ASIAN DEVELOPMENT BANK

PPA: SRI 19151

PROJECT PERFORMANCE AUDIT REPORT

ON THE

PARTICIPATORY FORESTRY PROJECT (Loan 1183-SRI[SF])

IN

SRI LANKA

March 2003

CURRENCY EQUIVALENTS Currency Unit Sri Lanka rupee/s (SLRe/SLRs) At Appraisal (September 1992) $0.0234 SLRs42.71 SDR1.46 At Project Completion (August 2000) $0.0128 SLRs77.85 SDR1.31 At Operations Evaluation (October 2002) $0.0104 SLRs96.25 SDR1.32

SLRe1.00 $1.00 $1.00

= = =

ABBREVIATIONS

ADB AusAID BFO CFP EIRR FRMP FD FWL m3 M&E OEM PCR PPAR PWL RFO SDR STC TA

Asian Development Bank Australian Agency for International Development beat forest officer Community Forestry Project economic internal rate of return Forest Resources Sector Management Project Forest Department farmers woodlot cubic meter monitoring and evaluation Operations Evaluation Mission project completion report project performance audit report protective woodlot range forest officer special drawing rights State Timber Corporation technical assistance

NOTES (i) (ii) The fiscal year (FY) of the Government ends on 31 December. In this report, $ refers to US dollars.

Operations Evaluation Department, PE619

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAP I. BACKGROUND A. Rationale B. Formulation C. Objectives and Scope D. Cost, Financing, and Executing Arrangements E. Completion and Self-Evaluation F. Operations Evaluation PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design B. Achievement of Outputs C. Cost and Scheduling D. Procurement and Construction E. Organization and Management ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance B. Performance of the Operating Entity C. Financial and Economic Reevaluation D. Sustainability ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. Socioeconomic Impact B. Environmental Impact C. Impact on Institutions and Policy D. Overall Assessment E. Overall Project Rating F. Assessment of ADB and Borrower Performance ISSUES, LESSONS, AND FOLLOW -UP ACTIONS A. Key Issues for the Future B. Lessons Learned C. Follow-Up Actions ii iii vii 1 1 1 1 3 3 4 4 4 5 8 8 9 10 10 12 12 14 14 14 15 15 16 17 17 18 18 19 19

II.

III.

IV.

V.

APPENDIXES 1. Project Framework 2. Project Costs and Financing Plan 3. Summary of Beneficiary Impact Survey Results 4. Project Economic Reevaluation SUPPLEMENTARY APPENDIXES (available upon request) A. Project Economic Reevaluation Supplementary Tables B. Photographs of Homestead Garden and Farmers Woodlot

20 23 24 29

BASIC DATA Project Preparation/Institution Building

TA No. 1157 1777 TA Name Preparation of the Participatory Forestry Institutional Strengthening of the Forest Department Type PPTA ADTA PersonMonths 27 54 Amount ($) 350,000 822,000 Actual Approval Date 16 May 1989 5 Nov 1992

Key Project Data ($ million) Total Project Cost Foreign Exchange Cost Local Currency Cost 1 ADB Loan Amount/Utilization 1 ADB Loan Amount/Cancellation Amount of Cofinancing AusAID World Bank Key Dates Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness Loan Closing Project Completion Months (effectiveness to completion) Key Performance Indicator 2 Internal Rate of Return (%) Borrower Executing Agency

As per ADB Loan Documents 25.0 2.8 22.2 10.5

24.1 3.5 20.6 7.9

2.1 3.9 0.0 Actual 25 Mar15 Apr 1992 2830 Sep 1992 5 Nov 1992 17 Dec 1992 11 Aug 1993 31 Aug 2000 30 Jun 2000 83 PCR 30 PPAR 15

5.8 0.5 Expected

17 Mar 1993 30 Jun 1999 31 Dec 1998 70 Appraisal 13

Government of Sri Lanka Forest Department of the Ministry of Environment and Natural Resources No. of Missions 1 1 1 7 1 3 1 1 No. of Person-Days 32 80 21 61 36 17 32 39

Mission Data Fact-Finding Appraisal Inception Project Administration Review Midterm Review Special Loan Administration Project Completion 3 Operations Evaluation

ADB = Asian Development Bank, ADTA = advisory technical assistance, AusAID = Australian Agency for International Development, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, TA = technical assistance. 1 Approved amount was equivalent to SDR7.249 million. At the time of loan closing, actual disbursements amounted to SDR5.651 million, while cancellations were equivalent to SDR1.598 million. 2 Because the Project involved investment by a large number of rural families that was not financially quantifiable, the appraisal and project completion reports did not calculate financial internal rates of return. This audit report followed the appraisal and project completion report methodology. 3 The Operations Evaluation Mission comprised M. Ozaki, Evaluation Specialist (Mission Leader), L. Saunders (International Consultant), and W. L. Weerakoon (Domestic Consultant).

EXECUTIVE SUMMARY The Sri Lankan economy depends heavily on the natural resource sectors including forestry. The rapid deforestation caused by land clearing for agriculture, encroachment from unplanned settlements, cropping by the landless poor, illegal logging, and commercial timber extraction became a serious environmental problem for the country. The Participatory Forestry Project (the Project) was formulated to address the diminishing forest resources as a result of increaseing in the rural population. The Asian Development Bank (ADB) loan of $10.5 million for the Project, with an attached advisory technical assistance (TA) grant of $822,000, was approved in November 1992. The Executing Agency was the Forest Department (FD) of the Ministry of Environment and Natural Resources. The total cost of the Project was estimated at $25.0 million equivalent, with ADB to finance the entire foreign exchange cost and around 35% of the local currency cost. The Project was to be cofinanced by the Australian Agency for International Development (AusAID) ($5.8 million) and the World Bank ($0.5 million) for the food aid (food coupon) program and adaptive research component, respectively. The Projects objectives were to (i) increase tree planting by farmers and thereby create employment opportunities, raise incomes, reduce poverty, and rehabilitate environmentally degraded areas; and (ii) strengthen the institutional capability of FD to expand its programs for nonforest tree planting, adaptive research, extension delivery systems, and privately operated village nurseries. The Project had four components: (i) participatory forestry, (ii) tree seed and seedling production, (iii) adaptive research, and (iv) monitoring and evaluation (M&E). Participatory forestry was the principal part of the Project, accounting for 93% of the estimated total cost. Its purpose was to develop homestead garden planting, woodlots, and other plantings by involving rural households in exchange for food coupons. The appraisal target was a total of 14,750 hectares (ha) of plantings: 9,000 ha of homestead gardens, 4,000 ha of farmers' woodlots (FWLs), 1,500 ha of protective woodlots (PWLs), and 250 ha of miscellaneous plantings. To offer incentives to participating households, the Project was also to provide them with seedlings and technical advice as well as more secure land tenure through the ownership of trees. The advisory TA grant was to strengthen FDs capability in forestry development through (i) developing and implementing a reorientation program for FD staff to strengthen their capabilities in forestry development, particularly their ability to provide service to farmers; (ii) assisting in evaluation and improvement of the institutional and financial framework for farmers participation in forestry activities; (iii) establishing a benefit M&E system for FD; and (iv) staff training in these subjects. The Project substantially exceeded the physical targets for the participatory forestry component, but did not achieve the expected outcomes for the other three components. The total area planted under the participatory forestry component was 53,075 ha, comprising 36,263 ha of homestead garden planting, 9,808 ha of FWLs, 4,536 ha of PWLs, and 2,468 ha of miscellaneous plantings. The actual total area planted was thus 260% higher than the appraisal target of 14,750 ha and 15% higher than the revised target in 1998 of 46,000 ha. However, the Operations Evaluation Mission (OEM) believes that an area-based target for homestead gardens is misleading because the data reported included homestead gardens that already

iv existed prior to the Project. The number of households that received the seedlings under the Project is considered to be more meaningful. A total of about 462,000 households received seedlings against the appraisal target of 45,200 households. The much higher-than-expected outcome was due to savings from the depreciation of the Sri Lanka rupee, large contingencies in the cost estimate, and an extension of the project implementation period by 1 year. The provision of free seedlings, access to land through the lease agreement, and food coupon incentives to mobilize the rural households all contributed to the level of achievement in the participatory forestry component. The tree seed and seedling production component was expected to establish seed stands and seed orchards with imported seeds to improve the quality of planting stock. However, the OEM observed that there was no significant improvement in either seed quality or seed improvement systems within FD. While seed stands or orchards were established, the OEM did not find that collection and distribution of seeds from those sources occurred. The seed center construction was completed in May 2000; however, presently, the center does not carry out seed production activities due to lack of staff and equipment. Expected research under the adaptive research component was not carried out because submission of satisfactory research proposals to the World Bank was delayed. In the meantime, the World Bank funding for this component was cancelled. The M&E system developed by a consultant was overly complex and its data collection requirements were not practical. The Project met its objectives of increasing tree planting and creating employment opportunities for rural households. Almost 17,000 ha of tree cover was developed under FWLs, PWLs, and miscellaneous plantings. Employment was provided to rural households through planting activities with an estimated 14,000 person-years of employment generated as against the appraisal target of 11,000 person-years. However, some weaknesses in project performance were also identified by the OEM. For FWLs, silvicultural management such as weeding and thinning was not always provided due to insufficient skills and knowledge of FDs field-level staff. The FWL tree survival rate was estimated at 55% in the dry zone, 52% in the intermediate zone, and less than 50% in the wet zone. For those FWLs with low survival or growth rate, the participating households are losing motivation t maintain their woodlots. o Nevertheless, the successful FWLs provide strong incentives and many households are planting trees on other land at their own cost. FDs range and beat forest officers (RFOs and BFOs) who were responsible for extension services now lack social contact with the participating households as this contact was made by the motivators who left FD upon the termination of their contracts at project completion. The lack of institutional memory due to the loss of motivators puts the sustainability of FWLs at risk. In terms of socioeconomic impact on project beneficiaries, based on the OEMs beneficiary survey and field observation, the households that participated in the homestead garden subcomponent expect substantial returns from timber trees after the 25th year of planting. Except for the dry zone, the fruit and other crop seedlings distributed by the Project have had little impact on household incomes and nutrition. At the time of the Project, rural households in the wet and intermediate zone project areas already had well-planted homestead gardens, often developed over several generations, and the Projects homestead garden activitydistributing free seedlingsprovided only small additions to or replacement of old plants, which the households would have done even without the Project. Also, species distributed to homestead gardens, especially in the wet zone, were poorly selected and many of the trees distributed were planted without proper spacing. There are shading effects from those

v trees that will reduce overall production of existing and newly planted fruit trees. Fruit trees in some homestead gardens already show signs of retarded flowering and fruiting due to shading. For FWL and PWL participating households, food coupons were distributed for the initial land clearing, planting, and weeding works. Approximately SLRs318 million equivalent of food coupons were financed by AusAID with an average amount of food coupons distributed per household of about SLRs8,400. FWL participating households also benefited from intercropping between tree stands in FWLs. The environmental impact from PWLs is difficult to assess at this stage; however, there is some evidence of PWLs being of marginal value due to poor tree selection and lack of maintenance. The Projects intention to increase forest cover through a social forestry approach was relevant and timely. The Project achieved the objectives of increasing tree planting and creating employment opportunities through the participatory forestry component. The woodlot and homestead garden establishment substantially exceeded the appraisal targets. Employment generation through woodlot establishment was significant. FD made laudable efforts to achieve the targets and its performance was satisfactory. The Project has played a pivotal role in the transformation of FD from a solely administrative forestry agency to an agency that facilitates the production of woodlots through community involvement. However, the impacts on fruit and crop production from homestead gardens are still uncertain. Approximately half of FWLs are susceptible to diminishing returns of trees due to insufficient maintenance. The economic internal rate of return for the entire Project is estimated at 15%, above the appraisal estimate of 13%. The overall sustainability of FWLs is considered to be likely with approximately half of them in satisfactory condition. The Project provided an opportunity for FD to expose its staff to participatory social forestry operations. However, their involvement and knowledge of social forestry extension services is still inadequate, partly because the attached TA did not cover fully the organizational reform needed for social forestry. Overall, the Project is rated successful. The success of the Project confirms the importance of generating immediate benefits and having well-defined responsibilities for beneficiaries in woodlot establishment. Other key lessons learned include the need for (i) an initial social assessment of the beneficiaries preferences and priorities for planting species, (ii) a realistic review of the extension capabilities of FD and institutionalization of skills for social forestry programs within FD, and (iii) greater involvement of stakeholders in the planning and monitoring of agroforestry interventions and maintenance of timber. The OEM recommends that FD, by the end of 2003, (i) abolish the annual renewal system of the lease agreement due to the heavy workload of RFOs and replace it with a review once every 5 years; (ii) replace the existing agreements with the lease agreement developed under ADBs Forestry Resources Management Sector Project so that FWL leaseholders have the right of harvesting without the consent of FD; (iii) develop and implement a training program for RFOs and BFOs in silvicultural extension and social forestry; (iv) prepare a plan to carry out a systematic seed and seedling improvement program and utilize the seed center for that purpose; and (v) enhance the capabilities of RFOs and BFOs to conduct systematic monitoring and assessment of tree conditions, silvicultural practices, and socioeconomic benefits accruing to the farmers.

vii

I. A. Rationale

BACKGROUND

1. The Sri Lankan economy depends heavily on the natural resource sectors including forestry. The rapid deforestation caused by land clearing for agriculture, encroachment from unplanned settlements, cropping by the landless poor, illegal logging, and commercial timber extraction became a serious environmental problem for the country. In the 1980s and early 1990s, deforestation was occurring at a rate of 40,000 to 60,000 hectares (ha) a year, equivalent to 0.2% to 0.4% of the countrys forestland. To arrest deforestation and introduce comprehensive forestry management, the Government formulated a forestry sector development strategy in 1986 with the assistance of the World Bank and the Finnish International Development Agency. This Forestry Master Plan had the objectives of (i) creating, maintaining, and conserving forests in order to preserve the environment; (ii) protecting and augmenting the supply of small woodlots for fuelwood; (iii) maintaining a sustainable yield of timber and other forest products; and (iv) involving the local community in developing private woodlots and tree farms. An Asian Development Bank (ADB) paper circulated in 1992 1 set out ADBs strategy in the forestry sector of Sri Lanka as continuing support for short- to mediumterm efforts to strengthen institutional capabilities in forest management and resource conservation through small-scale reforestation, fuelwood plantation, and farmers woodlots (FWLs). The Participatory Forestry Project (the Project) was prepared in line with this strategy with the rationale of addressing the diminishing forest resources as a result of the increasing rural population. The Project was also in accordance with ADBs Medium-Term Strategic Framework (19921995) 2 by covering poverty reduction and environmental protection. The Projects strategic development objective was economic growth. B. Formulation

2. In August 1988, the Government requested assistance from ADB for preparing and financing a project to increase fuelwood supply and reduce forest degradation. Technical assistance (TA) 3 was approved in May 1989 to prepare such a project. The TA was completed in June 1990 and an ADB appraisal mission visited Sri Lanka from 25 March to 15 April 1992 4 to reconfirm the consultants findings and to discuss the proposed project with the Government. Loan negotiations between ADB and government representatives were held in Manila in September 1992. The ADB loan of SDR7.249 million, equivalent to $10.5 million at appraisal, with an attached advisory TA5 was approved in November 1992. The Executing Agency was the Forest Department (FD) of the Ministry of Environment and Natural Resources.6 C. Objectives and Scope

3. The Projects objectives were to (i) increase tree planting by farmers and thereby create employment opportunities, raise incomes, reduce poverty, and rehabilitate environmentally degraded areas; and to (ii) strengthen the institutional capability of FD to expand its programs
1 2
3

4
5

ADB. 1992. Sri Lanka: Economic Review and Bank Operations. Manila. ADB. 1992. The Banks Medium-Term Strategic Framework . Manila. TA 1157-SRI: Preparation of the Participatory Forestry, for $350,000, approved on 16 May 1989. The appraisal mission was fielded in the first half of 1992 to incorporate lessons learned from the project completion report (December 1991) of the Community Forestry Project (footnote 12). TA 1777-SRI: Institutional Strengthening of the Forest Department, for $822,000, approved on 5 November 1992. Known as the Ministry of Lands, Irrigation and Mahaweli Development at appraisal.

