ASIAN DEVELOPMENT BANK PCR: NEP 20193

MOA - Ministry of Agriculture

CURRENCY EQUIVALENTS

Currency Unit - Nepalese Rupee/s (NRe/NRs)

At Appraisal At Project Completion(June 1990) (December 1997)

NRe1.00 = $0.0366 $0.0167$1.00 = NRs27.26 NRs6O

ABBREVIATIONS

ADBN - Agricultural Development Bank of NepalDFAMS - Department of Food and Agricultural Marketing ServicesDOA - Department of Agriculture

NARC - National Agricultural Research CouncilNARSC - National Agricultural Research and Services CentreNRM - Nepal Resident MissionPCO - Project Coordinating OfficeRCC - Regional Coordinating Committee

NOTES

(i) The fiscal year (FY) of the Government ends on 15 July.For example, FYi 988 begins on 16 July 1997 and ends on15 July 1998.

(ii) In this report, "$" refers to US dollars.

ii

CONTENTS

Page

BASIC DATA III

MAP V

I. PROJECT DESCRIPTION

1

II. EVALUATION OF IMPLEMENTATION

2

A. Project Components 2B. Implementation Arrangements 4C. Project Costs and Financing 5D. Project Schedule 5E. Engagement of Consultants and Procurement of Goods and

5

ServicesF. Performance of Consultants, Contractors, and Suppliers 6G. Conditions and Covenants 6H. Disbursements 7

Environmental Impact

7J. Performance of the Borrower and the Executing Agencies 7K. Performance of the Bank

7

Ill. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

8

A. Economic and Financial Performance 8B. Attainment of Benefits 8

IV. CONCLUSIONS AND RECOMMENDATIONS

9

A. Conclusions 9B. Recommendations

11

APPENDIXES

14

6. Amount of Loan

7. PCR Number

B. Loan Data

1. Appraisal- Date Started- Date Completed

2. Loan Negotiations- Date Started- Date Completed

3. Date of Board Approval

4. Date of Loan AgreementDate of revised Agreement

5. Date of Loan Effectiveness- In Loan Agreement- Actual- Number of Extensions

6. Closing Date- In Loan Agreement- Actual

7. Terms of Loan- Service Change- Maturity- Grace Period

BASIC DATA

A. Loan Identification

1. Country2. Loan Number3. Project Title4. Borrower5. Executing Agencies

Nepal964-NEP(SF)Secondary Crops Development ProjectKingdom of Nepal(i) National Agricultural Research and

Services Center (NARSC)(ii) Department of Agriculture (DOA)(iii) Department of Food and Agriculture

Marketing Services (DFAMS)(iv) Agriculture Development Bank of Nepal

(ADBN)

SDR25.585 million ($35474 millionequivalent)PCR: NEP 503

3 April 19895 May 1989

11 June 198914 June 1989

27 June 1989

17 August 198917 January 1993

16 November 198919 September 19890

31 December 1997I October1998

1 percent per annum40 years10 years

Appraisal Revised

if

8. Disbursements

a) Dates

b) Amount (in $ million)

Initial Disbursement Final Disbursement Time Interval24May1990 l9June 1998 8.1 years

Effective Date Original Closing Date Time Interval16 November 1989 31 December 1997 7.9 years

Original Net Last

Loan Amount Amount Revised Amount Undisbursed

Category Category Name Allocation Cancelled Available Allocation Disbursed Balance

Civil Works 1,908,000 1,002,000 906,000 1,130,000 1,116,726 13,274

Vehicles 468,000 138,000 330,000 330,000 330,000 0

Equipment and Materials 1,146,000 865,000 281,000 281,000 280,000 1,000

lncrmntl Operating & Adm. Costs 478,000 240,000 238,000 241,000 241,000 0

Consultant Services 846,000 675,000 171,000 71,000 70,100 900

Local Currency Expenditures 6,579,000 3,758,000 2,821,000 3,176,000 3,174,157 1,843

Service Charge During Construction 489,000 301,000 188,000 134,000 134,000 0

Unallocated 751,000 426,000 325,000 0

Total 12,665,000 7,405,000 5,260,000 5,363,000 5,345,983 17,017

C. Project Data

1. Project Cost

Item Estimate Estimate Actual

Foreign Exchange Cost 5.50 2.44 2.11Local Currency Cost 9.60 4.52 4.05Total Cost 15.10 6.96 6.16

2. Financinq Plan

Original Revised ActualSource FX LC Total FX LC Total FX LC Total

Bank 5.5 5.9 11.4 2.44 2.82 5.26 2.11 3.15 5.26Participating Bank 0 3.1 3.1 0 1.7 1.7 0 0.78 0.78Government 0 0.6 0.6 0 0.34 0.34 0 0.12 0.12Total 5.5 9.6 15.1 2.44 4.52 6.96 2.11 4.05 6.16

FX= foreign exchange cost, LC= local currency cost

Name of Mission

InceptionReviewSpecial ReviewReview

Special LoanAdministrationReviewReview

Special ProjectAdministrationReview

Special ProjectAdministrationSpecial ProjectAdministration

Review

Review

Date

31 Aug-5 Sep8921 Mar—i Apr 901-10 Aug 906-il Feb92

22-30 Jun 92

12-22 Feb937-29 Nov 93

16-22 May94

27 Nov-9 Dec 94

15-22 May 95

12-20 Sep95

20 Apr-6 May 96

17-31 Mar97

Project Completion 8-29 Jun 98

No. ofPersons

1112

2

12

1

3

No. ofDays

691012

16

1120

7

30

iv

D. Data on Bank Missions

1 8

3 22

2 12

2 14

2 40

Specialization ofMembers

Senior AgronomistAgronomistSenior AgronomistAgronomistAssistant Project AdminSenior AgronomistProject EconomistAgronomistSenior Project SpecialistAssistant Project AdminSenior Project Specialist

Senior AgronomistSenior Project EconomistCredit SpecialistSenior Project Economist

Senior AgronomistSenior ProjectImplementation SpecialistProject ImpI. SpecialistSenior ProjectImplementation SpecialistProject Impi. SpecialistSenior ProjectImplementation SpecialistProject Impi. SpecialistPrograms Officer/EconomistStaff Consultant

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• - . - . - International BoundaryBoundaries are not necessarily authoritative.

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LII

82° E

I. PROJECT DESCRIPTION

1. The Project was formulated to increase secondary crops production to meetdomestic and external demand, to provide additional employment, and to raise theincome of small farmers. In this way, the Project was to contribute to the national andsector development objectives of (i) attaining a higher level of agriculture production; (ii)creating opportunities for gainful rural employment; and (iii) fulfilling the minimum basicneeds of the poor people, especially in the hills. The objectives were to be achievedthrough measures to strengthen research on secondary crops, agricultural extension,seed multiplication, provision of credit, and consultant services.

2. At appraisal the scope of the Project included (i) strengthening of research onsecondary crops; (ii) strengthening of agriculture extension and seed multiplication; (iii)strengthening of marketing services; (iv) provision of credit; and (v) provision ofconsulting services. In the first component, the principal aim was to build the capability ofthe National Agricultural Research Council (NARC) 1 to undertake research on secondarycrops at the central, regional, and farm levels so that improved varieties andtechnologies could be rapidly generated and transferred to farmers during Projectimplementation.

3. The second component aimed to strengthen the capability of the Department ofAgriculture (DOA)2 to provide extension services and transfer improved technologiesfrom research farms to farmers, through the construction of 18 agriculture servicecentres, 3 provision of transport facilities, and extension and training equipment. The thirdcomponent was intended to improve the capability of the Department of Food andAgricultural Marketing Service (DFAMS) in collecting information on yields, croppedareas, production, prices, and costs of secondary crops and in identifying the needs offarmers and the private sector for additional storage and processing facilities. In addition,two centres were to be constructed to improve the marketing services of DFAMS in theproject area.

4. The fourth component was to ensure that adequate credit facilities and bankingservices were available to support the development of secondary crops. The major partof the credit was to support crop and seed production. Credit was to be provided throughthe Agricultural Development Bank of Nepal (ADBN), Nepal Bank Ltd, and the RastriyaBanijya Bank. Consulting services were to be provided to the implementing agencies inthe areas of agronomy, agriculture extension, bio-fertilizer production, ginger research,agriculture resource base planning, and technology synthesis for secondary crops.

5. Due to slow implementation, the Project was reformulated in June 1992. Allproject components were retained but at a reduced scale, with less geographic areacovered, fewer beneficiaries, and a reduction in civil works and equipment. The

At Project appraisal, the capacity-building efforts aimed at NARC's predecessor, the NationalAgricultural Research and Services Centre (NARSC). NARSC was reformed into a statutorybody and renamed NARC in 1992. This paper will only refer to NARC.

2 In 1992 Department of Agriculture and the Department of Food and Agricultural MarketingServices were merged into a new entity: The Department of Agriculture Development. This wasrenamed Department of Agriculture in 1993.This number was reduced to 10 in 1992 when the Project was reformulated.

2

reformulation was approved on 22 June 1992 as a major change in scope. The revisedversion of the Loan Agreement was signed on 17 January 1993.

6. Two technical assistance grants 4 were provided in conjunction with the loan. Onewas to train farmers, farmers groups, and officials of the Ministry of Agriculture (MOA)and NARC, the successor to NARSC, in secondary crops production and marketing. Theother was to conduct an agriculture study and prepare long-term national researchstrategies and priorities for the national agriculture development plan.

II. EVALUATION OF IMPLEMENTATION

A. Project Components

1. Strengthening of Research on Secondary Crops

7. This component consisted of three principal activities: (i) the strengthening of anumber of research progams for secondary crops in various research stations; (ii) theimprovement of research facilities in three stations, including buildings, transportfacilities, laboratory and field equipment, and physical improvements at the researchfarms; and (iii) support to a research outreach program. The component was not fullyimplemented, having suffered from the reorganization of MOA in 1992, which madeNARC autonomous and moved the Project Coordination Office from NARC to theDepartment of Agriculture Development (which was a merger of DFAMS and DOA, andlater renamed DOA). The capacity to fully implement the component was lacking atNARC, and coordination problems between NARC and DOA surfaced after thereorganization.

8. The strengthening of the research programs, which concentrated on variatalidentification and trials, has resulted in the identification of two new varieties of lentil,two of chickpea, one of mustard, and one of barley. Trials under NARC policies take 10-12 years for each variety. Consequently, the results that became available duringproject implementation came from trial schemes that had started before the Project, andthose from trials started under the project will not be available for a few years. Civilworks, provision of equipment, and other improvements were in accordance with thereformulated project document. The quality of the work was not always up to standard,but this is a generic problem with construction in rural areas in Nepal. The outreachactivities established seven sites for adaptive research, but results have not beenpromising, mainly due to the weak implementation capacity of NARC, and to theshortage of staff working in the field.

2. Strengthening of Agriculture Extension and Seed Multiplication

9. The strengthening of agriculture extension services was achieved through astrategy involving the following steps: (i) selection of 50 pocket areas with potential forsecondary crops and not covered by other projects; (ii) formation of farmers groups (F-groups) by the beneficiaries in the selected pocket areas; (iii) formation of traininggroups (T-groups) from the F-groups, each T-group consisting of 25 members; (iv)

TA NEP 1182: Agriculture Research Study, for $500,000, approved on 23 July 1989.TA NEP 1183: Training on Secondary Crops, for $300,000, approved on 23 July 1989.

3

monthly training of T-groups, during which farm activities for the coming month werediscussed; (v) establishment of F-group welfare funds, which enable groups to purchasebuffer stocks of fertilizer, seeds, and pesticides, and to take out credit; (vi) constructionof 10 agriculture service centres—which are used for collection, grading, and storage ofseeds produced by farmers and—other inputs.

10. Between 1992 and December 1997, a total of 106 F-groups in 50 pocket areaswere established, representing 35,000 beneficiaries as compared with 8,500 expectedbeneficiaries after project revision. The total command area under secondary crops atthe end of the project was 52,000 hectares as compared with 11,000 hectares in therevised project document. This mainly resulted from an innovative extension methoddeveloped by the motivated project director, who traveled extensively to stimulatefarmers groups as well as DOA staff. The group welfare funds total well over NRs2million. In addition, the Project implemented a special crop production program, whichprovided concentrated training and extension services in selected pocket areas.

11. The seed multiplication activity focused at the farm level to ensure the availabilityof good-quality seeds for secondary crops, as agriculture research stations and theAgriculture Input Corporation were not able to fulfil the demand for seeds. The Projectprocured lentil, chickpea, and mustard seeds from India for distribution in the 50 pocketareas. The total amount of seeds distributed increased from 11 tons in 1993 to 70 tons in1997.

3. Strengthening of Marketing Services

12. While agriculture marketing was the responsibility of the relatively strong DFAMSuntil 1992, it was shared between two divisions—the Agriculture Marketing DevelopmentDivision and the Economic Analysis Division—after DFAMS and DOA were merged intoa new entity. This meant in practice that the marketing component was reduced inscope, as the divisions had much less capacity than DFAMS, and they suffered from themany personnel changes that continued for a long time after the reorganization. At thelocal level, responsibility for agriculture marketing was given to the relativelyinexperienced assistant planning officers in each district.

13. Institutional strengthening with the aim of achieving the regular provision ofinformation on secondary crop production cost, yield, and price and on the quality andquantity of available production has not been implemented. Regular collection anddissemination of agriculture information does not take place. Two market centres werebuilt as envisaged at time the of appraisal (in Kohalpur in 1996 and Lamahi in 1997). Atthe time of the Project Completion Mission, neither one was yet operational. Theprincipal reason for this is that, under the original agreement, the market centres were tobe managed by the local farmers groups. In 1996, the Government changed its positionand established its right to appoint all market board members, including the chairperson.MOA appointed a board for one of the markets in 1997, but farmers and traders werenot involved in the decision-making process, even nonexisting persons were appointed,and no rules or regulations on market operations were established. The Kohalpur marketwas finally handed over to a local cooperative in November 1998 and was opened in lateDecember 1998. The Lamahi market was handed over to the Market ManagementCommittee in November 1998 and started operating as a daily market on 17 November1998.

