AFRICAN DEVELOPMENT FUND MOZ/PSWI/2000/01 LANGUAGE : ENGLISH ORIGINAL : ENGLISH

APPRAISAL REPORT

FAMILY FARMING INCOME ENHANCEMENT PROJECT

REPUBLIC OF MOZAMBIQUE

NB: This document contains errata or corrigenda (see Annexes) COUNTRY DEPARTMENT OCDS SOUTH REGION September 2000

TABLE OF CONTENTS Page

Project Information Sheet; Currency and Measures; List of Tables; List of Annexes; List of Abbreviations; Basic Data Executive Summary (i) – (ii) Project Matrix (Logical Framework) (iii) – (iv) 1 ORIGIN AND HISTORY OF THE PROJECT 1 2 THE AGRICULTURAL SECTOR 2 2.1 Salient Features and Structure 2 2.2 Land Tenure 3

2.3 Gender 3 2.4 Status of Rural Poverty 4 2.5 Institutional Arrangements and Governance 5

2.6 Government Policy and Strategy in the Sector 6 2.7 Constraints to Agricultural Development 6 2.8 Intervention of Major Donors in the Sector 7 2.9 Credit Systems in the Sector and Constraints 7

3. THE SUB-SECTOR ANALYSIS 8

3.1 Crop Sub-sector 8 3.2 Livestock Sub-sector 9 3.3 Institutions Relevant to the Project 10

4 THE PROJECT 10 4.1 The Project Concept and Rationale 10 4.2 The Project Area and Project beneficiaries 12 4.3 Strategic Context 12 4.4 Project Objectives 13 4.5 Project Description 13 4.6 Production, Markets and prices 15 4.7 Environmental Impacts 16 4.8 Project Cost 17 4.9 Sources of Financing and Expenditure Schedule 18 5 PROJECT IMPLEMENTATION 20 5.1 Executing Agency 20 5.2 Institutional Arrangements 20 5.3 Supervision & Implementation Schedule 21 5.4 Procurement Arrangements 21

5.5 Disbursement Arrangements 25 5.6 Monitoring and Evaluation 25 5.7 Financial Reporting & Auditing 25 5.8 Aid Co-ordination 26

TABLE OF CONTENTS (Cont'd) 6. PROJECT SUSTAINABILITY AND RISKS 26 6.1 Recurrent Costs 26 6.2 Project Sustainability 27

6.3 Critical Risks and Mitigating Measures 27 7. PROJECT BENEFITS 27 7.1 Financial Analysis 27 7.2 Economic Analysis 28 7.3 Social Impact Analysis 28 7.4 Sensitivity Analysis 28 8 CONCLUSIONS AND RECOMMENDATIONS 29 8.1 Conclusions 29 8.2 Recommendations and Conditions for Loan Approval 30

This report was prepared by Mrs. J.N. Mwangi, Principal Agricultural Economist (Mission Leader); and Messrs. A. Abou-Sabaa, Principal Irrigation Engineer; M. Balayah, Principal Financial Analyst; L. Umar, Senior Livestock Officer; P Agboma, Senior Agronomist; and W. Soliman, Senior Environmentalist, following their mission to Mozambique in July 2000. Further information on this report can be obtained from Mr. D. Tripathy, Manager, OCDS.2.

AFRICAN DEVELOPMENT FUND 01 B.P. 1387,ABIDJAN 01 Tel: (225) 20-20-44-44 Fax: (225) 20-21-77-53/20-20-49-02 Telex: 23717 PROJECT INFORMATION SHEET Date: July 2000 The information given hereunder is intended to provide some guidance to prospective suppliers, contractors, consultants and all persons interested in the procurement of goods, works and services for projects approved by the Boards of Directors of the Bank Group. More detailed information and guidance should be obtained from the Executing Agency of the Borrower. 1. COUNTRY : Republic of Mozambique 2. NAME OF PROJECT : Family Farming Income Enhancement Project 3. LOCATION : Maputo, Matola Gare, Boquisso, Boane, Marracuene

and Manhica Districts 4. BORROWER : The Government of Mozambique 5. EXECUTING AGENCY : General Union of Cooperatives (UGC) Av. Agostinho Neto, 714 Caixa Postal 4488 Maputo, Mozambique Telephone: (258-1) 43 02 29 Fax: (258-1) 43 04 59 Email: ugcapm@mail.tropical.co.mz 6 PROJECT DESCRIPTION The activities of the project will involve (a) provision of the required facilities to

UGC for: feed production and supply; production of broiler day old chicks; storage; processing; marketing of the produce from the project; disease diagnosis and treatment for the chicks; and production of planting materials for vegetables and tree crops for the target group. (b) provision of credit to the family sector for poultry and crop production; (c) construction of social facilities for the beneficiaries; and (d) Institution Strengthening and Project Co-ordination.

7. TOTAL COST : UA 15.00 Million (i) Foreign : UA 8.55 Million (ii) Local : UA 6.45 Million 8. BANK GROUP LOAN ADF : UA 12.46 Million TAF : UA 1.00 Million

9. OTHER SOURCES OF FINANCING Government : UA 1.54 Million

10. DATE OF APPROVAL : October 2000 11. ESTIMATED STARTING DATE OF PROJECT AND DURATION : June 2001 for 5 years

12. PROCUREMENT: Procurement of goods, works and services financed from the ADF loan will be in

accordance with the Bank's Rules and Procedures for Procurement of Goods and Works, and the Bank’s Guidelines for the use of Consultants, as follows: (i) construction of the breeder farm through International Competitive Bidding (ICB); (ii) construction or rehabilitation of boreholes, schools, health posts, a feed mill and laboratory and a meat processing unit, through National Competitive Bidding NCB); (iii) rehabilitation of slaughterhouse, a cold room, a storeroom, vegetable nurseries and clone gardens, and chicken houses for credit to beneficiaries will be undertaken by the Executing Agency through Force Account; (iv) procurement of vehicles, feed mill and laboratory equipment, breeder farm equipment, maize and other raw materials for chicken feed through ICB; (v) breeder day old chicks through Limited International Competition (LIC); (vi) other miscellaneous goods which comprise of equipment for the slaughterhouse, cold room, poultry meat processing, marketing, chicken rearing, farm machinery, irrigation and water pumps as well as veterinary drugs, packing materials, seeds and grafted seedlings through International Shopping (IS). (vii) School furniture, health and crop production tools, fertilisers and pesticides, and other minor crop production support facilities will be procured through National Shopping (NS). Training will be provided by local institutions, which will be selected on the basis of the type of training offered.

13. CONSULTANCY SERVICES REQUIRED AND STAGE OF SELECTION: A total of 188 man months for consultancy services in the fields of Financial

Controller, Agricultural Engineer, Zootechnician, Mechanical Engineer, Construction Engineer Supervisor, Breeder Farm Management Expert, Refrigeration Expert, Slaughterhouse Management Expert and External Auditor will be required. They will all be recruited at the start of the project.

1 UA = US$ 1.33728 1 UA = MT 19,840 1 US$ = MT 14,836

CURRENCY EQUIVALENT (July 2000) Currency Unit : Meticals UA 1 : US$ 1.33728 UA 1 : MT 19,840 MT 1 : UA 0.0000504 US$ 1 : MT 14,836 WEIGHTS AND MEASURES 1 Metric Ton (mt) : 2,200 lb. (pounds) 1 Kilogram (kg) : 2.2 lb. (pounds) 1 Metre (m) : 3.28 ft (feet) 1 Kilometre : 0.62 miles 1 Hectare (ha) : 2.471 acres FISCAL YEAR January 1 - December 31 LIST OF TABLES Number Title 4.1 Summary of Project Cost Estimates by Component 4.2 Summary of Project Cost by Category of Expenditure 4.3 Source of Financing 4.4 Expenditure Schedule by Component 4.5 Expenditure Schedule by Source of Finance 5.1 Summary of Procurement Arrangements LIST OF ANNEXES Number Title 1. Project Location Map

2. Project Organisation Chart 3. Tentative Project Supervision and Implementation Schedules

4. Provisional List of Goods and Services 5. Summary of Financial and Economic Analysis 6. Bank Group Operations as at 31 December 1999 LIST OF ANNEXES IN THE PROJECT IMPLEMENTATION DOCUMENT Number Title 1. Detailed Cost Estimates 2. The Cooperative Movement in Mozambique

LIST OF ABBREVIATIONS ADB : African Development Bank ADF : African Development Fund AIDS : Acquired-Immune Deficiency Syndrome CEF : Forestry Experimental Centre CIDA : Canadian International Development Agency CSP : Country Strategy Paper DAF : National Directorate of Finance and Administration DDA : District Directorates of Agriculture DE : National Directorate of Economics DENAGECA : National Directorate of Geography and Cadastre DFID : Department for International Development DNDR : National Directorate of Rural Development DINA : National Directorates of Agriculture DINAP : National Directorate of Livestock DNER : National Directorate of Rural Extension DNFFB : National Directorate of Forest and Wildlife DNHA : National Directorate of Agriculture Water Resources DPAP : Provincial Directorate of Agriculture EC : European Union EIRR : Economic Internal Rate of Return FAO : Food and Agricultural Organisation FPL : Food Poverty Line GDP : Gross Domestic Product GOM : Government of Mozambique IFAD : International Fund for Agricultural Development INIA : National Agricultural Research Institute INIVE : National Institute for Veterinary Research IPA : Animal Production Institute MADER : Ministry of Agriculture and Rural Development MICOA : Ministry of Environmental Co-ordination MT : Meticals mt : Metric Tons NGO : Non-Governmental Organisation NHSLC : National Household Survey on Living Conditions PAAP : Poverty Alleviation Action Plan PAEI : Agrarian Policy and Implementation Strategy PID : Project Implementation Document PROAGRI : National Programme for Agrarian Development TAF : Technical Assistance Fund TCPL : Total Consumption Poverty Line UA : Unit of Account UGC : General Union of Cooperatives UNDP : United Nation Development Programme USAID : United States Agency for International Development

MOZAMBIQUE: BASIC DATA SHEET COMPARATIVE SOCIO-ECONOMIC INDICATORS

Year

Mozambique

Africa

Developing Countries

Developed Country

Basic Indicators Area (‘000 Km2)

Total Population (millions) Urban Population (% of Total) Population Density (per Km2) GNP per Capita (US$) Labour Force Participation – Total (%) Labour Force Participation – Female (%)

1998 1998 1998 1998 1998 1998

801 18.9 37.4 23.6 200 52.0 25.2

30,061 748.0 38.2 24.9 687 43.7 37.0

80,976 4,718.9 39.6 58.3 1,250 …. …

54,658 1,182.2 75.6 21.6 25,890 … …

Demographic Indicators Population Growth Rate -Total (%) Population Growth Rate – Urban(%) Population < 15 years (%) Population >= 65 years (%) Female Population 15-49 years (millions) Life Expectancy at Birth – Total (years) Life Expectancy at Birth – Female (years) Child Mortality Rate (per 1,000) Maternal Mortality Rate (per 100,000)

1998 1998 1998 1998 1998 1998 1998 1998 1998

2.4 6.1 44.6 3.2 4.3 41.0 41.9 175.0 1,500

2.4 4.3 42.9 3.2 176.2 52.7 53.4 116.1 698

1.6 3.1 33.2 19.7 1,213.4 64.0 65.8 76.2 488

0.3 0.6 18.8 26.7 296.8 75.4 79.1 10.4 30

Health and Education Indicators Physicians (per 100,000 people) Nurses (per 100,000 people) Access to Safe Water(% of population) Access to Health Services (% of population) Percentage of Adults (aged 15-49 living with HIV Incidence of Tuberculosis (per 100,000) Child Immunisation Against Tuberculosis (%) Child Immunisation Against Measles (%) Daily Calorie Supply

1990-96 1988-96 1990-97 1995 1997 1995 1996 1996 1996

6 20 28 39 14.2 189 79 57 1,729

23 89 55 60 5.7 201 77 63 2,406

76 85 72 80 … 157 88 79 2,650

253 780 100 100 … 24 93 90 3,222

Education Indicators Gross Enrolment Ration (%) Primary Schools - Total Primary School - Female Secondary School - Total Secondary School - Female Primary School Female Teaching Staff (% of total) Adult Illiteracy Ratio - Total (%) Adult Illiteracy Ratio - Male (%) Adult Illiteracy Ratio - Female (%)

1995 1995 1995 1995 1995 1997 1997 1997

60.2 50.2 7.1 5.5 22.8 59.5 43.3 75.0

79.5 73.0 28.3 25.7 45.0 43.5 33.0 51.6

100.0 93.8 50.4 45.3 51.0 28.2 19.6 35.8

103.0 103.2 100.3 101.8 82.0 1.3 1.0 1.5

Environmental Indicators Land Use (arable land as % of total land area) Annual Rate of Deforestation (%) Annual Rate of Reforestation (%) Per Capita CO2 Emissions (metric tons)

1996 1990-95 1980-90 1996

3.8 0.7 5 0.1

5.9 0.7 4.0 1.1

9.9 0.4 … 2.1

11.6 -0.2 … 12.5

Source: Compiled by the Statistics Division of the ADB

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Executive Summary 1. Project Background

With the return of peace in Mozambique in October 1992, the Government resettled about 5 million displaced persons and demobilised soldiers back to the rural areas, with the support of the donor community. Majority of these people do not have the necessary facilities to improve their livelihood, and about 70% of the rural population live in absolute poverty. As part of its efforts to reduce poverty, the Government of Mozambique submitted to the Bank, in April 2000, a project proposal for funding. The proposed project activities would be directed towards providing the necessary support to the rural population in areas of poultry and crop production, in order to increase their agricultural production and improve their livelihood. About 80% of the beneficiaries will be women. 2. Purpose of the Loan and Grant The ADF loan of UA 12.46 million amounting to 83% of the total project cost and TAF grants of UA 1.00 million amounting to 7% of the total project cost will be used to finance 92% and 0.8% respectively of the foreign exchange (UA 7.86 million and UA 0.69 million respectively) and 71% and 5% respectively of the local cost (UA 4.60 million and UA 0.31 million, respectively). 3. Sector Goal and Project Objectives The project will contribute to the Government’s agricultural sector goal, which is to increase the sector’s contribution to GDP growth while achieving sustainable rural poverty reduction. The project’s specific objectives are to promote household food security, raise household incomes, and the welfare of the poor rural population, specifically women, in the Districts of Maputo, Matola Gare, Boquisso, Boane, Marracuene and Manhica, 4. Brief Description of the Project

