world bank document · 28/09/1990 · 1. proiect identity project name cashewnut project credit...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 9021

PROJECT COMPLETION REPORT

INDIA

CASHEWNUT PROJECT(CREDIT 1012-IN)

SEPTEMBER 28, 1990

Agriculture Operations DivisionIndia DepartmentAsia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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INDIA


CURRENCY EQUIVALENTS

At appraisal 1980 US$1 = Rs8.40

For the following years, average rates in Rupees per US dollar have been

used:

1980/81 : 7.901981/82 8.931982/83 : 9.631983/84 10.311984/85 : 11.891985/86 12.241986/87 : 12.791987/88 : 12.97

At PCR mission US$1 = Rsl6.80

Source: IMF, International Financial Statistics, IFS.

YEARS

The Indian fiscal year runs from April 1 through March 31

ABBREVIATIONS

AP - h1 dhra Pradesh

APFDC - Andhra Pradesh Forest Development CorporationARDC - Agricultural Refinance and Development Corporation.

renamed NABARDCNSL - Cashewnut Shell Liquid

ERR - Economic Rate of ReturnGOI - Government of India

IDA - International Development AgencyIRR - Internal Rate of Return

KCDC - Karnataka Cashew Development CorporationNABARD - National Bank for Agriculture and Rural Development

OED - Operations Evaluation DepartmentOSCDC - Orissa State Cashew Development CorporationPCK - Plantation Corporation of Kerala

PCR - Project Completion ReportSAR - Staff Appraisal Report

SC - State Corporation

SH - Smallholder

VP - Vegetative Propagation

FOR OFFICILU USE ONLYTHE WORLD BANK

Washington, DC 20433U$SA

Olfa. iL DIfCtCW.C~fhOpe.atmns LvaIuatHm

September 28, 1990

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on India CashewnutProiect (Credit 1012-IN)

Attached, for information, is a copy of a report entitled"Project Completion Report on India - Cashewnut Project (Credit 1012-IN)"prepared by the Asia Regional Office with Part II of the report contributedby the Borrower. No audit of this project has been made by the OperationsEvaluation Department at this time.

Attachment

This document has a restricted distribution and may be used by recipients only in the performnanr.eof their official duties. Its contents may not othe;zvise be disclosed without World Bank authorization.

FOR OFFICIL USE ONLY

INDIA



Table of Contents

Page No.

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . 1Eveluation Sunmary .................. .----- iii

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . .

Project Identity . . . . . . . . . . . . . . . . . . . . . . 1Background . .......... .. 1Project Objectives and Description . . . . . . . . . . . . . 2Project Design and Organization . . . . . . . . . . . . . . . 3Project Implementation . . . . . . . . . . . . . . . . . . . 4Project Results .... . . . . . . . . . . . . ... . 6Project Sustainability .... . . . . . . . . . ... . 8Bank Performance .... . . . . . . . . . . . ... . 8Borrower Performance .... . . . . . . . . . . .... 9. . 9Project Relationship .... . . . . . . . . . . .... . . 10Consulting Services .... . . . . . . . . . . ..... . 10Project Documentation and Data . . . . . . . . . . . . . . 10

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . .

Adequacy and Accuracy of Factual Information in Part III . . 11Evaluation of Bank's Performance and Lessons Learned . . . . 11Evaluation of Borrower's Own Performance and LessonsLearned ..... . . . . . . . . . . . . . ... . 12

PART III: STATISTICAL INFORMATION . . . . . . . . . . . . .

Table 1: Related Bank Loans and/or Credits . . . . . . . . 13Table 2: Project Timetable . . . . . . . . . . . . . . . . 13Table 3: Credit Disbursements . . . . . . . . . . . . . . 14Table 4: Project Implementation . . . . . . . . . . . . . 14Table 5: Project Costs and Financing (A and B) . . . . . . 15Table 6: Project Results (A, B and C) . . . . . . . . . . . 17Table 7: Status of Covenants . . . . . . . . . . . . . . . 21Table 8: Use of Bank Resources (A and B) . . . . . . . . . 22

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (contd)

Page No.

Table 9: Production Costs: Plantations EstablishedUnder the Project ... . . . . . . . . ...... . 24

Table 10: Projected Smnallholder Income from New Plantations 26Table 11: Variances in Projected Smallholder Income from

New Plantations - Karnataka . . . . . . . . . . . . 27Table 12: Variances in Projected Smallholder Income from

New Plantations - Orissa . . . . . . . . . . . . . . 28Table 13: Variances in Projected Smallholder Income from

Neu Plantations - Kerala . . . . . . . . . . . . . . 29Table 14: Projected State Corporations Income from

New Plantations ... . . . . . . . . ...... . 30Table 15: Variances in Projected Corporation Income from

New Plantations - Karnataka . . . . . . . . . . . . 31Table 16: Variances in Projected Corporation Income from

New Plantations - Orissa . . . . . . . . . . . . . . 32Table 17: Variances in Projected Corporation Income from

New Plantations - Kerala . . . . . . . . . . . . . . 33Table 18: Economic Prices for Fertilizers . . . . . . . . . . . 34Table 19: Price Summary for Economic Analysis . . . . . . . . . 35Table 20: Economic Rate of Return to the Project . . . . . . . . 36Table 21: Economic Rate of Return to Smallholder Component . . . 37Table 22: Economic Rate of Return to Corporate on Component . . 38Table 23: Selected Cashew Production and Price Statistics . . . 39

INDIA



PREFACE

This is the Project Completior Report (PCR) for the CashewnutProject in India, for which Credit 1012-IN in the amount of US$22.0 millionwas approved on April 29, 1980. The credit was closed on September 30, 1987.The final disbursement was made on May 24, 1988 and $6.65 million was can-celled.

Parts I and III of the PCR was prepared by the Agriculture Opera-tions Division of the Asia Regional Office (Preface, Evaluation Summary, PartsI and III). Part II was based on the "old style" PCR prepared by the Direc-torate of Cashewnut Development of Kerala's Ministry of Agriculture.

Preparation of this PCR was started during the Bank's final super-vision mission of the project in September 1987, and is based, inter alia, onthe Staff Appraisal Report, the legal documents, supervisi-)n reports,correspondence between the Bank and the Borrower, internal Bank memoranda, andthe "old style" PCR prepared by the Directorate of Cashewnut Development ofKerala's Ministry of Agriculture.

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INDIA

CASHEWNUT PROJECT

(CREDIT 1012-IN)


EVALUATION SUMMARY

Obiectives

The objective of the project was to increase the local production ofraw cashewnuts for processing in India so that the cashew industry can improveits export position; to increase the income of smallholders and corporationsin the cashew sector; to allow cashewnut processors greater throughputs; andto provide employment and income for the poorer segments in the cashewnutproducing states. At the same time, the project aimed to improve theproduction base of the cashew sector through research on high-yieldingvarieties and more efficient methods of producing cl.ial material forvegetative propagation.

Implementation Experience

Project implementation was somewhat slower than anticipated atappraisal due to: (a) the inability of the State Governments of Kerala,Karnataka and Orissa to release the required land for corporations; and (b)inadequate staff to deal with the smallholder component. The productionprogramme included both new plantings and improvements to existing plantings.In the case of the smallholder component, the major variance was the very poorresponse to the improvement programme, whereas ;n the corporate sector themajor variances was the inability of the Plantation Corporation of Kerala tomeet its planting target due to land availability constraints. Followingreallocation of improvement targets to new plantings, the project was able toachieve its revised planting targets at the end of a two-year extensionperiod. At completion, actual disbursements under the credit reached a totalof US$15.35 million, leaving a balance of US$6.65 million, which wascancelled. This was mainly due to the devaluation of the Rupee whichsubstantially reduced the local costs in dollar terms.

Results

The project was able to achieve its main quantitative objectives inspite of the land availability problems. However, these problems arereflected in the high proportion of poor and unsuitable soils that have beenused for new plantings, which in turn are reflected in the low yields ofcashewnuts currently being obtained. Yields are much lower than expected(about 40Z of appraisal estimates) and are due not only to the poor soil

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conditions but to the 13w levels of inputs being used for maintenance o; thetrees.

Overall economic and financial rates cf return estimated at projectcompletion are lower than appraisal estimates. The economic rate of return isre-estimated at 13?, about half of the appraisal ebtimate of 25Z. Although132 is still a reasonable figure, it has been strongly supported by a 250:price increase for raw nuts since appraisal. For smallholders the financialrate of return before financing is estimated at 24? as against a range of 242to 40? at appraisal, whereas for the corporations it is estimated at 6? asopposed to 152 tc 18? at appraisal. The large variances are due to thesubstantially lower yields coupled with much higher labor costs, offset to alarge extent by the higher produce prices plus reduced expenditure formaintenance. However, for those smallholders receiving only 50? of crop valueunder the contract harvesting system, the financial rate of return falls to11Z. The corporations in Kerala and Orissa are both making substantial lossesdue to the combined effect of low yields and low prices obtained from contractharvesters.