2 for nonforest tree planting, adaptive research, extension delivery systems, and privately operated village nurseries. 4. The Project had four components, which were implemented in 18 out of the 25 districts in Sri Lanka, excluding the areas considered vulnerable in terms of security (see Map on page vi). The project area covered the countrys three major ecological zones: the dry zone, intermediate zone, and wet zone. The main components and their respective subcomponents were as follows: (i) Participatory Forestry, including (a) homestead garden planting for the growing of fruit, timber, and multipurpose trees in homestead gardens to improve families livelihoods in terms of nutrition, cash incomes, and better wood supplies; (b) FWLs for poor and marginal farmers to grow trees on degraded government land, using an agroforestry approach for both establishing a wood supply and improving the livelihoods of the h ouseholds; (c) protective woodlots (PWLs) for planting trees, and using soil and water conservation measures to rehabilitate erosion-prone government land by local communities; and (d) miscellaneous plantings of trees in schools, public areas, and along railways, roads, and canals to provide an amenable environment and raise public awareness of the value of growing trees; (ii) Tree Seed and Seedling Production, including (a) establishment of about 1,100 private nurseries; (b) collection and use of seed from selected superior local trees; (c) importation of seed; (d) processing and storage of seed; and (e) establishment of seed orchards for seed production or vegetative propagation; (iii) Adaptive Research, including (a) boundary hedgerows/forage crop combinations; (b) contour alley cropping production and soil conservation; (c) creation of forest stands with intercropping of cardamon; and (d) smallholder fuelwood production; and (iv) Monitoring and Evaluation (M&E), including developing an M&E system for FD and conducting benchmark surveys during project implementation on beneficiaries socioeconomic status and project plantations. 5. The major part of the Project (93% of the estimated project cost) was the participatory forestry component to develop homestead garden planting, FWLs, PWLs, and other plantings by involving rural households in exchange for food coupons. To offer incentives to participating households, the Project was also to provide them with technical advice, seedlings, and more secure land tenure through the ownership of trees. The Project included a loan covenant that the Government should privatize the three largest sawmills owned by the State Timber Corporation (STC) by June 1993. 7 6. The advisory TA grant attached to the Project (footnote 5) was to strengthen FDs capability in forestry development. Specific TA activities included (i) developing and implementing a reorientation program for FD staff to strengthen their capabilities in forestry development, particularly their ability to provide service to farmers; (ii) assisting in evaluating and improving the institutional and financial framework for farmers participation in forestry activities; (iii) establishing a benefit M&E system for FD; and (iv) staff training in these subjects. 7. The Project was expected to generate about 11,000 person-years of employment for rural households during its implementation, mainly through planting and maintenance in homestead garden and forestry activities. Additional employment for 1,100 farmers was expected from the operation of village nurseries. Farmers were also to benefit from the sale of fruit, spices, and wood from homestead gardens, FWLs, and to some extent, PWLs.
7

STC is a dominant supplier of quality timber in Sri Lanka. STC had set price of sawlogs at around 5060% of market prices, resulting in reduced Government revenue. Since 1990, STC adopted auction procedures for the log sales. The loan covenant to privatize the STC sawmills was to support the Governments deregulation efforts in the timber market.

D.

Cost, Financing, and Executing Arrangements

8. The total cost of the Project was estimated at $25.0 million equivalent, with the ADB loan of $10.5 million equivalent to cover the entire foreign exchange cost and around 35% of the local currency cost. The project cost included $8.9 million of contingency cost comprising physical contingencies 8 ($1.6 million) and price escalation 9 ($7.3 million). The Project was cofinanced by the Australian Agency for International Development (AusAID),10 which was to contribute $5.8 million for the food aid (food coupon) program, and by the World Bank, which was to contribute $0.5 million for the adaptive research component. The project cost included $6.8 million equivalent of beneficiary contributions by households participating in the homestead garden subcomponent through their labor and fertilizer inputs. The Borrower was the Democratic Socialist Republic of Sri Lanka. The loan was under the standard Asian Development Fund terms with a service charge of 1% per annum and a maturity of 40 years, including a grace period of 10 years. E. Completion and Self-Evaluation

9. The Project was completed in June 2000. The project completion report (PCR) rated it successful. The Project exceeded the appraisal target for the participatory forestry component, but did not achieve the expected results for the other three components. The PCR reported that the total area planted under the participatory forestry component was 52,782 ha, comprising 36,043 ha for homestead garden planting, 9,678 ha for FWLs, 4,635 ha for PWLs, and 2,426 ha for miscellaneous planting subcomponents. The miscellaneous plantings included 1,294 kilometers (km) of plantings on roads and irrigation canals. The actual total area planted was much higher than the appraisal target of 14,750 ha. This was attributed to savings made by the depreciation of the local currency against the US dollar and by the 1 -year extension in project implementation. 10. The tree seed and seedling production component was expected to establish seed stands and seed orchards to improve the quality of planting stock with imported seeds. However, by project completion, there was no significant improvement in seed quality due to the lower-than-expected seed imports and the delay in building the seed center, which was completed only in May 2000. Expected research under the adaptive research component was not carried out because submission of satisfactory research proposals to the World Bank was delayed. In the meantime, the World Bank funding for this component was cancelled. The M&E system developed by a consultant was overly complex and its data collection requirements were not practical. 11. The PCR concluded that the Project improved incomes of beneficiaries through the provision of food coupons, sales of agricultural crops at FWLs, and private nursery seedlings. The Project also improved the institutional capabilities of FD by establishing a trained core of staff and developing participatory forestry approaches. The PCR calculated the net present value per person-day of labor for the homestead gardens and FWL, and concluded that the financial incentive was adequate for households to participate in further activities. Based on estimates of the quantifiable economic benefits from the homestead gardens and FWL models
8 9 10

Calculated as 10% of the base cost. Estimated at 3.7% annually from 1993 to 1998 for foreign exchange costs, and 8% for 1993 and 7% annually thereafter for local currency costs. Known as Australian International Development Assistance Bureau at appraisal.

4 that were utilized for agriculture, horticulture, and timber returns, an economic internal rate of return (EIRR) of 30% was calculated, well above the appraisal estimate of 13%. The PCR attributed the difference to higher real timber prices, lower unit production costs, and an increase in planted areas. 12. Lessons drawn in the PCR included the need for (i) developing an integrated participatory forest resource management approach, (ii) establishing clear land tenure and leasehold entitlements, (iii) adopting active stakeholder participation for targeted poverty reduction, and (iv) introducing an effective M&E systems to facilitate ongoing assessment and beneficiary impact monitoring. The PCR recommended that FD follow up by (i) operationalizing the tree seed center, (ii) seeking additional funding for maintenance work on FWLs and PWLs, (iii) finalizing the lease agreements that had remained unsigned, (iv) preparing a strategic plan for extension and management support for the woodlots, and (v) undertaking a beneficiary benefit monitoring survey. The construction of the tree seed center was completed, but the center is not carrying out the expected seed production functions; instead, it is occupied by staff of FDs research center (para. 24). As of November 2001, all the lease agreements were signed. However, the annual renewal of about 5,000 agreements has been delayed (para. 36). The other follow-up actions are expected to be taken under ADBs Forest Resources Management Sector Project (FRMP).11 F. Operations Evaluation

13. This project performance audit report (PPAR) is based on the findings of the Operations Evaluation Mission (OEM) that was fielded from 27 October to 10 November 2002, taking into account a review of the appraisal report, PCR, discussions with staff of FD, AusAID, World Bank, ADB, and participating farmers at selected project sites. The OEM visited 4 out of 18 project districts: Anuradhapura in the dry zone, Kurunegala in the intermediate zone, and Kandy and Kalutara in the wet zone. The Project was recognized as a benchmark operation of ADB in the forestry sector that focused not only on quantitative targets for planting but also on institutional development in social forestry management. Considering that recent forestry projects have been increasingly emphasizing decentralizing and developing the local authority of FD, the PPAR assesses to what degree FDs reorientation was a result of the Project and how applicable the Projects participatory approach is in the present forestry sector policy of the Government. Copies of the draft PPAR were provided to the Government and ADB staff concerned for review, and their comments were considered when finalizing the PPAR. II. A. PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design

14. The Projects focus of involving farmers in forestry resource maintenance and enhancement with institutional reform was relevant not only to the Governments forestry plan at the time of appraisal, but also to the Forestry Sector Master Plan that was developed in 1995. The latter emphasized the need to increase stakeholder participation within clearly defined roles and responsibilities in growing and managing trees.

11

Loan 1744-SRI(SF): Forest Resources Management Sector Project, for $27 million, approved on 28 June 2000.

5 15. The Project was developed as ADBs second forestry sector intervention in Sri Lanka after the Community Forestry Project (CFP),12 which was completed in 1991. A PPAR 13 on the CFP was prepared in 1992. It reported that the block plantation component was short of the appraisal target, achieving only 6,300 ha instead of 14,000 ha of the appraisal target, mainly due to the lack of experienced staff at FD and unclear demarcation of responsibilities between FD divisions. Other social forestry components made little progress. The community woodlots achieved only 8 ha against the appraisal target of 125 ha and the component was abandoned during implementation. Under FWLs, 1,260 ha were made available from government-controlled lands, falling short of the appraisal target of 4,050 ha. Further, as the land provided for FWLs included degraded and unsuitable land, the component did not encourage farmers participation. The PPAR concluded that there were insufficient incentives for farmers to undertake planting and caring for trees with a reward 10 or more years in the future. Individual farmers required immediate and tangible compensation to work in collective community plantations. Incomplete and ambiguous land lease arrangements led to distrust and nonparticipation by farmers. 16. The project design incorporated lessons derived from the CFP and increased incentives for households. Free seedlings were distributed to the households that already owned lands for homestead gardens. Participation in woodlot establishment was encouraged through food coupon distribution. A 25-year lease agreement was provided for households participating in FWLs, including ownership of the trees in their woodlots. The Projects emphasis on incentives for FWL and PWL establishment was sound to the extent that FD achieved more than the appraisal targets for physical outputs. 17. However, the extension capabilities of FD to implement social forestry activities were not fully assessed at appraisal. The community mobilization was largely carried out by the motivators who left FD after the completion of the Project. Range and beat forest officers (RFOs and BFOs), who are now responsible for extension services to the households, lack sufficient technical knowledge in selection of species, maintenance, and marketing. As a result, provision for routine silvicultural management after the plantation establishment was not sufficiently made. The 25-year land lease agreement for FWL participating households is, in practice, a permit to provide households access to lands because (i) they cannot cut trees without FDs consent; (ii) they do not have instruments to cut, transport, and market trees and depend on the assistance of FD; and (iii) the 25-year lease agreement is subject to FDs annual renewal. There are some delays in processing the annual renewal and growing distrust among the participants regarding the tenure of their woodlots. B. Achievement of Outputs

18. The project framework in Appendix 1 14 compares appraisal targets with actual achievements. Following ADBs midterm review in July 1996 and review mission in July 1998, the physical output targets in terms of hectares were expanded, and project implementation extended, to utilize the large contingencies in the cost estimate and savings from the Sri Lanka rupee's depreciation against the US dollar. Table 1 summarizes the Projects actual achievement against the appraisal and revised (1998) targets.

12 13 14

Loan 568-SRI: Community Forestry Project, for $10 million, approved on 25 March 1982. ADB. 1992. Project Performance Audit Report on the Community Forestry Project in Sri Lanka. Manila. The appraisal report did not include a project framework. The PPARs project framework, covering outputs, objectives, and goal, was constructed based on the appraisal and PCR reports, and OEM estimates.

6 Table 1: Participatory Forestry Land-Use Area (ha)

Subcomponent Homestead Gardens Farmers Woodlots
a

Appraisal Target 9,000 4,000 1,500 250 700 14,750

Revised Target (1998) 31,000 9,000 4,000 2,000 500 46,000

PCR 36,043 9,678 4,635 2,426 1,294 52,782

PPAR 36,263 9,808 4,536 2,468 1,546 c 53,075

Protective Woodlots Miscellaneous Planting Public Lands Roads/Canals (km) b Total

ha = hectare, km = kilometer, PCR = project completion report, PPAR = project performance audit report. a The total area of homestead gardens is an inadequate indicator. The number of households that received seedlings about 462,000is more m eaningful. b Area-based, excluding the miscellaneous planting on roads and canals. c The data for the area-based achievement for PPAR are based on the reports provided by the Forest Department (FD). The Operations Evaluation Mission found discrepancies in area developed for homestead gardens between the data obtained at some of the field sites and the head office data. The data in some locations was 1520% lower than the FD head office data. Sources: appraisal report, project completion report, FD various r ports, and Operations Evaluation Mission e estimates.

