world bank document€¦ · currency equivalents (exchange rate effective june 2009) currency unit...

Document of The World Bank

Report No: ICR00001166

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72360)

ON A

LOAN

IN THE AMOUNT OF US$60 MILLION

TO THE

REPUBLIC OF THE PHILIPPINES

FOR A

DIVERSIFIED FARM INCOME AND MARKET DEVELOPMENT PROJECT

June 28, 2010

Philippines Sustainable Development Department East Asia and Pacific Region

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(Exchange Rate Effective June 2009)

Currency Unit = Philippine Peso (PhP) PhP 1.00 = US$ 0.02088

US$ 1.00 = PhP 47.9053

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS

AAA Analytical and Advisory Activities ACPC Agricultural Credit Policy Council AFIS Agriculture and Fisheries Information Service AFMA Agriculture and Fisheries Modernization Act AFMIS Agricultural and Fisheries Market Information Service AFMP Agriculture and Fisheries Modernization Plan AMAS Agriculture Marketing Assistance Service AO Administrative Order APL Adaptable Program Loan ASAs Allocation Sub-Allotments AT Agricultural Technician ATI Agricultural Training Institute BACs Bids and Awards Committees BAI Bureau of Animal Industry BAFPS Bureau of Agricultural Food Product Standards BAR Bureau of Agricultural Research BAS Bureau of Agricultural Statistics, Department of Agriculture BFAR Bureau of Fisheries and Aquatic Resources BPI Bureau of Plant Industry BPHRE Bureau of Post-Harvest Research and Extension CAR Cordillera Administrative Region CAS Country Assistance Strategy COA Commission on Audit

COCAFM Congressional Oversight Committee for Agriculture and Fisheries Modernization

CPBD Congressional Planning and Budget Department DA Department of Agriculture DBM Department of Budget and Management

DFIMDP Diversified Farm Income and Market Development Project DOF Department of Finance DOST Department of Science and Technology DTI Department of Trade and Industry eNGAS Electronic New Government Accounting System EO Executive Order ERR Economic Rate of Return EU European Union FAO Food and Agriculture Organization FIES Family Income and Expenditure Survey FM Financial Management FMRs Farm-to-Market Roads FMS Financial Management Service FPA Fertilizer and Pesticide Authority GAA General Appropriations Act GMA Ginintuang Masaganang Ani GOCC Government Owned and Controlled Corporation GOP Government of the Philippines IAs Implementing Agencies IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IFC International Finance Corporation IL – ICR Intensive Learning - Implementation Completion Review IP Indigenous People ISR Implementation Status Report ITCAF Information Technology Center for Agriculture and Fisheries LBRMO Legislative Budget Research and Monitoring Office LGU or LGUs Local Government Unit/s MAO Municipal Agricultural Officer M&E Monitoring and Evaluation MFOs Major Final Outputs MTEF Medium Term Expenditure Framework NAFC National Agriculture and Fisheries Council NEDA National Economic and Development Authority NFA National Food Authority NG National Government

NMIC National Meat Inspection Council NMIS National Meat Inspection Service NPS National Program Support NPV Net Present Value OPIF Organization Performance Indicator Framework OSec Office of the Secretary of the Department of Agriculture PAB Project Advisory Board PAD Project Appraisal Document PAg Program Agreement PAO Provincial Agricultural Officer PCR Project Completion Report PDO Project Development Objectives PEM Public Expenditure Management PMO Project Management Office QAG World Bank Quality Assessment Group QEA Quality at Entry QSA Quality of Supervision RA Republic Act R&D Research and Development RFUs Regional Field Units of the Department of Agriculture RPABs Regional Program Advisory Boards SARO Special Allotment Order SEER Sector Efficiency and Effectiveness Review SEPO Senate Economic Planning Office SIL Sector Investment Loan SIM Sector Investment and Maintenance SMS Short Message Service SOE Statement of Expenditure SUCs State Universities and Colleges TA Technical Assistance TWG Technical Working Group USD United States Dollar

PHILIPPINES

DIVERSIFIED FARM INCOME AND MARKET DEVELOPMENT PROJECT

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 33. Assessment of Outcomes .......................................................................................... 114. Assessment of Risk to Development Outcome. Rating: High................................. 175. Assessment of Bank and Borrower Performance: .................................................... 176. Lessons Learned........................................................................................................ 227. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 24Annex 1. Project Costs and Financing:......................................................................... 26Annex 2. Outputs by Component.................................................................................. 27Annex 3. Economic and Financial Analysis ................................................................. 36Annex 4. Bank Lending and Implementation Support/Supervision Processes............. 59Annex 5. Beneficiary Survey Results ........................................................................... 61Annex 6. Stakeholder Workshop Report and Results................................................... 63Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR..................... 67Annex 8: List of Supporting Documents ...................................................................... 74MAP.............................................................................................................................. 75

Vice President:James W. Adams, EAPVP

Country Director:Bert Hofman, EACPF

Sustainable Development Leader:Mark C. Woodward, EASPS

Task Team Leader:Felizardo Jr K.Virtucio, EASPS

i

A. Basic Information

Country: Philippines Project Name: Diversified Farm Income and Market Development Project

Project ID: P075184 L/C/TF Number(s): IBRD-72360

ICR Date: 06/28/2010 ICR Type: Intensive Learning ICR

Lending Instrument: SIM Borrower: REPUBLIC OF THE PHILIPPINES

Original Total Commitment:

USD 60.0M Disbursed Amount: USD 25.6M

Revised Amount: USD 60.0M

Environmental Category: B

Implementing Agencies: Department of Agriculture

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 09/05/2002 Effectiveness: 10/29/2004

Appraisal: 02/11/2004 Restructuring(s):

Approval: 06/22/2004 Mid-term Review: 09/28/2007 10/09/2007

Closing: 06/30/2009 06/30/2009 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Unsatisfactory

Risk to Development Outcome: High

Bank Performance: Moderately Satisfactory

Borrower Performance: Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Unsatisfactory

Quality of Supervision: Moderately SatisfactoryImplementing Agency/Agencies:

Unsatisfactory

Overall Bank Performance:

Moderately SatisfactoryOverall Borrower Performance:

Unsatisfactory

ii

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

Moderately Satisfactory

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Moderately Unsatisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Agricultural extension and research 15 20

Agricultural marketing and trade 60 63

Central government administration 5 6

Roads and highways 5 2

Sub-national government administration 15 9

Theme Code (as % of total Bank financing)

Export development and competitiveness 25 27

Infrastructure services for private sector development 24 16

Rural markets 13 13

Rural services and infrastructure 25 26

Technology diffusion 13 18 E. Bank Staff

Positions At ICR At Approval

Vice President: James W. Adams Jemal-ud-din Kassum

Country Director: Bert Hofman Robert V. Pulley

Sector Manager: Mark C. Woodward Rahul Raturi

Project Team Leader: Felizardo Jr K. Virtucio Carolina V. Figueroa-Geron

ICR Team Leader: Felizardo Jr K. Virtucio

ICR Primary Author: Douglas A. Forno

iii

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the project is to assist the Government of the Philippines (GOP) to strengthen the capacity of its Department of Agriculture (DA) to provide market-oriented services to increase agricultural competitiveness and rural incomes. The project is part of the Government's long-term developmental objective (i) to transform its Department of Agriculture into a more service and market-oriented agency; and (ii) to arrest and reverse the declining competitiveness of the agriculture and fisheries sector by creating better conditions for agribusiness diversification and productivity-enhancing investments by the private sector. Revised Project Development Objectives (as approved by original approving authority) Project Development Objectives were not revised. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Better client satisfaction and appreciation of DA's delivery of market development services and investments.

Value quantitative or Qualitative)

Baseline Client Satisfaction Survey was finalized in January 2006

>35% increase from baseline

Not available

Date achieved 04/04/2005 06/30/2009 06/30/2009

Comments (incl. % achievement)

Not yet done.In line with the Loan Agreement & the PAD, the NEDA was supposed to lead the preparation of the DFIMDP Terminal Evaluation. However, this was not done. Nevertheless, the DA has initiated the preparation of its own project completion report.

Indicator 2 : Increase in the proportion of budgetary resources for DA's core functions. Indicative targets compared with baseline averages from the past five years

Value quantitative or Qualitative)

Total Baseline figure is 32% of approved allocations.

Total target by end of project is 47% of approved allocations

Market-oriented activities account for 25% of approved allocations in 2009

Date achieved 10/01/2004 06/30/2009 06/30/2009 Comments (incl. % achievement)

Not achieved. End-project period proportion of DA#s annual budgetary resources for core functions is even lower than the baseline figures in 2004.

iv

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Support to Market Development Services - Operationalization of the AFMIS in the four focus areas

Value (quantitative or Qualitative)

No regular market information service is operating in the Country serving small-scale farmers.

Regular AFMIS access by 75% of targeted farmers in the 4 focus areas

Not available

Date achieved 10/01/2004 06/30/2009 06/30/2009


Partially achieved. An AFMIS Operations Manual has been completed and approved. The AFMIS application system was accepted by the Market Development Cluster in May 2009 and updated in May 2010. The AFMIS database and Web server have been pilot-tested.

Indicator 2 : Market Dev'ts - All infrastructure investments supported by the DA in Focus Areas are executed following the procedures described in the Operations Manual to improve cost-effectiveness


No Standard procedures exist

100% adoption Not available

Date achieved 10/01/2004 06/30/2009 06/30/2009


Achieved. All regional offices of the DA have been provided copies of the Operations Manual, and Regional Field Units (RFUs) participating in the DFIMD project have institutionalized their Regional Advisory Boards and Regional Technical Secretariats.

Indicator 3 : Strengthening Safety and Quality Assurance - Full disclosure of regulatory procedures, charges, forms etc. through web-based information system


No Effective System exists

User-friendly comprehensive web-based system operating and publicized

User-friendly comprehensive web-based system operating and publicized


Achieved. An on-line system was launched in September 2008 which provides information on the requirements, process and the ability to down-load forms needed to obtain clearances.

Indicator 4 : Strengthening Safety and Quality Assurance - Full cost charge-out rates applied for services connected with provision of clearances, certification, provision of improved genetic material etc.


No overall policy exists. Cost recovery is ad hoc and inconsistently applied

Full cost recovery for all services achieved

Not achieved.

Date achieved 10/01/2004 06/30/2009 06/30/2009 Comments (incl. %

Not achieved. Executive Order No. 554, issued by the President in 2006, eliminated fees and charges imposed on export clearances, inspections, permits,

v

achievement) certificates and other documentation requirements, thereby defeating the purpose of this indicator.

Indicator 5 : Strengthening Safety and Quality Assurance - Increase in the number of accredited private sector operated seed production units, nurseries and analytical laboratories, servicing the sector


DA private sector accreditation guidelines finalized and adopted; Collection of baseline data figures

Continued adoption of DA private sector accreditation guidelines, and increase in baseline figures by at least 20%

161 % increase in the number of accredited Seed Producers during 2004-2008


Achieved. Issuance of A.O. 6 in 2006 instructing that any procurement by the DA of seed or plant material should be from accredited suppliers provided incentive for seed producers and nurseries to become accredited.

Indicator 6 : Market linked Technology Dev't and Dissemination - Loan funds provided through CRG should be in support of research with clear linkages to improving marketability of crop/livestock/fishery products


No mechanisms exist for ensuring market linkages in research activities.

Continued adoption of Guidelines for Competitive Research Grants Guidelines

Continued adoption of Guidelines for Competitive Research Grants Guidelines


Achieved. The #competitive# approach to funding research has been adopted and effectively implemented for all types of research. Targets were exceeded in most years and the system has operated well beyond project closing.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 10/27/2004 Satisfactory Satisfactory 0.00 2 04/12/2005 Satisfactory Satisfactory 0.75 3 12/21/2005 Satisfactory Moderately Satisfactory 1.62

4 06/29/2006 Moderately

Unsatisfactory Unsatisfactory 3.60




Unsatisfactory Moderately

Unsatisfactory 22.39



vi

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal The project was approved in June 2004, at a time when some 50% of rural households were estimated to live below the poverty line and heavily dependent on agriculture. The agriculture sector’s performance had been poor as the Philippines’ competitive edge in world markets for its key commodities (rice, corn, sugar and coconuts) had been slipping, with few new competitive agricultural products emerging. In response, the Agriculture and Fisheries Modernization Act (AFMA) of 1997 sought to modernize agriculture and fisheries in order to prepare the sector for the challenges of globalization. However, despite the AFMA, there was a widespread perception among stakeholders, especially the Oversight Agencies and senior DA management, that policy and institutional distortions continued to plague the sector. These were manifested in persistent ineffectiveness in addressing market and price signals, inordinately high marketing costs, and relatively little private sector investment in value-addition and post harvest processing. Government programs relating to market development, market information, and implementation of regulatory functions had also been severely under-funded. Moreover, institutional and public expenditure reforms to improve the Department of Agriculture’s (DA) performance were believed to be long overdue. An external impetus was needed to move away from special commodity/ production programs (“Banner” or “GMA Programs” as they became known) by which the bulk of resources were allocated. These were perceived as leading to gross under-funding of the core functions supporting a more modern and competitive agriculture sector. 2 These viewpoints were supported by several studies undertaken by Government which pointed to the need for a more private sector, market-oriented approach to agricultural development. It was in this context that the World Bank was requested to assist the DA with reform, while also aiding the Department of Budget and Management (DBM) and the National Economic and Development Authority (NEDA) in overall improving public expenditure management (PEM). The PEM reforms were designed to improve efficiency and accountability, by improving the link between planning and budgeting and in allocating resources according to major final outputs 3(MFOs). These were expected to promote the DA’s restructuring along functional, rather than along commodity, lines and to provide greater emphasis to market-related activities. A Special Order to this effect was issued by the Secretary of Agriculture to facilitate project preparation. There were also severe fiscal constraints which seriously limited budget releases government-wide at that time. Given these policy directions and the fiscal constraints, the Bank was well-placed to assist the Government of the Philippines (GoP) both in providing the needed cash to support priority Government programs and in supporting the PEM reforms. The Bank’s 2003-2005 Country Assistance Strategy (CAS) required it to sharpen its non-lending and lending support to address the declining competitiveness of Philippine agriculture, if agricultural growth, on-and off-farm employment creation, and rural poverty reduction were to be achieved. The CAS also included provisions for National Program Support (NPS) type projects which supported both sector and PEM reforms.

2 Project Appraisal Document (Ln. 7236-PH), World Bank. 3 Refers to goods and services that a department or agency is mandated to deliver to external clients through programs, activities and projects. These are expected to directly contribute to target organizational outcomes.

2

1.2 Original Project Development Objectives (PDO) and Key Indicators The Project sought to assist the Government of the Philippines (GoP) to strengthen the capacity of its Department of Agriculture (DA) to provide market-oriented services to increase agricultural competitiveness and rural incomes. It was expected that institutional and attitudinal change would take time and sustained effort given entrenched policies, customs and practices. Planned outcomes were, therefore, modest, as reflected in the Project Appraisal Document’s (PAD) Results Framework. The key performance indicators (KPIs) of the project outcomes were:4

• Better client satisfaction with DA’s delivery of market information, development services and market-related investments, and

• Increase in the proportion of budgetary resources allocated to DA's core functions dealing with a) market information and development services; b) safety and quality assurance regulatory systems; and c) market-linked technology development and dissemination.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

There was no revision of the project development objectives and key indicators.

1.4 Main Beneficiaries The DA as well as the participating members of the private sector and Local Government Units (LGUs) in the four focus areas were to be the immediate beneficiaries and targets for this project. The DA’s capacity in development planning and budgeting and as provider of market-oriented agriculture support services were to be built. Participating Local Government Units (LGUs) and the private sector were also to be beneficiaries through partnership funding arrangements for market-related investments in the four focus areas. The main beneficiaries of the project were, however, the clients of the DA, LGUs and private service providers, which are the farmers, farmer organizations and cooperatives, agro-processors, traders and exporters, whose welfare was to be improved through better provision of market information, market infrastructure, research and development (R&D) and the strengthening of regulatory services.

1.5 Original Components Component 1: Support for Market Development Services (US$17.16 Million) to strengthen the capacity of the Agriculture Marketing Assistance Service (AMAS) of the DA to provide more effective market promotion, trade fairs, etc., in conjunction with the private sector, and establish an Agriculture and Fisheries Market Information System (AFMIS). Component 2: Market Development Investments (US$22.25 Million) that will use improved resource allocation criteria, in partnership with LGUs and the private sector, initially in four areas: Region 10 (Bukidnon), Region 7 (Cebu and Negros Oriental), Region 6 (Iloilo and Panay Island), and the Cordillera Administrative Region (CAR).

4 PAD op. cit., section B3.

3

Component 3: Strengthening Safety and Quality Assurance Systems for Market Development (US$17.33 Million) to improve the implementation capacity of the DA’s regulatory services, particularly to meet international standards through support for the DA’s six regulatory agencies5.

Component 4: Market-linked Technology Development and Dissemination (US$9.66 Million) byimproving the DA’s R&D and training outreach through the strengthening of the Bureau of Agricultural Research (BAR) and Bureau of Post-Harvest Research and Extension (BPRE), using a Competitive Grants, and the DA’s Agricultural Training Institute (ATI). Component 5: Enhancing Budget Resource Allocation and Planning (US$2.72Million) by supporting the government-wide initiative to improve public expenditure management, especially through more strategic allocation of the DA’s scarce budgetary resources giving more emphasis to the funding of the DA’s core functions relating to market development.

1.6 Revised Components: N/A

1.7 Other significant change: N/A

2. Key Factors Affecting Implementation and Outcomes The DFIMDP failed to meet its project development objectives (PDO) mainly because the Philippine government (GoP) backslid from its initial commitment to prioritize financing for market-oriented agricultural services and investments as well as to overall public expenditure management (PEM) reforms for the DA. Over the project life, this weakening of commitment to reforms by the government was reinforced by: i) the perception by the project implementers of non-incrementality in resources and more cumbersome reporting and accounting requirements inherent in Sector Investment Management (SIM) loans; ii) the easing of the budget constraint due to improvements in the fiscal position by 2006 and due to pump-priming activities of the government; iii) the multiplicity of cost-sharing arrangements between the NG and LGUs allowed by the NEDA; iv) the bureaucratic instability of the DA due to various changes in leadership; v) capacity constraints in procurement and FM among the project implementers; and vi) the global rice crisis in 2008 which further encouraged calls for rice self-sufficiency. 2.1 Project Preparation, Design and Quality at Entry Project preparation and design were appropriately responsive to the established policy and legal framework as well as to the government’s reform initiatives and directions in agriculture and in public expenditure management. The depth of the government’s commitment to these development framework and reforms was, however, overestimated. Before the project was conceived, the following strategic directions were undertaken and established by the GoP: i) the AFMA (Republic Act 8435) on February 9, 1998, which aims to modernize and make Philippine agriculture and fisheries more competitive; ii) DA Administrative Order (A.O.) no. 6 on July 10, 1998, which established the implementing rules and regulations (IRR) of the AFMA; iii) adoption by the DBM of the Organizational Performance Indicator Framework (OPIF) in the 2000 national budget; iv) Executive Order (E.O.) 338 on January 10, 2001, which restructured DA Services & Bureaus along 5 functional lines consistent with the AFMA; v) DA management assignment of Focal persons for AFMA

5 Bureau of Plan Industry, Bureau of Plant Industry, Bureau of Animal Industry, Bureau of Fisheries and Aquatic Resources, National Meat Inspection Council, Fertilizer and Pesticide Authority, and Bureau of Agricultural Food Product Standards

4

components and MFOs (S.O. 115-2002); vi) Revision of the Public Expenditure Framework and issuance of implementation guidelines; and vii) E.O. 366 to launch a bureaucracy-wide rationalization program consistent with, among others, the PEM reforms. Given these policy directions and the fiscal constraints faced by government at that time, the World Bank’s Country Assistance Strategy (CAS 2003- 2005) was well-positioned to assist the GoP. The CAS included provisions for National Program Support (NPS) type projects which supported both sector and PEM reforms. The DFIMDP was designed around this NPS strategy which has been continued in the current CAS (2010-2012). Accordingly, a Sector Investment and Maintenance (SIM) type loan was considered the most appropriate instrument to support the NPS strategy which will address the fiscal constraint of government by facilitating the availability of cash, and to support resource allocations for the core market-related functions of the DA. As part of the budget envelope of the DA, and by financing core activities within the budget which are related to market-oriented services, the SIM loan was supposed to fit seamlessly with the DA’s regular budget processes and facilitate the internalization of work planning and budget reforms. Together with DBM’s planned formal introduction of MFO-based budgeting in the General Appropriations Act (GAA) by 2005, it was felt that the Bank’s SIM loan instrument would facilitate the introduction of important public expenditure reforms through institutional capacity building and learning -by-doing, be fiscally responsive to the budgetary constraints of the Philippine government by not adding to the budget envelope of the DA, and facilitate decision making and the process of budget allocation in the DA in line with the goals of AFMA. There was strong initial support from the DA as well as from the oversight agencies. The majority of the units in the DA (at the senior management and staff levels) strongly endorsed the goals of the project due to the very difficult system under which most of their operational budgets were channeled through, and at the discretion of, the “Banner/GMA” Program Directors. Thus, together with the analytical studies previously cited, there were solid bases for the design of the DFIMDP and a satisfactory indication of the Borrower’s overall commitment and ownership for the proposed project. Nevertheless, it was noted that small “pockets” of resistance were evident in the DA, notably from within the Finance Service, where the concern was that the proposed “budget support” type loan (SIM) did not appear to offer any increment to the DA’s budget, and also due to the perception that it can potentially reduce flexibility of DA senior management in resource allocation. There was also little enthusiasm for the project among the Directors of the “Banner/GMA” programs, whose primary focus was on achieving commodity- specific production targets. It was anticipated at appraisal that the public sector reforms to be introduced under the project would run headlong against the budget allocation system operating in the DA by which the bulk of resources are channeled through “Banner/GMA programs”. It was, however, felt by the Government and the Bank at the time that the introduction of MFO-based budgeting was the most effective way of rectifying the governance issues surrounding this flexible mechanism for resource allocation in the DA. This reform was initially proposed to be a condition prior to negotiation but was removed at the request of DBM since this would require some time and would depend on the Legislature's process for coming up with the annual GAA. It should be noted that, in April 2004, when the project was supposed to be negotiated, the budget call for 2005 had passed (the process started in January 2004) and that, realistically, the next opportunity for a MFO-based DA budget would be in the 2006 GAA. This then posed a dilemma because insisting that this negotiation condition be fully met would have meant that the project could not be processed until after 2 years. It should be noted that pressure from Government to deliver this project was quite high due to the difficult fiscal situation at that time. Moreover, the Oversight Agencies said that DA’s compliance to MFO-based budgeting was virtually assured since: i) discussions between DA and DBM on the matter have been well under way for more than 2 years even before project conceptualization; and ii) NEDA, DBM, and the DOF would be in

5

the Project Advisory Board (PAB) to ensure there would be continued commitment by the DA and the oversight agencies for an MFO-based budget system in the GAA. However, in the course of project implementation, top-level DA commitment to the reforms espoused by the project waned considerably. To some extent, this possibility had been correctly identified at appraisal as a key risk, but the “moderate risk” rating that “successive Governments (or DA Secretaries) may not have the same level of commitment, ownership or leadership for the institutional reform process” was underestimated. Nevertheless, given the substantial reform measures committed to by Government under the AFMA and through the public sector reform process, which provided the basis for the Bank’s support for the project, it is debatable as to whether the implementation problems due to back-sliding on commitments could have been better anticipated at appraisal. A “Quality at Entry” review conducted by the QAG in 2005 rated project preparation as “moderately satisfactory.” 2.2 Implementation

The implementation difficulties of the project can largely be traced to the weakening of support by the administration to the reforms the DFIMDP was tasked to promote. This downscaling of the priority given to AFMA and PEM reforms by GoP management led to project activities and initiatives taking a backseat to other DA programs. The DA continued to set and sought to increasingly achieve production targets of rice and corn during the project period to the detriment of the AFMA reforms in terms of market-oriented investments and services. Although it was agreed at loan negotiations that the DA would seek to achieve modest increases in the allocation of its budget for market-related activities, the allocation actually declined from 32% in 2005 to 25% in 2009.The indicative target was to have been 47% by the end of the project. The Senate Economic Planning Office (SEPO) most recently concluded that (lack of) “financial support for the AFMA has greatly hindered the proper implementation of programs”6.

