Afghanistan : Agriculture Sector Program Loan

Agriculture, natural resources and rural development / Agricultural policy, institutional and capacity development - Agro-industry, marketing, and trade - Land-based natural resources management - Water-based natural resources management

The program goal is to promote agricultural growth and poverty

reduction through support for market-based policy reforms,

formulation of public infrastructure investment programs, and

institutional reform and organizational capacity building. The

program purpose is to enhance opportunities for sector revival by addressing key policy, institutional and organizational constraints to the efficient and effective functioning of agriculture and the sustainable use of natural resources. The Program therefore supports the national objective of household food security and of ending Afghanistan_s dependence on food aid, and will accelerate the recovery of the broader national economy.

The agriculture and natural resource management sector has

suffered from varying degrees of depredation for nearly 25 years. A combination of war, civil conflict, and enforced neglect have combined to leave a legacy of degraded natural resources, especially of forests and rangeland; damaged infrastructure; and fragmented sector institutions. While nongovernment organizations (NGOs) and United Nations agencies have worked effectively with rural communities throughout this period and have had positive impacts at the local level, the severe drought in 1999_2001 has worsened the degradation. Further, although cereal production rebounded dramatically with the improved weather in 2002_2003, crop yields are still very low and overall performance of the sector remains well below its potential.

The main task of sector recovery is to improve sector performance while rebuilding its resilience through infrastructure investment and adoption of technologies that reduce vulnerability to drought.

The process of recovery has indeed begun, but needs to be

broadened and institutionalized to ensure that it is sustained and that deeper inroads toward rural poverty reduction are achieved. A balance between sustainable natural resource use and meeting the needs of a very poor and rapidly growing population will also need to be struck if the sector recovery process is to be sustained. As the economy remains overwhelmingly agricultural, the pace of recovery in the sector will largely determine the overall rate of economic recovery.

The Asian Development Bank (ADB) has worked closely

with the Government and other development partners to

define the required policy and institutional reforms under the

Program. The concessional loan funds will help to meet the

adjustment costs associated with these reforms. The technical

assistance (TA) piggybacked to the loan, ADB_s ongoing technical assistance cluster (TAC), and other TA for Afghanistan will further support the reform process.

The Program directly supports pillars 2 and 3 of the Government's National Development Framework, which also serves as the country's poverty reduction strategy. Agriculture and other rural-based activities are the main source of income and employment in Afghanistan, providing livelihoods for nearly 85% of the population. By improving rural livelihoods, the Program will contribute directly to poverty reduction and lead to improvement in a range of other social and economic indicators in Afghanistan.

Promote agricultural growth and poverty reduction through support for market-based policy reforms, public infrastructure investment and institutional reform and organizational capacity building.

Enhance opportunities for sector revival by addressing key policy, institutional and organizational constraints to the efficient and effective functioning of agriculture and the sustainable use of natural resources.

Compared with neighboring countries, Afghanistan's gross domestic product (GDP) per capita in terms of purchasing power parity (PPP) for 2003 and 2008 was 45% of Pakistan's in 2003 and 48% in 2008; 72% and 65% of Tajikistan's; 46% and 44% of India's; and 51% and 39%, respectively, of Uzbekistan's. This indicates little progress towards achieving this target so far. It is now 2 years since the release of Tranche 2, and it is unlikely that per capita incomes will reach the levels

of neighboring countries within another 3 years.

Sound policy and planning framework developed.

Efficient and effective sector institutions created.

Capacity built for management and planning in key natural resource areas.

Comprehensive land policy and land tilting system developed.

Five-year irrigation investment program developed.

Srategy and action plan for greater commercialization of agriculture prepared.

Efficiency of sector support services improved.

Efficiency of agricultural commodity markets improved.

SOE restructuring plans perpared.

Agricultural exports, including livestock products, amounted to 3.2% of GDP in FY2008, and 1.9% in FY2007. Including carpets, all agriculture derived exports

amounted to 4.7% and 4.5% of GDP, respectively, for the 2 years.

20 years ago no data available.

Overall system efficiency in irrigation schemes remainslow although it is expected to improve with infrastructure and management improvements under a variety

of projects. Under the Western Basins project the target is to increase efficiency

by 15% from present levels of 25-30%. Under the proposed Water Resources

Development Investment Program, efficiency gains will build on gains already

achieved under EIRRP and overall efficiency could reach 50-55%.

Divestment of AFTC fertilizer and input distribution now with the private sector.

Exports of agricultural products are handled by the private sector.

Identified constraints to private sector participation were removed as conditions

for release of second tranche of the loan; although these were not major constraints to production and trade, their removal will facilitate further participation of private sector business in agricultural sector trade, marketing and service provision.

Farmers and businessmen, both with and without project support, are investing in

orchards, livestock, improved crop production, post-harvest handling and processing (including cold storage facilities, fruit and vegetable drying and other processing facilities), transport and marketing facilities.

The main natural resource management ministries continue to strengthen their

capacity. MAIL recently completed implementation of the new government pay &

grading system for all staff. MAIL's upcoming change management project seeks to

'create a dynamic, well functioning, competent and effective institution through a

process of reform and structural adjustment._ The project includes change

management, public sector service development and a program support network.

Ministries with enhanced capacity for sector policy and planning. Per above.

At present 23 SOEs and 3 banks are under liquidation committees or are being

prepared for restructuring or corporatization (3). Of these, 5 or 6 are almost ready to be auctioned. So far, assets valued at about $120 million have been corporatized, transferred to the public sector or auctioned.

The program supported improved food security through measures to improve

sector efficiency. Crop production is highly dependent on weather conditions and annual precipitation, but is gradually rising over time. However, a large proportion of the population remains food insecure, especially in years of poor harvest or high prices.

Food security worsened in 2008 because of the poor harvest, compounded by very

high international wheat prices and a ban on the export of wheat from

Pakistan. WFP, based on their surveys, estimated that, in 2008, 35% of households

were not meeting their daily calorific requirements, 5% more than in 2005. In 2008, a main cause of food insecurity was the high price of wheat and wheat flour. In 2007, 37% of households had been found not to be meeting their food

requirements.

Production in FY2008 is reported to have been the highest in over 30 years (over

5 million tons), but this has been due to an excellent growing season. Between

2003 and 2008 rice (paddy) production has varied between 260,000 tons and

370,000 tons, but has been above 320,000 tons in every year except 2003-2004.

Agricultural output, especially of cereals, has increased significantly in recent years,

but growth is still highly variable from year to year. Overall growth in constant

prices for the agricultural (primary) sector since FY2003 has been: FY2003, 17.1%;

FY2004 -4.9%; FY2005- 2006, 6.7%; FY2006, 0.6%; FY2007, 24.6%. Growth for

the whole economy for these years was 18.6%, 9.4%, 11.5%, 11.2% and 16.2%

(est.), respectively. Between FY2002 and 2007 the economy grew at an average

of 15.7% per year fu