1.

Participatory Forestry a. Homestead Gardens

19. The homestead garden subcomponent involved distribution of free seedlings of timber and fruit trees.15 Based on the revised project data from FD, by the end of 1999, a total of 36,263 ha of homestead gardens had been established. However, the OEM believes that an area-based achievement for homestead gardens is misleading because seedlings were distributed also to some households that had already established gardens. Achievement based on the number of households that received the seedlings is considered to be more meaningful. A total of about 462,000 households received seedlings against the appraisal target of 45,200 households. b. Farmers Woodlots

20. By the end of 1999, a total of 9,808 ha of FWLs had been established, 16 145% and 9% above the appraisal and revised targets, respectively. Planting activities by communities were generally satisfactory and an initial survival rate during the woodlot establishment was estimated at around 70%; however, the survival rate had fallen to an estimated 5055% by 2002 (para. 51).

15

16

The Project supplied about 10 million seedlings including timber trees (teak, margosa, acacia, and mahogany) and fruit and other species (coconuts, mango, lime, and orange). The timber tree seedlings were supplied from the private nurseries contracted by the Project and fruit tree seedlings were supplied by the Ministry of Agriculture. The major tree species planted in FWLs were teak and margosa in the dry zone, teak in the intermediate zone, and eucalyptus and teak in the wet zone.

c.

Protective Woodlots

21. Through community mobilization in exchange for food coupons, the Project established 4,536 ha of PWLs, which represents an increase of 202% and 13% over the appraisal and revised targets, respectively. d. Miscellaneous Planting

22. A total of 2,468 ha of miscellaneous plantings took place at schools, hospitals, and temples, as well as 1,546 km along roads and irrigation canals. The motivators conducted awareness campaigns for tree planting, and plantings were carried out by volunteers and school children. Food coupons were not distributed as part of the miscellaneous plantings, which were mainly for amenity purposes and for raising awareness about tree growing at schools. 2. Tree Seed and Seedling Production

23. Seedling production was contracted to local community-based private nurseries. Community members were trained in nursery production techniques and provided with stumps or seed stock for timber tree seedlings. Approximately 1,340 private nurseries were established during project implementation with a production capacity of about 50,000 seedlings per year each. FD purchased seedlings from the private nurseries at SLRs2.5 per seedling. 24. The construction of the tree seed center was completed in May 2000, almost at the end of the Project, due to construction delays (para. 30). Because of the present division of responsibilities for wood production and marketing between FD and STC (para. 46), there is no strong incentive for FD to carry out a seed or seedling production improvement program. As a result, there is no systematic seed improvement program for the center. The center is currently occupied by staff of FDs research center. 3. Adaptive Research

25. The Project included an adaptive research component to assess the priority needs of farmers and site characteristics, and constraints on the adoption of t e project agroforestry h models. The component was to be financed by the World Bank under its Agricultural Research Project, which was implemented from 1986 to 1996. However, as the research proposals from FD were submitted only in February 1998, after the closure of the World Bank project, the funding for the component was cancelled. As a result, no adaptive research was undertaken. 4. Monitoring and Evaluation

26. An M&E consultant was financed under the attached TA. The consultant was to assist in carrying out benchmark surveys to collect data on participating households socioeconomic status. In addition, the consultant was expected to assist FD in preparing annual M&E reports on the performance of farmers and nursery owners, changes in farmers income, employment, technology, and other socioeconomic conditions. The M&E system developed by the consultant was overly complex and not practical for collecting physical, financial, and socioeconomic data. While FD continuously collected the Projects physical and financial data, socioeconomic data on the beneficiaries were not collected. FD conducted a socioeconomic benefit and impact assessment study in 1998 to review the Projects impacts on beneficiaries; however, the data collected by a domestic consulting firm was incomplete and the result of the 1998 survey was

8 considered inappropriate by FD. In 2000, another impact assessment study was conducted. While the 2000 survey was comprehensive, the collected data was not effectively utilized as a benchmark for further project monitoring and management. C. Cost and Scheduling

27. At completion, the total project cost amounted to $24.1 million or 4% below the appraisal estimate of $25 million despite the substantial expansion of the participatory forestry component. ADB disbursements reached $7.9 million against the approved loan amount of $10.5 million. In 1998, $2.1 million in loan savings were cancelled, followed by another cancellation of over $0.1 million. 17 The AusAID funding of $5.8 million for the food aid program was not fully utilized. The actual disbursement amounted to $3.9 million because ADBs approval for the project extension came too late to be incorporated in AusAID programming. The summary of appraisal and actual costs is in Appendix 2. 28. The original loan closing date of 30 June 1999 was extended by 1 year to 30 June 2000 to complete training for the motivators18 and plantation maintenance activities. The loan account was closed on 31 August 2000. D. Procurement and Construction

29. FDs procurement of goods and civil works was undertaken according to ADBs Guidelines for Procurement, and recruitment of consultants was carried out in accordance with its Guidelines on the Use of Consultants. The ADB loan financed 24 person-months of consulting service for land identification, and the attached TA 54 person-months in three different areas (para. 31). A consultant for women-in-development was recruited under the AusAID funding. 30. It was planned that 94 buildings would be constructed. The actual disbursement was 83 buildings (69 field offices and quarters, and 14 extension and inspection centers). The Government's complicated civil work bidding processes and weak local contractor capacity resulted in delays in construction and the shortfall in the number of buildings. The delay in construction of the tree seed center partly contributed to the unsatisfactory result of the tree seed and seedling production component. Due to the low quality of construction, some of the buildings are no longer functional. 31. The attached TA financed two international consultants (a forestry specialist and a tree improvement specialist) and a domestic M&E specialist. The forestry specialist was expected to develop and undertake training courses in silviculture, land-use planning and extension, and establishing species and site-matching guidelines. The tree improvement specialist was to produce reports and manuals on the establishment and management of tree seed sources , seed collection and technology, and to conduct staff training on seed technology. The M&E specialist was expected to assist in beneficiary socioeconomic surveys. Except for the tree improvement specialist, the outputs of the TA consultants were assessed by FD as less than satisfactory. The training developed by the forestry specialist was unsatisfactory, resulting in an additional forest training and extension consultancy being proposed later in the Project. The
17 18

At completion, actual disbursements amounted to SDR5.651 million, while cancellations were equivalent to SDR1.598 million. During the project period, there was expectation within FD that the motivators could be absorbed by FD as extension officers. Thus, the extension training for the motivators continued until the final year of the Project.

9 M&E system developed by the specialist was overly detailed and FD considered that it was not feasible for implementation. The tree improvement specialist produced manuals on the establishment and management of tree seed sources, seed collection, and technology. The specialist also organized training. The manuals were assessed as of good quality and used in selection of seed production areas in the field. E. Organization and Management

32. FD implemented the Project in accordance with the arrangements agreed at appraisal. The conservator of forests19 (education and extension) was appointed as the project director. Two conservators of forests were to assist in the implementation of the tree seed production and adaptive research components; however, those two components were not fully implemented. A total of 53 RFOs and BFOs were to be recruited under the Project. However, there was no new recruitment; instead, the existing officers were given additional responsibilities to implement the Project. Because RFOs and BFOs were carrying out other FD routine functions and the administration of the land lease agreements, their involvement in technical extensions for the homestead gardens and FWLs was limited. A total of 268 motivators were recruited and provided with training to undertake social mobilization and liaise between communities and FD. A project steering committee, comprising the secretary and senior representatives of the Ministry of Environment and Natural Resources, Ministry of Finance, Ministry of Plantation Industries, and the director of the Forestry Planning Unit, was established to monitor overall project progress and deal with policy issues. To review project progress, a project implementation committee was established under the leadership of the conservator general of forests with the concerned officers of FD including divisional forestry officers. 33. With three exceptions, ADB loan covenants were fully complied with. A covenant that required FD to release funds periodically to the respective divisional secretaries or local cooperatives for food coupons for FWLs and PWLs maintenance works was partly complied with. At the time of the PCR, there was a shortfall in funding for food coupons for maintenance work on FWLs and PWLs for 2002 and 2003 of approximately SLRs38 million. FD made a commitment to ask the Government for the fund, but it failed to do so. FD now expects to utilize funds under the FRMP for cash payments to the participating households for maintenance of the Projects FWLs and PWLs. 34. The covenant that FD should conduct benchmark surveys on a district basis to assess the impact on beneficiaries was not complied with during project implementation. Instead, the surveys were replaced by the two socioeconomic benefit and impact assessment studies in 1998 and 2000. 35. The covenant mandating that the Government privatize or cease to operate the three largest sawmills owned by STC by 30 June 1993 and undertake a study to explore the possibility of privatizing STC's sawmill operations in general by 31 December 1993 was not complied with. As no appropriate methodology to facilitate the privatization was proposed in the project design, it was agreed during the ADB midterm review mission in July 1996 that the covenant was not appropriate.

19

During project implementation, the project director was designated as the deputy conservator of forests; however, after FDs organizational change in 2000, all deputy conservators of forests and conservators of forests were converted to conservators of forests and conservators general of forests, respectively.

10 36. The PCR recommended that FD finalize the lease agreements for FWLs that were still unsigned and those for which annual renewal was delayed. As of November 2002, all the agreements were signed; however, the annual renewal of 5,163 agreements was still pending. III. A. ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance

37. The OEM assessed the Projects operational performance against its objectives and expected benefits at appraisal. The Project aimed to reduce deforestation and generate employment through tree planting by farmers. Specifically, the Project was designed to generate benefits in the form of employment, wood and crop production, environmental protection, institutional development, and reduction in poverty. Achievements in environmental protection, institutional development, and impact on the poor are discussed in the following sections. This section focuses on impacts from reducing deforestation, employment generation, and wood and crop production. 38. The most notable achievement of the Project was the increase in forest cover in the rural areas. The Project reclaimed sparsely used cropland and scrublands that had earlier been used for chena cultivation. 20 Almost 17,000 ha of tree cover was developed under FWLs, PWLs, and miscellaneous plantations comprising 1% of the countrys sparsely used land. Establishment of the woodlots through household participation generated some awareness among rural households of the value of planting trees. After the establishment of FWLs, some households voluntarily purchased tree seedlings and planted on their own lands. In the dry zone where homestead gardens are still being developed, tree seedlings supplied by the Project had significant afforestation effects. 39. During the implementation period, the Project involved a total of 500,038 households under the participatory forestry component (462,046 for homestead gardens, 22,829 for FWLs, and 15,163 for PWLs).21 However, the numbers are misleading because many of the households participated in both homestead garden and FWL activities and, therefore, were counted twice. 40. The Projects employment was largely generated through FWL and PWL planting activities. Its effect was significant with an estimated 14,000 person-years of employment generation against the appraisal target of 11,000 person-years, though for a relatively short period. The Project provided food coupon payments to FWL participating households for land clearing, planting, and weeding for the initial 3 years of the woodlot establishment. Most of FWL participating households engaged in chena cultivation or owned other crop lands while participating in the FWL activities. The food coupons constituted a strong incentive for the households as they provided a higher return than chena cultivation. In this regard, during the initial phase of FWL establishment, the food coupons provided significant supplemental income to the households that depended on low return chena cultivation. However, this was for a short duration only and after the completion of the maintenance phase of FWLs, there was no continuous income until the first rotation of pre-commercial thinning, which should be carried out in the 7th year after planting, commercial thinning in the 14th year, and the final harvesting,
20 21

Chena cultivation refers to a farming system in which forestland is slashed and burned to grow an annual crop. After the soil fertility is depleted, the farmer shifts to a new site. The miscellaneous plantings were developed by volunteers organized by each participating organization. Such volunteers are not counted as beneficiary households.

11 which will occur after the 25th year. The employment effect of PWLs was similar to that of FWLs. 41. A total of established 1,340 private nurseries were established to produce seedlings for the Projects homestead gardens and woodlots. However, after the project completion, FD ceased purchasing seedlings from these nurseries and many of them could not find alternative demand for the seedlings. Except for a few nurseries that started ornamental plant production for the local market, most of the private nurseries ceased operations. In hindsight, private nurseries were necessary to meet the seedling demand during project implementation. However, after project completion, the local demand for tree seedlings was small and the nurseries were not expected t be sustainable. Employment generation from other activities o such as the civil works and adaptive research was insignificant because the civil works were carried out by a small number of government contractors and the adaptive research component was cancelled. 42. In terms of the Projects effect on crop and wood production, the households that participated in the homestead garden subcomponent expect substantial returns from timber trees after the 25th year of planting. However, at this stage, except for the dry zone, the fruit and other crop seedlings distributed by the Project have had little impact on household incomes and nutrition. The OEMs field observation and FD data confirmed that the dry zone home gardens, which constituted 26% of the households participating in the subcomponent, are still being established, and with lower tree density. The Projects seed distribution had substantial incremental effects in tree and fruit production in the dry zone home gardens. In the wet and intermediate zone, rural households generally had already established homestead gardens, so seedlings provided under the Project mainly served as replacement for the old plants or a few additional plants to already densely planted gardens. The indicative results of the OEMs survey (Appendix 3) and field observation confirmed that, at this stage, there was no significant difference in development of the homestead gardens between the project area and nonintervention area. 43. It was found that the tree seedlings provided by the Project are creating some shading effects on existing trees and there are already some indications that shading from the planted timber trees is reducing flowering, especially of young lime and mango trees in homestead gardens. 44. The performance of each FWL in terms of survival and growth rate varies depending on the climatic zone. In terms of stocking, which compares the number of existing trees with the desirable number to optimize commercial values, in 2000 approximately 60% of FWLs were estimated as moderately to well stocked, thus having potential for trees to mature to substantial commercial values (Table 2). The OEM found that there was some deterioration in terms of survival rate especially in moderately stocked FWLs, and estimated that approximately 50% of FWLs were in moderate to poor condition due to the lack of proper routine maintenance and unsuitable tree species. Nevertheless, wood production from FWLs is considered to be satisfactory due to the expansion of the planting area. A total of 1.4 million cubic meters (m 3) of wood production is estimated from all FWLs against the appraisal target of 1.7 million m 3, of which 1.2 million m 3 will be from final harvesting and the rest will be from thinning.