The PEM reforms were, likewise, placed on the backburner by the administration. E.O. 338’s implementation was discontinued and the execution of E.O. 366 was slowed down. MFO-based budgeting, which was to have been introduced by DBM in 2005, was not effectively implemented even by loan closing. Thus, there was lack of effective follow-through and application of discipline by the Oversight Agencies in the implementation of PEM commitments and reforms. For instance, there was no budgetary discipline imposed to ensure the intended level of funding for market-oriented MFOs occurred. Rather, the practice continued whereby some 70% of the DA’s total operational budget is held in the Office of the Secretary where it was largely coursed through the “Banner/GMA” programs for production support. The Coordinators of these programs determine how much of their annual allocations they will provide to DA units to implement core activities (including market-oriented and regulatory services). This system perpetuated a cycle of bargaining by implementing agencies to finance core functions. There is no certainty funds will be provided, and more damaging was the continuous back and forth practice of providing and getting back previously issued allotments to market-oriented activities and investments. A possible political economy explanation for this shift in policy position is the fact that the administration faced legitimacy questions beginning 2004. Thus, there may have been less appetite to spend political capital for difficult reforms like those in the AFMA involving a sensitive issue such as rice self-sufficiency. On the other hand, political capital may be gained by being seen to strongly support nationalistic sentiments attached to the country’s staple. Meanwhile, political firefighting became more

6 Policy Brief (PB-09-1), Senate Economic Planning Office. February 2009

6

frequent after the government’s legitimacy was questioned. This shortened the planning horizon of the government and increased their need for a more flexible public expenditure management system that would be more responsive to short-term political needs. This may have driven the PEM reform agenda, which calls for long-term and strategic rationalization of public resource use, to the bottom of the government’s priority initiatives. The current system allows the DA to place its resources to effectively respond to the demands of natural disasters, emergencies and political expectations. After the Senate hearings on the Fertilizer Scam7 and after a Commission on Audit (COA) report on the Department was released, the DA decided to shift its emphasis away from fertilizer and seed production support to post-harvest infrastructure support including farm- to-market roads in 2009. This illustrates the highly discretionary nature of the budget process operating through the “Banner/GMA” programs. This ad hoc and “fire-fighting” system of resource allocation and interventions is, however, not conducive to comprehensive strategic planning and building functional capacity in the DA. It is also neither an efficient system for allocating resources to the line agencies and units of the DA nor for improving governance through the assignment of management responsibility and budget accountability to line agency and unit managers. The perpetuation of this system has seriously undermined strategic planning and management accountability that will not be easy to restore.

There were, likewise, other factors and developments which exacerbated the implementation difficulties of the project.

The SIM instrument, although deemed by the Oversight Agencies (and, perhaps, conceptually by the DA itself) to be the appropriate mechanism for PEM reforms, was not fully appreciated by the implementing units of the DA. There were problems getting them to enroll activities for financing using the loan proceeds, especially if it was thought that regular budget could be obtained for such activities. This was because it was perceived to provide no incremental resources, being part of the Department’s budget envelope, and because of the extra processing and paperwork required by the enrolment. The financial management requirements of the loan required that activities to be funded with loan proceeds should be identified in a work plan and budget which should actually be a sub-set of the DA’s overall agreed work plan and budget. It was agreed that this would constitute a “Program Agreement8 (PAg)” that would be reviewed by the Bank and against which loan funds could be advanced. This and other additional paperwork9, added to the reluctance to enroll eligible activities. The PAg was seen more as a way to leverage funds that otherwise might not be obtained in a constrained budget situation.

In reality, the DBM appeared to be more amenable to increasing the budget envelope of agencies implementing an NPS project given the built-in mechanisms for good public expenditure management. Moreover, this budget increase would be more likely to be permanent since it involves the regular budget envelope of the agency. Meanwhile, funds from a SIL would be above-budget, and, thus, would remain only until the end of the project. For the same reason, resources from a SIL are more easily discernable as

7 Distribution of fertilizer allocations to Congressmen by the Arroyo administration, through the DA, allegedly to buy political support. 8 Program Agreements were used in the case of staff agencies of the DA and Program Contracts were used for line agencies and regional field units (RFUs). These provided the basis for advance payments from the loan, with subsequent releases linked to liquidation of expenditures and achievement of outputs/outcomes. 9 Both the SIL and the SIM loans require considerable additional monitoring and reporting from the government. The transactions in a SIL loan are, however, relatively easier to track since it has a separate and distinct budget line item. Meanwhile, SIM loan expenditures are embedded in the regular budget lines of the implementing department and must be differentiated from items funded by the regular GAA.

7

an incremental budget. It should also be noted that the additional paperwork due to a SIM program would not be much of an obstacle if there was a clear signal of commitment to the project by management. DA-Regional Field Unit (RFU) 6, for instance, whose management was fully committed to the project, successfully dealt with the extra processing requirements of the project and was able to fully tap project resources. The DA’s budget constraint also eased as the government’s fiscal position improved during the course of project implementation and ‘pump-priming10” activities were undertaken from 2007 to 2008 to help stimulate the economy. Consequently, there was even more reluctance to enroll activities by some units, as from their perspective, the budget would be available anyway from regular funds. Over the life of the project, there was a three-fold increase in the budget of the DA, from PhP14.5 B in 2005 to PhP46.9 B in 2009, with AFMA appropriations accounting for 71% to 82% of this. These, in effect, marginalized the DFIMDP’s leveraging power to achieve its development objective, as the proportion of the budget to be funded through loan proceeds declined from about 4% (based on 2004 budget levels), to only some 0.02% of DA’s cumulative budget over the five-year project period.

Yet another difficulty encountered, which greatly affected the level of market-related investment using loan funds, was the multiplicity of cost-sharing arrangements with LGUs allowed by Government. The policy of the NEDA for externally-funded projects, such as the DFIMDP, required a 50/50 cost sharing with LGUs, even while the DA was permitted to provide much higher levels of financing, including grants, when they use their regular budget. This greatly reduced the “enrolment” of sub-projects drawing upon loan proceeds and undermined a key project objective of achieving a standardized and transparent approach by which DA transferred resources to LGUs for devolved investments, e.g., farm-to-market roads (FMRs), bridges, communal irrigation systems, post harvest facilities and other market infrastructure. The mixed signals given by the NEDA here contributed to a significant underutilization of loan funds.

It should also be noted that the DA had four successive changes in leadership during the six years of the project. Orientation on and advocacy for the project needed to be renewed for each new DA Secretary and the new sets of officials he would be bringing with him. It was, therefore, difficult for the DFIMDP reform agenda to put deep roots into DA management under this environment of bureaucratic instability.

There were, likewise, capacity constraints in procurement and financial management among the DA central and regional implementing units as well as with the participating LGUs. These posed considerable challenges during project implementation (please refer to Section 2.4 for details). More recently, the international rice crisis in 2008 saw a near tripling of world rice prices at its peak in April 2008. While the domestic retail price of rice has since stabilized, it is expected to remain high in real and nominal terms in the medium to long-term, well above the low level reached at the start of the decade. This further deepened the determination of the GoP to seek rice self-sufficiency given that it imports about 10 percent of its rice consumption and is the single largest rice importer in the world. The DA’s response to the crisis was to intensify their rice production support through the launching of the “FIELDS” Program (Fertilizer, Infrastructure and Irrigation, Extension and Education, Loans, Drying and other post-harvest facilities, and Seeds) which provided farmers a package of support to

10 “Pump-priming” refers to the Administration’s practice of front-loading budget releases to agencies such as the DA to help stimulate the economy. In 2006, the DA committed virtually its entire operational budget within the first quarter, requiring a supplemental budget to cover the remainder of the year. “Pump-priming” in the DA was largely used to fund purchase of seeds and fertilizers.

8

encourage further domestic production in rice as well as corn, livestock, fisheries and high-value crops. The budget allocation for this program in 2009 doubled the DA’s previous budget allocation.

The mid-term review (MTR) conducted by the Bank team identified the following factors behind the project’s poor performance: i) the DA’s non-implementation of the agreement for function-based resource allocation; ii) continuing disconnect between DA’s planning and budgeting; iii) the DA’s imbalanced implementation of the AFMA; iv) the DBM’s delay in the implementation of MFO-based budgeting iv) the DBM’s inability to enforce financial discipline on the DA and; v) the NEDA’s inadequate advocacy of DFIMDP-related reforms contained in the Medium-term Philippine Development Plan (MTPDP). Its main conclusions are: i) The PDO remains relevant and consistent with government priorities; ii) the DA has sufficient capacity to implement the project and the catch-up measures; iii) the catch-up measures and modified procedures already in place are adequate to overcome the implementation difficulties to ensure efficient flow of funds; and iv) there is a need for the DA to accelerate the pace and quality of physical implementation to ensure catch-up. Meanwhile, the MTR conducted by the GoP, under the leadership of the NEDA, basically supported the findings and conclusions of the Bank’s review.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design

The project provided for M&E to be conducted by the Program Monitoring and Evaluation Division (PMED) of the DA’s Planning Service, using the established functional linkages with line (e.g., Bureau of Agricultural Statistics) and service (e.g., Agriculture Marketing Assistance Service, Policy Research Service) agencies of the DA as well as the DA Regional Field Units (RFUs). This was to ensure better mainstreaming and rationalization of the project M&E with the regular M&E system of the DA. Regular reports on the project by component were to be made to the Project Advisory Board (PAB) to help guide implementation. Besides the immediate outcome indicators described in the Data Sheet, the M&E system is also supposed to track secondary outcome indicators for the higher level project objectives of increased agricultural competitiveness and rural incomes resulting from higher DA capacity to provide market-oriented services. These indicators (and minimum end-project targets vis-à-vis baseline figures) include : i) 30 percent decrease in the number of export rejections at major destination ports; ii) 8 percent increase in the number of private sector firms and producer associations engaged in processing, marketing and export of agricultural produce; iii) 10 percent reduction in post-harvest losses in key products; and iv) 15 percent increase in farm profitability and greater diversification in farm incomes in focus areas (covering both those who are affiliated and not affiliated with associations/private sector groups assisted by the project). There is a strong and positive link between the DFIMDP PDO and its KPIs. There is a direct causal link between the amount and share of resources allocated for market-oriented services and the DA’s capacity to deliver them to its clients. Moreover, the state of this capacity is clearly manifested by the level of satisfaction derived by clients from the services they received. Meanwhile, the intermediate outcomes refer to the market-oriented services and investments the project was assisting the DA improve its delivery capacity on. There are also strong links between the intermediate and secondary outcome indicators and the higher level objectives of the project. On the intermediate outcomes, improved regulatory services (e.g., sanitary and phyto-sanitary) as well as market facilities, for instance, can effectively increase the volume of agriculture exports indicating increased competitiveness. Meanwhile, investments in market-oriented infrastructure, like FMRs, have proven to have high EIRRs and, therefore, significant positive impact on

9

rural incomes. On the secondary outcome indicators, the trends in export rejections and in the number of participants in post-production agricultural activities are clear gauges of the state of agricultural competitiveness. In the meantime, farm profitability and rural household incomes go hand in hand. However, lower post-harvest losses do not automatically lead to higher rural incomes and greater competitiveness. M&E Implementation and Utilization

The main reporting on the project was done by the five “Clusters”, not by the PMED. This made M&E reporting on the project ad hoc and primarily undertaken in response to the discipline imposed by the Bank through its regular six-monthly reviews of the project. This may have compromised the mainstreaming and sustainability of the project M&E as well as the timeliness in the provision of decision support information to the PAB. There was no baseline information established and no regular monitoring of the secondary outcome indicators throughout the project life. More specifically, the planned project area-specific farm household income surveys were not conducted. As a result, the Bank team was forced to use, as proxy, regular sources of information that are not specific to the project sites. The DA said that it attempted to undertake the M&E of the project’s secondary outcomes through an IDF-funded grant project (Strengthening of Monitoring and Evaluation Capacities in Agriculture - TF056626). This initiative was, however, unsuccessful due reportedly to, among others, the inadequate engagement and follow-through by the participating LGUs. The project M&E is a reflection of the DA’s own M&E system which remains weak, both because of the limited staff capacity of the unit and because of the limited value given to M&E besides the tracking of the achievement of quantitative output targets. Related to this is the lack of financial accounting for how the DA budget is spent vis-a- vis the outputs/outcomes identified in the budget. Financial accounting is done only mechanistically against the lists of inputs/outputs, without much analysis or discipline imposed to review the impact of such expenditures.

2.4 Safeguard and Fiduciary Compliance For the most part, compliance with environmental safeguards was rated as satisfactory, and for social safeguards, the rating was largely moderately satisfactory throughout. The latter experienced some compliance and validation difficulties brought about by the late assignment and training of project focals as well as inconsistencies and inadequacy of documentation in some project sites. The safe and reduced use of chemicals and the environmental impact of market development investments were the major issues on the environment. Meanwhile, the main social concern was for the inclusion of marginalized social groups, like indigenous peoples (IPs), in the planning and benefits of the identified interventions. The bi-annual Bank review teams monitored these aspects closely, although it was not until around mid-term in the project that a significant number of such infrastructure projects began to get underway. Where deficiencies were noted, these were acted upon by the DA-Regional Field Unit (RFU) concerned. A refresher course on safeguard policies held for concerned RFU staff in October 2007 proved to be helpful in maintaining awareness of the importance of compliance with safeguard policies.

There were no serious procurement issues under the project, with any deficiencies noted being corrected. The procurement experience mirrored that of a number of other projects in the Philippines, whereby considerable unfamiliarity was found to exist among Regional Field Units and LGUs with the procurement requirements of Republic Act 9184 (Government Procurement Reform Act) which has, for the most part, harmonized Bank and Government procurement guidelines. Considerable technical support was, therefore, required on the part of the Bank during regular review missions to better acquaint

10

government staff with the requirements. With regard to procurement of large items, which did not start until late 2008, unfamiliarity with the Government’s own procedures again caused delays and the need to repeat procurement processes in some instances.

The financial management requirements for the project were, for the most part, rated as unsatisfactory, primarily because of delays in submitting reports and because of inadequate or incorrect documentation. This was a constant source of interaction between the Bank and the DA-Financial Management Service (FMS) throughout the project, and while deficiencies were corrected in due course, the difficulties encountered would seem to reflect a culture of inadequate financial accountability11 in the DA, and, in turn, inadequate oversight by DBM to ensure government’s own accountability requirements are met.

2.5 Post-completion Operation/Next Phase The DA did not submit a Plan for Future Operations of the DFIMDP in line with Section 3.03 of the Loan Agreement. The DFIMDP, nevertheless, was able to take small but significant steps (Section 3.5) which can potentially be up-scaled and leveraged to re-start the momentum for reforms. Most of these initiatives have also built-in mechanisms to ensure sustainability. For instance, a precondition for access by LGUs and communities to DFIMDP funds for market-related infrastructure is the budget allocation for the proper maintenance of these structures. This is being continued in similar engagements by the DA with the LGUs like the WB-funded Mindanao Rural Development Project12 (MRDP). Through the initiatives of the MRDP, the DA is now drafting an Administrative Order that will layout the parameters, modes, guidelines and mechanisms for the execution of co-financing agreements with LGUs in financing agriculture and fisheries extension projects. The Bureau of Agriculture and Fishery Product Standards (BAFPS) was also made operational with the approval of its staffing by the DBM. In addition, market development training was made intrinsic to the operations of the Agricultural Training Institute (ATI) through the re-orientation of about 50 percent of its training programs towards market development. The DA is also exploring and using other avenues to pursue the reforms that were not successfully implemented in the DFIMDP. The Planning Service, for instance, is developing a Farmers’ Registry, with the assistance of the World Bank, in order to improve planning and its linkage with budgeting, and to improve the effectiveness of DA operations. The registry will be used to improve targeting of its assistance to the farm sector and as a platform for developing innovative delivery of services for farmers, such as in extension, food safety, and support for adjustment and diversification of production. Relatedly, the DA, along with the NEDA, DBM and the Philippine Institute of Development Studies (PIDS), is cooperating with the Bank to disseminate the results and explore ways to institutionalize a tool

11 An evaluation of the DA’s FM system shows a significant need to strengthen its system of asset control and reporting which has not substantially changed before, during and after project implementation as shown by: i) delays in report submission to the regulatory agencies); ii) reporting delays and inadequacy of internal audit service; iii) inadequacy of the chart of accounts to immediately meet the reporting requirements of DFIMDP and the lack of/delay in the reconciliation between general ledger and subsidiary ledger accounts); iv) no apparent commitment from the implementing units to implement DBM-prescribed procedures already in place and no explanations for significant variances between actual expenditures and budget; v) absence of reconciliation between the physical count and the subsidiary ledger with the general ledger balance; vi) operating policies and procedures covered by manuals and administrative orders that are not strictly enforced by Management and complied to by implementing agencies (IAs); vii) delays in reporting fund utilization and liquidation and in making account reconciliation between the grantee and the DA as the grantor; viii) delays in the reports submitted by field offices for consolidation, which in turn is affected by delays in the receipt of liquidation from grantees; and ix) the inability of the electronic New Government Accounting System (e-NGAS) to generate the required project reports (FM Consultant’s report, Annex 8). 12 A project that serves as DA’s platform to operationalize the decentralization of agriculture and fishery services in line with the AFMA, Fisheries Code and the Local Government Code.

11

for the Monitoring and Evaluation of Agriculture Policies (MEAP). This tool identifies and measures the impact of agriculture policies and programs using the Organization of Economic Cooperation and Development (OECD) framework for welfare impact and incidence measurement. The DA has also included Agribusiness Development as a priority area in the GoP’s programming discussions with the WB. The Department is, therefore, actively engaged in the Bank’s implementation of its Agribusiness Support AAA Project which seeks to improve the competitiveness of Philippine agriculture by identifying new approaches through which the private sector can assume a leading role in agribusiness development. This will be achieved by facilitating and supporting a range of private-public partnerships (including LGUs) as a means to both catalyze and demonstrate more effective models/ approaches for development of the sector. Innovative business models, based on a demand-driven approach, will be designed and discussed with key stakeholders to more effectively link government policy and expenditure with business plans developed through representative private organizations.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The PDO is deemed relevant since it addresses the need for market-oriented public services and investments which many sector studies and analyses have identified as one of the major prerequisites to the modernization of Philippine agriculture and fisheries. It is consistent with the prevailing sector development policy framework reflected in the AFMA and in the 2001-2004 Medium Term Philippine Development Plan13 (MTPDP) and in the current (2004-2010) MTPDP14. It is, thus, also coherent with the Bank assistance strategies of “sharpening non-lending and lending support to address the declining competitiveness of Philippine agriculture (2003-2005 CAS)” and “ achieving more inclusive growth by supporting the GoP to improve the investment climate through an enabling business environment that promotes competitiveness, productivity and employment, especially in … agriculture and fisheries.. (2010-2012 CAS). The design of the project is also relevant to the specific reform agenda that the project sought to promote: the AFMA and PEM reforms. The features of the four components of the project closely mirrored the directions and priorities of AFMA. The project was also built around the broader public expenditure reforms which were initiated around the time the project was formulated. It was strongly supported by the Oversight Agencies as a means to help “spear-head” public expenditure reforms to improve linkages between planning and budget allocation, and in the timely reporting of outcomes through performance indicators, rather than as quantitative inputs (objects of expenditure). The choice of lending instrument was also appropriate given the parameters provided by the 2003-2005 CAS and by the reforms to be implemented. The DFIMDP is a National Program Support (NPS) project funded by a Sector Investment and Maintenance (SIM) loan from the Bank. This instrument is consistent with the goals and mechanisms of the PEM reforms (see Section 2.1). A Sector Investment Loan (SIL) could also have been able to help achieve the PDO. However, being a non-regular budget fund source,

13 One million new jobs in the sector shall be created through the implementation of the Agriculture and Fisheries Modernization Act or AFMA of 1997 and the Fisheries Code of 1998, specifically targeting public investments in the identified key Strategic Agriculture and Fisheries Development Zones (Modernizing Agriculture and Fisheries Chapter). 14 The agriculture and fisheries sector is envisioned to be increasingly competitive and diversified, driven by productive, profitable producers/farmers integrated to the markets by efficient supply/value chains and driven by private investments in a business climate of strong public-private partnerships (Agribusiness Chapter).