Sustainability

The somewhat low benefits from the cashew planted under the projectare likely to be maintained. At the same time, there is considerable scope forimproving the benefits. However, to attain this, a change of attitude towardsthe crop is required, i.e., away from that of a "crop of last resort" towardsbeing regarded as a high value cash crop. But as the impetus of specializedcashew extension has been lost since the project closed, such a change inattitude is likely to be slow. Also, very little new planting of cashew hastaken place since project completion, mainly due to the withdrawal of plantingsubsidies. This is unfortunate as the research efforts under the project havecreated the opportunity of upgrading the cashew production base with theexclusive use of high yielding clonal material.

Findings and Lessons Learned

Through the project, the Bank made a positive contribution to thephysical and institutional development of the cashew sub-sector. Theexperience suggests a number of lessons to be learned. During preparation andappraisal, more recognition should have been given to the producersperceptions of the crop; the question of whether or not to use land for newplantings which did not meet the criteria laid down for suitability shouldhave been resolved during the early supervision missions; and yieldpredictions at appraisal should have been firmly based on precedent.



PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Proiect Identity

Project Name Cashewnut ProjectCredit No. : 1012-INRVP Unit : AsiaCountry IndiaSector Agriculture

2. Background

2.1 Agriculture is the dominant sector of the Indian economy. Itprovides 64Z of the country's employment, contributes about 33Z of the GOP (in1987) and accounts for about 132 of India's exports. During the past twodecades, the development objectives of the Government of India (GOI) havefocused on agriculture and particular emphasis has been given to foodgrainproduction, with a view to reaching self-sufficiency in staple foodcommodities. GOI also accords importance to cash crops, including cashewnuts,which generate export earnings and create high employment.

2.2 India pioneered cashewnut processing - extraction of kernels andcashewnut shell liquid (CNSL) I/ from raw nuts - and dominated the worldmarket up until mid-1970s when 902-95Z of the kernel trade was handled byIndia even though it produced only about 25X-30X of total world output of rawnuts. The balance of processing requirements was imported mostly from EastAfrican producing countries. As of early 1970s, other producing countriesstarted building up their own processing facilities and India encounteredserious procurement problems for raw nuts from its traditional suppliers inEast Africa. Whereas raw nut imports amounted to an average of 160,000 tonsper year during the decade 1965-1975, by 1978 only 20,000 tons of raw nutswere imported, causing kernel exports to fall to less than 30,000 tons in 1978from an annual average of 55,000 tons per year for the period 1965-1975. Thisrepresented a loss of almost US$100 million in export revenue and about 10million labor days in the processit.g industry.

2.3 In an effort to redress this situation, GOI, in coordination withthe cashew growing states, embarked on a program to boost local cashewproduction with the objectives of regaining its former export position,ensuring employment for rural workers and enhancing the incomes ofsmallholders in the ca3hewnut producing areas. Measures taken initiallyconcentrated on research and the provision of credit for new plantings.

I/ CNSL is a phenol used mainly in manufacture of friction materials.

However, to speed up the expansion of local raw nut production and to ensure abetter u.;e of existing pros-essing capacities in the country, GOI requestedWorld Bank financing for a broader based cashewnut development project to:

(a) expand substantially the area under cashewnut in both the corporateand the smallholder sectors;

(b) support research on cashewnut so as to provide high yieldingplanting material to producers and to develop a technology forfield dissemination of pest control measures and maintenance ofplantings; ard

(c) examine ways and means to improve the efficiency and competitivenessof the industry, interstate coordination of both production andprocessing, meeting the needs of the predominately smallholderplantation sector, and to improve cashew trade promotion.

3. Project ( Aectives and Description

3.1 Project Objectives. In accordance with the above GOI strategy forthe agricultural sector, the objectives of the cashewnut project were: toincrease the local production of raw cashewnuts for processing in che country,so that the cashew industry could improve its export position; to increase theincome of smallholders and corporations in the sector; to allow cashewnutprocessors to work their facilities at higher capacities; and to provideemployment income for the poorer members of society in the cashew growingstates. At the same time, the project aimed to improve the production base ofthe cashew sector through research on high yielding varieties and moreefficient methods of producing clonal material for vegetative propagation.

3.2 Project Description. The Cashewnut Project (Credit 1012-IN)provided for:

(a) a cashew planting and improvement programme covering 61,275 ha, ofwhich 35,000 ha were to be developed by private farmers and thebalance of 26,275 ha by state cashew development, forest developmentor plantation corporations;

(b) staff buildings, roads, vehicles, eqaipment for the corporations;

(c) staff vehicles, equipment and operating costs of supporting servicesfor the private farmers programme, and funds for trainingdepartmental and corporation staff;

(d) a 500 ha pilot scheme to determine appropriate cashew plant:.ngpractices on coastal dune land in Orissa:

(e) strengthening cashew research by improving and expanding the centralcashew research station and three regional substations, and byestablishing a new regional substation;

(f) a program to improve about 200 km feeder roads in Kerala; and

(g) a rtudy fer improving the organizational structure of the industry.

4. Project Design and Organization

4.1 The project was prepared by the four participating states (Kerala,Karnataka, Andhra Pradesh and Orissa) with guidance from GO! Ministry ofAgriculture Project Preparation and Monitoring Cell and from staff of theWorld Bank New Delhi office, and was based on reports from each of the fourstates, completed in r)ctober 1978.

4.2 The conceptual framework of the project was basically sound and wassupportive of the cashewnut developnient objectives mutually agreed between GOIand the Bank.

4.3 During preparation a number of issues were raised. These included:land availability for the corporations, i.e., the difficulty of identifyingland for cashew development; the institutional arrangements and lending termsfor disbursement of credit to smallholders; the provision of a 25Z subsidy forsmallholder plantings; whether or not a research co,nponent should be included;and the organization of cashew extension. Resolving these issues tookconsiderable time and resulted in about one year's delay in processing of theproject. Perhaps the most contentious issue was that of land to be madeavailable to the Plantation Corporation of Kerala (PCK) for development. Inretrospect, it can be argued that the land allocation difficulties wereunlikely to be resolved satisfactorily and that this component should havebeen withdrawn from the project. As it turned out, PCK planted only 545 ha ofcashew on one contiguous block of highly unsuitable land.

4.4 The suitability of available land for cashew was discussed duringpre-appraisal guidelines laid down and site visits made co verify landsuitability. However, at and following appraisal it seems thlat the problemsof land availability, per se, became dominant and little, if any, furthereffort was made to ensure that suitable land was used for cashew plantings.Although cashew is able to produce crops on poor soils, the decision not toplant on soils not falling into the specified grade should have been agreedupon during supervision. Particularly in Kerala and to a certain extent inKarnataka, a very high proportion of unsuitable land was used, i.e., "waste"land with very shallow rocky soils, totally unsuited for any crop other thancashew, which was planted as a crop of last resort.

4.5 Further, climatic differences between the states appear to have beendiscounted during preparation and this, together with optim sm regarding theuse of suitable soils, led to one standard set of yield predictions for allfour states for the "with project" situation in the SAR. As will be discussedlater in the report, these yield predictions turned out to be unrealistic andhighly optimistic. In Orissa, with lower rainfall than on the west coast, theSAR assumed that the use of vegetatively propagated (VP) plants, on part ofthe land, would compensate for the less favorable ecology. However, theposition was misjudged at preparation and as very little planting actuallytook place with VP material in Orissa, this compensation did not materialize.

4.6 The timing of the project would appear to have been appropriate interms of increaZing the cashew production base. However, it was unfortunatethat the timing was sueh that only negligible quantities of VP plantingmaterial were arailable during the project period and thus the vast majorityof plantings utilized only selected seed.

4.7 The institutional arrangements were extremely complex involving manyorganizations spread over a large geographic area. in consequence, projectcoordination was a problem until the later stages of the project, when thestaffing positUon improved. The Directorate of Cashewnut Development,Ministry of Agriculture, based in Cochin, had overall responsibility for theproject. In the corporate sector, implementatiun was carried out by thePlantation Corporation of Kerala (PCK), the Karnataka Cashew DevelopmentCorporation (KCDC), the Orissa State Cashew Development Corporation (OSCDC),and the Andhra Pradesh Forest Development Corporation (APFDC). For thesmallholders, extension and cashew units were set up 4n each of tle fourparticipating states under the various state departments of agriculture.

4.8 One of the most successful aspects of project design was theresearch component. Although it had a slow start, the dissemination oftechnical packages coupled with regular training courses for extension workersgreatly assisted the project to gain momentum. Although certain aspects ofthe mechanism for dissemination of credit to smallholders can be criticized,there is no doubt that the meeting uf physical targets, although delayed, wasthe direct result of a basically workable credit system.

4.9 On the other hand, there was a failure to meet credit disoursementtargets mainly because not all plantings were supported by bank loans and as aresult of a fall-off in credit uptake in the subsequent years after planting.The latter was due primarily to the small amounts of credit made available tothe farmer in the 4th and 5th years after planting and to the fact that nosubsidy was paid in years 4 and 5. This farmer resistance to credit uptakeafter three years was, to a certain extent, conditioned by a common attitudenot to regard cashew cultivation as a commercial enterprise ana in consequenceto minimize maintenance costs.