12

Table 2: Degree of Stocking of Farmers Woodlots (%)

Degree of Stocking Understocked Moderately Stocked Well Stocked c Overstocked
a

Dry Zone 6.5 38.5 48.5 6.5

Intermediate Zone 50.2 29.2 16.9 3.7

Wet Zone 37.6 33.7 22.0 6.7

Total 31.4 33.8 29.1 5.6

The degree of stocking was estimated based on the ratio between the present number of trees and the originally expected number of trees per woodlot: understocked (<0.5), moderately stocked (0.5= 0.8), well stocked (0.81.0), and overstocked (>1.0). b The total may not add up due to rounding. c Overstocked woodlots include those where pre-commercial thinning has not been done. Trees are expected to have lower commercial values due to their small diameter. Source: Forest Department Social and Environmental Impact Assessment 2000.

B.

Performance of the Operating Entity

45. The Project was managed by different operating entities depending on subcomponents: homestead gardens by individual participating households, FWLs by individual households that signed the lease agreement with FD, PWLs by FD, and the miscellaneous plantings by organizations that planted trees. For FWLs, the participating households were expected to be legal owners of trees under the 25-year lease agreement. However, in reality, the households have no autonomy or control over the trees in their woodlots because the 25-year lease agreement is a de facto annual permit (para. 17). 46. FD does not have financial autonomy or enough human resource capabilities to expand tasks from the traditional administration of logging and forest alienation to organizing social forestry programs. The present institutional arrangement, in which FD is responsible for the production of wood and STC is responsible for harvesting and marketing, is a major disadvantage for FD. Due to this separation of marketing from FD, the FD field staff have not developed their technical skills and knowledge of wood marketing. Their lack of understanding about the value of trees in woodlots limits their services to FWL participants to maximize commercial value of the trees. FD depends on the Government's budgetary allocation for operational and administrative expenses. Much of FD's social forestry functions are not routinely funded and depend more on project-linked funding. Without financial autonomy, FD is constrained in terms of longer term financial planning for institutional development for social forestry programs. C. Financial and Economic Reevaluation

47. The Projects economic analysis is based on forestry and horticultural outputs under the homestead garden and FWL subcomponents (Appendix 4). Benefits derived from PWL and miscellaneous plantings are excluded because these subcomponents serve soil conservation and amenity purposes, and their benefits are difficult to quantify and value. 48. Based on the fruit and timber tree returns from the seedlings supplied by the Project, the homestead gardens yield EIRRs of 27%, 14%, and 13% for the dry, intermediate, and wet zone, respectively. The OEMs field observations and FD data show that the dry zone homestead gardens achieved incremental benefits from both timber and fruit. However, in the intermediate and wet zones, seedlings provided by the Project were rather small additions to the existing fully

13 planted gardens or replacement of old plants. Also, species distributed to homestead gardens, especially in the wet zone, were poorly selected and many of the trees distributed were planted without proper spacing. There are shading effects from these trees that will reduce overall production of the existing and newly planted fruit trees. Fruit trees in some homestead gardens already show marked retardation of flowering and fruiting due to shading. Thus, benefits from fruit trees in the intermediate and wet zones with and without the Project are considered to be marginal. Despite that, the EIRRs of these homestead gardens exceed 12% threshold because of their low investment cost (economic cost of rural family labor) and expected high timber tree returns in the 26th year. 22 49. For the FWL subcomponent, the EIRRs are estimated at 13%, 14%, and 13% for the dry, intermediate, and wet zone, respectively. FWL models are based on an average plot size of 0.4 ha with a predominant species (teak or eucalyptus) or mixed species (teak/margosa) depending on the climatic zone. FWL models incorporate the revised survival and growth rates estimated by the OEM and include crop returns from intercropping for the first 2 years of the woodlot establishment. The without project situation is land being used for chena cultivation with a 3-year rotation. The EIRR for the entire Project is estimated at 15%, which is above the appraisal estimate of 13%, but significantly b elow the PCR estimate of 30% due to lower incremental fruit and timber production for homestead gardens and lower tree survival rates for FWLs. 50. To determine the financial viability of an operating entity (a rural household), 23 the appraisal report estimated that the annual incremental cash income for households participating in the homestead gardens (using the 0.5 ha model) would range from SLRs6,900SLRs29,700 (in 1990 prices) for the different climatic zones. In constant 2002 Sri Lanka rupees, this is approximately equivalent to SLRs7,500SLRs32,000. For FWL models (using a 0.5 ha model), the annual incremental cash returns were estimated at SLRs1,100SLRs5,200 (in 1990 prices), equivalent to about SLRs1,200SLRs5,700 in constant 2002 Sri Lanka rupees. The homestead garden returns were based on crop and horticulture activities, and for FWLs, the returns were based on a model that involved horticulture production. The returns did not include income from timber. The OEM has reestimated incremental incomes for participating households based on the same homestead garden and FWL model used for the PPAR EIRR calculation. Because returns from timber trees occur at certain intervals, the reestimated incremental income for a homestead garden in the dry zone is about SLRs4,000 from the 15th to 25th year and SLRs37,000 in the 26th year. For the intermediate and wet zones, where returns from fruit trees are considered to be small, the expected incremental income is about SLRs50,000 SLRs60,000 in the 26th year. For FWLs, approximately SLRs30,000SLRs60,000 incremental income is expected in the 15th year after commercial thinning and about SLRs700,000 SLRs1 million in the 26th year after the final harvesting.

22 23

The EIRR calculation is based on the assumption that the final harvest will be organized in the 25th year of the planting and cash benefit will be accrued in the 26th year. Financial internal rates of return to measure financial viability at the household level were not calculated at appraisal, because investment by the participating households was limited to labor inputs and no financial investment was involved. The PPAR follows the appraisal methodology and calculates expected income per beneficiary household.

14

D.

Sustainability

51. The homestead gardens in the project areas are well managed and are expected to be sustainable. Survival and growth rates on FWLs are variable depending on the level of maintenance that has been applied. The plantation establishment requires not only one-time planting, but also routine operations, such as weeding, thinning, and fertilizing, which need to be carried out at regular intervals. Based on the OEM observation, tree survival rate in the dry zone in estimated at 55%, intermediate zone 52%, and less than 50% in the wet zone. For the successful FWLs where tree form, maintenance, and survival are generally of high standard, the participants increasingly realize the market value of trees and grow more trees on their lands at their own expense. For such FWLs, the perceived value of the trees warrants the continued input of labor and management. The moderately or poorly managed FWLs are susceptible to loss or diminishing returns because of the lack of sufficient technical and marketing support to optimize the market value of trees. The present low survival rates due to insufficient silvicultural management cause the participants to attach lower values to their tree stands and make less optimal decisions regarding thinning, thereby limiting the potential value of the remaining standing stocks. 52. For PWLs, FD paid out food coupons for planting. However, PWL maintenance was left to the communities. Because the communities do not see any realistic environmental and commercial benefits, PWLs were largely neglected and the overall survival rate is low. In 2002, the proportion of well to moderately stocked PWLs was about 35%. Schools, hospitals, and other organizations that were involved in the miscellaneous plantations appreciate their amenity values, and the plantations are generally well maintained. IV. A. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

Socioeconomic Impact

53. The Projects target beneficiaries were to be rural households whose members were farmers, agricultural laborers, and share croppers. In addition, participating households were to be selected based on the criteria set for each subcomponent. For homestead gardens, the participants should be rural households with land title or leaseholds. The participants in FWLs and PWLs should not have a family income that exceeded SLRs1,500 per month at 1992 prices. In practice, FD distributed seedlings for homestead gardens through third party agencies such as farmers and community-based organizations and did not keep reports on recipients or actual area planted. The selection criteria for FWLs and PWLs were generally followed. The motivators conducted a survey of the household profile before the selection of the participating households. 54. To measure the Projects socioeconomic impacts, the OEM conducted a beneficiary impact survey of 46 participating households in the Projects homestead garden and FWL subcomponents, and 48 households in nonproject-intervention areas as control in two districts in the intermediate and wet zones (Appendix 3). While tree seedlings supplied by the Project would yield substantial returns in the future, it is considered that the impacts on household income and nutrition from homestead gardens fruit and other crop production are insignificant in the intermediate and wet zones. Between the households in the project-intervention areas and the control areas, there are no significant differences in terms of cash income, occupational

15 type, and livestock ownership. 24 By contrast, in the dry zone, the Projects supply of seedlings can be considered as a significant contribution to rural households, which often depended on chena cultivation before they started homestead gardens. 55. Approximately SLRs318 million equivalent of food coupons were distributed to 37,992 households that participated in FWLs and PWLs for the initial land clearing, planting, and weeding works. The average amount of food coupon per household, approximately SLRs8,400, was substantial considering the majority of the households surveyed had incomes below SLRs5,000 per month. The households reported that they exchanged food coupons at local cooperatives for food, agricultural tools, and fertilizer. FWL participating households also benefited from intercropping grown between tree stands in FWLs. The surveyed households responded that they earned SLRs1,000SLRs2,000 cash income per season from intercropping. 25 Some households grew crops for 3 consecutive years. From the pre-commercial thinning, which should be carried out in the 7th year after planting, the participating households expect revenues of about SLRs250SLRs300 per pole; however, the OEM observed that thinning is behind schedule in most of FWLs. The participating households are reluctant to cut trees because the demand for poles is small and farmers have difficulty in finding the proper market for them. The major benefit of FWLs will occur at the final harvesting, which should be carried out after the 25th year of planting. The households interviewed expect that at full maturity, a tree on average would be worth about SLRs10,000 for teak and SLRs2,000 for margosa. However, tree stands are susceptible to loss or diminishing returns during the 25-year maturity period, depending on the level of silvicultural management applied. Government commitment is required to provide continuous technical support for the households and assistance in maintenance, harvesting, and marketing. The FWL participating households, in general, consider trees at their woodlots as long-term savings that they could sell when they need a large sum of cash such as for a funeral or childrens education. With regard to the private nurseries, workers received about SLRs125,000 a year of revenue each from the nursery operation during project implementation. B. Environmental Impact

56. Overall, the Project generated positive environmental impacts. The Project contributed almost 17,000 ha of forestry cover through the development of FWLs, PWLs, and miscellaneous plantings. Within the reclaimed area, 4,536 ha of PWLs were established for soil conservation and erosion control, and water catchment protection. However, their effects on soil conservation and erosion control purposes are considered to be insignificant, as PWLs were not provided enough maintenance and protection. C. Impact on Institutions and Policy

57. The attached TA provided motivators, RFOs, and BFOs with training in silvicultural management and participatory extension skills. Divisional forestry officers and other higher level staff received silvicultural management skills training, including overseas training. Except for
24

25

The survey included the question on livestock ownership as an indicator of household wealth. Between the project intervention areas and control areas, there were no significant differences in livestock ownership. In Warakalanda (with the Project), 4 households own livestock (cattle, buffalo); and in Nilambe (without the Project), 4 households own livestock (cattle, buffalo, and goat) in the wet zone. In Usgala (with the Project), 6 households own livestock (cattle); and in Aludeniyaya (without the Project), 4 households own livestock (cattle, buffalo, and goat) in the intermediate zone. The households grew crops such as maize, chili, and millets between tree stands at FWLs for 2 to 3 years before tree leaves started shading.

16 one, all the trained staff are still with FD; however, dissemination of knowledge to lower level staff is limited. Except for the tree improvement consultant, the TA consultants inputs were assessed unsatisfactory (para. 31). FD is still highly centralized and field-level staff are not adequately skilled apart from planting trees to meet physical targets set by the head office. Most of the RFOs and BFOs are not capable enough to advise local communities on routine maintenance operations such as loss replacement, weeding, and thinning, much less to assess the needs and incentives of the rural households. The motivators, who had become good catalysts between FD and the communities during project implementation, were released from their FD employment upon the termination of their contracts in 2000. In hindsight, the use of motivators limited the learning opportunities for RFOs and BFOs in community participation and social forestry. RFOs and BFOs could have been given the training and task of the motivators. The loss of institutional skills is considered to be a concern for the sustainable operations of FWLs because RFOs and BFOs who are now responsible for extension services lack sufficient social contact with the participating households. 58. Institutional strengthening was a stated objective of the Project. The Project provided FD with an opportunity to transform itself from a traditional enforcement and administrative agency to a more development-oriented institution. FD became more open about and supportive of the concept of local community development in social forestry. The Project provided an institutional basis for FD to undertake the ongoing FRMP that aims at establishing participatory sustainable forest management and enhancing the access of local communities to gainful employment and human resource development opportunities. The FRMP represents a major reorientation for FD from solely planting and administering forests to facilitating community forestry resource management. The FRMP implements various components including community-based agroforestry and social forestry development, and has incorporated a few lessons derived from the experience of this Project. The legal basis and tenure of the land lease agreement have been strengthened with the lease period for up to 50 years. A participatory rural appraisal system has been introduced to organize forest mapping, assess the growing stocks, and determine principal management regimes and practices with beneficiaries. Finaly, a new participatory forestry training program will be developed to train RFOs. D. Overall Assessment

59. Relevance. The concept of reducing deforestation through community participation was and remains relevant, given the pressing need to address the environmentally destructive practice of chena cultivation and shortage of fuelwood. The provision of food coupon incentives accelerated the physical progress and helped achieve outputs significantly higher than the appraisal targets. However, some institutional arrangements and risks were not realistically thought through at the time of appraisal. The Project was overreliant on the existing extension capabilities of FD in silvicultural management, and the strengthening of FD field officers skills to provide technically sound silvicultural extension services was inadequate. The seed and seed production, and adaptive research components were relevant in view of the increasing demand for quality timber; however, the centralized operation of FD was not well-suited for such decentralized activities. On balance, the Project is assessed as relevant. 60. Efficacy. The Project achieved the objectives of increasing tree planting and generating employment opportunities through the participatory forestry component. The homestead garden and woodlot establishment was well above the appraisal target. Employment was provided to the rural households through planting activities. The objective of the institutional strengthening of FD was met, as there was significant institutional development in terms of reorientation to social forestry within FD. At the same time, project performance had some weaknesses. The

