PROJECT INFORMATION DOCUMENT (PID)



PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB7357

|Project Name |THIRD NATIONAL FADAMA DEVELOPMENT PROJECT - ADDITIONAL FINANCING |

|Region |AFRICA |

|Country |Nigeria |

|Sector |General Agriculture (45%), crops (13%); Agric extension (10%) Irrigation and drainage |

| |(25%),General Public Administration (7%) |

|Project ID |P130788 |

|Parent Project ID |P096572 |

|Borrower(s) |FEDERAL MINISTRY OF FINANCE (IERD) |

| |Federal Ministry of Finance |

| |Finance Headquarters |

| |Central Business District |

| |FCT |

| |Abuja |

| |Nigeria |

|Implementing Agency | |

| |National Fadama Coordination Office (NFCO) |

| |Nigeria |

| |Tel: (234-803) 442-8689 |

| |fadamanfco@ |

| |National Fadama Coordiantion Office |

| |No1 Eldoret Close, Wuse II |

| |FCT |

| |Nigeria |

| |Tel: +2348036213669 |

| |fadamanfco@ |

| |National Fadama Coordination Office |

|Environment Category |[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |June 26, 2013 |

|Date of Appraisal Authorization |April 29, 2013 |

|Date of Board Approval |June 28, 2013 |

1. Country and Sector Background

1. Diversification of the economy away from the oil sector is a top policy priority for Nigeria, and the agricultural sector is central to this agenda. The sector has consistently contributed about 40 percent of the GDP, and remains the largest contributor to non-oil growth. Within the agricultural sector, the major drivers of growth are staple crops. Food staples are the largest subsector and its growth is more pro-poor than in high value exports because of larger forward and backward multipliers. Demand for staples is driven by population growth (Nigeria’s population is increasing at 2.5 percent annually) and growing urbanization. The demand for food staples across Africa is projected to double from US$50 billion in 2005 to US$100 billion in 2015 and it presents a huge market opportunity within the region, including Nigeria. Malnutrition is very high with over 41percent of Nigerian children less than 5 years of age considered stunted (low height-for-age, which indicates chronic under nutrition), making Nigeria home to the third largest population of chronically undernourished children in the world. This early malnutrition translates into irreversible losses in human capital, reduced productivity and lower incomes in adulthood, thereby impinging on economic growth.

2. Private investors have not made full use of the comparative advantage and the opportunities in the agriculture sector largely because of entry barriers caused by high start-up costs and risks due to inadequate localized infrastructure, such as roads, energy, water and sewerage systems, an unfavorable business environment, lack of a trained work force, inadequate raw material and supply network.

3. Previous attempts by the Government of Nigeria to increase the productivity of staples included the launching of a series of Presidential initiatives targeted at individual commodities such as rice, maize, and cassava. Although the Presidential Initiatives have had some success in stimulating increased production, they have not made Nigerian farmers competitive in world and regional markets. As a departure from past government interventions, the current Agriculture Transformation Agenda, adopted in 2011, is focused on making improvements along the value chains of a number of prioritized agricultural commodities and working with the private sector. The ATA also differs from past efforts in that it pushes for badly needed policy reforms such as the fertilizer subsidies program, and liberalization of agricultural insurance and foundation seed production.

4. Nigeria’s ATA consists of four main elements: (i) Fixing the fertilizer sector by withdrawing from direct government interventions in fertilizer distribution; (ii) Strengthening marketing institutions by supporting private sector- led marketing organizations; (iii) Fixing agricultural financing through the Nigerian Incentive-based Risk Sharing for Agricultural Lending (NIRSAL); and (iv) Fixing the agricultural investment framework through the development of Staple Crop Processing Zones (SCPZs) as ‘clusters’ of nucleus and out grower-type arrangements centered on agribusiness investors supported with the necessary public infrastructure services.

5. The proposed AF will focus on improving farm productivity performance of clusters of farmers engaged in priority food staples namely rice, cassava, sorghum and horticulture in six selected states with high potential. The new strategy seeks to attract private investment in processing and milling, and other commercial aspects of agriculture around nucleus farms, with associated small-holder linkages such as out-grower schemes and contracting farming arrangements.

2. Objectives

6 The proposed Project supports the government’s strategic objective to enhance growth in sectors other than oil in order to achieve increased food security, reduce poverty, and create employment and improved opportunities in rural areas. The Project will do so by: (i) financing investments in productive community infrastructure to increase agricultural productivity and diversify sources of livelihood; (ii) building the capacity of community organizations to increase the stock of social capital; (iii) strengthening the capabilities of participating states and local governments to deliver services to the rural poor; and (iv) promoting socially-inclusive and environmentally sustainable management of natural resource.