4.10 Further, the mission gained the impression that a significantproportion of smallholder plantings were carried out by town-dwellers who eonot depend on their farming activities for their main source of income. Thisgroup appear to have taken advantage of the subsidies, minimized theirborrowings, made early credit repayments and are neglecting maintenance oftheir cashew trees.

5. Project Implementation

5.1 Credit Number 1012-IN was :.igned on June 10, 1980 and becameeffective on September 3, 1980. The credit was originally scheduled to closeon September 30, 1985. However, in early 1984 only about 62Z of the totalsmallholder target area had been planted. The main reasons for this shortfallwere iiisufficient staff at headquarters and field level, and the lack ofquality of field and supervisory staff, their mobility, and initial

constraints in banking. Similarly, the corporations had only achieved 64Z oftheir overall planting target in 1984. The main reason for this was theinability of the State Governments of Kerala, Karnataka and Orissa to releasethe required land. Due to the delays in implementation, and the unexplainedfailure to meet planting targets during 1984/85, two extensions, each of oneyear's duration, were agreed and the credit closed on September 30, 1987.

5.2 There were two critical variances between planned and actualimplementation. Firstly, the production programme included improvements toexisting plantings; smallholders 4,500 ha and corporations 3,000 ha. As thecriteria 2/ adopted for selection of plots for improvement proved too rigidand the financial inducements offered inadequate, there was no appreciableresponse from smallholders to the improvement program. Tn consequence, it wasagreed in 1983-84 to convert the smallholder improvement program to additionalnew plantings and these targets were revised according'y. Secondly, in thecorporate sector an additional 1,400 ha for new plantings was targeted to KCDCand OSCDC during 1987, at a time when it was clear that PCK would not meet itsplanting target due to land availability constraints. For further details seeTable 4 of Part III.

5.3 The estimated cost of the project at appraisal was about US$45.7million, including contingencies. The final cost is about US$31.13 million asshown in Table 5A in Part III. Disbursements under the IDA credit reached atotal of US$15.35 million, leaving an undisbursed balance of US$6.65 million,which was cancelled at the close of disbursements in September 1988. Thiscredit savings was due to: (a) reduction in the numbers of vehicles and civilworks for the State Corporations; (b) reduction in the credit component forthe smallholders who opted to finance plantation maintenance from their ownresources rather than from the project-financed credit; and (c) exchange ratefluctuations.

5.4 The SAR identified the major project risk as obtaining adequatesmallholder participation in the project. Although this risk was eventuallyovercome, other associated risks were not adequately identified, particularlythe factors affecting projected yield levels and returns to the producers.These included:

- land availability and suitability, particularly in Kerala andKarnataka;

- the poor response by smallholders to the programs for improvement ofexisting cashew plantations;

- the use of fertilizer and insecticide inputs at lower thanrecomamended rates; and

- the misconception of tachnical possibilities in Orissa wherevirtually no VP material was used for new plantings.

2/ Trees not more than 10 years old with reasonable spacing, suitable soils.

- the effect of the crop auctioning system in substantially redtucingthe returns to producers. Because of labor shortages in the caseof smallholders and intimidation of labor in the case of thecorporations, particularly in Orissa, 3/ contractors are able topurchase whole crops at a fraction of their true market values.Although by purchasing crops at flowering stage, the contractorsare clearly taking a risk, this risk appears to be more than offsetby the low prices paid. Estimates of the percentage crop valuespaid by contractors to producers vary from 20 (Supervision Reportdated April 1986) to about 50. However, it should be noted thatthese are very rough estimates, as contractors invariably do notdisclose the weight of raw nuts harvested on any particular estate.

6. Project Results

Physical Results

6.1 Planting and Improvement Program. The project achieved its mainquantitative objective in terms of area planted following a two year extensionof the credit, and can thus in physical terms be considered a success. In thesmallholder sector, the overall new planting target, which was increasedfollowing the conversion of the improvement programme into new plantings, wasslightly exceeded. All states met their targets with the exception of Kerala,which fell only marginally short of its revised target. In the corporatesector, the improvement target was achieved. However, for new plantings,although the appraisal target was exceeded, the revised target was notreached. The significant shortfall was in Kerala, where PCK was only able toplant about 24Z of its targeted area.

6.2 Kerala Feeder Road Improvement. The objective of improving about200 km of feeder roads in Kerala was exceeded by about 10%.

6.3 Orissa Sand Dune Pilot Scheme. The objective was to plant 500 ha ofcashew on the coastal strip of shifting sand dunes in order to find methodsfor converting these presently useless dune areas into commercially oreconomically viable cashew plantations. Only about 77 ha were planted between1982-1984. Although the stand was substantially reduced by a cyclone in 1983,further plant deaths were subsequently shown to be the result of soil salinityand waterlogging. As very few plants survived, it was agreed to discontinuethe pilot project.

6.4 Research. After a slow start, the research component progressedwell and some impressive results have been achieved in developing improvedplanting material, and improving the productivity of cashew trees, throughepicotyl grafting and top working. Of great significance has been the

3/ Although OSCDC planned to harvest their cashew with their own labor, theyhave been unable to do so because of intimidation, two laborers havingallegedly been killed in this connection.

development of softwood grafting as a standard method of vegetativepropagation and its commercial adoption. A further breakthrough has been theestablishment of clonal orchards to be used as primary sources of VP materialin the future.

6.5 Study. The Cashew Industry Study was completed in 1985. As thestudy appears to be still under consideration by the Ministry of Agricultureand copies have not been distributed to interested parties within the cashewindustry, it must be concluded that the study has had little impact.

Rates of Return

6.6 The economic rate of return (ERR) for the whole project has beenre-estimated at 13Z over a 40-year period, which 's about half of the SARestimate of 25Z. For the smallholder component, the completion estimate ofERR is 162 and for the corporations component 112, which compare with the SARestimates of 312 and 242, respectively. The SAR estimates were based onhighly optimistic yield projections which both small farmers and corporationswere unable to achieve. The lower than expected yields (about 402 of SARestimates - see comments on Table 6A of Part III for more details) were mainlydue to the poor soils on which new plantations were established and to the lowlevel of inputs used by smallholders and corporations during the maintenanceperiod. Notwithstanding the low yields, the ERR of 13Z is still reasonableand this can be attributed mainly to a 2502 increase in prices paid for rawnuts since appraisal (Rs 4.8/kg to Rs 12.0/kg). Present indications are thatthe current price paid for raw nuts will fall slightly in the medium term.(See Indonesia Cashew Study, FAO Investment Center, dated 18 December 1989).

6.7 Financial results of the project have been analyzed by computing afinancial rate of return (IRR) for the new planting operations on a perhectare basis, before and after financing, for both smallholders andcorporations. For smallholders, the IRR before financing is estimated at 242as against a range of 242-402 at appraisal, and the return to farmer's equityis assessed at 402 as against 50%+ in the SAR. For the corporations, an IRR of62 is calculated compared with 152 to 182 at appraisal. The large variancesare again due to the substantially lower yields together with much higherlabor costs, offset to a large extent by the much higher producer pricestogether with reduced expenditure for maintenance. However, for thosesmallholders receiving only 502 of crop value under the contract harvestingsystem, the IRR before financing falls to 112 and becomes negative if theprice obtained is only 35Z of the free market price. A similar situationapplies to the corporations, all of whom use contract harvesters, with PCK andOSCDC making substantial losses. For further details see comments on Table 6Bof Part III.

Project Impact

6.8 The project has already made a positive impact on cashewnutproduction in India. However, if farmers and corporations can be persuaded toincrease their standards of management and maintenance, the impact of theproject could still increase dramatically. The project has provided humanresource development in so much as researchers, extension workers and farmers

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have received training in many aspects of cashew production. Although the sanddunes experiment was a failure, and development of unsuitable, steeply slopingland initially led to soil erosion, on the whole the project had a positiveimpact on the environment. Waste and marginal land was developed forproductive use and protected against further degradation once the canopy ofcashew trees had developed. The impact on the technological environment hasbeen excellent with the selection of high yielding planting material and theestablishment of a workable method of vegetative propagation. Given improvedextension and an efficient system of distributing clonal material, there is nodoubt that all future new plantings of cashew in India could be, and shouldbe, with high yielding clonal material. The exclusive use of such materialcould greatly improve the profitability of cashew for the growers and improveIndia's competitiveness in the world market (for selected statistics onproduction and prices see Table 23).

6.9 The research component of the project was mainly responsible for thedevelopment of this potential. As far as che social environment is concerned,the project substantially increased the demand for daily paid labor. However,it did provide increased opportunities, particularly with the corporations,for the operations of apparently highly unscrupulous cashew harvestingcontractors. The institutions involved in the project have gained a greatdeal of experience which could be built upon to improve the execution of asimilar project, should one be undertaken in the future.

