Xieng Khouang Agricultural Development Project (1995)

Interim evaluation

The project covers the whole of the Province of Xieng Khouang, a mountainous region in the North-East of Laos. In 1989, its population was 177 000 people and some 217 000 in 1997. At Appraisal time, the effects of the war were still visible: refugees just returned, infrastructure not fully rehabilitated, weak administration, dominant subsistence economy. In 1997, the scope had changed with economic liberalisation, road and trade opening, transition to monetary economy, impressive growth of the Provincial capital. The Province, however, is not self-sufficient in rice (total production 1995, 44 000 tons). Livestock is a major activity, accounting for 110 000 heads of bovine (as against 73 000 in 1989).

Project design and objectives

Target group

Project beneficiaries were defined as the households that were unable to produce enough food for family consumption, that had less than average productive assets and that produced opium. Beneficiaries were to be identified in all districts of the Province, according to pre-established criteria. Target figure was ambitious: some 13 000 families, i.e. half of the total number of households in the Province, at Appraisal time.

Objectives and components

IFAD Loan 256-LA is part of a programme including the following components:

Xieng Khouang Agricultural Development Project, co-financed by IFAD (loan 256-LA) and UNDCP (LAO/91/551), the latter covering the Technical Assistance component.

District Development in Opium Growing Areas of Xieng Khouang (UNDCP Grant LAO/91/552)

Labour Based Road Construction in Opium Growing Areas of Xieng Khouang (UNDCP LAO/91/553)

Initially, however, the Project was approved (on 25 July 1990) without parallel arrangements for Technical Assistance. Those were negotiated only later with UNDCP.

Project global objectives were:

Improved food security for households with production deficits to meet family needs

Increased incomes for poor families ( below average)

Greater equality in access to resources and services

Progressive elimination of opium production

Project Components included:

An agricultural component mainly intended at strengthening the Province and District Agricultural Services, with a main focus on training, extension and adaptive research

A livestock component to enhance animal health services and to help the farmers to stock their farms, through a mechanism based on Cattle Bank groups

An irrigation component which targeted the construction of new schemes (750 ha) and rehabilitation of 18 schemes (1950 ha)

A credit component initially due to be operated by the State Bank of Laos

Provision for bridge construction (but not for roads).

Expected effects and assumptions

The internal Economic Rate of Return (ERRI) was estimated at above 18%. The Project was expected to have an impact on farm income, rice production, women involvement, environment (reduction of slash and burn cropping as a result of irrigation), opium production (reduction as a result of new economic opportunities).


Implementation context

The project suffered delays and slow disbursement during the first three years for various reasons which were extensively reported in the 1994 OPS report and in the 1995 IFAD Mid Term Review report. They include, in particular: problems encountered with IFAD disbursement and procurement procedures; priority given to expenditures made on the UNDCP account instead of using IFAD funds; late arrival of the technical assistance (no arrangement was made during Appraisal for TA financing; solutions were negotiated with UNDCP only after project start; delays for approval and recruitment occurred). Government also indicates lengthy OPS procedures as a reason for the project slow start. Later, IFAD had to cancel part of the loan (some USD 1.5 million), in particular because some components were financed both by IFAD and UNDCP and the latter grant was used first.

A major change occurred with the 1994 UNDP/OPS supervision mission. The 1995 IFAD Mid-term Review Mission was able to notice the first positive changes. Since then, the project has considerably progressed and it has been able to largely offset the delays in disbursement. The various components have been operated with increasing effectiveness, although with uneven results. It is a fact that the project has now created a strong momentum in the province and that it plays a significant role in agricultural development. The assessment of project performance, however, has also to take into account the major changes which occurred in the Province since Appraisal. Over the past eight years, communications have improved, urban development in the head town is booming, there is a banking sector, trade is flourishing, in particular with Viet Nam, and in rural areas, self subsistence economy is opening to monetary economy. Subsequently, some project approaches and components which were justified at appraisal time, might appear inappropriate in the present context. Their evaluation therefore, has to be made accordingly.

