Idea Transcript
Public Disclosure Authorized
Document oL
The World Bank FOR OFFICIAL USE ONLY
f//
Public Disclosure Authorized
Report No. 4209-MAG
Public Disclosure Authorized
Public Disclosure Authorized
MADAGASCAR
AGRICULTURE AND RURAL DEVELOPMENT
SECTOR MEMORANDUM
March 29, 1983
Eaten Poecs
fic earmetFILE
COPY
Central Agriculture Division Eastern Africa Projects Department
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
1975 1976 1977 1978 1979 1980 1981 1982 (after
Currency Unit
=
Malagasy Francs (FMG)
(Yearly Average) I US$ = FMG
= =
FMG 100 FMG =US$
214.32 238.98 245.67 225.64 212.72 211.30 271.73 345.00
0.47 0.42 0.41 0.44 0.47 0.47 0.37 0.29
1!
April)
0.26
1983 (March) 390.00 WEIGHTS AND MEASURES
British/US Equivalents
Metric 1 1 1 1
are (a) hectare (ha)
kilometer (km) square kilometer (km2) 1 kilogram (kg) 1 liter (1) 1 tonne (t)
= =
0.0247 acres 2.47 acres
= =
0.62 miles 0.39 square miles 2.20 pounds
= = =
0.26 US gallon 0.22 Imperial gallon 2,204 pounds
=
ABBREVIATIONS AND GLOSSARY BTM CCCE
= =
DGP
=
DEP FAC
= =
FAO FED
= =
FNDE
=
Rural Development Bank of Madagascar French Development Fund (Caisse Centrale de Cooperation Economique) Direction Generale de la Planification (General Planning Directorate) Directorate for Studies and Planning of MPARA French Technical Assistance Agency (Fonds d'Aide et de Cooperation) Food and Agriculture Organization European Development Fund (Fonds Europeen de Developpement) National Capital Investment Budget (Fonds National de D6veloppement Economique)
1/ Exchange rate used in report unless otherwise noted.
FOR OFFICIALUSE ONLY
FNUP FOFIFA
=
IFAD IRRI MIC MPARA
= = =
ODRI MPT SINPA
= =
tanety
=
=
Fonds National Unique de P6requation National Center for Applied Research on Rural Development (formerly CENRADERU) International Fund for Agricultural Development International Rice Research Institute Ministry of Industry and Commerce Ministry of Agricultural Production and Agrarian Reform Operation de Developpement Rural Integre Ministry of Public Works State Marketing Company for Agricultural Commodities (Socigtg d'Intgret National des Produits Agricoles) Non-irrigated slopes above rice paddies on which rainfed food crops are cultivated.
Appendix 2 lists acronyms and full titles of parastatal agencies operating in the agricultural sector.
GOVERNMENT ADMINISTRATION Fokonolona Territorial Divisions Fokontany Firaisam-pokontany (or Firaisana) Fivondronam-pokontany (or Fivondronana) Faritany
=
group of group of (former group of (former group of (former
= = =
=
villages (about 11,400 total) Fokontany canton) (about 1,250 total) Firaisana sub-prefecture) (about 115 total) Fivondronana province) (six)
FISCAL YEAR Government of Madagascar and Most Public Institutions
=
January 1 - December 31
PADDY: RICE CONVERSION
One ton of paddy gives
about
670 kg rice;
one ton of rice
is made
from about 1.5 ton of paddy.
Thiisdocument has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
MADAGASCAR AGRICULTURE AND RURAL DEVELOPMENT SECTOR MEMORANDUM Table of Contents
Page No. EXECUTIVE SUMMARY I. -
II.
.
INTRODUCTION
.............
.
.......
* ***-
-- i-xiii
.....
1.............
THE AGRICULTURAL SECTOR - RECENT PERFORMANCE AND DEVELOPMENT
POLICIESOS..
.....
A. Role of Agriculture and Recent Performance . B. Agricultural Development Poi cies..
3
.
3 9
III.
AGRICULTURAL RESOURCES AND PRODUCTION SYSTEMS ...............
13
IV.
AGRICULTURAL PRODUCTION - SUB-SECTOR ISSUES.................
24
V.
A.
Gn
A.
Ceneral.,.,24
B. C. D. E. F. G. H.
Rice.. Other Food Crops ...................... ... Industrial Crops ...................... Export Crops . .................... Livestock . .... Fisheries .. ................... Forestry .....................
l.................................................
24.................... 24 30 31 36 39 42 43
PLANNING AND FINANCE FOR AGRICULTURE PUBLIC
VI.
r
RESOURCE
MANAGEMENT
......
..................... ....... 43
A.
Planning
B. C. D.
Resource Allocation for the Agricultural Sector......... Agricultural Development Projects and External Assistance Foreign Exchange Allocations .............................
45 51 54
E.
Cost Recovery
55
for
Agricultural
Development
..................
...........................................
INSTITUTIONAL ISSUES AND KEY PRODUCTION SERVICES .... A. B. C. D. E. F.
43
........ 57
Policy Formulation and Coordination .... ................. 58 The Ministry of Agricultural Production and Agrarian Reform ..................................... 60 Public Enterprises for Agriculture ...................... 62 Issues for Decentralization ............................. 64 Key Production Services ................................. 66 Broader Public Administration Issues .................... 77
ISSUES FOR MARKETING AND PRICING POLICY .* .........
VII.
A.
General
B.
Overall
C.
VIII.
80
...............................................
Policies
and Framework for
Agricultural
. . . . . . . . . . . . . . . . . . . . . . . . . . and Marketing ........ Pricing ........................ . Key Sub-Sectors
.
83 89
FOR THE CONCLUSIONS- RECENTACTION AND PROGRAM 95
FUTURE ..............................................................
TABLE 1:
Summary of Policy
APPENDICES 1: 2:
Issues
and Future
Actions
for
Action
Summary of Recommendations Review and Study Agricultural
Parastatals
ANNEX 1
-
Agricultural
Resources
ANNEX 2
-
Institutions
for
ANNEX 3
-
On-going Agricultural
ANNEX 4
-
Agricultural
Input
ANNEX 5
-
Agricultural
Credit
ANNEX 6
-
Resource
ANNEX 7
-
Tendering
by Legal Category and Production
the Agricultural
Allocation
and Further
Sector
Projects Supply Systems
and Budget for
and Research
Agriculture
Procedures
CHART The Ministry
of Agricultural
Production
and Agrarian
Reform
MAPS
1 2 3 4 5
80
..........
- IBRD 16926 Water Courses, and Rainfall Relief, - IBRD 16927 Zones and Land Potential Climatic Network - IBRD 16925 Principal Cash Crops and Transport - IBRD 15921 Areas of Cotton Production - IBRD 16924 Projects Agricultural Major Region Specific
MADAGASCAR AGRICULTURAL SECTOR MEMORANDUM List of Text Tables and Annexes
TEX'TTABLES 2.1
Agricultural GDP
2.2
Agricultural Production and Growth Rates
2.3
Major Agricultural Exports: Growth Rates and Share of Agricultural Exports
2.4
Major Agricultural Exports: Values and Quantities
2.5
Average Export Prices
7.1.
Summary Pricing and Marketing Systems for Major Agricultural Sub-Sectors
ANNEX 1:
AGRICULTURAL RESOURCES AND PRODUCTION I.
GEOGRAPHY AND CLIMATE
II.
LAND RESOURCES
III.
FARMING SYSTEMS
IV.
KEY A. B. C. D. E. F. G.
AGRICULTURAL SUBSECTORS Rice Other Food Crops Industrial Crops Export Crops Livestock Fisheries Forestry
TABLES 1
Land Use and Cropping Patterns
2
Foodcrop Production and Selected Producer Prices, 1972-1981
3
Paddy and Rice Price Structure
4
Paddy
4a
Projection Availability
4b
Paddy Marketed by Parastatals
4c
Estimated Total Rice Availability 1960 - 1982
4d
Estimated Import Parity Price of Rice
Production for
by Major Rice
Import
Production Needs
Region
1982-92
and
Per
Capita
5
Seed Cotton Production and Area 1965 to 1982
6
Use of Farm Inputs for Cotton Production, 1973-1981
7
Cotton Price Structure, Import Substitution and Export Parity Prices
8
Industrial Crop Production, Processing and Imports, 1972-1981
9
Sugar Cane Acreages, Yields and Production (1980)
10
Selected Data of Major Food Processing Industries (1979)
11
Value and Share of Export Crops in Total Merchandise Exports, 1972-1980
12
Coffee Production, Prices and Exports, 1976-1981
13
Clove Production, Prices and Exports, 1976-1981
14
Pepper Production, Prices and Exports, 1976-1981
15
Vanilla Production, Prices and Exports, 1976-1981
16
Cocoa, Tung Oil and Sisal Production, Prices and Exports, 1976-80
17
Livestock Herd Numbers and Production 1974-1980
18
Production, Consumption and Trade in Wood and Wood Products 1972, 1976 and 1980
19
Official Producer Prices for Selected Crops and Farm Input Prices
20
u- £cial Groundnut and Groundnut Oil Prices (1982)
CHARTS I. II. III. IV.
Rice Production and Producer Price 1960-1982 Organization of the Parallel Market for Rice Official Marketing Channels for Rice Calendar of Paddy Cultivation
ANNEX 2:
INSTITUTIONS FOR THE AGRICULTURAL SECTOR A.
The Ministry of Agricultural Production and Agrarian Reform
B.
Agricultural Training
C.
Other Ministries
D.
Local Government and Decentralization
E.
Public Enterprises for Agriculture
Appendix I - History of the Ministry of Agriculture. Appendix 2 - Agricultural Parastatals by Primary Activity. Table 1 - Capital Participation by State in Agricultural Parastatals Table 2 - Treasury Advances to Parastatals Charts I-VIII - The Successive Organizational Arrangements for the Ministry of Agriculture ANNEX 3:
ON-GOING AGRICULTURAL PROJECTS A.
Introduction
B.
Government
C.
Project
D.
Conclusions
Organization
Implementation
for
Project
Implementation
Performance
Tables: 1. 2. 3. 4. ANNEX 4:
Summary of Agricultural Draft Public Investment Draft Public Investment Draft Public Investment
Projects Program Program Program
under Implementation - Summary - Largest Projects - Lagest Agro-Industrial
INPUT SUPPLY SYSTEMS AND RESEARCH I.
II.
SUPPLY OF INPUTS A.
Fertilizers
B.
Seeds
C.
Agricultural Implements
RESEARCH
Projects
ANNEX 5:
ANNEX 6:
AGRICULTURAL CREDIT A.
General
B.
The National Bank for Rural Development - BTM
C.
Conclusions
RESOURCE ALLOCATION AND BUDGET FOR AGRICULTURE I.
Introduction
II.
Basic Features
III.
Allocating Resources
IV.
Spending, Monitoring and Reporting
V.
The Government Budget
VI.
Extra Budgetary Operations
VII.
Conclusions
Appendix 1
- Summary of Principal Issues and Possibility for Action
Tables: 1 -
-
2 3 4 5 6
Government Budgets 1978 - 82 Ministry Operating Budgets 1978 - 82 Ministry Investment Budgets 1978 - 82 MPARA Operating Budgets 1977 - 81 MPARA Decentralized Operating Budget 1981 MPARA Investment Budget 1978 - 82
Charts:
1 - Opening the credits 2 - Spending ANNEX 7:
TENDERING PROCEDURES
MADAGASCAR AGRICULTURAL SECTOR MEMORANDUM Executive
Summary
Recent Performance of the Agricultural Sector
1. Agriculture dominates Madagascar's economy. The sector employs about 85% of the population, supplies most inputs for industry, accounts for the largest share of earnings from overseas, and produces most food for the population. The recent poor performance of the sector is therefore a subject of great concern. Agricultural production has grown slowly over the past decade, in marked contrast to relatively rapid growth in the 1960s; the average annual growth rate is estimated at less than 2% since 1970. 2. The balance of payments picture for agriculture illustrates the gravity of the sector's problems. The economy is heavily dependent on agriculture for foreign exchange earnings; agricultural export earnings represented an estimated FMG 70.3 billion (US$204 million equivalent) or 82% of total export value in 1980, and amounted to 90% if processed agricultural products are added. Meanwhile, imports of food products are a heavy and growing burden; rice imports in 1982 exceeded 350,000 tons, costing over 20% of the total value of imports. Prospects for sustaining or expanding exports are uncertain, both because of slow production growth combined with growing domestic demand (for sugar and meat, for example), and uncertain world markets and world market prices, particularly for coffee, cloves, and cocoa. 3. Sluggish growth in two key subsectors, rice and livestock, together accounting for over 50% of agricultural output value, is the most important factor in the sector's recent stagnation. The problems constraining both rice and livestock production are longstanding, and effective development strategies for these two commodities have yet to be agreed upon. Export and industrial crop production overall has also grown slowly. Principal areas of concern are recent problems in export crop marketing and the precipitous decline in some industrial crops, notably sugar and groundnuts. 4. The current economic crisis is both an underlying cause and a result of the poor performance of the agricultural sector; recent production declines are increasingly explained by problems of foreign exchange shortages, the deterioration of transportation infrastructure, disruptions in traditional trading circuits, and the scarcity of consumer goods in rural areas. Nevertheless, the sector's problems go far beyond
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ii
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these relatively recent developments, and poor performance over the past decade is also a consequence of Government policies which have caused serious disruptions in agricultural production systems (notably input supply and marketing), and in institutions responsible for rural development. Government policies over the past decade have aimed at increasing 5. the State's role in economic management. For agriculture, Government intervention has focused on control of processing industries, marketing systems, and the banking system, rather than on the production base, which remains overwhelmingly in the hands of smallholder farmers. Direct Government intervention has had a major impact on commercial, large and medium scale farming and agro-industrial ventures, both by direct take-overs and through policy measures affecting commercial operations. Government policies have also actively discouraged private investment in agriculture, particularly foreign, primarily through selective credit policies and take-overs of private concerns. A critically important area of intervention is the effort to control marketing by nationalizing marketing companies, establishing public marketing monopolies, and strict enforcement of controlled price environment. These policy interventions have had the widest-reaching and most deleterious effects for the agricultural sector. An important policy objective has been to expand collective 6. production systems (both through socialist farmers' cooperatives and direct state ownership of production units); this policy has, however, had limited direct results and the move towards collective farming has affected only limited segments of the agricultural sector. Indirect effects of the policy initiatives are, however, important. In planning and implementing development programs and services, the individual farmer has been neglected, and resources have tended to be allocated to state farming and production ventures and to promotion of cooperative ventures at farmer local the fokonolona through of decentralization The policy level. but some positive consequences, system has also had important government Key problems programs. and development services on farmer many disruptive, have resulted from lack of management skills in local authorities, such as for services and responsibilities authority on respective confusion over the responsibility of and the lack of clarity and credit, irrigation to promote designed Policies issues. local authorities for land tenure equity among regions by dispersing efforts in all regions, including less favored areas, have resulted in dilution in the effectiveness of many investments. Agriculture's priority relative to other sectors is a critical 7. policy issue. While agriculture has been accorded the highest priority in plans and policy statements, the sector has often been neglected where has been on emphasis In practice, is concerned. action effective
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industry. In 1982, less than 4% of the national operating budget went for agriculture, and of this, personnel costs amounted to nearly 80%; the investment budget share was 18% of the total. Although these budget figures reflect only a portion of total funds flowing to agriculture, it is clear that funds available for agriculture, both for operating costs and investments, reflected a decline in both relative and absolute terms, from levels in preceding years. Allocations have been inadequate to sustain appropriate levels of services and to carry out development projects. 8. Madagascar's long term potential for agricultural development is excellent. An immediate impediment to effective planning, however, is the lack of information on both land use and land capability and the poor quality of agricultural statistics. High priority should be given to efforts to improve information systems with a focus on priority areas (such as the rice sub-sector) and regions. While there is great scope for bringing new land into cultivation in a long term perspective, in the immediate future, efforts should be concentrated on intensification of production on land already under cultivation. The current deteriorated state of the transportation network limits access to most areas where fertile land is underexploited, and heavy infrastructure investments will be needed to develop much of this new land. Organized nigration schemes to develop new areas (an important element of past development efforts) are costly and difficult to manage and should not be pursued, at least in the short or medium term future. There is wide scope for increasing yields on existing farms and development efforts should be concentrated on these areas. It is also important to recognize that land use patterns and production systems are dominated by smallholder farmers. We conclude that development strategies should focus primarily on the smallholder sector, and interventions based on large-scale, commercial agricultural ventures should be limited, at least in the short and medium terms, to rehabilitation efforts. 9. Two complex but vital long term problems merit special attention even at this time of economic crisis: land tenure and soil erosion. Lack of security of land tenure, particularly on irrigation schemes, is an impediment to rural development, and action can and should be taken to resolve critical problems such as delays in issue of titles. In the longer term, a program of cadastral surveys and streamlining of land registration procedures to promote security of tenure should be undertaken. The issue of soil erosion has enormous long-term consequences, and vigorous efforts to control brush fires and execute other erosion control measures are urgently needed.
Issues for Key Production Sub-Sectors 10. Rice. Rice dominates farming systems in most regions of Madagascar and merits a high priority in development strategies. First and foremost, fundamental reforms in marketing and pricing systems are needed.
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iv
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Overall policy and specific reforms with regard to rice pricing, storage, and marketing are the subject of an ongoing study carried out jointly by Ministry of Agricultural Production (MPARA) staff and consultants. This study should be completed by early 1984. In the interim, basic options for reform must be considered and some actions to address immediate, critical problems can be undertaken. When the study is concluded, an overall strategy and action program should be agreed on. Elements of a rice development strategy should include: (a)
Reforms in rice marketing systems, including redefinition of the role of the State and market development programs;
(b)
Reforms in pricing policy and price administration systems, including price increases; efforts to increase nominal incomes of farmers should be accompanied by measures to ensure that they have effective access to essential rural household consumer items in the marketplace;
(c)
Improvements in input supply systems and provision of foreign exchange, particularly for fertilizer;
(d)
Measures to improve the efficiency of existing irrigation systems including development services and institutions;
(e)
Review of on-going investments to assess their viability and priority and improve implementation performance;
(f)
Improvements in rice research programs (in cooperation with IRRI and other research organizations);
(g)
Development of specific rice sub-sector planning and information systems; and
(h)
Action to remove key transportation bottlenecks.
11. The role of foodcrops other than rice in the national food system warrants greater attention, as they have been relatively neglected in the past. Future projects should provide support for extension and research efforts which would focus on foodcrops and develop and disseminate appropriate approaches for increasing crop yields. 12. Some immediate recovery programs would yield important benefits for the industrial crops sub-sector. Cotton and textiles play a vital role and production grew rapidly over the past decade, but recently serious problems have beset the sub-sector. Most important, pricing problems have led to production declines, and clearer policies on pricing are needed. There is also an urgent need for improved foreign exchange allocation mechanisms and for operational research. A thorough export marketing study is also needed for long-term strategic planning. A development program for
v
the cotton sub-sector has been established to address these issues and promises to yield good results. The Sugar sub-sector is in particularly urgent need of recovery and rehabilitation measures. Foreign exchange is needed for fertilizers, technical assistance, spare parts, and equipment renewal, and pricing policies also should be reviewed. Research programs also need to be reestablished for this sub-sector. Coherent policies and action programs for future development for the oilseeds sub-sector are essentiel, given poor recent performance and the fragmentation of efforts in this field. The key problems are low official prices, leading to decLining supplies of raw materials and lack of spare parts and equipment renewal for processing plants. Additional analysis is needed to prepare specific proposals for development of both traditional and newer oil seeds crops and for rehabilitation of the oilseeds processing industry (including closing down some inefficient plants). The Government should encourage private investment in medium scale farms and agro-indiistryfor other industrial crops, and direct production by parastatal agencies should be discouraged. 13. Although export crop production has demonstrated greater resilience in the face of recent economic problems than have other subsectors, some underlying structural issues merit attention. As a first step, a comprehensive review of farming systems and other technical aspects of crop production is needed to assist in determining the overall profitability of export crop cultivation, and alternative production systems. The Government should continue to explore two long-term strategic alternatives: increasing the value and marketability of existing export crops, and diversifying into other commodities. Market and production prospects for several commodities (notably coffee and cloves) merit careful assessment given uncertain world market conditions. A review of pricing and marketing policy and of the stabilization fund system should also be undertaken. This review is likely to result in recommendations for significant changes in current pricing systems and in organisation of export crop stabilization funds. 14. Madagascar's long term potential for livestock production is excellent but development of the sub-sector has been disappointingly slow over several decades and low levels of meat exports in recent years are a subject of particular concern. This is not an area where rapid production inceases are likely, both because of the length of the production cycle and because long term development requires fundamental changes in traditional production systems which rarely occur rapidly in livestock husbandry. The current emphasis on improvements in animal health, leading to progressive changes in production systems, is appropriate. Action over the past two years to relax marketing restrictions and price controls, particularly in Antananarivo, should also have important, lasting benefits. An important area requiring attention is the meat processing industry. A planned review of processing plants should result in recommendations for improvement in standards, rationalization of operations, and possibly in the closing of some plants. More broadly, the Government should develop an export
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strategy which might include an explicit export subsidy program. There is of dairying, pigs, and poultry, excellent promise for development programs in this area need particularly among smallholders, and development to be refocused and expanded. A further area for review is the hide trade, which is currently little developed; a critical problem is cumbersome regulations on trade which hinder development. 15. Forestry development has particular importance in Madagascar, because forests are the most important energy source and because of good long term potential for forest industrial development as a source of export earnings. Further, deforestation plagues Madagascar and is an important cause of soil erosion. Improved forest protection measures combined with a fuelwood development program are urgently required and merit a high priority. Madagascar faces critical decisions in the next few years on the direction and scope of forest industrial development; highly complex issues are involved, notably a depressed world pulp market, technical problems with plantation growth, logistic difficulties, and an uncertain investment climate. The fisheries sector has been an important source of export earnings in recent years but future prospects are mixed. Prawn development schemes are already well advanced, but efforts are needed to pursue possibilities for exploiting tuna fishing potential, and, in a longer term perspective, for developing a coherent approach to inland fisheries. Planning and Finance for Agriculture 16. A three-year investment program for agriculture should form a central element of recovery and development efforts. Preparation has started but is complicated by poor reporting on both financial and economic aspects of projects. A comprehensive project review now underway aims to picture of MPARA's ongoing investments, their recurrent cost give a clear requirements and to establish overall priorities. The share of financial resources allocated to the agricultural 17. sector is low and is insufficient for efficient operation of services and to meet commitments under investment projects. Appropriate funding levels until a clearer picture of overall cannot be determined with confidence financing flows for the sector is established. A flow of funds review is being undertaken as part of the comprehensive Project review. Once priority needs have been established, a strong case can be made for allocating an increasing share of budget resources to agriculture. Better mechanisms to ensure efficient management and priority 18. utilization of budget funds are needed, and an effort to strengthen the for agriculture should be undertaken. processes of resource management involved in resource Respective responsibilities of key institutions management (MPARA, Plan, and Finance) should be clarified to avoid overlap internal review and duplication. MPARA plans to initiate a two-year
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process aimed at highlighting areas for action and resolving immediate bottlenecks in the budget system. Areas for review include: i) improvement of investment programming functions (including project monitoring and investment budget preparation); ii) increasing MPARA's ability to manage budget allocations within broad guidelines; and iii) improvement in spending performance. Critical financial management issues for agricultural parastatals also require attention. 19. Project implementation performance generally is unsatisfactory and IAPARAis ill-equipped to manage the growing portfolio; improvement of project management systems are urgently required. Project identification and preparation capability is weak and improvements should be a key focus of NPARA reorganization efforts. MPARA needs to establish more coherent and focused monitoring procedures, and coordination among external finaacing agency efforts should also be strengthened. 20. Further efforts are required to establish workable, effective mechanisms for foreign exchange allocation at the national level. At the sector level, MPARA should take steps to institute a systematic evaluation of foreign exchange requirements for agricultural enterprises in the public and private sectors; priority needs are for the cotton and sugar subsectors, and for the rice sub-sector to provide for fertilizer requirements. 21. In this period of tight financial constraints, efforts to recover costs of services from beneficiaries have particular importance. The two key areas are irrigation systems, where costs are not now recovered, and input supplies, where fertilizers and other inputs are now subsidized. It is thus vital that cost recovery provisions under the 1981 irrigation law be implemented and that input subsidies be rapidly phased out, as is the Government's intention. Institution-Building Issues for Agriculture 22. Continuing efforts are needed to improve interagency and interministerial coordination of agricultural programs and to clarify respective agency responsibilities for various activities. If this is to be achieved through strengthening of existing coordination mechanisms (as now proposed by the Government), strong leadership by senior political and administrative authorities will be essential. 23. Under a major reorganization of the Ministry of Agricultural Production enacted in September 1982, Ministry services were recentralized. The role and scope of various departments in implementing and supervising agricultural development has yet to be defined in detail, and is the subject of on-going review within MPARA. The issue of the respective roles of Government agencies and private companies and individuals in areas such as input supply and irrigation services merits
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attention; curtailment of Government managed services (for example input storage and distribution) is essential. Operational procedures and training programs need to be developed and the specific role of technical services and basic management structures must be clearly defined. 24. At present, about 90 parastatal institutions operate in the agricultural sector; the number has increased rapidly over the past decade as a result of the Government's policy of expanding public control over key sectors of the economy. The parastatals play a particularly important role in the areas of marketing and processing but are also involved in management of irrigation systems and provision of services to farmers. While parastatal activities differ greatly, in general, these companies are over-expanded, and face institutional, policy and financial problems. Policy decisions are urgently required on both the scope and scale of parastatal operations and on Government supervision and support arrangements for these institutions. More specifically, for many institutions, a clearer definition of functions and objectives is essential. The Government must also address practices and policies which affect parastatal operations, notably pricing policies, which have a devastating impact on the financial position of many parastatals. Financing mchanisms and personnel policies also pose serious problems and merit review. A proposed strategy and action plan for addressing these parastatal issues would include: (a) a review of parastatal operations in the agricultural sector and rationalization of Government ownership; (b) development of individual action plans for key parastatals; (c) introduction of a program-contract system for key parastatals (in conjuction with action plans); (d) review and action on key policies adversely affecting parastatal performance; (e) clarification and strengthening of supervision and budgeting arrangements within MPARA; and (f) assessment of training needs and development of training programs for parastatal managers and financial staff. 25. Local government institutions will play an important role in rural development over the long term, but the recent fokonolona reform has led to some operational problems which need to be addressed, notably in the areas of marketing, where the role of the fokonolona institutions in State monopoly-marketing arrangements has not worked out as planned, irrigation system management, where responsibilities are confused and farmer discipline has been eroded, and small farmer credit, where efforts to establish a collective fokonolona guarantee of loans have not been generally successful. In light of past experience, we recommend that a comprehensive review of the fokonolona reform be undertaken by the Government with a view to preparing a systematic action plan which should set out clear guidelines on responsibilities of the fokonolona institutions.
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26. The development of both management and technical skills among agricultural staff is a vital long-term objective; both short term measures (notably in-service training) and longer term efforts to improve planning and evaluation of manpower supply and demand and staff development programs should be undertaken. General civil service rules and practices influence staff motivation in agriculture (as in other sectors); within MPARA efforts to reward superior performance, encourage innovation, and utilize training received should be encouraged. A comprehensive review of existing civil service salary structures and incentive systems to identify options for improvement is needed and efforts must be made to ensure that work related subsistence and travel allowances are set at adequate levels. 27. Slow procurement of goods and services and confusion surrounding the procurement process have been significant problems in project implementation and management of services. Measures to clarify and streamline procedures for procurement of goods and services are needed. Key Production
Services.
28. Efforts to restore and improve basic farmer services are essential. Priorities include irrigation management, veterinary services, input supply, agricultural extension, and research and, over the medium term, agricultural credit. (a) Irrigation Systems. A clear strategic approach to irrigation system management and development is needed. The key, immediate issue is management of existing systems. Efforts underway or planned to improve management of and rehabilitate large scale and medium scale networks merit a high priority, and the program to develop traditional networks should be pursued. While immediate efforts are vital, short-term recovery efforts are Likely to yield quite limited results because of the severity of management problems and vast rehabilitation and redesign needs of the existing networks. Careful planning which considers social, financial and agronomic issues as well as those related to infrastructure requirements should be carried out prior to the start-up of operations. In a longer term perspective, irrigation, drainage, and flood control are likely to play an increasingly prominent role in agriculture, but the scope for future development cannot be determined with any certainty until land use and land capability systems are improved and essential data is available. Rehabilitation efforts are likely to occupy the Government for many years, and no new irrigation investments on any scale should be contemplated until the problems of existing systems have been effectively addressed and a clear strategy defined.
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(b) Veterinary Services. Efficient operation of veterinary services,which requiresabove all regular supplies of veterinary products and operating funds, is vital to safeguard the national cattle herd, which is one of Madagascar'simportant agriculturalresources. This sub-sector illustrates well the critical need to assure priority allocations of foreign exchangeand budget credits to ensure the availability of essential services. Initiatives to divest Government agencies of some responsibilitiesfor animal health coverage, particularlyveterinary product marketing, should be pursued. (c) Input Supply. Given the importance of improved seed as a potentialavenue for achieving short run productionincreases, the planned national seed development program merits a high priority and sustained efforts are needed to ensure that it advances quickly. Fertilizer has particular importance and failure to ensure adequate supplies in recent years is an important factor explaining declining production in many areas. This is a priority area for foreign exchange allocation, to bring fertilizer availability at least back to previous levels. Responsibilities for fertilizer distribution need to be clarified. In our view, MPARA's role should be confined to planning and monitoring input distribution and use, and the recent decision to shelve proposals for a new input supply agency and to delegate responsibilities to private traders are positive moves. The Government is reviewing policy on subsidies for fertilizers and small farm equipment and has indicated that they will be eliminated over time: we recommend that this be done as soon as possible. Two large ongoing fertilizer plant projects should be examined very closely before any further money is spent because of their highly questionable financial and economic viability. The manufacturers of small agricultural implements must receive adequate foreign exchange allocation for raw materials or they will noc be able to continue operation. (d) AgriculturalExtension. The system for extension must be improved as part of efforts to realize the potential of smallholder agriculture. Extension,if properly managed, can play a key role in introducing soil conservationand reafforestationas well as technology which will ensure sustainedincreases in production. A first step would be to develop recommendationsfor an extension strategy region by region, including informationon available packages and research results, constraints to increased production, level of staff and staff training requirements, mobility and other logistical support required, and the role of MPARA's extension service vis-a-vis the numerous extension programs managed by parastatals and other agencies.
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xi
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(e) Agricultural Research. Reestablishment of agricultural research programs is an important priority, and preparation of action plans for research in cooperation with international research agencies, which has begun recently, should be pursued. Important short-term needs for research on operational problems include varietal improvement (rice, sugar and other foodcrops), insect pest control (cotton) and disease control (coffee). (f) Agricultural Credit. Agricultural credit, while not one of the most serious immediate bottlenecks to increased production, is an important area for policy review. The agricultural bank (BTM) should begin now to plan for expanded smallholder lending operations in the medium term and should pursue on-going efforts to support short term recovery efforts through provision of inputs both in smallholder areas and to medium and large scale farms. Marketing
and
Pricing
Policy
Issues
29. Pricing and marketing policies and associated administrative systems require far-reaching reforms. Nevertheless, decisive and effective actions which would increase farmer incentives and provide a necessary first step for emerging from the quagmire of parastatal problems could be taken by the Government in the near future. Progress in this area would offer concrete evidence of the Government's readiness to address the complex problems facing the agricultural sector. 30. Important new legislation covering marketing of rice and paddy of July 1982 raised serious questions about the Government's policy objectives for marketing. The February 1983 "ordonnance" which suspended application of the legislation is an important positive step, but the Government's position on marketing policy generally is in urgent need of clarification. 31. Recent Government proposals to institute regular annual price reviews, based on technical analysis by an interministerial committee, are a positive measure but there are important outstanding question on criteria for price reviews, and the role of official administered prices and their enforcement. Price increases need to be announced on a regular basis and are required to stimulate production increases, particularly for paddy and for coffee. These issues merit further analysis and discussions. 32. Specific issues and problems arise for different commodity groups, as both pricing and marketing systems and their application vary widely. In general, however, official prices have not increased in real terms over the past decade. The most urgently needed reforms are in the area of rice and paddy marketing and pricing. An important first step was
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xii
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taken with the May 1982 paddy and rice price increases, but further price increasesare needed as prices to the farmer have not increased in real terms. A second short-term step which should be taken is relaxationof the marketing monopoly to allow the legal operation and developmentof private trade. Long term reform should take the form of a liberalizationof the rice trade, curtailment of direct Governmentinvolvementin marketing, and introductionof a more flexible price administrationsystem that would allow room for a range of prices within a band set by the Government. Governmentmarketinginterventionscould then be geared to support prices in areas where abundant supplies push prices down, and augment suppliesin situationswhere prices rise as a result of scarcity. Pricing policies also have particularimportance for cotton, and both regular price increases and a revision of current review and price administration mechanismsare called for. For export crops, short-termprice increases, to augment the share of FOB prices receivedby producers, should be considered,while the complex price administrationsystem should be reviewedand revised. For a number of commoditiesthe most effective Governmentaction would be to decontrol prices and allow free play of market forces; examples are oilseed crops (groundnuts),food crops, and livestockproducts. Recent GovernmentAction and Suggested Recovery Strategy 33. Important steps have been taken over the past year to begin to reformulateagriculturalpolicies and overall strategiesfor development, and to act on many urgent problems facing the sector. These measures give evidence of a strong commitment to reform. Sustained efforts are, nevertheless, required to establish a sound basis for future agricultural development. Important recent actions include:
(1) price
increases
for paddy and rice in May 1982;
(2) reorganization of MPARA (September
1982);
(3) Efforts to clarify responsibilitiesfor policy execution for the agriculturalsector; (4) action programs for key parastatalsformulatedand implementationbegun (e.g. SOMALAC,FIFABE); (5) passage of cost recovery legislationfor irrigation systems; (6) action taken to reduce overstaffingin MPARA and parastatals; (7) comprehensivestudy for the rice subsector begun; (8) comprehensiveproject review to support investment programming exercise for the agriculturalsector underway; (9) review of agricultural researchin cooperationwith internationalresearchinstitutionsbegun. An importantarea where the Government'spolicy is unclear and where urgent action is needed is rice marketing.
