Document ofThe World Bank

Report No: 22135-TVN

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED PROPOSED LOAN

IN THE AMOUNT OF EUROS 23.8 MILLION (US$ 21.3 MILLION EQUIVALENT)

TO THE

REPUBLIC OF TUNISIA

FOR AN

AGRICULTURAL SUPPORT SERVICES PROJECT

May 25, 2001

Rural Development, Water and Environment DepartmentMiddle East and North Africa Region

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CURRENCY EUQIVALENTS

(Exchange Rate Effective May 17, 2001)

Currency Unit = Tunisian Dinar (TNhD)TND I = US$0.69

US$1 = TND 1.45

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

AFD French Development AgencyANPE Environmental Protection AgencyAPIA Agricultural Investment Promotion AgencyAPL Adaptable Program LoanASIL Agricultural Sector Investment LoanASIL2 Second Agricultural Sector Investment LoanAVFA Agricultural Extension and Training AgencyBCT Central Bank of TunisiaCAS Country Assistance StrategyCNEA National Agricultural Economics Study CenterCQ Consultant Qualification SelectionCRDA Regional Commissariats for Agricultural DevelopmentDGFE Directorate General of Finance and PromotionDGPA Directorate General of Agricultural ProductionDGPDIA Directorate General of PlanningDGPAQ Directorate General of Fisheries and AquacultureDGPV Directorate General of Plant Protection/Direction generale de la protection des vegetauxDGSA Directorate General of Animal Health/Direction generale de la sante animaleEA Environmental AssessmentERR Economic Rate of ReturnFARAH Financial Accounting, Reporting and Auditing HandbookFMS Financial Management SystemGDA Agricultural Development GroupGIC Collective Interest Group/Groupement d'Intert collectifGIP Inter-Professional OrganizationsICB International Competitive BiddingIRESA Institute of Agricultural Research and Higher EducationIRVT Tunisian Veterinary Research Institutellnstitut de la recherche veterinaire de TunisieLIL Learning and Innovation LoanLSDP Letter of Sector Development PolicyMOA Ministry of AgricultureNCB National Competitive BiddingNPMU National Program for Modernization and UpgradeOEP Livestock and Rangeland Organization/Office de l'elevage et des paturagesONAGRI National Agriculture Observatory/Observatoire national de l'agriculturePMU Project Management UnitQCBS Quality and Cost Based SelectionSBD Standard Bidding DocumentSOE Statements of ExpendituresTOR Termns of ReferenceURAP Regional Producers UnionUTAP National Producers UnionWSIL Water Sector Investment Loan

Vice President: Jean Louis SarbibCountry Director: Christian Delvoie

Sector Director: Doris KoehnTask Team Leader: Christopher S. Ward

TUNISIAAGRICULTURAL SUPPORT SERVICES PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Government strategy 33. Sector issues to be addressed by the project and strategic choices 4

C. Project Description Summary

1. Project components 72. Key policy and institutional reforms supported by the project 83. Benefits and target population 94. Institutional and implementation arrangements 10

D. Project Rationale

1. Project alternatives considered and reasons for rejection 122. Major related projects financed by the Bank and other development agencies 133. Lessons leamed and reflected in proposed project design 144. Indications of borrower commitment and ownership 155. Value added of Bank support in this project 16

E. Summary Project Analysis

1. Economic 162. Financial 173. Technical 174. Institutional 185. Environmental 196. Social 227. Safeguard Policies 25

F. Sustainability and Risks

1. Sustainability 252. Critical risks 263. Possible controversial aspects 27

G. Main Loan Conditions

1. Effectiveness Condition 272. Other 27

H. Readiness for Implementation 28

I. Compliance with Bank Policies 29

Annexes

Annex 1: Project Design Summary 30Annex 2: Detailed Project Description 38Annex 3: Estimated Project Costs 43Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 44Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 45Annex 6: Procurement and Disbursement Arrangements 51Annex 7: Project Processing Schedule 65Annex 8: Documents in the Project File 67Annex 9: Statement of Loans and Credits 68Annex 10: Country at a Glance 70Annex 11: Letter of Sector Development Policy 72

MAP(S)No. IBRD 28811

TUNISIA

AGRICULTURAL SUPPORT SERVICES PROJECT

Project Appraisal Document

Middle East and North Africa RegionMNSRE

Date: May 25, 2001 Team Leader: Christopher S. WardCountry Manager/Director: Christian Delvoie Sector Manager/Director: Doris KoehnProject ID: P005750 Sector(s): AR - Research, AY - Other AgricultureLending Instrument: Specific Investment Loan (SIL) Theme(s):

Poverty Targeted Intervention: N

Program Financing Data _ __-

[X] Loan [ ] Credit [ j Grant [ Guarantee [1 Other:

For Loans/Credits/Others:Amount (US$m): $21.33

Proposed Terms (IBRD): Fixed-Spread Loan (FSL)Grace period (years): 6.5 Years to maturity: 17Commitment fee: 0.85% for first five years, 0.75%thereafterFinancing Plan (US$m): Source Local Foreign TotalBORROWER 14.68 2.01 16.69IBRD 8.62 12.71 21.33OTHER FOREIGN SOURCES (UNIDENTIFIED) 1.69 2.74 4.43

Total: 24.99 17.46 42.45Borrower: GOV'T OF TUNISIAResponsible agency: MINISTRY OF AGRICULTUREAddress: 30, rue Alain Savary, 1002 TunisContact Person: Mr. Abdallah Mallek, Director General, DGFE

Mr. Badr Ben Ammar, Director General, DGPDIATel: 216-1-842-687 Fax: 216-1-784-447 Email: mag@ministeres.tn

216-1-890-904 216-1-785-764

Other Agency(ies):Ministere de la Cooperation Internationale et de l'Investissement ExterieurAddress: 98, Avenue Mohamed V, 1002 Tunis-BelvedereContact Person: Mr. Kamel Ben Rejeb, Director GeneralTel: 216-1-798-522 Fax: 216-1-769-845 Email: Multilaterale@mci.gov.tnEstimated disbursements ( Bank FY/US$m):

[ FY 2002 2003 '004 2005 006 2°0_

Annual 2.00 3.00 4.00 5.00 4.00- 3.30 _Cumulative 2.00 5.00 9.00 14.00 18.00 21.30

Project implementation period: 2002-2006Expected effectiveness date: 01/01/2002 Expected closing date: 06/30/2007

QCS PAD F-m R. Mth, 20

A. Project Development Objective

1. Project development objective: (see Annex 1)

The project is the first phase of a longer term (ten year) program that aims at improving production quality,competitivity and market access, particularly for smaller and medium scale producers. To this end, theproject objectives are to:

1. develop, on a pilot basis, organizational structures for producers that represent their needs and interests,

2. improve the institutional capacity and quality of agricultural services delivered by public and privateinstitutions and producer organizations

3. improve the flow of information for all sector stakeholders

2. Key performance indicators: (see Annex 1)

For objective 1, the key indicators will be: (i) that about 75 producers organizations in three govemoratesdevelop to give smaller and medium scale producers access to advice, inputs and market facilities; (ii) thatnew market niches begin to open and new Tunisian products begin to penetrate international markets; and(iii) that Tunisian produce increasingly conforms to norms and standards on both domestic andinternational markets.

For objective 2, the key indicators are: (i) improvement in the capacity of smaller and medium scaleproducers in six pilot govemorates, to the level where their production is increasingly competitiveinternationally; (ii) a more competitive production system evolves; and (iii) lower losses to pests, diseaseand spoilage.

For objective 3, the key indicators are: (i) improved organization, investment and production choices basedon better knowledge; and (ii) improved risk management through information and greater awareness of riskand behaviors.

B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: R 2000-46 Date of latest CAS discussion: 4/27/2000

The CAS sets agriculture sector policy and programs in the context of the economic importance of thesector (13% of GDP) and of the challenges from liberalization and natural resource constraints. The CASalso underlines the higher rural poverty rate (14% compared to 4% in urban areas). With this background,CAS priorities are to help improve the competitiveness of agriculture, to support sector reforms in naturalresource management, and to provide support to rural living standards. The proposed project is a vehicle ofchoice to support this program as it will support sustainable growth of incomes in rural areas through thedevelopment of producer organizations and of services to competitive agriculture during the period oftransition to a less protected economy.

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2. Main sector issues and Government strategy:

Sector Issues

The Agriculture Sector. Tunisia's agriculture sector has grown strongly (average 3% per year since1979) thanks to favorable policies, high investment and the adoption of cash crops and productivetechnology. This has created an improvement in rural living standards when set against the decliningpopulation growth rate (currently 1.4%). Sector development was promoted first by an administeredorganization which protected producers but dulled growth. In recent years this has evolved to a generallymarket-based policy, which nonetheless provides support for investment and a measure of protection ongrounds of social policy. Today, agriculture remains a major economic sector (13% of GDP) and theleading employer (22% of the work force). Women are particularly prominent in the agricultural laborforce. The sector is quite diverse, and commercial, semi-commercial and quasi-subsistence farms eachhave their own characteristics. The livestock sector is also important. Agricultural exports are valuable,earning Tunisia nearly $200 million a year

Growth Perspectives. Productivity improvements, particularly in market garden produce, milk andpotatoes, have contributed to sector growth. Technical and economic potential for further growth exists formany crops and systems, particularly in the irrigated sector. The perspectives are less promising for thequasi-subsistence farms and the poultry and dairy sectors - if and when producer protection is phased out,cereals are likely to decline under most husbandry systems, the dairy and poultry sector will suffer a shock,and rainfed crops in general will see a poor outlook. Adjustment will have to be phased and supportmeasures carefully planned.

Current challenges. Government has set high growth targets for agriculture of 4.3% 1997-2001, then2.9% up to 2010 (the lower figure for the next decade reflects the likely impact of liberalization on part ofthe sector). To achieve this, Tunisia is moving further toward market orientation and integration in theworld market. This confronts agriculture with three challenges of modemization. First the sector has toadjust to the opening of markets and competition both with imports and with other exporters trying toaccess the European market. The sector will have to cope with the phasing out of remaining protection andto seek new areas of comparative advantage. This will require continued investment, market development,new technology, and a quantum leap in the skills and knowledge of producers. Second, poorer farmningsystems have been an important means of absorbing labour and maintaining rural living standards.However, their productive potential and their capacity to adapt to a fully liberalized trade regime arelimited. There will be inevitable trade offs in the rural economy between competitive agriculture and socialprotection. Third, the sector is already at the extensive margin of its resource development, particularly inirrigation. The key challenges will be to avoid overexploitation of groundwater, forests and rangeland,whilst ensuring improvements in productivity.

Government Strategy

The approach Tunisia has adopted in face of these challenges is to put in place three linked strategies.First, a growth strategy in areas of agricultural potential. As expressed in the current (9th) plan, thistargets: "upgraded" production capability to face competition from imports as extemal liberalizationproceeds; diversified product range and improved quality to increase export competitiveness; and improvedproductivity of existing (now limited) factors.

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This growth strategy is linked to a parallel strategy for marginal areas, where some measure of protectionis maintained for the time being, combined with rural development programs to improve living standards inmarginal areas. Finally, a program of natural resource management is aimed at the conservation andsustainability agenda.

Government is pursuing these strategies through three inter-related programs. The growth strategy will besupported by policy change, by private sector development and by the modernization of agriculturalservices. The needs of marginal areas will be targeted by rural development and welfare programs. Theresource conservation and productivity agenda is being addressed under a program of policy reform andinvestment, notably that for the water sector supported by the Bank-financed Water Sector InvestmentLoan (WSIL). Government sees strong linkages between the productivity agenda supported under theproposed services project and the conservation agenda supported under the WSIL, with the common themeof enhancing productivity and incomes sustainably from limited but better managed natural resources.

3. Sector issues to be addressed by the project and strategic choices:

The sector issue to be addressed by the project is the challenge of growth in areas of agricultural potentialin the face of the opportunities and risks of liberalization.

Agricultural services are vital to achieve growth. The development of new markets, the development andtransfer of new technology, human resource development for a modernized agriculture, the protection ofboth plants and animals from disease, the oversight of international agreements and quality standards, andprudent investment are all essential factors in the growth of a competitive commercial agriculture inTunisia. The link between services and productivity is confirmed by the needs assessment carried outduring pre-appraisal, where producers expressed the strongest needs for: (1) timely and relevanttechnology, advisory services and training to improve productivity and reduce costs, and thereby increaserevenues; (2) information and advice on market outlets and requirements; and (3) producer and industryorganization to ensure service delivery, to improve marketing and to represent and defend producersinterests.

To date, agricultural services have been "supply driven" and of inadequate quality, and evaluation studiesto confirm links between service supply and production response have been weak. The challenge is toimprove the quality of services and make them relevant to the challenges of modem agriculture and at thesame time to begin the switch to a "demand driven" approach in which producers themselves set theagenda. Although the transition will inevitably take time, ultimately as producers increasingly drive thesystem - and begin to pay more for it - service supply and demand will approximate more and more to amarket and will automatically adjust to meet demand in areas of economic profitability. This will establishthe link between services and growth.

Some agricultural services are "essentially public", but many can be provided privately. Since the late1980s a process has been underway in Tunisia in the direction of demand-driven services and increasingprivate financing and provision. Government has been pursuing a strategy of decentralization, privatizationof parastatal functions and public/private partnership, promotion of producer organizations, and improvingefficiency of public services. This prograrn has proceeded quite slowly and the country at present is in atransitional phase between state provision and private sector involvement.

Strategic Choices

At the beginning of the identification process for the project, a work shop at Sidi Thabet developed five

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"approaches" that were agreed to be necessary to reorient and complete the reform program for agriculturalservices in pursuit of the growth strategy. These approaches have been refined during preparation andadopted by Government as a series of "strategic choices" as follows:

1. targeted approach - Given that the larger commercial sector is already largelyself-sufficient, the public agenda for targeting producer services is: (i) to focus on improvingthe productivity and market access of medium and smaller but commercially-orientedproducers; and (ii) to provide rural development, alternative employment creation and socialprotection services to marginal rural areas. Govermment's choice is to use the present projectto target the first group, medium and smaller commercially oriented producers, and to useparallel programs on the model of ODESYPANO for the marginal areas.

2. regional and integrated approach - as elsewhere in the world, Tunisian agriculturalservices have suffered from a "top down" approach and from weak synergy between differentservices offered. Government's strategy is that services will move close to producers, with amore "hands on" approach, integrated, and responsive to demand and problem solving. Thiswill involve decentralizing budgets, decisions and services as far as possible, andprogressively involving producers in resource allocation decisions. Implications are thatservices will need to be organized in a way more geographically fitted to the differentagoecosystems; that there has to be better working together of extension (working from thebottom up) and research working both at producer level and from the top down; and thatbetter local synergy will be needed within and between public services and producerinstitutions.

3. producer organizations - at present few producers are members of producerorganizations, and the national level organizations such as the "interprofessionalorganizations" (GIPs) are weak. The provision of efficient and demand-responsive servicesand the development of markets requires improved organization of demand through promotionof all forms of producer organizations and of participatory mechanisms, and the developmentof national capacity of producers to penetrate higher value markets. Government strategytherefore supports the development and strengthening of producer organizations at both localand national level.

4. sustainable approach - sustainability of service provision requires improving the costeffectiveness of services and getting much more producer and private sector participation,responsibility and cost sharing, including the transfer of some services. Government's choiceis to continue and complete the ongoing program of improving efficiency, seeking increasingcost sharing and progressively handing over services wherever possible.

5. strengthening of essentially public services - for those essentially public services whereprivate provision or financing is not possible, a strategy of reinforcement and a drive to ensurethat all services are efficient and cost effective is required.

Based on these choices, Government has worked out the following action plan for agricultural services overthe next decade:* Support the development of organizational structures for smaller and medium scale producers andtheir capacity to represent producers' interests and to provide services to their members

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* Reorganize, decentralize and reequip research, training and extension services to deliver morerelevant and cost effective services

* Support to the maximum participation, privatization and private financing and delivery whereverpossible. Specifically, options for more demand-drive and participation will be explored for all services.according to the following scheme:

Direction of change Who sets the agenda? Who pays Who provides theservice

Current situation Top down Government/donors Public sector

Transition Shared/participatory Cost sharing Public/privatepartnership

Final goal producer decides User pays Private sector

* Reinforce and develop essentially public services where these have a strong economic justificationsuch as disease prevention, protection and monitoring, and improve the provision of aids to good planningand decision making in the sector

Implementation of the action plan. Regarding implementation of this action plan, Government hasmade the choice to carry it out in two phases, with a break point to assess progress and correct as needed.In the first phase, the emphasis remains on the supply side in an effort to modemize services. Thecomplementary effort to develop an institutional structure on the demand side is vital but will inevitablytake longer to bear fruit. The balance of effort is expected to shift to the demand side in the second phase.This two phase approach is similar to that adopted recently for the water sector and supported by theBank-financed Water Sector Investment Loan. For agricultural services, Government has also opted forexternal support for the process and has requested Bank support for this first phase project. Governmenthas set out the whole program in a letter of sector development policy (LSDP) that accompanies the firstproject. The letter sets out the first phase program and gives indications of what is likely to be in the secondphase (subject to review) and of what is expected to be the end result of the process. This letter isdiscussed in more detail below (section C2).

Instrument for the first phase. For the first phase, Government originally opted for a singleBank-financed project vehicle to help implement the action plan, rather than several projects (and possiblyseveral donors). The reasoning was practical - a single project is easier to supervise and control, and therelations between the reform process and the accompanying project are clear. A single project with severalcomponents also respects the integrated and coordinated nature of Government's approach. Thisintegration operates at several levels. At the local level, producer services should become operationallyintegrated, with research, training, extension, livestock and plant protection working as a service team withproducer groups (this approach is piloted initially in six govemorates under the Project). At the nationallevel, there is a need for operational synergy between the reform programs being undertaken for research,extension, livestock etc, and a need to follow the common principles of demand driven approach,participation and privatization, and improvement of internal efficiency. Finally, Government saw theprogram as an upgrading for all agricultural services, and for the sake of efficiency and completeness and

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to avoid fragmentation, wanted to see it carried out as a single program

The exceptions to this choice of a single project vehicle are the agricultural higher education sector andagricultural professional training. In the case of higher education, after discussions during preparation,Govermnent decided that the linkages with the rest of the program were relatively weak and the needs ofhigher education would be better served through a free standing support program. That component wastherefore removed from the project. In the case of agricultural professional training, Government decidedduring the appraisal process to request the Agence Francaise de Developpement (AFD) to finance thecomponent as a parallel project within the overall program on the grounds that the component wasrelatively free-standing and AFD has strong experience in the training sector.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

In line with the development objectives (see Al above) the project will focus on strengthening producerorganizations, on improvement of services (especially on their responsiveness and their cost-effectiveness,and on cost recovery and progressive privatization) and on developing markets and assisting the sector toperform under international standards such as those in use in the EU. The components of the project are:

Component 1: Building the capacity of agricultural producers and inter-professional organizations:(1) a pilot project to strengthen the capacity of local and regional producer organizations (includingcooperatives and the new "agricultural development groups" GDAs) to demand, manage and provideservices; and (2) support to national "inter-professional organizations" (GIPs) to improve product qualityand develop new markets and brand images for Tunisian produce.

Component 2: Strengthening the supply of research, training and farming advisory services: (1)strengthening and regionalization of agricultural research including introduction of a selective orcompetitive grant system, creation of a unified research institute and regional research centers, userparticipation in setting the research agenda, and creation of an information clearing house on agriculturaltechnology; (2) a pilot project to improve producer access to training and farming advice, in particularthrough setting up a demand-driven advisory service teams in six pilot areas and reinforcement of women'sextension; and (3) strengthening agricultural training.

Component 3: Livestock and animal health: support for improved services in animal production andhealth, including improved diagnostic services, support for animal identification, training, further transferof services to the private sector, and increasing the share of producers in paying for certain services.

Component 4: Plant protection and seed and plant certification: strengthening capacity for plantprotection and seed certification, by expanding the pesticide residue and seed testing capacity, developmentof monitoring and surveillance on trade in plant products; and improving awareness and practices aboutcost effective and sustainable pest control and integrated pest management.

Component 5: Strengthening public interest services and project management support: (1)agricultural statistics and information; and (2) project management support.

