Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 7967-KE

STAFF APPRAISAL REPORT

REPUBLIC OF KENYA

SECOND COFFEE IMPROVEMENT PROJECT

AUGUST 18, 1989

Agriculture Operations DivisionEastern Africa Department

This document has a restricted distribution and may be used by recipients only in the performance eftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY AND EXCHANGE RATES a!

Currency Unit - Kenya Shillings (KSh)and Pound (K£)

KSh 20 - U 1.0KSh 1.00 = USS 0.0541USS 1.00 = KSh 18.5SDR 1.00 US11.28305 (as of July 31, 1989)

a/ Since August 1985, the Kenya Shilling has been pegged to the SDR at aFate of SDR 1 - Ksh 17.4. The rate vis-a-vis the US Dollar fluctuates. A rateof USS 1 = Ksh 18.5 has been used in this Project for figures related to 1988constant prices.

GOVERNMENT FISCAL YEAR

July 1 - June 30

WEIGHTS AND MEASURES

1 square kilometer (km 2 ) 0.39 square mile1 hectare (ha) - 2.47 acres1 metric ton (t) = 2,204.62 pounds1 liter = 1.06 quarts

ABBREVIATIONS AND ACRONYMS

AFC Agricultural Finance CorporationASAO Agriculture Sector Adjustment OperationCBK Coffee Board of KenyaCDC Commonwealth Development CorporationCoop Bank Cooperative Bank of Kenya, Ltd.CPCS Cooperative Production Credit SchemeCRF Coffee Research FoundationDANIDA Danish Developmer.t Aid AgencyDCWG District Coffee Working GroupERR Economic Rate of ReturnFCS Farm Credit SupplyFES Frontline Extension StaffGOK Government of KenyaICA International Coffee AgreementICB International Competitive BiddingICO International Coffee OrganizationKIRDI Kenya Industrial Research Development InstituteKPCU Kenya Planters' Cooperative UnionLCB Local Competitive BiddingLIB Limited International Biddingm MillionMOA Ministry of AgricultureMOCD Ministry of Cooperative DevelopmentMOF Ministry of FinanceMOLD Ministry of Livestock Developmentp.a. Per AnnumPCMU Project Coordination and Management UnitPMU Project Managment Unit (SCIP)PPF Project Preparation FacilityPSC Project Steering CommitteeRSD Rural Services Design ProjectSACCO Savings and Credit Cooperative OrganisationSCIP Smallholder Coffee Improvement ProjectSIDA Swedish Development Aid AgencyT&V Training and VisitUBS Union Banking Section

FOR OMCIAL USE ONLY

KENYASECOND COFFEE IMPROVEMENT PROJECT

Staff Appraisal Report

Table of Coi.tents

Page No.

?xOJECT AND CREDIT SUMMARY (i)

I. PROJECT BACKGROUND AND THE AGRICULTURAL SECTOR

A Project Background .......................... . 1

B. Agriculture in the Economy ............................. 1C. Agricultural Performance and Prospects .... ............. 2D. Agricultural Institutions and Services .... ............. 3E. Agricultural Credit .................................... 7

F. Production Potential, Constraints andDevelopment Policies ................................. 9

G. Strategy and Past Bank Lending in Agrivoxlture ... ....... 10H. Status of Follow-up and Projec-' Preparation .... ........ 12

II. THE COFFEE SUBSECTOR

A. General ................................................ 13B. Coffee Marketing ....................................... 16C. Coffee Credit and Payment System ....................... 18D. Government Coffee Policy ............................... 20

III. THE PROJECT

A. Project Formulation and Rationale ...................... 21B. Project Objectives and General Description .... ......... 21C. Detailed Weatures ...................................... 22D. Project Costs .......................................... 25E. Financing .............................................. 26F. Procurement ............................................ 28G. Disbursements .......................................... 30

H. Information Systems, Accounts and Audits .... ........... 30I. Environmental Impact ................................... 31

IV. PROJECT IMPLEMENTATION

A. Organization and Management ............................ 32

B. Executing Agencies ..................................... 32

This Staff Appraisal Report is based on the findings of an appraisal missionfielded by the Section of the Eastern Africa Agriculture Operations Divisionbased in the Resident Mission, Kenya, in January-February 1989: comprisingMessrs. C. Warnaars (mission leader), C. Smith, S. Muna, and Ms. C. Jones(IDA), and Messrs. A. Finney and R. Purcell (Consultants). The Mission wasjoined by Mr. C. Gatabaki of CDC.

This document has a restricted distribution and may be used by recipients only in the perferananceof their official duties. Its contents may not otherwise be disclosed without World Bdnk authorization.

C. Impl-mantation of Specific Components .................. 33D. Mid-Term Review ...... ......... ... *... . 39

V. PRODUCTION AND FINANCIAL ANALYSIS

A. Coffee Yields and Production Targets ............... .... 39B. Project Targeted Yields snd Production ................ 39C. Financial Analysis Outline ..... ........................ 40D. Coffee Milling . .. ........................... 45E. Effects on Foreign Exchange Position

and Government Cash Flow ..... ........................ 45

VI. JUSTIFICATION, BENEFITS AND RISKS

A. Justification .................. 45B. Benefits ............................ ................... 46C. Economic Analysis ...................................... 46D. Sensitivity Analysis ................ .. ................. 48E Uncertainties and Risks .. 48

VII. ASSURANCES AND RECOMMENDATION .............................. 49

CHARTS

1. MOCD Organization Chart2 . KPCU Management Structure

Coop Bank Organization Chart

ANNEXES

1. Summary Cost Tables2. Proposed Credit Arrangements3. World Coffee Markets4. Kenya Coffee Market5. Organisation and Management6. Factory Implementation Programme7. Financial Analysis Tables8. Economic Analysis9. Factory Investment Criteria10. Fungicides, Pesticides and Herbicides used in Coffee11. Selected Physical and Financial Flows in Coffee (Payment System)12. Payments to Coffee Growers as a % of Aucticri Price - 1989/90

MAP IBRD No. 21315

KENYASECOND COFFEE IMPROVEMENT PROJECT

PROJECT AND CREDIT SUMMARY

Borrower: Republic of Kenya

Beneficiaries: Ministry of Cooperative Development (MOCD),Ministry of Agriculture (MOA), Cooperative Bankof Kenya, Kenya Planters' Cooperative Union (KPCU)

Amount: SDR 36.5 million (m) (US$46.8 m equivalent)

Terms: Standard, with 40 years ftaturity ---

Onlending Terms: The Government would onlend US$43.9 m eauivalGnt to theCooperative Bank for (a) inveetments in coffee factories (US$22.9 m) and seedmoney for an improved payment system (US$12.1 m) at 10% and 8%, respectivelyover 10 years with 2 years of grace; and (b) incremental farn inputs (US$8.9m) at 8% over 2 years with 1 year of grace. The remaining funds (US$2.9 m)would be retained to finance the costs of technical support for the Projectcoordination and Management Unit (PCMU) and training.

Project Objectives: The main objective of the Project is to raise theincomes of coffee smallholders, small estate owners, and farm workers throughincreased productivity and quality improvements. Related objectives are to(a) increase Kenya's foreign exchange earnings and help it maintain itsposition as an efficient high quality coffee producer; and (b) strengthen theinstitutional capacities of the key participating agencies.

Project Description: The Project would provide investments required to:(i) improve 275 coffee factories and construct an additional 65 in thecooperative sector; (ii) provide credit for agricultural inputs; (iii) financethe initial credit requirements and support an improved toffee payment systemin the cooperative sector; (iv) improve production and processing on 230 smallestates; (v) increase Kenya's coffee milling capacity; (vi) provide trainingand advisory services; and (vii) strengthen the planning, management andimplementation capacities of the key parti pating agencies.

Benefits and Risks: The major benefits of the Project would be (i) anincrease in Kenya's gross foreign exchange earnings from coffee of about US$51m annually and (ii) creation of 11,000 manyears of unskilled employment. Inaddition, investments in factory rehabilitation and construction in thecooperative sector, supported by training and technical assistance, wouldincrease processing capacity and factory efficiency, resulting in highercoffee quality, better overall prices, and increased factory incomes.Flexible investment packages, individual ev.-Iation of each factory investmentproposal and strengthened lending criteria would help ensure that suchinvestments are economically and financially sound. Weak management couldjeopardize the Project; this riQk would be minimized by the establishment ofan improved PCMU with technicaJ support at Project start-up. The risk thatimprovements in processing quality would not take place to the extentenvisaged would be minimized by the provision of technical and managerialsupport services. There is a risk that the international price of coffee will

(ii)

be lower tha*i forecast and result in a permanent substantial reduction in realprices. However, demand for Kenya's high quality arabica coffee is good, andproduction of this type of coffee is expected to be sustainable with orwithout quota arrangements under aa ICA.

Estimated Proijct costs a/: LOCAL FOREIGN TOTAL-------- US$ million-------

Cooperative SectorCoffee Factories 15.6 6.4 22.0Farm Inputs 1.0 6.4 7.4

Improved Payment System 27.2 - 27.2

Estate SectorCoffee Factories 2.5 1.4 3.9

Farm Inputs 0.1 0.3 0.4

KPCUCoffee Mill 14.2 6.1 20.3

MOCDProject Coord. and Mgmt. Unit 3.8 1.7 5.5

Training 2.6 0.6 3.2

Total Base Costs 67.0 23.0 90.0

Physical Contingencies 4.8 2.4 7.2

Price Contingencies 7.3 2.3 9.6

Total Project Cost 79.1 27.7 106.8

al Inclusive of duties and taxes of US$13.8 million

Financing Plan: Local Foreign Total

------- US$ million-------

IDA 29.4 17.4 46.8CDC 9.2 8.8 18.0Coop Bank 12.1 - 12.1Coop Societies 11.1 0.1 11.2

KPCU 10.3 0.3 10.6Small estates 0.7 - 0.7

MOA 1.5 0.1 1.6MOCD 4.8 1.0 5.8

TOTAL 79.1 27.7 106.8

Estimated IDA Disbursements:

IDA Fiscal Year: FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97------------------ US$ million-----------------

Annual 0.9 2.2 5.7 7.2 7.3 8.8 8.2 6.5

Cumulative 0.9 3.1 8.8 16.0 23.3 32.1 40.3 46.8

Rate of Return: 29%

Map: IBRD No. 21315

KENYA

SECOND COFFEE IMPROVEMENT PROJECT

Staff Appraisal Report

I. PAOJECT BACKGROUND AND THE AGRICULTURAL SECTOR

A. Project Background

1.01 The Project, for which an IDA Credit of SDR 36.5 m (US$46.8 mequivalent) is proposed, forms the second phase of the World Bank Group'sassistance to the coffee subsector in Kenya. It supports part of thecountry's long term developaent plan and the Bank Group's lending strategyto improve living standards in the smallholder and small estates sectors,increase the country's foreign exchange earnings, and generate employment.The Project was identified by the coffee subsector study in 1986 and duringdiscussions with Government on the IDA-issisted Smallholder CoffeeImprovement Project (SCIP) (Credit 914-KE). A Project proposal prepared bythe Government of Kenya (GOK) was submitted to the Bank Group and theCommonwealth Development Corporat!.on (CDC) in September 1988; pre-appraisalwas carried out in October 1988, followed by appraisal in January-February,1989.

B. Agriculture in the Economy

1.02 Background. The Kenya Agricultura, Sector Report1 (1986) givesdetailed analyses of sector performance, objectives, and constraints and theinstitutions involved in the sector. It demonstrates that the agriculturalsector remains vitally important for the continued growth of the Kenyaneconomy. kgriculture, which provides the main livelihood for about 85% ofthe total population and employs 70% of the labor force, in 1987 contributedabout 30% of GDP. The sector produces most of the nation's food and servesas the main source of export earnings (60% in 1988) and raw materials for thepredominantly resource-based industrial sector. Larger farms (greater than20 ha in size) account for about 40% of total farmed area and small farmscover the remaining 60%; the proportion of land owned and operated bysmallholders is increasing with the continuing subdivision of large and groupowned farms. Smallholder agriculture accounts for approximately 75% ofproduction and 85% of agricultural employment. The average size of Kenya'stwo million small farms is about 2.0 ha (1987) with over three quarters ofthese under 2 ha; the average size of coffee holdings is 0.5 ha.

1 Kenya Agricultural Sector Report No.4629-KRE dated January 1986.

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C. Aqricultural Performance and Prospects

1.03 While agricultural growth between 1981 and 1987 averaged 3.2% p.a.,population growth accelerated to 4% p.a., signalling a decline in per capitaproduction. Factors contributing to the slow growth included: (a) decliningland availability; (b) deteriorating quality of agricultural services; (C)market4.:g and pricing distortions- and (d) droughts. The rapid rate ofpopulation increase combined with a limited amount of land with arablepotential (20% of the total) has increased population densities in some areasimarkedly. While in the early 1960s Kenya had about 0.8 ha of high potentialland per person, by the year 2000 this is expected to be reduced to 0.2 ha.Further increases in agricultural production must come, therefore, mainlyfrom intensification on existing lands and diversification into high valuecrops. Distortions in marketing and pricing are fewer than in most Africancountries. Prices for the major export crops (coffee and tea) are notcontrolled, while those for the major domestic commodities (maize, wheat,milk and cotton), which are controlled, have, since 1982, been moving towardsborder prices and are generally at incentive levels. However, officialprices remain inflexible, being applied uniformly throughout the country andallowing no locational, seasonal or quality variation. Moreover, theGovernment has restricted participation in marketing and processing ofsmallholder coffee largely to cooperative enterprises and of maize, wheat,cotton and milk largely to monopoly parastatals. As a result ofinefficiencies in these enterprises there can be lengthy delays (up to 24months) in payments to farmers and excessive marketing deductions. Regardingagricultural services, afte:: major successes in the 19608, Kenya's researchsystem stagnated and the extension and veterinary systems deteriorated,suffering from poor management, underfunding and inadequate training.

1.04 GOK has recently made serious efforts to stimulate growth in thesector through improvements in agricultural services and price andinstitutional reforms initiated under the Agricultural Sector AdjustmentOperation (ASAO) (para 1.26). In its most recent comprehensive policystatement, Sessional Paper No. 1 of 1986, Government restated its objectivesfor agricultural development to the year 2000 within the context of rapidpopulation growth, possible unemployment and foreign exchange shortages. Inthe absence of strong alternatives, the Paper leans heavily on theagricultural sector, as the largest producing sector with strong forw4rdlinkages, as the largest market and as the only hope of avoiding a massivedrift to the towns. The Paper sets overall targets for the sector of 5% p.a.growth, employment generation of 3% p.a. and an increase in earnings fromexports of 6% p.a. The strategy for attaining these objectives is threefold:first, intensification of existing production through extension, incentivepricing, improved marketing efficiency and input supply; second, a majorresearch effort aimed at identifying new improved technology and highyielding varieties; and third, further prudent diversification into highvalue crops, notably coffee, tea and horticultural crops.

1.05 Implementation of announced strategies has often been slow in thepast because of political problems and the weak implementation capacity ofthe civil service (including the situation where technical solutions agreed

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within the civil service may not receive political endorsement). Recentexperience, however, has shown that well conceived technical solutions inagriculture (e.g. recomendations made in the coffee subsector study) can beendorsed at the political level. Successful implementation of developmentplans thus depends on sustained commitment by top professionals to sellingthese solutions to policymakers. In agriculture, this pattern is graduallyemerging. For some years, smallholder services, notably extension and morerecently veterinary servic.s, have baen given top priority in management andproject funding. The availability of major inputs is increasing. Pricingmethodology and levels have been consiitently improved and parts of themarketing monopolies (maize and cottonj are being dismantled whilealternative marketing systems are developed. The research establishment isbeing revived under a major project. Coffee and tea output is ri3ing andwill be supported by investment projects (including the proposed Project).Stimulation of agricultural growth through greater involvement of agro-basedindustries should be explored. Some areas may remain problematic for sometime - for example, maize marketing, or price setting where prices are aboveborder levels - but the trend overall is acc-ptable and the broad p3licycontext is favorable to investments such as those proposed here.

D. Agricultural Institutions and Services

1.06 Government services tu agriculture are delivered through sixministrias and 15 statutory boards. The Ministry of Agriculture (MOA) hasthe primarv responsibility for agricultural development and farmer se-,vices.The Ministry of Cooperative Development (MOCD) supervises cooperativeorganisations and provides them with management advice. The statutory boardsinvolved in agriculture are eithez general, such as the National Cereals andProduce Board, which trades in most food crops, or crop-specific, e.g. theCoffee Board of Kenya (CBK). The initiation and implementation ofdevelopment projects in rural areas is being decentralized through theincreased use of District Development Committees which approve and monitorall development projects at the district level. The smallholder sector isalmost entirely serviced by Government, parastatal and cooperativeinstitutions whose functions range from direct participation in cropproduction to distribution, processing and marketing of agriculturalproduce. Major parastatals serving the coffee industry include CBK, theCoffee Research Foundation (CRF), the Agricultural Finance Corporation (AFC),and the farmer-owned Kenya Planters, Cooperative Union (KPCU) which catersfor both the smallholders and the estate sector.

1.07 Extension Services to the farming community are provided mainly byMOA through its Department of Agriculture. The Extension Division is oneamong six in the Department. Field extension operations are directed at theprovincial level by Provincial Directors of Agriculture and are organized andcoordinated on a district basis under District Agricultural Officers. Eachdistrict is divided into about five divisions headed by a DivisionalExtension Officer who directly supervises the frontline extension staff (FES)comprising Technical Assistants and Junior Technical Assistants. Thestructure and density of staffing compares well to most developing

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countries. Current extension staff for crop development number about 4,000and the avarage number of holdings per officer is about 500.

1.08 Extension agents at farmer level now act as generalists and covermost crops, including coffee, with the emphasis on improved management of thefarm as a whole. The introduction of the present Training and Visit (T&V)system of extension aims to make the extension services more effective byaddressing the problems of poor communlcation, lack of transport, anunbalanced mix of specialist skills, lack of regular in-service training andpoor continuity due to frequent transfers of personnel. The Government aimsto increase extension covei.,e in key development areas, to provide bettertransportation and allowances, to improve housing facilities in remote areasfor extension officers, and to etrengthen in-service training programs forextension staff in relation to coffee husbandry. These issues are beingaddressed through the IDA-supported National Extension Project (Cr. 1387-KE).

i.09 The Ministry of Cooperative Development (Chart 1). The role ofMOCD is to promote, control and supervise the cooperative movement. TheMinistry staff are concerned with the supervision and control of cooperativesand their activities to ensure that members' decisions and wishes areconsistent with the provisions of the Cooperative Societies Act and Bye-lawsand that financial control systems are working satisfactorily. The Ministryalso carries out the bulk of cooperative training. MOCD field staff assistthe cooperative movement in project identification, preparation andappraisal, advise societies and unions on financial transactions and help themanagement to prepare budget proposals. The Commissioner is the Registrarof Cooperatives. In each of the eight provinces of the country theMinistry's operations are headed by a Provincial cooperative Officer and ineach district the field staff of the Ministry are headed by a DistrictCooperative Officer. Problems arise in field work from lack of adequatetransport.

i.10 Agricultural cooperatives play an important role in fosteringagricultural development. For the smallholder sector they play an importantpart in the marketing of various agricultural products such as coffee,cotton, pyrethrum and dairy products. They provide agricultural credit andinputs for crop production, and savings and banking services for theirmembers. Coffee from the smallholder subsector is marketed and processedthrough coffee cooperatives (societies and unions). The cooperativesocieties, which serve mainly as collection points, are supported by theunions. 2 Major services provided by the unions to the primary societiesinclude bookkeeping, accounting, purchase of farm inputs, and banking andcredit. At present there are 19 coffee unions and 193 societies.

1.11 In addition to cooperative societies and unions there arecountrywide farmers cooperative organizations and national federations of

2 Primary Cooperative Societies are federated into cooperative unions, whichcover a district. Coffee societies are members of the unions.

cooperatives, which provide the services of a union as well as serving as anational apex organization. The major nationwide and apex cooperativesinclude the KPCU, the Cooperative Bank of Kenya and the Kenya NationalFederation Cooperative, which is an apex organization for the Kenyancooperative movement and serves the coffee industry mainly through trainingactivities.

1.12 Kenya 'Planters' Cooperative Union (Chart 2) has a dual corporateregistration. It was incorporated as a company limited by shares under theCompanies Act Chapter 486 of the Laws of Kenya on 2 June 1945. It was alsoregistered as a cooperative society under the Cooperative Society Act Chapter490 of the Laws of Kenya on 19 November 1945. In practice the organizationhas adhered to the regulations of the Companies Act, and has at times beengiven corplete exemption from the Cooperative Societies Act. Prior to thisthe organization had functioned, since 1937, to assist coffee farmers toobtain credit for farm inputs. The share capital is KShs 400 m, divided intosingle redeemable shares of KShs 10,000 each. Only coffee farmers may holdshare3. Estate growers (directly) and smallholder growers (through theirsocieties) are all members of KPCU.

1.13 KPCU's board has between eight and 16 directors (two-thirdscovering cooperative members and one-third covering coffee estates). Eachdirector except the managing director is a member of KPCU. The presentfunctions of KPCU are: (a) milling of parchment and mbuni coffee;3 (b)storage of unmilled and part of milled coffee; (c) provision of short termcredit to farmers; (d) provision of advisory services; and (e) coffee agencyservices. KPCU owns and operates the central parchment milling facilitiesin Nairobi, with an annual milling capacity of up to 120,000 tons of cleancoffee per year, as well as mbuni mills at three locations - Dandora, Saganaand Meru - which have a usable annual capacity of about 23,000 tons of cleancoffee. It owns and operates stores for unmilled coffee in Nairobi, Dandora,Sagana, Meru, Nanyuki, Nakuru and Kisumu. The Nairobi and Dandora stores arealso used for storing substantial amounts of milled coffee ready for export.KPCU provides advances and credit for farm inputs on the basis of deliveredcoffee and expected deliveries, as well as providing expertise in farmmanagement to the estate sector. It also functions effectively as one ofseveral coffee agents, acting for coffee farmers to check that the CoffeeBoard quality classifications are consistent with physical deliveries andprocessing payments from the Board to farmers. KPCU's operations arefinanced through milling charges and agency fees (Annex 12).

1.14 The Coffee Board of Kenya is a parastatal organization, set upunder an Act of Parliament. It was incorporated under the Coffee Act,Chapter 333 of the Laws cf Kenya of 5 July 19G0. Its board consists ofGovernmc-t appointees (from MOA, CRF, Departments of Agriculture and Coop-erative Development, and the Treasury), as well as nine members appointed byan unspecified minister (to date this has been the Minister of Agriculture)

3 Parchment coffee is the final product after red coffee cherries are fullywashed and dried in a coffee factory; mbuni is not washed, only sundried.

from a list of names of candidates who have been elected on a district basis(three members for plantations, three for cooperative societies, and threeexperienced in marketing). The -resent functions of CBX are: (a) regulationof the coffee industry; (b) provision of finance for paying coff-o farmers;(c) control of the auction system; (d) storage of part of the milled coffee;(e) the control and funding of coffee research; and (f) promotion of localconsumption of coffee. CBK's operations are self-financing through a levybased on 2% of the average auction price (Annex 12).

1.15 CBK exercises control over the industry by licensing coffeegrowers, processors (including storage agents), and marketers of coffee. Ithas overall responsibility for finding the money to pay farmers; the primarysource is the weekly coffee auctions, operated by Kenya Coffee AuctionsLimited, in which the Board has a majority interest. The Board owns andoperates one coffee store in Nairobi, used only for milled coffee. From timeto time it hires additional stores in Nairobi, anct uses some of the KPCUstores. The Board, through the coffee cess, also provides finance to CRF.The Board promotes local consumption of coffee by giving subsidies on coffeesold for local consumption, and by operating or licensing a chain of coffeehouses in Kenya.

1.16 Coffee quotas to producers (Annex 3) under the existingIntern,tional Coffee Agreement (ICA) were suspended on July 3, 1989. Eventhough the chances of a new quota structure being concluded Ly September 1989are uncertain, in terms of sales strategy and stock management it would beprudent to assume a resumption of the quota system in the near to medium term(1-3 years), probably in an improved format and more favorable to arabicas.At the beginning of the 1988/89 coffee year (October 1988), stock levelsreached 60,000 tons, the highest in Kenya's history. This was due toincreased production and Kenya's limited coffee quotas (para 2.14), with theresult that stock financing required exceeded CBXKs present facilities. Inthe event quotas are reimposed, it is essential that a clear stock managementstrategy be developed. Such a stock management strategy may requireproducers to share in the burden of financing stocks, as is currently donethrough delayed final payments, depending on the level of normal workingstock the industry needs to maintain (estimated to be 30,000 tons). Anassurance was obtained that in the event of the reimposition of export quotasunder the ICA, the Borrower would immediately inform the Association ofrevised measures for the better management of its coffee stocks (para7.01(a)).

1-17 Coffee for domestic consumption is currently being subsidized inorder to stimulate coffee drinking and develop the local market in Kenya.Up to 1983/84, local consumption remained at the 3,000 tons level; sincethen, however, sales to local roasters have increased to over 10,000 tons for1.987/88. At that time the price diffe.ential between local and internationalsales prices was substantial (over 40%) in relation to non-quota marketprices, representing a possible net fina-4cial loss for coffee growers and thecountry of about US$7.5 m. Both MOA and CBK are addressing the issue,however, and during discussions between the World Bank Group and theGovernment under ASAO (para 1.26) it was agreed in principle to remove

subsidies on domestic products. This has already been implemented for tea.Since the price differential is used as a tool to develop the market to amature level1 assurances were obtained that the Government would continue toprogressively reduce the price differential between sales in the local andinternational markets with a view to finally eliminating it when local salesattain a level of 10% of total sales (para 7.01(b)).

1.18 As a governing body, CBK would be responsible for implementing theabove policy-related matters under the Project. The Board has already takenand continues to take measures to improve its policy formulation andimplementation capabilities in strategic areas. However, to assist the Boardand Government in the formulation of needed strategy proposals in respect ofstorage, internatiLnal marketing and financing of coffee stocks, an assurancewas obtained that by June 30, 1990 CBK would strengthen its organizationalstructure to enable it to better respond to the consequences of increasedcoffee production in the formulation of such strategy proposals (para7.01(c)). To this end it was agreed that strengthening its organizationalstructure would include recruitment of specialized staff and acquisition ofnecessary office equipment and information services.

E. Agricultural Credit

1.19 Credit to the agricultural sector is available through a number ofinstitutions in the organized credit market and individuals in an informalmarket. There are four types of credit institutions: (a) commercial bankswhich provide working capital and development credit channeled largely tomedium or large scale farmers; (b) AFC which gives loans to large, medium andsmall scale farmers; (c) the Cooperative Bank of Kenya (Coop Bank) whichprovides development and seasonal loans to cooperative societies; and (d)parastatal organizations such as crop development or marketing boards whichprovide seasonal or medium term loans.

1.20 Commercial Agricultural Credit. Commercial banking is dominatedby the Kenya Commercial Bank and two multinational banks: Barclays Bank ofKenya Ltd. and Standard Chartered Bank (Kenya) Ltd. These banks providebroad coverage through a network of branch offices in major towns and accountfor over half of the total loans outstanding as of June 1985. At the end of1987, total commercial bank lending to the agricultural sector was KSh 5billion. The bulk of commercial bank lending to agriculture is channeled tolarge estates and farming companies (including KPCU and large Unions), andto corporations engaged in agro-industrial activities. Commercial banks alsohandle loans to medium and small scale (mainly coffee; farmers. Small scaleloans are mainly for on-farm development rather than working capital.Normally these loans take the form of a line of credit. Most commercialagricultural credit is short term with a maturity of less than three years.Loans are mainly secured by traditional land titles and other tangiblesecurities and, regardless of the nature of the enterprise funded, loanrepayment contracts exhibit little variability. The principal constraintsto increased commercial bank lending for small and n,.dium size farms are thehigh cost for small loans and the lack of dependable farm management servicesin these banks.

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1.21 The Cooperative Bank of Kenya, Ltd. (Chart 3) was commissioned in1965 to serve as the central bank for the cooperative movement (registeredjointly under the Cooperative Societies Act and under the Banking Act). Itis a specialized public institution servicing only the cooperative movementand is subject to the same regulations as other commercial banks. At thetime it was established, the stated objective of the Coop Bank was tomobilize funds generated by cooperatives through the Cooperative ProductionCredit Scheme (CPCS)4 launched in late 1969 with funds from the SwedishDevelopment Aid Agency (SIDA), the Danish Development Aid Agency (DANIDA) andcooperative membership shares; to provide medium and seasonal finance tocooperative societies; and to act as an outlet for societies' funds andmembers' savings. It does not deal with individuals but lends to unions orsocieties who make loans to their members. By the mid-1970s, its lendingactivities had increased and diversified significantly with the addition ofa number of Government and donor-financed smallholder credit schemes, andthrough the expansion of its own lending activities financed by cooperativedeposits, as well as by an increase in the membership share capital. Themaior lending system of the Coop Bank is the CPCS through which approximately240,000 loans have been made since 1970. Government policy emphasizes smallfarm loans through the various cooperative credit programs. The first phase,which aimed at reaching 56,000 members by 1980 in all parts of the country,concentrated on developing systems for assisting less progressive smallfarms. The Coop Bank covered only 161 cooperatives in the late 1960s; by tl}eend of 1985, it provided banking services for an estimated 1,800 cooperativesocieties representing about Wwo million individuals.

1.22 The history of the bank's institutional development is similar inmany respects to that of AFC (para. 1.24). While it was created to provideboth savings and credit services (as opposed to AFC, whose function rrimainslimited to that of providing loans), like AFC, its policies and operationswere largely influenced by the Government thrjugh its management structureind the legal framework of the Cooperative Societies Act which reserved amajor role for the Ministry of Cooperative Development. In addition, a largeportion of its funds have come from the Government. The bank's financialsituation (para 5.09) in 1988 indicates advances totalling KE61.9 m; current,deposit and other accounts totalling KE63.4 m; profit before taxes of RK1.12m; and shareholders' funds totalling KR6.1 m.

1.23 The Coop Bank has not in the past served the cooperative movementas well as it might. The financial needs of viablw cooperatives were notalways fully met due to lack of sufficient administrative capacity and thevalue of the shareholders' investment had deteriorated with a build-up ofarrears. The bank's institutional capacity had not kept pace with thegrowing services and demands placed on it by the Government to implementnumerous and complicated lending schemes. However, efforts recentlycommenced and are now under way to streamline its institutional capacity,

4 CPCS was designed to be largely self-financing since the credit schemewas contained within an integrated savings program.

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simplify and standardize its lending schemes, and make it responsible forloans as an independent and autonomous banking institution. Meanwhile, theCoop Bank plays a key role in supporting its affiliated unions and societiesand would be a major implementing agency under the proposed Project. Itsadministrative capacity needs to bu strengthened to enable it to carry outeffective loan appraisals, and to improve the efficiency of loanadministration and financial control. Specific measures are being carriedout to strengthen the bank's functions as they relate to the coffee industry(paras 4.14 and 5.11).

1.24 The Agricultural Finance Corporetion is a statutory board which wasestablished in 1963 to assist in the development of agriculture by makingloans to individual farmers, cooperative societies or companies. Althoughmainly providing medium and long term credit, AFC also provides seasonalcredit to its borrowers. Its loans are generally secured by title deeds toland. It is Government's policy to expand loan activitles through AFCparticularly to more progressive small farmers, in addition to its servicesto the medium and large scale farming sectors. The Bank Group has assistedthe small and large scale lending programs through the Fourth AgriculturalCredit Project (Ln. 1995-RE/Cr. 1143-RE), which recently closed, and willcontinue to provide such assistance to smallholders through the RuralServices Design (RSD) Project (Cr. 1974-RE). Experience gained from theFourth Agricultural Credit Project indicates that the institution is onlyjust starting to recover from the weak and ineffective management andGovernment interference which constrained its activitWes in the early 1980s.The result has been a deterioration in AFC's loan portfolio, and the presentmanagement team is in the process of financially restructuring theCorporation.

F. Production Potential, Constraints and Development Policies

1.25 A major constraint facing agricultural development for the twomillion farm households in Renya is the shortage of arable land, exacerbatedby rapid population growth. Only about 20% of Kenya's 575,000 km2 surfacearea is high potentitl land, while another 9% can produce crops but issubject to periodic drought. The remaining land area is suitable mainly forextensive livestock production. Related problems are soil erosion, forestdepletion and the subdivision of large farms. Kenya is only graduallydeveloping a coherent land policy and an institutional framework foraddressing land resource issues under its sector adjustment programs. Themajor potential for increasing agricultural growth and development to meetthe needs of the 1990's is through crop intensification, higher yields andcrop diversification in high value crops. In the higher potential areas theclimate is generally favorable for the cultivation of a wide range of crops,but irrigation potential is limited. Although input use for industrial cropssuch as coffee, tea, and sugarcane is relatively high, use of fertilizers andimproved seeds for major food crops had been stagnating in the past becauseof: (i) low financial returns to farmers using fertilizer on cereal foodcrops; (ii) insufficient farmer knowledge; (iii) fertilizer shortages causedby lack of foreign exchange and GOR's discouragement of commercial imports,

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restrictive import quotas, late deliveries, inappropriate fertilizer typesand distribution problems; and (iv) lack of adaptive research recommendationsand improved crop varieties.

1.26 To address these constraints, GOK in 1985 initiated preparation ofan agricultural adjustment program with Bank Group assistance. The measurestaken in the context of this program are at the core of GOK's developmentstrategy; their implementation would create an environment in whichinvestments in the sector would be more rewarding. Specifically, theyinclude: (i) increased fertilizer imports and improved fertilizer policy(pricing, marketing, distribution); (ii) adjustment in prices for otherinputs (seeds, chemicals and machinery); (iii) expansion in creditavailability through policy reform; (iv) higher producer prices and improvedagricultural marketirng systems including a greater role for the privatesector; (v) removal of consumer subsidies; (vi) greater Government budgetallocations to agriculture; and (vii) more officient investment inagriculture through the budget rationalization program, improved sectormanagement and aid coordination. Despite slow implementation of ASAO,progress was made in maintaining incentive producer price levels and partialmarket deregulation (maize and beef); increased fertilizer imports; financialand organizational restructuring of two parastatals (the National Cereals andProduce Board and South Nyanza Sugar Company); and improved cost recovery ofanimal health services.

G. Strategy and Past Bank Lending in Agriculture

1.27 At the level of development objectives and strategy for theagricultural sector there is substantial agreement between Government andthe Bank Group. The Bank's role is therefore to support Government inimplementation, specifically through sound analysis and policy advice,support to institution building, and investment in projects of high prioritywithin Government's strategy. This strategy is growth oriented, with primaryemphasis on intensification of production, and meets the complementary goalsof income distribution, employment and foreign exchange generation. The BankGroup's lending program consists of two complementary components: (i)policy-oriented lending (e.g. the adjustment program); and (ii) projectlending. The impact of the latter is being enhanced by the former andincludes projects to: (i) improve essential farmer services, especiallyresearch, extension, animal health, input supply, marketing and credit; (ii)address key physical resource management issues such as forestry and soilconservation; (iii) support better policy planning and implementation; (iv)assist in restructuring public investment; (v) improve training foragricultural staff; and (vi) promote aid coordination.

1.28 To date, the Bank Group has financed over 30 projects in Kenya'sagriculture sector (including forestry and fisheries). The present portfolio

5 Agricultural Sector Adjustment Operation (ASAO) (Cr. 1717-KE, SFA Cr.A-21-KE).

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of seven ongoing projects reflects sabstantial pruning and a redirection ofeffort toward strategic priorities. Future project lending will directlycomplement the Government-s sector adjustment program, providing integratedsupport for longer term institution building and development of improvedagricultural and farmer services. The pipeline includes, in addition to thepresent Project, proposals in the areas of forestry, semi-arid landdevelopment, agricultural extension Phase II, agricultural sector adjustmentPhase II, and credit. The practical experience gained through projectimplementation has been complemented by considerable sector work. Inaddition to th.t 1986 Agricultural Sector Report, studies have been donerecently on coffee, tea, forestry, agricultural inputs, credit, maizemarketing and pricing, farmer incentives, irrigation, cooperatives, thepublic investment program, resourc-t allocation, and private sectorinvestment. Sector studies on food and nutrition and Kenya's agriculturalgrowth prospects are ongoing. These studies provide the basis for continuingBank Group lending .ncluding further elaboration of policy reforms. RecentProject Completion Reports for agricultural projects in Kenya have providedmany useful recommendations. One major lesson learned is that project designmust take into account GOR's limited institutional and management capacitywithin the framework of a low financial reward system in the civil service.

1.29 The First Coffee Project. The Bank Group has been involved in thedevelopment of the coffee subsector through SCIP (Cr. 914-RE). This project,cofinanced by CDC, was appraised in 1978, became effective in 1979, and wasscheduled to be implemented over four years. The main obiectives were toimprove the quality of coffee produced by smallholders and processed byfactories owned by cooperative societies, and to rehabilitate neglectedsmallholder coffee farms. It also included a comprehensive coffee subsectorstudy, completed in early 1987. The project cost was estimated at US$62.2m of which IDA was to provide US$27 m, CDC US$15 m, and the balance ofUS$20.2 m by GOK and farmers. The final project cost at completion wasUS$36.4 m (XSh 494 m}. The decrease was due primarily to the significantdevaluation of the Kenya shilling over the project period (50%) and thefailure of the farm inputs component. The project provided for theconstruction of 14 new factories and the rehabilitation of 400 throughout thecoffee growing areas of Kenya. The farm input component was expected toreach 70,000 smallholders growing coffee on very small land holdings,rehabilitating about 15,000 ha. Following three extensions of the closingdate, the project was completed in 1987. A Project Completion Report (PCR)was issued in July 1988.

