ASIAN DEVELOPMENT BANK PCR: INO 24281

PROJECT COMPLETION REPORT

ON THE

SULAWESI RAIN-FED AGRICULTURE DEVELOPMENT PROJECT (Loan 1351-INO[SF])

IN

INDONESIA

August 2004

CURRENCY EQUIVALENTS

Currency Unit – rupiah (Rp)

At Appraisal At Project Completion 25 November 1994 8 April 2004

Rp1.00 = $ 0.000460 $ 0.000118

$1.00 = Rp 2,175 Rp 8,500

ABBREVIATIONS

AARD –

Agency for Agricultural Research and Development

ADB – Asian Development Bank BAPPEDA – Provincial development planning agency BAPPENAS – National planning agency BLS – baseline survey BPN – National land agency DES – District estate service DGECP – Directorate General of Estate Crop Production DGFCH – Directorate General of Food Crops and Horticulture DGLS – Directorate General of Livestock Services DGLRSF – Directorate General of Reforestration and Land Rehabilitation DEMPLOTS – demonstration plots CIF

EA – –

cost, insurance, and freight executing agency

EIRR – economic interest rate of return KUB – kelompok usaha bersama (business oriented farmer group) MOA – Ministry of Agriculture NGO – nongovernment organization PAM – project administration memorandum PCC – project coordination committee PES – provincial estate service PMG – project management group PMU – project management unit PPAR – Project/program performance audit report PRA – participatory rural appraisal SRADP – Sulawesi Rainfed Agriculture Development Project TA – Technical assistance VADP – village area development plan VCDW – village community development worker

WEIGHTS AND MEASURES ha (hectare) – 10,000 m2 mt (metric ton) – 1,000 kg

NOTES

(i) The fiscal year (FY) of the Government ended 31 March until FY1999/00 and 31 December from 1 April 2000. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2004 ends on 31 December 2004.

(ii) In this report, "$" refers to US dollars.

CONTENTS BASIC DATA MAP

Page I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 6 D. Disbursement 6 E. Project Schedule 7 F. Implementation Arrangements 7 G. Conditions and Covenants 7 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 8 J. Performance of Consultants, Contractors, and Suppliers 8 K. Performance of the Borrower and the Executing Agencies 9 L. Performance of the Asian Development Bank 9

III. EVALUATION OF PERFORMANCE 10

A. Relevance 10 B. Efficacy in Achievement of Purpose 10 C. Efficiency in Achievement of Outputs and Purpose 10 D. Preliminary Assessment of Sustainability 10 E. Environmental, Sociocultural, and Other Impacts 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12

A. Overall Assessment 12 B. Lessons Learned 13 C. Recommendations 13

V. APPENDIXES

1. Project Framework 16 2. Project Achievement at Appraisal and Project Completion 21 3. Project Cost at Appraisal and Project Completion 24 4. Disbursement at Appraisal and Actual 26 5. Project Implementation Schedule 26 6. Project Implementation Structure 27 7. Compliance with Loan Covenants 28 8. Summary of Consulting Services 33 9. Economic and Financial Analysis 35

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BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agencies

6. Amount of Loan 7. Project Completion Report Number

Indonesia 1351-INO(SF) Sulawesi Rain-Fed Agriculture Development Project

Indonesia Directorate General of Estate Crops Production, Directorate General of Food Crops and Horticulture, Directorate General of Land Rehabilitation and Social Forestry, and Directorate General of Livestock Services SDR19,386,00 INO 864

B. Loan Data

1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

20 July 1994 13 August 1994 24 November 1994 25 November 1994 31 January 1995 10 April 1995 8 July 1995 29 May 1995 30 September 2002 7 May 2004 One 1% per annum 35 10

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8. Disbursements

a. Dates Initial Disbursement

20 September 1995

Final Disbursement

7 May 2004

Time Interval

104 months

Effective Date

29 May 1995

Original Closing Date

30 September 2002

Time Interval

88 months

b. Amount (in SDR ‘000 equivalent) Cat. Ref.

Category Original Alloca- -tion

Amount Canceled

Last Revised Allocation

Net Amount Available

Amount Disbursed

Undis- bursed Balance

01 Civil Works SDR 4,023 1,485 2,538 2,538 2,242 296

02A Vehicles and Other Equipment

SDR 1,126 (454) 1,580 1,580 1,445 135

02B Crop Physical Input SDR 6,404 (2,731) 9,135 9,135 9,029 106

03 Training SDR 1,627 731 896 896 944 (48)

04 Consulting Services SDR 2,445 (393) 2,838 2,838 2,853 (15)

05 Surveys and Studies SDR 300 101 199 199 165 34

06 Project Administration

SDR 1,288 226 1,062 1,062 1,112 (50)

07B Local Expenses (furniture and minor items)

SDR 65 (98) 163 163 152 11

07G Local Expenses (land titling)

SDR 1,130 765 365 365 240 125

07I Unallocated (local expenses)

SDR 949 949 0 0 0 0

08 SC During Construction

SDR 584 (25) 609 609 609 0

09 Unallocated SDR 724 724 0 0 0 0

99 Imprest Account – – – – – –

Total SDR 20,665 1,280 19,385 19,385 18,791 594

Source: Asian Development Bank records 9. Local Costs (financed)

- Amount (US dollars) $12.2 million - Percent of Local Cost 51

- Percent of Total Cost 29

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C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Amount % Amount %Foreign Exchange Cost 14.50 23 13.50 31Local Currency Cost 46.30 77 30.30 69

Total Cost 60.80 100 43.80 100

2. Financing Plan ($ ’000) Appraisal Estimates Actual

Cost Foreign

Exchange Local

Currency Total Foreign

Exchange Local

Currency Total Implementation Costs Borrower-Financed – 30,374 30,374 – 18,177 18,177 ADB-Financed 13,630 15,868 29,498 12,681 12,174 24,885 Other External Financing – – – – – Total 13,630 46,242 59,872 12,681 30,351 43,032 Service Charge Borrower- Financed – – – –

ADB-Financed 857 – 857 808 – 808 Other External Financing – – – Total 857 – 857 808 – 808 Source: Asian Development Bank estimates.

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3. Cost Breakdown by Project Component ($ ‘000)

Appraisal Actual Foreign Local Total Foreign Local Total Project Component Exchange Currency Cost Exchange Currency Cost Base Cost Civil Works 2,296 4,435 6,731 1,029 3,603 4,632 Vehicles and Equipment 1,737 – 1,737 2,025 – 2,025 Furniture – 101 101 – 210 210 Land Titling – 1,659 1,659 – 339 339 Crops Physical Inputs 6,802 5,652 12,454 6,646 5,221 11,867 Farm Labor Cost – 18,093 18,093 – 7,000 7,000 Initial Livestock Purchase – 1,069 1,069 – 650 650 Training 233 2,277 2,510 1,308 1,308 Consulting Services 1,793 942 2,735 2,436 1,377 3,813 Surveys and Studies 17 468 485 9 215 224 Advisory Services – 1,081 1,081 – – – Project Administration 752 7,214 7,966 536 8,775 9,311 Taxes and Duties – 3,250 3,250 1,652 1,652 Service Charge 857 - 857 808 - 808 Total Cost 14,487 46,243 60,730 13,489 30,351 43,840 Source: Asian Development Bank estimates. 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants 1996/97 June 1997 Completion of Engineering Designs – December 2002 Civil Works Contract Date of Award

- Roads and Bridges - Office Buildings - Water Supply System

1995/96 1995/96 1995/96

January 1996 January 1996 January 1996

Completion of Work - Roads - Office Buildings - Water Supply System

1995/96 1995/96 1995/96

July 2003 May 1996 June 2003

Equipment and Supplies Dates First Procurement 1995/96 December 1995 Last Procurement 2002 May 2003 Completion of Equipment Installation June 2003 — = no data available. Source: Asian Development Bank records.

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5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

From 1 January to 31 December 1995

Satisfactory

Satisfactory

From 1 January to 31 December 1996

Satisfactory

Partly satisfactory

From 1 January to 31 December 1997

Satisfactory

Partly satisfactory

From 1 January to 31 December 1998

Partly satisfactory

Unsatisfactory

From 1 January to 31 December 1999

Partly satisfactory

Partly satisfactory

From 1 January to 31 December 2000

Satisfactory Satisfactory

From 1 January to 31 December 2001

Satisfactory Satisfactory

From 1 January to 31 December 2002

Satisfactory Satisfactory

From 1 January to 31 September 2003

Satisfactory Satisfactory

Note: From 1995 to 1997, the development objectives and implementation progress ratings were actually combined, and the ratings were adjusted into the current project performance rating system. D. Data on Asian Development Bank Missions Name of Mission

Date

No. of Persons

No. of Person-

Days

Specialization of Membersa

1. Inception Mission 31 July–August 1995 2 22 a, b 2. First Loan Review Mission 5–19 February 1996 2 30 a, b 3. Second Loan Review Mission 14–29 November 1996 1 16 a 4. Third Loan Review Mission 11 May–13 June 1998 2 68 c, d 5. Midterm Review Mission 5–15 October 1999 2 22 c, d 6. Fourth Loan Review Mission 7–16 November 2000 2 20 c, d 7. Fifth Loan Review Mission 6–28 November 2001 2 46 d, e 8. Sixth Loan Review Mission 31 July–13 August

2002 1 14 d, e

9. Project Completion Reviewb 22 March–4 April 2004 2 26 c, f No. = number. a a = project engineer, b = technical assistant, c = senior project implementation officer, d = senior project officer, e =

senior sector specialist, f = staff consultant. b The project completion report was prepared by Soewartono H. S., Senior Project Implementation Officer and

Mission Leader, and Tan B. T., Staff Consultant.

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I. PROJECT DESCRIPTION

1. Until recently, the Government’s focus in agriculture was on the attainment of self-sufficiency of rice through large investments in the construction or rehabilitation of irrigation facilities. However, rain-fed agriculture1 occupies more than two thirds of Indonesia’s agricultural land and provides more than half the yearly production value contributed by annual and perennial crops. Two thirds of the rural population, or some 65 million people, are engaged in rain-fed agriculture and are dependent on this subsector for subsistence. Shifting and swidden cultivation is widely practiced, leading to soil erosion that is followed by the establishment of a noxious weed called alang-alang and the environment’s subsequent deterioration. In large areas of Eastern Indonesia (including Sulawesi), where nonagricultural opportunities are limited, the practice of rain-fed agriculture is prevalent, and many farmers are located in resource-poor and isolated communities. These farmers are generally the poorest farmers in Indonesia. 2. To address the needs of these individuals, The Sulawesi Rain-Fed Agriculture Development Project introduced sustainable and profitable upland farming systems on about 52,000 hectares of cropland, comprising (i) 23,800 hectares of estate crop farming, including cashew, coconut, and coffee; (ii) 20,200 hectares of food crop and horticulture-based farming, including cassava and upland rice, forage grasses, fruit trees, legume, and maize; and (iii) 8,000 hectares of legume and multipurpose trees for the regreening of steep slopes in four environmentally threatened watersheds that cover four provinces in Sulawesi.2 These sites are located inside four catchment areas that were classified by the Government as critical watersheds. All the sites had erosion problems associated with unstable soils. Inappropriate farming systems, poor farming practices, and vegetative cover are prevalent, and many watersheds are under shifting cultivation. 3. The Project was implemented through a participatory rural appraisal (PRA) approach, otherwise known as bottom-up planning. Potential participating villages were short-listed after consultation with local government officials at the district level. The PRA approach involved the preparation of a socioeconomic profile of each targeted community, to support project implementation, and encouraged full participation of beneficiaries in community development plan preparation. In conducting the PRA approach, project staff members were supported by a team of international and domestic consultants. 4. The sites selected are farmed by about 50,000 low-income farmer households located in either eroded areas with unstable soil or in large tracts covered by weeds. Access to agriculture support services, such as extension advice and credit and agriculture inputs, was generally deficient. Agriculture productivity was low, and production risks were high, leading to an aversion to changes in farming practices. Land tenure was frequently insecure, limiting farmers’ access to credit and preventing them from making long-term farm investments. Off-farm employment was frequently sought to supplement meager farm incomes. Poverty was endemic, leading to poor health, shorter life expectancies, low education levels, and rural-urban migration. The role of women was generally limited to housekeeping and taking care of the family. Women had little access to education and were disadvantaged by having to spend a significant proportion of their time collecting fuel-wood and potable water.