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Indicative Bank- % ofComponent Sector Costs % of financing Bank-

_ _ _ _ USM Total (US$M) financing1. Building the capacity of agricultural Institutional 0.0 0.0producers and inter-professional Developmentagricultural organizations

- producer organizations pilot 1.80 4.2 1.32 6.2- Quality improvement and GIPs 3.46 8.2 2.65 12.4

2. Research, training and farming Agricultural 0.0 0.0advisory services Extension

- Agricultural research 7.62 18.0 5.60 26.3- Training 6.79 16.0 0.09 0.4

- Farming advisory services 2.41 5.7 1.26 5.9

3. Livestock and animal health Other Agriculture 8.74 20.6 3.28 15.44. Plant protection and seed and plant Other Agriculture 6.44 15.2 4.62 21.7certification5. Public interest services and project Institutional 0.0 0.0management support Development

- Agricultural statistics and 3.37 7.9 2.13 10.0information

- Project management support 1.61 3.8 0.17 0.8

0.0 0.00.0 0.00.0 0.0

Total Project Costs 42.24 99.5 21.12 99.0

Front-end fee 0.21 0.5 0.21 1.0Total Financing Required 42.45 100.0 21.33 100.0

2. Key policy and institutional reforms supported by the project:

Reforms supported by the project. The project will support the implementation of the first phase of aten year program. It is expected that the accompanying reforms will also be done in two stages. The keyfirst round reforms that would be supported by the project are set out in the letter of sector developmentpolicy accompanying the project. They include:

targeting of agricultural services

* the mandate of research and extension will focus on the target group of medium and smallerproducers with commercial potential* gender targeting will be improved through specific allocations of research funding to gender relatedtopics, a reinforced women's extension effort, and a gender sensitive and targeted agricultural trainingprogram

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regional and integrated approach

* regionalization of research will begin through the creation of two regional research centers and thecreation of regional committees to set and supervise the research agenda* services will be integrated in six pilot areas that bring together applied research, extension, trainingand producer organizations under the supervision of a governorate level steering committee.

agricultural producers organizations

* producer organizations will be promoted through the private sector in three pilot governorates andGovernment role will be focussed just on supervision and inspection* capacity building of the interprofessional groups (GIPs) will be undertaken, together withstrengthening of their autonomy, initially through contrats programme (see Annex 2)

sustainability of service provision

* a network of private agricultural advisers will be encouraged* cost sharing leading to cost recovery over time will be practiced for selected livestock services(animal identification, diagnosis)* outsourcing in the livestock sector will be promoted and generalized (disease monitoring,inspection, vaccination) and privatization of artificial insemination will be completed* cost sharing of selected public services in plant protection and seed certification will be introduced

strengthening of essentially public services

* the agricultural research institutes will be unified in order to facilitate regionalization and increaseefficiency* a selective or competitive research grant system will be developed* an open access information system on agricultural developments, policies and technologies will beset up

Second phase reforms and situation at the end of the reform program. The reform program supportedby this five year project will continue into a second phase. The letter of sector development policy providesa general outline of the second phase reforms, which would complete those begun in the first phase andgeneralize the results of the pilot programs, adjusted as necessary. The objective is to have completed thereforms within ten years. The letter spells out the situation expected at the end of the reform program inwhich: producer organizations will be independent and capable of setting their own agenda and financingmany of their own services; the interprofessional groups (GIPs) will be autonomous bodies with broadmandate, resources and skill to develop their respective subsectors; research will be regionalized,demand-driven and partly financed by the sector; "extension" will have upgraded to "farm advisoryservices" and be largely driven and financed by producer organizations; livestock and plant protectionservices will be largely delivered and managed outside the public sector; and Government's statutory andregulatory responsibilities will be fulfilled efficiently at least cost.

3. Benefits and target population:

Benefits

It is expected that the project would generate significant economic benefits by increasing productivity offactor use, by improving quality of produce and thereby net revenues, and by increasing the volume ofproduce marketed, with particular increases in higher value added markets, including export markets.

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Increased value added is expected to be reflected in increased employment. The project would help toachieve these benefits by improving producer services, including producer organization, marketing,technology development and transfer, human resource development, animal and plant health, andinformation.

Target Population

Based on the farming typology and analysis of potential carried out during preparation, agriculturalservices to producers can result in increased sector growth from commercial large farms, from the irrigatedsector, from market-oriented medium and small farms in general, and from significant parts of the livestockand fisheries sectors. For quasi subsistence small farms the economic case is weaker, as potential forimproved productivity is less strong and the systems are generally dependent on protection.

The needs assessment carried out at pre-appraisal concluded that larger commercial producers usually meettheir own need for services from the market. Given the relatively poor economic prospects of poor andmarginal farming systems, the target population for the project is defined as medium to small producerswho have a market orientation and the potential to improve their productivity. The major focus of projectactivities will be in six "pilot govemorates".

4. Institutional and implementation arrangements:

Institutional and implementation arrangements would be based on those established for ASIL, ASIL2 andthe recently effective Water Sector Investment Loan. These arrangements have proved to be fullysatisfactory.

Project Coordination Committee. A coordination committee (comite de coordination interdepartementale) would be created by ministerial decision before Loan effectiveness. The committee wouldbe chaired by the Minister of Agriculture and would comprise the heads of each of the executing units,representatives of other involved ministries (Intemational Cooperation, Finance, Economic Development,Professional Training, Secretariat for Scientific Research), and producer representatives. The coordinationcommittee would review and approve annual work programs and budgets, end of year reports and financialaccounts and audits, and supervise execution through periodic reports, including a mid term review report.Regional coordinating committees would also be set up in each of the six pilot govemorates.

Project Coordination. Day to day coordination among the executing units would be assured by theDGFE (Direction Generale du Financement et des Encouragements) within the Ministry of Agriculture.DGFE has a specialized project coordination department that coordinates implementation of all extemallyfunded projects. Within this department, a Project Management Unit (PMU) would be set up to takespecific responsibility for this project. The PMU would be established by ministerial decision before Loaneffectiveness. Staffing would comprise: a coordinator, a financial management specialist and a monitoringand evaluation specialist. Consultants would be recruited as needed. The PMU would act as secretariat tothe project coordination committee and would ensure that decisions of the coordination committee wereimplemented. The PMU would also consolidate all reports and information relating to the project,supervise procurement, keep the accounts, oversee environmental assessments, carry out monitoring andevaluation, commission and supervise the mid term review, which would be done with consultant support,and act as the principal counterpart for supervision missions. The PMU would prepare a proceduresmanual (to form part of the project implementation plan) to be followed within the project. A draft of thismanual, based on the manuals already in use for previous Bank-financed projects, has been prepared.

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Project Implementation. The Ministry of Agriculture would be the overall executing agency forimplementation of the project. Implementation would be carried out by twelve implementing units, all ofwhich are within the ministry or report to it (DGFE, APIA, IRESA, AVFA, OEP, DGSA, IRVT, DGPV,DGPA, DGPDIA, DGPAQ, ONAGRI).

Within each implementing unit, a coordinator will be designated. Where more than one implementingagency is involved in any component, one unit will take the lead and coordinate the implementation of thewhole component. Detailed implementation arrangements are set out in the project implementation plan. Insummary they are as follows:

* Component 1. Building the capacity of farmer organizations: DGFE will implement thecomponent, working with a coordinating committee including farmer representatives. In thegovemorates, the CRDAs will implement the component on the basis of work programs and budgetsagreed with and supervised by DGFE.

* Component 1. Quality improvement and GIPs: APIA will implement the component, agreeing andsupervising the work program of the GIPs. A coordinating committee including representatives of bothprivate and public sectors will review annual work programs and budgets and follow upimplementation.

* Component 2. Strengthening the supply of research: IRESA will implement the component. Forresearch grants, implementation would be on the basis of a research grant management manual whichwill set out the eligibility criteria, the approval procedures and the channeling of funds. Forregionalisation, implementation will be on the basis of a plan and procedures manual.

* Component 2. Training: AVFA will implement the component

* Component 2. Farming advisory services: AVFA will implement the component, passingconventions with the training centers for implementation in the govemorates. The women's extensionsubcomponent will be implemented by AVFA on the basis of conventions with the CRDAs in thegovemorates. Supervision will be by AVFA assisted in each govemorate by a local coordinatingcommittee.

* Component 3. Livestock and animal health: DGSA will coordinate irnplementation of the componentand implement all sub-components except for animal identification (OEP) and diagnostic capacity(IRVT).

* Component 4. Plant protection and seed and plant certification: DGPV will implement thecomponent.

* Component 5. Agricultural statistics and information: DGPDIA will coordinate the implementationof the component and implement the statistics sub-component. DGPA and DGPAQ will implement thecrop and fish harvest forecasting sub-component. ONAGRI will implement the agriculturalinformation sub-component.

Each implementing unit would work within the program agreed for the component(s) for which it isresponsible. It will also be responsible for conducting environment assessments as described in theenvironmental management plan and project implementation plan. Each year the implementing units would

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present their proposed work program and budget through the PMU to the steering committee, andsubsequently be responsible for implementing the approved program, following the procedures set out inthe project implementation plan. All procurement would be carried out by the implementing units, underthe supervision of the PMU and the coordination committee.

Financial Management. The financial management system in place in the Ministry of Agriculture followspublic law for governmental agencies. Accounts are kept on a cash basis according to budget headsdefined in the Public Accounting Code. The system in place provides adequate safeguards, but needs animproved management infonnation system. This is expected to be in place under a nationwide upgradingprogram (the National Program for Modernization and Upgrading, NPMUJ) by December 2002. In themeantime and in order to have in place a complete and sound financial management system, DGFE issetting up special arrangements for the Water Sector Investment Loan and these arrangements will also beapplied to the proposed Project. These financial management arrangements are detailed in annex 6 andsummarized below. The application of these arrangements to the Project and an action plan coveringfinancial management and reporting were agreed at negotiations.

Accounting and financial reporting. Each implementing unit will be responsible for managing andaccounting for its own "counterpart budget" representing the national share of project financing. Each unitwill request payment from the Bank Loan through DGFE. DGFE will maintain project accounts coveringboth the national and the Bank share of financing. The Special Account will be maintained by the CentralBank of Tunisia.

The PMU would be responsible for submitting to the Bank a semi-annual project management andmonitoring report, beginning at the end of the first semester after Loan effectiveness. The PMU would alsobe responsible for issuing a simplified financial report and sending it to the Bank on a quarterly basis.

Audits. An auditor acceptable to the Bank, will be appointed to carry out an annual audit according to theIntemational Standards of Auditing as issued by the Intemational Federation of Accountants, the Bank'sGuidelines (as set out in the Financial Accounting, Reporting and Auditing Handbook, "FARAH") andspecific terms of reference acceptable to the Bank. The auditor will express a professional opinion on theannual project financial statements. The annual audit report will be made available to the Bank within sixmonths of the close of each fiscal year.

Monitoring and evaluation arrangements, and mid-term review. The PMU would be responsible,with inputs from all implementing units, for monitoring of financial and physical progress, for progressreporting on the execution of policy measures, and for monitoring and evaluating outcomes anddevelopment impacts. Monitoring and evaluation parameters have been drawn up. The PMU would alsobe responsible for coordinating the mid- term review, which would take place by June 30, 2004.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Poverty target group - alternative rejected. At the time of identification the target group for the projecthad not been clearly defined, and the PCD reflects an ambiguity about serving both the smaller and mediumscale producers with commercial potential and the " social agriculture" needs of the marginal producers.During preparation, it was agreed with Government that the proposed project would concentrate on thesmaller and medium scale producers with potential for commercial agriculture and that the needs of themarginal areas would be dealt with separately through rural development operations (a follow up to the

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Bank-financed ODESYPANO is under preparation) and through social support programs. The reasoningwas that agricultural services targeting growth cannot be easily mixed with poverty reduction programs formarginal areas. This choice also simplified the proposed Project. The choice removes poverty reduction asa first round project objective but does not, of course, eliminate all poverty reduction impact of the project(see below, E6).

Alternative vehicles to an investment project - alternatives rejected. During the preparation andpre-appraisal process a number of alternative vehicles to the proposed investment project were consideredand rejected. These included: (1) a non-project loan, which could have matched the proposed institutionalreform program with financing for the sector investment program. Alternatively the program could havebeen implemented under the national 'programme de mise a niveau" designed to promote efficiencyimprovements in the civil service. However, Government and Bank agreed that a regular investmentproject is preferable to these alternatives because it matches the implementation of the reform program withspecific accompanying investments, so that reforms and investment proceedparipassu. (2) an APL, whichis consistent with the ten year program and possible two project approach that is proposed. However, theTunisian Government preferred two successive loans accompanied by a letter of sector development policy,as they did for WSIL, on the grounds that this would allow flexibility to adapt the program in the light ofexperience. (3) one or several LILs, which could be suitable particularly for services where the strategicchoices remain not fully clear and where there is a need to test approaches through pilot projects, forexample in extension. However, Bank and Government agreed that the bulk of the program is ready to goforward to full scale implementation and does not need piloting, and that the advantages of detaching thepilot elements (such as the agricultural advisory and training pilot) would be outweighed by the loss ofsynergy and coherence which provides the rationale for a single project (see B3).

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

1 Latest SupervisionSector Issue Project (PSR) Ratings 3

(Bank-financed projects only)Implementation Development

Bank-financed Progress (IP) Objective (DO)Reform of research and extension Research and Extension Project S S

(Ln. 32176, $17 million,completed)

Sustainable resource use, poverty Natural Resource Management S Sreduction Project (Ln. 4162, ongoing)Sector policy adjustment and ASIL (Ln. 3661, completed) S SinvestmentSector policy adjustment and ASIL2 (Ln.4278, ongoing) S SinvestmentWater resource management and WSIL (Ln. 7025, ongoing) S SconservationNatural resources Second Forestry Project(Ln. S S

3601, ongoing)

Other development agencies

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

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3. Lessons learned and reflected in the project design:

Lessons from the Research and Extension Project

The overall evaluation of the ICR of the Research and Extension Project was that the outcome wassatisfactory. However, a number of lessons learned needed to be taken into account in the design of theproposed Project (lessons are in italic, followed by how they are taken into account in the Project):

* Change in producer services requires a longer time horizon than five years. The Projectsupports the first phase of a program over a ten year period.

* Monitoring and evaluation have to be given priority up front - they were neglected, particularlyin the research component, so that there is no impact data. Provision is made for monitoring andevaluation in the Project, including a dedicated staff member, technical assistance and a base line study.The technical and economic impact of research will be a particular focus.

* Budget availability has to be assured, as its lack threatened sustainability of the projectdevelopments. Fiscal analysis has been conducted. The Project will initially create an extra charge for thepublic purse, but this will decline over time as cost recovery and privatization become generalized.

* Inter-agency cooperation (particularly between research and extension) was notoriously weak.Structures, programs and incentive systems all have to be mobilized to enforce cooperation . Inter-agencycooperation will be promoted by regionalization of research, by the research projets federateurs, by theagricultural advisory and training pilot etc.

* producer organizations should play a bigger role in providing and financing services, and thereis in general a need to promote producer organizations. Producer organizations will be activelypromoted, initially on a pilot scale, at both local, regional and national levels so that they can becomeeffective partners. In a parallel action, Government has set up programs (the 21:21 program and othersimilar programs) to provide matching grants for the recruitment of specialists, and some producerorganizations may be able to benefit from this to hire advisers. However, under government's programs, notraining is provided to help producer organizations manage the assistance. The experience with theseprograms will be evaluated at mid-term review and some complementary support could then be envisaged.In addition, under the project, GIPs will be able to access resources to finance research themes that theythemselves identify.

* The key challenges for the next phase of services development are to be able to help producersrespond to new markets, to respond to the diversity offarming systems and clients, and to begin the shiftfrom supply-driven to a new division of public and private responsibilities in services. The Project willfoster the change towards a market-oriented and demand-driven approach, with the accent on reorganizingthe responsibilities between public, private and cooperative providers.

Findings on the research component

* tRegionalization was begun but was weak and needs to be supported by decentralization ofpersonnel, of research management authority, and of budgets. The Project will support a phaseddecentralization, including the creation of two regional research centers.

* There is a need for a revamped system of incentives and career development that supports a

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producer-oriented approach rather than classical publication-oriented research, and enforces amultidisciplinary team approach, economic and social inputs and farmning system analysis, all of whichremain weak. The Project will support a system of competitive grants and contracts, and evaluation of theresearch results under the contracts. This system will reward good performance and impose through thefunding mechanisms a multi-disciplinary/multi-institutional approach. A practical problem-solvingapproach will also be promoted through the systematic inclusion of producer representatives and extensionstaff in the regional and national research conunittees, which identif,v the research themes relevant for aregion.

Findings on the extension component

* The lack offormal status and adequate incentives for extensionists reduces performance. TheProject will support the development of simple extensionists into agricultural advisers, beginning with thepilot agricultural advisory and training component.

* Certain programs do better than others and hence should be prioritized - for example, massmedia programs and women's extension program. Mass media and women's extension are supportedunder the Project.

* There is a need for an extension strategy that takes account of the diversity offarming systems,of sustainability and offurther involvement ofproducers and the private sector. The Project will supportthe strategy of integrated training and advisory services close to producers and their problems. The Projectwill also help develop the profession of private farming advisers.

Lessons learned from other projects

The following are the lessons learned from other projects:

* There is a need for extensive consultation where reform processes are being proposed (lesson ofWSIL). During identification, preparation and appraisal, consultation with producers, officials anddecision makers at all levels was broad and constant (see E6 below). Both officials and farmerrepresentatives will be represented on the coordination committee. In addition, IRESA will conduct anownership-building consultation process regarding the reforms for research.

* Extension and other services are best delivered through a structure ofproducer groups (lesson ofODESYPANO). Producer organizations are the instrument of choice in Govemment policy and will besupported as an essential part of the Project. Producer organizations will have access to facilities to recruittheir own advisors.

4. Indications of borrower commitment and ownership:

Governnent is fully committed to the Project and to the strategy that underlies it. This commitment isevidenced by: (1) the request to the Bank in 1997 to seek a PHRD grant for preparation; (2) the long andthorough identification and preparation process (1998-2000) conducted by Government, its consultants andthe FAO Investment Center; (3) the numerous workshops and seminars organized by Governnent with allstakeholders to set the strategy, build consensus and work out the specifics of the Project; (4) the formalrequest by Government to the Bank to finance the Project; and (5) the letter of sector development policythat sets out the long tern vision and the action steps to achieve the vision.

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5. Value added of Bank support in this project:

The value added for the Borrower of Bank support to the Project stems from:

* the Bank's good worldwide and regional experience in agricultural services reform

* the Bank's long and successful track record in the sector in Tunisia

* strong Government appreciation of the value added of Bank involvement, because of its broadinternational expertise, the Bank's ability to link both backward and forward in time and across a broadrange of sector interventions, the Bank's privileged position vis-A-vis other donors, the intellectual capitalof the Bank's analytic capability and sector work, and the rigor of the Bank's approach to issues that aredifficult to arbitrate at the national level.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):O Cost benefit NPV=US$ million; ERR = % (see Annex 4)O Cost effectiveness* Other (specify)1. Economic

The project is expected to contribute to increases in the value added of agricultural production, mainlythrough productivity increases, quality improvement and shift towards production for which Tunisia has acompetitive advantage. Important secondary benefits would be enhanced gender equity and income security.Thus the project is expected to increase total income, improve income distribution and reduce incomevariability.

As benefits from institutional development and capacity building are difficult to quantify, a break-evenanalysis has been conducted for the project as a whole in line with best practice for agricultural servicesprojects. Under this approach, the minimum benefits that must be generated by the project to justify costsare determined and the feasibility of obtaining these benefits is assessed. It is assumed that project benefitswould materialize through an increase of agricultural GDP. This is a conservative approach, since otherbenefits can be expected, such as social benefits. Under these assumptions, to obtain an overall rate ofreturn of 12%, agricultural GDP growth would have to increase by +0.02% p.a. compared to the withoutproject scenario. This is equivalent to an aggregate incremental 2.9% growth over 20 years. Thisincrement in growth rates is small and attainable in relation to historical growth rates that averaged 3.4%p.a. during the period 1989-99.

Effect of economic analysis on project approach

The lack of specific ERR analysis at the level of the overall project makes it very important to ensure thateconomic considerations are factored in to decisions at the implementation and micro levels. Twoimportant measures will be observed:

(1) wherever relevant, decisions on research, extension, training, animal health, plant protection etcwill be driven by economic criteria, putting producers' bottom line as the target and linking producerprofit from the technology or the service to cost of the service

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(2) cost effectiveness will be observed for all service provision, and will increasingly be producermonitored, as cost sharing imposes a "value for money" requirement on the service provider.