1.30 Weaknesses in the design and implementation of the SCIP componentswere highlighted in the PCR. It was to be managed by a coordinating unitwith the assistance of two coordinators, one each from MOA and MOCD. Thisarrangement proved to be ineffective and during the project's mid term reviewin 1982 a semi-autonomous Project Management Unit (PMU/SCIP) wasestablished. This arrangement, supported by a steering committee under thechairmanship of the Office of the President and a Project Working Group,proved to be successful. The withdrawal of the Office of the President fromthe chairmanship in 1986 again resulted in slowing down of implementation.The implementation period of four years proved to be unrealistic; a major

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constraint was insufficient budgetary provision for loan funds for onlendingto the Cooperative Bank. The farm input component was limited to a smalltarget group of smallholders who had neglected coffeeholdings and who failedto take up SCIP input loans as anticipated. In any case other loan schemesavailable were equally or more attractive to these farmers. Consequently,only US$2 m was spent out of a targeted US$13.4 m.

1.31 The largest component, factory development, which accounted forabout 74% of estimated project costs, surpassed its appraisal targets mainlydue to project extensions. Some 183 new and resited factories wereconstructed as compared with 14 envisaged at appraisal while 280 factorieswere rehabilitated as compared with the appraisal target of 400. However,the technical and economic criteria for selecting and evaluating proposalsfor factory development were incomplete and loosely applied in practice.There was a tendency to invest in new factories rather than renovate existingones which resulted in a number of uneconomic investments and overallutilization rates of only 72%. The impact on coffee quality was very unevenand much lower than anticipated - a major factor here was the continued weakphysical management of processing facilities.

1.32 The lessons learned from SCIP have been incorporated in the designof the proposed Project. These include improved project and cooperativefactory management; more precise and rigorous lending criteria, favoringfactory rehabilitation; a better focussed farm inputs component; betteraccess to budget and project funds; and streamlining of disbursementmechanisms.

H. Status of Follow-up and Project Preparation

1.33 Following the 1987 coffee subsector study and the completion ofSCIP, a Project Preparation Facility (PPF) advance for a Second CoffeeImprovement Project was approved to keep the PMU in operation and hireconsultants for follow-up project preparation. Implementation of the Pk3F hasbeen difficult and slow due to the inability of the PMU to make decisions.GOK completed a project preparation document in September 1988 which formedthe basis of project appraisal. In this document IDA and CDC funding wasenvisaged for a US$90 m project along similar lines to SCIP, includingassistance to small estates, introduction of an improved payment system andremoval of other institutional constraints. The proposal for investments in405 cooperative factories (new and rehabilitated) was based on ambitiousproduction objectives. In addition, the emphasis on new and re-sitedfactories (47% of the proposed factory component cost) tended to ignore onelesson from SCIP that improving existing factories in many cases would havebet,n more cost effective than constructing new factories. Past experiencewithi budgetary, implementation and supervision constraints suggests that arealistic approach would be to restrict total cooperative improvements tomore modest targets with the emphasis on improvements to existing factories.Field surveys also have indicated a considerable scope for a number ofcomparatively small investments for field and factory equipment to improvethe performance of small and very small estates. The factory component ofthe proposed Project is therefore based on a much lower annual productiongrowth (2%) and lays more emphasis on renovation of existing factories than

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on new factory construction (275 and 65, respectively) while the estatescomponent proposes to upgrade production and processing for 230 smallestates. Provision is also made for incremental milling capacity which wasnot considered at preparation.

II. THE COFFEE SUBSECTOR

A. General

2.01 Historically, arabica coffee has been the single most importantagricultural commodity in Kenya in terms of its contribution to GDP and toforeign exchange earnings. Annual production has increased from about 10,000tons of clean coffee per year in the late 1940's to about 110,000 tons in1988/89 (estimated), with a peak production of about 130,000 tons recordedin 1984 and 1988. Although year to year growth has been uneven due to thecyclical nature of the crop, on average it has been in the order of 7% perannum over the last 40 years (although during the last 10 years this increasein production declined to about 2.5% per year). Most of this increaseoccurred due to area expansion in the smallholder sector which rose from13,000 ha to about 117,000 ha during the same period (9.5% p.a.), while thatof the estate sector increased from 32,000 ha to about 38,000 ha.Consequently, the smallholder sector now produces almost 70% of Kenya'sexportable coffee.

2.02 Coffee Research is concentrated at the CRF located at Ruiru withsome ancilliary research being conducted by the Kenya Industrial ResearchDevelopment Institute (KIRDI). CRF is funded through CBK by cesscontributions from growers. Since its inception in 1951 CRF has beenconfined to the very successful production of improved disease resistantvarieties, nutrition, bush management and harvesting. Research into variousaspects of coffee processing such as fermenting, drying and storage has beencarried out by CRF and KIRDI but currently is limited. CRF, through itsliaison department, conducts regular training courses for cooperative coffeefactory staff and field extension workers designed to provide up-to-dateinformation through them to coffee growers. Demand for such training is highand the training capabilities would be strengthened under the Project.

2.03 Technology and Agricultural Production. Coffee growing isdistributed over 22 districts in Kenya (IBRD Map No. 21315). However theoptimum growing conditions are found in nine districts of the Central andEastern Provinces which currently account for 83% of area and 92% of nationalproduction. Cultivation is based on selected cultivars of arabica "Bourbon"supplemented by new, improved varieties distributed by the CRF. Robustacultivation is negligible, amounting to only 100 ha. Arabica cultivation inKenya requires specific conditions: soil pH should be between 4.5 and 6.0 andsince the majority of coffee is non-irrigated, deep soil with good waterretention qualities is preferable; temperatures between 80C and 220C andrainfall between 1,000 and 1,800 millimeters are required. These conditionsare usually found at altitudes of between 1,450 and 1,900 meters above sealevel ard the majority of coffee is grown at about 1,600 meters.

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2.04 Coffee is a monoculture, with limited interplantJng of food cropssuch as beans in immature coffee blocks only. The recomended plantingdensity is 1,350 trees per ha, although a number of new improved varietiesuse densities of 2,000-3,000 trees per ha. Coffee berry disease (glomerellacingulata) and leaf rust (hemeleia vastatrix) affect all coffee growingareas, requiring intensive applications of fungicides throughout the growingseason to prevent crop losses.

2.05 The cooperative and estate sectors are both involved in coffeeproduction. In order to have access to coffee factories, all smallholdersgrowing coffee must belong to a cooperative. Cooperative production comesfrom about 230,000 registered smallholder coffee growers with average coffeeplots of about 0.5 ha. The estate6 sector has been characterized by theincreasing number of small and very small estates vith less than 20 ha ofcoffee. Many of these have low input levels, low yields and inadequateprocessing facilities. There are now a total of 1,111 registered estatesvarying in size from 4 ha to over 500 ha but most of the production in thisgroup ccmes from the 383 medium and large estates of 20 ha and over.Irrigation is practised by about a third of the medium and large eiLates,particularly those in marginal rainfall areas, while smallholder coffee iealmost entirely rainfed. Currently (3 year average) the cooperative sectoraccounts for 70% of national production and the estate sector 30%, annually.

2.06 A recent survey (1987) by CRF indicates that smallholder coffee isgenerally not irrigated and that approximately 44% of those farmers withabout 52,000 ha of coffee operate at a low level of inputs witi. yields ofabout 360 Kg/ha. A further 38% with about 44,000 ha operate at a mediumlevel of inputs with yields of about 600 Kg/ha, about the national average.About 18%, with 21,000 ha of coffee, operate at a high level of inputs withyields of about 940 Kg/ha (Annex 7, table 1). The overall smallholder yieldshave shown a disappointing decline over the past 10 years from 740 Kg/ha(1977-80 average) to 600 Kg/ha (1984-86 average). Estate yields, includingareas under irrigation, have shown a small increase from 1,076 Kg/ha to 1,170Kg/ha over the same period. The decline in smallholder productivity can beattributed to a number of constraints outlined below (para 2.09).

2.07 In future only limited expansion of the area under coifee can takeplace due to the lack of available high potential coffee land. Theopportunities for improved output will be mainly in the more intensive useof inputs and improved, high yielding varieties on existing coffee areas toraise yields. The potential for higher productivity by smallholders hasalready been demonstrated in certain districts such as Nyeri and Muranga'awhich in recent years have recorded average yields in excess of 900 kg/haclean coffee with existing varieties. But in recent years estatesconsistently outperform smallholders. Consequently under good managementthere is considerable scope to intensify production from existino plantings.

6 A registered estate must have its own coffee factory.

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2.08 The 1987 coffee subsector report shows that relative to returnsfrom coffee investments, production cost iL high, although this variesconsiderably depending on location and level of management. The two largestinvestment items are labor (36%) and chemicals (30%) but with theintroduction of clisease resistant varieties (e.g. Ruiru 11) this latter costcan be greatly reduced.

2.09 On average, estates use inputs more intensively than smallholdersand thus record higher yields and lower unit production costs. Althoughabout 75% of smallholders use chemicals (fertilizers, insecticides andfungicides), their use is sub-optimal. Major constraints restricting inputuse by s*allholders are: (i) delayed and irregular coffee payments (up to 13months from time of cherry delivery to receipt of first payment) and the needto borrow to buy inputs thus decreasing the farmers' incentive to increaseinput usage; (ii) the need for farmers to spend cash on other non-farmingactivities like school fees, food purchases, clothing, and transport- (iii)dependence of nearly all farmers on cooperative stores for their inputrequirements due to lack of ready cash to purchase inputs elsewhere; (iv)non-availability of inputs at many cooperative stores at the right time; and(v) seasonal and medium term credit conditions tied to three year cherrydeliveries which lead to inadequate input application (para 2.19).

2.10 Most of the above constraints would be addressed by the proposedProject (paras 4.13 and 4.14). The issue of dependence of farmers on thecooperative stores for their inputs is due to lack of cash to purchase inputsfrom other suppliers. The Project proposes to reduce the farmers' dependenceon cooperative credit for inputs by providing loan packages which includecash. The uptake of inputs can also be increased by improved cooperativemanagement capability which is being addressed under the RSD in collaborationwith cont..nued assistance from the Nordic countries' foreign aid agencies.7

2.11 Coffee Processing. Kenya coffee is "wet processed" to producefully washed mild arabica, (also known as Colombian mild arabica in the worldmarket). A small proportion, currently about 15%, is processed as mbunicoffee, mostly from small lots of coffee cherry rejected during hand-sortingat factory reception, which are not suitable for wet processing. In Kenyacoffee processing is carried out in two distinct phases: (a) wet processingwhose end product is parchment coffee; (b) dry milling and export preparationwhose end product is green coffee ready for export. Wet processing iscarried out by the approximately 1,900 coffee factories (cooperative andestate owned) distributed throughout the coffee growing regions. In thisphase the ripe coffee cherry is delivered immediately after harvesting to thecoffee factory where it is pulped, fermented, washed, soaked and thensun-dried carefully on raised tables covered with hessian cloth - a procedurewhich develops the desirable quality characteristic of mild s.;offee.

2.12 Dry milling and export preparation are carried out in the fourcentral milling works operated by the KPCU. The producers (both cooperative

7 Denmark, Finland, Norway and Sweden

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and estates) deliver dry parchment coffee to tile nearest KPCU hulling workswhere it is milled, polished, graded and bagged ready for export. Only avery few estates undertake the final dry milling of parchment coffee. Wherepossible all deliveries of dry parchment to the coffee mills are treatedseparately - i.e., sampled, milled and graded by KPCU and finally auctionedas separate lots by CBK. In this way differential prices according toquality can be awarded to individual estates or cooperative factories whichare subsequently passed on to the growers. The current relationship betweenquality differential and price differential is adequate. The quality of thefinal green coffee is related very closely to the standards of wet processingdescribed earlier. Over the past 8-10 years there has been a decline inquality, particularly in the cooperative sector (para 3.05).

B. Coffee Marketing

2.13 World Coffee Market. World production of all types of coffee isexpected to grow at the rate of 1.1% per annum, and reached an all time highin 1988 of over 100 m bags (60kg. per bag), while consumption will be onlyabout 88 m bags. The latest World Bank projections estimate that consumptionin ICO importing members would grow at about 1.5% p.a. with relatively highrates of growth in Japan and the EEC while the USA (the world's largestmarket) will show a slight decline of 0.4%. Arabica coffee constitutes about75% and robusta about 25% of world coffee production. While consumer demandfor high quality arabicas continues to be high, there is an over productionof low quality arabicas and robusta coffee. A detailed description of theworld coffee market is in Annex 3.

2.14 Kenya Coffee Market (Annex 4). Kenya is one of the mainbeneficiaries of the increasing demand for quality arabicas, partly becausewhen blended with other origins the good acidity and excellent flavor of itscoffee improves the quality of the bulk, and partly because more and moreindividual consumers insist on "original" tasting coffees produced byspeciality roasters, for which Kenya's are eminently suitable. Kenya arabicais used in the top blends of leading roasters, with the majority of exportsgoing to the quality conscious and high priced markets of the FederalRepublic of Germany, the United Kingdom and Northern Europe. Goodpenetration of the fast growing "gourmet" market in the United States hasbeen made but sales to the important Japanese market are disappointingly lowwhich suggests insufficient attention given to thiA area. Annual exports toquota and non quota markets are given in Annex 1, Table 1. Kenya's exportperformance when no quotas were in force was impressive with over 110,000tons shipped to ICO member countries during 1985/86, that is about 30% morethan the allotted quota for 1988/89 of about 84,000 tons. This underpinsconsumer statements that demand for this type of arabica is not satisfied byICO quotas.

2.15 Government aggressively pursued a larger quota market share underthe ICA; fortuitously demand for Kenya's high quality arabica coffeecontinued to be excellent in both quota and non quota markets. The premium

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paid for high quality Kenya arabicas has ranged between 15% and 25% above theprice fetched by lower quality arabicas, which together with robusta coffeehave been responsible for the surplus situation in the market. Premiaestimates are based on prices realized at quota market auctions compared toICO indicators. Thus quality is increasingly a major consideration in themarketability of coffee. As a result, in recent years Kenya has managed tosell substantial quantities of its quality coffee on the growing non quotamarket. Following the suspension of coffee quotas in early July 1989 themarket is still fluid and uncertain, with long term trends unaole to bediscerned at present. However, initial indications are that Kenya coffee ismaintaining its historical price differentials, and the prospects forexporting the Project's small incremental production at premium prices aregood.

2.16 Internal Coffee Flowu. CBK only accepts clean coffee; a2lparchment and mbuni is processed by KPCU and other licensed millers. Thegeneral dividing line between KPCU and CBK therefore is the milling processalthough KPCU may also act as a warehouse for account of CBK and at timeseven executes bulking for CBK as well. After milling, the clean coffee istransferred to CBK, either directly by the miller concerned or by theproducer himself if he has done the actual milling (this represents only aminimal tonnage). Almost the entire crop reaches CBK through theintermediary of licensed Commission Agents (of which there are seven); KPCUhas the largest phy,.ical involvement, as it is by far the largest operatoracting as both miller and agent. In addition a number of private sectorcompanies also offer agency services which include technical and financialassistance. Cooperatives use the agency services of KPCU. In general theagents provide valuable services, especially to smaller estates which oftenlack adequate management and infrastructure. Most agenits also liquor theirclient's coffee to advise them on quality and to check that theclassifications awarded by CBK are appropriate. If not they may advise theirclients to lodge official appeals against CBK's findings. Smallholdersdeliver cherry to Primary Societies who, after wet processing, deliverparchment through their Unions to KPCU for milling and final delivery toCBK. Estates deliver parchment directly to KPCU. Estates who mill their owr.coffee may deliver clean coffee directly to CBK if they wish.

2.17 CBR classifies clean coffee by quality and presents it for sale atthe weekly Nairobi Auctions. Proceeds are remitted back to growers throughtheir agents. CBK sells on behalf of producers and collects a salescommission. Neither the Board nor any of the other participants in thedelivery chain trade in coffee - they handle it on behalf of the producer.The charges and deductions made by CBK, KPCU and agents are fixed by MOA andCBK (Annex 8, Tables 1 and 2). In theory those made by Cooperative Unionsand Societies are also fixed but in practice they vary enormously. The Kenyagrading and classification system is complex, consisting of no less than 10quality classes and 7 physical grades of wet processed coffee as well as 3grades of mbuni. Nevertheless, through the classification of all lotsseparately into these grades, the Board is able to pay actual market valueto each producer in accordance with the quality delivered. This is donethrough the annual coffee pool which combines all ealee by each class of

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coffee. Physical coffee flows from primary processors to millers and CBK donot present major problems; however, there appears to be room foir somesimplification and rationalization in the manner in which classes 6 to 10 andmbunis are milled, stored and presented for sale. Such changes could leadto more efficient use of existing storage space and permit the introductionof different storage systems such as bulk silos for example. Major changesin the present methods of milling and presentation for sale of classes of 1to 5 are not recommended.

2.18 Internal marketing is concerned with the physical movement ofcoffee from producer to CBK through a number of channe l and a complex systemof advance, interim and final payments from CBK back to producers (Annex11). Especially in the cooperative sector, problems are caused byinefficient primary processing, lack of money up front to individual growers,and excess .ve costs and deductions. By world standards, farmers in Kenyareceive a high proportion of the world market price. Of the auction (fob)price . O,n average over 84% is paid to producers of parchment (estates andcooperative societies) and over 77% to smallholders delivering cherry tocooperative-owned coffee factories (Annex 12). A sales tax on agriculturalproducers (including coffee growers) of 5% at f3rst point of sale wasintroduced in the June 1989 budget. At the same time, the export duty (onaverage 10%) was abolished. At present there is no evidence that the salestax is a disincentive to coffee producers, because of adequate gross margins.However, this possibility needs to be carefully monitored during Projectimplementation and should be included as one of the items to be addressed inthe mid-term review (para 4.24).

C. Coffee Credit aaid Payment System

2.19 The most important credit scheme available to coffee farmers is theCPCS (para 1.21). The main credit line supporting input use under CPCS isthe Farm Credit Supply (FCS). The CPCS offers three lines of credit tosmallholder coffee growers: (a) seasonal loans for inputs which at presenthave an upper limit of 20% of the average value of the previous three years'deliveries of coffee cherry; (b) short term loans, normally used to purchasetools and equipment, which at present have an upper limit of 22% of theaverage value of the previous three years' deliveries of coffee cherry; and(c) medium term loans to purchase sprayers etc. currently limited to 50% ofthe value of the previous three years' deliveries of coffee cherry. Thecredit calculations tend to be restrictive, since they are based on pastperformance in output, and do not account for increased inpuc use in thefuture; certain changes would be introduced under the Projezt to addressthese constraints (para 4.13).

2.20 The coffee payment system in Kenya was conceived at a time whenestater were predominant in the industry. A system was developed consistingof a series of uneven but cumulatively increasing payments tbroughout the

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coffee year (Annex 11). Under the current system producers8 receive fourbasic types of payments: (a) Delivery Payment. This is an advance made byCBK through KPCU to the producer to be refunded from proceeds of eubsequentpayments. This payment is made after parchment coffee has been delivered toRPCU. The size of this payment is 25% to 30% of the total payment, isdetermined and announced by CBK at the start of a coffee season based on itsexpectations of uniW. prices for coffee, and is meant to assist farmers tofinance on-going operations. In the case of cooperatives this payment isseldom passed on to smallholders at time of receipt, but instead is retainedby the cooperative societtes to finance other activities, including theirworking capital requirements at coffee factories; (b) Milling Payment.This is made following milling of parchment coffee. The size of this paymenttogether with the delivery payment has ranged between 40% and 60% of thetotal payment made per year; (c) Interim Payments. These are individuallysmall payments made during the coffee year (3 - 6 cimes), and are based onCBK's assessment of the rate and the level of sale proceeds. The cumulativeamount of these "interim" payments is added to the delivery and millingpayments to pay for coffee delivered; and (d) Final Payment. This lastpayment reflects the balance of coffee proceeds of the coffee year includinga quota market raluation of stocks on hand and is also used to correct anyaccounting imbalances and discrepancies. Normally, payment is made toproducers within one to four months after the close of the coffee year(Eeptember 30), although in the 1987/88 coffee year this was delayedconsiderably due to large carryover stocks (para 1.16) and CBK's consequentfinancing difficulties.

2.21 The existing payment system results in (i) a considerable time lagbetv'een cherry delivery and receipt of initial coffee payments by farmers(up to 13 months). This is due to parchment coffee being retained as stockby coffee factories rather than being ielivered immediately to KPCU (causedin turn by poor management), or to socie.ies not distributing coffee receiptsto farmers (for the reasons outlined in para 2.20); and (ii) smallholdermoney remaining for too long a period in the control of intermediaries(cooperative unions and societies) with limited competence in financialmanagement. In addition, financial mismanagement (unreasonably high coffeeprocessing costs, or diversion of coffee receipts to societies, otheractivities) has at times resulted in low farmer payouts in relation to saleproceeds realized by CBK auctions.

2.22 The net effects of the foregoing are that smallholder farmers areuncertain about the timing and extent of the various payments, are unable tomake accurate projections of cash due them, and may not have the ready cashavailable to acquire inputs when required. They are therefore likely eitherto seek w3rking capital creAit or, where this is not possible, to neglectimportant cash consuming operations such as spraying. Attempts by Governmentin 1986 to make radical changes in the amounts and methods of payment met

8 Producers are defined as (i) estate sector: estate owners; and (ii)cooperative sector: cooperative societies.

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with considerable resistance from cooperative societies and far-tars, whonevertheless preferred the existing system. In view of this, th Projectincludes measures to be introduced nationally to streamline the existingpayment system with minimum disruption, and to augment the financing ofpayments (paras 3.08 and 4.14). These proposals follow closely those madein 1988 for the introduction of such a scheme on a pilot basis, but which wasdeferred following a decision by Government to introduce the schemenationally. The proposed scheme has been endorsed by the two cooperativesocieties originally targetted for the pilot effort. other measurescurrently being introduced under the Project, and which complement theproposed changes in the payment system, include hose aimed at strengtheningcooperative society bookkeeping procedures and accountability to members(para 4.14).

D. Government Coffee Policy

2.23 Production Targets. Government's official objective as outlinedin Sessional Paper No. 1 of 1986 was to increase coffee production from itppresent estimated level of 110,000 tons per year to 354,000 tons by the year2000. This increase (8% p.a.) was expected to come from area expansion,intensification, and replacement of existing coffee with a new high yieldingand disease resistant variety. During the coffee subsector study it wasgenerally acknowledged that, given the financial, marketing and landconstraints, and the lag in adopLion of new varieties, this production targetwas unrealistic, and the report suggested a more modest growth of slightlyover 3% p.a. Estate production was forecast to increase from 42,000 tons to78,000 tons, including 18,000 ha expansion, and smallholder production from73,000 tons to 137,000 -ons including area expansion of 66,000 ha. Therobusta area was expected to produce 35,000 tons. Historically, productionhas fluctuated, with the 1989 crop expected to reach about 110,000 tons(which is below the highest level of about 130,000 tons achieved in 1984 and1988'. Consequently the overall targets are currently under reviewconsidering the production constraints (paras 2.06 - 2.09).

2.24 Strategy. Government's strategy for promoting increases in coffeeproduction and exports comprises continued support to the cooperativemovement and KPCU; strengthening of CBK's marketing capabilities; improvementof the payment system; and an increase in the domestic coffee price to reachexport parity. Support to these programs is the objective of the proposedProject.

2.25 Kenya is an exception among African countries in successfullyincreasing coffee production steadily over the last decade because of its lowexport taxes, strong private sector involvement and good research anddevelopment. A growth rate of up to 2% per annum should be achievable andacceptable by the trade and under likely future coffee quotas; faster growthrates and large scale expansion would seriously jeopardize Kenya's uniqueposition in the market as a quality producer, particularly if this would bediluted by the introduction of robusta coffee for which the market ouclookis highly unfavorable.

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2.26 Bank Guidelines. The proposed Project is compatible with BankGroup guidelines on financing primary commodities, as they apply to coffee,since it emphasizes improvements in coffee quality and in marketingarrangements, while supporting modest production increases fromintensification and rehabilitation which fall within the limits specified inthe guidelines. The Project would have no adverse impact on internationalcoffee prices because Kenya's total production represents less than 3% ofworld exports, while its 84,000 tons quota under the recently disbanded ICAwas about 2.4% of global quotas. Furthermcre, the proposed Project wouldstrengthen Government marketing intelligence and planning capabilities forcoffee, so that a more realistic expansion program would be chosen whichwould avoid coapromising Kenya's position as a high quality arabica coffeeproducer.

III. THE PROJECT

A. Project Formulation and Rationale

3.01 Two of the major inputs to the design of the Project were thefindings and recommendations of the 1987 coffee subsector study, and thelessons learned under SCIP. Project preparation was undertaken by GOR underthe coordination of the PMU, and the report, issued in September 1988, formedthe basis of the appraisal of the proposed Project. At Governmentinvitation, CDC and the World Bank Group conducted a joint pre-appraisalmission in October 1988, followed by appraisal in January-February, 1989.

3.02 Rationale for Bank Group Support. The proposed Project would meetmajor country and sectoral objectives spelled out in the Government'sSessional Paper No. 1 of 1986 (para 1.04), and the Bank Group strategy foragricultural development in Kenya (para 1.27). The Bank's continuedinvolvement in the coffee subsector would enabie it to assist GOK to tackleeffectively the constraints affecting the industry. More specifically, itwould serve the needs of the smallholders and small estates which requireconsiderable strengthening, injection of financial assistance and training.It would also play a catalytic role in attracting cofinancing. Projectobjectives fit squarely with national development policy. Of particularinterest to Government is the Project's contribution to rapid increase ingrowth, employment creation, and foreign exchange earnings. The institutionbuilding and strengthening of the cooperative sector, and collaboration withthe Coffee Board, KPCU and small estates, are examples of efficientcooperation between public and private sectors, and the wide scope of theservices provided (touching over 230,000 farm families and 800 estates -about 12% of all small farmers in Kenya) makes the Project an importantvehicle ir. the country's assistance strategy.

B. Project Objectives and General Description

3.03 The main objective of the Project at full development would be toraise the incomes of coffee farmers and workers in the smallholder and smallestate subsectors through increased productivity and quality improvements.

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Related objectives are to (a) increase the country's foreign e.achangeearnings and help it maintain its position in the coffee market by raisingquality; and (b) strengthen the institutional capacities of key participatingagencies. To meet these objectives, the Project would remove importantproduction, quality, financial and institutional constraints, through coffeefactory improvements; increased credit; improved coffee payments; increasedcoffee milling; and training. The main thrust of the Project would be tomaintain Kenya's position as an efficient producer of high quality arabicacoffee.

3.04 Project Description. To meet the above objectives, the Projectwould provide investments required to: (i) rehabilitate and improve 275existing, and construct 65 new coffee factories in the cooperative sector;(ii) provide credit for agricultural inputs; (iii) finance the initial creditrequirements and improve the institutional arrangements to formulate andimplement an improved coffee payment system in the cooperative sector; (iv)improve production and processing on 230 small estates; (v) increase Kenya'scoffee milling capacity; (vi) provide training and advisory services totrainers, cooperative and factory managers, and farmers, in order to upgradeexisting coffee plantings and raise the proportion of high quality arabicacoffee; and (vii) strengthen the planning, management and implementationcapacities of key participating agencies.

C. Detailed Features

Cooperative Subsector

3.05 Cooperative Coffee Factory Development (US$22.0 m Annex 1, Table6j. The quality of cooperative coffee has declined considerably over thelast decade. The percentage of low quality coffee (i.e coffee falling intoclasses 7 - 10 and mbuni) has risen over the past 10 years from 14% to almost30%, while that of the top quality classes 1 - 3 has fallen from 20% to about17%. Major factors have been seasonal congestion in coffee factories andlack of overall processing capacity to meet increased production fromsmallholder farmers. These factors also contribute to the higher processingcosts and lower conversion ratios experienced by cooperative factories ascompared with the estate sector. In addition, about 25% of cooperativefactories still have only partial water recirculation systems which poses aproblem of pollution from excessive quantities of factory effluent.

3.06 The Project aims to remove these cor-straints by providing funds forthe rehabilitation and construction of 340 coffee factories. Constructionof 65 new and re-sited factories would be based on designs to suit low,medium and high throughput levels. These would be electrified where possibleand would have the full range of modern wet processing facilities includingventilated parchment storage as well as water recirculation and pollutioncontrol systems. In addition, 275 of the present 780 factories in the

9 All financial amounts in this section are expressed as base costs.

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cooperative sector would undergo improvements based on specific requirements- i.e. minor, selective or major rehabilitation - which would ensure maximumcost-effectiveness. Electrification and ventilated parchment storagefacilities would be included where appropriate as well as upgrading the waterrecirculation and pollution control systems. At full development, thiscomponent would provide additional processing capacity for about 20,000 tonsof clean coffee and improve the overall quality of about 30,000 tons.Investments in the form of vehicles and office equipment would be providedto strengthen the Coop Bank in the initial phase of its start-up activitiesto appraise the loans required under the Project.

3.07 Input Requirements (US$7.4 m Annex 1, Table 7). Field surveyshave shown that about 75% of smallholders use chemicals (fertilizers,insecticides, fungicides), but the use is sub-optimal. While some farmers(less than 10%) buy inputs for cash the majority rely on credit facilitiesthrough the Cooperative Bank. The Project would finance incremental inputrequirements for both existing and new coffee varieties through the provisionof incremental credit. Total incremental production expected fromimplementation of this component would be about 18,100 tons (14,000 tons fromexisting coffee and 4,100 tons from the introduction of improved varieties).

3.08 Improved Payments System (US$27.2 m Annex 1, Table 8). In orderto remove the principal constraint in the present payment system tocooperative coffee farmers, the Project would provide the incremental creditrequired and assist the Government to implement an improved payments system.The improved system would ensure that farmers are paid for coffee cherry atincentive amounts soon after delivery, similar to the successful systempr-vailing for smallholder tea farmers (i.e. a material proportion of thetc_al price to farmers paid in the month following delivery). The Projectwould provide for an initial payment to farmers of not less than KShs 1.00per kg of coffee cherry (representing about 20% of the total season'spayments). Adoption by Government of an improved payment system would be acondition of Credit effectiveness (para 7.02(a)).

Estate Subsector

3.09 Small Estate Improvement (US$4.3 m Annex 1, Tables 9 and 10). Thenumber of small estates (4-20 ha) has continued to increase in recent yearsand has now reached a total of 728 with an output of some 3,500 tons of cleancoffee (about 5% of the national production). The majority of these estatesare non-irrigated with low input levels and poor management, resulting in lowyields (in the region of 600-700 Kg/ha.). More than 50% of the small estateshave their own coffee factory but many of these are of "ad hoc" constructionand often lack pollution control systems.

3.10 The Project would remove these constraints by providing financingfor capital development through an intermediary in the form of irrigationequipment, field equipment and coffee processing facilities. Furtherfinancing would be provided to increase farm1 inputs thus raising yields fromthe present 600-700 Kg/ha to 1,100-1,500 Kg/ha of clean coffee. A total of230 small estates with 2,400 ha of coffee would be rehabilitated. The output

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from these estates would be increased from the current 1,560 tone toapproximately 3,100 tons per year by project completion. The base cost ofthe capital developmert package for this component would be KShs 73.3 m(US$3.9 m), and of the accompanying farm inputs package KSh 8.05 m (US$0.4m).

Other Components

3.11 Milling and Export Preparation (US$20.3 m Annex 1, Table 11).Considering the anticipated incremental production (about 20,000 tons) andover-utilization of the present facility, Kenya's milling capacity isinadequate, and an additional mill is urgently required. The Project wouldprovide funds for a new mill at Dandora of approximately 50,000 tons.Financing for this component would be made available from CDC on a parallelfinancing basis.

3.12 Project Coordination and Management Unit (US$5.5 m Annex 1, Table12). The experience under SCIP highlighted clearly the need for a competentand semi-autonomous unit for project management and coordination.Considering the scope and complexity of the proposed Project, the former PMU,which has continued as a distinct entity in the coffee industry, would bestrengthened and its functions expanded. In addition, it would be given theprime responsibility for Project implementation and supervision. This wouldentail the reorganizing of the PMU and the engagement of additional qualifiedstaff under a general manager. A description of the Project Coordination andManagement Unit (PCMU) organization and functions is detailed in Annex 5.The Project would support the incremental costs for transport and equipmentas well as the incremental costs for specialised technical staff andtechnical assistance.

3.13 Training and Advisory Services (US$3.2 m Annex 1, Table 13). TheProject would address specific problem areas in the present systems fortraining in coffee production and processing. In addition to providing fundsfor expansion of existing CRF training facilities, the Project would supportadditional training programs which would give the MOA T&V system a bettercoffee focus in the coffee growing areas. The Project would also supporttraining programs for MOA, MOCD, and the Coop Dank for staff involved in themajor elements of Project implementation such as coffee factory management,factory engineering and related transport needs.

3.14 The Project would provide financial support only for Project-specific coffee extension services. Because MOA's FES must provide adviceto farmers on a whole range of farm development issues, there is limited timeto meet the specific requirements of the coffee farmer. In addition,supervision of FES is weak due to lack of adequate transport for district anddivision extension. To assist the extension services to coffee farmers, theProject would provide additional resources such as vehicles and trainingmaterials, as well as funds to: (a) strengthen the technical advisoryservices of organizations providing these services (including MOA, CRF andKPCU); (b) intensify and improve training at all levels of the coffeeindustry; (c) improve training coordination; and (d) support the production

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of coffee handbooks, leaflets and technical bulletins.

D. Pro1ibt Costs

3.15 The total cost of the Project, including taxes and duties of XSh283 m (US$13.8 m equivalent) or 13% of total costs, is estimated at Kah 2,211m (US$106.8 m equivalent). Of this total, KSh 570 m (US$27.6 a equivalent),or 26%, are foreign exchange costs, and KSh 1,641 m (US$79.3 m equivalent),or 74%, are local costs. All estimates are based on August 1989 prices andreflect recent quotations and appraisal estimates. Physical contingenciesamounting to KSh 136 m (US$7.2 m equivalnt) or 8% of base costs have beenincluded calculated at 15% on civil works and 10% on all other itms wherethere is some uncertainty as to quantity or final dotailed specifications.Price contingencies, which are consistent with latest Bank projections,amounting to KSh 384 m (US$9.6 m equivalent), or 11% of base coats have beenestimated using the rates set out in Annex 1, Table 2. The implicit exchangerates included in the Annex refl ct price contingencies based on the constantpurchasing power parity of the Kenya Shilling. A summary cost table is givenin Table 1 below.

Table 1

Project Cost Summary

KShs(OOOs) US5(O00s) I Total--------- - ---------------------- -------------------- - ----- 2 Foreign Base

Local Foreign Total Local Foreign Total Exchange Costs

A. COOPERATIVE SECTOR1. COFFEE FACTORIES 292871.4 120417.0 413288.4 15581.1 6396.8 21967.9 29.1 24.42. FARM INPUTS 18975.5 120475.7 139451.2 1008.6 6403.7 7412.4 86.4 8.23. IMPRnVED PAYMENTS SYSTEM 512504.8 0.0 512504.8 27241.6 0.0 27241.6 0.0 30.3

Sub-Total 824351.8 240892.6 1065244.4 43831.3 12790.5 56621.9 22.6 63.0B. ESTATE SECTOR

1. COFFEE FACTORIES 47645.0 25691.4 73336.4 2535.3 1362.9 3898.1 35.0 4.32. FARM Ik?UTS 725.5 7326.4 8051.9 38.6 389.4 428.0 91.0 0.5

Sub-Total 48370.5 33017.0 81388.3 2573.8 1752.3 4326.1 40.6 4.8C. KPCU

1. COFFEE MILL 267432.0 114485.2 381917.2 14217.1 6083.3 20300.4 30.0 22.6D. MIN. COOPERATIVE DEVLPNNT

1. PROJ COOROIN HANAGHT UNIT 71239.8 31749.1 102989.9 3787.3 1687.0 5474.3 30.8 6.1E. ALL PROJ IHPLMG A6ENCIES

1. TRAINING 49120.9 11218.3 60339.1 2611.6 595.6 3207.3 IB.6 3.6

Total BASELINE COSTS 1260514.9 431363.1 1691878.0 67021.2 22908.7 89929.9 25.5 100.0Physical Contingencies 89523.9 46280.0 135803.9 4758.5 2460.0 7218.5 34.1 8.0Price Contingencies 291171.0 92536.1 383707.1 7355.6 2270.4 9626.0 23.6 10.7

Total PROJECTS COSTS 1641209.8 570179.2 2211389.0 79135.4 27639.0 106774.4 25.9 118.7

Values Scaled by 1000.0 - 7/18/1989 12:20

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E. Financing 10

3.16 Project costs would be financed in the following amounts andproportions:

Table 2

Financing Plan

Local Foreign Total % of Project % of TotalSource of Currency Taxes and Exchange Project net of Taxes ProjectFinance Costs Duties Costs Costs and Duties Costs

IDA 29.4 17.4 46.8 50 44

CDC 9.2 8.8 18.0 19 17

Coop Bank 12.1 12.1 13 11

Cooperative 7.6 3.5 0.1 11.2 18 10Societies

KPCU 2.2 8.1 0.3 10.6 3 10

SmallEstates 0.1 0.6 0.7 - 1

0OK- MOA 1.0 0.5 0.1 1.6 2 2- MOCD 3.7 1.1 1.0 5.8 5 5

65.3 13.8 27.7 106.8 100 100

3.17 The proposed IDA Credit of SDR 36.5 m (US$46.8 m equivalent), includinga PPF of US$750,000, would finance about 50% of the total Project cost net oftaxes and duties. An additional US$18.0 m of external financing would be madeavailable by CDC. The CDC Loan would finance (a) 85% of capital investments inthe estate sector; (b) 100% of incremental farm inputs in the estate sector and(c) the costs of KPCU's coffee mill, excluding taxes and duties and incrementaloperating costs. A summary of the financing for different categories of works,goods and services is set out in Annex 1, Table 3.

3.18 US$2.9 m of the IDA credit wculd be retained by GOK to finance thecosts of (i) technical support for the 2CMU, and (ii) the training component.