The activities of the project will involve (a) provision of the necessary facilities to the Executing Agency for: feed production and supply; production of broiler day old chicks; storage; processing; marketing of the produce from the project; disease diagnosis and treatment of the chicks; and production of planting materials for vegetables and tree crops for the target group. (b) provision of credit to the family sector for poultry and crop production; (c) construction of social facilities for the beneficiaries; and (d) institutional strengthening and project co-ordination. 5. The Project Cost The total project cost is estimated at UA 15.00 million out of which UA 8.55 million (57%) will be in foreign currency and UA 6.45 million (43%) will be in local currency. 6. Source of Finance The project will be financed by ADF, TAF grants and the Government of Mozambique. The ADF funds will finance the activities associated with the poultry, crop production and market

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support, the provision of social facilities, costs associated with the credit component except the provision of the day old chicks and other miscellaneous inputs (charcoal, wood shavings, water etc), and operation and maintenance of the civil works and equipment provided under the project. TAF grant will finance all costs associated with Institutional Support. Total ADF and TAF contribution representing 90% of total project costs will be utilised to cover 92% of the foreign exchange costs and 76% of the local costs. The Government of Mozambique’s contribution of UA 1.54 million, representing 10% of the total project cost will be utilised to cover costs associated with the operation and maintenance of the vehicles, farm machinery, and irrigation equipment; provision of day old chicks and other miscellaneous inputs (charcoal, wood shavings, water, etc) for the credit component, and staff salaries for project management. 7. Project Implementation

The project will be implemented for a duration of 5 years from 2001 to 2006. It will be implemented by the General Union of Cooperatives (UGC). UGC will also be responsible for the administration of credit amounting to UA 2.30 million. A credit system presently exists under UGC and it has a history of successful provision of credit to its members, with a recovery rate of over 95%. The human capacity in UGC needs strengthening. Funds will therefore be provided for training and for technical assistance support in finance, agricultural engineering, zootechnical engineering, mechanical engineering, civil engineering as well as short-term consultancy in breeding farm management, refrigeration engineer and slaughterhouse expert. 8. Conclusions and Recommendations

The proposed project is in line with the Bank’s vision and the Government of Mozambique’s strategy of poverty reduction. The average annual per capita income of the project’s target group is estimated at US$ 20, compared with an average estimate of annual per capita income of US$ 110 for the rural population. It is estimated that, at full development, the average net annul income per beneficiary family will increase to an estimated US$ 1046 per family (or US$ 209 per capita) for poultry producers and US$ 467 per family (or US$ 93 per capita) for crop producers. The project will therefore significantly alleviate poverty and household food insecurity of the beneficiaries, a substantial proportion of which are headed by women.

It is therefore recommended that a loan not exceeding UA 12.46 million from ADF

resources and a TAF grant not exceeding UA 1.00 million be granted to the Government of Mozambique for the purpose of implementing the project as described in this report, subject to the conditions specified in the loan agreement.

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MOZAMBIQUE FAMILY FARMING INCOME ENHANCEMENT PROJECT

Project matrix

NARRATIVE SUMMARY (NS) OBJECTIVELY VERIFIABLE INDICATORS (OVI)

MEANS OF VERIFICATION (MOV)

IMPORTANT ASSUMPTIONS

Sectoral Goal To contribute to GDP growth while achieving sustainable rural poverty reduction

1.1 Agricultural Sector value added increased by US$ 5 million by the 12th year.

Information from project monitoring and data from central statistics

Purpose To contribute to household food security for the target smallholder farmers and raise their household incomes

1.1 1.2 1.3

The average recorded annual income of farmers increased from negligible income to US$ 1046 per family for poultry producers and US$ 467 per family for crop producers by the 12th tree crop year Production of poultry products, vegetables and fruits increased as follows: Tons 2001 2008 Live chicken 0.6 mill 2..3mill Cashew 0 2,400mt Vegetables 0 8,000mt Fruits 0 1,100mt

1 2

Reports from the Project Management Reports from the Project Management

1 2 3

Economic reforms which encourage investment in the agricultural sector continue No major and drastic weather variations such as draughts and floods No major crop and livestock disease outbreaks

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Outputs Production inputs, processing and marketing facilities constructed and equipped

1.1 1.2 1.3 1.4

A feed mill to produce 18,000mt of feed per year, and a breeder farm to hold 40000 chicks per year constructed by year 2003 A slaughter house for 4 million birds, a cold room for 250 frozen birds and a meat processing unit to process 500,000 birds rehabilitated by year 2003 A storeroom for storage of farm inputs and tools constructed by year 2004 Equipment and vehicles provided

1.1 1.2 1.3 1.4

Quarterly Progress Reports and Bank Supervision Quarterly Progress Reports and Bank Supervision Quarterly Progress Reports and Bank Supervision Quarterly Progress Reports and Bank Supervision

1 2 3 4

Staff appointed to the project remain with the project to completion Project implemented as designed Incidence of HIV/AIDS which affects labour productivity in the sector does not escalate Domestic and International prices for poultry and the target

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2 3 4

Credit provided and effectively managed Social facilities constructed Project Management Unit in place

2.1 3.1 4.1

Funds amounting to UA 2.30 provided to grant credit to 5,200 farmers by year 2006 for poultry and crop production inputs 4 Schools, 4 clinics and 144 boreholes constructed, 132 for the beneficiaries’ welfare and 12 for production support by year 2005 Project Management staff appointed, technical assistants recruited and vehicles and equipment provided

2 3 4

Quarterly Progress Reports and Bank Supervision Quarterly Progress Reports and Bank Supervision Quarterly Progress Reports and Bank Supervision

crops do not fall below expectations.

1 2 3 4

Activities - Construct a feed mill, breeder farm, laboratory, a

warehouse and cashew processing facility; - Rehabilitate a slaughterhouse, a cold room and a

meat processing facility - provide marketing facilities Provide and administer credit Construct social facilities Put in place Project Management

1 2 3 4

Project Budget (In UA million)

Production & Marketing Support 9.51 Credit 2.30 Social Facilities 1.52 Institutional Support & Project Management 1.67 Total 15.00

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Project Management progress reports and Bank supervision

1 2

Minimal bad weather situations which may affect construction Political situation remain stable to allow implementation of activities

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1 ORIGIN AND HISTORY OF THE PROJECT 1.1 The Republic of Mozambique is located on the East Coast of Africa sharing borders with Tanzania, Malawi, Zambia, Zimbabwe, South Africa and Swaziland. It covers a total land area of 801,590 km2 with a 2000 km largely underdeveloped Indian Ocean coastline and 13,000 km2 of inland waters. The population is currently estimated at 18.9 million with a growth rate of 2.4%. The growth rate is being affected by the incidence of the Acquired-Immune Deficiency Syndrome (AIDS), currently estimated at approximately 14.5% of the adult population. Women constitute 53% of the population and men 47%, and it is estimated that about 70% of the total population live in rural areas. 1.2 Soon after Independence in 1975, Mozambique entered into a civil war, which lasted until October 1992 when a peace accord was signed. During the war, the rural economy was destroyed and farmers deserted their traditional homes and moved to urban areas where security was assured. Others became refugees in neighbouring countries. With the return of peace, the Government resettled about 5 million displaced persons and demobilised soldiers back to the rural areas, with the support of the donor community. Majority of these people do not have the necessary facilities to improve their livelihood, and about 70% of the rural population live in absolute poverty.

1.3 As part of its efforts to reduce poverty, the Government of Mozambique submitted to the Bank, in April 2000, a project proposal for funding. Following GOM invitation, the Bank fielded a mission in May 2000 to prepare the project. The preparation report established that the project is viable and is a Government priority. The Bank therefore undertook an appraisal of the project in July 2000. This report is the outcome of the findings of the Bank's preparation mission of May 2000, and the appraisal mission of July 2000.

1.4 The proposed project activities would be directed towards providing the necessary support to the rural population in area of poultry and crop production and marketing, in order to increase their agricultural production and improve their livelihood. This project would build on a women development project, the Green Zones Women Development Project, which was funded by the Bank in 1992 and is almost complete. The project is in line with the 1999-2001 Country Strategy Paper (CSP) which identified agriculture as the sector that will constitute the most promising generator of income growth and provider of jobs in the next five years. The CSP has also identified, among others, livestock rearing and marketing, and cash crop production, in particular cashew nuts and citrus fruits as the main sub-sectors which are particularly important for Mozambique. These are the areas of the proposed project’s focus.

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2. THE AGRICULTURAL SECTOR 2.1 Salient Features and Structure 2.1.1 Agriculture plays a major role in the economy of Mozambique. It contributes 30% to the Gross Domestic Product (GDP) and employs about 80% of the population. About 68% of export revenues are derived from agricultural production, out of which 30% is from farm produce and 38% from prawns and shrimps. Cashew and cotton are the main cash crops and account for about 13% and 10% of export revenues, respectively.

2.1.2 The agricultural potential of the country is enormous. There are some 36 million ha of arable land and only about 5 million ha or 14% are presently cultivated. About 75% of the cultivated land is occupied by food crops and the remaining 25% used for the production of export crops. Most of the unused cultivable agricultural land is in the central and northern provinces of the country, while there is increasing pressure on land in the southern region of Mozambique (including Maputo Province) due to high population densities. 2.1.3 There are two major categories of producers in the sector, namely the smallholder (referred to in Mozambique as family sector which includes the co-operatives) and large-scale commercial sector. The family sector consists of about 3 to 3.5 million households which are primarily engaged in subsistence production. Crops grown for food include cassava, maize, rice, millet, groundnuts, beans, bananas and fruit trees. They also cultivate cash crop which include sugar cane, citrus, cashew, coconut, cotton tobacco and copra. Although average farm size is small ranging from 1.0 to 1.5 ha, the smallholder sector plays a dominant role in agriculture as it occupies over 3.6 million ha of cultivated land. Yield and productivity are, however, low because of low usage of agricultural inputs and improved technology. The large-scale producers produce mainly cash crops for export. Although they occupy only about 3% of the total cultivated land, their farm sizes range from 10 to several hundred hectares, and their productivity is higher due to better access to production inputs such as fertilisers, pesticides, veterinary drugs and vaccines. Both the family and commercial sectors keep livestock. 2.1.4 The combination of structural adjustment measures with peace agreement, and the democratisation of the country contributed to the significant progress of the Mozambican economy in the subsequent years. As a result, the average annual agricultural production growth between 1992 and 1998 was 7%. This positive growth is attributed to the high increase in cereal production (maize, millet, sorghum and rice) which increased from 239,000mt in 1992 to 1.7 million mt in 1997/98 crop period, exceeding the total national consumption requirement of 1.5 million mt. The production of cassava, a major staple food in the country, also increased to 5.6 million mt, surpassing the national requirement of 3 million mt. The 1999 performance is expected to be lower, due to excessive rains at the beginning of the rainy season, which resulted in flooding in several areas, causing localised damage to crops in low lying areas. The situation worsened during the early months of year 2000 when the country was hit by a cyclone which flooded most of the country, especially the central and southern provinces, causing substantial crop losses in these regions which account for 20% and 15% of total cereal production respectively. About one third of national cereal production has therefore been affected by losses and yield reductions.

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2.2 Land Tenure

2.2.1 In 1995 a National Land Policy and Implementation Strategy was approved by the Council of Ministers, while a new Land Law was approved in July 1997 and became operational on 1st January 1998. According to the Land Law, land is the property of the state. It cannot be sold, alienated, mortgaged, or pawned. Individuals or corporate Mozambicans may hold the right of land use and benefit, which may be acquired through: (i) occupation by individual persons and local communities, in accordance with customary norms and practices; (ii) occupation by national individual persons who have been using the land for at least ten years; and (iii) approval of an application submitted by individual or corporate persons. The right of land use and benefit for economic activities is subject to a maximum of 50 years renewable for the same period, at the end of which a new application must be submitted. Nevertheless, the right of land use is not subject to any time limitation when (a) acquired through occupancy by a local community; (b) for personal use as dwelling; and (c) for family use by national individual persons. 2.2.2 According to the land law, lack of a title shall not have any negative effect on the right of land use and benefit acquired through occupation by individual persons either through the customary norms or having been using the land for the last ten years. The titling process for the right of land use requires confirmation by the local administrative authorities, preceded by consultation with the respective communities that the land is free and without occupation. The right of land use is transferable by succession without distinction by gender. The use of land is free for state and its institutions, public interest associations, family use, local communities and individual persons who are part of the community, and small-scale national agricultural and stock raising cooperatives and associations. Women are entitled to the right of land use by their own rights. 2.2.3 UGC has acquired title deeds for all the land in which buildings will be constructed or rehabilitated under the project. Land on which the cooperatives and individuals would construct chicken houses and grow vegetables and fruits have title deeds. UGC is in the process of acquiring the title for the land on which cashew will be grown.

2.3 Gender

2.3.1 Women play a key role in the agriculture sector as 92% are engaged in agriculture, forestry and fisheries. Rural women play basically three roles: (i) production of food for the household, manly grain and tuber crops in the field, and vegetables in backyard gardens. They are responsible for all aspects of crop husbandry, harvesting and when necessary home processing of food crops; (ii) family care, preparing food for the family, feeding and taking care of children, providing health care and other support to the family; (iii) household tendering as they are responsible for drawing water and fire wood gathering, house cleaning, washing and mending clothes, and shopping for the family. On the other hand men in the rural areas are mainly involved in land clearing, land preparation, and hunting for meat supply as well as in the construction of houses, chicken pens and fences. In most ethnic groups, men make all managerial decisions, regarding both the household and farm activities. 2.3.2 There is a substantial percentage of female headed household which have resulted from widowhood, divorce or migrant labour, as well as single mothers who have never married. In the South and Central regions, over 25% of households are headed by women with an average family household size of 4 persons. A National Poverty Assessment undertaken in the country in 1996/97 indicates that 52% of the poor population is made up of

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women. Female headed households are disadvantaged in terms of educational level and access to means of production, and therefore have a higher than normal poverty rate. It is estimated that 90% of female household heads have no formal education as compared to 50% of male household heads. Consequently, fewer female headed households have non-agricultural earnings than male headed households, and they are therefore more vulnerable to the effects of calamities such as drought, flood, pests and diseases.

2.4 Status of Rural Poverty 2.4.1 Mozambique is one of the poorest countries in the world and a large proportion of Mozambicans is believed to be living in a state of absolute poverty. With the per capita consumption in Mozambique (or the poverty line) estimated at US$ 170 per person per year, the national incidence of absolute poverty is estimated at 69.4%, with poverty higher in rural areas at an average of 71.2% (Mozambique’s First National Assessment of Poverty, 1996-97). The incidence, however, varies from region to region, e.g. from 87.9% in Sofala Province in the Central Region to about 57.4% in Cabo Delgado in the Northern Region. The incidence of poverty for the rural areas of Maputo Province where the proposed project is located is 65.6%. The high incidence of poverty in the rural areas is attributed to the high percentage of the rural labour force (about 95%) that is engaged in agriculture, majority of it using rudimentary equipment and very little production inputs, resulting in low productivity. The low level of improved equipment and production input use result from poor financial resources and weak infrastructure development.