The litmus test of economic benefit to producers under the project will be their participation in the program- active group fonnation, setting the agenda for agricultural services and progressively paying for andproviding services. Thus the monitoring and evaluation system will concentrate on these "participationrates" as a key index of project economic perfonnance.

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)

Project costs total US$ 42.2 millions, of which US$ 33.3 mnillions (79%) are investment costs and US$ 8.9millions (21%) are incremental recurrent costs. Project costs would be borne by the public budget (40% ofproject costs); the Bank Loan (50% of project costs) and a cofinancier for the training component (10%).Taxes are US$ 8.3 millions (19% of project cost). Over the 5-year implementation period of the project,Government would provide US$ 17 million counterpart funds, an average of US$ 3.4 millions a year.

Fiscal Impact:

The project fiscal impact is expected to be relatively small. Both investment and incremental recurrentcosts are small when compared to the ministry's total budget and the increase in operating costs is partiallybalanced by the some transfers of activities to the private and professional sectors. In addition, transferpayments in the form of taxes represent 19% of the project cost.

Over the 5-year implementation phase of the project, private sector participation in the provision andfinancing of agricultural services will be relatively modest, while government's capacity to ensure itsessential public functions will be strengthened. It is during the second phase (2007-2011) that privatesector participation will really expand, and a positive impact on government's budget could be expected.

On the benefits side, and in the medium and long term, increase in farm household spending as a result ofhigher incomes would have a positive impact on tax revenues. In addition, higher farm incomes will allowproducers to pay a greater share of services, making possible and sustainable user participation in theprovision and financing of services.

3. Technical:

The project will not be implemented in the most marginal areas, where the prospects for agricultural growthare extremely limited. A companion project will be prepared for these zones, as a follow-up to theODESYPANO project already in place for the marginal areas of the Northwest. However, even outside themost marginal areas, the opportunities for productivity growth and diversification in semi-aridenvironments without irrigation are scant. Agricultural services are limited in what they can offer in theseareas, where farmers and herders cannot afford to take risks. Indeed, due to climatic variability in themarginal areas, the risks implicit in investing in technology are quite high. In such areas, small-holdersmay benefit more from the indirect effects of the project on agricultural forward and backward linkages andfrom increased off-farm economic opportunities as a result of the project tnan from adopting improvedagricultural technologies. This technical and risk assessment confirms the project choice to concentrate onareas with potential for commercial agriculture (see section Dl above).

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In terms of the research themes, through the selective and competitive grant system, the Project willemphasize research on post-harvest technologies and agro-processing which have not received enoughattention in the past, as well as marketing and economic research, research to improve the quality ofproducts either at the production or marketing stage, research on biological production and integrated pestmanagement using biological control methods.

4. Institutional:

4.1 Executing agencies:

The Ministry of Agriculture would be the executing agency. Detailed institutional and executingarrangements are presented in Section C: Project Description Summary.

4.2 Project management:

Implementation capacity. Capacity for implementation of extemally financed projects is adequate withinthe Ministry of Agriculture. Despite the relatively large number of implementing units, the Project does notpresent an over-complex implementation challenge. The Ministry of Agriculture has a generally verysuccessful track record in implementation, including projects that have had more than thirty implementingunits. Most of the twelve implementing units for the Project have experience in implementingBank-financed projects, and are implementing the project as part of their regular scheduled developmentprogram. For those that have less experience, a start up workshop would provide hands on training and thePMU within DGFE would provide permanent coaching. DGFE has long experience in guidingimplementation, and the project implementation plan and the accompanying procedures manual provideclear guidance for implementing units.

Monitoring and evaluation capacity. DGFE has a good track record in input and output monitoring, butless so for impact monitoring and evaluation. The PMU for the Project would include a monitoring andevaluation specialist, and resources have been provided under the Project for consultant support formethodology, for a baseline survey and for a mid-term review to be conducted with consultants that willinclude an interim evaluation of impacts and outcomes.

Regarding financial monitoring, DGFE is in the process of implementing a new computerized system forthe Water Sector Investment Project signed in June 2000 and declared effective in January 2001. Thisproject has been selected as pilot for the implementation of a fully computerized project accounting andreporting system including budgeting and monitoring and evaluation. The installation of the selectedsoftware at the central level has been successfully implemented and the same technology solution will beused by DGFE for all the other projects managed under its responsibility including the proposed Project.The extension of the above-mentioned software to the regional level (CRDA), is planned during 2002.

Legal aspects. In order to implement the program, government has drawn up a list of legal texts to beissued and adapted. The list includes the issue of texts to create a new unified research institute and theregional research centers, amendments to the texts to adapt the mandate of several other institutions, andthe issue of various texts regarding the revised regulatory framework for animal health, plant protectionetc. A timetable for the issue of these texts, many of which are on the "critical path" for projectimplementation, has been prepared and is included in the project implementation plan.

Impact on Ministry staffing. The personnel implications relative to project-supported programs havebeen analyzed. The implementation of the program will require changes in the profile of niinistry staff andthis will be reflected in the creation of 250 new posts. Most of these posts will be filled by existing staff,

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through retraining and reassignment. Some extra staff cost may be incurred, particularly in the researchsector where about 100 new recruitments are envisioned. The decision on the research posts has alreadybeen taken by Government, in line with national policy to raise expenditure on R and D to 1% of GDP. Theplan provides for no redundancies (staff reductions being effected through retirements). At negotiations,assurances were received that Government will implement the plan and ensure that staff required under theprogram are in place as scheduled.

Effective "regionalization". A key objective is to bring services closer to producers by regionalizationof services like research that are currently centrally organized. This regionalization would be supportedunder the Project. There is risk that regionalization would undermine existing research capacity and atappraisal a progressive and step by step approach was agreed, concentrating resources in a few viableregional research centers, rather than scattering them over all the regional centers. Measures are alsoneeded to ensure not just the nominal regionalization of the past (as with the poles regionaux de larecherche) but real "hard" regionalization of budgets, staff and management authority. These measureswill be managed through the research regionalization plan, agreement on which is a condition ofdisbursement for the related investments.

4.3 Procurement issues:

See Annex 6.

4.4 Financial management issues:

The existing financial management system described above (Section C4) is generally satisfactory,especially with the improvements being introduced under NPMU. Further improvements are beingintroduced under a time bound action plan agreed for the Water Sector Investment Loan including mainlyinstallation of a fully computerized accounting and reporting system specific to the project. This action ifsuccessfully implemented would mitigate the risk related to the identified insufficiencies in the reportingsystem. An action plan to ensure that financial management and reporting are adequate was agreed atnegotiations.

5. Environmental: Enviromnental Category: B (Partial Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

In the past few years, Tunisia has taken important steps in towards sustainable agricultural practices andpest management. Government has started to review the adequacy of present legislation, has created a newcenter for ecological farming, and is promoting the link between quality products and sustainable farmingpractices. The project further mainstreams these initiatives.

The project is not expected to have negative/adverse impact on the environment. There are, however, anumber of minor risks and uncertainties that require fiurther assessment and oversight. Consequently thisproject is categorized as a "B". An environmental impact study (EA) carried out during preparation of theproject found that the project contributes in a positive way to environmental sustainability and publichealth. The EA has provided a more detailed assessment of the minor risks. The EA recommendedimproving environmental standards and, subsequently, the sustainability of agricultural practices.

Activities that may pose minor environmental risk, if not carried out well, include:

(i) the construction of diagnostic and research laboratories, proposed under a number of components,might lead to possible minor environmental disturbance during construction. Also, waste disposal at these

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laboratories may pose risks to municipal waste disposal system, and surface water.(ii) extension of the quarantine laboratories and construction of a fumigation facility in the port ofRades with possible minor environmental disturbance during construction, and including a small wastedisposal facility (incinerator) as well as the use of potentially risky fumigants;(iii) support for competitive agricultural research. This research could include small projects withminor environmental risks (use of pesticides, disturbance of land leading to run-off etc.)(iv) inadequate advice and improper use of farm inputs such as water, fertilizer and pesticides.

Government's environmental assessment has, where needed, proposed environmentalmanagement/mitigation of potential environmental risks. These suggestions, mainly relating toconstruction/design of new facilities, have been adopted in the project design.

With respect to pest management the project adheres to the OP 4.09 requirements. The project does notfinance the procurement of pesticides, and supports a number of actions that aim to promote sustainableagriculture and integrated pest management. However, the OP 4.09 applies as the project includes a PlantProtection component.

The project also aims to increase the efficiency of pest control, improve the forecasting, lower pre- and postharvest crop losses, and enhance export acceptability of agricultural products. These criteria will bemeasured in the monitoring and evaluation of the project, as will the uptake of sustainable pest controlmethods in particular IPM and biological control and the market share of biologically produced fruits andvegetables. As such, the project is a good example of demand driven improvement in pest control practicesthrough feedback from market to farm.

5.2 What are the main features of the EMP and are they adequate?

The following specific mitigating actions are foreseen:

(i) construction of diagnostic and research laboratories (under various project components) will adhereto local environmental regulations and oversight. The individual EA's required for each new construction,under Tunisian law, will review and address these risks, including the proper handling and separation oflaboratory waste, and adequate storage of laboratory chemicals, reagents and biological materials. Theveterinary laboratory has already initiated the establishment of a biohazard committee with representationof the municipal authorities as well as the Ministry of Environment and the Ministry of Public Health;

(ii) extension of the central quarantine laboratories and construction of a fumigation facility in thecontainer port of Rades with possible minor environmental disturbance during construction, and including asmall waste disposal facility (incinerator) as well as the use of potentially risky fumigants. The method ofdisposal and treatment will be subject to a specific EA which will be conducted in accordance withTunisian regulations and acceptable to the Bank.

(iii) support for agricultural research which may include sub-projects with mninor environmental risks(use of pesticides, disturbance of land leading to run-off etc.). Before initiating the research grantsprogram, a manual will be prepared that will describe the grant preparation and award process. Thismanual will include guidelines on a brief evaluation of the environmental risks and (if any) their mitigation.Each study will require a brief statement, and where necessary independent review, of the environmentalrisk impact.Under the research, training and farming advisory services (extension and farTner organization) componentthe project also promotes the mainstreaming of integrated pest management (IPM) through research onsustainable pest management, training of extension staff, and by building links to producer organizations.

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With respect to pest management, the Plant Protection component aims to:a. review and update pesticide legislation and regulations with the objective of aligning therelevant legislation with EU standards, in order to remove impediments to the export of Tunisianproducts;b. strengthen the pesticide quality control and monitoring (see description of component IV);c. provide training to agricultural staff (especially in DGPV and AVFA) and farmners aboutsustainable pest management and IPM. The training program will be designed with substantialinput of the Ecological farming Center.d. improve the storage and recording of chemicals and biological products, especiallypesticides.

(iv) improvement in the storage and recording of chemicals and biological products, especiallypesticides;

(v) inadequate advice, and improper use of farm inputs such as water, fertilizer and pesticides.Improvement of the quality of advice to producers, and better understanding of the proposed use andhandling of farm inputs are among the major objectives of the project. Specifically, the development andtransfer of technology, advice on natural resource management, plant and animal protection measures, andsector planning help provide the instruments that will improve natural resource management andconservation. The project will also support training of extension and plant protection staff in integrated pestmanagement.

The above measures are adequate.

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: May 14, 2001

The initial draft was received and reviewed during appraisal

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

During preparation, consultations were organized with affected interested groups, in particular producergroups and cooperatives. Further consultations were held during pre-appraisal with focus groups, as wellas with national and govemorate officials, including the Ministry of Environment, the EnvironmentalProtection Agency (ANPE), and the National Agricultural Economics Study Center (CNEA) attached tothe Ministry of Agriculture.

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

The EA suggested ensuring appropriate waste separation and treatment in the design of the plannedconstruction; this has been incorporated in the project as part of the building design. The project evaluationincludes indicators relating to environmental awareness and the adoption of environmentally acceptable(agricultural) practices

The EA report specifically recommends actions by component and activity, and will be used as a baselinefor monitoring and evaluation during project implementation. Progress on these actions will be reportedannually. As no major risks are anticipated, the monitoring will be carried out during supervision afteryear 1 and midtermn, using the EA as a guiding tool.

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Each implementing agency will be responsible for conducting EAs where required and the PMU will beresponsible for advising on and coordinating EA preparation, monitoring and follow-up. Bank supervisionmissions will include environmental specialists and pest management specialists as needed and the MidTerm Review will assess progress towards achieving the mitigating measures identified in individual EAs.

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

Social assessment. A social analysis was carried out during identification and preparation, whichincluded a typology of Tunisian producers. During pre-appraisal this analysis was verified by a socialassessment in six govemorates which used focus groups and individual key informant interviews,completed by discussions with producer organizations and representatives in Tunis. The assessment alsoconsulted agricultural service organizations in both the public and the private sector, and policy makers.The assessment concluded that Tunisian agriculture is predominantly market-oriented, and that even smallproducers are likely to market at least part of their produce. The assessment also confirmed a strongdemand for services to improve the productivity of agriculture, and revealed widespread dissatisfactionwith the current method and quality of service provision. Larger producers usually meet their own need forservices from the market. The assessment thus confirmed the basic premise of the project that services needto be reworked on a demand-driven basis for a target population of medium to small producers who havemarket orientation and the potential to improve their productivity.

Social Issues

The key social issues identified for the project are:

Personnel adjustments in the public service. The modemization of agricultural services that Tunisia isundertaking is expected over time to lead to fewer low level jobs in the public service, as producers demandincreasingly sophisticated advice and services. The process will also lead to trimming of public sector staffin the interests of cost effectiveness and efficiency, and to the transfer of some services to the privatesector, with consequently smaller staff needs in the public service and more recruitment in the privatesector. Thus the project carries the potential for negative impacts for public sector staff. In practice,Government has decided to handle the matter through natural attrition (with retirements in the Ministry ofAgriculture now generally exceeding recruitments), through a systematic retraining and transfer operation(in the context of the project several hundred potentially redundant staff are expected to be retrained andtransferred to new posts that are being created), and by helping the transfer of staff from the public to theprivate sector (e.g. through financing of certain activities of private veterinarians, secondrnent of publicextensionists to producer groups etc.). There is not expected to be any redundancy created by the project.

Gender. Despite the success of some pilot programs (for example that supported under the Bank-financedResearch and Extension Project - see Section D3 above), gender-directed approaches have not up to nowbeen mainstreamed in agricultural services. During the preparation process of the project, an effort wasmade to factor in more attention to gender. As a result, gender aspects are systematically consideredthroughout the project, including: (1) inclusion of gender as a theme for the organization of producergroups and for the quality improvement component; (2) inclusion of gender as a priority theme forresearch, requirement that all research proposals systematically discuss the gender relevance (or not) of thework proposed, and the allocation of a specific percentage of the research program budget to gender relatedresearch; (3) integration of gender into the pilot project to improve producer access to training and farmingadvice in six govemorates, including the requirement that one in five of all advisers retained be women, andthe establishment of mobile advisory and training activities that bring services to women, as women may

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not travel so readily to the centers; (4) reinforcement of the existing female extension pilot operation in sixgovemorates with the intention of constituting a group of well qualified female farming advisers and ofensuring, in the long run, that gender aspects are mainstreamed throughout producer services (the approachwill include the establishment of peer-to-peer learning groups for women producers); (5) practical studyand curriculum development in the training component to develop courses both for trainers and trainees ongender aspects, including courses of direct relevance to women producers; (6) inclusion of gender relatedaspects in the livestock component; (7) the inclusion of systematic gender disaggregated data in thestatistics and information component; (8) the monitoring and evaluation of gender disaggregated indicators;and (9) support given to the gender unit at both ministry level and the AVFA. The ministry level genderunit will have responsibility for working with the PMU to ensure that gender issues are properly treatedunder the project, and the issue of gender is included in the project implementation plan.

Poverty and marginal producers. The decision not to target poverty or marginal producers is discussedabove (Section D 1). However, there will be benefits for marginal producers under the project, forexample, through some productivity improvements to be gained in marginal farms, particularly where thosefarms are scattered amongst higher potential farms, and through increased employment opportunities asTunisia moves to higher value production. In addition, cost recovery to be introduced under the project willbe phased in, with smaller producers paying less, or in some cases being exempted.

Social development outcomes

The principal social development outcomes are expected to be:

* Increased rural incomes from agricultural sources and hence improved social well being, stemmingfrom relevant and responsive local producer services

* Greater integration of rural people into the modern economy through increased participation inmarkets with strong forward and backward linkages

* Increased access of women to farming and marketing advice and hence improvement in their socialand economic status

* Improved producer participation in development planning and resource allocation through thestrengthening of representative producer organizations at both local, regional and national levels

* Enhanced confidence of the private and cooperative sector due to the changes in the balance ofpublic/private responsibility under the project, leading to improved business performance

6.2 Participatory Approach: How are key stakeholders participating in the project?

Producer participation. Participation during identification included extensive consultation withmen and women producers on needs, and this process continued with a needs assessment at pre-appraisal.Producers' organizations have been consulted throughout, including local level cooperatives andassociations, the regional chambres d'agriculture, the regional and national producers' union(URAP/UTAP), and the interprofessional groups (GIPs).

During implementation, producers will participate in the project at all levels. Producer associations willprogressively set the agenda for research, training and extension. Producers will be represented on theregional coordination committees in each of the six govemorates in the pilot program, and in the regional

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and national research committees. Two components (producer organizations, and quality improvement)will work directly to improve producer organization and interaction between producers and private andpublic services. Finally, producers' representatives will sit on the project coordination committee.

Participation of decision makers and service providers. The participation of officials and serviceproviders from both the public and the private sector, and of the representatives of structured userorganizations was systematic throughout the identification, preparation and appraisal process, and threemajor and well attended workshops were held. The social assessment conducted during pre-appraisalsupported the process. Key decision makers will be represented on the project coordination committee.

The power of open information. A key medium to enhance participation at all levels (both in the projectand in the dynamic of the agricultural economy) will be the information and statistics component, whichwill provide the widest possible target audience with all relevant information on a free access basis.

The challenge of producer organizations.

The key factor in the participatory approach under the project is the development of producer associations.Government's stated intention is to support the development of organizational structures for producers andthis is provided for under the project. Existing producer organizations in Tunisia are quite diverse: at thebase there are the associations (GICs, GDAs etc); at the level of common services locally there are thecooperatives; at regional level there are the URAPs and the chambres d 'agriculture; and at national levelthere are UTAP and the groupements interprofessionnels. The following transitional provisions have beenmade during the project period: (a) for producer associations, cooperatives etc, the services of promotionand development currently provided directly by government will be provided by private agents (initially ona pilot basis in three govemorates), and Government will assure directly just the supervisory and regulatoryfunctions, which will be strengthened; (b) the role of the chambres d'agriculture will be reviewed and arestructuring undertaken designed to ensure more representation of producers; and (c) the autonomy of theGIPs will be encouraged through an initial three year contrat programme that will allow them substantialmanagerial and financial autonomy. Progress of these processes will be monitored and subsequentlydecisions will be taken on how to continue the process in the light of the experience.

The viability of producers' organizations also depends on the producers' interest to form groups that willaccess services, and eventually share costs. Significant changes piloted under the project in the way ofdoing business make producers' adherence more likely than in the past, including a more flexible legalframework (the GDA), the private sector approach to promotion, and the simultaneous efforts to improvethe supply side (of services) to make group formation more economically attractive. In addition, the projectwill begin with the improvement of existing groups, so have a foundation from which to work. The studyto be carried out under WSIL of lessons learned in GIC successes and failures will also generate lessonsand guidance.

Although Government commitment to the above approaches is firm, Government wishes to proceedcautiously. For producer organizations, a pilot will be conducted initially in just three govemorates andevaluated at mid-term review. For the GIPs, initially young professionals will be recruited, and thedevelopment of new capacity will therefore inevitably take time. The progress will again be assessed atmid-term review.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

See above on producer organizations. In addition, consultations will be undertaken regularly with

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representatives of women's groups to help track progress on gender aspects.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

The institutional set up to ensure the development of producer institutions is part of the pilot componentdesign and in particular the division of responsibility between public regulatory functions and privatepromotion roles (leading ultimately to capacity within the producer association movement)

The project gender outcome is also provided for specifically in the design of several components (seeabove). In addition, the gender coordination roles in AVFA (extension and training organization) and in theMinister of Agriculture's office will be strengthened under the project.

