98879 Cambodia: Integrated Fiduciary Assessment and Public Expenditure Review The Agriculture, Irrigation, and Rural Roads Sectors: Public Expenditure Review Cover photo: Nigel Goddard Cambodia: Integrated Fiduciary Assessment and Public Expenditure Review The Agriculture, Irrigation, and Rural Roads Sectors: Public Expenditure Review ii THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Contents Acronyms iv Acknowledgements vi Executive Summary 1 1. Overview of the Agriculture, Irrigation, and Rural Roads Sectors 1 2. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Roads Sectors 2 3. Budget Processes and Performance 4 4. Efficiency and Effectiveness of Expenditures on the Agriculture, Irrigation, and Rural Roads Sectors 5 5. Climate Change and Public Expenditure 7 6. Conclusions and Policy Recommendations 7 1. Introduction 10 2. Overview of the Agriculture, Irrigation, and Rural Roads Sectors 11 3. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Road Sectors 15 A. Trends in Expenditures on and Support for the Agricultural, Irrigation, and Rural Roads Sectors. 15 B. Economic Composition of Sector Budgets 19 C. The Functional Composition of Sector Budgets 22 4. Budget Process and Performance 27 Summary 30 5. The Efficiency and Effectiveness of Expenditures in the Agriculture, Irrigation, and Rural Road Sectors 31 A. Outputs and Outcomes achieved in the Agriculture, Irrigation, and Rural Roads Sectors 31 Agricultural Extension 33 Irrigation 33 Rural Roads 34 B. Efficiency and Unit Costs 35 Agricultural Extension 35 Irrigation 36 Rural Roads 37 C. The Effectiveness of Expenditures on the Agriculture, Irrigation, and Rural Roads Sectors 37 Agricultural Extension 40 Irrigation 41 Rural Roads 43 Results of Sensitivity Analysis 44 Spatial Distribution of Benefits 45 D. The Impact of Public Expenditures on Economic Growth 46 Summary 48 cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW iii 6. Climate Change and Public Expenditures 50 A. The Impact of Climate Change on Agriculture 50 B. Implications of Climate Change for Public Expenditures 51 Research and Extension 52 Irrigation 52 Rural Roads 52 Summary 53 7. Conclusions and Policy Recommendations 54 A. Agricultural Sector Growth and Public Spending 54 B. Policy Options Available to the Government 55 Public Expenditure Planning and Management 56 Annex A: References 58 Annex B: Note on Data Sources 62 Annex C: Integrated Agriculture, Irrigation and Rural Roads PER Data Set 65 Annex D: Recurrent Budget by Economic Classification, 2000–06 71 Annex E: Recurrent Budget Analysis by Economic Classification, 2007–08 73 Annex F: Beneficiary Perception Survey 74 Introduction 74 Extension Services 75 Irrigation 78 Rural roads 83 Conclusions 85 Annex G: Review of Past Studies on the Performance of Public Expenditures in Cambodia 86 Annex H: Geographical Variation in Effectiveness 87 Annex I: Climate Change and Public Expenditures 90 Annex J: A Proposed Outline for a Possible Approach towards Developing Agriculture Sector SWAp 99 iv THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Acronyms ACIAR Australian Centre for International EU European Union Agricultural Research FAO Food and Agriculture Organization ACR Activity Completion Report FAOSTAT FAO Statistics ADB Asian Development Bank FWUC Farmer Water User Community ADI Agricultural Development International GB Great Britain AQIP Agriculture Quality Improvement Project GCM Global Climate Model ASEAN Association of South-East Asian Nations GDNT General Department of National Treasury ASSDP Agriculture Sector Strategic Development GDP Gross Domestic Product Plan ha. Hectare AusAID Australian Agency for International IDE International Development Enterprises Development IFAD International Fund for Agricultural BCR Benefit-cost Ratio Development bn. Billion IFAPER Integrated Fiduciary Assessment and BSP Budget Strategic Plan Public Expenditure Review CAAEP Cambodia-Australia Agricultural IFPRI International Food Policy Research Extension Project Institute CARDI Cambodian Agricultural Research and IMF International Monetary Fund Development Institute IPCC Intergovernmental Panel on Climate CBA Cost-benefit Analysis Change CBAPP Community-based Agricultural I-PRSP Interim Poverty Reduction Strategy Paper Productivity Project IRR Internal Rate of Return CDC Council for the Development of IRRI International Rice Research Institute Cambodia kg Kilogram CDRI Cambodia Development Resource mn. Million Institute MAFF Ministry of Agriculture, Forestry, and CEDAC Cambodia Center for Study and Fisheries Development in Agriculture MDG Millennium Development Goals CISIS Cambodian Irrigation Schemes MEF Ministry of Economy and Finance Information System MOI Ministry of Interior CSES Cambodia Socioeconomic Survey MOP Ministry of Planning CSF Commune Sanghat Fund MOPS Moving Out of Poverty Study CWRMSP Cambodia Water Resources Sector MOWRAM Ministry of Water Resources and Management Project Meteorology DAE Department of Agricultural Extension MRD Ministry of Rural Development DEPFP Department of Economic and Public MSBF Ministry Strategic Budget Framework Finance Policy MTEF Medium-term Expenditure Framework DIC Department of Investment Cooperation MTMF Medium-term Macro Framework DoP Department of Planning NAPA National Adaptation Plan of Action DP Development Partners NCDD National Council for Decentralization and DRR Department of Rural Roads Deconcentration DSSAT Decision Support System for Agro- NGO Non-government Organization technology Transfer cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Acronyms v NPFSPA National Program for Food Security and USD United States Dollar Poverty Alleviation V&A Vulnerability and Adaptation NPRS National Poverty Reduction Strategy VAT Value-added Tax NPV Net Present Value WB World Bank NSDP National Strategic Development Plan O&M Operation and Maintenance PAP Priority Action Program PB Program Budget PCR Project Completion Report PER Public Expenditure Review PFM Public Financial Management PFMRP PFM Reform Program PIP Public Investment Program PIU Project Implementation Unit PMO Project Management Office PMU Project Management Unit PNH Phnom Penh PPCR Pilot Program for Climate Resilience PRECIS Providing Regional Climates for Impact Studies R&D Research and Development R50 Rainfall of more than 50mm/day RGC Royal Government of Cambodia RLIP Rural Livelihoods Improvement Project RRSP Rural Road Strategic Plan SAW Strategy for Agriculture and Water SEACAP South East Asia Community Access Program Sida Swedish International Development Cooperation Agency SNC Second National Communication (to IPCC) SNEC Supreme National Economic Council SRI System of Rice Intensification SWAp Sector-wide Approach t. Tonne TOFE Tableau des Opérations Financières de l’Etat UNFCCC United Nations Framework Convention on Climate Change US United States US$ United States Dollar vi THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Acknowledgements  his report was prepared by Paavo Eliste (Senior Economist, World Bank) under the guidance of Ivailo Izvorski (Lead T Economist, World Bank) with the generous financial support of AusAID. Qimiao Fan (Country Manager, World Bank), Brett Ballard (Advisor, AusAID) and Patrick Labaste (Sector Leader, World Bank) also provided overall direction and guidance for the analysis. T  he report was prepared on the basis of technical evaluation carried out by a consultant team from Mokoro Ltd, which included Chan Sophal, Ngo Sothath, Kit Nicholson, Po Solen, Ray Purcell. Timothy Purcell (Consultant) also contributed to drafting some parts of the report. Excellent and extensive advice was received from Sergiy Zorya (Senior Economist, World Bank) who was the peer  reviewer for this report. The report also benefited from invaluable comments from Jos Verbeek and Luc Christiaensen (World Bank), as well as from participants in various presentations, which included members of the Government, development partners, and students of the Royal University of Agriculture. We would like to express our gratitude for the assistance provided to this study by the staff of the Ministries of Economy  and Finance (MEF), Agriculture, Forestry and Fisheries (MAFF), Water Resources and Meteorology (MOWRAM), and Rural Development (MRD), and to all those other persons from governmental and non-governmental bodies and from the donor community who provided valuable information and insights.  pecial thanks are extended for the support provided by HE Dr. Hang Chuon Naron (Secretary of State, MEF), HE Mr. S Bun Hean (MOWRAM), HE Mr. Huot Sarim (MRD) and Mr Mong Leng (MAFF). Thanks are also due to members of the Departments of Budget and Finance and of Planning in the three Ministries, to the Heads of the Departments of Extension and Crop Production in MAFF, to the Head of the Department of Rural Roads in MRD, to the Departments of Investment Cooperation, Budget and of Economic and Public Finance Policy, and to the PFMRP Secretariat in MEF, and to staff of CDC.  arya Ou provided excellent assistance in various aspects of the management and administration of the project, and N the preparation of the final document. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 1 Executive Summary 1. Overview of the Agriculture, Irrigation, and Rural Roads Sectors Cambodia has experienced strong economic growth along with significant poverty reduction over the past decade. Average annual gross domestic product (GDP) growth was about 10 percent between 1998 and 2008, compared to a 1.8 percent population growth rate during the same period. Poverty has been reduced significantly (around 10 percentage points in a decade) and continues to fall, declining from 35 percent in 2004 to 30.1 percent in 2007. Economic growth has been broad-based, covering all key sectors, and per capita GDP has increased from $250 in 1998 to an estimated $795 in 2008. The country has achieved macroeconomic stability and put in place an open trade regime, which has led to significant inflows of foreign direct investment (FDI). FDI has been the primary contributor to the explosion of non-traditional exports (largely textiles and garments), which together with the tourism and construction sectors has been the most significant source of growth and non-farm employment. Growth, however, has proven to be vulnerable to global economic and financial crises. The slowdown in garment exports and in tourism arrivals reduced the GDP growth rate in 2008 to 6.7 percent, and the economy contracted by 2 percent in 2009, its worst performance in the post-conflict period. Agriculture continues to be the mainstay of the economy and has recently emerged as an important source of growth. The sector expanded at an annual rate of 4.4 percent between 1998 and 2008. Although lower than the GDP growth rate, the agricultural growth rate in Cambodia has nevertheless been impressive when compared to the average rate in the East Asia and Pacific (EAP) region (3.8 percent). The sector expanded by another 4.7 percent in 2009 despite global economic and financial crises. It makes up about one-third of total GDP and provides employment to about 70 percent of the labor force. The main sources of agricultural growth are: (i) gains in crop productivity (both rice and non-rice); (ii) public and private investment in agriculture and rural infrastructure (transport, irrigation, and processing); (iii) an increase in the rural labor force, as well as substantial investment in social infrastructure such as health, education, and sanitation. Rice is a dominant crop, consisting of about one-quarter of agriculture GDP and about half of crop value added. It is grown on 84 percent of cultivated land by about 85 percent of farmers. Despite this concentration on rice, there has been a significant amount of diversification in the sector over the last decade. Production of non-traditional food and industrial crops (maize, cassava, and soybeans) has had the most rapid growth, partly as a response to increasing demand from the livestock sector, which expanded at an annual rate of 28 percent between 1995 and 2007. Other crops in which production significantly increased in the 2000s include tobacco, peanuts, sesame, and rubber. The agriculture sector in Cambodia has great potential to contribute to economic growth and exports. The country is endowed with a good climate and large land and surface water resource base. With appropriate technical and institutional support from the public sector, there is significant potential for making sustainable increases in overall crop yields by increasing the use of agricultural inputs such as good seed and fertilizers and by improving irrigation infrastructure. Despite the potential of its agriculture sector, there is justifiable concern about Cambodia’s ability to seize these opportunities. The concern is that there exists a set of constraints to agricultural development, and unless these are addressed by appropriate policies and interventions, they will slow down economic growth and poverty 2 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW reduction. These constraints include: (i) coordination issues between agricultural research and extension that limits the effectiveness of public expenditures; (ii) weak and underdeveloped irrigation and rural roads infrastructure; and (iii) an excessive focus on rehabilitating primary irrigation infrastructure to the detriment of developing secondary and tertiary systems and of maintaining these irrigation systems. 2. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Roads Sectors The agriculture and productive rural infrastructure sectors in Cambodia are serviced by three line agencies: the Ministry of Agriculture, Fisheries and Forestry (MAFF), the Ministry of Water Resources and Meteorology (MOWRAM), and the Ministry of Rural Development (MRD). MAFF is responsible for supporting dryland agriculture, upland and lowland crops, rice production, and marketing and for agricultural support services relating to research, extension and farmer education. It is also responsible for water resource functions for irrigated agriculture, for fisheries development, and for forest and catchment programs. It is organized into four thematic areas: general agriculture, rubber development, forestry, and fisheries. MOWRAM is responsible for the development and management of all water. It has two technical departments: the Engineering Department is responsible for the rehabilitation or construction of irrigation/water resources infrastructure as well as its operation and maintenance, while the Irrigated Agriculture Department deals with the institutional issues related to the development and maintenance of irrigation infrastructure. Finally, the mandate of MRD covers other rural infrastructure, including rural roads, water supply and sanitation, ethnic development, community development, and rural economic development. Between 2000 and 2008, total government expenditure grew faster than the economy and capital expenditure faster than recurrent. Between 2000 and 2008, Cambodia’s gross development product (GDP) tripled from Riels 14,082 billion in 2000 to Riels 41,977 billion in 2008. In real terms, GDP grew by an annual average rate of 9.3 percent between 2000 and 2008. During the same period, there was steady growth in the government’s recurrent budget from Riels 1,215 billion in 2000 and to Riels 4,439 billion in 2009, with real increases exceeding 14 percent annually between 2006 and 2008. On average, government recurrent expenditure, in real terms, increased by 10.1 percent between 2000 and 2008, which was higher than the trend rate of growth in GDP. The ratio of government recurrent expenditure to GDP remained broadly unchanged over the period 2000 to 2008 at between 7 to 9 percent. Figure 1. Spending from own resources has increased... Figure 2. …while donor support has declined in riels (thousands) and in percentage of GDP in riels (thousands) and in percentage of total public spending 500 250 450 1.5 36 400 200 32 1.4 42 350 300 150 250 1.3 200 100 150 100 50 50 0 0 MAFF MOWRAM MRD TOTAL Agriculture Irrigation Rural roads TOTAL 2007 2008 2009 2007 2008 2009 Sources: MEF TOFE Tables and MAFF Department of Finance. Sources: CDC database and the DIC. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Executive Summary 3 Total funding for the agriculture, irrigation, and rural roads sectors from the government and donors increased from Riel 464 billion in 2007 to Riel 644 billion in 2009. This is equivalent to 1.5 percent of GDP (Figure 1). Donors continue to provide significant funding for these sectors in Cambodia. Donor spending an agriculture, irrigation, and rural roads averaged about $50 million in each of these years, increasing from Riel 194 billion in 2007 to Riel 207 billion in 2009, albeit at significantly slower rate than government spending during the same period. Most donor funding has gone to agriculture, while funding for rural roads and irrigation has been declining. The share of donor funding in total agriculture, irrigation and rural roads funding has decreased from 42 percent in 2007 to 32 percent in 2009 (Figure 2). However, by international standards, Cambodia’s public spending on agriculture compared to both GDP and to agricultural GDP is low when compared to levels in countries with similar levels of per capita GDP. Out of ten countries, only two, Indonesia and Bangladesh, have equal or lower ratios of public spending on agriculture to GDP, and only Bangladesh has a lower ratio of public spending to agriculture value added. Furthermore, public expenditure on research and development (R&D) broadly defined in Cambodia is relatively low, at only 0.1 percent of agricultural GDP compared with 0.2 to 0.6 percent elsewhere in Asia. Although, international experience shows little positive correlation between level of agriculture spending and high rates of agricultural growth. there is evidence that the quality of public spending does have positive implications on sector growth. As the analysis below shows, Government agriculture spending in Cambodia has generally gone for the provision of public goods and services which are necessary for sector growth. While public spending has in no doubt contributed to high rates of agricultural growth in Cambodia and Bangladesh, both countries also share similarities in terms of conducive and relatively distortions free policy environment, which have encouraged private sector contribution to sector performance. Government recurrent expenditures have been growing faster than GDP in Cambodia. There have been large increases in recurrent government spending at MAFF, MOWRAM, and the MRD on agriculture, irrigation, and rural roads respectively. However, this does not reflect any increased priority in recurrent spending for the sectors. MAFF, which, as a service provider, is most dependent on its recurrent budget, has the largest recurrent budget (expenditure Riel 78.2 billion in 2009), followed by the MRD (expenditure Riel 54.6 billion) and MOWRAM (expenditure Riel 31.4 billion). The annual recurrent expenditure growth rates of the MRD (21.4 percent) and MOWRAM (15.1 percent) between 2000 and 2008 exceeded the total recurrent budget growth rates in real terms, while MAFF recurrent spending grew by 9.2 percent. Irrigation and rural roads have been given priority in the small but expanding government capital budget. Capital expenditure is largest in MOWRAM, where it increased from Riels 17.9 billion in 2004 to Riels 148.7 billion in 2009. The MRD’s capital expenditure has increased from Riels 64.7 billion to Riels 87.6 billion over the same period. The capital budget is significantly larger in MOWRAM and the MRD relative to recurrent budget, and exceeds funding received from donors. Together, MOWRAP and the MRD spend about 16 percent of the total government capital budget. MAFF on the other hand has essentially no capital budget, having received no funds for construction or equipment since 2004. Our functional analysis of MAFF budget spending shows that only 3 percent of its budget goes to extension and 5 percent to agricultural research. The shortfalls in domestic operating budgets for research and extension have been covered by donors, which have allocated about 31 percent of their funding to these functional areas to fill these domestic funding gaps. These are also areas where donor dependence is highest—during 2007 to 2009, the share of government funding in total funding was only 3.5 percent for extension and 41 percent for agricultural 4 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW research. Donor dependence is significantly less in the case of rural roads and irrigation investments (72 percent each between 2007 and 2009) where donor aid has been concentrated mainly on new or rehabilitated infrastructure. In total, the government share of total agriculture expenditures averaged 43 percent between 2007 and 2009 period. This heavy dependence on donor support in agriculture in general has created a number of issues, one of which is whether this funding is fiscally sustainable and another is the proliferation of project implementation units, which have attracted key skills and personnel away from the government to donor projects. Meanwhile, ministries are focused on projects rather than on policy and budget strategy, while the priorities of the donors may not always be aligned with national development goals. 3. Budget Processes and Performance The budget processes within MAFF, MOWRAM, and the MRD are governed by systems put in place by the Ministry of Economics and Finance (MEF). The three-year rolling Medium Term Expenditure Framework (MTEF) forecasts and allocates the overall resource flows to priority sectors within the government. However, the priorities in high-level five-year planning documents such as the National Strategic Development Plan (NSDP), which guides the MTEF, are very broadly defined and may become outdated as development proceeds and circumstances change. Budget Strategic Plans (BSPs), introduced under the Public Financial Management Reform Program (PFMRP) in 2007, are a key policy and budget planning tool for the ministries. The BSP a tool to align the sectoral planning with budgeting process. It is used by line ministries to prepare their medium-term and annual budgets and their program budgets. Despite some progress, the links between the NSDP, the MTEF/BSP, and the annual budget remain weak. Donor practices in a number of areas continue to challenge the government’s ability to capture externally financed spending in its chart of accounts. The main weakness is continued poor integration of capital and recurrent expenditures, which is exacerbated by the creating of separate unit (DIC) in MEF and PMUs within line ministries that manage all aspects of donor-funded projects. To be fully effective, BSPs need to reflect all public sector resource flows to a sector (recurrent and capital), whether from the government or donors. At the moment, the BSPs only capture government resources, and this is a major weakness, given the high volume of donor aid. The BSPs should become the central planning tool for the implementation of the Strategy for Agriculture and Water (SAW) and should cover both domestic budget allocations and donor allocations. At the moment, their effectiveness is constrained by capacity limitations, and by the difficulty of including donor aid, which currently flows through project implementation units (PMUs). The desirability of moving away from projects towards a more integrated and programmatic approach is understood by the donor/development partner community. The constraints on improving budgeting are systemic and thus are to some extent beyond the control of the line ministries. The MEF is responsible for public finance management, and the Public Financial Management Reform Program (PFMRP) is working on improving the system, though the ten-year PFMRP timetable recognizes that these reforms will take some time to deliver. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Executive Summary 5 4. Efficiency and Effectiveness of Expenditures on the Agriculture, Irrigation, and Rural Roads Sectors For the purposes of this PER, the performance of the government in achieving its objectives is measured in terms of production, of increased incomes for the immediate beneficiaries of public expenditure, and of reduced expenditure. Most of the objectives of SAW for research, extension, and irrigation are aimed at increasing the incomes and livelihoods of farmer beneficiaries. In the case of rural roads, the immediate objectives of SAW are to increase the incomes of farmers and to reduce the prices and costs of transport. Also included are the wider objectives of promoting growth and reducing poverty. The levels of output from public expenditure have Figure 3. Cost-effectiveness Indices: Actual and Trend Lines, been sustained since 2002, whereas the costs 2004–09 index of cost per standard output, based on constant 2009 prices per unit of output have been variable (Figure 3). 180 According to government annual reports, there has 160 been an upward trend in outputs for both irrigation and 140 rural roads, with the share of rehabilitations of irrigation 120 schemes and rural roads rising to over 5 percent of 100 the total. There are large variations in annual unit cost 80 figures, but the trend in unit costs in real terms is that 60 extension costs have remained static, irrigation costs 40 have increased, and rural roads costs have decreased. 20 The factors influencing the unit cost variables are; (i) 0 poor reporting; (ii) a possible mis-classification of rural 2004 2005 2006 2007 2008 2009 Extension ($/farmer) Irrigation Rehab ($/hectare) Rural Road Rehab ($/km) roads between maintenance and rehabilitation works; Source: Study Team calculations. Note: Indices are calculated backwards assuming 2009 = 100. The bar chart presents actual indices (iii) increased prices and crop margins; (iv) data analysis for each year and the lines present trends. complications due to the wide range of irrigation work being done. The limited available international evidence suggests that unit costs in Cambodia are high for extension and rural roads and low for irrigation compared with other countries but do not show any tendency to increase. The analysis of economic returns to public expenditures is based on benefit-cost ratios (BCRs). The BCR is the ratio of the net present value (NPV) of benefits to the NPV of costs that would have been calculated if economic appraisals had been done over the past decade. The BCRs were low (close to 1) in 2007 but rose to more than 2 after the commodity price increases since 2007 and despite irregular donor funding and poor coordination with research (Figure 4). Since 2007, public expenditures on extension have yielded high returns reflecting in part raising benefits along with higher agriculture commodity prices. In the case of irrigation, returns to public expenditure have been low, even after an increase in prices since 2007. This is due largely to the disproportionate expenditure allocated to rehabilitating irrigation schemes that have limited or no maintenance operations. With better targeting of public funds, it should be possible to double the returns from public expenditure on irrigation. Public expenditure on rural roads has yielded steadily growing returns throughout the decade. If output targets remain stable and are achieved, extension will yield one of the highest returns among all government expenditure categories, whereas returns to expenditures on rural roads could be much higher. In agriculture, an analysis of economic returns to public expenditure on extension must consider the benefit- cost ratios (BCRs) in other words, the ratio of the net present value (NPV) of benefits to the NPV of costs 6 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Figure 4. While BCRs for agriculture and rural roads Figure 5. …they are still well below their potential investments have been rising… benefit cost ratio benefit cost ratio, 2009 4.0 6.0 5.0 3.0 4.0 2.0 3.0 2.0 1.0 1.0 0.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Extension Irrigation Rural Roads Extension Irrigation Rural roads Actual Potential Source: Study Team calculations. Source: Study Team calculations. that would have been calculated if economic appraisals had been done over the past decade. The BCRs were marginal (in other words, close to 1.0) in 2007 but jumped to over 2.0 after recent food commodity price rises. In agriculture, BCRs for extension have increased since 2007, peaking at BCR of 3 in 2008. Since 2002 rice production has increased by 28 percent, which is attributable largely to an increase in adoption rates of improved sees and farming practices and irrigation on yields as a result of farmers’ contact with extension agents. Public spending on agricultural extension in Cambodia has potential to continue to generate high rates of return but there is a need to increase diffusion rates and adoption rate per extension worker. There is still a considerable scope to increase farm productivity levels, especially for wet season rice, which indicates that extension activities could continue to provide significant benefits over medium to longer term. Increasing long-term performance of public extension activities requires improvements in its institutional functionalities. Achieving better balance between operating costs and recurrent costs, coupled with broader institutional changes which devolve more MAFF budget resources and staff to provincial and district levels would go long way to deliver extension messages to larger number of farmers. Better integration of agricultural research and extension delivery functions will ensure that public spending on development of new crop varieties, and information on research trials on fertilizer and soil management techniques for specific agro-ecological conditions will reach farmers quickly and in easily accessible format. In the irrigation sector, the BCRs remained close to 1 throughout the 2000s, suggesting that irrigation is performing well below its potential. The BCRs for irrigation have not improved in recent years, despite better farm incentives, and vary widely depending on the design of the schemes. This is largely due to a sharp increase in the unit costs. The analysis in this review suggests that only about 70 percent of the command area could be actually irrigated in Cambodia, largely because of incomplete rehabilitation. This in turn is the result of public funds being spent on primary canals at the expense of secondary and tertiary canals. Meager funding for maintenance is another key reason for the limited effectiveness of irrigation investments. There is also the possibility of using new technologies in irrigation investments, which would reduce the need for costly maintenance works in the future. The government has been encouraging the creation of Farmer Water User Communities (FWUCs) to undertake local maintenance works. While this is valid in principle, it may take many decades to achieve. It is therefore unrealistic to place full responsibility for maintenance on the FWUCs, meaning that the optimum share of public funding to be devoted to maintenance is about one-third. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Executive Summary 7 Expenditures on rural roads have yielded very large benefits in recent years, with BCRs of higher than 2 since 2005 and reaching 3 in 2008 and 2009. Between 100 and 600km of rural roads have been rehabilitated and 300 to 1,000km have benefited from periodic or routine maintenance. The recent increase in expenditures on maintenance will further increase the effectiveness of these investments, although the share of the budget assigned to maintenance is still far below the optimum level of about 45 percent of total roads spending. The costs of building and maintain rural roads are increasing with the growing shortage of laterite. New materials and techniques will need to be found and piloted, such as bamboo concrete and engineered earth methods if the progress in increasing rural access is to be sustained, but this will require higher upfront capital outlays and more capacity building. The analysis shows that there is room for increasing the effectiveness and efficiency of public expenditures in agriculture given the potential indicated by the BCRs (see Figure 5). There are number of ways to increase the effectiveness of public investments at current spending levels. For example, expenditures on research, extension, irrigation, and rural roads should be seen as mutually dependent and can be more effective when concentrated in the same locations and when the best locations are selected. Furthermore, geographical targeting of productive infrastructure investments first in areas of high agricultural potential (as defined by higher population densities and closeness to main domestic and international markets) could increase returns to scarce public resources. 