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The Zambia Second Coffee project, supported by Credit 1743-ZM for US$20.4 million, was approved in FY86. Credit effectiveness was delayed until March 1992 due to the Bank’s suspension of disbursement to Zambia in May 1987. The project was closed two and a half years ahead of schedule in December 1996. The Implementation Completion Report (ICR) was prepared by the FAO/World Bank Cooperative Programme on behalf of the Africa Regional Office. The Borrower’s comments are included as an appendix.

The main objectives of the project were to expand Zambia’s agricultural base, diversify its sources of foreign exchange earnings and provide an additional source of income to the rural population. Specifically the loan supported: (a) provision of credit to farmers for coffee production and processing; (b) strengthening of coffee extension services; (c) strengthening of coffee research at the Misamfu Regional Research Station; (d) support to improve coffee marketing; and (e) assistance to Zambia Coffee Company Limited (ZCCL), a parastatal, to improve management and expand coffee production.

Because of the delay in achieving effectiveness, the project was reviewed in 1992 in order to ascertain whether the assumptions and design objectives agrees at appraisal were still valid. As a result, the project was restructured and significant institutional changes made: (i) the transfer of the coordinating role from the Lint Company of Zambia (LINTCO) to a Project Management Unit under the Ministry of Agriculture, Fisheries and Food (MAFF); (ii) the substitution of ZCCL (which was privatized) by the Zambia Coffee Growers Association (ZCGA); and (iii) the inclusion of the Bank of Zambia to channel funds to farmers through the participating banks (PBs); (iv) the project was modified to enable PBs to lend in foreign exchange; and (v) coverage was extended to all other agricultural crops, including cut flowers.

Progress towards the project’s objectives was mixed. The strengthening of extension to smallholder coffee producers was successful on a pilot scheme basis but the lack of access to credit limited the expansion of the approach. The component on support to coffee research lacked focus and the reorganization of the national agricultural research system under the on-going ASIP is expected to address this problem. The credit program moved slowly during the first two years until 1994, but then implementation was rapid as the PBs gained experience in coffee lending. By FY97, the credit funds were fully committed, and it was decided to close the project to facilitate the incorporation of the project components into the on-going Agricultural Sector Investment Program (ASIP).

Loans were made to 40 commercial farmers; 28 for coffee (1,550 ha), 10 for flowers (20 ha), and 2 for soybeans. In addition, smallholders assisted under the pilot extension program planted about 400 ha of coffee. It is anticipated that, at full development annual production of coffee is likely to reach 4,110 tons compared to 4,700 tons projected at appraisal. In addition, cut-flower production will reach 22 million stems annually. The project was successful in expanding the agricultural base and diversifying the sources of foreign exchange earnings, but smallholders did not benefit significantly, mainly because they did not have access to credit and, thus, the objective of raising rural incomes was not achieved to the extent envisaged.

The ICR rates the outcome of the project as marginally satisfactory, sustainability as likely, institutional development as modest and Bank performance as satisfactory. The OED endorses these ratings and observes that the calculated ERR was higher than anticipated. However the OED notes that much of this success can be attributed to the inclusion of other crops (particularly cut flowers) in the project. The impact of the project on raising rural incomes is unclear and there is a need to both address the issue of financing for smallholders and to assess the impact on rural livelihoods (including the social implications) of the support to commercial farmers.

Key lessons of the project are that: (a) flexible design of projects allows the Bank to respond positively to the changing economic environment and that it would be desirable to allow this flexibility to be extended to explore the options of ensuring smallholder participation, particularly in relation to being creditworthy; and (b) enlightened government policies on the role of privatized industries are crucial to the success of a competitive sectoral initiative.

The ICR is satisfactory and provides useful insight into why and how the project adapted to the changing economic environment. However it would have been strengthened if had outlined further the means by which the continuing components are to be incorporated into the ongoing ASIP. The Borrower, in its comments, raises the related issue of whether it would be possible to earmark the funds repaid by the commercial borrowers for future lending to smallholder coffee growers.

No audit is planned.

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