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34. Proposed Strategy. The overall objective for the agriculture sector in the 1983-85 recoveryperiod is to restore production of key crops (weather permitting)at least to levels which have been achieved in past -ears. In the case of rice, where year to year estimates of productionare extremely weak, the Government'sobjective is to replace imports within a reasonabletime frame. It is our view that this is a feasible goal, but that its achievementdepends particularlyon marketingand pricing policies and institutionalsupport to rice farmers. 35. The following principal elements of an agriculturalstrategyare suggestedas a basis for discussions: Short-Term -
emphasis measures,
-
appropriate including
-
implementation of recovery programs by existing agencies which have the capability; attention to rural infrastructure, particularly rural access and feeder roads. support for private enterprises, where appropriate; emphasis on intensification, not on bringing new land under cultivation; concentration on rehabilitation of agro-industrial enterprises or selected large-scale production units of demonstrated priority;
squarely on rehabilitation with priority to the rice,
and urgent recovery cotton, coffee, and
livestock sub-sectors; of rice, -
action regular
to ensure adequate producer price reviews and increases;
incentives, focus on prices
cotton, coffee and sugar.
Medium and Long Term -
-
-
clear focus on smallholders and privately owned production systems; balanced development strategy promoting a range of crops and taking into account regional variations; encouragement of diversification of production systems; sharp curtailment in investment in large scale, and particularly Government owned and operated, farming ventures; efforts to divest Government of unsuccessful and unprofitable parastatal ventures, including some sales to private operators or use of management contracts; reduction in state marketing ventures; and Improvement of agricultural extension in key production areas and reestablishment of agricultural research.
I
I
MADAGASCAR
AGRICULTURE AND RURAL DEVELOPMENT - SECTOR MEMORANDUM
I.
INTRODUCTION
1.01 Agriculture is the central focus of Madagascar's economy; the sector employs about 85% of the population, supplies most industrial inputs, accounts for the largest share of earnings from overseas (82% of export value in 1980), and produces most food for the population. The long--termpotential for development of agriculture is excellent. Nevertheless, recent sector performance has been poor. The virtual stagnation of agricultural production over the past six to seven years has had serious repercussions for the growth of the economy and is an underlying cause of the current economic crisis. The crisis itself, meanwhile, has affected agricultural development in many respects, and it hinders efforts to rehabilitate and develop many agricultural activities. Agriculture is thus, rightfully, the focus of attention as Madagascar seeks to address her immediate economic problems and to define a long-term program of structural reform. 1.02 This report was prepared to serve two principal purposes: to assemble and synthesize information available on Madagascar's agricultural sector, and to provide an analysis of the key issues facing the agricultural sector. It forms part of our ongoing analysis of agricultural sector issues and discussions of them with the Government. The report draws on the findings of operational work over the past few years, including project supervision, appraisal, and preparation studies, consultant analysis carried out under various projects, and experience of other external financing agencies; it incorporates available analysis by Government agencies. To assist in preparation of the report, limited reviews were undertaken on sugar, export crops, cotton, livestock, fisheries, agricultural training, and budget and financial management issues for agriculture. The report also draws on sector reviews on Agricultural Research (August 1980) and Agricultural Public Enterprises (August 1982). 1.03 The report presents a brief review of recent sector performance and a description of recent Government policies for agriculture in Chapter II. Chapter III focuses on issues of the resource base of Madagascar's agricultural sector and broad potential for future development. Two important themes emerge from this analysis: the potential richness and diversity of Madagascar's agricultural sector, and the paucity of data on the sector. Chapter IV reviews issues affecting the performance of key sub-sectors within agriculture. Chapter V addresses the specific issues of financial resource allocation and management for the agricultural sector. Chapter VI focuses on rural development institutions and the problem of developing effective services or service systems. The focus here is on
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throughout is the role the Government can and should play in sector management. Chapter VII reviews policy issues surrounding pricing and marketing of key commodities, and the clear conclusion here is that this is a vital area for reform and action. The final chapter includes a brief summary of where the Government now stands in its agricultural development efforts, summarizes a proposed strategy, and outlines some key areas for short-term and long-term development. Background material is summarized in annexes to the report. 1.04 This report focuses on future prospects for recovery and expansion of agricultural output, specific elements of a recovery program described in Chapter VIII. It is a central conclusion of our analysis that, despite the evident importance of external factors (including commodity prices) and climatic conditions, the success of the Government's recovery and development strategies will depend above all on the effectiveness of efforts to redress serious dislocations which have affected Madagascar's agricultural economy. These include fundamental changes in the institutional framework (including ownership of enterprises), disruptions in supply resulting from marketing and pricing policies, and the serious deterioration of the transportation system, vital for the movement of goods throughout the country. 1.05 The Government can act swiftly to allocate foreign exchange to priority activities, reduce complex controls over marketing and pricing, and remove transportation bottlenecks. Problems affecting key export crops, notably coffee, could also be resolved, and selected increases in producer prices and revision of set margins for intermediaries could lead to a supply response in several areas. Foreign exchange rate policies should also be carefully scrutinized to assess their impact on the agricultural sector; there is considerable evidence that current official exchange rates understate the value of domestic production (notably for rice, cotton, and meat). In our view, short term measures should focus primarily on commercial farming and processing industries, which are particularly vulnerable to the economic crisis because of their reliance on imported inputs, and on transportation and communications systems. An emphasis on regions accessible to markets also seems essential; in particular, smallholder farmers in market-oriented areas could increase production if input supply systems and extension systems were restored. 1.06 There are many serious and complex constraints which must be addressed urgently, but which are likely to yield results primarily in a longer term perspective. A fundamental problem is the weakness of many institutions, enterprises and services involved in agricultural development. Their capacity to manage development and rehabilitation programs is limited and a focus on institutional development, including training, and manpower development, seems essential. In addition, many basic farmer services have been severely disrupted and need to be revamped, especially extension services, input supply systems, credit, and research.
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Resource managementat the sector level is particularlyweak and restricts the Government'scapacity to manage developmentinvestments effectively. Serious attentionalso needs to be addressed to the tasks of defining more workable and effectivepricing policies and marketing strategies.
-
A.
II. THE AGRICULTURALSECTOR RECENTPERFORMANCE ANDDEVELOPMENT POLICIES Role of Agriculture
and Recent
Performance
2.01 Agriculture contributes an estimated one-third of GDP; this share has not changed significantly over the past decade (Table 2.1). These figures, however, do not fully reflect the extent to which Madagascaris fundamentally an agriculturaleconomy. Since agriculturalproductionis valued at official, and not market price levels, the real value of productionis understatedin official nationalaccounts statistics; agriculturalstatisticsin general should be treated with caution,as reporting systems are unreliable (para. 3.20), and subsistenceproduction, in particular,is almost certainlyunder-reported. In addition to contributingdirectly to GDP, the agricultural sector also supplies the bulk of raw materials for the manufacturing sector, particularly for food processing, beverages, textiles, clothing, and wood and paper products, which together account for about 73% of manufacturing output. It also is by far the largest source of foreign exchange earnings. Chapters III and IV and Annex 1 provide background on the structure of agricultural productionsystems and on key sub-sectorsof agriculture.
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TaDle
Current Prices FMG % of billion total GDP
Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981
1/
2.1;
73.8 79.6 82.4 96.2 154.0 162.4 169.2 185.7 187.6 212.5 249.1 276.4
Agricuitural.
GDI
Constant 1970 Prices FMG billion
34 34 36 37 41 41 40 40 39 36 36 35
73.8 73.5 73.7 74.5 81.8 80.9 73.9 76.3 17.3 76.4 78.3 77.1
% of total GDP 34 33 34 34 32 31 30 30 29 28 28 31
Rate of growth 2.7 1/ -0.4 0.3 1.1 9.1 -0.5 -8.7 +3.2 -6.6 +7.2 +2.5 -1.5
Annual average for 1967-70.
Source:
General Planning Directorate, World Bank, Madagascar: Updating Economic Memorandum, June 3, 1982; and earlier economic reports.
The growth rate of agricultural production, as computed from 2.02 national accounts statistics, has fluctuated widely over the last 15 years; this variability is explained in large part by weather conditions, which and by changes in world market impact on production, have a significant prices for key exports (notably coffee). Overall, the recent performance of the agricultural sector must be viewed as disappointing; this is in contrast to a period of relatively rapid growth in the 1960s. The average annual growth rate between 1966 and 1980 was 2.1%. During this period, wide fluctuations in agricultural productivity occurred, particularly in 1969-71, 1976 and 1978-79. These marked variations are in large part the result of unfavorable weather conditions: several cyclones caused not only direct damage through high winds and flooding but also inflicted heavy damage on roads, storage facilities, and other basic infrastructure. Another major cause of disruption, however, especially since the mid-1970s, has been the appplication of Government policies favoring nationalization of production and marketing enterprises as well as decentralization of administrative and social services (paras. 2.09 to 2.14). Agricultural production has shown a significant decline in the past two to three years (and five to six years if weather conditions are taken into account). Preliminary estimates indicate that 1982 also was a poor year, in part because of serious cyclone damage. Recent poor performance is both an underlying cause and the result of the present economic crisis. Above all, shortages of foreign exchange have had a major impact on commercial farming and processing industries. The deterioration of transport systems and marketing networks has also posed serious problems, which appear to be
increasingin importance. A final important factor has been the lack of consumer goods in rural areas, which has resulted from foreign exchange shortages and disruptionsin trading circuits, and which has in some areas reduced incentives to produce for cash sales. 2.03 The general stagnationof the agriculturalsector reflects the poor performanceof the two most important agriculturalactivities, rice and cattle production,which togetheraccount for over 50% of the total value of agriculturaloutput. Madagascar has virtually ceased its formerly significant exports of rice (except occasionally for small quantities of luxury rice), and has imported large (and increasing) amounts to make up for domestic shortfalls(imports totalled 350,000 tons in 1982). Between 1971 and 1982 the estimated growth of paddy productionwas only 0.4% a year. Meat productionhas also grown very slowly, and exports have declined, in part because of increasing domestic demand for meat. The problems constraining the development of both rice and livestock production are deep-seated and long-standing, and have been emphasized in every significant policy statement on agriculture since at least the 1960s. It is apparent that an effective strategy for developing these two commodities, which are produced by the great majority of Madagascar's farmers, has yet to be defined. Export and industrial crop production overall has shown a slow growth rate, although the overall statisticsmask some instances of rapid growth for particular crops and regions. Overall, productionof the major export crops (particularlycoffee and vanilla) has increased,albeit slowly, and has shown considerableresiliencein the present crisis. Industrialcrops, however, notably cotton and sugar, have been severelyaffected by recent economic problemsand productionhas dropped. In general, the productiondeclines have affected cash crops, particularlyon the modern large-scaleenterprises,more directlyand severely than the subsistencesector, where production has remained stable or grown tAnwly. although at a rate somewhatlower than the rate of populationgrowth. This can be attributed,in part, to the greater impact which Government policies have had on the commercialagriculturalsector, especiallyin the areas of services, regulation,and pricing,as well as to the greater dependence of commercial farmers on inputs and transport services, both areas directlyaffected by the recent foreign exchange crisis.
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Table 2.2'
Agricultural Production and Growth Rates
-----------Production ---------1972 1975 1978 1981 a/ ------------ ('000 tons) -----------
Average rate (%) of growth _ b/ 1972-81
Share of Total Agricultural production (M) (1977) c/
33.5
Cereals Paddy Other (maize, sorghum)
1,923.6 109.0
1,972.1 122.0
1,917.8 115.1
2,011.5 120.6
+0.6 +1.0
(32.4) (1.1)
Pulses Roots and Tubers
1 803.7
2,145.9
2,146.5
2,269.9
+3.1
0.9
457.7
659.3
428.7
447.1
-1.2
68.6 5.8 25.4 49.3 29.5 896.2 1.9 2.4
83.6 4.5 30.7 41.8 21.0 1.377.5 1.8 3.0
78.2 12.8 33.1 34.0 15.9 1,374.9 4.8 2.5
Fruits and Vegetables Industrial and Export Crops Coffee (green) Cloves Seed cotton Groundnuts Sisal Sugar cane Vanilla (dry) Pepper Livestock Products
n.a
n.a.
n.a.
83.5 10.8 28.0 40.5 d/ 13.7 1,470.5 4.3 3.0 n.a.
+0.8 -0.1 -0.7 -3.2 -8.0 +3.2 +5.1 +0.4
(7.2) (2.1) (1.2) (0.9) (0.7) (2.3) (0.8)
n.a.
20.4 10.9
Primary Forest Products Industrial Roundwood Fuelwood Fishery Products
551
558
564
569
3,511
3.727
3,937
4.147
n.a.
n.a.
n.a.
n.a.
+0.4 +1.9 n.a.
a/
Provisional.
b/
Calculated using the averages of 1972-74 and 1979-81 as the end points.
c/
In value terms.
d/
Estimate. n.a.
Source:
- not available. MPARA.
()
2.5
-7-
Agriculture and the Balance of Payments In 1980, total agricultural exports, including livestock and fish 2.04 products, contributed an estimated FMG 70.3 billion (US$204 million equivalent) or 82% of the total value of exports. If one adds related industries, including processed food (mainly sugar), other processed agricultural products (mainly clove oil), textiles, shoes, and wood and paper products, the contribution to exports in 1980 was FMG 76.2 billion (US$ 221 million equivalent) or 90% of total export value. The lion's share (53% of total export value) was contributed by coffee (about 70,000 tons exported in 1980). Other major commodities were cloves, meat products, vanilla, fish products and sugar (Table 2.3). Table 2.3:
Major Agricultural Exports
Annual Export Growth Rates (Value) (%) 1973-81 1979-81 Coffee Cloves Meat products VaDilla Fish products Sugar Sisal Cotton textiles Pepper Source:
-1.0 +5.2 -18.9 0.0 -9.4 -14.0 -7.8 -10.5 -3.7
-2.1 -17.0 -36.8 +23.3 -558 -24.5 -9.6 -4.6 +20.4
Share of Agricultural Exports (%), 1980 Value
64.0 9.0 6.0 6.0 4.5 3.5 2.5 2.5 1.0
INSRE, Statistiques du Commerce Exterieur de Madagascar and World Bank, Madagascar, Updating Economic Memorandum, June 3, 1982.
2.05 Both the volume and the value of agricultural exports fluctuated during the 1970s. Coffee exports peaked (in volume terms) in 1976, declined in 1977, and increased again through 1980. Export volumes of varilla, cloves and pepper have also varied widely, as have foreign exchange earnings from these commodities. These fluctuations in foreign exchange earnings affect development in the rest of the national economy since agriculture is the largest single earner of foreign exchange. Declining export volumes result from a variety of factors: poor production performance, increasing domestic demand, and, in some cases, poor price incentives (para. 2.07). Sugar exports, for example, have decreased due to growing domestic demand, while meat exports have been affected by the introduction of export quotas designed to favor domestic consumption, by technical and financial constraints affecting exporting firms, and by increased domestic demand, fueled in part by low official meat prices in the past. Table 2.4 sumnrizes recent data on value and volume of agricultural exports in 1981/82.
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Table 2.4: MIaiorAgriculturalExports Value (millionFMG) (current prices) 1981 Coffee Vanilla Cloves Sisal Sugar Meat Shrimp
29,767 7.856 22,029 1,628 2,642 1,279 4,606
Textiles
1,973
1982 29,675 18.629 26.446 1,912 2,602 a/ 778 7,304
Quantity (tons) 1981 56,300 659 9,783 12,618 12,200 2,025 3,257
1982 46,433 1,012 9,174 14,000 18,700 a/ 875 3,981
3,900
2,510
4,544
698 612 763
1,158 528 1,070
1.640 1,586 691
2,847 1,181 742
Sub-total
73,853
94.002
Total export value
86,103
110,309
Pepper Cocoa Clove oil
a/
Sugar was also imported in 1982.
Source: Central Bank Statistics 2.06 Except for coffee, most export prices have increased since 1978 (Table 2.5) (particularlyin 1981), but future prospectsare not bright. Coffee prices are expected to remain at their current low levels until 1986 and strengthensomewhatin the late 1980s. A glut is possible in the clove market in the not too distant review production; a careful for (para. 4.28). Prospects
future of this vanilla
of growing Indonesian because is needed complex market situation have recently improved but the market
remains limited. Beef prices are expected to decline in real terms in the 1980s.
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Table 2.5'
1977 1978 1979 1980 1981 a/
a/
Average Export Prices (FMG/kg FOB) (current prices)
Coffee
Cloves
Meat
Vanilla
Fish
Sugar
Sisal
Cotton textiles
806 663 604 649 524
1,357 1,166 1,111 1,510 2,271
425 464 555 576 640
5,109 5,925 7,126 9,621 12,162
1,055 893 1,034 1,139 1,418
65 62 70 103 204
88 79 115 127 129
530 510 542 518 615
Provisional.
Source:
Customs statistics.
2.07 A factor contributing to stagnation or decline in the principal export crops has been low producer prices; this reflects in part the relatively low percentage of actual export prices which Malagasy producers receive, but is also evidently related to the official foreign exchange rate. The share of the FOB price received by producers in 1980 was 49% for coffee, 30% for cloves, and 26% for vanilla, assuming the official exchange rate. Using a shadow foreign exchange rate valued at 20% over the official rate, the producer shares would be even lower at 41%, 25% and 22% respectively. Low price shares can be attributed both to the inefficiencies of domestic marketing agencies and to Government taxation of exports. The issue of export crop pricing is discussed in para. 4.26. 2.08 Total agricultural imports remained fairly stable until 1979, when rice, fats, and oils were responsible for a 22% increase. Since then, imports of rice have continued to increase, amounting to 156,000 tons in 1979, 192,000 tons in 1981 and 350,000 tons in 1982. The cost of commercial rice purchases (i.e. excluding gifts and concessional sales) in 1982 was estimated at FMG 23.6 billion; the total cost of rice imports was estimated at FMG 38.8 billion. This evidently weighs heavily in the balance of payments, with rice imports accounting for an estimated 21% of total import value in 1982. Imports of agricultural inputs remained fairly steady through the late 1970s, at about 3% of total imported goods, and imports of inputs have declined since then. Despite the importance of agriculture in earning foreign exchange, the sector has not been accorded priority in the actual allocation of scarce foreign exchange resources in the past two to three years (paras. 5.24 and 5.25).
B.
Agricultural Development Policies
2.09 Since 1972, Madagascar's agricultural development policy has undergone important changes, reflecting both changes in approach by
-
10
-
successive Governments and the underlying aim of many policy-makers to bring about a fundamental transformation of rural society. These policy directions have resulted in significant changes in the structure of Government intervention, which have had particular importance for the rural areas and for agricultural production systems. The Government's policy initiatives have also been an important factor explaining the disappointing performance of the agricultural sector over the past decade. Specific policy issues are analyzed in greater detail in succeeding chapters but a brief description of the policy framework is presented below, focusing on areas where the pursuit of specific policies has most directly affected the agricultural sector. 2.10 The Development Plan for 1978-2000 in many respects exemplifies the underlying principles of recent administrations. The stated objective is to bring about a fundamental change in the structure of production, and it is significant that the Government deliberately took a very long-term view of the process of development and the establishment of a socialist society. The focus was on addressing underlying structural issues, and the plan explicitly stated that benefits and overall growth would be limited in the short term. In the application of the Government's broad policy objectives, three policy directions have had the most significant impact on the agricultural sector: (a) the objective of extending Government ownership of and control over production, marketing and processing systems; (b) the move to change traditional farming systems from individual farms to collective production through village communities and cooperatives; and (c) the effort to bring about rapid and substantial decentralization of A further, economic activities and the administration of public services. more negative policy intervention has been the failure to accord the agricultural sector a high priority relative to other sectors of the economy. 2.11 Efforts to increase the Government's ownership of the means of a policy aimed explicitly at expanding the Government's production reflect agriculture of the economy. It has affected direct role in the management above all in three areas: through the Government's efforts to expand through efforts to public ownership of and control over agro-industries, and through apply tight controls over agricultural prices and marketing, initiatives. (a) Control of discouragement of private investment statements have called for and marketing: official policy agro-industries both role in all aspects of agricultural production, a greater Government parastatals and Government services, and indirectly directly through organizations, which were to control cultivated land through cooperative In practice, Government intervention has and manage many agro-industries. industries, of the downstream processing focussed mainly on control than on the production systems, and the banking system, rather marketing overwhelmingly in the hands of base, which has been and remains had an important and Government interventions have, however, smallholders. on large and medium-scale direct impact on commercial agriculture, that is, farmers who produce for cash, and on farming ventures, on smallholder agro-industrial ventures. As a result of these interventions, production by or declined, while farming and processing ventures has stagnated private
-
11
-
the performance of publicly owned and managed enterprises has generally prcved disappointing. In general, the Government's direct involvement in the agricultural sector has increased markedly over the past decade and the pattern of Government intervention has become far more varied and complex. (b) Pricing Policies closely related to the Government's increasing role in direct production have been increased efforts to set and control agricultural prices. The Government has intervened by nationalizing marketing companies and decreeing marketing monopolies, accompanied by efforts to enforce a strictly controlled price environment designed to prctect both producers and consumers and prevent alleged excess profits of middlemen. This has been perhaps the policy which has had the widest reaching and most deleterious effect for the agricultural sector (Chapter VII). (c) Private Investment finally, the Government has also followed a policy of discouraging private investment, particularly foreign investment. This policy is reflected in the Charter on Socialist Enterprises and in credit policies which have sharply curtailed the amount of credit available to medium and large scale private farmers and firms. The progressive nationalization of processing and marketing firms has been in line with this policy. Private investment in agriculture, both local and foreign, has declined as a result. 2.12 A second important policy objective has been to expand the role of collective production systems, primarily through promotion of socialist cocoperatives in rural areas. Government interventions and development programs have often, at least in theory, been channelled through local Government institutions and cooperatives, farmers outside these channels, particularly medium-scale farmers, have been neglected. Few recent development programs and services have focused on the needs of individual farmers. In practice, the policy of introducing collective production systems at farmer level has generally been pursued cautiously, and the number of socialist cooperatives which are actively involved in production activities is limited; where socialist cooperatives have been launched, the results have generally been disappointing. Government policy in this area is currently under review, and active efforts to promote cooperatives are currently in abeyance. Nevertheless, the stated policy objective of fostering collective production systems has had important repercussions for the agricultural sector, and in particular has reportedly contributed to a sense of insecurity among rural communities which has discouraged investment and production. Further, the policy has influenced planning of agricultural services and projects and the allocation of resources within the sector; the focus of agricultural credit schemes on loans through cooperatives and on collective guarantees of loans by local communities, which has ultimately resulted in a curtailment of credit available to individual farmers, affords an example of the impact of the policies at farm level (paras. 6.31 to 6.33 and Annex 5). 2el3 The Government has also put increasing emphasis on the decentralization of Government interventions, particularly in provision of services to the agricultural sector, and the planning and implementation of Government policies. A far-reaching local Government reform (the fokonolona reform) has been carried out over the past decade (paras. 6.13
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to 6.17 and Annex 2, pages 19 ff). Local authorities have been assigned important roles in the areas of management of irrigation schemes, land tenure. agricultural credit, marketing, and road maintenance. In the process of transferring responsibilities to local governments. however, many of the arrangements for continuing these services have been unclear (including financing mechanisms), and guidelines and procedures have varied widely from one locality to the next. The result has been a breakdown in the provision of some services, compounded by lack of local management affecting decision making at and an increase in political pressures skills the local level. The Ministry of Agricultural Production (MPARA) was reorganized fundamentally in 1979, in line with this policy of decentralization; an important aim was to increase the authority of local Government units in planning and executing agricultural services. For the ministry the reorganization resulted in a serious decline in the quality of services and enormous difficulty in ensuring coordination and technical control; for example, management of irrigation networks deteriorated and basic veterinary programs came virtually to a standstill. In 1982 the Government acted to reverse the 1979 reorganization because of the problems which had been encountered (Chapter VI, Annex 2). A further consequence of the policy of decentralization has been a general effort to ensure equity among regions and, on occasion, to favor more disadvantaged regions such as the south. As a result, some programs and development projects have been dispersed over several regions, leading to serious implementation difficulties and a dilution of the impact of development efforts. This preparation and design and for project policy has also posed difficulties to delays in implementing much needed development programs, has contributed and soy bean production. rehabilitation for example for irrigation to accorded issue is the priority important policy A further 2.14 In development plans and policy relative to other sectors. agriculture for as the highest priority statements, agriculture has been cited development. However, in many respects the sector has been neglected where effective action has been concerned, particularly in terms of allocation of resources. Despite the importance of the sector in terms of employment, contribution to GDP, and foreign exchange earnings, the practical emphasis, particularly in allocation of financial resources, has been on industry (as the motor for development"), and investment in agriculture has been low as a share of total public investment (Chapter V). Equally important, scant resources have been allocated for operation of basic services and recurrent financing needs. It is also significant that, despite the emphasis on socialist cooperatives and small producers (as opposed to larger farms), a large share of investment in the agricultural sector has gone into large scale, mechanized production schemes, such as OMIPRA (a large state farming venture managed through the Popular Army), costly processing facilities (often developed with little initial planning and analysis), and of success schemes, which have had a mixed record irrigation large-scale management. demands in terms of sophisticated because of their
III.
AGRICULTURAL RESOURCES AND PRODUCTION SYSTEMS
General 3.01 Madagascar's potential for agricultural production lies far above current levels. The nation has an unusually broad range of geographic and climatic zones which can support many agricultural activities. Madagascar's agricultural sector is already quite diversified, and could become more so. There are substantial land areas in some parts of the country that could be brought under cultivation, and the poten-lal for intensifying production systems and increasing yields is high. Madagascar is relatively well endowed, both in rainfall and surface water resources (para. 3.02). The country has a large farming population, virtually all smallholders, who have a tradition of adaptation to change and intensive farming methods required by the demands of rice farming. However, there are some important constraints which must be addressed in planning future agricultural development: much land is intrinsically poor and is suited only for pasture or requires fertilizer applications, there are wide variations among regions in terms of potential, and the island lies 6n the path of cyclones in the Southern hemisphere (para. 3.02). Some of the richest areas lie in the west, where large rivers and alluvial plains offer great potential, but can in many cases be developed only with large investments in irrigation and flood control schemes. Finally, Madagascar's
transportationsystem ifsnot well developed and has deterioratedin recent years, and many areas of the country are not served by roads or rail. Climate
3.02 Madagascar lies in an area of great atmospheric activity; this, combinedwith its size (it is one of the world's largest islands, covering almost 600,000 km2 ), its mountainousinterior, and its extensive ocean coasts, give it a varied climate with contrastingconditionsin different parts of the island. Details of rainfall, temperatureand other climatic data are presentedin Annex 1. Broadly speaking, the climate is tropical. About half of the island receives over 1,500 mm of rainfallper year; considerable areas, particularly the east coast, record up to 3,500 mm on
average annually (Map IBRD 16926). Average temperaturesfor the island as a whole are also high, with mean maxima and minima ranging roughly between 20 and 30 degrees Celsius. The effects of altitude, however, temper this heat in the highlands of the interior where the temperature can drop below freezing. Because of these highly varied climatic conditions,Madagascar is suited to growing a wide range of crops. In the north, east, and the highlands, precipitationis sufficientfor rainfed cultivationof most crops but the south west of the island is dry with sparse and erratic rainfall,making irrigationindispensablefor agriculture. Irrigated agriculture,however,is complicatedby the fact that Madagascar is subject to cyclones. High winds and torrential rains regularly cause widespread damage to crops and facilities and the irrigation schemes must be designed to withstand these exceptionallyviolent conditionsas far as possible. The cycloneshave other consequencesfor agriculturein that they wash away valuable topsoil. This is a problem of vast proportionsin Madagascar: it
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is estimated that as much as one million hectares per year are lost to productive agriculture through soil erosion, giving Madagascar the dubious distinction of being, perhaps, the most eroded place on earth (para. 3.07). Because of the magnitude of this problem, soil protection and conservation measures are urgently needed, not only on cultivated land but also in many areas of low or even nil agricultural potential to mitigate the downstream impact of cyclonic activity on agricultural development efforts elsewhere. Land Resources 3.03 With its large land area (about 592,000 km2 ) and population still under 10 million, Madagascar has abundant land resources. However, there is considerable uncertainty both as to current trends and patterns of land use, and as to the real potential for future development. Available statistics suggest that between 2.5 and 3.0 million ha, or about 5% of total land area, is currently under crops (Annex 1, Table 1). Statistics also suggest a gradual but steady increase in area under cultivation, roughly in line with population growth. Vast land areas (about 60% of the total area) are classified as pasture, and, with Madagascar's large and extensive livestock production system, cattle, in particular, graze over most of the land. Forests cover about 20. of total land area, but are decreasing rapidly; this deforestation is an important problem when considering Madagascar's future, both because of its links to the country's serious soil erosion problems and implications for rural energy supplies. 3.04 Information on current land use for agricultural production is out-of-date and unreliable, and no systematic land use surveys or monitoring systems are in place. However, the following figures (based on data sources at least a decade old) represent a rough order of magnitude. Assuming a total area under cultivation of about three million hectares, by far the largest area is under rice (between one third and one half); next in importance are perennial crops (particularly coffee) and root crops, with close to 300,000 ha each. Short term industrial and export crops occupy an estimated 90,000 ha total (Annex 1, Table 1). These figures underscore the dominant position of rice, and explain to a large extent the focus on rice in Government development efforts. There is little evidence to suggest whether major changes are taking place in land use patterns, except for some indications that expansion of rice in line with population growth is in some regions pushing cultivation onto marginal land, with attendant decreases in yields and increased erosion risk. There is also evidence of some shift from rice cultivation into root crops and maize, particularly in the highlands. The reported expansion of manioc production investigation, as this could reflect uncertain conditions especially merits farmers and would create a risk of for rice cultivation among subsistence dietary deterioration in rural households. 3.05 The potential for future development - land capability - leaves even more question marks. This uncertainty poses important problems for the medium and long term future, for it would in part determine whether a strategy of intensification or expansion/migration is more appropriate as a
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focus for development programs. The range of figures used is very wide estimates of land which could be brought into cultivation go from 6 to 15% of total area (versus approximately 5% now cultivated). Apart from issues of detfinition (should areas which would require enormous irrigation investment or which are marginal be included) the essential reason for the varying estimates is a lack of detailed analysis of Madagascar's resource base. This is particularly important for Madagascar because of the wide range of topography and numerous sub-regions; broad general studies reveal little about total areas which could be developed or about prospects for individual regions. Although important work has been done in the past (notably by ORSTOM - Maps IBRD 16926 and 16927 are based on this work) and some good and relevant studies are available, especially on soils where systematic maps have been drawn, analytic work and monitoring are no longer being actively pursued. Analysis on water resources suffered a similar fate. Mapping work has slowed dramatically, and not even an up-to-date administrative map of Madagascar has been issued for over a decade. Efforts to employ newer technologies, including remote sensing techniques, for the agricultural sector have been confined to very limited efforts under specific projects. The lack of reliable and detailed data on land resources (as well as land use) is a serious constraint to planning and development efforts. More broadly, there is a lack of reliable agricultural statistical data without which no serious planniLngexercise can be carried out (para. 3.20). 3.06 On the basis of available information, Madagascar's potential for increases in area under cultivation should be viewed as significant in the long term, but there are serious impediments to rapid expansion of cultivated areas. The most important constraint is soil quality. Except for aiLluvialsoils, which are mostly found in the vast river basins of the west coast, the most common soils of Madagascar are well-weathered, generally depleted ferruginous or ferrallitic soils of low potential in their natural state. These soils account for an estimated 68% of total area, against 3% for the alluvial soils. In the central highlands, the ferruginous or ferrallitic soils covering the hillsides ("tanety') are mainly used for rainfed foodcrop production on a shifting system, as they cannot sustain production without adequate inputs of fertilizers; most of the fertile valley bottom soils have already been developed into paddy fields due to population pressure. An estimated 3.5 million ha of these hillside soils could be considered suitable for cultivation under rainfed conditions, provided that appropriate farming systems are developed and fertilizers are used. Another key issue is water. Rainfall patterns vary widely among regions. Rainfed farming is feasible in many areas, but low rainfall and the long dry seasons are serious impediments to increased production on much of the island. It appears that the best unutilized soils are the alluvial soils of the dry western river basins. Significant areas are already being cropped with rice and cotton, but there are considerable areas (more than 1.5 million ha) still available for development. However, further development of these areas is dependent on irrigation and water control/drainage. Since the rivers are large, with fierce flood regimes, very large infrastructure investments are required to exploit them effectively (along the lines of the larovoay, Morondava, and
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16 -
Mangokyschemeswhich are being developed now). The sameapplies to the large highland basins (Lac Alaotra and Antananarivo), where the presence of peat soils complicates the development and management of irrigation and drainage schemes. The potential is undoubtedly there but intensive management and costly infrastructure development will be required before it can be fully and economically exploited. The south and the east of the island are relatively poorly endowed with soils suitable for rainfed development, but 700,000 to 900,000 ha of valley bottom soils could eventually be developed if water were available. 3.07 An overriding physical feature of Madagascar is the widespread occurence of soil erosion, accelerated by the action of man, that is destroying valuable land resources at an alarming rate (para. 3.02). It is not by chance that Madagascar is known as the "Red Island", and the red gashes of erosion ("lavaka") are a disturbing sight in many areas of the country. The common practice of burning bush during the dry season to produce young grass for cattle grazing has turned the face of Madagascar into one of the more eroded landscapes in the world. It is, therefore, impossible to consider land resource development without focussing on the losses of rich top-soil by erosion and on the resulting problem of siltation of irrigation networks. Soil erosion issues have particular importance for the Antananarivo area where flood control is inextricably linked to soil erosion problems, and this is the subject of an on-going review. To date, measures to control the key problem of bush fires have focussed on administrative regulations and publicity; the Government has also considered at various times "curative measures" such as fire fighting squads. Afforestation programs have also been launched; the sight of charred groves of young trees is, however, common and discouraging. The problem is not likely to be resolved by either administrative fiat or fire fighting: long term farmer education efforts and gradual changes in livestock management techniques are required and must be sustained. In addition, more active enforcement of bush fire regulations, soil conservation programs linked to extension, and rural afforestation programs offer some promise. It is important that the critical issue of soil erosion, with its enormous long term consequences, not be neglected even at this time of economic crisis. Measures to address soil erosion problems should form an integral part both of land use planning efforts (para. 3.21) and of agricultural extension efforts. Farmers 3.08 The fundamentally rural structure of Madagascar's economy and society is reflected in basic population statistics. Of Madagascar's total population (estimated at 9.2 million in 1982, growth rate 2.75% a year), about 85% live in rural areas. While population density overall is relatively low (roughly 16 inhabitants per km 2 ), it is very unevenly distributed, with intense pressure on cultivable land in some regions (notably the central highlands), and very low density in other areas, notably the south. Virtually the entire rural population is involved in agriculture; the total number of farming families is estimated at 1.5 million.
