, suchas irrigation, electrification, access roads, cold storage, etc) would also need to be considered by theWorking Groups. There is also a need to determine additional services which can be provided to

promote agricultural diversification, especially involving production and post-harvest technologies, theprecise roles of public and private sectors and on-going projects (e.g., Agricultural Services Project)in providing such services.

12. The mission also prepared a draft proposal outlining the various elements for supportingimproved linkages between smallholders, traders/processors, extension staff and supportinginstitutions (items e and f above), "Suggested Implementation Plan for Promoting DomesticDiversification". It is available on request.

Recommended Next Steps: Focus on Working Groups and "Entrepreneurial Forums"

13. The mission reviewed and discussed the proposed composition and terms of reference for theWorking Groups appointed by the Agricultural Diversification Committee. Given Government'sstated objectives to promote broad-based development, the mission suggests that the Working Groupsbe expanded in order to facilitate broad representation of interests and disciplines. One of the firsttasks of the Secretariat (under the direction of the Chief Planning Officer of MOALD) is to update assoon as possible the broad TOR for the preparation of the agricultural diversification program, takinginto account the relevant findings from this mission and the additional feedback from the workinggroup members on the initial framework TOR. This updated TOR will then provide a relevant guidefor the more detailed work of the working groups, taking into account the suggestions outlined below.

14. The mission recommends that the four Working Groups/WGs (markets/marketing,finance/incentives, inputs/technology and infrastructure) focus their attention on (i) identifyingconstraints; (ii) developing recommended solutions; (iii) delineating time-table for action; (iv)recommending respective roles of different parties (public, private, particular institutions).

15. The mission recommends that the markets/marketing Working Group focus on public pricepolicies, licensing/restrictions on trade/raw material procurement, market intelligence, andpromotional requirements. It should refine the comparative advantage analysis. Since the issuesreferred to have already been well researched, it is proposed that the Secretariat collaborate with thisWorking Group to prepare a working paper covering these topics, which will also provide inputs tothe other working groups.

16. In the areas of market intelligence and promotion, in view of the immediate potential incertain areas, the mission recommends that the Steering Committee/Working Group directly obtainconsulting services for undertaking (i) a Dairy Subsector Review; (ii) a Sugar and Rice SubsectorReviews; and (iii) an analysis of domestic market demand and growth potential for non-staple foodand agricultural products, such as vegetables, spices, seeds, etc. In each of these areas there is anevident need to consolidate and extend available information so as to provide a greater base fordetermining growth potential and the likely commercial viability of ventures. In the cases of dairy,sugar and rice, public investments (i.e. irrigation) and/or services (i.e. veterinary services) are likelyto be necessary to support private ventures. The analysis of the domestic market for non-staple foodswould provide Malawi's agro-entrepreneurs with a broader perspective on available opportunities thaneach might gain through their own commodity specific feasibility studies.

17. The mission recommends that the finance/incentives Working Group focus its attention onforeign/local investment incentives, duties/taxes, bank lending policies, export incentives, equity

6

financing/venture capital, special funds. It is estimated that most of the information is alreadyavailable. This work would also need to consider carefully the linkage with the proposed BusinessDevelopment Unit of the recently established Malawi Rural Financial Services Project (MRFSP). Aconsultant would need to be engaged to assist in this review and preparation of a working paper(possibly about two weeks).

18. The mission recommends that the factors of production Working Group focus on land leaseprocedures, TEP/employment rules, training requirements, seed regulations, technology importregulations, irrigation potential and adequacy of support in production and post-harvest technology(research and extension) for diversification commodities. It is proposed that a review of the existingstudies on irrigation, in the context of agricultural diversification, be carried out by the secretariat. Itis estimated that an external consultancy may be required for a period of four weeks to help assessavailable information and solutions in the other areas.

19. The mission recommends that the infrastructure Working Group focus on internal transport(cost, licensing, competition), port/sea transport, airfreight conditions, costs and future scenarios, coldstorage, electrification (including reliability and tariff structure), and rural roads. It is estimated thatan overall review should carried out over a period of four weeks by an external consultant.

20. In order to ensure that the focus and outputs of the working groups contribute to a coherentnational agricultural diversification program, it is further suggested that the Secretariat play an activerole in preparing the overall national agricultural diversification program document, under theguidance of the Steering Committee. It may also be necessary for the Secretariat to engage theservices of a consultant to assist in the preparation of the overall report (this consultant could also beone of the above mentioned consultants, to the extent he/she has a broad background and wide rangeof skills).

"Entrepreneurial Forums"

21. The mission has already identified private entrepreneurs/traders to be the potential engine fordiversification. In order to facilitate their involvement in the process it is recommended that underthe direction of the Steering Committee, MIPA organizes a consecutive series of 2-3 dayEntrepreneurial Forums which will bring together international experts in various commodity fieldswith Malawian agro-entrepreneurs. The international resource persons will need to have hands-on,African-based experiences in establishing, facilitating and/or managing small- to medium-scale agro-processing or fresh produce marketing ventures. The suggested commodity lines of such expertswould include: dairy, oilseeds, fruits and vegetables, seeds, spices/herbs, and others. There could bethree forums, one each in Mzuzu, Lilongwe and Blantyre, so that existing or prospective investorsfrom different parts of the country could attend. In addition to providing direct access to theinternational resource persons, the forums would also include presentations related to the regional andinternational market opportunities in selected areas and to principles/strategies for organizing rawmaterial procurement.

22. The mission recommends that as a follow-up to the forums there be a mechanism to takepotentially viable ventures to the next step of pre-feasibility studies. Study tours for privateentrepreneurs to neighboring countries where similar ventures have been implemented, full feasibIlitystudies, and efforts for match-making would have to be undertaken. From this process, it is likelythat several ventures will emerge which could receive funding as 'pilot projects' under the AMEDproject.

7

23. The mission considers that the development of improved market and technical intelligenceservices will be critical for the emergence and strengthening of small to medium scale Malawian agro-industrial and trading ventures. Therefore, it is recommended that the Steering Committee (throughthe Secretariat in collaboration with the Markets Working Group) commission a consultancy toexamine the feasibility of establishing a small Agribusiness Information Unit within MIPA. Such aunit could house existing studies and trade journals, maintain an international trade data base andconsultant roster, source international volunteers for local businesses, perform match-making services,perform a "reach out" service via newsletters, workshops, and other forums, and manage a "know-how" fund for supporting feasibility studies, market research, and related activities by prospectiveinvestors and traders. The consultancy would examine the potential demand for these services andlook at needs for additional staffing (agricultural economist/agribusiness specialist and/or projectappraisal/development officer), and the scope/need for twinning arrangement with internationalagriculture institutions, linkages with other related units to ensure complementarity of services (e.g.,Business Development Unit of the MRFC) and possible sources of funding (with the goal of beingeventually self-financing, if possible).

8

RAnson

cc: Messrs./Mmes: Denning*, De Azcarate*, Edstrom, Tidrick (AF6DR); Christiansen(AF6Com1); Aksoy*, Ahsan, Folkerts-Landau*, Schafer and Bruns (AF6MI); Racki*,Seibert, Sherpherd (AF6IN); Grawe*, Ribe, Chaubey, Mugwagwa, Salah (AF6PH); Zulfiqar,Pohland, Hiwa, M'buka, Sibale (AF6ML); Chausse, Asibey, Bunyasi, Fullerton, Jaffee,Macklin, McNamara, Okidegbe (AF6AE); Cleaver*, Otten*, Sharma, Rietbergen, Spurling,Toure, Venkatesan (AFT); Freese (LOAAF); Zerabruk (AFLEG); AF6AE Files and AfricaFiles.

* indicates letter only

Run Date: 08/08/94at 15.46.23

VP - AFRICAAFRICA - COUNTRY DEPARTMENT VI23220 - AGRICULTURE & ENVIRONMENT DIVISNPFLCRI - Latest Status of Covenant ComplianceOD 13.06 - ANNEX DSFORM 590 DATE: 06/30/94

Project ID: 3MALPA064 - AGRI.MARKRTING & EST

Description of Covenant CommentsLoan/ Original RevisedCredit Covenant Fulfill Fulfill

Agreement Number Text Reference Class(es) Status Date Date

CREDIT C19660 2.02 (b)&(c) 2 C 06/09/89 Establishment of two (2) Project Special Accounts. None

3.01 (a)(i) 2 C This is a general covenant about diligence, provis Noneion of funds, efficiency, etc.

3.01(c) 3,2 C 06/09/89 An agreement to be entered into between the Borro- An agreement has recently been concluded withwer and the Reserve Bank of Malawi (RBM) and bet- INDEFUND.ween RBM and the participating financial institu-tions (two commercial banks, INDEBANK, and SEDOM).INDEBANK, the two coenercial banks, and SEDOM havesigned agreements.

3.02 5 C IDA procurement procedures to be followed. None

3.04 2 CP Borrower to review interest rate structure This has not been strictly complied with and needsgoverning lending under the project annually and to be updated to be in line with recent develop-revise if necessary. ments.

3.05 5 C 07/30/91 The Borrower to submit to IDA for review TOR and a Nonework program for implementation of a pilot creditscheme for traders.

4.01 1,9 C Project Accounts to be audited annually. These are regularly submitted though with delay.As a condition of effectiveness, the Borrower These committees have been meeting periodicallyshould establish the Marketing Committee. and have helped improve project coordination.

Schedule (5) (4) 9,2 SOON (1) Participating Financial Institutions to submit (1) These have been improved though many PFIs arehalf-yearly reports to IDA. not timely in submitting reports. (2) This was(2) Mid-term Evaluation to be submitted to IDA. postponed due to restructuring of the credit. MOA

has produced a draft, submitted to IDA in 12/93,which will be finalized by the end of July 1994.

Status: C - Complied withCD - Compliance after DelayNC - Not Complied withSOON - Compliance Expected in Reasonably Short TimeCP - Complied with PartiallyNYD - Not Yet Due

Run Date: 08/08/94at 15.46.23

VP - AFRICAAFRICA - COUNTRY DEPARTMENT VI23220 - AGRICULTURE & ENVIRONMENT DIVISHPPLCR1 - Latest Status of Covenant ComplianceOD 13.05 - ANNEX DSFORM 590 DATE: 06/30/94

Project ID: 3MALPA064 - AGRI.MARKETING & EST

Description of Covenant ConmentsLoan/ Original RevisedCredit Covenant Fulfill Fulfill

Agreement Number Text Reference Class (es) Status Date Date

CREDIT C19660 Schedule (5)(4) 9.2 SOON

Schedule (SI(S) 5.10 C 03/31/89 Marketing Adviser to be recruited by MOA. The Adviser worked satisfactorily. His contractended 06/93.

Schedule (5) (6) S C Annual training program to be submitted to IDA. The program for training private traders has beensubmitted to IDA and implemented satisfactorily.MOA needs to enhance the training program to caterfor other needs, especially on private traderinvolvement in inputs marketing.

Schedule (5) (7) S C 10/31/89 Malawi Bureau of Standards (MBS) to assume MBS is so far following a voluntary exportresponsibility for export control for agricultural certification scheme.produce.

Schedule (5) (8) S,9 CD 03/31/90 Borrower to analyze impact of market reform COM carried out market liberalization study inmeasures and propose any necessary changes in 1992. IDA approved a GOM proposal to revokeregulations governing private traders. market regulations which were restrictive to the

operations of private traders but the order re-voking the 1987 regulations still has to be passed


Run Date: 08/05/94at 15.46.23

PFLCRX - Latest Status of Covenant Compliance0O 13.05 • ANNEX 05

Full Text of General Covenant ClassificationCovenant Class

I Accounts/audit2 Financial performance/generate revenue from beneficiaries3 Flow and utilization of Project funds4 Counterpart funding5 Management aspects of the Project or of its executing agency6 Environmental covenants7 Involuntary resettlementI Indigenous people9 Monitoring. review and reporting

10 Implementation11 Sectoral or cross-sectoral budgetary or other resource allocation12 Sectoral or cross-sectoral regulatory/institutional action13 Other

Run Date: 08/08/94at 15.46.23

VP - AFRICAAFRICA . COUNTRY DEPARTENT VI23220 - AGRICULTURE & ENVIRONMENT DIVISNPFLCR1 - Latest Status of Covenant ComplianceOD 13.05 - ANNEX DSPORN 590 DATE: 06/30/94

Project ID: 3MALPA074 - AGRIC SERVICES


Agreement Number Text Reference Classtes) Status Date Date

C25140 C25140 4.01 (b) 1 NYD (i) Have project records and accopmnts, including Nonethose for the Special Account for each fiscal yearaudited, in accordance with appropriate auditingprinciples consistently applied, by independentauditors acceptable to the Association;

4.01 (b) 9 NYD iii) Furnish to the Association, as soon as avail- Noneable, but in any case not later than 9 monthsafter the end of each such year, a certified.copyof the report of such audit by said auditors, ofsuch scope and in such detail as the Associationshall have reasonably requested;

4.01 (c) 1,3,9 NYD For all expenditures withdrawn from the Account on Nonethe basis of statements of expenditure, the Borro-wer shall ensure that such records and accountsare included in the annual audit referred to in4.01(b) of this Section and that the report ofsuch audit contains a separate opinion by saidauditors as to whether the statements of expenditure submitted during such fiscal year.

Schedule 4 10 SOON 1. ASSC, under the chairmanship of the PS/MOA, Noneshall meet quarterly to review implementationbased on progress reports to be prepared by MOA'sCentral Monitoring and Evaluation Unit, and reviewand approve annual work plans and budgets andresolve any policy and coordination issues thatmay arise during the implementation of theProject.

Schedule 4 10,9 CP 3. Each implementing department shall, by not Nonelater than Sept 15 of each year of Project imple-mentation, with effect from 09/15/93, prepare andsubmit to ASSC. with copies for the Association,

tatus: C • Complied withCD - Compliance after DelayNC - Not Complied withSOON - Compliance Expected in Reasonably Short Time nCP - Complied with Partially zNYD - Not Yet Due

4t

Run Date: 08/08/94at 15.46.23

VP - AFRICAAFRICA - COUNTRY DEPARTMENT VI23220 AGRICULTURE & ENVIRONMENT DIVISMPFLCR1 - Latest Status of Covenant ComplianceOD 13.05 - ANNEX DSFORM 590 DATE: 06/30/94

Project ID: IMALPA074 - AGRIC SERVICES



C25140 C25140 Schedule 4 10,9 CP for their review, draft annual work plans andsupporting draft budget estimates for the follow-ing fiscal year.

Schedule 4 1,3 CP 4. The Borrower shall (a) release the annual bud- None

getary allocation on a timely basis, consistentwith criteria for operating expenditures, satis-factory to the Association to be finalized by 08/1of each year, with effect from 08/01/93, and(b) progressively increase its share of financingfor operating expenditures commensurate with thedecrease in the Association's share.

Schedule 4 9,5 C 6. By Sept 15 of each year, with effect from None09/15/93, prepare and submit revised researchaction plans which are consistent with the nation-al agricultural policy, National Research MasterPlan and realistic budgetary ceilings.

Schedule 4 10,3,9 CD 7. DAR with the assistance of the Dept of Agri. NoneTraining and Ext., shall carry out an action plan,satisfactory to the Association, to strengthenlinkages between research, extension and small-holder farmers, and by 08/01 of each year duringthe implementation of the project, with effectfrom 08/15/93, submit a draft work plan and budgetfor the following year.

Schedule 4 10,9 CD 8. (a) DAR shall take appropriate measures to Noneexpand the use of contract research with suitablyqualified research bodies including ChancellorCollege, Bunda College of Agriculture and the TeaResearch Foundation, consistent with their growingcapacity, and ensure that progress reports oncontracted research are submitted to DAR by May 1of each year of project implementation.

Schedule 4 10 SOON 8. (b) MOA shall, by July 1 of each year of Noneproject implementation, with effect from 07/01/93,advertise all contract research opportunitiesavailable in the ensuing year.


rAuS J

Run Date: 08/08/94at 15.46.23

VP - AFRICAAFRICA - COUNTRY DEPARTMENT VI23220 - AGRICULTURE & ENVIRONMENT DIVISHPFLCR1 - Latest Status of CoVenant ComplianceOD 13.05 - ANNEX DS

PORN 590 DATE: 06/30/94


Description of Covenant CommentsLoan/ original RevisedCredit Covenant Fulfill Fulfill


C25140 C25140 Schedule 4 10 C 9. DREA shall implement the action plan for ASC's Noneoperation, and with ASC's assistance, will updateASC's work plan for the ensuing year by 08/15 ofeach year of project implementation with effectfrom 08/15/93 and submit it to the Association forreview.

Schedule 4 10 CP 10. DAR shall (a) prepare and, by 08/15/93, begin Noneimplementation of an action plan satisfactory tothe Association, for improving its managementsystem, staff incentives and accountability, and(bi update the action plan annually and furnish itit to the Association by 08/15 of each year.

Schedule 4 10 CP 12. MOA shall prepare and, by not later than June None30/93. commence implementation of an action plan,satisfactory to the Association: (a) to delinkcredit and extension services; (b) to rationalizeMOA's organizational structure and staffing; and(c) to improve field supervision, program budget-ing/planning and staff incentive system. MOA shallannually review and update the action plan.

Schedule 4 10 C 13. In order to ensure that field staff have Nonemobility to fulfill their responsibilities, MOAshall prepare and implement a motorcycle ownershipscheme for such staff, satisfactory to the Asso-ciation.

Schedule 4 10 CP 14. MOA's Pricing and Marketing Unit will be res- Noneponsible for the implementation of policies andaction plan satisfactory to the Association for(a) increasing the fupply of improved maize seedby liberalizing production, pricing, marketing andformulating an improved stocking policy; and (b)increasing supply of fertilizer by liberalizingimportation, pricing & distribution of fertilizer,

Schedule 4 10,1,3 CD 07/01/93 15. The Chief Accountant of MOA shall adopt and Noneby July 1, 1993, commence the implementation of an

tatus: C - Complied withCD - Compliance after DelayNC . Not Complied withSOON - Compliance Expected in Reasonably Short TimeCP - Complied with PartiallyNY - Not Yet Due

Run Date: 0C/08/94at 15.46.23

VP - AFRICAAFRICA - COUNTRY DEPARTMENT VI23220 - AGRICULTURE & ENVIRONMENT DIVISNPFLCR1 - Latest Status of Covenant ComplianceOD 13.05 - ANNEX DSFORM 590 DATE: 06/30/94


Description of Covenant CommentsLoan/ Original Revised

Credit Covenant Fulfill FulfillAgreement Number Text Reference Class(es) Status Date Date

C25140 C25140 Schedule 4 10,1,3 CD 07/01/93 action plan satisfactory to the Association toimprove financial management and accountingsystems.

Scheduly 4 10 SOON 16. MOA shall implement a transport management Noneaction plan, satisfactory to the Association, toimprove the efficiency and effectiveness of thedelivery of agricultural services.

Schedule 4 10 C 17.(a) MOA's Procurement Unit, with the assistance Noneof the Ministry of Works, for civil works, and aprocurement specialist. will be responsible forcarrying out procurement work, and for formulatingand implementing an action plan satisfactory tothe Association, including in-srevice and on-the-job training, to strengthen the capacity of MOA tohandle procurement matters.

Schedule 4 10 SOON 17.(b) The Ministry of Finance shall carry out an Noneinterministerial procurement study, satisfactoryto the Association, consistent with the Plan ofAction.

Schedule 4 10 C 18. MOA, through Bunda College of Ag., will be Noneresponsible for the implementation of the agricul-tural policy analysis and training sub-componentof the Project, and shall prepare and implement anaction plan satisfactory to the Association. Thememorandum of understanding between MOA and BundaCollege of Ag. furnished to the Asso. for itsreview shall be satisfactory to the Association.

Schedule 4 11,10 CD 19. The Department of Irrigation within MOA shall Nonecarry out the small-scale irrigation sub-componentof the Project, accordance with criteria and anaction plan satisfactory to the Association.

Schedule 4 10,9 SOON 20. MOA shall carry out the monitoring and Noneevaluation of the Project, in accordance with thePlan of Action.

tatus: C - Complied withCD - Compliance after DelayNC - Not Complied withSOON - Compliance Expected in Reasonably Short TimeCP - Complied with PartiallyNYD - Not Yet Due

Run Date: 08/08/94at 15.46.23

PFLCR1 - Latest Status of Covenant ComplianceOD 13.05 - ANNEX DS

Pull Text of General Covenant ClassificationCovenant Class

1 Accounts/audit2 Financial perforance/generate revenue from beneficiaries3 Flow and utilization of Project funds4 Counterpart funding5 Management aspects of the Project or of its executing agency6 Environmental covenants7 Involuntary resettlement6 Indigenous people9 Monitoring, review and reporting

10 Implementation11 Sectoral or cross-sectoral budgetary or other resource allocation12 Sectoral or cross-sectoral regulatory/institutional action13 Other

Attachment 5

Agricultural Marketing And Estate Development ProjectPerformance Indicators

Project Component Indicator Status

Estate Development 1. Credit disbursement and 1. 91% of credit disbursed.and Agro-Industries loan recovery High loan recovery rates.(Credit Component) 2. Activity of PFIs. 2. No credit disbursed to

small estates (INDEFUNDhas signed PFI agreement).About SDR 5 mU. lent tolarge estates. Four PFIsare lending to rural areas(two lend to SMEs and haverecovery exceeding 90%).

Pilot Scheme For 1. Number of rural traders 1. Excellent. Requests haveRural Merchants and merchants obtaining expanded from 5 (1992/93)

(Credit Component) credit to 102 (1994/95 estimate).2. Private Trader Promotion 2. Private traders now allowed

to trade commodities.

Institutional 1. Private trader development 1. Over 1,000 traders haveDevelopment 2. Project monitoring and attended skill courses (overComponent management capacity 1,000 registered traders).

development 2. Export Quality Controlscheme in place. Capacityto monitor still under-developed. Price infosystem and Private TraderAssociation formed. Highvacancies remain inPlanning Division.

Market Number of rural Good progress. Five of 22Infrastructure produce markets that markets have been constructedComponent are rehabilitated or rehabilitated. MOLG needs

to develop O&M costrecovery arrangements.

Other Factors Indicator IrStatus

Employment Numbers employed No significant increase.Investment has been

capital intensive.

Production and Volume and composition Significant productionDiversification of production increases (especially for

smaller enterprises).

Export Orientation Export-oriented production Substantial increase.and marketing activities Restrictions on crop trading

lifted except for export ofmaize, g/nuts and beans.

ATTACHMENT 6

MALAWIAGRICULTURAL SERVICES PROJECT

PERFORMANCE INDICATORS'

KEY ACTION/INDICATOR TARGET FIRST TARGET SECOND TARGETREVIEW 9/95 REVIEW 9/97 PROJECT CLOSE 9/99

1. Minimum average real smallholder income

increase2 2% 4% 6%2. Reduction in pre-harvest, food scarce period

(current: 3 months) 2 months 1.5 months I month

3. Adaption, dissemination and adoption of

labour saving technologies in food

processing/transportation/fuel use/collection 2 technologies4. Three low cost ag. productivity enhancing

technologies Submission to Dissemination to Adoption byExtension 25,000 farmers 40,000 farmers

5. Reduction in annual rate of research staff

turnover 3 10% 15% 20%6. Coverage of smallholder population by

extension 45% 60% 80%

7. Ratio of female farmers covered by extension 25% 35% 50%8. Number of smallholders adopting HYVs of

maize , 25% 30% 40%

9. No. farmers using nitrogen-fixing/soilconservation techniques 15% 25% 40%

10. Upgrading FHAs to FAs 50% 100%11. Incorporation of nutritional messages into

FAs work 100% FAs covered12. Min no. of hectares under small scale

irrigation 30 120 30013. No. of farmers using small scale irrigation 100 400 100014. No. of local problems specific surveys to be

undertaken by each ADD4 2-8 4-16 6-2415. Reduction in MOA transport costs (for same

level of services) 5% . 8% 12%

16. No. of GOM staff who have received AgPolicy Analysis Training 10 20 30

17. Increase in no. of private hybrid maize seedproducers/distributors To be determined

' These indicative targets are to be primarily used to monitor project performance. They provide an indication of the direction and magnitude ofexpected project impact. Failure to attain specific targets will guide examinations into causes, and where appropriate, changes in thedesign/implementation arrangements of the project. Currently, the MOALD M&U unit is in the process of updating the indicators in the lightof further improvements in the design and implementation arrangements for carrying out the needed M&E activities.

2 All increases/reductions are relative to 1992/3 levels. Where ever appropriate indicators are to be disaggregated by gender and landholding size(see Annex 5, Staff Appraisal Report).

3 Staff turnover is largely beyond the control of the Department of Agricultural Research.

These are cumulative figures, thus the expectation is that between 1 and 4 problem oriented surveys are undertaken by each ADD in each of theproject years.

-. 'UHE WORLD BANK/IFC/MIGA

OFFICE MEMORANDUM y L-A' _

DATE: April 14, 1994

TO: Chaim Helman, Chief, AF6AE

FROM: Richard Anson, Task Manager, AF6AE 1 ~

EXTENSION: 3-4397

SUBJECT: Malawi- Agricultural Marketing and Estate Development Project (Cr. 1966-MAI)Malawi- Agricultural Services Project (Cr. 2414-MAI)Full Supervision Report

1. Attached please find the full supervision report for the above two projects. This report contains:

• Forms 590 - Project Implementation Summaries;• Statement of Compliance with Legal Covenants;• Follow-Up letter to Government, endorsing mission recommendations (Attachment 1);• Final Aide Memoire (Attachment 2) (draft Aide Memoire was used as basis of wrap-up meeting

with Government at end of field mission);

2. The Agricultural Marketing and Estate Development (AMED) Project mission was a mid-termreview of the entire project. Government prepared a comprehensive mid-term evaluation report andthis was used as the basis for a joint review and for on-going follow-up actions. Prior to the review,some project components already had been restructured, and the mid-term review focused onconsolidating these initiatives to ensure that project benefits are being secured. The project is alsosupporting key policy reforms and supporting measures to expand the role of private traders infertilizer, seeds and produce markets. Overall project progress continues to be satisfactory.

3. The Agricultural Services Project mission focused on assisting Government formally launch theproject. A national project launch workshop was held (and followed by 3 regional workshops) andopened by the Minister of Agriculture, and focused discussions on updating detailed implementationaction plans for each project component. Since the project is supporting national programs involvingthe entire MOA, the project is facing underlying constraints involving MOA, but constraints whichASP was designed to address as part of a longer term program. The project is off to a good start.

4. In both projects, the Resident Mission (local staff) are playing key roles in providingimplementation assistance and building greater capacity for getting results in the field.

5. The following documents relating to this review have been placed in the respective ProjectImplementation Files and are available on request. They include: AMED Mid-Term EvaluationReport and the ASP Updated Action Plans and Workshop Proceedings (national and regional).

cc (* indicates only Form 590): Messrs./Mmes Denning,* Edstrom, Tidrick* (AF6DR); Patel*,Aksoy, Schafer (AF6CO); Cook* and Seibert (AF6IE); Pomerantz* (AF6IE); Grawe* (AF6PH);Asibey, Fullerton, Jaffee, Larson, Macklin, McNamara, Okidegbe, Scarborough (AF6AE); Zulfiqar,Pohland, Hiwa, M'buka; Sibale (RML); Zerabruk (LEGAF); and Freese (LOAAF); Afrit-Tis,AF6AE Files.

THE WRLD BANK Run Time: 04/14/94 at 10.21.04Form 590 IBRD and IDA - Inplementation Sumary-..----- -.------------.---.----------------- () the initial sumary

Detailed instructions on completion of This Sumary is (X) part of a mission reportThis Form are in Annex D of 0013.05. (_) an update

Regional Office: Project Name: Loan/Credit Numbers: L/C Amt ($XX.XM/SDR) Type of LendingVP - AFRICA AGRI.MARKETING & EST C19660 Original: 18.3 / 14.2 Instrunent:

Project Code:3MALPAO64 I Revised: I SIx

Country: Borrower: Board Date: Signing Date: Effective Date:MALAWI IGOVT. 12/01/88 03/31/89 06/09/89

Managing Dept/Div Name: Dept/Div Code: Task Manager: Mission End Date: 12/17/93 Last 590: 07/05/93AGRICULTURE & ENVIRONMENT DIVISM 1 23220 ANSON Next Mission (mo/yr): 07/94 This 590: 04/12/94

SECTION 1: Sunary of Project Developnnt objectives:

The project aims to Improve the marketing system for smail smallholder farmers' crops by helping to develop a multi-charmel marketing system. The project is also designed to improve resource utilization and productivity on estates anddevelop agricultural processing through providing medium term credit through the banking system. During the drought of1992, the project was restructured to suport drought recovery efforts by providing seasonal credit to smallholders.

SECTION 2: Sumnary of Project Components:

The project, which is being implemented over a seven-year period, includes the following components: seasonal and mediumterm credit through Malawi's two commercial banks and INDESANK for development of estates and agricultural processing;short and mediun-term credit through SEDGI for a pilot credit program for rural traders; strengthening the Pricing &Marketing Section of the Ministry of Agriculture Planning Division; introducing a crop export quality control systemthrough the Malawi Bureau of standards; and development of market infrastructure. The project also extended a line ofcredit to SACA, for on-lending to smaltholder farmers, following the 1992 drought.

SECTION 3: Project Data and Performance Ratings:--------- ------------------------------------ (mo/yr)Basic Data Closing Date Project Cost Disbursement 03/94

($)0.XM) ($(X.XM) (% of L/C)Original (from SAR/PR): 06/30/1996 $28.3 Original SAR/PR Forecast: $15.4 84.2%As Formally Revised: 06/30/1996 $28.3 Formally Revised Forecast:Expected-Last Form 590: 06/30/1996 $28.3 Actual Disbursement: $16.2 88.5%Expected-This Form 590: 06/30/1996 $28.3 Disb. Forecast for CFY: $2.3 12.6%

Undisb. Credit Bat.(SDRs) $2.4 17.1%Number of formal closing date extensions: 0Date of last closing date extension (mo/yr):

Reporting: End of period covered by last project progress report (mo/yr):


Closing Delay .0% .0% Overdue Fin. Stmnts/Project Accounts: 2Cost Overrun .0% .0% Overdue SOE Audits: 1Disbarsement Lag (5.2)% (7.0)% Overdue Special Account Audits: 1



Overall Status 2 2 Procurement Progress 1 1Project Development Objectives 2 2 Training Progress 2 2Conpliance With Legal Covenants 2 2 Technical Asst. Progress 2 2Project Management Performance 2 3 Studies Progress 1 1Availability Of Funds 2 2 Envirormental Aspects MR MR

Financial Performance 2 NR

SECTION 4: Supervision Management: Participated In---------------------------------- The Previous (mo/yr)Names Of Mission Members Member Specialization Mission (Yes/No) Time Spent On Srpervision 04/94

RICHARD ANSON AGR. ECONOMIST Y S/W Up To Current FY : 50.6VANESSA SCARBOROGH AGR. ECONOMIST Y S/W Planned During Current FY: 13.0STANLEY HIWA AGR. ECON0MIST Y S/W Actual During Current FY -DAN FULLERTON FINANCIAL ECONOMIST N Total : 10.7

In Field : 2.4

-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

IMWLEMENTATION SLMARY (COIOlIRED)

COJNI*Y/PROJECT NAME: MALAWI - Agricultural Marketing & Estate Development Proj. PAGE 2 OF 2

PROJECT CODE: 3MALPAO64DATE: 04/12/1994


Ci) Reserve Bank to finalize subsidiary agreement with INDEFUND to enable its participation in the 1993/94 season;(ii) SEDOM to prepare proposal for review by RBM and IDA for expanding Lending to agricultural traders; (iii) MOAto prepare action plan for streamlining domestic and export regulations and licensing procedures; (iv) MOA toassess and decide on best option for establishing improved market extension system in FY94; (v) MOA to implementkey agreed actions to improve ImpLementation of price information system in FY94; (vi) MOA to work out and beginiuplementing detailed action plan for improved project financial accounts; (vii) MOA to prepare draft mid-termreview report as basis for joint review in October, 1993; (viii) MOA to work out and submit to Treasury and IDAneeded reallocations of IDA Credit (including support for strategic activities which would strengthen agriculturalmarketing efficiencies.

SECTION 6: ACTIONS TAKEN BY (a) BORROWER AND (b) BANK SINCE PREVIOUS FORM 590;

Since the last review mission in April-May 1993, GOM has made substantial progress in carrying out actionsoutlined under section 5, although some actions were delayed and others are still incomplete. (i) RBM submitted adraft PFI agreement to INDEFUND whose internal review requirements were not completed to enable participation inthe 1993/94 season; but steps are being taken now to complete the PFI (under revised terms); (ii) SEDOM submitteda proposal for expanded lending to private traders which GON has made conditional to a management and operationsaudit of SEDOM being undertaken; (iii) MOA submitted to IDA a proposal for a region-based market extensionservice; (iv) MOA, with collaboration of RBM, produced a draft mid-term review report for the project whichprovided the basis for a joint Bank/GOM, mid-term review exercise and for enhancing the project's developmentalimpact; (v) Government is formulating proposals for further Liberalizing fertilizer and produce marketing andpricing; and (vi) GO proposed a sound plan for enhancing small estate access to rural finance for supportingdiversification.

IDA has been providing ongoing implementation assistance through the Resident Mission. IDA has also reviewed andassisted in the above proposals which were made for the market extension service, on SEDOM lending, on theestablishment of the market extension service, on the policy options for further liberalizing seeds, fertilizerand tobacco markets (in collaboration with USAID) and the "fine-tuning" of the credit component for supportingestates.


The project is continuing to make satisfactory progress, with the exception of the small estate credit sub-component. The main achievements are outlined under Section 7. The main shortcomings involve negligibleprogress in expanding access of credit to small estates and to promoting diversification due to the absence of amore comprehensive agricultural diversification strategy and related services; delay in finalizing the design ofthe market extension system; slow improvements in the project's financial management and accounting; and staffingshortages to carry out effective monitoring and evaluation activities; and a constraining policy environment forprivate traders in that GON has imposed intermittent bans on agricultural exports of selected food crops. Basedon the mid-term report and findings of a recent review mission (November/December 1993), an action plan is beingimplemented by the relevant agencies to address the above points.

SECTION 8: SUMMARY OF AREEMENTS WITH BORROWER, AND FURTHER ACTIONS RECOMMENDED TO BE TAKEN BY(a) BORROWER AND (b) BANK:

3overnment agreed to carry out the following actions (by end-June, 1994): (i) Government and Malawi Rural Finance:ompany (MRFC) and INDEFUND to finalize the PFI so that they can expand access to small estates forliversification activities, so that these two PFIs can provide loans for viable activities in the 1994/95 season;Cii) Government to formally approve and implement key actions to further liberalize input and produce -markets[involving especially seeds, fertilizer, tobacco, removal of export bans on selected comnodities); Ciii) Treasuryand ADMARC to begin implementation actions outlined under the Memo of Understanding between Treasury/ADMARC; (iv)iovernment to fill key posts (2) in the Pricing and Marketing Section (by end-June, 1994); (v) SEDON to arrangenanagement audit and expand lending to traders; (v) MOA to finalize design of marketing extension service,:ontinue to implement and disseminate open market information system; (vi) project management to improvefinancial management and M&E reporting.

kctions (to be) taken by IDA: (1) IDA issued letter to GON highlighting key actions to be taken (see AttachmentI); (ii) IDA, especially through the Resident Mission, to continue providing implementation assistance, especiallyin helping to secure the needed marketing and pricing policy reforms; and C(ii) IDA to carry out follow-up reviewnission by 7/94.

=or details on project status and agreed actions, see Attachment 2 for final mission Aide Memoire. The final Mid-rera Evaluation Report prepared by MOA provides further details.

[ASK MANAGER: Richard Anson REVIEWED S CDAIONAL REVIEWED BY:MANAGE , (DIR/RVP)MPARING OFFICER:Chaim Helman, Chief, AF6AE

tich on/Stanley Hiwa

Malawi

Status of legal Covenants

Agricultural Marketing and Estate Development Project(Credit 1966-MAI)

Supervision Mission, November 22 - December 17, 1993

Overall Project Rating: _2_

Cove- Original Revisednant Fulfillment Fulfillment

Agreement Section Type Status Date Date Description of Covenant Comments

Credit No. 1966 2.02 F OK Effectiveness Establishnnt of two (2) Project(b) & (c) Special Accounts. This has been

complied with.

3.01 F OK Ongoing This is a general coveant about

(a) ) diligence, provision of funds,efficiency, etc.

3.01 (c) F OK Effectiveness An agreement to be entered intobetween the Borrower and theReserve Bank of Malawi (REM)and between RBM and theparticipating fina ial institutions(two commercial banks, INDEBank, and SEDOM).

INDE Bank, the two commercialbanks, and SEDOM have signedagreements and these wereprovided to IDA. There is needfor an agreement to be finalizedwith Indefund and MRFC.

3.02 M OK Ongoing IDA procurement procedures tobe followed.

3.04 F To be Annually Borrower to review interest ratestrength- structure governing lending underened the project annually and revise if

necessary.

3.05 M OK 7/91 7/92 The Borrower to submit to IDA forreview TOR und a wr programfor implementastion of a pilot creditscheme for traders.

4.01 F OK Annually Project Accounts to be auditedannually. These are regularlysubmitted though with delay.

As a condition of effectivenessthe Borrower should establish theMarketing Committee and theAgro-Industry Committee. Theaecommittees have been meeting

1

periodically and have helpedimprove project coordination.

Schedule F Soon (1) Participating Financial(5) (4) Institutions to submit half-yearly

reports to IDA. These have beenimproved though many PFIs arenot timely in submitting reports.(2) Mid-term Evaluation to besubmitted to IDA. This was post-poned due to restructuring of credit.MOA has produced a draft,submitted to IDA in 12193, whichwill be finalized by the end March,1994.

