Mid-term Evaluation

Findings

The Hillside Farmers Support Project (HFSP) is in its fifth out of the six years initially planned for implementation. Project objectives were to provide credit and extension (supervised credit) services to both small farmers and rural landless or near-landless, as a means to increase production and income. Long-term credit was to be provided to small farmers, for the development of coffee and cocoa as permanent crops. Two types of benefits were expected: increased income to participating farmers; and reduced soil erosion in the hillsides, an important social benefit for the population living in the watersheds below, including the city of Kingston.

Agricultural supervised credit. Beneficiaries of agricultural credit in general meet the selection criteria specified at appraisal. However, the number involved has been much less than originally planned at this stage of the project. Some 900 loans had been disbursed or were in the process of being disbursed at 31 December 1993, about 1/4 of what had been estimated at appraisal.

The major causes for the project's delay in sub loan up-take identified in periodic project reports, as well as in supervision reports, have been: (1) "high" interest rates, which according to these reports and to project staff have discouraged farmers from taking up loans; (2) deficiencies in the extension and input supply services contracted with the Coffee and Cocoa Boards, which resulted in large delays in loan approvals; and (3) rapid devaluation of the Jamaican dollar, which has resulted in a six-fold increase of project funds in local currency, thus making it more difficult to disburse external funds as programmed.

The above factors have been considered by the Agricultural Credit Bank (ACB), the project executing agency, as the basic reasons for limited achievements obtained during 4 1/2 years of implementation. The Caribbean Development Bank (CDB) and IFAD have in general concurred with ACB's appreciation of the reasons for delay in loan up-take.

During the Mid-term Evaluation these issues and others were examined, to ascertain what the HFSP had achieved at: the farm level; at the Peoples Cooperative Banks (PCBs) level; and at the level of ACB and the other agencies involved in project implementation.

The Mid-term Evaluation (MTE) has ascertained that the three main factors attributed (para. 3. above), did in fact have important effects on the agricultural loan uptake and crop development. Other issues were however also involved and some have had, or may eventually have, even more important effects on project results.

That interest rates affected loan approvals seems clear, but this has taken place in a manner different than expressed in both project and supervision reports. Namely, because of the ACB's staff perception that the loans could not be payed back by farmers at "very high interest rates", and have discouraged loan approvals. But the interest rates on project loans, when properly compared to inflation rates, have in fact been negative in nearly all quarters during the 4 1/2 years of implementation. The direct effect of interest rates, thus has been more on project staff, on the supply of funds than on its demand. In fact, none of the farmers interviewed by the Mission complained about the level of the interest rates.

Certain features of the credit component in HFSP as designed, made it distinct from other projects. These included: (1) a Loan Guarantee Fund, to allow PCBs to accept a degree of risk in their lending operations; (2) the credit "advance" mechanism, to provide support to farmers during the initial years of introduction of tree crops; (3) the use of crop lien instead of the more usual forms of collateral; and (4) a loan repayment scheme which provides for the capitalization of interest during four years, as a way of avoiding repayment by farmers in the initial years of crop establishment.

It must be pointed out that during implementation, neither the loan guarantee nor the crop advance were used by the project. A loan guarantee fund (LGF) was established at the very beginning of the project, and it has lost much of its original value, as the Loan Agreement mistakenly indicated that it should be established in local currency: the devaluation has reduced its value to less than 1/3 of its original amount in US dollar terms (even after interest gained). Furthermore, the loan guarantee fund has been perceived by project staff as an insurance against natural calamities. The crop advance, one of the features that was supposed to attract farmers, was left aside and no mention of it is made in either project or supervision reports. Thus, both innovations, the LGF and the crop advance, which could have had a positive impact on loan approvals as well as on the credit uptake, have not been applied by the HFSP.

The crop lien system on the other hand has been a very positive mechanism. First, it allowed access to long-term credit to small farmers who did not possess collateral, such as land titles. Second, within those farmers with new access to credit, it has become a strong attraction to young farmers, who have family land but no clear title, but which could get the formal consent of the family to use the land for 15-10 years, and thus could obtain and payback a loan from HFSP.

The capitalization of interest in loans is being followed in all cases, but interest being accrued on interest at the present rates, substantially increases total debt of farmers. At some PCBs, the farmers are being advised to begin repaying as soon as possible and not wait for the four year interest grace period to be over. The MTE's analysis on this matter questions the advantage to farmers of this scheme.

Problems with the services to farmers provided by the Coffee Board (CfIB/CIDCO) and the Cocoa Board (CcIB), to some extent due to the effects of the structural adjustment programme on the budget of both organizations, had in fact a negative impact on project development. Even at appraisal, there was some inkling that problems could be encountered, if these agencies were expected to work with the project's target group. It was recognized then that the Boards had little experience with small farmers and were skeptical of the economic sense of providing them with extension and input services. This institutional view eventually prevailed, even though some field staff of CIDCO did work closely with small farmers and identified with project objectives.