1 Rain-fed agriculture is defined as an agricultural system where moisture supply is dependent entirely on rainfall,

regardless of the crops grown. 2 (i) Saddang, in Enrekang district, south Sulawesi; (ii) Palu, in Donggala district, central Sulawesi; (iii) Limboto, in

Gorontalo; and (iv) Konaweha-Roraya, in Kendari district, southeast Sulawesi.

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5. The project objectives were to (i) increase the productivity and farm incomes of rain-fed agriculture farmers; (ii) protect and improve the fragile upland environment; (iii) create employment in rural areas; (iv) reduce poverty; and (v) improve the socioeconomic conditions of women beneficiaries. 6. The project scope consisted of the following five components:

(i) farm development through the production of tree and food crops, including horticulture as well as regreening and soil conservation; introduction of improved soil conservation techniques, based on alley cropping and the provision of inputs (including materials for planting, agrochemicals, fertilizer, hand tools, and extension services); and goat and cattle raising as part of an integrated farming system;

(ii) rural infrastructure rehabilitation and upgrading for 130 kilometers of village farm roads and 100 meters of new bridges and installation of simple potable water supply to 40 villages;

(iii) community development through the provision of assistance and training for the PRA approach, agriculture skills, farmer group formation, information dissemination and cooperatives, and agricultural demonstration plots establishment;

(iv) institutional strengthening through the training of government officials and farmers and women’s groups; and

(v) project management through establishing, operating, and maintaining eight project management unit (PMU) offices; housing project staff members; providing furniture, vehicles, and operational costs; and providing consulting services.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

7. The Project was designed and formulated in line with the Government’s agriculture strategy and ADB’s country operational strategy for the agriculture sector. The development of Eastern Indonesia and rain-fed watershed areas are still accorded high priority by the Government, within which ADB’s approach of community empowerment for rural development has received increasing acceptance, especially after decentralization. The Project is quite representative of ADB’s broader country operational strategy for agriculture, which emphasizes (i) raising productivity of agriculture and nonfarm activities through technology transfer; (ii) encouraging mixed farming systems, including community-based estate crop and regreening programs; (iii) developing rural infrastructures through private sector investment and community-based organizations, to enhance marketing, distribution, and agroprocessing; and (iv) developing rural financial intermediaries, based on ADB’s experience in rural finance and based on successful government and civil society models of microcredit delivery and savings mobilization. 8. Consistent with the Government’s Program Pembangunan Nasional (national development plan), the Project was to achieve economic recovery and strengthen the foundation for the sustainable and equitable development of a democratic society. The Project supported the Government’s decentralization program. This program was geared toward improving regional autonomy; strengthening farmers groups; and assisting in the formation of cooperatives and associations of upland rain-fed watershed farmers and kelompok usaha bersama (KUBs), which are business-orientated farmers organizations.

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9. The Project was prepared in the transition period between the “top-down” approach era, when similar projects were implemented yearly, and a PRA concept for which no executing agencies were familiar with. The appraisal introduced the PRA concept but set physical targets for each component, which was essentially a top-down approach. At the initial project implementation stage, the types of crops to be developed were selected by the Directorate General of Estate Crop Production (DGECP), also based on a top-down planning concept. While this approach was effective in planting large areas of trees within a short period, it failed to obtain active community participation in developing and implementing the Project. In 1999, the Government agreed the shift to a full PRA approach, to better meet farmer needs. 10. The Project’s design was also lacking emphasis on post-harvesting activities, such as processing and marketing, which are important factors for future project sustainability. Development of marketing channels to ensure that farmers will be able to market their production was not specifically addressed in the design, but it was introduced during the project implementation. Assistance provided to farmers for farm labor in the first year of project implementation was not adequate since most of the farmers involved in the Project were poor farmers and the tree crops planted by farmers have longer gestation period. B. Project Outputs

11. The Project achieved most of its objectives. It created a more dynamic agribusiness environment that provides farmers with easier access to farm inputs, including processing and marketing facilities, and led to increases in on-farm and off-farm incomes. Project achievements are described in detail in the project framework (Appendix 1), and a summary of project outputs under each component is shown in Appendix 2.

1. Part A: Farm Development

12. Most physical targets set at appraisal were achieved: 30,864 hectares of estate crops and 17,579 hectares of food and horticulture crops were developed; 5,815 hectares of critical slopes were regreened; and 48,698 hectares of farmland benefited from the soil conservation measures implemented ( Appendix 2, Table A2.1). The Project supplied 7,832 goats and 300 pigs to 787 farmer groups. By the Project’s end, these increased to 10,420 goats and 538 pigs. 13. Estate crops developed under the Project included candlenut, cashew, cocoa, coconut, coffee, and pepper. At project completion, the total planted area exceeded the target set at appraisal by 30% (Appendix 2, Table A2.2). Cashew is the most popular crop, followed by coconut, coffee, cocoa, and pepper. Coconut and candlenut trees are currently either at the immature stage or just beginning to bear fruit. The full impact of the increased crop yields on farm income is expected to materialize by 2008. Cocoa, coffee, and pepper were harvested. However, the production of cashew, especially in the Kendari area, declined substantially, due to unfavorable climatic conditions. Good yields were achieved with pepper, with average production exceeding 300 kilograms per ha in the early years. This success had a favorable impact and encouraged some farmers not affected by the Project to plant pepper on their own initiative.

14. Food and horticulture crops were planted using the alley cropping system.3 The food crops will provide farmers with an extra source of food and income during the tree crop immaturity period. In Limboto subdistrict, the average yield of corn increased by 1,200 kilograms 3 The alley system refers to planting crop strips on the contours, to arrest soil erosion and stabilize land use.

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per hectares.4 In addition, the development of food and horticulture crops using the alley system also reduced soil erosion. 15. Under the regreening program, forest trees were planted5 on hill slopes, to protect the fragile upland areas and provide additional farm income. In Gorontalo district, regreening promoted the recent development of private teak nurseries and the widespread planting of forest trees in the project area by farmers using their own resources. Large areas of wasteland were recently planted with teak trees. 16. Adopted soil conservation measures included introducing leguminous cover crops, adopting natural vegetative strips, mulching, and planting vegetative hedgerows. Farmers are now more aware of soil conservation practices and incorporate these in their farm holdings. Farmers planting tree crops adopted terracing, planted hedgerows, and used alley cropping as part of their agronomic practices. 17. Livestock provided additional income to farmers. In addition, organic manure reduced dependency on the use of chemical fertilizers, enhanced soil structure, and delayed soil degradation. Farmers also have greater incentive to plant grass and scrubs in the interrows, thus reducing soil erosion and producing cattle food. Recent data indicated that goat and pig populations increased by 33% and 79%, respectively. 18. Assistance provided to farmers included payment for farm labor in the Project’s first year, as an incentive for planting tree crops, regreening, and undertaking soil conservation measures. The total assistance in cash varied from $200 to $250 per hectare, including a $50 per hectare cash payment to cover labor costs for all crops (Appendix 2, Table A2.3). The main assistance provided was in the form of materials, including seedlings, fertilizers, chemicals, and tools. The provision of a one-year assistance for tree crops that have longer gestation period was not adequate in view of the farmers’ limited financial capacity to maintain the crops from planting until the crops start harvesting. 19. The Project provided farmers with processing equipment, such as cashew nut crackers (1,660 units), cocoa fermentation containers (733 units), coconut scrapers (64 units), coffee de-pulping (shell opener) machines (6 units), and various grinders (129 units). The Project also assisted farmers in forming farmers groups and cooperatives, to strengthen marketing.6 20. Issuing land title certificates progressed slowly, due to delays by the provincial land agencies in processing these certificates. This situation improved following the transfer of the issuance of land titles to district land agencies, as a consequence of decentralization in January 2001. Out of the target of 27,934 parcels (19,496 hectares), only 24,301 parcels (15,032 hectares) were contracted and 23,361 parcels (15,040 hectares) of land certificates were issued (Appendix 2, Table A2.4). 21. The Project was successful in increasing farm productivity, but farmers in isolated areas are receiving less than half of the prevailing farmgate prices (initial prices from the farm). Farmers in these areas need assistance from Provincial Estate Services in improving processing that will enhance product prices, reducing transportation costs, and forming links with large urban processors or traders who will offer higher prices.

4 Batulayar, Bhakti, Molopadu, and Puncak villages. 5 Including albazia (quick growing shade tree), cempaka (frangiparis), candlenut, tamarind, and teakwood. 6 Including the establishment in south Sulawesi of a joint-venture coffee marketing company that will be 80% owned

by farmers.

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2. Part B: Rural Infrastructure

22. Infrastructure was improved in consultation with local communities. Upgraded farm roads and bridges improved access to markets and farm fields; reduced crop losses; and facilitated the movement of people, goods, and services. Most rural roads and bridges constructed were handed over to local governments, and these bodies assumed responsibility for road and bridge maintenance. The Project also supplied water to project and other farm households. At project completion, about 25,000 households were provided with potable water. The infrastructure component targets were generally achieved (Appendix 2, Table A2.5).

3. Part C: Community Development

23. Although delayed for about 3 years, the PRA approach was successfully implemented. Participating villages were selected in consultation with district governments. The Project assisted 416 villages with (i) establishing community nurseries as sources of good quality planting material for project and other farmers; (ii) developing community demonstration plots (demplots); (iii) establishing farmers associations, village-level farmers cooperatives, and KUBs; and (iv) promoting and strengthening women’s groups. The community nurseries provided a good multiplier impact to farmers not affected by the Project, particularly for teak nurseries and pepper. The community demplot7, however, which was part of the planned technical training to farmers, generally failed, due to poor management and maintenance. A total of 1,294 farmers groups, 37 KUBs, 140 women’s farmers groups, and 24 cooperatives were established under the Project (Appendix 2, Table A2.6). 24. The lack of initial capital was an issue for most cooperatives and KUBs. In Wonuaraya village, Kendari district, a KUB was unable to prevent pepper farmers in need of cash from selling their crop immediately after harvest to small traders offering low prices. The farmers sold pepper at Rp12,500 per kilogram, against a normal market price of Rp20,000 per kilogram. To overcome the problem, a KUB needed about Rp100 million as initial capital to form a marketing cooperative to purchase pepper from individual farmers for bulk sale to wholesalers in urban centers. The Project also empowered kelompok wanita tani (women’s farmers groups) by providing training and funds for activities, such as producing mattresses (Donggala) and coconut oil (Gorontalo) and developing livestock (Enrekang).

4. Part D: Institutional Strengthening

25. The Project provided training to project administrators and PMU staff members and on-the-job training for extension workers and other local government staff members. With the PRA approach’s implementation, staff training focused on the use of field survey findings to help farmers increase their self-reliance in promoting activities for expanding their on-farm and off-farm incomes. The Project also focused on training farmers in (i) new technical skills and imparting knowledge of agronomic practices for tree crops, regreening efforts, soil conservation, and animal husbandry; (ii) establishing farmers groups and developing community business-oriented groups; (iii) enhancing farmers’ capacity to plan and manage their own development projects; and (iv) improving overall farm management practices (Appendix 2,Table A2.7).

7 The demplots were implemented in selected villages in an area of 0.25 ha, and mostly planted with candlenut,

coffee and teak, and also supplied with three goats (one male and two females).

