INDONESIA JANUARY 30, 1996

Transcription

1 Public Disclosure Authorized Document of The World Bank Report No IND Public Disclosure Authorized STAFF APPRAISAL REPORT INDONESIA Public Disclosure Authorized NUSA TENGGAR AGRICULTURAL AREA DEVELOPMENT PROJECT JANUARY 30, 1996 Public Disclosure Authorized Agriculture Operations Division Country Department III East Asia and Pacific Region

2 CURRENCY (As of September 1995) Currency Unit = Rupiah (Rp) US$1.00 = Rp2,246 Rp 1,000 = US$0.445 Rp I million = USS WEIGHTS AND MEASURES The metric system is used throughout the report INDONESIAN FISCAL YEAR April 1 - March 31 ABBREVIATIONS AARD - Agency for Agricultural Research and Development AEZ - Agro-ecological Zone AIAT - Assessment Institute for Agricultural Technology APBD - Annual local government development budget APBN - Annual central government development budget ARM II - Second Agricultural Research Management Project BANGDA - Directorate General of Regional Development (in MoHA) BAPPEDA - Provincial Development Planning Agency BAPPENAS - National Development Planning Agency CARE - Cooperative for Assistance and Relief Everywhere, Inc. CARP - Center for Agricultural Research Program CASER - Center for Agricultural Socio-Economic Research CGC - Central Guidance Committee Dinas - Provincial and kabupaten government agencies DIP - Development Budget Allocation GRDP - Gross Regional Domestic Product ICR - Implementation Completion Report IDT - Inpres Desa Tertinggal (Program for villages left behind) Kabupaten - District Kecamatan - Sub-district LCO - Local Community Organization LKMD - Village council (Lembaga Ketahanan Masyarakat Desa) M&E - Monitoring and Evaluation MoHA - Ministry of Home Affairs NAIAT - Naibonat Assessment Institute for Agricultural Technology NCB - National Competitive Bidding NTASP - Nusa Tenggara Agricultural Support Project NTB - Nusa Tenggara Barat (West Nusa Tenggara) NTT - Nusa Tenggara Timur (East Nusa Tenggara) OED - Operations Evaluation Department (World Bank) PCC - Provincial Coordination Committee PID - Village Irrigation Program PIMBAGPRO - Sub-project Manager PIMPRO - Project Manager PIU - Project Implementation Unit PMU - Project Management Unit Poskeswan - Animal Health Center PPL - Field Extension Worker PPS - Provincial Project Secretariat R&D - Research and Development REC - Rural Extension Center REPELITA VI - Sixth Five-Year Development Plan UDKP - Development Working Unit (Unit Daerah Kerja Pembangunan)

3 -i- INDONESIA NUSA TENGGARA AGRICULTURAL AREA DEVELOPMENT PROJECT LOAN AND PROJECr SUMMARY Borrower : The Republic of Indonesia Implementing Agencies : Ministries of Home Affairs and Agriculture, and the local governments in the two participating provinces: Nusa Tenggara Barat and Nusa Tenggara Timur Beneficiaries Poverty About 75,000 rural households and the local governments in the two provinces. The project is part of a wider effort by Government to improve the standards of living im the country's eastern islands, raise smallholder incomes, strengthen local level institutions, and foster broad-based participation at the grassroots level. The targeted beneficiaries in the two provinces are among the poorest in the country. Amount : US$27.0 million equivalent Terms : Standard variable interest rate for a term of 20 years, including five years of grace. Commitment Fee : 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver. Financing Plan : See table on page 23 Economic Rate of Return : 17 percent on agriculture-based area development and strengthening of agricultural support services (about 85 percent of project cost) Map : No. IBRD Project ID Number : ID-PA-4008

4 INDONESIA NUSA TENGGARA AGRICULTURAL AREA DEVELOPMENT PROJECT TABLE OF CONTENTs Page No. LOAN AND PROJECT SUMMARY... i 1 PROJECT AND SECTOR BACKGROUND Introduction... 1 Macroeconomic Background... 2 The Agricultural Sector... 3 Constraints to Agricultural Area Development... 4 Prospects for Development BANK INVOLVEMENT AND LESSONS LEARNED.. 9 Bank Experience and Lessons Learned... 9 Government Strategy Bank Strategy and Rationale for Bank Involvement THE PROJECT Project Objectives Project Areas Project Scope Detailed Project Features Component A: Establishment of the Naibonat Assessment Institute for Agricultural Technology Component B: Agriculture-Based Area Development Component C: Strengthening Agricultural Support Services and Project Administration Status of Preparation and Implementation Schedule This report is based on the findings of a mission comprised of Mimes. Chita Jarvis and Salenna Prince and Messrs. Wiranto Soehendro and Hendrik van Voorthuizen which appraised the proposed project in June Mr. Fran,ois Le Gall assisted the mission with the appraisal of the livestock component. The peer reviewers were Messrs. A. Brizzi (natural resource management and agricultural services), C. de Haan (livestock development) and C. Maguire (agricultural production). Ms. M. Haug, Director, EA3DR, and Mr. G. Feder, Chief, EA3AG, have endorsed the project.

5 Page No. 4 PROJECT COSTS AND F INANC... ING 22 Project Costs Financing Plan Financing of Proposed Development Activities Procurement Disbursements Accounts and Audits ORGANIZATION, IMPLEMENTATION AND MONITORING Organizational Structure Implementation Arrangements Budget Procedures M onitoring and Evaluation Bank Supervision PROJECT BENEFITS, AGRICULTURAL PRODUCTION, MARKETING AND FARM INCOMES Project Benefits Agricultural Production Marketing Farm Incomes ECONOMIC JUSTIFICATION, ENVIRONMENTAL IMPACT ASSESSMENT AND RISKS Project Alternatives Fiscal Implications and Cost Recovery Poverty Impact Economic Analysis Environmental Impact Assessment Gender Aspects Project Risks AGREEMENTS REACHED AND RECOMMENDATION Assurances Recommendation Tables in the Main Text Table 4.1 Project Cost Summary Table 4.2 Project Financing Plan Table 4.3 Procurement Arrangements Table 5.1 Project Components, Targets, Beneficiaries and Success Indicators Table 6.1 Summnary Farm Budgets

6 -lv - Page No. ANNEXES Annex 1: Naibonat Assessment Institute for Agricultural Technology Attachment 1. Functions of the AIAT Committees Annex 2: Implementation of Agricultural Area Development Table 1: Agricultural Production Estimates Table 2: Irrigated Farm Budget Table 3: Dryland Farm Budget Table 4: House Plot Budget Table 5: Herd Projections Table 6: Incremental Cattle Sales Annex 3: Technical Assistance Requirements Annex 4: Project Cost Table 1: Summary of Project Cost by Component and Subcomponent Table 101: Training, Technical Assistance and Research for AIAT Table 102: AIAT Facilities and Technology Transfer - NTB Table 103: AIAT Facilities and Technology Transfer - NTT Table 201: Area Development - NTB Table 202: Area Development - NTT Table 301: Project Administration and Support Services Strengthening - National Level Table 302: Project Administration and Support Services Strengthening - NTB 102 Table 303: Project Administration and Support Services Strengthening - NTT 103 Annex 5: Project Financing and Disbursements Table 1: Expenditure Accounts by Financiers Table 2: Proposed Allocation of Loan Table 3: Estimated Disbursement Schedule Annex 6: Economic Analysis Table 1: Financial and Economic Prices Table 2: Economic Costs and Benefits Annex 7: Implementation and Supervision Table 1: Implementation Schedule - AIAT Table 2: Implementation Schedule - Area Development Table 3: Implementation Schedule - Project Administration and Support Services Strengthening Table 4: Project Supervision Plan

7 Page No. ANNEXES Annex 8: Input Supply and Marketing System: Institutional and Policy Aspects Annex 9: Selected Documents in the Project File Chart 1: Proposed Project Organization Map: IBRD 27202

8 PROJECT AND SECTOR BACKGROUND Introduction 1.1 Land and Population. The two provinces of West Nusa Tenggara (NTB) and East Nusa Tenggara (NTT) cover a land area of about 68,000 sq.km, spanning the double chain of islands extending eastward from Bali: on the north, Lombok, Sumbawa, Flores and Alor and on the south, Sumba and Timor. According to the 1990 Census, the total population of NTB was 3.4 million and NTT 3.3 million, unevenly distributed among the islands. Lombok with 500 inhabitants/sq.km has the highest population density approximating Java, while East Sumba only has about 22 persons/sq.km. The population of both provinces expanded in the 1980s: NTT 1.8 percent and NTB 2.15 percent per year, compared to the national average growth rate of 2.0 percent per year during the period. However, analysis of migration data indicate that NTT and NTB have recently been losing population through out-migration. The population is predominantly rural: 83 percent in NTB and 89 percent in NTT. There is a high level of cultural diversity among the inhabitants of Nusa Tenggara. In NTB the major ethnic and language groups are the Sasaks of Lombok and the people of Sumbawa who lived under the Sultanates of Sumbawa and Bima/Dompu with minority settlers from South Sulawesi, Buton and Bali. In NTT, the main ethnic groups are the Timorese, descendants of several kingdoms on the islands of Sumba and Flores, and the ethnic groups of the smaller islands, including Roti and Savu. Geographical and ethnic fragmentation has tended to evolve different agricultural technologies, suited to the ecological niches which they inhabit. Political traditions also are fragmented, with some areas having a feudal system (Lombok and Timor), others having absolute monarchies and slaveholding (Sumba), while others have a more democratic clan or tribal organization whose nobility is to be "first among equals" (Flores). 1.2 Nusa Tenggara is Poor. Among the twenty-seven provinces in Indonesia, NTT has the lowest GRDP per capita (about Rp 400,000 p.a.) while NTB (Rp 450,000 p.a.) ranks third from the lowest. The percentages of inhabitants below the poverty line are 23 percent for NTB and 24 percent for NTT placing both provinces significantly poorer than the national average of 15 percent. In NTB some 63 percent of the population had monthly levels of expenditures below Rp 20,000 and in NTT - 69 percent of the population. The national average is 45 percent. Other welfare indicators show that: (a) (b) NTB has the lowest life expectancy of all provinces of Indonesia while NTT also is below the national average; infant mortality rate per 1,000 live births in NTB of 145 is the highest in the country, compared with 77 in NTT and the national average of 71;

9 -2 - (c) (d) malnutrition rate is among the highest in Indonesia: the incidence of moderate and severe protein energy malnutrition (PEM) in the rural areas where most of the people live is about 16 percent; and illiteracy rates in the rural areas of 48 percent in NTB and 24 percent in NTT are significantly higher than in the urban areas and in Indonesia as a whole. Macroeconomic Background 1.3 GRDP Growth and Sectoral Distribution. Available data point to a widening gap in income and welfare indicators between Indonesia's eastern islands and the rest of the country, more especially Java.' GDP of both provinces has grown quite steadily over the last decade: 6.8 percent in NTB and 5.2 percent in NTT from 1983 to This compares to an average GDP growth rate of 6.6 percent for Indonesia and 7.4 percent for Java. Over the period , the structure of the regional economy has changed very little. Although its share in GRDP decreased slightly in the two provinces, agriculture remains the dominant sector in the two provinces contributing almost half of the regional output. This is more than double the 20 percent average contribution of agriculture to national GDP. In both provinces, agriculture was the major source of growth in the economy with 43 percent and 36 percent of GRDP in NTB and NTT, respectively. Other sectors with significant contributions to GRDP were trade hotel and restaurant-16 percent for both NTB and NTT, and government services-1o percent and 13 percent, respectively for NTB and NTT. Industry accounted for a relatively insignificant share of less than 3 percent of the regional economy in both provinces. The sectoral distribution of the labor force shows the agricultural sector still as the dominant sector employing 81 percent of the work force in NTT and 59 percent in NTB. Industry has contributed minimally to provincial employment, with an average of 9 percent in NTB and 7 percent in NTT. A striking characteristic of the labor force pattern in NTT is that only 14 percent is engaged in trade and services compared to 32 percent in NTB and 36 percent in the whole country. 1.4 Exports. Direct foreign exports from NTB and NTT in 1991 amounted to US$8.8 million and US$11.4 million, respectively. For NTB, fishery products comprised two-thirds of the exports, i.e., US$6.0 million worth of pearls, seaweed, shrimp and sea cucumber. Agricultural exports, primarily cashew and spices, amounted to US$1.7 million and pumice stones about US$1.1 million. NTT's primary exports were US$6.7 million worth of cocoa, cashew and vanilla, US$3.1 million of sandalwood, and US$1.4 million of pearls, tuna, and fish oil. Exports accounted for less than 2 percent of total GDP in the two provinces. Eastenm Islands Rural Sector Strategy Study, Yellow Cover Report, November 1994.

10 -3 - The Agricultural Sector 1.5 The 5.9 percent growth of the agricultural sector in NTB was almost double the national average of 3.1 percent, while NTT's agricultural growth rate of 3.5 percent still exceeded the national average. The food crop subsector made up the largest share of regional agricultural GDP: 66 percent in NTB and 57 percent in NTT. The second most important subsector was livestock, which accounted for 15 percent and 23 percent of agriculture GRDP of NTB and NTT, respectively. Fisheries, the only other significant subsector, contributed 11 and 9 percent to the agricultural economy in NTB and NTT, respectively. 1.6 The food crop subsector in NTB grew at a rate of 5.4 percent during , or more than double the rate of growth of 2.6 percent achieved by the subsector in NTT. The main food crop in NTB is paddy (240,000 ha), while in NTT maize is more widely planted (200,000 ha) and paddy is the second most commonly planted crop (180,000 ha). Production of legume food crops as cash crops (soybeans, mungbeans and peanuts), and also that of red onions and garlic, has been increasing in economic importance, especially in NTB. Harvesting of fruits from backyard gardens is common but in most areas not yet commercialized. 1.7 During the period 1984 to 1991 the livestock subsectors of NTB and NTT grew at an average annual rate of 5.4 percent and 3.6 percent, respectively. Economically, cattle are the most important large livestock in the region and ownership of cattle brings a high level of status among the rural people. Nusa Tenggara supplies slaughter cattle to Indonesia's urban centers and has also been a major source of breeding cattle for other provinces. Ownership of cattle is concentrated among the higher income rural households and extensive range management systems prevail in many areas. In NTT the cattle population has been stagnating in recent years due to increased off-take of breeding cows for development projects in other provinces, increased market demand for beef, and high levels of calf mortality during the first year. Goats and chickens are widely owned in both provinces. There now are some 250,000 goats in NTB and 450,000 in NTT. Several LCOs are operating schemes to further expand goat keeping among the poorer segments of the rural population. There are some 4.5 million chickens in each province. Chickens are raised in the home gardens of almost every rural household. A typical farm family owns approximately ten chickens which provide a significant portion of the family's annual protein. Chickens can be maintained with a minimum of inputs, but they are subject to Newcastle disease which periodically may cause death losses of up to 80 percent of the flock in a village. 1.8 The estate crops subsector is relatively small in Nusa Tenggara and almost entirely comprised of smallholder production. The subsector's contribution to agricultural GDRP was 8 percent in NTB in 1991 and 10 percent in NTT. Coconut is by far the most widely planted estate crop in both provinces (220,000 ha), followed by cashews (80,000 ha),

11 - 4 - coffee (55,000 ha) and cocoa (17,500 ha). Cocoa from NTT is the leading export commodity of the region (US$5.3 million in 1991) and cashew exports are now increasing in importance. 1.9 The fisheries subsector plays a significant role in the provincial economy of both provinces and in the nutrition of the coastal populations. In NTB, the fisheries subsector achieved an average annual growth rate of 9.2 percent during In NTT, the average annual growth rate reported during was 9.4 percent. Export of fishery products from both provinces was significant in 1991 with fishery exports from NTB reported as US$6.1 million and from NTT as US$1.4 million. Pearls were the leading fishery commodity exported from both provinces. Although at present the annual catch from the coastal zone appears to be significantly below sustainable yields, there are high rates of exploitation in the narrow coastal zone where fishing efforts are concentrated and fishing practices are environmentally destructive About 90 percent of farm families cultivate rice and/or secondary crops, and about 40 percent keep livestock. About 9 percent of households are dependent on the fisheries subsector. Net annual incomes are low, ranging from about Rp 300,000 for a 0.75 ha dryland farm to Rp 1.0 million per household for a 0.5 ha of village irrigated farm. Where feasible, farmers establish simple irrigation systems based on existing surface and groundwater (springs) resources. Relatively few farmers practice conservation farming and intensive husbandry techniques except in areas targeted by the Nusa Tenggara Agricultural Support Services Project (Loan 2638-IND) and other development projects implemented in the two provinces (see Chapter 2). Many farmers continue to practice shifting cultivation among several dryland plots in order to reduce production losses from declining soil fertility. Routine farm management operations such as pruning, fertilization and replanting with selected seedlings are not widely practiced as yet. Off-farm employment opportunities are limited. Constraints to Agricultural Area Development 1.11 Natural and Physical Factors. The most binding constraint to the development of Nusa Tenggara is environmental: limited arable land, poor soils, aridity, fragmentation, and remoteness. Only 20 percent and 16 percent of the land area in NTB and NTT, respectively, is cultivated, mainly through upland and shifting cultivation. NTT has the largest area of erosion prone land of all provinces in Indonesia with about 1.75 million ha while NTB has nearly 300,000 ha. Data on land use show the relatively large areas in both provinces that are under brush/scrubs, grasslands, shifting cultivation and upland agriculture. Forest cover is only 21 percent in NTT and 48 percent in NTB. Degradation of upland areas is a serious environmental concern. The soils of the northern arc of islands comprising Lombok, Sumbawa, Flores and Alor are mainly of volcanic origin and have acidic to slightly alkaline soils. The southern arc composed of Sumba, Sawu, Roti and Timor were mainly formned from uplifted marine floor or coralline islands with generally alkaline and occasionally sodic soils. Both volcanic and coralline soils are porous and

12 -5 - prone to drought during the dry season. In addition, the climate of Nusa Tenggara is harsh with some of the lowest rainfall amounts in the whole of Indonesia (as low as 500 mm in some coastal areas). The mountainous topography of the islands gives rise to a diversity of mnicrocimates which affects crop production. Reliable rainfall is restricted to the three months of December through February when over one-half of the annual precipitation occurs. But even during these three months distribution can be uneven. From the months of May to October, drought conditions frequently prevail which sometimes result in food shortages. Conservation practices in the dryland farming systems, through moisture retention during the dry season and erosion control during the rains, are of critical importance to arrest resource degradation in the uplands Technology. In general, levels of productivity in the agricultural sector of Nusa Tenggara are among the lowest in Indonesia. Almost all farmers rely on traditional technologies to cultivate food crops for food security. The farming systems are predominantly rainfed with extensive fallow periods due to the long dry seasons. Typical yields for major food and estate crops are below the national averages due to climatic disadvantages and also the absence of technology best suited to the conditions of the region. In the case of cattle, improved intensive farmer management systems (provision of improved legume fodder, drinking water, and improved veterinary services) could significantly impact on growth of the livestock sector. In fisheries, future efforts are required to promote research and extension on coastal marine culture of fish and seaweed Infrastructure. Transportation is a key constraint in remote regions such as Nusa Tenggara. During the first long-term development period, the Government has given special attention to this sector and considerable progress has been achieved in improving infrastructure of the eastern islands. Among these, NTB has the largest percentage of asphalted roads (60 percent) and NTT (23 percent) one of the lowest. In NTT there is considerable scope to further improve local roads to provide all-weather access to more areas. Within NTB and NTT, the less populated areas are generally those with less developed village roads. Improvement of the network of local roads would reduce local transport costs and improve the terms of trade for rural communities Policies and Incentives Affecting Investment and Trade. Indonesia has recently been listed as one of five countries which had spectacular successes in agricultural growth and rural poverty reduction based on favorable policies, strong development institutions, and rapid technical change. 2 Deregulation measures taken over the last decade had a strongly positive effect on making the Indonesian economy more internationally competitive at the national level. However, further reform of the trade and investment 2 A Strategic Vision for Rura, Agricultural and Natual Resource Activities of the World Bank, June 1995.

