Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.2786

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PROJECT PERFORMANCE AUDIT REPORT

TANZANIA FLUE-CURED TOBACCO PROJECT

(Credit 217--TA)

December 27, 1979

Operations Evaluation Department

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

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WEIGHTS AND MEASURES

1 meter (m) = 3.28 (ft.)

1 kilometer (km) = 0.62 miles1 sq. meter (m2 ) = 10.76 sq. ft

1 hectare (ha) = 10,000 m2 = 2.47 acres

1 kilogram (kg) = 2.204 pounds (lb.)1 metric ton (m. ton) 1,000 kg = 2,204 lb

GLOSSARY OF ABBREVIATIONS

ADS - Agricultural Development ServiceAFO - Assistant Field Officer

BAT - British-American TobaccoCIDA - Canadian International Development AgencyCOMWORKS - Ministry of Communications and WorksERR - Economic Rate of ReturnFA - Field AssistantFO - Field Officer

GOT - Government of TanzaniaICB - International Competitive BiddingKILIMO - Ministry of AgricultureMAJI - Ministry of Water Development and PowerMLS - Ministry of Lands and SettlementNDC - National Development CorporationNDCA - National Developoment Credit AgencyPMO - Prime Minister's Office

RDD - Regional Development DirectorTAC - Tanzania Agricultural CorporationTANU - Tanganyika African National Union,

mainland Tanzania's former sole political partyTAT - Tobacco Authority of TanzaniaTPO - Tobacco Project Officer

TRDB - Tanzania Rural Development BankTTB - Tanzania Tobacco Board

TTPC - Tanzania Tobacco Processsing CompanyVSD - Village Settlement Department

FOR OFFICIAL USE ONLY

Project Performance Audit Report

TANZANIA FLUE-CURED TOBACCO PROJECT

(Credit 217-TA)

TABLE OF CONTENTS

Page

Preface i

Basic Data Sheet ii

Disbursements iii

Highlights iv

PROJECT PERFORMANCE AUDIT MEMORANDUM

I. Project Summary I

II. Main Issues 3A. Viability of Tobacco Subsector 3B. Availability of Fuelwood 6C. Planning 7D. Research and Training 8

PROJECT COMPLETION REPORT

I. Background 10II. Project Formulation and Appraisal 12

III. Project Implementation 21

IV. Institutional Performance 39

V. Agricultural Impact 42VI. Economic Analysis 48

VII. Special Issues 50

VIII. Successor Projects 52IX. Bank Performance 54

X. Conclusions 57

Annex 59

Map

I Th document hu a ustricted ditribution and may be used by recipients only in the performanceof their offieal dutis. Its contents may not otherwise be disclod without World Bank authorization.

Project Performance Audit Report

TANZANIA FLUE-CURED TOBACCO PROJECT

(Credit 217-TA)

PREFACE

This is a performance audit of the Tanzania Flue-Cured TobaccoProject for which Credit 217-TA was approved in October 1970 in the sum ofUS$9.0 million and fully disbursed on March 19, 1978.

The audit report consists of an audit memorandum prepared by theOperations Evaluation Department, and a Project Completion Report (PCR),dated March 30, 1979. The PCR was prepared by the Eastern Africa RegionalOffice on the basis of a country visit in March 1978. The audit memorandumis based on a review of the President's Report No. PA-42 dated September 24,1970, the Appraisal Report No. PA-42a of September 16, 1970, the Credit andProject Agreements dated October 9, 1970 and the PCR; correspondence withthe Borrower and internal Bank memoranda on the project issues as containedin the Bank files have also been consuLted and Bank staff associated withthe project have been interviewed.

An OED mission visited Tanzania in August 1979. The missionheld discussions with officials of the Ministry of Agriculture (Kilimo), theTobacco Authority of Tanzania (TAT), the Tanzania Rural Development Bank(TRDB), the Ministry of Communication and Works (Comworks), and regionalauthorities in Mbeya. A field trip was made to visit project sites and par-ticipating farmers. The information obtained during that mission was usedto test the validity of the conclusions of the PCR and permitted discussionsof subsector viability, deforestation aspects and settlement planning.

The draft report was sent to the Borrower on November 8, 1979, forcomments; however, none were received.

The audit finds the PCR an excellent document, thorough and criti-cal with respect to the project's principal achievements and shortcomings.The points discusssed by the audit have been selected because of their rele-vance to this and other projects in Tanzania.

The valuable assistance provided by the Government of Tanzania,particularly the Tobacco Authority of Tanzania and the Ministry of Agri-culture's Project Preparation and Monitoring Bureau, is gratefully acknow-ledged.

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Project Performance Audit Report

TANZANIA FLUE-CURED TOBACCO PROJECT

(Credit 217-TA)

BASIC DATA SHEET

KEY PROJECT DATA

Appraisal Actual or

Item Expectation Current Estimate

Total Project Cost (US$ million) 14.7 19.01/Overrun (S) 0 312/

Credit Amount (US$ million) 9.000 9.000Foreign Exchange Adjuotment 0 0.072Disbursed 9.000 9.072

Cancelled 0 0Repaid 0 0Outatanding 9.000 9.072

Date Physical Components Completed 6/30/75 6/30/803/Proportion Completed by Above Date (X) 100 60Proportion of Tine Overrun (Z) 0 100

Economic Rate of Return (2) 30 144/

OTHER PROJECT DATA

Original Actual or

Item Plan Revisions Est. Actual

First Mention in Bank File. - - 07/67COvernment's Application - - 09/69Negotiations 03/70 - 04/70Board Approval - - 10/06/70Credit Agreement Date - - 10/09/70Effectiveness Data 01/15/71 - 02/01/70Closing Data 09/30/76 12/31/77 03/19/78Borrower United Republic of TaneaniaExecuting Agency Tobacco Authority of TannaniaFiscal Year of Borrower July 1 - June 30Fiacal Year of Ezecoting Agency March 1 - February 28Follow-on Projects 5/

(i) Name Tobacco Proce.aing ProjectCredit Number 658-TAAmount (U5 million) 8.0Credit Agreement Date October 1976

(ii) Name Tobacco Handling ProjectCredit Number 802-TAAmount (U5 million) 14.0Credit Agreement Date June 1978

MISSION DATA

Number of Number of Date ofMisaions MonthMear weeka of Persons Manweeka Report

Appraisal HQ 10/11/69 4 4 16 04/70Pollow-up HQ 03/70 0.5 2 1 -

Total 17

Supervision I HQ 09/70 1.0 1 1.0 09/25/70Superviaion 2 HQ 01/71 1.0 2 2.0 01/27/71Supervinion 3 HQ 05/71 1.0 1 1.0 06/08/71Superviaion 4 HQ 07-08/71 2.0 4 8.0 09/08/71Supeevision 5 HQ 01/72 2.0 3 6.0 02/07/72Supervision 6 BMEA 07/72 1.0 1 1.0 07/25/72Supervision 76/ HQ 09-10/72 1.5 4 6.0 10/19/72Superviaion 8 BMEA 01/73 0.5 1 0.5 01/31/73Supervision 9 RMEA 03/73 1.5 1 1.5 04/26/73Superviaion 10 RMEA 09/73 1.5 2 3.0 09/28/73Supervision 11 RMEA 02/74 1.0 2 2.0 03/18/74Supervision 12 RMEA 10/74 1.0 2 2.0 11/05/74Supervision 13 RMEA 03/75 1.0 2 2.0 05/29/75

Supervinion 14 RMEA 09/75 1.5 1 1.5 11/10/75Supervision 15 BHEA 03/76 1.0 2 3.0 04/30/76Supervision 16 RMEA 09/76 0.5 2 1.0 01/27/77Supervision 17 BaEA 02/77 1.0 2 2.0 03/31/77Supervision 18 RMEA 11/77 1.0 3 3.0 01/05/78

Total 46.5

Completion HQ 03/78 2.0 1 2.0 03/31/79

COUNTRY EXCHANGE RATES

Name of Currency (Abbreviation) Tanzanian Shilling (Tah)Appraisal Year Average (1970) Exchange Rate: US$1 - Tah 7.14Intervening Yearn Average (1971-1975) US$I - Tah 7.14Completion Year Average (1976-1977) US$I - Tab 8.30Project period average7/ US1 - Tah 7.40

1/ Up to 12/31/77. Expenditure of a further USS2.1 million is required toprovide water aupplien to all project complexes and to complete conatructionof unfinished complex buildingsa.

2/ On basis of costs to date; on basia of costs to complete all infrastructureand water aupplies, the overrun is 442.

3/ Physical development of complexes and villages can be completed only ifthe Tanzania Government allocates funds in ita Development Budget. No fundawere included for 1978/79.

A/ See Chapter 6 for explanation of differences in methodology between theappraisal calculation and the revised calculation.

5/ In addition to thene two projects, the Tabora Rural Developmant Project(Cr. 703-TA) includes provision for planting fuel wood lota in tobaccogrowing villages in Tabora Region, and provides further assistance to TumbiRenearch Station.

6/ Raview Mission.7/ Weighted by diabursements in each year.

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Project Performance Audit Report

TANZANIA FLUE-CURED TOBACCO PROJECT

(Credit 217-TA)

DISBURSEMENTS

IDA Fiscal Year Appraisal Actual as %and Semester Estimate Actual of Appraisal

---------US$M ----------

1971 June 30 950 20 2December 31 1,730 97 6

1972 June 30 2,410 108 4December 31 3,490 543 16

1973 June 30 4,190 543 13December 31 5,500 1,300 24

1974 June 30 6,360 1,300 20December 31 7,570 1,300 17

1975 June 30 7,950 3,900 49December 31 8,910 7,200 81

1976 June 30 9,000 7,974 89December 31 8,621 96

1977 June 30 8,798 98December 31 8,820 98

1978 June 30 9,0721/ 101

Final Disbursement Date: March 19, 1978.

1/ Including US$71,688 exchange adjustment.

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Project Performance Audit Report

TANZANIA FLUE-CURED TOBACCO PROJECT(Credit 217-TA)

HIGHLIGHTS

The project was to increase flue-cured tobacco production throughsettlement of about 15,000 farmers, each cultivating 0.8 ha of tobacco, in 150villages; establishment of cooperatives; construction of roads, water suppliesand baling centers; assisting the extension service and tobacco research; andcarrying out a tobacco marketing study and an aerial survey of parts of theproject area. Project cost, over the six year disbursement period, wereestimated at US$14.7 million.

Achievements fell short of targets. Area planted to tobacco wasonly one quarter of the appraisal estimate and tobacco export earnings reachedonly nine percent of the assumption. A total of 12,000 families has been set-tled, but only 7,000 were growing tobacco in 1978. The shortfall in tobaccoearnings was partly compensated for by large volumes of maize produced andmarketed by the project villages, which made it possile for the re-estimatedeconomic rate of return to reach 14 percent, compared with 30% at appraisal.

The following points may be of special interest:

- appraisal mission over-estimated area of tobacco that could behandled by each farmer (PCR para. 5.03);

- settlement planning was inadequate (PPAM paras. 23 - 25; PCR paras.3.10, 3.12 and 3.17);

- collective farming was not conducive to speedy settlement (PCRparas. 3.25 and 7.03);

- lack of reforestation depleted forest reserves and caused organi-zational problems in farm work for farmers tied to living in vil-lages (PPAM paras. 17 - 22);

- stagnating production in absence of price incentives, and heavyinvestment in recent years in tobacco subsector cause concern (PPAMparas. 10 - 16); and

- projects of this kind demand in-depth supervision and readiness toadjust to changes in circumstances (PCR para. 10.04).

Project Performance Audit Memorandum

TANZANIA FLUE-CURED TOBACCO PROJECT

(Credit 217-TA)

I. PROJECT SUMMARY

Project Preparation and Appraisal

1. Preparation of the Flue-cured Tobacco Project was started bythe Government of Tanzania (GOT) in 1967. GOT's objectives were to raisefarm incomes and take advantage of favorable export markets by promotingflue-cured tobacco production on small farms in areas of Tanzania whichwere suited to tobacco cultivation and which lacked alternative crop possi-bilities. The Bank assisted GOT with project identification and preparation,and the project was ready for appraisal by September 1969.

2. The project was appraised in October 1969. During appraisal, theIringa and Ruvuma regions were excluded from the project due to lack of suit-able land, and the proposal to expand and strengthen existing tobacco schemeswas rejected, because of the extremely poor performance of these schemes. Theproject thus focussed on the settlement of 15,000 farmers in 15 new tobaccoschemes in the Tabora and Mbeya regions. Provision was made to study the needfor the expansion of tobacco storage and processing facilities and the estab-lishment of an auction system for tobacco sales. Funds were included forthese facilities; their eventual use, however, was made contingent on theoutcome of the study. As appraised, the project was estimated to cost Tsh 105million (US$ 14.7 million). An IDA credit of USS$ 9.0 million was approved bythe Board in October 1970, and the credit became effective in February 1971.

Prolect Implementation

3. Project progress in the early years was slower than anticipated.One of the reasons was that several reorganizations of the Tanzanian admini-strative system took place after project start up. In May 1971, the NationalDevelopment Credit Agency was superseded by the Tanzania Rural DevelopmentBank (TRDB), which took over responsibility for credit administration underthe project. In May 1972, as had been recommended earlier by the appraisalmission, the Tobacco Authority of Tanzania (TAT) was formed to replace theTanzanian Tobacco Board, and to assume responsibilities for project admini-stration, as well as tobacco extension, research and marketing. A far greaterimpact on project implementation occured in 1972, when a major decentraliza-tion of Government authority was introduced and certain responsibilitiestransferred from central ministries to regional administrations, which did notalways allocate the same priorities as the central ministries. This affectedproject performance in two ways. First, responsibility for the implementationof the roads and water supply components was transfered to the understaffedand poorly equipped regional departments. Second, the regional administra-tions in Tabora and Mbeya stressed the need for communal (ujamaa) cultivation

of tobacco, and this impeded settler recruitment. As a result of poor per-formance, a full review of the project was carried out in September 1972.The review recommended rephasing of physical developments by extending thedevelopment period, and reallocating Credit proceeds to cover increased watersupply and credit costs. The original Credit closing date, however, (Septem-ber 30, 1976) was left unchanged. Although there was some improvement inproject progress after this review, the project continued to be a problemproject until mid 1976.

4. The Credit closing date was eventually extended to December 31,1977, to allow for additional work on project infrastructure to be carriedout. By the end of 1977, project progress was still lagging behind revisedestimates. Although 15 new schemes had been established as envisaged, only114 villages had been completed, against a revised target of 150. Only 30 kmof crop extraction roads and 495 km of internal access tracks had been con-structed, against revised targets of 360 km and 1200 km respectively. Only onseven schemes were village water supply systems completed. At another fourschemes, only minor work remained to be done to complete the systems, whilefor the remaining four, only preliminary design and survey work had beencarried out. A total of 12,000 families had been settled, as against thetarget of 15,000, and only 7,000 of these were growing tobacco. Project coststo the end of 1977 are estimated at Tsh 142 million (US$19.2 million), and, ifproject infrastructure such as water supplies, etc., will be completed, proj-ect costs would total Tsh 160 million (US$21.6 million), 47 percent aboveappraisal estimates.

5. Institutional performance during project implementation was in manyaspects weak, a consequence of the difficulties in Tanzania to find skilledstaff, and also due to the institutional changes that took place during theperiod (PCR, paras. 4.01 - 4.05). In general, compliance with the variouscovenants of the legal agreements was satisfactory, although prevailing staffshortages meant that covenants relating to staffing and auditing requirementswere not fully met.

Prolect Impact

6. The incremental production of tobacco generated under the projectfell short of appraisal estimates. In 1977/78, the area planted to tobaccowas 2,946 ha, as against the 1972 revised estimates of 11,180 ha. This short-fall in planted area is a result of the smaller than anticipated number ofsettlers, exacerbated by the fact that not all settlers are growing tobacco,and a smaller area of tobacco is grown per family. While tobacco yields andexport prices were relatively close to appraisal estimates, the low tobaccoacreage resulted in a reduced production of only 1,525 m tons (15 percent ofappraisal estimate of 9,910 m tons) in 1976/77 and total incremental exportearnings of Tsh 26 million (US$3 million), corresponding to only nine percentof the appraisal estimate.

7. This shortfall in tobacco production was in part compensatedby a large volume of maize produced and marketed by the project schemes.Although it had been assumed at appraisal that maize would be grown onlyfor subsistence, maize became an attractive cash crop as a result of risingdomestic prices. The project was able to support maize production by pro-viding inputs and technical advice through the tobacco extension agents.By 1976/77, maize production of the project schemes reached 25,000 m tons,with a total farm-gate value of almost twice that of tobacco (Tsh 23 million,US$2.8 million equivalent).

Economic Analysis

8. The project's economic rate of return (ERR) was calculated at30 percent at appraisal. This figure was revised downwards to 17 percentat the time of the 1972 review. The PCR's recalculation of the ERR (paras.6.03 - 6.05) indicates a further reduction to 14 percent. While this issubstantially lower than the appraisal estimate (largely a result of the muchlower than anticipated tobacco production) it is nonetheless an acceptablereturn. It is estimated that, at 1976/77 prices, net family income on aproject scheme averaged Tsh 2,100 (US$256). While this is less than half theappraisal estimate, it still represents an income considerably above thoseobtained by non-project farmers in the Tabora and Mbeya regions.

