Mozambique ProIrri Sustainable Irrigation Development Project Region. 1. Key Development Issues and Rationale for Bank Involvement

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1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No. AB4683 : Project Name Mozambique ProIrri Sustainable Irrigation Development Project Region AFRICA Sector Irrigation and drainage (50%); Crops (30%); Agro-industry (20%) Project ID P Borrower(s) REPUBLIC OF MOZAMBIQUE Implementing Agency MINISTRY OF AGRICULTURE - MINAG Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared March 29, 2009 Estimated Date of Sept.15, 2009 Appraisal Authorization Estimated Date of Board Dec.15, 2009 Approval 1. Key Development Issues and Rationale for Bank Involvement Agriculture is central to Mozambique s development but its potential as an engine of growth and driver for poverty reduction will remain largely untapped if agricultural productivity is not significantly increased. The sector features some of the lowest cereal yields in southern Africa, and average annual growth in irrigated land is around 1% ( ), against 15% in Zambia or 9% in Malawi (WDR, 2008). The absence of a significant increase in the use or adoption of productivity enhancing agricultural technologies (incl. irrigation, improved plant varieties, fertilizer, higher mechanization), coupled with an inadequate provision of agricultural services, are keeping the bulk of rural households in a subsistence mode, making it increasingly difficult for the sector to maintain the levels of growth experienced in past years (7.4% annual average growth, ), which resulted primarily from increase in labor force and area expansion not productivity increase. Agriculture development in general and the irrigation subsector in particular feature prominently in the Government s growth and poverty reduction strategy. Agriculture contributes to 24% of GDP growth ( ) and is central to the country s development strategy as formulated in the second Action Plan for the Reduction of Poverty (PARPA-II, the country s PRSP). For this priority sector it aims at: (i) increasing access to technologies, extension information, and selected agricultural inputs; (ii) promoting the construction and rehabilitation of agricultural infrastructure, especially irrigation schemes; (iii) improving access to information and input/output markets; (iv) promoting the private sector, especially in export markets; and (v) improving community access to natural resources in a equitable manner for sustainable use and management. The proposed operation is directly aligned with PARPA-II and is designed to contribute to the PARPA-II target of rehabilitating irrigation schemes (about 3,000 ha/yr) managed by smallholders.

2 Furthermore, in June 2008, the Government approved the Food Production Action Plan (PAPA), de facto the implementation agenda of the country s 2007 Green Revolution Strategy. The PAPA, costed at almost USD600 million, is the Government s supply response to the country s exposure to the food and fuel price crises. The PAPA seeks to substantially increase production of all key commodities within the next three years ( ) to reduce dependency on food imports. Production increase is to be achieved through productivity enhancement and area expansion. The proposed operation will directly contribute towards the year 2 and 3 PAPA targets: 4,000 ha of new or rehabilitated irrigated area per annum for rice and horticulture respectively. Overall, the performance of the irrigation subsector in Mozambique has remained well below expectations from Donors and GoM, although recent initiatives look more promising. Many of the country s large and medium-sized irrigation schemes date from the colonial times and the support to irrigation development since independence in 1975 has been inconsistent and variable. Surface and overhead irrigation account for over 90% of the technology used. Rice accounts for only 10% of the irrigated crop, against almost 60% for sugar cane (increasingly for ethanol production). More importantly, only one-third of the acreage of irrigation schemes is actually used for irrigated production (see Table in Annex). This is essentially due to: (i) the lack of attention given to management and funding for O&M of irrigation assests, leading to their degradation often beyond repair, and (ii) to some extent to poor enforcement of and inefficiencies in the land law, conducive of land under-use and speculation. The sector requires a clear strategic vision endorsed by the GoM and the regulatory framework on water for agriculture needs updating, particularly with respect to water users assocations (WUA) as well as to institutional mandates on water for agriculture. In the field, sustainable water management and O&M of the irrigation schemes remain key challenges to sustainable irrigated agriculture; the involvement of WUA or the outsourcing to professional water management service providers is not common. Lessons from attempts to develop irrigation, in particular profitable smallholder irrigated agriculture, have to be drawn from the sub-regional experience, and from the more recent experience by AfDB (small-scale irrigation, large irrigation infrastructure), EU (outgrowers schemes), and the Italian Cooperation (small-scale irrigation) financed projects in Mozambique. Main lessons learned that are relevant for the proposed operation indicate that: (i) supply driven irrigation schemes have not met expectations, maintenance has been insufficient while subsistence farming has continued in the absence of support services and market access; (ii) smallholders need to be linked to markets and integrated into competitive supply and value chains; (iii) there can be significant convergence of interests between irrigation smallholders, agribusiness, and large scale commercial farmers; and (iv) smallholder irrigation schemes require supplementary public investments to be successful, such as land demarcation, rural access roads and electrification. The preparation for and implementation of this operation will also greatly benefit from the Irrigation module of the WB-led on-going Public Eexpenditure Review for agriculture. The proposed operation is included in the WB Country Partnership Strategy (the CAS) under Pillar III Sustainable and broad based growth. It will directly contribute to Outcome 14 Increased access to technologies and extension information and Outcome 17 Improved

