AFRICAN DEVELOPMENT FUND Language : English Original : English

REPUBLIC OF MALAWI

SMALLHOLDER CROP PRODUCTION AND MARKETING PROJECT

APPRAISAL REPORT

AGRICULTURE AND RURAL DEVELOPMENT DEPARTMENT NORTH, EAST AND SOUTH

May 2006

TABLE OF CONTENTS Page

PROJECT INFORMATION SHEET, CURRENCY AND MEASURES, LIST OF ABBREVIATIONS AND ACRONYMS, EXECUTIVE SUMMARY, LOGICAL FRAMEWORK MATRIX i-xi

1. ORIGIN AND HISTORY OF THE PROJECT 1 2. THE AGRICULTURE SECTOR 1 2.1 Overview of the Sector 1 2.2 Land Use and Land Tenure 4 2.3 Poverty, Health and Gender Aspects 5 2.4 Sector Development Constraints 6 2.5 Sector Development Policy and Strategy 6 3. IRRIGATION SUB-SECTOR 9 3.1 Overview 9 3.2 Irrigation Development Constraints, Policies and Strategies 12 3.3 Institutional Framework 14 3.4 Donor Interventions 16 3.5 Lessons Learnt from Past Interventions in Malawi 16 4. THE PROJECT 17

4.1 Concept and Rationale 17 4.2 Project Area and Project Beneficiaries 19 4.3 Strategic Context 20 4.4 Project Objective 20 4.5 Project Description 21 4.6 Production, Market and Prices 27 4.7 Environmental and Social Impacts 29 4.8 Project Costs 32 4.9 Sources of Financing 33

5. PROJECT IMPLEMENTATION 34

5.1 Executing Agency 34 5.2 Institutional Arrangements 34 5.3 Supervision, Implementation and Expenditure Schedule 35 5.4 Procurement Arrangements 36 5.5 Disbursement Arrangements 38 5.6 Monitoring and Evaluation 39 5.7 Financial Reporting and Auditing 39 5.8 Aid Coordination 39

6. PROJECT SUSTAINIBILITY AND RISKS 40

6.1 Recurrent Costs 40 6.2 Project Sustainability 40 6.3 Critical Risks and Mitigating Measures 41

7. PROJECT BENEFITS 42 7.1 Financial Analysis 42 7.2 Economic Analysis 42 7.3 Social Impact Analysis 43 7.4 Sensitivity Analysis 43

8. CONCLUSIONS AND RECOMMENDATIONS 44

8.1 Conclusions 44 8.2 Recommendations and Conditions for Grant Approval 44

LIST OF TABLES No. Page 4.1 Summary of Cost Estimates by Component 32 4.2 Summary of Cost Estimate by Category of Expenditure 33 4.3 Sources of Finance 33 5.1 Expenditure Schedule by Component 36 5.2 Expenditure Schedule by Source of Finance 36 5.3 Summary of Procurement Arrangements 37 6.1 ADF/GOM Financing of Recurrent Costs (UA) 40 LIST OF ANNEXES No. No. of Pages 1. Map of Malawi showing the Project Area 1 2 Project Organisation and Management 2 3 Provisional List of Goods and Services – Categories of Expenditure 1 4. Summary of Economic Analysis 3 5. Malawi: Summary of Bank Group Operations 4 6. Project Implementation Schedule (January 2007 – December, 2012) 1 7. Environmental and Social Management Plan Summary 4 8. Supervision Schedule during Implementation 1 9. Highlights on the Project Preparation and Review Process 1 10. Malawi: Status of Audit Reports and Project Completion Reports 1

Project Information Documents (PIDs) 1. Project Detailed Cost Tables 2. Study Report - Designs, Tender Documents 3. Study Report - TA terms of Reference 4. Study Report – Feasibility Study

CURRENCY EQUIVALENTS (February 2006)

1 UA = 176.281 MWK 1 UA = 1.4450 USD 1 USD = 130 MWK

GOVERNMENT FISCAL YEAR

July 1 – June 30

This Appraisal Report was prepared by a team comprising Messrs. Ibrahim Amadou (Senior Agricultural Economist and Mission Leader), Alex Mend (Principal Agronomist), Louis-Philippe Mousseau (Senior Environmentalist), Hesham Kandil (Senior Irrigation Engineer), Ms Aude Apetey (Financial Analyst), a Consultant Civil Engineer, and a Consultant Marketing Specialist, following their mission to Malawi in February 2006. The report was peer reviewed by Mr. Walter Odhiambo (Senior Agricultural Economist). Enquiries should be addressed to Mr. A. Beileh, Manager, ONAR.1 (Ext. 2139) and the authors.

i

AFRICAN DEVELOPMENT FUND Temporary Relocation Agency

B.P. 323, 1002 Tunis Belvedere, Tunis, TUNISIA Tel: (216 71) 333 511 Fax: (216 71) 351 933

Website: www.afdb.org

PROJECT INFORMATION Date: May 2006 The information provided hereunder is intended to provide some guidance to prospective suppliers, contractors, consultants and all persons interested in the procurement of goods and works for projects approved by the Boards of Directors of the Bank Group. More detailed information and guidance should be obtained from the Executing Agency of the Borrower. 1. COUNTRY : Malawi 2. PROJECT TITLE : Smallholder Crop Production and Marketing

Project (SCPMP)

3. LOCATION : The project is located in 19 districts of Malawi.

4. THE BORROWER : Government of the Republic of Malawi. 5. EXECUTING AGENCY : Ministry of Irrigation and Water Development, P.O. Box 30797, Lilongwe 3, Malawi; Tel: 265- 1 – 759730/752122 Fax: 265- 1 – 751459 6. DESCRIPTION : The project comprises three components: i) Irrigation

Development, with two sub-components (development of irrigation schemes and environmental mitigation); ii) Farmer Support, with three sub-components (scheme management, agriculture production and marketing); and iii) Project Coordination and Management.

7. TOTAL COST : UA 16.82 million Foreign Cost : UA 9.63 million Local Cost : UA 7.19 million 8. BANK GROUP LOAN/GRANT

ADF Grant : UA 15.00 million 9. OTHER SOURCES Government of Malawi : UA 1.77 million Beneficiaries : UA 0.05 million

ii

PROJECT INFORMATION (Cont’d) 10. ESTIMATED STARTING DATE AND DURATION: January 2007 for 6 years. 11. PROCUREMENT OF GOODS AND WORKS: Procurement of Goods and Works

will be in accordance with Bank’s Rules of Procedures. National Competitive Bidding (NCB) shall be adopted for procurement of (i) civil works (ii) field trucks and vehicles (iii) equipment and materials. Procurement of miscellaneous goods such as bicycles shall be through the National shopping procedures.

12. CONSULTANCY SERVICES REQUIRED AND STAGE OF SELECTION: Selection

of Consultants/Technical Assistance will be through shortlist. International TA: Irrigation Engineer (139 person-month), Environmentalist (9 person-month), Water Users Association Expert (16 person-month), Marketing Specialist (124 person-month).

National TA: Project Coordinator (72 person-month), Project Accountant (72 person-month), Monitoring and Evaluation Specialist (124 person-month), Procurement Officer (72 person-month), 10 District Project Officers (720 person-month), Project Audit (18 person-month) and Training Specialists (200 person-month).

13. Environmental Categorisation: The project is classified as Category II

iii

ABBREVIATIONS AND ACRONYMS ADD Agricultural Development Division ADF African Development Fund ADMARC Agricultural Development & Marketing Corporation AEDC Agricultural Extension Development Coordinator AWP/B Annual Work Plan/Budget CAADP Comprehensive Africa Agriculture Development Programme CDC Community Development Committees CSF Communal Storage Facilities CSP Country Strategy Paper CV Curriculum Vitae DA District Assembly DAEC Department of Agricultural Extension Coordinator DAMT Directorate of Agriculture Management Team DC District Commissioner DCAFS Donor Committee on Agriculture and Food Security DDANR District Directorate of Agriculture and Natural Resources DEC District Executive Committee DDMT District Management Team DoI Department of Irrigation DPO District Project Officer EAD Environmental Affairs Department EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EISA Environmental and Social Impact Assessment EMA Environmental Management Act ESA Environmentally Sensitive Areas ESMP Environmental and Social Management Plan EPA Extension Planning Area EU European Union GDP Gross Domestic Product GoM/GOM Government of Malawi IA Implementation Agreement IFAD International Fund for Agricultural Development INTOSAI International Organisation of Supreme Audit Institution JICA Japan International Cooperation Agency MC Market Centers MDGs Millennium Development Goals M&E Monitoring and Evaluation MFI Micro-finance Institution MGDS Malawi Growth and Development Strategy MWK Malawi Kwacha MoAFS Ministry of Agriculture and Food Security MoNR Ministry of Natural Resources MoMNRE Ministry of Mines, Natural Resources and Environment MoIWD Ministry of Irrigation and Water Development MPRS Malawi Poverty Reduction Strategy MRFC Malawi Rural Finance Company NASFAM National Smallholder Farmers Association of Malawi

iv

NCB National Competitive Bidding NDP National Decentralisation Policy NEP National Environmental Policy NEPAD New Partnership for African Development NGO Non Governmental Organisation NIPDS National Irrigation Policy and Development Strategy NPV Net Present Value O&M Operation and Maintenance OPEV Operations Evaluation Department PC Project Coordinator PCR Project Completion Report PCU Project Coordination Unit PIU Project Implementation Unit PRA Participatory Rural Appraisal PSC Project Steering Committee PY Project Year RBCSP Results Based Country Strategy Paper RDP Rural Development Project SA Special Account SACCO Savings and Credit Co-operative SCPMP Smallholder Crop Production and Marketing Project SFPDP Smallholder Flood Plain Development Programme SMS Subject Matter Specialist SSIDS Small Scale Irrigation Development Study TA Traditional Authorities TCE Technical Committee on Environment UA Unit of Account USAID United States Agency for International Development USD United States Dollars WRA Water Resources Act WRB Water Resources Board WUA Water Users Association WUG Water User Group

v

EXECUTIVE SUMMARY 1. PROJECT BACKGROUND 1.1 The small-holder agricultural sub-sector which accounts for the bulk of food production in Malawi is characterised by subsistence, low productivity and vulnerability to natural vagaries such as droughts and floods. The Government of Malawi (GOM) recognising the important role that irrigation plays in the improvement of productivity of smallholder farmers, requested the Bank to finance the Small Scale Irrigation Development Study (SSIDS). The Bank financed the SSIDS through a grant of UA1.12 million which was completed in 2004. The SSIDS came up with a feasibility report for the present Smallholder Crop Production and Marketing Project (SCPMP). Following a formal request from the Government in November 2004, a Bank project formulation mission visited Malawi in October 2005 and identified information gaps, developed a framework for the project, revised the project scope, and agreed on a tentative list of project sites. This was followed by a Bank appraisal mission in February 2006.

1.2 The project addresses one of the core challenges identified by the GOM’s draft Malawi Growth and Development Strategy (MGDS) 2006–2011, which is the successor of the Malawi Poverty Reduction Strategy Paper (MPRSP). The MGDS is aimed at achieving and sustaining the Millennium Development Goals (MDGs) and making Malawi a hunger free nation through fostering sustainable economic growth and the creation of wealth with fair and equitable distribution. The MGDS recognizes that agricultural development will drive medium term growth by expanding and diversifying production. The agriculture sector is expected to contribute to sustainable economic growth which is considered central to Malawi’s ability to reduce poverty, achieve the MDGs and gain self sufficiency. It is recognized that, without achieving this growth, it will be impossible to deliver on the Government’s vision of creating wealth and employment for all the people of Malawi. Government efforts under the strategy are therefore expected to contribute to increased on-and-off farm incomes and employment opportunities, leading to poverty reduction; realization of Malawi as a hunger free nation; improved small holder profitability; and protection of natural resources and the environment for sustainable growth. The proposed project activities are also well anchored in the Government’s New Agriculture Policy, National Irrigation Development Policy and the Decentralisation Policy. Thus the project will contribute to the achievement of the goals of the MGDS and the Agricultural Sector Strategy. 1.3 The proposed project is anchored on Pillar I of the Bank Group’s Country Strategy Paper (2005-2009) which seeks to help increase the level of irrigation infrastructure and support agricultural/rural development. The CSP interventions are directly linked to the strategic priorities of the MGDS and aligned with Vision 2020 and the MDGs. The Project will also contribute to the achievement of core Comprehensive Africa Agriculture Development Programme (CAADP) objectives of poverty alleviation and sustainable development and the comprehensive agriculture mandate of the NEPAD initiative. The project builds on the experiences gained from the various Bank financed projects in Malawi. The choice of this smallholder irrigation intervention is in line with the ADF X strategy on selectivity to boost production and productivity, food security and poverty reduction in RMCs.

vi

2. PURPOSE OF THE GRANT The ADF grant of UA 15.00 million will be used to finance part of the investment and recurrent costs of the project.

3. SECTOR GOAL AND PROJECT OBJECTIVE The overall sector goal of the project is to contribute to poverty reduction and food security in rural Malawi. The specific objective of the project is to increase productivity and income of rural households in the project area. This will be achieved through the promotion of intensification and diversification of the existing cropping system and improvement to the marketing system which will significantly increase production, productivity and incomes of the small farmer whilst improving household nutrition and environmental management of natural resources at the same time. 4. DESCRIPTION OF PROJECT OUTPUTS In order to achieve the stated objective, the project will focus on:

(A) Irrigation Development Component: including development of 39 small-scale irrigation schemes; 1,140 treadle pumps provided to smallholder farmers; 3,055 ha developed for crop production, cropping intensity increased from 1 to 2.5 times, crop productivity increases by 20%. (B) Farmer Support Programme: including support for establishment of 39 Water Users Associations; 600 smallholder farmers (300 women) trained in water management; 350 smallholder farmers (175 women) trained in crop production and pest control technologies; 76 extension officers receive training for trainers; 76 study tours involving 3,000 farmers and extension staff undertaken; 8,750 persons trained on environmental mitigation measures and health aspects related to irrigation; 3,450 persons (1,380 women) trained on techniques of financial management and business planning, aspects of post harvest handling and in simple market research concepts; construction of 26 community storage facilities and 14 market centres. (C) Project Coordination and Management: The project will provide resources for management and coordination of the project including key project staff, equipment for project and district coordination, monitoring and evaluation, supervision, preparation of audit and progress reports and studies. 5. PROJECT COSTS The total cost of the project, including contingencies, is estimated at UA 16.82 million of which UA 9.63 million (57.0%) will be foreign exchange, and UA 7.19 million (43.0%) will be in local costs.

6. SOURCES OF FINANCE The project will be financed by the ADF and the Government of Malawi, including contributions from the Beneficiaries. An ADF Grant amounting to UA 15.00 million or 89.1% of total costs will be used to finance 98.2% of the investment costs, as well as 48.8% of recurrent

vii

costs (parts of all categories excluding salaries). The GOM contributions amounting to UA 1.77 million, or 10.6% of total costs, will finance salaries of national staff, the cost of 1,140 treadle pumps (already purchased) and part of the operating costs. The beneficiaries will contribute UA 0.05 million or 0.3% of the total costs towards their share of infrastructure maintenance of irrigation schemes and market infrastructure. 7. PROJECT IMPLEMENTATION

The project will be implemented over a period of 6 years. The Executing Agency of the project will be the Ministry of Irrigation and Water Development (MoIWD). The project will be implemented within the established structures in the Ministry through the Department of Irrigation (DoI) which will oversee project implementation, monitor project progress, and coordinate and account for the utilisation of project funds. The DoI will be strengthened by the recruitment of a technical staff comprising a Project Coordinator, Project Accountant, Monitoring and Evaluation Officer, Irrigation Engineer Procurement Officer, Administrative Officer and support staff. Since the main focus of project activities will be at the district level, the project coordination process adopted is in line with the established decentralisation process. In view of the insufficient capacity at the district level, 10 District Project Officers (DPO) will be recruited to assist in the day to day implementation of project activities in the districts that have many scheme sites.

8. CONCLUSIONS AND RECOMMENDATIONS 8.1 Conclusions The project is technically feasible, economically viable, environmentally sound, and socially desirable. The project is participatory in its design and decentralised in its implementation with a significant beneficiary input intended to ensure sustainability. The project is demand-driven as there was considerable participation of stakeholders in the preparation process. This should bring about a high degree of ownership of facilities developed through the project and provide some guarantee of sustainability. Further guarantees are provided by the technically unsophisticated nature of many of the interventions and their simple maintenance requirements and by the use of existing government structures for project implementation. The project meets the government objective of improving the productivity of smallholder agriculture. The project will also contribute significantly to achieving the MDGs of halving the proportion of people living in extreme poverty by 2015, and promoting gender equality and empowerment of women through their involvement in project activities. 8.2 Recommendation It is recommended that a grant of UA 15.00 million be granted to the Government of Malawi for the purpose of implementing the project as described in the report and subject to the conditions specified in the protocol of agreement.

viii

Malawi Smallholder Crop Production and Marketing Project

Result-Based Logical Framework Hierarchy of Objectives EXPECTED RESULTS

by sector and theme REACH PERFORMANCE

INDICATORS SOURCE & METHOD

INDICATIVE TARGETS TIMEFRAME Main Assumptions/Risks

Sector Goal/Theme Sector/Theme Long term Outcome

Beneficiaries Verifiable Indicators Long Term outcome

Target Indicators and Timeframe

Contribute to poverty reduction and food security in Malawi.

1. Increased smallholder farm and rural incomes 2. New job opportunities 3. Increased product quality leading to better prices of farm produce.

1. Smallholder farmers 2. Rural population 3. Consumers in Malawi

1. Value of sales by smallholder farmer groups 2. Average income within the participating smallholder farmer groups Source: Commodities Competitiveness and M&E reports and MGDS reports.

1. Smallholder sub-sector contribution to agricultural GDP increases from 80% in PY1 to 90% per annum in PY6 2. Smallholder contribution to rural employment increases from 80% In PY1 to 83% in PY6

Assumption Continuity in GoM reform policy Risk mitigation: Government Policy decision already taken to encourage investment and economic growth

Project Objective Sector/Theme: Medium Term Outcome

Beneficiaries Indicators Medium Term Outcome

Target Indicators and Timeframe Assumptions/ Risks

Improve productivity and incomes through: 1. Promotion of the intensification and diversification of the existing cropping systems. 2. Improvement to the agricultural marketing system

1. Increased incomes for smallholder farmers 2. Improved household nutrition and environmental management of natural resources 3. Better organised market

1. About 8,756 Smallholder household farmers in project area, 4,000 of whom will be female headed households

2. About76% of Malawi rural population will benefit (directly or indirectly) from the market improvement activities

1.Iincrease in yield obtained by farmers from irrigation 2. Smallholder farmers sales from agriculture products increased Source: Market competitiveness analyses and M&E reports

1. Yield increased from 1.13t/ha to 1.18t/ha (maize); 16.67t/ha to 19.93t/ha (cabbages); 0.29t/ha to 0.33t/ha (paprika); 0.45t/ha to 0.49t/ha (chillies); 20t/ha to 22.23t/ha (onions); 1.17t/ha to 1.26t/ha (rice); from PY1 to PY6

2. Smallholders’ farm sales increased from 1 % in PY1 to 10% per annum by PY6

Assumption - No major drought occurs - No conflict among beneficiaries Risk Mitigation -water reservoirs/small dams constructed, appropriate training of farmers

- effective communication & sensitisation of farmers

Activities/Inputs Sector/Themes Short-Terms OUTPUTS

Beneficiaries INDICATORS Short-Terms outputs

TARGET INDICATORS TIMEFRAME

Assumption/statement and Risk Mitigation

1. Irrigation Infrastructure Development

Irrigation Infrastructure Development and Mgt

Farmers WUA

Irrigation infrastructure developed and efficiently managed

Area provide by irrigation infrastructure

1. First phase of Irrigation infrastructure development in 28 sites in 17 districts

2. Second phase irrigation infrastructure

design and implementation of 11 sites in 5 districts.

3. Supervise construction works

1. Increased irrigated land by 3,055 hectares through development of new irrigation schemes 2. improved farming performance and efficiency

Smallholder farmers at 39 sites in 19 districts WUAs

1. Number of irrigation schemes in place and operational

2. Area developed in irrigation

(ha) 3. Cropping pattern and yield in

project area

1. First phase development of 1550 ha in 28 irrigation schemes in 17 districts operational by PY3

2. Second phase development of 1505 ha in 11

irrigation schemes in 5 districts operational by PY4

Assumptions 1. Favourable weather conditions

prevail. 2. Project Beneficiaries follow

through with their stated interest Risks Mitigations

1. sensitisation of farmers 2. project designed to reach the

ix

Hierarchy of Objectives EXPECTED RESULTS by sector and theme

REACH PERFORMANCE INDICATORS SOURCE & METHOD

INDICATIVE TARGETS TIMEFRAME Main Assumptions/Risks

4. Environmental mitigation measures 4.1a Preparation of comprehensive site specific ESMP for the 28 identified irrigation schemes 4.1b Preparation of an ESIA study an related site specific ESMP for the 11 irrigation schemes to be developed in phase II 4.2a Institutional strengthening of DOI, Department of Agriculture, Land resource and Conservation Department in Environment Management & Monitoring 4.2b Institutional strengthening of District Environmental units in the targeted project districts 4.3 Undertake end of project Environmental Audit 4.4 Social: Prevention of HIV/AIDS, prevention of waterborne diseases, awareness campaigns etc.

3. ESMP and ESIA for all the 39 schemes prepared 3.1 Environmental Management Certificates and related terms & conditions 3.2 EIA certificate & related env. Management certificate 3.3 Compliance with EIA/Env. Mgt certificate for the project 3.4 Review compliance with EIA and Env. Mgt certificate terms & conditions 3.5 Health consultant & district health officer recruited

1. 28 irrigation schemes 2. 11 irrigation schemes 3. Line ministries 4. 19 Districts 5. 39 irrigation schemes

4. Person month provided for

works supervision 5. Number of ESMP and ESIAs

completed 6. Payment of EIA processing

fees, implementation of mitigation measures

3. Cropping intensity increased from 1 in PY1 to 2.5 times by PY 5

4. Crop productivity (rice, maize and vegetables)

increased from 1% in PY1 to 8% by PY 6 5. Environmental Mitigation measures before,

throughout and after project implementation

poorer segment of society 3. Farmers' Support component

addresses the issue of farmers participation and capacity building include WUA formation.

Component Cost: (UA 9.05 million)

Source: M&E and supervision Reports, Semestrial/annual auditing of ESMP by the Env. Affairs Dept. (EIA Unit)

Source: M&E and supervision Reports, Semestrial/annual auditing of ESMP by the Env. Affairs Dept. (EIA Unit)

x

Hierarchy of Objectives EXPECTED RESULTS by sector and theme

REACH PERFORMANCE INDICATORS SOURCE & METHOD

INDICATIVE TARGETS TIMEFRAME Main Assumptions/Risks

2. Farmers Support Component Water Management, Crop Production, Marketing, and Extension

2.1 Scheme Management 39 WUAs formed and operating Smallholder farmers Quality of maintenance by users 28 WUA established by PY3 and another 11 by PY4. Assumptions: 1. Farmers will be responsive and actively participate in WUA Risks and Mitigations: Risks: -The farmers will not be able to operate and maintain the irrigation schemes efficiently Mitigations: -Extensive training support will be undertaken during the project.

2.2 Agricultural Production 1. Training in Irrigation and Crop

Production Techniques 2. Support to Farmers’ Organizations 3. Support to Extension Service 4. Community Development Activities 5. Formation of Savings and Credit

Groups

1. Improved irrigation, crop husbandry and Integrated Pest Management techniques

2. Farmers organizations operate as legal entities through appropriate participatory methodologies 3. Improved capacity for district staff and extension services.