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3.09 Madagascar has benefited from many sociological studies and has a strong academic tradition in this field. Key areas of analysis have been social behavior and traditions of various ethnic groups and the impact of family structure on production. Land tenure patterns are particularly complex and have been, at least in specific regions, the subject of intensive review. There are some interesting efforts underway under specific projects to ensure that professional sociological support is provided both for design and monitoring activities. In general, however, issues of social organization and their impact on agricultural production are not well understood and are not systematically applied in planning and project design. Some Government officials, for example, have argued that Malagasy farmers are not responsive to economic incentives such as price increases because of peculiar features of the society, and this hypothesis has had an important impact on pricing and marketing policy decisions. The evidence for this view is, however, limited and, we find, unconvincing, and farmers have clearly responded to cash incentives in many instances; despite the admittedly important problem of shortage of consumer goods in rural areas, there are still important cash needs, which include meeting the expense of elaborate funeral and other rites. In general, efforts to understand better and take into account social factors are clearly essential when designing projects, to obtain a better overall understanding of the population's structure and social organization, and to take Malagasy land tenure and share cropping arrangements into account (for example, share cropping arrangements often affect the amount of a price increase an individual farmer actually receives). The role of women in production into systems merits more through analysis. Efforts to take social factors account more explicitly are likely to be most effective in the context of individual projects or service organizations. However, social analysis should also be incorporated in broader monitoring systems for the sector. 3.10 An important feature of Madagascar's society is migration among rural areas, and efforts to encourage and organize migration have formed an important element in agricultural policy measures in the past. Migration affects most regions of the country; areas of departure are the more densely populated area of the highlands, while the traditional receiving areas are the middle west, the northern region, and the west coast. The number of permanent migrants was estimated in the early 1970s at between 30,000 and 50,000 a year. Migration is frequently short-term, seasonal, and over short distances. Permanent long distance migration is generally associated with specific crops and schemes (most sugar and cotton farmers in the west are spontaneous migrants from the highlands). Government include a 1974 decree which measures to direct and encourage migration established an official policy based on organized migration schemes; the issue of migration figures prominently in recent policy statements on rural development (including the Charter of the Malagasy Socialist Revolution). justice and of Migration has been seen as a means of achieving social translating the Agrarian Reform Program and land reform schemes into concrete action, by supporting settlement of poorer farmers and providing and several development adequate and uniform smaliholdings for farmers, projects, including a series of middle west schemes and the Mangoky development projects, have been based to a large extent on migration. Many
- 18 -
programs (most dramatically the IBRD financed OMBY ranching project) have come to grief largely because people migrated to an area designated for development, and social conflicts resulted. While migration is clearly an important pattern in rural society, it has been and remains largely spontaneous; efforts to direct the process have not been very successful, and have had a high cost. We would urge that future efforts focus on improving planning for development in areas influenced by migration (such as the middle west), rather than on programs to manage migration directly under the aegis of Government schemes. 3.11 Among areas poorly understood because of data problems, rural incomes and income distribution stand out. Overall, rural per capita income is certainly low and is probably stagnating. However, there are wide variations in income levels among regions, in large part because of varying resource endowments but also because of historical developments which have focused resources on the highland areas. Within many regions income distribution is highly skewed (for example, cattle herd size varies widely within local communities). Analysis of this issue is complicated by complex patterns of land tenure and of cattle ownership and management. This is an area which merits further investigation, and should form part of any program to improve statistical information systems and project monitoring. 3.12 Available information on nutrition suggests that problems in this area are serious and that a strategy to address nutritional problems should form part of agricultural development programs. However, here also the lack of reliable and up-to-date information is a serious constraint. Average daily calorie intake has been estimated by FAO at about 2350 Kcal, and malnutrition problems are widely reported in medical surveys. Rice, which provides 70% of calories and 60% of proteins, and manioc are the basic foodstuffs. Meat, animal products, and fish form a rather small part of the diet, and milk is consumed primarily by those who have direct access to it. Thus, the average diet is deficient in proteins. Various studies have indicated that nutritional problems are related to large family size and to skewed ownership patterns of subsistence crop lands. Land Tenure 3.13 Land related issues are highly complex in Madagascar, and this document gives only a brief outline of land tenure law and administration. Land tenure patterns reflect traditions of individual and group tenure rights, and complex share cropping and hired labor arrangements. Essentially, traditional land tenure systems prevail in most areas of Madagascar, with a basic system of family, heritable rights to cultivated land and communal (village) rights to pasture land. Development of new land and continued cultivation conveys permanent individual tenure rights. In general, the State recognizes traditional rights to land that has been occupied and cultivated for ten years or more. Nevertheless, under official land law. all land is presumed to belong to the State unless it is the subject of a title (immatricule) and/or a cadastral survey (cadastre). There are some important special categories under land law; certain lands,
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19
-
for example 25 m on either bank of a navigable river. are domaine public and are not subject to traditional rights (this has evident implications for many irrigation schemes). Land can be expropriated by the Government (for development purposes), and there are clear requirements for compensation for improvements, disturbance of graves and sacred places, and standing crops. The vast majority of holdings are small (0.5 to 2 ha), limited above all by the amount of land an individual family can cultivate. Sharecropping arrangements, however, are an important feature, and are a reflection of larger holdings in many areas, and of absentee lanc ownership. Arrangements vary by region and ethnic group but no reliable overall data are available, and estimates of the amount of cultivated land affected by sharecropping range widely, roughly from 5% to 20-25% of the total. Sharecropping is particularly important in the rice cultivating areas of the highlands and in the Lac Alaotra region (there, 13 different arrangements were identified in a recent study). The economic impact of share cropping is difficult to estimate and certainly varies widely. In general, incentives under share cropping systems tend to be dulled, as the sharecropper receives only a proportion of incremental profits instead of the whole, as would be the case under a genuine rent system, and he is normally expected to pay the full cost of inputs. 3.14 The Government's role in the area of land tenure is complex and changing. Before 1974, the Government engaged in efforts to ensure security of tenure through active programs to register land and issue titles, and through a program of cadastral surveys. Since 1975, however, Government interventions in the land tenure field have been primarily in the context of the fokonolona local government reform (paras. 6.13-6.17), which transferred most authority on land matters to local communities; at the central Government level. the Service des Domaines of the Ministry of Finance has jurisdiction in land matters, and continues a limited program of land registration which applies primarily in cities and towns. In theory, tenure rights are handled as follows. Application for land rights (droit de propriete) is made to the Domaines, which then requires a Commission de Reconnaissance at the fokonolona level to investigate the claim, deteruine any conflicting rights and compensation payable, and fix the price of the land. Once this is done and payment made, a provisional title is issued (titre domanial provisoire or concession). The land may then be developed and used by the title holders, who may apply for final (transferable) title after five years; this title (titre foncier) is issued after demonstration that the land is being used. The procedure to obtain a "titre foncier provisoire includes about 16 steps and requires the intervention of eight different representatives of the local, provincial, and central governments, properly equipped for paperwork and transport, circumstances which rarely apply. The main bottleneck seems to be within the local levels of Government for both sociological and logistical reasons. The fivondronana in particular do not appear to have the logistical capacity to carry out their task in the Commission de Reconnaissance and are often reluctant to decide between conflicting claims on the land to be registered. Where programs have required the issue of titles (notably in Lac Alaotra), many years have intervened between application for and issue of titles. An alternative procedure which has
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been employed in recent years to transfer former concessions to public enterprises is a request to put land "at the disposal" (demande de mise a disposition). The formalities at the fokonolona level are the same but procedures are accelerated at Domaine level; such transfers are for unlimited periods and are usually free of charge. 3.15 Since the local Government reorganization of the mid-1970s, there has been no coherent Government policy on increasing security of tenure and therefore to improve incentives and develop land. The focus of recent Government interventions on land have been residual migration and land reform programs for European owned land 1/, and the effort to change land tenure patterns radically through the promotion of collective farming. A special unit in the Ministry of Agricultural Production, the "Service de la Reforme Agraire et de l'Assistance aux Cooperatives", has been responsible for supervising the implementation of the 1974 basic law, but has had little impact on decision-making processes at the fokonolona level, which in practice has had the largest role in this area. Also, its responsibilities in relation to the Finance Ministry's "Service des Domaines" are not clearly defined. Efforts by the Government to promote collective production by local communities appear to have resulted in virtually no changes in the basic land tenure situation, but have reportedly led to a much greater uncertainty about security of tenure in many areas. The operation of an extremely complex and elaborate land law system is entrusted to a service which is particularly poorly endowed. At the local level the fokonolona institutions act as occasional arbiters of customary rights but there is little evidence that these interventions have contributed to stabilizing land tenure patterns. On the contrary, the growing destabilization and economic disruption of rural areas have led to shifting cultivation patterns, abandonment of lands in many areas, and intermittent occupation by quasi-migrants. In regions where in-migration is a significant factor - such as the Middle West - the absence of guarantees of tenure is a major development constraint. At the same time, the efforts to restrict large scale holdings - a man's holding being limited to the area he can himself cultivate - appear to some extent to have protected smallholders against unequal tenancy arrangements. 3.16 Short term action to resolve specific land tenure constraints is possible and desirable; action to issue titles in the Lac Alaotra area and to devise legal forms to bring back fertile but fallow lands to cotton cultivation are being promoted under IDA-supported projects. Similar specific land tenure constraints exist in other regions and appropriate solutions may be sought (e.g. the Middle West). In the medium and long term, the progressive cadastral survey initiated in the 1960s should be followed up and action taken to lighten the administrative burden of obtaining saleable title. This is likely to have particularly important consequences for Government-managed irrigation schemes, where clear information on land tenure patterns would appear to be a necessary
/
Foreign ownership of land has been an important but relatively limited issue as total European holdings never exceeded 40,000 ha.
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21
--
pre-condition for effective application of cost recovery policies and land development involving reorganisanion of existing parcels. The intervention of the fokonolona institutions is probably the best means available forensuring that fairness is observed in these allocations, but requires a clearer definition of responsibilities and authority and a-pr-riate training and admi-nistrative support. Production
and
Farming
Systems
3.17 Madagascar's agricultural sector is still largely :ase.d on production for subsistence, and it involves above all producti on by smal]holder farmers. Estimates of the share and total volume of subsistence production are unreliable, but it probably represents about two-t:hirdsof the total value of agricultural production. Subsistence farming employs an estimated 83% of the rural population and modern farming 2%; ].5% is considered intermediate or casual employment. Despite the very substantial changes in Government intervention in the economy in recent years, the basic patterns of agricultural production have remained relatively constant; this is significant because the Government's stated goal has been to change fundamentally the system of production towards cooperatives and state farms and companies. In practice, operating socialist cooperatives appear to be very few in number and state farms (including both those which predated the revolutionary, post-1972 period and those established recently), have been important in terms of financial cost and for some specific commodities (notably sugar, oil palm, coconuts anid soy beans) but are not a major factor in terms of overall production. Their impact has been primarily a negative one as resources (financial and human) have been focused on developing such ventures, to the detriment of efforts to develop farms owned by individuals. The share of the modern sector varies widely by commodity; most rice is produced by traditional smallholders primarily for home consumption, as are most food crops, and livestock remains almost entirely traditional. Large, modern farms, by contrast, play a prominent role in cotton production and sugar, and palm oil, coconuts, cocoa, and sisal are essenti ally plantation crops. The major export crops (coffee, cloves, and pepper) are largely produced by smallholders, 3.18 An important issue for the future is whether development strategies should focus primarily on large-scale, commercially oriented agricultural ventures or on the smaillholder sector. In our view, a compelling case can be made that, for medium term planning, the focus should be on smallholders, whose contribution to agricultural output has been estimated at about 85%. This would require, in particular, efforts develop
extension
and
and financial considerable
scope
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efforts
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expansion
Private needed
to
directed
structural
important
the past few years,
and
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While
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that it
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managerial
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policy
and it is unlikely to
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of the irrigation
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and support systems (such as credit, reliable input supplies, and foreign exchange). Expansion of modern commercial farming through parastatal agencies also seems highly problematic, and the record of such endeavors in the past few years has not been encouraging. Production of established state farms has been stagnating, if not declining, and new enterprises face formidable management and technical problems. Particularly in areas dominated by traditional agriculture (rice, livestock, foodcrops) and for commodities which are not well established in Madagascar (such as soy beans and wheat), the cropping patterns, skilled managers, and institutional support necessary for modern production systems to succeed (mechanization, inputs and credit for example) are lacking. While such systems must certainly be developed in the long term, efforts to advance quickly are unlikely to succeed. Another important issue for future development strategies is the treatment of medium-scale farms (in the 10-30 ha range); such farms have played an important role in the development of several regions in the past, notably the Middle West and the north-west, and there is considerable scope for future expansion, particularly in these regions. Government policy measures, notably on credit, have discouraged such farms (focusing instead on smallholders). It is encouraging that restrictions on credit to these farmers no longer apply, and the Agricultural Development Bank (BTM) is reviewing prospects for increasing its lending in this area. Regional Variations 3.19 Regional variations have great importance in Mladagascar, and contribute to wide differences in farming systems and production patterns. The poor communications network has tended to encourage the development of production "islands" in various areas, which are poorly integrated with one another. Development of services and investment projects have tended to follow this pattern, and this partly explains the large number of quite separate extension services and systems which now operate and lack of coherence among projects. The major production regions are the tropical east, north, and northeast where cash crop production dominates farming, generally in association with food crops; the east with essentially slash and burn rice cultivation and coffee; the highlands areas, dominated by rice; and the west and south where extensive livestock prevails, except for severalirrigation schemes. However, production patterns are highly complex, with wide variations within each region. The administrative and political sub-divisions do not coincide with agricultural production regions, which complicates the task of regional planning and management of services. A region-specific focus has been and will remain of great importance in development of Madagascar's agricultural sector, and national approaches to problems must take these variations into account if they are to be effective. Agricultural Information 3.20 The theme of lack of information has recurred throughout this discussion of resources and production patterns. This situation is somewhat itonric, since Madagascar was co-sidered at one time a leader 1t\ the field of agricultural statistics, and extensive research was undertaken
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in the past. Considerable information exists and can and should be utilized. Statistics in some specific areas are excellent and reliable (for example sugar and cotton production and exports). There are, however, three principal problems: (a) existing information and past research results are not centralized in a single place and are difficult to obtain; this is largely because analytic work was undertaken by a large number of agencies, and there have been numerous and substantial changes in these institutions; (b) data collection systems have virtually ceased to function in recent years, and analysis and publication of data are long-delayed and not comprehensive in coverage. Recent data on market trends are also distorted because they reflect only "official" marketing activity and have rarely addressed the "parallel" market channels, which have remained very important. Compilation of cropped areas, yields, and total production face similar difficulties because of the complexity of the smallholder system of production. Methodologies for collecting data have not been improved and have the common faults of many agricultural data systems (reliance on underpaid, poorly supervised extension staff with little training and virtually no logistic support, and unreliable sampling methods, for example); and (c) despite substantial efforts, basic data on resources and farming systems is limited. There is not (and has never been) a comprehensive and reliable system to monitor average prices paid to producers for agricultural commodities. The poor data base should be considered an important problem which must be addressed if planning and support to the sector is to develop. The FAO is providing some support in this area, and an agricultural census is planned in 1983. Studies to identify measures to improve the effectiveness of data collection and statistical analysis systems for rice are included in an IDA-financed project. 3.21 A program to strengthen the data base and to ensure that efficient analytic techniques are used is urgently needed and should be developed as a matter of priority. An immediate need is to set up a land resources survey unit which would coordinate with agricultural statistics personnel in laying down the framework of the system and in implementing a work program. First, the type of data required must be agreed upon as it will determine the methodology and techniques for data collection and compilation. Broadly speaking, data are required in the following areas: land resources, agricultural statistics, and land use and ownership patterns. In such a vast country as Madagascar, compilation of information by traditional techniques alone is a formidable task and is probably not justified at present given the substantial resources required. It could be much cheaper to utilize aerial photography and satellite imagery, in combination with limited ground surveys, for the preparation of reconnaissance land resources and land suitability maps. More detailed studies could be carried out for specific regions. Much information required is already available and a first task of the unit would be to carry out an inventory of available maps and aeri al photographs, and complete aerial-photo and cartographic coverage of the country. Specific tasks could include an appraisal of the extent and impact of soil erosion on land resources, a survey of "commanded" and actually irrigated areas on irrigation schemes, and a survey of export crop and plantation crop areas.
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To function adequately, the unit would require expertise in land resources survey, aerial-photo interpretation and photogrametry, satellite imagery, and agricultural statistics techniques, which could eventually be expanded to include rural sociology and land cadastre techniques. The use of aerial photography and remote sensing techniques is probably less appropriate for the compilation of data on land use patterns and agricultural production in view of the smallholder type of production prevalent in Madagascar. Nevertheless, the feasibility of using these techniques for establishing an agricultural statistical data base and for land cadastral work should be considered.
IV.
AGRICULTURAL PRODUCTION - AND SUB-SECTOR ISSUES
A.
General
4.01 This chapter provides a brief review of key sub-sectors within the agricultural sector, with an emphasis on recent developments (including the impact of the current economic crisis). It focuses on the sub-sectors where our information sources and knowledge are best; these cover most important agricultural activities, but there are some gaps, the most significant of which is food crops other than rice. Annex I includes a description and analysis of the structure, performance, and more detailed key issues for the major agricultural sub-sectors.
B.
Rice
role of rice in Madagascar's agricultural sector 4.02 The dominant the marked focus on rice in current efforts to address both sector explains (an economic problems. Rice has vital importance for farmers and broader estimated 70% of the active population cultivates at least some paddy), and plays a key role in production systems (paddy occupies roughly one half of total area under crops). Rice is the staple food of most of the population and rice consumption per capita is very high by international standards (estimated at 150 kg a year). The Government has made extraordinary efforts to ensure ample supplies of rice, reflected above all in growing rice imports, as domestic production has failed to supply the urban markets; rice imports exceeded 350,000 tons in 1982, equivalent to about 20% of total rice consumption, and costing about 20% of the total value of imports. In addition, official marketing interventions have entailed substantial financial costs for the Government as heavy losses have been sustained by parastatal agencies involved in rice marketing. 4.03 The central problem for the rice sub-sector is the slow growth of production over the past 10 to 12 years. Production grew at over 4% a year during the 19 60s, but the growth in the volume paddy production has averaged less than 0.5% a year over the past decade; as a result,
-
25
and exporter, has become increasingly which was formerly a rice Madagascar, heav:ily dependent on imports. The task of ensuring adequate rice supplies for urban markets has been a constant pre-occupation of the covernment. This explains to a large extent the focus of policy measurea affecting the rice sub-sector on marketing arrangements; the Government `: -ncreasingly sought to control marketing channels to ensure supplies and regulate distribution, and also to maintain consumer prices at relatively 'ow levels. Under normal conditions, the cities have borne the brunt of problems in rice supplies, and serious rice deficits are rare in rural areas; most production (80-85% of the total) is for subsiste.tce and relatively small quantities are traded withi-n rural communities; substitution among crops and seasonal changes in diet have allowed farmers to respond to rice shortages. The Government's efforts to regulate the rice trade have nevertheless had a nationwide scope and have had a major impact on traditional marketing patterns and, to a lesser extent, farming systems. 4.04 There is no single cause for the stagnation in rice production; it has resulted from many factors, some related to production problems (such as shortages of inputs), others to processing and distribution arrangements for rice. Perhaps the most important single problem area has been the erosion of producer incentives (paras. 4.06 to 4.08 and Chapter VII), which has been largely the result of successive Government efforts to control markets and prices; this has by no means been the only problem, however, and it is striking that many marketing interventions have been introduced as a result of slow production growth, which has itself been a partial response to the marketing interventions, giving rise to a form of a vicious circle. Madagascar's rice is produced under widely different farming systems, ranging from large, intensive irrigation schemes (most important, Lac Alaotra, the Marovoay basin, and the Plain of Antananarivo) to small, terraced rice fields managed by families or local communities, to slash and burn, shifting cultivation systems on the east coast. Production problems have varied among these systems. The larger and medium scale irrigation systems, which have historically supplied a large proportion of the marketed surpluses for the cities (Madagascar's "rice baskets") have been beset by management problems; yields have declined and expansion in cultivated area has been much slower than planned. Many irrigation networks have fallen into disrepair and urgently need improvements in maintenance and operation systems and ofteni full-scale rehabilitation. Input supplies, particularly important for the irrigation schemes and small rice producers in the Central Highlands, have declined, and fertilizers, a key factor in the production increases of the 1960s, have not been available in anything approaching sufficient quantities. There has also been a decline in the coverage and effectiveness of both extension systems and credit programs. 4.05 The sluggish growth of rice production is particularly disappointing because substantial public investment efforts for rice production have been made in the last decade. With a few important exceptions development schemes have had a disappointing impact and have contributed little to increasing production. Programs have included the
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"Bataille de Riz", an infrastructure and extension campaign to extend area under rice by force account, mechanized rainfed rice cultivation on the basis of 20 ha per fivondronana; the OMIPRA rice scheme, a large-scale rainfed rice development scheme implemented by the Armee Populaire with North Korean assistance; large investments in irrigation infrastructure in the Morondava and Mangoky valleys; other smaller irrigation schemes; and a small-scale traditional irrigation development scheme (micro-hydrauliques, financed by the European Development Fund - EDF). While the latter two projects offer promise of achieving production increases, most of the other investments have not yielded expected benefits. The major reasons stem from management and organization problems (poor operation and maintenance
of schemes, and confugion on respongibility
and authority
for their
operation), poor producer incentives, socio-political factors (breakdown in farmer discipline and land tenure disputes), financial problems (inadequate funds to run systems in the absence of cost recovery mechanisms), and technical difficulties (above all related to the lack of appropriate farming systems for rainfed rice on tanety areas). Another important factor contributing to slow growth in production has been the Government's efforts to extend its direct role in production. Input supply was a particularly important area and the Government sought to exercise a monopoly role. However, government-operated supply systems set up to replace private traders never really got off the ground, and this contributed to the shortage of fertilizers and other inputs. A further problem with particularly important long term consequences has been the near total breakdown of agricultural research over the past decade, and weakening links between research and development programs. Madagascar has failed to take advantage of international advances in rice production technology outside Madagascar and to apply available research knowledge through extension work. The shortage of fertilizers, in particular, now impedes the application of available research results, but in a medium to long-term perspective the absence of effective research programs is a serious problem. 4.06 Marketing strategies for paddy and rice pose perhaps the most important and critical issues for the sub-sector. Prior to 1972, the Government sought to exercise some controls over marketing, but the trade was largely in private hands and, except in bad years, functioned relatively smoothly. Since 1973, the Government has sought to increase its role in marketing substantially, both as part of the effort to implement socialist revolutionary principles, and in response to growing supply problems, particularly for the cities. In 1973, legislation was enacted setting out a framework for Government control of the economy, and a state-owned company (SINPA) was established with a mandate to intervene actively in paddy and rice marketing. In 1975, SINPA was given an official monopoly on the rice trade, and private trade has been, in effect, illegal since then, although it has continued nonetheless. SINPA's acute management problems led the Government in 1977 to end SINPA's monopoly, but the state monopoly over the rice trade was reaffirmed, and SINPA's responsibilities were to be shared with other parastastal agencies. Meaawhile, with the implementatioa of the fokornolona local goverraeent reform (Annex 2), local communities took on important responsibilities both
- 27
-
for uarketing of paddy and for the official distribution of rice. The problems of managing the official marketing circuits and enforcing the marketing monopoly have become increasingly acute, and the share of officially marketed rice declined from about 241,000 tons of rice in 1975/76 (representing an estimated 12% of total production) to 93,000 tons, or 5% of production in 1982/83. Partly in response to this situation, the Government, in July 1982, enacted new legislation which reaffirmed the Government monopoly and specified stiff penalties for illicit trade in rice. The application of this legislation was suspended in February 1983 but the legal instruments governing rice marketing nevertheless mandate tight restrictions on trade in paddy and rice (Chapter VII). 4.07 These marketinigarrangements have given rise to serious problems. The official marketing system has proved costly and has not worked efficiently and reliably; traditional marketing systems and new parallel market systems have operated in many parts of the country, but have officially been largely illegal, which has resulted in increased marketing costs (taking the risk factor into account, for example) and impecled market development. The Government has relied increasingly on imported rice to supply the urban markets, and at present the bulk of rice handled through official channels is imported. Offical marketing systems are affected by poor baseline data on levels of consumption and demand, and agencies concerned have experienced continuous difficulties in planning for allocation of rice supplies and estimating import needs. As a result, crisis interventions have been common, and changes in plans for rice deliveries frequent. The marketing system has come to rely increasingly on the fokonolona institutions both to estimate available supplies and needs and to handle distribution. These institutions have had a keen interest in imrketing operations, in large part because reve-nuesderived from commissions on rice sales have represented their largest source of financial resources, but in general the new institutions have been poorly equipped to take on the new marketing responsibilities. For these reasons, both estimates of the supply deficits and projections of future imports are highly uncertain and subject to wide margins of error. 4.08 Pricing policies for the rice sub-sector, which are closely related to the marketing interventions outlined above, have had an important impact on production and rice distribution. Madagascar's current rice pricing system involves a single, panterritorial administered price for paddy and for retail rice sales set by the Central Government, in theory for each marketing year. Given the dominant role of subsistence productionand the widely scattered pattern of rice production and consumption in rural areas, the official prices cannot be effectively enforced for the great majority of producers and consumers. Official marketing systems have not been able to guarantee the official price to producers. Retail price control is impossible to apply, given the dispersed nature of the trade; consumers have certainly benefited from offic:ial prices in many areas, and the sale of rice at official prices has been an important activity of local Government authorities. However, with large.quantities of rice sold or resold through parallel market channels the benefits of low prices for consumers are certainly diluted. Despite
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the enormous difficulties in administering the price control system, the Government has exercised an effective monopoly in some areas and official producer prices apply there and have a direct impact on farmers; elsewhere, the impact of official price controls has been indirect but has worked to increase uncertainty on marketing arrangements and to increase marketing costs and depress farm gate prices. The problems of a rigid price administration system have been accentuated by price levels, which have, by virtually any standard, been set too low to provide adequate producer incentives and to cover marketing and processing costs (Annex 1, paras. 21 to 23, and Table 3. Further, between 1976 and 1982 the rice price structure included a substantial subsidy on the retail price, which amounted to over 50% of the official consumer price. Subsidy arrangements were complex and never worked satisfactorily. In theory, subsidies were financed through a special stabilization fund (the Fonds National Unique de Perequation - FNUP) whose resources were derived from profits of export crop stabilization funds (initially representing coffee boom receipts). However, clear arrangements for computing and paying for the subsidy were never worked out and the parastatal agencies involved in marketing suffered enormous losses and experienced grave financial problems. The costs of the subsidy were enormous, and actual subsidy payments to parastatals for locally produced and imported rice reached an estimated FMG 16.4 million (US$55 million) in 1980 and 1981, a figure which exceeded the total budget (operating and investment) of the Ministry of Agricultural Production for the same period. Meanwhile, the producer price level was also set at an unrealistically low level, which was below import parity levels, production costs, and average price levels on the parallel market. Price adjustments were infrequent and irregular, and official prices in real terms steadily declined. In May 1982, the Government took important steps to address these problems. Producer price levels were raised by 28% from FMG 47 to FMG 60/kg of paddy. At the same time the consumer price was nearly doubled (from FMG 75 to 140/kg) in an effort to eliminate the consumer subsidy and to introduce a tax on retail rice sales (FMG 15 of the FMG 140 consumer price). In February 1983 the paddy price was further increased to FMG 65/kg; the consumer price was not changed but the tax was eliminated. both producer and consumer steps and brought These moves were positive prices close to import parity rates (at the official exchange rate), but parity cost structure and of import recent analysis of the production levels indicate that further price increases are needed (Annex 1, Table 3. Further, the system of price reviews, including timing and criteria for price setting, are not clearly defined and require clarification. 4.09 Fundamental reforms in both marketing and pricing systems for rice are urgently required if Madagascar is to stop the drift towards an import dependence position in rice. However, policy and institutional reform is seriously impeded by the exceptionally poor quality of data, particularly on marketing (para 3.20). A careful review of marketing problems is needed to identify and evaluate a range of options for that any scenario it seems certain, nonetheless, marketing strategies; will involve substantial changes in the role of government recommended institutioas and the price administration system (requiring iater alia,
_ 29
changes in legislation). Future reform should move in the direction of sharply limiting the marketing functioas of official agencies, accompanied by measures to support the expansion of existing private narkets (through credit programs, development of market facilities, and effective price information systems, for example), and improving the management capability of of-ficialmarketing agencies to intervene strategically in markets and to maintain buffer stocks. One-option worth serious consideration would involve a limitation of direct official marketing activities to imported rice. Official price administration should be based on a flexible system such as a band of minamum and maximum prices which would serve co trigger market interventions. 4.10 To provide a focus for rice plannnag and the necessary support for sector analysis, the Government recently established a Rice Coordiiating Unit (Service de coordination du secteur rizicole) which reports directly to the Secretary Genetal of MPARA. This unit will be responsible for managing a number of studies on critical issues including production, consumption, marketing flows, distribution networks, farming systems and pricing policies. It will make recommendations in these areas, coordinate policies and activities of different Government institutions in the sub-sector, and follow-up on rice development operations. The IDA-financed Agricultural Institutions Project (Credit No. 1249 MAG) provides support for the work of this unit through technical assistance and logistical support. A first task of the unit is to oversee an ongoing rice sector study, which includes an analysis of agricultural production costs, urban and rural rice consumption, and public and private marketing services. The findings of tie survey, expected to be completed in early 1984, will: (i) define rice policy options open to the Government in regard to pricing, marketing, and storage; (ii) formulate action programs to improve rice marketing and distribution systems (both public and private); and ciii) propose measures to improve the Government's data collection system and statistical analysis capability as it applies to the rice sub-sector. Findings of the report should provide a solid basis for consideration of marketing reforms during 1983 and 1984. 4.11 In summary, elements of a strategy for rice development might include the following (in a rough order of urgency): (a)
a program to reform rice marketing systems, involving a redefinition of the role of the state in paddy and rice marketing and meassures to address the incentive, infrastructure, and management constraints affecting market development;
(b)
reforms in pricing policy and price administration systems: in the short-term, regular price reviews and adjustments are essential, and should take into account import parity levels, production costs, and the impact on the Government's and parastatals' financial position; in the longer term a strong case can be made for introduction of a more flexible price administration system and for reliance on policy
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instruments other than price controls to influence producer and consumer price levels; (c)
promoting production increases, primarily in surplus producing areas, by improving input supply and credit delivery systems and assuring foreign exchange for imports, particularly of fertilizer, transport equipment and production of incentive goods;
(d)
measures to improve the efficiency of existing irrigation systems and development/service institutions; this might focus initially on the three largest development agencies where action programs have been developed (SOMALAC, FIFABE, and SAMANGOKY), and be expanded to cover the other development agencies and the "petits-perimetres" system of official irrigation networks, where basic systems of operation and maintenance need urgently to be reestablished;
(e)
measures to review and act on on-going investment projects for rice development, first to assess their continuing viability and priority, and then to ensure that they are implemented efficiently. Some projects should probably be reduced drastically in scope or dropped given their of foreign viability and acute shortages questionable exchange and budget funds;
(f)
effective measures to reestablish an effective rice research program in cooperation with international agricultural research agencies; and
(g)
development of planning systems specifically for the rice sub-sector, initially to focus on, inter alia, project management and recovery programs, and thereafter on sub-sector monitoring and on preparation and evaluation of investment opportunities in the sub-sector.