Schedule M Soon 3-31-89 Marketing Adviser to be Tecruited

(5) (5) by MOA.

The adviser is working satisfactorily.His contract ended 6/93.

Vacant posts for PrincipalEconomist and Economists inPricing and Marketing Section(MOA) planned to be filled by 4/94.

Schedule M OK Annually, Annual training program to be(5) (6) March 31 submitted to IDA.

The program for training privatetraders has been submitted to IDAand implemented satisfactorily.MOA needs to enhance the

training program to cater for other

needs especially on private traderinvolvement in inputs marketing.

Schedule M OK 10-31-89 Malawi Bureau of Standards (MBS)(5) (7) to assume responsibility for export

control for agricultural produce.MBS is so far following a voluntaryexport certification scheme.GOM/MOA needs to come toclosure on whether the scheme,or some aspects of it, should bemade compulsory.

Schedule M Soon -3-31-90 Borrower to analyze impact of

(5) (8) market reform measures and

propose any necessary changesin regulations governing privatetraders. 1DA approved a GOMproposal to revoke marketregulations which were restrictiveto the operations of private traders

but the order revoking the 1987regulations still has to be passed.

2

ATTACHMENT 1

The World Bank 1818 H Street. N.W. (202) 477-1234INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRADINTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS

March 31, 1994

Mr. J. L. KalemeraSecretary of AgricultureMinistry of AgricultureLilongwe

Dear Mr. Kalemera:

Re- Joint GOM/Bank Agricultural Review MissionFinal Aide Memoire

Enclosed for your review and appropriate action is a copy of the final Aide Memoire involvingthe GOM/World Bank agricultural review mission held during the period November 22-December 18,1993. On behalf of R. Anson (team leader) and the rest of the World Bank team, I would like to thankyour senior Managers and other staff in MOA, Mr. Kavinya and Magalasi from Treasury, Mr.Chinkwanga and other staff from the Reserve Bank for the collaboration extended to the mission inhelping to accomplish the mission's objectives. As you know, the mission took place before you wereappointed the Secretary of Agriculture, and therefore, you may find the Aide Memoire as usefulbackground information involving a major part of World Bank assisted program in the agriculture sector.


• Discussion of the draft Agricultural Sector Memo;• Mid-Term Review of the Agricultural Marketing and Estate Development

Project;• Launch mission of the Agricultural Services Project;• Smallholder Credit Recovery Issue and Next Steps;• Informal discussions of the proposed Agricultural Diversification Project.

I concur with the mission's findings and recommendations/agreements reached as outlined in theattached Aide Memoire. The draft version of the Aide Memoire (dated December 16) provided the basisfor the wrap-up meeting held on December, 17, 1993, under the chairmanship of Mr Magalasi, SeniorDeputy Secretary of the Ministry of Finance, and for follow-up actions. Since the wrap-up meetingreviewed and confirmed nearly all of the recommendations, subject to some clarifications, this AideMemoire reflects these points, provides some additional clarifications and also updates related recentdevelopments. In this letter, I would like to highlight some of the more importantrecommendations/agreements reached which involve policy or senior management guidance and/ordecisions; your leadership in addressing these points will make a substantial difference in getting resultson the ground. From our Resident Mission, we understand that you and your staff are already acting onmany of the more important items highlighted below, and have not been awaiting the receipt of this letterto take the needed actions. As you may know, there have been follow-up discussions on the AgriculturalServices Projects with short visits by Mr. Z. Matmor and M. Macklin; we also trust that the pointshighlighted in their letters (of January 19, 1994 and mid-March, 1994, respectively) are being taken into

RCA 248423- Wu 64146

Mr. J. L. Kalemera -2 - March 31, 1994

account. Hence, perhaps this letter can provide a useful checklist to monitor progress made, and to focusattention where further progress is needed. The Aide Memoire provides further details on each of thesepoints (as indicated by the paragraph references), in addition to other items which are primarily underthe direct control of the relevant senior officer(s).

Agricultural Sector Memo: Strategy Options in the 1990s

We commend the MOA, under the leadership of Mr. Gomani, Chief Planning Officer, forconvening and organizing an agricultural strategy workshop on December 3, 1993 to review in detail thedraft ASM (and related studies involving the key topics reviewed). The MOA has issued the proceedingsof the workshop, and the ASM has been revised to reflect the extremely useful comments andsuggestions. We proposed to discuss with Government the revised ASM sometime in late June/early July,1994, which would provide the basis for finalizing the ASM. We hope this date is convenient, and wewill confirm at a later date. It was agreed that Government would:

(a) arrange the commissioning of two key policy studies in early 1994 which would work out ingreater depth the policy options to enable Government decisions on further reforming the tobaccomarketing system and fertilizer policies with the aim of ensuring greater efficiency and competition. Weare pleased to learn that these two studies are currently underway, under the direction of Malawian-drivenSteering Committees (i.e., EP&D chairing the fertilizer study, and MOA chairing the Tobacco ReformStudy, both with USAID consultancy assistance). We are glad that the draft reports will be submittedlater in April, 1994, and that Government is committed to reviewing them carefully with the aim oftaking the needed decisions and actions.

(b) arrange an agricultural strategy symposium in mid-1994 as a means of developing consensusamong Government and donors regarding a national agricultural strategy and supporting action/investmentplan, and that over the next few months, MOA's Planning Division will organize working groups toconsolidate the relevant findings and recommendations from several recent sector studies as inputs toformulating a Malawian strategy and action plan (especially involving ASM, ADB-financed MalawiAgricultural Sector Study, EC sector study, USAID-study on the design of the proposed AgriculturalSector Assistance Program (ASAP) II. We understand that the EC has agreed to finance the costs of thissymposium, and we look forward to continued close collaboration with your staff during the preparatoryprocess.

Agricultural Marketing and Estate Development Project: Mid-Term Review Mission

We greatly appreciate and commend the MOA Planning Division and Reserve Bank (Apex Unit)for taking the initiative in preparing an excellent draft mid-term report of AMED which provided thebasis for the joint mid-term review. Below are some of the more important agreed actions which needfollow-up (with further details and other items outlined in the Aide Memoire).

(a) Completion of the Mid-Term Review Report: MOA Planning Division, with the collaborationof the RBM Apex Unit, was to finalize the mid-term report by end-February, 1994 (the Aide Memoireindicated key areas for further elaboration/analysis). We would appreciate your ensuring that we receivethe mid-term report, as it is now overdue. We view the GOM decision-makers and implementors as themain beneficiary of the final report recommendations to ensure that the project's developmental impactis achieved within the next 2.5 years of remaining implementation period.

Mr. J. L. Kalemera - 3 - March 31, 1994

(b) Marketing and Pricing Policy Reforms (provides policy/incentive environment for overall projectand agricultural sector):

(i) complete and sustain the liberalization of all agricultural produce markets involving the followingkey items: revoking produce marketing regulations of 1987, allowing private trader to participate in alltobacco, cotton, and groundnut markets; further liberalizing tobacco production and marketing quotas;removing export bans on trading of certain crops which could generate substantial benefits to smallholdersand the diversity of the economy/exports, a recommendation from a recent agricultural export studycommissioned by MOA (para. 10);

(ii) effectively implement the Memorandum of Understanding between ADMARC and Treasury, withthe costs of ADMARC's developmental roles being limited to food security and being fully budgeted forand compensated,and ADMARC implementing actions to meet key performance targets (paras. 11 and12);

(c) Capacity in Pricing and Marketing Section: The sustained implementation of the above reformswill require the filling of the vacant posts in MOA's Pricing and Marketing Section (with priority on thePrincipal Economist and at least 2 economist). We would appreciate your liaising with Mr. Nthenda, PSof EP&D, to expedite the posting of these key posts (paras. 47 and 48);

(d) Credit Component: while a large proportion of the Project's funds have been disbursed underthis component, there has been limited progress in promoting sending to small estates and to promotingagricultural diversification due to the underlying constraints in these two areas. The Government's recentinitiatives to develop a comprehensive national agricultural diversification strategy/program will providea necessary framework to make further progress, and the further restructuring of this component to utilizethe remaining US$1.8 million equivalent provides an opportunity for this project to make a concretecontribution. These agreed key actions include:

(1) strengthening the RBM Apex Unit to take on a more developmental role in assessing the impactof credit lines and promoting diversification, and periodically reviewing and updating the terms andconditions of various lines of credit, in accordance with promoting greater competition (para. 15);

Cii) finalizing the arrangements to allow the participation of two more financial intermediaries giventheir mandate to assist small estates: INDEFUND and the Malawi Rural Finance Company (MRFC)(paras. 17-21);

(iii) the recently reconstituted Agricultural Diversification Committee to proceed with preparing anational agricultural diversification strategy framework which should outline the supporting policies andinstitutional arrangements (para. 25 (d-g);

(iv) in the event that no further progress is made with disbursements under this subcomponent by theend of FY94/-95, steps should be taken to reallocate funds to other components needing the funds (para.25 (h);

(e) SEDOM and Pilot Credit for Private Traders: SEDOM to repay the RBM the short term loan onthe 13 month following disbursement; RBM to review and update (by end-March, 1994) as appropriatethe terms and conditions of on-lending to SEDOM, consistent with the policy of promoting greatercompetition and consistency among different lines of credit; RBMISEDOM to arrange for a managementand operation audit of SEDOM activities with a view of improving the sustainability of its operations;


this will be a prerequisite before AMED provides SEDOM with additional credit funds (paras. 28 and29);

(f) Marketing Infrastructure Component: Most of these actions are to be carried out by the Ministryof Local Government, which is implementing this component, and involve assessing further priorityinfrastructural needs, cost-effective procurement arrangements, funding mechanisms for sustaining marketinfrastructure (paras. 38-42);

(g) Export Oualitv Component: the mid-term report is to include an assessment of the effectivenessof the services provided to e'xporters and further actions needed to encourage competitive agriculturalexports (para. 46);

(h) Open Market Price Information System: MOA to implement various procedural improvements incollection and dissemination of open market prices, as part of encouraging role of private traders (paras.49-51);

(i) Marketing Extension and Training Services: MOA Pricing and Marketing Section to finalizethe detailed proposals for initiating a sustainable marketing service and continue with the successfultraining activities of private traders which will support produce liberalization (paras. 53-54);

(j) Suport to Private Traders' Association: MOA, in liaison with Treasury, to reallocate someproject funds (about Kw 1.0 million) to support a private sector initiative to establish an agriculturaltraders' association, subject to the review of the business plan being prepared by the association (paras.55-56);

(k) Management and Organization: The participating implementing agencies to appoint permanentcontact persons to attend quarterly project review meetings and to follow-up on day-to-day matters toensure continuity; and for the MOA Chief Planning Officer to chair these meetings, with Pricing andMarketing Section to continue to take day-to-day responsibility for ensuring timely and effectiveimplementation (paras. 58-59);

(I) Financial Management and Accounts: The project's financial management and accountingarrangements continue to be deficient, and require urgent attention. It is requested that MOA's ChiefAccountant, with the assistance of the recently appointed technical assistance expert, address thepoints/suggestions outlined in the Mid-Term Report (paras. 61). There is also a need for projectmanagement to reassess the Credit balances and to determine the needed reallocations to ensure that thepriority activities will be adequately funded. We would appreciate getting MOA's response on thismatter, so that can review the proposed reallocations, if needed;

(m) Project Monitoring: Various actions outlined in the mid-term report involving improved reportingprocedures within MOA and the role of the RBM Apex Unit will significantly enhance the monitoringand assessment of the project's implementation progress and impact. These improvements will enhancethe ability of senior managers of the implementing agencies to intervene where and when necessary(paras. 62-65).

Agricultural Services Project: Launch Mission

We commend your staff for arranging to hold a successful ASP launch workshop on December9 and 10, 1993 which was opened by the Minister of Agriculture, Honorable K. Phiri. We also


compliment your staff for having arranged and held 3 regional workshops which has also included thelaunching of the IFAD-financed Smallholder Food Security Project, which has been designed as part ofthe ASP framework of supporting national agricultural programs. The main agreed actions include (withfurther details in the Aide Memoire and Workshop Action Plans/Proceedings):

(a) Updated Action Plans: Each participating Department Director will take full responsibility forimplementing the component action plans which were reviewed, updated and agreed at the workshops(para. 66 and Annex 2);

(b) Budgetary Allocations: MOA, Treasury and DREA to ensure that the needed budgetaryallocations in the remainder of 1993/94 and in 1994/95 be-provided on a timely basis to the implementingdepartments (and that ASP funds are allocated separately to the Agricultural Sciences Committee throughDREA). In this regards, there is an urgent need for MOA Chief Accountant to issue clear operationalguidelines to be followed in the process of fund allocation and use, submission of expenditure by ADDs,and the timely reimbursement of the newly established ASP special account (para. 66);

(c) Proiect Completion Reports and Lessons Learned: MOA to complete Part II (ref. Borrowerassessment of Project) of the Project Completion Report (PCR) of the recently closed credits (AgriculturalExtension and Planning Support Project and the National Agricultural Research Project (NARP)). Thetwo draft PCRs prepared by FAO/CP were provided to the CAETO, CARO and Chief Planning Officers.Given that ASP builds on these projects, we believe this is a good opportunity for MOA and the Bankto derive and apply the lessons learned to the implementation of the ASP, (paras. 68-74 highlights someof the more important ones). We would appreciate getting Government's Part II by mid-April, 1994, asthe report submission to the World Bank's independent evaluation unit is already overdue.

(d) Research and Extension Components: The core of ASP involves support of improving a menu oftechnologies to a broader range of smallholders, especially resource poor. A top priority area which ASPis designed to support is the development and dissimination of site-specific fertilizer recommendations.The on-going Fertilizer Policy Study is highlighting the urgency of strengthening the research andextension systems to fulfill this top priority. We would appreciate your active support of this criticalaction. We are very pleased on how the Agricultural Sciences Committee has been functioning over thepast few months in helping to coordinate more effectively research efforts. The continued closecollaboration between MOA's Department of Research and ASC will combine to yields improvedefficiences in Malawi's research system, and your support here is also important. There is also a needfor Treasury/MOA to ensure effective implementation of the newly established motorcycle ownershipscheme for extension staff, especially the need to revise the mileage allowance to a more realistic level

(para. 70 (c)).

(e) Staffing: One of the key issues arising from the various workshop refers to the urgent need forMOA to fill key staffing posts, which, if not filled, will seriously jeopardize the effective and timelyimplementation of the project. We appreciate the fiscal constraints facing the country, but virtually allof the posts are sanctioned, and therefore, the matter is largely within the control of your Ministry (withliaising with public service commission in accordance with standard procedures). Given that the singlelargest non-salary expense of MOA involves transportation, we would urge you to appoint a senior officerto manage the improved transport system to be supported under ASP, and to appoint the transport advisorwhich should have already been posted in January, 1994. To ensure that the staffing priorities areaddressed, it was agreed that MOA would draw up (say, by end-February, 1993) and implement an actionplan for filling the priority posts in MOA. The Institutional Development Project (IDF) is providingfunds (grant) to enable MOA to review and improve its organizational arrangements and staffing roles

Mr. J.-L. Kalemera - 6 - March 31, 1994

to ensure more effective services to smallholders. We trust that MOA is making good progress indeveloping and implementing these action plans (paras. 100-101).

(f) Inputs Com2onent: The ASP workshop and subsequent studies currently underway highlight theimportance of Government taking a number of important actions and decisions to further liberalize theseeds and fertilizer subsectors. Under ASP, it supported Government's preparation and approval of aseeds and fertilizer policy papers in May, 1993. Given the policy nature of the further improvementsto these two policy frameworks, we would appreciate your support and guidance. Some of the keypolicies include: remove all seed subsidies by the end of March, 1994; completion of the FertilizerPolicy study and the Fertilizer, Farm Feeds Act to be consistent with a more competitive fertilizerimports and retailing; streamline the stringent procedures of the crop variety release system, which isimpeding private sector development of new, improved seeds.Implementation of the improved policies (as outlined in the Aide Memoire, paras 77-87) will contributeto increased supplies and adoption of improved technologies by smallholders to help ensure householdfood security.

(g) Procurement Reform Study Under ASP, it was agreed that Government would support measuresto reform the procurement system throughout all Ministries. 'Ihe Ministry of Finance is taking the leadin implementing this component. We would appreciate your liaising with Mr. Kavinya to expedite thefinal selection of the technical assistance to assist in the implementation of this component, which willalso benefit directly MOA (para. 103);

(h) Project Management By design it was agreed that ASP will be implemented by the participatingDepartments, within the existing organizational structure (rather than creating a separate implementationunit). We are pleased that you attach importance to the effective functioning of the Agricultural SectorCoordinating Committee, comprised of MOA senior Management, and under your chairmanship, to helpcoordinate and guide ASP activities which support MOA's national programs in research, extension,livestock, input supply, policy analysis, financial management. Given the multiple components underASP, it was agreed that MOA would recruit a project facilitator by end-February, 1994 to provide in-house support on critical areas of project implementation. We hope that you can help expedite theselection of the most suitable candidate, as we understand that the selection process is at an advancedstage (para. 104).

(i) Donor Coordination and Participation

ASP was designed to ensure that it supports Government's national programs and provides aframework for Government to ensure adequate donor coordination and assistance. Since the UNDP FifthCountry Program was developed in parallel with ASP, various issues have arisen which underscore theurgency of MOA liaising with UNDP to ensure that its program is adequately integrated within MOA'snational programs, and that the detailed implementation and funding arrangements of UNDP and itsinterface with ASP be worked out. The limited non-salary operating funds make this integrationimperative. While there was noticeable progress in agreeing with MOA and UNDP on the broadprinciples of ensuring consistency and harmony between the UNDP program and the ASP nationalprograms, we trust that the previous problems at the field level are now fully resolved. Our ResidentMission staff are available to participate in this facilitating this process, under the leadership ofGovernment/MOA (para. 106).


With the resumption of donor assistance to Malawi from Germany, we understand that itproposes to participate in the funding of ASP activities. In principle, IDA funds can be readjusted toaccommodate German participation in the ASP framework (para. 107).

We are pleased that the African Development Bank and IFAD have responded to Government'sdesire for donors to donors to work within national programs as being supported by ASP. To facilitatedonor coordination, we intend to ensure that the various review missions are coordinated with theparticipating donors to minimize the burden on Government and to ensure effective and focused assistanceand simple procedural requirements. Whenever possible, we will endeavor to have joint review missionswith Government and the donors concerned. Please know that we fully support MOA's leadership rolein improving donor coordination.

Smallholder Credit Recoveries: Crisis or Transition?

During the mission some of the mission members devoted time to reviewing with MOA thefactors underling the low credit recoveries, which lead to low input usage, and contributed to a forecastedlow crop harvest this crop season. Annex 3 provides a discussion note outlining options forGovernment's consideration in trying to restore the success of Malawi's smallholder credit system andto help minimize the possible adverse effects of low input usage and decline in agricultural production.The mission assisted in the finalization of the terms of reference for the credit repayment study whichMOA commissioned to the Center for Social Research (CSR). We are glad that the CSR has preparedthe report which is currently under active discussion. As you know, currently there is a Bank ruralfinance mission visiting Malawi with the aim of assisting Government/Malawi Rural Finance Company(MRFC) develop an action plan which will restore credit discipline, and enable the effectiveness of theIDA-financed Rural Financial Services Project. We appreciate the support and leadership that you areproviding to help create the needed policy environment to restore credit discipline, which is critical toenable sustainable availability of finance and the expanded adoption of improved technologies.

Proposed Agricultural Diversification Project

In April/May, 1993 there was a joint MOAIIDA reconnaissance mission to help identify theprospects for and constraints to agricultural diversification and strategy options. During the presentmission, there were limited follow-up discussions, mainly because IDA was awaiting a clear indicationfrom Government on the next steps. Most of the discussions in the mission were held with the privatesector. It is clear that the drop in tobacco prices, and growing uncertainty in the world market, arecontributed to increased private sector/estate interest in diversifying away from tobacco. We are pleasedthat, under your leadership, the Agricultural Diversification Committee is being reconstituted to involvemore actively the private sector, and that MOA is taking the initiative in convening an AgriculturalDiversification Workshop on April 6 and 7, 1994. We are pleased to finance the costs of the workshopfrom the Japanese Grant funds available to help prepare a national agricultural diversificationstrategy/program. We understand that the workshop will aim to develop a framework for outlining thenext steps, and we stand ready to assist.

Notwithstanding the proposed project, we also wish to explore actively with your staff ways ofensuring that on-going IDA-financed projects can also support agricultural diversification initiatives (e.g.,Agricultural Marketing and Estate Development Project, Agricultural Services Project, Rural FinancialServices Project). The proposed project design and implementation could build on these initiatives and


help generate a more rapid diversification response. As indicated above, some of the restructuring of theAMED Project is exploring some initiatives which could be supported in the short term.

Finally, we would like to thank you and your staff for the steps being taken to implement theabove activities. which support your programs. To facilitate our on-going assistance, we would appreciateyour informing us on the status of the recommended/agreed actions outlined above. We look forwardto continued close collaboration, especially through our Resident Mission colleagues.

With kind regards,

Sincerely ,

aim HelmanChief, Agriculture and Environment Operations


Attachment

cc:

Mr. Roy KavinyaSecretary to the TreasuryMinistry of Finance

Dr. JHA MaidaSecretary for Forestry and Natural ResourcesMinistry of Forestry and Natural ResourcesLilongwe

Mr. C. NthendaSecretary for EP&DOffice of the President and Cabinet

Mr. KambauwaSecretary for DREAOffice of the President and Cabinet

Deputy SecretaryMOA

Mr. A. GonaniChief Planning OfficerMOA

Mr. J. L. Kalemera -9 - March 31, 1994

Mr. ChiteyeyeDeputy SecretaryTreasury

Mr. MhangoCASMOA

Dr. MsiskaCASMOA

Mr. KabuyeCAETOMOA

Mr. HassanChief AccountantMOA

Dr. T. MunthaliCAROMOA

Deputy CAROMOA

Mr. MphandeChief Irrigation OfficerMOA

Mr. SibandeTreasury

Dr. MateyuDAHIMOA

Mr. M. MughoghoDCPO, MOA

Dr. ChizondaDAHIMOA

Mr. ChavulaCAETO


Dr. ChilembweHead, Agricultural Sciences CommitteeDREA

Mr. MtokomaASCDREA

Mr. MphepoPM Blantyre

Mr. YiwombePM Kasungu

Mr. MuyayaPM Lilongwe

Mr. KanyendaPM Mzuzu

Mr. KaundaPM Karonga

Mr. MunyenyembePM Ngabu

Mr. ChingambaPM Salima

Mr. ChimphondaDCAETOMOA

Mr. MurothoGM of SACAMOA

Mrs. M. NyrendaPrincipal EconomistEP&D

Mr. SawerengeraEP&D

Mr. MandiwaDepartment of PersonnelMOA


Mr. MphandeSenior EconomistPricing and Marketing SectionMOA

Mr. MadukaDPMT

Mr. F. MwathengereSenior EconomistMOA

Mr. Ian KumwendaSenior EconomistMOA

Mrs. MtamboSenior EconomistMinistry of Trade and Industry

Mr. S. S. JereHead of Procurement UnitMOA

Mr. MatolaSenior EconomistEP&D

Mr. KamwendaMinistry of Local Government

Mr. B. MkombaSenior EconomistMOA

Mr. NirongoEconomistMOA

Mr. WittmanMD, INDEFUNDBlantyre

Mrs. ChiokoSEDOM

Mr. NambaAgro-Ecological SurveyMOA

Mr. J.L. Kalemera - 12 - March 31, 1994

Dr. D. Ng'ong'laHead of Rural Development DepartmentBunda College

Mr. KhungwaPrivate Traders Association

Mr. A. ZulfiqarResident RepresentativeWorld Bank

Mr. SanveeDirector, SARD (Projects)African Development BankAbidjan, Cote Ivoire

Mr. FallDirector, ProgramsAfrican Development BankAbidjan, Cote Ivoire

Mr. MansuriDirector, Africa RegionIFADRome, Italy

Mr. Colin DickersonProject ControllerIFADRome, Italy

Mr. Michael HeynResident Coordinator, UNDP

Ms. Cynthia RozellDirector, USAID

Mr. H. MikkolaResident Representative, FAQ

Mr. J. TunnecliffeAgricultural Advisor, EEC

Ms. J. HaleAgricultural Officer, USAID

Mr. Grotecke/Dr. PulvougtGTZ, Frankfurt


cc (* indicates full report): Messrs/Mmes Martinez (AFRVP); Denning, Edstrom, Tidrick (AF6DR);Patel, Aksoy, Schafer, Ahsan, Fields, and Bruns (AF6CO); Asibey, Bunyasi, Chausse, Christiansen,Fullerton*, McNamara, Jaffee, Larson*, Mack]in*, McNamara, Okidegbe* and Scarborough*; Cook andSeibert (AF61E); Pomerantz, Aikins-Afful, Kedia, Nikoi (AF6IN); Grawe, Mugwagwa, Ribe, Salah,Silveira (AF6PH); Cleaver, Sharma, Donovan, Spurling*, Venkatesan (AFT); Zulfiqar, Pohland, Hiwa*,M'buka*, Rozell* and Sibale* (RML); Pathmananthan and Matmor* (RM in Kenya); AF6AE BlackBook*; and Africa Files*.

ATTACHMENT 2

JOINT GOM/BANK AGRICULTURAL REVIEW MISSION(November/December, 1993)

FINAL AIDE MEMOIRE(March, 1994)

Table of Contents

INTRODUCTION 1

AGRICULTURAL SECTOR MEMO 1

AGRICULTURAL MARKETING AND ESTATE DEVELOPMENTPROJECT: MID-TERM REVIEW 3

AGRICULTURAL SERVICES PROJECT: LAUNCH MISSION 14

SMALLHOLDER CREDIT RECOVERY: CRISIS OR TRANSITION? 23

PROPOSED AGRICULTURAL DIVERSIFICATION PROJECT 24

ANNEXES:

1: Proceedings from Consortium Group Meeting(Summary of Presentation/Discussion on AgriculturalSector)

2: ASP: Updated Action Plans (from ASP Launch Workshop)

3: Discussion Note on Smallholder Credit Recovery:Crisis or Transition


FINAL AIDE MEMOIRE

INTRODUCTION

1. During the period November 22-December 17, 1993, a World Bank agricultural teamvisited Malawi to carry out with Government of Malawi various activities involving the WorldBank agricultural assistance program in Malawi. This includes:

• Discussion of the draft Agricultural Sector Memo;• Mid-term review of the Agricultural Marketing and Estate Development (AMED)

Project;• Launch mission of the Agricultural Services Project (ASP);• Smallholder credit recovery issue; and• Informal discussions of the proposed Agricultural Diversification Project.

2. The Bank team was comprised of: R. Anson (team leader), A. Chakravarti, V.Scarborough, D. Fullerton, S. Hiwa, F. M'buka, G. Rozell and P. Sibale. In addition, IFAD wasrepresented by C. Dickerson (Project Controller) and S. Carr (Agriculturalist). GTZ, from theFederal Republic of Germany, also participated in the ASP mission workshop and discussions,given their interest in providing assistance within GOM's ASP framework. The AfricanDevelopment Bank (ADB) had planned to send a representative to participate in the mission, butdue to unforseen circumstances this person was not able to visit Malawi. The Government teamwas comprised of various officials from especially the Ministry of Agriculture (led by A. Gomani,Chief Planning Officer), Economic Planning and Development (led by M. Nyrenda, PrincipalEconomist), Reserve Bank of Malawi (led by Mr. Chinkwanga, Director of the Apex Unit). Themission also benefitted from the guidance of Dr. JHA Maida, Secretary for MOA, and had theopportunity of meeting Mr. Kalemera, the newly appointed Secretary of MOA. The missionwishes to express its appreciation to these officials for their cooperation and participation in thevarious agricultural activities.

3. This Aide Memoire highlights the mission's main findings andrecommendations/agreements reached and reflects the outcome of the wrap-up meeting held onDecember 17, 1993, under the chairmanship of Mr. Magelesa, Senior Deputy Secretary, Ministryof Finance. The draft Aide Memoire (dated December 15, 1993) provided the basis for the wrap-up meeting; as it largely confirmed most of the points outlined, this final version reflects theclarifications and recent developments since then as part of the on-going dialogue.

AGRICULTURAL SECTOR MEMO: STRATEGY OPTIONS IN THE 1990s

4. The MOA convened a workshop on December 3, 1993 to review in detail the draft ASM.The workshop was well represented by officials from MOA, EP&D, Treasury, Ministry of Tradeand Industry, private sector, NGOs, Bunda College, Chancellor College, and donorrepresentatives (FAO, UNICEF, USAID, JICA/Japan). The workshop discussions generallyendorsed the suggested strategy elements, although it was agreed that there was a need to furtherexamine and discuss several policy issues and options outlined in the ASM, particularly fertilizerliberalization and subsidy removal program, and the tobacco quota allocation system. MOAPlanning Division agreed to prepare and already issued the proceedings of the workshopdiscussions which have heen distributed to the narticinants as well as those interested Dersons

unable to attend. It was agreed that MOA would convene a national agricultural strategyworkshop in mid-1994 (apparently the date is set for about mid-July, 1994) to review itsagricultural strategy plan, which would consolidate the relevant findings from various donor-funded studies (including ASM, African Development Bank Malawi Agricultural Sector Study,EEC Sector Study, USAID-proposed Agricultural Support Assistance Program/ASAP II, and otherstudies). Therefore, the ASM is aimed at providing an input to Government's agriculturalstrategy paper and action plan.

5. The ASM team also held follow-up discussions with several groups to focus on specificaspects of the ASM, and included discussions with UNICEF and EP&D and MOA (meeting heldon about December 9, 1993); EP&D, Treasury and MOA (meeting held on December 13), BundaCollege (meeting on December 17). Based on the feedback and constructive comments andsuggestions provided in these meetings, the ASM team has revised the ASM. Copies will bemade available to Government as part of the on-going joint collaboration. The draft ExecutiveSummary was also converted into a Summary Note which was distributed at the MalawiConsultative Group (CG) meeting in Paris held on Debember 20 and 21, 1993. This note,together with contributions from the Malawi delegation which included Dr. Maida and Mr.Kalemera, formed the basis for a special session on agricultural strategy options. Attachment 1contains an excerpt of the relevant pages from the proceedings of the CG discussions.

6. Partly arising from the ASM and Policy Framework Paper (PFP) discussions, it is agieedthat Government would commission 2 policy studies (to be financed by donors) to be carried outin early 1994:

(a) A Tobacco Reform Study, which will assess several options to reforming the current burleytobacco quota system as well as other tobaccos. It is anticipated that the draft findings should beavailable by end-April, 1994, as a basis for policy decision by Government. The USAIDproposed ASAP II is giving major emphasis to supporting expanded liberalization of the tobaccomarket, and, through it consultants, USAID is currently examining various options as part ofreaching agreement with Government on the best and most sustainable approach. A Government-led steering committee is providing guidance to reviewing the various options and to facilitating asound recommendation for Government decision.

(b) A Fertilizer Pricing Policy Study, which will assess the main options to and implications(fiscal, smallholder productivity and poverty alleviation) of phasing out the fertilizer subsidy, andthe constraints to and requirements for accelerating private sector participation to full liberalizationof the fertilizer market. This study would need to be carefully coordinated with the EEC-fundedSmallholder Improvement Program currently under discussion. Therefore, it is important that thisstudy be initiated in early 1994 to coincide with the requirements of the SIP.

7. The Terms of Reference (TOR) for the above studies have been finalized and the studiesare currently underway. Each study is being guided by an inter-Ministerial Steering Committeewhich is providing guidance to the consultants to ensure that the focus of the study addresses therequired issues and provides a sound basis for policy decisions. The Tobacco Reform Study isbeing supported by USAID, as part of the preparation of the ASAP II, and the Chief PlanningOfficer is the chairman of the steering group. The study is being carried out over the periodMarch-April, 1994, and it is expected that draft findings will be available by end-April, 1993.The steering group for the Fertilizer Policy Study is chaired by EP&D. This study, started inmid-February, 1994, is reviewing various pricing and marketing (including the role and structureof the SFRFFS), and the implications of maintaining the current subsidy removal program. Theinterim report was discussed in mid-March, 1993, and the draft findings for this study areexpected to be available by end-April, 1994. The Bank commends the Government for taking theinitiative of forming the steering groups which are playing an important role in the management ofpolicy studies and promoting active participation of the private sector and Government in the

policy review process. It is agreed in general that Government would formalize steering groupsinto a regular feature of managing all sector and policy studies to help ensure that these studiesare fully integrated into the operational work, and therefore, sustain. The discussion of the draftreports would provide the basis for key policy decisions andlor further in-depth assessment, butwith the aim of bringing the issues to closure in a sustainable manner.

AGRICULTURAL MARKETING AND ESTATE DEVELOPMENT PROJECT: MID-TERM REVIEW -

8. Overview. The Bank team would like to commend the MOA and Reserve Bank fortaking the initiative in preparing an excellent draft mid-term report which provided the basis forthe mid-term review mission. This is a major exercise which provides both GOM and the Bank toreassess AMED's progress toward meeting its developmental objectives and to identify specificmeasures which would enhance achievement of such objectives. MOA/Planning Division, inliaison with the Reserve Bank of Malawi, agreed to complete the mid-term report by end-February, 1994. In summary, AMED is proceeding satisfactorily, but its benefits could besignificantly enhanced if the recommended actions outlined below are adopted and implementedprior to the closing date in about 2 112 years.

Marketing and Pricing Policy Reforms

9. A key precondition for generating substantial benefits to the agricultural economy is foragreement to address some key marketing and pricing policy issues as outlined in this section.Under the Project, the Planning Division of Ministry of Agriculture was charged with the role ofanalyzing and formulating marketing policies which would facilitate the development of the privatemarketing system. Considerable progress has been made in some areas of marketing policy, whilein others liberalization has not been completed or sustained. For example, policy reforms toliberalize the importation/production, marketing and pricing of fertilizers and seeds have beendevised and their implementation begun. On the other hand, there continues to be a high degreeof Governmental control over and/or monopolization of agricultural produce markets. This ishaving a detrimental effect on the objectives of the Project, as well as on the ability of smallholderfarmer to raise their food security and incomes and contribute to increased foreign exchangeearnings and agricultural diversity.

10. Examples of the areas in which liberalization remains incomplete include the following:

- the marketing regulations contained in the Smallholder Agricultural ProduceMarketing Regulations of 1987 have yet to be revoked (although the revisionshave been made);

- private traders are still not legally able to participate in tobacco, groundnut andcotton markets;

- the production of all tobaccos is restricted by quotas;

- the number of buyers at the tobacco auction floors is restricted administratively;

- the Government has intermittently imposed embargoes on private traderparticipation in the trading of certain crops since liberalization in 1987 (e.g.,groundnuts and beans);

- under the Control of Goods Act there are quantitative restrictions placed onprivate trader exports of certain crops every year.

11. All these factors are constraining the development of dynamic, competitive private marketsin Malawi. In addition, the objectives of continued marketing controls are in some cases difficultto justify and in others, alternative policy instruments may be more effective in fulfillingobjectives, particularly in the long-term. For example, there appears to be no justification for thecontinued ban on private participation in tobacco markets or for the continued controls over theproduction of tobacco, except possibly in the case of burley tobacco. Malawi is only able toaffect the world price of the latter. Likewise, the ban on private trading and exporting ofgroundnuts may undermine the objective of increasing groundnut production in the longer term.This ban was imposed on private traders, because ADMARC was unable to compete in thegroundnut markets and it was therefore argued that a shortage of groundnut seed would result. Amore efficient and less damaging means of ensuring sufficient seed stocks would be to (a)liberalize seed production and marketing and (b) charge ADMARC with the responsibility ofobtaining sufficient stocks through market mechanisms - i.e., by increasing its prices for seedsover and above that being offered by the private sector for produce. MOA recentlycommissioned an independent study to a consultant team to assess this issue, and the study team'sassessment led to a similar recommendation outlined above. There is a need for Government totake the needed decisions on the report's recommendations, with the aim of ensuring thatsmallholders are able to tap the potential in increased food exports. Now that the determination ofthe exchange rate is liberalized, price controls and market regulation become increasingly difficultto manage without causing windfall losses to farmers and traders. Thus, there is the need forMOA to rely more on indirect mechanism to guide farmers/traders decisions.

12. One of the main constraints on ADMARC's ability to undertake this role is the delay inthe finalization and effective implementation of the Memorandum of Understanding between it andthe Government. The MOU was finally signed on December 7, 1993, nearly 1 1/2 years after thepreparation of the draft MOU. The details of the so-called social/developmental roles theGovernment requests of ADMARC and commits Treasury to fully reimbursing the costs ofADMARC's undertaking these roles. On the other hand, recent research has demonstrated thatprivate sector markets are operating efficiently and effectively, at least in the Central and SouthernRegion. In addition, supply and demand conditions exist which would enable these markets togrow and have a positive impact on smallholder incomes, foreign exchange earnings and thediversification of the agricultural sector. However, the ability of these markets to grow anddevelop is inhibited by the above policy constraints. If the objectives of liberalization are to berealized, including increased smallholder incomes, diversification, the development of competitivemarkets and a more efficient allocation of resources in the economy, it is imperative theGovernment completes and sustains the process.