7 Project development objectives and approach. The development objective of Fadama III Project is to increase the incomes of users of rural land and water resources on a sustainable basis.

8 Beneficiaries: The criteria for selecting participating households would be based on their motivation and commitment up-front, and their willingness to provide counterpart contributions, including O&M of infrastructure. The target population is overwhelmingly smallholders (Fadama Users), those already engaged in the production of one or more of the selected value chains (cassava, rice, sorghum and horticulture) on operational holdings of 0.25ha-2ha, and the young farmers—the agro-preneurs—who are the new entrants into agriculture, on average operational holdings of 2-5ha. Accordingly, project beneficiaries under the AF will also include non Fadama land users. On average, the project is estimated to reach about 317,000 direct beneficiaries and 1.4 million indirect beneficiaries. These smallholder farmers are generally poor (see Table 3) and face a number of binding constraints that prevent them from breaking away from poverty. Low input low productivity trap and liquidity constraint are among the chief binding constraints which the AF would address.

Table 3: Poverty Rate in Participating States

|  |Poverty Headcount |Poverty Gap |Poverty Severity |

|  |2003/04 |2009/10 |2003/04 |2009/10 |2003/04 |2009/10 |

|Anambra |22.78 |30.05 |5.59 |7.52 |2.09 |2.81 |

|Enugu |32.12 |47.65 |8.7 |17.88 |3.71 |8.84 |

|Kano |40.2 |55.56 |12.78 |22.85 |5.4 |12.08 |

|Kogi |86.81 |54.14 |53.57 |21.28 |36.45 |10.83 |

|Lagos |60.25 |22.69 |29.68 |4.74 |17.66 |1.51 |

|Niger |44.3 |28.94 |13.75 |8.51 |5.86 |3.78 |

World Bank Policy Note Where Has All the Growth Gone? A Poverty Update for Nigeria, 2013

3. Rationale for Bank Involvement

9. The Bank has a longstanding experience in supporting agriculture in Nigeria and facilitating access to global knowledge on proven policy changes in other countries. This experience would undoubtedly beneficial to the Government Agricultural Transformation Agenda (ATA).

10. In this respect, the Federal Republic of Nigeria requested Bank support to its ATA, which was adopted in 2011 to improve value chains of prioritized agricultural commodities and work with the private sector while pushing for policy reforms in fertilizer subsidy program and liberalization of agricultural insurance and foundation seed production. The proposed AF is intended to be utilized for improving the agricultural public infrastructure and services needed for supporting ATA value chain production clusters for ramping up mass production in states where there is high potential for production and processing. The AF will be used to inform investments to be made for scaling up the program nationally. This AF presents an opportunity for the Bank to increase its development impact in Nigeria’s agriculture sector.

4. Description

11. The Project will be implemented over a four-year period--from July 2013 to June 2017. It will close in December 2017. The Project is anchored on the CDD approach. Community organizations will decide on how the resources will be allocated among the priorities that they themselves identify and they will manage the funds. Extensive facilitation, training, and technical assistance will be provided through the Project to the clusters of farmers.

12. Project cost. The total project cost is $250.0 M, of which, the Bank will finance with an IDA Credit of $200 M, the Borrower including the Communities will contribute $50.0 M.

13. The proposed Additional Financing (AF) will scale up the project's impact and effectiveness in selected project intervention areas beyond the typical Fadama land through investing in (i) sustainable common user infrastructure facilities; (ii) technical assistance to support cluster of farmers, seed multiplication and appropriate agricultural machinery; (iii) enhancing demand driven adaptive and applied agricultural research, extension and ancillary services; and (iv) strengthening project management, monitoring and evaluation system.

14. The additional financing will support clusters of farmers in six selected states with comparative advantage and high potential to increase production and productivity of cassava, rice, and sorghum and horticulture value chains and link them to better organized markets, including Staple Crop Processing Zones (SCPZs) once established. It will facilitate linkages between federation of producers and existing processors.