1. Small holder farmers 2. WUAs 3. Beneficiary families

1. No. Extension staff & farmers trained 2. No. Savings & Credit groups established

1. Training of 600 farmers (300 of which would be women) yearly from PY1 to PY6 2. Training of 76 Field Agents, at least 25 of which will be women, from PY1 to PY6 3. Training of 122 district engineers/extension staff, at least 50 of which will be women, from PY1 to PY6

Assumption/statement - WUAs structure and operational procedures are coherent with irrigation policy. - Appropriate audit structures are functioning. Risk mitigations 1. Continuous sensitization of farmers on importance of group formation & training

2.3 Marketing 1. Marketing Capacity Building and Competitiveness 2. Marketing Infrastructure

1. Training conducted and competitiveness analysis conducted 2. Communal Storage Facilities (CSF) and market Centre (MC) constructed

Farmers/ Buyers 1. Number of person trained 2. Number of studies conducted 3. Number of CSF and MC constructed 4. % reduction in post harvest losses 5. Negotiation ability of farmers or their organisation Source: M&E and Supervision Reports

1. 86 farmer groups (each group comprising 40 farmers) of which 40% (or 16 group members) are women, trained by end of project (PY6) 2. Three commodity competitiveness studies conducted during project implementation (1 in PY1, 1 in PY4, and 1 in PY6) 3. Total of 26 CSF constructed in 26 schemes (6 in PY2, 6 in PY3, 6 in PY4 and 8 in PY5) and Total of 14 MC constructed in 14 Districts (3 in PY2, 3 in PY3, 3 in PY4 and 5 in PY5)

Assumption Demand for vegetables & horticultural crops will increase at least proportionately to demographic growth, Risk Mitigation : Promote diversification to compensate for temporary price fluctuations in particular crop i.e. improve crop-mix

Component Cost UA 6.55 million

xi

Hierarchy of Objectives EXPECTED RESULTS by sector and theme

REACH PERFORMANCE INDICATORS SOURCE & METHOD

INDICATIVE TARGETS TIMEFRAME Main Assumptions/Risks

a. Project Coordination

• Recruitment of Technical Team • Bidding and shopping documents • prepared and competition launched; • Contracts for training staff signed and

implemented; • Contracts for designs and works • inspection and supervision signed; • Midterm review, final evaluation and • audit of accounts conducted regularly

and without delay

Project Coordination - Project Management established and staff recruited - Timely and efficient project implementation

Project

Project staff

• Progress and supervision reports, • Bidding Documents, contracts

and progress and supervision reports;

• Monitoring-evaluation reports • Midterm review and final

evaluation, as well as annual project account audit report

1 PC, 1 accountant, 1 M&E, 1 Procurement Specialist and staff provided by Gvt are in place by second quarter PY1.

Assumption

No delays in project activities

Risk mitigation

Qualified staff will be recruited

Component cost: (UA 1.22 million)

Project Total (UA 16,82 million)

1

1. ORIGIN AND HISTORY OF THE PROJECT

1.1 The Republic of Malawi is a landlocked country bordered by Mozambique, Zambia and Tanzania (Annex 1). It has a total area of 11.8 million ha of which one-fifth is taken up by water, principally Lake Malawi. In 2004, the population of Malawi was estimated at 12.5 million, growing at 2% per year (over 7% in urban areas). Population density is high (and rising), as is the dependency ratio of 0.906 (every 10 working persons are supporting over 9 dependents). Poverty is widespread, and Malawi’s social indicators are among the lowest in the world. According to poverty analysis undertaken in 2000, based on 1997/98 Integrated Household Survey (IHS) data, around 64% of Malawians live below the poverty line. Around 66% of the rural population live below the poverty line, compared to around 55% in urban areas. 1.2 The main development issues facing Malawi’s agriculture are the low productivity and profitability of smallholder agriculture, which have been characterized by low and stagnant yields, particularly in maize production systems. Consequently, the majority of Malawians face severe food insecurity for larger parts of the year and poverty in general. Malawi has over the last decade generally run food deficits, relying on food imports and food aid, with an estimated 40% of the country’s population unable to satisfy its caloric needs of 2,200 kilocalories per day and 55% of rural population suffering from chronic food insecurity. It is estimated that over 50% of rural households run out of food between 4 and 6 months after harvest and have to seek opportunities of earning supplementary income to purchase food on the market.

1.3 The small-holder agricultural sub-sector which accounts for the bulk of food production in Malawi is characterised by subsistence, low productivity and vulnerability to natural vagaries such as droughts and floods. The Government of Malawi (GoM) recognising the important role that irrigation plays in the improvement of productivity of smallholder farmers, requested the Bank to finance the Small Scale Irrigation Development Study (SSIDS). The Bank financed the SSIDS through a grant of UA1.12 million which was completed in 2004. The SSIDS came up with a feasibility report for the present Smallholder Crop Production and Marketing Project (SCPMP).

1.4 Following a formal request from the Government in November 2004, an ADB project formulation mission visited Malawi in October 2005 and developed a framework for the project, revised the project scope, agreed on a tentative list of project sites and identified information gaps. This was followed by a Bank appraisal mission in February 2006. The proposed project is anchored on Pillar I of the Bank Group’s 2005-2009 Country Strategy Paper (CSP) which seeks to increase the level of irrigation infrastructure and support agricultural/rural development. The CSP interventions are directly linked to the Government’s Malawi Poverty Reduction Strategy (MPRS), Malawi Growth and Development Strategy (MGDS), Vision 2020 and the MDGs. 2. THE AGRICULTURE SECTOR 2.1 Overview of the Sector 2.1.1 Agriculture is the most important sector of the Malawian economy. Depending on climatic conditions, the sector accounts for about 40% of the Gross Domestic Product (GDP),

2

contributes about 75% of the country’s export earnings and generates income for around 84% of the population. It provides raw materials for about two-thirds of the manufacturing sector, and dominates the commercial and distribution sectors. Tobacco, tea and sugar which are the three main agricultural export products, make a contribution of about 80% to Malawi’s annual export earnings. Maize and tobacco are grown throughout the country, whereas sugar and tea are produced mostly in the South. Maize is the major staple food crop with 60% of the total cropped land devoted to its production. Livestock contributes about 7% to GDP. The livestock enterprise is largely constituted by ruminants such as cattle, goats and sheep and monogastrics such as pigs and chickens. The livestock enterprise provides for both subsistence and commercial requirements. 2.1.2 The agricultural sector is characterised by a dualistic structure, with one sub-sector consisting of low input/low productivity smallholder farms and the other comprises relatively large scale, modern estates. It is estimated that of the 5.3 million hectares (56% of total land area of Malawi) that are considered arable, smallholder farmers cultivate 2.7 million hectares (51% of total arable land), and 0.9 million hectares belong to the estate sector. Furthermore, wetlands, which are normally not classified as arable, constitute about 0.3 million ha. Many of these wetlands commonly known as dambos or dimbas, are actually cultivated and are an important source of food. Their importance as cultivated areas increased during and after the 1992 drought but there is a limited amount of information on their use for agriculture. 2.1.3 The smallholder sub-sector provides employment for about 80% of the rural workforce and contributes around 80% of agricultural GDP (commercial farmers produce the rest). Smallholder farmers operate on customary land or small scale leasehold estates. Most are engaged primarily in subsistence, rain-fed farming with little or no surplus due to small farm size, low productivity, limited productive assets, vulnerability to drought and crop diseases. However, the national food supply is heavily dependent on smallholder agriculture. Smallholder farmers cultivate a variety of crops, including maize, sorghum, millet, sweet potatoes, cassava, groundnuts, cowpeas, soybeans, pigeon peas and vegetables. They also grow cash crops such as tobacco, paprika and cotton. 2.1.4 About 55% of smallholders have farm sizes below 1.0 ha and another 25% have an average size of only 0.25 ha to satisfy their basic food requirements. The food supply produced on such small plots is enough for only six months of the year. During the rest of the year smallholder farmers have to depend on off-farm activities to raise the necessary cash for their food supply. Crop yields have not improved much in the last decade (1988/89 to 1999/00) and the mean yields are far below the potential for Malawi. Average maize yields have remained below 1.0 metric ton/ha for the past decade. Large scale commercial estates located in the high potential areas are engaged, primarily, in the production of export crops such as tobacco, coffee, tea and sugarcane. 2.1.5 Performance: From 1992 to 1994 the agricultural sector experienced a negative rate, mainly due to two major droughts in 1991 and 1993. Following reasonable rains and subsidised distribution of seed and fertiliser to smallholder farmers in 1994, the country enjoyed a relatively good harvest in 1994/95 and 1995/96 seasons. It is estimated that in the 1994/95 season, agricultural production grew by a robust 29.7% and in 1995/96 the sector registered 38% growth over the previous year. This continuous growth was mainly due to expansion of smallholder production that resulted in a 35% increase in maize production in 1995/96 compared to 1994/95. However, due to erratic rains, compounded by socio-economic factors such as failure of the majority of smallholder farmers to access improved

3

technologies such as inorganic fertilisers and improved maize seed, the country failed to maintain the production of maize surpluses, hence the government was forced to import maize to meet domestic demand. Throughout the remainder of the decade, agricultural sector growth was characterised by volatile changes due to drought, resulting in a sharp fall in agricultural output. The country has since the mid-1990s persistently registered deficits on maize production which have been supplemented by imports or food aid. 2.1.6 In the past, the large scale estate sub-sector has grown faster than the smallholder sub-sector. Between 1980 and 1994, estates grew at an annual average rate of 5.05% while the smallholder sub-sector grew at only 0.36%. Much of this growth can be attributed to an expansion of the area under burley tobacco, which at that time could not be grown by farmers on customary land. The increase in production of cash crops has resulted in reduction of arable land for the cultivation of food crops. Due to the pressure on arable land, smallholder farmers have been forced to cultivate marginally productive land, consequently reducing crop yields. 2.1.7 Marketing: The Agricultural Development and Marketing Corporation (ADMARC) was, up until 1987, the sole buyer of smallholder produce with depots nation-wide. This monopoly has been removed by the structural adjustment reforms of the 1980s and ADMARC is now one of the many traders, but still remains a buyer of last resort. In the agricultural sector the reforms involved the following measures: liberalisation of smallholder agricultural produce marketing coupled with the removal of subsidies on producer and consumer prices, especially of maize and fertilisers; deregulation of producer and consumer prices with the exception of maize where prices are supposed to swing within the government’s maize price band; liberalisation of fertiliser marketing, seed production and marketing and tobacco production and marketing. The aim of the reform has been to remove barriers and the restriction in the production and marketing of agricultural commodities and to encourage private sector participation in the agricultural trade. ADMARC purchases currently account for about 1% of smallholder production. 2.1.8 The market liberalisation has encouraged a number of other organizations such as the National Smallholder Farmers Association of Malawi (NASFAM) and Horticulture Development Organisation of Malawi (HODOM), to enter into agricultural produce marketing. However, these organisations are not involved in the marketing of perishable produce such as vegetables. For example, NASFAM, which has centres located in thirteen districts, encourages smallholder farmers to form cohesive village-based clubs and associations in order to grow and market high value cash crops including chillies, cotton, groundnuts, rice, paprika and soya. Its next strategic plan will also focus on horticulture crops. Currently, NASFAM has a membership of over 100,000 smallholder farmers in 32 Associations. NASFAM also operates input supply centres and also links its associations to credit institutions like the Malawi Rural Finance Corporation (MRFC), National Bank of Malawi and New Building Society. 2.1.9 In general, perishable horticultural crops are mainly bought by vendors and intermediaries from the nearby trading centres and towns. These handle small quantities of produce at a time that are quickly transported to the markets and do not need storage facilities within the rural areas. Farmers also take their produce to periodic markets in the nearby trading centres and to markets in the large urban centres, such as Lilongwe and Blantyre. Facilities to store perishable produce after harvest are not available in the rural areas except

4

for Irish potatoes and sweet potatoes that can be preserved in specially built ventilated sheds for 2 to 3 months. 2.1.10 Malawi is a net importer of most cereals and horticulture crops. Any increase in production of these crops will reduce its imports. The imports of rice and maize have been fluctuating in the last 5 years; it was 2,252 tons of rice and 9,326 tons of maize in 2001. In 2002, there was a shortage in the production of rice and maize which resulted in the importation of 348,365 tons and 11,278 tons of maize and rice respectively. While in 2003, the imports of rice and maize were 5,456 tons and 61,836 tons respectively; and imports of 263 tons and 6,865 tons of rice and maize respectively was reported in 2004. The project is expected to increase annual production of maize and rice by 13,296 tons and 1,813 tons respectively, in addition to the increased production of other vegetable (high cash crops). 2.2 Land Use and Land Tenure 2.2.1 The Land Act of 1965 created three regimes of tenure, which are customary, freehold and leasehold tenure. There are three categories of land, namely, customary (87%), public (11%) and private land (2%). Customary land, which accounts for land ownership in the project area, is that held and used in accordance with customary law. The Act declares the land the lawful property of the people of Malawi and administered by the President on behalf of the people. Through the Minister, the state has ultimate powers of administration and control over customary land. The village chief or other traditional authority is authorised to allocate land that is not occupied and, once allocated, the land is handed down within families through the generations along the male or female line, depending on the family system (matrilineal or patrilineal system of inheritance and succession) that dictates the inheritance rights (land use, property rights and ownership). Under a patrilineal system, the land-use rights will pass from father to son, while in a matrilineal system they pass from mother to daughter. However, the “owner/user” of the land has no legal right to it and the village headman may reallocate unused part of the plots to other residents of the village or newcomers. Although the traditional authority still has power over land, which may have been cultivated for generations by families, this power is rarely exercised. This situation does not encourage investment on the land as the owner/user will consider this to be too risky. In addition, the cultural practice that the living partner of a marriage does not inherit the land he or she has cultivated adds further risk and discourage investment on the land. The traditional authority has the responsibility for ensuring that all the land issues are handled in an acceptable manner and conflicts are avoided. 2.2.2 In order to encourage farmers at the project sites to invest in irrigation infrastructure and develop their own plots, a signed agreement was obtained from each village headman by the SSIDS team, stating that land use rights for those presently cultivating in the scheme sites would not be altered. In addition, the ownership of the land would be transferred to a Water Users’ Association to be formed at each site. The land ownership would be legalised as a long term leasehold to the WUA. This requires the WUA to be registered as a legal entity and within its constitution the old land use rights would be adopted. 2.2.3 Private land is defined as that which is held or occupied under freehold title, leasehold title, a Certificate of claim, or which is registered as private land under the Registered Land Act of 1967. This definition is based on the tenurial arrangements under which the land is held. Public land refers to land occupied, used, or acquired by the Government or any other land which is neither customary nor private.

5

2.2.4 The National Land Policy, 2002: The National Land Policy was adopted in 2002 and focuses on land as a basic resource to all people of Malawi. The new policy provides opportunities for the people of Malawi to embark on a path of socially and environmentally sustainable development. In addition, the policy highlights a number of approaches for addressing problems facing the land resource sector. 2.3 Poverty, Health and Gender Aspects 2.3.1 Poverty in Malawi is wide spread, and is more severe in rural areas where about 85% of the country's population resides. Recent Government estimates indicate that about 64% of Malawians live below the poverty line. Around 66% of the rural population lives in poverty as compared to 55% in urban areas. Nationally, women earn less than men per annum, make up 67% of the population below the poverty line, and constitute almost 92% of the population with no formal literacy skills. Gender-based variations in the incidence of poverty do not appear to be significant: the incidence of poverty among female headed households is 29% while it is 26% amongst male-headed households. But female household heads are disproportionately poor; 64% of rural female-headed households and two-thirds of individuals in rural female-headed households are poor. Poverty is deeper and more severe in female-headed households, suggesting that the ultra poor are more likely to be living in female-headed households. 2.3.2 The pervasiveness of poverty in Malawi is reflected by the poor socio-economic indicators. For example, life expectancy in Malawi dropped from 43 years at birth in 1996 to about 38 years at birth in 2004. In 2001, 49% of children under 5 years of age were found to have stunted growth, up from 30% in 1995, being a direct consequence of malnutrition. In addition, it was found that poor households consume only 66% of the recommended daily calorie requirement - highlighting high levels of food insecurity. The HIV/AIDS epidemic in Malawi is one of the most severe in Africa. It is estimated that 15% of adults aged 15-49 are infected, and that this infection is concentrated in the younger half (ages 15 to 24), particularly women. The urban infection rate in adults is estimated to average 23%, compared to 12.4% in rural areas. However, there is evidence indicating that HIV prevalence has stabilized over recent years at around 15%. The fact that HIV/AIDs is the leading cause of death in the most productive age group (20-49 years) points to its potential adverse effects on rural labor and rural labor productivity. Farmers, especially women farmers, spend more of their time caring for the sick, thus spending less time tending to their agricultural enterprises. 2.3.3 Women are reported to comprise about 60% of smallholder farmers. They spend as much time on farm work as they do on domestic activities – and they work as much as men on the farm. Women contribute labour to both cash and food crops and there is no differentiation between men and women’s operations. They sow, weed, apply fertiliser and pesticides, harvest, and process the crops. Women’s contribution to nutrition and a balanced diet is considerable. They are the major growers of legumes and vegetables for home consumption. Women care for the all-important small livestock - poultry, goats, pigs, and rabbits. These are often the only animals owned by poor families. Although most households are still headed by a man, 26% of rural households are headed by women. Female household heads make almost all decisions in their households, while women in male-headed households may make decisions on their own or in consultation with the husband. On average, the decision to grow most crops is taken by both husband and wife. However, females tend to make more decisions on food crops such as maize, rice, sweet potatoes, beans, cassava,

6

pumpkin and groundnuts, while men predominate in decision making on cash crops such as soybean, sunflower, exotic vegetables, tobacco, wheat, cotton and coffee. 2.4 Sector Development Constraints The agricultural sector is operating in an environment that is full of challenges which contribute to low productivity and profitability. These challenges include:

i) Poor access to agricultural inputs by the majority of smallholder farmers due to high costs of inputs, low access to credit, unavailability of the inputs, and a heavy reliance by farmers on local seed particularly maize (75%);

ii) Poor infrastructure to support initiatives for improved productivity. These include lack of adequate and competitive markets for products, transport and other communication facilities;

iii) Low adoption of improved technologies such as irrigation techniques, agro-processing facilities due to inaccessibility and unaffordability of those technologies for most farmers;

iv) Unfavourable weather conditions characterized by inadequate or excess rains in some seasons, dry spells, droughts and washaways;

v) HIV/AIDS impact on the productive age group; vi) Gender imbalance characterized by marginalization of vulnerable groups like women,

children, orphans, old and the poor in the formulation, implementation and sharing of benefits from agriculture programmes; and,

vii) Heavy reliance on rainfed agriculture. 2.5 Sector Development Policy and Strategy 2.5.1 New Agricultural Policy: The Ministry of Agriculture and Food Security has developed a New Agricultural Policy (2005) in order to outline the actions to be implemented by the institution and other stakeholders in the agriculture sector in an effort to create ‘a nation with sustainable food security and increased agro-based incomes’. While the national goal is to create wealth through poverty reduction, this policy specifically seeks to fulfill the mandate of the Ministry of Agriculture which is, ‘to promote and facilitate agricultural productivity so as to ensure food security, increased incomes and creation of employment opportunities through the sustainable management and utilization of natural resources, adaptive research and effective extension delivery system, promotion of value-addition and agribusiness and irrigation development’. 2.5.2 Some of the objectives to be achieved through the implementation of the policy include:

(i) Revitalization and development of marketing infrastructure in Malawi to induce production through: the rehabilitation and commissioning of ADMARC markets throughout the country with priority on maize purchases, organization and strengthening of farmer cooperatives, provision of timely market information (prior to planting), up-scaling of existing market information systems; establishment of Malawi commodity exchange market; promotion of maize contract farming to service strategic grain reserves and promotion of agribusiness training and practices. (ii) Increasing and stabilizing agricultural production through: rehabilitation of existing irrigation facilities; development of new large scale irrigation schemes;

7

development of water resources for irrigation through construction of dams, drilling of boreholes and canalization; enhanced technical capacity in irrigated agriculture through support to training institutions, staff and farmer training. (iii) Enhance uptake of improved technologies for increased agricultural production through: development of appropriate technologies such as high yielding, drought tolerant and disease tolerant crop varieties and livestock breeds; provision of pluralistic extension services through improved extension methodologies; promotion of Agriculture Extension Services through the District Agriculture Services System; and conduct of intensive farmer training programmes. (iv) Promote commercialization of farming in the smallholder agriculture sector through: initiation of smallholder farmer managed agriculture credit system; enhanced linkage between farmer organizations and microfinance and marketing institutions; facilitation of formation and management of agricultural cooperatives in ADMARC markets; facilitation of formation and management of sustainable farmer based organizations. (v) Reduce HIV/AIDS impact and gender disparities in the agricultural sector through: mainstreaming of gender and HIV/Aids at work place and farming communities; promotion of agro-based income generating projects for vulnerable groups; generation of technologies that are friendly to HIV/Aids affected persons and promotion of dietary diversification. (vi) Promote access to agricultural inputs through introduction of targeted subsidy for fertilizers, seeds and livestock inputs. Prioritization of provision of inputs for maize production to enhance food security; establishment of a land bank for the agricultural sector with concessional rates; promotion of use of hybrid and open pollinated varieties (OPV) maize seeds and fertilizers; promotion of food-for- work programmes targeted for agricultural production, such as distribution of inputs and construction of agricultural infrastructure; promotion of organic manure production and agroforestry technologies; and promotion of seed production of all crops

2.5.3 The National Decentralisation Policy: The National Decentralisation Policy (NDP) approved in 1998 provides the main framework for implementation of decentralisation in the country. The Local Governments Act (1998) provides the institutional details of the local government structure, including key structures, procedures (including elections), accountabilities and remedies. The National Decentralisation Policy (NDP) backed by the Local Governments Act (1998) devolves political and administrative powers and responsibilities to Assemblies. One key aspect of the Decentralisation Policy is that it removes implementation functions from central government and transfers them to the District Assemblies. The NDP seeks to achieve a number of objectives, namely, (i) to create a democratic environment and institutions in Malawi for governance and development, at the local level which will facilitate the participation of the grassroots in decision making; (ii) to eliminate dual administrations (field administrations and local government) through the integration of governmental agencies at the district level into one administrative unit with the aim of making public service more efficient, more economical and cost effective; (iii) to promote accountability and good governance at the local level in order to help government reduce poverty; and (iv) to mobilise the masses for socio-economic development at the local level.

8

2.5.4 At the district level, the local government system is made up of District Assemblies (DA) whose functions include making policy decisions on local governance and development in the district, promotion of infrastructural and economic development through district development plans, and consolidation and promotion of local democratic institutions and democratic participation. The DA has elected Ward Assembly members called Councillors from each ward of the Assembly. There are also additional appointed Assembly members representing interest groups. These are ex-officio with no voting powers. Other non voting members are Traditional Authorities (TA) and Members of Parliament within the jurisdiction of the Assembly. The DA has been given the mandate to employ its own staff. 2.5.5 The Assembly Secretariat headed by a District Commissioner (DC) is the main organ for implementing policies at Assembly level under which all sectoral policies and functions are executed. There is an administrative structure comprising of the District Executive Committee (DEC) chaired by the DC which plays an advisory role to the Assemblies. It comprises heads of various governmental departments, officials from parastatals and representatives of Non Governmental Organisations (NGOs). Linked to the Assembly on the policy implementation are the Community Development Committees (CDCs). The CDCs are charged with the mobilization of community resources and the determination of development interventions in their areas. They are responsible for identifying needs and facilitating planning and development in local communities. 2.5.6 The functions and services of the line ministries at the district level have been assigned to the DA. The line ministries are responsible for sectoral policies, standards and general oversight over Assemblies. They provide technical guidance, monitor and mentor local governments in their respective sectoral policies and strategies. Ministries and departments involved in devolution are required to prepare sector devolution plans and have these approved by the Cabinet Committee on Decentralization. At the Assembly level, the line ministries are represented by the Technical Departments in the DEC, who implement sector activities. 2.5.7 The major problems with regard to capacity at the local government level are: (i) lack of adequately qualified staff in key positions particularly at middle management level; (ii) insufficient equipment; (iii) inadequate financial resources; and (iv) shortcomings in organisational and human resource management. The recruitment process of staff in local governments is often long and unpredictable. Moreover, the incentives for well qualified personnel to work in the districts are low. In general, staff are not adequately trained and prepared for their tasks especially when new policies and public financial management tools are introduced. Existing staff is required to assume additional responsibilities and extra workload thereby affecting their performance. As a result, many central government institutions are reluctant to devolve functions to local government levels because they have concerns regarding the capacity of staff in local governments. 2.5.8 The National Decentralisation Policy was designed to be implemented in phases focusing on transfer of functions of five key sectors (Education, Water, Housing, Agriculture, Commerce and Industry, Gender) in the first phase while building the institutional capacity at the centre and the local government for effective management of the process and without disrupting delivery of services at the local level. Other key activities included support to ministries to prepare sector devolution plans and transfer of functions to assemblies,

9

recruitment and training of staff and systems development in areas of development planning, fiscal devolution, financial management and accounting and human resource management. 2.5.9 The National Decentralisation Programme (NDP) has been developed as a strategic coordination framework for effective implementation of the National Decentralization Policy and Local Government Act over a period of ten years, from 2000 - 2010. The NDP will also serve as a tool for mobilizing resources from stakeholders and development partners wishing to support the implementation of the decentralization process in Malawi. The first National Decentralization Programme (NDP I) was developed and implemented from 2001 – 2004 and covered legal reforms, institutional development and capacity building, fiscal decentralisation, accounting and financial management, sector devolution and local development planning. The main donors financing the programme were UNDP, NORAD, the Bank and GTZ. 2.5.10 From the review of the achievements of NDP I undertaken in 2004, it was noted that 10 Sectors (Education, Health, Agriculture, Natural Resources and Environmental Affairs, Water, Gender and Community Services, Lands and Physical Plans, Transport and Public Works, Commerce, Housing) prepared their Devolution Plans. Seven sectors (Health, Agriculture, Water, Gender and Community Services, Transport and Public Works, Commerce, Housing) prepared their Sector Devolution Guidelines to guide the absorption and implementation of devolved functions. Some sectors (Agriculture, Gender, Commerce, Water, Housing, and Education) commenced transferring some functions to the assemblies. Guidelines for managing devolved activities had been prepared by 7 line ministries and District Assemblies had started managing some of the devolved functions. 2.5.11 The transfer of defined functions and resources to local assemblies by key sectoral ministries has been slow. This slow pace has been attributed to: (1) limited appreciation of the benefits of devolutionary decentralisation; (2) absence of a clear political and institutional driver for the devolution process and (3) fear among politicians and government officials of losing control over resources. The review programme has resulted in the preparation of the second phase of the programme for the 2005-2009 period – National Decentralization Programme II. Accelerating the transfer process will be the centrepiece of NDP II.