4

4. Provision of Credit

14. The provision of credit (estimated at appraisal at $3.17 million and revised to$1.37 million equivalent at the time of the change in scope) was to be implemented byADBN from its own resources. Many farmers found that the ADBN's procedures weretoo cumbersome and time consuming to be worthwhile. According to the ADBN's ownrecords, a total of $1.56 million equivalent in credit was provided in five districts forsecondary crops production during the life of the Project. This total applies to districts asa whole, and not only to project command areas, for which detailed information could notbe provided by ADBN. It can therefore be concluded that credit provision through ADBNwas well below projected needs. After intervention by the Banks Nepal Resident Missionin 1995, a memorandum of understanding was signed between the Government andADBN in which the latter agreed to provide credit to farmers groups. However, this alsofailed to materialize as ADBN's own regulations prohibited lending on a group basis.

5. Provision of Consulting Services

15. At appraisal, 108 person-months of consulting services were estimated, of which30 were for NARC and 78 for DOA (48 for international and 60 for domestic consultants).After the change in scope, consulting services were reduced to 40 person-months (10international): 10 for NARC and 30 for DOA.

B. Implementation Arrangements

16. The implementation arrangements at appraisal identified four executingagencies: NARC, DOA, DFAMS, and ADBN. NARC was responsible for implementingthe strengthening of research component, and also responsible for the establishment ofthe Project Coordination Office (PCO). The project coordinator was a senior official fromNARC, reporting to the secretary of agriculture through the chief of NARC. Thecoordinator was responsible for the day-to-day implementation of the research activitiesof the commodity development programs, the regional research stations, and theoutreach program.

17. DOA was responsible for the establishment of the Project Implementation Unit inSurkhet District with the regional director of agriculture as project manager, reporting tothe director general of agriculture. The project manager was responsible for the day-to-day implementation of the extension and seed multiplication components, and forsupervision and monitoring of field activities. The assistant marketing economist basedin Nepalganj was responsible for the day-to-day implementation of the marketimprovement component, reporting directly to the director general of DFAMS. After thechange in scope, and the reorganization of MOA, responsibility for agriculture marketingwas transferred to the assistant planning officer in each district.

18. The implementation of the credit component was to be done through an existingarrangement, whereby ADBN as lead bank was responsible for the coordination ofparticipating banks, and the preparation of annual credit programs and the setting ofperformance targets for the participating banks. The branch managers of ADBN, NepalBank Ltd, and Rastriya Banijya Bank in each of the districts in the project area wereresponsible for the day-to-day implementation of the credit component. Interagencycoordination was to be achieved through regular meetings between the projectcoordinator and manager, and through the existing Regional Coordination Committee

5

with representatives from DOA, NARC, DFAMS, ADBN, and Agriculture InputsCorporation. Policy guidance and coordination were the responsibility of the projectsteering committee chaired by the secretary of agriculture.

19. After the change in scope of the Project in June 1992, implementationarrangements were adjusted to the reorganization of MOA, which was effected in July1992. The DOA and DFAMS, together with other departments, were merged into thenew Department of Agriculture Development, which as renamed DOA in 1993. Thisreduced the number of executing agencies from four to three. In 1992 the PCO wasmoved to DOA, which improved project implementation. The autonomous NARC wascreated from the National Agricultural Research and Services Centre, the staff of whichwas divided between NARC and MOA, further reducing NARC's implementationcapacity.

C. Project Costs and Financing

20. The total cost of the Project at appraisal was estimated at $15.1 million, of which$5.5 million or 36.4 percent were foreign exchange costs. The appraisal estimateincluded physical contingencies and provisions for price escalation on the foreignexchange and the local currency costs. It also included an estimate of the servicecharges during construction. After the change in scope of the Project in June 1992, therevised project costs were estimated at $7.0 million, of which $2.4 million or 34.3 percentwas estimated to be foreign exchange costs. Bank financing was reduced from $1 1.4million to $5.3 million. The amount of $17,017 equivalent was cancelled at loan closing.A detailed schedule is in Appendix 1.

D. Project Schedule

21. The original project implementation period was scheduled between 31 January1990 and 31 December 1997. Project implementation was slow between loaneffectiveness on 19 September 1989 and the Special Loan Administration Mission inJuly 1992. The two principal reasons for the slow implementation were the trade disputebetween India and Nepal—which started in July 1989, led to the closure of the borders,and forced the Government to drastically reduce budget allocations—and the lack ofmanagement and implementation capacity in NARC. At reformulation in July 1992, theimplementation period was reduced to 5.5 years to retain the closing date of 31December 1997, which was achieved. The loan was closed on 1 October 1998 to allowfor settlement of the final accounts.

E. Engagement of Consultants and Procurement of Goods and Services

1. Consultants

22. The services of domestic and international consultants were procured under theGuidelines on the Use of Consultants for ginger research, laboratory equipment, andextension services. The services of the laboratory equipment consultant were extendedfrom six to nine person-months as the work was more complicated than foreseen. Theextension services specialists contract was extended from 30 to 54 months, i.e., thelength of the reformulated Project, to maximize the impact of the extension component.

6

2. Civil Works

23. The civil works under the Project were tendered in small packages using localcompetitive bidding procedures acceptable to the Bank. Most contracts went toprequalified contractors with a presence in the district where the construction was to takeplace. Details are in Appendix 2.

3. Supply Contracts

24. Equipment and transport facilities were procured using international shoppingprocedures in accordance with Bank's Guidelines for Procurement. Details are inAppendix 2.

F. Performance of Consultants, Contractors, and Suppliers

25. The three consultants recruited under the Project performed satisfactorily. Theinternational ginger specialist was instrumental in establishing a ginger researchprogram, procuring and installing laboratory equipment, and training staff and farmers inginger processing methods. The laboratory instrument consultant helped to procure andinstall equipment for NARC laboratories, and provided repair and maintenance services.The consultant, who also trained NARC staff in maintenance procedures, was retainedby the Government to maintain the equipment. The agriculture extension specialist hadan important impact on the design and implementation of the extension program throughplanning, training of staff and farmers, and in supporting the seed multiplication anddistribution program.

26. Altogether 68 different buildings and other civil works were contracted out inseven large and many small packages to local contractors. Not all contractors performedsatisfactorily. All civil works were completed before the closing date of the Project,except for one building in Salyar due to noncompliance of the contractor. At the time ofthe Project Completion Mission, the Government was negotiating with the contractor toterminate the contract to enable completion of the works by another contractor.

27. Suppliers of transport facilities and equipment performed satisfactorily. No majorproblems were encountered by the Project in following the Bank's procurementguidelines. Transport facilities procured under the Project were all in use and inreasonable state of repair at the time of the Mission. They were all being used forresearch and extension purposes, although occasional use by local officials or politiciansappears to be unavoidable. Laboratory equipment is being used and in good repair dueto the ongoing presence of the laboratory instrument consultant.

G. Conditions and Covenants

28. The Borrower substantially complied with all covenants in the Loan Agreement.The status of compliance is provided in Appendix 3. The partial compliance with anumber of covenants was mainly due to the reorganization of MOA in 1992, the shortagein staffing for a number of field posts, and the weakness in implementing the creditcomponent.

H. Disbursements

29. Disbursements began in October 1989 and continued until June 1998. A total of$5.35 million was disbursed, or 99.9 percent of the loan allocation. The utilization of loanproceeds in the different categories and disbursements are shown in appendixes 4 and5, respectively.

Environmental Impact

30. The environmental impact has been assessed as positive. More intensive use ofexisting agriculture land, through increased productivity under the Project, will reduce thepressure to clear and cultivate marginal lands that are less fertile and have a lowerpotential for production. While fertilizer utilization increased under the Project, the levelof fertilizer use is comparatively low and the environmental impact of increased fertilizeruse minimal. Strengthened agriculture extension services have contributed to widerdissemination of knowledge about the proper use of fertilizer.

J. Performance of the Borrower and the Executing Agencies

31. The performance of the Borrower until the reformulation of the Project in July1992 was unsatisfactory. After reformulation and the appointment of a new projectcoordinator, performance gradually improved. Over the last three years, performance ofthe Borrower was generally satisfactory, with the exception of NARC, whereimplementation capacity remained low.

32. NARC was formed as a statutory authority in 1992 under the NARC Act. It isgoverned by a council chaired by the minister for agriculture. NARC has never been trulyautonomous, and is subject to political influence in terms of staff appointments. NARCalso suffers from (i) a rigid and hierarchical structure that discourages many young andpromising researchers from joining the organization; (ii) unclear lines of responsibility sothat commodity program leaders and regional directors are in conflict over budgets andstaff allocation; and (iii) the lack of an overall research strategy, as a result of whichthere is poor coordination of the various research programs. NARC, as a result, hasnever had the leadership or organizational capacity to execute and implement any majorresearch effort.

33. Further complicating the situation is difficulty in recruiting researchers due to lowsalaries and a reluctance to accept postings outside Kathmandu. At the time of theProject Completion Mission, NARC had 348 approved positions, 31 percent of whichwere vacant. Of the remaining 239 researchers, 51 percent was stationed at theKathmandu headquarters.

K. Performance of the Bank

34. Between loan effectiveness and loan closing, the Bank fielded 14 missions. TheBank responded quickly to the request of the Government for a major change in scope inresponse to the economic difficulties as described in para. 21. No missions took placebetween August 1990 and February 1992, when problems that the Project was facingbecame apparent. Five missions took place between June 1992, when the Project wasreformulated, and September 1995, when the Project was handed over to the NRM for

8

administration and received the AAA status. Bank supervision could have been better inthe first three years of implementation, while Bank supervision was good afterreformulation and further improved after the transfer of project administration to theNRM.

Ill. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

A. Economic and Financial Performance

35. Despite the reduction in the loan size in the third year of the Project, the actualproject area under secondary crops as of December 1997 was 51,900 hectares, which ismore than double the area projected at appraisal5 or almost five times the area projectedin the revised project document. A total of almost 35,000 families directly benefited fromthe Project as compared with 19,200 estimated at appraisal. The principal reason for theincrease in area and number of beneficiaries was an active project director whomanaged to overcome many bureaucratic hurdles, traveled extensively in the projectareas to motivate farmers and DOA staff, and managed consistently to get fundsreleased when required.

36. The average net incremental income per family achieved under the Project isover NRs4 100, which is slightly higher than foreseen at appraisal (see Appendix 6). Theincremental net farm income in constant FYi 990 prices for rice-based farms is higherthan originally projected in five out of six districts, with Salyan District having the highestincrease (400 percent), while Bardia has the highest incremental net farm income(NRs9,371) and Jumla the lowest (NRs524). The incremental daily income to familylabor for rice-based farm ranges from NRs6 (Jumla) to NRs18 (Salyan) and is alsohigher in five out if six districts compared with appraisal estimates. For maize-basedsystems the incremental net farm incomes are substantially higher than those for rice,ranging from NRs1123 (Jumla)to NRs1O123 (Bardia). Also the incremental daily incometo family labor is higher with ranges from NRs1 1 (Jumla) to NRs23 (Surkhet).

37. The economic internal rate of return (EIRR) of the Project is estimated at 25percent, as compared with 21 percent at appraisal. This improvement is a result of acombination of factors. While the investments made were lower than originally projected,and also delayed, the total area under secondary crops was much larger. On the otherhand, low investments and inefficient utilization of those investments have led toineffective research and marketing components, which in turn have led to lower-than-projected yields and to lower farmgate prices. Maintaining the projected 25 percent EIRRwill fully depend on farmers being able to maintain the present yields without anadequate research system to support them.

B. Attainment of Benefits

38. At appraisal, the anticipated benefits of the Project consisted mainly of theincremental secondary crops production net of incremental production costs, resultingfrom the development of sustainable production systems involving secondary crops;improved extension, research, and marketing facilities; introduction of appropriatetechnologies and more efficient cultivation practices; and the provision of agricultural

Loan NEP: 964 Secondary Crops Development, for $1 1.4 million, approved on 27 July 1989.

credit. While the total area under secondary crops is larger than projected, and morefarmers are involved, total secondary crops production is lower than at appraisal, asyields tend to be lower than projected. This is a direct result of the failure to develop asustainable system that provides farmers with a reliable supply of good-quality seeds.

39. The nonquantifiable benefits foreseen at appraisal included benefits to farm inputsuppliers, operators of storage facilities, mills, and others. It is estimated that economicactivity as a result of the Project has increased in four out of six districts, albeit at a lowlevel. Other nonquantifiable benefits included the institutional strengthening of theexecuting agencies, increasing efficiency of support services for agriculturedevelopment, and optimization of the use of staff and facilities. These benefits havefailed to materialize, as the institutional strengthening part of the Project was notimplemented. One notable exception to this is the development of an effective and cost-efficient extension system, which, however, has not been extended beyond the sixproject districts.

40. Additional benefits anticipated at appraisal included increased employmentopportunities through hired farm labor. However, secondary crops have generally beenplanted and harvested at times when the land was lying fallow before, and all additionallabor requirements have been absorbed through family labor, thereby reducingunderemployment and increasing the returns to labor. Overall employment has notincreased as a result of the Project.

41. The Mission observed that the Project has had a significant benefit for womenfarmers, a subject not discussed in the appraisal report (Footnote 5). In many pocketareas, women have been actively involved in the Project, have formed their own farmersgroups, encouraged group savings and lending, and generally appear to have becomemore empowered in the process.

IV. CONCLUSIONS AND RECOMMENDATIONS

A. Conclusions

42. The introduction of secondary crops in the project area was successful, with a farlarger area under secondary crops than foreseen at appraisal, a higher production valueof secondary crops and a relatively high EIRR. It has been demonstrated that farmersare ready to adopt new crops and improved technologies. Components relating toinstitutional strengthening, research, seed multiplication, marketing, and credit were notimplemented as intended at the time of appraisal.