Bank Performance

9. The Bank played a major role in assisting GOT in project identi-fication and preparation. Changes in project design introduced by theappraisal mission were soundly conceived. With the benefit of hindsight,however, it can be said that the appraisal design had three major weaknesses.First, there was a need for a more detailed review of the available waterresources in the project areas prior to the siting of the project complexes.This would have facilitated the identification of settlement sites withrelatively cheap access to reliable water supplies, and would have reducedthe costs of the water supply component. Second, the target area of tobaccoper family was too large to be handled by family labor. This excessive areaestimate resulted in an over-optimistic assessment of the project's likelyincremental tobacco production. Third, the absence of any systematic moni-toring and evaluation, in what was a complex and risky project, involvingintegrated development activities in 15 widely scattered locations, hamperedthe adjustment of the project to changing conditions.

II. MAIN ISSUES

A. Viability of Tobacco Subsector

10. Flue-cured tobacco production increased at a slow rate during the1972 - 1977 period and has remained stagnant during the last three years.

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TAT Tobacco Purchases(tons wet leaf)

1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/7910,558 10,784 15,277 11,930 14,548 14,667 14,450

11. A recent study prepared by the Tanzania Ministry of Agriculture'sMarketing Development Bureau states: "In recent years several productionprojections have been made which now appear grossly optimistic. For example,in March 1975 TAT forecast total tobacco production for the crop year 1978/79at 42,600 tonnes of which 34,900 tonnes were to have been flue-cured tobacco.In the event this forecast exceeded actual production by 149%. The Bank pro-duced a more cautious set of projectionslf in 1976 which included an esti-mate of flue-cured production for the 1978/79 crop year of 17,220 tonnes.Even this was some 2,770 tonnes or 19% in excess of actual production. TheBank projections included an average annual rate of growth of 7.8% for flue-cured production in the late 1970's when in fact output stagnated. Productionwas then projected to increase at an accelerated rate of about 12% per annumbetween 1978/79 and 1979/80." Actual production during 1978/79 was at thebottom end of the range of production estimates presented in the appraisalreport for the Tobacco Processing Project. While the Bank undertook a reviewof the project in 1972, no analysis was carried out of the tobacco industry'seconomic and financial viability2/

12. In the appraisal report (dated 04/70) it is stated that "the projectwould be situated in woodland areas of western Tanzania where alternativedevelopment possibilities are presently negligible"3/. This assumptionwas disproved by the events. Maize has become a more important cash cropin the project area than tobacco. There are several reasons for this de-velopment: (i) Due to poor harvests, urbanization etc. demand for maizeincreased rapidly and so did official prices, from Tsh 0.26/kg in 1972/73to Tsh 0.85/kg in 1978/79, an increase of 226%, with free market pricessometimes reaching Tsh 2.0/kg; while flue-cured tobacco prices went from Tsh5.85 to Tsh 7.40, representing an increase of only 26%4/; (ii) Costs ofinputs also favor maize production. "Unimproved" maize production by small-holders requires about Tsh 26/ha for seeds and cultivation implements (basis1978/79) as compared to Tsh 2,653/ha for flue-cured tobaccoA/; (iii) Tobaccoproduction is labor intensive. Due to the rapid increase in producer pricesof maize the return per man day worked stands now at Tsh 6.5 for both cropsat the official price,A/ compared to Tshs 5.4 for flue-cured tobacco and

1/ Tobacco processing project (Cr. 658-TA), appraisal report.

2/ The Region states that the Bank at that time found no reason to believethat tobacco production was other than economically and financiallyviable. Subsequent financial results indicate that such a belief wasentirely reasonable: through the period FY74-78, TAT made net surplusestotaling Tshs 104 M from tobacco trading and processing, in addition to

paying a total of Tshs 125 M in sales tax. The total of TAT surplusesplus GOT sales tax revenues is about 40 percent of total TAT paymentsto farmers over the period.

3/ Appraisal report, para. iv.

4/ Source, Tanzania Marketing Development Bureau.

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Tshs 2.1 for maize, at appraisal; considering free market prices for maize,

this crop now offers better returns on labor input at comparatively lessrisk; (iv) Payment for maize is received at the time the farmer disposes

of the crop; receipts for tobacco sales may take several weeks before reachingthe farmer.

13. Although the difficulty of making proper production forecasts can

be deduced from what has been said above factors adversely influencing

tobacco production are not of recent origin. The increasing tobacco-maize

competition has been evident for many years. Producer prices for flue-cured tobacco have steadily declined in real terms by 43% over the period

1972 to 1979. Other cash crops in Tanzania have suffered from similar lack

of price incentives and their production has, in many cases (cashew-nuts,pyrethrum) actually declined in recent years. From files it is evident

that the Bank tried to convince government of the need to provide price

incentives but only with limited success. Without sufficient incentives

tobacco production has remained stagnant for several years.

14. Although the incentive problem had remained unresolved, the Bank, at

Tanzanian request, agreed to finance (Tobacco Processing Project, Credit

658-TA of 1976) the expansion of the Morogoro tobacco factory, bringing its

capacity to 41,000 tons of cured leaf, up from an annual processing capacity

of 18,500 tons, a capacity which until now has never been fully utilized(para. 10). Additional handling and storage capacity was provided under

another project (Tobacco Handling Project, Credit 803-TA of 1978). Both

projects, also entailing an increase in the number of TAT staff, were ulti-

mately designed to raise TAT's efficiency. TAT is now equipped to handle a

crop almost three times as large as the ones recently obtained. In comparison

to the low volume of tobacco handled by TAT, its administrative costs arehigh. The Bank is now, however, aware that TAT's performance must improve as

a prerequisite to TAT becoming a more costconscious and efficient organization.

15. According to the appraisal report of the Tobacco Processing Project,

TAT needs to meet its financial obligations "...with some changes in thecharges -- sales taxes or the fertilizer subsidy -- that TAT is required tomeet, or in the prices paid to farmers for tobacco..."l/ The farmers' sharein the selling price of processed tobacco was 66% in 1965/66, but has sincedeclined to 37% in 1977/78 as a consequence of introducing export taxes and ofgovernment policies aiming at equalizing average returns on all crops on a

labor input basis. During appraisal of the Tobacco Handling Project the Bank

agreed with the government that the costs of TAT's extension activities wouldbe met from the government budget because earlier on the government had not

paid local contributions for the Flue-cured Tobacco Project and had insistedon payment by TAT of fertilizer and maize subsidies. This was expected to

permit TAT to meet its debt service and even generate surpluses in the mid

eighties, while maintaining producer prices in real terms. Recently, however,in May 1979, Kilimo's Marketing Development Bureau estimated that for TAT'sprocessing operations to break even, a minimum flue-cured tobacco production

of 25,000 tons is necessary, against 14,500 tons achieved during each of the

past three years. Given the present pricing structure for tobacco, however,

the required increase in production appears unlikely to materialize.

1/ Appraisal Report, page 15, para. 3.15.

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16. With the stagnating tobacco production and the high investment

cost (for settlement), the project has reached an acceptable 14% economic rate

of return, but only because of the dramatically increased maize production.

The project is no longer a tobacco but mainly a maize development project.

Meanwhile, continued low tobacco production, in the absence of sufficient

price incentives, compared with the large recent and ongoing investments made

in the tobacco subsector, give reason for concern about the economic and

financial viability of the subsector and of TAT.

B. Availability of Fuelwood

17. As a result of the smaller than projected tobacco area, the fuelwood

supply within easy reach of each complex will be sufficient for at least 30years of tobacco production according to the PCR (paragraph 5.15). This

assessment of the wood supply situation in the tobacco growing areas is

correct, but it does not elaborate on the impact of deforestation at farm

level, or on its long term effect on the vegetation, and hence the micro-

climate, in large areas of the country.

18. One of the problems at farm level is that with annual treefell-ings (TAT advises not to cut all trees to provide for adequate soil conser-

vation of forestland) the distance between curing barns and tree stands

becomes farther every year, this leading to increases in time and effortspent on wood hauling, reducing the time available for cultivation. To

counter this unproductive development there are few alternatives; farmers

need to (i) find means of faster transportation rather than the human head,(ii) move the barns closer to the forest, or (iii) switch to other fuels which

are costlier and may not be available at all times. TAT is currently con-

templating to assist farmers who intend to build permanent barns near theirhomesteads in hauling wood by oxen or tractors and trailers to overcome this

problem, and also as a means to permit closer supervision of treefellings. So

far, however, the most frequently adopted solution by farmers has been to

demolish their existing curing barns, and to move them to the forests where

they spend two to three months a year curing tobacco. . If farmers had a

choice many of them would move their homesteads as well to continue tobacco

growing near timber stands, but this would upset the national villagization

program and to some extent deprive farmers of its benefits.

19. The problem on a regional and national level is that the tobacco

industry is one of the main exploiters of national forests. Depletion of

forest reserves has been most advanced in the traditional tobacco areas (where

farmers now have to haul firewood over long distances), and is already a

problem in some project areas (Tabora). Tobacco cultivation is concentrated

in regions where the typical vegetation consists of open miombo woodlands,

which, after clearing, take about 30 to 50 years to regenerate. Clear fell-

ings, exposing the soils to torrential rains and insolation (rapid oxidization

of organic matter) would lead to destruction of soil texture and consequently

erosion if no counter measures are taken.

20. The appraisal report assumed that, despite the inefficient woodfiring techniques applied for curing, there would be sufficient fuelwood for15 years. It expected, however, that within five years of experimentation tobe financed under the project, improvements in barn design and curing tech-niques that would reduce wood consumption, would become available. Otherresearch activities would lead to the establishment of small blocks of high-yielding fuelwood plantations within the same time. During project implemen-tation some experimentation and research was undertaken, showing that coalfiring (used in Iringa on a small scale together with fuelwood) as an alter-native is not effective; and, that instead of waiting for the natural regene-ration of miombo woodland it would be better to plant Eucalyptus trees, whichtake only eight years to mature. But these trees must be looked after and donot survive the frequent bush fires. Establishment of high-yielding fuelwoodplantations has not materialized under this projectl- and neither has animproved, fuel conserving curing technique.

21. TAT recognizes the deforestation as a serious problem but could dolittle to remedy the situation. Although stipulated in the Credit Agreement,it never had a forester on its staff, relying instead on regional forestdepartments for implementing afforestation programs. Those departments, how-ever, are short of skilled manpower to carry out such a program. Also, itis difficult to advise farmers to plant trees after felling because they areused to the natural regeneration of forests. One solution might have been toinclude a reforestation component in the project.

22. There is no evidence that the Bank paid adequate attention to theproblem of improved curing techniques during supervision. There was neveran expert assigned to any mission to advise the Tanzanians on more efficientcuring techniques and improved barn construction which would lead to moreefficient fuel utilization. Improved construction would also have been impor-tant in the light of substantial tobacco losses, due to the high incidenceof fires in the barns.

C. Planning

23. Planning of Water Supplies. The appraisal assumption that shal-low wells would be feasible in most areas, and provide sufficient water tofarmers, was not borne out by developments: in many cases shallow wellsdried up towards the end of the dry season. Siting of these shallow wellswas based on an aerial survey carried out in June and July of 1970, at theend of the rainy season. Due to the still falling rains the survey showed

1/ Under the Tabora Rur'al Development Project (Cr. 703-TA) a pilot fuel-wood program has been established; it is yet too early to arrive at ajudgement on the success of the program, though early indications arefavorable.

sufficient water availability in most areas. The proper time to carry outsuch a survey would, however, have been September or October, at the endof the dry season. The distorted results of the aerial survey misled thesenior planning officer of the Tobacco Project Group and also Bank super-vision missions to approve unsuitable sites for villages. Inappropriatetiming of a survey thus became partly responsible for the need to investheavily in costly water supply systems, i.e. deep drilling, pipelines,etc.

24. Farm Planning. Land planning was still underway when the firstsettlers arrived at the project sites. Land demarcation did not receivepriority initially because settler recruitment was much below expectations.When during the villagization campaign in 1974/75, the larger influx ofsettlers started, farmers were housed in primitive shelters with littleprotection against rains because they were not allowed to settle perma-nently on plots not yet demarcated. Farmers decided on tlearing the landanyway, with demarcation still not completed until now. Concrete bench-marks were not always available, yet, farmers know their plots and the villageextension agent usually has a map showing boundaries. Since there was noshortage of land and only two crops (tobacco and maize) to be grown, the needfor farm planning and the emphasis given to it by the Bank is questionable.

25. Consumer Goods. Settlers in the tobacco schemes complained thatthere was no opportunity in the settlements to spend the money earned fromcultivating tobacco because there were no consumer goods available. Theyremit large parts of their income to their home area where often part of thefaraily had stayed behind and where they plan to return eventually. Coopera-tive shops have failed, individually owned shops have not been allowed, andtransport of goods, bought in towns, is costly due to the remoteness of thetobacco settlement areas. This non-availability of consumer goods works as adisincentive. Better planning of the settlement infrastructure versus farmdevelopment mentioned above, would have been called for.

D. Research and Training

26. The PCR (paragraphs 3.35 - 3.38) suggests that the research andtraining program at Tumbi Research Station has been satisfactory sinceKilimo took over in July 1977. TAT had serious reservations on this state-ment, however. Tumbi was taken over by Kilimo at TAT's request, because TAThad difficulties in properly staffing the station. Kilimo operated Tumbi as amulti-crop station, with an intended bias towards tobacco. The staffingsituation for training and research did indeed improve thereafter, but only inregard to crops and livestock in general, while tobacco, according to TAT, istreated only as one of the less important crops. No specific training orresearch is done for tobacco. During supervision the Bank did emphasize theneed to carry out the tobacco research program but with little success. TheBank approved substantial reallocations of funds for extensions of the stationwithout prior consideration of scope and feasibility of research programs.Hardly anything was known on the curriculum of eventual training courses.After costing TSh 17.6 million, a 1300% increase over the appraisal estimate(mainly due to lack of proper building supervision by early Bank supervisionmissions and by the project implementation agencies), the Tumbi ResearchStation, as it is presently being used, is of little use to TAT and theTanzania tobacco industry.

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TANZANIA

Flue-Cured Tobacco Project, Cr. 217-TA

Project Completion Report

March 30, 1979

Southern Agriculture DivisionEastern Africa Projects Department

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I. BACKGROUND

1.01 The economy of Tanzania depends mainly on agriculture. Inthe late 1960's, when the Flue-cured Tobacco Project (the Project) wasprepared and appraised, agriculture accounted for about 50 percent of GDP,generated about 80 percent of exports, and provided a livelihood for about90 percent of the population. Over the period 1964-1969, the growth rateof agricultural production averaged 3.3 percent per annum, with productionin the monetized sub-sector growing at an average annual rate of 3.8 percent.However, this growth was uneven, in terms of both commodities and geographicallocation. Tanzanian strategy for the development of the sector involved theconcentration of scarce resources, such as skilled manpower, into crops ofhigh potential, and the encouragement of the rural population to live invillages, as an efficient means of providing social and technical services anddeveloping the mobilization of resources on a cooperative self-help basis.The Project was designed to be fully consonant with this strategy.

1.02 The cultivation of flue-cured tobacco in Tanzania was started inthe 1930's by expatriate farmers and, until about 1960, production wasconcentrated on large farms around Iringa, although tobacco was also grown onsmal.holdings in the Tabora and Mbeya Regions, on schemes under the supervisionof the Tanzania Agricultural Corporation (TAC) and the British-American TobaccoCompany (BAT). From 1954 to 1961 total Tanzanian production of flue-curedtobacco was stable at around 1.6 million kg per annum, most of which wasabsorbed by the East African Tobacco Company for the manufacture of cigarettesfor local consumption. After 1961, production of tobacco increased rapidly,reaching 8 million kg in the 1968/69 seasou, due to a large increase (to about13,000 in 1968/69) in the numbers of Tanzanian smallholders producing tobacco,largely on schemes operated by the Village Settlement Department (VSD) of theMinistry of Lands and Settlement (MLS).

1.03 The Project had the primary objective of further developing theproduction of flue-cured tobacco by smallholder farmers, through the settlingof an additional 15,000 small-scale tobacco farmers in the Tabora and MbeyaRegions of Tanzania. The locations of the areas of Project investment areshown in Map IBRD-13672. An IDA Credit (217-TA) of US$ 9.0 million for theProject was approved by the Board in September 1970. The Project was the thirdBank Group investment for agricultural development in Tanzania; the first(Credit 80-TA made in 1966) was for the provision of agricultural credit, andthe second (Credit 132-TA made in 1968) was for ranch development. Credit 217-TAwas thus the first direct investment by the Bank Group in the improvement of

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crop agriculture in Tanzania, and was also one of the early attempts by theBank to develop smallholder agriculture. A second Credit v65*-TA of US$ 8.0illion) to the tobacco sector in Tanzania was approved in September 1976, forthe improvement of flue-cured tobacco processing and storage facilities, and afurther credit of US$ 14.0 million for the improvement of post-curing tobaccohandling was approved in May 1978. 1/ In addition, the Tabora Rural Develop-ment Project (Cr 703-TA) has a pilot component to develop fuelwood lots intobacco growing village, and makes provision for further strengthening of TumbiResearch Station by financing research staff and equipment.

