Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72850) ON A LOAN IN THE AMOUNT OF US$25.00 MILLION EQUIVALENT TO THE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72850) ON A LOAN IN THE AMOUNT OF US$25.00 MILLION EQUIVALENT TO THE REPUBLIC OF PERU FOR AN AGRICULTURAL RESEARCH AND EXTENSION PROJECT IN SUPPORT OF THE SECOND PHASE OF THE AGRICULTURAL RESEARCH AND EXTENSION PROGRAM June 21, 2011 Sustainable Development Department Bolivia, Chile, Ecuador, Peru, Venezuela Country Management Unit Latin America and the Caribbean Region

2 CURRENCY EQUIVALENTS (Exchange Rate Annual Averages) Currency Unit = Peruvian Nuevo Sol (PEN) 2005 US$1.00 PEN US$1.00 PEN US$1.00 PEN US$1.00 PEN US$1.00 PEN US$1.00 PEN 2.79 PERU FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AGROEMPRENDE AGRORURAL AIS APL CAS FDSE CONCYTEC EMAP FIDECOM FINCYT FONDECYT FM FTA GDP GOP IA IBRD ICR IFAD IFR IIAP INCAGRO INIA IPM ISR Competitive Funds Program by the Ministry of Agriculture launched in October 2009 Program of Rural Agrarian Productive Development Agricultural Innovation System Adaptable Program Loan Country Assistance Strategy Strategic Services Development Fund National Council for Science and Technology Environmental Mitigation Action Plan Research and Development for Competitiveness Fund Fund for Innovation, Science and Technology National Fund for Science and Technology Financial Management Agricultural Technology Fund Gross Domestic Product Government of Peru Implementing Agency International Bank for Reconstruction and Development Implementation Completion and Results Report International Fund for Agricultural Development Intermediate Financial Report Peruvian Amazon Research Institute Innovation and Competitiveness for the Peruvian Agro Program National Institute for Agricultural Innovation Integrated Pest Management Implementation Supervision Report

3 LAC MARENASS M&E MDGs MEF MINAG MTR NAIS PAD PDO PEN PMP PMU PP PROTEC PSI R&D SEPA SIGER SIGES SNIA UNALM Latin America and the Caribbean Management of Natural Resources in the Southern Highlands Project Monitoring and Evaluation Millennium Development Goals Ministry of Economy and Finance Ministry of Agriculture Mid-Term Review National Agricultural Innovation System Project Appraisal Document Project Development Objective Peruvian Nuevo Sol Pest Management Plan Project Management Unit Procurement Plan Technological Transfer and Extension Projects (under FONDECYT) Irrigation Sub-sector Project Research and Development Procurement Plan Execution System INCAGRO s Management Information System INCAGRO s Sub-project Information Management System (Sistema Informatico de Gestion de Sub-proyectos) National Agricultural Innovation System National Agrarian University La Molina At Appraisal: Vice President: Country Director: Sector Director: Project Team Leader: Pamela Cox Marcelo M. Giugale John Redwood Matthew A. McMahon At ICR: Vice President: Acting Country Director: Sector Manager: Project Team Leader: ICR Team Leader: Pamela Cox Laura Frigenti Ethel Sennhauser Erwin De Nys Erwin De Nys

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5 PERU AGRICULTURAL RESEARCH AND EXTENSION APL PHASE 2 PROJECT CONTENTS DATA SHEET A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph MAIN TEXT 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners ANNEXES Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. INCAGRO s experience with women groups and indigenous people Annex 10. List of Supporting Documents MAP

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7 A. Basic Information Country: Peru Project Name: Agricultural Research and Extension APL Phase 2 Project ID: P L/C/TF Number(s): IBRD ICR Date: 05/20/2011 ICR Type: Core ICR Lending Instrument: APL Borrower: Original Total Commitment: Revised Amount: USD 23.2M Environmental Category: B Implementing Agencies: INIA Cofinanciers and Other External Partners: - GOVERNMENT OF PERU USD 25.0M Disbursed Amount: USD 23.2M B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 04/14/2004 Effectiveness: 10/03/ /03/2005 Appraisal: 10/25/2004 Restructuring(s): 04/20/ /01/2009 Approval: 03/31/2005 Mid-term Review: 02/29/ /25/2008 C. Ratings Summary Closing: 06/30/ /31/2010 C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Substantial Moderately Satisfactory Moderately Satisfactory i

8 C.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings Quality at Entry: Moderately satisfactory Government: Moderately unsatisfactory Quality of Supervision: Moderately satisfactory Implementing Agency/Agencies: Moderately satisfactory Overall Bank Overall Borrower Moderately satisfactory Performance: Performance: Moderately satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: Yes Indicators Moderately Satisfactory QAG Assessments (if any) Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research Agro-industry 7 7 Central government administration Theme Code (as % of total Bank financing) Indigenous peoples Other environment and natural resources management Participation and civic engagement Rural policies and institutions Rural services and infrastructure ii