13 -6 - regime in agriculture and agro-processing is necessary if Indonesia is to achieve the agricultural growth targets that it has set itself in REPELITA VI A number of interventions exist at the regional and local levels in the trade of agricultural products. Input supplies are provided by a mixture of private and public sector sources, with few interventions. Often, interventions in agricultural product markets are undertaken by provincial and kabupaten (district) level authorities in the belief that government intervention is in the best interests of smallholders and local economies. The restrictions tend to vary widely from one kabupaten to the other and can take several forms, e.g. minimum prices, preference to cooperatives, marketing taxes, licensing requirements, etc. These do not seem to have a major impact on trade. Furthermore, Ministry of Home Affairs submitted an instruction to local authorities to refrain from interventions affecting a number of key commercial crops (Keputusan Menteri Dalam Negeri No. 48, 1984, amended by KEPMEN No. 29, 1986). The potentially most stringent restrictions appear to exist in the livestock sector where the central government uses a quota system to regulate inter-island movements of slaughter animals and breeding cattle. The indications are that inspite of the resultant distortions, cattle raising is profitable, given the interest and extent of the livestock business in NTT. The Bank has initiated a dialogue on this issue with the Department of Livestock at the central government level. Similar to the restrictions, local authorities can also levy taxes or retributions on agricultural products for purposes of raising revenue. These levies in general do not appear to be a major cost that would discourage local or inter-island trade compared to transport costs. A more detailed discussion on policy and institutional aspects of input and output markets in the province is provided in Annex Capital Constraint: Investments and Credit Availability. During the first long-term development plan, the national budget was the largest single source of public investments in the region. The greatest share of public investments in Nusa Tenggara has been for the development of infrastructure and transportation. Although kabupaten development funding has been increasing in recent years, average development expenditures for agriculture and irrigafion amounted to only 3.2 percent of the total. Domestic and foreign private investments on a per capita basis were lower in two provinces than in other major regions of Indonesia. The value of foreign and domestic investment projects in the two provinces is less than 1.0 percent of the national total. Foreign investments in the eastem provinces have been concentrated in copper and gold mining in Irian Jaya, and nickel mining in South Sulawesi, Southeast Sulawesi and Maluku Banking and financial services contribute less than 2 percent of GRDP in Nusa Tenggara. Most of the banking institutions are in Mataram and Kupang (the two provincial capitals), but the rural areas are little served by the formal financial sector. 3 Easten Island Rural Sector Strategic Review, Yellow Cover Report, November (See also hidonesia: Agricultural Transformation, Challenges and Opportunities, September 1992).

14 - 7 - Credit from informal moneylenders and relatives is widely available in the rural areas, but this is used mostly for consumption purposes. As development programs and projects are being decentralized, it becomes increasingly necessary to explore the prospects for alternative forms of credit for farmers, herders and fishers, through formal or informal systems. The ICR for the now completed NTASP concluded that in kind revolving credit systems have the potential to reach beneficiaries effectively, and in some instances are more attractive alternatives to smallholder credit than through financial intermediaries. 4 Recent experience with informal revolving funds for annual farm inputs (seeds, fertilizers, etc.) in Bank-financed upland and swamps development projects has been encouraging. Training of community development facilitators in alternative farmer credit arrangements has a high priority Institutions. Government services (defense and public administration) is the second most important sector in NTT, contributing 16 percent of GRDP in 1991, and third in NTB with a 10 percent share of GRDP. The levels of staffing of local government agencies at both the provincial and kabupaten levels are sufficient. Within each agency there is a nucleus of academically qualified specialists. However, agency staff in the region tend to have low civil service ranks, limited experience, and are not accustomed to taking initiative in planning and targeting development activities. The main problems cited by the BAPPEDAs in planning for development in their provinces include the following: (a) (b) (c) limited staff capacity to carry out and coordinate systematic and comprehensive development planning; limitations in data base and survey information on the provinces' human and physical resources and limited budgets to carry out the necessary surveys; and inadequate funds for training and operations Similar problems are evident at the kabupaten and kecamatan (sub-district) levels. Dinas staff have had few opportunities for specialized short-term training. A large segment of the staff of Dinas Food Crops Tk. II consists of extension workers (PPL). In NTB, there are on average about 67 extension workers per kabupaten and in NTT only 33. Rural extension centers (REC) have not been well maintained and are not fully utilized. The RECs were handed over in 1992 from the national level to the Dinas Tk. II. All technical agencies suffer from lack of office facilities, field staff housing, training, vehicles, field laboratories, extension equipment and materials In both NTB and NTT, there are a large numbers of local community organizations (LCOs) based at the kecamatan and kabupaten levels. These LCOs are usually organized by the community and religious leaders (Pesantren in NTB and Christian 4 Implenentation Completion Report for NTASP, June 1995.

15 institutions in NTT) and have broad memberships at the local level. The experience of implementing rural development activities in cooperation with local LCOs under NTASP and other projects has shown that they have the potential to increase the participation of the community in the development activities. One notable characteristic in NTB and NTT is the willingness of local governments to involve LCOs in their development activities. This has considerably strengthened the cooperation between LCOs and local government agencies to the benefit of the public. Prospects for Development 1.21 Government's development objective for the eastern islands aims at arresting the relative decline of some of the provinces vis-a-vis the rest of the country to increase social equity and preserve unity. 5 In the foreseeable future, agriculture will remain a key sector in the strategy for the region's development, as spelled out in REPELITA VI. While development of other sectors such as tourism is envisaged, agriculture is still the largest single sector and employer. Broad-based income generation will therefore need to rely first on agricultural intensification. The challenge is to raise subsistence production and generate a marketable surplus in a more diversified and sustainable dryland farming environment. While acknowledging that the agro-climatic environment is less favorable than in many other areas of Indonesia, there still is a potential for agricultural growth in Nusa Tenggara, provided that major constraints, such as poor access to public services, limited diffusion of improved technology, inadequate infrastructure at the village and kecamatan level, and at times restrictive government regulations, are addressed. Improvement on these fronts will provide incentives for private on-farm investment, as well as private investment in complementary economic activities, e.g. agro-processing and exports. 5 Eastem Islands Rural Sector Strategy Study, Yellow Cover Report, November 1994.

16 -9-2. BANK INVOLVEMENT AND LESSONS LEARNED Bank Experience and Lessons Learned 2.1 The Bank has financed a series of relevant agricultural projects including the Upland Agriculture and Conservation Project (Loan 2474-IND, 1985), the Yogyakarta Upland Area Development Project (Loan 3305-IND, 1991), the Provincial Irrigated Agricultural Development Project (Loan 3302-IND, 1991) and the Nusa Tenggara Agricultural Support Project (NTASP, Loan 2638-IND, 1986). The latter project covered the same two provinces as the proposed project and was successfully completed in All four projects demonstrated the importance of (a) decentralized and flexible planning and control; (b) timely input delivery; (c) opportunistic water resources development for crops and livestock; (d) complementary inputs and adoption packages; (e) research in dryland farming systems; and (f) revolving credit/repayment-in-kind approaches to adoption of improved farm practices. Other donors assisting Nusa Tenggara development projects include CARE, CIDA, USAID, AusAID, ADB, World Neighbors, IFAD and UNDP. Ownership commitment from the local governments and broad participation by the beneficiaries are the key requirements for the success of project implementation. 2.2 The ICR for NTASP rated the overall outcome and achievements of the project as satisfactory, particularly when judged from the perspective of the operation being the firstphase of a long-term program for the development of an area where a poor natural resource base, harsh agro-ecological conditions, and deficient institutions and infrastructure act as major constraints to agricultural development. Instituting a process of addressing these constraints in a systematic way was perhaps the most important overall outcome of the project.' The project directly benefited some 100,000 rural households, most of them in the lowest income group, and increased their incomes by percent depending on the nature of support received. 2.3 Specific lessons from NTASP are: (a) (b) broad-based development needs of areas characterized by serious physical, institutional and infrastructural constraints will require a wide range of interventions to initiate development of such areas; program planning and implementation should be decentralized to the level closest to the potential beneficiaries, but with clear administrative, technical and operational linkages between the different tiers of government; 6 Implementation Completion Report for the Nusa Tenggara Agricultural Support Project, Loan 2638-IND, June 1995.

17 - 10- (c) (d) (e) (f) (g) a participation strategy should be formulated early in the project cycle to ensure community and beneficiary participation in planning and implementation; block financial allocations for local level development are attractive due to their flexibility and demand responsiveness, but they should be backed by appropriate guidelines and mechanisms for establishing clear objectives, priorities, and rationale for any proposed development initiative; investments in technology generation, as well as for addressing key infrastructure bottlenecks should be programmed early in the project implementation period; development of agro-ecologically and socio-economically complex areas should be approached as a long-term program requiring a succession of interventions, building on the experiences and lessons of each preceding operation; and comprehensive and appropriately focused mid-term reviews should be used for major mid-course corrections while routine M&E should continuously focus on reviewing the rationale, technical and management soundness, and likely development impact of all project activities. The NTASP targeted particular kabupaten and contained a number of experimental components, the more successful of which would be extended in the proposed project. 2.4 Worldwide, the Bank has assisted a large number of area development projects, 45 percent of them in Africa and 13 percent in the East Asia and Pacific Region. These projects, however, fell in disfavor in the mid-1980s following the evaluated poor performance of many earlier projects. In several countries, a series of projects had been launched in quick succession, leaving little time for learning and applying lessons from experience. Based on OED reviews and other sources', lessons include the following prerequisites for success of area development projects: (a) (b) (c) clear government commitmento rural development objectives; beneficiary participation as an essential feature of the identification, planning and implementation process; incentives in the form of potential benefits rural people may derive from a public investment (e.g. a new road, a canal, etc.) which in turn may cause 7 Area Development Projects, Lessons and Practices, Operations Evaluation Department, September 1993.

18 the return on smallholder investments to be high enough to justify the risks involved; (d) (e) (f) a realistic and flexible project design with goals that are specific and monitorable, not too complex, and scheduled over a realistic implementation period; institutional capability of government agencies and others involved (e.g. LCOs) to implement the program efficiently; and proven technology and support services to provide the necessary production growth. Government Strategy 2.5 For reasons of social equity and regional balance, the Government of Indonesia (GOI) has highlighted development in the eastern islands in the Second Long Term Development Plan and in REPELITA VI. The Government strategy for the east emphasizes human resource development through education and training, improving accessibility through development of transportation and communication systems, and integrated area development. Poverty alleviation through low-income group targeting and improved distribution of income are stressed in the Second Long Term Development Plan which features a 7.8 percent growth rate for NTB and 6.1 percent for NTT. The sectoral emphasis contains five categories: (a) (b) (c) (d) (e) infrastructure, particularly transportation to regional growth centers such as Mataram (NTB) and Kupang (NTT); productivity gains in agriculture, food security, cultivation of export crops, farming systems research, post harvest technology, private sector investment and land titling; mining through private sector investment; agribusiness and small scale village processing of agricultural commodities, facilitated by tax and credit incentives and relaxed regulations; and eco-tourism along coastal areas financed by both the private and public sectors. 2.6 The Government is promoting regional development through increased block grants to local governments and specific local government grants for health facilities, village schools and the new village-based poverty program (IDT - Inpres Desa Tertinggal). The IDT Program, launched in April 1994, was targeted at over 20,000 poor

19 villages, providing each with US$10,000 equivalent of seed capital. The proposed project will cover some IDT villages, but the modalities of program planning, implementation and financing will be different. The proposed project is agriculture based while IDT funds can be spent on any productive purpose agreed upon by the villagers. Community workers will assist the villages in identifying sub-projects in both IDT and the proposed project, but local government line agencies will be used more extensively under the proposed project. 2.7 The national budget has been the largest source of public investments in Nusa Tenggara: about 68 percent of total development expenditures in NTB and 52 percent in NTT in 1990/91. Infrastructure and transportation are usually the largest recipients of national funds, about 53 percent and 48 percent of APBN funds for NTB and NTT, respectively. In FY 1993/94, the APBN allocations for agriculture were 7.6 percent for NTB and 8.6 percent for NTT. In the provincial and kabupaten development budgets (APBD I and APBD II, respectively), transportation and tourism also have been the main recipients. Total annual development expenditures from all sources of NTB in 1990/91 was estimated at about Rp 219 billion and for NTT Rp 277 billion. Annual investment in agriculture from all budget sources is estimated at Rp 62 billion for NTB and Rp 64 billion for NTT. Annual disbursement flow under the proposed project is estimated at about US$6.8 million, equivalent to about 3 percent of the total development budget of the two provinces and 12 percent of annual public investment in agriculture. Bank Strategy and Rationale for Bank Involvement 2.8 Given the dominant role of agriculture and the prevalence of poverty in the rural areas of Nusa Tenggara, broad-based and participatory agricultural income generation, within cost-effective and technological limits, should be the over-riding objective. The Bank's agricultural development strategy for Nusa Tenggara is based on lessons learned worldwide and in Indonesia: (a) (b) (c) (d) farmers and fishers are the majority of the poor, hence targeting geographic areas and production systems is more effective and broad-based than targeting poor households in these provinces (except possibly for livestock distribution); income generation and economic growth should be the primary means of poverty alleviation in Nusa Tenggara rather than targeted welfare measures; protecting the means of production in rural areas, such as erosion control, preservation of livestock assets, and improved fisheries management is a priority; farmers consider water resources and livestock development as their highest priorities;

20 (e) (f) new technologies should have low capital investment and low operational costs and result in higher labor productivity and thereby reduce the farmers' risk when adopting new crop varieties or production systems; and implementation should be decentralized with more local control of design and expenditure. 2.9 The Bank's Country Assistance Strategy for Indonesia 8 supports the Government in the following key areas: (a) maintaining growth with macro-economic stability; (b) enhancing competitiveness; (c) reducing poverty; (d) enhancing human resource development; and (e) managing resources sustainably. The proposed project reflects the more decentralized region-specific approach that is now emerging and is consistent with the Bank's assistance strategy basic approaches for poverty alleviation and decentralization of development activities. The project has a poverty-reduction emphasis and promotes sustainable food security while seeking out cash earning opportunities. In recognition of the limits to growth in agriculture, especially given the poor factor endowments of the two provinces and the need to protect the fragile ecosystems, efforts will be made to strike an appropriate balance between improving subsistence consumption and exploiting market opportunities. This strategy is consistent with the GOI approach to agricultural development. The Bank's broad experience in the agriculture sector in Indonesia, in particular its involvement with the recently completed NTASP, its sector work (Eastern Island Rural Sector Strategy Study of 1994), and its complementary lending program discussed below justify continued involvement in the Nusa Tenggara agricultural development effort The proposed project complements ongoing Bank-financed infrastructure and human resources development projects in the region. In particular, the Eastern Indonesia Kabupaten Roads Project (Loan 3579-IND, 1993, US$155 million); the Water Supply and Sanitation for Low Income Communities Project (Loan 3629-IND, 1993, US$80 million, NTT and other areas); the Third Health Project (Loan 3042-IND, 1989, US$43.5 million, NTB and other areas); and the Third Nutrition and Community Health Project (Loan 3550-IND, 1993, US$93.5 million, NTT) address basic human needs and improve linkages between farms and markets. The Government's strong focus on infrastructure in the region will also assist the strategy The Second Agricultural Research Management Project (ARM II, Loan IND, 1995, US$63.0 million) will strengthen farming systems research throughout the country through decentralized budgeting, local control and identifying and promoting technologies appropriate to the local ecosystems. The ARM II Project and the proposed project will both institutionalize the farming systems research begun under NTASP in Kupang (Timor), Maumere (Flores) and Sandubaya (Lombok). 8 Country Assistance Strategy of the World Bank Group for Indonesia, February 27, 1995.

21 THE PROJECT Project Objectives 3.1 The proposed project is the second major intervention by a Bank-financed project to support long-term agricultural development in two of Indonesia's poorest provinces. It would build on experience gained under NTASP since 1986/87 and other programs which have been irnplemented in the region. The project objectives are to raise smallholder incomes, strengthen local level institutions andfoster broad- based participation at the grassroots level. The project is part of Govermment's strategy to promote equitable regional development Project Areas 3.2 Target areas within the two Nusa Tenggara provinces have been identified by the local government authorities in accordance with the following criteria: (a) (b) (c) (d) (e) (f) high percentage of households below or near the poverty level; significant potential for agricultural development; potential for positive impact on environmenthrough conservation farming; existence of basic surface transportation infrastructure connecting target areas with regional centers; minimum level of government support services to support project implementation; and areas requiring special attention under the provincial and district REPELITA VI plans and which have not received any funding from other projects and programs. 3.3 In NTB, the project would target seven areas covering 23 kecamatan in six kabupaten 9 with a total land area of about 9,700 sq.km, or 48 percent of the total area of the province. There are about 200 target villages of which 22 percent have been classified as poor villages. Total population in the target area is estimated at 1.2 million (280,000 households), or 3 5 percent of the total population of the province. In NTT, there are ten areas comprising 19 kecamatan in eight kabupaten' with a total land area of 11,595 9 Lonbok Barat, Lombok Tengah, Lombok Timur, Sumbawa, Dompu and Bima. 10 Belu, Kupang, Timor Tengah Utara, Sumba Timur, Sumba Barat, Manggarai, Ende and Flores Tinur.

22 sq.km, or 24 percent of the total area of the province and a population of 0.7 million (125,000 households), or 21 percent of the total population. The areas contain about 310 villages of which 24 percent have been classified as poor villages. The target areas in NTB are outside the central rice production areas in Lombok and Sumbawa which already have benefited from considerable previous investments in irrigation and transportation infrastructure. In NTT, ten areas outside the selected project target areas also have been designated as priority areas for agricultural development during the next three years and would be financed from the provincial budget. Project Scope 3.4 The project would be implemented over a six-year period ( ) and provide funds to support the establishment of the Naibonat Assessment Institute for Agricultural Technology (NAIAT), implementation of agriculture-based area development activities, and strengthening of agricultural support services, project administration, and communitybased development planning. Detailed Project Features Component A: Establishment of the Naibonat Assessment Institute for Agricultural Technology (NAIAT); Base Cost US$4.3 million (14 percent of total base cost). 3.5 The NTASP established the physical infrastructure, institutions and programs for improving the technological base for agricultural development in the two provinces. It has introduced a whole farm (farming systems) approach for improving smaluholder production and income, and also identified and tested technological packages for some of the arid and semi-arid areas of the two provinces. The proposed project would further refine the technical parameters of these packages and evaluate more rigorously their viability and acceptability among the farmers. Main lessons of NTASP were the need to: (a) fully identify the constraints affecting the production of low-income farmers; and (b) start with low input-low cost technology and build the confidence of the farmers step-bystep (see Annex 1 for further details). 3.6 Building on the experience and lessons of NTASP, the proposed project would support the Agency for Agricultural Research and Development (AARD) in order to: (a) (b) (c) carry out research activities to develop technology packages appropriate to the agro-ecological systems of Nusa Tenggara; strengthen the linkages between agricultural research, agricultural extension, local government authorities, local community organizations (LCOs) and the private sector; and transfer technology packages to area farmers.