5. Climate Change and Public Expenditure Much work has recently been done in Cambodia to assess the impact of climate change on agriculture. Predictions of climate change in Cambodia are difficult as the country is situated between two weather systems. However, analysis to date suggests that most areas of the country will be subject to shorter rainy seasons and longer and drier dry seasons. The social effect of this will be an increase in food insecurity among vulnerable households. The net impact of climate change on agricultural production in Cambodia will be complex and is likely to vary considerably from one region to another. The most strongly felt impact will probably be the reduced and more variable growing seasons, which will require farmers to invest in water storage and will require the development of new crop varieties and farming techniques that are more resilient to unpredictable growing seasons. This is expected to increase significantly the returns to public expenditure in research and extension and in water storage and management. In a country like Cambodia, where the pattern of climate change is both more mixed and more uncertain than in other countries, it is prudent to argue that public expenditure priorities should focus on “low regret” investments that combine standard national planning goals with climate adaptation. These would be public investments that could result in “low regrets” or opportunity costs (such as increased use of better seeds and improving farming techniques, including water and soil management) if the more negative climate effects as currently projected do not materialize. Investments in increasing agricultural productivity would qualify as one such “low regret” option. 6. Conclusions and Policy Recommendations The effectiveness of public spending on agriculture could be substantially increased in Cambodia. The recent increases in agriculture prices have boosted BCRs to levels that some have interpreted as a signal to the government 8 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW to increase its spending on agriculture. In this public expenditure review, we suggest that there is little room to do this within the existing budget envelope unless offsetting reductions are made in other areas. Should such room be found, the prime candidates for increased allocations should be extension, irrigation, and rural roads. On the basis of PER analysis, the following recommendations are offered for improving the performance of public expenditures on agriculture, irrigation, and rural roads: Reallocate more budget resources on agricultural extension. Government funding for extension is low as a share of its agriculture budget and, as a result, these services are dependent on donor support. Public extension has potential to deliver high returns in Cambodia. There is an opportunity to significantly increase government by reallocating it from functional areas of lesser value for money. However, any spending increases, both from government and donors, should be accompanied by improvements of institutional functionality of MAFF extension systems and establishment of monitoring systems to measure the effectiveness of expenditures on these functions. Better harmonization of service delivery standards between various extension providers (government, NGOs and private sector) and elimination of conflicting messages would also improve the efficiency of extension spending for all. Don’t ignore funding for agricultural research. Analysis of efficiency of agricultural research spending in Cambodia was constrained by data limitations, but international evidence shows that agricultural research can have very high rates of return.While increased public spending for agricultural research is justified, it should come with institutional changes which clarify the specific functions of the country’s various research institutions and by consolidating laboratory capacities in various government units in order to reduce overlap and waste of resources. This can be done by establishing joint planning and evaluation systems by the government, donors and private sector to identify research needs and resource requirements. Technical expertise of donors could play an important role in building more effective research capacity in Cambodia. Better integration of national agricultural research institutions with extension services could further increase public spending efficiency on research, as well as extension. Prepare for climate change. Related to two above recommendations, long-term efficiency of public spending on extension and research could be further improved by focussing more research efforts on development of new crop varietals and dissemination of knowledge on improved water storage and soil moisture preservation at farm-level— i.e. “low regret” investments that combine increased agricultural productivity with climate adaptation and mitigation against negative effects from reduced and more variable growing seasons. Increase the effectiveness of irrigation investments. Public funding for new and rehabilitated irrigation schemes needs to be extended to secondary canals and associated infrastructure. The rehabilitation of tertiary canals using public funds is also justified provided that it includes arrangements the costs of operation and maintenance to be recovered from the end users. There also a need for more selectivity in funding irrigation schemes. Increase the share of the budget designated for maintenance of irrigation and rural roads. In the case of irrigation, the optimal level of maintenance expenditure should be about 33 percent of total investment, and in the rural roads sector, an average of 45 percent is required for periodic and routine maintenance combined. This level of maintenance should ensure that the next major rehabilitation is not required for at least 10 years. Investigate the economic viability of using new technologies for rehabilitating and maintaining rural roads. New technologies to consider include the use of bamboo reinforced concrete (for busy roads) and engineered cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Executive Summary 9 earth. The government could usefully invest in or create incentives for others to invest in promoting skills in these technologies. Public Expenditure Planning and Management. We propose the following priorities to increase the effectiveness of public expenditure for consideration. (a) Use the Budget Strategic Plans (BSPs) within each ministry as the key policy and budget planning tool for allocating and managing all resources to the sectors. The BSPs should become the central planning tool for the implementation of the Strategy for Agriculture and Water (SAW) and should include both domestically financed budget allocations and donor allocations. (b) Reinforce the annual budget process by requiring MAFF, MOWRAM, and the MRD to assign “hard” and enforceable budgets to each department through the BSPs. The current system of partial program budgets should be absorbed into this comprehensive approach. (c) Use the MEF Treasury system to record expenditure on a departmental basis. This would require an expanded version of the Tableau des Opérations Financières de l’Etat (TOFE) and greater devolution of responsibility for expenditure to departments. (d) Introduce an annual review and planning process for the annual and medium-term budget process that includes both the government and all of its development partners, that puts BSPs at the heart of the process, and that integrates the SAW into government planning. The donors, in consultation with the government, are preparing to map the way forward, and this should be done as a joint government/ donor activity. The SAW initiatives are an opportunity to establish systems for regular and informative appraisal, monitoring, and evaluation of expenditures and for these to be fed back into future budget decisions. 10 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW 1. Introduction Agriculture is a high priority for the Cambodian government as it is one of the core sources of the country’s economic growth and export earnings. Starting from a low base, government spending on agriculture rose to 1.3 percent of GDP in 2007 and to 1.5 percent in 2009, mainly through significant increases in outlays on irrigation and rural roads. This period of rising public spending on agriculture overlapped with robust annual growth in agriculture output. Al-though insufficient time has elapsed to assess with confidence whether there is a causal relationship between the level of public spending and agriculture growth in Cambodia, the evidence provided in this chapter shows that public expenditures may indeed have had a significant impact in increasing and sustaining agricultural growth, along with conducive policy environment. The analysis confirms that Government budget spending has been generally going for the provision of public goods and services, which have high returns on investments. However, the analysis also shows that there is a good potential for further efficiency gains on resources spent. This report focuses on areas with highest potential efficiency gains to increase the value for money from investments in core public goods and services such as extension, irrigation and rural roads. This is a first attempt to carry out such an analysis in Cambodia, and even in the Greater Mekong sub-region. Based on extensive data gathering and sur-veys, this chapter analyzes the efficiency and effectiveness of agricultural sector expenditures in Cambodia and assesses various options for increasing the impact of government expenditures on agricultural growth. Other chal-lenges include an excessive focus on rehabilitating primary irrigation infrastructure and a neglect of secondary and tertiary systems, a lack of maintenance of irrigation and rural roads, and the slow pace of developing or adopting new technologies to reduce future maintenance costs. There is also a need to better prioritize agricultural and related infrastructure expenditures, both by type and by geographic location, to maximize their impact on growth. The rest of the report is organized as follows. Chapter 2 presents recent developments in the agriculture sector of Cambodia. Chapter 3 gives an overview of sectoral expenditure trends over the last decade. The budget process and its relationship to sectoral development strategies is discussed in Chapter 3. Chapter 4 discusses the novel contribution of the AgPER in analyzing the efficiency and effectiveness of government spending using benefit-cost analysis to examine select public investments. Chapter 5 discusses how likely climate change trends may affect future agriculture expenditures and suggests some priority areas for public spending. The conclusion section summarizes the major findings and policy recommendations of the report. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 11 2. Overview of the Agriculture, Irrigation, and Rural Roads Sectors Cambodia has experienced strong economic growth along with significant poverty reduction over the past decade. The average annual gross domestic product (GDP) growth was about 10 percent between 1998 and 2008 compared to a 1.8 percent population growth rate during the same period. Poverty has been reduced significantly (around 10 percentage points over last a decade) and continues to fall, declining from 35 percent in 2004 to 30.1 percent in 2007. Economic growth has been broad-based, covering all key sectors, and per capita income has increased from $250 in 1998 to an estimated $795 in 2008. The country has achieved macroeconomic stability and put in place an open trade regime, which has led to significant inflow of foreign direct investments (FDI). This FDI has been the main cause of the explosion of non- traditional exports (largely textiles and garments), which together with the tourism and construction sectors, have been the most significant source of growth and non-farm employment. Growth, however, has proven to be vulnerable to global economic and financial crises. The slowdown in garment exports and in tourist arrivals reduced the GDP growth rate in 2008 to 6.7 percent, and the economy contracted by 2 percent in 2009, its worst performance in the post-conflict period. Agriculture in Cambodia continues to be the mainstay of the economy and has recently emerged as an important source of growth. The sector expanded at an average annual rate of 4.4 percent between 1998 and 2008, which was primarily driven by growth in crop production. Although lower than the GDP growth rate, it was nevertheless impressive when compared to the average agricultural GDP growth rate of the East Asia and Pacific (EAP) region (3.8 percent). The sector expanded by another 5.4 percent in 2009 despite global economic and financial crises. Table 2.1 presents the sectoral growth trends between 2000 and 2008. Table 2.1. Agricultural Sector Growth in GDP Context in percent, at constant prices 2000 2001 2002 2003 2004 2005 2006 2007 2008 20091 Agriculture -0.4 3.6 -2.5 10.5 -0.9 15.7 5.5 5.0 5.7 4.7 Crops 2.4 0.6 -4.8 21.9 -2.3 27.6 5.3 8.2 6.6 5.0 Livestock & Poultry -8.8 10.8 -1.1 5.7 3.9 5.6 8.2 3.7 3.8 .. Fisheries 5.0 5.9 0.6 1.7 -1.7 5.6 3.8 0.8 6.5 .. Forestry & Logging -12.4 -1.5 -4.3 -3.0 0.8 5.1 7.0 1.1 0.9 .. Industry 31.2 11.2 17.1 12.0 16.6 12.7 18.3 8.4 4.0 -10.2 Services 8.9 10.8 7.6 5.9 13.2 13.1 10.1 10.1 9.0 -1.2 GDP 8.8 8.0 6.5 8.5 10.3 13.3 10.8 10.2 6.7 -2.0 Source: National Institute of Cambodia. Note: 1 World Bank estimates. The sector occupies a more dominant role in the Cambodian economy than in its neighboring countries. The share of agricultural value added in GDP declined from 45 percent in 1996 to around 30 percent in 2008–09. Despite its falling share of GDP over time as the economy continues to mature, agricultural output has continued to expand due to productivity gains, which reflected an increase in the area under irrigation, the use of improved inputs, and a generally greater degree of commercialization as more private investors, both domestic and foreign, have invested in agriculture. However, the sector has still a high share of its workforce in agriculture, which, when forestry and fisheries are included, was around 70 percent in the late 2000s compared with 42 percent in Thailand and 58 percent in Vietnam. 12 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Rice is the dominant crop in Cambodia, representing more than one-fourth of Cambodia’s agriculture GDP and 40 percent of all value added of agricultural crops. It is grown on 84 percent of cultivated land by some 85 percent of farmers.1 The country has achieved an annual rice surplus since 1995, with rice production growing at an impressive annual growth rate of 6.5 percent between 1999 and 2009, well above the population growth rates. Production over the last 10 years has increased both through area expansion (2.6 percent per annum) and increased yields (3.9 percent per annum). In absolute terms, rice productivity rose from an average 1.5 tons per ha in 1994 to 2.8 tons per ha in 2008/09, which makes it one of the highest growth rate of yields in South East Asia, albeit from a low base (Table 2.2). In fact, while yields in Cambodia have increased dramatically, they are still lower than yield levels in neighboring countries with similar agro-ecological conditions such as Vietnam (4.9 Mt/ha). Table 2.2. Cambodia’s Paddy Yield Compared with Others in the Region tons per ha, selected years 1994–2009 Cambodia Indonesia Laos Malaysia Myanmar Philippines Thailand Vietnam 1994 1.49 4.35 2.58 3.06 3.17 2.89 2.35 3.57 1996 1.81 4.42 2.55 3.25 3.06 2.86 2.41 3.77 1998 1.79 4.2 2.71 2.88 3.13 2.7 2.47 3.96 2000 2.12 4.4 3.06 3.06 3.38 3.07 2.61 4.24 2002 1.92 4.47 3.27 3.24 3.42 3.28 2.61 4.59 2004 1.98 4.54 3.28 3.33 3.79 3.51 2.86 4.86 2006 2.49 4.62 3.35 3.39 3.8 3.68 2.92 4.89 2008 2.75 4.89 3.47 3.57 3.72 3.7 2.97 5.22 2009 2.83 .. .. .. .. .. .. .. Average Yield 1994–2008 2.07 4.47 3.05 3.23 3.42 3.23 2.64 4.37 Annual Growth 1994–2008 4.8% 0.9% 2.2% 1.2% 1.2% 2.0% 1.7% 2.8% Sources: FAO and MAFF. Table 2.3. Intensity of Agricultural Input Application—Cambodia and Selected Countries Cambodia Vietnam Thailand Malaysia China Fertilizer consumption (kg per ha of arable land, 2004) 5 350 141 881 332 Agricultural machinery (tractors per 100 sq. km of arable land, 2005) 11 247 261 241 71 Irrigated land (% of cropland, 2003) 7 34 28 .. 