13. It is recommended/agreed that the Government:

(a) complete and sustain the liberalization of all agricultural produce markets as outlined in para.10 (except possibly that of burley tobacco); it is suggested that MOA prepare (by mid-April,1994) action plans and timetable with target dates to address each of these items;

(b) effectively implement the MOU between ADMARC and Treasury, with the costs ofADMARC's developmental roles being limited to food security objectives and being fullybudgeted for and compensated, and ADMARC to implement actions to meet key performancetargets;

(c) revoke the marketing regulations surrounding smallholder domestic distribution, asrecommended by Ministry of Justice, immediately; and

(d) arrange to communicate the outcome of the review meeting of the Food Export Study,including an action plan for implementing the recommendations (by mid-April, 1994);

Credit Component

14. Estate development and azro-industries. Overall lending this component has proceededwell. The agro-industries component is almost fully disbursed, while there is a balance of aboutSDR 1.43 million (or about USS 1.8 million equivalent) in the estates sub-component. No fundshave been disbursed to the small estates at all since the commencement of the project. During theApril 1993 supervision mission it was recommended that this amount be reserved for small estatesonly. However, the existing PFI's are reluctant to disburse to such estates because they have tobear the full lending risk and these borrowers do not fulfil normal lending criteria. Lending tosmall and medium estates is considered to be high risk.

15. As a part of previous supervision missions it was recommended that the Apex Unit inReserve Bank of Malawi (RBM) would substantively manage the credit component of the Project.Unfortunately, it has so far only monitored the commitments and disbursement of funds, and hasnot undertaken more substantial monitoring and evaluation of the performance and financialstanding of the PFIs and the sub-borrowers. The mid term review therefore recommended thatadequate support whether in the form of equipment or staff should be provided to the Apex Unitin order to enable it to fulfil this function. It is also agreed that a more detailed analysis of thiscredit line, covering the purpose of the loans, size distribution, annual commitments, repaymentsand loan servicing performance, will be carried out by the Apex Unit, RBM, by the end ofJanuary, 1994 for the final version of the mid-term review. MOA needs to follow-up to ascertainthe status.

Assessment of the Impact of the Estate Credit Sub-Comonent on Economic Development

16. The mid-term review attempted to evaluate the impact of this credit line on agriculturalproduction, farm profitability, foreign exchange earnings and employment. Given the limited timeand availability of information, only a pilot assessment could be done, comprising financialanalyses of three estates. Hence the need for a more detailed evaluation.It is therefore agreed that a detailed and representative impact assessment of this sub-componentwill be carried out by the Planning Division MOA in collaboration with RBM, by the end ofJanuary 1993, for the final version of the mid-term review.

17. Small estates sub-comonent. It is evident from the experience of the past four years thatthe three PFI's selected to participate in this subcomponent were not the most appropriate fordirecting resources towards the small estates. Without a package of measures to reduce their riskfrom exposure to such borrowers and a change in their own investment policies/criteria, it isunrealistic to expect these institutions to increase their lending to this target group.The mid term review therefore recommended that two other financial institutions, which haveexpertise in lending to small borrowers, be considered as more appropriate channels for lending tothe small estates sub-sector. These are INDEFUND and the Smallholder Agricultural CreditAdministration/Malawi Rural Finance Company (MRFC).

18. Participation of INDEFUND: Due to the demand for medium term credit from theagricultural sector, negotiations have been ongoing for some time now with the RBM, forINDEFUND's inclusion as a PFI in AMED. At present a proposal for its inclusion, with an on-lending rate of 7% for funds borrowed from the Reserve Bank, is being considered by its Board.As a principle, the on-lending rate under AMED and RFSP should be equalized and set at thebank rate. If INDEFUND is fully committed to expanding its lending to the small estates

subsector, it should make its decision as to whether or not to participate as soon as possible, inanticipation of lending for the next crop season (and possibly the upcoming marketing season).

19. Participation of SACA/MRFC: SACA has recently been incorporated into the MalawiRural Finance Company (MRFC). Under the Rural Financial Services Project its lending is to be

extended to cover small estates of up to 30 hectares in size. The group lending approach whichhas been successfully developed by SACA with respect to smallholders (except some underlyingweaknesses in group cohesion) could be extended to small estates. In this process the EstateExtension Service Trust (EEST) will play a pivotal role. The EEST could facilitate the formationof credit clubs of small estates using the contact groups as a basis for the exercise. The creditterms would be similar to those already agreed to within the MRFS Project. The majority oflending would be through the credit clubs and the primary source of loan collateral would begroup guarantees, in conjunction with deposits representing 10% of the loan value. In additionwell established small estates may meet all the credit requirements individually. Short andmedium term credit (up to 60 months) could also be available, depending on the purpose of theloan and capability of the borrower or group to service and repay the loan. The interest chargedwould be the market rate. Farmers with existing loan defaults would not be eligible to participatein this program.

20. The credit approval process would be very similar to that currently followed by SACA.However, with participation of EEST, initial eligibility screening could be jointly undertaken byMRFC and EEST. In order to ensure the success of this initiative MRFC lending personnel willrequire credit training relating to the small estates. This training could be funded by the AMEDtraining funds, given the delay in the start-up of the RFSP. The members of the credit clubs canthen be trained by MRFC personnel in good loan and recovery management practices.

20. However, it was agreed that the following issues need to be addressed before MRFC candevelop a lending program for the small/medium estates.

(i) Currently MRFC lending guidelines stipulate that estates of up to 30 hectares willbe eligible for loans. Under the AMED small estates credit sub-component,however, all estates with a turn over of less than MK 200,000 are eligiblebeneficiaries. The criteria of 30 hectares is considered very restrictive as asignificant proportion of small/medium estates in the country (i.e., those with atobacco quota of less than 5000 kg) fall into the category of under 50 hectares. Itis therefore considered more appropriate to permit all estates with a turnover ofless than MK 200,000 to be eligible for loans under MRFC's estate lendingprogram. At the same time it is proposed that the maximum loan for a group orindividual estate should be MK 100,000. If this proposal is agreed, theDevelopment Credit Agreement for the Malawi Rural Financial Services Projectwill have to be modified.

(ii) MRFC is not a PFI under AMED at present. A subsidiary loan. agreementbetween MRFC and the RBM will have to be signed for this purpose. Essentially,the draft agreement already drawn for the RFSP can be used, with appropriatereferences to AMED (by end-April, 1994);

(iii) The on-lending rate between the RBM and MRFC will have to be agreed upon.The existing rate for on-lending to small estates under AMED is different fromthat proposed for MRFC borrowing under the MRFS Project. To ensureconsistency, the rates will have to be equalized for RFSP and AMED credit lines.

Lending to small estates for diversificatio

22. The AMED SAR recognized the limited prospects for small estates to diversify out oftobacco due to a lack of more profitable alternatives, although it was hoped that somediversification sub-projects would emerge. This hope has never been fulfilled because it is nowclear that a comprehensive approach is needed. It may therefore be appropriate to view thebalance of about US$ 1.8 million now available for small estates as resources which could be used

to fund possible new pilot approaches to promote agricultural diversification in Malawi. In testingthe viability of these proposals a strategy to finance diversification would have to be developed;steps are currently underway to prepare a national agricultural diversification program.

23. In this context two alternative mechanisms, which are either being implemented orproposed for implementation on a pilot basis, could also be considered as potential mechanismsfor agricultural diversification. These mechanisms have the advantage of reducing both thelender's and borrower's risk. The first is that developed by USAID through its smallholdercooperative horticultural cultivation project. Under this scheme smallholders have been, organizedinto a club for undertaking high value, irrigated vegetable production. The scheme at Mchenga isin its third year and has already proven to be a success. The farmers are producing high qualityvegetables, all SACA loans are being promptly repaid and a substantial cash reserve is being heldin the bank. An agreement for the export production of some vegetables has already been agreedto for the current season.

24. The second mechanism that could be considered is outgrower/buying arrangements.Outgrower arrangements could also be a sound basis for developing or expanding the cultivationof horticultural and other crops by smallholders/small estates. Mechanisms could be establishedeither to revolve around individual large estates or through establishing producer marketingassociations. In June 1993, the Bank and Ministry of Agriculture agreed to provide some supportto one such scheme involving an estate/agro-processor purchase of macadamia nuts fromsmallholder growers. To support this scheme a sum of K 200,000 was allocated to the Tree NutGrowers Association from the AMED credit. Although delayed, these funds will enable theimplementation of an outgrower scheme for macadamia as a pilot agricultural diversificationinitiative. This pilot approach clearly has potential to generate bankable projects involvingsmallholders/small estates. This is particularly so in view of the ongoing Landell Mills studywhich is considering the possibilities of extensive small grower tree nut cultivation.

25. In order to further the objectives of the small estate development subcomponent, itisrecommended/agreed that:

(a) The remaining funds earmarked for small and medium estates be disbursed throughINDEFUND and MRFC, which provide the only viable alternative PFI's at the moment.

(b) The CMEU will monitor and assess the impact of the funds channeled to the Tree NutGrower Association and scope for possible replication (and supported by commercialbanks and, if needed, the proposed agricultural diversification program).

(c) Government policies and incentives related to the development, production and export ofnew products should be reviewed with a view to encouraging increased agriculturaldiversification and agro-processing. This will involve a comprehensive package of supportmeasures which could range from : introducing a package a fiscal and other incentives toencourage non-traditional production, particularly for export; assessing and developingnew marketing arrangements focussing on small farmers; addressing infrastructure andfreight constraints, both domestic and international; providing adaptive research throughthe EEST and Department of Agricultural Research. These items will be reviewed as partof the preparation of the proposed national agricultural diversification program.

(d) The institutional framework to support a private sector led strategy of diversificationshould be strengthened. In this context the Malawi Investment Promotion Agency can playa focal role in facilitating private investment and creating an enabling environment. In

order to coordinate the provision of the public sector support services required in supportof this strategy, the MOA should play a leading role through its reconstituted CropDiversification Committee.

(e) Increasing and improving the provision of technical advice and extension support to smalland medium estates.

(f) Alternative structures to facilitate lending to small and medium estates (eg. group lending,cooperative group cultivation and marketing programes, and outgrower/buyingarrangements) should be promoted for support from the PFI's under the Project.

(g) If no substantial progress has been made with disbursements under this subcomponent bynext financial year, funds should be reallocated, for example to the SEDOM component,depending on the performance of the latter.


26. SEDOM lent MK 683,000 to 5 agricultural produce trading enterprises of varying sizes in1992. The major difficulty that faced the private traders during this year was a shortage ofsupplies, due to the drought. This problem was exacerbated by the delays in disbursement offunds, given the highly seasonal nature of farming in Malawi. Despite these difficulties, SEDOMrecovered 73% of the total vale of the loan plus all accumulated interest charges. A further 15-20% is expected to be recovered in the next financial year. Following this encouragingperformance, the number of beneficiaries has been expanded from five to fifty one traders thisyear. Depending on the success of this expansion, a sub-group of traders will then be selected formedium term loans. The main problem with this component at present is that the remainingbalance of funds is not adequate to support a continuation of current activities to the end of theproject implementation

27. It is therefore recommended that consideration be given to reallocating funds reallocatedto this component from unutilized balances in other components, so that more traders and theliberalization process can benefit. However, the terms and conditions should be reviewed by theReserve Bank as part of reviewing the terms periodically.

28. In addition, according to the contract between SEDOM and RBM, SEDOM is expected topay back the short term loan from RBM by the 13th month following disbursement. Experiencehas shown that it is not possible for SEDOM to pay back these loans in full, the principal plus theinterest, due to existence of some bad debt. Further, the requirement has adverse effects on thefinancial position of SEDOM, both in the short and long-term, in that SEDOM is unable togenerate any savings. As a consequence at the end of the project SEDOM would have no capitalfor further lending.

29. In order to increase the sustainability of Project supported activities, and in particularprivate trade credit supplies, it is recommended that the RBM should consider granting SEDOMan appropriate grace period on its loans. It is also agreed that a management and operations auditof SEDOM be undertaken before additional AMED credit funds are allocated to SEDOM. Thisexercise should recommend management and operational improvements that would increaseSEDOM's operational efficiency and thereby increase RBM's confidence in its capability. Thestudy would also provide an empirical basis for deciding on the most appropriate grace period tobe extended to SEDOM.

30. SEDOM'S loan assessment capabilities are judged to be more than adequate. Howeverthe World Bank requires that SEDOM submits the list of potential borrowers to it beforedisbursement begins. This process has been lengthy and has resulted in delayed loandisbursements to the extent that, by the time funds become available to private traders, supplies ofthe produce they are interested in have dried up.

31. In order to prevent delays in seasonal loan disbursements, it is agreed that once SEDOMhas appraised the borrowers' projects, disbursement should immediately commence and the WorldBank should be sent a copy of the approved proposals for its information and records.

Marketing Infrastructure Component

32. Under this component, the construction or rehabilitation of a total of sixteen rural producemarket places was planned. The Ministry of Local Government (MOLG) is the implementingagency and good progress is being made by in implementing the program. A total of ninemarkets are at various stages of completion, as illustrated in the following table.

33. It has been agreed that more detailed analysis of the impact of infrastructural investmentson private trader activities and produce prices will be undertaken, by CMEU/MOLG for the finalversion of the mid-term review. However, it is reported by MOLG that the improved marketplaces have attracted a large number of additional retailers. This is manifest in increased revenuesraised through market fees. For example, at Nchisi market, the average revenue raised during the3 months before the market structures were improved was MK 3,120/month. Since completion ofthe works in August, revenues have averaged MK 5,667/month. Part of this increase is due toraised market fees, but an increase in the number of traders using the market has also contributed.This increase in numbers of traders provides for increased competition, as well as increasedresources with which to maintain market place infrastructure, both of which contribute positivelyto the objectives of the Project.

34. It has been agreed that MOLG will undertake more analysis of market revenues, and therelative importance of increased market fees and increased numbers of traders, as an indicator ofthe impact of the civil works on market competition. This work will be undertaken duringJanuary 1994 and will be incorporated into the final version of the mid-term review report.

SUMMARY OF PROGRESS IN INFRASTRUCTURE COMPONENT

A Complete and in use Costs Under construction

Lunzu MK 115,513 ChipokaNsanje MK 192,054 NamweraNchisi MK 240,379 EmbangweniChilumba MK 282,319 Chitipa

I I Chintheche

B To be constructed through LCB or Force Contract

Mayaka; Mvera; Lizulu; Nakando; Makande; Chimbiya; Nkhotakota

Source: NiOG.

35. The structures built or rehabilitated at the completed market places include:

Market New Construction Rehabilitation

Lunzu 1 shed; 1 storeroom; 1 open slabsNsanje 1 shed; 1 butchery; (5 hawkers groceries to be 2 sheds

completed and not included in cost figs. above)Nchisi 1 shed; 1 butchery; 13 hawkers groceries Brick fenceChilumba 1 shed; 1 butchery; 10 hawkers groceries; 1 toilet block Wire fence

36. Remaining funds allocated to this component are only sufficient to complete work in 3 ofthe remaining 7 planned markets. This is largely due to increased costs as a result of publicsector salary and housing benefit increases. It was agreed that there is a need to review thescope of the infrastructural program and/or to reallocate additional funds to it.

37. The design of the market place infrastructure built under this component was based on asurvey of needs undertaken in 1988. In view of the development of the private sector markets,these designs may now need to be updated. For example, Chimbiya market is primarily afarmers'/wholesalers' market. The marketing infrastructure currently planned for this market ismore appropriate to retailing activities.

38. It is agreed that:

(a) the Pricing and Marketing Section of the Planning Division, MOA, in collaboration with theMOLG, reviews (say, by end-April, 1994) the need to expand the funding of the infrastructuralcomponent and arranges for the reallocation of funds within the Project accordingly; and

(b) the Pricing and Marketing Section of the Planning Division, MOA, in collaboration withMOLG and private traders, reviews the planned infrastructure for Chimbiya and Lizulu markets,in order to ensure that such infrastructure is suited to the needs of the traders who use thosemarket places.

39. It was agreed during Project design that civil works could be procured either through localcompetitive bidding (LCB) or by use of Force Account (Direct labor), due to the small scale andscattered and remote location of the works involved. It has been argued by MOLG that it ischeaper and faster to construct the markets by direct labor. However, since tenders for marketconstruction/rehabilitation have not yet been sent to private contractors, and using privatecontractors would allow the simultaneous construction at several market places, this assertion isdifficult to support.

40. It is recommended that, in order to facilitate implementation and provide a more informedbasis for deciding between force account and LCB, MOLG should (by end-April, 1994):

(a) obtain quotations for the remaining works from private contractors and compare these withthe costs of completing the works through force account;

(b) specify in the tender documents that bid offers sill be evaluated against MOLG estimates(such an indication will have to be added to the current tender documents);

(c) contract the construction unit under MOLG to rehabilitate/construct remaining marketstructures only where:

- its estimates are lower than all others;- it is willing to undertake the construction within the cost limits of its estimates;

and- it will not take longer than private sector contractors to complete the specified

works.

41. Finally, in order to sustain the activities under this component beyond the life of theProject, the SAR stipulates that the cost of market construction should be extended as a loan to therelevant local councils. The intention was that a revolving fund could be established fromincreased market revenues to finance market structure maintenance and further construction. To

date this has not occurred and no mechanism has been established to implement this process.However, MOLG has a facility to do this through the Development Fund of Local Authorities(DFLA).

42. It is recommended that, instead of establishing a new revolving fund, the DFLA should beused to ensure that infrastructural activities are sustained. In order for this to be effected, it willbe necessary for the financial records of already constructed markets to be transferred to theDFLA and to financing future construction through it at terms and conditions ruling for theDFLA.


43. The establishment of this service has been smoothly implemented. To enable exportersand importers purchase produce of desirable quality, MBS has publicized the existence of itsservices in Malawi both locally and internationally. The facilities in place are being used by bothlocal and international merchants. However, produce testing has been on voluntary basis and therate of capacity utilization by MBS is below expectations, which has adverse implications for itsprospects of becoming self-financing.

44. Originally the quality testing scheme was to be made compulsory for every agriculturalproduce exporter, but this was deemed to be antithetical to the liberalization process, and wastherefore never enforced. M1BS estimates its maximum capacity at about 7,000 sample tests ayear, depending on the types of test required. The table below demonstrates that it is operating atwell below full capacity.

YEAR SAMPLES TESTED EXPORT SAMPLES EXPORT CERTIFICATESTESTED ISSUED

1990 3,237 701991 3,358 451992 4,589 511993 2,494 421 51

(as at December 14) (1990-1993) (as at October)

45. Nonetheless, in 1992, 63% of MBS costs were self-financed and M.BS plans to become tocompletely self-financing by 1997/8. Its fees currently vary between MK 33.50 for simple testslike grading and germination rates to MK 51.50 for more complex ones, like assessing thechemical content of fertilizers. This fee structure is based on operating and depreciations costs.The Government therefore subsidizes the costs of staff salaries and housing expenses, togetherwith other overheads. The MBS has demonstrated high quality performance, with a test turnaround period of between 1 and 3 days. This performance is manifest in the growing number ofsamples it receives for testing. The decline in demand for its services over the past year is ofconcern, but has been attributed to a decline in agricultural exports as a result of drought relatedbans on private sector activity in this area. The lifting of these restrictions, together with theliberalization of fertilizer and seed markets, is expected to provide a boost to MBS activities in thecoming year. MBS has the expertise and equipment to undertake laboratory testing of seeds andfertilizers, but not field testing of the production of hybrid seed.

46. While this component appears to be doing very well, there may be room for furtherimprovements. It is agreed that the final mid-term report include an assessment: (a) from thetraders on the timeliness of the quality testing scheme; and (b) of the utilization of therecommendations made by the technical assistance expert, and scope for full utilization of theadvice as outlined in his final report.

Capacity in the Pricing and Marketing Section

47. Staff in the PMS are heavily overloaded, and this will be exacerbated by the ending of thecontracts for two members and the departure for training of another. The post of PrincipalEconomist has remained vacant since the former incumbent resigned in 1991. The PrincipalEconomist is designated as the National Coordinator for this Project. Though the SeniorEconomist (Marketing Services Unit) has been acting in this position, his ability to activelymanage the Project on a national scale has been limited by the great demands on his time. Inaddition to this, the four vacant posts of economists have never been at anytime all filled. Thisinadequate staffing has had adverse effects on the section and the Project as a whole.

48. It is agreed that the head of Planning Division should take a lead in liaising withEconomic Planning & Development to fill (by mid-April, 1994) thevacant posts (with priority onthe Principal Economist and at least 2 economists) in the Pricing and Marketing Section.

Open Market Price Information System.

49. These two components were not budgeted for in the project. The United States Agencyfor International Development (USAID) has to date provided funds for the collection anddissemination of open market agricultural produce prices for major crops. As of now retail pricesare collected from 18 rural markets and disseminated through newspapers and radio broadcasts.The aim is to assist private traders in identifying areas of excess supply and demand. However,coverage is thin, no wholesale markets are included and there is a week's delay between collectionand dissemination.

50. It is agreed that, following the agreement reached during the World Bank May 1993mission, that:

(a) the open market price system be reviewed (by mid-April, 1994) by the Agro-Economic Surveyand Pricing and Marketing Sections of MOA with respect to the expanding the number of marketscovered and including wholesale prices. The recommendations arising from this review, and ifappropriate the implementation plans for such expansion, should be included in the final versionof the mid-term review;

(b) a closer synchronization of the collection of data in currently covered market places, such thatprice data is collected on only 2 days a week and prices can be reported twice a week, thusreducing the time between collection and dissemination further.

51. In addition, it is agreed that an informal survey (by mid-April, 1994) of private traders beundertaken to assess the utility of the price information system to them and to identifyimprovements which could be made. The results of this survey could be incorporated into thefinal version of the mid-term review, or if delayed, could be annexed at a later date (so as not todelay the mid-term report).

Marketing Extension and Training Services.

52. The Pricing and Marketing Section has developed a job description for Marketing Officerposts in each of the ADDs and the latter have presented budgets for these posts to the MOA.

(The terms of reference and budget are contained in Annex 4 of the mid-term project review).Subject to approval by the Department of Personnel Management and Training, the establishedposts of Credit Officers could be filled by Marketing Officers once the Credit Officers have joined

the Malawi Rural Finance Company, thus minimizing the incremental budgetary burden of thisservice.

53. Since Project funds will not be sufficient to establish a marketing extension service, andUSAID has expressed interest in this area (with particular respect to tobacco marketing problemsfaced by smallholder producers), it is agreed that the Pricing and Marketing Section discuss thefunding of these services with USAID, with a view of reaching agreement (by end-April, 1994).It is understood that a key criteria is ensuring sustainability in view of being able to meet thedemands by private traders and farmers.

54. The training of private traders in the ADDs has been coordinated centrally fromheadquarters, because the inability of Credit and Marketing Officers to support this activity. Whilethe training programs have been deemed highly successful, their organization has overloaded thestaff in the Marketing and Pricing Section.

Private Traders' Association

55. An application has been received by the Pricing and Marketing Section of MOA'sPlanning Division for support for the establishment of an agricultural traders' association fortraders dealing in both agricultural produce and inputs. A draft constitution has been drawn upfor such an association. It main objectives would be to promote and develop the privatemarketing of agricultural produce and inputs in Malawi. It would collect and disseminateinformation to members concerning the trade and markets; establish links with other interestedorganization; make representations to the Government and other bodies on behalf of privateagricultural traders; and investigate, test, develop and extend relevant markets.

56. Initial funding is sought to obtain office space and equipment and a vehicle, as well as forsalaries of permanent staff for a two year period. Thereafter, the interim Chairperson of theAssociation agrees that it should be self-financing to ensure (a) sustainability and (b) that theservices provided are of value to members. A budget has been drawn up regarding the initial set-up costs.


(a) the Pricing and Marketing Section collaborates with the interim Chairperson of theAssociation in order to develop a business plan (by mid-April, 1994) which indicates the revenuerequirements for self-financing after a 2 year period; and

(b) MOA, in liaison with Treasury, reallocate some Project funds (amounting to about MK 1million) to support this private sector initiative. This action would be consistent withGovernment's stated policy of stimulating private diversification initiatives.

Project Management and Organization

58. The two Management Steering Committees responsible overseeing Project implementation(i.e., the Marketing Committee and Estate and Agro-industries Committee) have continued to meeton a quarterly basis in a combined forum. However, their effectiveness has been reduced by lackof continuity in the members attending the meetings. Also there appears to be a lack ofseriousness on the part of Senior Management in chairing the meetings. This has made it difficultfor the meetings to discuss and reach decisions on some sensitive policy issues.

59. It is agred that the implementing agencies appoint permanent contact persons to attend thereview meetings, in order to facilitate familiarity with the Project and provide for continuity andgreater effectiveness in ensuring timely implementation of agreed actions. It is also agreed that

the Chief Planning Officer of MOA chair these meetings, and the Pricing and Marketing Sectioncontinue to take the day-to-day responsibility for ensuring timely and effective implementation.

Financial Management

60. In the beginning the Project experienced teething problems with the management offinances. Examples of the problems experienced included delays in payments of invoices due tothe lengthy procedures within Government, which involve the MOA's being passed to theTreasury and then the Reserve Bank of Malawi. The RBM then instructs Citibank, New York totransfer the funds to the payee's account. These delays have prompted some suppliers to ceasesupplying goods on credit through the bank guarantee as required by the Bank.

61. MOA has attempted to improve the situation which has resulted in some improvements inthe submission of accounts and disbursement reports. However, further improvements arepossible and necessary and it is important that such improvement is viewed as a continuousprocess. For example, there is still an outstanding need for expenditure returns to fully reflectoff-shore and direct payments.

Project Monitoring

62. Project monitoring is done through the preparation of Quarterly Progress Reports byresponsible institutions. However, there has been lack of feedback and action on problemsidentified in these reports. This is due to a lack of capacity in and interface between the ProjectCoordinator's office and the MOA's Central Monitoring and Evaluation Unit. This is manifest inthe fact that, whilst the CMEU has been heavily involved in the mid-term review of the Project,its involvement in the continuous monitoring of progress has been minimal and should beimproved.

63. To improve the effectiveness of this system for monitoring the Project, as a tool formanagement decision making, it is agreed that the reports from the two Committees be providedsimultaneously to the Pricing and Marketing Section and the Central Monitoring and EvaluationUnit and that the latter be mandated to follow-up on critical issues with relevant parties.

64. It was agreed that the Apex Unit in RBM would manage the credit component of theProject. Thus far, it has so far only monitored the commitments and disbursement of funds, andhas not undertaken more substantial monitoring and evaluation of the performance and financialstanding of the PFIs.

65. It is recommended that the Apex Unit performs a more substantive role, includingregularly reviewing the financial performance of the PFIs and the sub-borrowers. It isrecommended that the Apex Unit formulate key performance indicators (by mid-April, 1994) as abasis for improving its management and supervision functions. Adequate support, whether in theform of equipment or staff, should be provided to the Apex Unit to enable it to fulfil thisfunction.

AGRICULTURAL SERVICES PROJECT: LAUNCH MISSION

66. Overview Ihe ASP was approved by IDA's Board of Director in mid-June, 1993. IFADBoard approved the Smallholder Food Security Project in September, 1993 which was designed tobe a part of the ASP framework. The main purpose of the IDA ASP team was to assistGovernment formally launch ASP, although project activities have already been underway, as ASPis supporting national programs. On December 9 and 10, there was a formal ASP launchworkshop, opened by the Minister of Agriculture, Honorable Katola Phiri. 'he main output ofthe ASP workshop were the updated action plans for each ASP component (see Annex 2), which

were promptly issued by MOA immediately following the workshop. The mission commendsMOA, with the assistance of GTZ facilitator (Mr. Ziegel) and group moderators, for ensuring thesuccess of the workshop. Separate workshop proceedings will be issued by MOA. It was agreedthat each participating Department will take full responsibility for implementing these action planson a timely basis. It is further agreed that Treasury, DREA (for the Ag. Sciences Committee) andMOA ensure that the needed budgetary allocations in the remainder of the current fiscal year andin 1994/95 be provided to the implementing departments. There is also a need to ensure that ASPfunds are allocated separately to ASC through DREA (and the Office of the President andCabinet). In addition, there is a need for the MOA Chief Accountant to issue clear guidelines andprocedures to be followed in the process of fund allocation and use, and submission ofexpenditure by ADDs and the timely reimbursement of the newly established ASP special account.

67. It is the mission's understanding that the conditions for declaring the ASP Credit effectivehave been fulfilled by Government. It is agreed that Government would formally submit to IDA(by end-December, 1993) the needed documentation to enable the mission to recommend to IDAmanagement that it declare the Credit effective by its due date of January. GOM acted promptly,but the document from Justice indicated the incorrect amount of IDA credit (which was rectified,enabling the Credit to be declared effectively later in January, 1994).

Lessons Learned and Implications for ASP

68. At the time of mission there was a FAO/CP Project Completion Report (PCR) missionwhich collected information to prepare the PCRs for two recently closed IDA-financed projects(i.e., Extension and Planning Support Project/MAEPS and National Agricultural ResearchProject/NARP) which have provided the basis for the next phase of support through ASP. Thedraft PCRs have been prepared and provided to Government for review and comment, and forpreparation of Part II, which needs to be completed by the Borrower (implementing agency). Itwould be appreciated if MOA (under the coordination of the Planning Division, in collaborationwith the CAETO and CARO) could arrange this review and preparation of Part II by mid-April,1994, as the submission of the PCRs to the Bank's independent evaluation unit is already overdue.Below are some of the preliminary observations which may be considered by MOA management

during the course of implementing ASP.

69. During the implementation of the Agricultural Extension and Planning Support Project(MAEPS) and the National Agricultural Research Project (NARP) problems were experiencedwhich negated or reduced the efficiency in the achievement of some of the planned objectives ofthe project. As the implementation of the ASP becomes imminent it is necessary that MOAshould examine and correct these problems to avoid repeating them to the detriment of the successof the new project. Some of the problems which must be addressed are as follows:-

70. Extension Component

(a) Unrealistic Action Plans.

From the ADD level (PM) down to the Section level (FA) staff tend to include too muchin their action plans despite known shortages of enabling resources. All activities that must donein the ADD are put in the annual action plans and budgeted for. In other words, everything isregarded a priority. As a result whatever little resources are made available by MOA to the ADDare thinly spread on competing demands, thus making little or no impact on the objectives. Themission, therefore, recommends that:

During the ASP implementation, CAETO should discuss with all program Managers andfield staff the need for priority setting and demand that all plans of action form the ADD(PM -level) down to the Section (FA-level) level should exhibit activities that are

prioritized. This will assist staff in deciding what activity to concentrate on or leave outin times of resource constraints.

To implement this recommendation it will be necessary that each Management team at theADD should, on an annual basis, obtain from RDPs what they consider as RDP-priority areas,each RDP will obtain from EPAs their assessed priority activities. Similarly, each EPA will obtainfrom their sections the FAs assessment of the farmers priority activities. In this way the ADDManagement can guide, assist and support each level appropriately.

(b) Lack of Supervision of Field Activities.

During the implementation of the MAEPS supervisors at all levels were unable tosupervise field activities adequately either because of lack of time resulting from lack of prioritysetting which, in turn, resulted in having too many programs to attend to or lack of transport. Infew cases it was argued that the field officers were knowledgeable enough and did not need to besupervised. The mission feels that, to do a good job, all staff need to be supervised adequately,either to guide and support or to motivate them. Therefbre, it is recommended that MOA shouldput supervision of the field programs as one of its priorities. To this end MOA i.e. CAS,CAETO, DCAETO and ACAETOs should set examples by visiting the field regularly to guideand support field staff. In this way all field supervisors will be encouraged to assist the FAs.

(c) Implementation of Motorcycle ownership Scheme.

The mission commends government for approving the motorcycle ownership scheme forsupervision purposes by field staff. The mission urges MOA to:

i) expedite the implementation of the motorcycle ownership scheme and mileage asproposed by MOA.

ii) The GOM/MOA should ensure that the mileage allowance be sufficient to enablestaff/owners to pay monthly loan repayments, fuel and maintenance costs.Available information indicates that the proposed allowance (K 0.70) is well belowthe required allowance (about Kw 1.30); staff cannot be expected to subsidize fueland maintenance of Government operations.

(d) Transport Management.

The mission attaches great importance to efficient management of transport by MOA tofacilitate efficient implementation of its agricultural programs. While the mission is aware that theministry is engaging a transport management advisor it not aware of the designated TransportManager in MOA. The mission, therefore, recommends that MOA should urgently appoint avery senior officer to manage transport and the systems that will be put in place and act as acounterpart to the transport advisor.

71. Other Key Actions

(a) While some extension technologies are generic and of importance to all areas (e.g., in-situmoisture conservation, soil management, maize hybrids), other extension activities should bepromoted at a local level according to location-specific importance and need.

(b) there is a need to complete the smooth de-linking of credit and extension, with revisions injob descriptions for staff;

(c) there is a need to clarify the respective roles of veterinary assistants and field assistants inproviding a single message in husbandry extension (with the latter group conveying the standardmessages, and the VAs to focus on the more specialized messages).

(d) a need to clarify more precisely the inter-relationship between the IFAD-Food SecurityProject and ASP in the focus and content of extension messages; the FSP was designed to be acomponent of the ASP, with an emphasis on developing improved extension messages andapproaches for the resource poor smallholder.

Research Component

72. Main Issues. Various problems arose in the NARP in respect of civil works,procurement, training and technical assistance. In civil works some buildings were not completed(cold room and store shed, Kasinthula); glasshouses supplied were too complex (Bvumbwe,Chitedze) or unsuited for their purpose (quarantine glasshouse, Bvumbwe); economies in housedesign led to houses unsuitable for the climate and other local conditions. In procurement therewere problems in ordering (over ordering consumables - eg. 2.88 tones plasticine; unsuitableequipment - eg. soil physics equipment, Kasinthula) but more particularly in storesaccounting/management (no checking on receipt, inadequate storage, inventorying and issuing). Intraining, so many scientists were away on long term training during the project that it lessened theorganization's capacity for research, especially with major changes in research management incourse of adoption (masterplan, action plans, triennial reviews, etc). long term technical assistancewas variable, with few technical assistants training counterparts properly.

73. Main Lessons Learned The principal lessons to be learned from NARP include:

(a) more rigorous inspection is needed to certify completion of civil works beforepayment of contracts.(b) building (house and glasshouse) design should be suitable for the purpose, theclimate and other environmental variables (some houses built were, for reasons ofeconomy, too small; glasshouses were either too complex or unsuitable for thepurpose).(c) the need to oversee procurement more closely so that amounts of consumablesare realistic in relation to need and the amount and nature of equipment ordered isnot beyond the capacity of staff to operate it.(d) the overriding importance of proper storage and efficient storesaccounting/management procedures. No more consumables should be ordered forthe research system until the large amount of consumables and equipment receivedunder the project is properly stored and inventoried, including the determinationand recording of shelf life. It is probable that a number of consumables acquiredunder NARP will have to be written off.(e) future training programes should be designed to allow fewer trainees away atone time, if research is not to be impeded.

(f) more care should be taken in drawing up terms of reference, selection and

supervision of technical assistants.

74. The mission commends DAR for taking some action to improve storage of the equipmentthat was procured under the NAP Project, but the mission would also like to point out that morework needs to be done to minimize hazards and losses.

75. It is recommended that:

a) DAR finds a safer and more appropriate room for the inflammable lab chemicalsthat are store together with other lab equipment.

b) All other hardware equipment should also be store in a appropriate separate storeroom.

c) DAR should deploy a competent stores personnel to record, categorize, andinstitute efficient stores accounting/management procedures.

d) DAR should assess its overall requirements for lab chemicals and compare withthe available quantities in order to determine quantities that must be sold off toother users to avoid wastage due to expiry dates.

e) DAR should decide what to do with excess plasticine (2.88 tones) that is currentlybeing stored at Chitedze

f) DAR should clarify the new mandate and specific role of the MOA AgriculturalResearch Council (ARC), given the establishment and effective functioning of theAgricultural Sciences Committee (ASC). We are pleased that apparently thisclarification is underway such that the ARC would focus on improving researchcoordination within MOA (especially involving land husbandry, research-extension, and livestock).

g) ASC to clarify the size of the proposed contract research for 1994/95;

h) DAR and DAET should complete and fully implement the action plan forstrengthening research/extension/farmer linkages.

Inputs Component

76. The Pricing and Marketing Section of MOA's Planning Division have updated the actionplans concerning the liberalization of fertilizer and seed markets and have achieved considerableprogress in implementing these policies, although more needs to be done to fully liberalize thesecommodities. However, a number of issues were raised at the Project Launch Workshopconcerning the liberalization process, which need addressing.

77. Two of the major issues discussed at the workshop were concerned with Government'sfertilizer pricing policies in the context of liberalization. Firstly, the private sector representativeshighlighted the adverse effects on competition that continued subsidization of single enterprises ineach of the seeds and fertilizer markets has. Given the current high level of fertilizer stocks, it isimportant that Government work out an appropriate pricing formula for next crop season whichwill consider the import parity price, possible deterioration in fertilizer stocks and implicit costs,removal of subsides and food security. The Fertilizer Policy study is addressing these issues, andwill be providing recommendations in the draft report expected at the end of April, 1994.

78. In order to alleviate these constraints on the development of the private agricultural inputsmarkets, it was agreed that:

(a) the SFFRFM would formalize and publicize its policy of wholesaling all fertilizers (includingsubsidized ones) to private smallholder suppliers; this statement will need to be placed in thecontext of Government's overall fertilizer policy framework.

(b) that OOM would remove all seed subsidies by the end of March 1994.

79. The second issue concerning pricing vas the timing of ADMARC retail target ceilingprices. It was argued that prices were announced too late in the season for private suppliers toplan their imports and for farmers to plan their purchases.

80. It was therefore agreed that the release of the decision of the Annual Agricultural PriceReview would be brought forward in the year, from October to June. Given the high stocks offertilizers, and unlikely imports, it may not be urgent to advance the timing this coming cropseason.

81. A query was raised as to what steps the Ministry of Trade (MTI) and Industry is taking toincrease the efficiency of the process for licensing private fertilizer importers. In order to assistin speeding up the process, the MOA has provided MTI with the list of approved fertilizers, aspreviously agreed. However, it was noted during the workshop that the internal processing withinMTI could also be expedited. The private sector representatives argued that obtaining a licensestill takes 3 - 6 months. (MTI was not represented in the Inputs Group at the workshop.) Itshould be noted that the fertilizer policy study will also be addressing these points.