3. IRRIGATION SUB-SECTOR 3.1 Overview 3.1.1 Malawi’s agriculture is mainly rain-fed. There are two distinct seasons, the rainy summer season and the dry winter season. In the former, crops are mainly rainfed with some occasional supplementary irrigation, while in the latter crops are fully irrigated or use residual moisture plus supplementary irrigation. The summer crops are grown mainly on the uplands, and are normally planted at the start of the rains from late October to early December. All the major cash crops are grown under this system, including maize, cassava, sweet potatoes, groundnuts and tobacco. The dry season irrigated crops are planted at the end of the rainy season from March to September. They are grown mainly under dambo (wetland) system in the lowlands. In this system crops use residual moisture plus some supplementary irrigation to ensure adequate water supply. They are also grown under flood, and at times overhead irrigation using gravity or motorised pumps to deliver the water. The irrigated crops include maize, rice, sweet potatoes, irish potatoes, beans, leafy vegetables, tomatoes and onions. Farmers use improved crop varieties, but in most areas, they are recycled and used over and

10

over again. Many reported using fertilisers on their crops, but application is limited to the main food and cash crops such as maize, potatoes and tobacco and the dimba/irrigated crops. Few farmers use chemicals for pest and disease control and these are generally limited to cash crops such as cotton and tobacco and food crops such as maize and beans. 3.1.2 According to the Department of Irrigation, the estimated irrigation potential area is 450,000, which represents 16.7% of the arable cultivable area of 2.7 million ha. However, only 63,000 ha has been fully developed consisting of 48,135 ha (77%) under estates whilst about 14,697 ha (23%) is under smallholder, which produces mainly cereals (mostly rice and maize) and horticultural crops with 11,497 ha under farmer-run self-help irrigation schemes and 3,200 ha under Government-run irrigation schemes. Apart from this, traditional wetland (dambo) cultivation using residue moisture covers about 62,000 ha mainly during the dry seasons since such areas are waterlogged and inaccessible during the rainy season. There is thus great potential for irrigation development. 3.1.3 Private Estates: Most of the land developed for irrigation has been developed by the private sector, through establishment of private estates. The irrigated area under estates covers export or high value crops like sugarcane (45%), tea (43.75) and coffee (11.3%). The estate irrigation systems normally utilise surface water resources and use surface irrigation methods like flooding and furrow, and also overhead irrigation methods like sprinkler systems/centre pivot, and to a lesser extent micro-irrigation system (drip) in coffee plots. 3.1.4 Smallholder Irrigation Schemes: There is no formal classification of smallholder irrigation schemes but they are normally grouped as farmer-run self-help irrigation schemes or Government-run irrigation schemes. The latter schemes are in the process of being rehabilitated by the Government mainly through donor funding and handed over to smallholder farmer groups. Most of the smallholder-irrigation schemes produce mostly rice, maize and horticultural crops but have problems due to poor scheme infrastructure, inadequate irrigation water supply, and inefficient use of available water. 3.1.5 Government-run irrigation schemes: Between late 1960s and mid 1980s, GoM constructed, operated and maintained 16 smallholder river diversion gravity-fed irrigation schemes on public land, with a total irrigable area of 3,200 ha, which were mainly occupied by settlers and smallholder farmers from surrounding areas with a plot-holding size of between 0.1 to 0.3 ha. The schemes were constructed without full involvement of the farmers. Consequently the latter’s participation was limited and their involvement was restricted to crop production and paid maintenance work. Most schemes had a full fledged Government management unit headed by a scheme manager with frontline staff under the agronomy and engineering sections who were responsible for daily scheme management including water allocation. 3.1.6 GoM has not managed to adequately operate and maintain the 16 schemes which resulted in poor performance due to poor farmer organisations and a dependency attitude of farmers on government assistance, even for activities within their control. GoM gradually reduced its financial contribution and involvement in scheme management so as to empower farmers to manage the scheme-related activities. However, GoM could not hand over the schemes to the farmers in their dilapidated state. Owing to this, it ventured into the process of rehabilitating the schemes with the aim of handing them over to smallholder farmer organisations. The four schemes, Hara, Wovwe, Lufira and Domasi, have had full rehabilitation intervention through the IFAD funded Smallholder Floodplains Development

11

Project and farmer organisations, like Water User Associations, are already in place. Another scheme, Kasinthula, which used to grow mainly rice and green maize, was also rehabilitated and turned into an outgrower sugarcane scheme for Illovo (Nchalo) Sugar Estate and is under the management of Kasinthula Cane Growers Limited. In such schemes, the GoM staff are withdrawn and deployed to other stations. 3.1.7 Self help irrigation schemes: Unlike Government schemes, self-help schemes are developed by either the farmers through their own initiative or with support from the Government, including scheme improvement where farmers are also required to provide free labour, and locally available construction materials like sand, lump stones and bricks. The Government would in such cases provide other more expensive materials like cement and quarry stones. In the case of new schemes, farmers fully participate in each stage of scheme development, from site identification, design and construction with full support from the Government. After construction, farmers operate and maintain the schemes with minimum Government support. The result has been that scheme performance has improved because of the instilled sense of ownership. The Government only assist when major catastrophe like flash floods occurs. 3.1.8 Self-help irrigation schemes vary in sizes with respect to technologies used. Most of them have a gross area of less than 100 ha, with the smallest being 0.3 ha (treadle pump-based). Successful ones are river diversion gravity-fed schemes, followed by manual pump based schemes and motorised-pump based schemes. The river diversion schemes are common and cover a total area of 6,595 ha which uses either basin, furrow or flood irrigation. Depending on the scheme size, the plotholding size ranges from 0.1 to 0.5 ha per farmer. Most of the canals in schemes (<1ha) are normally not lined whilst other schemes (>3ha) will have lined primary (main) and secondary (branch) canals. Though the scheme implementation time is longer, the system is best suited for most farmers since the operational costs have proved to be affordable. However, these are associated with some problems including poor irrigation water management leading to low irrigation efficiencies. 3.1.9 Manual pump based schemes mainly depend on the treadle pumps which were introduced in 1997 and have become very popular amongst smallholder farmers. Approtec (Kickstart) money maker manual pump was introduced in 1999 but was not fully adopted due to high cost, though it is greatly used in East Africa. Approximately, 4,199 ha are under treadle-pump technology excluding the total area of schemes which are developed by NGOs whose records are not relayed to DoI. Plot-holding sizes vary depending on farmer’s wetland size since the technology is mainly used on individual basis in the existing customary land which does not require farm-plot redemarcation. In some cases, a group of farmers can share one treadle pump and cultivate on a communal farm. An evaluation on the uptake and use of the treadle pumps by smallholder farmers indicated that it has been widely adopted by smallholder farmers and that it is easy to operate and maintain, and can be individually owned. However, the pump can only easily extract water from a suction lift (depth) of not more than 4 meters which requires wetlands with shallow water table. For farmers with larger areas, several shallow open wells are often dug in order to alternate during irrigation. 3.1.10 Motorized pump-based irrigation schemes involve pumping water from surface or groundwater resource and let it flow either by gravity to the field or conveyed through pressurised system (sprinkler or drip). Apart from unavailability of spare parts, farmers complain that pump operation and maintenance costs are also high. Where farmers are using submersible pumps to abstract ground water, apart from high investment costs, the electricity

12

cost is high. In general, most of the existing irrigation schemes which are poorly managed or no longer fully operational are based on motorised pumps. Farmer groups are cohesive only during the first few cropping seasons and then the membership starts to dwindle when the pump starts developing problems.

3.2 Irrigation Development Constraints, Policies and Strategies 3.2.1 Constraints: Irrigation development is faced with constraints including: (i) inadequate funding for irrigation development; (ii) inadequate number of qualified and skilled Irrigation Officers; (iii) poor communication between different operational levels; (iv) high farmer illiteracy and poverty levels; (v) low extension staff/farmer ratio; (vi) lack of reliable transport for frontline staff; (vii) inadequate construction equipment and machinery; (viii) poor monitoring and evaluation of irrigation schemes; and (ix) poor irrigation water management. 3.2.2 Policies and Strategies: According to MoAFS, the vision of the agriculture sector is to achieve sustained food security and increased agro-based incomes with a mission to promote and facilitate agricultural productivity and sustainable management and utilisation of natural resources. To achieve these ideals, the MoAFS adopted the pluralistic approach to the extension service where several players such as public/government, civil/NGOs and private extension companies play their part in the country’s extension endeavours. The extension strategies and approaches include commodity advisory services, one village one product, farmer field schools, participatory extension, and farmer organisation. 3.2.3 The GoM adopted a National Irrigation Policy and Development Strategy (NIPDS) in June 2000 to “provide a clear statement of the Government’s aspirations for the irrigation sector and to highlight the strategy for attaining irrigation development objectives.” NIPDS, supported by an Irrigation Act passed in 2001, states that GoM will assume the role of facilitator in sustainable irrigation development using a participatory approach. GoM will embark on such activities based on requests from smallholder farmers that meet the criteria for sustainable development. The policy objectives are to: (i) contribute to poverty alleviation by targeting resource poor smallholder farmers for irrigation development; (ii) increase agriculture production and enhance food security through efficient irrigation; (iii) extend cropping opportunities, intensify cropping intensity and provide high yielding variety of crops; (iv) create and enable suitable conditions for irrigated agriculture, by facilitating and encouraging the private sector to invest in irrigation development, and encourage rural communities and WUAs to manage and operate irrigation projects; (v) optimise government investment in irrigation development by applying principles of cost sharing and cost recovery; (vi) enhance human capacity for irrigated agriculture in the public, parastatal and private sector in order to facilitate effective applied research in irrigation technology and marketing of irrigated produce; and (vii) create the spirit of business culture in the small scale irrigated agriculture sector, to promote and provide competitive financing of irrigation projects. 3.2.4 NIPDS development strategies aim to: (i) identify areas with irrigation potential; (ii) update of available information concerning economics of water use to assist in rational and efficient irrigation d development; (iii) assist small holder farmers, to develop and manage new and existing irrigation schemes through establishment of local farmer organisations; (iv) conduct applied research in irrigation technology; (v) transfer ownership of existing government schemes to the beneficiaries, through participatory methods that will enhance

13

farmers’ responsibility and obligations towards the management of the schemes; (vi) facilitate the establishment of a well co-ordinated marketing system with considerable local processing and better storage /transportation of farm produce; and (vii) address specific problems that women face in irrigated agriculture. The proposed project will address many of these elements of the NIPDS. Following this policy, an Irrigation Act was passed by Parliament in November 2001 which makes provision for the sustainable development and management of irrigation, protection of the environment from irrigation related degradations, establishment of a National Irrigation Board and for matters connected therewith or incidental thereto. 3.2.5 The Water Resources Act (WRA) was passed by the Government in 1969 for purposes of proper water resources management and provides for the control, conservation, apportionment and proper use of the resources. In terms of water abstraction, the WRA is enforced by the Water Resources Board (WRB) which is a body within the MoIWD. Under the WRA, except for riparian use or general domestic purpose, all water abstractions and industrial effluent discharges into public water bodies, including human sewage must be licensed and a renewable water abstraction right (permit) issued accordingly. The water abstraction fees are charged based on the water source and type of usage. However, the defaulters cannot be properly policed since the WRB is grossly understaffed. Plans are underway to strengthen the capacity of WRB. The National Water Policy (January 2004) incorporates the vision of the water sector as “water and sanitation for all, always” which is based on the country’s central policy of poverty reduction, and it endeavours that every Malawian has equitable access to water and sanitation services for sustainable socio economic development of the country. The overall national policy goal is sustainable management and utilization of water resources, in order to provide water of acceptable quality in sufficient quantities, and ensure availability of efficient and effective water and sanitation services that satisfy the basic requirements of every Malawian. 3.2.6 The Environmental Management Act (EMA), adopted in 1996, provides the basic legal and administrative framework for environmental planning and management, including the requirement for Environmental Impact Assessment (EIA) studies for prescribed projects. The Act is the legal operational translation of the National Environmental Policy (NEP) of Malawi (1996) and the National Environmental Action Plan (1994). It gives strength to the principles outlined in the NEP, to the extent that wherever sector legislation conflicts with the EMA, the latter shall take precedence. Section 9 of EMA sets out the power, functions and duties of the Environmental Affairs Department and those of the Director of Environmental Affairs. Section 16 provides provisions for the establishment and the powers and duties of an Inter-Agency Technical Committee on Environment (TCE), while Section 24 specifies the steps to be followed in the preparation of a project’s EIA Study. The Government of Malawi’s Guidelines for EIA, adopted in December 1997, specifies a list of prescribed projects where an EIA is mandatory (List A) and a list of projects where an EIA may be required (List B). List A, Item A1.2, identified irrigation projects designed to serve more than 10 ha. While List B, Item B2.1 identified large-scale irrigation or drainage schemes. It is believed that the irrigation schemes (all under 250 ha) should fall under List B (as well as in accordance with ADB’s ESAP), and consequently required an ESMP for each irrigation schemes. However, in order to avoid any delay in project implementation, the EIA Study and related site-specific ESMP attached to the Feasibility Study have been prepared in order to fulfill with List A’s EIA requirements. EIA’s sector guidelines, including for irrigation and drainage, have been adopted in 2002. Finally, Section 27 of the EMA specifies that any project subjected to an EIA cannot be approved nor be implemented, until the project’s EIA

14

Study is judged satisfactory and that an EIA Certificate of Environmental Compliance, with its Terms and Conditions be issued by the Director of Environmental Affairs. Government Notice N.10 of August 2004, entitled the Environmental Management Regulations, described the EIA processing fees which include the technical review by the EAD/EIA Unit and the TCE and the undertaking of semestrial/annual monitoring/auditing of the implementation of the ESMP. Implementation of the ESMP is under the legal and operational responsibility of sector ministries or departments and EMA provides for penalties for non-compliance. The District Environmental Officer is mandated to report on the level of implementation of the site-specific ESMP at the District level and to provide technical advice and/or any corrective actions required to the District’s Director of Agriculture and Natural Resources. 3.3 Institutional Framework 3.3.1 Ministry of Agriculture and Food Security (MoAFS): MoAFS has been restructured from the previous Ministry of Agriculture, Irrigation and Food Security (MoAIFS) which used to have the Department of Irrigation, as one of the departments. The overall purpose of the Ministry of Agriculture and Food Security is to promote and accelerate broad-based, sustainable agricultural and irrigation development policies so as to promote economic growth and contribute to poverty reduction. The MoAFS comprises one administration and five technical departments which report directly to the Secretary for Agriculture. The technical departments include: Agricultural Research Services; Animal Health and Industry; Crop Production; Agricultural Extension Services; and Land Resources Conservation. The Ministry is further divided both administratively and technically into 8 Agricultural Development Divisions (ADDs) which are headed by Programme Managers. 3.3.2 In each ADD, there are Subject Matter Specialists (SMS) representing Crop Production, Animal Health and Veterinary Services, Agriculture Extension Support Services, Research and Technical Services, Land Resources Conservation and Irrigation Departments. Below the ADDs, there are Rural Development Projects (RDPs) at the district level with the same structure as the ADDs and these are further divided into Extension Planning Areas (EPAs) which are further divided into sections. 3.3.3 With regard to functionality, the Ministry of Agriculture Headquarters through its departments mainly concentrates on policy formulation and regulation, coordination of both local and offshore training and collaboration with other stakeholders in the sector. At ADD level, there is interpretation of policies from the MoAFS Headquarters, coordination of subject matter specialists, supervision of programmes, development of technical messages and training of all subject matter specialists. With respect to RDPs, the functions include dissemination of messages, training of EPA staff and farmers, providing technical advice and supervision of EPA staff. At EPA level, activities involve imparting technical messages to farmers, formation of farmer groups, conducting farmer demonstrations and linking farmers to credit institutions. The Ministry is in the process of devolving its agricultural programmes to District Assemblies in line with the decentralisation process. Consequently, the functions of the RDPs and the EPAs will be the responsibility of the Directorate of Agriculture and Natural Resources. 3.3.4 Ministry of Irrigation and Water Development (MoIWD): MoIWD has the overall control of surface and groundwater resources in terms of water resource planning and development; maintenance of water resource data bases; review of applications for water rights; monitoring of water abstractions; water quality management; protection of water

15

resources and catchments management, and also irrigation development. The Department of Irrigation, which until recently was part of the Ministry of Agriculture and Food Security, is responsible for irrigation development in Malawi and is a key institution for irrigation scheme planning, designing, construction, and also rehabilitation of remaining Government-run irrigation schemes. The technical divisions of the DoI include: Planning, Designing and Operations, Training and Advisory, Irrigation, Research and Development which are supported by a Drawing Office, workshop, Human Resources Management and Accounts. 3.3.5 Ministry of Mines, Natural Resources and Environment (MoMNREA). The Environmental Affairs Department (EAD) is responsible for the administration, implementation and monitoring of the Environmental Impact Assessment (EIA) Studies. However, the actual implementation of the site-specific Environmental Management Plans for the 39 proposed Irrigation schemes identified within the scope of the SCPMP will remain the responsibility of the DoI. Throughout the EIA process, the EAD is guided by the Technical Committee on the Environment (TCE). The existing institutional, technical (monitoring equipment) and financial capacities of EAD are rather limited and the decentralization of the EIA administration process to the District level still remains in its infancy. It is hoped that, with a stronger decentralization process, the EIA process will become more effective and efficient, that the EIA monitoring will improve, provided that the districts are adequately staffed and resourced. In view of the existing limited capacities at the District level, the ESMP outlined in Annex 7, has included the financial provisions for the institutional strengthening of the District Environmental Units for ensuring continuous monitoring of the implementation of the mitigation measures at each irrigation scheme. Semestrial and annual monitoring/auditing of the implementation of the site-specific ESMP will also be undertaken by EAD, in accordance with the Environmental Management Act (1997) and the project’s EIA Certificate and its Terms and Conditions.

3.3.6 District Directorate of Agriculture and Natural Resources (DDANR). The DDANR which is headed by a Director regroups a number of services which were previously under line ministries. These services include extension, irrigation, forestry, livestock, fisheries, environment and energy, each one headed by a Head of Division. Coordination of the activities of the DDANR is done through the District Directorate of Agriculture Management Team which is made up of the District Director and the Heads of Divisions. Most of the activities of the DDANR are carried out at the Extension Planning Area (EPA) level which is headed by the Agricultural Extension Development Coordinator (AEDC) and Section level where field assistants are located. However, there is no extension officer specialized in irrigation who can routinely be in contact with the farmers. Hence, the need for training of extension officers in irrigation practices. The division in charge of irrigation development has, in most cases, one irrigation officer and an assistant irrigation officer to oversee irrigation activities within their jurisdiction.

3.3.7 Non-Governmental Organizations (NGOs): NGOs are coordinated by the Council for Non-Governmental Organisations of Malawi (CONGOMA), but individual NGOs, like ActionAid (Malawi), CARE International, PLAN International, Evangelical Lutheran Development Programme (ELDP), World Vision International, Save the Children Federation, AFRICARE, Concern Universal, Churches Action in Relief and Development (CARD), and EU Public Works Programme are involved in funding and implementation of a number of irrigation-related activities mainly through food security programmes.

16

3.3.8 Private Sector: Due to overstretching of DoI staff and the complexity of activities, DoI engaged the private sector, mainly local consultants and contractors, to speed up the scheme development activities, although their performances have been mixed. The DOI’s lack of experienced staff has also led to the poor supervision quality and poor contract management. Construction contracts which were supervised by independent consultants tend to perform better. In general, the local private sector engineering capacity for irrigation development, is extremely limited and relies mainly on a number of experienced individuals who used to work in the civil service.

3.4 Donor Interventions The current donor funded smallholder irrigation-related projects and programmes most relevant to the proposed project, in terms of complementarities and/or activeness in the project area, include: (i) IFAD - Smallholder Flood Plains Development Programme (SFPDP) (ii) JICA - Construction and Rehabilitation of Bwanje Valley Irrigation Project, and Capacity building and development for Smallholder Irrigation Schemes; (iii) BADEA - Small Farms Irrigation Development Project; (iv) USAID - Support to NASFAM, Support for Agriculturally-Linked Enterprises, Cassava Industry Promotion Project (SARRNET), Deepening the Micro-finance Sector, Commercial Microfinance for Malawi Under-deserved Poor (Opportunity International); (v) World Bank/IFAD - Irrigation, Rural Livelihoods and Agriculture Development Project; (vi) EU Public Works Programme; and (vii) African Development Bank - Smallholder Irrigation Project (ShIP), Horticulture and Food Crops Development Project (HFCDP), Rural Income Enhancement Project (RIEP), Macadamia Project, Smallholder Outgrower Sugar Production Project, and Lake Malawi Fisheries Development Project. In general, these interventions seek to address issues related to food security and poverty reduction through empowerment of rural communities, community involvement in irrigation development, natural resources management, diversification of income sources, improved access to domestic water supply, rural infrastructure livestock production, and improved crop husbandry practices. The proposed project will have a wider coverage than the ongoing projects and will also concentrate on establishment of irrigation schemes on customary land as opposed to rehabilitation of government schemes. 3.5 Lessons Learnt from Past Interventions in Malawi

3.5.1 Weak Project Design: According to the recent Project Completion Reports (PCRs), OPEV reports and the draft 2005 Country Portfolio Review Report for Malawi, poor quality at entry was one of the most important contributing factors to the low implementation rate of projects. Poor project design as a result of unsatisfactory formulation and weak articulation of projects is mainly attributed to poor identification of the real problems and the resultant unrealistic intervention strategies. There have been instances of inadequate or lack of feasibility and design studies to confirm the viability of all or the critical components of the projects, as was the case with Smallholder Irrigation Project. Complex projects and related conditions precedent to entry into force should be avoided—the Government’s implementation capacity is low and efforts should be made to design projects and components taking into account this low level of capacity. For example, in the late 1990s a generation of Bank-funded projects had micro-finance as one of the components, which has proved difficult to implement because the design did not include proper study of the capacity of the local Micro-finance Institutions (MFI) to deliver. It is imperative therefore that future project designs should take into account the problems that have been encountered with micro-finance and either not include a micro-finance component or make only limited use of micro-

17

finance until there is clear evidence that MFIs have become developed enough and the legal and regulatory environment is strong enough to support such institutions and intended beneficiaries. 3.5.2 Inadequate Implementation Management Capacity: In the past, GoM used to second staff to serve in projects, but as the positions of the seconded staff remain vacant in the civil service during the period that the staff member is on secondment, this created significant capacity gaps in the civil service. In order to address this issue, the GoM decided that the projects should be implemented and managed through the existing ministerial structures. However, this new arrangement created some significant challenges and has not been successful. One of these challenges was the fact that the staff in the existing structures in Ministries have a myriad of other routine responsibilities in their respective departments. As a result, it became too demanding on such staff to efficiently handle those routine responsibilities and also ensure the effective implementation of the projects. Moreover, staff members who take on project responsibilities shoulder more responsibilities due to the difference between the operations of a project and the workings of the mainstream government civil service. This became a source of de-motivation for staff who are not used to going beyond the normal call of duty. As a result, many ongoing Bank and IFAD funded projects have reverted to PIUs. Even the recently approved World Bank/IFAD Irrigation, Rural Livelihoods and Agriculture Development Project has provision for a fully fledged PCU staffed by recruited personnel. 3.5.3 Inadequate staffing of PIUs: Some of the PIU members do not have any significant training or experience on project implementation management, thereby limiting their capabilities to steer projects as required. With no procurement officers of their own, the projects experienced serious difficulties in procuring the goods and services that they required. Large-scale international procurement, especially given the complexities of international competitive bidding and the management of such processes, remains a complex challenge in the ministries in charge of projects in agriculture. The PIU staff also do not have experience in conducting M&E and therefore rely on the overstretched staff in the M&E Unit in the ministries which also lack adequate resources like office equipment and computers for data processing. 3.5.4 Streamline Loan Conditions: Delays in the fulfillment of loan conditions has been a factor in project implementation delays, which have negatively affected the performance of projects. The total average delay from loan approval by the Boards of Directors to entry into force for all on-going projects is 0.8 years. Quality at entry should consider rationalising the conditions for entry into force as well as for disbursement effectiveness, so as to reduce the possibilities for project start-up delays. The design of loan conditions should increasingly take into account Government’s capacity to implement them in a timely fashion. 4. THE PROJECT 4.1 Concept and Rationale 4.1.1 In Malawi, unreliable rainfall combined with extended periods of dry spells which adversely affect the crop productivity calls for full and supplementary irrigation. Investment in harvesting and management of water during period of plenty, and for irrigation use during period of scarcity, is critical to meeting the food and fiber requirements for a growing population. Agricultural intensification through irrigation has the potential to double yields

18

and provide two harvests per hectare to the small farmer in a given year. It has been noted that farmers who are using irrigation schemes are more food self-sufficient and economically better off than those totally dependent on rain fed farming. Analysis of small irrigation schemes in several African countries (Kenya and Zimbabwe), where average size holdings ranged between 0.5 ha to 1.0 ha, revealed that irrigation generally contributed 25-80% of total household income, thereby contributing substantially to poverty reduction. The present project is therefore a national priority for Malawi as it will provide the needed resources for the development of small scale irrigation for smallholder farmers. 4.1.2 Investments in increasing productivity are unlikely to yield enhanced farmer incomes unless market development issues are simultaneously addressed. Low profitability of smallholder agriculture has also been influenced by weak links to markets. Smallholder farmers face critical information and infrastructure constraints which result in high input costs and low output prices. Isolation of their produce from profitable markets also locks them into cropping patterns of non-diversified production. This project is intended to address marketing constraints faced by smallholder farmers in the project area and also address problems of produce marketing faced by resourceful poor farmers and hence enhance profitability for farmers. Through capacity building and competitiveness activities, the project will prepare the small farmer groups to be more business oriented in managing their farms and post harvest and marketing facilities. 4.1.3 The proposed project will target smallholder food producers with the aim of improving food security and reducing poverty for the participating households, as well as for the communities residing adjacent to the schemes. The development of irrigation infrastructure will also contribute towards a reduction in the dependence on food imports which has been a drain on foreign currency reserves, posing a significant threat to the on-going economic reform program of the GoM. Reliable irrigation water supply will also enable the poorer farmers to cultivate high value crops. 4.1.4 The project activities have been formulated following an interactive and participatory approach involving farmers and other stakeholders. The choice of irrigation technologies for the schemes was made in full consultation with farmers in the project areas. The proposed design has looked at a number of irrigation technologies, namely those based on pumping, both motorised and treadle pump and those using gravity. The motorised pump option was rejected and the treadle pump and gravity options were retained. This is because experience has shown that the high operation and maintenance costs and technical requirements of such systems usually exceed smallholder farmer resources, thereby impeding sustainability of these types of irrigation schemes. Gravity and treadle pump are considered to be appropriate, and conform to the existing situation and the engineering constraints in terms of water availability, topography, and geotechnical conditions. Additionally as farmers are familiar with these technologies, the developed irrigation schemes are likely to be sustained in the long term. 4.1.5 The proposed design has taken these into consideration and is supporting gravity and treadle pump schemes. The proposed design also looked at the top-down managed government sponsored approaches compared to bottom-up approaches, involving Water Users Association (WUA) and opted for the latter, which would involve beneficiary and private sector involvement in scheme design and operation and maintenance and government performing the role of development facilitator.