9 E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Laura Frigenti (Acting) Marcelo Giugale Sector Manager: Ethel Sennhauser John Redwood Project Team Leader: Erwin De Nys Matthew A. McMahon ICR Team Leader: ICR Primary Author: Erwin De Nys F. Results Framework Analysis Project Development Objective Erwin De Nys, with inputs from FAO-CP: Klaus Urban, John Preissing, Sylvie Tillier and Alberto Zuppa; and from Gabriela Arcos, Nelly Ikeda, Ana Francisca Ramirez Copelos, Francisco Rodriguez, Lizy Dasso and Willem Janssen. The overall objective of the three phase INCAGRO Adaptable Program Loan (APL) was to contribute to the sustainable development of a pluralistic, decentralized, rural-agrarian system of technological innovation, guided by demand, and led and disseminated by the private sector, with the purpose of increasing the productivity and competitiveness of the agricultural sector through the generation and adoption of environmentally sound technologies. The objective of the INCAGRO Phase II Project, as per the PAD, was to contribute to the expansion, strengthening, and institutional development of the rural agricultural technology and innovation system, so it is pluralistic, decentralized, demand driven, and led by the private sector. Revised Project Development Objective (as approved by original approving authority): (the system displays entries in Section 6) The Project Development Objective was not formally revised. iii

10 (a) PDO Indicator(s) from Project Appraisal Document Indicator 1: Baseline Value (end of Phase I) Original Target Values (from approval documents) Formally Revised Target Values Actual Values Achieved at Completion or Target Years Number of producers who participated in extension and adaptive research subprojects and percentage of monetary co-financing of subprojects represented A) Direct participants (in thousands) B) Indirect participants (in thousands) C) Rural women (in thousands) D) Indigenous people (in thousands) E) % of co-financing Value A) 9 B) 27 C) 1.1 D) 0.5 E) N/A A) 46 B) 156 C) 11.2 D) 5.9 E) 25% A) 33.9 B) 78.2 C) 3.0 D) 4.7 E) 34% Date achieved October 2010 Comments (incl. % achievement) Indicator 2: Information has been extracted from INCAGRO s monitoring tool SIGER. (A-B: Reporte de clientes y beneficiarios; C-D: Listado de sub-proyectos de poblaciones indígenas y organización de mujeres. Comment: data on women and indigenous people cover only 156 out of 381 sub-projects and therefore under-estimated; E: Reporte Gráfico de sub-proyectos adjudicados). Performance against set targets was: A): 73%; B): 50%; C) 27% (see comment above); D) 80%; E) 136% Percent of business plans fully functional and contributing to improved income generation of direct and indirect participants, and rural women and indigenous participants. A) Direct participants B) Rural women C) Indigenous People Value A) 30% B) N/A C) N/A A) 30% A) 73% (direct B) 30% + indirect) C) 30% B) 17% C) 50% Date achieved October 2010 Comments (incl. % achievement) Indicator 3: Information extracted from SIGER (Reporte Plan de Negocios Línea de cierre). A) Only the extension service subprojects included business plans: over a total of 334 sub-projects approved, 23 have been interrupted; 228 of the remaining 311 extension service sub-projects contributed to income generation (228/311=73%). B) + C): Over a total of 228 approved sub-projects with business plans, 40 have been submitted by women organizations and 116 by indigenous populations. Performance against set targets was: A): 243% (includes indirect participants); B): 56%; C) 166% Percent of positive responses in client satisfaction with new technologies or management recommendations Value 75% 75% 84% iv

11 (quantitative or Qualitative) Date achieved October 2010 Comments (incl. % achievement) Indicator 4: Value (quantitative or Qualitative) Through the external access to INCAGRO s Subproject Management System SIGES (estudio de línea de salida), the sub-project implementing entities expressed their satisfaction with the quality of services provided by the INCAGRO decentralized offices. 84% of the implementing entities rated positively the services received from the Project. Performance against set targets was: 112% Number of macro-regions covered with programs of extension and adaptive research established in various departments nationwide Date achieved 2007 Comments Information extracted from SIGER (Reporte de distribución de (incl. % subproyectos por distribución departamental). INCAGRO II achieved achievement) establishing extension and adaptive research subprojects in all the 25 regions of Peru, covering 9 macro-regions. The implementation of 9 decentralized offices was critical towards that achievement. Performance against set targets was: 112% Indicator 5: Number of farmers benefitted A) direct participants B) indirect participants D) women D) indigenous people Value (quantitative or Qualitative) A) N/A B) N/A C) N/A D) N/A A) N/A B) N/A C) N/A D) N/A A) 39,066 B) 1,115,211 C) N/A D) N/A Date achieved October 2010 Comments (incl. % achievement) Indicator 6: Value (quantitative or Qualitative) The information extracted from SIGER (Reporte de Entidades Participantes en la Fase II, Número de entidades participantes según su naturaleza) refers to producers directly involved in extension, adaptive research and strategic research sub-projects (direct participants) and to producers that indirectly benefitted from the approved sub-projects in the same areas (indirect participants). Information on women and indigenous population participation was not available. A) 29,139 extension service clients + 4,725 adaptive research clients (FTA) + 5,202 strategic research clients (FDSE). B) 70,877 extension service clients + 7,392 adaptive research clients (FTA) + 1,036,942 strategic research clients (FDSE). Systems for M&E of the National Agricultural Innovation System (NAIS) and web-based information in place N/A 2 2 Date achieved 2006 Comments (incl. % achievement) Indicator 7: The reported achievement refers to the SIGER and SIGES systems and the INCAGRO web page launched in 2006 (an improved version of SIGES has been launched in 2009). The subproject database is public and represents a key source of information for the NAIS. A Technological Innovation Policy Focal Point established for v