10 All amounts in this section include contingencies unless otherwisestated.

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The remaining funds would be onlent to the Coop Bank to finance investments inthe cooperative sector, namely (i) coffee factories totalling US$22.9 m,representing 85% of the investment costs, (ii) 100% of incremental farm inputstotalling US$8.9 m, and (iii) weed money totalling US$12.1 m for the improvedpayments system, representing 40% of the complete credit package. Government'scontributions to the Project (US$7.4 m) would be by budgetary allocation.Assurances were obtained at negotiations that Government would (a) by November1 each year, review and agree with the Association on the forward budgetallocations for the Project; and (b) ensure that adequate allocations areincluded in the approved budget for each year (para 7 01(d)).

3.19 Onlending terms. Details of the onlending terms to be included in aSubsidiary Loan Agreement, which would be satisfactory to IDA, are set out inAnnex 2* The credit arrangements and terms for cooperative societies, coffeefactories are that amounts would be lent at 10% p. a. frm GOK to the Coop Bank,repayable in 10 years with 2 years of grace. The subloans from the Coop Bankto cooperative societies would carry an interest rate of 15% and would berepayable in 10 years with 2 years of grace. For incremental farm inputs andcredit for the improved payment system the rates of interest would be 8% fromGOK to the Coop Bank and 13% from the Coop Bank to cooperative societies. Afurther 2% would be added on by the cooperative societies to cover theiradministrative costs, giving a 15% rate of interest to the final borrower (thefarmer). The loans in the case of farm inputs would be for 2 years with a 1 yeargrace period; for the improved payment system they would be repayable by the CoopBank to Government in 10 years with 2 years grace period and in 1 year bycooperative societies to the Coop Bank, since such credit would be in the formof working capital loans. Assurances on the above lending terms and conditionswere obtained during negotiations (para 7.01(e)). The above rates are currentlyin line with existing agricultural lending rates in Kenya, and assurances werealso obtained that rates of interest to the final borrowers under the Projectwould be positive in real terms throughout the period of Project implementation.In addition, any future modifications to general interest rates for agriculturalloans arising from review by Government of interest rates in Kenya anddiscussions with the Bank Group would be applied to this Project. Finally, theexecution of a Subsidiary Loan Agreement between GOK and the Coop Bank,satisfactory to IDA, would be a condition of Credit effectiveness (para7.02(b)). Financing arrangements for small estate coffee factcries and inputs,and the KPCU mill, have still to be finalized by CDC. Preliminary indicationsare that CDC would lend US$13.3 m equivalent to finance KPCU's coffee mill ata rate of 8.5%, repayable over 12.5 years including 2 years of grace. Loans tosmall estates totalling US$4.7 m equivalent would be lent to a financialintermediary at 7.5% repayable over 12.5 years with 2 years of grace. Theintermediary would onlend the funds at 15%, with the same repayment and graceperiods for capital investments (US$4.1 m); incremental farm inputs (US$0.6 m)would be repayable over 2 years with 1 year of grace.

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F. Procurement

3.20 items to be financed from the IDA Credit would be procured as outlinedin paras 3.21-3.24 below, and assurances to this effect were obtained duringnegotiations (para 7.01(e)). Table 3 below summarizes the procurementarrangements of all Project items. The procurement of CDC-financed items wouldfollow CDC guidelines.

3.21 Works. The procedure established under SCIP, combining civil worksand equipment in a single contract, would be followed. The Project works areboth too scattered, spaced in time, and too small for bulk procurement underinternational competitive bidding (ICB). Consequently civil works, together withrelated machinery and equipment, would be packaged for individual locations bothfor the coffee factories (US$26.9 m) and for the training school (US$0.6 m).The procurement relating to coffee factories involves rehabilitation at 275locations (at an average cost of US$56,000) and new factories at 65 locations(average cost USS177,000). Many international contractors have subsidiaries inKenya and, moreover, experience under SCIP and other projects in Kenya indicatesadequate local capacity to undertake such works. Competitive bids are expectedunder local competitive bidding (LCB) with foreign firms allowed to participate;in case the number of bids received is less than three, the Borrower would berequested to consult IDA before award. No local preference to majority-ownedKenyan firms would be permitted. LCB procedures on a similar basis would alsobe followed for the training school, in view of the relatively small value ofthis procurement.

3.22 Goods. Vehicles totalling US$1.9 m for the PCMU and trainingcomponents would be grouped into packages to be procured under ICB in accordancewith World Bank guidelines (issued May 1985) for works and goods. Fertilizers(US$1.7 m) and chemicals (fungicides, herbicides and insecticides - US$7.2 m)

totalling US$8.9 m represent a small percentage of the requirements for the wholecoffee sector, and it would not be practical to establish special procurementchannels for requirements under the Project. Procurement procedures for inputshave been well established under SCIP and found to be satisfactory to IDA; inparticular, distributors are satisfactory and prices competitive. This methodof procurement has also been supported under other IDA-financed projects inKenya. Thus inputs would continue to be procured by the cooperative societiesmainly from commercial firms.

3.23 Contract Review. All bidding packages for works and goods in excessof US$250,000 equivalent would be subject to prior IDA review of procurementdocumentation. This would result in a coverage of about 40% of the totalestimated value of the contracts. The balance of contracts would be subject torandom review by IDA after contract award.

11 All amounts in this Section include contingencies unless otherwisestated.

.. 29 -

3.24 Technical Services. The technical adviscrs under the Project (US$0.9m) would be hired in accordance with the latest Bank's guidelines on the use ofconsultants. They would have qualifications, terms of reference (Annex 5) andterms and conditions of employment satisfactory to IDA.

Table 3

Procurement Arrangements

---- Procurement Method ---- TotalProject Element ICB LCB Other NA Cost

-------------USS million------------------

Civil Works 11.5 1/ 6.5 18.0(9.7) (-) (9.7)

Vehicles, machinery and 1.9 16.0 1/ 18.9 36.8equipment (0.5) (13.6) (-) (14.1)

Credit scheme for coffee 30.3 30.3cherry deliveries (12.1) (12.1)

Annual Operating Costs(a) Technical support for 3.6 3.6

the PCMU (0.9) (0.9)(b) Incremental coffee 1.1 1.1

factory processing costs (-) (-)(c) Incremental coffee 3.3 3.3

milling costs (-) (-)(d) Incremental farm inputs 9.4 9.4

(8.9) (8.9)(e) Vehicle, machinery and 2.4 2.4

equipment operating costs (-) (-)(f) Building maintenance costs -2/ -2/

(-) (-)(g) Training costs 1.1 1.1

(1.1)(h) Other operating costs 0.8 0.8

(-) (-)

TOTAL 1.9 27.5 38.4 39.0 106.8(0.5) (23.3) (9.8) (13.2) (46.8)

Note: Figures in parentheses are respective amounts financed by IDA.

1/ Packaged together for coffee factories financed by IDA. Foreign firms areeligible to participate under LCB.

2/ Less than US$50,000.

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G. Disbursements 12

3.25 The proceeds of the IDA Credit would be disbursed over seven and a halfyears (Annex 1, Table 4) in line with Kenya's disbursement profile against thefollowing categories of expenditure; (a) civil works for cooperative coffeefactories and training facilities - 85% of total expenditures; (b) machinery andequipment for cooperative sector coffee factories - 100% of foreign and 75% oflocal expenditures; (c) vehicles, machinery and equipment for the PCMU andtraining components - 100% of foreign expenditures and 6s% of local expenditures;(d) credit scheme for coffeo cherry deliveries - 40% of overall incrementalcredit based on 90% of new lending by the Coop Bank in the first Project year(to December 31, 1991), decreasing 15% per annum thereafter to a minimum of 15%of new lending by the Coop B&nk (it is estimated that 20% of overall incrementalcredit would be financed from cooperative societies' own resources); (e)

incremental farm inputs for the cooperative sector - 100% of total expenditures;(f) technical support for the PCMU component - 100% of total expenditures; and(g) training - 100% of total expenditures. It would be a condition ofdisbursement for the coffee cherry delivery scheme that IDA credit funds wouldonly be released to the Coop Bank for those Coffee Cooperative Unions whoseprimary societies all had the capability to make prompt (in the month followingdelivery) payments to farmers (para 7.03). This capability would have to bedemonstrated to an MOCD-led Inspection Committee. Because of the likelihood thatdifferent coffee unions would be able to meet these requirements only atdifferent times throughout the Project period, it is likely that disbursementsfrom the IDA credit would be spread over a similar period. Further details ofthe disbursement arrangements are set out in Annex 1, Table S. Disbursementsare expected to be completed by June 30, 1997. CDC would handle its owndisbureement arrangements.

3.26 Disbursement against all items would be based on full documentation,except for disbursements against contracts under US$50,000 and for categories(e) to (g) of para 3.25 above which would be made against statements ofexpenditure certified by the Coop Bank and retained for audit and review by IDAsupervision missions.

R. Information Systems, Accounts and Audit

3.27 Separate Project accounts would be maintained by each of the executingagencies under the Project as follows: (i) by the Finance Department of the CoopBank for each of accounts using IDA credit funds channeled through the bank; (ii)by the Accounting Department of PCMU for costs incurred under the PCMU,cooperative sector coffee factories, and training components; and (iii) by theaccounting departments of the cooperative societies procuring farm inputs underthe Project. An assurance was obtained that the above accounts would bemaintained in accordance with sound and generally accepted accounting principlesand practices acceptable to IDA 'para 7.01(f)).

12 All amounts in this Section include contingencies unless otherwisestated.

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3.28 The present auditing arrangements of the institutions involved _fn theProject are satisfactory. The responsibility for auditing MOA's and MOCD'saccounts, as in the case of all Government entities, rests with the AuditorGeneral. The accounts of cooperative unions and societies are audited by theAudits and Accounts Division of the Department of Cooperative Development. Theaccounts of other institutions involved in the Project are audited by independentprivate auditing firms established in Xenya. Assurances were obtained that allaccounts would be audited by independent auditors acceptable to the Associationand that the auditor's opinion and long form report satisfactory to IDA on suchProject accounts would be provided not later than nine months after the closeof each fiscal year (para 7.01(f)).

I. Environmental Impact

3.29 Coffee forms a fairly closed canopy. This habit of growth, as wellas existing mulching practices, improves soil moisture retention and reducesrun-off, a particularly beneficial effect in erosion prone areas. Theenvironment in coffee producing areas could be adversely affected from twosources: (a) farm chemicals used for pest, disease and weed control; and (b)coffee pulp and processing effluent from coffee factories. Integrated pestcontrol methods are highly recommended by CRF for coffee production. To minimizethe negative effects of insecticides, fungicides and herbicides, the Projectwould only fund those acceptable to IDA which are recommended by CRF and suitablefor use by small scale farmers (Annex 10). A World Bank Group "Checklist ofChemicals not Recommended for Use in Agriculture or Suitable Only for RestrictedUse" has been made available to the PCMU. It should be noted that Kenya hasenacted legislation controlling the importation and sale of pesticides whichhas eliminated a number of hazardous materials from the market. However, someof the materials which are available and approved are nevertheless too hazardousfor use by smallholders who are likely to lack specialized equipment andtraining. The status of farm chemicals for use in coffee is detailed in Annex10, together with a list of pesticides, fungicides and herbicides currentlyapproved and recommended by CRF and the GOX's Pesticides Board.

3.30 Typically a modern "3-disc" factory produces about 24,000 liters ofpolluted effluent per ton of clean coffee processed with a biological oxygendemand (BOD) of up to 3,000 parts per million. Stringent legislation alreadyexists in Kenya which forbids the disposal of coffee pulp or factory effluentin any nearby water source. The Project would comply with these regulaLions byproviding each new and rehabilitated factory with a system of full waterrecirculation and pollution control. The essential features of the system wouldbe separation of pulp and water and separate disposal of the pulp; recirculatingthe process water; and seepage pits/lagoons for the disposal of the post pulpingand post-washing effluent. A beneficial effect of skin separation is thatfarmers can collect decomposed pulp later for use as a fertilizer.

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IV. PROJECT IMPLEMENTATION

A. Organization ind Management

4.01 The Project would be implemented through a Project Steering Committe(PSC) and the PCMU (para 3.12). The PSC would be chaired by the PermanentSecretary MOCD with the Permanent Secretary MOA as alternate chairman. The PSCwould meet quarterly to deal with both policy and operational problems affecting

Project execution and would comprise the General Manager of the PCMU and

representatives of the seven main implementing agencies. The PCWU would be

established within MOCD by upgrading and reorganizing the existing PMU and would

be responsible for the day-to-day execution of Project components. The PCMU

would operate under a General Manager and two section managers. The technical

section would cover design, engineering and technical management aspects. The

financial/economic section would deal with feasibility appraisals, budgeting,accounting, planning and monitoring of Project activities. To provide

orientation and training to the PCMU management team, a trainer would be

appointed as a condition of Credit effectiveness (para 7.02(c)). The detailed

composition and functions of the PSC and the PCMU are set out in Annex 5.

4.02 Since it is not envisaged that the PCMU would be a permanent body, it

would also train and build up experience in concerned agencies which would take

over PCMU's responsibilities after Project completion (for example, project

appraisal and supervision by the Coop Bank).

B. Executing Agencies

4.03 The Cooperative Bank of Kenya. The Coop Bank would have the largest

role, implementing three Project components in the cooperative sector: (a) coffeef&ctory development; (b) crecit for inputs; and (c) the improved payment system.

The Coop Bank would, in collaboration with the PCMU, appraise each proposal for

factory investment prepared by the District Coffee Working Groups (DCWGs). This

would include a detailed review of technical, organizational, managerial and

financial aspects and involve field visits. The Coop Bank would be responsible

for determining the creditworthiness of the societies (borrowers). The criteria

for coffee factory investment appraisals would be expanded and improved, andwould be agreed with IDA (para 4.08). A summary of the improved criteria isgiven in Annex 9. IDA would review the first six investment appraisals;thereafter, appraisals would be reviewed only during IDA's regular supervision

missions. However, Project financing would only be available for investments

which met the agreed criteria. Appropriate provisions would be made in the

subsidiary loan agreement. It is anticipated that by Project completion the

implementing ag^'ncies, including the Coop Bank, would have strengthened the staff

of their relevant departments in order to take over all these activities from

the PCMU. Aesurances to this effect were obtained at negotiations (para

7.01(g)).

4.04 Coffee Cooperative Societies. At field level the societies, as

representetives of the growers, would be responsible for implementing the factory

development, input supply and improved payment system components. The societies

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are mainly responsible for processing and handling coffe . They will play a keyrole in the implementation of factory development through the DCWGs who wouldidentify the needs for coffee processing investments, carry out the initialfeasibility study and forward loan application proposals to the PCMU for approvalbefore they are passed to the Coop Bank. The DCWGs would also supervise thetendering, awarding and execution of contracts. Factory staffing, managementand training would be the responsibility of the societies. Cooperative societiesare the principal source of input supply to coffee farmers. The method ofpurchase would be either through credit provided under the Project and operatedby the society, or cash purchases from strategically located cooperative stores.Under the current arrangements, coffee societies are responsible for handlinglarge amounts of money flowing in from coffee payments and credit schemes.Considerable attention is currently being given to improving cooperativemanagement by the Nordic Group and through an IDA-funded Cooperative ManagementImprovement Project under RSD which aims specifically at improving the managementcapabilities of the cooperative societies.

4.05 Kenya Planters' Cooperative Union. KPCU would be responsible for theimplementation of the coffee milling component and provide technical assistanceto small estates. Details on the coffee mill will depend on the finalrecommendations of the feasibility study just completed. KPCU's advisory serviceto estates would be expanded to assist small estates with the preparation ofinvestment proposals to be financed under the Project. Close collaboration withthe PC4U is required to ensure that the lending criteria are being followed.Periodic supervision by KPCU field staff would be required.

4.06 Coffee Research Foundation. CRF training and advisory services wouldbe used primarily to implement the training program envisaged under the Project(para 4.19). In order to cope with the increased demand, CRF's facilities wouldbe expanded under the Project. CRF staff in collaboration with the PCMU wouldprepare annual budgets, work plans and construction schedules, and handle theprocurement of vehicles, teaching equipment, and other materials.

C. Implementation of Specific Components

4.07 Processing improvements. The Project would help remove seasonalcongestion in the coffee factories, improve their operating efficiency and theoverall quality of coffee output, and ensure environmental protection frompollution. This would be achieved by carrying out a total of 340 coffee factoryimprovements and construction classified into types 1, 2, 3 and 4 based on thetype of processing constraints, the throughput and the investment required toremove constraints and provide incremental capacity. Type 1 improvements (85factories) would involve appropriate investments in low throughput factories toremove specific bottleaecks mainly at skin drying and final drying. This wouldprovide incremental processing capacity of about 30 tons per factory per yeargiving the rehabilitated factory a nominal throughput capacity of 60 tons ofclean coffee per year. In addition the quality of all coffee throughput wouldbe significantly improved. Type 2 improvements (115 factories) and type 3improvements (75 factories) would involve simi.&r appropriate investments formedium throughput and high throughput factories, respectively. Type 4

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improvementu (65 factories) would involve new or resited factories. Theincremental factory output and rshalilitated processlung capacity for each typeis given in Anner. 6, Table 1 together with the phaaing uf the implementation andthe build up of incremental processing capacity.

4.08 Experience under SCIP indicates that closer scrutiny of propoaals forfactory improvement is required to avoid creating localised over-capacity orinvestments with a low rate of cost-effectiveness. The updated guidelines aresummarized in Annex 9, together with the factory improvement cycle from loanpreparation to contract completion. Under the Project the DCWGs would, with thehelp of PCMU staff, continue to perform their essential role in identifying needsfor coffee processing facilities and preparing investment proposals forsubmission to the PCMU. The improved guidelines would be used by the DCWGs toprovide a pre-feasibility procedure which would remove non-viable investmentsand make a rational choice on the size and type of factory improvement - i.e.minor, selective or extensive improvement or a new/resited factory (Annex 9).Use of the guidelines would be incorporated in the Subsidiary Loan Agreementbetween GOK and the Coop Bank (para 3.19 and Annex 2). The subsequentfeasibility study would also be made more rigorous to ensure that bottlenecksin processing have been correctly identified, correct technical solutions havebeen chosen, and individual investments are financially sound (para 5.07).Agreement was reached during negotiations on the broad guidelines and criteriafor factory investments (para 7.01(h)).

4.09 The Project would ensure that the PCMU would be provided with technicalstaff with adequate expertise in processing technology factory and financialmanagement to review each of the factory investment proposals before approvingor returning to the DCWG for amending. Other existing procedures and guidelinesfor execution of factory improvements are satisfactory and would remain unchangedviz: society budgeting to provide its contribution for the improvement (15% asopposed to 25% under SCIP); MOCD work plans; tendering; contracting; contractsupervision; contract completion; and payment procedures. The PCMU would carryout supervision missions three times a year during which a number of individualfactory investments would be reviewed in detail to test Project performance withregard to project selection and execution of factory improvements.

4.10 Cooperative Coffee Factory Management. For arabica coffee the standardof wet processing is one of the main determinants of the final quality and theprice achieved. Thus, the financial and economic returns to investment in coffeefactories under the Project will depend very heavily on the ability of factorymanagement to ensure correct processing standards and achieve satisfactoryquality at economic costs. At present a considerable number of cooperativefactories have weak management, characterised by poor maintenance of equipment,poor organizing of processing work routines and a lack of supervision andreporting systems for day-to-day production work. Unless these constraints areaddressed, there is a danger that the Project would not reach its goals ofimproved throughput, efficiency and quality.

4.11 The Project would strengthen the existing services for coffeeprocessing by supporting the development of technical management services underthe PCMU to raise the level of day-to-day physical management in coffee

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factories. To achieve this the PCMU would work closely with the existing HOAand MOCD coffee staff in the field and would carry out regular advisory visits(normally at two week intervals) with emphasis on correct operation of equipment,labor management and processing techniques and on-the-job training of factorystaff in specific aspects of coffee factory management. Initially this servicewould be developed under the direction of the PCMU, but by the end of the Projectit would be incorporated into one of the existing agencies such as the Coop Bankor KPCU and would continue as a self supporting service to the coffee industry.A decision on which institution would take over this responsibility would be madeduring the mid-term review.

4.12 Credit for Input Requirements. The expected increase in yields fromsmallholders is linked directly to improving the supply of fertilizers andagro-chemicals (fungicides, herbicides and insecticides) to these farmers andtheir timely application. Recent surveys by tne CRF (1986 and 1987) indicatethat 75% of smallholder coffee growers are using these inputs but the amountsare well below optimum. In addition the majority (more than 90%) rely entirelyon credit for inputs which are supplied through their cooperative society. Themost important line of credit to cooperative societies ie the CPCS which nowaccounts for about 90% of seasonal and short term lending in this subsector.

4.13 The heaviest demand is for the recurrent, eeasonal loans to pre-financeessential inputs. The Project would aim to make additional finance availablefor this type of seasonal lending as the primary vehicle for increasing yieldsand output by smallholder growers. The loan financing would be made availablethrough the Coop Bank in the context of the CPCS with which the farmers arealready familiar. To enable a satisfactory level of uptake some changes inexistJng procedures and conditions (para 2.19) are envisaged: the upper limitof borrowing would be Increased from 20% to 50% of a grower's average cropdeliveries, except in the case where their total indebtedness would therebyexceed the value of expected deliveries of cherry. At least 20% of the loanwould be made available in cash, bearing in mind that additional paid labor isgenerally required for the higher levels of productivity. The rate of interestwould be in line with the CPCS and other seasonal agricultural lending rates inKenya. Use of these limits would be incorporated in the Subsidiary LoanAgreement between GOK and the Coop Bank (Annex 2). It is expected that underthese modified conditions the uptake of seasonal loans for existing coffee wouldbe 70% by year three of the Project and for the planting of new varieties 100%uptake from year one of the Project. The loans would be targetted at the wholespectrum of smallholder growers but in each case the society would make the finaljudgement as to the creditworthiness of the individual before approving a loanapplication. A basic assumption is that the funds would be channelled throughthe Coop Bank to societies and that repayments to the Coop Bank would be creditedto a revolving fund to finance additional similar loans.

4.14 Improved Payment System (Annex 11). The Cooperative Bank would alsobe the main financial institution to implement the improved payment system.Under this system, payments to farmers would be made by cooperative societieswith'n a Union in the month following delivery of coffee cherry by farmers.Payments would be by credit to the accounts of farmers at newly establishedSavings and Credit Cooperative Organizations (SACCOs), existing Union Banking

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Sections (UBSs) or to any other banking institution normally used by Societies'members (e.g. the local branch of the Coop Bank). Because of bookkeeping systemweaknesses at some Societies and Union-run banking organizations (SACcOe orUBSe), steps as outlined below would be taken by an MOCD Inspection Committeeto strengthen such systems. The Committee would include staff from the CoopBank. Under the Project this Committee would review and improve all bookkeepingand accounting systems, and finally give approval that Societies within a Unionwould be capable of making payments under the improved payments system. IDA'srelease of funds to the Coop Bank for onlending to each eligible Union would beconditional upon this approval for all eligible societies within a Union (para3.25). Establishment of the Inspection Committee would be a condition of Crediteffectiveness (para 7.02(d)). In terms of annual requirements of Societieswithin an approved Union each UBS or SACCO would produce an Advance Request andAnalysis each year detailing their credit needs. The request would be authorizedby MOCD and passed on as authority to the Coop Bank to lend.

4.15 Small estate improvement. A feature of the estate sector is thecontinuing increase in the number of small estate producers (between 4 and 20ha) who now account for 728 of the total 1,111 registered coffee estates. Someof these originate in the sub-division of larger estates but the greater partare "smallholders" who have grown to a sufficient size (4 ha of coffee and above)to be registered as individual private growers. Small estates now account forabout 5,000 ha of coffee with an annual production of about 3,500 tons of cleancoffee. The trend of increasing numbers in this subsector is likely to continuein the foreseable future.

4.16 The majority of these producers are affected by the following seriousconstraints: (a) most are non-irrigated which restricts their yield potentialto about 1,000-1,100 kg/ha; (b) with a few exceptions management is weak andinput levels are low - fertilizer, fungicide and mulch applications are wellbelow optimum - and yields are not much different than for the advancedsmallholders, averaging 600-700 kg/ha clean coffee; (c) the gross margins forthese growers are around Kshs 8,000 per hectare with much lower figures fornon-irrigated farms - which is more or less equivalent to smallholder growers;and (d) the processing factories vary from adequate to very poor, often beingof an "ad hoc" type of construction with insufficient facilities, particularlywater recirculation and pollution co,ntrol. A number of small estates have nofactory at all and rely on neighboring factories for their processing.

4.17 The Project would deal with the constraints to production andprocessing by means of an integrated investment package. A capital investmentpackage would be made by the estate manager for field equipment, irrigationequipment and processing facilities according to the farm size. Correspondinginvestment would be made to increase the inputs of fertilizers, fungicides, laborand management in order to raise yields from the current 600-700 kg/ha to as highas 1,500 kg/ha (irrigated coffee). These have been classified as type 1 - 6improvements according to farm size and whether or not irrigation would beintroduced. The implementation schedule showing the number of estates by typeis summarized in Table 4. A type 1 improvement (50 small estates) would financethe provision of a coffee factory and some field equipment for a 4 ha,non-irrigated farm. Increased inputs over the Project period would raise yields

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by about 300 kg/ha giving an incremental production of 60 tons of clean coffeefrom 200 ha. Type 2, 3, 4, 5, and 6 improvements would involve investment in4 ha (irrigated), 10 ha (non-irrigated), 10 ha (irrigated), 20 ha (irrigated)and 30 ha (irrigated) small estates, respectively. Overall this component wouldrevitalize productivity on 2,400 ha of coffee resulting in incremental outputof about 1,540 tons per year at full development. Details of each investmenttype, phasing of implementation, incremental processing capacity and overallnominal throughput are detailed in Annex 6, Table 2.

Table 4

Cooperative Factory Improvement and Small Estate RehabilitationImplementation Schedule

SECTOR IMPROVEMENTS (No. of Units)AND TYPE YR 1 YR 2 YR 3 YR 4 YR 5 YR 6 YR 7 TOTAL

COOPERATIVE 1/TYPE 1 10 10 10 10 15 15 15 85TYPE 2 10 15 15 15 20 20 20 115TYPE 3 5 5 10 10 15 15 15 75TYPE 4 5 10 10 10 10 10 10 65

TOTAL 30 40 45 45 60 60 60 340

SMALL ESTATES 2/TYPE 1 7 7 7 7 7 7 8 50TYPE ? 7 7 7 7 7 7 8 50TYPE 3 5 5 6 6 6 6 6 40TYPE 4 5 5 6 6 6 6 6 40TYPE 5 4 4 4 4 4 5 5 30TYPT 6 2 3 3 3 3 3 3 20

TOTAL 30 31 33 33 33 34 36 230

1/ Type 1, Minor improvement; Type 2, Selective improvement; Type 3, ExtensiveImprovement; Type 4, new or re-sited factory.

2/ Type 1 & 2, 4 Ha Estate; Type 3 & 4, 10 Ha Estate; Type 5, 20 Ha Estate;Type 6, 30 Ha Estate.

4.18 Small estate management. The current poor performance of many smallestates in terms of production and financial viability can be partly attributedto weak management. In order to achieve the benefits anticipated frominvestment, the Project management would ensure that a satisfactory system ofmanagement and supervision is in place for rehabilitated estates. This wouldbe supplied either from the PCMU or by expanding one of the existing managementsupervision advisory services such as the KPCU field advisory services.

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4.19 Training and Coordination. The institutions involved in training ofcoffee farmers and personnel in the coffee industry would continue to beresponsible for coffee training programs. The overall coordination of allProject training activities at national level would be undertaken by the PCMU.In liaison with the Steering Committee, the PCMU would determine training needsin the smallholder and estate sectors, program training, and set general trainingguidelines. The PCMU would also be responsible for preparing an annual planand budget for this component. The planning and coordination of trainingactivities at the district level would be guided by the DCWGs ir. closecollaboration with the District Cooperative Training Committee. The latter,which includes the Cooperative Union Manager and Cooperative Education andPublicity Officer, the District Cooperative Training officer, the DistrictCooperative Officer, and other functional officers of HOCD, allocates availableopportunities for individual training outside the district and identifies commontraining needs of the various cooperatives in the district. The field trainingcourses and demonstrations for coffee farmers and in-service training programsfor coffee extension staff, factory managers, committee members and societymanagers would not replace the present general staff training programs undertakenby both MOA and MOCD but would supplement them and be Project-oriented. Theproposed training programs for the various staff involved in implementing theProject would be conducted jointly by MOA, MOCD and CRF. SpecificProject-oriented in-service training programs would be provided by CRF for coffeeextension staff, and farmersI training would be undertaken through field coursesand demonstrations.

4.20 Coffee Milling and Export Preparation. The implementation of thiscomponent would be baaed on the appraisal undertaken by CDC. CDC has made aninspection of the proposed site, and CDC management has cleared the proposal.Government has indicated its agreement to CDC's lending terms. KPCU would beresponsible for managing the implementation of this component.

4.21 Project Monitoring and Evaluation. Overall monitoring of Projectactivities would be the responsibility of the PCMU, while participating financialinstitutions (e.g. Coop Bank) would monitor progress of their own components.PCMU would prepare semi-annual progress reports, providing data on Projectactivities, completion of physical construction targets, procurement of vehicles,machinery and equipment, the training program, credit uptake, and problems thatare critical to the effective implementation of the Project. Copies of themonitoring reports would reviewed by the donors and the Steering Committee.The financial/economic section would also be responsible for preparing annualplans and budgets and establishing construction completion targets as envisagedunder the implementation program.

4.22 Status of Project Preparation. Key staff of the PCMU, such as theGeneral Manager and two managers, are in place and further recruitment of staffwould be completed during the first year. Sample bidding documents would beprepared before Project effectiveness. Sample investment packages prepared bythe PCMa for coffee factories (minimum of four), including economic analyses,have been prepared. Civil works for factory construction would follow theimplementation schedules described in paras 4.08 and 4.17 based on designsalready prepared under SCIP. Project Lmplementation is expected to be completed

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by December 31, 1996. The Credit closing date would be June 30, 1997.

D. Kid-Term Review

4.23 GOK's production projections in the preparation report, like those inthe Sessional Paper, were based on potential yields assuming good managementand optimum input supply as well as replacement of existing varieties with newhigh yielding coffee varieties like Ruiru 11. The appraisal mission found theseprojections optimistic and estimated achievable yield increases under the Projectof 1.8-2.1%. This is more in line with recent past performance and accordsgenerally with the views in the subsector study of 1987. In order to providea better basis for planning beyond the Project period, a comprehensive mid-termreview would be carried out which will include production estimates in relationto expected changes in the coffee market (quality and new ICA) and the experiencewith the introduction of new coffee varieties.

4.24 The PCI4U financial/economic section would carry out an evaluation ofProject implementation by December 31, 1992, and againi at Project completion.The three year evaluation report would form the basis of a joint donor-GOKmid-term review. Evaluation would concentrate on (a) district coffee production;(b) area expansion and improved varieties; (c) yield achieved Lnd projectionsof total coffee production; (d) arabica market analysis vis-a-vis price movementswith or without an ICA stocking policy and price subsidies; (e) implementationof the improved payment system with a view to introducing incentives for highquality cherry deliveries; and (f) a review of the sales tax structure to ensurethat any disincentive to produce coffee is not present. Assurances on the abovewere obtained during negotiations (para 7.01(i)).

V. PRODUCTION AND FINANCIAL ANALYSIS

A. Coffee Yields and Production Targets

5.01 The current potential productivity for arabica coffee at farm levelis estimated to be about 1,200 - 1,500 kg/ha for non-irrigated coffee and 1,500- 3,000 kg/ha for irrigated coffee which receives correspondingly higher amountsof other inputs. These higher yield levels have been recorded by advancedsmallholders and estate producers. The main technical constraint on productivityfor smallholders is the level of inputs - principally fertilizer, fungicides,irrigation and labor. Other factors which affect output are: pricing and paymentfor coffee; the proportion of coffee in different farming systems; theavailability of family and hired labor; and the demands of other competing cashand food crops.

B. Project Targeted Yields and Production

5.02 Incremental inputs and yields for small estates are describedseparately in para 4.17 and Annex 7, Table 4. The Project would make credit

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available to smallholders and small estates for incremental farm inputs aimedat inc=easing coffee yields and output from existing varieties and theestablishment of about 7,000 ha of improved varieties. It is estimated thatthe uptake rate of inputs for existing varieties would bG 70% from year 3 on ofthe Project and for the improved varieties the uptake rate would be 100% fromyear 1. By Project completion, therefore, the incremental inputs would beapplied to approximately 117,100 ha of existing coffee and 7,000 ha of improvedvarieties, giving a total incremental output of 19,651 tons (Annex 7, Tables 1 -4). This represents an increase of about 16%. At the low level of productivitythe incremental inputs would result in yields increasing from 360 kg/ha to 500kg/ha for 101,200 farmers with an incremental production of about 4,430 tons bythe completion of the Project. This group would also account for an additional3,080 ha of improved varieties with an incremental production of about 1,190 tonsby Project completion.

5.03 At the medium level of productivity the incremental inputs would raiseyields from 600 kg/ha to 820 kg/ha for 87,400 farmers, creating an incrementalproduction of about 6,120 tons by Project completion. This group would accountfor an additional 2,660 ha of improved varieties with an incremental productionof 1,710 tons by Project completion. At the high level of productivity theincremental inputs for 41,400 farmers with 21,080 ha of coffee would raise yieldsfrom 940 kg/ha to 1,200 kg/ha, with an incremental production of 3,400 tons atProject completion. This group would also account for planting about 1,260 haof improved varieties giving an incremental production of 1,270 tons by Projectcompletion.

C. Financial Analysis Outline

5.04 The financial analysis outlined below sets out the financial effectsof the Project on (i) coffee farmers, coffee factories, and the Coop Bank as thefinancial intermediary of the IDA-financed cooperative sector components; (ii)small estates including farming and processing activities; and (iii) Governmentincluding the foreign exchange and cash flow implications. CDC has carried outa financial analysis on KPCU as owner of the r.ew mill and the final design andsource and costs of financing are being finalized. Similarly, the financialintermediary on the small estate component has only been preliminarilyidentified; CDC is in the process of finalizing arrangements.

Cooperative Sector

5.05 Coffee Farmers' Incomes. Smallholder coffee farmers in Kenya'scooperative sector number about 230,000 families. Even though this excludessmall estates of 4 ha and above, the diversity of farm sizes, crops and farmers,capabilities is considerable. For Project purposes 9 models were chosen covering3 farm sizes (0.9 ha, 1.6 ha and 3.0 ha) and 3 without Project yield levels (low- 360 kg/ha of coffee, medium - 600 kg/ha of coffee and high - 940 kg/ha ofcoffee). The analysis assumes the incentive effects of the improved paymentsystem, and the yield effects of the credit component on incremental farm inputs,and includes the associated costs of such components.

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Table 5

Projected Farmers Annual Cash Incomes and Returns to Family LabourWith and Without Project

Farm Type and Siz- -------------------- Coffee -------------- ---- Total Farm----------Cash Income ----- Returns to Family Labour --- Cash Incomes 3/----

Without With Without With Without WithProject Project 1/ Project Project 1/ Project Project 1/(--KSh Constant 2/---) (-KSh conse.ant 2//m hour-) (--XSh Constant 2/----)

1. Low Yield Level Farms

(a) 0.9 ha Farm 2,704 3,601 12.02 12.75 (1,472) (575)% Increase 33% 6% 6%

(b) 1.6 ha Farm 5,086 6,795 13.97 14.90 3,843 5,552% Increase 34% 7% 44%

(c) 3.0 ha Parm 7,665 9,606 n.a 4/ n.a 4/ 11,634 13,575% Increase 25% - 17%

2. Medium Yield Level Farms

a) 0.9 ha Farm 4,316 5,926 12.53 14.04 2,342 3,952% Increase 37% 12% 69%

a's 1.6 ha Farm 8,170 11,177 14.69 16.43 9,461 12,467% Increase 37% 12% 32%

(c) 3.0 ha Farm 12,447 15,544 n.a 4/ n.a 4/ 22,019 25,116% Increase 25% 14%

3. High Yield Level Farms

(a) 0.9 ha Farm 6,879 8,943 17.03 19.09 17,437 19,502% Increase 30% 12% 12%

(b) 1.6 ha Farm 13,027 17,609 21.25 24.62 26,878 31,461% Increase 35% 16% 17%

(c) 3.0 ha Farm 21,456 29,854 n.a 4/ n.a 4/ 45,979 54,377% Increase 39% 18%

1/ At full development2/ At 1989 constant costs and prices1/ After deducting subsistence costs4/ Not applicable since assumed no family labour used for coffee in the 3.0 ha farms.

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5.06 The results in Table 5 show that under the Project cash incomes forcof fee and the farm, and returns to family labor, all increase under the Projectirrespective of yield levels. However, the 0.9 ha low yield level farm showsonly a reduction in negative farm cash incomes; the assumption is that thedifference in income in made up by off farm income (e.g. as laborers on otherfarms by one or more family members). There is also the likelihood thatsubsistence levels for the 0.9 ha farmers would be below t"se of farmers withcash surpluses. As regards lending for inputs, criteria accaptable to IDA (para4.13) would be applied. The results of returns to farmers' labor and incomesprovide adequate incentives for the farmers to use the recommended inputs andseek the credit available under the Project.