The problems with the coverage and quality of extension and input services gradually deteriorated over time to such a state that ACB, with the approval of CDB and IFAD, took the decision in mid-1993 to terminate the service contracts with both Boards. In was also agreed that during the rest of the project implementation period, those services would be provided by a combination of new extension staff contracted directly by ACB, supported by ACB's existing credit and training officers, as well as by PCB managers and other staff. The original estimate was that the new extension staff would be operational in about two months, but in fact it took nearly eight months before this staff began effectively working with the farmers. The slack in input provision by the boards was addressed by ACB and the PCBs in an ad-hoc basis, solving to some extent the farmer's urgent demand for quantity of inputs, but not its quality. In any case, mechanisms have been put in place by ACB to provide extension and inputs, substituting for the boards original role in the project, although the results of this change are still to be determined in the near future.

The "new" extension service was being put in place during the MTE's visit to Jamaica. Some important issues concerning extension, to be discussed in the second part of this summary, require urgent attention by ACB, CDB and IFAD, in order to ensure the appropriate coverage and quality of services farmers should receive from HFSP. Extension and input supply are still very relevant issues for achieving adequate project results at the farmer's level, and the question of quality of these still exists -even if in a modified form and under a different institutional set up.

The observed effects of supervised credit at the farm level vary substantially according to the crop, reflecting the very different profitability and technical packages being applied to coffee and cocoa. The farmer (and the coffee and cocoa trees themselves) have demonstrated their ability to perform as expected under the HFSP design, provided the right environment, inputs and technical services were available. Nevertheless, on a majority of farms in the project, serious shortcomings were observed by the Mission.

In order for the project to obtain the expected changes in production and income at the farm household level, as a result of the project proposed technological packages, a number of inputs had to be provided on time and of the required quality. Supply of inputs (para. 13) on a timely basis became a serious problem, especially after 1992, but ACB and the PCBs have managed to cover the main deficiencies. A different problem is that of the quality of inputs. The most important physical inputs are the coffee and cocoa seedlings, as these are the genetic basis for future production. In field visits, the MTE has become convinced that the quality of seedlings to HFSP farmers, is in general deficient. Seedlings being sold to farmers are not in general sufficiently mature, and require much more attention after planting, if they are to be brought up to their desired production potential. In addition, the real price of this input has doubled since project start-up. Not only have farmer's seedlings cost increased, but in general they are receiving an inferior input. The indices of loss of planted material in the fields (about 20% and in some cases more), are a reflection of this. Neither ACB nor PCBs or the boards, have perceived this to be a problem.

The recommended levels of fertilization, especially for potash, are very high. There is a lack of evidence to sustain the present level of fertilizer use, considering the relatively low average yields obtained. This is causing undue cost to the farmers. In regards to pest and disease control, and even though HFSP is funding some research thorough CARDI on this matter, it appears not to be focused at filling the short-term needs of the crops and the farmers. Most of the problems proposed to be investigated already have been researched elsewhere and the HFSP could obtain more benefit by taking available results and passing them on to field staff and farmers.

In regards to currency devaluation, as a third external factor, for the low project disbursements, there is no question that this has had an impact. In terms of the total IFAD JA-217 funds available for sub-loans to farmers, in Jamaican currency terms, the loanable funds have multiplied by six times since appraisal. This situation has been aggravated by the slow up take of sub loans (para. 2). The situation is however not new, since major devaluations took place in 1991, 1992 and early 1994.

The problem of the low level of disbursement of IFAD loan funds was compounded by the too large amount for price contingencies included in the appraisal report. This inflated both the project's total cost, as well as the size of the loan. Even if the project had proceeded as planned at appraisal, total loan funds would not have been disbursed. This situation leads to the question of project reformulation, possible loan extension and future use of loan funds, which is addressed in Part II of this Summary.

The MTE's analysis and synthesis shows that there are other important problems that have so far received little or no discussion, but which must be confronted and solved if the HFSP is to continue implementation in an acceptable manner. Basically, these refer to: (1) Project management; (2) the HFSP in the context of other on-going projects with ACB/PCBs and the future role expected of the PCB's; (3) Modification of loan conditions to sub-borrowers and simplification of loan approval procedures; (4) Use of the Loan Guarantee Fund scheme; and (5) Revising the existing research support focus, so that it contributes more to project objectives and needs. These matters are dealt with in Part II of this Summary.

