PAPUA NEW GUINEA Smallholder Agriculture Development

viiiSummaryThis is a Project Performance Assessment Report (PPAR) of the Papua New GuineaSmallholder Agriculture Development Project (SADP; P079140). The World Bank ExecutiveBoard approved the project on December 18, 2007.Papua and New Guinea (Papua New Guinea) has faced considerable development challengessince its independence in 1975. Through the SADP, the World Bank sought to improvecommunity participation in rural areas by supporting the already-established local palm oilproduction industry. Papua New Guinea’s agricultural sector contributes to 25 percent of thecountry’s gross domestic product, reflecting its importance. Palm oil is the dominant contributorto the economy, representing 43.2 percent of agricultural export values. SADP was to beimplemented in the Oro and West New Britain provinces to improve the supply chain forfarmers, increase incomes, and ensure viable access to stimulate latent growers who were notproducing at capacity. The priority was investing in the rehabilitation of rural roads to improveaccess to critical social services and markets for smallholders, not just for those involved in theoil palm sector.The objective of SADP in the financing agreement (July 2008) was as follows: “To increase, ina sustainable manner, the level of involvement of targeted communities in their localdevelopment through measures aimed at increasing oil palm revenue and local participation.”The key project development objective (PDO) indicators were an increase in smallholderincome from palm oil production, and an increase in the level of funds and resources investedby local communities in their local development. The project had the following threecomponents: Smallholder productivity enhancement (appraisal 55.5 million, actual 15.72 million),which included smallholder oil palm development, road works, and agriculturalextensionLocal governance and community participation (appraisal 3.1 million, actual 0.0),which included the provision of local services and infrastructureProject management and institutional support (appraisal 6.5 million, actual 9.69million), which covered support to the Oil Palm Industry Corporation (OPIC) and itsoversight of guidance to local field teamsThe SADP project was aligned at implementation with the World Bank’s Papua New Guineacountry program strategy for 2008–11 and at completion with the World Bank’s Papua NewGuinea country program strategy for FY2013–16. The project sought to increase smallholderinvolvement in their local development by increasing palm oil revenue, but there was no “how”or “through” in the PDO, making it difficult to understand how the project intended to achievethis impact. The project objective did not reference the theory of change and was linked vaguelyto participation in local development. Given these shortcomings, the relevance of SADP’sobjective is rated modest.

ixSADP was designed to be implemented through two components. The project’s analytical basiswas sound, but the design did not incorporate constraints such as technical knowledge, cropmanagement, and quality control sufficiently. This left many growers with limited room forimprovements in yields. Given these substantial shortcomings, the rating for relevance ofdesign—both before and after the project restructuring—is modest.The project’s PDO indicators included an increase in smallholder income from palm oilproduction and an increase in the level of funds and resources invested by local communities intheir local development. These indicators were designed to assess the extent to which SADP’sdevelopment objective was achieved.One of the interventions for increasing palm oil revenue was to improve infrastructure andmarket links for growers through better roads. Relating to palm oil revenues, 223 kilometers ofroad were ultimately repaired, of which 43 kilometers were graveled, and the remaining portionwas road improvement. This was 117 percent of the revised target established at the projectrestructuring, but was only 41 percent of the original target. Infill planting was undertaken alongwith road rehabilitation. The original target of 9,000 hectares was reduced to 2,500 hectaresunder the project restructuring, and 1,006 hectares were planted at project completion. Thisrepresents only 40 percent of the revised target and 11 percent of the original target. Yields forsmallholder growers increased by 54 percent between 2006 and 2013 (the project period), from15.2 tons per hectare to 23.37 tons per hectare (according to project monitoring reports). Thisachievement was well above the target of 15–19 percent, though the link between extensionservices and the changes were also affected by milling company efforts to better supportsecondary growers and a commitment to more regular fresh fruit bunch (FFB) pickup services.These improvements ultimately led to an increase in smallholder net income of more than 131percent. Although incomes improved, local participation in development did not increase. Thecommunity development component was dropped in the restructuring in September 2012. Thus,though incomes increased, the rating for efficacy was hindered by limited achievement againstincreasing oil palm revenues and no improvement in engaging the community through acommunity-driven development (CDD) program. Therefore, the rating for efficacy is modest,with significant shortcomings.A strong economic case remains to support palm oil growers in Papua New Guinea given theincreasing global demand for FFB, but the methodological limitations of the economic analysisin the Implementation Completion and Results Report (ICR) make it difficult to attribute thebenefits achieved solely to SADP. SADP’s administrative inefficiency had a detrimental impacton the project’s achievements and prevented recipients from maximizing the advantage that wasexpected from investments in a lucrative and growing sector of the economy. Therefore, theproject’s efficiency is rated modest, reflecting considerable shortcomings in the project’s costeffectiveness.SADP was a complex project working in a well-established and profitable sector of Papua NewGuinea’s economy. Although the design responded to relevant needs, SADP also represented anoverambitious commitment to increase the involvement of targeted communities—a conceptthat lacked clarity, was difficult to monitor, and did not accurately reflect the project’s intention.