43. The Bank's focus in the performance assessment of projects is on thecontribution of the Bank-funded activity to economic development. Criteria appliedinclude actual costs and benefits to date (as captured by the EIRR), achievement ofleast-cost design, sustainability of future operations, unquantified though perceivedeconomic benefits and costs, socioeconomic impacts, and the extent to which the majorpurposes and goals were achieved and are considered commensurate with costsactually incurred. The ultimate objective of the Project—to increase secondary cropsproduction and raise farm incomes—was achieved in a cost-effective and sustainablemanner. There have been significant socioeconomic impacts in terms of group formationand empowerment, and in terms of savings mobilization. Investments made in themarketing facilities are projected to have a lasting positive impact with assets being fully

10

utilized now that the initial operating problems have been resolved. Investments made inagriculture research facilities, on the other hand, are not producing the expectedbenefits, and assets are not expected to be fully utilized in the future. Based on thisassessment, the Project is rated partially successful.

44. Despite the failure to fully implement the Project as originally envisaged,important progress was made at the farm level. The introduction of secondary crops, andthe development of a rudimentary private sector-led marketing system, has broughtsubstantial benefits to the farming communities involved. The Project demonstrated thatnew crops can be successfully introduced using the F-group and T-group methoddeveloped and refined under the Project. The Project also demonstrated that farmers,both men and women, can gain confidence and experience by working in groups andachieving important results. Farmers have indicated strongly that they would like projectactivities to continue to enable them to sustain and expand secondary crops production.

45. The following are the principal lessons learned from the Project:

(i) At the preparatory stage, the Bank needs to conduct a careful institutionalcapacity and constraints analysis as an integral part of projectidentification and preparation. Too many assumptions were made aboutthe capacity of the various agencies involved in the Project to executetheir respective responsibilities without verifying the assumptions. A clearfunctional and institutional demarcation of responsibilities and lines ofcommand are a prerequisite for successful project implementation. TheBank, therefore, needs to devote more of its resources to employinginternational and domestic specialists in the areas of institutional capacityanalysis, institutional change management, and training needsassessment. Furthermore, the Bank should carefully analyze whichaspects of a Project would logically be implemented by the Government,and which could be more effectively left to the private sector.

(ii) It is essential to involve all stakeholders in project preparation through anintensive consultation process. Not only the ultimate beneficiaries need tobe consulted as to their needs and expectations, but all relevantinstitutions have to be involved to ensure that there is full ownership at alllevels with respect to goals, objectives, and implementation modalities.The Project has shown that the formation of farmers groups is aneffective way to consult and involve the beneficiaries. This practice mustbe extended to all new agriculture development projects.

(iii) During project preparation, the role of women in agriculture needs betaken more explicitly into account. Women play an important role inagriculture that is often not fully recognized by the Government or by aidagencies. Although not foreseen at appraisal, the Project successfullyinvolved women in its activities through the formation of groups of womenfarmers, which has led to a notable improvement in their socioeconomicstatus, and—even more importantly—in their self-confidence. Theseaspects of the Project need to be replicated in other agriculturedevelopment projects.

11

B. Recommendations

1. Project-Related

46. A major restructuring of agriculture research activities and a fresh look at theorganization of research in Nepal is required. Under the Hill Agriculture Research Projectfunded by the Department for International Development (United Kingdom), attempts arebeing made to introduce contract research. Under the current financial and institutionalarrangements, effective agriculture research will continue to be problematic.

47. The continued employment of F-groups and T-groups to support the productionof secondary crops in the 50 pocket areas is essential. MOA will continue financing themonthly meetings of the T-groups to discuss the farming activities for the comingmonths. It is recommended that Bank missions in the field of agriculture, wheneverpossible, follow up to verify that this extension system is being maintained and expandedwhenever possible.

48. The market centre in Lamahi, which was not functional at the time of the Mission,was finally handed over to the Market Management Committee on 17 November 1998and has been operating since then as a daily market. The market centre at Kohalpurwas handed over in November 1998 to a local cooperative, which decided to operatethe market on a daily basis starting on 20 December 1998. It is recommended that DOAput in place a monitoring and recording system that keeps accurate records on the dailyvolumes and prices so as to enable evaluation of the marketing component at a laterstage.

49. The credit component of the Project did not materialize, as farmers encounteredproblems with ADBN on long loan approval periods and high collateral requirements.Also, over the last 10 years, operations of ADBN have become increasinglyunsustainable, and have been constrained by poor loan recovery rates, overdue loans,weak management, political interference, lack of operational focus, and inadequatehuman resources development. ADBN has also not been effective in expanding ruralfinancial markets, or in providing ready access to credit in the rural areas asdemonstrated by the continuing dominance of the informal sector in rural lending. It isrecommended that the problems of ADBN are addressed through (i) professionalizingthe composition of ADBN's board, gradual privatization, and effective regulatorysupervision by Nepal Rastra Bank; (ii) increasing savings mobilization; (iii) improving thetransparency and effectiveness of human resource management; (iv) rationalizing thebranch network; (v) improving internal control systems; (vi) increasing staff efficiency;(vii) restructuring the loan portfolio; (viii) rationalizing and simplifying lending operations;(ix) expanding the use of nongoverment organizations as finanbial intermediaries; (x)incorporating the small-farmer development operations; and (xi) establishing a ruralfinancial markets coordination mechanism. ADBN has initiated internal reviews withregard to the rationalization of the branch network, simplification of procedures, the needfor further computerization, restructuring the loan portfolio, improved human resourcemanagement, and staff training.

50. Under the Project, secondary crops were successfully introduced, and asustainable extension system developed. It is recommended that the Bank build onthese successes by designing a follow-up project that will focus on consolidating the

12

results achieved in terms of production, extension, and local marketing; expand theseinto other geographical areas; and introduce innovative ways to strengthen research,seed multiplication, and export marketing.

51. The status of compliance with loan covenants is shown in Appendix 3. Of the 30covenants, 12 have been complied with, 13 only partially complied with, and 4 notcomplied with. One covenant became irrelevant at the reformulation of the Project in1992. While a number of the covenants that were only partially or not complied with areno longer relevant as they related to the implementation arrangements of the Projectitself, recommendations for the remaining covenants are as follows:

(i) In the Loan Agreement, Schedule 6, paragraph 8, it was agreed thatNARC will ensure that the agricultural research stations in the projectareas will provide sufficient research resources, including staff, to supportsecondary crops research and development in the project area. TheGovernment should ensure that adequate budget allowances are madefor this purpose.

(ii) In the Loan Agreement Schedule 6, paragraph 17, it was agreed that inorder to maintain continuity in secondary crops research, NARC will takethe necessary measures to minimize frequent staff transfer from oneposition or location to another, and will make contractual arrangementsfor the staff trained under the Project to remain in its employ aftercompletion of their training for at least two years. Frequent changes inNARC staffing still occur, including at the director's level. It isrecommended that the Government take a stronger position againstfrequent transfers and provide researchers the stable environment theyneed for their work.

(iii) In the Loan Agreement, Schedule 6, Paragraph 19, it was agreed thatDFAMS will monitor the effect of the Project on area, production, yields,cost of production, and prices of important secondary crops in the projectarea, the results of which will be included in the semiannual progressreports referred to in Section 4.07(b) of the Loan Agreement. It isrecommended that DFAMS' successor, Agriculture MarketingDevelopment Division, begin collecting this information immediately,starting with the two market centres built under the Project.

(iv) In the Loan Agreement, Schedule 6, Paragraph 19, it was also agreedthat a baseline socioeconomic survey would be carried out. It was done,but the survey should be repeated to allow for an accurate assessment ofthe impact of the Project on the socioeconomic position of thebeneficiaries.

52. It is recommended that, if the Project is selected for a project performance auditreport, it should be done 3-5 years after loan closing, to enable full assessment of thesustainability of the achievements in terms of number of beneficiaries, area undersecondary crops and yields.

13

2. General

a. Project Preparation

53. The design of the various project components was weak, which affected theimplementation of the Project. Project design needs to take into account the pervasiveweakness of the Nepal civil service, its culture of decision making, and the relationshipsbetween the Government and the population. Specifically, analysis of institutionalstrengths and weaknesses should be part of project preparation, as should be a chartthat shows what decisions are to be made at what level and by whom. This would helpavoid the mistake of assuming that decisions will be made. It would also assist inclarifying to the Government exactly what types of decisions would be expected.Additionally, all projects should have gender-specific components and take explicitly intoaccount the respective roles of men and women in the development and implementationof various project components. If this had been done for the Project, women farmerswould have benefited even more and would have been more explicitly involved with agreater impact on crop production. Projects should develop an intensive stakeholderconsultation process and carefully evaluate which components are logically to beimplemented by the Government, and which by others. The Project would havebenefited if the private sector had been consulted and involved more extensively in themarketing component. The same applies to the credit component. Innovative methodsshould be explored to involve more community-based organizations in project design,without unduly relying on the Government or the relatively weak nongovermentorganization sector in Nepal.

b. Project Implementation

54. Project implementation is seriously affected if there is more than one executingagency involved. In addition, having 50 subproject areas in six different districts requiresintensive coordination and monitoring by the project office. While the present Projectwas implemented satisfactorily at the farm level, this was mainly due to a motivated andactive project manager who spent most of his time in the field talking to farmers andensuring that project activities were implemented. Given that such motivated staff arescarce in the Nepal civil service, it is recommended that future projects of a similarnature only have one executing agency, and that additional consultants and staff becontracted or assigned to support the project office.

55. Given the size and scattered nature of the structures built under the Project,there is a real danger that proper maintenance will not take place, as has been the casein other projects as well. To ensure operation and maintenance of the facilities,adequate budget for it should be provided annually by MOA. It is recommended that aneventual second-phase project would also include the 50 pocket areas and make use ofthe facilities that are already there. This would not only strengthen what has been builtunder the Project, but would also allow for the opportunity to feed farmers' experiencesback in to the new project. Innovative project design drawing on these experiences isrequired.

14

APPENDIXES

Number Title

Page

1. Project Costs 15

2. List of Project Facilities Financed under the Project 16

3. Status of Compliance with Loan Covenants 21

4. Utilization of Bank Loan 26

5. Disbursement of Loan Proceeds 27

6. Financial and Economic Analysis 28

Cited on(page, para.)

5,20

6, 23

6,28

7,29

7,29

8, 36

15 Appendix 1

PROJECT COSTS($000)

Original Revised ActualItem FX LC Total FX LC Total EX LC Total

A. Strengthening of Research1. Civil Works 1299 1801 3100 520 780 1300 440 733 1173

a. Office/Lab/Others 856 1137 1993 360 540 900 0 0 0b. Staff Quarters 443 664 1107 160 240 400 0 0 0

2. Vehicles & Motorcycles 290 9 299 230 6 236 224 0 2243. Laboratory Equipment 842 212 1054 206 51 257 242 150 3924. Office Equipment 76 10 86 12 3 15 12 3 155. On-Farm Research 68 158 226 68 158 226 20 85 1056. lncr. 0 & M Cost 286 1250 1536 60 505 565 60 1246 1306

Subtotal (A) 2860 3441 6301 10569 1503 2572 998 2217 3215

B. Strengthening of Extensionand Seed Multiplication

1. Civil Works 377 565 942 266 399 665 180 841 1021a. Office/Lab/Others 196 294 490 0 0 0b. Staff Quarters 70 105 175 0 0 0

2. Vehicles & Motorcycles 102 3 105 96 3 99 85 0 853. Office Equipment 62 16 78 32 8 40 30 8 384. Demonstration & Trial 46 107 153 46 107 153 40 179 2195. Incremental 0 & M Cost 37 280 317 29 225 254 346 398 744

Subtotal (B) 624 971 1595 469 742 1211 681 1426 2107

C. Strengthening of Marketing Services

1. Civil Works 30 122 152 120 180 300 130 161 2912. Baseline Study 0 11 11 0 11 11 0 0 03. Vehicles & Motorcycles 25 1 26 31 1 32 19 0 194. Office Equipment 47 3 50 31 8 39 19 0 195. Incremental 0 & M Cost 35 195 230 35 138 173 0 142 142

Subtotal (C) 137 332 469 217 338 555 168 303 471

D. Provision of Credit

1. Crop Production 0 2247 2247 0 876 876 0 0 02. Seed Production 0 324 324 0 120 120 0 0 03. Others 0 514 514 0 204 204 0 0 0

Subtotal (D) 0 3085 3085 0 1200 1200 0 0 0

E. Provision of Consultant Services1. Renumeration and per di 690 67 757 150 60 210 123 90 2132. International Travel 54 0 54 18 0 lB 9 0 93.LocalTravel&Communi 10 15 25 0 10 10 0 15 154.SecretanaiServices&R 0 21 21 0 10 10 0 0 0

Subtotal(E) 754 103 857 171 75 246 132 105 237

Total Base Cost 4375 7932 12307 1926 3858 5784 1979 4051 6030

Physical Contingency 365 472 837 141 216 357 0 0 0Price Contingency 304 1219 1523 184 450 634 0 0 0Service Charge 435 0 435 168 0 188 134 0 134

Total 5479 9623 15102 2439 4524 6963 2113 4051 6164

FX= foreign exchange cost, LC=local currency cost, 0 & M operation and maintenance

No. 1

1

0No. 1

0

0

No. 14

0

0No. 5

1

1No. 2

1

1Set

3

2

1

No. 1

1

1No. I

0

0No. 1

1

1

Set

1

1

1No. 3

3

2Set

1

1

1Set

1

1

1

No. 1

0

0No. 1

0

0No. 1

0

0

No. 1

0

0No. 26

0

0No. 1

1

0No. 1

1

1

No. 1

0

0No. 1

1

1

Set

1

1

1No. 2

2

1Set

1

1

1Set

1

1

1

No. 1

0

0No. I

0

0Set

1

0

0

16

Appendix 2, Page 1

LIST OF PROJECT FACILITIESFINANCED UNDER THE PROJECT

Serial ItemNo.