Improvements in data collection and analysis systems affect all these action prerequisite for an effective actions, and are an essential proposed improvement in transportation Complementary measures must include plan. credit. of agricultural systems and reestablishment
C.
Other
Foodcrops
role in than rice play an important Although foodcrops other 4.12 supplying the food needs of both the rural and urban areas, they have been to a large extent neglected in development strategies, development of farmer services, marketing and pricing policies, and agricultural research efforts. Partly as a result, information on current production patteras and on potential for expansion is even poorer than for rice. Some major
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fooderops appear to have maintained a fairly steady growth in recent years and there are some indications of expansion in area planted, particularly of manioc and other root and tuber crops; maize production also appears to have .increased,albeit slowly. Where marketing difficulties have farmers appear to have discouraged production of paddy for sale, substituted manioc, potatoes, and maize to some extent. Given the apparently high level of rice consumption in Madagascar and the economic need to restrain rice import growth, the role of other crops in the national food system warrants greater attention. In future research and extension programs, the role of foodcrops within farming systems should be carefully evaluated to identify measures which promise to increase crop yields or improve processing and marketing systems. In the short-term, however, given the almost total absence of organized services for foodcrop farmers, the lack of proven extension themes, and very low levels of input use, efforts to promote rapid increases in foodcrop production are unlikely to succeed except in very specific areas where effective services exist.
D.
Industrial Crops
Cotton 4.13 Cotton production and the textile industry play a vital role in the agricultural sector, and both have grown rapidly over the past decade. The increase in cotton production was an important success story in agriculture in the 1970s; CFDT - Madagascar, transformed into HASYMA in 1979, is considered one of the more dynamic and well-managed of the parastatal institutions. It played an important role in encouraging the expansion of cotton areas in the smallholder zones of the dry west and south-west. HASYMAprovides effective extension and input supply services, as well as marketing and processing seed cotton. At the same time, large, highly mechanized farms (many expatriate-owned), in the baibohos (flood plains) of the northwest, have maintained their production levels despite changes in Government policy toward large private farms. Madagascar can be considered potentially a competitive producer of cotton. Production costs are reasonable, particularly when evaluated against a shadow rate of foreign exchange, and fiber is of good quality, and could find ready export markets. For textiles, the present underutilization of installed capacity and the great distance of markets inflate production costs and reduce the competitiveness of these products. However, the position is complex (for example, because of varying cotton qualities and market fluctuations) and merits a thorough marketing study. A further related issue is exchange rate policy which has evident implications in considering economic viability. this promising record and position, serious problems have 4.14 Despite has years. Since 1977, cotton production beset the sub-sector in recent been decreasing from its peak of 37,000 tons to about 26,000 tons in 1982. During this period, the capacity of the local textile industry has increased and local cotton production is now insufficient to supply the
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textile mills. Although considerable quantities of fiber have been imported over the last few years, textile mills still operate below capacity (one factory shut down temporarily in mid-1982), and the profit margins of the mills are thus reduced. Shortages have also induced the Government to establish a quota system to ensure equitable distribution of fiber among the five textile mills; this system has not been scrupulously observed, resulting in disputes between the Government and the plants, and has also led to inefficiencies (for example in high transport costs). The reversal of the pattern of expansion of cotton production is in part the result of poor weather but the most important problem for the sub-sector has been the low level of official prices. Price levels play a particularly vital role for the cotton sub-sector because producers have no alternative markets for seed cotton, and because smallholder producers can (and do) quite readily grow groundnuts, tobacco, or butter beans instead of cotton if prices are not attractive. Although prices were significantly increased in 1981 and 1982, the level must be kept under continuous review. The pricing system overall should be reviewed since it is based on a complex system of subsidies for inputs, low producer prices, and transfers from the textile industry. Pricing problems, which include the issue of fiber price fixation and HASYMA's financial margin, have also led directly to financial difficulties for HASYMA, which must be resolved as a matter of urgency. The fiber price structure approved for 1982, however, incorporates adequate margins for HASYMA. The Government has agreed in principle to review pricing systems for the sub-sector and to introduce appropriate reforms. Foreign exchange shortages, wvhich result both from overall shortages of foreign exchange and inadequate allocation mechanisms, have particularly affected the large cotton farms and the SAMANGOKY irrigation scheme, which together accounted for over 76% of total cotton production in 1982. Other important, but longer term, problems for the sub-sector include the absence of effective planning and coordination mechanisms, and the virtual cessation of cotton research (except for pest control), particularly critical for this sub-sector as new varieties must be introduced periodically. 4.15 Prospects for expansion of cotton production in the relatively short-term are very good; this would result in reduced import requirements of local textile demand would require an additional for fiber (satisfaction and would enable textile mills to operate more 18,000 tons of seed cotton) efficiently. This short-term expansion of cotton production could be based both on intensification and on a moderate expansion of cultivated areas both by the large farms and smallholders. The most critical constraint is services and this can of equipment or land preparation the unavailability be resolved by the provision of adequate foreign exchange to large farms and cotton parastatals. However, a short term recovery program along these more than to satisfy domestic demand, and lines promises to do little only to about of factory capacity would be increased overall utilization 70%. Longer term development prospects for full utilization of factory capacity need to be carefully assessed through more detailed studies, and parallel efforts to define and implement a more comprehensive program for sub-sector development should be undertaken as a matter of urgency. This is essential to support short-term rehabilitation and to provide a basis
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for longer term development of the sub-sector, which offers significant potential for expansion due to its competitiveness, availability of land, anac suitable and tested production technologies. A long-term development program would include measures to improve planning and coordination mechanisms, to support the continued development of HASYMA's input supply system, extensionj and ginning operations and rectify its financial problems, and to reestablish a cotton research program. It must also adcress the issue of pricing policy and price review mechanisms and the current system of quotas for allocation of fiber. A project designed to support such a long-term development program was appraised by IDA and CCCE in November/December 1982. r 4.16 The sugar sub-sector occupies an important place among agro-industrial enterprises. At present, the sub-sector supplies all domestic requirements, and sugar has been a significant and steady source of export earnings. The sub-sector contributes, however, a relatively small share to total agricultural production (3% of total value), is concentrated in four small areas (with the exception of some scattered traditional production), and is not a significant factor in overall employment. Sugar production has been about 110,000 tons a year; a new schlemeunder development at Analaiva is expected to bring production capacity to a total of 130,000 tons a year. Production was quite steady over a period of several years until it dropped sharply in 1982. Sugar prcduction and processing are managed by two Government-owned companies, which were nationalized in 1976-77. 4.17 The sugar sector has been badly hit by the economic crisis since 1981. Lack of foreign exchange resulted in acute shortages of fertilizer and the departure of experienced technical assistants. The performance of SIRAMA, the largest sugar concern, was severely affected since it relied heavily both on the use of fertilizer and on technical assistance. The situation is expected to improve somewhat in 1983, thanks largely to an emergency loan from the French CCCE which, along other things, will go part of the way to meeting SIRAMA's needs for spare parts and renewal of equipment. The future, however, remained clouded. Pricing, in particular, has been a persistent problem. Although there have been more frequent price reviews in recent years, largely in response to CCCE intervention, no clear pricing mechanism has been estabished yet and recent financial problems of the sugar companies have largely been the result of prices and margins being set too low. Although SIRAMA's physical plant is old and generally inefficient, its processing capacity was underutilized before the crisis. The industry is generally well-established and was efficiently managed in the past. It appears, therefore, that the sugar sub-sector's short-term problems are not insuperable and, once the effects of the economic crisis are overcome, it could probably benefit from short-term rehabilitati on measures. 4.18 The longer term prospects for the sub-sector are less favorable. Demand for local consumption is projected to increase steadily, and is likely to consume an increasing share of total production, with a consequent decline in exports. Prospects for significant expansion of
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production at existing sites are quite limited, and favorable new sites for sugar complexes have not been identified. Given world price forecasts for sugar and Madagascar's relatively high production costs, new schemes are not likely to be economically viable under present circumstances. Two longer term issues merit priority attention: reinstituting an effective research program to bridge Madagascar's technology gap with the international sugar industry, and exploring possibilities for development of small-scale sugar production facilities, which offer possibilities for supplying at least part of domestic needs. Oil Seeds 4.19 The oilseeds subsector has performed particularly poorly in recent years, and would benefit from a systematic effort to define subsector policy and to propose a strategy and action plan for future development. Subsector performance has deteriorated substantially over the past decade. Despite very low per capita consumption, Madagascar supplies less than half of its requirements for edible oils; substantial quantities and demand is likely to (about 15,000 tons a year) are now imported increase steadily in the future. Three main factors are responsible for declining production: (a) the declining supply of principal raw materials; the traditional main sources of local edible oil production have been cotton seeds and groundnuts. The supply of cotton seeds has been declining since 1977 for reasons outlined in paras. 4.13 - 4.15. Groundnut supply has also decreased sharply, largely because of Government's rigid producer price policy aimed at protection of consumers, as well as the application of monopoly marketing operations through parastatal agencies; (b) Government's controls of vegetable oil prices. As is the case for other manufacturing subsectors, prices in the oil production subsector have been fixed and controlled by Government. Since edible oil and its subproducts have been considered basic necessities, the Government has over the past decade pursued a policy of strict consumer protection, setting the prices for oil and its subproducts at very low levels, generally the unit costs of the mills. The result has been a steady deterioration of installations, due to lack of maintenance and reinvestment. Consequently, the technical and hygienic condition of most plants has become deplorable, regardless of whether they are private or Government-owned enterprises; (c) foreign exchange problems; the most important result has been the decline of imports of palm oil and coprah, two of the main products used for production of industrial vegetable oils. This has decreased the average utilization of capacity of plants processing these oils, which are in many instances linked to the oil seed extraction plants. Foreign exchange shortages have made it virtually impossible for oil mills to purchase even the most urgently needed spare parts. Unlike the textile industry, this subsector has not been considered a priority in allocation of foreign substantially to its deterioration. exchange and this has contributed expansion plans for the has embarked on ambitious 4.20 The Government subsector; it is noteworthy and unfortunate that rehabilitation needs of in planning not to have been taken into account existing oil mills appear new schemes. Investments include development of oil palm and coconut
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plantations (which are well advanced and are reportedly going well) and a series of schemes designed to promote the production of soy beans. A soy bean processing plant with a capacity of about 15,000 tons of soy bean oil is nearing completion in the middle west region; the plant will initially depend largely on imported soy bean supplies, but a program is underway to produce soy beans, both on state farms and by smallholder farmers. Cotton development programs are also designed to benefit the oilseeds subsector. Groundnut production, however, the primary traditional source of vegetable oil, has stagnated or declined, and the official marketing and extension systems need a major overhaul. Groundnuts are an example of an important traditional crop which is now traded to a very large extent on the parallel market because official prices are well below market levels and official monopoly marketing mechanisms function poorly. Possibilities should be considered for reducing or eliminating price administration measures for groundnuts and oils and officially ending the Government monopoly so that private trade would be encouraged. In summary, additional analysis should be undertaken, leading to a clear strategy and action plan for the sub-sector; it should focus on prospects for increasing production of the traditional oilseed crops (groundnuts and cotton seed) and newer crops (oil palm, coconut, and soy beans), including assessment of pricing and marketing systems. It should also review the oilseeds processing industry to prepare rehabilitation and development proposals which might well include the elimination of the less efficient mills. The subsector might benefit from some short-term rehabilitation assistance, but the problems are complex and structural in nature, and we conclude that a broad, longer term development effort is required to achieve substantial increases in production and increase efficiency. Other Industrial Crops and Agro-industries 4.21 Apart from meat, hides, and wood products (which are discussed below), important crops which supply the agro-industries are tobacco (supplying -he cigarette plant) and perfumery plants. In addition, several enterprises are engaged in processing of export crops, notably coffee and clove oil. The problems described above for cotton, sugar and oil seeds apply to other industrial crops, and particularly the processing industries, in varying degrees. These include monopoly marketing arrangements, which have stifled or disrupted local trade in these commodities and led to serious inefficiencies and supply problems; a rigid not reviewed regularly according to clearly defined criteria (Chapter VII); a squeeze on margins allowed for processing in price structures, leading to financial problems for enterprises; lack of foreign exchange and difficulties in utilizing foreign exchange allocations; hasty and ill-planned nationalization of some companies, resulting in serious management problems; and the absence of well-defined mechanisms for review of company programs and financing needs by the Government. Other problems include limited availability of credit through the banking system, logistic difficulties in supply and transport resulting from problems in the transportation network, and difficulties in laying-off redundant staff because of Government employment regulations. Finally, many plants are out-moded and run-down, and stand in urgent need of equipment replacement
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and rehabilitation. The problems of the subsector may be on the increase, as the Government has recently nationalized and assumed responsibility for operating some plants which went bankrupt because of the overall environment (for example, the Nestle plant in Antsirabe). 4.22 These problems are evidently enormous and must be addressed both at a macro-economic level (foreign exchange allocations, exchange rate policy, employment and investment policy), and crop by crop and industry by industry. More broadly, the Government's role in direct management of processing industries and in marketing is an important issue which has far-reaching implications for future development of industrial crop ventures. A promising avenue for the short and medium term future, would be for the Government to encourage (through, for instance, credit, pricing policy, and possibly land tenure measures) investment in development of privately-owned medium-scale farms producing key industrial crops, in particular, cotton, sugar cane, soy beans, groundnuts, and tobacco.
E.
Export Crops
4.23 Five crops, coffee, cloves, vanilla, pepper, and cocoa, play a special role in Madagascar's economy because of their dominant role in the nation's exports; while they account for about 10% of gross agricultural output, their share in total export value has been more than 70%. These crops are produced in clearly defined areas: the tr3pical zones of the east, north and northwest coast. Here, they genera.'lydominate agricultural production systems and are grown by a high proportion of farmers. Agricultural services in these areas tend to be oriented almost entirely to promotion of export crops. Although during the colonial period they were grown on larger estates and plantations, there has been an important change since independence, and smallholders now produce a large share of output. Coffee is by far the most important of the export crops and the most widespread in terms of area and number of growers. It raises the most important issues and should remain the focus of attention in efforts to address the problems of the export crop sub-sector. Production of the major export crops has weathered the recent 4.24 economic crisis and the institutional and social change which Madagascar has undergone in the past decade without major disruptions, and, in general, production (in terms of volume) has increased for most crops (although its value in net terms has declined because of world market price fluctuations). This sector, however, faces significant problems, linked above all to recent shortages of foreign exchange and marketing difficulties; a major factor is the deterioration of the transportation network (especially feeder roads and the truck fleet), which has impeded both input distribution and marketing. Thus, a number of ambitious expansion schemes launched over the past decade have fallen far short of objectives, and in many respects production has simply marked time. The most important efforts have been directed at coffee, but cloves, cocoa, and pepper were also covered in development schemes.
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4.25 Three important financial and economic issues have special significance for export crops and merit further analysis and priority attention: the financial position and role of crop stabilization funds, Government taxation of export crops (both export taxes and transfers of stabilization fund profits to the Fonds National Unique de Perequation FNUP - para. 5.09), and producer price levels. The crop stabilization funds have played an important role in insuring producers against world price fluctuations, but their role has evolved over time without a corresponding change in their mandate and structure. Preliminary indications suggest that a substantial overhaul of the existing system is required, but specific recommendations must be based on a review of the current system and definition of options for future action. Accounting is an area which needs urgent attention; no accounts have been finalized for eighl:or nine years, and this basic information will be essential for any future reform program. Second, the Government has relied heavily on earnings from export crops as a source of revenues (one estimate puts the share of revenues derived from export crops at over 50% of total budget resources); however, the structure of taxation (based in large part on the stabilization fund transfers to the FNUP) is not clearly defined. Levies on export crops are a major source of Government revenues, contributing an estimated FMG 11 billion in 1979, or about 12% of total Government revenues; this represented, however, a sharp decline from 1977, when the coffee levy alone contributed about FMG 32 billion. Transfers of surplus revenues to the FNUP have been a more important revenue source (FMG 19 billion in 1979). The basis on which transfers of funds from crop stabilization funds to the FNUP are set or specific amounts involved are not fully understood, and budgeting and financial control procedures of the FNUP itself are apparently sketchy. Under these circumstances detailed analysis of the tax burden on the export crop sector is not possible without additional data; this is also a matter which merits priority attention. 4.26 Producer price levels for export crops are low in relation to world market prices, ranging between 25% and 50% of the FOB price; while producers receive some subsidized services (representing about 5% of the production cost in the case of coffee), price levels appear unduly low and a careful review of the criteria for setting producer price levels is required. The current pricing structure itself is complex to administer and pre-supposes a capacity to evaluate and monitor costs at every stage of the maarketingchain. In the short term, adjustments in price levels, particularly for coffee, would provide additional incentives to producers to maintain production (utilizing inputs where available and replanting, for example); there is evidence that farmers would respond to price incentives and are substituting food crop for coffee cultivation because of low prices. There are also indications that low producer prices are leading to significant increases in domestic coffee consumption, since this trade falls ouside the official export market channels and parallel market farm gate prices are above official levels. In the medium term, a comprehensive review of farming systems and technical aspects of export crops production is needed to assist in determining the overall profitability of export crop cultivation, optimal production systems, and
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the role of pricing and marketing policy instruments for the sub-sector. In summary,increases in producer price levels and in the level of margins allowed for intermediaries,in particularfor coffee and cloves, might yield short-termbenefits, increasing productionand facilitatinga solution to marketing problems. A broader review of the pricing system and the policieswhich underlie it, covering the role of stabilizationfunds and an analysis of production systems and cost structures,is also required, and we expect that it would result in recommendationsfor significant changes in the current system. 4.27 In addition to constraintsrelated to the economis crisis, and economicand financial problems, there are some important technical issues which are not yet a serious impediment to production,but could become so. Overall,yields of coffee and several other export crops are well below levels that could be attained given Madagascar's growing conditions, and techniques are available which could increase production substantially; nevertheless, additional analysis of farming systems is needed to devise more specific extension recommendations (as well as to assist in definition of pricing policies (para. 4.25) ). Applied researchwork on disease and other operational problems would yield benefits, particularly for coffee. In many areas aging plantations need to be replanted to avert further declines in yields. The generally poor performance of the principal extension and service organization (Operation Cafe-Poivre-Cacao-Girofle, OCPCG) and the virtual cessation of research on export crops are thus significant problems. The Government is preparing a project to revitalize OCPCG (with FAC support), which includes a feeder road component; the renewed research program currently being prepared by MPARA (with ISNAR assistance)could support efforts to resolve operationalproblems for export crops (para. 6.36). 4.28 The strategy towards the export crop subsectormust address both short and long term issues. For the short term, price adjustmentsand measures to remove marketing bottlenecksfor coffee offer the best prospects for increasing productionand ensuringmaximum export levels. For the longer term, the stabilization fund situation and pricing system and technical issues on farming systems need to be addressed. The most fundamentalissue for the export crop sub-sectoris the uncertain future of world markets for Madagascar'sprincipal exports. For coffee, commodity price forecastsare not encouraging,and current low world price levels are unlikely to increase significantly. Madagascar'sability to continue to market productionat present levels or above is to a large extent dependent on access to importing countrieswhich are not signatoriesto the International Coffee Agreement, since Madagascar's export production (around 80,000 tons) significantly exceeds its present quota (54,000 tons). Prospects for development of markets in these areas merits careful review. The prospects for cloves are still more uncertain since the largest consumer (Indonesia)has launcheda large clove productionscheme and could virtually cease imports if it succeeds. However, there are many uncertaintiessurroundingthe Indonesia market situation,including likely consumptionlevels, preferences on quality, and productionforecasts,and a careful review of the situationis needed. Although market prospects for
-
39
-
pepper would seem to hold some promise, markets for vanilla are limited, and for cocoa, commodity price forecasts are discouraging. These bleak prospects have been apparent for some time, but their import was somewhat obscured by the 1977-79 coffee boom, during which the Government came to rely on substantial revenues from this commodity; some structural changes introduced during that period (notably the system whereby export crop revenues financed consumer rice subsidies) (para. 4.08) pose serious problems now that export earnings have declined. The export crops are likely to continue as an important foreign exchange earner despite discouraging prospects, but Madagascar should continue (as it has in the past) to explore actively two alternatives: increasing the value and marketability of export crops by processing, and diversification into other commodities. There are no ready alternatives to the current export crops, beyond development of some specialized crops which are already exported (medicinal crops, for example); there are, however, possibilities for recovery programs addressed towards the lesser traditional export crops such as butter beans (where price structures and deteriorating marketing services by a nationalized agency contributed to sharp production declines) and sisal. Market and production prospects for a range of commodities have been reviewed on several occasions but further analysis seems warranted since the full range of options for development appears not to have been thoroughly and critically assessed.
F.
Livestock
4.29 Madagascar has excellent long-term potential for livestock production, because it has vast areas of good natural pasture, a large cattle herd (around 10 million), and a strong tradition of animal husbandry. The development of the livestock subsector has, however, been disappointingly slow over the past several decades. It is clearly not a sub-sector which is likely to respond quickly to policy measures and changes, first, because of the length of the beef cattle production cycle, and second (and more important) because long term development must be based very largely on fundamental changes in traditional production systems which rarely, if ever, occur rapidly in livestock husbandry. 4.30 Madagascar's livestock industry is dominated by beef production, virtually all coming from traditional producers under extensive management systems. Beef is a vital part of the national diet and is a significant source of export revenues, contributing around 4% of export earnings in recent years, declining from a peak of 7% in the early 1970s. Madagascar has an important advantage in beef exports since it enjoys the high prices of the EEC market under the Lome convention, and its meat is accepted because of the favorable disease situation which is relatively easy to maintain because of Madagascar's island situation. In defining a long-term strategy, the emphasis thus is inevitably on development of beef cattle, but prospects for rapid and fundamental changes in production systems seem poor. The Government's recent emphasis on development based on traditional farming systems, starting with improvements in animal health and moving on
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in production systems (pasture to gradual but progressive changes to the reality of existing upgrading), is adapted management and genetic role that cattle play in systems and to the socio-economic production Malagasy life. Development programs based on animal health such as those being implemented in Mahajanga and Antsirabe (FAFIFAMA and FIFAMANOR) respond to this strategy, and Government is currently reorganizing and reequiping the national veterinary service. However, further development of animal health operations in Madagascar, given the very tight budgetary and foreign exchange situation, has to be focused only on priority actions with demonstrated economic potential, although there may be scope for passing some aspects of veterinary care, particularly the sale of veterinary products, to the private sector to relieve Government of the burden. Even so, in the longer term perspective, animal health care alone is inadequate to promote sizable production increases. Indications are that the cattle herd, which has increased substantially in size over the past 40 years but now appears to be virtually stagnating, is nearing the extensive margin and although there are clearly some production increases to be expected from fuller animal health coverage, as well as from the removal of specific constraints such as cattle rustling, those increases are limited under extensive production systems. 4.31 In recognition of these limitations, various attempts to promote moves towards more intensive production sytems have been made. Early attempts included a ranching development project designed to introduce modern, intensive production systems; the intent was that these could be extended widely among medium-scale, private operators. The project was a dismal failure, beset by a host of social problems (land teaure disputes), technical difficulties (low fertility and disease problems, among others), and management problems. This experience illustrates the enormous difficulties of introducing such changes wholesale in Madagascar. The present, more appropriate strategy is based on the reality that livestock systems in almost all parts of production is a fundamental part of farming the country. It is likely that intensive production systems will be adopted spontaneously as pressure on the land increases in mixed farming areas; this process is already evident in the middle west where production systems have intensified in recent years as immigration built up. Pilot schemes to promote pasture improvement and cattle fattening in the area have suffered from management problems but more ambitious and coherent schemes are currently being proposed which offer significant development prospects. A pilot intensification project is shortly to start in Mahajanga, the heartland of the Zebu and the traditional extensive production system. This pilot project is designed to determine appropriate extension themes to promote intensification in mixed farming areas and so provide the key to the transition to more intensive systems, as natural pressure from population increases builds up. 4.32 Other development schemes have concentrated on intensive fattening, but have been unsuccessful, due to management problems and an inappropriate cost structure. There is, however clearly scope for well designed veatures which would fatten cattle prior to slaughter, either on fattening ranches or building on traditional systems of cattle share
- 4'
-
fattening (known as dabakandro) in the middle west or pit fattening of steers around the cities on the highlands. There may even be scope, under some circumstances, for production in feed lots. Such schemes should, however, be seen as a small part of an overall development strategy and should in the short and medium term be pursued on a pilot basis, relying predominantly if not exclusively on private entrepreneurs who would assume the risks which such ventures entail. 4.33 Domestic marketing does not, on the whole, present a constraint to development. Traditional, private sector marketing systems in general have worked well, despite Government efforts in the late 1970s to control marketing through a monopoly and price controls (see Chapter VII). The Government has reacted pragmatically to the failure of these efforts by the abolition of the monopoly and suspension of price controls. Nonetheless, market development programs have a role to play in future development strategies provided that they are not part of restrictive, compulsory arrangements. For example, FAFIFAMA's efforts in Mahajanga to develop buyirng posts equipped with scales and to disseminate price information could yield important benefits if they are seen as part of a broader market development scheme, and as complementary to private trade. 4.34 The major issue in marketing and processing is the export potential for beef. For a number of years exports and domestic consumption have pushed up demand against a very sluggish supply. The pressure is now being sustained by population growth, although exports have dropped considerably in recent years. As a result, even at the high EEC prices, Madagascar is not currently a competitive exporter of beef, when the current market price structure is assessed at the official exchange rate. In addition the processing and exporting firms, whose capacity is more than adequate, suffer from severe management, technical and financial problems. These companies are slated for a thorough review in the near future which should result in recommendations for improvement in standards, for rationalization of operations, or, possibly, for the closing of some plants. Nevertheless export prospects look bleak, unless the Government develops an export strategy that would include an overhaul of the management of exporting firms and implementing an export subsidy program (Chapter VII). 4.35 Apart from beef, there is significant potential for development of dairy, pigs, and poultry. Sheep and goats have limited significance and are not an immediate priority. Dairy development is particularly promising, given Madagascar's reliance on imported dairy products, the existence of traditional milk production in the highlands, and some research and development on smallholder dairy farming systems. Development efforts in this area should be pursued and enlarged, and should focus particularly on the provision of adequate feed and forage throughout the year. Pigs and poultry development offer promise and could substitute for beef for local consumption, thus increasing beef available for export. A series of studies and pilot efforts have underscored the technical and economic viability of a range of development schemes. However, recent development efforts have focused on large scale breeding and fattening
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efforts, managed by parastatal agencies, but there are heavy management demands and serious risks attendant on such ventures and results have not been promising. In the future, promotion of smaller, private poultry and pig ventures, based primarily on home grown feed and the substantial amounts of rice bran obtained from hand pounding of rice seems a more promising avenue, provided supplementary feeds, particularly proteins, are available. Shortages of animal feeds are a problem and raise the issue of competition between people and animals (for maize and groundnuts for example). There is, however, a significant under-used potential for utilization of other by-products, such as cotton seed cake, for animal feed. Improvements in animal health care should promote significant improvements too. Another important potential area for development is the hides industry which is currently seriously under-exploited, constrained above all by regulations which have hindered development of a resource which in comparable countries provides substantial employment and high domestic value added exports. The hide trade and possibilities for improvement of processing merit serious review.
G.
Fisheries
4.36 Fish, particularly sea fish, are a substantial and only partially exploited national resource for Madagascar. Over the last few years the well-equipped mixed-ownership fishing companies have contributed some 4% of export earnings through prawn exports. The Government would like to expand prawn production and has accepted private sector and external participation to achieve this. IFC has recently appraised a project for expansion of capacity on the newly opened south-western coast fisheries. However, beyond this expansion, present indications are that little further development of prawn fishing is possible without depleting stocks. Possibilities of deep sea fishing, particularly for tuna, have been successfully tested on the technical level; potential is undoubtfully great but development would require technical expertise and capital, probably from a foreign private partner. Most sea fish for the local market come from traditional fishermen, but development is severely constrained by lack of facilities and equipment both at the production and distribution level. Attempts to promote and equip cooperatives have been poorly managed. MPARA, which is responsible for fisheries planning, is working with FAO/UNDP on a development plan for sea fishing but has been blocked in its effort to develop the promising deep-sea fishing resource by differences in approach between MPARA and the Ministry of Industry and Commerce (MIC), which is responsible for marketing aspects, by Government reluctance to countenance private participation in export industries, and by the perceived national security problem entailed by allowing foreign companies to operate in territorial waters. Moreover, short term prospects in the world tuna market are poor. Inland fishing provides a useful protein supplement in many areas and sporadic development efforts have been made. There is, however, unlikely to be any major production increase in the &fxrnzitom inland lisheries. foreseeakAe
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H.
Forestry
4.37 While the forestry sub-sector is not a critical factor in the recent performance of the agricultural sector and has overall been less directly affected by the recent economic crisis than other sub-sectors, it has great importance in future development strategies for three quite different reasons. First, deforestation is an important cause of Madagascar's serious soil erosion problems, and afforestation programs must form part of a strategy to address the issue. More broadly, the role of forests in land resource planning has been neglected and merits explicit attention in the future (para. 3.03). Second, fuelwood is the principal and cheapest source of energy in rural and even urban areas; supplies of fuelwood are being depleted far more rapidly than they are being replaced. A program to develop fuelwood in rural areas is urgently required. Finally, Madagascar has launched a very ambitious pine plantation program, in two areas, which is designed to support major forest products export industries. Madagascar must determine, however, within the next few years, the direction and scope of such industrial development and the issues involved are highly complex, because of the currently depressed world market situation, technical issues on plantation growth rates, logistic issues affecting design of industries, and the overall investment climate which will determine the Government's ability to attract foreign partners, who would be essential for successful industrial development. The approach which the Government takes to defining options for development in this field, evaluating their respective costs and benefits, and deciding on and implementing a development program will be an important test of the planning and resource management process.
