~ WORLD BANK (IBRD) INTER-AMERICAN DEVELOPMENT BANK (IDB)

UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT (AID)

~ WORKING PAPERS

REPORT NO 97l-HOFILE COpy

HONDURAS

AGRICULTURALRURAL SECTOR SURVEY

(In Four Volumes)

Volume I

General Report

January 1978

Document of World Bank Latin American and The Caribbean Regional Office Projects Department (Agriculture)

This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be diclosed without the authorization of the World Bank IDB AID or the Government of Honduras

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Conversion RatelL

Currelcy Unit Lempira (L)

05$($) 050 bull L 100

$100 - L200 shyIITon (t) IJl~trlc ton (unless other-dse specLfied)

Quintal (qq) 100 pounds (lb)

Manzana (liZ) = 07 hectare (ha) approxilll8tely

Hectare (ha) bull 247 acres

TABLE OF CONTENTS

Page No

PREFACE

I THE NEED FOR CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 1

Sector Performance and Characteristics bullbullbullbullbullbullbullbullbullbullbull 2 Foreign Trade bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 3 Rural Population and Living Levels bullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 7 Public Expenditures bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 10 Balance of Payments Outlook bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 10 Conclusions bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 12

II OPPORTUNITIES FOR CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 13

The Natural Resource Base bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 13 Land Use and Yields bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 14 Conclusions 16

III CONSTRAINTS ON CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 17

The Public Administration bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 17 Trained Manpower bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 20 Roads bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 22 Research and Extension bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 23 Improved Seed and Modern Inputs bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 24 Credit 25 Marketing and Pricing bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 26 Conclusions bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 28

IV THE PROSPECTS FOR CHANGE 29

Land Redistribution and Forest Management bullbullbullbullbullbullbullbull 29 Finance for Rural Development bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 29 Conclusions 31

V JUDGEMENTS AND SUGGESTIONS 32

P~int One The Landless and the Small Farmers 32 34 35 36

Point Two Forestry Development bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull Point Three The Commercial Farm Subsector bullbullbullbullbullbullbull Point Four Rural Roads bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull

Point Six

Administrative Reform and Personnel Development bullbullbullbullbullbullbullbullbullbullbullbullbull 36

Research Extension and

Point Five

Improved Seed bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 39

TABLE OF CONTENTS (Continued)

Page No

V JUDGEMENTS AND SUGGESTIONS (Continued)

Point Seven A Rice Project bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Eight Irrigation Drainage and

Flood Control bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Nine Agro-Industry bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Ten Fisheries bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Eleven Product Demand Estimates bullbullbullbullbullbullbullbull 43 Point Twelve Credit and the BANAFOM bullbullbullbullbullbullbullbullbullbull 44 Point Thirteen Grain Storage Facilities bullbullbullbullbullbullbullbull 44

VI FOREIGN SUPPORT FOR THE RURAL SECTOR bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45

Project Possibilities bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45 The Management of Foreign Support bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 50

MAPS

No 11146 Relief and Transportation No 11147 Rainfall Watersheds Irrigation and Electrification No 11148 Land Use Potential No 11149 Forests and Forest Industries No 11150 Agrarian Reform Sites Farm Credit Offices Grain Storage

Facilities and Proposed Research-Extension Activities

ANNEXES

1 The Natural Resource Base for Agriculture 2 The Demand Outlook for Farm Products 3 Regional and International Trade Trends in Honduran

Agricultural Commodities 4 Land Tenure and Agrarian Reform 5 Expansion Possibilities in Forestry 6 Fisheries 7 Agricultural Credit 8 Irrigation 9 Roads and Other Rural Infrastructure

10 Expanding Agro-Industry (and Handicrafts) 11 Education and Training in Agriculture 12 Agricultural Product Marketing and Pricing 13 Public Finance for Rural Development 14 Technical Assistance for Rural Development 15 The Organization and Administration of the Public Services

to Agriculture

STATISTICAL ANNEX

PREFACE

This document reproduces for purposes of convenient reference the working papers prepared by a joint AIDIDBlIBRD agriculturalrural sector survey mission which visited Honduras in 1974 These papers were discussed with Government officials in May of 1976 and a follow-up discussion took place in March of 1977 Representatives of CIDA (Canada) UNDP CABEI IICAOAS and other interested agencies took part in the latter discussion

The document is in four volumes

Vol I - The General (Summary) Report (English) Vol II - The General (Summary) Report (Spanish) Vol III - Annexes 1-7 (English) and Vol IV - Annexes 8-15 (English)

The purpose of the mission was to assist the Government in studying its strategy policies programs and prpjects for increasing agricultural production and improving rural living levels The study was intended to provide a basis for a continuing dialogue between the Government and foreign assistance agencies concerning the developshyment of the rural sector of the Honduran economy

The papers are selective in coverage and judgmental in nature The General Report outlines the broad background and reasoning leading to the principal observations and major findings and suggestions Statistical data and more detailed comment are presented in the Annexes

The mission is grateful for the support received from the Government and the private sector in preparing the papers and for the highly constructive response of the Government to the mission proposals

January 1978

nmICE

FREFACIO bull Parrafo

I ~ESIDAD DE CAl1BIO Desempe~o y caracteristicas del sector 12 Poblacion rural y nivel ~e vida 124 Gastos publicos 134 Perspectivas de la balanza de pagos --t 137 Conclusiones e_~ tt 142

II OPORIUtmAD~S DE CAMBIO Base de recursos naturales 22 Usos y rendimiento de las tierras 28 Conclusiones 212 ---- m RESTRICCIONES QUE SE OPONEN AL CAMBIO

La Administracion publica 3-2 Personal calificado 317 Carreteras y caminos 327 Investigacion y extension 330 Semillas mejoradas e insumos modernos 343 eredito 3h8 Comercializacion y precios 356 Conclusiones 363

- -_IV- PERSDFrTViI~ Tii ~MBTO

Redistribucion de las tierras y manejo de los bosques 42

F1nan~iacion del desarrollo rural 44 Conclusiones h13

__ ~h__v -mICIOS y SUGERENCIAS

Punto-l Campesinos sin tierras y pequenos S-3-shy__ _ agricultores

Punto 2 Desarrollo forestal 51S Punto 3 El subsector de la agricultura

comercial S16 Punto 4 Caminos rurales 523 punto 5 Reforma administrativa y capacitacion

del personal S25 Funto 6 Investigacion servicios de extension

y semillas mejoradas 539 Punto 7 Un proyecto arrocero 546 Funto P Riego drenaje y proteccion contra

inundaciones 548 ~~

Funto 9 Agroindustrias 551 Funto 10 Pesca 552 runto 11 CUculo de 1a demenda de productos 553 Punto 12 E1 credito yel BANAFOM 554 Funto 13 Instalaciones de almacenamiento para

granos 556

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VI ASISTENCIAEXTERNA AI SECTOR RURAL fosibles p~yectos 62

622Admiristracion de la asistencia externa

AFraquoDICE 1

Una lternativa lara La Estrategia del Desarrollo JgricolaRural y El Programa de tsistetJeis middotExterna

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yenAPAS-Iro 11146 Relieve y Transportes lIo 11147 Frecipitacion fluvial Cuencas

HidrograticasmiddotRiego y Electriiicacion

No 11148 Uso Fotencial de la Tierra ~o 11149 Bosques e Industrias Forestales

No 11150 Lugares de Reforma Agraria Cficinas de Credito Agricola e Instalaciones de Almacenamiento para Granos

ANEXOS

1 Los RecursosmiddotNaturales como Base para la Agricultura 2 Proyecciones de la Demanda de productos Agropecuarios 3 Tendeneias del Comereio R~gional e Internacional de

-~roductos Agricolsects en Honduras 4 Ten~1c~a de la Tierra y la Reformamiddot Agraria5 FosibUidades de Expansion Forestal 6 Pesea 7 Credito Agricola P Riego 9 Caminos e Infraestructura Rural

10 Expansidn de la Agro-Indusliria (y Artesanias) 11 Educacion y Capaeitacion en Agrieultura 12 Mercadeo y Preeios de los Froduetos Agricolas 13 Financiamiento Fublico para el Desarrollo Rural 14 Asistencia Teeniea para el Desarrollo Rural 15 La Organizaeion y Administracion de los Servicios

Publicos para la Agricultura

Anexo Estadistico

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

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El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

~

Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

bull

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

Conversion RatelL

Currelcy Unit Lempira (L)

05$($) 050 bull L 100

$100 - L200 shyIITon (t) IJl~trlc ton (unless other-dse specLfied)

Quintal (qq) 100 pounds (lb)

Manzana (liZ) = 07 hectare (ha) approxilll8tely

Hectare (ha) bull 247 acres

TABLE OF CONTENTS

Page No

PREFACE

I THE NEED FOR CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 1

Sector Performance and Characteristics bullbullbullbullbullbullbullbullbullbullbull 2 Foreign Trade bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 3 Rural Population and Living Levels bullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 7 Public Expenditures bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 10 Balance of Payments Outlook bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 10 Conclusions bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 12

II OPPORTUNITIES FOR CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 13

The Natural Resource Base bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 13 Land Use and Yields bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 14 Conclusions 16

III CONSTRAINTS ON CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 17

The Public Administration bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 17 Trained Manpower bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 20 Roads bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 22 Research and Extension bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 23 Improved Seed and Modern Inputs bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 24 Credit 25 Marketing and Pricing bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 26 Conclusions bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 28

IV THE PROSPECTS FOR CHANGE 29

Land Redistribution and Forest Management bullbullbullbullbullbullbullbull 29 Finance for Rural Development bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 29 Conclusions 31

V JUDGEMENTS AND SUGGESTIONS 32

P~int One The Landless and the Small Farmers 32 34 35 36

Point Two Forestry Development bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull Point Three The Commercial Farm Subsector bullbullbullbullbullbullbull Point Four Rural Roads bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull

Point Six

Administrative Reform and Personnel Development bullbullbullbullbullbullbullbullbullbullbullbullbull 36

Research Extension and

Point Five

Improved Seed bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 39

TABLE OF CONTENTS (Continued)

Page No

V JUDGEMENTS AND SUGGESTIONS (Continued)

Point Seven A Rice Project bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Eight Irrigation Drainage and

Flood Control bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Nine Agro-Industry bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Ten Fisheries bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Eleven Product Demand Estimates bullbullbullbullbullbullbullbull 43 Point Twelve Credit and the BANAFOM bullbullbullbullbullbullbullbullbullbull 44 Point Thirteen Grain Storage Facilities bullbullbullbullbullbullbullbull 44

VI FOREIGN SUPPORT FOR THE RURAL SECTOR bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45

Project Possibilities bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45 The Management of Foreign Support bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 50

MAPS

No 11146 Relief and Transportation No 11147 Rainfall Watersheds Irrigation and Electrification No 11148 Land Use Potential No 11149 Forests and Forest Industries No 11150 Agrarian Reform Sites Farm Credit Offices Grain Storage

Facilities and Proposed Research-Extension Activities

ANNEXES

1 The Natural Resource Base for Agriculture 2 The Demand Outlook for Farm Products 3 Regional and International Trade Trends in Honduran

Agricultural Commodities 4 Land Tenure and Agrarian Reform 5 Expansion Possibilities in Forestry 6 Fisheries 7 Agricultural Credit 8 Irrigation 9 Roads and Other Rural Infrastructure

10 Expanding Agro-Industry (and Handicrafts) 11 Education and Training in Agriculture 12 Agricultural Product Marketing and Pricing 13 Public Finance for Rural Development 14 Technical Assistance for Rural Development 15 The Organization and Administration of the Public Services

to Agriculture

STATISTICAL ANNEX

PREFACE

This document reproduces for purposes of convenient reference the working papers prepared by a joint AIDIDBlIBRD agriculturalrural sector survey mission which visited Honduras in 1974 These papers were discussed with Government officials in May of 1976 and a follow-up discussion took place in March of 1977 Representatives of CIDA (Canada) UNDP CABEI IICAOAS and other interested agencies took part in the latter discussion

The document is in four volumes

Vol I - The General (Summary) Report (English) Vol II - The General (Summary) Report (Spanish) Vol III - Annexes 1-7 (English) and Vol IV - Annexes 8-15 (English)

The purpose of the mission was to assist the Government in studying its strategy policies programs and prpjects for increasing agricultural production and improving rural living levels The study was intended to provide a basis for a continuing dialogue between the Government and foreign assistance agencies concerning the developshyment of the rural sector of the Honduran economy

The papers are selective in coverage and judgmental in nature The General Report outlines the broad background and reasoning leading to the principal observations and major findings and suggestions Statistical data and more detailed comment are presented in the Annexes

The mission is grateful for the support received from the Government and the private sector in preparing the papers and for the highly constructive response of the Government to the mission proposals

January 1978

nmICE

FREFACIO bull Parrafo

I ~ESIDAD DE CAl1BIO Desempe~o y caracteristicas del sector 12 Poblacion rural y nivel ~e vida 124 Gastos publicos 134 Perspectivas de la balanza de pagos --t 137 Conclusiones e_~ tt 142

II OPORIUtmAD~S DE CAMBIO Base de recursos naturales 22 Usos y rendimiento de las tierras 28 Conclusiones 212 ---- m RESTRICCIONES QUE SE OPONEN AL CAMBIO

La Administracion publica 3-2 Personal calificado 317 Carreteras y caminos 327 Investigacion y extension 330 Semillas mejoradas e insumos modernos 343 eredito 3h8 Comercializacion y precios 356 Conclusiones 363

- -_IV- PERSDFrTViI~ Tii ~MBTO

Redistribucion de las tierras y manejo de los bosques 42

F1nan~iacion del desarrollo rural 44 Conclusiones h13

__ ~h__v -mICIOS y SUGERENCIAS

Punto-l Campesinos sin tierras y pequenos S-3-shy__ _ agricultores

Punto 2 Desarrollo forestal 51S Punto 3 El subsector de la agricultura

comercial S16 Punto 4 Caminos rurales 523 punto 5 Reforma administrativa y capacitacion

del personal S25 Funto 6 Investigacion servicios de extension

y semillas mejoradas 539 Punto 7 Un proyecto arrocero 546 Funto P Riego drenaje y proteccion contra

inundaciones 548 ~~

Funto 9 Agroindustrias 551 Funto 10 Pesca 552 runto 11 CUculo de 1a demenda de productos 553 Punto 12 E1 credito yel BANAFOM 554 Funto 13 Instalaciones de almacenamiento para

granos 556

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VI ASISTENCIAEXTERNA AI SECTOR RURAL fosibles p~yectos 62

622Admiristracion de la asistencia externa

AFraquoDICE 1

Una lternativa lara La Estrategia del Desarrollo JgricolaRural y El Programa de tsistetJeis middotExterna

- ~--~

yenAPAS-Iro 11146 Relieve y Transportes lIo 11147 Frecipitacion fluvial Cuencas

HidrograticasmiddotRiego y Electriiicacion

No 11148 Uso Fotencial de la Tierra ~o 11149 Bosques e Industrias Forestales

No 11150 Lugares de Reforma Agraria Cficinas de Credito Agricola e Instalaciones de Almacenamiento para Granos

ANEXOS

1 Los RecursosmiddotNaturales como Base para la Agricultura 2 Proyecciones de la Demanda de productos Agropecuarios 3 Tendeneias del Comereio R~gional e Internacional de

-~roductos Agricolsects en Honduras 4 Ten~1c~a de la Tierra y la Reformamiddot Agraria5 FosibUidades de Expansion Forestal 6 Pesea 7 Credito Agricola P Riego 9 Caminos e Infraestructura Rural

10 Expansidn de la Agro-Indusliria (y Artesanias) 11 Educacion y Capaeitacion en Agrieultura 12 Mercadeo y Preeios de los Froduetos Agricolas 13 Financiamiento Fublico para el Desarrollo Rural 14 Asistencia Teeniea para el Desarrollo Rural 15 La Organizaeion y Administracion de los Servicios