Farmer's perceptions on HFSP. On the basis of evaluation surveys carried out by MINAG and visits to farmers by the MTE team, the perceptions of those farmers who had loans approved and have begun using them, is in general favourable. Financing from HFSP, made available under the crop lien system, allowed farmers who previously had little or no access to credit, to establish new planting of coffee and to a very limited extent of new cocoa and crop rehabilitation. However, only about one half of those farmers whose loans were approved were able to disburse. These latter have a less positive attitude towards HFSP's loan approval and extension systems because of the delays in obtaining the required services, and so a substantial proportion have opted out of the project.

Non-Agricultural Credit. This project component has been assigned a low priority during implementation, contrary to appraisal expectations. At appraisal, it was clearly indicated that a significant proportion of the target population would not benefit from the agricultural credit component, and therefore a non-agricultural credit component financing other rural enterprises could provide substantial benefits for the landless and near-landless. This component has in fact produced extremely disappointing results. After 4 1/2 years, all that can be shown are 28 sub-loans approved for a total amount of under USD 50 000.

The National Development Foundation of Jamaica (NDFJ), has been unable to establish minimal conditions for continued implementation of this component and the HFS Project Management has been rather passive with respect to this strategic component. There is evidence of other micro-enterprise programmes active in rural areas, that provide alternatives for furthering the non-agricultural credit through other organizations.

Soil conservation. No significant activities or resources for soil conservation were included at the design stage. HFSP has benefitted from soil conservation education efforts of previous projects and to some extent from technical advice provided to farmers by project development officers, which promote the use of simple soil conservation measures (individual basins for seedlings and contour planting being the most common). While it is not possible to measure the HFSP's (or other coffee development projects) effects on soil erosion, a more definitive position on this matter should be taken by the project's extension service in the following years. A very valuable soil conservation study has been produced by the Caribbean Agricultural Research and Development Institute (CARDI), by Project Management, but so far it has not been put into use, despite its high potential value.

Suggested guidelines for future action

On Overall Project Strategy, HFSP has been and still is a problem project and to turn it into a moderately successful one, will require a major effort by all involved, farmers, Government of Jamaica institutions and IFAD and CDB as the external funding and supervision agencies.

One important element to take into account in a strategy for the projects' last phase, is that the original project design has been overtaken by new project concepts. Namely the Integrated PCB Network (GOJ/CIDA) and the Rural Financial Services (GOJ/IFAD/GON) projects, which are under implementation, respond to a different project focus, as compared to HFSP. IPCBN and RFSP have as their main objective, the development of a viable rural financial system, with agricultural lending as a subsidiary matter. HFSP, on the other hand, is an agricultural credit project, where loan approval, disbursement and repayment are foremost considerations. If the HFSP is subject to reprogramming as recommended by this report, one objective of project redesign work should be to better integrate the latter in its last phase, with present GOJ thinking and priorities on agricultural credit -as reflected in IPCBN and RFSP-.

Agricultural credit component. An obligation by HFSP exists towards those nearly 900 farmers who have taken up loans. On the other hand, to try to involve many more farmers in the supervised credit scheme, in the numbers the project appraisal proposed, at this stage is out of the question, given the findings of the MTE. However, if some of the more serious problems can be overcome, a limited number of new farmers from areas with substantial demand for Blue Mountain coffee loans, could be brought into the HFSP during the last phase.

Revive the non-agricultural credit component. For those rural dwellers in the project area, which cannot benefit from agricultural loans, HFSP should develop an alternative institutional arrangement to get this strategic component on stream, providing loans and technical assistance for small scale rural investment opportunities as originally designed, but setting modest coverage goals, and using existing institutional mechanisms (such as MIDA) for providing these services.

The strategy proposed for the project's last stage, is based on the following: First. A reprogramming of the project is urgently required. If this is not feasible, IFAD should consider providing a one year extension to the closing date (15/04/1995), to allow existing sub-loan commitments to be completed. If a project review is authorized, in the MTE's view, an extension should be considered. This would allow for some new long-term agricultural loans being approved in 1994 and 1995, while permitting sub-loan disbursements to be completed in the following two years.

Second, establish the priority target groups. A reprogrammed HFSP should focus in order of priority on:

(a) farmers who have already have taken up loans, in order to determine whether their investments were correctly made and what -if any additional investment might be required);

(b) Farmers who had loans approved, but did not take them up, and who still maintain an interest in coffee loans. Their credit and extension requirements would be analyzed in relation to the current capacity of PCBs and ACB to provide a quality service. If this is too costly, no further promotion of approved loans should be made;

(c) A limited number of new farmers, subject to the same type of restrictions as mentioned in (b) above; and

(d) Rural small entrepreneurs, who apply for loans for non-agricultural production, non-crop agricultural investments (nurseries, small scale husbandry), or local level marketing, if an effective substitute can be found for NDFJ.