82. It was agreed that PMS and MTI would work together to develop an action plan, by theend of January 1994, for increasing the efficiency of the licensing of fertilizer importers (again,this procedure is also being reviewed by the Fertilizer Policy study)

83. There has been some delay in the finalization of the amendments to the Fertilizer, FarmFeeds and Remedies Act (1970) to reflect the changes in Government fertilizer marketing policies.This is apparently the result of a break-down in communication between the different members ofthe team working on the amendments. IDA comments and suggestions have been provided toMOA on the draft version, and it suggested that the suggestions and findings from the FertilizerPolicy Study (at least from interim report) be incorporated in the final report.

84. It was agreed that the amendments will be completed in January 1994 and that MOA willsubmit the final draft of the amendments to the Ministry of Justice by the end of January, 1994,for submission to the next parliamentary session in April 1994. Given that these target dates havebeen surpassed, it is hoped that MOA will expedite the pending work and review to meet theApril timetable.

85. Aside from the above decisions concerning the implementation of the liberalizationprocesses, two additional activities were added to the seeds liberalization action plan in order tosupport the seed production and marketing reforms.

86. Firstly, it was agreed that DAR (Seed Services Section) will host a workshop in May 1994to brief seed producers as to the detailed nature and implications of the seed production,marketing and pricing reforms. ASP funding is sought to finance this workshop.

87. Secondly, it was agreed that there is a need to revise the variety release system to allowprivate sector development of new, improved seeds. It was further agreed that DAR (SeedsServices Section); the Pricing and Marketing Section of Planning Division and Ministry of Justicewould collaborate to identify the changes needed and draw up an action plan for theirimplementation by the end of February 1994. As this date has been surpassed, there is a need forMOA to expedite the needed actions.

Irrigation Component

88. The main issue to ensure timely implementation of the irrigation subcomponent is forGovernment (DPMT) to formally approve the additional posts required for irrigation engineers. Itis the mission's understanding that this action has been approved in principle. It is recommendedthat Government expedite this approval and early posting of the additional key staff and of theIrrigation Engineer TA (by end-April, 1994).

Food and Nutrition Subcomponent

89. The Food and Nutrition Unit has updated its action plan, although it was not discussed bythe extension group at the Launch Workshop.

90. It has been agreed between the FNU and CAETO that the FNU action plan, and itsimplications for the work load of the FAs, will be discussed in detail at the three regional LaunchWorkshops.

Agricultural Policy Analysis Subcomponent

91. Bunda College has made good progress in preparing for its activities under the ASP. Ithas finalized the drafting of its contract with IFPRI, as well as its Memorandum of Understandingwith MOA. In addition, it has prepared tender documents for the civil works and sent these toIDA for approval. It has also updated its action plan for ASP supported activities. The only issueoutstanding concerns the flow of funds from MOA to Bunda, funding arrangements, and ICBarrangements for construction.

92. In this context, Bunda College and MOA have signed the MOU between them, and thecomponent can now be fully implemented. To enable this to happen, Bunda College should liaisewith the Chief Accountant of MOA to finalize the funding arrangements to ensure timely andsmooth flow of project funds.

Monitoring and Evaluation Subcomponent

93. The Central Monitoring and Evaluation Unit (CMEU) has updated its action plan coveringthe first one and a half years of ASP activities. In this context, It is further recommended thatthe CMEU operationalize (say, by end-May, 1994) the performance indicators for each of theproject components/subcomponents which were agreed with IDA (and included as part of thepackage at negotiations). There are two constraints on the timely implementation of this actionplan that can be foreseen at this time.

94. The first is the understaffing of the CMEU. This has accounted for repeated and longdelays in the reporting on project monitoring and evaluation in the past. The missionrecommendations concerning this problem are addressed below under the staffing issue.

95. The second is the degree of cooperation extended to the CMEU by the ADD monitoringand evaluation units. It has been noted that in the past that a lack of timely delivery of ADDmonitoring and evaluation reports to CMEU has been a major reason for the delays in thefinalization of various national level reports.

96. It is agreed that, during the 3 regional Launch Workshops, CMEU:

(a) investigates, with ADD Program Managers, the constraints to more timely delivery ofmonitoring and/or evaluation reports on the part of the ADDs;

(b) works out, with the ADD Program Managers and Monitoring and Evaluation officers, meansof overcoming these constraints, and

(c) draws up an action plan for addressing reporting delays.

It is also important for the staffing needs to be reviewed and resolved on a priority basis. Sincethe workshops have been held, in the event the above points were not resolved, it is important forthe Planning Division to follow-up.

Budgetary Arrangements and Allocations

97. Expenditure ceilings of the Development Budget have been the main constraint inaccommodating new projects and enabling their implementation in line with planned targets. It isthe mission's understanding the Treasury/MOA allocated adequate funds for ASP in 1994/95, butthis point needs confirmation, especially since the ASP launch workshop and updated action planshave placed the Ministry in a position to fully implement ASP. The mission consulted withEP&D and Treasury on this issue to explore options for alleviating financial constraints on projectoperations. It has been agreed that the following measures would be implemented:

. use of the special account and direct payment facilities to complement the resourcesavailable in local project accounts financed by GOM in the Reserve Bank;

ii. full funding of MK5.4 million of Part II resources required by the project in 1994/95 toavoid restraints on the utilization of external resources caused by the inadequacy of counterpartfunding; and,

iii. active management of claims and disbursements to facilitate replenishment of GOMforeign exchange resources and the financing of its cash flows.

98. The Bank assisted MOA in the development of "yardsticks" during the preparation of theASP. GOM has agreed to apply the yardsticks in all its budget exercises and in making resourceallocation decisions for the MOA to ensure that resources are allocated in line with the Ministry'soperational requirements.

99. The mission would like to emphasize the importance of applying the yardsticks. This willserve several important functions. It will provide an empirical basis for adequately assessing theoperational resource needs for the Ministry, serve as a pilot test for a budget tool to be assessedand extended to other Ministries as appropriate, and provide a mechanism for ensuring consistenceand linkage between the Revenue and Development Budgets. It is therefore agreed that MOAupdate its Revenue Budget Estimates for 1994/95, based on the application of yardsticks, forreview by IDA. Since IDA has not received such estimates, it is requested MOA proceed toprovide them as the earliest date. It is understood that the development and application ofyardsticks will be an on-going activity of improvements to be supported by ASP.

Staffing

100. Although the exact magnitude of personnel shortage is not documented for the Ministry ofAgriculture, it is likely to be a major constraint to project operations unless remedial actions aretaken urgently. This was a major issue discussed in all of the regional workshops, and thereforemerits high priority. The vacancy rate for technical and management staff at the field,Technical/Development Officers and Project Officers, is about 50%. The same high rate ofvacancies, especially for Professional Officers, exists for economists, researchers, and extensionworkers. This reduces the capacity of the Ministry to undertake the technical and supervisorytasks required of it under the ASP and other priority projects.

101. It is agreed that MOA should draw up and implement an action plan for filling all highpriority posts in MOA (by end-April is a suggested target date). In addition, it is recommendedthat MOA should review the staffing of key units, in procurement and disbursement/claimsmanagement , and propose staffing and organizational measures required to improve their capacityand effectiveness in line with MOA's requirements for the services of these units. Theseimprovements could also be supported through the Institutional Development Fund (IDF) which is

aimed at helping to streamline organizational arrangements in MOA and Ministry of NaturalResources and Forestry to ensure more cost-effective and sustainable services to smallholders.

Construction

102. The ASP will finance a significant amount of construction. The planned constructionconsists of houses for field staff, and office accommodation at MOA headquarters, Department ofIrrigation HQ., and at the EPA level offices. The pre-implementation planning for all civil worksis still in its early stages and needs to be expedited to avoid delays and ensure that the procuredcivil works play their intended role in facilitating MOA operations. In this context it is agreed thatMOA, in collaboration with MOW, should embark on a systematic process of pre-implementationplanning for all ASP financed civil works. This process will include site identification andacquisition, contracting arrangements for design works, and the drafting of and finalization ofrelevant tender and contract documents. MOA should, as necessary, consider the use of short termconsultancies to expedite the execution of this preliminary work.

103. Procurement Reform Program, ASP is financing a country-wide procurement reformprogram to improve procurement procedures, arrangements and capacities in all Ministries. TheMinistry of Finance is responsible for implement this subcomponent. There has been a delay inthe process of selecting the consultants to assist in the implementation of this activity. Themission urges the Ministry of Finance to complete as soon as possible (say, mid-April, 1994) theletter of invitation and preparation of a short list of consultant for final review by IDA.

Project Management

104. The mission is pleased that the newly appointed PS of MOA apparently is committed tothe implementation arrangements of the ASP, which relies on the existing MOA structure, underthe coordination of an Agricultural Sector Coordinating Committee (chaired by the PS of MOAand comprised of the Department Heads). In order to facilitate project implementation, it isimportant for the ASP to have a senior contact person who will undertake the reporting functionsthat are outside the normal MOA reporting requirements and coordinate and expedite actionsrelated to project covenants on the submission of accounts/audits, interagency coordination, andprovide in-house support on critical areas of project implementation. It has been agreed to recruita Project Facilitator for this function by February, 1994, based on agreed TOR and followingrecruitment procedures acceptable to IDA. While the selection process is at an advanced stagewith MOA preparing a short list of top candidates, it is requested that MOA expedite the finalselection of the most suitable candidate.

Donor Coordination by GOM and the ASP Framework

105. There is an urgent need for GOM/MOA to take a lead role in coordinating various donorswho are supporting various projects/programs in the agricultural sector. Such coordination. isneeded to resolve areas of duplication and conflict with the aim of promoting efficient andeffective resource use in the sector.

106. Of immediate concern is the need for GOM to coordinate and reconcile the interventionsand implementation arrangements proposed for the ASP and the UNDP Fifth Country ProgramComponent for smallholder agricultural productivity (UNFAG). Consultations between UNDP andthe World Bank indicate that the problem area which needs to be resolved relates toimplementation/administrative arrangements required for MOA to support UNDP's District basedimplementation, while maintaining the effectiveness and its ADD operations and the legitimacy ofthe ADD structure which will be used to implement ASP. A tentative review of the ASP andUNFAG, which was undertaken with the UNDP Component Adviser, has indicated that all otherareas of possible duplication and conflict are resolvable if resources and efforts are viewed aspooled to support a single sector investment program/project. In this context, the two operationswould support and use common administrative structures/mechanisms, unify reporting

arrangements, and identify and support distinct shares of activities common to both projects.During the mission a meeting was held with officials from MOA, UNDP and World BAnk toreview the above issue; it was agreed that beginning in early 1994 MOA would work with UNDPofficials to ensure that the Fifth Country Program design features and implementation/fundingarrangements are fully reconciled with the national programs being supported by MOA. IDAwould appreciate being informed on the status of this exercise, and any adjustments which may beneeded on the part of IDA. It should be noted that the IFAD financed Smallholder Food SecurityProject, which is within the ASP framework, is focusing on the improved technical messages forresource poor smallholders. Therefore, it is important to avoid conflicting and/or duplicativeinitiatives which may undermine the assistance intended for smallholders.

107. Proposed Participation by GTZ/Germany. GOM and the German Government heldbilateral negotiations in February, 1994, as part of Germany's decision to resume assistance toMalawi. In anticipation of such discussions, the mission included discussions with GTZ officialsfrom Frankfurt regarding the possible areas for GTZ participation in the ASP. It is agreed thGovernment (under the technical direction of MOA) would firm-up the proposals so that they fitwithin the ASP framework. In principle, IDA funds can be readjusted to accommodate Germanparticipation in the ASP framework.


108. There is growing concern by Government and donors regarding the extremely low creditrecovery by SACA from smallholders in this past season (about 13%). More importantly, there isgrowing concern about the underlying causes of this low recoveries, aside from the politicalfactors which no doubt contributed to this unprecedented drop in recoveries (after having a trackrecord of nearly 90% over the past 10 years). The success of Malawi's exemplary smallholdercredit system is due to the enforcement of the 100% recovery rule and the joint liability principle,which provides the needed "collateral." There is a concern that the current drop reflects aweakening of the joint liability principle, in the context of Malawi's political transition.

109. Some of the mission members devoted time to reviewing the factors underlying the currentcredit crisis, which is leading to low input usage, and will probably lead to a low harvest. WhileMalawi appears to have adequate maize stocks over the next one year, it is critical that thesmallholder credit system be restored as soon as possible. After considerable discussions withrelevant persons and smallholders, it is strongly recommended that the Government reassessimmediately its current policy of extending credit to individual smallholders who repaid their loansand taking nearly 90% of smallholder credit clients to court, rather than requiring its 100% creditrecovery policy and restoring the joint liability principle to help in the recoveries. It is recognizedthat Malawi is in a dilemma, and that further adjustments in the current recovery policy maycontribute some confusion. But taking the wrong course of action this crop season could alsodestroy Malawi's exemplary credit system. The above points have been communicated to theSecretary to the Cabinet, and it is hoped that Malawi's leaders will consider the full implicationsof not taking appropriate actions.

110. Annex 3 provides a discussion note which outlines 3 options for Government'sconsideration in trying to restore the success of Malawi's smallholder credit system and to helpminimize the possible adverse effects of low input usage and negative agricultural production in1994. Given that the Credit Repayment Study draft report has been submitted to Government,this latter report is now providing the relevant basis for discussion and finalization of the actionplan to restore credit discipline.

111. In order to better understand the underlying factors leading to the low credit recovery, ithas been agreed that the Centre for Social Research will carry out a Smallholder Credit RecoveryStdy IFAD is financing the study (on a grant basis). The study TOR were worked out and

agreed during the mission. The study is focusing on the problems and causes underlying poorrepayment, and will recommended strategies to help restore improved recoveries and jointliability principle to enable the expansion and sustainability of rural financial services. The Centrefor Social Research has initiated the study, given its urgency, and in mid-March, 1994 submittedthe draft report to MOA. The draft report correctly is emphasizing the need for joint liability,group training, and full repayment to restore the integrity of clubs and to sustain lendingoperations to smallholder farmers. The study findings are being used to help guide SACA/MRFCefforts to restore the integrity of the credit clubs in a short period of time. It is agreed thatGovernment, under the leadership of Treasury and MOA, would act promptly to review andimplement the relevant recommendations and action plan.


112. Following-up on the ASP Reconnaissance Mission in April/May, 1993, and discussionswith Government and the private sector, and the findings of the draft Agricultural Sector Memo(ASM), the team held discussions with a number of private sector organizations and individualsregarding their interest in participating in a proposed ADP. In summarv. these groups expresseda strong interest. The ASM has identified broad-based diversification as one of the primarysources of future growth in Malawi. It also identified numerous constraints that will need to beaddressed in a concerted and coordinated manner if this potential is to be realized. Agriculturaldiversification, both domestic and export was discussed at length during the ASM Workshop and anumber of recommendations were made to improve and sharpen the focus of the constraintsidentified and future actionable strategy. One of the main recommendations that came out of theWorkshop was the need to emphasize from the outset that future diversification efforts in Malawineed to be focused on a private sector lead strategy in close collaboration with Governmentsupported services (especially research, extension and key infrastructure).

113. In addition to the ASM workshop, informal discussions regarding agriculturaldiversification were held with MIPA, MDC, private farmers, potential investors, and leadingprivate agribusiness groups. These discussions reaffirmed the need to organize and supportprivate sector leadership and to clarify and establish an interim organizational framework (i.e.such as a reconstituted Agricultural Diversification Steering Committee) which could be used tointegrate private and public interest to guide the development of an agricultural diversificationprogram. The constraints that will need to be addressed by this group, with donor support include:market intelligence and the demand for potential diversification crops; market development andaccess (transportation); production technology (including post harvest handling and processing ofsome crops), policy framework (including current policy constraints and potential diversificationincentive programs); institutional framework to promote and lead a broad based diversificationprogram; investment environment and financial mechanism to support often high risk ventures;and infrastructure requirements needed to support a diverse long term agriculture diversificationdevelopment effort.

114. It is recommended that Government, in close collaboration with private agricultural sectorleaders, reconstitute the Agricultural Diversification Committee to be comprised of members fromthe private and public sectors to guide and support a program development effort. The SteeringCommittee would be charged with directing donor supported program identification and designefforts. There is also a need for Government to clarify the specific roles of organizations whichare already reviewing agricultural diversification strategies, including the Crop DiversificationCommittee and MIPA, Association of Horticultural Exporters, and possibly others. In principle,there should be a role for these groups, but there is a need to provide an overall institutionalframework for providing the leadership in the preparation of a national agricultural diversificationprogram. The above proposed Steering Committee could facilitate the evolution of this neededframework. This program would provide the framework for private sector led diversification,facilitated by Government, and financed partly by interested donors.

115. It should be noted that the World Bank has mobilized substantial Japanese grant funds toassist Malawi in the preparation of a national agricultural diversification program. We await theGovernment's indication of the next steps. The mission is pleased that, Government, under theleadership of the newly appointed PS of MOA and Chief Planning Officer, are taking steps toreconstitute the Agricultural Diversification Committee, and have organized an agriculturaldiversification workshop on April 7 and 8, 1994 to launch the preparation process of a nationalagricultural diversification strategy/program.

JOINT GOM/BANK AGRICULTURAL REVIEW MISSION(Novmeber/December 1993)

ANNEXES

Annex 1: Proceedings from Consortium Group Meeting(Summary of Presentation/Discussion on Agricultural Sector)

Annex 2: ASP: Updated Action Plans (from ASP Launch Workshop)

Annex 3: Discussion Note on Smallholder Credit Recovery: Crisis or Transition

Annex 1International Bank for Reconstruction and Development

FOR OFFICIAL USE ONLYMW 94-1

FROM: Vice President and Secretay February 17, 1994

CONSULTATIVE GROUP FOR MALAWIParis. December 20-21. 1993

Chairman's Report of Proceedings

Attached is the Chairman's Report of Proceedings of the Meeting of the Consultative Groupfor Malawi held in Paris, December 20-21, 1993.

Distribution For Information

Executive Directors for:

Australia Japan European OfficeAustria Malawi Tokyo OfficeBelgium The Netherlands Resident Representative, MalawiCanada NorwayDenmark SwedenFinland SwitzerlandFrance United KingdomGermany United StatesItaly

African Development BankCommission of the European CommunitiesDevelopment Assistance Committee, OECDEuropean Investment BankInternational Finance CorporationInternational Fund for Agricultural DevelopmentInternational Monetary FundNordic Development FundNordic Investment BankUnited Nations Development ProgrammeUnited Nations High Commissioner for Refugees, UNHCRWorld Food Programme

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents fnay not otherwise be disclosed without World Bank authorization.

-5-

17. Several donors pointed out a few major development policy issues that need tobe addressed without delay. They focused on continuing stagnation of the industrial sectorand the need to create a more conducive environment to attract private sector investment,reduce discrimination and other barriers to new investment and engage in regional cooperationunder the cross-border -initiative framework. Some donors also underlined the need to achievefull repayment of fertilizer credit by farmers' clubs as it affected the viability of the entireagricultural credit system in the country. In response the Government delegation assured thedonors that the poverty alleviation was given high priority. The Government also underlinedits commitment to pursue the full recovery of agricultural credits and to introduce additionalmeasures in order to provide new incentives for the development of the private sector.

18. Another area in which some donors raised their concern was the lack ofprogress in economic diversification. It was mentioned that over the past decade an oppositetrend had been recorded - the share of tobacco in total export earnings was increased fromabout 45% to over 66%. The need for developing strong competition in the economy wasemphasized as a prerequisite to develop comparative advantages in the regional andinternational trade.

19. Donors also conveyed their appreciation to the Government for its hospitalityextended to the refugees from Mozambique. It was agreed that the assistance to the refugeesshould continue and called for an action plan on rehabilitating the infrastructure in therefugee-impacted areas.

Special Session on Agricultural Strategy Options

20. The Special Session was devoted to "Agricultural Strategy Options in the1990s". Mr. Anson from the World Bank made an opening presentation (Annex XIV). Hispresentation focused on three topics: a brief overview of Malawi's agricultural performanceand remaining constraints to faster and sustained agricultural growth and poverty reduction;identification of an agricultural strategy framework and strategy options involving five priorityareas; and possible areas for increased donor assistance. He indicated that Malawi'sagricultural sector was performing below its potential primarily due to deficient policies,inappropriate institutional arrangements and inadequate investment panerns and levels,especially by the private sector. To achieve faster and more broad-based growth andreduction of pervasive poverty, a multi-dimensional and comprehensive strategy is requiredaimed at increasing the productivity of Malawi's agricultural land and labor resources andexpanding income and employment earning opportunities in an environmentally sustainablemanner. Such a strategy should focus on formulating and implementing priority policy,institutional and investment strategies/reforms which should build on and expand the recentinitiatives and reforms involving development and farmer adoption of maize hybrid seedvarieties and opening-up of smallholder burley production. The strategy should be two-pronged: in the short and medium terms, increasing the efficient utilization of existingresources and technologies; and in the long term, pushing out the production possibilityfrontier.

21. Mr. Anson indicated that in the short-term, the priority should be given tofive key strategy areas:

-6-

(a) further liberalizing produce pricing and marketing policies to increase theefficiency of agricultural land use and profitability of production of food andespecially cash crops;

(b) reforming the burley tobacco quota allocation system to increase equity,efficiency and smallholder incomes;

(c) expanding fertilizer supply and demand to accelerate and sustain increasedcrop yields;

(d) expanding and sustaining rural financial services (including the need to restorethe joint liability principle) to support intensification and diversification;

(e) accelerating private sector-led agricultural diversification to reduce dependenceto tobacco and to expand income and employment opportunities: options onpotential, strategies, public/private sector roles, and types of support required.

He concluded that three priority areas for increased donor assistance to support theimplementation of the preferred options would include: expanded fertilizer imports on grantbasis; multi-donor support for agricultural/natural resource public expenditures based on aprogram/sector approach and well designed targeted interventions to address needs of resourcepoor rural population.

22. Several donors raised a number of issues such as the appropriateness ofpromoting smallholder burley production, the justification of considering an option ofextending the current timetable of the fertilizer subsidy and options for improved targeting tothe resource poor smallholders, the importance of accelerating agricultural. diversification andactions in the interim period between relying on tobacco exports and exports of non-traditionalcommodities, the role of agricultural and non-agricultural sectors in promoting growth andpoverty reduction and balancing agricultural growth and environmental concerns to ensuresustainable development.

23. The discussion focused primarily on the role and impact of smallholder burleyproduction and on the scope and strategies for promoting agricultural diversification, andGovernment views on these two central issues. One donor expressed concerns regardingexpanding smallholder burley tobacco production. In response, the Bank staff indicated thatthe total volume of burley production is not expected to rise and that its share in GDP andexports will actually decline over the years due to other activities to be induced undereconomic diversification. As a short-term measure, however, the smallholder burley programis designed to alleviate poverty, through ensuring greater access to the country's mostlucrative cash crop and to world market prices for that crop. Increased incomes are thusmade available to purchase fertilizer and hybrid maize seed, which promotes food security andfrees up both land and labor for diversification. There was strong consensus on the need tourgently accelerate Malawi's agricultural diversification as a means of reducing Malawi'sdependency on tobacco in the light of declining world demand, but it was less clear how thiswould be achieved in a short period of time. This discussion highlights the need for Malawito develop and implement a coherent strategy, based on a forthcoming agriculturaldiversification program which is expected to be prepared by Government, with active privatesector and donor collaboration.

-7-

24. The Government representative acknowledged that the choices between theeconomics and health implications of tobacco production were incredibly difficult and pointedout, that, so far, no alternative agricultural crops could compete with tobacco. He indicated,however, that Malawi was placing high priority to accelerating agricultural diversification theneeds to link to diversification in other sectors which rely on local raw materials, and thatinvestment resources were needed to make concrete progress. That would lead to a decreaseddependency on the tobacco share in the economy.

25. It was agreed that there would be a need for follow-up analysis in Malawi onstrategy options involving the future role and structure of Malawi's tobacco subsector andactions required to promote realistic prospects for accelerating agricultural diversification. Itwas generally agreed that, under the leadership of the Ministry of Agriculture a nationalagricultural strategy workshop would be organized later in 1994 which would aim toconsolidate the priority strategies and supporting actions arising from various recent studies.

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PROCUREMENT

ACTIVIT INDICAT TIME IMPLEME INPUTS BUDGET RISKS/AY OR/SPEC FRAME NTER/RE SSUMPTI

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GROUP V

POLICY ANALYSIS TRAINING

DIJECTIVE: TRAINING CAPABILITIES IN POLICY tMAtY1SS 11iAIIci O Al eujoA

ASSUMPIION: ADEQUATE STAFF CAPACITY 11111 Al SuNs

ACTIVITIES INDICATOR SPECIFICATIONS TIME FRAME IMPLEMENTOR RESPONSIBILITY INPUTS BUDGET. IIIII/ASUMPlIONS

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-ith MA

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slgia training ISc candidates Is candidates start training January, I Haio of Rural Div. Dept. Candidates nominated an(under ASP) lianda College) released by MOA

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Steering committa meetings Minutes of the meetings February 9gg4 1 1st mesting) Principal lundo College

13 A Year) (for ist meeting)

Advertise the programs in the Applications for the program January gIS%1 Capacity availabilityregion (Southern and Easters fron the region resources at guaie CalAfrical

GROUP V


GIJECIIVE: TRAINING CAPAUILlIEI in POLICY ANALYSIS ESTAILISNED AT BUNDA

ASSUMPTION: ADEQUATE STAFF CAPACITY EI1 AT IUNDA

ACTIVITIES INDICATOR SPECIFICATIONS TIME FRAME IMPLEMEINION NESPOIlIILIfY INPUTS AUDGE! RISKS/ASSUMPTIONS

------ --- -- --- ------- ------ ----- ---- ---- -- ------ -- ---- --

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btmaiae MA - HA and lundo by Chief Planing Officer for by Government by Govt.

led ims College 31st January, 114 follui-up (Atloney Seasril)

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Needs assessent study for Study report Needs essasment study Program Manager

policy ealysis traiing completed by April, 114to be carried out

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94 _-

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immediately

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OBJECTIVES: . M&E SYSTEM FOR ASP STRENGTHENED CMEU COORDINATES ALLM&E ACTIVITIES

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(CMEU) -

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GROUP 7 ASP-SSI

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4 (P8),2 (PO)

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for 6 ADDs transport

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I force staff

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lity andofmaterialS

Topograph Maps Dec. CIO/PMs Surveyical 94 equipmensurveys t

Establish Computer Dec CIO Officerment of diskettes '94 equipmenGeophysic & printers tal data Suppliesbase

ResourceEqument -

Detailed Drawings July CIO Drawingdesigns 95 officeof SSI equipmenschemes t

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Implement 4 Lumpsome Mar IO/CTOaion of masters '95training Irrigationprogramme ext. staff

farmers

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officerfor eachADD

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ss

t

SSIprogame

Annex 3

DRAFT DISCUSSIoN VOTDecember 7, 1993

Current Agricultural Crop Season: Crisis or Transition?

I. BACEGROUb

1. Given the current uncertainties surrounding the upcoming agricultural season,there appears to be a debate as to whether this uncertainty is the beginning of alooming crisis in food security or merely part of a transitional period which willwork itself out over the course of the upcoming crop season. This discussion notehighlights 4 main points surrounding this uncertainty:

• agricultural performance in 1992/93, especially with regards tomaize, Malawi's vital staple food;

• credit default issues and implications for food security;• estimate of Malawi maize availability over the next two seasons

(up to about May 1995) and implications; andmaize strategy options and food security implications whichcould be considered by Malawian decision-makers.

Acricultural Production in 1992/93

2. Malawi's smallholder subsector experienced a record harvest in 1992/93.Estimated maize production exceeded 2 million metric tons (MT), in addition to anunknown amount from the estate subsector. The high level of production fromsmallholders is due to several factors. First, 1992/93 experienced a uniformly goodrainy season across the whole country with favorable growing conditions for maize.Second, there was high adoption of hybrid maize and fertilizer by smallholders.Smallholders planted about 7,000 MT of hybrid seed which accounted for 280,000hectares of the area planted to maize (or about 25% of total maize area insmallholder subsector) and contributed about 1 million MT of maize (or about 50% ofthe total maize production). The increase in maize production was also caused byfarmers' heightened food security concerns in a year that was immediately followedby the worst drought in the past 50 years. The increased availability of creditthrough SACA (about MK 145 million, or an increase of about % over the previousyears), coupled with rescheduling of credit, also enabled a significant proportionof smallholders to obtain a significant increase in the level of purchased inputs,notably hybrid maize and fertilizer (or an increased of % and %, respectively,over the previous year consumption). Smallholder credit financed about 60% of allthe inputs used by smallholders. There was also free distribution of seeds.

3. The smallholder subsector also produced a good. crop of burley tobacco whichfetched above average prices at the auction floors and contributed to increasedrural agricultural incomes. Total rural earnings from maize and burley tobaccoamounted to MK million in 1992/93, of which CK was from maize. This compares tototal earnings from maize and burley tobacco, of MK million and MK million in

1991/92 and 1990/91, respectively. The main point is that in 1992/93 smallholdershave experienced significant increases in real incomes over levels of the previous2-3 years, which was made possible by the increased adoption of the maize flinthybrid and increased smallholder access to growing the lucrative burley tobacco.

1-

credit Recovery Issue and Implications

4. The smallholder credit club repayment of loans to SACA for inputs used in1992/93 is only about 13% (as of mid-November, 1993), involving only 5% of thecredit clubs (Table 1 provides further details). This is the lowest recovery levelin Malawi's history, and does not reflect the impressive performance of thesubsector over the Vast 1 year in terms of farmers' ability to repay. Such a highlevel of default is a cause for concern regarding the prospects for smallholdermaize production in the 1993/94 agricultural season, as most smallholders will notbe able to get access to formal credit. This concern is further exacerbated by thelow rate of cash sales and uptake of hybrid maize seed and fertilizer, in theabsence of credit. Cash sales have declined significantly from the levels achievedin recent years. The unprecedented high rate of credit default also raises concernon the continuation and sustainability of smallholder credit operations in Malawi.If the smallholder credit system which is based on the principle of group jointliability, including the policy of 100% credit recovery, is not restored, this mayundermine the credit revolving fund and the entire smallholder credit system andrecovery ethic in the long term. Allocating credit on an individual basis andrequiring traditional collateral will be too costly, unsustainable, and reach only asmall portion of smallholders. This would then undermine the smallholderintensification strategy which is the core of Malawi's agricultural strategy.

5. The collapse in credit repayment performance has been attributed to severalcauses over the 3 past crop seasons. It is commonly reported that farmers were madeto believe that the inputs that were loaned were meant to be drought relief grants.In May 1991, following a record harvest, it is reported that some political leaders,in anticipation of the upcoming elections, made some public statements that the 100%credit recovery rule would not be followed. This appears to be the beginning of the"crack" in Malawi's successful smallholder credit system. The drought of 1992/93resulted in across-the-board debt rescheduling (spread over a 3 year period), evenfor smallholders who were not affected by the drought. Then, prior to thereferendum in June 1993 it is confirmed that leaders of most political parties madea number of statements which led many smallholders to believe that the Governmentwould not reinforce the 100% credit recovery policy, and that many of the loanswould be "forgotten" or rescheduled.

6. In response to the above credit crisis, MOA is proposing to expel-andprosecute all smallholders who have not repaid their credit and to reconstitute new(to be confirmed) credit clubs comprised of smallholders who have repaid (only about13% of the previous club members). )Mo apparently believes that it will be possibleto reconstitute the new credit groups over the next 10 days, which needs to be re-examined in terms of feasibility and practical implications on the principle ofjoint liability. Moreover, if all defaulting smallholders were to be prosecuted,this would involve nearly 400,000 smallholders. This is well above the total numberof persons prosecuted by Malawi's court system since Independencel One of theunderlying reasons for re-establishing new credit clubs as proposed is the view thatsmallholders repaying should not be penalized by those not repaying, and theassumption that smallholders in the current credit clubs do not support the jointliability concept, and hence there is a need to re-build this concept.

7. Informal discussions with smallholders and persons familiar with smallholderviews suggest that this latter assumption needs to be carefully re-examined,particularly regarding the medium and long implications of the impact on the jointliability principle.

2

8. The implication is that many smallholders will probably not be able to obtainthe needed cash inputs of hybrid seed and fertilizer to sustain previous productionlevels, or possibly help ensure. household food security over the next 1 1/2 yeas(until the harvest of 1994/95). Before such a concern is established, it Will beuseful to assess the availability of maize over the next 1 1/2 years.

Indicative Estimate Of Maize Availability and Imolications

9. There is no reliable estimate of the current maize availability. One set ofestimates suggest that: (a) there are currently about 2.1 million MTs available (tobe confirmed by MOA/EPGD), and that by next crop harvest (but excluding the nextmaize crop) there could be about 330,000 XTs available (this figure also to beconfirmed); (b) the 1993/94 crop season could generate a total maize production ofabout 1.5 XT (assuming "normal" weather, and a mixture of local and hybrid maizeresulting from the likely allocation of credit by SACA).1/ Based on the aboveestimates and underlying assumptions, this situation suggests that Malawi appears tohave sufficient maize to meet the national food requirements until the harvest inabout Kay-July, 1995, subject to "normal" weathe conditions. This judgement isconfirmed by the recent analysis carried out by EP&D' Food Security Unit. However,if "bad" weather materializes during the next two crop season, the maizeavailability situation could require some maize imports, although it is impossibleto predict the amount which may be needed at this time. Recently, there werereports that "EL Nino weather patterns could result in unfavorable weather thisupcoming crop season in Malawi.

III. PC OPTIM S AD IMPLICATIONS

10. -The above assessment of the current agricultural season suggests three mainoptions in terms of course of action to address alawi's food security requirments,the country's most important policy objectives. Below, each of these options andimplications is assessed for consideration by Malawian decision-makers.

Ontion 1: MOA Proposal of Reconstitutino New Credit Clubs

11. M4A proposes to reconstitute new credit clubs, comprised mainly ofsmallholders who have repaid (only about 13% of total debt), and to expel defaultingmembers and take them to court. As indicated above, it is uncertain that there istime to form these groups before the upcoming planting season (possibly within thenext 10 days) and that there is the capacity to prosecute the immense numbers of

1/ This estimate is based on the following assumptions: hybrid seedsales of about 4,000 XTs (due to limited credit and cash availability),implying hybrid maize area of about 160,000 ha. and a total productionof about 400,000 MT (for an average of 2.5 MT/ha); a balance of about1,075 X ha. under local maize, with an average yield of about 1,000kgs./ha, totalling about 1.1 million KT. The combined total would beabout 1.5 million MTs. EP&D has prepared more detailed estimates ofmaize production projections for the 1993/94 crop season based onseveral assumptions on the possible impact of lack of credit for hybridmaize and fertilizer. One of the scenarios is consistent with the aboveestimate. In all scenarios, EP&D preliminary estimates suggest adequatemaize over the next 1.5 years.

3

defaulting members. Moreover, in the meantime, all other Smallolders will not be.&igible to join a new credit club to obtain fresh credit, unless they repay.

12. Abol ShinG the existing credit clubs coul- have the risk of conveying adangerous signal to smallholders that will permanently damage the jointly liabilityprinciple, the key to Kalawi'as successful and modal smallholder credit system.

s1I1lhnlders need to know that Government is fully committed to enforcing the 100%recovery rule and in main-aining the joint liability principle, and that it is notgiving in for a third year in terms of relaxing the credit recovery rule. Even ifGCK were to implemnt XOA's proposal, only a small portion of smallholders would beeligible for credit, and hence, this will have a small impact on maize production inthe 193/94 crop season. This will have a negligible impact in addressing the foodsecurity requirments, and probably result in substantial imports as suggested inpara. 10, unless appropriate mitigating measures are taken.

Option 2: Maintain the 100% Recovery Rule and Do Nothina/Monitor

13. This option is to retain the existing credit clubs, enforce the 100% recoveryrule, and monitor the food production situation. The underlying assumption is thatthere is sufficient maize in the country, together with a modest harvest in 1993/94season (of about 1.5 MT, which is below the anticipated production level due to thecredit/input usage situation) to provide enough maize through 1994/95 (or until theharvest in Kay, 1995).

14. This option has the merit of protecting the integrity of the joint liabilitysystem and of not taking premature initiatives (such as a supplemental priceincrease, which could lead to excessive stocks or losses to farmers if bad weatherwere to materialize. Nonetheless, even if there is adequate maize at the aggregatelevel, the significant drop in maize production this coming season, mainly bycoImercial smallholders who produce surpluses, would result in a substantialdecrease in the amount of maize available in local markets. This would have severaladverse implications in terms of growth and poverty reduction and food security:

• the smallholder subsector will likely experience a negative growth rate (of upto a negative 5-10%), resulting in a negligible or even negative economic growthratel 26/

there will be less maize available and hence higher prices in local markets,resulting in further impoverishment of smallholders who have to buy maize for atleast 4 months of the year; and• less cash in the rural economy, and hence fewer employment and income earningopportunities for the resource poor who rely on these supplemental sources of incometo meet their bare subsistence needs.