1.04 The Project was implemented at a time of rapid and far-reachinginstitutional changes in Tanzania. The Government of Tanzania (GOT)decentralized considerable authority to Regional Administrrations in 1972.The Tanzania Rural Development Bank (T1DB) was formed in 1971, to supercedethe National Development Credit Agency (NDCA), and the Tobacco Authority ofTanzania (TAT) replaced the Tanzania Tobacco Board (TTB) in 1972, and bothof these institutions came to play a major role in Project implementation.A mass campaign to resettle smallholder farmers into villages was carried outin 1974. Cooperative Marketing Unions were abolished in 1976. In addition,Tanzania suffered a major drought in 1973 and 1974 (leading to a sharp declinein agricultural production), and was affected by the sharp rise in oil pricesof 1973/74 (and the consequent increase in fertilizer prices). All of thesechanges have had important effects on Project implementation.

1/ Further details of these two Credits is contained in Chapter VIII ofthis report.

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II. PROJECT FORMULATION AND APPRAISAL

Identification and Preparation

2.01 In deciding to proceed with the preparation and implementationof the Project, the Government of Tanzania (GOT) was influenced by thefollowing considerations:

(a) flue-cured tobacco appeared to be a crop that could be grown wellunder the physical and climatic conditions which prevailed over alarge part of the country, and which are suitable for a very limitednumber of alternative crops;

(b) flue-cured tobacco was a crop that could be grown well by smallfarmers, as previous Tanzanian experience had shown;

(c) flue-cured tobacco appeared to have good export prospects, 1/which had been enhanced by the embargo on Rhodesian tobacco exports.

2.02 Preliminary work on Project formulation was carried out in 1967by a working group which included representatives of the Ministries of Finance,Development Planning, Agriculture (Kilimo) and Lands, Settlement and WaterDevelopment (MLS), and of the Tanganyika Tobacco Board (TTB) and the NationalDevelopment Credit Agency (NDCA). Agreement was reached that the Projectshould aim to raise flue-cured tobacco production from about 5 million kg in1967/68 to 17 million kg in 1971/72, through the expansion of existing small-holder schemes and the establishment of new schemes. The net cost of theProject (after repayment of credit, and payment of crop cesses by participatingfarmers) was put at US$ 4 million, and the working group proposed that GOTapproach the Bank for finance. This proposed strategy was endorsed by theTanzanian Cabinet in April 1969.

2.03 The Bank reviewed the progress of project formulation in August1968, and Bank staff and staff of the Agricultural Development Service (ADS)assisted GOT to identify a specific project in September of the same year. Ananalysis of existing smallholder tobacco schemes revealed low average yieldsand tobacco quality, and hence low farmer incomes. The reasons for this wereidentified as the shortage of qualified and experienced tobacco extensionstaff; a tendency by farmers to grow more tobacco than they could manageproperly; the GOT policy of encouraging the recruitment of larger numbers offarmers than the scheme management could handle; and the shortage and poorquality of rural infrastructure, particularly roads and water. In the lightof this analysis, it was agreed that the Project would include components forsoil and land surveys; scheme planning; water supply development; constructionof feeder roads; storage facilities; improved staffing and staff training; anda strengthening of tobacco research.

1/ This view was supported by World Bank report of 1967 entitled 'Prospects forEconomic Development in East Africa', which stated that 'Tanzania has anexcellent chance of establishing itself in the world market, but success willdepend on well-trained farmers, good marketing organization and effectivesales promotion'.

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2.04 A draft preparation report was produced by the VillageSettlement Department (VSD), and was reviewed by a Bank mission in December1968. The mission voiced concern that the production targets put forward inthe report (which planned for smallholder tobacco production to rise to 27Million kg by 1973/74) were unrealistically high. The mission felt thatexisting staff and the number of staff that could be recruited and trainedin the early years of the Project would not be able to cope with the increasein grower numbers anticipated over the first five years of the Project. Themission also believed that the proposal to allow growers to grow as much as1.2 hectares of tobacco each (as opposed to the limit of 0.8 hectares onexisting schemes) would, besides requiring the permanent hiring of labor incontravention of stated government policy, result in a poor level of husbandryand thus of tobacco quality. The mission urged the Govern4ent to adopt a muchslower rate of expansion, particularly over the first two years of the Project,in order to allow time for recruitment and training of staff and to permit aconcentration on improving yields and quality of tobacco produced by existinggrowers. GOT agreed to accept the mission's views, while still expressing theview that the original targets were feasible.

2.05 The report was revised by VSD in January 1969. The Projectobjectives were defined to be:

(a) to increase tobacco production by smallholders, and hence to raisecash earnings;

(b) to provide for resettlement of people from over-populated areassuch as Tukuyu and Chagga, and from sisal estates; 1/

Cc) to develop the underused 'miombo' 2/ woodlands of Tanzania;

(d) to diversify Tanzania's agricultural production and exports.

2.06 As proposed, the Project would, over a five-year disbursementperiod, increase the production of flue-cured tobacco by smallholders,particularly in Tabora and Mbeya Regions, but also in Iringa Region, through:

(a) settleeent of about 12,000 new tobacco growers, organized aroundbaling centers, each catering for 100 farmers, with 10 balingcenters comprising a 'tobacco scheme'. Farmers would also growfood crops, particularly maize, primarily for home consumption.Maize would be planted in the ratio of 1:1 to tobacco. Eachsettlement would be provided with feeder roads, internal schemeroads, water supply, tractors and trailers and a lorry. Provisionwould be made for the establishment of woodlots;

1/ As a result of an unfavorable market situation, the production of sisal wasbeing reduced at this time;

2/ Open woodland characterized by Brachystegia and Julbernardia tree species.

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(b) the provision of extension services to new schemes, and ofadditional field staff to existing schemes;

(c) the provision of seasonal credit, and medium-term credit forthe construction of on-farm tobacco storage facilities;

(d) the re-establishment of the Tobacco Research Station at Tumbi(which had formerly been operated by BAT).

2.07 VSD would be responsible for development of new schemesselection, administration of growers, provision of extension services togrowers, and for the proper and realistic development of sound marketingcooperatives. TTB would be responsible for crop purchase and marketing,and for technical supervision of tobacco growing and harvesting. NDCAwould administer credit under the Project. Kilimo would be responsible fortraining of extension staff, and the operation of Tumbi Research Station.Existing schemps that were under BAT would continue to be the responsibilityof BAT, but now under the overall supervision of VSD. Project implementationwould be coordinated by a Project Committee, which would be chaired by theCom-issioner of Settlement (or by the Assistant Commissioner in charge oftobacco), would have as secretary the General Manager of TTB, and would includerepresentatives of the Ministries of Finance and Agriculture and of NDCA. TotalProject cost was estimated at Tsh 65 million (US$ 9.1 million), of which theBank was requested to provide Tsh 40 million (62 percent).

2.08 In deciding on the pattern of farming development to be encouragedunder the Project, VSD had considered two alternative possibilities, whichwere both represented by existing schemPs. More than half of the existingtobacco schemes were based on individual growers, with planned farms of asmuch as 40 ha containing 10-20 ha of arable land. These schemes were perceivedas having the advantages of easy access to water supplies for seedbeds, of theclose proximity of fuel supplies, of minimization of hail damage (because ofthe dispersal of fields) and of the incentive given by individual proprietor-ship to farm development by settlers. On the debit side, the scattered farmsrendered difficult the supply of extension services and social infrastructure,and led to high transport costs for input and leaf marketing. The remainderof existing tobacco schemes were village schemes, based on a group of 100farmers surrounding a baling center, each farmer cultivating 0.4 to 0.8 ha oftobacco within demarcated cultivation blocks, and with access to communalwoodlots. The major advantages of these schemes were seen as the ease ofprovision of extension services and social infrastructure, and the minimizationof roads requirements and transport costs. Disadvantages were the need forexpensive central water supplies, the difficulty of controlling fuel supplies,the long distances from fields to seedbeds, the concentration of hail damage,and the possibility of good farmers suffering because of poor practicesadopted by their neighbors. VSD came down firmly in favor of the villagescheme approach, as making maximum use of scarce resources of manpower andfinance, and as being in full accordance with the GOT strategy of groupingfarmers into villages. Accordingly, the Project proposals provided

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for each group of 100 farmers to have access to at least 1600 ha of land,of which at least 400 ha would be suitable for arable farmin- with theremainder being woodland to be used for fuel for tobacco curing. It wasanticipated that each farmer would crop 0.8 ha of tobacco and 0.8 ha ofmaize each season, following a five-year rotation within blocks of cultivatedland, with maize following tobacco to take advantage of the residual effectsof the tobacco fertilizer.

2.09 In April 1969, a government reorganization in Tanzania resultedin the abolition of the Ministry of Lands and Settlements, and the transferof responsibility for development of smallholder tobacco to Kilimo. TheProject preparation report was amended, with assistance from ADS staff, toreflect this change. At the same time, certain other changes were made.Tunduru District in Ruvuma Region was added to the Project<area, the disbursementperiod was increased from 5 to 6 years, and the sum requested from the Bank wasraised from US$ 5.S million to US$ 8.3 million. When the preparation report wasreviewed by Bank staff, several shortcomings were noted. No information wasincluded on the foreign exchange component of Project costs, on the economic rateof return of the Project, or on the propomed Government contribution to Projectcosts. Project costs and staffing needs were not clearly related to the proposedphasing of farmer recruitment, and there was inadequate data on existing schemesand on the financial position of tobacco cooperatives. In order to assemble thesupplementary data required, a member of the appraisal team went to Tanzania oneweek prior to the start of appraisal.

2.10 One serious shortcoming in Project design was not noted, eitherduring preparation or appraisal. No detailed analysis had been carried outon the farm labor requirements of the proposed cropping pattern, to see whetherthe average farm family would be able to handle 0.8 ha of tobacco and 0.8 ha ofimproved maize. It is apparent that data collected by Collinson (a Kilimoemployee) in 1965 1/ was not available to the mission. Collinson's analysisclearly iudicated that the average family would need to hire labor even for thecultivation of 0.6 ha of tobacco with a relatively low yield of 600 kg per ha.As a result of ignorance of this data source, the Project was based on an over-optimistic estimate of the area of tobacco which could be cultivated by eachfamily, and this led to a serious over-estimate of the incremental productionto be expected from the Project and of the Project's expected economic rate ofreturn.

Appraisal

2.11 The Project was appraised in October/November 1969. The appraisalmission recommended mA financing for the Project, with the following majorchanges:

(a) the mission rejected the financing of tobacco in iringa Region,because of the lack of suitable land for additional developmentand the unsuitable nature of most of the ongoing schemes. TheGovernment withdraw the application for financing development inTumduru District before the mission had appraised it.

/ Discussed in greater detail in para. 5.04.

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(b) the proposals to expand existing schemes was dropped, since themission felt that the problems of these schemes were so seriousthat their inclusion in the Project would have occupied such a largeproportion of Project management time as to jeopardize implementationof the rest of the Project. The Project was thus focussed on theestablishment of 15 new schemes, each with 1000 settlers;

(c) the Government made a request for financing for an expansionof tobacco storage, processing and redrying facilities, and theconstruction of an auction floor. The mission agreed that someexpansion would be required, but, since these needs were notquantified, and since the implications of an auction system hadnot been thought through fully, the mission recommended, andGovernment agreed, that a full study of these aspects would need tobe carried out before financing any of these investments. Provisionwas made for this study to be financed under the Project. Themission prepared draft terms of reference for such a study while inthe field. In order that the need for this study should not delaythe processing of the Project, it was proposed to negotiate thecredlt on the. basis that the existing marketing arrangements wouldcontinue until satisfactory arrangements for the change-over to theauction system had been made, and that disbursements from the creditfor storage, processing and redrying facilities and for the auctionfloor would be contingent on a favorable outcome of the study;

(d) the mission felt that the proposed organizational arrangementswere inadequate for successful Project implementation, andrecommended the establishment of a Tobacco Authority, which wouldcombine the functions of both TTB and the Tanzania TobaccoProcessing Company (TTPC), and which would in addition carry outall planning and extension work for the development of smallholdertobacco. This proposal was not acceptable to GOT, since it was inconflict with the proposed establishment of a new AgriculturalMarketing Organization to handle all crops, including flue-curedtobacco, which was then under consideration by GOT. The missiontherefore proposed, as a second-best solution, the appointment ofa Tobacco Commissioner within Kilimo, who would be responsible tothe Principal Secretary of Kilimo, and who would also be the GeneralManager of TTB. The Project Manager would be responsible for thefield development under the Project, and would report to the TobaccoCommissioner. TTB would be strengthened under the Project by theappointment of a Chief Marketing Officer.

The mission recommended retro-active financing, not exceeding US$ 300,000, foraerial photography of parts of the Project area, for initial land planning andfor the study of an auction sales system.

2.12 In the course of Project processing, GOT raised objections tothe mission's proposals for Project organization, since under the Tanzanianadministrative system it was not possible for one person to be simultaneouslya civil servant (as Tobacco Commissioner in Kilimo) and an employee of a

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parastatal (ds General Manager of TTB). GOT proposed, as an alternative,the appointment of a Senior Agricultural Office (Tobacco) within Kilimo,to whom would report the Tobacco Project Officer (TPO) who would be incharge of a 'Project Group' responsible for the planning of schemes, therecruitment of settlers, the coordination of production activities (includingextension) and the provision of infrastructure. The Project Group would havetechnical expertise in land-use planning, agronomy, forestry, water supply,roads and cooperatives. Assistant Tobacco Project Officers would beresponsible to the TPO for development in each of the regions in which theProject would operate (Tabora and Mbeya). The Tumbi Research Station, whichwould be strengthened under the Project, would be under the control of aSenior Research Officer who would report to the Director 6f Research,Training and Farmers Education in Kilimo. The Project would also providefor the strengthening of TTB by the appointment of a Chief Executive Officer,Chief Marketing Officer and Chief Accountant. Coordination of Projectimplementation would be facilitated by the appointment of a TobaccoCoordinating Committee with members from TTB, Kilimo, NDCA and the Ministryof Regional Administration and Rural Development, and Regional TobaccoCoordinating Committees in Tabora and Mbeya, which would include the RegionalCommissioner, the Regional Chairman of TANU, 1/ and the Regional Director ofAgriculture. IDA accepted these Government Proposals.

Negotiations

2.13 Negotiations for an IDA credit of US$ 9.0 million to help financethe Project were held in April 1970. The major issues discussed were:

(a) the poor financial position of NDCA, largely as a result of baddebts inherited or incurred under Government loan schemes. Itwas agreed that the uncollectible portion of these debts would bewritten off prior to Board presentation;

(b) control of TTPC. TTPC was owned on a 50-50 basis by TIB and theNational Development Corporation (NDC). It was made a conditionof Board presentation that either TTB or NDC get full control;

(c) interest rates. The Project documents fixed the on-lending ratefor Project funds by 'DCA at 8.5 percent per annum. IDA successfullyopposed a suggestion by GOT that interest rates under the Projectshould be subsidized.

During negotiations, the Government delegation indicated that GOT wasconsidering the replacement of ',DCA by a Rural Development Bank. The documentsagreed during negotiations provided that any such change would be made onlywith the concurrence of IDA.

1/ The Tanganyika African National Union, mainland Tanzania's only politicalparty.

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Board Approval

2.14 Prior to Board presentation, one of the Bank's ExecutiveDirectors raised some questions on the market prospects for Tanzanian tobacco,in view of estimated large world surpluses of tobacco, and the possibility ofRhodesian re-entry into the world market. Bank staff pointed out that currentsurpluses appeared no larger than in the past, and that a clear distinctionshould be made between Tanzania's lower grade tobaccos and the high gradesproduced by other major suppliers such as Rhodesia and the U.S. The staffstated that the pricing assumption used were considered conservative, and that,even with prices only 60 percent of those projected, tobacco would still remaina profitable cash crop under Tanzanian conditions. Thus, ,any major change inthe world market situation resulting in lower prices would affect Tanzania lessthan other, higher cost, producers.

2.15 A request for approval of an IDA credit of US$ 9.0 million waspresented to the Board on October 6th 1970. The presentation stressed thatthe Project represented a sound program for the expansion of a commodity withfavorable market prospects, and that the Project was in keeping with Government'sendeavors to modernize agriculture and rural society through building on thetraditional Tanzanian values of communal living and joint effort, rather thanby relying on scheme requiring heavy mechanization, as in the past. Thediscussion that followed emphasized the innovative nature of the Project, andthe resultant need for careful monitoring of Project implementation, and notedthe relatively high risks involved. It was pointed out that the success of theProject depends ou good coordination between various government agencies, andon the recruitment of large numbers of well-qualified personnel. Attentionwas drawn by a Board member to the lack of formal selection procedures for therecruitment of settlers. IDA staff stated that the most important attributesrequired would be that the settlers showed initiative and determination, whichthe willingness to join a tobacco scheme would to some extent indicate, andthat existing informal selection procedures were judged to be satisfactory. TheBoard approved the credit (Credit 217-TA), and the credit documents were signedon October 9, 1970.

Prolect Description

2.16 As approved, the Project formed part of the Government of Tanzania'sflue-cured tobacco development program, and would cover the settlement of farmersduring a six-year period 1/ from 1970/71 to 1975/76 and the provision of market-ing and processing facilities. Specifically, the Project would involve:

(a) the settlement of about 15000 farmers in about 150 Ujamaa 2/ villages,arranged in complexes of about 10 villages each, with each farmercultivating 0.4 ha of tobacco in his first year and 0.8 ha thereafter;

1/ The full development of the settlements was to take place over the nine-yearperiod from 1970/71 to 1978/79.