The relevance of producer services - and hence the income objective - is also supported by componentdesign and by accompanying institutional changes, including: regionalization of research to improve localresponsiveness, and the integrated approach to producer services adopted in the pilot project.

6.5 How will the project monitor performance in terms of social development outcomes?

The project monitoring and evaluation system will include a baseline sample survey on such parameters asincomes, market participation, gender disaggregated access to services, producer organizations andparticipation rates etc. Social development outcomes will be tracked through the periodic monitoring ofthese parameters and through a mid-term and final evaluation.

7. Safeguard Policies:7 1 Do anv of the folloving safeguard policies apply to the proiect9 _

____ Policy ApplicabilityEnvironmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 NoNatural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes 0 NoForestry (OP 4.36, GP 4.36) 0 Yes 0 NoPest Management (OP 4.09) * Yes O NoCultural Property (OPN 11.03) 0 Yes * NoIndigenous Peoples (OD 4.20) 0 Yes 0 NoInvoluntary Resettlement (OD 4.30) 0 Yes 0 NoSafety of Dams (OP 4.37, BP 4.37) 0 Yes * NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes * NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

The details of the actions to comply with OP4.01/BP4.01/GP4.01 are described in Section E 5 above.

The details of the mitigation and monitoring program address the issues related to OP4.09 are included inthe Environmental Assessment Report.

F. Sustainability and Risks

1. Sustainability:

Sustainability would be obtained at three different levels:

At producer level: actions will promote the development of producer groups at local level on a pilot basis

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(in three govemorates) and of crop and sub-sector representative groups at national level, and give thesegroups responsibility in the setting of the service agenda.

At service provider level, project actions will help develop more cost-effective and performing serviceswithin both the public and private sectors. The project will put special emphasis on the development ofprivate service providers wherever possible, together with a sustainable pattem of user payment that willprogressively make private services viable. This is matched with the willingness of Government to assurean efficient level of financing to services, both during the period when user contributions are growing, andthereafter for functions that are "public service" in their nature.

At the economic level, the project will promote new cropping patterns and technologies linked to profitablenew markets, that will create sufficient extra income to allow producers to pay a greater share of the cost ofservices.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveThere could be a wavering of the national M Extensive national consultation has taken place.commitment to encouraging the Letter of sector development policy spells outdevelopment of autonomous producer clear commitment. Stakeholders will all begroups, and commitment to cost recovery represented in the project coordinationand developing private sector service committee.providers could diminish.

Resistance to reorganization (especially of M Consultations are being held with research staff.research) and to staff changes brought Training and reconversion programs areabout by the change program. planned, and will be announced before launching

the change program.

From Components to OutputsImplementation delays and shortcomings M Project implementation arrangements are wellmay arise, given the breadth of the set out in the project implementation plan. Allprogram and the fact that the concerned implementing units are represented inimplementing units may have different the coordination committee.implementation pace

The legal and regulatory framework M A time bound action plan is included in thecannot be amended in time to allow the project implementation plan.proposed innovations

The MOA may find it difficult to identify S The MOA is committed to the required staffing.and assign staff for the 260 new posts A time bound action plan is included in the

project implementation plan.

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Government's request for parallel M The agency has indicated its commitment and itsfinancing of the training component by intention to get financing effective in early 2002.another agency (see B3 and E2 above) Government has agreed to underwrite themay not be accepted or the component component with national financing until extemalmay be delayed while appraisal takes financing is in place.place

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

None.

G. Main Loan Conditions

1. Effectiveness Conditions

* The Borrower has established within DGFE the Project Management Unit, on the basis of theterms of reference satisfactory to the Bank

* The Borrower has submitted the Project Implementation Plan to the Bank, in form and substancesatisfactory to the Bank; and

* The Borrower has established the Coordinating Committee on the basis of institutionalarrangements satisfactory to the Bank.

2. Other [classify according to covenant types used in the Legal Agreements.]

Disbursement conditions

* The submission of a research regionalization plan, in form and substance satisfactory to the Bankwould be required prior to any disbursements for the regionalization of research investments.

* The submission of a research grant management manual, in form and substance satisfactory to theBank, would be required prior to any disbursements for research grants.

Covenants.

* Before June 30, 2003, the Borrower will present to its Chamber of Representatives a draft law insubstance satisfactory to the Bank for the establishment of a single agricultural research institute and takeall measures required on its part, including regulatory measures, to revise the mandate of IRESA.

* Before June 30, 2002, the Borrower shall take all measures required on its part, satisfactory to theBank, to grant adequate administrative and financial management flexibility to IRVT laboratories.

* The Borrower shall carry out the Project in accordance with the Implementation Program, the

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Project Implementation Plan, the Accompanying Measures, the Environmental Assessment and theEnvironmental Management Plan.

No Research Sub-project shall be eligible for financing out of the proceeds of the Loan unless theBorrower is satisfied that the Research Sub-project meets the eligibility criteria, procedures, terms andconditions specified in Sections C and D of the Loan Agreement and the provisions set forth in theResearch Grant Management Manual.

Financial

* Accounts and audits - the Borrower will assure that the annual audit reports, with an opinion onthe statements of expenditure used for certain disbursements and on the special account, are sent to theBank within six months of the end of the fiscal year of the Borrower.

* The Borrower will open and manage a special account in Euros.

* Action Plan - The Borrower shall carry out a time bound action plan acceptable to the Bank for thestrengthening of the financial management system in order to enable the Borrower, not later than June 30,2002, to prepare semi-annual Project Management Reports.

* Monitoring, review and reporting - Upon the completion of the time bound action plan theBorrower shall prepare, in accordance with guidelines acceptable to the Bank, and furnish to the Bank notlater than 45 days after the end of each calendar semester, a semi-annual Project Management Report forsuch period.

Management Aspects

* Regional coordinating committees on the basis of institutional arrangements satisfactory to theBank will be established before June 30, 2002, as the local counterparts of the national coordinatingcommittee, in the six govemorates where the pilot advisory services and training components will beimplemented.

* A mid- term review would take place by June 30, 2004.

H. Readiness for Implementation

[O] 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

Z 1. b) Not applicable.

Z 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

C 4. The following items are lacking and are discussed under loan conditions (Section G):

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1. Compliance with Bank Policies

i 1. This project complies with all applicable Bank policies.O 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

This project complies with all applicable Bank policies.

Christopher S. Ward Doris Koehn Chris del voieTeam Leader Sector Manager/Director Country Manager/ rector

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Annex 1: Project Design SummaryTUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Key PerfornanceHierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Competitive efficient The adoption of innovative National accountssustainable high value added technologies in agricultureagriculture with :mproved National accountsmarket access, particularly forsmaller producers

Increase in farm productivity Agricultural census andand profits monitoring (supported under

the project)

Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:Support organizational Smaller and medium Project reports, national Smaller producers organizedstructures for producers producers (men and women in accounts data, project in groups can at least(initially on a pilot basis) that three pilot governorates) are monitoring and evaluation maintain their incomes asrepresent the producers' needs organized and supervised to data etc protectionand interest, and have be able to access advice,capacity to improve market inputs and market facilitiesaccess and to provide, manage that increasingly improve theand finance services to their quality and competitivity ofmembers their agricultural production

in response to local andinternational marketrequirements

New Tunisian products(saveurs de Tunisie) areincreasingly known andcompetitive on local andinternational markets, andnew market niches open

Produce increasinglyconforms to norms andstandards on both domesticand international markets

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Support efficient and The capacity of small Project reports, national Policies of private sector, openaccountable public, producers (men and women) accounts data, project market, export promotion, arecooperative and private to produce high quality and monitoring and evaluation maintained and will improveservices that deliver relevant high value added produce for data etc competitivity and marketand cost effective producer market starts to improve to penetration of Tunisianservices focused on increasing the level where their productsquality, value added and production is internationallymarket access, and with competitive Both large farm sector,particular attention to the medium farm sector and allneeds of specific target groups A production system starts to irrigated farms can improve(notably smaller producers, evolve that is competitive, and their productivity and increasewomen producers and young better able to face foreign their sales whilst avoidingproducers) competition, in- and outside over-rapid mining of

Tunisia. resources

Lower losses to pests, diseaseand spoilage.

Maximize the coverage, Improved organization, Project reports, nationalreliability and availability of investment and production accounts data, projectstatistics and information for choices based on better monitoring and evaluationall parties having to make knowledge of natural data etcchoices affecting the resources, weather, markets,agriculture sector. prices, cropping opportunities,

technology etc

Improved risk managementthrough information andgreater awareness of risk andbehaviors

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Key PerformanceHierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions

Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:Subcomponent 1.1 Supportto agricultural producersorganizations

20 CAS and 55 GDA have a Project reports, national Political will andA total of 75 producer development plan and accounts data, project organizational capacity existorganizations in three working accounting system. monitoring and evaluation to encourage the developmentgovernorates are capable of data etc of viable and autonomousproviding information and or Level of participation of producer groups. Inservices to producers members particular: (1) Govemment

does not seek to promoteThe public inspection Range of services provided GDAs as an administrativefunction, initially in six and their quantitative growth process and to set numericalgovemorates, is efficiently targets; (2) Govemmentcarried out by DGFE (and is Changes in farming systems respects the division ofseparated from the promotion and practices of members. responsibilities betweenfunction carried out outside promotion (private) andgovemment) Development of supervision supervision (Govemment);

effectiveness. and (3) a distinction isobserved between themandates of obligatory andvoluntary groups.

Subcomponent 1.2 Qualityimprovement

A "quality team"of young List of quality norms, brand Project reports, national Political will and institutionalprofessionals is set up and or label of "saveurs de Tunisie accounts data, project mechanisms are developedtrained as the basis for a " " developed and market monitoring and evaluation that allow GIPs to developquality network" to provide niches identified. data etc increasing managerial andadvice within the integrated financial autonomy,chain from producer to Number of producers who beginning with autonomyconsumer produce for these market within a three year contrat

niches (turnover in quantity programme and leadingThe saveurs de Tunisie brand and value). ultimately to control overimage revenues from the sector itself

GIP autonomy increased and (FODECAP).A facility to help producers they each have a developmentand exporters to develop their plan. Tunisian agriculture, withbusiness help under the project, can

meet EU quota requirements(quantity and quality)..

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Subcomponent 2.1Agricultural research

A flow of knowledge and Number of research results Project reports, national Technology and know howtechnology that is evaluated published, considered as accounts data, project can be developed that have aby producers as relevant for relevant and worth monitoring and evaluation real impact on productivity -their needs and worth disseminating by producers or data etc and profitable markets existdisseminating processors for the production

A cost effective research Number of producers, Regionalization of researchprogram driven by the needs processors, exporters actually can be implemented graduallyof producers and their using the repertory of research without undermining existingmarkets results research momentum or

spreading research resources% private financing of too thinly to be effective.research

Reorganization into a unifiedEquipment and infrastructure institute and theshared by different units in regionalization process can bethe system managed without a decline in

researcher commitment.% of research projectsimplemented by The measures under themulti-institutional teams project will tum research

around into a demand-drivenComputerized documentation activity.network set up and used byresearchers

Subcomponent 2.2 A pilotproiect to improve produceraccess to training and fanningadvice

Training and advice are strength of demand as shown Project reports, national Political will and enablingavailable to meet producers' by participation rate accounts data, project environment exist forneeds, with special focus on monitoring and evaluation development of privatesix pilot governorates. number of producers adopting data etc advisors, and the "market" of

the advice supply and demand for privateadvisors grows.

impact on production forparticipating producers, andthe spin off impact onproduction for nonparticipating producers

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Subcomponent 2.3Agricultural trainine

The national strategy for Match of the curriculum with Project reports, nationalagricultural training is identified demand accounts data, projectefficiently delivered and meets monitoring and evaluationthe needs of producers in the Access of women and young data etcincreasingly competitive peopleenvironment

Six training centers in six Improvement in the ratio ofgovernorates are upgraded students graduating toand provide training that is students enrolling (male anddemand-driven and relevant female)to local conditions

Improvement in the ratio ofstudents graduating tograduates finding employment(male and female)

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Component 3 Livestock andanimal health

A national identification Number of animals tagged, Project reports, national Political will exists to allowsystem established cost per animal, producers' accounts data, project growing private sector

share in costs, ability of monitoring and evaluation delivery of animal health, costGovernment agencies to data etc recovery, subsidy reductionmonitor animal movement, and privatizationproducer satisfaction.

A surveillance system and Surveillance networks in Producers are willing to payimproved diagnostic ability in place, % of coverage of the their share of costs forplace national herd, quality and cost services, subject to the quality

of the surveillance system, of services..producer satisfaction

Improved quality standards New diagnostic labsset up, a certification system operational, demand forand international services, % cost recovery, turnaccreditation of laboratories around time of samplesobtained Amount of milk marketed

and priced based on quality,improvement in feed andfodder quality

Coverage of cattle breedingA system of zootechnical through Alservices that is moresustainable and paid by thebeneficiaries, partly providedby private entrepreneurs or bycooperatives or producersgroups

Number of privateA largely privatized, well practitioners, increasedtrained and self-financed quality of veterinary servicesanimal health service that (measured by user survey,largely executes public sector reports on diseases andmanaged epidemic disease condition diagnosed andcontrol programs. treated; reduction of losses on

the farm and improvedperformance of domesticanimals); reduction inveterinary costs to producers

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Component 4: Plantprotection and seed and plantcertification Surveillance networks in Project reports, national Government is committed to a

place, increased quality of accounts data, project change in the role of the stateEffective phytosanitary produce (expressed in higher monitoring and evaluation from executing pest controlcontrols at the border and prices and increased market data etc programs to encouragement ofwithin the country share). sustainable agriculture.

Modernized pesticide Efficiency of pest controlregulatory framework and (lower pre- and post harvestlaboratory testing function, loss, lower pest control costsincluding IPM and reduction in the use of

chemicals, accuracy of pestEfficient seed and plant forecasts), client satisfaction.certification working on a fullcost recovery basis Number of tests carried out by

laboratories; % cost recovery,reduction in residues found,efficiency of system (cost persample), producersatisfaction.

Uptake of sustainable pestcontrol methods in particularIPM and biological control;market share of biologicallyproduced fruits andvegetables.

Subcomponent 5.1Agricultural statistics andinformation

A complete characterization Reliability and punctuality of Project reports, national Government is committed toof agricultural production data, rapidity and reliability of accounts data, project an open information policy.(broken down where relevant distribution of information, monitoring and evaluationby gender) satisfaction of users data etc

(ascertained by user surveys),A reliable "just in time" cost effectivenesssystem of tracking agriculturesector developments duringthe growing season

A system of informationsharing based on rapidavailability, reliability andmaximum openness to all whoneed to know

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Key Performance 1Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions

Project Components I Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)COMPONENT 1: Building thecapacity of agriculturalproducers organizationsSubcomponent 1.1 Support Total cost $ 1.80 million Project reports, national Quality private staff can beto agricultural producers accounts data, project hired.organizations capacity to monitoring and evaluationdemand, finance and provide data etcservicesSubcomponent 1.2 Quality Total cost $ 3.46 million Project reports, national Young professional staff canimprovement and capacity accounts data, project quickly become effectivebuilding for Interprofessional monitoring and evaluation through on the job training.Organizations (GIPs) data etcCOMPONENT 2:Strengthening the supply ofresearch, training and farmingadvisory servicesSubcomponent 2.1 Total cost $ 7.62 million Project reports, nationalAgricultural research accounts data, project

monitoring and evaluationdata etc

Subcomponent 2.2 A pilot Total cost $ 2.41 million Project reports, national Good advisory staff can beproject to improve producer accounts data, project found within both public andaccess to training and farning monitoring and evaluation private sectors.advice data etcSubcomponent 2.3 Total cost $ 6.79 million Project reports, national Managers and staff willAgricultural training accounts data, project accept the new approaches.

monitoring and evaluationdata etc

COMPONENT 3: Total cost $ 8.75 million Project reports, national The legal and regulatoryLivestock and animal health accounts data, project framework can be amended to

monitoring and evaluation allow the proposeddata etc innovations

COMPONENT 4: Plant Total cost $ 6.44 million Project reports, nationalprotection accounts data, project

monitoring and evaluationdata etc

COMPONENT 5:Strengthening public interestservices and projectmanagement supportSubcomponent 5.1 Total cost $ 3.37 million Project reports, national Different departments willAgricultural statistics and accounts data, project work together to poolinformation monitoring and evaluation information in a cost effective

data etc waySubcomponent 5.2 Project Total cost $ 1.61 million Project reports, nationalmanagement support accounts data, project

monitoring and evaluationdata etc

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Annex 2: Detailed Project DescriptionTUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

A. Project Goal and Objectives

Goal

The project is the first phase of a longer term program that aims at improving production quality,competitivity and market access, particularly for smaller and medium scale producers.

Objectives

To this end, the project objectives are to:

1. develop on a pilot basis organizational structures for producers that represent their needs andinterests;

2. improve the institutional capacity and quality of agricultural services delivered by public andprivate institutions and producer organizations;

3. improve the flow of information for all sector stakeholders.

B. Summary Project Description

Project Background

Producer services are vital to achieve agricultural growth in Tunisia. The development of new markets, thedevelopment and transfer of new technology, human resource development for a modernized agriculture,the protection of both plants and animals from disease, the oversight of international agreements andquality standards, and prudent investment are all essential factors in the growth of a competitivecommercial agriculture in Tunisia.

Government has worked out the following action plan for agricultural services over the next decade:

Support the development of organizational structures for small-to-medium scale producers andtheir capacity to represent producers' interests and to provide services to their members

* Reorganize, decentralize and reequip research, training and extension services to deliver morerelevant and cost effective services

* Support to the maximum participation, privatization and private financing and delivery whereverpossible.

* Reinforce and develop essentially public services where these have a strong economic justificationsuch as disease prevention, protection and monitoring, and improve the provision of aids to good planningand decision making in the sector

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Thus the priority is to improve the cost effectiveness and quality of services, and further implement gradualtransfer to producers and the private sector. This will be the task for the next ten years. The first five yearphase will be supported by the proposed project. A possible second phase project would complete theprocess.

Summary of Components

The project would have five components and a number of sub-components as follows:

Component 1: Building the capacity of agricultural producers organizations and inter-professionalorganizations

Pilot support to producer organizations capacity to demand, manage and provide services - total cost$ 1.80 million

Quality improvement and export development - total cost $ 3.46 million

Component 2: Strengthening the supply of research, training and agricultural advisory services

Agricultural research - total cost $ 7.62 million

A pilot project to improve producer access to training and farning advice - total cost $ 2.41 million

Agricultural training - total cost $ 6.79 million

Component 3: Livestock and animal health - total cost $ 8.75 million

Component 4: Plant protection and seed and plant certification - total cost $ 6.44 million

Component 5: Strengthening public interest services and project management support

Agricultural statistics and information - total cost $ 3.37 million

Project management support - total cost $ 1.61 million

The overall total cost is $42.23 million excluding the front end fee. The components and sub-componentsare described in the following paragraphs. More detail is given in the Project Implementation Plan.

By Component:

Project Component 1 - US$ million

Component 1: Building the capacity of agricultural producers organizations and Inter-professionalOrganizations (GIPs)

The component would support organizational structures for producers (both local and national)that represent the producers' needs and interests, and have capacity to improve market accessand to provide, manage andfinance services to their members. The component would also

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strengthen the DGFE in its monitoring and inspection function

Subcomponent 1.1: Pilot support to producer organizations capacity to demand, manage and provideservices - total cost $ 1.80 million. Implementing Agency : DGFE

The subcomponent will develop producer organizations and their capacity to facilitate access ofsmall-to-medium producers (men and women) to services. It will also strengthen Government (DGFE)capacity to monitor and supervise producer organizations. The component will be implemented initially inthree pilot governorates and subsequently, after mid-term review, three further governorates may beconsidered. By the end of the project a total of 75 producer organizations in the three governorates wouldbe capable to provide information and/or services to producers. The public inspection function in sixgovemorates would be efficiently carried out by DGFE and be separated from the promotion functioncarried out outside government.