Ootion 3: Maintain the 100% Recovery Rule, Promote AD2roriate TargetedInterventions and Donor Food Security "Insurance"

15. Given the scenario outlined under option 2, to help mitigate the adverseeffects of the current situation, two actions are proposed for consideration byGovernment:

21 This negative growth rate is based on estimates made by the recentBank-IMF macroeconomic mission.

4

r

- (a) request dno assurance (in principle) that it will provide food import

assistance if Government's implements appropriate and timely actions to restore the

100% credit recovery rule, and if maime shortfalls arise due to the implementationof this policy; this action includes assurance that Government will not distributefree fertilizer and/or food and that it will not reschedule the debts of creditdefaulters;(b) KO& to intensify its extension messages and advise to assist smallholders inimproving grain storage methods to minimize the on-farm storage losses (which couldbe as high as 25%, 'if appropriate methods are not used); and(c) formulate improved targetted intervention strategies and to design and beginimplementation of improved expanded intervention programs to assist the resourcepoor arising from the negative growth in the agricultural subsector. affecting of f-farm employment opportunities (e.g., food-for-work, fertilizer-for-work, etc) and

Conclusion and Recomendation

17. Based on the above assessment, it is recommended that Government consider thefollowing possible actions which are consistent with option 3:

the current agricultural season appears to provide enough maize at theaggregate level over the next two years, but the situation needs to be closelymonitored to account for possible "bad weather" and for a delay in the resolution ofthe smallholder credit system. Given the signficant drop in production, especiallyby the commercial smallholders, this in likely to reduce employment opportunitiesfor the resource poor. There may be a need for Government, with donor assistance,to consider appropriate forms of assistance in targetted interventions (e.g-., food-for-work, fertilizer-for-work) to help mitigate the adverse impact on the resourcepoor.

• Government may wish to re-assess its approach to restoring the smallholdercredit clubs by taking into account the practical implications of MCA's currentproposal to reconstitute credit clubs. The delay in implementing this proposal, andthe likely negligible impact this crop season suggests there is a need now toreassess this strategy; and• Government may wish to approach donors and request their assurance (inprinciple) to assist in providing maize imports in the event maize shortages arisedue to the Government's firm actions to restore the 100% recovery rule and integrityof the joint group liability principle (e.g., not distributing any free food orinputs, and trying to restore the creditworthiness of smallholder credit clubswithout rescheduling debts of defaulters). Government could raise this point at theConsortium Group meeting in Paris.

Finally, it is hoped that this note can help stimulate further discussion withinGovernment of the various options and the most appropriate course of action to take.

5

ATTACHMENT 1 v

The World Bank 1818 H Street. N.W. (202) 477-1234INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRADINTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS

March 31, 1994

Mr. J. L. KalemeraSecretary of AgricultureMinistry of AgricultureLilongwe

Dear Mr. Kalemera:

Re- Joint GOM/Bank Agricultural Review MissionFinal Aide Memoire

Enclosed for your review and appropriate action is a copy of the final Aide Memoire involvingthe GOM/World Bank agricultural review mission held during the period November 22-December 18,1993. On behalf of R. Anson (team leader) and the rest of the World Bank team, I would like to thankyour senior Managers and other staff in MOA, Mr. Kavinya and Magalasi from Treasury, Mr.Chinkwanga and other staff from the Reserve Bank for the collaboration extended to the mission inhelping to accomplish the mission's objectives. As you know, the mission took place before you wereappointed the Secretary of Agriculture, and therefore, you may find the Aide Memoire as usefulbackground information involving a major part of World Bank assisted program in the agriculture sector.


• Discussion of the draft Agricultural Sector Memo;• Mid-Term Review of the Agricultural Marketing and Estate Development

Project;• Launch mission of the Agricultural Services Project;• Smallholder Credit Recovery Issue and Next Steps;• Informal discussions of the proposed Agricultural Diversification Project.

I concur with the mission's findings and recommendations/agreements reached as outlined in theattached Aide Memoire. The draft version of the Aide Memoire (dated December 16) provided the basisfor the wrap-up meeting held on December, 17, 1993, under the chairmanship of Mr Magalasi, SeniorDeputy Secretary of the Ministry of Finance, and for follow-up actions. Since the wrap-up meetingreviewed and confirmed nearly all of the recommendations, subject to some clarifications, this AideMemoire reflects these points, provides some additional clarifications and also updates related recentdevelopments. In this letter, I would like to highlight some of the more importantrecommendations/agreements reached which involve policy or senior management guidance and/ordecisions; your leadership in addressing these points will make a substantial difference in getting resultson the ground. From our Resident Mission, we understand that you and your staff are already acting onmany of the more important items highlighted below, and have not been awaiting the receipt of this letterto take the needed actions. As you may know, there have been follow-up discussions on the AgriculturalServices Projects with short visits by Mr. Z. Matmor and M. Macklin; we also trust that the pointshighlighted in their letters (of January 19, 1994 and mid-March, 1994, respectively) are being taken into


account. Hence, perhaps this letter can provide a useful checklist to monitor progress made, and to focusattention where further progress is needed. The Aide Memoire provides further details on each of thesepoints (as indicated by the paragraph references), in addition to other items which are primarily underthe direct control of the relevant senior officer(s).

Agricultural Sector Memo: Strategy Options in the 1990s

We commend the MOA, under the leadership of Mr. Gomani, Chief Planning Officer, forconvening and organizing an agricultural strategy workshop on December 3, 1993 to review in detail thedraft ASM (and related studies involving the key topics reviewed). The MOA has issued the proceedingsof the workshop, and the ASM has been revised to reflect the extremely useful comments andsuggestions. We proposed to discuss with Government the revised ASM sometime in late June/early July,1994, which would provide the basis for finalizing the ASM. We hope this date is convenient, and wewill confirm at a later date. It was agreed that Government would:

(a) arrange the commissioning of two key policy studies in early 1994 which would work out ingreater depth the policy options to enable Government decisions on further reforming the tobaccomarketing system and fertilizer policies with the aim of ensuring greater efficiency and competition. Weare pleased to learn that these two studies are currently underway, under the direction of Malawian-drivenSteering Committees (i.e., EP&D chairing the fertilizer study, and MOA chairing the Tobacco ReformStudy, both with USAID consultancy assistance). We are glad that the draft reports will be submittedlater in April, 1994, and that Government is committed to reviewing them carefully with the aim oftaking the needed decisions and actions.

(b) arrange an agricultural strategy symposium in mid-1994 as a means of developing consensusamong Government and donors regarding a national agricultural strategy and supporting action/investmentplan, and that over the next few months, MOA's Planning Division will organize working groups toconsolidate the relevant findings and recommendations from several recent sector studies as inputs toformulating a Malawian strategy and action plan (especially involving ASM, ADB-financed MalawiAgricultural Sector Study, EC sector study, USAID-study on the design of the proposed AgriculturalSector Assistance Program (ASAP) II. We understand that the EC has agreed to finance the costs of thissymposium, and we look forward to continued close collaboration with your staff during the preparatoryprocess.

Agricultural Marketing and Estate Development Project: Mid-Term Review Mission

We greatly appreciate and commend the MOA Planning Division and Reserve Bank (Apex Unit)for taking the initiative in preparing an excellent draft mid-term report of AMED which provided thebasis for the joint mid-term review. Below are some of the more important agreed actions which needfollow-up (with further details and other items outlined in the Aide Memoire).

(a) Completion of the Mid-Term Review Report: MOA Planning Division, with the collaborationof the RBM Apex Unit, was to finalize the mid-term report by end-February, 1994 (the Aide Memoireindicated key areas for further elaboration/analysis). We would appreciate your ensuring that we receivethe mid-term report, as it is now overdue. We view the GOM decision-makers and implementors as themain beneficiary of the final report recommendations to ensure that the project's developmental impactis achieved within the next 2.5 years of remaining implementation period.


(b) Marketing and Pricing Policy Reforms (provides policy/incentive environment for overall projectand agricultural sector):

(i) complete and sustain the liberalization of all agricultural produce markets involving the followingkey items: revoking produce marketing regulations of 1987, allowing private trader to participate in alltobacco, cotton, and groundnut markets; further liberalizing tobacco production and marketing quotas;removing export bans on trading of certain crops which could generate substantial benefits to smallholdersand the diversity of the economy/exports, a recommendation from a recent agricultural export studycommissioned by MOA (para. 10);

(ii) effectively implement the Memorandum of Understanding between ADMARC and Treasury, withthe costs of ADMARC's developmental roles being limited to food security and being fully budgeted forand compensated,and ADMARC implementing actions to meet key performance targets (paras. 11 and12);

(c) Capacity in Pricing and Marketing Section: The sustained implementation of the above reformswill require the filling of the vacant posts in MOA's Pricing and Marketing Section (with priority on thePrincipal Economist and at least 2 economist). We would appreciate your liaising with Mr. Nthenda, PSof EP&D, to expedite the posting of these key posts (paras. 47 and 48);

(d) Credit Component: while a large proportion of the Project's funds have been disbursed underthis component, there has been limited progress in promoting sending to small estates and to promotingagricultural diversification due to the underlying constraints in these two areas. The Government's recentinitiatives to develop a comprehensive national agricultural diversification strategy/program will providea necessary framework to make further progress, and the further restructuring of this component to utilizethe remaining US$1.8 million equivalent provides an opportunity for this project to make a concretecontribution. These agreed key actions include:

(i) strengthening the RBM Apex Unit to take on a more developmental role in assessing the impactof credit lines and promoting diversification, and periodically reviewing and updating the terms andconditions of various lines of credit, in accordance with promoting greater competition (para. 15);

(ii) finalizing the arrangements to allow the participation of two more financial intermediaries giventheir mandate to assist small estates: INDEFUND and the Malawi Rural Finance Company (MRFC)(paras. 17-21);

(iii) the recently reconstituted Agricultural Diversification Committee to proceed with preparing anational agricultural diversification strategy framework which should outline the supporting policies andinstitutional arrangements (para. 25 (d-g);

(iv) in the event that no further progress is made with disbursements under this subcomponent by theend of FY94/-95, steps should be taken to reallocate funds to other components needing the funds (para.25 (h);

(e) SEDOM and Pilot Credit for Private Traders: SEDOM to repay the RBM the short term loan onthe 13 month following disbursement; RBM to review and update (by end-March, 1994) as appropriatethe terms and conditions of on-lending to SEDOM, consistent with the policy of promoting greatercompetition and consistency among different lines of credit; RBM/SEDOM to arrange for a managementand operation audit of SEDOM activities with a view of improving the sustainability of its operations;


this will be a prerequisite before AMED provides SEDOM with additional credit funds (paras. 28 and29);

(f) Marketing Infrastructure Component: Most of these actions are to be carried out by the Ministryof Local Government, which is implementing this component, and involve assessing further priorityinfrastructural needs, cost-effective procurement arrangements, funding mechanisms for sustaining marketinfrastructure (paras. 38-42);

(g) Export Quality Component: the mid-term report is to include an assessment of the effectivenessof the services provided to exporters and further actions needed to encourage competitive agriculturalexports (para. 46);

(h) Open Market Price Information System: MOA to implement various procedural improvements incollection and dissemination of open market prices, as part of encouraging role of private traders (paras.49-51);

(i) Marketing Extension and Training Services: MOA Pricing and Marketing Section to finalizethe detailed proposals for initiating a sustainable marketing service and continue with the successfultraining activities of private traders which will support produce liberalization (paras. 53-54);

(j) Support to Private Traders' Association: MOA, in liaison with Treasury, to reallocate someproject funds (about Kw 1.0 million) to support a private sector initiative to establish an agriculturaltraders' association, subject to the review of the business plan being prepared by the association (paras.55-56);

(k) Management and Organization: The participating implementing agencies to appoint permanentcontact persons to attend quarterly project review meetings and to follow-up on day-to-day matters toensure continuity; and for the MOA Chief Planning Officer to chair these meetings, with Pricing andMarketing Section to continue to take day-to-day responsibility for ensuring timely and effectiveimplementation (paras. 58-59);

() Financial Management and Accounts: The project's financial management and accountingarrangements continue to be deficient, and require urgent attention. It is requested that MOA's ChiefAccountant, with the assistance of the recently appointed technical assistance expert, address thepoints/suggestions outlined in the Mid-Term Report (paras. 61). There is also a need for projectmanagement to reassess the Credit balances and to determine the needed reallocations to ensure that thepriority activities will be adequately funded. We would appreciate getting MOA's response on thismatter, so that can review the proposed reallocations, if needed;

(m) Project Monitoring: Various actions outlined in the mid-term report involving improved reportingprocedures within MOA and the role of the RBM Apex Unit will significantly enhance the monitoringand assessment of the project's implementation progress and impact. These improvements will enhancethe ability of senior managers of the implementing agencies to intervene where and when necessary(paras. 62-65).

Agricultural Services Project: Launch Mission

We commend your staff for arranging to hold a successful ASP launch workshop on December9 and 10, 1993 which was opened by the Minister of Agriculture, Honorable K. Phiri. We also

Mr. J. L. Kalemera - 5- March 31, 1994

compliment your staff for having arranged and held 3 regional workshops which has also included thelaunching of the IFAD-financed Smallholder Food Security Project, which has been designed as part ofthe ASP framework of supporting national agricultural programs. The main agreed actions include (withfurther details in the Aide Memoire and Workshop Action Plans/Proceedings):

(a) Updated Action Plans: Each participating Department Director will take full responsibility forimplementing the component action plans which were reviewed, updated and agreed at the workshops(para. 66 and Annex 2);

(b) Budgetary Allocations: MOA, Treasury and DREA to ensure that the needed budgetaryallocations in the remainder of 1993/94 and in 1994/95 be-provided on a timely basis to the implementingdepartments (and that ASP funds are allocated separately to the Agricultural Sciences Committee throughDREA). In this regards, there is an urgent need for MOA Chief Accountant to issue clear operationalguidelines to be followed in the process of fund allocation and use, submission of expenditure by ADDs,and the timely reimbursement of the newly established ASP special account (para. 66);

(c) Project Completion Reports and Lessons Learned: MOA to complete Part II (ref. Borrowerassessment of Project) of the Project Completion Report (PCR) of the recently closed credits (AgriculturalExtension and Planning Support Project and the National Agricultural Research Project (NARP)). Thetwo draft PCRs prepared by FAO/CP were provided to the CAETO, CARO and Chief Planning Officers.Given that ASP builds on these projects, we believe this is a good opportunity for MOA and the Bankto derive and apply the lessons learned to the implementation of the ASP, (paras. 68-74 highlights someof the more important ones). We would appreciate getting Government's Part H by mid-April, 1994, asthe report submission to the World Bank's independent evaluation unit is already overdue.

(d) Research and Extension Components: The core of ASP involves support of improving a menu oftechnologies to a broader range of smallholders, especially resource poor. A top priority area which ASPis designed to support is the development and dissimination of site-specific fertilizer recommendations.The on-going Fertilizer Policy Study is highlighting the urgency of strengthening the research andextension systems to fulfill this top priority. We would appreciate your active support of this criticalaction. We are very pleased on how the Agricultural Sciences Committee has been functioning over thepast few months in helping to coordinate more effectively research efforts. The continued closecollaboration between MOA's Department of Research and ASC will combine to yields improvedefficiences in Malawi's research system, and your support here is also important. There is also a needfor Treasury/MOA to ensure effective implementation of the newly established motorcycle ownershipscheme for extension staff, especially the need to revise the mileage allowance to a more realistic level(para. 70 (c)).

(e) Staffing: One of the key issues arising from the various workshop refers to the urgent need forMOA to fill key staffing posts, which, if not filled, will seriously jeopardize the effective and timelyimplementation of the project. We appreciate the fiscal constraints facing the country, but virtually allof the posts are sanctioned, and therefore, the matter is largely within the control of your Ministry (withliaising with public service commission in accordance with standard procedures). Given that the singlelargest non-salary expense of MOA involves transportation, we would urge you to appoint a senior officerto manage the improved transport system to be supported under ASP, and to appoint the transport advisorwhich should have already been posted in January, 1994. To ensure that the staffing priorities areaddressed, it was agreed that MOA would draw up (say, by end-February, 1993) and implement an actionplan for filling the priority posts in MOA. The Institutional Development Project (IDF) is providingfunds (grant) to enable MOA to review and improve its organizational arrangements and staffing roles

Mr. J.-L. Kalemera - 6 - March 31, 1994

to ensure more effective services to smallholders. We trust that MOA is making good progress indeveloping and implementing these action plans (paras. 100-101).

(f) Inputs Comonent: The ASP workshop and subsequent studies currently underway highlight theimportance of Government taking a number of important actions and decisions to further liberalize theseeds and fertilizer subsectors. Under ASP, it supported Government's preparation and approval of aseeds and fertilizer policy papers in May, 1993. Given the policy nature of the further improvementsto these two policy frameworks, we would appreciate your support and guidance. Some of the keypolicies include: remove all seed subsidies by the end of March, 1994; completion of the FertilizerPolicy study and the Fertilizer, Farm Feeds Act to be consistent with a more competitive fertilizerimports and retailing; streamline the stringent procedures of the crop variety release system, which isimpeding private sector development of new, improved seeds.Implementation of the improved policies (as outlined in the Aide Memoire, paras 77-87) will contributeto increased supplies and adoption of improved technologies by smallholders to help ensure householdfood security.

(g) Procurement Reform Study Under ASP, it was agreed that Government would support measuresto reform the procurement system throughout all Ministries. The Ministry of Finance is taking the leadin implementing this component. We would appreciate your liaising with Mr. Kavinya to expedite thefinal selection of the technical assistance to assist in the implementation of this component, which willalso benefit directly MOA (para. 103);

(h) Project Management By design it was agreed that ASP will be implemented by the participatingDepartments, within the existing organizational structure (rather than creating a separate implementationunit). We are pleased that you attach importance to the effective functioning of the Agricultural SectorCoordinating Committee, comprised of MOA senior Management, and under your chairmanship, to helpcoordinate and guide ASP activities which support MOA's national programs in research, extension,livestock, input supply, policy analysis, financial management. Given the multiple components underASP, it was agreed that MOA would recruit a project facilitator by end-February, 1994 to provide in-house support on critical areas of project implementation. We hope that you can help expedite theselection of the most suitable candidate, as we understand that the selection process is at an advancedstage (para. 104).

(i) Donor Coordination and Participation

ASP was designed to ensure that it supports Government's national programs and provides aframework for Government to ensure adequate donor coordination and assistance. Since the UNDP FifthCountry Program was developed in parallel with ASP, various issues have arisen which underscore theurgency of MOA liaising with UNDP to ensure that its program is adequately integrated within MOA'snational programs, and that the detailed implementation and funding arrangements of UNDP and itsinterface with ASP be worked out. The limited non-salary operating funds make this integrationimperative. While there was noticeable progress in agreeing with MOA and UNDP on the broadprinciples of ensuring consistency and harmony between the UNDP program and the ASP nationalprograms, we trust that the previous problems at the field level are now fully resolved. Our ResidentMission staff are available to participate in this facilitating this process, under the leadership ofGovernment/MOA (para. 106).

r iu

Mr. J. L. Kalemera - 7- March 31, 1994

With the resumption of donor assistance to Malawi from Germany, we understand that itproposes to participate in the funding of ASP activities. In principle, IDA funds can be readjusted toaccommodate German participation in the ASP framework (para. 107).

We are pleased that the African Development Bank and IFAD have responded to Government'sdesire for donors to donors to work within national programs as being supported by ASP. To facilitatedonor coordination, we intend to ensure that the various review missions are coordinated with theparticipating donors to minimize the burden on Government and to ensure effective and focused assistanceand simple procedural requirements. Whenever possible, we will endeavor to have joint review missionswith Government and the donors concerned. Please know that we fully support MOA's leadership rolein improving donor coordination.


During the mission some of the mission members devoted time to reviewing with MOA thefactqrs underling the low credit recoveries, which lead to low input usage, and contributed to a forecastedlow crop harvest this crop season. Annex 3 provides a discussion note outlining options forGovernment's consideration in trying to restore the success of Malawi's smallholder credit system andto help minimize the possible adverse effects of low input usage and decline in agricultural production.The mission assisted in the finalization of the terms of reference for the credit repayment study whichMOA commissioned to the Center for Social Research (CSR). We are glad that the CSR has preparedthe report which is currently under active discussion. As you know, currently there is a Bank ruralfinance mission visiting Malawi with the aim of assisting Government/Malawi Rural Finance Company(MRFC) develop an action plan which will restore credit discipline, and enable the effectiveness of theIDA-financed Rural Financial Services Project. We appreciate the support and leadership that you areproviding to help create the needed policy environment to restore credit discipline, which is critical toenable sustainable availability of finance and the expanded adoption of improved technologies.


In April/May, 1993 there was a joint MOA/IDA reconnaissance mission to help identify theprospects for and constraints to agricultural diversification and strategy options. During the presentmission, there were limited follow-up discussions, mainly because IDA was awaiting a clear indicationfrom Government on the next steps. Most of the discussions in the mission were held with the privatesector. It is clear that the drop in tobacco prices, and growing uncertainty in the world market, arecontributed to increased private sector/estate interest in diversifying away from tobacco. We are pleasedthat, under your leadership, the Agricultural Diversification Committee is being reconstituted to involvemore actively the private sector, and that MOA is taking the initiative in convening an AgriculturalDiversification Workshop on April 6 and 7, 1994. We are pleased to finance the costs of the workshopfrom the Japanese Grant funds available to help prepare a national agricultural diversificationstrategy/program. We understand that the workshop will aim to develop a framework for outlining thenext steps, and we stand ready to assist.

Notwithstanding the proposed project, we also wish to explore actively with your staff ways ofensuring that on-going IDA-financed projects can also support agricultural diversification initiatives (e.g.,Agricultural Marketing and Estate Development Project, Agricultural Services Project, Rural FinancialServices Project). The proposed project design and implementation could build on these initiatives and


help generate a more rapid diversification response. As indicated above, some of the restructuring of theAMED Project is exploring some initiatives which could be supported in the short term.

Finally, we would like to thank you and your staff for the steps being taken to implement theabove activities which support your programs. To facilitate our on-going assistance, we would appreciateyour informing us on the status of the recommended/agreed actions outlined above. We look forwardto continued close collaboration, especially through our Resident Mission colleagues.

With kind regards,

1Sincerely,

aim HelmanChief, Agriculture and Environment Operations


Attachment

cc:

Mr. Roy KavinyaSecretary to the TreasuryMinistry of Finance

Dr. JHA MaidaSecretary for Forestry and Natural ResourcesMinistry of Forestry and Natural ResourcesLilongwe

Mr. C. NthendaSecretary for EP&DOffice of the President and Cabinet

Mr. KambauwaSecretary for DREAOffice of the President and Cabinet

Deputy SecretaryMOA

Mr. A. GomaniChief Planning OfficerMOA


Mr. ChiteyeyeDeputy SecretaryTreasury

Mr. MhangoCASMOA

Dr. MsiskaCASMOA

Mr. KabuyeCAETOMOA

Mr. HassanChief AccountantMOA

Dr. T. MunthaliCAROMOA

Deputy CAROMOA

Mr. MphandeChief Irrigation OfficerMOA

Mr. SibandeTreasury

Dr. MateyuDAHIMOA

Mr. M. MughoghoDCPO, MOA

Dr. ChizondaDAHIMOA

Mr. ChavulaCAETO


Dr. ChilembweHead, Agricultural Sciences CommitteeDREA

Mr. MtokomaASCDREA

Mr. MphepoPM Blantyre

Mr. YiwombePM Kasungu

Mr. MuyayaPM Lilongwe

Mr. KanyendaPM Mzuzu

Mr. KaundaPM Karonga

Mr. MunyenyembePM Ngabu

Mr. ChingambaPM Salima

Mr. ChimphondaDCAETOMOA

Mr. MurothoGM of SACAMOA

Mrs. M. NyrendaPrincipal EconomistEP&D

Mr. SawerengeraEP&D

Mr. MandiwaDepartment of PersonnelMOA


Mr. MphandeSenior EconomistPricing and Marketing SectionMOA

Mr. MadukaDPMT

Mr. F. MwathengereSenior EconomistMOA

Mr. Ian KumwendaSenior EconomistMOA

Mrs. MtamboSenior EconomistMinistry of Trade and Industry

Mr. S. S. JereHead of Procurement UnitMOA

Mr. MatolaSenior EconomistEP&D

Mr. KamwendaMinistry of Local Government

Mr. B. MkombaSenior EconomistMOA

Mr. NirongoEconomistMOA

Mr. WittmanMD, INDEFUNDBlantyre

Mrs. ChiokoSEDOM

Mr. NambaAgro-Ecological SurveyMOA

Mr. J-L. Kalemera - 12 - March 31, 1994

Dr. D. Ng'ong'laHead of Rural Development DepartmentBunda College

Mr. KhungwaPrivate Traders Association

Mr. A. ZulfiqarResident RepresentativeWorld Bank

Mr. SanveeDirector, SARD (Projects)African Development BankAbidjan, Cote Ivoire

Mr. FallDirector, ProgramsAfrican Development BankAbidjan, Cote Ivoire

Mr. MansuriDirector, Africa RegionIFADRome, Italy

Mr. Colin DickersonProject ControllerIFADRome, Italy

Mr. Michael HeynResident Coordinator, UNDP

Ms. Cynthia RozellDirector, USAID

Mr. H. MikkolaResident Representative, FAO

Mr. J. TunnecliffeAgricultural Advisor, EEC

Ms. J. HaleAgricultural Officer, USAID

Mr. Grotecke/Dr. PulvougtGTZ, Frankfurt

r 1. £1


cc (* indicates full report): Messrs/Mmes Martinez (AFRVP); Denning, Edstrom, Tidrick (AF6DR);Patel, Aksoy, Schafer, Ahsan, Fields, and Bruns (AF6CO); Asibey, Bunyasi, Chausse, Christiansen,Fullerton*, McNamara, Jaffee, Larson*, Macklin*, McNamara, Okidegbe* and Scarborough*; Cook andSeibert (AF6IE); Pomerantz, Aikins-Afful, Kedia, Nikoi (AF6IN); Grawe, Mugwagwa, Ribe, Salah,Silveira (AF6PH); Cleaver, Sharma, Donovan, Spurling*, Venkatesan (AFT); Zulfiqar, Pohland, Hiwa*,M'buka*, Rozell* and Sibale* (RML); Pathmananthan and Matmor* (RM in Kenya); AF6AE BlackBook*; and Africa Files*.

ATTACHMENT 2

JOINT GOM/BANK AGRICULTURAL REVIEW MISSION(November/Decenber, 1993)

FINAL AIDE MEMOIRE(March, 1994)

Table of Contents

INTRODUCTION 1

AGRICULTURAL SECTOR MEMO 1

AGRICULTURAL MARKETING AND ESTATE DEVELOPMENTPROJECT: MID-TERM REVIEW 3

AGRICULTURAL SERVICES PROJECT: LAUNCH MISSION 14

SMALLHOLDER CREDIT RECOVERY: CRISIS OR TRANSITION? 23

PROPOSED AGRICULTURAL DIVERSIFICATION PROJECT 24

ANNEXES:

1: Proceedings from Consortium Group Meeting(Summary of Presentation/Discussion on AgriculturalSector)

2: ASP: Updated Action Plans (from ASP Launch Workshop)

3: Discussion Note on Smallholder Credit Recovery:Crisis or Transition


FINAL AIDE MEMOIRE

INTRODUCTION

1. During the period November 22-December 17, 1993, a World Bank agricultural teamvisited Malawi to carry out with Government of Malawi various activities involving the WorldBank agricultural assistance program in Malawi. This includes:

• Discussion of the draft Agricultural Sector Memo;• Mid-term review of the Agricultural Marketing and Estate Development (AMED)

Project;• Launch mission of the Agricultural Services Project (ASP);• Smallholder credit recovery issue; and• Informal discussions of the proposed Agricultural Diversification Project.

2. The Bank team was comprised of: R. Anson (team leader), A. Chakravarti, V.Scarborough, D. Fullerton, S. Hiwa, F. M'buka, G. Rozell and P. Sibale. In addition, IFAD wasrepresented by C. Dickerson (Project Controller) and S. Carr (Agriculturalist). GTZ, from theFederal Republic of Germany, also participated in the ASP mission workshop and discussions,given their interest in providing assistance within GOM's ASP framework. The AfricanDevelopment Bank (ADB) had planned to send a representative to participate in the mission, butdue to unforseen circumstances this person was not able to visit Malawi. The Government teamwas comprised of various officials from especially the Ministry of Agriculture (led by A. Gomani,Chief Planning Officer), Economic Planning and Development (led by M. Nyrenda, PrincipalEconomist), Reserve Bank of Malawi (led by Mr. Chinkwanga, Director of the Apex Unit). Themission also benefitted from the guidance of Dr. JHA Maida, Secretary for MOA, and had theopportunity of meeting Mr. Kalemera, the newly appointed Secretary of MOA. The missionwishes to express its appreciation to these officials for their cooperation and participation in thevarious agricultural activities.

3. This Aide Memoire highlights the mission's main findings andrecommendations/agreements reached and reflects the outcome of the wrap-up meeting held onDecember 17, 1993, under the chairmanship of Mr. Magelesa, Senior Deputy Secretary, Ministryof Finance. The draft Aide Memoire (dated December 15, 1993) provided the basis for the wrap-up meeting; as it largely confirmed most of the points outlined, this final version reflects theclarifications and recent developments since then as part of the on-going dialogue.

AGRICULTURAL SECTOR MEMO: STRATEGY OPTIONS IN THE 1990s

4. The MOA convened a workshop on December 3, 1993 to review in detail the draft ASM.The workshop was well represented by officials from MOA, EP&D, Treasury, Ministry of Tradeand Industry, private sector, NGOs, Bunda College, Chancellor College, and donorrepresentatives (FAO, UNICEF, USAID, JICA/Japan). The workshop discussions generallyendorsed the suggested strategy elements, although it was agreed that there was a need to furtherexamine and discuss several policy issues and options outlined in the ASM, particularly fertilizerliberalization and subsidy removal program, and the tobacco quota allocation system. MOAPlanning Division agreed to prepare and already issued the proceedings of the workshop

unable to attend. It was agreed that MOA would convene a national agricultural strategyworkshop in mid-1994 (apparently the date is set for about mid-July, 1994) to review itsagricultural strategy plan, which would consolidate the relevant findings from various donor-funded studies (including ASM, African Development Bank Malawi Agricultural Sector Study,EEC Sector Study, USAID-proposed Agricultural Support Assistance Program/ASAP II, and otherstudies). Therefore, the ASM is aimed at providing an input to Government's agriculturalstrategy paper and action plan.

5. The ASM team also held follow-up discussions with several groups to focus on specificaspects of the ASM, and included discussions with UNICEF and EP&D and MOA (meeting heldon about December 9, 1993); EP&D, Treasury and MOA (meeting held on December 13), BundaCollege (meeting on December 17). Based on the feedback and constructive comments andsuggestions provided in these meetings, the ASM team has revised the ASM. Copies will bemade available to Government as part of the on-going joint collaboration. The draft ExecutiveSummary was also converted into a Summary Note which was distributed at the MalawiConsultative Group (CG) meeting in Paris held on Debember 20 and 21, 1993. This note,together with contributions from the Malawi delegation which included Dr. Maida and Mr.Kalemera, formed the basis for a special session on agricultural strategy options. Attachment 1contains an excerpt of the relevant pages from the proceedings of the CG discussions.

6. Partly arising from the ASM and Policy Framework Paper (PFP) discussions, it is agreedthat Government would commission 2 policy studies (to be financed by donors) to be carried outin early 1994:

(a) A Tobacco Reform Study, which will assess several options to reforming the current burleytobacco quota system as well as other tobaccos. It is anticipated that the draft findings should beavailable by end-April, 1994, as a basis for policy decision by Government. The USAIDproposed ASAP II is giving major emphasis to supporting expanded liberalization of the tobaccomarket, and, through it consultants, USAID is currently examining various options as part ofreaching agreement with Government on the best and most sustainable approach. A Government-led steering committee is providing guidance to reviewing the various options and to facilitating asound recommendation for Government decision.

(b) A Fertilizer Pricing Policy Study, which will assess the main options to and implications(fiscal, smallholder productivity and poverty alleviation) of phasing out the fertilizer subsidy, andthe constraints to and requirements for accelerating private sector participation to full liberalizationof the fertilizer market. This study would need to be carefully coordinated with the EEC-fundedSmallholder Improvement Program currently under discussion. Therefore, it is important that thisstudy be initiated in early 1994 to coincide with the requirements of the SIP.

7. The Terms of Reference (TOR) for the above studies have been finalized and the studiesare currently underway. Each study is being guided by an inter-Ministerial Steering Committeewhich is providing guidance to the consultants to ensure that the focus of the study addresses therequired issues and provides a sound basis for policy decisions. The Tobacco Reform Study isbeing supported by USAID, as part of the preparation of the ASAP II, and the Chief PlanningOfficer is the chairman of the steering group. The study is being carried out over the periodMarch-April, 1994, and it is expected that draft findings will be available by end-April, 1993.The steering group for the Fertilizer Policy Study is chaired by EP&D. This study, started inmid-February, 1994, is reviewing various pricing and marketing (including the role and structureof the SFRFFS), and the implications of maintaining the current subsidy removal program. Theinterim report was discussed in mid-March, 1993, and the draft findings for this study areexpected to be available by end-April, 1994. The Bank commends the Government for taking theinitiative of forming the steering groups which are playing an important role in the management of

policy review process. It is agreed in general that Government would formalize steering groupsinto a regular feature of managing all sector and policy studies to help ensure that these studiesare fully integrated into the operational work, and therefore, sustain. The discussion of the draftreports would provide the basis for key policy decisions and/or further in-depth assessment, butwith the aim of bringing the issues to closure in a sustainable manner.

AGRICULTURAL MARKETING AND ESTATE DEVELOPMENT PROJECT: MID-TERM REVIEW

8. Overview. The Bank team would like to commend the MOA and Reserve Bank fortaking the initiative in preparing an excellent draft mid-term report which provided the basis forthe mid-term review mission. This is a major exercise which provides both GOM and the Bank toreassess AMED's progress toward meeting its developmental objectives and to identify specificmeasures which would enhance achievement of such objectives. MOA/Planning Division, inliaison with the Reserve Bank of Malawi, agreed to complete the mid-term report by end-February, 1994. In summary, AMED is proceeding satisfactorily, but its benefits could besignificantly enhanced if the recommended actions outlined below are adopted and implementedprior to the closing date in about 2 1/2 years.

Marketing and Pricing Policy Reforms

9. A key precondition for generating substantial benefits to the agricultural economy is foragreement to address some key marketing and pricing policy issues as outlined in this section.Under the Project, the Planning Division of Ministry of Agriculture was charged with the role ofanalyzing and formulating marketing policies which would facilitate the development of the privatemarketing system. Considerable progress has been made in some areas of marketing policy, whilein others liberalization has not been completed or sustained. For example, policy reforms toliberalize the importation/production, marketing and pricing of fertilizers and seeds have beendevised and their implementation begun. On the other hand, there continues to be a high degreeof Governmental control over and/or monopolization of agricultural produce markets. This ishaving a detrimental effect on the objectives of the Project, as well as on the ability of smallholderfarmer to raise their food security and incomes and contribute to increased foreign exchangeearnings and agricultural diversity.

10. Examples of the areas in which liberalization remains incomplete include the following:

- the marketing regulations contained in the Smallholder Agricultural ProduceMarketing Regulations of 1987 have yet to be revoked (although the revisionshave been made);

- private traders are still not legally able to participate in tobacco, groundnut andcotton markets;

- the production of all tobaccos is restricted by quotas;

- the number of buyers at the tobacco auction floors is restricted administratively;

- the Government has intermittently imposed embargoes on private traderparticipation in the trading of certain crops since liberalization in 1987 (e.g.,groundnuts and beans);

- under the Control of Goods Act there are quantitative restrictions placed onprivate trader exports of certain crops every year.

11. All these factors are constraining the development of dynamic, competitive private marketsin Malawi. In addition, the objectives of continued marketing controls are in some cases difficultto justify and in others, alternative policy instruments may be more effective in fulfillingobjectives, particularly in the long-term. For example, there appears to be no justification for thecontinued ban on private participation in tobacco markets or for the continued controls over theproduction of tobacco, except possibly in the case of burley tobacco. Malawi is only able toaffect the world price of the latter. Likewise, the ban on private trading and exporting ofgroundnuts may undermine the objective of increasing groundnut production in the longer term.This ban was imposed on private traders, because ADMARC was unable to compete in thegroundnut markets and it was therefore argued that a shortage of groundnut seed would result. Amore efficient and less damaging means of ensuring sufficient seed stocks would be to (a)liberalize seed production and marketing and (b) charge ADMARC with the responsibility ofobtaining sufficient stocks through market mechanisms - i.e., by increasing its prices for seedsover and above that being offered by the private sector for produce. MOA recentlycommissioned an independent study to a consultant team to assess this issue, and the study team'sassessment led to a similar recommendation outlined above. There is a need for Government totake the needed decisions on the report's recommendations, with the aim of ensuring thatsmallholders are able to tap the potential in increased food exports. Now that the determination ofthe exchange rate is liberalized, price controls and market regulation become increasingly difficultto manage without causing windfall losses to farmers and traders. Thus, there is the need forMOA to rely more on indirect mechanism to guide farmers/traders decisions.

12. One of the main constraints on ADMARC's ability to undertake this role is the delay inthe finalization and effective implementation of the Memorandum of Understanding between it andthe Government. The MOU was finally signed on December 7, 1993, nearly 1 1/2 years after thepreparation of the draft MOU. The details of the so-called social/developmental roles theGovernment requests of ADMARC and commits Treasury to fully reimbursing the costs ofADMARC's undertaking these roles. On the other hand, recent research has demonstrated thatprivate sector markets are operating efficiently and effectively, at least in the Central and SouthernRegion. In addition, supply and demand conditions exist which would enable these markets togrow and have a positive impact on smallholder incomes, foreign exchange earnings and thediversification of the agricultural sector. However, the ability of these markets to grow anddevelop is inhibited by the above policy constraints. If the objectives of liberalization are to berealized, including increased smallholder incomes, diversification, the development of competitivemarkets and a more efficient allocation of resources in the economy, it is imperative theGovernment completes and sustains the process.