2/ 'UJamaa' is a Swahili word which can be translated as 'familyhood'.

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(b) establishment of cooperatives, at the rate of about one for eachcomplex, to supervise the baling of cured tobacco and to handlethe distribution of credit for on-farm seasonal inputs, curingbarns and grading sheds;

Cc) construction of communal infrastructure, including some 1560 kmof crop extraction roads' and access tracks, village watersupplies and baling centers;

td) establishment of a 'Tobacco Project Group' within Kilimo, to planand manage the Project; provision of extension services for farmersand cooperatives; staff, infrastructure, vehicles and equipment forthe Tumbi Research Station; a Chief Marketing Officer for TTB; aFinancial Analyst for NDCA; and related infrastructure, housing,vehicles and equipment;

Ce) carrying out a tobacco marketing and handling study and constructionof auction floors, additional storage and processing facilities;

(f) aerial survey of parts of the Project area.

In addition, Project farmers would build their own houses, would establishsubsistence gardens, and would engage communally in the building of dispensa-ries and schools. Kilimo would have overall responsibility for the Projectand would execute its field aspects (as detailed in para. 2.12). NDCA wouldprovide credit through. the cooperative movement. Processing would be carriedout by TTPC under the control of TTB, which would handle all marketing.

2.17 Total Project costs were estimated, over the six-year creditdisbursement period, at Tsh 105.2 million (US$ 14.7 million) with a foreignexchange component of Tsh 53 million CUS$ 7.4 million), 50 percent of Projectcosts. These costs included a 10 percent allowance for price and physicalcontingencies. The IDA contribution of US$ 9.0 million would cover all theforeagn exchange costs and 22 percent of local costs, or 60 percent of totalcosts. Tn addition, the Project would give rise to additional costs of Tsh11.5 i4l14on CUS$ 1.6 million) over the three years following credit disburse-ment, mainly for incr-emental credit and supervision. Procurement of on-farminputs and vehicles (value US$ 3.9 million) would be by international competitivebidding (ICB). Buildings and water supplies (value US$ 1.3 million) would beprocured by Kilimo following local competitive bidding, since the Amnuntsinvolved would be too small to attract foreign firms. TTPC would procure themachinery required to expand its processing facilities (value US$ 0.5 million)through. negotiated contracts. CICB was judged inappropriate since TTPC plannedto expand its facilities by increasing the capacity of the units in the presentprocessing line.) For civil works involved in the construction of the auctionfloors and storage facilities, and for procuring machinery and constructing

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further extensions of TTPC's facilities, (value US$ 3.1 million) ICB wouldbe used, unless IDA agreed otherwise once the precise nature of theseextensions became known.

2.18 It was estimated that the Project would result in yields oftobacco by Project growers which would average 620 kg per ha in the firstyear's crop, rising to 730 kg per ha in the second year and to 840 kg perha in the third and subsequent years. These yield projections were consideredconservative in the light of the services that would be provided to growers,and in view of the provision of grading sheds. Export prices over the Projectperiod for the tobacco produced under the Project were expected to be Tsh9.20 per kg (dry-weight basis for Dar-es-Salaam) in constant 1969/70 prices.This was about equal to the price obtained in 1967/68 and 1968/69, and about5% lower than the prices expected in 1969/70. The producer price was expectedto be Tsh 5.10 per kg (wet-leaf basis) over the Project period. Analysis offarm budgets indicated that Project farmers could expect net incomes whichwould rise to Tsh 2,200 (US$ 300) per annum, in addition to subsistence crops.This income was expected to be substantially better than anything elseavailable in the Project area and equal to or better than that available frommost other smallholder cash crops.

2.19 The Project's primary benefits would be increased production offlue-cured tobacco all of which would be exported, and consequently provisionof an improved livelihood for some 15000 farm families. Incremental exportrevenues would reach Tsh 82 million (US$ 11.5 million) in the eighth year ofthe Project and subsequent years. The economic rate of return (ERR) on theProject was estimated to be about 30 percent, assuming an opportunity costfor family labor of Tsh 2.50 per man-day. The rate of return would be highlysensitive to changes in this assumption on labor costs. If family labor isnot costed, the ERR would rise to 55 percent, and, if family labor is costedat official minimum wage rates, the ERR would fall to 2 percent.

2.20 In addition to the direct benefits taken into account in theabove calculations, the Project would have the secondary benefits of creatingcommunities where basic social services could be supplied more efficientlythan to isolated farm holdings. It would also have the socio-political benefitof providing economic utilization of large areas of hitherto unproductive miombowoodland; of relieving heavy population pressure in other parts of Tanzania,particularly the Tukuyu and Kilmanjaro areas; and of providing employment fordisplaced sisal estate workers. These benefits were not quantified.

2.21 The Project was expected to make a significant contribution tototal Tanzanian production of flue-cured tobacco. By the end of the periodof credit disbursement, Project production was expected to reach 8 million kgs,and comprise 45 percent of total national production of flue-cured tobacco.

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III. PROJECT ILEMMNTATION

Credit Effectiveness

3.01 There were five conditions of effectivenass included in theDevelopment Credit Agreement for the Project:

(a) the execution and delivery of the Project Agreement on behalf ofNDCA, TTB and TTPC shall have been ratified;

Cb) the Subsidiary Loan Agreement shall have been executed andbecome effective;

Cc) the Tobacco Project Officer and Senior Planning Officer (both withqualifications and experience satisfactory to IDA) shall havebeen employed;

td) NDCA shall have employed a Financial Analyst with qualificationsand experience satisfactory to =DA;

(e) TTB shall have employed a Chief Marketing Officer with qualificationsand experience satisfactory to IDA.

January 15, 1971 was set as the terminal date for Credit effectiveness.

All of the above conditions were met by January 15, 1971. However, IDA approvalof the candidate for the post of Senior Planning Officer was, in view of therelative inexperience of the candidate, made contingent on his work beingsupervised by an ADS staff member (at MDA expense) for the first two years ofProject implementation.

3.02 Notwithstanding the fact that these conditions were met byJanuary 15, 1971, the credit was not declared effective until February 1971,as a result of chaages made by the Government in the marketing arrangementsfor flue-cured tobacco. The first IDA supervision mission for the Project, inSeptember 1970, had been informed that TTB had opened negotiations with itsexport sales agency for amendments to the export sales agreement. The Govern-ment and TTB were informed of IDA's concern that the changes proposed (whichinvolved the reduction or elimination of the export sales commission) wouldhave adverse effects on the marketing of the crop from the 1970/71 season,were asked to keep IDA informed of the progress of negotiations, and in turnassured the supervision mission that it was not intended to introduce majorchanges Into the export marketing system. However, at the end of December1970, IDA was informed by the marketing agent that its contract. had beenterminated by Government, resulting in a withdrawal of the agent's classifiersand factory personnel. This was confirmed by Government, which stated thatTTB intended to employ the necessary personnel, at both factory and field level,to carry on processing and export marketing.

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3.03 In view of the importance of efficient export marketing forthe success of Project, and since the Development Credit Agreement (DCA)provided for the Government to continue existing marketing arrangementsuntil agreement was reached with IDA on an acceptable alternative, theterminal effectiveness date was postponed to March 1971, to permit an IDAsupervision mission to evaluate the effects of the changes made by Government.This mission reported that satisfactory arrangements had been made by TTB toemploy qualified classifiers and technical personnel for the processingfactory, and the credit was therefore declared effective on February 1, 1971.

Revisions

3.04 As had been foreshadowed during negotiations (para. 2.13),Government moved, in November 1970, to replace NDCA by the Tanzania RuralDevelopment Bank (TRDB). A draft bill to establish TRDB was submitted forIDA review in November 1970, was found to be satisfactory, and was passedby the Tanzanian Parliament in January 1971. Subsequently, agreement wasreached between IDA and Government representatives on the actions to betaken prior to the transfer of responsibilities under both Credit 80-TA andCredit 217-TA from NDCA to TRDB. An amendment to the Development CreditAgreement was approved by the Board on April 28, 1971, and TRDB took overfrom NDCA on May 1, 1971.

3.05 In October 1971, the Government informed IDA that it proposedto set up a Tanzania Tobacco Authority (TAT), as had originally been proposedby the appraisal mission in October 1969 (para. 2.11). In January 1972, anIDA supervision mission, which included a lawyer, reviewed the draft legisla-tion setting up TAT. It was agreed that the Project Group should become partof TAT (with the Credit proceeds and other funds earmarked for the ProjectGroup being passed to TAT), and that the responsibility for research at Tumbishould be transferred from Kilimo to TAT. Agreement was also reached withGovernment on the steps to be followed prior to the transfer of Projectresponsibilities from TTB and Kilimo to TAT. The Tobacco Industry Act (1972)was passed in May 1972. An amendment to the Development Credit Agreement wasapproved by the Board in November 1972.

3.06 Early in 1972, it became apparent that the Project was notprogressing as described in the legal documents or envisaged at appraisal(para. 3.25). In addition, Government requested additional funds to meetincreased credit requirements and piped water supplies. A full review ofProject phasing, costs and benefits was therefore undertaken in September/October 1972. The review resulted in the rephasing of Project development,and the extension of the settlement period by four years. The Credit closingdate would remain at September 30, 1976. In effect, the Credit would financeabout 85 percent of what was envisaged at appraisal. The effect of therephasing, after taking into account increased costs since appraisal,would be toreduce the economic rate of return of the Project to 17 percent. As a resultof this review, changes were made in the schedule of allocation of proceedsof the credit. However, even after this review, the Project continued to beconsidered as a 'Problem Project' by the Bank, up until May 1976.

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3.07 In September 1976, IDA agreed to extend the clc:ing date ofthe Credit from September 30, 1976 to December 31, 1977, to allow for thecompletion of outstanding payments to contractors for water supplies invillages and at the Tumbi Research Station, for the purchase of vehiclesfor extension staff and for the completion of baling sheds and stores.

Progress with Physical Infrastructure

3.08 Complex and village establishment. At appraisal, it wasenvisaged that 15 complexes would be developed during the Credit disbursementperiod, of which 10 would be in Tabora Region and 5 in Mbeya Region. 15complexes were, in fact, developed, but the pattern of location was different.The complexes developed were Cwith the establishment date in brackets):

Tabora Region: Tabora District -Hibono (1971)-Kitunda (1971)

Urambo District -Ig-gala (1971)-Uyowa (1973)

Mpanda District 1/ -Inyonga (1971)-Nsimbo (1971)-Ugalla (1973)

Mbeya Region: Chunya District -4tanila (1971)-Mafyeko (1971)-Gua (1971)-Mamba (1972)-Kapalala (1972)

Shinyanga Region: Kahama District -Ushetu (1973)-Bulungwa (1974)

Singida Region: Manyoni District -Mgandu (1973)

Thus, 7 complexes were developed in what was Tabora Region during appraisal,5 were established in Mbeya Region, and 3 (2 in Shinyanga Region and 1 inSingida Region) were established on good soils just outside the boundariesof Tabora Region, in order to take advantage of areas with good potential forsettler recruitment. The Project description was formally amended in November1973 to regularize the fact that development under the Project was takingplace outside the Project area as defined in the credit documentation (Taboraand Mbeya Regions only). The locations of the complexes established under theProject are shown in Map IBRD-13672.

1/ Mpanda District was part of Tabora Region during appraisal, but wassubsequently established as part of Rukwa Region.

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3.09 Establishment of complexes and villages was slower than envisagedduring appraisal and the number of villages established by 1975/76 (114)failed to reach the appraisal target of 150. No further villages weredeveloped after 1975/76, since by that date most of the Tanzanian ruralpopulation were living in villages as a result of the mass villagizationcompaign carried out by the Government and TANU in 1973 and 1974.

Table 3.1 - Targets and Achievements in Complexesand Village Establishment

Crop Season1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 Total

Complex EstablishmentAppraisal estimates 3 6 4 2 - - - 151972 review est. - 8 2 4 1 - - 15Actual - 8 2 4 1 - - 15

Village EstablishmentAppraisal estimates 18 33 33 33 33 - - 1501972 review est. - 29 24 36 39 19 3 150Actual - 18 14 24 41 17 - 114

3.10 The major reason for the slower-than-anticipated rate ofdevelopment in the early years of the Project was the lack of planningcapacity in the Project Group. In view of the inexperience of the Tanzanianappointed as Senior Planning Officer, an ADS member spent 5 man-week inTanzania on four separate occasions between October 1970 and January 1972offering technical assistance and support for land planning. He found that,while the criteria adopted for selection of complex sites (proximity tosettlers, good communications, access to roads and water supplies 1/ and theexistence of good tobacco soils and wood-fuel) were sound and well-applied,the siting and planning of villages was being carried out on an ad-hoc basis.The Senior Planning Officer was introduced to the use of photo-mosaics forvillage siting, and there was a resultant considerable improvement in thestandard of planning.

3.11 The Project provided for the construction of offices and storesin each complex headquarters, baling sheds in each village and staff housing.Progress in this construction program was slower than envisaged, as a resultof shortages of building materials (particularly cement), difficulties intransporting materials and shortage of capacity in the building industry. Inaddition, building costs increased sharply over the Project period, as aresult of increases in the price of building equipment and materials, andincreases in wages rates. As a result, when Credit disbursements ended, thebuilding program was only partially completed:

1/ However, it is clear from paragraph 3.18 that the judgement that theproximity of complexes to water supplies was satisfactory was in factincorrect.

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ExtensionComplex Complex Baling Officers'Stores Offices Centers Houses

Appraisal estimate 15 15 150 not specifiedCompleted 12 13 48 111

In addition to the structures completed, a further 1 store, 11 baling centersand 13 houses were partially completed.

3.12 Land Planning. Largely as a result of inexperience, progresson land planning was less than envisaged during appraisal

Table 3.2 - Progress in Land Planning

Appraisal %Activity Estimate Achievement Achievement

Homestead demarcation (No.) 15,000 14,796 99Soil classification (ha) 72,000 40,800 57Demarcation of cultivation (ha) 72,000 27,600 38Trace cutting of boundaries (km) 1,948 1,344 69

However, in view of the small number of settlers than envisaged (para. 3.24)and the smaller area of cultivation than envisaged, these shortfalls in land-planning achievements did not hamper the development of production under theProject.

3.13 Road construction. Overall Project performance in roadconstruction was poor. At appraisal, it was envisaged that 360 km of cropextraction roads and 1200 km of internal access tracks would be constructedunder the Project. In fact, only about 30 km of extraction roads and 495 kmof access tracks were constructed. In the case of the access tracks, detailedplanning for each complex Indicated that a total of about 765 km of accesstracks would be sufficient, but even this was not achieved.

3.14 In part, this poor performance, particularly in the early yearsof the Project, resulted from delays in the procurement of the necessaryequipment. Earthmoving equipment was not ordered until early in 1972, and wasnot delivered until mid 1973, by which time only about 46 km of internal trackshad been constructed, using equipment borrowed from the Ministry of Co-in.icationand Works (Comworks). After the arrival of this equipment, (a caterpillartractor and a motor grader) it became clear that the one earth-moving unitprovided for at appraisal would not be adequate in view of the widely-scatteredlocation of the Project complexes and the difficulty of moving equipment betweencomplexes. In January 1974, IDA approved the procurement of equipment toestablish a second earth moving unit in Chunya District and, after the arrivalof this equipment in mid 1975, the rate of access track construction improved.

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3.15 In the case of crop extraction roads, a further reason for poorperformance was that the Project had to rely on Comworks for assistance inengineering and construction and, until mid 1973, for the use of equipment.Comworks in both Mbeya and Tabora regions accorded low priority to meetingthe needs of the Project complexes. Accordingly, by mid 1974, only 30 kmof extraction road had been constructed. In October 1974, responsibilityfor construction of crop extraction roads was given to Comworks by Government,and IDA raised no objection to this decision. Little improvement appears tohave resulted from this change.

3.16 This poor performance in the construction of crop access roadshas had some adverse effects on Project performance. The difficulty of accessto Project complexes raises the costs of input delivery and crop marketing, andmakes more difficult the effective supervision of extension staff particularlyduring the tobacco growing season. However, TAT's assessment, which seemsreasonable, is that the impact of these adverse effects was limited l/ and shouldnot be over-emphasized.

3.17 Water supplies. At appraisal, it was envisaged that each Projectvillage would be provided with a water supply for domestic and seedbed needs.Depending on location, it was expected that the water supply would come from ashallow well, borehole or small dam, with shallow wells (the cheapest source)being used whenever possible since they could be constructed and maintainedlargely by self-help means. It was anticipated that shallow wells would befeasible in the most majority of cases. This judgement, wbich was fullysupported by technical specialists within the Tanzanian Government, was basedon an extrapolation from the fact that shallow wells were providing adequatewater for individuals or small groups living in the Project area. However,no detailed hydrological studies were made to test the hypothesis that shallowwells could provide adequate water year-round to meet the needs of one hundredfnmilies for both domestic usage and watering of tobacco seedbeds planted atthe end of the dry season.