Publicos para la Agricultura

Anexo Estadistico

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

- -- - ~_

El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

~

Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

TABLE OF CONTENTS

Page No

PREFACE

I THE NEED FOR CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 1

Sector Performance and Characteristics bullbullbullbullbullbullbullbullbullbullbull 2 Foreign Trade bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 3 Rural Population and Living Levels bullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 7 Public Expenditures bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 10 Balance of Payments Outlook bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 10 Conclusions bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 12

II OPPORTUNITIES FOR CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 13

The Natural Resource Base bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 13 Land Use and Yields bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 14 Conclusions 16

III CONSTRAINTS ON CHANGE bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 17

The Public Administration bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 17 Trained Manpower bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 20 Roads bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 22 Research and Extension bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 23 Improved Seed and Modern Inputs bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 24 Credit 25 Marketing and Pricing bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 26 Conclusions bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 28

IV THE PROSPECTS FOR CHANGE 29

Land Redistribution and Forest Management bullbullbullbullbullbullbullbull 29 Finance for Rural Development bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 29 Conclusions 31

V JUDGEMENTS AND SUGGESTIONS 32

P~int One The Landless and the Small Farmers 32 34 35 36

Point Two Forestry Development bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull Point Three The Commercial Farm Subsector bullbullbullbullbullbullbull Point Four Rural Roads bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull

Point Six

Administrative Reform and Personnel Development bullbullbullbullbullbullbullbullbullbullbullbullbull 36

Research Extension and

Point Five

Improved Seed bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 39

TABLE OF CONTENTS (Continued)

Page No

V JUDGEMENTS AND SUGGESTIONS (Continued)

Point Seven A Rice Project bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Eight Irrigation Drainage and

Flood Control bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Nine Agro-Industry bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Ten Fisheries bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Eleven Product Demand Estimates bullbullbullbullbullbullbullbull 43 Point Twelve Credit and the BANAFOM bullbullbullbullbullbullbullbullbullbull 44 Point Thirteen Grain Storage Facilities bullbullbullbullbullbullbullbull 44

VI FOREIGN SUPPORT FOR THE RURAL SECTOR bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45

Project Possibilities bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45 The Management of Foreign Support bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 50

MAPS

No 11146 Relief and Transportation No 11147 Rainfall Watersheds Irrigation and Electrification No 11148 Land Use Potential No 11149 Forests and Forest Industries No 11150 Agrarian Reform Sites Farm Credit Offices Grain Storage

Facilities and Proposed Research-Extension Activities

ANNEXES

1 The Natural Resource Base for Agriculture 2 The Demand Outlook for Farm Products 3 Regional and International Trade Trends in Honduran

Agricultural Commodities 4 Land Tenure and Agrarian Reform 5 Expansion Possibilities in Forestry 6 Fisheries 7 Agricultural Credit 8 Irrigation 9 Roads and Other Rural Infrastructure

10 Expanding Agro-Industry (and Handicrafts) 11 Education and Training in Agriculture 12 Agricultural Product Marketing and Pricing 13 Public Finance for Rural Development 14 Technical Assistance for Rural Development 15 The Organization and Administration of the Public Services

to Agriculture

STATISTICAL ANNEX

PREFACE

This document reproduces for purposes of convenient reference the working papers prepared by a joint AIDIDBlIBRD agriculturalrural sector survey mission which visited Honduras in 1974 These papers were discussed with Government officials in May of 1976 and a follow-up discussion took place in March of 1977 Representatives of CIDA (Canada) UNDP CABEI IICAOAS and other interested agencies took part in the latter discussion

The document is in four volumes

Vol I - The General (Summary) Report (English) Vol II - The General (Summary) Report (Spanish) Vol III - Annexes 1-7 (English) and Vol IV - Annexes 8-15 (English)

The purpose of the mission was to assist the Government in studying its strategy policies programs and prpjects for increasing agricultural production and improving rural living levels The study was intended to provide a basis for a continuing dialogue between the Government and foreign assistance agencies concerning the developshyment of the rural sector of the Honduran economy

The papers are selective in coverage and judgmental in nature The General Report outlines the broad background and reasoning leading to the principal observations and major findings and suggestions Statistical data and more detailed comment are presented in the Annexes

The mission is grateful for the support received from the Government and the private sector in preparing the papers and for the highly constructive response of the Government to the mission proposals

January 1978

nmICE

FREFACIO bull Parrafo

I ~ESIDAD DE CAl1BIO Desempe~o y caracteristicas del sector 12 Poblacion rural y nivel ~e vida 124 Gastos publicos 134 Perspectivas de la balanza de pagos --t 137 Conclusiones e_~ tt 142

II OPORIUtmAD~S DE CAMBIO Base de recursos naturales 22 Usos y rendimiento de las tierras 28 Conclusiones 212 ---- m RESTRICCIONES QUE SE OPONEN AL CAMBIO

La Administracion publica 3-2 Personal calificado 317 Carreteras y caminos 327 Investigacion y extension 330 Semillas mejoradas e insumos modernos 343 eredito 3h8 Comercializacion y precios 356 Conclusiones 363

- -_IV- PERSDFrTViI~ Tii ~MBTO

Redistribucion de las tierras y manejo de los bosques 42

F1nan~iacion del desarrollo rural 44 Conclusiones h13

__ ~h__v -mICIOS y SUGERENCIAS

Punto-l Campesinos sin tierras y pequenos S-3-shy__ _ agricultores

Punto 2 Desarrollo forestal 51S Punto 3 El subsector de la agricultura

comercial S16 Punto 4 Caminos rurales 523 punto 5 Reforma administrativa y capacitacion

del personal S25 Funto 6 Investigacion servicios de extension

y semillas mejoradas 539 Punto 7 Un proyecto arrocero 546 Funto P Riego drenaje y proteccion contra

inundaciones 548 ~~

Funto 9 Agroindustrias 551 Funto 10 Pesca 552 runto 11 CUculo de 1a demenda de productos 553 Punto 12 E1 credito yel BANAFOM 554 Funto 13 Instalaciones de almacenamiento para

granos 556

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VI ASISTENCIAEXTERNA AI SECTOR RURAL fosibles p~yectos 62

622Admiristracion de la asistencia externa

AFraquoDICE 1

Una lternativa lara La Estrategia del Desarrollo JgricolaRural y El Programa de tsistetJeis middotExterna

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yenAPAS-Iro 11146 Relieve y Transportes lIo 11147 Frecipitacion fluvial Cuencas

HidrograticasmiddotRiego y Electriiicacion

No 11148 Uso Fotencial de la Tierra ~o 11149 Bosques e Industrias Forestales

No 11150 Lugares de Reforma Agraria Cficinas de Credito Agricola e Instalaciones de Almacenamiento para Granos

ANEXOS

1 Los RecursosmiddotNaturales como Base para la Agricultura 2 Proyecciones de la Demanda de productos Agropecuarios 3 Tendeneias del Comereio R~gional e Internacional de

-~roductos Agricolsects en Honduras 4 Ten~1c~a de la Tierra y la Reformamiddot Agraria5 FosibUidades de Expansion Forestal 6 Pesea 7 Credito Agricola P Riego 9 Caminos e Infraestructura Rural

10 Expansidn de la Agro-Indusliria (y Artesanias) 11 Educacion y Capaeitacion en Agrieultura 12 Mercadeo y Preeios de los Froduetos Agricolas 13 Financiamiento Fublico para el Desarrollo Rural 14 Asistencia Teeniea para el Desarrollo Rural 15 La Organizaeion y Administracion de los Servicios

Publicos para la Agricultura

Anexo Estadistico

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

- -- - ~_

El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

~

Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

TABLE OF CONTENTS (Continued)

Page No

V JUDGEMENTS AND SUGGESTIONS (Continued)

Point Seven A Rice Project bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Eight Irrigation Drainage and

Flood Control bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 42 Point Nine Agro-Industry bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Ten Fisheries bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 43 Point Eleven Product Demand Estimates bullbullbullbullbullbullbullbull 43 Point Twelve Credit and the BANAFOM bullbullbullbullbullbullbullbullbullbull 44 Point Thirteen Grain Storage Facilities bullbullbullbullbullbullbullbull 44

VI FOREIGN SUPPORT FOR THE RURAL SECTOR bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45

Project Possibilities bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 45 The Management of Foreign Support bullbullbullbullbullbullbullbullbullbullbullbullbullbullbullbull 50

MAPS

No 11146 Relief and Transportation No 11147 Rainfall Watersheds Irrigation and Electrification No 11148 Land Use Potential No 11149 Forests and Forest Industries No 11150 Agrarian Reform Sites Farm Credit Offices Grain Storage

Facilities and Proposed Research-Extension Activities

ANNEXES

1 The Natural Resource Base for Agriculture 2 The Demand Outlook for Farm Products 3 Regional and International Trade Trends in Honduran

Agricultural Commodities 4 Land Tenure and Agrarian Reform 5 Expansion Possibilities in Forestry 6 Fisheries 7 Agricultural Credit 8 Irrigation 9 Roads and Other Rural Infrastructure

10 Expanding Agro-Industry (and Handicrafts) 11 Education and Training in Agriculture 12 Agricultural Product Marketing and Pricing 13 Public Finance for Rural Development 14 Technical Assistance for Rural Development 15 The Organization and Administration of the Public Services

to Agriculture

STATISTICAL ANNEX

PREFACE

This document reproduces for purposes of convenient reference the working papers prepared by a joint AIDIDBlIBRD agriculturalrural sector survey mission which visited Honduras in 1974 These papers were discussed with Government officials in May of 1976 and a follow-up discussion took place in March of 1977 Representatives of CIDA (Canada) UNDP CABEI IICAOAS and other interested agencies took part in the latter discussion

The document is in four volumes

Vol I - The General (Summary) Report (English) Vol II - The General (Summary) Report (Spanish) Vol III - Annexes 1-7 (English) and Vol IV - Annexes 8-15 (English)

The purpose of the mission was to assist the Government in studying its strategy policies programs and prpjects for increasing agricultural production and improving rural living levels The study was intended to provide a basis for a continuing dialogue between the Government and foreign assistance agencies concerning the developshyment of the rural sector of the Honduran economy

The papers are selective in coverage and judgmental in nature The General Report outlines the broad background and reasoning leading to the principal observations and major findings and suggestions Statistical data and more detailed comment are presented in the Annexes

The mission is grateful for the support received from the Government and the private sector in preparing the papers and for the highly constructive response of the Government to the mission proposals

January 1978

nmICE

FREFACIO bull Parrafo

I ~ESIDAD DE CAl1BIO Desempe~o y caracteristicas del sector 12 Poblacion rural y nivel ~e vida 124 Gastos publicos 134 Perspectivas de la balanza de pagos --t 137 Conclusiones e_~ tt 142

II OPORIUtmAD~S DE CAMBIO Base de recursos naturales 22 Usos y rendimiento de las tierras 28 Conclusiones 212 ---- m RESTRICCIONES QUE SE OPONEN AL CAMBIO

La Administracion publica 3-2 Personal calificado 317 Carreteras y caminos 327 Investigacion y extension 330 Semillas mejoradas e insumos modernos 343 eredito 3h8 Comercializacion y precios 356 Conclusiones 363

- -_IV- PERSDFrTViI~ Tii ~MBTO

Redistribucion de las tierras y manejo de los bosques 42

F1nan~iacion del desarrollo rural 44 Conclusiones h13

__ ~h__v -mICIOS y SUGERENCIAS

Punto-l Campesinos sin tierras y pequenos S-3-shy__ _ agricultores

Punto 2 Desarrollo forestal 51S Punto 3 El subsector de la agricultura

comercial S16 Punto 4 Caminos rurales 523 punto 5 Reforma administrativa y capacitacion

del personal S25 Funto 6 Investigacion servicios de extension

y semillas mejoradas 539 Punto 7 Un proyecto arrocero 546 Funto P Riego drenaje y proteccion contra

inundaciones 548 ~~

Funto 9 Agroindustrias 551 Funto 10 Pesca 552 runto 11 CUculo de 1a demenda de productos 553 Punto 12 E1 credito yel BANAFOM 554 Funto 13 Instalaciones de almacenamiento para

granos 556

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VI ASISTENCIAEXTERNA AI SECTOR RURAL fosibles p~yectos 62

622Admiristracion de la asistencia externa

AFraquoDICE 1

Una lternativa lara La Estrategia del Desarrollo JgricolaRural y El Programa de tsistetJeis middotExterna

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yenAPAS-Iro 11146 Relieve y Transportes lIo 11147 Frecipitacion fluvial Cuencas

HidrograticasmiddotRiego y Electriiicacion

No 11148 Uso Fotencial de la Tierra ~o 11149 Bosques e Industrias Forestales

No 11150 Lugares de Reforma Agraria Cficinas de Credito Agricola e Instalaciones de Almacenamiento para Granos

ANEXOS

1 Los RecursosmiddotNaturales como Base para la Agricultura 2 Proyecciones de la Demanda de productos Agropecuarios 3 Tendeneias del Comereio R~gional e Internacional de

-~roductos Agricolsects en Honduras 4 Ten~1c~a de la Tierra y la Reformamiddot Agraria5 FosibUidades de Expansion Forestal 6 Pesea 7 Credito Agricola P Riego 9 Caminos e Infraestructura Rural

10 Expansidn de la Agro-Indusliria (y Artesanias) 11 Educacion y Capaeitacion en Agrieultura 12 Mercadeo y Preeios de los Froduetos Agricolas 13 Financiamiento Fublico para el Desarrollo Rural 14 Asistencia Teeniea para el Desarrollo Rural 15 La Organizaeion y Administracion de los Servicios

Publicos para la Agricultura

Anexo Estadistico

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

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El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

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Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

PREFACE

This document reproduces for purposes of convenient reference the working papers prepared by a joint AIDIDBlIBRD agriculturalrural sector survey mission which visited Honduras in 1974 These papers were discussed with Government officials in May of 1976 and a follow-up discussion took place in March of 1977 Representatives of CIDA (Canada) UNDP CABEI IICAOAS and other interested agencies took part in the latter discussion

The document is in four volumes

Vol I - The General (Summary) Report (English) Vol II - The General (Summary) Report (Spanish) Vol III - Annexes 1-7 (English) and Vol IV - Annexes 8-15 (English)

The purpose of the mission was to assist the Government in studying its strategy policies programs and prpjects for increasing agricultural production and improving rural living levels The study was intended to provide a basis for a continuing dialogue between the Government and foreign assistance agencies concerning the developshyment of the rural sector of the Honduran economy

The papers are selective in coverage and judgmental in nature The General Report outlines the broad background and reasoning leading to the principal observations and major findings and suggestions Statistical data and more detailed comment are presented in the Annexes

The mission is grateful for the support received from the Government and the private sector in preparing the papers and for the highly constructive response of the Government to the mission proposals

January 1978

nmICE

FREFACIO bull Parrafo

I ~ESIDAD DE CAl1BIO Desempe~o y caracteristicas del sector 12 Poblacion rural y nivel ~e vida 124 Gastos publicos 134 Perspectivas de la balanza de pagos --t 137 Conclusiones e_~ tt 142

II OPORIUtmAD~S DE CAMBIO Base de recursos naturales 22 Usos y rendimiento de las tierras 28 Conclusiones 212 ---- m RESTRICCIONES QUE SE OPONEN AL CAMBIO

La Administracion publica 3-2 Personal calificado 317 Carreteras y caminos 327 Investigacion y extension 330 Semillas mejoradas e insumos modernos 343 eredito 3h8 Comercializacion y precios 356 Conclusiones 363