12 Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) project/program sustainability N/A 1 0 The incorporation of the INCAGRO model within the MINAG did not occur as the government established the merging of the INCAGRO Project Management Unit within INIA (Supreme Decree , approved June 20, 2008). (b) Intermediate Outcome Indicator(s) - from Project Appraisal Document Component 1.1 Baseline Value (end of Phase I) Original Target Values (from approval documents) Formally Revised Target Values Actual Values Achieved at Completion or Target Years Countrywide, pluralistic, and co-financed agricultural service market, with particular focus on the needs of the indigenous population and women. Indicator 1.1.1: Number of adaptive research and extension subprojects Value (main text of 389 (first 381 PAD and loan agreement) 593 (PAD Annex 3 sum of annual targets) amendment to Loan Agreement) Date achieved Sept Comments Information extracted from SIGER. The last subprojects approval process culminated in September Indicator 1.1.2: Number of extension projects with vulnerable groups (indigenous and women) Value (first 156 (PAD target) amendment to Loan Agreement) Date achieved Comments Information extracted from SIGER. Over a total of 334 extension subprojects, 156 subprojects benefitted vulnerable groups. Indicator 1.1.3: Number of macro regions covered Value (PAD year 4 target) Date achieved 2007 Comments See PDO indicator 4 above. 9 decentralized offices have been opened covering the 24 regions of the country. Performance against target was 112.5% Indicator 1.1.4: % of adaptive research/extension subprojects originating from: a) Private enterprises b) Public/private universities c) Public institutions d) NGOs e) Producers organizations Value a) 3% a) 10% f) International a) 11% vi

13 b) 4% c) 5% d) 58% e) 30% b) 5% c) 3% d) 32% e) 50% (PAD year 4 targets) Institutions g) Independents (alliances) b) 1.8% c) 11% d) 10% e) 34% f) 1.4% g) 31% total: 100% Date achieved 2007 Sept Comments The reported performance refers to the types of institutions participating in adaptive research and extension service sub-projects. The information was elaborated from tables 18 and 26 of the report INCAGRO en Números (extracted from SIGER) which include alliances and other partners beside the entities who submitted the sub-projects. Since 2007, INCAGRO included dimensions f) and g). Indicator 1.1.5: % of co-financing from producers and strategic alliances Value 25% 30% 34% (PAD year 4 target) Date achieved Comments Over a total of PEN 53,484,881 Nuevos Soles financed within the FTA (INCAGRO+Alliances), a total of PEN 18,111,847 has been financed by strategic alliances. The information is captured by SIGER. Performance against target was 110%. Indicator 1.1.6: % of total monetary co-financing of indigenous and women clients, and strategic alliances Value 25% 30% 33% (PAD year 4 target) Date achieved Comments The FTA has financed a total of 40 subprojects for women groups (PEN 576,743) and 116 sub-projects for indigenous people (PEN 2,994,881). The total amount of those sub-projects was PEN 10,788,226 (women groups PEN 2,637,887 and indigenous groups PEN 8,150,338). The co-financing of the 40 subprojects for women groups was PEN 576,743 and for the 116 sub-projects was PEN 2,994,881. Performance against target was 110%. Indicator 1.1.7: Number of clients of extension and adaptive research sub-projects Value 2,250 46,050 33,864 (sum of PAD annual targets) Date achieved October 2010 Comments Information extracted from SIGER (Reporte de Clientes y Beneficiarios). Performance against target was 73%. Indicator 1.1.8: Number of female participants in extension subprojects for women Value N/A 3,000 3,062 (sum of PAD annual targets) Date achieved October 2010 Comments Information extracted from SIGER (Reporte de Clientes de sub-proyectos de Servicios de extensión-organizaciones de Mujeres) but covering only 156 out of 381 sub-projects. Based on these partial numbers, performance against target was vii

14 102%. Indicator 1.1.9: Number of indigenous participants in extension subprojects for indigenous people Value 80 3,600 (sum of PAD annual 4,718 (men and women) targets) Date achieved October 2010 Comments Information elaborated from SIGER (Reporte de Clientes de sub-proyectos de Servicios de extensión-poblaciones Indigenas). Performance against target was 131%. Component 1.2: Providers have improved project administration and management capacities (in particular, project preparation and execution) important to efficiently deliver agricultural services Indicator 1.2.1: Total number of adaptive research and extension subproject proposals (including indigenous and women) submitted and percentage approved a) Number of proposals submitted b) % of approved proposals Value a) 273 b) 29 a) 1976 (sum of PAD annual a) 1328 b) 29% targets) b) 30% (PAD year 4 target) Date achieved Comments 1,328 sub-project proposals were submitted under the FTA, of which 29% (389 sub-projects) were approved. 8 of those 389 were withdrawn before starting implementation of activities. Indicator 1.2.2: Total number of adaptive research and extension subproject proposals submitted by participants of training workshops and percent approved (including extension projects for indigenous and women). a) Number of proposals submitted b) % of approved proposals Value N/A a) 865 (sum of PAD annual targets) b) 65% (PAD year 4 target) Date achieved Comments This indicator was not monitored and related information is not available. Indicator 1.2.3: Percent of inductors (critical subproject activities) indicated in the Balance Score Cards carried out without delay Value N/A 90% N/K Date achieved Comments This indicator was not monitored and related information is not available. Component 1.3: Service providers have an improved understanding of client needs and how to respond to them. Client satisfaction with responsiveness of service provision (percent of positive response or rating) Value 60% 90% 77% Date achieved Comments Over a total of 173 sub-projects participants to the client satisfaction survey, 133 rated positively the quality of the service provided by INCAGRO viii

