|1. Project Data:
ICR Review Date Posted:
|Agricultural Development And Credit Project-ii
Project Costs(US $M)
Loan/Credit (US $M)
|Agriculture and Rural Development
Cofinancing (US $M)
Board Approval Date
|Agro-industry (55%), Agro-industry marketing and trade (35%), Agricultural extension and research (10%)|
|Rural non-farm income generation (33% - P)
Rural markets (33% - P)
Rural services and infrastructure (17% - S)
Rural policies and institutions (17% - S)|
||ICR Review Coordinator:
||Robert Mark Lacey
|2. Project Objectives and Components:|
a. Objectives:The Project was implemented under a three phased,10-year Adaptable Program Lending, of which this is the 2nd Phase. The objective of the overall 10 year Agricultural Development and Credit Program was to return Azerbaijan’s farming areas to former levels of productivity under a new system characterized by private family and group farms operating in private markets. The program aimed to support the nationwide development of: (i) an accessible, secure and unified system for registering real estate rights; (ii) a rural financial services network consisting of local financial intermediaries such as credit cooperatives and rural branches of commercial banks; (iii) mixed public and private advisory services for rural enterprises; and (iv) improved Government capacity to formulate appropriate policy responses to the impact of the anticipated build-up in oil revenues on the competitiveness of the rural economy. This program was designed in three phases and at the time of ICR, the third phase project was being prepared.
For this 2nd Phase Project, the project development objective stated in the Project Appraisal Document (PAD, p. 4) was:
"to further increase rural productivity and incomes by enhancing the access of farmers and small and medium rural enterprises to rural business and agricultural support services including financial, advisory and veterinary services and by stimulating market-oriented investments in rural areas".
The Financing Agreement (p. 6) statement of objectives was:
"to (a) enhance the access of farmers and small– and medium–size rural enterprises to rural business and agricultural support services, including financial, advisory and veterinary services; and (b) stimulate market-oriented investments in rural areas".
This Review uses the statement of objectives in the Financing Agreement as the benchmark for evaluation.
b. Were the project objectives/key associated outcome targets revised during implementation?
c. Components: 1. Agricultural Business Services (appraisal estimate US$ 37.65 million, actual US$ 37.5 million). This component aimed to support rural businesses to improve the linkages between their production and markets, and to enhance access to financial services by small and medium rural enterprises (including farmers), agro-processors, and other forms of agribusinesses, through: (a) capacity building in Project Financial Intermediaries in order to improve their lending skills and to promote new financial products; and (b) providing badly needed funds for lending to their clients. It included four subcomponents: (i) Financial Services for Small Agribusiness/Credit Unions; (ii) Financial Services for Medium Agribusinesses/Banks and Leasing Companies; (iii) Development of Efficient Rural Market Links; and (iv) Rural Business Advisory and Market Service.
2. Agricultural Support Services (appraisal estimate US$ 13.62 million, actual US$ 16.96 million). This component aimed to enable farmers to improve their productivity and quality of production by expanding the outreach of the advisory system, strengthening the provision of private veterinary services, and improving access to adapted technologies. It included three sub-components: (i) Information and Advisory Services, to build on the foundations established under the first project and further develop the advisory system to cover a wider geographical area using a similar approach; (ii) Veterinary Services, to enhance access to quality veterinary services throughout the country by expanding and strengthening the private Veterinary Field Unit system, supporting the privatization of the State Veterinary Service field services staff, strengthening the disease surveillance and preparedness systems, and implementing an agreed control program against at least two priority diseases; and (iii) Improved Access to Adapted Technologies, to provide one or two selected research institutes to improve their capacity to develop and demonstrate adapted technologies, focusing on variety improvement and crop husbandry.
3. Project Management (appraisal estimate US$ 1.40 million, actual US$ 1.70 million). The project aimed at supporting setting up and operation of Project Management Unit under the Ministry of Agriculture by building on the structures established under the first project.
A reallocation of funds took place on September 6, 2010, which reassigned funds to the expenditure categories that needed more funding so that sufficient funding for the remaining activities was maintained. On May 30, 2011, a second and final reallocation was made to realign the amounts allocated across the expenditure categories.
d. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Costs:
Total project costs increased from US$ 52.67 million estimated at the time of appraisal to US$ 56.11 million at project closing. The fluctuation of SDR-US$ exchange rate was very favorable and this has increased the total amount of IDA credit in US dollar terms available for project use. Therefore, the total amount in SDR was disbursed without the need for any additional financing.