3.18 In the event, this judgement was proved wrong in many Projectcomplexes. Shallow wells often failed towards the end of the dry season.The-sandy soils most suitable for tobacco growing were often unsuitable forthe construction of dams large enough to meet the needs of a village. As aresult, TAT had in several instances to undertake the delivery of water bybowser, and had to make provision for the installation of more sophisticatedwater supplies than anticipated at appraisal. These were usually based onboreholes but, in the case of the complexes in Mbeya Region (Table 3.5) theonly feasible solution was the piping of water to complexes from a lakewhich is about 30 kms from the furthest complex.

3.19 The Government was relatively unconcerned at this cost escalation,since the more sophisticated water supplies were in line with the standards forvillage water supply adopted by the Government, and since it was felt that, inorder to attract settlers, it would be desirable to have water supplies inProject complexes that were better than those in the settler's previousenvironment. At the Project review in September 1972, IDA accepted the needfor more sophisticated water supplies. The estimated cost of water supplieswas raised from the appraisal figure of Tsh 3 million to Tsh 20 million, andthe Credit allocation was also raised from US$ 100,000 to US$ 1.9 million.

1/ 'Ra.-axP nf limited area development, and also because villagers them-

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3.20 Throughout the period of Credit disbursement, progress on theconstruction of water supplies was extremely slow. There were many reasonsfor this. Particularly in 1973, a shortage of Government counterpart fundswas a major constraint. Th.ere were recurrent shortages of cement, pipesand fittings. The overriding reason, however, was the inability of theRegional Water Departments concerned to handle the greatly expanded watersupply component Cpara 3.18). Provision was made at appraisal only for theconstruction of simple water sources. Once a large numbez of boreholes andpiped water supplies were required, the Regional Water Departments did nothave sufficient skilled staff or reliable equipment to design and implementthe program. It is a weakmess of the 1972 Project review that this was notrecognlzed so that provision could have been made under the Project forfinAncing additional staff and equipment.

3.21 As a result, at the end of 1977, only 7 complexes (Igagala,Uyowa, Mafyeko, Kapalala, Gua, Ugalla, Nsimbo) had water supplies that werecomplete. Vork on another 4 (Qibono, Ushetu, Mamba and Mtanila) was virtuallycomplete, while for the remaining 4 complexes (Kitunda, Mgandu, Bulungwa andInyonga) only preliminary survey and design work had been completed.

3.22 Other infrastructure. In addition to the directly productivephysical infrastructure financed under the Project, the appraisal missionenvisaged that social infrastructure would be constructed in Project complexes,largely through self-help efforts by the settlers, with assistance fromregional authorities. This was in fact the case. By the end of 1977, therewere 17 schools, 10 dispensaries, and 1 health center in Proj ect complexes.10 complexes had, with the assistance of regional development funds, installedgrain mills, and there were 10 cooperative shops in Project complexes.

Progress in Settlement

3.23 Settler numbers. The Project called for the settlement of 15000famiites over the five-year period 1970/71 to 1974/75. This figure was revisedto 1972 to provide for the settlement of 7780 families by the end of 1974/75,and 14010 families by the end of 1976/77, with the full complement of 15000families not being reached until the end of 1978/79. In the event, the patternof settler recruitment was:

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Table 3.3 - Progress in Settler Recruitment

1970/71 71/72 72/73 73/74 74/75 75/76 76/77 77/78

Actual families settled - 1,006 1,943 2,877 7,957 10,635 11,460 12,045Appraisal estimates 1,800 5,100 8,400 11,700 15,000 15,000 15,000 15,000Achievement (percentageof appraisal estimates) 0% 20% 23% 25% 53% 71% 76% 80%Revised estimates - 535 1,950 4,180 7,780 11,455 14,010 14,900Achievement (percentageof revised estimates) - 188% 100% 69% 102% 93% 82% 81%

3.24 By the end of 1976/77, a total of 11460 families had been settledin the fifteen project complexes. There are difficulties in increasing thisnumber through further settlement, since the vast majority of the Tanzanianrural population is now living in registered villages. However, particularlyin Mbeya Region, TAT is actively pursuing the possibility of recruitingadditional settlers to villages where a particularly low proportion of thepopulation is involved in tobacco cultivation.l/

3.25 The slow growth of settler numbers in the early years of theProject resulted in part from the slow development of infrastructure, particularlywater supplies. A much more important factor, however, was the initial insistenceby Regional Administrations that collective farming should be adopted in theProject villages, with tobacco being grown in communal plots and cured in communalbarns, and the net proceeds from the sale of the crop being distributed inaccordance with the work input from each family. While collective farming wasconsidered by Government to be the ultimate goal of Ujamaa villages, it wasenvisaged at appraisal that in the early stages of the Project most productionwould involve individual tobacco production and curing. Beginning in August 1971,supervision missions pointed out that this development was, in effect, a move totobacco production on a large scale, (80 ha per village at full development),which would bring problems of management and risks of losses during curing.This policy was a great disincentive to settlement, and between September 1971and February 1972, 280 farmers left the Project villages. This issue was raisedwith Government in March 1972. Government indicated that the adoption of thispolicy was the result of over-enthusiasm by Regional officials following decen-tralization, and did not have the blessing of central Government. Governmenttherefore instructed regional authorities that they should not try to enforcecollective farming. The result in Tabora region was an immediate improvementin the rate of settler recruitment. In Mbeya region, however, regional officialscontinued to discourage individual production, and it was not until 1974/75,when a new Regional Commissioner was appointed, that the recruitment rate improved.

3.26 The rapid expansion of settler recruitment in 1974/75 and 1975/76resulted in part from the more relaxed attitude to individual farming in MbeyaRegion. More important, however, was the fact that, in 1974 Government began acampaign to villagize the rural population. This resulted in many familiesopting to settle in Project villages, since these already had some infrastructureestablished.

1/ Although farmers were recruited from the Kilimanjaro and Tukuyu areas, themajority of them came from within the Tabora, Mbeya and Rukwa regions.

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3.27 Numbers of tobacco growers. No provision was made under the Projectfor formal selection procedures to be followed in choosing settlers. Therewas a pre-sum?osition that a family which was prepared to move into Projectvillages would be interested in growing tobacco. Accordingly, it was assumedduring appraisal that 100 percent of settled families would be growing tobacco.In the early years of the Project, the percentage of settled families growingtobacco was less than 100 percent, because settlement was often too close tothe start of the season to enable families to plant seed beds as well asbuilding homes and establishing subsistence plots. The percentage of familiesgrowing tobacco reach 71 percent in 1973/74, and it appeared that the over-whalming majority of families were cultivating tobacco by the time of theirsecond year of settlement. With the start of the villagization campaign,however, the situation changed. Many families moved into villages to takeadvantage of the infrastructure provided, without any commitment to tobaccogrowing. Particularly in iMbeya and Rukwa Regions, many families continuedtheir previous occupations of fishing, hunting, livestock herding and honeygathering. As a result, the percentage of families growing tobacco fell toabout 50 percent. There are signs that this percentage is increasing slowly,as TAT improves the efficiency of its extension services, and as non-tobaccogrowing farmers see the relatively high incomes that result from tobaccocultivation. In detail, the number of farmers settled and growing tobacco was:

Table 3.4 - Provortion of Settlers Cultivating Tobacco

1971/72 72/73 73/74 74/75 75/76 76/77 77/78

Families settled 1,006 1,943 2,877 7,957 10,635 11,460 12,045Families growing tobacco 513 1,126 2,057 4,052 5,095 5,889 6,913Percentage of settled

families growing tobacco 51 58 71 51 48 51 57

3.28 Current status of settlements. There are considerable variationsin the current status of Project complexes with respect to population and theproportion of farmers growing tobacco:

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Table 3.5 - Current Status of Complexes

Population Families growing tobacco, 1977/78Region Complex (families) Number Percent of Population

Tabora Mibono 1,006 445 44Kitunda 1,074 797 74Igagala 1,538 1,132 74Uyowa 988 625 64

Regionalaverage 1,152 750 65

Rukwa Inyonga 1,382 510 37Nsimbo 1,223 374 30Ugalla 338 35 10

Regionalaverage 981 306 31

Mbeya Kapalala 255 106 42Mtanila 413 325 79Mafyeko 424 306 72Mamba 543 352 65Gua 575 235 41

Regionalaverage 442 265 60

Shinyanga Ushetu 883 765 87Bulungwa 522 232 44

Singida Mgandu 881 674 77

Overallaverage 803 461 57

3.-29 In Tabora Region, where tobacco cultivation was well establishedprior to the start of the Project, the average population of a complex isabove the appraisal estimate. In Mbeya, on the other hand, the average complexpopulation is less than half of the appraisal estimate, partly as a result ofthe initial insistence on commercial tobacco cultivation, but probably partlyalso as a result of the fact that tobacco is a new crop in the area. The lowproportion of settlers growing tobacco in two of the complexes in Mbeya (Guaand Kapalala) results from the location of these complexes close to a lake,where fishing is an attractive alternative occupation. The lowest proportionof settlers cultivating tobacco is found in Rukwa Region, where again tobaccois a new crop, and where difficulties of physical access have led to problemswith input deliveries, and with the completion of physical infrastructure inthe complexes.

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3.29 The pe entage of settlers in Project complexes cultivatingtobacco (57%) compakes very favorably with the overall national percentageof farmers living in tobacco growing villages who actually grow tobacco (28%).

Marketing and Processing

3.30 Consultants study. The study of the storage, auction and processingfacilities required for efficient handling of the Tanzanian flue-cured tobaccocrop was carried out in 1971 by a team from the Canadian International Develop-ment Agency (CIDA). The main findings of the study were that the introductionof an auction system would be feasible in the medium-term. However, it wasstressed that, prior to the move to an auction system, an intensive extensioneffort would be required to improve the standard of grading and baling carriedout by individuals and cooperatives. TTB amended the proposals by providingthat farmers would forward rough-baled tobacco to regional TTB grading centers,where TTB would grade condition and bale all tobacco in a form suitable for saleover the auction floor. mIA accepted TTB's proposals, and it was planned tostart auction operations in 1974.

3.31 In the event there was considerable delay in the design of theproposed regional grading centers and auction floors, partly as a result ofmanagement changes in TAT during the period 1972-75. It became clear in1974/75 that the cost of these facilities would be much higher than anticipated.TAT then reviewed the situation, and decided, in view of the small size of thecrop and the continuing problems of tobacco quality, to continue with thesystem of selling classified tobacco on a contract basis. This was a reasonabledecision, with which mIA agreed. As.a result, neither the auction floors-norregional grading centers were constructed.

3.32 Storage and factory improvements. The Project provided for theexpansion of processing and storage facilities at the Morogoro factory, andfor the construction of an office block for TTB. These itemn were completedby February 1972, roughly on schedule. Following the CIDA study, it wasagreed that additional tobacco storage would be required at Tabora and Morogoro.Construction at Tabora was started in 1973 and at Morogoro in 1974, and bothstores were completed in 1976. In the design and supervision of construction,TAT employed the services of a firm of consultant architect and engineers.However, despite this, ther, were structural problems with both stores. AtTabora, the flooring, drainage installation and gutter insulation were defective.The contractors have rectified these defects at no cost to TAT. At Morogoro,the concrete portal frame was erected incorrectly, and as a result theatructural stability of the building has been reduced to the point at whichfurther use is dangerous. The contractor has proposed remedial measures thatare unacceptable to TAT since they would reduce the utility of the building.Resolution of this issue may require lengthy arbitration procedures.

Research

3.33 Tumbi Research Station. The Project provided for the developmentof a tobacco research station at Tumbi, to be staffed by five researchofficers. It was anticipated that the research station would be completed bythe 1972/73 season. The research program of the station would be concerned

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primarily with practical investigations including husbandry techniques,rotations, pest control, varieties (low nicotine varieties in particular),barn design and curing techniques, fuelwood species trials and the testingof other cash and food crops for introduction into tobacco growing areas.

3.34 At appraisal, a sum of Tsh 1.26 million (US$ 180,000) includingphysical contingencies, was budgetted for the construction of the researchstation. There was, however, no detailed description of the buildings envisaged.TAT employed a firm of architectural and engineering consultants 1/ of inter.national repute to design and supervise construction of the research station.Designs were finalized in 1972, and cost estimates were revised upwards toTsh 9.2 million. The contract was not, however, awarded until early 1974 andby the time the site was handed over (at the end of February 1974), estimatedcosts had risen to Tsh 15 million. The station was substantially completed inlate 1976. However, station design was over-elaborate, and the quality of sitesurvey, workmanship and materials leaves much to be desired. Most seriously,the lack of reliable water supply at Tumbi remains a severe handicap. Severalalternatives have been explored, including boreholes, shallow wells, and acatchment dam but it is now planned to connect Tumbi to the Tabora town watersupply, probably in 1979 or 1980. In the interim, a water supply involvingshallow wells is being constructed.

3.35 Research program. In September 1970 a Tanzanian with a PhD wasappointed, with approval from IDA, to be head of Tumbi Research Station, andan outline research plan was approved by IDA. However, TTB and TAT were unableto recruit any other research staff. This failure stemmed in part from a lackof drive by the head of the station, in part from the late completion of theresearch. facilities Cfor which the station Head also bears some responsibility),and also from the decision to give TAT responsibility for tobaccoresearch, thus cutting Tumbi off from the national research system and itscareer structure. Some trials were carried out by junior research personnel,but not satisfactorily, and little of substance has been achieved to date.

3.36 In July 1977, control of Tumbi Research Station passed from TATto the Director of Research in Kilimo. Tumbi is now being operated as aregional research. station, with, an emphasis on tobacco. As a result, thestaffing situation has greatly improved, despite the continuing absence of areliable water supply. Tumbi currently has a staff of seven research officers.

1/ The same firm that was responsible for the Morogoro and Tabora godowns(para. 3.32).

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Training

3.37 Training of tobacco extension staff started at Tumbi in 1971,initially in temporary accommodation, and proceeded well throughout the Projectperiod. Up to the beginning of 1978, Tumbi graduated a total of 202 students,of which 7 came from Sudan and the Yemen. Over the same period, a total of 31students were expelled or failed the final exam-nations. The qualification forentry into Tumbi is completion of Form IV with passes in science subjects. Upuntil 1976, students received training for two years, mainly concentrating ontobacco production but also covering agricultural economics and extension, agro-mechanics, animal husbandry, land-use planning and general crop productiontechniques for a wide variety of crops. All graduates from Tumbi (except the 7foreign students) have been employed by TAT as Assistant Tobacco Officers,responsible for extension in a tobacco-producing village. "'

3.38 In 1977, Kilimo took over operation of the training center at

Tumbi. Students currently enrolled are being trained as 'agro-vets' with atwo year syllabus which is roughly equally divided between crop and animalhusbandry. The training courses are still biased towards tobacco.

Procurement

3.39 In the early stages of Project implementation, problems wereencountered in the procurement of equipment and construction services.These problems included failure to clear advertisements, tender documents andcontracts with IDA, and the adoption of unsatisfactory procedures in the

evaluation of bids. These problems stemmed largely from the inexperience ofKilimo, TAT and TR=B with MA procurement requirements. To address thisproblem, which affected other Bank and IDA projects in Tanzania, Bank Groupstaff held a workshop to explain procurement and disbursement procedures tothe relevant Tanzanian officials. Thereafter, procurement performance underthe Project improved.

3.40 In mid 1973, following a request from the Government, IDA agreedto allow for local competitive bidding for contracts of US$ 20,000 or less.This replaced the previous provision for IC3 on all contracts, which wasfound to be extremely time-consuming.

3.41 Two trucks purchased in 1972 with Project funds were diverted to

other uses before delivery to Project authorities. Several supervisionmissions took up this problem and one truck was delivered to the Project in

1975, after extensive use. There is no record of the other truck having beendelivered to the Project, or of any compensation for the use of the first truck,

and there was no cancellation of funds used for these items.

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Construction

3.42 Serious problems were encountered by TAT in dealing with engineering

consultants and with contractors under the Project. These problems wereparticularly severe for the Tabora (para. 3.29) and Morogoro (para. 3.29) storage

warehouses, where the standard of supervision of construction was admitted by the

consultants to have been inadequate and to have resulted in serious structural

defects in the completed buildings. In the case of the Tumbi Research Station

(para. 3.34), the initial site survey and planning were inadequate, resulting in,

the need for subsequent relocation of houses and workshops. In many respects,

the buildings were unnecessarily elaborate, and available expenditures wereincurred. Cost control was very weak, and this contributed to the escalation in

costs (para. 3.46).

3.43 In some measure, these problems resulted from weak administration

within TAT, which did not have on its staff a buildings engineer. As a result,

difficulties were encountered in the selection of consultants and in the drawing-up of their terms of reference, in negotiating agreements for professionalservices, in specifying requirements for site selection and survey, sub-surfaceinvestigation, master planning, bid documents, drawings, specifications, bid

analyses and award of contracts, and in supervision of construction. Earlysupervision missions assumed an acceptable standard of advice and control

from the consultants. However, later missions (with engineering expertise)were in a position to point out to TAT the technical and supervisory short-comings of the consultants, and to assist TAT to achieve cost reductions.Later tobacco projects took steps to strengthen these aspects of TAT's

operations (para. 8.03).