23 Details are given in the following paragraphs and in Annex Establishment and Operation of the NAIAT. The project would: (a) (b) (c) (d) (e) (f) (g) (h) establish for each province a Regional Advisory Comrnittee for policy and management advice and a Regional Technical Working Group for technical support; develop a regional Research and Development (R&D) master plan, a human resource development program, and an MIS program; in NTT, construct a new liaison office at Kupang, a seed cold storage unit, a drying floor and a soil preparation facility at Naibonat, and an irrigation system for about 50 ha at the Livestock Research Station at Lili; in NTB, convert part of the Mataram Installation of NAIAT to a liaison office, and construct a general service laboratory building and three staff houses at Mataram on Lombok; provide furniture and equipment for the new installations, and computer systems for Naibonat (Timor) main station and Maumere (Flores), Sandubaya and Mataram (Lombok) installations; provide nine vehicles and nine motorcycles for the main station and installations and a boat for Maumere sub-basis; provide journals, periodicals and textbooks to the libraries of the main station and installations; and provide funds for honoraria and allowances of research staff and operation and maintenance of facilities. 3.8 Definition of Agro-Ecological Zones. The project would prepare additional detailed studies of the agro-ecological zones (AEZ), based on existing data from reconnaissance soil surveys and climatic information, combined with information on the social, cultural and ethnic characteristics of the zones. Farning systems research and diagnosis of the socio-economic context of the agro-ecosystems zones would include rapid rural appraisal and participatory rural appraisal methods and gender analysis, including environmental assessment and conservation technologies to identify input constraints, allocation of resources and division of tasks and responsibilities within farm households. It also would include a cattle marketing study to examine the impact of trade restrictions on farmers' incomes (see also para. 6.9). The studies would be implemented by research staff working with local provincial government staff, LCO members, and staff

24 - 17- of local universities. The findings would form the basis for location-specific definition of potential and constraints facing the farmers and would assist in the formulation of low input technology packages. 3.9 Staff Resources Development, Technical Assistance and R&D Collaboration. The project would provide: (a) (b) (c) local training within Indonesia for masters, doctorate and short-term nondegree or diploma training to strengthen staff capability in specific skills to effectively implementhe R&D; about 18 staff-months of expatriate and 66 staff-months of local technical support for farming systems research, gender analysis studies and other needs; and R&D collaboration with international research centers, twinning arrangement between NAIAT and one of these centers, and collaboration with the private sector, local universities, and community organizations to undertake topic surveys and field research Technology Generation and Dissemination. The project would support: (a) (b) (c) (d) trials of improved and new technology, including production and postproduction systems involving women, under farmer and field station conditions; inputs and technical guidance for about 680 ha (280 ha in NTB and 400 ha in NTT) of dryland field demonstrations; dissemination of technology recommendations through organization of field days, production of leaflets, posters, slides and videos, organization of workshops and publication of research findings; and travel, per diem and allowances for research and extension staff involved. Component B: Agriculture-Based Area Development; Base Cost US$22.7 million (73 percent of total base cost) The project would support a program of agriculture-based area development activities in the target areas. The approach would be participatory, based on an assessment of the resources of each area and consultations with the people through a community based planning system. A menu of potential agricultural development activities for this component has been identified, including improved cropping in village

25 irrigation schemes, dryland farming systems development, cattle distribution, household technology packages, and vaccination of chickens against Newcastle disease. In addition, the project also would support the improvement of critical road sections, bridges and culverts to improve communications between farms and markets. Finally, the project would support as yet unidentified other development activities proposed by the local communities. A summary of these activities, most of which have been well tested under NTASP, is given below. Further details on some of the constraints encountered during NTASP and proposed implementation arrangements for the proposed project, are discussed in Annex Agricultural Development. This would include the following: (a) (b) (c) (d) (e) (f) intensification of agricultural production systems in village irrigation schemes where water control structures have been rehabilitated or improved under NTASP, GOI's Village Irrigation Program (PID, sometimes referred to as "crash program"), and the Asian Development Bank financed Farmer-Managed Irrigation System Project (FMISP) in NTB. The project would support the establishment of about 10 demonstration plots of about 0.5 ha each in some 265 schemes (165 in NTB and 100 in NTT) to demonstrate the effects of improved crop production technology; a pilot program introducing improved dryland farming systems technology and soil conservation techniques, including the provision of seedlings, seeds, fertilizers, tools and equipmento about 16,800 farmers (9,200 in NTB and 7,600 in NTT) covering some 12,600 ha; introduction and demonstration of intensive smallholder livestock management systems, integrated with dryland crop development, including distribution of about 16,000 breeding cattle and 1,000 water buffaloes for draft, and the development of forage crops; vaccination of chickens in about 325 villages against Newcastle disease; demonstrations of intensified house plot cultivation systems, including provision of inputs, tools and equipmento about 2,800 households (1,200 in NTB and 1,600 in NTT); and technical training for Dinas staff, extension workers, farmers and viliage leaders on integrated animalcrop farming systems, post harvest technology, village irrigation O&M, livestock feed and health, water supply and sanitation, home gardens intensification, poultry vaccination, etc. and also on the effective and gender-sensitive use of demonstrations of locally

26 adapted production technologies, in particular for integrated farming systems, e.g. tree crops and livestock Lessons learned during NTASP (see para. 2.3) would be reflected in the implementation arrangements for the present project. Special care would be taken to limit the use of cash inputs for the crop/livestock farming systems for as long as the farmers' capacity to pay or obtain credit is low. The farmers would be encouraged to organize themselves in groups and to pool part of their savings for the joint procurement of inputs (see also para. 4.6). More attention would also be given to the production of good quality seedlings in Dinas Estates Tk. II operated nurseries and to the proper sequencing of interventions to raise the survival prospects for tree crops and cattle. The bottom-up planning process will be applied for all of Component B. Participation of women in appropriate project activities would be encouraged. Training of Dinas staff and participation of LCOs in the planning and implementation of activities will improve their prospects for success Farm Access Roads. In order to reduce transportation bottlenecks the project would support the construction of critical bridges, culverts, and road sections on farm-tomarket roads. Local government funding and community participation would be mobilized to improve the surfacing for these access roads. Ideally, allocations for each kabupaten and village should reflect their infrastructure needs. However, for simplicity and transparency a maximum grant of US$250,000 equivalent per kecamatan is foreseen. As there already exists a relatively dense road network in Lombok (NTB), no allocation for farm access roads has been made for this island. Assurances have been obtained from GOI during negotiations that: (a) allocations for road improvement would not exceed US$250,000 equivalent for each kecamatan included in the project (except those on Lombok); and (b) priority would be given to villages where needs are demonstrated to be highest, the villagers are committed to actively contribute to the implementation of the works, and local government has agreed to maintain the completed works Local Community Initiatives. The project would support local community initiatives expected to result in direct benefits to the communities. During the first project year local leaders and agency field staff would be trained in community based planning methods. As part of the training program guidelines for selection and implementation of schemes in Bahasa Indonesia would be prepared. Technically and economically feasible initiatives considered to be a high priority by the local communities would be implemented using discretionary supplemental project funding of Rp 50 million (about US$22,250) annually for five years for each kecamatan. In addition, Rp 35 million (about US$15,500) would be allocated annually for five years for each of the 14 targeted kabupaten to support LCOs in developing community-basedevelopment initiatives Project supported local community initiatives are expected to include agriculture based activities, such as post-harvest processing and storage facilities, domestic water supply systems linked to the village irrigation schemes, goat or other small animal

27 distribution schemes, and replications for the core menu of activities proposed by community groups in the target areas. Preference would be given to schemes that would involve women and youth groups and those assisted by LCOs. Initiatives would only be funded when the community is prepared to contribute locally available materials, unskilled labor and land, if required. All proposals would be reviewed at the kabupaten level to prioritize those with the greatest socio-economic impact, the lowest risk and the highest proposed contribution by the local community. Initiatives would be selected in accordance with criteria fully detailed in Annex 2, paras. 58 and 59. Assurances to this effect have been obtained from GOI during negotiations. Component C: Strengthening Agricultural Support Services and Project Administration; Base Cost US$4.1 million (13 percent of total base cost) Support services to crop cultivation, livestock keeping, project planning, financial management, project coordination, and M&E at the provincial, kabupaten and kecamatan level would be strengthened under the project Strengthening of Extension Facilities. The project would: (a) (b) (c) rehabilitate 18 rural extension centers (RECs) and 11 animal health centers (Poskeswan), construct two new RECs and 11 new Poskeswan, and improve 14 seed farms; provide 46 vehicles and 256 motorcycles for field services of the Dinas; and provide 86 computers, furniture and equipment for the newly constructed, rehabilitated and improved RECs, Poskeswan and seed farms. Given the inadequate maintenance and utilization of facilities at present, project support for rehabilitation, construction and improvement of RECs, Poskeswan and seed farms would be dependent on the kabupaten level governments providing an integrated management plan for each facility. Such a management plan would include: (a) staffing levels; (b) estimates and sources of annual funding requirements to support successful operation; (c) expected benefits to area farmers; and (d) planned types and levels of user fees or other cost recovery systems, if applicable. An assurance to this effect has been obtained from GOI during negotiations Training, Workshops and Seminars. The project would support: (a) project orientation workshops and training of provincial, kabupaten and field level staff on project management, M&E, financial management, and community-basedevelopment planning and implementation; and (b) training of farmers and village leaders on community-basedevelopment activities. The selection procedure should consider gender perspectives to ensure participation of women in these programs.

28 Mapping. The project would support the production of base maps of the targeted kecamatan to serve as a basis for improved planning, implementation, coordination, and monitoring and evaluation of development activities Technical Assistance. The project would provide for: (a) (b) about 212 staff-months of local consultancy support for various activities, including: area development (42 staff-months), training (30 staff-months), financial management/accountancy (108 staff-months), evaluation of NTASP irrigation schemes (12 staff-months), and unspecified short-term technical studies (20 staff-months); and establishment of an M&E system, including an initial inventory of income and production information, periodic reporting on financial and physical progress, a mid-term review, and an evaluation of development impact at project completion. The reports' findings and recommendationshould be issued in Bahasa Indonesia with a summary in English. The consultants would be appointed by July 1, Recurrent Costs. Incremental recurrent costs including honoraria, staff alowances, operations and maintenance costs, project coordination and management, at the provincial, kabupaten and kecamatan have been included in the cost of the project and would be financed by the Bank on a declining scale. Status of Preparation and Implementation Schedule 3.23 The project has been prepared by the Directorate General for Regional and Area Development in the Department of Home Affairs with the assistance of consultants. The preparation team interacted fully with the intended beneficiaries in all selected kabupaten. A draft preparation report and Project Implementation Plan were issued in April 1995 and formed the basis for the appraisal by the Bank. GOI submitted a revised Project Implementation Plan in August The project implementation schedule is at Annex 7.

29 PROJECT COSTS AND FINANCING Project Costs 4.1 Total project cost including contingencies is estimated at US$41.1 million of which US$5.5 million would be foreign exchange and US$1.5 million duties and taxes. Base costs are expressed in October 1995 values. Physical contingencies are estimated at 10 percent for civil works, equipment and vehicles and 5 percent for agricultural inputs, breeding animals, mapping and research. Price contingencies are based on an estimated annual local inflation rate of 6 percent and a foreign inflation rate of 2.6 percent from FY96. Project costs are summarized in Table 4.1 below and detailed in Annex 4. Table 4.1: PROJECT COST SUMMARY (Rupish MIlJon) (USS '000) Foreign Local Forei4n Total Local Foreign Total Exchange A. NAIAT Training, TA, and Research 2, , , , , Facilities & Tech. Transfer: NusaTenggara Barat 1, , , Nusa Tenggara Timur 2, , , , Subtotal NAIAT 7, , , , , , RB Area Development Nusa Tnggara Barat 22, , , , , , NusaTangparaTimur , , Subtotal Area Development 45, , , , , , C. Support Services National Level 1, , Nusa Tenggara Barat 2, , , , Nusa Teggara Timur 2, , , , Subtotal Support Service 6, , , , , , Total BASELINE COSTS 59, , , , , , Physical Contingencies 2, , , , Price Contingencies 17, , , , , Total BASELINE COSTS 80, , , , , , NAIAT = Naibonat Assessment Institute for Agricultural Technology Financing Plan 4.2 The proposed Bank loan of US$27.0 million equivalent would finance about 66 percent of total project costs, or 72 percent of project cost exclusive of taxes, duties, vehicles and fertilizers which would be purchased by GOI. The Government would finance US$12.4 million equivalent (30 percent of project cost) and the balance of US$1.7 million equivalent (4 percent of project cost) would be financed by the beneficiaries contributing their labor for tree crop planting and other community-based activities.

30 Table 4.2: PROJECT FINANCING PLAN Local Foreign Total Funding Source Cost Cost Cost Percentage US$ million Beneficiaries Government Bank /a Total /a About 72 percent of project cost, exclusive of taxes, duties, vehicles and fertilizers which GOI would finance. Financing of Proposed Development Activities 4.3 The project would help the farmers with the introduction of input packages for food crops, tree crops and cattle keeping. Annual inputs for irrigated cropping demonstrations, including farm tools, improved seeds and fertilizers, would be supplied for one cropping cycle as grants to the participating farmers. This subsidy is justified as the early adopters provide a demonstration effect for follower adopters. " The demonstrations would cover about eight percent of the targeted area of selected village irrigation schemes. The value of the input package would be about US$60 equivalent for a 0.5 ha farm plot. 4.4 For dryland cropping the project would supply free-of-charge tree crop seedlings, food crop seeds, farm tools, fertilizers and other required inputs to farmers participating in the demonstration and replication programs. Demonstration program participants would also be paid partially for their labor. Tree crops would be supported for two years under both programs and annual crops for one year. The value of the support packages would be about US$140 equivalent for dryland demonstrations on a plot of 0.75 ha, and US$90 equivalent for dryland replications. Given the higher risk of adopting new technology, and the pilot nature of the dryland program, the subsidization of the present group of beneficiaries is considered justified. For house plot cropping, arrangements would be similar as for dryland cropping. The value of the support package would be about US$40 equivalent for a plot of 0.2 ha. The rationale for the subsidy is the sarne as for the irrigated cropping technology packages. 1 In economic language: the early adopters confer an externality for follower adopters.

31 For cattle and buffalo raising the project would supply breeding stock to successful participants of the irrigated and dryland crop improvement programs. Participating farmers would promise to return within five years the second- and third-born calves for redistribution among other interested farmers or for sale (usually the male calves) to cover part of the operating cost of the livestock support services. An assurance to this effect has been obtained from the Government during negotiations. The estimated value of a heifer is about US$ Access to commercial credit for the purchase of farm inputs would not be open to project farmers, especially not those located in the rainfed areas, in view of the early stage of development of their small farms and the inherent risks of failure. Many farmers appear to have access to informal credit from relatives, friends and traders, but often at prohibitive costs. Promising experiments are currently underway under the Yogyakarta Upland Area Development Project (Loan 3305-IND) and the Integrated Swamps Development Project (Loan 3755-IND) with farmer-managed revolving fund schemes for the joint purchase of inputs. Similar schemes would be tried out under the proposed project. Community development facilitators would encourage the farmers to organize themselves in informal groups before the project-financed input packages would be issued to them. After the harvest they would deposit part of their cash income, in amounts at least equal to the value of the inputs they received, into the group's revolving fund. Authorized representatives of the gi oup would draw on the fund to pay for group purchases of inputs for the following crop season. Each group would set its own rules of operation. Over time, other farmers may either become members of already existing groups, or, if the rules of the group do not permit adhesion of new members, form new groups. As experience with grassroots credit schemes under this and other projects evolves, the training of facilitators would be updated and new formats would be introduced. Procurement 4.7 General. Goods and works would be procured in accordance with the provisions of the "Guidelines for the Procurement under IBRD Loans and IDA Credits", published by the Bank in January Procurement under the project would be undertaken by the respective implementing units under the guidance and control of provincial and/or national parent agencies. Bulking and grouping of contracts across agencies or provinces would not be practical and has therefore not been adopted. GOI would finance purchases of vehicles and fertilizer (urea, TSP and KCL) from its own resources because under GOI procurement rules these items are not open for international competitive bidding. Procurement of vehicles would be in accordance with a schedule and timetable agreed with the Bank. An assurance to this effect has been obtained from GOI during negotiations. 4.8 Civil Works. Contracts for the construction and rehabilitation of agricultural extension centers, seed farms and animal health posts (US$0.9 million), and agricultural

32 research facilities (US$0.4 million) are expected to be relatively small and would be widely dispersed over the two provinces. They would therefore be procured by national competitive bidding (NCB) procedures acceptable to the Bank. Roads, bridges and culverts (US$8.0 million) would be constructed on force account with participation by the villagers or by a procedure similar to national shopping for works costing less than US$50,000 equivalent (para. 3.14). Under this procedure small works would be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from three qualified domestic contractors in response to a written invitation. The invitation would include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Bank, and relevant drawings, where applicable. The award would be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. 4.9 Equipment and Agricultural Inputs. Equipment, furniture and publications for the new research, extension, seed production and animal health buildings and agricultural equipment and tools (US$1.7 million) would be procured by NCB procedures acceptable to the Bank, or by national shopping for packages costing less than US$50,000 equivalent with an aggregate value not to exceed US$1.0 million. Agricultural inputs (US$1.8 rnillion) would be purchased by national shopping. Breeding animals (US$5.5 million) would be procured by NCB procedures and using a model bid document acceptable to the Bank Other Procurement. Consultant services (US$1.8 million) would be contracted after inviting proposals from shortlisted firms acceptable to the Bank. Separate contracts would be let by AARD and BANGDA, respectively, for consultants services for: (a) establishment and operation of Naibonat AIAT; and (b) strengthening of agricultural support services and project administration. All consultants would be selected in accordance with the Bank's Guidelines, and engaged according to the Bank's Standard Form of Contract for Consultants' Services. Training, research, mapping, and survey and design (US$2.8 million) would be procured in accordance with the above guidelines. Procurement for activities listed under the "local community initiatives" sub-component (US$7.4 million) would be in accordance with provisions of the above paragraphs Review of Procurement. The Bank would make a prior review of all documents related to the award of: (a) all contracts of US$100,000 equivalent or more for civil works, goods and breeding animals; (b) the first contract for civil works in NTB and in NTT of less than US$100,000; (c) the first contract for goods in NTB and NTT of less than US$100,000; and (d) all contracts of US$100,000 equivalent or more for consultants' services by firms and all contracts of US$50,000 or more for consultants' services by individuals. Due to the repetitive nature of small contracts, characteristic for this type of project, prior review is expected to cover only about 50 percent by value of all civil works construction, and supply of goods and breeding animals contracts. For consultant contracts, the review would include terms of reference, shortlist, letter of

33 invitation, recommendation for award, and final contract. The exceptions to prior Bank review of contracts for consultants' services would not apply to: (a) the terms of reference for such contracts; (b) single-source selection of consulting firms; (c) assignments of a critical nature, as reasonably determined by the Bank; (d) amendments to contracts for the employment of consulting firms raising the contract value to US$100,000 equivalent or more; or (e) amendments to contracts for the employment of individual consultants raising the contract value to US$50,000 equivalent or more. The Bank would review all other procurement ex-post and at random The procurement arrangements are summarized in Table 4.3. Disbursements 4.13 All activities under the project are expected to be completed by March 31, 2002, and the Loan closing date would be September 30, Disbursements from the Loan would be made for: (a) (b) (c) (d) (e) (f) 65 percent of expenditures on civil works; 100 percent of foreign expenditures (CIF) for directly imported equipment and furniture, 100 percent of local expenditures (ex-factory) for locally manufactured items, and 65 percent of expenditures on locally procured items; 100 percent of expenditures for consultants' services and training; 90 percent of expenditures on agricultural inputs (except fertilizers), breeding animals, labor for agricultural demonstrations, mapping, surveys and designs, and research trials; 70 percent of expenditures for services, works, and equipment procured under the "local community initiatives" sub-component; and 60 percent of incremental operating expenditures in FYI 996/97 and FY1997/98, 50 percent in FY1998/99 and FY1999/2000, and 40 percent in FY2000/01 and thereafter. The proposed allocation of the loan is detailed in Annex 5, Table Disbursements under the project would be made against Statement of Expenditures (SOE) for:

34 Table 4.3: PROCUREMENT ARRANGEMENTS (US$ Million) Procurement Method National Category of Expenditure Competitive Consulting Bidding Services Other* N.B.F.** Total Civil Works (0.8) (5.2) (6.1) Equipment & Fumiture (0.6) (0.8) (1.4) Publications (0.1) (0.1) Vehicles Technical Assistance (1.8) (1.8) Training (1.3) (1.3) Research (0.9) (0.9) Mapping (0.3) (0.3) Agricultural Inputs (1.6) (1.6) Fertilizers Breeding Animals (5.0) (5.0) Survey & Design (0.2) (0.2) Community Initiatives (5.2) (5.2) Labor - Demonstrations (0.1) (0.1) Labor - Replications Recurrent Costs (3.3) (3.3) Total (6.3) (4.5) (16.3) - (27.1) Note: Figures in parenthesis are the respective amounts financed by IBRD. Includes force account and national shopping. Not Bank-financed.

