participatory forestry project (loan 1183-sri[sf]).pdf

7/31/2019 Participatory Forestry Project (Loan 1183-SRI[SF]).pdf

1/51

ASIAN DEVELOPMENT BANK PPA: SRI 19151

PROJECT PERFORMANCE AUDIT REPORT

ON THE

PARTICIPATORY FORESTRY PROJECT(Loan 1183-SRI[SF])

IN

SRI LANKA

March 2003


2/51

CURRENCY EQUIVALENTS

Currency Unit Sri Lanka rupee/s (SLRe/SLRs)

At Appraisal(September 1992)

At Project Completion(August 2000)

At Operations Evaluation(October 2002)

SLRe1.00 = $0.0234 $0.0128 $0.0104$1.00 = SLRs42.71 SLRs77.85 SLRs96.25$1.00 = SDR1.46 SDR1.31 SDR1.32

ABBREVIATIONS

ADB Asian Development Bank AusAID Australian Agency for International DevelopmentBFO beat forest officer CFP Community Forestry ProjectEIRR economic internal rate of returnFRMP Forest Resources Sector Management ProjectFD Forest DepartmentFWL farmers woodlotm3 cubic meter M&E monitoring and evaluationOEM Operations Evaluation MissionPCR project completion reportPPAR project performance audit reportPWL protective woodlotRFO range forest officer SDR special drawing rightsSTC State Timber CorporationTA technical assistance

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December.(ii) In this report, $ refers to US dollars.

Operations Evaluation Department, PE619


3/51

CONTENTSPage

BASIC DATA iiEXECUTIVE SUMMARY iiiMAP vii

I. BACKGROUND 1 A. Rationale 1B. Formulation 1C. Objectives and Scope 1D. Cost, Financing, and Executing Arrangements 3E. Completion and Self-Evaluation 3F. Operations Evaluation 4

II. PLANNING AND IMPLEMENTATION PERFORMANCE 4 A. Formulation and Design 4B. Achievement of Outputs 5C. Cost and Scheduling 8D. Procurement and Construction 8E. Organization and Management 9

III. ACHIEVEMENT OF PROJECT PURPOSE 10 A. Operational Performance 10B. Performance of the Operating Entity 12C. Financial and Economic Reevaluation 12D. Sustainability 14

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 14 A. Socioeconomic Impact 14B. Environmental Impact 15C. Impact on Institutions and Policy 15D. Overall Assessment 16E. Overall Project Rating 17F. Assessment of ADB and Borrower Performance 17

V. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 18 A. Key Issues for the Future 18B. Lessons Learned 19C. Follow-Up Actions 19

APPENDIXES1. Project Framework 202. Project Costs and Financing Plan 233. Summary of Beneficiary Impact Survey Results 244. Project Economic Reevaluation 29

SUPPLEMENTARY APPENDIXES (available upon request) A. Project Economic Reevaluation Supplementary TablesB. Photographs of Homestead Garden and Farmers Woodlot


4/51

BASIC DATA

Project Preparation/Institution BuildingTANo.

TA Name Type Person-Months

Amount($)

ApprovalDate

1157 Preparation of the Participatory Forestry PPTA 27 350,000 16 May 1989

1777 Institutional Strengthening of the Forest Department ADTA 54 822,000 5 Nov 1992

Key Project Data ($ million) As per ADBLoan Documents ActualTotal Project Cost 25.0 24.1Foreign Exchange Cost 2.8 3.5Local Currency Cost 22.2 20.6

ADB Loan Amount/Utilization 1 10.5 7.9 ADB Loan Amount/Cancellation 1 2.1 Amount of Cofinancing

AusAID 5.8 3.9World Bank 0.5 0.0

Key Dates Expected Actual Appraisal 25 Mar15 Apr 1992

Loan Negotiations 2830 Sep 1992Board Approval 5 Nov 1992Loan Agreement 17 Dec 1992Loan Effectiveness 17 Mar 1993 11 Aug 1993Loan Closing 30 Jun 1999 31 Aug 2000Project Completion 31 Dec 1998 30 Jun 2000Months (effectiveness to completion) 70 83

Key Performance Indicator Appraisal PCR PPARInternal Rate of Return 2 (%) 13 30 15

Borrower Government of Sri LankaExecuting Agency Forest Department of the Ministry of Environment and Natural Resources

Mission Data No. of Missions No. of Person-DaysFact-Finding 1 32

Appraisal 1 80Inception 1 21Project Administration

Review 7 61Midterm Review 1 36Special Loan Administration 3 17Project Completion 1 32

Operations Evaluation 3 1 39

ADB = Asian Development Bank, ADTA = advisory technical assistance, AusAID = Australian Agency for International Development, PCR = project completion report, PPAR = project performance audit report, PPTA =project preparatory technical assistance, TA = technical assistance.1 Approved amount was equivalent to SDR7.249 million. At the time of loan closing, actual disbursements amounted

to SDR5.651 million, while cancellations were equivalent to SDR1.598 million. 2 Because the Project involved investment by a large number of rural families that was not financially quantifiable,

the appraisal and project completion reports did not calculate financial internal rates of return. This audit reportfollowed the appraisal and project completion report methodology.

3 The Operations Evaluation Mission comprised M. Ozaki, Evaluation Specialist (Mission Leader), L. Saunders(International Consultant), and W. L. Weerakoon (Domestic Consultant).


5/51

EXECUTIVE SUMMARY

The Sri Lankan economy depends heavily on the natural resource sectors includingforestry. The rapid deforestation caused by land clearing for agriculture, encroachment fromunplanned settlements, cropping by the landless poor, illegal logging, and commercial timber extraction became a serious environmental problem for the country. The Participatory ForestryProject (the Project) was formulated to address the diminishing forest resources as a result of increaseing in the rural population.

The Asian Development Bank (ADB) loan of $10.5 million for the Project, with anattached advisory technical assistance (TA) grant of $822,000, was approved in November 1992. The Executing Agency was the Forest Department (FD) of the Ministry of Environmentand Natural Resources. The total cost of the Project was estimated at $25.0 million equivalent,with ADB to finance the entire foreign exchange cost and around 35% of the local currency cost.The Project was to be cofinanced by the Australian Agency for International Development(AusAID) ($5.8 million) and the World Bank ($0.5 million) for the food aid (food coupon) programand adaptive research component, respectively.

The Projects objectives were to (i) increase tree planting by farmers and thereby createemployment opportunities, raise incomes, reduce poverty, and rehabilitate environmentallydegraded areas; and (ii) strengthen the institutional capability of FD to expand its programs for nonforest tree planting, adaptive research, extension delivery systems, and privately operatedvillage nurseries.

The Project had four components: (i) participatory forestry, (ii) tree seed and seedlingproduction, (iii) adaptive research, and (iv) monitoring and evaluation (M&E). Participatoryforestry was the principal part of the Project, accounting for 93% of the estimated total cost. Itspurpose was to develop homestead garden planting, woodlots, and other plantings by involvingrural households in exchange for food coupons. The appraisal target was a total of 14,750 hectares (ha) of plantings: 9,000 ha of homestead gardens, 4,000 ha of farmers'woodlots (FWLs), 1,500 ha of protective woodlots (PWLs), and 250 ha of miscellaneousplantings. To offer incentives to participating households, the Project was also to provide themwith seedlings and technical advice as well as more secure land tenure through the ownershipof trees.

The advisory TA grant was to strengthen FDs capability in forestry development through(i) developing and implementing a reorientation program for FD staff to strengthen their capabilities in forestry development, particularly their ability to provide service to farmers;(ii) assisting in evaluation and improvement of the institutional and financial framework for farmers participation in forestry activities; (iii) establishing a benefit M&E system for FD; and(iv) staff training in these subjects.

The Project substantially exceeded the physical targets for the participatory forestrycomponent, but did not achieve the expected outcomes for the other three components. Thetotal area planted under the participatory forestry component was 53,075 ha, comprising36,263 ha of homestead garden planting, 9,808 ha of FWLs, 4,536 ha of PWLs, and 2,468 ha of miscellaneous plantings. The actual total area planted was thus 260% higher than the appraisaltarget of 14,750 ha and 15% higher than the revised target in 1998 of 46,000 ha. However, theOperations Evaluation Mission (OEM) believes that an area-based target for homesteadgardens is misleading because the data reported included homestead gardens that already


6/51

iv

existed prior to the Project. The number of households that received the seedlings under theProject is considered to be more meaningful. A total of about 462,000 households receivedseedlings against the appraisal target of 45,200 households.

The much higher-than-expected outcome was due to savings from the depreciation of the Sri Lanka rupee, large contingencies in the cost estimate, and an extension of the projectimplementation period by 1 year. The provision of free seedlings, access to land through thelease agreement, and food coupon incentives to mobilize the rural households all contributed tothe level of achievement in the participatory forestry component.

