EN 61 EN ACTION FICHE FOR RWANDA 1. IDENTIFICATION

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1 ACTION FICHE FOR RWANDA 1. IDENTIFICATION Title/Number Total cost Aid method / Method of implementation Sector Budget Support for Agricultural Intensification Food/2009/21623 EU contribution: 15.6 million. Sector Policy Support Programme: Sector budget support (centralised management); DAC-code 311 Sector Agriculture 2. RATIONALE AND COUNTRY CONTEXT 2.1. Country context and rationale for SPSP Economic and social situation and poverty analysis Despite significant progress since the devastating 1994 genocide, Rwanda continues to be a very poor country where 52 percent of the households are food-insecure or vulnerable. The country has developed an ambitious Economic Development and Poverty Reduction Strategy (EDPRS) and is now in need of external aid to finance its related programmes. Within this context, Rwanda has been receiving budget support from the European Union since 2003 and has a well established track record in macroeconomic management, Public Financial Management reforms, and poverty reduction. Between 2004 and 2008, real Gross Domestic Product per capita increased by around 4% per year. However, according to the latest household survey, the proportion of the population living below the national poverty line only decreased from 60.4% in 2000 to 56.9% in 2006, and progress was concentrated in urban areas. Poverty is most extreme in rural areas where many families are forced to reduce their food intake between harvests. Whereas the social sectors have generally seen a significant improvement in outcomes, household survey data show persistent high rates of malnutrition. In 2005, 45% of under-five children were stunted, or chronically malnourished, which has severe long-term physical and cognitive effects on children (Source: DHS) and in 2008, 48% of under-five children and 27% of women aged tested positive for anaemia (Source: Interim DHS). High international oil and food prices have worsened this situation with the rise in prices of food grain prices around 22 percent cumulatively on average while the prices of legumes such as beans have increased by 60 and 75 percent, respectively, since In response to this inflation outlook, the Government of Rwanda (GoR) has adopted a twopronged approach (supported by the World Bank). Firstly, a crop intensification programme (CIP) has been put in place to boost domestic food production. Secondly, additional resources are allocated to one of the EDPRS flagship programmes, i.e. the Vision 2020 Umurenge Program (VUP). The VUP encompasses direct assistance and public works programs targeting the poorest and most vulnerable sections of the population. A scaling up of the VUP programme has been supported by an additional 4.44 million tranche of budget support under the existing 9 ACP RW 9 Budget Support for Poverty Reduction Programme, expected to be disbursed in the 2 nd quarter of 2009 and financed from the EDF10 B envelope. EN 61 EN

2 The sector budget support outlined in this action fiche will support the Government's roll out of the crop intensification programme to improve the food security situation of the country National development policy The Economic Development and Poverty Reduction Strategy (EDPRS), covering the period identifies four main priorities: (i) increase economic growth, (ii) reduce population growth, (iii) tackle extreme poverty, and (iv) ensure greater efficiency in poverty reduction. Implementation of the EDPRS will be monitored through an annual EDPRS Progress Report synthesised in the EDPRS results and policy matrix, from which a smaller Common Performance Assessment Framework (CPAF) matrix has been extracted. The responsibility of monitoring overall progress in EDPRS implementation lies with the Development Planning Unit in the Ministry of Finance and Economic Planning, supported by the National Institute of Statistics to assure the quality of reported information. The EDPRS is fully owned by the Governemnt of Rwanda. As explained below, MINAGRI elaborated a new sector strategic plan fully in line with the EDPRS Sector context: policies and challenges Sector context - The agricultural sector in Rwanda - which contributes close to 40 percent to national GDP and employs 80 percent of the labour force - has been identified as the most important potential driver of pro-poor growth in the country. Among the sector s key constraints is the heavy dependence on rain fed agriculture and the continuing low use of improved inputs. Rwanda is a structurally food deficit country, whose 100,000 MT (cereal equivalent) of annual food imports are largely composed of highly-priced food grains. As a land-locked country, Rwanda is particularly vulnerable to ongoing developments in global commodity markets since increases in food import prices are compounded by increases in fuel and transport costs. A National Agricultural Policy was developed in 2004 and translated into an operational plan through