Project achievements

Irrigation. Between 1993 and September 1997, the project completed 21 schemes, including 10 rehabilitated schemes and 11 new schemes. These schemes presently irrigate a total of 600 ha, and have the potential to irrigate 300 ha more when the command area is fully developed, bringing the total to 900 ha (equivalent to 25% of total modern irrigated area in 1995 and 32% of modern schemes number). Project implementation is through the Provincial Irrigation Service (PIS), and the beneficiaries provide labour, local materials and even some of the capital costs. Another 8 schemes are planned for the 1997-1998 dry season, irrigating an additional 400 ha at full development. Overall, the irrigation component is very positive.

Main strengths are the following: (i) good overall quality of the works, (ii) concentration on small projects, (iii) projects are "bottom-up" (requests from farmers, delivery via PIS), (iv) training of PIS staff, (v) operation through loans to the beneficiaries, a first in Laos (good for ownership, O&M), (vi) free labour, free local materials, (vii) use of bulldozer for 1st cut of main canals (UXO, unexploded bombs risk), (viii) good Government policy support (ix) effective Water User's Groups, (x) enthusiastic/motivated CTA and PIS staff.

Main weaknesses: (i) very little use of irrigation schemes during the dry season, (ii) at some sites, poor construction caused by insufficient construction supervision (PIS staff over committed), (iii) some technical aspects can be improved (i.e. overflow spillways at canal intakes), (iv) very poor quality works on one experimental design (Ban Nammen).

Livestock, Animal Health Support for the livestock sector was provided mainly through procurement and distribution of cattle to livestock raisers. The beneficiaries of the Cattle Banks (CB) were targeted with interventions addressing disease and nutritional constraints of cattle and, to a lesser extent, other classes of small farm livestock. Training was provided for Provincial Agricultural Services (PAS) staff in the provincial and district offices. Village Veterinary Workers (VVW) who were also villagers themselves, were trained to provide animal health and other technical services to Cattle Banks beneficiaries, as well as other livestock raisers. Support for farmers was provided through VVWs in respect of vaccination for cattle, buffalo, pigs and poultry. Trials were conducted under the guidance of a technical assistant to identify suitable wet and dry season pasture grasses and legumes. Extension methods were introduced to deal with animal health and nutritional constraints. In 1994, credit for livestock was provided through the Agricultural Promotion Bank (APB).

The distribution of 3,165 head of cattle through 39 Cattle banks has reached 863 farm families from a total of 29,300 provincial households. The project provided support for the establishment of a CB holding station outside Phonsavanh where future repayment animals are to be held and conditioned before redistribution. Cash credit became available to borrowers for livestock through the Agricultural Promotion Bank, within its lending limits.

Twelve kerosene refrigerators were provided as key units for a cold chain holding livestock vaccines at provincial headquarters and at the district offices, although attempts by the project to transfer operation of the units to the private sector were unsuccessful.

A total of 305 VVWs received equipment for cattle and buffalo vaccination, mainly against Haemorrhagic Septicaemia and Black Quarter, and some pigs and poultry were vaccinated against other diseases. Although not envisaged during Appraisal, a Disease Diagnostic Laboratory to support investigation into the causes of cattle under-performance was established.

Some 21 project staff were trained in livestock production subjects, and 305 VVW received training in vaccination as well as a number of animal health and production topics. In-village training sessions were conducted in pasture establishment and about 500 farmers, received training in vaccination, de-worming, the urea treatment of straw (UTS) and the manufacture and use of mineral blocks and bone meal for supplementation.

During 1993-1994 about 66 pasture varieties including twelve cool season varieties, were tested in two Training, Trials and Demonstration Centres (TTDC) and in 22 different locations. A number of species suitable for distribution were identified. Pasture demonstration plots were established in six CB villages in 1996.

Agriculture, crop development and agricultural extension The Crop Development component was set up to provide a source of improved technology and a means to disseminate this to the target population. Main activities to this end were carried out by the Provincial Agriculture Service, supported by the Training, Trials, and Demonstration Centres (TTDC), and District Agricultural Offices. The basis of the extension activity are Village Extension Workers (VEW), selected at village level and based in each target village, to pass information to the community.

Main project achievements include: (i) adaptive trials carried out from 1992-1995, and confirmed in farmers fields in 1995-1996; they provided seeds of promising lines of maize and rice that have been distributed to farmers in 1995 and 1996. (ii) training of both staff and farmers which has taken place mainly during 1994 and 1995; however figures are not up to appraisal levels. (iii) establishment of TTDCs; their number was reduced to two. (iv) development of most District Offices, adding one nursery in each, (v) some 252 Village Extension Workers were established at village level. In addition, the project has developed the horticultural activities within the project area following a consultant's recommendation (1994), through the introduction of improved fruit tree planting material from overseas and local sources. This material has been planted both on the TTDCs, and on the farms of village co-operators.