The tree seed and seedling production component was expected to establish seedstands and seed orchards with imported seeds to improve the quality of planting stock.However, the OEM observed that there was no significant improvement in either seed quality or seed improvement systems within FD. While seed stands or orchards were established, theOEM did not find that collection and distribution of seeds from those sources occurred. Theseed center construction was completed in May 2000; however, presently, the center does notcarry out seed production activities due to lack of staff and equipment. Expected research under the adaptive research component was not carried out because submission of satisfactoryresearch proposals to the World Bank was delayed. In the meantime, the World Bank fundingfor this component was cancelled. The M&E system developed by a consultant was overlycomplex and its data collection requirements were not practical.

The Project met its objectives of increasing tree planting and creating employmentopportunities for rural households. Almost 17,000 ha of tree cover was developed under FWLs,PWLs, and miscellaneous plantings. Employment was provided to rural households throughplanting activities with an estimated 14,000 person-years of employment generated as againstthe appraisal target of 11,000 person-years. However, some weaknesses in projectperformance were also identified by the OEM. For FWLs, silvicultural management such asweeding and thinning was not always provided due to insufficient skills and knowledge of FDsfield-level staff. The FWL tree survival rate was estimated at 55% in the dry zone, 52% in theintermediate zone, and less than 50% in the wet zone. For those FWLs with low survival or growth rate, the participating households are losing motivation to maintain their woodlots.Nevertheless, the successful FWLs provide strong incentives and many households are plantingtrees on other land at their own cost. FDs range and beat forest officers (RFOs and BFOs) whowere responsible for extension services now lack social contact with the participatinghouseholds as this contact was made by the motivators who left FD upon the termination of their contracts at project completion. The lack of institutional memory due to the loss of motivators puts the sustainability of FWLs at risk.

In terms of socioeconomic impact on project beneficiaries, based on the OEMsbeneficiary survey and field observation, the households that participated in the homesteadgarden subcomponent expect substantial returns from timber trees after the 25th year of

planting. Except for the dry zone, the fruit and other crop seedlings distributed by the Projecthave had little impact on household incomes and nutrition. At the time of the Project, ruralhouseholds in the wet and intermediate zone project areas already had well-planted homesteadgardens, often developed over several generations, and the Projects homestead gardenactivitydistributing free seedlingsprovided only small additions to or replacement of oldplants, which the households would have done even without the Project. Also, speciesdistributed to homestead gardens, especially in the wet zone, were poorly selected and many of the trees distributed were planted without proper spacing. There are shading effects from those


7/51

v

trees that will reduce overall production of existing and newly planted fruit trees. Fruit trees insome homestead gardens already show signs of retarded flowering and fruiting due to shading.

For FWL and PWL participating households, food coupons were distributed for the initialland clearing, planting, and weeding works. Approximately SLRs318 million equivalent of foodcoupons were financed by AusAID with an average amount of food coupons distributed per household of about SLRs8,400. FWL participating households also benefited from intercroppingbetween tree stands in FWLs.

The environmental impact from PWLs is difficult to assess at this stage; however, thereis some evidence of PWLs being of marginal value due to poor tree selection and lack of maintenance.

The Projects intention to increase forest cover through a social forestry approach wasrelevant and timely. The Project achieved the objectives of increasing tree planting and creatingemployment opportunities through the participatory forestry component. The woodlot andhomestead garden establishment substantially exceeded the appraisal targets. Employmentgeneration through woodlot establishment was significant. FD made laudable efforts to achievethe targets and its performance was satisfactory. The Project has played a pivotal role in thetransformation of FD from a solely administrative forestry agency to an agency that facilitatesthe production of woodlots through community involvement. However, the impacts on fruit andcrop production from homestead gardens are still uncertain. Approximately half of FWLs aresusceptible to diminishing returns of trees due to insufficient maintenance. The economicinternal rate of return for the entire Project is estimated at 15%, above the appraisal estimate of 13%. The overall sustainability of FWLs is considered to be likely with approximately half of them in satisfactory condition. The Project provided an opportunity for FD to expose its staff toparticipatory social forestry operations. However, their involvement and knowledge of socialforestry extension services is still inadequate, partly because the attached TA did not cover fullythe organizational reform needed for social forestry. Overall, the Project is rated successful.

The success of the Project confirms the importance of generating immediate benefitsand having well-defined responsibilities for beneficiaries in woodlot establishment. Other keylessons learned include the need for (i) an initial social assessment of the beneficiariespreferences and priorities for planting species, (ii) a realistic review of the extension capabilitiesof FD and institutionalization of skills for social forestry programs within FD, and (iii) greater involvement of stakeholders in the planning and monitoring of agroforestry interventions andmaintenance of timber.

The OEM recommends that FD, by the end of 2003, (i) abolish the annual renewalsystem of the lease agreement due to the heavy workload of RFOs and replace it with a reviewonce every 5 years; (ii) replace the existing agreements with the lease agreement developedunder ADBs Forestry Resources Management Sector Project so that FWL leaseholders have

the right of harvesting without the consent of FD; (iii) develop and implement a training programfor RFOs and BFOs in silvicultural extension and social forestry; (iv) prepare a plan to carry outa systematic seed and seedling improvement program and utilize the seed center for thatpurpose; and (v) enhance the capabilities of RFOs and BFOs to conduct systematic monitoringand assessment of tree conditions, silvicultural practices, and socioeconomic benefits accruingto the farmers.


8/51

vii


9/51

I. BACKGROUND

A. Rationale

1. The Sri Lankan economy depends heavily on the natural resource sectors includingforestry. The rapid deforestation caused by land clearing for agriculture, encroachment fromunplanned settlements, cropping by the landless poor, illegal logging, and commercial timber extraction became a serious environmental problem for the country. In the 1980s and early1990s, deforestation was occurring at a rate of 40,000 to 60,000 hectares (ha) a year,equivalent to 0.2% to 0.4% of the countrys forestland. To arrest deforestation and introducecomprehensive forestry management, the Government formulated a forestry sector development strategy in 1986 with the assistance of the World Bank and the FinnishInternational Development Agency. This Forestry Master Plan had the objectives of (i) creating,maintaining, and conserving forests in order to preserve the environment; (ii) protecting andaugmenting the supply of small woodlots for fuelwood; (iii) maintaining a sustainable yield of timber and other forest products; and (iv) involving the local community in developing privatewoodlots and tree farms. An Asian Development Bank (ADB) paper circulated in 1992 1 set out

ADBs strategy in the forestry sector of Sri Lanka as continuing support for short- to medium-term efforts to strengthen institutional capabilities in forest management and resourceconservation through small-scale reforestation, fuelwood plantation, and farmers woodlots(FWLs). The Participatory Forestry Project (the Project) was prepared in line with this strategywith the rationale of addressing the diminishing forest resources as a result of the increasingrural population. The Project was also in accordance with ADBs Medium-Term StrategicFramework (19921995) 2 by covering poverty reduction and environmental protection. TheProjects strategic development objective was economic growth.

B. Formulation

2. In August 1988, the Government requested assistance from ADB for preparing andfinancing a project to increase fuelwood supply and reduce forest degradation. Technicalassistance (TA)

3was approved in May 1989 to prepare such a project. The TA was completed

in June 1990 and an ADB appraisal mission visited Sri Lanka from 25 March to 15 April 1992 4 toreconfirm the consultants findings and to discuss the proposed project with the Government.Loan negotiations between ADB and government representatives were held in Manila inSeptember 1992. The ADB loan of SDR7.249 million, equivalent to $10.5 million at appraisal,with an attached advisory TA 5 was approved in November 1992. The Executing Agency was theForest Department (FD) of the Ministry of Environment and Natural Resources. 6

C. Objectives and Scope

3. The Projects objectives were to (i) increase tree planting by farmers and thereby createemployment opportunities, raise incomes, reduce poverty, and rehabilitate environmentally

degraded areas; and to (ii) strengthen the institutional capability of FD to expand its programs

1 ADB. 1992. Sri Lanka: Economic Review and Bank Operations . Manila. 2 ADB. 1992. The Banks Medium-Term Strategic Framework . Manila. 3 TA 1157-SRI: Preparation of the Participatory Forestry , for $350,000, approved on 16 May 1989.4 The appraisal mission was fielded in the first half of 1992 to incorporate lessons learned from the project

completion report (December 1991) of the Community Forestry Project (footnote 12).5 TA 1777-SRI: Institutional Strengthening of the Forest Department , for $822,000, approved on 5 November 1992.6 Known as the Ministry of Lands, Irrigation and Mahaweli Development at appraisal.


10/51

2

for nonforest tree planting, adaptive research, extension delivery systems, and privatelyoperated village nurseries.