7. Project Sustainability

7.1 As the present level of benefits are somewhat low due to theproducer's conservative attitudes towards maintenance of cashew, there islittle doubt that the present benefits from the cashew planted under theproject are likely to be maintained. On the other hand, there is ample scopefor improving the benefits. However, any significant improvement will to alarge extent depend on a change of attitude towards the crop, i.e., towardsbeing regarded more as a high value commercial cash crop rather than as a cropof last resort or, as in Orissa, a crop purely for soil conservation purposes.Although there are signs that some farmers are now regarding the crop in acommercial context and are applying more intensive management practices, ageneral change of attitude is unlikely in the short term. It is unfortunatethat following the close of the project and the subsequent integration of thestaff of the cashew units into the general extension and soil conservationservices, the impetus of specialized cashew extension has been lost. Further,very little post-project new planting has taken place, primarily due to thewithdrawal of the subsidy for new cashew plantings. Farmers appear to beattracted more towards planting rubber or coconuts because of their currentplanting subsidies and the above world market prices paid for their products.This is a most unfortunate development particularly as the research effortsunder the project have created the opportunity of upgrading the cashewproduction base with the exclusive use of high yielding clonal material.

8. Bank Performance

8.1 Through the project, the Bank made a positive contribution to thephysical and institutional development of the cashewnut sub-sector. Although

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the Bank performance was satisfactory, a number of weaknesses are apparent.There seems to have been little involvement in the project of the ResidentMission in India after the preparation stage. This and the discontinuity ofBank staff involved in the project implementation probably led to theinadequate treatment and follow-up of issues and risks previously mentionedand the failure during supervision to anticipate the advent of lower yieldsand to suggest action to overcome the harvesting/marketing difficulties.

8.2 In retrospect, the main lessons that may be learned from the projectare as follows:

(a) During preparation and appraisal more recognition should have beengiven to the producers perceptions of the crop, to the overallsmallholder economy into which the crop would be introduced and tothe limited extent to which they would adopt intensive managementpractices.

(b) The evolving problem of land availability during the early stages ofproject implementation was allowed to override the laid-downcriteria for land selection. This issue merited attention andshould have been raised and resolved during the early supervisionperiod.

(c) Yield predictions at appraisal should be firmly based on precedentand on realistic assessments of the availability (to farmers) ofimproved technologies and should take into consideration ecologicaldifferences between widely spaced geographic locations. Risksshould be fully identified.

(d) The local Resident Mission should have a higher degree ofinvolvement in project supervision.

(e) Marketing should have been more closely studied during preparationand appraisal.

9. Borrower Performance

9.1 In general, the overall performance of the implementing agencies wasreasonably satisfactory, although coordination difficulties were experienced.

9.2 Project covenants were generally adhered to (see Table 7 of PartIII), but with delays particularly in the submission of audited accounts. GOIsupport to the project was generally positive.

9.3 GOI played the lead role in project preparation but the closerelationship between land availability and land suitability was not defined.After a slow start, the state cashew units performed well in stimulatingsmallholder farmers to accept credit to establish new cashew plantations.However, by concentrating on achieving planting targets, the field workersseem to have missed the opportunity to get over to the farmers the importanceof improving cashew management and failed, on the whole, to influence farmersto adopt a more commercial attitude to the crop. A partial explanation could

- 10 -

be that of staff quality and shortages: out of an approved staff complement of425 only 384 were recruited. In the corporate sector, recruitment of staff waswell below that expected, i.e, only 453 out of 1,061. The reasons given forthis shortfall are overestimates of staff requirements at appraisal and, dueto the restrictive labor laws regarding dismissal of staff, reluctance on thepart of the corporations to hire labor unless considered absolutely essential.

9.4 The main lesson learnt by the borrower is clearly that althoughcashew cultivation can be viable under poor soil and management conditions, itis in fact a crop which can be highly profitable to the producer when grownunder the right conditions.

10. Project Relationship

10.1 The success of this project in achieving its physical targets is aresult of the good working relationships between the Bank and the Borrower andthe various implementing agencies.

11. Consulting Services

11.1 Consultants played a minor role in the project, only the CashewIndustry Study was done by conisultants. The study was completed by localconsultants at a substantially lower cost than anticipated. Although thestudy produced a wealth of useful background material, there was very littleinterpretation or analysis of the data, and the conclusions andrecommendations were only general in nature and did not provide a usefulframework for future developments in the cashew industry.

12. Proiect Documentation and Data

12.1 During project implementation, the SAR was generally perceived as auseful framework. As far as availability of relevant data to the PCR missionwas concerned, the draft PCR, consolidated by the Directorate of CashewnutDevelopment, Ministry of Agriculture, proved tc be a useful reportingdocument, but with little critical analysis.

12.2 With regard to the project data base, this is dispersed throughoutthe four participating states and no centralized data base exists. Moreexchange of research results is needed between states, and there is aparticular need to consolidate information on the availability of clonalplanting material and the capacity of the various nursery sites to producesuch material.

- 11 -

PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

13. Adequacy and Accuracy of Factual Information in Part III

13.1 The overall achievement of the Cashewnut Project is highlyencouraging. Even though it is a maiden attempt, the experience gives usenough scope towards increasing the production of raw cashewnut in thecountry. Against the physical target of 64,675 ha the reported achievement is61,279 ha. By the end of 1994-95 the project is expected to yield 43,669 mt.

13.2 The project has helped to improve the economic status of small andmarginal farmers of the participating States. The Project motivated 34,740farmers who must supplement their farm income by casual labor, Participationin this project has helped them for a relatively greater securities of incomeand employment for their families. The project has generated about 6.7million labor days during the project period.

13.3 The country data, defining the project profile at completion aspresented in Part III, was prepared by GOI's Directorate of CashewnutDevelopment and discussed thoroughly in the field.

14. Evaluation of Bank's Performance and Lessons Learned

14.1 Bank personnel were recognized as professional in all respects.While mission members were always highly qualified in their respective fields,there were occasions when the composition of supervision missions was notappropriate to address the kinds of implementation problems occurring. Therewas little involvement in the project during supervision stage of the ResidentBank staff involved in the Project. Normal assigned supervision staff werechanged frequently, and as a result, assistance to resolve issues was notreadily forthcoming. The length of time between some missions during the midimplementing stage was not consistent.

14.2 The major lesson learned is that during the preparation andappraisal stages, the Bank should have reviewed needs of smallholders,particularly as to need for credit beyond the Znd year. The Bank at thepreparation and appraisal stages also were overly optimistic as to landselection and acquisiticn. The Bank was also overly optimistic as to theavailability of improved technological package of inputs, particularly highyielding varieties that were assessed in the different agro-climatic zones; asa result yield predictions at appraisal were over-estimated. Bank was alsoover-optimistic as to the ability of the research agencies to come up withimproved varieties for different agro-climatic regions. Marketing should havebeen reviewed more thoroughly. Bank over-estimated personnel needed in thecorporate sector. A final lesson learned is that good and consistentsupervision assists the Government with technical assistance and direction.

- 12 -

15. Evaluation of Borrower's Own Performance and Lessons Learned

15.1 The performance of the participating institutions in overall projectplanning and implementation was good. The implementation of the project wasslowed by a shortage of improved varieties of cashewnut and mobilization ofeach state's resources and manpower.

15.2 The major lessons learned were: (a) State's learned that cashew isnot the crop of last resort; (b) cashew should not be planted in poor soilsand that it should have good farm management practices, especially ampleinputs; and (c) cashew is a highly attractive and profitable crop that canhave a tremendous impact on small holdings especially in drought or dry areasof India.

-13 -

PART III. STATISTICAL INFORMATION

INDIACASHEWNUT PROJECT (CREDIT 1012-IN)

TABLE 1. RELATED BANK LOANS AND/OR CREDITS

Loan/Credit Title PurpoSe Year of Status Comments

Aooroval

Kerala Agricultural Tree CroP 1977 Closed PCR (1989)

Development Project Production Sept 30 suggests

(Credit No. 680-IN) 1986 fairly

successfulproject

TABLE 2. PROJECT TIMETABLE

Da-te Des iDatePlanned Revised Actual

Identification June 1977

Preparation Oct. 1978 1/

Appraisal Mission Z/ Oct. 1978

Post-Appraisal Mission March &Sept 1979

Credit Negotiations May 1919 Jan 1980 March 1980

Board Approval June 1979 May 1980 April 21. 1980

Credit Signature June 10, 1980

Credit Effectiveness Sept 3. 1980

Credit Closing Sept 30, 1985 Sept 30, 1986 Sept 30, 1987

Credit Completion May 24. 1988

Ij Project prepared by the four participating states with guidance from GOI

Ministry of Agriculture and from staff of WB New Delhi office.

2/ Upgraded from pre-appraisal mission.