17 contribution to incremental income and nutrition from fruit trees and other crops supplied to the homestead gardens in the intermediate and wet zones was low. Approximately half of FWLs are at risk in terms of sustainability and optimizing benefits. PWLs' environmental effects are questionable. The TA was attached to promote institutional reform within FD; however, the TA focused more on silvicultural technical aspects and provided little on organizational management. The other three componentsseed and seed production, adaptive research, and M&Ewere not fully carried out. Despite these shortcomings, considering the significant achievements in the primary objectives, the Project is assessed as efficacious. 61. Efficiency. The appraisal targets for the participatory forestry component were substantially exceeded. The yield and survival rates of FWLs are lower than the appraisal estimates, but due to the expanded planting areas, the overall project EIRR is reestimated at 15%, above the appraisal estimate of 13%. The Projects achievements were above Overall, the Project is assessed as efficient. 62. Sustainability. Homestead gardens, especially in the dry zone, are sustainable as they gardens are generating incomes for the households, which thus have an incentive to maintain them. For FWLs, approximately half the woodlots that are presently well maintained and show satisfactory yield will be sustainable because the participating households regarded them as long-term savings and insurance. The moderately or poorly maintained FWLs are facing risks, and the loss of the motivators is a concern for sustaining silvicultural inputs. The sustainability of PWLs is questionable because they are not maintained, and suffer occasional theft and fire. On balance, the Projects sustainability is likely. 63. Institutional Development and Other Impacts. 26 The Project was a milestone for FD in extending its program to social forestry. As a result, FD staff had exposure to forestry activities involving work with local communities, which had not been part of their functions before the Project. FD is now implementing the FRMP, which involves policy reforms to encourage local communities participation in forest resource development and management. Although FD still lacks sufficient technical skills, the Project provided it with a basis for engaging in participatory social forestry programs. FWLs and miscellaneous plantings generated awareness of the value of planting trees and encouraged additional tree planting at own cost. Income benefits for FWL participating households through food coupons and intercropping were significant. Planted trees in homestead gardens and FWLs serve as savings, in case of need for rural households. The Project yielded positive environmental impacts by increasing forestry cover. Overall, the Projects institutional development and other impacts are assessed as significant. E. Overall Project Rating

64. Based on the above five performance evaluation criteria, the Project is rated successful.27 F. Assessment of ADB and Borrower Performance

65. ADB conducted one inception, seven review, one midterm, and three special project administration missions. Overall, ADB performance was satisfactory in carrying out the required
26

27

Because the institutional development was a stated objective of the Project, the performance with respect to institutional development is assessed under the efficacy section. The institutional development section assesses other general ins titutional improvement of FD not considered in the project design. Using the current four-category rating system: highly successful, successful, partly successful, and unsuccessful.

18 supervision and responding to the Projects problems as requested. However, ADB could have detected at an earlier stage the low tree survival and growth rate in FWLs resulting from inappropriate species selection and lack of sound silvicultural extension services by FD due to insufficient extension skills of its field staff. ADB could have been more rigorous in M&E. FDs performance was also satisfactory. FD followed generally well designed implementation arrangements, and complied with most of the loan covenants. However, its capability in extension services needs to be strengthened. V. A. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future

66. Immediate Incentives and Reliable Benefits. A social forestry approach with collective planting and tending of woodlots by communities without clear definition of responsibility and benefit proved to be inefficient from the experience of the CFP. Without tangible and immediate benefits and clear benefit sharing arrangements within the communities, individual households lack incentives to work collectively. The Projects approach with compensation by food-for-work for planting and maintenance, mobilizing farmers who had other income sources, and the land lease agreements with tree ownership, demonstrated the rural households needs for immediate incentives and secured benefits for agroforestry interventions. The experience of the Project suggests the need for the design to incorporate well-defined benefit-sharing arrangements among individual stakeholders, autonomy over trees by the participating households, and prevention mechanisms for "free-riders" such as theft. The Projects arrangement has not fully provided autonomy to the participating households in terms of secured land lease and right to harvest. This could, in the longer term, discourage the participating households engagement in FWLs. For the FRMP, the Government has agreed to long-term land-use/lease arrangement (25 years) with cost-benefit sharing between FD and individuals, and potential renewal for another 25 years. For future projects, it is important to support participating households' autonomous decisions on harvesting and marketing as well as more secure landtenure arrangements and property rights. 67. Institutional Support. The Projects achievement in increasing fuel and timber wood supply was based on the assumption that FD would be able to provide continuous extension services to the participating households. While the households have experience in raising fruit and medicinal trees in their homestead gardens, they do not have sufficient experience in growing trees for sawlogs and poles at optimum commercial value. FWL participating households generally do not regularly receive technically sound, interactive extension services from FD officers. Many FWLs are now facing diminishing values of trees due to the lack of timely thinning. FDs commitment to develop RFO and BFO capabilities in extension services, and delegate more authority to the field-level staff is urgently called for. 68. Funding for Social Forestry. When social forestry activities are funded through projects, maintenance of woodlots would be at risk after completion of such projects. Project designs should incorporate assessments of executing agencies capability of funding routine maintenance and expansion of social forestry activities after project completion. If there is no continuous funding mechanism for social forestry, some budgetary allocation for maintenance could be negotiated with the Government.

19

B.

Lessons Learned

69. The success of the Project confirmed the importance of generating immediate benefits and having well-defined responsibilities for beneficiaries in woodlot establishment. Other key lessons learned include the need for (i) an initial social assessment of the beneficiaries preferences and priorities for planting species; (ii) a realistic review of the extension capabilities of FD and institutionalizing skills for social forestry programs within FD; and (iii) greater involvement of stakeholders in the planning and monitoring of agroforestry interventions, and maintenance of timber. To facilitate the participation of most vulnerable beneficiaries, more flexibility in food-for-work incentives could be considered. For example, instead of food coupons, beneficiaries could be provided with some productive assets such as livestock as supplemental sources of income while they are waiting for the next cycle of food-for-work. C. Follow-Up Actions

70. The OEM recommends that FD, by the end of 2003, (i) abolish the annual renewal system of the lease agreement due to heavy workload of RFOs and replace this with a review once every 5 years; (ii) replace the existing agreements with the lease agreement developed under the FRMP so that FWL leaseholders have the right of harvesting without having to seek the consent of FD; (iii) develop and implement a training program for RFOs and BFOs in silvicultural extension and social forestry; (iv) prepare a plan to carry out a systematic seed and seedling improvement program, and utilize the seed center for that purpose; and (v) enhance the capabilities of RFOs and BFOs to conduct systematic monitoring and assessment of tree conditions, silvicultural practices, and socioeconomic benefits for the farmers.

PROJECT FRAMEWORK
Narrative Summary A. B. Goal: Reduce deforestation, generate employment and income in the rural areas, and arrest environmental degradation. Objectives: 1. Increase tree planting by farmers and create employment opportunities, raise incomes, reduce poverty, and rehabilitate environmentally degraded areas. Strengthen the institutional capability of the Forest Department (FD) to expand its programs for nonforest tree planting, adaptive or on-farm research, extension delivery systems, and privately operated village nurseries. About 11,000 person-years of employment will be generated. Employment will be provided to about 1,100 farmers for the operation of village nurseries. In year 10, about 190,000 tons of fruit will be harvested. In year 25, about 1.7 million 3 cubic meters (m ) of logs and 3 about 0.7 million m of fuelwood will be produced. There will be an increase in tree cover by about 15,000 hectares (ha). About 346,300 households were involved in homestead garden activities, approximately 22,600 in the farmers woodlots (FWLs), and about 13,700 in the protective woodlots (PWLs). A total of 462,046 households received seedlings under the homestead garden activities, 22,829 households participated in FWLs, and 15,163 households in PWLs. A total of about SLRs318 million equivalent in food coupons were distributed to households that participated in FWLs and PWLs. 3 A total of 1.43 million m of wood production was estimated from FWLs. By 1999, there was an increase in tree cover of about 17,000 ha. Expected Outputs at Appraisal Project Completion Report Project Performance Audit Report

20
Appendix 1

2.

Narrative Summary Outputs: 1. Participatory forestry in homestead gardens, FWLs, PWLs, and miscellaneous tree planting on public reserve lands, and training and extension. -

Expected Outputs at Appraisal

Project Completion Report

Project Performance Audit Report

About 9,000 ha of homestead garden will be developed and about 45,200 farmers will participate. About 4,000 ha of FWLs will be planted and about 6,000 farmers will participate. About 1,500 ha of PWLs will be established involving about 1,500 participants. Plant in public lands at schools, temples, and other institutions (250 ha) and along roads/canals (700 kilometers [km]). 1,100 private nurseries will be established each with a capacity of 6,000 seedlings. Seed orchards will be established. A tree seed center will be set up at the Kumbalpola Forestry Research Center. A vegetative propagation unit with a capacity of 14,000 plants will be set up.

36,043 ha of homestead gardens were developed. 9,678 ha of FWLs were planted. 4,635 ha of PWLs were planted. 2,426 ha of trees were planted in schools and public lands and 1,294 km of trees were planted along canals and roadsides.

36,263 ha of homestead gardens were developed. 9,808 ha of FWLs were planted. 4,536 ha of PWLs were planted. 2,468 ha and 1,546 km of miscellaneous plantings were developed.

2.

Tree seed production.

1,340 private nurseries were established. The seed center was established in May 2000. The vegetative propagation unit was not established. Teak seed stands were established in three districts and two eucalyptus seed orchards were planted.

A total of 1,340 private nurseries were developed; however, as of 2002, most of them had ceased operations. The seed center was established in 2000; however, presently, there are no activities for seed and seedling production. The center is occupied by FDs research center staff. The vegetative propagation unit was established.
Appendix 1

3.

Adaptive research or on-farm demonstrations.

Private or public agencies will be contracted to conduct adaptive or on-farm research.

No adaptive research was undertaken.

No adaptive research was undertaken.

21

Narrative Summary 4. Monitoring and evaluation. -

Expected Outputs at Appraisal Benchmark surveys will be carried out during project implementation.

Project Completion Report A social and environmental impact assessment was conducted in 2000. No new recruitment took place. Existing RFOs and BFOs were given additional responsibilities. A total of 268 motivators were recruited. Approximately 3,500 people received training. 466 nursery workers received training. 3 FD staff received 2-year postgraduate studies. 4 FD staff received training in forestry project planning and forestry extension. 13 RFOs/BFOs participated in study tours to India and Nepal.

Project Performance Audit Report Two social and environmental impact assessments were carried out in 1998 and 2000.

22
Appendix 1

5.

Institutional strengthening of FD.

One additional conservator of forests and some staff will be assigned to strengthen the Extension and Education Division of FD. Extension units will be established at the Divisional Forest Offices and maximum of 26 range forest officers (RFOs) and 28 beat forest officers (BFOs) will be recruited. 228 motivators will be engaged. Training in leadership, extension methods, forestry skills, horticulture and agriculture, and tree seed production will be provided to 3,500 persons. Food aid and training in nursery techniques will be provided to village nursery workers. Three short-term and four long-term overseas fellowships will be provided to FD officers. Overseas study tours will be provided to 16 RFOs/BFOs.

Conservator of forests was appointed as the project director. No new recruitment of RFOs and BFOs took place. A total of 268 motivators were recruited; however, their contract with FD ended in 2000 and they are no longer employed by FD. Training programs were conducted as noted at project completion.

Note: The appraisal report did not include a project framework. The first two columns above have been constructed based on information provided in the appraisal report. Source: Participatory Forestry Project appraisal report, project completion report, FDs various reports, and Operations Evaluation Mission estimates.

Appendix 2

23

PROJECT COSTS AND FINANCING PLAN Table A2.1: Project Costs: Appraisal Estimate and Actual ($'000) Item Appraisal Estimate Foreign Local Total
1,797 184 0 9 443 367 2,800 12,790 581 331 26 8,471 0 22,200 14,587 765 331 35 8,914 367 25,000

Actual Foreign Local

3,167 72 0 10 0 201 3,451 20,464 115 0 35 0 0 20,613

Total
23,631 187 0 45 0 201 24,064

Participatory Forestry Tree Seed Center Adaptive Research Monitoring and Evaluation Contingenciesa Service Charge During Construction Total
a

Contingencies comprised of physical contingencies ($1.6 million) and price escalation ($7.3 million).

Source: ADB. 2000. Project Completion Report on the Participatory Forestry Project in Sri Lanka. Manila.

Table A2.2: Financing Plan: Appraisal Estimate and Actual ($'000) Source Appraisal Estimate Foreign Local Total 0 2,800 0 0 0 2,800 1,400 1,400 7,700 10,500 5,800 5,800 500 500 6,800 6,800 22,200 25,000 Actual Foreign Local 0 3,451 0 0 0 3,451

Total

Borrower ADB AusAIDa World Bank Beneficiaries/Farmersb Total

989 989 4,471 7,922 3,868 3,868 0 0 11,285 11,285 20,613 24,064

a b

ADB = Asian Development Bank, AusAID = Australian Agency for International Development. Mainly for the food-for-work program of the woodlot establishment. Beneficiary contribution was labor and fertilizer inputs by participating households in the homestead garden subcomponent. Source: ADB. 2000. Project Completion Report on the Participatory Forestry Project in Sri Lanka . Manila.