35 (a) (b) (c) contracts for works, goods (including publications, agricultural inputs and breeding animals) and consultant services by firms valued at less than US$100,000; contracts for consultant services by individuals of less than US$50,000; and construction of roads, bridges and culverts, training, research, mapping, survey and design, labor for crop demonstrations, other local community initiatives, and incremental recurrent costs. Disbursements from the Loan for the following contracts would be made against full documentation: (a) works and goods contracts (including publications, agricultural inputs and breeding animals) and consultant services by firms valued at or more than US$100,000; and (b) consultant services contracts with individual consultants valued at more than US$50,000. All other disbursements would be made against statements of expenditures (SOE) for which relevant documents would be retained by responsible project implementing agencies and the Directorate General of Budget (Ministry of Finance) and be made available for inspection by Bank supervision mission. Accounts and Audits 4.15 In order to facilitate disbursements, the Government would establish a Special Account with an authorized allocation of US$1.5 million (equivalent to the average disbursements during a four-month period) in Bank Indonesia, provided that the authorized allocation would be limited to US$800,000 until the aggregate amount of withdrawals from the Loan Account plus the total amount of all outstanding special commitments would be equal to or exceed US$3.0 million. The Special Account would be maintained by the Directorate General of Budget, MOF. All disbursements from the Bank loan would be made through the Special Account. Replenishment applications to the Special Account will be made on a monthly basis, or when 20 percent of the Special Account balance has been used, whichever comes first Each project executing agency would establish and maintain adequate and separate accounts from the beginning of project implementation, including accounts relating to the cattle distribution program. To facilitate audit of project accounts, BANGDA (the project lead agency) would collect and consolidate account records of all implementing agencies into a single document. Assurances have been obtained from GOI during negotiations that: (a) all project accounts, including schedules of expenditures claimed under SOE procedures and usage of the Special Account, would be audited annually by the Government Audit Agency (BPKP), or other suitably qualified auditors acceptable to the Bank; and (b) audit reports of project accounts, SOE and Special Account would be submitted to the Bank within nine months of the close of each Government fiscal year.

36 ORGANIZATION, IMPLEMENTATION AND MONITORING Organizational Structure 5.1 The proposed project would be implemented in a decentralized, multi-sectoral approach with primary responsibility for project execution being placed at the kabupaten and kecamatan levels. Organizational arrangements are shown in Chart 1. At the national level, a Central Guidance Committee (CGC) would be established to provide policy guidance and coordination, review project progress, and resolve issues on overall loan administration. The CGC would be chaired by the Deputy V for Regional Affairs in BAPPENAS and comprise, among others, the Director General Regional Development (Ministry of Home Affairs), Director General of AARD, Heads of Bureaus for Agriculture and Regional II (BAPPENAS), Director of Area Development (Ministry of Home Affairs), and Director of Center for Agriculture Socio Economic Research (CASER) in AARD. It would meet on a quarterly basis and invite representatives of other central agencies and provincial authorities as appropriate. A National Project Secretariat would be established in the Directorate of Area Development (PPW) of the MoHA with the following mandate: (a) (b) (c) (d) (e) (f) coordinate project planning and budgeting at the national and provincial level; review annual work plans and budgets and process the Decision Letter for Budget Assistance (SPABP) for the provinces; monitor and evaluate project implementation and impact; prepare periodic project progress reports (annual/semi-annual); implement national level activities such as project orientation workshops, training for national staff on project management, recruitment of consultants, etc.; and liaise with the Bank, administer loan disbursements and consolidate project accounts from the provinces. 5.2 At provincial level, a Provincial Coordination Committee (PCC) chaired by the BAPPEDA I Chairman would be responsible for coordination, planning and M&E of project activities. The PCC would be supported by a Provincial Project Secretariat (PPS) headed by the Chief of the BAPPEDA Economic Division, which would perform similar functions as the National Project Secretariat:

37 (a) (b) (c) (d) (e) (f) ensure province-wide coordination of all project activities; review the kabupaten activities, annual work plans and budgets; monitor and evaluate project implementation and prepare progress reports; prepare loan disbursement applications for Components B and C; carry out provincialevel activities; and liaise with central Government agencies, kabupaten, and the Bank. Project Management Units would be established, and project managers (PIMPRO) appointed, at the provincialevel to manage: (a) planning, monitoring and evaluation; (b) livestock distribution; and (c) training activities. 5.3 Consistent with arrangements adopted under the ARM HI project, the Naibonat AIAT has established in each province a Regional Advisory Committee and a Regional Technical Working Group to provide guidance for NAIAT during project implementation. The Advisory Committee, chaired by the BAPPEDA Chairman and composed of the KANWIL of the Ministry of Agriculture and representatives of the provincial Dinas, universities, private sector and farmer groups, would review the annual R&D plan for the province. The Technical Working Group is chaired by the NAIAT Director with representation from various regional and provincial agencies. A Project Management Unit (PMU) with a PIMPRO has been established at NAIAT, and a Project Implementation Unit (PIU) with a Sub-project Manager (PIMBAGPRO) has been appointed at Mataram/NTB. The PMU would be responsible for the implementation of all project activities with oversight from the Director of CASER through the Director of NAIAT. Officers would be designated at CASER and CARP (Center for Agricultural Research Program) to liaise with the Project Secretariat and the Bank. 5.4 At kabupaten level, PMUs would be maintained at BAPPEDA II with a PIMPRO to coordinate project planning/budgeting and implementation in the kabupaten. PIUs with PIMPROs would be located at the respective Dinas Tk. II which would be responsible for the implementation of the field activities. The PMUs would be responsible to the PPS through the Bupati (head of kabupaten government). An assurance has been obtained from Government at negotiations that a PMU with competent staff in adequate numbers would be maintained in each participating kabupaten until completion of the project. Implementation Arrangements 5.5 NAIAT would prepare the annual research plans and on-farm demonstration prograns for Component A following internal AARD procedures. The plan would be

38 -31 - reviewed by the Technical Working Groups. When approved by the Advisory Committees, the work plan and budgets for the two provinces would be submitted to CARP through CASER for DIP funding. The research results would be presented to the Working Groups at seminars, also attended by other interested persons. The results of the seminars would be used as feedback for the preparation of the next year's annual plan. 5.6 Trials and demonstrations would be carried out mostly in the farmers' fields. NAIAT staff would design and select the sites for all trials and demonstrations and would ensure adequate coverage of all project areas. Field staff of the respective Dinas Tk. II and LCO staff on site would ensure the day-to-day management of the trials and demonstrations. 5.7 In order to foster broad beneficiary participation, the project would use community development facilitators (CDF) for Component B to motivate and assist the target groups. The kabupaten level PMUs would encourage locally active LCOs to select CDFs for their areas of operation. In areas without active LCOs existing Dinas staff would be assigned for this purpose. The CDFs would help the target groups to: (a) (b) (c) (d) (e) (f) (g) identify their main constraints and priority needs; select the most appropriate project intervention from the menu of choices; prepare the project proposal for financing; provide their equity contribution to the project; decide on how best to implementhe sub-project; implementhe sub-project; and ensure monitoring, evaluation and mid-course correction of project implementation, if necessary. 5.8 The community-basedevelopment approach would be adopted as much as feasible and appropriate, in accordance with the "bottom-up" planning procedures established by GOI since 1982, as follows: (a) (b) the CDFs trained in community-based planning would inform the target groups of beneficiaries on the menu of project activities; the community groups, with the help of the CDFs, would determine their priorities and prepare proposals for submission to the UDKP/kecamatan;

39 (c) (d) (e) the UDKP/kecamatan would review the feasibility of the proposals, and submit it to the PMU at kabupaten level for inclusion in the proposed annual work plan and budget; the groups' proposals would be evaluated based on soundness and other criteria as agreed by PMU/kabupaten and the Dinas; preference would be given to proposals involving women and youth groups and those assisted by LCOs; the proposals would be ranked by priority if requests exceed the funds available for the next fiscal year; and upon approval, the group would implementhe activities with the guidance from the LCO and Dinas staff. 5.9 For Component C, training programs would be implemented by the National Project Secretariat for the central level training, by the Provincial Project Secretariat at BAPPEDA I for the training conducted at provincialevel, and by PIUs at PMU/BAPPEDA II for training to be conducted at kabupaten and field levels. The PlUs will only manage the administration arrangements for the training, but the trainers would come from the respective Technical Dinas Tk. I or II staff, existing training centers, universities, research institutes/bptp, and as appropriate, from the respective Unit, i.e. Secretariat or PMU. Budget Procedures 5.10 Project activities would be financed in accordance with existing GOI procedures for financing Bank-assisted projects. Funds for project activities would be provided under the budgets of the Ministries of Agriculture (Component A) and Home Affairs (Components B and C) at the national level. Budget allocations for project activities would be based on coordinated annual work programs agreed among project implementation agencies and BAPPEDA at the provincialevel. The budgeting process under the proposed project would comprise the following steps: (a) (b) (c) the provincial BAPPEDAs would review the proposed work programs proposed at local levels and referred to in para. 5.8 and prepare coordinated provincial work plans and draft budgets; the coordinated provincial work plans and draft budgets would be sent to the National Project Secretariat for review and consolidation and thereafter submitted to BAPPENAS, AARD and MoHA in August for incorporation in their annual budget proposals; the coordinated work plans and cost estimates would be forwarded to the Bank by September 30 of each year for review; and

40 (d) a coordinated budget proposal based on the agreed work plan would be forwarded to the Bank before December 31 of each project year. To ensure that adequate funds would be provided for planned project activities, assurances have been obtained from GOI at negotiations that GOI would submit to the Bank for its review and comments: (a) not later than September 30 each year, a coordinated work program and cost estimates for the following fiscal year; and (b) by December 31 each year, a coordinated budget proposal for the provincial work programs agreed with the Bank. Monitoring and Evaluation 5.11 Given the scale of community-based activities and the decentralized structure and system for managing the project, close monitoring of project activities is essential for informing the higher management levels of any implementation problems and to permit well-considere decisions on mid-course corrections. Evaluation of project impact is equally important in order to learn lessons, positive and negative, for future projects The proposed M&E system would use different sets of instruments for the three project components. In addition to the regular reports on financial and physical progress, the proposed M&E system includes impact analysis for five project activities: village irrigation, agricultural research, dryland farming, livestock distribution, and other local community initiatives The first level of monitoring reports would be from kabupaten level PIMPROs to the Provincial Project Secretariat. These reports would be prepared monthly and used to respond immediately to any problems encountered in implementing the project activity. The second level of monitoring would be on the physical and financial progress of the project through mandated reporting forms from the implementing agencies varying according to the source of funding. The third level of monitoring would seek to provide simple quantitative feedback on the performance of the five major activities of Component B, listed in para Impact indicators would be included in the sub-project proposals from the farmers or community groups, and updated yearly to provide a data base for evaluating the financial, economic and social impact of project interventions on target beneficiaries. The fourth and final method would be rapid appraisal monitoring. This method is recommended as: (a) a means of direct interaction with the target population; and (b) a useful managementool to achieve coordination among the implementing agencies. Rapid appraisal should be conducted once a year at the kabupaten level with representation from the kabupaten Dinas, kecamatan staff, and the provincial BAPPEDA office The proposed evaluation system has been designed to evaluate project outcomes in relation to the project objectives. A three tiered system would be used consisting of:

41 (a) (b) (c) an initial inventory or data base on income and production information at the provincial and kabupaten levels, building on the data gathered during project preparation; a mid-term review after two years of project life to review progress, identify management and technical constraints, assess development impact and recommend adjustments in project design, as appropriate; and a final review at project completion to evaluate the direct impact of the project on target groups and the effectiveness of the organizational structure and management system used in the project, and to draw conclusions for future projects Project performance would be measured by project component and activity and by project objective. Performance indicators by project component and activity are given in Table 5.1. Success indicators for achieving the project's main objectives are as follows: (a) (b) (c) raisefarmer incomes: estimates of farm incomes during the project baseline year, after two years, and after five years; strengthen local level institutions: aggregate numbers of facilities improved or newly constructed and persons trained; and foster broad- based participation at the grassroots: aggregate numbers of LCOs and their members involved in planning and implementation of project activities. Bank Supervision 5.16 As the project is geographically dispersed and involves a number of components, some of which are pilot in nature, the Bank should schedule supervision missions initially twice a year, starting off with project launch workshops in the two provinces. A mid-term review is planned for the fall of Assurances have been obtained from GOI during negotiations that a mid-term report would be submitted to the Bank by September 30, 1998, for review and discussion with GOI by October 31, 1998 and that thereafter all necessary measures would be taken to ensure the efficient completion of the project and the achievements of its objectives based on the conclusions and recommendations of the mid-term review report. If progress proves satisfactory, the frequency of supervision missions may be reduced. The Bank would rely to the extent possible on the Bank's Resident Mission staff (RSI) to provide continuous interaction with the central and local project agencies. A supervision plan for the project is at Annex 7. It details the mix of specialties and frequency and duration of missions needed to ensure adequate supervision by the Bank. In addition, RSI would conduct ex-post reviews of works completed and goods supplied at the rate of about two staff-weeks per year.

42 -35 - Table 5.1: PROJECT COMPONENTS, TARGETS, BENEFICIARIES, AND SUCCESS INDICATORS _D=_ y A ~Physicil Implementatlon Expected DIret Success lndlcators Targua B.neflclauW.0 Component A: Establishment of the Nalbonat Assessment Institute for Apricu tural Technology 1.1 Research facilkties improved Naibonat, Mataram, Maumere, + Sandubaya stations improved New facilities operational 1.2 Target areas Agro-ecological defined reviewed/characterization menus of technology of agro-ecological zones packages recommended for each zone Number of appropriate technology packages identified and recommended 1.3 Strengthening of human 18 sm. of foreign and Numbers of courses held and resources (technical 66 sm. of local T.A.; 42 yrs. persons trained, by gender assistance and staff of post-graduate work and training) 60 sm. of short-term training 1.4 On farm trials and 680 ha. demonstrations 900 Number of farmers adopting demonstrations of dryland farming recommended technology packages for dryland farming 1.5 Improved extension materials Extension materials 40% of rural Numbers of extension brochures published/field days held households in published and field days held Nusa Tenggara.0 Component B: Agriculture based Area Development l 2.1 Demonstration of 265 demonstrations of About 2,650 Number of farmers adopting irrigated crop 5 ha each participants in irrigated crop technology; technology demonstration program, incremental yields, and incomes followed by some 27,000 other farmers l 2.2 Dryland crop technology 12,600 ha replications 16,800 Number of farmers adopting replications dryland crop technologies, incremental food crop and tree crop production and incremental incomes 2.3 Cattle and water About 16,280 cattle About 15,800 during 6 Number of animals distributed; buffalo distribution 1,000 water buffalo project years and 25,000 calving and mortality rates; number over next 10 years of animals redistributed through redistribution

43 Table 5.1: PROJECT COMPONENTS, TARGETS, BENEFICIARIES, AND SUCCESS INDICATORS (continued) Pfji Cwmponen tltvly Phyial Ilnpmuntmln EAssit DmIt x--bi -- T.rget 777._L 2.4 Poultry vaccination against Newcastle disease Chickens vaccinated About 32,500 Chicken mortality 325 villages 2.5 Home garden 280 demonstrations About 2,800 Number of adopters and intensification incremental vegetable and fruit tree production 2.6 Improved farm access roads Improvement or construction About 400,000 Kilometers of roads upgraded and of access roads, bridges households numbers of bridges and culverts and culverts built 2.7 Local community To be determined To be determined Sample studies will be undertaken initiatives to measure the impact and welfare among the rural poor. Also, the number of approved actities initiated by women groups will be measured. 2.8 Training of staff and About 450 staff and 4,250 About 4,700 persons Number of persons trained, by farmersmvillage leaders farmers and village leaders category and gender trained. 3.0 Component C: Institutional strengthening of support services and local gove nment agencies 3.1 Strengthening of human 216 sm. of local TA and About 3,100 trained Number of persons trained, by resources (technical about 960 staff and 2,125 persons category and gender assistance and training farmers and village leaders of staff, farmers and village leaders) 3.2 Improvement/ 1 new and 11 rehabilitated 50,000 households Number of facilities operational; establishment of Poskeswan birth and mortality rates; number animal health posts of vaccinations operation (Poskeswan) _ 3.3 Improvement of rural Two new and 50,000 households Number of facilities operational; extension centers 17 rehabilitated RECs numbers of demonstrations held _and farmers contacted 3.4 Improvement of seed 14 seed farms to be 50,000 households Number of facilities operational; farms improved production of improved seeds 3.5 Kecamatan mapping improved Maps for 42 kecamatan 400,000 households Number of maps produced

44 PROJECT BENEFITS, AGRICULTURAL PRODUCTION, MARKETING AND FARM INCOMES Project Benefits 6.1 The project would raise smallholder incomes, promote equitable regional development, encourage broad based participation in development, and strengthen local level institutions in the two Nusa Tenggara provinces. The project, together with others, would support and supplement GOI's ongoing efforts to improve the standards of living in the country's eastern islands. The main benefits are categorized below (see Table 5.1 for further details): (a) (b) (c) direct impact on target beneficiaies through increased agricultural production and incomes and improved rural infrastructure, especially roads. An estimated 75,000 households (or about 20 percent of the rural households in the target areas) would directly benefit from participation in some of the main interventions under Component B. After completion of the project the number of beneficiaries would further increase due to continued introduction of better production technology generated by research (Component A), improvement of agricultural support services, and redistribution of breeding cattle; direct impact on local government institutions as some 1,000 civil servants from the two provinces would receive short-term training and gain practical experience from the project; and improved capacity of local governments to plan and execute multisectoral development programs using community-based planning systems. This would allow local governments to plan better for future development, improve future utilization of annual budget allocations and replicate the experience of the project in other areas. Agncultural Production 6.2 Farm Models. Estimates of incremental crop production have been based on two farm models representing, respectively, (a) some 30,000 farms with an average size of 0.5 ha irrigated land served by a total of about 200 farmer-managed village irrigation systems, and (b) about 17,600 farms with an average size of 0.75 ha rainfed land which are the focus of the pilot component on dryland technology. It has further been assumed that some 10 percent of the irrigated farms and 60 percent of the dryland farms would take up livestock keeping under the project by acquiring breeding cattle. Also, some 2,800 farm households are projected to increase the production from their home gardens. Obviously,

45 the selected farm models are simplifications of diverse situations existing in the field. Soil and water conditions in the project areas and cultural preferences of the people are the determinant factors in the choice of farming systems. The selected models obscure large variations in climatic conditions and productive potentials in the two provinces and within islands. Also, there will be large differences in the time periods farmers will need to adopt improved cultivation practices, in some cases continuing beyond the project horizon and necessitating the making of assumptions for the purpose of quantifying project benefits. Any new option involving substantial cash outlays for inputs will require convincing evidence of its attractiveness. Yet, the models capture the essentials of the prospects for improving agriculture in Nusa Tenggara. Generally, a conservative stance has been maintained for the projections of future production. 6.3 Improvements in Productivity. With regard to village imgaton the model assumes that physical improvements to the schemes (diversion weirs, field canals, etc.) already have been made, in particular under the recently completed NTASP, GOI's ongoing Village Irrigation Improvement program, and the Asian Development Bank supported Farmer-Managed Irrigation Sector project. As a result of those projects, water supply in the affected schemes becomes more reliable and often more plentiful. This would permit some increases in cropping intensity, on average from less than 100 percent to 120 percent or more, through the introduction of a second irrigated rice crop in part of the scheme areas, or the expansion of palawija crops such as soybeans. The present project would follow up on the infrastructure improvements with field demonstrations and extension of improved production practices (HYV seeds, fertilizers, etc). The demonstrations are expected to result in modest additional increases of the crop yields for paddy (from an estimated 3.5 ton to 4.0 ton/ha), soybeans (from 0.9 ton to 1.2 ton/ha), and other palawija crops. 6.4 For d&yland crops the model assumes a cropping intensity of about 85 percent without the project. The crops are mostly upland rice or maize, and beans (mungbeans, soybeans, etc.). The project would give the farmers the means to diversify into commercial tree crops (mainly cashew, cocoa and coffee), fodder/fuel trees, and grass. They would also be encouraged to intensify food crop cultivation. The model assumes an increase in cropping intensity to about 135 percent. This increase would occur gradually, allowing sufficientime for the farmers to test the recommended new practices. Maize yields would increase from 1.5 to about 2.5 ton/ha for farmers who would adopt the use of hybrid seeds and application of basic fertilizer dosages (Model 2), but only about 1.6 ton/ha for those who would not (Model 1). Mungbean yields would increase by about 50 percent from 600 to 700 kg (Model 1) or 900 kg/ha (Model 2). Cashew trees would start yielding 1 kg dry raw nuts/tree from year 6, increasing to about 7.5 kg nuts/tree by year 11 (Models I and 2); the average farmer would have about 25 trees. 6.5 The house plot crop model assumes a decrease in the cultivation of cassava and an increase in the planting of mangoes, jackfruit, vanilla, ginger and lamtoro. Yields of food

46 crops (maize) are expected to increase by about 25 to 3 5 percent due to modest use of cash inputs and better cultivation practices. 6.6 In livestock keeping, improved cattle feeding practices and better health care are expected to (a) increase cattle birth rates from about 55 percent to 65 percent, and (b) decrease mortality rates from 15 percent to 8 percent for animals under one year of age and from 3 percent to 2 percent for animals over three years. Development of a community based system to control Newcastle disease among village chickens would reduce chicken mortality rates substantially. Water buffaloes distributed under the project would help relieve draft power bottlenecks. 6.7 Incremental Production. The farm models referred to above indicate a direct project induced incremental annual production at full development, equivalento about 3,000 ton of paddy, 9,000 ton of maize, 4,500 ton of soybeans, 1,900 ton of mungbeans, 3,300 ton of raw cashew nuts, 140 ton of mangoes and jackfruits, 10 ton of vanilla, 35 ton of ginger, and about 1,000 head of cattle (year 10). In reality the composition of the incremental production is likely to be far more diverse. Part of the cashew nuts would be substituted by cocoa or coffee, while some of the mungbeans and soybeans would be replaced by other beans and groundnuts. The value of the incremental production at fiull development would be equivalento about US$6.0 million per year (for details see Annex 1, Table 1). Marketing 6.8 In the light of the experience under NTASP, marketing of the incremental production generated by the proposed project is not expected to cause serious difficulties. In the ICR for NTASP' 2 no reference has been made to agricultural produce marketing problems. Food crop markets are relatively free and competitive, except for rice sold at government guaranteed prices. A large portion of the project induced food crop production would be consumed by the producers themselves and other local people. The prospects for selling tree crop products (cashews, cocoa, coffee, coconuts) are good. Following the removal of a number of restrictions on exports of cocoa and coffee in 1990 and deregulation of copra marketing and processing, the markets for tree crops have become very competitive, with farmers receiving remunerative prices and in the case of export crops, a large share of FOB prices. The markets do not seem to be affected significantly by local and provincial taxes on intra-regional movements of goods and produce. 6.9 Cattle sales for slaughter and breeding are subject to quota for inter-island exports. Although these and other restrictions depress the farmgate prices, cattle keeping still 12 Implementation Completion Report for the Nusa Tenggara Agricultural Support Project, Loan 2638-IND, June 1995.

