asian development bank

ASIAN DEVELOPMENT BANK PCR:INO 24005

PROJECT COMPLETION REPORT

ON THE

UPLAND FARMER DEVELOPMENT PROJECT (Loan 1184-INO[SF])

IN

INDONESIA

July 2004

CURRENCY EQUIVALENTS

Currency Unit – rupiah (Rp)

At Appraisal (September 1992)

At Project Completion (May 2004)

Rp1.00 = $0.000491 $0.000116 $1.00 = Rp2,038 Rp8,658

SDR1.00 = $1.473 $1.452

ABBREVIATIONS AARD – Agency for Agricultural Research and Development ADB – Asian Development Bank AIAT – Assessment Institute for Agricultural Technology BAPPENAS – National Development Planning Agency BPN – National Land Agency (Badan Pertanahan Nasional) DGECP – Directorate General of Estate Crop Production DGHP – Directorate General of Horticulture Production DGLRSF – Directorate General of Land Rehabilitation and Social Forestry EA – Executing Agency EIRR – economic internal rate of return FSRI – Farming Systems Research Institute for Semi-Arid Areas ha – hectare MOA – Ministry of Agriculture MOFr – Ministry of Forestry NGO – nongovernment organization NTT – East Nusa Tenggara (Nusa Tenggara Timur) PBME – project benefit monitoring and evaluation PMU – project management unit PCR – project completion report

NOTES

(i) The fiscal year (FY) of the Government ended on 31 March until 2000 and now ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends. FY1996 began on 1 April 1995 and ended on 31 March 1996. FY1999/2000 denotes the last fiscal year ending on 31 March 2000; FY2000 denotes the fiscal year beginning on 1 April 2000 and ending on 31 December 2000.

(ii) In this report, “$” refers to US dollars and “SDR” to Special Drawing Rights.

CONTENTS

Page

BASIC DATA ii

MAP vii

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 7 D. Disbursements 7 E. Project Schedule 7 F. Implementation Arrangements 8 G. Conditions and Covenants 8 H. Consultant Recruitment and Procurement 9 I. Performance of Consultants, Contractors, and Suppliers 9 J. Performance of the Borrower and Executing Agencies 9 K. Performance of the Asian Development Bank 10

III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Efficacy in Achievement of Purpose 10 C. Efficiency in Achievement of Outputs and Purpose 11 D. Preliminary Assessment of Sustainability 11 E. Environmental, Sociocultural, and Other Impacts 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12 A. Overall Assessment 12 B. Lessons Learned 13 C. Recommendations 14

APPENDIXES 1. Summary of Project Outputs 16 2. Project Costs 17 3. Utilization of Loan Proceeds 19 4. Project Implementation Schedule 23 5. Organization Chart 24 6. Status of Compliance with Loan Covenants 26 7. List of Equipment Procured under the Project 32 8. Economic and Financial Analyses 33

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower

5. Executing Agencies

6. Amount of Loan 7. Project Completion Report Number

Indonesia 1184(SF) Upland Farmer Development Project Republic of Indonesia Directorate General of Estate Crops Production Directorate General of Horticulture Agency for Agricultural Research and Development Directorate General of Land Rehabilitation and Social Forestry SDR20.369 million ($30.0 million) PCR:INO 833

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity – Grace Period

8 July 1992 26 July 1992 8 October 1992 9 October 1992 5 November 1992 16 March 1993 14 June 1993 18 May 1993 0 30 April 1999 18 July 2002 3 1.0 percent per annum 35 years 10 years

8. Disbursements a. Dates Initial Disbursement

14 September 1993

Final Disbursement

18 July 2002

Time Interval

94 months

Effective Date

18 May 1993

Original Closing Date

30 April 1999

Time Interval

72 months

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b. Amount (SDR)

Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Disbursed

Undisbursed

Amount 01A - Civil Works - Buildings (FSRI) 495 443 398 45 01B - Civil Works - Rural Infrastructure 5,794 2,987 2,370 617 01C - Civil Works - Buildings (Support Services)

381 347 267 80

02A - Equipment – Agrochemicals 6,639 8,628 6,855 1,773 02B - Equipment – Furniture 188 54 33 21 02C - Equipment – Vehicles 845 1,111 1,046 65 03 - Consulting Services 1,959 2,301 2,171 130 04 - Overseas Training 391 954 408 546 05G - Local Expenditure - Training (Project

Staff) 183 647 600 47

05H - Local Expenditure - Training (Farmers)

983 1,608 1,194 414

05I - Local Expenditure - Land Titling 499 174 166 8 05J - Local Expenditure – Monitoring &

Evaluation 313 128 102 26

06 - Service Charge During Construction 544 544 544 0 07 - Unallocated 1,227 846 0 846

Total 20,369 20,272 16,153 4,119 FSRI=Farming Systems Research Institute for Semi-Arid Areas Source: Asian Development Bank Loan and Financial Information System.

Amount ($’000 equivalent)

Category or Subloan Original

Allocation

Last Revised

Allocation

Amount

Disbursed

Undisbursed

Amount 01A - Civil Works - Buildings (FSRI) 729 656 568 88 01B - Civil Works - Rural Infrastructure 8,534 4,401 3,288 1,113 01C - Civil Works - Buildings (Support Services)

561 378 378 0

02A - Equipment – Agrochemicals 9,778 11,162 9,372 1,790 02B - Equipment – Furniture 277 120 47 73 02C - Equipment – Vehicles 1,245 1,511 1,499 12 03 - Consulting Services 2,885 3,541 3,191 350 04 - Overseas Training 470 716 582 134 05G - Local Expenditure - Training (Project

Staff) 270 965 838 127

05H - Local Expenditure - Training (Farmers)

1,448 1,678 1,561 117

05I - Local Expenditure - Land Titling 735 372 231 141 05J - Local Expenditure – Monitoring &

Evaluation 461 357 146 211

06 - Service Charge During Construction 801 736 736 0 07 - Unallocated 1,807 1,321 0 1,321

Total 30,000 27,914 22,436 5,477 FSRI=Farming Systems Research Institute for Semi-Arid Areas Source: Asian Development Bank Loan and Financial Information System. 9. Local Costs (financed) – Amount $11,099 – Percent of Local Costs 47.3% – Percent of Total Cost 31.9%

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C. Project Data 1. Project Cost ($ ‘000) Cost Appraisal Estimate Actual

Foreign Exchange Cost 14.100 11,337 Local Currency Cost 35.900 23,460 Total 50.000 34,797 Source: Asian Development Bank and Government of Indonesia records.

2. Financing Plan ($‘000)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total

Implementation Costs ADB-Financed 13,300 15,900 30,000 10,601 11,099 21,700 Borrower-Financed 20,000 20,000 0 12,361 12,361 Total 13,300 35,900 49,200 10,601 23,460 34,061 IDC Costs

ADB-Financed 800 800 736 736 Total 14,100 35,900 50,000 11,337 23,460 34,797

ADB=Asian Development Bank; IDC=interest during construction Source: Asian Development Bank and Government of Indonesia records. 3. Cost Breakdown by Project Component ($‘000)

Component Appraisal Estimate Actual

Sustainable Farming Systems Development 23,214 16,553 Agricultural Research and Development 2,326 2,397 Rural Infrastructure 10,130 3,955 Institutional Strengthening 1,717 2,244 Support Services 9,413 6,574 Taxes and Duties 2,400 2,338 Base Cost 49,200 34,061 Physical Contingencies Price Contingencies Service Charge During Construction 800 736 Total 50,000 34,797 Source: Asian Development Bank and Government of Indonesia records. 4. Project Schedule Item Appraisal Estimate Actual

Date of Contract with Consultants FY1993/1994 June 1994 Completion of Engineering Designs June 1998 Civil Works Contract Date of Award

Roads Office Buildings Water Supply System Health Centers Wells Jetty

FY1993/1994 FY1993/1994 FY1993/1994 FY1993/1994 none none

February 1995 October 1994 January 1999 December 1995 January 1999 August 1997

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Completion of Work Roads Office Buildings Water Supply System Health Centers Wells Jetty

FY1996/1997 FY1993/1994 FY1996/1997 FY1996/1997 none none

March 2000 March 1998 March 1999 March 1999 March 1999 February 1998

Equipment and Supplies Dates First Procurement FY1993/1994 December 1993 Last Procurement FY1998/1999 October 2001 Other Milestones First Extension of Loan Closing Date 30 April 2001 Second Extension of Loan Closing Date 31 December 2001 Third Extension of Loan Closing Date 31 March 2002 First Partial Loan Cancellation 4 April 2001 Final Loan Cancellation 18 July 2002

5. Project Performance Report Ratings Implementation Period PAC Notes Project Classification

From November 1992 to October 1998 AAA PPR Ratings

Development Objectives

Implementation Progress

From November 1998 to March 2001 S S April 2001 to July 2002 S PS AAA=project classified as satisfactory in implementation progress, project cost and loan covenant; PAC=Project Administration Committee; PPR=project performance report; PS=partly satisfactory; S=satisfactory. Source: Asian Development Bank records. D. Data on Asian Development Bank Missions Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Members a

Fact-Finding Mission 20 April–8 May 1992 3 57 d, f, i Appraisal Mission 8–26 July 1992 3 54 d, c, f Inception Mission 19–25 April 1993 3 9 d, g, h Review Mission 1 18–28 January 1994 2 22 a, b Review Mission 2 26 March–6 April 1995 2 24 a, h Review Mission 3 (Mid-Term Review) 5–24 August 1996 3 60 a, e, h Special Project Administration Mission 24–28 November 1997 3 15 a, e, h Review Mission 4 6–22 September 1999 2 17 a, h Review Mission 5 20–24 November 2000 1 5 d Project Completion Review b 26 April –11 May 2004 3 46 d, e, h a a - senior agronomist, b - young professional, c - counsel, d - economist, e – economist (staff consultant), f – senior

programs officer, g – PAU head, h – project analyst, i – agriculturist (staff consultant). b The project completion review mission comprised B. Alimov, economist (mission leader); C.V. Quintos, associate

project analyst; and B.T. Tan, agricultural economist (staff consultant). Source: Asian Development Records

I. PROJECT DESCRIPTION

1. On 5 November 1992, the Asian Development Bank (ADB) approved a loan of SDR20.369 million to the Government of Indonesia for the Upland Farmer Development Project (the Project). The objective of the Project was to improve the living standards of poor upland farmers on a sustainable basis through the introduction of improved farming systems, and increased production of a range of perennial and annual crops. At the same time, the Project aimed to stabilize and protect land and forest resources through appropriate soil and water conservation measures.

2. To achieve these objectives, the Project included four components:

(i) Sustainable Farming Systems Development. This component, consisting of on-farm development and land titling subcomponents, was to provide technical, organizational, and financial support to smallholder farmers. The goal was to facilitate investments in land development, and introduce ecologically sound farming systems and agricultural technologies on 22,000 hectares (ha) of upland farms in West Java, Nusa Tenggara Timur (NTT), and Central Kalimantan.

(ii) Agricultural Research and Development. This component was designed to support on-farm research to adapt agricultural technologies to local conditions, and strengthen local agricultural extension services through outreach support. Another key subcomponent was the development of a research institute at Naibonat, NTT, with a mandate to refine and develop technologies appropriate for the semi-arid areas of eastern Indonesia.

(iii) Rural Infrastructure. This component was designed to provide basic social infrastructure to project beneficiaries.

(iv) Institutional Strengthening. This component aimed to enhance the sustainability of the development effort by strengthening local government and farmers’ organizations through a series of training and educational activities, and direct participation in the Project.

3. The Directorate General of Estate Crops Production (DGECP)1 of the Ministry of Agriculture (MOA) was the lead Executing Agency (EA) of the Project with overall responsibility for project implementation and coordination with other agencies. The other EAs were the Agency for Agricultural Research and Development (AARD) and the Directorate General of Horticulture Production (DGHP)2, both under the MOA, and the Directorate General of Land Rehabilitation and Social Forestry (DGLRSF)3 of the Ministry of Forestry (MOFr).

4. The loan became effective on 18 May 1993 and was closed on 18 July 2002. The final loan amount was SDR16.153 million. At the request of the Government, ADB canceled SDR0.097 million during implementation, and SDR4.119 million at project completion. ADB granted three loan extensions, totaling 35 months, to complete project works.

1 Formerly known as the Directorate General of Estates. 2 Formerly known as the Directorate General of Food Crop Agriculture. 3 Formerly known as the Directorate General of Reforestation and Land Rehabilitation.

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II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The Project was consistent with the Government’s objective of achieving sustainable growth of the agriculture sector through increased productivity and conservation of the underlying natural resources. During the 1980s, the Government recognized that unsound agricultural practices undercut its poverty reduction efforts. In response, the Government placed greater emphasis on land use patterns, watershed management, innovative farming systems, vegetative soil conservation techniques, and location-specific research on agricultural practices that could maintain or enhance natural resources. The Government was keen to increase the production of non-rice food crops and smallholder tree crops. Particular attention was given to eastern Indonesia, which has the highest incidence of rural poverty, and the uplands of West Java, where the largest number of rural poor live.