2.4.2 The high incidence of AIDS in Mozambique is also negatively affecting the agricultural production as the rural areas are just as affected as the urban areas. It mostly affects those of productive age, and will therefore result in low productivity, especially for subsistence production, which is labour intensive. The poor rural population is unable to cope with AIDS and other diseases prevalent in the rural areas, especially malaria and water borne diseases due to lack of basic infrastructure, such as appropriate dwelling places, sanitation and water. 2.4.3 The Government has, in its efforts to reduce poverty, prepared several policy instruments such as the Population Policy, the Food Security Strategy, the National Strategic Plan to combat STD/HIV/AIDS, the Post-Beijing Action Plan, and the National Integrated Social Action, Employment and Youth Programme. An Absolute Poverty Reduction Action Plan (2000-2004) has recently been prepared to complement these strategies. These policies and action plans, if effectively implemented would improve the performance of agriculture and alleviate rural poverty.

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2.5 Institutional Arrangements and Governance 2.5.1 The Ministry of Agriculture and Rural Development (MADER) is responsible for planning and implementing policies in the areas of land, agriculture, livestock, forestry and wildlife and water management for agriculture. It is headed by a Minister who is assisted by two Vice Ministers. To assist MADER in its policy implementation, it has nine National Directorates which are: the National Directorate of Agriculture (DINA); the National Directorate of Rural Extension (DNER); the National Directorate of Livestock (DINAP); the National Directorate of Economics (DE); the National Directorate of Agriculture Water Resources (DNHA); the National Directorate of Forest and Wildlife (DNFFB); the National Directorate of Rural Development ((DNDR); the National Directorate of Geography and Cadastre (DENAGECA); and the National Directorate of Finance and Administration (DAF). Furthermore, there are National Agriculture Institutes under the aegis of MADER which include the National Institute for Agricultural Research (INIA), the Animal Production Institute (IPA), the National Institute for Veterinary Research (INIVE), the Forestry Experimental Centre (CEF), the Forestry Research Institute, the Cashew Institute and the Cotton Institute.

2.5.2 MADER is represented at the provincial level by Provincial Directorates of Agriculture (DPAPS) and at the Districts by the District Directorates of Agriculture (DDAs). The DPAPs are divided into Provincial Services representing each of the functional areas, e.g. the Provincial Livestock Services. They are responsible for the implementation and control of programs and projects in the provinces and districts, in liaison with the provincial and district administration. The DPAPs operate within a double subordination mechanism, answering to provincial authorities for administrative matters and to the central MADER for technical matters. 2.5.3 The cooperatives are an important vehicle for development in Mozambique. During the war, agricultural production based cooperatives were concentrated in the “green zones” around the cities for security. After the war, many of the cooperatives were dissolved and instead, development of associations of individual farmers was promoted by the Government and NGOs based on common problems such as marketing, input supply and contract growing. Cooperatives and Associations therefore became the basis for farmer organisation for marketing and credit delivery. The cooperatives and associations are autonomous, but institutionally they are supervised by the office of the Vice-Minister in MADER responsible for cooperatives. The largest cooperative movement in Mozambique is the General Union of Cooperatives (UGC). It is an umbrella body of 185 producer cooperatives and 45 service cooperatives, with a total membership of 6,000 members. About 95% of the producer cooperatives membership is made up of women. It was created in 1981 to co-ordinate the activities of its cooperative members, and throughout the war period, it provided agricultural services to its members who were concentrated in the “green zones” of Maputo City (the cooperative movement is discussed in detail in the PID). 2.5.4 Mozambique has a record of good governance. The Government is committed to political pluralism, and the constitution provides for formal consultation with political opposition and the general population at large. There is free press and an increasingly active civil society. The judiciary is independent and the judicial framework for property rights is in place in the industrial, mining, infrastructure and agriculture sectors. There have, however, been some complaints about public procurement practices. The Government intends to reinforce its record of good governance. To ensure accountability and transparency, it is committed to implement, during year 2000, several action plans to strengthen the auditing

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functions of the administrative tribunal, and the Inspectorate General Finance. A law to govern the management of public assets would also be submitted to the General Assembly, and a decree regulating public procurement in a more transparent manner will be promulgated.

2.6 Government Policy and Strategy in the Sector

2.6.1 The Government’s policy and strategy in the agricultural sector is spelt out in its “Agrarian Policy and Implementation Strategy (PAEI)” of 1995. The strategy aims to transform subsistence agriculture into a more commercial entity by integrating production with distribution and processing, and produce a surplus in an efficient and entrepreneurial manner. The strategy thus seeks to improve the conditions of the poor rural population, and reduce rural poverty by ensuring food security and sustainable economic development. 2.6.2 The Government’s key instrument for effecting the implementation of its agricultural policies and strategies is its National Programme for Agrarian Development (PROAGRI). It is a five-year programme whose aim is to support sectoral development goals by consolidating the sectoral public expenditure programme, rationalising the role of, and improving the effectiveness of MADER in policy formulation, regulation, and service provision. PROAGRI aims to replace the fragmented donor-driven projects with a comprehensive programme consistent with the role of MADER in a market-based economy. PROAGRI will focus on promoting economic growth, improving household and national food security, reducing poverty, expanding and diversifying crop and livestock production for domestic and external markets. It has eight components: (i) institutional development; (ii) rural extension; (iii) research; (iv) agricultural production; (v) livestock improvement; (vi) forestry and wildlife; (vii) irrigation; and (viii) land management. 2.6.3 MADER and the Ministry of Planning and Finance have agreed on a US$218 million five-year budget (1999-2003) for PROAGRI. This includes all of the MADER’s investment and recurrent expenditure over the period, and all existing and new Government and donor commitments channelled through MADER. It has been agreed that those projects implemented by the private sector, NGOs, Cooperatives etc., and are therefore not budgeted under the Public Investment Programme would be implemented outside PROAGRI.

2.7 Constraints to Agricultural Development Constraints to agricultural development are both technical and institutional. The technical constraints include low and erratic rainfall, floods and drought, soils of poor quality and characteristics, difficult access (due to land mines), low level of irrigation development, poor crop management, and weak input support services, high cost of produce transport to urban markets, and limited farm produce storage and processing capacity. Livestock production in the family sector is seriously constrained by decimation of livestock population by the war, diseases, poor access to veterinary care, lack of improved restocking herd and flock, pastures of low nutritive value and inadequate quantity, and poor livestock management. The institutional constraints include poorly developed markets, lack of market information, lack of credit facilities, weak farmer organisations, and poor input supply systems due to poor communication and rural infrastructure.

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2.8 Intervention of Major Donors in the Sector

2.8.1 Bilateral and multilateral donor agencies and NGO’s are active in the sector, providing technical and financial support to agricultural development. About 90% of the agricultural development budget is donor funded. The World Bank, UNDP, IFAD, FAO, EC, the Bank Group and a total of 12 bilateral donors (Australia, Denmark, Finland, Germany, Ireland, Italy, The Netherlands, Sweden, Portugal, United Kingdom, United States of America and Canada are providing support for specific projects. The World Bank is providing support to institutional development, information management, crop research and extension, a statistical census and some other projects. The UNDP is funding a project on micro financing in urban and peri-urban areas together with USAID, DFID and CIDA. Denmark is supporting a project on rural finance. FAO is financing projects on Early Warning, Household Food Security, Food Security Policy, Marketing and others. IFAD is financing a family sector livestock rehabilitation project, and the EC is financing a livestock restocking and a seed multiplication programmes. The Bank Group is financing the Mafambisse Sugar Rehabilitation Project in Sofala Province, the Massingir Dam and Smallholder Project in Gaza Province, the Family Farming Livestock Rehabilitation Project in Sofala, Tete, Gaza, Cabo Delgado and Maputo Provinces, the Small-Scale Irrigation Project in Maputo, Sofala and Zambezia Provinces, the Forestry and Wildlife Project in Sofala and Manica Provinces, and the recently approved Special Programme for Food Security Pilot Project in Zambezia Province.

2.8.2 Having observed the problems associated with a fragmented donor-driven aid the Government initiated the preparation of the PROAGRI, which would be the vehicle for co-ordinating all donor aid and activities. Under PROAGRI, donors would channel their support through government budget (or direct budget support), or a designated Foreign Exchange Account in the Treasury, and utilise common procurement and disbursement procedures. PROAGRI thus comprises all those projects that are within the budget of MADER, and are implemented by MADER. The proposed project is, however, outside PROAGRI because it is not budgeted for under the Public Investment Programme, but under the budget and activities of UGC, which is a cooperative. 2.8.3 Another forum for donor co-ordination is the focal donor points, which have been established in each Province for the EU member country activities. The role of each focal donor is to co-ordinate all project activities in the provinces of their operation on behalf of the other EU donors. The arrangement ensures that activities of the EU donors' projects outside PROAGRI are also co-ordinated. However, each focal donor is knowledgeable about the activities of all the donors in the provinces, and are sources of information for all other donors.

2.9 Credit Systems in the Sector and Constraints

2.9.1 The country's formal banking system consists of the Bank of Mozambique, eleven commercial banks and one investment bank. Apart from the formal banks, there are three leasing companies, one investment-fund managing company, and three financing houses. Additionally, there are thirty-five outlets of Bureau de Change, nine units for micro-credit and five credit co-operatives that are authorised to lend and accept deposits from their membership. 2.9.2 The banking sector is relatively simple and focuses largely on short-term financing at an average annual interest rate of 23% and has yet to deepen its financial services to the

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productive sectors. The bulk of agricultural credit which constitutes about 20% of total commercial bank lending of MT 8.4 billion (US$ 560,190) is mainly targeted to the formal agricultural trading and commercial production of marketed crops such as tea, cashews, coconut and cotton. The financing houses focus primarily on financing vehicles and other household durable goods while the majority of the micro-credit institutions supply the credit needs of individual-efforts in small-artisanal and trading activities in urban areas and by in large are unavailable for rural agricultural financing. Only two of the five credit cooperatives (namely a newly started Cooperativa de Crédito para Desenv. Rural - CCDR and União Geral Das Cooperativas - UGC) supply some of the credit needs of their co-operative members for crop cultivation and animal husbandry. 2.9.3 Before 1997, the Banco Popular de Desenvolvimento (BPD) was the Development Bank responsible for rural credit. The Bank was privatised in 1997 due to poor performance. Since the privatisation of BPD, no institution with a national coverage on rural credit delivery has emerged and the credit needs of the vast majority of rural communities remain unmet. As a result of the absence of rural lending institutions, rural credit delivery in the country is characterised by various project-based credit schemes that are often run outside the officially sanctioned credit system. The main constraints to successful development of national rural credit providers has been attributed to a) lack of a clear legal framework, b) poor communications and transportation infrastructure, c) less densely and widely dispersed small-holder-farmer communities, d) inaccessibility of smallholders to markets as well as their non-involvement in the cash-economy. 3. THE SUB-SECTOR ANALYSIS 3.1 Crop Sub-Sector 3.1.1 Crop production is the most important sub-sector in agriculture. While the food crops include maize, cassava, millet, sorghum and beans, the most important cash crops are cashew, cotton, sugar, copra and citrus. The cash crops are mainly grown for export and they account for 33% of the total exports. Although the country is technically grouped into 10 agro-ecological zones, it is more generically divided into 3 Regions: North, Central and South. The Northern Region has the largest agricultural potential, with annual rainfall ranging from 1,000 mm to 1,400 mm. The main crops are cotton, tobacco and groundnuts. The Central Region also has high potential for agriculture with annual rainfall ranging between 1,000 mm and 1,200 mm. Cotton, cashew, coconuts, maize, cassava, millet and beans are grown. The Southern region is more drier with high risk of crop loss from drought. The annual rainfall ranges from 400 mm to 600 mm. The crops grown are maize, groundnuts, cassava and sweet potatoes, and cashew as cash crop. 3.1.2 Cashew is a major foreign exchange earner for Mozambique. It is grown along a 2000-km strip from the north (Cabo Delgado and Nampula districts) to the south (Maputo district). Commercial importance of cashew started in the 1930s. From 1961 to 1975 (just before the civil war) Mozambique was the largest producer of raw cashew nuts with production peaking at 216,000mt (representing almost half of world production) in 1972. From 1975 production declined steadily with 18,000mt marketed in 1983. In 1993 the number of cashew trees was estimated at 26.5 million compared to 61 million in 1970. However, with the return of peace and war displaced persons thereafter, cashew production gradually increased and in 1998, about 60,000mt of raw cashew nuts were produced. The decline in marketed production of cashew nuts in Mozambique was due to aged and unproductive trees, lack of proper management of trees, incidence of fires and pests and

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diseases arising out of neglect during the war years, and disincentive in the marketing system. Cashew, however, remains an important source of income for the family sector. With proper extension services on crop management, it is easy to grow and there is ready export market. 3.1.3 Horticulture (vegetable and fruits) is another important enterprise, mainly in the Southern Region. Vegetables are mainly grown during the dry season under irrigation, which ensures market for the crops, better prices for the producers, and supply of fresh vegetables to the farmers and the population of Maputo City. Less than 20% of smallholders have access to a water source such as dug wells, boreholes and streams with which they plant small plots of vegetables on about 0.2 ha plots. Winter vegetables produced include green maize, tomatoes, leaf vegetables, carrots, cabbages and some local or exotic crops. Fruits such as bananas, mangoes and citrus are also important. Although their production is not well developed, there has been a steady increase in commercial production, especially in the Northern Region where there is no pressure on land. The irrigation technology utilised is on small-scale systems generally less than 100 ha each for large farms and less than 1 ha for smallholder farmers producing vegetables and fruits. 3.1.4 While there is high potential for these crops in Maputo province because of the close proximity to the Capital City, the smallholders lack the crop management skills, water and irrigation facilities, pest management skills, credit for inputs and marketing. These constraints need to be addressed in order to ensure household food security and incomes for smallholders, majority of who experience absolute poverty. Of particular importance would be variety selection and seed production to ensure timely distribution of quality seedlings; extension services to advise farmers on the use of organic fertilisers and mulches for soil fertility, inorganic fertiliser and pesticides where appropriate; water use, management and conservation; pest management; provision of credit for agricultural inputs; and marketing.

3.2 Livestock Sub-Sector 3.2.1 Livestock is produced by both commercial and family sectors. Commercial livestock production in Mozambique is very limited, holding only about 15% of cattle and 2% of small ruminants and pigs. It is however the major producer of milk. The family sector is the most important as it accounts for 85% of cattle, 98 % of sheep and goats, 98% of pigs and almost all the poultry in the country. Family sector livestock producers practice mixed farming system of agricultural production, where livestock is managed under the traditional low input management system based on free range grazing on communal pastures. Cattle production is restricted to Southern Region because of the incidence of tsetse fly (carriers of trypanosomiasis) in the northern part of the country. Cattle are used for draught power in field cultivation. Dairy production in the family sub-sector was wiped out during the war, and only a few families presently keep dairy cows. 3.2.2 The rearing of small ruminants and poultry, which are the major source of meat for the rural population is widely practised all over the country by the family sector. Traditional poultry are produced on free range and it accounts for about 30% of poultry production. Poultry is an important source of income for the rural population for it is easy to handle, does not require much space, is affordable by low income earners and has high investment returns. It is therefore an appropriate activity for the Maputo Province where there is land pressure. The major constraint to poultry production is New Castle disease, which can cause as high as 60% mortality rate. Farmers also lack management knowledge on poultry production, inputs such as feed and medicine as well as appropriate chicken houses. Support in these areas would provide income generation and poverty alleviation to a sizeable section of the rural poor.

