Agricultural Marketing and Credit Project - IOE
Agricultural Marketing and Credit Project
Lesotho, with a total area of around 30 000 Km2, is a landlocked country, surrounded by the Republic of South Africa (RSA). The average annual population growth rate is 2.63% over a population of around 1.66 million (1988), 83% of whom live in rural areas. A high proportion of male population work as migrant labour in the mines in the RSA and remittances are a high percentage of GNP. The population is concentrated mostly in lowlands which range in altitude from 1 500 to 1 800 m . Long-term average annual rainfall is about 740 mm, with a range of 550 mm in lowlands to 1 000 mm in the mountains. The most important food crops are maize, sorghum, wheat and beans. Some wheat is sold for cash and most of the beans are for export.
The Agricultural Marketing and Credit Project (AMCP) was designed as complementary to the Basic Agricultural Services Programme (BASP) which aimed to provide small farmers with farm support services and infrastructure essential to the increase of production of food. The AMCP appraisal team adopted the same BASP economic justifications in appraising the project.
The appraisal report estimated that about 13 000 families, i.e. 10% of farmers in the BASP areas would benefit directly from the AMCP through the use of farm inputs, partly on credit. These were identified as small farm operators, the majority of whom were women, cultivating an average farm of about five acres each. Average per capita income of this target group was estimated to be about USD 160, which was 60% of the national per capita income. The production inducing agricultural services provided by the project were expected to have particular importance to the relatively poorer strata of the rural population not receiving remittances and therefore totally dependent on agricultural income.
Objectives. The project would contribute to the Government of Lesotho (GOL) programme to increase agricultural production. The project would particularly assist small farmers through provision of credit and improvement of marketing.
Components. The project was to provide: (a) working capital to Coop Lesotho, along with management and technical assistance; (b) a programme of seasonal, medium and long-term credit to be administered by LADB, along with management and technical assistance; (c) assistance for the monitoring and evaluation of the project; (d) studies covering the development of the cooperative sector and the feasibility of establishing a seed multiplication unit.
As the AMCP was considered a project complementary to the BASP programme which began in 1978 to provide services covering 75% of the cultivated land and some 128 000 farm families, the appraisal report attributed a portion of the benefits which would be derived from the BASP to the AMCP. Moreover, the AMCP was, in effect, a programme aimed at developing institutional capacity at national level. Therefore, its effect could not be confined solely to the IFAD target group.
Expected effects and assumptions
Expected Benefits. At the time of appraisal of BASP, the anticipated increases in production were 60 000 tonne (t) annual increase over a twenty-five year period (maize 24 000 t, wheat 13 000 t, beans 8 000 t, peas 1 000 t). However, two years after BASP commencement, slow project implementation together with a reassessment of the impact of declining soil fertility led to incremental crop production being re-estimated at half the original quantities. The AMCP appraisal team considered it premature to make a revised estimate for the project and estimated the economic rate of return at 13% .
Assumptions. The project was pegged to BASP and appraised accordingly but soon after BASP fell short of expectations. The basic assumptions relate to development organization capacity, security of land tenure systems and credit demand. The capacity to establish an operational and effective delivery institutions for credit and marketing was overestimated. The security of land tenure was lower than expected for two factors: (a) in principle, the land is owned by the King (the state) and (b) land use rights are dominated by male population even though 50% of them are migrant and 75% of farmers are women. Lastly, the project assumed that there would be effective demand for credit. In reality most customers would use LADB for depositing remittances received from abroad rather than for borrowing.
Evaluation
The evaluation mission visited the country during March/April 1990. The mission interviewed the authorities of LADB, Cooperative Lesotho as well as farmers, who benefitted from the project. The mission consulted the project completion report (CPR), about 18 supervision missions reports covering the period 1981 to 1988, quarterly progress reports; from the M&E section, survey reports and thematic studies.
The project components were implemented by three implementing agencies: Coop Lesotho, LADB and Planning and Evaluation Division (PED). Project coordination amongst the implementing agencies, was supposed to be undertaken by a Project Coordination Committee (PCC). The lack of a firm policy framework in which the project could operate hindered its effectiveness.
The recipient lack of compliance with the various conditions of the Financing Agreement did not help to produce an environment in which the project objectives could be readily achieved. LADB role was initially hampered by the confusion over government policy in relation to credit and the perceived duplication of effort in credit delivery under the Food Self-Sufficiency Project (FSSP). This was subsequently resolved by the government, with LADB being the agency appointed to disburse rural credit for the FSSP. In addition, LADB's impact in rural areas was weakened by its having no branches outside Maseru. This constraint was addressed by the LADB and increased ita rural branches to nineteen.
Coop Lesotho was required by government to manage more depots than the sixteen agreed upon, despite earlier assurances. These peaked at fifty-eight in 1983 and have never gone below thirty-eight. Furthermore, Coop Lesotho was required to undertake other activities which undermined its commercial viability, such as providing subsidised inputs to farmers under the FSSP.