15 (satisfactory=112, adequate=21). Performance against set target was 85%. Component 2.1: National researchers and national research institutes have improved capacity to conduct research in identified priority areas. Indicator 2.1.1: Number of sub-projects of strategic research approved Value (sum of PAD 72 annual targets) Date achieved September 2007 Comments Information extracted from SIGER. Performance against set target was 153% Indicator 2.1.2: Number of peer-reviewed publications, research reports, conference papers in priority research areas at national level. a) Peer review publications b) Research reports c) Conference papers Value N/A a) 63 b) 180 c) 160 (sum of PAD annual targets) a) 100 b) 269 c) 1 Date achieved October 2010 Comments Information recorded by INCAGRO PMU. b): 91 articles, 133 training manuals, 45 technological manuals. Performance against set target was: a) 168%; b) 149%; c) 0.5% Indicator 2.1.3: Total number of full-time researchers in priority areas with MSc and PhD degrees. a) MSc degrees b) PhD degrees Value N/A a) 68 a+b) 169 b) 16 (sum of PAD annual targets) Date achieved October 2010 Comments Total number of researchers with advanced level of education (MSc and above) in the FDSE sub-projects. The information is not classified by MSc/PhD. Performance against set target was: 201% Indicator 2.1.4: Number of researchers who received graduate degrees and participated in sabbatical programs through research fellowship program in priority areas Value 0 88 (sum of PAD 35 annual targets) Date achieved October 2010 Comments Information extracted from the strategic investigation plan: 31 Master theses and 4 PhD theses. Performance against set target was: 40% Component 2.2: Extension agents have improved technical and managerial skills and capacity to effectively provide demand-driven agricultural services. Indicator 2.2.1: Total number of certified extension service agents per year Value (sum of PAD 1,101 annual targets) Date achieved October 2010 Comments Information extracted from SIGER (Report Clientes atendidos capacitación por competencias ) and refers to the total number of extension agents certified during the Phase II of INCAGRO. 254 of the 1,101 certified extension agents were women. Performance against target was 133% ix

16 Indicator 2.2.2: Efficiency of extension service provision (average cost per service delivered per farmer). Value N/A N/A PEN 5,784.3 Date achieved October 2010 Comments Information extracted from SIGER (Report Costo de Servicio por Fondo y Tipo de SubProyecto ). The total budget was PEN 8,225,324 (INCAGRO+Alliances). The total number of beneficiaries of extension services was 1,422. Component 3 Project Management Unit (PMU) has developed improved institutional capacity to efficiently function as a public facilitator and promoter (in particular, in policy formulation, information dissemination, M&E) of an innovative national research and extension system. Indicator 3.1 Number of agricultural policy strategies developed, approved, and adopted by the MINAG a) Developed b) Approved by the MINAG Value N/A a) 4 b) 4 (sum of PAD annual targets) Date achieved Comments see comments in Annex 2 A) 0 B) 0 Indicator 3.2 Number of hits on science and technology (S&T) database system per month. Value N/A 4,000 (PAD year 4 2,165 target) Date achieved August 2010 Comments The INCAGRO web page was implemented in The reported achievement refers to the number of accesses to the INCAGRO sub-projects database through the web facility in August Performance against set target was: 54% Indicator 3.3 Number of M&E studies conducted a) progress reports b) result studies c) impact studies Value a) 145 b) 8 c) 5 a) 300 b) 60 c) 10 (PAD year 4 target) a) 2,259 b) 8 c) 1 Date achieved October 2010 Comments a) 2,259 Informes Tecnicos Financieros have been submitted by sub-projects and processed by INCAGRO decentralized offices (Information captured by SIGER Report Informes tecnicos financieros ); b) 8 systematization studies and c) 1 impact study. It has to be noted that b) and c) were undertaken at the macro Project level and not at the sub-project level as it was originally foreseen in the PAD. The INCAGRO sub-project monitoring and management systems allowed an ongoing and efficient oversight of the activities being implemented. Indicator 3.4 Number of strategic research and extension and adaptive research subprojects selected as satisfactory by the Evaluation Panel for awards Value Date achieved October 2010 Comments INCAGRO launched the Moray Award in 2007 and 2008 to recognize the best innovation projects in the categories of strategic research, adaptive research and x