By project closing, IDA Credit disbursements, at US$ 29.33 million exceeded slightly the original Credit of US$ 29.23 million. There was parallel financing in the form of a Japanese Policy and Human Resources Development Grant of US$ 1.61 million equivalent, of which US$ 1.33 million was disbursed. It was expected at appraisal that financial intermediaries in Azerbaijan would provide US$ 4.70 million, and that local in-country sources would provide a further US$ 9.56 million. Actual financing from these sources was US$ 4.6 million and $9.56 million respectively.
The Borrower provided US$ 15.86 million, 25% more than the appraisal estimate of US$ 12.60 million.
On May 30, 2011, the original closing date of May 31, 2011 was extended to February 29, 2012 to enable completion of remaining project activities and to ensure an effective use of undisbursed credit funds.
|3. Relevance of Objectives & Design:|
a. Relevance of Objectives:Rated: High
Project objectives were and still remain highly relevant.
Although in 2000s, oil and gas income in Azerbaijan was steadily increasing with significant prospects for GDP growth, a diversified development of the non-oil sector was crucial for generating jobs and equity and reducing poverty. Development of rural areas and the agricultural sector was a priority for Azerbaijan as it was the most important source of employment in the country. The agricultural sector was also very important for food security and reduction of rural poverty. Agriculture accounted for approximately 12.3% of GDP in 2004 - the largest economic sector in Azerbaijan after oil. Agriculture’s share of employment was 40 percent in 2004 and agro-industry (including textiles) represented over 50 percent of total manufacturing employment. With the privatization of farms and other reforms, small-scale agriculture had led the recovery of the whole sector. By 2003, overall agricultural output had increased by a total of 53% over 1995 levels, although it was still only 79% of the 1990 levels.
The State Program on Poverty Reduction and Economic Development of 2003 articulated the Government's strategy to promote more balanced, private sector led growth and reduce poverty. Agriculture remains a Government priority, not only in the context of food security but also to help increase employment and trade.
The Project Development Objective is consistent with the Bank’s Country Partnership Strategy (2011-2014) for Azerbaijan, particularly the sub-objective of “improved agriculture and irrigation services” and the goal of “increasing productivity and income levels of participating farmers under Bank Projects”.
b. Relevance of Design:Rated: Substantial.
The overall results chain was logical, complete and relevant. The first sub-objective of enhancing access of farmers and small– and medium–size rural enterprises to rural business and agricultural support services, including financial, advisory and veterinary services, was clearly linked to the project activities. The project tried to achieve this sub-objective by providing funds to financial intermediaries and helping them to lend to their rural clients as well as providing them with capacity building to improve their rural lending skills. Component 2 of the project tried to expand outreach and quality of advisory services and private veterinary services. For the second sub-objective of stimulating market-oriented investments in rural areas, the project was to fund credits to farmers and medium enterprises in rural areas, and this could be expected to result in investments in livestock, crop, retail trade, and agro-processing sub-sectors.
|4. Achievement of Objectives (Efficacy) :|
(a) Enhance the access of farmers and small–and medium–size rural enterprises to rural business and agricultural support services, including financial, advisory and veterinary services. Substantial
- The project supported technical assistance for legal and regulatory reform, training, updating the Management Information System, and expanding the Credit Union network.
- The three project financial intermediaries issued a total of 116 sub-loans, to sectors including animal breeding, orchards, agro-processing, poultry farming, vegetable production, fish breeding and bee keeping. A complementary training program was designed for the intermediaries under the project, and covered training of about 90 loan officers and 60 branch managers in topics such as investment lending and leasing in agriculture, and new financial products. The project also helped the intermediaries to develop increased interest in agricultural lending.
- Regional Advisory Centers were contracted and in total 736,302 farmers benefited from information and advisory services.
- Networks of private veterinarians were expanded and trained by the project. The project added 30 new private veterinary units and they have been provided with training, facilities, equipment and medications.
- The project supported a pilot program for the control of brucellosis in cattle and sheep to reduce the incidence of human brucellosis. It also supported a vaccination program that started in April 2009 in four regions, with initial vaccination of a total of 490,000 sheep and goats.