15. Table 2 contains the list of states where significant scale up of activities on rice, sorghum, cassava and horticulture could take place. Below is a description of the potential of these states in terms of production cluster and processing

Table 2: Potential Project Intervention Areas

|Commodity |State |Strength |

|Rice |Lagos |Huge market and low capacity utilization of existing mills |

| | | |

| | |Largest producer of rice, presence of production clusters and small scale |

| |Niger |processing mills |

| | | |

| | |Special Ecological zone with strong processing capability e.g. Omo Rice Mill |

| |Enugu/Anambra production Zone | |

| | |Large irrigable land and irrigation facilities |

| |Kano | |

|Sorghum |Kano |High production potential and large market |

| | | |

|Horticulture |Kano |Kadawa, the largest producer of tomato in Nigeria, and existing underutilized |

| | |capacity for processing |

|Cassava |Kogi |Large producer of cassava and production cluster |

Source: Spatial Analysis and Accenture report 2012

16. Lagos State: Ketu-Ereyun-Epe corridor has been designated a SCPZ site. It is by far the largest food market in Nigeria, Lagos State has limited agricultural land, but the corridor stretches to 45 km along the boundary of Ogun State from where additional feedstock could be pulled (a production cluster). The Lagos State Government has already incurred expenditure towards the creation of a rice processing mill. The extensive lagoon provides vast space for coordinated artisanal fishing and cage culture and there is potential for marine aquaculture.

17. Niger State: This state is the largest producer of rice. The rice production clusters are located in Badeggi. The state has vast area of upland and lowland for rice production. In Badeggi, a number of moribund mills with 30 metric tons capacity have been identified for rehabilitation. Traditional methods of harvesting, pre-processing and processing contribute to large volumes of post-harvest losses and these would be addressed under the AF. Niger State Government has provided lands for this SCPZ along the East and West of Minna-Baro rail line near Gbako River. The Niger Rice Investment Consortium presents a platform for engaging with the private sector in the state.

18. Kano State: The Kadawa production site in Kano State is traditionally an area of great agricultural production potential built around Tiga Lake. Up to 22,000 ha out of a potential 66,000 ha are currently under cropping. This site is occupied mostly by the settler farmers organized into water user groups. Substantial production of rice is obtained at present but the current irrigation system is dilapidated and not operational. About 70 percent of Northern Nigeria’s tomato requirement is produced here but the post-harvest loss is high due to lack of storage and processing infrastructure, except sun drying. Kano State Government has provided 400 ha and 22,000 ha lands for the SCPZ and catchment areas along Kura-Bagauda Road and lands in Tiga Lake area and Kura, Garun Malam, Rano, Kiru, mabodi, Bunkure, Tudun Wada, Bebeji and Doguwa LGAs for catchment production. The Kano SCPZ has been approved by the State Executive Council.

19. Enugu/Anambra States: The Adani-Omor production zone has vast clusters of traditional rice production and processing but there are no functional modern mills. There are all seasonrivers. Irrigation facilities are completely dilapidated and cropping is done in rainy seasons. About 450 ha land is allocated in Enugu for the SCPZ, with a catchment area of 5,000 ha in Anambra, and 49,000 ha in Enugu. This corridor encompasses Lower Anambra Irrigation Project and Adani Rice Project. Irrigation water is presently pumped from Anambra River through a network of canal systems. The pumping scheme, canals and access roads need rehabilitation. Presently, only 3,300 ha out of 11,000 ha are cropped.

20. Kogi State: Agbadu provides opportunities for green field development for cassava production and aquaculture. The proposed farm site is located along the Lokoja- Kabba road in a sparsely populated area and it falls within the Southern Guinea Savanna zone of Nigeria. The feasibility study of this location is ready, with Cargill as the interested potential anchor investor. Findings from the pre-feasibility study showed that suitable land for development is available at site in sufficient quantities to meet the raw material needs of a large, modern industrial starch processing facility with 75,000 tons/per year capacity that processes fresh cassava roots.

21. The proposed additional financing has six components as the parent project, namely Component 1: Capacity Building, Communications and Information Support; Component 2: Small-Scale Community-owned Infrastructure; Component 3: Advisory Services and Support for Acquisition of Farming Inputs; Component 4: Support to the Agricultural Development Programs, Sponsored Research and On-Farm Demonstrations; Component 5: Matching Grant Facility for Assets Acquisition through FUGs and EIGs; and Component 6: Project Management, Monitoring and Evaluation.