A. Project Coordination Office4 Wheel-Drive vehicleMotorcycleComputerPhotocopy MachineOthers

B. Hill Crop Improvement Program1. Construction/Other Civil Works

Laboratory BuildingTraining Hall

2. Staff QuartersSubstation Testing SitesStore and Field LabsLand Development and FencingGlass/Screen House

3. VehicleSmall Pick-up TrucksMotorcyclesSmall Single Plot Thresher

4. Laboratory EquipmentMicroscope/Cameras/Germinator, etc.Freezer/RefrigeratorLaboratory Tables/FurnishingsMisc. Equipment

5. Office EquipmentPhotocopy MachineAudio-Visual EquipmentOthers

C. Grain Legume Improvement Program1. Construction/Other Civil Works

Office BuildingStaff QuartersFarm Store & Field LabsGlass House

2. VehicleSmall Pick-up Trucks4-Wheel Tractor

3. Laboratory EquipmentMicroscope/Incubator, etc.RefrigeratorLaboratory Tables FurnishingsMisc. Equipment

4. Office EquipmentPhotocopy MachineWireless Set Solar PanelsOthers

Unit Original Revised Achieved

No. 1

1

1No. 0

2

2No. 1

0

0No. 1

0

1Set

1

1

1

Unit Original Revised Achieved

No.No.No.No.No.

No.No.No.

SetNo.SetSet

No.No.SetNo.Set

No.

No.No.

SetNo.SetSet

SetSet

113

112

214

411

1111

1

11

121

1

15002

212

1411

00000

1

0

1

21

01

11001

112

211

00000

1

10

1131

01

No. 10

2

2No. 2

1

No. 2

1

1No. 5

0

0

Set

1

1

1No. 2

2

1Set

1

1

1Set

1

1

1

17

Appendix 2, Page 2

Serial ItemNo.

National Oilseed Development Program1. Construction/Other Civil Works

Office BuildingStaff QuartersLabs. BuildingsTraining HallGlass/Screen House

2. VehicleTractor ME 56 HPPick-up TrucksMotorcycles

3. Laboratory EquipmentMicroscope/Incubator, Germinator, etc.Freezer/RefrigeratorLaboratory Tables/FurnishingsMisc. Equipment

4. Office EquipmentVHF Telephone SystemPhotocopy MachineAudio-Visual EquipmentWireless Set w/Solar PanelsOthers

E. Blo-Fertilizer Development ProgramOffice Building

1. Vehicle4-Wheel DriveMotorcycle

2. Laboratory EquipmentGas ChromatorgraphIncubator, etc.Freezer/RefrigeratorMisc. Equipment

3. Office EquipmentAudio-Visual EquipmentOther

F

National Maize Development Program1. Construction/Other Civil Works

Staff QuartersGlass/Screen House

2. VehicleSmall Pick-up TrucksMotorcycles

3. Laboratory EquipmentMicroscope/Incubator, Germ inator, etc.RefrigeratorLaboratory Tables/FurnishingsMisc. Eauiment

18

Appendix 2, Page 3

Serial ItemNo.

4. Office EquipmentPhotocopy MachineOthers

G. Ginger Research and Development Program1. Construction/Other Civil Works

Office w/Lab BuildingStaff QuartersLand DevelopmentStorage Bldg. Work Shed

2. VehiclePick-up Trucks, Diesel 4 Wheel DriveMotorcycleBicycle

3. Laboratory EquipmentGinger DriersMicroscope, etc.Misc. Equipment

4. Office EquipmentTypewriter

H. Nepalgunj Research Station1. Construction/Other Civil Works

Land DevelopmentThreshing FloorOpen Shed and Storage

2. VehicleTractorTillerPick-up TruckMotorcycle

3. Laboratory EquipmentGeneratorStabilizerServicing Facilities WorkshopMisc. Equipment

4. Office EquipmentCameraPhotocopy MachineAudio-Visual EquipmentMicrocomputerOthers

Surkhet Research Station1. Construction/Other Civil Works

Staff QuartersGodownLand Development

2. VehiclePick-up TruckMotorcycleHorse/Mule

Unit Original Revised Achieved

No. 1Set

1

No

1

1

1No

6

6

5No

1

1

1No

1

1

No. 1

1No. 2

1

1No. 2

2

0

No. 2

2

0Set

1

1Set

1

1

No. 2

2

2

Ha. 1

1No. 2

2

2No. 2

2

2

No. 2

2

2No. 2

2

2No. 2

1

1No. 4

1

1

No. 1

1

1No. 2

2

2Set

1

1

0Set

1

No. 1

0

0No. 1

0

0Set

1

0

0No. 1

0

0Set

1

0

0

No

3

3

3No. 1

1

1Set

1

1

No. 1

1

1No. 2

1

1No. 2

0

0

Serial ItemNo.

Unit Original Revised Achieved

19

Appendix 2, Page 4

3. Laboratory EquipmentGenerator No. 1

1

0Misc. Equipment Set

1

1Staff Quarters No

8

2

0Library & Training Hall No

1

0

0Lab. Building No

1

1

0Glass House No

1

0

0Guest House No

1

0

02. Vehicle

Horse/Mule No. 2

1

13. Laboratory Equipment 0

Lab. Tables & Furnishings Set

1

1

1Spectrophotometer No. 1

1

1Water Bath No. 1

1

0Kjeldhal Distillation Set Set

I

1

1Distilled Water plant No. 1

1

0Misc. Equipment Set

1

1

14. Office Equipment

Audio-visual equipment Set

1

1

1Photocopy Machine No. 1

0

0Others Set

1

1

1

K. Department of AgricultureProject Implementation Unit

1. Construction/Other Civil WorksOffice Building No

1

1Staff Quarters No

1

1

12. Vehicle

4-Wheel Drive No

1

1Motorcycle No

2

2

2Office Equipment Set

1

0

03. Extension Services

Construction/Other Civil WorksAgri. Service Centre No. 18

10

10Staff Quarters No. 42

10

104. Vehicle

4-Wheel Drive No. 1

2

6Motorcycle No. 13

8

8Bicycle No. 110

50

50Horse No. 2

2

25. Field Office Equipment

Service Centre Set

18

10

10

U

Regional Agricultural Training Centre,Khajura1. Construction/Other Civil Works

Women's Dormitory No. S

1Training Hall No. I

1

Water Supply System to the complex No. I

12. Vehicle

Training/Field Equipment No. I

1Audio-Visual Equipment No. I

1

No. 2 2 2Set 2 2 2

No. 0 1 1

No. I

1Set

1

1Set

6

6No. 1

1

20

Appendix 2, Page 5

Serial Item Unit Original Revised AchievedNo.

M. Agriculture Marketing DevelopmentDivision1. Construction/Other Civil Works

Market CentreMarket Stall and Storage

2. VehiclePick-up Truck (Mini Truck)

3. Office EquipmentComputerAudio-Visual EquipmentCommunication EquipmentPhotocoov Machine

Not complied with as the provisionof credit to project beneficiaries byADBN did not materialize.

Complied with. Up to 1992 the PCOwas not functioning. After thereformulation of the project, theP00 was adequately staffed andequipped, and the projectcoordinator effectively coordinatedProject activities under directjurisdiction of DOA. Whilecoordination with the autonomousNARC improved, there was littlecoordination with ADBN.

Partially complied with. The regionaldirector has been appointed but thePIU has not been adequatelystaffed.

21

Appendix 3, Page 1

STATUS OF COMPLIANCE WITH LOAN COVENANTS

REFERENCE

COVENANT

STATUS OF COMPLIANCE

LA, S. 6, para 1 The following Executing Agencies (EAs) shallbe responsible for Project implementation.

a) National Agricultural Research and Partially complied With as NARSCServices Centre (NARSC) for did not fully implement Part 1Strengthen ing of Research (Part 1)

b) Department of Agriculture (DOA) for Complied with.Strengthening of Extension and SeedMultiplication (Part 2)

c) Department of Food and Agricultural Partially complied with due toMarketing Services (DFAMS) for reorganization of Ministry of

Strengthening of Marketing Services Agriculture (MOA).(Part 3)

d) Agricultural Development Bank of Nepal(ADBN) for Provision of Credit (Part 4)

LA, S. 6, para 2 A Project Coordinator shall be responsible forcoordinating Project activities at the centrallevel, and shall be heading a ProjectCoordinating Office (PCO). The PCO shall betimely and adequately equipped and staffedby competent staff to assist the ProjectCoordinator in respect of administration,procurement, civil works and budget.

LA, S. 6, para 3 A Project Manager shall be responsible forcoordinating Project activities in the Projectarea. The position of Project Manager shall atall times be filled by the Regional Director ofAgriculture for the Mid-Western Dev. Region.On project-related matters, the ProjectManager shall relate closely with the ProjectCoordinator. He shall report directly to theDirector General of DOA. The ProjectManager shall be heading a ProjectImplementation Unit (PIU) at Birendranagar inSurkhet District. The PIU shall be timely andadequately equipped and staff by competentstaff to assist the Project Manager in respectof Project-related monitoring, administrationand financial accounting.

22

Appendix 3, Page 2

LA, S. 6, para 4 NARC and DOA shall organize joint reporting Complied with. Joint sessions tookand planning sessions at least once every six place every three months betweenmonths at each of the agricultural research August 1993 and December 1997.stations in the Project area. The sessions In addition annual session also tookshall be attended by concerned NARC and place. All meetings have beenDOA staff. properly recorded.

LA, 5. 6, para 5 The Borrower's existing RegionalCoordination Committee (RCC) for the Mid-Western Dev. Region shall be responsible forensuring appropriate support from andcoordinating activities of the Project ExecutingAgencies in the Project area. Also RCC shallcoordinate between the Project and otheragricultural projects in the Project area. Forthis purpose, the project managers of otherdevelopment projects operating in the Projectarea will be invited to join RCC on an ad hocbasis. RCC shall meet at least every fourmonths.

LA, S. 6, para 6 The Borrower's existing Project SteeringCommittee (PSC) shall be responsible forproviding policy guidance to and coordinatingpolicies between the Project executingagencies at the national level. The ProjectCoordinator shall serve as a membersecretary to the Project Steering Committee.

Complied with. The RCC met everythree months from August 1993until December 1997 and keptrecords of the meetings. Themeetings mainly concentrated onsupply and distribution of inputssuch as fertilizer and seed, andensured that the identification of thepocket areas did not overlap withthose of other projects.

Complied with. The PSC met everythree months between March 1993and September 1997 or a total of 18

times. The meetings were properlyrecorded.

LA, S. 6, para 7 The Project Coordinator shall be responsible Complied with.for the day-to-day implementation of activitiesunder Part 1.

LA, S. 6, para 8 NARC shall ensure that the agricultural Only partially complied with, due toresearch stations in the Project areas shall inadequate budget and lack of

make available sufficient research resources, qualified staff.including staff, to provide adequate support onsecondary crops research and development inthe Project area.

LA, S. 6, para 9 Within three months after the effective date(a) NARC shall establish an Outreach Unit in

Nepalgunj, Surkhet and Jumla agriculturalresearch stations to: (a) maintain contact withextension staff and farmers in their commandareas; (b) assess the development constraintsand farmers' problems; (c) coordinate andimplement on-farm research; and (d) organizethe services to support extension work.

Partially complied with. The threeoutreach units were established atan early stage of the project. Theone in Nepalgunj is functional asstaff and vehicles have beenavailable, although staff only go toareas that are easily accessible byvehicle. The other two stations wereestablished but never properlystaffed, and few outreach activitieswere developed.

LA, S. 6, para 9 Each Outreach Unit shall be composed of an Only partially complied with. Only(b) agronomist, a soil scientist, a plant protection an entomologist/plant pathologist so

specialist, a horticulturist, a socio-economic far has been appointed in each outand other staff necessary to carry-out the on- reach unit.

23

Appendix 3, Page 3

farm research and farming system research inthe command area.

LA, S. 6, para 10 The Project Manager shall be responsible for Complied with after reformulation ofthe day-to-day implementation of the activities the Project in 1992.under Part 2.

LA, S. 6, para 11 DOA shall ensure that the agricultural servicecentres to be constructed under the Projectshall be strategically located to serve thefarmers who grow secondary crops, and thatthe Centres shall be properly staffed,operated, maintained, and utilized for theirintended purposes to provide extension andother support services to farmers in theProject area, during and after Projectimplementation.

LA, S. 6, para 12 Multiplication and distribution of improvedseeds released by the Seed Board shall becarried out by selected farmers in the Projectarea under the supervision of the extensionstaff of DOA and supported by the SeedTechnology and Improvement Program (STIP)under NARC.

Complied with. The Centres havebeen instrumental in supportingfarmers under the Project. They areutilized for the extension andtraining activities aimed at thetraining groups, for storage anddistribution of seeds and otherrelated activities.

Partially complied with. STIP wasabolished by the time of projectreformulation. Seed multiplicationand distribution was carried out bythe farmers with support form theextension staff. Foundation seedsfrom NARC were in short supply,and in a number of cases wereprocured from India by DOA.

LA, S. 6, para 13 The Assistant Marketing Economist of Not complied with. After the 1992DFAMS based at Nepalgunj shall be reorganization of MOA responsibilityresponsible for the day-to-day implementation was shared between the newof Part 3. He shall report directly to the marketing division and assistantDirector General of DFMAs at Kathmandu. planning officer in the districts which

led to implementation problems.

LA, S. 6, para 14 ADBN shall implement Part 4 in cooperation(a) with the other participating banks.

LA, S. 6, para 14 The branch managers of ADBN, Nepal Bank(b) Ltd. and Rastriya Banijya Bank in each of the

districts in the Project area shall beresponsible for the day-today implementationof Part 4.

LA, S. 6, para 15 The existing "Lead Bank Scheme" with ADBNas lead bank shall be utilized in carrying out

Only partially complied with. ADBNhas been working independently,without coordination with FlU andwithout involvement of the otherparticipating bank, Nepal Bank Ltd.and Rastriya Banijya Bank. ADBNdid not adjust its procedures tofurther Project implementation.