47 -40 - appears to be viable both financially and economically (see para and Annex 8). A study would be conducted during the first project year to examine the rationale and impact of the current trade restrictions on farmers' incomes and to propose changes, where appropriate. An assurance has been obtained from GOI during negotiations that by June 30, 1997 such study would be submitted to the Bank for review and comment The ICR for NTASP indicates that the full income potentials of the improvement in irrigation facilities were not realized under NTASP in many instances, among others, because of shortage and timely availability of good quality seeds. The proposed project would support the production of quality seeds and seedlings by the Dinas seed farms and nurseries, through civil works and equipment, as needed. Farm Incomes 6.11 Net farm incomes are expected to increase as a result of improvements to the irrigated and dryland cropping systems, cattle and poultry keeping, and intensified home gardening - either separately or in combination with one and another. In general the core project interventions would yield a substantial increase in net incomes when combined in a whole farm approach Farm incomes for the two basic crop models are given in Table 6.1. The models show, amongst others, that net income from 0.5 ha irrigated land would increase modestly by about 15 percent to about US$530 equivalent when pre-project infrastructure improvements are followed by better agricultural practices. Net incomes on 0.75 ha dryland are expected to increase substantially from US$135 to about US$240 equivalent at full development (year 10) with the recommended intensive cultivation of food and tree crops, and to about US$290 equivalent if farmers would continue to use modest quantities of fertilizers on their food crops. Net income per workday would increase modestly to just over US$6 equivalent on irrigated land and to about US$3 on dryland farms. Further details are given in Annex 1, Tables 2 and 3.

48 -41 - Table 6.1: Summary Farm Budgets (US$ Equivalent) Irrigated Farm Dryland Farm (0.5 ha) (0.75 ha) With With Without With Without Project Project Project Project Project 1 2 Grossprod. value Production cost Net prod. value NPV per labor day Farmers who keep cattle, in addition to practicing improved irrigated or dryland cropping, would be able to supplement their net incomes. However, during the early years cash returns from a project-supplied heifer would be irregular and far apart. Under GOI's cattle distribution rules the farmers would be allowed to either keep or sell the first calf (they probably would keep the females) but would have to return the second and third calves. The first calf would be bom about two years after the arrival of the original heifer and, if sold, be worth about US$150 equivalent one year later. Only from the sixth or seventh year onwards would the cattle keepers be able to regularly sell (once per year with some luck) descendants from the original heifer or her retained daughter(s). Animal keepers other than those receiving breeding stock from the project also would benefit because of the improvements to the animal health facilities, resulting in lower mortalities and higher calving rates Net incomes from improved home gardening are expected to double from about US$35 equivalent on a plot of 0.2 ha to about US$80 through the introduction of high value crops such as fruit trees, vanilla and spices. The average number of work days in the home garden would nearly double and the net income per day worked would increase from about US$3 to nearly US$5 equivalent.

49 ECONOMIC JUSTIFICATION, ENVIRONMENTAL IMPACT ASSESSMENT AND RISKS Project Alternatives 7.1 Several design alternatives were considered during project preparation, as shown below: (a) (b) Project Scope. The original terms of reference for project preparation covered five provinces in eastern Indonesia. Subsequently, the Bank and GOI decided to design separate projects for two pairs of provinces, i.e. the two Nusa Tenggaras and Central and S.E. Sulawesi, and drop the fifth (Irian Jaya) in order to keep implementation and supervision arrangements simple and manageable. For the same reason the project scope was curtailed to agriculture and limited infrastructure development (roads), excluding sectors such as health care and education; Project Sub-components. Several proposed sub-components for agricultural area development were dropped for various reasons. Land titling was not included because on balance comprehensive national coverage reflecting national priorities is preferred over fragmented regional coverage. Goat distribution was dropped as a sub-component because there already are a multitude of goat schemes proposed or under implementation. Upgrading of village irrigation structures was deleted after preappraisal because Government had just started a large-scale Improvement of Village Irrigation Schemes Project (PID) and the Asian Development Bank had agreed to finance a Farmer-Managed Irrigation Sector Project. Fishponds were not included because they were not successful under NTASP. Marine fisheries would have added complexity while addressing only a restricted group of beneficiaries which would be better served by a specialized project; (c) Planning Arrangements. The selected arrangements reflect current insights and GOI policies on the roles of national, provincial and local government entities. A perceptible shift is now underway from sector operations, planned and implemented by central government agencies, to more integrated development efforts planned and executed at the local levels. The experience gained under NTASP and other recent projects appears to confirm that chances of success for locally planned projects are likely to be better; and

50 (d) Implementation Arrangements. The NTASP experience confirmed the importance of beneficiary participation in project implementation. Under the proposed project the kabupaten Dinas would work closely together with LCOs to further encourage beneficiary participation in the planning and implementation of all area-based schemes. Fiscal Implications and Cost Recovery 7.2 The proposed project's main component (B) would be implemented by the existing provincial and kabupaten Dinas. The project would support the Dinas by training their staff, procuring transport facilities and equipment, and paying staff honoraria and allowances to facilitate effective implementation of all sub-components. None of these support measures would have fiscal implications beyond the project implementation period. Recruitment of new staff would be limited to a relatively small number of persons to man the eleven newly constructed Poskeswan and two RECs. Construction would proceed only after obtaining agreement from the kabupaten concerned to pay the O&M costs of the facilities. In addition, assurances have been obtained from GOI during negotiations that fees would be charged to the users of the Poskeswan (see para. 3.18). The impact of the new facilities on the local governments' budgets is therefore expected to be less than five percent of their total agriculture budgets. 7.3 Farmers would have some capacity to contribute to the implementation of subcomponents, such as roads and water infrastructure, usually in the form of labor. For the irrigated cropping, dryland cropping and home plot improvementsubcomponents, the project would provide free inputs to early adopters. This subsidy would serve the purpose of demonstrating the merits of the chosen technology to follower adopters who would have to pay the full costs of the inputs. The research and extension components are by and large public goods and are not practically amenable to direct cost recovery. 7.4 During the first few years after adopting improved crop production systems, the emphasis would be on procurement of inputs required to sustain the adopted levels of production. Farmers would be encouraged to join hands for the procurement and financing of inputs by setting up informal revolving funds. Once such arrangements would have been set up, more emphasis would be given to the recovery of all relevant production costs from the farmers, either by imposing adequate user fees, or by turning over the provision of services to the private sector. Progress should not be forced, however, and sufficientime should be allowed for viable practices to develop.

51 Poverty Impact 7.5 The proposed project is targeted at the poorer sections of the Nusa Tenggara provinces. Project activities would be planned on the basis of demands from, and in close consultation with, the people. Estimates of the proposed project's quantifiable benefits indicate substantial increases of incomes for dryland farmers from about US$135 to about US$240 equivalent and a more modest 15 percent increase to about US$530 equivalent, for irrigated farmers (for further details see Chapter 6 and Annex 2). In addition, the project is likely to generate substantial, but as yet not quantifiable, benefits for the people in the targeted areas, such as better road access and improved availability of farm produce and farm inputs. Economic Analysis 7.6 Treatment of Components. The project's Economic Rate of Return (ERR) was estimated for Components B and C. For component A, agricultural research, the benefits also would be significant but difficult to quantify. The impact of research would be longterm in nature and would extend well beyond the project areas to the entire territories of the two Nusa Tenggara provinces. Although calculating an ERR for the research component would indeed be difficult, earlier analysts facing the same problem have found it useful to relate research cost to the size of the agricultural sector in the concerned area. For the two provinces the annual value of agricultural production, excluding forestry and fisheries, is about US$800 million equivalent (1992). The project's research component would cost about US$4.3 million over six years. This investment would generate an economic rate of return of more than 50 percent if it were to prompt a one-time 0.25 percent increase in agricultural production (a conservative assumption) in the two provinces from the third project year onwards. 7.7 No attempts were made to estimate separate ERRs for Components B and C or for different productive sub-components because: (a) most components and sub-components are complementary, for example cropping and cattle keeping; and (b) there are no clearcut ways to allocate the cost of supporting investments, e.g. road improvements, technical assistance and training, among the separate productive activities. The cost of "other local community initiatives" also have been excluded from the calculations because those activities and their benefits have not been identified as yet. These costs represent about 30 percent of all area development investments, including road improvements, and about 40 percent excluding the roads. There is no reason to expect lower economic returns for these activities than for the identified project components. Consequently, a conservative 25 percent of the overhead costs and supporting investments were excluded from the calculations. A twenty-year time period has been assumed in the analysis. 7.8 Prices. In carrying out the analysis, the economic prices for rice, maize, soybeans, and fertilizer were based on prices derived from World Bank international market

52 projections for these commodities, adjusted for east Indonesia transport costs. The economic price of cashew was based on a recent FAO study which projected economic farm gate prices for this commodity in the Nusa Tenggara provinces. The economic price of mungbeans was equated with local market prices as production of this commodity in the target areas is not import substituting. The economic price for cattle is not a straightforward matter, as the preferred product in Indonesia is fresh meat, rather than frozen, and thus imports cannot serve as an indicator. Local prices were used conservatively, as these prices are lower than the (unknown) economic price. An experiment with a 15 percent higher price had only a very small impact on the ERR. Most project areas are not densely populated and economic wage levels are assumed to equal the local market wage rates which are rather low. No discount factor for labor cost was used in the base case. However, it was deemed useful to test the ERR's sensitivity to changes in the wage rates (see para. 7.10). A list of financial and economic prices is at Annex 6, Table Rate of Return. The ERR of the project has been estimated at 17 percent. A summary of the cost and benefit streams is at Annex 6, Table Sensitivity Analysis. If some of the risks alluded to in para were to materialize, the effect on the project's ERR would be as indicated below: (a) delay of benefits (but not of costs) due to institutional or technical implementation problems: (i) (ii) by 1 year : ERR 13 percent; and by 2 years: ERR 10 percent (b) decrease in overall benefit levels due to overestimation of local governments' capacity to provide adequate project follow-up support, or because of climatic or other technical difficulties: (i) (ii) by 10 percent: ERR 13 percent; and by 20 percent: ERR 9 percent (c) decrease in benefit levels for the dryland crop component if a proportion of the farmers would abandon the recommended new technology after two years and revert to the traditional practices: percentage of dryland farmers reverting: (i) (ii) fifty percent: ERR 13 percent; and seventy-five percent: ERR 11 percent

53 46 - (d) decrease in benefit levels for the livestock component resulting from a slower reduction of mortality rates for 0-2 year old cattle due to climatic or institutional constraints as follows: (i) (ii) 0-1 year old calves mortality 11 percent instead of 8 percent; and 1-2 year old heifers mortality 6 percent instead of 5 percent: ERR 16 percent (slight decrease from to percent) Another sensitivity test conducted concerns the price of labor. A case could perhaps be made for lower than market opportunity costs for labor given the overall state of poverty in the project areas and the lack of other productive opportunities. The effect on the project's ERR would be relatively small: (a) a 1.4 percent increase if the opportunity cost of labor were decreased from Rp 2,000 per day to Rp 1,500 per day; and (b) a further 1.4 percent increase (to 19.5 percent) if the opportunity cost of labor would be reduced to Rp 1,000 per day. Environmental Impact Assessment 7.12 Environmental Screening. Proposed project interventions have been screened in order to identify their impact on the environment. Main characteristics are summarized below: (a) vilage irrigadon systems already have been physically upgraded before the start of the proposed project, or are being improved simultaneously, under separate arrangements outside the framework of the proposed project. Those improvement works would entail construction of permanent weirs, intake structures, and primary canals to improve the efficiency of water use by farrners on existing paddy fields. As a result there would be a marginal expansion of cultivated areas in some of the schemes. This would not involve land clearing since, typically, land adjacent to the schemes already is used for rainfed cropping. The proposed project's intervention in the schemes is limited to demonstrations of improved cropping and livestock practices, including the use of improved seeds, modest quantities of fertilizers, and small amounts of pesticides; (b) drylandfarming actvities would be located in upland areas with slopes from 8 percent to 25 percent. Typically, these areas are used for shifting cultivation and grazing, and, in the absence of conservation practices, may suffer from surface erosion and deterioration of soil fertility through leaching of nutrients;

54 (c) (d) (e) (f) cattle ditibuon would be preceded by training of farmers on intensive livestock management practices. The recipients would plant forage tree crops and establish corrals; home garden improvements would be carried out within existing settlements; farm to market roads would involve improvement of existing tracks, trails and village roads. No new roads would be constructed; and ullage water supply systems may be included under "other local community initiatives" and would involve permanent spring captures, pipelines and public hydrants to supply clean water to existing settlements The predicted environmental impact of the proposed project interventions on the main components and sub-components of the environment has been classified into three categories: (a) possible but minor, (b) minor to moderate, and (c) major. The impact could be either negative or positive. (a) Impact on the Physical Environment (i) (ii) Soil and Land. Project activities involving the clearing of brush, cultivation of grasslands, and improvement of farm access roads, are potentially harmfuil, especially where slopes exceed 8 percent. The negative impacts in the areas concerned are classified either as "minor to moderate", or as "possible but minor". The project would mitigate these negative impacts by provision of correct road alignments, use of land preparation methods with minimum topsoil disturbance, contour planting systems, and other conservation farming methods. After following the directions outlined above, the overall effect of the project would be positive as the land would be stabilized following a period of degradation under the existing farming systems; Hydrology. The establishment of conservation farming systems, would reduce run-off and improve the soil: water regime. Water would drain from the land more uniformly and stream levels should become more stable. Land presently supporting Imperiata Cylindrica or a mixture of low regrowth and shifting cultivation would show the greatest benefits and minor positive impacts are likely in the remaining areas. No dams or reservoirs would be constructed. However, village irrigation improvements and village water supply from spring capture systems may result in some reductions in the flow of area streams due to increases in usage of water for irrigation and domestic consumption; and

55 (iii) Water Quality. The acidity, BOD (Biochemical Oxygen Demand), COD (Chemical Oxygen Demand) and color of the stream waters are unlikely to change significantly as a result of increased fertilizer use or small scale processing activities for estate crops. Conservation farming would lead to reduced run-off and lower sediment levels. Raising of the levels of sanitation in rural households and offices would have a positive environmental impact. Therefore impacts on water quality are positive. (b) Impacts on the Biological Environment (i) (ii) Land Use. Typical land use in the project areas includes a mixture of low brush regrowth, Imperiata Cylindrica grasslands, and temporary arable plots as part of shifting cultivation systems. In these circumstances land clearing at the scale envisaged is not environmentally damaging. Heterogeneity of vegetation may be reduced in some secondary growth areas, but the resultant negative impact is classified only as "possible to minor",; Flora and Fauna. Animal and insect populations may be slightly reduced in number and diversity. However, no rain forest would be removed. The agricultural development areas no longer have their original assembly of species and in some locations considerable simplification already has occurred because of previous farming activities. The overall environmental effect is considered to be positive. The endangered flora and fauna in the targeted provinces include: Komodo (Veranus Komodoensis); Duyung (Dugong-Dugong); Kakatua (Cacatua Sulphurea Citrinocrictata); Kuskus (Phaluger Sp.); and Sandalwood (Santalum Album). None of the project interventions are expected to have a negative impact on these species directly or on their habitats, nor on existing mangrove, coral reef or sea grass areas; (c) Impacts on the Social, Cultural and Economic Environment (i) Social Aspects. No serious social or cultural tensions have been reported in the target areas. Project design provides for the direct involvement of the local communities in planning and

56 implementation of project activities. It is not anticipated that any induced socio-economi change would result in a significant deterioration of current social values. Adoption of new technology by the project participants would be on a voluntary basis; and (ii) Cultural Aspects. None of the target areas appear to include locations of major monuments of archaeological significance. Cultural habits and customs reflect a pattern of life that centers on small scale farming activities. The project interventions would not change this basic lifestyle, but aim to create a more sustainable pattern of land use and provide technological options for improvement of water supply, sanitation, grain storage, etc Environmental Mitigating Procedures. The environmental impact of the project interventions is predominantly positive. Most negative impacts occur during the physical construction period. The mitigating procedures recommended for potentially environmentally negative project activities are summarized below: (a) (b) (c) (d) (e) Farm Road Construction. In steeply sloping areas roads would be aligned so as to minimize erosion effects. Exposed land areas where heavy run-off is expected, should be planted with cover crops; Land Clearing. The scale of land clearing is small and would be carried out only on individual farm plots where the existing vegetation is bush or grass. Ground cover would be quickly re-established after clearing; Tree Crop Planting. Low density tree plantings are recommended in all areas in order to permit intercropping of food crops. The extension services would encourage smallholders to intensify food crop cultivation in areas which are best suited for sustained cropping; Pest Control. Proposed pest control measures under the project are consistent with the recommendations of the Ministry of Agriculture. The Government has agreed with the Bank to implement by August 1997 an action plan for regulatory and environmental management of pesticides (Integrated Pest Management Training Project, Loan 3586-IND). Chemical control of wild pigs is not recommended as this may present a threat to the people and other wildlife in the region; Construction of Project Facilities. The facilities would only be constructed on non-forest lands. Septic tanks would be constructed for all facilities to dispose off waste water; and

57 (f) Water Management. The potential impact of village irrigation and potable water supply systems on surrounding areas would be examnined carefully in consultation with all users to determine optimal levels of water use and fair sharing arrangements in order to preclude potential conflicts Funding would be allocated for environmental monitoring for the duration of project implementation. BAPPEDA Tk.I and Tk.II in each province would work closely with the kabupaten Dinas concerned to monitor field activities posing potential risks to the local environment. Gender Aspects 7.16 Women in the rural areas of Nusa Tenggara play a central role in agricultural activities, in addition to child rearing, cooking and other household tasks. Women also do much of the work for food crop growing and in the family house plots. They are frequently involved in harvesting, processing and marketing of estate crops. In addition, women are normally responsible for small livestock (chickens and ducks), less involved with goats and pigs (Nusa Tenggara Timur only) and not usually involved in the husbandry of larger animals (cattle and water buffaloes). In all areas, women are reported to be the treasurer of the household funds. Women play a significant role in agriculture but have not received specialized training to enable them to work better and more efficiently The characterization of Agro-ecological Zones to be conducted by NAIAT staff during the first two project years (para. 3.8) would include investigations of gender specific and non-gender specific activities. It would also include an analysis of priorities, constraints, opportunities and potential for improving productivity of farming systems within specific gender roles. Avoiding inequitable access to resources and preventing inequitable transfers of labor are a special concern, particularly increases in the labor burden of segments of the population that are already over-employed. On the other hand, special efforts would be made to include women and other identified target groups in mainstream activities through gender analysis training for research and extension staff and the carrying out of gender analysis studies to identify technologies and agricultural production systems targeted for women, involvement of women in on-farm trials, postharvest processing, technology testing, marketing studies, small enterprise development, etc. Collaborative activities would be established with existing national and regional women's organizations, including informal organizations, to identify opportunities for increasing women's involvement in agricultural development activities consistent with their active role in the agriculture sector. More opportunities to support and optimize their important contribution and to enhance their economic status would be identified by their increased involvement. Preference for selecting community development schemes would be given to proposals involving women and youth groups. Participation of women in the various project activities would be monitored in the M&E program.

