Agriculture and Natural Resources in the Lao PDR

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    ASIAN DEVELOPMENT BANKOperations Evaluation Department

    SECTOR ASSISTANCE PROGRAM EVALUATION REPORT

    FOR

    THE LAO PEOPLES DEMOCRATIC REPUBLIC

    In this electronic file, the report is followed by Managements response.

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    Sector Assistance Program Evaluation

    SAP: LAO 2005-17

    Sector Assistance ProgramEvaluation for the Agricultureand Natural Resources Sectorin the Lao Peoples DemocraticRepublic

    December 2005

    Operations Evaluation Department

    Asian Development Bank

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    ABBREVIATIONS

    ACFTA ASEAN-PRC free trade areaACMECS Ayeyawaddy-Chao Phraya Mekong Economic

    Cooperation StrategyADB Asian Development Bank

    ADF Asian Development FundAFD Agence Franaise de DveloppementAFTA ASEAN free trade areaANR agriculture and natural resourcesAPB Agricultural Promotion BankASEAN Association of Southeast Asian NationsAusAID Australian Agency for International DevelopmentBME benefit monitoring and evaluationCBTA Cross-Border Transport AgreementCEPT common effective preferential tariffCIDF Community Irrigation Development FundCMI community-managed irrigation

    CMISP Community-Managed Irrigation Sector ProjectCOSS country and operational strategy studyCSP country strategy and programDAFEO district agriculture and forestry extension officeDAFO district agriculture and forestry officeDIDMSP Decentralized Irrigation Development and Management

    Sector ProjectDOI Department of IrrigationEA executing agencyEdL Electricit de LaoEIRR economic internal rate of returnFAO Food and Agriculture Organization of the United States

    FAPL (first) Agriculture Program LoanFDI foreign direct investmentGDP gross domestic productGIS geographic information systemGMS Greater Mekong SubregionHPO Hydropower OfficeIFAD International Fund for Agricultural DevelopmentIFC International Finance CorporationILRI International Livestock Research InstituteIMF International Monetary FundIMT irrigation management transferIRRI International Rice Research Institute

    ISF irrigation service feeITPP Industrial Tree Plantation ProjectIWMU Integrated Water Management UnitIWRM integrated water resource managementJFPR Japan Fund for Poverty ReductionJICA Japan International Cooperation AgencyLao PDR Lao Peoples Democratic RepublicLECS Lao Expenditure and Consumption SurveyLIRRTP Lao-IRRI Rice Research and Training Project

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    LNMC Lao National Mekong CommitteeLPRP Lao Peoples Revolutionary PartyLRM Lao Resident MissionLUP/LA land use planning/land allocationMAF Ministry of Agriculture and ForestryMKRD Mekong Regional Department

    MOC Ministry of CommerceMRC Mekong River CommissionMV modern varietyNAFES National Agriculture and Forestry Extension ServiceNAFRI National Agriculture and Forestry Research InstituteNCMISP Northern Community-Managed Irrigation Sector ProjectNEM New Economic MechanismNGO nongovernment organizationNGPES National Growth and Poverty Eradication StrategyNNRBDSP Nam Ngum River Basin Development Sector ProjectNPEP national poverty eradication programNRDS northern region development strategy

    NTFP nontimber forest productNTR normal trade relationsO&M operation and maintenanceOED Operations Evaluation DepartmentOEM Operations Evaluation MissionONPM Office of the National Project ManagerOPEC Organization of Petroleum Exporting CountriesPCR project completion reportPPAR project performance audit reportPPR project performance reportPPTA project preparatory technical assistancePRC Peoples Republic of China

    PSC Project Steering CommitteeR&D research and developmentRRA rapid rural appraisalRRP report and recommendation of the PresidentSAC structural adjustment creditSAF structural adjustment facilitySAPE sector assistance program evaluationSAPL Second Agriculture Program LoanSCSPP Shifting Cultivation Stabilization Pilot ProjectSDP Smallholder Development ProjectSIDA Swedish International Development AgencySMEs small and medium enterprises

    SOE state-owned enterpriseTA technical assistanceTCR technical assistance completion reportTFAP Tropical Forestry Action PlanTPAR technical assistance performance audit reportUNDP United Nations Development ProgrammeUNODC United Nations Office on Drugs and CrimeUS United StatesUXO unexploded ordnance

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    VDF village development fundWFP World Food ProgramWRCC Water Resources Coordination CommitteeWUA water users associationWUG water users group

    MEASUREMENTS

    ha hectarekg kilogramkm kilometerm metert ton

    NOTE

    In this report, $ refers to US dollars.