13. It is recommended/agreed that the Government:

(a) complete and sustain the liberalization of all agricultural produce markets as outlined in para.10 (except possibly that of burley tobacco); it is suggested that MOA prepare (by mid-April,1994) action plans and timetable with target dates to address each of these items;

(b) effectively implement the MOU between ADMARC and Treasury, with the costs ofADMARC's developmental roles being limited to food security objectives and being fullybudgeted for and compensated, and ADMARC to implement actions to meet key performancetargets;

(c) revoke the marketing regulations surrounding smallholder domestic distribution, asrecommended by Ministry of Justice, immediately; and

(d) arrange to communicate the outcome of the review meeting of the Food Export Study,

Credit Component

14. Estate development and agro-industries. Overall lending this component has proceededwell. The agro-industries component is almost fully disbursed, while there is a balance of aboutSDR 1.43 million (or about US$ 1.8 million equivalent) in the estates sub-component. No fundshave been disbursed to the small estates at all since the commencement of the project. During theApril 1993 supervision mission it was recommended that this amount be reserved for small estatesonly. However, the existing PFI's are reluctant to disburse to such estates because they have tobear the full lending risk and these borrowers do not fulfil normal lending criteria. Lending tosmall and medium estates is considered to be high risk.

15. As a part of previous supervision missions it was recommended that the Apex Unit inReserve Bank of Malawi (RBM) would substantively manage the credit component of the Project.Unfortunately, it has so far only monitored the commitments and disbursement of funds, and hasnot undertaken more substantial monitoring and evaluation of the performance and financialstanding of the PFIs and the sub-borrowers. The mid term review therefore recommended thatadequate support whether in the form of equipment or staff should be provided to the Apex Unitin order to enable it to fulfil this function. It is also agreed that a more detailed analysis of thiscredit line, covering the purpose of the loans, size distribution, annual commitments, repaymentsand loan servicing performance, will be carried out by the Apex Unit, RBM, by the end ofJanuary, 1994 for the final version of the mid-term review. MOA needs to follow-up to ascertainthe status.

Assessment of the Impact of the Estate Credit Sub-Component on Economic Development

16. The mid-term review attempted to evaluate the impact of this credit line on agriculturalproduction, farm profitability, foreign exchange earnings and employment. Given the limited timeand availability of information, only a pilot assessment could be done, comprising financialanalyses of three estates. Hence the need for a more detailed evaluation.It is therefore agreed that a detailed and representative impact assessment of this sub-componentwill be carried out by the Planning Division MOA in collaboration with RBM, by the end ofJanuary 1993, for the final version of the mid-term review.

17. Small estates sub-component. It is evident from the experience of the past four years thatthe three PFI's selected to participate in this subcomponent were not the most appropriate fordirecting resources towards the small estates. Without a package of measures to reduce their riskfrom exposure to such borrowers and a change in their own investment policies/criteria, it isunrealistic to expect these institutions to increase their lending to this target group.The mid term review therefore recommended that two other financial institutions, which haveexpertise in lending to small borrowers, be considered as more appropriate channels for lending tothe small estates sub-sector. These are INDEFUND and the Smallholder Agricultural CreditAdministration/Malawi Rural Finance Company (MRFC).

18. Participation of INDEFUND: Due to the demand for medium term credit from theagricultural sector, negotiations have been ongoing for some time now with the RBM, forINDEFUND's inclusion as a PFI in AMED. At present a proposal for its inclusion, with an on-lending rate of 7% for funds borrowed from the Reserve Bank, is being considered by its Board.As a principle, the on-lending rate under AMED and RFSP should be equalized and set at thebank rate. If INDEFUND is fully committed to expanding its lending to the small estatessubsector, it should make its decision as to whether or not to participate as soon as possible, inanticipation of lending for the next crop season (and possibly the upcoming marketing season).

19. Participation of SACA/MRFC: SACA has recently been incorporated into the MalawiRural Finance Company (MRFC). Under the Rural Financial Services Project its lending is to be

extended to cover small estates of up to 30 hectares in size. The group lending approach whichhas been successfully developed by SACA with respect to smallholders (except some underlyingweaknesses in group cohesion) could be extended to small estates. In this process the EstateExtension Service Trust (EEST) will play a pivotal role. The EEST could facilitate the formationof credit clubs of small estates using the contact groups as a basis for the exercise. The creditterms would be similar to those already agreed to within the MRFS Project. The majority oflending would be through the credit clubs and the primary source of loan collateral would begroup guarantees, in conjunction with deposits representing 10% of the loan value. In additionwell established small estates may meet all the credit requirements individually. Short andmedium term credit (up to 60 months) could also be available, depending on the purpose of theloan and capability of the borrower or group to service and repay the loan. The interest chargedwould be the market rate. Farmers with existing loan defaults would not be eligible to participatein this program.

20. The credit approval process would be very similar to that currently followed by SACA.However, with participation of EEST, initial eligibility screening could be jointly undertaken byMRFC and EEST. In order to ensure the success of this initiative MRFC lending personnel willrequire credit training relating to the small estates. This training could be funded by the AMEDtraining funds, given the delay in the start-up of the RFSP. The members of the credit clubs canthen be trained by MRFC personnel in good loan and recovery management practices.

20. However, it was agreed that the following issues need to be addressed before MRFC candevelop a lending program for the small/medium estates.

(i) Currently MRFC lending guidelines stipulate that estates of up to 30 hectares willbe eligible for loans. Under the AMED small estates credit sub-component,however, all estates with a turn over of less than MK 200,000 are eligiblebeneficiaries. The criteria of 30 hectares is considered very restrictive as asignificant proportion of small/medium estates in the country (i.e., those with atobacco quota of less than 5000 kg) fall into the category of under 50 hectares. Itis therefore considered more appropriate to permit all estates with a turnover ofless than MK 200,000 to be eligible for loans under MRFC's estate lendingprogram. At the same time it is proposed that the maximum loan for a group orindividual estate should be MK 100,000. If this proposal is agreed, theDevelopment Credit Agreement for the Malawi Rural Financial Services Projectwill have to be modified.

(ii) MRFC is not a PFI under AMED at present. A subsidiary loan agreementbetween MRFC and the RBM will have to be signed for this purpose. Essentially,the draft agreement already drawn for the RFSP can be used, with appropriatereferences to AMED (by end-April, 1994);

(iii) The on-lending rate between the RBM and MRFC will have to be agreed upon.The existing rate for on-lending to small estates under AMED is different fromthat proposed for MRFC borrowing under the MRFS Project. To ensureconsistency, the rates will have to be equalized for RFSP and AMED credit lines.

Lending to small estates for diversification

22. The AMED SAR recognized the limited prospects for small estates to diversify out oftobacco due to a lack of more profitable alternatives, although it was hoped that somediversification sub-projects would emerge. This hope has never been fulfilled because it is nowclear that a comprehensive approach is needed. It may therefore be appropriate to view thebalance of ahit Tt5 1 R millinn nn noAiinhip for m11 PcttP 2c rpenirep- whii-h ,nilei ha neatl

to fund possible new pilot approaches to promote agricultural diversification in Malawi. In testingthe viability of these proposals a strategy to finance diversification would have to be developed;steps are currently underway to prepare a national agricultural diversification program.

23. In this context two alternative mechanisms, which are either being implemented orproposed for implementation on a pilot basis, could also be considered as potential mechanismsfor agricultural diversification. These mechanisms have the advantage of reducing both thelender's and borrower's risk. The first is that developed by USAID through its smallholdercooperative horticultural cultivation project. Under this scheme smallholders have been organizedinto a club for undertaking high value, irrigated vegetable production. The scheme at Mchenga isin its third year and has already proven to be a success. The farmers are producing high qualityvegetables, all SACA loans are being promptly repaid and a substantial cash reserve is being heldin the bank. An agreement for the export production of some vegetables has already been agreedto for the current season.

24. The second mechanism that could be considered is outgrower/buying arrangements.Outgrower arrangements could also be a sound basis for developing or expanding the cultivationof horticultural and other crops by smallholders/small estates. Mechanisms could be establishedeither to revolve around individual large estates or through establishing producer marketingassociations. In June 1993, the Bank and Ministry of Agriculture agreed to provide some supportto one such scheme involving an estate/agro-processor purchase of macadamia nuts fromsmallholder growers. To support this scheme a sum of K 200,000 was allocated to the Tree NutGrowers Association from the AMED credit. Although delayed, these funds will enable theimplementation of an outgrower scheme for macadamia as a pilot agricultural diversificationinitiative. This pilot approach clearly has potential to generate bankable projects involvingsmallholders/small estates. This is particularly so in view of the ongoing Landell Mills studywhich is considering the possibilities of extensive small grower tree nut cultivation.

25. In order to further the objectives of the small estate development subcomponent, it isrecommended/agreed that:

(a) The remaining funds earmarked for small and medium estates be disbursed throughINDEFUND and MRFC, which provide the only viable alternative PFI's at the moment.

(b) The CMEU will monitor and assess the impact of the funds channeled to the Tree NutGrower Association and scope for possible replication (and supported by commercialbanks and, if needed, the proposed agricultural diversification program).

(c) Government policies and incentives related to the development, production and export ofnew products should be reviewed with a view to encouraging increased agriculturaldiversification and agro-processing. This will involve a comprehensive package of supportmeasures which could range from : introducing a package a fiscal and other incentives toencourage non-traditional production, particularly for export; assessing and developingnew marketing arrangements focussing on small farmers; addressing infrastructure andfreight constraints, both domestic and international; providing adaptive research throughthe EEST and Department of Agricultural Research. These items will be reviewed as partof the preparation of the proposed national agricultural diversification program.

(d) The institutional framework to support a private sector led strategy of diversificationshould be strengthened. In this context the Malawi Investment Promotion Agency can playa focal role in facilitating private investment and creating an enabling environment. Inorder to coordinate the provision of the public sector support services required in supportof this strategy, the MOA should play a leading role through its reconstituted CropDiversification Committee.

(e) Increasing and improving the provision of technical advice and extension support to smalland medium estates.

(f) Alternative structures to facilitate lending to small and medium estates (eg. group lending,cooperative group cultivation and marketing programes, and outgrower/buyingarrangements) should be promoted for support from the PFI's under the Project.

(g) If no substantial progress has been made with disbursements under this subcomponent bynext financial year, funds should be reallocated, for example to the SEDOM component,depending on the performance of the latter.


26. SEDOM lent MK 683,000 to 5 agricultural produce trading enterprises of varying sizes in1992. The major difficulty that faced the private traders during this year was a shortage ofsupplies, due to the drought. This problem was exacerbated by the delays in disbursement offunds, given the highly seasonal nature of farming in Malawi. Despite these difficulties, SEDOMrecovered 73% of the total vale of the loan plus all accumulated interest charges. A further 15-20% is expected to be recovered in the next financial year. Following this encouragingperformance, the number of beneficiaries has been expanded from five to fifty one traders thisyear. Depending on the success of this expansion, a sub-group of traders will then be selected formedium term loans. The main problem with this component at present is that the reminingbalance of funds is not adequate to support a continuation of current activities to the end of theproject implementation

27. It is therefore recommended that consideration be given to reallocating funds reallocatedto this component from unutilized balances in other components, so that more traders and theliberalization process can benefit. However, the terms and conditions should be reviewed by theReserve Bank as part of reviewing the terms periodically.

28. In addition, according to the contract between SEDOM and RBM, SEDOM is expected topay back the short term loan from RBM by the 13th month following disbursement. Experiencehas shown that it is not possible for SEDOM to pay back these loans in full, the principal plus theinterest, due to existence of some bad debt. Further, the requirement has adverse effects on thefinancial position of SEDOM, both in the short and long-term, in that SEDOM is unable togenerate any savings. As a consequence at the end of the project SEDOM would have no capitalfor further lending.

29. In order to increase the sustainability of Project supported activities, and in particularprivate trade credit supplies, it is recommended that the RBM should consider granting SEDOMan appropriate grace period on its loans. It is also agreed that a management and operations auditof SEDOM be undertaken before additional AMED credit funds are allocated to SEDOM. Thisexercise should recommend management and operational improvements that would increaseSEDOM's operational efficiency and thereby increase RBM's confidence in its capability. Thestudy would also provide an empirical basis for deciding on the most appropriate grace period tobe extended to SEDOM.

30. SEDOM'S loan assessment capabilities are judged to be more than adequate. Howeverthe World Bank requires that SEDOM submits the list of potential borrowers to it beforedisbursement begins. This process has been lengthy and has resulted in delayed loandisbursements to the extent that, by the time funds become available to private traders, supplies ofthe produce they are interested in have dried up.

31. In order to prevent delays in seasonal loan disbursements, it is agreed that once SEDOMhas appraised the borrowers' projects, disbursement should immediately commence and the WorldBank should be sent a copy of the approved proposals for its information and records.

Marketing Infrastructure Component

32. Under this component, the construction or rehabilitation of a total of sixteen rural producemarket places was planned. The Ministry of Local Government (MOLG) is the implementingagency and good progress is being made by in implementing the program. A total of ninemarkets are at various stages of completion, as illustrated in the following table.

33. It has been agreed that more detailed analysis of the impact of infrastructural investmentson private trader activities and produce prices will be undertaken, by CMEU/MOLG for the finalversion of the mid-term review. However, it is reported by MOLG that the improved marketplaces have attracted a large number of additional retailers. This is manifest in increased revenuesraised through market fees. For example, at Nchisi market, the average revenue raised during the3 months before the market structures were improved was MK 3,120/month. Since completion ofthe works in August, revenues have averaged MK 5,667/month. Part of this increase is due toraised market fees, but an increase in the number of traders using the market has also contributed.This increase in numbers of traders provides for increased competition, as well as increasedresources with which to maintain market place infrastructure, both of which contribute positivelyto the objectives of the Project.

34. It has been agreed that MOLG will undertake more analysis of market revenues, and therelative importance of increased market fees and increased numbers of traders, as an indicator ofthe impact of the civil works on market competition. This work will be undertaken duringJanuary 1994 and will be incorporated into the final version of the mid-term review report.

SUMMARY OF PROGRESS IN INFRASTRUCTURE COMPONENT

A Complete and in use Costs Under construction

Lunzu MK 115,513 ChipokaNsanje MK 192,054 NamweraNchisi MK 240,379 EmbangweniChilumba MK 282,319 Chitipa

Chintheche

B To be constructed through LCB or Force Contract

Mayaka; Mvera; Lizulu; Nakando; Makande; Chimbiya; Nkhotakota

Source: MLOG.

35. The structures built or rehabilitated at the completed market places include:

Market New Construction Rehabilitation

Lunzu 1 shed; 1 storeroom; 1 open slabsNsanje 1 shed; 1 butchery; (5 hawkers groceries to be 2 sheds

completed and not included in cost figs. above)Nchisi 1 shed; 1 butchery; 13 hawkers groceries Brick fenceChilumba 1 shed; 1 butchery; 10 hawkers groceries; 1 toilet block Wire fence

UJ

36. Remaining funds allocated to this component are only sufficient to complete work in 3 ofthe remaining 7 planned markets. This is largely due to increased costs as a result of publicsector salary and housing benefit increases. It was agreed that there is a need to review thescope of the infrastructural program and/or to reallocate additional funds to it.

37. The design of the market place infrastructure built under this component was based on asurvey of needs undertaken in 1988. In view of the development of the private sector markets,these designs may now need to be updated. For example, Chimbiya market is primarily afarmers'/wholesalers' market. The marketing infrastructure currently planned for this market ismore appropriate to retailing activities.


(a) the Pricing and Marketing Section of the Planning Division, MOA, in collaboration with theMOLG, reviews (say, by end-April, 1994) the need to expand the funding of the infrastructuralcomponent and arranges for the reallocation of funds within the Project accordingly; and

(b) the Pricing and Marketing Section of the Planning Division, MOA, in collaboration withMOLG and private traders, reviews the planned infrastructure for Chimbiya and Lizulu markets,in order to ensure that such infrastructure is suited to the needs of the traders who use thosemarket places.

39. It was agreed during Project design that civil works could be procured either through localcompetitive bidding (LCB) or by use of Force Account (Direct labor), due to the small scale andscattered and remote location of the works involved. It has been argued by MOLG that it ischeaper and faster to construct the markets by direct labor. However, since tenders for marketconstruction/rehabilitation have not yet been sent to private contractors, and using privatecontractors would allow the simultaneous construction at several market places, this assertion isdifficult to support.

40. It is recommended that, in order to facilitate implementation and provide a more informedbasis for deciding between force account and LCB, MOLG should (by end-April, 1994):

(a) obtain quotations for the remaining works from private contractors and compare these withthe costs of completing the works through force account;

(b) specify in the tender documents that bid offers sill be evaluated against MOLG estimates(such an indication will have to be added to the current tender documents);

(c) contract the construction unit under MOLG to rehabilitate/construct remaining marketstructures only where:

- its estimates are lower than all others;- it is willing to undertake the construction within the cost limits of its estimates;

and- it will not take longer than private sector contractors to complete the specified

works.

41. Finally, in order to sustain the activities under this component beyond the life of theProject, the SAR stipulates that the cost of market construction should be extended as a loan to therelevant local councilk The intention wnq that n revnlving fiind nnld hp actnhliched frnm

date this has not occurred and no mechanism has been established to implement this process.However, MOLG has a facility to do this through the Development Fund of Local Authorities(DFLA).

42. It is recommended that, instead of establishing a new revolving fund, the DFLA should beused to ensure that infrastructural activities are sustained. In order for this to be effected, it willbe necessary for the financial records of already constructed markets to be transferred to theDFLA and to financing future construction through it at terms and conditions ruling for theDFLA.


43. The establishment of this service has been smoothly implemented. To enable exportersand importers purchase produce of desirable quality, MBS has publicized the existence of itsservices in Malawi both locally and internationally. The facilities in place are being used by bothlocal and international merchants. However, produce testing has been on voluntary basis and therate of capacity utilization by MBS is below expectations, which has adverse implications for itsprospects of becoming self-financing.

44. Originally the quality testing scheme was to be made compulsory for every agriculturalproduce exporter, but this was deemed to be antithetical to the liberalization process, and wastherefore never enforced. MBS estimates its maximum capacity at about 7,000 sample tests ayear, depending on the types of test required. The table below demonstrates that it is operating atwell below full capacity.

YEAR SAMPLES TESTED EXPORT SAMPLES EXPORT CERTIFICATESTESTED ISSUED

1990 3,237 701991 3,358 451992 4,589 511993 2,494 421 51

(as at December 14) (1990-1993) (as at October)

45. Nonetheless, in 1992, 63% of MRS costs were self-financed and MBS plans to become tocompletely self-financing by 1997/8. Its fees currently vary between MK 33.50 for simple testslike grading and germination rates to MK 51.50 for more complex ones, like assessing thechemical content of fertilizers. This fee structure is based on operating and depreciations costs.The Government therefore subsidizes the costs of staff salaries and housing expenses, togetherwith other overheads. The MBS has demonstrated high quality performance, with a test turnaround period of between 1 and 3 days. This performance is manifest in the growing number ofsamples it receives for testing. The decline in demand for its services over the past year is ofconcern, but has been attributed to a decline in agricultural exports as a result of drought relatedbans on private sector activity in this area. The lifting of these restrictions, together with theliberalization of fertilizer and seed markets, is expected to provide a boost to MBS activities in thecoming year. MBS has the expertise and equipment to undertake laboratory testing of seeds andfertilizers, but not field testing of the production of hybrid seed.

46. While this component appears to be doing very well, there may be room for furtherimprovements. It is agreed that the final mid-term report include an assessment: (a) from thetraders on the timeliness of the quality testing scheme; and (b) of the utilization of therecommendations made by the technical assistance expert, and scope for full utilization of theadvice as outlined in his final report.

Capacity in the Pricing and Marketing Section

47. Staff in the PMS are heavily overloaded, and this will be exacerbated by the ending of thecontracts for two members and the departure for training of another. The post of PrincipalEconomist has remained vacant since the former incumbent resigned in 1991. The PrincipalEconomist is designated as the National Coordinator for this Project. Though the SeniorEconomist (Marketing Services Unit) has been acting in this position, his ability to activelymanage the Project on a national scale has been limited by the great demands on his time. Inaddition to this, the four vacant posts of economists have never been at anytime all filled. Thisinadequate staffing has had adverse effects on the section and the Project as a whole.

48. It is agreed that the head of Planning Division should take a lead in liaising withEconomic Planning & Development to fill (by mid-April, 1994) the vacant posts (with priority onthe Principal Economist and at least 2 economists) in the Pricing and Marketing Section.

Open Market Price Information System.

49. These two components were not budgeted for in the project. The United States Agencyfor International Development (USAID) has to date provided funds for the collection anddissemination of open market agricultural produce prices for major crops. As of now retail pricesare collected from 18 rural markets and disseminated through newspapers and radio broadcasts.The aim is to assist private traders in identifying areas of excess supply and demand. However,coverage is thin, no wholesale markets are included and there is a week's delay between collectionand dissemination.

50. It is agreed that, following the agreement reached during the World Bank May 1993mission, that:

(a) the open market price system be reviewed (by mid-April, 1994) by the Agro-Economic Surveyand Pricing and Marketing Sections of MOA with respect to the expanding the number of marketscovered and including wholesale prices. The recommendations arising from this review, and ifappropriate the implementation plans for such expansion, should be included in the final versionof the mid-term review;

(b) a closer synchronization of the collection of data in currently covered market places, such thatprice data is collected on only 2 days a week and prices can be reported twice a week, thusreducing the time between collection and dissemination further.

51. In addition, it is agreed that an informal survey (by mid-April, 1994) of private traders beundertaken to assess the utility of the price information system to them and to identifyimprovements which could be made. The results of this survey could be incorporated into thefinal version of the mid-term review, or if delayed, could be annexed at a later date (so as not todelay the mid-term report).

Marketing Extension and Training Services.

52. The Pricing and Marketing Section has developed a job description for Marketing Officerposts in each of the ADDs and the latter have presented budgets for these posts to the MOA.(The terms of reference and budget are contained in Annex 4 of the mid-term project review).Subject to approval by the Department of Personnel Management and Training, the established

the Malawi Rural Finance Company, thus minimizing the incremental budgetary burden of thisservice.

53. Since Project funds will not be sufficient to establish a marketing extension service, andUSAID has expressed interest in this area (with particular respect to tobacco marketing problemsfaced by smallholder producers), it is agreed that the Pricing and Marketing Section discuss thefunding of these services with USAID, with a view of reaching agreement (by end-April, 1994).It is understood that a key criteria is ensuring sustainability in view of being able to meet thedemands by private traders and farmers.

54. The training of private traders in the ADDs has been coordinated centrally fromheadquarters, because the inability of Credit and Marketing Officers to support this activity. Whilethe training programs have been deemed highly successful, their organization has overloaded thestaff in the Marketing and Pricing Section.

Private Traders' Association

55. An application has been received by the Pricing and Marketing Section of MOA'sPlanning Division for support for the establishment of an agricultural traders' association fortraders dealing in both agricultural produce and inputs. A draft constitution has been drawn upfor such an association. It main objectives would be to promote and develop the privatemarketing of agricultural produce and inputs in Malawi. It would collect and disseminateinformation to members concerning the trade and markets; establish links with other interestedorganization; make representations to the Government and other bodies on behalf of privateagricultural traders; and investigate, test, develop and extend relevant markets.

56. Initial funding is sought to obtain office space and equipment and a vehicle, as well as forsalaries of permanent staff for a two year period. Thereafter, the interim Chairperson of theAssociation agrees that it should be self-financing to ensure (a) sustainability and (b) that theservices provided are of value to members. A budget has been drawn up regarding the initial set-up costs.


(a) the Pricing and Marketing Section collaborates with the interim Chairperson of theAssociation in order to develop a business plan (by mid-April, 1994) which indicates the revenuerequirements for self-financing after a 2 year period; and

(b) MOA, in liaison with Treasury, reallocate some Project funds (amounting to about MK 1million) to support this private sector initiative. This action would be consistent withGovernment's stated policy of stimulating private diversification initiatives.

Project Management and Organization

58. The two Management Steering Committees responsible overseeing Project implementation(i.e., the Marketing Committee and Estate and Agro-industries Committee) have continued to meeton a quarterly basis in a combined forum. However, their effectiveness has been reduced by lackof continuity in the members attending the meetings. Also there appears to be a lack ofseriousness on the part of Senior Management in chairing the meetings. This has made it difficultfor the meetings to discuss and reach decisions on some sensitive policy issues.

59. It is agreed that the implementing agencies appoint permanent contact persons to attend thereview meetings, in order to facilitate familiarity with the Project and provide for continuity andgreater effectiveness in ensuring timely implementation of agreed actions. It is also agreed that

IJ

the Chief Planning Officer of MOA chair these meetings, and the Pricing and Marketing Sectioncontinue to take the day-to-day responsibility for ensuring timely and effective implementation.

Financial Management

60. In the beginning the Project experienced teething problems with the management offinances. Examples of the problems experienced included delays in payments of invoices due tothe lengthy procedures within Government, which involve the MOA's being passed to theTreasury and then the Reserve Bank of Malawi. The RBM then instructs Citibank, New York totransfer the funds to the payee's account. These delays have prompted some suppliers to ceasesupplying goods on credit through the bank guarantee as required by the Bank.

61. MOA has attempted to improve the situation which has resulted in some improvements inthe submission of accounts and disbursement reports. However, further improvements arepossible and necessary and it is important that such improvement is viewed as a continuousprocess. For example, there is still an outstanding need for expenditure returns to fully reflectoff-shore and direct payments.

Project Monitoring

62. Project monitoring is done through the preparation of Quarterly Progress Reports byresponsible institutions. However, there has been lack of feedback and action on problemsidentified in these reports. This is due to a lack of capacity in and interface between the ProjectCoordinator's office and the MOA's Central Monitoring and Evaluation Unit. This is manifest inthe fact that, whilst the CMEU has been heavily involved in the mid-term review of the Project,its involvement in the continuous monitoring of progress has been minimal and should beimproved.

63. To improve the effectiveness of this system for monitoring the Project, as a tool formanagement decision making, it is agreed that the reports from the two Committees be providedsimultaneously to the Pricing and Marketing Section and the Central Monitoring and EvaluationUnit and that the latter be mandated to follow-up on critical issues with relevant parties.

64. It was agreed that the Apex Unit in RBM would manage the credit component of theProject. Thus far, it has so far only monitored the commitments and disbursement of funds, andhas not undertaken more substantial monitoring and evaluation of the performance and financialstanding of the PFIs.

65. It is recommended that the Apex Unit performs a more substantive role, includingregularly reviewing the financial performance of the PFIs and the sub-borrowers. It isrecommended that the Apex Unit formulate key performance indicators (by mid-April, 1994) as abasis for improving its management and supervision functions. Adequate support, whether in theform of equipment or staff, should be provided to the Apex Unit to enable it to fulfil thisfunction.

AGRICULTURAL SERVICES PROJECT: LAUNCH MISSION

66. Overview The ASP was approved by IDA's Board of Director in mid-June, 1993. IFADBoard approved the Smallholder Food Security Project in September, 1993 which was designed tobe a part of the ASP framework. The main purpose of the IDA ASP team was to assistGovernment formally launch ASP, although project activities have already been underway, as ASPis supporting national programs. On December 9 and 10, there was a formal ASP launchworkshop, opened by the Minister of Agriculture, Honorable Katola Phiri. The main output ofta A IM +h.rrcrm ,-r atvA.+-A -+; -1- ,C- -rah A 42D fonnna* a A -- IN )' h ,h

were promptly issued by MOA immediately following the workshop. The mission commendsMOA, with the assistance of GTZ facilitator (Mr. Ziegel) and group moderators, for ensuring thesuccess of the workshop. Separate workshop proceedings will be issued by MOA. It was agedthat each participating Department will take full responsibility for implementing these action planson a timely basis. It is further agreed that Treasury, DREA (for the Ag. Sciences Committee) andMOA ensure that the needed budgetary allocations in the remainder of the current fiscal year andin 1994/95 be provided to the implementing departments. There is also a need to ensure that ASPfunds are allocated separately to ASC through DREA (and the Office of the President andCabinet). In addition, there is a need for the MOA Chief Accountant to issue clear guidelines andprocedures to be followed in the process of fund allocation and use, and submission ofexpenditure by ADDs and the timely reimbursement of the newly established ASP special account.

67. It is the mission's understanding that the conditions for declaring the ASP Credit effectivehave been fulfilled by Government. It is agreed that Government would formally submit to IDA(by end-December, 1993) the needed documentation to enable the mission to recommend to IDAmanagement that it declare the Credit effective by its due date of January. GOM acted promptly,but the document from Justice indicated the incorrect amount of IDA credit (which was rectified,enabling the Credit to be declared effectively later in January, 1994).

Lessons Learned and Implications for ASP

68. At the time of mission there was a FAO/CP Project Completion Report (PCR) missionwhich collected information to prepare the PCRs for two recently closed IDA-financed projects(i.e., Extension and Planning Support Project/MAEPS and National Agricultural ResearchProject/NARP) which have provided the basis for the next phase of support through ASP. Thedraft PCRs have been prepared and provided to Government for review and comment, and forpreparation of Part II, which needs to be completed by the Borrower (implementing agency). Itwould be appreciated if MOA (under the coordination of the Planning Division, in collaborationwith the CAETO and CARO) could arrange this review and preparation of Part II by mid-April,1994, as the submission of the PCRs to the Bank's independent evaluation unit is already overdue.Below are some of the preliminary observations which may be considered by MOA management

during the course of implementing ASP.

69. During the implementation of the Agricultural Extension and Planning Support Project(MAEPS) and the National Agricultural Research Project (NARP) problems were experiencedwhich negated or reduced the efficiency in the achievement of some of the planned objectives ofthe project. As the implementation of the ASP becomes imminent it is necessary that MOAshould examine and correct these problems to avoid repeating them to the detriment of the successof the new project. Some of the problems which must be addressed are as follows:-

70. Extension Component

(a) Unrealistic Action Plans.

From the ADD level (PM) down to the Section level (FA) staff tend to include too muchin their action plans despite known shortages of enabling resources. All activities that must donein the ADD are put in the annual action plans and budgeted for. In other words, everything isregarded a priority. As a result whatever little resources are made available by MOA to the ADDare thinly spread on competing demands, thus making little or no impact on the objectives. Themission, therefore, recommends that:

During the ASP implementation, CAETO should discuss with all program Managers andfield staff the need for priority setting and demand that all plans of action form the ADD(PM -level) down to the Section (FA-level) level should exhibit activities that are

prioritized. This will assist staff in deciding what activity to concentrate on or leave outin times of resource constraints.

To implement this recommendation it will be necessary that each Management team at theADD should, on an annual basis, obtain from RDPs what they consider as RDP-priority areas,each RDP will obtain from EPAs their assessed priority activities. Similarly, each EPA will obtainfrom their sections the FAs assessment of the farmers priority activities. In this way the ADDManagement can guide, assist and support each level appropriately.

(b) Lack of Supervision of Field Activities.

During the implementation of the MAEPS supervisors at all levels were unable tosupervise field activities adequately either because of lack of time resulting from lack of prioritysetting which, in turn, resulted in having too many programs to attend to or lack of transport. Infew cases it was argued that the field officers were knowledgeable enough and did not need to besupervised. The mission feels that, to do a good job, all staff need to be supervised adequately,either to guide and support or to motivate them. Therefore, it is recommended that MOA shouldput supervision of the field programs as one of its priorities. To this end MOA i.e. CAS,CAETO, DCAETO and ACAETOs should set examples by visiting the field regularly to guideand support field staff. In this way all field supervisors will be encouraged to assist the FAs.

(c) Implementation of Motorcycle ownership Scheme.

The mission commends government for approving the motorcycle ownership scheme forsupervision purposes by field staff. The mission urges MOA to:

i) expedite the implementation of the motorcycle ownership scheme and mileage asproposed by MOA.

ii) The GOM/MOA should ensure that the mileage allowance be sufficient to enablestaff/owners to pay monthly loan repayments, fuel and maintenance costs.Available information indicates that the proposed allowance (K 0.70) is well belowthe required allowance (about Kw 1.30); staff cannot be expected to subsidize fueland maintenance of Government operations.

(d) Transport Management.

The mission attaches great importance to efficient management of transport by MOA tofacilitate efficient implementation of its agricultural programs. While the mission is aware that theministry is engaging a transport management advisor it not aware of the designated TransportManager in MOA. The mission, therefore, recommends that MOA should urgently appoint avery senior officer to manage transport and the systems that will be put in place and act as acounterpart to the transport advisor.

71. Other Key Actions

(a) While some extension technologies are generic and of importance to all areas (e.g., in-situmoisture conservation, soil management, maize hybrids), other extension activities should bepromoted at a local level according to location-specific importance and need.

(b) there is a need to complete the smooth de-linking of credit and extension, with revisions injob descriptions for staff;

(c) there is a need to clarify the respective roles of veterinary assistants and field assistants inproviding a single message in husbandry extension (with the latter group conveying the standardmessages, and the VAs to focus on the more specialized messages).

(d) a need to clarify more precisely the inter-relationship between the IFAD-Food SecurityProject and ASP in the focus and content of extension messages; the FSP was designed to be acomponent of the ASP, with an emphasis on developing improved extension messages andapproaches for the resource poor smallholder.

Research Component

72. Main Issues. Various problems arose in the NARP in respect of civil works,procurement, training and technical assistance. In civil works some buildings were not completed(cold room and store shed, Kasinthula); glasshouses supplied were too complex (Bvumbwe,Chitedze) or unsuited for their purpose (quarantine glasshouse, Bvumbwe); economies in housedesign led to houses unsuitable for the climate and other local conditions. In procurement therewere problems in ordering (over ordering consumables - eg. 2.88 tones plasticine; unsuitableequipment - eg. soil physics equipment, Kasinthula) but more particularly in storesaccounting/management (no checking on receipt, inadequate storage, inventorying and issuing). Intraining, so many scientists were away on long term training during the project that it lessened theorganization's capacity for research, especially with major changes in research management incourse of adoption (masterplan, action plans, triennial reviews, etc). long term technical assistancewas variable, with few technical assistants training counterparts properly.

73. Main Lessons Learned The principal lessons to be learned from NARP include:

(a) more rigorous inspection is needed to certify completion of civil works beforepayment of contracts.(b) building (house and glasshouse) design should be suitable for the purpose, theclimate and other environmental variables (some houses built were, for reasons ofeconomy, too small; glasshouses were either too complex or unsuitable for thepurpose).(c) the need to oversee procurement more closely so that amounts of consumablesare realistic in relation to need and the amount and nature of equipment ordered isnot beyond the capacity of staff to operate it.(d) the overriding importance of proper storage and efficient storesaccounting/management procedures. No more consumables should be ordered forthe research system until the large amount of consumables and equipment receivedunder the project is properly stored and inventoried, including the determinationand recording of shelf life. It is probable that a number of consumables acquiredunder NARP will have to be written off.(e) future training programes should be designed to allow fewer trainees away atone time, if research is not to be impeded.(f) more care should be taken in drawing up terms of reference, selection andsupervision of technical assistants.

74. The mission commends DAR for taking some action to improve storage of the equipmentthat was procured under the NAP Project, but the mission would also like to point out that morework needs to be done to minimize hazards and losses.

75. It is recommended that:

a) DAR finds a safer and more appropriate room for the inflammable lab chemicalsthat are store together with other lab equipment.

IJ

b) All other hardware equipment should also be store in a appropriate separate storeroom.

c) DAR should deploy a competent stores personnel to record, categorize, andinstitute efficient stores accounting/management procedures.

d) DAR should assess its overall requirements for lab chemicals and compare withthe available quantities in order to determine quantities that must be sold off toother users to avoid wastage due to expiry dates.

e) DAR should decide what to do with excess plasticine (2.88 tones) that is currentlybeing stored at Chitedze

f) DAR should clarify the new mandate and specific role of the MOA AgriculturalResearch Council (ARC), given the establishment and effective functioning of theAgricultural Sciences Committee (ASC). We are pleased that apparently thisclarification is underway such that the ARC would focus on improving researchcoordination within MOA (especially involving land husbandry, research-extension, and livestock).

g) ASC to clarify the size of the proposed contract research for 1994/95;

h) DAR and DAET should complete and fully implement the action plan forstrengthening research/extension/farmer linkages.

Inputs Component

76. The Pricing and Marketing Section of MOA's Planning Division have updated the actionplans concerning the liberalization of fertilizer and seed markets and have achieved considerableprogress in implementing these policies, although more needs to be done to fully liberalize thesecommodities. However, a number of issues were raised at the Project Launch Workshopconcerning the liberalization process, which need addressing.

77. Two of the major issues discussed at the workshop were concerned with Government'sfertilizer pricing policies in the context of liberalization. Firstly, the private sector representativeshighlighted the adverse effects on competition that continued subsidization of single enterprises ineach of the seeds and fertilizer markets has. Given the current high level of fertilizer stocks, it isimportant that Government work out an appropriate pricing formula for next crop season whichwill consider the import parity price, possible deterioration in fertilizer stocks and implicit costs,removal of subsides and food security. The Fertilizer Policy study is addressing these issues, andwill be providing recommendations in the draft report expected at the end of April, 1994.

78. In order to alleviate these constraints on the development of the private agricultural inputsmarkets, it was agreed that:

(a) the SFFRFM would formalize and publicize its policy of wholesaling all fertilizers (includingsubsidized ones) to private smallholder suppliers; this statement will need to be placed in thecontext of Government's overall fertilizer policy framework.

(b) that GOM would remove all seed subsidies by the end of March 1994.

79. The second issue concerning pricing was the timing of ADMARC retail target ceilingprices. It was argued that prices were announced too late in the season for private suppliers tonian their imnnrte nn1 fnr fnrmre to ni]n thase nr

80. It was therefore agreed that the release of the decision of the Annual Agricultural PriceReview would be brought forward in the year, from October to June. Given the high stocks offertilizers, and unlikely imports, it may not be urgent to advance the timing this coming cropseason.