xThe result of these shortcomings was a project with marginal progress against its PDO andconsiderable inefficiencies, leading to an overall unsatisfactory outcome rating.Given the political, economic, and logistical risks associated with SADP, the evaluation teamconsiders the risk to development outcome as high. Politically, OPIC continues to function, butit remains exposed to the government of Papua New Guinea’s interference, operates without apermanent chief executive office, and has a board that rarely meets to ensure its strategicdirection. Economically, the evaluation team found that although the road maintenance trustfund has provided some revenue for road maintenance, there are regular funding shortfalls, andcontracting at the provincial level is not prioritized toward productive sectors. Logistically, thesame risks that existed before SADP remain.Regarding Bank performance, the project’s multipronged approach was unrealistic in thecapacity-constrained Papua New Guinea provinces. The approach grossly overestimated OPIC’scapacity to implement the project, and it did not respond to other donors supporting ruraldevelopment. In addition, the project design did not adequately address effective safeguardmeasures to manage potential environmental and social impacts associated with palm oileffluent and the likelihood of land conflicts. This diverse set of shortcomings led the reviewteam to rate quality at entry as moderately unsatisfactory.Regarding World Bank supervision during implementation, the World Bank team wasresponsive to both the issues requiring attention and to regular, iterative innovation incircumstances of limited capacity. However, there were shortcomings. The monitoring andevaluation (M&E) design, reporting, and analysis were poor; there were also capacityconstraints that the World Bank team could have addressed better, and the team could have beenmore proactive in finding ways to fill the void when required. Thus, quality of supervision israted moderately satisfactory, reflecting modest shortcomings, and the World Bank’s overallperformance is rated moderately unsatisfactory, given the unsatisfactory outcome rating.The government was not committed to SADP, which affected the problems the projectencountered, particularly in the early phase of project implementation. The provision ofcounterpart funds for the project was delayed and this led to problems with institutingcommitted works. The government was not proactive about preparation and implementation ofthe extension support resources, and it failed to appoint a general secretary to OPIC. Giventhese considerable shortcomings, even in an environment of limited capacity, governmentperformance is rated unsatisfactory.Based on the evaluation team’s discussions with beneficiaries and associated stakeholders, theconsensus is that even though OPIC fulfilled an important function through its representation ofgrowers, it was ill-prepared to deliver a project as complex as SADP successfully. There werelarge management cost overruns, and the lack of oversight of the extension services led toserious deficiencies that were impossible to rectify within the project’s time constraints.Financial reviews and audits were often delayed. World Bank staff highlighted the need forregional office oversight of procurement and audit procedures to ensure that the projectcomplied with World Bank requirements. Thus, the rating for implementing agency