Project goals for the last phase should be directly related to project resources and management capacity. The total number of those involved in supervised agricultural credit, would therefore depend on the project's ability to provide quality extension services. If this cannot be made available, the project should not be expanded to include new sub-borrowers.

Support for the PCBs. To further strengthen the PCBs in its project area, the HFSP would:

(a) provide for further training of PCB Managing committee members and of PCB staff and managers;

(b) make use of IPCBN and RFSP experience in design and application of basic loan administration and information systems at the PCBs, including necessary equipment; and

(c) Review plans to extend the project to the three remaining PCBs, and if not found justified in view of probable modest expansion, use resources to strengthen PCBs already involved.

Commitment of project funds. The MTE estimates that committable loan funds, even with a several years extension, would fall short of the original loan amount. After reprogramming, GOJ and IFAD could negotiate a partial decommitment of loan funds, to provide relief to GOJ on loan debt repayment. By reducing loan size, the country would obtain benefits through reduction in loan repayments.

Project management. It is essential that a full-time Project Manager (to work exclusively for the HFSP) be appointed . The short-term tasks to which this Manager has to allocate undivided attention, due to their magnitude and complexity:

(a) Defining terms of reference for the HFSP's full programming review, carrying this out and obtaining approval for changes in institutional set-up, procedures and goals.

(b) Providing programming and logistical support for the Extension Unit, to ensure that it can provide services in a most efficient and effective manner;

(c) Developing a detailed training programme for HFSP PCBs (Managing Committees, Managers and staff), with support from IPCBN/RFSP consultants and ACB staff, and supervising its implementation.

(d) Establish a simple and operational PCB loan administration and information system, jointly implemented with IPCBN/RFSP, selection of an adequate (perhaps an off-the-shelf) software system; purchase of PCs and other equipment for the PCBs ; and training of PCB staff in its use.

(e) Reviewing the operational system for the Loan Guarantee Fund with the PCBs, including a negotiation with GON, IFAD and CDB, of the size and the currency in which the LGF is to be set up.

(f) Proposing and negotiating with ACB/PCBs the means for providing the latter with a greater spread on sub-loans, establishing clear criteria for determining whether their capability to handle funds has improved through managerial and technical upgrading.

(g) Negotiation and eventual administrative support for a new non-agricultural small enterprise programme, providing CDB and IFAD with the necessary information for taking a decision on whether to proceed with a redesigned component. If approved, provide the selected entity with the administrative support to ensure HFSP flow of funds, periodic reports, supervision and auditing.

The decision to designate a full-time project manager for the HFSP, is considered by the MTE as a basic step towards rescuing the project . It is also a decision that the Bank can take on its own and one which it is urged be made at the earliest. Clearly, the decision should be backed up by the delegation of authority on all project matters, and an equally direct communications channel with ACB's top management.

Project Coordination and monitoring. The Project Coordinating Committee should play a more active role if the project is reformulated. The different changes in the project included in this report, if taken up and included in the proposed reprogramming should be closely followed up by the Committee. It is the Committees responsibility to see that the changes approved be implemented. The Committee should have access to more information on project performance at the field level, by visits to farmers and PCBs. PAMCO's reports on the HFSP should be taken advantage of, as a useful source of external criteria and monitoring information.

Project supervision by CDB and IFAD. The CDB as cooperating institution, must review the recommendations of this report, once approved by IFAD, and establish an in-depth dialogue both with ACB as executing agency, and with IFAD, concerning how to implement those agreed upon modifications.

Evaluation of project effects at the farm level. There are at present a large number of unknowns surrounding the project's effects at the farm level. MINAG should design yield measurement trails and carry these out with support from ACB's development officers. Information on total and crop income of selected farmers should be collected and analyzed, over the next 3 or 4 years.

Research on HFSP's technical packages. Incidence of crop pests and diseases, results of simple experimental trails involving the use of organic and inorganic fertilizer, and cost-effectiveness of different soil conservation methods at farm level, should be central to CARDI's research agenda under the project.

The MTE Mission considers that before the end of April 1995, in the context of a supervision mission, the progress achieved in implementing the recommendations of the MTE should be assessed, and a decision should be taken as to the extension of the loan. If the institutions involved in the implementation of the Hillside Farmers Support Project do not acknowledge the problems pointed out by the MTE, it would not be worthwhile to extend the closing date of the loan. However, if showing a capacity to learn from experience, the problems are acknowledged by the institutions and corrective actions are implemented, then it would be worthwhile to extend the closing date, because under these circumstances the project could make an important contribution to the sustainable development of the rural poor of the Jamaican Hillside.