Only partially complied with. WhileADBN has been active in theprovision of credit to farmers in theproject area, this was notspecifically targeted at thebeneficiaries, and no separaterecords were kept. Nepal Bank Ltd.and Rastriya Banijya Bank did notimplement Part 4.

Only partially complied with. Thescheme was initiated in the project

24

Appendix 3, Page 4

Part 4, and expanded to cover all of theProject area. The existing DistrictCoordination Committee chaired by the ChiefDistrict Officer with the lead bank branchmanager as member secretary shall beresponsible for coordinating the activities ofthe participating banks. The lead bank shallbe responsible for the preparation of annualcredit programs and the setting ofperformance targets, in consultation with otherparticipating banks, DOA, NARC and otherconcerned agencies.

area but was not accepted byfarmers as they were required tosubmit one-year program with cashflow predictions.

LA, S. 6, para 16 The Borrower shall ensure the adequate and Not complied with. The Borrowertimely provision by participating banks of did not ensure that credit wasagricultural credit for secondary crop available to beneficiaries, andproduction in the Project area during and after coordination with project activitiesProject implementation, did not take place.

LA, S. 6, para 17 In order to maintain continuity in secondarycrops research, NARC shall take thenecessary measures to minimize frequentstaff transfer from one position or location toanother, and shall make contractualarrangements for the staff trained under theProject to remain in its employ aftercompletion of their training for at least twoyears.

LA, S. 6, para 18 The Borrower shall establish an ImprestAccount at the Nepal Rastra Bank to ensurethe timely release of the proceeds of the Loanfor the purpose of making payments in localcurrency.

Not complied with. After NARC hadbecome autonomous in 1992,frequent changes of staff did occur.and has been occurring on a regularbasis to date.

Complied with. In 1993, the rulespertaining to the imprest accountwere relaxed by the Nepal RastraBank, after which the account wasused for timely release of funds.The size of the account was$700,000.

LA, S. 6, para 19 During the first year of Project implementation Complied with. The survey started(a) DFAMS shall carry out a baseline socio- in June 1990 and the report was

economic survey of potential beneficiaries in submitted to the Bank in Marchthe Project area, and submit the results 1992. No follow-up survey wasthereof to the Bank by the end of Project done.implementation.

LA, S. 6, para 19 DFAMS shall monitor the effect of the Project(b) on area, production, yields, cost of production,

and prices of important secondary crops in theProject area, the results of which shall beincluded in the semi-annual progress reportsreferred to in Section 4.07(b) of the LoanAgreement.

Partially complied with. DFAMS andits successor, Agriculture MarketingDevelopment Division, have notbeen collecting the information.Project benefit monitoring andevaluation activities were taken overby DOA, supported by theagriculture extension consultant,and basic data were included in thesemiannual reports.

Yr. 4:10%, Yr. 5: 20%, Yr. 6: 40%, Yr. 7: 60%

LA, S. 6, para 22 The Borrower shall provide adequate fundsfor the operation and maintenance of theProject facilities, during and after Projectimplementation. Each Executing Agency shallcarry out the operation and maintenance ofthe Project facilities provided under itsrespective part of the Project.

25

Appendix 3, Page 5

LA, S. 6, para 20 The Borrower and the Bank shall carry out Not applicable, as projectjointly a mid-term evaluation of the project at reformulation was done in Junethe end of the fourth year of Project 1992.implementation.

LA, S. 6, para 21 Starting with the fourth year of the Project Partially complied with. Theafter the Effective date, the Borrower shall Government has been providing 13finance out of its own resources the salaries percent each for NARC and DOA asof incremental permanent staff engaged under incremental operating costs, andthe Project on the basis of the following the remainder came from Bankschedule: financing.

Partially complied with. Projectactivities continued after December1997, and the Project has beenprovided with a budget of NRs3million for FY1999 to continue seedmultiplication and distributionactivities, training and extension,and support to the two marketCentres. DOA has retained 17project staff for this purpose. NARChas no separate budget formaintenance and operation of thefacilities built under the Project.Laboratory equipment is beingmaintained, and the ginger researchprogram continues.

LA, Art. IV, Submission to the Bank of the Project's Complied with. All audited accountsSection 4.06 (b) Audited Accounts and related financial up to FYi 997 have been submitted.

statement not later than 12 months after theend of each related fiscal year.

LA, Art. IV, Borrower shall furnish to the Bank semi- Complied with. Semiannual reportsSection 4.07 (b) annual reports on the carrying out of the were submitted to the Bank

Project and on the operation and between mid-1993 and Decembermanagement of the Project facilities. 1997.

UTILIZATION OF BANK LOAN

($)

No. Category Name

O1A Civil Works - Part 1 (NARSC)

01 B Civil Works - Part 2 (DOA)

O1C Civil Works - Part 3 (DFAMS)

02A Vehicles and Motorcycles - Part 1

02B Vehicles and Motorcycles - Part 2

02C Vehicles and Motorcycles - Part 3

03A Eqpt & Materials - Part 1

03B Eqpt & Materials - Part 2

03C Eqpt & Materials - Part 3

04A lncrmntl Operating & Adm. Costs - Part 1

04B lncrmntl Operating & Adm. Costs - Part 2

04C lncrmntl Operating & Adm. Costs - Part 3

05A Consultant Srvcs - Part 1

05B Consultant Srvcs - Part 2

06L Loc Cuff EXP.- Baseline Study For BME

07 Service Charge During Construction

08 Unallocated

Total

Percent of Total

Local Cost Financing

Ceiling

Utilization

Percent

Loan

Allocation

1,265,728

703,975

303,656

200,925

97,142

30,535

288,899

42,320

40,328

853,821

465,364

187,681

167,121

78,461

10,652

181,242

444,735

FYI 990

164,899

146,808

6,754

6,630

69

0.00

28,512

7,030

368

232,427

66,495

22,354

0.00

6,669

0.00

378

0.00

FY1991

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

6,940

0.00

FY1992

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

7,145

0.00

FYI 993 FYI 994 FYI 995

0.00 56,325 169,420

0.00 37,262 54,446

0.00 886 0.00

93,649 18,291 75,113

0.00 5,375 0.00

0.00 7,571 0.00

0.00 21,970 0.00

0.00 5,755 867

0.00 10,322 0.00

0.00 192,502 147,848

0.00 36,950 58,087

0.00 3,509 3,893

0.00 0.00 0.00

0.00 0.00 2,907

0.00 0.00 0.00

6,008 7,470 14,712

0.00 0.00 0.00

FY1996

235,896

199.314

13,715

0.00

76,491

0.00

206,062

12,545

8,494

329,510

252,324

3,407

14,304

15,951

0.00

20,920

0.00

FY1997

123,883

295,783

61,030

0.00

2,100

11,072

68,229

10,298

0.00

195,370

212,966

5,336

9,054

7,128

0.00

30,880

0.00

FY1998

323,271

287,244

28,658

30,772

698

80

131,875

3,815

0.00

208,038

117,382

3,782

0.00

15,074

0.00

39,375

0.00

Total

1,073,694

1,020,857

111,043

224,455

84,733

18,723

456.648

40,310

19,184

1,305,695

744,204

42,281

23,358

47,729

0.00

133,828

0.00

5,362,585 689,393 6,940 7,145 99,657 404,188 527,293 1,388,933 1,033,129 1,190,064 5,346,742

0.00 12.86 0.13 0.13 1.86 7.54 9.83 25.90 19.27 22.19 99.70

2,645,062

0.00 0.00 104,571 0.00 262,909 320,149 792,930 677,147 500,791 2,658,497

0.00 0.00 3.95 0.00 9.94 12.10 29.98 25.60 18.93 100.51

N.)0)

BMEBenefit monitoring and evaluation, DFAMS = Department of Food and Agricultural Marketing Services, DOA= Department of Agriculture,

NARSC=National Agricultural Research and Services Centre, (later NARC, National Agricultural Research Council)

D0(t

a-><

DISBURSEMENT OF LOAN PROCEEDS

($)

FY1992 FY1993 FY1994 FY1995

270,776 544,277 1,251,929 3,732,302

4,985,789 6,335,844 10,265,511 19854,772

5,256,565 6,880,121 11,517,440 23,587,074

198,351 116,138 302,937 339,261

1,185,824 664,825 1,593,121 2,823,983

1,384,175 780,963 1,896,058 3,163,244

1,192,610 1,000,000 1,278,578 329,154

0.00 0.00 0.00 0.00

1,192,610 1,000,000 1,278,578 329,154

Item FYi 990

Incremental & Operating CostGovt. 49201

Bank 934,856

Total 984,057

Equipment and MaterialGovt. 56,602

Bank 347,697

Total 404,299

Purchase of LandGovt. 226,910

Bank 0.00

Total 226,910Consultant Services

Govt. 0.00

Bank 0.00

Total 0.00

VehiclesGovt. 0.00

Bank 9,600

Total 9,600Civil Works

Govt. 138,913Bank 1,250,205

Total 1,389,118

Grand TotalGovt. 471,626

Bank 2,542,358

Total 3,013,984

FYI 991

91,9321,746,7081,838,640

59,187363,579

422,766

0.00

0.000.00

0.00232,750232,750

0.00129,460

129,460

151,4911,363,4041,514,895

302,610

3,835,901

4,138,511

0.00

0.000.00

0.004,687,5474,687,547

324,9032.924,1333,249,036

1,986,640

13,783,293

15,769,933

0.000.000.00

15,662839,486

855,148

229,4291,732,6101,962,039

1,905,506

9,572,765

11,478,271

0.00

0.000.00

0.003,645,0233,645,023

2,271,65112,372,13714,643,788

5,105,095

27,875,792

32,980,887

0.00615,418615,418

0.00158,254158,254

2,767,52113,699,027

16,466,548

7,168,238

37,151,45444,319,692

FYI 996

6,519,67824,294,96930,814,647

599,28413,281,541

13,880,825

56,680

0.0056,680

0.001,427,196

1,427,196

87,2995,086,606

5,173,905

5,612,95434,350,06839,963,022

12,875,895

78,440,380

91,316,275

FY1997

7,974,94629,545,319

37,520,265

381,840

2,165,541

2,547,381

2,078,849

0.002,078,849

0.001,127,2411,127,241

0.001,813,08,61,813,086

3,856,20829,354,012

33,210,220

14,291,84364,005,199

78,297,042

FY1998

28,602,007

7,793,371

977,650

76,018

33,701,935

71,150,981

N.)

Source: Audit reports.

D

CD

a-><

01

28

Appendix 6, Page '1

FINANCIAL AND ECONOMIC ANALYSIS

A. Introduction

1. The financial analysis presented in the appraisal report was redone, using theoriginal methodology as much as possible and using updated information as ofDecember 1997, the closing date of the Project. Field surveys were conducted in samplepocket areas in May and June 1998 during which farmer groups were interviewed andfinancial and economic data were collected.

2. The considerable variation in farm size and agriculture conditions in the sixdistricts makes it difficult to arrive at general conclusions about the Project's impact onbeneficiaries. In the original analysis, 12 representative types of farms for variouscropping patterns and districts were analyzed, and incremental farm income determined.This has been repeated here and compared with the original outcomes.

B. Assumptions

3. The costs and benefits of the Project are estimated with the followingassumptions:

(i) There is no major change in labor use for culture practices with theProject compared with the project situation.

(ii) The major change introduced by the Project is the increased use ofchemical fertilizers, biofertilizers, and plant protection chemicals.

(iii) NRsO.50 per kilogram of fertilizer used is added to fertilizer prices tocover transportation and handling, including application.

(iv) Increases in productivity are mainly caused by increased use of chemicalfertilizers, and biofertilizers, improved crop management practices; andbetter quality seeds.

(v) The incremental costs and benefits are estimated by deducting the costsand benefits without the project from costs and benefits in the with-projectsituation.

(vi) Transportation costs to the market center and trader's margin arededucted from wholesale prices to arrive at farmgate prices (duringpost-harvest season).

(vii) A single set of farmgate prices is used for all project districts representinga similar production to consumption situation.

4. In addition, the following assumptions were made in the analysis:

29 Appendix 6, Page 2

(i) The Project started in FYI 990 and ended in FYi 998.

(ii) The life of the project is 20 years and ends in FY2009.

(iii) The available statistics show that there was a rise and fall in theproductivity of the secondary crops in the Project area during FY1994—FY1997. The productivity figures for this period are presented onthe actual basis. The yields for the period FYi 998—FY2009 are estimatedbased on the average yields obtained during the last four years.

(iv) It is expected that farmers will maintain the present average yield.Increased production will mainly come from area expansion undersecondary crops as a result of other farmers adopting the improvedpractices. The area expansion is conservatively estimated at 5 percentevery year, over the reported area for FYi 997 for the next five years (upto FY2003). After this period, no growth is expected, but the then existingproduction levels will be maintained.

(v) For economic analysis, the value of all outputs and local inputs areexpressed in constant FY1990 prices using the gross domestic productdeflator and the G-5 manufacturers unit value index is used to convertcost insurance and freight prices of fertilizers to constant FYi 990 prices.

(vi) The prices of outputs and local inputs are assumed to move in the sameproportion in the remaining life of the Project.

(vii) It is assumed that 50 percent of Agricultural Development Bank of Nepallending for secondary crops in the six project districts was for theparticipating households.

5. Economic prices of inputs and outputs (Table 1) were further adjusted followingthe method used at appraisal:

(i) Economic prices, at farmgate, of traded agricultural outputs are derivedbased on border prices along the Nepal-India border (Nepatgunj-Rupaidia) and are converted to local currency at the average officialexchange rate for the concerned year. Maize, chickpea, andrape/mustard are valued at their import parity price. Adjustments aremade for quality, transport, handling, storage, and other costs to arrive atfarmgate prices.

(ii) Lentil and ginger are treated as export commodities, and are thus valuedat their export parity value. Economic prices of these outputs are derivedfrom free-on-board border prices as estimated at relevant places alongthe Nepal-India border, converted to local currency at the officialexchange rate, and adjusted for quality, transport, handling, storage, andother costs to arrive at farm gate prices (Table 2).