Table 4: Cost by Component

|Component |Original cost(USD ) |Changes with AF($M) |Revised cost |

|Component 1 |28.20 |20.00 |48.20 |

|Component 2 |66.07 |75.00 |141.07 |

|Component 3 |24.60 |50.00 |74.60 |

|Component 4 |6.43 |20.00 |26.43 |

|Component 5 |105.00 |20.00 |125.00 |

|Component 6 |17.00 |15.00 |32.00 |

|Total |250.00 |200.00 |450.00 |

22. Component 1 (Original US$28.20m; Revised US$48.20m): Capacity Building, Communications and Information Support. This component will provide additional capacity-building support to farmers, with emphasis on strengthening linkages between farmers, agro-dealers, processing firms and other private sector participants to develop contracts for agreed quantity and quality of outputs. Activities under this component include group mobilization and sensitization; community relations, training of farmer groups and other stakeholders on business plan development; and linkage with financial institutions, support for implementation of activities covered by the farmer groups’ business plans, and training of market-oriented facilitators. The project will also finance (i) information dissemination about the project and its guidelines to potential beneficiaries; and implementation of communications program. It also has provision for media vans, farm broadcasts, communication production programs and partnership with ministry of information/existing communication agencies.

23. The number of facilitators needed in the training of farmers in each production cluster, including SCPZ catchment area where feasible, would be based on the number of farmers that a facilitator could service with adequate attention paid to gender inclusiveness. It was agreed that Facilitators and Community Development Officers (CDOs) will be engaged for a maximum of 2 years of the project period for the purpose of facilitating the preparation of business plans for participating farmers consisting of FUGs/FCAs. Capacity building will be provided for Facilitators, Services Providers, FUGs and FCAs. Approval of the business plans that will be developed, to take advantage of opportunities of market demand with strong linkage with private sector, will be carried out at the cluster level.

24. US$ 10 million would be allocated to graduating States in order to provide technical assistance in linking them with private sector value chain actors and building their capacity to negotiate supply contracts. This fund would cover scaling up of commodities/products that have commercial viability. The technical assistance would help Fadama groups to develop good quality products for niche markets.

ponent 2 (Original US$ 66.07m; Revised US$141.07m): Small-Scale Community-owned Infrastructure. This component would be scaled-up to finance the interventions in the following subcomponents:

(a). Rehabilitation of surface water and limited construction of new small-scale irrigation schemes and borehole schemes: The surface water scheme activities will include: land surveying, contour maps, land leveling and grading, design works, repairs of generator houses and generators, clearing of water courses, such as desilting, and provision of equipment, such as sprinkler component. The activities to be financed under the borehole schemes will include: yield tests of the existing schemes, sinking of new boreholes, construction of pump houses, installation of new power generating sets, and infrastructure to ensure the integrity of the schemes. The project will finance works and goods to install limited new and rehabilitate existing irrigation infrastructure, including main and secondary canals, drainage structures and pumping stations; provision of access roads; and technical assistance and training to develop institutional capacity in land and water resources management, including capability for more efficient and sustainable operation and maintenance of the installed irrigation infrastructure by FUGs, FCAs, and Water User Associations (WUAs). Detailed design for irrigation and drainage schemes will be developed and will include improvements in primary, secondary and tertiary (household level) systems. In addition, access roads and on-farm storage facilities will be provided as a rural infrastructure sub-project. Acceptable appraisal of these schemes includes the willingness of households to participate through the formation of production/FUG clusters and/or FCA federation; and compliance with the technical, economic, and environmental and social safeguards criteria. All the applicable criteria will be outlined in the revised Project Implementation Manual (PIM).

(b). Groundwater irrigation schemes: This sub-component will assist to demonstrate low-cost technologies for shallow groundwater irrigation. Additional Financing funds will be used to finance infrastructure and equipment for demand-driven small scale irrigated rice and horticultural subprojects emanating from the beneficiary groups, organized as Out growers’ Associations (OAs)/FCAs or rice/horticultural production clusters (PCs). The main expenditure items will include water extraction infrastructure, such as wash bore/shallow tube wells, and water-lifting devices, such as 2-3 inches 5.5 HP motorized irrigation pumps. The technologies and the associated water resources management practices of this level of irrigation are fairly well known since some of the selected states benefited from the Fadama projects which promoted the widespread adoption of simple, low-cost techniques for Fadama-based irrigation. The schemes will be in areas in close proximity to urban markets, use groundwater no deeper than 60 meters, and involve farmers with experience in growing higher-value crops such as horticultural crops and rice. Other access criteria used in the original project remain valid, particularly the criteria for economic and financial viability, as well as the approval process used. Additional support will be provided to the cluster of farmers to ensure adequate capacities to operate, maintain, and replace the installed infrastructure and pumps.

(c). Other infrastructure support: This sub-component will provide market infrastructures to clusters of farmers in order to reduce post-harvest losses and facilitate access to markets. Such infrastructure would include rehabilitation of access roads and culverts linking production sites to the processing/marketing zones, storage facilities and preservative technologies which are all related to the priority value chains.