17 extension. A total of 27 sub-projects has been selected in the 2 years editions of the Moray Price, which were actually recognized with a higher level than satisfactory. Component 4 PMU functions efficiently as a Project administration and coordination unit. Indicator 4.1 Average number of months from call for proposals to signing contracts (efficiency of fund administration) Value Date achieved September 2008 Comments INCAGRO estimate. The last sub-projects approval process culminated in September Indicator 4.2 Overhead costs as a percentage of total Project costs Value < 10% < 10% 12% Date achieved Comments As per last IFR of January 2011, the amount reported as overhead costs, that is, operating costs, is US$ 643,226 (loan source of funds) and with counterpart funds the amount is US$ 5,529,138. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 04/23/2005 Satisfactory Satisfactory /19/2006 Satisfactory Satisfactory /05/2006 Moderately Satisfactory Moderately Satisfactory /21/2007 Moderately Satisfactory Unsatisfactory /20/2007 Moderately Satisfactory Unsatisfactory /02/2008 Moderately Satisfactory Moderately Satisfactory /03/2008 Moderately Satisfactory Moderately Satisfactory /16/2009 Satisfactory Satisfactory /26/2009 Satisfactory Satisfactory /03/2009 Satisfactory Satisfactory /14/2009 Satisfactory Satisfactory /13/2010 Satisfactory Satisfactory /27/2010 Moderately Satisfactory Moderately Satisfactory /10/2011 Satisfactory Satisfactory H. Restructuring Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO Amount Disbursed at Restructuring in USD millions 04/20/2009 S S IP Reason for Restructuring & Key Changes Made xi

18 Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO Amount Disbursed at Restructuring in USD millions 07/01/2009 S S IP Reason for Restructuring & Key Changes Made I. Disbursement Profile xii

19 PERU AGRICULTURAL RESEARCH AND EXTENSION APL PHASE 2 PROJECT IMPLEMENTATION COMPLETION AND RESULTS REPORT 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal The INCAGRO 1 Phase II Project was the second phase of a three phase Adaptable Program Loan (APL) aiming to increase the productivity and competitiveness of the agricultural sector in Peru through the adoption of environmentally sound technologies generated and disseminated by a pluralistic, decentralized, rural-agrarian system of technological innovation, guided by demand, and led by the private-sector. The APL Program was designed to be implemented in three phases: (1) Phase I (IBRD loan of US$ 9.6 million) of three years duration, for the establishment of a National Agricultural Innovation System (NAIS), (2) Phase II (IBRD loan of US$ 25.0 million) of four years duration, for the scaling up of the System to cover all regions of Peru, and (3) Phase III (projected IBRD loan of US$ 56.1 million) of five years duration, for the consolidation of the System At the time of APL preparation in 1999, Peru had taken several important steps towards the liberalization of the economy. In the agricultural sector, while liberalization had helped to raise investment in the sector and boost exports, smallholder agriculture remained marginalized. Public expenditure on agricultural research represented only 0.2% of agricultural GDP. The National Agricultural Research Institute (INIA) had been weakened by a poorly planned concession of its agricultural research stations, flight of qualified personnel, poor governance and reduced budget. Private sector research was adhoc and uncoordinated. Against this background, the INCAGRO APL was expected to contribute to introducing institutional change and pluralism in the agricultural research and extension, and increase the role of the private sector broadly, so that Peru could strengthen its position as a competitive producer and exporter of agricultural commodities This Phase II Project followed upon a satisfactory completion of the first phase 2. Phase I had shown that the installation of a pluralistic, decentralized and cofinanced agricultural innovation system was achieved, but that more institutional development was required to consolidate the system. The failed adoption during Phase I of a strategic plan for INIA, which would have defined its role as a publicly financed institution in a pluralistic innovation system, was seen as a setback. It called for working 1 INCAGRO is the name given in Peru to the Agricultural Research and Extension APL, and stands for Innovation and Competitiveness for the Peruvian Agro. 2 World Bank, Implementation Completion Report of Phase I of the Agricultural Research and Extension Program (INCAGRO). Report

20 towards a reform of INIA during Phase II so that INIA would concentrate its resources in a number of strategic programs of a strong public good nature, as outlined in the Government s Policy Letter accompanying the Phase II of the APL 3. The Phase I, which was concentrated initially in three regions and later expanded to five, adopted a gradual process of decentralization, supporting the Government of Peru s (GOP) efforts to decentralize the agricultural service sector in the country, and was extended to the whole country under Phase II The Project strongly backed the Country Assistance Strategy (CAS) objective of supporting the GOP s efforts to achieve a sustained, continuous reduction of poverty. Thirty percent of Peru s population lives in rural areas, three quarters of which are characterized as poor, and one half of which is characterized as extremely poor (2003 estimates). By improving the efficiency and effectiveness of the agricultural innovation system, the Project would increase agricultural productivity and farmers incomes, and reduce natural resources degradation. At the time of appraisal, due to the high indebtedness of the Peruvian public and private sectors, the GOP, through World Bank assistance, was attempting to strengthen the fiscal balances through controls on expenditure, improved debt management, increased tax collection, and initiation of a national competitiveness program to address barriers to private sector growth and increasing exports. The Bank s assistance under the Project was directed at moderating the overall decline in public funding of agricultural research, stimulating private sector funding of the transfer of agricultural technology, and strengthening institutions. 1.2 Original Project Development Objectives and Key Indicators The Project Development Objective (PDO) of Phase II as set out in the project appraisal document (PAD) was: to contribute to the expansion, strengthening, and institutional development of the rural agricultural technology and innovation system so it is pluralistic, decentralized, demand-driven and led by the private sector. The PDO formulation in the initial loan agreement was to some extent different and referred to higher-level objectives 5 (i.e. poverty alleviation), but was eventually made consistent with the PAD through an amendment to the loan agreement which was signed in July Seven PDO indicators were set out in the Results Framework of the PAD and referred to: (i) number of producers participating directly and indirectly in extension and 3 World Bank, Project Appraisal Document (PAD) for the Agricultural Research and Extension Project in support of the Second Phase of the Agricultural Research and Extension Program. Report PE. 4 Peru is divided in twenty-four regions (first-level administrative sub-divisions). Phase II covered all regions thanks to nine decentralized multi-region project management units, in addition to PMU headquarters in Lima. 5 The PDO formulation in the initial loan agreement stated: to alleviate poverty by contributing to the sustainable development of an integrated, pluralistic, private sector-led, decentralized, agrarian system of technological innovation in order to increase the productivity, profitability and competitiveness of the agricultural sector through the generation and adoption of environmentally sound technologies. 2