- The project supported the modernization of the National Research Institute for Crop Husbandry and Crop Diversification. A collaborative demonstration program between the Institute and Regional Advisory Centers has been helping to transfer new agricultural technologies to farmers. New varieties and seeds have also been provided with the help of the Institute’s efforts.
Improved outreach and financial performance of Credit Unions: 14,216 members in 55 Credit Unions accessed credit through Credit Unions, compared with 3,000 at the baseline, and exceeding the target of 10,000. However, it is reported by the ICR (p. 6) that poor quality of some Credit Unions’ lending portfolio was a concern, which put a severe strain on the Credit Implementing Agency. Credit Implementing Agency management needs to improve loan underwriting and collections in order not to jeopardize its future. Further institutional training of Credit Unions is also needed, as governance continues to be an issue in some of these Credit Unions.
Greater Outreach to rural areas by project financial intermediaries: the outstanding rural loan portfolio was 11.3 % of Agricultural GDP at completion compared to the baseline of 2.5% and the target of 8.4%. Through these loans 1,342 new jobs were created and the average income of the sub-borrowers has doubled.
Capacity and outreach of the information and advisory system enhanced: 438,720 farmers in five Phase I project regions received advisory services, a 58 % increase from the baseline compared to the target increase of 20 %. 264,630 farmers (69.5% of farm households) received advisory services in the five new project areas, exceeding the target of 50 % of farm households. Regional Advisory Centers were able to cover 20 % of their operating costs in the Phase I regions and 12 % in the new regions, on target in old regions and exceeding the target of 10 % in the new regions.
Expanded network of private veterinary units: A total of 55 Private Veterinary Units comprising some 160 veterinarians were fully operational at closing and all Veterinary Field Units were fully recovering their operational costs, exceeding the target of 75 %. According to the ICR (p.11), 85.8 % of the farmers used private veterinary services. The State Veterinary Services has requested the private veterinary unit program to be scaled-up country wide.
Improved disease surveillance & preparedness: The Brucellosis Control Program was implemented as a demonstration of the practical application national disease surveillance and control programs. However, no evidence was presented to show that brucellosis has been controlled effectively, as measured by the target indicator “a 25 % reduction in human cases”. According to the project team, the target of a 25% drop in human cases could not be achieved because it takes longer before a decrease in human cases can be observed. To measure the results of the vaccination program, the abortion rate in small ruminants was selected as a proxy indicator. This indicator shows a decrease of 60-70%.
The National Research Institute for Crop Husbandry and Crop Diversification was modernized with the help of the Project and the institute now has a consolidated research program for the period of 2010-2014, as well as upgraded facilities and additional equipment. 71% of farmers benefiting from the Project were satisfied with locally available seeds and seedling varieties; this exceeded the target of 35 % of farmers.
Some of the intermediate outcome targets could not be met. In terms of advisory services, the Market Information and Commercial Hub, that aimed to promote information and advisory services by developing market information system, was substantially delayed and its scope was scaled down due to cost estimation issues. However, by project completion, a system connected to mobile phones that provided price information on crops had been developed. Also, in terms of control of epizootic diseases, a vaccination program was carried out and the results on animals were reported; however, the targeted reduction in human cases could not be verified.
Three surveys were conducted to measure the project's achievements. The Completion Evaluation Survey was conducted in the first quarter of 2011 and covered economic indicators and productivity for 2010. Approximately 88.5 % of respondents were involved in all three surveys and the surveys included two control groups and five regions. Based on these surveys, the ICR also reported beneficial outcomes such as increased income and production marketed for participating farmers. Accordingly, the average net income of participating farmers increased in comparison with Baseline Survey period by nearly 40%. This exceeds the outcome target of 20%. Between 2008-2010 the net income from agricultural activities for the farmers who participated in the project activities increased by 18 %, whereas this increase was only 6.6 % for farmers who did not participate the project. Also, production marketed for cash by farmers who participated in the project increased in comparison with the baseline survey period by 27% (target 20%). The percentage of total production marketed for cash by participating farmers has increased from 60.1 in 2006 to 75.5 in 2008. In comparison, the farmers who did not participate the project marketed only 57.5% of their production for cash in 2010. (It should be noted that ICR did not provide information on whether participating and non-participating farmers were from the same regions.)