6. The Project also was in line with the Government’s 5-year development plan (PROPENAS), which aimed to achieve economic recovery and strengthen the foundation for a sustainable and equitable development of a democratic society. Further, the Project supported the Government’s decentralization program, which emphasized regional autonomy and strengthening farmer groups.

7. The Project directly supported ADB’s operational strategy in poverty reduction, and in the management and use of natural resources. Six strategic objectives, cutting across all sectors of the economy, guided ADB’s selection of projects in Indonesia for assistance: (i) promotion of non-oil and gas exports; (ii) domestic resource mobilization; (iii) employment generation; (iv) basic needs and human resource development; (v) increased private sector participation; and (vi) improving the efficiency of existing investment, while optimizing resource utilization. Given its role in poverty reduction, employment generation, sustainable natural resource management, and protection of the environment (as well as promotion of non-oil and gas exports), agriculture continues to be a priority sector for ADB assistance in Indonesia. ADB’s medium-term assistance to Indonesia’s agriculture sector emphasizes tree crops development, natural resource management, and improvement of irrigation infrastructure.

8. The Project was designed under an ADB-financed project preparatory technical assistance,4 in close collaboration with the Government. Fact-finding for the Project was undertaken from 20 April–8 May 1992. The Appraisal Mission, which was fielded from 8–26 July 1992, reached agreements with the Government on technical, financial, and organizational aspects of the Project.

9. During implementation, several changes were made in project scope. In December 1995, ADB approved the establishment of 455 ha of cashew plantations in Eastern Waingapu (Eastern Sumba, NTT), instead of at Lewa, Tabundung and Ngonggi (Central Sumba, NTT), because the sites identified during appraisal were found to be unsuitable (para. 14). After the Midterm Review Mission in August 1996, additional changes in project scope were made, including: (i) strengthening the soil erosion conservation efforts by providing livestock to farmers on a need basis (para. 18), (ii) increasing the project area for tree crop development (para. 13) and re-greening (para. 16), (iii) providing an additional 36 person-months of consulting services (para. 38), and (iv) resupplying seedlings of cashew and rubber trees due to the high mortality

4 ADB. 1990. Technical Assistance to Indonesia for the Marginal Farmer Community Development. Manila.

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of seedlings planted prior to farmers’ training and on-farm verification trials (para. 14). All changes in project scope were made in consultation with ADB.

10. The project costs of on-farm development and rural infrastructure were significantly overestimated at appraisal. This eventually led to loan savings cancellations, despite the achievement of all physical targets and the expansion of the project scope. The project design was based on a planning approach with limited emphasis on organizing farmers into groups and training them to practice sustainable farming systems. Farmers’ views on crop preferences were not solicited for incorporation into the development plan. The changes in the project scope after the midterm review partly addressed the limitations of this approach, especially regarding farmers’ preferences. The major shortcoming of this top-down planning approach was that some farmers did not follow the sustainable alley cropping techniques and re-greening activities envisaged at appraisal, because of the lack of training provided under the Project (paras. 15 and 16). The project design also insufficiently emphasized post-harvest activities, such as processing and marketing, which are important factors for project sustainability.

B. Project Outputs

11. The Project achieved the appraisal target for alley cropping, and exceeded the appraisal targets for tree crops plantations. A summary of the project scope and the achievement of each component is shown in Appendix 1.

1. Sustainable Farming Systems Development

12. The Project aimed to facilitate investment in improved farming systems on 22,000 ha of upland farms. Depending on the slopes and agro-climatic conditions, the farming systems were to employ: (i) tree crops, (ii) agroforestry techniques (alley cropping) involving upland food crops, and (iii) re-greening with commercially valuable tree species. The main determinant of the type of farming system to be introduced was slope. The general guideline called for the introduction of alley cropping systems with food crops on gentle slopes, tree crops on medium slopes, and re-greening on very steep slopes. Under the Project, tree crops development was to cover 2,000 ha of banana and fruit trees in West Java, 3,500 ha of rubber trees in Central Kalimantan, and 4,000 ha of cashew trees in NTT. Alley cropping development was to be undertaken in all three provinces, with 3,000 ha in West Java, 3,500 ha in Central Kalimantan, and 4,000 ha in NTT. The re-greening of 2,000 ha was planned only in West Java.

13. After the midterm review, in light of the progress of on-farm development, the targets for tree crops were increased by 1,000 ha for rubber, 400 ha for cashew, and 1,000 ha for banana and fruit trees. The achievement of on-farm-development of 3,000 ha of banana and fruit trees in West Java and 4,510 ha of rubber trees in Central Kalimantan met the midterm targets. The plantation of 5,500 ha of cashew exceeded the midterm target by 25%.

14. During project implementation, more than 2,000 ha of rubber and 2,000 ha of cashew trees were planted ahead of schedule. However, farmers and extension workers received insufficient training on field maintenance. The Project envisaged the lead EA initiating a training program after project appraisal, with the costs eligible for retroactive financing (para. 31). On-farm verification trials of cashew trees, which were supposed to be undertaken prior to on-farm development, suggested that the original locations were not suitable for cashew plantations. These factors, combined with the provision of poor quality planting materials and the lack of on-site nurseries, led to the high mortality rates: about 17% for rubber and 31% for cashew. To correct these deficiencies, the project scope was changed after the midterm review to resupply

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1,000 ha of rubber and 1,155 ha of cashew, and to expand cashew planting in more suitable areas. These measures helped to raise the quality of plantations to satisfactory levels.

15. Food and horticultural crops, comprising annual crops and fruit trees, were planted using the alley cropping system to reduce soil erosion. While mixed-crop farming system models were practiced in West Java on slopes of less than 15%, they were not appropriate for steeper slopes. The Project introduced a simple, but modified, alley cropping system on 3,000 ha in West Java with slopes between 15% and 25%. On 4,000 ha in NTT, the Project introduced an alley cropping system that included the establishment of strips of leguminous trees to help stabilize the soil, and to provide dry season fodder for livestock. The upland food crop model was introduced over 3,500 ha on slopes less than 8% in Central Kalimantan. Not all farmers adopted the alley cropping models envisaged at appraisal, mainly due to limited training that lasted only 1 year. However, due to their increased environmental awareness, the farmers practice simpler modifications of upland farming systems, instead of shifting cultivation prevailing before the Project.

16. The re-greening program in West Java was expected to plant 2,000 ha of quick growing forest trees, such as albizia and parkia, on slopes less than 40% to protect the fragile upland areas, enhance soil conservation, and provide a source of additional farm income. After the midterm review, in light of the satisfactory progress of re-greening activities, the project scope was changed to add 1,000 ha to the 2,000 ha set at appraisal. Actual achievement of re-greening activities met the midterm target of 3,000 ha. The high mortality rate of about 30% during the initial year of planting was resolved by propagating the seedlings in nurseries near the planting sites, instead of acquiring them from distant locations. The mortality rate eventually was reduced to an acceptable 10%. The original re-greening plantations were harvested, and not all farmers replanted them. The replanting comprised mainly agroforestry, not forest trees, reflecting the preferences of farmers for growing tree crops that stabilize the soil and provide annual income.

17. Under the land titling process, the Project was to undertake cadastral surveys and provide full-ownership certificates to participating farmers who successfully developed their plots in accordance with project design. In Central Kalimantan, 4,510 ha were issued with land certificates, while 5,500 ha in NTT were granted certificates. Progress in land titling was slow in West Java due to the contradictory and overlapping land ownership claims, and the difficulty of locating absentee landowners. As a result, only about 300 ha in West Java were issued with land use certificates, against a target of 3,000 ha. The provision of land titles provided added incentive to farmers to participate actively in the Project, and is important for long-term sustainable agriculture development. Under the credit repayment agreements, farmers will receive land title certificates after their credit repayment. Thus, only few land certificates have been issued to farmers.

18. The livestock component was added after the Midterm Review Mission found that this would strengthen the soil conservation program, since livestock can feed on fodder from hedgerow trees and grasses, and provide manure for tree crops. The Project supplied 600 sheep and 1,000 head of cattle. The livestock component was very successful. By project completion, the number of sheep had increased by 160% to 1,560 and the number of cattle had grown by 56% to 1,561. The animals were provided on a credit basis, with the repayment being in-kind and the offspring being distributed to other farmers. While this component provided project farmers with substantial additional income, it also increased the incentive for farmers to practice alley cropping, using intercrops as animal feed. The organic manure from these animals also reduced dependence on chemical fertilizer and enhanced soil structure.

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19. Under the Project, the primary mechanisms to finance on-farm development were (i) the payment of grants to farmers to establish the plantations, and (ii) the provision of credit for agro-inputs and labor to maintain the tree crops plantations from the second year onwards through the immature period of farming systems development. This grant and credit scheme was administered by the respective project management units (PMUs) that DGECP established at the provincial level. The credit was provided at an annual interest rate of 21%, and had a variable maturity and grace period depending upon the farming system and farmer’s cash flow position. However, the loan period was not to exceed 14 years and the grace period 7 years. While the grants were provided to farmers for the first year of alley cropping, cashew, rubber and fruit plantations development, the credit was provided only to farmers in rubber and cashew plantations. The maintenance of alley cropping and banana and/or fruit plantations was not financed through credit, since they could generate cash flows on the second year after planting. The absence of credit to farmers in West Java did not affect the quality of banana and fruit plantations, but the alley cropping component suffered since the farmers did not receive proper training on new farming models (para. 15).

20. Credit repayments were to be collected by the PMUs. Since the PMUs stopped their operations shortly after the project completion due to the decentralization process, the responsibility for collections was transferred to district governments through their extension services. While the majority of farmers were capable of repaying the credit within 3 years, the limited capacity of the extension services led to the weak collection of credit from farmers in NTT, and non-collection in Central Kalimantan.

2. Agriculture Research and Development

21. Under this component, the Project was to facilitate on-farm verification trials for alley cropping and tree crops to adapt agricultural technologies to site-specific, agro-climatic, and socioeconomic conditions. The agricultural research facility in Naibonat, near the provincial capital of Kupang in NTT, was to be upgraded to a full research institute with a mandate to carry out agricultural research on farming systems relevant to the semi-arid agro-climatic conditions of eastern Indonesia. The Project was to support (i) renovation of infrastructure and construction of new buildings, (ii) purchase of vehicles and equipment, and (iii) limited short-term and long-term overseas training for researchers staffing the institute.

22. For on-farm verification trials for alley cropping and tree crops, the Project achieved midterm review targets of 90 ha in West Java, 85 ha in Central Kalimantan, and 75 ha in NTT. The demonstration farms were managed by farmers, and their quality was satisfactory. The results of these trials indicate that farmers can achieve a 30% increase in their crop yields if they adopt appropriate cultural practices in their field. Similarly, the gross margin of the farming system in the demonstration plots was 20%–50% higher than in farmers’ fields.

23. The agricultural unit at Naibonat in NTT was upgraded to a full research institute, which is part of the Assessment Institute for Agricultural Technology (AIAT). The local governments supported the activities of the AIAT by assisting them in: (i) eradicating grasses and weeds from their field, (ii) spraying herbicides, (iii) adopting improved methods for fertilizer application and pesticides utilization, (iv) identifying diseases, and (v) adopting disease control methods.5 After the decentralization process started in Indonesia, AIAT lacked funds for research undertaken in

5 Examples of local governments’ support for the AIAT activities were the establishment of a 140 ha rubber demonstration farm in Central Kalimantan, and a livestock ranch in NTT to show the impact of adopting new technology on productivity.

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districts. However, increasing interest from local governments provides a positive outlook for continuation of the on-field research in eastern Indonesia.

24. The long-term training program was successful—2 students completed doctorate degrees overseas, while 13 students received master degrees in agricultural sciences. Short-term overseas training on the application of the rapid rural appraisal for participatory planning, monitoring, and evaluation was conducted in the Philippines for 10 participants from the EAs.

3. Rural Infrastructure

25. This component was intended to support the (i) construction and rehabilitation of access and farm-to-market roads, (ii) development of small-scale water supply systems, and (iii) improvement or establishment of buildings for rural health outposts. Road construction was to be along existing alignments and rights-of-way only. The rural infrastructure was to be upgraded or constructed as necessary on a village-by-village basis.

26. Roads totaling 620 kilometers (km) were constructed, exceeding the appraisal target of 293 km by 112%, and the midterm review target of 478 km by 63%. All of the rural roads and bridges built have been handed over to local governments, which have been maintaining them in a satisfactory manner. The appraisal target for construction of 8 jetties and 12 water supply systems was achieved. By completing 770 wells, the midterm review target for construction of 250 wells was exceeded by 208%. The maintenance of water supply facilities remains the responsibility of farmers, with local governments providing support for major repairs. Ten health centers were built, significantly below the appraisal target of 26. The other 16 units were not constructed due to difficulties encountered in transferring these health centers to the Ministry of Health. Although the Project achieved its targets in rural infrastructure, the construction of civil works—access roads, water supply infrastructure, PMU offices, and research institute facilities—was regularly behind schedule due to persistent shortages in counterpart funds.