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5. Part E: Project Management and Consulting Services

26. At Appraisal, establishment, operation and maintenance of eight PMU offices, 40 sub-unit offices together with staff housing, provision of office equipment, furniture, vehicles, motorcycles, operational costs including salaries to PMU and sub-unit staff, and consulting services were envisaged. At project completion, eight PMU and 40 sub-unit offices with total area of 2,640 square meters (m²), meeting halls (1200 m2), 1,608 m² of staff housing and 1,400 m² of warehouses were constructed and well maintained. All these buildings are in good condition. The Government assigned a total of 295 project staff members to project and subproject offices. A total of 4 trucks, 25 4-wheel drive vehicles, and 153 motorcycles were procured for project activities. The project buildings owned by DGECP are being used by the District Estate Services (Appendix 2, Table A2.8). 27. At appraisal, a total of 110 person-months of international consultant services and 287 person-months of domestic consultant services were anticipated. With the PRA approach’s implementation, more domestic consultants and nongovernment organizations (NGOs) were required. The provision of person-months of the consultants and NGOs stated at appraisal were sufficient to cover the services only up to May 2000. DGECP, as the lead executing agency, proposed to increase the number of domestic consultants and NGOs and also to recruit village community development workers (VCDWs) to expedite the PRA approach’s implementation. The proposal was approved during the Midterm Review Mission in January 2000. Over the course of the Project, 127 person-months of international consultant services, 552 person-months of domestic consultant services, and 2,136 person-months of NGO and VCDW services were used to assist implementation. C. Project Costs

28. At Appraisal, project cost was estimated at $60.8 million, comprising $14.5 million in foreign exchange and $46.3 million in local currency costs. Actual project cost was $43.8 million, comprising $13.5 million in foreign exchange and $30.4 million in local currency costs (Appendix 3). The lower than anticipated project cost was mainly caused by substantially lower costs for labor and civil works in dollar terms as most expenditures for these two categories were in Rupiah. 29. The Asian Development Fund loan of SDR20.7 million ($30.4 million equivalent) was to finance 50% of the project cost, including $14.5 million in foreign exchange and $15.9 million in local currency costs. The $30.4 million balance was to be provided by the Government. Loan surpluses in the amount of SDR1.3 million ($1.7 million equivalent) and SDR0.6 million ($0.8 million equivalent) were cancelled during the spring cleaning mission of August 1998 and upon loan closing. Actually, the loan provided SDR18.8 million ($25.7 million equivalent) to finance 59% of the total project cost, and $18.8 million was provided by the Government. The purchase of livestock through ADB funds, instead of government funds, as originally anticipated, and additional loan financing for agriculture inputs resulted in an increase in the overall ADB financing percentage. D. Disbursement

30. A total of $25.7 million was disbursed under the loan (Appendix 4), mainly through a special account ($23.1 million). Payments to foreign consultants were made through direct payments ($1.8 million). The imprest account turnover rate at project closing was 2.3, which was satisfactory. Disbursements in the Project’s early stages were slow, because of the relatively long preparation period required for the PRA approach. Other factors for delays were

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poor coordination among the four executing agencies, which slowed the processing of budget allocation, and low adsorptive capacity, which resulted from the Asian financial crisis. The loan account was closed on 7 May 2004. E. Project Schedule

31. The Project was scheduled to be implemented over 7 years, from May 1995 to September 2002. However, delays in establishing PMUs, recruiting consultants, and adopting the PRA approach resulted in a considerable activity slowdown during the first 3 years. The PRA, baseline survey, and village area development plan approaches were only implemented in 1999, and these accelerated the Project’s work program. The Project was substantially completed in September 2003, 12 months behind the original schedule (Appendix 5). F. Implementation Arrangements

32. As anticipated at appraisal, the lead executing agency for the Project was the Directorate General of Estates, which was renamed DGECP in 1998. DGECP was responsible for the overall coordination and supervision of project implementation and tree crop development. Of the other three executing agencies, the Directorate General of Food Crops and Horticulture (DGFCH),10 which was responsible for implementing food crop and horticulture development, and the Directorate General of Livestock Services, which was responsible for livestock development, were within the Ministry of Agriculture. The remaining agency was the Directorate General of Land Rehabilitation and Social Forestry,11 which is a part of the Ministry of Forestry. The main project office was established in Jakarta. Two subproject offices were established at each of the four districts covered by the Project. The Project’s organizational structure is shown in Appendix 6. 33. Initially, each executing agency had its own operating budget and it delayed in the preparation of annual work plan. In FY 2000, the operating budget was centralized and consolidated at DGECP. This arrangement improved the planning, coordinating, monitoring, and evaluating of project activities. During the implementation, the respective subproject managers closely consulted with its district head as well as other local government agencies. Each subproject office is supported by 70 staff and the salary of the project staff was entirely financed by the Government. The subproject offices effectively managed the subproject area including the participating farmers with the assistance of VCDWs, and NGO staff. G. Conditions and Covenants

34. The loan conditions and covenants were generally complied with. Delays occurred at project start-up in (i) semiannual report submission, due to the need to consolidate reports from the subprojects and executing agencies; (ii) audited financial statement submission, due to delays in translation; (iii) PMU establishment; and (iv) project manager appointment. The status of loan covenants is detailed in Appendix 7.

10 In 2002, DGFCH was split into the Directorate General for Food Crop Production and Directorate General for

Horticulture Production. 11 Formerly the Directorate General of Reforestation and Land Rehabilitation.

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H. Related Technical Assistance

35. The project feasibility study was developed under Rain-Fed Agriculture Development in the Eastern Region.12 This technical assistance undertaking focused on the development of agriculture in five provinces in the eastern region: south, southeast, central, and north Sulawesi and Maluku. The study’s objectives and scope were mainly to (i) evaluate natural resources; (ii) review available socioeconomic data; (iii) assess crop production, including type, extent, and causes of erosion problems in the project area; (iv) assess the marketing system; and (v) formulate the Project. The technical assistance consultants had adequate experience in agriculture development in critical lands, and they demonstrated their capability in responding to the given terms of reference. The feasibility study proposed a wide range of crops, including candlenut, cashew, cocoa, coconut, coffee, and pepper, in the development plan, which was essentially based on a top-down planning concept that allowed each executing agency to have its own independent operating budget, with the lead agency having only a coordinating role. The weakness of the feasibility study’s output was that it did not consider the PRA concept for farm development. The PRA concept was introduced during the Project’s appraisal, but the concept narrowed the crops considered to only cashew, coconut, coffee, and sugar.13 The technical assistance achieved most objectives. In general, the technical assistance is rated as successful. I. Consultant Recruitment and Procurement

36. An international consultant team for advisory services and project monitoring and seven domestic consultant teams for construction supervision were recruited to assist in project implementation. NGOs and VCDWs were recruited as part of the international consultant’s contract. Even though the Project provided advance procurement action, the implementation (particularly the recruitment of consultants) was delayed for 2 years, because the Government’s budget policy only allowed budget allocation to be released after loan signing. Insufficient capacity of project management office staff members at project start-up also contributed to the delay. A consulting services summary is given in Appendix 8 (Table A8.1). All consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants. During project implementation, the total amount of loan funds allocated for consulting services was revised from $3.30 million at appraisal to $3.81 million at project completion. 37. Civil works and goods and services under the Project were procured through 208 contracts. Local competitive bidding was used to procure civil works and inputs for crops, while direct selection or international shopping was used to procure vehicles and other equipment. The list of contract packages is given in Appendix 8. J. Performance of Consultants, Contractors, and Suppliers

38. Consulting services were required for a wide range of activities, including rural development, project administration and finance, PRA approach, community development, farming system development, project training and extension, project monitoring and evaluation, community organization, women in development activities, civil engineering, environmental monitoring, farming systems, soil conservation, and NGO and village community development. Consultant performance was generally satisfactory, and consultants were instrumental in introducing and implementing the PRA approach.

12 ADB. 1992. Rain-Fed Agriculture Development in the Eastern Region. Manila. This technical assistance

undertaking was financed by the Japan Special Fund in the amount of $600,000. 13 Sugar was not considered for implementation, because plans for a sugar mill at south Sulawesi did not materialize.

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39. Reliable sources and timely delivery of planting materials was a major issue. This problem was solved by using planting materials from the farmers’ community seed garden developed under the Project. The switch to local sources also lowered the mortality rate, since these seedlings were less exposed to stress and diseases associated with transportation over long distances. K. Performance of the Borrower and the Executing Agencies

40. The Borrower’s performance was satisfactory. The Government established the necessary imprest account and generally met counterpart fund requirements. The performance of the executing agencies was also generally satisfactory. DGECP successfully undertook its role as the leading executing agency, meeting its responsibility for project implementation, coordination, and supervision. DGFCH, Directorate General of Land Rehabilitation and Social Forestry, and Directorate General of Livestock Services also successfully met their responsibilities in project implementation. Inadequate capacity of project staff members at project start-up was gradually improved by the implementation of staff member training. With the exception of funds for livestock purchase, the Government provided counterpart funds in a timely manner. In 2000, ADB approved the Government’s request for financing livestock under the loan. 41. Poor coordination between executing agencies and conflicting executing agency policies in some areas affected project performance in the early years. The involvement of four executing agencies enabled the Project to include several components that are essential in establishing a viable farming system. However, the involvement of several executing agencies from various ministries also hampered project coordination, planning, and implementation because each executing agency has its own priority and line of instruction. While the centralization of the executing agencies’ budgets and staffs into a single project administration unit was effective in expediting project implementation, it also raised some administrative and budgetary issues. DGECP could exercise its leadership effectively only after the budget’s centralization in FY2000. L. Performance of the Asian Development Bank

42. In general, ADB’s performance was satisfactory. ADB fielded nine missions, including an intensive midterm review in October 1999, and took steps to solve implementation problems. The project design, that introduced PRA concept but set physical targets which was essentially a top-down approach, and that lacked emphasis on post harvesting activities was rectified during the Midterm Review Mission of October 1999. The community development work as required at Appraisal was not emphasized, and similarly, the need to explicitly emphasize the formation of strong women’s group was not adequately addressed at project start-up, but were introduced after the Midterm Review Mission. 43. The transfer of project administration to ADB’s Indonesia Resident Mission (IRM) in 1997 had a positive impact on the timeliness and quality of project implementation, as this improved communication among executing agencies and beneficiaries and ADB. In 1997, IRM concentrated its effort to help the EA in expediting the recruitment of project consultants that had been delayed substantially through regular meetings with the EA in Jakarta. This effort successfully expedited the recruitment of the consultants and speeded up project implementation.

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III. EVALUATION OF PERFORMANCE

A. Relevance

44. The Project’s integrated approach to agriculture development is in line with the Government’s and ADB’s objectives of increasing productivity and household incomes, conserving and protecting natural resources, and developing self-sustaining and self-reliant community groups. The Project’s participatory and bottom-up approach enhanced beneficiary participation, especially that of women, in the design, planning, and implementation of project activities. The Project’s focus on strengthening farmers groups and establishing business-oriented farmers organizations and community business projects, such as community nurseries, are all expected to provide long-term benefits to farming communities. Although the Project was prepared prior to introduction of ADB’s policies on indigenous peoples, the Project is relevant to upland farmers and the development of wastelands belonging to indigenous people where planting forest tree seedlings helped to recover large areas of former waste lands. Overall, the project design is rated relevant. B. Efficacy in Achievement of Purpose

45. The Project achieved most development objectives and met substantially all physical targets anticipated at appraisal. It successfully introduced the participatory and bottom-up approach for farmers and government extension workers and expanded tree crop plantations. The cash assistance provided to farmers is modest compared to the annual benefits of over $1,000 per hectare. Farmers are now more responsive to price signals and grow high value-added crops, such as cocoa and pepper. The shift in farming practices from subsistence to market-oriented agriculture is the Project’s most significant achievement. The Project was efficacious. C. Efficiency in Achievement of Outputs and Purpose

46. At project completion, the economic internal rate of return (EIRR) was estimated at 15.4%, against an estimated EIRR at appraisal of 18.8%. The lower than anticipated economic performance is due mainly to the (i) underestimated cost of rural infrastructure and livestock; (ii) high mortality rate of tree crop seedlings; (iii) delayed planting of crops, such as candlenut, cocoa, and pepper; (iv) low yields of cashew; and (v) more conservative estimates than those envisaged at appraisal. Farmgate prices on project completion were generally higher than anticipated, due partly to the sharp decline in the rupiah exchange rate. The crop output, crop yields, and farmgate prices are in Appendix 9 (Table A9.1 and Table A9.2). 47. Most farmers replaced dead seedlings with crops introduced under the Project and other crops, including bananas, cloves, kapok, pineapples, and vanilla. In the last 2 years, many project farmers have been planting vanilla for its high return.14 They are thus able to obtain substantial additional income. In general, the Project was efficient. D. Preliminary Assessment of Sustainability

48. Project sustainability appears promising because the demand for tree crop output, such as candlenut, cashew, cocoa, coconut, coffee, and pepper remains strong. Soil conservation measures implemented in project areas will efficiently protect lands from degradation. The establishment of community nurseries and joint-venture processing and marketing activities 14 One kilogram of vanilla can be harvested from five plants and currently sells for Rp200,000.