the Strategic Plan for Agricultural Transformation (SPAT) The SPAT was elaborated following an extensive grassroots consultation process and sound thematic sub-sector analyses. The Rwanda Agricultural Policy Note (World Bank, 2007) assessed the SPAT as providing an adequate framework for agricultural development for growth and poverty reduction. A second SPAT was elaborated in the course of 2008 and is currently in the process of being approved by the Cabinet. The key points of the SPAT are the intensification of input use, improved management of soil and water resources, and farmer training. The SPAT II is to be implemented both at the national and decentralized levels. In the short run, immediate measures are needed to maintain and increase current levels of domestic food production so as to protect consumers from the rapidly rising cost of imported foods. The proposed budget support programme aims to support the Government s efforts to roll out the Crop Intensification Programme as an implementation mechanism of the broader SPAT II. Sector budget and its medium term financial perspectives - The share of the overall government budget allocated to the agricultural sector has hovered around 6% in recent years, though according to the 2009 Finance Law it is expected to increase 7% in FY 20011/12, in line with the EDPRS. The 2009 Finance Law projects an overall envelope for the agricultural sector of around 370 million for the period , whereas the SPAT II identifies an indicative financing need of around 475 million. There is strong capacity of MINAGRI to design, implement and monitor agricultural policy through the budget process at the central level. EN 62 EN

3 Coordination process with the beneficiary country and other donors - The most relevant working group for the programme under consideration is the Agriculture Sector Working Group (ASWG), which is chaired by the Ministry of Agriculture and co-chaired by the World Bank. The ASWG meets on average every month, and brings together all relevant stakeholders. Regular donor coordination meetings are held in preparation for the ASWG meetings. In addition to the sector working group, MINAGRI holds regular meetings with the district agronomists. Since the signature of the agriculture SWAP MoU in November 2008 by all major donors (WB, IFAD, DFID, ADB, Belgium, NL, and EU), it is expected that donor coordination will be further strengthened. The SWAP is clearly centred on implementing the SPAT II. Institutional capacity - In recent years, important changes have taken place in the institutional set up of Rwanda s agricultural sector. The Ministry of Agriculture and Livestock has been converted into a policy and coordination body, and the direct services to farmers have been placed in six service organisations. In early 2009, it was decided that as of July 2009, three of these service organisations will be grouped under the Rwanda Agriculture Board (ISAR, RADA & RARDA) which will harmonise research and provide extension services, while the other three will be grouped under the Rwanda Agriculture Marketing & Export Development Board (OCIR The, OCIR Cafe & RHODA), to be responsible to promote and market agricultural produce. The mandate of the service units has changed as well. They are now charged with responding to the demand for specialised services at the level of farmers, farmer organisations and local governments, rather than deciding in advance which services are needed and going to the field to offer them. MINAGRI is now more focused on coordinating planning and implementation of programmes and projects with local governments, in the anticipation that over the longer run this will result in strengthened implementation capacity, project designs that are more responsive to farmer priorities and projects that are more sustainable. According to the SWAp MoU, MINAGRI has committed itself to creating a SWAP oversight structure. The SWAp Secretariat will be integrated into the Ministry s existing planning unit (PPPU), as a sub-unit, where it will be coordinated and supervised by the Director of Planning. It will work closely with both new Boards through the reporting structures already in place in MINAGRI (particularly those between PPPU and the implementing agencies, projects and boards). Performance monitoring - The agricultural sector has in place a clear framework for performance measurement. The budget nomenclature is neatly aligned with the strategies outlined in the SPAT II, and performance indicators have been identified for all budget programmes and sub-programmes. Together, these present a clear picture of how expenditures in the agricultural sector ought to contribute to improve agricultural outcomes. The SPAT II envisages strengthening the framework further by establishing coordination mechanisms for defining sector policies and funding sources, based on the SWAp mechanism, and putting in place systems for monitoring implementation of projects and programmes and obtaining feedback on them from stakeholders. The SWAp process in particular should boost the Joint Sector Review process, as signatories to the SWAp have agreed to use the Joint Agriculture Sector Review as the sole review mechanism to monitor performance in the sector. CPAF 35 indicators have been recently adopted by the Agriculture Sector Working Group and will be taken as a basis for performance monitoring. Occasional Public Expenditure Reviews should feed the dialogue during these reviews. 35 CPAF: Common Performace Assesment Framework. EN 63 EN