24

Appendix 3

SUMMARY OF BENEFICIARY IMPACT SURVEY RESULTS 1. The Operations Evaluation Mission (OEM) conducted a beneficiary impact survey on 46 households that participated in the Projects homestead garden and farmers woodlot (FWL) subcomponents and 48 households in nonproject-intervention areas as control to measure the Projects socioeconomic impacts. The survey was carried out in two climatic zones: Kurunegala District in the intermediate zone and Kandy District in the wet zone. 1 In each district, two settlement areas were selected: one with project intervention and the other as control based on geographical proximity and similar natural resource endowments. A. Homestead Gardens

2. Based on the results of the survey, although the households in the project areas expect to have significant returns from timber harvesting later, at present, the impact on household income2 and nutrition from fruit and other crop production of the Projects homestead garden subcomponent is considered to be marginal in the wet and intermediate zones (Tables A3.1 and A3.2). The survey found that, at this stage, there were no major differences in terms of cash income, occupational type, and livestock ownership between the households in the project areas and control areas (Tables A3.3 and A3.4). Rural households in the wet and intermediate zones in Sri Lanka generally have well established homestead gardens, often developed for a few generations. At the time of the Project, the households in the project intervention areas already had well planted homestead gardens and the Projects homestead garden activitydistributing free seedlingswas only a small addition to or replacement of plants in these gardens, which the households would have done even without the Project. As the homestead gardens in the dry zone are larger than those in the intermediate and wet zones and are still scarcely developed, incremental benefit in the dry zone is substantial compared to the intermediate and wet zones (Tables A3.5A3.10). Table A3.1: Cash Income Level of HouseholdsWet Zone (Kandy District)
Warakalanda a (with the Project) Monthly Cash Income Number of Frequency (SLRs) Households (%) <1,000 7 28 1,0013,000 12 48 3,0015,000 5 20 >5,001 1 4 a The sample size was 25 households. Source: Operations Evaluation Mission estimates. Nilambe a (without the Project) Number of Frequency Households (%) 3 12 7 28 11 44 4 16

Because of the scarce development of the homestead gardens and FWLs at the pre-project time in the dry zone and the Forest Departments data, the OEM recognized that there was sufficient information to confirm substantial incremental production impact and excluded the dry zone from the survey. The appraisal report estimated that the annual incremental cash income for participating households in the homestead gardens (using 0.5 hectares [ha] model) would range from SLRs6,900 to SLRs29,700 (in 1990 prices) for the different climatic zones. In constant 2002 Sri Lanka rupees, this is approximately equivalent to SLRs7,500SLRs32,000. For FWL models (using a 0.5 ha model), the annual incremental cash returns ranged from SLRs1,100SLRs5,200 (in 1990 prices); in constant 2002 Sri Lanka rupees, equivalent to about SLRs1,200 to SLRs5,700. The homestead garden returns were based on crop and horticulture activities, and for FWLs, the returns were based on a model involved in horticulture production. The returns did not include income from timber.

Appendix 3

25

Table A3.2: Cash Income Level of HouseholdsIntermediate Zone (Kurunegala District)

Usgala a Aludeniyaya b (with the Project) (without the Project) Monthly Cash Income Number of Frequency Number of Frequency (SLRs ) Households (%) Households (%) <1,000 0 0 3 13 1,0013,000 7 37 14 61 3,0015,000 9 47 3 13 >5,001 3 16 3 13 a The sample size was 19 households, all of which were beneficiaries under the farmers woodlot subcomponent. b The sample size was 23 households. Source: Operations Evaluation Mission estimates.

Table A3.3: Household Occupational CategoriesWet Zone (Kandy District)

Warakalanda (with the Project) Nilambe (without the Project) Number of Frequency Number of Frequency Occupational Category Households (%) Households (%) Agriculture Only 2 8 4 16 Agriculture + Others a 14 56 11 44 Others 9 36 10 40 a Other occupational categories include laborer, trader, government official, mason, drummer, security guard, carpenter, waiter, baker, plumber, and three-wheeler driver. Source: Operations Evaluation Mission estimates.

Table A3.4: Occupational CategoriesIntermediate Zone (Kurunegala District)

Usgala (with the Project) Aludeniyaya (without the Project) Number of Frequency Number of Frequency Occupational Category Households (%) Households (%) Agriculture 1 5 8 35 Agriculture + Others a 8 42 9 39 Others 10 53 6 26 a Other occupational categories include laborer, carpenter, government official, trader, and mason. Source: Operations Evaluation Mission estimates.

Table A3.5: Homestead Garden CompositionWet Zone (Kandy District) Wood Varieties
Warakalanda (with the Project) Nilambe (without the Project) a Number of Frequency Number of Frequency Species Households (%) Households (%) Mahogany (Swetenia macrophylum) 21 84 12 48 Gini spapu (Michelia champuca) 21 48 14 56 Teak (Tectona grandis) 16 64 2 8 Hawari Nuga (Alstonia macrophylla) 13 52 21 84 Jak (Artocarpus heterophylus) 13 52 22 88 Kenda (Colpcasia esulenta) 3 12 6 24 Kuda Dawul (Neolitsea cassia) 2 8 8 32 Acasia (Acasia) 0 0 11 44 a Frequency is defined as the chance of finding a species in a particular homestead garden. It is expressed as the proportion of the number of homestead gardens occupied by a given species to the total number of homestead gardens surveyed. Source: Operations Evaluation Mission estimates.

26

Appendix 3

Table A3.6: Homestead Garde n CompositionIntermediate Zone (Kurunegala District)Wood Varieties

Usgala (with the Project) Number of Frequency Species Households (%) Jak (Artocarpus heterophylus) 17 89 Margosa (Azadiracnta indica) 14 73 Teak (Tectona grandis) 12 63 Halmilla (Berrya cordifolia) 6 31 Acacia (Acasia) 6 31 Mahogany (Swetenia macrophylum) 3 14 Kaha (Curonma longa) 1 5 Source: Operations Evaluation Mission estimates. Aludeniyaya (without the Project) Number of Frequency Households (%) 17 73 14 61 16 70 4 17 4 17 7 30 6 26

Table A3.7: Homestead Garden CompositionWet Zone (Kandy District) Fruit Varieties
Warakalanda (with the Project) Number of Frequency Species Households (%) Lime (Citrus medica) 23 92 Rambutan (Nephelium lappacceum) 22 88 Avocado (Persa gratissima) 21 84 Banana (Musa spientum) 21 84 Orange (Memecylon capitelatlum) 19 76 Mango (Mangifera indica) 19 76 Cashew (Anacardium occidentale) 12 48 Guava (Psidium guajava) 8 32 Papaya (Carica papaya) 8 32 Werelu (Eleocarpus galndulifer) 7 28 Naran (Citrus crenatifoila) 7 28 Anoda (Abutilon asiaticum) 6 34 Source: Operations Evaluation Mission estimates. Nilambe (without the Project) Number of Frequency Households (%) 17 68 5 20 24 96 8 32 15 60 22 88 12 40 8 32 7 28 7 28 6 24 12 40

Table A3.8: Homestead Garden CompositionIntermediate Zone (Kurunegala District)Fruit Varieties

Usgala (with the Project) Number of Frequency Species Households (%) Mango (Mangifera indica) 17 89 Cashew (Anacardium occidentale) 15 78 Lime (Citrus medica) 14 73 Orange (Memecylon capitelatlum) 13 68 Papaya (Carica papaya) 12 63 Guava (Psidium guajava) 11 57 Banana (Musa spientum) 10 52 Anoda (Abutilon asiaticum) 8 42 Promogrante (Punica granatum) 8 42 Pineapple (Ananas comosus) 6 31 Woodapple (Freonia limonia) 6 31 Source: Operations Evaluation Mission estimates. Aludeniyaya (without the Project) Number of Frequenc y Households (%) 17 73 20 86 12 52 11 47 10 43 9 39 13 56 10 43 15 65 0 0 9 39

Appendix 3

27

Table A3.9: Home stead Garden CompositionWet Zone (Kandy District) Other Varieties
Warakalanda (with the Project) Number of Frequency Species Households (%) Pepper (Piper nigarum) 24 96 Coconut (Cocos nucifera) 22 88 Coffee (Coffea arabica) 17 68 Clove (Syzygium aromaticum) 10 40 Tea (Camelia sinensis) 9 36 Bread fruit (Artocarpus nobilis) 1 4 Source: Operations Evaluation Mission estimates. Nilambe (without the Project) Number of Frequency Households (%) 24 96 19 76 15 60 11 44 19 76 7 28

Table A3.10: Homestead Garden CompositionIntermediate Zone (Kurunegala District)Other Varieties

Usgala (with the Project) Number of Frequency Households (%) 73 47 26 26 21 Aludeniyaya (without the Project) Number of Frequency Households (%) 23 7 4 5 6 100 30 17 22 26

Species Coconut (Cocos nucifera) 14 Okra (Erythrina lithosperma) 9 Coffee (Coffea arabica) 5 Bread fruit (Artocarpus nobilis) 5 Ambarella (Sapindius pinnata) 4 Source: Operations Evaluation Mission estimates.

B.

Farmers Woodlots

3. The OEM surveyed 21 households to estimate benefits under the FWL subcomponent in Usgala, Kurunegala District in the intermediate zone (Table A3.11). For FWL subcomponent, the participating households are expected to accrue benefits from commercial thinning at the 14th year of planting and final harvesting at the 25th year. At the time of the survey, these benefits had not yet materialized. The survey results indicate the participating households' expected value of timber returns in the future. The survey summary (in Tables A3.12A3.14) shows expected benefits of FWLs to the participating households in different forms: (i) cash income from intercropping in the first year planting of FWL, and (ii) expected timber value at the time of harvest. In addition to those benefits, each participating household in the Usgala FWLs received about SLRs10,612 equivalent in food coupons for planting and maintenance works. The pre-commercial thinning for teak is planned 7 years after planting. However, at the time of the survey, none of the participating households interviewed had carried out thinning. The expected value of teak at the age of 7 years varies; however, the participating households expect they could sell a thinned pole at SLRs250SLRs300. Harvesting is expected to commence at around the 25th year as agreed with the Forest Department. The participating households expected value for teak at harvest is SLRs9,000 SLRs25,000 per tree and SRLs1,800SLRs3,000 per tree for margosa. Out of 21 households that participated in FWLs, 19 households have grown crops in FWLs during the first year. From the first year intercropping, the households received SLRs1,000SLRs2,000 cash income. Some households grew crops for 2 consecutive years.

28

Appendix 3

Table A3.11: Farmers Woodlot Interventions

Land Area (hectares) 0.50 0.50 0.25 Species Teak Teak + Margosa Teak Number of Households 2 18 1

Source: Operations Evaluation Mission estimates.

Table A3.12: Beneficiaries Expected Value of Teak Tree at Harvest

Expected Value (per tree in SLRs) <10,000 10,00020,000 >20,000 Source: Operations Evaluation Mission estimates. Number of Households 11 9 1

Table A3.13: Beneficiaries Expected Value of Margosa Tree at Harvest

Expected Value (per tree in SLRs) 1,5002,000 2,0002,500 2,5003,000 >3,000 Source: Operations Evaluation Mission estimates. Number of Households 6 10 1 1

Table A3.14: Income from the First Year Intercroppinga

Income (SLRs) <1,000 1,0002,000 >2,000
a

Number of Households b 2 10 7

Crops planted for intercropping included maize, cowpea, groundnuts, mungbean, chili, and millets. b Out of 21 households that participated in the farmers woodlots, 19 households organized intercropping for the first year. Source: Operations Evaluation Mission estimates.

Appendix 4

29

PROJECT ECONOMIC REEVALUATION A. Methodology and Assumptions

1. The methodology used in the economic reevaluation follows the Asian Development Bank Guidelines for the Economic Analysis of Projects. The economic internal rate of return (EIRR) is estimated based on quantifiable benefits from the two land-use models (homestead garden and farmers woodlot [FWL]) of the participatory forestry component (Table A4.1). EIRRs for the protective woodlot and miscellaneous planting of the participatory forestry component, tree seed and seedling production, and adaptive research were not calculated because expected benefits such as improved erosion controls and amenities from these components were difficult to quantify and value. The major assumptions underlying the EIRR estimation are as follows: (i) The economic analysis covered 32 years (19932025) to encompass harvest of timber. The analysis was done at the world price level in national currency (Sri Lanka rupee) using a standard conversion factor (SCF) of 0.9 to convert prices of nontraded inputs to economic prices. All calculations of project economic benefits and costs were expressed in constant 2002 prices. Project investments were adjusted using the World Banks manufacturers unit value index for foreign exchange items. Local benefits and costs were adjusted to reflect the 2002 prices using the gross domestic product deflator. Economic prices of traded timber commodities were derived from the World Banks commodity price projections.1 The economic prices of nontraded outputs such as fuelwood, poles, and agricultural crops reflect farmgate prices based on district economic survey data by the Department of Agriculture. The shadow wage rate factor of 0.9 is applied for the economic price of unskilled labor reflecting prevalent underemployment in the project area. Project investment costs used in the economic analysis included the actual costs of civil works construction, equipment, and other inputs as well as required investment in maintenance based on the 2002 Forest Department (FD) budget in 2002 constant prices (Table A4.2).

(ii)

(iii)

B.

Land-Use Models

2. The two land-use models were estimated for each of the three climatic zones (dry, intermediate, and wet). The economic budget for each model and the supplementary data on production and input costs are detailed in the supplementary appendixes.2 The land-use model estimates incorporated the estimated levels of tree survival and growth based on the various FD records, project completion report (PCR), and Operations Evaluation Mission (OEM) field visits. The OEM observed lower tree survival rates than the appraisal and PCR estimates.

1 2

World Bank. 2002. Commodity Prices and Price Projections. Washington. Available upon request.

30

Appendix 4

1.