4. Institutional Strengthening

27. Under this component, involved government agencies (central and local) were to provide comprehensive training to project administrative and technical staff to enhance their effectiveness in project implementation. Subdistrict agricultural, estate crops, and public works extension workers were to receive on-the-job training through participation in the Project. In addition, PMU staff, assisted by consultants and nongovernment organizations (NGOs), were to conduct a series of recruitment and training activities to mobilize, prepare, and motivate project farmers for full and effective participation. The PMU with assistance from NGOs also were to undertake institutional development activities to strengthen the capabilities of local communities to implement and sustain upland development initiatives.

28. During 2,250 training days, 38,474 farmers received training in (i) agribusiness development, (ii) crop cultivation techniques, (iii) farming systems, (iv) pest management, (v) processing and marketing, (vi) farmers group, (vii) enhancing women’s skill, (viii) post-harvest technology, and (ix) farm management. Training also was provided for 1,594 project staff during 5,780 training days in (i) project management, (ii) financial management, (iii) communication skills, (iv) leadership training, (v) environment management, (vi) crop agronomy, (vii) extension methods, and (viii) credit administration. This training significantly improved farmers’ and project staff’s technical skills and knowledge of agronomic practices for tree crops, re-greening, soil conservation and animal husbandry. Their ability to form farm groups and establish community business-oriented groups also improved. However, training should have started earlier and

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included more training on alley cropping to avoid the deficiencies that occurred in early stages of project implementation (paras. 14 and 15).

C. Project Costs

29. At appraisal, the Project cost was estimated at the equivalent of $50.0 million, comprising $14.1 million in foreign currency and the equivalent of $35.9 million in local currency. ADB was to finance the entire foreign exchange cost, plus $15.9 million of the local currency cost. The Government was to finance the remaining local currency cost of $20.0 million. The actual project cost at loan closing was $34.8 million, consisting of $11.3 million in foreign exchange costs and $23.5 million in local currency costs. ADB financed 100% of the foreign exchange costs and $11.1 million of the local currency costs, while the Government covered the remaining $12.4 million. At the Government’s request, one loan cancellation $0.1 million equivalent was made during implementation. The net loan amount was the equivalent of $22.4 million after the cancellation of the unused loan balance of $5.1 million equivalent at loan closing. Appendix 2 compares appraisal and actual project costs, by component.

30. The actual project cost was lower than at appraisal in dollar equivalent terms, primarily due to the local cost savings from the depreciation of the rupiah against the dollar. At appraisal, the exchange rate was Rp2,038 to $1.00. During implementation, the exchange rate rose to more than Rp11,000 to $1.00. Another reason for loan savings was the significant overestimation during the feasibility study of the costs for on-farm development and rural infrastructure.

D. Disbursements

31. ADB approved the Government’s request for retroactive financing to finance the Project’s preparation activities, including (i) the establishment of project’s management structure, (ii) cadastral and land use surveys for land titling and physical planning, (iii) training of administrative staff, (iv) initial farmer group mobilization, and (v) on-farm verification trials. The Project, however, did not have the benefit of retroactive financing because of the unavailability of counterpart budget support before loan effectiveness.

32. Under the loan, SDR16.153 million was disbursed, or about 80% of the revised loan amount of SDR20.272 million. On loan closing date, a surplus fund of SDR4.119 million was cancelled. An imprest account of $1.0 million established for the Project helped expedite disbursements. The average turnover ratio of the imprest account was 1.5. A yearly utilization of loan funds is shown in Appendix 3.

E. Project Schedule

33. At appraisal, the implementation schedule envisaged completion of project works within 6 years, beginning in May 1993 (Appendix 4). This was based on the assumption that project preparatory activities would be completed before on-farm development. The implementation of the on-farm development component 1 year ahead of schedule was an attempt to resolve delays in undertaking preparatory activities. Although this resulted in a fast start-up, it led to problems that required the resupply of rubber and cashew seedlings, and the transfer of cashew plantations to an area with more suitable agro-climatic conditions (para. 14). This did not affect significantly the project schedule, since all on-farm development appraisal targets were achieved shortly after the midterm review.

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34. At the request of the Government, ADB granted three loan extensions, totaling 35 months, to complete the Project. The first loan extension was granted to complete the increased targets for civil works. The additional 2 years was given also for the proper maintenance of rubber plantations, which were supposed to last 5 years after planting. The second loan extension of 8 months was granted to accommodate delays caused by the change in the Indonesian fiscal year (from 31 March to 31 December), and to intensify farmer training to ensure sustainability of the Project. The third loan extension of 3 months was granted to allow the Government to finalize its project completion report (PCR).

F. Implementation Arrangements

35. The Project was implemented as designed at appraisal. It was administered by four EAs. DGECP, within MOA, was the lead EA, supported by the AARD and DGHP of MOA, and DGLRSF of MOFr. DGECP had the overall responsibility for project implementation, coordination and supervision, and report submission. It also handled project benefit monitoring and evaluation (PBME). DGECP and DGHP were responsible for the execution of the Sustainable Farming Systems Development component. AARD implemented the Agricultural Research and Development component, while the DGLRSF undertook the re-greening activities in West Java. The National Land Agency (BPN) handled implementation of the land titling activities. The Project began in all three provinces with the establishment of PMUs, as designed at appraisal. A national Project Steering Committee was established and chaired by the director for rehabilitation and crop extension within DGECP. All concerned agencies were represented on the committee, including a representative from BAPPENAS and chiefs of the three districts involved in the project implementation. An organization chart is shown in Appendix 5.

36. The implementation arrangements designed at appraisal were appropriate. Despite the complexity of coordination, the EAs provided competent staff for project implementation, and coordination among EAs was effective. Under the appraisal design, the PMUs were to continue providing extension advice on maintenance, processing, and marketing for at least 5 years after completion of the Project. However, the PMUs stopped their operations shortly after project completion, which resulted in a lack of extension services in project areas and absence of credit collections.

G. Conditions and Covenants

37. The major loan covenants stipulated in the Loan Agreement generally were complied with. Submission of audited financial statements and progress reports, in many instances, were delayed. The covenant on the preparatory activities was partly complied with, because of which on-farm development started ahead of schedule during the first 2 years of project implementation (para. 14). The covenant on benchmark surveys also was partly complied with. Although these surveys were conducted in each subproject area with baseline information collected on the living standards of participating farmers, the benchmark survey report was submitted to ADB 1 year late. The required follow-up survey before completion of the Project was not conducted. The Project’s environmental management and monitoring plans were not prepared due to a change in the Government’s regulations, which eliminated the requirement for such plans (Appendix 6). However, the environmental monitoring program was implemented as a part of the PBME program. The covenant on credit collection was partly complied with, because the credit collections were weak and just started in NTT.

9

H. Consultant Recruitment and Procurement

38. The Project engaged international consultants for 107 person-months (90 person-months at appraisal) and domestic consultants 266 person-months (240 person-months at appraisal) in accordance with ADB’s Guidelines on the Use of Consultants. Their scope of work was to assist project implementation at the national and provincial levels with (i) the establishment of the adaptive research subunits and farmers groups; (ii) land use planning; (ii) on-farm verification trials; (iii) farming systems development; and (iv) planning, organization and construction of civil works. Experts were fielded in two phases: Phase I from June 1994 to November 1996 and Phase II from September 1997 to August 1998. At the request of the Government in 1995, the services of one international expert (agricultural economist) were extended by 3 person-months. The provision of additional 36 person-months of consulting services was agreed after the midterm review. Two international consultants (soil conservation and marketing specialists) were engaged for 12 person-months, while two domestic experts (community organizer and civil engineer) were engaged for 24 person-months (para. 9). To prepare the Government’s PCR, two person-months each of international consultant (financial analyst) and local consultant (tree crop specialist and agro-socio-economist) were contracted in November 2001.

39. Local contractors carried out civil works under the Government’s local competitive bidding procedures acceptable to ADB. All supplies and equipment were procured in accordance with ADB’s Guidelines for Procurement. Procurement of vehicles and major equipment items (e.g., laboratory equipment) was undertaken through international shopping. Some small supply contracts valued within ADB’s direct purchase ceiling had to be tendered using the Government’s standard local competitive bidding procedures. A list of vehicles and equipment procured is shown in Appendix 7.

I. Performance of Consultants, Contractors, and Suppliers

40. In general, the consultants performed their services satisfactorily and in accordance with their terms of references. The consultants’ reports provided useful information on project performance, as well as recommendations for improvements in administration and implementation. The performance of local civil works contractors also was satisfactory. The construction of rural roads was implemented in accordance with the technical specifications. The delay in construction of civil works was caused by persistent delays in the flow of counterpart funds (para. 34).

41. The performance of suppliers was partly satisfactory. The poor quality of planting materials contributed to the high mortality rates, and subsequent replanting, in the project areas (para. 14). The state auditor BPKP consistently reported each year on the deficiencies in procurement, such as delayed contract execution, delayed or short delivery, procurement irregularities, and re-tendering. The impact of shortcomings in procurement of inputs, such as planting materials and fertilizers, increased costs and delayed the implementation of the work program.

J. Performance of the Borrower and Executing Agencies

42. The performance of the Borrower was satisfactory. The Government established the necessary imprest account, but had difficulty in meeting the counterpart fund requirements in a timely manner. The persistent shortages of funds allocated for project implementation were mainly attributable to budgetary constraints of the central Government.

10

43. The performance of the EAs was also satisfactory. The DGECP undertook its role as the lead EA successfully, meeting its responsibility for project implementation, coordination, and supervision. AARD, DGHP, and DGLRSF also successfully met their responsibilities in project implementation. The EAs assigned competent staff for project administration. The Project provided an example of successful cooperation among multiple EAs.

K. Performance of the Asian Development Bank

44. ADB’s performance was rated satisfactory. ADB monitored the Project closely from the start of implementation. It fielded seven missions, including an intensive midterm review in August 1996, and took timely steps to solve implementation problems. Although ADB did not foresee the medium-term problems of planting cashew and rubber ahead of schedule and without sufficient farmers training, it took corrective measures at the midterm review after the negative effects of early planting became obvious. At the midterm review, recognizing the importance of the livestock in upland economies, ADB responded positively to the Government’s request to include a livestock component in the project scope.

III. EVALUATION OF PERFORMANCE

A. Relevance

45. The Project was highly relevant. It was consistent with ADB’s country strategy and the Government’s development objectives, and remains so now. The Project’s integrated approach to agricultural development is relevant to the Government’s and ADB’s objectives of increasing productivity and household incomes, conserving and protecting natural resources, and developing self-sustaining and self-reliant community groups that can enhance their quality of life.

B. Efficacy in Achievement of Purpose

46. The Project clearly achieved its immediate objectives, and has contributed significantly to reducing poverty in project areas. Some 34,500 farmers have benefited from the Project, exceeding the target of 25,000 set at appraisal. The annual output has exceeded all the targets set at appraisal for fruits by 330%, maize by 189%, banana by 180%, rice by 175%, timber by 7% and cashew by 5%. When rubber yields reach their peak, the annual output for rubber will exceed the appraisal target by 26%. The increase in cropping area by 29% for rubber, 38% for cashew, and 50% for banana, fruit, and forest trees was a major factor accounting for the larger output at project completion. The output of fruit and banana in West Java substantially increased due to the higher yields. Higher output of banana can be partly explained by the change in variety grown, while fruit output benefited from the adoption of a more intensive cultivation system. Rice and maize yields benefited from new technology introduced during project implementation.

47. Farm incomes rose more than three-fold, from Rp2.5 million to Rp8.3 million in Central Kalimantan; from Rp1.7 million to Rp5.5 million in NTT; and from Rp1.9 million to Rp6.2 million in West Java. Assuming an average family size of four, by project completion the per capita income for these areas would be Rp2.1 million for Central Kalimantan, Rp1.4 million for NTT, and Rp1.6 for West Java. Substantial increases in the prices of project outputs were partly responsible for the large rise in farm incomes. Prices of the main project outputs, except for banana, were nearly double the prices estimated at appraisal and midterm reports.

11

48. The Project created about 40,000 person-years of employment during implementation, as compared with the appraisal target of 35,000 person-years. At full development, the Project will require an incremental labor input of 13,000 person-years annually, as compared with the appraisal target of 12,000 person-years. Basic services to project beneficiaries improved significantly. Access to their farms and nearby towns improved, while potable water and health services were more readily available. Overall, the Project was efficacious in meeting its objectives.

C. Efficiency in Achievement of Outputs and Purpose

49. The base case economic internal rates of return (EIRRs) for the three sub-projects were 15.3% for Central Kalimantan, 14.7% for NTT, and 20.7% for West Java. That compares with appraisal estimates of 16.4%, 14.9%, and 20.2%, respectively. The base case EIRR for the entire Project was estimated at 18.7%, which was higher than appraisal estimate of 17.1%. These results were achieved despite (i) the inclusion of costs for developing the Farming Systems Research Institute for semi-arid areas (excluded at appraisal), (ii) using a higher shadow wage rate factor than at appraisal, and (iii) adjusting the yield pattern for tree crops (Appendix 8). The main project risk is the possibility of a decline in commodity prices.