- 14-

I INDIACASHEWNUT PROJECTCRLDIT 1012-L;)

TABLE 3. CREDIT DISBURSEv,ENT

Cumulative Estimated and Actual Disbursements(US$ million)

12 H 1983 1984 16 5L 1986197 198

Appraisal Estimate 0.60 3.30 7.50 14.00 22.00

Actual 0.25 1.67 3.52 5.77 7.53 10.48 12.16 15.35

Actual as % of Estimate 42 51 47 41 34 48 55 70

Date of Final Disbursement: May 24, 1988

TABLE 4. PROJECT IMPLEMENTATION

Indicators Appraisal Revised ActualEstimate (or PCR estimate)

Corporations

New Plantations (ha) 23,275 24,675 23,400Improvement (ha) 3,000 3,000 5,013Cost (RsO000) 68,700 - 99.525

Smallholdders

New Plantations (ha) 30,500 37,000 37,879Improvement (ha) 4.500 j/ 0 103Cost (Rs'000) 95,700 - 95,620

Total Plantation (ha) 61,275 64,675 61,279Total Improvement (ha) 7,500 3,000 5,116Total Cost (Rs000) 164,400 - 195,145

Kerala Feeder Road (km) (no.) 258 (32) - 220 (31)Orissa Dune Pilot Scheme (ha) 500 77 2/

I/ Reallocated to new plantations.2/ Abandoned.

- 15 -


TABLE 5. PROJECT COSTS AND FINANCINGA. Project Costs

1/ 21Appraisal Estimate. . . . . . . Actual . . . . .

Items (US$ million) (Rs million) (US$ million) (Rs million)

- Plantations by 14.4 121.0 8.56 95.6Small holders

- Plantations by 10.4 86.9 8.92 99.6State Corporations

- Government Departments: 4.0 33.6 4.64 52.1Salaries, Vehicles.Equipment, OperatingExpenses

- State Corporations: 12.3 103.6 6.30 70.8Salaries. Civil Works,Vehicles. Equipment.Operating Expenses

- Kerala Feeder Roads 2.8 23.9 1.'. 20.9

- Orissa Pilot Coastal 0.3 2.1 0.19 2.1Dune Scheme

- Research. Training 1.4 11.2 0.66 8.5

- Cashew Industry Study 0.1 1.3 0.003 0.3

Grand Total 45.7 i2.S- 3349.9

.j/ Exchange rate: US$1 = Rs8.40. Physical and price contingencies havebeen incorporated into cost estimates as per aDpraisal report.

2/ Actual expenditures as reported by GOI have been phased accordingto loan disbursement schedule and the corresponding US dollar valuehas been calculated by applying the estimated exchange rate duringdisbursement period (see Currency Equivalents).

- 16 -

B. P-oject Financ,nQ

-I)urce . . Planned . . . Final . . .Loan Agreement

(US$ million) (%) (US$ million) (%)

IDA Expenditure Categories 22.0 48 15.35 49

GOI and State Governments 12.7 2815.78 Z/ 51

Banks and Growers 11.0 1 24

Total 3.3ia

I/ Rounded downwards.2/ Breakdown not available.

Comments: Even though there were cost overruns in some categories, thetotal amount in US dollars spent was considerably less than estimated atappraisal (32%) due to changes in the exchange rate between US$ and Rs. Thecontribution in dollar terms of GOI. State Governments, banks and growerswas 33% less than estimated at appraisal.

- 17 -


TABLE 6. PROJECT RESULTS

A. Economic Impact

Appraisal. PCREstimate Estimate

Economic Rate of Return 1/

Overall Project 25% 13%

Smaliholder Component 31% 16%

Corporation Component 24% 11%

Underlying Assumotions

Yield at full development for smallholders 900 kg/ha 350 kg/ha

'iield at full development for corporations 900 kg/ha 375 kg/ha

Irput use for maintenance according to reduced Z/recommendation

Incremental production at fulld velopment 48,395 22,125

Price for raw nuts per ton Rs6,405 for 1985, Rs12,000rising to Rs7,270for 1990 and onwards

1/ For details see cash flow in Appendices 13-14.

Z/ For details on recommended fertilizer and crop chemical use andactual use by smallholders and corporations see Appendix 1,Footnote 3.

Comments:

Yields and Benefits

The principal direct e:onomic benefits of the project are theincremental production of raw cashewnuts from the 61,280 ha of new cashewplantations established under the smallholder and corporation components ofthe project. As yields for the two components were reassessed at levelsconsiderably below SAR estimates, the incremental production per annum isestimated to amount to 22,125 tons at full development of the trees againstthe 48,395 tons projected at appraisal for the new plantings. The loweryields (about 40% of appraisal estimates) achieved by the smallholders andUhe corporations are as a result of the lower than recommended use of

- 8-

ilizer and crop chemicals oy both groups, the poor quality of soils oni plantations were established and, particularly in the case ofIholders, the attitude that cashew is a marginal crop of last resort.

a reflect directly on the over&il ERR of the project being reassessed at50% of appraisal estimates.

All economic costs have been adjusted to reflect 1982cant values and include capital and operating cost for the overall-ct. costs for research and training, the Cashew Industry Study. the;a pilot coastal dunes scheme and the Kerala feeder roads. As detailed-mation on disbursement was not available from all states, costs havephased according to the credit disbursement schedule. Capital and3ting costs for the smallholder and the corporation component have beenided in the amount of Rs8.0 million after the project implementation-d to allow for civil works and replacement of equipment. In view of theinued effort in cashew research, costs for this component have beenidered at Rsl.O million per annum for the period after projectwmentation. Prices for fertilizer and crop chemicals have been adjusted-eflect their economic value in constant 1982 prices. Cost for unskilled)r, which accounts for about 70% of the production cost, has been-ssed in 1982 constant value. All input costs have been adjusted by theJard conversion factor of 0.8. currently applied in project analysis fori. Production as a result of the project has been calculated on theof PCR average yield estimates and valued by using the current raw nut:, adjusted to its 1982 constant value. A summary of economic prices is

i In Appendix 11.

B. Financial Imoact

5AR PCR With Contracticial Rates of Return (IRR) Esti .ate Estimates, Harvestinag /

Iholder before financing 24% - 40% 24% 11%nallholder's equity 50% + 40%

)rations before financing n.a. 22% 9%)rations rate of return 15% - 18% 6%

iyment of 50% of crop value.

Financial models for both smaliholders and corporationitions have been developed on the basis of field information!cted during the mission for the purpose of evaluation of theicial viability of the new plantings. Prices used in the analysis are-prevailing at the time of the mission's visit to India. It was not

idered necessary to develop separate models for the various states asapproach of smallholders and corporations to cashew establishment andlopment did not differ greatly in the three states visited. Details on

of establishment and maintenance of plantations are given inidix 1.

- 19 -

Financial Results

Smallholders. Cash f w projections for smaliholder operations aregiven in Appendix 2. Financing has been based on a 20% equity contributionby the farmers for the first three years of the operation and a contributionof over 50% during the fourth year to compensate for the d'scontinuation ofthe subsidy paid to farmers during the first three years of establishment ofthe plantations and to avoid a higher bank loan. This reflects the behaviourof farmers interviewed who stated that the loan sanctioned by the banks (atan average of Rs2,560 in five different installments) was not sufficient tocover all costs, and a certain resistance to take a higher loan from thebanks. The subsidy element paid by the Central and State Governmentsaveraged out to be about Rs300 per ha per annum for a period of three years.In general, farmers stated that they were not interested in taking the loanfor the full period envisaged (5 year) and preferred to repay as soon asthey were able to do so. In fact, some farmers have already paid back thetotal loan even before their plantations reached the bearing stage. Inother instances farmers indicated that the loan installments for maintenancein years 4 and 5 were not sufficient to cover actual cost and as a resultthey preferred not to take up these loans. This attitude is reflected in therepayment schedule used in the analysis: loan disbursements over the firstfive years and repayment commencing from year 6. The first installment inyear 6 being accrued interest, followed by three equal installments ofRsl,00O in years 7 through 9 and a final repayment of Rs800 in year 10.

With this repayment schedule, the annual net cash flow amounts toRs2,635 as of year 11, giving an IRR to farmer's equity of 40% compared tothe SAR estimate of over 50%. The lower IRR to equity is as a result of thehigher contribution farmers had to make, as they found that the sanctionedloan did not cover the establishment cost of the plantations.

The financial rate of return before financing has been calculatedto be 24%, as opposed to a range of 24% to 40% estimated at appraisal. Theseresults are based on the assumption that the average yield at fulldevelopment to be achieved by smallholders amounts to 350 kg/ha of rawnuts, i.e. only about 39% of the appraisal estimate. However, fieldinvestigation suggests a certain range of possible yields in the variousstates and financial returns have been calculated taking these variancesinto consideration. Assumed yield ranges for the three states visited andtheir corresponding IRRs are given below:

Yield Range iBRRaw Nuts kg/ha (%)

Karnataka 300 - 600 21 - 37 (see Appendix 3)

Orissa 300 - 450 21 - 30 (see Appendix 4)

Kerala 150 - 350 5 - 24 (see Appendix 5)

- 20 -

The differences in yields indicate that cashew is sensitive toproper riintenance operations, i.e. that the timely application offertilizer and, in particular, the timely spraying of insecticides tocontrol tea mosquito has a strong impact on production. The variances inyields experienced in the different states are a result of these factors andsuggest that there is considerable scope for further improvement throughbetter management practices and extension support. The above figures alsosuggest that in order to break even, smallholders have to realize a yield ofjust under 150 kg per ha of raw nuts.