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would be beneficial to the future development of project and other villages. The Project was also instrumental in promoting the planting of forest trees, especially teak, and peppers in the project area. This practice spread rapidly in the last 5 years, and many farmers not affected by the Project are now planting seedlings of forest trees on their unused land. Forest trees now cover large areas of former wasteland. The training provided to individual farmers, community workers, and women’s groups will enable these beneficiaries to continue the activities initiated under the Project. 49. However, the sustainability of project achievements requires the development of marketing channels, to ensure that as farm outputs increase, farmers will be able to market their production without rebating farmgate prices. Achieving sustainability also requires the local government to support agriculture development technically and financially, especially in poor areas. E. Environmental, Sociocultural, and Other Impacts

50. The Project’s impact on the environment was predominantly positive. Farmers were convinced of the effectiveness of farming systems, including the application of sloping agricultural land technology in reducing soil erosion.15 The negative impacts were mitigated through the implementation of (i) soil conservation measures; (ii) suitable engineering practices in the design and construction of roads and bridges and other minor civil works; (iii) strict quarantine of inter-island transport of plants, seeds, and animals; and (iv) appropriate and effective training of farmers and extension workers on soil conservation, animal health, pesticide application, and ecological principles and techniques. 51. The Project had a positive impact on women and provided training to 3,100 women farmers, representing on average 7.9%16 of all project farmers. A total of 140 women’s groups were formed, and they are very active in producing kapok mattresses and nata de coco (processed coconut water). The Project also employed 63 women, who made up 20% of the total project administration staff such as secretaries, bookkeepers, finance managers and general affairs heads. While all average project farmers in 1994 were poor, by 2002 average project farmers were poor only in Gorontalo and Kendari. By 2008, poverty for average farmers will be eliminated in all four project sites. The per capita income of Rp1.39–2.55 million expected in 2008 will be above the national poverty line income of Rp0.90 million per capita per year.17 52. The Project had a positive impact on human health, as 25,000 households were provided with potable water supply. The Project also substantially contributed to reducing women’s time spent obtaining water from distant sources, which is significant because collection and storage of water is mainly their responsibility. As a result, women were more involved in more productive activities. Also, the increased supply of food crops and livestock improved food security and nutrition. 53. The construction and rehabilitation of 183 kilometers of farm and village roads and 344 meters of bridges had a positive impact on village accessibility. These roads facilitated the marketing of farm outputs and delivery of goods and services to villages, leading to a rise in

15 Brooks, K.N., H.M. Gregersen, E.R.Berglund, and M.Tayaa. 1982. Economic Evaluation of Watershed Project: An

Overview Methodology and Application. Water Resources Bulletin 18 (2), pages 245-250. The authors found that planting crops on hillsides will reduce soil losses significantly.

16 In Enrekang, 11.1% of farmers trained were women. In Gorontalo, 16.5% of farmers trained were women. 17 Detailed analyses of farm income, with and without the Project, are shown in Appendix 10.

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farmgate prices and the volume of traded goods. A significant project impact was the rise in land prices in the project area. With improved accessibility and possession of land title certificates, some farmers reported that land prices increased tenfold, compared with the situation before the Project. As a result, farmers’ assets increased considerably. 54. Overall, the Project had a positive impact on the environment, women in development, human health, and village and market accessibility.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

55. The Project achieved most of its development objectives and substantially met the anticipated physical targets. Project villages are currently at varying stages of development, with those assisted earlier at a more advanced stage than those that were developed later. Estimates show that some of these villages, especially those developed in the last 2 years, will need assistance for another 2 or 3 years to achieve sustainable development. This assistance will mainly consist of technical advice on crop production, processing, and marketing provided to the majority of farmers who planted their crops during the Project’s early phase. The bottom-up planning approach was institutionalized, and this augurs well for future agriculture development. Farmers are now more confident in their ability to identify crops that will provide them with farm incomes that are high and stable. 56. Farmers developed a more positive outlook in their lifestyle and farming activity. They enjoyed the experience of working closely with government officials and look forward to continuing this relationship. The feeling that the Government cared about the improvements in their income, standard of living, and farm activity was greatly appreciated. They expressed the view that they worked harder on their farms in the Project than they would normally in a situation outside the Project. 57. Recent changes in commodity prices generally had a positive impact on the Project. Except for coffee, the prices of other project commodities either remained firm or rebounded. The local currency’s sharp devaluation had a positive impact on the Project, since it reduced the production cost, in dollar terms, of these exportable commodities. The Kawasan Industri Masyarakat Perkebunan (KIMBUN) project18 is expected to help farmers continue improving their farming methods and reduce their cost of production by adopting new technology. This is essential to ensure high farm profitability, and place farmers in a strong position to withstand any unforeseen sharp fall in commodity prices. 58. The impact on poverty reduction was significant, and farm incomes will increase substantially at project maturity (Appendix 9, Table A9.3). The projected rise in per capita income, from Rp1.12 million to Rp2.25 million by 2008, exceeds the anticipated increase. Average annual farm income will rise by $820–1,080. This represents an increase of $260, as compared with the appraisal estimate increase of $125–185 by 2008. In addition, the Project improved the quality of village life, through the provision of better physical infrastructure and availability of potable water supply. The large variation in farm income is inevitable, given the diverse soil and climatic conditions prevailing in different project sites. Farmers should remain focused on their objective of achieving the highest farm income possible, given their environmental and resource constraints. A major project achievement was the success in 18 KIMBUN is a government-financed project that mainly focuses on providing training and capacity building to

farmers or estate communities.

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raising the incomes of farmers situated in the least favorable environments to above the poverty level. The Project is rated successful. B. Lessons Learned

59. Although PRA was anticipated at Appraisal, it was implemented only in 1999. With introduction of PRA, farmers proposed additional crops that were not envisaged at appraisal, such as candlenut, cocoa, and pepper. Funding for these new crops was considerably delayed, especially funding for pepper, as a feasibility study was required to support its inclusion in the project scope and justify ADB’s financial assistance. 60. The integrated approach envisaged at appraisal recognized the need to combine crops with livestock in farming systems for rain-fed upland areas. The organic manure from livestock is essential in improving the soil structure and fertility of sloping lands. However, the lack of adequate funding for the livestock component indirectly affected crop productivity and soil conservation in the earlier years of project implementation. 61. The assistance for tree crops was expected to be provided over 1 year only. For tree crops that have a long gestation period, a need exists to build in some flexibility in spreading out this assistance over a longer period, without changing the quantum of assistance, since some poor participating farmers do not have adequate resources to purchase fertilizers and other inputs. The financing plan for the first year needs to focus on the provision of required inputs, such as fertilizer for subsequent years, rather than just providing cash to farmers. C. Recommendations

1. Project Related

(i) DGECP should continue to provide assistance in developing the project-established cooperatives, KUBs, and other farmers groups, through consultations and training. The Government’s KIMBUN project, currently being implemented by DGECP, is appropriate to further empower these institutions. In addition, District Estate Services should continue monitoring the processing facilities provided to the respective subprojects, such as cashew nut crackers in Kendari, coffee processing in Enrekang and Donggala, and coir coconut fiber plants in Gorontalo. Further assistance in providing fertilizers should be given to project villages that are still classified below national poverty lines.

(ii) DGECP and the respective local governments must, by December 2005,

complete the issuance of outstanding land title certificates. About 4,000 land certificates are still to be issued.

(iii) Farmers’ fields that are successful should be used as demplots. The

establishment of new demplots in newly cropped areas should be avoided, since no evidence shows that these demplots will be adequately managed and maintained to serve as useful models for other farmers.

(iv) Improvements in agroprocessing and marketing should be given high priority by

the Government. (v) DGECP should develop a market information system for all crops, to provide

farmers with information on types of crops to grow, based on market demand;

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farmgate prices received by farmers in different provinces each week, which can serve as benchmark prices in trading negotiation; and demand for different forms of products.19

(vi) Seedlings high mortality rates should be reduced by providing contractors with

more time to undertake preparatory activities for producing homogenous and good quality planting materials; setting realistic targets for annual planting; providing farmers and extension workers with training in crop maintenance prior to actual field planting; ensuring that seed gardens are established near project sites, so that the seedlings are not subjected to undue stress during transportation from the nursery to the field; and establishing and assisting farmers cooperatives in producing quality planting materials.

(vii) Road rehabilitation programs should be initiated at least 1 year prior to field

planting, to provide better access to project sites, thereby facilitating timely delivery of planting materials and other inputs.

(viii) Project sites need additional development, especially in social infrastructure and

agribusiness development. The Project essentially focused on crop improvements, food crop development, regreening activities, livestock expansion, and soil conservation. The ongoing loan 1765(SF)/1766-INO: Community Empowerment for Rural Development Project20and loan 1605-INO: Central Sulawesi Integrated Area Development and Conservation Project,21 which cover some project areas, should enhance the benefits.

(ix) Watersheds containing large areas currently under alang-alang should be

developed into productive farmland though the planting of tree and horticulture crops. Future upland watershed development projects should include the planting of tree crops, in addition to forest trees, since trees promote soil conservation and provide farmers with additional income.

(x) Project success should be disseminated among provincial and district

authorities, to promote the development of rain-fed upland areas for tree crop agriculture.

(xi) DGECP should continue to monitor performance and problems of KUBs and tree

crops established in the project area every 6 months for at least the next 5 years (2004–2008).

(xii) Seminars should be conducted by the Government, including field visits for

heads of provincial and subdistrict governments, to disseminate successful project outcomes and explore the possibility of extending this type of project to other rain-fed areas where low-income farmers need assistance.

19 Such as black, white, and powder pepper; coffee bean and coffee powder; and shelled and unshelled candlenut. 20 ADB. 2000. Community Empowerment for Rural Development. Manila. The Project was approved on 19 October

2000, with a closing date on 30 March 2007. The executing agency of this project is the Directorate General for Rural Community Empowerment of the Ministry of Home Affairs.

21 ADB.1998. Central Sulawesi Integrated Area Development and Conservation Project. Manila. The Project was approved on 27 January 1998, with a closing date on 30 September 2005. The executing agency of this project is the Directorate General of Regional Development of the Ministry of Home Affairs.

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63. The project performance audit report (PPAR) should be carried out in 2008, as this would provide a reasonable period for tree crops to reach maturity. The PPAR would also be able to assess the Project’s impact on farmers’ income and the sustainability of their outputs.

2. General

64. The following measures are recommended to improve future project design and implementation:

(i) project implementation offices should be established and adequately staffed prior

to loan effectiveness; (ii) executing agencies’ capacities to undertake a participatory rural appraisal

approach, coordinate project activities with other implementing agencies, and organize farmer-beneficiaries into community development groups should be assessed thoroughly during project design;

(iii) implementation schedule of a project involving several executing agencies

should include a preparation period to allow executing agencies to plan and coordinate their activities; and

(iv) post-harvesting activities, such as processing and marketing, which are important

factors for project sustainability, should be more emphasized during project design.

Appendix 1

16

PROJECT FRAMEWORK

Design Summary

Performance Indicators

Project Inputs

Outcomes

Goal Increase farmers’ incomes and protect the upland environment.

Farmers’ incomes increase from below to beyond the national poverty line and land degradation stops.

Agrochemical inputs, planting materials, training inputs, field schools, land certification, and private partnership.

Average farmer income in most project villages increased from below to beyond the national poverty line in 2002. Land degradation reduced.

Objectives 1. Increase productivity and farm Income.

Crop productivity increases by at least 35%. Farm income increases by $125 to $185 per year, on average, within 5 years

Provision of agrochemicals and fertilizer and planting materials, hand tools, and extension materials.