V.
A.
PLANNING AND FINANCE FOR AGRICULTURE PUBLIC RESOURCE MANAGEMENT
Planning for
Agricultural Development
5.01 Development planning has been seen as an important vehicle for managing the economic development and public sector investments of Madagascar since independence. In all plans to date agriculture has figured prominently as a priority sector, although with varying orientations. Broadly, consistent themes in virtually all plans have been the achievement of self sufficiency in food (with a strong focus on rice) and development of industrial crops to supply agro-industries (particularly cotton, sugar, and oil seeds, and forest products). Export crops have received relatively less attention. The most recent official plan (1978-2000) took a very long term perspective to economic development and articulated ambitious goals for transformation of rural society, even at the cost of foregoing more rapid growth in the short term. It stated that agriculture must provide the base for development but that industry was the motor, and a relatively large share of resources was to be allocated to
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industry as a result. A new medium-term plan and an investment program are being preparedat present; while they still fit within the framework set out in of the long-term plan for 1978-2000,the specific sectoral objectivesand the means of achieving developmentare being reviewed,largelyin response to the current economic crisis. 5.02 Planning for the agricultural sector as well as for the economy as a whole has been the responsibility of the Direction Generale du Plan ("The Plan"), now attached directly to the Presidency; the role of MPARA in agriculturalplanning has been limited. The Ministry's planning department is relativelysmall and poorly equipped, and the focus of its work has been on reviewingproposals for specific projects. Within the Ministry, the links between planning processes and plans themselves,and design of projectsand actual allocation of resources,have been very weak. This has been a general problem within the Government, but appears to have had particularlyserious consequencesfor the agriculturalsector. Many ventures have been launched, by MPARA but above all by other ministries: these were often not part of a plan and were not carefully reviewed through an investmentplanning or screening process. Examples of investments the affecting agriculture undertaken with poor planning and review include ZE-REN and ZEMAfertilizer plants, soy bean development schemes, poultry projects, the OMBYrice production ventures, new tanneries and coffee firms in the in nationalized processing plants, and Government investments meat processing industry. 5.03 The need to review national investment programming and project review mechanismsis being addressed at the national level, focused on the on-goingeffort to prepare a three year public investment program for 1983-85. This effort has particularimportance for the agricultural sector, given the need to rationalizethe investment decisions taken in the past few years and to lay a sound basis for future planning and project however, by is complicated for agriculture, The effort design activities. three factors:first, the poor reporting mechanismsfor development projects and parastatalagencies which make estimates of actual spending and real financing requirementsdifficult;second, the complex financing mechanismsfor parastatalsand projects, under which funding is secured through a number of sources, some falling outside the budget; and third, the very uncertain financial and economic viability of some on-going operationswhich casts doubt as to whether scarce public resources should be allocated to them. and proceof planning organization 5.04. Efforts to address the issues dures for the agriculturalsector are underway. As part of the national effort to prepare a three year investment program and establish continuing (with programmingprocedures,MPARAbegan in November 1982 to undertake Agricultural provided under the IDA-financed technical assistance to obtain a comprehensive review of on-going projects Institutions Project) priorities and in defining on them and to assist reliable information developingaction plans to resolve specific implementationdifficulties; this is expected to establish a good basis for allocating limited resources and for future monitoring of project performance. As part of this effort,
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a program to strengthen MPARA's planning and programming ability is being undertaken, including both reorganization and establishment of clearer operating procedures, and training and staff development. The objectives of these efforts are to improve MPARA's capacity to formulate agricultural policy and strategy, to strengthen its ability to participate in national planning and investment programming work, to establish criteria for allocating scarce resources, to establish stronger links between planning and budget systems, and to improve the Ministry's ability to identify, prepare, and implement investment projects.
B.
Resource Allocation for the Agricultural Sector
Budget Allocation and Share 5.05 Considering its importance for the economy, the share of Government financial resources allocated for the agricultural sector over the past few years may be considered very low. In absolute terms also, current allocations are insufficient to assure a reasonable level of operations and to finance all commitments under on-going projects, let alone those being prepared. This is an important issue which is related to the general priority which the Government accords to agricultural development in relation to other sectors. In considering this general allocation issue, however, it is also important to emphasize that the MPARA budget does not reflect all public sector resources allocated for agriculture, and MPARA has little or no control over substantial extra-budgetary funds channeled to the agricultural sector. It has proved difficult to establish a clear and comprehensive estimate of the overall level of funds going to the agricultural sector, because of the large number of funds involved and, for some, their informal status. This is an issue which merits attention and an effort to evaluate the flow of funds to the agricultural sector should be undertaken as a matter of priority; a start will be made as part of the three year investment program exercise for agriculture (para 5.04), and further steps should be considered when that exercise in completed. 5.06 MPARA manages an operating and an investment budget which covers budgeatallocations to the Ministry and the parastatal entities it supervises directly. Annex 6 includes data on agricultural budgets. Budgeted funds include financing from external financing sources in some but not all cases (e.g. technical assistance is generally excluded). The MPARA Operating Budget (planned allocations) has evolved as follows:
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1978
1979
1980
1981
1982
(US$ million equivalent) a/
MPARA Total national operating operating budget MPARA as % of total
a/
31.6
33.3
26.8
19.6
18.7
391.1
475.4
566.9
434.4
474.5
8
7
5
5
4
Figures in this table are given in US$ equivalent for ease of comparison. FMG equivalents are in Annex 6. Rates of exchange used are FMG 225 - US $1 1979/80 and FMG 275 = US $1 for 1981/82.
The decline in agriculture's share of total expenditures and, in 1980, in absolute amounts, is explained partly by the overall squeeze on national resources, but also by the transfer of the operating costs of some "operations" (largely formerly externally financed projects) from the MPARA operating budget to the investment budget. This transfer in 1980 reduced the MiPARA operating budget by about US $5.87 million. Nonetheless, the 1981 and 1982 budget cuts affected the Ministry's normal operations badly. In 1981, personnel costs, which could be reduced very little given civil service employment policies, amounted to 78% of the total operating budget (they were only 46% in 1977), and only US$1.4 million equivalent remained for all other ministry operating costs. Considering that the MPARA staff numbers about 14,000 posted throughout Madagascar and is highly dependent on mobility to be effective, this amount is pitifully small and has virtually crippled services in all but a few areas, notably under externally financed development projects. The Ministry budget for subsidies (primarily for small equipment payments) fell from US $2.0 million in 1977 to US $0.5 million in 1981, contributing further to the mammoth financial problems of the parastatals. Since the onset of the economic crisis, there has been a tendency to mask real increases in the operating budget by transferring items to the investment budget. Actual spending uder the operating budget is high - around 99% in aggregate in 1978 - 1979, although it is only about 83% when supplementary allocations are taken into account. 5.07 MPARA's investment budget has evolved as follows (planned expenditures):
1978
1979
1980
1981
1982
(US$ million) MPARA Total national investment budget MPARA as % of total
37.6
51.6
86.1
34.9
26.4
161.7
252.4
353.2
145.9
149.1
23
20
24
24
18
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All costs of externally-financed projects, whether capital or recurrent in character, generally come under the investment budget. Payments to parastatals come under both budgets, as well as other extra budgetary sources. As indicated above (para. 5.05), we lack overall information on total investments in the agricultural sector; some investment items falling outside the MPARA budget include financing for OMIPRA, the military rice venture implemented through the Armee populaire, whose budget in 1980 totalled US$18.8 million, and separate funds managed by the Ministry of Finance including, in 1980, grants to regional development companies (US $0.3 million), funds for projects proposed by Fokonolona institutions (US $8.9 million), Government special programs (US $1.3 million), and purchases of agriculture equipment (US $2.2 million). Investment budget allocations to MPARA have been notably constant in terms of share, and in 1981.,allocations to agriculture were cut pari passu with other sectors; in 1982, however, agriculture's share dropped below previous levels to only 18% of the total. An estimated 19% to 35% of total investment in all sectors was financed from external sources in the period 1978-82 and the IDA share of this external funding may be estimated at about 40%. The share of IDA financing of the agricultural investment budget was estimated by the Government at between 20% and 40% for 1978-80. Parastatals accounted for about one-half of MPARA investment allocations in 1980 and 1981 and about one-third in 1982. Actual spending under the investment budget is lower than for the operating budget, and was about 91% in 1978 and 88% in 1979. The lumpiness of capital spending and delays in opening credits to users appear to be the principal causes of shortfalls. Underspending may be greater than these figures suggest, however, since they include payments to parastatals which may be unspent at year-end; preliminary information for 1982 suggests that the problem of underspending became much more serious. 5.08 Treasury Operations - ad hoc funding of deficits by the Treasury - have become increasingly important as a source of financing (theoretically short-term but in practice often long-term in nature) in recent years, reflecting the increasing demands of parastatal institutions (above all their chronic unprofitability). In 1979, payment for advances and loans under Treasury operations totalled US $51.1 million, equal to 23% of actual spending under the investment budget. These operations are clearly an important source of financing for agricultural parastatals but MPAR-A has little or no say in management of these funds and systems for allocating funds and criteria for determining priorities are unclear. 5.09 Quite outside the Government budget and regular resource allocation procedures, the Ministry of Finance and the Central Bank operate an 'equalization" fund, the Fonds National Unique de Perequation (FNUP). It is an important separate source of revenues and expenditures of special significance for the agricultural sector. The FNUP was established in 1977 to take off surplus revenues from the export crop stabilization funds, and, significantly, grew to importance at the height of the coffee boom. Revenues peaked at US $86.7 million equivalent in 1979. Initially treated solely as a reserve fund to back up the stabilization funds, the Government began to use the funds first to finance the consumer subsidy on rice
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(para. 4.08) and, subsequently, as a source of subsidiary investment funds (particularly for the education sector). Total FNUP spending in 1980 (US $134.7 equivalent) equalled 40% of Government spending under the Government investment budget and over 10% of total Government spending in that year; of this amount, an estimated US $22.3million represented payments to parastatals for rice subsidies. Yet this spending is outside the regular budget process, is not voted by the National Assembly, and is managed by procedures which are somewhat obscure. 5.10 The issue of the share of Government resources allocated for agricultural development merits careful attention. In general terms, it is apparent that the level of budget funds allocated directly to agriculture does not reflect the vital importance of the sector, and has in fact declined somewhat in the past two years. While this decline is the result of stringent financial strategies affecting all sectors, it also reflects a failure to accord high priority to the operation of agricultural services and to investments in the sector. Therefore, as a general recommendation we urge that the share of budget resources going to agriculture be increased. In the short term, the most critical need is for recurrent budget funds, but budget shortages are also a serious issue for the investment portfolio and shortages of budget funds have become a serious problem for many on-going projects. However, it is difficult to estimate precisely what that share should be for three reasons: first, the complex system of financing of.agriculture, including divided management of funds for agriculture, extra-budgetary funding sources and the piecemeal approach to parastatals, obscures a comprehensive analysis of resources allocated to agricultural development; second, accurate estimates of the recurrent cost requirements of MPARA services are not available. This will be undertaken in part in the course of the three year investment program exercise but will require additional analysis thereafter. Finally, a careful review of on-going investments in the agricultural sector is needed to ensure that funds allocated are well managed and promise to yield significant benefits. This is essential given critical shortages of funds and the poor implementation record of many projects. Once priorities and needs are clearly established, a much stronger case for allocation of an increasing share of public resources for agricultural services (under the operating budget) and for on-going and future investments could and should be made. Budget and Financial Management Issues 5.11 The management of public resources at the sector level has central importance for future development efforts and merits careful attention. Given the current extreme resource constraint, a mechanism to ensure that budget funds are channelled efficiently to priority areas is essential. The structure of the budget system in Madagascar is soundly grounded; procedures are well understood and scrupulously followed. Yet, over the last few years, particularly under the strain of fierce competition for scant funds, of widespread uncertainty over what is available, and of hasty downward revision of already tight budgets, the structure has faiLed in its aim to commit resources in the timely fashion for a coherent program of actions agreed in the light of knowledge of
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Efforts to strengthen the process of resource resource availability. management, including allocation, spending, and control therefore should be undertaken. 5.12 The process of resource allocation, that is, the preparation of work programs and budgets through the granting of spending authorlity,is a long and time consuming process extending from around the time when the previous fiscal year's credits become available at the spending level until well into the next fiscal year. For the investment budget, MPARA and Plan together work out the details and the Ministry of Finance is responsible for giving the final word on resources available. The operating budget is negotiated directly between MPARA and the Ministry of Finance (MOF). MOF makes detailed budget allocations to MPARA, but MPARA has some leeway to transfer resources within the overall ceiling granted. In this area the respective roles of MPARA, Plan and Finance merit review to avoid overlap and duplication and to ensure that decisions are taken by those with real responsibility for the agriculture sector program. MPARA investment budget submissions are based on work programs for each project. As resources ultimately allocated have in the recent years of tight budgets, borne little relation to submissions, the work plans need a complete overhaul once allocations are made. In practice the discrepancies between submissions and allocations, and the time elapsing between submission and availability of funds, have undermined confidence in work programs; the plans are poorly prepared and many managers just resubmit in April of the fiscal year the draft that they prepared the previous July. At MPARA, the gap between requests and actual resources seems each year to be a surprise and leads to a confused and hasty reshuffling process that diverts available resources to what appear to be priorities at the time. An important factor that contributes to the difficulty of allocating resources in accordance with priorities within MPARA is the weakness of services responsible for preparing budgets and the poor quality of the input from the programming function. Moreover, feedback between monitoring of performance under budgets and future budget preparation is limited. In practice investment programming is not a continuous high level process, but a series of haphazard and intermittent activities. 5.13 Another important issue is the difficulty in utilizing (i.e. spending) funds and monitoring use of funds efficiently. These issues are, for MPARA and many parastatals, linked to the basic system of financial controls which govern all public spending. The Madagascar budget system, grounded on the French model, is heavily oriented towards routine controls. Spending authority, delegated through a strict hierarchy, is firmly separated from payment authority and every payment is subject to two independent checks. These procedures are cumbersome and time consuming. Financial reporting is devoted entirely to reporting on actual spending against budget and virtually no accounting information of value to the management process is produced. Budget and accounting staff are all clerical staff and there are no higher level staff in the Ministry trained in accounting or financial management. Only for parastatals is there a special monitoring system in MPARA, Other investment spending is monitored by the technical or decentralized services involved. However, neither the
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parastatal monitoring unit nor the other services have the resources to do an adequate job. MPARA officials have become aware that the budget system can be a 5.14 constraint to action. This awareness has been sharpened by the recent budget cutbacks, which have led to delays in availability of funds and placed more strain on an already limping resource allocation process. As a result, a consensus has emerged that budget procedures, together with investment programming, need to be improved to optimize utilization of scant resources. At the request of MPARA, the Bank has been involved in a preliminary effort to identify problem areas and MPARA has tentatively over a two year period review process an internal to undertake decided operational immediate and resolving areas for action aimed at highlighting a joint through This would be coordinated in the system. bottlenecks The areas proposed for review include: (i) Task Force. Bank-Government of the investment programming functions, linked to improved improvement project monitoring and investment budget preparation; (ii) for budget its own autonomy of MPARAin determining a move toward greater preparation, budget allocations within an overall envelope; and (iii) for spending, an attempt to extend the spending year, probably by streamlining resource allocation procedures. These efforts merit priority attention and support since they could lead to important improvements in the fundamental area of of to gauge the effect It is too early and management. allocation resource financial of a single MPARA reorganization under the recent the creation scope for bringing but in the medium term it offers management department, budgeting, between planning, the links strengthening or at least together, be encouraged. which should and monitoring, is the management issues of financial Perhaps the most critical 5.15 poor financial management performance of the parastatals. With the very assistance technical expatriate receiving of parastatals few exceptions (SAMANGOKY), basic requirements (HASYMA) or having to meet donor reporting is reporting is poorly managed and financial in parastatals accounting except an unknown art, is virtually Budgeting behind schedule. chronically for the annual investment budget exercise which has become largely meaningless. Cash flow forecasting is little practised and management or cost accounting of even the simplest kind is unknown. Financial staff have little grasp of financial management techniques, general management even financial of their in ignorance take decisions managers As a result, less. IDA are available. resources even what limited and squander implications is two FAFIFAMA accounting problems. severe also suffer projects supported while management decisions, to critical no input years behind and provides decisions by bad of bankruptcy to the verge has been brought SAMANGOKY and to implement As a priority, appraisals. financial based on inadequate financial sector, the parastatal to reorganize efforts Government interim particularly attention, require functions management and accounting to the IDA supported linked possibly and training, assistance technical Project. Training and Audit Accounting
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C.
Agricultural Development Projects and External Assistance
5.16 Implementation of agricultural projects is an important issue for MPARA. At present, a very large number of projects is underway (over 100), although it is telling that monitoring and information systems are so poor that a precise figure is not available (Annex 3). The sheer number of projects involved has placed a severe burden on the Government's capacity to implement them effectively and, with the recent sharp cut-backs in financial allocations, to cover investment and recurrent cost requirements. The ability of external agencies to supervise projects and ensure a good fit into overall programs has also been constrained by the growing project portfolio. As a result, implementation performance under projects generally has declined and both the improvement of project management systems and specific measures to address project problems are urgently required. 5.17 Recent years have seen a sharp increase in the number and scope of agricultural projects under implementation. At least 25 large projects covering various fields of activity were initiated in the 1970s, and about five new projects have begun in the 1980s. It was during the 1970s that many external agencies became involved in development of Madagascar's agricultural sector: these now include UNDP/FAO, IBRD/IDA, the European Development Fund, FAC, CCCE, IFAD, AFDF and bilateral Norwegian, French Swiss, Chinese, German and North Korean agencies. Projects implemented by MPARA cover a wide range of diverse activities in all regions of Madagascar. About three-quarters of the large projects currently being implemented are primarily regional, that is, specifically designed to address the problems of a particular area. There has been a clear bias towards land reclamation, settlement, and irrigation projects, in line with the Government's general objective in the past of accelerating crop production through increasing the total cultivated area. In the late 19 7 0s the investment program expanded rapidly. Several projects were launched with limited preparatory work, and have many characteristics of crash operations. 5.18 The estimated total costs of projects currently being implemented by MPARA are about FMG 80 billion, although this figure must be treated with considerable caution, as reliable, verifiable information is not available in many cases and there is no clear commonly accepted definition of project costs. Contributions to these costs from the national budget and other local sources is estimated at about 45% of total project costs (all projects depend to some degree on local financing). The balance is financed by external sources. Individually, project costs vary from FMG 10.0 million to over FMG 15.0 billion (i.e. some operations are very small, while there are a few large on-going efforts). Future costs and financing sources have yet to be projected with any accuracy, but it is certain, from preliminary findings of the public investment programming exercise (para. 5.04) that for many sectors, including agriculture, painful choices will have to be made, as the likely levels of available finance, local and foreign, will be well below current projections of project and parastatal
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financing needs. Annex 3, Tables 2 and 3 summarize preliminary estimates of agricultural project investment requirements resulting from the public investment program exercise which is being carried out by the Plan and estimated costs of the largest agricultural projects. These estimates are subject to substantial modification as a result of the ongoing project review exercise but are indicative as a profile of the present project portfolio. 5.19 The Department of Studies and Programming (DEP) within MPARA has had responsibility for project identification and preparation. It is poorly equipped for this task, having few experienced staff. In the past, coordination with the specialist technical services of MPARA has been poor. Project preparation arrangements should be a key focus of the present ministry reorganization efforts. At the implementation level, a wide variety of managerial arrangements has been made. Some are directly under the control of MPARA, following its standardized rules of operation which Most larger projects are managed can, at times, be cumbersome and rigid. by parastatal agencies or mixed public-private sector companies with legal and financial autonomy, although there are some important activities carried out by "Operations" (para. 6.34) which fall in a grey area between the Ministry proper and parastatal agencies. All project directors are Malagasy nationals; some projects benefitting from external assistance have expatriate technical assistance (although this has been sharply reduced over the past decade), and internationally recruited consultants and companies are employed for projects which entail sophisticated studies or construction works. 5.20 Although a number of agencies within the Government are responsible for supervision of projects, there is no provision for coordination of their various activities or centralization of the information they gather. Within MPARA, the Directorate of Studies and Programming has had nominal responsibility for monitoring and evaluating project execution, but due to lack of funds, of staff and of an agreed methodology, this function has not been carried out in an effective General of Plan is responsible for monitoring and manner. The Directorate evaluating the execution of investments included in the public budget. The Directorate operates under the same constraints as those faced by MPARA. Perhaps the most effective monitoring tool at present is supervision by donors. The impact of this supervision is inevitably uneven and leads to unequal emphasis and ad hoc action programs. Clearly, MPARA needs to establish more coherent and focused monitoring procedures. Coordination among external financing agencies is also limited and should be strengthened. 5.21 Overall, the performance of agricultural projects has been disappointing, despite substantial investments and other efforts. There and difficulty but many projects have met with serious have been successes, failed to achieve their objectives. The most common problems reported by and financial, five categories: budgetary project managers fall into managerial, logistic, technical, and policy derived. Inadequate financial resources, in particular the shortage of foreign exchange and confusion and
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delay in budgeting arrangements, are cited as major constraints for virtually all projects. However, mediocre financial management has contributed to the problems. Although Madagascar has technically qualified personnel in many fields, there has been difficulty in recruiting suitable staff who are capable or are trained for the difficult task of managing agricultural development projects. This is partly due to the relatively poor benefit package offered by the public sector, but also to lack of suitably qualified candidates. Use of technical assistance has been much restricted in recent years, and in many instances has not been employed to optimum effect. Logistic and technical problems have included complicated bureaucratic procedures, the poor state of the communications and transport network, and long delays in the procurement and distribution of inputs and basic: supplies. Last (but by no means least), basic Government policies for agriculture have often exacerbated situations which they were designed to alleviate; notably low official prices for agricultural produce have ofternbeen a disincentive to production, and have taken many parastatals to the point of bankruptcy. Budget and foreign exchange allocation procedures have not assured a steady or predictable flow of resources to projects, making planning virtually impossible. In addition, budget cut-backs have made it impossible to implement many projects as planned. Government action to address these problems has been constrained by political forces impeding action in such areas as poor performance by personnel and overstaffing; the lack of effective project information systems have also rendered effective and timely action to resolve problems difficult. 5.22 Despite the generally disappointing performance of agricultural projects to date, there are projects which, despite some problems, can be considered as overall successes. These tend to exhibit certain common characteristics: they have effective management arrangements, adequate financial resources, access to imported goods, and their technical design is sound. These projects have been able to attract good staff and generally exhibit a high degree of autonomy in day to day matters from their parent ministry. They have been able to budget to meet recurrent expenditures and they have had access to foreign exchange; transport and procurement arrangements have been devised to suit specific situations and managers have been able to act decisively in problem solving. However, it is significant that even the successful project agencies are seriously affected by the current economic crisis and performance shows signs of deterioration. 5.23 The Government has taken action in recent months to clarify the general situation affecting development projects. A preliminary review of projects has been undertaken and a comprehensive analysis of on-going investments began in November 1982, linked to the preparation of a three year investment program for the agricultural sector (para. 5.04). This effort is vital as it should serve both to develop the basic information on projects which is essential for effective management intervention, and to establish clear systems for project monitoring; it is of particular importance that these systems be maintained for the future. As part of the ongoing reorganization of the Ministry, it is also essential that the issue of project management be explicitly addressed to ensure that supervision
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and management arrangements are clear and that the Ministry is equipped to
provide appropriate support in planning and project implementation. As part of the portfolio review exercise, MPARA's project management systems will
be reviewed
and proposals made for a program to strengthen them.
D.
Foreign
Exchange Allocations
5.24 With the economic crisis that gained momentum in 1980/81, Madagascarwas faced with a serious shortage of foreign exchange which differed markedly from the earlier situation. The impact of foreign exchange shortages is a pervasive theme in every sector and subsector; even export industries which theoretically should receive priority allocations
have been starved of foreign exchange. The biggest impact has probably been on maintenance and repairs in transport and agro-industrial entities, which cotton
have and
been neglected, and on import-intensive production such as sugar. To face up to the foreign exchange crisis, the
Government was forced to pass abruptly from a comparatively exchange regime to a system of extensive controls, designed
free foreign to provide for
the rational use of the scant available foreign exchange. The system that was operating in mid-1981 was described as having the following stages: (i) establishing the overall size of the foreign exchange budget, which is done by the MIC and Central Bank at the time of the general budget process (June-August of the year preceding the year in question); (ii) overall import authorization by sector, established at the end of the budget process, around September; (iii) setting of quotas within the sectoral limits--this is done by a Comite de Quota made up of MIC department heads who review applications from the various users and allocate quotas according to "priorities"; (iv) issue of import licenses, by the Comite de Coordination (MIC and Central Bank officials), based on Central Bank's report of likely foreign exchange availability in the near term; and (v) opening of the credit at the Central Bank, based on actual foreign exchange
availability. 5.25 We have no precise, global information on allocations made or on how effectively this rationing system works. The system appears to operate roughly as defined, but weaknesses in forecasting and the extremely low level of reserves make a hand-to-mouth approach inevitable in the final stages. In 1981/82, foreign exchange availability was barely adequate to cover debt servicing and basic essentials, but forecasts at each stage have failed to show up the reali y of the situation. As a result, foreign exchange quotas were issued but were not subsequently matched by licenses, and licenses were issued but not matched by :he essential opening of credits at the Central Bank. The locus of the final decision, the only real decision, is clear; it is with the Central Bank to determi.e which licenses it will honor, but the criteria for choosing between candidates are not explicit. It is apparent that the system as operated fails in one key aspect of any budget system: it does not provide information to purchasers as to when and how much foreign exchange will be allocated. The 1981 import quota for the veterinary service was FMG 200 million (against
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estimated requirements of FMG 400 million); during the first quarter licenses were issued for FMG 17 million but by mid-year no foreign exchange had been allocated against those licenses. Only in the fourth quarter was foreign exchange made available. In 1982, the problem of planning for importers was eased by the general knowledge that virtually no foreign exchange was available, except for a COFACE credit. This credit, intended primarily to relieve the chronic spare parts shortage, was administered by a completely separate system, quotas being allocated to priority ministries which were then responsible for allocating the quota among the parastatals and other needs. MPARA received FMG 220 million under this system. In late 1982, the Government officials indicated their intention of introducing new foreign exchange allocation procedures, including a special account system which would assure foreign exchange resources to enterprises engaged in export activities. However, clarification is required on mechanisms for allocating foreign exchange for priority import-substitution agencies (notably those involved in rice production) and agro-industries. This problem has critical importance for the agricultural sector and additional efforts are required to establish effective, workable mechanisms for foreign exchange allocation. Among other measures, MPARA's capacity to estimate and evaluate foreign exchange requirements at a technical level needs to be strengthened and a more explicitly stated and managed allocation and rationing system at the central level is urgently required.
E.
Cost Recovery
5.26 Government policy on cost recovery has long been incoherent but, in general, policy has been that services that provide a public good (like animal health) and services that promote development (such as diffusion of new varieties or extension of cultivation techniques) should be provided free of charge. Thus, extension, vaccination, and animal disease treatments (but, paradoxically, not preventive treatments) are provided free. The public sector activities for which cost recovery has historically been practiced cover only development, operating and maintenance costs of irrigation schemes, and sale of inputs and certain veterinary products. For the irrigation schemes, the system in force has been specifically designed for each area, the product of the land tenure system of the area and often the philosophy of the Government and the financing agency at the time the system was designed. Not surprisingly, these vary widely. 5.27 Cost recovery for the capital and operating costs of the numerous smaller irrigation schemes developed by Government and managed with MPARA's support has never in recent years been practiced, due in part to the Government policy that favors producers and to the power of local interest groups, but also to the inability of the Government to collect the money. The problems of handling receipts through the public finance and accounting systems is extreme and MPARA has in any case never set up the necessary organization. The need to improve performance and increase output from these schemes, many of which have deteriorated greatly, has alerted the
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Government, in its current tight budgetary situation, to the need to operate an effective cost recovery system, linked to a program of rehabilitation and the restoration of services. To this end, a new Irrigation Law was passed in 1981, providing the legal basis for full recovery of both capital and operating costs through a variety of mechanisms. Charges are to be set by regional committees, tied in to the productive potential and the standards of management of each scheme, and will be collected by the local representatives of the Ministry of Finance. Many of the details remain to be worked out, although the Government is planning to begin to set up a handful of regional committees on a pilot basis. One problem which is likely to impede efforts to administer systems of irrigation charges is the absence of official land tenure records or titles (para. 3.16). Further, it would be unreasonable to expect that
farmers will willingly pay for services until they are assured of their reliability (which has been far from the case in the past). Clearly much work and many years of unremitting political commitment are necessary before cost recovery from these schemes becomes a reality on any substantial scale. 5.28 The large irrigation schemes managed by parastatals fall into a different category, as the levels of improvements and services provided is high and costs are substantial. Here policy has been to effect at least partial cost recovery but this policy has been eroded by political factors, particularly after the 1972 Revolution and as a result of the decentralization process, which gave power to local interests hostile to cost recovery. The parastatals themselves have proved notoriously incapable of recovering these dues, partly from institutional weakness, but all too often because farmers were not getting the basic services they felt they were paying for. A coherent approach to these schemes has been impossible as each practices its own peculiar cost recovery policy. SOMALAC is supposed to recover development costs under a lease purchase arrangement, together with a portion of operating costs through an annual cash redevance; recovery of these redevances has sunk to very low levels in recent years, as management of the scheme deteriorated. At SAMANGOKY tenants pay for an envelope of inputs and operating costs in two ways; through the low producer price of cotton and through a rent in kind of oneton of paddy per hectare. At SODEMO the system for cotton is theoretically the same as at SAMANGOKY; for rice, the most important crop, farmers who were there before development pay one charge while those who came after pay another; this remains theoretical as few farmers pay anything at present. 5.29 Cost recovery for sale of inputs and veterinary products is very patchy. The Government has pursued an erratic policy on input subsidies, seeking to promote input use through low prices but restricting the needed imports, and in the case of farm implements, failing to appropriate adequate subsidy funds. Input subsidy policies are currently under active review and recent policy statements indicate that subsidies will be phased out over time (para. 6.26). For veterinary products prices are theoretically set at full cost recovery basis but have often not been updated to reflect the actual cost of supply. The administrative problems
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of handling cash and, in remote rural areas, security risks have been real constraints to sale of both inputs and, primarily, of veterinary products. The Government should explore means of reducing the direct involvement of administrative services and parastatals in this area, as it has recently done for fertilizer distribution. 5.30 The issue of cost recovery is linked to broader issues of rural resource mobilization and taxation. This is an area that has not been systematically addressed either in terms of Government policy or exploration of options for reform. At present, taxation of the rural population is very limited, and is achieved mainly through the producer price system and export crop levies, although a range of local taxes such as market taxes are still collected. Taxation is thus effective largely for producers of crops marketed through official channels (above all the exports crops and rice). Traditional rural taxes (head and cattle taxes) were eliminated after 1972, although local authorities continue to collect cattle movement taxes and some other fees. The confusion of local government finance (para. 6.13) is an important element obscuring the picture and must be addressed as part of the future efforts to develop local government institutions and to apply the principle that beneficiaries should pay for services they receive. Recent initiatives to establish clear cost recovery systems for irrigation should be pursued, and possibilities for extending similar systems to other areas should be explored.
VI.
INSTITUTIONAL ISSUES AND KEY PRODUCTION SERVICES
6.01 Agricultural sector development is constrained by a series of complex problems affecting institutions responsible for sector management. These problems are critical because effective action to define clear policies and to implement investment programs will be impossible without some clarification and strengthening of institutional mechanisms. Institutional problems are particularly severe because of the substantial and fundamental changes which have taken place in agricultural institutions
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in the past decade. Most notable is the significant increase in the level of Governmentinterventionaffecting agriculturalproduction (including both changes in the scope of Government activitiesand a multiplicationof institutions). Further, the Government has embarked on an ambitious program of decentralization,both of administrationand planning, and of basic governmentservices. This has been a major factor contributingto difficultiesin defining and coordinatinga coherent developmentstrategy, to a deteriorationin the quality of services to farmers, (for example irrigationservices and input supply) and to serious project management problems (Annex 3). The basic institutionalframework and issues arising from recent developmentsare described in Annex 2; this chapter focuses on key issues for institutionaldevelopment and possible areas for future action. A.