An important factor affecting financial results of smallholders iscontract harvesting. The majority of farmers auction their crop at floweringstage to contractors against cash payment at this time. As a rule,information on actual quantities harvested is not communice-'ed to thefarmer. It is estimated that the amount the farmer actually receives isabout 35% - 50% of the value of raw nuts harvested by the contractor. Onthe assumption that the farmer obtains 50% of the value of the harvestedcrop, the IRR (before financing) is as low as 11% and becomes negative ifthe value obtained is as low as 35%.

Cornorations. The financial results of the per ha model for thestate corporations indicate an IRR of 22%. As an example, financial resultsfor the Andhra Pradesh Forestry Corporation have been analysed in applyingthe reduced gross revenues (adjusted to 1979 constant prices) against SA2projections. The internal rate of return obtained amounts to 6%, as comparedto 18% as per appraisal estimate. However, the net cash flow remainsnegative as of year 9 which would suggest that additional financing isrequired which would render the operation non viable.

The reports of the corporations do not provide sufficient elementsto assess their overall financial situation. However, the analysis using theestimate that only about 50% or less of the potential revenues are beingrealized by the corporations, due to the auctioning system applied forharvesting, shows that the corporations are clearly not reaching the levelof profits projected in SAR (Appendices 6-9).

This problem is particularly acute for the Orissa State CashewDevelopment Corporation which faces a monopolistic market and its revenues,due to the auctioning system, are estimated to be less than 50% of theactual value of production, causing the corporation to incur large losses.

The Plantation Corporation of Kerala is in even worse position,mainly due to the poor quality of land made available for the plantationfrom which the corporation obtained only very poor yields, i.e. 6 tons from500 ha of 6-7 year old trees in 1988. The plantation, established under theproject in Kerala, is clearly not viable and making considerable losses,notwithstanding economies in labour and inputs.

C. Studies

Studv Puroose as Defined Satu Impact of Studyat Appraisal

Cashew Industry A study for improving the Completed Still underStudy organizational structure review by GOI.

of the industry.

TABLE 7. STATUS OF COVENANTS

AG6T Section Description of Covenant Compliance

AROC 2.08 AROC to establish criteria for selecting cashew

plantations for improvement. Complied with.

4.02 AROC accounts audit/report due to IDA not later

than 4 months after end of each FY. Complied with.

4.03 ARDC to ensure audit of participating Banks;

statement to IDA 4 months after end FY. Complied with.

CRED 3.03 Study for improvement of original structure of 09/30Ot8 Complied with, but

cashew industry to be undertaken; copy to IDA. study not awardeduntil September 1984.

3.05 Borrower furnish proposals to IOA for carrying 09/30/80 Complied with.

out cashew research (Part C. 1).

3.06 Borrower to establish project coordination 09/30/80 Complied with, but

committee in its Ministry of Agriculture. committee meetingsdelayed.

PROJ 2.05 Each project state to provide subsidy to Complied with.

farmers at amount specified (Part A. 1).

2.06A Each project state to establish state project 09/30/80 Complied with.

coordination committee.

2.068 Each project state to appoint a project 09/30/80 Complied with, but

director at the state level (SPCC). frequent staff changeswere counterproductive.

3.02 Audited accounts/reports due to IDA not Eventually complied with.

later than 9 months after end of each FY. following considerable

- AGEN of AP (Proj. Acc) delays.

- AGEN of Karnataka (Proj. Acc)- AGEN of Kerala (Proj. Acc)- AGEN of Orissa (Proj. Acc)- AROC (now Nabard) (Overall)- Participating Banks (Sep Loan Acc)

3.03 Project states to drati up their staff Complied with.

training programmes for Part B. 2;programmes to IOA.

3.05 Orissa to prepare plans for implementing 12/31/80 Complied with, but

a oune reclamation pilot scheme (Part B. 3). implementation of theplan was devastated by acyclone.

3.06 Kerala to furnish to IDA each June 30 an Complied with.

annual road construction programme (Part B. 4).

3.07 Karnataka Cashew Development Corporation Ltd. to 12/31/80 Complied with.

employ finance officer to Institute managementaccountinq system.

- 22 -


TABLE 8. USE OF BANK RESOURCES

A. Staff Inputs

Stage of Project Cycle Planned Revised ... Final.(Staff Weeks)

Through Appraisal - - 68.7

Appraisal through - - 59.7Board Approval

Board Approval through - - 3.2Effectiveness

Supervision - - 120.2

Project Completion Report - - 0.8

Total 252.6

1/ Not final figure.

S. mission

Perforwance Rat1no 3/mission nth/Year eo. t Persons Days in Field Speclal izatlon Status Trend TIo. of AlIearesented _/ Probei

Identification June 1978Preparation October 1978Appraisal October 1978Post Appraisal - I March 1979Post Appraisal - 2 September 1979Supervision October 1980 2 17 A.B 2 1 t

December 1980FebMar 1981 1 14 A 2 t NMarch 1982 4 23 0,C.0 2 2 1.F.RJune 1982 1 5 E - - -Nar/Apr 1983 3 29 B.C 2 2 ti.F,RFebruary 1984 2 20 C 2 2 H,F,R,CMarch 1984 3 30 8,C,F 2 2 1,F.R.CSeptember 1984 2 20 C 2 2 N,F.R.CSept/Oct 1985 2 '0 jj B.C 2 2 M,FF.CApril 1986 2 13 I/ 8.C 2 2 H.F.CSepte,ber 1987 1 7 I1 C 2 2 M.F.C,

J1/ EstImate. Missions combined supervision/appraisal of two or more projects.1 A = Financial Analyst, B = Agricultural Economist, C = Agriculturist, 0 = Loan Officer, E Road Engineer.

f = Finance & Management.J/ Status 2 - Moderate Problems, Trend I i Improving. Trend 2 = Stationary.l/ N = Managerial, F = Financial. A = Reporting, C - Completion date.

INDIA

CASHEWNUT PROJECT(CREOIT 1012-IN)

TABLE 9. Production Costs: Plantations Established Under the Protect(1 Ha Model)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 +Small- State Small- State Small- State Small- State Small- State Small- State Small- State Small- State Small- State Small- Stateholder COrp holder Corp. holder Corp. holder Cori. holder Corp. holder Corp. holder Corp. holder Corp. holder Corp. holder Corp.

Labour (Id)

Land clearance& development 20 30 - - - - - - - - - - - - - - - - - -Planting & gap

filling 5 5 I I - - - - - - - - - - - - - - - -Fertilizerapplication 4 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4

Plant protection 2 2 2 2 2 2 3 3 5 7 5 7 5 8 5 8 5 8 5 8Weeding, mulching 10 10 1S 15 IS 15 15 IS 15 15 15 IS 15 15 15 15 15 15 15 15Harvesting J/ - - - - - - 1 1 3 3 7 7 9 10 11 12 12 13 14 ISMiscellaneous 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

Total LabourDays 45 55 25 26 24 25 26 27 30 33 34 37 36 41 38 43 39 44 41 46 1

Wage Rate(Rs/ld) ZI 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25

LabourCost (Rs) 1.125 1.375 625 650 600 625 650 675 750 825 850 925 900 1,025 950 1,075 975 1,100 1,025 1,150

Materials (Rs)

Plant material 100 100 20 20 - - - - - - - - - - - - - - - -Fertilizer 31 130 130 230 230 420 420 250 380 250 380 250 380 250 380 250 380 250 380 250 380Cropchemicals 4/ 30 40 40 60 40 60 70 90 70 90 100 130 100 130 130 170 130 170 160 210

Miscellaneous 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30

Materials cost 290 300 310 340 490 510 350 500 350 500 380 540 380 540 410 580 410 580 540 620

Total Costof Production 1.415 1.675 935 990 1,090 1.135 1.000 1,175 1,100 1,325 1,230 1,465 1,280 1,565 1,360 1,655 1,385 1,680 1,565 1.770

Labour as Xof Total Cost 80 82 67 67 55 55 65 57 68 62 69 63 70 66 70 65 70 65 66 65

Footnotes for Appendix I - Production Costs

.t/ Based on average yields in the three states visited, namely Kerala 300 kg/ha, Orissa 375 kg/ha and Karnataka 450 kg/ha.

./ Average daily wage rate for unskilled farm labour which ranges from Rsl2/day in Orissa to Rs45/day in Kerala.