In order to maximize the overall impact of the Bank’s agricultural portfolio in Nigeria, the project will seek to build synergy with the Nigeria Irrigation and Water Resources Management Project (NIWRMP) under preparation for the North-East States. This will be done through close collaboration between the two project teams and joint supervision missions.

26. Component 3 (Original US$24.6m; Revised US$74.6m): Advisory Services and Support for Acquisition of Farming Inputs. The project will finance the procurement of advisory services to transfer know-how on proper utilization of factors of production (fertilizers, improved seeds and agricultural machinery), including advice on the associated downstream activities. The bulk of the funds under this component would be for the provision of critical inputs needed to ramp up production. The project will collaborate with WAAPP to ensure synergy and complementarity.

27. In addition, the project will support productivity improvement of the selected rice, cassava, sorghum and horticulture value chains by upgrading the parent project’s current paper input voucher program to the use of e-wallet platform to deliver improved seeds and fertilizers to beneficiaries. This way, the Fadama III AF is taking advantage of the ongoing reforms (liberalization) in the input sector where private seed and fertilizer companies including agro-dealer deliver input directly to farmers. The objective of this support is to ensure timely and equitable access (especially for women farmers) to these critical inputs in good quantity and quality to the production clusters in the project intervention areas where low yields are the binding constraint. This component comprises the following two subcomponents:

28. Advisory services: The Project will provide support to empower farmer groups to purchase advisory services from registered advisory service providers, as currently implemented by Fadama III. The advisory needs of farmers will be addressed either by ADP extension staff or by farmer selected service providers on a matching grant basis (10 percent co-finance requirement). For the latter, farmers will select the service providers among the registered and certified providers, sign a contract, implement and monitor the activities. The project will also create awareness among the Nigeria Agro dealer Network in order for them to set up services in the production clusters.

Input Supply: Additional financing will be provided to enable farmers to access inputs, using the matching grant arrangement successfully tested under Fadama II/III Projects. This facility shares the risks involved in the adoption of a new technology by the farmers to enhance their financial capacity to purchase farm inputs which the beneficiaries will choose (including seeds, fertilizers, and agricultural machinery) and to build savings from incremental earnings to finance future purchases. Farmers will receive a grant equivalent to 50 percent of the purchase price of the input per FUG, with the remaining 50 percent due as FUG beneficiary counterpart contribution. Confirmation by the Project of the deposit of the counterpart contribution into the Project Account is required before actual purchase of the input. Access to this facility will be for a maximum of two years, during which time the FUGs are expected to become familiar with the selected new technology. The criteria to access this input support facility are outlined in the PIM. In order to ensure sustainability of the production process after the second season, the beneficiaries will be assisted to link with financial institutions through capacity building support (Component 1) to open savings accounts and to access credit for future purchase of inputs.

29. Component 4 (Original US$6.43m; Revised US$26.43m): Support to the Agricultural Development Programs, Sponsored Research and On-Farm Demonstrations. This component will be scaled-up to finance additional activities such as: (i) Research-Extension-Farmer-Input Linkage System (REFILS) and related activities targeted towards the production cluster where links will be made to the Agricultural Research and Technology Transfer Centre(ARTTC) system being funded by WAAPP in order to ensure complementarity; (ii) integration of nutritional advice/information to extension delivery; (iii) promotion of e-extension services in the production cluster; (iv) adaptive research and on-farm demonstrations; (v) quality control and assurance for extension service delivery by FDAE; (vi) strengthening capacity for extension delivery; and (vii) seed multiplication.

30. Component 5 (Original US$105m; Revised US$125m): Matching Grant Facility for Assets Acquisition through FUGs and EIGs. This component will be scaled-up to support the gender and youth empowerment agenda of the ATA with two subcomponents: a) Inclusive targeting and gender equity in service delivery, and (b) the agricultural machinery hiring service.

(a) Inclusive targeting and gender equity: The component will specifically focus on ensuring effective and inclusive targeting of women farmers, equitable access to services and matching grants as well as other forms of targeted support, including improved information and communication strategies targeting poor women farmers and action gender research initiatives, pilots and impact evaluations that ensure that women farmers get equitable access to services provided under other parts of the project.