19

4.1.6 The project design has also benefited from lessons learnt from implementation of Bank-funded projects, as well as experiences gained from those funded by other donors. For successful implementation, projects must be based on viable feasibility and design studies and beneficiaries must be involved in the conceptualisation and design of the project. The proposed project has been prepared during the course of a Bank-funded study which involved extensive consultations with the smallholder farmers, government ministries, district authorities, traditional authorities, non-governmental organizations to build understanding and ownership for the present project. Scheme farmers were fully involved in the design of the irrigation schemes during the study and will continue to do so for the new schemes during the course of implementation. They will also be fully responsible for the operation and maintenance of the irrigation schemes. Moreover, the project design has also been fully informed by the experience garnered from the ongoing and past Bank portfolio in the country. 4.1.7 Lessons learnt from IFAD and Bank-funded projects have shown that reliance on line ministries in project coordination and management has led to failure due to serious staff shortage. Hence the need for recruiting a technical team to strengthen the Department of Irrigation to oversee project implementation, monitor project progress, and coordinate and account for the utilization of project funds. The technical team would include a project coordinator and other key competent and experienced professionals. 4.2 Project Area and Project Beneficiaries 4.2.1 Project Area: The project area will cover 19 of Malawi’s 28 districts, namely, Balaka, Chikwawa, Chitipa, Dedza, Dowa, Karonga, Kasungu, Lilongwe, Machinga, Mangochi, Mchinji, Mzimba, Nkhatabay, Nkhotakota, Nsanje, Ntcheu, Ntchisi, Rumphi and Zomba. The 19 project districts were selected because they have the most suitable agro-ecological conditions for gravity and treadle pump irrigation development. Thirty nine irrigation sites, covering about 3,055 hectares have been identified for development. Rainfall is unimodal and occurs from November to May which varies from less than 600 mm in lower shire and rift valley areas to over 1,800 mm in highlands. Recently, the rainfall has been erratic and unevenly distributed. The mean annual temperature ranges from 8°C in the highlands to over 32°C in the lower shire valley. The project area is topographically suitable for surface irrigation, the slope is gentle less than 5% and the plots are mostly flat, requiring little levelling. The soils are mostly medium to heavy textured soils of the clay plains, and highly fertile recent floodplain soils. They are suitable for rain fed grown or and surface irrigation, subject to topographic limitations. In most of the proposed scheme sites, the land is already allocated and cultivated. Over the years, land holding have reduced in size as they have been split into portions as inheritance. Moreover, a farmer often owns two or more separate areas of land spread over the valley, dambo or upland areas. Consequently, a high percentage (75%) of villagers cultivate plots in most of the proposed scheme areas and land holdings are small, ranging from 0.1-0.2 ha in low lying dimba areas up to 1.0 ha in upland areas. The major crops grown under rainfed conditions include maize, cassava, sweet potatoes, groundnuts and tobacco. The irrigated crops include maize, rice, sweet potatoes, potatoes, beans, leafy vegetables, tomatoes and onions. The main village-based organizations found in the project sites include committees responsible for borehole (water point committee), health, education (school), village development, funeral and irrigation (if there is an existing scheme). 4.2.2 Beneficiaries: The estimated total number of beneficiary households is 8756, or a total of 45,531 people. The project beneficiaries are all the farmers owning plots in the vicinity of

20

the 39 proposed irrigation schemes who had expressed their interest to fully participate in the project. The average family size is between 4.3-5.0 persons. The majority of the beneficiaries comprise of households that are food secure for between 2-5 months and 5-8 months (48% and 40% respectively).Women are estimated to comprise about 60% of the beneficiaries. 4.3 Strategic Context 4.3.1 The project addresses one of the core challenges identified by the GOM’s draft Malawi Growth and Development Strategy (MGDS) 2006–2011, which is the successor of the Malawi Poverty Reduction Strategy Paper (MPRSP). The MGDS is aimed at achieving and sustaining the Millennium Development Goals (MDGs), and making Malawi a hunger free nation through fostering sustainable economic growth and the creation of wealth with fair and equitable distribution. The MGDS recognizes that agricultural development will drive medium term growth by expanding and diversifying production. The agriculture sector is expected to contribute to sustainable economic growth which is considered central to Malawi’s ability to reduce poverty, achieve the MDGs and gain self sufficiency. It is recognized that, without achieving this growth, it will be impossible to deliver on the Government’s vision of creating wealth and employment for all the people of Malawi. Government efforts under the strategy are therefore expected to contribute to increased on and off farm incomes and employment opportunities, leading to poverty reduction; realization of Malawi as a hunger free nation; improved small holder profitability; and protection of natural resources and the environment for sustainable growth. The proposed project activities are also well anchored in the Government’s New Agriculture Policy, National Irrigation Development Policy and the Decentralisation Policy. Thus the project will contribute to the achievement of the goals of the MGDS and the Agricultural Sector Strategy. 4.3.2 The proposed project is anchored on Pillar I of the Bank Group’s Country Strategy Paper (2005-2009) which seeks to help increase the level of irrigation infrastructure and support agricultural/rural development. The CSP interventions are directly linked to the strategic priorities of the MGDS and aligned with Vision 2020 and the MDGs. The Project will also contribute to the achievement of core Comprehensive Africa Agriculture Development Programme (CAADP) objectives of poverty alleviation and sustainable development and the comprehensive agriculture mandate of the NEPAD initiative. The project builds on the experiences gained from the various Bank financed projects in Malawi. The choice of this smallholder irrigation intervention is in line with the ADF X strategy on selectivity to boost production and productivity, food security and poverty reduction in RMCs. 4.4 Project Objective The overall sector goal of the project is to contribute to poverty reduction and food security in rural Malawi. The specific objective of the project is to increase productivity and income of rural households in the project area. This will be achieved through the promotion of intensification and diversification of the existing cropping system and improvement of the marketing system which will significantly increase production, productivity and incomes of the small farmer whilst improving household nutrition and environmental management of natural resources at the same time.

21

4.5 Project Description 4.5.1 The project comprises three components: (A) Irrigation Development Component: including development of 39 small-scale irrigation schemes; 1,140 treadle pumps provided to smallholder farmers, 3,055 ha developed for crop production, cropping intensity increased from 1 to 2.5 times, crop productivity increases by 20%. (B) Farmer Support Programme: including support for establishment of 39 Water Users Associations, 600 smallholder farmers (300 women) trained in water management; 350 smallholder farmers (175 women) trained in crop production and pest control technologies; 76 extension officers receive training for trainers; 76 study tours involving 3,000 farmers and extension staff undertaken; 8,750 persons trained on environmental mitigation measures and health aspects related to irrigation; 3,450 persons (1,380 women) trained on techniques of financial management and business planning, aspects of post harvest handling and in simple market research concepts; construction of 26 community storage facilities and 14 market centres. (C) Project Coordination and Management Component: including strengthening of the Department of Irrigation (DoI) through the recruitment of a technical staff comprising a Project Coordinator, Project Accountant, Monitoring and Evaluation Officer, Irrigation Engineer, Procurement Officer, Administrative Officer and support staff; recruitment of 10 District Project Officers (DPOs) to support the district structures; purchase of 4 utility vehicles and office equipment and furniture. A. Irrigation Development Component

A.1 Development of Irrigation Schemes 4.5.2 Under this component, the project will support the development of 39 small scale irrigation schemes, in two phases, with a total area of 3,055 ha. Phase I will comprise development of 28 irrigation schemes covering a total area of 1,550 ha. The engineering designs as well as the bidding documents, of the irrigation schemes to be developed during Phase I have already been prepared during the SSID study. The field investigations and design of the 11 irrigation schemes to be developed during Phase II will be undertaken during the course of project implementation. The proposed Phase 2 sites will cover a total irrigable area of 1,505 ha. 4.5.3 For Phase I sites, two types of irrigation system will be established: gravity-fed surface irrigation and treadle pump irrigation system. The former type will require all or some of the following elements of design: headworks (intake) structures for diversion of the water from the river or stream; conveyance and distribution canal layout; drainage system; hydraulic structures; river training and flood protection works; and scheme access road improvement works. For treadle pump-based schemes, water will be pumped direct from the rivers or from shallow open wells and conveyed to the scheme plots through field channels or reinforced polythene pipes. Alternatively, where technically and financially feasible, canalisation activities will be carried out to harness water resources for irrigation in order to effectively serve other farmers who have irrigable land away from natural water bodies. Such farmers will be provided with 1,140 treadle pumps, by the project, for ease of water delivery

22

to their plots. In both types of schemes, apart from treadle pumps which will be abstracting groundwater, according to the Water Act, farmers will be required to apply for a water abstraction right (permit), which is a licence granted to abstract public water. The farmers would only apply as a legal entity in the form of WUAs, and in its absence, such application will be made by the interim main scheme committee. To avoid delays in project implementation, the project will support each scheme committee, through payment of the application fees, in order to acquire the water abstraction right (permit). 4.5.4 A consultant will be recruited over the first three years of the project to undertake the verification of the designs of the Phase I schemes, tendering, evaluation of tenders and supervision of works. The same consultant will prepare designs, undertake tendering and supervision of the works for the Phase II schemes.

A.2 Environmental Mitigation 4.5.5 In order to address any likely negative environmental impacts that may arise from the construction and operation of the irrigation schemes, environmental mitigation related activities would also be carried out under this component. The activities under this sub-component will include: (i) the recruitment of an Environmental Consultant to finalise the comprehensive ESMP for the Phase I irrigation schemes and prepare the Environmental and Social Impact Assessment (ESIA) and related site-specific Environment and Social Management Plan (ESMP) for the Phase II schemes. The Consultant will, in coordination with the Environmental Affairs Department, also provide on-going training to DoI and District staff on ESIA and Environmental Audits, as well as providing technical support to the Monitoring and Evaluation Officer in the preparation of the site-specific ESMP’s Annual Work Plan and Progress Report; (ii) support to District Environmental Officers to ensure continuous monitoring of the implementation of the mitigation/enhancement measures at each irrigation scheme, in accordance with the ESMP and their AWP and to stimulate inter-sectoral coordination with District’s health, agriculture, irrigation and forestry Officers on site project monitoring; and (iii) support for the implementation of mitigation measures, as identified in each site-specific ESMP, during the operational phase. These measures range from prevention of soil erosion, eutrophication and invasive weeds, promotion of agro-forestry and protection of upper catchments, promotion of aquaculture, prevention of water-borne diseases and HIV-AIDS, etc. The project will facilitate the undertaking of an End-of-Project Environmental Audit.

B. Farmers’ Support Component 4.5.6 The Farmers' Support component is designed to enhance the sustainability of the project and its constituent schemes by creating sufficient momentum and capacity among individual farmers, farmers’ groups and Water Users’ Associations to carry on with the activities beyond the end of the project implementation. This component will ensure that farmers obtain maximum benefits from the investments in terms of increased food security and increased household income. It will also support farmers to maintain the equipment and infrastructure to enhance the sustainability of the improved irrigation schemes and practices.

B.1 Scheme Management 4.5.7 Under the current irrigation development policy, irrigation schemes are supposed to be owned and managed by cohesive smallholder farmer organisations, such as, Water Users’

23

Associations (WUAs) or Cooperatives. The project will assist the scheme farmers in the formation of 39 WUAs which will be expected to (i) operate and maintain the irrigation and drainage systems; (ii) collect water charges; (iii) resolve conflicts among its members, arising from the use of water, (iv) improve the management performance and sustainability of irrigation schemes; (v) contribute to the regulation of water use along river basins and addressing environmental and health concerns; (vii) improve crop production and hence the household food security. This requires detailed preparation and familiarisation with new tasks, functions and responsibilities by all parties, water users and representatives of Governmental bodies, in order to gain a new understanding about the division of functions. 4.5.8 The formation of the WUAs will be done in two stages. During the preliminary stage, much of the attention will be focused on fulfillment of requirements for WUA formation and physical implementation of scheme activities. In this case, an interim committee will be required to meet the scheme development requirements. During the final stage, the focus will shift to formalising WUAs, through extensive training of the members, in order to give them powers and capacity to operate and maintain the schemes efficiently and effectively. 4.5.9 The first activity will be to identify and establish a list of the future users of the Scheme and the plot size or allocation of plots. Only the future users will participate in the discussions and they will have to contribute according to the benefits they can expect from the scheme. Right from the beginning of any discussions, it will be emphasised that involvement in the Scheme is a commercial enterprise aimed at making profits, and that the farmers will be entirely responsible for paying for irrigation services. It will also be emphasised that both men and women should be able to become members of the WUA, irrespective of whether the allocation of land is to the household, to the man or to the woman. All scheme farmers will be required to be members not only of the Water User Group (WUG), which will be formed at block level, but also of the WUA. Whilst membership in WUG will be informal, the membership in WUA will be formal since the latter will be a legal entity. Each WUG will manage a scheme area of between 20 to 25 ha. The list of members of the scheme will be entitled to select an Interim Committee, which will serve for the period of implementation. Each WUG will hold elections and send their elected representatives, with an equal number of men and women, to form the Interim Committee. 4.5.10 The scheme farmers will be given the opportunity to discuss the detailed designs and the requirements for operation and maintenance, in terms of labour and/or cash during the verification stage of the designs of the Phase I schemes. The designs of the Phase II schemes will be discussed at the preparation stage. Where appropriate and practical, the scheme farmers’ suggestions will be taken into consideration in any alterations to be made to the designs. At each scheme site the farmers will sign an Implementation Agreement (IA) with the project as a prelude to the start of works. The IA will specify the tasks, contributions, roles and responsibilities of the farmers and the project. The farmers will own the scheme and will be responsible for operation and maintenance without any financial assistance from the Project or Government. Each WUG will also appoint one person to be responsible for allocation of irrigation water to other fellow farmers in accordance with the irrigation schedule. 4.5.11 The services of a consultant, for 16 person-months in two separate inputs/assignments, will be procured to assist in establishment of WUG and WUA, development of project specific WUA formation guidelines and implementation methodology including formulation and implementation of training programmes for district extension staff and WUAs operation and

24

maintenance of irrigation infrastructure. The training will also include understanding of the WUA’s role and responsibilities under the NIDPS, Water Resources Act and any other related policy and legislation, associated scheme development consequences especially on downstream water users in order to be in line with the integrated water resources management, conflict resolution, group dynamics and community based monitoring and evaluation. The consultant will also assist the WUA in the preparation of its rules and regulations, bylaws and constitution. The WUGs will nominate trainees for water management training, generally one man and one woman. These nominees must agree in advance and sign a declaration that they will train the other group members after the training sessions and for a period of at least two seasons. Only if they adhere to this agreement will additional training related to that component continue to be provided. The Interim Committee members will also receive training in the general tasks and responsibilities of office bearers and specific tasks of the chairperson, treasurer and secretary.

B.2 Agricultural Production

4.5.12 Training in Irrigation and Crop Production Techniques: Through the Project’s facilitation, farmers will be encouraged to make choices on the crops and varieties for production based on the following commercial indicators and variables: gross margin analysis; risks involved in production; marketing prospects; and the need for cash and/or credit for input supply and transport. Although the final choice will be entirely free for the farmer to decide, it should be emphasised that for market oriented commercial farming, the crops grown must make maximum profits in order to finance the Scheme operation and maintenance and ensure sustainability in the long term. 4.5.13 The project will provide support to farmers to improve irrigation, crop husbandry and Integrated Pest Management techniques with regard to the selected crops through training and propagation of better technology. The training will be based on the lead (contact) farmer concept. Extension staff will initially be trained on the concept and they will in their turn train the contact farmers. The training will be open to interested groups with an average of 25 farmers per group within the schemes. The training will initially start with the training of two extension officers responsible for the proposed scheme, one at the Section and the other at the EPA level. They will follow a two-week practical training of trainers course, in groups of 15, and at the end of their training will act as trainers for the contact farmers. 4.5.14 The training of farmer groups will be done towards the end of the civil works. Each group will select a maximum of four contact farmers (preferably 2 males and 2 females) to serve as a contact point for delivery of the component support and services. The contact farmers would be trained by the trainers in communication skills, farmer training skills, irrigation water management techniques. The contact farmers will in their turn undertake the training of fellow farmers. The contact farmer will also be responsible for allocation of irrigation water to other fellow farmers in accordance with the irrigation schedule. 4.5.15 With the limited duration of training given, the contact farmers cannot be expected to be specialists at the beginning of the first season. However, they would be required to share the technical knowledge they have acquired and stimulate discussion among their group members. A single exchange visit will be arranged, for each group of contact farmers and other WUA committee members, to another functional scheme within or outside the project areas, in order to share technical ideas, experiences and exchange good and bad lessons learnt with the host farmers. The visiting farmers will be hosted for a maximum of one week. The project budget has made provision for 15 smallholder farmers and one extension expert (facilitator) to travel and

25

stay at another scheme. Two tours, comprising 20 scheme farmers per tour, will be conducted for each scheme to other operational schemes within and outside the project areas. The first tour will be conducted during the scheme construction and the second one during scheme operation. 4.5.16 Support to Farmers’ Organizations: The scaling up of production levels by smallholder farmers is a major objective of the Government of Malawi. The proposed strategy is to support farmer organizations to operate as legal entities through appropriate participatory methodologies. Farmer clubs will be the lowest level of organization for the farmers targeted under this project. The clubs will act as the smallest business unit in the sites from which pre-cooperatives will hatch from based on capacity. As much as possible, and based on demand and workability, multipurpose cooperative will be promoted to answer the needs of the clubs holistically rather than to have farmers get affiliated to multiple institutions in order to solve their common problem. Farmers will be sensitized on formation and management of farmer clubs and eventually cooperatives. 4.5.17 Support to Extension Service: Appropriate staff training will initially start with two extension officers per scheme, one at the Section and the other at the EPA level. They will follow a two-week training of trainers course, in groups of 15, and at the end of their training will act as trainers for the contact farmers. Tours, for field project frontline-staff, will also be supported for functional schemes. Funds will be provided for curriculum development, strategy workshop, and staff training. Supervision, by the district staff will be carried out on monthly basis whilst department and ministry level staff will supervise the project on quarterly basis. In view of the large number of project sites spread nationally (39 sites in 19 districts), the project will provide 7 seed-nursery field trucks and 51 motorcycles, for transportation of training and field demonstration materials and to facilitate field extension visits. Office equipment will also be provided to field staff to facilitate the project activities. 4..5.18 Community Development Activities: The activities under this sub-component will mainly involve training on environmental mitigation measures and health aspects related to irrigation. The activities will start after the first or second cropping season, when the community has some experience of irrigation. Although the Water Users’ Association will be involved, the village health committee, which already exists in most villages, has been selected as the best entry point to give these subjects the attention they deserve and to enhance sustainability. 4.5.19 Training will be provided in: (i) protection of water sources and intake structures; (ii) maintaining access to water for livestock; (iii) the effects of chemical fertiliser and pesticides on the quality of drinking water; (iv) specific issues, as indicated in the Environmental Impact Assessment; (v) the relationship between intensification of production, labour requirements and the availability of healthy family labour, specifically for the treadle pump; (vi) the prevention of HIV/AIDS, care and support and mainstreaming in accordance with national policies; (vii) gender issues and gender mainstreaming at both district and community levels in order to improve on their knowledge, attitudes and skills (viii) bilharzia (Schistosomiasis) and malaria and their relation to stagnant water; (ix) the symptoms associated with various waterborne diseases; (x) the dangers of untreated drinking water and the alternative treatment methods; (xi) general sanitation. 4.5.20 The village health committee will be invited to nominate trainees and to sign an agreement committing themselves, the nominees and the implementing agent to the training and transfer of knowledge throughout the village. The nominated members can either be members of the existing health committee or will be incorporated in the health committee after their training.

26

Apart from technical aspects, the trainees will be coached in methods of transferring their knowledge at the end of each training component. After the training, the trained nominees are expected to train the village health committee, the WUA committee and hold awareness meetings in each section of the village. Two follow-up visits should be conducted to evaluate the impact of the training. An NGO will be recruited to undertake the training. 4.5.21 Support to Savings and Credit Groups: Whilst the project is not providing funds for micro-credit, it will support the formation of credit and savings groups in order to prepare them to be able to access credit provided by other Bank-financed projects that have credit components, and from the NASFAM credit-facilitation system. This sub-component is necessary given that within the project area, farmers are mainly short of cash at the beginning of each cropping season, when they require money to purchase seeds and other agricultural inputs. Their strategies for coping with this cash demand include selling of surplus crops or livestock, or using off-farm income. Credit is available either informally or formally. For example, farmers are able to obtain loans from the internal savings of informal savings and credit groups. The project would provide support on demand from the communities. Site-specific awareness meetings will sensitise farmers about the support available to savings and credit groups. Groups of between 7 and 25 persons who are interested to form a savings group can approach the project for support. Both members of the proposed irrigation schemes and other community members within the target village(s) will be able to form savings groups, either as separate categories or mixed. The group will receive training on how to organise themselves, to distribute roles and undertake tasks. The group members will meet at regular weekly intervals at agreed dates and times. It is expected that members will save continuously at these meetings with a fixed amount, although they can decide the level of savings they can afford. At each meeting the amounts saved, totals per person and per group should be read aloud in order not to alienate the illiterate members. At least 60% of the members should be present for each meeting to form a quorum. The saved funds should be loaned out to those members who can show proof of being able to invest the money and get quick returns. The funds should be paid back to the group with interest (to be decided by the group) in four equal parts (capital plus interest) over the period to be decided by the group members. A specialised NGO/MFI will be recruited to do the different training, facilitation and monitoring under this sub-component.