12

this type of loan may not have been able to sustain the increase in the budget for market-oriented services and investment beyond the project and may not have mainstreamed the PEM reforms in the regular planning, budgeting and programming processes and mechanisms of the DA. The possibility of beginning with a smaller loan utilizing the APL instrument had been discussed, but reportedly Government did not want to commit to this, and a smaller loan was felt to be inadequate to leverage the level of reforms needed. Discussions were held at virtually every review mission as to whether the project was appropriately designed, or whether additional modifications were needed. When the project became rated as marginally unsatisfactory, the possibility of loan cancellation was also a frequent topic among the Bank, the Oversight Agencies and the DA. In each instance, however, the consistent view was that: i) the reform measures addressed under the project remained central to the Government’s overall public expenditure reform agenda; ii) that the goals of AFMA, on which the project was based, remained relevant; and iii) the project design and PDO remained consistent with these reform measures and goals. Project implementation, however, became difficult in the face of waning support of the administration for the AFMA and PEM reforms. An ever-increasing priority was given by the DA to achieving production targets, particularly of rice and corn, due probably more to political than developmental considerations. This thrust became even stronger after the commodity price spikes in 2008. The PEM reforms were also placed at the backburner. The urgency for these reforms was diluted by the improvement of the GoP’s fiscal position during the project period. This led to considerable increases in the DA’s budget which consequently tempered the leveraging power of DFIMDP resources for reforms. Moreover, the prevailing resource management system at the DA is a good conduit for channeling resources flexibly for the supply of inputs, goods, infrastructure and provision of subsidies. It, therefore, provided a convenient mechanism for the DA management to respond rapidly and flexibly to natural disasters, disease outbreaks etc., as well as to pressures for funding coming both from the Legislative and Executive branches of government. Successive DA Secretaries and senior managers, confronted with pressures and well entrenched political expectations, quickly found that the existing system serves them well and cannot be easily modified.

3.2 Achievement of Project Development Objectives The objective (PDO) of the project, to assist in strengthening the capacity of the DA to provide market-oriented services to increase agricultural competitiveness and rural incomes, was not achieved based on its Key Performance Indicators (KPIs). The KPIs called for a fundamental shift in the way the DA conducts its business, as measured by i) a 15 percentage point average increase in the proportion of budgetary resources for DA's core functions supporting market development services; and ii) a 35 percent increase in client satisfaction with the DA’s delivery of market information, development services and market-related investments, from the baseline to the end of the project period. From a baseline of 32% of the DA budget in 2004, the trend in the budget share of market-oriented services and investments was positive during the first three years of the project (32 to 36%), but it subsequently declined throughout the rest of the project period. The increasingly production-oriented approach by the DA to agriculture and fisheries development plunged the budget of market-oriented services to lower than the baseline share by the end of the project (25% in 2009). The argument could be made that, because of the large and unanticipated budget increase, the actual funding for market-related services did increase, i.e., from PhP 4.6 B in 2005 to PhP 11 B in 2009, compared with PhP 6.8 B which would have corresponded to the indicative target of 47%, had the budget remained at its 2005 level. This, however, was explicitly discussed during project appraisal and negotiation, with the understanding that the indicative target should be kept as a proportion of the budget as an indicator of DA’s commitment to adjust the balance of priorities in line with the goals of AFMA. Only the budget share for infrastructure

13

(15.2 percent in 2009), among the 7 market-oriented expenditure item of the DA, was able meet its indicatory budget share of 10 percent by project end. The initial Client Satisfaction survey results showed only a very low level of satisfaction with DA services, and little overall knowledge of the DA’s functions. The follow-up survey, which is supposed to be undertaken at the end of the project, is expected to be available only by December 2010 due to delayed action on the part of Government and bidding difficulties15. Disagreement between the NEDA and the DA on who should take the lead16 in this activity delayed GoP action until after the end of the project. Nevertheless, the DA should be commended for adhering to this commitment even though project funds could no longer be tapped for this purpose. However, with production-oriented services and investments crowding out the budget share of its market-oriented counterparts, it is unlikely that there will be much, if any, improvement in client awareness and satisfaction, much less meeting the 35 percent improvement target. The results of the economic analysis (Section 3.3 and Annex 3) and two rounds of stakeholder consultations (Section 3.6 and Annex 6) also support the likelihood that not much, if any, improvement in client satisfaction could be expected. On the other hand, most of the target Intermediate Outcome were either achieved or partially achieved, with only one intermediate outcome not achieved. The 4 fully achieved target intermediate outcomes were delivered by Component 2: Market Development Services – (i) standardize the use of the Operations Manual; Component 3: Strengthening Safety and Quality Assurance Systems for Market on Market Development - ii) establishment of a web-based regulatory information system and iii) increase by some 20% in the number of accredited private sector operations); and by Component 4: Market-linked Technology Development and Dissemination – iv) implementation of a Competitive Research Grants Program. The intermediate outcome that was partially achieved was the operationalization of the AFMIS in Component 1: Support for Market Development Services. Due to delays in its implementation, it was unlikely that the target of 75% of the farmers in the focus areas of the project benefiting from the AFMIS by the end of the project was met. Meanwhile, component 3 failed to deliver full-cost pricing applied for regulatory services. Specific accomplishments vis-à-vis these key performance indicators (KPIs) on Intermediate Outcomes are provided in Annex 2.

Notwithstanding the failure of the project to achieve its overall project development objective (PDO), the creditable performance in achieving specific intermediate outcomes shows that, when funding was made available, the DA units/agencies did have the capacity to effectively implement the project. Therefore, it cannot be said that lack of technical implementation capacity was the cause of the unsatisfactory performance of the project. However, the lack of consistent and full support by the Administration for the project and the reforms it was promoting prevented the progress achieved in the intermediate outcomes from being sufficiently scaled up and mainstreamed to attain the PDO.

3.3 Efficiency The DFIMDP was efficient in its actual investments on infrastructure sub-projects. It was, however, inefficient in the overall use of project funds due to the i) significant underutilization of project resources and the consequently large commitment charges incurred; ii) economic and financial opportunities and benefits it has foregone; and iii) lack of any appreciable impact on the PDO and its various outcome indicators.

15 The Client Satisfaction Survey results was originally targeted to be available by June 2010. However, the winning bidder backed out and DA has to repeat the bidding process. 16 Section 6 j (Loan Conditions and Covenants), page 10 of the PAD states that “…DA would undertake and submit an external terminal evaluation conducted under the overall direction of the NEDA, in collaboration with the DBM…”

14

Infrastructure Sub-Project Level

At appraisal, no economic and financial analysis was carried out for the activities under the DFIMDP given the budget support and demand-driven nature of the sub-projects to be funded by the loan. Instead, the PAD only referred to a list of permissible sub-projects that would be associated with estimates of ex-ante EIRRs ranging between 16% and 18%. At the ICR stage, economic and financial analyses were carried out for some of the infrastructure sub-projects implemented out under Component 2: Market Development Investments, particularly in Regions 6 and 7 where the bulk of the component resources were spent. Specifically, these covered the construction/ rehabilitation of farm-to-market roads (FMRs), “Bagsakan” or trading centers and other facilities, as well as the acquisition of hauling trucks. These infrastructure sub-projects, with the only exception of the rehabilitation of footpaths, posted high EIRRs, especially for FMRs (Table 5, Annex 3). They exceeded the previously mentioned hurdle range of EIRRs established during project preparation. It should be noted, however, that the total amount spent in Component 2 represented only 8.1% of the total project cost at closure compared to the 32.2% estimated at appraisal. Given the high returns estimated for the sub-projects executed under this component, it is clear that the inability to fully utilize the project’s proceeds resulted in a huge value of foregone opportunities in terms of improved profitability and access to markets by farmers.

Project Level

Section 3.2 and Annex 2 showed that, in spite of significant achievements in the area of intermediate outcomes, the PDO was not met due to the back-tracking on DA resource allocation commitments and the consequent gross underutilization of project resources. Only 49% of the loan was disbursed, while the DA actually spent many times that amount on activities that would have been eligible for reimbursement from the loan. This was because of an unwillingness to complete the documentation by the DA-FMS and the implementing units, especially since the DBM had already released the budget to the DA. This raises additional governance issues, particularly since DBM agreed to the request from FMS for additional staff for such work under the project. As a result, loan commitment charges paid by the Government reached nearly US$ 1.0 M.

The overall efficiency of the project in the use of resources was also qualitatively evaluated in terms of the progress made in achieving the PDO through its various outcome indicators. It should be noted that the secondary outcomes expected from the project involve increases in both agricultural competitiveness and in rural incomes. The KPIs for these secondary outcomes are i) decrease in the number of export rejections at major destination ports; ii) increase in the number of private sector firms and producer associations engaged in processing, marketing and export of agricultural produce; iii) reduced post-harvest losses for key products; and iv) increase in farm profitability and greater diversification in farm incomes in the project focus areas. As mentioned in Section 2.3, the DA failed to adequately monitor these indicators. Nevertheless, except for indicators of firm participation and farm income diversification, some data on the other secondary outcome indicators were secured. These showed that, overall, not much, if any, progress was exhibited by these indicators during the project period. Data from the European Union (EU) shows that, during the project implementation period, the number of detentions and rejections of Philippine agri-food exports has increased. Part of this increase can be attributed to the higher volume of agri-food exports and, for a specific project sub-period, the tightening of the safety standards imposed by the EU on agri-food imports. On the other hand, the instances of rejection and detention increased by the same rate of increase in exports. Thus, it appears that the project has been unable to strengthen the quality assurance system for market development as originally planned. Given the impact that rejections and detentions of single shipments have on the export performance of the

15

whole sector, the failure to achieve the targets in this area is likely to have caused a substantial amount of losses by preventing an improved access to foreign markets.

Estimates on the post harvest losses for palay (or paddy rice) and corn were derived from the survey data of the Bureau of Post-harvest Research and Extension (BPHRE). These showed that, in the case of palay,there was a marginal decline in the losses since 1994. The drop in losses in storage was somehow negated by the deterioration in the losses in the other operations. In contrast, there was a substantial decline in the post-harvest losses in corn, with most coming from storage and shelling.

Meanwhile, the Bureau of Agricultural Statistics (BAS) data from the Cost and Returns Surveys for a large number of products show a tendency towards improved profitability of the import-competing products and worsening profitability of the exportables during the project implementation period. These trends are quite consistent with the focus on self-sufficiency pursued by the DA to achieve food security which, being focused on rice, corn and other import-competing crops, contrasted with the promotion of competitiveness of the whole Philippine agri-food system. It should be noted that, in distinction with the declining trend in the total share of Philippine exports in the US, EU and Japanese markets, the share of Philippine agri-food exports in these markets remains steady, in spite of the lack of government support. This underscores the comparative advantage the country has in this sector, from which strong dividends could be derived from more vigorous market-oriented public sector assistance. 3.4 Justification of Overall Outcome Rating: Unsatisfactory

The project design was consistent with the avowed development framework and priorities of the GoP as well as the CAS of the Bank for the Philippines for the sector. However, the failure of the project to bring about the PDO of changing the way the DA does business by shifting its resources and efforts towards market-oriented services and investments was given considerable weight in determining the overall rating. The project has also been inefficient in the use of its resources through gross underutilization resulting in, what most likely are, substantial forgone economic and financial benefits. Thus, in the end, it failed to provide any appreciable contribution to the improvement of agricultural competitiveness and rural incomes in support of AFMA. Nevertheless, it is acknowledged that the project was able to deliver most of its target intermediate outcomes that, if sustained and considerably expanded, will contribute to improving the service delivery of the DA.

3.5 Overarching Themes, Other Outcomes and Impacts Institutional Change/Strengthening of the DA

There were a number of significant developments supported under the project that were not captured by the key performance indicators. These were, however, well documented in the more detailed reporting done through the various Mission Aide Memoires, notably: i) approval for and staffing of the Bureau of Agriculture and Fishery Product Standards (BAFPS), which was a prerequisite for getting that agency to an operational level, ii) development, approval and subsequent implementation of a first phase action plan for strengthening regulatory laboratory and quarantine functions, iii) construction and rehabilitation of laboratory facilities and equipment for BAFPS, Bureau of Animal Industry (BAI), and Bureau of Plant Industry (BPI), and iv) the Agricultural Training Institute’s (ATI) support for market development training increased with over 50% of its training activities benefiting from this. These are small but

16

significant steps towards improving the institutional capacity of the Department to respond to demands for services supporting agricultural markets development.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops The IL-ICR conducted two separate rounds of stakeholder consultations to both obtain feedback and to validate the findings of the IL-ICR team. The first roundof discussion involved a wide range of mostly DFIMDP participants including i) DA Management, Regional, Bureau and Unit staff of the DA, ii) senior staff of the oversight agencies (DBM, NEDA and DOF), iii) legislators; iv) staff units of the Congress (Congressional Oversight Committee for Agriculture and Fisheries Modernization (COCAFM), Committee on Appropriations, and the Congressional Planning and Budget Department (CPBD)) and the Senate (SEPO, and the Legislative Budget Research and Monitoring Office (LBRMO)), v) farmer organizations, vi) civil society groups concerned with agricultural sector issues, and vii) agribusiness, processors and exporters. The second roundof discussions involved a workshop held on September 25, 2009 with the key agencies and individuals with strong influence over the direction of agriculture development strategies and policies. The feedback obtained from the extensive consultation process has provided a wealth of information and has been used by the team to validate the key findings presented in this IL-ICR. Noticeably, there was a strong consonance in the views expressed and, despite the sensitivities, a willingness to discuss the issues and way forward in an open and constructive manner. The key feedback obtained is summarized below;

i) Relevance of AFMA:There was unanimity in the view that, although not everything that everybody would want, the goals and directions of AFMA remain relevant and a high priority remains attached to its implementation.

ii) Oversight of AFMA implementation: A general consensus emerged that insufficient analysis had been done on AFMA implementation or lack thereof, which, in turn, had resulted in a failure by Legislators and Oversight Agency staff “to ask the right questions”. A lack of technical capacity in key units with responsibility for such analysis was thought to be at the center of the problem.

iii) Management of the DA: A high level of frustration continues to exist among the staff of the DA at the Bureau, RFU and Unit level with the budgetary system which channels the bulk of funds through GMA Programs, primarily for production support, and which prevents core mandates to be effectively planned and implemented. The prevailing perception is that systems in the DA operate primarily to respond to political priorities at the expense of its core functions. Concerns were also expressed with the quality of plans and programs coming from the DA which would require a more bottom-up approach. The counter-point from within the DA is that planning and programming mean very little, as budgetary decisions are made at the top based on political priorities. These points of view would seem symptomatic of more fundamental issues in the way in which work programming and accountability for results are conducted in the DA.

iv) Civil Society Feedback: The main concern expressed was with the lack of transparency and availability of information about the DA’s operations. This coupled with the lack of effectively functioning mechanisms through which civil society could interact with the DA resulted in civil society groups feeling they lacked sufficient information to engage effectively with the DA.

v) Agro-Industry/Processors and Exporters: While those interviewed expressed satisfaction with their involvement with the DA, particularly in trade fairs, it was apparent that only a very small number of firms were involved. Collaboration seemed to be based more on

17

personal knowledge and person-to-person contacts than on any broader institutional approach.

4. Assessment of Risk to Development Outcome. Rating: High

The failure of Government to implement AFMA some 12 years after its enactment, coupled with the failure to take advantage of the DFIMD project, which was designed specifically to facilitate implementation of the Act, clearly poses a continuing risk that the Philippines will be unable, even in the medium term, to strengthen the capacity of the Department of Agriculture to provide market-oriented services to increase agricultural competitiveness and rural incomes. As noted previously, there is, at a minimum, a need for renewed consciousness and re-affirmation of the goals, expectations and implementing procedures of AFMA, by both the Legislative and Executive branches of government.

5. Assessment of Bank and Borrower Performance: 5.1 Bank Performance Rating: Moderately Satisfactory (a) Bank Performance in Ensuring Quality at Entry: Rating - Moderately Satisfactory Preparation of the project spanned some 17 months and included extensive feasibility studies conducted through a consultant firm hired by the DA. Collaboration with FAO also led to a Technical Assistance Grant being implemented in Region 10, the results of which validated the benefits of providing services that strengthened market facilities and linkages between farmers, traders and agri-business. The Bank team, in conjunction with the DA, conducted extensive consultations with private sector agro-processor/exporter, farmer and Indigenous People’s (IP) groups which confirmed the approach being proposed. It is apparent also that care was taken to ensure support and consensus from DA management, DBM, and NEDA on the scope of the project and on the proposed reform package. The key concerns raised by the Quality Assessment Group (QAG) were that the project design did not do enough to prescribe reductions in sector subsidies and staffing, and QAG reviewers would have liked a more ambitious program addressing such things as credit needs, creation of cooperatives and assistance to agribusiness enterprises. QAG reviewers also considered the PDO to be very modest for a SIM type loan, and suggested a need for a clearer linkage between expenditures and the desired outcomes. In response, the project preparation team agreed that the project scope was indeed modest but, nevertheless, strategic since it focused on critical public expenditure reforms which were potentially catalytic. It was also pointed out that country experience from previous projects cautions against overambitious PDOs. The team also explained that the market-oriented nature of the services and investments to be fostered by the project was expected to achieve the desired outcomes. Given the team’s explanation, the QAG rated project preparation as “Moderately Satisfactory”. Nevertheless, the slow implementation of AFMA in the first 6 years leading up to the project and the dropping of the planned condition of negotiation to restructure the system of budgeting though the “Banner/GMA programs” should have raised more concern at the Bank about the level of commitment to the strategy and the PDO. Both the Bank and the Oversight Agencies, however, believed that, through the planned public expenditure reforms and liquidity support, the DA could be sufficiently induced to modify its procedures for planning and resource allocation. This proved to be an overly ambitious expectation especially since MFO-based budgeting never took off during implementation. It is debatable, however, as to whether any further analysis would have materially altered the decision of the Oversight Agencies and Bank management to proceed with the project, given the significant antecedents in place and the level of commitment expressed by the responsible Government agencies.

18

There is also little to suggest that additional loan conditionalities would have made a difference to the project outcome, unless this had become a sticking point preventing the loan from proceeding. Given the amount of “back-tracking” on agreements during implementation, additional conditionalities might well have been unfulfilled and become another source of contention during implementation. Moreover, although there were small “pockets of resistance” within the DA against the project, it was really the waning of senior management support for the AFMA and PEM reforms during implementation which effectively undermined the project. As previously mentioned, this change of heart probably occurred mainly due to the legitimacy problems faced by the administration (Section 2.2). This kind of change in the political environment cannot be anticipated. On balance, therefore, while the assessment of Government’s commitment to implement the project was clearly underestimated, it would seem that the Bank’s preparation efforts, assessments of relevance, and the project design were comprehensive and done with due diligence and appropriateness. (b) Quality of Supervision. Rating – Moderately Satisfactory There was close and responsive supervision of the project by the Bank team. It was marked by a high degree of coordination, not only with the implementing agencies, but also with the partner and Oversight Agencies. Comprehensive Bank review missions, including field visits and cluster-by-cluster reviews of project components, were conducted twice each year of the project. There was also regular, monthly and (even) weekly, follow up reviews in many instances, as the project was managed from the Manila Office. The mid-term review (in the project files), complemented by an independent review under the direction of NEDA, was particularly comprehensive. The findings of the two reports (the Bank’s and Government’s) were mutually reinforcing in terms of their assessment of the progress and status of the PDO and project implementation, and the factors behind project performance. There was also a very high level of input from the Bank’s procurement, financial and safeguards staff throughout the project, both in ensuring fiduciary requirements were met, and in providing training for DA staff both centrally and in Regional Field Units (RFUs). Feedback during the IL-ICR suggests the “technical support” provided by the Bank on procurement, financial and safeguard issues was very much welcomed, and will undoubtedly have benefits beyond the project. Supervision missions correctly identified and documented the implementation issues, and Aide Memoires shared with Government were transparent, frank and direct in highlighting concerns. In terms of adequacy of supervision inputs related to M&E, however, the Bank team did not appear to have sufficiently taken the DA to task on its M&E of project indicators. As a result, the secondary outcome indicators specified in the PAD's Results Framework were not fully monitored. An M&E specialist was part of the Bank team only during the first half of the implementation period. The significant issues with project implementation were discussed with Bank management throughout the project. Almost from the outset, the Bank team raised questions and was open to a redesign of the project. Beginning in 2006, the Bank team also began raising questions as to whether partial or full loan cancellation should be considered. The mutually agreed “Action/ Decision Matrices” in each Aide Memoire along with “Performance Monitoring Plans” should have been effective tools for guiding project implementation had these been followed, as earlier committed to by Government. A critical question, however, is, if the implementation constraints and the corrective actions have been correctly identified and were clear to all concerned, why did the Bank team continue to give the implementing agency the benefit of doubt in spite of repeated reneging of remedial actions agreed during the missions? Was there significant misjudgment by the team in not drawing a line especially during the MTR so that further backsliding by the DA would have triggered a unilateral call by the Bank to either suspend or even cancel the loan?