21 adaptive research sub-projects with at least 25% of co-financing, (ii) percent of business plans fully functional, (iii) percent client satisfaction with new technologies, (iv) number of macro-regional programs of extension and adaptive research established, (v) adoption of a monitoring and evaluation (M&E) system of the NAIS, (vi) total number of Project beneficiaries, and (vii) establishment of a Technological Innovation Policy Focal Point However, the performance indicators in the Loan Agreement only partially corresponded to those indicators. It included the above-mentioned (iv), (v) and (vii), and additionally defined: (viii) number of producers participating in extension and adaptive research sub-project with at least 25% of co-financing, (ix) number of extension and adaptive research sub-projects co-financed, (x) number of sub-projects co-financed with female and indigenous organizations, (xi) number of established strategic research programs, and (xii) number of co-financed sub-projects in strategic research Intermediate outcome indicators that were included in the PAD are presented in section F of this report. 1.3 Revised PDO and Key Indicators The development objective and key indicators were not changed during implementation. Although there was discussion and agreement at the mid-term review (MTR) to refine the key indicators to make them more results-oriented rather than outputbased, the key indicators were not formally changed. The end of Project target values of three of the indicators of the Loan Agreement were modified in the Amendment signed in July 2009, to reflect a revised allocation to project components as well as the Project implementation progress. 1.4 Main Beneficiaries The Project s primary target groups remained unchanged and consisted of rural producers whose organizations and business plans (sub-projects) benefited from cofinancing through Project funds. The PAD estimated that 46,000 producers would participate directly in extension sub-projects and adaptive research sub-projects. These and other rural producers would also benefit indirectly from the generation of innovations under the strategic research sub-projects. By improving the efficiency and effectiveness of the agricultural technology system, the Project would increase agricultural productivity and farmers incomes, and reduce natural resources degradation. The Phase II Project was expected to give greater attention to targeting vulnerable groups, in particular the inclusion of indigenous populations and rural women organizations as direct participants of the Project The Project explicitly sought to foster the development of a pluralistic, competitive, and demand-based market for services in agricultural extension and research. Secondary beneficiaries included producers organizations, service providers 3

22 in research and extension (NGOs, INIA and other research organizations, universities, private enterprises, etc.) and other potential participants of sub-projects (e.g. local governments). 1.5 Original Components Component 1: Strengthening the Market for Innovation Services (US$ million) The aim of Component 1 was to advance the development of a decentralized market for professional services for agricultural innovation. This was to be achieved by establishing and managing a Competitive Fund Agricultural Technology Fund (FTA) for co-financing agricultural extension sub-projects and adaptive research sub-projects based on business plans that reflect demands of producers organizations. Component 1 also planned to co-finance local forums, internships, trainings and workshops, aiming at improving the capacity of producers organizations and agribusiness service suppliers. Component 2: Strengthening the National Agricultural Research and Development System (US$ 14.0 million) The aim of Component 2 was to strengthen agricultural research and technological development for innovation in areas of strategic importance and to enhance the institutional and individual professional competencies in the field of agricultural extension. This was to be achieved by establishing and managing the Competitive Fund Strategic Services Development Fund (FDSE) for co-financing strategic research sub-projects and capacity strengthening of extension agents subprojects. It was also expected that the FDSE would support the strengthening of public sector capacity to generate scientific and technological information and to develop new products and processes for smallholder agriculture in a number of priority and strategic sub-projects of value and delivery of public goods. Component 3: Monitoring and Evaluation (M&E), Information Sharing, and Policy for Innovation (US$ 5.53 million) The aim of Component 3 was to develop the institutional capacity of the public sector to formulate and implement agricultural innovation policy in conjunction with the private sector, and regulate the quality of the NAIS. An important expected outcome was the establishment of a Technological Innovation Policy Focal Point in a modernized MINAG that would be responsible for defining policies, and which would coordinate investments in this sector. The expected outputs included: (a) institutionalization of processes; (b) validation of an M&E system; and (c) a modernized and systematized information system. 4