(iii) Economic prices of chemical fertilizers are based on the actual price paidby Agriculture Inputs Corporation on the international market in the recentpast. Internal handling, transportation, storage and administrative

30 Appendix 6, Page 3

expenditures are added to the cost insurance and freight price to arrive ateconomic prices at farmgate (Table 3).

(iv) Considering the single price policy of Agriculture Inputs Corporation forfertilizers in the past and differential transportation costs, two sets ofeconomic prices (one for Terai and one for the hills) have been used.

(v) Financial values of nontraded outputs and inputs are adjusted by astandard conversion factor of 0.90 to reflect economic value.

(vi) Economic cost of unskilled farm labor has been valued at 90 percent ofthe weighted average of market wage rates over a 12-month period toreflect the prevailing degree of unemployment and under employment inthe project area.

(vii) Economic costs of construction works are derived from the correspondingfinancial costs, excluding taxes, and adjusted by a constructionconversion factor of 0.90.

C. Financial Analysis

1. Cropping Patters, Yields, and Cropped Areas

6. With the introduction of secondary crops, cropping patterns in the project areahave changed. Table 4 shows the cropping patterns, yields, and areas under cultivationfor each of the six project districts, and for rice and for maize-based farming systems.The 12 farm types are considered to be representative for the different farms found inthe six districts and 50 pocket areas. The table also shows the incremental farm incomefor each of the 12 farm types.

7. Despite the reduction in the loan size in the third year of the project, the actualproject area under secondary crops as of December 1997 was 51,900 hectares (ha), ormore than double the area projected. Table 5 shows the total area under secondarycrops at the end of the Project compared with the appraisal projections, and subdividedby principal geographic area and by crop. This provides a mixed picture. Theintroduction of secondary crops has been much more successful in the Terai than in thehills. In the latter, only millet has had some success, while mustard, lentil, chickpea, andespecially maize have been readily accepted by the farmers.

2. Impact on Farm Households

8. The financial impact of the Project on a representative farm for various types ofcrop production has been calculated only using the production of the secondary crops.Income earned form other crops and oft-farm activities have not been considered.Incremental returns of secondary crops in current prices are shown in Table 6. Theaverage net incremental income per family achieved under the project isNRs4,171.

9. The incremental net farm income and return to family labor are expressed inconstant FYi 990 prices as shown in Table 7. Net incremental farm income of a typicalfarm family in Bardia District with an average holding of 2.75 ha is estimated at

31 Appendix 6, Page 4

NRs9,371 and incremental income to family labor is estimated at NRs12 per day in arice based cropping system. These figures are slightly higher than projected at appraisal.Similarly, farm income of a typical farm family in Banke with an average holding of 1.47ha is estimated to have increased by NRs4,989 and income to family labor per dayincreased by NRs9 for a rice-based cropping system. For a rice-based cropping systemin Dang District, net income of a typical farm household with an average holding of 1 .57ha increased by NRs3,21 1 and income to farm labor increased by NRs6 per day, whichis less than the projected income. This was mainly due to the poor yield of mustard,which is one of the major secondary crops grown in the district. For a maize-basedcropping system, the increase in income is estimated at NRs1O,123, NRs7,351and NRs 8,955 in Bardia, Banke, and Dang districts, respectively.

10. Among the hill districts, Surkhet has benefited most. A typical farm householdwith an average holding of 1.14 ha in Surkhet, farm income increased by NRs2,834 in arice-based cropping system and by NRs5,712 in a maize-based cropping system. Thisresulted in an income per family labor day of NRs9 and NRs23 in rice-based and maize-based cropping systems, respectively. In Salyan, net income of a typical farm householdincreased by 2,410 for a rice-based cropping system and 5,296 for a maize-basedcropping system. This resulted in an income per family labor day of NRs18 and NRs15,respectively. In both the Surkhet and Salyan districts the increase in farm income washigher than projected at appraisal.

11. Jumla district has benefited the least from the Project. A typical farm householdwith an average holding of 0.63 ha realized increased income of NRs524 and NRs1,123in rice-based and maize-based cropping systems, respectively. Increase in income perfamily labor day was NRs6 and NRs11, respectively, in rice-based and maize-basedcropping systems.

D. Economic Analysis

12. The economic benefits of the Project are calculated by subtracting all theincremental economic costs from incremental economic benefits arising from increasedcrop production (Table 8). In this process, all the benefits in the without-project situationare deducted from those in the with-project situation. Income arising from other thansecondary crop production is not considered in the analysis. The indirect benefits to thesociety due to institutional and infrastructure development and social awareness are alsonot considered in the analysis. The analysis is carried for a 20-year period (from FYi 990to FY2009).

13. The economic internal rate of return (EIRR) is re-estimated at 25 percent, whichis higher than the 21 percent estimated at appraisal. The economic costs included in thecomputation are exclusive of all transfer payments, and comprise (i) costs of all civilworks, including construction of research farms, service centers and office buildings; (ii)costs of vehicles, equipment, and furniture; (iii) all recurrent costs, includingadministrative and, operation and maintenance costs; and (iv) costs of consultantservices.

3. Major factors contributing to a higher EIRR are increased cropping intensitiesand crop yields. Although the increase in total production was not as high as anticipatedduring appraisal, the per unit productivity of investment was high because of the low

32 Appendix 6, Page 5

investment costs (NRs7,000 per ha or NRsIO,000 per participating family, in total) overthe project implementation period, It is also noted that a large part of the investment wasintended for research and extension services, and a small part actually reached thefarmers. The total investment from the Project was less than half of what was originallyplanned, as a result of scaling down of the Project in 1992.

33 Appendix 6, Page 6

Table 1. Financial and Economic Prices of Outputs and Inputs(current prices In NRs)

Financial Prices Economic Prices

Item Unit FY1994 FY1995 FY1996 FY1997 FY1994 FY1995 FY1996 FY1997

A. Outputs1. Maize kg 4.50 5.80 6.00 6.00 4.78 5.36 588 5.972. Millet kg 4.50 5.80 6.00 6.00 4.05 5.22 5.40 5.403. Barley kg 4.50 5.80 6.00 6.00 4.05 5.22 5.40 5.404. Lentil kg 13.65 16.85 20.00 21.50 11.82 15.43 19.06 21.385. Mustard kg 13.50 14.75 18.00 19.75 12.32 13.94 15.12 17.836. Chickpea kg 14.71 16.50 20.00 21.25 12.71 16.33 19.98 21.17

7. Ginger kg 16.68 18.70 19.50 19.50 15.76 18.65 19.45 20.488. Potatoe kg 4.50 5.00 5.00 6.00 4.05 4.50 4.50 5.40

B. Chemical Fertilizers1. DAP

a. Terai kg 12.50 12.50 16.88 16.88 18.49 21.49 23.38 22.99

b. Hills kg 12.50 12.50 16.88 16.88 19.36 22.36 24.25 23.86

2. Ureaa. Terai kg 5.60 5.60 6.72 6.72 14.65 18.85 20.26 16.43

b. Hills kg 5.60 5.60 6.72 6.72 15.52 19.72 21.13 17.30

3. Potasha. Terai kg 8.50 8.50 8.50 8.50 13.13 14.04 15.28 15.60

b. Hills kg 8.50 8.50 8.50 8.50 14.00 14.91 16.15 16.47

C. Wages1. Farm Labor p-d 60.00 60.00 60.00 60.00 54.00 54.00 54.00 54.00

2. BullockLaborpair-day 100.00 100.00 100.00 100.00 90.00 90.00 90.00 90.00

DAP= Di-Amnonium Phosphate, kg = kilogram, p-d = person daySources: Secondary crops development publications, unpublished data, and expert opinion.

34

Appendix 6, Page 7 -

Table 2: Derivation of Economic Prices of Tradable Grains

Item________________1 Price at Relevant

Market in India2 Quality Adjustment3 Handling and Transport

to Nepal Border4 Border Price5 Rupees Equivalent

6 Handling and Transport

to Wholesale Center7 Handling and Transport

to Farmgate8 Farmgate Price

Exchange Rate

Item1 Price at Relevant

Market in India2 Quality Adjustment3 Handling and Transport

to Nepal Border4 Border Price5 Rupees Equivalent

6 Handling and Transportto Wholesale Center

7 Handling and Transportto Farmgate

8 Farmgate Price

Exchange Rate

ChickpeaUnit FY1994 FY1995 FY1996 FY1997

$It 278.21 355.1 392.15 405

% 10 10 10 10

$/t 5 5 5 5

Sit 255.389 324.59 357.935 369.5

NRsIt 12514.061 16125.631 19775.909 20969.13

NRs/t 100 100 100 100

NRsit 100 100 100 100

NRsit 12714.061 16325.631 19975.909 21169.13

NRs1$ 49 49.68 55.25 56.75

Mustard

FY1994 FY1995 FY1996 FY1997

269.18 301.66 294.51 339.7

10 10 10 10

5 5 5 5

247.262 276.494 270.059 310.73

12115.84 13736.222 14920.76 17633.928

100 100 100 100

100 100 100 10012315.84 13936.222 15120.76 17833.928

49 49.68 55.25 56.75

Lentil Ginger

Unit FY1994 FY1995 FY1996 FY1997 FY1994 FY1995 FY1996 FY1997

$/t 278.21 355.1 392.95 428.06 413.4694 480.59 450.91 461.69

% 10 10 10 10 20 20 20 20

sit 5 5 5 5 5 5 5 5

sit 245.389 314.59 348.655 380.254 325.7755 379.472 355.728 364.352

NRsIt 12024.061 15628.831 19263.189 21579.41 15963 18852.169 19653.972 20676.976

NRsit 100 100 100 100 100 100 100 100

NRs/t 100 100 100 100 100 100 100 100

NRsit 11824.061 15428.831 19063.189 21379.41 15763 18652.169 19453.972 20476.976

NR51$ 49 49.68 55.25 56.75 49 49.68 55.25 56.75

Maize

Item Unit FY1994 FY1995 FY1996 FY1997

1 Price at Relevant

Market in India S/t 98.367347 109.90338 108.59729 107.489

2 Quality Adjustment % 10 10 10 10

3 Handling and Transport

to Nepal Border 5/t 5 5

4 Border Price $/t 93.530612 103.91304 102.73756 101.7401

5 Rupees Equivalent NRsit 4583 5162.4 5676.25 5773.75

6 Handling and Transport

to Wholesale Center NRs/t 100 100 100 100

7 Handling and Transportto Farmgate4 NRsit 100 100 100 100

8 Farmgate Price NR5/t 4783 5362.4 5876.25 5973.75

Exchange Rate NRs/$ 49 49.68 55.25 56.75

t= tonSource: Farmer survey during field visits.

35

Appendix 6, Page 8

Table 3. Derivation of Economic Prices of Fertilizer NRs

Item FY1994 FY1995 FY1996

Urea DAP Potash Urea DAP Potash Urea DAP Potash1 CIF Price ($ pert) 194 255 170 257 299 182 251 296 181

Exchange Rate 49.00 49.00 49.00 49.68 49.68 49.68 55.25 55.25 55.25Import Price (NRsIt) 9498 12,510 8,311 12,788 14,859 9,027 13,893 16,335 9,993

2 L/C Expenses (0.75 %of import price) 71 94 62 96 111 68 104 123 75Clearance, Forwarding &Transport 750 750 750 750 750 750 750 750 750Internallransportation 110 110 110 110 110 110 110' 110 110Storage Cost 30 30 30 30 30 30 30 30 30Total Direct Cost 10,459 13,494 9,263 13,774 15,860 9,985 14,887 17347 10,958Losses (0.50 %) 52 67 46 69 79 50 74 87 55lnterest(@ 15.5 for4 months) 539 695 477 709 817 514 767 893 564Administrative Expenses 805 805 805 805 805 805 805 805 805

3 Total Indirect Fix Cost 1,396 1,567 1,328 1,583 1,701 1,369 1,646 1,785 1,4244TotalCostofAlC(NRsft) 11,855 15,061 10,592 15,357 17,561 11,354 16,533 19,132 12,3825 Handling and Transport to

Wholesale Centers, Terai (NR5/t) 200 200 200 200 200 200 200 200 200Hills 400 400 400 400 400 400 400 400 400

6 Handling and Transport tofarmgate,Terai(NR5/t) 150 150 150 150 150 150 150 150 150

Hills 675 675 675 675 675 675 675 675 6757 Trader's Margin, Terai (NR5/t) 2,441 3,082 2,188 3,141 3,582 2,341 3,377 3,896 2,546

Hills 2,586 3,227 2,333 3,286 3,727 2,486 3,522 4,041 2,6918 Farmgate Price, Terai (NR5/kg) 14.65 18.49 13.13 18.85 21.49 14.04 20.26 23.38 15.28

Hills 15.52 19.36 14.00 19.72 22.36 14.91 21.13 24.25 16.159 MUV Index (1990 =100) 110.21 110.21 110.21 119.21 119.21 119.21 113.99 113.99 113.99

CIF price as % of total cost 0.63 0.66 0.61 0.66 0.68 0.62 0.67 069 0.64

Item FY1997 FY1998 FY1999Urea DAP Potash Urea DAP Potash Urea DAP Potash

1 CIF Price ($ pert) 192 282 180 176 283 180 196 283 185Exchange Rate 56.75 56.75 56.75 60.00 60.00 60.00 70.00 70.00 70.00Import Price (NRs/t) 10,896 16,027 10,242 10,556 16,952 10,823 13.717 19,776 12,980

2 LIC Expenses (0.75 % of import price) 82 120 77 79 127 81 103 148 97Clearance, Forwarding &Transport 750 750 750 750 750 750 750 750 750Internal Transportation 110 110 110 110 110 110 110 110 110Storage Cost 30 30 30 30 30 30 30 30 30Total DirectCost 11,868 17,038 11,208 11,525 17,969 11,794 14,709 20,815 13,967Losses (0.50 %) 59 85 56 58 90 59 74 104 70Interest(@ 15.5 for4 months) 611 877 577 594 925 607 758 1,072 719Administrative Expenses 805 805 805 805 805 805 805 805 805