19

As noted earlier, the DA had four instances of changes of Secretaries during the project period. In order to maintain good long-term client relations, the Bank opted to give the different incumbent Secretaries the benefit of the doubt whenever they expressed renewed commitment by the Department to implement the needed project implementation reforms. Moreover, the MTR was delayed by more than a year due to a political deadlock that led to the non-passage of the national budget for 2 years (2005 and 2006 had re-enacted budgets). This external factor stymied the DA from substantially moving the project forward, despite their willingness to do so, given the rigidities of a re-enacted budget. After this deadlock, it was felt that the DA needed another 6 to 9 months to implement the remedial actions and to turn the project around since the new DFIMDP Program Agreements (PAg) can only be programmed at the start of every budget cycle. Consequently, the MTR, which should have started in September 2006, commenced in October 2007 and ended in May 2008, with only over a year left until the end of the project. At this stage, loan cancelation would not have been a practical option especially with the Oversight Agencies adamantly against it. The DBM, in particular, felt that a DFIMDP loan cancellation would give the wrong signal to the rest of the bureaucracy and exacerbate the rough sailing the overall PEM reforms were already undergoing17. Moreover, the Bank cannot normally cancel a loan unilaterally without agreement from the government. Good long-term client relations and engagement with the DA, and the GoP in general, would be better served if the project was left to run its remaining course. Loan suspension was also not a viable option for similar reasons. Nevertheless, the Bank served notice to the DA that it would not support its planned request for a year’s extension of the project to more fully utilize project funds when it became clear in June 2008 that full compliance to the MTR agreements would not be made. Should the Bank team have also actively explored the possibility of project restructuring during the MTR? Given the implementing agency’s complaints against the SIM and preference for a SIL, and the slow-moving PEM reforms, the possibility of downscaling the PDO, from changing the way the DA conducts its business to a simpler investment program for market-oriented investments and services, could have been examined and discussed with government. It should, however, be noted that the consensus during the MTR was that the project could still be turned around with its PDO intact and as an NPS if only the agreed remedial actions would be fully implemented. The Bank and the Oversight Agencies, at that time, was of the opinion that, if MTR agreed actions were done, as committed by Government, there would be a strong case for an18-month extension, which can then help the Project catch up with its original physical and disbursement targets and finally achieve its original PDO. It should also be noted that Government, mainly the Oversight Agencies, have a strong aversion to restructure PDOs, especially of foreign funded projects, since this is seen as a waste of resources and circumventing the original ICC approval process. Nonetheless, it may, perhaps, be said that Bank management could have taken a stronger position with Government on the slow pace of loan utilization and on the repeated back-tracking of “remedial measures” agreed during implementation. Bank management could have called the Oversight Agencies to task by pointing out that their appeal to the Bank to continue the project because of the impact on the overall PEM reforms would have been more credible if it was backed up by disciplinary action (of loan cancellation) over the DA. This higher level Bank (management) intervention could have triggered an earlier, as well as a more active and concerted response from the Oversight Agencies and the DA to address implementation problems. It is debatable, however, whether such Bank action would have led to

17 Please see in the project files, the DBM Secretary’s letter on April 11, 2007 to the DA Secretary stating that “the DBM supports the project and believes that the DFIMDP initiative strongly responds to the current fiscal reforms of the government”. The DBM Secretary also encouraged the DA to continue the project and hoped that the implementation difficulties and procedural problems being experienced by the DA can be addressed.

20

any significant modification in DA’s implementation of the project, or to any significant difference in the project outcome, given the prevailing country political environment. When Government reneged again on its MTR commitments in June 2008, it would be recalled that, due to the global food crisis, the Philippine Government resorted to buying rice at any cost as a policy response, which further increased rice prices globally. At that time, the Bank considered it more prudent to continue the engagement with Government to reform their food (rice) policy, through the agricultural expenditure reforms being pursued under DFIMDP, rather than convincing Government to cancel the project, which has served as the operational basis for such food policy discussions18.

(c) Justification of Rating for Overall Bank Performance. Rating - Moderately Satisfactory The Bank team exercised due diligence in establishing the technical foundation of the project and in ensuring stakeholder participation and ownership by closely coordinating with the relevant government counterparts and other stakeholders during project preparation. They also properly identified the major risks attendant to the project and the remedial actions needed. Nevertheless, in hindsight, the team overestimated government commitment to the target reforms and the PDO. It is, however, doubtful whether the political circumstances that led to this backsliding in commitment could have been fully anticipated. The Bank team was also conscientious in working with the government and other partners in facilitating the implementation of the project. They clearly and accurately identified the operational bottlenecks and the appropriate remedial responses that should be undertaken, and were responsive to the assistance requests and needs of the implementers. The team was, however, constrained from taking a stronger stance against the DA’s repeated reneging of the remedial action agreements by external factors and by due consideration to good long-term client relations.

5.2 Borrower Performance: Rating - Unsatisfactory (a) Government Performance: Rating - Moderately Unsatisfactory As noted in Section 3.6, a number of systemic deficiencies spanning both the Legislative and Executive branches of Government have contributed to the unsatisfactory outcome of the DFIMD project. The systemic problems are not new and go beyond the scope of the project. Their collective impact, however, became more evident through the attempt to implement reforms that, individually, were well focused and designed in accordance with AFMA. Nevertheless, commitments and sustained support for the project by the Oversight Agencies, particularly DBM and NEDA, should have been backed up by stronger actions. Notably, the failure of DBM to introduce MFO-based budgeting or to insist on full and effective implementation of the public expenditure reforms/procedures in its own guidelines, contributed to the poor performance of the project. Even so, DBM was proactive and supportive in seeking remedial actions throughout the project’s implementation. It took steps to provide the full budget cover for project investments identified in the annual Program Agreement, and down-loaded funds to the DA as soon as these were disbursed by the Bank. Additional staff was approved by DBM for the Finance Service to accommodate their concern that they were understaffed to manage the project accounts, and DBM also introduced the “tagging” of resources for the project to respond to concerns that resources needed to be identified in the budget. Nevertheless, the DBM was unable to undertake the level of strategic analysis or to impose the level of discipline needed in accordance with its mandate. NEDA also, in conducting its monitoring functions, did not effectively highlight or call attention to the strategic issues inherent in the DA’s annual GAA submissions. The mid-term review and project completion reviews (PCRs), carried out under the collaboration of the DA and the NEDA were, nevertheless, well conducted and forthright in

18 The Bank eventually processed a Development Policy Operation (Ln. No. 76150) financed under the Global Food Facility in December 2008, in the amount of US$200million, which was originally anchored on the pursuit of social protection and food policy reforms. Eventually, due to the difficult political environment, the Government did not include food policy reforms in the final matrix of agreed actions.

21

their findings. Clearly, the inability of both DBM and NEDA to fully meet commitments and expectations was constrained by the Administration’s increasing prioritization of the need to achieve production targets of rice and corn and to maintain the DA’s flexibility in resource allocation. Overall, therefore, adequate oversight and follow-through by the Borrower was lacking. (b) Implementing Agency or Agencies Performance: Rating - Unsatisfactory The various implementing units of the DA sought to facilitate project implementation under a difficult environment. In particular, the five DFIMDP Component Clusters, 19especially the Technology Cluster, regularly met and operated in spite of the various setbacks of the project. This is where the “ownership” and strong support of the project was most evident and reflected at the staff level of the DA. They see the project as a way to provide funding for the core functions of the DA, rather than through the more uncertain GMA/Banner program process. DA-RFU 6 was also able to fully utilize their access to the loan in spite of the additional “paper work” inherent in a SIM loan. Overall, the DA’s implementing units were able to deliver most of their target project output. These were, however, insufficient to meet the key performance and development objectives of the project. Responsibility for the unsatisfactory performance of the project, for the most part, lies with DA management. They didn’t see fit to continue their commitment to AFMA and PEM reforms and to the PDO mainly due to the changing priorities of the Administration. As a result, DA management continued to renege on agreed actions to improve project implementation contained in the “Action/ Decision Matrices” of each mission Aide Memoire and in the “Performance Monitoring Plans”. The suggestion of the DOF that these “Action/Decision Agreements” be signed by the DA management and Oversight Agencies was followed. DA management, however, still found it necessary to back-track on the agreements20. If indeed these agreements had been acted upon, the project outcome would have been different. (c) Justification of Rating for Overall Borrower Performance. Rating - Unsatisfactory

The Oversight Agencies and various officials and implementing units of the DA earnestly sought to address operational bottlenecks in order to effectively implement the project and achieve the PDO. Their efforts were, however, undermined by the policy priority shifts of Administration and DA management. This was evident in the repeated reneging of commitments and agreements made in the course of project implementation.

19 Planning cluster, Market Development cluster, Regional Market Investment cluster, Regulatory cluster and Technology cluster –groupings of inter-related DA implementing and service units formed initially to help guide the preparation of the project, but which continued to function for the most part as effective inter-agency/unit coordinating mechanisms throughout the project. 20 Important reform directives not fully implemented include: i) Secretary Yap instructed all regions to adopt the DFIMDP Operations Manual for financing Market Development Investments for all infrastructure subprojects which are to be funded under the GMA programs through a memo issued on October 17, 2006; and ii) In the DA’s official Budget Strategy submission in July 2006, it was stated that: a) the DA shall “reduce(s) the share of GMA programs from 24% to 20%, while immediately transferring allocations for regular and program activities enrolled in DFIMDP to the regular and other AFMP allocations…”( ref. DA budget strategy submitted to DBM July, 2006); and b) for 2007 and beyond, the DA committed to propose budgetary allocations for GMA production programs which will only cover direct production support investments, with the corresponding non-production support investments to be incorporated into the regular budget allocations of concerned DA implementing agencies. (ref. Aide Memoire July2006 (para 25)

22

6. Lessons Learned SIM vs. SIL – National Program Support (NPS) projects, which employ a SIM loan instrument, are used to implement sector and PEM reforms in the Philippines. As an instrument for difficult institutional reforms, the DFIMDP experience shows that an NPS would be appropriate and effective only when the client-agency, especially its management, is fully committed and operationally prepared to implement and mainstream these reforms during the project period. Considerable risks can also be reduced if i) the direct control of the Office of the Secretary over the Department’s budget is not overwhelming and ii) PEM reforms are well underway, such as MFO-based budgeting and FM systems improvements, even before the start of the project. As previously mentioned, the DA’s commitment to reforms were later proven to be overestimated. Meanwhile, for those agencies who do not yet show readiness to undertake such wholesale reforms, more focused SIL-type projects would appear to be more appropriate, not only in terms of easier implementation, but also in laying the ground work for future institutional reforms (please refer below to the section on the Bank’s future engagement in the sector). For these agencies, project design should be kept as simple and as focused as possible for better operational execution. The DFIMDP was trying to implement two sets of reforms: the AFMA and the PEM reforms. This may have introduced too many variables, including those beyond the control of the implementing agency. For instance, MFO-based budgeting, which is a DBM commitment, did not push through. The DFIMDP was designed in such a way that its effectiveness is strongly dependent on DBM following through with its commitment.

Client readiness for institutional reforms – When can it be said that a client-agency is ready for institutional reforms? The DFIMDP experience showed that it is best if, besides the establishment of a conducive and coherent legal and policy framework at the minimum, the client can also already show that this framework is already being operationalized. This is especially true for Philippines which has shown a systemic dichotomy between policy and operations, especially in the agriculture and fisheries sector. Without strong evidence that reforms are indeed already firmly implemented on the ground-level, the Bank should consider very carefully before becoming fully engaged in a reform program with a client-agency. In the case of the DA, based on the lessons of the DFIMDP and recent developments in the sector, these manifestations should include: (i) a shift in the modalities with which the DA engages the private sector, in the sense of an increasing leading role of the latter, at the level of field operations and/or design of the policy framework; (ii) increasing attention by the DA to the goal of diversifying the agricultural sector in line with the sector's competitiveness and structure comparative advantage across sub-sectors; and (iii) progress in other relevant policies and programs that are likely to influence the agricultural policy framework, such as the Conditional Cash Transfer Program whose implementation may lead to a restructuring of the overall intervention in the rice market by the DA through the National Food Authority (NFA). Client readiness also involves the presence of a strong external constituency for institutional reforms. For instance, similar NPS initiatives in the Department of Education (DepEd) and the Department of Health (DOH) are expected to be less problematic than the DFIMDP since there is clear stakeholder demand and pressure for the delivery of these Departments’ MFOs. Parents, students, LGUs, the media, and the general public will raise a strong protest if health and education services, such as school buildings, hospitals, clinics, teaching paraphernalia, are not satisfactorily delivered. In the case of the agriculture and fishery sector, however, there doesn’t seem to be yet an equally strong constituency which can effectively pressure the DA to adequately deliver market-oriented services and investments. DA Secretaries can be removed for not preventing a rice crisis but not so yet for failing to deliver market information, laboratory services, and effective regulation. The Oversight Agencies (OAs) could be a proxy pressure group for these stakeholders. However, their effectiveness depends on the support or at least the neutrality of the President as well as the OAs’ technical competencies.

23

The Bank’s role and engagement in institutional reforms - The Bank is better positioned to facilitate, rather than lead or catalyze, reforms, at least within the current political economy of the Philippines. The WB, therefore, should be reluctant to fully enter the reform picture in the country until these reforms are already well-entrenched among the clients, especially among the government managers. Thus, until there clear operational manifestations of these reforms in the concerned agencies, the Bank should limit its involvement to helping establish a solid foundation for reforms. This could be undertaken through focused SILs and TAs, to pilot innovations and build capacities, and AAA activities, for building sufficient awareness and constituency for the needed reforms. The Bank’s future engagements in the agriculture and agribusiness sector – Unless there is a favorable shift in the next Administration’s agriculture development paradigm, Bank engagement with the DA should focus on narrower investment lending programs (SILs), TAs and AAAs. For instance, future Bank engagements involving the DA can include a SIL program to simply improve laboratory facilities and services - a slice of the market-oriented services the DA is mandated to provide. The Bank can also finance a SIL program to finance the nationwide roll-out of the DA’s Farmers’ Registry project , which is a tool to improve both planning and M&E in DA - another slice of the DA’s core functions. The DA finds SILs more acceptable and easier to implement. Moreover, the capacity and systems improvements in these straight and narrow lending programs can potentially lay the foundation for the DA’s eventual readiness for broader institutional reforms. The DFIMDP experience also underscored the need for the Bank to expand its base of engagement in the sector even as it continues to cultivate its relationship with the DA. When preparation of the DFIMD project was initiated in 2002, the Department of Agriculture was seen as the “prime mover” in helping to modernize the sector. However, by focusing primarily on production, the DA has neither kept pace with the strategic requirements of the sector, nor developed the capacity to serve or provide leadership in reforming the sector. Increasingly this is being done through private sector initiatives. Technology is being provided by private industry, and agro-industry is being led by entrepreneurs, agro-processors and supermarkets, supported by other government agencies including the Departments of Trade & Industry and of Science & Technology. For the Bank, the lesson is the importance of engaging with a wider range of stakeholders and institutions where the capacity and incentives are more attuned to the need for reform and, therefore, more likely to have traction. The Stakeholder Consultations have also shown that the legislature can be a potentially strong partner in policy reform and program implementation. The Bank has mainly focused its engagement with the Executive branch of government. However, the legislature, through its oversight of the budget process and of the implementation of laws, can help facilitate the execution of reform programs and processes. The legislature, especially its technical units (e.g., CPBD, SEPO) and staffs of various Committees (e.g., Appropriations, COCAFM), expressed willingness to support needed reforms but required assistance in terms of technical information and capacity building especially on monitoring and evaluation. Development Paradigm for Philippine Agriculture and Fisheries – There is a need for decision makers from both the Executive and the Legislature, in coordination with various stakeholders, to definitively clarify what should be the operative development thrust and framework for the sector. As mentioned in Section 3.6 i, the DA and most of the legislature equate the AFMA and agricultural development mainly with rice self-sufficiency. They, therefore, have a hierarchical view of the law where the rice self-sufficiency objective trumps all the other development objectives of the AFMA. On the other hand, the Oversight Agencies (and even the DA, initially) has a more balanced view of the AFMA, interpreting the core functions of the DA to be more in line with market-oriented services and investments, as expressed in the PDO of the DFIMDP, the chosen vehicle of AFMA reforms. This tension over what the AFMA really means is hindering the progress of agriculture and fisheries modernization in the country.

24

It should be noted that the DA’s interpretation of the AFMA makes it schizophrenic in the sense that it makes the law co-habit opposing and contradictory objectives. It goes against the AFMA objective of food security whose dimensions include food affordability (Philippine rice policy has resulted in domestic rice prices that are significantly and consistently above the world market price); it goes against the AFMA goals of modernization, value-adding and diversification, since it squeezes out resources for all other activities and interventions essential to this goal (R&D, market facilitation, product standards); and it goes against the rationale for the AFMA to improve the living conditions of small farmers, given the low earning potential from rice farming. Assuming that the various AFMA objectives are not hierarchical but internally-consistent and mutually reinforcing, then the sub-objective of pursuing rice and corn sufficiency will not be done at any cost and at the expense of other AFMA priorities, but through sustainable, competitiveness-enhancing and market-oriented means (i.e., R&D, marketing services). Moreover, the pursuit of rice and corn sufficiency will have to be consistent with the appropriate roles ascribed to various stakeholders in line with the Local Government Code – with the NG playing a “steering” function, the LGU a “rowing” function, and the private sector as the primary “engine” of agricultural development. The NG would not be in the business of delivering (private) goods such as fertilizers, seeds and chemicals to farmers, but rather would be delivering services (marketing, technology) and providing the appropriate policy, regulatory and investment environment. It should be noted that nowhere in the AFMA is the NG mandated to provide production inputs. In fact, access to production inputs is mentioned only in section 23 of the AFMA within the context of credit facilitation; that is, small farmers should be enabled to access credit in order that they themselves will be able to purchase these inputs. This, therefore, begs the question of what is the legal basis for the Banner or GMA programs where farm input provision is the centerpiece. NG:LGU Cost-Sharing – The multiple NG-LGU cost sharing arrangement allowed by the GoP, through the NEDA, is a serious portfolio issue, not only adversely affecting several Bank projects, but probably similar initiatives financed by other partners in the ODA community involving NG-LGU financing and implementation partnerships. The implementation of the MRDP 2, for instance, was delayed by 18 months because of this issue. This must, therefore be tackled with the GoP, both at the portfolio level and in coordination with the rest of the affected donor community, for the purpose of rationalizing and harmonizing these cost-sharing arrangements. The Philippine Development Forum (PDF) and the annual ODA programming meetings between the GoP and the ODA agencies can be the fora for such discussions.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

Annex 7 shows that the Implementing Agency (IA) mostly agreed to the findings, conclusions and recommendations of DFIMDP IL-ICR. The Bank also corrected and updated the factual inaccuracies pointed out by the IA in the document. The major issues that the IA raised were in the following areas : i) the rating of the implementing agency’s performance - the Bank was asked to upgrade the rating from Unsatisfactory (U) to Marginally Unsatisfactory (MU) given that most of the target intermediate outcomes were achieved; ii) the project M&E arrangements and performance – it was clarified that the Project Monitoring and Evaluation Division (PMED) did not agree to be the focal as specified in the PAD, that alternative arrangements were set up by the DA, and that the DA monitored both intermediate and secondary outcome indicators; iii) the major factor behind the non-fulfillment of the PDO – that it was not due to the lack of DA management support but due to other priorities based on the clamor of the DA clientele; and iv) the DA’s mechanism for public-private consultation – the NAFC took exception to the assertion that it has been largely ineffective and token, and maintains that much have been accomplished in spite of limited resources.

25

On the performance rating of the IA, although it is true that most of the intermediate outcomes were achieved, the KPI of the PDO, in terms of target increases in the allocation shares of market-oriented services and investments in the DA’s budget, were grossly unmet. Moreover, less than half of the project funds were utilized. Thus, the achievements in intermediate outcomes were not at a scale that would be sufficient to have a significant, sustainable and catalytic impact on the way the DA does its business that is in accordance with the PDO. Hence, the IA’s performance rating cannot be upgraded to MU.

Regarding the project M&E, it was agreed during project preparation and at negotiations that the project would be designed to work within the existing structure of the DA. Thus, the M&E was designed to be undertaken by the PMED of the Policy and Planning unit who has this responsibility in the DA (pages 8 and 21 of the PAD). To the extent the PMED drew on the reporting provided by the "Clusters", this provided at least some feedback on the outcomes. However, using "Clusters" to gather information cannot be a substitute for the DA's lack of having an institutionalized and effective M&E system. This lack of M&E capacity in the DA, together with the ineffective linkages between M&E and decision making processes of DA management, continue to lessen accountability and undermine the longer term strategic planning and implementation for the Department. However, the more immediately important issue is, were the baseline and the movements of the agreed-upon (intermediate and secondary) performance indicators established and regularly monitored in accordance with the PAD? Sections 2.3 page 10, 3.2 and 3.3 clearly identified which of the project KPIs were properly monitored and which were not.

Meanwhile, the counter-explanation proposed by the DA for the non-fulfillment of the PDO appears to imply that DA management supports the PDO but was compelled by “clients” to give more support to non-AFMA and PEM priorities. This raises the issues of who these “clients’ were and what were the compelling reasons for shifting support away from the PDO given that: i) various studies and stakeholder consultations, including those commissioned by the DA, showed strong technical bases for shifting public support from production towards market-oriented services as well as strong farmer and agribusiness sector demand for market-oriented services; and ii) consistent feedback from both DA management and the Oversight Agencies (as recorded in the various Implementation Review Mission Aide Memoires) that the DFIMDP PDO and project design continue to be consistent and relevant to the development needs of the sector. Regardless, resource allocation and use reflect where management support and priorities actually lie: DA management chose to underutilize project funds, and to allocate agency resources to production support services and investments at the expense of the DFIMDP PDO.