- -_IV- PERSDFrTViI~ Tii ~MBTO

Redistribucion de las tierras y manejo de los bosques 42

F1nan~iacion del desarrollo rural 44 Conclusiones h13

__ ~h__v -mICIOS y SUGERENCIAS

Punto-l Campesinos sin tierras y pequenos S-3-shy__ _ agricultores

Punto 2 Desarrollo forestal 51S Punto 3 El subsector de la agricultura

comercial S16 Punto 4 Caminos rurales 523 punto 5 Reforma administrativa y capacitacion

del personal S25 Funto 6 Investigacion servicios de extension

y semillas mejoradas 539 Punto 7 Un proyecto arrocero 546 Funto P Riego drenaje y proteccion contra

inundaciones 548 ~~

Funto 9 Agroindustrias 551 Funto 10 Pesca 552 runto 11 CUculo de 1a demenda de productos 553 Punto 12 E1 credito yel BANAFOM 554 Funto 13 Instalaciones de almacenamiento para

granos 556

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VI ASISTENCIAEXTERNA AI SECTOR RURAL fosibles p~yectos 62

622Admiristracion de la asistencia externa

AFraquoDICE 1

Una lternativa lara La Estrategia del Desarrollo JgricolaRural y El Programa de tsistetJeis middotExterna

- ~--~

yenAPAS-Iro 11146 Relieve y Transportes lIo 11147 Frecipitacion fluvial Cuencas

HidrograticasmiddotRiego y Electriiicacion

No 11148 Uso Fotencial de la Tierra ~o 11149 Bosques e Industrias Forestales

No 11150 Lugares de Reforma Agraria Cficinas de Credito Agricola e Instalaciones de Almacenamiento para Granos

ANEXOS

1 Los RecursosmiddotNaturales como Base para la Agricultura 2 Proyecciones de la Demanda de productos Agropecuarios 3 Tendeneias del Comereio R~gional e Internacional de

-~roductos Agricolsects en Honduras 4 Ten~1c~a de la Tierra y la Reformamiddot Agraria5 FosibUidades de Expansion Forestal 6 Pesea 7 Credito Agricola P Riego 9 Caminos e Infraestructura Rural

10 Expansidn de la Agro-Indusliria (y Artesanias) 11 Educacion y Capaeitacion en Agrieultura 12 Mercadeo y Preeios de los Froduetos Agricolas 13 Financiamiento Fublico para el Desarrollo Rural 14 Asistencia Teeniea para el Desarrollo Rural 15 La Organizaeion y Administracion de los Servicios

Publicos para la Agricultura

Anexo Estadistico

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

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El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

~

Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

nmICE

FREFACIO bull Parrafo

I ~ESIDAD DE CAl1BIO Desempe~o y caracteristicas del sector 12 Poblacion rural y nivel ~e vida 124 Gastos publicos 134 Perspectivas de la balanza de pagos --t 137 Conclusiones e_~ tt 142

II OPORIUtmAD~S DE CAMBIO Base de recursos naturales 22 Usos y rendimiento de las tierras 28 Conclusiones 212 ---- m RESTRICCIONES QUE SE OPONEN AL CAMBIO

La Administracion publica 3-2 Personal calificado 317 Carreteras y caminos 327 Investigacion y extension 330 Semillas mejoradas e insumos modernos 343 eredito 3h8 Comercializacion y precios 356 Conclusiones 363

- -_IV- PERSDFrTViI~ Tii ~MBTO

Redistribucion de las tierras y manejo de los bosques 42

F1nan~iacion del desarrollo rural 44 Conclusiones h13

__ ~h__v -mICIOS y SUGERENCIAS

Punto-l Campesinos sin tierras y pequenos S-3-shy__ _ agricultores

Punto 2 Desarrollo forestal 51S Punto 3 El subsector de la agricultura

comercial S16 Punto 4 Caminos rurales 523 punto 5 Reforma administrativa y capacitacion

del personal S25 Funto 6 Investigacion servicios de extension

y semillas mejoradas 539 Punto 7 Un proyecto arrocero 546 Funto P Riego drenaje y proteccion contra

inundaciones 548 ~~

Funto 9 Agroindustrias 551 Funto 10 Pesca 552 runto 11 CUculo de 1a demenda de productos 553 Punto 12 E1 credito yel BANAFOM 554 Funto 13 Instalaciones de almacenamiento para

granos 556

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VI ASISTENCIAEXTERNA AI SECTOR RURAL fosibles p~yectos 62

622Admiristracion de la asistencia externa

AFraquoDICE 1

Una lternativa lara La Estrategia del Desarrollo JgricolaRural y El Programa de tsistetJeis middotExterna

- ~--~

yenAPAS-Iro 11146 Relieve y Transportes lIo 11147 Frecipitacion fluvial Cuencas

HidrograticasmiddotRiego y Electriiicacion

No 11148 Uso Fotencial de la Tierra ~o 11149 Bosques e Industrias Forestales

No 11150 Lugares de Reforma Agraria Cficinas de Credito Agricola e Instalaciones de Almacenamiento para Granos

ANEXOS

1 Los RecursosmiddotNaturales como Base para la Agricultura 2 Proyecciones de la Demanda de productos Agropecuarios 3 Tendeneias del Comereio R~gional e Internacional de

-~roductos Agricolsects en Honduras 4 Ten~1c~a de la Tierra y la Reformamiddot Agraria5 FosibUidades de Expansion Forestal 6 Pesea 7 Credito Agricola P Riego 9 Caminos e Infraestructura Rural

10 Expansidn de la Agro-Indusliria (y Artesanias) 11 Educacion y Capaeitacion en Agrieultura 12 Mercadeo y Preeios de los Froduetos Agricolas 13 Financiamiento Fublico para el Desarrollo Rural 14 Asistencia Teeniea para el Desarrollo Rural 15 La Organizaeion y Administracion de los Servicios

Publicos para la Agricultura

Anexo Estadistico

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

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El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

~

Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

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VI ASISTENCIAEXTERNA AI SECTOR RURAL fosibles p~yectos 62

622Admiristracion de la asistencia externa

AFraquoDICE 1

Una lternativa lara La Estrategia del Desarrollo JgricolaRural y El Programa de tsistetJeis middotExterna

- ~--~

yenAPAS-Iro 11146 Relieve y Transportes lIo 11147 Frecipitacion fluvial Cuencas

HidrograticasmiddotRiego y Electriiicacion

No 11148 Uso Fotencial de la Tierra ~o 11149 Bosques e Industrias Forestales

No 11150 Lugares de Reforma Agraria Cficinas de Credito Agricola e Instalaciones de Almacenamiento para Granos

ANEXOS

1 Los RecursosmiddotNaturales como Base para la Agricultura 2 Proyecciones de la Demanda de productos Agropecuarios 3 Tendeneias del Comereio R~gional e Internacional de

-~roductos Agricolsects en Honduras 4 Ten~1c~a de la Tierra y la Reformamiddot Agraria5 FosibUidades de Expansion Forestal 6 Pesea 7 Credito Agricola P Riego 9 Caminos e Infraestructura Rural

10 Expansidn de la Agro-Indusliria (y Artesanias) 11 Educacion y Capaeitacion en Agrieultura 12 Mercadeo y Preeios de los Froduetos Agricolas 13 Financiamiento Fublico para el Desarrollo Rural 14 Asistencia Teeniea para el Desarrollo Rural 15 La Organizaeion y Administracion de los Servicios

Publicos para la Agricultura

Anexo Estadistico

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

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El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

~

Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

PREFACIO

Este informe reproduce con e1 proposito de proporcionar una fuente conveniente de referencia los informes de trabajo preparados por una mision conjunta prganizada por e1 BIRF e1 BID y 1a AID para e1 reconocimiento del sector agropecuariorura1 1a que visito Honduras en lS14 Los diferentes trabajos que contiene fuerOn discutidos con funcionarios del Gobierno en mayo de 1976 y en una reunion acliciona1 que tuvo 1ugar en marzo de 1977 En esta ultima discusion tomaron parte representantes de CIDA (Canada) PNUD BCAIE lICAOEA Y otras agencias interesadas en e1 tema

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El documento se divide en cuatro volamenes

Volumen I E1 Informe General (Resumen) (En ing1es) Volumen II El Informe General (Resumen) (En espano1) Volumen III Anexos 1-7 (En ingles) y Volumen IV Anexos 8-15 (En ing1es)

El objetivo del estudio fue el de asistir al Gobierno en el

examen de la estrategia polticas programas y proyectos para el incremento de la produccion agrco1a y el mejoramiento del nive1 de vida rural El informe tiene 1a intencion de suministrar u~a base para un dia10go contnuo entre el Gobierno y las agencias extranjeras de asistencia respecto a1 desarrollo del sector rural en 1a econom1a hondurena

Los trabajos presentados son selectivos en cuanto a su cobertura y en su natura1eza representan juicios basados en observaciones y datos obtenidos oor 1 E1 Infl1- ~1~-- ~ - - ___J_ _-C6_6_ __ w In miaiOr _ ______ _______ L ~ c-----shylos antecedentes generales del sector y los criterios que condujeron a las observaciones mas importantes y a los principales ha11azgos y sugerencias Los datos esta4sticos y un comentario mas deta11ado sobre los diversos aspectos del estudio se presentan en los Anexos

La mision agradece e1 apoyo recibido del Gobierno y del sector privado en la preparacion de estos documentos as~ como por 1a respuesta altamente constructiva del Gobierno a las propuestas presentadas por la mision

~

Enero de 1978

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

I THE NEED FOR CHANGE

11 Rough topography and a long dry season limit the agricultural potenshytial of Honduras Nonetheless available resources are under-used and sharp increases in the output of crops livestock and forest products are possible Agriculture can produce a much higher living level for rural people than it now does both directly and through stimulating overall economic growth The Government has underway a number of measures aimed at increasing production and improving the lot of the rural poor these center on agrarian reform and the forest sector But a great deal remains to be done This is recognized in the draft national development plan for the 1974-78 period which gives priority to agriculture and the campesino 11

Sector Performance and Characteristices

12 The Central Bank estimates that agriculture accounted for some 37 of value added in 1973 (more than manufacturing construction and commerce taken together) But like the overall economy agriculture has grown slowly in recent years The available data suggest that the GDP grew atabout 43 per year in the 1965-73 period 11 The comparable rate in agriculture was 3

13 Crops account for some 65 of value added in agriculture livestock and poultry 23 forestry 11 and fisheries the remainder Banana is the most important crop in terms of value This is followed by maize and coffee although taken together these two crops fall short of value added by banana Central Bank data for 1970 for the percentage distribution of value added by major crops and subsector are

11 The plan had not been approved by the Cabinet at the time of the missions visit and is therefore referred to in this report as the draft plan This plan was revised after Hurricane Fifi struck in September 1974 but the parts dealing with the rural sector were not changed in any signifishycant way

11 Factor cost Prices of 1966

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

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All All Products Crops Products Except Bananas Except Bananas

----------------------------------------shyBananas 267 Coffee 105 144 278 Maize 96 131 254 Fruits Vegetables and Tubers 78 107 207 Beans 40 55 107 Tobacco and Sugarcane 29 37 71 Other Cereals 18 24 47 Cotton and Oilseeds 18 36~

Subtotal 646 516

Livestock and Poultry 226 309 Forestry 112 153 Fisheries 16 22

Total 1000 1000 1000

Foreign Trade

14 Agricultural exports made up 77 to 85 of total exports in the 1965-69 period and 71 in 1973 Exports of the main items (banana coffee beef and forest products) totalled L 245 million in 1970 L 407 million in 1973 and an estimated L 356 million in 1974 Imports of agricultural proshyducts including food items beverages tobacco and oils and fats were valued at L 51 million in both 1970 and 1973 roughly equivalent to 10 of total imports in the latter year Wheat dairy products and fats and oils are the main agricultural import items

15 In terms of tonnage exports of coffee beef and wood have been going up in recent years Partly because of production problems often weather-related and the growth in domestic demand exports of other agriculshytural commodities such as maize and beans have tended to decline in tonnage terms The average annual exports of the more important agricultural products in the periods 1968-70 and 1972-74 were

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

bull

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

bull

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

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Bananas Coffee Wood Beef Beans Cotton Maize Sugar

1968-70 ------Thousand

427 257

377 0 103 132 11 50

143 12 73 12

1972-74 lJ Change Tons-----

418 -3 353 37

5180 37 169 64 60 -55 31 -38 35 -76 65 -11

II Data for 1974 are preliminary 12 1969-71

16 Major Crops Crop yields are generally low on national average Improved planting material is not widely used fertilization is minimal and pests and diseases take a heavy toll The major exception is bananas Proshyduced in the Sula and Aguan valleys in the northern region rather more than 20000 ha were under banana for the export market in 1972 with some 65 being farmed by two major companies and the remainder by outgrowers including cooperatives in real terms exports in 1972 were about 10 higher than in 1969 1

17 Maize the basic crop of the small farmer showed a tonnage output growth rate of only 1 in the 1965-72 period Used mainly as food maize is grown in most parts of the country and with a planted area of some 280000 ha in 1973 has an acreage far in excess of any other crop Beans often interplanted or rotated with maize and an important source of protein for the lower income people showed a negative output growth rate (-2) in the 1965-72 period In the same period cotton output fell at an annual rate of 20 and tobacco at about 2 both crops are important outlets for labor ~I

18 In spite of traditional production practices and low yields coffee which is grown on some 100000 ha in some 40 of the municipalities showed an output growth rate of close to 4 in 1965-72 Sugarcane output grew at close to 8 including cane produced by smallholders for on-farm processing into panela (The sugar mills account for some 40 of cane production) Plantain an important vegetable also showed a significant upward output trend in the 1965-72 period

~I Banana plantations were considerably damaged by Hurricane Fifi in late September 1974 Rehabilitation is underway but the pre-Hurricane proshyduction level may not be reached before 1977

~I Production acreage and yield data are shown in the Statistical Annex

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

bull

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

bull

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

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19 Other crops such as sesame cacao African oil palm oranges wheat and potatoes occupy limited acreages Although these crops are important in localized areas they presently have limited national signifishycance

110 Livestock Cattle production is the most important livestock activity Some 46 of the 178000 farms recorded in the 1965-66 census were reported as having cattle and farms of 64 ha or more in size accounted for 42 of the national herd The available data suggest that the cattle popushylation has been increasing ataround 16 a year with the total approximating some 16 million head in 1971 In that year about 228000 head were slaughshytered Beef production in 1970-72 averaged 36400 tons per year with some 65 of this going to the export market The Central Bank estimates the output growth rate for beef at 63 per year for the 1965-72 period

111 The beef enterprise is essentially dual purpose in nature and accounts for the bulk of the output of milk and dairy products Milk output approximated an annual average of 162000 tons in 1970-72 Much of the greater part of this is consumed in unprocessed form Two milk plants (one in Tegucigalpa and one in San Pedro Sula) were pasteurizing a combined volume of some 22000 liters per day in mid-1974 Imports of dairy products have nearly tripled since 1960 and now approximate $35 million per year

112 Cattle producers have not yet reached the productivity levels of neighboring countries according to the following FAO and CONSUPLAN estimates for 1970

Carcass Weight per Head Slaughtered Extraction Local Consumption Export Rate

------------Kg-----------shyHonduras 144 155 138 Guatemala 161 203 193 Nicaragua 196 196 131 Costa Rica 222 265 154

113 Some 60 to 65 of cattle slaughter is handled by the seven modern plants which meet hygienic standards required for the export of boneless beef Cattle prices reached an all-time high of L 045 per Ib liveweight in early 1974 They have since fallen sharply and several export plants have closed Farmer prices for milk delivered to processing plants are set by Government The San Pedro plant price was L 028 per liter ($636 per cwt) in May 1974 up from L 020 per liter as of a few months earlier The Tegucigalpa price was substantially higher

114 The pig population was estimated at 811000 head in 1970 and average annual pork production in 1970-72 at 10400 tons The small farmer produces some 75 of the hog output most often on a scavenger basis Poultry are raised in much the same way for farm household use although the major urban markets are supplied by modern enterprises In 1973 there were

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

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145 modern poultry farms with some 600000 laying birds In that same year there were about 575000 broilers on feed in most months The yearly output of poultry meat in 1970-72 is said to have averaged 6200 tons and of eggs 13400 tons