3 Total Indirect Fix Cost 1,476 1,768 1,438 1,456 1,820 1,471 1,636 1,981 1,5944 Total Cost of AIC(NRs/t) 13,343 18,805 12,647 12,981 19,789 13,265 16,345 22,796 15,5625 Handling and Transport to

Wholesale Centers, Terai (NR5/t) 200 200 200 200 200 200 200 200 200Hills 400 400 400 400 400 400 400 400 400

6 Handling and Transport tofarmgate,Terai(NRs/t) 150 150 150 150 150 150 150 150 150

Hills 675 675 675 675 675 675 675 675 6757 Trader's Margin, Terai (NR5/mt) 2,739 3,831 2,599 2,666 4,028 2,723 3,339 4,629 3,182

Hills 2,884 3,976 2,744 2,811 4,173 2,868 3,484 4,774 3,3278 Farmgate Price, Terai (NRsIkg) 16.43 22.99 15.60 16.00 24.17 16.34 20.03 27.77 19.09

Hills 17.30 23.86 16.47 16.87 25.04 17.21 20.90 28.64 19.969 MUV Index (1990 =100) 107.72 107.72 107.72 105.01 105.01 105.01 106.40 106.40 106.40

CIF price as % of total cost 0.65 0.68 0.64 0.64 0.69 0.65 0.67 0.70 0.66

36

Appendix 6, Page 9

Table 3: (continued)

Item

1 CIF Price ($ per mt)Exchange Rate

Import Price (NRs/mt)

2 L/C Expenses (0.75 % of import price)

Clearance, Forwarding &TransportInternal TransportationStorage Cost

Total Direct CostLosses (0.50 %)Interest (@ 15.5 for 4 months)Administrative Expenses

3 Total Indirect Fix Cost

4 Total Cost of AIC (NRsfmt)5 Handling and Transport to

Wholesale Centres, Terai (NRs/mt)

Hills6 Handling and Transport to

Farmgate, Terai (NRs/mt)Hills

7 Trader's Margin, Terai (NRs/mt)Hills

8 Farmgate Price, Terai (NRs/kg)Hills

9 MUV Index (1990 =100)

FYI 994Urea DAP Potash

210 281 189

70.00 70.00 70.00

14,696 19,638 13,228

110 147 99

750 750 750

110 110 110

30 30 30

15,696 20,675 14,217

78 103 71

808 1,065 732

805 805 805

1,692 1.973 1,608

17,388 22,648 15,825

200 200 200400 400 400

150 150 150

675 675 675

3,548 4,600 3,235

3,693 4,745 3,380

21.29 27.60 19.41

22.16 28.47 20.28

109.12 109.12 109.12

FY1995Urea DAP Potash

224 284 193

70.00 70.00 70.00

15,692 19,900 13,524

118 149 101

750 750 750

110 110 110

30 30 30

16,700 20,939 14,515

83 105 73

860 1,078 748

805 805 805

1,749 1,988 1,625

18,448 22,927 16,141

200 200 200400 400 400

150 150 150

675 675 675

3,760 4,655 3,298

3,905 4,800 3,443

22.56 27.93 19.79

23.43 28.80 20.66

123.95 123.95 123.95

FY1996Urea DAP Potash

238 284 19670.00 70.00 70.00

16,677 19,913 13,698125 149 103750 750 750110 110 11030 30 30

17,692 20,952 14,69088 105 73

911 1,079 757805 805 805

1,805 1,989 1,63519,496 22,941 16,325

200 200 200400 400 400

150 150 150

675 675 675

3,969 4,658 3,335

4,114 4,803 3,480

23.82 27.95 20.01

24.69 28.82 20.88

140.17 140.17 140.17

CIF price as % of total cost 0.68 0.70 0.67 0.68 0.70 0.67 0.69 0.70 0.67

AIC = Agriculture Inputs Corporation, CIF = Cost, Insurance and Freight, DAP = Di-Amnonium Phosphate, kg = kilogram, L/C = local currencycost, MUV = Manufacturers Unit Value, = metric ton.Source: Staff estimates.

37

Appendix 6, Page 10

Table 4: Cropping Pattern, Yield, and Production for a Typical Farm Household

Cropping Pattern Without Project With Project incremental Incremental (NRs)Area Yield Production Area Yield Production Production Price Value Cost Income

(ha) (f/ha) (t) (ha) (f/ha) (I) (t) (NRs)

A. Bardia District1 Rice followed by wheat, mustard, lentil, chickpea and other crops.

Farm Size 275 haRice 2.75 2.20 6.05 2.75

Wheat 0.83 1.30 1.08 0.83

Mustard 0.36 0.80 0.29 0.36 0.95 0.34 0.05 19.75 1,067 791 276Lentil 0.28 0.90 0.25 0.84 1.41 1.18 0.93 21.50 20,047 2,494 17,553Chickpea 0.06 0.90 0.05 0.06 1.25 0.08 0.02 21.25 446 188 258Others 0.25 0.20

Total 4.53 5.04 1.01 21,559 3,473 18086Cropping Intensity 165% 183%

2. Maize followed by wheat, mustard/lentil/chickpea, potato and others.

Farm Size 2.75 haMaize 2.50 1.40 3.50 2.50 1.43 3.58 0.07 6.00 450 1,428 (978)Wheat 0.83 1.30 1.08 0.63Mustard' 0.36 0.60 0.22 0.85 0.71 0.60 039 19.75 7,653 1,868 5,785Lentil' 0.28 0.68 0.19 0.45 1.06 0.48 0.29 21.50 6,162 1.336 4,826Chickpea' 0.06 0.68 0.04 0.20 0.94 0.19 0.15 21.25 3,128 626 2.502Potato 0.10 12.81 1.28 1.28 6.00 7,686 284 7,402Others 0.25 0.40

Total 4.28 4.48 2.18 25,079 5,542 19,537Cropping Intensity 156% 163%

B. Banke District1. Rice followed by whest, mustard, lentil, chickpea and other crops.

Farm Size 1.47 haRice 1.47 2.10 3.09 1.47

Wheat 0.63 1.30 0.82 0.50

Mustard 0.15 0.80 0.12 0.15 0.83 0.12 0.00 19.75 89 330 (241)

Lentil 0.21 0.80 0.17 0.46 1.36 0.63 0.46 21.50 9,838 1,366 8,472

Chickpea 0.07 0.90 0.06 0.10 1.43 0.14 0.08 21.25 1,700 313 1,387

Others 0.07 0.07

Total 2.60 2.75 0.54 11,627 2,009 9,618

Cropping Intensity 177% 187%

2. Maize followed by wheat, mustard/lentil/chickpea, potato and others.

Farm Size 1.47 haMaize 1.35 1.40 1.89 1.35 1.90 2.57 0.68 6.00 4,050 771 3,279

Wheat 0.63 1.30 0.82 0.37

Mustard' 0.15 0.60 0.09 0.50 0.62 0.31 0.22 19.75 4,345 1,099 3,246

Lentil' 0.21 0.60 0.13 0.25 1.02 0.26 0.13 21.50 2,774 742 2,032

Chickpea' 0.07 0.68 0.05 0.15 1.07 0.16 0.11 21.25 2,399 470 1,929

Potato 0.05 12.81 0.64 0.64 6.00 3,843 142 3,701

Others 0.07 0.25

Total 2.48 2.52 1.78 17,411 3,224 14,187

Cropping Intensity 169% 171%

ha = hectareIndicates mixed crops. Yields of mixed crops are assumed to be 25% less than monocrop.

Includes pigeon pea and vegetables.

38

Appendix 6, Page 11

Table 4: (continued)

Cropping Pattern Without Project With Project Incremental Incremental (NRs)Area Yield Production Area Yield Production Production Price Value Cost Income

(ha) (tJha) (t) (ha) (t/ha) (I) (NR5)

C. Dang District1. Rice followed by wheat, mustard, lentil, chickpea and other crops.

Farm Size 1.57 haRice 1.57 2.10 3.30 1.57

Wheat 0.66 1.50 0.99 0.47

Mustard 0.16 0.80 0.13 0.08 0.86 0.07 -0.06 19.75 (1,169) 176 (1,345)Lentil 0.16 1.00 0.16 0.47 1.05 0.49 0.33 21.50 7,170 1,395 5,775Chickpea 0.03 0.80 0.02 0.12 1.04 0.12 0.10 21.25 2,142 376 1,766Others 0.09 0.10

Total 2.67 2.81 0.38 8,143 1,947 6,196Cropping Intensity 170% 179%

2. Maize followed by wheat, mustard/lentil/chickpea, potato and others.

Farm Size 1.47 haMaize 1.27 1.40 1.78 1.27 1.88 2.39 0.61 6.00 3,658 725 2,933Wheat 0.66 1.50 0.99 0.40Mustard 0.16 0.60 0.10 0.62 0.64 0.40 0.30 19.75 5,941 1,363 4,578Lentil s0.10 0.75 0.08 0.36 0.79 0.28 0.21 21.50 4,502 1,069 3.433Chickpea 0.03 0.60 0.02 0.08 0.78 0.06 0.04 21.25 944 250 694

Potato 0.05 11.08 0.55 0.55 6.00 3,324 142 3,182

Ginger 0.01 12.50 0.13 0.13 19.50 2,438 33 2,405

Barley 0.01 1.00 0.01 0.01 6.00 60 1 59Other? 0.09 0.15

Total 2.31 2.51 1.85 20,866 3,583 17,283

Cropping Intensity 157% 171%

D. Surkhet District1. Rice followed by wheat, mustard, lentil, chickpea and other crops

Farm Size 1.14 haRice 1.14 1.90 2.17 1.14

Wheat 0.72 1.00 0.72 0.60

Lentil 0.08 0.70 0.06 0.26 0.89 0.23 0.18 21.50 3,771 1,097 2.674

Potato 0.06 7.00 0.42 0.11 8.90 0.98 0.56 6.00 3,354 558 2,796

Others 0.03 0.05

Total 2.03 2.16 0.73 7125 1,655 5,470

Cropping Intensity 178% 189%

2. Maize followed by wheat, mustard/lentil/chickpea, potato and others.

Farm Size 1.14 haMaize 1.14 1.20 1.37 0.99 1.81 1.79 0.42 6.00 2,543 3,004 (461)

Millet 0.07 1.20 0.08 0.12 1.30 0.16 0.07 6.00 432 12 420

Barley 0.08 0.80 0.06 0.09 0.98 0.09 0.02 6.00 145 9 136

Ginger 0.03 12.50 0.38 0.38 19.50 7,313 152 7,161

Mustard 0.30 0.45 0.14 0.53 0.59 0.31 0.18 19.75 3,510 2,411 1,099

Lentil 0.25 0.67 0.17 0.17 21.50 3,601 1.055 2,546

Chickpeas0.01 0.78 0.01 0.01 21.25 166 42 124

Other? 0.02

Total 1.44 1.77 1.25 17,710 6,685 11,025

Cropping Intensity 126% 155%

ha = hectareIndicates mixed crops. Yields of mixed crops are assumed to be 25% less than monocrop.

Includes pigeon pea and vegetables.

39

Appendix 6, Page 12

Table 4: (continued)

Cropping Pattern Without Project With Project Incremental Incremental (NRs)Area Yield Production Area Yield Production Production Price Value Coat Income(ha) (t/ha) (t) (ha) (t/ha) (I) (NRs)

E. Satyan District1 Rice followed by wheat, mustard, lentil, chickpea and other crops.

Farm Size 0.43 haRice 0.43 1.60 0.69 0.43Wheat 0.19 0.90 0.17 0.11Lentil 0.01 0.70 0.01 0.13 0.80 0.10 0.10 21.50 2,086 548 1538Potato 0.03 5.00 0.15 0.07 10.40 0,73 0.58 6.00 3.468 355 3,113Others 0.03 0.03Total 0.69 0.77 0.68 5554 903 4,651Cropping tntensity 160% 179%

2. Maize followed by wheat, mustard/lentil/chickpea, potato and others.

Farm Size 0.43 haMaize 0.43 1.40 0.60 0.30 2.75 0.83 0.22 6.00 1,338 910 428Millet 0.18 1.20 0.22 0.08 1.30 0.10 -0.11 6.00 (672) 8 (680)Ginger 0.10 13.00 1.30 0.13 14.00 1.82 0.52 19.50 10,140 660 9,480Wheat 0.15 0.80 0.12 0.08Mustarda 0.03 0.45 0.01 0.10 0.59 0.06 0.05 19.75 899 455 444Lentila 0.03 0.52 0.02 0.06 0.60 0.04 0.02 21.50 439 253 186Chickpea 0.03 0.77 0.02 0.02 21.25 491 127 364Othersb 0.01Total 0.61 0.70 0.72 12,634 2,413 10,221Cropping Intensity 142% 163%

F. Jumla District1. Rice followed by barley and other crops

Farm size 0.63 haRice 0.63 1.60 1.01 0.63Barley 0.44 0.70 0.31 0.44 1.10 0.48 0.18 6.00 1,056 44 1,012Others 0.19 0.19

Total 1.26 1.26 0.18 1,056 44 1,012Cropping Intensity 200% 200%

2. Maize or millet followed by mustard, lentil, potato and other crops.

Farm size 0.63 haMaize 0.63 1.40 0.88 0.50Milletc 0.13 0.80 0.10 0.13 1.20 0.16 0.05 6.00 312 13 299Mustard 0.01 0.68 0.01 0.01 19.75 134 28 106Potato 0.04 8.00 0.32 0.32 6.00 1,920 158 1,762Others 0.05Total 0.63 0.73 0.38 2,366 199 2,167Cropping Intensity 100% 116%

Indicates mixed crops. Yields of mixed crops are assumed to be 25% less than monocrop.Includes, beans, amaranthus and vegetables.