3 sustainable management of water resources, under Result Area #5 Strengthened economic growth potential. Recent analytical work carried out by the WB and other donors provides timely knowledge and information. The on-going EU-led Irrigation Public Expenditure Review will provide an update on unit costs for key irrigation investments. The recent WB work on outgrowers schemes will provide guidance on smallholders integration in the value chain. The studies on the rice value chain (Government of Italy), as well as the MINAG-led comprehensive work on horticulture will also be key sources of data and information on specific value chains. There are at least three reasons why the WB should support the irrigation subsector with this operation. First, the proposed project will contribute to Mozambique s food security and will reduce its vulnerability to external shocks, notably those related to climate change and rising food prices, by increasing agricultural production and productivity, and by reducing the impact of increasingly erratic rainfall on agricultural production. In doing so, it directly contributes to the PARPA-II, the PAPA, and the PROAGRI objectives. Second, through this operation the WB, in collaboration with other development partners, can play a significant role in the dialogue with GoM on the need for sector policies and institutional arrangements conducive of irrigation-led agricultural growth, some of which are addressed in the proposed National Irrigation Program 1. This project would provide a platform for the WB to seek a more harmonized approach in irrigation among development partners, whereby advocating irrigation investments driven by where the market and not where the water is. Third, addressing irrigated agriculture and rural development requires holistic solutions which go beyond the agricultural sector domain. Thus, the proposed operation presents a unique opportunity to benefit from synergies from on-going or planned investments in other sectors (e.g. Pungoe Basin Development, Cena railway line, fertilizer facilities in Beira, modernization of Beira port), thereby contributing to smallholders inclusion in the development of the Beira corridor. 2. Proposed Objective(s) The PDO is to increase the irrigated area in the targeted Provinces and to enhance agricultural productivity on smallholder farms for selected food and high-value crops. It is expected that by further developing irrigation, the project will also contribute to increased farm production and higher household income. The proposed operation targets primarily smallholder producer organizations in Sofala and Manica provinces as well as around the city of Maputo. After the close of the project, it is expected that through the development of sustainable irrigation, beneficiaries will have integrated into selected value chains by supplying agricultural commodities in larger quantities and of better quality, resulting in higher household income and improved food security. Thus, if the project is successful, agricultural production would have increased through enhanced agricultural and water productivity, and beneficiaries income would have risen through better market access. 1 For example, adoption of a national programme for the development of irrigation, creation of a dedicated irrigation program unit within MINAG and development of institutional capacity for planning and implementation coordination of irrigation activities at the district level.

4 3. Preliminary Description The lending instrument proposed for this investment operation is a SIL (IDA: US$ 50 million). The proposed operation s lifetime would coincide with phase 1 and 2 of the NIP (Pre- Program, Institutional Transformation and Pilot Implementation). The Bank recognizes the priority the GoM gives to the irrigation subsector as demonstrated in the various country and sector strategies and action plans (PAPA, PARPA-II, agriculture strategy PEDSA, draft NIP). This provides the Bank with a unique opportunity to respond to the Mozambique s needs with a longer term commitment to support the GoM in the irrigation subsector. The proposed investment operation should also serve as a vehicle for engaging the GoM in a policy and institutional reform dialogue on irrigation as proposed in the NIP, with a view to enabling the GoM s official adoption or further amendment of the NIP and the national irrigation proposal currently on the table. While a clear response from the GoM is pending, a SIL would be the prefered option rather than a horizontal DPL. However, a follow-up SIL operation should be programmed subject to favorable mid-term review results. Also, the Bank recommends that further policy and institutional bottlenecks that emerge in the dialogue with the GoM around the proposed operation be taken up in the subsequent series of PRSCs. Implementation arrangements: The proposed operation will be under the direct responsibility of MINAG. This will require implementation support by the Bank throughout the preparation phase and at least for the first year of implementation given that this ministry has not implemented a Bank co-financed project for over a decade. The Bank has agreed with MINAG to a project structure that includes externally recruited specialists. These specialists will form the core of the PIU integrated in MINAG/DNSA alongside technical sector staff from the ministry. These arrangements will be reviewed and evaluated jointly at the end of the preparation phase to assess its viability for the implementation phase. Given MINAG s human resources endowment, the team will explore outsourcing of the implementation of one or more (sub) components to a third party (service provider). Like all new Bank-financed operations in Mozambique, the proposed project will be on-cut (single treasury account), i.e., fully integrated into the national accounting and financial management system. 4. Safeguard Policies that might apply The project is classified as a Category B for environmental screening. Safeguard policies triggered and handling will be as follows (see ISDS for more information): W B S P Y TBD N H E A OP BP X ESMF SESA N H OP BP X F OP BP X P M OP X PMP P C R OP BP X ESMF I P OP BP X I R OP BP X RPF S D OP BP X G D S M P I W OP BP X R N P D A OP BP X

5 5. Tentative Financing Source: ($m.) BORROWER/RECIPIENT 10 International Development Association (IDA) 50 Beneficiaries 5 Total Contact Point Contact: Patrick Verissimo Title: Senior Sector Economist Tel: Fax: pverissimo@worldbank.org