50. To be consistent with the economic analysis done at appraisal, EIRR estimates were based only on farm benefits from rubber, cashew, fruit cultivation, and reforestation. The economic benefits from infrastructure development (road development and increased access to potable water and health care), institutional strengthening of local and central governments and farmers, and provision of land tenure—the outputs project beneficiaries valued most—were not quantified, and were not included in the EIRR calculation. The environmental benefits from improved water retention in uplands, higher soil fertility, and reduced soil erosion also were not quantified. Appendix 8 provides the details of the economic and financial analyses.

51. The Project’s EIRR is higher than at appraisal. Significant increases in farm incomes imply high efficiency of investment. However, three loan extensions totaling 35 months, which were due mainly to the persistent shortages in counterpart funds, suggest the partial efficiency of process. Combining high efficiency of investment and partial efficiency of process, the Project was ranked as efficient in achievement of outputs and objective.

D. Preliminary Assessment of Sustainability

52. The demand for tree crops remains strong, and product processing has the potential to increase. The training provided to farmers, community workers, and women’s groups should enable them to continue with their present activities. Local governments are providing necessary support for the maintenance of civil works completed under the Project. The AIAT continues undertaking adaptive agricultural research relevant not only for project areas, but eastern Indonesia as a whole. The main concerns for project sustainability are (i) the lack of support to farmers in processing and marketing to ensure that they would be able to sell their products at profitable prices as output increases with crop maturity; and (ii) the continuation of extension services support by local governments, especially in pest and disease management. Local governments in project areas expressed their commitments to mitigate these concerns. The sustainability of Project’s benefits as originally envisaged is, therefore, likely.

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E. Environmental, Sociocultural, and Other Impacts

53. The Project had positive environmental effects by conserving the fragile sloping land through the introduction of sustainable farming systems. Increased incomes, combined with more secured land tenure, prompted a change to permanent cultivation instead of shifting cultivation, which will benefit the environment over the long term. The Project also was instrumental in promoting the planting of forest trees, especially teak, in many of the project areas. This practice spread rapidly in the past 5 years, and many farmers are now planting seedlings of forest trees on their unused land. However, some farmers did not follow the sustainable agriculture farming systems envisaged at the appraisal due to the lack of training and support for alley cropping. Thus, the environmental impact of the Project is positive but moderate. It is highly probable that this impact will strengthen in the future, in light of the land tenure granted to farmers and the local governments’ commitment to continue their support and training for sustainable farming systems.

54. Although the environmental management and monitoring plans were not prepared under the Project due to the change in Government’s relevant laws and regulations (para. 37), the environmental monitoring was implemented as a part of the PBME program. The localized erosion from road construction, which could have occurred in the steeper terrain from incorrect alignments or poor observance of construction specifications, was the only potential moderately negative environmental impacts noted at appraisal. This was avoided through proper mitigation measures, which were implemented as part of technical design and construction supervision.

55. The Project had a positive impact on women who participated actively in all farm activities—from field preparation to crop maintenance and harvesting. In rubber tapping, women have a comparative advantage since their superior tapping skills caused less damage to the productive trees. Consequently, they receive the same or higher wages than men. The Project provided greater stability of employment to households, and now women work on their own farms and as wage earners on neighboring farms. They also participate actively in all farm management decisions. Additional income enables them to improve family nutrition, provide for children’s education, and generally upgrade their homes. The Project had positive effects on health, as many households were provided with potable water supply. In addition, the increased supply of food crops and livestock produce improved food security and nutrition. No adverse effects on the indigenous peoples were noted, as the Project took into account their local patterns of social organization, cultural beliefs, and resource use.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

56. The Project met all its physical targets and achieved all its immediate development objectives. Tree crops and livestock development significant strengthened poverty reduction and provided a base for future economic development. Secured land tenure for project beneficiaries was an important determinant of sustainable upland management. In addition, the Project improved the standards of living of project beneficiaries through the provision of basic social infrastructure.

57. The Project supported on-farm research to adapt agricultural technologies to local conditions, and strengthen local agricultural extension services through outreach support. Another key output was the development of agricultural research facilities, which enhanced the productivity and sustainability of agricultural production in the country, especially in eastern

13

Indonesia. Central and local governments, together with farmers’ organizations, were strengthened through a series of training and educational activities as well as direct participation in the Project, which enhanced the sustainability of the Project.

58. Based on the Project Performance Rating Assessment criteria, the Project was rated as successful.6 B. Lessons Learned

59. The key lessons learned from the Project were:

(i) The lack of extension advice on maintenance, processing, and marketing contributed to the low output prices farmers in remote areas received. Addressing these issues would considerably increase farmers’ incomes.

(ii) The farmers training and on-farm verification trials should have been undertaken before planting. While planting tree crops ahead of schedule enabled the Project to meet or exceed the planting targets, it damaged the quality of plantations in the long term.

(iii) To ensure the efficient delivery of seedlings, a site-specific evaluation of alternative means of supply, including the establishment of on-site nurseries, should have been carried out.

(iv) The Project provided limited training and support to farmers for alley cropping. As a result, some farmers did not follow sustainable agriculture farming systems envisaged at the appraisal.

(v) Livestock development, which plays an important role in the upland areas, should have been introduced from the beginning of the project.

(vi) To ensure that farmers practice sustainable forest management, re-greening activities should have been undertaken with wider participation of farmers in species selection. The activities also should have been accompanied by farmers’ training on environmental management.

(vii) The Government should have undertaken project preparatory activities, including establishing the Project’s management structure, training project administrative staff, launching initial farmer group mobilization and on-farm verification trials, and improving roads to facilitate access to the project sites.

6 This PCR is part of a sample of PCRs independently reviewed by the Operations Evaluation Department. The

review has validated the methodology used and the rating given.

14

C. Recommendations

1. Project-Related

60. Project-related recommendations include:

(i) Local governments, in cooperation with EAs, should ensure continuation of monitoring of the project performance by the Provincial and District Offices of the Estate Crop and Agriculture Services as well as the District Forestry Services in West Java.

(ii) Local governments should provide adequate support for maintenance of completed civil works and agricultural extension services. This should include the dissemination of the results of agricultural research in pest and disease management to the farmers, assistance in marketing, and agro-processing. The central Government should assist local governments in the provision of these extension services.

(iii) Local governments in cooperation with DGECP should facilitate the collection of credit from farmers in the project areas in accordance with the loan covenant.

(iv) Local governments, with technical support from EAs, should provide assistance,

such as livestock development or tree crop plantation, to farmers in areas that are inappropriate for cashew plantations, but were prematurely developed for cashew during the first years of project implementation.

(v) If a project performance audit report is to be conducted, the mission should be

fielded in about 3 years to enable more sound evaluation of the impacts and sustainability of the Project.

2. General

61. Uplands constitute a large part of Indonesia, and are home to a substantial portion of the country’s population. In addition to being an important contributor to the national agriculture sector, uplands play a critical role in maintaining the ecological balance and protecting the productivity of lowland areas. Unfavorable economic conditions are a major cause for continuing environmental degradation. The Project was able to address simultaneously the economic and environmental problems in uplands. The lessons learned from the Project should be considered when planning future government projects targeted at economic development and environmental management in uplands. General recommendations from implementation of the Project are:

(i) Upland watershed development projects should include planting tree crops such as fruit crops and estate crops in addition to forest trees, since these trees promote soil conservation as well as providing farmers with additional farm income.

(ii) As part of any re-greening component, emphasis should be given to building capacity and training farmers to ensure sustainability of these activities.

15

(iii) The provision of basic social infrastructure should be considered in all future upland development projects. Road infrastructure programs should be initiated at least 1 year before field planting to provide better access to the project sites, thereby facilitating timely delivery of planting materials and project inputs.

(iv) Quality should be enforced through strict compliance with procurement guidelines. In addition, the training of farmers and extension workers in crop maintenance should be done before field planting.

(v) The Government should use the success of this Project to continue the development of other upland areas.

16 Appendix 1

SUMMARY OF PROJECT OUTPUTS (1993–2002)

Project Physical Achievements

Subcomponents Unit Appraisal Revised Actual % of Actual to Target Targets Appraisal Revised MTR Targets Targets On-Farm Development Rubber ha 3,500 4,500 4,510 129 100 Rubber Resupply ha 0 1,000 1,000 100 Cashew ha 4,000 4,400 5,500 138 125 Cashew Resupply ha 0 1,155 1,155 100 Alley Cropping ha 10,500 10,500 10,500 100 100 Alley Cropping Resupply ha 0 1,000 1,000 100 Banana and/or Fruit Crop ha 2,000 3,000 3,000 150 100 Banana and/or Fruit Crop

Resupply ha 0 1,000 1,000 100 Re-greening ha 2,000 3,000 3,000 150 100 Wetland ha 400 400 400 100 100 Total ha 22,400 25,398 26,910 113 106 Livestock (heads) Sheep (West Java) no. 0 600 1,560 260 Cattle (NTT) no. 0 600 1,405 234 Cattle (Central Kalimantan) no. 0 400 156 39 Total no. 1,600 3,121 195 Rural Infrastructure Roads km 293 478 620 212 163 Health Centers no. 26 26 10 38 38 Wells no. 0 250 770 308 Jetties no. 8 8 8 100 100 Water Supply (systems) no. 12 12 12 100 100 MTR=mid-term review; NTT=Nusa Tenggara Timur. Note: 1,100 ha of cashew planted in alley cropping area. Source: Directorate General of Estate Crop Production records.

PROJECT COSTS ($’000)

Foreign Local Total Foreign Local Total Foreign Local TotalA. Sustainable Farming Systems Development 5,681 17,532 23,213 5,681 5,694 11,375 0 11,838 11,838

1. On-Farm Developmenta. Land Development 0 6,538 6,538 0 0 0 0 6,538 6,538b. Fertilizers/Agrochemicals 5,001 2,269 7,270 5,001 1,815 6,816 0 454 454c. Planting Materials 680 3,930 4,610 680 3,144 3,824 0 786 786d. Maintenance Labor 0 3,745 3,745 0 0 0 0 3,745 3,745

Subtotal 5,681 16,482 22,163 5,681 4,959 10,640 0 11,523 11,5232. Land Titling 0 1,050 1,050 0 735 735 0 315 315

B. Agricultural Research and Development 1,431 895 2,326 1,431 603 2,034 0 292 2921. On-Farm Verification Trials 68 68 136 68 68 136 0 0 02. Farming Systems Research Institute

a. Buildings 285 576 861 285 461 746 0 115 115b. Vehicles & Equipment 517 57 574 517 0 517 0 57 57c. Furniture and Minor Items 34 194 228 34 74 108 0 120 120d. Overseas Training 527 0 527 527 0 527 0 0 0

Subtotal 1,363 827 2,190 1,363 535 1,898 0 292 292C. Rural Infrastructure 3,122 7,008 10,130 3,122 5,892 9,014 0 1,116 1,116D. Institutional Strengthening 0 1,717 1,717 0 1,717 1,717 0 0 0

1. Project Staff Training 0 269 269 0 269 269 0 0 02. Farmer/Village Organizations Training 0 1,448 1,448 0 1,448 1,448 0 0 0

E. Support Services 3,064 6,348 9,412 3,064 1,994 5,058 0 4,354 4,3541. Administration and Management 0 0

a. Recurrent Costs 0 3,450 3,450 0 0 0 0 3,450 3,450b. Buildings 259 522 781 259 329 588 0 193 193c. Vehicles and Equipment 781 87 868 781 0 781 0 87 87d. Furniture and Minor Items 54 308 362 54 118 172 0 190 190

Subtotal 1,094 4,367 5,461 1,094 447 1,541 0 3,920 3,9202. Consulting Services 1,970 1,520 3,490 1,970 1,086 3,056 0 434 4343. Monitoring and Evaluation 0 461 461 0 461 461 0 0 0Total (Parts A+B+C+D+E) 13,298 33,500 46,798 13,298 15,900 29,198 0 17,600 17,600

Taxes and Duties 0 2,400 2,400 0 0 0 0 2,400 2,400Services Charge During Construction 800 0 800 800 0 800 0 0 0Unallocated 0 0 0 0 0 0 0 0 0

Grand Total 14,098 35,900 49,998 14,098 15,900 29,998 0 20,000 20,000

Total Project Bank GovernmentAppraisal Estimates

Appendix 2

17

Project Costs—Continued

Foreign Local Total Foreign Local Total Foreign Local TotalA. Sustainable Farming Systems Development 4,998 11,555 16,553 4,998 4,605 9,603 0 6,950 6,950

1. On-Farm Developmenta. Land Development 0 2,780 2,780 0 0 0 0 2,780 2,780b. Fertilizers/Agrochemicals 3,427 3,959 7,386 3,427 2,998 6,425 0 961 961c. Planting Materials 1,572 1,820 3,392 1,572 1,375 2,947 0 445 445d. Maintenance Labor 0 2,647 2,647 0 0 0 0 2,647 2,647

Subtotal 4,998 11,206 16,205 4,998 4,373 9,372 0 6,833 6,8332. Land Titling 0 348 348 0 231 231 0 117 117