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3.3 Institutions Relevant to the Project 3.3.1 The project will be executed by the UGC, which is an umbrella and co-ordinating body for 230 cooperatives of Maputo Province. UGC provides a number of services to its members. These services include provision of credit in form of inputs for agricultural production, extension, marketing of the members’ agricultural produce, transport and some social services mainly schools, health clinics and drinking water. It effectively and efficiently delivers inputs to the beneficiaries on time and its credit recovery rate is 95%. It markets all the produce from the members and deducts the credit, extension and marketing services from the revenue earned, which has enabled the high credit recovery rate. The extension system which is provided through (i) individual contact farmers; (ii) group contact through cooperatives; and (iii) mass farmer education using posters and drama is successful and enables the cooperative members to produce high quality produce which is competitive with imported produce. UGC also executes, on behalf of its members, donor funded projects and has gained a lot of experience in this field since it was created in 1981. For example, in the period 1995 – 1999, UGC received external aid totalling about US$ 4.20 million, from various bilateral donors and the World Bank. It has also successfully implemented an ADF loan of UA 7.37 million for the Green Zones Women Development Project, which is due to be completed in April 2001 (see lessons learned in para. 4.1.3). 3.3.2 With a total of 1,350 employees, whose academic qualification mostly ranges from grade 4 to high school certificate, in addition to 7 University Degree holders who are responsible for the institution’s management, UGC has enough human resources to execute all activities under its responsibility, most of which have in the past been concentrated in the “green zones” of Maputo City. However, under the proposed project, UGC would be extending its support to other districts of Maputo Province outside the “green zones”, and to some non-cooperative members. The existing human capacity, specifically in some critical technical areas, would not be adequate to address these additional responsibilities. UGC will therefore need to be strengthened through training, technical assistance, vehicles and office equipment to enable it adequately implement the project. 3.3.3 Other institutions that will indirectly be involved with the project are DINAP, INIVE, DNER, INIA and the Cashew Institute. DINAP is responsible for policy formulation, and cross border trade on livestock. INIA is responsible for crop research while DNER is responsible for the transfer of technology to smallholder farmers. INIVE is responsible for livestock disease diagnosis and treatment, and production of veterinary vaccines. These institutions will provide backstopping to the project in terms of market information, technical advice on the crops, disease diagnosis and training, as well as advice on extension. The cashew institute will also provide UGC with the current and appropriate production technology, and market information in the production of cashew. 4. THE PROJECT

4.1 The Project Concept and Rationale

4.1.1 The project is targeted towards a very poor section of Maputo Province’s rural population with an estimated per capita income of US$ 20, in order to increase its agricultural production, raise its household food security and incomes, and improve its livelihood. The project would be implemented in Maputo Province, which has a relatively low rainfall and a high pressure on land due to a high population density. The province is therefore less suitable for extensive farming. The project activities would be poultry production and irrigated

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vegetable production, and tree crops. Poultry and irrigated vegetable production have been selected because they are highly intensive and require only very small plots. The fruit trees and cashew have been selected because they do not require much rain. The type of irrigation proposed is low cost, with irrigation water supplied from boreholes with manual water pumps, which are easy to operate and to maintain, as opposed to highly mechanised type of irrigation. Although crop production requires lower investment than poultry production, facilities installed for poultry production would provide returns for over 25 years and the returns per farmer from a very small plot would be substantial as compared to crops. In addition, due to pressure on land, there is no additional land available for crop production in the project area. There will, therefore, be more investment under poultry than crops under the project. 4.1.2 The proposed project has been designed with the full participation of the beneficiaries and GOM. The project originated from the beneficiaries who, either individually or as a group approached UGC for support to start some irrigated agriculture, rainfed fruit trees and cashew nuts production, and/or poultry production. The beneficiaries were then selected by the UGC and the MADER extension staff for the various activities (mentioned in 4.1.1 above) in accordance with water availability, the suitability of soils and other climatic aspects in the localities of the beneficiaries, and the capability of the beneficiaries, especially in poultry production. Area accessibility and the market demand for produce were also taken into consideration. Several meetings were held with the beneficiaries to discuss these aspects and agree on the activities to be undertaken by each group of individuals. 4.1.3 The Bank has so far financed 14 projects and 3 studies in the agricultural sector, which are listed in annex 6. To date 5 projects and the 3 studies have been completed, 2 of the projects were suspended, and seven are on-going. Implementation of most of the projects appraised during the war experienced long implementation delays, resulting in cancellation of some. Implementation improved after the war. However, the Government is still experiencing managerial problems, and as a result project implementation delays, due to shortage and weakness in the quality of managerial and technical cadre. It is estimated that about 80% of the civil service have no more than basic 6th grade education. 4.1.4 The Bank has financed only one project, the Green Zones Women Development project under the implementation of UGC. The project involves mainly production of poultry and some vegetables by cooperative members under the co-ordination and support of UGC in the “green zones” of Maputo. The implementation of the project has progressed faster than other agricultural projects in Mozambique. The project has had an impressive success. It distributed on credit about 7.2 million day old chicks to individual beneficiaries, cooperatives and associations between 1996 and 1999, against an appraisal target of 3.5 million day old chicks during the five years of the project implementation. The recovery rate for the credit disbursed has been 97%. UGC has successfully marketed the produce for its members despite stiff competition from chicken dumping in the country. The project accounts have been audited every year. The total number of beneficiaries is about 3,800 per year, 95% of them women. As a result of the project, majority of the beneficiaries is economically and socially better off, as they are able to provide food for their children, clothing, education and health care, and some have built improved houses. This project will be fully implemented by April 2000. The proposed project will build upon the successes of this project.

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4.2 Project Area and Project Beneficiaries 4.2.1 The project is located in Maputo Province in the southern part of Mozambique and will be implemented on sites in the Districts of Maputo, Matola, Boquisso, Boane, Marracuene and Manhica. All the sites lie within a radius of 70 km of Maputo City (Annex 1). Mean annual rainfall for the previous 20 years ranged from 550mm to 960mm with 80% of it received between November and April. The rains could be erratic and periods of drought and flooding have been recorded. Monthly potential evapotranspiration often exceeds rainfall, indicating a sub-humid environment. Mean annual temperature ranges from 21.1oC to 23.9oC while maximum and minimum annual temperatures range from 26.7oC to 31.1oC and 15.4oC to 19.1oC, respectively.

4.2.2 Vegetation consists of savannah woodland, open forests, mangroves in coastal areas and forest gallery along main rivers and their tributaries. Natural plant species vary at the sites and include Brachystegia sp Sclerocarya caffra, Acacia spp., Combretum, and grass of Panicum spp, Digitaria, Setaria and Andropogon genus. The Province is in the low-lying area of Mozambique, generally at altitudes of 200m or less above sea level. Major soil types include sandy soils and alluvial soils. Cashew will be grown on sandy soils for root aeration and drainage. The vegetable and other tree crops will be grown in alluvial soils, high in organic matter. Maputo Province has an estimated population of 1 million people out of which 53% are women. The population is among the highest of all provinces in Mozambique with a population density of 31 persons/km2.

4.2.3 Project Beneficiaries: The project will directly benefit 5,200 smallholder farmers, with 700 producing poultry and 4,500 growing crops. About 80% of the beneficiaries will be women. The beneficiaries consist mostly of returnees who fled their homes during the war and have no regular employment. They experience food insecurity at the household level all year round. They are therefore very poor in resources, have no access to credit, can not afford the basic investment for agricultural development or meet their basic needs, can neither afford health facilities nor meet their obligations of educating their children. In addition, the project will benefit an additional 675 existing poultry producers. These producers are currently operating on one to two production cycles per year instead of five cycles, because of shortage of poultry production inputs, mainly day old chicks and chicken feed. With the installation of a modern feed mill and breeder farm, enough poultry inputs would be produced for new poultry producers and the existing ones. The existing producers will however not benefit from credit under the project.

4.3 Strategic Context

The Government’s sector goal is to transform the subsistence agriculture into a more commercial entity by integrating production with distribution and processing, thus improving the household food security and increasing the incomes of the rural population who are below the food poverty line. This would ultimately reduce rural poverty and ensure sustainable economic development. The Government has a five year Absolute Poverty Reduction Action Plan (2000-2004) with an overall objective to reduce the incidence of absolute poverty from about 70% to about 60%. This will require an annual economic growth of about 7% to 9%. The proposed project would contribute to the Government’s sector goal by addressing some of the constraints to agricultural development. These include: (i) irrigation to address the constraint of low and erratic rainfall; and (ii) support to UGC so that it may provide extension services to

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beneficiaries on crop and poultry management, new and improved technologies, credit for input supply, marketing, and processing of poultry meat, and treatment of poultry diseases. The project will contribute, although to a very small percentage at the national level, to the economic growth required to reduce absolute poverty.

4.4 Project Objectives

The project’s sector goal is to contribute to GDP growth while achieving a sustainable rural poverty reduction. The project’s specific objectives are to promote household food security, raise household incomes and the welfare of the poor rural population in the Districts of Maputo, Matola Gare, Boquisso, Boane, Marracuene and Manhica.

4.5 Project Description

4.5.1 The main activities of this project will be directed towards the development of poultry and crop production for 700 and 4,500 farmers respectively. These activities would be grouped into 4 components, which are described below. Under the production and marketing support component, the project’s outputs would include: (i) a feed mill to produce 18,000mt of feed per year, and a breeder farm to hold 40,000 chicks per year, a slaughter house for 4 million birds, a cold room to hold 250 frozen birds, a meat processing unit to process 500,000 birds, storeroom for storage of farm inputs and tools, and vehicles for marketing and distribution of agricultural inputs; (ii) funds amounting to UA 2.30 million will be provided to grant credit to 5,200 farmers for poultry and crop production inputs under the credit component; (iii) under the provision of social facilities, the project will construct 4 schools, 4 clinics and 144 boreholes, 132 for the beneficiaries’ welfare and 12 for production support; (iv) under the project management component, 9 Project Management staff will be appointed, 8 technical assistants recruited, a total of 4,504 training hours achieved and vehicles and equipment provided. A Production and Marketing Support 4.5.2 This component consists of three sub-components: (i) support for poultry production; (ii) support for crop production; and (iii) marketing support.

(i) Production Support for Poultry 4.5.3 This will constitute (i) construction of a feed mill capable of producing 18,000mt of pellet feed per annum; (ii) construction of a laboratory at the pellet feed mill and provision of the required equipment for feed analysis and quality; (iii) construction of a 630 m2 of a breeder farm at Namaacha to accommodate 40,000 breeder chicks per year, with 8 laying houses, 4 rearing houses, sanitary facilities, office block and staff houses, and install the required equipment; and (iv) minor rehabilitation of the slaughterhouse and installation of the required equipment in order to accommodate an additional shift, to enable it operate at full capacity. The hatchery at Chicabela will be moved to the new breeder farm.

(ii) Crop Production Support

4.5.4 This sub-component will comprise the provision of the necessary facilities to UGC to enable it provide services and support to the farmers in the family sub-sector who will be involved in crop production. Proposed crops are vegetables, cashew, mangoes, citrus and bananas. The project will provide facilities for the propagation of the required planting materials and will include procurement of farm machinery, materials for grafting the tree crops,

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agricultural inputs such us fertilisers and pesticides, 12 boreholes for irrigation water, overhead and surface irrigation equipment, as well as transport facilities for distribution of inputs to the beneficiaries. A store for tools and agricultural inputs will also be constructed.

(iii) Marketing 4.5.5 It is estimated that by the full development of the project, 2.3 million dressed birds, 2,400mt of cashew, 8,100mt of vegetables, and 1,080mt of fruits (mangoes, citrus and banana) would be produced annually. These commodities would require to be transported to the urban markets, and some of them such as the poultry would need to be processed and/or frozen for the appropriate markets. The private transportation system and food processing systems are not well developed and reliable in the project area. UGC has been providing these facilities on a charge to its members, but they are not adequate to cover the additional production. Funds would therefore be provided to support UGC so that it would continue assisting the farmers to market their crop and livestock produce. Such funds would procure vehicles, equipment such as scales and freezers for weighing and transporting poultry meat and fresh crop produce to the markets. Funds would also be provided for the installation of a cold room with a capacity of 250mt of frozen chicken in the existing 220m² warehouse building in Benfica District of Maputo. In order to diversify the market for poultry, the project will rehabilitate a building and install processing facilities for 500,000 birds with the necessary equipment to produce sausages, polonies, hamburgers and chicken portions.

B. Credit

4.5.6 The project will provide funds totalling UA 2.30 million for provision of credit to the beneficiaries. The credit funds would be for both medium-term and seasonal credit. Medium-term credit would be for the construction of chicken houses, poultry equipment, and establishment of the tree crops, which would account for 77% of the total credit. The Seasonal Credit which would account for the remaining 23% would be for the purchase of day old chicks, chicken feed, poultry vaccines and drugs for poultry production, and fertilisers, vegetable seeds and pesticides for crop production. Maximum medium-term credit per beneficiary would be US$ 3,470 while the maximum for seasonal credit would be US$ 1,104 C Social Facilities 4.5.7 UGC supports the welfare of both its members and non-members. It has already constructed, with its own funds and also assistance of donors, schools, health clinics and boreholes for the communities in the outskirts of Maputo City. Such facilities are lacking in the rural areas where most of the target farmers reside. Funds will be provided under the project for the construction of 4 heath clinics, 4 schools and 132 boreholes, and to provide the required equipment. UGC will provide the necessary staff. D Institutional Support and Project Management

4.5.8 The human capacity in UGC needs strengthening in certain key areas of project implementation, in order to meet the additional responsibility of the project’s implementation. There is therefore a need for technical support, training, and office equipment. Funds will be provided for long-term technical assistance in finance (36 mm), agricultural engineering (30 mm), zootechnical engineering (28 mm), mechanical engineering (28 mm), civil engineering (24 mm), breeding farm management (18 mm), refrigeration engineer (12 mm) and slaughterhouse management (12 mm). Vehicles and office equipment will also be provided. Funds will be

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provided under the project to install for UGC an appropriate accounting system. UGC will provide the required Management Staff, which would include, a Project Co-ordinator, an Accountant, a Credit Accountant, a Veterinarian, an Agricultural Extensionist, a Breeder Farm Manager, a Feed Mill Manager, a Slaughterhouse Manager and the Crop Nurseries Manager.