4 Macroeconomic framework - Rwanda has established a track record of sound macroeconomic management through a series of successful reviews under the IMF s Poverty Reduction and Growth Facility. However, inflation, kept at single digit levels since 2002, shot up to over 20% in the course of 2008, with food price inflation even reaching 30%. Public Financial Management - Rwanda completed a Public Expenditure & Financial Accountability (PEFA) assessment in 2008, which observed that the PFM reform achievements over the last decade in Rwanda have been wide ranging and impressive given the circumstances, resources and capacities of the country during this period and the nature and extent of the reform challenges facing the Government. Following the PEFA assessment, the Government of Rwanda finalised a new PFM Strategy in September Eligibility for budget support As described in section 2.2, all the budget support eligibility criteria have been met. Rwanda has in place (i) a well defined sector policy, (ii) a stability oriented macroeconomic policy, and (iii) a credible and relevant programme to improve the management of public finances Lessons learnt A number of lessons have been learnt in the course of implementing the SPAT I. Most importantly, product quality, as well as quantity, will have to increase if Rwanda s products are to compete on the international market. The inability to penetrate markets for higher-value products would otherwise become a constraint on future growth. Thus, soil erosion need to be curtailed, and experience has shown that this means not only building structures, such as terraces, but also investing in soil restoration activities. Increasing the use of fertilizer is an option to do it. However, an important lesson learnt is that this is not only a supply-side challenge, but also one of generating demand and creating sustainable distribution channels. While extension and research is one way of encouraging them, past experience has shown that extension and research needs to be demand-driven and rural credit needs, which will arise out of the above, need to be met with sustainable, private financial mechanisms Complementary actions This sector budget support is supporting the GoR's fertilizer auction and private sector promotion programs under the Government s Crop Intensification Programme (CIP). A number of initiatives to the CIP are widely seen as complementing the longer term sector activities including the Government s Fertilizer Strategy (Netherlands), the development of agricultural marketing systems (AfDB, USAID, Belgium, Holland), the seed systems (FAO, Belgium, IFAD), the rural infrastructure programs (World Bank, IFAD, AfDB), and the rural finance programs (DFID, World Bank). All of these initiatives aimed to achieve the Government s overall strategic objective for the sector and for the economy: namely, improving the productivity of Rwanda s agricultural sector. This objective is strategic not only for the sector, but forms part of the country s poverty reduction strategy due to the enormous importance of the agricultural sector in the Rwandan economy. It is expected that a parallel sector budget support programme will support GoR's actions at the decentralised level. This programme will be financed by the European Union with EDF resources and will start at the end of An amount of 20 million has been committed in order to improve agricultural outcomes at district level, while also targeting increased public financial management capacities in Districts to ensure proper use of funds and value for money. This support is clearly oriented towards the development of activities which are on the responsibility of the districts (accompaniment of the local development plans) whereas the present support focuses on the national policies for the supply and the distribution of agricultural inputs (fertilizers and seeds) and the implementation of efficent extension EN 64 EN