4. The Project had four components, which were implemented in 18 out of the 25 districtsin Sri Lanka, excluding the areas considered vulnerable in terms of security (see Map onpage vi). The project area covered the countrys three major ecological zones: the dry zone,intermediate zone, and wet zone. The main components and their respective subcomponentswere as follows: (i) Participatory Forestry, including (a) homestead garden planting for thegrowing of fruit, timber, and multipurpose trees in homestead gardens to improve familieslivelihoods in terms of nutrition, cash incomes, and better wood supplies; (b) FWLs for poor andmarginal farmers to grow trees on degraded government land, using an agroforestry approachfor both establishing a wood supply and improving the livelihoods of the households; (c)protective woodlots (PWLs) for planting trees, and using soil and water conservation measuresto rehabilitate erosion-prone government land by local communities; and (d) miscellaneousplantings of trees in schools, public areas, and along railways, roads, and canals to provide anamenable environment and raise public awareness of the value of growing trees; (ii) Tree Seedand Seedling Production, including (a) establishment of about 1,100 private nurseries; (b)collection and use of seed from selected superior local trees; (c) importation of seed; (d)processing and storage of seed; and (e) establishment of seed orchards for seed production or vegetative propagation; (iii) Adaptive Research, including (a) boundary hedgerows/forage cropcombinations; (b) contour alley cropping production and soil conservation; (c) creation of foreststands with intercropping of cardamon; and (d) smallholder fuelwood production; and (iv)Monitoring and Evaluation (M&E), including developing an M&E system for FD and conductingbenchmark surveys during project implementation on beneficiaries socioeconomic status andproject plantations.

5. The major part of the Project (93% of the estimated project cost) was the participatoryforestry component to develop homestead garden planting, FWLs, PWLs, and other plantingsby involving rural households in exchange for food coupons. To offer incentives to participatinghouseholds, the Project was also to provide them with technical advice, seedlings, and moresecure land tenure through the ownership of trees. The Project included a loan covenant thatthe Government should privatize the three largest sawmills owned by the State Timber Corporation (STC) by June 1993. 7

6. The advisory TA grant attached to the Project (footnote 5) was to strengthen FDscapability in forestry development. Specific TA activities included (i) developing andimplementing a reorientation program for FD staff to strengthen their capabilities in forestrydevelopment, particularly their ability to provide service to farmers; (ii) assisting in evaluatingand improving the institutional and financial framework for farmers participation in forestryactivities; (iii) establishing a benefit M&E system for FD; and (iv) staff training in these subjects.

7. The Project was expected to generate about 11,000 person-years of employment for

rural households during its implementation, mainly through planting and maintenance inhomestead garden and forestry activities. Additional employment for 1,100 farmers wasexpected from the operation of village nurseries. Farmers were also to benefit from the sale of fruit, spices, and wood from homestead gardens, FWLs, and to some extent, PWLs.

7 STC is a dominant supplier of quality timber in Sri Lanka. STC had set price of sawlogs at around 5060% of market prices, resulting in reduced Government revenue. Since 1990, STC adopted auction procedures for the logsales. The loan covenant to privatize the STC sawmills was to support the Governments deregulation efforts in thetimber market.


11/51

3

D. Cost, Financing, and Executing Arrangements

8. The total cost of the Project was estimated at $25.0 million equivalent, with the ADB loanof $10.5 million equivalent to cover the entire foreign exchange cost and around 35% of thelocal currency cost. The project cost included $8.9 million of contingency cost comprisingphysical contingencies 8 ($1.6 million) and price escalation 9 ($7.3 million). The Project wascofinanced by the Australian Agency for International Development (AusAID), 10 which was tocontribute $5.8 million for the food aid (food coupon) program, and by the World Bank, whichwas to contribute $0.5 million for the adaptive research component. The project cost included$6.8 million equivalent of beneficiary contributions by households participating in the homesteadgarden subcomponent through their labor and fertilizer inputs. The Borrower was theDemocratic Socialist Republic of Sri Lanka. The loan was under the standard AsianDevelopment Fund terms with a service charge of 1% per annum and a maturity of 40 years,including a grace period of 10 years.

E. Completion and Self-Evaluation

9. The Project was completed in June 2000. The project completion report (PCR) rated itsuccessful. The Project exceeded the appraisal target for the participatory forestry component,but did not achieve the expected results for the other three components. The PCR reported thatthe total area planted under the participatory forestry component was 52,782 ha, comprising36,043 ha for homestead garden planting, 9,678 ha for FWLs, 4,635 ha for PWLs, and 2,426 hafor miscellaneous planting subcomponents. The miscellaneous plantings included1,294 kilometers (km) of plantings on roads and irrigation canals. The actual total area plantedwas much higher than the appraisal target of 14,750 ha. This was attributed to savings made bythe depreciation of the local currency against the US dollar and by the 1-year extension inproject implementation.

10. The tree seed and seedling production component was expected to establish seed

stands and seed orchards to improve the quality of planting stock with imported seeds.However, by project completion, there was no significant improvement in seed quality due to thelower-than-expected seed imports and the delay in building the seed center, which wascompleted only in May 2000. Expected research under the adaptive research component wasnot carried out because submission of satisfactory research proposals to the World Bank wasdelayed. In the meantime, the World Bank funding for this component was cancelled. The M&Esystem developed by a consultant was overly complex and its data collection requirements werenot practical.

11. The PCR concluded that the Project improved incomes of beneficiaries through theprovision of food coupons, sales of agricultural crops at FWLs, and private nursery seedlings.The Project also improved the institutional capabilities of FD by establishing a trained core of

staff and developing participatory forestry approaches. The PCR calculated the net presentvalue per person-day of labor for the homestead gardens and FWL, and concluded that thefinancial incentive was adequate for households to participate in further activities. Based onestimates of the quantifiable economic benefits from the homestead gardens and FWL models

8 Calculated as 10% of the base cost.9 Estimated at 3.7% annually from 1993 to 1998 for foreign exchange costs, and 8% for 1993 and 7% annually

thereafter for local currency costs.10 Known as Australian International Development Assistance Bureau at appraisal.


12/51

4

that were utilized for agriculture, horticulture, and timber returns, an economic internal rate of return (EIRR) of 30% was calculated, well above the appraisal estimate of 13%. The PCRattributed the difference to higher real timber prices, lower unit production costs, and anincrease in planted areas.

12. Lessons drawn in the PCR included the need for (i) developing an integratedparticipatory forest resource management approach, (ii) establishing clear land tenure andleasehold entitlements, (iii) adopting active stakeholder participation for targeted povertyreduction, and (iv) introducing an effective M&E systems to facilitate ongoing assessment andbeneficiary impact monitoring. The PCR recommended that FD follow up by (i) operationalizingthe tree seed center, (ii) seeking additional funding for maintenance work on FWLs and PWLs,(iii) finalizing the lease agreements that had remained unsigned, (iv) preparing a strategic planfor extension and management support for the woodlots, and (v) undertaking a beneficiarybenefit monitoring survey. The construction of the tree seed center was completed, but thecenter is not carrying out the expected seed production functions; instead, it is occupied by staff of FDs research center (para. 24). As of November 2001, all the lease agreements weresigned. However, the annual renewal of about 5,000 agreements has been delayed (para. 36).The other follow-up actions are expected to be taken under ADBs Forest ResourcesManagement Sector Project (FRMP). 11

F. Operations Evaluation

13. This project performance audit report (PPAR) is based on the findings of the OperationsEvaluation Mission (OEM) that was fielded from 27 October to 10 November 2002, taking intoaccount a review of the appraisal report, PCR, discussions with staff of FD, AusAID, WorldBank, ADB, and participating farmers at selected project sites. The OEM visited 4 outof 18 project districts: Anuradhapura in the dry zone, Kurunegala in the intermediate zone, andKandy and Kalutara in the wet zone. The Project was recognized as a benchmark operation of

ADB in the forestry sector that focused not only on quantitative targets for planting but also oninstitutional development in social forestry management. Considering that recent forestryprojects have been increasingly emphasizing decentralizing and developing the local authorityof FD, the PPAR assesses to what degree FDs reorientation was a result of the Project andhow applicable the Projects participatory approach is in the present forestry sector policy of theGovernment. Copies of the draft PPAR were provided to the Government and ADB staff concerned for review, and their comments were considered when finalizing the PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

14. The Projects focus of involving farmers in forestry resource maintenance andenhancement with institutional reform was relevant not only to the Governments forestry plan at

the time of appraisal, but also to the Forestry Sector Master Plan that was developed in 1995.The latter emphasized the need to increase stakeholder participation within clearly defined rolesand responsibilities in growing and managing trees.