Policy Formulation and Coordination
6.02 Poor coordinationamong institutionsand developmentactivities and the absence of a clear, agreed strategic focus for developmenthave been particularlyserious problems for Madagascar'sagriculturalsector. Reasons are many but an important factor is the large number of institutionsoperatingin the sector; there has been a marked tendency to establishnew, autonomousagencies to carry out many functions, particular in the past decade, resulting in a proliferationof parastatals,in particular,and successivechanges in organizationof functionsof many institutionshave rendered the establishmentof effective coordination mechanismsparticularlydifficult. Other important sources of coordination problems are the geographicvariations in Madagascar which have hindered communicationsand fostered a spirit of isolation,and difficultiesin ensuring coordinationand coherence among the activitiesof external financingagencies. The Government'sefforts to change, deliberatelyand fundamentally,the structure of rural society and productionsystems also explain many problems of coordination,first, because the specific directionsof change have not been precisely defined, and second because there have been tensions (probablyinevitable)among Governmentofficials and particularlycivil servants as to the direction and particularlythe pace of change. Another important contributingfactor (itself both a cause and a result) is the deteriorationor even disintegrationof basic informationsystems which have rendered analysis and coordinationstill more difficult.
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6.0_3 The results have been dramatic, as institutions and individuals pursued their own, often different, courses of action, particularly during the investment spree of 1978-79. Different development initiatives have been launched, often based on widely varying production systems and philosophies of development, overlapping projects were undertaken, and existing resources (financial and human) were over-committed. Equally important, it proved exceptionally difficult to halt unsuccessful activities or to change direction because of the lack of a clear central authority and the enormous difficulties in achieving a consensus on appropriate action. Action has been particularly difficult to achieve when lay-offs of staff were involved or when an activity was located in an area which had political importance. The most evident products of these phenomena are the current investment project portfolio (Annex 3) and the problems of the agricultural parastatals (paras 6.09-6.12). Important problems have also resulted from unclear allocations of responsibilities between MPARA and the Ministry of Industry and Commerce, and Transport and Supply. A small but significant example of the general problem of coordination is the Bezezika citrus orchard in Morondava. By 1974, it seemed clear that this plantation project, launched in the 1960s, was a dismal failure; trees were dying, production could not be sold so it was buried, and the state farm was losing money. Many officials (including the Cours des Comptes) were aware of the situation, but hesitated to act. A study was eventually commissioned and undertaken (after a two-year delay), but no decisions have been taken and today the farm is still operating. 6.04 Since the change in Government in January 1982, important efforts to address the problems of coordination have been undertaken. MPARA has been assigned a clear lead responsibility for execution of agricultural policy and efforts are underway to clarify respective Ministry responsibilities in areas such as supervision of livestock and fisheries parastatals. A focus for coordination of rice planning and program implementation has been created with the establishment of a rice coordinating agency in MPARA. Nevertheless as instanced by recent developments in rice marketing (para. 4.06), serious coordination problems remain. Clearly, the problem of interagency and interministerial coordination, while vitally important, is highly complex, and continuing efforts to improve coordination are essential. We have discussed with Government officials whether a formal coordinating entity established at a high level (Cabinet or Presidency) might lend authority to the effort. The response has been that such an initiative stands the risk of becoming overly bureaucratic and contributing to the multiplicity of institutions and coordinating arrangements, formal and informal, which already exist. Coordination must therefore be achieved through a strengthening of existing systems and through strong leadership by senior political and administrative authorities.
-
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B. The Ministry of AgriculturalProductionand Agrarian Reform 6.05 MPARA is a central and vital institution for the agricultural sector, both because of its attributionsin the areas of policy and planning,and because it is responsiblefor providing,directly (through its own staff) and indirectly (throughinstitutionsit supervises),many essential services to farmers. MPARA has primary (but by no means sole) responsibilityfor managing public resourcesallocated for agricultural development,and for defining and implementingbroad development strategies. The Ministry has not, in recent years, dischargedits responsibilitieseffectively;planning and resourceallocation have generally been weak, while the quality of services has steadily deteriorated. Factors outside the Ministry's scope of responsibilityhave been in large measure responsible for this situation:notably, the Ministry was not given the leading role in sector planning or management of resources (this responsibilitywas, in effect, dispersedamong a number of agencies),and the 1979 decentralization,which turned the Ministry upside down, was dictated by political considerationswhich bore little direct relation to the Ministry's problems or operations. 6.06 The Government has recognizedthe gravity of the problems facing MPARA, and has taken important steps to revitalizeit: most significantis the MPARA reorganizationenacted in September 1982, which is designed to restorea clear hierarchy of technicalauthority and to strengthenthe planning, financial,and personnel management functions of the Ministry. As part of this reorganizationand reform effort, the Ministry is reviewing broadly its role and responsibilities,and is in the process of defining the nature and level of servicesit can and should provide and the degree to which others, including private companiesand individuals,can play an increasing role in areas such as input supply and operation of irrigation systems. This is a key issue and MPARA officials recognize that significantcurtailmentof Governmentmanaged services (for example, the maintenance of 700 storage facilitiesfor inputs) is essential. 6.07 The Ministry reorganizationis a long-term undertakingwhich has only just begun; it must be implemented with careful preparation. This is particularlyimportant g[ven the poor preparationof the 1979 reorganizationand its legacy of confusion and low morale among staff (Annex 2). Now that the basic organizationalstructure has been established (Chart 1), operational proceduresand training programs need to be developed and the specific role of technical services and basic management structuresmust be clearly defined. Such efforts form part of the AgriculturalInstitutionsTechnical Assistance Project which includes support for studies and consulting services.
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6.08 MPARA's organization must provide effectively for three basic functions: it must allocate resources; thus, an effective mechanism for planning and budgeting must be systematically developed; it must execute operations; so operating responsibilities must be assigned and lines of command must be specified; it must evaluate results; objectives must therefore be clear and a comprehensive system of evaluation must be developed. To this end, the following key questions must be addressed, and represent an agenda for continuing review of the Ministry's institutional development efforts: (i)
(ii)
(iii)
(iv)
(v)
(vi)
A central administrative and financial department has been established but specific tasks remain to be assigned. For example, will the department have responsibility for both planning and budgeting, for accounting, for financial control and for monitoring and evaluation? We recommend that as a minimum planning, budgeting, and monitoring and evaluation should be linked to ensure effective coordination of these activities. The degree of decentralization functions (to the faritanys clearly defined. MPARA will have to technical services political authorities. established.
of basic or another
financial management level) must be
coordinate the Ministry's field level with activities of the decentralized New mechanisms need to be
Improved systems for monitoring parastatal authorities must be established and a decision made as to whether parastatals will be supervised by individual technical departments, by a central supervision unit, or by a combination of the two. Arrangements for organization, monitoring, and supervision of development projects need to be much more clearly defined. The effectiveness of MPARA will depend on the quality of staff, how well they understand their role and responsibilities, and their motivation. MPARA management must therefore find ways to attract and retain qualified people as well as to support both short and long term training programs to assist staff in adjusting to new assignments and their new organizational role.
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C.
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Public Enterprises for Agriculture
6.09 The Government relies heavily on public enterprises (publiclyowned and mixed capital companies) in the agricultural sector, and the number of such institutions and the scope of their activities have expanded rapidly over the past decade. The increasing parastatal role results both from a strong belief (probably well founded) that development activities cannot be handled efficiently by the regular civil service due to cumbersome and constrictive administrative procedures, and from the Government's policy of increasing its involvement in key sectors of the economy. At present, more than 90 publicly owned institutions have substantial responsibilities in the agricultural sector; they employ two to three times as many staff as MPARA itself, and account for over half the budget allocations managed directly by MPARA. Their responsibilities are very diverse and include direct production (crops, ranching), processing, marketing, input supply, extension services, management of irrigation systems, and other services such as consulting and management of crop stabilization funds. The parastatal situation is complicated by their diverse nature, and because there are several quite distinct forms of entity, whose structure and operating problems differ. Groups of institutions were often established during a specific period, in line with a Government policy initiative; it is striking, nevertheless, that despite policy changes and poor performance, parastatals have rarely been disbanded. More commonly, the role assigned to the institutions has changed over time, requiring in some instances the performance of additional tasks for the Government without compensating revenues. Systems of supervision and support are very weak. The area of finance is particularly problematic; accounts are not up to date and do not reflect the financial status of the institutions. Parastatal institutions receive public funds through a wide range of channels. While the poor quality of financing reporting systems has made it difficult to estimate total public investments and financial transfers to parastatal institutions, the sums involved represent a very substantial share of public resource utilization. Total Government investment in agricultural parastatals as of 1980 was estim'ted at roughly FMG 19.9 billion (US$72 million), and 1980 budget transfers were estimated at more than FMG 13.1 billio- (compared with a total MPARA investment budget allocation of about FMG 19.3 billion). 6.10 With some notable exceptions, the performance of the parastatals has been a great disappointment to the Government, and it represents a serious and urgent problem, both because of very large financial losses and because the institutions are not fulfilling their basic objectives in terms of production and provision of farmer services. Between 1976 and 1980, of 33 parastatals supervised directly by MPARA, 27 reported losses totalling FMG 3.2 billion, while six reported profits totalling FMG 1.2 billion.
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Poor performance results from many factors, ranging from limited managerial capacity and bad financial management to the effect of Government policies and general economic conditions. While internal factors (that is, management, organization, and staffing of individual parastatals) have played an important contributing role, factors external to individual parastatals, notably the rigidity of the administrative system within which parastatals must operate and pricing policies, appear to be more fundamental in explaining the inefficiency and low profitability of the institutions. Managers work in an environment that leaves little scope for managerial initiative in responding to market conditions. Pricing policies have resulted in deficit operations for most parastatals, as official prices seldom reflect adequately real processing and transport costs and do not provide reasonable profit margins. Lastly, all commercial enterprises, whether public or private, are currently suffering under the general economic crisis (notably foreign exchange shortages and the credit squeeze), which has compounded their problems over the past several years. 6.11 The parastatals face some basic institutional, policy, and financial problems. These can and should be addressed for the institutions as a group. There are also important problems specific to groups of parastatals which must be addressed separately. One such group are the regional development authorities which are service organizations providing extension services and operating irrigation networks. These services are not normally financially self-supporting and require Government funds. The problems here are lack of systematic mechanisms for assuring financing of what are inevitably deficit operations and poor supervision and support by responsible Government agencies. The production and marketing parastatals, on the other hand, have a primarily commercial character and they require an environment in which they can operate efficiently and with a minimum of bureaucratic red tape, as well as clear criteria against which performance can be judged. A series of other service parastatals fall somewhere in between; in many instances, the first priority is to define more clearly their role and responsibilities, and secondly, to clarify financing mechanisms for their operations. Coordination among entities with similar functions is poor and results both in lack of cross-fertilization and development of divergent service systems in different parts of the country, which often makes little sense. 6.12 To develop a framework which permits effective parastatal management, stimulates parastatal productivity, and is within the Government's financial means, action must be initiated at several levels simultaneously. First, the Government needs to address key issues which specifically affect parastatals serving the agricultural sector, notably a rationalization of financing and investment mechanisms aimed at obtaining a
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clear picture of financial issues and identifying priority institutions for investment and rehabilitiation efforts; and establishment of workable mechanisms to ensure a balance of autonomy and accountability for parastatal managers. After priority public sector investments have been determined, management audits should be conducted and individual action plans developed to address the particular problems of priority parastatals. Such efforts have already begun for two important regional development authorities, SOMALAC and FIFABE, and are to begin shortly for SAMANGOKY and the livestock parastatals. These efforts are essential and must be pursued vigorously. In themselves, however, they will not suffice, as they do not address the complex and interrelated effects of broader Government policies on public sector enterprises. Therefore, the Government must also address systematically those practices and policies which adversely affect all parastatal operations, notably, pricing, financing mechanisms, and personnel issues. With respect to prices, the pricing system should be modified, preferably to allow market prices to operate; where price controls are in force, a better system of price reviews and criteria for establishment of margins must be established. Elements of an action plan to address the parastatal problem have been defined in a separate report on Public Sector Enterprises for the Agricultural Sector, and are summarized in Annex 2. The action plan includes, in summary: (a) a review designed to assemble and analyze systematically basic financial information and plans for parastatals and groups of parastatals; (b) development of individual action plans for key parastatals; (c) introduction of a program contract system to provide a clear framework for support to and supervision of parastatals; (d) strengthening of institutional arrangements for budget preparation and review for parastatal agencies; and (e) consideration of broader reforms in the structure of civil service regulations which have particular significance for the parastatal institutions. D.
Issues for Decentralization
6.13 The recent decentralization of political authority and government administration through the fokonolona system (Annex 2), while clearly of vital importance in a long-term perspective, has resulted in some serious, immediate problems. These include a failure to define responsibilities and authority clearly, a lack of systematic training of local officials in new responsibilities, and confusion and mismanagement of local finances. The most immediate operational problems stem from: (i) the role of, village governments (fokontany) and the second tier local local authorities (firaisana pokonolona) in marketing, particularly of rice; (ii) local government authority for irrigation systems management; and (iii) arrangements for provision of smallholder credit. The fokonolona institutions have not played an important role to date in sponsoring or carrying out collective production (although this has been a stated objective of Government policy), so this is not an important operational issue.
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6.14 In marketing, fokonolona involvement has had special importance because commissions for marketing have been in practice virtually the sole source of revenue of local government entities, which therefore have had a particular incentive to apply monopoly marketing regulations set out in the law. Responsibilities for paddy marketing and rice distribution have also conferred an important source of authority on local officials. Parastatal institutions charged with rice marketing advanced large sums to fokonolona institutions for marketing, but encountered serious problems in recovering these loans. Rarely were fokonolona institutions able to play the positive market development function which was an important purpose of the reform, and the result of their intervention often amounted to disruption of local trade, in part because traders required licences from fokonolona authorities in order to operate legally. Fokonolona institutions have also been called on to estimate both surplus production and requirements for rice, which have been used as a partial basis for import planning, and they play a central role in retail distribution of rice. Since they are ill-equipped for these tasks, in terms of staff and logistic support, plannvinghas been extraordinarily haphazard. Recent legislation on rice marketing (para. 7.08) reaffirmed the central role of the fokonolona institutions in rice marketing and provided for an expanded role in regulation of the rice trade. 6.15 The role of fokonolona institutions in irrigation system management varies widely among regions and is changing significantly. In some areas local water management committees have taken effective charge of land tenure administration and of maintenance and operation of irrigation infrastructure. While this move has many virtues in a long-term perspective, changes were hastily implemented and led in many cases to a serious deterioration in operations; local authorities lacked training and preparation for their new role and there has been a strong tendency for operations to be politicized. Recent management problems in the large irrigation systems, notably Morondava, Lac Alaotra, Marovoay, and Mangoky, are linked to the implementation of decentralization measures, as is the general confusion in management arrangements for the "petits perimetres" system (paras 6.19-22). The 1981 irrigation/cost recovery laws provide for a clearer framework for local water management committees, which are to take on primary responsibility for operation and maintenance of irrigation networks and play a part in determining charges. However, many details remain to be worked out (para. 5.27), and this is an area where developments should be closely monitored in the future. 6.16 In the area of small farmer credit, the Government, following the banking reorganization in 1976-77, assigned the fokonolona institutions significant responsibilities for the allocation and management of agricultural credit, in collaboration with the Rural Development Bank (BTM). Local authorities were to appoint credit committees and to offer BTM a collective guarantee for loan operations within their territorial jurisdiction. This system has never been fully implemented, but where it has operated, loan recovery experience has generally been poor (Annex 5), and because of strict recovery practices by the BTM, many parts of the
country have been closed to smallholder credit and the system has been effectivelysuspended. As a result, formal credit available to
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smallholders is very limited at present. BTM is redesigning its lending programs for rural areas with a view to relying more heavily on individual credit to farmers (paras. 6.31-6.33). A further area of confusion is the fokonolona role in road maintenance; while local institutions are theoretically responsible for the tertiary and quaternary road network, they simply have no resources to maintain it, let alone develop it further, and this has contributed to the deteriorating state of the nation's road systems. 6.17 The Government has recognized the serious problems surrounding fokonolona intervention in rural services, and has acted to adjust policies in some areas, notably credit. Decentralization of services and local participation are highly desirable, if not essential, in the long term, but require careful preparation, including establishment of a clear definition of responsibilities, training of staff, and elaboration of financing, accounting, and financial control mechanisms. In the short term, measures to address specific operational problems, such as the marketing, irrigation and credit issues described above, are needed. In the longer term, we recommend that a comprehensive review of the fokonolona reform be undertaken by the Government, with a view to preparing a systematic action plan for further development of the system. These are critical issues for rural development: planning of many services depends on the role which local governments will play in their operation and finance, and the proposed review merits a high priority. E.
Key Production Services
6.18 The deterioration of basic farmer services in many areas has been an important cause of the stagnation in agricultural production. Efforts to restore and improve these services are essential if production of many commodities, particularly rice and livestock, is to be increased and sustained. The services reviewed here are those which are essentially national in scope: organizations whose primary focus is a specific region or commodity are considered in Chapter IV. In the short-term, veterinary services, management of irrigation networks, input supply systems, and improvement of existing extension services are particularly important. For the longer run, research, rural afforestation, and agricultural credit evidently will also play a critical role. In developing action programs in this area, the Government needs first (and foremost) to define broadly the scope of services to be provided, including the specific role the Government will play. For example, while the Government theoretically manages, operates, and maintains an estimated 130 medium-scale irrigation networks, in practice it does not; in planning for restoration of irrigation services, the question of what services can and should be provided by the Government is critical. Institutional and organizational
- 67 issues also need urgent attention,and action programsmust include both staff developmentand trainingand the developmentof efficient operating procedures. IrrigationSystems 6.19 Irrigationdevelopmentgenerally,and particularlythe Government'srole in building, operating,and maintainingirrigation systems, poses complex issues, and a clear strategicapproach in this area is urgently required. Past agriculturaldevelopmenthas focused on developmentof irrigationand drainage, which are essentialfeatures of Madagascar'sfarming systems, particularlyfor rice. Out of a total cultivatedarea of rougly three million ha, officialirrigation systems serve about 250,000 ha. Irrigationis also an important part of traditionalrice cultivationsystems and an estimated700,000 ha of traditionalpaddy fields have some form of water control; these are generallywell-managed. In the short and medium terms, the key issue is managementof existing sytems. Largely because of poor management, Madagascar'sirrigationinfrastructure,and particularlythe larger schemes developedwith Governmentsupport,are yielding far less than they should. There is enormous confusionin arrangementsfor managementand financing of operations,and for maintenance. Many networks urgentlyneed substantial rehabilitationand redevelopment. Looking to the longer-termfuture, it seems highly probable that agriculturaldevelopmentin many areas will involve further development of irrigation,drainage, and flood control. Relativelylarge schemes are likely to play an increasinglyprominent role, since most areas suitable for small-scale traditional farming (terraced rice fields in small valley bottoms) have already been developed. The scope for further developmentcannot, however,be determinedwith any certaintyuntil land use and land capabilityplanning systems are improved (para. 3.04-3.05). A further, related need is for improvementsin basic data needed for irrigationmanagement, notably on detailedassessments of potentialareas for development, evaluation of costs of various models of development,and broader water resourcematters. 6.20 Both existingirrigation systems and schemes under development have faced serious problems resulting from changing institutional arrangements (notably the MPARAreorganizations), the deterioration in management of the development authorities,and the lack of budget funds and foreign exchangefor inputs and equipment. Irrigationsystems have been organizedand managed according to three quite distinct systems in the past: large irrigationnetworks managed by regional development authorities,the medium-scalenetworks,managed by MPARA services, recently with support from a new parastatal (AAA), and programsaddressed to the traditionalirrigation systems, where the Government has not exerciseda direct role in development,operation,or maintenance. The differing needs of the various systems must be carefully consideredin planning for the sub-sector,but there is also a clear need for an overall irrigationand water managementstrategywhich addresses managementof the entire system.
- 68 In the short-term,MPARA planningand management services should focus on rehabilitationof the larger-scalenetworks, which produce most marketed rice and which suffer acute management problems. The medium-scalenetworks (petits perimetres)also stand in urgent need of attention to clarify managementarrangements,improve operation and maintenance,and begin priority rehabilitationworks. The program now underway to develop traditionalsystems is important and should be pursued. An important issue is the organizationand scope of MPARA irrigation services; this must be addressed as part of the MPARA reorgaDization(para. 6.07), and will have importantimplicationsfor the pattern of future irrigation development. 6.21 Potential rehabilitationand management developmentmeasures for the most importantirrigation systems are currently under review. Very specific rehabilitationprograms have been developed for SOMALAC and FIFABE and will begin shortly. The operation of the medium-scalenetworks is also being reviewedwith a view to a rehabilitationand managementeffort, but poses complex problems because of the weakness of services currently provided, the run-down state of networks, and the changing role of local authoritiesin running the systems (para. 6.15). Timely and well designed inputs of managementand foreign exchange might yield results in the short and medium time frame, although a comprehensiveand long term development effort will be needed to yield significant results. 6.22 Although some of Madagascar'sirrigation systems were in the past describedas models of technologyand efficient management, the operation of all systems has been severely affected by events of the past decade. Further, it is now apparent that no satisfactoryoverall developmentplan has been defined at any stage, and management systems appropriate for Malagasy conditionshave not been developed. Any further investments in irrigation developmentwill require particularlycareful scrutiny, given the enormousmanagement problems facing existing systems. Rehabilitation effortsare likely to occupy the Governmentfor many years, and no new irrigationinvestments on any scale should be contemplateduntil the problems of existing systems have been effectivelyaddressed, and until a clear strategy for future irrigation development and management has been defined. As part of this strategy review, explicit consideration should be given to a review of alternative irrigation technologies to provide clear guidelines for future development. To assist in this effort the Government should consider the establishmentof a hydroagriculturalplanningunit within MPARA responsiblefor establishingsub-sectoraldevelopment prioritiesfor irrigation, drainage, flood control, erosion control for agricultureand for monitoring both implementationof development programs and the data base for hydroagriculture.
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Veterinarygervices 6.23 The veterinary servicesin Madagascarare relativelywellendowed;an extensive system of almost 200 veterinaryposts at field level, and a staff of 10 veterinarians,19 livestock specialists,and 570 techniciansand vaccinators provide a reasonablelevel of coveragein the most important livestock producing regions of the country. Activity is concentratedon prophylaxis,especiallya cattle vaccinationprogram which included 5.2 million vaccinationsagainst blacklegand anthrax, and 2.5
million against colibacillosis
in 1960 (the cattle herd is estimated at
about 10 million). Clinical treatmentsinclude anti-parasitictreatments (140,000in 1980) and treatmentsagainst the growing problem of liver fluke in cattle (940,000in 1980). 6.24 The past record does not, however, reflect the serious plight of the servicesin recent years. First, the familiar problems created by MPARA's decentralizationwere worse for the veterinaryservices,with their need for central technicaland administrativecontrol over nationwide animal health campaignsand for rapid response to disease threats. Lack of technical supervision,sinking morale and dispersion to the regional level of scant budget resources brought the services to a critical stage in 1981 in which their capacity to safeguard the national herd was jeopardized. The restorationof the centralizedstructurein 1982, initially for animal health alone, subsequentlyfor MPARA as a whole, came only just in time. 6.25 A second set of problems concerns the equipment of the services for the task; the foreign exchange shortage has run stocks of veterinary products to virtually zero, vehicles and bicycles are more often than not unusable, and local vaccine production has broken down frequently from lack of equipmentand materials. In the short-term,project support is likely to remedy the situation,as essential imports of veterinaryproducts, to be financed through an IDA Credit, have been ordered. In the long-term, however,it is clear that the veterinary servicesmust be prepared to present and defend a precise estimate of requirementsfor budget credits and foreign exchange. This presupposes that there are workable and efficientmechanismsfor budget credit and foreign exchange allocation to ensure that areas of high priority, such as the veterinaryservice, receive a minimum of support to carry out essential operations. Lack of budget resourcesis nonethelessbound to remain a constraintto maintenanceand expansion of Governmentanimal health services,and the veterinary services need to reexamine their programs to ensure the rationalization of health cover in line with economic assessments of the impact of disease. A further area requiring special attention, given the current and future resource constraints, is cost recovery,which is inadequate,more because of administrative problems (which should not be underestimated)than cattle owners' reluctanceto pay; the costs of setting up administrative
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proceduresto handle small cash payments by large numbers of cattle burden might well exceed revenues and would place an additional producers In response to the problems of funding the service. on the veterinary begun to examine the issue the Government has recently services, veterinary particularlyveterinary of haading over areas of animal health coverage, should be this examination produuctmarketing, to private 8ector operatorsi encouraged and should be linked to a consideration
of how to improve
incentivesfor animal health care. Input Supplies Use of improved seed, supportod by improved cultivation 6.26 row planting, and weeding, may be techniquessuch as optimum plant density, the single most cost effective action that could be taken to increase agricultural production in the short run; in the medium to long term, effective use of fertilizer will be vital to improving and sustaining production. Production and distribution systems for improved seeds for rice and other crops hardly exist at present, and the vast majority of farmers currently use their own seed. In addition to normal requirements for renewal of seed, Madagascar has failed to take advantage of new seed varieties developed elsewhere (notably at the International Rice Research Institute (IRRI) for rice) which offer the promise of very significant yield increases. Concerted efforts have been made in the past two years by the Government and external agencies to address this vital problem; a national seed improvement program is being prepared and agreement has been and implementation arrangements for an initial stage reached on financing (a key element forms part of the recently approved Lac Alaotra Rice Project). The program includes reinforcement of the agricultural research agency (FOFIFA), which is responsible for research and foundation seed production, rehabilitation of rice seed production facilities, and
preparation
of a seed production
project
for important
food crops.
A
technical cooperation agreement between the Madagascar Government and IRRI
was signed in October 1982 and is an important initiative. A nagging but important problem that remains is quarantine regulationswhich considerably delay the introduction of new varieties; action to address this problem is being taken and should be pursued as a matter of urgency. In summary, action is being taken to address the most urgent problems impeding a much
needed improved seed program, but sustained efforts will be needed to ensure that it advances quickly and works well. important role in will play a particularly 6.27 Fertilizer Madagascar's medium and long term agricultural development strategies,
because the great
majority
of soils
require
additional
nutrients
when in
continuous cultivation. Madagascar's principal crops can yield significantly more with fertilizer application. Reduction in fertilizer use in the past decade (from a high of about 30,000 tons in 1970 to about
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20,000 tons in 1980) has been one factor contributing to declines in production. The fall in imports has primarily affected operations under MPARA's direct control, that is, those directed at smallholders. This has had a particularly serious impact on smallholder rice farmers in the central highlands, where use of fertilizer was widespread in the early 1970s (total annual use estimated at 7,500 tons), then dropped sharply. Other entities continued to import about 20,000 tons a year; about 50% of this amount has gone to sugar operations, 25% for cotton, and 8% to forest plantations. The principal cause of the reduction in MPARA imports has been shortages of foreign exchange, and for several years Madagascar has imported fertilizers for rice and food crops only under aid programs. Even if the foreign exchange constraints were removed, there are several important impediments to expanding fertilizer use rapidly in the short term, except to restore supplies to the levels prevailing in the early 1970s. First, Madagascar has never utilized large quantities of chemical fertiLizers and use has been concentrated in modern agricultural enterprises and among intensive rice farmers in the central highlands. In 1980, about 75% of fertilizer utilized went for cotton and sugar cane. Significant expansion in fertilizer use is new areas is likely to require time. Second, transportation problems are a particularly serious impediment for input supply. The inefficiency of the Toamasina Antananarivo railway has seriously delayed fertilizer shipments in the past, and the deteriorating rural road network has affected the distribution system. Third, MPARA has in the past few years had principal responsibility for managing, through its input supply (intendance) services, fertilizer distribution and sales to small farmers. The Ministry has experienced serious difficulties in running the relatively small operation to date and would be hard pressed to expand it significantly: they lhaveindicated that in the future these activities would be delegated to the larger trading companies along the line of systems set up for fertilizer purchases financed under both the IDA Agricultural Credit Project and the IFAD Highlands Rice Project. A proposal to create a new public input supply agency was recently advanced, but Government officials have indicated that the idea has been shelved and MPARA will rely instead on marketing companies and private traders for distribution. In our view MPARA's direct role would best be confined to planning and monitoring input use and distribution, and the recent decision is a mDve in the right direction. 6.28 Fertilizer prices for food crops have been subsidized by the Government in recent years, largely because of the low official crop prices and also because fertilizers have been coming in as gifts. Fertilizer prices for cotton are also subsidized but that is part of a complex pricing system which takes input subsidies into account in setting prices (para.