4.5.9 The project will in addition provide training in the various fields, both for UGC staff and for beneficiaries. Training for UGC staff will be in project control and monitoring (480 hrs); accountancy and finance (480 hrs); extension techniques (720 hrs); human resource management (420 hrs); aids awareness campaigns to nurses and extension staff (244 hrs); computer (360 hrs); English language (360 hrs); and study tours. Beneficiary training will be in crop management techniques (480 hrs); poultry farm management techniques (480 hrs); and management of small poultry and crop production units (480 hrs). UGC has a training centre where the training of the beneficiaries will be held. Formal training for the UGC staff will be provided by the relevant local institutions. Funds will be provided for training materials.

4.6 Production, Markets and Prices

4.6.1 Available data estimates national production for 1998 as 60,000mt of cashew nuts; 29,000mt of tomatoes and onions; 18,000mt of oranges; and 87,000mt of bananas. The project will produce several cycles of vegetables under irrigation during the dry months of May to September when the demand is high due to shortages. Some of the vegetables and fruits would be consumed by the farmers and the rest sold in the domestic markets, mainly in Maputo City. UGC would collect the produce for marketing on behalf of the farmers, on an individual basis. Once sold, UGC would deduct its marketing and extension service and other costs incurred during production, and the balance would be given to the beneficiary farmer. Cashew nut is produced mainly for export as raw nut. The current farmgate prices for raw cashew nuts, vegetables, mangoes, oranges and bananas are US$ 500, US$ 280, US$ 300 and US$ 200 and US$ 160 per metric tonne, respectively. This is expected to remain stable considering that the incremental production is marginal when compared to national production. 4.6.2 Poultry meat production in Mozambique was estimated at about 5,220mt in 1999. Out of this, 2,553mt (or 49%) were produced by the co-operatives largely by UGC that is currently producing 2,500mt. The estimated incremental production in the project will be 1,700mt of poultry meat per year, which would increase the total poultry meat production in the country to 6,915mt per annum. The estimated present annual consumption is 6,206mt which include 5,220mt from national production and 991mt from imports. This gives a per capita consumption of only 0.33kg, which is very low. However, it is estimated that consumption is growing at about 7% and is expected to reach 8,700 by year 2005. 4.6.3 The birds will be collected from the producers by UGC and delivered to the slaughterhouse or live bird markets. The prices received by farmers would be calculated on the average revenue fetched, with deductions made for credit and other costs from production assistance delivered by UGC. There is ready market for poultry and poultry products in Mozambique. The UGC has an established clientele to most of the supermarkets in Maputo whom they supply with frozen chicken. Processed poultry meat would also be sold by UGC in its shop close to the processing unit. It is anticipated that the market for UGC chicken will expand into the hinterland. The imposition of a 47% tariff on imported chicken meat has encouraged local production.

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4.6.4 Feed accounts for 60% of poultry production cost. The selling price of poultry meat is therefore dependent primarily on the cost of feeds. The current retail price of poultry meat is US$ 2.20/kg. The production of pellet feed which has a higher feed conversion rate and low wastage during feeding will reduce the cost of feed by about 16%. This will significantly improve the production efficiency and ensure lower and more competitive market prices. 4.7 Environmental Impacts 4.7.1 The project has been classified as category II, according to the Bank’s guidelines. Overall, the scale and dispersed nature of the proposed agricultural development are not likely to have any major impacts on the environment. Other physical interventions are limited to the construction of few buildings within existing premises, which decreases the potential for negative influences on the surrounding environs. 4.7.2 Positive Impact: The project’s positive impacts include intensification of production, reduced soil erosion, more food security, and improvement of the well being of smallholder families. In addition, increased incomes through the project will indirectly improve health conditions through nutrition and possible improvement in water and sanitation and local ecology. 4.7.3 Negative Impacts: Vegetables and fruit trees would not be planted in virgin lands or areas of indigenous forests, but will mainly be planted in smallholder farms on already cultivated areas. Although cashew will be planted on new lands, big and well-established trees will not be removed. The project will assist farmers in land husbandry practices and in site selection for the establishment of cashew. Steep slopes (of over 40%) will be avoided for the purpose of erosion control. Inter-cropping with annual crops will ensure a high ground cover that will in turn reduce loss of topsoil through wind erosion and surface run-off. 4.7.4 Care will be taken when handling pesticides through provision of adequate training to the operators in order to avoid contamination. There is little fear of build up of residues in the ground and waterways, because the pesticides which will be used on the leafy vegetables will be of natural origin and do not include an active ingredient of any toxic nature, while used fungicides are extremely safe according to international standards. Although the insecticides to be used are slightly more toxic, they break down rapidly in the environment into harmless products and are virtually ineffective within four weeks. 4.7.5 The poultry production process adopted under the project is very clean and will not result in any harmful waste. The waste from the slaughterhouse is collected and treated using super heated steam and recycled as input to the feed mill. The chicken dropping is a very good source of organic fertiliser and will have a positive impact on the environment as it will improve the soil fertility and reduce the application of agro-chemicals. 4.7.6 All new constructions will be built either within existing premises or on lands of altered uses. Aesthetic impact will also be taken into account during construction, and construction works’ mitigation will be part of the bidding conditions. The project will follow very strict hygienic standards at the feed mill and the slaughterhouse, which is being monitored and poses no health hazards to the workers or consumers. Specifically, industrial and workplace safety standards will be applied, including ventilators, dust cleaners, first aid kits installation and labour personal filters.

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4.7.7 Notwithstanding the above, and in accordance with the environmental laws of Mozambique, the project has been submitted to, screened, evaluated and cleared by the Ministry of Environmental Co-ordination (MICOA) for potential environmental impacts. MICOA will also follow up implementation, as part of its normal activities. UGC will have the responsibility of the implementation of all measures mentioned above to manage project residues to protect the environment and the fulfilment of the safety standards in the project.

4.8 Project Cost

4.8.1 The total cost of the project is estimated at UA 15.00 million out of which UA 8.55 million or 57% will be in foreign currency and UA 6.45 million or 43% will be in local currency. Physical contingencies have been applied to the civil works at 10%, and to all other costs, except Technical Assistance, training and Project Management salaries, at 5%. Price contingencies have been applied to all cost items at an annual rate of 2.5% compounded, which is the most recent estimates of projected increases in the world commodity prices (as reflected by the index of Unit Value of Manufactured Exports (MUV) for 2000-2010). No separate price contingencies have been applied to local costs on the assumption that the difference between the domestic and international inflation rate will be offset by the exchange rate adjustment and the fact that most of the local costs will be covered by loan funds which would be in foreign currency (the current local inflation rate is 4.8%, and the current exchange rate is 7.7%). Total contingencies amount to UA 1.22 million (US$ 1.63 million) or 8% of the total project cost. The costs have been estimated net of taxes.

Table 4.1

Summary of Project Cost Estimates by Component (In MT billion) (In UA Million) Component FE LC Total FE LC Total %FE A. Prod. & Marketing Support (i) Poultry Prod. 82.53 48.81 131.34 4.16 2.46 6.62 63 (ii) Crop Prod 6.75 3.97 10.72 0.34 0.20 0.54 63 (iii) Marketing 17.06 9.72 26.78 0.86 0.49 1.35 64 B. Credit (i) Poultry Prod. 12.29 23.41 36.70 0.67 1.18 1.85 36 (ii) Crop Prod. 3.17 5.75 8.92 0.16 0.29 0.45 36 C. Social Facilities 14.88 11.71 26.59 0.75 0.59 1.34 56 D Institutional Strengthening & Project Management 17.06 15.28 32.34 0.86 0.77 1.63 53 Base Cost 153.74 118.65 272.39 7.80 5.98 13.78 57 Physical Contingency 6.35 4.17 10.52 0.32 0.21 0.53 60 Price Contingency 8.53 5.16 13.69 0.43 0.26 0.69 62 Total Project Cost 168.62 127.98 296.60 8.55 6.45 15.00 57

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Table 4.2 Summary of Project Cost by Category of Expenditure

(In MT billion) (In UA Million) Category FE LC Total FE LC Total i. Civil Works 24.01 31.94 55.95 1.21 1.61 2.82 ii Materials & Equipment 97.39 17.46 115.87 4.96 0.88 5.84 iii Credit 16.47 29.16 45.63 0.83 1.47 2.30 iv. Services 15.87 6.15 22.02 0.80 0.31 1.11 v. Operation & Maintenance 0.00 33.94 33.94 0.00 1.71 1.71 Base Cost 153.74 118.65 272.39 7.80 5.98 13.78 Physical Contingency 14.88 9.33 24.21 0.75 0.47 1.22 Total Project Cost 168.62 127.98 297.60 8.55 6.45 15.00

4.8.2 Cost estimates summarised in table 4.1 above are based on prices that prevailed in July 2000. Cost for the civil works is based on quotations received from local contractors and suppliers, and costs incurred for similar works in the country. Vehicles and equipment costs are based on quotations from local suppliers. Costs for consultancy services are based on national rates, while salaries for the project management are based on salaries paid by UGC.

4.9 Sources of Financing and Expenditure Schedule

4.9.1 The project would be financed by ADF, TAF grant and GOM. The ADF loan amounting to UA 12.46 million will finance 100% of the foreign exchange and local investment cost for all the activities associated with the poultry production, crop production and marketing support, and the provision of social facilities. It will finance foreign and local costs associated with the credit component except the provision of the day old chicks, and minor poultry inputs such as charcoal, wood shavings and water. ADF funds will also finance local costs of the operation and maintenance costs for the civil works and equipment provided under the project. 4.9.2 The TAF grants amounting to UA 1.00 million will finance all foreign and local costs associated with the activities for Institutional Support which comprises of technical assistance, training and provision and maintenance of vehicles and office equipment for the technical assistants. ADF and TAF resources will amount to UA 13.46 million or 90% of the total project costs, out of which 63% will be in foreign exchange. 4.9.3 GOM will finance the local cost associated with the operation and maintenance of the vehicles, farm machinery and irrigation equipment; provision of day old chicks and other miscellaneous inputs (charcoal, wood shavings, water, etc) for the credit component and staff salaries for the project management. This will amount to UA 1.54 million or 10% of the total project cost (see below GOM contribution to the ADF loan and to the TAF grant). The Government will, in addition, meet all the taxes. The source of finance is detailed in Table 4.3 below, while the provisional List of Goods and Services is detailed in Annex 4. 4.9.4 The contribution of ADF to the financing of local costs of the project is justified by several factors. First, the country continues to implement a rigorous programme of economic reform that focuses, for domestic balance, on fiscal austerity. The fiscal austerity measures impose a target for the government budget of a small deficit after grants of 1.2% of GDP. With total public revenues still constrained to 11.8% of GDP by the low overall income level despite measures to introduce a Value Added Tax (VAT), the scope for self-financing the local costs of projects is limited. Moreover, the Government is committed to sound external

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trade and payments management geared to the maintenance of a stable foreign exchange rate that is fully market-determined. Under such a scenario, which also imposes monetary discipline to severely contain inflation, expenditures that tend to deepen the fiscal gap directly translates into a worsening of the balance of payments gap. Therefore, the rationale for financing the domestic costs is to help the country maintain a coherent adjustment policy while implementing priority development projects. Table 4.3 Source of Financing (In UA Million) Source of Finance Foreign Currency Local Currency Total Cost % of Total Loan ADF 7.86 4.60 12.46 89 GOM 0.00 1.49 1.49 11 Total 7.86 6.09 13.95 100 Grant TAF 0.69 0.31 1.00 95 GOM 0.00 0.05 0.05 5 Total 0.69 0.36 1.05 100

Table 4.4 Expenditure Schedule by Component

(In UA Million) Component PY1 PY2 PY3 PY4 PY5 Total A. Prod. & Marketing Support (i) Poultry Prod. 3.69 0.85 0.92 1.00 1.03 7.49 (ii) Crop Prod 0.39 0.06 0.05 0.04 0.04 0.58 (iii) Marketing 1.08 0.09 0.09 0.09 0.09 1.44 B. Credit (i) Poultry Prod. 0.15 0.34 0.51 0.51 0.34 1.85 (ii) Crop Prod. 0.11 0.09 0.10 0.07 0.08 0.45 C. Social Facilities 0.33 0.45 0.25 0.28 0.21 1.52 D. Institutional Strengthening & Project Management 0.56 0.48 0.29 0.19 0.15 1.67 Total Project Cost 6.31 2.36 2.21 2.18 1.94 15.00

Table 4.5

Expenditure Schedule by Source of Finance (In UA Million)

Source of Finance PY1 PY2 PY3 PY4 PY5 Total Loan ADF 5.61 1.70 1.73 1.81 1.61 12.46 GOM 0.31 0.29 0.30 0.30 0.29 1.49 Total 5.92 1.99 2.03 2.11 1.90 13.95

Grant TAF 0.38 0.36 0.17 0.06 0.03 1.00 GOM 0.01 0.01 0.01 0.01 0.01 0.05 Total 0.39 0.37 0.18 0.07 0.04 1.05

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5. PROJECT IMPLEMENTATION 5.1 Executing Agency The project will be executed by UGC. Institutionally, UGC, as all the cooperatives in Mozambique, is supervised by the Vice Minister of MADER responsible for Agricultural cooperatives. It was created in 1981 to co-ordinate the activities of its cooperative members, and was granted legal status on 2nd March 1990 through the Government Gazette III =Serie No. 11. UGC is represented in all the districts of Maputo Province. At its Management apex, there is the General Assembly (GA), which is comprised of representatives of all member cooperatives (the organisational chart is presented in PID). Below the GA are the Board and the Audit Committee whose representatives are elected every three years. The board in turn appoints UGC's management committee, which is constituted by an executive director and seven department-heads. UGC’s main responsibility is to assist its members to increase their household incomes through crop and livestock (mainly poultry) production, through provision of training, extension services, provision and management of credit and preparation and implementation of donor funded projects. It thus assists the Government in its fight against poverty. The Government will therefore on-lend the entire ADF loan to UGC for the purpose of the implementation of the project activities on terms and conditions acceptable to ADF. This will be a loan condition.