5 systems. Moreover, it is expected that the European Union will provide further support through the Global Climate Change Alliance Donor Coordination In addition to the Agriculture Sector Working Group which brings together all relevant stakeholders, a Budget Support Harmonisation Group serves as a forum under the Partnership Framework to discuss broad issues relevant to the efficient and effective functioning of general budget support programmes. The BSHG - in the context of which overall Joint Budget Support Reviews are organised on a bi-annual basis - creates a common understanding of achievements and performance challenges for all budget support's partners and provide a forum for open discussions. 3. DESCRIPTION 3.1. Objectives This proposed additional tranche of budget support would support the Government of Rwanda in its medium-term response to the food crisis to ensure the availability of fertilizers and support the sustainable distribution and use of fertilizer by smallholder food farmers. The global objective is to increase food production in the country Expected results and main activities Within the broader context of the SPAT II, the Crop Intensification Programme targets two main results: intensification and integration of crops and livestock and the use of appropriate agricultural technologies and practices. Envisaged activities of the CIP include: Targeted interventions for a series of food crops (maize, rice, irish potatoes, wheat, soyabeans, cassava, bananas) comprising, among others, importation of fertilizers and improved seeds, strenghtening of research, and strengthening of the extension system; On-farm training of farmer s representatives from various regions of the country; Development of agricultural educational programs for rural provincial radios, the national television and publications in local journals and newspapers. The main activities targeted by this action are the fertilizer's supplies and the improvement of their use by educational program and extension system. These targets are reflected, in particular, in the CPAF indicators (increased production of key food security crops, increased imported fertilizers, and improved farm households to extension ratio) recently adopted by the Agricultural Sector Working Group to monitor progress in the agriculture sector Risks and assumptions A whole array of risks and challenges has been identified in the SPAT II which may constrain the move to more efficient, higher-value production systems. 36 It is assumed that these will be 36 Fragmentation of small farms into ever-smaller plots; low rural income levels which make farmers reluctant to shift away from subsistence crops and known techniques of production, out of concern about food security for their families; low levels of market integration in most farming areas; low rates of use of inorganic fertilizers, owing mainly to lack of purchasing power on the part of most farmers but also due to other factors such as lack of sufficient awareness of fertilizers' benefits, lack of proper EN 65 EN

6 monitored as part of the SPAT II implementation process and corrective actions designed wherever needed. Specifically related to the crop intensification programme, one of the key challenges arising from Rwanda s first successful experience with the auction and private sector distribution system for fertilizers has been getting the required extension support to farmers. In particular, education on the profitability of fertilizer use, and on its proper usage, requires a scaling up of effort. The initial scaling-up happened with private extension agents, in line with the country s commitment to downscale Government extension services. But scaling up the extension assistance further will require (i) financing to contract private extentionists and (ii) public good-type capacity building for private extentionists. It is assumed that the Government of Rwanda is able to address these constraints to the speedy and effective increase in fertilizer use. A considerable increase in fertilizer use is expected with the current drive to increase agricultural productivity. 37 However, few Rwandan farmers have experience using chemical fertilizers. Hence, there is a real danger of fertilizer over-application. Increased fertilizer usage could result in heavy run-off, polluting streams and groundwater which requires rigorous environmental assessment and monitoring. Clear guidance from MINAGRI is needed on crop-specific use of fertilizers. Extension services should prioritise training to farmers, emphasising fertilizer use as part of integrated conservation agriculture Stakeholders The main stakeholders are the Ministry of Agriculture, the various implementing agencies, and rural farmers. The principal forum for dialogue, consultation, monitoring and evaluation for stakeholders is the Agriculture Sector Working Group, which is composed of MINAGRI, relevant Government Ministries and entities, development partners, Civil Society Groups and the Private Sector working in the agricultural sector. The sector working group meets on a monthly basis for consultations as well as once a year for the more comprehensive joint sector review. Direct beneficiaries will be resource-limited farmers. The production increase should allow them to improve their living conditions. The rest of the population should have a better access to local products Crosscutting Issues Environmental sustainability was one of the guiding principles in the elaboration of the SPAT II, mindful of the fact that sustainable management of land and