    Director General Bruce Murray, Operations Evaluation Department (OED)Director R. Keith Leonard, Operations Evaluation Division 1, OED

    Team Leader Njoman Bestari, Principal Evaluation SpecialistOperations Evaluation Division 1, OED

    Team Members Maria Rosa Ortega, Evaluation OfficerOperations Evaluation Division 1, OED

    Caren Joy Mongcopa, Senior Operations Evaluation Assistant

    Operations Evaluation Division 1, OED

    Operations Evaluation Department, SE-4

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    CONTENTSPage

    EXECUTIVE SUMMARY iii

    MAP ix

    I. INTRODUCTION 1

    A. Purpose and Scope of the Evaluation 1B. Approach and Methodology 1C. Study Limitations 3D. Report Structure 3

    II. COUNTRY AND SECTOR CONTEXTS 4

    A. Country Context 4B. Key Features of Agriculture and Natural Resources 7C. Investment Climate 11

    III. ANR SECTOR STRATEGIES AND ASSISTANCE 13

    A. Country Sector Strategies 13B. ANR Sector Assistance 15C. Irrigated Agriculture Development and Management 17D. Upland Agriculture and Stabilization of Shifting Cultivation 19E. River Basin Development and Watershed Management 22F. Commercialization of Smallholder Agriculture 23G. Livestock Development 24H. Development of Tree Plantations 25

    IV. ADBS POLICY-BASED OPERATIONS IN ANR 26

    A. Political Economy of the ANR Reform Process 26B. ADBs Policy-Based Lending in ANR 29

    V. PERFORMANCE OF PROJECTS AND TECHNICAL ASSISTANCE 35

    A. Performance of Investment Projects 35B. Performance of Selected Technical Assistance 45C. Management of ANR Sector Assistance 47

    VI. ANR SECTOR PERFORMANCE AND ADBS CONTRIBUTION 49

    A. ANR Performance and Contribution to the Economy 49B. Contribution of ADB Assistance to ANR Performance 52

    VII. ANR SECTOR CHALLENGES: TOWARDS A MARKET-BASED ECONOMY 53

    A. Improving Investment Climate 53B. Overcoming Corruption 55C. Removing Market Constraints 56D. Enhancing Economic and Regional Integration 56

    VIII. CONCLUSION AND RECOMMENDATIONS 59

    The guidelines formally adopted by the Operations Evaluation Department (OED) on avoiding conflictof interest in its independent evaluations were observed in the preparation of this report. JonathanCook (project evaluation specialist), Jindra Samson (research associate), Samjhana Shrestha(economist, rice research), and Keith Ward (agricultural policy specialist) were the consultantscollaborating with the OED evaluation team. To the knowledge of the management of OED, there

    were no conflicts of interest of the persons preparing, reviewing, or approving this report.

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    APPENDIXES

    1. ADB Assistance (Approved During 19862004)to Lao PDR in the Agriculture and Natural Resources Sector 67

    2. Country Indicators 723. An Evaluation Synthesis on Rice in the Lao PDR 754. Involvement of the Asian Development Bank in the Lao PDR Livestock Sector 905. Summary of Key Policy Reforms in the Lao Peoples Democratic Republic (19862004) 966. Governance Issues in Agriculture and Natural Resources in the Lao PDR 1027. Loan 965-LAO (SF): Agriculture Program Loan (19891993) 1148. Loan 1180-LAO: Second Agriculture Program Loan (19921995) 1189. The Lao PDR: Summary Review of the Performance of Technical Assistance

    Supporting Agricultural Reforms Associated with Loan 965-LAO: AgricultureProgram and Loan 1180-LAO: Second Agriculture Program 123

    10. Loan 1488-LAO: Community Managed Irrigation Sector Project 13911. Loan 1688-LAO: Shifting Cultivation Stabilization Pilot Project 15712. Loan 1788-LAO: Decentralized Irrigation Development

    and Management Sector Project 16913. Loan 1933-LAO: Nam Ngum River Basin Development Sector Project 18914. Loan 1949-LAO: Smallholder Development Project 201

    15. The Lao PDR: Summary Review of Selected Technical Assistance Performance 21216. Lao PDR: Summary Review of Selected Regional Technical Assistance Performance

    in the Context of the Lao PDR 21817. Selected Agricultural Statistics 225

    Attachment: Management Response

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    EXECUTIVE SUMMARY

    This report by the Operations Evaluation Department (OED) evaluates 20 years (19862005) of Asian Development Bank (ADB) support to agriculture and natural resources (ANR)development in the Lao Peoples Democratic Republic (Lao PDR). During this period, ADBfinanced the following ANR projects: 2 programs (totaling $50 million), 7 investment projects

    ($84 million), 32 technical assistance (TA) grants of $12.4 million, 11 project preparatory TAs($6.7 million), and 14 regional TAs ($10.5 million) with coverage that included the Lao PDR.During 19862004, ANR accounted for 13% of ADB lending to the Lao PDR, 22% of total TA,and 27% of total project preparatory TA provided by ADB to the country.