B. Agricultural Research and Development 1,607 791 2,397 1,607 540 2,146 0 251 2511. On-Farm Verification Trials 0 185 185 0 155 155 0 30 302. Farming Systems Research Institute

a. Buildings 215 472 688 215 352 568 0 120 120b. Vehicles & Equipment 795 71 866 795 0 795 0 71 71c. Furniture and Minor Items 15 62 77 15 32 47 0 30 30d. Overseas Training 582 0 582 582 0 582 0 0 0

Subtotal 1,607 606 2,212 1,607 385 1,991 0 221 221C. Rural Infrastructure 1,147 2,808 3,955 1,147 2,141 3,288 0 667 667D. Institutional Strengthening 0 2,244 2,244 0 2,244 2,244 0 0 0

1. Project Staff Training 0 838 838 0 838 838 0 0 02. Farmer/Village Organizations Training 0 1,406 1,406 0 1,406 1,406 0 0 0

E. Support Services 2,849 3,725 6,574 2,849 1,570 4,419 0 2,155 2,1551. Administration and Management 0 0

a. Recurrent Costs 0 1,856 1,856 0 0 0 0 1,856 1,856b. Buildings 166 410 576 166 212 378 0 198 198c. Vehicles and Equipment 705 77 782 705 0 705 0 77 77d. Furniture and Minor Items 0 24 24 0 0 0 0 24 24

Subtotal 871 2,367 3,238 871 212 1,083 0 2,155 2,1552. Consulting Services 1,978 1,212 3,191 1,978 1,212 3,191 0 0 03. Monitoring and Evaluation 0 146 146 0 146 146 0 0 0Total (Parts A+B+C+D+E) 10,601 21,122 31,723 10,601 11,099 21,700 0 10,023 10,023

Taxes and Duties 0 2,338 2,338 0 0 0 0 2,338 2,338Services Charge During Construction 736 0 736 736 0 736 0 0 0Unallocated 0 0 0 0 0 0 0 0 0

Grand Total 11,337 23,460 34,797 11,337 11,099 22,436 0 12,361 12,361Source: Asian Development Bank and Directorate General of Estate Crop Production records.

Bank GovernmentTotal ProjectActual

18 A

ppendix 2

Appendix 3 19

UTILIZATION OF LOAN PROCEEDS

Table A3.1: Loan Utilization Summary ($)

Category FX LC Total

01A Civil Works - Buildings - FSRI 215,315 352,334 567,649

01B Civil Works - Rural Infrastructure 1,146,922 2,140,922 3,287,844

01C Civil Works - Buildings - Support Services 166,298 211,653 377,951

02A Equipment - Agrochemicals 4,998,134 4,373,367 9,371,501

02B Equipment - Furniture 14,678 32,291 46,969

02C Equipment - Vehicles 1,499,173 0 1,499,173

03 Consulting Services 1,978,150 1,212,414 3,190,564

04 Overseas Training 582,232 0 582,232

05G Training - Project Staff 0 838,086 838,086

05H Training - Farmers 0 1,561,136 1,561,136

05I Land Titling 0 231,282 231,282

05J Monitoring 0 145,832 145,832

06 Service Charge During Construction 735,695 0 735,695

07 Unallocated 0 0 0

99 Imprest Account 0 0 0

TOTAL 11,336,598 11,099,318 22,435,916FSRI=Farming Systems Research Institute for Semi-Arid Areas; FX=foreign exchange; LC=local currency.Source: Asian Development Bank Loan and Financial Information System.

Total

Table A3.2: Yearly Loan Utilization ($)

FSRI=Farming Research Institute for Semi-Arid Areas; FX=foreign exchange; LC=local currency. Source: Asian Development Bank Loan and Financial Information System.

Category FX LC Total FX LC Total

01A Civil Works - Buildings - FSRI 1,246 2,039 3,286 53,830 88,085 141,915

01B Civil Works - Rural Infrastructure 43,692 81,558 125,249 0 0 0

01C Civil Works - Buildings - Support Services 17,117 21,786 38,903 0 0 0

02A Equipment - Agrochemicals 253,490 221,803 475,293 386,459 338,152 724,611

02B Equipment - Furniture 785 1,727 2,512 1,035 2,278 3,313

02C Equipment - Vehicles 121,582 0 121,582 561,382 0 561,382

03 Consulting Services 0 0 0 342,464 209,897 552,360

04 Overseas Training 0 0 0 0 0 0

05G Training - Project Staff 0 48,874 48,874 0 59,552 59,552

05H Training - Farmers 0 152,216 152,216 0 28,324 28,324

05I Land Titling 0 28,307 28,307 0 29,830 29,830

05J Monitoring 0 3,777 3,777 0 6,164 6,164

06 Service Charge During Construction 1,679 0 1,679 14,856 0 14,856

07 Unallocated 0 0 0 0 0

99 Imprest Account 0 0 0 0 0

Total 439,591 562,087 1,001,679 1,360,025 762,281 2,122,306



01B Civil Works - Rural Infrastructure 161,556 301,572 463,128 303,045 565,684 868,729

01C Civil Works - Buildings - Support Services 35,875 45,659 81,533 54,185 68,963 123,148

02A Equipment - Agrochemicals 666,580 583,258 1,249,838 427,593 374,144 801,737

02B Equipment - Furniture 8,130 17,887 26,017 1,354 2,979 4,332


03 Consulting Services 1,041,796 638,520 1,680,316 320,391 196,369 516,760

04 Overseas Training 0 0 0 414,680 0 414,680



05I Land Titling 0 0 0 0 82,233 82,233

05J Monitoring 0 75,214 75,214 0 0 0


07 Unallocated 0 0 0 0

99 Imprest Account 0 0 0 0

Total 2,298,772 1,983,909 4,282,681 1,781,555 1,514,356 3,295,910

1993-1994 1994-1995

1995-1996 1996-1997

20 Appendix 3

Table A3.2—Continued


01A Civil Works - Buildings - FSRI 0 0 0 0 0



02A Equipment - Agrochemicals 681,644 596,438 1,278,082 0 0 0

02B Equipment - Furniture 0 0 0 0 0 0

02C Equipment - Vehicles 171,177 0 171,177 0 0 0

03 Consulting Services 146,079 89,532 235,611 72,337 44,336 116,673

04 Overseas Training 0 0 0 159,642 0 159,642



05I Land Titling 0 20,519 20,519 0 0 0

05J Monitoring 0 7,721 7,721 0 0 0


07 Unallocated 0 0 0 0 0

99 Imprest Account 0 0 0 0 0

Total 1,261,974 1,256,776 2,518,750 437,643 216,599 654,242



01B Civil Works - Rural Infrastructure 24,098 44,983 69,080 362,959 677,524 1,040,483


02A Equipment - Agrochemicals 650,185 568,912 1,219,097 1,028,763 900,168 1,928,930

02B Equipment - Furniture 728 1,601 2,329 2,383 5,243 7,627



04 Overseas Training 0 0 0 0 0 0



05I Land Titling 0 48,746 48,746 0 14,552 14,552

05J Monitoring 0 24,544 24,544 0 18,702 18,702


07 Unallocated 0 0 0 0 0 0

99 Imprest Account 0 0 0 0 0 0

Total 983,508 896,854 1,880,363 1,682,728 2,319,394 4,002,123

1999-2000 2000

1997-1998 1998-1999

Appendix 3 21

Table A3.2—Continued

22 Appendix 3


01A Civil Works - Buildings - FSRI 674 1,103 1,777 3,025 4,949 7,974


01C Civil Works - Buildings - Support Services 0 0 0 216 275 492

02A Equipment - Agrochemicals 485,839 425,109 910,947 417,582 365,384 782,966

02B Equipment - Furniture 141 309 450 121 266 387

02C Equipment - Vehicles 0 0 0 14,071 0 14,071


04 Overseas Training 7,910 0 7,910 0 0 0

05G Training - Project Staff 0 0 0 0 26,153 26,153


05I Land Titling 0 3,329 3,329 0 3,766 3,766

05J Monitoring 0 880 880 0 8,832 8,832

06 Service Charge During Construction 115,468 0 115,468 0 0 0

07 Unallocated 0 0 0 0 0 0

99 Imprest Account 0 0 0 0 0 0

Total 622,950 654,326 1,277,276 467,852 932,735 1,400,587

Category FX LC Total

01A Civil Works - Buildings - FSRI 215,315 352,334 567,649

01B Civil Works - Rural Infrastructure 1,146,922 2,140,922 3,287,844

01C Civil Works - Buildings - Support Services 166,298 211,653 377,951

02A Equipment - Agrochemicals 4,998,134 4,373,367 9,371,501

02B Equipment - Furniture 14,678 32,291 46,969

02C Equipment - Vehicles 1,499,173 0 1,499,173

03 Consulting Services 1,978,150 1,212,414 3,190,564

04 Overseas Training 582,232 0 582,232

05G Training - Project Staff 0 838,086 838,086

05H Training - Farmers 0 1,561,136 1,561,136

05I Land Titling 0 231,282 231,282

05J Monitoring 0 145,832 145,832

06 Service Charge During Construction 735,695 0 735,695

07 Unallocated 0 0 0

99 Imprest Account 0 0 0

Total 11,336,598 11,099,318 22,435,916

Total

2001 2002

Appendix 4

23

PROJECT IMPLEMENTATION SCHEDULE

Year Component 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

A. Sustainable Farming Systems Development 1. On-Farm Development

Rubber Cashew Banana and Fruit Trees Re-Greening Alley Cropping 2. Land Titling 3. Livestock

B. Agricultural Research And Development 1. Adaptive Research and Verification Trials 2. Establishment of Farming Systems Research Institute C. Rural Infrastructure

D. Institutional Strengthening 1. Government Institutions 2. Farmers Groups E. Consulting Services

= Appraisal = Actual Source: Asian Development Bank and Directorate General of Estate Crop Production.

ORGANIZATION CHART

Figure A5.1: Project Management Structure

National

BAPPENAS

AARD

FSRI

Consultants

Provincial Governor

BAPPEDA I

District Bupati

BAPEDDA II

Site

Consultants

Legend:Flow of Budget for the (sub) componentLine of Technical SupervisionLine of Assistance and Coordination

a Includes National Land Agency (BPN), Ministry of Forestry (MOFr), Ministry of Public Works (MPW), and Ministry of Health (MOH).b Includes Kanwil (BPN), Kanwil (Forestry), and Kanwil (Public Works).c Includes Agriculture/Estates Extension (Dinas PERT/PERK, Forestry Extension (BRLKT), Public Works Extension (Dinas PU) and Health Extension (Dinas Kesehatan).

AARD=Agency for Agricultural Research and Development; BAPPEDA=Regional Development Planning Agency;BAPPENAS=National Development Planning Agency; DGECP=Directorate General of Estate Crops Production;FSRI=Farming Systems Research Institute.

Ministry of Agriculture

Ministry of Home Affairs

Directorate General of

EstatesDirectorate General of

Food Crops Agriculture

Provincial Government Agenciesb

District Government Agenciesc

Project Manager

Other Ministry/Agenciesa

Subproject Office

Agricultural Planning Office (KANWIL)

Target Farmer Groups

Project Management Unit

Adaptive Research Subunit Other Subunits

24 Appendix 5

Appendix 5 25

Figure A5.2: Organization Chart of Project Management Unit

Field Implementation Subunits

Integrated Project Field Workers

Subproject Treasurer

Project Management Unit Manager

Assistant Manager

Administration Finance and

Credit

Re-greening West Java Only

Assistant Manager

Agriculture Research

Assistant Manager Estate

Crop Development

Assistant Manager Food

Crop Development

Provincial Subproject Manager

26 Appendix 6

STATUS OF COMPLIANCE WITH LOAN COVENANTS

No Loan Covenant Reference in Loan

Agreement

Status

1. Directorate General of Estate Crop Production (DGECP) shall be the lead Executing Agency (EA) responsible for overall project implementation, coordination and supervision. Part A of the Project shall be carried out by DGECP, Directorate General of Horticulture Production (DGHP) and Directorate General of Land Rehabilitation and Social Forestry (DGLRSF). Part A(d) shall be implemented by DGECP, through the National Land Agency. Part B shall be carried out by Agency for Agricultural Research and Development (AARD). In Part C, DGECP shall be assisted by the Provincial Public Works and Health agencies. Part D shall be carried out by DGECP in close cooperation with DGHP and AARD.

Schedule 5, paras. 1-4

Complied with.

A. Project Management and Coordination 2. DGECP, prior to the commencement of Project

implementation, shall establish a National Project Office in Jakarta and appoint a national project manager to head the same to manage all project-related activities at the national level.

Schedule 6, para. 5

Complied with. National Project Office established in Jakarta. Four national project managers were appointed during implementation.

3. DGECP shall establish a Provincial Subproject Office in the capital of each province and appoint a provincial subproject manager to assist the national project manager in implementing and coordinating project activities at the provincial and Project Management Unit (PMU) level.

Schedule 6, para. 6

Complied with.