115 Irrigation An estimated 28600 ha were in irrigation schemes in the early 1970s (Annex 8) Of these about 10000 ha were in Government projects about one-third of the commanded area was actually irrigated The private systems include the large schemes of the banana plantations in the Sula and Aguan valleys the sugarcane enterprises in the Sula and Choluteca areas and many small installations diverting water by gravity or pumping from streams or wells (as in the Comayagua Valley where 11 private schemes irrigating 1400 ha were reported in 1970) The National Agrarian Institute (INA) has developed several schemes including a 4S0-ha system using groundwater in the Choluteca Valley and a 61-ha project which pumps from the Choluteca River to serve a 20-member sugarcane cooperative The municipalities (municipios) operate a number of small systems typically these have been taken over from communities or cooperatives to assure their continued operation For example in 1970 there were four municipal schemes in the Comayagua Valley these totalled 1076 ha of which 700 ha were irrigated The small systems usually use temporary rock dam diversions (replaced each year) and short unlined canals (The only storage dam in use for irrigation is the EI Coyolar on the Rio San Jose at the south end of the Comayagua Valley)

116 In recent years some of the large-scale farmers in the Sula Valley and Choluteca have been developing groundwater for irrigation However most of the irrigation today is by diversion of the natural flow of streams into unlined canal systems

117 Forestry Forest land is widely dispersed The heaviest concentrashytion of the two million ha of coniferous forests and some 32 million ha of broad-leaved species is in the north central and eastern regions (Map 11149) About 75 of the coniferous forest contains almost pure stands of Pinus oocarpa with an estimated density of 60 to SO m3 per ha ~I 11 contains almost pure stands of Pinus caribea mainly in the east another 8 mainly at higher elevations contains Pinus pseudostrobus and some 6 is made up of mixtures of conifers and broad-leaved species

~I This resource is being rapidly depleted by indiscriminate cutting and repeated burning The latter prevents natural regeneration from becoming established With proper fire protection and management natural regenerashytion is excellent FAO estimated in 1965 that at least 650000 m3 of wood (almost entirely pine) was destroyed annually by fire The figure is almost certainly higher now The fires are an integral part of the shifting cultivation system practiced by the campesino and they will continue to take a heavy toll in product and in land denudation until the campesino is helped to find other ways of getting a livelihood

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

bull

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

bull

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

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118 The broadleaf forests have been used but little Access in the east is difficult and in the north cutting has been limited to a few valuable species for export (mainly mahogany cedro guayacan nogal and virola) Located in the humid tropical zone these forests are difficult to manage and exploit there are over 100 species with low volumes per ha of commercially known species This makes extraction costs high When the commercial species are logged the remaining forest is of limited value because the valuable species do not regenerate without special silvicultural management

119 More than 90 of the wood used for commercial purposes comes from the conifers There are some 132 sawmill enterprises two plywood companies and several other firms in minor forest products such as resin Twelve of the sawmills produce about 50 of the sawnwood output and 28 mills account for about 90 of the export volume With the exception of the largest sawshymills the industry is inefficient in terms of lumber recovery from logs entershying the mill Harvest methods are also wasteful from a typical harvest area only some 70 of usable wood reaches the mills Some 6000 to 7000 persons are employed in the sawmilling industry There is very little further processshying of sawn lumber (for example for moulding and furniture parts)

120 The output of sawnwood has been increasing and in 1972 approximated 800000 m3bull The plywood industry protected from non-CACM competition produced about 4300 tons in 1972 The annual average output of primary forest products for the 1970-72 period approximated the following

Thousand L

Export logs 1032 Wood used in the round 2874 Sleepers 441 Fuel wood 28528 Sawlogs 21549 Veneer logs Other 11

141 5273

Total 59838

11 Includes Liquidambar resins etc

121 Exports of forest products are estimated to have increased by some 140 in the period 1960-62 through 1970-72 In 1972 forest products replaced coffee as the second most important export item (following bananas) However imports of pulp and paper increased by over five times in the 10 years through 1970-72 and the net contribution of the forest sector to foreign exchange earnings was only some L 8 million on annualaverage in 1970-72 (Annex 5)

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission

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122 So far there has been no systematic effort to designate and manage protection forests for water and soil conservation programs or to upgrade the use of some 22 million ha of denuded forest land now in marginal agrishyculture or abandoned

123 Fisheries The commercial and artisanal fisheries contribute relashytively little to GDP and employment (Annex 6) The Atlantic and Pacific coastal waters are fished with the former producing shrimp and lobster mainly for export Reported shrimp exports totalled L 25 million (at 1966 prices) on annual average in the 1970-72 period equivalent to about 95 of the total exports of the subsector and sharply higher than in the early 1960s Domestic consumption of fish is about one kg per capita per year about half the average for other Central American countries Some 100000 pounds of catfish for export were produced by pond culture in 1973

Rural Population and Living Levels

124 The Planning Council (CONSUPLAN) estimates that the total population grew at a rate of 3 in the 1961-72 period and reached 268 million in 1972 II The annual growth rate was 34 in the 1965-69 period and (on the previous year) 35 in 1971 and 1972 11

125 The rural population grew at a rate of 25 in the 1961-72 period and in 1972 it made up about 72 of the total population The urban rate was 45 The growth rate in the agricultural labor force approximated 3 in 1961-72 In 1972 agriculture accounted for about 65 of the total labor force (down slightly from 1961) The data are

11 This estimate and the population data in this report are based on the 1961 census Preliminary evidence from the 1974 census suggests that the figure of total population of 268 million for 1972 may be too high by some 248000 people As a firm judgment is not yet possible no adjustshyments in the 1961-based data are made in this report (Similar difficulshyties arise with much of the agricultural and economic data Reconciliashytion of conflicting data has not always been possible an effort has been made to avoid basing judgments on data for which alternative sources are in substantial disagreement)

11 In 1970 some 73000 persons returned to EI Salvador resulting in a growth rate of 05 for that year this explains the apparent discrepancy in the growth rates shown above

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1961 1972 1961 1972 --Thousand--- -~----------

Population Total 19099 26865 100 100 Rural J1 14659 19369 768 721

Economically Active Total 5838 8300 100 100 Agriculture 3894 5403 667 651

J1 Defined to exlude towns with populations of 2000 and above It is estimated that there are about 14800 communities with less than 2000 persons 76 communities between 2000 and 10000 persons 8 between 10000 and 50000 and 2 over 50000

126 USing these estimates a comparison of value added per worker in agriculture in 1965 and in 1972 shows an annual growth rate of roughly -05 for the period The comparable figure for the economy is 15

127 Per capita income approximated $320 in 1972 ~I a figure which suggests the severity of the poverty problem However little is known about the income and asset profile of the rural poor ~I It is probable that about 60 of the rural population have annual per capita incomes of less than $100 with about half of this group living on less than $60 per year Many are landless and the small farmers often work land of relativley poor quality Some two-thirds of the farmers are cultivating plots of 10 manzanas or less and 40 to 45 plots of under five manzanas in size 11 Though often referred to as subsistence farmers many small farmers sell a significant portion of output (up to 70 on some estimates) generally in local markets Maize sorghum and beans are the main crops

128 Work off the farm provides only a small addition to on-farm income il This is partly because the cropping cycle must be geared closely to the rains both on large and small farms and in much of the dry season there is little

~I Calculated according to World Bank Atlas methodology

~I In VI below provision is made for a study to develop the profile

11 One manzana equals about 07 ha

il The family budget survey of 1967-68 indicated that wages and non-farm activities accounted for less than 10 of the income of small farmers

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demand for labor The result is an excess labor supply during parts of the year while at other times labor shortages and upward wage pressures are severe For example cotton producers have trouble to mobilize sufficient labor for the harvest

129 Outlets for labor in industry are limited All industrial and artisanal activity employed some 71000 people in 1972 (slightly over 9 of total employment) with well over two-third being in artisanal-type work Agro-industry accounted for about 72 of all manufacturing output in 1972 (Annex 10)

130 Although rural poverty is widespread it is probably most severe in the Southwest (Copan and Congolon) areas The Congolon (or Frontera) region has a very rough terrain poor soils and limited infrastruture Some 90 of its population live in the rural areas Copan and Santa Barbara are less disadvantaged in terms of natural resources both tobacco and coffee are grown and the Western Highway provides access to the labor market of the San Pedro Sula area Choluteca in the South is an area of high population density a lengthy dry season some agro-industry and a road system and mix of large and small farms which make some off-farm employment possible for small farmers

131 Deficiencies in the educational system are particularly noteworthy in rural areas as is the nutritional problem Many of the rural poor suffer from chronic nutritional deficiencies including calories proteins and Vitamin A Anemia malaria and intestinal infections are not uncommon Some 77 health centers existed in 1971 mainly in municipal centers but only a small portion of the rural poor use these services

132 Preliminary data on the water supply and sewage disposal situation in rural areas suggests that some 15 of the rural population are served with a water supply that is have access to a piped system An additional 7 are well served that is have access to a piped system or to wells which are reasonably sanitary Some 11 of the rural population are classed as served with a sewage facility that is have access to a sanitary excreta disposal system An additional 3 are well served that is have access to a watershyborne disposal system OVerall urban areas have a reasonably sanitary water supply but rural areas are very sparsely served with public water Excreta disposal systems are unsatisfactory in both urban and rural areas 11

133 As orders of magnitude there may be rather more than 200000 members of the labor force whose primary source of livelihood is a farm of 5 ha or less These along with some 150000 landless laborers 11 and a significant

11 These data are based on a preliminary and unpublished assessment done in 1974 by the Pan American Health Organization the World Health Organizashytion and the World Bank on the invitation of the Honduran Government

11 Excluding the relatively well-paid banana plantation workers this group may total between 25000 and 30000

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portion of the 90000 or more rural non-agricultural largely self-employed people in commerce and crafts make up the hard core of the rural poverty problem

Public Expenditures

134 The Ministry of Natural Resources and the National Agrarian Instishytute (INA) account for most of the public expenditures directly related to the agricultural sector In addition transfers for the capitalization of the National Development Bank (BANAFOM) are becoming important Current expendishytures by the Ministry amounted to about L 8 million per year during 1970-72 In addition the Ministrys annual transfers to INA approximated L 3 million per year roughly equivalent to the latters current expenditures Public current expenditures in agriculture by these agencies thus were on the order of L 11 million per year in the period This is equivalent to slightly more than 5 of total public current expenditures (L 207 million) in 1972

135 On the investment side public outlays in agriculture have fluctuated considerably in recent years mainly because of the construction of grain storshyage facilities in 1970-71 (at an approximate cost of L 9 million) by BANAFOM INA invested L 19 million in 1970 the same in 1971 and L 02 million in 1972 The National Planning Office (CONSUPLAN) estimates Ministry investment outlays at L 33 million in 1970 and L 50 million in 1971 budget implmentashytion data show an expenditure of L 03 million in 1971 Public investment expenditures can be estimated as follows for selected years through 1972

Total Agriculture Agriculture ------L Million-------

1962 330 04 12 1965 239 19 80 1968 503 08 16 1970 938 97 103 1971 764 114 149 1972 594 05 08

136 The total budget for the Ministry of Natural Resources increased from L 157 million in 1972 to L 293 million the investment budget was almost tripled but current expenditures were cut back significantly

Balance of Payments Outlook

137 The need for change in agriculture is underlined by the unsatisfacshytory outlook for the balance of payments As noted agriculture accounts for some 70 to 85 of merchandise export earnings Of the four major export commodities bananas coffee lumber and beef only the latter two appear to have good market prospects over the medium term The future of most of the remaining export items depends crucially on what happens in the CACM A projection of historic trends suggests that export volumes may not grow at more than 5 per year during the remainder of the decade Taken together

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with the reasonable assumption that the terms of trade will not change sharply from the 1974 position l this means that to attain an acceptable GDP growth rate will require imports far in excess of the anticipated export levels with the consequent current account deficit of building up to some $200 million by 1980 (as compared to about $109 million in 1974)

138 Capital inflows are not expected to be sufficient to fill a gap of this magnitude and duration Past experience suggests that private inflows are unlikely to grow rapidly Inflows from public sources are limited by the supply of bankable projects To help fill the gap export expansion needs strong emphasis The alternative is financial instability or import restricshytions and the consequent slowdown in investment and growth 2

139 Much of the export growth and the strengthening of the external sector must be sought in agriculture even though it will be difficult to overcome the past tendency for exports to grow at an uneven pace because of climatic and world market conditions This problem makes clear the need to intenSify the ongoing search for opportunities for agricultural trade expanshysion within the CACM

141 Honduran participation in the CACM began in April 1962 with its ratification of the Treaty of Managua This set out procedures for the develshyopment of the market and a common external tariff All important agricultural products were exempted from the general provisions of the Treaty and made subject to multilateral agreements The only such agreement which was signed was the Limon protocol (October 1965) this provided for inter-country coorshydination of basic grains trade policy In effecttrade in agricultural products continued subject to special agreements and import-export controls Trade between Honduras and El Salvador was interrupted following the 1969 conflict During the year ending May 1973 Honduras signed two-year bilateral agreements with Costa Rica Guatemala and Nicaragua These agreements specify tariff levels by country and commodity They permit free trade in basic grains subject to the approval of the concerned national pricing and marketing agencies

l The limited evidence suggests that there was little change in the intershynational terms of trade in the 1970-72 period A slight improvement took place in 1973 a deterioration of some 14 (in 1973) occurred in 1974

~ Import reduction through higher duties and a tight monetary policy has been the typical answer to the balance of payments problem in the past as for example in 1971 and 1972 following the conflict with El Salvador The deterioration of the terms of trade aggravated by Hurricane Fifi and other factors reduced net international reserves to some $10 million (excluding a $20 million drawing from the International Monetary Fund petroleum facility) at the end of the year a sum sufficient to cover about 10 days of imports The current account deficit was about $140 million for the year The resulting crisis was overcome through internashytional assistance on favorable terms

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141 Under these circumstances along with periodic weather-related production shortfalls it is understandable that Honduran trade in agriculshytural products with the CACM countries makes up a very small (and declining) share of its total agricultural trade (Annex 3) The data for selected years are

1973

--------------shyExports

Agricultural Products 11 To CACM Other Markets

4 75

Negligible 81

Other Products To CACM Other Markets

11 1Q

4 15

Total 100 100

Imports

Agricultural Products 11 From CAOI Other Sources

7 5

2 7

Other Products From CACM Other Sources

18 70

10 81

Total 100 100

11 Bananas coffee wood beef beans cotton maize and sugar

2 Food products beverages tobacco and oils and fats

Trade trends of this sort are probably one of the reasons why the recent meetshyings of the Ministers of Agriculture of the CACM countries have called for closer coordination of basic grains programs and agricultural development policy

Conclusions

142 There is an obvious need for a greater effort to improve well-being in the rural low-income sub-sector and to expand agricultural production and exports This is underlined by the fact that the population may reach some 68 million at the turn of the century this is more than double the present figure

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II OPPORTUNITIES FOR CHANGE

21 Although the evidence is limited the technical possibilities for expansion of output of crops livestock and forest products appear substanshytial But the natural resource endowment is not one which is easy to exploit

The Natural Resource Base

22 Steep rugged terrain predominates with ridges and peaks ranging in altitude from 2435 m in the north to 3000 m in the west (Map 11146 and Annex 1) Areas with slopes under 20 include the Sula and Aguan valleys the Nacaome-Choluteca plain in the south and the Guayape Valley in the central zone The climate is characterized by distinct dry and rainy seasons Preshycipitation totals about 3000 mm per year in the north with an average of about 100 mm per month for March April and May the driest months and 250 mm to 400 mm per month for June through January (Map 11147) Most of the interior has an annual rainfall ranging from about 900 mm to 1800 mm with relatively little rain (0 to 50 mm) during the period December through April The south coast has a slightly higher average annual rainfall about 1700 mm and the dry period is longer beginning in November ~I Average mean temperatures in the tropical coastal zones (up to some 600 m) are around 260C In the temper-

oate zones from 600 m to 2100 m mean temperatures range from about 16 C to 240 C

23 Because of soil and climatic conditions the dominant natural vegeshytation is forest There are substantial areas of savanna with grasses and some herbaceous species Many of these areas were converted to savanna through repeated burning and destruction of the pine regeneration