58 Project Risks 7.18 Three risks have been identified and taken into consideration in project fornulation and design: (a) (b) (c) Capacity of the Local Government Agencies. Sub-standard capabilities of the local Dinas continues to be a risk, as under the previous project. According to the ICR, NTASP strengthened the local, provincial and nationalevel institutions in their respective roles in planning, implementing, and coordinating decentralized and multi-sectoral interventions. The ICR also noted that the focus on implementation through the existing administration structure at the provincial, kabupaten and kecamatan levels, and a systematic effort for using the project area local community organizations, were important aspects of project implernentation. Further strengthening of local institutions is needed under the proposed project in order to avoid unnecessary implementation delays and minimize the risk of poor performance. The project therefore provides for training of agency staff and commnunity leaders, procurement of field facilities, and employment of technical assistance for project implementation. These support activities would be undertaken during the early project years to provide a sound basis for planning and implementation of area development activities. The volume, scale and complexity of project interventions would be planned from year to year on the basis of a realistic assessment of institutional capacities, both in the local Dinas and the participating LCOs; Organizational Structure. Institutional complexity of the proposed project is another risk and may, together with weaknesses of local Dinas (referred to above), cause implementation delays. This risk is reduced by assigning clear responsibilites to the various agencies and by using the emisting organizational structures, operational procedures (which may be improved under the project), and coordination arrangements. Technical assistance would help improve the project management during the early stages of implementation, and Adverse Local Conditions. Extended seasonal droughts can cause severe damage, imposing serious risks on project-supported crop and livestock activities. Drought resistance would probably be the most important criterion for successfully introducing improved crop husbandry practices. Proper phasing of activities (emphasizing moisture retention) and providing good planting materials and breeding stock, would be the key elements of farm assistance packages geared to rinimizing the potential damage from droughts. Related to the physicalimitations is the occurrence of wide-spread poverty among the rural population and their virtual inability to buy cash farm inputs. A key lesson of NTASP, reflected in the design of the present project, is that

59 cash outlays for improved farning should be mnmized as much as possible, especially in the early stages of development. Meanwhile, the project would support the experimenting with revolving fund schemes, encouraging farmers to jointly procure and finance farm inputs.

60 AGREEMENTS REACHED AND RECOMMENDATION Assurances 8.1 During negotiations assurances have been obtained from Governmenthat: (a) for road improvement works: (i) (ii) allocations would not exceed US$250,000 equivalent for each kecamatan included in the project (except those on Lombok), and priority would be given to villages where needs are demonstrated to be highest, the villagers are committed to actively contribute to the implementation of the works, and local government has agreed to maintain the completed works (para. 3.14); (b) (c) local community initiatives would be selected in accordance with criteria detailed in Annex 2, paras. 58 and 59 (para. 3.16); for rehabilitation, construction and improvement of RECs, Poskeswan and seed farms, funding would be dependent on the kabupaten level governments providing an integrated management plan for each facility. Such a management plan would include: (i) (ii) (ini) (iv) staffing levels; estimates and sources of annual funding requirements to support successful operation; expected benefits to area farmers; and planned types and levels of user fees or other cost recovery systems, if applicable (para. 3.18); (d) (e) beneficiaries of the cattle and buffalo distribution programs would return the second and third born calves for redistribution among other interested farmers or for sale to cover part of the operating costs of the livestock support services (para. 4.5); vehicles required for the project would be provided by GOI under a schedule and timetable agreed with the Bank (para. 4.7);

61 (f) (g) (h) Government and its agencies would comply with the reporting and auditing requirements as specified in para. 4.16; a PMU with competent staff in adequate numbers would be maintained in each participating kabupaten until completion of the project (para. 5.4); Government would submit to the Bank for its review and comments: (i) (ii) not later than September 30 each year, a coordinated work program and cost estimates for the project for the following fiscal year; and by December 31 each year, a coordinated budget proposal for the agreed provincial work programs (para. 5.10); (i) 'i) Government would submit to the Bank by September 30, 1998 a mid-term review report for review and discussion with the Borrower by October 31, 1998, and thereafter take all necessary measures to ensure the efficient completion of the project and the achievements of its objectives, based on the conclusions and recommendations of the mid-term review report (para. 5.16); and a study to examine the impact of current cattle trade restrictions on farmers' incomes and to propose changes, where appropriate, would be submitted to the Bank for review and comment by June 30, 1997 (para. 6.9). Recommendation 8.2 Subject to the above agreements, the project would be suitable for a loan of US$27.0 million equivalent to the Republic of Indonesia for 20 years, including a grace period of five years, at the Bank's standard variable interest rate.

62 ANNEX 1 Page 1 of 9 INDONESIA NUSA TENGGARA AGRICULTURAL AREA DEVELOPMENT PROJECT Naibonat Assessment Institute for Agricultural Technology Background 1. The main body for agricultural research in Indonesia is the Agency for Agricultural Research and Development (AARD) which was established by Presidential Decree in AARD is designated to coordinate, manage, and conduct agricultural research and development throughout Indonesia through the direct management of sixteen research institutes located throughout the country and through playing a coordinating role with a further ten institutes conducting research on estate crops. To adapt to the changing demands of the agricultural sector, AARD is being reorganized (1995 Ministerial Decree). The objective is to: (a) improve the efficiency and cost-effectiveness of research and development (R&D) through decentralization of services to the regions, and (b) focus on specific agro-ecological zones (AEZ) and resource-based development generating location-specific technologies. This also would help achieve a more balanced development between regions. In addition, R&D activities would focus on market oriented and demand driven technologies to serve the changing needs of both farmers and consumers for higher quality and more diversified products. 2. Within the regional framework, the strategy will aim to generate location specific technologies using a farrning systems approach (FSR). This would be achieved by five main related activities: (a) (b) (c) (d) (e) regional problem identification through better research-extension-farmer linkages; closer collaboration between research and extension to adapt, refine and repackage technologies to meet local farmers needs; technical demonstrations which would link researchers, extension workers and farmers closer together; organization of field days; and production of materials and information which meet and recognize the absorptive capacity and educational level of the farmers.

63 ANNEX 1 Page 2 of 9 This departure from a previous strong sector based and centrally managed approach to research would demand closer collaboration and coordination between research staff and provincial government staff (particularly extension), members of the private sector (including NGOs), as well as creating stronger links with regional universities (for specific research topics and training). 3. Action has been taken to reorient the mandates of 15 commodity research institutes of which: five are involved with food crops; three in horticulture; three in industrial crops; two in livestock; and three in fisheries. All of the substations of these national research institutes will be fully integrated into the new Assessment Institutes for Agricultural Technology (AIAT). At the regional level, 17 AIATs will be established under the Center for Agricultural Socio-Economic Research (CASER). These AIATs will be staffed by AARD research staff from existing research stations and substations already deployed in the regions, existing personnel from the former Agricultural Information Centers (which are all to be integrated in the AIATs) and AARD staff to be relocated to the regions from the national research institutes. Each AIAT will have a Regional Advisory Committee chaired by the head of MOA's regional coordinating office (KANWIL) and co-chaired by the head of BAPPEDA with members drawn from various Dinas, local universities, research institutes, farmer groups and the private sector. The Regional Advisory Committee will guide the AIAT on the R&D program, priorities and policies and will be assisted by Regional Technical Working Groups drawn from the various agencies. Bank Involvement in Agricultural Research 4. Bank support to AARD began in 1975 with the Agricultural Research and Extension Project (Loan 1179-IND) for US$21.5 million of which US$16.7 million was for research. The project strengthened production oriented research programs for rice, palawija crops, highland vegetables and rubber through provision of buildings, equipment, training and technical assistance. Support to AARD continued with the National Agricultural Research Project (Loan 1840/Cr IND) for US$65.0 million which placed more emphasis on crops other than rice (lowland vegetables, livestock, fisheries, forestry and estate crops other than rubber). To address perceived deficiencies in management and research planning, the Bank then supported the Agricultural Research Management Project (ARM I, Loan 3031-IND) for US$35.3 million which was designed to strengthen research planning and management. In addition, AARD has received Bank support for specific research components included in other projects (including NTASP), particularly in transmigration, swamp and upland area development. 5. In 1995 the Bank agreed to support the Second Agricultural Research Management Project (ARM II, Loan 3886-IND), which has the overall objective of strengthening regional research and development, ensuring location-specific technology, emphasizing market oriented and client driven technology packages, and improving the delivery of research recommendations to end users. The major focus will be on the phased establishment and operation of a network of AIATs (in 12 provinces) in the new regional

64 ANNEX 1 Page 3 of 9 network of 17 AIATs. General support to cover all 17 AIATs will assist strengthening of the regional management and planning capability and more specific program support will be provided to eight individual AIATs. In addition, research management reforms will continue to be implemented, a bottom-up planning and priority setting procedure will be established, and Indonesian access to internationally generated technologies and germ plasm would be strengthened through improved collaboration with national agencies and international research centers. Total project cost is US$101.8 million of which the Bank loan is US$63.0 million. The Project has commenced in June 1995 and will be implemented over six years. The NTASP Experience 6. The research component of NTASP established a main research station at Naibonat, close to Kupang on NTT, and two installations located at Maumere on Flores and Sandubaya on Lombok. The program of work commenced with a study of farming systems in NTT and NTB which was to provide the basis for applied farming systems research and on-farm trials to define FSR technology packages. Subsequently, a program of applied research was carried out and eight technology packages were defined. These packages are: (a) technology package for rainfed paddy; (b) house plot technology; (c) package for the critical land of Bobonaro clay; (d) dryland technology; (e) irrigated rice production; (f) livestock improvement; (g) food crop technology; and (h) cotton based technology. 7. The establishment of the FSR base in NTT and NTB represented the first serious attempt to develop a program of cross-sectoral farming systems research in the outer islands of Indonesia. The program can claim success in identifying and, to a certain extent, overcoming the considerable organization and management constraints associated with this multi-disciplinary approach. This success is reflected in the ARM II project which seeks to replicate the FSR methodology, pioneered under NTASP, in the 17 new AIATs. 8. Despite this qualified success, there were some serious weaknesses and limitations in the FSR program completed under NTASP. These, and the lessons learned, can be summarized as follows: (a) despite the setting of general objectives, there was from the outset a lack of a clear definition of objectives, priorities and policies for research. Constraints affecting low income farmer production in the region were not fully identified and research programs failed to respond to these important limiting factors. The establishment of linkages and the seeking of assistance at an early stage of the project from an international body such as ISNAR or an International Research Center (ICRISAT, CIMMYT, IRRI, IITA) would have identified and reduced this risk;

65 (b) (c) (d) (e) (f) ANNEX 1 Page 4 of 9 comprehensive and representative baseline data were not collected prior to commencement of the adaptive research activities and this prevented a detailed analysis of existing farming systems. Although the low income farmer was the target, the main factors limiting production at the subsistence level were not responded to in a systematic manner. These included farm inputs (tools, seeds, fertilizer and draft power), environmental aspects (drought proneness, erratic rainfall and porous soils), financial access (credit), and marketing outlets. In addition, insufficient analysis was made of the social-anthropological factors which limit the absorptive capacity and restrain the ability of low input farmers to change farming practices throughout the eastern islands; routine analysis of costs and benefits of existing farmer production systems (particularly irrigation) was not carried out and a comparison with the improved "with project" recommendations was not completed; as a consequence of the lack of detailed definition of the agro-ecological zones which characterize farming systems in the islands, suitable technology packages which respond to these local differences were not identified. The packages which were promoted were based on technology developed elsewhere and imported to the eastern islands; the FSR therefore acted more as a conduit for national research findings rather then establishing its own technology. An example of this is the excessively high average costs of inputs (Rp 1.17 million per hectare) for food crops in the recommended packages. Given the low level of savings and incomes, the absence of formal credit, the drought prone nature of the soils, and dominance of food security as a prime objective of the subsistence farmers, it is not surprising that the adoption rates were low and the packages clearly were not sustainable. No attempt was made to start with low inputlow cost technology and build the confidence of the farmers on a step-bystep basis; although demonstrations were established in farmers fields, these were implemented by research staff providing the high input packages on a grant basis. There was little involvement of the extension (PPL) staff and farmers. More impact would have been achieved if farmers and extension staff were more involved in the planning and implementation of these demonstrations and an element of cost recovery (such as provision of labor by farmers) would have sharpened the impact. FSR activities cut across four Dinas (food crops, estate crops, livestock and fisheries) and better coordination and collaboration between FSR staff and Dinas staff would have increased the relevance and impact of these demonstrations; and the technical assistance support for the FSR of NTASP addressed mainly sectoral issues (cotton, livestock and estate crops) and was not used

66 - 9- ANNEX 1 Page 5 of 9 effectively to assist FSR staff to define program priorities and develop training schedules. 9. The experience gained under the FSR program of NTASP will provide a good starting point for further valuable adaptive research to be implemented by staff located at the newly created Naibonat Assessment Institute for Agriculture Technology (NAIAT). The problems and lessons learned from analysis of the NTASP experience will be addressed in the proposed new project through a combination of the following: (a) (b) (c) (d) the formulation of a regional research master plan (funded under ARM II) and closer collaboration with national and international research bodies would improve the definition of priorities and policies and ensure that objectives are better met; a more detailed definition of agro-ecological zones would aid the identification of constraints facing regional farmers; strengthening of social and economic inputs would improve quantification of data and place more emphasis on the development of low input, location specific technology; and technical assistance would be focused to strengthen the management capability of the FSR staff and to assist with local problem solving. Proposed Developments 10. The main objective of the research component would be to develop locationspecific technology in close participation with farmers and extension staff. The support by the project would improve the capacity of the newly established NAIAT to carry out applied farming systems research, it would strengthen management and planning capability, facilitate technology transfer, and would strengthen R&D linkages with the private sector, local government departments, local universities and, internationally, would establish linkages with relevant international research centers. Agro-ecological zones would be more closely defined and technology packages developed and refined to meet the needs and aspirations of the low income farmers. Specifically, support would be provided for: (a) establishment and operation of NAIAT; (b) definition of agro-ecological zones; (c) staff resources development, technical assistance and R&D collaboration; and (d) on-farm trials and demonstrations. 11. Establishment and Operation of NAIAT. The ARM II project will provide general support for all 17 of the AIATs and more specific support for eight of those (for full details see the SAR for ARM II of April 1995). General support would include common activities to: (a) develop a regional MIS network; (b) strengthen regional research planning and management including priority setting, monitoring and evaluation,

67 ANNEX 1 Page 6 of 9 and development of regional R&D master plans; (c) improve regional financial management and administrative procedures, such as accounting, auditing and technical audit; (d) improve research station management; and (e) provide support for the implementation of the ARM II project. The eight AIATs receiving additional specific support under ARM II do not include the Naibonat AIAT, as it would be supported under the proposed project. Specific support would include construction of a new laison office in Kupang on Timor (NTT) and a small laboratory at Mataram on Lombok (NTB). Also at Mataram, part of the existing installation of NAIAT would be converted to a liaison office. A seed cold storage unit and drying floor would be constructed at Naibonat (NTT) and an irrigation system for about 50 ha installed at the Livestock Research Station located at Lili (near Kupang) on NTT. New staff housing would be constructed at Mataram. Basic furniture and laboratory equipment would be included for these new installations. Computer systems would be located at Naibonat (Kupang), Maumere (Flores), Sandubaya and Mataram (Lombok). Journals, periodicals and textbooks would be updated at the libraries of the main station and installations. Likewise, vehicles would be located at the main station and installations and, a boat at Maumere on Flores. 12. Definition of Agro-Ecological Zones. The characterization of agro-ecological zones has been identified as a priority research topic under the ARM II project for eight selected AIATs. For NTT and NTB the proposed project would support the definition of agro-ecological zones with the same objectives and procedures applied under the ARM II project. This support would build on the existing data and knowledge of the two provinces and would enable more detailed characteristics of the agro-ecological zones to be prepared during the first three years of the project. Data already exist in the form of reconnaissance soil surveys and climatic information but this needs to be defined in more detail for activity zones and combined with information on the social, cultural and ethnical characteristics of the zones. These studies would be implemented by research staff working with local provincial government staff, members of local community organizations (LCOs) and staff of local universities. The findings would form the basis of the more location-specific definition of constraints and potential facing the farmers and would assist in the formulation of low input technology packages. 13. Staff Resources Development, Technical Assistance and R&D Coflaboration. The new regional AIAT focus will require considerable reorientation and staff retraining who, up to now, have been mainly working in commodity oriented component research. Staff training would include training within Indonesia to masters, doctorate and shortterm non-degree or diploma training to strengthen staff capability in specific skills to effectively implementhe R&D. Technical assistance has been reduced from the level proposed during preparation in recognition of the high level of qualified and experienced staff available within AARD and the Naibonat AIAT. The technical assistance component, comprising both international and local consultants, would assist in strengthening the capability of NAIAT staff in technical and technology transfer fields. Intemational consultants would be recruited for farming systems expertise (eight staffmonths) and for unallocated, short-term expertise (10 staff-months). Local consultants would be FSR, agricultural economics, soil and water conservation, sociology, technology

68 61 - ANNEX 1 Page 7 of 9 diffusion, and laboratory training (66 staff-months). To ensure that the NAIAT research staff form strong links with international research institutes, funds have been included for R&D collaboration with bodies such as ICRISAT, CIMMYT, IRRI, and IITA. The prospects would be explored for the establishment of a twinning arrangement between NAIAT and one of these centers. Similarly, funds are included for collaboration with local university staff to undertake specific topic surveys and field research. 14. On-farm Trials and Demonstrations. This will cover all of the on-farm and applied field trial and demonstrations to be implemented and/or supervised by staff of NAIAT. In addition, the project would support the technology transfer of identified packages and recommendations through organization of field days, leaflet and poster production, slides and video processing (included in the functions of the former Agricultural Information Centers), workshops and publication of research findings. NAIAT staff field work would include experimental trials to test new technology under farmer and field station conditions (component research). This would be followed by onfarm demonstrations of new technology packages, implemented by NAIAT staff working closely with PPLs (extension staff), LCOs and selected farmers. A program of 680 ha of dryland farming demonstrations would be supported under the proposed project. The third stage of general replication would be implemented by field extension staff of the relevant Dinas working with farmers and, where available, LCO field staff. Priority Research Programs 15. Between 1987 and 1994, basic component technology and farming systems research was supported by NTASP at Naibonat (NTT), Maumere (NTT), and Sandubaya (NTB). The trials included: (a) (b) (c) (d) (e) (f) food crop yield trials of groundnut, soybean, maize, mungbean, cassava and pigeon pea; fertilizer trials, plant spacing and population, weeding control on intercrops of palawija crops; food crop and coconut, food crop and other industrial crops (cashew, cocoa, cotton, etc.); rainfed rice variety and fertilizer trials; alley cropping using forage grasses, fodder trees and industrial crops (coffee, cocoa and cashew); and various intercropping trials. 16. From these multi-locationai trials executed mainly on farmers land close to the research bases, eight packages or recommendations were released and demonstrated to

69 ANNEX 1 Page 8 of 9 farmers in 10 kabupaten in NTT and NTB. Bank Supervision Mission Reports, the Final Report of the Impact Evaluation Study, and the Implementation Completion Report all found shortcomings in the packages recommended for adoption under NTASP and more basic component research is required, particularly on fertilize response and variety selection of rice and palawija crops. A summary of priority research topics based on these reports is given below: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) more detailed AEZ studies to design the existing farming systems and, in particular, to quantify existing crop inputs and labor; development of low and intermediate input-technology packages for irrigation and dryland as first-step adoptions for low income, risk-prone farmers; continued emphasis on soil and water conservation practices which are tailored to suit both different agro-ecological zones and land availability of individual farmers; development of drought tolerant upland crop varieties and farming systems designed to mitigate food security worries of farmers; selection and testing of locally adapted varieties of crops (for example, sorghum and maize varieties from Sumba Island) leading to improved seed lines of these popular strains; quantification of village irrigation benefits and optimization of irrigated cropping systems with realistic farmer input levels; integration of livestock feed resources, particularly dry season fodder, within the food crop based farming system; identification and alleviation of post-harvest crop loss factors affecting rice and palawija crop storage; development of simple, integrated pest management models for adoption by farmers; selection and testing of locally available fodder trees and grasses for inclusion in alley cropping, fencing and contour bunds; identification and selection of suitable cover crops for use during the dry season on annually cropped land and as a fallow crop on shifting cultivation lands;

70 ANNEX 1 Page 9 of 9 (1) identification and testing of high value crops which show local comparative advantage on the different islands' soils and micro-climates; and (m) development of marine fish, prawn, clam, and seaweed production systems. 17. The AARD already has identified six priority topics for research to be carried out at NAIAT during 1995/96. These include livestock feed resources, low input lowland rice research, alley cropping, low income dryland crop research, socio-economic studies, and marine fish culture studies. Although these general topics would address some of the more specific research recommerndations given above, more detailed incorporation into annual work plans and programs would be required under the proposed project. Implementation Arrangements 18. The proposed project would support agricultural research over a six-year period. The NAIAT would be staffed by the existing personnel from the former NTASP research institute, complemented by staff from the former Agricultural Information Centers. Additional expertise not available within the existing staff would be provided from other AARD national centers. An overall regional development master plan and a detailed program of work for the first project year would be prepared by the Naibonat AIAT and submitted, through AARD, prior to commencement of the proposed project. The overall development plan would include the priority research topics and participatory research management mechanisms (similar to those proposed under the ARM II project) to ensure high quality and relevance of technology to local conditions and to strengthen the linkages of the NAIAT to farmers, local govemments, universities, the private sector and LCOs. 19. A Regional Advisory Committee, supported by a Technical Working Group, would assist the R&D on programming, technology dissemination and training. Farmers, provincial govemment and other participants or end users would be well represented on these two bodies. Proposed functions of the committee, AIAT and associated agencies are given in Attachment 1 (copied from Annex I of the SAR for ARM II). A Project Management Unit (PMU) with a PIMPRO has been established at the AIAT at Naibonat, and a PIU with a PIMBAGPRO at Sandubaya to implement the NTB portion of the program. The PIMPRO is responsible to the Director of NAIAT for the implementation of project activities.