B.3 Marketing

4.5.22 This sub-component will support the smallholder farmers and communities around the irrigation schemes in the marketing of produce including post-harvest handling. This support will be through: (i) Capacity Building and Competitiveness and (ii) Marketing Infrastructure Development. Marketing Capacity Building and Competitiveness will promote the concept of running an irrigation scheme as a business through three sub-activities, namely, capacity building, marketing information and competitiveness analysis. Capacity building will be carried out through training programmes to improve the financial, management, and business planning skills of the farmers. Farmer training will include issues of agricultural linkages, enterprise development and market information. The project will train 86 groups (each group comprises 40 trainees) on the techniques of financial, management, and business planning. The training will also include aspects of post harvest handling to improve produce quality. Under marketing information, farmers will be trained on simple market research concepts to assist them in identification of new markets and possible expansion of existing markets. The project will arrange for visits to potential customers for the farmer groups, (such as schools, hospitals, colleges, hotels, etc,) to estimate their future food consumption (demand). This kind of market

27

research training will change the mentality of farmers to be more business oriented which will improve their performance and efficiency. Short term consultants will be recruited to analyse the competitiveness of commodities produced within the different geographic areas of the project. The analysis will be conducted at least three times during the life of the project. The first analysis will be undertaken at the beginning of the project as a baseline study. The second one will be undertaken after construction of at least 50% of the irrigation schemes and the establishment of few marketing infrastructure to monitor the performance of the project as a whole, and the third analysis will be carried out during the final year of the project which will provide a good source of information for project performance. 4.5.23 Marketing Infrastructure Development: The project will establish two kinds of infrastructure, namely: (i) Communal Storage Facilities (CSF) and (ii) Market Centres. The project will construct 26 CSF close to the project sites in 15 of the 19 project districts. The CSFs will be used for storage of agricultural produce, both durable and perishable. The operations and maintenance of the CSF will be done by the farmers’ organisation whose funds will be sourced from cost recovery measures (user fees and rent). One market centre will be constructed in 14 of the 19 project districts and will be used either as wholesale and retail markets. The market fees will be used to fund the operating costs of the MC to ensure its sustainability.

C. Project Coordination and Management Component 4.5.24 The project will be implemented within the established structures in the Ministry through the DoI which will oversee project implementation, monitor project progress, and coordinate and account for the utilisation of project funds. The DoI will be strengthened by the recruitment of a technical staff comprising a Project Coordinator, Project Accountant, Monitoring and Evaluation Officer, Irrigation Engineer, Procurement Officer, Administrative Officer and support staff. The technical team, including the Project Coordinator, will comprise experienced professionals competitively recruited from the open market and acceptable to the Bank and their remuneration paid under the grant resources. The technical team will ensure that project activities are initiated and are adequately budgeted for, beneficiaries are properly sensitised about the project, consolidate project records, monitoring and evaluation and supervision of activities are undertaken, submit all procurement documents to the Bank for review and approval, compile and submit all disbursement applications and quarterly progress reports, and undertake annual audits of all project accounts and submit the audit reports to the Bank. The districts have only been recently established and recruitment of personnel is ongoing, therefore in order to facilitate coordination of implementation of project activities, the project will recruit 10 District Project Officers (DPOs) to support the district structures. In view of the fact that the number of sites vary between the districts, some grouping of districts would be necessary hence the need for only 10 DPOs. Given the large size of the project area and the need to closely monitor project implementation in all the 19 districts involved in the project, the DoI will be equipped with four vehicles. It will also be provided with computers and other office equipment, and furniture.

4.6 Production, Market and Prices 4.6.1 The project will lead to increased productivity as a result of intensification of agricultural production due to irrigation development. In addition, improvement to post harvest handling facilities due to establishment of the CSFs and marketing services as a result of the market centers will improve quality and reduce losses. The current level of losses is between 30-60% for horticulture crops depending on the perishability of the crop, with

28

tomato having highest level of losses. In the case of field crops such as maize and rice, the losses are between 15-20%. The project will reduce these losses by 50%, which will increase supply while simultaneously improving the quality of the produce. In the case of horticulture crops, increased production will not depress prices because of the expected concomitant increase in quality. For rice and maize, the price will not be affected because of the continuous shortages Malawi is experiencing in the supply of rice and maize. The increased production as a result of the project will not be sufficient to significantly affect prices. The projected production comes from the additional 3,055 hectares by the project plus 14% of the national level production as a result of the post harvest facilities and market enters. 4.6.2 Prices will be affected positively by the expected improvement in the quality of the commodities produced under the project. The table below describes the expected benefits of the project.

Crop

Approximate current

production at national level

(ton/year)

Projected project related

production increase

(ton/year)

Farm gate price

(MWK/ton)

Additional production value (000'MWK/year)

Maize (grains) 1,733,125 13,296 18,000 239,330 Maize (cobs)* 48,880,000 5 244,400 Beans 80,000 1,073 45,000 48,292 Irish Potatoes 420,590 4,409 8,000 35,270 Sweet Potatoes 1,784,749 15,092 7,000 105,646 Cabbages 50,000 7,750 10,000 77,497 Paprika 870 69 80,000 5,557 Chilies 1,678 88 95,000 8,358

Onions 50,000 3,429 20,000 68,578

Tomatoes 35,000 2,536 20,000 50,725 Rice 49,722 1,813 22,000 39,881

Total 923,536 * Production is per cob and price is MWK/cob

4.6.3 The crops proposed include: maize, beans, Irish potatoes, sweet potatoes, cabbages, paprika, chilies, onions, tomatoes, and rice. Production will start as from the second and third year of project implementation. The project will improve the production and marketing processes in cereals and vegetables through the various interventions under Component B. This will have an import substitution effect in rice and maize; and export promotion effect in vegetable/horticultural commodities. The project will generate annual increases in the production of rice by 1,813 tons and maize by 13,296 tons (import substitution effect). On the other hand, the project will generate annual increases in the production of beans by 1,073 tons; Irish potato by 4,409 tons; sweet potato by 15,092 tons; cabbages by 7,750 tons; onions by 3,429 tons; tomato by 2,536 tons; and 157 tons of paprika and chilies. The project benefit at full development will be about MWK 0.9 billion ($7.1 million) annually. Product prices would not be negatively affected as all the additional production generated by the project will be absorbed in the market due to the chronic food shortages over the recent times in Malawi.

29

4.7 Environmental and Social Impacts 4.7.1 In accordance with the Bank Group’s Environmental and Social Assessment Procedures (ESAP), small-scale irrigation project, of less than 2,000 ha and not situated in or near Environmentally Sensitive Areas (ESAs), falls into Category 2. Thus, it requires an Environmental and Social Management Plan (ESMP). This categorization was validated by PSDU on January 20, 2006. The environmental and social impacts of each of the proposed 39 irrigation schemes scattered in 19 districts in Malawi are expected to be minimal, site specific and manageable, on the condition that appropriate mitigation measures are implemented during the construction and operation phases. The footprint of the physical works are limited and the selected technology is “environmentally-friendly” (e.g. gravity system and treadle pumps). The Executive Summary of the ESMP is found in Annex 7. 4.7.2 Pursuant to Malawi’s Environmental Management Act (1996) and its EIA Guidelines (1997), the proposed SCPMP falls under the prescribed lists of projects for which an EIA Study is required. Using the EIA Guidelines for Irrigation and Drainage Projects (2002), an EIA Study and related site-specific ESMP for the 28 already identified irrigation schemes was prepared within the scope of the Feasibility Study (2001-2003) and finalized in March 2004. After an initial examination by the Environmental Affairs Department (EAD), this Department indicated, in a letter on February 14th, 2006 that it had No Objection for the proposed irrigation activities since the EIA Report and site-specific ESMP have addressed all generic environmental and social issues outlined in the EIA Checklist for Small-Scale Irrigation. Official issuance of the EIA Certificate with specific Terms and Conditions is expected by May 2006 from EAD. In accordance with Malawi’s legal obligations, it is understood that an EIA study and site-specific ESMP will be prepared for the 11 newly identified schemes during their feasibility study and technical design at project inception. Review and approval by EAD and ADB will be conditional prior to the start of physical works. 4.7.3 Positive social and environmental impacts have been carefully considered throughout project’s identification, feasibility and design stages of the ESIA Study and the development of site-specific ESMP for each of the irrigation schemes. Environmental and social impacts can occur at the construction and operational phases of the Project. In terms of positive impacts resulting from project activities, the following ones are considered of significant importance: (i) improvement of the overall food security and livelihoods of the farmers and the people living near the irrigation schemes. This will result in the overall improvement of the health and social well-being of the farmer’s communities, reduce their vulnerability to drought and contribute to poverty reduction through increased agricultural productivity and farm income; (ii) creation of employment for the people surrounding the irrigation schemes and catalysis of income generating activities, including trade in agricultural inputs and produce and boosting small and medium size enterprise sector; (iii) farmers and surrounding communities will have the opportunity, through the Farmer Support Program, to learn and practice improved agricultural methods and efficient utilization of farm inputs and natural resources, such as sound soil and water’s management; (iv) the technical and managerial assistance provided to the Department of Irrigation and District’s Directorate of Agriculture and Natural Resources will strengthen their institutional capacities and optimize their operational performance; (v) women, in particular, will have the opportunity to participate in farm-related income generating activities and contribute meaningfully to the socio-economic development of their communities.

30

4.7.4 The construction and/or rehabilitation of 39 small-scale irrigation schemes, identified under component A of the Project, will, nevertheless, generate a number of negative social and environmental impacts within the recipient farmer communities and ecosystems. Specifically, during construction phase, negative impacts will emanate from the erection of new facilities for each irrigation scheme (construction/rehabilitation of earth dams, construction of weirs, side intake and associated canals and drains, construction of bridges and culverts, spot improvement of access roads, etc.), generating land clearing (including depletion of valuable indigenous trees and loss of greenery beauty of the site), disturbance to the wildlife due to noise and removal of vegetation, increased soil erosion from the site due to extensive land clearance and rubble disposal, increased suspended matter and sediment in water streams due to soil erosion, change in water flow impacting downstream aquatic life, water and soil pollution from construction campsites and construction machinery. During the operational phase of the irrigation scheme, negative impacts include irrigation-induced erosion, permanent change in hydrology for downstream ecosystems, flooding, loss of water through earth feeder canals, surface and groundwater contamination from use of fertilizers and pesticides, presence of invasive weeds and crop diseases, increased incidence of water-borne and water related diseases (e.g. malaria, bilharzias), human and wildlife conflict, and potential conflict over water and land rights. 4.7.5 Enhancement and mitigation measures for the identified negative environmental impacts outlined above have been considered during the Feasibility Study. Since most of the negative impacts are anticipated during the construction phase and result directly from methods and practices adopted by construction contractors, Code of Good Practices for Construction have been included in the Work Contract to prevent, to the extent possible, negative environmental impacts. In addition, the following recommendations have been suggested: a) construction activities should take place during the dry season, b) selective clearance of trees on project site by cutting only those trees in the right-of-way of the irrigation schemes, c) effective spray of water to loose soils to suppress dust and minimize soil erosion. During the operational phase, an extensive Farmer Support Program will be implemented to ensure the promotion of environmentally-sound agricultural practices by the individual farmers, farmer’s groups and the Water User Associations. In particular, regular and tailor-made training courses will be provided on water management, soil fertility program, environmental management (protection of upstream catchments and maintenance of environmental water flow), promotion of Integrated Pest Management (IPM) and handling of pesticides, hygiene and sanitation and maintenance of the irrigation infrastructures. 4.7.6 Additional institutional, financial and operational enhancement measures have been recommended considering the limited capacities (and inadequately staffed) in environmental management of the institutions responsible for ESMP’s implementation and the specificity of each receiving ecosystem for the irrigation schemes. These measures are: a) an International-recruited Environmental Consultant will finalize the comprehensive ESMP for the 28 already identified irrigation schemes and will prepare the EIA Study and related site-specific ESMP for the 11 newly identified irrigation schemes. His/her ToRs will also address the social issues related to irrigation development. This Consultant will also provide on-going training to DoI and District Authorities on EIA and Environmental Audits as well as providing technical support to the DoI’s Monitoring and Evaluation Officer in the preparation of the site-specific ESMP’s Annual Work Plan and Progress Report; b) under the umbrella of the District’s Directorate of Agriculture and Natural Resources, institutional and financial support will be provided to the District’s Environmental Officer in order to ensure continuous monitoring of the implementation of the mitigation/enhancement measures at each irrigation

31

scheme, in accordance with the ESMP and their AWP and to stimulate inter-sectoral coordination with District’s health, agriculture, irrigation and forestry Officers on site project monitoring; c) as identified in each site-specific ESMP, financial assistance will be provided for the implementation of mitigation measures during the operational phase. These measures range from prevention of soil erosion, eutrophication and invasive weeds, promotion of agro-forestry and protection of upper catchments, promotion of pisciculture, prevention of water-borne diseases and HIV-AIDS, etc. 4.7.7 In terms of environmental monitoring, a generic monitoring framework has already been prepared for the 39 irrigation schemes included within the scope of this project. This framework will be tailor-made for each of the irrigation scheme by the Internationally-recruited Consultant, including the selection of a set of environmental and social indicators to monitor the effectiveness of the mitigation measures at construction and operation phases. In terms of surveillance, Contractors, as per their Work Contracts, and Supervising Engineer will be the responsible entities. For the project’s environmental planning and monitoring responsibilities, they will be shared as such: the DoI, as the official executing agency for the project, and more specifically, the M & E Officer will be accountable for the preparation of an AWP and for the implementation of the Environmental Management and Monitoring Plans, will consolidate all the monitoring reports from site-specific ESMP and present a specific summary section into the Bank’s semestrial report. Technical assistance from the Internationally-recruited Consultant will be provided during the first four years of the project for this task. Throughout this process, the M & E Officer will also be able to rely on the following institutional set-up to fulfill his/her responsibilities: 1) the District’s Environmental Officer will monitor, on a continuous basis, the implementation of the mitigation measures as outlined in the comprehensive site-specific ESMP and related AWP during the operational phase; he/she will report on a semestrial basis to the District’s Director of Agriculture and Natural Resources; 2) the District’s Director will review the state of implementation of the ESMP, take any corrective actions and consolidate the monitoring report of all sites for transmission to the M&E Officer. In addition, in compliance with Malawi’s legal framework, DEA will carry out, in coordination with resource-persons from Ministries of Irrigation and Water Development, Agriculture, Health, Land Resources and Conservation Department, annual auditing (and field visit) on the project’s compliance with the EIA Certificate and its Terms and Conditions. Considering the limited institutional capacities at the sector and District level, DEA will also undertake an additional oversight monitoring supervision on the implementation of site-specific ESMP every six-month during construction and operational phases. 4.7.8 The costs for the mitigation measures during construction phase of the irrigation schemes as well as for the Farmer Support Program have been already costed and mainstreamed into project design and budget. An additional amount of U.S. $545,610 over the six-year project duration have also be budgeted for the following issues: (i) costs of the EIA processing fees estimated at U.S.$20,000 for the 39 small-scale irrigation schemes (this amount will then be used to cover the environmental monitoring/auditing costs and allowances of the EAD and related ministries throughout project implementation); (ii) U.S. $90,000 for the recruitment of an Internationally-recruited consultant for the finalization of the 28 comprehensive site-specific ESMPs and the preparation of the EIA Study and related 11 site-specific ESMPs, technical assistance to the M&E Officer on ESMP’s planning and reporting process, and on-going training of DoI and District authorities on EIA and Environmental audits; (iii) an average lump sum amount of U.S.$10,000 per irrigation scheme (total of U.S.$390,000) for the implementation of enhancement and/or mitigation

32

measures during the operational phase, (iv) an amount of U.S.$45,600 for the institutional strengthening of the District Environmental Units for ensuring continuous monitoring and technical assistance to the farmer, farmer organizations and Water User Associations, and, finally U.S.$10,000 for the undertaking of an End-of-Project Environmental Audit. The in-kind contribution from the District authorities for the services of District Environmental Officer is estimated at US $ 22,800 for the six-year project’s duration. 4.8 Project Costs The total project cost is estimated at UA 16.82 million, including contingencies. The foreign exchange component would amount to UA 9.63 million, representing 57% of the total cost, while local cost would be UA 7.19 million, or 43.0% of total cost. Summaries of cost estimates by components and by category of expenditure are in Tables 4.1 and 4.2 respectively.

Table 4.1 Summary of Cost Estimates by Component %

(MWK '000) (UA) Foreign Local Foreign Total Local Foreign Total ExchangeA. Irrigation Infrastructure Development 1. Irrigation and Drainage Schemes 444,222 822,723 1,266,945 2,519,965 4,667,108 7,187,073 652. Environmental Mitigation 35,651 43,649 79,300 202,241 247,609 449,850 55Subtotal 479,873 866,372 1,346,245 2,722,206 4,914,717 7,636,923 64B. Farmers’ Support Component 1. Water Management 25,308 26,529 51,837 143,565 150,494 294,059 512. Agricultural Production 2.1 Training in Crop Husbandry 89,768 15,120 104,888 509,232 85,772 595,005 142.2 Support to Farmers’ Organisations 32,886 14,094 46,980 186,554 79,952 266,506 302.3 Support to Extension Service 147,337 79,601 226,938 835,809 451,557 1,287,366 352.4 Community Development Activities 10,422 3,956 14,377 59,119 22,439 81,557 282.5 Formation of Savings and Credit Groups 60,742 12,528 73,270 344,575 71,068 415,643 173. Support to Marketing 150,100 308,260 458,360 851,481 1,748,685 2,600,167 67Subtotal 516,562 460,088 976,650 2,930,335 2,609,968 5,540,303 47C. Project Coordination 1. Office Equipment 2,276 41,284 43,560 12,911 234,192 247,103 95

2. Personnel 49,213 122,851 172,064 279,173 696,906 976,078 71Subtotal 51,489 164,135 215,624 292,084 931,098 1,223,181 76Total BASELINE COSTS 1,047,924 1,490,594 2,538,518 5,944,624 8,455,784 14,400,408 59Physical Contingencies 69,558 114,653 184,211 394,586 650,397 1,044,983 62Price Contingencies 149,309 93,340 242,649 846,994 529,496 1,376,490 38Total PROJECT COSTS 1,266,791 1,698,587 2,965,378 7,186,203 9,635,677 16,821,880 57

33

Table 4.2 Summary of Cost Estimates by Category of Expenditure

(MWK '000)

(UA)

Local Foreign Total Local Foreign Total

% Foreign Exchange

I. Investment Costs A. CIVIL WORKS 1. Irrigation Schemes (Treadle Pump) 4,824 11,256 16,080 27,365 63,853 91,218 702. Irrigation Schemes (Gravity) 237,974 555,273 793,247 1,349,970 3,149,931 4,499,901 703. Market Storage Facilities 62,400 145,600 208,000 353,980 825,954 1,179,934 704. Market Centers 37,800 88,200 126,000 214,430 500,338 714,768 70Subtotal CIVIL WORKS 342,998 800,329 1,143,327 1,945,746 4,540,075 6,485,821 70B. GOODS 1. EQUIPMENT & MATERIALS 3,912 35,208 39,120 22,192 199,727 221,918 902. VEHICLES FIELD TRUCKS - 50,830 50,830 - 288,346 288,346 100MOTORCYCLES - 22,389 22,389 - 127,007 127,007 100Bicycles 237 2,129 2,366 1,342 12,080 13,422 90Subtotal VEHICLES 237 75,348 75,585 1,342 427,433 428,776 100Subtotal GOODS 4,149 110,556 114,705 23,534 627,160 650,694 96C. SERVICES 1. TRAINING 122,203 52,373 174,575 693,226 297,097 990,322 302. TECHNICAL ASSISTANCE 228,513 342,769 571,282 1,296,297 1,944,446 3,240,743 603. STUDIES & SURVEYS 31,699 47,549 79,248 179,822 269,733 449,555 60Subtotal SERVICES 382,414 442,690 825,105 2,169,345 2,511,276 4,680,621 54Total Investment Costs 729,561 1,353,576 2,083,137 4,138,625 7,678,510 11,817,136 65II. Recurrent Costs A. Salaries & Allowances 117,805 109,404 227,209 668,281 620,623 1,288,904 48B. OPERATIONS & MAINTENANCE INFRASTRUCTURE MAINTENANCE 6,950 - 6,950 39,426 - 39,426 -C. GENERAL OPERATING CHARGES 1. OFFICE OPERATING CHARGES 846 7,615 8,461 4,799 43,195 47,995 902. OTHER OPERATING COSTS 192,762 20,000 212,762 1,093,493 113,455 1,206,948 9Subtotal GENERAL OPERATING CHARGES 193,608 27,615 221,223 1,098,292 156,651 1,254,943 12Total Recurrent Costs 318,363 137,019 455,382 1,805,999 777,273 2,583,272 30Total Base Cost 1,047,924 1,490,594 2,538,518 5,944,624 8,455,784 14,400,408 59Physical Contingencies 69,558 114,653 184,211 394,586 650,397 1,044,983 62Price Contingencies 149,309 93,340 242,649 846,994 529,496 1,376,490 38Total Project Cost 1,266,791 1,698,587 2,965,378 7,186,203 9,635,677 16,821,880 57

4.9 Sources of Financing As shown in Table 4.3, the project will be financed by the ADF and the Government of Malawi (GoM), including contributions from the beneficiaries. Annex 3 gives the sources of finance by categories of expenditure (list of goods and services). An ADF Grant amounting to UA 15.00 million or 89.1% of total costs will be used to finance 98.2% of the investment costs, as well as 48.8% of recurrent costs (parts of all categories excluding salaries). The GoM contributions amounting to UA 1.77 million, or 10.6% of total costs, will finance salaries of national staff, the cost of 1140 treadle pump (already purchased by the GoM) and part of the operating costs. The beneficiaries will contribute UA 0.05 million or 0.3% of the total costs towards their share of infrastructure maintenance of irrigation schemes and market infrastructure

Table 4.3: Sources of Finance

MWK '000 UA Foreign Local Total Foreign Local Total PercentADF Grant 1,551,331 1,092,884 2,644,215 8,800,333 6,199,668 15,000,000 89.1GOM 147,255 165,598 312,853 835,344 939,397 1,774,741 10.6Beneficiaries - 8,310 8,310 - 47,139 47,139 0.3 Total 1,698,587 1,266,791 2,965,378 9,635,677 7,186,203 16,821,880 100.0

34

5. PROJECT IMPLEMENTATION 5.1 Executing Agency The Executing Agency of the project will be the Ministry of Irrigation and Water Development (MoIWD) through the Department of Irrigation (DoI). However, in view of its limited capacity to implement projects, the Department of Irrigation will be strengthened for effective project implementation. Accordingly, DoI will recruit a technical team, led by a Project Coordinator, to oversee the day-to-day coordination and management of project activities under the overall guidance of the Director of the Department. At the field level, the project will also be implemented using the existing structures at the districts in line with the requirements of the established decentralisation process. 5.2 Institutional Arrangements 5.2.1 The project organisation and management is presented in Annex 2. The project will be implemented within the established structures in the Ministry through the DoI which will oversee project implementation, monitor project progress, and coordinate and account for the utilisation of project funds. The DoI will be strengthened by the recruitment of a technical staff comprising a Project Coordinator, Project Accountant, Monitoring and Evaluation Officer, Irrigation Engineer Procurement Officer, Administrative Officer and support staff. The technical team, including the Project Coordinator, will comprise experienced professionals competitively recruited from the open market and acceptable to the Bank and their remuneration paid under the grant resources. Since the recruitment of the technical team may take some time, and in order to avoid delays in the disbursement of the grant and start up of project activities, GoM will designate an Interim Project Coordinator to work on the initial project start up activities, notably, the recruitment of the staff (using GoM salary scale). The appointment of the Interim Project Coordinator will be condition to first disbursement of the grant. 5.2.2 The main focus of project activities will be at the district level and their implementation would be carried out through the existing district structures in line with the established decentralisation process. The District Management Team (DMT), headed by the District Commissioner, in each of the 19 targeted districts will be responsible for the overall coordination of project activities and the monitoring of the implementation of project activities. The Directorate of Agriculture Management Team (DAMT), headed by the District Director of Agriculture, will act as a technical facilitation team for project activities. Membership of the DAMT will include the different District Heads of Section. In view of insufficient capacity, the day to day implementation of project activities will be entrusted to a District Project Officer (DPO) under the guidance of the District Director of Agriculture and Natural Resources. Since the number of irrigation schemes vary between the districts, some grouping of districts would be necessary, therefore 10 DPOs will be recruited.