Lastly, regarding the comment on the effectiveness of the DA’s stakeholder consultation mechanism, the ICR was merely reporting the feedback from its stakeholder workshops. It should be noted that most of the participants in these workshops were drawn from the list provided by the DA.

26

Annex 1. Project Costs and Financing:

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

SUPPORT FOR MARKET DEVELOPMENT SERVICES

17.16 8.75 51.00

MARKET DEVELOPMENT INVESTMENTS

22.25 2.33 10.47

STRENGTHENING SAFETY AND QUALITY ASSURANCE SYSTEMS FOR MARKET DEVELOPMENT

17.33 8.57 49.45

MARKET-LINKED TECHNOLOGY DEVELOPMENT AND DISSEMINATION

9.66 5.73 59.32

ENHANCING BUDGET RESOURCE ALLOCATION AND PLANNING

2.72 3.29 121.00

Total Baseline Cost 69.11 28.67 41.48

Physical Contingencies 0.00

Price Contingencies 0.00

Total Project Costs 0.00 Front-end fee PPF 0.00 Front-end fee IBRD 0.60 0.30 50.0

Total Financing Required 69.71 28.97 41.56

(b) Financing

Source of Funds Type of Co-financing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 9.71 1.99 20.49 International Bank for Reconstruction and Development

60.00 26.98 44.96

Total Financing 69.71 28.97 41.55

27

Annex 2. Outputs by Component The project had five components designed to support areas of DA’s service delivery supporting a more market-oriented approach to the sector, in line with the goals of AFMA. The component activities were, therefore, designed to shift the DA towards a more service and functionally orientated institution, rather than being primarily a source of inputs and subsidies focused on boosting production of rice and corn. The components and main accomplishments under the project were as follows: Component 1: Support for Market Development Services: This was to strengthen the capacity of the Agriculture Marketing Assistance Service (AMAS) to provide more effective market promotion, trade fairs, etc., in conjunction with the private sector. The Bureau of Agricultural Statistics (BAS) was to receive more support to improve the quality of information, and data analysis and better information dissemination was to be addressed through strengthening the core functions of the Information Technology Center for Agriculture and Fisheries (ITCAF), the National Agriculture and Fisheries Council (NAFC), the Agriculture and Fisheries Information Service (AFIS) and the Agricultural Training Institute (ATI). Specifically, an Agriculture and Fisheries Market Information System (AFMIS) was to be established to improve market information access to farmers/growers and the general community. The key performance indicator under the project was the Operationalization of the AFMIS. The indicator was partially achieved. Because of lengthy delays in the hiring of the consultant firm for the design of the system, the piloting of AFMIS was scheduled for the second half of 2009, whereas 75% of farmers in the focus areas of the project were to have been benefiting from the service by the end of the project. The goal is that this service, once established, should greatly enhance access of producers and traders to current market and production information in key trading centers through a variety of mechanisms (SMS, web, radio & newspaper). It remains to be seen, however, whether the DA will commit the resources to ensure the information is kept updated and relevant to farmers, traders and agri-businesses. As of project completion (June 30, 2009), the AFMIS Framework had been completed and a revised design of the AFMIS website had been agreed. An AFMIS Operations Manual has been completed and approved. The AFMIS database and Web server will be implemented only at the national level by ITCAF, but the database will be replicated in the BAS21 to provide security to the data and serve as an online backup of the data in case of a hardware failure. Although one AFMIS Framework will be made available to all users of the system at the provincial, regional or national level, the concept of implementing a local AFMIS will still remain valid, since data collected from each of the focus regions can still be generated from the National AFMIS Website. Reasons given for the modification in the design of the AFMIS website are: (1) unavailability of dedicated servers to host the AFMIS Website in each of the four focus areas; (2) lack or insufficient network and internet infrastructures to support the hosting of a local AFMIS; and (3) lack of technical staff to maintain the database and web server within the RFU units. Other activities supported under this component of the project related mainly to the support given to trade fairs and exhibits, both domestically and internationally. Feedback from agro-processors who participated in these events was very positive. That said, the limited budget allocated by the DA for such market development services clearly limited the impact.

Component 2: Market Development Investments: Resource allocation for investments in rural roads and other infrastructure was to be strengthened by sharpening the selection, approval and implementation criteria and procedures, to ensure more demand-driven, market-oriented investments in partnership with

21 ICTAF-Information Technology Center for Agriculture and Fisheries., BAS-Bureau of Agriculture Statistics.

28

LGUs and the private sector. To enhance impact, the project was to initially fund investments in four focus areas viz; . Region 10 (Bukidnon; a large producer of vegetables, fruits, corn and livestock); Region 7 (Cebu and Negros Oriental; primarily producing vegetables, fruits and mariculture); Region 6 (Iloilo and Panay Island: with particular attention to aquaculture), and the Cordillera Administrative Region (CAR, a large producer of vegetables and fruits). The project design provided for other regions to be included as experience evolved under the project with the adoption of the investment procedures contained in the Operations Manual. The key output indicator for this component was to standardize and upgrade procedures (through an Operations Manual) by which market-related investments are undertaken by the DA .This indicator was achieved. All regional offices of the DA have been provided copies of the Operations Manual, and Regional Field Units (RFUs) participating in the DFIMD project have institutionalized their Regional Advisory Boards and Regional Technical Secretariats. The procurement procedures embodied in the Operations Manual have also been accepted, although regional procurement units (BACs) still need to become more familiar with the requirements of R.A. 9184. There is, therefore, a growing level of adoption of the Operations Manual in line with the intended ‘Output Indicator”. The main constraint in sustaining the initiatives made in this component, however, has been the multiple cost-sharing arrangements permitted to operate between Government agencies and LGUs for locally funded projects, i.e., projects funded from the “regular” budget of government. In the case of the DA, outright grants to LGUs are permitted, whereas the ruling is that for foreign-assisted loans, a 50/50 cost sharing formula must be followed. Government has been unable to come to grips with this dichotomy in cost-sharing arrangements, which has undermined the DFIMDP goal of having the DA fully implement a standardized approach to supporting LGUs. Understandably, LGUs demand the easier terms they know to be available. This prompted RFUs 5, 9, and 10 to cancel planned local infrastructure projects under the DFIMDP 2007/8 PAgs. It also greatly constrained the initial keen interest of other DA-RFUs to participate in the project. To the extent that rationalization of the multiple cost-sharing arrangements was beyond the scope of the project, but that in other respects the “Operation Manual has been adopted in the Focus Areas of the project, this “output indicator” can be considered partially achieved. Notwithstanding the difficulties due to the “cost-sharing” issue, feedback from the IL-ICR review indicates the market-related infrastructure provided under the project was greatly appreciated. Successful implementation of this component was achieved in Region 6, where there were apparently very limited alternative sources of funding, and where there was dynamic leadership on the part of the DA. Some 34 sub-projects were implemented in RFU-6.

Component 3: Strengthening Safety and Quality Assurance Systems for Market Development: This was to strengthen implementation capacity of DA’s regulatory services, particularly in ensuring that international standards for safety and quality were met. The goal was to address frustrations expressed in various reports and during the consultative process of project preparation, with the regulatory functions of the DA, notably lack of transparency, cumbersome procedures and inconsistent implementation. The project provided budgetary support for the core functions of DA regulatory agencies (BPI, BAI, BFAR, NMIC, FPA and BAFPS). This included support for the accreditation of private sector providers of laboratory services, certified seeds, etc. In line with the provisions of AFMA, BAFPS in particular was to be strengthened in order to carry out its mandate of coordinating with the other regulatory agencies, and to complete a review and action plan, aimed at rationalizing the technical, physical and financial needs for the strengthening of the laboratories needed to service the DA’s overall regulatory system. There were three key output indicators for this component as discussed below

29

i) Establishment of a user-friendly web-based system providing full disclosure of regulatory procedures, charges, forms etc: An on-line system was launched in September 2008 which can be accessed at the DA’s Web site: www.da.gov.ph through the “Export Help Desk”. The system provides information on the requirements, process and the ability to down-load forms needed to obtain clearances. Because of the documentary evidence that needs to be submitted, on-line application for permits is not feasible. Further refinements seem to be needed, especially the full listing of fees for the various permits. This “output indicator” can be considered achieved.

ii) Increase by some 20% the number of accredited private sector operations: There has been considerable progress in the pace of “accreditation” as well as a clarification of procedures, especially in regard to seed and plant production. A significant development was the issuance of A.O. 6 of 2006, wherein it was instructed that any procurement by the DA of seed or plant material should be from accredited suppliers. This was reinforced in the revised GOP procurement guidelines R.A. 9184, wherein only accredited suppliers can be qualified as contractors for government purchases. This has provided an important incentive for seed producers and nurseries to become accredited. The number of accredited seed producers increased from 1169 in 2004 to 3051 in 2008, and the overall area of accredited seed farms increased from 7,107 to 20,797 ha over the same period as shown in Table 1 below. This “output indicator” was, thus, achieved.

Table1. Increase in the number and area of accredited seed grower from 2004 to 2008

Seed Growers Year Inbred

Rice H.

Rice Corn H.

Corn OPV Corn

Veg./Leg. Cotton Peanut Total number

Total Area (ha)

2004 801 326 36 3 0 3 0 0 1169 7107 2005 831 201 16 0 0 2 58 0 1108 6641 2006 1573 155 67 0 4 12 2 1 1814 10389 2007 928 170 23 2 35 6 1 0 1165 11292 2008 2850 144 37 2 18 0 0 0 3051 20979

iii) Full cost charge-out rates applied for regulatory services. This proved to be unattainable. The initial enthusiasm within the DA to pursue full-cost pricing was moderated following a review undertaken by DA regulatory agencies during 2008. That review concluded that; “At this time in the Philippines, many exporters are small and could not compete if full-cost charge back was applied”. This finding, however, was very likely conditioned by Executive Order No. 554 issued in 2006, which eliminated fees and charges imposed on export clearances, inspections, permits, certificates and other documentation requirements. Concerns were also raised that because of the different technology available to the various regulatory agencies, uniform costs for the same test/ type of permit could not yet be established. Feedback from a study conducted on laboratory rationalization under the project and from interviews with private sector interests would suggest, however, that service standards of DA laboratories are slow and unreliable compared with private sector where such facilities exist. This “output indicator” can be considered as not achieved.

30

Other key activities included under this component were i) the strengthening of the Bureau of Agriculture Food Product Standards (BAFPS) which had been created under AFMA22, but never properly staffed, and ii) development and implementation of action plans for the rationalization of regulatory laboratory services and of the quarantine services. This was made a condition of disbursement for the strengthening of laboratory and quarantine services with the view to avoiding duplication and overlap of laboratory facilities operated by the various regulatory agencies of the DA , notably BFAR, BPI, BAI, NMIS and FPA. Modest achievements were realized on both these project activities. The staffing of BAFPS was approved with an initial complement of some 17 positions. Most of these positions were filled, and in line with directives of AFMA, BAFPS took a lead role in helping to coordinate the other regulatory agencies of the DA in formulating an action plan for streamlining regulatory laboratory services. The Bureau of Fisheries and Aquatic Resources (BFAR), however, withdrew from participating in the project early in its implementation, preferring to maintain its more independent role and functions vis-a vis the DA. With its expanded staff, BFAR has been effective, to the extent limited funding has been available, in developing agricultural product standards and in seeking ways to standardize and maintain records of regulatory laboratory procedures and results, in accordance with international protocols. This is an important function that needs to be given much greater and continuing support by the DA. The development of action plans for streamlining of laboratory and quarantine services was partially accomplished. A first phase action plan was jointly prepared by BAFPS, BPI, BAI, FPA and NMIS23 that addressed a number of pressing needs relating to national laboratories of these agencies. However, for lack of more senior management attention, the cluster representatives from these agencies were unable to reach a consensus on some of the more difficult issues relating to sharing of quarantine facilities or strengthening of regional laboratories. Much remains to be done to bring the standard of regulatory laboratory and quarantine services up to international standards. The issues are well known, and a considerable body of expertise exists within the DA to get on with the job. However, without the willingness and/or interest of senior DA management to tackle the issues, the quality of Philippine agricultural and laboratory services will continue to languish. Notwithstanding the ongoing problems, the first phase action plan was largely accomplished under the project and which called for i) BAFPS: Construction of a building for reference material & laboratory, together with the procurement of laboratory equipment, supplies , and a vehicle. Key outputs were the setting of standards, ii) BPI : Strengthened pesticide analytical laboratory capability in Quezon City, Cebu and Davao including procurement of equipment for analysis of meat & fishery products. Intensified programs were put in place for assuring compliance with Minimum Residue Levels (MRL) required by the Japanese government for mango and okra. Guidelines were developed for seed certification of okra and accreditation of facilities such as VHT for mangoes, iii) FPA: Establishment of MRLs for selected pesticides and training in pesticide application, iv) BAI ; and NMIS: Strengthened laboratories primarily for veterinary drug assay, feed analysis, & animal diagnostics. An important cross cutting activity which was initiated under the project and which needs continuing support was the establishment of a Laboratory Information Management Systems (LIMS) designed to standardize

22 AFMA provided for the creation of the Bureau of Food Product standards to i) formulate and enforce standards of quality in the processing, preservation, packaging, labeling, importation, exportation, distribution, and advertising of agricultural and fisheries products, ii) conduct research on product standardization, alignment of the local standards with the international standards, and iii) conduct regular inspection of processing plants, storage facilities, abattoirs, as well as public and private markets in order to ensure freshness, safety and quality of products. 23 BAFPS-Bureau of Agriculture and Fishery Product Standards, BPI-Bureau of Plant Industry,, BAI-Bureau of Animal Industry, FPA-Food and Pesticide Authority, NMIS-National Meat Inspection Service.

31

regulatory laboratory procedures and references in line with international protocols, while also maintaining a record of laboratory results. Component 4: Market-linked Technology Development and Dissemination: This component sought to leverage a strengthening of DA’s R&D and training outreach in regard to increasing the emphasis given to market-related issues. Resource allocation for R&D was to be improved through a competitive grants approach (Competitive Grants Manual), and the role of the DA’s Agricultural Training Institute (ATI) was to be strengthened by phasing out its role as a direct provider of training, except for LGU extension workers, while strengthening its role in strategic planning including greater emphasis on market-related aspects, coordination and funding of training. The key output indicator for this component was the implementation of a Market-Oriented Competitive Research Grants Program. This was achieved. The goal was to support the development of technologies with a clear links to supporting market development. This was effectively implemented and the “competitive” approach to funding research has been adopted for all types of research. Targets were exceeded in most years and the system has operated well. An evaluation into the overall impact of the research in generating market linked technologies was underway at the time of project completion. This “output indicator” can be considered achieved.

Implementation of this component was satisfactory throughout the project period. In retrospect, this could be attributed to the fact that the work programs of the agencies responsible for implementing the component, BAR, BPRE, and ATI 24were already largely aligned with the goals of AFMA. There was not, therefore, the same level of difficulty encountered with other agencies/units of the DA where some shifting in emphasis was required. Nevertheless, it is significant to note, for example, that in the case of BPRE, the entire 2008 work program under DFIMDP was effectively put on “hold” when the decision was taken by DA management to reallocate the SARO for the project to production support. This set back was all the more troubling, as throughout the project period, BAR, ATI and BPRE had developed efficient coordination mechanisms resulting in effective implementation of the research, training and extension activities. Highlights of the achievements under this component included BAR: Some 418 research proposals were received and reviewed over 2007 and 2008, with some 110 projects being selected for funding. Of these, 47 research projects supported the commercialization of technologies and products. Three projects were for IT based R &D. Monitoring, primarily in terms of ensuring the expenditures are in line with the proposal, has been done for some 111 project over the 2007-2008 period. An “impact evaluation” was being undertaken at the time of project closure to determine the overall effectiveness of the R &D program, the results. BPRE. The project supported “loss assessment”, using improved methodology, for four commodities over 27 provinces, the results being used to identify bottlenecks and defects in the marketing chain. Methodology and tools were also developed for the DA to assess the suitability of agricultural machinery it purchases, primarily small farmers. To the extent no independent assessment is available for agricultural machinery on the market, this activity has the potential to better inform consumers of the pros & cons of various machinery. BPRE plans to explore how to partner with other groups to expand this service. A myco-toxin laboratory of BPRE was also established. ATI: Asignificant development over the life of the project has been ATI’s reorientation of its training, such that some 50% of its efforts are now directed to supporting “market-oriented” activities. Also significant has been ATIs use of web-based technology to extend the reach of it activities. On-line training and an e-extension service is now available for several key crops at: www.ati.da.gov.ph. Additionally, a system to facilitate e-trading is being developed.

24 BAR-Bureau of Agriculture Research, BPRE-Bureau of Post-Harvest Research and Extension, and ATI-Agriculture Training Institute.

32

Component 5: Enhancing Budget Resource Allocation and Planning: This component focused on supporting the government-wide initiative on improvement of public expenditure management designed to improve efficiencies in resource allocation and utilization, and better linkages between planning and budgeting. Specifically it was envisioned that the project would assist the DA in making the transition to MFO-based budgeting designed to assist DA Management in providing more strategic allocations of scarce budgetary resources. It was envisaged that this reconfiguration of the budget would pave the way for the DA to overcome the chronic disconnect between its annual plans and actual expenditures. The goal was to give more emphasis to the funding of DAs core functions, particularly as they relate to market development. The key performance indicator under the project was to strengthen the core functions of the DA supporting market development services: The indicator was not achieved. Indicative budget targets for 2009 agreed as a percentage of the total annual DA budget were: Market Development Services 7%, Regulatory Services l0%, Information Services 5%, Infrastructure Services 10%, Research and Technology 8%, Planning, M&E, and Financial Management 7%. Overall, the budget allocation for “market oriented activities” was to have increased from 32% of the budget in 2004, to an indicative level of some 47% in 2009. In the initial calculation of the baseline, the allocation for “extension services” was not included, as this was essentially “production-oriented”. Subsequently, an important accomplishment under the project was the realignment of ATI’s training from being production focused to also include market related aspects in over 50% of such training activities. Therefore, if this proportion of ATI’s budget allocation is included in the calculation for 2008, the overall resource allocation for “market-oriented activities” is 25%. Clearly, then, the “Outcome Indicator” of 47% has not been met as shown in Table 2, although over the first three years of the project, the DA did attempt to maintain a trajectory which would have accomplished the indicative target for the project. In the last two years of the project, however, there was a back-sliding on the commitment to achieving the 47% target for the project. The argument could be made that because of the large budget increase, the actual funding for market-related services did increase , i.e. from PhP 4.6 B in 2005 to PhP 11 B in 2009, compared with PhP 6.8 B which would have corresponded to the indicative target of 47%, had the budget remained at its 2005 level. This, however, was explicitly discussed during project appraisal and negotiation, with the understanding being that the indicative target should be kept as a proportion of the budget, as an indicator of DAs commitment to adjust the balance of priorities in line with the goals of AFMA. Analysis of DA Budget Allocations over the project period: DA’s total budget appropriations increased more than threefold during the project, from PhP 14.534 billion in 2005 to PhP 46.861 billion in 2009, with AFMA appropriations accounting for 71% to 82% of total. Over the same period of time, the bulk of the budget was under the Office of the Secretary (OSec), i.e., around 80% excluding budgets of GOCCs25 (Table 3).