81. A query was raised as to what steps the Ministry of Trade (MTI) and Industry is taking toincrease the efficiency of the process for licensing private fertilizer importers. In order to assistin speeding up the process, the MOA has provided MTI with the list of approved fertilizers, aspreviously agreed. However, it was noted during the workshop that the internal processing withinMTI could also be expedited. The private sector representatives argued that obtaining a licensestill takes 3 - 6 months. (MTI was not represented in the Inputs Group at the workshop.) Itshould be noted that the fertilizer policy study will also be addressing these points.

82. It was agreed that PMS and MTI would work together to develop an action plan, by theend of January 1994, for increasing the efficiency of the licensing of fertilizer importers (again,this procedure is also being reviewed by the Fertilizer Policy study)

83. There has been some delay in the finalization of the amendments to the Fertilizer, FarmFeeds and Remedies Act (1970) to reflect the changes in Government fertilizer marketing policies.This is apparently the result of a break-down in communication between the different members ofthe team working on the amendments. IDA comments and suggestions have been provided toMOA on the draft version, and it suggested that the suggestions and findings from the FertilizerPolicy Study (at least from interim report) be incorporated in the final report.

84. It was agreed that the amendments will be completed in January 1994 and that MOA willsubmit the final draft of the amendments to the Ministry of Justice by the end of January, 1994,for submission to the next parliamentary session in April 1994. Given that these target dates havebeen surpassed, it is hoped that MOA will expedite the pending work and review to meet theApril timetable.

85. Aside from the above decisions concerning the implementation of the liberalizationprocesses, two additional activities were added to the seeds liberalization action plan in order tosupport the seed production and marketing reforms.

86. Firstly, it was agreed that DAR (Seed Services Section) will host a workshop in May 1994to brief seed producers as to the detailed nature and implications of the seed production,marketing and pricing reforms. ASP funding is sought to finance this workshop.

87. Secondly, it was agreed that there is a need to revise the variety release system to allowprivate sector development of new, improved seeds. It was further agreed that DAR (SeedsServices Section); the Pricing and Marketing Section of Planning Division and Ministry of Justicewould collaborate to identify the changes needed and draw up an action plan for theirimplementation by the end of February 1994. As this date has been surpassed, there is a need forMOA to expedite the needed actions.

Irrigation Component

88. The main issue to ensure timely implementation of the irrigation subcomponent is forGovernment (DPMT) to formally approve the additional posts required for irrigation engineers. Itis the mission's understanding that this action has been approved in principle. It is recommendedthat Government expedite this approval and early posting of the additional key staff and of theIrrigation Engineer TA (by end-April, 1994).

Food and Nutrition Subcomponent

89. The Food and Nutrition Unit has updated its action plan, although it was not discussed bythe extension group at the Launch Workshop.

90. It has been agreed between the FNU and CAETO that the FNU action plan, and itsimplications for the work load of the FAs, will be discussed in detail at the three regional LaunchWorkshops.

Agricultural Policy Analysis Subcomponent

91. Bunda College has made good progress in preparing for its activities under the ASP. Ithas finalized the drafting of its contract with IFPRI, as well as its Memorandum of Understandingwith MOA. In addition, it has prepared tender documents for the civil works and sent these toIDA for approval. It has also updated its action plan for ASP supported activities. The only issueoutstanding concerns the flow of funds from MOA to Bunda, funding arrangements, and ICBarrangements for construction.

92. In this context, Bunda College and MOA have signed the MOU between them, and thecomponent can now be fully implemented. To enable this to happen, Bunda College should liaisewith the Chief Accountant of MOA to finalize the funding arrangements to ensure timely andsmooth flow of project funds.

Monitoring and Evaluation Subcomponent

93. The Central Monitoring and Evaluation Unit (CMEU) has updated its action plan coveringthe first one and a half years of ASP activities. In this context, It is further recommended thatthe CMEU operationalize (say, by end-May, 1994) the performance indicators for each of theproject components/subcomponents which were agreed with IDA (and included as part of thepackage at negotiations). There are two constraints on the timely implementation of this actionplan that can be foreseen at this time.

94. The first is the understaffing of the CMEU. This has accounted for repeated and longdelays in the reporting on project monitoring and evaluation in the past. The missionrecommendations concerning this problem are addressed below under the staffing issue.

95. The second is the degree of cooperation extended to the CMEU by the ADD monitoringand evaluation units. It has been noted that in the past that a lack of timely delivery of ADDmonitoring and evaluation reports to CMEU has been a major reason for the delays in thefinalization of various national level reports.

96. It is agreed that, during the 3 regional Launch Workshops, CMEU:

(a) investigates, with ADD Program Managers, the constraints to more timely delivery ofmonitoring and/or evaluation reports on the part of the ADDs;

(b) works out, with the ADD Program Managers and Monitoring and Evaluation officers, meansof overcoming these constraints, and

(c) draws up an action plan for addressing reporting delays.

It is also important for the staffing needs to be reviewed and resolved on a priority basis. Sincethe workshops have been held, in the event the above points were not resolved, it is important for

Budgetary Arrangements and Allocations

97. Expenditure ceilings of the Development Budget have been the main constraint inaccommodating new projects and enabling their implementation in line with planned targets. It isthe mission's understanding the Treasury/MOA allocated adequate funds for ASP in 1994/95, butthis point needs confirmation, especially since the ASP launch workshop and updated action planshave placed the Ministry in a position to fully implement ASP. The mission consulted withEP&D and Treasury on this issue to explore options for alleviating financial constraints on projectoperations. It has been agreed that the following measures would be implemented:

. use of the special account and direct payment facilities to complement the resourcesavailable in local project accounts financed by GOM in the Reserve Bank;

ii. full funding of MK5.4 million of Part II resources required by the project in 1994/95 toavoid restraints on the utilization of external resources caused by the inadequacy of counterpartfunding; and,

iii. active management of claims and disbursements to facilitate replenishment of GOMforeign exchange resources and the financing of its cash flows.

98. The Bank assisted MOA in the development of "yardsticks" during the preparation of theASP. GOM has agreed to apply the yardsticks in all its budget exercises and in making resourceallocation decisions for the MOA to ensure that resources are allocated in line with the Ministry'soperational requirements.

99. The mission would like to emphasize the importance of applying the yardsticks. This willserve several important functions. It will provide an empirical basis for adequately assessing theoperational resource needs for the Ministry, serve as a pilot test for a budget tool to be assessedand extended to other Ministries as appropriate, and provide a mechanism for ensuring consistenceand linkage between the Revenue and Development Budgets. It is therefore agreed that MOAupdate its Revenue Budget Estimates for 1994/95, based on the application of yardsticks, forreview by IDA. Since IDA has not received such estimates, it is requested MOA proceed toprovide them as the earliest date. It is understood that the development and application ofyardsticks will be an on-going activity of improvements to be supported by ASP.

Staffing

100. Although the exact magnitude of personnel shortage is not documented for the Ministry ofAgriculture, it is likely to be a major constraint to project operations unless remedial actions aretaken urgently. This was a major issue discussed in all of the regional workshops, and thereforemerits high priority. The vacancy rate for technical and management staff at the field,Technical/Development Officers and Project Officers, is about 50%. The same high rate ofvacancies, especially for Professional Officers, exists for economists, researchers, and extensionworkers. This reduces the capacity of the Ministry to undertake the technical and supervisorytasks required of it under the ASP and other priority projects.

101. It is agreed that MOA should draw up and implement an action plan for filling all highpriority posts in MOA (by end-April is a suggested target date). In addition, it is recommendedthat MOA should review the staffing of key units, in procurement and disbursement/claimsmanagement , and propose staffing and organizational measures required to improve their capacityand effectiveness in line with MOA's requirements for the services of these units. Theseimprovements could also be supported through the Institutional Development Fund (IDF) which isaimed at helping to streamline organizational arrangements in MOA and Ministry of NaturalResources and Forestry to ensure more cost-effective and sustainable services to smallholders.

Construction

102. The ASP will finance a significant amount of construction. The planned constructionconsists of houses for field staff, and office accommodation at MOA headquarters, Department ofIrrigation HQ., and at the EPA level offices. The pre-implementation planning for all civil worksis still in its early stages and needs to be expedited to avoid delays and ensure that the procuredcivil works play their intended role in facilitating MOA operations. In this context it is agreed thatMOA, in collaboration with MOW, should embark on a systematic process of pre-implementationplanning for all ASP financed civil works. This process will include site identification andacquisition, contracting arrangements for design works, and the drafting of and finalization ofrelevant tender and contract documents. MOA should, as necessary, consider the use of short termconsultancies to expedite the execution of this preliminary work.

103. Procurement Reform Program. ASP is financing a country-wide procurement reformprogram to improve procurement procedures, arrangements and capacities in all Ministries. TheMinistry of Finance is responsible for implement this subcomponent. There has been a delay inthe process of selecting the consultants to assist in the implementation of this activity. Themission urges the Ministry of Finance to complete as soon as possible (say, mid-April, 1994) theletter of invitation and preparation of a short list of consultant for final review by IDA.

Project Management

104. The mission is pleased that the newly appointed PS of MOA apparently is committed tothe implementation arrangements of the ASP, which relies on the existing MOA structure, underthe coordination of an Agricultural Sector Coordinating Committee (chaired by the PS of MOAand comprised of the Department Heads). In order to facilitate project implementation, it isimportant for the ASP to have a senior contact person who will undertake the reporting functionsthat are outside the normal MOA reporting requirements and coordinate and expedite actionsrelated to project covenants on the submission of accounts/audits, interagency coordination, andprovide in-house support on critical areas of project implementation. It has been agreed to recruita Project Facilitator for this function by February, 1994, based on agreed TOR and followingrecruitment procedures acceptable to IDA. While the selection process is at an advanced stagewith MOA preparing a short list of top candidates, it is requested that MOA expedite the finalselection of the most suitable candidate.

Donor Coordination by GOM and the ASP Framework

105. There is an urgent need for GOM/MOA to take a lead role in coordinating various donorswho are supporting various projects/programs in the agricultural sector. Such coordination isneeded to resolve areas of duplication and conflict with the aim of promoting efficient andeffective resource use in the sector.

106. Of immediate concern is the need for GOM to coordinate and reconcile the interventionsand implementation arrangements proposed for the ASP and the UNDP Fifth Country ProgramComponent for smallholder agricultural productivity (UNFAG). Consultations between UNDP andthe World Bank indicate that the problem area which needs to be resolved relates toimplementation/administrative arrangements required for MOA to support UNDP's District basedimplementation, while maintaining the effectiveness and its ADD operations and the legitimacy ofthe ADD structure which will be used to implement ASP. A tentative review of the ASP andUNFAG, which was undertaken with the UNDP Component Adviser, has indicated that all otherareas of possible duplication and conflict are resolvable if resources and efforts are viewed aspooled to support a single sector investment program/project. In this context, the two operations

arrangements, and identify and support distinct shares of activities common to both projects.During the mission a meeting was held with officials from MOA, UNDP and World BAnk toreview the above issue; itwas agreed that beginning in early 1994 MOA would work with UNDPofficials to ensure that the Fifth Country Program design features and implementation/fundingarrangements are fully reconciled with the national programs being supported by MOA. IDAwould appreciate being informed on the status of this exercise, and any adjustments which may beneeded on the part of IDA. It should be noted that the IFAD financed Smallholder Food SecurityProject, which is within the ASP framework, is focusing on the improved technical messages forresource poor smallholders. Therefore, it is important to avoid conflicting and/or duplicativeinitiatives which may undermine the assistance intended for smallholders.

107. Proposed Participation by GTZ/Germany. GOM and the German Government heldbilateral negotiations in February, 1994, as part of Germany's decision to resume assistance toMalawi. In anticipation of such discussions, the mission included discussions with GTZ officialsfrom Frankfurt regarding the possible areas for GTZ participation in the ASP. It is geed thaGovernment (under the technical direction of MOA) would firm-up the proposals so that they fitwithin the ASP framework. In principle, IDA funds can be readjusted to accommodate Germanparticipation in the ASP framework.


108. There is growing concern by Government and donors regarding the extremely low creditrecovery by SACA from smallholders in this past season (about 13%). More importantly, there isgrowing concern about the underlying causes of this low recoveries, aside from the politicalfactors which no doubt contributed to this unprecedented drop in recoveries (after having a trackrecord of nearly 90% over the past 10 years). The success of Malawi's exemplary smallholdercredit system is due to the enforcement of the 100% recovery rule and the joint liability principle,which provides the needed "collateral." There is a concern that the current drop reflects aweakening of the joint liability principle, in the context of Malawi's political transition.

109. Some of the mission members devoted time to reviewing the factors underlying the currentcredit crisis, which is leading to low input usage, and will probably lead to a low harvest. WhileMalawi appears to have adequate maize stocks over the next one year, it is critical that thesmallholder credit system be restored as soon as possible. After considerable discussions withrelevant persons and smallholders, it is strongly recommended that the Government reassessimmediately its current policy of extending credit to individual smallholders who repaid their loansand taking nearly 90% of smallholder credit clients to court, rather than requiring its 100% creditrecovery policy and restoring the joint liability principle to help in the recoveries. It is recognizedthat Malawi is in a dilemma, and that further adjustments in the current recovery policy maycontribute some confusion. But taking the wrong course of action this crop season could alsodestroy Malawi's exemplary credit system. The above points have been communicated to theSecretary to the Cabinet, and it is hoped that Malawi's leaders will consider the full implicationsof not taking appropriate actions.

110. Annex 3 provides a discussion note which outlines 3 options for Government'sconsideration in trying to restore the success of Malawi's smallholder credit system and to helpminimize the possible adverse effects of low input usage and negative agricultural production in1994. Given that the Credit Repayment Study draft report has been submitted to Government,this latter report is now providing the relevant basis for discussion and finalization of the actionplan to restore credit discipline.

111. In order to better understand the underlying factors leading to the low credit recovery, ithas been agreed that the Centre for Social Research will carry out a Smallholder Credit RecoveryStudy. IFAD is financing the study (on a grant basis). The study TOR were worked out and

agreed during the mission. The study is focusing on the problems and causes underlying poorrepayment, and will recommended strategies to help restore improved recoveries and jointliability principle to enable the expansion and sustainability of rural financial services. The Centrefor Social Research has initiated the study, given its urgency, and in mid-March, 1994 submittedthe draft report to MOA. The draft report correctly is emphasizing the need for joint liability,group training, and full repayment to restore the integrity of clubs and to sustain lendingoperations to smallholder farmers. The study findings are being used to help guide SACA/MRFCefforts to restore the integrity of the credit clubs in a short period of time. It is agreed thatGovernment, under the leadership of Treasury and MOA, would act promptly to review andimplement the relevant recommendations and action plan.


112. Following-up on the ASP Reconnaissance Mission in April/May, 1993, and discussionswith Government and the private sector, and the findings of the draft Agricultural Sector Memo(ASM), the team held discussions with a number of private sector organizations and individualsregarding their interest in participating in a proposed ADP. In summary these groups expresseda strong interest. The ASM has identified broad-based diversification as one of the primarysources of future growth in Malawi. It also identified numerous constraints that will need to beaddressed in a concerted and coordinated manner if this potential is to be realized. Agriculturaldiversification, both domestic and export was discussed at length during the ASM Workshop and anumber of recommendations were made to improve and sharpen the focus of the constraintsidentified and future actionable strategy. One of the main recommendations that came out of the

-Workshop was the need to emphasize from the outset that future diversification efforts in Malawineed to be focused on a private sector lead strategy in close collaboration with Governmentsupported services (especially research, extension and key infrastructure).

113. In addition to the ASM workshop, informal discussions regarding agriculturaldiversification were held with MIPA, MDC, private farmers, potential investors, and leadingprivate agribusiness groups. These discussions reaffirmed the need to organize and supportprivate sector leadership and to clarify and establish an interim organizational framework (i.e.such as a reconstituted Agricultural Diversification Steering Committee) which could be used tointegrate private and public interest to guide the development of an agricultural diversificationprogram. The constraints that will need to be addressed by this group, with donor support include:market intelligence and the demand for potential diversification crops; market development andaccess (transportation); production technology (including post harvest handling and processing ofsome crops), policy framework (including current policy constraints and potential diversificationincentive programs); institutional framework to promote and lead a broad based diversificationprogram; investment environment and financial mechanism to support often high risk ventures;and infrastructure requirements needed to support a diverse long term agriculture diversificationdevelopment effort.

114. It is recommended that Government, in close collaboration with private agricultural sectorleaders, reconstitute the Agricultural Diversification Committee to be comprised of members fromthe private and public sectors to guide and support a program development effort. The SteeringCommittee would be charged with directing donor supported program identification and designefforts. There is also a need for Government to clarify the specific roles of organizations whichare already reviewing agricultural diversification strategies, including the Crop DiversificationCommittee and MIPA, Association of Horticultural Exporters, and possibly others. In principle,there should be a role for these groups, but there is a need to provide an overall institutionalframework for providing the leadership in the preparation of a national agricultural diversificationprogram. The above proposed Steering Committee could facilitate the evolution of this neededframework. This program would provide the framework for private sector led diversification,

115. It should be noted that the World Bank has mobilized substantial Japanese grant funds toassist Malawi in the preparation of a national agricultural diversification program. We await theGovernment's indication of the next steps. The mission is pleased that, Government, under theleadership of the newly appointed PS of MOA and Chief Planning Officer, are taking steps toreconstitute the Agricultural Diversification Committee, and have organized an agriculturaldiversification workshop on April 7 and 8, 1994 to launch the preparation process of a nationalagricultural diversification strategy/program.

JOINT GOM/BANK AGRICULTURAL REVIEW MISSION(Novmeber/December 1993)

ANNEXES

Annex 1: Proceedings from Consortium Group Meeting(Summary of Presentation/Discussion on Agricultural Sector)

Annex 2: ASP: Updated Action Plans (from ASP Launch Workshop)

Annex 3: Discussion Note on Smallholder Credit Recovery: Crisis or Transition

Annex 1International Bank for Reconstruction and Development

FOR OFFICIAL USE ONLYMW 94-1

FROM: Vice President and Secretary February 17, 1994

CONSULTATIVE GROUP FOR MALAWIParis. December 20-21. 1993

Chairman's Report of Proceedings

Attached is the Chairman's Report of Proceedings of the Meeting of the Consultative Groupfor Malawi held in Paris, December 20-21, 1993.

Distribution For Information:

Executive Directors for:

Australia Japan European OfficeAustria Malawi Tokyo OfficeBelgium The Netherlands Resident Representative, MalawiCanada NorwayDenmark SwedenFinland SwitzerlandFrance United KingdomGermany United StatesItaly

African Development BankCommission of the European CommunitiesDevelopment Assistance Committee, OECDEuropean Investment BankInternational Finance CorporationInternational Fund for Agricultural DevelopmentInternational Monetary FundNordic Development FundNordic Investment BankUnited Nations Development ProgrammeUnited Nations High Commissioner for Refugees, UNHCRWorld Food Programme

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents fnay not otherwise be disclosed without World Bank authorization.

17. Several donors pointed out a few major development policy issues that need tobe addressed without delay. They focused on continuing stagnation of the industrial sectorand the need to create a more conducive environment to attract private sector investment,reduce discrimination and other barriers to new investment and engage in regional cooperationunder the cross-border initiative framework. Some donors also underlined the need to achievefull repayment of fertilizer credit by farmers' clubs as it affected the viability of the entireagricultural credit system in the country. In response the Government delegation assured thedonors that the poverty alleviation was given high priority. The Government also underlinedits commitment to pursue the full recovery of agricultural credits and to introduce additionalmeasures in order to provide new incentives for the development of the private sector.

18. Another area in which some donors raised their concern was the lack ofprogress in economic diversification. It was mentioned that over the past decade an oppositetrend had been recorded - the share of tobacco in total export earnings was increased fromabout 45% to over 66%. The need for developing strong competition in the economy wasemphasized as a prerequisite to develop comparative advantages in the regional andinternational trade.

19. Donors also conveyed their appreciation to the Government for its hospitalityextended to the refugees from Mozambique. It was agreed that the assistance to the refugeesshould continue and called for an action plan on rehabilitating the infrastructure in therefugee-impacted areas.

Special Session on Agricultural Strategy Options

20. The Special Session was devoted to 'Agricultural Strategy Options in the1990s". Mr. Anson from the World Bank made an opening presentation (Annex XIV). Hispresentation focused on three topics: a brief overview of Malawi's agricultural performanceand remaining constraints to faster and sustained agricultural growth and poverty reduction;identification of an agricultural strategy framework and strategy options involving five priorityareas; and possible areas for increased donor assistance. He indicated that Malawi'sagricultural sector was performing below its potential primarily due to deficient policies,inappropriate institutional arrangements and inadequate investment patterns and levels,especially by the private sector. To achieve faster and more broad-based growth andreduction of pervasive poverty, a multi-dimensional and comprehensive strategy is requiredaimed at increasing the productivity of Malawi's agricultural land and labor resources andexpanding income and employment earning opportunities in an environmentally sustainablemanner. Such a strategy should focus on formulating and implementing priority policy,institutional and investment strategies/reforms which should build on and expand the recentinitiatives and reforms involving development and farmer adoption of maize hybrid seedvarieties and opening-up of smallholder burley production. The strategy should be two-pronged: in the short and medium terms, increasing the efficient utilization of existingresources and technologies; and in the long term, pushing out the production possibilityfrontier.

21. Mr. Anson indicated that in the short-term, the priority should be given tofive key strategy areas:

-7-

24. The Government representative acknowledged that the choices between theeconomics and health implications of tobacco production were incredibly difficult and pointedout, that, so far, no alternative agricultural crops could compete with tobacco. He indicated,however, that Malawi was placing high priority to accelerating agricultural diversification theneeds to link to diversification in other sectors which rely on local raw materials, and thatinvestment resources were needed to make concrete progress. That would lead to a decreaseddependency on the tobacco share in the economy.

25. It was agreed that there would be a need for follow-up analysis in Malawi onstrategy options involving the future role and structure of Malawi's tobacco subsector andactions required to promote realistic prospects for accelerating agricultural diversification. Itwas generally agreed that, under the leadership of the Ministry of Agriculture a nationalagricultural strategy workshop would be organized later in 1994 which would aim toconsolidate the priority strategies and supporting actions arising from various recent studies.

-6-

(a) further liberalizing produce pricing and marketing policies to increase theefficiency of agricultural land use and profitability of production of food andespecially cash crops;

(b) reforming the burley tobacco quota allocation system to increase equity,efficiency and smallholder incomes;

(c) expanding fertilizer supply and demand to accelerate and sustain increasedcrop yields;

(d) expanding and sustaining rural financial services (including the need to restorethe joint liability principle) to support intensification and diversification;

(e) accelerating private sector-led agricultural diversification to reduce dependenceto tobacco and to expand income and employment opportunities: options onpotential, strategies, public/private sector roles, and types of support required.

He concluded that three priority areas for increased donor assistance to support theimplementation of the preferred options would include: expanded fertilizer imports on grantbasis; multi-donor support for agricultural/natural resource public expenditures based on aprogram/sector approach and well designed targeted interventions to address needs of resourcepoor rural population.

22. Several donors raised a number of issues such as the appropriateness ofpromoting smallholder burley production, the justification of considering an option ofextending the current timetable of the fertilizer subsidy and options for improved targeting tothe resource poor smallholders, the importance of accelerating agricultural diversification andactions in the interim period between relying on tobacco exports and exports of non-traditionalcommodities, the role of agricultural and non-agricultural sectors in promoting growth andpoverty reduction and balancing agricultural growth and environmental concerns to ensuresustainable development.

23. The discussion focused primarily on the role and impact of smallholder burleyproduction and on the scope and strategies for promoting agricultural diversification, andGovernment views on these two central issues. One donor expressed concerns regardingexpanding smallholder burley tobacco production. In response, the Bank staff indicated thatthe total volume of burley production is not expected to rise and that its share in GDP andexports will actually decline over the years due to other activities to be induced undereconomic diversification. As a short-term measure, however, the smallholder burley programis designed to alleviate poverty, through ensuring greater access to the country's mostlucrative cash crop and to world market prices for that crop. Increased incomes are thusmade available to purchase fertilizer and hybrid maize seed, which promotes food security andfrees up both land and labor for diversification. There was strong consensus on the need tourgently accelerate Malawi's agricultural diversification as a means of reducing Malawi'sdependency on tobacco in the light of declining world demand, but it was less clear how thiswould be achieved in a short period of time. This discussion highlights the need for Malawito develop and implement a coherent strategy, based on a forthcoming agriculturaldiversification program which is expected to be prepared by Government, with active privatesector and donor collaboration.

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GROUP IV - BUDGETING

ACTIVITY INDICATOR TIME IMPLEME INPUTS BUDGET RISKS/SPECIFIC-A FRAME NTER ASSUMPTION RESPONS TIONS

_____ ____ _____ ____I BLE _ _ _ _ _ _ _ _ _ _ _ _ _ _

Review Sector C- By Senior Project K40.000 FinancPSIP investime Augus Economi submiss ial

nt t st ion andprogramme annua (Budget Documen Moral, Update ily ing) ts, SupporDTEC & Agreed t Non-Project Sector ResponBudget. Strateg seDonor and ies andInter- PrioritMinistria - ies

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1994 ants

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-ASP

PROCUREMENT

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IFICATI SPONSIB ONS__ _ __ _ ON LE__ _ _ _ __ _ _ _ _ _ _ _ _

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IE) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

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GROUP V


OBJECTIVE: TRAINING CAPABILITIES IN POLICY tNALYSII ESIAgILISNi AT gUDA

ASSUMPTION: ADEQUATE STAFF CAPACITY EXISTS Ar gUNDA

ACTIVITIES INDICATOR SPECIFICATIONS TIME FRAME IMPLEMENTOR RESPONSIILITY INPUTS BUDGET RISKS/ASSUUPTIONS

Procurement of vehicles and Vehicles computers furniture August to December, '94 Estates Development Officer land$ Maegers osnequipent and cutlery Proge Manager IDA procureseat in coastruc'

sith NOA

legin teaching short first course offered August, 1g14 Progreme Manager At least first Nodule icourses developaed (by Junel

slgia treining Nic candidates Too candidates start treining Jemuary, Ig1 1ea8 of Rural DIV. Dept. Candidates nomineted in(under ASP) (lmnd College) released by IDA

Modify annual mork plans Update sorb plans and budgets By September I each year Progres Meagerand Budgets (reviem and updatel (FY 9gW)

Steering committee seatings Minutes of the meetings February 19g4 I lst meeting) Principal gunde College(3 a yearl (for lst seeting)

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GROUP V


OBJECTIVE: TRAINING CAPABILITIES IN POLICY ANALYSIS ESTAILISHED Al BUNDA

ASSUMPTION: ADEQUATE STAFF CAPACITY ElISTS AT EUNDA

ACTIVITIES INDICATOR SPECIFICATIOMS TIME FRAME IMPLEMENTOR RESPONSIIlgIlT INPUTS BUDGET RISKS/ASSUMPTIONS

- - - - - -- - - - - - - - - - - - - - - - - ---- -- ------ - - - -- -- -

Signing of Final Documents Signed Document (MOV) Mou to he signed betusan Planning division No Objection over document

betig n f lt MbA and Bonds by Chief Plainian Officer for by Goverument by Govt.

and und Collage 31st January, 114 folom-up (Attoney General)

Signing of Contract hyWige and IFPRI signed document (contracti Contract to be signed by aunda College mural Div. The MOU is signed by Govt

gude and IEPRI within Sept. 1DI. J.1. Neahubal and load$

2 seeks of 0U being signed

Assign Progras Manager\ Program Manager and place By the end of Feb. '14 Heed of Rural Div.

Administrator Dept. (Sunda Colle

Needs assssment study for Study report e n su dy Program Manager

policy analysis trainingto be carried out

Preparation of training six training modules First module ready by Program manager Needs assessment cosplet

modul e (4 seeks each module) June 30, 114 last moduleready by Dec. 31, 111

Construction of Buildings Student hostel computer March 111 - Dec 1114 Estates Development Office

lab training facility University of Mela i tendering Procedure m illand IDA accepted by IDA

Revise TOR TOR and Revision CMEUfor ST M&E Consultan by JanConsultanc t in '94,y + place RecruitmRecruitCon ent bysultant Feb/Mar'

Submit Reports QuarterI CMEU/A NON-progress in time y DD Productionreports on of Reports

Train 10 May 1994 Traini Posts inEvaluation officers ng ADDsofficers trained Unit filledin (1 from (MOA)computer -each ADD)skills - -

Request SO X By June CMEU &to absorb numerats 1994 NSOMOA absorbed requestsEnumerator hould bes put

immediat_______ ely_ _ _ - -

Train -200 Aug - CMEU/N SelectedEnumerator trained Sept. SOADD/ staff wills in by '94. CMEU bestatistica October permittedlskills at 1994 to sell

-. ADD level their____ ____ ___ ___leave

Undertake At least FY/1994/ CMEUAdhoc 2 per ADD 95studies

Prepare TOR for By Nov. CMEUTOR for Evaluatio 1994Evaluation n studystudyPrepare AWPB By CMEUannual Documents Augustwork plans 31stand 1994Budgets ___________ _ _ _

Organise Record of QuarteryEWP 1procengs(Evauat ionWorkshops

GROUP V. MONITORING & EVALUATION

OBJECTIVES: M&E SYSTEM FOR ASP STRENGTHENED CMEU COORDINATES ALLM&E ACTIVITIES

ACTIVITIES INDICATOR TIME IMPLEM INP BUD RISKS/ASSUSPECIFICA FRAME ENTOR UTS GET MPTIONSTIONS RESPON

SBILITY

Organise 4 Quartery CMEU PSASSC meetings availablemeeting per year to chairthe

- meetingFilling of 11acant 6 posts Chief Sufficientvacant posts filled - Planni economistsposts in filled by April ng navailableMOA (Hqs 94. 5 by Office to fr&DDs April 95 r popsits

(MOA)

Establish Advertise By July Chief6 x P8 ment for '94 Planni Specialposts in 6 the posts Establis ng obtainedADDs, 2 x hed Office fromEconomist r for DPMTPosts at followCMEU -up

(PlanningDivision

Implement Three CES-Oct- Centracore Reports July 1survey EMS- Monitoprogramme MarAugP ring &(CES, IS-Feb- EvaluaEMS,PIS. Mar tionFSN)

Unit(CMEU)

Developing Manual + By May 1 CMEUwiM&E data Data base thManual package Consulincluding for tantsdata base computerforeportingsystem

I)

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FIELD STAFF

DISTRIBUTE 400 CICYCLES 8Y DECEMBER. CVOBICYCLES TO DI3TRIBUTED 1994FIELD STAFF

CONDUCT 3 REGTINAL t3Y ENDW'RPv>HOPf: mR WORKSHOP -- FEBRUARY. ->

*V''S il 10S IJU003 CONDUCTED

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UJPFpV I SOR_ _

ARIEI FA/VA ON 64 BRIEFINGS DO/VET iREAA3P PROJECT CONDUCTED SUPERVISOR A

CONDUCT FA/VA 64 FA/VA f ROM JULY. DO/VASREF R; HER REFRESHER L?94C U 1:) S COURSES CON T INUOUS

_ONDUICTED

R i VA REVISED VAs 8Y iND CV 0I jP(';u r DNG UPGRADING FEBRUARY. PRINCIPAL OFCOUR`Es PROGRAMME 1994 NRC

AVAILABLE

CONDUC r VAS 23 VAs FROM :EP'T. CV' :UPGRADING UPGRADED 1994 ANNUALLY PRINCIPAL OFCOURSS ANNUALLY NRC

CONDUCT COURnES .]UL'-3EPT. CVI.Ca;T-ON TECHNICAL. 1'94 CONSUl. I ANTM!S3ACEDFVELUQPMENT -

DrVELOP CONTINUOUS CVO.C)VO ;i DA0L IV7 'TlCKEXT- NSTONMFS'SAGE

FINALISE RY END CVr l CAETOL £VESTOCK JANUARY,l' 94EXTENS [ONPESPONSII1L ITI -S

PROCURE VAs BY 3EPTE:MBER PROCUREMENTFIELD EQUIPMENT L9 0 4 OFFICER MOA

D r3TRIBUTE VET BY END OCT. CV0FIELD EQUIPMENT 19Q4

FINALVIE nAHI BY MARCH 1944 ';VOORGANIZATIONALSTRUCTURE

SUBMIT REVISED BY MARCH 1994 CVfORGANIZArIONAL3TRUCTURE TORELEVANTA(THORITIE3

GROUP 7 ASP-SSI

ACTIVITY INDICATOR TIME IMPLEMENTA PHYSICAL RISKS/ASSPECIFICAT FRAME TOR INPUTS SUMPTIONION RESPONSE S

Recruitme 1 CIO Mar 94 PO/CIO PSC hasnt of (PS), thestaff 2(P7), capacity

4 (PS),_____ ____ 2 (P0) _ _ _ _ _ _ _ _ _ _ _ _ _

Recruitme I CTA Feb 94 CPOnt of National,Technical 3 CTA KADDStaff

Workshop 3 May 94 CIO/PM Resourceon SSI workshops personneconcept per ADD I

for 6 ADDs transpor

Prepare Report April CIO/TA Vehicles CTA innational 94 place bySSI Dev. Feb '94Programme

Country Report June CIO Localstudy 94 expertisevaluat ion- SSI availablExper. _

Modificat Report on Mar 94 DPMT/CPO/C OPCion of filled 10 approvesDOI parts of newstructure approved stjructur..-----..--. structure eSet up Cross Feb. DPMT/CPO/C Othertask section of '94 10 departmeforces in 10 member ntsillADDs team task commit

force staff

Construct I office Dec 94 CIO/Contro Contraction of block, 6 11er of orsoffices & class C Buildings financiaHouses housesLAD, KADD availabi

lity andofmaterials

Topograph maps Dec. CIO/PMs Surveyical 94 equipmensurveys ______ __ ___t

Establish Computer Dec CIO Officerment of diskettes '94 equipmenGeophysic & printers t &al data Suppliesbase

ResourceEqument -

Detailed Drawings July CIO Drawingdesigns 95 officeof SSI equipmenschemes t

Implement 10 Backya CIO/PMs/NG 10at ion of backyard rd 0 backyardpilot kits , 1 kits kits,schemes scheme Dec 94 pilotNsanje operating Pilot schemeand in Nsanje scheme equipmenBackyard s Dec tkits 1997BLADD

Implement Schemes in Dec CIO/PMs/NG Pilotat ion of operation 1997 0 schemeeqways and uipmentNgolowindo pilotscheme

Implement 4 Lumpsome Mar IO/CTOaion of masters '95training Irrigationprogramme ext. staff

farmers

Environme 6 Dec. CIO/PMsntal workshops '94awarenessworkshops I

Marketing Isupport Marketing

officerfor eachADD

PreparerevisedNationalSSIprogamme

Annex 3

DRAFT DISCUSSICu DOTEDecember 7, 1993

Current Acricultural Crop Season: Crisis or Transition?

I. arn"MD

1. Given the current uncertainties surrounding the upcoming agricultural season,there appears to be a debate as to whether this uncertainty is the beginning of alooming crisis in food security or merely part of a transitional period which willwork itself out over the course of the upcoming crop season. This discussion notehighlights 4 main points surrounding this uncertainty:

• agricultural performance in 1992/93, especially with regards tomaize, Malawi's vital staple food;

• credit default issues and implications for food security;• estimate of Malawi maize availability over the next two seasons

(up to about May 1995) and implications; andmaize strategy options and food security implications whichcould be considered by Malawian decision-makers.

Aaricultural Production in 1992/93

2. alawi's smallholder subsector experienced a record harvest in 1992/93. -Estimated maize production exceeded 2 million metric tons (MT), in addition to anunknown amount from the estate subsector. The high level of production fromsmallholders is due to several factors. First, 1992/93 experienced a uniformly goodrainy season across the whole country with favorable growing conditions for maize.Second, there was high adoption of hybrid maize and fertilizer by smallholders.Smallholders planted about 7,000 XT of hybrid seed which accounted for 280,000hectares of the area planted to maize (or about 25% of total maize area insmallholder subsector) and contributed about 1 million XT of maize (or about 50% ofthe total maize production). The increase in maize production was also caused byfarmers' heightened food security concerns in a year that was immediately followedby the worst drought in the past 50 years. The increased availability of creditthrough SACA (about MK 145 million, or an increase of about % over the previousyears), coupled with rescheduling of credit, also enabled a significant proportionof smallholders to obtain a significant increase in the level of purchased inputs,notably hybrid maize and fertilizer (or an increased of % and %, respectively,over the previous year consumption). Smallholder credit financed about 60% of all

the inputs used by smallholders. There was also free distribution of seeds.

3. The smallholder subsector also produced a good. crop of burley tobacco whichfetched above average prices at the auction floors and contributed to increasedrural agricultural incomes. Total rural earnings from maize and burley tobaccoamounted to Nm million in 1992/93, of which MR was from maize. This compares tototal earnings from maize and burley tobacco, of HR million and MR million in1991/92 and 1990/91, respectively. The main point is that in 1992/93 smallholdershave experienced significant increases in real incomes over levels of the previous2-3 years, which was made possible by the increased adoption of the maize flinthybrid and increased smallholder access to growing the lucrative burley tobacco.