5.2.3 At the national level, a Project Steering Committee (PSC) would be established to oversee project implementation. The PSC would be chaired by the Principal Secretary of MoIWD, or his/her representative. Members will comprise the Secretary to the Treasury, Ministry of Finance, or his/her representative, the Principal Secretary, or his/her representative, Ministry of Economic Planning and Development, Ministry of Agriculture and Food Security, Ministry of Mining, Natural Resources and Environmental Affairs,

35

Ministry of Local Government and Rural Development the Ministry of Health and beneficiary representatives. The Director of Irrigation Services will be designated ex-officio member and the Project Coordinator shall be the Secretary. The Committee will meet twice a year and its mandate will include approval of the Project’s Annual Work Plan (AWP) and Budget (AWPB) before submitting these to the Bank for review. The PSC will also monitor performance of the project and provide advice on policy issues.

5.3 Supervision, Implementation and Expenditure Schedule 5.3.1 In view of the fact that the project area is very large, the Bank will closely supervise the project twice a year. When the Bank’s Malawi Country Office will be opened, it will also contribute actively to the overall supervision of the project. The District Project Officers will assemble quarterly reports from technical information on a quarterly basis. This information will be submitted to the Project Coordinator who will be responsible for reporting to the Project Steering Committee (PSC). Through the project’s monitoring system, project management will monitor progress of all three components. A Mid-Term Review (MTR) will be undertaken by end of PY3 and a Project Completion Report (PCR) will be prepared by both the Borrower and the Bank by PY6. The project implementation schedule is given in Annex 6.

5.3.2 Given the nature of the activities and the dispersal of the project sites, the project has been designed to be implemented over a period of six years as indicated in Annex 6. This time period will also provide sufficient time for the capacity building to take effect and for water users associations and communities to assume responsibility for the operation of the activities. It is planned that the first year of project implementation will be focussed mainly on organizational aspects and training in participatory approaches. It will also focus on the recruitment of the consultant who will verify the designs of the first group of schemes, tender them out and supervise the construction works. The bulk of project activities will take place in PY 2 to 5 in order to ensure that identified activities can be implemented before project closure. 5.3.3 The expenditure schedule by component and by category of expenditure over the project period is projected to be as shown in Tables 5.1 and 5.2 below.

36

Table 5.1 Expenditure Schedule by Component (UA)

Totals Including Contingencies

2007 2008 2009 2010 2011 2012 Total

A. Irrigation Infrastructure Development

1. Irrigation and Drainage Schemes

624,106

2,894,458

2,864,081

268,143

268,143

268,143

7,187,073

2. Environmental Mitigation 84,808 84,808 70,059 70,059 70,059 70,059 449,850

Subtotal 708,914 2,979,266 2,934,140 338,202 338,202 338,202 7,636,923

B. Farmers’ Support Component

1. Water Management

116,519

136,538

12,094

12,094

12,094

4,720

294,059

2. Agricultural Production

2.1 Training in Crop Husbandry 40,265

145,495

216,972

111,742

40,265

40,265

595,005

2.2 Support to Farmers’ Organisations

-

133,253

133,253

-

-

-

266,506

2.3 Support to Extension Service 124,932

510,674

208,889

147,623

147,623

147,623

1,287,366

2.4 Community Development Activities

- 79,079

619

619

619

619

81,557

2.5 Formation of Savings and Credit Groups

15,487

171,714

181,982

15,487

15,487

15,487

415,643

3. Support to Marketing

15,316 595,640

595,935

595,935

788,956

8,384

2,600,167

Subtotal

312,519 1,772,394

1,349,745

883,501

1,005,045

217,099

5,540,303

C. Project Coordination

1. Office Equipment 156,586 58,521 7,999 7,999 7,999 7,999 247,103

2. Personnel

156,534

163,909

163,909

163,909

163,909

163,909

976,078

Subtotal 313,120 222,430 171,908 171,908 171,908 171,908 1,223,181

Total BASELINE COSTS 1,334,553 4,974,090

4,455,792

1,393,610

1,515,155

727,208

14,400,408

Physical Contingencies 68,736 370,207

371,787

91,042

106,763

36,449

1,044,983

Price Contingencies 24,695 273,976

427,869

197,222 275,739

176,989

1,376,490

Total PROJECT COSTS 1,427,984 5,618,272

5,255,448

1,681,874

1,897,656

940,646

16,821,880

Table 5.2 Expenditure Schedule by Source of Finance (UA)

2007 2008 2009 2010 2011 2012 Total ADF Grant 1,112,769 5,236,221 4,969,849 1,409,547 1,614,695 656,919 15,000,000

GOM 307,278 373,717 276,178 262,436 272,382 282,749 1,774,741

Beneficiaries 7,937 8,334 9,420 9,891 10,579 978 47,139

Total 1,427,984 5,618,272 5,255,448 1,681,874 1,897,656 940,646 16,821,880

5.4 Procurement Arrangements 5.4.1 Procurement arrangements are summarized in Table 5.3 below. All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules of Procedure for Procurement of Goods and Works or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents.

37

Table 5.3 Summary of Procurement Arrangements (UA ‘000)

National Non Competitive Bank

Project Categories Bidding Shortlist* Other Funded TotalA. CIVIL WORKS 7,690 - - - 7,690 (7,690) - - - (7,690)B. GOODS - - - - -Equipment & Materials 104 - - 140 244

(104) - - - (104)Field Trucks & Vehicles 311 - - - 311 (311) - - - (311)Motorcycles 138 - - - 138 (138) - - - (138)Bicycles 16 - - - 16 (16) - - - (16)C. SERVICES - - - - -Training - 757 374 - 1,131 - (757) (332) - (1,089)Technical Assistance - 3,326 - - 3,326 - (3,279) - - (3,279)Studies & Survey - 502 21 - 523 - (483) (21) - (504) - - - - -E. OPERATING COST - - - - -Infrastructure O & M - - - 47 47 - - - - -Salaries - - - 1,515 1,515 - - - - -General Operating Charges - - 369 - 369 - - (357) - (357)Miscellaneous - - 1,512 - 1,512 - - (1,512) - (1,512)Total 8,259 4,585 2,276 1,702 16,822 (8,259) (4,519) (2,222) - (15,000)

* Short List applies to the use of consulting services only _ Other may be LIC, International or National Shopping, Direct Purchase or Force Account. + Figures in brackets are amounts financed by the Fund.

5.4.2 Civil Works: Procurement of civil works contracts totaling UA 7.690 million in aggregate, will be carried out under National Competitive Bidding (NCB) procedures. The NCB procedures have been selected because the works are individually small and scattered in different locations and are unlikely to attract bids from outside Malawi. Moreover, the amount, scope and nature of the works involved is within the capacity of local contractors. The works involve the construction of 39 irrigation schemes in 19 districts (UA 5.795 million), construction of 26 communal storage facilities in 15 districts (UA 1.180 million); and construction of 14 rural market centres in 14 districts (UA 0.715). These works will be implemented through several small contracts because of their location and time spread, with each contract not exceeding UA 500,000. 5.4.3 Goods: Contracts for goods will be procured and awarded under NCB procedures because of the existence in the local market of a sufficient number of qualified potential

38

suppliers to ensure competition. Three such contracts will be awarded, viz. 7 seed nursery field trucks and 4 utility vehicles (UA 311,000), motor cycles (UA 138,000), equipment and materials (UA 104,000) and valued in total UA 553,000. Other miscellaneous goods such as bicycles (16,000), where the amounts are small and estimated to cost less than UA 50,000 will be procured using National shopping procedures. 5.4.4 Consulting Services: Procurement of consulting services valued in total at UA 504,000, and technical assistance valued in total at UA 3.279 million, will be on the basis of short list, in accordance with the “Bank’s Rules of Procedure for the Use of Consultants”. The selection procedure will be based on technical quality with price consideration. Consulting services and technical assistance will include verification and preparation of standard designs, preparation of tender documents as well as supervision of civil works for irrigation schemes and marketing infrastructure and environmental impact assessments, project management, accounting, and project monitoring and evaluation. For services costing less than UA 100,000, for individuals and UA 350,000, for consulting firms, the Borrower may limit the publication of the advertisement to national/regional newspapers. However, any eligible consultant, being regional or not, may express his desire to be short-listed. 5.4.5 Training: Training of various categories of staff and farmers under the farmers’ support component valued at UA 1.131 million will be contracted to appropriate institutions, trainers or NGOs, acceptable to the Bank. The training would be carried out through a programme prepared by the project and submitted to the Bank for approval indicating the type of training, the persons to be trained, and CVs where applicable, institution, estimated costs and disbursement procedures. 5.4.6 Miscellaneous items, including personnel costs, operation and maintenance of equipment, and other administrative costs, will be procured through existing GoM procedures which are acceptable to the Bank. 5.4.7 National Procedures and Regulations: Malawi’s national procurement laws have been reviewed and determined acceptable. 5.4.8 General Procurement Notice: The text of a General Procurement Notice (GPN) will be discussed and agreed with the Borrower and this will be issued for publication in the UN Development Business, upon approval by the Board of Directors of the grant proposal.

5.5 Disbursement Arrangements 5.5.1 The direct payment method and the special account method will be used. The project will open a special account in a bank acceptable to the Fund into which advances for implementation of activities qualifying for special account will be deposited. The ADF will replenish the SA after the Executing Agency has provided valid justifications for the use of at least 50% of the previous deposits. GoM will be required to open an account in which its contribution to the project will be deposited. This account will be audited together with the project accounts. 5.5.2 In each of the 19 districts, an account will also be opened in a commercial bank acceptable to the ADF. The account will be managed by the District‘s Director of Finance. Thereafter funds will be withdrawn from the project’s Special Account to be deposited in the district account to finance eligible expenses.

39

5.6 Monitoring and Evaluation 5.6.1 Monitoring would be an integral part of project management activities. A team of consultants will carry out a mid-term review in the third year of project implementation. A consultant would be recruited for three months in the first year of the project to assist with the establishment of a comprehensive monitoring and evaluation system. The consultant would come back every year starting from the end of the second year for the same period to assist with the analysis of the data collected. The monitoring and evaluation system would include, at the community level, a system of Participatory Monitoring and Evaluation. The M&E Specialist will undertake a baseline study in PY1 and follow it up with annual surveys to assess performance and impact of project activities. It will be responsible for compiling the quarterly and annual progress reports. The project M&E process will be anchored within the existing system of the MoIWD developed by the Government.

5.6.2 The Bank will conduct regular follow-ups, review and supervision missions to closely monitor the implementation of the project. The latter would be undertaken twice a year given the national coverage of the project. With the planned opening of the Malawi Country Office, there will be very close monitoring of the project.

5.7 Financial Reporting and Auditing

5.7.1 An experienced Project Accountant will be responsible for financial management and reporting procedures for the project. The accountant will ensure that proper accounting procedures are implemented and maintain an automated accounting system for the project in order to facilitate verification of expenditures by component/category and source of finance. The District Director of Finance who is responsible for the District Project Accounts, will submit monthly returns of expenditure to the DoI and Project Coordinator to enable it closely monitor and consolidate the expenditures for the timely submission of request for replenishment of the Special Account. The Project accountant will undertake periodic checks on the District accounts.

5.7.2 Audit of Public Enterprises which include government ministries, programs and projects is the responsibility of the National Audit Office in Malawi as articulated in the Constitution of the republic and the Public Finance Management Act. The National audit office uses International Organization of Supreme Audit Institutions (INTOSAI) standards when carrying out its audits. The annual financial statements produced by the project will be audited by the Auditor General of Malawi. Provisions have also been made for the recruitment by the Auditor General of reputable professional auditors mutually acceptable to GOM and the Bank should the need arise. The certified audit report shall be submitted to the Bank not later than six months after the financial year.

5.8 Aid Coordination There exists a donor agriculture coordination group, the Donor Committee on Agriculture and Food Security (DCAFS) composed of the different donors present in Malawi which are involved in the agriculture and rural development sector. The EU is the current chair of the committee which meets once a month, usually on the first Thursday. DCAFS provides a forum for donors to coordinate their activities in the agriculture and rural

40

development sector to ensure programme synergy and compliance with Government of Malawi policies. The donor group is about to engage to support the government to develop sector wide approaches to rural development. In the process of formulating the project, the various missions interacted with the donor community to inform them about the project and to benefit from their own experiences. These exchanges will continue during the implementation of the project with the various Bank missions that will visit Malawi. 6. PROJECT SUSTAINIBILITY AND RISKS 6.1 Recurrent Costs 6.1.1 The total recurrent cost under the project are estimated at UA 3.07 million (approximately 18% of total project costs) consisting of field allowances for the project staff, salaries for government extension staff and operating expenses, including operations and maintenance of infrastructures, vehicles and motorcycles. The recurrent cost will be financed by the ADF grant (48.8%), the Government of Malawi (49.7%) and Beneficiaries (1.5%) as indicated in Table 6.1 below.

Table 6.1 ADF/GOM Financing of Recurrent Costs (UA)

2007 2008 2009 2010 2011 2012 Total

%

ADF

172,988 260,320

349,418

227,884 238,425

249,472

1,498,507 48.8%

Government

230,080 240,638

249,689

259,121 268,951

279,198

1,527,677 49.7%

Beneficiaries

7,937 8,334

9,420

9,891 10,579

978

47,139 1.5%

Total Recurrent Costs

411,004 509,292

608,528

496,896 517,955

529,648 3,073,322 100%

6.1.2 The GoM contributions to the recurrent costs mainly relates to salaries for existing staff (UA 1.5 million) and part of the operations and maintenance (UA 0.27 million, which includes beneficiary participation in infrastructure maintenance amounting to UA 0.047 million). The Government’s budgetary allocations for the staff (considered under this project), are already in place through the annual budgets allocated to the Ministries of Irrigation and Water Development and Agriculture and Food Security. About 85% of Government contribution is already included in the Government budget, and given the government’s commitment to this important food security project, it should not have any difficulty in meeting its share of the recurrent costs. The project will not need Government contributions at the end of the implementation period since the project is designed in such a way that it will be self-sustaining in the long run, as the beneficiaries would be trained to be fully responsible for schemes operation and management. 6.2 Project Sustainability 6.2.1 A participatory approach and extensive consultation which was done during project identification, preparation and design has cultivated sense of ownership among the smallholder farmers whose commitment was endorsed in the initial participatory agreement form. The high degree of farmer participation in all scheme development stages will ensure technical sustainability. The decentralised nature of implementation and the in-kind contribution of farmers during project implementation will bring about full ownership of facilities, developed by the project, and this will further enhance sustainability. The project

41

design deliberately opted for river diversion gravity-fed schemes and treadle pump based irrigation schemes due to their low operation and maintenance costs which are a small fraction of the expected incremental income at farm level. The proposed irrigation technologies are simple and have already been implemented in several existing smallholder irrigation schemes and private estates, in Malawi, and have been proven to be suitable. In addition, during the SSID study, irrigation water inlets in the proposed sites were selected, in participatory manner, with technical evidence of irrigation water availability even during the driest months. Land tenure security issues were extensively discussed with the beneficiaries during the study period which is an important aspect for scheme sustainability. Environmental mitigation measures have been incorporated into the project design whose implementation will minimise negative environmental impacts expected to result directly from civil works and irrigation activities. 6.2.2 The proposed extensive training, including study tours and exchange visits, for farmers at the grassroots level in both irrigation practices and marketing will ensure full responsibility of scheme management leading to self-management and thus long-term scheme sustainability. The proposed training will assist in strengthening farmers’ bargaining power to gain better terms and access to required resources. WUA formation, from the onset of the project, has deliberately been included in the project design so that farmers will be able, in future, to autonomously operate the scheme on commercial basis thus generating more financial resources for scheme operation and maintenance. WUA management will be responsible for ensuring that all farmers owning plots, within a block, are fully utilising them for irrigated agricultural production. The orientation towards traditional crops, currently grown in the area for domestic consumption and income generation, will assist the farmers to technically and financially establish themselves whilst allowing for a gradual shift of the farming systems towards higher value cash crops. The marketing subcomponent will assist farmers in establishing proper marketing links thereby having a ready market for their produce.

6.3 Critical Risks and Mitigating Measures 6.3.1 The occurrence of severe droughts in successive years during project implementation could result in farmers not making meaningful returns on adopted improved crop varieties. This will be mitigated to some extent by the provision of dam storage with the irrigation facilities under the project. Additionally, some districts may lack capacity to plan and manage the implementation of project activities. This will be mitigated by the training which will be provided to the key implementing bodies. Furthermore, the Bank will ensure that the project is supervised at least two times a year. 6.3.2 The interest and practical participation by the farmers in the implementation of the Scheme is of paramount importance, as it will greatly determine the impact of the project and its sustainability. The risk of inadequate participation of farmers in construction, in particular their willingness and ability to provide labour before and during construction will be mitigated by extensive training support in group dynamics so that they can plan and organise themselves for the implementation, operation and maintenance of the schemes.

42

7. PROJECT BENEFITS

7.1 Financial Analysis

7.1.1 Project financial analysis was carried out based on representative crop and farm budgets for the various farming systems of the project sites, using the prevailing cropping pattern and looking at incremental costs and benefits due to the project interventions. Most of the data used for the analysis was derived from a study on Economic Budgets and Parity Prices for Different Crop Enterprises conducted by the Ministry of Agriculture and Food Security in February 2005. 7.1.2 The crop models and budgets have been developed for all project farming areas. They were then assembled into two models related to the irrigation technology that would be implemented. The developed model focused on appraising ten crops, maize (grains and cobs), beans, Irish potatoes, sweet potatoes, cabbages, paprika, chilies, onions, tomatoes, and rice, as well as post harvest, marketing, and irrigation infrastructure. The project was appraised with the objective of determining how irrigation, post harvest, and market facilities as well as capacity building would impact the farming and marketing activities of smallholder farmers who engage in producing the ten crops in the project sites and engage in marketing these ten crops in the project area. 7.1.3 Model A represents farms located in areas where a gravity scheme will be implemented. This technology will be implemented on a total area of 2,653 ha which hosts 7,286 households. Total production in this area would rise from 80,277,897 MWK in the ‘without’ project situation to 596,156,476 MWK in the ‘with’ programme situation. As a result, the net incremental return per household would reach 56,106 MWK (USD 432). Similarly model B represents farms in sites where a treadle pump scheme will be implemented. It covers a total area of 402 ha which hosts 1,470 households. Total production in this area would rise from 2,626,897 MWK in the ‘without’ project situation to 49,261,806 MWK in the ‘with’ project situation. Consequently the incremental return per household would reach 31,724 MWK (USD 244). 7.1.4 The net present value (NPV) decision criteria rather than the internal rate of return (IRR) has been used in assessing the project. At 22% real required rate of return, the base case financial results indicate that the project is attractive to smallholder as the NPV of the real net cash-flows is positive, amounting to a value of MK 905 million for the entire project area. 7.2 Economic Analysis The economic analysis assesses how the project is viable to the entire society. It is derived from the financial analysis by adjusting the financial prices for any market distortion that drives a wedge between the economic value and the financial values of the items. The financial value does not reflect the true economic value of a resource employed, thus the need to adjust it for distortions using conversion factors. Particularly, the economic value of the exported crops includes the foreign exchange premium associated with the distortions in the market for traded goods. An economic analysis was carried out over a 20-year period. The results of the analysis show that the project would be economically rewarding, with an economic internal rate of return (EIRR) of 25.1%. The Net Present Value at 12 % discount

43

rate is MWK 1.66 billion (UA 8.7 million). The summary of the economic analysis is presented in Annex 4. 7.3 Social Impact Analysis 7.3.1 The proposed project is expected to yield considerable benefits to participating farmers and to the whole economy. The project will have positive impact on the economy by assisting to build and retain capacity for 8,756 households (45,531 farmers) within the project sites. The marketing component of the project will serve about 14% of the project districts, i.e. more than one million people in the project districts. The project would contribute to creating a cadre of well-trained smallholder farmers and promote business development and the emergence of rural entrepreneurs with the objective of creating a critical mass of self-confident and business oriented farmers who will be able to identify, develop and exploit economic opportunities related to agricultural production and marketing on a sustainable basis. It will lead to strengthened farmers’ organizations that would perform basic market researches in order to sign contracts with potential customers.

7.3.2 The crop specific training will result in significant gains in productivity and production by improving irrigation and crop practices among smallholder farmers resulting in increased food security. This will contribute to poverty reduction.

7.3.3 The construction of community storage facilities and market centers and marketing specific training will result in significant reduction in crop losses and improvement of crop standard and specifications. This will increase the marketable cash crops which will lead to improved quality and standard of living of the targeted population. For example, a preliminary value chain analysis for tomato in the Mzuzu area shows that farmers receive about 18% of market margins while in the Lilongwe area it is about 7%; with about 60% losses in both areas. The marketing component of the project will improve the quality of produce to meet the requirements of the modern markets (supermarkets and tourism facilities). This will be due to the storage facilities at project sites and market centers at project districts. The price of the new high value products will be increased due to the improved quality and the targeting of different consumption markets.

7.3.4 Enhancement of Women Participation: The project will promote gender mainstreaming and will specifically target female-headed households to improve their livelihoods through membership of Farmers’ Organizations. Women will be involved in the participatory irrigation scheme management as members of WUAs and will constitute half the elected representatives of WUGs as well as half of the contact farmers trained by the project. Women’s access to project benefits will be increased through training, especially in the area of water management techniques, farming skills, business skills and community development activities. The Monitoring and Evaluation Officer will facilitate collection of gender disaggregated data and the project coordinator will ensure active involvement of women in the project.

44

7.4 Sensitivity Analysis

A sensitivity analysis has been carried out to assess the impact on estimated project returns arising from changes in base case assumptions as presented below. The sensitivity analysis shows that:

(i) A decrease of benefits by ten percent will reduce the EIRR to 21.3 percent and the NPV (at real interest rate of 12%) to MWK 1.14 billion (UA 6.02 million); and 20 percent decrease in benefits will reduce the EIRR to 17.3 percent and the NPV to MWK 0.62 billion (UA 3.2 million).

(ii) An increase of cost by ten percent will reduce the EIRR to 21.7 percent and the NPV to MWK 1.31 billion (UA 6.9 million); and an increase of cost of 20 percent will reduce the EIRR to 18.7 percent and NPV to MWK 0.95 billion (UA 5.01).

(iii) Delaying project benefits by one year will reduce the EIRR to 18.7 percent and the NPV to MWK 1.0 billion (UA 5.3 million); delaying benefits by two years will reduce the EIRR to 14.5 percent and the NPV to MWK 0.42 billion (UA 2.2 million).

These analyses show that the project is robust and can withstand a series of adverse effects by maintaining its EIRR above the assumed opportunity cost of capital of 12%. 8. CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusions

The project is technically feasible, economically viable, environmentally sound, and socially desirable. The project is participatory in its design and decentralised in its implementation with a significant beneficiary input intended to ensure sustainability. The project is demand-driven as there was considerable participation of stakeholders in the preparation process. This should bring about a high degree of ownership of facilities developed through the project and provide some guarantee of sustainability. Further guarantees are provided by the technically unsophisticated nature of many of the interventions and their simple maintenance requirements and by the use of existing government structures for project implementation. The project meets the government objective of improving the productivity of smallholder agriculture. The project will also contribute significantly to achieving the Millennium Development Goals of (i) halving the proportion of people living in extreme poverty by 2015, and (ii) promoting gender equality and empowerment of women through their involvement in project activities.

8.2 Recommendations and Conditions for Grant Approval It is recommended that an ADF grant not exceeding UA 15.0 million be granted to the Republic of Malawi for the purpose of implementing the project as described in this report, subject to the following specific conditions:

45

A. Conditions Precedent to Entry into Force of the Grant Protocol of Agreement The Grant shall enter into force upon its signature.

B. Conditions Precedent to First Disbursement of the Grant

The first disbursement shall be conditional upon the fulfilment of the following conditions:

(i) opened a special project accounts in a bank acceptable to the Fund, and on terms and conditions also acceptable to the Fund, into which the grant resources proceeds shall be deposited on the request of the executing agency (para. 5.5.1);

(ii) provided evidence of the designation of an Interim Project Coordinator to work on the

initial project start up activities (para. 5.2.1);

Other Conditions: The Borrower shall have: (i) recruited the Project Coordinator, Project Accountant, Monitoring and Evaluation

Officer, Irrigation Engineer, Procurement Officer within six (6) months of first disbursement (para. 5.2.1);

(ii) opened within six months of entry into force of the grant, 19 District Project Accounts

in banks acceptable to the Fund, and on terms and conditions also acceptable to the Fund into which part of the ADF grant resources shall be deposited prior to the commencement of any project sponsored activities in the districts, (para. 5.5.2).