J/ Assuming application as per recommendation during initial three years and 3/4 of recommended rate for corporations

and 1/2 of recomnended rate for smallholders as of Year 4. Recommended rates are as follows:

'fear Urea SSP HP Total(kglha - 150 trees per ha) (kg/ha)

1 30 60 - 90

2 60 60 15 135

3 120 90 30 240

4* 150 90 30 270

4/ Assuming 1 1/2 rounds of spraying for corporations and I round of spraying for smallholders. Recowmendation for spraying: 3 rounds,

0.05X Endosulfan - 1.5 ml per litre of water. Use about 6 litres of solution to 10 year old tree, i.e. 6 x 1.5 x 150 ml/ha or

4 1 Endosultan for 3 rounds of spraying.

ui

INDIA

CASHEWNUT PROJECT

(CREDIT 1012-IN)

TABLE lOProlected Smallhoider Income from New Plantations

(Rs)

.1/Production Costs Yield Revenue Net Benefit Financino Net Benefit

Year Labour Materials Total (kg/ha) before Farmer Subsidy Loan (Debt Total after

Financin Equity Servicel Financing

1 1.125 290 1,415 - - (1,415) 280 300 835 1,415 -

2 625 310 935 - - (935) 180 300 455 935 -

3 600 490 1.090 - - (1,090) 220 300 570 1,090 -

4 650 350 1.000 20 240 (760) 410 - 350 760 -

5 750 350 1.100 60 720 (380) 30 - 350 380 -

6 850 380 1.230 160 1,920 690 - - 1640) (640) SO

7 900 380 1.280 235 2,820 1,540 - - (1.000) (1,000) 540

8 950 410 1.360 270 3.240 1.880 - - (1.000) (1.000) B80

9 975 410 1.385 310 3.720 2.335 - - (1,000) (1,000) 1.335

10 1.025 540 1.565 350 4.200 2.635 - - (800) (800) 1.835

11-40 1.025 540 1.565 350 4.200 2.635 - - - - 2.635

IRR = 24X IRR on farmer s equity 401

It For details see Appendix 1.

INlA

CASHEEWUT PROJECT{CREDIT 1012-IN)

TABLE 11. Variances In Proiected Smaliholder Income from New Plantations - Karnataka(Rs)

Year Lw I Hioih Costs I/ Low Yield Hioh Yield OW Hjia Low Met High metProduction ...... ... (kg/ha) .... Revenue Revenue Benefit Benefit

1 1,415 1,415 - (1.415) (1.415)

2 935 935 - - - - (935) (935)

3 1,090 1,090 - - - - (1,090) (1.090)

4 1.000 1,025 17 34 204 408 (796) (617)

5 1,100 1,150 52 103 624 1,236 (476) 86

6 1.205 1,355 138 274 1.656 3,288 451 1.933

7 1.255 1,430 202 402 2.424 4.824 1,169 3.394

8 1,310 1,560 232 462 2,784 5,544 1,474 3,984

9 1.335 1,535 267 530 3,204 6,360 1,869 4,825

10-40 1,515 1,815 300 600 3,600 7,200 2,085 5,385

IRR a 21X IRR = 37X

/f Inputs are assumed to remain constant, variance in production costs as a result of lowerlhigher labour input for harvesting.

CASNEWNUT PROJECT(CREOIT 1012-IN)

TABLE 12. Variances in Prolected Smaliholder Income from New Plantations - Orissa

Low Production 1/ Nleh Costs LI Low Yield Hiqh Yield Low Revenue High Revenue Low Net Benefit High Net Benefit

(Rs) (Rs) (kg/ha) (kg/ha) (Rs) (Is) (Rs) (as)

1 1.415 1,415 - - - - (1.415) (1.415)

2 93S 935 - - - - (935) (935)

3 1.090 1,090 - - - - (1,090) (1,090)

4 1,000 1,000 17 26 204 312 (796) (688)

S 1,100 1.125 52 77 624 924 (476) (201)

6 1,205 1,280 138 206 1.656 2,472 451 1.192

7 1,255 1,355 202 303 2.424 3,636 1,169 2,281

8 1.310 1,435 232 348 2,784 4.176 1,474 2.741

9 1.335 1,485 267 400 3,204 4.800 1,969 3,315 OD

10-40 1.515 1,665 300 450 3,600 5,400 2.085 3,735

IRR - 21X IRR = 301

LI Inputs are assumed to remain constant, variance in production costs as a result of lower/higher labour inputs for harvesting.

1 OLA


TABLE 13. Variances In Proiected Smal1holder Income from New Plantations - Kerala

rar Low Production 1/ High Costs 1/ Low Yield High Yield Low Revenue High Revenue Net Beneit Net Benefit

(Rs) IRs) (kg/ha) (kg/ha) (Rs) (Rs) (Rs) (Rs)

1 1,415 1,415 - - - - (1,415) (1.415)

2 935 935 - - - - (935) (935)

3 1.090 1.090 - - - - (1l090) (1,090)

4 988 1.000 9 20 108 240 (880) (760)

5 1,075 1,100 26 60 312 720 (763) (380)

6 1,130 1.230 67 160 804 1,920 (326) 690 '0

7 1,155 1,280 101 235 1,212 2.820 57 1,540

8 1.210 1.360 116 270 1,392 3,240 182 1,880

9 1.210 1.385 133 310 1,596 3,720 386 2,335

10-40 1,365 1,565 150 350 1,800 4,200 435 2,635

[RR 5 SS IRR - 24S

1/ Inputs are assumed to remain constant, variance In production costs due to lower/higher labour Inputs for harvesting.

INDIA

CASHEWNUT PROJECT(CREDIT 1012-lN)

TABLE 14. Proiected State Corporations Income from New Plantations

(Rs)

~11Year Production Costs Yield Revenue Net Benefit Total Cost Revenue Reduceo Net

Labour Materials Total (kg/ha) Before Financing Without Harvesting by 50 Due to BenefitAuctioning

1 1.375 300 1,675 - - (1,675) 1,675 (1.675)2 650 340 990 - - (990) 990 (990)

3 625 510 1.135 - - (1,135) 1,135 - (1.135)

4 675 500 1.175 20 240 (935) 1,150 120 (1,030)

5 825 500 1,325 65 780 (545) 1,250 390 (860) 0

6 925 540 1,465 170 2,040 575 1,290 1,020 (270)

7 1,025 540 1.565 250 3,000 1,435 1,315 1,500 185

8 1.075 580 1.655 290 3,480 1.825 1,355 1,740 385

9 1.100 580 1,680 335 4,020 2,340 1,355 2,010 655

10-40 1.150 620 1,770 375 4,500 2,730 1.395 2,250 855

IRR = 22X IRR = 9X

J/ For details see Appendix 1.

tIHIA

CASHEWNUT PROJECT

(CREDIT 1012-IN)

TABLE 15. Variances in Proiected Corporation Income from New Plantations - Karnataka

Year Low Production IJ High Costs 1/ Low Yield High Yield Low Revenue High Revenue Low Net Benefit High Net Benefit

(Rs) (Rs) (kg/ha) (kglha) (Rs) (Rs) (Rs) (Rs)

1 1.675 1,675 ^ - - - (1,675) (1,675)

2 990 900 - - - - (990) (990)

3 1,135 1.135 - - - - (1,135) (1.135)

4 1,175 1,225 16 32 192 384 (983) (841)

5 1,300 1,375 52 104 624 1,248 (676) (127)

6 1.440 1,565 136 272 1,632 3,264 192 1.699

7 1,515 1,715 200 400 2,400 4,800 885 3,085

8 1,605 1.830 232 464 2,784 5,568 1,179 3,738

9 1.605 1,880 268 536 3.216 6,432 1.611 4,552

10-40 1,695 1,995 300 600 3.600 7,200 1,905 5.205

IRR = 17X IRR = 331

t( Inputs are assumed to remain constant, variance in production costs as a result of lowerthigher labour inputs for harvesting.

CASHEWUWT PROJECT(CREDIT 1012-IN)

TABLE 16. Variances in Protected Corporation Income from New Plantations - Orissa

Year: Low Production 1/ Hiah Costs IJ Low Yield High Yield Low Revenue Hiah Revenue Low Net Benefit Hiah Net Benefit

(Rs) (Rs) (kg/ha) (kg/ha) (Rs) (Rs) IRs) (Rs)

1 1.675 1,675 - - - - 11.675) 11.675)

2 990 900 - - - - (990) (990)3 1.135 1.135 - - - - (1.135) (1,135)

4 1,175 1.175 16 24 192 288 (983) (887)

5 1,300 1.350 52 78 624 936 (676) (414)

6 1,440 1.490 136 204 1.632 2.448 192 958

7 1,515 1.615 200 300 2.400 3.600 885 1.985

8 1,605 1.705 232 348 2,784 4.176 1.179 2.471

9 1.605 1.755 268 402 3.216 4,824 1.611 3.069

10-40 1,695 1.845 300 450 3,600 5.400 1.905 3.555

IRR = 17X IRR = 272

1,/ Inputs are assumed to remain constant, variance in production costs due to lower/higher labour inputs for harvesting.