1

Credit Recovery Issue an d Imlication

4. The smallholder credit club repayment of loans to SACA for inputs used in1992/93 is only about 13% (as of mid-November, 1993), involving only 5% of thecredit clubs (Table 1 provides further details). This is the lowest recovery levelin Malawi's history, and does not reflect the impressive performance of thesubsector over the past 1 year in terms of farmers' ability to repay. Such a highlevel of default is a cause for concern regarding the prospects for smallholdermaize production in the 1993/94 agricultural season, as most smallholders will notbe able to get access to formal credit. This concern is further exacerbated by thelow rate of cash sales and uptake of hybrid maize seed and fertilizer, in theabsence of credit. Cash sales have declined significantly from the levels achievedin recent years. The unprecedented high rate of credit default also raises concernon the continuation and sustainability of smallholder credit operations in Malawi.If the smallholder credit system which is based on the principle of group jointliability, including the policy of 100% credit recovery, is not restored, this mayundermine the credit revolving fund and the entire smallholder credit system andrecovery ethic in the long term. Allocating credit on an individual basis andrequiring traditional collateral will be too costly, unsustainable, and reach only asmall portion of smallholders. This would then undermine the smallholderintensification strategy which is the core of Malawi's agricultural strategy.

5. The collapse in credit repayment performance has been attributed to severalcauses over the 3 past crop seasons. It is commonly reported that farmers were madeto believe that the inputs that were loaned were meant to be drought relief grants.In May 1991, following a record harvest, it is reported that some political leaders,in anticipation of the upcoming elections, made some public statements that the 100%credit recovery rule would not be followed. This appears to be the beginning of thecrack" in Malawi's successful smallholder credit system. The drought of 1992/93resulted in across-the-board debt rescheduling (spread over a 3 year period), evenfor smallholders who were not affected by the drought. Then, prior to the

referendum in June 1993 it is confirmed that leaders of most political parties madea number of statements which led many smallholders to believe that the Governmentwould not reinforce the 100% credit recovery policy, and that many of the loanswould be forgotten" or rescheduled.

6. In response to the above credit crisis, MOA is proposing to expel andprosecute all smallholders who have not repaid their credit and to reconstitute new(to be confirmed) credit clubs comprised of smallholders who have repaid (only about13% of the previous club members). MOA apparently believes that it will be possibleto reconstitute the new credit groups over the next 10 days, which needs to be re-examined in terms of feasibility and practical implications on the principle ofjoint liability. Moreover, if all defaulting smallholders were to be prosecuted,this would involve nearly 400,000 smallholders. This is well above the total numberof persons prosecuted by Malawi's court system since Independencel One of theunderlying reasons for re-establishing new credit clubs as proposed is the view thatsmallholders repaying should not be penalized by those not repaying, and theassumption that smallholders in the current credit clubs do not support the jointliability concept, and hence there is a need to re-build this concept.

7. Informal discussions with smallholders and persons familiar with smallholderviews suggest that this latter assumption needs to be carefully re-examined,particularly regarding the medium and long implications of the impact on the jointliability principle.

2

a. The implication is that many smallholders will probably not be able to obtainthe needed cash inputs of hybrid seed and fertilizer to sustain previous productionlevels, or possibly help ensure household food security over the next 1 1/2 years(until the harvest of 1994/95). Before such a concern -is established, it will beuseful to assess the availability of maize over the next 1 1/2 years.

Indicative Estimate of Maize Availability and Implications

9. There is no reliable estimate of the current maize availability. One set ofestimates suggest thats (a) there are currently about 2.1 million MTs available (tobe confirmed by MOA/EP&D), and that by next crop harvest (but excluding the nextmaize crop) there could be about 330,000 MTs available (this figure also to beconfirmed)l (b) the 1993/94 crop season could generate a total maize production ofabout 1.5 XT (assuming "normal" weather, and a mixture of local and hybrid maizeresulting from the likely allocation of credit by SACA).1/ Based on the aboveestimates and underlying assumptions, this situation suggests that Malawi appears tohave sufficient maize to meet the national food requirements until the harvest inabout ay-July, 1995, subject to "normal" weather conditions. This judgement isconfirmed by the recent analysis carried out by IED' Food Security Unit. However,if "bad" weather materializes during the next two crop season, the maizeavailability situation could require some maize imports, although it is impossibleto predict the amount which may be needed at this time. Recently, there werereports that "EL Nino" weather patterns could result in unfavorable weather thisupcoming crop season in Malawi.

III. PLICE GMOP S aD IPLICXTIos

10. -The above assessment of the current agricultural season suggests three mainoptions in terms of course of action to address Malawi's food security requirements,the country's most important policy objectives. Below, each of these options andimplications is assessed for consideration by Malawian decision-makers.

Dtion 1: MOA Proposal of Reconstitutina New Credit Clubs

11. MA proposes to reconstitute new credit clubs, comprised mainly ofsmallholders who have repaid (only about 13% of total debt), and to expel defaultingmembers and take them to court. As indicated above, it is uncertain that there istime to form these groups before the upcoming planting season (possibly within thenext 10 days) and that there is the capacity to prosecute the immense numbers of

I/ This estimate is based on the following assumptions: hybrid seedsales of about 4,000 eTs (due to limited credit and cash availability),implying hybrid maize area of about 160,000 ha. and a total productionof about 400,000 MT (for an average of 2.5 MT/ha); a balance of about1,075 X ha. under local maize, with an average yield of about 1,000kgs./ha, totalling about 1.1 million MT. The combined total would beabout 1.5 million MTs. ED has prepared more detailed estimates ofmaize production projections for the 1993/94 crop season based onseveral assumptions on the possible impact of lack of credit for hybridmaize and fertilizer. One of the scenarios is consistent with the aboveestimate. In all scenarios, EPED preliminary estimates suggest adequatemaize over the next 1.5 years.

3

defaulting mers. Moreover, in the meantime, all other smallholders will not beOeigible to join a new credit club to obtain fresh credit, unless they repay.

12. Abolishing the existing credit clubs could-have the risk of coavying adangerous signal to smal1holders that will permanently damag, the jointly liabilityprinciple, the key to Malawi's. successful and model smallholder credit system.Smallholders need to know that Government is fully committed to enforcing the 100%recovery rule and in maintaining the joint liability principle, and that it is notgiving in for a third year in terms of relaxing the credit recovery rule. iven ifGOM were to implement XOh's proposal, only a small portion of smallholders would beeligible for credit, and hence, this will have a small impact on maize production inthe 193/94 crop season. This will have a negligible impact in addressing the foodsecurity requirements, and probably result in substantial imports as suggested inpara. 10, unless appropriate mitigating measures are taken.

Ontion 2: Maintain the 100% Recovery Rule and Do Nothina/Monitor

13. This option is to retain the existing credit clubs, enforce the 100% recoveryrule, and monitor the food production situation. The underlying assumption is thatthere is sufficient maize in the country, together with a modest harvest in 1993/94season (of about 1.5 MT, which is below the anticipated production level due to thecredit/input usage situation) to provide enough maize through 1994/95 (or until theharvest in May, 1995).

14. This option has the merit of protecting the integrity of the joint liabilitysystem and of not taking premature initiatives (such as a supplemental priceincrease, which could lead to excessive stocks or losses to farmers if bad weatherwere to materialize. Nonetheless, even if there is adequate maize at the aggregatelevel, the significant drop in maize production this coming season, mainly bycommercial smallholders who produce surpluses, would result in a substantialdecrease in the amount of maize available in local markets. This would have severaladverse implications in terms of growth and poverty reduction and food security:

the smallholder subsector will likely experience a negative growth rate (of upto a ngative 5-10%), resulting in a negligible or even negative economic growthrate; Z/• there will be less maise available and hence higher prices in local markets,resulting in further impoverishment of smallholders who have to buy maize for atleast 4 months of the yearl and• less cash in the rural economy, and hence fewer employment and income earningopportunities for the resource poor who rely on these supplemental sources of incometo meet their bare subsistence needs.

Option 3: Maintain the 1004 Recovery Rule, Promote ADmrouriate TaretedInterventions and Donor Food Security lnsurance"

15. Given the scenario outlined under option 2, to help mitigate the adverseeffects of the current situation, two actions are proposed for consideration byGovernment:

23 This negative growth rate is based on estimates made by the recentBank-IMF macroeconomic mission.

4

(a) request donor assurance (in principle) that it will provide food importassistance if Government's implements appropriate and timely actions to restore the1004 credit recovery rule, and if maize shortfalls arise due to the implementationof this policy; this action includes assurance that Government will not distributefree fertilizer and/or food and that it will not reschedule the debts of creditdefaulters;(b) NM to intensify its extension messages and advise to assist smallholders inimproving grain storage methods to minimize the on-farm storage losses (which couldbe as high as 25%, if appropriate methods are not used); and(c) formulate improved targetted intervention strategies and to design and beginimplementation of improved expanded intervention programs to assist the resourcepoor arising from the negative growth in the agricultural subsector affecting off-farm employment opportunities (e.g., food-for-work, fertilizer-for-work, etc) and

Conclu1sion and Rtecomenmdation

17. Based on the above assessment, it is recommended that Government consider thefollowing possible actions which are consistent with option 3a

the current agricultural season appears to provide enough maize at theaggregate level over the next two years, but the situation needs to be closelymonitored to account for possible "bad weather" and for a delay in the resolution ofthe smallholder credit system. Given the signficant drop in production, especiallyby the commercial smallholders, this is likely to reduce employment opportunitiesfor the resource poor. There may be a need for Government, with donor assistance,to consider appropriate forms of assistance in targetted interventions (e.g., food-for-work, fertilizer-for-work) to help mitigate the adverse impact on the resourcepoor.;

Government may wish to re-assess its approach to restoring the smallholdercredit clubs by taking into account the practical implications of MAo's currentproposal to reconstitute credit clubs. The delay in implementing this proposal, andthe likely negligible impact this crop season suggests there is a need now toreassess this strategy; and• Government may wish to approach donors and request their assurance (inprinciple) to assist in providing maize imports in the event maize shortages arisedue to the Government's firm actions to restore the 100% recovery rule and integrityof the joint group liability principle (e.g., not distributing any free food orinputs, and trying to restore the creditworthiness of smallholder credit clubswithout rescheduling debts of defaulters). Government could raise this point at theConsortium Group meeting in Paris.

Finally, it is hoped that this note can help stimulate further discussion withinGovernment of the various options and the most appropriate course of action to take.

5

THE WORLD BANK/IFC/MIGA

OFFICE MEMORANDUM

DATE: April 14, 1994

TO: Chaim Helman, Chief, AF6AE

FROM: Richard Anson, Task Manager, AF6AE4

EXTENSION: 3-4397

SUBJECT: Malawi- Agricultural Marketing and Estate Development Project (Cr. 1966-MAI)Malawi- Agricultural Services Project (Cr. 2414-MAI)Full Supervision Report

1. Attached please find the full supervision report for the above two projects. This report contains:

• Forms 590 - Project Implementation Summaries;• Statement of Compliance with Legal Covenants;• Follow-Up letter to Government, endorsing mission recommendations (Attachment 1);• Final Aide Memoire (Attachment 2) (draft Aide Memoire was used as basis of wrap-up meeting

with Government at end of field mission);

2. The Agricultural Marketing and Estate Development (AMED) Project mission was a mid-termreview of the entire project. Government prepared a comprehensive mid-term evaluation report andthis was used as the basis for a joint review and for on-going follow-up actions. Prior to the review,some project components already had been restructured, and the mid-term review focused onconsolidating these initiatives to ensure that project benefits are being secured. The project is alsosupporting key policy reforms and supporting measures to expand the role of private traders infertilizer, seeds and produce markets. Overall project progress continues to be satisfactory.

3. The Agricultural Services Project mission focused on assisting Government formally launch theproject. A national project launch workshop was held (and followed by 3 regional workshops) andopened by the Minister of Agriculture, and focused discussions on updating detailed implementationaction plans for each project component. Since the project is supporting national programs involvingthe entire MOA, the project is facing underlying constraints involving MOA, but constraints whichASP was designed to address as part of a longer term program. The project is off to a good start.

4. In both projects, the Resident Mission (local staff) are playing key roles in providingimplementation assistance and building greater capacity for getting results in the field.

5. The following documents relating to this review have been placed in the respective ProjectImplementation Files and are available on request. They include: AMED Mid-Term EvaluationReport and the ASP Updated Action Plans and Workshop Proceedings (national and regional).

cc (* indicates only Form 590): Messrs./Mmes Denning,* Edstrom, Tidrick* (AF6DR); Patel*,Aksoy, Schafer (AF6CO); Cook* and Seibert (AF6IE); Pomerantz* (AF6IE); Grawe* (AF6PH);Asibey, Fullerton, Jaffee, Larson, Macklin, McNamara, Okidegbe, Scarborough (AF6AE); Zulfiqar,Pohland, Hiwa, M'buka; Sibale (RML); Zerabruk (LEGAF); and Freese (LOAAF); Africa Files,AF6AE Files.

THE WORLD BANK Run Time: 04/14/94 at 10.21.04Form 590 IBRD and IDA - Iplementation Sumnary------- ------------------------------------- () the initiaL summaryDetaiLed instructions on completion of This Sumary is (X) part of a mission reportThis Form are in Annex D of 0D13.05. (_) an update

RegionaL Office: Project Name: Loan/Credit Nubers: L/C Ant ($)(.XM/SDR) Type of LendingVP - AFRICA AGRI.MARKETING & EST C19660 OriginaL: 18.3 / 14.2 Instrument:

Project Code:3MALPAO64 Revised: SIM

Country: Borrower: | Board Date: Signing Date: | Effective Date:MALAWI GOVT. 1 12/01/88 03/31/89 06/09/89

Managing Dept/Div Name: Dept/Div Code: | Task Manager: Mission End Date: 12/17/93 Last 590: 07/05/93AGRICULTURE & ENVIRONMENT DIVISN 23220 | ANSON Next Mission (mo/yr): 07/94 This 590: 04/12/94

SECTION 1: Surmary of Project DeveLopment Objectives:

The project aims to improve the marketing system for smaLL smalhoLder farmers' crops by heLping to deveLop a maLti-channeL marketing system. The project is aLso designed to inprove resource utiLization and productivity on estates anddeveLop agricuLturaL processing through providing mediun term credit through the banking system. During the drought of1992, the project was restructured to stport drought recovery efforts by providing seasonaL credit to smallhoLders.

SECTION 2: Sumary of Project Conponents:

The project, which is being inpLemented over a seven-year period, incLudes the foLLowing conponents: seasonaL and mediunterm credit through MaLawi's two conerciaL banks and INDEBANK for deveLopment of estates and agricuLturaL processing;short and mediun-term credit through SEDOM for a piLot credit program for ruraL traders; strengthening the Pricing &Marketing Section of the Ministry of AgricuLture PLanning Division; introducing a crop export quaLity controL systemthrough the Malawi Bureau of standards; and deveLopment of market infrastructure. The project aLso extended a Line ofcredit to SACA, for on-Lending to smaLLhoLder farmers, foLlowing the 1992 drought.

SECTION 3: Project Data and Performance Ratings:--------- ----------------------------.------- (mo/yr)Basic Data CLosing Date Project Cost Disbursement 03/94

($XX.X1M) ($XX.XM) (% of L/C)OriginaL (from SAR/PR): 06/30/1996 $28.3 OriginaL SAR/PR Forecast: $15.4 84.2%As FormaLLy Revised: 06/30/1996 $28.3 FormaLLy Revised Forecast:Expected-Last Form 590: 06/30/1996 $28.3 ActuaL Disbursement: $16.2 88.5%Expected-This Form 590: 06/30/1996 $28.3 Disb. Forecast for CFY: $2.3 12.6%

Undisb. Credit BaL.(SDRs) $2.4 17.1%Nuber of formaL closing date extensions: 0Date of Last cLosing date extension (mo/yr):

Reporting: End of period covered by Last project progress report (mo/yr):


CLosing DeLay .0% .0% Overdue Fin. Stmnts/Project Accounts: 2Cost Overrun .0% .0% Overdue SOE Audits: 1Disbursement Lag (5.2)% (7.0)% Overdue SpeciaL Account Audits: 1

QuaLified and Unsatisfactory Audits: 0


OveraLL Status 2 2 Procurement Progress 1 1Project DeveLopment Objectives 2 2 Training Progress 2 2CompLiance With LegaL Covenants 2 2 TechnicaL Asst. Progress 2 2Project Management Performance 2 3 Studies Progress 1 1AvaiLabiLity Of Funds 2 2 EnvironmentaL Aspects NR NR

FinanciaL Performance 2 NR

SECTION 4: Supervision Management: Participated In---------------------------------- The Previous (mo/yr)Names Of Mission Members Member SpeciaLization Mission (Yes/No) Time Spent On Stpervision 04/94

RICHARD ANSON AGR. ECONOMIST Y S/W Up To Current FY : 50.6VANESSA SCARBOROUGH AGR. ECONOMIST Y S/W PLanned During Current FY: 13.0STANLEY HIWA AGR. ECONOMIST Y S/W ActuaL During Current FY -DAN FULLERTON FINANCIAL ECONOMIST N Total : 10.7

In FieLd : 2.4

IMLEENTATION SUMARY (CONTINIED)

COUNTRY/PROJECT NAME: MALAWI - Agricultural Marketing & Estate Development Proj. PAGE 2 OF 2

PROJECT CODE: 3KALPA064DATE: 04/12/1994


(i) Reserve Bank to finalize subsidiary agreement with INDEFUND to enable its participation in the 1993/94 season;(ii) SEDOM to prepare proposal for review by RBM and IDA for expanding lending to agricultural traders; (iii) MOAto prepare action plan for streamLining domestic and export regulations and licensing procedures; (iv) MOA toassess and decide on best option for establishing improved market extension system in FY94; (v) MOA to implementkey agreed actions to improve implementation of price information system in FY94; (vi) MOA to work out and beginimplementing detailed action plan for improved project financial accounts; (vii) MOA to prepare draft mid-termreview report as basis for joint review in October, 1993; (viii) MOA to work out and submit to Treasury and IDAneeded reallocations of IDA Credit (including support for strategic activities which would strengthen agriculturalmarketing efficiencies.


Since the last review mission in April-May 1993, GOM has made substantial progress in carrying out actionsoutlined under section 5, although some actions were delayed and others are still incomplete. (i) RBM submitted adraft PFI agreement to INDEFUND whose internal review requirements were not completed to enable participation inthe 1993/94 season; but steps are being taken now to complete the PFI (under revised terms); (ii) SEDOM submitteda proposal for expanded lending to private traders which GOM has made conditional to a management and operationsaudit of SEDOM being undertaken; (iii) MOA submitted to IDA a proposal for a region-based market extensionservice; (iv) MOA, with collaboration of RBM, produced a draft mid-term review report for the project whichprovided the basis for a joint Bank/GOM, mid-term review exercise and for enhancing the project's developmentalimpact; (v) Government is formulating proposals for further liberalizing fertilizer and produce marketing andpricing; and (vi) GOM proposed a sound plan for enhancing small estate access to rural finance for supportingdiversification.

IDA has been providing ongoing implementation assistance through the Resident Mission. IDA has also reviewed andassisted in the above proposals which were made for the market extension service, on SEDOM lending, on theestablishment of the market extension service, on the policy options for further liberalizing seeds, fertilizerand tobacco markets (in collaboration with USAID) and the "fine-tuning" of the credit component for supportingestates.


The project is continuing to make satisfactory progress, with the exception of the small estate credit sub-component. The main achievements are outlined under Section 7. The main shortcomings involve negligibleprogress in expanding access of credit to small estates and to promoting diversification due to the absence of amore comprehensive agricultural diversification strategy and related services; delay in finalizing the design ofthe market extension system; slow improvements in the project's financial management and accounting; and staffingshortages to carry out effective monitoring and evaluation activities; and a constraining policy environment forprivate traders in that GOM has imposed intermittent bans on agricultural exports of selected food crops. Basedon the mid-term report and findings of a recent review mission (November/December 1993), an action plan is beingimplemented by the relevant agencies to address the above points.

SECTION 8: SUMMARY OF AGREEMENTS WITH BORROWER, AND FURTHER ACTIONS RECOMMENDED TO BE TAKEN BY(a) BORROWER AND (b) BANK:

Government agreed to carry out the following actions (by end-June, 1994): (i) Government and Malawi Rural FinanceCompany (MRFC) and INDEFUND to finalize the PFI so that they can expand access to small estates fordiversification activities, so that these two PFIs can provide loans for viable activities in the 1994/95 season;Cii) Government to formally approve and implement key actions to further liberalize input and produce markets(involving especially seeds, fertilizer, tobacco, removal of export bans on selected commodities); (iii) Treasuryand ADMARC to begin inplementation actions outlined under the Memo of Understanding between Treasury/ADMARC; (iv)Government to fill key posts (2) in the Pricing and Marketing Section (by end-June, 1994); (v) SEDOM to arrangemanagement audit and expand lending to traders; (v) MOA to finalize design of marketing extension service,continue to implement and disseminate open market information system; (vi) project management to inprovefinancial management and M&E reporting.

Actions (to be) taken by IDA: (i) IDA issued letter to GOM highlighting key actions to be taken (see Attachment1); (ii) IDA, especially through the Resident Mission, to continue providing iiplementation assistance, especiallyin helping to secure the needed marketing and pricing policy reforms; and (iii) IDA to carry out follow-up reviewmission by 7/94.

For details on project status and agreed actions, see Attachment 2 for final mission Aide Memoire. The final Mid-Term Evaluation Report prepared by MOA provides further details.

TASK MANAGER: Richard Anson REVIEWED : (D IONAL REVIEWED BY:MANAER/.f (DIR/RVP)

NAME VPWPARING OFFICER: \Chaim Helman, Chief, AF6AE

Rich son/Stanley Hiwa

THE WORLD BANK Run Time: 04/14/94 at 09.57.57Form 590 IBRD and IDA - InpLementation Sunary------- ------------------------------------- () the initiaL sumuaryetailed instructions on conpLetion of This Sumnary is (X) part of a mission report

This Form are in Annex D of C013.05. (_) an update

RegionaL Office: Project Name: Loan/Credit Nutbers: L/C Amt (SXX.XM/SDR) Type of LendingVP - AFRICA AGRIC SERVICES C25140 OriginaL: 45.8 / 33.0 Instrument:

Project Code:3MALPA074 Revised: SIL

Country: Borrower: | Board Date: j Signing Date: Effective Date:MALAWI I GOM 1 06/15/93 j 10/01/93 01/21/94

Managing Dept/Div Name: Dept/Div Code: Task Manager: | Mission End Date: 12/17/93 Last 590: 06/30/93AGRICULTURE & ENVIRONMENT DIVISN 23220 ANSON | Next Mission (mo/yr): 07/94 1 This 590: 04/12/94

SECTION 1: Sumary of Project DeveLopment Objectives:

The objectives are to inprove smaLLhoLder farm incomes and food security by increasing productivity and diversifyingproduction on a sustainabLe basis. The project wiLL stport institutionaL and management reforms of research, extensionand input stpLy with the aims of providing cost-effective, reLevant and sustainabLe technoLogies suitabLe for adoptionby a high proportion of smaLLhoLders.

SECTION 2: Sumary of Project Components:

The project is part of a Long term nationaL program to reform and integrate key agriculturaL services for smallhoLders,and conprises four main components: (i) AgricuLturaL Research. The research system wilt be strengthened throughformation and inpLementation of research pLans that refLect user priorities; (ii) AgricuLturaL Extension. The efficiencyof extension services wiLL be inproved to expand smaLLhoLder coverage in crops/agro-forestry, Livestock, seeds andfurtiLizer, resource conservation, irrigation and nutrition; (iii) AgricuLturaL Inputs. IipLementation of seeds andfertiLizer poLicy reforms to increase use of inputs by smaLLhoLders; and (iv) Institutional Strengthening. To improvefinanciaL management, transport, procurement, poLicy anaLysis, monitoring and evaLuation.

SECTION 3: Project Data and Performance Ratings:--------- ------------------------------------ (m/yr)Basic Data CLosing Date Project Cost Disbursement 03/94

(SXX.XM) (SXX.XM) (% of L/C)OriginaL (from SAR/PR): 09/30/1999 564.8 Original SAR/PR Forecast: $4.0 8.7%As FormaLLy Revised: 09/30/1999 564.8 FormaLLy Revised Forecast:Expected-Last Fonn 590: 09/30/1999 564.8 ActuaL Disbursement: $1.3 2.9%Expected-This Fonn 590: 09/30/1999 564.8 Disb. Forecast for CFY: S5.4 11.8%

Undisb. Credit BaL.(SDRs) $32.0 97.1%Nter of formaL cLosing date extensions: 0Date of Last cLosing date extension (mo/yr): 09/30/1999

Reporting: End of period covered by Last project progress report (mo/yr):


CLosing DeLay .0% .0% Overdue Fin. Stmnts/Project Accounts: 0Cost Overrun .0% .0% Overdue S0E Audits: 0Disbursement Lag 66.7% .0% Overdue SpeciaL Accotnt Audits: 0



OveraLL Status 2 2 Procurement Progress 2 2Project DeveLopment Objectives 2 2 Training Progress 2 2CompLiance With LegaL Covenants 2 2 TechnicaL Asst. Progress 2 2Project Management Performance 2 2 Studies Progress 2 2AvaiLabiLity of Funds 2 2 EnvironmentaL Aspects 2 2

Financial Performance 2 NR

SECTION 4: Stpervision Management: Participated In--.------------------------------- The Previous (mo/yr)Names Of Mission Metbers Meber Specialization Mission (Yes/No) Time Spent On Stpervision 04/94

R. ANSON ECONOMIST Y S/W Up To Current FY .6V. SCARBOROUGH AG. ECONOMIST Y S/W PLanned During Current FY: 23.0M. MACKLIN AGRICULTURIST Y S/W ActuaL During Current FY -F. MBUKA EXTENSION SPECIALIST Y TotaL : 25.5P. SIBALE RESEARCH SPECIALIST Y In FieLd : 9.0S. HIWA ECONOMIST Y

IIPLEMENTATION SLIARY (CONTINUED)

COUNTRY/PROJECT NAME: MaLawi - AgricuLturaL Services PAGE 2 OF 2

PROJECT CODE: 3MALPA074DATE: 04/12/1994


N/A (First mission Form 590)


N/A (First mission Form 590)


The project became effective January 21, 1994. However, start-up activities in most components, especiallydetaiLed impLementation pLanning, were initiated prior to effectiveness empLoying funds avaiLabLe under a PPF.The project is set for effective and timeLy project impLementation. In December 1993 the Ministry of AgricuLture(MOA) heLd a nationaL project Launch workshop, which focused on updating and deveLoping further consensus on theimplementation action plans for each project component (for updated action pLans, see Annex 2 of Mission AideMemoire). In early 1994, MOA heLd three regional ASP workshops to disseminate project information and actionplans to fieLd-leveL impLementors and seLected beneficiaries, and to gain further consensus and insights intopossible implementation constraints and soLutions. MOA and Treasury have made adequate budgetary allocations inthe new fiscal year (staring 4/94), a Special Account has been established (and USS600,000 has been deposited andactivated), and field level activities in especially research and extension were initiated this past crop season.The major overall problem facing ASP refers to the underlying constraints facing MOA as a sectoral Ministry (e.g.,budgetary allocations, staffing levels and incentives, procurement, management) affecting the timely and effectiveimplementation of projects in MOA, constraints which ASP is designed to address.

SECTION 8: SUMMARY OF AGREEMENTS WITH BORROWER, AND FURTHER ACTIONS RECOMMENDED TO BE TAKEN BY(a) BORROWER AND (b) BANK:

A. The Borrower (MOA) agreed that by June, 1994: (a) 3 regional ASP launch workshops would be held in early1994; (b) each Department would implement the updated implementation schedules as agreed at the launch workshop(together with relevant adjustments arising from the regional workshops); (c) adequate budgetary funds would beallocated by Treasury/MOA for the remainder of FY94 and for FY95 to cover priority activities; (d) research andextension departments would devote priority to developing an action plan which will promote site-specificfertilizer recommendations; (e) MOA to begin implementation of the approved motor cycle ownership scheme,including sufficient mileage allowances; (f) MOA would fill key staffing and technical assistance posts; (g) aproject facilitator would be recruited; (h) a consolidated civil works construction plan would be developed; (i)Bunda College would finalize and sign MOUs' with MOA and IFPRI; and (j) MOA would reconcile interventions proposedunder the UNDP Fifth Country Program with those of ASP to ensure consistency and complementarity.

B. The Bank: (a) issued the mission Letter to MOA (Attachment 1) highlighting key items; (b) is following-upclosely, especially through the Resident Mission staff, on key start-up actions agreed during the mission, andprovide implementation assistance; and (c) will carry out a full supervision mission in June/July, 1994.

For further details on project status and agreed actions, see Attachment 2 for final mission Aide Memoire).

TASK MANAGER: R. Anson REVIEWED BY: DIMONAL REVIEWED BY:MANAGER) (DIR/RVP)

NAME OF PREPARING OFFICER: Anson/M. Mack -- Chaim Hetm ±l AF6AE \

Malawi

Status of legal Covenants

Agricultural Marketing and Estate Development Project(Credit 1966-MAI)

Supervision Mission, November 22 - December 17, 1993

Overall Project Rating: 2


Agreement Section Type Status Date Date Description of Covenant Comments

Credit No. 1966 2.02 F OK Effectiveness Establishment of two (2) Project(b) & (c) Special Accounts. Ibis has been

complied with.

3.01 F OK Ongoing Ibis is a general covenant about

(a) (i) diligence, provision of funds,efficiency, etc.

3.01 (c) F OK Effectiveness An agreement to be entered intobetween the Borrower and deReserve Bank of Malawi (RBM)and between RBM and theparticipating financial institutions(two commercial banks, INDEBank, and SEDOM).

INDE Bank, the two commercialbanks, and SEDOM have signedagreements and these were

provided to IDA. There is needfor an agreement to be finalizedwith Indefund and MRFC.

3.02 M OK Ongoing IDA procurement procedures tobe followed.

3.04 F To be Annually Borrower to review interest ratestrength- structure governing lending underened the project annually and revise if

necessary.

3.05 M OK 7/91 7/92 The Borrower to submit to IDA forreview TOR and a work programfor implementation of a pilot creditscheme for traders.

4.01 F OK Annually Project Accounts to be auditedannually. These are regularlysubmitted though with delay.

As a condition of effectivenessthe Borrower should establish theMarketing Committee and theAgro-Industry Committee. Thesecommittees have been meeting

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periodically and have helpedimprove project coordination.

Schedule F Soon (1) Participating Financial(5) (4) Institutions to submit half-yearly

reports to IDA. These have beenimproved though many PFIs arenot timely in submitting reports.(2) Mid-term Evaluation to besubmitted to IDA. This was post-poned due to restructuring of credit.MOA has produced a draft,submitted to IDA in 12193, whichwill be finalized by the end March,1994.

Schedule M Soon 3-31-89 Marketing Adviser to be recruited(5) (5) by MOA.

The adviser is working satisfactorily.His contract ended 6/93.

Vacant posts for PrincipalEconomist and Economists inPricing and Marketing Section(MOA) planned to be filled by 4/94.

Schedule M OK Annually, Annual training program to be(5) (6) March 31 submitted to IDA.

The program for training privatetraders has been submitted to IDAand implemented satisfactorily.MOA needs to enhance thetraining program to cater for otherneeds especially on private traderinvolvement in inputs marketing.

Schedule M OK 10-31-89 Malawi Bureau of Standards (MBS)(5) (7) to assume responsibility for export

control for agricultural produce.MBS is so far following a voluntaryexport certification scheme.GOM/MOA needs to come toclosure on whether the scheme,or some aspects of it, should bemade compulsory.

Schedule M Soon 3-31-90 Borrower to analyze impact of(5) (8) market reform measures and

propose any necessary changesin regulations governing privatetraders. IDA approved a GOMproposal to revoke marketregulations which were restrictiveto the operations of private tradersbut the order revoking the 1987regulations still has to be passed.

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with effect from September 15, 1993 andsubmit it to the Association for review.

M SOON Annually 10. DAR shall: (a) prepare and, byon September 15, 1993, commence the

Sept. 15 implementation of an action plan,satisfactory to the Association, forimproving its management system,staff incentives and accountability;and (b) update the action plan annuallyand furnish it to the Association bySeptember 15 of each year.

M a) OK June 1993 12. MOA shall prepare and, by notb) SOON later than June 30, 1993, commence

the implementation of an action plan,satisfactory to the Association: (a) todelink credit and extension services;(b) to rationalize MOA's organizationalstructure and staffing; and (c) to im-prove field supervision, programbudgeting and planning, and staffincentive system. MOA shall annuallyreview and, as necessary, revise theaction plan.

M SOON 13. In order to ensure that field staffhave mobility to fulfill theirresponsibilities, shall prepare andimplement a motorcycle ownershipscheme for such staff, satisfactoryto the Association.

M SOON 14. MOA's Pricing and Marketing Unitwill be responsible for the imple-mentation of policies, and actrion plan ,satisfactory to the Association, for:(a) increasing the supply of improvedmaize seed by liberalizing production,pricing, marketing and formulating an

improved stocking policy; and(b) increasing the supply of fertilizerby liberalizing the importation, pricingand distribution of fertilizer.

F SOON July 1993 15. The Chief Account of MOA shalladopt and, by July 1, 1993, commencethe implementation of an action plan,satisfactory to the Association, toimprove financial management andaccounting systems.

M SOON 16. MOA shall implement a transportmanagement action plan, satisfactoryto the Association, to improve theefficiency and effectiveness of thedelivery of agricultural services.

M OK 17. (a) MOA's Procurement Unit,with the assistance of the Ministry ofWorks, for civil works, and aprocurement specialist, will beresponsible for carrying out procure-ment work, and for formulating and

implementing an action plan,

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satisfactory to the Association,including in-service and on-the-jobtraining, to strengthen the capacityof MOA to handle procurementmatters.

M NYD (b) The Ministry of Finance shallcarry out an interministerial procure-ment study, satisfactory to theAssociation, consistent with the Planof Action.

M SOON 18. MOA, through the Bunda Collegeof Agriculture, will be responsible forthe implementation of the agriculturalpolicy analysis and training sub-component of the Project, and shallprepare and implement an action plan,satisfactory to the Association, 'Iememorandum of understandingbetween MOA and lunda College ofAgriculture furnished to the Associationfor its review shall be satisfactory to theAssociation and finalized in accordancewith the Plan of Action.

T OK 19. The Department of Irrigation withinMOA shall carry out the small-scale

irrigation sub-component of theProject, in accordance with criteria andan action plan satisfactory to theAssociation.

M OK 20. MOA shall carry out the monitoringand evaluation of the Project, inaccordance with the Plan of Action.

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MALAWI: Agricultural Services Project (Credit 2514-MAI)November/December, 1993 SPN Mission

Status of Legal Covenants

Overall Project Rating: _2


Agreement Section Type Status Date Date Description of Covenant CommentsCredit No. 2514 4.01 (b) F NYD Annually (i) Have project records

and accounts, includingthose for the SpecialAccount for each fiscalyear audited, in accordancewith appropriate auditingprinciples consistentlyapplied, by independentauditors acceptable to theAssociation;

Annually (ii) Furnish to the Association,as soon as available, but in anycase not later than 9 monthsafter the end of each such year,a certified copy of the report ofsuch audit by said auditors, ofsuch scope and in such detailas the Association shall havereasonably requested; and

4.01 (c) F NYD Annually For all expenditures with respectto which withdrawals from theAccount were made on the basisof statements of expenditure, theBorrower shall ensure that suchrecords and accounts are includedin the annual audit referred to4.01 (b) of this Section and thatthe report of such audit containsa separate opinion by said auditorsas to whether the statements ofexpenditure submitted during suchfiscal year, together with theprocedures and internal controlsinvolved in their preparation, canbe relied upon to support therelated withdrawals.

Schedule M OK Quarterly Implementation Program4

1. ASSC, under the chairmanshipof the Principal Secretary MOA,shall : meet quarterly to reviewimplementation based on progressreports to be prepared by MOA's CentralMonitoring and Evaluation Unit; andreview and approve annual work plansand budgets and resolve any policy andcoordination issues that may arise duringthe implementation of the Project.

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M OK Annually 3. Each implementing department shall,on by not later than September 15 of each

Sept. 15 year of Project implementation, witheffect from September 15, 1993, prepareand submit to ASSC, with copies for theAssociation, for their review, draft annualwork plans and supporting draft budgetestimates for the following fiscal year.

F OK Annually 4. The Borrower shall: (a) release theon annual budgetary allocation on a timely

August 1 basis, consistent with criteria for operatingexpenditures, satisfactory to the Associationto be finalized by August 1 of each year,with effect from August 1, 1993; and(b) progressively increase its share offinancing for operating expenditurescommensurate with the decrease in theAssociation's share of financing operatingexpenditures under this Agreement.

T/F OK Annually 6. By September 15 of each year, withon effect from September 15, 1993, prepare

Sept. 15 and submit revised research action planswhich are consistent with the nationalagricultural policy, National ResearchMaster Plan and realistic budgetaryceilings.

T/M SOON Annually 7. DAR with the assistance of theon Department of Agricultural Training and

Sept. 15 Extension, shall carry out an action plan,satisfactory to the Association, tostrengthen linkages between research,extension and smallholder farmers, andby September 15 of each year during theimplementation of the Project, with effectfrom September 15, 1993, submit a draftwork plan and budget for the followingyear.

M NYD Annually 8. (a) DAR shall take appropriateon measures to expand the use of contract

May 1 research with suitably qualified researchbodies including Chancellor College,Bunda College of Agriculture and theTea Research Foundation, consistentwith their growing capacity, and ensurethat progress reports on contractedresearch are submitted to DAR byMay 1 of each year of Projectimplementation.

M NYD Annually (b) MOA shall, by July 1 of each year ofon Project implementation, with effect from

July 1 July 1, 1993, advertise all contractresearch opportunities available in theensuing year.

M OK Annually 9. DREA shall implement the action planon for ASC's operation, and with ASC's

Sept. 15 assistance, will update ASC's work planfor the ensuring year by September 15of each year of Project implementation

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