Annex 1 Page 1 of 1

Smallholder Crop Production and Marketing Project

Map of Malawi showing Project Area

This map has been drawn by the African Development Bank Group exclusively for the use of the readers of the SCPMP Appraisal Report to which it is attached. The names used and the borders shown do not imply on the part of the Bank and its members any judgment concerning the legal status of a territory nor any approval or acceptable of these borders

Annex 2 Page 1 of 2

Malawi: Smallholder Crop Production and Marketing Project

Project Organisation and Management

Principal Secretary

Project Steering Committee (PSC)

PS MoIWD (chair), Rep. Finance, etc Other Stakeholders to be Co-opted as Necessary

DEPARTMENT OF IRRIGATION

Technical Team

District Directorate of Agriculture and Natural Resources

Agriculture Directorate Management Team

Extension Planning Areas

Front Line Extension Workers

Community Project Committees

ADF

Annex 2 Page 2 of 2

PROFILE OF INTERIM PROJECT COORDINATOR 1. The Interim Project Coordinator will, for a period of six months, oversee the initial project start up activities, notably, the recruitment of the Technical Team. Within the initial six months period, he or she will be the key link between the project and the Fund and will therefore perform the following major specific duties:

• Co-ordinate all project start-up activities and ensure that they are executed according to schedule.

• Supervise and monitor the preparation of advertisement for recruitment of the project technical team, tender documents, including the analysis of tenders.

• Supervise and ensure timely development of the initial Annual Work Programs and Budget and submit them to the Fund for review.

• Compile Project Quarterly Reports. • Serve as Secretary to the Project Steering Committee and supervise and ensure execution

of any decisions approved by the Committee. 2. Qualifications and Experience. The candidate for the position should:

• Possess a post graduate degree in Agricultural Economics or Irrigation/Civil Engineering with economics background.

• Have at least 10 years experience as Project Manager or Team Leader of experts with various professional backgrounds.

• Have a track record on establishing and managing monitoring and evaluation units.

Annex 3 Page 1 of 1

Malawi: Smallholder Crop Production and Marketing Project

Provisional List of Goods and Services – Categories of Expenditure

(UA)

ADF GRANT

GOM

BENEFICIARIES

TOTAL

Amount % Amount % Amount % Amount %

A. CIVIL WORKS

7,690,297 100

0 0 0 0

7,690,297

46

B. GOODS

Equipment & Materials

104,378 43

139,669 57.2 0 0

244,047

1.5

Field Trucks & Vehicles

310,741 100

- 0 0 0

310,741

2

Motorcycles

138,197 100

- 0 0 0

138,197

1

Bicycles

15,915 100

0 0 0 0

15,915

0.1

Subtotal GOODS

569,232 80

139,669 19.7 0 0

708,901

4

C. SERVICES

Training

1,088,910 96

40,784 3.6 0 0

1,129,694

7

Technical Assistance

3,279,294 99

47,021 1.4 0 0

3,326,316

20

Studies & Surveys

502,582 96

19,590 3.8 0 0

522,172

3

Subtotal SERVICES

4,870,786 98

107,395 2.2 0 0

4,978,181

30 D. OPERATIONS & MAINTENANCE

Infrastructure Maintenance

- 0

- 0

47,139 100

47,139

0.3

Salaries

- 0

1,515,785 100

- 0

1,515,785

9

General Operating Charges

357,377 97

11,892 3.2

- 0

369,269

2

Other Operating Charges

1,512,309 100

0 0

- 0

1,512,309

9 Subtotal OPERATIONS & MAINTENANCE

1,869,686 54

1,527,677 44.4

47,139 1.4

3,444,502

21

Total Project Cost

15,000,000 89.1

1,774,741 10.6

47,139 0.3

16,821,880

100

Annex 4 Page 1 of 3

Smallholder Crop Production and Marketing Project Summary of Economic Analysis

1. Introduction

The Small-Scale Irrigation Development Project is a project that links the marketing of agricultural commodities with irrigation technologies to improve food security through promoting the intensification and diversification of the existing cropping system and changing the behavior of farmers to be more business oriented. 2. Economic Analysis a. Methodology and Assumptions: The judgement of the Project’s economic viability is based on an assessment of its tangible benefits, measurable in monetary terms. This approach is premised on the basic objective of ensuring that the funds provided for the construction of the Project, its operation and maintenance, as well as for the necessary replacement costs, shall result in an overall improvement of the economic welfare of greater value than the total cost incurred. Apart from the measurable benefits, other intangible socio-economic and technical benefits justify the establishment of the Project.

Conversion factors are used to convert financial values to economic values by making adjustments in order to account for the influence of market imperfections. Although substantial liberalisation has taken place in Malawi in recent years, following the implementation of IMF sponsored programmes, these adjustments still have to be made to take into account imperfections on the labour market and to correct taxes, duties and subsidies. The Standard Conversion Factor (SCF) has been determined to convert the financial values of all items not internationally traded as well as the values of all activities directly related to the implementation of the Project and its operation which incur costs in local currency. A SCF of 0.97 has been determined for this evaluation, as shown in Table 1.

Table 1 Calculation of the Standard Conversion Factor (SCF), MWK billion

Item description 1999 2000 2001 1. Total imports consumer good CIF 32.25 39.48 53.66 2. Total exports consumer goods FOB 23.63 31.82 31.42 3. Total customs duties/imports taxes 2.28 2.38 2.67 4. Export subsidies 0 0 0 5. 1+2 55.38 71.30 85.08 6. (1+2+3) – 4 58.16 73.68 87.75 Standard Conversion Factor (SCF) 5/6 0.96 0.97 0.97 Average 2000-2002 0.97 Source: Small-Scale Irrigation Development Study (SSIDS), Malawi, 2004

The Shadow Wage Rate (SWR) for skilled as well as unskilled labour depends on the development of the labour market in the local economy. The share of unskilled labour as a proportion of total construction activities is generally very low (in the range of 2-4 %, depending on the nature of the work) and therefore has not been considered. The SCF has been applied for construction activities. For agricultural activities a factor of 0.94 has been applied for skilled labour and a factor of 0.4 for unskilled labour. For agricultural cost components such as fertiliser, chemicals and seeds, specific conversion factors have been determined to take into account the foreign exchange content of the products, the use of skilled and unskilled labour as well as the impact of transfer payments in the form of subsidies and taxes. A 5 % adjustment has been effected to allow for the discounts that will be realised by the farmers through organised group purchasing of the various inputs that can be procured in large quantities at a time. These calculations give conversion factors of 0.88 for fertiliser, 0.95 for chemicals and 0.81 for seeds (see Table 2 for the calculations).

Annex 4 Page 2 of 3

Table 2 Calculation of Conversion Factors for Fertilisers, Chemicals and Seeds

Commodity Description Fertilisers

% Chemicals

% Seeds

% Financial costing:

Materials (local) 2 1 15 (imported) 82 98 55 Labour 16 1 30 Taxes and surcharges 0 0 0 Total 100 100 100

Economic costing: Materials (local) 2 1 14 (imported) 82 98 55 Labour 9 1 17 Taxes and surcharges 0 0 0 Total 93 99 86 Conversion Factor 0.93 0.99 0.86 5% adjustment 0.88 0.95 0.81

Source: Small-Scale Irrigation Development Study (SSIDS), Malawi, 2004

Crop produce values for the “With Project” situation have been derived from the proposed cropping programme, projected yield levels under irrigation and economic prices based on the border price estimates and/or derived from the financial local market prices by using the estimated conversion factors. Farm gate prices have been calculated by taking into account all costs for internal handling as well as transport. These adjustments have been made using the official exchange rate, based on import price estimate, Free on Board (FOB), Nacala or Cost Insurance Freight (CIF) Europe. The calculation of economic values for internationally traded commodities takes into consideration the cost of external railage, handling and insurance. For commodities that are not traded on the international markets and therefore meant for consumption within Malawi, the SCF has been used to determine the approximate economic value. Economic project development costs have been calculated by applying the SCF and SER to the financial values. b. Economic Analysis Results The results of the analysis show that irrigation development, crop production, and marketing activities would be economically rewarding, with an economic internal rate of return (EIRR) of 25.1%.

Annex 4 Page 3 of 3

Table 3: Economic Internal Rate of Returns (EIRR)

# YEAR Investment cost.

Operations & Replacement

costs Total Costs.

Total Revenue Net Benefits

1 2007 179 41 220 0 -220

2 2008 901 57 958 0 -958

3 2009 819 134 953 318 -636

4 2010 209 174 383 636 253

5 2011 243 237 481 954 473

6 2012 72 363 435 1 060 625

7 2013 363 362 1 060 697

8 2014 363 362 1 060 697

9 2015 363 362 1 060 697

10 2016 386 385 1 060 674

11 2017 363 362 1 060 697

12 2018 363 362 1 060 697

13 2019 363 362 1 060 697

14 2020 363 362 1 060 697

15 2021 363 362 1 060 697

16 2022 363 362 1 060 697

17 2023 363 362 1 060 697

18 2024 386 385 1 060 674

19 2025 363 362 1 060 697

20 2026 363 362 1 060 697

2 424 1 174

EIRR 25.1% ENPV 1 663

Note: Treadle-pumps are replaced in year 10 and year 18 resulting in an increase in operating costs.

c. Economic Sensitivity Analysis The above result has been tested for sensitivity due to shifts in cost and benefits as well as to implementation lags. The results are summarized below.

Sensitivity analysis EIRR

Costs up by 10% 21.7% Costs up by 20% 18.7% Benefits Down by 10% 21.3% Benefits Down by 20% 17.3% Costs up by 20% and Benefits Down by 20% 11.3% Benefits lagged by 1 year 18.7% Benefits lagged by 2 year 14.5%

The results show that the analyzed project activities would be more sensitive to shifts in benefits more than costs. However, a combination of increases in costs and a reduction in benefits would make the project economically marginal, reducing the EIRR to 11.3% and a delay in project benefits by two years would also have a significant impact, reducing the EIRR to 14.5%.

Annex 5 Page 1 of 4

Sector Company Loan number Project title Approval

date Signature

date Entry into

force Net Signed

Loans Disbursements Undisbursed

Balance Disbursement

rate Status

Agriculture ADF 2100150000688 RURAL INCOME ENHANCEMENT PROJECT 10-Dec-97 27-May-98 1-Feb-00 7,060,000.00 4,682,348.30 2,377,651.70 66.30% Ongoing

Agriculture ADF 2100150000673 MACADAMIA SMALLHOLDER DEVELOPMENT PROJECT 15-Jul-98 13-Jan-99 7-Nov-00 6,850,000.00 1,969,073.00 4,880,927.00 28.70% Ongoing

Agriculture ADF 2100150000690 SMALLHOLDER IRRIGATION PROJECT 26-Nov-98 24-May-99 13-Apr-00 5,020,000.00 704,918.25 4,315,081.75 14.00% Ongoing

Agriculture ADF 2100155000221 SMALL SCALE IRRIGATION STUDY 26-Nov-98 13-Jan-99 19-Nov-99 1,119,234.00 563,202.62 556,031.38 50.30% Ongoing

Agriculture ADF 2100150000679 HORTICULTURE & FOOD CROPS DEV PROJECT 15-Dec-98 24-May-99 1-Feb-00 6,650,000.00 2,008,045.00 4,641,955.00 30.20% Ongoing

Agriculture ADF 2100155000229 HORTICULTURE & FOOD CROPS DEV PRO STUDY 15-Dec-98 24-May-99 1-Feb-00 840,000.00 419,615.00 420,385.00 50.00% Ongoing

Agriculture ADF 2100150006702 SMALLHOLDER OUTGROWER SUGAR-CANE PRODN. 15-Dec-99 10-Feb-00 8-Nov-00 8,930,000.00 1,845,216.00 7,084,784.00 20.70% Ongoing

Agriculture ADF 2100150007035 LAKE MALAWI ARTISANAL FISHERIES DEV PRO 29-Jan-03 5-May-03 8-Sep-03 6,930,000.00 1,127,153.00 5,802,847.00 16.30% Ongoing

Agriculture ADF 2100155001894 LAKE MALAWI ARTISANAL FISHERIES DEV PRO STUDY 29-Jan-03 5-May-03 8-Sep-03 840,000.00 251,766.00 588,234.00 30.00% Ongoing

Agriculture ADF 2100150007223 CUSTOM. LAND REFORM & SUSTAIN. LIVELIHOOD STUDY 16-Sep-03 13-May-04 13-May-04 394,640.00 184,247.06 210,392.94 46.70% Ongoing

Total ADF 44,633,874 13,755,584 30,878,290 35.32%

Agriculture Total 44,633,874 13,755,584 30,878,290 35.32%

Multi-Sector ADF 2100150008895 SUPPORT FOR GOOD GOVERNANCE 8-Dec-04 4-Mar-05 6-May-05 12,000,000.00 12,000,000.00

- 100.00% Ongoing

Social ADF 2100150000682 POVERTY REDUCTION AND INSTITUTIONAL SUPPORT 10-Dec-98 24-May-99 12-May-00 7,000,000.00 4,292,659.00 2,707,341.00 61.30% Ongoing

Social ADF 2100155000228 POVERTY REDUCTION AND INSTITUTIONAL SUPPORT 10-Dec-98 24-May-99 12-May-00 2,000,000.00 1,833,373.00 166,627.00 91.70% Ongoing

Social ADF 2100150000696 RURAL HEALTH CARE PROJECT III 8-Nov-00 26-Mar-01 2-Oct-01 10,000,000.00 4,972,985.00 5,027,015.00 49.70% Ongoing

Social ADF 2100150006687 SUPPORT TO CDSS (EDUCATION IV) 21-Nov-01 5-Aug-02 26-Nov-02 15,000,000.00 1,579,096.00 13,420,904.00 10.50% Ongoing

Social ADF 2100150006792 SKILLS DEVPT & INCOME GENERATION PROJECT 16-Jan-02 5-Aug-02 5-Mar-03 9,590,000.00 2,282,470.00 7,307,530.00 23.80% Ongoing

Social ADF 2100155005966 SUPPORT TO HEALTH SECTOR PROGRAMME 24-Nov-05 Ongoing

Total ADF 43,590,000.00 14,960,583.00 28,629,417.00 47.40%

Social Total 43,590,000.00 14,960,583.00 28,629,417.00 47.40%

Transport ADF 2100150000683 KARONGA-CHITIPA ROAD (LIFILYA TO CHITIPA SECTION) 15-Dec-99 10-Feb-00 16-Nov-00 13,540,000.00 198,338.34 13,341,661.66 1.50% Ongoing

Transport ADF 2100150007157 ROADS REHAB/UPGRADING IN KARONGA/CHITIPA 29-Oct-03 23-Jan-04 5-May-04 13,670,000.00 - 13,670,000.00 0.00% Ongoing

Total ADF 27,210,000.00 198,338.34 27,011,661.66 0.75%

Transport Total 27,210,000.00 198,338.34 27,011,661.66 0.75%

Water/Sanit ADF 2100150006726 INTEGRATED WS & SAN. FOR CRWB & NRWB 5-Dec-01 5-Aug-02 15-Oct-02 8,490,000.00 708,452.00 7,781,548.00 8.30% Ongoing

Water/Sanit ADF 2100155001729 INTEGRATED WS & SAN. FOR CRWB & NRWB 5-Dec-01 5-Aug-02 15-Oct-02 1,100,000.00 542,240.00 557,760.00 49.30% Ongoing

Total ADF 9,590,000.00 1,250,692.00 8,339,308.00 28.80%

Water/Sanit Total 9,590,000.00 1,250,692.00 8,339,308.00 28.80%

Annex 5 Page 2 of 4

Sector Company Loan number Project title

Approval date

Signature date

Entry into force Net Signed Loans Disbursements

Undisbursed Balance

Disbursement rate Status

Agriculture ADF 2100150000657 NAMWERA RURAL DEVELOPMENT 26-Oct-76 10-Dec-76 10-Oct-77 4,600,642.19 4,600,642.19

- 100.00% Completed

Agriculture ADF 2100150000658 BLANTYRE-SHIRE HIGHLAND RURAL DEVELOPMENT 16-Dec-83 9-May-84 23-Mar-85 9,616,837.12 9,616,837.12

- 100.00% Completed

Agriculture ADF 2100150000671 ZOMBA RURAL DEVELOPMENT 25-Nov-87 22-Feb-88 25-Sep-89 5,697,206.36 5,697,206.36

- 100.00% Completed

Agriculture ADF 2100150000670 NATIONAL LIVESTOCK DEVELOPMENT 18-Jan-88 22-Feb-88 10-May-90 6,709,743.46 6,709,743.46

- 100.00% Completed

Agriculture ADF 2100155000213 INSTITUTIONAL SUPPORT TO SDA 28-Aug-90 31-Jan-91 10-Feb-93 538,567.08 538,567.08

- 100.00% Completed

Agriculture ADF 2100155000215 MACADAMIA NUTS STUDY 18-Dec-90 31-Jan-91 18-Jun-91 458,006.81 458,006.81

- 100.00% Completed

Agriculture ADF 2100155000216 SMALLHOLDER SUGAR CANE STUDY 18-Dec-90 31-Jan-91 18-Jun-91 200,943.76 200,943.76

- 100.00% Completed

Agriculture ADF 2100155000217 AGRICULTURAL SECTOR STUDY 18-Mar-91 31-Jan-92 1-Nov-92 1,410,468.59 1,410,468.59

- 100.00% Completed

Agriculture ADF 2100150000687 MWANZA RURAL DEVELOPMENT PROGRAMME 27-Aug-91 13-May-92 11-Mar-93 8,013,152.00 5,447,804.00 2,565,348.00 68.00% Completed

Agriculture ADF 2100150000678 LILONGWE RURAL FORESTRY PROJECT 29-Oct-92 5-Mar-93 24-Feb-95 3,868,418.00 3,644,131.25 224,286.75 94.20% Completed

Agriculture ADF 2100155000222 LOWER SHIRE IRRIGATION STUDY 12-Dec-92 15-Jan-93 10-Mar-93 675,214.99 675,214.99

- 100.00% Completed

Agriculture ADF 2100150000672 AGRICULTURAL SERVICES PROJECT 3-Sep-93 1-Oct-93 5-Oct-94 9,210,520.00 8,179,753.47 1,030,766.53 88.80% Completed

Agriculture ADF 2100150000674 AGRICULTURAL SECTOR ADJUSTMENT PROGRAMME 3-Sep-93 1-Oct-93 19-May-94 15,290,643.50 15,290,643.50

- 100.00% Completed

Agriculture ADF 2100155000226 SPECIAL PROG FOR FOOD SECURITY - PHASE 1 19-Jun-00 21-Dec-00 8-Mar-01 730,000.00 730,000.00

- 100.00% Completed

Total ADF 67,020,363.86 63,199,962.58 3,820,401.28 96.50% Agriculture Total 67,020,363.86 63,199,962.58 3820401.28 96.50%

Comms ADB 2000192000341 TELECOMMUNICATIONS 8-Nov-83 9-May-84 8-Nov-84 7,933,197.81 7,933,197.81

- 100.00% Completed

Comms ADB 2000191000034 TELECOMMUNICATIONS PROJECT II 21-May-91 2-Aug-91 10-Feb-94 14,999,922.91 14,999,922.91

- 100.00% Completed

Total ADB 22,933,120.72 22,933,120.72 0.00 100.00%

Comms ADF 2100150000692 TELECOMMUNICATIONS PROJECT II 21-May-91 13-May-92 10-Feb-94 11,052,954.82 11,052,954.82

- 100.00% Completed

Comms Total 33,986,075.54 33,986,075.54 100.00%

Finance ADB 2000192000337 LINE OF CREDIT TO MALAWI DEV CORP 22-Nov-72 11-Dec-72 6-Apr-73 1,485,997.20 1,485,997.20

- 100.00% Completed

Finance ADF 2100150000680 LINE OF CREDIT TO INDEBANK 12-Dec-96 8-Jan-98 31-Mar-99 1,346,291.02 1,346,291.02

- 100.00% Completed

Finance Total 2,832,288.22 2,832,288.22 100.00%

Annex 5 Page 3 of 4

Ind/Min ADF 2100150000689 INDUSTRY - TRADE POLICY ADJUSTMENT 23-Feb-89 22-Sep-89 16-Nov-89 13,854,303.38 13,854,303.38

- 100.00% Completed

Ind/Min ADF 2100155000219 INDUSTRIAL SECTOR OPPORTUNITIES 19-Nov-90 31-Jan-91 4-Jul-91 690,789.00 525,861.17 164,927.83 76.10% Completed

Ind/Min ADF 2100155000220 ETUDE PRODUCTION DE BAUXITE A MULANJE 25-Nov-92 15-Jan-93 21-Oct-93 636,929.14 636,929.14

- 100.00% Completed

Total ADF 15,182,021.52 15,017,093.69 164,927.83 92.03%

Ind/Min Total 15,182,021.52 15,017,093.69 164927.83 92.03%

Multi-Sector ADF 2100150000676 ENTREPRENEURSHIP - CAPITAL MARKET ADJUST 30-Oct-91 31-Jan-92 29-Dec-92 9,210,520.00 9,210,520.00

- 100.00% Completed

Multi-Sector ADF 2100150000681 STRUCTURAL ADJUSTMENT LOAN 15-Dec-98 13-Jan-99 16-Feb-99 10,000,000.00 10,000,000.00

- 100.00% Completed

Multi-Sector ADF 2100155000230 ISP: AID-DEBT MANAGEMENT & GOVERNANCE 18-Oct-00 26-Mar-01 18-May-01 1,000,000.00 547,751.71 452,248.29 54.80% Completed

Total ADF 20,210,520.00 19,758,271.71 452,248.29 84.93%

Multi-Sector Total 20,210,520.00 19,758,271.71 452,248.29 84.93%

Power ADB 2000192000338 TEDZANE FALL HYDRO-ELECTRIC 15-Dec-69 9-Mar-70 20-Apr-70 3,113,141.41 3,113,141.41

- 100.00% Completed

Power ADB 2000192000339 NKULA-LILONGWE ELECTRIC LINES 24-Jun-75 8-Aug-75 30-Jul-76 5,000,000.00 5,000,000.00

- 100.00% Completed

Power ADB 2000192000340 NKULA FALLS "B" HYDRO ELEC POWER 7-Jun-77 16-Jul-77 2-Aug-77 4,229,137.41 4,229,137.41

- 100.00% Completed

Total ADB 12,342,278.82 12,342,278.82 100.00%

Power ADF 2100150000666 RURAL ELECTRIFICATION 17-Jun-80 24-Jun-80 17-Feb-81 5,485,817.15 5,485,817.15

- 100.00% Completed

Power Total 17,828,095.97 17,828,095.97 100.00%

Social ADF 2100150000659 PRIMARY - TERTIARYEDUCATION PROJECT 24-Apr-80 24-Jun-80 16-Jan-81 7,315,309.21 7,315,309.21

- 100.00% Completed

Social ADF 2100150000661 RURAL HEALTH 4-Dec-81 12-Feb-82 24-Sep-82 7,350,124.54 7,350,124.54

- 100.00% Completed

Social ADF 2100150000662 SECOND RURAL HEALTH PROJECT 17-Dec-84 1-Jul-85 24-Apr-86 7,997,105.43 7,997,105.43

- 100.00% Completed

Social ADF 2100150000660 PRIMARY AND SECONDARY EDUCATION PROJECT 23-Sep-86 17-Mar-87 10-Aug-87 15,588,056.49 15,588,056.49

- 100.00% Completed

Social ADF 2100150000695 WOWEN IN DEVELOPMENT PROJECT 29-Oct-92 5-Mar-93 8-Jul-94 4,996,859.38 4,996,859.38

- 100.00% Completed

Social ADF 2100150000677 EDUCATION III 6-May-97 29-May-97 5-Aug-98 12,000,000.00 11,709,916.00 290,084.00 97.60% Completed

Social ADF 2100155000225 HEALTH STUDY 20-Nov-97 27-May-98 13-Nov-98 727,323.70 727,323.70

- 100.00% Completed

Social ADF 2100155000227 SUPPORT TO NATIONAL AIDS CONTROL PROGRAMME 15-Dec-99 10-Feb-00 20-Dec-00 1,000,000.00 859,498.35 140,501.65 85.90% Completed

Total ADF 56,974,778.75 56,544,193.10 430,585.65 97.94%

Social Total 56,974,778.75 56,544,193.10 430,585.65 97.94%

Transport ADB 2000192000342 ENGINEERING SERVICES LILONGWE AIRPORT 8-May-74 1-Jul-74 2-Jan-75 500,000.00 500,000.00

- 100.00% Completed

Annex 5 Page 4 of 4

Transport ADB 2000192000343 LILONGWE INT. AIRPORT PHASE I 23-Feb-77 22-Mar-77 23-Nov-77 4,982,802.15 4,982,802.15

- 100.00% Completed

Transport ADB 2000192000344 LILONGWE INT. AIRPORT PHASE II 28-Dec-77 25-Jan-78 30-Jun-78 4,956,286.93 4,956,286.93

- 100.00% Completed

Transport ADB 2000192000345 KAMUZU INTERNATIONAL AIRPORT PHASE III 9-Nov-82 31-Jan-83 2-Aug-83 14,783,392.80 14,783,392.80