(b) Agricultural Machinery: Given that women and youth farmers often appear in particular parts of the agricultural value chain, the component will support targeted value chain analyses and seek to expand the economic opportunities of these farmers wherever they are in the value chain- i.e. both crop producers and agro-processors. Further, at least fifty per cent (50 percent) of the funds provided under this sub-component will be given to women and youth farmers through a matching grant facility same as the existing one under the parent project. Other farmer groups will be eligible to the remaining 50 percent of the matching grant facility which will support the Apex farmer association to own and operate Agricultural Equipment Hiring Enterprise (AEHE), under the private sector driven mechanization intervention of the FGN to provide services to the farmers in the production cluster. .

31. Component 6 (Original US$17m, Revised, US$32m): Project Management, Monitoring and Evaluation. The AF would support the continued operation of the National Fadama Coordination Office (NFCO) with limited support to the SFCOs where AF is operational. Support to the operating costs of the SFCOs in the participating states would be borne by the States as agreed during negotiations. This component will finance: (a) technical assistance to national, state, and community/catchment level implementation coordination; (b) Project coordination; and (c) Project monitoring and evaluation. The eligible expenditures will include: goods, equipment, vehicles, special studies (including gender research, pilots and impact evaluation), including exchange visits; training of project staff and incremental operating costs, including funds for the operations and maintenance of Fadama House. Provisions will be made to support the Federal Department Agriculture Extension (FDAE), in the form of limited equipment and goods and for enhancing the data collection and analysis capacity of the Supervising Ministry. The state government of the participating states would be required to maintain their respective SFCOs as part of an implementation agreement with the Federal Government. The details of this arrangement would be outlined in the amended Subsidiary Agreement of the Parent Project satisfactory in form and substance to the Association. The amended Subsidiary Agreement has to be executed on behalf of the Recipient and the Participating State concerned, as a condition of disbursement of additional finance in respect of activities taking place in that Participating State, in accordance with the provisions of Section IV.B.1(b)(ii) of Schedule 2 to the Financing Agreement.

5. Financing

|Source: |($m.) |

|BORROWER/RECIPIENT |50 |

|International Development Association (IDA) |200 |

| Total |250 |

6. Implementation

32. Implementation arrangements would remain the same as in the parent project. The Federal Ministry of Agriculture and Rural Development, through its newly created Federal Department of Agricultural Extension, will continue to have overall responsibility for execution of the project while the National Fadama Coordination Office (NFCO), State Fadama Coordination Offices (SFCOs) and Local Government Fadama Desks will be delegated with the responsibility of day-to-day coordination of the implementation of the project. Project implementation and coordination at the production cluster level will be managed by SFCOs. SFCOs will report to NFCO on a regular basis. The SFCO will be strengthened where necessary with suitably qualified and experienced Agronomist, Engineer and PPP Specialist. These additional experts would be recruited according to transparent and competitive procedures satisfactory to the Government and the Bank. There are no changes in the procurement administration, and environmental and social safeguard arrangements. The 18 month procurement plan has been cleared by the Bank. No new safeguard policies are triggered, however, all the instruments prepared for the original project have been updated and disclosed accordingly.

7. Sustainability

33. The overall success of the project depends upon a continuing stable and predictable macro-economic environment, especially concerning the incentives for agricultural enterprise (both up-stream and down-stream of selected value-chains), and the government’s political commitment to private sector development and economic empowerment, particularly of the rural poor. Policies which emphasize continuing liberalization of markets and international trade are critical as is future liberalization of financial markets, as these may improve agricultural producers’ access to credit resources.

34. Institutional sustainability is also important, and is being pursued by adopting the institutional framework of the parent project, and by building consensus and local ownership upfront on the project design among a wide range of stakeholders and adopting a CDD and participatory approach. Building capacity of producer associations in the catchment areas can only enhance the sustainability and effectiveness of catchment area-level beneficiary groups. By promoting participation of the associations of the producers and other private economic agents in the production activities in the catchment areas, the project helps to ensure and sustain commitment of the beneficiary associations. Moreover, by developing and strengthening linkages between the clusters of farmers (FUGs/FCAs and other producer associations), and the private sector (agro-dealers, agro-processors, other service providers), commercial banks, MFIs and other financial intermediaries, the project will help ensure that access to markets, technical expertise, and finance is sustained after the project has been completed.

35. The selection of sites to exploit the infrastructure in the rehabilitated schemes would be based on the potential for increased crop yield and potential for production of higher value products arising from reliable water supply and better maintenance. Only the areas where the incremental value of farm output are greater than the costs for clusters of farmers (FUGs/FCAs), based on the adopted farm production systems, would be selected.

