CONSULTING SERVICES FOR POOR FARMERS’ INCOME IMPROVEMENT THROUGH INNOVATION PROJECT

(PFI3P)  

I.  BACKGROUND  

01.   ADB’s 2001 country operational strategy (COS), poverty assessment in Indonesia, and 1998 agriculture sector strategy study of and update in 2000, provide the overall context for agricultural and rural development in Indonesia. Agriculture provides employment to a large percentage of Indonesia’s population; substantially meets its food requirements; and provides most raw materials for manufacturing, particularly for exports. However, agricultural growth has stagnated and lagged behind growth of the non agriculture sectors. Policy distortions have constrained growth. While recent initiatives to deregulate the sector have improved sector incentives for farmers, (i) inadequate technology development, (ii) deficient physical and social infrastructure, (iii) weak institutions, and (iv) improper incentives continue to restrict the ability of farmers to respond to sector incentives and improve incomes.

02.   Constraints are particularly severe in marginal rainfed areas, particularly in the drier eastern half of Indonesia. Technology development for these areas has lagged far behind that for well-endowed irrigated areas. Much government agricultural support is planned centrally and does not adequately address location-specific, village-level causes of low and unstable yields and inadequate market access. Inadequate horizontal communication and vertical access to information reduces the access of farmers to technologies, potential markets for their products, market prices, input sources and prices, and potential solutions to farm problems.

03.   Agricultural growth and rural development have always been key to directly reducing poverty in Indonesia. The decline in poverty during the 1970s was due in large part to the rapid growth in agricultural production and the resulting job creation in off-farm employment in agricultural processing, transport, and trade. Poverty reduction impacts have been low since the mid-1980s as agricultural productivity stagnated and returns to farming declined. During the economic crisis, however, agriculture provided a safety net to workers shifting out of declining sectors. Despite the declining importance of agriculture in the economy, about 58% of Indonesia’s poor derive their income primarily from agriculture. About 40% of those engaged in agriculture are poor (the highest poverty rate in any economic sector in Indonesia).

 04.   For poor farmers, the constraints identified by ADB’s COS manifest themselves as impediments to adopting production and marketing innovations necessary to engage in commercial production and access the benefits of wider economic growth. Since technology development has not paid sufficient attention to the problems of the marginal and rainfed areas that poor farmers typically live in, far fewer options for technological innovation are available for rainfed areas than for irrigated well-endowed areas. Location-specific public investments for village roads, storage, minor irrigation, soil and water conservation works, assessment and dissemination of technology in villages, and farmer training have not received adequate support. Information development and dissemination has often not been designed for poor farmers, but rather aimed at promoting increases in food production. This in effect has locked poor farmers into a low-level equilibrium trap preventing them from accessing the benefits of wider economic growth. 

II.  PROJECT OBJECTIVES AND DESCRIPTION

2.1.         Objectives

05.   The long-term development goal is increased innovation in agricultural production and marketing by poor farmers. The immediate project objectives are (i) improved targeting of village-level public investments to location-specific needs, (ii) increased access of poor farmers to information, and (iii) a reorientation of agricultural research to marginal rainfed areas.

2.2.    Project Components

06.   The Project will comprise four components to be implemented over 5 years: (i) poor farmer empowerment, (ii) development of national and local agricultural information resources, (iii)  support  for agricultural innovation development and dissemination, and (iv) project management.

a.     Poor Farmer Empowerment

07.   The component will empower farmers to plan and implement village-level public investments to support innovations in agricultural production and marketing. This farmer empowerment component will involve three subcomponents: (i) mobilization of farmer groups and village planning, (ii) institutional development, and (iii) village-level public investments.

08.   The Project will engage local NGOs (or community organizations) with ongoing community partnerships to work through elected facilitators from the village to mobilize farmer groups. Group formation will be based on village social assessments and ensure that socially disadvantaged farmers will be able to participate in decision making. The NGOs/community organizations will train and support the facilitators, and help establish links between farmer groups and government and private agencies that can support farmers. These design features are intended to maximize beneficiary participation, social preparation, local facilitation, technical backstopping, and the involvement of NGOs and community organizations, all of which have contributed to the success of similar projects.

09.   The Project will establish, develop capacity, and support the operations of three institutions: village project investment committees (VPICs), PFADs, and DCCs. The three institutions will work together to consolidate, scrutinize, approve, support, implement, and monitor investments proposed by farmer groups. These institutions mirror institutions prescribed by the law on decentralization to increase project sustainability and effectiveness.