B. Project Management Units 4. DGECP to (i) establish an adequately staffed PMU at

each subproject area, and (ii) appoint a manager for each PMU both within 1 year of the effective date. Each PMU shall comprise five implementation subunits responsible for developing about 1,500 hectares (ha) each, and one adaptive research subunit responsible for undertaking the on-farm verification trials.

Schedule 6, para. 7

Complied with.

C. Preparatory Activities 5. DGECP shall ensure that preparatory activities, such

as selection of participating farmers and identification of land to be developed, will commence not later than 1 year prior to on-farm development activities in any subproject area.

Schedule 6, para. 8

Partly complied with. During the first 2 years of project implementation, cashew and rubber were planted without preparatory activities.

D. Organization of Farmers 6. PMU shall assist individual farmers in organizing

themselves into farmers groups during the first 6 months of implementation of on-farm development, and

Schedule 6, para. 9

Complied with.

Appendix 6 27


Agreement

Status

to manage, supervise and assist in the project activities of these farmers groups relating, inter alia, to on-farm verification trials, land development, crop planting, rehabilitation, maintenance, processing and marketing, and collection of credit repayments by the participating farmers pursuant to the credit arrangements specified in para 13 of Schedule 6.

7. PMU to enter into a suitable participation agreement with each concerned participating farmer within 6 months of the latter’s joining the relevant farmers groups for purposes of the Project. The agreement shall clearly establish the relationships among the concerned PMU, the farmers group, and the participating farmer for efficient project implementation.

Schedule 6, para. 10

Complied with delays. Participation agreements between PMU and 4,510 farmers in Central Kalimantan, 12,688 farmers in West Java, and 5,500 farmers in Nusa Tenggara Timor (NTT) were signed during the Project.

E. Adaptive Research Subunit (ARS) 8. DGECP and AARD to (i) establish an Adaptive

Research Subunit (ARS) under the concerned PMU at each subproject area, and (ii) appoint an assistant manager under each PMU manager to head each ARS within 1 year of the effective date. Each ARS shall be adequately staffed throughout the project implementation period, until such time as may be agreed upon between the Government of Indonesia (the Borrower) and the Asian Development Bank (ADB).


Complied with.

9. ARS to (i) undertake on-farm verification trials of the farming systems to be introduced under the Project, (ii) adapt such farming systems based on the results of these trials, (iii) undertake follow-up extension after crop planting, and (iv) effectively coordinate with and assist the PMU of the concerned subproject area in project implementation.


Complied with.

F. Credit Agreement 10. To implement the on-farm development component,

the Borrower, acting through the concerned PMU, shall enter into a credit arrangement, on terms and conditions satisfactory to ADB, with each concerned participating farmer within 12months of the inception of planting activities. Terms and conditions shall include: (i) participating farmers applying for credit shall meet eligibility criteria established by the Borrower; (ii) the interest rate shall be 21% per annum; (iii) repayment period shall not be more than 14 years, including grace period between 5 and 7 years; and (iv) the participating farmers may repay their outstanding credit amount without any premium.

Schedule 6, para. 13(a)

Complied with. Credit agreements between PMU and 4,510 farmers in Central Kalimantan and 5,500 farmers in NTT were signed during the Project period. Delays were encountered in the completion of the participation agreements in both provinces.

11. Notwithstanding the credit arrangements specified above, all development costs related to planting

Schedule 6, para. 13(b)

Complied with.

28 Appendix 6


Agreement

Status

materials, agrochemicals, and development activities incurred during the first year of the inception of planting activities may not be recovered from the participating farmers.

12. Each PMU shall designate the concerned farmers group that will be responsible for the collection of credit repayments due from the participating farmers.

Schedule 6, para. 13(c)

Partly complied with. Credit collections have not started in Central Kalimantan, and are weak in NTT.

13. The credit arrangements shall be subject to review, regular monitoring, and, where necessary, revisions by the Borrower and ADB with a view to maintaining efficiency and cost effectiveness. Any changes to the credit arrangements shall take into account, among others, the findings and recommendations of ADB-financed technical assistance for the Rural Financial Markets with Special Reference to Tree Crops Development (TA No. 1600-INO).


Complied with. ADB and the Government regularly monitored credit arrangements, and a review was undertaken after the Midterm Review Mission. Revisions to these arrangements were found unnecessary.

G. Farming Systems Research Institute for Semi-Arid Areas

14. AARD to upgrade its Farming Systems Research Institute for Semi-Arid Areas (the Institute) to full research center status within 3 years of the effective date or such other date as may be agreed between the Borrower and ADB.


Complied with. By the decree of the minister of agriculture on the "Organization and Framework of the Assessment Institute for Agricultural Technology", dated 13 December 1994, the Institute became the Assessment Institute for Agricultural Technology, which continues to focus on conducting farming research in semi-arid areas.

15. The Borrower shall provide the Institute, through AARD, with sufficient budget and staff to operate the Institute at activity and staffing levels comparable to the existing agricultural research institutes.


Complied with.

H. Training 16. AARD to prepare and submit to ADB, within 6 months

of the Effective Date, a training and fellowship program satisfactory to ADB for the staff of the Institute.


Complied with.

17. DGECP, AARD, and DGHP, with assistance from the consultants, to train farmers groups (without discriminating against women), as well as administrative and field staff involved in the project implementation, utilizing, as appropriate, the methodology, organizational set-up, and materials


Complied with.

Appendix 6 29


Agreement

Status

prepared under Tree Crop Human Resource Development Project financed by the World Bank.

18. AARD shall provide overseas training (two Phd.s and three Msc. Degrees) for selected AARD technical staff, and ensure that they continue to serve AARD after completion of their overseas training.


Complied with.

I. Reporting, Dialogue, and Mid-Term Review 19. The Borrower shall include in the last quarterly report of

each year a brief assessment of the actual physical and financial status of project implementation during that year and a summary of the budget allocation for the Project for the subsequent year.


Complied with.

20. After 3 years of project implementation, the Borrower and ADB shall undertake a midterm project review to examine and assess the progress made, and identify problems encountered during the first 3 years of project implementation with a view to overcoming deficiencies in project design, and to incorporate lessons learned to improve the project implementation.


Complied with. Midterm Review Mission was fielded 5–24 August 1996.

21. Each Provincial Subproject Office shall prepare annual reports for each subproject within its jurisdiction. Such reports shall contain data on physical implementation, adoption rates of farming systems, number of people affected, geographic areas covered, environmental impact of the project activities, utilization of agricultural inputs provided under the Project, employment generation, functioning of the farmers groups, labor inputs, and performance of contractors. Such reports shall be submitted to ADB through DGECP.


Complied with.

J. Environmental Management and Monitoring 22. DGECP to promptly obtain approval of the

environmental management plan (RKL) and environmental monitoring plan (RPL) prepared as part of the initial environmental examination document (PIL) from the Central Commission on Environmental Impact Assessment of the Ministry of Agriculture, in accordance with the Borrower’s relevant laws and regulations.


According to the Government Regulation No. 51 in 1993, Minister’s of Environment decree No. Kep11/MENLH/3/94 on 19 March 1994 and Minister’s of Agriculture decree No. 752/Kpts/OT.210/94 on 21 October 1994, the Project was not required to do RKL and RPL. The formal advice from DGECP on this policy was submitted to ADB in September 1996.

23. The National Project Office and the Provincial Subproject offices concerned shall be primarily responsible for implementation of RKL and RPL, while PMUs and their field staff shall undertake


Not applicable in accordance with para. 22 above.

30 Appendix 6


Agreement

Status

implementation of the RKL and RPL.

K. Benefit Monitoring and Evaluation 24. Within 1 year of project implementation, the Borrower

shall cause the Center for Agro-Socioeconomic Research (CASER) under AARD to undertake a benchmark survey in each subproject area with the assistance of the monitoring and evaluation division of DGECP to collect detailed baseline information from which to judge the impact of the Project on poverty alleviation and in improving the living standards of the participating farmers. Follow-up surveys on the Project’s impact shall also be undertaken prior to the midterm review referred to above and prior to the physical completion of the Project.

Schedule 6, para. 25(a)

Partly complied. A benchmark survey was completed with 1-year delay, and a final report submitted to ADB. Follow-up surveys on the Project’s impact before the midterm review. The follow-up surveys before physical completion of the Project were not conducted.

25. As part of the survey activities, CASER shall also collect detailed information on women’s role and participation in upland farmer activities to develop measurable criteria on which to judge the Project’s impact on women, and to provide information to develop strategies to enhance the level of women’s participation in the Project, particularly in village level training activities and subsequent development of sustainable farming systems.

Schedule 6, para. 25(b)

Complied with.

L. Land Development 26. The Borrower shall ensure that land development will

be undertaken to the extent possible by the participating farmers themselves.


Complied with.

M. Road Maintenance 27. The Borrower shall cause the concerned provincial and

district government agencies to allocate sufficient funds to maintain the rural roads to be constructed under the Project at a reasonable standard.


Complied with. Maintenance of the rural roads being undertaken by local governments.

N. Rural Health Centers 28. The Borrower shall cause the concerned provincial and

district government agencies to staff, operate, and maintain the rural health centers to be constructed under the Project at levels comparable to the existing health centers.


Complied with. Maintenance of the rural health centers being undertaken by the Ministry of Health.

O. Financial Statements 29. The Borrower shall maintain separate accounts for the

Project, have such accounts and related financial statements audited annually, and furnish to ADB, as soon as available, but not later than 6 months after the end of each related fiscal year, unaudited copies of financial statements, and not later than 9 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and

Article IV, Section 4.06

Complied with, but mostly with delays.

Appendix 6 31


Agreement

Status

the report of the auditors relating thereto.

P. Quarterly Progress Reports 30. Quarterly progress reports on the carrying out of the

Project and on the operation and management of the project facilities shall be submitted at least 1 month after the quarter to which it relates.

Article IV, Section 4.07 (b)

Complied with, but mostly with delays.

31. R. Project Completion Report Promptly after the physical completion of the Project,

but in any event not later than 3months thereafter, or such later date as may be agreed for this purpose between the Borrower and ADB, the Borrower shall prepare and furnish to ADB a report on the execution and initial operation of the Project, including its cost, the performance by the Borrower of its obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.

Article IV, Section 4.07 (c)

Complied with.

32 Appendix 7

LIST OF EQUIPMENT PROCURED UNDER THE PROJECT

Item Target Actual

I. Vehicles a. Jeep 15 2 b. Pick-up 12 2 c. Motorcycle 70 103 d. Truck 10 2 e. Microbus 4 23 f. Bicycle 20 0 g. Speedboat/Row Boat 1 9 h. Tractor 3 3 II. Equipment a. Hand Tractor 10 10 b. Threshers 10 4 c. Mist Blower 2 0 d. Huller 1 0 e. Misting Unit 1 0 f. Hand Sprayer 100 17 g. Chainsaw 4 1 h. Lab Equipment (set) 1 5 i. Meteorology Equipment 1 7 j. Entomology Equipment 1 0 k. Pathology Equipment 1 1 l. Water Pump 1 2 m. Grass Mower 3 2 n. Deep Well 1 1 o. Soil Moisture Tester 1 2 p. Grain Moisture Tester 1 0 q. Other Small Laboratory

Equipment (set) 0 1

Source: Directorate General of Estate Crop Production.

Appendix 8 33

ECONOMIC AND FINANCIAL ANALYSES

1. The economic analysis was undertaken on the basis of the methodology used during project appraisal. Economic internal rate of return (EIRR) was estimated for the Project as a whole and for the three individual components: Central Kalimantan, Nusa Tenggara Timur (NTT), and West Java. The analysis was based on data obtained during the Project Completion Review Mission 26 April–11 May 2004. The calculation of EIRR was based on the estimated value of incremental agricultural production. Financial analysis examined the sustainability of subproject schemes from the farmers’ point of view, while economic analysis determined the incremental benefits from increases in agricultural production.

A. Major Assumptions

2. The economic analysis was based on several assumptions:

1. Prices

3. All prices were expressed at the world market price level in the national currency. The actual and forecasted farmgate commodity prices were based on world market prices published by the World Bank. These prices were adjusted to constant 2004 prices using the World Bank Manufacturers Unit Value (MUV1) index. Local costs were adjusted to constant 2004 prices based on the consumer price index for Indonesia,2 while foreign costs similarly were adjusted using the MUV index.

4. The export parity farmgate prices for rubber and cashew are shown in Tables A8.1 and A8.2. The import parity prices for rice and maize are shown in Tables A8.3 to A8.4.

5. The price of labor was assumed at Rp15,000 per day, which was the prevailing price found at project completion. Labor costs were shadow-priced at 0.8 of the wage rates, while other inputs were adjusted by the standard conversion factor of 0.9.3

2. Period of Analysis

6. The economic life of the Project was assumed to be 25 years, from 1994 to 2018. This period corresponded to the economic life of the major tree crops—rubber and cashew—developed under the Project. The major project activities were implemented over 8 years, from 1994 to 2001.