Strengths in the project include the integrated farming systems, and very positive farmer attitude. Farmers are not adverse to change, know their requirements, and have a reluctance to accept pesticide use. This provides a very strong base for the introduction of alternative technologies through an extension system. In addition, the project has effectively followed consultant advice, and expanded activities to include nurseries and fruit tree production which was not included in the Appraisal.

There are however a number of weaknesses: (i) alternative cropping systems have yet to prove their financial benefit and sustainability to farmers. Systems tested are not yet ready for larger scale implementation.(ii) no effective extension system is in place, and staff attitude and the linkage between different levels and organisations are generally poor, (iii) farmer training has been conducted, but lacks a practical approach, (iv) promotion of varieties have proceeded without sufficient farmer selection and evaluation, resulting in the rejection of most of the rice and maize seed distributed. Methodology employed was basically correct, but required greater farmer involvement in the early stages, (v) TTDCs are not being fully utilised, (vi) VEWs have been trained, but they need follow up to provide them with the suitable technologies required at village level. An unsatisfied need for information and guidance exists in villages.

Credit The credit situation in Laos at the time of project design was difficult and there was only one credit institution in the project area, which did not focus on agricultural credit. The Phonsavanh Branch of the Agricultural Promotion Bank (APB), which started lending operations in the project area in 1994, has rapidly expanded it operations, from 800 borrowers in 1994 for a loan total about of 300 million kip to an estimated 4500 borrowers for a total annual lending estimated to reach 1.2 billion at the end of 1997. Recovery performance stands at around 95%, with some farmers late with their repayments; bad debt accounts for less that 2%, which is comparable with a good private bank. Public Investment Programme in Agriculture for 1997 is expected to be about 117 million kip, while lending by the Phonsavanh APB branch will probably reach 1.2 billion for 1997. Public Investment Programme in Agriculture is thus about 10% of the APB Provincial lending program.

IFAD lending was about 14% of APB lending in 1994, and about 7% this year. APB lending in the Province has been an effective development tool, if there are adequate marketing outlets. IFAD financed loans have followed the pattern of APB loans, with a similar success rate for the activities financed and for recovery. IFAD financed lending was to be on market terms (over 30% at the time) but loans have been extended to farmers at subsidised government interest rates (7 to 10%).

Government explained that the interest rates adopted at the time of the creation of APB reflected market interests, but there has been divergence since then. The mission signalled that the two-tiered interest rate structure that currently exists for APB lending (7-10% terms on government funds provided to farmers and 20-24% on APB mobilised funds) could be problematic, and that the Sayabouri Project recently appraised by IFAD would use a commercial bank and commercial terms for the provision of credit to farmers.

At Appraisal, total lending was estimated to exceed USD 800 000, but has only reached about USD 205 000. APB lending in the Province has reached only 25% of the objective foreseen at Appraisal, because lending started very late and because repayments by farmers are not being used to establish a revolving fund for further extending credit to farmers. This because APB is required to sign a special loan agreement for the disbursement of each tranche (USD 50 000) of IFAD loan funds. The terms and conditions for repayment of IFAD loan funds to BOL are laid out in these agreements. For 1996, APB had to repay within one year. For 1997, APB must repay the total amount by 2002. The short duration of these agreements violates the IFAD loan agreement. Because of the short duration of the agreements, APB has had no opportunity to deposit farmer repayments into a revolving fund established in the Phonsavanh Branch.

In addition to the above problem, there have been long delays (six months) between the time that APB headquarters has submitted withdrawals requests and that the Bank of Laos (BOL) has released the tranche of IFAD funds to APB headquarters. Because of the delay in funds arriving to the Branch, APB has applied IFAD financing to loans already evaluated as part of its own Work Program, although it has also tried to focus on group lending to farmers with a lower level of assets than those normally required by its own policies.