Homestead Gardens

3. For the economic evaluation at the time of appraisal, the homestead gardens were estimated as an area-based model ranging from 0.3 hectares (ha) to 0.75 ha with the Project supplying on average 2040 timber tree or fruit seedlings per garden. For the homestead gardens in the dry zone, incremental benefits were expected from both fruit and timber trees and the model was derived from the fruit and timber production from the seedlings supplied by the Project. The homestead gardens in the dry zone are larger than the intermediate and wet zones and are still scarcely developed; thus, incremental benefit in the dry zone is substantial compared to the intermediate and wet zones. In practice, in the intermediate and wet zones, the seedlings provided by the Project were only small parts of the already fully established gardens and an area-based model is inappropriate. The OEM estimated the benefit per garden based on incremental benefits from the seedlings supplied by the Project (Table A4.3). FD data 3 suggest that, because of the mature nature of the homestead gardens in the intermediate and wet zones, seedlings provided under the Project mainly served as replacement for the old plants or additional plants to already densely planted gardens. Species distributed to homestead gardens were poorly selected and many of the trees distributed were planted without proper spacing. There are shading effects from those trees that will reduce overall production of the already existing and newly planted fruit trees. Fruit trees in some homestead gardens already show marked retardation in flowering and fruiting due to shading. The OEM observed the fruit trees supplied by the Project were not grafted, and it was difficult to observe any improvement in varieties. The project performance audit report (PPAR) homestead garden model incorporates incremental benefits of the with- and without-project situation and, for the intermediate and wet zones, benefits from fruit trees supplied by the Project were not included, while the costs of seedlings were included. 2. Farmers Woodlots

4. FWL models are based on an average 0.4 ha plot size with predominant species (teak or eucalyptus) or mixed (teak/margosa) species. In the dry zone, the model was based on teak only or teak/margosa mixed stand. In the intermediate zone, the model was the teak only stand. In the wet zone, eucalyptus or teak models were used (Tables A4.4A4.5). The without-project situation for FWL is a land being used for chena cultivation 4 with a 3-year crop rotation. 5. The PPAR FWL models incorporated the revised set of survival and success factors estimated by the OEM. The PCR estimated the mean survival rate at 66% as compared to 75% of the appraisal. The OEM reestimated the survival rate at 5255% for the dry and intermediate zones, and less than 50% for the wet zone where teak trees are barely surviving. Based on the reestimated survival and growth data, compared to the PCR data, the PPARs reestimated yield per woodlot is equivalent in the dry zone, 10% higher in the intermediate zone, and 15% lower in the wet zone. The benefits for FWL models included field crops that were planted as intercropping during the woodlot establishment (Table A4.6). 6. Import parity prices were calculated for teak, mahogany, and eucalyptus (Table A4.7). Mahogany and eucalyptus are based on the World Bank commodity price projection for meranti (ex Sarawak) with a 20% quality discount for mahogany and 60% discount for eucalyptus. The
3 4

Forest Department. 2000. Participatory Forestry Project: Socioeconomic Impact Assessment Study. Colombo. Chena cultivation refers to a farming system in which forestland is slashed and burned to grow an annual crop. After the soil fertility is depleted, the farmer shifts to a new site.

Appendix 4

31

PPAR reevaluation applied the 2015 price projection as opposed to the 2010 projection of the PCR to reflect the timing of harvest. The PPAR economic models factored in variability of grades and loss of quality during harvesting, while the PCR applied one grade standard (Table A4.8). The conversion of border price stumpage values into value by grade is based on the relative State Timber Corporation financial prices. For low value species and agricultural inputs, the financial farmgate prices were converted to economic prices using the SCF (Table A4.9). C. Rates of Return

7. The homestead garden subcomponent was economically efficient. The dry zone model is highly efficient with an EIRR of 27%, and the intermediate and wet zone models are efficient with the EIRRs of 13.5% and 13.2%, respectively (Table A4.10). Despite the low fruit and other crop returns in the intermediate and wet zones, the respective EIRRs exceed the 12% threshold, because of the expected timber benefit in the 26th year and low investment cost (economic cost of rural family labor). The dry zone homestead garden models are sensitive to price changes of fruit, especially mango. The price of mango declined from SLRs5 per fruit at the time of the PCR to SLRs2.4 per fruit at the time of the PPAR. The prices of fruit and other crop outputs are farmgate prices based on the economic survey data by the Department of Agriculture. 8. FWL models were assessed as efficient with EIRRs of 13%, 14%, and 15% for the dry, intermediate, and wet zones, respectively (Table A4.10). The lower EIRRs compared to the PCR estimates reflect the lower survival rates and associated loss of wood values reestimated by the OEM. 9. The overall project EIRR was calculated based on the benefits from the two land-use models and the project costs including maintenance investment (Table A4.11). The project EIRR was estimated at 15%, as compared to the EIRRs of 13% and 30% at the time of appraisal and PCR, respectively (Table A4.12).

32
Appendix 4

Table A4.1: Physical Planting Achievements by Land-Use Model and Year

Item Homestead Gardens Total Area (ha) 1993 557 1994 2,556 1995 5,576 1996 7,416 1997 7,235 1998 8,392 1999
a

Total 36,263

4,531

Seedling Distribution (number of seedlings) Dry Zone 0 Intermediate Zone 62,020 Wet Zone 12,793 Total 74,813 Number of Households Dry Zone (0.4 ha) Intermediate Zone (0.75 ha) Wet Zone (0.3 ha) Total Farmers Woodlots Total Area (ha) Dry Zone Intermediate Zone Wet Zone Total Number of Households Dry Zone Intermediate Zone Wet Zone Total

147,770 237,782 241,157 626,709

177,682 557,099 412,403 1,147,184

656,734 628,944 667,192 1,952,870

674,366 851,437 712,669 2,238,472

687,065 854,633 612,967 2,154,665

666,461 724,070 521,360 1,911,891

3,010,078 3,915,985 3,180,541 10,106,604

2,067 1,007 261 3,335

5,462 8,502 5,614 19,578

13,598 13,927 20,173 47,698

20,725 24,705 31,112 76,542

17,836 28,769 32,110 78,715

33,312 16,753 37,383 87,448

103,022 23,943 21,765 148,730

196,022 117,606 148,418 462,046

0 73 0 73

163 147 47 357

366 233 130 729

964 398 159 1,521

1,307 598 148 2,053

1,667 680 162 2,509

1,816 605 145 2,566

6,283 2,734 791 9,808

0 161 0 161

279 440 157 876

792 671 424 1,887

2,079 1,244 447 3,770

2,661 1,621 540 4,822

3,188 1,670 583 5,441

3,716 1,659 497 5,872

12,715 7,466 2,648 22,829

ha = hectare. a The seed distribution and woodlot establishment were completed in 1999. Source: Forest Department.

Table A4.2: Project Costs

Item Local Currency Cost Sri Lanka CPI (%) 1993 11.7 1.084 20,770 54,512 22,515 59,091 2,132 5,596 1994 8.4 1.077 312,504 94,636 336,567 101,923 31,873 9,652 1995 7.7 1.159 252,032 182,017 292,105 210,958 27,662 19,978 1996 15.9 1.096 458,748 266,866 502,788 292,485 47,614 27,698 1997 9.6 1.094 528,244 316,887 577,899 346,674 54,727 32,830 1998 9.4 1.047 931,455 207,736 975,233 217,499 92,355 20,597 1999 4.7 1.062 644,500 208,786 684,459 221,731 64,818 20,998 2000 6.2 1.141 164,489 64,028 184,259 73,056 17,449 6,919 2001 14.1 1.120 2002 12.0 1.000

Adjustment to Constant 2002 Index

Investment (current $) Recurrent (current $) Investment (constant 2002 $) Recurrent (constant 2002 $) Investment (constant 2002 SLRs'000) Recurrent (constant 2002 SLRs'000) Foreign Exchange Cost MUV Index Annual Percentage Change (%) Adjustment to Constant 2002 Percentage (%) Investment (current $) Recurrent (current $) Investment (constant 2002 $) Recurrent (constant 2002 $) Investment (constant 2002 SLRs'000) Recurrent (constant 2002 SLRs'000) Total (constant 2002 SLRs million) Investment Recurrent

106.33 0.915 89.8 4,298 71,543 3,934 65,481 373 6,201

110.21 3.65 0.883 86.6 57,579 8,395 50,844 7,413 4,815 702

119.21 8.17 0.816 80.1 144,856 65,587 118,257 53,544 11,199 5,070

113.99 (4.38) 0.854 83.7 547,519 93,452 467,450 79,786 44,267 7,556

108.19 (5.09) 0.900 88.2 86,287 109,684 77,618 98,664 7,350 9,343

102.94 (4.85) 0.945 92.7 486,562 101,961 459,998 96,395 43,562 9,129

103.31 0.36 0.942 92.4 371,369 235,914 349,836 222,236 33,129 21,046

97.32 (5.80) 0.986 98.1 50,282 172,336 49,559 169,857 4,693 16,085

96.00 (1.44) 0.995 99.5

95.00 (0.50) 1.000 100.0

2.50 11.80

36.69 10.35

38.86 25.05

91.88 35.25

62.08 42.17

135.92 29.73

97.95 42.04

22.14 23.00

= no data available, CPI = consumer price index, MUV = manufacturers unit value. Note: The exchange rate (June 2002): $1.00 = SLRs94.70. Source: Asian Development Bank. 2002. Key Indicators. Manila; World Bank, Commodity Markets and the Developing Countries. Various Issues. Washington.

Appendix 4

33

34

Appendix 4

Table A4.3: Homestead Garden Timber Production

Production Per Garden Zone Homestead Gardens (ha) Wood (m 3) Mango (no. of fruit) Other Fruit (no. of fruit) Total Project Production Mango (no. of fruit/ year, million) Other Fruit (no. of fruit/ year, million)

Wood (000 m 3)

Dry Intermediate Wet Total

196,022 117,606 148,416 462,044

5.00 6.25 5.20

1,500

318

980 735 371 2,086

588 588

374 374

= no data available, ha = hectare, m 3 = cubic meter, no. = number. Source: Operations Evaluation Mission estimates.

Table A4.4: Yield and Survival Parameters for Farmers Woodlots

Yield (m 3/ha) PCT (7 years) 6.5 6.5 5.5 6.5 4.5 6.5 CT (14 years) 5.5 5.5 5.0 5.5 5.0 6.0 Final Harvesting (25 years) 8.5 4.5 4.5 4.0 4.55.5 10.8 4.5 5.5 No. of Trees Planted/ Plota 400 400 400 400 400 400 Survival Rate (%) 75 66 55 75 66 55 75 66 52

Model Dry Zone Teak

Assessment Appraisal PCR PPAR Appraisal PCR PPAR Appraisal PCR PPAR

Teak/Margosa

Intermediate Zone Teak

Appraisal 21.3 75 PCR 8.0 12.0 12.5 160 60 PPAR 11.0 12.5 12.5 160 70 Teak Appraisal 21.3 75 PCR 7.0 6.5 5.5 240 60 PPAR 3.5 3.0 2.8 240 29 = no data available, CT = commercial thinning, m 3 = cubic meter, no. = number, PCT = pre-commercial thinning, PCR = project completion report, PPAR = project performance audit report. a The appraisal plot size is different but the equivalent planting density is 400 trees per 0.4 hectares. b Wet zone is 40% eucalyptus. Source: Operations Evaluation Mission estimates.

Wet Zone b Eucalyptus

Appendix 4

35

Table A4.5: Farmers Woodlots Timber Production

Production per Woodlot (m 3) Final PCT CT Harvest 1.0 1.6 1.0 3.0 9.0 6.8 6.8 4.5 44 57 51 71 Total Project Production (000 m 3) Final PCT CT Harvest 4.2 13.6 7.4 7.9 33.1 37.8 57.9 50.7 11.9 158.3 185 485 381 188 1,239 1,430.4

Model Dry Teak Teak/Margosa Intermediate Zone Wet Zone Total

b a

No. of Woodlots 4,196 8,519 7,466 2,648 22,829

Total Wood Production CT = commercial thinning, m 3 = cubic meter, PCT = pre-commercial thinning. a The intermediate zone is teak only model. b The wet zone model is estimated with 60% teak and 40% eucalyptus. Source: Operation Evaluation Mission estimates.

Table A4.6: Field Crop and Fruit Tree Yield and Farmgate Prices
Crop Chilli Maize Cowpea Blackgram Groundnut Gingelly Millet Vegetable (mixed) Mango (dry zone) Year 8 Year 12+ Citrus 100 fruits 750 fruits 80/tree 3.46 3.46 2 Yield per Acre (kg) 2,000 1,000 900 500 1,000 200 100 450 Price per Kg (SLRs) 71 14 33 14 30 42 8 6

kg = kilogram. Source: Department of Agriculture, Sri Lanka.

36
Appendix 4

Table A4.7: Economic Prices of Logs

Item 2000 Projected FOB (constant 1990 $) MUV Index FOB (constant 2002 $) Quality Adjustment Factor Adjusted FOB (constant 2002 $) Freight (constant 2002 $) Border Price Colombo (CIF) (constant 2002 $) Local Currency CIF (constant 2002 SLRs) Port Handling and Transport (constant 2002 SLRs) Domestic Handling/Transport (constant 2002 SLRs) Parity Price (constant 2002 SLRs) Logging and Transport Cost (constant 2002 SLRs) Overhead (constant 2002 SLRs) Profit and Risk Margin (constant 2002 SLRs) Stumpage (constant 2002 SLRs) PCR Stumpage Estimate (constant 2002 SLRs)
d d c b

Teak 2010 294 95.4 280.6 0.8 210.4 60.0 270.4 25,611.2 3,073.3 1,500.0 30,184.5 1,550.0 1,270.0 7,757.4 19,607.1 17,825 2015 312 95.4 297.8 0.8 223.3 60.0 283.3 26,831.3 3,219.8 1,500.0 31,551.1 1,550.0 1,270.0 8,108.6 20,622.4
a

Mahogany 2000 195 95.4 186.1 0.8 148.9 60.0 208.9 19,781.5 2,373.8 1,500.0 23,655.3 1,550.0 1,270.0 6,079.4 14,755.9 13,803 2010 162 95.4 154.6 0.8 123.7 60.0 183.7 17,395.5 2,087.5 1,500.0 20,982.9 1,550.0 1,270.0 5,392.6 12,770.3 14,766 2015 226 95.4 215.7 0.8 172.6 60.0 232.6 22,023.0 2,642.8 1,500.0 26,165.8 1,550.0 1,270.0 6,724.6 16,621.2 2000 195 95.4 186.1 0.4 74.4 60.0 134.4 12,731.8 1,527.8 1,500.0 15,759.6 1,550.0 1,270.0 4,050.2 8,889.4 8,169

Eucalyptus 2010 162 95.4 154.6 0.4 61.8 60.0 121.8 11,538.7 1,384.6 1,500.0 14,423.4 1,550.0 1,270.0 3,706.8 7,896.6 8,649 2015 226 95.4 215.7 0.4 86.3 60.0 146.3 13,852.5 1,662.3 1,500.0 17,014.8 1,550.0 1,270.0 4,372.8 9,822.0

283 95.4 270.1 0.8 202.6 60.0 262.6 25,865.5 2,983.9 1,500.0 29,349.4 1,550.0 1,270.0 7,542.8 18,986.6 16,621

= no data available; CIF = cost, insurance, and freight; FOB = free on board; MUV = manufacturers unit value; PCR = project completion report. a 2015 projection used to reflect the timing of the final harvest. b World Bank Projections, 17 February 2002. Teak based on Sepali West Africa due to quality compared to hardwood, meranti; mahogany based on meranti forecast (ex Sarawak). Eucalyptus quality adjustment based on the relative free on board prices for eucalyptus and mahogany west coast North America March 2002. c 12% of CIF. d Based on current State Timber Corporation financial account. Note: The exchange rate (June 2002): $1.00 = SLRs94.70. Source: Operations Evaluation Mission estimates.