Prolect Costs

3.44 Up to December 31, 1977, a total of Tsh 142 million had beenexpended on the Project. In addition, it is estimated that a further Tsh 0.8million is required to complete unfinished buildings (para. 3.11) and Tsh

17.1 million to complete complex water supply systems (para. 3.20). Thus,total costs to date plus the costs of completing work in progress amount to

Tsh 160 million. At appraisal, Project costs, including contingencies, were

put at Tsh 105.2 million. Costs have thus been Tsh 54 million (51 percent interms of Tanzanian shillings) higher than appraisal estimates.l/

1/ It should also be noted that the auction floors provided at appraisal were not

constructed.

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3.45 The breakdown of appraisal estimates, revised estimates andactual costs, by component, is given below:

Table 3.6 - Project CostsExpenditures to

Component Appraisal Revised End 1977 Comoletion-------------- ---Tsh Milliono--

Credit 27.2 15.0 15.5 15.5MYarketing study 0.5 0.2 0.03 0.03Vehicles 2.7 4.9 7.9 7.9Aerial survey 0.5 0.3 0.2 0.2Expatriate staff and training 4.0 3.0 1.4 1.4Operation of earthmoving equipment 2.5 1.7 3.2 3.2Complex buildings 5.2 4.7 7.4 8.2Tumbi 1.5 9.2 17.6 17.6Staff and extension services 31.1 23.1 53.6 53.6Water supplies 2.6 22.6 20.2 37.3Storage and processing facilities 27.4 19.0 15.1 15.1

Total 105.2 103.7 142.1 160.0

3.46 It can be seen that the major cost overruns occurred in watersupply construction (where more elaborate facilities than envisaged wereconstructed, para. 3.18); in the costs of construction of Tumbi Research Station,which was constructed on a more elaborate scale than envisaged, and with loosecost control (para. 3.34); and in the cost of operation of the Project extensionservices, where salaries rose during implementation, and operating costs werehigher than expected. In part also, the cost overruns on construction arose as aresult of rapid inflation in Tanzania in the years following the oil price risesof 1973/74. The appraisal report provided only 10 percent for price and physicalcontingencies (25 percent for auction and storage facilities). These contingencieswere clearly inadequate, particularly in view of the slow rate of physicaldevelopment of Project investments and the sharp inflation in 1974 and succeedingyears. 1/

Prolect Financing

3.47 The shares of IDA and the Tanzanian Government/TAT in financingof Project costs incurred before December 31, 1977 were:

1/ It is interesting to note that Project costs deflated to 1970 pricestotal Tsh 109 million, very close to the appraisal estimates.

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Table 3.8 - Disbursements from the Credit

IDA Fiscal Year Cumulative Disbursements (US$ '000)and Semester Actual Appraisal Estimate Revised Estimate

1971 I - - -

II 20 950 201972 I 97 1,730 97

II 108 2,410 1081973 I 543 3,490 477

II 543 4,190 1,6251974 I 1,300 5,500 2,700

II 1,300 6,360 3,6701975 I 1,300 7,570 4,800

II 3,900 7,950 5,9401976 I 7,200 8,910 7,100

II 7,974 9,000 7,7651977 I 8,521 9,000 8,600

II 8,798 9,000 9,0001978 I 8,820 9,000 9,000

II 9,000 9,000 9,000 1/

Fulfilment of Covenants

3.50 The Project's legal agreements contain a relatively large numberof particular covenants. The Development Credit Agreement devotes fourteenparagraphs to these, and there are sixteen relevant paragraphs in the ProjectAgreement. This is a reflection of the complexity and innovative nature ofthe Project, with six Government agencies (TTB, TTPC, NDCA, Kilimo, Ministryof Works and Ministry of Water) involved in Project implementation. A reviewof these covenants indicates that, in the light of Project implementation,their inclusion at appraisal was reasonable and relevant. However, as ispointed out in para. 3.52, changing circumstances during implementation reducedthe utility of some of these covenants.

3.51 From an overall viewpoint, it seems fair to say that the Borrowerand its agencies made a sincere attempt to implement the Project according tothe legal agreements and to fulfill the covenants, and compliance was generallysatisfactory. For example, where required, opportunity was given for IDAapproval of, or prior consultation on, appointment of key staff (e.g., to theTabora Project Group and NDCA). The consultants appointed to carry out themarketing study were satisfactory to IDA, and their recommendations werethoroughly discussed with IDA. No non-Project tobacco development, other thancompletion of existing schemes, was carried out in the Project area.

1/ Not including exchange adjustments of US$ 71,688.

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Table 3.7 - Financing of Project Costs

% Financed by IDACom,,nent IDA Local Total Actual Aporaisal

-US$ '000--Farm credit - seasonal 1,713 470 1/ 2,183 78 100

- medium-term 267 - 267 100 100Feasibility study -0- -0- -0- 2/ -- 100Vehicles 1,111 -0- 1,111 100 100Aerial survey 3 25 28 11 100Expatriate staff & training 192 5 197 97 100Earthmoving costs 134 316 450 30 30Buildings (including Tumbi) 1,230 2,404 3,634 34 30Extension service costs 1,686 5,864 7,550 22 30Storage/processing & water supplies 2,664 4,716 7,380 36 60

Total 9,000 13,800 22,800 39 61

3.48 The proceeds of the Credit financed only 39 percent of Projectcosts up to end 1977, rather than the 61 percent anticipated at appraisal.The high level of local contribution to Project costs, and the fact that atno stage did the Tanzanian Government request a reduction in Project size,is an indication of the high priority accorded to the Project by Tanzania.

Disbursements

3.49 Owing to the slow progress.made with Project implementation,disbursement was slower than anticipated at appraisal or when the Projectwas revised in 1972. The original closing date of the Credit was June 30, 1976,and by this date 89 percent of the Credit had been disbursed. The Creditclosing date was postponed until December 31, 1977, and the final disbursementfrom the Credit was made in March 1978. The pattern of disbursements was asfollows:

1/ The Credit needs of the last four complexes were met from TRDB's ownresources.

2/ The study was carried out by CIDA at no cost to Government.

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3.52 Some of the covenants did not become applicable duringimplementation. For example, since TAT decided not to switch to an auctionsystem, those covenants relating to interim arrangements during the switchto tobacco auctions, and those dealing with the conduct of tobacco, did notcome. into play. In view of the slower than anticipated recruitment ofsettlers under the Project, and the smaller than expected acreage grown byfarmers, the restrictions on settlement by the Borrower of more farmers inany year than appraisal estimates and on the Borrower's permitting farmersto grow more than two acres of tobacco did not come into effect.

3.53. There were two major areas of non-compliance with Projectcovenants. The first related to the provision of staff. The DevelopmentCredit Agrement, Section 4.02(b), stipulates that a Forest Officer, aWater Engineer and a Roads Engineer be designated by name and be availableon a part-time basis for the Project as a first priority. The staff werenever designated by name. The situation was complicated by the Governmentdecentralization of 1972, after which Project implementation would haverequired the designation of such staff in each Region of the Project area,which was not done. Undoubtedly, Project implementation of the water supplyand roads components suffered as a result. In addition, the complexes andvillages were not staffed as required, and the effects of this is discussedin more detail in paras. 4.08 and 4.09.

3.54 The second area of major non-compliance relates to the provisionsof the Development Credit Agreement regarding accounting and auditing. Exceptfor TRDB, all of the entities involved in Project implementation experiencedsevere difficulties in keeping accounting and auditing up to date. The reasonsfor this are discussed in para. 4.05.

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TV. INSTITUTIONAL PERFORMANCE

Institutional design and growth

4.01 At appraisal, the key role in Project implementation was tobe played by a Tobacco Project Group under Kilimo, which was to have overallresponsibility for the planning and development of Project complexes.There was also to be a Senior Agricultural Officer (Tobacco) within Kilimoheadquarters, with responsibility for Project staffing, procurement ofvehicles and equipment and coordination with other key government agenciesin Project implementation, such as NDCA, Comworks and MAJI.

4.02 Crucial to the success of Project implementation were closelinkages that the Project Group had to develop with other Government agenciesoperating in the Project areas. A Forest Officer, a Water Engineer and aRoads Engineer were to be designated by name by, respectively, the M4inistryof Natural Resources, MAJI and Comworks, and to be made available to theProject as a first priority. These linkages were never successfully established,and, as a result, progress was slow on these aspects of the Project.

4.03 Many of the organizational problem during the early years ofProject stemmed from the decentralizaation of Government authority which wastaking place in 1971 and 1972. Regional staff of ministries such as Kilimo,Maji and Comworks became responsible to the Regional Development Director (RDD)rather than to their ministerial headquarters. Often, the priorities andwishes of the Regional administration did not coincide with those of thecentral ministries. For example, Regional authorities felt very stronglythat collective farming should be adopted in Project villages, a desire notfully shared by KilImo. The morale of Project field staff, particularly theProject Group, suffered as a result of what was perceived as regional interference.

4.04 The various coordinating committees (para. 2.12) which were tohave been formed at both central mi-nstry and regional levels, and which wereexpected to resolve many of these problems, do not appear to have met at all,and certainly exercised no influence on Project development. Partly as aresult of these difficulties, the Tobacco Authority of Tanzania was establishedto take overall responsibility for the development of the tobacco sub-sector,including the Project. TAT thus absorbed the Project Group. The TobaccoProject Officer became TAT Leaf Manager, and the Senior Research Officerbecame TAT Production Manager. Shortage of staff in TAT resulted in some staffin the early years undertaking more than one function. For example, theGeneral Manager was also Marketing Manager and Export Manager, while theProduction Manager remained as Read of Tumbi Research Station and Principal ofTumbi Training Institute. The functions of the Senior Agricultural Officer(Tobacco) were also absorbed by TAT.

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4.05 The performance of TAT was, in many aspects, weak during theProject period. This might be expected from a newly-established organizationthat was suffering, particularly during its early years, from an acuteshortage of staff, and there has been an improvement particularly over thelast two years, since the appointment of the present General Manager. Theseweaknesses were particularly apparent with regard to accounting and recordkeeping. Although assurances were obtained during negotiations that themajor Project entities would maintain separate accounts for Project expendi-tures and receipts and that accounts of these entities would be submitted toIDA within four months of the end of their fiscal years (six months in thecase of NDCA), TAT failed to meet these conditions. Currently, the last setof audited TAT accounts is for the period 1974/75. This problem with account-ing and auditing is prevalent in Tanzania (although TRDB has managed tokeep both accounts and audit up to date), and stems from an acute shortage ofqualified accounting and auditing staff, and consequent severe competitionbetween Government, parastatals and the private sector. TAT has, over thepast 18 months, taken steps to improve the situation, and has used the servicesof a consulting firm to update its accounts, has engaged consultants to adviseon the design and implementation of improved accounting systems, and hasrecruited expatriate accounting staff.

4.06 Expatriate staff played only a minor role during Project implemen-tation. It was expected at appraisal that the Chief Marketing Officer andChief Accountant of TTB, and two of the three key posts in the Project Group(Tobacco Project Officer, Senior Planning Officer and Senior Accountant)would be expatriate. In fact, the only post filled by an expatriate was thatof TAT Financial Controller, during the period 1974-76.

4.07 After an initial period of about one year, during which noquarterly reports were received, such reports have been received regularly(although often late) and have generally been adequate in regard to physicalprogress and staffing, but weak with respect to cost data.

Supporting services

4.08 Extension services. The Project provided for each complex tohave a resident Field Officer (FO) who would be a diplomate, and who wouldbe supported by an Assistant Field Officer (AFO) (who would be the holder of acertificate from Tumbi Training Institute) and two Assistant Foresters. Eachof the Project villages would have a resident AFO, assisted during the firstyear of settlement by an additional AFO, who would usually be newly-qualified.This rate of staffing was designed to provide a ratio of one AFO to 50 farmersduring initial settlement and one AFO to 100 farmers on a permanent basis.

4.09 The proposed levels and qualities of staffing were not entirely met. NoAssistant Foresters have ever been appointed to Project villages. Because of ashortage of AFO's (who had Form IV level secondary education), TAT was forced to

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keeps systematic records of what remains in store in the village, it isimpossible to obtain a clear picture of credit recovery. Thus, althoughTAT reports credit recovery rates of over 90% for seasonal credit in1976/77, TRDB's figure shows overall recovery of only about 70%. TAT andTRDB are currently revising ordering and credit deduction procedures, witha view to avoiding this over-ordering.

4.12 Cooperative formation. Under the Project, cooperative societieswere to be formed in each of the complexes. Each society would have about1000 members producing, it was estimated, about 600,000 kg of tobacco, whichwould be sufficient to allow an economic operation. It was recognized thatsome villages or complexes might wish to join an already existing cooperativesociety, and provision was made for this to be permitted, but subject toIDA's prior approval in view of the poor performance of some of the existingsocieties. Each new society would have a full-time officer posted from theCooperative Division of the Prime Minister's Office (PMO) for a minimum periodof five years. A total of 13 cooperative societies were registered in Projectcomplexes - 1 in 1970, 6 in 1971, 2 in 1973, 2 in 1974 and 2 in 1975. Two ofthe Project complexes elected to join existing societies.

4.13 The performance of these cooperatives was extremely weak. Thesecretaries provided by PMO were ill-trained and inefficient, and, as a result,the societies were poorly managed, especially with regard to accounting andrecord keeping. There were, in many cases, lengthy delays in payment offarmers, and this was undoubtedly a disincentive to society members. TAT'soffer, made in 1973, to supply trained staff to act as secretaries, was rejectedby PMO, on the narrowly bureaucratic grounds that cooperative development wasthe preserve of PMO. Successive supervision missions, from September 1973onwards, raised this issue with Government, but it was aot resolved. In 1976,all cooperative societies in Project complexes were disbanded as part ofGovernment's reorganization of the entire cooperative system, and the newly-registered villages each became a multi-purpose cooperative society, withall residents automatically being members. The bookkeeping and accountingfunctions for these Projects is now performed by TAT staff. As a result,record keeping has improved, and farmers are paid more rapidly.

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V. AGRICULTURAI IMPACT

Area cultivated

5.01 Tobacco Area. The area planted to tobacco has, throughout theProject period to date, fallen far short of both appraisal and revised estimates:

Table 5.1 - Area Planted to Tobacco

1971/72 72/73 73/74 74/75 75/76 76/77 77/78

Actual area (ha) 113 298 688 1,460 1,908 2,394 2,946Appraisal estimate (ha) 720 2,760 5,400 8,040 10,680 12,000 12,000Actual as % of estimate 16 11 13 18 18 20 25Revised estimate 217 897 2,193 4,379 7,051 9,561 11,180Actual as % of estimate 52 33 31 33 27 25 26

5.02 It can be seen that, even now, actual tobacco area is only about25 percent of the appraisal estimates. In part, this is a result of the laggingrate of settlement, and the fact that only about half of settled families aregrowing tobacco. In addition, however, this poor performance stems from anover-optimistlc estimate during appraisal of the area of tobacco that would beplanted by each tobacco-growing family:

1971/72 72/73 73/74 74/75 75/76 76/77 77/78Actual area per tobacco

producer (ha) 0.22 0.26 0.33 0.36 0.37 0.41 0.43Appraisal estimate 0.40 0.55 0.65 0.69 0.71 0.80 0.80

5.03 It was assumed at appraisal that tobacco farmers would grow 0.4ha in their first year, and 0.8 ha in succeeding years. The 1972 reviewmission amended this to provide for growing of 0.2 ha in the first year,0.4 ha in the second year, 0.6 ha in the third year and 0.8 ha only in thefourth year. In fact, families are growing only between 0.4 ha and 0.6 ha,even after many years of experience of tobacco growing, and this experienceis repeated in other tobacco growing areas outside of the Project areas 1/.The reason for this discrepancy between estimated and actual areas per familyis revealed by an analysis of the labor recuirements for tobacco cultivation.and the cultivation of subsistence crops. The seasonal pattern of labor use ona farm growing 0.8 ha of flue-cured tobacco (at the full development yield of850 kgs, assumed in the appraisal report) and subsistence crops (about 0.8 haof maize and other crops such as beans) has been estimated 2/, in man-days, asshown in the table below:

1/ In 1976/77, the national average area of tobacco cultivated per tobacco-producing family was 0.54 ha.

2/ M. P. Collinson, 'A Report on the Comparative Economics of Virginia andAromatic Tobaccos on Family Farms in Tabora District.' Kilimo, 1965.

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Table 5.2 - Labor Requirements for Tobacco Cultivation

Sept. Oct. Nov. Dec. Jan. Feb. Mar. April May TotalOperationSeedbed 20 12 - - - - -- 32Watering 10 14 4 - -- -- -- 28Barn building 14 16 16 16 14 -- -- 76Grass-cutting 4 4 - - -- -- -- 8Firewood collection 2 6 6 6 6 -- - - - 26Planting out - 16 44 44 16 -- -- -- -- 120Weeding - -- 4 14 14 -- -- - -- 36Top/Sucker - -- 6 10 2 -- -- 18Picking -- 17 37 37 17 -- 108Curing - - -- 9 20 20 20 9 78Grading/baling _ -- -- -- 28 42 56 8 134Total tobacco 50 68 74 80 82 99 101 93 17 664Food crops - - 7 26 26 13 10 12 6 100

Total 50 68 81 106 108 112 111 105 23 764, =_ t==s =~ =51__S_ ===-Mu= 5zWJ ==== =-=

5.04 It can be seen that the peak labor requirements occur betweenDecember and April, when over 100 man-days per month are required. Assuminga labor supply of 25 man-days per month from each adult-equivalent, the croppingpattern requires about 4.5 adult equivalents during February, the peak month.The average family size in the Project area is about 6 persons, equivalent to amaximum of 3 adult-equivalents. The hiring of labor is discouraged by Governmentand TANU, and it therefore seems clear that, at best, a farm family can cultivateonly about 0.5-0.6 ha of flue-cured tobacco, rather than the 0.8 ha expected atappraisal.