Crop productivity increases variously. By 2002, annual farmer income increased by $173 to $309. By 2008, these incomes will increase by $823 to $1,057 .

2. Protect the upland environment. 3.Create rural employment. 4. Alleviate poverty. 5. Improve the socioeconomic condition of women beneficiaries.

Rate of degradation ceases in 8,000 hectares (ha) of catchments. During development, 6.7 million person-days are needed, and 3.5 million person-days will be needed annually thereafter. Percentage of population below poverty line decreases from 64 to 35 within 5 years. One thousand women per year join active groups, and average earnings of women rise 50% within 5 years.

Introducing leguminous cover crops, adopting natural vegetative strips, mulching soil cover, and planting vegetative hedgerows. Planting tree crops, food crops, fruit trees, and forest trees and rearing small livestock. Forming women’s groups and integrating women in all project activities, including community development, farm development, communal nurseries, goat rearing, and agribusiness enterprises.

Degradation stopped in 5,815 ha of catchments. During development, 8.0 million person-days were used, and 4.2 million person-days were used annually thereafter. The percentage of population below the poverty line will decrease from 64 to less than 10 by 2008. As a part of project participation, 3,100 women formed and joined 140 active groups. The average earnings of women will rise by 100% by 2008.

Appendix 1

17

Design Summary

Performance Indicators

Project Inputs

Outcomes

Purpose Introduce a sustainable rain-fed farming system in four endangered catchments in Sulawesi.

Fifty thousand farmers join groups within 5 years. Twenty-four thousand hectares of alang-alang (noxious weed) are converted to cropland. A 15–20% rise in cropping intensity is recorded. Yield increases of 25–40% are recorded. Livestock numbers increase by 20–30%. An economic internal rate of return (EIRR) of at least 15% is recorded.

Strengthening farmers groups toward the formation of business-oriented farmers organizations, cooperatives, and association of upland rain-fed watershed farmers. Create an agribusiness environment that will provide farmer members with easy access to farm inputs, including processing and marketing facilities. A total of 7,865 goats and 300 pigs distributed to 750 farmers groups, and off-spring distributed to individual farmers.

By project completion, 39,350 farmers joined groups. Converted to cropland were 30,860 ha of alang-alang. Cropping intensity increased by 20–30%. Yield increased by 30–50%. Livestock numbers increased by 30%. EIRR of 15.4%.

Outputs 1. Farm development. 2. Rural infrastructure. 3. Community development. 4. Institutional strengthening.

Estate crops total 24,000 hectares. Food crops, fruit trees, and forage grasses total 20,000 hectares. About 30,000 goats are added. Eight thousand hectares are regreened. Thirty-three kilometers of new farm roads are constructed. Ninety-five kilometers of village roads are rehabilitated. One suspension bridge and two small bridges are built. Assistance is carried out in 416 villages. Workers receive on-the-job training.

Participating villages short-listed, after consultation with district-level government; farmers given free hand in selecting crops to be developed in their own villages; farmers selected crops that were not considered at appraisal, such as candlenut, cocoa, and pepper . Villages identified the work plan priority included in the village area development plan (VADP). Formation of farmers group and strengthening women groups. Training of project administrators and extension workers and farmers.

Estate crops totaled 30,860 ha. Food crops, fruit trees, and forage grasses totaled 17,580 ha. Exactly 7,865 goats were added. Exactly 5,815 ha were regreened. One hundred and twenty-three kilometers of new farm roads were constructed. Sixty kilometers of village roads were rehabilitated. Three hundred and forty-four concrete bridges were built. Twenty-five thousand water supply house connections were installed. 1,294 farmers groups, 37 Kelompok Usaha Bersama-KUBs (37), 24 cooperatives and 140 women’s groups were formed. 16,926 person-days of project staff and 68,639 person-days of farmers participated.

Appendix 1

18

Design Summary

Performance Indicators

Project Inputs

Outcomes

5. Project management and consulting services.

Eight PMU offices and housing units were built. One thoushand government staff members are trained. One hundred and ten person-months of international consultant services and 281 person-months of domestic consultant services are contributed.

Construct and renovate offices, including staff houses and warehouse and meeting hall, to provide support for project implementation. Training focused on using the findings of field surveys to assist farmers in increasing their self-reliance in promoting activities designed to increase their on-farm and off-farm incomes. Consultants used for a wide range of activities, including rural development, administration, and finance; participatory rural appraisal; community development; farming system development; training and extension services; monitoring and evaluation activities; community organization; women in development activities; civil engineering; environmental monitoring; farming systems; soil conservation; extension activities; economic analysis, and non-government organization (NGO) and village community development.

Eight project management unit (PMU) offices and housing units were built. One thousand government staff members were trained. One hundred and twenty seven person-months of international consultant services, 552 person-months of domestic consultant services, and 2,136 person-months of NGO and village community development worker services were contributed.

Activities 1. (a) Establish project management units (PMUs) . (b) Conduct participatory rural appraisal. (c) Define and agree upon the VADP. (d) Raise necessary planting material. (e) Obtain livestock. (f) Train extension workers.

Project coordination activities are undertaken. Community awareness on project planning and development is improved. Project implementation is based on the VADP. Nurseries are developed by farmers. Livestock development activities are undertaken. Capacity of extension workers is increased.

Project office and subproject offices constructed in project sites. Training farmers in participatory rural appraisal methodology and working with them to prepare village development plan. Train and assist farmers in developing village community nurseries. Tender and procurement of livestock. Subdistrict staff members trained in technical subjects .

Eight PMUs were established. Participatory rural appraisal was conducted for all subprojects. The VADP was developed by villagers. Planting material was supplied by community nurseries. Livestock was purchased from local suppliers. Extension workers were trained.

Appendix 1

19

Design Summary

Performance Indicators

Project Inputs

Outcomes

(g) Train farmers. (h) Plant food crops, estate crops, and regreening strips and develop livestock. 2. (a) Define scope and location of civil engineering works. (b) Locate and make agreements with contractors. (c) Construct new farm roads and rehabilitate village roads. (d) Construct bridges. (e) Construct PMU offices and associated housing and refurbish rural extension centers. (f) Provide design and materials for potable water schemes. 3. (a) Train government officials to plan, implement, monitor, evaluate, and sustain upland community development activities. (b) Train participating men and women in group activities and improve soil conservation and farming activities. (c) Train women in group formation, agriculture practices, nutrition activities, and community development and to access income-generating opportunities.

Technical capacity of farmers is increased. The VADP is used as base of designs. Qualified contractors participate in the Project. Local laborers and local materials are used. Local laborers and materials are used. Qualified contractors participate in the Project Communities and farmers participate in project planning and implementation. Staff of District Estate Services is responsible for upland farmers participation in the training. Women’s groups are actively involved in soil conservation and community nurseries.

Farmers trained in technical and appraisal subjects. Procurement of planting material and project inputs through local competitive bidding . Total costs $42.7 million. Civil works procured through local competitive bidding among prequalified contractors. Engagement of contractors. Engagement of contractors. Engagement of contractors and local laborers. Engagement of contractors. Total cost $7.0 million Development of training materials. Preparation of participatory planning material. Training of subdistrict facilitators. Training courses conducted in district.

Farms are technically well developed. Food crops, estate crops, and regreening strips were planted. Livestock was reared. Scope and location of civil engineering works were identified. Agreements were made with contractors. New farm roads were constructed, and village roads were rehabilitated. Bridges were constructed. PMU offices and associated housing units were constructed, and rural extension centers were refurbished. Design and materials for potable water schemes were provided. Government officials provided training to plan, implement, monitor, evaluate, and sustain upland community development activities. Participating men and women were trained in group activities and soil conservation improvement and farming activities. Women were trained in group formation, agriculture practices, nutrition activities, and community development and in accessing income-generating opportunities.

Appendix 1

20

Design Summary

Performance Indicators

Project Inputs

Outcomes

(d) Recruit and field consultants. 4. (a) Assist community mobilization efforts. (b) Define monitoring system. (c) Establish and run monitoring system. (d) Define evaluation system. (e) Undertake evaluation of consultants and organizations.

International and national consultants and NGOs are recruited.

Recruitment and engagement of community mobilization specialist. Develop benefit monitoring system. Benefit monitoring and evaluation undertaken by project management. Tender and engagement of local and foreign consultants. Project evaluation undertaken by project consultants. Total Cost $18.1 million .

Consultants were recruited and fielded. Community mobilization specialists were activated. Monitoring system was defined. Monitoring system was established and operated. Evaluation system was defined. Consultants and organizations were evaluated.

Appendix 2

21

PROJECT ACHIEVEMENT AT APPRAISAL AND PROJECT COMPLETION

Table A2.1: Progress of Farm Development Component

Subcomponents Unit Appraisal Revised Actual % of Actual to Target Targeta Appraisal Revised

Targets Targets Estate Crops ha 23,800 28,200 30,864 130 109 Food and Horticulture Crops ha 18,700 17,800 17,579 94 99 Regreening ha 8,000 6,000 5,815 73 97 Soil Conservation Measures ha 53,700 52,000 48,698 91 94 Livestock (goats) ha Not indicated 7,865 10,420 132 Livestock (pigs) ha Not indicated 300 538 79 ha = hectare a Revised target is based on the participatory rural appraisal approach. Source: Project completion report from the Directorate General of Estate and Crop Production.

Table A2.2: Progress of Estate Crop Development (ha)

Subcomponents Appraisal Revised Actual % of Actual to Targets Targeta Appraisal Revised

Targets Targets Coffee 9,300 5,200 5,364 58 103 Coconut 8,600 7,400 8,150 95 110 Cashew Nut 5,200 9,000 8,995 173 100 Sugarcane 500 – – – – Cocoa – 3,800 5,018 – 132 Pepper – 2,200 2,480 – 113 Candlenut – 600 857 – 143 Others 200 – – – – – – –

Total 23,800 28,200 30,864 130 109 ha = hectare a Revised target is based on the participatory rural appraisal approach. Source: Project completion report from the Directorate General of Estate and Crop Production.

Appendix 2

22

Table A2.3: Assistance Provided for Various Components and Crops (Rp '000 per ha)

Crops or Components Labor Material Equipment Total Coffee 395 1,097 54 1,546 Coconut 400 1,484 123 2,007 Cashew 388 1,618 119 2,125 Cocoa 400 1,733 123 2,256 Pepper 420 1,664 66 2,150 Candlenut 389 1,478 119 1,986 Regreening 388 1,166 119 1,673 Teak 388 1,190 119 1,697 Alley Cropping 400 1,243 340 1,983 Fruits 400 1,122 340 1,862 Goats (unit) – 5,600 750 6,350 Pigs (unit) – 2,800 700 3,500ha = hectare. Source: Project completion report from the Directorate General of Estate and Crop Production.

Table A2.4: Status of Land Titling Activities

Targets Contracted Right to Use Planted Area No. of Planted Area No. of Planted Area No. of

Province (ha) Parcels (ha) Parcels (ha) Parcels

South Sulawesi 2,865 10,378 1,535 10,061 2,244 10,061 Central Sulawesi 4,683 6,740 2,830 4,292 2,922 3,431 Southeast Sulawesi 7,369 6,929 6,088 6,061 6,234 5,982 Gorontalo 4,579 3,887 4,579 3,887 3,640 3,887

Total 19,496 27,934 15,032 24,301 15,040 23,361

ha = hectare; No. = number Source: Project completion report from the Directorate General of Estate and Crop Production.

Table A2.5: List of Infrastructure Development Activities % of Actual to Appraisal Revised Appraisal Revised

Subcomponents Unit Target Targeta Actual Target Target Farm Roads (new) km 33 139 123 373 88 Village Road (rehabilitation) km 95 60 60 63 100 Suspension Bridge (new) m 30 – – – – Concrete Bridge (new) m 74 340 344 465 101 Village Water Supply Scheme hh 7,240 24,383 25,190 348 103 Village Water Supply Dam no. 20 – – – – hh = house hold, km = kilometer, m = meter, no. = number. a Revised target is based on the participatory rural appraisal approach. Source: Project completion report from the Directorate General of Estate and Crop Production.