Table 2: Comparison of budget allocations for market related services and activities across project years and with the indicative targets agreed under the loan. Budget 2005 2006 2007 2008 2009 Indicative

25 GOCC-Government owned and controlled corporations

33

Category Baseline target for 2009

Market Dev. 1 0.7 7 0.9 1.9 7 Regulatory 9 2.4 4 1.7 1.5 10 Information 1 1.4 3 0.5 0.6 5 Infrastructure 10 20.8 11 24.5 15.2 10 R &D 6 3.5 6 2.1 2.3 8 Planning 5 5 5 2.5 2.5 7 *Ext. & Train - - - 2.1 1.1 - Total 32% 33% 36% 34% 25% 47% Actual Budget

Reg & AFMA

PhP14.5 B PhP15.8 B PhP19 B PhP33.7 B PhP44.0 B

* 50% of ATI’s budget included in this calculation for 2008 and 2009, in line with the proportion of activities directed to “market oriented activities”

Table 3. Department of Agriculture Regular and AFMP Appropriations: 2005 to 2009, In �‘million

Particulars Regular AFMA Total Regular AFMA Total Regular AFMA Total Regular AFMA Total

DA1 Office of the Secretary 2,520 33,893 36,413 2,305 20,200 22,505 2,228 13,066 15,294 2,057 9,033 11,090

2 ACPC 21 21 19 19 19 19 17 17

3 BFAR 470 1,898 2,368 438 1,199 1,637 441 914 1,355 419 829 1,248

4 BuPHRE 114 114 87 87 52 52 50 50

5 Cotton Dev. Admin. 44 44 41 41 41 41 40 40

6 FPA 92 92 40 40 68 68 36 36

7 FIDA 211 211 159 159 155 155 150 150

8 Livestock Dev. Council 17 17 10 10 9 9 9 9

9 NAFC 61 1,024 1,085 52 - 52 52 - 52 51 - 51

10 NatL. Meat Insp. Service 21 171 192 19 134 153 19 137 156 19 98 117

11 National Nutrition Council - - - - - - 43 43

12 Philippine Carabao Center 44 620 664 28 75 103 27 74 101 25 71 96

Total New Appropriations 3,615 37,606 41,221 3,198 21,608 24,806 3,111 14,191 17,302 2,916 10,031 12,947

DA GOCCs:

1 National Dairy Authority 82 - 82 102 - 102 52 - 52 52 - 52

2 National Food Authority 4,000 - 4,000 2,000 - 2,000 1,100 - 1,100 900 - 900

3 National Tobacco Admin. 140 - 140 115 - 115 115 - 115 80 - 80

4 Phil. Coconut Authority 230 355 585 230 193 423 230 50 280 170 41 211

5 Phil. Crop Insurance Corp 30 184 214 30 - 30 30 - 30 30 - 30

6 Phil. Rice Research Inst. 95 324 419 95 178 273 98 162 260 90 150 240

7 Sugar Regulatory Admin. - - - - - - - - - 35 - 35

8 200 - 200 - - - - - - - - -

9 - - - - 25 25 - 25 25 - 39 39

Total DA GOCCs 4,777 863 5,640 2,572 396 2,968 1,625 237 1,862 1,357 230 1,587

GRAND TOTAL 8,392 38,469 46,861 5,770 22,004 27,774 4,736 14,428 19,164 4,273 10,261 14,534

S DBM G A A

Quedan & Rural Credit Guarantee Corp

Philippine Fisheries Development Authority

2009 2008 2007 2005 / 2006 Reenacted

A more detailed analysis of DA’s regular and AFMA budgets showed that from 21% to 39% of the total GMA program budget had been in “complete” control of the Office of the Secretary (Table 4). Some PhP 14.7 billion for 2009 was appropriated as lump sum fund under the Office of the Secretary. Subsequent reallocation of this amount did not require prior DBM approval. It has been the DA’s view that this level of “budget flexibilities/control for the Secretary is necessary to ensure full and efficient utilization of funds”. Table 4. Department of Agriculture Office of the Secretary-Controlled* AFMP Budget Appropriations for the Years 2005 to 2009 (PhP ’million)

34

Particulars 2009 2008 2007 2005 / 2006#

Total DA AFMP Budget Appropriations 37,606 21,608 14,191 10,031

GMA Rice and Corn 11,427 3,290 2,422 2,030

GMA High Value Commercial Crops 2,224 1,013 215 102

GMA Livestock 1,044 439 324 144

Total Osec-Controlled Budget 14,695 4,742 2,961 2,276

% to Total DA AFMA Budget 39.08% 21.95% 20.87% 22.69%

Source of basic data: DBM, General Appropriations Acts 2005, 2007, 2008 and 2009 * Net of amounts listed under OSec but with separate line item, e.g, appropriated to RFOs # Reenacted Budget

As shown in Table 5, the DA has continued to provide the bulk of its funding to the GMA production programs and irrigation development program despite its medium-term strategy to move away from commodity-based to function-based allocation of resources. The production support budget continuously increased from 2004 to 2009, from PhP 1.928 billion to PhP 9.670 billion in 2009; a five-fold increase in peso value over the six-year period. As percentage of total budget, it jumped from 12.4% to 22%.

Table 5. Department of Agriculture Appropriations by Major Final Output (MFO)* For the Years 2004 to 2009, In PhP million

35

A

S A

S A

S A

S A

S A

SM O MFOO I P

S

E S E T S

P P R D M D R S N I N S T

O P CI P S C F S S T

T AFMP R B G T I DA GOCC S D A

AFMA C MFO R GAA R GAA GAA NEP

36

Annex 3. Economic and Financial Analysis

Approach followed by the economic and financial analysis at appraisal

The economic and financial analysis at appraisal was limited mainly to assess the appropriateness of the mechanisms for delivering outputs under the project and of the means that would be used to screen activities to ensure economic viability. This was mainly due to the fact that contrary to a typical investment lending project, no prior list of identified sub-projects was available to carry out a detailed cost-benefit analysis under the DFIMDP.

The main conclusions of the analysis was that the mechanisms for channelling the project’s resources towards expenditures supporting the provisions of strategic services and public goods by the DA were largely satisfactory and in line with the indications of the AFMA, the implementation of which was considered to be one the project’s strategic goals. The structure of the DA’s budget before the project was compared to the planned one at completion and shown to be entirely consistent with such goal. At this stage, therefore, the analysis focused on the relevance of the project design, noticing that a budget support rather than a SIL was a proper choice as a way to channel funds so as to realign DA’s budget with the strategic directions indicated by the AFMA.

With regard to funding of sub-projects for the development of market infrastructure, the analysis focused on the relevance of the type of sub-projects that would be funded by the DFIMDP, the role that LGUs and the private sector could play as beneficiaries, and the potential efficiency gains that could be achieved by streamlining sub-project identification, design, and implementation through the procedures that the DFIMDP would have developed, in particular for what concerns the integration of DA’s regional activities with the LGUs’ development plans. Finally, an indicative list of four sub-projects that had been identified before implementation of the DFIMDP was provided with the associated estimates of ex-ante ERRs, which ranged between 16% and 18%. Project cost and expenditures by component

Less than half of the Loan Proceeds was effectively disbursed under the project, with the Market Development Investments component (Component 2) representing the largest gap between planned and effective disbursement (Table 1). Given the high returns estimated for the sub-projects executed under this component (see below), it is clear that inability to fully utilize the project’s proceeds results in a huge value of foregone opportunities in terms of improved profitability and access to markets by farmers.

Sub-utilization of funds has been of 51% for Component 3 (Quality Assurance Services), 49% for Component 1 (Market Development Services), and 41% for Component 4 (Technology Development and Dissemination). The analysis reported below suggests that the returns from investments in the activities carried out under components 3 and 4 yield substantial returns, although these are difficult to estimate on a quantitative basis. As a result, the project’s inability to allocate and disburse resources as planned at appraisal is quite likely to have resulted in a substantial amount of foregone private and social benefits.

37

Table 1. Project cost and expenditures at appraisal and completion (million US$)

At appraisal (2004) At completion (2009)

LP GOP Total LP GOP Total

Support for Market Development Services 15.00 2.16 17.16 7.98 0.77 8.75 Market Development Investments 18.00 4.25 22.25 2.06 0.27 2.33 Strengthening Quality Assurance Systems for Market Development 15.00 2.33 17.33 7.98 0.59 8.57 Market-linked Technology Development and Dissemination 9.00 0.66 9.66 5.57 0.16 5.73 Enhancing Budget Resource Allocation and Planning 2.40 0.32 2.72 3.09 0.20 3.29 Total Baseline Cost 59.40 9.71 69.11 26.68 1.99 28.67

Source: DA and PAD Achievement of primary and secondary outcomes

As discussed in Annex 2, the project has achieved mixed results in terms of results performance indicators. With regard to outcomes, the PAD sought to monitor performance by using the following set of indicators: (i) client satisfaction; (ii) increase in the proportion of budgetary resources for DA’s core functions. These indicators have been discussed in Annex 2 and other parts of the report. In addition, a set of secondary outcomes indicators were also proposed to capture specific improvements in DA’s support in improving the competitiveness of the agribusiness sector. These indicators included: (i) the number of export rejections at major destination ports; (ii) number of private firms and producer associations engaged in marketing and processing of agricultural produce; (iii) reduction of post-harvest losses; (iv) increase in farm profitability and greater diversification of farm incomes. Indicators of firm participation and farm income diversification were not measured during project implementation due to the lack of suitable data. The remaining indicators are discussed below with the objective of providing a qualitative assessment of the project’s performance in terms of increasing the agribusiness sector’s competitiveness and profitability. This approach is justified on the basis of the observation that the main constraint to the implementation of the project has been internal to the DA rather than due to external circumstances out of the implementing agency’s control.

Export rejections and detentions at major destination ports

By strengthening safety and quality assurance services under component 3, the DFIMDP sought to improve Philippine food export competitiveness by reducing the instances of rejection. Table 2 shows the targeted reductions in rejections against actual performance measured at ports of entry in the European Union (EU), as data from Japan and the United States (USA) were collected by the DA only for the 2004-2008 period.

38

Table 2. Rejections and detention of Philippines’ agri-food exports to the EU

Baseline 2005 2006 2007 2008 Targets (% variation on baseline) -5% -10% -20% -30%

Actual 6.75 14 41 13 23 Actual (% variation on baseline) - 207% 607% 193% 341%

The data show that the target not only was not achieved, but that, in fact, Philippine agri-food exports had a harder time in being accepted at the border inspections. Some external factors have influenced such performance and were not taken into consideration at the time in when the indicator was adopted. First, the value of agri-food exports from the Philippines to the EU increased by 249% during 2000-2008. Thus, part of the higher number of detentions and rejections has been caused by an increasing volume of trade. Second, new provisions were issued by the EU on food safety standards (EU Food Hygiene Package) in 2006 and were barely known by exporters and consolidators in the Philippines. This is reflected in the substantial increase in the number of rejections and detentions in that same year. A better dissemination of these new requirements by the DA would have helped in reducing the rejections and detentions. Nevertheless, the situation seemed to have been addressed by the following year, and it can hardly be used as an argument for explaining the increase in rejections and detentions in 2008.

In order to draw some meaningful conclusions from the analysis, it is worth noting that during 2000-2008, while the share of imports from the Philippines in total imports of the EU, Japan, and the USA declined from 1.11% to 0.46%, the share of agri-food imports from the Philippines in total agri-food imports in these three trading areas has remained roughly constant at around 1.05%. Thus, compared to the other sectors exporting to these three trading areas, the agri-food sector has performed relatively well as its total export value in million of US dollars almost doubled. On the other hand, it appears from the data discussed above, that the quality and safety assurance system supported by the DA is still weak and not supportive enough of the great potential of the agri-food sector. Thus, although at this stage there is not enough information to estimate the cost of not achieving the targeted reductions in rejections and detentions, it seems fair to say that this is likely to be substantial.

Size of post-harvest losses for key agricultural products

The DFIMDP targeted a sustained decrease in post harvest losses from at least 2 percent in 2006 to at least 4 percent in 2007. At the end of the project, losses were targeted to decrease by at least 10%. In the absence of a baseline data, the analysis makes use of available survey data from the Bureau of Post-harvest Research and Extension (BPHRE). Tables 3A and 3B show the estimates on the post harvest losses for palay and corn. In the case of palay, there was a marginal decline in the losses since 1994. The drop in losses in storage was somehow negated by the deterioration in the losses in the other operations. In contrast, there was a substantial decline in the post-harvest losses in corn, with most coming from storage and shelling. Table 3A. Estimated Post-production Losses of paddy (%)

Operation Post production Losses

39

2008* 1994-95 1984** 1974

Range Mean Range Mean Range Range

Harvesting 0.84-5.27 2.87 Trace-4.85 1.81 Trace – 4.8 1 - 3

Piling Trace-0.81 0.24 Trace-1.77 0.54 Trace – 1.0 2 - 7

Threshing 0.86-4.83 2.11 0.04-5.09 2.17 0.1 – 5.4 2 - 6

Drying 1.01-10.69 4.65 0.74-8.70 4.5 Trace – 0.7 1 - 5

Storage - - 0.35-5.20 2.72 2.6 – 5.0 2 - 6

Milling 1.69-9.19 4.88 Trace-6.33 3.1 6.3 – 8.3 2 - 10

Total 4.40-30.79 14.75 1.13-31.94 14.84 9.0 – 23.0 10 - 37

Mean 16 23.5

* 1st season (March-May 2008) preliminary data only; average of 8 provincial sites (Isabela, Nueva Ecija, Camarines Sur, Iloilo, Leyte, Agusan Norte, North Cotabato & Davao Sur)

** Isabela and Iloilo provinces only

Source: BPHRE, DA

Table 3B. Estimated Post-production Losses of corn (%)

Post Production Loses (Percent of Value)

2005-06* 1994-95 Operation

Range Mean Range Mean

Harvesting 0.64 -1.52 1.05 0.2 – 2.7 1.3

Piling Trace Trace Trace – 2.5 1.0

Shelling 0.25 – 0.70 0.52 0.7 – 6.7 2.7

Drying 4.01 – 4.99 4.54 Trace – 9.8 4.6

Marketing/hauling 0.47 – 0.64 0.56 - -

Storage 0.48 – 0.54 0.51 2.8 – 3.3 3.1

Total 5.85 – 8.39 7.18 3.7 -25 12.7

*Isabela, Bukidnon and South Cotabato provinces only

Source: BPHRE, DA

Indicators of farm profitability (cost and return surveys provided by BAS)

40

To measure profitability trends, data from BAS’ Cost and Return Surveys have been used to compute ratios of net profits to total costs, both computed as sum of monetary and non-monetary components26.The trends in the profitability of different agricultural products have been mixed. Table 4 divides these agricultural products into three groups: (i) palay and corn; (ii) agricultural produce that have a positive trend in profitability for the period 2000-2008; and (iii) those that have a negative trend in profitability for the same period. It is worth noting that among those with a negative trend over the entire sample period, the pattern was reversed for the period 2004-2008 in four of nine cases. In the five cases where the declining pattern remains, two cases exhibited a slowdown in the decrease. An interesting point to note is that two products with substantial export potential such as mango and pineapple have displayed a negative trend in terms of profitability. Import-competing products, such as rice, corn, mongo, peanuts, and onion have, instead, improved their profitability during 2000-2008. These results are consistent with the increasing focus of the DA’s assistance to the sector towards the protection of import competing crops during the last decade (David, Intal, and Balisacan, 2009).

Table 4. Profit-Cost Ratio

2000 2001 2002 2003 2004 2005 2006 2007 2008 Slope 00-08 (A)

Slope 04-08 (B)

Diff B-A

Palay

Irrigated 0.28 0.35 0.35 0.38 0.38 0.42 0.46 0.03 0.03 0.00

Non-Irrigated 0.18 0.21 0.24 0.24 0.28 0.34 0.38 0.03 0.04 0.00

All 0.26 0.30 0.31 0.34 0.35 0.39 0.43 0.03 0.03 0.00

Corn

Yellow 0.17 (0.11) 0.11 (0.01) 0.09 0.12 0.05 0.00 0.00 (0.00)

White 0.27 0.32 0.56 0.25 0.50 0.56 0.38 0.03 (0.01) (0.03)

All 0.22 0.07 0.32 0.12 0.34 0.39 0.28 0.03 0.02 (0.01)

String beans (0.07) (0.15) (0.15) 1.38 2.00 2.18 2.05 1.83 2.22 0.34 0.01 (0.33)

Peanut 0.12 0.08 0.02 0.10 0.73 0.91 0.82 0.91 0.91 0.13 0.04 (0.10)

Ampalaya 0.06 (0.09) 0.03 0.30 0.31 0.25 0.47 0.36 0.51 0.07 0.05 (0.02)

Pili 1.68 1.46 1.68 1.74 1.74 1.57 1.64 1.80 2.34 0.06 0.14 0.09

Sweet Potato 0.52 0.62 0.87 0.79 0.78 0.83 0.95 1.00 0.97 0.05 0.06 0.00

Cassava 1.69 1.25 1.15 1.51 1.43 1.24 1.90 1.67 1.74 0.04 0.11 0.06

Mongo 0.71 0.74 0.77 0.60 0.52 0.76 0.89 0.91 0.94 0.03 0.10 0.07

26 BAS data on costs and returns imputes the shadow cost of factors of production using the monetary prices for these factors prevailing in the area. The use of full costs and returns concepts, which are computed by summing both the cash and non-cash components, is more appropriate because it factors in the opportunity cost of the factors of production, including land.

41

Potato 1.20 1.31 0.93 0.96 1.24 0.65 1.18 1.45 1.40 0.02 0.11 0.09

Cashew 1.01 1.36 1.23 0.39 1.43 1.51 1.02 1.14 1.33 0.02 (0.06) (0.08)

Tomato 0.38 0.67 0.21 0.79 0.42 0.57 0.64 0.63 0.55 0.02 0.03 0.01

Calamansi 1.90 1.07 2.06 1.18 1.60 1.99 2.21 1.48 1.55 0.02 (0.06) (0.08)

Coffee 0.87 0.58 0.26 0.57 0.38 0.55 0.60 0.73 0.76 0.01 0.09 0.08

Habitchuelas 0.31 0.21 0.24 0.31 0.27 0.04 0.37 0.35 0.34 0.01 0.05 0.04

Milkfish 0.88 0.96 0.99 0.06

Onion-Bulb 1.33 1.15 1.74 0.21

Onion-Native 0.97 0.76 3.90 1.46

Carrot 3.03 1.30 1.32 2.07 1.82 1.52 1.75 2.04 2.14 (0.02) 0.12 0.13

Cabbage 1.09 0.12 0.61 0.46 0.35 0.33 0.70 0.52 0.43 (0.02) 0.04 0.06

Watermelon 2.18 2.94 1.76 1.72 2.69 1.83 2.11 2.26 2.09 (0.03) (0.08) (0.05)

Eggplant 0.26 0.36 1.60 0.17 0.26 0.09 0.35 0.18 0.35 (0.05) 0.03 0.07

Papaya 0.27 0.24 0.06 0.03 0.01 0.09 (0.03) (0.15) (0.29) (0.06) (0.08) (0.03)

Mango 2.13 1.92 1.66 1.63 1.73 1.57 1.32 1.33 0.98 (0.12) (0.17) (0.06)

Durian 2.01 0.83 1.16 1.22 0.74 0.53 0.52 0.73 0.25 (0.16) (0.08) 0.08

Pineapple 3.52 3.18 2.81 3.40 2.25 2.16 1.74 1.96 1.76 (0.23) (0.12) 0.12

Cauliflower 4.50 1.94 3.07 2.97 1.31 0.51 1.20 1.07 1.04 (0.38) 0.00 0.38

Garlic 0.93 0.88 0.42 (0.25)

Slope1: slope of the trend line for the entire sample Slope2: slope of the trend line for the sample 2004-2008 Diff: slope1-slope2 Source: Bureau of Agricultural Statistics

Economic and Financial Rates of Return of Infrastructure Sub-Projects

This report covers the sub-projects under the DFIMDP’s second component: market development investments. A sample of sub-projects undertaken in Regions 6 and 7 (Western and Central Visayas, respectively) was used to infer their financial and economic benefits. The updated parameter estimates were based on the reports of the project proponents and the staff of the DA’s Regional Field Units in Western and Central Visayas. 1. Construction/Rehabilitation Farm-to-market Roads. Based on field information collected by the project proponents and the RFU staff FMRs are etimated to have yielded significant financial and economic net benefit. (Refer to Table 5). Much of the benefits accrue from the savings in hauling cost and in vehicle operating costs. In most cases, it is assumed that there will be 5% percent savings in hauling cost.. FMRs that are located in areas where there are more economic activity are expected to yield additional benefits, not quantified in the analysis, due to greater savings in vehicle operating costs and in hauling costs. See Attachment C for an example of how the economic and financial rates of return for the rehabilitation of one of the project’s FMR were computed based on field information. Bagsakan/Trading Centers. There are five bagsakan / trading centers which were partly financed through the project. Among these sub-projects, four have feasibility studies: three from Region 6 and one

42

from Region 7. All these sub-projects yield respectable internal rates of return, adding value to the wealth of the proponents as well as the economy. The main benefit that was considered in evaluating these projects is the savings from the reduction of post-harvest losses. The proponents acknowledge that a shaded bagsakan/trading center protects the produce of the farmers from the heat of the sun and preserves its value by about 10%. Incremental income is also generated by the sub-project proponents through the collection of fees from those who avail of the facility. The estimated benefits are rather conservative since they are premised on the assumption that there is only one market day per week. The increase in the utilization of the facility will significantly improve the estimated contribution of the project to the economy 2. Acquisition of Hauling Trucks There were seven hauling trucks which were acquired through the project. To have an indicative value of these projects, three sub-projects were evaluated. Results show that they contribute value to the proponent’s wealth and to the economy as a whole. Much of the success of these projects stem from the fairly high utilization rate of the trucks. Since the proponents are all cooperatives, the trucks have a good market base.

43

Table5. Financial and Economic Assessment of Sub-Projects

Project Location Project Cost ENPV EIRR

1.0. Construction/Rehabilitation1.1 Farm-to-market Road1.1.1 Foot path / wheel pathRehab of Brgy. Batga, Jona & Badiang Tubungan,Iloilo 818,449 -293,955 -7%Rehab of Kabalas - Bandila Toboso, NegrosOcc. 7,276,791 -1,525,539 7%1.1.2. FMR Rehabilitation/UpgradingRehab, Bingawan, Iloilo Bingawan, Iloilo 865,381 5,004,810 117%Rehab, Jamindan, Capiz Jamindan, Capiz 865,381 519,525 24%Rehab of Brgy Cadabdab Tubungan, Iloilo 1,105,854 10,403,671 295%Rehab of San Miguel, Dolores Dumalag, Capiz 2,000,394 7,334,336 141%Upgrading of Poblacion-Pawa BuntodRd Panay, Capiz 3,025,680 7,130,131 47%1.2 Bagsakan Center /Trading PostIloilo Mango Growers Cooperative Leganes, Iloilo 2,000,000 1,134,661 26%Libertad, Antique. LGU Libertad, Antique 1,000,000 1,275,190 42%Poblacion Tabuc MPC Mambusao, Capiz 1,000,000 254,921 19%Sierra Bullones, Bohol LGU Sierra Bullones, Bohol 1,000,000 496,461 19%1.3 Other FacilitiesPacking House Capiz MPC, Roxas City 1,000,000 341,713 60%Irrigation Project Mambusao 922,746 1,514,718 88%GK Greenhouse Toledo City, Cebu 100,000 620,358 41%Spring Reserve Maria, Siquijor 135,000 305,355 21%Corn Mill CarlosP Garcia, Bohol 490,000 1,818,167 36%

2.0 Acquisition of Hauling TrucksNEED MPC Sagay City, NegrosOcc 501,350 306,890 41%FACOMA MPC Sta. Barbara, Iloilo 500,900 565,338 61%AMSP Marketing Coop Patnongon, Antique 485,000 742,651 80%

44

Attachment A: Trade data on total and agr i-food expor ts from thePhilippines to the European Union, Japan, and the US.