36 Roads, paved (% of total roads, 2004) 6 25 98 79 71 Researchers in R&D (per million people, 2002) 7 115 292 295 629 Source: World Development Indicators, World Bank. However, despite improvements over last decade, the productivity of agriculture sector remains low when compared to neighboring countries in the region. This is largely due to low levels of input use and of mechanization and irrigation, which suggests that there remains considerable scope for increasing output and productivity. For example, Cambodian farmers applied the least amount of fertilizer compared with farmers in neighboring South East Asian countries (Table 2.3). Investment in rural infrastructure has been particularly low, and this has resulted in lower rates of rural development than the rest of the region. The country has the least developed road network in the region with the smallest percentage of paved roads. More than 70 percent of the unpaved rural road network is barely accessible or is impassable in the rainy season, which keeps some parts of the country isolated and impedes their trade in agricultural products, thus causing them chronic economic difficulties. Despite undisputable evidence that access to water increases agricultural productivity, effective irrigation coverage is still limited. Currently there are 1 The main source of data in this section is the Cambodian Statistical Yearbook of 2008 published by the National Institute of Statistics of the Ministry of Planning. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 2. Overview of the Agriculture, Irrigation, and Rural Roads Sectors 13 around 2,400 irrigation schemes in Cambodia, covering a total of 1.046 million season hectares (582,085 hectares of wet season irrigation and 245,288 hectares of dry season irrigation). According to MOWRAM’s inventory statistics, the total irrigated capacity figures for both the dry and wet season show actual effective coverage ranging from 27 to 40 percent of rice fields. However, as discussed in Chapter 4, public expenditure on irrigation both by the government and by donors has been insufficient to provide complete and well maintained irrigation systems. The absence of such systems means that small farmers are dependent on volatile rainfall patterns and are not willing to invest in farm inputs, such as improved seeds and fertilizers. Yet the agriculture sector in Cambodia has the potential to contribute to economic growth and exports as demonstrated by increasing private sector investments over the last few years. The country is endowed with a good climate and a large land and surface water resource base. With appropriate technical and institutional support from the public sector, there is significant potential for sustainable increases in overall crop yields through the increased use of agricultural inputs such as good seed and fertilizers and improvements in irrigation infrastructure. This is demonstrated by the growing domestic surpluses of paddy rice since 1995, which have led to robust growth in rice exports, both formal and informal. Cambodia currently exports around 2.25 million tons of paddy rice, which is exported informally mainly to Vietnam and Thailand. Formal exports of milled rice (at around US$700 million) account for around 15 percent of the country’s total export earnings, which are currently dominated by garments (around 70 percent of total exports). If Cambodia were able to sustain its current growth rates of paddy production, it might be able to export some 3 to 4 million tons of milled rice by 2020, which would make it one of the leading rice exporters in the world. Because of the abundance of fertile and sometimes under-used land in Cambodia, there is also significant potential for agricultural diversification by increasing production of non-rice crops. Among non-rice crops, production of maize, cassava and soya beans has seen the most rapid growth recently (above 20 percent annual growth rate in value added since 2002), partly due to increasing demand from the livestock sector. Other crops in which production has surged dramatically during the last decade include tobacco, peanuts, and sesame, mostly through the expansion of cultivated land. In addition, rubber and fish, despite their more modest growth over the last decade, still represent more than US$250 million of Cambodian exports annually. Furthermore, the Royal Government of Cambodia (RGC) has made improvements in agriculture and rural development high priorities in its broader national economic development strategies. The Rectangular Strategy II 2008, which is a key strategic development document, highlights the government’s resolve to make agriculture a leading sector of the national economy and a key source of sustainable economic growth, as well as its desire to expand food security and reduce poverty. 2 The National Strategic Development Plan (NSDP), which is the implementing document for the Rectangular Strategy,3 recognizes that the traditional engines of growth (tourism, garment exports, and construction) need to be complemented by other sources that are more broad-based in order to attain its priority objective of improving the lives of the rural poor and achieving the Cambodian Millennium Development Goals by 2015. The Agricultural Sector Strategic Development Plan 2006 10 (ASSDP) stresses the importance of agricultural commercialization and private sector development, which are being addressed through its seven sectoral goals. The Strategy for Agriculture and Water 2010 13 (SAW), which replaced the ASSDP, provides a strategic framework for the implementation of the NSDP. The strategy emphasizes the development of the 2 Royal Government of Cambodia, 25 September 2008. Political Platform of the Royal Government of Cambodia of the Fourth Legislature of the National Assembly, Phnom Penh. 3 The current NSDP covers the period 2006-2010, and the new one is being finalized to cover the period up to 2013. 14 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW agribusiness sector as one of its priority areas and recognizes the potential income loss to the country, and related vulnerabilities, from the export of unprocessed agricultural commodities. It contains a commitment to increasing the competitiveness of processed agricultural exports, particularly rice, through a wide range of strategic interventions to increase Cambodia’s competitive advantages. Finally, in August 2010, the government approved a policy on the Promotion of Paddy Production and Rice Export. The policy recognizes the strategic importance of rice production to Cambodia’s economy and lists a number of policy measures and related investment priorities, as well as responsible institutions to implement them, to promote rice production and exports. Despite well-defined strategic development goals and few policy-induced distortions, there is a concern about Cambodia’s ability to convert its potential into development outcomes. There exists a complex set of constraints to agricultural development that, unless addressed by appropriate policies and public investments, will result in a loss of opportunities. Many of these constraints lie beyond the narrow domain of the agriculture sector and require multi-sectoral interventions (for example, the development of port, rail, and trunk road infrastructure, trade facilitation, and access to finance). These constraints may be limiting the effectiveness of some sector-specific interventions. Therefore, there is a need for a comprehensive set of fiscal and policy incentives plus substantive public investments for the sector to make productive and sustainable use of the country’s natural resources. These issues will be discussed in more depth in the chapters that follow. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 15 3. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Road Sectors A. Trends in Expenditures on and Support for the Agricultural, Irrigation, and Rural Roads Sectors. The agriculture and productive rural infrastructure sectors in Cambodia are serviced by three line agencies: the Ministry of Agriculture, Fisheries, and Forestry (MAFF), the Ministry of Water Resources and Meteorology (MOWRAM), and the Ministry of Rural Development (MRD). MAFF is responsible for supporting dryland agriculture, upland and lowland crops, and rice production and marketing and for agricultural support services relating to research, extension, and farmer education. It is also responsible for water resource functions for irrigated agriculture, for fisheries development, and for forest and catchment programs. It is organized into four thematic areas: general agriculture, rubber development, forestry, and fisheries. Agricultural research is the responsibility of the semi- autonomous Cambodia Agricultural Research and Development Institute (CARDI). MOWRAM is responsible for the development and management of all water resources according to the Law on Water Management of 2007. It has two technical departments: the Engineering Department is responsible for the rehabilitation or construction of irrigation/ water resources infrastructure as well as its operation and maintenance, while the Irrigated Agriculture Department deals with the institutional issues related to the development and maintenance of irrigation infrastructure, including the establishment of Farmer Water Users Committees (FWUCs). Finally, the mandate of the MRD covers other rural infrastructure, including rural roads, water supply, and sanitation, ethnic development, community development, and rural economic development. Between 2000 and 2008, the total government budget increased at faster rate than GDP. Cambodia’s GDP increased from Riels 14,082 billion in 2000 to Riels 41,977 billion in 2008. In real terms, GDP achieved an annual average growth rate of 9.3 percent between 2000 and 2008. During the same period, total government spending more than tripled from Riels 1,512 billion to Riels 5,458 billion, which translates into an annual average growth rate of 11.9 percent in real terms. As a result, total government expenditure increased from 7.6 percent of GDP in 2000 to 9.8 percent in 2009. Total government spending for MAFF, MOWRAM, and the MRD grew three times over between 2004 and 2009, driven by a five-fold raise in spending on irrigation. In 2009, total government spending on these ministries was Riel 398 billion. In real terms, spending for agriculture, irrigation, and rural infrastructure increased at average annual rate of 11.7 percent (Figure 3.1).4 In relative terms, total government spending on MAFF, MOWRAM, and the MRD increased from 0.7 percent of GDP in 2004 to 0.9 percent in 2009, while the total budget for these three ministries increased from 2.5 percent of agricultural GDP in 2004 to 2.7 percent in 2008. It should be noted that these figures are low compared with countries at the same income level, as discussed below, although there has been a strong upward trend. When compared to total government budget, spending on MAFF, MOWRAM, and the MRD remained stagnant at around 8 percent during 2004 to 2008 period, indicating that agriculture did not receive more funding than other sectors. MOWRAM had the largest increase in the government budget over the 2004 to 2009 period, while the MRD received the largest cumulative share of government spending. The government budget for MOWRAM 4 It is estimated that about 80 percent of the total MRD budget is spent on rural roads or related expenditures. 16 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Figure 3.1. Trends in Nominal and Real Budgets for Figure 3.2. Structure of the Approved Budget for MAFF, Agriculture, Irrigation, and Rural Roads, 2004–09 MOWRAM, and the MRD, 2004–09 Riel million, in thousands Riel million, in thousands 450 300 400 250 350 300 200 250 150 200 150 100 100 50 50 0 0 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 Nominal budget for MAFF, MOWRAM and MRD Real budget for MAFF, MOWRAM and MRD MAFF MOWRAM MRD Sources: TOFE Tables and MEF. Sources: TOFE Tables and MEF. Figure 3.3. Spending from own resources has increased… Figure 3.4. …while donor support has declined in riels (thousands) and in percent of GDP in riels (thousands) and in percent from total public spending 500 250 450 1.5 36 400 200 32 1.4 42 350 300 150 250 1.3 200 100 150 100 50 50 0 0 MAFF MOWRAM MRD TOTAL Agriculture Irrigation Rural roads TOTAL 2007 2008 2009 2007 2008 2009 Sources: MEF TOFE Tables and MAFF Department of Finance. Sources: CDC database and the DIC. increased from Real 32.2 billion in 2004 to 174.7 billion in 2009 (an average annual rate of 30 percent in real terms), while its share of the total budget for three ministries increased from 20 percent in 2004 to 44 percent in 2009 (Figure 3.2). The budgets of MAFF and the MRD also increased though much more modestly over the same period at annual rate of 4.7 and 3.9 percent respectively in real terms. In fact, the budget share for MRD declined from 51 percent in 2004 to 36 percent in 2009. Total funding for the agriculture, irrigation, and rural roads sectors from both government and donor sources increased from Riel 464 billion in 2007 to Riel 644 billion in 2009. This is equivalent to 1.5 percent of GDP 5 (Table 3.1 and Figure 3.3). Donor spending on agriculture, irrigation and rural roads averaged about $50 million per year between 2007 and 2009, increasing from Riel 194 billion to Riel 207 billion, albeit at significantly slower rate than government spending over the same period. The share of donor funding in total funding decreased from 42 percent in 2007 to 32 percent in 2009. 5 The data on total funding for agriculture, irrigation, and rural roads from the government and donors are available only for 2007-2009 period. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 3. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Road Sectors 17 Table 3.1. Total Spending on Agriculture, Irrigation, and Rural Roads, 2007–09 Riels million 2007 2008 2009 Riels % Riels % Riels % MAFF (Agriculture) Recurrent 57,655 39.1 65,821 37.7 80,172 43.9 Capital 5,462 3.7 5,699 3.3 3,638 2.0 Donor 84,369 57.2 102,968 59.0 98,687 54.1 Total 147,486 100.0 174,489 100.0 182,497 100.0 MOWRAM (Irrigation) Recurrent 20,427 15.9 25,861 12.6 31,352 13.1 Capital 74,508 58.0 114,593 55.8 148,691 62.0 Donors 33,570 26.1 64,975 31.6 59,768 24.9 Total 128,505 100.0 205,429 100.0 239,811 100.0 MRD (Rural Roads) Recurrent 13,902 7.4 18,097 8.0 25,503 11.5 Capital 53,253 28.4 108,111 47.8 87,559 39.6 Commune/Sangat Fund 44,810 23.9 47,726 21.1 59,345 26.8 Donors 75,720 40.3 52,282 23.1 48,843 22.1 Total 187,685 100.0 226,215 100.0 221,250 100.0 GRAND TOTAL 463,676 606,133 643,558 GRAND TOTAL (USD mn.) 115.8 148.5 154.5 Share of GDP (%) 1.3 1.4 1.5 Source: MEF TOFE Tables for government capital and recurrent, except for MAFF recurrent which is based on MAFF Department of Finance figures. Commune Fund figures from the NCDD. Donor figures are from the CDC database and from the DIC. GDP figures from the national accounts. Almost half of this donor funding was spent on agriculture, with the rest being split between irrigation and roads. Donor spending on rural roads declined over the 2007 and 2009 period, which in turn contributed to the declining share of donor spending in total spending, while funding levels for agriculture and irrigation have been more stable (Figure 3.4). Agricultural producers in Cambodia enjoy a number of tax exemptions, which could be considered as additional indirect support to the sector. The main source of indirect support to the sector is the exemption from import duty for fertilizers and tractors. Figure 3.5 presents official customs figures, which may understate the volumes and values involved as there is a large degree of informal trade in fertilizer markets. According to the official Figure 3.5. Quantities and Values of Imports of Fertilizer and Tractors (2004–09) tractors imports (number, in thousands) fertiliser imports (tons, in thousands) value of imports ($m) 25 200 50 180 20 160 40 140 15 120 30 100 10 80 20 60 5 40 10 20 0 0 0 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 Tractors Fertiliser Tractors Fertiliser Source: Customs Data. 18 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW customs figures, imports of fertilizer have grown substantially since 2004, both in value and quantity, with a sudden jump in 2009. By 2009, nearly 200,000t of fertilizer and over 20,000 tractor units were imported, reflecting the renewed interest of the private sector in agricultural production after increased returns in 2007 and 2008. The value of imports has increased to over $40million for fertilizer and about $20 million for tractors. Assuming a 20 percent tax rate on fertilizer imports (in other words, the same as fuel imports) and a 15 percent tax rate for tractors (in other words, the same as for other equipment and machinery), the indirect support given to agricultural producers through tax exceptions was about $11 million in 2009, which makes up about 7 percent of total spending and 14 percent of government spending on agriculture, irrigation, and rural roads. How does Cambodia’s spending on agriculture, irrigation and rural roads compare to spending