23 Component 4: Project Implementation (US$ 2.51 million) The aim of Component 4 was to finance the INCAGRO-Project Management Unit (PMU) to continue to be the Implementing Agency for Phase II, established directly under the Ministry of Agriculture and thus financially and administratively independent of INIA. 1.6 Revised Components Component 1 underwent some slight modification during the implementation of the Project, which is described in Section Other Changes The Project underwent a restructuring 6 in July 2009, related to: (i) revising the PDO in the Loan Agreement to make it consistent with the PDO formulation in the PAD; (ii) revise the location of the Project Management Unit, which was moved from MINAG to INIA; and (iii) extend the closing date of the Loan Agreement by 18 months to December 31, The Mid-Term Review that preceded the restructuring was undertaken in February 2008, sixteen months ahead of the initial Project closing date Some changes in the design of Component 1 were discussed and implemented in 2006, as a result of which no competitive funds were allocated under the FTA that year. Firstly, the decision was made that the strategic alliances 7 set up for the execution of extension sub-projects under Component 1 would be led by producers organizations rather than NGOs as was the case under INCAGRO Phase 1. Secondly, instead of a special funding window for indigenous peoples and women as foreseen in the PAD, the decision was made to divide up the funds available for agricultural extension under the FTA into three types of sub-projects (extension sub-projects types I, II and III). Different amounts and co-financing percentages were set for each sub-project type, with a view to facilitate the participation of vulnerable groups (indigenous communities and women organizations) through smaller sub-project size, lower co-financing requirements (minimum of 15% for type III, 25% for type II and 35% for type I) and more intensive support by the Project for preparation of sub-projects type III. The latter sub-projects targeted specifically indigenous communities and women organizations (see Annex 9). 6 The restructuring was classified as a third-order restructuring. 7 Strategic Alliance: Under the INCAGRO Competitive Funds (FTA and FDSE), a strategic alliance refers to a formal cooperation agreement between the sub-project implementing entity, one or more entities demanding services or products, and one or more partners that contribute to the sustainability of the business plan, or in the implementation of the extension services plan, the capacity building plan, or the research plan of the sub-project. The sub-project implementing entity assumes the leadership of the strategic alliance. 5

24 1.7.3 Implementation schedule and closing date. The Project closing date was extended with eighteen months from June 30, 2009 originally to December 31, Reallocation of loan proceeds. A reallocation of loan proceeds took place on July 1, The category of works was cancelled and expenditures for goods and sub-projects decreased, against increases in other categories (consulting services, training, operating costs). 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The project quality at entry was moderately satisfactory. The background analysis confirmed the adherence of the PDO to the Peru CAS as well as to the MDGs. The design of the Project (PDO and selection of components) was solid and based on the lessons learned from the initial Phase I. Particularly the design of Components 1 and 2 took account of the recommendations of the ICR of Phase I 8. However, the design of Phase II underestimated the risk of the development of a parallel system of research and innovation (see ). It did not sufficiently address the question of the institutional and financial sustainability of the INCAGRO model and the exploration of different options for this with the GoP early on during the APL (see 2.1.8) Important changes to the design of Component 1 (from Phase I to Phase II) were to make its competitive fund (FTA) more demand driven and responsive to producers. The most significant changes that strengthened the design of Component 1 included: a) Deepening the demand-driven approach, by having producers groups as the originator of the sub-projects (as opposed to extension service providers or NGOs); b) Enhancing the focus on vulnerable groups, by having separate funding categories; c) Promoting the role of coaches or brokers to the producers groups, by introducing the concept of strategic alliances ; d) Introducing flexibility, by having an open window for the funding rounds rather than a single funding date For Component 2, the revised project design (vis-a-vis Phase I) included the following changes to its competitive fund (FDSE): a) Gradual execution of the fund over the lifetime of the Project, by beginning with a limited number of strategic program areas for focused research and progressively expanding these; b) Promoting participation and ownership, by having the major agricultural research institutions and stakeholders take an active role in the initial identification of the priority areas, research agenda within each area; 8 World Bank, Implementation Completion Report of Phase I of the Agricultural Research and Extension Program (INCAGRO). Report

25 c) Strengthening competition, by allowing the major agricultural research institutions to participate in the competitive research funding rounds; and d) Professionalizing the career of service of extension agents, by requesting their input and that of major agricultural research institutions and stakeholders for the design of capacity strengthening and training programs These strategies proved sound and led to a widely supported research agenda with broad participation in the research undertakings, particularly by those institutions capable of implementing a research agenda At the Project level, the coverage of the competitive funds (FTA and FDSE) was expanded from a few regions under Phase I to the entire country under Phase II The most challenging to design was Component 3, as this component touched on politically delicate issues. The overall APL as originally designed aimed at separating the functions of agricultural innovation policy (in MINAG), financing (first INCAGRO, then by an entity to be agreed upon during the initially foreseen consolidation Phase III of the APL) and implementation (INIA for strategic public domain innovations and the private sector for the rest). In principle, this strategy was supported by the Ministry of Economy and Finance (MEF) and MINAG, but in practice the anticipated consequences created resistance from the entities to be affected most (particularly INIA) The initial idea of creating a Directorate of Innovation in MINAG had to be dropped following an intensive debate at the time of the preparation of the PAD for Phase II. The compromise achieved at the time of Project preparation was the establishment of a Technological Innovation Policy Focal Point in MINAG, responsible for policy formulation and coordination of public investments, contributing to the sustainability of the agricultural innovation system, as expected outcome of Component Some weaknesses in the design: a) Importance of Policy Dialogue not sufficiently incorporated in Project activities. The volatility of the political debate at the time of Project preparation most likely did not permit a more thorough design of concrete options for the institutionalization of INCAGRO s competitive funds for agricultural research, technology and innovation and approach to managing them (design, evaluation, implementation and monitoring). Some may argue that the Project should have foreseen more concrete activities to pursue the institutionalization of the INCAGRO model, such as studies on the required future institutional design of the NAIS; debates on this topic (later strongly promoted by MEF and its National Competitiveness Council), etc. Though the design did not exclude this, it did also not specifically indicate that these would be important measures to be pursued to safeguard the institutional sustainability of the Project s impacts. 7