Table A-1: Export Indicators

2000 2001 2002 2003 2004 2005 2006 2007 2008

Total Imports of Major Economies, (million USD)

USA 1,258,080.3 1,180,073.8 1,202,284.5 1,305,091.6 1,525,268.5 1,732,320.8 1,918,997.1 2,017,120.8 2,164,834.0

Canada 240,090.7 221,623.4 222,440.1 240,376.2 273,873.7 314,444.4 350,018.1 380,353.9 419,778.6

EU 913,277.7 876,782.4 884,557.3 1,057,625.6 1,278,653.1 1,465,519.5 1,697,724.9 1,967,525.9 2,284,917.4

Japan 379,662.9 348,613.2 337,608.9 383,452.0 455,253.8 515,866.4 579,063.9 622,243.3 762,533.9

Total 2,791,111.6 2,627,092.8 2,646,890.7 2,986,545.5 3,533,049.1 4,028,151.1 4,545,804.0 4,987,244.0 5,632,063.9

Total Agr i-based Imports of Major Economies, (million USD)

USA 54,542.2 55,127.3 58,378.3 64,186.3 70,594.4 77,006.2 86,027.6 93,029.8 101,079.5

Canada 12,552.2 13,208.6 13,829.6 15,347.9 16,441.0 18,290.6 20,765.8 24,357.4 27,620.3

EU 58,828.1 60,946.0 64,360.8 75,999.9 87,508.4 92,844.3 101,556.9 124,078.6 146,588.1

Japan 50,423.4 47,278.8 46,347.9 48,864.5 54,653.3 55,674.8 54,243.3 57,390.6 68,260.7

Total 176,346.0 176,560.7 182,916.6 204,398.6 229,197.1 243,815.9 262,593.7 298,856.3 343,548.6

Total Imports of Major Economies from thePhilippines (million USD)

USA 14,453.9 11,774.5 11,430.9 10,495.8 9,581.4 9,693.8 10,136.5 9,812.6 9,099.7

Canada 944.8 632.9 709.4 698.6 736.0 760.6 873.6 716.1 790.1

EU 8,465.5 7,171.9 7,890.3 8,068.1 8,596.1 8,116.1 8,090.3 7,736.2 7,802.5

Japan 7,198.9 6,401.6 6,540.0 7,048.8 8,252.5 7,700.0 7,960.0 8,731.2 8,426.2

Total 31,063.1 25,980.9 26,570.6 26,311.3 27,166.0 26,270.5 27,060.3 26,996.2 26,118.4

Total Agr i-based Imports of Major Economies from thePhilippines (million USD)

USA 703.7 668.7 679.3 764.7 845.7 897.9 978.4 1,061.9 1,317.3

Canada 45.0 43.8 51.5 55.3 68.5 70.4 83.3 88.3 107.0

EU 364.9 389.3 446.6 522.8 523.3 572.9 594.1 700.4 898.4

Japan 744.5 654.1 732.3 751.1 869.3 917.9 893.7 961.8 1,258.5

Total 1,858.0 1,756.0 1,909.7 2,093.8 2,306.9 2,459.2 2,549.5 2,812.5 3,581.2

45

Table A-1: Export Indicators(Continuation)

2000 2001 2002 2003 2004 2005 2006 2007 2008

Total Imports of Major Economies from thePhilippines (per cent share)

USA 1.15 1.00 0.95 0.80 0.63 0.56 0.53 0.49 0.42

Canada 0.39 0.29 0.32 0.29 0.27 0.24 0.25 0.19 0.19

EU 0.93 0.82 0.89 0.76 0.67 0.55 0.48 0.39 0.34

Japan 1.90 1.84 1.94 1.84 1.81 1.49 1.37 1.40 1.11

Total 1.11 0.99 1.00 0.88 0.77 0.65 0.60 0.54 0.46

Total Agr i-based Imports of Major Economies from thePhilippines (per cent share)

USA 1.29 1.21 1.16 1.19 1.20 1.17 1.14 1.14 1.30

Canada 0.36 0.33 0.37 0.36 0.42 0.39 0.40 0.36 0.39

EU 0.62 0.64 0.69 0.69 0.60 0.62 0.58 0.56 0.61

Japan 1.48 1.38 1.58 1.54 1.59 1.65 1.65 1.68 1.84

Total 1.05 0.99 1.04 1.02 1.01 1.01 0.97 0.94 1.04

Source of basic data: WITS, World Bank.

47

Attachment B: Sub-projects carried out under Component 2 of the Project

Department of Agriculture-RFU 7 Diversified Farm Income and Market Development Project

Status of Sub projects, as of June 30 2009

Name of Sub-projects/Recepient/Partner Cost Status

Program Contract CY 2006 1. Construction of Farmers Trading Posts 2,000,000

• San Jose, Negros Oriental LGU 1,000,000 Construction stopped

• Sierra Bullones, Bohol LGU 1,000,000 Completed

2. Construction of Greenhouses 200,000

• Gawad Kalinga, Toledo City 100,000 Completed and functional

• Bacong, Negros Oriental LGU 100,000 Completed and operational

3. Construction of Banana Processing 50,000

• Sogod Development Cooperative 50,000 Procured and functional

4. Installation of Drip Irrigation System 45,000

• Gawad Kalinga, Toledo City 22,500 Installed

• Bacong, Negros Oriental LGU 22,500 Installed

5. Development of Springs 270,000

• Maria, Siquijor LGU 135,000 Completed and functional

• Lila, Bohol LGU 135,000 Completed and functional

Program Contract CY 2007 1. Establishment of Corn Mill

• Carlos P Garcia, LGU Bohol

490,000 Completed 2. Acquisition of Shredder

• San Antonio Organic Farmers Assoc., Sagbayan, Bohol

75,000 Completed

Source: Department of Agriculture RFU 7 as reported by the World Bank

48

Department of Agriculture-RFU 6 Diversified Farm Income and Market Development Project

Status of Sub projects, as of August 31, 2009


Program Contract CY 2005

1. Procurement of Mech. Dryer • Zarraga MPC, Zarraga, Iloilo

325,000 Completed: already utilized by the proponent

2. Procurement of Flatbed Dryer • TQB MPC, Maayon Capiz

370,000 Procured and delivered; operational

3. Upgrading of Poblacion-Pawa Buntod Road • Municipality of Panay, Panay, Capiz

5,000,000 Completed - September, 2007

4. Rehab of Brgy. Batga, Jona & Badiang • Footpath/wheelpath • Municipality of Tubungan, Tubungan,Iloilo

666,000 Completed


1. Rehab of Brgy Cadabdab, Lanag Norte, • Bikil-Molina, Nagba and Ten Benito Road (.45

km) • Municipality of Tubungan, Tubungan, Iloilo

1,000,000 Completed

2. Rehab of San Miguel, Dolores, Nueva FMR • Municipality of Dumalag, Dumalag, Capiz

2,030,000 Completed

3. Rehab of Cabug-Cabug (Boac) - Carmencita (Matinog) Road

• Municipality of Pres. Roxas, Capiz

1,660,000 Completed

4. Construction of Bagsakan Center • Iloilo Mango Growers Coop., Leganes, Iloilo

2,000,000 Completed

5. Construction of Packing House • Capiz MPC, Roxas City

1,000,000 Completed w/ screen & ceiling

6. Rehab of Kabalas - Bandila Road/Footpath • Municipality of Toboso, Negros Occidental

2,660,000 4,640,000

Completed (2007 fund)


1. Procurement of Refrigerated Van & Agricultural Tools/Equipment

• Capiz MPC, Roxas City

2,576,000 Procured and delivered; operational

2. Rehab of Tigum - Lapayon Road • Municipality of Pavia, Iloilo

2,000,000 Completed

(continued on the next page)

49

Department of Agriculture-RFU 6

Diversified Farm Income and Market Development Project Status of Sub projects, as of August 31, 2009

(continuation)


Supplemental/Savings CY 2007

Procurement of Hauling Truck • SEMPC, San Enrique, Negros, Occidental


Procurement of Hauling Truck • NEED MPC, Sagay City, Negros Occidental


Procurement of Hauling Truck • Mambusao Fed. of Farmers MPC, Mambusao, Capiz


Rehab of Sitio Utod Mambusao, Jaena Norte FMR • Municipality of Jamindan, Jamindan, Capiz

1,200,250 84% completed; work cannot proceed due to inclement weather

Rehab of Small Farm Reservoir (SFR) • Municipality of Bingawan, Bingawan, Iloilo

1,000,000 Completed

Procurement of Flatbed Dryer • Pototan Seed Grower MPC, Pototan, Iloilo

290,238.94 Procured and delivered; Operational

Acquisition of Hauling Truck • FACOMA MPC, Sta. Barbara, Iloilo


Provision of Irrigation Project • Municipality of Mambusao

922,746 Completed

CY 2008 Program Contract

Construction of Trading Post • Libertad, Antique • Mambusao, Capiz

1,000,000 1,000,000

Completed Completed

Procurement of Banana Chippers • Tubungan Federation of RICs • Passi City RIC • Women of Mambusao Brigade

75,000

280,694

75,000

Procured and delivered for delivery (approved only last June,2009) for delivery

Hauling Trucks • Antique Muscovado Sugar Producers Marketing

Coop, Patnongon, Antique • NESCA Cooperative, Kabankalan, Negros Occ. • Aklan Seed Growers, Kalibo, Aklan

485,000

356,376 470,000

Procured and delivered Procured and delivered Procured and delivered

Source: Department of Agriculture RFU 6 as reported by the World Bank

50

Attachment C: Financial and economic analysis of a Farm to Market Road rehabilitation Sub-Project: the case of Bingawan Ilo-Ilo, 0.5km.

The main benefits considered in computing the economic and financial rates of return of the rehabilitation of farm-to-market roads under the DFIMDP consist in savings in vehicle operating costs (VOC) and in hauling costs (HC). The analysis assumes therefore that in the without project scenario the road would continue in the same condition and said savings would not materialize. VOC savings were computed for four different types of vehicle classes: jeepneys, trucks, motorcycles, and tricylces. Savings in VOC pert kilometer are obtained from DPWH tables and depend on the specific type of rehabilitation undertaken. Total savings for each vehicle class depend on the average number trips per day per vehicle class (Table C1) and on the length of the road. These savings are assumed to increase as a result of the increase in the demand for transport. The latter is a function of population and income growth, respectively assumed to be equal to 2.5% and 2.0%. Table C1: Savings Vehicle Operating Costs

Jeepney / Fiera Truck Motorcycle Tricycle Total

Number of Vehicles 10.00 5.00 25.00

Number of Trips per day 1.00 1.00 4.00

Average Trips per day 10 5 100 -

Operating days per year 365 130 365

Average Trips per Year 3,650 650 36,500 -

Savings per km 10.427 18.381 2.551 6.481

Total Savings, Yr1 (Php) 19,029.28 5,973.83 46,555.75 - 71,558.85 Note: Total savings reflect the total length of the rehabilitated FMR, 0.5 km.

Savings from hauling costs were computed for the relevant crops produced in the area. In the case of Bingawam these are palay, pineapple, root crops, vegetables, coconut, banana, coffee, sugarcane, and corn. For each crop the total volume of production harvested and marketed was computed based on interviews with farmers, owners of transport vehicles and other relevant stakeholders. The reduction in the hauling costs was determined to be 5% of the value of the marketed crop (Table C2).

Capital investments are reported in Table C3. They consist of equipment, construction materials, and skilled and unskilled labor. Shadow prices for labor and equipment and material are obtained by applying discount factors obtained from NEDA. Finally recurring maintenance costs are assumed to consist mainly in labor costs are the same as those assumed in the feasibility study.

Computation of the economic and financial rates of return are reported in Tables C4 and C5. The analysis assumes a planning period of 10 years in addition to the initial period during which the investment costs are incurred. The economic rate of return is estimated at 117% while the financial rate of return based on a discount rate of 12% is equal to 119%. These high rate of returns are justified on the basis of the savings in hauling costs and VOC that can be obtained with a limited investment such a rehabilitation of a FMR. The rates of return are very sensitive to the precision with which the savings from hauling costs are estimated. For instance, a reduction in the cost of hauling from 5% to 3%of the value of marketed crops leads to a reduction in the economic rate of return from 117% to 72%.

51

Table C2: Hailing cost savings

Palay PineappleRootCrops Vegetables Coconut Banana Coffee Sugarcane Corn Total

Area Harvested (hectares) 250 10 30 10 10 57 4 100 48

Yield per hectare (MT/ha) 2.75 48 10 6 3 10 3 60 3.8Total volume of harvest

marketed (MT) 688 480 300 60 30 570 12 6,000 182

Price per kl (Php/kl) 10 18 20 10 4 11 20 2 10Total Value of Havest

(Php,000) 6,875 8,640 6,000 600 120 5,985 240 9,000 1,824

Savings in Hauling cost (%) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Total savings in hauling cost

(P) 171,875 216,000 150,000 15,000 3,000 149,625 6,000 225,000 45,600 982,100

Assumptions: (i) Percent marketed surplus= 50%; hauling cost ex ante = 15% of marketed surplus; hauling cost ex post = 10% of marketed surplus.

52

Table C3: Capital investments:

Financial Cost Economic Cost (at cur rent pr ices)Direct Cost

I tem Base CostAdd: Taxes

andAdd:

ContingencyTotal

Financial Base Cost +Add:

EngineeringTotal

EconomicContractors

Profit Cost CostContingency

Cost Supervision Cost

Materials 378,725.98 83,319.72 46,817.90 508,863.60 425,543.88 510,652.66

Equipment 159,482.06 35,086.05 19,715.09 214,283.20 179,197.15 215,036.58

Labor -

Skilled 71,535.88 15,737.89 8,843.23 96,117.00 80,379.11 55,000.00 135,379.11

Unskilled 34,322.96 7,551.05 4,242.99 46,117.00 38,565.95 23,139.57

Subtotal 105,858.84 23,288.95 13,086.21 142,234.00 118,945.05 55,000.00 158,518.68

Total 644,066.89 141,694.71 79,619.20 865,380.80 723,686.09 55,000.00 884,207.91

-

Tax rate 12%

ContractorsProfit 10%

Contingency Cost 79,619.20Shadow Price: Matrials andEquipment 1.20

Shadow Price: Skilled Labor 1.00

Shadow Price: Unskilled Labor 0.60

53

Table C4: Summary of the economic analysisSummary of Results:EIRR

Project NameImprovement of Farm-to-MarketRoad

Proponent LGU-Bingawan, Iloilo

Unit Php

Year 0 1 2 3 4 5 6 7 8 9 10

I . Costs

Initial Investment (884,208)

Opportunity Cost of Land

Working Capital invetment

Maintenance (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226)

Improvements

Total: Costs (884,208) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226) (20,226)

I I . Net BenefitsVehicle Operating Cost

Savings 71,559 75,070 78,753 80,215 81,754 83,375 85,082 86,879 88,773 90,766

jeepney / fiera19,029 20,078 21,184 22,351 23,583 24,882 26,253 27,700 29,226 30,836

truck5,974 6,243 6,525 6,819 7,127 7,448 7,784 8,135 8,502 8,885

motorcycle46,556 48,749 51,045 51,045 51,045 51,045 51,045 51,045 51,045 51,045

tricycle- - - - - - - - - -

Savings in Hauling Cost 982,100 982,100 982,100 982,100 982,100 982,100 982,100 982,100 982,100 982,100

54

Others

Total: Net Benefits 1,053,659 1,057,170 1,060,853 1,062,315 1,063,854 1,065,475 1,067,182 1,068,979 1,070,873 1,072,866

I I I . Terminal Cash Flow

IV. Net Cash Flow forFIRR (884,208) 1,033,433 1,036,944 1,040,628 1,042,089 1,043,629 1,045,249 1,046,956 1,048,754 1,050,647 1,052,641

EIRR 117%

NPV 9,556,763

Key assumptions in determining increases in VOC and HC savings:Population growth rate: 2.5%Income growth rate: 2%

55

Table C5: Summary of the financial analysis

Summary ofResults: FIRR

Project NameImprovement of Farm-to-MarketRoad

ProponentLGU-Bingawan,Iloilo

Unit Php

Year 0 1 2 3 4 5 6 7 8 9 10

I . Costs

Initial Investment (865,381)Opportunity Cost ofLandWorking Capitalinvetment

Maintenance (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082)

Improvements

Total: Costs (865,381) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082) (24,082)

I I . Net BenefitsVehicle Operating Cost

Savings 71,559 75,070 78,753 80,215 81,754 83,375 85,082 86,879 88,773 90,766

jeepney / fiera19,029 20,078 21,184 22,351 23,583 24,882 26,253 27,700 29,226 30,836

truck5,974 6,243 6,525 6,819 7,127 7,448 7,784 8,135 8,502 8,885

motorcycle46,556 48,749 51,045 51,045 51,045 51,045 51,045 51,045 51,045 51,045

tricycle- - - - - - - - - -

56

Savings in HaulingCost 982,100 982,100 982,100 982,100 982,100 982,100 982,100 982,100 982,100 982,100

Others

Total: Net Benefits 1,053,659 1,057,170 1,060,853 1,062,315 1,063,854 1,065,475 1,067,182 1,068,979 1,070,873 1,072,866

I I I . Terminal CashFlow

IV. Net Cash Flowfor FIRR (865,381) 1,029,577 1,033,088 1,036,772 1,038,233 1,039,772 1,041,393 1,043,100 1,044,898 1,046,791 1,048,785

FIRR 119%

Discount Rate 12%

NPV 5,001,849

Key assumptions in determining increases in VOC and HC savings:Population growth rate: 2.5%Income growth rate: 2%

59

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending

Supervision/ICR Dominic Reyes Aumentado Procurement Specialist EAPCOJonas Garcia Bautista Consultant EASTELuningning J. Bondoc Consultant EASREDouglas A. Forno Consultant EASREFlordeliza A. Lantican Consultant EASREVictoria Florian S. Lazaro Operations Officer EASPS Andrew Garcia Mendoza Program Assistant EACPFGuia Minguez Consultant EASREJose Tiburcio Nicolas Operations Officer EASSOJoseph G. Reyes Financial Management Specialist EAPCOLeonardo M. Rodaje Consultant EASREEsperanza Sadiua Program Assistant IEGKE Noel Sta. Ines Procurement Specialist EAPCOTomas A. Sta. Maria Consultant EAPCORoberto B. Tordecilla Operations Officer EASPS Cesar Umali Consultant EASREFelizardo Jr K. Virtucio Operations Officer EASPS

60

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs)Lending

FY02 8 80.96 FY03 21 203.63 FY04 29 178.97 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 58 463.56 Supervision/ICR

FY02 0.00 FY03 0.10 FY04 0.56 FY05 14 61.02 FY06 12 58.56 FY07 14 60.26 FY08 19 68.72 FY09 9 0.00

Total: 68 249.22

61

Annex 5. Beneficiary Survey Results The Project specifically provided for a Client Satisfaction Survey at the commencement of the project, and around the time of loan closing. While the first survey was undertaken, the DA has yet to follow through on the second survey, which was a dated covenant under the loan. Delayed action on the part of Government is expected to result in the terminal survey results becoming available only by June 2010. Nevertheless, the DA should be commended for adhering to this commitment even though project funds could no longer be tapped for this purpose. The following summarizes the finding of the first client survey, which showed a low level of satisfaction with DA services. The results of the survey did, however, reinforce the need for the DA to give greater attention to providing market oriented services in line with the goals of the DFIMDP. The full survey results are available in the Project file (see Annex 8) Beneficiaries Surveyed: The study conducted household survey interviews, key informant interviews and focus group discussions with individual farmers, LGU staff, farmer leaders in the focus areas and some key officers of farmers associations and NGOs. It covered the four priority areas of DFIMDP, namely: i) La Trinidad Valley in Benguet and Mountain Province in the Cordillera Administrative Region (CAR); ii) Iloilo and Capiz coastal zone in Western Visayas (Region VI); iii) Cebu and Negros Oriental in Central Visayas (Region VII); and iv) Bukidnon in Northern Mindanao (Region X). A total of 487 farming households were interviewed for the household survey, comprising of 432 farmers and fishers from target or focus municipalities of DFIMDP. The key informants consisted of 24 LGU staff, 3 farmer association leaders, 12 trader/processor/exporter, and 7 from the NGO/industry association/government sector. Overall ’Satisfaction Rating’ of Market-Oriented Services: Only six (6) percent, on average, were aware of the market-oriented services of the DA. Still, not all of those who were aware of the services had accessed the services. The majority (71%), albeit comprising only 4% of total farmers, had availed of the services. Of those who had accessed the services, 81 percent found them generally ’satisfactory’ Familiarity and Confidence with ’Agriculture Personnel: As expected, there were more farmers who were familiar with and, hence, more confident to get assistance from the Agricultural Technician (AT) assigned in their area or with the Municipal Agricultural Officer (MAO) rather than with the Provincial Agricultural Officer (PAO). About half of the farmer-respondents affirmed familiarity with ATs in their respective localities although slightly less (42 %) expressed confidence that they can get assistance from their AT for concerns in improving product and market. Of the LGU staff interviewed, 18 of 24 were aware of these services and 6 had a high level of satisfaction while 9 had a medium level and also 9 had a low level of satisfaction. Among the reasons for satisfaction of the LGU staff were in its support for market encounter meetings and trade fairs and the provision of technical trainings, such as for the certification of seed producers. Needs Assessment: The needs in the DA’s market-oriented services that were gleaned from the survey can be grouped into three aspects: 1) reach, 2) particular market oriented service, and 3) sustainability of service. This section also includes needs for particular services that seem to be lacking from among the services of the DA. i) Reach of market-oriented services: The low level of percentage awareness for market-

oriented services among the households indicate the necessity of implementing steps that

62

would widen and lengthen the reach of disseminating efforts that such services are available.

ii) Particular Market-Oriented Services that the Clients need: The survey noted the

following market-oriented services needed by the ’client’ aside from what the DA has been delivering so far. (a) Stable Prices. While recognized to be difficult for the DA to achieve, the experience from Region 10 was cited whereby a major association of vegetable growers, instead of doing crop programming, maintains data of production volume and dates of harvest so their members are on deciding what they will plant today. The approach in Region 10 seemed more workable than the crop programming being envisioned by the informants in the CAR, and (b) Special Marketing for IPM products. More effort was considered needed by the DA to overcome lack of consumer differentiation between IPM or organically grown vegetables and those grown with commercial chemicals.

iii) Sustainability of service:For a sustainable delivery of market-oriented services, the

following feedback was obtained: (a) Need for Committed field personnel or professional agribusiness services. The survey noted models of contract growing cooperatives allowing their members to implement market driven production with quality controls being practiced at the farm level, and (b) Participatory planning from ’down-to-up’. The participatory approach of the ’Operations Manual’ of the DFIMDP was considered an important aspect for the sustainability of projects. Centrally planned projects were felt to be often politically motivated.