Labour Based Road Construction Further to the successful implementation of the UNDCP LAO/91/553 Project Labour Based Road Construction in Opium Growing Areas of Xiengkhouang during the period from 1992 to 1995, the mid-term review mission of June 1995 recommended that IFAD funds be used to continue the programme. From January 1996 to March 1997, about USD 600,000 of IFAD funds were used to build 29 km of new roads, and place a total of 17 km of road metal, all in Nonghet.

Main strengths include: (i) Labour based (income, ownership, construction techniques), (ii) road building (access!) is the first step for any development, (iii) overall: good quality (considering village built and price per km). Areas of weaknesses include: maintenance, which has to improve. On the technical side, cross drainage techniques/structures should be improved, more steep crossfall should be constructed and larger stones for metal on steep slopes should be used. Resources should not be used for large bridges on major roads.

Project Costs The Project as appraised was to cost about USD 10.6 million, with USD 2.8 million in Technical Assistance. IFAD funding was to total about 5.3 million, co-financing was to total about USD 3.9 million and Government share and Beneficiary contribution were to total about USD 1.2 million. It took about one year to reach agreement with UNDCP about co-financing and for TA to be put in place.

The actual status of Project cost is estimated as the following: a total project cost of USD 6.1 million, with IFAD financing of about USD 2.9 million, UNDCP (Project no. 551) financing of technical assistance and equipment of USD 3 million and Govt share and Beneficiary contribution of about USD 250 000. In addition UNDCP has financed two projects which have been implemented in tandem with the Xieng Khouang Highland Agricultural Development Project: the District Development in Opium Growing Areas Project (Project no. 552) for USD 1.3 million and the Labour Intensive Road Works Project in Opium Growing Areas (Project no. 553) for USD 1.7 million. The total financial support to the province of Xieng Khouang of these projects stands at about USD 10.6 million.

IFAD, Government and Beneficiary financing of the project currently totals about USD 3.15 million, i.e. about 90% of the loan amount after cancellations.

The largest share of spending from the IFAD loan has been on road construction, followed by livestock. If the cost of road construction is eliminated, spending on livestock represents about 40% of expenditure. Government explained some of the reasons for slow disbursement under the IFAD loan: it is not government policy to use loan funds to purchase vehicles and there was a lack of clarity in general about procurement and disbursement procedures as a result of language constraints. With regard to the cancellation of IFAD loan funds following the Mid-term Review, Government expressed the view that this decision had been taken extremely rapidly, and has meant that the project is now tight of funds.

Effects assessment and sustainability

Project beneficiaries The project has been present in 112 village (out of 506 in the Province), corresponding to 25 subdistricts (out of 50) and six districts (out of 7). The density of project interventions, however, has been uneven: there has been a concentration in the Pek and Kham district while the Nonghet district, which should have received special attention because of the opium problem in this area, has been neglected until the Project last years. These 112 villages total 8758 households, of which 2225 have directly benefited from the Project. The cost per beneficiary household is USD 1303, about three times the average cost in IFAD projects.

Direct beneficiaries include 863 households for the livestock component, 682 for the irrigation component, 680 for credit, of which 40% women Beneficiaries of the crop component and of training activities are in the process of evaluation. Ethnic minorities have also benefited from the project but not in proportion to their demographic distribution.

The mission, with project staff assistance, has conducted a statistical analysis of project beneficiaries income distribution as compared with village average income distribution. An opinion survey has also been conducted with about 70 farmers to better assess their attitude toward project and their views of future developments. These surveys indicate that the targeting criteria have been unevenly respected. Credit, in particular seems to have been allocated to a number of farmers who were above the proposed appraisal thresholds ( less than one hectare of paddy and no cattle or only one buffalo).

Irrigation. The increase in irrigated land has mainly brought the following benefits:

Increase of paddy areas

Increase in yields for existing rainfed rice paddies, as a result of more controlled irrigation.

Decrease in slash and burn agriculture, as more rice can be grown in the paddies

Increase in dry season crops, although still on a limited scale.

Livestock The productive impact on project beneficiaries to date has been limited. Inorganic fertilisers are seldom used, therefore the manure from distributed cattle has been the main contribution to agricultural production on these farms. The reproductive performance and calf survival of Cattle Banks cattle has been low whereas the selection criteria used by project staff and APB for identifying project beneficiaries, did not ensure the poorest were selected.