Table 6

Projected Rates of Return and Incremental Cash Flowsof Investments in Coffee Factories Under the Project

------Incremental Cash-------Flows

Rate of Annual at Project CumulativeFactory Investment Type Return Year 7 over 25 yrs

() (------KSh'000 Constart-----

Type 1- Low Investment, 60 toncapacity, Existing Factory 43 158 5,794

Type 2- Medium Investment, 100 tonCapacity Existing Factory 34 251 9,334

Type 3- High Investment, 150 tonCapacity, Existing Factory 29 620 13,671

Type 4- High Investment, 150 tonCapacity New Factory 22 781 14,871

5.07 Coffee Factories' Returns and Incomes. Cooperative Societies, of whichthe farmers are members, also own one or more coffee factories to process (wash)red cherries brought in by the members. Under the Project four types ofinvestment in coffee factories are envisaged: (i) low capital investment (KSh0.49 m)13 in existing 60 tonl4 capacity factories; (ii) medium level capitalinvestment (KSh 0.89 m) in existing 100 ton capacity factories; (iii) high levelcapital investment (KSh 1.46 m) in existing 150 ton capacity factories; and (iv)construction of new 150 ton capacity factories, costing KSh 2.92 m. The ratesof return on these investments and the incremental cash flows are set out in

l

13 in 1989 constant costs, including physical contingencies.

14 tons of clean coffee.

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Table 6. The lending criteria (para 4.08) would include an economic andfinancial rate of return on each investment of at least 12% (the opportunity costof capital), and a cash flow analysis indicating cash generation sufficient tocover processing costs and loan repayments.

5.08 The results show that, in all cases, the rates of return are higherthan the cost of capital and the incremzntal cash flow under the Project ispositive. The lowest returns and improvements in cash flows are in investmentsin new coffee factories. However the assumptions of incremental revenues areconservative and assume an improvement in quality of washed coffee only. Inpractice it is likely a higher proportion of mbuni (sun-dried) coffee would beproduced in the "without Project" situation and hence incremental revenues andrates of return would be higher than shown in the above analysis.

5.09 The Cooperative Bank would be the financial intermediary under theProject for channelling funds to the cooperative societies. A backgrounddescription of the bank is covered in para 1.21, its financing arrangements inpara 3.19, and its role in implementation in para 4.03. The bank's currentfinancial situation (based on its audited but unapproved financial statementsto June 30, 1988) indicates a financial position with profit before taxation forthat year amounting to X£1.117 m (1987 - X£0.995 m), and reserves amounting toK1I.48 m (1987 - X£1.42 m). Net current assets amount to R£34.2 m (1987 - KE26.2m), business activities are expanding and alL other ratios comply with theBanking Act. However, detailed analysis shows that investments and the loanportfolio are not as healthy as indicated. Of the investments at original cost,R£1.475 m has been under receivership since 1984 and the extent of the finalpayout is likely to be minimal. The bank, starting in 1988, is writing off onequarter of the original cost per annum.

5.10 Of the advances totalling KR61.9 m in 1988 (XSO.6 m in 1987),approximately 65% are for the Coop Bank's own account, whilst the remainder arechannelled through the bank on an agency basis, and are guaranteed by theprincipal lenders. The arrears position for the latter group is good with only4% approximately categorized as such. However, of the amounts owing on thebank's own account approximately 35% (Ki14 m) is classified as in arrears. Somehave already been repaid since the end of the fiscal year, and security is heldfor the remainder. Against the arrears and expected bad debts a provision fordoubtful debts of K£2 m has been established. This is far below the arrearsbut is pr.bably not excessively below what can reasonably be collected, providedsecurity is called in.

5.11 Under the Project, the Coop Bank's financial situation is likely toimprove, given the proposed interest rate spread of 5% (para 3.19), theapplication of strict financial criteria for coffee factories lending (para5.07), and lending to farmers (para 4.13). The projected financial statementsare set out in Annex 7, Tables 5 - 7.

Estate Sector

5.12 Small Coffee Estates. The coffee estate sector is described in paras4.15 and 4.16. Investments under the Project would concentrate on the small

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estate sector (4 ha to 30 ha), and for this purpose six small estate models werechosen. A summary of the rates of return and incremental cash flows for eachmodel are met out in Table 7 below.

Table 7Projected Rates of Return and Cash Flows of

Small Coffee Estates Undor the Project

Rates of Incremental Cash FlowsReturn Year 1 Year 7(-) -- KSh Constant----

4 ha

ti) Non irrigated 12 (7,750) (12,281)(ii) irrigated 57 43,311 85,463

10 ha

(iii) Non irrigated 22 (10,750) 22,676(iv) Irrigated 56 88,618 106,434

20 ha

(v) Irrigated 61 167,736 155,527

30 ha(vI) Irrigated 44 209,104 241,622

The analysis shows rates of return well in excess of the 12% opportunity costof capital and positive incremental cash flows in all cases except the 4 ha non-irrigated estates; all estates reflect positive cash flows throughout the Projectperiod. The relatively low returns in the non-irrigated estates reflect the highinvestment costs in coffee factories with lower yield assumptions than in theother estates. In the irrigated estates the assumption is that coffee factoriesalready exist and that estate owners wish to introduce irrigation, which is bothrelatively less capital intensive and gives considerably higher yields. The sameassurances on onlending criteria as were applied to cooperative sector coffeefactories would be applied, namely an economic and financial rate of return ofat least 12%, and a cash flow analysis indicating cash generation sufficient tocover processing costs and loan repayments (para 5.07).

5.13 The financial viability of this CDC-financed component has been foundacceptable by CDC as evidenced by its decision to include these investments inits Loan (due for approval in late August). The expected onlending terms areset out in para 3.19, as are the lending criteria.

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D. Coffee Milling

5.14 KPCU, as the primary coffee miller in Kenya, would own the new 50,000ton capacity mill. CDC's appraisal of this component indicate. a financiall-viable inventment and has been included in its Loan to be mad. under the Project.To repay the Loan, KPCU would introduce a development levy on coffee sales overa period of up to ten years. The offects of the levy on farmers' coffee incomeswould be less than 1% of their total coffee income.

E. Effects on Foreign Exchange Position and Government Cash Flow

5.15 Effects on Foreign Exchange. The effects of the Project on Kenya'sforeign exchange position show that over 20 years the net foreign exchange inflowwould total US$1.3 billion, reaching close to US$90 m per annum by the end ofthat period. This assumes that quotas under the ICA are not reintroduced. Incomparing this with the "with quota" situation, net foreign exchange inflowswould fall significantly only immediately after cessation of quotas (caused bya fall in world coffee prices); they are estimated to increase thereafter towithin 10% of the "with quota" price in 1995 and to w-.thin 2.5% by the year2000. In the "with quota" situation (Annex 7, Table 8), the effects on theProject over 20 years would be a net foreign exchange inflow fall of US$1.5billion, reaching close to US$100 m per annum by the end of that period.

5.16 Effects on Government Cash Flow. Government's cash flow would improvesignificantly under the Project with positive cash flows in all years except 1990(Project year 1) when incremental revenues would be small and Government outlaysunder the Project higher. This net outflow would amount to KSh 15 m (US$0.8 m).Over 20 years net cash inflows would amount to KSh 6.0 billion (USS,295 m), withannual averages amounting to over KSh 400 m by the end of the Projectimplementation period and falling to KSh 250 to 300 m in the later years as theCoop Bank ceases to make loan repayments for money originally onLent to it byGovernment. Details are set out in Annex 7, Table 9.

VI. JUSTIFICATION, BENEFITS AND RISKS

A. Justification

6.01 Coffee has long been the single most important agricultural commodityin Kenya's farm based economy. Its significance as an earner of foreign exchangeis challenged only by tourism. In 1988 the share of coffee in total annualexport earnings was approximately 29%. Its direct importance to the ruraleconomy is reflected in the fact that it fs the main source of cash income forabout a quarter of a million farm families. In the Central and EasternProvinces, well over 50% of families are dependent on coffee earnings for cash.The Project would strengthen the ability of the coffee industry to raise ruralincomes, create employment opportunities, and generate foreign exchange.

- 46 -

B. Benefits

6.02 The Project would generate quantifiable economic benefits from twosources. The first major benefit would be the incremental production of coffeearising mainly from the improved payment system, better availability of creditand associated inputs to smallholders and small estates. The Project wouldultimately inczcjase annual coffee production by around 20,000 tons of cleancoffea, thereby increasing the country's gross foreign exchange earnings by theend of the economic life of the Project (para 6.05(a)) by about US$51 m annuallyat 1989 border prices (Annex 8, Table 3). In addition, this level of extraproduction would create in the smallholder and estate sectors about 11,000manyears of maJnly unskilled field work for both family and hired farm labor(Annex 8, Table 5). Well over half of this would consist of women.

6.03 The second major source of quantifiable benefits would be fromimprovement in coffee quality through factory rehabilitation and constructionin the cooperative sector. These expenditu,es would be supported under theProject by better appraisal of individual investments, and improved training andtechnical and management backup. They would increase processing capacity andfactory efficiency resulting in higher quality of clean coffee, better overallprices and increased factory incomes.

6.04 The majority of Kenya's 230,000 smallholder coffee farmers would bethe main beneficiaries of the increased output of the Project. It is not,envisaged that this number would change substantially under the Project sinceits emphasis is to increase yields and improve productivity on existing areasrather than to bring new areas into production. Financial analysis (para 5.05),based on different levels of management and yield and on three farm sizecategories, indicates that cash incomes for coffee and the farm, and the returnsto family labor, improve across all farm types. Higher returns from improvedcoffee quality arising from the factory improvement and which are notincorporated into these returns would also accrue to about 40 per cent of coffeesmallholders.

C. Economic Analysis

6.05 Main Assumptions

(a) The economic life of the Project is 25 years with all maininvestments taking place during the implementation period (thefirst seven years).

(b) The analysis includes all expenditures for capital investments,replacement of factory and estate plant and equipment, andincremental operating and maintenance costs relating to theProject components. Costs exclude price contingencies, taxesand duties. Physical contingencies are included.

(c) All prices are calculated on the basis of mid-1989 constantprices adjusted for suspension of coffee quotas under the ICA

- 47 -

(para 6.07). The formulation of the base price for Kenyanarabicas is set out at Annex 8, Tables 1 and 2, andincorporates all relevant deductions. Paras 2.13-2.18 onCoffee Marketing elaborate on the price premia aspect. of Kenyacoffee. The projections of real movements in coffee pricesare based on information from the World Bank. Priceprojections for inputs are based on the World Bank CommodityPrice Projections.

(d) The basis of the benefits to the Project arising fromincremental production is explained in paras 5.02 and 5.03.

(e) Both economic and financial benefits from quality improvementsat the cooperative societies' coffee factories are quantifiedby the movements in quality profile and corresponding pricesfor ten classes of washed coffee and three classes of mbuni.Capital investments are based on three levels of rehabilitationcost and one new factory model. "Without Project" qualityprofiles are derived from a survey of 36 factories carried outin 1987. "With Project" quality profile improvements for therehabilitation models are based on a conservative assessmentof the impact of investments and management support actionsundertaken by the Project. In the "with Project" situationfor new factories where severe congestion is occurring, thebasis of Project benefits is the prevention of the decline inquality profile projected for the "without Project" scenario.Ir. all cases, the quality profiles and associated benefitstreams assume sustained and reasonable factory managementlevels. Throughput is assumed to be maintained at 80% ofcapacity in line with the recommendations of the ZCIP PCR.

(f) A standard conversion factor of 0.9 has been applied to thevalues of all non-tradeables. Taxes and duties have beenexcluded from economic costs and revenues.

(g) All incremental on-farm labor has been priced at market ratesreflecting scarcity values.

Main Results

6.06 The base case for the Project has been estimated on the assumption thatthe ICA will continue without quotas. Benef:its and cost streams used in theeconomic analysis are presented at Annex 8, Table 3. On the basis of the aboveassumptions, the economic rate of return (ERR) of the whole Project is 29%, witha net prosent value of about US$94 m (at a discount rate of 12%). The ERR ofthe coffee factories component is 28%, and for the Project excluding the factorycomponent it is 30%. The high rates of economic return associated with the basecase for the Project are mainly attributable to the premia attracted by Kenyanarabicas even under a "without quota" situation.

-48 -

6.07 In order to simulate the "without quota" situation, and usingindicators of price movements provided by the World Bank, Project revenues inyear one of the Project were reduced by 40% compared to "with quotas".Subsequent movements incorporate an improvement to 85% of "with quota" levelsby year 6 and to 93% by year 11.

D. Sensitivity Analysis

6.08 The main subject of the seneitivity analysis (Annex 8, Table 4) hasbeen the risk that the ICO may be unable to reintroduce the quota system. Longterm reductions in projected prices of 25% arising from permanent disruptionsin the market structure would lead to a whole Project ERR of 24%. Failure toachieve projected quality profiles by the coffee factories component resultingin a similar level of revenue reduction would lead to a component ERR of 25%.Cost escalations of 25% across all investment and incremental cost items wouldreduce the ERRs to 27% for both the factories component and for the wholeProject.

6.09 Switching values have also been estimated. In order to reduce the netpresent value of the Project to zero at a 12% discount rate, either coffee pricesor production volumes would have to be 52% lower than assumed in the base caseanalysis. This is unlikely to happen during Project implementation because ofKenya's strong comparative advantage in producing high quality arabica coffeeand the increasing market demand for this type of coffee. Historically theabsolute fob differentials between high quality washed arabicas and other coffeeshave been wider when world prices are low than when all types of coffee are inshort supply and prices are correspondingly higher. Cost overruns would needto be in the region of )0% to reduce the net present value to zero at the samediscount rate. The economic worth of the investment is thus robust to price andcost assumptions.

6.10 It is worth noting that if quotas were introduced, the ERR of the wholeProject is 35%, with a net present value of about US$100 m (at a discount rateof 12%). The ERR of the coffee factories component is 34%, and for the Projectexcluding the factories component it is 37%.

E. Uncertainties and Risks

6.11 The main domestic risk to the Project would be a delay by Governmentin ensuring the effective implementation of the improved payment system tofarmers as set out under the Project. It is essential to guarantee this maininducement to farmers to carry out the yield and productivity improving measuresenvisaged under the Project. Adoption of an improved payment system would bea condition of effectiveness (para 3.08).

6.12 There are few technical risks associated with the Project. Experienceunder SCIP has shown that the absence of high caliber management would be aserious risk in reaching the Project objectives. P ovisions have been made tominimize this risk by strengthening the PCMU through technical assistance and

- 49 -

through increasing its role by including, inter alia, factory investmentappraisal responsibilities. Flexible investment packages and individual economicevaluation of each factory investment proposal would help ensure that returnson investments are satisfactory. Lending guidelines are being strengthened forthis purpose.

6.13 Another major risk is that improvements in processing quality wouldnot take place to the degree projected. Though quality improvements at factorieshave been projected conservatively, their achievement is dependent on theapplication of average to good management by the cooperative societies. Thisrisk has been minimized in the Project design by the attention given to technicaland management support services. Business management support would also beprovided through the Rural Services Design Project.

6.14 The main risk arising from external factors is that the ICO coffeequota system would fail to be reintroduced resulting in a substantial reductionin real prices. This situation has been modelled in the sensitivity analysisand because of the intrinsic price strength of high quality Kenyan arabica coffeethe results indicate robustness of the ERR even in a non-quota situation.

VII. ASSURANCES AND RECOMMENDATION

7.01 The following assurances were obtained during negotiations:

(a) Immediately after the reimposition of coffee quotas under an ICA,Government would inform the Association of revised measures for thebetter management of its coffee stocks (para 1.16);

(b) The Government shall continue to progressively reduce the pricedifferential on coffee sold for domestic consumption, with a view tofinally eliminating such price differential by the time the domesticmarket disposals have reached 10% of total disposals (para 1.17);

(c) By June 30, 1990, CBK's organization structure would be strengthenedto enable it to better respond to the consequences of increased coffeeproduction (para 1.18);

(d) The Borrower would (i) by November 1 each year, review and agree withthe Association on the forward budget allocations for the Project; and(ii) ensure that adequate allocations are included in the approvedbudget for each year (para 3.18);

(e) Onlending and procurement arrangements were agreed (paras 3.19 and3.20);

(f) Separate Project accounts would be opened and maintained, such accountsto be audited by independent auditors acceptable to IDA within ninemonths of the close of the fiscal year (paras 3.27 and 3.28);

(g) By Project completion, the implementing agencies, including the Coop

- 50 -

Bank, would take over all appraisal activities from the PCMU (para4.03);

(h) Guidelines and criteria for preparing proposals for factoryinvestments, satisfactory to IDA, were agreed (para 4.08); and

(i) By December 31, 1992, the PCMU would carry out an evaluation of Projectimplementation which would be the basis of a comprehensive mid-termreview (para 4.24).

Conditions of Effectiveness

7.02 The following would be conditions of credit effectivenese:

(a) Adoption by Government of an improved payment system (para3.08);

(b) Execution of a Subsidiary Loan Agreement between GOK and the Coop Bankwhich would include as a minimum those terms and conditions set outin Annex 2 (para 3.19);

(c) Appointment of a trainer to provide orientation and training to thePCHU management team (para 4.01); and

(d) Establishment of an MOCD Inspection CommittF- (para 4.14).

Condition of Disbursement

7.03 No IDA funds would be disbursed to the Coop Bank under the credit3cheme for coffee cherry deliveries (the improved payment system) until theInspection Committee has certified that all primary cooperative societies withintheir cooperative union are capable of making such payments (para 3.25).

Recommendation

7.04 With the indicated assurances and conditions, the proposed Project issuitable for a credit of SDR 36.5 million (US$46.8 million equivalent) to theGovernment of Kenya on standard IDA terms with 40 years maturity.

zoc issssse ............fc...cz~:2 ei,- C. i'i'sls. , .Wz

0b~ ~ ~ ¢ S I XIi" -~~~~I

OX t- . z T n

lI 11Ii 111111, M >,ils I . .. , 0

I ID -2IS -

02 21, H ~ ~ ~ ~ ~ ~~~~~, T

C~~~~~~~~~~~~~~~~~ C I C CC .... ........

it'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t

ccecc..ec ~ ~ ~ ~ ~ ~~......................T~~~~~~~~~~

KENYA PLANTERS' CO-OPERATIVE UNION LIMITED - MANAGEMENT STRUCTURE MARCH, 1389

KPCU BOARDOF DIRECTORS

MANAGING DIRECTOR* CHIEF EXECUTIVE

r (1) 1 (2) (3) j (4) (5) (6) (7)OPERATIONS| OPERATIONS ACCOUNTS/ COMPANY TECHNICAL, FIELD PERSONNEL A- STORES - PRODUCTION FINANCE SECRETA- SERVICES SERVICES| TRAININGDEPARTMENT DEPARENTNT DEPARTM- RI DEDEPARTME- 1 DEPART- DEPARTMENT

ENT NT N ENT

Operations Operations Financial Company Technical Field PersonneltManager - Manager - Controller Secreta- Manager Services TrainingStores Production ry Manager Manager

- Transporta- - Milling - Financial - Legal - Enginee- - Field - Personneltion of Services Manageme- Matters ring a Agricult- ManagementCoffee nt Maintenance ural Advisary &

- Mainte- Works Services Industrial

- Liquoring, - Account- nance of Relations

- Packagings Quality ing Shares - LiaisonControl Register work WithGradinq - Insura- Farmers

- Storage of - Credit nceCoffee Control& Matters - CreditLoans Re- Poesn

- Handling coveries - Secretari- Processingof Clean at to Board PPCoffee - Payments of Directors - FieldBefore it to Coffee Extensionis handeA Growersto the - Education PublicityCoffee - General

Board of Admini- NB- NUMBERING DOES NOT REFLECTKenya stration SENIORITY OF POST

53 CHART

ii Dt:I

KENYA - 54 -SECOND COFFEE iWVtT= OJECT

34AIe CUt Data

DRTINAI.. t969!1~~~~. 19~~~q2**. . ....... 16108

I. R. of Geruany 36,912 32.407 23,074 32.376 26,679 35,360 26,201 21.011UZ *6,639 12,323 17,060 10,09 12,133 21.900 20.223 8.559UstherLands 3,943 3,326 7,185 15,821 15,430 23.826 19,392 1,212Uta 5,391 5.176 5.119 5.607 5,836 6,513 6.549 5.099Sweden 4,559 3,148 4.515 5.811 6,023 6*74J 5,219 6.259Belium 2.368 3,191 2,627 3.291 3,366 3,163 3,627 6.425Fintand 3.651 4,231 3,975 2,59 2,930 2.395 3.100 2,895Italy 3.271 2.970 3,019 2,231 2.448 2,401 2.093 2.512Switzerland 2,231 2,992 2,513 2,644 2.213 2.051 1,200 1,331Canada 991 689 639 823 674 1,429 1,079 584Deinark 84 45 141 221 229 322 529 66France 1,313 914 1,321 a1? 529 425 351 341Japan 154 196 128 266 123 367 323 248Novway 253 231 1I 57 104 221 250 660Australia 169 222 10S 232 116 223 213 211mmw Zealand** 196 246 209 202 124 100 11ISpain - 59 75 25 - 117 5S 145Greece - -- - - 33 -

Ir*tend 30 45 182 S0 28 43 28 35Singapore - 112 i5 32 8Z 30 15 15Austria 59 117 142 42 - 32 5 24Yugoslavia 280 301 - - 12Icsral** 15 63 - -

Hong Kong** 13 - - --

TOTAL QUOTA kiTS 66,582 18.085 77,441 83.4S1 79,806 110,318 90,118 69,788AWYA-r=Wl"'-.S$t'1t$tJlU"5$g1-1SS- tSGIa am .0 Ol.UO'.lJA!4X''=s

AVG y~LFQ/y9g. XE .- 1..~L8 AL?~.Z.-.....2A6.3. . A .LA L ..2La6....2 .!Q.DNSTTbAT 10

Jordan 1.8SS 6.170 1,344 1,267 1,2U6 836 1,072 S11S. Arabia 183 4.839 618 1,002 4,340 4,521 8,292 2.820Sudan 1 3,468 1,657 2,531 2.099 1,810 1,184 488gypt 240 1,025 825 a ss6 - 251

Poland - 1.000 - 120 614 751 200USSR .Oman 158 930 83 29 10 65 68 isKast Germany 109 155 461 t16 501 648 510 -U.A.K. 430 661 150 535 I1I 1,192 987 239Albania 36S 650 200 -

DJibouti 10 531 347 109 276 121 138 266Tunisia 250 500 _ 1,000 Z00 200Korea S. 436 25 45 30 -Traq 120 490 54S 604 652 35S. Ya en 666 423 183 41 213 54 291 50Malaysia 419 -.- -Botswana * 300 932 260 - - -Lebanon 4b 164 - 66 462 82 132 49malta - 165 45 15 1 16 34 17Bulgaria - 1SO - - - 700Somalia 237 1S0 24 30 12 - -

Argentina 6 143 - - - -Moroeco 275 105 - 23 365 60Gzachoslovakta IOS 120 - 440 1.086 - 66noeaabique Itl 87 366 120 - - -Rumania 250 78 t6 102 345 513 -Bahrain 20 45 17 7 34 33 32 20Ku"wit 10 12 17 102 203 505 87Others 234 210 156 259 t1961 31o 719 266

TOTAL O. 5.695 24,033 86153 1.521 1436 13,698 14,957 4,810

4!C AL KIJSr.0.. .. 9..7.. ... tS^I.. ...1 .9?5 _ ... _ __.IL1ZL...L___ _1Z.A164.__}at_2w!_]g'_161gQ^Ip TOtALS:TOTAL 10WES3 12.211 102.118 35,594 90,978 9,244 124.216 105.615 74,598AVG VAL FOD M/tOINK 1,279 1,426 1,712 2,094 2,230 3.131 2,259 2.630FOS KR/TOVW

* October/August Only* These countries have left the tCO and are now non quote markets

KENY

SeBOCD COEE DVN EJT

Estimated Prioe O,ntirgenies an Proected Exchae Rates

A. Price aontimrr ies

1988/89 1989/90 1990291 1991/92 1992/93 1993/94 1994/95 1995/96

Perceraae Rates of Inflationi/

Foreign EcharecXnporert 7.3 3.9 1.4 1.8 2.9 2.9 2.9 2.9

mcal Oirren:y 8.0 6.0 5.0 5.0 5.0 5.0 5.0 5.0

I/ Per Calender year

B. ProetEd Lcduze Pates

Tbo te USy 18.752/ 18.81y y 19.14A. 19.82_4 20.44s6 20.86a_ 21.28A 21.7.'._y

At appraisal/ At regotiations/ At mid point of each project year

KENYASECOND COFFEE IllPRUWVENT PROJECT

(COFFEE 11)Financing Plan by Disbursemunt Category

USS(OOOs)

INTERNIL EV COI¶NONNEALTH DEV COOPERATIVE GOYT-HIM. OF GOVT-NlU OFASS0CM CORPN COOP BANK SOCIETIES KPCU SMALL ESTATES ASRICULTIIE MOm DYLPIUT

Amount I Amount I bount T Amount Akount I Amount Amount Amount I

A. CIVIL WKS - COUP COFF 9284.0 85.0 0.0 0.0 0.0 0.0 1638.4 15.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0B. V,M&E-COOP COFF 13589.7 85.0 0.0 0.0 0.0 0.0 2400.0 15.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0C. INC PR CST-COOP COFF 0.0 0.0 0.0 0.0 0.0 0.0 1071.5 100.0 0.0 0.0 0.0 ' 0.0 0.0 0.0 0.0D. IC FM IMP - COOP FARN 8902.7 100.0 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 0.0E. CRED SCH-COOP IMP PAY 12137.1 40.0 0.0 0.0 12137.1 40.0 6068.5 20.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0F. CIV WKS-EST COFF 0.0 0.0 1280.3 95.0 0.0 0.0 0.0 0.0 0.0 0.0 225.9 15.0 0.0 0.0 0.0 0.06. Y,MIE EST-COFF FACTORIES 0.0 0.0 2953.3 95.9 0.0 0.0 0.0 0.0 0.0 0.0 469.5 14.1 0.0 0.0 0.0 0.0H. INC FM IMP-EST FN INPUTS 0.0 0.0 529.0 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.01. CIY NKS-KPCU COFFEE HILL 0.0 0.0 5037.9 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0J. Y,N&E-KPCU COFFEE HILL 0.0 0.0 8276.3 53.0 0.0 0.0 0.0 0.0 7339.4 47.0 0.0 0.0 0.0 0.0 0.0 0.0°K. INC MILL COST-KPCU MILL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3270.9 100.0 0.0 0.0 0.0 0.0 0.0 .O0L. V, 1 & E - NOCO PCMIU 306.1 29.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 785.7 72.0n. iNC SAL + wA-maCP PCnIU 857.6 27.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2301.0 72.8N. V,M&E OP COST-MOCD PMW 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 1643.5 100.00. OTH OP COSTS-IOCD PHlU 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 0.0 603.2 100.0P. CIV NIS - ALL IMP A6 TRG 490.5 05.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 84.6 15.0 0.0 0.0D. V,M&E-ALL INP AS TR6 146.2 23.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 424.5 60.7 47.2 7.6R. INC SAL+WAS-ALL IN AS 0.0 41.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 273.8 70.0 117.3 30.0S. V,t+E OP CST-ALL IMP TRG 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 592.3 70.0 254.0 30.0T. 9LDG MTCE-AUL IMP AS TRG 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.0 100.0 0.0 0.0U. TRG COSTS-ALL IMP AS TRG 1113.7 100.0 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 0.0V. DTH OP COSTS-ALL IMP TRN 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 196.7 100.0 0.0 0.0

Total Disbursement 46826.5 43.9 17976.8 16.9 12137.1 11.4 11184.3 10.5 10610.1 9.9 694.4 0.7 1593.3 1.5 5751.9 5.4

Values Scaled by 1000.0 7/1711989 16:49

0)4

w _~

- 57 -

Annex 1Table 4

KENYASECOND COFmEE IMPROVEMENT PROJECT

IDA Credit Estimated Schedule of Disbursements(USS Million)

IDA Project Quarter Ending At the end of DisbursementFiscal year Year Quarter Cumulative

1990 March 1990 0.8 0.8June 1990 0.1 0.9

_ 1

September 1990 0.1 1.0December 1990 0.1 1.1

1991 March 1991 0.9 2.0June 1991 1.1 3.1

_ 2September 1991 1.0 4.1December 1991 1.2 5.3

1992 March 1992 1.7 7.0June 1992 1.8 8.8

= 3September 1992 1.7 10.5December 1992 1.8 12.3

1993 March 1993 1.8 14.1June 1993 1.9 16.0

_ 4September 1993 1.5 17.5December 1993 1.6 19.1

1994 March 1994 2.1 21.2June 1994 2.1 23.3

_ 5September 1994 2.1 25.4December 1994 2.2 27.5

1995 March 1995 2.3 29.8June 1995 2.3 32.1

6September 1995 2.1 34.2December 1995 2.1 36.3

1996 March 1996 2.0 38.3June 1995 2.0 40.3

7September 1996 2.0 42.3December 1996 1.8 44.1

1997 March 199, 1.4 45.5June 1997 1.3 46.8

1/ Includes PPF disbursement

- 58 -Annex 1Table 5

KENYA

SECOND COFFEE IMPROVEMENT PROJECT

Allocation of IDA Credit Proceeds

AmountAllocated 2 of Expenditure

Category (US$ Million) to be Financed

1. Civil works 8.72 85?

2. Vehicles, machinery 12.18 100? of foreign expenditureand equipment for and 752 of local expenditurecooperative sectorcoffee factories

3. Vehicles, machinery 0.45 1002 of foreign expenditureand equipment for and 65? of local expendituresPCMU and training

4. Credit scheme for 10.90 902 of incremental credit tocoffee cherry new borrowers to December 31,deliveries 1991 decreasing by 15? per

annum thereafter to a minimumof 15?

5. Incremental farm inputs 8.08 1002

6. Technical support for 0.83 100?PCMU

7. Training 0.96 100?

8. Refunding of PPF 0.75

9. Unallocated 3.93

TOTAL 46.80

KENYASECkWS COFFEE INPROVEMENT PROJECT

Table 100. COOPERATIVE SECTORCOFFEE FACTORIES

Detailed Cost TableKSha (000.)

Quantity Unit Cat

1990 191 1992 1993 14 1995 1996 Total 1990 1*f 1m2-98 1994-66 us

I. DIVESTMT COSTS

A. TYPE 1 IMPROVEHTCONSTR,SITE VKS,LAB,MATER 10 10 10 10 15 1S 15 a 250.13 250.18 250.13 260.18 2S0.13

MACHINERY A EQUIPMENT 10 10 10 10 15 1S 15 aS 200.20 200.20 200.20 200.20 200.20

B. TYPE 2 IdPROVEYENTCONSTR,SITE KS,SUA,MATER 10 15 15 15 20 20 20 115 240.12 240.12 240.12 240.12 240.12

MACHDNERY A EqUIPMENT 10 1S 1s 1S 20 20 20 11S 660.05 560.86 U10.56 560.56 560.S6

1 TYPE 3 IMPROVEMENT CONSTR,SITE UKS,LA,MATER 5 5 10 10 15 15 15 75 490.24 490.24 480.24 440.24 490.24

MACHINERY AND EqUIPmENT 6 5 10 10 15 15 15 756 20.33 620.3 3120.03 320.U3 20.3

0. NEW COFFEE FACTORIESCONSTR,SITE VKS,LAB,MATER 6 10 10 10 10 10 10 65 1150.56 1150.58 1150.58 1140.56 1150.58

MACHIERY AND EqUIPMENT 6 10 10 10 10 10 10 e6 1452.20 1452.20 1452.20 1452.20 1452.20

I. RECUIRENT COSTS

A. DNC. PROCESSING COSTSINC. PROCESSINC COSTS 1726 8so0 6875 850 12000 15000 100 65860 0.26 0.25 0.25 0.25 0.25

nit Coast Scaled by 1000.0 7/20/1989 15:33

SECOND COFFEE DIROEE T PROJECTTable 100. COWPERATIVE SECTOR

COFFEE FACTORIESDetailed Cost Table

KShs(O00)

Bae Costs

1990 1991 19m 199S 1994 1996 1996 Total

I. INVESTMIENT COSTS

A. TYPE 1 IMPROVEINTCONSTR,SITE WKS,LAB,MATER 2501.8 2601.3 2501.8 2601.8 8751.9 3761.9 8751.9 21260.8

MACHINERY A EqUIPMENT 2002.0 2002.0 2002.0 2002.0 8008.0 8008.0 3008.0 17017.2-- -- - - -- - -- -- - -- -- -- -- --- -- -- -- -- _- -- -- ----- - -- -- - -- - - - - - - - -

Sub-Total 4508.3 4503.8 4503.3 4603.8 6764.9 6764.9 8764.9 38279.0B. TYPE 2 IMPROVEMENT

CONSTR,SITE WUS,LAB,MATER 2401.2 3601.8 3601.8 3601.8 4802.4 4802.4 4802.4 27614.0

MACHINERY & EqUIPMENT 608.6 8412.8 8412.8 8412.8 11217.0 11217.0 11217.0 64497.s-- -- - -- -_ - - -- - -- - _ - - - - -_-- - -- - -- _- - -- -- -_ - - -- -- - -- - - -- - - - - -- -- -- -

Sub-Total 8009.7 12014.6 12014.6 12014.6 16019.4 16019.4 16019.4 92111.8

C. TYPE 8 IWROVEMNTCONSTR,SITE UKS,LAB,MATER 2401.2 2401.2 4802.4 4e02.4 7203.6 7203.6 7203.6 86018.2

MACHDINERY AND EQUIPMENT 4104.2 4104.2 8208.3 8208.8 12812.5 12Wl2.6 12312.5 16U2.8- -- -- _- -- -- -- -- -- - __- -- - -- - - _- - - - - -- ----- - _--_ - - - -

Sub-Total 6606.4 650.4 18010.7 13010.7 19616.1 19516.1 19516.1 97580.5

D. NEW COFFEE FACTORIESCONSTR,SITE WKS,IUB,MATER 6762.9 11505.8 1150S.8 11505.8 11506.8 11506.8 11506.8 74787.9

MACHINERY AND EQUIPMENT 7261 0 14622.0 14522.0 14522.0 14622.0 *522.0 14522.0 94898.2_ ~~~- - - -- ___- - -- - -_- -- -- - -- __- -- - -- - -- -- - _- -- - -

Sub-Total 13013.9 26027.9 26027.9 26027.9 26027.9 26027.9 26027.9 169181.0

ta l INVESTMENT COSTS 32032.3 49061.1 55666.5 5556S. 68818.8 68318.3 68818.8 897161.S

I. RECURRENT COSTS

___________ ,* g, eA. INC. PROCESSING COSTS

INC. PROCESSING COSTS 422.7 9S5.7 1562.2 2168.8 2940.7 8676.9 4411.0 16187.1_________ -- - ---- _ - ________ --------- ---- -_____-----_- - ---------

otal RECURRENT COSTS 422.7 955.7 1562.2 2168.8 2940.7 3675.9 4411.0 16137.1= ===== = = _

Total 32466.0 60006.8 67118.7 67726.2 71269.0 71994.2 72729.4 418288.4

- Values scaled by 1000.0 7/20/1999 15:33

SECOND COFFEE IYPROVEMENT PROJECTTable 100. COOPERATIVE SECTOR

COFFEE FACTORIESDetailed Cost Table

KSh. (000)

ease Cost In US8(000s)

1990 1991 1992 1993 1994 1995 1996 Total

I. "?WLSTMENT COSTS

A. TYPE A IMPROVEINTCONSTR,SITE WKS,LAB,MATER 133.0 133.0 133.0 133.0 199.4 199.4 199.4 1130.1

MACHINERY A EQUIPMENT 106.4 106.4 106.4 106.4 159.6 169.6 159.6 904.5-- -- - - -- - -- - -- -- - -- -- - -- - - - -- -- - -- - - - -- _- - --- - - -----

Sub-Total 239.4 239.4 239.4 239.4 359.1 359.1 359.1 2034.6

B. TYPE 2 IMPROVEUENTCONSTR,SITE WKS,LAB,MATER 127.6 191.6 191.5 191.6 256.3 255.3 266.3 1487.3

MACHINERY A EQUIPMENT 299.1 447.2 447.2 447.2 596.2 696.2 696.2 3426.3- - - -- ---- - _- -- -- --- - - -- - -- - -- - - -- - - -- - -- - - _

Sub-Total 425.7 633.6 838.6 686.6 861.6 861.6 851.5 46W.1 C. TYPE 3 IMPROVEYENT oT

CONSTR,SITE WKS,LAB,MATER 127.6 127.6 266.3 255.3 382.9 382.9 382.9 1914.5MACHINERY AND EquIPMENT 218.2 216.2 436.3 436.3 854.6 654.6 654.5 3272.3

- -- -- - -- - - - - -- - -- -- - -- - - -- - -- - -- - - -- - -- - -- - -----

Sub-Total 345.8 346.0 691.6 691.6 1037.4 1037.4 1037.4 6186.6

D. NEW COFFEE FACTORIESCONSTR,SITE VKS,LAB,MATER 305.8 611.6 611.6 611.6 611.6 611.6 611.6 3976.3MACHINERY AND EQuIPMENT 386.0 771.9 771.9 771.9 771.9 771.9 771.9 6017.4