71 ANNEX 1 Attachment 1 Page 1 of 2 INDONESIA NUSA TENGGARA AGRICULTURAL AREA DEVELOPMENT PROJECT Functions of the AIAT Committees Regional Advisory Committee: (a) (b) (c) (d) set the policies, strategies, and targets to ensure the attainment of project objectives, and review them as required; approve the detailed annual work plan and budget and endorse this to the AARD, through AIAT; provide guidance and advice to the AIAT Director on the timely implementation of project activities; and ensure coordination of public and private agencies, including regional and provincial groups and farmers, involved in project implementation. Refional Technical Working Group: (a) (b) (c) (d) (e) (f) provide technical guidance to the Regional Advisory Committee on project-related matters; provide guidance to the AIAT in regional R&D planning, priority setting, resource allocation, monitoring, and evaluation; review the detailed annual work plan and budget of each AIAT and recommended action to the Regional Advisory Committee; provide technical guidance to the AIAT during the implementation of the regional R&D programs; form part of the panel of evaluators for peer review of proposals and annual review of the achievements of the project; and ensure coordination of the Regional R&D Program with the National Research Programs during project implementation.

72 Assessment Institute for Agricultural Technoloev (AIAT): ANNEX 1 Attachment 1 Page 2 of 2 (a) (b) (c) (d) (e) provide headquarters, including full-time staff and support services for the daily implementation of the project; prepare detailed needs assessment, annual work plan and budget, quarterly reports of project status and accomplishments, and financial reports; monitor and report on detailed procedures, implementation schedules, and programs, with modifications if needed; review and revise implementation targets and financial resources needed to support future actions; and provide administrative support for the Regional Advisory Committee and the Regional Technical Working Group. Receivinf Institutions (AARD work units, universities. refional and orovincial institutions. Drivate sector): (a) (b) (c) prepare detailed needs assessment, annual work plan and budget, and financial report of expenditures for each category of input that they will receive through the project; monitor and report on detailed procedures, implementation schedules, and programs; and review and revise implementation targets and financial resources needed to support future actions.

73 ANNEX 2 Page 1 of 19 INDONESIA NUSA TENGGARA AGRICULTURAL AREA DEVELOPMENT PROJECT Implementation of Agricultural Area Development A. Village Irrigation Background 1. Irrigated agriculture covers over five million ha in Indonesia, of which about four million ha are under Government control and about one million ha served by farmer managed systems. Public Works Department data of 1992 on the coverage of Desa Irigasi (village irrigation) schemeshow 810 schemes with 43,000 ha in NTB and 960 schemes with 124,000 ha in NTT. The inventories are subjecto verification and updating. Information collected by the Bank's preappraisal mission for the proposed project on the island of Sumbawa suggests that coverage of village irrigation schemes in NTB has been underestimated in the 1992 inventory. For NTT, on the other hand, the estimates are probably too high. 2. Traditional village irrigation schemes usually consist of makeshift, temporary structures and earthen canals to divert water from rivers or streams to the fields. The size of the schemes depends on the volume of water in the streams and may vary from less than 20 ha to more than 300 ha. Some of the schemes have water all year-around but most are seasonal, limiting irrigation to the wet season only. Often the structures are damaged or destroyed during floods, resulting in crop losses if the washout happens early in the season. In many schemes farners are forced to rebuild the structures every year. Leakage is another problem, reducing the effectiveness of the schemes. Typically, farmers organize themselves into infonnal groups for repair, maintenance and water management of the schemes. Especially in NTB, the traditional irrigation organizations tend to function effictively. The NTASP Experience 3. Assistance for village irrigation was introduced as an NTASP activity in Responding to requests by farrmers in NTB, project management agreed to include construction work in village irrigation schemes in the project's Provincial Agricultural Support component. The executing agency was the Dinas Food Crops at the kabupaten level. Schemes were selected for assistance through a bottom-up planning process with agricultural extension workers acting as motivators and facilitators. 4. The project supported construction of perrnanent diversion structures (weirs) through: (a) preparation of designs, (b) supply of cement, wire and gates, and (c) assistance by skilled workmen.

74 ANNEX 2 Page 2 of 19 The farmers contributed all locally available materials (sand, stone, bamboo) and their labor. The contribution by the project was limited to Rp. 5 million (about US$2,500) for each scheme. The value of the farmers' contributions varied considerably from scheme to scheme; on average project and farmer contributions were about equal. 5. Some 150 schemes were improved under NTASP, all located in NTB except for one scheme on Sumba in NTT. The area covered by those schemes exceeds 12,000 ha. In addition to the NTASP supported schemes, at least as many were improved using local finds, either from the provincial or kabupaten budgets. In Kabupaten Sumbawa, for example, a total of 92 schemes were improved between 1989 and 1993, of which 37 were financed under NTASP and 55 with local funds. Another 19 schemes were being improved during 1995, all with local finds. In all cases the local government contribution was limited to materials and supplies which were not locally available and skilled labor. The farmers always had full control over the planning and execution of the works - a key element of the approach to increase the effectiveness of village irrigation schemes. 6. As NTASP and other Government-supported improvement works have started only relafively recently, little information has been collected as yet on the performance and benefits of the upgraded schemes. The mid-term review team for NTASP surveyed seven schemes and found that the nature of the benefits varied substantially between schemes, and also within schemes, depending on location. For about one third of the surveyed farms the main benefit was a reduced risk of failure of the weir, and hence a smallerisk of crop failure. About 40 percent of the farmers increased their cropping intensity by taking up the cultivation of a second irrigated paddy crop. Also, in most schemes the command area could be expanded, sometimes by up to 25 percent, allowing farmers to switch from rainfed to irrigated paddy. However, according to the ICR, the fill potential of the improvements in the irrigation facilities were not realized in many instances because of shortage and lack of timely availability of good quality seeds, poor water distribution and on-farm water management due to rudimentary secondary and tertiary channels, and in some cases due to poor access roads. Recent Developments 7. Under REPELITA VI the Government launched in January 1995 an ambitious three-year program to upgrade village irrigation schemes covering some 900,000 ha, or about 90 percent of all schemes believed to exist in the country. The program is known as Improvement of VIllage Irrigation Schemes (PID), and sometimes also referred to as Village Irrigation Crash Program. The objective of the program is to quickly improve diversion structures and canals in the majority of the country's village irrigation systems (including those located in the two Nusa Tenggara provinces) and thereby increase Indonesia's paddy production by about one million ton. The works are designed and executed by the Public Works Department, either under contract or force account. Simukaneously, Govemnment started in mid-1995 a Farmer-Managed Irrigation Sector Project (FEMS) with financing from the Asian Development Bank. This six-year project covers 90,000 ha in six provinces, including Nusa Tenggara Barat. The PID program is limited to improvement of physical infiastructure in the village schemes while the FMIS also supports water users associations and water management activities. The PID and

75 ANNEX 2 Page 3 of 19 FMIS programs do not include follow-up agricultural support activities to transfer improved production technology to the farmers. Proposed Developments 8. Survey. In order to gain better insight in the functioning of the recently improved village irrigation schemes, a survey of a representative sample of about 25 schemes completed under NTASP would be undertaken during the first project year. The purpose would be to collect data on the condition of the schemes and to determine what further support would be needed to improve their effectiveness, both technical and agricultural. The results of the survey would be discussed with the farmers and other interested persons and followed by the preparation of an action plan. 9. The survey would be implemented by a two-person team consisting of an agricultural economist and an engineer. The team would: (a) (b) (c) examine all relevant information available at the kabupaten and provincial offices on the village irrigation schemes improved under NTASP and local government funded programs; select at random 25 schemes improved in NTB under NTASP, ensuing geographical spread in the sample, and reflecting differences in sources of water, command areas, and cropping patterns, intensities and yields; and visit all selected schemes in order to: (i) (ii) assess the technical condition of all scheme facilities and determine what further improvements, if any, are required to the headworks or the canal systems; and collect information from the farmers on cropping patterns and production before and after the improvement works were performed and determine what agricultural support services are needed in order to take full advantage of the physical improvements. 10. Agricultural Support Services. The project would provide follow-up agricultural support to rehabilitated village irrigation schemes. These could include schemes improved under NTASP or one of the programs financed with Government's own funds or by the Asian Development Bank. The support envisaged would help realize the full potential of the physical improvements, as recommended in the ICR for NTASP. Cropping potentials are likely to vary substantially between and within schemes. Some schemes will allow only wet season cropping. Others, with ample water resources throughout the year (e.g. springs), already may have two or three crops per year. In all cases the goal would be to intensify crop cultivation by:

76 ANNEX 2 Page 4 of 19 (a) (b) (c) (d) expanding i*igated cropping during the dry season; enlarging the command area and irigated cropping during the wet season and improve on-farm water management; adopting appropriate crop technologies including the use of good quality seeds, as the risk of crop failure diminishes due to the improved facilities; and diversifying into other crops if feasible. The findings of the survey referred to in para 9 would be used to help improve the quality of the agricultural support services. 11. The Dinas Food Crops at the kabupaten level, with technical backing from the Naibonat AIAT and the provincial agricultural services and in close consultation with the farmers, would be responsible for implementation. Over the six project years a series of on-farm irrigated crop demonsutaions, totaling about 5 ha per scheme would be established in about 265 village irrigation schemes. Typically some 2.5 ha demonstrations would be established in about five 0.5 ha farm plots in each scheme during the first year, followed by another 2.5 ha demonstrations during the second year. Dinas staff working together with local community organizations (LCOs) operating in the project area, would identify the irrigation schemes and selecthe sites for the demonstrations. They would then assis the farmer groups with the preparation of detailed plans for implementation of the demonstrations and train the farmer leaders in the proposed new technologies. The Dinas would arrange for the provision to the farmers of seeds, fertilizer, tools and equipment for one cropping cycle of paddy and a palawija crop (or a second paddy crop where water supply is adequate). Dinas and LCO staff also would encourage the participating farmers to form groups and to set up revolving fimds for the purchase of farm inputs. After the harvest the fund would be replenished by the participants from the sales proceeds. Each group would set its own rules of operation. Over time, other farmers may either seek admission to an already existing group or form new groups. 12. Dinas and LCO staff would also assist the farmers with the preparation of proposals for complementary interventions, including provision of cattle, assistance for seed growers, improvement of home plots, construction of access roads, farmer training, etc. Priority would be given to implementation of interventions areas where village irrigation schemes have been successfally improved. 13. Expected Results. Paddy production is estimated to increase by about 500 kg per ha, and soybeans by about 300 kg per ha, as a result of improved agricultural practice supported by the project. Estimates of incremental production are in Table 1 of this Annex. A summary farm budget for a typical 0.5 ha plot of irrigated land is given in Table 2.

77 ANNEX 2 Page 5 of 19 B. Dryland Farming System Development Background 14. The two provinces NTB and NTT are among the lowest rainfall areas in Indonesia. High precipitations of up to 3,000 mm per year have been recorded at the highest elevations but in the coastal areas rainfall may be as low as 500 mm per year. Also, rainfall distribution over the year is uneven. Typically, over one half of the annual rainfall occurs during the three months December - February, and over 85 percent during the six months November - April. It hardly rains at all between May and October and crop cultivation in the non-irigated areas is not possible during that period. Finally, there are large year-to-year variations and drought conditions frequently prevail during extended periods, often leading to crop losses and food shortages. 15. Productivity and farm incomes of traditional agriculture in the dryland areas of NTB and NTT are very low as a result of the adverse climatic conditions. Shifting cultivation in some areas is leading to degradation of land resources. Moisture retention and soil conservation are the key requirements for increasing agricultural productivity and preserving the resource base of the drought prone areas in eastern Indonesia. Alley cropping, contour ridge terracing, and planting of cover crops and living fences are forms of dryland farming techniques that have been tested and can be promoted in the target areas. These types of interventions received much emphasis under the recently completed NTASP. The NTASP Expenence. 16. Approach. Under the Farming Systems Research (FSR) component of NTASP several agricultural technology packages have been developed and are now recommended to area farmers. These include, amongst others, packages for: (a) rain-fed paddy (ocally known as gogorancah); (b) irrigated paddy; (c) other food crops; (d) mixed cropping for dryland; (e) house plots; and (e) livestock keeping. Under the Land Conservation component of the project the Dinas Food Crops in seven kabupaten established demonstrations of various conservation farming practices through the provision of extension services, planting materials, fertilizers, hand sprayers, agro-chemicals and farm tools. 17. Work on the development of the technology packages was started in 1986 with a base-line survey of existing farming systems. The survey covered the three kabupaten were the research subbases had been established, i.e. East Lombok (Lombok), Sikka (Flores) and Kupang (West Timor). Up to ten main agro-ecosystems were identified during the surveys. Supplemental surveys were conducted in 1990/91 in five additional kabupaten to complete the original project target. The technology packages developed earlier for East Lombok, Sikka and Kupang were adjusted to render them suitable to the conditions in the five supplemental kabupaten. 18. During the early project years research focused on testing of component technology (especially crop varieties and fertilizer) for food crops which was the farmers' overwhelming priority. In later

78 ANNEX 2 Page 6 of 19 years more emphasis was given to applications of componentechnology in various cropping patterns and the integration of tree legumes and tree crops. Livestock was also integrated in some of the trials. 19. Well over 2,000 farmers were irvolved in various aspects of dryland farming improvements through their participation in on-farm research trials and demonstrations. The land conservation technology applied was in all cases terracing and bunding with contour planting of tree legumes, fruit trees and other tree crops with intercropping of food crops (alley cropping). The approach has been strengthened in the later years as specific research results became available and the resulting recommendations of FSR have been applied in the field. After the completion of NTASP in 1994, the Dinas Food Crops in several kabupaten, jointly with the Dinas Livestock and Dinas Estate Crops, have continued the demonstration and extension program with local funds. Through their activities, and with assistance from the proposed project, the benefits of research and demonstrations are expected to have a broader impact on rural households in the two provinces. 20. Lessons. The ICR for NTASP commented that the sustainability of the farming system development program could be threatened unless the technology packages were further streamlined to achieve possible cost reductions, viable arrangements for short-term financing of input costs were made, and the institutional and infrastructural constraints to input supply and produce marketing had been addressed. Three specific lessons have been learned from the NTASP experience. The first lesson concems the cost of the technology packages. There is much evidence of farmers adopting only part of the recommendations made by the researchers. The findings include: (a) (b) (c) since all farmers like to own cattle, most are willing to plant leguminous trees or fodder plants; where growing conditions are favorable, farmers will respond positively to the planting of tree crops (cashews, cocoa, coffee); and farrners either do not have the funds, or are very reluctanto spend money, on HYV seeds, fertilizers and agro-chemicals for their food crops. In the project trials and demonstrations the inputs were given for free to the farmers, often for up to four or five successive years. However, it is unrealistic to expect large scale adoption of high cost input packages, recommended by the researchers, because the farmers have very low incomes and little savings. Indeed, there is strong evidence of farmers stopping to use high cost inputs once the trials and demonstrations have ended. The technology packages should therefore be reviewed carefully to detemnine whether they are suitable to the local conditions and meet the needs of the lowest income farmers. 21. The second lesson concerns the sequencing of various interventions, the need to fully involve all support services and the farmers in the planning process, and the need to supply high quality seeds and planting material, as pointed out in the ICR There have been cases were farmers were encouraged

79 ANNEX 2 Page 7 of 19 to plant fodder crops on the promise that cattle would be distributed soon thereafter, while in reality cattle were delivered too late or not at all. Lower levels of tree losses could have been achieved if the bunded terraces had first been planted with tree legumes and vetiver in order to improve soil moisture, instead of planting all seedlings in the same year. Preferably, farmers should first demonstrate progress in land conservation activities. Only thereafter should the agricultural support services supply inputs which are difficult for the farmers to obtain, such as good quality tree crop seedlings, cattle and vetiver grass (if not locally available). 22. A third lesson concerns the respective role of researchers and extension workers. Under NTASP the on-farm demonstrations were managed and staffed by AARD. There only were a relatively small number of demonstrations and all were located in the immediate vicinity of the three research stations in Naibonat, Maumere and Sandubaya, respectively. Extension staff were not involved in the demonstrations, other than as mere spectators. A better approach would be for researchers to design the demonstrations and provide overall guidance while the Dinas Food Crops Tk. II, assisted by Livestock and Estate Crops, would take care of the day-to-day management of the demonstrations. Proposed Developments 23. The project would continue to support improved dryland farning practices in the project target areas as an expanded pilot activity. The main vehicles for promoting adoption of the improved practices would be on-farm demonstrations, conducted under the responsibility of NAIAT, and replications by the farmers under guidance from the local agricultural support services and LCOs. For the proposed program to be successful and sustainable, three important conditions would have to be met. First, staff of the research and extension agencies should be well trained and motivated for their assignments and should closely coordinate their activities amongst themselves and with the farmers. Second, the cash input content of the recommended packages should be as small as possible since most farmers would not be able to pay for improved seeds and fertilizers. And third, every effort should be made to ensure that only good quality seeds, seedlings and breeding cattle are being distributed in a timely manner to the farmers. Details on the implementation arrangements follow below. 24. Demonstrations. The suitability of the technology packages would be tried out and demonstrated in field demonstrations which would be established in each target area. For planning purposes it has been assumed that about 68 on-farm demonstrations, covering a total area of about 680 ha, spread over 14 kabupaten would be established over a period of about five years. There would be some four to five demonstrations of about 10 ha, involving about farmers with an average 0.75 ha each, in each kabupaten over a two-year period. The NAIAT would design the demonstrations and supervise their execution, while the Dinas Food Crops, Livestock and Estate Crops Tk. II would manage the demonstrations on a day-to-day basis. The cost of the demonstrations would be financed under NAIAT's annual budgets. Participating farmers would be paid up to a maximum of 50 work days equivalent for terracing and bunding of the fields and planting of the tree crop seedlings. In addition they would receive and initial package of improved seeds, fertilizer, agro-chemicals and tools.