Appendix 2

23

Table A2.6: Total Farmer Participation and Farmers Groups Total % of Women Total Total Women’s Total Members in

Total Women Farmers to Farmers Farmers Women’s Farmers Subproject Farmers Farmers Farmers Groups Groups Groups Gorontalo 8,222 1,363 17 314 46 1,140 Central Sulawesi 8,215 6 0 278 6 362 South Sulawesi 13,295 1,476 11 321 53 1,550 Southeast Sulawesi 9,620 255 3 381 35 1,094

Total 39,352 3,100 8 1,294 140 4,146 Source: Project completion report from the Directorate General of Estate and Crop Production .

Table A2.7: List of Training for Institutional Strengthening Items Person-Days Subject Training of Trainers and Project Staff

Members 16,646 Farm management

Short-Term Overseas Training 280 Soil conservation Integrated agriculture

Training of Farmer Leaders 11,991 Institutional strengthening Training on PRA Approach 2,472 Baseline survey

Participatory approach Farmers Comparative Study 1,785 Institutional strengthening

Processing and marketing Training of Key Farmers 52,391 Community development PRA = participatory rural appraisal. Source: Project completion report from the Directorate General of Estate and Crop Production. Table A2.8: Existing Status of Project Buildings and Vehicles

Condition of Assets Items Units Number Area Good Medium Poor Buildings Office Buildings m2 18 2,640 18 – – Staff Houses m2 23 1,608 23 – – Warehouses m2 9 1,400 9 – – Garages m2 2 34 2 – – Meeting Halls m2 5 1,200 5 – – Vehicles Trucks unit 4 3 1 4-Wheel Drive unit 25 19 2 4 Motorcycle unit 153 106 33 14 m2 = square meter . Source: Project completion report from the Directorate General of Estate and Crop Production.

Appendix 2

24

PROJECT COST AT APPRAISAL AND AT PROJECT COMPLETION

Foreign Local Total CounterpartCat. Project Component Exchange Currency Cost ADB FundsI Base CostA. Investment Costs

1 Civil Works 2,296 4,435 6,731 6,731 –2 Vehicles and Equipment 1,737 – 1,737 1,737 –3 Furniture – 101 101 101 –4 Land Titling – 1,659 1,659 1,659 –5 Crops Physical Inputs 6,802 5,652 12,454 10,349 2,105 6 Farm Labor Cost – 18,093 18,093 – 18,093 7 Initial Livestock Purchase – 1,069 1,069 – 1,069 8 Training 233 2,277 2,510 2,510 –9 Consulting Services 1,793 942 2,735 2,735 –

10 Surveys and Studies 17 468 485 485 –11 Advisory Services – 1,081 1,081 1,081 –12 Project Administration 752 7,214 7,966 2,110 5,856

Subtotal A 13,630 42,993 56,622 29,498 27,124 B Taxes and Duties – 3,250 3,250 – 3,250

Subtotal Base Cost 13,630 46,243 59,872 29,498 30,374 II Service Charge 857 – 857 857 –

Total Project Cost 14,487 46,243 60,730 30,356 30,374 ADB = Asian Development Bank

Foreign Local Total CounterpartCat. Project Component Exchange Currency Cost ADB FundsI Base CostA. Investment Cost

1 Civil Works 1,029 3,603 4,632 3,089 1,543 2 Vehicles and Equipment – – 2,025 2,025 –3 Furniture – 210 210 210 –4 Land Titling – 339 339 339 –5 Crops Physical Inputs 6,646 5,221 11,867 11,867 –6 Farm Labor Cost – 7,000 7,000 – 7,000 7 Initial Livestock Purchase – – 650 450 200 8 Training – 1,308 1,308 –9 Consulting Services 2,436 – 3,813 3,813 –

10 Surveys and Studies – – 224 224 –11 Advisory Services – – – – –12 Project Administration 536 8,775 9,311 1,530 7,781

Subtotal A 12,681 28,698 41,379 24,855 16,524 B. Taxes and Duties – 1,652 1,652 – 1,652

Subtotal Base Cost 12,681 – 43,032 24,855 18,177 II Service Charge 808 – 808 808 –

Total Project Cost 13,489 – 43,840 25,663 18,177 ADB = Asian Development BankSource: ADB Estimates

Table A3.1: Project Costs at Appraisal($ '000)

Table A3.2: Project Costs at Project Completion($ '000)

Appendix 5

25

for extending the loan closing date from 1 October 2004 to 31 March 2005,

Year

1995 149,500 – –1996 2,432,200 – –1997 7,488,642 9,215,639 9,215,639 1998 11,931,317 1,751,592 10,967,231 1999 17,413,142 2,951,184 13,918,415 2000 23,938,742 4,734,377 18,652,792 2001 29,723,017 2,155,509 20,808,301 2002 30,355,540 1,866,122 22,674,423 2003 – 2,629,079 25,303,502 2004 – 365,000 25,668,502

Source: Asian Development Bank records.

DISBURSEMENT AT APPRAISAL AND ACTUAL

Yearly Cumulative

($)

DisbursementActual At Appraisal

Cumulative

Table A4.1: Disbursement at Appraisal and Actual

Figure A4.1: Disbursement at Appraisal and Actual($)

-5,000,000

10,000,00015,000,00020,000,00025,000,00030,000,00035,000,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

At Appraisal Actual

Financial Crisis

Appendix 4

26

PROJECT IMPLEMENTATION SCHEDULE

No. ActivityI. Project Management

Establishment of Central PMO, and PIU

II. Fielding Consultants

III. Civil Worksa Design

b Construction

IV. Nurseries and Planting Materialsa. Establishment of Seedling Nurseries

V. Identification of Community Development Areasa. Village Identification

b Implementation of Participatory Rural Appraisal

VI. Traininga. Training to PMU Staff

b. Training to farmers

VII. Estate Crop Development

VII.

VII. Women in Development (WID) Programsa. Developing WID Programs

b. Implementation WID Programs

VIII. Livestock Program Procurement and Delivery of Goats and Pigs

Note:AppraisalActual

PMO = project management office, PMO = project management unit.Source: Project Completion Report from Directorate General for Estate Crops Production.

1995 1996 1997 1998 1999 2000 2001 2002 2003

Issuance of Land Title

Appendix 6 27

PROJECT IMPLEMENTATION STRUCTURE

LiaisonOffice

PMU = Project Management UnitSource: Project completion report from the Directorate General for Estate Crop Production

Directorate Generalof Estate Crop Production

Project Advisory Team

Project

Project Treasurer

Subproject

Planning Department

Provincial Advisory Team

Kabupaten Advisory Team

Monitoring, Evaluationand Reporting Section

Regreening Section

Livestock Section

Finance Section

Commodity Deprtment Development Department

Business Logistics Section

Data & StatisticsSection

Estate Crop Section

Food Crop Section

Horticulture Section

General Affairs

Planning Section

Program Formulation

Data & Statistics

and Reporting

Administration

Procurement

Finance

Livestock

Development Section

Business Logistics

Processing and Marketing

Training and Extension

Business Institution

Commodity Section

Estate Crop

PMU Manager PMU Manager

AdministrationDepartment

ProcurementSection

General AffairsSection

Program FormulationSection

Processing and ProductMarketing Section

Training and Extension Section

Business InstitutionSection

Monitoring, Evaluation

Food Crop andHorticulture

Regreening

Subproject Treasurer

Appendix 7

28

COMPLIANCE WITH LOAN COVENANTS

Covenant Reference to Loan Agreement

Status of Compliance

1. The Borrower will make available the

funds, facilities, services, land and other resources, in addition to the loan proceeds, to carry out the Project.

Section 4.02 Complied with. The Borrower provided counterpart funds, facilities, land, and other resources in timely manner. Financing for livestock was shifted from the Government to the loan.

2. Each executing agency will maintain separate records for its respective part of the Project, and the Directorate General of Estate Crop Production (DGECP) will maintain consolidated accounts for the whole Project. Such accounts should be audited annually by auditors acceptable to the Asian Development Bank (ADB), and submitted to ADB.

Section 4.06 Complied with. Delays in the submission to ADB at the project start-up resulted from a delay in receiving the reports from executing agencies.

3. Each executing agency will furnish to

DGECP quarterly reports, and DGECP will prepare a semiannual consolidated report on the carrying out of the Project and on the operation and management of project facilities and submit this to ADB.

Section 4.07(b) Complied with. Delays in the submission to ADB at project start-up resulted from the time needed for translation.

4. After the completion of the Project,

DGECP will prepare a project completion report for submission to ADB.

Section 4.07(c) Complied with. ADB received the project completion report in September 2003.

5. The Borrower will establish a special

account at Bank of Indonesia, to ensure the timely release of the loan proceeds for the purpose of making payments for project implementation.

Schedule 3, para. 11 Complied with. A special account was established at Bank of Indonesia with an initial deposit of $3 million.

6. Within 1 month after the effective date,

each of DGECP, Directorate General of Food Crops and Horticulture (DGFCH), Directorate General of Livestock Production, and (Directorate General of Reforestation and Land Rehabilitation will appoint a project manager to form part of the Project Management Group (PMG). PMG will manage and coordinate all project-related activities. DGECP’s project manager will head PMG and be responsible for project execution.

Schedule 6, para. 2 Delayed compliance. Although the project manager from DGECP was appointed within 1 month from the effective date, project managers from other directorates were appointed only 6–9 months beyond the effective date.

Appendix 7 29

Covenant Reference to Loan Agreement

Status of Compliance

7. Within 1 month from the effective date,

the Borrower will establish the Project Coordination Committee (PCC), comprising representatives from DGECP, DGFCH, Directorate General of Livestock Production, and Directorate General of Reforestation and Land Rehabilitation (DGRLSF), and other concerned agencies and chaired by a director-level officer from DGECP. DGECP’s project manager will report twice a year to PCC.

Schedule 6, para. 3 Complied with. The PCC was established in June 1995, one month beyond the effective date. DGECP’s project manager, however, reported to PCC on an ad hoc basis.

8. The project management units (PMUs) will be assisted by the existing provincial coordinating committee in the project provinces and the district coordinating committee in the project districts of the project area.

Schedule 6, para. 4 Complied with. The PMUs were fully supported by provincial and district coordinating committees.

9. Within 1 month from the effective date,

the Borrower shall appoint or confirm the allocation of responsibility for the Project to a project liaison officer in the capital of each province within the project area who will facilitate project implementation.

Schedule 6, para. 5 Delayed compliance. The liaison officer is appointed six months after the effective date. The liaison officers reported to the heads of Provincial Estate Services.

10. DGECP and DGFCH will establish two

PMUs in each subproject area and a PMU manager to be appointed for each PMU within 1 month from the effective date.

Schedule 6, para. 6 Delayed compliance. Two PMUs were established in the respective subprojects headed by PMU managers 6 months beyond the effective date.

11. The Borrower will ensure that each

PMU will comprise five implementation subunits responsible for developing about 1,300 hectares each. Each PMU and its subunits will be adequately staffed throughout the Project’s implementation period with individuals from each of the project executing agencies and beyond physical completion of the Project by individuals from the appropriate level of estate services and will continue to provide extension advice on the maintenance of the farming systems and on the processing and marketing of crops.

Schedule 6, para. 7 Complied with. Each PMU was adequately staffed, mostly from Provincial Estate Services offices. Currently, Provincial Estate Services continues supporting the Project through its own Kawasan Industri Masyarakat Perkebunan (Estate Community for Industrial Region) project.

Appendix 7

30

Covenant Reference to Loan Agreement

Status of Compliance

12. The PMUs will develop effective

consultative relationships with farmers groups and kelompok masyarakat (community groups) working in the project area and specifically consult with these groups concerning beneficiary participation in the Project. The PMUs will also consult with the private sector to provide processing and marketing outlets for smallholder produce.

Schedule 6, para. 8 Complied with. The PMUs were assisted by NGOs in encouraging the beneficiary participation process. The PMUs also facilitated farmers in forming a joint marketing company with private firms.

13. Each PMU manager will select community groups, farmers groups, and community organizations based on criteria that include (i) adequate capacity, (ii) operational experience in community organization, and (iii) demonstrated capacity and willingness to assist in community organization.