Appendix 4

37

Table A4.8: Grade Adjustment for Economic Prices of Timber Item

Harvest Year Teak 5862 cm MG (%) 54 cm MG (%) 4045 cm MG (%) <40 cm MG (%) Fuelwood (SLRs/cm) Poles (SLRs/pole - 3 m) Average Price (SLRs/m ) PCR Average Price (SLRs) Mahogany >139 cm MG (%) 93139 cm MG (%) 6293 cm MG (%) <62 cm MG (%) Average Price (SLRs/m ) PCR Average Price (SLRs) Eucalyptus > 120 cm MG (%) 90120 cm MG (%) 6090 cm MG (%) 3060 cm MG (%) Fuelwood (SLRs/pole - 3 m) Average Price (SLRs/m ) PCR Average Price (SLRs)
3 3 3

PCT
7 100 171 380600

CT
14 15 43 42 6,737 14,073

Final Harvest
25 17 22 35 23 7 15,527 15,949

24 35 26 15 14,414 10,337

100 171 380600

15 43 42 6,260 6,562

4 24 39 25 8 12,238 8,649

= no data available, cm = centimeter, CT = commercial thinning, m 3 = cubic meter, m = meter, MG = mid girth = 3.1 x diameter, PCR = project completion report, PCT = precommercial thinning, m 2 = square meter. Sources: State Timber Corporation and Operations Evaluation Mission estimates.

38

Appendix 4

Table A4.9: Financial and Economic Prices (constant 2002 SLRs) Item Sawlogs Teak 5862 cm MG 54 cm MG 4045 cm MG 40 cm MG Fuelwood Poles Mahogany >139 cm + MG 93139 cm MG 6293 cm MG <62 cm MG Eucalyptus > 120 cm MG 90120 cm MG 6090 cm MG 3060 cm MG Margosa Melia Dubia Inputs Mango Citrus Cashew Trees Fertilizer Labor Seasonal (2002) Dry Zone Intermediate Zone Wet Zone Unit Financial Price Economic Price

m3 m3 m3 m3 m3 pole

10,600 9,600 6,800 6,400 190 250

20,622 18,354 16,335 9,801 171 225

m3 m3 m3 m3

21,700 11,250 6,500 4,100

16,621 15,790 13,422 9,395

m3 m3 m3 m3 m3 m3

5,800 5,300 3,200 2,200 2,500 3,200

16,621 15,177 14,266 9,415 2,250 2,880

seedling seedling seedling seedling SLRs/kg

100 20 40 4 12

90 18 36 4 11

cm = centimeter, m 3 = cubic meter, kg = kilogram, MG = mid girth = 3.1 x diameter. Note: Standard conversion factor of 0.9 is used for agricultural inputs. Sources: State Timber Corporation, Department of Agriculture, Operations Evaluation Mission estimates.

person-day person-day person-day

230 230 224

207 207 202

Table A4.10: Economic Returns for Land-Use Enterprise Models

Year Land-Use Model
Chena a (1 ha) Cash Return (constant 2002 SLRs) Labor Days Chena (0.4 ha) Cash Return (constant 2002 SLRs) Labor Days Homestead Gardens Dry Zone (per household) Cash Return (constant 2002 SLRs) Labor Days NPVb (constant 2002 SLRs) EIRR (%) Intermediate Zone (per household) Cash Return (constant 2002 SLRs) Labor Days NPVb (constant 2002 SLRs) EIRR (%) Wet Zone (per household) Cash Return (constant 2002 SLRs) Labor Days NPVb (constant 2002 SLRs) EIRR (%)

9-14

15

1625

26

6,286.2 94.5 2,514.5 37.8

9,271.5 73.5 3,708.6 29.4

9,358.8 66.5 3,743.5 26.6

8,770.2 82.5 3,508.1 33.0

9,271.5 73.5 3,708.6 29.4

9,358.8 66.5 3,743.5 26.6

8,770.2 82.5 3,508.1 33.0

9,271.5 73.5 3,708.6 29.4

9,358.8 66.5 3,743.5 26.6

9,358.8 66.5 3,743.5 26.6

8,770.2 82.5 3,508.1 33.0

7,909.8 73.5 3,163.9 29.4

(953.1) 4.0 9,642.1 27.1

(828.0) 5.0

(662.4) 4.0

(662.4) 4.0

0.0 0.0

122.4 1.0

190.1 2.0

1,151.3 2.5

1,779.1 6.6

3,802.1 10.0

3,802.1 10.0

36,686.0 10.0

(1,201.1) 5.0 967.3 13.5

(922.5) 5.0

(738.0) 4.0

(738.0) 4.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

4,032.0 0.0

59,247.9 0.0

(965.2) 3.0 649.6 13.2

(806.4) 4.0

(604.8) 3.0

(604.8) 3.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

46,345.0 0.0

= no data available, EIRR = economic internal rate of return, ha = hectare, NPV = net present value. a Chena cultivation refers to a farming system in which forestland is slashed and burned to grow an annual crop. After the soil fertility is depleted, the farmer shifts to a new site. b At 12% discount.

Appendix 4

39

40
Appendix 4

Table A4.10Continued
Year Land-Use Model 1 2 3 4 5 6 7 8 914 15 1625 26

Farmers' Woodlot Dry ZoneTeak (0.4 ha) With Project

Cash Return (constant 2002 SLRs)

Labor Days With ProjectIncremental

(12,361.4) 52.0 (14,875.9) 14.2 3,294.4 12.5

(1,995.1) 43.5 (5,703.7) 14.1

1,562.0 33.0 (2,181.5) 6.4

(2,587.5) 12.5 (6,095.6) (20.5)

(621.0) 3.0 (4,329.6) (26.4)

(621.0) 3.0 (4,364.5) (23.6)

(621.0) 3.0 (4,129.1) (30.0)

(399.9) 3.0 (4,108.6) (26.4)

(621.0) 3.0 (4,364.5) (23.6)

60,007.6 3.0 56,264.1 (23.6)

(621.0) 3.0 (4,129.1) (30.0)

676,984.2 0.0 673,820.2 (29.4)

Cash Return (constant 2002 SLRs)

Labor Days NPVb (constant 2002 SLRs) EIRR (%)

Farmers' Woodlot Dry ZoneTeak/Margosa (0.4 ha) With Project

Cash Return (constant 2002 SLRs)

Labor Days With ProjectIncremental

(11,603.1) 52.0 (14,117.6) 14.2 7,190.8 13.0

(461.7) 36.0 (3,246.9) 6.6

(49.7) 28.5 (3,793.2) 1.9

(2,173.5) 10.5 (5,681.6) (22.5)

(207.0) 1.0 (3,915.6) (28.4)

(207.0) 1.0 (3,950.5) (25.6)

(207.0) 1.0 (3,715.1) (32.0)

(93.0) 1.0 (3,801.6) (28.4)

(207.0) 1.0 (3,950.5) (25.6)

45,264.5 1.0 41,520.1 (25.6)

(207.0) 1.0 (3,715.1) (32.0)

740,338.2 0.0 737,174.3 (29.4)

Cash Return (constant 2002 SLRs)

Labor Days NPVb (constant 2002 SLRs) EIRR (%)

Farmers' Woodlot Intermediate Zone (0.4 ha)

With Project

Cash Return (constant 2002 SLRs)

Labor Days With ProjectIncremental

(10,350.0) 50.0 (12,864.5) 12.2 13,107.6 13.9

(1,322.7) 43.0 (5,031.3) 13.6

4,245.8 30.5 502.3 3.9

(2,070.0) 10.0 (5,578.1) (23.0)

(207.0) 1.0 (3,915.6) (28.4)

(207.0) 1.0 (3,950.5) (25.6)

(207.0) 1.0 (3,715.1) (32.0)

(36.0) 1.0 (3,744.6) (28.4)

(207.0) 1.0 (3,950.5) (25.6)

45,264.5 1.0 41,521.0 (25.6)

(207.0) 1.0 (3,715.1) (32.0)

798,872.4 0.0 795,708.5 (29.4)

Cash Return (constant 2002 SLRs)

Labor Days NPVb (constant 2002 SLRs) EIRR (%)

Table A4.10Continued
Year Land-Use Model 1 2 3 4 5 6 7 8 914 15 1625 26
Farmers' Woodlot Wet Zone (0.4 ha) With Project (12,224.7) Cash Return (constant 2002 SLRs) 52.0 Labor Days With ProjectIncremental (14,739.2) Cash Return (constant 2002 SLRs) 14.2 Labor Days 10,389.9 NPVb (constant 2002 SLRs) 13.2 EIRR (%)
Source: Operations Evaluation Mission estimates.

(3,327.9) 37.0 (7,036.5) 7.6

(2,820.6) 29.5 (6,564.1) 2.9

(2,318.4) 11.5 (5,826.5) (21.5)

(403.2) 2.0 (4,111.8) (27.4)

(403.2) 2.0 (4,146.7) (24.6)

89.3 2.0 (3,418.8) (31.0)

(403.2) 2.0 (4,111.8) (27.4)

(403.2) 2.0 (4,146.7) (24.6)

32,238.2 2.0 28,494.7 (24.6)

(403.2) 2.0 (3,911.3) (31.0)

964,615.0 0.0 961,451.1 (29.4)

Appendix 4

41

42
Appendix 4

Table A4.11: Project Economic Assessment

Item 1 2 3 4
20,725 24,705 31,112 964 318 646 398 159

5
17,836 28,769 32,110 1,307 431 876 598 147

6
33,312 16,753 37,383 1,667 550 1,117 680 162

Year 7
103,022 23,943 21,765 1,816 599 1,217 605 145

914

15

16

1727

2831

32

No. of Homestead Gardens (households) Dry Zone (0.4 ha) 2,067 5,462 13,598 Intermediate Zone (0.75 ha) 1,007 8,502 13,927 Wet Zone (0.3 ha) 261 5,614 20,173 Farmers' Woodlot Total Area (ha) Dry Zone 0 163 366 Teak 0 54 121 Margosa 0 109 245 Intermediate Zone 73 147 232 Wet Zone 0 47 130 Project Woodlot and Homestead Model Economic Returns (SLRs million) Homestead Gardens Dry Zone Total (2.0) (6.9) (18.9) Intermediate Zone Total (1.2) (11.1) (25.3) Wet Zone Total (0.3) (5.6) (24.2) Farmers' Woodlot Dry Zone Teak 0.0 (2.0) (5.3) Dry Zone Teak/Margosa 0.0 (3.9) (9.5) Intermediate Zone (2.3) (5.6) (9.2) Wet Zone 0.0 (1.7) (5.6) Net Land-Use Economic Returns (5.8) (36.9) (98.0) (SLRs million) Project (SLRs million) Investment Cost Recurrent Cost Total Cost Net Economic Cash Flow (SLRs million) EIRR (%)

(36.0) (49.5) (49.9) (13.8) (25.8) (16.6) (8.9) (200.5)

(46.8) (73.9) (71.7) (22.1) (40.0) (26.7) (11.0) (292.2)

(69.0) (75.2) (93.0) (30.8) (57.2) (34.3) (13.5) (373.0)

(150.3) (83.7) (89.4) (39.2) (73.0) (37.2) (14.7) (487.5)

(114.1) (55.7) (59.6) (23.4) (42.7) (23.3) (10.7) (329.5)

(75.2) (30.0) (35.8) (21.6) (45.7) (22.8) (9.5) (240.5)

445.6 0.0 0.0 (22.2) (40.7) (18.1) (8.0) 356.7

499.1 4.1 0.0 (13.9) (27.9) (9.6) (4.1) 447.6

575.2 34.3 0.0

1,163.8 825.1 934.9

3,779.5 1,418.6 1,008.7 1,009.5 2,242.3 1,203.5 348.5 11,010.6

(4.0) 186.7 (13.0) 417.9 (0.0) 441.4 2.6 307.1 595.1 4,277.0

2.5 11.8 14.3 (20.1) 14.8

36.7 10.4 47.0 (84.0)

38.9 25.0 63.9 (161.9)

91.9 35.3 127.1 (327.7)

62.1 42.2 104.3 (396.4)

135.9 29.7 165.6 (538.6)

97.9 42.0 140.0 (627.5)

22.1 23.0 45.1 (374.7)

0.0 11.5 11.5 (252.0)

0.0 11.5 11.5 345.1

0.0 11.5 11.5 436.1

0.0 11.5 11.5 583.6

0.0 11.5 11.5 4,265.5

0.0 11.5 11.5 10,999.1

= no data available, EIRR = economic internal rate of return, ha = hectare, no. = number. Source: Operations Evaluation Mission estimates.

Appendix 4

43

Table A4.12: Summary of Economic Internal Rates of Return (%)

Land-Use Model A. Homestead Gardens Dry Zone (per beneficiary) Intermediate Zone (per beneficiary) Wet Zone (per beneficiary) Dry Zone (0.2 ha) Dry Zone (0.8 ha) Intermediate Zone (0.2 ha) Wet Zone (0.1 ha) B. Farmers Woodlots Dry Zone Teak (0.4 ha) Dry Zone (teak/margosa) (0.4 ha) Intermediate Zone (0.4 ha) Wet Zone (0.4 ha) Dry Zone (1 ha) Intermediate Zone (0.4 ha) Wet Zone (0.2 ha) Total Project 24 18 18 13 29 27 27 26 30 13 13 14 13 15 Appraisal PCR PPAR

17 30 14 15

45 38 38

27 14 13

= no data available, ha = hectare, PCR = project completion report, PPAR = project performance audit report. Note: Total project assessment is based on annual area plantings and includes those costs which are not included in the planting models. Source: Appraisal report, PCR, and Operations Evaluation Mission estimates.