24 The best agricultural soils are found on the north and south coasts and in the inland river valleys such as the Guayape Comayagua Siria and Jamastran In total there are some 18000 km2 of valleys The valley soils are alluvial probably nitrogen deficient with the sands near the river giving way to clays away from the rivers Aside from the valleys soils are reported to be generally shallow apparently deficient in nitrogen and phosshyphorus A large portion of the Mosquitia region is said to be poor for agri shyculture with a thin top soil The soils of the mountainous areas are seldom suitable for agriculture although parts of the southern coastal mountain region have potential for perennial crops and pastures

~I A recent study summarized in Annex 8 found that the number of months per year in which there was a 25 probability of getting less than 100 mm of rainfall ranged from 3 to 84 depending on the climatic zone (the range for 50 mm or less was 2 to 64) Even a month with a 75 probability of 100 mm of rainfall can be considered dry because this amount of rainshyfall would be equivalent to only about 50 of potential evapotranspirashytion

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25 Stream flow records typically cover only short periods and even these are not available for all river systems However in terms of physical potential it seems probable that the flows in most of the streams and rivers are sufficient to provide an adequate water supply for all of the land suitable for irrigation if regulated by storage and properly managed

26 The Multi-Purpose Cadaster It is expected that additional informashytion on the resource base will become available within the next few years as a result of the ongoing AID-assisted multi-purpose cadaster (Annex 4) The first component of the project sets up a property registry system including property maps The second component establishes a property tax administrative system including property valuation and provision for keeping it current centralized billing and improvement of the municipal tax collection procedures The third component is an inventory of agricultural resources (soils water vegetation land use and land capability) The resource inventory is based on 120000 scale photos followed by field checks of varying intensity depending on the agricultural potential of the area The project is scheduled for completion in four years and will cover 10 Departments about 64 of the nations area 71 of the rural population and 123000 rural properties II Priority is being given to the Departments which appear likely to be able to expand production rapidly in the short term The project will complete aerial photography and property registry inventories for all the Departments This along with the fact that the needed personnel will have been trained makes it possible to complete the work in the non-project Departments within two years after the 10-Department project is completed if the Government allots the necessary funds

27 In addition to providing a basis for rural property taxation the project which includes sample-based collection of socio-economic data will greatly expand the information base for national planning and for agricultural project preparation and implementation The project merits a continuing emphasis

Land Use and Yields

28 Based on the limited available evidence CONSUPLAN estimates that some 137 million ha were under cultivation in the early 1970s (including improved pastures) and that an additional acreage of roughly 25 million ha are cultivable (Map 11148) The data are

II Work in an additional two Departments is nearing completion

Cultivable Cultivated

Crops Improved Pasture

Not Cultivated Potentially Usable Natural Pasture Fallow

Not Cultivable 11

Not Defined

Total National Area

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Thousand Ha

3~69 (1371)

635 736

(2498) 1824

450 224

6545

1086

11500

11 Mainly forest

Even allowing for a gross over-estimate of both the quantity and the potential of the additional acreage believed suitable for cropping (that is 25 million ha) the possible increase in output and income earning opportunities through area expansion is significant 1

29 Sharp increases in crop yields and pasture carrying capacity are also technically possible With the exception of such crops as banana cotton tobacco and sugarcane cultivation practices for much of the acreage under crops are largely traditional and modern inputs are seldom used And much of the pasture acreage is unimproved The result is low yields by any standard CONSUPLAN crop yield estimates for 1970-72 indicate the ord~r of magnitude of the increases which are possible by changing from traditional practices to those already being used by the more progressive farmers The CONSUPLAN data are

1 One possible source of error in the estimate is the rate at which new land has been taken up in recent years in response to population pressure and the expanding road system FAO estimated that the rate in the 1952-65 period was some 5000 ha per year But even if the rate since 1965 has been higher by several hundred percent than the estimate for 1952-65 as would be expected the CONSUPLAN estimate of available new land as of early 1970s appears reasonable

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Yields in 1970-82 With Improved With Traditional Increase with

Practices Practices ImEroved Practices ---------Kg per Ha-------------

Maize 1900 1147 66 Rough Rice 1615 671 141 Sorghum 1785 1371 30 Beans 967 563 72 Tomato 10300 3154 226 Sesame 1000 675 48 Coffee 559 332 68 Tobacco 1393 500 178 Sugarcane 44000 27981 51 Potatoes 19167 3281 484

210 These estimates of the physical return to improved techniques suggest that significant expansion in crops output can be obtained from a wider use of practices already known But the available technology is still extremely limited and as the supply of improved practices expands larger increases in yields can be expected

211 Another source of output gains is through shifting land from lower to higher value crops In part this depends on the availability of irrigashytion facilities Farmers will probably continue to install private irrigation facilities but no sharp upgrading of the cropping pattern as a result of public systems can be foreseen in the years just ahead (Annex 8) Nevertheshyless some gains are possible in the intermediate term through such crops as African palm grapefruit cashew and hemp through shifting pasture land to crops and through shifting some land now in forests to agricultural use and vice versa

Conclusions

212 Although the financial and economic aspects of technical production expansion opportunities need more study significant increases in the recent output growth rates for crops livestock and forest products appear feasible for the years ahead if the constraints on effective Government and private action can be eased

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III CONSTRAINTS ON CHANGE

31 The private sector and Government officials have long been aware of the difficulties in activating agriculture To help find solutions y national planning was strengthened in 1972 y and agriculture has become the priority sector for development Although progress is being madey the constraints on change continue to be formidable

The Public Administration

32 As in many other countries y a major constraint is the quality of the public administration and the resulting inadequacies in the services to agriculture To illustrate a period of roughly 106 years will be required to disburse the existing agricultural loans of AIDy IDB and IBRD if the average disbursement rate of -the last three years continues ~I

33 The Ministry of Natural Resources and the National Agrarian Institute (INA) have primary responsibility for agricultural and rural development Outshyside the Council of Ministers y but very important to agriculturey are two semi-autonomous public institutions the National Development Bank (BANAFOM) and the Honduran Forestry Development Corporation (COBDEFOR) A number of other organization perform (or have the potential to perform) significant agricultural activities among these are the Central Bank the Municipal Bank (BANMA)y the Ministry of Financey the Ministry of Economyy the National Civil Service Directoratey the National Planning Council (CONSUPLAN)y and in the private sectory various cooperatives and the commercial banks At the local level there are branches or regional offices of many of the aboveshymentioned agencies as well as 283 municipal governments

34 Authority and responsibility for the public services to agriculture are fragmented and duplication of effort is common among agencies Centrashylization is another serious constraint to effective management Even routine matters often go to chief executive officers for final action Purchase documents generally require headquarters approval y as do personnel actions travel authorizationy and other transactions This results in awkward adminshyistrative procedures inordinate delays and compromised accountability 11

~I This estimate includes the agricultural part of the recently authorized AID reconstruction loan (Annex 13) The AID cadaster loan of December 31 1974 is excluded

11 Centralization contributes not only to cumbersome procedures and long delays but also weakens accountability It is a misconception that repeated aprovals of documents guarantee control On the contrary the process dilutes responsibility and therefore reduces control Furthermore most of the officials who must approve documents are so busy that they do no more than a perfunctory check or rely on the judgments of subordinates

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35 Most agricultural agencies have severe staffing problems There is a serious shortage of professionally trained people Government pay practices do not compare favorably with private enterprise There is also considerable variation in remuneration levels among various public agencies In general autonomous institutions have more latitude in personnel administration than central government agencies but not enough to let them cope with all their problems

36 Officials often cite inadequate pay scales as their one and only personnel management problem In fact the problems embrace all aspects of personnel administration Recruitment and selection practices and capabilities are inadequate Classification plans are out of date and poorly administered Personnel management forms and procedures are used almost exclusively for clerical purposes not as sources of management information Training is mostly inadequate and in some agencies nonexistent

37 Certain ministries and autonomous agencies have tried to improve management systems in recent years They have tidied up organizational structures and some of the mechanics of planning budgeting and purchasing Mostly however these systems can serve only as foundations on which to build

38 An example is financial administration The system emphasizes centralization and control Centralization has resulted in cumbersome procedures administrative delays and duplication of work An almost intershyminable series of preaudits and postings must take place before an obligation of the Government can be paid Eve~ so control has not been attained as many autonomous institutions have been created mainly to avoid centralized fiscal control and the accompanying administrative inflexibility The present system neglects the two most important objectives of financial management the development of sound financial plans and the provision of timely meaningshyful information to the administrators Instead financial planning has become fragmented and too far removed from national planning and reporting is neither comprehensive nor of good quality

39 Similarly personnel management policies and practices are control oriented They tend to hamper field operations rather than to support them As noted personnel action documents for Government agencies customarily go to high levels for final review and approval Chief executive of autonomous institutions generally have similar review and approval prerogatives This practice is time consuming and often undermines supervisory authority 1

310 These kinds of administrative deficiencies are found in all of the agencies working in rural development They are particularly burdensome in

1 Improvements are underway Better administrative techniques are being considered Classification and pay plans are found in most institutions and in several some positive results have been obtained Nevertheless much remains to be done

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several of the key institutions For example BANAFOM centralizes its controls excessively employs elaborate work methods and is concerned with activities which range from the ownership and management of enterprises to the servicing of food retailers

311 INA has a complex unwieldly organization with a very large number of units reporting to the Director Overlapping duties cumbersome adminshyistrative procedures overstaffing at the department head level and illogical groupings of functions confuse chains of command and reduce effectiveness One small department (Contraloria) illustrates the point The Contraloria is intended to be an audit agency yet it is also assigned accounting and systems analysis functions

312 The organization and management of COHDEFOR an important agency are still being formed Properly it has broad authority and substantial financial resources Its preliminary organizational plan appears sound and it probably has the capacity to attract and retain competent staff However its legal mandate overlaps with that of the Ministry of Natural Resources and INA this may lead to conflict (Because the agency is new senior staff have so far been overburdened with routine processing and approval of purchasing documents personnel action papers and related clerical tasks and too little time has been available for important policy matters)

313 lhe Ministry of Natural Resources is in transition It has tradishytionally had broad authority and responsibility in crops and livestock forestry mining and fisheries However forestry was recently assigned to COHDEFOR and it is expected that mining will be transferred to the proposed Institute of Mining The Ministry to be renamed Agriculture and Livestock will comprise the Directorates of Natural Resources Irrigation and Drainage Animal Health and Plant Quarantine and DESAGRO The latter is to be composed of six departments--Research Service and Supply Extension Scientific Investigation Projects and Technial Training--and will perform a variety of research and technical assistance services

314 The Minister besides his normal executive functions is chairman of an agricultural coordinating committee (COCO) 11 made up of the Minister and the heads of CONSUPLAN BANAFOM INA IHCAFE and COHDEFOR As necessary the committee may be expanded to include other relevant agencies Meeting at least once each per month COCO is charged with reviewing and harmonizing the annual work program of the participating agencies including the financial and technical assistance aspects and with proposing solutions to inter-agency problems which may arise during implementation Its decisions and recommendations require unanimous approval COCO is authorized to set up Regional Agricultural Committees to study regional problems and to coordinate the implementation of programs of the concerned agencies

11 Comite de Coordinacion Interinstitucional para la ejecucion de los planes de desarrollo del Sector Agricola

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l15 COCO is assisted by a high-level Technical Commission chaired by the head of the planning office of the Ministry of Natural Resources and including his counterparts in INA BANAFOM COHDEFOR IHCAFE and CONSUPLAN The Commission functions essentially as a staff unit of COCO undertaking or arranging for such studies as COCO assigns to it and making recommendations to COCO concerning the inter-agency integration of rural development programs

316 The COCO mechanism was created only recently It is clearly a step in the right direction

Trained Manpower

317 A second major constraint on change in the rural sector is the lack of trained manpower Four public and two private institutions offer professhysional and vocational education in agriculture and forestry (Annex 11) But the output is inadequate in both quantity and quality Although physical facishylities need improvement the critical problem is management

318 The National Autonomous University of Honduras (UNAH) graduated its first class (of about 25) in agronomy and forestry in 1974 The agricultural facility islocated in La Ceiba and enrollment in the five-year post-secondary course totalled 348 in 1972 The faculty numbers 20 and the annual budget approximates L 700000 Among the basic problems are student strikes and related difficulties which have handicapped operations

319 The international Panamerican School of Agriculture (EAP) at Zamorano offers a three-year post-secondary non-degree course in agriculture along with an increasing variety of short courses It is a private instishytution financed by donations from interested governments and private foundashytions It has some 5500 acres of land (over one-half in forest) a capacity for 204 students and an annual budget in excess of L 14 million It is staffed by 24 full-time professors has an excellent library and has earned an enviable international reputation The EAP began operations in 1946 and since then has graduated 1350 students from the three-year course almost one-quarter of whom have been Hondurans

320 Set up in 1952 ENA the National Agricultural School at Catacamas offers a three-year agricultural course It graduated 434 peritos agricolas in the 1952-66 period during which time students were eligible for admission upon completion of primary school In 1967 completion of secondary school was made a requirement In the 1968-73 period some 200 have been graduated as bachilleres agricolas The enrollment in 1973 was 153 and 44 were graduated The facility is operated by the Ministry of Natural Resources has about 450 acres of land 10 full-time professors and an annual budget of L 300000 Like the La Ceiba facility Ctacamas has experienced periods of turmoil including student strikes and student-teacher confrontations which led to closures An improvement project is underway

321 The John F Kennedy School of Agriculture in San Francisco Atlantida was converted from a rural normal school in 1968 and since then has graduated

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about 140 peritos agricolas The three-year post-primary course is adminshyistered by the Ministry of Public Education Some one-third of the instrucshytion time is assigned to agricultural topics The school has 11 full-time professors and an annual budget of slightly more than L 200000 The library is inadequate and the physical facilities are run down

322 The El Sembrador school near Catacamas was converted from a rural primary school in 1971 and since then has offered a three-year post-primary course under the administration of a religious order Students receive a great deal of practical training on the 3000 acre farm which has 900 head of cattle and uses tractors in its rice corn and horticultural entershyprises The school also lends farm equipment to Catacamas for the latters practical courses

323 The National School of Forestry Sciences located at Siguatepeque on 22000 acres of timber land graduates forest rangers and technicians The School graduated 38 forest rangers and 45 bachilleres forestales through 1973 Beginning in 1973 the program was upgraded three years of high school are now required for admission to the two-year forest ranger course and a high school diploma is required for the three-year course for forestry technicians The Ministry of Natural Resources is in charge of the School which has an annual budget of L 114 million with slightly less than half coming from UNDPFAO FAO and the US Peace Corps provide about half of the 20-man staff The facility can accommodate 135 students current enrollment is 83

324 EDUCREDITO is another important agency in agricultural education It uses private funds to provide loans for students in technical and proshyfessional fields Set up in 1968 it had made 941 loans as of early 1974 these totalled about L 4 million with some 13 going to students of agrishyculture Applicants are carefully screened with those from lower-income families receiving preference (of the 941 loans mentioned above 806 went to members of families with annual incomes of less than $500) Loans are made for both secondary and higher education at a 6 annual interest rate for a maximum period of five years with repayments beginning six monLhs after course completion

325 The Government has attempted to ease the trained manpower shortshyage through using technical assistance from abroad Although comprehensive data are not available the mission estimates that Honduras in recent years has been receiving $8 million to $10 million in technical assistance per year (Annex 14) This is about equally divided between multilateral and bilateral donors and in 1972 about 80 was in the form of grants About $3 million per year has been for agriculture and rural-related sectors

326 The productivity of the existing technical assistance is not easy to estimaLe As a general judgment however it seems fair to say that there are opportunities for improvement Agricultural agencies have not been able

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to make effective use of foreign specialists to fully explore their proshyposals to provide counterparts and to use the available training fellowshyships II

Roads

327 The lack of roads is another constraint on rural development Although improved in recent years the road system is in need of expansion and better maintenance if agriculture is to grow Penetration (access) roads are few and far between