- 100.00% Completed

Transport ADB 2000192000346 ROAD CONSTRUCTION - MAINTENANCE 25-Jan-84 9-May-84 14-Aug-84 11,238,755.61 11,238,755.61

- 100.00% Completed

Total ADB 36,461,237.49 36,461,237.49 100.00%

Transport ADF 2100150000667 MUZUZU-MUHUJU ROAD STUDIES 30-Apr-75 19-Aug-75 5-Jul-76 275,998.12 275,998.12

- 100.00% Completed

Transport ADF 2100150000668 JOHN-MZUMARA-EKWENDENI ROAD CONSTRUCTION 28-Feb-79 17-May-79 22-Aug-79 7,368,415.95 7,368,415.95

- 100.00% Completed

Transport ADF 2100150000669 CHAMPHOYO-MBOWE ROAD - THE MZIMBA SPUR 24-Oct-85 24-Mar-86 12-Jul-86 11,793,131.37 11,793,131.37

- 100.00% Completed

Transport ADF 2100150000698 MCHINJI KASUNGU NKHOTAKOTA ROAD STUDIES 23-Sep-86 17-Mar-87 10-Jan-88 1,311,338.76 1,311,338.76

- 100.00% Completed

Transport ADF 2100150000684 ROAD MAIN AND CONST II PROJECT (ADF/TAF) 15-Feb-90 30-Nov-90 1-Dec-90 11,997,546.11 11,997,546.11

- 100.00% Completed

Transport ADF 2100155000214 ROMAC II: INSTITUTIONAL STRENGTHENING 15-Feb-90 29-May-90 23-May-91 1,966,998.06 1,966,998.06

- 100.00% Completed

Transport ADF 2100150000685 MCHINJI-MSULIRA-NKHOTAKOTA ROAD 18-Dec-90 31-Jan-91 28-Feb-91 14,751,376.32 14,751,376.32

- 100.00% Completed

Transport ADF 2100150000686 MCHINJI-MSULIRA-NKHOTAKOTA ROAD 25-Nov-91 13-May-92 22-Sep-93 12,058,498.24 12,058,498.24

- 100.00% Completed

Transport ADF 2100150000691 MCHINJI-KASUNGU-MSULIRA ROAD PRJCT (SUP LOAN) 2-Oct-97 25-Mar-98 5-May-98 4,657,919.74 4,657,919.74

- 100.00% Completed

Total ADF 66,181,222.67 66,181,222.67 100.00% Transport Total 102,642,460.16 102,642,460.16 100.00%

Water/Sanit ADF 2100150000664 WATER SUPPLY SYSTEM IN MALAWI DISTRICT 14-Dec-76 7-Feb-77 7-Jul-77 4,605,259.75 4,605,259.75

- 100.00% Completed

Water/Sanit ADF 2100150000665 BLANTYRE WATER SUPPLY 19-Sep-77 7-Oct-77 2-Feb-78 4,602,004.72 4,602,004.72

- 100.00% Completed

Water/Sanit ADF 2100150000697 STUDY OF DISTRICT WATER SUPPLY(PHASE II) 25-Aug-83 9-May-84 8-Nov-84 477,332.08 477,332.08

- 100.00% Completed

Water/Sanit ADF 2100150000663 MAIRA BALAKA WATER SUPPLY 19-Nov-84 1-Jul-85 10-Sep-86 11,587,112.87 11,587,112.87

- 100.00% Completed

Water/Sanit ADF 2100150000693 DISTRICT WATER SUPPLY 12-Jun-90 31-Jan-91 26-May-92 13,307,038.63 13,307,038.63

- 100.00% Completed

Water/Sanit ADF 2100155000224 DISTRICT WATER SUPPLY 12-Jun-90 31-Jan-91 26-May-92 842,520.25 842,520.25

- 100.00% Completed

Water/Sanit ADF 2100150000694 BLANTYRE WATER SUPPLY PROJECT PHASE VII 21-Apr-92 5-Mar-93 30-Dec-93 7,199,677.21 7,199,677.21

- 100.00% Completed

Water/Sanit ADF 2100155000218 BLANTYRE SANITATION MASTER PLAN 21-Apr-92 5-Mar-93 13-Feb-95 677,453.69 677,453.69

- 100.00% Completed

Water/Sanit ADF 2100150000675 DISTRICT WATER SUPPLY III PROJECT 3-Dec-97 27-May-98 23-Dec-99 12,420,000.00 11,216,353.55 0 100.00% Completed

Water/Sanit ADF 2100155000223 DISTRICT CENTRES SANITATION 18-Nov-98 13-Jan-99 1-Aug-00 944,242.81 944,242.81

- 100.00% Completed

Total ADF 56,662,642.01 55,458,995.56 100.00% Water/Sanit Total 56,662,642.01 55,458,995.56 100.00%

Annex 6 Page 1 of 1

Malawi: Smallholder Crop Production and Marketing Project

Implementation Schedule (January 2007 – December 2012)

Activity Period Responsibility 1 Grant Approval June, 2006 ADF Board

2 Grant Signature July/August 2006 ADF/GoM

3 Prepare GPN for publication July 2006 EA/ADF

4 Nominate Interim Project Manager July 2006 EA

5 Set Up Project Steering Committee and hold 1st Meeting

August/September 2006 GoM

6 Open Special Accounts – Foreign and Local August/September 2006 EA 7 Grant Disbursement Effectiveness September 2006 ADF

8 Recruit project technical staff August/October 2006 EA/ADF

9 Project Launching November, 2006 - January, 2007 ADF/GoM

10 Develop and Finalise Procurement Plan and Documents

November 2006 – January, 2007 EA

11 Recruit TAs November – January, 2007 EA

12 Develop Reporting, M&E Arrangements November 2006 - December, 2006 DoI/M&E Specialist

12 Undertake Baseline Study December 2006/January , 2007 DoI / M&E Specialist

14 Conduct Training April, 2007/Continous DoI/Consultants

12 Recruit contractors April 2007 DoI

19 Scheme construction July 2007/Continuous EA

20 Procure Equipment and Other Goods November 2007 EA

22 Monitoring and Reporting/Quarterly Reports 15 Days After end of Each Quarter EA 23 Audit Report 6 Months end of Each Fin. Year EA

24 Mid Term Review January 2010 EA and ADF

25 Project Completion Report April 2013 EA and ADF

Annex 7 Page 1 of 4

Malawi: Smallholder Crop Production and Marketing Project

Environmental and Social Management Plan Summary

Project Title: Smallholder Crop Production and Marketing Project (SCPMP)

Project Number: P-MW-AAC-001

Country: Malawi Environmental Category: 2 Department ONAR Division: ONAR.1

a) Brief description of the project and key environmental and social components

The project’s sector goal is to contribute to poverty reduction through addressing food insecurity in Malawi. The specific objective of the project is to increase agricultural productivity and income revenues of smallholders’ farmers in the targeted 19 districts of Malawi. The expected project results are: 1) to increase the agricultural production and productivity of the smallholders food producers through irrigation development, thereby reducing the effects of climatic variation; 2) to increase the domestic supply of staple crops (especially maize, the main food staple food crop for most of the country’s population) which will improve long-term food security and household nutrition; 3) to increase product quality leading to better prices of farm produces. Induced impact results would be an increase in producers’ incomes, employment’s opportunities, and contribution to the Government’s overall poverty reduction efforts. As well, best practices in relation to agricultural production and environmental/natural resources management will be promoted through the project as well as the institutional strengthening of the key stakeholders in the irrigation sector (Department of Irrigation, District’s Directorate of Agriculture and Natural Resources). The project will comprise three (3) main components and related sub-components and activities. These are: A. Irrigation Development Component, with 2 sub-components: 1) Development of 39 small-scale irrigation schemes in two phases, with a total area of 3,055 ha. Phase I include the development of 28 identified irrigation and drainage schemes (1,550 ha) in 17 districts. Phase II include the technical design and implementation of 11 additional irrigation schemes (1,505) in 5 districts; 2) Implementation of environmental mitigation measures; B. Farmers’ Support Component, with 3 sub-components: 1) Establishment of Scheme Management Units, managed by smallholder farmers organisations, such as Water Users’ Association (WUAs) or Cooperatives, for the sustainable operation and maintenance of irrigation schemes; 2) Agricultural Production, including training in irrigation practices and crop production techniques, technical support to Farmers’ Organizations, support to Extension Services, community development activities, establishment of Savings and Credit Schemes; and 3) Marketing, through capacity building and competitiveness and marketing infrastructure development; C. Project Coordination and Management Component: the Executing Agency for this Project will be the Ministry of Irrigation and Water Development (MoIWD), through the Department of Irrigation (DoI). A technical team will assist the DoI in the day-to-day coordination and monitoring of implementation of the project activities. However, since the main focus of the project activities will be at the District level and that their implementation will be carried out through the existing structure at the District level, a project coordination mechanism at the District level will be established. Specifically, in accordance with the Government’s decentralization policy, a District Management Team (DMT), headed by the District Commissioner, in each of the 19 targeted districts will be responsible for the overall coordination of project activities and the monitoring of the implementation of project activities. In view of insufficient capacity, the day-to-day implementation of project activities will be entrusted to a District Project Officer (DPO) under the guidance of the District Director of Agriculture and Natural Resources. The Directorate of Agriculture Management Team (DAMT), headed by the District Director of Agriculture and Natural Resources, will act as a technical facilitation team for project activities. Membership of the DAMT will include the different Heads of Section, including the District’s Agriculture and Food Security, Irrigation, Forestry, Fishery, Livestock and Environment Officers. Environmental mitigation related activities will also be carried out under this Component.

The project will be undertaken in 19 of the 28 Districts of Malawi, namely, Balaka, Chikwawa, Chitipa, Dedza, Dowa, Karonga, Kasungu, Lilongwe, Machinga, Mangochi, Mchinji, Mzimba, Nkhatabay, Nkhotakota, Nsanje, Ntcheu, Ntchisi, Rumphi, Zomba.

The main direct beneficiaries of the project will include the smallholder’s farmers, the farmers groups, the Water User Associations and Cooperatives. The indirect beneficiaries will include the MoIWD, the Districts authorities and the sector-ministries involved in irrigation development. In particular, the Ministry of Mines, Natural Resources and Environmental Affairs, through the Environmental Affairs Department (EAD), will play in active role in the review and

Annex 7 Page 2 of 4

approval of the comprehensive ESMP for each of the 28 irrigations schemes as well as for the review and approval of the EIA Study and related site-specific ESMP for the 11 additional irrigation schemes identified during the appraisal mission. b) Major environmental and social impacts

Numerous positive social and environmental impacts have been identified within the scope of this project during the preparation of the EIA Study. From a social perspective, the provision of improved and/or reliable irrigation infrastructures will enable farmers to increase agricultural productivity through extended cropping opportunities, to enhance employment creation and related income, to improve food security and rural livelihoods and to reduce vulnerability to droughts. This will impact directly on poverty reduction level in the targeted rural areas and accelerate transition to sustainable agriculture and a dynamic rural economy. The provision of farmers training will induce improved agricultural practices, management and use of natural resources (particularly land and water) as well as reducing long-term conversion of wilderness to cultivated lands, efficient use of agricultural inputs and improved crop diversification. It will also boost trade in agricultural inputs and produce, thereby boosting the agricultural small scale industry. It is worth underlying that the irrigation schemes will open-up opportunities for the participation of women in economic activities, leading to the economic empowerment of the rural communities as a whole. Finally, an improved social cohesion will emerge with the creation of new farmers group and organizations (WUAs and Cooperatives) within the irrigation schemes and related agro-processing facilities. It is worth indicating that there is no displacement and/or resettlement envisioned within the implementation of the project activities. From an environmental perspective, the overall environmental impacts of the SIDP have positive and negative impacts. At first, it is critical to underline that all irrigation fields will be established on existing agricultural fields which have been under rain-fed irrigation. The positive impacts will mainly benefit the human environment and mostly during the operation phase (see above). Most of the negative impacts are anticipated during the construction phase. However, with appropriate mitigation measures, the potential negative impacts can be reduced. Specifically, positive impacts during the construction phase will include the creation of employment for construction workers. Potential negative impacts from construction activities will include excavation and movement of soil, land clearing and removal of trees, potential siltation of water courses, hydrology and water flow changes in river systems, water and soil pollution from construction campsites and construction machinery, impact on natural resources (deforestation). During the operation phase, potential negative impacts include irrigation-induced erosion, permanent change in hydrology and water resources for downstream ecosystems, flooding, loss of water through earth feeder canals, surface and groundwater contamination y fertilizers and pesticides, human and wildlife conflict, invasive weeds and crop diseases, increase incidence of water-borne and related water related diseases (e.g. malaria, bilharzias) and riparian water and land conflicts. c) Enhancement and mitigation program

Taking into account the overall positive contribution of the project’s activities towards the promotion of environmentally sound agriculture development, especially as it relates to irrigation development, a number of specific enhancement and mitigation measures at the institutional and operational levels have been proposed in order to optimize the overall environmental performance of the project.

1) Site-specific Environmental and Social Management and Monitoring Plans have been prepared for each of the identified 28 irrigation schemes during the technical design. Preliminary mitigation measures, identification of the role and responsibilities of institutions at national and district levels and, finally, financial resources have been provided to ensure full compliance with these Plans. For the 11 additional irrigation schemes identified by the GoM during the appraisal mission, in accordance with Malawi’s Environmental Management Act (1996) and its Guidelines for EIA (1997), an EIA Study and related site-specific ESMP will be prepared during their technical design; since most of the negative environmental impacts are anticipated during the construction phase and result directly from methods and practices adopted by construction contractors, Code of Good Practices for Construction have been included in the Work Contract. During the operational phase, a lump sum has been provided for each irrigation scheme for the implementation of environmental/natural resources measures (from prevention of soil erosion, eutrophication and invasive weeds, promotion of agro-forestry and protection of catchments areas, promotion of aquaculture, prevention of water-borne diseases and HIV/AIDS). EIA Studies and ESMP will be in compliance with the Malawi’s Environmental Management Act (1996) and related Guidelines for EIA (1997) and Bank’s Environmental and Social Assessment Procedures. No physical works will start prior to official issuance of the EIA and Environmental Management Certificate by Malawi’s EAD;

Annex 7 Page 3 of 4

2) An internationally-recruited Environmental Consultant will finalize the comprehensive ESMP for the 28 already identified irrigation schemes, will prepare the EIA Study and related site-specific ESMP for the additional 11 irrigation schemes. His/her ToRs will also address social issues. Considering the limited institutional capacity of the EAD and the District’s Environmental Officer, he/she will provide independent monitoring/review/audit of the implementation of the site-specific ESMP during the first four years of the project operation as well as providing on-going training on Environmental Management and Monitoring Plans at the national and district level. He/she will closely work with the Monitoring and Evaluation Officer for the preparation of the Annual Environmental Work Plan and its semestrial implementation progress report;

3) The Farmer Support Program, 2nd Component of this project, is specifically designed to enhance the sustainability of the project by creating sufficient momentum and capacity among individuals’ farmers, farmers’ groups and Water Users’ Association to carry on with their activities beyond project duration. Specifically, regular and tailor made training courses will be provided at all the irrigation schemes. These courses will address sustainable water management, environmental management (water catchments protection, agro-forestry, soil conservation), crop management and related Integrated Pest Management (IPM), hygiene and sanitation (including water borne diseases), waste management, etc. ; and, finally,

4) In view of the limited institutional capacity at the District level in relation to environmental management, provision of technical (through the above mentioned environmental consultant and active involvement of EAD in project implementation) and financial assistance will be provided to the District Environmental Unit to ensure on-going environmental monitoring of the implementation of the ESMP and mitigation measures at site level as well as to ensure functional and effective coordination with the District’s health, agriculture, forestry and irrigation officers.

d) Monitoring program and complementary initiatives

Environmental monitoring is a requirement of irrigation development projects in order to check that planned mitigation measures have been implemented, to measure their level of effectiveness and to provide early warning of environmental change. Monitoring activities for this project are being proposed at different levels: 1) In accordance with the Environmental Management Act (EMA) and related Government Notice No.10 of August

2004, the MoIWD is required to pay EIA processing fees to the Environmental Affairs Department for undertaking the technical review of the EIA Studies and related site-specific ESMP, with the technical assistance of the Technical Committee on Environment and, most importantly to undertake semestrial/annual monitoring/auditing of the implementation of site-specific ESMP during project duration. This monitoring will allow to validate the conformity of the project with the EIA Certificate and the site specific Environmental Management Certificate and any specific Terms and Conditions. This monitoring team will be composed of EAD and sector-ministries, such as Ministry of Health, Agriculture, Water Resources Board, Land Resources and Conservation Department, etc..The EAD will also play in active role in the mainstreaming of environmental considerations through its involvement in the review of ESMP’s Annual Work Plan and their review and approval by the Project Steering Committee (PSC);

2) At the District level, as mentioned above, under the supervision of the Director of Agriculture and Natural Resources, the District’s Environmental Officer will be responsible for the on-going monitoring of the implementation of mitigation measures as outlined in the comprehensive site-specific ESMP and related Annual Work Plan during the operational phase and the coordination with District’s sector specialists. Site-specific ESMP will include a baseline study of the biophysical and social environment and environmental and social performance indicators. Any corrective recommendations/actions will be provided to the District’s Director of Agriculture for further discussion with the District’s Project Officer and the DoI’s Project Coordinator;

3) At scheme level, considering the diversity of the ecosystems within which each of the 39 irrigation schemes are proposed, specific environmental monitoring indicators will be suggested in each site-specific ESMP in accordance with the biophysical and social specificity of each site. Indicators that may be used for monitoring purposes include, among others, the following parameters: general conditions of the infrastructure, general condition around the infrastructure, soil erosion and gulleying, organic, chemical and bacteriological pollution, ponding and floral/fauna composition, incidence of water-borne diseases, use of chemical fertilizers and pesticides, water quality, ecological effects of pesticide use, human and animal safety, etc.. Through the Farmer Support Program, training will be also provided to the Water User Association and Cooperative to undertake environmental monitoring.

e) Institutional arrangements and capacity building requirements

The Ministry of Irrigation and Water Development (MIWD) will be the official executing agency of the project, through the Department of Irrigation (DoI). Considering the modest internal institutional capacities of the DoI, the Project will be implemented with the assistance of a technical team in the day-to-day coordination and monitoring of

Annex 7 Page 4 of 4

the project activities. Specifically, the Monitoring and Evaluation officer will have the overall responsibilities to ensure that site-specific ESMP are implemented. He/she, with the technical support of the EAD, the District’s Environmental Officer and the internationally-recruited environmental consultant, will ensure that the project and site-specific Annual Work Plan and Progress Report fully mainstreamed the environmental considerations during project’s construction and operation phases.

In accordance with Malawi’s Environmental Management Act and the EIA’s Guidelines, the Environmental Affairs Department (EAD) will be responsible for approving EIA study and site-specific ESMP, to deliver EIA and the Environmental Management Certificate and, finally, to monitor and audit the implementation of the ESMP. EAD, through the participation of the representatives from the Technical Committee on the Environment will ensure that all social and environmental impacts from irrigation activities (soil, water quality, health, agriculture) will be dealt by sector ministries and District’s technical specialists. It is worth mentioning that the project will strengthen the institutional capacities of the targeted smallholders’ farmers, MoIWD and its Department of Irrigation, the District’s Directorate of Agriculture and Natural Resources, and the private agriculture sector services providers in promoting environmentally-sound smallholder agricultural development. The EAD (EIA Unit) and the Technical Committee on Environment (TCE) will also be strengthened in the promotion of sound agricultural development through their active involvement in the review and approval of the EIA and related site-specific ESMP and their active involvement in the semestrial monitoring/auditing of the implementation of the ESMP. f) Public consultation and disclosure requirements

During the preparation of the feasibility studies for the 28 identified irrigation schemes, field work in Phase I and II have promoted the use of Participatory Rural Appraisal (PRA) in order to identify and assess critical environmental and social issues with the farmers (e.g. land tenure, water sources, areas of bush/forest, cropped and grazing land). During Phase III of the Study which included the preparation of the EIA Study, further consultations were held to identify potential environmental and social impacts of the proposed engineering interventions and design mitigation measures. Their views have been incorporated in the irrigation scheme design, including in the design of the ESMP. As the final design of the 28 identified irrigation schemes will be updated/finalized at project inception, while the design of the 11 new irrigation schemes will be initiated in the early project stages, the consultation process with the beneficiaries will be re-initiated in order to update the mitigation measures and to ensure their mainstreaming into the final technical design.

g) Estimated cost

The costs for mainstreaming environmental and social mitigation and monitoring measures are estimated at U.S. $545,610 over the six-year project implementation period. Specifically, the costs of the EIA processing fees (and related monitoring/auditing by EAD) is estimated at $20,000 for the 39 irrigation schemes, the recruitment of the International consultant for 9 months spread over a period of 5 years is estimated at $90,000, the implementation of specific mitigation measures for all the irrigation schemes is estimated at $390,000, the institutional strengthening of the District Environmental Unit for ensuring on-going monitoring of site-specific ESMP at $45,600 and finally, the undertaking of a end-of-project Environmental Audit at $10,000. In-kind contribution from the District Authorities for the professional services of the District’s Environmental Officer is estimated at $22,800 for the project’s duration It is worth indicating that the environmental impacts during the construction phases have already been mainstreamed in the project design and the Tender documents for the contractor. As well, significant environmental enhancement measures have been mainstreamed into the Farmers Support Program (promotion of environmentally-sound agricultural production, namely the handling of pesticides, application of IPM, soil fertility maintenance plan, maintenance of environmental flows for downstream ecosystems, etc.). h) Implementation schedule and reporting

The measures outlined in the ESMP will be implemented following the same project schedule as all activities were mainstreamed into the project design and implementation. Achievements or problems will be reported in the project quarterly/annual progress reports and should be timely addressed by the project management and the Bank.

Annex 8 Page 1 of 1

Malawi: Smallholder Crop Production and Marketing Project

Supervision Schedule during Implementation Launching of the project : January 2007 Supervision : June 2007 Supervision : December 2007 Supervision : June 2008 Supervision : December 2008 Supervision : June 2009 Mid-Term Review : December 2009 Supervision : June 2010 Supervision : December 2010 Supervision : June 2011 Supervision : December 2011 Supervision : June 2012 Supervision : December 2012 Project Completion Report : April 2013

Annex 9 Page 1 of 1

Malawi: Smallholder Crop Production and Marketing Project

Highlights on the Project Preparation and Review Process

1. Project Identification and Preparation: The Project was identified during the course of the Bank-financed Small-scale Irrigation Development Study (SSIDS). The project preparation study was carried out at national level by a consulting company and was undertaken in three phases, as follows:

• Phase I, the planning phase, resulted in a report, submitted in December 2001, which identified five Projects, consisting of 39 irrigation Schemes, for further evaluation.

• Phase II, the Feasibility Study, involved fieldwork between August and November 2002 with a report submitted in April 2003. The findings of the Phase II Feasibility Study were presented and discussed at a National workshop held in July 2003.

• Phase III involved the detailed engineering designs and bidding documents of the Projects. The report was completed in March 2004.

• The overall project framework was further discussed and agreed with the Government of Malawi during a Bank mission that visited Malawi in October 2005.

2. Project Appraisal: The project was appraised in February 2006 by a team comprising of an Agronomist, an Agricultural Economist, an Irrigation Engineer, an Environmental Specialist, a Financial Analyst, a Consultant Marketing Specialist and a Consultant Civil Engineer. The mission visited a number of irrigation scheme sites and held detailed discussions with district officials, farmers, traders and the local communities. The mission also met other donors involved in irrigation development in Malawi. A systematic review and verification of all aspects of the project was conducted by the mission. 3. Internal Working Group: The internal review meeting that considered the project appraisal report was held on 27 March 2006. The report was carefully revised based on all comments received, and processed further in accordance with the requirements of the Bank Group’s Operations Manual. 4. Inter-Departmental Working Group: The inter-departmental working group meeting that considered the project appraisal report was held on 20 April 2006. The report was revised based on all comments received, and processed further in accordance with the requirements of the Bank Group’s Operations Manual. 5. Review by POPR: The report was submitted to POPR on 27 April, 2006 for review. POPR reviewed and cleared the report for submission to the SMC on 4 May 2006.

6. Senior Management Committee: The SMC was held on 11 May, 2006. Comments received were duly incorporated in the report, and on advice of the SMC, the report has been submitted to SEGL for translation and distribution to the Board.

Annex 10 Page 1 of 1

Malawi: Status of Audit Reports and Project Completion Reports

There are two Audit Reports currently under preparation in the agricultural sector:

− Horticulture and Food Crops Development Project − Macadamia Smallholder Development Project

There is one Project Completion Report outstanding for in the agricultural sector:

− Mwanza Rural Development Project