5.2 Institutional Arrangements 5.2.1 A Project Management Unit (PMU) will be established within UGC. The PMU will be headed by a Project Co-ordinator (PC) who will be assisted by an Accountant, a Credit Accountant, a Veterinarian, an Agricultural Extensionist, the head of the breeder farm, the head of the feed mill, the head of the slaughterhouse, and the head of agricultural nurseries. This will ensure that all the activities in every production unit are well supervised. The proposed staff will be provided by UGC and will be attached full time to the project. The PC will be responsible for the co-ordination and implementation of all the activities of the project - preparation of tender documents, bidding process, arrangement of all training, preparation of all quarterly progress reports and arrangements for the preparation of audit reports, and their submission to the Bank through the normal Government channels. The provision of the PMU staff will be a condition precedent to first disbursement. 5.2.2 While UGC is in a position to provide, or where need be, recruit staff for the PMU, there is need to complement the PMU staff with Technical Assistants (TAs), in the area of Financial Control, Agricultural Engineering, Zootechnician Engineering, Mechanical Engineering, Civil Engineering, Breeder Farm Management, Refrigeration Engineering and Slaughterhouse Management. The TAs will provide expertise and training to the UGC staff in the fields of credit administration, project monitoring and evaluation, account management, processing, operation and maintenance of equipment and farm machinery, and operation and maintenance of UGC's vehicles and equipment. 5.2.3 Other Government Institutions will provide backstopping to UGC, either directly or indirectly. These are DINAP, INIVE, DNER, INIA and the Directorate of Cashew. INIA is responsible for crop research and undertakes land resources inventories and evaluations. The Implementing Agency, UGC, will liase with INIA for any technical advice on the crops, which are to be grown under the project. While DNER is responsible for the transfer of technology to smallholders in rural areas, UGC has its own extension staff who will be

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utilised for the project. However, the staff need refresher courses to upgrade their knowledge which would be provided by DNER. INIVE is responsible for livestock disease investigation and diagnosis, and production of some livestock vaccines. It will therefore provide the necessary backup where need be in disease diagnosis and also provide training to UGC staff. DINAP is involved in policy formulation, and cross border trade on livestock. It is therefore an important institution to the project for market information. The cashew institute will also provide UGC with the current and appropriate production technology, and market information in the production of cashew. Credit Administration 5.2.4 The credit funds will also be administered by UGC at the market interest rate. A credit system presently exists under UGC and it has a history of successful provision of credit to its members, with a recovery rate of over 95%. There is a Credit Department, which is headed by a trained accountant, who is assisted by 6 staff members, 4 with high school education and 2 accounting students at the commercial institute. UGC’s credit policy and operations have been reviewed and found acceptable. The items to be provided under credit include agricultural inputs such as fertilisers, seeds and pesticides, day old chicks, chicken feed, poultry vaccines and drugs and chicken houses. Credit will be provided in physical goods. UGC will procure some of the items - poultry equipment, poultry vaccines and drugs, fertilisers, seeds and pesticides – following the Bank’s rules and procedures of procurement and supply them to the beneficiaries. Some of the seeds will be planted in UGC nurseries to produce the seedlings for vegetables and tree crops to be supplied to the farmers on credit. The day old chicks will be produced by UGC in the breeder farm to be constructed under the project. UGC will procure the raw materials for the chicken feed and produce the chicken feed in the feed mill to be constructed under the project. The chicken houses will be constructed by UGC for the beneficiaries through force account. UGC will market the beneficiaries’ output at a fee. It will then deduct the credit amount and the cost of extension services and marketing from the revenue received, and the balance paid out to the producers. 5.3 Supervision and Implementation Schedule The project will be implemented over a 5-year period, from 2001 to 2006. The major project activities involve construction and rehabilitation of civil works, procurement of vehicles and equipment and provision of credit for poultry and crop production, as well as recruitment of consultants. Most of these activities will commence during the first year of the project and will be implemented simultaneously as shown in project implementation schedule in Annex 3. The expenditure schedule by component and by source of finance are given in Tables 4.4 and 4.5 respectively. The project will be launched immediately after the loan signature, which is scheduled for January 2001, after which the project will be supervised at least once every year.

5.4 Procurement Arrangements

5.4.1 Procurement arrangements are summarised in Table 5.1 below. All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules of Procedure for Procurement of Goods and Works or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents. A provisional List of Goods and Services is provided in Annex 4.

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5.4.2 Civil Works: Procurement of civil works for one contract estimated at UA 1.69 million for the construction of the breeder farm, will be carried out under International Competitive Bidding (ICB) procedures. Nineteen other contracts estimated at UA 0.13 million, UA 0.07 million, UA 0.05 million, UA 0.15 million, and UA 0.15 million for the construction or rehabilitation of boreholes (packaged by districts), schools (packaged by districts), health posts (packaged by districts), a feed mill and laboratory, and a meat processing unit respectively, will be carried out through National Competitive Bidding (NCB). The NCB mode of procurement has been selected because in most cases the size of the contract is too small to attract international contractors and there are enough qualified local suppliers to undertake the work. Other civil works would comprise of rehabilitation of slaughterhouse (UA 0.02 million), a cold room (UA 0.03 million), a storeroom (UA 0.01 million), vegetable nurseries and clone gardens (UA 0.03 million) and chicken houses for credit to beneficiaries (UA 2,450 per contract and UA 1.23 million on aggregate). These civil works will be carried out by the Executing Agency through Force Account. The chicken houses are scattered in the remote areas, and therefore qualified construction firms are unlikely to bid at a reasonable price. The rest of the works is too small to attract qualified contractors at competitive prices. The Executing Agency has qualified personnel and equipment to carry out the work and it has already carried out similar works. 5.4.3 Goods: Vehicles, feed mill and laboratory equipment, breeder farm equipment, maize and other raw materials for animal feed which are estimated to cost UA 0.68 million, UA 0.71 million, UA 0.45 million, UA 1.43 million and UA 1.15 million respectively will be procured through ICB. Breeder day old chicks estimated to cost UA 0.53 million will be procured through Limited International Competition, due to the fact that there are limited number of suppliers. Other miscellaneous goods which comprise of equipment for slaughterhouse, cold room, poultry meat processing, marketing, chicken rearing, farm machinery, irrigation and water pumps as well as veterinary drugs, packing materials, seeds and grafted seedlings, all estimated to cost UA 2.65 million in aggregate, but not more than UA 0.20 million per contract, will be procured through International Shopping (IS) procedures. The IS mode of procurement has been selected because the list of goods to be procured are so diversified that it would be of no commercial interest for any single supplier to bid for them. School furniture, health and crop production tools, fertiliser and pesticides, and other inputs for crop production support (grafting tools, plastic bags, citrus budwoods, cashew grafting materials), all estimated to cost UA 0.34 million, will be procured through National Shopping. The goods are available in the country and there is an adequate number of national suppliers and agents of qualified foreign suppliers to ensure competitive prices.

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Table 5.1 Summary of Procurement Arrangements Project Category UA Million ICB NCB Other Shortlist Non Bank Total - * Funded 1. CIVIL WORKS 1.1 Breeder Farm & Hatchery 1.69 [1.69] 1.69 [1.69] 1.2 Boreholes, schools, health centres Feed mill and meat processing unit 1.52 [1.52] 1.52 [1.52] 1.3 slaughterhouse, cold room, store, vegetable Nurseries and clone gardens 1.32 [1.32] 1.32 [1.32] 2. GOODS 2.1 Vehicles 0.68 [0.68] 0.68 [0.68] Equipment and Furniture 2.2 Feed mill, laboratory, breeder farm 1.16 [1.16] 1.16 [1.16] 2.3 poultry production, farm machinery, irrigation Slaughterhouse, cold room, meat processing, Marketing & water pumps 0.96 [0.96] 0.96 [0.96] 2.4 Health and office equipment, crop tools and school furniture 0.16 [0.16] 0.16 [0.16] 2.5 Maize, other feed raw materials 2.59 [2.59] 2.59 [2.59] 2.6 Breeder day old chicks, veterinary drugs Packing material 1.36 [1.36] 1.36 [1.36] 2.7 Other poultry production inputs 0.20 [0] 0.2 [0] 2.8 Seeds & grafted plants 0.32 [0.32] 0.32 [0.32] 2.9 Fertilisers & pesticides 0.12 [0.12] 0.12 [0.12] 2.10 Other inputs for crop support 0.06 [0.06] 0.06 [0.06] 3. SERVICE CONTRACTS 3.1 Technical Assistance 0.62 [0.62] 0.62 [0.62] 3.2 Accounting, Audit & Mid-term Review 0.20 [0.20] 0.20 [0.20] 3.3 Training 0.31 [0.31] 0.31 [0.31] 3.4 Irrigation water and irrigation services 0.02 [0] 0.02 [0] 4. MISCELLANEOUS 4.1 PMU staff salaries 0.41 [0] 0.41 [0] 4.2 Operation & Maintenance 1.30 [0.40] 1.30 [0.40] Total 6.12 [6.12] 1.52 [1.52] 5.92 [5.02] 0.81 [0.81] 0.63 [0] 15.00 [13.46]

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5.4.4 Consulting Services: Procurement of consulting services for the institutional strengthening, auditing of the project accounts and the installation of appropriate accounting system, will be undertaken in accordance with the Bank's "Rules of Procedure for the Use of Consultants", on the basis of short-listing. Such consulting services are estimated to cost, in aggregate UA 0.62 million packaged in separate contracts for individual consultants as follows: UA 0.18 million for Civil Engineer Supervisor, UA 0.11 million for Financial Controller; UA 0.08 million for Agricultural Engineer, UA 0.07 million each for the Zootechnical Engineer and Mechanical Engineer; UA 0.05 million for Breeder Farm Management Expert, UA 0.03 million each for Refrigeration Engineer and Slaughterhouse Expert; UA 0.13 million for audit, and UA 0.07 million for installation of appropriate accounting system. The services required are of simple technical nature and therefore the selection criteria of the consulting firm will be based on both technical quality and price. As the amount of individual contracts, except for Financial Controller and Civil Engineer, is less than UA 100,000, the Borrower may limit the publication of the announcement to national or regional newspapers. However, any eligible consultant, being regional or not, may express his desire to be short-listed. The Financial Controller and the Civil Engineer positions will be advertised internationally. 5.4.5 Training: Training is basically for the management and field staff to improve on their management skills for both the Executing Agency and the project, and to provide them with skills necessary to provide support services to farmers. Such training will be provided by local institutions, which will be selected on the basis of training offered. The trained staff will train the beneficiaries. 5.4.6 Executing Agency: UGC will be responsible for the procurement of goods, works, consulting and training services. UGC has successively implemented an ADF funded project and has therefore adequate resources, capacity, expertise and experience to carry out the procurement. 5.4.7 General Procurement Notice: The text of a General Procurement Notice (GPN) will be discussed with the Government of Mozambique during the project’s loan negotiations, and it will be issued for publication in Development Business, upon approval by the Board of Directors of the Loan Proposal. 5.4.8 Review Procedures: The following documents are subject to review and approval by the Bank before promulgation:

Specific Procurement Notices Tender Documents or Requests for Proposals from Consultants Tender Evaluation Reports or Reports on Evaluation of Consultants' Proposals, including

recommendations for Contract Award Draft contracts, if these have been amended from the drafts included in the tender

invitation documents.

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5.5 Disbursement Arrangements Disbursements for major procurements such as major civil works, vehicles and

equipment, will be made directly to the suppliers and contractors through the Direct Payment Method. Funds will however be disbursed directly to the Executing Agency (UGC) for the rehabilitation of slaughterhouse, cold room, storeroom; establishment of vegetable nurseries and clone gardens; and the production of crop seedlings, all of which would be undertaken through force account. Funds for these activities will be disbursed through the Special Account Method. Credit will be provided in kind and it includes, chicken houses, poultry equipment such as feeders and drinkers, chicken feed, veterinary drugs and vaccines, crop seedlings, fertilisers and pesticides. All the goods will be procured through the Banks procurement procedures and paid for directly to the suppliers through the Direct Payment Method, while funds will be disbursed directly to UGC through the Special Account Method for the construction of chicken houses by force account. UGC will therefore open a special account acceptable to the Bank, into which these funds would be deposited. Funds for the operating and maintenance cost will also be deposited into this account. A separate account will be opened in which the credit proceeds will be deposited to establish a credit revolving fund. Such a revolving fund will ensure sustainability of the credit operations beyond project implementation.

5.6 Monitoring and Evaluation

Monitoring and evaluation of progress in project implementation will be an integral function of the PMU. Project Management will design a management information system and develop guidelines for the monitoring and evaluation activities including checklists, performance indicators, and types of data to be collected routinely in the course of project implementation. The Bank will assist the Executing Agency in this aspect during the launching of the project. Using the developed system, the PMU staff will then prepare monthly progress reports on project implementation for internal management use. These will also provide the bases for preparing the Quarterly Progress Reports (QPRs) which will be submitted to the Bank at the end of each quarter. A mid-term review will be undertaken and a mid-term review report prepared at the end of the third year of the project implementation. The mid-term review report will assess implementation and identify problems encountered in project implementation. The mid-term review report will thus give recommendations on necessary actions to be taken to overcome any problems identified. The PMU will also collect gender desegregated data and include it in the quarterly progress report.

5.7 Financial Reporting and Auditing UGC will open a foreign currency account in a local commercial bank specifically for the

project funds and will ensure that the project funds are not mixed with any other UGC funds. Currently UGC follows an accounting system which arbitrarily combines the cooperatives accounts on various activities including revenue generating and non-revenue generating activities that are social welfare in nature such as schools, clinics etc. The project will therefore recruit an external audit firm to install an appropriate accounting and control system, which will enable UGC to separately control and account for its various activities. The firm will also install a separate accounting system for the project to ensure that the project's statements are prepared and

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reported separately. The project will also recruit, for a period of two years, a Financial Controller technical assistant whose responsibility will be to oversee the accounting and control system for the project, annual budget preparation, monthly review and control of project’s budget, and training of UGC's counterpart staff, the head of the Accounting Department, on the routines of the accounting cycle. The head of the accounting department will ensure separate records are maintained of all projects’ funds including separate ledgers for sources of funding, for categories of expenditure, for fixed assets etc. The financial statements of the project will be audited annually by an independent audit firm, which will be recruited by the Government after approval by the Bank. Funds for this activity are provided for under the project. The audited financial statements and a management report will be submitted to the Bank for review and comments not later than six months after the end of each accounting year.

5.8 Aid Co-ordination PROAGRI is the mechanism by which aid by donors in the agricultural sector is co-

ordinated. The proposed project is however outside PROAGRI in that PROAGRI comprises only those projects that are within the budget of MADER. The Bank has financed one project under PROAGRI, the Small-scale Irrigation Project. Other donors are involved in some project activities that are also outside PROAGRI. However, consultation among donors to exchange information on what each donor is doing is essential. Such consultations will be carried out regularly during this project’s implementation. The elements of the proposed project were discussed with representatives of World Bank, FAO, UNDP, USAID, EU and DANIDA. Following these consultations, there was evidence that no elements of these activities are targeted by other donors and therefore there will be no involvement of other donors in the project.