INDIA


TABLE 17. Variances in Projected Corporation Income from New Plantations - Kerala

Year Low Production I/ High Costs I/ Low Yield High Yield Low Revenue High Revenue Low Net Benefit High Net Benefit

(Rs) (Rs) (kg/ha) (kg/ha) (Rs) (Rs) (Rs) (Rs)

1 1,675 1,675 - - (1.675) (1.675)

2 990 990 - - - - (990) (990)

3 1,135 1,t35 - - - - (1.135) (1,135)

4 1.165 1.175 8 19 96 228 (1,069) (947)

5 1,275 1.325 26 60 312 720 (963) (605)

6 1,365 1,465 68 158 816 1.896 (549) 431

7 1.415 1,540 100 233 1,200 2,796 (215) 1,256

8 1.480 1.630 116 270 1,392 3,240 (88) 1.610

9 1.480 1.745 134 312 1,608 3.744 128 1.999

10-40 1,545 1.745 150 350 1,800 4,200 255 2.455

IRR = 0.73X IRR = 21X

I/ Inputs are assumed to remain constant, variance in production costs as a result of lower/higher labour inputs for harvesting.

-34 -


TABLE 18. Economic Prices for Fertilizers 1/

Urea (any origin) bagged, FOB N.W. Europe 141+ Freight and insurance 38

CIF Bombay 179 1,725 2/+ Port handling and storage 100+ Transport and wholesale margin 3J/ 228* Transport and retail margin 4/ 179

Import parity price 2,232

2,230 (rounded)

Single super phosphate 5/ FOB, US Gulf 55+ Freight and insurance 41

CIF Bombay 96 924 V/+ Port handling and storage 100+ Transport and wholesale margin a/ 148+ Transport and retail margin 4/ 113


Muriate of Potash 87+ Freight and insurance 41

CIF Bombay 128 1,232 Z/+ Port handling and storage 100+ Transport and wholesale margin i/ 179+ Transport and retail margin 4/ 1R


1,650 (rounded)

1/ Expressed in 1982 constant prices.2/ Converted at exchange rate USS1 = Rs = 9.628.i/ Assumed 400 km transport by rail and 10% wholesale margin.4/ 50 km transport and 7.5% retail margin..5/ Price derived from price for TSP.

- 35 -


TABLE 19. Price Summary for Economic Analysis 1/

Economic98?

Raw Nuts (Rs/t)

All States 7,215

Fertilizer (Rs/t)

Urea 2,230SSP 1,285M/P 1,650

Pesticide (Rs/1)

Farmgate 71

Farm Labour (Rs/labour davy 15

I/ Economic prices for traded commodities (cashew and fertilizer) have beendeflated to 1982 constant values and an estimated standard conversionfactor for India of 0.8 has been applied.

/ Financial price to Endosulfan, adjusted by local taxes (10%) to arriveat economic price.

IMA


TABLE 20. Economic Rate of Return to the Proiect(Rs million)

Year Production Costs Capital and Operating Costs Research, Study Orissa Pilot Proiect b Total Value of Net

SM4 SC 5 SC and Training Kerala Feeder Roads Costs Production Benefits

1 2.2 2.3 0.6 0.9 0.1 0.3 6.4 - (6.4)

2 6.8 8.1 3.6 4.8 0.6 1.5 25.4 - (25.4)

3 11.2 10.8 4.9 6.3 0.8 1.9 35 9 - (35.9)

4 15.7 12.9 5.7 7.7 1.0 2.3 45.3 0.6 (44.7)

5 19.9 16.4 4.5 6 0 0.8 1.8 49.4 3.7 (45.7)6 24.6 20.0 7.5 10.0 1.3 3 1 66.5 12.0 (54.5)7 27.8 21.3 4.3 5.7 0.7 1.7 61.5 27.4 (34.1)8 30.8 24.0 8.1 10.8 1.4 3.3 78.4 46.3 (32.1)

9 31.2 24.8 6.0 8.0 1.0 - 71.0 66.5 (4.5)10 32.9 26.2 6.0 8.0 1.0 - 74.1 88.6 14.5

11 33.9 27.2 6.0 8.0 1.0 - 76.1 111.0 34.9

12 35.3 28.2 6.0 8.0 1.0 - 78.5 128.5 50.013 36.2 28.6 6.0 8.0 1.0 - 79.8 141.7 61.9

14 36.9 28.9 6.0 8.0 1.0 - 80.8 150.6 69.8

1S 37.4 29.2 6.0 8.0 1.0 - 81.6 155.8 74.2

16 37.7 29.2 6.0 8.0 1.0 - 81.9 158 4 76.517 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5

18 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5

19 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5

20-40 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5

ERR: 13%

INDIA


TABLE 21. Economic Rate of Return to Smaliholder Component

(Rs million)

Year Production Costs Capital and Operating Costs Total Production Value of Production Net Benefits

(t)

1 2.2 0.6 2.8 - (2.8)

2 6.8 3.6 10.4 - - (10.4)

3 11.2 4.9 16.1 - - (16.1)

4 15.7 5.7 21.4 48 0.3 (21.1)5 19.9 4.5 24.4 255 1.8 (22.6)

6 24.6 7.5 32.1 832 6.0 (26.1)

7 27.8 4.3 32.1 1,917 13.8 (18.3)8 30.8 8.1 38.9 3.345 24.1 (14.8)

9 31.2 6.0 37.2 4,991 36.0 (1.2)

10 32.9 6.0 38.9 6,823 49.2 10.311 33.9 6.0 39.9 8,701 62.8 22.912 35.3 6.0 41.3 10.297 74.3 33.0

13 36.2 6.0 42.2 11,550 83.3 41.114 36.9 6.0 42.9 12.371 89.3 46.4

15 37.4 6.0 43.4 12.861 92.8 49.416 37.7 6.0 43.7 13,136 94.8 51.1

17 37.8 6.0 43.8 13.258 95.7 51.9

18 37.8 6.0 43.8 13,258 95.7 51.9

19 37.8 6.0 43.8 13,258 95.7 51.9

20-40 37.8 6.0 43.8 13,258 95.7 51.9

ERR = 16X

INDIA

CASHEWNUT PROJECT(CREDIT 1012-lN)

TABLE 22. Economic Rate of Return to Corporation Component(Rs million)

Year Production Costs Capital and Operating Costs Total Production Value of Production Net Benefits

(t)

l 2.3 0.9 3.2 - - (3.2)

2 8.1 4.8 12.9 - - (12.9)3 10.8 6.3 17.1 - - (17.1)

4 12.9 7.7 20.6 42 0.3 (20.3)

5 16.4 6.0 22.4 259 1.9 (20.5)

6 20.0 10.0 30.0 838 6.0 (24.0)

7 21.3 5.7 27.0 1.882 13.6 (13.4)

8 24.0 10.8 34.8 3,074 22.2 (12.6)

9 24.8 8.0 32.8 4,228 30.5 (2.3)

10 26.2 8.0 34.2 5,466 39.4 5.2

11 27.2 8.0 35.2 6,681 48.2 13.0

12 28.2 8.0 36.2 7.513 54.2 18.013 28.6 8.0 36.6 8,091 58.4 21.8

14 28.9 8.0 36.9 8,504 61.4 24.5

15 29.2 8.0 37.2 8,728 63.0 25.816 29.2 8.0 37.2 8,818 63.6 26.417 29.3 8.0 37.3 8.865 64.0 26.7

18 29.3 8.0 37.3 8,865 64.0 26.7

19 29.3 8.0 37.3 8,865 64.0 26.720-40 29.3 8.0 37.3 8,865 64.0 26.7

ERR - 11l


TABLE 23. Selected cashew Production and Price Statistics

9i61-9i70 1971-1980 1984/1985 1985/1906 198611987 1987/1988

Area under cashew ('000 ha) 245 380 S10 510 576 637

Production of raw nuts ('000 t) 147 162 222 222 246 260

Average yield per ha (kg) 600 426 435 435 427 408

Export of kernels ('000 t) 52 51 t31 +33 39 32

Price of kernels exported from India (Rs/kg) 6.44 19.45 n.a. n.a. 88.16 80.66

Import of raw nuts ('000 t) 156 117 28 44 46 26

Average price of imported raw nuts .J (Rs/kg) 1.1 2.35 11.45 15.10 16.00 13.82

Local producer price (Rs/kg) n.a. n.a. n.a. n.a. 13.70 12.00

Average world market price for kernel I/ (USSIkg) 1.17 3.00 7.90 8.25 7.00 6.85

Source: Agricultural Situation in India, Directorate of Economics and Statistics, Department of Agriculture and Cooperation, "OA.

Directorate of Cashew Development, ROA.Cashew Study. Indonesia, FAO/IC Report 169/89 IF - INS 68.

Mission Estimates.

.L/ Quotations for 1984/85 and 1985/86 based on information of raw nut exports from Tanzania.

/ Based on price quotations of W450 grade for 1961-78 and W320 grade from 1978 onwards.

world bank document · 28/09/1990 · 1. proiect identity project name cashewnut project credit...

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