xiperformance is unsatisfactory, and hence the rating for overall borrower performance isunsatisfactory.There were significant and persistent shortcomings in the design of the M&E system for SADP.Although the intermediate indicators for component 1 were useful in illustrating the impact ofSADP activities, there was insufficient detail on how the necessary surveys to collect the datawould be undertaken, who would conduct the surveys, and how the process would be managed.In effect, these shortcomings illustrate the overambitious nature of the M&E design, which didnot reflect the reality and challenges of projects in Papua New Guinea. Given these designlimitations, SADP inevitably confronted problems in implementing the M&E approach. Theproject team in OPIC provided regular progress reporting, but the planned managementinformation system did not materialize. Furthermore, the secondary baseline reporting wascontracted to a company in December 2011, but was rejected because of methodologicallimitations. IEG’s evaluation team found that SADP’s approach was just too ambitious, limitedin its performance utility, and unable to deliver against the intentions outlined in the projectappraisal document. From a purely operational perspective, SADP’s inability to build on thegood work carried out in the baseline assessment, track this work effectively through the life ofthe project, and draw on the findings to inform managerial responses meant that many of thetacit insights SADP staff and beneficiaries had gained were not captured and used to improvethe operational arrangements for infrastructure management and extension activities. Giventhese considerable shortcomings, the rating for M&E is modest.Lessons Projects that seek to improve crop productivity and income on smallholder farms,in addition to CDD, work better when they integrate the two disparate objectivesbecause of the very different implementation modalities involved. Although there arevaluable complementarities between small-scale community infrastructure investments(a typical CDD activity) and improving productive efficiency and market opportunitiesfor small-scale cash crop producers, linking these objectives under one projectseamlessly is difficult and costly. The counterpart for this project was a growerorganization with no experience engaging in participatory development activities. Inaddition, the very small financial allocation to the CDD component and the lack ofsufficient planning in setting up this process showed the importance of detailedpreparation to any potential successful integration of these different project activities.For example, providing agricultural extension services and rehabilitation of marketaccess roads are very different from CDD activities in their scope and composition. TheSADP experience shows that combining these two elements into one project requiresextensive planning, high-capacity partners, and multiskilled teams committed to indepth understanding of their separate recipient communities.Complex, multidimensional projects require additional oversight and support inenvironments with weak government implementation capacity. SADP was anambitious undertaking that sought to reinvigorate an important Papua New Guinea cashcrop, develop the skills and abilities of one of the peak grower organizations through itsproject oversight, improve farm-to-market road networks, reform the extension servicesin the oil palm sector, and institute an extensive program for a small landholders’ infill

xii planting program to respond to the milling companies’ demands. Each of theseintentions had a range of development problems and had to be tackled with differentplans, approaches, and resources. Both the government and OPIC were unable to handlethe complexity of taking on all of these issues at once. Including them in the SADPdesign caused significant delays, implementation problems, and inefficiencies thatlimited the project’s impact. Given the capacity limitations of both the government andOPIC, prioritizing the primary development challenge in a straightforward design mighthave been a useful approach to ensuring better outcomes.Creative operational approaches or sufficient institutional support is required inweak-capacity environments to ensure that project disbursements are distributedeffectively. Agricultural development projects in weak-capacity environments work bestwhen teams find work-arounds and have a strong grasp of rules and requirements. Roadrehabilitation was SADP’s most successful component, and this activity brought out thebest in the project team. With project funding, the team established investments in newequipment, collaborated with the milling companies, and sought operational supportfrom other projects and provincial governments. For example, the purchase of the roadgraders and the negotiations about priority roads for rehabilitation showed that whenproject goals were clear, the team was ready to make things work and find creativeoptions to operational barriers.Understanding cultural impacts and how they influence agricultural cash crops insmaller, geographically isolated states is necessary to ensure that politicalconstraints do not reduce the impact of World Bank projects. SADP’s operationalchallenges showed that contextual factors inevitably had a considerable impact on theproject’s success. The palm oil sector in Papua New Guinea is mature, well established,and highly political, and is characterized by local issues that are unique to the country,including land conflicts and the tradition of wantok (Melanesion tribal welfare system).Unlike similar palm oil operations in Southeast Asia that large-scale private operatorsdominate, the sector in Papua New Guinea has a history of land conflict and smallholdercomplaints, and it is influenced by government oversight and interference. The SADPexperience showed the importance of local knowledge to effective design, project scope,and productive government relationships.Agricultural sector road infrastructure investments need to be coordinatedsufficiently with domestic private-sector interests and provincial governmentpriorities to ensure sustainability and future operational maintenance. The SADProad investments in rehabilitation were an effective response to the developmentchallenge of transporting FFBs to the mills and ensuring that growers are paid for theiroutputs. However, the experience also shows that agricultural project investments workbest when they are incorporated into existing operations and maintenance schedules,aligned to the immediate needs of local governments, and are responsive to privatesector demand. Though it occurred late in the process, OPIC’s work with the millingcompanies and provincial governments in coordinating road rehabilitation showed thatthey are useful partners in making agricultural development work in isolated regions.Mr. José Candido Carbajo MartinezDirector, Financial, Private Sector andSustainable Development Department

11. Background and Context1.1Papua and New Guinea (Papua New Guinea) has faced considerable developmentchallenges since its independence in 1975. The country has gone through a series ofshocks in recent years and, though rich in resources, it continues

Sustainable Development, carried out a mission to Papua New Guinea to conduct a Project Performance Assessment Report (PPAR) on the Papua New Guinea Smallholder Agriculture Development Project (SADP; P079140) from March 17 through March 24, 2016. In addition to reviewing