11 Loan 1744-SRI(SF): Forest Resources Management Sector Project , for $27 million, approved on 28 June 2000.


13/51

5

15. The Project was developed as ADBs second forestry sector intervention in Sri Lankaafter the Community Forestry Project (CFP), 12 which was completed in 1991. A PPAR 13 on theCFP was prepared in 1992. It reported that the block plantation component was short of theappraisal target, achieving only 6,300 ha instead of 14,000 ha of the appraisal target, mainlydue to the lack of experienced staff at FD and unclear demarcation of responsibilities betweenFD divisions. Other social forestry components made little progress. The community woodlotsachieved only 8 ha against the appraisal target of 125 ha and the component was abandonedduring implementation. Under FWLs, 1,260 ha were made available from government-controlledlands, falling short of the appraisal target of 4,050 ha. Further, as the land provided for FWLsincluded degraded and unsuitable land, the component did not encourage farmers participation.The PPAR concluded that there were insufficient incentives for farmers to undertake plantingand caring for trees with a reward 10 or more years in the future. Individual farmers requiredimmediate and tangible compensation to work in collective community plantations. Incompleteand ambiguous land lease arrangements led to distrust and nonparticipation by farmers.

16. The project design incorporated lessons derived from the CFP and increased incentivesfor households. Free seedlings were distributed to the households that already owned lands for homestead gardens. Participation in woodlot establishment was encouraged through foodcoupon distribution. A 25-year lease agreement was provided for households participating inFWLs, including ownership of the trees in their woodlots. The Projects emphasis on incentivesfor FWL and PWL establishment was sound to the extent that FD achieved more than theappraisal targets for physical outputs.

17. However, the extension capabilities of FD to implement social forestry activities were notfully assessed at appraisal. The community mobilization was largely carried out by themotivators who left FD after the completion of the Project. Range and beat forest officers (RFOsand BFOs), who are now responsible for extension services to the households, lack sufficienttechnical knowledge in selection of species, maintenance, and marketing. As a result, provisionfor routine silvicultural management after the plantation establishment was not sufficiently made.The 25-year land lease agreement for FWL participating households is, in practice, a permit toprovide households access to lands because (i) they cannot cut trees without FDs consent;(ii) they do not have instruments to cut, transport, and market trees and depend on theassistance of FD; and (iii) the 25-year lease agreement is subject to FDs annual renewal. Thereare some delays in processing the annual renewal and growing distrust among the participantsregarding the tenure of their woodlots.

B. Achievement of Outputs

18. The project framework in Appendix 1 14 compares appraisal targets with actualachievements. Following ADBs midterm review in July 1996 and review mission in July 1998,the physical output targets in terms of hectares were expanded, and project implementationextended, to utilize the large contingencies in the cost estimate and savings from the Sri Lanka

rupee's depreciation against the US dollar. Table 1 summarizes the Projects actualachievement against the appraisal and revised (1998) targets.

12 Loan 568-SRI: Community Forestry Project , for $10 million, approved on 25 March 1982. 13 ADB. 1992. Project Performance Audit Report on the Community Forestry Project in Sri Lanka . Manila. 14 The appraisal report did not include a project framework. The PPARs project framework, covering outputs,

objectives, and goal, was constructed based on the appraisal and PCR reports, and OEM estimates.


14/51

6

Table 1: Participatory Forestry Land-Use Area(ha)

Subcomponent AppraisalTarget

Revised Target(1998)

PCR PPAR

Homestead Gardens a 9,000 31,000 36,043 36,263

Farmers Woodlots 4,000 9,000 9,678 9,808Protective Woodlots 1,500 4,000 4,635 4,536Miscellaneous Planting

Public Lands 250 2,000 2,426 2,468Roads/Canals (km) 700 500 1,294 1,546

Total b 14,750 46,000 52,782 53,075 c ha = hectare, km = kilometer, PCR = project completion report, PPAR = project performance audit report.a The total area of homestead gardens is an inadequate indicator. The number of households that received

seedlingsabout 462,000is more m eaningful.b Area-based, excluding the miscellaneous planting on roads and canals.c The data for the area-based achievement for PPAR are based on the reports provided by the Forest Department

(FD). The Operations Evaluation Mission found discrepancies in area developed for homestead gardens betweenthe data obtained at some of the field sites and the head office data. The data in some locations was 1520% lower than the FD head office data.

Sources: appraisal report, project completion report, FD various r eports, and Operations Evaluation Missionestimates.

1. Participatory Forestry

a. Homestead Gardens

19. The homestead garden subcomponent involved distribution of free seedlings of timber and fruit trees. 15 Based on the revised project data from FD, by the end of 1999, a total of 36,263 ha of homestead gardens had been established. However, the OEM believes that anarea-based achievement for homestead gardens is misleading because seedlings weredistributed also to some households that had already established gardens. Achievement based

on the number of households that received the seedlings is considered to be more meaningful. A total of about 462,000 households received seedlings against the appraisal target of 45,200 households.

b. Farmers Woodlots

20. By the end of 1999, a total of 9,808 ha of FWLs had been established, 16 145% and 9%above the appraisal and revised targets, respectively. Planting activities by communities weregenerally satisfactory and an initial survival rate during the woodlot establishment was estimatedat around 70%; however, the survival rate had fallen to an estimated 5055% by 2002(para. 51).

15 The Project supplied about 10 million seedlings including timber trees (teak, margosa, acacia, and mahogany) andfruit and other species (coconuts, mango, lime, and orange). The timber tree seedlings were supplied from theprivate nurseries contracted by the Project and fruit tree seedlings were supplied by the Ministry of Agriculture.

16 The major tree species planted in FWLs were teak and margosa in the dry zone, teak in the intermediate zone,and eucalyptus and teak in the wet zone.


15/51

7

c. Protective Woodlots

21. Through community mobilization in exchange for food coupons, the Project established4,536 ha of PWLs, which represents an increase of 202% and 13% over the appraisal andrevised targets, respectively.

d. Miscellaneous Planting

22. A total of 2,468 ha of miscellaneous plantings took place at schools, hospitals, andtemples, as well as 1,546 km along roads and irrigation canals. The motivators conductedawareness campaigns for tree planting, and plantings were carried out by volunteers and schoolchildren. Food coupons were not distributed as part of the miscellaneous plantings, which weremainly for amenity purposes and for raising awareness about tree growing at schools.

2. Tree Seed and Seedling Production

23. Seedling production was contracted to local community-based private nurseries.Community members were trained in nursery production techniques and provided with stumpsor seed stock for timber tree seedlings. Approximately 1,340 private nurseries were establishedduring project implementation with a production capacity of about 50,000 seedlings per year each. FD purchased seedlings from the private nurseries at SLRs2.5 per seedling.

24. The construction of the tree seed center was completed in May 2000, almost at the endof the Project, due to construction delays (para. 30). Because of the present division of responsibilities for wood production and marketing between FD and STC (para. 46), there is nostrong incentive for FD to carry out a seed or seedling production improvement program. As aresult, there is no systematic seed improvement program for the center. The center is currentlyoccupied by staff of FDs research center.

3. Adaptive Research

25. The Project included an adaptive research component to assess the priority needs of farmers and site characteristics, and constraints on the adoption of the project agroforestrymodels. The component was to be financed by the World Bank under its Agricultural ResearchProject, which was implemented from 1986 to 1996. However, as the research proposals fromFD were submitted only in February 1998, after the closure of the World Bank project, thefunding for the component was cancelled. As a result, no adaptive research was undertaken.

4. Monitoring and Evaluation

26. An M&E consultant was financed under the attached TA. The consultant was to assist in

carrying out benchmark surveys to collect data on participating households socioeconomicstatus. In addition, the consultant was expected to assist FD in preparing annual M&E reportson the performance of farmers and nursery owners, changes in farmers income, employment,technology, and other socioeconomic conditions. The M&E system developed by the consultantwas overly complex and not practical for collecting physical, financial, and socioeconomic data.While FD continuously collected the Projects physical and financial data, socioeconomic dataon the beneficiaries were not collected. FD conducted a socioeconomic benefit and impactassessment study in 1998 to review the Projects impacts on beneficiaries; however, the datacollected by a domestic consulting firm was incomplete and the result of the 1998 survey was


16/51

8

considered inappropriate by FD. In 2000, another impact assessment study was conducted.While the 2000 survey was comprehensive, the collected data was not effectively utilized as abenchmark for further project monitoring and management.

C. Cost and Scheduling

27. At completion, the total project cost amounted to $24.1 million or 4% below the appraisalestimate of $25 million despite the substantial expansion of the participatory forestrycomponent. ADB disbursements reached $7.9 million against the approved loan amount of $10.5 million. In 1998, $2.1 million in loan savings were cancelled, followed by another cancellation of over $0.1 million. 17 The AusAID funding of $5.8 million for the food aid programwas not fully utilized. The actual disbursement amounted to $3.9 million because ADBsapproval for the project extension came too late to be incorporated in AusAID programming.The summary of appraisal and actual costs is in Appendix 2.