80 ANNEX 2 Page 8 of Replications. The on-farm demonstrations would be replicated throughouthe target areas. The kabupaten agricultural support services, the NAIAT researchers and representatives of the farmers in the target area (usually a kecamatan) would meet at least once per year to discuss and agree on best practices and to draw up annual programs of replications. For planning purposes it has been assumed that the replication program would cover on average about 400 farmers cultivating about 300 ha (0.75 ha per farmer) in each kecamatan. About 12,600 ha would be supported under this program during the life of the project. It is expected that successful demonstrations and replications will eventually encourage other farmers in the area to adopt at least part of the improved practices. 26. During the first year of the replication program, the Dinas Food Crops Tk. II would provide a tool set to selected farmers. Under the guidance of the Dinas staff they would start with the terncing (where needed) and bunding of their fields. Once this work has been completed to the agreed specifications, the farmers would qualify for a support package similar to that used in the demonstrations (para 24), except that no payments would be made for the farmers' own labor. The package would include seedlings for the tree crop considered suitable for the area, improved food crop seeds, and a minimum supply of fertilizers and agro-chemicals for the tree crop seedlings and food crops. High yielding varieties food crop seeds would be procured from government seed farms or contract growers. Seedlings for the tree crops would be raised in Dinas Estate Crops Tk. II operated nurseries in each of the targeted kabupaten. During the second year the Dinas Estate Crops Tk. II would provide tree crop seedlings needed for filling-in the initial plantation and the frntlizer and chemicals needed for the new seedlings. Except for guidance by the extension stafl no further support for food crop cultivation would be given to the farmers after the initial year. However, farmers would be encouraged to organize themselves into farmer associations and to establish revolving funds for the purchase of seasonal cash inputs from cooperatives or private traders. Expected Results 27. The selected drylandfarin model includes cashew as the tree crop of choice since cashew is: (a) expected to be suitable to many of the areas, (b) popular among the farmers, and (c) representative for the costs and benefits of other tree crops. Cocoa and coffee (arabica and robusta) are viable alternatives in some of the target areas. With regard to the food crop model, only moderate fertilizer applications and use of hybrid maize seeds have been assumed in the "with project 2" case and no fertilizer with local maize seeds in the "with project 1" model. It is quite probable, as observed under NTASP, that farmers will initially adopt the second model but eventually revert to the first model after the free distribution of inputs has ended. 28. Table 1 shows the project's estimated incrementalproduciion, under the assumption that 50 percent of the participating farmers would stay with model 2 and the remainderevert to model 1. Farm budgets for the dryland models are in Table 3.

81 ANNEX 2 Page 9 of 19 C. House Plot Development Background 29. Almost all rural households have house plots of 0.1 to 0.2 ha. However, the productivity of these house plots tends to be low. There is significant potential to intensify the production of fruits, vegetables, fuel wood, and forage crops in these areas. Proposed Developments 30. Home garden cultivation would be improved under the project in order to improve family nutrition and raise incomes. Intensification of cultivation would be canied out through training of community leaders and demonstrations. Project assistance would be provided in the form of extension advice, seedlings, seeds, inputs, and smrall tools. Emphasis would be given to the cultivation of fruit trees. 31. The Dinas Food Crops Tk. II would implement this activity. The extension workers would cooperate closely with the PKK in each location. The following activities would be undertaken: (a) design of location specific technology packages in consultation with the villagers, especially the women; (b) training of community leaders (in particular PKK) in upgrading of home plots and sanitation; (c) provision of inputs for demonstrations; and (d) assistance for villagers who also wish to upgrade their house plots. Expected Results 32. It is expected that 2,800 households would participate in the demonstrations and directly benefit. Estimates of incremental production are in Table 1 and a typical budget in Table 4.

82 ANNEX 2 Page 10 of 19 D. Livestock Development Background 33. As of 1993 there were about 400,000 head of cattle and 200,000 buffaloes in Nusa Tenggara Barat and about 750,000 cattle and 175,000 buffaloes in Nusa Tenggara Tinmr. Of these about one third are in the proposed project areas. The existing herds are managed extensively, calving rates are low and use of improved forages still is limited. The buffaloes are generally used for draft in the sawahs. Some of the cattle also are used for draft but most are kept for savings and eventally sold for slaughter. The island of Timor has nearly 90 percent of all cattle in NTT. 34. Cattle was introduced in Timor only in Since then the cattle population has been increasing rapidly - reportedly by more than 50 percent in Timor over the last 25 years. Cattle are the only significant export from NTT. Annual numbers exported increased from about 20,000 head in 1978 to about 70,000 head in 1994, but numbers and also the weights are highly dependent on climatic and other conditions. Cattle are largey raised in uncontrolled, open-range, communal grazing systems on natuml pastures. The pastures are often overgrazed, especially near vilages and watering points, and frequent fires during the dry season often exacerbate the situation. However, increasingly livestock are tethered or kept in barns and fed larntoro (Leucaena) through the cut-and-cany feeding system. Almost all farmers in the project areas want to own cattle, but not many have enough fiuds to buy breeding stock. The predecessor NTASP supported the farmers with the acquisition of breeding stock. The NTASP Experience 35. Some 20,750 head of cattle were distriluted by NTASP (92 percent of target) under the guidance of 41 livestock field extension teams (SATGAS) established under the project. The project was successful in most of its development activities, except for cattle fattening as only 500 head of cattle were distributed out of 6,000 envisaged at appraisal. Cattle distribution, using the in-kind revolving credit system, and the establishment of SATGAS field teams, were successfully initiated during previous Bank and EFAD financed cattle development projects in Sumatra and Sulawesi. The earlier projects showed the importance of careful selection of beneficiary households: unless the new cattle keepers provide for the necessary fodder and take proper care of the animals, they won't be able to repay their debts on time. 36. In accordance with national policy, recipients of breeding stock have to return two off-spring within six years to the Dinas Livestock. As of mid-1994 NTASP project staffhad redistributed 2,450 and sold 3,700 of the off-springs collected as repayment. The demand from smallholders for cattle remains strong. In NTT the large majority of farmers want to keep cattle for saving. In NTB most farmers want cattle for land preparation, for the manure they produce, or for other agricultural purposes. One of the key conditions for receiving cattle is that farmers do not yet own any cattle. This

83 ANNEX 2 Page 11 of 19 eligibility condition has provided a major challenge to livestock extension staff as they had to impart over a short period basic husbandry skills upon the farmers. The mixed results are reflected in two key coefficients: calving rates under NTASP were 52 percent compared to the 78 percent target, and calf mortality rates were 9.5 percent compared to the 5 percent target. More focused attention should be paid to animal production issues, such as improved nutrition (especially during the dry season), better bull managernent, and more effective disease management. Proposed Developments 37. The project would provide support for distribution of breeding cattle and water buffaloes, promotion of intensive management systems, and establishment of community-based revolving systems for redistribution of cattle and buffaloes in support of future farming systems development activities. A key lesson of the NTASP experience is the need to link conservation farming practices and livestock distribution into one farnning system. An increase in the livestock numbers, clearly desired by the majority of the farmers, would need to be accompanied by an increase in the feed base in order to avoid greater dry season stress and mortality. The most common forms of conservation farming techniques, producing high protein animal feed year round, are alley cropping, contour ridge terraces, cover crops, lving fences, and bench terraces. 38. Distribution of cattle and buffaloes under the proposed project would be restricted to farmers who: (a) (b) (c) (d) have successfully participated in project activities for improvement of village irrigation systems or dryland farming system development but who do not yet own cattle or buffaloes; are members of a farmers group and have successfully participated in training sessions on animal husbandry management systems; have built an animal shed and established at least 250 meters of forage trees and grasses in hedge rows; and have farm incomes below the district average. 39. The cattle and buffalo distribution component would be inplemented under the responsibility of the Dinas Livestock Tk. I of the two provinces. At the local levels (kabupaten and kecamatan) the Dinas Livestock Tk. II would organize working groups for livestock distribution. In addition to local livestock extension and animal health services staff, LCOs operating in the project areas would be represented on the working groups. Under the supervision of the Dinas Tk. II the working groups would be responsible for: (a) final selection and training of farmer groups to receive cattle; (b) distribution of cattle to farmer groups; (c) monitoring of the health of the cattle distributed; (d) provision of livestock and forage extension services and veterinary services; (e) maintenance of records

84 ANNEX 2 Page 12 of 19 on the performance (calving rates and deaths); and (f) supervision of the redistribution of cattle. In the course of the project an assessment would be made of the practicality of tuning over responsibility for adninistering the livestock program to the community after the initial distribution has been made. 40. Some 7,780 cattle (females) and 600 water buffaloes would be distributed in NTB, and about 7,020 cattle and 400 water buffaloes in NTT. In addition, bulls would be distributed (for cattle only) at the ratio of one bull for every ten heifers. The animals would be procured by the Dinas Livestock Tk. I from areas within each province, as close as possible to the distribution areas. For Lombok, Sumba and Timor the animals would be procured within each island; for Sumbawa and Flores the aninals would come from Lombok and Timor, respectively. 41. The distribution of animals would start during the second project year, which would allow sufficient time for selection and training of the beneficiaries and the planting of fodder trees and grass. The project would establish a revolving system to redistribute cattle to disadvantaged area farmers. Each recipient would be allowed to keep the first off-spring but would have to return the second and third off-springs. Farmers receiving a bull in addition to a heifer would return three calves. Priority for receiving redistnibuted aimals would be given to other low income farmers among the participating farmer groups. Future redistribution would be used to support future fanming systems development effbrts in the targeted kecamatans. Expected Results 42. Cattle and bufidlo distnbution would provide a source of direct income to the participants through the sale of off-spring, as well as through their use for draft and transport purposes and the production of manure. Fodder production would be an integral part of the conservation fanning system promoted under the project. The herd projections and the annual animal sales quantities and values, without and with the project, are in Tables 5 and 6, respectively.

85 ANNEX 2 Page 13 of 19 E. Vaccination of Chickens Against Newcastle Disease Background 43. There are some 4.5 million chickens in each of the two provinces, of which just over one quarter is in the project areas. A typical rural household has between 5 and 15 birds. There are only a few commercial poultry farms in NTB and NTT. Newcastle disease is a common disease of chickens in the target areas and causes death losses of smailholder chickens estimated to average about 25 percent annually (but may reach as much as 80 percent). Control of the disease is a high priority, but access to vaccines and local knowledge of their use is limited. Proposed Developments 44. The project would provide support for training of area farmers and women in the techniques of vaccination of chickens against Newcastle disease. The Dinas Livestock Tk. II would inmpemet this activity through animal health clinics (Poskeswan). The vaccinations would be undertaken by women through the PKK (Family Welfare Organization). Training would be provided in two stages: veterinary staff would train the PPLs who would then train two women per participating village. The training would be repeated during the second year. Two vaccinations per year are needed. Vaccines, syringes and other materials would be provided for two years as a grant to each village requesting assistance. Thereafter the Poskeswan would continue to supply vaccines and syringes but the villagers would be expected to pay for the vaccinations. Expected Results 45. The vaccination program would be implemented in about 325 villages in the targeted kecamatan and benefit an estimated 50,000 households. Losses from Newcastle disease would be minimized and a capacity would be established to continue with the vaccination program after the project is closed.

86 ANNEX 2 Page 14 of 19 F. Farm Access Roads Background 46. Poor road access and lack of fresh water are major constraints for the development of much of the eastem islands, including the two Nusa Tenggara provinces. Many village still are not connected by all-weatheroads to the provincial and kabupaten road network. Also, existing roads often are damaged by rain causing transportation breakdowns between villages and markets. Lack of reliable sources of water supply imposes big burdens, particularly on the women and children who have to do the hauling from distant sources. Unless communities are connected to all-weatheroads and safe water supply systems, people will keep on missing out on opportunities for a more productive and rewarding village life. 47. In the face of those needs, the Government has been allocating large proportions of its development budgets to the upgrading of public infrastructure. Improvement of transportation alone represented nearly 60 percent of regional development expenditures in 1990/91 in NTB and over 40 percent in NTT. A recent OECF-financed study, entitled "Rural Areas nfastructure Development" (March 1994), includes cost estimates for the upgrading of village roads and bridges in the "Desa Tertinggal" (IDT) villages.' For those villages the cost of upgrading village roads and bridges was estimated at about US$4 million and US$26 million in NTB and NTT, respectively. Observations by the Bank's preappraisal mission for the present project during the 1995 rainy season in Kecamatan Lunyuk in Kabupaten Sumbawabesar (NTB) suggest that these estimates are rather conservative. 48. Following the completion of the study referred to above, OECF has agreed to allocate about US$200 million equivalent for the upgrading over two years (1995/96 and 1996/97) of rural infrastructure in over 3,000 villages in 21 provinces, including the two Nusa Tenggara provinces. 2 Villages are being selected in clusters of five of which at least three should be IDT villages. An amount of US$65,000 equivalent is made available to each selected village for the construction of roads and bridges, water supply and sanitation systems, and jetties. The 1995/96 program for NTB and NTT covers 40 villages with a total allocation of about US$2.6 million. The program for 1996/97 is expected to be about the same size. In NTT most of the funds available under the OECF financed project will be used for the construction of embungs (water storage reservoirs). Existing Government procedures will be followed for approval, financing and implementation of the program. A special INPRES 3 will be allocated to the kabupaten and the works will be executed by contractors. Consultants/supervising engineers employed under the OECF financed project will assist the Dinas Public Works Tk. II with the preparation of proposals and the design and supervision of the works. ' About one fifth of the villages in the NTB project areas, and one quarter in NTT, are listed as IDT villages. 2 The Bank has recently approved a loan for a similar Village hifastructure Project for Java. 3 A development programn funded through a special authorization by Presidential Instruction.

87 ANNEX 2 Page 15 of 19 The NTASP Experience 49. Under NTASP some 144 km of national and provincial roads in Flores have been improved, against 190 km planned originally. The balance portion of the roads program was financed under an Asian Development Bank loan. Subsequently, the road sustained serious damage during the 1993 earthquake. Recent data show that traffic volumes in most sections have increased close to the predicted levels. Routine road maintenance in the two NTASP financed integrated area development schemes of Lombok Tengah and Lembor appears to be less than adequate. Local governments already have taken some action to improve maintenance. However, more resources should be allocated to maintain the roads. Proposed Devdopments 50. Project interventions intended to directly raise agricultural productivity would be supported by improvements of physical access, where necessary. The program would cover all eight project kabupaten in NTT and the three kabupaten on Sumbawa island in NTB. The three kabupaten of Lombok would not be included in the road improvement program because a relatively good road network already exists in Lombok. Priority would be given to villages where needs are demonstrated to be highest and the villagers are committed to actively contributed to the implementation of the works. It is expected that a substantial part of the budget allocation will be used for the design and construction of bridges and culverts on existing rural roads and tracks which are critically in need of improvement. Farm access roads would be upgraded to compacted aggregate surface roads for use by motorcycles, animal drawn carts and four wheel vehicles. 51. The Dinas Public Works Tk. II in the targeted kabupaten would design and inpkment the road improvement program under force account or by direct contracting for works costing less than US$50,000 equivalent. Approval of proposals would be dependent on a commitment by the local governments to assure future maintenance of the works. The local PMD staff would provide assistance to engage the local community in field construction activities. Alignments would be made on existing foot paths to avoid the need for land acquisition. Construction costs are expected to vary depending on the existing condition of the targeted roads and trails. Expected Results 52. About Rp 12.7 billion (US$5.6 million) would be allocated under the project. The maximum allocation for each participating kecamatan (11 in NTB and 19 in NTT) would be about US$250,000 equivalent. It is estimated that a total of about 525 km of farm access roads would be upgraded under the project, or on average about 17.5 km per participating kecamatan. Substantial variations around these averages are likely. Some kecamatan and villages may wish to upgrade one or two key access roads, while others would give priority to improvement, or new construction, of bridges and culverts.

88 ANNEX 2 Page 16 of 19 Upgrading of the roads would improve access to the farms and reduce the tansport costs of fam inputs and produce.

89 ANNEX 2 Page 17 of 19 G. Local Community Initiatives and Assistance for Local Community Organizations Background 53. The bottom-up planning system, as specified in Ministry of Home Affairs Regulation Number 9 of 1982, provides for the preparation of proposals for development activities from the village level with screening at the higher levels. The system has the potential to improve planning of project activities in order to respond more directly to the needs of the local people. The main constraints of this planning system are: (a) insufficient capacity at the village and kecamatan level to prepare proposals which are in line with the felt needs of the rural groups; and (b) insufficient discretionary funding at the kabupaten level to respond to these proposals. The NTASP Experience 54. The NTASP comprised an experimental component for provincially implemented development activities. The purpose of the experiment was to test the hypothesis that local governments could effectively plan and execute agricultural and integrated area development activities in accordance with the needs of the local people. Two approaches were followed: (a) the Agricultural Support Services approach which sought to: (i) (ii) strengthen the capacity of local government agencies within the agricultural sector (i.e. Dinas Livestock, Food Crops, Estate Crops and Fisheries); and support a range of field activities in 46 kecamatan to directly increase the productivity of low-income farmers (a ceiling of Rp 200 million per year was given to each of the nine targeted kabupaten in NTB and NTT to supplement development funding available for the agricultural sector); and (b) the Integrated Area Development (IAD) approach which involved some ten sector agencies in two targeted areas in Lombok (dryland) and one in Flores (irrigated settlement scheme). 55. Coordination of annual planning and implementation has been carried out by the BAPPEDAs Tk. I and Tk. II. The project structure paralleled the existing structure of local government with project management units being established within the BAPPEDAs at the provincial and kabupaten levels. Actions supported under this component included land conservation (with disappointing results), seed multiplication (promising), village irrigation (excellent), tree crops (disappointing), and livestock support (good). The results of the IAD activities in Lombok and Flores were generally positive. The experience showed that significant benefits can be achieved from this approach. The

90 ANNEX 2 Page 18 of 19 ICR for NTASP 4 observed that the overall development impact and sustainability of this component would have been enhanced if program development had applied more rigorous criteria to define priority rankings for interventions. Proposed Developments 56. Approach and Scope. The proposed project would support local community initiatives which are expected to result in direct benefits to the communities. Local leaders would be trained in community-based planning methods. The project would provide discretionary funding to support implementation of initiatives which are considered to be a high priority by the local community and are technically and economically feasible. During project years 2 through 6 supplemental funding of Rp 50 million (about US$22,250) per kecamatan would be provided to support high priority initiatives. Local communication organizations (LCOs) in the target areas would be encouraged to participate in the preparation of proposals for high priority agriculture-based area development initiatives. The kabupaten office of PMD (BANGDES) would take the lead role at the local level in coordinating the formulation of requests for assistance through the bottom-up planning system. Extension workers and LCO staff in each area would act as facilitators in assisting local communities to identify priorities and formulate realistic proposals. Implementation of development initiatives would be in cooperation with the Dinas Tk. II with the technical capacity to best provide support for each activity. 57. Generally it is expected that a range of initiatives would be proposed in line with local conditions and community preferences. Priority would be given to proposals for initiatives to promote farmiing systems development which might include, but would not be limited to: revolving credit systems for cattle, water buffaloes, goats and pigs; introduction of new agricultural technology; postharvest processing and storage for food and estate crops; initiatives to control wild pigs; home industries; and community managed infrastructure development activities (mostly water supply and roads). Guidelines for selection of initiatives for funding would be established so as not to delete the intent of eliciting priorities as identified by the community. A guide in Bahasa Indonesia would be prepared as part of the training program for Community Development Facilitators. The proposals would be reviewed and prioritized at the kabupaten level. Technical agencies (or where necessary consultants) would assist with the implementation of initiatives where technical challenges are beyond local capabilities. 58. To be selected for support by the project the proposed initiatives should meet the following criteria: (a) (b) technically feasible and economically justified productive activities; maximum amount per initiative: Rp 10 million; 4 Implementation Completion Report for NTASP, June 1995.