36. Financial analysis and field investigations confirms the sustainability of the investment subprojects funded by the project. Analysis of farm/enterprise production activities revealed that cost recovery through beneficiary-counterpart contributions is adequate to cover both operation and maintenance and replacement of the original investment long before the end of its useful life.

37. Beneficiary participation at all stages of the production cycle as well as significant levels of community contribution—cash or in-kind— help to ensure the production of subprojects are maintained. Further, the democratic process intrinsic to the producer groups ensures better selection and prioritization of production activities by beneficiaries, enhancing long-term sustainability. The project requires adoption of an O&M plan by the FCAs as selection criteria to access funds for project-financed infrastructure investments. FCAs would receive training on how to operate and maintain infrastructure through the private sector service provider under component 3 of the project.

38. The proposed AF is to scale up the activities of an existing well performing project and as such the economic, financial, fiduciary, environmental and social aspects of the expanded or modified activities will neither trigger any new safeguard policies nor involve any exception to Bank policies.

8. Lessons Learned from Past Operations in the Country/Sector

The AF draws lesson from the Parent Project as follow:

39. Decentralization of fiscal and investment decision-making, using CDD and LDP mechanisms and implementation from federal to state and local governments to properly-constituted community organizations, ensures efficient program administration and superior outcomes. Under the proposed Project, the existing decentralized institutional structure will be further devolved with increased delegation of duties to Facilitators, Fadama Desk Officers and the management committee of the FCAs. In addition, there will be greater utilization and involvement of SFDOs to promote more responsive and results-based and local level monitoring, data collection, coordination, and supervision.

40. Sustainability. Selection and management of subprojects by communities and their cost sharing in the matching grant facilitate sustainability. The Fadama II experience also shows that FCAs frequently use their own resources to acquire additional assets rather than seek assistance from repeated matching grants. The Fadama III design will retain these features, and include the use of Fadama Users’ Equity Funds to facilitate the observed desire of participants to continue investment after completion of the matching grant. Under the FUEF, participants will withhold at least 10 percent of the value of net revenues for deposit into a revolving fund. The second generation funds can be utilized for new sets of LDPs and/or to finance expansion of livelihood activities of the beneficiaries. This facility can be developed further to link FCAs to commercial finance institutions as savers and borrowers.

41. Supervision must be adequately funded and reinforced at all levels and involve the local governments and credible NGOs. Under the proposed Project, supervision responsibilities will be increasingly devolved to the SFDOs and local government support team, who will be supported with training and technical assistance from external partners. Measures will also be taken to modernize and strengthen the participating LG-level agencies, gradually providing computers and information technology as well as training and technical assistance.

42. Early design of a user-friendly, results-oriented monitoring and evaluation system. The M&E system of Fadama II was inadequate. Project reports were based on outputs and expenditure activities rather than outcomes, and failed to capture results from internal and external reporting and monitoring of subprojects. Under the proposed Project, an M&E system will be established to improve real time monitoring of the entire Project cycle. A comprehensive impact evaluation will be incorporated to measure income, welfare, environmental performance, and social capital gains. M&E capacity at the state level will be strengthened with the recruitment of qualified and experienced professionals. Participatory M&E will be undertaken and fed upwards into the national level Project MIS and Knowledge Base.

43. Standardization of subproject documents, technical designs, and unit costs simplifies the preparation and evaluation of subprojects, improves quality at entry, facilitates the procurement of goods and works, prevents over-design, and enables participation by vulnerable groups. The existing database of standard designs and documentation, including the PIM, will be reviewed to determine adequacy and expanded as needed.

44. Environmental monitoring. Because of their small scale, most of the subprojects financed under Fadama II do not have a significant effect on the environment. Nevertheless, the detailed environmental checklist, developed and used in the LDP process for subproject screening and qualification, will be maintained and updated for the proposed Project. Furthermore, an environmental specialist will be maintained at the SFDO to provide additional technical assistance on environmental matters as well as provide training to increase environmental awareness of Facilitators and the FCAs. The specialist will also alert Project stakeholders to more sustainable options, depending on the local context and available SLM options.

45. Technical assistance can enhance the quality of subprojects. The Fadama II experience shows that inadequate provision of TA adversely affected community empowerment and the quality of decision-making within some FCAs. Technical assistance also needs to be targeted to the FUGs/EIGs of the weaker and vulnerable groups to improve their planning, management and financial capacity. Under the proposed Project, increased attention will be placed on providing adequate training for the Facilitators and FCAs. Increased efforts will also be placed on involvement of civil society (e.g., NGOs and other community-level professional associations/service providers), particularly with respect to information, mobilizing the vulnerable groups, and supporting training activities at the community level.