    Following the Lao PDRs pronouncement of its New Economic Mechanism (NEM) in1986 for the transition of the country to a market-based economy, ADB responded to the NEMsunprecedented reform initiatives with policy-based lending. This lending modality followed abroad-based approach aimed at reducing market distortions with measures to liberalize trade,rationalize pricing practices, restructure taxation systems, and separate commercial and centralbanking functions, among others. After the NEM, ADB support for investment projects began in1993. These investments and associated TAs comprised several subsectors covering

    development efforts targeted at agribusiness, commercialization of smallholder agriculture,irrigation, livestock, river basins, watersheds, upland agriculture, and tree plantations.

    Individual projects have been relevant to the countrys development challenges and ANRissues. However, the composition of ADB sector assistance in ANR (in terms of objective,scope, type, and location) has been diffused. For ANR, the ADB country strategies have beenless effective. The country strategies for ANR sector assistance are rated as partlysatisfactory. They are broad, and have not provided guidance for focused sector assistance.The current pipeline of ADB sector assistance in ANR includes investments in river basin andwatershed management, livestock development, tree plantations, and initiatives to stabilizeshifting cultivation. This represents a project-driven approach of providing assistance. Thecurrent Country Strategy and Program (CSP) does not have a framework for prioritizing ANR

    sector assistance. Clear links have not been established to optimize development synergiesamong projects and TAs. Investment projects in ANR have been localized interventions, withoutsignificant coordination to address common constraints facing subsistence agriculture, and toovercome the impediments confronting commercialization of agriculture. Over the last twodecades, the ADB country strategies have emphasized the importance of the transition of theANR sector to a market-based economy, crop diversification, commercialization, and increasedrole of the private sector. However, ADB-financed investment projects have generallyemphasized improvements of rural infrastructure, facilities, and capacity development related tofactors of production without adequate attention to finding solutions to binding constraints facingcrop diversification, market orientation, and value addition. Agriculture has remained largely ricebased and subsistence in nature, but there is an increasing trend towards commercializationand diversified cropping.

    The CSP emphasizes the role of the private sector for ANR development, recognizingthat improved performance and marketing are critical to improving rural livelihoods.Nonetheless, there has not been a clear distinction between (i) addressing the needs ofsubsistence farmers and their immediate concerns for household food security; and (ii) optionsfor commercialization of agriculture, and the extent to which such options were also meant forthe predominantly subsistence farmers who have encountered genuine obstacles to becomingcommercial farmers. Although ADB has paid attention to the poor mountainous Northern Regionthrough the Northern Regional Development Strategy (2004), and emphasized economic

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    iv

    integration of the region with neighboring economies, the dichotomy between subsistencefarmers and those who can produce for the market has not been clearly dealt with.

    The Operations Evaluation Mission (OEM) rates the overall performance of the ANRsector assistance as partly successful using OED guidelines (and based on a four-categoryscale of highly successful, successful, partly successful, or unsuccessful). ADBs policy-based

    lending was partly successful. TA operations (16 TAs) supporting policy-based lending andreform generated mixed results: unsuccessful (2), partly successful (6), successful (6), andhighly successful (2). The performance of investment projects has been equally mixed. Amongsix projects assessed by the OEM, one was unsuccessful, three were found doubtful tosucceed, and two were likely to succeed. There is room for improvement if midcourse actionsare taken to improve development results and make ongoing projects successful. Among sixother TAs sampled by the OEM, two were rated successful, and the rest were not ratedbecause they had just commenced. Among a sample of seven regional TAs, the OEM rated oneas partly successful, three as successful, two as likely to succeed, and one was unrated (it had

    just commenced).

    Policy-based operations have been relevant to the countrys policy and priorities for the

    transition to a market-based economy. Individual projects and TAs were relevant to theGovernments development priorities and ANR issues. However, clear links were notestablished to address overriding constraints facing ANR sector development, and to overcomeimpediments confronting the commercialization of agriculture. Individual operations had theirown merits and relevance to specific ANR development issues, but their combined objectivesand scope lacked focus, and their targets were dispersed over many aspects. Sequencing ofseparate operations was not fully consistent, and several projects and TAs were notcoordinated. Overall, ADB sector assistance in ANR has been partly relevant (bas...

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