28. The original loan closing date of 30 June 1999 was extended by 1 year to 30 June 2000to complete training for the motivators 18 and plantation maintenance activities. The loan accountwas closed on 31 August 2000.

D. Procurement and Construction

29. FDs procurement of goods and civil works was undertaken according to ADBsGuidelines for Procurement, and recruitment of consultants was carried out in accordance withits Guidelines on the Use of Consultants . The ADB loan financed 24 person-months of consulting service for land identification, and the attached TA 54 person-months in threedifferent areas (para. 31). A consultant for women-in-development was recruited under the

AusAID funding.

30. It was planned that 94 buildings would be constructed. The actual disbursementwas 83 buildings (69 field offices and quarters, and 14 extension and inspection centers). TheGovernment's complicated civil work bidding processes and weak local contractor capacityresulted in delays in construction and the shortfall in the number of buildings. The delay inconstruction of the tree seed center partly contributed to the unsatisfactory result of the treeseed and seedling production component. Due to the low quality of construction, some of thebuildings are no longer functional.

31. The attached TA financed two international consultants (a forestry specialist and a treeimprovement specialist) and a domestic M&E specialist. The forestry specialist was expected todevelop and undertake training courses in silviculture, land-use planning and extension, andestablishing species and site-matching guidelines. The tree improvement specialist was toproduce reports and manuals on the establishment and management of tree seed sources,seed collection and technology, and to conduct staff training on seed technology. The M&E

specialist was expected to assist in beneficiary socioeconomic surveys. Except for the treeimprovement specialist, the outputs of the TA consultants were assessed by FD as less thansatisfactory. The training developed by the forestry specialist was unsatisfactory, resulting in anadditional forest training and extension consultancy being proposed later in the Project. The

17 At completion, actual disbursements amounted to SDR5.651 million, while cancellations were equivalent toSDR1.598 million.

18 During the project period, there was expectation within FD that the motivators could be absorbed by FD asextension officers. Thus, the extension training for the motivators continued until the final year of the Project.


17/51

9

M&E system developed by the specialist was overly detailed and FD considered that it was notfeasible for implementation. The tree improvement specialist produced manuals on theestablishment and management of tree seed sources, seed collection, and technology. Thespecialist also organized training. The manuals were assessed as of good quality and used inselection of seed production areas in the field.

E. Organization and Management

32. FD implemented the Project in accordance with the arrangements agreed at appraisal.The conservator of forests 19 (education and extension) was appointed as the project director.Two conservators of forests were to assist in the implementation of the tree seed productionand adaptive research components; however, those two components were not fullyimplemented. A total of 53 RFOs and BFOs were to be recruited under the Project. However,there was no new recruitment; instead, the existing officers were given additional responsibilitiesto implement the Project. Because RFOs and BFOs were carrying out other FD routinefunctions and the administration of the land lease agreements, their involvement in technicalextensions for the homestead gardens and FWLs was limited. A total of 268 motivators wererecruited and provided with training to undertake social mobilization and liaise betweencommunities and FD. A project steering committee, comprising the secretary and senior representatives of the Ministry of Environment and Natural Resources, Ministry of Finance,Ministry of Plantation Industries, and the director of the Forestry Planning Unit, was establishedto monitor overall project progress and deal with policy issues. To review project progress, aproject implementation committee was established under the leadership of the conservator general of forests with the concerned officers of FD including divisional forestry officers.

33. With three exceptions, ADB loan covenants were fully complied with. A covenant thatrequired FD to release funds periodically to the respective divisional secretaries or localcooperatives for food coupons for FWLs and PWLs maintenance works was partly compliedwith. At the time of the PCR, there was a shortfall in funding for food coupons for maintenancework on FWLs and PWLs for 2002 and 2003 of approximately SLRs38 million. FD made acommitment to ask the Government for the fund, but it failed to do so. FD now expects to utilizefunds under the FRMP for cash payments to the participating households for maintenance of the Projects FWLs and PWLs.

34. The covenant that FD should conduct benchmark surveys on a district basis to assessthe impact on beneficiaries was not complied with during project implementation. Instead, thesurveys were replaced by the two socioeconomic benefit and impact assessment studies in1998 and 2000.

35. The covenant mandating that the Government privatize or cease to operate the threelargest sawmills owned by STC by 30 June 1993 and undertake a study to explore thepossibility of privatizing STC's sawmill operations in general by 31 December 1993 was not

complied with. As no appropriate methodology to facilitate the privatization was proposed in theproject design, it was agreed during the ADB midterm review mission in July 1996 that thecovenant was not appropriate.

19 During project implementation, the project director was designated as the deputy conservator of forests; however,after FDs organizational change in 2000, all deputy conservators of forests and conservators of forests wereconverted to conservators of forests and conservators general of forests, respectively.


18/51

10

36. The PCR recommended that FD finalize the lease agreements for FWLs that were stillunsigned and those for which annual renewal was delayed. As of November 2002, all theagreements were signed; however, the annual renewal of 5,163 agreements was still pending.

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

37. The OEM assessed the Projects operational performance against its objectives andexpected benefits at appraisal. The Project aimed to reduce deforestation and generateemployment through tree planting by farmers. Specifically, the Project was designed to generatebenefits in the form of employment, wood and crop production, environmental protection,institutional development, and reduction in poverty. Achievements in environmental protection,institutional development, and impact on the poor are discussed in the following sections. Thissection focuses on impacts from reducing deforestation, employment generation, and wood andcrop production.

38. The most notable achievement of the Project was the increase in forest cover in the ruralareas. The Project reclaimed sparsely used cropland and scrublands that had earlier been usedfor chena cultivation. 20 Almost 17,000 ha of tree cover was developed under FWLs, PWLs, andmiscellaneous plantations comprising 1% of the countrys sparsely used land. Establishment of the woodlots through household participation generated some awareness among ruralhouseholds of the value of planting trees. After the establishment of FWLs, some householdsvoluntarily purchased tree seedlings and planted on their own lands. In the dry zone wherehomestead gardens are still being developed, tree seedlings supplied by the Project hadsignificant afforestation effects.

39. During the implementation period, the Project involved a total of 500,038 householdsunder the participatory forestry component (462,046 for homestead gardens, 22,829 for FWLs,and 15,163 for PWLs). 21 However, the numbers are misleading because many of thehouseholds participated in both homestead garden and FWL activities and, therefore, werecounted twice.

40. The Projects employment was largely generated through FWL and PWL plantingactivities. Its effect was significant with an estimated 14,000 person-years of employmentgeneration against the appraisal target of 11,000 person-years, though for a relatively shortperiod. The Project provided food coupon payments to FWL participating households for landclearing, planting, and weeding for the initial 3 years of the woodlot establishment. Most of FWLparticipating households engaged in chena cultivation or owned other crop lands whileparticipating in the FWL activities. The food coupons constituted a strong incentive for thehouseholds as they provided a higher return than chena cultivation. In this regard, during theinitial phase of FWL establishment, the food coupons provided significant supplemental income

to the households that depended on low return chena cultivation. However, this was for a shortduration only and after the completion of the maintenance phase of FWLs, there was nocontinuous income until the first rotation of pre-commercial thinning, which should be carried outin the 7th year after planting, commercial thinning in the 14th year, and the final harvesting,

20 Chena cultivation refers to a farming system in which forestland is slashed and burned to grow an annual crop. After the soil fert ility is depleted, the farmer shifts to a new site.

21 The miscellaneous plantings were developed by volunteers organized by each participating organization. Suchvolunteers are not counted as beneficiary households.


19/51

11

which will occur after the 25th year. The employment effect of PWLs was similar to that of FWLs.

41. A total of established 1,340 private nurseries were established to produce seedlings for the Projects homestead gardens and woodlots. However, after the project completion, FDceased purchasing seedlings from these nurseries and many of them could not find alternativedemand for the seedlings. Except for a few nurseries that started ornamental plant productionfor the local market, most of the private nurseries ceased operations. In hindsight, privatenurseries were necessary to meet the seedling demand during project implementation.However, after project completion, the local demand for tree seedlings was small and thenurseries were not expected to be sustainable. Employment generation from other activitiessuch as the civil works and adaptive research was insignificant because the civil works werecarried out by a small number of government contractors and the adaptive research componentwas cancelled.

42. In terms of the Projects effect on crop and wood production, the households thatparticipated in the homestead garden subcomponent expect substantial returns from timber trees after the 25th year of planting. However, at this stage, except for the dry zone, the fruit andother crop seedlings distributed by the Project have had little impact on household incomes andnutrition. The OEMs field observation and FD data confirmed that the dry zone home gardens,which constituted 26% of the households participating in the subcomponent, are still beingestablished, and with lower tree density. The Projects seed distribution had substantialincremental effects in tree and fruit production in the dry zone home gardens. In the wet andintermediate zone, rural households generally had already established homestead gardens, soseedlings provided under the Project mainly served as replacement for the old plants or a fewadditional plants to already densely planted gardens. The indicative results of the OEMs survey(Appendix 3) and field observation confirmed that, at this stage, there was no significantdifference in development of the homestead gardens between the project area and non-intervention area.