To the extent that the project did not achieve a change in the way in which the DA does business or in reorienting its service to be more market-oriented, it would seem reasonable to assume that the results of the 2006 Client satisfaction Survey remain valid as of loan closing in 2009.

63

Annex 6. Stakeholder Workshop Report and Results In order to supplement the analysis that will come from the terminal client satisfaction survey and to validate the findings of the IL-ICR team, two separate rounds of stakeholder consultations were conducted. The first round of discussions involved a series of separate meetings with the whole range of stakeholders involved in the design and implementation of the DFIMDP. This was followed by a workshop with key agencies and opinion-makers having strong influence over shaping the direction of agriculture development strategies and policies. Details of these stakeholder consultations are given in Annex 6 and its attachments, and provide a solid validation of the key points raised in the IL-ICR. The main findings and conclusions of these consultations are the following: i. AFMA and PEM Reforms - The goals and directions of AFMA and the PEM reforms continue to be relevant and responsive to the development needs of the sector and the country. There is, however, a disconnect between policy and implementation due to a narrow view of the AFMA, weaknesses in the government’s expenditure management system, and the ineffective oversight of reforms. Specifically on the AFMA, there is a general acceptance by policy makers and the bureaucracy of rice production targets as a proxy for agricultural development. This may, in part, stem from the ambiguity in AFMA as to what is meant by way of ensuring “food security” and “self-sufficiency in staple food production”. ii. The DFIMDP - The PDO and the design of the DFIMDP are consistent with the AFMA and PEM reforms. The project, however, failed to meet its PDO mainly because of the lack of DA management support. There was also broad agreement that governance issues lay at the heart of many of the difficulties encountered in implementing the project, summed up by the observation that “it is easier to lose one’s job due to political reasons than due to accountability”. It was suggested the “program loan” approach of the DFIMDP would have been a more effective instrument if the implementing agency had been one of the Oversight Agencies. A counter-argument pointed out that the responsibility for reform lay with the DA and there are limits to what the Oversight Agencies (specifically DBM) could or should do if the responsible agency doesn’t want to reform. iii. The Department of Agriculture - The DA is believed to be highly politicized, with its leadership changing frequently due to shifting political positioning of the President. Thus, many have expressed frustration on the difficulty of making the right decisions for agriculture because they are mostly based on political repercussions. The DA is an ideal political tool since the government’s budget system allows a wide latitude of discretion in the allocation of funds by the DA secretary. This was experienced in the DFIMDP where the amount already allocated for market-oriented support was siphoned for production support during implementation. iv. Policy Oversight – The Oversight Agencies in both the Executive branch and the Legislature can effectively facilitate and promote the implementation of PEM and AFMA reforms through its supervision of the development budgeting process. There are, however, systemic weaknesses in both branches of government that have resulted in an inadequate oversight of the sector. Especially troubling to the stakeholders was the apparent continuing lack of understanding of the issues by legislators. The representatives from the legislature admitted that they don’t even know

64

the appropriate questions to ask the DA on these reforms. They need technical assistance and ready access to relevant information. While on the side of the executive Oversight Agencies, they are only as effective as the President allows them to be, and it was felt that the DA had greater clout with the President. v. Civil Society and Farmers’ Groups – This sector felt that they have no effective influence over DA decision-making. They have had not much, if any, strategy-level engagement with the DA. This is due, in part, to a lack of technical capacity and information. Meanwhile, civil society groups who have the capacity to engage the DA at the strategic level lack the funds for sustained research and impact analysis. Thus, civil society’s focus of engagement with the DA has been largely limited to transparency and governance issues. Consequently, there has been no civil society lobbying for PEM and AFMA reforms. There is, therefore, a need for more coordination with the academe, research institutions, oversight agencies as well as with other development partners to capacitate civil society to more meaningfully engage with the DA. vi. The Private Sector – Although the AFMA espouses private sector participation, the sector felt that government-established mechanisms for public-private consultations are largely ineffective, token and may not be fully representative. The National Agriculture and Fisheries Council (NAFC), for instance, is perceived to be a rubber stamp of the DA Secretary. Furthermore, it has not been convened by the DA Secretary for quite some time. There has, therefore, been no effective platform for the private sector to be adequately informed about, to monitor and to lobby for AFMA and PEM reforms. On market-oriented services that are supposed to be delivered by the DA, the private sector feels that these are very inadequate and unsystematically provided. For instance, market promotion services were accessed by the private sector through their own initiatives and personal contacts within the DA. They also found public laboratory services to be slow and not very reliable, and private laboratory services to be expensive especially if samples need to be sent to Manila. Meanwhile, on rice trading, the private sector strongly feels that government lacks transparency and has been crowding them out. vii. The LGUs and Other Stakeholders With the devolution, the responsibility for the delivery of agriculture and fisheries services, including FMRs, was given to the LGUs. However, the financial resources necessary for the LGUs to do this additional responsibility was not devolved. It was also suggested that, if the AFMA is geared towards the market, the Department of Trade and Industry (DTI) should play a more active role in its implementation. viii. The role of the World Bank - The Bank was seen as the source of technical information that can bridge the knowledge gap among the various stakeholders of AFMA and PEM reforms. Assistance was requested from the Bank to help this process by providing regular briefings and technical inputs on the key issues, including details of the flawed rice self-sufficiency policy pursued by the current administration. The oversight bodies in the legislature were especially keen on establishing a regular venue for knowledge sharing with the Bank. ix. Decision Support Tools - The government’s M&E system doesn’t seem to be up to the task of providing timely and sufficient information for the oversight bodies, and even the DA, to assess the implementation and results of policies and programs. There appears to be weak documentation of what has been done, reports have been lacking, and thus, at the time of decision making, the right data were not available leading to faulty decisions. More particularly, the stakeholders mentioned that the Strategic Agriculture and Fisheries Development Zones (SAFDZs) under the AFMA have not functioned even after 12 years. They said that this should be revived with more technical content, such as the facilities and infrastructure existing in the area, including the State Colleges and Universities (SCUs) that could support research and development, telecommunication facilities, ports and airports.

67

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR

The Borrower’s Project Completion Report

The Borrower’s Project Completion Report (PCR) concludes that most of the targeted activities of each project component/ cluster were generally accomplished in spite of some implementation drawbacks. The PCR pointed out that the project activities that were not finished as scheduled were continued in the following year. Some implementing units also provided regular funds to finance their activities especially when funds under the project were not released on time. The five-year duration of the project was, however, considered inadequate to implement all targeted institutional and public expenditure reforms, especially since the first two years were spent grappling at mainly procedural issues. The implementation difficulties, especially during the first two years, were traced mainly from the lack of understanding by the implementing units regarding the nature of the project, i.e., budget support where no additional funds will be provided by the Bank. However, although a range of orientations on the project were conducted, various implementing units were still reluctant to enroll activities under the project. The lack of appropriations cover or the minimal committed appropriations cover for the project PAgs as well as the de-tagging of project-specific SAROs were cited as major contributing factors to the project’s low disbursement rate. Regarding the Borrower’s performance, the PCR cited the various institutional support provided by the DA to the DFIMDP, e.g., i) the Project Advisory Board (PAB), to provide overall guidance; ii) the Technical Working Group (TWG) on Consultancy Services and a designated procurement officer, to fast-track procurement; iii) the RPAB and the Regional Technical Secretariat, to conduct technical and financial feasibility of sub-projects; among others. The PCR, nevertheless, pointed out that ad hoc in nature of these bodies, especially the TWG, sometimes makes it impossible for them to gather and deliver outputs on schedule hence delaying activities. Regarding the DA’s implementation partners, the PCR noted that the participating LGUs, NGOs and private sector, especially in Region VI, were cooperative, participative and willing to comply with the cost-sharing arrangements. For other regions, however, participation was hindered by the project’s 50:50 NG-LGU cost-sharing requirement especially since there are other windows with a much lower cost-sharing or grant-type of projects. The PCR considers the Bank to be instrumental in influencing the DA management and, to some extent, the Oversight Agencies (i.e. NEDA and DBM) to prioritize projects and activities under the DFIMDP. Its close and regular monitoring of program activities and coordination meetings with all partner agencies were also cited to have helped resolve implementation bottlenecks/ constraints. Nevertheless, some Bank actions and procedures were pointed out which the Borrower believes may have complicated project implementation. An example is the execution of multiple contract arrangements among implementing and operating units during the initial stages of the project, which has, however, been eventually resolved. The PCR mentions the following lessons and good practices learned from the DFIMDP (especially from the implementation experience of DA-RFU 6): (i) strong linkage and coordination, and collaborative efforts among private sector, people's organization and the LGUs resulted in the accomplishment of the subprojects as scheduled and within estimated cost; (ii) clear delineation of the roles and responsibilities of each party facilitated project implementation;

68

(iii) cost-effective projects were implemented due to the rigid review of the proposals by the RPAB with the proponents defending their proposals before the said body; (iv) projects were being identified by the proponents themselves through consultations, dialogues, assemblies, fora and other means; (v) participative planning employed by the proponents resulted in projects based on their local needs and priorities; and, (vi) cost-sharing arrangements is good since the proponents has a sense of ownership and the Department has more funds for additional projects to be implemented. In retrospect, the PCR also mentioned that project implementation could have been better if the following were done: (i) harmonized guideline on the different windows for implementing DA infrastructure and other postharvest projects; (ii) the same interpretation of financial rules and regulations on the release of funds, disbursements, and liquidations as well as other procedures; (iii) timely release of funds; (iv) the Department’s priorities is in synch with the objectives of the project; (v) there is enough manpower to accomplish scheduled activities; (vi) proper turn-over of documents and briefing were done especially when there were changes in the focal persons and management team; (vii) full understanding of the project’s Operations manual; and (viii) full support and commitment of management specifically on providing budget allocations for eligible activities under the project. The PCR recommends the following action to DA management as a result of the DFIMDP experience: (i) ensure serious commitment in implementing loan projects to avoid commitment charges; (ii) for future projects that have the same features as DFIMDP, budget cover must be assured before the start of the project; (iii) construction/rehabilitation works may also be undertaken by force account or administration since LGUs have also the technical capability to undertake works and profit accruing to contractors may augment the funds for the works hence longer FMRs may be rehabilitated; (iv) reduction of the proponent’s equity; (v) creation of Regional Sub-Project Management Office; (vi) consider SUCs as sub-project proponents; (vii) harmonization of guidelines on project implementation specifically the counter-parting scheme; (viii) monitoring of completed project by LGUs, DA and farmer-beneficiaries should continue to ensure sustainability of project benefits; (ix) follow-through activities should be done to achieve sustainability of projects that has started; (x) strengthen the capacities and improve the processes of the BAC of the Department since most of the hiring of consultancy services and procurement of goods took a long time to process; (xi) a Project Management Office (PMO) specifically focused in the project should also be created to be held accountable for the overall implementation of the project; (xii) the Project could have been better implemented if personnel assigned were exclusively tasked to undertake or coordinate the Project’s different activities, to focus more in achieving the target activities and objectives; and (xiii) the milestones achieved by the implementing agencies in this Project must be sustained and should be considered as a regular program, project and activity and therefore the yearly budgetary requirement should be included in the budget proposal by the Department. The complete PCR can be found in the Project Files (Annex 8).

69

Borrower’s Feedback on the DFIMDP-ICR

Highlights of the Discussions of the DA27 on the Draft DFIMDP Implementation Completion Report (ICR)

Issues Comments/ Recommendations Overall DA generally agrees with the findings,

conclusions, and recommendations of the DFIMDP ICR.

I. Assessment of Outcomes DA agrees that the PDO and the secondary outcomes were not achieved and, as a result, the overall outcome rating should be Unsatisfactory and the risk to outcomes is High. At the same time, the DA feels that the following should be highlighted: i) most target Intermediate Outcomes were met; and ii) this implies that DA has sufficient implementation capacity and project failure is not due to any inadequacies therein. DA-RFU 6, in particular, would like to highlight the following benefits they derived from the project: i) closer and more harmonious relationship between the DA-RFU and the LGUs/communities; ii) effective increase in development budgets of the participating LGUs; iii) enhanced skills among the participants in FS and procurement; and iv) application of acquired skills to other projects. The DA would also like to correct the ICR’s conclusion that the project M&E arrangements were not implemented as designed. The report stated that the main project reporting was undertaken mainly by the 5 component clusters and not by the PMED. The DA explained that operational M&E was the responsibility of the DA-FOS, while outcome/ impact M&E was the responsibility of the PMED. As such, PMED was responsible for project reporting for the Planning cluster. The PMED and the FOS then submitted their report to the PAB secretariat for

27 Held on 25 May 2010 at the Field Operations Service (FOS) Conference Room of the DA-Central Office. Participants include Assistant Secretary Romy Recide, FOS Director Roy Abaya, and representatives of the 5 DFIMDP Component Clusters: Planning Service, PMED, PPD, FOS, FMS, BAR, ATI, BAFPS, AMAS, BPI, SPCMAD, and DA-RFU 6.

70

consolidation and reporting to the PAB. The DA also attempted to undertake the M&E of the project’s secondary outcomes through an IDF-funded grant project. This initiative was, however, unsuccessful due to, among others, the inadequate engagement and follow-through by the participating LGUs. The DA also provided updates on the status of the terminal Client Satisfaction Survey (CSS) of the DFIMDP, which is one of its loan covenants. The winning bidder backed out of the engagement forcing the DA to redo the bidding process. Hence, the CSS results will not be available by July 2010, as originally intended, but would most likely be available by December 2010 instead.

II. Key Factors Affecting Implementation and Outcomes

DA agrees that the main factor for the DFIMDP’s poor performance was the weakening of management support and commitment to AFMA and PEM reforms during project implementation, and that the proposed political economy explanation for this change in policy position is plausible. DA agrees that the other factors that exacerbated project performance include: i) negative perceptions on the SIM instrument; ii) eventual easing of the DA’s budget constraints; iii) multiple NG:LGU cost sharing arrangements; iv) bureaucratic instability in the DA; v) capacity constraints in FM and procurement; and vi) the 2007-2008 international rice crisis. The DA further dispelled the assertion in some quarters that the DFIMDP was forced upon the DA by the Oversight Agencies. DA management was fully aware and supportive of the reforms the project was supposed to promote during project preparation. In the course of project implementation, however, priorities shifted and the management ‘s desire for budget flexibility remained strong.

III. Assessment of Bank and Borrower Performance

The DA agrees with the ICR’s assessment on and MS rating of the Bank’s performance during project preparation and project supervision. Nevertheless, the DA wants the Bank to further

71

examine whether Bank procedures can be further be strengthened as well as simplified to effectively prevent very late actions on certain DFIMDP activities such as the AFMIS (2 years processing time) and the irrigation evaluation (4 years delayed and not yet done to date). The DA, however, admits that their internal processes were mostly responsible for these late actions. The DA agrees with the assessment on the MU rating for the Government’s performance. In fact, the DA considers the stalling of MFO-based budgeting as a major factor behind the DFIMDP’s poor performance. The DA, however, asked the Bank to examine the possibility of upgrading the Implementing Agency’s performance rating from Unsatisfactory to Marginally Unsatisfactory given that the DA was able to achieve most of its target Intermediate Outcomes (IO) and the single IO they were not able to achieve was due to an external factor beyond their control. DA-FMS would also like the Bank to take note that, even though the transactions under a SIM loan is difficult, they, nevertheless, did their jobs to the best of their abilities, especially on the review and evaluation of project contracts.

IV. Lessons Learned DA agrees with the lessons cited in the ICR. They, nevertheless, asked the Bank to compare the performance of the NPS projects in other government agencies (e.g., DepED, DoH) with that of DA’s to determine what conditions should be set in place and what strategies are needed for this type of project to be effective.

Other Concerns Submission of other comments and recommendations should be submitted to DA- Planning for consolidation by May 28, 2010 DA-Planning to inform Oversight Agencies to submit their inputs to DA-Planning for consolidation DA to officially send comments and recommendations to the Bank no later than June 3, 2010 with or without inputs from Oversight Agencies

72

Additional DA Comments to the draft Intensive Learning Implementation Completion Review (IL-ICR) for the Diversified Farm Income and Market Development Project (DFIMDP) 28

1. In letter F (Results Framework Analysis) under Data Sheet; and pages 13 & 48:

Please note that the result of Terminal evaluation tor DFIMDP will not be available by June 2010 as scheduled since the SEA Consultants, Inc. has decided to withdraw last October 2009 from the DFIMDP Terminal Evaluation and Client Satisfaction Survey. They were given a Notice to Proceed and a signed contract in August 2009. However, during the pre-audit, they were not able to satisfy the requirements of the Commission on Audit hence delaying the project for several months now. A re-bidding was requested and by June 2010, BAC is scheduled to announce the winning bidder. The evaluation will be conducted in 4 months.

2. On page 3 under Key Factors.Affecting Implemontation and Outcomes:

Although some of the project development objectives were not met, it would also be good to note that most of the target intermediate outcomes were achieved and the Department continues to complete the remaining activities targeted under the project.

3. On page 9, under M&E Implementation and Utilization:

From the start of the project, PMED has not agreed to the M&E design. Hence. a Technical Secretariat for the project, headed by Dir. Roy Abaya was created under Special Order Nos. 302 and 389 series of 2007. It was stated that: -SPCMAD and cluster heads will be responsible for the review and consolidation of quarterly and annual Financial Monitoring Reports (Physical Progress). -SPCMAD will monitor the implementation of activities and progress made by the IAs/IUs. PMED will monitor and evaluate project results pursuant to the loan agreement and project appraisal document.

The Technical Secretariat periodically reports to PAB the status, updates and concerns of the project.

May we also inform you that PMED regularly submits to World Bank the status of outcome Indicators including some of the secondary outcome indicators (refer to annex 1). A DFIMDP Baseline and Client Satisfaction Survey was also conducted in 2006. The Departrnent together with NEDA and DBM also conducted a DFIMDP Midterm Review in 2007.

Admittedly. the Department’s M&E system remains weak despite the various efforts done to improve it. The reason for this may not be due to the limited value given to M&E but because with its limited staff capacity, PMED is tasked with loads of responsibilities i.e., providing the technical demands of the Management, oversight agencies, the Presidential Management Staff, and the Office of the President. This is in addition to the tracking of the achievement of quantitative output targets and field evaluation, 4. On page 16 under the DF1MDP:

28 Sent by the DA Assistant Secretary for Policy and Planning Perceles Manzo to the Bank on June 4, 2010.

73

The project failed to meet its PDO mainly because of other priorities based on the clamor of the DA clientle and not because of lack of DA management support.

5. On page 17 under Policy Oversight:

We agree that the M&E system of the Department cannot provide timely information which we attribute to the devolution of provincial and municipal Agricultural technicians to the Local Government Units, However, we provide sufficient information to oversight agencies and initiated efforts in the implementation and results of programs,

6. On page 25 under Component 2: Market Development Investments:

There are 34 sub-projects (19sub-projects were noted in the report) implemented in RFU 6. NAFC’s comments/response to the item on Policy Oversight, which states that “Private sector feels that the government –established mechanisms for public-private consultations are largely ineffective and token. ” – The effectiveness of DA’s consultation mechanisms has been limited by the inadequate amount of funds that was provided, especially at the municipal level. Nevertheless, much have been accomplished in spite of these resource constraints.

74

Annex 8: List of Supporting Documents

1. Agriculture and Fisheries Modernization Act. Republic Act No. 8435 of 1997

2. Implementing Rules and Regulations pursuant to Republic Act 8435. Department of Agriculture Admin. Order 6, Series 1998.

3. Action Plan for Strengthening Regulatory Laboratory Capacity for Major Agricultural 4. Exports: A proposal of the Quality Assurance Cluster. Bureau of Agriculture and

Fisheries Product Standards, Sept. 26, 2007.

5. Diversified Farm Income and Market Development Project. Mid-Term Review, NEDA. November 2007.

6. Financing Agriculture Modernization: Risks & Opportunities. Policy Brief- Senate

Economic Planning Office. February 2009

7. Philippines: Agriculture Public Expenditure Review. A Technical Working Paper. World Bank, East Asia and Pacific Region. June 2007.

8. DFIMDP Baseline and Client Satisfaction Report (2006 February-March). Volume1.

SEA Consultants. July 2006.

9. DFIMDP Aide Memoir- Eighth Supervision and Initial ICR Review (April 27 to May 8, 2009).

10. Summary table of inputs from the first round/series of stakeholder consultations

11. List of participants in the first round/series of stakeholder consultations

12. DFIMDP IL-ICR Stakeholder Workshop. September 25, 2009. Power-Point presentation

13. DFIMDP IL-ICR Stakeholder Workshop. September 25, 2009. Summary of

proceedings/discussions and list of participants.

14. FM Consultant’s reports a. Financial Analysis b. Comparative Table of Reporting Requirements and Procedures c. Status of Implementation of Recommendations in Prior Reports d. Financial Management Questionnaire

15. The Department of Agriculture’s Project Completion Report (PCR) on the DFIMDP