by other countries? International comparisons show that Cambodia spends less on agriculture than other countries when spending is measured as a share of agricultural budget in GDP (Table 3.2). Out of ten countries, only two—Indonesia and Bangladesh—have equal or lower ratios of public spending on agriculture to GDP, and only Bangladesh has a lower ratio of public spending on agriculture to agriculture value added. Public expenditure on R&D, using a broad definition, for Cambodia is relatively low, at only 0.1 percent of agricultural GDP compared with 0.2 to 0.6 percent elsewhere in Asia. Table 3.2. Public Spending on Agriculture: International Comparisons 2004 2004 2000 1990–2005 2003–05 av Govt. Spending Govt. Spending Average Agriculture value Public R&D on Agriculture on Agriculture Annual Growth in added as share % of agric. GDP % of GDP % of agric GDP agriculture GDP% of GDP % Bangladesh 1 1.7 0.44 3.2 20 China 6 11.3 0.43 3.7 12.8 India 1 11.7 0.34 2.5 17.6 Indonesia 1 3.1 0.21 2.3 15 Philippines 3 5 0.41 2.4 14.9 Sri Lanka 3 5.3 0.64 1.4 15.9 Thailand 3 11.7 n.a. 1.8 10 Kenya 2 4.1 2.68 2.6 25.9 Uganda 5 4.1 0.5 3.9 25.6 Bolivia 2 6.8 n.a. 2.9 12.9 Cambodia (2008) 1.5 2.9 0.1 5.3* 32.4 Sourcea: World Development Report 2008 for government spending on agriculture, on public research and development, agriculture value added, and agriculture growth rates; World Bank GDP WDR data base for GDP figures: and for Cambodia, consultants’ estimates. International experience suggests that higher public spending does not always translate into higher agricultural growth.6 Comparing year-on-year changes, public sector spending on agriculture, irrigation, and rural roads seems to have little correlation with agricultural GDP growth in Cambodia. While public investment ranged between 2.3 and 2.7 percent of agricultural GDP between 2004 and 2008, agricultural GDP growth ranged from -0.9 percent up to 15.7 percent over the same period. This indicates that changes in agricultural GDP in Cambodia have less to do with the relative levels of public spending than other factors such as climate. On the other hand, international experience shows that expenditures on public goods, such as agricultural research, extension, and farmer education and training and rural infrastructure do help to increase agricultural growth and competitiveness. In fact, quality of expenditures is equally if not more important than the relative levels 6 See also World Bank (2007) and World Bank (2010). cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 3. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Road Sectors 19 of public resources spent. Clearly, spending in some areas and activities will generate higher economic and social returns than in others. For example, in allocating public funds for agriculture, many governments have chosen to spend their agricultural budgets on subsidies for private farm inputs, such as seeds and fertilizer, while spending far less on rural infrastructure and technology development. Yet international evidence suggests that returns to private input subsidies are typically lower than returns to investments in public goods. This is in part because private input subsidies are prone to encourage rent-seeking and in part because public input subsidies substitute for private financing of these private inputs. For example, Lopes et al (2006) empirically document that the government’s decision to subsidize either private or public goods has negative consequences for economic development. Furthermore, analytical evidence shows that expenditures on private goods in many cases have negative returns due to high levels of corruption, the crowding out of private input purchases, resource misallocation, and consequent inefficiencies in input use. For example, estimates from 15 Latin American studies indicate that a 1 percent increase in the budget share for agricultural input subsidies reduces per capita agricultural income by 0.3 percent to 0.5 percent (Lopez, 2005). Changes in macroeconomic conditions or agriculture policies also have an important impact on sectoral growth rates. Cambodia has maintained conducive and relatively distortions free policy environment, which have encouraged significant growth of private sector investments. This could indicate that: (a) the agriculture sector in Cambodia has the potential to yield high returns on investments and (b) Cambodia’s investments in the agriculture sector, both government and donor, may have been relatively efficient. In Cambodia, public spending on agriculture has been allocated to public goods and services, and the government should be commended for this. While Cambodia was able to achieve high agricultural GDP growth rates with low levels of public spending, maintaining these growth rates would require eventually more and better public spending to maintain current growth rates and to reduce the variability of growth due to weather-related shocks. However, there is a need to achieve a clearer understanding of the impact of the levels and composition of public expenditures on agricultural growth. Recognizing that the tight fiscal space makes it difficult to implement a dramatic increase in public spending levels any time soon makes it even more important to ensure that public expenditures for agricultural development are efficient. Chapter 5 of this report discusses the specific expenditures that have had the greatest impact on agricultural growth in Cambodia. B. Economic Composition of Sector Budgets Analyzing the economic composition of the budget is the first step in determining the allocative efficiency of public expenditures. In determining the economic composition of public spending on agriculture, irrigation, and rural roads in Cambodia, expenditures must first be classified into recurrent and capital expenditures. Recurrent expenditures are then further divided into salaries and operating costs. The recurrent expenditure data used in this analysis are budgets for entire ministries. This is not a problem with respect to MAFF and MOWRAM since their ministry budgets are aligned with agriculture and irrigation activities respectively. However, for the MRD, this is less satisfactory since the ministry also deals with rural water supply, rural sanitation, and community development. We therefore estimated that about 40 percent of the MRD’s total recurrent budget is allocated to rural roads. 20 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW The analysis of total government recurrent and capital budgets provides a basis for evaluating spending on agriculture. The total government recurrent budget increased from Riels 1,215 billion in 2000 to Riels 4,439 billion in 2009, an average annual increase of 10.1 percent. The total government capital budget became increasingly important over the same period, growing from Riels 297 billion in 2004 to Riels 1,019 billion in 2009. Appropriations to the government’s capital budget have increased each year, growing at an annual average rate of 17 percent in real terms between 2004 and 2008. Recurrent funding makes up about one-third of total government spending on agriculture, irrigation, and rural roads. MAFF has consistently had the largest recurrent budget among the three ministries, with its expenditure rising from Riels 23,415 million in 2000 to Riels 78,192 million in 2009, an average annual increase of 14.7 percent. The large share of recurrent budget in the total budget reflects the service provider functions of MAFF compared whereas the other two ministries are mainly responsible for rural infrastructure development. MOWRAM had the smallest share of recurrent budget, rising from Riels 6,199 million in 2000 to Riels 31,352 million in 2009, an annual average growth of 20.6 percent. The MRD experienced the highest recurrent budget growth, rising from Riels 7,550 million in 2000 to Riels 54,596 million in 2009, an average of 29.8 percent annually (about 40 percent of the MRD’s total recurrent budget is allocated to rural roads) Operating costs make up the largest share of the government recurrent budget, while the share of wages has remained modest. During the 2000 to 2006 period, the share of operating costs in total budget was 41 percent for MAFF, 74 percent for MOWRAM, and 58 percent for the MRD. The higher figures for MOWRAM and the MRD reflect the infrastructure rehabilitation and maintenance responsibilities of those ministries. The share of wages and salaries during the same period was 26 percent for MAFF, 18 percent for MOWRAM, and 16 percent for the MRD, which highlights the general problem of low salary levels in public service. The low level of wage provision in recurrent budgets is a concern for the sustainability of public service provision functions. One of the functions of the recurrent budget is to balance the wage and operating components. The wage component should consist of sufficient resources to employ and retain adequate numbers of qualified staff, while the non-wage component should provide resources so that a trained and motivated workforce can deliver public services effectively and efficiently. Typically, the distribution of financial resources between salaries and operating costs in more advanced economies is around 60 or 70 percent to around 40 or 30 percent. If these proportions become out of balance, there is a risk that the agency in question will become unstable and ineffective. It might become difficult to recruit, retain, and motivate staff if salaries are too low, while inadequate operating budgets make it impossible to deliver planned work programs. This would apply particularly to extension services in those provinces where there is no donor support. It is common in developing countries for staff to have little operating budget despite their very low salaries. The low salary/low operating budget scenario is also common across ministries in Cambodia. The solution is not simply to recommend that salaries be increased in isolation. Macro fiscal analysis is needed to establish whether there is any fiscal space for this and, indeed, whether it should really be the top priority for the use of scarce fiscal resources. These issues are also bound up in public administration reform, which is being handled by the Council for Administrative Reform, and are outside the mandates of the line ministries. There have been large increases in government capital spending during the 2000s. In 2009, capital spending made up about 64 percent of total government spending for the three line ministries, up from 55 percent in 2007. The MRD and MOWRAM have been priority recipients of the increased appropriations to the government financed cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 3. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Road Sectors 21 capital budget over the past five years. MOWRAM’s capital expenditure increased from Riels 17.9 billion in 2004 to Riels 148.7 billion in 2009 (Figure 3.6). The MRD’s capital expenditure increased from Riels 53.3 billion in 2007 to Riels 87,559 billion in 2009. In the case of both ministries, the government capital budget has grown to be larger than their recurrent budgets, making up about 80 percent of their total government provided budget. Capital budget expenditures for MAFF are very low, which reflects its role as a service provider rather than an infrastructure provider. In 2009, its capital budget was only 4 percent of the total budget. Figure 3.6. The Capital and Recurrent Budgets of MAFF, MOWRAM, and the MRD in Nominal and Real Terms, 2004–09 billion Riels billion Riels 160 90 140 80 120 70 60 100 50 80 40 60 30 40 20 20 10 0 0 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 MAFF, Nominal capital MRD, Nominal capital MOWRAM, Nominal capital MAFF, Nominal recurrent expenditure MRD, Nominal recurrent expenditure MOWRAM, Nominal recurrent expenditure MAFF, Real capital MRD, Real capital MOWRAM, Real capital MAFF, Real recurrent expenditure MRD, Real recurrent expenditure MOWRAM, Real recurrent expenditure Sources: TOFE tables and MEF. The capital budgets of the three ministries combined have accounted for around 30 percent of total capital expenditure in Cambodia in some years. MOWRAM’s share peaked at 21 percent in 2006, and despite a large absolute increase in 2009, it had declined to 15 percent of the total. The MRD’s share of the total also declined from a peak of 22 percent in 2004 to 19 percent in 2009. It should be noted that the combined ratio of capital expenditure to recurrent expenditure for MAFF, MOWRAM, and the MRD was 151 percent in 2009, compared to 23 percent in the case of total government capital and recurrent expenditures, which further illustrates the high share of capital expenditures in the budgets of MOWRAM and the MRD. Are the current balances between recurrent and capital expenditures optimal? As we will see from the analysis of Chapter 5, the answer is probably no. In the irrigation sector, operating and maintenance budgets (O&M) cover only a fraction of the sector’s total maintenance needs. In 2009, O&M accounted only 14 percent of the total recurrent budget, up from 10 percent in 2007, which is equivalent to $1 million for the whole country. Even these limited funds are used mainly for pumping rather than for maintenance. The situation is similar in the roads sector where government provision for O&M was only 31 percent of the recurrent budget in 2009 (some $4 million), which is about 20 to 30 percent of what is needed to maintain rural road network to adequate standards.7 The government has been trying to address the issue of underfunding for rural infrastructure maintenance in a variety of ways. In irrigation, government policy makes Farmer Water User Committees (FWUCs) responsible for O&M expenditures over a five-year transition period, during which time the FWUCs receive training and technical 7 Based on the estimates provided by the Department of Rural Roads of the MRD. 22 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW support. However, much international experience as well as experience from Cambodia suggests that this approach has not generated the expected degree of maintenance by end users. As for roads, the funds for maintenance are used mainly for gasoline and gravel. Routine and periodic maintenance is carried out by staff of the provincial departments of the MRD. The MRD has a stock of medium and small-sized vehicles from various projects that are used to carry out maintenance, and no vehicles have been bought for O&M from the MRD’s capital budget (see Annex D for details of the central and provincial recurrent budgets). C. The Functional Composition of Sector Budgets Analyzing sectoral expenditures by functional areas gave us a clearer sense of how government and donor spending is related to sectoral development goals and constraints. We assembled data on functional areas by disaggregating departmental-level budget data at the central MAFF level for 2007 to 2009. No disaggregated data are available at the provincial level. During the period of 2007 to 2009, the central MAFF budget constituted 65 percent of the total MAFF recurrent budget, the rest going to the provinces. We assumed for the analysis that the structure of the central and the provincial budget is likely to be similar. We aggregated data from 23 budget units within MAFF into 11 primary functional spending areas. The majority of government agriculture expenditures between 2007 and 2009 were concentrated on policy and planning, forestry, and agricultural education/training (57 percent). Only 5 percent of the budget was spent on agricultural extension and research (Table 3.3). The largest budget allocation increases during this period were for livestock/ veterinary services and for policy and planning. At the same time, donors have concentrated on providing assistance to agricultural extension, which made up some 31 percent of total donor funding, followed by agro-industry (15 percent), and fisheries (14 percent).8 Agricultural research was one of the functional areas that received the smallest share of donor funds (3 percent), along with agricultural machinery and rubber production. Table 3.3. Government and Donor Expenditures by Functional Areas, 2007–09 Riel, mill 2007 2008 2009 Government Donors Total Government Donors Total Government Donors Total Agronomy/land improvement 5,104 7,956 13,060 5,159 6,575 11,734 3,262 5,151 8,413 Agricultural machinery 949 - 949 1,018 - 1,018 393 - 393 Agricultural extension 1,492 33,166 34,658 1,850 24,389 26,239 1,424 29,702 31,126 Livestock and veterinary 3,901 4,469 8,370 5,335 10,959 16,294 9,420 14,286 23,706 Rubber production 2,871 4,740 7,611 1,964 3,065 5,029 1,640 - 1,640 Agro-industry 494 3,760 4,254 784 31,355 32,139 372 6,843 7,215 Agricultural research 2,727 3,375 6,102 2,567 2,852 5,419 3,166 3,905 7,071 Agricultural education/training 8,167 2,586 10,753 7,822 3,705 11,527 9,636 6,839 16,475 Forestry 13,240 5,293 18,533 13,538 3,550 17,088 9,533 5,685 15,218 Fisheries 7,083 15,219 22,302 10,643 9,005 19,648 4,601 16,638 21,239 Policy planning/management 11,626 3,805 15,431 14,256 7,514 21,770 35,788 9,639 45,427 Capital budget 5,462 - 5,462 5,699 - 5,699 3,638 - 3,638 TOTAL 63,116 84,369 147,485 70,635 102,969 173,604 82,873 98,688 181,561 Sources: TOEFE tables and MAFF. Consultant estimates based on CDC database and DIC records. 