43. It was found that the tree seedlings provided by the Project are creating some shadingeffects on existing trees and there are already some indications that shading from the plantedtimber trees is reducing flowering, especially of young lime and mango trees in homesteadgardens.

44. The performance of each FWL in terms of survival and growth rate varies depending onthe climatic zone. In terms of stocking, which compares the number of existing trees with thedesirable number to optimize commercial values, in 2000 approximately 60% of FWLs wereestimated as moderately to well stocked, thus having potential for trees to mature to substantialcommercial values (Table 2). The OEM found that there was some deterioration in terms of survival rate especially in moderately stocked FWLs, and estimated that approximately 50% of FWLs were in moderate to poor condition due to the lack of proper routine maintenance and

unsuitable tree species. Nevertheless, wood production from FWLs is considered to besatisfactory due to the expansion of the planting area. A total of 1.4 million cubic meters (m 3) of wood production is estimated from all FWLs against the appraisal target of 1.7 million m 3, of which 1.2 million m 3 will be from final harvesting and the rest will be from thinning.


20/51

12

Table 2: Degree of Stocking of Farmers Woodlots

(%)

Degree of Stocking a Dry Zone Intermediate Zone Wet Zone Total b Understocked 6.5 50.2 37.6 31.4

Moderately Stocked 38.5 29.2 33.7 33.8Well Stocked 48.5 16.9 22.0 29.1Overstocked c 6.5 3.7 6.7 5.6a The degree of stocking was estimated based on the ratio between the present number of trees and the originally

expected number of trees per woodlot: understocked (1.0).

b The total may not add up due to rounding.c Overstocked woodlots include those where pre-commercial thinning has not been done. Trees are expected to have

lower commercial values due to their small diameter.Source: Forest Department Social and Environmental Impact Assessment 2000.

B. Performance of the Operating Entity

45. The Project was managed by different operating entities depending on subcomponents:homestead gardens by individual participating households, FWLs by individual households thatsigned the lease agreement with FD, PWLs by FD, and the miscellaneous plantings byorganizations that planted trees. For FWLs, the participating households were expected to belegal owners of trees under the 25-year lease agreement. However, in reality, the householdshave no autonomy or control over the trees in their woodlots because the 25-year leaseagreement is a de facto annual permit (para. 17).

46. FD does not have financial autonomy or enough human resource capabilities to expandtasks from the traditional administration of logging and forest alienation to organizing socialforestry programs. The present institutional arrangement, in which FD is responsible for theproduction of wood and STC is responsible for harvesting and marketing, is a major disadvantage for FD. Due to this separation of marketing from FD, the FD field staff have notdeveloped their technical skills and knowledge of wood marketing. Their lack of understandingabout the value of trees in woodlots limits their services to FWL participants to maximizecommercial value of the trees. FD depends on the Government's budgetary allocation for operational and administrative expenses. Much of FD's social forestry functions are not routinelyfunded and depend more on project-linked funding. Without financial autonomy, FD isconstrained in terms of longer term financial planning for institutional development for socialforestry programs.

C. Financial and Economic Reevaluation

47. The Projects economic analysis is based on forestry and horticultural outputs under thehomestead garden and FWL subcomponents (Appendix 4). Benefits derived from PWL andmiscellaneous plantings are excluded because these subcomponents serve soil conservationand amenity purposes, and their benefits are difficult to quantify and value.

48. Based on the fruit and timber tree returns from the seedlings supplied by the Project, thehomestead gardens yield EIRRs of 27%, 14%, and 13% for the dry, intermediate, and wet zone,respectively. The OEMs field observations and FD data show that the dry zone homesteadgardens achieved incremental benefits from both timber and fruit. However, in the intermediateand wet zones, seedlings provided by the Project were rather small additions to the existing fully


21/51

13

planted gardens or replacement of old plants. Also, species distributed to homestead gardens,especially in the wet zone, were poorly selected and many of the trees distributed were plantedwithout proper spacing. There are shading effects from these trees that will reduce overallproduction of the existing and newly planted fruit trees. Fruit trees in some homestead gardensalready show marked retardation of flowering and fruiting due to shading. Thus, benefits fromfruit trees in the intermediate and wet zones with and without the Project are considered to bemarginal. Despite that, the EIRRs of these homestead gardens exceed 12% threshold becauseof their low investment cost (economic cost of rural family labor) and expected high timber treereturns in the 26th year. 22

49. For the FWL subcomponent, the EIRRs are estimated at 13%, 14%, and 13% for thedry, intermediate, and wet zone, respectively. FWL models are based on an average plot size of 0.4 ha with a predominant species (teak or eucalyptus) or mixed species (teak/margosa)depending on the climatic zone. FWL models incorporate the revised survival and growth ratesestimated by the OEM and include crop returns from intercropping for the first 2 years of thewoodlot establishment. The without project situation is land being used for chena cultivation witha 3-year rotation. The EIRR for the entire Project is estimated at 15%, which is above theappraisal estimate of 13%, but significantly below the PCR estimate of 30% due to lower incremental fruit and timber production for homestead gardens and lower tree survival rates for FWLs.

50. To determine the financial viability of an operating entity (a rural household), 23 theappraisal report estimated that the annual incremental cash income for households participatingin the homestead gardens (using the 0.5 ha model) would range from SLRs6,900SLRs29,700(in 1990 prices) for the different climatic zones. In constant 2002 Sri Lanka rupees, this isapproximately equivalent to SLRs7,500SLRs32,000. For FWL models (using a 0.5 ha model),the annual incremental cash returns were estimated at SLRs1,100SLRs5,200 (in 1990 prices),equivalent to about SLRs1,200SLRs5,700 in constant 2002 Sri Lanka rupees. The homesteadgarden returns were based on crop and horticulture activities, and for FWLs, the returns werebased on a model that involved horticulture production. The returns did not include income fromtimber. The OEM has reestimated incremental incomes for participating households based onthe same homestead garden and FWL model used for the PPAR EIRR calculation. Becausereturns from timber trees occur at certain intervals, the reestimated incremental income for ahomestead garden in the dry zone is about SLRs4,000 from the 15th to 25th year andSLRs37,000 in the 26th year. For the intermediate and wet zones, where returns from fruit treesare considered to be small, the expected incremental income is about SLRs50,000SLRs60,000 in the 26th year. For FWLs, approximately SLRs30,000SLRs60,000 incrementalincome is expected in the 15th year after commercial thinning and about SLRs700,000SLRs1 million in the 26th year after the final harvesting.

22 The EIRR calculation is based on the assumption that the final harvest will be organized in the 25th year of theplanting and cash benefit will be accrued in the 26th year.

23 Financial internal rates of return to measure financial viability at the household level were not calculated atappraisal, because investment by the participating households was limited to labor inputs and no financialinvestment was involved. The PPAR follows the appraisal methodology and calculates expected income per beneficiary household.


22/51

14

D. Sustainability

51. The homestead gardens in the project areas are well managed and are expected to besustainable. Survival and growth rates on FWLs are variable depending on the level of maintenance that has been applied. The plantation establishment requires not only one-timeplanting, but also routine operations, such as weeding, thinning, and fertilizing, which need to becarried out at regular intervals. Based on the OEM observation, tree survival rate in the dry zonein estimated at 55%, intermediate zone 52%, and less than 50% in the wet zone. For thesuccessful FWLs where tree form, maintenance, and survival are generally of high standard, theparticipants increasingly realize the market value of trees and grow more trees on their lands attheir own expense. For such FWLs, the perceived value of the trees warrants the continuedinput of labor and management. The moderately or poorly managed FWLs are susceptible toloss or diminishing returns because of the lack of sufficient technical and marketing support tooptimize the market value of trees. The present low survival rates due to insufficient silviculturalmanagement cause the participants to attach lower values to their tree stands and make lessoptimal decisions regarding thinning, thereby limiting the potential value of the remainingstanding stocks.

52. For PWLs, FD paid out food coupons for planting. However, PWL maintenance was leftto the communities. Because the communities do not see any realistic environmental andcommercial benefits, PWLs were largely neglected and the overall survival rate is low. In 2002,the proportion of well to moderately stocked PWLs was about 35%. Schools, hospitals, andother organizations that were involved in the miscellaneous plantations appreciate their amenityvalues, and the plantations are generally well maintained.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

53. The Projects target beneficiaries were to be rural households whose members werefarmers, agricultural laborers, and share croppers. In addition, participating households were tobe selected based on the criteria set for each subcomponent. For homestead gardens, theparticipants should be rural households with land title or leaseholds. The participants in FWLsand PWLs should not have a family income that exceeded SLRs1,500 per month at 1992prices. In practice, FD distributed seedlings for homestead gardens through third party agenciessuch as farmers and community-based organizations and did not keep reports on recipients or actual area planted. The selection criteria for FWLs and PWLs were generally followed. Themotivators conducted a survey of the household profile before the selection of the participatinghouseholds.