_- - - - -- -- _- - - - -- -_- - -- - - -- - -- - -- -- - -- - ------ --

Sub-Total 691.7 1383.5 1383.5 1383. 1383.6 1363.6 1383.6 8992.6

- ____________---_-- ---- - - --- ----- ------- qs--

otal INVESTMENT COSTS 1702.6 2607.3 2963.0 2963.0 a861.4 3631.4 3631.4 21110.1

2. RECURRENT COSTS

A. INC. PROCESSING COSTSINC. PROCESSDNC COSTS 22.5 60.8 63.0 115.3 156.3 195.4 234.5 857.7

~~~~~- - - - - _- - - - - - __ _

otal RECURRENT COSTS 22.5 50.8 83.0 115.3 1S6.3 196.4 234.6 857.7- - - - _ ca_

Total 1726.1 2638.1 3036.1 306s 3 3787.7 3882.8 3886.8 21967.9

- Values scaled by 1000.0 7/20/1989 16:34

KENYASECOND COFFEE IRlltOVEMENT PROJECT

Table 120. COOPERATIVE SECTORFARM INPUTS

Detatled Cost TableKShm(000a)

Quantity

Unit 1990 1991 1m 1993 1994 1995 1996 Total

I. RECURRENT COSTS

A. EXISTING COFFEE VARIETIESFERTILIZER - CAN NO OF TONNES 276 847 820 894 639 657 608 4641FERTILIZER - 20:20:0 NO OF TONNES 131 328 230 303 230 74 74 1370FOLIAR FEED HECTALITRES 0 0 92 0 62 0 0 164FUNGICIDE - COPPER SULPH NO OF TONNES 0 180 0 0 0 0 0 180FUNGICIDE, CBD CONTROL NO OF TONNES 0 e6 137 0 169 0 0 381INSECTICIDE HECTALITRES 0 82 0 0 0 31 0 113

B. NEW VARIETIES

FERTILIZER CAN NO OF TONNES 144 164 190 222 228 244 243 1436FERTILIZER - 20:20:0 NO OF TONNES 68 71 77 86 89 83 85 667

FOLIAR FEED HECTALITRES 1 1 4 5 7 4 4 26INSECTICIOE NECTALITRES 0 2 3 3 2 4 2 17TOOLS HECTARES 500 1000 1600 2000 2600 3000 3600 1'000

0

4'.9

SECOND COFFEE IMPROVEENT PROJECTTable 120. COOPERATIVE SECTOR

FARM INPUTSDotailed Cost Table

KSho(O00.)

Unit Cost

1990 1991 1992 1993 1994 1996 1996

I. RECURRENT COSTS

A. EXISTING COFFEE VARIETIESFERTILIZER - CAN NO OF TONNES 3.36 3.38 3.3 3.36 3.36 3.36 3.36FERTILIZER - 20:20:0 NO OF TONNES 4.19 4.19 4.19 4.19 4.19 4.19 4.19

FOLIAR FEED HECTALITRES 0.00 0.00 28.38 0.00 28.38 0.00 0.00

FUNGICIDE - COPPER SULPk NO OF TONNES 0.00 48.52 0.00 0.00 0.00 0.00 0.00

FUNGICIDE, C8D CONTROL NO OF TONNES 0.00 203.28 203.28 0.00 203.28 0.00 0.00

INSECTICIDE HECTALITRES 0.00 132.60 0.00 0.00 0.00 132.50 0.00

8. NEW VARIETIESFERTILIZER CAN NO OF TONNES 3.36 3.36 3.36 3.38 3.36 3.36 3.36

FERTILIZER - 20:20:0 NO OF TONNES 4.19 4.19 4.19 4.19 4.19 4.19 4.19

FOLIAR FEED HECTALITRES 28.38 kR.S 28.38 28.38 28.38 28.38 28.38

INSECTICIDE HECTALITRES 132.50 132.50 182.60 132.50 132.50 132.50 132.50TOOLS HECTARES 0.49 0.49 0.49 0.49 0.49 0.49 0.49

nit Costs Scaled by 1000.0 7/20/1989 15:34

oo0

'1.1

SECOND COFFEE IWROVEMENT PROJECTTable 120. COOPERATIVE SECTOR

FARM DPUTSDetailed Cost Table

KShs(000.)

Base Costs

1990 1991 1992 1993 1994 1995 1996 Total

I. RECURRENT COSTS_______________

A. EXISTING COFFEE VARIETIESFERTILIZER - CAN 928.7 2843.9 275.2 3001.7 2145.6 1870.2 1705.7 16248.8

FERTILIZER - 20:20:0 548.3 1372.8 962.6 1268.2 962.6 309.7 309.7 5734.0

FOLIAR FEED 0.0 0.0 2610.7 0.0 1769.4 0.0 0.0 4370.1

FUNGICIDE - COPPER SULPH 0.0 s733.3 0.0 0.0 0.0 0.0 0.0 8783.3

FUNGICIDE, COD CONTROL 0.0 13213.0 27848.8 0.0 32320.9 0.0 0.0 73382.7

INSECTICIDE 0.0 10865.0 0.0 0.0 0.0 4107.5 0.0 14972.5_-- -- - -- _- -- -- -- __- -- -- -- -- - -- -- -- -- - -- - _-- -- -- _- - ----- - -- -- __- - -- -----

Sub-Total 1476.0 37028.0 34175.4 4289.9 37188.6 8287.4 2015.4 122439.5

B. NEW VARIETIESFERTILIZER CAN 483.6 550.6 837.9 746.4 76e.6 819.3 816.9 4818.2

FERTILIZER - 20:20:0 278.2 297.2 322.3 359.9 372.5 347.4 365.8 2331.3

FOLIAR FEED 31.2 31.2 124.9 147.8 193.0 105.0 105.0 737.8

INSECTICIDE 23.9 291.5 331.3 460.6 278.3 589.8 318.0 2263.1

TOOLS 245.0 490.1 735.1 980.2 1226.2 1470.3 1715.3 6861.4_-- -- -- - -- -- -- - - -_-- - -- -_- - -- -- -- _-- - -- - _-- -- - -- -_- -- ----- -- _-- -- - -- -----

Sub-Total 1059.8 1680.6 2151.5 2883.6 2834.5 3311.7 3310.0 17011.7_-- - -- - -- _-- -- -- -- _- -- -- -- -- _- -- -- -- -- _- -- -- ---- -- __---_- -- -- -- -- _- -- -- -- --

otal RECURRENT COSTS 2634.8 38888.6 38326.9 6953.5 40023.0 9599.1 6326.4 139461.2~~~~~= = =_ =

To*..l 2534.8 38888.6 36328.9 6953.6 40023.0 9599.1 5326.4 189451.2 .d *

- Values scalod by 1000.0 7/20/1989 15:34 K

04

SECOND COFFEE IMPROVEMENT PROJECTTable 120. COOPERATIVE SECTOR

FARM INPUTSDetailed Cost Tabl-

KShs(OOO)

Base Costs in USS(0008)

1990 1991 1992 1993 1994 1905 1096 Total________________________________________________________________

I. RECURRENT COSTS

A. EXISTING COFFEE VARIETIESFERTILIZER - CAN 49.3 151.2 148.3 159.6 114.0 99.4 90.7 810.4

FERTILIZER - 20:20:0 29.1 73.0 61.2 67.4 51.2 16.5 16.6 304.8

FOLIAR FEED 0.0 0.0 138.8 0.0 93.5 0.0 0.0 232.3

FUNGICIDE - COPPER SULPH 0.0 484.2 0.0 0.0 0.0 0.0 0.0 464.2

FUNGICIDE, CBD CONTROL 0.0 702.3 1480.3 0.0 1718.0 0.0 0.0 3900.0

INSECTICIDE 0.0 577.S 0.0 0.0 0.0 218.3 0.0 795.8

_ -- - --- - - -_---- -_- - - - -_- -- - -- -- -- - -- ----- - - -- - -- -- -- -- -

Sub-Total 78.4 1968.2 1816.6 227.0 1978.7 334.2 107.1 608.1 un

B. NEW VARIETIESFERTILIZER CAN 26.7 29.3 33.9 39.6 40.7 43.6 43.4 256.1

FERTILIZER - 20:20:0 14.7 15.8 17.1 19.1 19.8 18.5 18.9 123.9

FOLIAR FEED 1.7 1.7 6.6 7.8 10.3 5.6 5.6 39.2

INSECTICIDE 1.3 15.5 17.6 23.9 14.8 30.3 16.9 120.3

TOOLS 13.0 26.1 39.1 52.1 65.1 78.2 91.2 364.7_- -- - -- _- - - -_-- -- -- _- -- - - -_-- - - - -_-- -- -- _- -- ----- ----

Sub-Total 56.3 88.3 114.4 142.6 160.7 176.0 175.9 904.2_-- -- -- _- -- - - -_-- -- -- _- -- -- -- - -- -- -- - -- -_- - - -_-- - ---- ----

otal RECURRENT COSTS 134.7 2056.4 1930.9 369.6 2127.4 610.2 283.1 7412.4

Totel 134.7 206e.4 1930.9 369.6 2127.4 510.2 283.1 7412.4

- Values scaled by 1000.0 7/20/1989 16:36

KENYASECOND COFFEE IPROVEMENT PROJECT

Table 130. COOPERATIVE SECTORIMPROVED PAYMENTS SYSTEM

D.t.lled Cost TableKShs(OOO)

Quantity Unit Cost

1990 1"91 1m 9S92 1 1994 1995 1996 Totsl 1990-96

I. INYESTMENT COSTS

A. IWPROVED PAYMENTS SYSTEMESTAB. REVOLVING F1ND 663088 674612 693067 724591 766945 789299 823456 5125048 0.00

'nit Costs Scaled by 1000.0 7/20/1989 15:36

I0 OF

ft x03 P

D D~

SECOND COFFEE IIPROVEMEIT PROJECT

Tablo 130. COOPERATIVE SECTOR

IMPROVED PAYMENTS SYSTEII

DOtaliod Cost Table

KShe (000.)

Baso Cost

1990 1991 19m 199t 1994 1996 1996 Total

I. INVESTMENT COSTS________________

A. IMPROVED PAYMENTS SYSTEM

ESTAS. REVOLVING FUND 66308.8 07461.2 69305.7 72469.1 75694.5 78929.9 82346.8 612604.8

_______ --- ___ --------- --------- --------- --------- ~--------- --------- -----

otal INVESTMENT COSTS 88308.8 67461.2 69306.7 72459.1 75894.6 78929.9 82346.6 S62604.8

==_ _ _:w= t = = == =a . ^ .,mB.

Total 86308.8 67461.2 69306.7 724S9.1 76094.5 78929.9 82346.6 612604.8

- Values scaled by 1000.0 7/20/1989 15:4S

o X

0

SECOND COFFEE IMPROVEMENT PROJECTTable 180. COOPERATIVE SECTOR

IMPROVED PAYMENTS SYSTEMDetailed Cost Table

KSh.(O000)

so** Cos" In USs(OOO*)

1990 1991 1992 1993 1994 1996 1996 Total

I. INVESTMENT COSTS

A. IMPROVED PAYMENTS SYSTEMESTAB. REVOLVING FUND 3624.6 3586.6 3883.9 3961.5 4023.5 4195.4 4377.0 27241.6

otal INVESTMENT COSTS 3624.6 3685.8 3683.9 3051.6 4023.5 4195.4 4377.0 27241.6

Total 3524.6 3686.8 3683.9 3851.6 4023.6 4195.4 4377.0 27241.6

- Values scaled by 1000.0 7/20/1989 15:36

OQ W

o 0

SECOND COFFEE IMPROVEMTff PROJECTTable 140. ESTATE SECTOR

COFFEE FACTORIES FOR SMALL ESTATESDetailed Cost Table

KShst(000.)

Quantity Unit Cott so" Coat

1990 191 92-94 1996 19906 Total 1990 1991-96 1990 1991 1992-94 191i 1906 Total

I. IIVESTMOfT COSTS

A. 4 HA MON-IRRIGATEDCIVIL WKS,MATER,CNSTR,LAS 7 7 7 7 S 50 60.03 60.03 420.2 420.2 420.2 420.2 400.2 3001.6MACHINERY AND EqIPUMENT 7 7 7 7 8 60 96.10 96.10 656.7 6O6.7 665.7 OO6.7 760.8 4754.3

Sub-Total 1086.9 1086.9 1056.9 1065.9 1241.0 77ss.3B. 4 HA IRRIGATED

CIVIL 1KS,MATER,CNSTR,LAB 7 7 7 7 8 50 45.02 45.02 316.2 815.2 315.2 315.2 360.2 2251.1MACHINERY AND EqUIPMENT 7 7 7 7 8 s0 126.19 125.19 *76.3 076.3 675.3 876.8 1001.6 6259.5

Sub-Total 1191.5 1191.5 1191.5 1191.5 1361.7 6510.6C. 10 HA NON-IRRIGATED

CIVIL 1KS,MATER,CNSTR,LA9 5 5 6 6 6 40 77.04 77.04 335.2 386.2 482.2 482.2 462.2 3091.6MACHINERY AND EQUIPMENT 5 6 6 6 6 40 138.21 138.21 091.0 *91.0 629.3 329.3 329.3 5520.4

- - - - - -- - - -- - -- - -- -- - -- - -- - - - -- - - - - -- -- -- - - -

Sub-Total 1076.2 1070.2 1291.5 121.5 1291.5 9009.9D. 1^ HA IRRICATED

CIVIL UKS,MATER,CNSTR,LAB 6 6 e e 40 70.04 70.04 350.2 850.2 420.2 420.2 420.2 2J01.4MACHINERY AND EQUIPMENT 6 5 a a 6 40 190.29 190.29 951.4 061.4 1141.7 1141.7 1141.7 7611.6

- - --- -- _-- - -- -- _- -- - -- - -- -- - -- -- -- - -- _-- -- -- -

Sub-Total 1301.6 1801.6 1561.9 1561.9 1561.9 10413.0E. 20 HA IRRIGATED

CIVIL 1KS,MATER,CNSIR,LAB 4 4 4 6 S so 132.07 132.07 526.3 52.8 528.8 66.03 660.3 8062.0MACHINERY AND EqUDJPENT 4 4 4 6 5 30 438.67 438.67 17U4.7 17U4.7 1764.7 2103.8 2190.8 18160.0 ' '

Sub-Total 222.9 2232.9 222.9 2M5J.7 2038.7 17122.0F. 30 HA IRRIGATED O

CIVIL KS,MATER,CNSTR, LAB 2 3 8 8 8 20 853.16 358.13 706.4 1059.5 1069.5 1069.5 1019.5 7060.6 "9MACHINERY AND EquIPMEMT 2 3 a 3 3 20 6W e.06 693.06 1806.1 2079.2 2079.2 2079.2 071.2 136161.0

Sub-Total 2002.5 8133.7 813.7 813s.7 318.7 1024.6

ota I INVESTNENT COSTS 900O.6 10076.9 10652.4 11128.2 11448.5 73886.4mota} -0 so . 12.m m m INN OW

Total 90080.6 10076.0 10652.4 11128.2 11443.5 7831186.4

SECON COfFEE IDPROVEMENT PROJECTTable 140. ESTATE SECTOt

COFFEE FACTORIES FOR SUALL ESTATESDate lled Coet Tablo

ESha OOO*)

Base Coats in USI(00 .)

1990 iw9 1992-94 19K6 1906 Total

I. INV3ESTMT COSTS

A. 4 HA NOK-IRRIGATEDCIVIL OKS,MATEB,4STR,LAB 22.3 22.8 22.3 22.J 25.5 169.5MACHINERY AND EQUDPMENT 36.4 36.4 35.4 36.4 40.4 262.7

Sub-Total 57.7 57.7 67.7 67.7 66.0 412.8B. 4 HA IRRICATED

CIVIL 1KS,MATER,CNSTR,U8 16.8 16.0 16.6 16.8 19.1 119.7MACHINERY AND EWJIPMENT 46.6 48.6 46.8 46.6 58.2 382.7

Sub-Total 63.8 63.3 6.3 63.3 72.4 452.4C. 10 HA NON-IRRICATED

CIVIL UMS,N.TBRCNSTR.LA 20.5 20.5 24.6 24.6 24.6 163.6 °MACHINERY AND EqUIPMENT 66.7 68.7 44.1 44.1 44.1 2M3.9

Sub-Total 57.2 67.2 66.6 61.6 68.0 467.70. 10 HA IRRIGATED

CIVIL S,VUATER,CNSR,l.A8 16.6 1U.6 22.8 22.3 22.3 148.9MACHNERY AND EQUDBMENT 50.6 60.6 60.7 60.7 60.7 404.6

Sub-Total 69.2 69.2 68.0 83.0 03.0 655.6E. 20 HA IRRIGATED

CIVL UKS,UATEBt,CNST,LAB 26.1 26.1 28.1 8.1 36.1 210.6MACHINERY AND EUVIPMEBT 93.8 98.3 93.8 116.6 116.0 699.6

Sub-Total 121.3 121.8 121.8 151.7 151.7 910.1 EF. 80 HA IRRIGATED i I CIVIL VXS,MATER,CMSMR,AB 37.5 56.3 56.8 56.8 56.8 375.5 '1w'MACHINERY AND EQJIPUENT 73.7 110.5 110.5 110.5 110.5 786.8 a

Sub-Total 111.2 166.6 166.6 160.6 166.8 1112.2

otal INVESTMENT COSTS 460.0 536.6 560.9 591.2 606.5 3880.1

Total 460.0 358.6 560.9 591.2 60.6 8806.1

- Values scaled by 1000.0 7/20/10809 15:J

KENYASECOND COFFEE IMPROYEMENT PROJECT

Table 150. FSTATE SECTORFARM INPUTS FOR SMALL ESTATES

Detailed Cost TableKShc(OOS)

Quantity Unit Cost

Unit 1990 199 11m 1998 1904 1996 1996 Tote l 1990 lCi 19m 1993 1994 199S-6

I. RECURRENT COSTS

A. ALL ESTATESFERTILIZER - CAN NO OF TONNES 2 13 25 38 50 62 70 260 3.36 8.36 3.36 3.38 3.86 3.36

FERTILIZER 20:20:0 NO OF TONNES 6 1S 25 34 45 46 45 216 4.19 4.19 4.19 4.19 4.19 4.19

FUNGICIDES - COPPER SULFNO OF TONNES 0 3 S 3 3 8 3 20 48.62 48.52 48.52 48.52 46.52 48.52

FUNGICIDE - CBD CONTROL NO OF TONNES 1 1 5 3 7 4 4 2S 203.28 203.28 208.28 203.28 203.23 203.26

HERsICIDES/PESTICIDES NECTALITRES 0 1 0 0 0 0 0 2 0.00 101.59 101.59 101.59 101.59 101.59

nit Costs Scaled by 1000.0 7/20/1989 15:37

i11

0 0

SECOND COFFEE IMPROVELENT PROJECTTable 150. ESTATE SECTOR

FARM INPUTS FOR SMALL ESTATESDetailed Cost Table

KSh*(OOOs)

Base Costs

1990 1991 1992 1993 1994 1995 1996 Tot I

1. RECURRENT COSTS

A. ALL ESTATESFERTILIZER - CAN 6.7 43.6 83.9 127.6 167.9 208.2 235.0 873.0FERTILIZER 20:20:0 26.1 82.8 104.6 142.3 188.3 192.5 188.3 904.0FUNGICIDES - COPPER SULF 19.4 146.8 242.6 146.8 146.6 146.6 145.6 989.8FUNGICIDE - CBD CONTROL 203.3 203.3 1016.4 809.8 1422.9 813.1 813.1 5081.9HERBICIOES/PESTICIDES 0.0 60.8 30.5 30.6 30.5 30.6 30.6 203.2

Sub-Total 254.6 506.1 1478.0 1056.8 1956.2 1389.8 1412.5 8051.9

otal RECURRENT COSTS 254.5 506.1 1478.0 1056.8 1955.2 1389.8 1412.5 8051.9

Total 254.5 S0.1 1478.0 1055.8 1955.2 1389.8 1412.5 8051.9

- Values scaled by 1000.0 7/20/1989 15:37

wRS

SECON COFFEE IMPRONELENT PROJECTTabl- 150. ESTATE SECTOR

FARM INPUTS FOR SMALL ESTATESDatetlod Coat Tablo

KShs(OOOs)

Base Costs in USS(OOO)

1990 1991 1992 1993 1994 1996 1996 Total

I. RECURRENT COSTS

A. ALL ESTATESFERTILIZER - CAN 0.4 2.3 4.5 6.8 8.9 11.1 12.6 46.4

FERTILIZER 20:20:0 1.3 3.3 5.6 7.6 10.0 10.2 10.0 48.1

rONCICIDES - COPPER SULF 1.0 7.7 12.9 7.7 7.7 7.7 7.7 62.6

FUNGICIDE - CBO CONTROL 10.8 10.8 64.0 32.4 75.e 43.2 43.2 270.1

HERBICIDES/PESTICIDES 0.0 2.7 1.8 1.6 1.8 1.6 1.6 10.8

Sub-Total 13.6 28.9 78.8 68.1 103.9 73.9 75.1 428.0

otal RECURRENT COSTS 13.5 26.9 78.6 56.1 103.9 73.9 76.1 428.0

Total 13.5 26.9 78.6 56.1 103.9 73.9 76.1 428.0

- Values scaled by 1000.0 7/20/1989 15:37

001

KENASECON COFFEE IWROVEENT PROJECT

Table 160. KPCUCOFFEE MILL

Detalled Codt TableKSh (OOG)

Quantity Unit Cost

Unit 1990 1991 1992 1993 1994-90 Total 1990 1991 1992 199l-96

I. INVESTLENT COSTS

A. MILLBUILDINGS LtJW SUM 0 0 0 0 0 1 78626.60 76528.60 76526.60 0.00MACHINERY AND EquIPmENTLuW SUM 0 1 0 0 0 1 0.00 263387.62 263373.62 0.00

I. RECURRENT COSTS

A. INC PROCESSING COSTSINC MILLING COSTS NO OF TGNNES 0 0 5000 30000 6000 60000 0.00 0.00 1.00 1.00

nit Cost* Scaled by 1000.0 7/20/1989 16:37

Io,4

. ~ ~ ~ ~ ~~~~~a.

SECOND COFFEE IMPROVEMENT PROJECTTable 160. KPCU

COFFEE MILLDetailed Cost Table

KSho(OO0m)

Ds0e Cota Base Cots la US(000)

1990 199 1 199 1994-96 Total 1090 1991 1990 19 1994-96 TOal

I. INVESTMENT COSTS

A. MILLBUILDINGS 81410.6 31410.6 15706.3 0.0 0.0 78520.6 1669.6 1669.6 834.0 0.0 0.0 4174.0MACHINERY AND EQUIPMENT 0.0 1S2024.9 101349.5 0.0 0.0 263373.8 0.0 8080.7 6537.1 0.0 0.0 18467.6

Sub-Total 81420.6 183434.9 117054.8 0.0 0.0 331900.3 1669.6 9760.$ 6221.9 0.0 0.0 17641.6

otal INVESTMENT COSTS 31410.6 183434.9 117064.8 0.0 0.0 331900.3 1669.6 9750.3 6221.9 0.0 0.0 17641.8

I. RECURRENT COSTS

A. INC PROCESSING COSTSINC MILLING COSTS 0.0 0.0 6001.7 30010.1 6001.7 S0016.9 0.0 0.0 265.9 1596.2 266.9 2668.6

otal RECURRENT COSTS 0.0 0.0 S001.7 30010.1 5001.7 50016.9 0.0 0.0 266.9 1696.2 266.9 2656.6_=e== == ==== == == u* _=:== mi

Total 31410.8 183434.9 122066.6 30010.1 6001.7 381917.2 1660.6 9760.3 6487.0 1596.2 265.9 20300.4

- Valus scaled by 1000.0 7/20/1989 16:37

0 ~

:Ecme CCFFE IMIOVEIENT PROJECTTable 170. MDCO

PRoJECT COOI tNATION MANACIOU T UNIT0eta led Cost Table

quantity

Unlt 1090 19P1 1002 10 1994 190S-96 Total

INVESTMENT COSTS

A. VEH ,MACHLEQU-PCMU (ALL)PICKUPS NUMBER 7 8 a 0 0 0 18

OFFICE EQUIPMENT LUMP SUM 1 0 0 0 0 0 1

MOTORCYCLES NUMBER 10 1S 1S 5 0 0 4S

B. VEN,MACHAEQUIPT-TMSUPICKUPS NUYBER 0 10 iS 0 0 0 2S

OFFICE EQUIPMENT LUP SUM 1 0 0 0 0 0 1

RECURRENT COSTS_______________

A. PERSONEL COSTS-PCW (ALL)TECHNICAL ADVISORS NO OF STAFF YEARS 1 2 2 2 1 0 8

SALARIES A ALLOWANCES LUWP SUM 1 1 1 1 1 1 7

B. PcRSONNEL COSTS-TMSUSALARIES AND ALLOWANCES LWP SUM 0 1 1 1 1 0 4

C. VEN OPER COSTS-PCMU (ALL)FUEL ANlD LUBRICANTS LITRES 13400 425S0 56075 72400 72000 72900 412125

SPARE PARTS LWP SUM 4 13 20 22 22 22 126

0. VEH OPERC COSTS-TMSUFUEL AND LUBRICANTS LITRES 0 17760 62126 60760 88750 bC760 434S76

SPARE PARTS LUMP SUM 0 S le 25 26 25 122

E. OFFICE EXPENSES-PCMU(ALL) " OwOFFICE A ADMIN EXPENSES LUMP SUM 1 1 1 1 1 1 7

I-,'

OFFICE & AWIN EXPEiSES LUW SUM 0 1 1 1 1 0 4 >

/20/1989 15st3

SECOND COFFEE TrOEMN EVcT

Tablo 170. MOCoPRIOJECT COPR DD4TIA MANAGOE WIT

Deetal d Cot Tablo

Unit Coat

1990 1991 1992 1998 1994 199696

r. DIVESTET COSTS

A. VEN,MAOCNbEQPC3U (ALL)PICKCPS a MR 850.39 360.39 360.39 0.00 0.00 0.00OFFICE EQUIPMENT LAW SUM 200.00 200.00 0.00 0.00 0.00 0.00MOTORCYCLES MAER 50.00 50.00 60.00 60.00 0.00 0.00

S. VEH,MACHAEQUIPT-TMSUPICKUPS NWMER 0.00 860.39 360.39 0.00 0.00 0.00OFFICE EQUIPMENT LWP SUM 180.00 0.00 0.00 0.00 0.00 0.00

'.1

I. RECURRENT COSTS

A. PERSCNEL COSTS-PCMU (ALL)TEC1INICAL ADVISORS NO OF STAFF YEARS 2256.33 22u6.33 2256.33 225.33 2256.33 0.00SALARIES & ALLOWANCES LAW SUM 3000.00 3000.00 3000.00 3000.00 3000.00 8000.00

S. PERSONNEL COSTS-TMSUSAARIES All AU NCES LWP SUM 0.00 8420.00 8420.00 8420.00 8420.00 0.00

C. VEN PER COSTS-PCWU (ALL)FUEL AND LUCRICANTS LITE 0.01 0.01 0.01 0.01 0.01 0.01SPARE PARTS LWP SUM 67.67 67.67 67.67 67.67 67.67 67.67

Rtr0. YEN WERO COSTS-TMSU

FUEL AND LRICANS LITRES 0.00 0.01 0.01 0.01 0.01 0.01SPARE PARTS LUP SUM 0.00 67.07 67.67 67.67 67.67 67.07

E. OFFICE EXPENSES-PCWU(ALL)OFFICE A ADMIN EXPENSES LUP SUM 1100.00 1100.00 1100.00 1100.00 1100.00 1100.00

F. OFFICE EXNES-TMSU

SECeO COFFE IMwtOlEvIIT PROJECTTable 170. MOMC

PROtECT COORDINATION MANAGEMENT WDeta led Cost Table

ItSh,(000.)

ease Coat

1o 199 1m 199 1994 196-9O Tots I

INVESTMENT COSTS

A. VEN.MACMEQU-PCWM (ALL)PIowS 2462.7 2S03.1 1051.2 0.0 0.0 0.0 8307.0OFFICE EWJIPMENT 150.0 60.0 0.0 0.0 0.0 0.0 200.0MOTORCYCLES 600.0 760.0 760.0 250.0 0.0 0.0 2260.0

Sub-Total 302.7 30a3.1 1601.2 250.0 0.0 0.0 8767.0S. VEH,MACH EQUIPT-ThSU

PICKUPS 0.0 3603.9 5266.8 0.0 0.0 0.0 8759.7OFFICE E4UIPMENT 180.0 0.0 0.0 0.0 0.0 0.0 1I0.0

Sub-Total 180.0 3603.9 6266.8 0.0 0.0 0.0 6939.7 0

tal INVESTMENT COSTS 3282.7 7107.0 7057.0 260.0 0.0 0.0 17890.8

RECURRENT COSTS-- -------------

A. PERSONEL COSTS-PCWU (ALL)tECHNICAL ADVISORS 2258.3 4612.7 4612.7 4612.7 2256.3 0.0 18600.6SALARIES A ALLOWANCES 3000.0 3000.0 3000.0 3000.0 3000.0 3000.0 21000.0

Sub-Total 5258.3 7612.7 7612.7 7612.7 5258.3 3000.0 39060.8S. PERSONNEL COSTS-TMSU

SALARIES AND ALLOWANCES 0.0 1710.0 3420.0 3420.0 3420.0 0.0 11970.0C. VEH OPER COSTS-PCW* (ALL)

FUEL AND LUBRICANTS 129.8 412.2 630.3 701.3 708.1 708.1 3092.0SPARE PARTS 210.7 879.6 1363.3 1488.8 1488.8 1488.8 8468.2

Sub-Total 400.6 1291.8 1988.8 2189.9 2194.8 2194.8 12460.2D. VEH OPERC COSTS-TMSU

FUEL AND LUBRICANTS 0.0 171.9 601.8 869.7 8s9.7 869.7 4212.4 D° c

SPARE P#RTS 0.0 338.3 1184.1 1891.8 1891.8 1891.8 8289.0 X

Sub-Total 0.0 610.3 1786.9 2s6k.3 2661.8 2651.3 12601.4 0

E. OFFICE EXPENSES-PCMU(ALL)OFFICE A ADMIN EXPENSES 1100.0 1100.0 1100.0 1100.0 1100.0 1100.0 7700.0 4-

F. OFFICE EVENSES-TMSU

.1 RECUIRENT COSTS 876.8 1234.7 1622.2 17223.9 14972.4 684.1 65292.2ini i i - -

Total 10089.5 191)1.7 2309.2 17473.9 14972.4 86e4.1 10208.9

Volug maled by 1000.0 7/20/1989 15:36

S#C LPI T,Rlt9 PrioJECT

TObl 170. OMW

P*ECT IC DltAlTIUN MAKlOW WlT

Ibea l d Cost Tabloash(OWDO)

Beas Coats In US(OOOa)

1990 1991 1m 1993 1994 1996- Total

IWESThEN. tOSTS

A. VEh,VACNEqq-PCmu (ALL)

PICIKOS 130.4 149.0 6s.9 0.0 0.0 0.0 385.2

OFFICE EUIPMENT C.0 2.7 0.0 0.0 0.0 0.0 10.8

MOTORCYCLES 28.8 39.9 39.9 13.3 0.0 0.0 119.8

-- - - -- -- - -- - -- -- --- -- -- --- -- -- --- -- -- --- - - -- --

Sub-Total 164.9 191.6 9s.7 13.3 0.0 0.0 466.5

S. VEH,MACHAEqUIpT-TgSUPICKUPS

0.0 186.2 279.4 0.0 0.0 0.0 465.8

OFFICE EqUIPMENT 9.8 0.0 0.0 0.0 0.0 0.0 9.6 8

---- -- -- - -- -- -- - -- - -- - -- -- -- - -- -- -- - -- -- -- - --

14

Sub-Total 9.8 188.2 279.4 0.0 0.0 0.0 476.2

-- - - -- -- -- --- -- -- --- -- -- --- -- -- --- -- -- --- -- -- - --

a1 INVESTMENT COSTS 174.5 377.8 375.1 13.3 0.0 0.0 940.7

RECURRENT COSTS_______________

A. PERSCNEL COSTS-PCIMU (ALL)

TECHNtCAL AOVISORS 119.9 239.9 239.0 239.9 119.9 0.0 9s9.5

SALARIES A ALLOWANCES 169.5 169.S 169.5 169.6 169.5 169.S 1116.2

---- --- ---- --- -_- - - - -- ---- - - -_-- - -- - -- -- -- ---

Sub-Total 279.4 399.3 399.3 899.3 279.4 159.5 2076.7

8. PERSONNEL COSTS-TIMSUSALARIES AM ALLOWANCES 0.0 90.9 101. 181.8 le1.0 0.0 6uo.3

C. VEN OPER COSTS-PCMU (ALL)

FUEL AC LUBRICANTS 8.9 21.9 32.5 37.3 37.5 37.5 212.2

SPARE PARTS 14.4 48.8 71.9 79.1 79.1 79.1 449.8

_-- -- - -- -- -- - -- -- -- - -- - - - - - - - _

Sub-Total 21.3 68.7 106.4 116.4 116.7 111.7 C1.8

D. VEH CPERC COSTS-TMSU

FUEL AND LUBRICANTS 0.0 9.1 32.0 46.7 45.7 46.T 223.9

t

SPARE PARtS 0.0 18.0 82.9 89.9 89.9 89.9 440.0

(oX

- - ^- -- -- -- --- ------ ----------------

Sub-Total 0.0 27.1 94.9 186.8 186.8 135.8 684.5

0

E. OFSCE EXPENSE-PCI,ALL)OFFICE & AOMIN EXPENSS 58.6 56.6 68.6 58.6 68.6 68.5 409.3

F. OFFICE EXPENSES-TUSU

t RENCU1RRT COStS 659.1 850.S 1S6.9 916.5 79S.J 470.2 4SU.6

Total 6U.0 1036.8 1289.0 92.0 706.8 470.2 6474.1

VOlus acolad by 1000.0 7/20/190 1*3ss

- 80 -

icom caME I_ WwiNi PS@ACT Annex Table 130. ALL POJICT tIVU tTI ACIES Tabl* 13

1 1 Page 1 of 4bOl led Co T l-

santity

Unit 130 it im 1son 1304 1l96-30 Total

1. INeSTUDIT COSTS

A. BUILDINCS-C-f ms FrL4NHODSTE 0 0 0 0 1LeC1*E HALL NUER 1 0 0 0 0 0 1STAFF FLATS NUMER 4 0 0 0 0 0 4

B. VENICLES,MAOMINERY&WIPTMOMO-PICKUP 4D NUMBER 2 0 C 0 1 0 aMOA-STATION WAGON 4WD NUMBER is O 0 0 0 0 ISUOA - TRAININC EqUIPMENT LUW sU I 0 0 0 0 0 1CRF - MINIBUS NUER I 0 0 0 0 0 1eRF - STATION WAGON 430 NUBEER I 0 0 0 0 0 1CRF - TEACHING AIDS UP SUM 0 0 0 0 0 1

I. RECURRENT COSTS

A. PERSONEL COSTSMMOCOGC TRAIN OFFICaO OF STAFF YEARS 2 2 2 2 2 2 14CRF TRAININ OFFICERS NO OF STAFF YEARS a a a 3 4 S 26PART TDlE LECTURERS NO OF STAFF DAYS 64 84 64 04 42 42 462

S. BUILDIN MAINTENACE COSTCRF - AITENANCE XPENSELUWSUM 0 0 1 1 1 1 0

C. TRAININ COSTSDCO-viS*TOIfls-iEuD COW6 4 4 4 4 4 2 24MO-MIN FACT SUPP STAFWER 4 4 4 4 3 J 25

MDCO - KNFC SEMINARS NBER 10 10 10 10 1o 1o 70MOO-COME COFF FACT MANJWAER 4 4 4 4 4 4 26MDCD-TRAIS'COURSES NPweR S a 2 2 2 17M0CD-CIRE COOP URS MAWNMER 2 1 1 1 1 1 *MDA - FARMRS FIELD DAYS NUMR1 160 160 160 100o 160 1120

eCrD-AMETVIN Ca9s/M WInA 2 1 1 1 S 1 SCOM-WAREOUSING SEMINAR N"ER 1 1 1 1 1 1 7C9K-LI.UORsIN CuO s NLAER 1 0 1 0 1 0 SCBKCOMSE FOR FIELD STAFt'MER 1 0 0 1 0 0 7CRF-CURSE FOR SACCO STAFUaMBER a 2 1 1 2 1 11CF - FIEL sEMINR tiMER 10 10 10 10 10 10 70

D. V,lbE OPERATING COSTSMtCO-FUEL & LUBRICANTS uTRES 3U50 7100 7100 7100 10S00 10600 6s6oMOCO - SPARE PARTS LLW SUM 1 2 2 2 a S 10MOA - FUEL A LI.MRICANTS LITRES 26250 52600 62600 62500 62600 52600 341260MOA-SPARE PARTS FOR VEHICLAWP SUM 6 15 1S IS IS 1s 97CRF - FUEL A LUBRICANTS LITRES 37S0 7600 7S00 7600 7S00 7600 46760CRF - SPARE PARTS LULP SUM 1 2 2 2 2 2 13CRF-EQUIPMENT MAINTENANCELUJMP UUM 1 1 1 1 1 1 7

E. SUPPLIESCRF-HOSTEL SUPPLIES LUMP SUM 0 1 1 1 1 1 6

7/20/1909 16:40

- 81 -

SECON caE zwmNT rPcr Annex ITebl. 130. ALL U. CT _ PLVn TD ANCK MUM

T6Cm. is Page 2 of 4011i dCw Table

KWA(000s)

unit C"t

low 1"1 1to" 1it" 1114 iou-9s

I. DIJEST1ET COSTS

A. WILDINGS-COFF ItE5 F.WR4HOSTEL 6ER 6002.03 0.00 0.00 0.00 0.00 0.00LECTUI HALL NUMER 100.51 0.00 0.00 0.00 0.00 0.00STAFF FLATS NUMER 400.14 0.00 0.00 0.00 0.00 0.00

S. VEHICLES,ACHINERYUIPT

MOCD-PIKUP 4WD NUMBER 350.39 O.OC 0.00 0.00 350.39 0.00MOA-STATION .ACON 4W)D NER 600.34 0.00 0.00 0.00 0.00 0.00MOA - TRAININC EQUIPMEHT LUA SUM 1001.11 1001.11 0.00 0.0G 0.00 0.00CRF - MINIBUS NOCR 600.66 0.00 0.00 0.00 0.00 0.00CRF - STATIWO WACON 4W)D NS63 600.34 0.00 0.00 0.00 0.00 0.00

tRF - TEACHING AIDS LIM SUM 600.66 500.se 0.00 0.00 0.00 0.00

I. RECRIRENT COSTS

A. PSISSOEL COSTSMOt-DtC TRAINING OFFICDNO OF STAFF YEARS 200.00 200.00 200.00 200.00 200.00 200.00CRF TRAINING OFFICERS NO oF STAFF YEARS 140.00 140.00 140.00 140.00 140.00 140.00PART TIME LECtTERS NO OF STAFF DOYS 0.30 0.30 0.30 0.30 0.30 0.30

S. UILDING MLAIfENCE COST3f - MAINTEMANCE EXW4SEWSP SW S0.00 60.00 50.00 50.00 50.00 0.00

C. TRAINING COSTSMOCO-VISTOURS-FIELD COInBERt 60.00 60.00 60.00 60.00 60.00 60.00MOCO-SEMIN FACT SU" STAPIR 120.00 120.00 120.00 120.00 120.00 120.00IOCO - KNFC SEdUIARS NUMER 24.00 24.00 24.00 24.00 24.00 24.00NGCO-CW*UE COFF FACT MAl£.RIR 40.00 40.00 40.00 40.00 40.00 40.00MOCD-TRAINIRS71JRSES NABER 20.00 20.00 20.00 20.00 20.00 20.00MIOCD-tEE COP WMVSAMMME 60.00 60.00 60.00 60.00 60.00 60.00

_- FAMS FIEL DATS NL° 1.10 1.10 1.10 1.10 1.10 1.10

Cu-MAU(TIN COUS/SEM NUMB 20.U4 100.84 200.84 200.b14 200.34 200.34_C-VAREMOUSING SEMNDWt _mR 10.00 10.00 10.00 10.00 10.00 10.00

CU-UtPliINO CO3SES "1411 S00.84 0.00 00.34 0.00 500.64 0.00CAK-CSE FMR FIELO STAMA_R 68.00 0.00 0.00 3.00 0.00 0.00ClF-CURS FORt SACCO STAFIE 6e.00 6S.00 6e.00 68.00 65.00 63.o0CRF - FIELD SEMIMARtS m.Et 20.00 20.00 20.00 20.00 20.00 20.00

0. V*M.E PERtATIN COSTSMOCD-PUE. & LUBRICANTS LITRES 0.01 0.01 0.01 0.01 0.01 0.01MOCO - SARE PARtTS LuW SW 67.67 67.67 67.67 67.67 67.67 67.67VGA - FUEL A LLURICANTS LTES 0.01 0.01 0.01 0.01 0.01 0.01MOA-SPARE PARTS FOR VEHICLIA SUM 67.67 67.67 67.67 67.67 67.67 67.67CRF - FUEL A LIARICANTS LITRES 0.01 0.01 0.01 0.01 0.01 0.01CRF - SPARE PARTS LUtP SUM 67.67 7.67 67.67 67.67 67.67 87.67CRF-EQUIPMENT MAINTENANCELUIP SUM 20.00 20.00 20.D0 20.00 20.00 20.00

E. SUPPLIESCRF-HDSTEL SUPPLIES LUMP SUM 0.00 SOO.00 600.00 600.00 600.00 600.00

rnit CStS ScaledYDS by-=0S0l20tt1St29tS:rS40SttttnfY S .tttCSnCflflflfln;t Cost. Scleld by 1000.0 7/20/1569 15:40

- 82 -

scm. Cuu wUo1n"lT PUOEJCT Annex ITable 10t . ALL RJECT IWsITeD AGDzu Table 13

TRhDUM Page 3 of 4Dei ed Coo Table

Soee Coate

160 191 12 i9 1144 195- Total

I. D 1NESTMIT COMTS

A. SUILDIICS-COFF RES FOUNDNHOSTEL 6002.0 0.0 0.0 0.0 0.0 0.0 6002.0LECTURE HALL 1600.S 0.0 0.0 0.0 0.0 0.0 15006.STAFF FLATS 1600.5 0.0 0.0 0.0 0.0 0.0 1000.5

--- -- - -- - - - -- - _ _

Sub-Tota1 9103.1 0.0 0.0 0.0 0.0 0.0 9103.1S. VEHICLES,MACHINERYAEQUIPT

YOCD-PICKUP 400 700.6 0.0 0.0 0.0 350.4 0.0 1051.2MCA-STATION -ACCN 4WD 7505.1 0.0 0.0 0.0 0.0 0.0 7505.1VGA - TRAININC EQUIPMENT 750.0 260.3 0.0 0.0 0.0 0.0 1001.1CRF MINIOUS 500.6 0.0 0.0 0.0 0.0 0.0 500.6CRf - STATION WAGON 440 500.3 0.0 0.0 0.0 0.0 0.0 500.3CRF - TEACNING AIDS 375.4 125.1 0.0 0.0 0.0 0.0 500.6

Sub-Total 10335.0 375.4 0.0 0.0 350.4 0.0 11061.0

otel INVESTMENT COSTS _ 19456.1 375.4 0.0 0.0 350.4 0.0 20161.9

.. RECURoENT COSTS

A. PERSONEL COSTSYOCD.40FC TRAINING OFFICR 400.0 400.0 400.0 400.0 400.0 400.0 2000.0CRf TRAINING OFFICERS 420.0 420.0 420.0 420.0 660.0 700.0 5640.0PART TIME LECT*RERS 26.2 25.2 26.2 26.2 12.6 12.6 138.6

Sub-lotat 645.2 645.2 645.2 464.2 972.6 1112.6 6670.66. SUILDINO AINTENANC COST

CRF - MADINTEANCE EXPENSE 20.0 20.0 60.0 50.0 60.0 60.0 200.0C. TRAINING COSTS

MOCD-VISATOURS-FIELD COM 240.0 240.0 240.0 240.0 240.0 120.0 1440.0MOC-SEMIN FACT SW? STAF 4e0.0 460.0 460.0 460.0 360.0 360.0 3000.0

MOCD - KNFC SEMNARS 240.0 240.0 240.0 240.0 240.0 240.0 16O.0MOCD-COURSE COFF FACT mAN 160.0 160.0 160.0 160.0 10O.0 160.0 1120.0MOaO-TRAINERS'COURSES 60.0 60.0 60.0 40.0 40.0 40.0 340.0

MOCOLSE COOP MM MNA 120.0 60.0 60.0 60.0 60.0 60.0 460.0WA - FARMERS FIELD DAYS 176.0 176.0 176.0 176.0 176.0 176.0 12J2.0

C 8K-dAKETING CURS/SEM 400.7 200.3 200.3 20O.6 400.7 200.5 160.0CWK-WAREHOUSID SEMIN 10.0 10.0 10.0 10.0 10.0 10.0 70.0CeK-LIQORINe COURSES 5O0.I 0.0 500.0 0.0 500.6 0.0 1602.5CSK-COUEK FP0 FIELD STAF 6.0 0.0 0.0 66.0 0.0 0.0 130.0CRF-CSMSE FOt SACCO STAF 196.0 130.0 e6.0 66.0 180.0 e6.0 715.0CRr - FIELD SEMINS 200.0 200.0 200.0 200.0 200.0 200.0 1400.0

Sob-Total I107.6 2306.6 2732.2 2276.3 2647.5 lo6.3 17232.6D. V,MYE OPERATINO COSTS

MOCD-FUEL A LUBRICANTS 34.4 .5 66.6 6e.6 102.7 102.7 640.7XD- SPARE PARTS 67.7 135.3 135.3 136.3 203.0 203.0 1062.6A - FUEL A LIJRICANTS 264.3 50.6. 501.6 06.5 50.6 506. 5 o 3305.6

WOA-SPARE PARTS FOR vEHIC 507.5 1015.0 1016.0 1016.0 1016.0 1016.C 6597.4CRF - FUEL A LUSRICANTS U8.3 72.6 72.6 72.6 72.6 72.6 472.2CRF - SPARE PARTS 67.7 135.3 135.3 135.3 135.3 135.3 079.6CRF-EQUIPMENT MAINTENANCE 20.0 20.0 20.0 20.0 20.0 20.0 140.0

-- - - -- - - -- -- --- - -- -- --- - -- -- --- - -- -- --- - -- -- --- - -- -- ---

S.b-Total 987.0 1955.6 1915.6 1955.6 2057.2 2057.2 13026.1

E. SUPPLIESCRF-4OSTEL SWPLIES 0.0 500.0 SOO.0 600.0 500.0 500.0 3000.0

------ ---- ----- --------- - - --------- - - -- - -- ----- - - - -- -- -

otal RECWRENT COSTS t050.S 5627.1 6083.0 S427.1 6427.3 6681.1 40i7?.3

Total 24406.s 6002.6 e.Q3.0 5627.1 6777.7 581.1 60339.1

- Votve scaled by 1000.0 7120/1989 15:40

iCtNca camu SwinlT POJCT ATable 100. ALL FU0MCT DIPtkEMDf A Tale 1

TRADImO Taeble 13DoUl l1d Co" Table

3... CO"to U 11166(000.)

1060 1001 16I 2 1003 1604 1166-0 Total

S. hNEmSigT COSTS

A. BUILDINGS-COFF HES FUNDNHosTm 319.0 0.0 0.0 0.0 0.0 0.0 310.0LECTURE HALL 70.S 0.0 0.0 0.0 0.0 0.0 79.6STAFF FLATS SS.1 0.0 0.0 0.0 0.0 0.0 6.1

Sub-Total 483.0 0.0 0.0 0.0 0.0 0.0 403.9B. VEICLES,MACHINERY&EQUIPT

MMc0-PICKUP 400 37.2 0.0 0.0 0.0 18.6 0.0 o 6.0MOA-STATION WVAGO 4A7 390.s 0.0 0.0 0.0 0.0 0.0 390.9MCA - TRAINING EQUIPMENT 39.0 13.3 0.0 0.0 0.0 0.0 63.2CRF - MINIBUS 28.6 0.0 0.0 0.0 0.0 0.0 26.6CRF - STATION CAGON 4WD 20.6 0.0 0.0 0.0 0.0 0.0 26.6CRF - TEACHINO AIDS 20.0 6.7 0.0 0.0 0.0 0.0 26.6

Sub-Total 549.2 20.0 0.0 0.0 16.6 0.0 u07.0

otal INVESlTMET COSTS 1033.1 20.0 0.0 0.0 16.6 0.0 1071.7

1. RECURRENT COSTS

A. PIRSONNEL COSTSMOCD4lFC TRAISNIN OFFICR 21.3 21.3 21.3 21.3 21.3 21.3 140.0CRF TRAINING OFFICERS 22.3 22.3 22.3 22.3 29.8 37.2 103.5PART TIE LECTUERS 1.3 1.3 1.3 1.3 0.7 0.7 7.4

Sub-Toual 44.9 44.9 44.9 44.9 51.7 W9.1 340.7S. BUILDIN_ UAINTENANCE COST

CRF - MAINTENACE EXPENSE 1.1 1.1 2.7 2.7 2.7 2.7 15.4C. TRAINING COSTS