8 A comprehensive list of donor projects providing resources to the agriculture sector is presented in Annex C. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 3. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Road Sectors 23 Taking government and donor spending together, agricultural extension and policy and planning are the two functional areas that received the largest shares of total funding (18 and 16 percent respectively). In total, agricultural extension and research received 22 percent of total expenditure. This shows that government extension services would find it difficult to operate without donor support. Services would have to be scaled back from the current five extension agents per district to two. Fisheries (13 percent) and forestry (10 percent), both of which have donor-supported sector plans in place, continue to be major beneficiaries under, though forestry receives a lower share of donor support than of the government budget. Agricultural machinery, research, and rubber production received the lowest share (7 percent total). During the 2007 to 2009 period, agro-industry had the largest increase in budget allocations, while rubber production, agricultural machinery and agronomy, and land improvements had the largest declines. Figure 3.7 presents the spending shares for government and donor funds by functional areas. As see from the above, the agriculture sector in Cambodia relies heavily on donor funds, although there are some functional areas where the government provides the majority of funding. Overall, the ratio of government to total consolidated funding for the agriculture sector stood at 41 percent in 2007, 43 percent in 2008, and 46 percent in 2009 (Figure 3.8). This ratio has been improving but the government is still dependent on donors for the majority of sector funding. As noted above, areas such as agricultural extension and agro-industry receive very little funding Figure 3.7. Shares of Government and Donor Expenditures by Functional Areas, average between 2007 and 2009 in percent 35 30 31 28 25 20 15 17 15 14 10 12 9 10 10 5 7 7 6 4 4 5 5 1 3 3 1 2 0 Agronomy/ Agricultural Agricultural Livestock Rubber Agro- Agricultural Agricultural Forestry Fisheries Policy planning/ land improvement machinery extension and veterinary production industry research education/training management Government Donors Sources: TOEFE tables and MAFF. Consultant estimates based on CDC database and DIC records. Figure 3.8. Government Share of Total Consolidated Public Spending Allocations to Agriculture, 2007 to 2009 in percent 120 100 80 60 40 20 0 Agricultural Rubber Policy planning/ Forestry Agricultural Agricultural Livestock Agronomy/ Fisheries Agro- Agricultural machinery production management education/training research and veterinary land improvement industry extension 2007 2008 2009 Sources: TOEFE tables and MAFF. 24 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW from the government, and are therefore dependent on donor resources for the majority of their resource flows. The government’s contributions to agricultural extension, agricultural research, agronomy and land improvement, livestock and veterinary, agro-industry, and fisheries are all less than 50 percent. Why has government funding been so low for some functional areas and so high for others? A number of factors may be at play. Government funding may be low because it does not see these areas as priorities, perhaps because of a perception that returns to public investments in those areas will be low. Alternatively, it could be a rational response to the fact that donors are allocating more resources to these functional areas based on their agency priorities, thus allowing the government to reallocate its scarce funds to other functional areas that would otherwise have been underfunded. The indications are that both elements may be in play. Until recently, the MEF had been skeptical about the effectiveness of and returns to agricultural research and extension expenditures. On the other hand, donors have not just been filling gaps but have deliberately emphasized research and extension because they anticipated favorable returns, a view which is supported by some international as well as local evidence. However, the government’s perceptions may be changing as indicated by the increase in spending on agricultural extension in the 2011 budget. Over-dependence on donor funding has a number of implications. The first is related to the lack of fiscal sustainability as there is uncertainty about the duration of donors’ funding commitments to various functional areas or to the sector in general. Donors have increasingly been taking a longer-term view of their support, but there are still time limits on any donor’s funding commitments. Secondly, unless a sector is supported by the government budget, donor support means establishing parallel project-based financing and management systems. Donor accountability requirements mean a proliferation of PMUs, which often operate outside government structures and which have incentives to attract skilled staff away from the public sector. The PMUs distract both resources and attention away from the core business of government. And there are no procedures requiring all donors to provide the government with the necessary information to capture their financing in line agency budgets, which would remain a key challenge for achieving government’s budget comprehensiveness and transparency. Third, the timing of donor funding is less predictable than government funding, and this can lead to funding gaps, which can add to uncertainty. Unlike the situation in the agriculture sector, the government provides the majority of funding for irrigation and rural roads. During the three years from 2007 to 2009, the government provided 72 percent of the resource flows to the irrigation sector, which signifies the high priority given to this sector on the national development agenda. Similarly, the government provided some 74 percent of funding for rural roads during the same time period (78 percent in 2009) (Figure 3.9). Both MOWRAM and the MRD command a sizable share of the government’s capital budget, specifically 29 percent during the 2004 to 2009 period. Detailed departmental data are not available for MOWRAM or the MRD, which makes it difficult to analyze the ministries’ budget provisions by functional areas. The Department of Engineering within MOWRAM is well equipped to carry out construction and rehabilitation work in the irrigation sector. However, the limited funding available for capital expenditures has meant that civil works have had to be carried out in phases, with the highest priority given to the construction or rehabilitation of primary channels, leaving the work on secondary and tertiary structures for later when and if funds become available. This piecemeal approach has limited the effectiveness of public funds as discussed in Chapter 4. In roads, capital spending has focused on rehabilitating national and rural roads under the Department of Rural Roads. While most government-funded capital work on rural roads is carried out by state sub-contractors, donor-funded rehabilitation work tends to be done by private sector contractors. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 3. The Level and Composition of Expenditures on the Agriculture, Irrigation, and Rural Road Sectors 25 Figure 3.9. Consolidated Resource Allocations for Irrigation and Rural Roads, 2007–09 in percent in percent 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 2000 2001 2002 2000 2001 2002 Donors MOWRAM Capital MOWRAM Recurrent Donors CSF MRD Capital MRD Recurrent Sources: TOFE, MAFF, and MRD Department of Finance. An additional source of capital funds for rehabilitation of rural roads comes from Commune Sangkat Fund (CSF). Some 90 percent of CSF funds are used for infrastructure, of which historically about 80 percent has been spent on rural roads. The CSF is financed by a sub-decree that provides for a fixed annual allocation of government domestic revenues. This fixed amount was 2.8 percent of domestic revenues in 2009. The CSF funds are complemented by various donor funds. In 2009, funds channeled through the CSF for use by communes reached $27.0 million. Summary. In agriculture, shortfalls in domestic operating budgets for research and extension have been covered by donors. Donor funding for agriculture in Cambodia has given priority to agricultural services and has helped to fill domestic funding gaps particularly for agricultural extension. However, there may be disadvantages to this very extensive dependence on donor funding related to the sustainability and predictability of fund flows and the diversion of skilled workers from the government to donor projects. There may be a need for some rebalancing of the government/donor relationship in this area. One solution might be to adopt a programmatic or sector-wide approach that would require donor projects to operate through government channels. Some other improvements might include: (a) bringing donor aid more closely into the government’s planning and budgeting processes; (b) recording donor spending more explicitly in government accounts (or at least alongside the government accounts); and (c) requiring donors to report and be accountable to the relevant national ministry. There is also a need to consider whether the approaches, levels of input, and cost structures in the donor-funded sectors are compatible with the government eventually taking over financing responsibility for thse areas. The government has provided high levels of domestic capital spending to rehabilitate physical infrastructure in the irrigation and rural roads sectors over last decade. However, there is a room to increase the effectiveness of this capital spending on irrigation since it has mainly been used to build or rehabilitate primary infrastructure such as water storage facilities. Since many farmers are still unable to use such infrastructure, this has negatively affected the returns to these investments. Furthermore, while impressive amounts of infrastructure assets have built in both sectors, the emphasis on rehabilitation and new construction has limited the amount of resources available to maintain and preserve 26 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW the quality of those assets. Therefore, a rebalancing of domestic capital and maintenance budgets is required in order to increase the efficiency of this spending. The policy of exempting fertilizer and farm machinery from import duties provides additional support to the sector in the amount of $11 million, which makes up about 14 percent of government spending on agriculture, irrigation, and rural roads. The government should be commended for providing this additional support to agriculture. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 27 4. Budget Process and Performance The budget processes for MAFF, MOWRAM, and the MRD are governed by the systems put in place by the Ministry of Economy and Finance (MEF). Since 2005, the government has engaged in a comprehensive program of Public Finance Management (PFM) reform through its long-term (2005 15) Public Finance Management Reform Program (PFMRP). The PFMRP provides the direction for the development of PFM systems. The Medium-term Macro Framework (MTMF) and the Medium-term Expenditure Framework (MTEF) provide the planning framework for macroeconomic and inter-sectoral resource allocations within which line ministries have to operate. The MTEF allocates the global resource envelope between sectors or administrative units (in other words, line ministries) and between the wage and non-wage elements of the ministry budgets. The MEF first introduced guidelines on the preparation of the ministry Budget Strategic Plans (BSPs) 9 by line ministries in 2007. Within MAFF, MOWRAM, and the MRD, the BSP process is managed jointly by the Department of Planning and Finance of each ministry. The BSP is essentially the bottom-up component of the MTEF system for allocating resources between sectors and ministries and is used by MAFF, MOWRAM, and the MRD to prepare their medium-term and annual expenditure plans. The BSPs have a programmatic structure based on the identification of organizational objectives, budget activities, output targets, and indicators for ministry spending. Despite some progress, the links between the NSDP, the MTEF/BSPs, and the annual budget remain weak. The recurrent, capital, and donor budgets are not yet fully integrated into the BSPs. For example, externally financed spending is only partially captured in the government budget and is not classified according to the government chart of accounts. Also, the current BSPs have some weaknesses relating to the low levels of application of program expenditures and the inadequate specification of objectives, targets, and indicators. This is due to a combination of weak guidelines and supervision from the center and to capacity constraints in the line departments. To be fully effective, the BSPs need to reflect all public sector resource flows to a sector, whether from the government or donors. At the moment, the BSPs only capture government resources, and this is a major weakness given the high volume of donor aid. One of the difficulties in incorporating donor funds into the BSPs is the fact that donor projects are run by project management units (PMU) that are separate from and independent of the institutional mainstream of the ministries. As a result, the Departments of Planning and Finance have no authority over them. Only MOWRAM has made some progress in this area by consolidating the PMUs within its functional remit [check] into two or three central Project Management Offices (PMOs). Both MAFF and the MRD are involved in the piloted introduction of Program Budgets (PBs) that began in 2007. The PB system, which is intended to provide more budget detail and more transparency, replaced the previous system of Priority Action Programs (PAPs) in 2007, but the system is still in the early stage of development. In the case of MAFF, the PB still applies to only 18 percent of the recurrent budget even after three years of piloting (see Annex C). This can be attributed to a combination of weak capacity and a lack of guidelines in the line departments in this area. In the MRD, PBs account for nearly 50 percent of the total recurrent budget, with 70 percent of PB allocations being allocated to rural roads maintenance. MOWRAM is not yet involved in the PB pilot. PBs that are prepared as part of the BSP are intended to increase the relevance and improve the performance of public expenditure in a number of ways. The traditional kind of budgeting process is not explicitly based on the 9 These were originally known as Ministry Strategic Budget Frameworks (MSBF). 