Activities would be: (1) promotion and capacity building for producer organizations, implemented by "apromotion team" of private consultants under contract with DGFE; and (2) reinforcement of DGFE'scapacity to monitor and inspect producer organizations, implemented through DGFE

Subcomponent 1.2: Quality improvement and export development, including capacity building forInter-professional Organizations (GlIPs) - total cost $ 3.46 million. Implementing Agency: APIA

The subcomponent will set up and train a quality team of young professionals to reinforce GIPs and APIAto (i) identify and develop new local and export market niches for Tunisian agricultural products; (ii)improve links between production and market to adapt Tunisian agriculture to the requirements of newmarkets; (iii) ensure rapid diffusion of information between producers, service agencies, processors and themarket; and (iv) develop and promote norms and standards for Tunisian agricultural products ("saveurs deTunisie ") for local and international consumers

Activities will be: (1) establishment of a quality network; (2) conducting a quality inventory and creatingthe brand "saveurs de Tunisie"; (3) setting up quality standards; (4) developing integrated qualityoperations; (5) establishment of an "agriculture gateway"; and (6) setting up a research budget for qualityand export development.

Component 2: Strengthening the supply of research, training and agricultural advisory services

The component would support accountable public, cooperative and private services that deliverrelevant and cost effective producer services focused on increasing quality, value added andmarket access, and with particular attention to the needs of specific target groups (notably smallerproducers, women producers and young producers).

Subcomponent 2.1: Agricultural research - total cost $ 7.62 million. Implementing Agency : IRESA(and from 2004, the new unified institute)

The subcomponent will help agricultural research in Tunisia to provide knowledge and technology to meetthe goals of improving quality and value added and increase market access. The subcomponent will alsohelp improve internal efficiency and cost effectiveness of agricultural research through a better use of allhuman, physical and financial research resources existing in the country.

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Activities would be: (1) setting up two regional research centers and supporting existing regional researchpoles; (2) carrying out priority research activities financed under a competitive grant system basis andcontractual arrangements; (3) supporting regional and national commissions for programming andevaluating research programs; (4) a user accessible rolling repertory of usable research results; (5) anagriculture science data base; (6) external evaluation of research programs; and (7) setting up a unifiedresearch institute.

Subcomponent 2.2: A pilot project to improve producer access to training and farming advice - totalcost $ 2.41 million. Implementing Agency: AVFA

The subcomponent will give producers access to training and advice that they need to produce higherquality, higher value added produce and sell it to the most profitable markets.

Activities would be: (1) setting up training and advisory teams in each of six training centers in six pilotgovemorates (Thibar/Beja; Chott Mariem/Souss; Degueche/Tozeur; Boughrara/Sfax; Bouchrik/Nabeul;Mahdia peche/Mahdia; (2) strengthening of women's extension in five governorates (Siliana, Kairouan,Mannouba, Zaghounan and Sidi Bouzid; and (3) a mass media campaign through technical documentation,newspapers, radio and television.

Subcomponent 2.3: Agricultural training - total cost $ 6.79 million. Implementing Agency : AVFA

The subcomponent would improve the relevance and value of training, particularly for target groups (smallproducers, women producers, young producers). It would help to implement the national strategy foragricultural training. It is linked with the pilot project for extension (subcomponent 2.2), i.e. the sametraining centers are targeted.

Activities would be (1) setting up a permanent system to measure traininig needs and demand; (2)remodeling of the national curriculum and training materials, and training of trainers; (3) upgrading of thesix training centers in the pilot govemorates; and (4) monitoring and evaluation of the implementation andimpact of the changes.

Component 3: Livestock and animal health - total cost $ 8.75 million. Implementing Agencies: OEP(activity # 1); DGSA (activities # 2, 3 and 5); DGPA (activity #4)

As for component 2, this component would support efficient and accountable public, cooperativeand private services that deliver relevant and cost effective producer services to livestockproducers, with particular focus on improving quality of services and their sustainability throughprogressive transfer and cost recovery.

The component will aim at improving all parameters of livestock production through enhanced services,including: efficiency and quality of production, quality and sustainability of services and theirresponsiveness to producers' need, and market access and value added. At the end of the project, thereshould be improved productivity and quality standards, and a system of partly private services that is moresustainable and partly paid by the beneficiaries.

Activities are: (1) introduction of a national identification system for cattle and a monitoring/tracing systemof animal movements; (2) establishment of a disease monitoring and control program

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(epidemio-surveillance); (3) improved diagnostic capability in animal health, in animal feed quality control,and in the safety of animal and fish products; (4) improvement of zootechnical services; and (5)development and monitoring of quality private veterinary and livestock services.

Component 4: Plant protection and seed and plant certification - total cost $ 6.44 million.Implementing Agency: DGPV

This component would aim at protecting Tunisian produce from plant diseases and predators, andat protecting consumers from pesticide residues, and thereby increase the value and market accessofproduce.

The component would lead to safer and higher quality products and improved acceptance by local andinternational markets; to lower losses to pests, disease and spoilage; and to better informed producers andconsumers, especially in sustainable and "green" agriculture and horticulture.

Activities will be: (1) improvement of the capacity to monitor and test the quality of farm inputs, inparticular pesticides and new seeds and plants; (2) development of monitoring and surveillance on internaltrade and on imports and exports; and (3) awareness and understanding among technical staff, extensionstaff and producers about cost effective and sustainable pest control and integrated pest management.

Component 5: Strengthening public interest services and project management support

The component would aim at maximizing the coverage, reliability and availability of statistics andinformation for all parties making choices affecting the agriculture sector. It would also supportproject management.

Subcomponent 5.1 : Agricultural statistics and information - total cost $ 3.37 million.Implementing Agencies: DGPDIA (activity # 1); DGPA and DGPAQ (activity # 2); and ONAGRI(activity # 3).

The subcomponent will develop agricultural statistics and information so that producers and others canmake informed choices based on better knowledge of natural resources, weather, markets, prices, croppingopportunities, technology etc. The subcomponent would allow improved risk management. It will producea complete characterization of agricultural production, a reliable "just in time" system of trackingagriculture sector developments during the growing season, and a broader system of information sharingbased on rapid availability, reliability and maximum openness to all who need to know.

Activities will be: (1) strengthening of agricultural statistics; (2) upgrading of the annual crop forecastingsystem; and (3) strengthening of the agricultural information system ONAGRI to make its coveragebroader (with special attention to international market developments and to agriculture policiesinternationally) and to allow maximum access to all relevant information.

Subcomponent 5.2: Project management support - total cost $ 1.61 million. Implementing Agency:DGFE.

The subcomponent will provide resources to DGFE to help it in coordinating project implementation,including resources for consultants for monitoring and evaluation and the mid-tem review.

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Annex 3: Estimated Project Costs

TUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Local [ Foreign Total 1Project Cost By Component US $million US Smillion US Smillion

1. Building the capacity of producer and inter-professional 0.00 0.00 0.00organizations

Producer organizations 1.02 0.44 1.46Quality irnprovements and Interprofessional Organizations 1.84 1.18 3.02

2. Research, training and farning advisory services 0.00 0.00 0.00Agricultural Research 3.01 3.73 6.74Pilot project - producers access to training and advice 1.35 0.77 2.12Training 3.14 2.70 5.84

3. Livestock and animal health 5.24 2.05 7.294. Plant protection 2.67 2.89 5.565. Public interest services and project management support 0.00 0.00 0.00

Agricultural statistics and infornation 1.63 1.36 2.99Project management support 1.18 0.12 1.30

Total Baseline Cost 21.08 15.24 36.32Physical Contingencies 1.16 0.77 1.93Price Contingencies 2.75 1.24 3.99

Total Project Costs 24.99 17.25 42.24Front-end fee 0.21 0.21

Total Financing Required 24.99 17.46 42.45

Local Foreign 1 Total_ ___ Project Cost By Category_ US $million US $million US $millon

1. Investment costs 0.00 0.00 0.00Civil Works 3.29 1.78 5.07Vehicules and other equipment 4.91 8.71 13.62Studies, surveys and publications 1.80 2.05 3.85Training, workshops and seminars 1.54 2.00 3.54Research grants 0.84 0.21 1.05International consultants 0.19 0.77 0.96Local consultants 3.76 0.02 3.78Administrative costs 1.36 0.03 1.39

2. Incremental recurrent costs 7.30 1.68 8.98Total Project Costs 24.99 17.25 42.24

Front-end fee 0.21 0.21Total Financing Required 24.99 17.46 42.45

Detailed cost tables are available in the project files.Assumptions:

Project costs were estimated based on the following assumptions:

- Exchange rate: 1 USD = 1.45 DT- Price contingencies are calculated assuning project start in January 2002. Projected local and foreigninflation rates are World Bank estimates (Country Assistance Strategy (draft, 2000) and Long-termr MUV

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Index forecast (Commodity Price Forecasts, November 2000)

2001 2002 2003 2004 2005 2006

Local inflation 3.8 3.7 3.7 3.7 3.6 3.6

Foreign inflation 2.5 2.5 2.5 2.5 2.5 2.5

Identifiable taxes and duties are 8.3 (US$m) and the total project cost, net of taxes, is 34.15 (US$m). Therefore, the project cost sharing ratio is 62.46%/o oftotal project cost net of taxes.

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Annex 4TUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Economic Analysis

Background information

The program's overall goal is to promote a productive, efficient and sustainable agriculture that willcontribute to improving the standards of living of producers, strengthen Tunisia's position on theinternational market and help government achieve its agricultural growth targets (4.3% for 1997-2001 and2.9% up to 2010). In the context of liberalization of the economy, farms and agricultural enterprises willhave to adjust to the new economic context by increasing their competitiveness on national andinternational markets through increased productivity and improved quality of their products (Analyse de lacompetitivite du secteur agricole tunisien, Study Engineering, 1996).

To this end, the project will support the reform of agricultural services that was initiated at the end of the1980's and should be completed within a ten-year time horizon. The reform aims at increasing therelevance and responsiveness of services to the sector needs, by increasing private participation in provisionand financing and re-focusing government's services on essentially public functions, such as policyformulation, planning, regulation and control, monitoring and evaluation etc.

Over the 5-year implementation phase of the project, private sector participation in the provision andfinancing of agricultural services will increase, while government's capacity to ensure its essential publicfunctions will be strengthened. The government will continue to provide many agricultural services toproducers until the appropriate institutional and regulatory framework is in place and while the capacity ofproducer organizations and the commercial private sector is building up. In a possible second phase(2007-2012), private sector participation will continue to expand.

The project would: (i) strengthen producers organizations and so facilitate their access to the services andmarkets they need to increase and secure their incomes; (ii) strengthen inter-professional organizations tohelp them identify and develop new local and export niches for Tunisian produce, and to develop andpromote norms and standards for local and international consumers. Market differentiation anddevelopment will allow producers to sell more at a better price; (iii) Improve plant protection services.This would protect Tunisian produce from plant diseases and pests and protect consumers from pesticidesresidues and thereby increase the value and market access of produce. (iv) Reform research, training,farming advice and livestock services. The introduction of a demand-driven approach will improve therelevance of services to the producers constraints (production, quality, marketing), and thereby their impacton the ground.

Beneficiaries

Project beneficiaries are the medium and smaller but commercially-oriented producers, with a special focuson women and young producers. This group of producers is the one for whom improved agriculturalservices bring the greatest potential for agricultural growth, and thus the highest economic benefit. Largercommercial producers have already access to the services they need, whilst poor producers or producerslocated in marginal areas are supported by parallel programs on the model of the ODESYPANO. Thestrategy for the marginal areas is not so much to enhance agricultural growth (although this may sometimesbe possible) as to sustain rural development through job creation and social protection services.

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Economic Benefits

The project is expected to increase the value added of agricultural production, mainly through productivityincrease, quality improvement and shift towards production for which Tunisia has a competitive advantage.Important secondary benefits are the improvement of gender equity and income security. Thus the projectis expected to increase total income, improve income distribution and reduce income variability. Accordingto the farming typology and analysis of potential carried out during identification and preparation,agricultural services to producers can result in increased sector growth from commercial large farms, fromthe irrigated sector, from market-oriented middling and small farms in general, and from significant parts ofthe livestock and fisheries sectors. For quasi subsistence small farms the economic case is less strong, aspotential for improved productivity is less strong and the systems are generally dependent on protection.

The challenge in performing the economic analysis of such a project is to measure these benefits and to linkthem to specific investments in agricultural services. That poses several problems:

(i) benefits from institutional development and capacity building are difficult to quantify;(ii) the project supports an ongoing reform that started in 1988 and is expected to finish in a 10-yeartime horizon. It is difficult to dissociate benefits of the proposed project from the rest of thereform process.(iii) the projects aims at improving a wide range of complementary services. Conducting the economicanalysis of each component individually is problematic.

Many ex-post studies have shown that agricultural services investments yield high rates of return. Acomprehensive 1998 report by the Intemational Food Policy Research Institute (Alston and others 1998)reviewed 294 studies providing 1,858 separate estimates of rates of return on investment in agriculturalresearch and development (including extension). After eliminating the extremes, the estimated rates ofreturn average 73% - 88% for research only and 45% for research and extension combined. The lowerestimate for research and extension combined might be due to these studies capturing more of the totalcosts of the technology generation process. The study found no evidence of decline in rates of return inrecent years.

Even if no ex-post or ex-ante analysis is available for Tunisia, there is no reason to believe that economicreturns to agricultural services investments in Tunisia would be substantially below the level of historicreturns. Substantial evidence, such as the technical and economic potential of many crops and systems,supports the potential for good returns to investments in agricultural R&E in Tunisia.

A break-even analysis

Since benefits from project activities are difficult to estimate ex-ante, a break-even analysis has beenconducted for the project as a whole. Under this approach, the minimum benefits that must be generated bythe project to justify costs are determined and the feasibility of obtaining these benefits is assessed. It isassumed that project benefits would materialize through an increase of agricultural GDP. This is aconservative approach, since other benefits can be expected such as social benefits. To take into accountthe slow process of institutional reform and capacity building, it is assumed that benefits would startmaterializing in PY5 and reach full potential by PY8. The lifetime of the project is assumed to be 20 years.Economic investment and recurrent costs were obtained from the project cost tables after removing taxesand financial contingencies. The shadow exchange rate is assumed to equal the market exchange rate.

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Detailed calculation of economic input and output prices are available in the project files.

Under these assumptions, to obtain an overall rate of return of 12%, agricultural GDP growth would haveto increase by +0.03% p.a. compared to the without project scenario.

Comparison to historical growth rates

Agricultural growth averaged 3.4% p.a. during the period 1989-99, and 4.1% between 1976 and 1994..Between 1976 and 1994, increase in total factor productivity explained about half of the growth (2% p.a.)while the other 2.1% was explained by an increase in the use of production factors (Lachaal, L. (1996),"Les sources de la productivite dans l'Agriculture Tunisienne", Actes des 3emes Journees Nationales surles Acquis de la Recherche Agronomique, Veterinaire et Halieutique, Nabeul 29 Nov. - ler Dec. 1996..This strong performance over a long period of time is the result of large public and private investments,accompanied by a favorable policy environment and development of a broad range of services to producers.Traditionally, about 20% of public investments have been allocated to the agricultural sector and privateinvestments were encouraged through subsidies and tax exemption, in addition to a favorable price policyand the provision of services to technology development and transfer, animal health, plant protection etc.

The casefor investing now in technology and human capacity

In the past, a large share of public investments was allocated to irrigation development and soil and waterconservation projects; while private investment were used for mechanization, livestock, arboriculture, andfisheries development. As a result, physical resources (land and water) are now almost fully developed andfuture growth will have to come from increased factor productivity and increased value added ofagricultural products through the mobilization of human capital employing technology, know how andmanagerial skills. This emphasizes the economic case for investing in technology and human capacity forintensifying factor productivity, and for conservation of the resource base, .

Potentialfor growth exists

Substantial productivity gains are still to be tapped (i.e. utilization rate of irrigation perimeters,intensification, water use efficiency, better use of inputs and improved cultural techniques on annualcrops). This is illustrated by important variability in technical and economic performance in the sameagro-climatic zone from one farm to another (CNEA/COMETE Engineering, identification report,2000). And the scope for increasing value added of agricultural products (e.g. improved quality, bettermarketing, shift to higher value crops) is also important.

Links between growth and services

Improving agricultural services and strengthening producers and inter-professional organizations are vitalto tap into these potential and to achieve government's growth targets. Intemational experience has shownthat improving agricultural services has gone hand-in-hand with higher growth. The link between servicesand productivity in Tunisia is confirmed by the needs assessment carried out during pre-appraisal, thatshowed the strongest needs for: (1) timely and relevant technology, advisory services and training toimprove productivity and reduce costs, and thereby increase revenues; (2) information and advice onmarket outlets and requirements; and (3) producer and industry organization to ensure service delivery, toimprove marketing and to represent and defend producers interests.

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Conclusion on economic viability

Given the potential for improvement in agricultural services perfornance (provision of services), producerorganizations (access to services, inputs and markets) and inter-professional organizations (quality,marketing, export) and the technical and economic potential for further growth for many crops andsystems, an increment of at least 0.03% of AgGDP growth does not seem unrealistic to reach even with theconservative approach taken in this analysis. The economic viability of the project is thus justified.

Effect of economic analysis on project approach

The lack of specific ERR analysis at the level of the overall project makes it very important to ensure thateconomic considerations are factored in to decisions at the implementation and micro levels. Twoimportant measures will be observed:

(1) wherever relevant, decisions on research, extension, training, animal health, plant protection etc will bedriven by economic criteria, putting producers' bottom line as the target and linking producer profit fromthe technology or the service to cost of the service

(2) cost effectiveness will be observed for all service provision, and will increasingly be producermonitored, as cost sharing imposes a" value for money" requirement on the service provider.

Monitoring and evaluation of economic performance

The litmus test of economic benefit to producers under the project will be their participation in the prograrn(active group formation, setting the agenda for some agricultural services and progressively paying for andproviding some services). Thus the monitoring and evaluation system should concentrate on these(participation rates) as the key index of project economic performance.

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Annex 5: Financial Summary

TUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Years Ending2002-2006

- IMPLEMENTATION PERIODYear I | Year 2 Year 3 | Year 4 r Year r l Year 6 I Year 7

Total Financing RequiredProject Costs

Investment Costs 8.5 9.9 6.6 4.4 3.9 0.0 0.0Recurrent Costs 0.9 1.3 1.9 2.3 2.5 0.0 0.0

Total Project Costs 9.4 11.2 8.5 6.7 6.4 0.0 0.0Front-end fee 0.1 0.1 0.0 0.0

Total Financing 9.5 11.3 8.5 6.7 6.4 0.0 0.0

FinancingIBRDIIDA 4.0 6.2 5.0 3.2 2.9 0.0 0.0Government 3.4 3.4 3.3 3.3 3.3 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 2.1 1.7 0.2 0.2 0.2 0.0 0.0User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Financing 9.5 11.3 8.5 6.7 6.4 0.0 0.0

Main assumptions:Detailed tables are available in the project files.

Project costs total US$ 42.2 million, of which US$33.3 million (79%) are investment costs and US$9.0million are incremental recurrent costs. Project costs would be bome by the public budget (40% of projectcosts) and the loan (50% of project costs) together with a cofinancier for the training component (10%).Over the 5-year implementation period of the project, the Government would provide US$16.7 millioncounterpart funds, an average of US$3.3 million a year.

The project fiscal impact is expected to be small in the short and medium terms. Both investment andincremental recurrent costs are small when compared to the ministry's total budget and the increase inoperating costs is partially balanced by some transfers of activities to the private and professional sectors.Government's annual contribution to investment costs totals less than 1% of the ministry's 2000-investmentbudget (excluding external sources).Annual operating costs average under US$2 million a year and peak atyear 5 at US$2.1 million (constant price 2000), that is less than 2% of the Ministry's 2000-operatingbudget (Titre I), and about 5% of the operating budgets of the services concerned by the project.

Over the 5-year implementation phase of the project, private sector participation in the provision andfinancing of agricultural services will be relatively modest, while government's capacity to ensure itsessential public functions will be strengthened. The government will continue to provide and financeagricultural services to producers until the appropriate institutional and regulatory framework is in placeand producer organizations and the commercial private sector are ready to take over. It is therefore during apossible second phase (2007-2011) that private sector participation will really expand, and a positive

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impact on government's budget could be expected.

On the benefits side, and in the medium and long term, increase in farm household spending as a result ofhigher incomes would have a positive impact on tax revenues. In addition, higher farm incomes will allowproducers to pay a greater share of services, making possible and sustainable user participation in theprovision and financing of services.