26 b) Mix of the Competitive Funds not convincing. The mix of the two funds (FTA including both agricultural extension and adaptive research sub-projects; FDSE including both capacity strengthening of extension agents and strategic research subprojects) was done with the purpose of maximizing the interaction between research and extension. However, with hindsight, it seems that this rather weakened the focus on extension and research, respectively. It may also partly explain the rather limited response to the calls for proposals on adaptive research. In fact, for the proposed Phase III, realigning the two funds to have a more comprehensive approach to extension and research, respectively, was planned. c) Institutional strengthening of other actors not sufficiently planned and designed, INIA being the most critical case. Resentment over the amount of resources under the PMU s control and the perceived lack of support from the Project to INIA to build the public sector framework needed for agricultural innovation led to INIA s resistance to pursuing the foreseen consolidation Phase III of INCAGRO even though in theory INIA stood to gain the most. The already tense relation between INIA and INCAGRO at Project design exacerbated with the Supreme Decree AG (June 20, 2008) which merged the INCAGRO Project Management Unit with the National Agricultural Innovation Institute (INIA) (see section 2.2.1) Government commitment and stakeholder involvement were adequate at the start. MEF and initially MINAG supported the Project, in spite of their differing views about how to institutionalize the INCAGRO model once the external financing would come to an end. The adequacy of producers and other stakeholders involvement, the soundness of participatory processes, the high level of transparency and the well selected co-financing arrangements clearly belong to the strengths of the project design Overall, the assessment of risks was adequate. But the risk rating of developing a parallel system as low underestimated the potential threats. The PAD identified three major risks: (i) the development of a parallel system of research and innovation by leaving the INCAGRO PMU outside MINAG and INIA (low); (ii) the weak capacity of the newly formed regional governments to participate effectively in the decentralized implementation of the Project (medium); and (iii) the weak procurement capacity (high). While those risks were well identified, the rating low for the development of a parallel system is surprising, especially given the lack of coordination and consultation between INIA and INCAGRO that was already apparent during Phase I; a higher risk rating would have been more realistic. Also, the potential impact of the proposed risk mitigation measures (policy dialogue of the Bank; Policy letter of the GOP; and sub-projects cofinanced by the FDSE) seems overrated. The risk assessment regarding the new decentralized regional governments was accurate. Here, more than the foreseen mitigation measures (inclusion and strengthening of the regional governments) the strategy of opening nine decentralized multi-region Project management units and conducting local priority setting forums for research and innovation was sufficient to operate effective and efficient funding rounds. 8

27 2.2 Implementation The expeditive merger of the INCAGRO Project Management Unit into INIA 9 in 2008 undermined the plans of sustainably separating the policy, financing and implementation functions in the field of agricultural innovation. The merger of the INCAGRO PMU into INIA was part of a broader process of restructuring undertaken by the GoP which aimed to simplify the administrative structure of MINAG and its affiliated agencies, i.e., to reduce complexity, duplication and resulting high transaction costs in the agricultural sector. While this might have been the right decision in the productive sector (e.g. several internationally funded projects promoting increased productivity in the Sierra region were merged into a single government entity AGRORURAL), it is questionable in the field of agricultural innovation with the merger of INCAGRO into INIA. This merger took place at the same time when INIA was being assigned the mandate of national regulating authority of the National Agricultural Innovation System (NAIS) 10. In practice, from 2008 onward, INIA was executing research sub-projects financed through INCAGRO competitive funds, while at the same time receiving the responsibility to develop competitive funds to promote research, capacity strengthening and technology transfer in agriculture, and to formulate the policy of agricultural innovation. To avoid this perceived conflict of interest, and to merge successfully two different visions and work cultures such as those of INIA and INCAGRO, would have required more in-depth preliminary consultations (e.g. between MEF, MINAG, INIA, INCAGRO, etc.) and conceptual debate, including on the future of INIA and how to consolidate the INCAGRO model A volatile political environment (four different Ministers and Vice-Ministers of MINAG in four years) affected Project implementation. Not only did the frequent changes in the administration make it difficult for the Project to enter into a political discussion on the NAIS (status, potential, vision) but it also made it very difficult to work out concrete strategies for the financial and institutional sustainability of the INCAGRO model at Project completion, as it was not clear to what extent the decisions taken under one administration (in particular the Legislative Decree 1060 creating the NAIS in 2008) were interpreted and supported in the same way by the following administrations The design and implementation of a sound and rigorous Competitive Funds management model that was the core of the Project proved to be crucial for the successful implementation of Phase II of INCAGRO. In hindsight, one might even argue that the conservative approach taken by the Project to concentrate most efforts on the expansion and fine-tuning of the Competitive Funds, while isolating them from external interference, safeguarded the development impacts of INCAGRO Phase II. The sound management model and principles of the Competitive Funds (design, evaluation, transparency) supported by the integrated and efficient M&E system, effectively inhibited external interference, even after the merger of INCAGRO into INIA. 9 Supreme Decree AG, June 20, Presidential Legislative Decree 1060 (June 28, 2008). 9