5.05 Area planted to maize. It was envisaged at appraisal that onlysubsistence food crops would be planted by settlers in Project complexes. Infact, a substantial quantity of maize has been produced as a cash crop. Dataon grain production is less reliable than that for tobacco, since much of themaize is sold through unofficial marketing channels, but the area planted tomaize appears to have been as follows:

1971/72 72/73 73/74 74/75 75/76 76/77 77/78

Maize area Cha) 370 1,132 1,913 6,534 9,836 11,199 11,774Ratio-maize:tobacco 3.3 3.8 2.8 4.5 5.2 4.7 4.0

During appraisal, it was assumed that the ratio of tobacco to maize would be1:1, with maize planted on a plot which had grown tobacco in the previous year,to take advantage of the residual effects of the tobacco fertilizer. Inreality, the area planted to maize has been, throughout the Project period todate, been much higher, and the maize/tobacco ratio reached a peak of 5.2 in1975/76, just after the large influx of settlers which resulted from villagization.

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5.06 There are several reasons to explain why the settlers growmore maize than anticipated. Tobacco is a labor-intensive crop which istechnically dmAnding to grow, whereas maize cultivation is well-known.Since the drought and grain shortage of 1973 and 1974, both Government andTANU have been exhorting increased food production. Since 1974, the relativeprice of maize and tobacco has tilted in favor of maize. In addition,although analysis indicates that the returns per man-day from maize andtobacco are comparable, tobacco producers are given a distorted picture ofthe relative returns to tobacco and maize, since the credit advanced formaize inputs is deducted from the proceeds of the tobacco sales, whereasmaize is sold largely for cash through unofficial marketing channels. 1/

Production

5.07 The quantity and farm-gate value of the tobacco produced inProject complexes has been much smaller than envisaged during appraisal:

Table 5.3 - Quantity and Values of Tobacco Producedin Project Complexes

71/72 72/73 73/74 74/75 75/76 76/77

Actual quantity (tons) 54 167 435 683 1,244 1,525Appraisal estimate (tons) 400 1,910 4,000 6,273 8,500 9,910Actual as % of appraisal estimate 14 9 11 11 15 15Farm-gate value:

Current prices (Tsh '000) 397 893 2,865 5,211 11,112 12,283Constant 1970 prices (Tsh '000) 2/ 364 732 1,976 3,139 5,823 5,558

Appraisal estimate (constant1970 prices) (Tsh '000) 2,024 9,665 20,240 31,741 43,010 50,144

Actual as % of appraisal estimate 18 8 10 10 14 11

5.08 However, production of maize has been on a scale not envisagedat appraisal. The best estimates of maize production in Project complexes are: 3/

Table 5.4 - Quantity and Values of Maize Producedin Prolect Complexes

71/72 72/73 73/74 74/75 75/76 76/77

Quantity produced (tons) 500 1,834 2,583 9,997 22,131 25,198Farm-gate value of maize production:

Current prices (Tsh '000) 130 642 1,292 7,498 17,705 22,678Constant 1970 prices (Tsh '000) 119 526 891 4,517 9,270 10,262

1/ It is interesting to note that the same problem has arisen in the FamilyFarming Project (Ln. 882-ZA) in Zambia.

2/ Here, and elsewhere in this report unless otherwise stated, the implicit GDPdeflator has been used in the conversion of current financial values toconstant terms.

. It should be noted that these estimates of maize production are much lessreliable than those for tobacco.

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It can be seen that, in 1975/76 and 1976/77, the value of maize productionin Project complexes exceeded that of tobacco. However, the combined farm-gate value of maize and tobacco production in 1976/77 was only about 30percent of the appraisal estimates of the incremental farm-gate value ofProject tobacco production.

Yields

5.09 The average tobacco yields achieved over the Project periodare tabulated below, and compared with appraisal estimates:

Table 5.5 - Actual and Estimated Tobacco Yields

71/72 72/73 73/74 74/75 75/76 76/77

Actual yields (kg/ha) 478 560 494 467 780 731Appraisal estimate (kg/ha) 556 692 741 780 796 826Actual as X of appraisal 86 81 67 60 98 88

It can be seen that appraisal estimates were over-optimistic with regard toyield projections. This can in part be attributed to a shortage of curingbarn capacity. An estimate made by TAT in 1976 indicated that the actualnumber of curing barns available in the Project complexes was only about 65percent of the minimum number required. In addition, the general standard ofconstruction of curing barns is low. As a result of these deficiencies,considerable losses are incurred after harvest.

Export earnings

5.10 The export prices obtained by TAT for Tanzanian tobaccoexports are tabulated below, in current and real terms, and the real priceobtained and the real value of incremental exports are compared with appraisal

estimates:

Table 5.6 - Actual and Estimated TobaccoExport Prices and Earnings

71/72 72/73 73/74 74/75 75/76 76/77Export price (Tsh/kg, wet leaf)Actual-current prices 9.50 11.31 13.85 14.04 14.96 16.70

-constant 1970 prices 8.72 9.27 9.55 8.46 7.83 7.56Appraisal-constant 1970 prices 7.99 7.99 7.99 7.99 7.99 7.99Actual as % of appraisal 109 116 120 106 98 95

Export earnings (Tsh millions)Actual-current prices 0.5 1.9 6.0 9.6 18.6 25.5

-constant 1970 prices 0.5 1.6 4.1 5.8 9.7 11.5Appraisal-constant 1970 prices 3.2 15.3 31.2 50.1 67.9 121.8Actual as % of appraisal 16 10 13 12 14 9

The appraisal estimate of average export value of tobacco produced by theProject was good. However, the incremental export earnings from the Projectwere only 9-16% of those projected during appraisal, reflecting the much lowerproduction actually achieved.

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Prices

5.11 The average farm-gate prices for tobacco produced under theProject are tabulated below in both current price and constant price terms,and the constant price figures are compared with the values given in theappraisal report:

Table 5.7 - Actual and Estimated TobaccoFarm-gate Prices

71/72 72/73 73/74 74/75 75/76 76/77Farm-gate Drices (Tsh/kg)

Actual-current prices 7.35 5.35 6.59 7.63 8.93 8.05-constant 1970 prices 6.74 4.39 4.54 4.60 4.68 3.64

Appraisal-constant 1970 prices 5.06 5.06 5.06 5.06 5.06 5.06Actual as % of appraisal 133 87 90 91 92 72

It can be seen that the appraisal report figures were somewhat optimistic.

5.12 The divergence between the export prices (which approximated theappraisal estimates) and the farm-gate prices (which fell short of appraisalestimates) is accounted for, at least in part, by the introduction of a tobaccosales tax in 1973. This tax, which is levied on all TAT sales of processedtobacco, both domestic and foreign, was at a rate of 7.5 percent in 1973 and1974, 10 percent in 1975 and 12.5 percent in 1976 and succeeding years. Theeffective rates of taxation on farm-gate prices were about twice these rates. 1/

Farm income

5.13 It is difficult to determine accurately the net incomes of thefarmers settled under the Project, since no data is available relating tocosts of production of tobacco grown on Project complexes. In 1976/77, grossincome per family from tobacco production amounted to about Tsh 1,800. Cashcosts of production per family in the same year are estimated at about Tsh 900,so that net farm income from tobacco production amounts to about Tsh 900. Tothis should be added the net returns from about 2 hectares of maize, estimatedat Tsh 600 per hectare, giving a total farm income of about Tsh 2,100

CMS$ 256), in 1976/77 prices. In constant 1970 prices, this family incomewould amount to about Tsh 950 (US$ 133) which is only about 43 percent of theappraisal estimate of Tsh 2,200 (US$ 308).

Farming patterns

5.14 At appraisal, it was anticipated that most Project villageswould choose to farm in 'block farms,' i.e., to cultivate tobacco in a singlelarge block, but with each farmer retaining responsibility for cultivation ofhis own plot, and for curing his own tobacco. The blocks would be cultivated

1/ Since the farm-gate tobacco price is approximately 50 percent of TAT'sselling price.

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in a five-year rotation, tobacco - maize - fallow - fallow - fallow. Infact, there were considerable departures from this pattern. In the earlyyears of the Project, farmers were forced to cultivate collectively, andcuring was also done collectively, in large central barns. As it becameclear that the insistence on collective farming was having a severe dis-incentive effect on recruitment, farmers were allowed to move to blockfarming. In some cases however, settlers felt that even this system hadmajor disadvantages. If curing barns were located centrally near to farmer'shomestead, many farmers had long distances to transport tobacco leaves andfuel-wood. If, on the other hand, curing barns were built near to fields,farmers were forced to build new barns each year as the tobacco area wasrotated, and, as a consequence, built only low-grade, temporary barns. Inaddition, the location of curing barns close to fields meant long absencesfrom the homestead during the tobacco curing season, when barns need day andnight attention. In response to these problems, several villages, particularlyin Mbeya Region, have moved to what is in effect an individual farming system.Each farm family has allocated to it a block of arable land large enough toaccomodate a five-year crop rotation, and is also allocated an adjacent blockof uncleared bush. The farmer builds permanent curing barns there, and alsoa temporary house for use during curing. The family retains a permanent homein the village's homestead area. By this means, transportation of fuel andgreen tobacco leaves is minimized. However, the family does lose some of theadvantage of villagization during the curing season, and delivery of inputsand extension services to the farm sites is made more difficult.

Usage of fuelwood

5.15 Each complex was sited and demarcated so as to allow 12 hectaresof mature woodland for each prospective settler, which would allow sufficientwood fuel for tobacco curing during the first fifteen years of tobacco culti-vation at the projected rates. However, as a result of the lower than envisagedrate of settler recruitment, the lower than expected proportion of settlerscultivating tobacco and the smaller than projected area of tobacco being culti-vated by each family, the wood fuel supply in each complex will be sufficientfor at least thirty years of tobacco production. 1/

1/ The Tabora Rural Development Project includes a pilot program to encouragethe establishment of fuel-wood plantations in tobacco growing villages.

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VI. ECON'tOMIC ANALYSIS

Appraisal Estimate

6.01 The primary benefits of the Project were envisaged, atappraisal, to be the increased production of flue-cured tobacco at Projectcomplexes. In the economic analysis, it was assumed that there was anegligible opportunity cost of land; that the economic life for eachsettlement and its tobacco farms was 15 years; and that the opportunitycost for farm labor was roughly equal to the price being paid in the Projectarea for casual agricultural labor (or about 50 percent of the officialminimum rural wage level). All Project costs were included in the calculation,except for the costs of research.

6.02 On these assumptions, the economic rate of return on Projectinvestments was estimated to be about 30 percent. This figure was parti-cularly sensitive to the valuation of labor costs. With family labor valuedat zero, the rate of return rose to 55 percent; valuing family labor at theofficial rural minimum wage rate reduced the rate of return to 2 percent.

Present Estimate

6.03 The economic rate of return has been estimated using thefollowing assumptions:

(a) there will be no further resettlement of families in theProject complexes. However, the total number of familieswithin the complexes will grow at a rate of 2 percent perannum, as a result of formation of new family units bymarriage;

(b) the percentage of families growing tobacco will rise fromits current level of 57 percent to a figure of 65 percentby 1983/84, and will remain at this level thereafter;

(c) the area of tobacco grown by each family will rise from itspresent level of 0.43 ha., to a level of 0.5 ha. by 1984/85,and will remain at this level thereafter;

(d) the area of maize cultivated by each family will remain at itspresent level;

(e) yields of tobacco and maize will remain at current levels;

(f) the level of supervision in Project complexes will remain atits present level through 1982/83, after which the intensityof supervision within Project complexes will be reduced tothe same level as in non-Project tobacco villages;

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(g) in view of the fact that firewood stocks within the complexesare being depleted at a slower rate than was anticipatedduring appraisal (para 5.15), the economic rate of return iscalculated over a twenty-year period, rather than over 15 years,as at appraisal.

6.04 In calculating the economic rate of return, incremental tobaccoproduction has been valued at f.o.b. Dar-es-Salaam prices (actual until 1977/78,estimated thereafter in accordance with the Bank projections of April 1978),less processing and marketing costs. For maize, the situation is somewhat morecomplicated. For the years up to and including 1976/77, maize has been valued onan import parity basis, since Tanzania needed to import,during this period.For the years 1977/78 and after, the maize produced has been valued on an exportparity basis, since Tanzania appears to have achieved rough supply-demand balance.Incremental family labor has been costed at 50 percent of minimum wage rates. AllProject costs have been included in the economic analysis with the exceptionof the costs of the research component. Allowance has been made for thecosts of vehicle replacement, and for maintenance of water supplies, ware-houses and the infrastructure in the complexes. Approximately 90 percent ofall Project costs have therefore been included. In the calculation of alleconomic costs and benefits, foreign exchange has been valued at 50 percent morethan its official rate, in order to reflect the fact that the economic value offoreign exchange in the Tanzanian economy diverges from the official rate,primarily as a result of quantitative restrictions. 1/ Details of Projectcosts and benefits, all in constant 1977 prices, are shown in Annex I.

6.05 On the basis of the assumptions outlined above, theeconomic rate of return (ERR) has been calculated at about 14 percentThis figure represents an under-estimate of Project benefits, since noallowance is made for the unquantifiable consumer benefits which derive fromthe water supply systems financed under the Project (which are considerablymore elaborate and more convenient to the users than the simple wells anddams which were envisaged at appraisal.)

6.06 It is apparent that the Project has an attractive rateof return, and has thus been beneficial to the Tanzanian economy, despiteits failure to reach appraisal targets. It has resulted in increasedforeign exchange earnings through tobacco exports, and in foreign exchangesaving through the import-substituting production of maize (which wasparticularly valuable during the drought years of.1973 and 1974). The actualrate of return is, however, substantially less than that estimated at appraisalas a result of the lower production of tobacco, and the higher Project costs,particularly for the water supplies.

1/ It should be noted that, at the time of appraisal, the shadow price offoreign exchange was estimated to be equal to the official rate.

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VII. SPECIAL ISSUES

Replicability

7.01 The Project has, in many ways, provided a viable model forfurther development of the tobacco sub-sector in Tanzania. There arestill in Western Tanzania large areas of underutilized land, with similarcharacteristics to the land settled under the Project. On these areas,flue-cured virginia tobacco should prove to be an attractive cash crop tosmallholders, and its production should be beneficial to the Tanzanianeconomy. At the present time, under the Tabora Rural Development Project.(supported by IDA Credit 703-TA) studies are being made of land-usepotential in the Tabora region. One outcome of these studies will be theidentification of areas of land in Tabora and Urambo Districts wheresettlement of smallholder tobacco producers could be envisaged, as a meansto relieving population pressures in the overcrowded districts of Nzega andIgunga.

7.02 One obstacle to possible replication of the Project approach isthe costliness of the Project. While these costs (about US$ 1200 per settledfamily) are relatively low by comparison with settlement projects in othercountries, I/ they nevertheless, given the Tanzanian Government's resources,present a severe constraint to the multiplication of schemes of this type.In particular, the provision of water supplies under this Project (with anaverage capital cost of one US$ 250 per family) has been expensive. Inpart, this was a result of siting of villages without adequate regard to wateravailability, and the situation is being improved by the preparation (also underthe Tabora Rural Development Project) of a water master plan, which will map thewater resources of the Region and so enable the siting of future complexes inareas where water can be supplied more cheaply. Nevertheless, if the approachof this Project is to be replicated, it would appear essential to develop waysof mobilizing resources from the settlers to meet, for example, at least someportion of the capital and recurrent costs of water supply. At present, theonly element of cost recovery under the Project is indirect, through the levyingof a sales tax on TAT's tobacco sales (para. 5.12). Payments by Project parti-cipants through this mechanism have to date been small relative to Project costs(amounting only to Tsh 10 million by the end of 1978) and are anyway levied onall tobacco producers, not just Project participants.

Cosmunal Farming

7.03 Experience during Project implementation cast considerablelight on the preference of smallholder tobacco farmers in Tanzania forindividual field production and curing over communal farming. Neither thecollective farms established early in the Project nor the attempts made aftertheir failure to introduce collective curing of individually-grown tobacco,were successful. In fact, the insistence of regional authorities in Xbeyaon collective production gave a severe setback to the Project in this region(para. 3.25). In large part the reluctance of farmers to adopt communalpractices in tobacco cultivation stems from the fact that flue-cured virginiatobacco is a crop in which careful attention by growers to cultivation,

1/ Settlers themselves were responsible for land clearing, house constructionand curing barn construction.

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harvesting and curing results in high quality tobacco and in turn, inhigh returns. Largely as a result of experience in Project complexes,TAT is no longer encouraging the adoption of communal cultivation or curing.