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Annex 6: Procurement and Disbursement ArrangementsTUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Procurement

Guidelines

1. Procurement for the proposed project will be carried out in accordance with the World Bank"Guidelines: Procurement under IBRD Loans and IDA Credits" published in January 1995 (revised inJanuary /August 1996, September 1997, and January 1999, and "Guidelines: Selection and Employment ofConsultants by World Bank Borrowers", published in January 1997 and as revised September 1997 andJanuary 1999,and the provisions stipulated in the Loan Agreement. National Competitive Bidding (NCB)will be carried out with procedures acceptable to IBRD which allow: (a) an explicit statement to bidders ofthe evaluation and award criteria; (b) national advertising with public bid opening; (c) sufficient time forbidders to submit bids (four weeks usually); (d) no preference margin to domestic contractors ormanufacturers; (e) foreign bidders to participate in NCB if they so wish; and (f) contract award to be madeto the bidder whose offer is substantially responsive and lowest evaluated. The methods to be used for theprocurement under this project, and the estimated amounts for each method, are summarized in Table A.The threshold contract values for the use of each method are fixed in Table B.

2. The Tunisian procurement legislation is generally in line with the Bank's guidelines and reflectsadequate capacity of implementing agencies to handle procurement, and adequate control organizations inthe country. Tunisian implementing agencies would apply the Bank's procedures, in particular concemingthe following issues:

(i) the use of two envelopes in bidding for works and goods: the envelopes containing theadministrative and technical documents, and the envelope containing the financial offer, will beopened simultaneously in public and in one single stage, and prices are announced in the samesession; and

(ii) services of consultants: open competitive bidding will not be used. In accordance with theBank's procedures, the Borrower addresses a request for proposals to a predetermined short list.For consultants, the envelopes containing the financial proposals will be opened in public in asecond stage, only after the technical evaluation is completed.

Project Management

3. The proposed five-year project objectives are to support the national program for the developmentof agricultural services. The project would represent the first half of a ten year program, and is expected tohave five components, as mentioned in the project description.

Procurement of works and goods and the selection of consultants would be carried out by twelveimplementing units, most of which have experience in implementing Bank-financed projects. Eachimplementing unit will be responsible for launching and supervising its own work program. To ensuresmooth project implementation the Project Management Unit (PMU) will be within the Ministry ofAgriculture and administered by the DGFE, which has a long experience in dealing with Bank-financedprocurement under the previous ASIL, the on-going ASIL 2, and the recently effective Water SectorInvestment Loan. The PMIU coordinator has already been appointed and has substantial experience in

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handling procurement in accordance with Bank procedures. In addition to the coordinator, the PMU willhave a financial management/procurement specialist, and a monitoring and evaluation specialist. Therecruitment of the two specialists will be subject to the Bank's approval. During project implementation, thePMU will have, when required, to utilize the adequate resources in procurement within the DirectionGenerale du Financement et des Encouragements and the Ministry of Agriculture in general. The PMI willprovide for the less experienced executing units support through hands-on training and permanent coaching.A Project Implementation Plan is being prepared which will include, in addition to the procurementprocedures, the Standard Bidding Document to be used for each procurement method. It is howeveranticipated that the project would not be eligible for PMR-based disbursement in particular during the firstyear.

Civil Works

4. Civil works to be financed under the project will cover mainly the construction and rehabilitation oflaboratories and will be scattered across the country. These works are relatively small and would add up toan aggregate of US$5.07 million equivalent. They will be carried out in accordance with NationalCompetitive Bidding (NCB) procedures. Contracts estimated to cost below US$30,000 may be awarded onthe basis of comparing quotations from at least three contractors.

Goods

5. The project would finance vehicles, office equipment and computers as well as miscellaneousequipment for implementing units. The total value of goods is estimated at US$13.63 million equivalent. Tothe extent possible and practicable, goods and equipment to be purchased under the project would becombined into packages worth at least US$400,000 and will be procured through ICB. The Bank'sStandard Bidding Documents (SBDs) would be used for all International Competitive Bidding - ICB - forgoods. NCB may be used for contracts estimated to cost US$30,000 or more, but less than US$400,000.National or international shopping based on price quotations obtained from at least three suppliers can beused for small quantities of goods, provided that the value of the goods does not exceed US$30,000 and theaggregate amount does not exceed US$500,000.

Services

6. Services will consist of: studies (US$ 1.78 million equivalent) ; surveys (US$ 1.54 millionequivalent); training (US$ 3.54 million equivalent); publications and teaching materials (US$ 0.53 millionequivalent); national and international consultants (US$ 4.73 million equivalent). Consultant services withan estimated contract amount exceeding US$200,000 will be advertised in the United Nations DevelopmentBusiness and in at least one national paper, seeking expressions of interest. For such contracts, the Bank'sStandard Request for Proposals will be used, and the selection of consultants will be addressed throughcompetition among qualified short-listed firms in which the selection will be based on Quality and CostBased Selection (QCBS). In the case of assignments to cost less than US$200,000 equivalent, the short-listof consultants may comprise entirely national consultants if a sufficient number of qualified firms areavailable at competitive costs. However, if foreign firms expressed interest, they will not be excluded fromconsideration. The selection method of consultants will be based on quality and cost (QCBS) for allcontracts above US$100,000 equivalent for firns and US$50,000 for individuals. Below these thresholds,and with the exception of the employment of consultants through single source for reasons critical to theproject, the selection method may be on the basis of Consultants' Qualification Selection (CQ).

The training programs would be subject to the Bank's prior review and approval, as would be

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workshops.

Procurement Plan: The Borrower will develop, before the start up of the project, a procurement plan forthe first year of the project implementation, acceptable to the Bank. A similar plan will be prepared by theBorrower and approved by the Bank for the next following years.

Research Sub-Projects

7. The research sub-projects (US$1.05 million- given in table A "Miscellaneous- other") will takeplace in accordance with the Research Grant Management Manual, which will be subject to Bank approvaland be in effect by March 31, 2002. The Manual will set out the obligations and eligibility andperformance criteria, and will include provisions that (1) each sub-project shall be financially andtechnically viable; (2) each sub-project shall comply with the standards set forth in the applicable laws ofthe Borrower relating to health, safety and environmental protection as well as the Bank's relatedapplicable guidelines; (3) financing to be on a grant basis; (4) each sub-project to be carried out with duediligence and efficiency and in accordance with sound environmental, agricultural, technical, financial, andmanagerial standards, with adequate accounting records; (5) the right of inspection, review and informationfor the Borrower and the Bank; and (6) the right for the Borrower to terminate for non-compliance with therules. The grant program will be managed by Ministry of Agriculture through IRESA.

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Procurement methods (Table A)

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

Procurement MethodExpenditure Category _ C8 NCB Other' N.B.F. Total Cost

1. Works 0.00 4.10 0.97 0.00 5.07(0.00) (2.50) (0.30) (0.00) (2.80)

2. Goods 5.20 7.01 1.42 0.00 13.63

(4.46) (4.03) (0.00) (0.00) (8.49)3. Services 0.00 0.00 12.12 0.00 12.12

(0.00) (0.00) (8.96) (0.00) (8.96)4. Miscellaneous 0.00 0.00 1.05 10.37 11.42

(0.00) (0.00) (0.87) (0.00) (0.87)5. Front-end fee 0.00 0.00 0.21 0.00 0.21

(0.00) (0.00) (0.21) (0.00) (0.21)

Total 5.20 11.11 15.77 10.37 42.45(4.46) (6.53) (10.34) (0.00) (21.33)

" Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.

2 Includes small works and goods to be procured through national or international shopping, consultingservices, services of contracted staff of the project management office, training, technical assistanceservices, and incremental operating costs related to managing the project.

The amount of US$870,000 to be financed by the Bank Loan, under Miscellaneous (other) corresponds to the costsof carrying out research sub-project in accordance with the Research Grant Management Manual.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

Contract Value Contracts Subject toThreshold Procurement Prior Review

Expenditure Category (US$ thousands) , Method (US$ millions)1. Works <5,000 NCB All contracts above US$

500,0002. Goods >=400 ICB All contracts

<400 NCB First contract3. Services: Firms >100 QCBS All contracts

<100 CQ None

Services: Individuals >=50 see Section V All (TORs, Short List, CV,of Consultant Guidelines Contract)

<50 see Section Vof Consultant Guidelines TORs only

5. Miscellaneous6. Miscellaneous

Total value of contracts subject to prior review: US$8.7 million

Overall Procurement Risk Assessment

Low

Frequency of procurement supervision missions proposed: One every 6 months (includes specialprocurement supervision for post-review/audits)

'Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.

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Disbursement

Allocation of loan proceeds (Table C)

Table C: Allocation of Loan Proceeds

Expenditure Category Amount in US$iFinancing Percentage

1. Works 2.67 80%2. Goods 8.06 100% of foreign expenditures, 100% of

local expenditures (ex-factory), and 80%of local expenditures for other items

3. Services, workshops, seminars, 8.51 100%training4. Grants for research sub-projects 0.82 100%5. Unallocated 1.06 100%

[Total Project Costs 21.12

Front-end fee 0.21

Total 21.33

Use of statements of expenditures (SOEs):

Disbursement Arrangements

The proceeds of the IBRD loan would be disbursed against 100% of eligible foreign or ex factory taxexempt expenditures on goods; 100% of all expenditures on consultant services, studies, research programsand training; and 80% on goods and civil works procured locally.

As projected by Bank's standard disbursement profiles, disbursements would be completed four monthsafter project closure. Disbursements would be made against standard IBRD documentation.

Special account:To facilitate disbursement of eligible expenditures for works, goods and services, the Government will opena special account in the Central Bank of Tunisia to cover part of IBRD's share of eligible expenditures tobe managed and administered by the Central Bank of Tunisia. The authorized allocation of the specialaccount would be EUR 1,400,000 (equivalent of US$ 1,250,000), covering an estimated 4 months ofeligible expenditures financed by IBRD. However, the initial authorized allocation would be limited toEUR 800,000 (equivalent to US$ 750,000) until the aggregate amount of withdrawals from the Loan, plusthe total amount of all outstanding special commitments equal EUR 5,000,000 (the equivalent of US$4,500,000). The Central Bank of Tunisia will be responsible for submitting monthly replenishmentapplications with appropriate supporting documentation for expenditures incurred and will retain and makethe documents available for review by IBRD supervision missions and project auditors. To the extentpossible, all of IBRD's share of expenditures should be paid through the special account. All expenditureseligible for IBRD financing of less than US$ 100,000 equivalent would be paid from the SA.

The Special Account will be replenished through the submission of Withdrawal Applications on a monthlybasis and will include reconciled bank statements and other documents as my be required

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Use of Statement of Expenditure (SOEs): All applications to withdraw proceeds from the credit will befully documented, except for: (i) expenditures for contracts with an estimated value of US$ 400,000 eachor less for goods, US$ 500,000 for civil works, and US$ 100,000 for consulting firms; and (ii) US$50,000 or less for individual consultants, training and individual research grants, which may be claimed onthe basis of certified Statements of Expenditures (SOEs). Copies of documentation supportingexpenditures claimed against SOEs will be retained by the PMU and will be available for review whenrequested by IBRD supervision missions and project auditors. All disbursements will be subject to theconditions of the Loan Agreement and the procedures defined in the Disbursement Letter.

Financial Mananement.

The Financial Management System (FMS) in place at the Ministry of Agriculture (implementing agencyfor the project) is based on principles and procedures defined by the legal framework applicable to thepubic sector and more specifically to governmental institutions. The main characteristics of this system arethe following:

Accounting system. An accounting system based on the cash basis and the outline of budget components isoperational and reflected on legal books according to the regulation described in the Public AccountingLaw. In parallel the information system is quite developed and allows, through numerous applications, togenerate the necessary information for the management of operational activity.

Budgeting system. Based on the programs and actions to be undertaken, the MOA issues an annual budgetfor commitments. The annual budget is submitted for approval to the Ministry of Finance, structure incharge of a close control through its specialized units. In tenus of sources of funds, the general budgetincludes the GOT's contribution as well as funds allocated by different donors for the implementation ofspecific projects. The budget execution is also subject to authorization for payment on a transaction level.This specific authorization process aims at ensuring that the expense to be paid has been budgeted, and toissue the official instruction to make the payment. This process is supported by a computer system calledADAB". All the technical ministries use this system at the central level to commit expenditures and toinsure that all commitments are covered by the annual approved budget.

National disbursements procedures. At the regional level, payments through the govemmental budgetinvolving decentralized agriculture activities are processed by the CRDAs. Based on the authorization ofpayments, the Tresorerie Generale (TG) transfers the needed funds on a quarterly basis. With regards totransactions totally or partially financed by intemational donors, payments are centralized for the eligibleportion. The process involves four parties with the following specific roles : (i) the CRDA is responsiblefor implementation and issuing of the applications for withdrawal, (ii) the technical department involved isresponsible for reviewing the technical aspects and the consistency of the supporting documentation, (iii)the DGFE is responsible for the review of the eligibility of the expenditures to the specific financing; and(iv) the Central Bank of Tunisia (BCT) which plays the role of manager of the special account and is actingas MOF representative for the replenishment of this account.

Control of the budget execution. A fiduciary responsibility of control of budget execution and monitoring isassigned to MOF through a specialized audit department "Contr6le General des Finances" (CGF) and to theAudit Court (Cour des Comptes) that has a judiciary role of supervision of public finance and the authorityto deliver final approval ("quittus") of the management and accounts of public funds. For managing theextemal debt, MOF has implemented in 1996 a new computerized system called "SIADE".

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Project Monitoring. The official structure responsible for the project monitoring and reporting in the MOAis DGFE. This unit is responsible for issuing periodical reports combining physical implementation data aswell as financial information related to commitments and disbursements from the loans. The system inplace is satisfactory in terms of use of funds but still incomplete in terms of reporting as required by theBank. In fact, DGFE still has to handle periodically several sub reports issued by the technical departmentsthat often don't have the needed coherence to allow for an easy aggregation of data. This method ofoperating involves delays and extra workload related to the needed checks and reconciliation of data beforeissuing the consolidated semi-annual reports. This could also affect the accuracy and reliability of datasince new entries have to be done at the level of DGFE in order to present an overview of projectimplementation. An improvement is actually expected through implementation of an accounting andreporting system for the Water Sector Investment Project.

General Assessment and Scope for Improvement

General Assessment. The overall financial management system used by MOA and related structure, is fromthe institutional and accountability point of view satisfactorv. In fact the system is presenting the neededlevel of control in order to reduce the risk of misuse of funds at an acceptable level. However in terms ofManagement Information System there is still scope for improvement. The main areas are related to:harmonization of the procedures, introduction of technology solution, hiring of qualified financialmanagement staff, monitoring of the cumulative date related to sources and uses of funds, andreconciliation of data as shown in ADAB, SIADE with the periodic reports. It should also be noted thatMOA is in the process of addressing several of these issues mainly through the National Program forModernization and Upgrade (NPMU).

Scope for improvement. In terms of specific efforts, DGFE is in process of implementing a newcomputerized system for the Water Sector Investment Project signed in September 2000 and declaredeffective in January 2001. This project has been selected as pilot for the implementation of a fullycomputerized project accounting and reporting system including budgeting and monitoring and evaluation.The installation of the selected software at the central level is actually in process and could be consideredsuccessfully implemented. Thus the same technology solution could be used by DGFE for all the otherproject managed under its responsibility including the proposed Agriculture services project. The extensionof the above-mentioned software to the regional level (CRDA and other involved agencies), would beconsidered during FY 2002.

Financial Management System for the Project. DGFE would be the general coordinator of the project andwhere the PMU will be located and headed by a project coordinator. The coordinator will be responsiblefor a close monitoring of the project and evaluation of physical performance, including procurement,finance, budgeting, and accounting duties, and for the establishment of an acceptable financial managementsystem. A qualified financial and accounting specialist will assist the coordinator. The PMU team will beexpected to demonstrate a reasonable knowledge and understanding of World Bank procurement,disbursement, project accounting, financial reporting and auditing guidelines and procedures. DGFE andMoA permanent structures will also be involved in the project implementation as for the current activity.The PMU team should play a role of official vis a vis for the project implementation and thus is responsiblefor producing consolidated financial data and progress reports.

The technical departments and agencies would be overall responsible for implementation of the actions.Each involved implementing unit (IU) will designate officially a coordinator responsible for issuingsub-project accounts and sub-Project Management Reports as well as disbursement duties.

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At the regional level, CRDA and training centers, would be responsible for the management of the projectcomponents within the govemorate. A govemorate level coordination committee (GCC) would be createdand would be headed by the CRDA head. An accountant within the CRDA would be responsible foraccounting and disbursement fields including periodic transmission of analytical sheets (transactions relatedto commitments and disbursements ) and supporting documents to the technical department at the centrallevel.

The main actions to be implemented during a period of 13 months and by no later than June 30, 2002. arethe following:

* Appointmnent of the Project Management Unit (PMU) headed by a project coordinator for theproject. An official list should be issued and would include all the staff involved in all the structures at thecentral and regional level.* Hiring of a short-term consultant to develop the Financial Management Manual* Acquisition of the needed hardware for the project team.* Implementation of a specific accounting and reporting software.* Appointment of an accounting and financial management specialist* Development of training program.

Financial and accounting policies for the project have to be developed. These policies are crucial forensuring transparency, providing clarity regarding financial aspects to the various stakeholders and financestaff, ensuring uniformity, and enforcing accountability. These policies inter-alia cover the followingaspects: (i) expenditures which, would be treated as project expenditures including their classification; (ii)expenditures, which would be eligible for reimbursement from Bank Loan; and (iii) project accountingpolicies. These policies would be gradually expanded and refined to include aspects such as efficientmanagement and deployment of funds, intemal control policies, etc.

Project Accounting System. The IU involved in the project implementation would maintain accountingrecords for the components they manage, prepare, and disseminate sub-project accounts and sub-financialmanagement reports. They would also ensure timely transmission of these documents to the PMU.

Within each IU, a coordinator will be designated. Where more than one implementing agency is involvedin any component, arrangements will be made as follows to coordinate the overall component foraccounting and reporting purposes:

(i) Component 1: Building the capacity of producer organization. DGFE would lead component activitiesfor producer organizations and would define a relationship with all involved entities, according to theinstitutional framework. This should allow trnsferring project funds through agreed contract ("Contratsprogramme"). APIA would implement the quality and export component, largely through work programsagreed with the GIPs.

(ii) Component 2: Strengthening the supply of research, training and fanming advisory services. IRESA(for research) and AVFA (for extension and training) would lead component activities with the support ofthe regional centers.

(iii) Component 3 : Live stock and animal health. DGSA would lead component activities and define

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relationship with other involved parties through memorandum of understanding defining the role andresponsibility during project implementation.

(iv) Component 4: Plant protection. DGPV would lead component activities.

(v) Component 5 : Strengthening public interest services and project management support. DGPDIA wouldlead components activities.

Each component coordinator would be held during project implementation to maintain sub project accountsand sub reports reflecting all transactions managed under their responsibility.

The Project Coordinator would be responsible for the aggregating, processing and issuing of: (i) the annualproject financial statements (PFS), and (ii) the quarterly financial Management Report, and theirsubmission to the Bank.

The overall principles for project accounting are outlined below:

(i) Project accounting would cover all sources of project funds, and all utilization of project funds. Thiswould include payments made and expenditures incurred. All project-related transactions (whetherinvolving cash or not) would be taken into accounts in the reporting system. Disbursements made by theWorld Bank and the transaction processed through the Special Account maintained by BCT would also beincluded in the project accounting system. Funds received from different sources would be identifiedseparately.

(ii) Project-related transactions and activities would be distinguished from other activities. This distinctionwould be reflected at the data-capture stage. A trial balance for the project capturing all projects receipts,expenditures, and other payments under the project would be prepared. CRDAs and regional agencieswould be required to transmit on a monthly basis, separate progress statements (spread sheets summarizingtransactions committed and /or disbursed) with all supporting documents to the involved IU at the centrallevel. This will allow them to maintain a computerized sub project accounts and sub project reports. Thesewould be consolidated on a monthly basis at the level of PMU

A Chart of Accounts for the project has to be developed by the consultant responsible of the issuing of thefinancial management procedures manual. The Chart of Accounts should conform to the classification ofexpenditures and sources of funds as indicated in the project documents (Project Implementation Plan,Project Appraisal Document, COSTAB). The Chart of Accounts should allow data to be captured in amanner to facilitate financial reporting of project expenditures by: (i) project components; (ii) expenditureallocation; and (iii) disbursement categories.

(iii) A system of reconciliation between the Project Financial Statements /financial reports and the legalrecords (mainly ADAB, SIADE, approved financial statements for the independent entities) has to bedefined.