28 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW government’s policy objectives and priorities. In contrast, the PBs align the resource allocation process more closely with policy priorities. While Sector-wide Approaches (SWAps) are intended ambitiously to be “sector wide,” PBs are focused on a single area of policy activity, which makes them easier to manage. However, the problems that stand in the way of improved budgeting are systemic and are to some extent beyond the control of the line ministries. There are distorted incentives inherent in the PB system. This is because under the current system, non-program PBs are less structured and less demanding in terms of the specification of activities, outputs, targets, and indicators and are therefore allow ministries more flexibility in dealing with short- term, unanticipated needs. The MEF, which is responsible for the PFM, is working to improve the budgeting systems through the PFMRP. The ten-year PFMRP timetable recognizes quite realistically that it will take time to deliver these reforms. A major deficiency in the current budgeting process is the lack of a coherent departmental budgeting and financial reporting system. The departments of MAFF are provided with annual budgets, but all transactions have to be approved centrally. The system for monitoring and reporting expenditures and results by technical departments on an ongoing basis is, therefore, very opaque. A transparent system that would allow individual departments to be held to account is vital as the basis for the functional planning and monitoring of resource use. Another element in any future solution to improve resource planning lies with donors. The donor community understands the desirability of moving away from projects towards a more programmatic approach. This is clear from the support that donors have given to the preparation of the Strategy for Agriculture and Water (SAW) and its five programs. However, the transition to programs should be coordinated with the current development by the government of budget planning and management instruments, including and especially the BSPs. The donors and the government should prepare to map the way forward for this transition. Since 2000, donors have led initiatives to introduce SWAPs as a way to improve the budgeting process in the health and education sectors in Cambodia. They were motivated by the realization that new and more comprehensive approaches were needed both to provide more holistic sector planning and to bring all donor resource flows under one coherent sector policy and strategy framework. The health and education sector SWAPs have been reasonably successful in terms of providing sound policy and strategy frameworks. They have also been successful in positioning the government as the lead partner and in persuading donors to locate their resources within a common sector planning framework. Having donors adopt common financial and implementation arrangements has been more difficult, although a degree of joint planning and monitoring activity has been achieved. However, channeling donor resources through government systems to save on transaction costs and to stem the loss of skilled personnel from the government to PMUs has not yet been generally accepted by most donors because of fiduciary risks. What has been the budget execution performance of MAFF, MOWRAM, and the MRD? It was only possible for us to analyze the execution of the government recurrent budget. This is because domestically funded capital expenditures are not allocated to specific ministries. Instead, in accordance with the Budget Law, they appear as a single line item, to be apportioned by the Prime Minister to line ministries during the year. Overall, between 2000 and 2009, MAFF and MOWRAM were within 5 percent of budget in only four years out of nine and the MRD in only one year out of nine. The budget execution rate for MAFF, MOWRAM, and the MRD reflects some under-spending during earlier years when the government’s unpredictable revenue position led to difficulties with cash flow budgeting (Figure 4.1). Deviations from the original budget allocations were greatest during cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 4. Budget Process and Performance 29 the 2001 to 2005 period, when the under-spent budget Figure 4.1. Recurrent Budget Execution Rates, 2000–09 was often more than 10 percent of total budget due to percentage of budget law cash flow difficulties. However, since 2007, there has 140 been a marked improvement in the budget execution 120 rate in all three ministries since resource availability 100 has become more predictable as a result of measures 80 to improve resource forecasting and strengthen financial management introduced by the PFMRP. The 60 average execution rate for the three years between 40 2007and 2009 was 99 percent for MAFF, 94 percent 20 for MOWRAM, and 91 percent for the MRD, though 0 these figures mask some deterioration in performance 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 by MOWRAM and the MRD in 2009. MAFF MRD MOWRAM Sources: TOFE Tables, MEF. Table 4.1. Comparison of Actual Spending with Costings in the ASSDP and SAW Riel, mill Strategy Investment Costing Govt. Capital and Donor Outturn 5 Years 3 Yearsa 2007-09 % of 3 yr Strategy Costing ASSDP Sectoral Goals 2006–10 Research services 388,112 232,867 57,200 24.6 Extension services 40,359 24,215 10,131 41.8 Market access for agricultural products 26,650 15,990 87,257 545.7 Institutional and legislative framework 56,061 33,637 41,958 124.7 Fisheries reform - sustainable access 57,453 34,472 34,089 98.9 Forestry reform 16,428 9,857 40,862 414.6 Total MAFF 25,874 15,524 14,528 93.6 SAW Programs 2006–10 Institutional capacity building & management 205,350 123,210 20,959 17.0 Agricultural and agri-business support 205,350 123,210 49,395 40.1 A&W research, education & extension 410,700 246,420 49,763 20.2 Water resource, irrigation & land management 410,700 246,420 496,177 201.4 Total MAFF/MOWRAM 205,350 123,210 110,518 89.7 Sources: ASSDP 2006-10, p. 31-32; SAW 2006-10, p.31; NSDP 2006-10, p.87 and 110; and consultant estimates. Note: _a/ 60% of 5 year total. How consistent are government and donor spending priorities with programmatic spending budgets? Actual government spending on agriculture and irrigation deviates from the projected costings set out in its strategies (Table 4.1). Comparing the ASSDP and SAW costings with government and donor spending reveals that research and extension were under-funded, while forestry, market access for agricultural products, and irrigation were over- funded. The amounts actually provided for the institutional and legislative framework and for forestry reform were close to the amounts projected in the ASSDP. Compared with SAW costings, actual spending on investments in irrigation appears to have been substantially above what was projected in 2005. It should be noted that most of the projections in these strategies refer to investment costs only, which have been matched by government capital and donor project funding over a common three-year time frame. The analysis is complicated by the fact that the ASSDP and SAW include substantial allocations for food security, for which there is no single operational responsibility within the government.10 10 Some of the activities in the food security programs can be assigned to research, extension, and/or crop production. However, a large part of the ASSDP is assigned to scaling up the National Program for Food Security and Poverty Alleviation (NPFSPA), which supports community-based development with no pre-assigned sub-sectoral allocations. 30 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Summary The ministries’ Budget Strategic Plans (BSPs) have the potential to be the key policy and budget planning tool for allocating and managing all resources among and within sectors. The BSPs should become a central planning tool for the implementation of SAW and should cover both domestically financed budget allocations and donor allocations. The annual budget process would also be strengthened by requiring MAFF, MOWRAM, and the MRD to assign “hard” and enforceable budgets to each department through the BSPs. The current system of partial program budgets should be absorbed into a departmentally based approach covering all resources allocated to a department. There is a need to introduce transparent reporting of expenditures for monitoring the performance of activities financed by the budget. At the moment, the MEF Treasury system records expenditures only by economic classification but not on a departmental or functional basis. We suggest that a joint government/development partner annual review and planning process should be introduced for the annual and medium-term budget process that puts BSPs at the heart of the process. The government and donors have already succeeded in putting in place an agreed sector plan—SAW and its program design document for 2010-2013. At the same time, progress has been made in developing budget planning processes within the government. The three-year rolling Medium-term Expenditure Framework (MTEF) is actively predicting and guiding resource flows to priority sectors within the government. The BSPs, introduced in 2007, should become the central planning tool for the implementation of SAW. To encourage devolution of expenditure responsibility to departments, we recommend expanding TOFE under the MEF Treasury system. Absorbing SAW into the sector budgets will require it to be coordinated with and integrated into the budget planning and management instruments that have been put in place under the PFMRP. The donors, in consultation with the government, are preparing to map the way forward, and this should be done as a joint government/donor activity. The SAW initiatives present an opportunity to establish systems to ensure more regular and informative appraisal, monitoring, and evaluations and for these to be linked into budgeting decisions. Annex J presents one possible approach to improving the linkages between budgets and the strategic programs in the SAW under joint government/donor supervision. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 31 5. The Efficiency and Effectiveness of Expenditures in the Agriculture, Irrigation, and Rural Road Sectors The analysis of how public resources are spent and of the impact of those resources is particularly important for low-income country, such as Cambodia, with limited budget resources and high dependence on donor aid. For the purposes of this PER, the performance of the government in achieving its objectives is measured in terms of crop production, of increased incomes of the immediate beneficiaries of public expenditure, and of reductions in expenditure. Most of the SAW objectives for research, extension, and irrigation involve increasing the incomes and livelihoods of farmer beneficiaries. In the case of rural roads, the immediate objectives are to increase the incomes of farmers and to reduce prices and costs of transport as well as the wider objectives of promoting growth and reducing poverty. Based on the results of this analysis, we make some recommendations for increasing the effectiveness and efficiency of public expenditures on the agriculture, irrigation, and rural roads sectors in the future. The chapter presents a sequence of analytical steps that form the building blocks of a comprehensive analysis of public expenditures. We begin with a discussion of outputs and outcomes achieved as a result of public expenditures, both by the government and donors. We then assess the unit costs of these outputs and their trends over the past decade, which yields information about the efficiency of resource use. We then estimate the effectiveness of public spending using the techniques of cost-benefit analysis (CBA), identifying areas where performance could be improved and additional benefits achieved for the lowest possible cost. In order to complement data that were obtained from secondary sources, the study team carried out a rapid field survey to confirm the analytical results. The survey provided us with detailed information about farmers’ perceptions about the benefits and constraints of public service provision in the extension, irrigation, and rural road sub-sectors. (Annex F provides summary of the field survey and Annex G a summary of case studies in Cambodia.) The chapter then concludes with the results of an illustrative simulation analysis that estimates the impact of various expenditure scenarios on GDP growth. However, it is important to recognize that the analysis of effectiveness and efficiency of public expenditures is a complex task that is complicated by the limited information basis in Cambodia. As such, the results should be treated as indicative. A. Outputs and Outcomes achieved in the Agriculture, Irrigation, and Rural Roads Sectors Outputs are defined as the immediate results from government-executed activities, which would be under its control. The outputs achieved are estimated using the available management records for MAFF, MOWRAM, and the MRD, most of which are compiled in the annual reports for each ministry. No independent verification of these data is available at national scale. The outputs reflect the indicators chosen by departments of the three ministries, which track results of their main activities. These indicators are appropriate, and reporting in most cases has been well organized. The analysis of agricultural research is constrained by lack of systematic and reliable information on outputs and costs, and will be therefore excluded from the analysis of efficiency and effectiveness. The discussion below summarizes the main outputs and outcomes achieved in agriculture, irrigation and rural roads sectors (see Tables 5.1 and 5.2). 32 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Table 5.1. Output Indicators for the Agriculture, Irrigation, and Rural Roads Sectors, 2002–09 units 2002 2003 2004 2005 2006 2007 2008 2009 Extension Farmers at training courses ‘000 15.4 17.1 17.4 56.4 11.0 21.3 20.7 - Farmers at meetings ‘000 2.5 1.5 6.0 24.1 6.5 8.1 4.4 - Farmers on field visits ‘000 0.1 0.6 1.5 1.3 1.8 0.0 0.4 - Farmers at field school ‘000 2.4 2.9 3.1 5.3 - 4.3 0.4 - Farmers at demonstrations ‘000 1.1 1.0 1.1 0.9 4.7 0.5 0.6 - Farmers at demon. Days ‘000 2.4 4.7 3.0 8.4 0.8 3.2 2.2 - Total farmers contacted 23.9 27.8 32.1 96.4 24.7 37.5 28.7 20.0 - as % of all farmers 0.9 1.1 1.2 3.6 0.9 1.4 1.0 Irrigation New area irrigated (DoP) ‘000ha 24.2 51.1 28.0 43.8 89.2 52.1 54.1 25.1 - as % of total irrigated area 3.8 7.5 4.1 5.9 10.6 5.9 5.8 2.7 Rural Roads Rehabilitation km 107 349 256 277 204 262 585 432 - as % of total rural road 0.4 1.2 0.9 0.9 0.7 0.8 1.8 1.3 - No. of Rehab Roads no. 11 17 11 8 13 23 34 34 Periodic Maintenance km - 297 999 609 0 353 510 503 - as % of total rural road 0.0 1.0 3.4 2.0 0.0 1.1 1.6 1.6 Routine Maintenance km 82 159 124 241 334 384 535 594 - as % of total rural road 0.3 0.6 0.4 0.8 1.1 1.2 1.7 1.8 Sources: DAE Annual Reports, MOWRAM DoP records and CISIS, MRD DRR records. Table 5.2. Outcomes Generated by Public Expenditure, 2002–09 Outcomes units 2002 2003 2004 2005 2006 2007 2008 2009 Avg Extension: New farmer adopters ‘000 25 29 34 101 26 39 30 21 38 New improved cultivation ‘000ha 24 29 34 105 28 43 33 23 40 Increased margins $/ha 13 11 18 24 26 47 74 43 32 Total annual benefits $m 311 337 607 2,558 730 2,021 2,438 979 1,248 Increased yields t/ha 0.7 0.7 0.8 0.7 0.9 0.9 1.0 0.9 0.8 Increased production ‘000t 18 20 26 76 25 39 31 22 32 Irrigation: Wet Season New area irrigated ‘000ha 7 20 11 26 53 26 18 15 22 Increased yield from rainfed t/ha 1.1 1.0 1.2 1.0 1.4 1.4 1.4 1.4 1.2 Increased rice production ‘000t 8 20 13 27 71 35 26 21 28 Increased margins $m 336 871 647 1,833 3,953 2,907 3,000 1,748 1,912 Dry Season New area irrigated ha 28 -10 18 27 7 17 16 23 16 Yield on new area t/ha 3.2 3.2 3.5 3.9 3.9 4.0 4.0 4.0 3.7 Increased rice production ‘000t 89 -32 65 107 27 66 66 94 60 Increased margins $m 3,123 -1,005 2,805 5,795 1,571 6,453 9,678 8,415 4,604 Rural Roads: Length rehabilitated Km 107 349 256 277 204 262 585 431 309 Population affected ‘000 23 71 49 50 35 43 93 66 54 Lower crop marketing costs $’000 2 6 4 4 4 5 21 17 8 Reduced travel time $’000 582 1,906 1,406 1,530 1,137 1,475 4,548 3,449 2,004 Source: Study team calculations. Note: The number of farmer adopters is calculated from the number of farm contacts per extension worker, multiplied by the diffusion rate (3:1). cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 33 Agricultural Extension Extension outcomes are closely associated with the adoption of improved farm management practices. The model used in Cambodia is for extension officers to train lead farmers who are then expected to contact other farmers. The key output variable associated with extension performance is thus the adoption rate per extension worker and subsequent diffusion rate among farmers. The MAFF/DEA extension service typically contacts between 25,000 and 40,000 farmers a year, which amounts to between 1 and 2 percent of all farmers in Cambodia. Over 2002 to 2009 period, the total number of farmers contacted amounted to nearly 10 percent of all farmers, although it is likely that many contacts were repeat contacts. Extension outputs are well defined and relatively continuous, although with some large spikes and gaps in outputs, reflecting the lumpiness of project activities. However, there is no clear trend in the outputs. The evidence from field survey confirms that most farmers obtained extension messages from other farmers, suggesting that diffusion is indeed active. Furthermore, the evidence from Cambodia shows that about half farmers who have been contacted by