Supporting VVW to provide vaccinations to Cattle banks cattle has reduced deaths to some extent, and has increased farmer awareness of the advantages of regular vaccination for all stock. It has also resulted in husbandry technologies being introduced to some villages. Compared to those provided by the MA however, project vaccinations cover a small proportion of the livestock population. About 1700 head (74%) of CB cattle were reported vaccinated during 1995, and 500 head (19%) were vaccinated in 1996. MA coverage for non-CB villages during the same period covered about 14700 (21%) and 10200 head (14% from the provincial herd).

Few villages made mineral blocks or bone meal after these were first demonstrated and none have adopted UTS technology. The retail outlets in Phonsavanh report only a small trade in these products. Conversely, the use of Piperazine treatment for calves seems more generally accepted and has imparted benefit, perhaps because of its availability, cheapness, effectiveness and small labour demand.

Although some suitable pasture species were identified for local use, a system whereby supplementary, dry season pasturage might be permanently established, has not eventuated. Free ranging animals and the lack of and cost of fences as well as common pastures management issues which the project has not yet addressed, remain important social constraints effecting pasture establishment and use.

The Cattle Bank programme was appropriate at the time the Project was appraised although off-take from the cattle has been poor and the targeting criteria the project used, have failed to ensure that cattle are directed to the rural poor. Based on the calving opportunity for all cows since distribution began, the 1,478 calves produced between 1992-1997, suggest a reproductive rate of about 12 percent, or a to-date average of less than one sixth of the Appraisal (80%) estimate. As a result, a number of farmers may be unable to repay within their loan period.

Other than some reduction in mortality from vaccination, the project's extension activities have generated few identifiable benefits. The technologies introduced thus far, addressing the nutritional constraints of cattle and buffalo, were sound, but have not been generally adopted. There remain important social constraints effecting establishment of dry season grazing reserves and farmers continue to view a herd size as more important than production efficiency.

Agriculture Mission field assessment for cropping and extension activities indicated very little presence of improved seed resulting from the seed distribution program. Only isolated farmers have adopted improved seed as it did not fit their quality requirements. There were however specific cases of benefits where individual beneficiaries had been targeted as village demonstrators. Benefits from project intervention from dry season rice production, water melons, asparagus, improved fruit trees, and nursery production were evident. Since the appraisal in 1990, there has been a dramatic economic change in the Province, making specific project impacts difficult to differentiate from those associated with this change.

Credit Field assessment of APB lending in general and IFAD financed lending indicate that credit has effectively provided cash resources for a number of income earning activities; and in particular, women's credit for weaving has appeared quite attractive and viable. Preliminary assessment shows that IFAD supported lending seems to have gone to beneficiaries with smaller plots than normal APB in the same villages. Comparison however made with average land distribution in the same villages indicates distribution of IFAD beneficiaries above average.

Roads New roads have had a significant impact in the Province. They allow to get harvest from field back to village, and from village to the market. They also allow access to hospital and children to go to school by bicycle. In addition, they are expected to have an impact on opium reduction in the long term. They will decrease the need for resettlement of people. Beneficiaries received income during construction (over 500 million Kip), and some of this was reinvested in small scale investments.

Project management In 1990, the situation in Laos was completely different from today: the number of staff working for the PAS was extremely limited with weak qualifications and national management capacity was limited. In 1997, there is: (a) a strong national project management staff with good knowledge of international and national procedures responsible for the management of IFAD loan funds; and (b) PAS which has managed to implement a cattle bank scheme and has constructed a number of irrigation schemes, both of which have been well appreciated by farmers. The management arrangements established for the project in 1990 can not be the same management arrangements for a Second Phase Project to start in 1998, and will require a redefinition of tasks and responsibilities.

Opium reduction Opium reduction was a stated project objective. Practically the project had only late activities in the opium growing area and these do not seem to have had any measurable effect. Other programmes components, carried out under the UNDCP Project - schools, health, detoxification, educational information, may have had some effects but those equally are not measurable. However national estimates seem to indicate a global reduction of opium production in the province.