Project Management. The financial and managerial performance of both LADB and Coop. Lesotho never reached the levels indicated at appraisal. Both agencies have registered significant losses. However, LADB has recovered its position at the time of evaluation, partly as a result of being authorised to accept public deposits without government restriction. Coop Lesotho handled increased volumes of inputs to farmers, particularly fertilisers, the annual quantities of which increased threefold. However, Coop Lesotho has continuously faced liquidity problems, and in 1987, IFAD financed a Capitalisation and Rationalisation Plan, thereby reprogramming AMCP funds undisbursed in the credit component. The capital injected was quickly eroded and the government eventually took a decision to privatise Coop Lesotho.
Agricultural Credit. LADB has significantly expanded its operations and has increased its lending capacity since the start of the Project. Since the beginning of the Project, in 1981, the LADB loan portfolio had increased manyfolds form M 2.3 million to M 16.7 million by 1989. Deposits also rose from M 0.63 million in 1985 to M 30.3 million in 1989, reversing the situation when loans were exceeding deposits initially. The latter is considered to have been determined by the increase in the number of LADB branches and the relatively high interest rates encouraging the deposit of remittances and savings in the bank. Loan recovery improved during the later years of the project and the LADB attributed this partly to having established branches outside Maseru.
LADB's financial losses have been significant in the recent project years. The last income and expenditure statement of LADB indicates a loss of M 1.4 million in 1989. LADB puts these losses down to a number of factors, including making provision for covering potential losses, investing in the opening and operating of new branches and agencies and being obliged to pay higher interest rates on deposits made with the bank. Moreover, LADB was not able to apply the higher interest charges to outstanding loans, but only to new loans.
The short-term loans disbursed by the LADB during the project period far exceeded in value terms the estimates made at appraisal (334%). However, the number of beneficiaries fell short by 49%. Thus more resources were made available to fewer borrowers. Drawings from the medium-term credit facilities for oxen contractors were never made and all other medium-term drawings were negligible. Long-term loans for tractor reconditioning were hardly utilised: seven loans were made throughout the project life. Reported reasons for the weak demand from oxen contractors were the growing farmer preference for power tillage and the fact that many farms are managed by women who are unable to operate ox-drawn plows, as well as for reasons of status.
Agricultural Input and Marketing. The volume of inputs marketed by Coop Lesotho increased markedly during the project. The quantity of fertilisers increased more than threefold, between 1982 and 1989. This increase occurred despite the removal of fertiliser subsidies in 1987/88. It is estimated that Coop Lesotho now supplies 70% of the country's fertiliser requirement. Sales of seeds increased in a slower but constant way. There was, however, an unjustified expansion in depots, particularly since a number of them were unviable. In contrast, crops marketed never reached appraisal estimates, even though these were modest. This was a result of a shift in the agricultural policy of the GOL, when private traders were allowed to compete in the market. In fact, the market has developed to such an extent that the Government has taken the view that a parastatal organisation is no longer necessary and embarked on a privatisation programme for Coop Lesotho.
Despite the shortfall in sales targets, Coop Lesotho's turnover increased significantly over the project period. However, the capital base did not increase in commensurate terms and the capital turnover ratio increased dramatically, causing Coop Lesotho to experience severe liquidity problems. The erosion of liquidity forced the cooperative to borrow on costly terms further exacerbating its position. This serious financial position was ultimately retrieved by an injection of funds from the GOL, as well as donors including IFAD.
Monitoring and Evaluation. The project design did not include systematic M&E framework. However M&E implementation programme was defined by IFAD consultants in the early stages of the project. The proposed activities proved too extensive following the withdrawal of funding from the BASP. In 1983 IFAD reviewed the programme and simplified the M&E reporting requirements. However, the implementation of the M&E component was hampered from the initial stages of the project due to (a) a misperception of the nature of the M&E, being considered as an eye on management instead of a tool of management, (b) the lack of precise information on the Project's target group, and (c) lack of financial and human resources.
Effects assessment and sustainability
In 1981 donors reduced their support to the BASP because of their dissatisfaction with progress made on economic restructuring. As a result AMCP was adversely affected since certain complementary activities in crop production and extension were not implemented.
Beneficiaries and theirs Incomes. The LADB estimates that by the end of 1988 loans had been made to 14 400 farmers as against the 13 000 at appraisal. However, no records were provided by the LADB to indicate beneficiary names or their location and, moreover, there is no analysis by farm size, income, or gender of borrower. There are no records at all as to beneficiary numbers from inputs sourced from Coop Lesotho. Various reports anticipated that the beneficiaries of the input supply component were most likely to be amongst the better off group of farmers.
Food self-sufficiency. Food self-sufficiency has not changed significantly during the course of the project, with the exception of wheat, where the ratio has declined from 36% in 1981 to 20% in 1988.
Specific Effects on Women. The appraisal report did not analyse the possible impact of the project on women, though it acknowledged that women were likely to be beneficiaries of the project lending programme. The legislation prevailing in Lesotho in the 1980s certainly added an institutional barrier for women to overcome, since some were not able to obtain their husband's signature for logistical or for cultural reasons. Furthermore, without a baseline survey the extent to which women were affected by this constraint or how they benefitted from the project could not be determined.