4.14). Justificationfor a subsidy policy is not apparent
as muc.hof
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marketed output is sold at higher parallel market prices, and as there is evidence of unsatisfieddemand for fertilizereven at high parallel market prices. A further problem with the fertilizer subsidy is that, should imports be increased as a result of planned additional purchases, the ability of the Government to finance the subsidies is questionable,given severe budgetary constraints. Policy on subsidies is under review and the Government has indicated that subsidies will be eliminatedover time. Fertilizerprices were substantiallyincreased in 1982 and 1983 and the official price of FMG 140/kg is close to the estimated cost. We recommend that subsidiesbe completelyphased out as soon as possible, but it must be appreciated that this must be part of a broader reform of price administrationsystems. Fertilizer suppliedunder both the IDA AgriculturalCredit Project and the IFAD Highlands Rice Project should be sold at cost. During the investment spree of 1970s, the Government contractedfor the ZE-REN fertilizer plant at Toamasina,currently scheduled to come on-stream in the mid-1980s with a productive capacity of 90,000 tons of urea a year. The plant will, under any foreseeable circumstances,operate at a heavy financial loss and will require abundant foreign exchange. Moreover, production is not the compound fertilizers farmers require and would have to be processed further. Capacity is far above likely domestic fertilizeruse for the foreseeablefuture, while export prospects are dim. The solution to the problem is not evident and the project should clearly be examined very closely before any further money is spent. 6.29 In summary, while a comprehensivepolicy favoring and promoting increased fertilizeruse is essential for agriculturaldevelopment,large additionalamounts of fertilizercan probably not be utilized efficiently now. Some areas of need are clearly known (particularlythe sugar and cotton sub-sectors,and highland rice producers),but here increased fertilizersupplies are already planned and financing secured; additional areas of need would have to be carefully reviewed. 6.30 Small equipment is an important complementto efforts to increase agriculturalproduction,especially for crops such as rice and cotton where labor requirements,particularlyfor land preparationand weeding, are high. Under Madagascar'ssmallholder system of agriculture,use of tractorsis seldom justified economicallyand the production system is based essentiallyon animal power and hand labor. According to a country-widesurvey carried out in 1973-74, equipmentwas farmers' most important stated need. For the large farms, the supply of implementsis assured by agricultural machlinery suppliers (with gome ruptureg due to foreign exchange shortages),but for smallholders,MPARA and its supply services,which have replaced the private traders,are responsiblefor administeringthe country-widesystem supply for agriculturalimplements and tools, including annual contractingwith SIDEMA (parastatal manufacturerof agriculturalimplements)for the manufacture of implements and organizationof distributionand sales. These implementsare heavily
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-
subsidized with funds alloted to MPARA for that purpose. For the past several years subsidy allocations have been inadequate and have limited the number of implements manufactured. The subsidy system too is counter-productive because it results in cutting down the supply when farmers are prepared to pay even unsubsidized prices. Like other manufacturing companies, SIDEMA is unable to obtain adequate foreign exchange for the importation of steel and other raw materials. In summary, a restructuring of input supply systems is required, and the subsidy policy needs to be reviewed. Agricultural Credit 6.31 Formal credit available to farmers is limited at present, largely for reasons linked to the economic crisis and the deterioration of rural institutions. The National Rural Development Bank (BTM) is a relatively strong institution that has generally been able to maintain its banking principles and its profitability in an environment where many political leaders were urging rapid increases in lending to smallholders. Nevertheless, agricultural credit programs face some important problems, and policies towards credit are under active review. Issues include BTM's ability to apply independent lending criteria, the impact of increased lending based on fokonolona institutions (para. 6.16), collection problems related to a breakdown in Madagascar's historically excellent credit discipline, and the need to clarify credit policies in line with recent decisions to extend credit facilities to farmers both within and outside the fokonolona system. Recent policy changes should also be evaluated in terms of their impact on BTM's loan portfolio, collection and monitoring procedures, and the interest rate structure. We have no reliable information on what has happened to the important informal credit systems which serve many farmers in recent years, but field observations suggest that these systems continue to play an important role in many areas. 6.32 Lending to the smallholder has always represented a very small percentage of total lending Qf BTM and its predecessor, BNM, It went from 1% in 1974 to 4% - 5% in 1975-1978, and returned to 1% in 1979-81 (about US$1.6 million equivalent). Over the years, BTM management has been prudent in regard to smallholder credit and has not succumbed to the temptation, as have many other agricultural lending institutions around the world, to advance credit when adequate administrative and technical back-up were not present. In 1977 and 1978, in an effort to develop an efficient,
cost
effective
system and to provide
loans
to large
numbers of small
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farmers throughoutMadagascar, the Government,acting through BTM, attempted to give fokonolonainstitutionsmajor responsibilitiesfor all aspects of the smallholdercredit program (para 6.16); the scheme was known as FMR (Financementdu monde rural). Sums lent to smallholdersincreased from 2%-5% of BTM's total lending, and the numbers of loans and amounts lent increasedby about 250%. Cost recoveryfor smallholdercredit remained relativelyhigh (around 80%) through 1977, but, beginning in 1978, loan recoveriesbegan to fall off, decreasingto 70% in 1979 and to 40% in 1980. This was due to the politicalnature of the fokontany credit committees,limited technical supervisionby BTM, and deteriorating economic conditionsin Madagascar. BTM respondedwith measures to recover arrears and continued to apply its strict policy of withholding credit in areas where repaymentwas less than 90%. In early 1981 BTM discontinued the introductionof smallholdercredit in new areas and only maintains the program in areas where there is 100% recovery. As a result, smallholder lending plummeted to less than 1% of BTM's total portfolio. The FMR program has been supercededin part by a credit program conceived for individuals (Op6rationde DeveloppementRural Integre, ODRI). This program is likely to be biased toward the more prosperous smallholder;BTM is trying to reduce the administrativeburden by passing much of the responsibilityfor credit needs assessmentto extension services, including regional developmentauthorities. ODRI is to be concentratedin areas where a well-plannedand tested agriculturalpackage is available. This is likely to confine ODRI in the near term to areas such as the cash crop areas or Lac Alaotra and the Central Highlands. Agriculturalcredit is not one of the most serious bottlenecksto 6.33 increased production,but it should be seen as an important area for policy review. Smallholdercredit will become increasinglyimportant in the xxediua term, and BIMshould beginnow to plan for expanded operations,as the lead time for putting in place effective institutionalarrangementsis long. In the short term, BTM is trying to establishworking arrangements with on-going and future developmentprojectswhereby it will provide smallholdercredit when it is satisfiedthat project staff will provide the necessary assistancein identifyingqualified loanees and the required technicalfollow-up. It is our assessmentthat this is a reasonableway to proceed. Further, BTM is playing an importantrole in providing essential inputs (notably fertilizers)to farmers in the Highland areas, and is consideringmechanisms to fcilitate input imports to meet urgent needs of mediumand large scale farms. These efforts merit continuingsupport. AgriculturalExtension MPARA is responsiblefor providingextension servicesto 6.34 smallholdersthroughoutMadagascar,except in areas where responsibility
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has been delegated to regional authorities and agricultural "Operations" (the Coffee, Pepper, Clove and Cocoa Operation (OCPGC) for the major export crops, HASYMA for cotton, the large sugar companies for sugar, and the regional development authorities which manage irrigation schemes, notably SOMALAC, SAMANGOKY, FIFABE, SODEMO and the Andapa authority). An estimated 5,000-7,000 extension staff work directly under MPARA. They fall into two categories: field staff (techniciens du developpement rural), and higher level staff (techniciens supgrieurs du developpement rural). Between 1979 and 1982, the extension services were decentralized to fit with the fokonolona structures and there was no clear line of command: under the recent Ministry reorganization, extension has been centralized under the Department of Extension services which has overall responsibility for crop extension. Extension as well as animal health and plant protection services are now organized in the field by 21 regional subdivisions which correspond roughly to the old prefectures, and zones (fivondronana level). In general, extension services are weak and ineffective. They suffer from unclear objectives, no set work program, no training, and little mobility or other logistic support. For the past several years, funds have been available to pay salaries but virtually nothing else. As a result, staff morale is particularly low and there is little motivation to do a good job. 6.35 Improvement of the extension system is a key element in realizing the potential of smallholder agriculture, and should be defined as an important objective for medium and long-term development. Effective extension should serve as the link between the farmer and various support services including research, smallholder credit and input supply (small implements, fertilizers and improved seed). Experience in many countries suggests that it is the demand pull from the farmers via extension to is also research activity. Extension which results in meaningful research key to effective smallholder credit systems, as credit institutions cannot afford the field staff which would be necessary to determine good credit risks, and must depend on reliable, well informed extension agents both to identify good risks and follow up during implementation. The extension agent should have a key role in identifying small implement requirements, demornstrating the appropriate fertilizer mix and the correct dosage to apply, introducing improved seed, and organizing seed multiplication programs. With Madagascar's varied climate and resources, crops grown and farming systems differ by region. Therefore, an important first step in developing more effective extension services would be an evaluation of existing systems designed to develop recommendations for extension strategy region by region as well as information on the following: (i) available husbandry packages; (ii) available research results; (iii) constraints to increased production; (iv) level of staff and staff training requirements; (v) mobility and other logistical support required; and (vi) the role of
- 76 MPARA's extension service vis-a-vis extension services currently managed by regional authorities and "operations". Efforts to improve existing extension services under specific projects merit a high priority. Extension services can be expensive to operate and the costs of any system will have to be weighed carefully against benefits as well as alternative investments. It is our view, however, that the greatest potential for increasing production in Madagascar lies with increasing the efficiency of the smallholder, and extension is a key element in this process. Agricultural Research 6.36 With the departure of the specialized French research agencies in as the 1974, FOFIFA, a semi autonomous Government agency, was created national agricultural research agency. From the outset, it lacked the human and financial resources to assume such responsibilities, and the research effort never really became established, nor has it played a part in supporting agricultural production. FOFIFA was attached to the Ministry of Higher Education between 1977 and 1981, which further isolated the agency from its client users, the agricultural community. Research programs existed only on paper, links with the international research centers were virtually non-existent, and there was no linkage with extension services and agricultural producers. Improvement programs for varieties or for technical packages ceased operating. FOFIFA's activities are financed partly through national budget allocations and partly through contractual arrangements with Ministries or private agencies for specific services rendered. Funds are also raised from the sales of vaccines, veterinary products, and agricultural produce. Overall, however, financial resources have been patently inadequate. The central conclusion of a 1980 Bank sub-sector report on agricultural research was that agricultural research had collapsed and contributed virtually nothing to efforts to increase agricultural production. The magnitude of the problem is underlined by the fact that even the results of relevant research undertaken in the past are not readily available and can thus not be systematically used. Two important measures have been taken recently to strengthen the research agency: its integration within MPARA in late 1981, and the signing of technical cooperation programs with IRRI and with IRAT in 1982. In addition, the structural problems of FOFIFA are being reviewed, and ISNAR (International Service for National Agricultural Research) has agreed to provide support in preparing a priority action plan for agricultural research. This effort is vital and must be pursued. Benefits from strong agricultural research should be viewed primarily from a medium-term or a long-term perspective, but in certain specific areas such as varietal improvement (rice, sugar, other food crops), insect pest control (cotton) and disease control (coffee), there is a need for immediate measures to address urgent operational problems.
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F.
Broader Public Administration Issues
Training and Manpower Development 6.37 Shortages of technical know-how and management skills among staff pose important problems for MPARA and other entities working in the agricultural sector. Some short-term measures, including staff development programs and in-service courses, can and should be undertaken to address the most critical deficiencies for MPARA and key public enterprises. However, in the long-term, broader issues affecting MPARA'S training and manpower development programs must be addressed. These include the lack of planning and evaluation of the Ministry's manpower supply and demand, neglect of staff development efforts, the absence of a personnel and training policy, and the lack of effective structures to manage and monitor training programs. As part of the current reorganization of MPARA (para. 6.05), a systematic assessment of manpower and training needs requirements should be undertaken. 6.38 At present no systematic effort is made to relate the number of technical personnel needed by MPARA and the number of people trained in agricultural educational institutions. MPARA has no reliable system to record the number and background of personnel and their break-down by categories, much less their future training needs. The annual in-takes of the principal agricultural training institutions have been based on previous years' figures and on budgetary availability, with very little analysis of attrition rates and program requirements. Discrepancies in manpower supply and demand are illustrated by such recent measures as MPARA's closure of the lycges agricoles due to budgetary constraints and oversupply of staff, and by the wholesale provision in the 1979 Ministry reorganization of new jobs in the Ministry without regard to the training system's capacity to produce qualified individuals in appropriate numbers. 6.39 The pre-service training system has been quite clearly defined and is generally appropriate, although it is now beset with problems. University-level staff are trained in the local Etablissement d'Enseignement Supgrieur des Sciences Agronomiques (and abroad for rural engineers), which comes under the supervision of the Ministry of Higher Education. For middle and lower level technicians, MPARA supervises directly the lycees agricoles (although they are now closed). At the basic level, MPARA faces some important problems in defining training programs for extension agents; for example, ministry officials are divided even on the primary role of the agent (generalist or specialist). MPARA thus has some authority to shape training programs, but needs to coordinate with the
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Ministry of Higher Education and to pursue a consistent policy if it is to receive the kind of knowledge and skills which it needs. As a matter of priority,MPARA should consider definingthe profiles of its technical personnel and extension workers to provide a sounder basis for planning their pre-serviceand on-the-job trainingprograms. 6.40 In-servicetrainingalso has a critical role to play, both in the short and long-term. It is particularlyneeded in the field of management training. Trainingprograms in agriculturaleducational institutionsmake no provision for preparing technicalstaff to perform the tasks of managers, yet, almost without exception,public sector and parastatal managers are technicians. A further problem is related to the very large number of non-career(contractual)staff employed by the MPARA (approximately54% of the total number of employees),who have not had an opportunity to go through formal training programs. In-service training is vital to respond to their needs and to keep technical knowledge up-to-date. The shortage of qualifiedmanpower calls for continuousstaff developmentefforts, and there is an urgent need to define and implement in-servicetrainingprograms for existing staff of MPARA and agricultural parastatals,with priorityon managementtraining and up-dating of technical skills. Civil Service Issues 6.41 Issues of civil service policiesand proceduresgo far beyond the agriculturalsector but have importantimplicationsfor future sector development efforts. Many current civil service rules and practices have the effect of deterring people from high performance. This touches on the motivation issue which is evidentlycomplex, and is related to the overall working environmentand to the level of compensation. Within MPARA, efforts could be undertaken to reward excellent performance,to encourage innovationand to relate trainingand job experience. However, the most obvious deterrentis the salary situation. Civil servants' salaries are notoriouslylow compared to those offered in the private sector, particularlyfor higher level staff. Civil servants' salaries have remainedvirtuallyunchanged - a total of 20% increase over the past five years - despite a rapidly increasinginflation rate. The salary situation has promptedmany competent officials to leave Government service altogetherfor the private sector, has deterredqualified people from entering the Governmentservice,has encouragedmoonlightingamong those who stay, and has served as a pretext for condoning bureaucraticinertia and disinterest. The Governmenthas not, thus far, adopted a clear approach to the problem. Instead of tacklingthe problem at the root, Governmentpracticehas been to circumventthe civil service system by allowing exceptions for certain categories of personnel and granting
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privileged status to the personnel of a number of parastatals. Thus, a number of individual schemes of service, such as those of university teaching staff, the police, and the army allow more attractive salaries and promotion prospects than those prescribed in the general civil service statute. Parastatal organizations often have individualized personnel systems with advantageous employment terms, whether or not the nature of the organization or the nature of the work performed justify such favored treatment. The salary disparity within the public service has not only caused a sustantial brain-drain from the regular service, but also and more significantly, has created a climate of competition for secondment and jealousy in those who have not succeeded. Across the board salary increases are evidently not a solution in themselves. What is needed is a review of existing salary structures and the incentive systems to identify options for improvement. 6.42 Politicization of the public service is an important issue; this phenomenon takes many forms and, of course, has many causes and rationales, ranging from the lofty goal of making a colonial, inherited bureaucracy more responsive to the people's needs, to the wish to share the benefits of public employment. Political leaders have, in Madagascar as elsewhere, often made the civil servants their scapegoats, and appointments and promotions have often been predicated upon partisan and personal loyalty. The affiliation of certain public service unions to political groups and their militant activities are other factors which are relatively new in the public service. Although this phenomenon has affected some ministries and agencies more than others, the practice has tended to undermine the motivation of many civil servants. The salary and politicization issues are closely related. The fact that public salaries remain generally low, while islands of privilege exist, reflects an absence of consideration of the interests of the civil service at large, while several factions have championed special interests. Meaningful civil service reforms must evidently be predicated on clear political will on the part of the Government. If this can be established, studies could be carried out on possible modifications in salary structures and personnel systems, and on their costs and benefits to develop options for Government. 6.43 Other important problem areas include the issue of excessive linking of salary increases and promotions to general education degrees instead of to higher performance, the inadequacy of work-related allowances (and particularly travel allowances), the lack of schemes of service for new types of competencies, the absence of effective performance appraisal systems, and the lack of appropriate training and staff development opportunities. The problem of inadequate local travel allowances is particularly serious, and current allowances for field visits are now less than US$2.00 a day, far below subsistence costs in virtually all regions; this has important repercussions for the agricultural sector because of the need for field activities and merits attention.
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Procurement
6.44
A further
Procedures.
set of problems merits
attention: the Government'sproceduresfor procurement of goods and services. Procedures themselvesare complex and cumbersome; while they provide many appropriatesafeguards,they have made it exceptionally difficult to manage procurementunder developmentprograms efficiently (Annex 7). The greatest impact has been on the civil service itself and several categoriesof parastatalswhich are bound by basic civil service regulations.
Special
procedures
or exceptions
to
regulations
have
proved
indispensablein many cases where procurementof goods and employmentof consultantsis handled by Governmentagencies; long delays have been common and have often had a high costs. Efforts to clarify and streamline procedures could yield importantbenefits. VII.
ISSUES FOR MARKETINGAND PRICING POLICY A.
General
7.01 This chapter focuses on issues surroundingpolicy objectives and their applicationin the areas of marketing and pricing of principal agriculturalcommodities. Pricing systems and marketing arrangementshave changed substantiallyover the past decade and, while there are important variationsamong commoditiesand regions, overall the trend has been towards a marked increase in Government interventions mounting problems resulting from marketing and pricing low price levels of marketing systems, ineffectiveness
in these areas, systems. The and cumbersome
and price
administrationsystems have had importanteffects, both direct and indirect, on producer incentives,vital to the individual farmers who dominant productionsystems. Marketing and pricing policies are also a major factor in the chronic unprofitabilityof agriculturalparastatals;in effect, they render efficient and profitableoperation virtually impossible. Together with associatedinstitutionalmechanisms they pose complex problems and will require some far-reaching reforms. Nevertheless,in this area, the Governmentcan take decisive and effective action
in
the
immediate
future;
such
short-term
reforms
offer
the
potential for removing importantbottlenecks,increasingfarmer incentives to produce, and providinga necessaryfirst step for emerging from the quagmire
of parastatal
problems.
Further,
progress
in this area, which is
to effective short-termaction than the thorny and often more susceptible complex issues of resource managementand institutionalreform, would offer concrete structural economic
readiness to address the complex evidence of the Government's to the present so heavily problems which have contributed crisis.
7.02 Marketing and pricing systems for different commodity groups vary significantly,and have often been devised and administeredquite separately. Chapter IV and Annex I provide backgroundinformationon the marketing structure and applicablepricing policies for the major subsectors of agriculture,and summarizeavailable information on specific price levels. The systems in force and major operational problems are briefly summarizedbelow (Table 7.1). The general frameworkof pricing and marketing policies is then discussed,followedby a review of issues for four key commodities (rice, livestockand meat, cotton, and export crops), both to illustrateproblems and to focus on issues for reform.
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Table 7.1 Summary Pricing and Marketing Systems for Major Agricultural Sub-Sectors
Commodity/Crop
Pricing System
Marketing System
Major Problems
Producer paddy price and retail price set by Central Government. Enforcement authority
Government monopoly in law and extensive involvement of parastatal agencies who handle 25-50% of marketed production.
Low official price levels declining in real terms over past decade; inefficient of-
with MICand
Parallel market opera-
ficial market-
fokonolona institutions;enforcement sporadic
tes in most areas.
ing systems. Pan-territorial pricing system too rigid to administer effectively; costly consumer subsidies for rice.
Other food crops, (maize, manioc, etc.)
Producer and retail prices set by fokonolona authorities, normally at faritany level. Enforcement, by local authorities, is sporadic.
Heavily dominated by private traders, with some interventions by parastatal agencies.
Seasonal and regional price variations. Breakdown in transportation impedes marketing
Cattle and beef
Beef prices set by faritany officials with Antananarivo price decided at central Government level. Price enforcement sporadic.
Market currently heavily dominated by private trade, but residual impact of past efforts to enforce Government monopoly; parastatals operate in Government defined marketing territories.
Inefficiency of marketing parastatals. Slow growth in production limits cattle supplies Low official prices in past have caused serious problems.
Other livestock products
Retail prices set by fokonolona authorities, but enforcement is sporadic.
Limited efforts to regulate marketing of live animals but some direct marketing action by producer parastatals.
Principal problems relate to inadequacy of supply.
Foodcrops and Livestock Rice
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IndustrialCrops Cotton
Annual seed cotton and fiber prices set by MIC. Enforcement near total because of nature of product.
Past low prices Marketing of seed cotton and and lack of fiber handled clear review by HASYMA and mechanisms. textilesby Subsidy element textile mills. in price Quota alLoca- structure tions of fiber complicates administration. an important factor.
Sugar
Cane and sugar prices set by central Government. Producer prices applied but retail prices sporadicallyenforced.
Marketing handled by marketing parastatals. Parallel market active particularly for sugar for alcohol manufacture.
Irregular price reviews; complex compensatory subsidy system for distribution which does not reflect real costs.
Other industrial crops
Central Government sets prices. Application varies by region and commodity.
Parastatals involved in many commodities but arrangements vary.
Administered price system overall and low price levels pose serious problems.
Export Crops
Price "differentiels" established annually by MIC set prices at all stages of marketing. Prices applied effectively
Private traders and parastatals compete (on unequal basis);
Low producer prices; inadequate intermediary margins. Complexityof system. Marke-
except for local
parastatalg
ting problems
trade.
dominate export trade.
linked to transport system.
Free market prevails.
Free market prevails,with possibility of regulationat fokonolona level.
Shortages in supplies of firewood and fuel to cities result in high prices.
Forestry Products
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B. Overall Polices and Framework for AgriculturalPricing and Marketing 7.03 Marketing and pricing systems for agriculture in Madagascar are charaLcterizedby a high level of Government intervention designed to regulate trade in agricultural commodities at all levels, and to control
prices from farm-gate to retail
levels.
Overall policies
and actual
marketing and pricing activities by the Government have changed markedly over the past decade, because changes in this field were seen as central to the Government's socialist objectives (para. 2.09) and policies. The Government's objectives are perhaps most clearly articulated in successive laws on economic management, and on marketing and price control mechanisms more specifically. The effective application of these legal and policy instruments, however, has raised many problems, so that actual systems in force and their real impact vary widely. Historical Background 7.04 Efforts by the Malagasy Government to regulate internal marketing of agricultural commodities have a long history, and a myriad of controls and regulations have been introduced at different times since independence (with some control measures going back well into the colonial era). Initially, a primary objective was to prevent speculation in agricultural
commodities, but the scope of interventions has broadenedover time,to cover, for example, taxation applied to trade and prevention of fraud and cattle theft through market regulation. Laws in 1960, 1962, and 1963 established a framework for economic intervention and price controls and established penalties for infractions. A 1965 decree set out a framework for regulating marketing, primarily by requiring the licensing of traders (who were at that time virtually all private sector operators). Movements of some commodities were subject to regulation by local officials (representatives of the Ministry of Interior) and taxes, primarily local, were levied on trade. The principal focus was on cattle marketing, in part in response to Madagascar's cattle rustling problems, which go back far into history. A principal objective of legislation was the prevention of speculation and exploitation of producers; for example, use of uniform weights and measures was mandated and traders were prohibited from purchasing standing crops or from storing commodities before producers were paid. A complex legal regime for export crop marketing, based on stabilization funds, was also elaborated during the 1960s. 7.05 In September 1973, following the 1972 revolution, a comprehensive new law (Ordonnance No. 73-054) touching on all aspects of Government management of the economy was enacted. It provided the basic legal underpinning for subsequent regulations designed to extend Government ownership and control of economic activities, including marketing. It specified that virtually all economic activities are subject to regulation, including imports, exports, storage, internal trade of all kinds, and services. It establishes the authority of the Ministry responsible for National Economy in all these matters. It specifies that the Government can, by decree, intervene to regulate internal trade in all commodities and operate a quota system. The Ministry of Economy is authorized to establish a consultative committee to assist in harmonizing producer and consumer
- 84 prices. The Chiefs of Province had principal responsibilityfor applicationof regulations,including establishingprices themselves. Other importantprovisionsof the 1973law affecting marketing are: (a)
The Government's authority to fix prices for all commoditiesat all stages (minimum,maximum, intermediary margins) is clearly defined (Title IV); prices fixed for a season continue in force until changed. The law does not establish any timing for price reviews or specify commodities subject to regulation;
(b)
The role of intermediariesis defined and regulated. All sales at other than regulated prices are defined as illegal (Section 6, Article 23). The same section specifies that farm-gate purchases (by traders) of the following commoditiescan be prohibited: rice, maize, manioc, wheat, peanuts, beans, butter beans and other beans, coffee, vanilla, cloves, sugar cane, table fruits and fruit for canning, cocoa, coconuts, tobacco,cashew nuts, rafin, ricin, and paka;
(c)
All movement of products "can be prohibitedor regulated" (Section VII, Article 25) in any part of the country;
(d)
Storage and stocking of commodities can be regulated;
(e)
All aspects of imports and exports are subject to regulation;
(f)
Local marketing is regulated by Section XII. The field of coverage includes all trade except that within a local Governmentunit or cooperative,or directly to a processing facility. Only approved traders may operate, and the law specifies that activities of traders can be prohibited under certain circumstances;
(g)
Local market transactionsare regulated; and
(h)
Sanctions are set out in general terms, notably in listing all activitieswhich are deemed illegal. Specific sanctions are not specified.
Other important laws on marketing were enacted in 1974 and 1977. 7.06 Through Decree 74-079 of March 1, 1974 a monopoly was imposed for marketing of paddy and rice through SINPA (para. 4.06), and the legal regime of paddy and rice marketing in Madagascarwas set out. However, Decree number 77-284 of September 1977 modified the 1974 Decree, and specified that productswere no longer subject to the SINPA monopoly. This was a broad-rangingmeasure regulatingmarketing regimes for agricultural products. It provided that marketing of agriculturalproducts throughout
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Madagascar is reserved for the State through state companies or companies with a Government majority for the 1977-78 season. These companies are
authorized executive regulated finance.
to contract marketing to sub-contractors authorized by the committee of the fokontany. Application of the law was to be jointly by the Ministries responsible for agriculture and
7.07 The regime thus established by law involved a theoretical monopoLy by the Government on marketing of agricultural commodities, exercised through the major marketing companies, with heavy reliance on tne fokonolona institutions. Recent Developments 7.08 Additional legal measures on marketing, affecting specifically rice and paddy, were enacted in July 1982 (law of July 30, 1982 (Ordonnance No. 82--017)and Decree 82-336 of the same date). These two measures essentially reaffirmed the monopoly role of the Government in the area of rice and paddy marketing, but specified in much greater detail than earlier measures both the application of marketing regulations and penalties for infractions. One modification introduced in the law was that sub-contracting arrangements between state marketing companies and licensed traders need not be specifically approved by the executive council of fokontany, a provision designed to introduce greater flexibility in marketing arrangements, but the role of local Government entities in marketing was nevertheless reaffirmed and expanded, and their authority to regulate all marketing operations except collection was not restricted. Article 3 specified that rice traded illegally could be seized and sold at official prices. Penalties were (for the first time in marketing laws) specified and involve imprisonment for 2 to 5 years and fines ranging from FMG 50,000 to 50,000,000. Jurisdiction over violations was entrusted to the Special Economic Court created in 1976. The law specified that the Council of Ministers had authority for issuing decrees on application of the law (apparently an indication of the key importance accorded to the measures). The following provisions were specified: (a)
All traders must be licensed and carry an appropriate card, and marketing could be carried out only by licensed traders. Licensed traders could be nominated by local authorities. Licenses and contracts were valid for only
one season; (b)
Movement of paddy or rice within a fivondronam pokontany was regulated by the provincial (faritany) authorities. Movement of rice and paddy between districts (fivondronona) (by whatever means) required a written authorization of the fivondronona authorities or of the state marketing company. The origin, quantity, nature, and quality of goods transported and the itinerary and time must be specified;
(c)
Storage of paddy and rice was regulated by local authorities (firaissam level).
- 86 All paddy stored otherwisewas consideredfraudulent or clandestineand could be seized. Milling of rice was also subject to authorizationand control by local authorities; (d)
Rice sales to consumers required the authorizationof fokontany authorities,except luxury rice which could be sold directly to merchants by state companies;
(e)
Private individuals could trade in rice only with authorizationof local authorities. They could store paddy and rice only for family needs: quantitieswere to be specifiedby the president of the faritany. Producers could transport their product from the site of harvest to storage,with authorizationof fivondrononaauthorities;
(f)
Employees of state marketing companieswere given police power to control rice marketing operationswithin their zones of operations; and
(g)
The Ministries responsible for transport,supply and tourism, finance, defense, interior, commerce, agriculture, and public works were responsible for applicationof the decree.
7.09 After the passage of the July 1982 Legislationthe issue of marketing policy was the subject of active debate in Madagascar. The legislationrequired ratificationby the National Assembly since it was enacted while its Assembly was ajourned, but the Assembly failed to act on the measure during its 1982 session and there was reportedlyactive opposition to the measures. The legislationwas the subject of intense concern, because of its ideologicalconnotations,because it had some direct repercussionson marketing arrangementsin areas where it was applied, and because the measures had implicationsfor both the financial position and administrativeclout of the fokonolona local government institutions. In February 1983 the Government enacted a new ordonnance which suspendedapplicationof the July 1982 Legislation;this measure will require ratificationby the National Assembly, scheduled to readjourn later this year after new elections. The legislativeposition for marketing clearly presents some importanceissues and the Government'sposition on marketing policy is in urgent need of clarification. 7.10 The Government thus has wide authority to intervene in marketing and to set prices. For marketing, the legal framework provides for a specific and relativelycomplex system of controls. For pricing, the system is less precisely defined in the laws, and timing and criteria for prices reviews,for example, are not specified; in practice,no regular, formal system of price reviews has yet developed and price changes have been announced on an irregular basis, generally separatelyfor individual commodities. Prices which are fixed by fokonolonaauthoritiesare not effectivelycoordinatedby the Central Government. Nonetheless,the Government'slegal authority to set and enforce prices should be viewed as far-ranging.
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Application 7.11 While the legal frameworkis a reflectionof the Government's policy intentionsand objectives,the reality of marketing and pricing arrangementsoften diverge significantlyfrom provisionsset down by law. Key factors which have influencedpolicy implementationinclude: (a) the subsistencenature of the economy; only a small share of total production enters commercialmarkets, and subsistenceproductionis only indirectly influencedby officialpolicies and interventions;(b) practical difficultiesin applying marketingmonopoliesand in controllingprices at officially fixed levels; particularlyfor rice, other fooderops,and livestock,productionand trade affect large segmentsof the population throughoutthe territory,and much of the trade is dispersed in nature. It is virtually impossibleto apply a full monopoly system, with Madagascar's present administrativestructure,under these circumstances;(c) local Governmentauthoritieshave substantialresponsibilitiesfor marketing and price administrationwith broad latitudein applicationand enforcementof policies for most commodities. The Government'sability to oversee and support their activitiesin this and other areas is limited. In practice, this has led to wide variationsin the way systems operate, as different fokonolonainstitutionshave respondedto local conditionsand the preoccupationsof their political leaders. In some areas, effective interventionshave been virtuallynon-existent,with a "laissez-faire"or even encouragingattitude towards local private trade; elsewhere, fokonolonaauthoritieshave intervenedactively and directly to enforce the monopoly rules and applied sanctionsto offenders. In general, the institutionshave had importantfinancialincentives to intervenein trade since their revenueshave been derived in very large part from commissions on commoditiesmarketed. There is no systematicinformationavailable on local Governmentactivitiesin this and other areas; (d) regional conditionsand hence productionand market situationsvary widely and seasonalityis an important factor in marketing channels, yet the system of pricing and marketing gives little recognitionof this fact and panterritorialprices are the rule. This has had negative consequencesfor market development;and (e) the parastatalagencies responsiblefor monopolymarketing arrangementshave had manifestly insufficientresources to carry out their vast mandate, and have encounteredenormous management problems. As a result, they have been unable to purchase, transport, process, and distributeproductson a level approachingthat requiredto apply a true monopoly. Commoditieshave often remained unpurchased, farmers have received payments only after long delays, and supply shortages have been common, leading to a pattern of crisis interventionsto resolve criticalproblems. The costs of marketing through parastastalagencies have been very high. 7.12 As a result of all these factors,actual market conditionsvary widely, but in most of Madagascar,the parallel, private market, while generally officiallyillegal,has grown in importanceand fulfillsa vital role. However, there are importantdrawbacks in this situation; notably, the illegalityof parallelmarket trade and attendant risks of participationhave increasedmarketing costs and impeded the development of efficient,establishedmarketing systems. Because of the dearth of systematicinformationon parallelmarket trade, it is difficult to assess
-
88 -
the impact of recent developments on the marketing systems which existed before 1972, but preliminary indications suggest that many traditional circuits have been seriously disrupted, and in many areas parallel market trade is in the hands of new groups of individuals. While this may have advantages in the longer term, for example, in encouraging development of Malagasy traders, it also has costs since new systems must be developed to replace the old, and the uncertain status of parallel market traders and the political risks can discourage entrepreneurial activity from developing. A complex system of enforcement mechanism has developed, with interventions by several central government agencies (including the police), local authorities, and state marketing agencies. The presence of "economic barriers" which regulate interregional trade is cited as one of
the major problems in marketing of many commodities. system of marketing controls and their administration
In summary, the needs to be reviewed
and appropriate modifications in the existing system would yield significant benefits. 7.13 Price control systems have widespread and important consequences, many indirect and not intended by policy makers. First, official producer prices have generally been low by most standards (import/export parity, production costs, and free market levels). Further, there has generally been a decline in real prices over the past decade (Annex 1). Some producers have little alternative but to sell at these prices, notably in areas or for commodities where market outlets can be controlled by parastatals or Government authorities (examples are Lac Alaotra, and cotton). For these farmers, the incentive to produce is dulled and many have reduced area cultivated or labor inputs in response, while others have shifted from the crops affected (rice, cotton, peanuts) to others handled primarily by private channels, which are more profitable. Second, low prices have caused undesirable distortions in marketing channels as trade is diverted to parallel circuits; the larger processing facilities, at which official prices can often be readily enforced, are underutilized, and new facilities, which may be unsanitary (slaughter slabs for livestock for example), inefficient (very small oil presses), or contribute to excess capacity (for example rice hullers) develop and flourish. Third, low prices have had a particularly negative impact on parastatal agencies involved in production activities, since they are obliged to respect official prices and suffer direct financial losses as a result. Fourth, margins in price structures for many commodities have been squeezed in an effort to maximize prices to producers while maintaining low consumer prices (Annexes 1 and 2). This has had consequences for many private sector traders, but have been most serious for parastatal agencies, and the disastrous financial situation of many agencies (para. 6.10) is explained as much by the official price structure as by low efficiency resulting from poor management. Fifth, the benefits of a panterritorial fixed price system in Madagascar are questionable since they ignore wide variations in regional and production conditions and hence tend to favor production in less efficient and less favored regions. Sixth, low producer prices have obliged the Government to subsidize inputs, which adds a financial burden to the Government's budget. Finally, prices have in the past been reviewed on an irregular basis and there has been no systematic or comprehensive mechanism for review of proposals for price changes. This has added an
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element of unpredictability and encouraged both political intervention and crisis mangement in the system. 7.14 The Government is currently considering measures to improve pricze administration systems generally. These include the establishment of an informal interministerial commission to prepare technical analyses and proposals on prices. Further, a new system for evaluation of prices has been proposed which would give particular weight to considerations of relative pricing among commodities. Other key proposed elements to be taken into account in setting prices are the principle that each work dda should be remunerated at the level of the minimum wage, and consideration of input costs. Prices are to be reviewed and announced regularly for each agricultural season, that is in October for annual crops and January for perrenial crops. While this proposal involves some desirable features, it is significant that it includes neither a move towards greater flexibility in price administration system, for example, by using official prices as minimum rather than obligatory or maximum prices, nor does it include any provision for consideration in price reviews of broad economic criteria, notably import or export parity levels. This issue merits further analysis and discussion to clarify both the objectives of change and the specific criteria to be employed in future price reviews. The problem of intermediary price margins, a critical problem for agro-industries, also requires more specific attention. An important additional option which merits consideration is the possibility for selective liberalization of price controls for some commodities in the immediate future, to reduce the negative consequences of official price controls. This would have particular benefits for oil seeds crops such as groundnuts and for food crops and livestock products; in these instances, price controls can be only partially enforced and a de facto move to decontrol prices could have a positive impact. C.