328 Excluding the highway system 11 there are only about 3200 km of all-weather roads and 1500 km of dry-weather roads (including fee~er and penetration roads) to service the national area of some 115000 km (Annex 9) All-weather roads (defined as an engineered road gravel surfaced) are not always passable Many river crossings are inadequate or non-existent and maintenance is poor Only two eastern areas are linked to the west by all shyweather roads these are the Danli-Santa Maria and the Juticalpa-Dulce Nombre de Culmi areas The only other eastern area served by any form of all-weather road is the Aguan Valley but this is still isolated from the rest of the country during wet weather (Contact is maintained by the rail line from Isleta to La Ceiba and by some coastal shipping from Trujillo)

329 From the point of view of agriculture the ongoing plans to improve access to the fertile Guayape Valley are important The Tegucigalpa-Talanga road is scheduled for construction and paving by end 1976 11 The second phase will upgrade the Talanga-Juticalpa leg which traverses better land By the late 1970s the Valley should be accessible at reasonable cost

II IDB is helping CONSUPLAN produce an inventory of technical assistance project requirements improve recruitment and install a utilization and performance monitoring system

11 Shown on Map 11146 there are 1228 km of highways (defined as a truck road bituminous paved) The five principal highways are (a) the Inter-American Highway CAl (Central American Route Number 1) of 148 km linking the El Salvador and Nicaraguan borders along the southern coastal strip (b) the Southern Highway of 97 km running southward from Tegucigalpa to join the CAl near Nacaome (c) the Northern Highway (CA5) of 306 km running northward from Tegucigalpa through San Pedro Sula to the countrys principal port at Puerto Cortes (d) the North Coast Highway (CA13) of 194 linking San Pedro Sula with the banana ports of Tela and La Ceiba and (e) the Western Highway (CA4) running southwest from San Pedro Sula to Ocotepeque where it divides to link with the Guatemala road network to the west and El Salvador to the south The remaining paved roads (some 200 km) are in the environs of Puerto Cortes San Pedro Sula Tegucigalpa Choluteca and Danli

11 It will follow a course on the northwest side of the Choluteca river thus opening new territory The present road departs from Tegucigalpa on the other side of the river

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Research and Extension

330 Deficiencies in technical research and farmer advisory services constrain output growth and rural income improvement The technical packages needed to increase yields are generally not available and even the limited existing information is not reaching farmers Without a greatly improved and expanded effort in research and in delivery systems for modern practices and inputs only limited progress in expanding crop output can be expected

331 DESAGRO a unit of the Ministry of Natural Resources is responsible for research and extension It has been reorganized on a number of occasions most recently in 1974 It has two experimental farms one in Choluteca and the other in Comayagua In addition small blocks of land are leased at San Pedro Sula Danli and Juticalpa The Catacamas Agricultural School can make land available for research programs

332 The Choluteca (La Lujosa) station is located in the hot dry zone The farm has 150 ha partially irrigated There are several buildings roofshyless and abandoned and no library or other research faciliites Work centers on rice varieties particularly Taiwanese and the ICA 22 and CICA 4 from Colombia A mission from Taiwan has been assisting in this work (it has now relocated in Tela where the accumulated data are being analyzed and rice fershytilizer trials are being done) The other main activity of the station is the production of cashew seedlings for sale to farmers on hand is a sufficient supply to plant 750 ha This material brought in from abroad has not been tested

333 Maize rice and bean varieties are being tested at San Pedro Sula Danli Jut icalpa and Catacamas and some are being distributed (such as several locally produced yellow and white maize hybrids and synthetic varieties from Mexico and Nicaragua two locally produced bean varieties three rice varieties from abroad and a Venezuelan sesame) The market carries several imported sorghum varieties these are used without previous testing as to suitability for local conditions

334 With IDB support INA is experimenting with African palm at Tocoa in the Aguan Valley where it also has a citrus nursery (some 14000 plants)

335 In most or all of this research the experimental design and procedures are not adequate

336 A third research program is that of the EAP (Pan American Agriculshytural School) This work centers on the feeding and breeding of beef and dairy cattle hogs and poultry and is designed primarily to complement classroom and field instruction The facilities are adequate and the techshynical personnel are well-trained

337 The banana companies are researching bananas sorghum and groundshynut including varieties fertilization pest control and water management The facilities are good and the personnel highly qualified

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338 The need for improved research is widely recognized in Honduras and IDB support was obtained through a $28 million loan in 1971 However it has proven difficult to implement the project on schedule

339 The research programs outlined above are typically undertaken independently one of the other without significant coordination and largely without the benefit of problem reviews as seen from the point of view of farmers Typically research planning is on a very short horizon

340 Backed up by a research program of this sort it is obvious that extension however well done can have little if any impact As already noted extension is the responsibility of DESAGRO and like research its chief reports to the Minister of Natural Resources In mid-1974 extension had eight regional offices San Pedro Sula Choluteca Juticalpa Santa Rosa de Copan La Ceiba Comayagua and Danli Each region had a supervisor and the DESAGRO staff of 66 agents was distributed among the regions in accord with the agricultural potential

341 The agents are working mainly with the asentamientos being set up by INA The main task is to produce farm plans for the use of BANAFOM in its credit program Most of the agents have graduated from the Catacamas Agricultural School as peritos This training is not fully satisfactory and in combination with the limited experience of the agents does not provide a strong base for extension service

342 The work is being carried on without technical assistance and support facilities such as libraries Extension personnel have few opporshytunities to learn from contact with effective extension work elsewhere or to keep in touch with ongoing research work in Honduras and other countries Although most agents are interested in their work and are well-intentioned they find salaries work programs and back-up support unsatisfactory The vehicle supply has recently been improved with help from AID and IDB but there is no back-up service in plant pathology entomology soils or ferti shylizers and DESAGRO is without technical personnel and equipment in its pubshylications unit

Improved Seed and Modern Inputs

343 The key role of improved planting materials in agricultural developshyment has not yet been reflected in action programs Honduras has no seed legislation no seed certification service and no farmers specializing in seed production 11

344 With AID support the Government installed two seed processing plants in 1960s each with an annual capacity of 10000 kg They process maize rice and beans Combined output approximates 4000 kg per year

11 It has recently been reported that a private seed company is being formed as a joint venture with foreign interests

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The plant at San Pedro Sula has a well-equipped laboratory The Tegucigalpa plant does not have this facility Neither has refrigerated space

345 DESAGRO produces some seed on its stations or rented facilities and contracts with farmers for seed Delays in payments have discouraged farmers from participating

346 Some 80 of land in potatoes is planted with seed from Holland with seed from Mexico being used for part of the rest Cotton and vegetable seed are also imported African palm seed is imported from Malaysia (there are no germination facilities in Honduras)

347 Fertilizers pesticides and farm machinery are imported Fertilizer imports were reported at $33 million (35605 tons) in 1971 and $34 million in 1972 The nutrient distribution in 1965 was about 64 N 32 K and 4 P Most of the fertilizer is used on bananas Agricultural machinery imports were valued at about $7 millon in 1971 roughly double the level of 1966 in nominal terms

Credit

348 It is widely recognized that the public performance in farm credit needs improvement A primary need is to redefine the objectives of BANAFOM to stress smallholders and to progressively take the steps necessary to enable its credit facility to become a part of an integrated smallholder service system A related task is to make it possible for commercial banks to offer a better service to medium and larger farmers

349 The BANAFOM loan portfolio increased from L 645 million to L 976 million in the 1970-73 period and at end 1973 was distributed as follows

L Million

Livestock 390 Other Agriculture 383 Industry 121 Other 82

350 Medium term (18 months to five years) and long-term loans (over five years) made up 78 of the loan portfolio at end 1973 (Annex 7) As of that date 72 of the loan volume outstanding was secured by chattel mortshygages and 20 by real estate mortgages In 1973 loans of L 2500 or less in amount made up about 18 of the new loan volume In 1972 new loans under L 2500 numbered about 11400

351 The 10 private banks disbursed a total of about L 109 million in agricultural loans in 1973 a sum several times that of the public developshyment banks At end 1973 their outstanding loans in agriculture accounted for about 18 of total loan volume outstanding

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352 There are some 300 cooperative savings and loan associations Some of these can become important agencies for rural development As of end 1972 incomplete data suggest that the associations had some L 20 milshylion out on loan with an unknown but probably quite small share being in agriculture As of end 1971 some 125 cooperatives with 30000 members were allied with FACACH Chartered in 1966 and with a current staff of 25 FACACH disbursements of new loans in 1973 amounted to L 27 million and the outstanding loan portfolio was L 59 million at end 1973 After receiving financial support from AID FACACH began to shift emphasis to rural areas Although some 70 of its loans are made from rural offices the proportion going to farmers is not believed to be very large In addition to credit FACACH assists cooperatives on administrative matters insurance and education

353 FUNHDESA (Honduran Foundation for Development) a non-profit civil association-chartered in 1970 seeks to help low-income groups which do not have legal status and hence are not eligible for institutional credit It provides funds and technical assistance and guarantees loans for purposes such as water supplies electrification crop production farm land purchases and small business development Its two offices (in Tegucigalpa and San Pedro Sula) have regional governing boa~ds It has a full-time staff of nine including two loan officers and relies mainly on volunteers for the field work It is now designing a credit program for small farmers this will include technical assistance For this program it will use a corps of agroshynomists to backstop lower-level personnel who will be trained to service small farmers FUNHDESA works through small farmer groups which are organized with the assistance qf the UNC (National Union of Campesinos) It receives loan and grant assistance from local and foreign agencies such as the IntershyAmerican Foundation and the Pan American Development Foundation In 1973 FUNHDESAs new loans amounted to some L 14 million of which about 25 was for small farmers

354 Both FUNHDESA and FACACH are members of CONCORDE (Coordination Council for Development) an apex organization which includes agencies working with low income groups 11

355 Another agency offering a credit service in connection with its work with the rural underprivileged is CONACAL the cooperative arm of ANACH (National Association of Honduran Campesinos) It is presently working with some 1600 small farmers organized in groups Supported by BANAFOM its average loan size in 1972 was L 550

Marketing and Pricing

356 As with credit a primary need in easing the product marketing constraint on agricultural growth is to integrate the ongoing basic grains marketing program of BANAFOM into a comprehensive smallholder service system

11 Such as ACPH (Accion Cultura Popular Hondurena) CARITAS Nacional Centros de Capacitacion Asociacion de Promocion Humana (APRHU) Escuelas Radiofonicos and the Honduras chapter of Volunteers International for Technical Assistance (VITA)

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357 It was not until the 1974-75 season that BANAFOM had sufficient storage capacity and working capital to undertake a significant grain purchase program 1 Support prices were announced prior to the planting season (at levels considerably higher than for the previous year) However production possibilities were affected by Hurricane Fifi In effect the price stabilizashytion system remains to be tested (Annex 12)

358 For the basic grains and other food products which move mainly in the domestic market the itinerant trucker is the main link between the farmer or local buyer and the main consumption centers The trucker may be independshyent or operate as agent for a wholesaler Some truckers provide credit to farmers Many producers offer only small lots they may not have adequate price information and there is a lack of uniform grades and standards weights and measures Under these conditions the trucker is open to charges of under-pricing products in isolated regions even though it is admitted that his costs are high and that he is providing an essential service

359 Export products have reasonably well organized and efficient marketshying systems Bananas are handled by the fruit companies coffee and cotton by the producer cooperatives and beef by the packing plants licensed for export sales

360 On the input marketing Side private importers typically act as agents for various product lines These importers often provide a full range of inputs including pesticides veterinary products and farm equipshyment and have sales agents in the important towns and villages For the equipment and have sales agents in the important towns and villages For the most part firms which sell inputs are not specialized and agricultural inputs make up only a fraction of their total sales The system appears able to respond adequately to demand growth but without special incentives is unlikely to become an affective part of smallholder service systems

361 The available price data suggest that basic grains prices in Honduras tend to be lower than in neighboring countries A part of the reason may be export controls

362 Consumer price stability is an important objective of public policy even though it is not clear how far Government would permit production disincentives to go in pursuit of this policy The inflationary trend of the past year or two in retail prices of basic foods led to two decrees aimed at protecting consumers from the effects of speculative hoarding or excessive market influence These decrees permit maximum prices to be set by Government and establish fines for violations The decrees are reinforced by direct intervention in the market by a new food

1 In 1971 a facility expansion brought BANAFOMs total grain storage capacity up to about 45000 tons including country buying stations and it is expected that CABEI will help finance on additional expansion to a total of some 57000 tons

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procurement and distribution agency BANASUPRO which operates in close assoshyciation with BANAFOM It is too early to judge the impact of these measures on either consumer or farmer prices

Conclusions

363 Neither the public nor private sector offers adequate services to farmers In spite of recent improvements constraints are widespread and rapid growth in farm output and rural welfare is unlikely as long as these persist The constraints are not all of equal importance but they interact one with the other and remedial measures must be designed in terms of the total system and on a long-term horizon

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IV THE PROSPECTS FOR CHANGE

41 As noted above there are highly positive features in the emerging effort to speed up rural development Although beset by grave emergencies from time to time such as the drought of 1975 and Hurricane Fifi there is no doubt that the Government and the people are determined to taCkle the constraints on growth and move forward with enlarged and more effective programs to develop agriculture and the rural communities

Land Redistribution and Forest Management

42 Two cases in point are the agrarian reform and the new approach to management of the nations forest resource Decree Law 170 promulgated in January 1975 after much research and debate provides the legal basis for a program of land redistribution and complementary services in the interests of the rural underprivileged The program will build on the relatively successful reform program of 1973-74 under Decree 8 which in the first 14 of its 24 months of operation assisted some 16000 families to participate in associative forms of settlement (asentamientos) The output of the program under the new Law obviously cannot be predicted the implementing regulations have not yet been tested there are many difficult problems of all types including political to be overcome But Law 170 is clearly a major step toward helping the rural poor get access to better income-earning opportunities

43 Another difficult and far-reaching decision was taken in early 1974 when COHDEFOR was set up and charged with exploiting the impressive forest resource through modern management practices and in the public interest As with land redistribution it is already apparent that diffishycult problems must be solved if COHDEFOR is to succeed But the creation of COHDEFOR reflected public acceptance of the fact that basic change is essential for social and economic progress

Finance for Rural Development

44 These two events are concrete indicators of an increasing commitshyment to production expansion and rural welfare improvement But the followshythrough on the commitment will depend upon the availability of finance The evidence suggests that ample funds can be mobilized for rural developshyment purposes This greatly enhances the prospects for constructive change in the rural economy

45 The Central Government ended the year 1974 in a fairly healthy financial position as was true in the previous two years In 1974 current revenues increased by about 11 mainly because of better income tax adminshyistration and high monetary income growth in 1973 Savings were high Hurricane Fifi had a limited effect on Government finances with reconstrucshytion expenditures being some L 12 million In 1975 however the fiscal

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effects of Fifi will be more severe 11 Revenues will be down and higher expenditures for reconstruction will be necessary But much of the need has already been covered by foreign borrowing

46 The ratio of Central Government revenue to GDP is relatively low in comparison with other countries at a similar stage of development 11 and there are good possibilities of raising additional revenues over the medium term For example the entire structure of taxes and subsidies in agriculture is in need of review both to raise revenue and to help induce farmers to make better use of land

47 The agricultural sector paid slightly more than L 12 million in taxes in 1972 Export duties accounted for the greatest part as follows

L Thousand

Income Taxes Banana companies 3500 Other 892

Uncultivated Land 12 Forestry Products 112 Sugar Production 2158 Export Duties

Bananas 675 Coffee 3587 Lumber 1364 LivestoCk 12 Sea products 30

Total 12342

48 It will be noted that the tax on uncultivated arable land yielded some L 12000 In addition farmers are liable for a real estate tax the basic rate is 15 per thousand of the assessed value of land and buildings As the payments data do not distinguish between rural and urban properties the yield of the rural real estate is not shown above it is known to be negligible