Main issues and recommendations

The conclusions which are drawn from the First Phase project are the following:

Institution building has been a major achievement, as demonstrated by comparison of present and initial situation. Enhanced experience in management and skill development are also to be recognised;

Experience with group approach, for credit, irrigation and cattle banks, has demonstrated its effectiveness, although often too much specialised and insufficiently integrated with village other activities. This is due to the fact that the project has been implemented according to a vertical approach which has prevented integration of development efforts, particularly at village level. As a result, organised groups - except for irrigation - do not appear to have provided an alternative for participatory management;

Technical Assistance was essential for the project take off. Delays in providing it was one of the main reasons for initial slow disbursement. Seven years later, technical assistance is still needed but in quite a different way: provincial staff has gained experience, know much more about procedures and project management; As a result, present needs are mostly for well identified support in specified fields; Such needs could most probably be met under new approaches to TA;

Approaches to irrigation and labour based road construction seem to be appropriate and should be continued. In particular, investment cost recovery of irrigation work, which is new in Laos, has proven effective and has helped development of a sense of ownership;

A number of activities, initially justified, appear uneconomic and seem now less justified - as for the cattle banks. Concerning the latter, however, Government has different views and is not convinced that this activity should be discontinued;

Despite the training efforts, the extension system is still inefficient and need improvement; and

Cost per direct beneficiary has been extremely high. This calls for a better knowledge of project costs per unit so as to be able to adjust project approaches in real time.

Justifications for a Second Phase Project The mission believes that a Second Phase Project is justified and it recommends that IFAD continues to be involved in the project, for the following reasons:

After an extremely slow start, the project has gained an impressive momentum over the past three years. Performances against appraisal physical objectives have been good;

The project has become a backbone of agricultural services activities. Institution building and skills improvement - whatever are still the weaknesses - have appeared an outstanding project result. Second Phase activities could help bringing an added value to this institutional and human resources investment. Government particularly emphasises this aspect;

Farmers are demanding more project support, particularly in areas not yet concerned by the project. Motivations seem strong; and

The Xieng Khouang province is one of the five provinces which have been selected for implementing the new policy for decentralised development planning.

Development Strategy Context Since the first project appraisal time, the province has experienced considerable changes; It has moved from a predominantly subsistence economy towards a monetized economy, improved roads communications have favoured trade with neighbouring provinces and Viet Nam. The province, in addition has a significant potential for livestock development, forestry, fruit trees (including temperate fruits) and, in many areas, for irrigation. Provincial Government has embarked on a long term development strategy based on irrigation, livestock - meat and dairy -, and better management of the uplands where swidden cultivation would be banned. Priority is also given to access roads expansion. A Second Phase Project could support this strategy to the extent its assistance could significantly result in poverty alleviation.

Suggested approaches A Second Phase Project would have to be designed taking into consideration lessons learned from First Phase as well as the changes in the socio-economic structure in the province since First Phase Appraisal:

A major attention should be paid to setting more appropriate approaches to target project activities on poor villages and poorest strata. In particular, socio-economic surveys should be used to select target villages;

Targeting should be improved. An appropriate monitoring system could help in a continuing assessment of the beneficiaries status and in adjusting the targeting criteria and process;

Credit would be a major instrument to help target group farmers in developing agriculture, livestock an other productive activities. It would have however to be better targeted. Villages organisations could play a role in channelling information and identifying borrowers. Credit in kind - mainly for livestock -, which was justified eight years ago, is now challenged by a more effective credit system and should be reviewed;

Group approaches, which were successfully implemented during First Phase should be continued and expanded. However better integration would be sought at village level by selecting the village as an "entry point" for most project activities;

Villages would be considered as primary partners of the project. Their existing structures should possibly be enlarged to include all village groups and organisations likely to play a role in development (such as, for instance, the Villages Development Committees created in Nonghet);

Besides activities which, in villages, could concern directly individuals or specific groups, there are a number of other activities which call for village responsibility or initiative. So are, for instance, activities linked with common lands management, environmental actions, water supply, social equipment, village nurseries, participative trials, etc. Special consideration could be given by the project to supporting villages in these activities;

Provincial administrations would continue to play a major role in project implementation. However they should, as much as possible, move away from involvement in production and direct execution of works to concentrate more on technical advisory functions, information, the development of an appropriate regulation framework and its enforcement, assistance in programming, etc.;

Training at all levels would continue to be needed and should have a significant place in a new project; and

Private sector involvement would be sought whenever they can operate at lower costs functions now performed by administrations, as for instance, constructions works, veterinary services, etc.