54. To measure the Projects socioeconomic impacts, the OEM conducted a beneficiaryimpact survey of 46 participating households in the Projects homestead garden and FWLsubcomponents, and 48 households in nonproject-intervention areas as control in two districtsin the intermediate and wet zones (Appendix 3). While tree seedlings supplied by the Projectwould yield substantial returns in the future, it is considered that the impacts on householdincome and nutrition from homestead gardens fruit and other crop production are insignificant inthe intermediate and wet zones. Between the households in the project-intervention areas andthe control areas, there are no significant differences in terms of cash income, occupational


23/51

15

type, and livestock ownership. 24 By contrast, in the dry zone, the Projects supply of seedlingscan be considered as a significant contribution to rural households, which often depended onchena cultivation before they started homestead gardens.

55. Approximately SLRs318 million equivalent of food coupons were distributed to37,992 households that participated in FWLs and PWLs for the initial land clearing, planting,and weeding works. The average amount of food coupon per household, approximatelySLRs8,400, was substantial considering the majority of the households surveyed had incomesbelow SLRs5,000 per month. The households reported that they exchanged food coupons atlocal cooperatives for food, agricultural tools, and fertilizer. FWL participating households alsobenefited from intercropping grown between tree stands in FWLs. The surveyed householdsresponded that they earned SLRs1,000SLRs2,000 cash income per season fromintercropping. 25 Some households grew crops for 3 consecutive years. From the pre-commercialthinning, which should be carried out in the 7th year after planting, the participating householdsexpect revenues of about SLRs250SLRs300 per pole; however, the OEM observed thatthinning is behind schedule in most of FWLs. The participating households are reluctant to cuttrees because the demand for poles is small and farmers have difficulty in finding the proper market for them. The major benefit of FWLs will occur at the final harvesting, which should becarried out after the 25th year of planting. The households interviewed expect that at fullmaturity, a tree on average would be worth about SLRs10,000 for teak and SLRs2,000 for margosa. However, tree stands are susceptible to loss or diminishing returns during the 25-year maturity period, depending on the level of silvicultural management applied. Governmentcommitment is required to provide continuous technical support for the households andassistance in maintenance, harvesting, and marketing. The FWL participating households, ingeneral, consider trees at their woodlots as long-term savings that they could sell when theyneed a large sum of cash such as for a funeral or childrens education. With regard to theprivate nurseries, workers received about SLRs125,000 a year of revenue each from thenursery operation during project implementation.

B. Environmental Impact

56. Overall, the Project generated positive environmental impacts. The Project contributedalmost 17,000 ha of forestry cover through the development of FWLs, PWLs, and miscellaneousplantings. Within the reclaimed area, 4,536 ha of PWLs were established for soil conservationand erosion control, and water catchment protection. However, their effects on soil conservationand erosion control purposes are considered to be insignificant, as PWLs were not providedenough maintenance and protection.

C. Impact on Institutions and Policy

57. The attached TA provided motivators, RFOs, and BFOs with training in silviculturalmanagement and participatory extension skills. Divisional forestry officers and other higher levelstaff received silvicultural management skills training, including overseas training. Except for

24 The survey included the question on livestock ownership as an indicator of household wealth. Between the projectintervention areas and control areas, there were no significant differences in livestock ownership. In Warakalanda(with the Project), 4 households own livestock (cattle, buffalo); and in Nilambe (without the Project), 4 householdsown livestock (cattle, buffalo, and goat) in the wet zone. In Usgala (with the Project), 6 households own livestock(cattle); and in Aludeniyaya (without the Project), 4 households own livestock (cattle, buffalo, and goat) in theintermediate zone.

25 The households grew crops such as maize, chili, and millets between tree stands at FWLs for 2 to 3 years beforetree leaves started shading.


24/51

16

one, all the trained staff are still with FD; however, dissemination of knowledge to lower levelstaff is limited. Except for the tree improvement consultant, the TA consultants inputs wereassessed unsatisfactory (para. 31). FD is still highly centralized and field-level staff are notadequately skilled apart from planting trees to meet physical targets set by the head office. Mostof the RFOs and BFOs are not capable enough to advise local communities on routinemaintenance operations such as loss replacement, weeding, and thinning, much less to assessthe needs and incentives of the rural households. The motivators, who had become goodcatalysts between FD and the communities during project implementation, were released fromtheir FD employment upon the termination of their contracts in 2000. In hindsight, the use of motivators limited the learning opportunities for RFOs and BFOs in community participation andsocial forestry. RFOs and BFOs could have been given the training and task of the motivators.The loss of institutional skills is considered to be a concern for the sustainable operations of FWLs because RFOs and BFOs who are now responsible for extension services lack sufficientsocial contact with the participating households.

58. Institutional strengthening was a stated objective of the Project. The Project provided FDwith an opportunity to transform itself from a traditional enforcement and administrative agencyto a more development-oriented institution. FD became more open about and supportive of theconcept of local community development in social forestry. The Project provided an institutionalbasis for FD to undertake the ongoing FRMP that aims at establishing participatory sustainableforest management and enhancing the access of local communities to gainful employment andhuman resource development opportunities. The FRMP represents a major reorientation for FDfrom solely planting and administering forests to facilitating community forestry resourcemanagement. The FRMP implements various components including community-basedagroforestry and social forestry development, and has incorporated a few lessons derived fromthe experience of this Project. The legal basis and tenure of the land lease agreement havebeen strengthened with the lease period for up to 50 years. A participatory rural appraisalsystem has been introduced to organize forest mapping, assess the growing stocks, anddetermine principal management regimes and practices with beneficiaries. Finaly, a newparticipatory forestry training program will be developed to train RFOs.

D. Overall Assessment

59. Relevance. The concept of reducing deforestation through community participation wasand remains relevant, given the pressing need to address the environmentally destructivepractice of chena cultivation and shortage of fuelwood. The provision of food coupon incentivesaccelerated the physical progress and helped achieve outputs significantly higher than theappraisal targets. However, some institutional arrangements and risks were not realisticallythought through at the time of appraisal. The Project was overreliant on the existing extensioncapabilities of FD in silvicultural management, and the strengthening of FD field officers skills toprovide technically sound silvicultural extension services was inadequate. The seed and seedproduction, and adaptive research components were relevant in view of the increasing demandfor quality timber; however, the centralized operation of FD was not well-suited for suchdecentralized activities. On balance, the Project is assessed as relevant.

60. Efficacy. The Project achieved the objectives of increasing tree planting and generatingemployment opportunities through the participatory forestry component. The homestead gardenand woodlot establishment was well above the appraisal target. Employment was provided tothe rural households through planting activities. The objective of the institutional strengtheningof FD was met, as there was significant institutional development in terms of reorientation tosocial forestry within FD. At the same time, project performance had some weaknesses. The


25/51

17

contribution to incremental income and nutrition from fruit trees and other crops supplied to thehomestead gardens in the intermediate and wet zones was low. Approximately half of FWLs areat risk in terms of sustainability and optimizing benefits. PWLs' environmental effects arequestionable. The TA was attached to promote institutional reform within FD; however, the TAfocused more on silvicultural technical aspects and provided little on organizationalmanagement. The other three componentsseed and seed production, adaptive research, andM&Ewere not fully carried out. Despite these shortcomings, considering the significantachievements in the primary objectives, the Project is assessed as efficacious.

61. Efficiency. The appraisal targets for the participatory forestry component weresubstantially exceeded. The yield and survival rates of FWLs are lower than the appraisalestimates, but due to the expanded planting areas, the overall project EIRR is reestimated at15%, above the appraisal estimate of 13%. The Projects achievements were above Overall, theProject is assessed as efficient.

62. Sustainability. Homestead gardens, especially in the dry zone, are sustainable as theygardens are generating incomes for the households, which thus have an incentive to maintainthem. For FWLs, approximately half the woodlots that are presently well maintained and showsatisfactory yield will be sustainable because the participating households regarded them aslong-term savings and insurance. The moderately or poorly maintained FWLs are facing risks,and the loss of the motivators is a concern for sustaining silvicultural inputs. The sustainability of PWLs is questionable because they are not maintained, and suffer occasional theft and fire. Onbalance, the Projects sustainability is likely.