(iv) Key performance indicators would be defined and customized during implementation of thecomputerized reporting system in order to allow issuing of analytical tables reflecting physicalimplementation. Each technical department and agency would be required to comment on the periodicresults.

Information Flow for Accounting Purposes

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The information flow will be as follows:

* Payments from state budget would be the responsibility of CRDA and regional centers at theregional level, and of the IUs at the central level. This consist of disbursement approval and paymentthrough "Tresorerie Generale" accounts and sub accounts.

* Payments from Bank's funds would be processed exclusively at the central level. lUs and agencieswould play a role of control and approval and would transmit all request to DGFE to be proceeded.

* DGFE would be held to review supporting documents and attest eligibility of expenditures beforetransmission of the documents to the Central Bank and the bank when direct payments are requested.Request for replenishment as well as disbursement forecast would be the responsibility of DGFE.

* Central Bank would be responsible of payments from special accounts and issuing of monthlystatements and their transmission to PMU.

Intemal Controls . The project financial management system should include the following internal controlmechanisms:

(i) operation of a budgeting system, and regular monitoring of actual financial performance withbudgets and targets;

(ii) adoption and operation of simple, clear and transparent financial and accounting policies whichwould govern financial management of and accounting for the project (as described earlier). These policiesand procedures have to be included in the Financial Management Procedures Manual.

(iii) at the transaction level, establishment and operation of policies, procedures and systems forensuring standard internal controls such as checking of expenditures, appropriate documentation, levels ofauthorization, segregation of duties, periodic reconciliation, physical verification, easy access to supportingdocuments etc. These policies and procedures would be reviewed and updated periodically;

(iv) Central Bank and Budget Department of the MOF will provide PMU on a monthly basis, withstatement of accounts for both Special Account and project account. The financial and accountingspecialist will do a monthly reconciliation of balances and will ensure to explain any detected differencebetween accounting records and statements.

(v) establishment and operation of a comprehensive aggregation mechanism, including the issuing ofsub-project accounts and sub-PMRs at the level of each IU and the project's consolidated financialstatements and quarterly PMRs at the level of the PMU.

Financial Management Reports

Project financial and monitoring reports for the project would be generated from the computerizedfinancial management system. These reports would be management-oriented (i.e., summaries rather thantransactional details) and would be used for the monitoring and implementation of the project by eachtechnical department designated coordinator and by PMU at DGFE level.

PMU would be responsible for issuing of the following reports:

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Semi annually project monitoring and management report which, should include the following:

(i) Financial Statement that include:* Summary of sources and uses of funds* Uses of funds by project activity* Project balance statement of affairs* Cash withdrawal* Cash forecast* Special account statement

(ii) Progress statement that include* Output monitoring report using contact management information, or* Output monitoring report using unit variance as monitoring indicator

(iii) Procurement management report that includes:* Contract expenditure report - Goods and works* Contract expenditure report - Consultant* Procurement management report - Goods and works* Procurement management report - Consultant

Formats of the reports should be part of the Financial Management Procedures Manual. The selectedsoftware should allow the issuing of such tables on an automatic manner.

Annually, audited Project Financial Statements (PFS) would be submitted to the Bank. PFS would include(i) a statement of sources and utilization of funds or Balance Sheet, indicating funds received from varioussources, project expenditures, and assets and liabilities of the project; (ii) schedules classifying projectexpenditures by components and expenditure categories; (iii) a Special Account Reconciliation Statement;and (iv) a Statement of Withdrawals made on the basis of Statements of Expenditure (SOEs). Audited PFSwould be submitted to the Bank not later than 6 months after the end of the Fiscal Year.

Audit Arrangements

MOA will appoint an auditor acceptable to the Bank to carry on an annual audit. The auditor will performthe audit according to: (i) the International Standards of Auditing as issued by the International Federationof Accountants, (ii) Bank's Guidelines (e.g. Financial, accounting, reporting and auditing handbook, "FARAH"), and (iii) specific Terms of Reference (TORs) acceptable to the Bank. The auditor will express aprofessional opinion on the annual project financial statements and will submit to the Bank an annual auditreport within 6 months after the end of each government fiscal year

The audit would be comprehensive and cover all aspects of the project (i.e., all sources and utilization offunds, and expenditures incurred). The audit will be carried out in accordance with International Standardson Auditing. Terms of Reference (TORs) for this assignment should cover an audit of financial transaction,and an assessment of the financial management system, including review of internal control mechanisms.All the involved IUs at the central and regional levels would provide the auditor with access toproject-related documents and records, and information required for the purposes of the audit. The Auditorwould carry out a concurrent audit during the fiscal year, to bring to management's attention any issue,which needs to be addressed. This would strengthen internal controls, and would also facilitate early

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completion of the annual audit.

Readiness for Implementation

Assuming a Board presentation in June 2001, DGFE would be required to implement the following actionplan over a period of 13 months and by no later than June 30, 2002.

Action Output Responsibility Effective date

1. Organization of the project Organization chart DGFE June 30, 2001team and definition of and job descriptionqualification/function of theinvolved staff

2. Issuing of the terms of Terms of reference DGFE July 31, 2001reference for hiring a consultant to and detailedassist the DGFE in the implementationimplementation of the financial planningmanagement system

3. Selection of the consultant Contract and DGFE/ October 31, 2001and launch of the assignment assignment schedule Consultant

4. Issuing of the financial Financial DGFE/ December 31, 2001management procedures manual management ConsultantlIUs(general organization, accounting procedures manual and PMUand financial systems, intemal and technical filecontrol guidelines) and the for the selection oftechnical characteristics of the the softwareneeded accounting and reportingsoftware Organization of thePMU

5. Acquisition of the needed Reception of DGFE/ January 31, 2002hardware (procurement procedures equipment Consultant/LUshave to start on August 2001) and PMU

6. Implementation of a Set-up of the system DGFE/ December 15, 2001software and testing Consultant/IUs

and PMU

Next steps.

Upon implementation of the financial management system, the PMU and concemed departments will worktogether to improve effectiveness of reporting and monitoring system over a period of six months.

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Action Output Responsibility Effective date

7. Program of Training of the Program: content and PMU with February 28,Project staff timetable DGFE/ 2002

Consultant

8. Implementation of the financial Work shop for the PMU/IUs and March 15, 2002management procedures manual and presentation of the consultantaccounting system manual and the

software

9. Implementation of the full Customization of PMU/IUs & March 15, 2002reporting system format and content of Consultant

the PMR

10. Training program Training performance Consultant April 30, 2002,report to June 30, 2002

11. Issuing of the First PMR PMR as of June 30, PMU August 15, 20022002

12. Evaluation of the financial Financial WB September 30,management system management 2002

assessment report andrecommendations

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Annex 7: Project Processing ScheduleTUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

'Project Schedule Planned 1 ActualTime taken to prepare the project (months) 6 6

First Bank mission (identification) 10/01/97 10/01/97

Appraisal mission departure 04/01/2001 04/01/2001

Negotiations 05/10/2001 05/14/2001Planned Date of Effectiveness 01/01/2002

Prepared by:

Ministry of Agriculture with input from FAO Investment Center, consultants (financed by PHRD) and theWorld Bank

Preparation assistance:

PHRD Grant

Bank staff who worked on the project included:

Name Speciality

Christopher Ward Lead Operations Officer, Team Leader, MNSREMarie-Helene Collion Senior Agricultural Services Specialist, MNSREMarie-Laure Lajaunie Economist, MNSREPierre Rondot Senior Farner Organizations Specialist, RDVChristian Fauliau Senior Institutions Specialist, AFTRCTjaart Schillhom van Veen Senior Livestock Specialist, ECSSDPetros Aklilu Sector Manager, Rural Development, MNSREMaurice Gress Principal Procurement Specialist, Reviewer for Procurement, MNAHovsep Melkonian Senior Disbursement OfficerHassine Hedda Disbursement AnalystNadia Gouhier Procurement Analyst, MNSRELaurent Msellati Senior Livestock Specialist, MNSREMadani M. Tall Senior Economist, Tunisia Cluster Leader, MNSRESamia Msadek Financial Management Specialist, Reviewer for Finance, MNSRESalah Darghouth Sector Manager, Water and Environment, MNSREDoris Koehn Sector Director, MNSREM-F How Yew Kin Tunisia Cluster Team Assistant, MNSREArbi Ben-Achour Senior Social Scientist, MNSREDominique Bichara Counsel, Reviewer for Legal Aspects, LEGOPSherif Arif Principal Environmentalist, Reviewer for Environment, MNSRENicole Glineur Senior Environmentalist, MNSREStephanie Brackman Environmentalist, MNSREMarisa Femandez-Palacios Portfolio Adviser, MNCASAuguste Kouame Tunisia Country Officer, MNCO1

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Willem Zijp Principal Agricultural Services Specialist, Peer Reviewer, AFTQKDaniel Moreau Senior Agricultural Institutions Specialist, Peer Reviewer, AFTRCKeith Rennie Senior Social Scientist, reviewer for Socical Issues, MNSRE

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Annex 8: Documents in the Project File*TUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

A. Project Implementation Plan

B. Bank Staff Assessments

* PCD - October 2000* Pre-Appraisal Mission: BTO and aide memoire dated March, 2001* Appraisal Mission : BTO and aide memoire dated April 2001* Various technical notes

C. Other

* Identification Report, Phases 1, 2 and 3, 1998-2000, CNEA/Comete for Ministry of Agriculture* Preparation Report, February 2001, FAO Investment Center for Ministry of Agriculture* Water Sector Investment Loan - WSIL, May 10, 2000, PAD Report no. 20422-TUN* Second Agricultural Sector Investment Loan-ASIL2, December 30, 1997, PAD Report no.

17208-TUN* Agricultural Sector Investment Loan-ASIL, October 29, 1993, Staff Appraisal Report no.

12229-TUN* Environmental Assessment, May 2001* Social Review, March 2001*Including electronic files

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Annex 9: Statement of Loans and CreditsTUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

May-2001Difference between expected

and actualOriginal Amount in USS Millions disbursements

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'dP064082 2001 TRANSPORT SECTOR INVESTMENT PROJECT 37.60 0.00 0.00 0.00 36.57 0.00 0.00P035707 2000 TN-WATER SECTOR INVESTMENT PROJECT 103.00 0.00 0.00 0.00 103.86 -1.06 0.00P050945 2000 TN-Educabon PAQSET I 99.00 0.00 0.00 0.00 98.01 1.01 0.00P055814 1999 TN-EXPORT DEVELOPMENT 35.00 0.00 0.00 0.00 27.55 10.79 0.00P005741 1998 HIGHER EDUC. II 80.00 0.00 0.00 0.00 60.66 24.57 0.00P043700 1998 TRANSPORT SECTOR INV 50.00 0.00 0.00 0.00 20.73 23.65 0.00P005746 1998 TN-HEALTH SECTOR LOAN 50.00 0.00 0.00 0.00 30.88 23.35 0.00P050418 1998 TN-ASIL2 42.00 0.00 0.00 0.00 11.53 13.73 0.00P005736 1997 NATURAL RESOURCE MGM 26.50 0.00 0.00 0.00 17.14 13.01 0.00P046832 1997 MUNICIPAL DEV. II 80.00 0.00 0.00 0.00 3.34 2.92 0.00P005731 1997 TN-GREATER TUNIS SEWERAGE 60.00 0.00 0.00 0.00 44.87 19.93 0.00P040208 1996 TN-INDUSTRY SUPPORT INSTITUTION 38.70 0.00 0.00 0.00 25.15 23.90 0.00P005745 1996 2ND EMPL. & TRG. 60.00 0.00 0.00 0.00 25.45 20.05 1.25P005720 1995 TN-RURALFINANCE 65.00 0.00 0.00 0.00 19.19 19.19 15.86P005589 1995 SOLAR WATER HEATING 0.00 0.00 4.00 0.00 2.20 -0.69 0.00P005680 1995 TN-WATER SUPPLY AND SEWERAGE 58.00 0.00 0.00 0.00 13.20 10.87 0.00P005743 1995 SECONDARY EDUCATION 98.30 0.00 0.00 0.00 17.70 24.13 20.60P005749 1995 RURAL ROADS 51.50 0.00 0.00 0.00 1.75 -1.49 0.00P005733 1994 DEV.OF MTS NW REGION 27.50 0.00 0.00 1.48 1.10 2.04 1.04P005725 1993 SECOND FORESTRY DEVELOPMENT 69.00 0.00 0.00 18.87 7.72 29.71 0.91P005726 1992 HIGHER EDUCATION 75.00 0.00 0.00 0.00 16.19 22.68 22.02

Total: 1206.10 0.00 4.00 20.36 584.80 282.31 61.69

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TUNISIASTATEMENT OF IFC's

Held and Disbursed PorffolioMay-2001

In Millions US Dollars

Commifted DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1998/00 BIAT 0.00 0.29 0.00 0.00 0.00 0.29 0.00 0.001993 Ideal Sanitaire 0.00 1.02 0.00 0.00 0.00 1.02 0.00 0.001995 Maghreb IM Bank 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.001986/92/98 SITEX 0.00 0.77 0.00 0.00 0.00 0.77 0.00 0.001973/75 Sousse-Nord 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.001998 Tuninvest 0.00 4.57 0.00 0.00 0.00 3.84 0.00 0.00

Total Portfolio: 0.00 7.57 0.00 0.00 0.00 6.84 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Comnmitment: 0.00 0.00 0.00 0.00

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Annex 10: Country at a Glance

TUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECTM. East Lower-

POVERTY and SOCIAL & North middle.Tunisia Africa Income Development diamond'

1999Population, mid-vear (millions) 9.5 291 2.094 Life expectancyGNP per capita (Atlas method. US$ 2100 2.060 1,200GNP (Atles method. US$ billions) 19.9 599 2.513 TAverage annual growth. 1993-99

Population (%) 1.4 2.1 1.1Labor force (% 2.8 30 12 GPe Gross

per - - primaryMost recent estimate (latest year available, 1993-99) capita enroUment

Povertv t% of population below national povertY fine) 7 6Urban population (% of total Population) 65 58 43Life exDectancv at birth (vears) 72 68 69Infant mortalitv (per 1,000 live births) 2$ 45 33Child malnutrition (% of children under 5) 9 15 15 Access to safe waterAccess to improved water source (% of population) .. 71 86Illiteracy t% of population ape 15.) 30 36 16Gross primary enrollment (% of school-stoe population) 118 95 114 Tunisia

Male 122 102 114 Lower-middle-income groupFemale 114 88 116

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1979 1989 1998 1999Economic ratios'

GDP (US$ biions) 7 2 101 20.0 21.0Gross domestic investmont/GDP 29 4 23 9 27.5 27.8 TrdExports of poods and services/GDP 39.0 44.3 42.4 42.0 radeGross domestic savinrstGOP 26.4 20,6 24.3 24,9Gross national savinqs/GDP . 20.8 23.9 24.9 TCurrent account balance/GOP -4.1 -3.1 -3.4 -2.9 DomesticInterest Davments/GDP 2 4 3 7 2.4 2.8 S etic - InvestmentTotal debttGOP 47.3 69.1 55.5 56.5Total debt service/exports 12.1 21.5 15.0 11.3Present value of debt/GDP .. .. 53.6Present value of debtlexsorts 1 .. 114,3

Indebtedness1979-89 1989-99 1998 1999 ¶S99-03

(averoeo annual growth)GDP 3.5 4.7 5.0 6.2 5.8 - TunisiaGNP per capita 0.7 2.9 4.1 5.0 4,6 Lower-midd/e-income groupExports of qoodJs and services 4.3 4.9 3.9 4.2 5.2

STRUCTURE of the ECONOMY1979 1989 1998 1999 Growth of investment and GOP I%)

(% of GDP) 12Agriculture 13.5 12.9 12.4 12.9 TIndustrv 28.9 31.1 28.4 28.2 6

Manufacturinq 11.6 17.0 18.2 18.2 oServices 57.6 55.9 59.1 59.0 -6- 4 / 95 96 97 98 99

Private consumption 58.4 62.1 62.7 59.4 -12General qovernment consumption 15.2 17.3 13.0 15.6 - GDI _ GDPImports of qoods and services 42.0 47.7 45.6 44.8

1979-89 1989-99 1998 1999 Growth of exports and imports (%)(average annua/ growth)Agriculture 2.3 3.4 -1 0 11.0 15 TIndustry 3.3 4.4 4.9 5.1 -

Manufacturing 5.3 3.9 3.8 6.0Services 3.8 5.4 6.5 6.8

Private consumption 3.5 4.8 5.0 5.9 _ _ _ - -

General government consumption 4.5 1.3 4.7 4.9 94 95 57 98 99

Gross domestic investment -2.5 4.3 5.5 11.6 ,9 IImports of qoods and services 1.1 3.7 4.2 6.4 Ep Frorts O* ImportsGross national Product 3.3 4.7 5.4 6.3

Note: 1999 data are preliminary estimates.

The diamonds show four kev indicators in the countrv (in bold) compared with its income-qroup averaqe. If data are missinq, the diamond willbe incomDlete.

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Tunisia

PRICES and GOVERNMENT FINANCE

Domestic prices 1979 1989 1998 1999 Inflation (%)

(% change)Consumer prices .. 7.7 3.1 2.7Implicit GDP deflator 10-4 8.8 3.6 3.3 -

Govemment finance 2(% of GDP, includes current grants) o Current revenue .. 27.0 29.3 23.9 94 96 96 97 98 9

Current budget balance 1.0 4.5 3.6 - GDP deflator O CPIOverall surplus/deficit .. -5.3 -2.4 -3.1

TRADE1979 1989 1998 1999 Export and import levels (USS mill.)

(US$ millions)Total exports (fob) 1,788 2,931 5,722 6,050 10,000

Fuel 868 585 367 392Agriculture 65 197 193 .. 7500

Manufactures 809 2,099 3,804Total imports (cif) 2,846 4,372 7,872 8,595 sco 4 d iiiii

Food 369 578 655 573 2 59**Fuel and energy 490 380 375 451Capital goods 687 836 1,814 2,293

Export price index (1995=100) 92 93 94 95 96 97 98 9

Import pnce index (1995=100) 95 . Exports * ImportsTerms of trade (1995=100) 97

BALANCE of PAYMENTS

(US$ millions) 1979 1989 1998 1999 Current account balance to GDP (%)Exports of goods and services 2,802 4,546 8,481 8,824 0

Imports of qoods and services 3,161 4,882 9,080 9,428Resource balance -359 -336 -598 -604

Net income -266 -479 -858 -878 i ,Net current transfers 331 503 776 869 l

Current account balance -295 -312 -680 -614 s6

Financing items (net) 452 409 493 1,011Changes in net reserves -158 -97 187 -397

Memo:Reserves including gold (US$ millions) .. .. 1,852 2,271Conversion rate (DEC, locallUS$) 0.4 0.9 1.1 1.2

EXTERNAL DEBT and RESOURCE FLOWS1979 1989 1998 1999

(US$ millions) Composition of 1998 debt (USS mill.)Total debt outstanding and disbursed 3,399 6,974 11,078 11,877IBRD 232 1,154 1,458 1,486 G: 1,040 A: 1.458IDA 67 61 43 41

Total debt service 378 1,101 1,402 1,108 C c e 431 |

IBRD 33 190 268 258 -t

IDA 1 2 2 2 F: / 2653F: 2,653 ' '

Composition of net resource flows .8D1,98 Official grants 30 88 61 85Official creditors 188 329 -137 7Private creditors 313 -142 4 2Foreign direct investment 49 79 650 409Portfolio equity 0 0 40 0 E: 3,767

World Bank programCommitments 99 373 222 194 A - IBRD E -BilateralDisbursements 56 259 142 209 B -IDA D- Other mulUlateral F -PrivatePrincipal repayments 14 104 180 168 C-IMF G -Short-termNet flows 42 155 -39 41Interest payments 20 88 91 92Net transfers 22 67 -129 -51

Development Economics 9/12/00

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AdditionalAnnex 11

Letter of Sector Development PolicyTUNISIA: AGRICULTURAL SUPPORT SERVICES PROJECT

REPUB1.IQUE TIINISIENNE Tunis, le 21 mai 2001NI1NISTEIZE DE l 'AGRICULTURE

Monsieur le President de laBanque Internationale pour la

Reconstruction et le Developpement

Objet: ltrete de rpulitique du secteur des services d'appui i P'agriculture&R4ffrencet Turusi: . Pr&t d'investissernent pour le renforcemem: des services Yappui I'agrcu1tLtre

Mnnsieur le President,

L'ag ClLhure tunssienne joue un r6le inportant sur le plan 6conomiquc, social etenvironniernenmai et une grande attention lui est confirie dans la politique dedeveloppetnent econonique et social. En effet, le secteur agricole contribue aconcurnence dwuni moycnne de 13.5 % dans le PIB et procure de r'ordre de 10 %des recttes totales d'exportation. Par ailleurs, I'agricultre drame 15 % desinvestissctnefl;s globaux et contribue pour 22 % dans 1'emploi, ce qiii lui cornfereun r5Le inmportant dans le maintien de la population en milieut rural et dais lalimitadion de V'etode rural, en plus de sa contribution r'effort national dedeveloppement regional.