* CII-VISATU1S1-FIELD COI 12.6 12.6 12.6 12.6 12.6 6.4 76.5

MOCO-SEMIN FACT SUPP STAU 25.5 23.5 26.6 25.6 19.1 19.1 150.5MOCD - KWC SEMINARS 12.6 12.6 12.6 12.0 12.6 12.6 60.3MOCD-COUSE COFF FACT MAN 8.5 6.5 9.5 6.6 6.5 0.5 69.5MD-TRAISERS'CCUMSES 3.2 3.2 3.2 2.1 2.1 2.1 16.1MOCD-S COOP pUS MAN 6.4 3.2 3.2 3.2 3.2 3.2 2S.5MOA - FARS FIELD DAYS 9.4 9.4 9.4 9.4 9.4 9.4 63.;

cUKMSTZM COURS/IUEM 21.6 10.0 10.6 10.0 12.6 10.6 00.6C 1t-WAREHMII SMIAR 0.5 0.5 0.5 0.5 0.6 0.5 G11.7CUK-LISMIN Cou.E5E 26.6 0.0 "2.1 0.0 26.6 0.0 76.0CN-COISE Felt FIELD STAY 3.5 0.0 0.0 3.6 0.0 0.0 6.0CUF.U FPU SACCO STAY 10.4 6.0 3.5 3.5 6.s J.5 5.0CaF - FIELD SEMINARS 10.6 10.6 10.6 10.6 10.0 10. 74.4

Sub-Total 170.0 122.6 145.2 121.0 151.4 104.3 l0.60. V,NME OPERATDIN COSTS

MOCD-FUEL A LsRtICANTS 1.6 3.7 3.7 3.7 6.5 5.5 29.2MMOC - SPARE PARTS 3.6 7.2 7.2 7.2 10.6 10.6 67.5MOA - FUE.L & UJsRICANTS 13.5 27.0 27.0 27.0 27.0 27.0 175.7MOA-SPARE PARTS FOP VENIC 27.0 54.0 54.0 54.0 54.0 54.0 350.7CRF - FUEL A LuBnICANTS 1.9 3.9 3.9 3.9 3.9 3.9 26.1CRF - SPARE PARTS 3.6 7.2 7.2 7.2 7.2 7.2 48.6CdF-EQUIPMENT SAINTEIANCE 1.1 1.1 1.1 1.1 1.1 1.1 7.4

_ --- ----- -- -- - -- -- -- - -- -_- -- - -- -- - - - -- - -- -- -

Sub-Total 52.9 103.9 103.0 103.9 100.3 109.3 892.4E. SUPPLIES

CRF-HOSTEL SUPPLIES 0.0 26.6 28.6 26.6 26.6 26.6 159.6- - - -- -- -- --- -- ----- -- ----- -- ----- -- -- --- -- ----

otal RECURRENT COSTS 206.5 299.1 323.3 290.1 341.6 302.0 2135.6

Total 1101.6 319.1 323.3 290.1 380.3 302.0 3207.3

- Valuas scaled by 1000.0 7/20/1909 16:40

- 84 -

Annex 2Page 1 of 3

KENYA

SECOND COFFEE IMPROVEMENT PROJECT

Subsidiary Loan Agreement between GOK and Coop Bank

Proposed Terms and Conditions

1. Lending and Onlending Terms

(a) General

(i) The minimum interest rate spread obtained by theCooperative Bank under the Project would be 5%.

(ii) The rates of interest to final borrowers under theProject would be positive in real terms through theperiod of Project implementation.

(iii) As loLg as consistent with (ii) above any futuremodifications to general interest rates for agriculturalloans arising from review by Government of interest ratesin Kenya and discussions with the Bank Group would beapplied to this Project.

(b) Specific Rates of Interest

(i) Rates of interest between Government of Kenya and theCooperative Bank, and between the Cooperative Bank andthe Final Borrower would be as set out in the Table onPage 3 of this Annex.

2. Specific Terms and Conditions

(a) Coffee Factories

(i) Credit for financing coffee factories would be providedonly after the Cooperative Bank has satisfied itself (i)as to the credit worthiness of the borrower, and (ii)that the guidelines and criteria for specific coffeefactory investments outlined in Annex F have been met.

a

- 85 -

Annex 2Page 2 of 3

(b) Farm Inputs

(i) Credit for financing farm inputs for coffee productionwould be provided only after the Cooperative Bank hassatisfied itself as to the creditworthiness of theborrower.

(ii) The borrower in case (i) above would only be acooperative society.

(iii) Arrangements for onlending from a cooperative society toone of its members would restrict:

a) the upper limit of borrowing by a member to thelesser of (i) 50% of that member's average coffeecrop deliveries over the last 3 years, or (ii)the total indebtedness of that member which mustnot exceed the value ot expected deliveries ofcoffee cherry for the current season.

b) the amount of the total loan for farm inputs paidout in cash to the member which would be at least20%.

(c) Improved Payment System

M) Credit for financing the new improved coffee paymentsystem would only be made (a) to cooperative societieswhich are creditworthy, and (b) after MOCD's InspectionCommittee had satisfied itself that within a given Unionall cooperative societies with coffee growing members hadadequate bookkeeping and accounting systems to effect thenecessary payments under the new system.

(ii) Credit for financing the new, improved coffee paymentsystem would be in the form of an annual incrementalworking capital loan, and not as a standing overdraftfacility.

-86 - Annex 2Proposed Credit Arransoents Page 3 of 3

1. Introduction. This project channels considerable amount of funds through financialInstitutlons, andhnc o_hought has to be given as to the best arrangements and the Institutions Involv^dto ensure that funds rach the final borrower.

2. Essentially credit will flow through to Inat!tutlono for the following om ponents:

(a) Cooperativo Sector - Coffee Fetories,~ b~ Cooperativo Sector - Farm Inputs,

Cooperative Sector - Improved ayment System,d Estate Sctor - Coffee Factorle for Soall Etates,

Ebtate Sector - Farm Inputs, and(f) KPCU - Coffee Mill.

S. In considering the approach to take it Is also Important to determine who the financlor Is In*sch case, and the extent to which funds will be sIf generated from financial Institutions and from formersth_oelves. Another conolderation Is the tr_m under which Government (In the case of IDA money) and CDC willonlend to the Institutions Involved. All thes considerations are summaried below:

4. Taking the components In para. 2 above:

Financing Onlending Term to FinalComonent Source Lender Terms Borrower

1. Coffee IDA through OCK Coop Bank COK to onlend to Coop Bank tofactoris for 101X of Coop Bank at 11X. onlend to Coop

foreTgi-costs and All other torms Societies at 156.65X of local costs and conditions the Total longth -o

excl. taxes and ame as terms to loan ma.x imu 10duties final borrower. years Period of

grace 2 years.

2. Farm inputs IDA through COK Coop Bank to Coop GOK to onlend to Coop Bank tofor 1I11 of total Societies Coop Bank at OX. onlond to Coopcosts All other torms Societies at 18X.

and conditions the Coop Societiscntoea_ as termo to charge farmers atfinal borrower. lSX. Total length

orloan maximum 2years. Pe-rio ofgrace 1 yoar.

3. Improved IDA through O0K Coop Bank COK to onlend to Coop Bank topayment system for 41X overall of Coop Bank at OX. onlond to Coop

requTrd financing Total length iV So-ieties at 1S1.loan maximum is Coop Socltle stoyears. Po d-of enlarge farmers atGrece 2 years. 1SX. Total longth

of loan maximum 1yer.

4. Coffee CDC for 161X of To be deter- CDC to oslond at Lender to onlendfactories for foreign costs and mined 3/ tholr prevailing to estates at 15X.small estates $5x of local costs rats of 7X. Total length oT

excluding taxes Repaymnr-to be at loan maximum l1and duties CDCC' normal yr e reP-Trlof

commerca*l terMs, grec 2 years.

6. Farm Inputs CDC for 101x of To be deter- CDC to onlond at Lender to onlondfor N aIl estates total costs mined 3J their provaillng to estates at 14X.

rats of 7X. Total length oTRepayment to be at loan maximum 2CDC's normal yars. Priod ofcom rTial t ers. grace 1 year.

6. KPCU coffee CDC for 111X of KPCU, subject to CDC to onlend at As for previousMill total costs their final their preveiling coluon

excluding taxes agrement rate of 7Xand duties Repaymenito be at

CDC's mornalcormmrcalr terms.

y Lender and lending terms subject to final appraisal by CDC.

- 87 -

Annex 3Page 1 of 2

KENYASECOND COFFEE IMPROVEMENT PROJECT

WORLD COFFEE MARKETS

1. Historically coffee production increased at a faster pace thanconsumption, resulting in considerable surpluses and periodicallydepressed prices. Compared to some other commodities however, coffeeprices bave fluctuated relatively narrowly when trade controls of theInternarional Coffee Organization (ICO) have been in force. Disruption ofsupply, usually in the for' of crop failure in Brazil, have caused periodsof high prices accompanied by extremely volatile market conditions. Therewere no quotas in 1986 due to crop failure in Brazil, and with thereinstatement of quotas in October 1987 relative order returned to themarket. However, the period of free trade (no quotas) has underlined thefact that the present system of regulating suppliesthrough the ICO quota is far from satisfactory and creates artificialshortages of better quality Arabicas, whilst permitting an over supply oflover quality arabicas and robusta.

2. To avoid the serious consequences of sharp fluctuations in priceson the economy of many producing countries, the great majority ofexporting countries (representing close to 100% of exportable production)and importing countries (representing about 90% of world imports) createdthe International Coffee Organization (ICO) and entered into a series ofInternational Coffee Agreements (ICA) - (1962, 1968, 1976 and 1983). The1983 ICA is due to expire on September 30, 1989. The organization fixes abasic quota for all major exporting members at the beginning of each quotayear (October 1 - September 30) based on its asfessment of worldconsumption trends, stocks held in consuming countries etc. In the courseof the year price fluctuations may lead to increases or decreases in thetotal quota according to a set price formula. Sales to non members (knownas non quota markets) are not subject to any form of restriction but asspecified by the ICO may not be made at prices below those charged forcomparable qualities to member countries. The non quota market isrestricted in scope due to financial constraints in many non membercountries and is estimated to represent only about 10% of world coffeeimports. Asian ron member markets appear to offer good prospects forgrowth, but are often in a position to grow coffee and may in futurebecome exporters rather than importers. (eg. China, Vietnam, Malaysia).

3. Despite the establishment of the ICO the imbalance between worldproduction and consumption continues to exist and the ICO's price rangehas remained unchanged since 1980, so in real terms coffee prices havedeclined. Nevertheless world production continues to increase due to therelative stable prices provided by successive ICA's and strong growth byefficient producers. Apart from Kenya and a few smaller countries such asMalawi and Zimbabwe, production in Africa continues to stagnate.

4. Quality is a major consideration in the marketability of coffeeand it is generally accepted that Kenya's washed Arabicas are of aboveaverage quality. The country is the world's largest single producer offine quality, high grown washed Arabicas and is the market leader. Other

- 88 -

Annex 3Page 2 of 2

producers of fine quality Arabica are Ethiopia, some smaller East andCentral African countries as well as parts of Central America. Worldavailability of this type of coffee is limited and has been falling throughneglect and social unrest in some countries, restrictive practices and hightaxation in others and replacement of traditional cultivars with hybridssuch as Caturra which are high yielding but do not produce quality coffee.In recent years demand for high quality Arabicas has been growing strongly,leading to high premia for Kenya coffee over medium and Brazilian typeArabicas. Prior to the suspension of quotas, the price of good mediumquality Kenya Arabica was exacerbated by the restrictive quota controls ofthe current ICA and has led to calls for the Agreement's abolition fromcoffee importers and roasters in Europe and the United States alike.Consuier members are also demanding a review of the entire system ofallocating export quotas, claiming that changing consumption trends, whichfavor better quality Arabicas at the expense of low quality and robustas,cannot be accommodated within the present inflexible system which allocatesquotas on the basis of historical production data regardless of quality.So far it has proved impossible to effect the changes demanded by consumersbecause of opposition by major producers such as Brazil and of course theRobusta sector.

5. On July 3, 1989, following the breakdown in discussions inLondon to agree on the structure of a new Coffee Agreement, quotas weresuspended. The immediate effect was a fall of around 35Z in the pricewhich is less than the assumptions made in the SAR. Prices appear to beholding steady at that level, although the market is both fluid anduncertain. Premia for Arabicas such as those produced by Kenya are atpresent maintaining their historical differentials.

- 89 - Annex 4Page 1 of 1

SECOND COFFEE IMPROVEMEMT PROJECT

KENYA COFE MARKET

1. Kenya's marketing system is unique in that all coffee is sold inweekly open auctions, held by the country's Coffee Board (CBK) tolicensed private exporters. Exporters are grouped in the Mild CoffeeTrade Association (MCTA) which is recognized by Government as therepresentative of trade interests. Most Estate producers are grouped inthe Kenya Coffee Growers Association (KCGA) and smallholders inindividuals cooperative societies. The producer's organization is theKPCU (para 1.12) to which all growers belong, either directly (estates)or indirectly through the membership of Cooperative Unions. Virtuallythe entire milling capacity of the country is owned and operated by KPCUwhich itself is lOOX producer owned. CBK does not trade in coffee butsells on behalf of growers - the open auction system ensures goodtransparency and as a result is very popular with growers. Exportmarketing and shipment arrangements are efficient and are probablyamongst the better systems found in the world - Kenya coffee regularlycommands considerable price premia which is in part also due to theindividualized and efficient marketing arrangements which are entirelymanaged by private sector companies. In recent years the previousdomination of the coffee export trade by foreign owned companies has beenreduced through the emergence of locally owned concerns.

2. Until recently local coffee consumption was limited to about3,000 tonnes (in 1983/84). Since then tonnages have increased sharply tojust over 10,000 tonnes being sold to local roasters in 1987/88. Salesfor local consumption take place at greatly reduced prices with a subsidyof over 60% based on present average market price. The net cost to theindustry of this subsidy is estimated to be not less than US$ 20 millionin 1987/88. MOA and CBK who are responsible to review this priceannually are aware of the situation and steps are being taken to addressthis issue.

3. Coffee production under the Project is projected to grow atabout 2.0% p.a. and although a new ICA might possibly be more favourableto the country, larger year end tonnages would accumulate which need tobe stored, financed and marketed. Until now it has been possible toutilize the periodic lifting of quota controls (as happened in 1985/86)to dispose of accumulated stocks. However, the implication of largercrops being produced is that future stock levels will exceed the Board'sstorage and financial capacity. Thus, stock management, and marketintelligence development by CBK will be crucial. In order to avoid largestock build up (above the working stock that is required) which may haveto be partly financed by the growers the industry would have to develop amuch more direct and disciplined approach to marketing of non-quotacoffee which so far has been inconsistent. Despite the hoped forimprovement in Kenya's quota, future quantities to be disposed of tonon-quota markets are likely to be substantial and may pose problems forthe present trade channels whose ability to move and finance everincreasirtg to=nages cannot be taken for granted. Of course the sale oflarge tonnages to non quota markets at low prices would send pricesignals to growers, especially those producing excessive amounts of lowquality coffee.

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Annex 5Page 1 of 6

KENYASECOND COFFEE IMPROVEMENT PROJECT

1. ORGANISATION AND MANAGEMENT

1.01 General

(1) It is a matter of record that the first phase of thisproject (SCIP I) was subject to many delays in the early years, and thatthis was at least partially due to the lack of an appropriate unit forov3rall management and co-ordination. Having regard to the manyinstitutions involved, from single factory cooperatives up throughdistrict unions, extension services, district coffee working groups, theCo-operative Bank of Kenya and the two main ministries, MOA and MOCD, theneed for greater control and direction was eventually recognised by theformation in 1984 of the Project Management Unit (PMU). Satisfactoryprogress was made thereafter and the unit was retained up to appraisal ofthe present project.

(2) At present PMU derives its authority from and isresponsible to MOCD and it has been necessary to give consideration as towhether this relationship should continue or whether there should be adifferent form of unit operating under the aegis of another institution.The fact that PMU is now a recognised entity within the coffee industryand also that the MOCD will take the role as the lead ministry in the newproject, support the conclusion that the present relationship shouldcontinue. Nevertheless, account should be taken of the variance ofobjectives and priorities in the new project as well as the need to haveconcerted and effective management from the beginning. Therecommendations which follow are expected to achieve those aims.

1.02 ProAect Steering Committee (PSC)

(1) PSC was established in 1984 for the spe,cific purpose ofinjecting greater purpose and achievement in the progress of SCIP I. Itwas a powerful body, chaired by Permanent Secretary (PS) DevelopmentCo-ordination, Office of the President, with inter alia the PermanentSecretaries of the Ministry of Finance (MOF), MOCD and MOA as members.PSC's duties and responsibilities included the review of the overallprogress of the project, making decisions on issues of policy andreviewing and taking action on Progress Reports and Work Plans submittedby PMU. To a great extent its objectives were achieved, although limitedby the time-scale of the project, even after extension.

(2) It cannot be expected that a "fire-fighting" force ofthis nature will be established for, and indeed it should not benecessary, provided that acceptab institutional and management policiesare followed from the outset, together with satisfactory budgetary

- 91-Annex 5Page 2 of o

arrangement to cover the project's annual financial requirement. Since ithas been agreed that for Coffee II there is to be one lead ministry, MOCD,it would be appropriate to appoint PS MOCD as Chairman. The substantialagricultural content of the project should be reflected by the appointmentof the PS MOA as alternate chairman. Other members should includet

(a) Representative of MOF;(b) MD Co-operative Bank;(c) MD of KPCU;(d) GM Coffee Board of Kenya;(e) Representative of CRF;(f) c-M PCMW4 (as Secretary).

IDA and CDC would continue to be represented as observers and PSC would havethe power to co-opt additional representatives as necessa.v, althougn thisshould be for specific topics in order to avoid unwieldiness in numbers.

(3) It is envisaged that the PSC would meet quarterly, withadditional sessions as required by special circumstances. Responsibilitieswould extend to both policy and operational matters.

(4) Previous arrangements included the appointment by POC of aworking group drawn from each ministry or agency to discuss and considerspecific issues. There would appear to be no need for such specificgrouping in future.

1.03 Project Coordination and Management Unit (PCMU)

(1) When the PMU was formed ir T.984, it was clearly accepted thatthe credibility and efficiency of the Unit would be reflected by the statusand abilities of the civil servants seconded from the various ministries.To underline its importance, the relevant directive made specific proposalsas to the rank of the senior officers to hold the post ef manger and theheads of the four sections of PMU. The manager was to be appointed by PSCafter consultation with IDA and CDC. mhere have been a number of changes insenior staff appointments since the completion of SCIP I and although thepresent is necessarily an interim period, the mission recommends thatreference should be made to the intentions of the original directive whenPCMU is brought up to full complement prior to the inception of Coffee II.The impression given at present is that the Unit is weak and understaffednumerically and is unlikely to be capable of carrying out the detailedpreparatory work that will be necessary prior to the inception of a newproject. Having regard to the

- 92 -

Annge Page 3 of 6

importance of Coffee II in the financial aud economic sphere generally,and in particular to the very larger number of coffee smallholdersinvolved throughout the agricultural areas, the new PCMU should beconsidered an elite unit and worthy of the engagement or secondment ofthe highest quality staff; even though it is not expected to beinstitutionalised and its existence will have only a limited duration.Once its job is d('ne, the task of continuing improvement and efficiencyin the smallholde: coffee sector should revert to the extension servicesand relevant agencies.

(2) Having regard to the experience gained in SCIP I and thevarious changes in the objectives outlined for Coffee II, it isconsidered that the original organogram for PMJ will need certainamendments. A proposed layout is in Appendix 1 and the main features ofwhich are an improvement in status of the unit head to General Managerand the formetion of two sections, Finance and Administration andTechnical Department, the head of each of which should be designatedManager. In addition it is proposed to make available a TecbnicalAdviser to the unit whose duties and responsibilities are referred tolater. The full complement of senior staff should be:-

1 General Manager2 Managers1 Technical Adviser3 Engineers2 Agriculturalists1 Co-operative Officer1 Agricultural Ecc omist2 Accounts Assistants3 Executive Assistants25 Technical Officers

The duties and responsibilities of the three senior officers aredescribed in Appendix 2.

(3) A feature of the unit staffing at present is the extendednumber of lower grades including 4 clerical officers, 5 typists, 7drivers and 5 subsidiary employees. Needs of the unit should bereassessed and any surplus staff reposted to parent ministries.Under-employed personnel would be a constraint on efficiency.

(4) If officers are not hired on contract, supplementaryallowances should be paid to seconded senior staff enumerated in Appendix1, in compensation for the possible disadvantages that may be seen toaccompany posting to PCMU. Amongst these there may be included a heavierworkload, greater responsibility, absence from the mainstream of theparent ministry and, because of PCMU limited duration, a shortage of

- 93 -Annex 5Page 4 of 6

promotional prospects within the unit. Such allowances should be paid fromproject funds and it is suggested that they should be designed so as toraise total pay to the level of sai tries paid to equivalent rankingpersonnel in a statutory body, such a* Kenya Tea Development Authority. Itis estimated that the annual cost of such allowances on the basis ofsecondment of all senior staff would be of the order of Kenya Pounds 35,000pa.

1.04 Technical Adviser

(1) The foregoing measures have baen proposed as a meansof strenigthening PCMU and with the intention of avoiding the delays andorganisational failures during the early years of the first phase of SCIP.In recognition of the size and complexity of the proposed project, themission considers that a further step towards unit efficiency would be forthe donors to make available to PCMU a Technical Adviser during Projectstart-up.

(2) It is proposed that the appointee should be a personof professional standing with substantial experience in the administrationof smallholder/co-operative agricultural schemes in East Africa andelsewhere. He may be either an accountant, engineer, agriculturalist oragricultural economist, but the overriding requirement would be a broadgrounding in all aspects of the management of smallholder development andthe co-ordination of co-operative societies. Suggested terms of referenceare set out in Appendix 3.

1.05 Transport

(1) It has been proposed that PCMU staff should be moreassiduous in visiting District Coffee Working Groups (DCWG) and other fieldunits for the better management and co-ordination of the project. Toachieve this purpose, greater mobility will need to be ensured and it issuggested that a total of 10 vehicles be allocated to the Unit. Of these,four would be appropriated for the use of the General Manager, the twoSection Managers and the Technical Adviser. The remaining six would beallocated to the Technical Section (4) and the Finance/AdministrationSection (2).

(2) Consideration will need to be given to theavailability of transport in the field for extensioii and other personnelengaged in SCIP affairs from time to time. However, it would not befeasible to confine the use of any allocated transport solely to projectbusiness, with the unfortunate consequence that from time to time essentialvisits on project business may be unable to be made due to lack ofmobility. This problem will of course be less acute since visiting willalso need to be carried out by the technical management services staff whowill have independent transport.

- 94 -

Annex 5Page 5 of 6

1.06 Extension Service ind Training

(1) It appears that there is a sufficient supply of qualified engineeringtechnicians from Jomo Kenyatta and Egerton Colleges entering the MOA extensionservices to fulfil the quota of coffee factory technicians and assistant coffeefactory technicians, the former being responsible for providing service to anaverage of 10 factories. When the recruits leave college they have a good basicknowledge of coffee factory design and construction but they lack specific knowledgeof coffee processing and organization. It is essential that they should besubjected to specific coffee processing crop training at an early date, preferablyin advance of inception of the project in order that they may play a full part inthe assessment of factory rehabilitation needs. Another important part of theirduties will be to advise the factory managers and engineers on budgeting and themore efficient operation and maintenance of their plants, including the organizationof cherry reception and grading. These duties will require mobility in order thatfactories may be visited on a regular basis. 0

(2) To achieve this, it is proposed that each coffee factory technician(CFT) in the co fee extension service be issued with a motorcyle. In addition it isproposed that extension agriculturalists in the coffee sector should also be issuedwith motorcycles to allow them to visit smaliholdings and advise farmers on inputneeds and the maximization of ptoduction and quality. It is estimated that some 60motorcycles will oe needed in total.

(3) Although the Improvement in training and mobility of coffee extensionstaff will have a beneficial effect on coffee processing, additional support will benecessary to improve the level of day to day management in coffee factories. Weakphysical management in coffee factories has been highlighted by the SCIP I projectcompletion report as a major cause of the under-achievement of many investments withregard to coffee quality. In order to forestall similar problems with the presentproject technical management services would be provided under the direction of theManager, Technical Section, PCMU. These services would have a specific objective ofimproving the standards of physical management in factories. This would ensure thatthe substantial investment in new or rehabilitated processing facilities wouldresult in corresponding improvement in coffee quality and thus maximize the flow ofbenefits.

(4) The advisory servi-es would be specialized, and would be provided inclose cooperation with the existing extension services for coffee processing alongthe lines of the Management Improvement Service operated in recent years by theKenya National Federation of Cooperatives (KNFC). The services would be provided bya Chief Technical Officer, two section heads and 22 visiting technicians each ofwhom would be responsible for visiting and reporting for 15-20 factories on afortnightly basis - i.e. a maximum of two each working day. The personnel wouldpreferably be engaged from the open market and would be fully mobile. The costwould include vehicles, equipment and operating costs.

- 95 -Annex 5Page 6 of 6

(5) The intention would be that once the services had been established theywould continue as a self sustaining servic, unit in the small estate and cooperativesub-sectors after the completion of the project. This would be achieved oyintroducing service charges initially at the rate of 252 of the cost and increasingto 100Z of the cost after 4 years. The societies and estates participating ir. thefactorv component would undertake to accept such services on a sliding scale of costcontributions as a condition of being granted a factory improvement loan. It iYestimated that the full cost of the service would be covered by a contribution ofShs. 0.03 per Kg of cherry processed which is about 0.052 of the gross revenue (1989prices). The societies and KPCU would hence commence by contributing at the rate of0.75 cents per Kg. of cherry processed increasing to 3 cc.ats per Kg. after fouryears.