63. Institutional Development and Other Impacts. 26 The Project was a milestone for FD inextending its program to social forestry. As a result, FD staff had exposure to forestry activitiesinvolving work with local communities, which had not been part of their functions before theProject. FD is now implementing the FRMP, which involves policy reforms to encourage localcommunities participation in forest resource development and management. Although FD stilllacks sufficient technical skills, the Project provided it with a basis for engaging in participatorysocial forestry programs. FWLs and miscellaneous plantings generated awareness of the valueof planting trees and encouraged additional tree planting at own cost. Income benefits for FWLparticipating households through food coupons and intercropping were significant. Planted treesin homestead gardens and FWLs serve as savings, in case of need for rural households. TheProject yielded positive environmental impacts by increasing forestry cover. Overall, theProjects institutional development and other impacts are assessed as significant.

E. Overall Project Rating

64. Based on the above five performance evaluation criteria, the Project is ratedsuccessful. 27

F. Assessment of ADB and Borrower Performance

65. ADB conducted one inception, seven review, one midterm, and three special projectadministration missions. Overall, ADB performance was satisfactory in carrying out the required

26 Because the institutional development was a stated objective of the Project, the performance with respect toinstitutional development is assessed under the efficacy section. The institutional development section assessesother general ins titutional improvement of FD not considered in the project design.

27 Using the current four-category rating system: highly successful, successful, partly successful, and unsuccessful.


26/51

18

supervision and responding to the Projects problems as requested. However, ADB could havedetected at an earlier stage the low tree survival and growth rate in FWLs resulting frominappropriate species selection and lack of sound silvicultural extension services by FD due toinsufficient extension skills of its field staff. ADB could have been more rigorous in M&E. FDsperformance was also satisfactory. FD followed generally well designed implementationarrangements, and complied with most of the loan covenants. However, its capability inextension services needs to be strengthened.

V. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

66. Immediate Incentives and Reliable Benefits. A social forestry approach with collectiveplanting and tending of woodlots by communities without clear definition of responsibility andbenefit proved to be inefficient from the experience of the CFP. Without tangible and immediatebenefits and clear benefit sharing arrangements within the communities, individual householdslack incentives to work collectively. The Projects approach with compensation by food-for-workfor planting and maintenance, mobilizing farmers who had other income sources, and the landlease agreements with tree ownership, demonstrated the rural households needs for immediateincentives and secured benefits for agroforestry interventions. The experience of the Projectsuggests the need for the design to incorporate well-defined benefit-sharing arrangementsamong individual stakeholders, autonomy over trees by the participating households, andprevention mechanisms for "free-riders" such as theft. The Projects arrangement has not fullyprovided autonomy to the participating households in terms of secured land lease and right toharvest. This could, in the longer term, discourage the participating households engagement inFWLs. For the FRMP, the Government has agreed to long-term land-use/leasearrangement (25 years) with cost-benefit sharing between FD and individuals, and potentialrenewal for another 25 years. For future projects, it is important to support participatinghouseholds' autonomous decisions on harvesting and marketing as well as more secure land-tenure arrangements and property rights.

67. Institutional Support. The Projects achievement in increasing fuel and timber woodsupply was based on the assumption that FD would be able to provide continuous extensionservices to the participating households. While the households have experience in raising fruitand medicinal trees in their homestead gardens, they do not have sufficient experience ingrowing trees for sawlogs and poles at optimum commercial value. FWL participatinghouseholds generally do not regularly receive technically sound, interactive extension servicesfrom FD officers. Many FWLs are now facing diminishing values of trees due to the lack of timely thinning. FDs commitment to develop RFO and BFO capabilities in extension services,and delegate more authority to the field-level staff is urgently called for.

68. Funding for Social Forestry. When social forestry activities are funded throughprojects, maintenance of woodlots would be at risk after completion of such projects. Projectdesigns should incorporate assessments of executing agencies capability of funding routinemaintenance and expansion of social forestry activities after project completion. If there is nocontinuous funding mechanism for social forestry, some budgetary allocation for maintenancecould be negotiated with the Government.


27/51

19

B. Lessons Learned

69. The success of the Project confirmed the importance of generating immediate benefitsand having well-defined responsibilities for beneficiaries in woodlot establishment. Other keylessons learned include the need for (i) an initial social assessment of the beneficiariespreferences and priorities for planting species; (ii) a realistic review of the extension capabilitiesof FD and institutionalizing skills for social forestry programs within FD; and (iii) greater involvement of stakeholders in the planning and monitoring of agroforestry interventions, andmaintenance of timber. To facilitate the participation of most vulnerable beneficiaries, moreflexibility in food-for-work incentives could be considered. For example, instead of food coupons,beneficiaries could be provided with some productive assets such as livestock as supplementalsources of income while they are waiting for the next cycle of food-for-work.

C. Follow-Up Actions

70. The OEM recommends that FD, by the end of 2003, (i) abolish the annual renewalsystem of the lease agreement due to heavy workload of RFOs and replace this with a reviewonce every 5 years; (ii) replace the existing agreements with the lease agreement developedunder the FRMP so that FWL leaseholders have the right of harvesting without having to seekthe consent of FD; (iii) develop and implement a training program for RFOs and BFOs insilvicultural extension and social forestry; (iv) prepare a plan to carry out a systematic seed andseedling improvement program, and utilize the seed center for that purpose; and (v) enhancethe capabilities of RFOs and BFOs to conduct systematic monitoring and assessment of treeconditions, silvicultural practices, and socioeconomic benefits for the farmers.


28/51

PROJECT FRAMEWORK

Narrative Summary Expected Outputs at Appraisal Project Completion Report Project Performance Audit Report

.

. Goal: Reduce deforestation, generateemployment and income in therural areas, and arrestenvironmental degradation.

Objectives:

1. Increase tree planting by farmersand create employmentopportunities, raise incomes,reduce poverty, and rehabilitateenvironmentally degraded areas.

2. Strengthen the institutionalcapability of the ForestDepartment (FD) to expand itsprograms for nonforest treeplanting, adaptive or on-farmresearch, extension deliverysystems, and privately operatedvillage nurseries.

- About 11,000 person-years of employment will be generated.

- Employment will be provided toabout 1,100 farmers for theoperation of village nurseries.

- In year 10, about 190,000 tonsof fruit will be harvested.

- In year 25, about 1.7 millioncubic meters (m 3) of logs andabout 0.7 million m 3 of fuelwood will be produced.

- There will be an increase intree cover by about 15,000hectares (ha).

- About 346,300households were involvedin homestead gardenactivities, approximately22,600 in the farmerswoodlots (FWLs), andabout 13,700 in theprotective woodlots(PWLs).

- A total of 462,046 householdsreceived seedlings under thehomestead garden activities,22,829 households participatedin FWLs, and 15,163households in PWLs.

- A total of about SLRs318 millionequivalent in food couponswere distributed to householdsthat participated in FWLs andPWLs.

- A total of 1.43 million m 3 of wood production was estimatedfrom FWLs.

- By 1999, there was an increasein tree cover of about 17,000ha.


29/51

Narrative Summary Expected Outputs at Appraisal Project Completion Report Project Performance Audit Report

Outputs:

1. Participatory forestry inhomestead gardens, FWLs,PWLs, and miscellaneous treeplanting on public reservelands, and training andextension.

- About 9,000 ha of homesteadgarden will be developed andabout 45,200 farmers willparticipate.

- About 4,000 ha of FWLs will beplanted and about 6,000farmers will participate.

- About 1,500 ha of PWLs willbe established involving about1,500 participants.

- Plant in public lands atschools, temples, and other institutions (250 ha) and alongroads/canals (700 kilometers[km]).

- 36,043 ha of homesteadgardens were developed.

- 9,678 ha of FWLs wereplanted.

- 4,635 ha of PWLs wereplanted.

- 2,426 ha of trees wereplanted in schools andpublic lands and 1,294km of trees were plantedalong canals androadsides.

- 36,263 ha of homesteadgardens were developed.

- 9,808 ha of FWLs were planted.- 4,536 ha of PWLs were planted.- 2,468 ha and 1,546 km of

miscellaneous plantings weredeveloped.

2. Tree seed production. - 1,100 private nurseries will beestablished each with acapacity of 6,000 seedlings.

- Seed orchards will beestablished.

- A tree seed center will be setup at the Kumbalpola ForestryResearch Center.

- A vegetative propagation unitwith a capacity of 14,000plants will be set up.

- 1,340 private nurserieswere established.

- The seed center wasestablished in May 2000.

- The vegetativepropagation unit was notestablished.

- Teak seed stands wereestablished in threedistricts and twoeucalyptus seed orchardswere planted.

- A total of 1,340 privatenurseries were developed;however, as of 2002, most of them had ceased operations.

- The seed center wasestablished in 2000; however,presently, there are no activitiesfor seed and seedlingproduction. The center isoccupied by FDs researchcenter staff.

- The vegetative propagation unitwas established.

3. Adaptive research or on-farmdemonstrations.

- P