C All the upland is reported to have planted with maize and millet as mixed crop in RRP, which was not found common.

Source: RRP and Staff estimates.

1012822

420616125132132

1,576

6,356

2,5001,125

3751,000

375

5,375

12,475

1583822

4601,095

250215141

2,379

38,474

3,6671,875

6251,467

625

8,259

18,193

2444322

5501,571

375353150

3,308

45,977

5,0003,0001,0002,0001,000

12,000

25,000

2557014

5922,145

497200747

4,520

51,862

40 Appendix 6, Page 13

Table 5: Total Area Covered by the Project(hectares)

Crop FY1992 FY1993 FY1994 FY1995 FY1996 FY1997Appraisal Appraisal Appraisal Actual Appraisal Actual Appraisal Actual Apprajsa Actual

TeraiMustard 600 1,200 2,400 1,225 3,600 11,000 4800 13,753 6,000 13,240Lentil 250 667 1,500 1,385 2,500 8,800 3,667 12,220 5,000 12,580Chickpea 100 267 600 735 1,000 2,095 1,467 1,550 2,000 5,115Maize 1,235 13,800 14,600 15,601Potato 201 400 540 800Ginger 3 3Barley 3 3

Subtotal (Terai) 950 2,134 4,500 4,781 7,100 36,095 9,934 42,669 13,000 47,342

HillsMustardLentilChickpeaMaizeMilletBarleyPotatoGinger

Subtotal (Hills)

Total

250 667 1,500525175

100 267 600175

350 934 2,975

1,300 3,068 7,475

1.40

1 .88

8,060

15,153

3,869

6.00

080

0.86

6,250

5,375

375

19.75

1.00

1.05

5,610

5,891

281

21.50

0.80

1.04

670

697

161

21.25

9.50

11.08

150

1,662

237

6.00

0.86

1.00

3

3

0

6.00

10.00

12.50

3

38

8

19.50

20,746

28,818

4,930

6.00

19.75

21.50

21.25

6.00

6.00

19.50

6.00

226

8

9

18

190

88

25

565

1.20

0.60

0.70

0.80

0.80

7.00

10.00

1.20

1.81

0.79

0.89

1.04

0.98

8.90

12.50

1.30

672

32

43

6

98

890

438

325

2,503

371

40

48

6

100

100

35

250

950

Surkhet District

Maize

Mustard

Lentil

Chickpe

Barley

Potato

Ginger

Millet

Total

444,569

127,344

191,712

23,964

10,000

401,050

187,219

25,000

1,410,858

1,357,860

150,100

196,080

30,600

108,000

1,140,000

1,706,250

150,000

4,838,890

41

Appendix 6, Page 14

Table 6: Summary of Incremental Income from Secondary Crops(at current prices)

Crop Av. Yield (ha) Area Production Incremental Price Incremental Incremental Net Incremental

W/O Proj. WI Proj. (ha) (t) Prod (t) NRs/kg Return (NRs) Cost (NR5) Return (NR5)

Bardia District

Maize 140 1.43 4015 5741 120 6.00 722700 4,987,834.50 -4,265,135

Mustard 080 0.95 3,980 3,781 597 19.75 11,790,750 4,213,228.00 7,577,522

Lentil 0.90 1.41 2,050 2,891 1,046 21.50 22,478,250 3,382,500.00 19,095,750

Chickpe 0.90 1.25 3,030 3,788 1,061 21.25 22,535,625 6,041820.00 16,493,805

Potato 12.00 12.81 300 3,843 243 6.00 1,458,000 542,94000 915,060

Total 13,375 20,043 3,066 58,985,325 19,168,322.50 39,817,003

1.40

1.90

3,526

6,699

1,763

6.00

0.80

0.83

3,010

2,498

90

19.75

0.80

1.36

4,920

6,691

2,755

21.50

0.90

1.43

1,415

2,023

750

21.25

12.00

12.81

350

4,484

284

6.00

13,221

22,396

5,642

Banke District

Maize

Mustard

Lentil

Chickpe

Potato

Total

Dang District

Maize

Mustard

Lentil

Chickpe

Potato

Baey

Ginger

Total

10,578,000

1,783,425

59,236,800

15,936,438

1,701,000

89,235,663

23,212,800

7,406,250

6,030,750

3,417,000

1,422,000

2,520

146,250

41,637,570

4,380,350

3,186,386

8,118,000

2,821,510

633,430

19,139,676

10,012,938

6,616,250

9,256,500

1,335,980

271.470

300

10,647

27,504,085

Salyan District

Maize 1.40 2.75 221 608 298 6.00 1,790,100 264,824

Mustard 0.60 0.79 150 119 29 19.75 562,875 477,540

Lentil 0.70 0.80 22 18 2 21.50 47,300 87,868

Chickpe 0.80 1.03 8 8 2 21.25 39,100 31,952

Potato 5.00 10.40 50 520 270 6.00 1,620,000 200,525

Ginger 13.00 14.00 712 9,968 712 19.50 13,884,000 3,808.559

Millet 1.20 1.30 245 25 6.00 147,000 24,500

Total 1,408 11,240 1,337 18,090,375 4,895,769

42

Appendix 6, Page 15

Table 6: (continued)(at current Prices)

Crop Av. Yield (t/ha) Area Production Incremental Price Incremental incremental Net Incremental

WIO Proj. W/ Proj. (ha) (t) Prod (t) NRs/kg Return (NRs) Cost (NR5) Return (Rs)Jumla District

Potato 7.00 8.00 50 400 50 6.00 300000 194,820 105,180Mustard 0.50 0.70 65 46 13 19.75 256,750 183,619 73,131Millet 0.80 1.20 1,650 1,980 660 6.00 3,960,000 165,000 3,795,000Barley 0.70 1.10 397 437 159 6.00 952,800 39,700 913,100

Total 2,162 2,862 882 5,469,550 583,139 4,886,412

16,193

28,873

6,277

13,495

11,850

1,111

12,650

15,533

4,093

5,129

6,522

1,975

500

538

177

1,000

11,799

1,274

750

10,443

807

2,145

2,305

710

51,862

87,862

16,423

All DistrictsMaizeMustardLentilChickpeaBarleyPotatoGingerMillet

Total

37,661,46021,950,15087,989,18041,958,763

1,063,3207,641,000

15,736,5004,257,000

218,257,373

20,090,51614,804,36721,036,58010,255,226

50,0002,244,2354,006,425

214,500

72,701,848

17.570,9447, 145,783

66,952.60031.703,537

1,013,3205,396,765

11,730,0754,042,500

145,555,524

Number of Beneficiary Farm Families 34,897Income per Family 4.171

ha = hactare, = metric ton, kg = kilogramNotes 1. Yield in without project situation from appraisal estimates, or Central Bureau of

Statistics (CBS).2. Increased production is reported only for those areas covered by the project.3. Average yield with project is based on the average reported yield over last four years.4. Area under secondary crops is as reported by project coordinator's office for FY97.

Source: RRP and Staff estimates.

43 Appendix6, Page 16

Table 7: Incremental Net Farm Income and Return to Family Labor(constant FYI 990 prices)

Item Appraisal Actual Appraisal Actual Appraisal Actual

A. Rice followed by wheat, mustard, lentil, chickpea and other crops

• Bardia District Banke District Dang DistrictFarm Size 2.75 ha Farm Size 1.47 ha Farm Size 1.57 ha

Incremental Value of Production 8822 11170 4245 6024 4233 4219• Incremental Cost 1144 1799 554 1040 498 1008

Incremental Net Farm Income 7679 9371 3691 4984 3735 3211Incremental Income to Family - - - - - -

Labor per Day 10 12 7 9 7 6

Incremental Value of ProductionIncremental CostIncremental Net Farm IncomeIncremental Income to Family

Labor per Day

Surkhet DistrictFarm Size 1.14 ha

1669 3692

415 858

1254 2834

4 9

Salyan DistrictFarm Size 0.43 ha

892 2878

239 468

653 2410

5 18

Jumla DistrictFarm size 0.63 ha

453 547

38 23

416 524

5 6

B. Maize followed by wheat, mustard/lentil/chickpea, potato and others

Incremental Value of ProductionIncremental CostIncremental Net Farm IncomeIncremental Income to Family

Labor per Day

Bardia DistrictFarm Size 2.75 ha

- 12994- 2871- 10123

- 13

Banke DistrictFarm Size 1.47 ha

- 9021

- 1670

- 7351

- 14

Dang DistrictFarm Size 1.57 ha

- 10811

- 1856- 8955

- 17

Surkhet District Salyan District Jumla DistrictFarm Size 1.14 ha Farm Size 0.43 ha Farm size 0.63 ha

Incremental Value of Production 10804 9176 4873 6546 2826 1226Incremental Cost 3015 3464 1016 1250 189 103Incremental Net Farm Income 7789 5712 3857 5296 2337 1123Incremental Income to Family - - - - - -

Labor per Day 32 23 11 15 22 11

- = Not reportedSource: Staff estimates.

Table 8: Economic Benefits and Costs(constant 1990 prices)

Item FY1990 FY1991 FY1992 FY1993 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999

Incremental Crop Production 0 0 0 0 2,341313 91,228,644 28,093,902 120,524,696 116,146562 121,677351

Total Incremental Benefits 0 0 0 0 2,341,313 91,228,644 28,093,902 120,524,696 116,146,562 121,677,351

Civil Works 1,250,206 1,246,030 2,240,199 1,225,338 8,513,830 8,977,945 20,220,790 5,521,213 15,751,021 -

Vehicles 9,600 118,315 3,591,164 593,399 2,354,666 95,871 2,908,813 941,520 39,476 -

Equipments 404,299 386,370 1,060,427 541,921 1,224,844 1,916,305 7,803,916 1,322,833 4,047,033 -

Others 981,198 1,589,056 3,743,777 4,753,849 6,595,926 12,781,229 14,024,236 18,131,745 12,610,045 -

Total Investment Costs 2,645,304 3,339,771 10,635,568 7,114,508 18,689,266 23,771,349 44,957,755 35,917,312 32,447575

Incremental Cost ol Productio 0 0 0 0 7,169,827 43,587,514 53.810,373 59,607,733 65,260,115 76,613.6921. Fertilizers 0 0 0 0 4.552,718 33,521,726 42,352,048 46,019,808 50,992,793 61,666,975

2. Others 0 0 0 0 2,637,109 10,065,789 11,458,325 13,587,925 14,267,321 14,946,717Civil Works 62,510 62,301 112,010 61.267 425,692 448,897 1,011,040 776,061 787,551 379,344

Vehicles 1,440 17,747 538,675 89,010 353,200 14,381 436,322 141,228 5,921 143,221Equipments 60.645 57,955 159,064 81,288 183,727 287,446 1,170,587 198,425 607,055 279,319

Others 98,228 159,080 374,790 475,908 660,318 1,279,529 1,403,966 1,815,169 1.262,392 750,395

Total O&M Costs 222,823 297,085 1,184,538 707,473 8,812,763 45,617,767 57,832,288 62,538,616 67,923,034 78,165,971

Total Incremental Costs 2,868,127 3,636,855 11,820,106 7,821,981 27,502,030 69,389,116 102,790,044 98,455,928 100,370,608 78,165,971

Incremental Net Benefit (2,868,127) (3,636,855) (11,820.106) (7,821,981) (25.160,716) 21,839,528 (74,696,142) 22,068,769 15,775,953 43.511,379

- = not reported

-aCD

><0)

0)CD

CD-k

Table 8: (continued)(constant 1990 prices)

Item

Incremental Crop Production

Total Incremental Benefits

Civil WorksVehicles

EquipmentsOthers

FY2000 FY200I

127,208,139 132,738,928

127,208,139 132,738,928

FY2002 FY2003

138,269,716 143,800,505

138,269,716 143,800,505

FY2004 FY2005

143,800,505 143,800,505

143,800,505 143,800,505

FY2006 FY2007

143,800,505 143,800,505

143,800,505 143,800,505

FY2008 FY2009

143,800,505 143,800,505

143,800,505 143,800,505

Total Investment Costs

Incremental Cost of Production1. Fertilizers

2. OthersCivil WorksVehiclesEquipments

Others

Total O&M Costs

Total Incremental Costs

Incremental Net Benefit

79,504,669 78,470,914

63,878,556 62,165,404

15,626,114 16,305,510

379,344 379,344

143,221 143,221

279,319 279,319

750,395 750,395

81,056,949 80,023,193

81,056,949 80,023,193

46,151,190 52,715,735

81,740,535 85,010,157

64,755,629 67,345,854

16,984,906 17,664,302

379.344 379,344

143,221 143,221

279,319 279,319

750,395 750,395

83,292,814 86,562,436

83,292,814 86,562,436

54,976,902 57,238,069

85,010,15767,345,854

17,664,302379,344

143,221279,319750,395

86,562,436

86,562,436

57,238,069

86,288,63568,624,332

17,664,302379,344143,221

279,319750,395

87,840,914

87,840,914

55,959,591

81,552,457 81,552,457 81,552,457

63,888,154 63,888,154 63,888,154

17,664,302 17,664,302 17,664,302

379,344 379,344 379,344

143,221 143,221 143,221

279,319 279,319 279,319

750,395 750,395 750,395

83,104,736 83,104,736 83,104,736

83,104,736 83,104,736 83,104,736

60,695,769 60,695,769 60,695,769Internal Rate of Return

81,552,45763,888,154

17,664,302379,344

143,221279,319

750,395

83,104,736

83,104,736

60,695,769

25%

01

Note: I. Financial costs for construction are adjusted by a construction conversion factor of 0.9 to derive economic costs2. Operation and maintenance costs are assumed lobe 05% for Civil works. 15% for vehicles and equipments and 10% for other costs.3 0-5 Manufacters Unit Value index is used to Convert cost, insurance, and fneght price of fertilizer to constant price and gross domestic project deflator is used to get constant

prices for the products and local Costs.

Source. Project Reports, Survey Data

CD

a-xC)

-u

CD

C)