Environmental Effect. The environmental impact of the project was projected to be positive in that the adoption of fertiliser recommendations would result in improved soil fertility, increase vertical productivity and reduce the pressure for clearing more land. However, it is not possible to make any assessment as to the projects impact on the environment.
Sustainability of Institutions. LADB financial position at the time of evaluation is causing grave concern. There may also be a cause for concern as to whether it is the type of institution IFAD would have wanted to support. The weak financial position of Coop Lesotho and its privatization indicate that the institution could not be sustained in its existing form.
Participation. The target beneficiaries were never consulted during the design process, though the later credit survey during implementation involved interviewing potential credit beneficiaries.
Monitoring and Evaluation. The national staff in charge of M&E had no specific training nor experience in this field. The management of the project implementing agencies largely ignored the quarterly reports prepared by the monitoring unit. There were some attempts to improve cooperation and communication amongst the concerned parties, but with no apparent success. The M&E unit had not scored much success in the field of evaluation. An evaluation of the socio-economic situation of the beneficiaries after project completion has not proved possible, due to the absence of appropriate identification of the beneficiaries by the implementing agencies and the lack of socio-economic data on the target population. Information generated through the base-line survey conducted by the BASP M&E team was insufficient to allow detailed assessment impact.
Main issues and recommendations
Project design
a) Introduce flexibility in project design to accommodate changes in policy during project implementation and monitor policy environment very closely to suggest necessary changes timely;
b) Avoid over dependence on the implementation of activities which are not financed and not controlled by the project;
c) Conduct necessary surveys to generate data needed for proper design of targeted components;
d) Consider an implementation time-frame longer than five years, particularly for institution -building projects.
The role of supervision
a) Ensure that loan conditions which directly affect the implementation of the project are met;
b) IFAD should maintain a close involvement in supervision to ensure that its specificity criteria are met;
c) Ensure that in the supervision teams, expertise appropriate to the changing needs of the project, as they evolve, is provided.
Project management processes
a) When a number of implementing agencies are involved in a project, and it is not feasible for one agency to take the lead role, a coordinator should be appointed;
b) For effective guidance and coordination make certain that the PCC, is performing its designated functions as agreed;
c) To allow the implementers to associate the project objectives and goals with implementation process and to provide precise and realistic indicators for the assessment of project achievements, a M&E system should be designed in detail to meet these objectives.
Credit Delivery
The implementation of credit indicated that the provision of loans is not a sufficient condition for the development of agricultural production and the improvement of farm family life. Three variables deserve special attention to ensure the success of the credit programme. First, security of land tenure to ensure that users have legal rights on land. Second, extensive share-cropping arrangements would limit investments, since share croppers give up part of the incremental product to owners of land rights. Thirdly, for a woman to obtain a loan she needs the consent of the male head of household, but males are normally absent (migrant labour). The decision-making capacity is severely constrained by these factors, especially for credit with medium and long term liabilities on the households.
The need to adjust project design to accommodate changing policy environment, for diligent implementation of project and realization of its benefits. The AMCP was linked to the BASP, which has been supported by donors on specific macro-economic framework. Logically, the loss of support to BASP hindered the implementation of AMCP. Moreover, during the 1980s there were serious macro-economic distortions: high rate of inflation, high price subsidies on inputs and an economy dominated by parastatals. In the course of project implementation, the GOL attempted some corrective steps, such as privatization of markets, directly affecting AMCP. It would be more appropriate to adjust the project during implementation to overcome structured difficulties caused by changing policy environment.
Credit effectiveness could be enhanced if the factors specific to the country/project area are given due attention. A common wisdom is that credit services should be demand-driven. In Lesotho, most rural households needed the LADB services to deposit remittances received from migrant labour than to obtain credit. Small-farmers and female headed households who are by their nature risk-averse shied away from borrowing and loans were left for the better off farmers. Those were not interested in animal traction (and as well because it was socially unaccepted), which the project thought to promote. But on the other hand deposit rates are kept low on the face of prevailing high inflation rates which did not encourage savers to deposit, thus endangering the viability of the credit institution. When deposit rates were increased, the lending rates on old loans could not be corrected which negatively impacted LADB.
Beneficiaries Participation should be pursued at design and implementation. There was little or no consultation with potential beneficiaries during project design. Planned medium- and long-term loans for animal traction and tractor repair were not requested by farmers. More attention to their actual needs and discussion as to how the project could service these would have altered the design and scope of AMCP. Similarly, there was little or no consultation with beneficiaries during project implementation. This would have improved coordination, focussed the project on beneficiary needs and resulted in the AMCP having a more positive impact on IFAD's potential target group.
Monitoring and Evaluation should be viewed as a management tool. The M&E system should be designed, prepared and appraised in detail as an integral part of the work programme of the project. In so doing, project designers are forced to examine the project objectives against the practicalities of achieving these objectives and to specify indicators for measuring the achievements. These indicators should be clearly defined in order to allow the identification of the target group and project beneficiaries, to monitor project implementation and to assess project impact. The inclusion of beneficiary consultation in the M&E of project activities will provide information on the impact of the project.