Key Sub-Sectors
Rice 7.15 The rice sector offers the most significant and graphic illustration of the impact of Government's interventions in the areas of pricing and marketing. In summary, the principal problems for the sub-sector result from the far-reaching efforts to apply monopoly marketing arrangements, managed by parastatals, and to maintain low consumer prices even where enormous subsidy costs were involved (paras. 4.06-4.09). The problems outlined above for both pricing and marketing apply explicitly and particularly for rice. 7.16 In our view, far-reaching changes in pricing and marketing policies are critically needed for this sub-sector. An important first step was taken with the May 1982 paddy and rice price increases, prices were again increased in February 1983, but further price increases are needed (para 4.08). Another positive step is the decison to allow free trade in luxury rice, with the price set at more than double the level of regular rice. A second short-term step which should be taken would be the relaxation of the marketing monopoly to allow the legal operation and development of private trade. More fundamental reform options should be reviewed and acted upon when the results of the on-going rice sub-sector
-
90
-
review (para. 4.10) are available,as this will assemble data that is essential for decision making and definitionand evaluation of options for reform. However, it is already apparent (in our view) that reform should take the form of a liberalizationfor the rice trade, which would entail a curtailmentin direct Government involvementin marketing, and introduction of a more flexibleprice adminstrationsystem that would allow room for a range of prices within a band set by the Government. Government marketing interventionscould then be geared to support prices in areas where of in situations abundant suppliespush prices down, and augment supplies scarcity. This could also provide an important element for a food security policy.
Meat Marketing and Pricing 7.17 The livestock sub-sectorprovides a good illustrationof the developmentand impact of marketing interventions,and of the economic impact of policies on sub-sectordevelopmentand specificallyon exports. For cattle, a highly complex,traditional,private system of cattle marketing survives despite successiveGovernmentefforts to reduce or eliminate the role of intermediaries. An important and longstanding feature in the trade, nevertheless,is a complex of licencing requirements affecting cattle movement. During the 1970s, the Government sought to increase its involvement,primarily in the wholesale trade, through the nationalizationof the major meat processingand export companies. These companies compete in the wholesalemarkets with private exporters and wholesale butchers but not with each other, as marketing zones for each parastatalwere established in 1977 in order to ensure the parastatals involvedin cattle marketing a minimum supply. This system of zones, which is a common feature in recent marketingarrangements,is designed to ensure a rational allocationof scarce suplies without upward pressureon prices. No reliabledata of the cattle zone system is available but the experience of parastatalagencies involved in marketing (notablyFAFIFAMA and OMBY) suggests that it has not promoted efficiency. Governmentinvolvementwas extended to the domestic wholesale 7.18 trade in 1977 when OMBY State Farm (a cattle ranching authority)was given the wholesalemeat supply monopoly in Antananarivo. The Government was motivated by its view of the importanceof maintaining supplies to this sensitivemarket at stable prices, and by its general belief that trade intermediarieshad been profiteering. However, this monopoly was coupled with the fixing of wholesale and retail meat prices at levels that were unrealisticin relation to upward moving productioncosts, particularly cattle prices. As a result, the operationwas hopelesslyunprofitablefor OMBY, which never managed to supply more than 70% of the market and incurred severe financial losses (US$6.0million in 1978 alone). Recognizingthe failure of this policy, the Government abolished the monopoly in July 1980 and has since then pursued a more realistic pricing policy, influencedby an IDA-financedstudy of cattle marketing which found that margins in private sector cattle trading generally were reasonable. A pragmaticattitude has also been adopted on beef supply to the capital,and price controlswere effectivelysuspendedin 1982. Public sector institutions,however, continue to supply about one third of the wholesale market. Elsewhere in Madagascar the wholesale trade has remained in private hands, except for the town of Mahajanga where, followinga
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91
-
butchers' strike in 1979, the faritanyestablisheda monopoly over the wholesale supply, entrusted to FAFIFAMA,a developmentparastatal,which has sustained substantialfinancial losses as a result of the operation because the wholesale price was too low. 7.19 In Antananarivo,the recent Governmentinterventionshave had a significantimpact on developmentof retail trade. During the period 1977-82,when wholesale monopolyand retail price controls operated, retailerswere unable to obtain sufficientmeat at officialwholesale prices to supply demand and a parallelmarket operated just beyond the city limits to supply the shortfallin uncontrolledprices. Until late 1981, the volume passing through this market was estimated to vary between 30% and 50% of the total supply to the capital. As the trade was unofficial, animals were slaughteredunder primitive and unhygienicconditions,while the modern facilitiesat the Antananarivoabattoir,which were constructed to handle all the capital'smeat processingneeds, were underutilzed. With the abandonmentof the wholesalemonopoly and the suspensionof price controls the size of the insanitarymarket beyond the city limits quickly dwindled. 7.20 Cattle prices are, in virtually all cases, determined on the open market and there is considerableseasonaland regional variation. Overall there has been a rapid upward movement over the last few years fuelled by expandingdemand facing an inelasticsupply. The aggregate supply and demand picture over the last five years is very unclear as the statistical base is extremelyweak, but demand has clearly expandedquite rapidly. The movement began in the early 1970s when expansion of processingcapacityand favorableworld market prices took Madagascar'sbeef exports to an all-time peak (equivalentof 152,500head exported in 1972, about 15% to 20% of total offtake). Exporting firms eagerly competed for suppliesand sharp price increases resulted,leading the Governmentto step in to control exports. The Governmentalso allocatedmarketing zones in order to reduce competitionand relieve pressure on prices. Subsequently,domestic demand has expanded considerablywith increasingpopulationand with the comparativelyhigh income elasticitytypical of demand for beef. Domestic urban consumptionis at an average annual level of 10 to 15 kg of deboned beef per head in Antananarivo,and reaches 30 kg in some income groups, figures which are high for Africa and which reflect the leading role beef plays in the traditionaldiet. For a period, the Government'sbeef price policy fuelled demand by keeping down the beef price both in absolute terms and relative to prices for other meats. On the supply side, growth appears to have been very slow over a long period, about 0.3% per annum since 1960. This suggests that the long run elasticityof supply is low, due to productionconstraints. The very sluggish growth in herd numbers over such a long period suggests that Madagascaris close to the extensivemargin in livestock rearing. This has very important implicationsfor future orientationof productionand export policy. Beef exports from Madagascar began in 1911 and have long made a 7.21 major contributionto export earnings. However, today, despite excellent potential,beef exports account for only 4% of total export earnings. The export trade is in the hands of the major meat processingfirms. During the export boom of the early 1970s about a dozen private firms prospered, but most of these have subsequentlysuffered severe financial losses and gone bankruptor been taken over by the Government. At the same time new
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-
investments in export processing capacity have been made by the Government, and the great majority of export processing capacity is now in Government hands. The history of exports over the last decade has been discouraging with current exports running only around 25% of the average level of the early 1970s. The initial slump began in 1974 with the dramatic drop in world prices. The negotiation of the Lom£ Convention in 1975 allocated beef high EEC prices. Madagascar a generous quota that earned Malagasy Ilowever,pressures on local supply from export and local demand led to doubled producer prices over the period 1970-74, and even with the slackening of export demand after 1974, prices virtually doubled again in some areas by the end of the decade. Government attemps to regulate producer prices through market monopolies and administrative zonings never succeeded in containing these increases, while the consumer price subsidy in the capital probably contributed to increases in domestic demand. Exporting firms thus found themselves unable to compete on the world market, or even in tlieEEC market. Nonetheless Madagascar probably remains a competitive producer of beef in economic terms; calculations of the domestic resource cost show a commodity specific exchange rate below even firms terms export official exchange rates for 1978-80, when in financial were experiencing severe losses 2/, This suggests that Madagascar should pursue an export subsidy policy: at present, policy is not clearly formulated, with subsidies being haphazardly allocated to the most indigent low rather than the most efficient exporters. In addition, the present of the level of activity and the poor technical and financial management exporting firms add unnecessarily to financial losses. A study of export potential should be carried out with a specific focus on identifying an export strategy comprising proposals for rationalization of export processing capacity (probably including closing the older, less efficient for and for criteria performance, of management plants), for improvement The initial target might be to bring operation of a subsidy policy. exports up to the level of the EEC quota, which would require an increase of more than 100% over present levels. Cotton 7.22 The cotton sub-sector offers an example of the direct impact on production of pricing policies, and is an area where reforms can and should be introduced in the immediate future. Price levels can be considered the most significant factor explaining both increases and declines in production over the past decade. Further, the overall pricing system has proved complex to administer and has had some significant income distribution effects; this is because the price structure has included input subsidies designed to promote increased use of fertilizers and insecticides. This policy has, however, tended to favor the larger
2/
FMG 193 = $1 in 1978 compared with an official rate of FMG 225 - $1 FMG 220 = $1 in 1980 compared with an official rate of FMG 275 =$1
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producers who use higher levels of inputs,while smallholderstend to cultivate lower potential land where use of inputs at high levels is not justified. 7.23 HASYMA has sole responsibilityfor buying and collectingthe seed cotton harvest directly from farmers. In Morondava and the Mangoky deltas this responsibilityhas been delegatedby HASYMA to the parastatalsSODEMO and SAMANGOKY; in other cotton areas HASYMA organized cotton purchases and evacuation. HASYMA arranges cotton weighing and collectionon an individualbasis for larger farms; in small farm areas HASYMA fields tea-ms to purchase cotton followinga pre-announcedschedule at different collectioncenters. HASYMA also organizes the transport of seed cotton from the collectioncenters to the ginneries. These marketing arrangements have generally worked well. However,the recent creation of parastatal transport agencieshas adversely affectedHASYMA's marketing operations, because of the unreliabilityof trucks. 7.24 A major factor in the recent decline of cotton productionhas been its decreasingattractivenessdue to the low levels of seed cotton producer prices. Over the period 1972-1980seed cotton was among the three main agriculturalcommoditiesfor which prices were least adjusted. During that period, the price of tobacco increased by less than 40% and the pricesof cloves and seed cotton by 56%. The increases of officialproducer prices of other agriculturalproducts during the same period ranged from 63% for pepper to 170% and more for sisal, vanilla, and paddy. This comparisonindicates clearly a drastic decline of profitabilityof cotton. This has been further exacerbatedby inflation,indicated by a 180% increase in the price index for private consumptionduring the period. The situationhas changed since 1980. Spurred by the steady decline of cotton production,the Governmenthas increasedprices more rapidly than in the past, resulting in a 60% adjustmentbetween 1980 and 1983. Further, the textile industriesbegan in 1981 to pay a bonus of up to FMG 30/kg for particularlygood harvests. The result has been a 90% price increase over a four-year period which, taken in combinationwith input subsidies,makes cotton productionagain highly attractive. 7.25 While HASYMA's charter clearly defines the basis for calculating fiber price levels based on producerprices of seed cotton, there is no such provision for the establishmentof seed cotton price levels. The charter requires HASYMA to make annual proposals to Governmenton seed cotton price levels before October 31 of each year (as for fiber and cotton seeds). In practice, HASYMA uses farm budgets for two cotton production systems (the large-scaleintensivesystem and the smallholdersystem), to compute average seed cotton productioncosts levels. A margin of 15% is then added, representingprofit (10%) on investmentand a reserve (5%) for
- 94 new investment, to arrive at its proposal for seed cotton producer prices. In 1982, HASYMA proposed a seed cotton price of FMG 142/kg to the Government,but the final price announced was FMG 130/kg, presumablyas a compromisebetween the desire to offer adequate price incentives to cotton producers and the need to keep the prices of textile products low. With the addition of the producer bonus and input subsidy, the final producer price thereforeadequatelycovered production costs. The textile industry paid an ex-ginneryfiber price of FMG 439/kg in 1982, when its contribution to CSPC (FMG 30/kg fiber) and the bonus to producers (FMG 30/kg seed cotton) were also added, the final fiber price was close to import parity prices of fiber, even of lower quality. 7.26 While the institutionof a regular price review system and appropriateprice increaseswould resolve the most critical issues for the cotton sub-sector,a further desirable reform would be a revision of the system to reduce or remove subsidieswithin the price structure. The current subsidy system, initially designed to support a stabilizationfund, and encourage input use (para. 7.22) appears unnecessarilycomplex, and it tends to favor larger farmers. The price structure could be made much simpler by eliminationof the input subsidies,direct payment of the seed revenues to farmers, and integrationof the bonus payments of the textile industry into the fiber and thus the seed cotton price. Export Crops 7.27 The export crop sub-sector offers an illustrationof a distinctivesub-sectorcharacterizedby a complex administeredprice system; the primary issue is the level of producer prices versus revenue needs for the Government. The pricing system for the major export crops is more elaborate and more systematicallyapplied than for many other commodities,and is administeredby the Ministry of Industry and Commerce. Price "differentiels"are published annually, setting prices at every stage from primary purchase point through exports. Despite this complex system, criteria on which price levels are fixed are not clearly defined and the technical evaluationsunderlyingprice recommendationsare based on flimsy data. For example, one element is the cost structure of stabilization funds but costs are difficult to establish in the absence of published accounts for close to a decade. In general, producer prices of the most important commoditieshave been low as a proportionof export prices (for coffee, 31% in 1977-78 increasing to 49% in 1980-81); the margins set at intermediarystages of the marketing chain are also inadequate. A key factor in decisions to keep producer prices low has been the Government's heavy dependenceon revenue generated by export crops as a source of general revenuesand as the financing source of the costly rice subsidies applied between 1977 and 1982 (para. 4.24). As a first step, we recommend that producerprice levels should be increased because of indications that
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low price levels are becoming an importantfactor inhibitingproductionand affecting the effectivenessof marketing circuits. In addition, a comprehensivereview of the stabilizationfund system and of productionand marketing cost structuresshould be undertaken to serve as a basis for consideringmore fundamentalchanges in the existing system, to ensure that productionincentivesare maintainedand efficiencyof marketing arrangementsis encouraged,to redefine the role of stabilizationfunds taking into account the current market position, and to assess the impact of reform options for Governmentrevenues(para. 4.25). VIII. CONCLUSIONS- RECENT ACTION AND PROGRAM FOR THE FUTURE
GovernmentPolicy Statementsand Action The Governmentof Madagascar,faced by a severe economic crisis 8.01 closely linked to the poor performanceof the agriculturalsector, is engaged in an active effort to reformulateits policies and overall strategytowards agriculture,and has begun, particularlyover the past year, to address many of the urgent problems facing the sector. The efforts undertakento date are substantial,and give evidence of a significantcommitmentto reform. Nevertheless,action taken is only a beginning,and sustained efforts will be requiredbefore agricultural productioncan recover and before a sound basis for future agricultural developmentcan be established. This chapter describes the Government's recent policy review exercises and actions, and then sets out general conclusions,elements of an overall strategy for agriculturaldevelopment, and proposals for action in the most critical areas affecting both short-termrecovery and long-term sector development. 8.-102 The Government,and specificallyMPARA, has prepared several recent policX statementson agriculturewhich provide a clearer framework for developmentthan has existed in the past, and propose an overall strategy for future action. This strategy is reflected in several documents,including a draft agriculturalpolicy statement and speeches by the President. In documents circulatedfor an external donors conference in June 1982, the followingelementswere emphasized. The agricultural sector is seen as the principal vehicle for the rehabilitationof the national economy. The guiding principlesof the strategy include: (a) attainmentof self-sufficiencyin food supply (particularlyrice); (b) increased productionof cash crops and beef for export; (c) expansion of basic agro-industriesthrough increasedproductionof cotton, oil crops, sugar cane, wheat, meat and soy beans; and (d) increasingrural employment. The emphasis was on increased smallholderproduction(as opposed to large-scalestate farming ventures),and the focus was clearly stated to be working through existing institutionsand programs, above all
- 96 to provide improved services to smallholderfarmers; new institutionsand new projectswere to be deemphasized. The absence of adequate institutionalmechanismswas cited as the principal constraint to achieving these goals: links between planning, budgeting, and project preparation were to be strengthenedand project supervision and coordinationimproved. This and other recent policy statementshave also recognizedthat past pricing policies have not provided the necessary incentives to the sector and have created a heavy budgetary burden for the Governmentin the form of consumer subsidies. The need for reform of marketing has also been emphasized. We consider that the broad approach to agriculturalrecovery and developmentstrategy reflected in these statementsis sound and well-balanced. 8.03 The Governmenthas taken important steps to implement these policies, including substantial increases in the rice price in May 1982 (consumerprices were doubled in an effort to eliminate the substantial subsidy element), the MPARA reorganizationin September 1982, and measures to strengthensector policy coordinationby giving to MPARA the primary responsibilityfor policy coordination. Intensive management reviews and financial support measures have been undertaken to support key parastatals, while in others (and in MPARA itself), staffing levels have been significantlyreduced in recent months. In addition, several important in-depth studies and reviews have been initiated, including: a management review to design training programs and management improvementmeasures for key MPARA services;management audits of several important agricultural parastatals;technicalassistance to MPARA for a comprehensivereview of the agriculturalportfolio and to prepare a three year investmentprogram based on a realistic assessmentof available resources and viable, priority projects; and a comprehensivereview of critical issues for the rice sub-sector,including production, consumption,market flows, distribution networks, farming systems, and pricing policy. These studies, supported by IDA under the Agricultural InstitutionsTechnicalAssistance Project, are designed to serve as the basis for policy reviews and assessmentof reform options, followed by implementationof appropriatemeasures. Other important recent measures include the transfer of the research institution (FOFIFA) to MPARA, reductions in fertilizersubsidies and a decision in principle to phase out subsidies over time, passage of cost recovery legislationfor irrigation systems, and action on several fronts to address issues affecting the livestock subsector. A start has been made on addressing the complex problems affecting price administrationsystems through the establishmentof an ad hoc interministerialprice review committee. Action was taken in early 1983 to suspend application of a new marketing law which tightenedgovernment controls,but further reform in the area of marketing is urgently needed (para 7.08). Other important issues affectingagricultureinclude mounting security difficultiesin rural areas and the deterioratingtransportationsystem. Nevertheless,the measures taken to date represent an important indicationof commitment to change and reform, and can be seen as a good beginning for a process of reform and structuraladjustment for the agriculturalsector.
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Strategy
for
-
Development
8.04 This report has presented many individual recommendations for emphasis in future development strategies and for specific actions (summarized in Appendix 1). A framework for an agricultural development strat.egy, both short term and for the medium and long term future, is suggested below as a basis for reviewing future policies and action plans with the Government. 8.05 In the short term, the emphasis should be squarely on rehabilitationand urgent recoverymeasures; these should be executed, with rare exceptions,by the more efficient of the existing institutions which should receive support to enable them to operate more effectively. Recovery efforts should focus on regions and commoditieswhich are relativelyaccessibleand which are thereforemost likely to show a quick productionresponse (para. 8.08). New developmentschemes should not be undertakenor new institutionsestablishedunless a compellingcase can be made that such action is essentialand well prepared, and will yield subst:antial benefits. Likewise, the emphasis should be on intensification of existing productionsystems and not, in the short and medium term, on bringing new land into production, since the potential for yield increases on land already under cultivationis substantial,while land development, with few exceptions,is likely to involve costly capital investments. In the short term, recoveryprograms aimed at some large-scaleproduction units and agro-industries(notably cotton, textiles, sugar, vegetable oil processing,and meat processing)are badly needed and could lead to subst:antial productionincreasesbecause they are operating now far below capacity.
8.06 In the medium and long terms, the focus of development strategies,investmentefforts, and agriculturalservices should be on smallholdersand smallholderproductionsystems,which are the backbone of the agriculturalsector. New investmentsin large-scaleand particularly Governmentowned and operated farming ventures do not appear to represent an optimal use of resources. The Government's efforts to control and manage large segments of the agriculturaleconomy, particularlythrough direct managementof State farms and processingindustriesand measures to control directly the marketing systems,cannot be consideredsuccessfuland the policies and their consequencesare an important cause of the current difficultiesof the sector. A pragmatic approach leading to a limitation of such activitiesin the future seems warranted. This would include a halt to nationalizationof private enterprises,limited investmentsin new state-farmingventures, efforts to divest the Government of the more unsuc:cessful and unprofitableparastatalventures, and a substantial reduction in the Government'smonopoly role in marketing. Measures should also be introduced to support private sector involvementin medium-scale farming, processingindustries,and above all rural trade. The Government should consider selling venturesit operates to private interests,or (such as should explore partnershiparrangementsor management contracts
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those applied for sugar). Credit policiesshould be reviewed to ensure that they no longer representan obstacle to private investment in agricuture,particularlyfor farms in the 5-20 ha range. Further elements of both short and long term strategy would be 8.07 reforms in marketing and pricing policies. The private rural trade has continued to operate in recent years but has been stymied and distorted by Governmentmarketing interventions. Efforts to promote rural markets and support Malagasy traders should be pursued, and the complex system of restrictionsand regulationson trade should be substantiallyrelaxed. The system of agriculturalprice administrationneeds to be reviewed systematically. In the short term official producer prices and above all price
margins
should
be set
at
levels
which
encourage
production
and allow
processingand marketing agencies to operate profitably; prices which merit special focus are rice, cotton, sugar and coffee. In the longer term, a price administrationsystem which is not based on panterritorialfixed prices, and which would allow the Government to intervene on a more selective and limited basis in markets, should be developed. Another critical related issue
is
transport
policy
and both
overall
transport
sector strategiesand coordinationmechanismsbetween the two sectors have critical importance. Virtuallyall sub-sectorsof activity need urgent attention,and, 8.08 even in the short and medium term, a balanced approach which addresses the critical needs of the major commoditygroups is needed. In terms of immediateprospects for rehabilitationand recovery, the priority sectors are rice (rehabilitationof large irrigationschemes and restorationof input suppliesand extension servicesin market-orientedareas such as the highlands),cotton (because of its criticalrole for the textile sub-sector),coffee (because of its dominant role in agriculturalexports), and livestock (largely because of the potentiallydisastrous long term consequencesof a breakdown in disease control programs). The Government should reconsider,in dealing with the immediate crisis, the policy of balanced regional developmentwhich it has pursued in an effort to reduce disparities in income distributionamong regions. Efforts should be focused on progr-amsin areas where infrastructureand past experiencegive promise that productioncan be increasedwith relativelylimited inputs of resources.In a medium to long term perspective,however, agricultural developmentstrategiesshould address the issue of regional differencesand needs; because of Madagascar'swide variationsin production systems and developmentproblems, planning,design of projects, and servicesmust reflect regionalvariations. Land use and land capabilitysurveys and. improved data collectionsystems are needed to design such region-specific strategies; this is one of many reasons for stressing the vital importance of immediate, carefully targeted efforts to
reestablish
agricultural
data
systems. The research structureand organizationneed to be strengthened and efforts to introduce and develop seeds of improved crop varieties are likely to yield high dividends. 8.09 A key issue for future developmentstrategies for agricultureis the role of the Government in economicmanagement. What is required is a redefinitionof both the scope and scale of the Government'sdirect management role (which has been so greatly expanded in recent years), and measures
to improve
sector
management
instruments
to ensure
that
public
-
99
-
resources are managed efficiently. An important first step would be to improve mechanismsat the sector level for the allocationand managementof public resources,and to embark on efforts to develop a most critical long term asset, human resources. Plan of Action 8.10 A proposed framework for an action program for the short and medium term future is summarizedbelow and in Table 1; analysis of problems and proposals are discussed in greater detail in earlier sections of the report. This presentationis intendedas an agenda for discussionof sector policy and reform measures. The proposalshere assume that the actions already initiatedby the Governmentwill be pursued vigorouslyand their scope expanded to address the underlyingconstraintswhich have contributedto the poor performanceof the agriculturalsector overall. The proposals are complex and comprehensivein scope, reflecting our conclusionthat a broad-based,long-term strategy is essential. The past decade has resulted in serious disruptionsin agriculturalinstitutionsand particularlyservicesto farmers; many sub-sectorshave been seriously affectedwhile other areas have largely marked time. Long-term training and institutionaldevelopmentmeasures are therefore needed, and the developmentneeds for infrastructure(notablyroads), and rehabilitationof a wide range of plant and equipment,are enormous. Governmentaction on agriculturaldevelopmentshould focus in 8.11 three principalareas: allocationand management of public resources, developmentof institutions,and measures affecting incentivesto produce, notably pricing and marketing interventions. In each area, the action program should include short-termmeasures to alleviate immediate problems, further analysis and review of problems to provide informationneeded for decisionmaking and to define options for reform, and actions which are first steps all areas,
towards longer-term, action can and should
fundamental change build on activities
and development. In and reform measures
which are already underway. Action at the sector level must be closely linked to macro-economicrecoverymeasures which focus on the fundamental issues of the exchange rate policies,resource mobilization,and foreign exchange allocation. 8.12 Public ResourceManagement. Critical problems include weak planningand budgeting systems,poor performanceof investmentprojects resulting from faulty design, weak management,and lack of financialand human resources,confused cost recoverymechanisms, and inefficient mechanisms for allocationof scarce foreign exchange resources. Short-term reform measures should focus on definitionof priority areas for investment and action to remove bottlenecksto project implementationand good management of the most importantparastatals(notably low prices and inadequateprice margins and inadequateforeign exchange). Measures with a longer time horizon include strengtheningbudget systems and planning institutions,continued efforts to establishworkable cost recovery systems; the eliminationof input subsidies,and a review of rural taxation.
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100
-
Development. These problems are particularly 8.13 Institutional complex and far-reaching, ranging from poor policy coordination among to confusion at the for agricultural development ministries responsible operational level resulting from decentralization efforts. Two
particularly performance sector.
urgent problems of the multitude
Urgent
reform
are the weakness of MPARAitself and the poor of parastatal institutions operating in the
measures should focus on vigorous
ongoing MPARAreorganization,
with a focus
pursuit of the
on key production-related
services (veterinary services, irrigation management, input supply), strengthening of the Ministry's planning and budget management services, and some short term in-service training in management. The Government should also initiate action on the parastatal problem, beginning with a systematic review of investments and finances, definition of a framework for a program-contract system, and clarification of budgeting and.financing to define a mechanisms. Longer term measures would include efforts comprehensive manpower development and training program, strengthening of smallholder agricultural information systems, development of effective credit programs, development of an effective extension system, and action of to reestablish a broad agricultural research program. The complex issue decentralization and the future role and financing of local governments also must be addressed, both to resolve immediate operational problems linked above all to marketing, irrigation system management, and credit,
and to establish
a feasible
program for
long term development
of local
government institutions. 8.14 Pricing and Marketing Policies. The complex administered price environment, closely linked to measures designed to impose a Government marketing monopoly, urgently requires reform. The most critical immediate problems relate to rice marketing, where recent legislation tightened controls: little effective reform will be possible until policies are clarified, and in our view a move away from the official monopoly system will be a vital part of any reform program. The long term objective should be to establish more flexible systems which rely less on controls and price setting and allow more flexibility for play of market forces. The Government could thus play a more limited, selective role to promote market development. Introduction of such systems will require extensive prior
analysis consumers,
of current
market
behavior
and the likely
responses
and traders to alternative marketing reforms.
more appropriate marketing a full review of alternative
of producers,
The design of
require and pricing systems would simultaneously institutional arrangements. In the short
framework for price term, recent measures to establish a more systematic reviews through establishment of an interministerial pricing committee and definition of criteria for price reviews should be pursued. Price levels for key commodities which are subject to price controls require regular review and adjustment in the light of policy goals and market trends: the most important include rice, cotton, sugar, groundnuts, and coffee. This explicitly to policies on exchange rates. Margins review should be linked allowed for intermediaries also require review and adjustment in many instances.
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101
-
Conclusion Madagascarhas an excellentagriculturalpotential,with rich 8.15 resourcesand possibilitiesfor developmentof productionin many areas and different commodities. At present,however,productionis far below the proven potential and is stagnatingif not declining. The reasons for the decline are complex and deep-seated,but result above all from the Government'sefforts to extend its control rapidly over the rural economy and a related deteriorationin key institutionsresponsiblefor agriculturalservicesand development. Actions already taken and others proposed above could achieve productionincreases in the immediate future, notably in modern farming enterprisesand processingindustries. However, a broader,long-term approach addressingthe key structuralproblems and involving important changes in policiesis needed if sustained development of agriculturalresourcesis to be achieved.
Table
I
Pa ge
1
A SAGASCAR
AGRICULTURALiSECTOR
Summary
of
Policy
Issues
and
MEMORANI)UM
Proposals
Recent
Policy
Critical
losses
Problems
and
Constraists
Governmest
Objectives
and
Targets
for
lautre
Action
Takin and Action Actions Reform for Short-Tern
Proposed _Levelopmest
Perspectives
and Lo.g-Tero for Median at Progress and Monitoring
1.RESOURCE ALLOCATION AND MANAGeMeNT (a)
(b)
(c)
Mediua term investment for piansing agricultue
Share culture budget
of agriin
in Weakness budget systems
through preparaseeks, Goeersmest in-veotment tion of three-year clear Irogran, to establifh for and criteria priorities and sector at national investments levels.
in both of agriculture - Low share budgets. and 'investment operating to agriculture, flow - Resources and total channels several through unclear. picture
of public allocation To increase to reflect to agriculture resources and to sector accorded priority sector. within priorities
Proposed Action share tncrease for 1983.
budget of preliminary Lak estimates. of parastatal Poor coordination budgets. infarnamanagement financial Poor systems. tion ns,d procedures Rigid e-penditore controls. financinl cumbersome and plans between Poor links budgets. of funds. Slow disborsoment
sore systems budgeting To utilize plan objectives to link effectively programs. and development
Takes Action responsible of department - establishment in MPARA. sod adniaistration finance asd resource of budget review Preliminary issues. allocation
and manlagement Poor project performance. and foreign of funds Shortages slow disburseincloding exchange mest of fonds. for supervision Weak mechanisms prsjectn. of i-nest-eet of poor coordination Generally programs. assistance esternal where projects designed Poorly is implementation effective impossible.
Government gement of to improve mance.
-
(d)
Projct management
Action Taken of ongoing review Preliminary projects undertaken. national of draft Preparation program is snderway.
capability; plasning - Weak sector pl...ing, between - Weak Links and budgeting. design, project MPARA betwees - Poor coordination in the Department and Planning past. of investscreening - Inadequate MPARA and within mest decisions (MIC). Ministries other to plan and authority - MPARA lacks for agricoltural programs implement sector.
-
-
agricultornI 3-year
investment
Proposed Action of field review comprehensive Undertake accurate to obtain projects agricultural priorities. and determine on statos isfornation national three-year of realistic Preparation sector. for agricuntural program and Prograg ming Departments Planning Strengthen -asnge-eot and training of MPARA through systems.
of
agriculture
roiling of a three-year, Establishoen1t systen programming public isevstment policy sector to broader linked systems. -nd planning De-elop-ent capability
sector of strong MPARA. within
plannieg
of flow of funds an.lysis Comprehensive and management sector to agricultural and could is needed, resources of these task of work of proposed form part force.
1o budget
for
manageand financial budgeting Basic and reform review reqoire ment systems adapted better that they are to ensure administraof development to needs from result could Such a review tion. work of proposed task force.
Proposed Action designed e-ercise force task two-year - ERtablish mansand financial and act on budget to review sector. for the agrico1tural is.ues gems-t for new systems management effection Develop department. and administration MPARA fisn-ce
manato emphasize plans and act projects existing perforimplementation
Taken Action of on-goifig Review
projects
bego-.
Proposed Action review. project - Continue and support monitoring project - Strengthen MPARA. within systems dates to address target plans with - Action approwhere problems implemen,tation -erio.s priate. are which to projects to end support Action or hane low priority. u.norkable
for systems of effective Develope.nt design and implemenselectio-, project and good information tation including systems. mositoring
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