(6) Initially the services would be set up and operated under the directionof the PCMU but in order to ensure the continuation of these functions after projectcompletion it is intended that technical management services would be taken over andcarried on by an existing institution in the coffee industry such as the KPCU or theCoffee Board of Kenya. The PCMU would be responsible for equipping, staffing andsetting up the visiting/advisory system describea earlier during the first 3 yearsof project implementation. The terms of employment for the technical officers wouldbe in line with those offered by the institutions cited above. When the advisorysystem was fully operational its staff and functions would be absorbed into theappropriate institutiort. On project completion therefore the technical managementservice to project factories would be able to continue as a financially viable andself sustaining service to the coffee industry.

1.07 Accommodation and equipment

At present the PCMU occupies rented offices which are less than ideal inlayout and situation. Office furniture and equipment available appears to beinadequate and ageing. With the proposed increase in staff and heightenedresponsibilities, consideration would be given to relocation and re-equipment.

ma

TEaCHNCAADVIS

MPM MNWE

TEXC;L AN =DUS N SOLTIQ4

Eb.'w ics Acuax ts6, R,orts, Project Trainlng, Cb-cperatives TPaJFeasibility Personmel, Statistics, Factories, Field loans, (APEW9DIX IB)Studies Drawdcwqns, Project Farm Operatiors DocrumLntation

Buxdgets Assessmiwnt, IrputscbNputers

PXec Asst Ag. Eonamist; Enineer (2) Engineer, CQ-qp Cfficer Ofch. CEficers (25)Asst (2) Asst Agriculturalist Agricalturalist Asst. Adntn. AMft.

101/ Technical Management Services.

- 97 -

ANNEX 5APPENDIX 1B

TECHNICAL MANAGEMENTSERVICES UNIT

CHIEF TEC ICAL OFFICER

ADMINISTRATIVEASSISTANT

SENIOR TECHNICAL SENIOR TECHNICALOFFICER OFFICER

I ITECHNICAL TECHNICALOFFICERS (11) OFFICERS (11)

- 98 - ANNEX 5

A2yendix 2Page 1 of 3

SECOND COFFEE IMPROVEMENT PROJECT

Pro lect Coordination and Manaaement Uni,Executive Duties and ResDonsibilities

1. Authorities. PCMU will continue to be a semi-autonomous entitywith independence of action and will operate outside the relevantministries although accountable to PS,MOCD and the Steering Committeeultimately. GM, PCMU, will continue to hold the delegated authority toincur expenditure (AIE) from funds allocated to MOCD for projectoperations, with personnel costs continuing to be paid by the pareitministries of seconded staff.

2. General Manager. The GM will be either a seconded, experiencedcivil servant of equivalent rank to a Deputy Secretary or a contractedemployee from the private sector under technical assistance under theproject. Appointment by the Steering Committee will be subject toconsultation with IDA and CDC. He will be responsIble for alloperations, planning and reporting in relation to the project and bisduties will include -

(a) operation of PCNU revolving fund and AIE;(b) liaison with all ministries and agencies relevant to the

project;(c) direction of day-to-day operations of PCNU and the project;(d) supervision and coordination of all project activities;(e) secretary to PSC

3. Manager. Technical Section. The manager will be an experiencedcivil servant equivalent in rank to a senior agricultural officer orsenior engineer and may be contracted from the private sector undertechnical assistance under the proj(ict. His senior subordinates willinclude three engineers with coffee factory experience, a qualifieddraughtsman, two experienced coffee agriculturalists and a co-operativeofficer and assistant with SCIP experience. He will be responsible tothe GM for the technical and engineering aspects of coffee factoryrehabilitation and develepment farm inputs, the co-ordination of alltraining, field and factory supervision and for all co-operativeactivities related to the project, including loan operations andtechnical management services. His dutic, will include:-

(a) provision of assistance to DCWG in relation to technicaland other aspects of feasibility studies and loanapplications;

(b) upgrading and supervision of tendering and contractualguidelines for factory development and farm inputs;

(c) supervision of factory contract execution and submission ofcompletion certificates;

- 99 -

ANNEX 5

Apyendix 2Page 2 of 3

(d) liaison with MOA, MOCD and CBK on technical and othermatters relating to loan applications by societies forfactory development and farm inputs;

(e) Co-ordination of provincial survey and drawing offices andsupervision of PCMU's own draughting activities;

(f) establishment of programmes in liaison with MOA extensionservices for regular training on the T and V principle, andsupervisory visits to factories and farms;

(g) co-ordination and supervision of all factory, farm andsociety training activities in conjunction with MOA, CoffeeResearch Foundation, MOCD and other agencies;

(h) maximisation of attendance by PCMU representatives atmeetings of DCWG and other relevant bodies;

(i) all cooperative activities related to the project andlending operations through CBK;

(j) provision of assistance directly or through MOA and MOCDfield staff in preparation of feasibility studies andapplications for factory and faru input loans;

(k) liaison with MOCD on matters involving advice andarbitration by legal specialists;

(1) provision of assistance and advice to the KPCU on thedesign and costs of small estate coffee factories;

(m) setting up and supervising the Technical ManagementServices for project factories.

4. Manager, Finance and Administration. The manager of thissection will be an experienced accountant either seconded by Governmentof Kenya or engaged on contract from the private sector under technicalassistance supported by the project. His subordinate staff will consistof an Agricultural Economist and assistant with the prime duty ofestablishing a sub-section to govern planning and monitoring functionsfor PCMU, and an Executive Assistant and two Accounts Assistants. Hisduties will include:

(a) responsibility to the GM on all matters related to financeand administration;

(b) operation of the PCMU revolving fund and the preparation ofwithdrawal applications;

- 100 - ANNEX 5

ADDendil 2Page 3 of 3

(c) maintenance of the PCHU accounting system and promptpreparation of quarterly reports and cash flow projectionsfor submission to PSC;

(d) monitoring disbursements from IDA/CDC loan finance and theprocessing of drawdown applications;

(e) preparation of =nual budgets for PCMU and the proje(t andthe yearly work plan;

(f) monitoring progress of project implementation andpreparation of monthly/quarterly progress reports forsubmission to PSC;

(g) financial analysis of feasibility studies for coffeefactory improvement and the overall evaluation of theimpact of the project on coffee production, coffee qualityand returns to coffee growers;

(h) assessment of the results of introducing the proposedaccelerated palments system to growers and the progress ofSavings and Credit Co-operatives (SACCOs);

(i) monitoring the procurement of equipment and farm inputs forthe project and controlling the PCMU stores unit;

(j) responsibility for personnel and general administration ofthe unit;

(k) overseeing the introduction of computers into the PCIT.Jadministration, approval of software programming andresponsibility to GM for their efficient employment.

-101- ~~~~~Annex 5- 101 - Appendix 3

KENYA

SECOND COFFEE IMPROVEMENT PROJECT

PROJEC'. MANAGEMENT UNITTECHNICAL ADVISER

The TA will have no executive duties within PMU but, in associationwith GM and senior officers, will carry out the following functions,interalia:

(a) introduction of a prompt and effective management report s/stemincluding the re-drafting as necessary of pro formas relating toproject progress, budgeting and annual work plans;

(b) training and advising on the format for feasibility studies andloan applications and subsequent assessment;

(c) collation of essential information relating to the project inassociation with the Unit's agricultural economist;

(d) training and advising on the introduction of computers into thePCMU and in particular on the choice of software programmes andthe extent of utilization, and overseeing the relevant training ofPCHU personnel;

(e) investigation of current and likely delays and obstacles inproject progress and advising managemont on resolution;

(f) visiting DCWG and field staff of MOCD, MOA, CBK and KPCU andadvising on solution of local difficulties;

(g) maintaining continuous appraisal of the effectiveness of projectoperations in relation to the program as originally proposed andproposing moderation or amendment as necessary;

(h) assessment as to the availability and effectiveness of trainingprogrammes and co-ordination of organization and facilities.

- 102 -

Annex 6

REM

Second Coffee Improvement Pro lectCooperative Factor' ImprovementIncremental Factory Output and

Total Rehabilitated Processina CaDacitv under the Project

WITH PROJECT

YR 1 YR 2 YR 3 YR 4 YR 5 YR 6 Y7 7

TYPE1 No. of Units (Cumul) 10 20 30 40 55 70 85

Incremental Prod. (Tonnes) 300 600 900 1200 1650 2100 2550Total Output (Tonnes) 480 960 1440 1920 2640 3360 4080

TYPE2 No. of Units (Cumul) 1 25 40 55 75 95 115

Incremental Prod. (Tonnes) 450 1125 1800 2475 3375 4275 5175Total Output (Tonnes) 800 2000 3200 4400 6000 7600 9200

TYPE3 No. of Units (Cumul) 5 10 20 30 45 60 75

Incremental Prod. (Tonnes) 300 600 1200 1800 2700 3600 4500Total Output (Tonnes) 600 1200 2400 3600 5400 7200 9000

TYPE4 No. of Units (Cumul) 5 15 25 35 45 55 65

Incremental Prod. (Tonnes) 450 1350 2250 3150 4050 4950 5850Total Output (Tonnes) 450 1350 2250 3150 4050 4950 5850

TotalsNo. of Units (Cumul) 30 70 115 160 220 280 340Incremental Prod. (Tonnes) 1500 3675 6150 8625 11775 14925 18075Total Output (Tonnes) 2330 5510 9290 13070 18090 23110 28130

-103 -

.. ............. . .......

JICHUiL nOioCYI

ewutll am plu -------- fil ---- --------------------------------------------------- ----------------------------ncC1 noitlur I tur I 1es l Year I ler I Tr 4 yearS I .u,6 e far teaS I alo

1.al--------------------------------------------------------------------------hit. TiOII kg/ba) £60.0 £06.9 £30.6 61.0 601.0 715.0 70.6 101.6 52.6 02.0

Me btak. 6.4 0.4 0.1 0.7 6.1 0.? 6.? 6.1

lacreatal T1,14 6.0 30.6 21.0 30.0 36.0 35.6 35.6 31.6 0.0

Are (a) 44,563.0Aea (3) 303

lacrental Productioa 0.0 534.0 445.0 934.6 934.6 1,110.3 1,0.? 1,H00.3 1.6 6,111

W4g lield (kg/ha) 940.0 94U.0 915.0 1,010.0 1,035.0 1.000.C 1,120.0 1,160.6 1,2H1.1 1,2U0.

tge Optake 0.4 0.4 0.7 0.7 0.1 1.? 0.t 1.1

Icreeatal field 0.0 35.0 35.0 25.0 45.0 40.0 46.0 46.0 0.1

Irea (Ia 21,080.0Irea (l) 1t

lureeatal Productiok 0.0 295.1 295.1 366.9 664.0 590.2 590.2 5SU.2 0.0 3,313

Low Tield (kg/ha) 360.0 360.0 380.0 400.0 411.0 435.0 455.0 415.6 500.0 106.0

Sge Uptake 0.4 0.4 0.7 0.7 0.7 0.? 0.1 0.t

lecteu tal lleld 0.0 20.0 20.0 15.0 20.0 20.0 20.0 25.0 0.6

rea (R) 51,529.0Irea (M 44

lecruestal Production 0.0 412.2 412.2 541.1 721.4 121.4 721.4 101.$ 0.0 4,431

TOTALS 111,112.01003

IICIIIA, PEODUCTIOI 0.0 1,241.4 1,152.4 1,844.5 2,320.0 2,402.0 2,402.0 2,512.3 1.6 13,944

tOtA PIODOCTIOI 65,067.4 66,308.6 61,461.2 69,305.7 71,625.7 14,027.7 16,429.? 70,012.0 19,112.1

- 104 -

UN t

uCU clmlI lultbWI PUOECST Tale 2

IDCEIU?LL ?UoC?1io

1,11MEC? PSOJC?Tloet I Tear Tear I Tear 2 Ter 3 Iear 4 T ear 5 Tear A Tear r Ter I ftol

eIa '1.el (it/ba) $".0 aw.0 ta.# aN., t so.$ We., M0.01 10.o o'.1 mt.1... .............

Itffeetia h (ll/ PA) IO t .0 1 1.0 0.1 330.1 7611 1,14.6 1,520. I,Nt.

Area lI) 2,611.0Are (2) 3us

total trdctioa 0.0 0.0 6.O1 .6 3.126 6. 10 1026.6 1,34.1 1,111.0

Iacreatul Produetios 10.0 .0 0.0 0.0 342.0 342.0 342.0 342.1 342.0 1T110.0

l1gb Tield (kg/ba) 1,410.0 1,410.0 1,410.0 1,410.0 1,410.0 1,410.0 1,410.0 1,410.0 1,410.6 1,410.0

tffective Ia (1/? pa) 0.0 0.0 0.0 161.0 360.0 540.0 720.0 0o0.0

Area (la) 1,261.0Area (1) 1i

Total Production 0.0 0.0 0.0 0.0 253.6 501.6 761.4 1,015.2 1,269.0

Iseremestal Prodoctiot 0.0 0.0 0.0 0.0 253.J 253.1 253.6 253.8 253.6 1,213.0

Log feld (kg/1a) 540.0 549.0 540.0 50.0 540.0 540.0 540.0 540.0 540.0 540.0

Effective la (1/7 pa) 0.0 0.0 0.0 440,0 880.0 1,320.0 1,760.0 2,201.0

Aiaa (3s) 3,080.0Ata" (2) 4JI

total Production 0.0 0.0 0.0 0.0 237.6 415.2 712.6 950.4 1,106.0

Jacreneatal PtodactioA 0.0 0.0 0.0 0.0 237.6 237.6 237.6 237.6 237.6 1,160.0

TOTILS 7,000.01001

IlCIt PlOD0CtI0E 0.0 0.0 0.0 0.0 633.4 033.4 633.4 633.4 633.4 4,16t.1

TOtA PIODiCS101 0.0 0.0 0.0 0.0 011.i 1,666.8 2,500.2 3,3J3.6 4,1 I6.

.:::::::::::::: ::::::::::::::::::::::: ::::::::::::: ::::::::::::::::::::::::::::

- 105 -

SUID COltt lOU t tow ble 3............. .. ...........

IICIITA PIOOtIU

UIM Q!--------> smT ------------------------------------ I...........................................MU1O? -) iTU -

year I Tearl 3 Tar I Year 2 Tear 3 Tear 4 Year 5 Tear I Tear 1 least IMA~~~~~~~~~Lea Imm leatl . .er ...................... 2ba huIlrSbr l 7...................................................................

tOt~~~~~~~~~~~--- ---- ----- ----- --------------------------------.-- .......... ------------------- .....-----.-.-.-------.----..... ----few Iritlg Floate Area 65,07.4 61,393.3 61,461.2 61,335.1 11,625.? 74,021.1 76,412.1 IS,112,1 7S,llt.0

Ire. hire 11 6.1 1.0 0.0 0.0 U33.4 1,t66.3 2,500.2 3,333.6 4,167.0

btal Fraectie 65,06A. 6U,30.1 67,461.2 60,305.1 12,451.1 5,5164.5 6,S021.0 62,345.6 U.171.1

lunustal Productioa 1,241.4 1,152.4 1,844.5 3,153.4 3,235. 3,235.4 3,415.7 833.4

tal lcrcrme is Preduction 1,t41.4 2,313.5 4,238.3 7,391.? 10,627.0 13,662.4 17,210.1 18,111.5

Ig henue ovr year 0 1.0 3.1 6.5 11.1 16.3 21.3 26.6 21.1

4t Iereae over Previou year 1.9 1.t 2.1 4.5 4.5 4.3 4.3 1.0

- 106 -

SeCOll 031 1 3 l t JICT Tau 4........ -.... -------------------

waill Simolerul frUdUctlea hhir the project

VItI PWICTTlu I TM 2 1UI 3 11*14 t 11 5 113t I T*I tOtAL

atilt tn - ------ --------------------------------------------------------------------------------------

nu

I I5lICltD - tS 0.0 4.1 14.0 25.2 3J.? 53.2 60.0 1n.?- aStit IllS 1 14 21 28 35 42 50

4 1UItl* - tOS 8.4 21.5 39.2 61.6 88.l 112.0 141.1 111.3- ESTTEI HITS 1 14 21 28 35 42 50

10 of 11UCm - TUOS 0.0 8.3 26.? 49.5 79.3 116.2 160.0 440.0- EStE IlltS 5 10 16 22 28 34 40

I lUICltD - tOS 15.0 38.3 14.? 121.0 111.3 226.1 281.1 933.,- ESTAit 11S1T 5 10 I1 22 28 34 40

20 IIJ MT D- TOIS 24.0 61.3 112.0 116.0 253.3 333.3 420.0 1,380.0- IsTit ilTS 4 a 12 16 20 25 30

30 IHIGATD - tOES 18.0 57.5 112.0 111.5 281.0 416.5 480.0 1,552.5- 5I1T11 UNItS 2 5 8 11 14 11 20

TOtAL - IECimtU PRODUCTIOI

- TOIS 65.4 191.6 378.5 614.8 925.3 1,251.9 1,540.0 4,913.6

- EStiAT ONITS 30 61 94 127 160 194 230

lUl a us NM

i* jUl ion 1W 111 26 .: .'.1 IN low is mI m IS am4 II 15 21 jm jm -

lr.411 fe, ala PM. late,. utiaulo) lawe

Kim nese Ir hts aid enrdatt. l.I.0U 2,232.6 $.1,463 2,14,411 3.1124,14 4.226044 4.w4. ' $,112.M2 1.5.w 1.1".3 ,121 4. W ,0.0 II.4jS,45j 1104" l .u1110111 A. 111,14420,. 1,6 ,3 4,3,1 I 11111 10,113,214 U .111113 3421,11441st latast Kil.l2 121.01 141,13 3,3,3 a.m0.a 1.03,3 ,jj. .4S 4,35,M 40,411W 4.5.12 5..23,3 6.0.114j 141,1111 11,01,131 11,1.4111 1.0213 1,113,131 1.123,11 7t t1.11 I.M.11 6,613.j11letilt ieas if Itsied stat 1,1111

but lu jan. 1.1016 ,3.1 .01 1,24.1, 1.131.34 6.1163m ,j.' .l,4511.1 42,162iw ? 11.3.8114 I2.43.21 14,444,3 16,111.3 111444 38.42.163 22,3461 12,5.1 U.M,131 3,3.434 3.3.114 35.3

IsIttest pitl l ag.I term lass 31.162 12.111 1.116.511 1,2,4 .3.111 1.1461,0 4 1 2,1. 11411, 21 13,111153 LOX5. 1.13.11 2,162,12 I.13.3 ,,111 4.3.3nco 4,3,14 1.16*461 4,3,141 6,461.5 1.3.346 I,.W2-. etat .342 62.14 24." j,j31,j3 2,42,5 1.6113H2 2144,3i 2,111.221 4,,2 4 11.142 4.3.111 4,0111,11 1,121.122 1.311.3 1.113,0112 011 1.21 4,346.0 6.W.3 4.4u3 I'.5,3 1.3.3 1.46.12

bu KIMa 21 1.3 344.3416 2121.1 14,4 3 2.A . 4111.14. 3,3 13 .4144,411 6,0101. ..1 SA 11.526m 1,21,30 I4l5.3614,13,3 1J.111.12 U21.33.I 12.M1.14662,3, 26.3.2 14.42,46 4.34.5Ceanal etnleal I gulff emu. 142.1311 .3 TU 4511.113 1,6.013 3.631,5 2,.3. 2,12.1, 2,462,3 4,163425 14,61,3 4,1.113 1,3,13 1,416'o .3 .13. i.ni114.5 .1ft 1,3.3H 1,3,1 S.0,35 4.3.5# 1,.N.leveeatl.GA 621 126.123 3.11. 11 5U.= 226.1126 214. 4211 611,12 133 1.411 lu I 511.0 3,41 1 13.151 3,3 2331 1 241full 3.m MAN4 55 30.141 5,34heel ef Numeiit atiossU 21,631 3,162 24.3 5,522 3,111 Up3 Ul,m1 ,43 246,11 VIA, 311.3 WA3 22.3 233 . 112.1 .3 3.3i 3.3 KM1 W.N 21.3beitate ,inerllm 1 6.341 111 31.43 U5,m fl1 14. 3.3 22.3 3,30 46.14 "j.1 3,611 3.11 22,44 44.w1 11. 3,36 6.3 4.1 Ulm62 .1,111

lat45 await ~~~~~~~~~~.31,5,32 2,3121132 1 ,3,424 4,142.3 1.3.226 1,.15M 1,227,3 .M. 141233513.13 11,45, U2,14.1 11 .146,3 14,11,61 21.3.23 ii'.m. i'"'I.ut v.,.* jwj n1 30.m.4 4 VA.3. D.3,13 0

btIt a lcs aie 3,2145 21.6 115.4 5.21 501 1 4. t 11.o 124,3 244.I 1.1.3,63 13,4223 1.11.115 ,41.01 1.14,31 3,3 2.3,2 1.31221 'I.41 2,3,31 810.3, 1,1115 2,.111240 1N.24,

tuessla M.36 11.4.441140 115 es31 111.11faw 4.4 2.111116 l 62,41 1,41 11.12 12,5 1 5. 5l,LO 1113.51 2.1111,14 3.111211 5,13.1 11112 34

tntit blur tuatin213,13 1.214,4 111,634 U5LM4 ,214.0 14.14 131 124.3 214,245 13,41 . 30.41 W,1 1113,22 41.0 1311 1,3,13.11 1,111,141 20.13.11 1,41,131 ,1 3,416 .21,1 1.4,

feasoof is 22.43b.11 11,3 25151 3,24 34,65 331 31.3 24,41.11 5,411 30 424 1 11.1H 13,11. 122.1 2,3.5 1,11,41 VIA1 2.1,111j 01.31 WIN.4 10,14616

hell: .. i lisa ecteut 222,114ill'u 0111.1 11 15,11 223111 3.114 310.5113 51221 134,211 214,241 5,1411 K.41 3,13 23,1611 3M,83 ,.3.13 .211,31 2.313,23 2.412,31 1.11.14 2.24661 2,21,6*34

.141,2 ,11131 US163 15.113 612.634 111646 642. WAR1, 2.3.111 w,8,41 4,13, W.311 1,2 0,1 6,14.1 140.1311 22.3,3 25,3 21.221124 ,5 , 4,4,111 3. ,222,30

trei blrdsa efrelae 11,1142 5. 254,111,4 3 111,13. 234,9 3112 1 236,31 3.10.11 s4. 26UA 3,3 4 4 6, 244,3 363.31.1 .11.6 246,3 246.3 1211141, 1311,31 246,IM 3 14,11011 146,131

Irmafer to eate traifer feed 25,3 11,.34

342.3111 114,343 131,131 2,1221,42111,13 " 144,w 141,3 244,5 144, 145.3 314.3 344.3 244. 26.3 14, 1KW, 2416,3

artlegipe elasn Issul 1 33.3 .21 1.20 4.6 in2 144 6.1 3H." 6.41 11.44 12. 22.3" 14.4 14.116 1.44 15.21 31.111 1.A 24.14 31.11 2511.

Ln'.

un t atJII am to lm ao lo tm o l urn u u I am k t am am am u

eutlit l~~~~~~~....*-- - -- _ *_ ._....... ._._-_................ ......... ......... *-- *-_ ... ._ .. _...... ... .... ......... .. _....

Cii ii jal ttr ttb 8,3.38,n.m 5, 4,11 a..m.w, U.,m tU,u n.m,tu .i.ln.in, seam0sinu,tamen U . ,1,t 16I ,131841 1,13,11U n,m37,m 1NIE 01630 1n.tu, 1".10.3 .16,18 lUllel 11,,0 M 11,1Myuewe .4 etee mt, ta,eaa,tis zm,mf,aa al,m.iai U.W., tJ,m,m rn.Um.aai oiW,ail so,eu. us.m,m u,lte,t n,tm,v. a.tn.m 6,1614 .13.221,t 121,3, n,ut,nt? A.1t4.ff .e,a, U,tU,W u.m.tm aa.,rn

b,m t UAttilItaCaritn k it ard eit waute t_b 1aa 21nw nUi,l n 1.1.411u 0.413,ts U . .a 0m 21,,448 t13,21, UW.a111 S0a, 1 1,1.MOM 11..1604 l1.441.41e n.414.13 u,u3m U.u,m n .n8 U n24. arnn e IN.Man ltIIStl,2 Ul.mU.l IU,m.Mnt thu'2Jl. 'mi a,sn ItW r 5UIII asum SInS eUt,w clam5 13.15 ri,a U2,U2 InUl sem mu.mJ m.rn aU,ma a.att.m 1 2u33,in.l.U 4i am.asX 8.1m.n 4 a,au12,14.4 23.301121.33? 16.31 aa,m MAu,es 1 UA M111 I I 4A W91 M W R IM12jWj .MW 104 ,Mu 1014 11NOI& tl.m In.wS WM.# WAS." Ot,uetinltt 2ar aecap.f 1U,41CraIltcr J,Ut,US 13,1, 1,3s,11 ,m,1 3te ut,m, ssu,m,m n.m,ia aa,m.nm pa,Ul,t2 U,aa,aa aU,eIU,U 11,51.1 85,2t4.38,t u.nt,u ae,m,e alma. U,mi,Us u.auwncfwiun 3~alti t,585 ua,,c4,03.81 a.Mm. ,a*I 1.131 11,40,33 1.13,111 1I,33,1 14..a4,5 31.6014 rn,us,m n.m,1m 14,m.m u,amaimm uamz,, eaeaa a.

asantmuts vitae~~2.013s fincas uilag36 sua3s11 1,8 4.113041.01 14.443 1. ,3 N1.E11,4 143 14. ,31 141.0.0 1,1 N.E. .. 9 11. ,3 11. M 14,, u. 8.H.W tu.s, aimN.M1 TM...... .......... ... ....�. ........ .. . ...... ............. . .. .......... ... . . . ....... .......... . . . .......................

bt Ce.fftt AUSU11,6J,.181 1 a..au.ea , ,01,U1 . tIT.M. ".13.3176 n28.W, H.13, 5 1, .1 . U.M.1,E O.M,n Os,m, U, Outn U6St48 N,31,12, 11.1 3,13t 618s.16 ?,.I ,,.M l1 Weu

ttlmee 31mm un SU U,S su Iu,UIUUUUsU,etU2SIlbku,nn IU,t l,ltl.IU, IU, Itub,I l, 8l ,""S I.U, .l

Wfft al ffAt U WA WM UUIII 1,m,1 anm,m aa.M U,au s,,ilo 14.I s.m.m 1mm aut ,WIN e,i, t, t4,1Um 1..1 ",.M t,3111 115,14hutca I'MM 61311 1.1t 3,i11 13,1111 IStu l 3.4s 1.1 1 2 ,1,11 14 1,3 ,14 .4 6 1,45 14.41 11,451 14.4. 14,.43 13,0, 14.31. 3.3.46} 28 .3,6 WAlS 3 .4

am ~~~~~~~~~~1.1,0la.a IeSOM 1,1,1410 211,8,1 11,2141. Mo.1le3 N.M.1614 11.012.112 3,8.143.3 3,10,3 .1 3.Jum 1133 3.641, "4".37 U.E ,14,3 0,13,16 0.54.86 ILiU,3 6,.111,3 3,4.3 3 1.3 ;.1;1Sbareti lu 1M.214 1.04.4 18,8.11 1,3344 1,531,138 a.lla,wr 1,111.1.14 81,13 1..1,13 1,4j1.13 .1.13 .131 1,1 1,4.M1 1,411 1,1.11 a.SMa 1.6,41 1.1,j3 1a...s 1aM91 1.1i.a

li.ta3... l ...... .11,101 Win _1,1 _.111 283, ,.1.,1 ..110,1 1.,.13,1 IMA. _3,31--111 - 1,131,10 I.1,3 .1- S..,11E ,3,1 U.U.0E 1_16,E __wE,6 _,13,8 .11.__ 8--- .. .... .ffins .... u.......... .......... ...-u,tn . .ub n,sn.m n,5u,w n,nt.us .i n .s " .m u ..... ,s ...... . tn,w ., m ., i u,m,w .. n t n,mm.t .b .... .......U21,11 4.31S.111 3,6U.M S.M.0 8,331.J16 1 t lU 4 tMAI t 31 a t t W S t4 .4 St 4m mn U.111. m .N.0 1m .0. 14 U. 1 m . 7 W M m8 0 m1 1 N .441 n3m S 11 IWM 11~~~~~~~~~.0.._ U.T... 1.13.111. _ .......... ..... .... .._. ..._ _ __._.1-............................._ _ .M.124 _il 1.66.1 MM= 3.14.1b.... SA _ __.0 _ .11..... . ... . . _._1 U.X. _W _,, j.. .......

11,11 MM US,NI 1 | em *nmM n,U.1 *,111slN 1u11.04 *,n,m1S m S.5643 I.M D0 a.m.m0 SAM 1A 6t,41ti 1,451.i n.m.m0 $lUSn n1am" n4.twu ttol.U 1.0I ..... U .s ..... .4 .... ... .. .t t .... .tlUt .. .§ ...... 4tlttui"ttS st4 Si"t '4 i' *"" |" ....... .... __M=.__ .,1.1...1__1,M.31 ___10 I.... ___ _ 1.2.0..00 3....M. _ P_AWN 4.......141 G..M. __ 63,__.__1........11.0_ .. ,,,,__ ,,_,,,,,,___ .......................................... m_,,,_, __,,

lumuN ~ ~ ~ ~ ~ ~ ~ ~~~~M U, ,1 Henns,l ,, , ,42,, s,umUUIt ,u Umn ,n,UU s ="U nemummnm. tbu nMlt""Snn.

231 502 II"5 5103 am a 13l ss6 low ... lon ---- -- 6015 se g ismaun us im ar rno

ht.m later. tatnse 4:1.245 32,423 3 . 5AN 2,3141 341.540 1280156 513,415 ,15011 .51 115.24145 5,51,111 1,311,016 ,1311 tws I..ij5,5 ,1,155443 5,13,5"I3 1,3,3 5,011,4 2,34,01 I.G1.52lIeu g.t lulling f"Mt of 1.4,k"utns5 40.13 11,15 11 1 M101 501.05 411455 5155 41.31 £11.130 05.113 53,417 53,41 MAPi *.II 00 tv,sso is.111 1T.3 MA5N MAT21 31,54 WINSt,.5It)IIia. ale 45 find inubt 50 510.18o)560 (511111 1,105l (21.45) 54.315-----.......... .... .... ....

144.5 Iris qaratlrn 411~.171.. ..... ..... 4,3 51 .28 .63............. .... ..1. .12,201........ ,6, ,, .,41, ......... 15,55......5.. 5,3.0...4....334 1..15.5....... 142554total 5.m "Orario IeTtu115.2 45.501 5555 356 3,1 515,455M 01,5 511 5,151.05 31.50 to,43 35.012 111,13 I.M.,63 2^114, 511.40 31.63.13401.1 5M.1I3 5.1431?1 34.555

ban truefer fad 55.165 54 4,357 I,3 5,53lint 05.53 11.1411 5,11 I,021 5.555 301, 11) ,4.5451 5,23,14015,54,135.h5i5a,y emu?s 13,113 5,34,562

4.531.405 4,1,10315 MAN, 1.124,615 1,0151,63 6,555,655 55,53,5n 1,3,53 5.1510 6 5,454,114 2,1,5048 I,31,5 3,W13 5,50, I1.0 ,8 11525.31) 15113135)l 51.118,1135 ,11 1 3,5531 I

£,IieutiS. of teals

11mtm LB liau 11.251SlliSim pSi 11.3115 111,1110 1211,31 555,13 541.163 540,1 540,5 53,3 540,611 50.13 501,6 33,13 53.63 501, 131.631 53,63tat "la 1011.54 525,50 21.21.1 561,6 3,114 53,63 MA 1,1 1 31,141 31,01 0012,61 53111. 111 1 53,U31 m 13,30 1 06,5 5,13.1.53 5.555,1 5..21 ,3.414 1.311,03 13,53,654twim of fin4 "mut 51.41 234,40 515,31 113,63 W RUN53 124 .5 ,1,6 11,5 311.311 53,1411 54L,a 510,1 45355 NSA3 5,554 114.115 13,511 I5,34 615311 015.5415 3,554Srtuutu 9.114.555 2,163,10 13 14.MiutmIt of d,l4e,ia 5.1311bai tiuotlr tue 11.111 in 1,055 4.351 5,615

1.5.1.1.w lnt 11rw.5411

,11M.411 3.11,052,53 53 1,5 15551.31 3,61247 SAM, 1,51,17 5 ,3 164,1 4,314014 461,113 1,13,515 4,560.1,114,425J 1,334,531 ,111,11 5,1411,016 1,453,13 (13,5111 513,63 2.451,13 5,.63.gluseime Iturtleg coital

lacng. Iiecruml im "mui2.5 O lalk the- t*ab Iat 5,145 5,,41) 5151,T5 5,53,1551 511 LIMA4, ,0560,50 5,155,135 54,5511141 5,5061.31 1M2,2 MAN, 6112,134 3.n0 415181,111,501 5,53,33 1,5315 1,63,5315.43,1 4.13,1 ,.111 1,0.17,5

5.1141,5111 55)154 5,411,21 11.555,13 5,3.611 I,13.0 113,54154 6,1,31.1 6,311.0 .M1 1.455 ,01,5 6.255,43 1,65,431 5,141,11 1,11,01 1.555,3 4,52,40 4,41,1015 4.03,5 4,63.112 1,6.M3IluKrM) deerim Si IlAblSttSilCurm,1 dquSt .6 aSSet scent 5l,141.2441 3.511.554 (1,5,555.I51 53,3 540355,1,3 5301 ,5.335,1155 5,5.51(,1.1 51 1,354,451,116) 4,4134.,1)51,1#1814,15,31 (1641,14 1 4.13a.131 45,5.635m

.. . u:~~~~~~s et:::::ii ~~~~~~Z=n..? =::Viii Z= =i iu:&:m:: :et 5 I MU::::ii ::i:=i:t:e ::: n..4.:ts: :.M eim ;

son caln lrmm now

COl'e Ioutin Irchu nloas Uilr tk inject

ICllOI IUI 11 toll 119 [its 11u 4 1115 1191 ll 119 Im 0H 281 ml 119 19 215 n 2 2m 2m Tlml----------- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~, --- ---- .... .... ---- --- ,,, -- .... .... ... ... ... ... ... .... ... ... -- --- -- -------------------------- ---------------------------------------- IS'l' ort---------- -----Wl' lmj ............................--------------toreip kehuge hlo,a

Ioo lacrease Coffee Sales 4,111 1,1S 11,6811 31,511 41,1153 13211 61,N14163581 6105 86 1,316 11 1,3I 8 8I1,8 1,1 81,191 11,331 32,31 3136 113 1418.3,mfrog olitt Improvlee 1 1,834 2,481 4,124 6,618 6,11 13,343 14,164 15,446 15,116,38J 16,31U 16,311 16,388 16,381 11.3U, II,U 16.35 ,.3 16,3UI 24.613

Ilmsclers loflon 3,161 11,117 13,033 1,114 6,313 5,341 7,115 3,196 U4,t

TOTU IOnICI 110113 IULOIIS 8,1m4 20,124 33,118 45,111 61,175 88,344 182,375 1I2,582 113,556 34,603 101,151 117,750 107,t10 181,150 161,15 10,15t6 101,150 1111 101,11 10,5 i m

forhNlP Ichage OttlonI

Project forelp ihlaue 4111 1,117 2,114 2,116 2,365 2,155 1,101 1,531 16,36Outflon

Foretin acIne gOtulow 6,651 6,801 1,165 4,115 1,313 17,311 11.483 16,111 11.410 17,7114 ,411 8,431 1,41 111,31After hl Of IreJect

lepaac t to llanclera- 1H8 It 44 It ?11 160 2t1 221 233 233 2133 1,312 1,3 11 I,315 1,36 1,383 1,351 1,351 1,3U 1,66

- CDC O 14 s21 3 1,41 2,20t 2,845 2,148 2,643 2,575 2,501 2,352 2,262 1,653 1,615 ft; 31 Ul 1 5I II 23,01

t0111U 1608111 IiC I Om= 413 1,137 3,556 3,03 3,16 4,1 21 4,041 13,388 11,183 11,874 11,363 10,157 210,1 11,926 18,021 11,135 18,46 11,021 16,133 16,051 2311,11

II? 1010 I RC IIU K FLOSS 1,611 II,f 1 21,632 41,t11 51,114 15,21 11,421 59,514 81,16 12,61 16,356 61,612 66,642 n1,3 173,128 l,136 55,344 U,123 U 11,613 U8,6 1, .

J/ CUrret up to leatr 2000. Therkeatef Yur 20111 1flatio factor ued.

sicon corm lroniui mnoct601c Cask flov Deder te Project

DISCRlIUOI 1989 1990 1991 1992 1993 1994 195 1996 1997 19918 1999 200U 2001 2012 2003 2104 2105 20K 201 2010 2I tOtLS--- --- -- -- -- -- .... --- --- -- . -- - - -- --- -- -- -- -- -- .... . -.-. .... --- ----

l-I Sb million -Ilorenreu t Cua IDfIloO

frog Taes ud Oeties 6.3 54.6 41.9 8.0 9.t 10.1 10.7 141.3

from Couty Council Cews 0.8 I.? 3.3 6.0 9.0 12.5 16.8 11.8 11.1 1l.1 20.7 20.? 20.1 20.1 21.1 20.? 21.1 21.1 21.7 21.? 313.3

Froe bport Duties 9.4 21.3 41.2 14.5 112.3 156.4 209.4 222.9 234.3 246.3 '258.9 258.9 251.1 251.1 258.1 251.9 251.1 250.1 251.3 251.1 3,116.8

Lou leppaets from 1.3 36.? 13.5 so.? 125.0 168.3 180.6 219.6 240.1 231.5 201.6 110. 146.7 111.4 I 6.3 23.1 2,116.2Coop awa

IDI lmlous 43.0 144.5 192.5 150.2 12?1. 130.9 126.3 65.3 N1.1

tOtlL COIlhlIUt CIUs IILOIS 61.3 222.0 280.2 215.3 342.1 398.1 489.0 412.4 433.1 405.6 519.1 511.1 419.2 460.3 421.3 313.1 341.9 312.1 213.6 219.6 1,U4.5

Goven eat Cash Outfiloa

Project pemdittres- Coop lua 42.8 115.3 14.1 129.0 140.2 1419.6 123.1 59.4 IK6.C

- Other Governwet Project 32.t 23.6 29.9 25.8 21.7 21.4 22.4 113.4Aseiciu

tepayeint to limnclers- iD 0.1 0.3 0.9 1.6 2.5 3.b 4.5 5.1 5.4 5.5 5.6 33.4 33.3 33.2 33.0 32.0 32.? 32.6 $2.5 32.3 331.3

TIL coniEm CASE ODIIL0o1 15.6 139.2 111.9 156.4 110.4 114.5 150.0 64.5 5.1 5.5 5.6 33.4 33.3 33.2 33.0 32.1 32.1 32.6 32.5 32.3 1,42I.3

l COlo= CISI I3(Oof)FLOVS 115.2) 82.8 102.3 118.9 1I1.6 224.2 339.0 401.1 428.3 480.1 514.1 471.6 455.1 421.2 395.3 351.1 315.2 210.1 247.1 241.3 6,Ut7.1

:: . . . . . . . .:: .- -

l, -"=S=== = , a- __---° a , - - _-a--_ _ .. . ...... -- -.- ^£-^

C------- - - ----

,9 a. aae.-u,e;,_ . .. _ _ _ j... ... ... . ..0~~~~~~~~. - - C. . i4g Sj_j - - a, ° - f ° _4 S 99 °

i!~~~~~~~~~~ i3 0 if O~ 5 99==^ 00009_ _0 -~ * E-0i-, .........-. _ -a,- .9