La polittqiue de restruncrration du secteur agricole entamec par l¶Etat a eu desr6percusiionls positives sur son developpement. Les r6alisaiions ont etcmultiples er ont concem6 pratiquement toutes les activit6s agricoles.UTaugmenration de la production agricole s'est accompagnee dune netteamnlioratton de la productivite et de la comp6titivitE des principales filiers, atces r6sulats s: sont tradits par une evolution fiavorable de la baLancecommeroialc alimentaire qw a rcalisc un taux de couverture annuel moyen de 83° au cwurs des annees 90 contre 49 % seulernent comme moyenne des antcesgo. - 72 -

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I,e secteur agricole est donc sorti renforce dune phase dt ajustement, mais restetoutefois confronle a dc nouveaux defis sc rapportant essentiellement a lapoursulte de la liba6ralisation des marchds et l'intgration de l'conomienisienne dans son ensemble dans Ic processus de mondialisation. Ceciimplique lai mise en cuvre d'autres mesures d'ajustement afin que le secteurpuisse afironter avec l'efficacit6 n6cessaire les futurs rendez-vous d'apres V'an2000. Ces defis ont trait essentiellement a la necessit6 de passer a un paliersuperieur te croissance qui penuettra au secteur agricole de jouer pleinementson r6le dans to processus de d6veloppernent ecotiomique et social du pays, deconsolider la securite almientaire du pays, et de faire face a l'ouverture sur lesmarches extrneurs et la lib6ralisation du tnarche interieur suite a la conclusiondes accords du GATT, l'adh6sion de la Tunisie a l'OMC et la cr6ation d'uinezone de lhbre echange avec I'Union Europ6enne qui couvrira eventuelleinent lesecteur agricole a horizon 2006.

La strateoic i long termc

L'objectif global recherche par le Ministere de l'agriculture est de promouvoirone agrcudturc productive, efficace et durable contribuant i faciliter l'insertionde la Tunisie dans le contexte 6conormque international et a ameliorer le niveaude vie des agiculteurs. Le secteur agricole continuerait a augmeniter la creationde valeur-s ajoutecs, a foun2ir un emploi a un nombre consequent d'actif; de parses effers d'etitrainement sur les activites ixes a I'agriculture, aL assurer lasecurite alirnentaire du pays et a contribuer au maintien des equilibres globauxde 1 cconomie et au developpement r6gional.

Lapproche adopree par la Tuiisie face a ces enjeux consiste a mettre en placeune straidgie ayant pour objectif d'am6liorer la position de I'agricultureturiisienne face a la concurrence sur le marche local et les marches d'cxportation,en: (i) amelhorant la qualit6 des produits, (ii) accroissant la productivite desfacreurs de production, et (iii) en 6tendant la gamrne des produits. Cettestratagie tible aussi l'agricalture de subsistance et les zones marginales a travers,entre autres, des programmnes de d6veloppement rural int6gr6 destines iameliorcr les conditiotis de vie dans les zones marginales et un programme degestion des ressmurces naturelles visant la preservation de renvironnement.

Les seriices agricoles sont une composante essentielle a la realisation de lacroissance awricole en Tumisie. Le developpement de nouveaux march6s, la

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propagation ct Ie trnsfert des technologies nouvelles, le perfectioxinement desressources hunaines en vue d'une modemisation de l'agriculture, la protectiondes plantes et des anirmnaux contre les maladies, le contr6le des accordsinternationaux et des normes de qualite et des investisseinents cibles constituenttous des facteurs qLu contribuent a la croissance d'une agriculture commercialecompititive en Tu'nisie. Ces actions contribueront egalcment au d6veloppementdes zones mnarginales. et ainsi a la promotion de la population qui depend del'agriculture dasns ces zones.

Pour ariculer les objectifs retenus, des approches adaptees seront mises enaCrUITe:

1. Approche ciblec - Par souci d'equilibre regional et d'equite sociale, lesservices serorit cibles en fonction des caracthristiques et des besoins desdiffdrentes cat6gories d' agriculteurs (agnculteurs commerciaux, petits et iuoyensagnitltet.rs). Des programmes specifiques seront mis en ceuvre en faveurd'autres groupes dont notanmment les femmes nrales et les jeunes agriculteurs.

2. Approche regionale - La misc en aruvre des differentes actions tiendraitcompte et renforcerait l'integration des activites de diff6rentes structuresr6gionales. autour de plates-formes regionales de concertation et decollaboration, de maniere a assurer la synergie entre les diffircntes activit6s. Eneffet, c est au nivteau regional que des initiatives doivent 6te prises pourrenforcer les liens entre recherche et vulgarisation (liens ascendantsd'identification .de' besoins en recherche et liens descendants do transfert detechnologie) et encourager la concertafion avec les orgarxisations agricoles et leoperateurs pries locaux.

3. Organisation sectorielle - Dans les annees a venir la strategie dedeveloppement reposera sur une plus grande professionnalisation de!'agniculture. *L'6tat producteur et tuteur cedera sa place a uin 6tat regulateur,garant de Virn6rCt g6niral, du bon fbnctioinement des marches et de la stabilitedes revenus". LI'accent sera tms sur I'amelioration de l'organisation de ladeinande des services au moyen de la promotion de toutes formes d'organisationdes exploltamrs et des mecanismes participatifs.

4. Approche durable - la TLmisie prendra toutes les mesures necessairesvisaft a assurer la durabilite de la prestation des services a travers l'instauration

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de nmaniere progressive de mecanismnes de participation, de responsabilisation,de pnvatisation. ct de partage de cofits avec les beneficiaires une fois lesconditions necessaires reunies, surtout lorsqu'il s'agit d'une agriculturecommnerciale. Pour ce qui conceme les services publics, et en fonction desobjectifs assip6s- le Gouvemnement maintiendrait un riiveau consequent definancernent afin d'assurcr I'adequation eitre les moyens et les r6sultatsaitendus en termes de qualit6 des services, de couverture, et plus g6n6ralernentde d,6eloppcamnnt durable de l'agnculture et de conservation du patrimoinenaturel.

S. Services publics essentiels - Une attention particuliere sera accordee a lamise eni oeuvre d'actions specifiques visant l'amelioration de la qualit desservices publics dans les domaines pour lesquels la prestation ou le financementdui seceur p'v6 ne sont pas encore envisageables comme les informationsstatistiques. Ie syst6me de contr6le phytosanitaire et le systeme de protectiondes consomnmateurs en matinre d1hygine alimentaire.

Ces approches seronit retenues dans le cadre de l'ex6cution d'7tm programme dediX ans cn deu. phases. Le premier train de reformes cles qui seraient appuyeespar le proict de i cnforcernent des services d'appui i l'agricultuzre compoiterait lJsactions suivantes

ApproclAe ciblee

o le inandat de la recberche et de la vulgarisation tiendra compte des imperatifsd'unc agriculte perfornmante, avec une attention particuliere aLx petits etmnoyens agriculteurs, particuli6rement ceux ayant utn potentiel conmmercial,

* le ciblage du genre sera ainiliore au moyen d'affectations specifiques defianaicement de la recherche sur des themes lies au genre, un effort intensifiede vulgarisation A F'intention des fenmnes e. un programme de fomnationagricole cible et tenant compte du geare.

Appreche regionale et approche intigrie

* la r6gionalisation de la recherche d6marrera avec la cr6ation de centres derechercho regionaux et la cr6ation de comites regionaux pour 6tablir etsuperiser les programmes de recherche,

* dans des zones pilotes, les services a I'agriculture seront integres,rassomblaat la vuLJgarisation, la formation, la recherche-developpenient et la

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promotion des organisations de produicteurs de base, avec la participation desbene fici arcs;.

Organisation sectorielle

* la promotion dcs organisations de producteurs sera assur6e dans desgouvemorats pilotes avee la participation du secteur pn've,

* es consciflcrs agrcoles pnrves seront recrutes par les agriculteurs de pointe ctles organiSations de producteurs avec des incitations financieres de l'Etat audenarage. dans le cadre des encouragements du Code des Iwvestissements etde ceux dci Foads N;ational de l'Emploi 21-21,

a le renforccment de la capacite des groupements interprofessionnels seraentrepns r 3vcc le renforcement de leur autonomie, initialement par le biais decontrats prngranxme.

Approche durable

* Wi reseau de cotnseillers agricoles prives sera developpe,* le partage des codrs menant a un recouvrement des coits avec le temps, sera

appliqu: a certains services d'elevage et pout 6tre diffe-rent selon lescatigorzes d'Ievveurs (identification, diagnostic et inspection des animaut),

* la sous-traatance des services du secteur de l'elevage et la privatisation desservices - et6rinaires a caractere concurrentiel seront encouragees (contr6ledes maladlies. vaccination, privarisation de 1'insemination artificielle),le partage des coats de services publics selectionnds potu Ia protection desvegetaux et la certification des semences sera introduit progressivement chezcertaines categories d'agriculteurs.

Renforcemetr de services essentiellement publics

* Ies instituts de recherche agricole s'orienteront vers tm institut unique pouraccroitre I'efficacit6 et garantir une meilleure coordination,

* un systemne de se)ection sur base d'appels d'offres sera mis en place pour lefinancemenm de certaines activites de recherche,u nm systraic d infornmtion sur le secteur et les politiques agricoles i accesOuvert sera uuie

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Rerormes de la deuxiEme phase. Le prograrmre de reforrne se poursuivradans une deuxieme phase. Les r6fonnes de la deuxi6ine phase, qtu seraientajustees au fii- er a mnesure de 1'expinence acquise au titre de )a premiere phase.porteraieric sur l'extension des operations pilotes engag&es au cours de laprerrurc phase et qui auraient et concluantes, et l'introductionl de r6forrnesadditiotxnesiles qui respecteraient la phiosophie des refonTnes de la premi6rephase.

Situation a la fin du programme de reforme. L'objectif est d'avoir tenmincles refoinnes en dix ans. A Ia fin de cette peiode, les organisationis deproducteisrs dIeiraient etre plus independantes et en mesure d'etablir leur propreprogramnme ct de financer la majorit6 de leurs propres services ; les groupementsiuterprofessionnels devraient etre des entit6s autonomes, dotees de fonctions.ressourcet er capacites suffisantes pour ddvelopper leurs sotus-secteilrsrespectifs.. la recherche devrait etre suffisamrnent regionalis6e, induite par lademandt± el Lo-financee par le secteur; la ((vulgarisation )) devrait etrelTansfonnee ezi (4 services de conseil agricole )> pour les exploitantons agicoles acaractere cOmTnercial et devrait etre largement induite et co-financee par lesorganisazionl. de producteurs; les services d'4levage et de protection desvi:getaux .6t caract6re individuel devraient etre assur6s et geres par le secteurpnre ; v:t 1' Ftat devrait s'acquitter de ses responsabilitis statutaircs etroglemrntaircs a une rmaniere efficace et au moindre cout.

Progranixne de miise a niveau des services d'appui a IPagriculture

A la lurnt6re de la strategie retenue, le Gouvemement vise tine m.ise a niveau desservices d'appui A l'agriculture. Cette mise A niveau, entam6e a travers unepremiere phase soutenue par le projet des services agricoles avec la participationde la Banque Mondiale, sera consolidee an cours de la deuxieme phase.

Les acquis de In premniere phase, les resultats des actions pilotes ainsi que lesdif&rente% etudes qui seront realis&es dans le cadre du projet "scrvices d'appui aI'agriculnure- p¢rmettront de mieux identifier les actions futures a entreprendre aucours de la delLxieme phase. Ces actions seront concues dans le cadre de laphilosophie g6nirale du programme de mise a niveau des services d'appui al'agriculturc dont la premiere partie aurait 6te mise en c!uvre A travers Ic projetavec Ia Banclue Mondiale.

EI1 mettant en a:uvre ce projet, la Tunisie vise la consolidation du bond qualitatifque conniir le secteur agricole depuis la mise en aeuvre des reformes entreprises

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tans le cadre du p1an d'ajustement sectoriel agricole et qui a et 'i',. : parune croissance soutenue du secteur. 11 est attendu 6galenment quc t aration

des differents services d'appUi Qontribue a l'amelioration de la ci. :;. 'vite dusecteur et facilitc son ancrage a l'econorie nationale et interuation;o;

Le Mini I ture

f ,,AdkR U, 78 -SdokRA?i

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Republic of Tunisia- Ministry of Agriculture

Tunis, May 21, 2001

To the President of the World Bank

Subject: TUNISIA: Loan for the reinforcement of agricultural support services - PolicyLetter

Mr. President:

Tunisian agriculture plays an important economic, social and environrnental role, and greatattention is paid to the sector in overall economic and social development policy. In fact, theagriculture sector contributes 13.5% to GDP and generates some 10% of total exportrevenues. Moreover, the sector attracts 15% of total investment and accounts for 22% ofjobs, which ensures the sector an important role in maintaining the rural population andavoiding rural to urban migration. The sector also has an important role to play in thenational objective of ensuring regional development.

The adjustment policies pursued to date have had positive results on sector development.Achievements are many and various, covering practically all branches of the sector. A rise insector production has been matched by a clear improvement in productivity and competitivityof principal crops. These results are reflected in the positive development of the balance oftrade in food products, where 83% of national needs were covered from national productionin the 1990s against an average of only 49% in the 1980s.Thus the agriculture sector has emerged strengthened from an adjustment phase. Nonethelessit is still faced with new challenges largely concerning the completion of marketliberalization and the overall integration of the Tunisian economy in the globalizationprocess. This implies implementation of further adjustment measures in order that the sectorcan meet future challenges efficiently in the new millennium. These challenges referessentially to the need to reach a higher growth plane that will allow the agriculture sector toplay its role fully in the process of economic and social development of the country, toreinforce national food security, and to face up to the opening of external markets andliberalization of internal markets following the conclusion of the GATT agreements,Tunisia's entry into the WTO, and the creation of a free trade area with the European Unionwhich will probably cover the agriculture sector by the year 2006.

Long term strategy

The overall objective sought by the Ministry of Agriculture is to promote a productive,efficient and sustainable agriculture that helps the integration of Tunisia in the worldeconomy and improves the standard of living of farmers. The agriculture sector will continueto improve value added, to offer jobs to a large work force, not least through second roundemployment creation in businesses linked to agriculture, to assure national food security, andto contribute to keeping overall economic and regional development balance.

The approach Tunisia has adopted in face of these challenges is to put in place a strategydesigned to upgrade production capability to face competition from imports and to increaseexport competitiveness through better quality, a diversified product range and improvedproductivity. This growth strategy is linked to a parallel strategy for subsistence agricultureand marginal areas through rural development programs to improve living standards and aprogram of natural resource management aimed at conservation of the environment.

Agricultural services are vital to achieve agricultural growth in Tunisia. The development ofnew markets, the development and transfer of new technology, human resource developmentfor a modernized agriculture, the protection of both plants and animals from disease, theoversight of international agreements and quality standards, and prudent investment are allessential factors in the growth of a competitive commercial agriculture in Tunisia. Theseactions will also contribute to the development of marginal areas and to improving livingstandards for farners in those areas.

To attain these objectives, a series of approaches will be implemented, as follows:

1. targeted approach - For regional balance and social equity, services will betargeted according to the characteristics and needs of the different categories offam-ers (commercial farmers, small and medium farmers etc). Specific programswill be introduced for other groups, notably women and young farmers.

2. regional approach - Irnplementation will take account of the integration ofactivities at the regional level through mechanisms of coordination and jointimplementation in order to ensure synergy. There has to be better workingtogether of research and extension at the regional level (working from the bottomup to identify research needs and from the top down to transfer technology); andbetter local synergy will be needed within and between public services andfarmer and private sector institutions.

3. sector organization - In the next few years, sector strategy will depend onincreasing farnner organization and responsibility. The role of the state will shiftfrom that of guardian and producer to that of regulator, protecting the publicinterest, ensuring the working of markets, and putting in place the framework forstable incomes. Priority will be given to improved organization of demandthrough promotion of all forms of fanner organizations and of participatorymechanisms.

4. sustainable approach - Sustainability of service provision requiresimproving the cost effectiveness of services and getting much more farmer andprivate sector participation, responsibility and cost sharing, including the transferof some services. Government's choice is to continue and complete the ongoingprogram of improving efficiency, seeking increasing cost sharing andprogressively handing over services wherever possible.

5. essential public services - For those essentially public services whereprivate provision or financing is not possible (such as agricultural statistics,phytosanitary control and food hygiene), a strategy of reinforcement and a driveto ensure that all services are efficient and cost effective will be pursued.

These approaches will be implemented under a ten year plan. The key first round reformsthat would be supported by the project are:

Targeting of Agricultural Services:

• the mandate of research and extension will focus on the target group of commercialpotential medium and smaller farmers

* gender targeting will be improved through specific allocations of research funding togender related topics, a reinforced women's extension effort, and a gender sensitive andtargeted agricultural training program

Regional Approach and Integrated Approach

* the regionalization of research will be started through the creation of regional researchcenters and the creation of regional committees to set and supervise the research agenda

* services will be integrated in pilot areas that bring together extension, training, appliedresearch and farmer organization, with farmer participation.

Farmer Organizations

* private capability will be developed for promotion of farmer organizations in pilotgovemorates.

* farming advisers will be recruited by progressive farmers and farmer organizations on acost sharing basis, as part of national programs under the Investment Code and theNational Employment Fund "21:21".

* capacity building of the interprofessional groups will be undertaken, together withstrengthening of their autonomy, initially through program contracts.

Sustainability of Service Provision

* a network of private agricultural advisers will be developed

* cost sharing leading to full cost recovery over time will be practiced for certain livestockservices (animal identification, diagnosis and inspection) according to the category offarmer.

* contracting out of service provision in the livestock sector and privatization ofcompetitive veterinary services will be promoted (disease monitoring, vaccination,privatization of artificial insemination)

* cost sharing in selected public services for plant protection and seed certification will beintroduced progressively for certain categories of farmer.

Essentially Public Services

* the agricultural research institutes will merge into a single institute in order to reduceoverlap and increase efficiency and ensure better coordination.

* a competitive research grant system will be developed for certain research programs.

* an open access information system on agricultural developments and policies will be setup

Second Phase Reforms. The reform program supported by this five year project willcontinue into a second phase. The second phase reforms will be adjusted in the light ofexperience in the first phase. They would include the generalization of successful pilotefforts from the first phase, and completion of the reform program begun under the firstphase.

Situation at the end of the Reform Program. The objective is to complete the reformwithin ten years. At the end of that time, it is expected that farmer organizations will beindependent and capable of setting their own agenda and financing most of their ownservices; that interprofessional groups will be autonomous bodies with broad mandate andskill to develop their respective subsectors; that research will regionalized, demand-drivenand partly financed by the sector; that "extension" will have upgraded to "farrn advisoryservices" - at least for commercial farmers - and be largely driven and financed by farmerorganizations; that livestock and plant protection services (other than public servicefunctions) will be delivered and managed outside the public sector; and that Government'sstatutory and regulatory responsibilities will be fulfilled efficiently at least cost.

Upgrading of Farmer Services

In the light of the strategy adopted, farmer services will be upgraded. The upgrading, to besupported in the first phase of the proposed project, will be completed in the second phase.

The achievement of the first phase and the results of pilot actions and studies to beundertaken under the project will allow better definition of the actions for the second phase.Those actions will continue the general thrust of the program supported by the first phaseproject.

With the implementation of this project, Tunisia is aiming at completing the "qualitativeleap" the country has been engaged in since implementing structural reforms in the sector andexperiencing the resulting growth. It is likewise expected that improved support services willincrease the competitivity of the sector and ensure its place in the economy, both domesticand export.

Signed

The Minister of Agriculture

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