Schedule 6, para. 9 Complied with. The PMUs were assisted by NGOs in selecting community and farmers groups.

14. Each PMU will assist individual

farmers living in the subproject area within its jurisdiction to organize themselves into suitable farmers groups during the first 6 months of farm development, take steps toward establishing farmers cooperatives, and assist and supervise farmers groups project activities.

Schedule 6, para. 10 Delayed compliance. The PMUs were assisted by NGOs in organizing farmers groups and cooperatives. This activity commenced 1 year after farm development.

15. Each PMU will enter into suitable

participation agreement with each participating farmer within 6 months of the latter’s joining the relevant farmers groups. Such an agreement must clearly establish the relationships necessary for efficient project implementation, between the concerned PMU, the farmers group, and the participating farmers.

Schedule 6, para. 11 Complied with. PMUs entered into agreements with participating farmers prior to farm and livestock development activities.

16. Under the Project, DGECP and

DGFCH, with assistance from the consultants, will provide training on all aspects of farming to farmers groups (without discriminating against women) as well as administrative and field staff members involved in project implementation.

Schedule 6, para. 12 Complied with. Training was provided to farmers groups, including women’s farmers groups, and project staff members, with the assistance of the assigned village community development workers.

Appendix 7 31

Covenant Reference to Loan Agreement

Status of Compliance

17. The Borrower will respect the existing

traditional land rights and arrangements recognized by the Borrower and traditional societies.

Schedule 6, para. 13 Complied with. The Borrower respected the traditional land rights and upgraded the status of land ownership by certification.

18. The Borrower will ensure, and if

necessary, make budgetary allocations to ensure that official land titles are granted to all participating farmers.

Schedule 6, para. 12 Complied with. Issuance of land titles was financed by the Project.

19. The Borrower and ADB will carry out a

midterm review of the Project at the fourth year of project implementation.

Schedule 6, para. 16 Complied with. A midterm review was carried out in October 1999.

20. The project executing agencies will

comply with applicable environmental laws and regulations of the Borrower in the design, construction, and operation and maintenance of the project facilities and will institute environmental monitoring during implementation of the project to ensure minimal adverse environmental impact.

Schedule 6, para. 17 Complied with. No major environmental impact was observed. Environmental aspects were undertaken through soil conservation measures and a regreening program. Consultant services were provided to look into the areas involving environmental aspects.

21. The Borrower will ensure that the PMUs encourage women living in the project area to participate fully in planning and implementing project activities.

Schedule 6, para. 18 Complied with. Women in the project area participated in simple financial management training, and seed development was mostly carried out by women.

22. Benefit monitoring will be conducted by

the project executing agency in charge of each individual PMU and a consolidated progress monitoring report will be submitted to ADB by DGECP’s Monitoring and Evaluation Unit based in Jakarta. The scope of benefit monitoring and evaluation activities will include undertaking an initial baseline socioeconomic impact of the Project on an annual basis.

Schedule 6, paras. 19 and 20

Complied with. A domestic consultant carried out benefit monitoring and evaluation. The benefit monitoring and evaluation report was discussed in August 2002.

23. The Borrower will ensure that land

development will be undertaken by the participating farmers themselves.

Schedule 6, para. 21 Complied with. Farmers carry out land development and preparation with cash incentives given by the Project.

Appendix 7

32

Covenant Reference to Loan Agreement

Status of Compliance

24. The Borrower will cause the concerned

provincial and district government agencies to allocate sufficient funds to maintain rural roads to be constructed under the Project at a reasonable standard.

Schedule 6, para. 22 Complied with. Most of the rural roads constructed under the Project were handed over to the local government for further maintenance. The local governments allocated adequate funds for the maintenance of the constructed rural roads.

25. The Borrower will cause the concerned

provincial and district government agencies to allocate funds to operate the PMUs after project completion.

Schedule 6, para. 23 Complied with. The functions of PMUs were taken over by Provincial Estate Services and district estate service (DES). Provincial Estate Services committed to allocate funds for operating PMU.

Appendix 8 33

SUMMARY OF CONSULTING SERVICES

TABLE A8.1: Summary of Consulting Services

No Position At Appraisal (Person-Months)

At Project Completion (Person-Months)

I. International Consultants 1 Rural Development Specialist 33 62 2 Community Development

Specialist 14 13.5

3 Administration and Financial Specialist

24 17.5

4 Estate Crops Specialist 3 0 5 Farming System Specialist 9 9 6 Monitoring &Evaluation

Specialist 6 4

7 Training and Extension Specialist

6 9

8 Participatory Rural Appraisal Specialist

6 0

9 Agro-processing Specialist 3 0 10 Financial Specialist 0 13

Total (including unallocated) 107 127.2 II Domestic Consultants 1 General Community Organizer 1 24 55.8 2 General Community Organizer 2 24 48.7 3 General Community Organizer 3 24 55.6 4 General Community Organizer 4 24 54.8 5 Women Community Organizer 1 24 12 6 Women Community Organizer 2 24 11.3 7 Women Community Organizer 3 24 4 8 Women Community Organizer 4 24 12 9 Farming System Specialist 1 12 12

10 Farming System Specialist 2 12 12 11 Farming System Specialist 3 12 12 12 Farming System Specialist 4 12 12 13 Environmental Monitoring

Specialist 12 11.6

14 Livestock Specialist 4 0 15 Soil Conservation Specialist 6 0 16 Civil Engineer 18 6 17 Extension Specialist 0 40 18 Monitoring and Evaluation 0 51.8 19 Farming System Specialist 0 3 20 Agriculture Economist 0 27 21 NGOs 288 552 22 Village Community Development

Workers 0 1,584

Total including unallocated 579 2,602.8

Source : Final Records – Directorate General for Estate Crops Production.

Appendix 8

34

Table A8.2: Contract Packages

Mode of Procurement Total Cost (‘000)

Cat. Items Number

of Contracts ICB IS LCB DP Foreign Currency Rp $

1 Civil Works 66 – 66 – – 20,090,489 4,632

2A Vehicles and Equipment 20 – 3 9 8 – 8,910,666 2,025

2B Crops Physical inputs 100 – 92 8 – 91,537,490 12,517

3 Training 13 – 13 – – 9,722,982 1,308

4 Consulting Services 8 1 7 – EUR(F)005,088 15,363,116 3,813 EUR428,755

5 Survey and Studies 5 – 5 – – 2,101,102 224

7B Furniture 6 – 6 4 – 794,343 210

7G Land Title 4 – – 4 – 2,982,123 339 Total 222 1 3 198 24

– = no data available, Cat. = category, DP = direct purchase, EUR = euro, EUR(F) = euro French francs, ICB = international competitive bidding, LCB = local competitive bidding. Source: Asian Development Bank records.

Appendix 9

35

ECONOMIC AND FINANCIAL ANALYSIS

1. The economic analysis was conducted for the Project and the individual crop and livestock components. This is more comprehensive than the analysis carried out at appraisal. The analysis is based on data obtained during field visits to 20 representative villages in the project area. The visits were conducted by the Project Completion Review Mission from 23 March to 4 April 2004. Prices used in the analysis are at constant 2004 levels. The economic internal rate of return is calculated based on the estimated value of incremental agriculture production. The benefits of improved roads, water supply, and environment enhancement brought about by reduced soil erosion are not fully included in the analysis because of the difficulties encountered in quantifying these impacts.

A. Main Assumptions 2. The main assumptions used in this analysis include the following:

(i) Investment costs were adjusted to constant 2004 prices based on the consumer price index for Indonesia.1 The 2004 prices were adjusted from 2003 prices based on a similar differential between 2002 and 2003 prices.

(ii) World Bank’s Manufacture Unit Value Index2 is used to adjust current commodity prices to constant 2004 prices.

(iii) Major project activities were implemented over an 8-year period, from 1995 to 2003.

(iv) Economic life of the Project is 25 years for financial and economic analysis, which corresponds to the economic life of the tree crops developed under the Project.

(v) Standard conversion factor used in this analysis is 0.9, which is the figure used in the appraisal’s analysis.

(vi) Opportunity cost for land under alang-alang (noxious weed) is assumed as zero, similar to the assumption made at appraisal.

(vii) Actual number of trees rather than the number of trees planted per hectare is used to derive crop yields. The seedling mortality rate was high (52% for candlenut, 46% for pepper and cashew, 34% for cocoa, 33% for coconut, and 24% for coffee.

(viii) Yield profile for tree crops is based on information collected from field visits and from the Directorate General of Estate Crop Production database. Yields recorded in farm fields are highly variable, depending on location, soil type, topography, and management practices. In view of this, a conservative estimate based on a lower yield profile was adopted.

B. Project Benefits 3. The projected and current main crop yields at appraisal and upon completion are shown in Table A9.1. The yields observed were generally in line with the estimates. The total crop output value in rupiah terms was triple the estimated value. In dollar terms, the value was only 80% of that figure.

1 Badan Pusat Statistik, 2003, Statistik Indonesia, Jakarta. 2 World Bank, Manufacture Unit Value Index 2004.

Appendix 9

36

Table A9.1: Crop Yields and Output at Appraisal and at Project Completion

Crops Appraisal Actual Maximum Yields (kg per ha per yr) Output at Appraisal Output Actual

(ha) (ha) Appraisal Actual (ton per yr) (ton per yr) Coffee 9,300 5,364 731 851 6,795 5,056 Coconut (copra) 8,600 8,150 950 1,527 8,170 8,306 Cashew 5,200 8,995 375 275 1,950 2,463 Cocoa – 5,018 – 413 – 1,048 Pepper – 2,480 – 258 – 942 Candlenut – 857 – 1,238 – 789

Total 23,100 30,864

Total Value (Rp million) 69,581 214,103 Total Value ($ million) 31.99 25.19 — = no data available. Kg = kilogram, ha = hectare, PAM = project administration memorandum, yr = year. Notes: The exchange rate used at appraisal: $1= Rp2,175. The exchange rate at project completion: $1= Rp8,500. Total value estimated at appraisal adjusted to 2004 prices. Source: Project completion report from the Directorate General of Estate Crop Production. 4. Considerable changes occurred in the farmgate prices (initial price in farm) observed at project completion mainly due to the rupiah’s sharp devaluation. This change was more pronounced for coffee, as shown in Table A9.2.

Table A9.2: Farmgate Prices at Appraisal and Project Completion (Rp per kg)

Crops

Appraisal Prices Appraisal Prices

Actual Prices Actual Prices 2000 2004 2000 2004 Coffee 7,075 6,334 14,430 11,075 Coconut (copra) 1,231 1,933 1,911 2,501 Cashew 5,876 5,876 6,390 5,500 Cocoa – – 6,017 10,935 Pepper – – 21,087 20,000 Candlenut – – 8,870 8,000 Paddy 1,064 1,052 900 900 Maize 873 817 1,250 1,250 Soybean 1,584 1,683 4,000 4,000 Rp = rupiah, kg = kilogram. Note: Appraisal prices adjusted to 2004 prices. Source: Project completion report from the Directorate General of Estate Crop Production. 5. The farm income figures with and without project show that by 2002, with project income exceeded without project income by 56% for Enrekang, 65% for Palu, 99% for Gorontalo, and

Appendix 9

37

197% for Kendari3 (Table A9.3). Farm incomes increased by $173 in Palu, $232 in Enrekang, $254 in Gorontalo, and $309 in Kendari, compared with the appraisal estimates of $125–1854 per year within the 5 years following project completion. By 2008, when most of the tree crops planted are expected to reach high yields, farm income with project is expected to rise by 255% for Enrekang, 335% for Gorontalo, 398% for Palu, and 525% for Kendari. Average annual farm incomes are anticipated at $980 for Kendari, $995 for Gorontalo, $1,325 for Palu, and $1,505 for Enrekang by 2008. 6. While all average project farmers in 1994 were poor, by 2002 this was true only for Gorontalo and Kendari. By 2008, poverty would be eliminated in all these four project sites. The per capita income of Rp1.39–2.55 million expected in 2008 would be above the national poverty line income of Rp0.90 million per capita per year.