9. Safeguard Policies (including public consultation)

46. The project is assessed as category B and triggered 10 World Bank policies. Detailed description of Social and Environmental safeguards is as follows:

47. Social Safeguards: The social development challenges that face the rural areas of Nigeria are inequality, social exclusion, and deprivation. In that context, Fadama III and this proposed AF supports rural community organizations that are inclusive and interventions that provide opportunities for all small farmers, including from vulnerable groups, to participate in the prioritized value chains. Social safeguards instruments, including the ESMF and the RPF, have been reviewed and updated to cover both the activities of the parent project and of the proposed AF. These instruments have been re-disclosed in-country and at InfoShop as required. These instruments (ESMF, RPF, & PMP) will guide the mitigation and compensation of adverse social impacts. In particular, the RPF will guide the development of Resettlement Action Plans (RAPs). Given the category B classification of this Project, these potential social impacts are expected to be less adverse, easily remediable and site-specific.

48. Environmental Safeguards: The overall Safeguard compliance of the original is satisfactory. In this regard, the IPMP, ESMF and RPF that were prepared for the original project have been updated and re-disclosed country-wide in Nigeria on April 4, 2013(see Table 5) and subsequently at Word Bank InfoShop on April 18, 2013 as required. The Project Development Objective, basic project design and implementation arrangements would remain the same as in the original project. The proposed AF will support critical production activities and organization of farmers into out-grower groups in the selected project intervention areas. The proposed AF is in furtherance of the activities supported by the original project especially in the proposed staple crop processing zone. The adverse environmental consequences are not expected to transcend those anticipated in the original project. The Project has been classified as a B Category, implying that potential environmental and social impacts will be less adverse, easily remediable and site-specific. However, the project may involve the construction, strengthening or modification of small dams, weirs and water impoundment. For this reason, the safety of dams policy (OP 4.37) is triggered, even though the project is not supporting any large dams. The ESMF provides guidance, and qualified engineers will be engaged for design and supervision. The client has processed and formally disclosed site specific safeguard instruments that were prepared during the implementation of the parent Fadama III project. A summary table of these safeguard instruments prepared under the original project is provided below:

Table 6: Safeguard Instruments and Disclosure

|Safeguard instrument |Project site (when relevant) |Disclosure Date |

|Revised Environmental and Social Management |Lagos, Niger, Enugu, Anambra, Kano, |April 4, 2013 |

|Framework(ESMF) |Kogi | |

|Revised Resettlement Policy Framework (RPF) |Lagos, Niger, Enugu, Anambra, Kano, |April 4, 2013 |

| |Kogi | |

|Revised Pest Management Plan(PMP) |Lagos, Niger, Enugu, Anambra, Kano, |April 4, 2013 |

| |Kogi | |

|33 Site Specific Environmental and Social |Akwa-Ibom, Bayelsa, Delta, Enugu, |May 17, 2013 |

|Management Plans(ESMP) |Katsina, Ogun, Osun, and Sokoto | |

49. Details of safeguard mitigation plans that will ensure continuous satisfactory safeguards performance of the project were discussed and agreed upon with the client during Appraisal.

|Safeguard Policies Triggered by the Project |Yes |No |

|Environmental Assessment (OP/BP 4.01) |[X] |[ ] |

|Natural Habitats (OP/BP 4.04) |[X] |[ ] |

|Forests (OP/BP 4.36) |[] |[ ] |

|Pest Management (OP 4.09) |[X] |[ ] |

|Physical Cultural Resources (OP/BP 4.11) |[X] |[ ] |

|Indigenous Peoples (OP/BP 4.10) |[ ] |[X] |

|Involuntary Resettlement (OP/BP 4.12) |[X] |[ ] |

|Safety of Dams (OP/BP 4.37) |[X] |[ ] |

|Projects on International Waterways (OP/BP 7.50) |[X] |[ ] |

|Projects in Disputed Areas (OP/BP 7.60) |[ ] |[X] |

| | | |

10. List of Factual Technical Documents

1. Project Paper (PP)

2. Project Implementation Plan (PIM)

11. Contact point

Contact: Abimbola Adubi

Title: Sr Agricultural Spec.

Tel: 5359+219 / 234-9-314-5269

Fax:

Email: aadubi@

Location: Abuja, Nigeria (IBRD)

12. For more information contact:

The InfoShop

The World Bank

1818 H Street, NW

Washington, D.C. 20433

Telephone: (202) 458-4500

Fax: (202) 522-1500

Email: pic@

Web:

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