11 For example banana output will be below normal in 1975 and the banana export tax revenue for 1975 may approximate some L 15 million at the current tax rate of $030 per box (A banana export tax of $035 per box was introduced in 1974 The tax is scheduled to go up annually and was initially projected to yield L 30 million in 1975)

11 This judgment is supported by a recent IMF study See IMF Staff Papers March 1975

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49 Agricultural activities are exempt from duties surcharges and consular fees on most imported items In 1971 duties paid on capital goods for agriculture were equivalent to about 27 of the cif value of imports and for fertilizer and pesticides 15 (The comparable figure for food products was 198)

410 On the subsidy side the question of the interest rate for farmers and others will require attention if the recent inflation rate persists (As measured by the only available index (consumer prices) the annual rate of inflation was slightly over 2 in the 1965-72 period and (on the previous year) 6 in 1973 and 138 in 1974)

411 It is clear that the amount of public resources made available for agricultural development can be increased And recent events suggest that the Government is willing to tap appropriate sources of additional revenue to finance development Decree 102 of June 1974 created a tax registration system for all persons who earn income automobile duties were increased recently and other measures are being considered such as increases in real estate and consumption taxes and the elimination of tax exemption on dividends The banana tax is another case in point

412 Another reason for the favorable financial outlook is that Honduras has obtained virtually all of its public capital inflows from official sources at favorable terms For this reason and because of limited borrowing the public debt service ratio 1 stood at 24 in 1965 34 in 1972 and 39 in 1973 (Most of the foreign public loans contracted in 1974 were also on concessionary terms and will not have an important effect on the ratio) Although one reason for the low ratio is the above-mentioned difficulty to disburse foreign loans the figure is still an important one Increases in capital inflows are unlikely to lead to a debt service problem

Conclusions

413 Seen in the historical perspective it appears that attitudinal changes are underway which allied with the internal and external finance likely to be available can produce and sustain public programs capable of solving many of the basic constraints to rural development over the medium term

1 Defined as interest and principle payments on debt repayable in foreign currency relative to exports of goods and nonfactor services

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V JUDGMENTS AND SUGGESTIONS

51 A strategy for improving living levels of the rural poor and developing the economy through agricultural expansion should build on the relatively strong points of past performance and the resource base and lay the groundwork for a comprehensive rural development effort to be undertaken after a preparatory period of several years The attack for the years just ahead should therefore center on improving the public capacity to service small farmers while simultaneously moving forward at a feasible pace with the two major ongoing programs ie the rationalization of the exploitation of the forests and getting land and services to the land-short people through the agrarian reform In the interests of getting a higher rate of output and export growth steps should also be taken to induce the medium and larger farmers to expand production and productivity on their own with only minimal Government assistance The folloWing 13-point action program is suggested as a possible way of implementing this strategy keeping in mind that it would be counter-productive to over burden Government capabilities

Point One The Landless and the Small Farmers

52 The agrarian reform mainly for the landless is now backed by thoroughly debated legislation and can build on a considerable experimental experience It is a basic plank in the attack on rural poverty through factor redistribution and output expansion If it does not go forward rural unrest will discourage investment and technical change on the medium and larger farms thereby cutting down on the rate of growth in the demand for labor and in production It is a top priority program

53 It is suggested that INA and the Ministry of Finance make firm proviSions for local finance for the reform in the event that COHDEFOR is unable to meet the needs for funds About 90 of the planned five-year program expenditure of some L 163 million (which may possibly be too low to enable reaching the output targets) is now scheduled to come from COHDEFOR The evidence to date is that COHDEFOR may have difficulty in providing these funds The COHDEFOR activity is important and will itself probably require an ultimate investment of several hundreds of millions of dollars The arrangeshyments for finance for agrarian reform should recognize that COHDEFOR faces an uncertain earnings outlook both in terms of amount and timing and that COHDEFOR itself will need a great deal of money

54 It is suggested that INA be given priority access to available techshynical personnel along with DESAGRO and BANAFOM in that part of their assignments which relates to the agrarian reform

55 INA which is responsible for the development of the Aguan Valley might wish to consider giving this function a more prominent place in the organizational hierarchy along with a greater delegation of authority and responsibility to the staff assigned to the Aguan This would serve the dual purpose of enabling the main INA activity to be concentrated on the formidable agrarian reform task in other areas and through a concentration of authority and responsibility to promote a speed-up in the pace of development and the use of IDB assistance in the Aguan

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56 It is suggested that INA anticipate the need which will arise a few years from now to complement the existing AID support for agrarian reform This additional foreign finance should be for asentamiento investshyment credit and related infrastructure

57 However successful it may turn out to be the agrarian reform will not reach a considerable portion of the rural poor These are the small farmers who have some land but not enough to produce acceptable living levels unless production and marketing practices are improved They are not the priority group for the agrarian reform They should receive attention through a small farmer development program as soon as possible

58 The first and urgent job is to assure that the preparatory work for such a program moves ahead without delay This includes many of the measures suggested below such as administrative reform staff development improvement of the research extension and water resource development capability reorientation of the public agricultural credit system an improved grains collection system and arrangements for production and distribution of improved seed

59 In addition COHDEFOR should speed up its small farmer program The roads program should use the maximum feasible amounts of labor The expansion and improvement of health and other public services should be centered in poor areas More BANAFOM funds might be made available to FACACH and similar private agencies for use in expanding their small farmer programs CCTI support for rural artisanal activities should be expanded

510 Two preparatory measures are of particular importance The first is to design and test a smallholder service system integrating technical guidance credit inputs and marketing The second is to study the asset and income profile of the rural poor The study should produce a detailed action program design Without this profile information it will be difficult to define priority target groups for the program estimate and mobilize the kinds and amounts of resources needed for a meaningful attack and time-phase a program aimed at reducing small farmer poverty

511 The 1974 census will provide a good statistical base for the study However sample surveys will be necessary to get data on items such as family income by source family composition size of farm livestock and other assets use of modern inputs access to rural infrastructure and participation in Government production and welfare programs Special attention should be given to the labor market and its seasonal and geographic patterns the main correlates of malnutrition the effect of social status and size of farm on access to inputs and public services and the cost-effectiveness of Government programs Wherever possible trend information should be collected The onshygoing UNDP-assisted work in the Choluteca area will provide useful insights for program design

512 CONSUPLAN might be made responsible for the study with particishypation by the Bureau of Census and Statistics Local staff should be carefully selected so that this type of work can become a continuing activity An

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agricultural economist and a rural sociologist with experience in rural development programming might be brought in from abroad to help with the study A competence in sample design must be assured The study will be costly in absolute terms but not in relation to the level and productivity of the outlays it is inteded to generate

513 Neither the organization of the small farmer program its non-agricultural components nor its zonal or commodity coverage can be presshycribed now It is precisely these types of questions which the preparatory work should be designed to answer To assure that the resource data essential to designing a small farmer program are available as needed the ongoing cadaster work should be given a high priority and an updating of CONSUPLANs regional planning work of the late 1960s should be considered

514 Although the need for an organized small farmer development program of substantial scale is urgent it is difficult at this time to foresee an appropriate start-up date If the proposed preparatory work goes well and if the trained personnel supply is built up to a point which assures that both the agrarian reform and a small farmer program can be properly staffed it may be possible to mount a production-oriented small farmer program within say three years Once this program is underway its design and rate of growth can be based on the emerging experience the growing supply of personnel and of technical information and when appropriate it can be expanded to include health and family planning education and like elements

Point Two Forestry Development

515 The development of the forest resource is essential to conserve a major national asset and strengthen the balance of payments the demand for labor and the agrarian reform Since COHDEFOR was set up in early 1973 a great deal has been learned on how to bring the forest under rational management and exploitation The momentum should be sustained and expanded

516 It is recommended that the ongoing work to firm up and implement a development plan for the Olancho reserve be intensified The problem is complex as it involves the determination of a development path which assures the economic rate of harvest of the existing mature pine and the optimum comshybination of the capital-intensive pulp and paper industry and the more laborshyintensive solid wood products industry Nonetheless it must be recognized that the costs of delay are significant in terms of foregone employment income and foreign exchange and that the forest resource is now being destroyed at an alarming rate

517 It is suggested that COHDEFOR as a complement to its careful buildshyup of staff assure that it has an adequate and fully integrated body of technical assistance at hand to help with decision-making on the Olancho and with the development of management guidelines projects and applied research COHDEFOR should also move forward rapidly with experiments to involve the campesino in forestry development including the so-called Social Forest System (SFS)

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Point Three The Commercial Farm Subsector

518 Commercial farm output must be expanded A first step toward this end was taken with the passage of the agrarian reform law as implementation proceeds the uncertainties which farmers have faced in the last few years will be removed and the circumstances under which farmers face expropriation will become clear Aggressive implementation of the reform will stimulate investment in medium and large farms Two additional steps are recommended First a meaningful real estate tax should be installed to raise the cost of holding land in under-use Second arrangements should be made to provide commercial farmers with the finance and technical services which they must have if they are to expand output Taken together these three measures can have a significant effect on production and the demand for labor

519 A great deal of preparatory work for a rural real estate tax has already been done in connection with the AID-supported cadaster program The needed data are available for several Departments From these a set of adjustment factors to be applied to self-assessed property valuations in other Departments could be derived these factors could be used until the ongoing cadaster is completed The tax rate should be set at a level which will place a substantial financial burden on those farm owners who under-use land

520 With a meaningful real estate tax in place and an aggressive agrarian reform underway large farmers and particularly medium farmers are likely to demand more finance and technical assistance The Government cannot now nor in the near future directly provide these services It is recommended that a fiduciary unit be set up in the Central Bank to design and monitor an integrated credit and technical assistance service for large and medium farmers with the commercial banks as operatives Building on the ongoing rediscounting system for the IBRD livestock loans the Central Bank might wish to draw upon relevant foreign experiences for guidance on design and procedures for the system 11 Resources might be provided by the Ministry of Finance by a bond issue taken up by the commercial banks and by foreign loans The system should make ample provision for medium- and long-term lending and prohibit the issuance of loans (except under unusual and clearly defined circumstances) unless accompanied by technical assistance The cost of this assitance should be met by the borrowers under terms written into the loan Both Hondurans and foreigners should be encouraged to set up consulshytant firms to provide the technical services these must eb licensed and monitored The commercial banks should be encouraged to add a technical advisory unit to their credit service The system should provide for an inflow on private account of experienced agronomists livestock specialists and farm management specialists from countries which can make such personnel available

11 For example (a) the Fondo Financiero Agropecuario established in Colombia in 1973 by Law No5 (b) in Mexico the Fondo de Garantia y Fomento para la Agricultura Ganaderia y Avicultura Fondo Especial para Financiamientos Agropecuarios Fondo Especial de Asistencia Tecnica para Creditos Agropecuarios

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521 The project should stress livestock in the early years The information constraint is less critical in livestock than in crops Emphasis should be on grass-fed cattle for beef and milk Improved nutrition parashysite control herd culling and to a lesser extent better breeding stock should be stressed As soon as technical packages for crops can be developed the project should promote integrated crops-livestock farming systems Farm plans should be built on the whole farm concept recognizing that in many cases a crop-livestock mix will produce more jobs and production than crops or livestock alone

522 The project targets should be set up in terms of the number of farms and the amount of acreage to be covered with this being determined by reasonshyable expectations for the supply of trained personnel (including those to be brought in from abroad) The initial effort might center in Colon and Atlantida with a phased build-up to nation-wide coverage

Point Four Rural Roads

523 More funds should be assigned to expanding and maintaining the rural roads network To assure the maximum yield on these expenditures staff development is essential and organizational change appears desirable consideration might be given to setting up at an appropriate future date a new directorate (Direccion General de Vias y Obras Rurales) in the Ministry of Public Works (SECOPT) to take over on a phased basis responsibility for the design construction and maintenance of rural roads (and eventually to do similar work for other rural infrastructure) The Directorate should be at the same organizational level as the present Directorate of Roads (DGC) and Directorate of Maintenance (DGM) and the duties of the latter two units should be redefined to center on trunk roads It is believed that a new Directorate merits study as a possible way of tackling the more pressing problems in constructing and maintaining rural infrastructure 11

524 Beginning with several of the more progressive municipal governments an effort might be made to enable these local institutions to participate in rural roads programs Concerning data the ongoing multi-purpose cadaster can be used as a primary source for determining specific project areas The cadaster has already produced a considerable amount of data for the southern region and in view of the time required to study organize staff and equip the proposed new Directorate the supply of evidence needed to define the higher-yielding zones for rural roads is unlikely to be constraint on the road program

Point Five Administrative Reform and Personnel Development

525 An across-the-board administrative reform in essential The aim should be to build Government capacity to design implement and evaluate rural development projects to use foreign technical and financial assistance

11 The proposal is discussed in Annex 9 which makes clear that no single measure will provide an early and complete solution to the rural roads problems

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and to develop plans policies and programs If action is taken now it should be possible to develop an effective administrative apparatus for agriculture in about four years The proposed reform process is discussed in Annex 15

526 Priority attention should be given to the more glaring shortshycomings now apparent in the public services to agriculture These are agricultural research farmer advisory services and improved planting materials water resource development (principally for irrigation) and soil conservation and the Aguan Valley development The first two of these tasks are now assigned to the Ministry of Natural Resources The Ministry is handicapped by inadequate financing insufficient staff low remuneration levels and slow and cumbersome administrative procedures The third task the Aguan Valley development is assigned to INA an agency which faces the formidable job of implementing the new agrarian reform legislation and which has had only limited success in its Aguan endeavours

527 The Government may wish to consider setting up autonomous agencies to handle these tasks But whether or not this is done improved intershyagency coordination integrated planning and programming and monitoring will continue to be essential It may be found necessary to consider ways of strengthening decision-making authority on all matters related to agricultural and rural development in order to effectively (a) formulate disseminate and enforce policies (b) review reVise and coordinate the annual plans projects and programs of the action agencies and monitor implementation (c) examine modify and coordinate draft budgets prepared by the action agencies (d) identify and prepare projects for the consideration of foreign lending agencies and monitor those underway (e) prepare technical assistance requests and monitor these assistance programs (f) assure coordination of the relevant agencies at the field level (g) represent the action agencies in matters of concern to the President CONSUPLAN the Minister of Finance other central authorities and international and bilateral donors (h) project trained manpower requirements and design and monitor plans for fulfillment and (i) collect analyze and publish statistics and conduct and distribute economic and social studies basic to agriculture and rural development

528 It remains to be seen whether COCO and its Technical Commission can handle this difficult task It is essentially a coordination body on which the major implementing agencies have equal representation As such it would not seem to provide an effective framework for the promulgation of operational programs which must be binding on the participating agencies This can be done only by an entity which is not subject to control by the implementing agencies but at the same time can consult closely with them in carrying out its functions This entity must exercise independent judgment so that the national interest will be represented in the preparation of plans and operational programs and in the resolution of differences between impleshymenting agencies These plans and programs will serve as the foundation for the implementation of the agrarian reform and other development programs and should therefore be approved and promulgated by the Government and be binding on the implementing agencies in the same sense as the National

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Development Plan To make this fully effective the operating program should serve as a basis for the allocation of budgetary and external resources The most important specific functions to be performed by such an entity would include (a) the formulation and dissemination of agrarian reform policy (b) the review revision and coordination of annual plans projects and programs of the implementing agencies and the examination coordination and approval of draft budgets as they bear on the agrarian reform program (c) the review of agrarian reform capital and technical assistance projects proposed for external financing and coordination of the implementation of such projects and (d) the coordination in conjuction with the Consejo Superior-(CONSULPLAN) and other agriculture sector institutions of the agrarian reform program and other agricultural sector programs

529 The process by which an overall national operational program for agrarian reform for example would be prepared would involve the preparation of individual programs by the implementation agencies and their revision and coordination by the entity Once a coordinated operational program has been agreed upon it would be submitted to the Council of Ministers for its approval and would be binding as approved on the implementing agencies and financing would be allocated accordingly