water is a requirement for sustained intensification of agricultural activities particularly in light of the degradation of soils. Specific actions have been identified in the strategy directed toward the recovery and recuperation of the degraded resource base, so that it can support more highly productive activities in the future. Rwanda has in place a sound legal framework for environmental protection, spearheaded by the Rwanda Environmental Management Authority. This includes 37 development of the distribution system, lack of availability of the most appropriate fertilizers mixes, lack of timeliness in placing orders for fertilizers purchase; low rates of use of improved seeds because of still-inadequate production levels and a weakly developed seed distribution system; inadequate relation between research and extension services leading to poor technology transfer to farmers; difficulties in accessing loans for input purchase, for the majority of farmers; insufficient training in product quality and post-harvest handling, and insufficient infrastructure for post-harvest handling and marketing. In May 2008, the World Bank announced that it would lift its moratorium on subsidies for fertilizer imports, as part of a larger global initiative to support food production. This decision enabled the Rwandan Government to subsidise fertilizer imports, thus making them affordable and readily accessible to farmers. EN 66 EN

7 that all projects must undertake an environmental impact assessment. 38 The WB recently launched terms of reference for an environmental impact assessment of a proposed USD 200 million land husbandry, water harvesting and hillside irrigation project, which covers a vast array of agricultural interventions. In terms of gender equality, heavy burdens continue to be placed on women, who are responsible for the majority of food crop production. Furthermore, certain activities, such as manuring and managing livestock are also mainly done by women and boys. In this context, it is expected that this sector budget support programme will make a positive contribution towards gender equality. 4. IMPLEMENTATION ISSUES 4.1. Method of implementation This Sector Policy Support Programme is using a direct centralised management Procurement and grant award procedures The standard public financial management provisions of the Government of Rwanda are applicable. All contracts for the evaluations must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Union for the implementation of external operations, in force at the time of the launch of the procedure in question. Participation in the award of contracts for the present action shall be open to all natural and legal persons covered by the DCI Regulation. Further extensions of this participation to other natural or legal persons by the concerned authorising officer shall be subject to the conditions provided for in articles 31(7) and (8) DCI Budget and calendar The duration of the project will be 22 months. The total budget is composed of two fixed tranches of 7.8 and 7.7 million respectively, with 0.1 million set aside for evaluations. The disbursement profile is summarised in Table 1. Table 1 EU SBS disbursement profile (in million) 2010 Q Q Total Sector Budget Support for Crop Intensification programme Evaluations Total Performance monitoring and criteria for disbursement The general conditions for the disbursement of all tranches are linked to a set of general eligibility conditions, including (1) satisfactory progress in the implementation of the sector policy including appropriate funding by the GoR, (2) satisfactory progress in the 38 Article 67 of the Organic Law N 04/2005 of 08/04/2005 determining the modalities of protection, conservation and promotion of the environment in Rwanda. EN 67 EN

8 implementation of the programme to improve public financial management, and (3) satisfactory progress in the maintenance of a stability oriented macro-economic policy. There are no specific conditions linked to the individual disbursements Evaluation and audit No specific audit is foreseen as the expenditures will be audited as part of the normal mandate of the Rwanda Office of the Auditor General (OAG). If deemed appropriate, the programme could be subjected to an evaluation in order to measure the impact on the expected results Communication and visibility The sector budget support for agriculture intensification will be summarised on the Rwanda Delegation website. Visibility of the EU funding will be promoted through a signing ceremony for the financing agreement and press communiqués for the annual sector budget support disbursements. Moreover, in case of final evaluation, the contract will include the requirement to prepare appropriate dissemination material to promote visibility of the support the EU is providing to the agricultural sector and the impact this support is having. This action will also be publicised through the annual visibility programmes for EU cooperation activities for Rwanda. EN 68 EN