3. Project Cost

7. The project cost incurred by the Government and the ADB, less taxes, was Rp185,828 million (US$32.46 million), comprising Rp115,160 million in local cost and Rp70,668 million in foreign cost. However, this did not cover the entire crop production cost. Farmers’ contributions in the form of labor and farm inputs amounted to Rp46,290 million, 20% of the total investments. Unlike the analysis carried out at appraisal, the cost of developing the Farming Systems Research Institute for semi-arid areas was included in this analysis.

1 World Bank. May 2004. MUV Index 2004. Washington, DC. 2 Statistik Indonesia. 2003. Badan Pusat Statistik 2002. Jakarta. 3 At appraisal, the conversion factors used were 0.7 for labor, 0.865 for infrastructure, and 0.8 for local material.

34 Appendix 8

8. After project completion, it was assumed that rural infrastructure would be maintained at an annual cost of 3% of the total infrastructure cost. Support services will continue to be provided to farmers at 30% of the cost incurred during project implementation.

4. Project Benefits

9. The project output of the main crops at appraisal and project completion is shown in Table A8.5. The increase in cropping area by 29% for rubber, 38% for cashew, and 50% for banana, fruit and forest trees was a major factor contributing to the larger output at project completion. The output of fruit and banana in West Java increased substantially due to the achievement of higher yields. Higher output of banana can be partly explained by the change in the variety grown, while fruit output benefited from adopting a more intensive cultivation system. Rice and maize yields benefited from the adoption of new technology during project implementation.

10. The average yields of the main crops at appraisal and project completion is shown in Table A8.6. The average yields are similar for rubber, except that the yield profile at appraisal showed a high yield from years 11–25. That is unrealistic since rubber yields peak at years 10–15, and decline substantially after that. This decline is expected to be more pronounced in smallholdings, where the low tapping standard damages the trees considerably. In addition, the traditional practice of applying little or no fertilizer is expected to cause steep declining yields in the latter years.

11. Prices of project outputs rose substantially due to the sharp depreciation of the local currency in 1998. Table A8.7 shows that prices of the main project outputs, except for banana, were nearly double the prices estimated at appraisal or midterm reports. The prices for cashew, banana, fruits, and timber were not shown in the appraisal report. In 1997–1998, the rupiah exchange rate to the dollar fell from Rp2,481 to Rp10,014, while the consumer price index increased only 26%.

12. Under the without-project situation, farmers in West Java, where land is relatively scarce, were assumed to plant all their land with short-term crops. In Central Kalimantan and NTT, only half the project area was assumed to be planted with short-term crops, as farmers had other land available for these crops.

13. The benefits of enhancement to the environment, heath, transportation, and support services were not included fully in the analysis, because of difficulties in quantifying these impacts. The success in the adoption of soil conservation measures in all project areas ensured that land degradation would not be a serious problem in the near future. The positive impact on human health from providing households with potable water, and the improvement in food security and nutrition by increasing the supply of food crops and livestock produce, was significant. The construction and rehabilitation of farm and village roads and jetties improved accessibility of project villages. This facilitated the marketing of farm produce and delivery of goods and services to villages, leading to a rise in farmgate prices and the volume of traded goods. In addition, agricultural extension services and many other social services were more effective. New adaptive research findings by Assessment Institute for Agricultural technology established under the Project benefited project and non-project farmers in eastern Indonesia.

Appendix 8 35

B. Economic Performance

14. Results of the economic analysis are summarized in Tables A8.9 and A8.10. The base case EIRRs for the three sub-projects were 15.3% for Central Kalimantan, 14.7% for NTT, and 20.7% for West Java, compared with appraisal estimates of 16.4%, 14.9%, and 20.2%, respectively. The base case EIRR for the entire Project was estimated at 18.7%, which is higher than the appraisal estimate of 17.1%. Those results were achieved despite (i) including the costs of developing the Farming Systems Research Institute for semi-arid areas (excluded at appraisal (para. 7), (ii) using a higher shadow-wage rate factor than at appraisal (para. 5), and (iii) adjusting the yield pattern for tree crops (para. 10).

15. The main project risk is the possibility of a decrease in commodity prices. The sensitivity analysis showed that a drop in prices by 10% would reduce the project EIRR to 17.4%, while a 20% decline in commodity prices would lower the EIRR to 15.9%—still higher than the opportunity cost of capital of 12%.

C. Financial Performance

16. Farm model analysis was carried out for the three farm models to assess the direct impact of the Project on the beneficiaries (Tables A8.11–A8.13). The farm models used the same farm sizes as at appraisal: 1.5 hectare (ha) of rubber plantation in Central Kalimantan; 1.5 ha of cashew plantation in NTT; and 0.5 ha of fruit orchard, 0.5 ha of alley cropping, and 0.5 ha of forest trees in West Java. In this financial analysis, it was assumed that the farmer does all his farm work and is not paid for his labor.

17. With and without-project, the farm income figures show that farm incomes rose more than three-fold: from Rp2.5 million to Rp8.3 million for Central Kalimantan; from Rp1.7 million to Rp5.5 million for NTT; and from Rp1.9 million to Rp6.2 million for West Java (Table A8.8). Assuming an average family size of four members, the per capita incomes after the project completion for these areas ranged from Rp2.1 million for Central Kalimantan; Rp1.4 million for NTT; and Rp1.6 for West Java. These incomes would place the project beneficiaries well above the poverty level.4

18. The assumptions used for livestock and other incomes were low estimates, and many farmers were earning considerably higher income. Rubber farmers could repay their debt by deducting 25% of their gross margin5 annually from years 7–13, while cashew farmers could repay their loan by deducting 20% of their gross margin from years 6–9.

19. The farm model analysis showed that rubber farmers in Central Kalimantan would suffer a substantial fall in their farm income after year 20. To compensate, farmers should consider planting rattan seedlings in their field in years 12–15. This crop, commonly grown in old rubber stand in Central Kalimantan, could be harvested after 10 years, and would provide the farmer with an additional annual income of Rp2.0 million per ha.

20. Another serious problem rubber farmers faced was the lack of farm income for at least 1 year before the trees were ready for tapping. To overcome this problem, some farmers planted pineapple, which is relatively shade tolerant, and reported earning about Rp1.0 per ha from this

4 The poverty line income is based on the estimated total expenditure required to supply the recommended daily

dietary allowance of 2,100 calories per capita per day, plus expenditures for certain basic nonfood items. This was estimated at $104 or Rp226,200 in 1994. In 2004, this figure was revised to Rp900,000.

5 Gross margin is defined as net income less any imputed cost of farm labor.

36 Appendix 8

crop. Surprisingly, pineapple and banana, which are the traditional intercrops for rubber holdings, were not recommended for the Project. Alternatively, farmers could apply to their village chief for additional land to plant food crops. Some farmers sought off-farm work, such as wage labor, gold mining, fishing, or livestock rearing. Recent upgrading of the sub-district to district status created many jobs in the government sector, and some farmers were holding a full-time day job, while working on their rubber holdings in the early hours of the morning.

21. Cashew farmers in NTT recently began processing their own produce using some of the tools provided by the Project. The project staffs provided training and advice on marketing processed and roasted nuts. Farm families could earn as much as Rp50,000 per day from this activity during the 3-month crop harvesting period. This activity could add Rp2.0 million–Rp4.0 million to their farm income.

22. Some farmers in West Java planted vanilla plants near their houses, since this crop could provide them with substantial income. One kilogram of seed could be sold for Rp200,000. In addition, farmers planted a few fruit and spice trees in their alley cropping area. These additional activities could provide farmers with additional income of Rp1.0 million–Rp 2.0 million per year.

23. With the Government’s recent announcement of the forest rehabilitation program, all project farmers located in steep upland areas can apply for assistance (valued at Rp2.5 million per ha) to replant their hilly land. This program would provide them with seedlings, materials, and cash payment for labor to grow a wide range of forest trees, including rubber. Project farmers should be advised of this program, as they can take advantage of this program to cultivate some of their unused land or replant some of the project tree crops that are unproductive.

Appendix 8 37

Table A8.1: Derivation of Export Parity Prices for Rubber (Constant 2004 $)

Actual World Bank

Item 2000 2001 2003 2003 2004 Forecast

April 2005 2010

$/mt RSS1, a 667 541 719 941 1,325 969 862

$/mt CR 5%, b 633 514 683 894 1,259 921 819

Freight, Kalimatan-Malaysia 15 15 15 15 15 15 15

FOB Kalimatan, $ 618 499 668 879 1,244 906 804

Exchange Rp '000/$ 8,422 10,261 9,311 8,200 8,500 8,500 8,500

FOB Kalimatan,Rp '000 5,208 5,123 6,221 7,208 10,572 7,697 6,833

Price - Thick Sheet 2,344 2,305 2,799 3,244 4,757 3,464 3,075

Marketing Charges - 25% 586 576 700 811 1,189 866 769

Transport Charges 400 400 400 400 400 400 400

Financial Farmgate Price 1,358 1,329 1,700 2,033 3,168 2,198 1,906

Economic Farmgate Price 1,456 1,427 1,810 2,154 3,327 2,324 2,023 CR=crumb rubber; FOB=freight on board; mt=metric ton; RSS=ribbed smoke sheet. a Rubber (RSS No. 1) in bales, FOB, Malaysia. b Crumb rubber price at a discount of 5% compared with RSS 1 price. c Thick sheet contains 45% rubber. Source: IBRD Commodity Price Forecasts, June 2003.

Table A8.2: Derivation of Export Parity Prices for Cashew

(Constant 2004 $)

Actual

Item 1996 1997 1998 1999 2000 2001 2002 2003 2004 Forecast Prices

April 2005 2010 Whole Kernel Grade 320 CIF Londona 5,200 6,000 5,600 5,700 4,000 4,000 4,200 3,500 3,800 4,000 4,775

Quality Discount - 10 104 120 112 114 80 80 84 70 76 80 96

Freight and Insurance 40 40 40 40 40 40 40 40 40 40 40

FOB Surabaya - $/ton 5,056 5,840 5,448 5,546 3,880 3,880 4,076 3,390 3,684 3,880 4,640

Exchange Rate Rp '000/$ 2,272 2,481 10,014 7,855 8,422 10,261 9,311 8,200 8,500 8,500 8,500

FOB Surabaya - Rp '000/ton 11,487 14,489 54,556 43,564 32,677 39,813 37,952 27,798 31,314 32,980 39,436

Local Transport and Margin 500 500 500 500 500 500 500 500 500 500 500

Marketing Cost - 10% 1,149 1,449 5,456 4,356 3,268 3,981 3,795 2,780 3,131 3,298 3,944

Dry Shelled Nut

Financial Farm Price 9,839 12,540 48,601 38,707 28,910 35,331 33,656 24,518 27,683 29,182 34,992

Economic Farm Price 10,003 12,735 49,196 39,193 29,286 35,780 34,086 24,846 28,046 29,562 35,437

Unshelled Nut

Processing Cost - 30% 3,443 4,389 17,010 13,548 10,118 12,366 11,780 8,581 9,689 10,214 12,247

Financial Farmgate Price 1,407 1,793 6,950 5,535 4,134 5,052 4,813 3,506 3,959 4,173 5,004

Economic Farmgate Price 1,519 1,933 7,455 5,940 4,440 5,423 5,167 3,767 4,252 4,481 5,371 CIF=cost insurance freight; FOB=freight on board. a Prices from Edible Nut Report b Forecast prices for 2010 based on average 1996–2003 prices. Notes: Conversion ratio of 0.22 for unshelled to dry shell nut. Processing cost assumed as 30% of dry shell nut prices. Source: United States Department of Agriculture. Edible Nut Report. 2004. Washington, DC.

38 Appendix 8

Appendix 8 39

Table A8.3:Import Parity Prices of Paddy

(Constant 2004 Prices)

Items 1995 1996 1997 1998 Average

Milled Rice, 5% broken, FOB Bangkok 1990=100 $/ton 321 339 304 304 317

Milled Rice, 5% broken, FOB Bangkok 2004=100 $/ton 345 339 293 292 317

Quality Discount, 15% $/ton 52 51 44 44 48

Freight and Insurance $/ton 35 35 35 35 35

CIF Indonesian Port $/ton 328 323 284 283 305

Exchange Rate Rp/$ 2,249 2,272 2,481 10,014 4,254

CIF Indonesian Port Rp/kg 739 734 704 2,833 1,252

Port Handling Charges Rp/kg 37 37 35 142 63

Transport Wholesale to Port Rp/kg 30 30 30 30 30

Value Ex-Wholesale Rp/kg 806 801 769 3,004 1,345

Wholesale Trading Margin, 5% Rp/kg 40 40 38 150 67

Wholesale-In Rp/kg 765 761 731 2,854 1,278

Transport from Mill to Wholesaler Rp/kg 20 20 20 20 20

Trader Margin, 5% Rp/kg 38 38 37 143 64

Ex-Mill Price Rp/kg 707 703 674 2,692 1,194

Conversion from Paddy to Rice, 63% Rp/kg 445 443 425 1,696 752

Milling Costs, 10% Rp/kg 40 40 39 154 68

Transport from Farm to Mill Rp/kg 10 10 10 10 10

Farmgate Price Rp/kg 395 393 376 1,532 674

Economic Price Rp/kg 410 408 391 1,546 689 CIF=cost insurance freight; FOB=freight on board. Source: IBRD Commodity Price Data, 1995 to 1999.