6. PROJECT SUSTAINABILITY AND RISKS

6.1 Recurrent Cost The recurrent cost, which amounts to UA 1.71 million comprise of operating and

maintenance costs for civil works, vehicles, equipment and salaries for the Project Management staff. The beneficiaries will meet recurrent cost totalling UA 1.31million out of which UA 0.90 million will be for the operation and maintenance of vehicles, farm machinery and irrigation equipment, and UA 0.41 million for the Project Management staff salaries. Provision for these costs have been made under UGC budget. The remaining UA 0.40 million for the operation and maintenance of the civil works and equipment will be financed from the loan proceeds during the project implementation period, and enough funds have been allocated. The project will therefore not pose any problem to the Government’s recurrent budget as all the costs would be met by the project and the beneficiaries.

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6.2 Project Sustainability

The project will be executed by the beneficiaries under the co-ordination of its umbrella body, UGC. The cooperative members have over the years made capital investments, which have been placed under the operation and maintenance of UGC. Since its establishment in 1981, UGC produces and distributes poultry and agricultural inputs to its cooperative members at a small mark-up, and provides them with production and marketing services at a fee. The revenue earned from these services is used to maintain these investments. UGC has gained experience in undertaking these activities over the years, and will continue providing the required support to its members, under the same arrangements, during and after the project, including the maintenance of the investments to be made under the project. Project sustainability is therefore assured. The project will strengthen UGC capacity through formal training of its staff in the local institutions as well as on the job training by technical assistants.

6.3 Critical Risks and Mitigating Measures

Mozambique is prone to cyclic floods and drought with the attendant disruptions of crop and animal production by the effects of these natural calamities. Furthermore, outbreaks of animal diseases have been shown to put animal restocking and increased production programmes in jeopardy. Other risks include unstable domestic and international prices and escalation of the incidence of AIDS. This project has been designed to mitigate the risks of drought by the provision of water boreholes and wells to irrigate the crops and water the poultry to be produced by the project. Potential outbreaks of crop and poultry diseases will be checked by proper crop husbandry practices, and strict sanitary procedures, vaccinations of birds and prompt treatment of affected animals, respectively. The location of project’s buildings and infrastructures will be carefully selected and sound technical construction designs used. The project will support campaign on AIDS awareness and prevention. The agricultural commodities to be produced represent a very small percentage of the national production and will therefore not depress the prices.

7. PROJECT BENEFITS

7.1 Financial Analysis At full development of the project, the total net income generated would be US$ 3.55

million. Average annual net-farm income of US$ 467 would be generated for each of the 4,500 beneficiaries producing crops and US$ 1,046 for each of the 700 beneficiaries producing poultry under the project. The already existing 675 poultry producers will be able to produce poultry at full capacity and earn US$ 1,046 annually. This is a significant increase from the estimated present average annual income per beneficiary family of about US$ 100. The Financial Internal Rate of Return (FIRR) has been estimated at 10% for 20 years.

28

7.2 Economic Analysis

In order to assess the economic viability of the project, the Economic Internal Rate of Return (EIRR) has been calculated at July 2000 constant prices. The project costs and benefits have been projected over a period of 20 years. The benefits include incremental production of poultry meat, vegetables, tree crops (cashew, mangoes, citrus and bananas) by the smallholders. The costs include the investment cost, operating costs of the project and incremental variable poultry and crop production costs. At full development of the project, which is estimated to be the 5th year for the poultry production and the 12th year for the crop production, the economic value of the incremental net benefits accruing to the project would amount to US$ 5.00 million per year. The EIRR has been estimated at 23%.

7.3 Social Impact Analysis

7.3.1 The project is targeted towards rural poverty alleviation in some Districts of Maputo Province. The project will directly benefit 5,875 smallholder farm families, which includes 4,500 crop producers, 700 new poultry producers and 675 existing poultry producers (see 4.2.4). At an estimated household size of 5 persons the project will directly benefit about 30,000 individuals which include women and children. 7.3.2 The overall financial return to farmers will increase their ability to purchase other types of food that they do not produce, provide basic needs such as clothes, housing, education and medical needs for their families. The provision of health centres, schools and potable water will enhance the standard of living and improve the health status, not only of the beneficiaries but also for whole community residing in the project area. The project will mostly benefit women who comprise over 80% of the target group by providing them with almost year-round employment. Women will gain additional time as they will no longer travel long distances to fetch water and to take children for treatment, and such time will be utilised in income earning activities. With increased incomes and household food security, there will be more family cohesion, and families will be able to take care of the sick ones, especially those suffering from AIDS. Training in poultry and crop production techniques and management will also improve the capability and confidence of the target group. In addition, it is estimated that an additional 250 jobs will be created from additional facilities and hence working shifts in the slaughterhouse, feed mill, breeder farm and poultry processing unit, staff to manage crop nurseries and clone gardens, marketing and extension services. 7.3.3 The project will also benefit UGC through the provision of training in poultry production and management, extension services, marketing, and accounting and project management. The Maputo City population will benefit through availability of more and fresh vegetables during the dry season, fruits and high quality and affordable poultry meat.

7.4 Sensitivity analysis

Sensitivity analysis has been done for various possible risk situations. The most risk situations identified for this project are (i) escalation of project costs; (ii) increase in cost of poultry production; (iii) reduction in poultry production returns as a result of high mortality rate; (iv) reduction in crop yields due to drought; and (iv) delay in project implementation. It should however

29

be noted that only the tree crops (cashew, mangoes and citrus) could be affected by drought since vegetables and bananas would be irrigated. Assuming an increase of 10% in project costs due to escalation in cost of construction, EIRR would be reduced to 21%. An increase in the cost of raw materials for poultry feed, most of which is imported, by about 15% would reduce the EIRR to 20%. An assumption of an increase in poultry mortality rate to 20% (the current estimate is 8%) due to poor poultry management combined with reduction in yield of cashew by about 20% as a result of drought would reduce EIRR to 19%. A delay of 2 years in project implementation was also considered and found that it would reduce EIRR to 19%. The sensitivity analysis shows that the project is only moderately sensitive to changes in costs, reduced benefits, or delayed implementation. 8 CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusions 8.1.1 Mozambique has been categorised as one of the poorest countries in the world, with a large proportion of Mozambicans living in a state of absolute poverty. Such people do not have the ability to attain a minimum level of wellbeing, estimated for Mozambique by the National Poverty Assessment of 1996/97 at US$ 170.00 per person per year. The assessment also show that, a significantly large proportion of the population is below the food poverty line which is estimated at US$ 119 and varies between the urban and rural areas. The Government of Mozambique, in its efforts to reduce poverty in the country, prepared in 1995 the Poverty Reduction Strategy, whose one of its major objectives is to improve the living conditions in the rural areas. The Absolute Poverty Reduction Action Plan (2000-2004), has just been prepared, which will be the main policy and strategy instrument to fight poverty by both the Government and non-governmental institutions.

8.1.2 The proposed project is in line with the Bank’s vision and the Government of Mozambique’s strategy of poverty reduction. The average annual per capita income of the project’s target group has been estimated at US$ 20, compared with an estimated average annual per capita income of US$ 110 for the rural population, which is way below the poverty line. It is estimated that, at full development, the project will produce incremental output of about 1.7 million live birds, 8,100mt of vegetables, 2,400mt of cashew nuts and 1,100mt of fruits. In monetary terms, the average net income per beneficiary family will increase to an estimated US$ 1046 per family (or US$ 209 per capita) for poultry producers and US$ 467 per family (or US$ 93 per capita) for crop producers. This is a substantial increase from the current income of US$ 100 per family per year. Although the per capita income to be earned by the crop producers would be lower than the national poverty line, this level of income is close to the food poverty line and consistent with an assessments by UGC, which indicate that the target group would be able to meet their basic needs with the income they will earn. The project will therefore significantly alleviate poverty and ensure household food security of the beneficiaries, a substantial proportion of which is headed by women.

30

8.2 Recommendations and Conditions for Loan Approval It is recommended that an ADF loan not exceeding UA 12.46 million and a TAF grant not exceeding UA 1.00 million be granted to the Government of Mozambique for the purpose of implementing the project as described in this report subject to the following particular conditions: A. Conditions precedent to Entry into Force of the Loan Agreement. The entry into force of the

Loan and Grant Agreements shall be subject to the fulfilment by the Borrower of the conditions set forth in Section 5.01 of the General Conditions Applicable to Loans and Guarantee Agreements of the ADF.

B. Conditions Precedent to First Disbursement of the Loan. The obligation of the Bank to make

the first disbursement shall be conditional subject to the entry into force of the Loan Agreement and the submission by the Borrower of evidence, acceptable to the ADF, that the following conditions have been fulfilled:

(i) Concluded a subsidiary loan agreement between the Government and UGC to on-lend the

entire loan proceeds to UGC on terms and conditions acceptable to the ADF (section 5.1);

(ii) Established a Project Management Unit and appointed the following staff required for the Unit whose qualifications and experience will be acceptable to the ADF: a Project Co-ordinator, an Accountant, a Credit Accountant, a Veterinarian, an Agricultural Extensionist, a Breeder Farm Manager, a Feed Mill Manager, a Slaughterhouse Manager and the Crop Nurseries Manager;

(iii) Given an undertaking to provide the required staff for the schools and clinics (para. 4.5.7). C. Other Conditions (i) The Borrower shall provide the required staff for schools and clinics by the third year

following the first disbursement.

ANNEX 2 MOZAMBIQUE

FAMILY FARMING INCOME ENHANCEMENT PROJECT Project Organisational Chart

UGC

CONTROL COMMITTEE (audit)

PMU

AGRICULTURAL EXT.

MANAGEMENT COMMITTEE

PROJECT ACCOUNTANT

DEPARTMENT OF POULTRY PRODUCTION

DEPARTMENT OF AGRICULTURAL PRODUCTION

DEPARTENT OF CREDIT OPERATIONS

DEPARTMENT OF FINANCE+

DEPARTMENT OF SALE

FEEDMILL

HEAD OF NURSERY

VETERINARIAN

ABATTOIR HATCHERIES POULTRY FARMS (UGC, COOP’S AND FAMILY SEC.

PROJECT CREDIT ACCOUNTANT

HEAD OF ABATTOIR HEAD OF FEED MILL HEAD OF BREEDER FARM

BOARD

A c tivity /A c tion In itia tor O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J

1 . A d m in istr a tionB oa rd A p p rova l A D FL oan A g reem en t S ig n ed A D F /G O ML oan E ffective A D F /G O ML au n ch in g A D FS u p ervision A D F

2 . C on str uc tion /r eh a b ilita tion of fe e d m ill, b r ee d e r fa r m , m ea t p r oc essin g un it, h ea lth c lin ic s, sc h ools a n d b or eh ole s

T en d er d ocu m en ts p r ep a red an d a p p roved G O M /A D FB id s in vited G O MB id s r eceived a n d eva lu a ted G O ME va lu a tion r ep or t ap p roved A D FT en d ers a w ard ed G O MC on stru ction of s tru ctu res C on tr a ctor3 . C on str uc tion /r eh a b ilita tion of s la ug h te r -h ouse , store r oom , c old room , c h ic k e n h ouse a n d c r op n urse r ie sC on stru ction of s tru ctu res G O M4 . V e h ic le s a n d eq uip m e n tT en d er d ocu m en ts p r ep a red an d a p p roved G O M /A D FB id s in vited G O MB id s r eceived a n d eva lu a ted G O ME va lu a tion r ep or t ap p roved A D FT en d ers a w ard ed G O MG ood received S u p p lier5 . C on sulta n c y se r vic e sS h or tlis t an d letter of in vita tion a p p roved G O M /A D FP rop osa ls in vited G O MP rop osa ls r eceived a n d eva lu a ted G O ME va lu a tion r ep or t ap p roved A D FC on tra cts a w a rd ed an d sig n ed G O MS ervices p rovid ed C on su ltan t6 . T r a in in g G O M

200620

0420

0520

0020

0120

0220

03

A N N E X 3

M O Z A M B IQ U EF A M IL Y F A R M IN G IN C O M E E N H A N C E M E N T P R O JE C T

T en ta tive S u p ervision a n d Im p lem en ta tion S ch ed u les

ANNEX 4

MOZAMBIQUE FAMILY FARMING INCOME ENHANCEMENT PROJECT

Provisional List of Goods and Services

ADF LOAN

Category US$ UA FE LC Total FE LC Total A. Civil Works i) Poultry Production Support ii) Crop Production Support iii) Marketing iv) Social Facilities

1,632,465661,170

60,600 109,094 801,600

2,148,628 1,496,063

39400 62,764

550400

3,781,092 2,157,233

100,000 171,858

1,352,001

1,220,735 494,414

45,316 81,579

599,426

1,606,715 1,118,736

29,463 46,934

411,582

2,827,450 1,613,150

74,779 128,513

1,011,008 B. Credit 1,002,124 1,776,480 2,778,604 749,375 1,328,428 2,077,803 C. Vehicles i) Poultry Production Support ii) Crop Production Support iii) Marketing

773,068315,000

33,479 424,589

- - - -

773,068 315,000

33,479 424,589

578,090 235,553

25,035 317,502

- - - -

578,090 235,553

25,035 317,502

D. Equipment & Furniture i) Poultry Production Support ii) Crop Production Support iii) Marketing iv) Social Facilities

2,542,4051,468,331

260,421 612,374 201,279

111,944 5,599

- 3,850

102,494

2,654,348 1,473,930

260,421 616,224 303,774

1,901,176 1,097,998

194,739 457,925 150,514

83,710 4,187

- 2,879

76,644

1,984,886 1,102,185

194,739 460,804 227,158

E. Production Support Inputs i) Poultry Production Support ii) Crop Production Support

2,482,4062,382,166

100,240

1,800,146 1,722,586

77,560

4,282,552 4,104,753

177,799

1,856,310 1,781,352

74,958

1,346,125 1,288,127

57,998

3,202,435 3,069,479

132,956 F. Services 80,000 160,698 240,698 59,823 120,168 179,991 G. Operation & Maintenance 331,879 190,489 522,368 248,175 142,445 390,620 H. Contingencies 974,927 654,346 1,629,272 729,037 489,311 1,218,623 Total ADF Loan 9,819,274 6,842,730 16,662,004 7,342,721 5,116,902 12,459,623

TAF GRANT

Category US$ UA FE LC Total FE LC Total Institutional Support Vehicles Office Equipment Technical Assistance Support Training Operation & Maintenance Contingencies TOTAL GRANT

60,000 19,127

- -

2,152 6.732

88,010

- -

831,999 414,900

717 -

1,247,617

60,000 19,127

831,999 414,900

2,868 6,732

1,335,627

44,867 14,303

- -

1,609 5,034

65,813

- -

622,158 310,257

536 -

932,951

44867 14,303

622,158 310,257

2,145 5,034

998,764

ANNEX 5 Page1 of 3

MOZAMBIQUE FAMILY FARMING INCOME ENHANCEMENT PROJEECT

Summary of Financial and Economic Analysis Financial Analysis (in US$) Years: 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-2020 Agriculture Production:

Average Per/Ha Value of Veg.Prod.:

203,580 626,400 1,213,650 1,566,000 1,957,500 1,957,500 1,957,500 1,957,500 1,957,500 1,957,500 1,957,500 1,957,500

Annual Mangoes prod./Ha:

0 7,200 21,600 37,800 61,800 80,100 96,000 112,500 117,000 120,000 120,000 120,000

Annual citrus prod./Ha: 0 5,200 21,800 17,713 50,500 67,500 74,000 81,500 92,500 92,500 100,000 100,000 Banana Prod./Ha: 0 11,520 25,920 28,800 28,800 28,800 28,800 28,800 28,800 28,800 28,800 28,800 Cashew Prod./Ha: 0 20,000 70,000 150,000 270,000 430,000 610,000 800,000 960,000 1,080,000 1,160,000 1,200,000 Total Production: 203,580 670,320 1,352,970 1,800,313 2,368,600 2,563,900 2,766,300 2,980,300 3,155,800 3,278,800 3,366,300 3,406,300

Agricultural Prod. Cost-T.P.C/Ha

Ave. Per Ha Cost of Veg.Prod:

112,226 345,312 669,042 863,280 1,079,100 1,079,100 1,079,100 1,079,100 1,079,100 1,079,100 1,079,100 1,079,100

Mangoes 0 30,045 67,849 83,963 74,926 104,828 23,526 14,514 14,975 15,900 16,050 16,150 Citrus 28,555 69,315 97,540 76,468 42,623 14,255 15,575 16,125 16,675 17,050 17,050 17,050 Banana 17,034 25,284 16,680 16,860 16,860 16,860 16,860 16,860 16,860 16,860 16,860 16,860 Cashew 56,600 71,200 88,400 110,800 141,400 117,000 136,200 154,400 167,400 172,200 175,400 177,000 Total Agricultural Production Cost:

214,415 541,156 939,511 1,151,371 1,354,909 1,332,043 1,271,261 1,280,999 1,295,010 1,301,110 1,304,460 1,306,160

Net Revenue: (10,835) 129,164 413,460 648,942 1,013,691 1,231,857 1,495,039 1,699,301 1,860,790 1,977,690 2,061,840 2,100,140

Total Broiler Production:

4,643,408 4,643,408 4,643,408 4,643,408 4,643,408 4,643,408 4,643,408 4,643,408 4,643,408 4,643,408 4,643,408 4,643,408

Total Broiler Prod.: 3,911,418 3,911,418 3,911,418 3,911,418 3,911,418 3,911,418 3,911,418 3,911,418 3,911,418 3,911,418 3,911,418 Net Revenue from Broiler Production: 731,990 731,990 731,990 731,990 731,990 731,990 731,990 731,990 731,990 731,990 731,990 Incremental increases from existing prod.:

355,961 355,961 355,961 355,961 355,961 355,961 355,961 355,961 355,961 355,961 355,961

Revenue from retired layer chicken: 80,941 108,475 108,475 108,475 108,475 108,475 108,475 108,475 108,475 108,475 108,475 Total Net Revenue from Chicken: 1,168,892 1,196,427 1,196,427 1,196,427 1,196,427 1,196,427 1,196,427 1,196,427 1,196,427 1,196,427 1,196,427 Total Net Revenue from All Activities: 1,298,057 1,609,886 1,845,369 2,210,118 2,428,283 2,691,465 2,895,728 3,057,217 3,174,117 3,258,267 3,296,567

ANNEX 5 Page 2 of 3

In US$

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ANNEX 5 Page 3 of 3

ASSUMPTIONS MADE IN THE CALCULATION OF EIRR: 1 There is a lot of cross border trading between Mozambique and South Africa, and to a lesser

extent with Zimbabwe and Swaziland for fruits, vegetables and poultry products. Most of the cashew grown in Mozambique is exported raw. Taking this into consideration, import parity prices were used for all products. For this reason, the export parity price for processed cashew was used. The prices used for economic analysis are presented below.

Crop Parity Price (Per kg) Poultry US$ 2.20 Cashew US$ 0.75 Mangoes US$ 1.65 Citrus US$ 0.59 Bananas US$ 0.79 Vegetables US$ 1.12 2. Poultry production is very labour intensive requiring constant farmer attention. Labour for

poultry production will therefore be fully employed throughout the year and therefore full labour costs have been taken for estimation. Full labour costs have also been taken for estimation under vegetable production. Farmers who will be engaged in irrigated farming will produce several crops per year and therefore labour for vegetable production will be fully employed through out the year. Fruit trees and cashew nut production would be under rainfed where labour would be actively engaged for about 60% of the year. Wages for production of these crops were therefore converted to shadow wages by a factor of 0.60.

3 The exchange rate has been liberalised in the country. The prevailing market exchange

rate reflects the true value of the Meticals in the financial market. It is therefore not necessary to shadow price the Mozambican currency.

4 The project costs and benefits are projected over a period of 20 years.

ANNEX 6 MOZAMBIQUE

FAMILY FARMING INCOME ENHANCEMENT PROJECT Bank Group Operations as at 31 December 1999 (in UA Million)

Approved amount Sector/Project Date Approved

Status ADF ADF TAF NTF

Agriculture Pequenos Libombos Study 10-Feb-78 Completed 0.46 Tea Rehab. Project I 22-Nov-78 Completed 5.00 Umbeluzi Irrigation Study 22-Aug-84 Completed 1.34 Lioma Agric. Development 27-Nov-79 Suspended 8.00 7.37 Inhassune/Ramalhusca RDP 30-Oct-80 Completed 7.37 Citrus Development 18-Dec-80 Suspended 8.20 Tea Rehabilitation II 09-Jun-81 Completed 10.00 Foot & Mouth Disease Control 18-May-82 Completed 3.68 Pequenos/Libombos Project 16-Feb-82 Completed 9.80 9.49 Cashew Rehabilitation Project 10-Feb-84 Cancelled 9.60 8.43 Buzi Sugar Study 05-Apr-93 Completed 0.65 Mafambisse Sugar Rehab. 23-Aug-88 On-going 13.06 21.99 Family Farming Livestock Rehab. 28-Aug-90 On-going 13.70 Green Zones Women Devt. Project 23-Mar-92 On-going 7.37 Massingir Dam & Smallholder 24-Nov-93 On-going 55.00 Forestry & Wildlife Develop. 24-Nov-93 On-going 8.90 Small-scale Irrigation Project 03-Dec-98 On-going 12.43 1.21`Public Utilities Telecommunications I Project 24-Mar-78 Completed 1.90 Maputo Water Supply 27-Oct-81 Completed 10.00 Institutional Support to TDM 27-Aug-91 Completed 1.80 Telecomms Network Study 02-Jun-93 Completed 0.65 Massingir Dam Rehab. Study 29-Oct-86 Completed 1.81 Telecommunications II Project 08-Feb-84 On-going 25.90 4.99 Electricity I Project 27-Aug-91 On-going 14.55 Electricity II Project 12-Dec-96 On-going 16.65 4 Districts Centres Water & Sanitat 10-Sep-98 On-going 1.80 Maputo Water Supply Project II 16-Jun-99 On-going 17.50 2.16Transport Nampevo-Alto Molocue Road 29-Apr-77 Suspended 7.37 Alto Molocue/Rio Ligonha Road 30-May-79 Suspended 7.37 Beira Corridor System 27-May-88 On-going 17.54 0.83 Transport Programme 01-Dec-92 On-going 23.95 2.49 Pemba-Montepuez Road Rehab 25-Jun-97 On-going 26.00 Vanduzi -Changara Road Rehab. 15-Dec-99 On-going 16.70 0.80 Social Sector Studies of Teachers TC 21-Jan-86 Completed 1.24 Health Study 21-May-91 Cancelled 0.47 Primary Teachers Training Centres 18-Apr-89 On-going 9.21 Education II 23-Mar-92 On-going 17.13 0.37 Beira Corridor Health Project 18-Oct-96 On-going 7.71 Education III 15-Jul-98 On-going 10.69 1.63 Capacity Building Poverty Alleviation 10-Dec-98 On-going 2.34Industry BPD Instit. Support Study 20-Sep-88 Completed 0.21 Credit Study for Small-Scale Enterpr 10-Jul-93 Completed 0.40 BPD Institutional Support Project 30-Oct-91 On-going 1.48 1.97Multi-sector Economic Rehab. Loan I 28-Apr-88 Completed 32.24 Eco. & Soc. Rehab. Loan II 30-Oct-92 Completed 53.42 Social Dimensions of Adjustment 30-Oct-92 On-going 4.61 0.46 Third ADF Economic Rehabilitation 02-Jul-97 On-going 50.00

Annex

CORRIGENDUM

Page 23 paragraph 5.4.2 of the appraisal report, procurement arrangements for theCivil Works has been revised to add “transfer of hatchery” under force account mode ofprocurement.

Page 23 paragraph 5.4.3 of the appraisal report, procurement of Goods hasbeen revised to

1. remove the procurement of laboratory equipment, maize and raw materials forchicken feed from International Competitive Bidding (ICB) mode of procurement;

2. remove the procurement of the breeder day old chicks from Limited InternationalCompetition (LIC),

3. remove the procurement of the citrus budwoods from the National Shopping (NS)

4 move the procurement of laboratory equipment, maize and raw materials forchicken feed which comprise of soya and fish meal, Di calcium phosphate andlimestone and premixes, and citrus budwoods to IS mode of procurement;

5 move the other raw materials for chicken feed which comprise of wheat bran andsalt to NS mode of procurement.

The revised table 5.1 of the appraisal report showing the summary procurementarrangements is attached.

Project Category

1. CIVIL WORKS1.1 Breeder Farm & Hatchery1.2 Boreholes, schools, health centres

Feed mill & Laboratory, & meat processing unit1.3 slaughterhouse, cold room, store, vegetable

Nurseries & clone gardens & hatchery transfer2. GOODS2.1 Vehicles

Euuiument and Furniture2.2 Feed mill, breeder farm2.3 poultry production, farm machinery, irrigation

Slaughterhouse, cold room, meat processing,Marketing, water pumps & laboratory,

2.4 Health and office equipment, crop tools andSchool furniture

2.5 Maize, other feed raw materials2.6 Breeder day old chicks, veterinary drugs

Packing material2.7 Other poultry production inputs2.8 Seeds & grafted plants2.9 Fertilisers & pesticides2.10 Other inputs for crop support3. SERVICE CONTRACTS3.1 Technical Assistance3.2 Accounting, Audit & Mid-term Review3.3 Training3.4 Irrigation water and irrigation services4. MISCELLANEOUS4.1 PMU staff salaries4.2 Operation & MaintenanceTotal

Table 5.1 Summarv of Procurement Arrangements

ICB

1.69 [1.69]

0.68 [0.68]

1.10 [l.lO]

3.47 [3.47]

NCB

1.52 [1.52]

1.52 Il.521

OtherUA Million

1.02 [1.02]

0.16 [0.16]2.59 [2.59]

1.36 [1.36]

0.32 [0.32]0.12 [0.12]0.06 10.061

1.30 [0.40]8.57 [7.67]

Shortlist*

0.62 [0.62]0.20 [0.20]

0.8 1 [O.Sl]

Non BankFunded-

0.02 [O]

0.41 [O]

0.63 [O]

4 n

Total

1.69 [1.691

1.52 [1.52]

0.68 [0.68]

0.16 [0.16]2.59 [2.59]

1.36 [1.36]0.20 101

0.32 [0.32]0.12 [0.1210.06 [0.06]

0.62 [0.62]0.20 [0.2010.3 1 [0.31]

0.02 [Ol

0.41 [Ol1.30 [0.403

15.00 [13.46]

Annex

CORRIGENDUM

Page 23 paragraph 5.4.2 of the appraisal report, procurement arrangements for the

Civil Works has been revised to add “transfer of hatchery” under force account mode of procurement.

Page 23 paragraph 5.4.3 of the appraisal report, procurement of Goods has been revised to

1. remove the procurement of laboratory equipment, maize and raw materials for chicken feed from International Competitive Bidding (ICB) mode of procurement;

2. remove the procurement of the breeder day old chicks from Limited International

Competition (LIC),

3. remove the procurement of the citrus budwoods from the National Shopping (NS)

4 move the procurement of laboratory equipment, maize and raw materials for chicken feed which comprise of soya and fish meal, Di calcium phosphate and limestone and premixes, and citrus budwoods to IS mode of procurement;

5 move the other raw materials for chicken feed which comprise of wheat bran and

salt to NS mode of procurement. The revised table 5.1 of the appraisal report showing the summary procurement arrangements is attached.

Table 5.1 Summary of Procurement Arrangements Project Category UA Million ICB NCB Other Shortlist Non Bank Total - * Funded 1. CIVIL WORKS 1.1 Breeder Farm & Hatchery 1.69 [1.69] 1.69 [1.69] 1.2 Boreholes, schools, health centres Feed mill & Laboratory, & meat processing unit 1.52 [1.52] 1.52 [1.52] 1.3 slaughterhouse, cold room, store, vegetable Nurseries & clone gardens & hatchery transfer 1.33 [1.33] 1.33 [1.33] 2. GOODS 2.1 Vehicles 0.68 [0.68] 0.68 [0.68] Equipment and Furniture 2.2 Feed mill, breeder farm 1.10 [1.10] 1.10 [1.10] 2.3 poultry production, farm machinery, irrigation Slaughterhouse, cold room, meat processing, Marketing, water pumps & laboratory, 1.02 [1.02] 1.02 [1.02] 2.4 Health and office equipment, crop tools and School furniture 0.16 [0.16] 0.16 [0.16] 2.5 Maize, other feed raw materials 2.59 [2.59] 2.59 [2.59] 2.6 Breeder day old chicks, veterinary drugs Packing material 1.36 [1.36] 1.36 [1.36] 2.7 Other poultry production inputs 0.20 [0] 0.20 [0] 2.8 Seeds & grafted plants 0.32 [0.32] 0.32 [0.32] 2.9 Fertilisers & pesticides 0.12 [0.12] 0.12 [0.12] 2.10 Other inputs for crop support 0.06 [0.06] 0.06 [0.06] 3. SERVICE CONTRACTS 3.1 Technical Assistance 0.62 [0.62] 0.62 [0.62] 3.2 Accounting, Audit & Mid-term Review 0.20 [0.20] 0.20 [0.20] 3.3 Training 0.31 [0.31] 0.31 [0.31] 3.4 Irrigation water and irrigation services 0.02 [0] 0.02 [0] 4. MISCELLANEOUS 4.1 PMU staff salaries 0.41 [0] 0.41 [0] 4.2 Operation & Maintenance 1.30 [0.40] 1.30 [0.40] Total 3.47 [3.47] 1.52 [1.52] 8.57 [7.67] 0.81 [0.81] 0.63 [0] 15.00 [13.46]