~~~~~~~~~= : r, ...- a io.. 9; a,- X * i -a9s -

3g 9 lEfl3.9^,j -^ j a ,noa 9 .40j_ a , a a3 Xn i. i :_ a a ,ej,, ^ _

- 113 -

OCOUI COIIU I lOIU PIWCIt TAUI I...---------------------- Pag 2 of 3

Coffee Pricial

1969 1991m 1195 2U1

JlICtD IC IC PRICIS a fiCTO! UA - C00ilRA1 SICM (nab/°t)

Cm tpesems at 22 of Ahetioa Price (norage)-I/ 1,161 1,117 1,176 1,112

xort hty at 16m of lActios Price (average) I I I I

Cocuty Council Coms at 15 (averae) I 0 1 1

IPCn fixed 3iliU Charges 731 131 131 731

KICO lillig Ageacy fee(average)J/ 369 389 392 3914

Coop iom CQarges at 1.5t of auction get of 751 751 757 161above charges (average).

U fACtOR! WTI-Clus 1 64,232 64,232 61,565 64,903-Class 2 63,132 63,132 63,501 63,634-Clams 3 62,632 62,032 62,438 62,766-Class 4 60,363 60,383 60,843 61,163-Class 5 57,633 57,633 56,165 56,492-Class 6 52,134 52,134 52,166 53,149-Class I to 10 19,141 19,141 20,910 21,094-ibui 16,392 16,392 16,312 16,423

Coop Society Charges at 122 (Average)j/ 6,666 6,666 6,711 6,152

DILIIIIID fACto GAtl (aLL CLASSIS)-Clus 1 56,621 56,624 56,914 51,212-Class 2 55,651 55,651 55,971 56,270-Claus 3 54,662 54,682 55,039 55,326-Class 1 53,226 53,226 53,633 63,915-Class 5 50,604 50,604 51,290 51,561-Class 6 45,951 45,951 46,604 46,651-Class 7 to 10 16,613 16,613 16,485 16,595-Ebui 14,450 14,450 16,142 16,210

DILIURID fICTIOI OAT! (ATRUSI GDI).3/ 42,433 42,433 43,197 13,426COOPIRATIYI SICtOI

J/Averages boasd on class 4._2/ the agecy fee is 0.15S of the auction price net of export duty and net of Coumty CCouncil Cess._/R1nsed on *eighted average actaal deliveries from the smallholder sector 1982-1987._/Coop. Dept. nidelimes stipulate a 102 liit. Is practice, te chargtes are oftemhigker. Measures under tke proJect would reduce charges from current levels believedto averase aroud 151.

- 114 -

SICOID COFFEE IbPNOIE1t PrOJECT TULI 1--------------------------------- Page 3 of3

Coffee Pricing

1989 1990 1995 2000

PROJICTlD ICONObIC PRICIS T FAICOY CATI - ISTIT SICTOR

CiB Expenses at 2S of Auction Price 1,167 1,167 1,176 1,182

Export Duty at 102 of Auction Price 0 0 0 0

County Council Cess at 1S (average) 0 0 0 0

IPC0 fixed Killing Charges 731 731 731 731

IPCU Billing Agency fee(average)_2/ 389 389 392 394

Coop hion Charges at 1.5S of auctio 0 0 0 0above charges (average).

El IACTORY GATE-Class 1 64,983 64,983 65,321 65,663-Class 2 63,883 63,883 64,258 64,595-Class 3 62,783 62,783 63,195 63,526-Class 4 61,134 61,134 61,600 61,924-Class 5 58,384 58,384 58,942 59,252-Class 6 52,886 52,886 53,625 53,910-Class 7 to 10 19,893 19,893 21,727 21,855-Ubuni 17,143 17,143 19,069 19,184

El FACTORY PRICE (NV.GRAD8)3/ 48,889 48,889 49,761 50,027

Estate Processing Costs at 10% 5,624 5,624 5,667 5,697

ITO FIACTORY GATE (ALL CLASSIS)-Class 1 58,467 58,467 58,771 59,079-Class 2 57,477 57,477 57,814 58,117-Class 3 56,488 56,488 56,858 57,156-Class 4 55,003 55,003 55,423 55,714-Class 5 52,530 52,530 53,031 53,311-Class 6 47,582 47,582 48,248 48,504-Class 7 to 10 17,898 17,898 19,548 19,664-Ubuni 15,424 15,424 17,157 17,260

IIt) FACTORY GATE (AV.GRADE)3/ 43,986 43,986 44,771 45,010ESTIAI SECtOR

J/Averues based on class 4.J/ The agency fee is 0.75S of the auction price net of export duty and neJ/Based on veight:d average actual deliveries frou the 1982-1987.

- 115 -

- FsplofI.... . .......

ueo Cenu luNWw ?Wm Wu I

.. __..._ ---- ------..................... fill lo*1 3

Coffee Nilet

CoSnli IN3 VIOuAiL FlCtS I$ 11i 1311 20

IC. leileaot - Otbur S,15O 3,153 3,041 3,061liii ltHie. (3,"'If)

Frai for nla IlU d Colfee-Clas I 2IT 21n 321 3?2-Clua 2 251 251 333 333-Close 213 13 233 2in-Claus 4 2o 2in 251 251-Cluas 1 '51 15 III 2o t-Clus It I 101 1s-Clue to 101/ -551 11 - 5N -5n s

-nuiJ -6In - -551 -151

tep ubad Caloff -ua Dock ( oe)-ClA$ I 4,0U1 4,011 4,025 4,40-Class 2 3,133 3,031 3,113 3,f11-Clas 3 3,015 3,15 3,013 3.11?-Clsa 4 3,U10 3,710 3,001 3,320-Class 5 3,623 1,622 3,655 3,013-Class 6 3,300 3,30 2,351 3,3i6-Class Ito 10 1,108 1,410 1,523 1,5)0-Ibul 1,260 1,260 1,310 1,311

flixed Cbarteu D othatesa (1) (117) (11) (11)

frelgt ad lsseraice (avergetL/ (200) (260) (20i) (201)

keys aeste Coflfo - l0O loeaeua (SSIC 3)-Class 1 3,112 3,112 3,111 3,0ll-class 2 3,110 3,110 3,131 3,150-Class 3 3,640 3,64 3,611 3,1690-Clus 4 3,55 3,555 3,501 3,600-Class 5 3,400 3,400 3,431 3,449-Class 6 3,039 3,009 3,131 3,141-Clua 7to 10 1,220 1,220 1,331 1,339-ntu 1,013 1,013 1,181 1,181

laya Pashed Coffee - 101 loebau (ISk/tou)-Class 1 69,100 61,100 10,156 10,515-Class 2 60,651 60,651 601046 01,400-Class 3 61,503 61,503 6P,036 61,204-Class 4 65,111 65,111 66,210 6,610-Clue 5 62,110 62,110 63,415 03,121-Class 6 51,168 51,160 11,944 S0243-Class 1 to 10 22,711 22,111 24,637 24,113-Ibua 19,e45 19,014 21,162 21,914 -

leterest, KherNis ad luosrauco (aterauel_2 (1,313) (1,131) (1,152) (1,161)

liWd CMusts to VD Io bass (lo1) (1900) (911) (111)

. ... .. .... .. ...............

LOCtlOI PRICI - 1111011-Clun 1 61,155 61,155 61,502 61,052-Clau 2 u4,u31 66,037 66,421 66,166-Class 3 64,111 64,10 65,340 65,610-Clais 4 63,242 63,242 63,11 64,010-Class 5 60,441 60,441 61,011 61,335-Class 6 54.055 54,050 55,612 55,004-Class I to 10 ,u 11,311 23 ,10? 2, 310-1hal 1t,12# 6,514 10,144 23,N4

1/ issued sold is toe quta sarkets onlyJV Average based Os Clus 4

- 116 -

SICO 101111 I WANTtUI 2won cami IIm uTM PROC TitLE I

----....... hg 2 of 3Coffe Pricing

119 1it" 115N 2t1

1910 COISTAI? PiIICIAL ?IICES AT PICTOIT aTE - Coo TE .TI (lb/ Ta)

CU lip.... at 22 of Auctiom Price (averege)J/ 1,265 1,265 1,274 1,261

Wort hty at 1iS of Auctio Price (mrage) Bi24 6324 6372 64U5

Couty Coucil Cecc at 12 (average) 521 529 534 536

MPC Fixed Hillllg Charge. 715 715 795 795

IPC0 lilliag Moso, fee(nverge)_2/ 423 423 426 426

Coop Dilon Ckarges at 1.52 of auction tet of 617 617 823 827above chkres (average).

II fACTOET aTll-Ca.ls 1 57,193 57,193 57,477 57,779-Clasa 2 56,122 56,122 56,442 56,739-ClaIs 3 55,051 55,051 55,407 55,696-Cla.. 4 53,445 53,445 53,654 54,136-Clua 5 50,766 50,768 51,266 51,537-Clsas 6 45,414 45,414 46,089 46,335-Clia. I to 10 13,289 13,289 15,030 15,124-h1bul 10,612 10,612 12,442 12,523

Coop Society Charges at 12S (averase)3/ 6,1413 6,1413 6,462 6,1497

DIEIEID FICTOY GATE (aLL CLASSIS)-Cla.s 1 49,626 49,626 50,074 50,337-Clam. 2 48,8I3 18,693 49,172 #9,431-Clais 3 47,960 47,960 48,270 48,524-Class 4 46,561 46,561 46,917 47,165-Claur 5 44,229 44,229 14,663 14,899-Claim 6 39,564 39,564 40,153 10,367-Clams I to 10 11,577 11,577 13,094 13,176-USua 9,245 9,245 10,639 10,910

DILIVIEID FICTORY GAIT (AIUGI GRDI) 36,174 36,174 36,671 37,073aeed on leighted Average Coffee Deliveries

By Claim 1982-1987.J/Averagea based on clsus 1.2/The Uagene fee is 0.75S of tke auction price ett of export duty andcounty coucil coma._3/Coop Dept, guidelinem stipulate a 102 lalt. In practice, the charges are oftenhigher. haseure uder the project voeld reduce charge. mn current level, believedto nerage aroud 152.

- 117 -

SICOND COV.31 IDPE0oYUNT PEOJICT TAULI 2.------.------------------ Page 3 of 3

Coffitee Pricing

1989 1990 1995 2500

1989 COlSTANT fIlIICIaL PIIC11 At FACTOR! GATU - ESTATE SECTOR

CEl peuises at 21 of hAction Price 1,265 1,265 1,274 1,281

Ixport Duty at 101 of Auction Price 6324 6324 6372 6105

County Concil Cess at 1S (averaUe) 529 529 534 536

IPCU !ied Billing Charges 795 795 795 795

IPCU lilling Agency fee(average)J2/ 423 423 426 428

Coop Union Charges at 1.5$ of auctio 0 0 0 0above charges (average).

t 1ACTOI1 GATn-Class 1 58,199 58,199 58,489 58,796-Clams 2 57,112 57,112 57,438 57,740-Class 3 56Wa24 56,024 56,386 56,683-Claus 4 54,393 54,393 54,809 55,098-Clams 5 51,675 51,675 52,181 52,457-Class 6 46,238 46,238 46,925 47,175-Class 7 to 10 13,617 13,617 15,386 15,481-Ibuni 10,898 10,898 12,757 12,840

El FICTORY PRICI (AVERAGE GRADE) 42,286 42,286 43,104 43,335

- 118 -

.............................. I............ bd

" uc n - mam ms a.......... ~ ~ ~ ~ ~ I...

411 ---..... . ..... Isv 3 4 It itv i1 t 13

0~l24 S1M

Ws!. 4s1j 11,664 .# 41,411.1 11,111.1 I11,12. *4,2134 46:51.23. 61,44.4 ,426 4I441.6 4,4*1.1 226AI. "14,1.6 21.61611i.. 2u4 2,44.4 44,613.2 64,163.2 CO.444 144,41.4 fit. I W 2.601. 111,4. 2126. 22,62 22,4. 212, -14. 212,116.1 S1.1216.1Ii tshit SWts 18,611. U1,11.1 U.31S.t 6S.tlJ.2 U,ltS.I 11,. 14,111.1Ls*vi 1,11.? .1 1,1 1.6 11,24.1 444,445.2 41,4*6.1 14,16.6. u413. 1 44,41.6 .84,6. 3.4 144,11.4 .4,613.6 ,.6..

WI1 huut. 2w"w.sstJ 6,23. 6,144.6 1,116.6 8,118.6 1,118.6 4161.3 6. 11131.? 6,144.1 1,1611.3 H2,1". 216661.4 ii.11.4 fins..Fso r . "11.2 6I1.8 2,44. 1.2 3 ,26 J 1.111 1. #nIA ,A2 2,622.4 *6114.4 4,m61.4 4,642.4 4,841.,

flu

btf 1111.1 3t.6 44I,I6.2 29.,86.1 22,416.4 t,U.2.l 1,663.6 11,46.4 l,Ut1.1 21,6.4 2,161.6 t.4t.t1 2,".t1 2,66.4-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r _gu bNit *,22 11. 81.1 21,432.3 Il2,U6.l .l 13.1 4,811.1

T s ws.n s s u

tLr.d 311.1 .3 16411.1 1,236.4 4,111.1 51,11.3 4,184.3 4,144.3

.._~~ ~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~~ ~~ ~~ ~~ ~~~~~ ._.. _ ,.. ......

"ILL 464111111 21,m6. 245,23.4 3166.311, 144,21.4 341,312.4 342.634.1 434,422.6 JU11213.6 AM HO2,431.11.2,23 1 L 32,44.6 3174.3.6

r

aSitlbJ 1.lU.U tsA 41.211 ,11. 4,.62 1,6114 22,112.Ht 2IS4.I 11 6,111.11 2.2.1 1,.11 1.11 l U IU411 2,61.UNriasli SItsslJi 43,641.61 42.11.66 42,643.34 43,48.61 43,261.16 43,214.01 43,312.518 "111 43.3)2 4,4.64 .41,1.44 41,424.6 .41,2.66law3 HI,11414 2241.23.11 3,1413.11 144,131.39 411,414.14 6*4,321.8 421,14.1 1151,133.40 116,11.81 3211233.43 61I.2*.41 21,23M.41

l _Ka.t lt. -uJ/ 1,JU U,Nt IIA.6 2,1 ,421 3um1,3 13,314 11u11u.2 lu244, 111 1 11442 211.5Ss 32l6,

&"Ad ts

__,,,__,_,,__,,__,_.,_ ............ ......................... ,--_-.._. Tau 1231 8 aU ts 2,. 314,112.11 112,18.11 461,614.1) 162,1132.23 84,31411.18 914,113.Nt 1611,424.36 81M.41 19164.4.

_~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.__ ......... . ._ .... _.. . _.__._.........._._._.........._. ... _. . ..

622k.) hssmmtl, Cet"ffts. .21 21128,0.132 131622(4.1.8 114,314.4121,1614 111,441.11 321814.6114 U14,161.11 SU1254,1.4 116,343213 MUM66.T 141,M11.2 858,817.65

kute 2trt ul * lIt.. tM 15 111, l t1 lus 242 IIt 1644..

Coop.1nf.i. Catf l.t. Cement

Iniuc hl2url 4b. i. hut 341 6itI M2 m 11t1 Ice 64 tut

nO.1 Pnrject 2348,11 1. 1411 .111-)I.UJ 224,24.61 2,841.23 143,144.11 31,2.11 462,164.1 1,881.1 121,121.N4 4191.11 111,314.tl 123,226.66

lefavi Itulw fluof r t. 2 vi1a m Itt 22O potu

*6t ?"M t film*t 12t1 2,84,211

J /Uus 22. 46 sf sill l bitj (ru,5 l qU.itY SNNI Ida1 sill bl silai8 It imun tA nUIroject 3tt.Cot s lecd I rera l eintil it aU rad MIs t .1 glat aid uedLur to far va I .J/Sul slb pi Uu t. tr tr u siuU tb pnJect.Jh13411 nii.15 inJcIt 411lnn, 5nftiln I4 21223121 to auid dubs ntai t of fcton asftiu.I2rt 41tj at rmty nilmli tau an SW h.jIu mO sle naulitl of *t l rlns &M fIctUI unpn. pklr s tablshott bPrt d4t2 rd nuUt cn.til rcu d.4 4.

jIIwun sulIu n l lutis rsqlnmct (iaw 1. l41r 32 flU is adjinunt f4t gull suit...j1rl ocsiuh u .I in .of cffee t.rp Isutinut mus. 1.sst ie sll it Itr o nf M 2 eftitl

sln.tIt tue t. iitet a I * t nal 2 cast flat ad oulipst.J/huleant nab/ It IS Utr Mnt of rp28 lUslstUt a tn HUt ntla to @5 flait adUi pst rMglan nt.tium UU Ise1.4 i Us itlug m n tm .

J/lt H W t rl nfNf fdtln .4 "WA I n,tn lintit.

- 119 -

t1ab 3hae I. of2

m Teat Tuer Teat Tear Ta Tear Tear fur Tear fTer Ter Tar------------........- t11 IS 1t 11 11 is 21 21 22 23 24 25

Cattle ueltertlJ/ 11,535.3 251,1.5 21,135.3 21,322.7 4,41.5 ,4I1.6 4,411.6 11,521.6 16,011.5 11,611.6 115.38. "U A56.h, I te 151S,N3.1 151,355.1 5l1,315.1 151,351.1 51,305.1 151,355.1 11,311.1 1561,35.1 1I51,3n.1 151,355.1 1513S 5.1 151,3U 1.1- ?ao est list"

tolou-l/ 14,613.1 14,613.1 54,513.6 145173.1 54,513.5 546173.6 64,613.1 54,013.0 54,5173.6 54513.1 54,113.5 54,013.1

"II lattes tulrevatal 11,312.1 1,153.1 10,651 3 11i,#1.4 11,565.4 1165.4 11.216.5 11,312.1 11,153.1 15,611.3 11n,5.4 11,655.4fe lusts 1,11.4 6,11.4 R,U I 1,1111.4 1,111.4 5,651.4 l,551.4 5,581.4 I ,6,1.4 51681.4 I,1.4 8,511.4

ui,

Cdlfu IUl /2 2,662.5 2,662.5 2,55.5 2,22.6 2,562.5 2,112.6 3,662.5 25,421. 26,255.1 2,662. 2,112.6 2,6H2.1

in

project lae t hSit

l8 "M UCIISuL u Asmigs

M0AL IlCTIL COSts 215,19161 271,n15.4 215,1965. 215,41.4 261,56t.1 261,516.1 261,695.6 216,115.4 291,123.2 214,136.6 214,691.0 211,121.1

EIm

Iseatal Frduetil

atlitijy/ I5,861.10 1,118 U8 ,S11 15,611 15,516.1 n 6,610.1S 16,611.10 1,5115.10 11,616.10 15,5 .1C 16,615.11 6 16,51.16?riee(I h/toJ 43,426.06 43,42U.6I 43,428.66 43,426.16 43,426.6611 43,425. 43,428.61 4,426.01 43,426.00 43,425.I5 413426.6 43,426.55Value 61,232.45 811,232.45 111,232.45 611,232.45 611,232.45 1I1,232.45 811,232.45 117,232.45 611,232.45 511,232.45 111,232.45 117,232.45

balltty laroeeut

lenutul lmeua4 180,585 111,116 151,116 161,224 161,224 161,124 111.224 161,224 181,224 181,224 111,224 161,224

lsduleal "YIJ/ 211,353

TOT INOlMtA lI3DltS 9N,211.05 991,1111 111,451.11 118,456.1 6611,455.5I 11H,456.61 1,456.61 9591,45.61 11,458.51 613,456.6 6191,451.67 1,215,11.3t

UT c FLOS............

litbt Cooperative Colffe Fatories 555,154.05 5611,413.3 516,114.63 561,6l.13 516,166.13 566,066.13 555,131t.5 512,43119 $42,121.0t 560,114.13 561,061.13 6l,lt6.713

kose latearl bte of letan

kt pre.t Valle at 122

Coeratiee Coffe Factories Conant

rkSou lstrul late of Itton

bell Project 123,111.40 121,563.16 1206,214.1 115,568.25 131,161.95 136,1115.5 736.710.U E11,141.32 11,7333.52 12,1,201.6 123,460.11 931,451.11

kh e lateal late of latn

it eaeat false At 12I

- 120 -

KENYA ANNEX 8

SECOND COFFEE IMPROVEMENT PROJECT Table 4---------------------------------

Sensitivity Analysis______________________

WITHOUT ICO AGREEMENTWithout factoriesNet cash flowERR 30.02%

FactoriesNet cash flowERR 27.57%

Total projectNet cash flowERR 28.61%

25% DECREASE IN REVENUESFactoriesNet cash flowERR 25.13%

Total projectNet cash flowERR 23.84%

25% INCREASE IN COSTSFactories

Net cash flowERR 26.79%

Total projectNet cash flowERR 26.10%

SWITCHING VALUES AT 12% DISCOUNT RATERevenue Reduction 52%Total projectNet cash flowERR 12.17%Net Present Value (0)

Cost Increase 93%Total proJectNet cash flowERR 12.06%Net Present Value (0)

- 121 -

c O muIIU MIT POOCT Table I

1CIIITA L US 11IUIIT 101 SELLWU Cmlm

(sM per keetare)MC TTUI---) 1 2 3 4 5 6 7.

kdx. Yield Modl....... . . . . . .

kea(ha) 44,513.1

taeke ta 01.4 01.4 0.1 .7 .11 0.l 0.7

Ioertuutal Labour/hal/ 30 65 145 175 210 215 316

iodel Icremettal Labor 534,036 1,513,102 4,517,055 5,451,6il 6,541,14 1,561,626 9,657,151

Nig Tield lodel

krea(ha) 21,013.00

Uptake lte 0.4 0.4 0.1 0l. 0. 0.l 0.17

-CNreoektal Labour/ha 35 76 101 152 112 232 212

Wodel wereeostal Labour 205,120 657,696 1,5718,92 2,242,912 2,833,152 3,423,392 4,013,632

Low Yield Model

AI(ha) 51,521.00

ptake late 0.4 0.4 0.7 0.7 0.7 0.7 0.7

lurememtal Labour/ha 50 100 115 135 165 205 230

Nodel lacrewutal Labour 1,030,580 2,061,160 4,148,085 1,869,491 6,613,066 l,394,412 8,296,169

Total lacreneital Labour (ibm) 1,859,136 4,231,958 10,244,031 12,564,020 16,0148,99 19,364,631 21,966,952

Total lIceruutal Labour (sygars) 930 2,116 5,122 6,262 6,024 9,692 1t,913

Total lacremtotal Labour (ujears) 1,004 2,285 5,532 6,175 8,666 10,168 11,862lacludiag latatasij/

ll aacial value (000 k S)O2/ 1,532 11,139 41,481 50,884 64,995 78,508 I6,966

_J/Ioereueats based oo figres is the Coffee Gross largias ad Labour hdgets is the project borkiag files.2/hued oo 3.75.k. per hour.J/Iacludes I pr ceat adjutmeat for estates based or pro rata prodectior.

- 122 -

Annex 9Page 1 of 3

UIXASECOND COFFEE IMPROVEMNTM PROJECT

Guidelines for factory investmet

The guidelines for factory investment covering procedures fromfeasibility to contract execution are existing from SCIP 1. These havebeen extensively revised and refined so as to place much greater emphasison determining the financial viability of each individual investment. Afull set of the revised guidelines is incorporated in the project workingpapers which have been made available to the project management. Insiuary the process for factory Investment under the project is asfollows:- Requests for factory improvement originating from a Union orSociety will be subjected to a PRE-FEASIBILITY SELECTION carried out by theDistrict Coffee Working Group (DCWG) in each district. The DCWG consistsof :- the District Agricultural Officer (DAO) and the District Co-operativeOfficer (DCO) - alternate chairman; the district coffee extension officer;the general manager of the District Cooperative Union; the secretarymanager of a non-affiliated society; the credit co-ordinator (DCO'soffice); the crops officer (DAO's office); the water baliff; arepresentative of the Co-operative Bank; the district development officer(DDO) and the district works officer - permanent membership - withco-option as required of the provincial or district coffee factory engineer(PCFE or DCFE) and the district coffee factory technician (DCFT). The DCWGwill complete form 2 of the revised guidelines outlining briefly theprocessing constraints, a processing capacity checklist and theirpreliminary choice (with reasons) between a rehabilitated factory, re-sitedfactory or new factory or rejection of the request as the case might be andforward this to the PCMU.

If the pre-feasibility is positive the PCMU assisted by the DCWGwill carry out a full feasibility as set out in form 3 of the revisedguidelines. This form sets out details of the processing constraints; theprocessing capacity requirements; facilities and equipment needed; thecapital and operating costs and the expected benefits from investment. Itwill show clearly (1) the financial rate of return and (2) the factorycash flow after financing. If the investment is financially viable for theindividual factory concerned the PCMU will complete form 1 of the reviseduidelines recommending an investment - i.e. rehabilitation, re-siting or anew factory.

The society will then make provision in its budget for the proposedinvestment and apply to the Commissioner for Co-operative Developrent (CCD)for authority to incur expenditure (AIE) on the basis of the feasibilitystudy completed. On receipt of the approval from the CCD the DCWG and thePCMU will assist the society to prepare a project loan application forsubmission to the Co-operative Bank subject to the following reviewprocedure:- The donors will review together with the PCMU the first 6 loanapplications under the project and determine if the investment guidelinesare appropriate and are being applied in a satisfactory manner. If serious

- 123 -

Annex 9Page 2 of 3

shortcomings are noted in the feasibility procedure (either the guidelinesor their application) the donors will make detailed recommendations andwill review a further 6 applications and so on until the ahortcomings havebeen adequately addressed. Subsequently when investment procedures areoperating satisfactorily the loan applications will be submitted to theCo-operative Bank after final review by the PCMU. The Donors will review asample of 3-6 loan applications during the regular project supervisonmissions.

The approval of a loan by the Co-operative Bank will be subject tosimilar sub-project lending conditions as those which operate! under SCIP 1- Viz: 10 year loans; interest rates in line with current lending rates foragriculture (at present 15% p.a.) and a grace period of 2 years beforecommencement of capital repayment. When the loan agreement has been signedbetween the Co-opezative Bank and the society the DCWG will assist thesociety in the preparation of tender invitations (from previouslyregistered and approved contractors), the evaluation of bids and theawarding of the contract. The DCWG will subsequently supervise thecontract execution through the MOA district engineering staff (who areco-opted to the DCWG) and will arrange the forwarding of the completioncertificates and contractors invoices at the Co-operative Bank forpayment. The complete cycle for factory improvement is set outdiagramatically below.

Annex 9- 124 - Page 3 of 3

CO-OPERATIVE COFFEE FACTORY DEVELOPMENTFACTORY IMPROVEXENT CYCLE

Society/Union'request forfactoryimprovement

. IDCWG

.pre-feaoibalitys tselection

PCXU M DCCGAppraisaL aloan preparatLon agemn

. ' \ ~~~~~~~IDA

Review samplev of feasibilitoes

10 . studies.

_ CMU ACPK (XU

i loan submission i | Management &Supervision

CO-OPERATIVE BANKLoan approval

DCWVG/PCMU Loan agreementbid invitation ___~Loan facilitybid evaluation Payment ofcontract award Contractors.

tCertificates of Completion

- 125 -

Page 1 of 4

SECOND COMFEE IMPROVEMENT PROJECT

FUNGICIDES, PESTICIDES & HERBICIDES USED IN COME

The Kenya Government exercises close control over the use of allfarm chemicals through the Ministry of Agriculture (MOA), the CoffeeResearch Foundation (CRF) and the Pesticides Board. For coffee, thepolicy and practices regarding the use of farm chemieals are contained inbooklets (5 in all) which are published by CRF and updated at regularintervals. In addition, specific Technical Circulars are directed to allcoffee growers through the extension/liaison services on pests anddiseases of economic importance. The CRF aims to decrease hazards fromapplication by issuing two separate lists of inescticides - one givingthose recommended for use under smallholder conditions and another,longer list, giving those recommended for use under estate conditions.The attached is a list of fungicides, pesticides and herbicides which hasbeen tested and recommended by the CRF for use in coffee and have beenapproved by the Pesticides Board. The CRF recommendations include, inaddition, detailed Instructions on the storing, handling and applicationrates for these chemicals as well as instructions on the use ofprotective clothing.

In addition Farm chemicals which pose a serious environmental orhealth hazard are denied approval by the CRF and are excluded from themarket by a system of import licences. It is noteworthy that pesticidessuch as dieldrin, aldrin, and others with high acute toxicity such asparathion have been excluded from the market. Similarly captafolfungicide which is a suspected carcinogen has been withdrawn completelyfrom use in coffee.

Fungus diseases and fimaicide use

Two fungus diseases are economically important In Kenya coffee -Hemeleia Vastratrix (leaf rust) and Glomerella Cingulata (coffee berrydisease). The recommended control measures are by routine sprays ofmainly cogger-baset formulations as listed.

Pest and pesticide use

Routine sprays of insecticides for pest control are neverrecommended by the Research or Extension Services in Kenya. InteQratedPeat Control is the official recommended approach and the concept andprocedures are clearly described in a circular which is kept up to dateand distributed for use in both the Estate and Smallholder sectors. Theemphasis is on biological control and cultural control of pests andapplications of pesticides are strongly discouraged unless pestpopulations have exceeded the "economic injury" level.

- 126 -

hnLUAQPage 2 of 4

FUNgCIDES. PESTICIDES ANED IMRBICIDES USED IN COMEE

Bioloajcal contrgl methods have included the introduction ofbeneficial insect predators such as the parasitic wasp Anagyrus Kivuensiswhich has successfully reduced me*lybug attacks in coffee. Culturalcontrgl methods include regular pruning, hladling and de-suckering whichreduces the level of Antestia bug and mulching which reduces the level ofThrips. Simple and straightforward counting procedures for coffee peatpopulations have been devised by the CRF and Chemical spravs arerecommended only when the populations of the major pests have exceededthe economic injury level which have been defined as follows:-

Antestia bug - 1-2 bugs per treeCapsid bug - 4 per treeGiant looper caterpillar - 10-30 per tree depending on

cropping cycleLeaf miner - 35 adult moths per tree

Weeds in coffee and herbielde use

Chemical weed control is used by about 65% of estate growers butnot more than about 13% of smallholder coffee growers. The remaindercarry out mechanical and hand-weeding procedures. Detailed circulars areprepared and distributed by the Research and Liaison Services on thecorrect use of herbicides, the application rates and the precautions tobe taken in their application.

- 127 -Annex 10Page 3 of 4

KrA

LIST OF FUNGICIDES. PESTICIDES AND HERBICIDESAPPROVED FOR USE IN COFFEE

DISEASE/IST gRECOMMENDED CHEMICALS (3) NITES

CBD ) Daconil 2787 - W275 S/H & EstatesHemeleia ) Delan " "Bacterial blight ) Dyrene "

50X Coppez ivrmulations25% Copper formulations

Leaf miner ) Fenitrothion 50% ML S/H & Estates (1)) Fenthion 50% ML " n

Antestia ) Decis 2.52 EC " i) Permethrin 62 " "

Capsid bug ) Cypermethrin 52 of) Somicombi 62 (pyrethrum) of

Giant looper ) Dursban 482 EC It) Nurelle D 25/360 of

) Sumicidin 10% EC Estates only) Dicrotophos 40Y ML * "3 Sumithion 102 EC if) Disulfoton granules 10 * I of) Decamox granules 5% i "3 Furadan 5G and lOG " "

Mealybug ) Inacide (2) S/H & Estates (1)Green scale ) Duraban (2) n

Helmet scale ) Ethion n

White waxy scale ) Decis ofFried eggscale ) Ometheoate ofCottony scale ) Folimat of

) Monocroiophos * Estates only) Gusathion x II

Herbicides ) Atrazine S/I & Estates (1)) Pluron) Simazine) Gandex) Goal 2E) Amitrole) Paraquat *) Dalapon) Glyphosate) Actril

* These chemicals are only suitable for restricted use and unsuitable foruse by small-scale farmers.

- 128 -

Page 4 of 4

LIST OF FUNGICIDES. PESTICIDES AND BERBICIDESAPPROVED FOR USE IN COFFEE

(1) Some of the insecticides and herbicides listed are consideredhazardous for general use except under specialised supervision aswould be found normally under estate conditions. These materialsare considered unsuitable for use by smallholders. Their purchaseand use by smallholder coffee growers would be discouraged under theproposed IDA credit by the PCMU. I

(2) Used as localized applications only applied by hand (paint brush) tocoffee stems to prevent ant activity.

(3) Most cooperative societies purchasing chemicals for smallholdercoffee production purchase 65.70% of the inputs required asFungicides (Dacomil, Delon and Copper Base) followed by 20-25%insecticides (mainly fenitrothion, fenthion, permethrin, inacide,folimat and some sumithion). Only less then 15% of the smallholdersuse herbicides (Atrazine, rounnd up and very little grammoxone orparaquat).

KENYASECOND COFFEE IMPROVEMENT PROJECT

COOPERATIVE SECTORSELECTED PHYSICAL AND FINANCIAL FLOWS IN COFFEE

RelatedI. PRESENS SYSTEM Physical Flow Documentation Coinent

1. Flow of Coffee (a) Farmersdeliver coffee cherries to

(b) Coffee Factories One or more coffee factories in an areawhich process cherries and (b) li) Records farmers are owned by the local cooperative society.deliver parchment to deliveries Delays are caused here by cooperative

Societies holding onto stocks in some casesfor many months before delivering to RPCU

(c) KPCU (c) (i) Records delivery bycoftee factory andforwards deliveryadvices to CBK.

which mills parchment coffee (c) (ii) Records completionand delivers clean coffee to of milling and

forwards millingadvice to CBK

(d) ti) Records deliveries andsales

Id) CBRwhich stores, and then auctions '0coffee on the world and localmarkets to

(e) Buyers

2. Flow of Cash (a) RPCUprepares and forwards deliveryand milling advices to

(b) CBRwhich prepares bulk payment As CBK sells coffee and obtains revenues forregulary from its Pool Fund and its Pool Fund it prepares bulk interimforwards payment to (3-5) and final payments which are processed

in the same way

(c) KPCUwhich divides bulk payment into Deductions made by KPCU for its own agencyamounts owing by cooperative commission (0.75 of 1%). Inevitably there aresociety, prepares cheques and delays between coffee arriving at KPCU andnotifies money received by Coop Bank (See (d) below)

(d) Coop Bankwhich credits the accounts of

(e) Cooperative Societies It is here there are the biggest delayswho may then make payouts to through Societies passing coffee receiptstheir back to farmers only after a considerable

passage of time(f) Members (Farmers)

II. PROPOSED IDA SYSTEM

1. R1ow of Coffee No change

2. Plow of Cash No change except(a) Societies would be required to

make payment to members in monthfollowing delivery of cherry(see 1.2(e) above)

(b) To finance this, Coop Bank wouldadvance money to Societies.IDA would provide part of thisfinancing requirement

0

o -

_*1

- 131 -Annex 12

PAYMENTS TO COFFEE GROWERS AS A 2OF AUCTION PRICE - 1989190

Autction Price 100.002CBK Expenses (wverage) 1/ 2.00ZCountry Council Cess (average) 1/ 1.00%KPCU Fixed Milling Charges (average) 1/ 1.50%KPCU Agency Fee (average) 0.75%

Payment to Producers of Product 94.75%(Co-op Unions and Estates)

Co-op Union Charges ranging from1-3% of Auction hiet of aboveCharges (average) 1/ 1.502

Co-op Society's Charges atAverage of 15% of Net Proceeds 2/ 12.00%51 Sales Tax on Smallholder's 4.00% 31Selling Price

Net Payment to Smallholder 77.25Z

1/ Averages based on Class 4

2/ Includes charges for coffee factory and processing costs.

3/ Equivalent percentage of auction price.

- r1 - ---- * * ------- ~ -- ~ - .. ~. ____-BRD 21315

| S U D A N 2 16 K E N Y A

SECOND COFFEEX 0 ___ IMPROVEMENT PROJECT

K I . \

,~ / '-'F . E T H O P AAlil) 13.ŽO

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k,OCA'.IA .T~~~~~~~~~~~~~~~~~~~~~~~~4ANDERA

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t R I I T M ARsAsT . .. (

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\ ° v ''~~~~~~~~~~~~~~~~~~~~~ t- * ~~~~~~~~~~~~~N 0 H S5 0 M A L I A

At1o ITeoy SOFI j -.gt /> SA.^V E MMU > \

E.R N & A t R

010001, - PS~~~~~~~~~~~~~~~~~Z YR

_C<, ~ ~~ ~~~~~~~~~~ SC ER AR0 0i00s> 1 KILI| rN IVR ] ; > ER N \

H.- B hI,111. , )- %'t' - .1 -. ~ W \

"^"iA~~~~~~~~~ AO L L E Y ;

V'5 OR '0A 'V'/WOV. ..~I0 SO VO~C 4 ,.'.- 0./~1 MILES

"V .. ' A 001*1'l :,' /00 V.0.110,. 11.10, -V.00,000 ,','.",VV0.C,-'1',V,"' 3R to 400 n soK.--

PETA ROVINiCES ANDo( DITIT >4 > 0 1Awph

_4- WRAN;A ; \ .' - %WMGMIBA5.4 0I. CdiWz- A"'Tv .LL YK VV- / i

%tTO * 1 2 o

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.. .,._1.., .^,.,, P,, ,D,,< ,,, ,9r,,, s,,e ............... V;,, ,F,, J 0 0 ,0 0 2 \T:A--

...... ,>M, .>,ow\.|.g6S.N1Om1_04Jo.t>-s_1f>hrS....................................TAIIS A.R,. .. IA= " .. ,0 \.1 )PW. n1.......7 ^... 6T 5 2R5-D I