530 The precise structure and location of an entity to perform these functions is a matter best decided by the Government There are various alternatives for its location the two most likely being as a special office within the Consejo Superior de Planificacion or as an independent office within the Presidency One consideration that may bear on the possible location within CONSULPLAN is that the function would be beyond planning as now performed by the Consejo Superior and would involve the development of operational programs If this entity were set up within the Office of the Presidency its Director should have Cabinet status so he can effectively deal with the implementing agencies This would seem to place proper emphasis on the importance of agrarian reform as the Governments highest priority program and permit it and other basic programs to receive continuing attention at the highest levels of Government The Director should in addition sit as a member of COCO and might be given special responsibility on that body in regard to the interpretation of operational programs

531 The staff for this office would be drawn from other institutions such as the Consejo Superior the Ministry of Natural Resources and INA Although there is a severe staff problem in these institutions this function must be performed somewhere within the Government and the importance of its being centralized would seem to justify drawing staff from other agencies

532 In order to assist it this office might have two advisory bodies The first should be made up of prominent citizens including representatives of the private and cooperative sectors and of municipal governments and with all geographic areas being covered The second group which the Governshyment might wish to consider would be a resident task force from abroad financed by the foreign assistance agencies This is discussed below

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533 It is recommended that simultaneously with the administrative reform and beginning at once the Government set up a high-ievel ad hoc body to study project by project the reasons why the disbursements of foreign funds lag so greatly Remedial emergency measures should be taken step by step project by project on an ad hoc basis until the entire disbursement problem is solved This task merits urgent attention at the highest level of Government

534 The administrative problem is not only one of machinery but also of men and women Honduras has many able and devoted civil servants but not enough and the second and lower tiers are very thinly staffed in terms of competence for non-routine tasks Indeed the nation faces a severe shortage of adequately trained and motivated staff The result is that many needed programs cannot be undertaken at this time

535 There are three ways of improving personnel supply and performance in addition to a more efficient public administration First existing Government staff can be up-graded Second competent people can be brought in from the private sector and from abroad through direct hiring by Governshyment or by other means such as contract hiring an the use of consultant firms Third the productivity of technical assistance programs sponsored by aid agencies can be raised None is costless But each can be helpful and each merits attention

536 For the medium term training and development of local staff is all-important Ongoing foreign-assisted measures in secondary and vocational education in agriculture should help (Annex 11) Hopefully too recent trends toward a more social orientation in public policy will help reduce student unrest and restore a measure of productivity to the UNAH activity if not consideration should be given to offering a management contract to a Latin American university of stature for the UNAH agricultural-forestry facility at La Ceiba The arrangement might include an opportunity for selected students to attend the contracted universtiy for a term or two

537 The feasibility of expanding the EAP facility at Zamorano should be explored with the hope of at least doubling the Honduran student contingent it is able to accept The activities of EDUCREDITO should be fully financed This latter institution could be made responsible for offering special courses to those secondary level graduates who are not propertly prepared to undertake further studies To augment these measures and help solve the manpower problem for the medium term a study and action program should be begun now The program should be organized in modular fashion with each module to include identification design and implementation of action programs which increase the output and quality of personnel for rural development

Point Six Research Extension and Improved Seed

538 The national research capability is in urgent need of improvement to help increase production Inter-disciplinary teams for national commodity and farming systems research and training programs should be set up The

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attack should be designed to (a) stress staff and institutional developshyment (b) incorporate relevant ongoing work and staff (c) emphasize the basic food crops (d) prepare the way for an effective technical component in a small farmer development program (e) anticipate the eventual developshyment of a coordinated regional research system (f) draw upon the intershynational research centers for the maximum assistance permitted by their mandates and (g) support a production and distribution program for improved planting materials

539 It should be understood at the outset that (a) the benefits to Honduras from research done elsewhere will not be great for most commodities unless there exists a substantial national research capability and (b) that it will require a considerable expenditure continuing technical cooperation and at least a decade to create the foundation for the needed research capacity

540 The research should be organized on the basis of inter-disciplinary teams with each team being assigned total responsibility for a commodity (or commodity group) Each team needs a headquarters center located in the zone best suited to the production of the commodity for which it is responsible along with regional centers in each of the other relevant ecological areas 11 Inter-disciplinary teams should also be formed to develop location-specific farming systems for each main ecological region A central research agency office is required to deal with such questions as policy and budget and to provide administrative services library facilities and perhaps some of the more sophisticated technical services for the commodity and farming systems teams

541 The commodity programs should begin with yield trials on domestic and foreign planting materials and if necessary the putting together of more suitable varieties for local conditions The economics of production practices such as planting dates and densities fertilization rates and the like should be studied as soon as possible At this point farmers should be recruited as cooperators and on-farm testing should be started Soon thereafter extension work can get underway using the on-farm testing program for demostration purposes As knowledge on varieties and practices is accumulated crop production specialists should be trained to enable the extension activity to be expanded

542 The project should be designed to produce adequate quantities of seed of proven varieties for multiplication under an improved seed program

543 This research and extension work should be integrated with the AID-sponsored smailholder cropping systems research and demonstration

11 The three basic areas are tropical humid represented by the Aguan the warm dry as at Choluteca the temperate dry as at Comayagua

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project 11 This $17 million project which grew out of the ongoing AID soil fertility evaluation and fertilizer project is about to get underway It will support CAIIE (Center for Tropical Agricultural Research of Turrialba Costa Rica) in providing technical assistance training and coordinating services to the national agricultural research agencies in the five Central American countries Its aim is to strengthen the national capability for technical and economic inter-disciplinary investigative work on small farm cropping systems in terms of the use of labor risk income generation nutrition power requirements and the like It will try to develop cropping systems which increase employment and income under varying ecological and economic conditions It is expected that the work will be coordinated with the international research institutes in Colombia the Philippines and Mexico and with INCAP (Nutrition Institute for Central America and Panama)

544 As noted above the Government might wish to investigate altershynative ways of organizing for research and extension work including the possibility of creating an autonomous agency for this purpose In any event the research-extension unit should be made responsible for organizing and monitoring the seed production program for which a jOint public-private enterprise should be established shy

Point Seven A Rice Project

545 Quick-yielding projects to produce exports and help promote the post-Fifi recovery need urgent consideration One possibility is in rice Land suitable for rice is available on the north coast (for example in the Cuyamel Omoa and Chameleconcito areas near Puerto Cortes) At an indicative cost estimate of SOme $1600 per ha 11 and a reasonable product price expectashytion a mechanized double-cropped project would probably provide a remunerashytive rate of return Project preparation would not require much time after the topographic and water supply data were assembled If preparation and construction were given priority it should be possible to bring the project quickly into production

11 Cropping Systems ft is defined to mean ftthose planting combinations and sequences of annual and perennial crops grown on the same piece of land during defined production periods Intercropping crop overlapping cropping sequences and multiple cropping are all terms relevant to the concept Livestock will receive attention as soon as circumstances permit The rationale of the project has been explained by AID as follows One of the major constraints to the improvement of production on small farms is the lack of adequate recommendations for cropping systems which are suitable for application under the socioshyeconomic and ecological conditions prevailing in the tropics

11 Including land and water development and facilities for drying milling and storage

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546 The project would not be a heavy user of labor and it would require continuing expenditures of foreign exchange for spare parts fuel fertilizers and pesticides It would not be a suitable vehicle through which to distribute land to smallholders However in a second phase consideration should be given to arrangements which would enable the project to provide services (technical machinery and marketing) to smallholder outgrowers and asentamientos

Point Eight Irrigation Drainage and Flood Control

547 The primary task in the next couple of years is to build up the qualified personnel supply the legal base and the administrative mechanism to develop and manage the national water resource available for use in agrishyculture This tooling-up task should be stressed in the early stages while moving forward with the feasibility and pilot work on possible projects The deficiencies in the Government performance during the many years of trying to develop the Comayagua should be taken fully into account in organizing a new approach and in assigning adequate time to build a competent institution beshyfore construction expenditures are incurred The Sula and the Quimistan merit priority attention and the IDB has already responded to the requests for assistance in these important areas and others as well as in helping study the trade-offs in terms of rural low-income improvement versus economic yield of alternative regional emphases in water development work

548 An effort should be made at the outset to identify areas in the Sula which could be made economically productive for certain crops such as rice without additional flood protection if some drainage facilities were provided The cost of such drainage would be low in comparison with a comshyprehensive flood protection plan after having taken the risk factor fully into account

549 As proposed above the Government may wish to study whether it would be desirable to set up a decentralized agency to plan and oversee water resource studies and the design construction and operation of irrigation systems manage these systems including water fee collection jointly with farmer representatives of irrigation districts develop and implement water legislation design and carry out soil conservation programs when adequate staff and information has been acquired that is several years from now and with other relevant agencies 1 help develop the nations land and water resources

Point Nine Agro-Industry

550 The priority task in the years just ahead is to assure effective management and an apolitical modus operandi of the new agency CONADI It

1 Including ENEE (Empresa Nacional de Energia Electrica) SANAA (Servicio Autonomo Nacional de Aguas y Alcantarilla) Ministry of Interior SECOPT Ministry of Health Ministry of Economy COHDEFOR and Ministry of Foreign Relations A permanent commission made up of representatives of these agencies would be desirable to allocate water among alternative uses

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should develop a close working relationship with the private sector More use should be made of the INCAE facility (Central American Business Adminisshytration Institute) in Nicaragua to help upgrade the supply of industrial managers The rate and nature of the development of the sector will depend on such factors as regional market arrangements the degree of success in activating agricultural production per se and following that on the proshymotion of agricultural production of the specific sort suitable for indusshytrial needs Concerning small industry and artisanal activities the CCTI (Technical-Industrial Cooperative Center) which now works with a negligible budget needs more funds for its promotion work

Point Ten Fisheries

551 The draft plan for fisheries needs reconsideration with stress being placed on personnel training Also needing attention are the possishybilities of aquaculture the improvement of artisanal cooperatives the proshyduction of basic marine resource information and the design of legislation and regulations and arrangements for enforcement

Point Eleven Product Demand Estimates

552 It is suggested that the ongoing work on the demand outlook for farm products be strengthened For example it is hard to defend the draft plans export projection for bananas of 15 million tons in 1978 (Annex 2) A reasonable interpretation of the available evidence would suggest that the appropriate expectation is not much if any in excess of one million tons Similarly the Government expectations for shrimp exportsas presented in the draft plan appear to be highly optimistic given recent world supply and demand trends If used as the basis for action programs weak forecasting of demand can lead to a mis-use of development resources particularly in periods of rapid world-wide change

Point Twelve Credit and the BANAFOM

553 After 24 years of BANAFOM operation it is time to review its role in agricultural credit Much of its lending is to medium and large farmers a majority are (or could become) eligible for credit from commercial banks The BANAFOM should begin to graduate clients to the commercial bank system This could be done gradually in order not to cause production cutbacks The BANAFOM should also try to expand its lending to cooperatives and intermediate institutions including ANACH FACACH and FUNDHESA which can sublend to end users Providing the administrative resources to handle individual small farmer loans has proven to be very costly It is also difficult to get such loans to farmers at the appropriate time an4 to provide the necessary supershyvision (Collection rates have also been unsatisfactory although improvement was underway until Hurricane Fifi worsened the delinquency rate)

554 The BANAFOM has a number of non-credit functions such as price stabilization for basic grains and the proviSion of a wide variety of agrishycultural supplies to farmers (It is expected that its industrial promotion

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task will be taken over by CONADI) Such activities complement the credit program But they also divert BANAFOM attention from its main task that is credit The Government may wish to consider alternative arrangements partishycularly when the price stabilization program is enlarged

Point Thirteen Grain Storage Facilities

555 The grain stabilization program is just getting underway It has yet to be tested and in addition some funds for storage facility expansion are already available Technical assistance is at hand to help investigate the complex questions which must be answered before long-run development plans for marketing improvements can be finalized for grains and other products However the eventual need for more public and private storage facilities should be anticipated and the construction of collection stations for basic grains to support the small farmer development program should begin within a year or two as mentioned above

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VI FOREIGN SUPPORT FOR THE RURAL SECTOR

61 It is suggested that the Government work closely with foreign assisshytance agencies in preparing and implementing the proposed 13-point rural develshyopment program With this in mind the best approach may be to design support in terms of projects

Project Possibilities

62 A list of project possibilities for foreign donors is shown in the table on the next page with indicative costing and disbursement timing In addition to ongoing support an inflow of loan and grant funds totalling some $118 million (including technical assistance) may be a reasonable order of magnitude for a 4-year Phase 1 period For perspective planning purposes a sum of $347 million might be contemplated for a Phase 2 period of five or six years with a considerable part going to forest industries and water resource development These figures include a liberal allowance for local costs

63 Agrarian Reform (See para 52 ff) Foreign finance is presently available for the agrarian reform Provision for an additional $8 million is made in Phase 1 and $20 million in Phase 2

64 For the Aguan Valley an initial sum of $10 million is assigned for investment in infrastructure and for on-farm development of the asentamientos Another $20 million is alloted for Phase 2

65 For small farmer development Phase 1 provides finance to lay the groundwork for a small farmer development project $05 million is alloted for a study of the asset and income position of the rural poor and to design the first project $1 million is made available to develop and test ways of building technical guidance credit modern inputs and marketing services into a package which can be delivered to farmers As noted under the heading Grain Storage FaCilities a sum of $2 million is provided to expand the network of grain collection stations The ongoing cadaster work already financed should be given a high priority this will provide data essential to designing the small farmer program in terms of both needs and resource potentials The ongoing farming systems work discussed above is also an essential preparatory step for the project It is anticipated that this preshyparatory work will enable a small farmer project to begin in the later years of Phase 1 and $5 million is provided for this purpose In Phase 2 $20 million is assigned to this outlet

66 Forestry (See para 515 ff) $12 million is made available to complement the technical assistance already available to COHDEFOR for forest management and investment planning and for developing exploitation systems which involve the campesino Funds for forest product industries will be required in Phase 2 It is difficult to foresee the precise amount $100 million is alloted on the assumption that additional funds might be forthshycoming from Venezuela or other sources

PROJECT roSSIBILITIES FOR FOREIGN ASsn TANCE IN RURAL DEVELOPMENT WITH INDICATIVE LOAN A1-DUNTS AND DISBURSEHFNT SCHEDULES

Phase 1 Pnase 2 Year OiiexJar Two Year Three Year Four Total Five Years -----------~-------------------_$ Million--------------------------- shy

Agrarian Reform and Small Farmer Ongoing Agrarian Reform Program 30 50 80 20 Aguan Valley 10 20 30 40 100 20 SmallFarmer Development Program

Poverty Profile Study and Program Design 02 02 01 05 Smallholder Service Systems 05 05 10 Fanning Systems Already Financed Grain Collection Stations ~anced under Grain Storage Facilities Cadaster Already Financed Credit and Cooperatives 20 30 50 20

Forestry Technical Assistance 06 06 12 Industrialization 100

Commercial Farm Subsector Credit and Technical Assistance 40 60 100 130 330 50 Land Taxation Already Finenced

~ Rural ROllds 02 10 30 50 92 20 C A~~strative Reform 06 07 05 04 22 Agricultural Education and Training

Student Loan Fund 10 15 10 35 05 05 10~dy-Action Program 02 02 OlS 055

Research and Extension 10 30 60 56 156 16 Improved Seed 10 16 10 36 5 Rice Production end Marketing Project 10 20 20 10 60 8 rrrig~tion Drainage and Flood Control 05 1S 15 15 50 50 Industry

Agro-industry 20 20 20 60 14 Small Industry and Handicratts 02 02 03 03 10 2

Grain Storage Facilities Silos 30 30 20 Grain Collection Stations 10 10 20 2

Advisory Task Force 024 024 024Jldi ~

Total 1224 2344 3729 4554 UB51 31~7 Indicates high priority Note Data include grents Note Excludes outlays for such itoms as health and familY Illarming rural electrification potable watltr

disposal nutrition rural prilary education end BANk middotsupported and other activities to strengthen goverronent work in rural development

Source Hission