C. Results of Economic Analysis 7. The economic internal rate of return (EIRR) was reestimated at 15.4%, against an estimated EIRR of 18.8% at appraisal. 8. Prices of traded goods were derived from the World Bank’s June 2003 price projections by making appropriate adjustments for quality differences, transport cost, order processing, and traders’ margins. Tables A9.4, A9.5, and A9.6 show the derivation of farmgate prices for cocoa, coffee, and copra. 9. Recent changes in commodity prices have generally had a positive impact on the Project. Except for coffee, the prices of other project commodities have either remained firm or rebounded. The local currency’s sharp devaluation had a positive impact on the Project, since it reduced the production cost of these exportable commodities (in dollar terms). 10. By commodity, the EIRR was high for tree crops, such as pepper (27%), candlenut (27%), coffee (25%), regreening (21%), livestock (21%), and cocoa (17%). EIRR was low for cashew (8%) and coconut (7%) and negative for food crops and horticulture. While nearly all farmers reported using fertilizer, a tendency exists to use more urea than necessary, as this fertilizer is readily available at project sites. In contrast, phosphorus and potassium use is low. 11. The low economic viability for cashew is due to the high seedling mortality, poor and irregular yields, and low prices. This crop does not appear to be suited to the climatic conditions found in many project sites, due to a lack of a distinct and regular dry season. 12. Copra prices are low in the project area, as copra is a local market product only. A need exists to develop an export market for coconut oil, copra, and nata-de-coco (fermented coconut water) to promote the future development of these commodities in Sulawesi. Cocoa development is still hampered by the presence of the cocoa moth disease, and greater effort is needed to assist farmers in eradicating this insect pest. 13. The regreening component had a relatively high EIRR, due to the high prices of timber expected from forest trees species, such as mahogany and chempaka (tropical magnolia). In

3 Assuming an average planted area of one hectare for tree crops per farm. Off-farm income doubled between 1994

and 2002 and is expected to double again by 2008. Other farm income derived from a mixture of crops, such as corn, fruit trees, onion, rice, vanilla, and vegetable.

4 $367–544 in 2004 prices.

Appendix 9

38

addition, farmers in the regreening program will also receive income from candlenut and petai (tree that produces beans with pungent odor), which mature within 10 years. 14. The negative EIRR for horticulture and food crops is due to (i) high cost of constructing contour structures on hillsides; (ii) high administrative cost incurred in this component; (iii) limited occurrence of benefits from annual crops (i.e., only 1 year), since the Project only provided assistance for 1 crop year; (iv) long immaturity period of fruit trees; (v) low prices for fruits, due to the limited local market; and (vi) small increment yields observed in the with and without project situations. This component appears to be unnecessary, as farmers can plant horticulture and food crops in their tree crop areas during the crop immaturity period.

Appendix 9

39

Table A9.3: Farmers Income Without and With Project (Rp ‘000)

Items Enrekang Palu Gorontalo Kendari Without Project—1994 Income Farm Income 3,923 1,808 2,019 1,379 Off-Farm Income 460 650 405 303 Gross Income 4,383 2,457 2,424 1,682 Farm Expenses 778 198 250 352 Net Income 3,604 2,260 2,174 1,330 Number Family Members 6 4 6 6 Per Capita Income 601 565 362 222 With Project—2002 (actual) Income Project Farm Income 2,856 2,646 2,646 2,972 Other Farm Income 3,000 600 2,000 1,500 Off-Farm Income 920 1,300 811 606 Gross Income 6,776 4,546 5,457 5,078

Project Farm Expenses 402 623 623 623 Other Farm Expenses 800 200 500 500

Net Income 5,573 3,723 4,334 3,955 Number Family Members 6 4 6 6 Per Capita Income 929 931 722 659 With Project—2008 (anticipated) Income Project Farm Income 9,175 9,411 6,935 6,859 Other Farm Income 4,500 900 3,000 2,250 Off-Farm Income 1,840 2,599 1,622 1,212 Gross Income 15,514 12,910 11,557 10,322

Project Farm Expenses 1,528 1,365 1,359 1,245 Other Farm Expenses 1,200 300 750 750

Net Income 12,787 11,245 9,448 8,326 Number Family Members 6 4 6 6 Per Capita Income 2,131 2,811 1,575 1,388 Notes: Without project income is based on appraisal estimates. Income adjusted to 2004 constant prices. With project income for 2002 is based on project monitoring and evaluation and project completion review mission findings. Main Crops grown are as follows: Enrekang cocoa, coffee, and pepper Palu candlenut, cocoa, onion, and pepper Gorontalo cocoa, coconut, corn, and pepper Kendari cashew, cocoa, and pepper Source: Staff Consultant Estimates.

Appendix 9

40

Table A9.4: Derivation of Financial and Economic Farmgate Prices

(Arabica Coffee in Constant 2004 Dollars) Description Unit 1998 2000 2004 2005 2010 Actual Projected Coffee (cif New York) c per kg 297 200 168 168 215 $ per m.t. 2,971 2,003 1,680 1,682 2,148Quality Adjustment (5%) $ per m.t. 149 100 84 84 107Freight/Insurance $ per m.t. 90 90 90 90 90FOB Jakarta $ per m.t. 2,733 1,813 1,506 1,508 1,950Transport (Sulawesi–Jakarta) $ per m.t. 40 40 40 40 40Processing Cost $ per m.t. 10 10 10 10 10Traders’ Margin (10%) $ per m.t. 273 181 151 151 195Financial Farmgate Prices $ per m.t. 2,409 1,582 1,305 1,307 1,705Exchange Rate rp per $1 10,014 8,422 8,500 8,500 8,500Financial Farmgate Prices rp per kg 24,127 13,323 11,096 11,111 14,495Economic Farmgate Prices rp per kg 24,450 13,518 11,266 11,282 14,703c = ; cif = costs, insurance, and freight; fob = freight on board; kg = kilogram; m.t. = metric ton ; rp = rupiah. Notes: A standard conversion factor of 0.9 was used in deriving farmgate prices. Drying and depulping done on the farm. Sources: International Coffee Organization Indicator Price—Arabica, Average New York. World Bank Commodity Price Projections, June 2003. 1994 prices are for February 2004, from World Bank Commodity Price Data Pinksheet.

Table A9.5: Derivation of Financial and Economic Farmgate Prices (Cocoa in Constant 2004 Dollars)

Description Unit 1998 2000 2004 2005 2010 Actual Projected Cocoa (cif New York) c per kg 167 95 157 170 164 $ per m.t. 1,673 945 1,569 1,698 1,636Quality Adjustment (10%) $ per m.t. 167 95 157 170 164Freight/Insurance $ per m.t. 90 90 90 90 90FOB Jakarta $ per m.t. 1,415 761 1,322 1,439 1,382Transport (Sulawesi–Jakarta) $ per m.t. 40 40 40 40 40Processing Cost $ per m.t. 30 30 30 30 30Traders Margin (5%) $ per m.t. 71 38 66 72 69Financial Farmgate Prices $ per m.t. 1,275 653 1,186 1,297 1,243Exchange Rate rp per $1 10,014 8,422 8,500 8,500 8,500Financial Farmgate Prices rp per kg 12,763 5,498 10,081 11,021 10,565Economic Farmgate Prices rp per kg 12,904 5,589 10,197 11,142 10,683c = cent ; cif = costs, insurance, and freight; fob = freight on board; kg = kilogram; m.t. = metric ton; rp = rupiah. Sources: International Cocoa Organization daily price. World Bank Commodity Price Projections, June 2003. 1994 prices are for February 2004 from World Bank Commodity Price Data Pinksheet.

Appendix 9

41

Table A9.6: Derivation of Financial and Economic Farmgate Prices (Copra in Constant 2004 Dollars)

Description Unit 1998 2000 2004 2005 2010 Actual Projected Copra (cif Rotterdam) c per kg 17.5 31.8 41.5 42.7 46.0 $ per m.t. 175 318 415 427 460Quality Adjustment (10%) $ per m.t. 17 32 42 43 46Freight/Insurance $ per m.t. 30 30 30 30 30FOB Jakarta $ per m.t. 127 256 344 354 384Transport (Sulawesi–Jakarta) $ per m.t. 20 20 20 20 20Processing Cost $ per m.t. 5 5 5 5 5Traders Margin (10%) $ per m.t. 13 26 34 35 38Financial Farmgate Prices $ per m.t. 89 206 284 294 321Exchange Rate rp per $1 10,014 8,422 8,500 8,500 8,500Financial Farmgate Prices rp per kg 896 1,732 2,415 2,499 2,725Economic Farmgate Prices rp per kg 934 1,774 2,466 2,550 2,779 c = cent ; cif = costs, insurance, and freight; fob = freight on board; kg = kilogram; m.t. = metric ton; rp = rupiah. Sources: Philippines/Indonesia, bulk, cif. Rotterdam. World Bank Commodity Price Projections, June 2003. 1994 prices are for February 2004, from World Bank Commodity Price Data Pinksheet.

Appendix 9

42

Table A9.7: Economic Internal Rate of Return (Rp billion)

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Total

Items 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 Yr 1-13

Total Revenue 2.12 2.42 4.60 5.39 11.74 21.24 27.94 32.80 35.81 49.02 67.91 82.97 99.28 443.24 Cost Dev Cost 9.44 25.20 38.46 26.91 34.95 23.34 25.37 9.05 0.71 0.00 0.00 0.00 0.00 193.43 Prod Cost 0.00 0.00 0.23 2.01 5.66 7.12 8.95 10.60 12.71 14.89 16.61 17.02 17.46 113.25 Infrastructure 2.21 4.62 5.49 1.36 5.83 1.27 1.17 0.00 0.00 0.00 0.00 0.00 0.00 21.94 Community Dev 0.39 0.47 0.17 0.68 0.37 0.86 0.90 0.60 2.04 0.00 0.00 0.00 0.00 6.48 Institutional 0.93 2.89 1.73 1.08 2.48 2.26 2.08 0.85 0.58 0.00 0.00 0.00 0.00 14.87 Project Mgmt 10.30 22.39 13.49 6.88 11.35 14.92 5.65 6.27 5.59 0.00 0.00 0.00 0.00 96.85 Total Cost 23.27 55.57 59.57 38.91 60.63 49.78 44.12 27.37 21.63 14.89 16.61 17.02 17.46 446.82

Net Revenue (21.15) (53.15) (54.97) (33.52) (48.89) (28.54) (16.18) 5.43 14.18 34.13 51.30 65.95 81.82 (3.58)

Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20 Yr 21 Yr 22 Yr 23 Yr 24 Yr 25 Total Grand

Items 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 14-25 Total Total Revenue 107.82 120.79 126.37 131.57 136.13 141.29 214.10 294.87 201.96 135.28 135.32 129.65 1875.14 2318.38 Cost 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Dev Cost 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 193.43 Prod Cost 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 212.34 325.59 Infrastructure 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 21.94 Community Dev 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.48 Institutional 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14.87 Project Mgmt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 96.85 Total Cost 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 17.70 212.34 659.16

Net Revenue 90.12 103.09 108.67 113.88 118.43 123.59 196.41 277.18 184.27 117.58 117.63 111.95 1662.80 1659.22

Economic Internal Rate of Return 15.42% Dev. = development, Mgmt. = management, Prod. = production Coffee and Cocoa prices based on World Bank Commodity Price Projections, in Constant 2004 Dollars (June 2003). Current prices converted to 2004 by using the MUV Index (World Bank, Feb 2004) Estimated sales prices of food and horticulture crops (per kg): (a) corn - Rp900, (b) rice - Rp1,250, (c) potato - Rp2,500, (d) peanut - Rp2,000, (e) red bean - Rp2,500, (f) onions - Rp3,500, (g) soya beans - Rp4,000 and (h) long beans - Rp1,250. Regreening (per kg/cu.m.): (a) rambutan - Rp2,500, (b) durian - Rp5,000, (c) banana - Rp2,000, (d) mango -Rp3,000, (e)avocado-Rp3,500, f) jackfruit - Rp4,000, (g) apple - Rp3,000, (h) orange - Rp3,000, (i) teak –Rp 2 million. Source: ADB Estimates.