10.   The Project will support participatory planning in eligible villages to identify innovations and public investments necessary for their adoption. The Project will support the PFADs in their evaluation of village investments. The Project will then provide grants of a maximum of $30,000 per village in the form of village investment funds administered by VPICs to implement approved investments. The VPICs will be assisted in implementation by the NGOs, development partners with whom the VPICs have developed investment proposals, members of the DCC, and government agencies delegated by the bupati. Funds will not be disbursed for private investments or to finance operating costs such as input purchase. Eligibility criteria for village investments are provided in Appendix 3. Investments will clearly be for public goods shown to promote innovations in agricultural production or marketing. Other projects have shown the benefits of increasing the participation of communities in investment design, implementation, and monitoring and delegating responsibility for fund management and contractor supervision to end users.

b.     Development of National and Local Agricultural Information Resources

11.   Capacity-building activities of the Project will address village problems, but realization of higher incomes and poverty reduction requires a favorable broader context within which poor farmers can identify and exploit opportunities for innovation. This component will develop information resources of importance to poor farmers and provide poor farmers with access to them. By accessing these resources, farmers will be able to better align production with comparative advantage, improve access to agricultural input and output markets, and improve their incomes. Specifically, this information resources component will support staffing, operational costs, equipment, and consultant support to (i) upgrade the agricultural market information system of MOA to expand its coverage and scope, and to increase the frequency of its updates; (ii) develop a national farming web site that will become a source of information and eventually a platform for agricultural trade; and (iii) develop information centers at the district agriculture offices that will be linked to the information network of MOA and will disseminate information through traditional media. This component builds upon existing MOA activities with minimal incremental demands on scarce government resources to increase the chance of sustainability and ownership. The potential for private sector participation in the operation of the farming web site has been explored and will be further pursued by MOA. The district information centers will be partly self-sustaining after the Project because they will charge for services.

c.     Support for Agricultural Innovation Development and Dissemination

12.   In addition to the grass-root activities at the core of the Project, upstream initiatives to develop innovations for poor farmers and their dissemination to farmers will enhance the effectiveness of village investments and lay the long-term foundation for improving in incomes of poor farmers. Research programs for marginal rainfed areas need to be developed after careful needs assessments and thereafter funded. The private sector is rarely interested in agricultural research for marginal areas because although returns to this research in terms of income and welfare improvements are high, beneficiaries are often not able to pay for research and private companies are not able to recover research costs.

13.   The Government is trying to reorient its upstream technology development activities to the needs of poor farmers in marginal rainfed areas. This agricultural innovation component will assist the Government by supporting staffing, operational costs, civil works, equipment, and consulting services (i) to support national agricultural research institutes to develop agricultural innovations relevant to project areas (and for marginal rainfed agriculture in general), and (ii) to develop outreach programs to inform farmers of potential innovations to improve agricultural production. The component will also establish a fund to be administered by the provincial assessment institutes for agricultural technology (BPTPs) in each province that contains a project district. This fund will support initiatives of national and local universities, researchers, field agents, the private sector, NGOs, and other agencies to develop innovations for poor farmers in the target area. The fund will also support activities to promote information exchange and capacity building among DCC members, district government staff, and farmers from project as well as nonparticipating villages.

d.     Project Management

14.   This component will support the preparation of project implementation, administration, and monitoring and supervision related to implementation. The Project will finance (i) operational costs of the national steering committee (NSC); (ii) staffing, operational costs, equipment, minor civil works, and consultant support for a national project coordination and monitoring unit (PCMU); (iii) support to develop a project performance management system (PPMS); (iv) costs, including costs of minor civil works, of the project implementation units (PIUs); (v) costs of external audits and independent reviews of NGOs and village implementation bodies; and (vi) costs of the Executing Agency’s project completion report. District governments will support the operational and other costs of the DCCs and PFADs beyond project completion.

15.   The Project will be implemented in about 1,000 villages in the five districts of Temanggung and Blora in Central Java, East Lombok in West Nusa Tenggara, Ende in East Nusa Tenggara, and Donggala in Central Sulawesi. Project area selection is primarily motivated by poverty considerations and the importance of agriculture to the incomes of the poor. Three of the 5 project districts are among Indonesia’s 20 poorest districts of 20 provinces screened. For the five project districts, the overall poverty rate is about 66% according to the village potential data, which uses the Family Planning Agency’s household surveys. This poverty rate is almost twice the national average based on these data. More than 2.75 million poor people live in the project districts.

16.   Poverty targeting of poor farmers will be strengthened beyond the targeting of poor districts because investments will be targeted to poorer villages within these poor districts. Villages within the target districts have been ranked according to their poverty incidence based upon the village potential data. Only villages with more than 40% of households classified as not yet prosperous or minimally prosperous according to these data will be eligible for project support. Further, the ranked list of eligible villages will be provided to district governments, which will prioritize villages after giving due consideration to their poverty ranking and their dependence on agriculture (but also taking into account their own development and poverty reduction priorities). The top half of prioritized villages in a district will be eligible to submit investment proposals during year 1 of implementation in a district, and all villages will be eligible during year 2, thereby according an advantage to poorer villages.

17.   The village participatory process has been designed to ensure that project benefits are directed primarily to the poor within villages without causing social tensions. Groups will be formed only after a social assessment by the NGOs/community organizations has determined the optimal means of group formation to benefit poor farmers. Sometimes, homogenous farmer groups will be necessary to ensure that the needs of disadvantaged groups are adequately address. In other areas, more heterogeneous groups will be appropriate. Since the core of the Project is the development of the participatory process, investment selection criteria are primarily related to the process itself and also aim to ensure that investments meet project objectives.  

III.    SCOPE OF CONSULTING SERVICES