Changing Patterns of Smallholder Production

7.04 Experience under the Project demonstrated, once again, theability of smallholder farmers to respond rapidly to changing marketconditions. In this case, the maize tobacco price ratio tilted decisivelyin favor of maize. For example, the ratio between the farm gate prices oftobacco and maize in 1972/73 was 15:1. By 1974/75 this ratio had fallento 10:1 and by 1976/77 to 9:1. As a result, maize production from Projectcomplexes developed to the point at which, by 1974/75, tfie value of maizeproduction exceeded that of tobacco production. Changing relative prices(which were not foreseen at appraisal) must be responsible, at least inpart, for the slower-than-envisaged growth of tobacco production, but theireffect was lessened by three factors. Firstly, tobacco remained a competi-tive crop, in terms of returns per man-day of labor. Secondly, as can beseen from Table 5.3, tobacco and maize have labor peaks that are complemen-tary rather than competitive, and tobacco provides work during slack periodsin maize cultivation so that the inclusion of tobacco in the farming patternincreases total farm income. Thirdly, the Project design allowed for thedistribution of maize inputs as well as tobacco inputs, and for using thetobacco extension agents to give advice on maize and other crops as well astobacco.

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VIII. SUCCESSOR PROJECTS

8.01 To date, there have been no further projects to directlyincrease the production of tobacco by smallholders. However, there havebeen two further IDA projects in the tobacco sector:

Tobacco Processing Project, Cr. 658-TA

8.02 In view of the rapid expansion of smallholder tobacco productionover the previous decade (as a result of which Tanzania's existing tobaccoprocessing capacity was being used virtually to capacity), IDA approved, inAugust 1976, a Tobacco Processing Project. This project -aimed to double theexisting flue-cured tobacco processing capacity. In addition, the projectprovided for technical assistance and training to improve processing plantproductivity and quality control; for improved storage of tobacco at the

processing factory site and at the port of export (Dar-es-Salaam). Projectimplementation is proceeding satisfactorily. It is particularly worth notingthat steps were taken under this Project to improve TAT's ability to supervisecivil works construction through the employment of a Clerk of Works, and thatTAT's accounting and auditing performance is improving. In addition, theProject is providing for a review of TAT's financial and management accountingsystems by internationally-recruited consultants, leading to the introductionof improved systems.

Tobacco Handling Project, Cr. 802-TA

8.03 The experience of the Flue-cured Tobacco Project and in non-Project villages has shown that Tanzanian smallholders are able to producetobacco of good quality. There is, however, a marked deterioration in thequality of smallholder tobacco from the time it leaves the curing barnuntil it is processed. It is estimated that perhaps 25 percent of the valueof smallholder production is lost in this way. These losses stem from lackof adequate grading, storage and marketing facilities, at all points of themarketing chain from curing barn to processing factory. The Tobacco HandlingProject, which was approved by the Board in May, 1978, aims, over a four-yearperiod, to reduce these losses. Measures to achieve this include the supplyof polythene bulking bags to farmers; the construction, in village producingsubstantial quantities of tobacco, of village grading/baling centers; theconstruction by TAT of additional permanent marketing centers; and the cons-truction of storage warehouses at strategic points. In addition, the projectprovides for ancillary investments to improve existing TAT facilities andservices, including the provision of transport, transport maintenance facili-ties and technical assistance, and for further improvement of TAT's accountingperformance by the funding of five internationally-recruited regional accoun-tants and a financial systems development accountant, also internationally-recruited. In order to improve TAT's ability to carry out-the constructionprogram under the Project, it was made a condition of Credit effectiveness thatTAT appoint to its staff a qualified and experienced Building Engineer. (Thiswas a direct result of the shortcomings in construction under this Project).

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8.04 It should also be noted that two components under the TaboraRural Development Project (supported by IDA Credit 703-TA signed in May 1977)are of direct relevance to the tobacco sub-sector:

Ca) a pilot re-afforestation program in Tabora and Urambo districts,which aims to establish 3,750 ha of fuel-wood plantation in 15tobacco-growing villages over a five-year period;

(b) provision of research staff and additional research equipmentto Tumbi Research Station, which although it is now a multi-crop research station, remains the primary tobacco researchstation in Tanzania.

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TX. BANK PERFORMANCE

Prevaration and Appraisal

9.01 The Bank played a major role in Project preparation by assistingthe Government with the identification of the Project, and in reviewing thepreparation reports at various stages. During this stage, the Bank was,quite correctly, urging the Government to be more conservative in its targetsfor expansion of smallholder tobacco production, in view of staff shortagesand lack of organizational capacity. With the benefit of hindsight, it nowappears that it would have been beneficial if the detailed siting and surveyingof tobacco complexes had been carried out during preparation, rather than asa part of project implementation. In particular, if the water resources of thepotential sites had been surveyed thoroughly, it would have.come to light thatsome of the chosen sites had no adequate and cheap water sou±rce, and alternativesites could have been chosen. As it was, by the time this problem had beendiscovered, the complexes had already been substantially developed.

9.02 The changes in Project design suggested by the appraisal mission weresensible. In particular, the mission's proposal to establish a Tobacco Authority, tooversee the development of the tobacco industry, was sound. Although notaccepted by the Government at the time, a Tobacco Authority was in factestablished about two years after appraisal. While the Tobacco Authority ofTanzania suffered (and still suffers) from staffing weaknesses, particularlyin the area of financial control and accounting, it has developed into one ofthe stronger parastatals in Tanzania, and its establishment considerablyimproved Project organization and coordination, replacing as it did a rathercomplex system of coordinating committees which appear to have exercised noinfluence on Project development.

9.03 As pointed out previously, the appraisal mission considerablyover estimated the area of tobacco which could cultivated by the averagefamily (para. 5.03). Although several supervision missions pointed out thatthe on-farm work load appeared to be the reason for lagging tobacco production,it was never fully realized during supervision that the full development targetof 0.8 ha per family adopted at appraisal and retained by the review missionwas unrealistic.

9.04 A further weakaess of the Project as appraised, which is apparentin the light of experience gained both under this Project and in others inthe field of smallholder agriculture, is the lack of a systematic monitoringand evaluation element. Monitoring and evaluation appear particularly necessaryin this Project, in view of the relative complexity and riskiness of theProject (which were highlighted during appraisal), with integrated settlementactivities taking place in fifteen widely scattered locations and the likelyrequirement for adjustments in Project design, in the light of experience gainedduring implementation. It is desirable, particularly in the case of settlementprojects, that the evaluation exercise also encompass non-agricultural aspectssuch as nutrition and non-farm employment. However, it must be noted thatthis Project was a very early rural development project, and was appraised ata time when the importance of monitoring and evaluation had not been fullyrealized within the Bank.

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Supervision

9.05 In all, a total of eighteen supervision missions were mountedby the Bank between August 1970 and November 1977, an average of 2.5 missionsper year. On average, each mission had two staff, and was in Tanzania forabout eight days. In all, a total of 46.5 man-weeks was spent in Tanzaniaby supervision missions, an average of 2.6 man-weeks per mission. Thisrepresents an above-average level of supervision input. A total ofseventeen staff participated in the eighteen missions. Of these staff, oneparticipated in five supervision missions (including the review mission);another (who had also been a member of the appraisal team) took part in fourmissions; three staff took part in three missions each, and a further fourstaff each participated in two supervision missions. In sptte of the relativelylarge number of Bank staff who were involved in supervision at one time oranother, continuity of supervision was generally adequate. This was particularlytrue in the early years of the Project, up until the end of 1973. During thisperiod, there were nine supervision missions; a member of the appraisal teamparticipated in the first four missions, and another staff member then tookpart in the next five missions.

9.06 In general, the quality of supervision was good. Nevertheless,as a result of the Project's complexity and the ongoing changes in the ruralsector, and despite the above-average input of supervision effort, some aspectsof the Project (roads, water supplies and credit, in particular), received alesser degree of coverage in supervision reports than seems warranted. Inmany instances, supervision missions were able to highlight the major issuesand obstacles to Project implementation, to alert Government officials to theseproblems and to suggest appropriate corrective measures. An example particu-larly worth noting is the identification by an early supervision of the majorproblems that were being posed to the Project by the insistence of regionalauthorities on collective production of tobacco (para. 3.25). This lent weightto the views of pragmatic elements within the Government, who were attemptingto pursue goals of increasing output and economic efficiency. Partly as aresult, pressure was brought to bear by the central ministries on regionalauthorities, and this in turn led to a relaxation of pressure towards communalfarming and a subsequent improvement in Project performance.

9.07 The review of Project implementation in Chapter III indicatesthat additional technical assistance might well have improved Project performance,particularly with respect to the roads and water supply components. This needfor technical assistance became particularly important after decentralization,which resulted in responsibility for the implementation of the road and watersupply components passing to understaffed and underequipped regional departments.It could be argued that this need for technical assistance could have been metthrough the medium of appropriately staffed Bank supervision missions. It ispossible that, given the right caliber of staff, the benefits from increased

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supervision might have outweighed the additional costs. Towever, in this

case, thaer was a real danger that too heavyljan emphasis on supervision,although improving short-run progress, might have been detrimental to thelong-term institution building which was an important objective of the Project.A better solution in this case, (as noted in para. 3.20 with respect to thewater supply component) would have been the redesign of the Project so as toprovide for additional long-term technical assistance funded from the Credit.

9.08 One aspect of supervision worthy of coment was the arrangementmade to have the Tanzanian Planning Officer Cwho had less experience thatideally required) supervised by an ADS staff member during the first two yearsof the Project Cpara. 3.01). This procedure worked well, and resulted in asignificant improvement in the standard of planning, as well as providingexcellent training for the Planning Officer.

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X. CONCLUSIONS

10.01 The status of the tobacco complexes established under theProject appears to be sufficiently stable and predictable to enable anestimation and evaluation of the economic impact of the Project to be madewith some degree of confidence. On balance, the Project is perhaps bestdescribed as a qualified success. On the one hand, it failed (and failedbadly) to meet the appraisal targets for increased tobacco production (para.5.07); only 7000 families have to date adopted the cultivation of tobacco,as against the 15000 envisaged at appraisal (para. 3.27); and Project costshave been considerably higher than estimated (para. 3.45). On the otherhand, the failure of the Project to meet appraisal targets for incrementalproduction stemmed not from inadequacies in the technical packages, which infact produced yields of around 90 percent of appraisal estimates (para. 5.09),but in part from over-optimistic appraisal forecasts (para. 5.03) in partfrom an influx into Project complexes of settlers with no real commitment totobacco production (para. 3.26) and in part from a preference of many settlers(not foreseen at appraisal) to produce maize for market in response to sharplyincreased maize prices; and 12000 families (about 75000 persons) have beensettled in planned villages with a basic infrastructure and with a securely-based production potential. Perhaps most importantly, in economic terms theProject has been of benefit to Tanzania and, as shown in Chapter VI, has anacceptable internal economic rate of return.

10.02 It is more difficult to form a definitive judgement of thesuccess of the Project in broader social terms, largely as a result of thelack of an evaluation component within the Project. Broadly, the averageincome of a tobacco growing family appears to be about Tsh 2,100 (US$ 280)per annum (in 1977 prices), or about Tsh 350 (US$ 47) per caput. Theabsolute poverty level for rural Tanzania is put at around US$ 70 (in 1977prices), so that incomes generated under the Project are still below thepoverty line. From the viewpoint of equity, therefore, the Project has hada desirable impact. However, it is not possible to comment, as is desirable,on aspects such as the effects of the Project on the nutritional status andhealth of the participants.

10.03 While the costs per family of settlement under the Project havebeen modest by comparison with settlement schemes elsewhere, these costs havenevertheless been too high to allow the Project model to be replicated on alarger scale (para. 7.02). There are two conclusions which should be drawn from thisProject prior to embarking on future settlement schemes in Tanzania. Firstly,greater attention needs to be paid during project design to the question ofcost recovery from Project participants, whether by repayment in cash of someof the costs of settlement or by the mobilization of settler resources forconstruction of infrastructure to reduce project costs. Secondly, more carefulattention must be paid during Project design to locating settlements in areaswhere the necessary infrastructure (particularly water supplies) can be obtainedat low cost.

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10.04 There is perhaps a lesson that the Bank can draw from thisProject in terms of manpower allocations. Involvement in complex andrelatively risky projects in the rural sector of countries in which radicaland far-reaching changes are taking place demands a flexible approach and ahigh level of manpower commitment. In particular, the allocation ofanalytical resources to supervision 1/ needs to be increased, to allow thescope of project supervision to inclutde adequate provision for data collection,analysis and interpretation. In some cases, it may be that these additionalresources can, in effect, be shifted from project preparation and appraisalto supervision. In the majority of cases, however, this will not be a viableoption, and the Bank must accept that involvement in smallholder agricultureand rural development projects demands from the Bank a higher than normallevel of manpower commitment.

1/ Or, in some cases, to issue-oriented economic and sector work, which canto some extent substitute for supervision activities of the type underdiscussion.

TANZANIA

Vlud-Cured Tobacco ProJect. Credit 217-TA

Calculatlon of eCo..omic Rlet of 6eturn 1/

Protect Costs li... iltsLapsIrsat. OprsIatlo. of Srora. ad a Comp exa value of Value of...d Ftact.-Novl-n Watet r 'roccaa1a Infractruc- Crop FVrm Labor "slue Tobacco

!YIElelu- 71 2/ T,. 1' Io x x paukoto 3/ StaffJatx 41 Supplies 5/ Vschlitioc 5/ t.r. 5/ jopuro 4/ 2,p.1c.r 7/ Col s oats 1roduccfon 8/ production 9/ Total Man.fo----------------------------.----------------------------------- ---------------------- Tb '000 --------------------------------------------------------------------------------------------

I970/71 --- --- 1.992 --- --- --- --- --- .992 ---19?1/72 3.6617 205 1.636 5.529 --- --- 2.164 384 861 14.454 641 1.U13 1,0541972/7l 3,386 197 1.567 6.944 --- --- 2,001 1.067 2.396 17.558 3.782 3.75S 7.5411973/74 2.016 1b4 1,105 10,088 11,225 9.429 1 946 2.268 4,970 43,291 6.295 11.203 17.49n1974/75 5,187 101 1.620 16,139 15.175 12,248 1,668 6.614 12.627 71.379 20,072 15.369 35.4411975/16 1,910 714 1.040 17.866 6,061 5,092 1,441 9,402 17,409 60.935 35.941 26.493 62.4341976/17 1t;6 617 61 18.334 244 190 1.256 11.323 20,929 53,140 34,545 32.468 67.0131977/ya 2,722 537 --- 16,674 2.715 2.261 1,168 13,289 24,149 6).535 20,008 44,472 64,4S1.1917/19 2,175 --- 16.674 21,625 --- 960 13,97S 25,374 80,783 20,533 49.469 70U00.21979/10 2,175 --- __. 16.674 1,875 420 600 14,484 26,284 62,512 21.343 53.319 14,6671980/83 2.175 --- --- 16.674 1,875 420 600 15,005 27.214 63,963 21,171 57.371 7B.54!19di/82 2,175 --- --- 16.674 1,875 420 600 15.260 28,169 65.173 24.014 61.689 85,s7019112/b3 2.175 --- --- 16,674 1,875 420 600 I6.089 29.149 66,982 22.873 66,206 89,07|i1911)/84 2,175 --- --- 13,500 1,875 420 600 16,652 30,154 65.376 22,751 70.945 9),69'39841/i 2.175 --- --- 11,250 1,875 420 600 17.055 30,874 64,249 21,646 74,879 98,52.19in/66 2.175 *-- --- 8,438 1.875 420 600 17,296 31,304 62.108 23,560 77.906 10141o..1986/157 2,175 __ --- 8.438 1.875 420 600 17.539 31.739 62,782 23,490 81,056 104,54'.S1917/dd 2,175 --- __ 8,438 1,875 420 600 17.791 32,189 63,488 24,441 84,341 108,7a!

1916/019 2,375 --- --- 8.438 1.675 420 600 18.046 32.644 64,198 24,424 87,744 112.16o.3989/90 2.175 --- --- 8,438 1.875 420 600 18,306 33,109 64,923 25.397 91,320 116,701

W/ 1- co,,ctskm I977 pe Ic.. i.t.9r t coacs a,d I.nu flLa for th,. poriod 1970/1976 have been coDvorted to 1977 value., uasng Ltbo tmpileiL CDP' deflator.21 Ianrei,a a.-d replccu,.t cots of extenslon Lramaport, akd purchase of hoevy road equljpant.1/ oporsIl1u, of h.*nwy cqulp .t for road covetrukLooa nd for the conatructlon of Osme smIll dmis.41 All lul3 1 .stt cuwte. 1,,clud.ine ucte,selon statting 4nd the costs of operation of extension transport. I5/ Eo-,tru.L*. cO.ta SW mfiUnt ,Cu costs.6/ I--p.L cosLs for tobacc. .,d *lc.7/ tstIMAL.d at 83u -. clsy. p.r hoter. tur tob.cco (pare. 5.03) and 130 ma.ddys per hectare for malze (sourcI. Market Yc.lopmmelt 8. rUae. of KlImo, 1977).6/ V.1-u. t ut crr.,l pr-.kwctlo,. valued Lt import p.rity to 1976/77 and export parity prices thlereafter.9/ V1-l- ut f-ar-.,al tob _cu o r, les local hsndling, store and procesing costs.

Mcr.b 79. 1919

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FLUE-CURED TOBACCO PROJECTLOCATION OF PROJECT COMPLEXES

KrOG IGAS I ADALA 5-- -- d-ysers~~rafn8OG' IA ~~~~~~~2" ~~~ARA D----Raiwy

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