40 Appendix 8

Table A8.4:Import Parity Prices of Maize

(Constant 2004 Prices)

Item 1995 1996 1997 1998 Average

Maize, FOB, US Gulf ports $/t 108 124 117 102 113

Maize, FOB, US Gulf ports $/t 116 124 113 98 112

Quality Discount, 10% $/t 12 12 11 10 11

Freight and Insurance $/t 45 45 45 45 45

CIF Indonesian Port $/t 149 156 146 133 146

Exchange Rate Rp/$ 2,249 2,272 2,481 10,014 4,254

CIF Indonesian Port Rp/kg 335 355 363 1,333 597

Port Handling Charges Rp/kg 17 18 18 18 18

Transport Wholesale to Port Rp/kg 15 15 15 15 15

Value Ex-Wholesale Rp/kg 367 388 397 1,366 629

Wholesale Trading Margin, 5% Rp/kg 18 19 20 68 31

Wholesale-In Rp/kg 349 368 377 1,297 598

Transport from Mill to Wholesaler Rp/kg 30 30 30 30 30

Trader Margin, 5% Rp/kg 17 18 19 65 30

Ex-Mill Price Rp/kg 301 320 328 1,202 538

Milling Costs Rp/kg 20 20 20 20 20

Transport from Farm to Mill Rp/kg 5 5 5 5 5

Farmgate Price Rp/kg 276 295 303 1,177 513

Economic Price Rp/kg 283 302 310 1,184 520 CIF=cost insurance freight; FOB=freight on board. Source: IBRD Commodity Price Data, 1995–1999.

Table A8.5: Project Output at Appraisal and Project Completion

Subcomponents Unit Appraisal Project Actual Output/ Target Completion Appraisal

% On-Farm Development Rubber – Sheet Tons 3,500 4,400 126 Cashew Tons 2,000 2,100 105 Banana Tons 8,500 24,000 282 Fruits Tons 2,100 9,000 430 Rice Tons 4,000 11,000 275 Maize Tons 2,250 6,500 289 Wood m3 700,000 750,000 107 Source: Government’s Project Completion Report on Upland Farmer Development Project, February 2003.

Appendix 8 41

Table A8.6: Project Average Yields at Appraisal and Project Completion

Subcomponents Unit Appraisal Project Actual/

Completion Appraisal % On-Farm Development Rubber-Thick Sheet kg/ha 2,220 2,230 100 Cashew kg/ha 500 400 80 Banana kg/ha 4,250 8,000 188 Fruits kg/ha 1,050 3,000 286 Rice kg/ha 1,200 2,200 183 Maize kg/ha 900 1,000 111 Wood m3 300 250 83 Source: Project Completion Review Mission’s estimates.

Table A8.7: Project Prices at Appraisal and Project Completion Subcomponents Unit Appraisal Project Actual/

Completion Appraisal% On-Farm Development Rubber-Thick Sheet kg/ha 1,322 3,168 240 Cashew kg/ha 1,357 3,959 292 Banana kg/ha 317 250 79 Fruits kg/ha 679 1,200 177 Rice kg/ha 357 674 189 Maize kg/ha 290 513 177 Wood Rp/m3 33,936 100,000 295 Notes: Prices at appraisal converted to 2004 constant values. Prices for cashew, banana, fruits, and wood are midterm figures. Source: Project Completion Review Mission’s estimates.

42 Appendix 8

Table A8.8: Farmers Income With and Without Project (Rp ‘000)

Items Central Nusa Tenggara Timur West Java

Kalimantan

Without Project - 1992

Farm Income

Crop Cultivation 1,931 908 1,425

Livestock 99 578 135

Wages/Others 446 182 366

Total 2,476 1,667 1,926

With Project - 2004

Farm Income

Crop Cultivation 6,280 3,000 4,240

Livestock 500 1,500 1,000

Wages/Others 1,500 1,000 1,000

Total 8,280 5,500 6,240 Notes: Without-project income based on Appraisal Report. 1992 income adjusted to 2004 constant prices. 2004 income based on Project Completion Review Mission’s estimates.

Table A8.9: Project Economic Internal Rate of Return at Appraisal and Project Completion

(%)

Project Completion Review Project Appraisal Base 10% fall in 20% fall in

Case Prices Prices

Central Kalimantan 16.4 15.3 14.0 12.4 Nusa Tenggara Timur 14.9 14.7 12.5 9.5 West Java 20.2 20.7 19.3 17.6

Total 17.1 18.7 17.4 15.9 Source: Project Completion Review Mission’s estimates.

Item 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Local Project Cost 10,540 15,682 6,830 11,974 36,674 5,621 14,729 33,917 19,811Foreign Project Cost 913 3,114 9,120 3,980 10,948 2,968 7,000 14,162 9,066Farmers Cost 9,275 7,726 15,279 1,952 33,154 34,757 33,848Infrastructure O&M - 3% 472 472 472Support Services 1,548 1,548 1,548

Total Cost 11,453 18,796 25,225 23,680 47,622 23,869 23,681 48,080 28,878 35,173 36,777 35,867

Total Revenue (333) 5,457 11,357 12,997 20,888 20,407 24,119 33,670 45,074 75,920 101,320 90,577

Net Benefits (11,786) (13,339) (13,868) (10,683) (26,734) (3,462) 438 (14,410) 16,197 40,747 64,543 54,710

EIRR 19 %Operations and Maintenance (O&M) for infrastructure assumed as 3% per year.Support services assumed as 30 percent of level provided during project.

Item 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Local Project CostForeign Project CostFarmers Cost 25,691 23,952 24,169 24,189 24,193 30,710 30,040 28,864 21,314 21,188 21,188 21,068 21,068Infrastructure O&M - 3% 472 472 472 472 472 472 472 472 472 472 472 472 472Support Services 1,548 1,548 1,548 1,548 1,548 1,548 1,548 1,548 1,548 1,548 1,548 1,548 1,548

Total Cost 27,711 25,971 26,189 26,209 26,212 32,730 32,059 30,883 23,333 23,207 23,207 23,087 23,087

Total Revenue 66,427 65,181 64,112 61,080 58,928 74,474 73,083 70,176 50,458 46,734 44,537 42,368 41,939

Net Benefits 38,717 39,209 37,924 34,871 32,716 41,744 41,023 39,293 27,124 23,527 21,330 19,281 18,851Source: Project Completion Review Mission’s estimates.

Table A8.10: Project Economic Cost and Benefits, constant 2004 Prices(Rp million)

Appendix 8

43

kg=kilogram; Rp=rupiah. Notes: Intercrop cost and benefits reduced by 50% in fourth and fifth year. Farmer has 1.5 ha of rubber. First year income is grant for labor. Average farm income from year 2000 onwards is Rp6,280 per farm. Source: Project Completion Review Mission’s estimates.

44 A

ppendix 8

Year-----> 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2015 2018Rubber CostPlanting Material 1,009Fertilizer 339 608 680 612 623 300 300 300 300 300 300 300 300 300 300 300 300 300Others 1,175 369 369 369 369 277 105 105 105 105 105 105 105 105 105 105 105 105Intercrop Cost 900 900 450 450

Total Cost 2,522 1,877 1,949 1,431 1,442 577 405 405 405 405 405 405 405 405 405 405 405 405

BenefitsRubber Yield-kg 3,000 3,750 4,500 5,250 5,250 4,500 4,500 4,500 4,500 3,750 1,500 1,500Rubber Price -Rp/kg 1,358 1,329 1,700 2,033 3,168 2,198 2,139 2,081 2,023 1,906 1,906 1,906Intercrop Revenue 2,325 2,325 1,162 1,162Gross Revenue 0 2,325 2,325 1,162 1,162 0 4,073 4,984 7,648 10,672 16,632 9,890 9,626 9,365 9,104 7,148 2,859 2,859

Net Revenue (2,522) 448 376 (269) (279) (577) 3,668 4,579 7,243 10,267 16,227 9,485 9,221 8,960 8,699 6,743 2,454 2,454

CreditNet Revenue (2,522) 448 376 (269) (279) (577) 3,668 4,579 7,243 10,267 16,227 9,485 9,221 8,960 8,699 6,743 2,454 2,454Loan - Principal 1,370 1,387 1,318 992Beginning Balance 6,546 7,004 7,330 7,058 5,974 3,171 1,466Interest at 21 % 288 639 1,051 1,479 1,375 1,471 1,539 1,482 1,254 666 308Total Loan+Interest 7,921 8,475 8,869 8,540 7,228 3,837 1,774Repayment - 25% Gross Margin 917 1,145 1,811 2,567 4,057 2,371 1,774

Farm Income-Repayment 500 1,425 1,425 712 712 2,751 3,434 5,432 7,700 12,170 7,114 7,446 8,960 8,699 6,743 2,454 2,454

Table A8.11: Farm Model 1—Income and Expenditure of Rubber Farmer in Central Kalimantan, constant 2004 Prices(Rp '000)

ha=hectare; kg=kilogram; Rp=rupiah. Notes: Intercrop cost and benefits reduced by 50% in third year. Farmer has 1.5 ha of cashew. First year income is grant for labor. Average farm income from year 1998 onwards is Rp3,000 per farm. Source: Project Completion Review Mission’s estimates.

Appendix 8

45

Year------> 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2015 2018Cashew CostPlanting Material 488 98 98Fertilizer 47 100 190 222 150 150 150 150 150 150 150 150 150 150 150 150 150 150Others 832 241 107 107 107 107 107 107 107 107 107 107 107 107 107 107 107 107Intercrop Cost 1,350 675

Total Cost 1,367 1,789 1,069 328 257 257 257 257 257 257 257 257 257 257 257 257 257 257

BenefitsYield-kg/ha 450 525 525 600 600 600 600 600 600 600 600 600 600 600 450 450Price -Rp/kg 1,407 1,793 6,950 5,535 4,134 5,052 4,813 3,506 3,959 4,173 5,004 5,004 5,004 5,004 5,004 5,004Intercrop Revenue-Rp '000 2,993 1,496Fruit Revenue-Rp'000 450 600 750 750 750 750 750 750 600 600 600 600 600 600 450 450Gross Revenue - Rp'000 0 2,993 2,580 1,541 4,399 4,071 3,230 3,781 3,638 2,854 2,975 3,104 3,602 3,602 3,602 3,602 2,702 2,702

Net Revenue (1,367) 1,204 1,510 1,213 4,142 3,814 2,974 3,525 3,381 2,597 2,719 2,847 3,346 3,346 3,346 3,346 2,445 2,445

CreditNet Income (1,367) 1,204 1,510 1,213 4,142 3,814 2,974 3,525 3,381 2,597 2,719 2,847 3,346 3,346 3,346 3,346 2,445 2,445Loan - Principal 597 394 328Beginning Balance 1,672 1,261 930 421Interest at 21% 125 234 353 351 265 195 88Total Loan+Interest 2,023 1,525 1,126 509Repayment - 20% Net Income 763 595 705 509

Farm Income after Repayment 500 1,204 1,510 1,213 4,142 3,814 2,211 2,930 2,676 2,088 2,719 2,847 3,346 3,346 3,346 3,346 2,445 2,445

Table A8.12: Farm Model 2—Income and Expenditure of Cashew Farmer in Nusa Tenggara Timur, constant 2004 Prices(Rp '000/Farm)

Notes: Farmer has 0.5 ha of fruit orchard, 0.5 ha of alley cropping and 0.5 ha of forest trees. First year income is grant for labor. Average farm income from year 1999 onwards is Rp4,240 per farm. Source: Project Completion Review Mission’s estimates.

46 A

ppendix 8

Year------> 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2015 2018OrchardSeedlings 384Fertilizer/Others 412 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250Total Cost 795 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250OutputBanana -Tons 2 3 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4Banana - Tons/Ton, Rp'000 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250Fruits - Tons 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2Fruits - Price/Ton,Rp'000 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200Total Revenue 375 750 1,600 2,200 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800 2,800Net Revenue (795) 125 500 1,350 1,950 2,550 2,550 2,550 2,550 2,550 2,550 2,550 2,550 2,550 2,550 2,550 2,550 2,550Re-Greening Cost 0 9 5 6 8 9 11 58 821 6 3 4 5 6 4 7Revenue 0 0 0 25 25 25 25 12,525 25 25 25 25 25 25 25 25Net Revenue 0 (9) (5) 19 17 16 14 12,467 (796) 19 22 21 20 19 21 18Alley CroppingCost 550 550 550 550 550 550 550 550 550 550 550 550 550 550 550 550 550Revenue 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326 1,326Net Revenue 776 776 776 776 776 776 776 776 776 776 776 776 776 776 776 776 776

Total Farm Income 500 901 1,276 2,117 2,721 3,345 3,343 3,342 3,340 15,792 2,530 3,345 3,347 3,347 3,345 3,344 3,347 3,343

Table A8.13: Farm Model 3—Income and Expenditure of Fruit Farmer in West Java, constant 2004 Prices

(Rp '000/Farm)

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