(b) Stimulate market-oriented investments in rural areas. Substantial
- The project helped build innovative approaches through the Competitive Grants Program that awarded small grants for introducing, testing and transferring new and improved technologies emphasizing improved market accessibility, storage and small-scale processing. The grants covered a range of improved technologies for production, storage, grading, packaging, labeling, small-scale processing and canning of different high-value products. 74 grants for improved technologies have been awarded.
- Under the Agricultural Business Services Component, 46,000 loans were provided to members of credit unions to help investments in livestock, crop and retail/trade sub-sectors.
- The project also supported the extension of 116 loans to medium-sized agribusinesses through commercial banks for animal breeding and dairy (29.6 % of total disbursement), orchards (25.5%), agro-processing (15.4%), vegetable production (10.9 %) and poultry farming (9.4 %).
The increased outreach and financial performance of Credit Unions discussed under objective (a) have helped to finance a significant increase in the volume of market-oriented investments in rural areas. Demand for loans continues to be very high, with Credit Union lending rising by 92% in nominal terms between December 2009 and September, 2011. Between 2006 and 2010, the agricultural sector increased its share of total national investments in fixed assets from 0.7% to 4.4% (ICR, page 49).
According to ICR (p. 13), 42 % of Completion Evaluation Survey (for details see section 4(a) above) respondents used credit obtained from the Credit Unions for crop seed, 35 % for crop inputs, 17 % for farm machinery and 23 % for transport equipment.
The ICR reported that Competitive Grant Program recipients were carrying out the technology transfer activities satisfactorily. Some 7000 entrepreneurs and farmers, out of which about 150 were rural business entities and other business groups, participated in technology transfer activities. However, the achievement of 74 grants was below the target of 90.
The Project has achieved progress particularly towards the following two sub-objectives: a rural financial services network consisting of local financial intermediaries such as credit cooperatives and rural branches of commercial banks; and mixed public and private advisory services for rural enterprises. The ICR (page 50) reports “that in only 3 years the access to agricultural commercial long-term credit (5 to 7 years) in Azerbaijan has completely changed led by [program and project] interventions. This change has been instrumental for [agricultural] sector development, since 22% interest rates were upholding investments as very few legal activities can afford those huge costs."
Efficiency is rated Substantial.
The economic rate of return (ERR) at appraisal was estimated at 16.0%, and the net present value (NPV) of the project’s net benefit stream, discounted at 12%, was US$ 4.1 million (the total percentage of project costs covered in this calculation was 55 %).
The evaluation at completion calculates the ERR as 20.5% and the NPV US$ 25.74 million (the total percentage of project costs covered in this calculation was 73 %). Results for individual components were:
ERR (%) NPV (US$ million)
Agricultural Advisory Services 18.5 8.3
Veterinary Services 34.8 3.7
Competitive Grants Program 33.3 4.1
Credit Line to Agri-Businesses 19.0 9.6
The appraisal estimations were based on strengthened advisory services and improved access to new adapted technologies; strengthened and expanded veterinary services; and models of likely sub-projects to be implemented under the Competitive Grant Scheme. The ICR followed the appraisal methodology, but assumptions on future yields were based on the findings from Completion Evaluation Survey. In addition, sub-projects actually supported under the Competitive Grant Program were analyzed. The agribusiness loans through commercial banks were also included, though they were not in the appraisal analysis.
There were relatively few operational and administrative inefficiencies. The project closing date was extended for nine months (the original closing date of May 31, 2011 was extended to February 29, 2012) to complete remaining project activities as well as to build as many activities as possible to help prepare for the third phase project. There were delays initially in the rural finance activities of the Agribusiness Service Component as the Ministry of Finance did not approve key documents and agreements on time. The Establishment of Market Information and Commercial Hub was seriously delayed due to miscalculation of its budget, and the activities had to be scaled down. Development of private veterinary services was also jeopardized due to the Government’s reluctance to reduce the very high licensing fees. The issue had to be discussed with the Ministry of Agriculture, Cabinet of Ministers, and finally the Prime Minister’s Office, after which fees were finally reduced to what the Bank considered acceptable levels.
a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:
* Refers to percent of total project cost for which ERR/FRR was calculated