extension officers adopt some form of improved farm practices, although about half of these adoptions are partial. The field survey found that over 90 percent of farmers were aware of DAE extension services, including farmers living in “non-extension” villages that were not covered by DAE extension activities. The adoption rate of extension messages, including partial adoption, was found to be 71 percent in villages visited by DAE extension officers and about 45 percent in non-extension villages (i.e. between 67 and 87 percent of all adopters adopt extension messages at least in part). The survey provides evidence of the importance of indirect contact—i.e. 61 percent of farmers reported obtaining extension advice from other farmers in their villages, while 37 percent obtained advice directly from DAE extension officers, and 36 percent obtained advice from NGOs. The field survey confirmed also a relatively high satisfaction rate among farmers with DEA extension services. Farmers reported an average yield increase of 31 percent as a result of adopting extension messages. According to the field survey, most common messages received by farmers were for: rice farming (71 percent of households), fertilizer use (68 percent), pest management (65 percent) and compost making (59 percent). Over 40 percent of farmers also benefited from assistance with vegetables, sustainable rice intensification (SRI), and livestock and water management, while about 20 percent of farmers benefited from assistance with post harvest, cash crop and organic farming techniques. However, the majority (66 percent) of farmers reported that extension messages were difficult to understand, while 51 percent said that there was too little training, and 39 percent said that there was a lack of experiments and demonstration work. This suggests that the level of extension activity in villages is too thinly spread. Yet, only 11 to 13 percent of farmers reported problems associated with the lack of experience and skills of extension workers, supporting the view that good field capacity exists in DAE extension services. Irrigation The main output indicator used by MOWRAM is the area of new land irrigated as a result of its activities. Figures are reported separately for dry and wet season areas, which are very different in terms of water use and impact on yields. The incremental area rehabilitated each year has averaged about 5 percent of the total irrigated area, which means that over last eight years MOWRAM has probably rehabilitated about 40 percent of the total irrigated area in Cambodia. The proportion of area rehabilitated is slightly higher for dry season irrigation than for wet season. However, total irrigated area is variable on year-to-year basis. The data presented by MOWRAM does not 34 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW specify the proportion of the area that is actually cultivated. The results of the field survey suggest that there are many schemes in which actual irrigated area is smaller than total command area. For example, MAFF figures indicate that the average annual increase in dry season irrigation was about 4.6 percent from 2002 to 2009, compared to 7.5 percent of MOWRAM figures. This suggests that only about 60 percent of the new area reported by MOWRAM may be actually under cultivation.11 The Cambodian Irrigation Schemes Information System (CISIS) contains data for command areas and cultivated areas for about 70 of the 710 schemes entered in the database. These data suggest that almost all wet season irrigated area and about 87 percent of dry season area is actually cultivated. The field survey results also indicate that by far the main issue associated with irrigation is lack of water (reported by 85 percent of farmers). Lack of distribution canals and water diversion were also important (48 percent and 39 percent) emphasizing the problems associated with partial rehabilitation of schemes. Poor management of water allocation was mentioned by 36 percent of farmers and lack of maintenance by 25 percent. Lack of funding and cooperation were less significant problems and lack of labor was reported as a problem by only 4 percent of farmers. Rural Roads The MRD’s 2007 Rural Road Strategic Plan (RRSP) suggests that 84 percent of rural roads are in poor or bad condition, based on a road condition survey in 2002. The RRSP estimated that it would require an investment of $314 million to bring all rural roads to good condition and that the annual costs of maintenance would be $17.2 million, including both periodic and routine maintenance. However, much has been achieved since 2002. The MRD data show an increasing trend in the number of kilometers of road rehabilitation, with large increases in 2008 and 2009. On average about 1 percent of all rural roads were rehabilitated each year, with about 1.3 percent benefiting from periodic maintenance and 1 percent receiving routine maintenance. The Commune Database provides additional indication of the extent of the achievements in rehabilitation of rural roads. Although the database is based on subjective assessments, there are some encouraging indications of improvements that suggest that only 37 percent of rural roads may have been in poor condition in 2008, which translates into required rehabilitation cost of $133 million. The Commune Database also reports plans to build an additional 7,668km of new rural roads at a total cost of over $100 million. The field survey shows that farmers perceive highest benefits from improved roads coming from improved roads (in 1 to 4 scale) to improved access to hospitals and schools (3.4), followed by time savings (3.0). Increased volume of traders and general economic activities were also rated highly (2.9 3.0). Reduced transportation cost was rated less highly perhaps because (fuel) transport costs have risen sharply in recent years, which have partially offset gains from improved roads. The survey also asked farmers to estimate the scale of benefits and concluded that travel times were reduced by over 50 percent, costs of motorbike travel by 15 percent, and cost of travel by cars and lorries by 41 percent. On the other hand, the field survey states the poor quality of roads, due to lack of maintenance, as a main issue related to rural roads (80 percent of respondents), and less than half the respondents expected the benefits of the road rehabilitation works to be sustained. 11 The MAFF figures for dry season irrigation are higher than the MOWRAM figures, suggesting that the MAFF data cover areas that are not recorded by MOWRAM. MAFF does not report wet season irrigation, which is complicated by the variety of practices used for agricultural water management in the wet season. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 35 Table 5.3. Cost Effectiveness, 2004–09 unit 2004 2005 2006 2007 2008 2009 Tot/avg Extension Outputs: Farmers contacted ‘000 32.1 96.4 24.7 37.5 28.7 20 239 Costs: Government $m 1.1 1.1 1.2 1 1 0.8 6.0 Costs: Donors $m 10.2 10.6 12 10.2 7.7 8.4 59.0 Cost per farmer $ 354 122 534 298 302 457 273 as index (2009=100) 111.3 36.3 147.8 79.5 72.3 100 Irrigation Outputs: New area irrigated ha 28 43.8 89.2 52.1 54.1 25.1 292 Costs: Government $m 8 13.4 24 23.5 34.7 48.8 153.0 Costs: Donors $m 10.9 19.3 26.3 8.9 18.6 14.4 98.0 Cost per hectare $ 674 746 564 623 987 2516 858 as index (2009=100) 38.5 40.5 28.4 30.3 42.9 100 Rural Roads Outputs: Length rehabilitated Km 256 277 204 262 585 431 2,015 Costs: Government $m 16.1 11.9 13.4 13.2 26.7 25.4 107.0 Cost per km $ 62,688 42,863 65,701 50,411 45,749 58,906 52,947 as index (2009=100) 153 99.5 141.3 104.6 85 100 Outputs: Routine maintenance 999 609 0 353 510 503 2,974 Outputs: Periodic maintenance 124 241 334 384 535 594 2,213 Maintenance costs: Government 2.0 1.7 2.9 3.6 5.4 6.3 22.0 Sources: Table 5.1 and the cost data collected by study team. Notes: Averages are presented as period averages, dividing total costs for the period by total outputs. They are therefore different from the straight arithmetic average of the annual unit costs. The indices show the unit costs adjusted so that the year 2009 has an index value of 100. B. Efficiency and Unit Costs Figure 5.1. Cost-effectiveness Indices: Actual and Trend Lines, 2004–09 (based on constant 2009 prices) Index of cost per Standard Output Efficiency measures the extent to which outputs 180 could be achieved with fewer inputs and can be 160 measured by cost effectiveness, which considers 140 costs per unit of output. Unit costs of various 120 agriculture, irrigation and rural roads outputs are 100 presented in Figure 5.1 and Table 5.3. The calculation 80 of unit costs in this analysis required a considerable 60 simplification due to difficulties of accounting for all 40 costs of a single output variable, including overhead 20 costs. As such, the results presented in this analysis 0 should be treated with a caution. The discussion below 2004 2005 2006 2007 2008 2009 Extension ($/farmer) Irrigation Rehab ($/hectare) Rural Road Rehab ($/km) summarizes the main findings and trend lines from the Source: Table 5.2. Note. Indices are calculated backwards assuming 2009 = 100. The bar chart presents actual indices analysis of unit costs for agriculture, irrigation and rural for each year and the lines present trends. roads expenditures. Agricultural Extension The typical model of government extension activities in Cambodia is where extension workers generally work intensively with a small number of lead farmers (typically about 50 per extension officer) and aim to achieve high adoption rates (i.e. Farmer Field Schools). In general, the cost of government extension workers is similar to NGOs. The direct annual costs per government and NGO extension officer are less than $1,000 per year. 36 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW However, it can rise up to $20,000 per year for NGO extension officers when all local and international overhead costs are included. The average total cost per farmer contacted by the government extension officers was $273, including all overhead costs of the Departments of Extension and Crop Production and other project related costs. International comparisons are difficult because they tend to report a narrower range of costs and because different extension systems define farmer contacts in different ways. For example, Fleischer et al (2002) reported costs of only $15 per farmer visited for the national extension project T&V approach in Kenya (2000); $80 $100 for a monthly visit system of private extension in Nicaragua (2001); $65 for the Indonesian Farmer Field School (FFS) system (1993 99) and $48 for the Philippines IPM farm field school program (1992 97). The Cambodian statistics show considerable variations in costs per farmer from year-to-year basis, caused mainly by large changes in outputs. However, the trend line for real costs per farmer is flat and shows that, on average throughout the 2004 to 2009 period, there has been no increase in extension costs per farmer in real terms. However, it is difficult to draw clear conclusions on the optimal unit costs and level of farmer extension contact as it involves better understanding of issues related to changing extension messages and curriculum, institutional development goals, farmer perceptions and household dynamics, which goes beyond the scope of this analysis. Irrigation The average cost of bringing an additional hectare under irrigation over 2004 to 2009 period was $858, when government and donor expenditures are divided by the incremental increase in irrigated area. However, cost has increased substantially over this period, and was particularly high in 2009, when it increased nearly threefold to over $2,500/ha, partly as a result of the high level of spending by the government. The recent rise in unit costs may be partly because the higher MOWRAM expenditures in recent years may not be reflected yet in the increase of additional new irrigated areas, which was rather low for 2009. The lower unit costs in early years may be because some of the earlier works done by MOWRAM were relatively modest in size but enabled large areas of land to return to irrigation, demonstrating increasing marginal cost of irrigation investments as easier schemes are rehabilitated first, with subsequent schemes requiring more expensive investments into water storage and transmission systems. However, these unit costs compared favorably with the unit cost of $1,500 to $2,000/ha used for budgeting in MOWRAM. It should be noted that the unit costs of irrigation works in Cambodia still compare favorably with international norms. A review of World Bank support for Agricultural Water Management worldwide from 1991 to 2004 (World Bank, 2006) reported that the shift from new construction to rehabilitation over the period resulted in a reduction in unit costs from $6,600/ha to $2,900/ha. There are also wide variations internationally. A major review of 208 World Bank projects (Jones, 1995) estimated an average unit cost of $4,800/ha, with a range from $1,400/ha (South Asia) to $18,000/ha for Sub-Saharan Africa. Inocencio et al (2007) update this analysis with a review of 314 irrigation projects, estimating average unit costs of about $5,000/ha worldwide, with $8,200/ha for construction and $2,900/ha for rehabilitation. The average cost for Southeast Asia was $4,400/ha with $9,700/ha for new construction and $1,800/ ha for rehabilitation in 2000 prices. Thus these data provide some comforting evidence that irrigation expenditures in Cambodia are efficient by international standards. The analysis of effectiveness assumes annual maintenance costs of irrigation schemes as $115 per ha, which is about 50 percent of total rehabilitation cost on discounted basis. The national guidelines recommend contributions from FWUC members of 140 kg/ha for paddy, or about $35 equivalent for dry season irrigation for O&M cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 37 costs. There are also costs of water pumping and the private sector typically charges an additional 360 kg of paddy per hectare for this, which is equivalent to $80. Rural Roads The total cost of government-funded rehabilitation of rural roads was estimated as $53,000/km, including cost of technical support and management. This compares with the current contracting unit costs used by the MRD of between $30,000 and $45,000 depending on size, location and topography. Surprisingly, the trend line for the actual costs per km for rural roads has declined in real terms over the period, despite the fact that the unit costs reported by the MRD have increased by some 50 percent over recent years, notably as a result of increases in the costs of laterite and fuel. This may be because many road works carried out in early years involved major rehabilitation and improvement, including for example frequent tree removal (i.e. opposite to irrigation schemes where more complex works were carried out in later years). Management may also have become more efficient as the MRD has adopted improved contracting systems and overhead costs have been spread over a larger volume of activity. Comparisons rural roads unit costs with other countries are complicated due to differences in circumstances, including topography, construction techniques and road sizes. However, these data suggest that unit costs of road rehabilitation in Cambodia are high by international standards. For example, the World Bank Vietnam Rural Transport Project included a condition that roads must cost less than $15,000/km. According to a recent Bank funded Rural Roads Project Report in India, a $34 billion rural roads spending program succeeded in building 375,000km on new rural roads and rehabilitating a further 372,000km. Assuming that the ratio of construction to rehabilitation unit costs was 4:1, the unit rehabilitation cost would be about $18,000 $/km. In Africa, unit costs show a wide variation from less than $3,000/km in Mozambique to $8,000/km in Uganda and $19,000/km in Ghana. There are a number of possible reasons for the high costs in Cambodia, including the need for demining in some areas, and the fact that a large proportion of the roads are in areas that are flooded every year and therefore require large amounts of construction material. C. The Effectiveness of Expenditures on the Agriculture, Irrigation, and Rural Roads Sectors The analysis of effectiveness measures how the government spends its resources to achieve its sectoral development objectives, and the value for money it gets for spending those resources. The performance of the government in achieving its objectives is measured in terms of production volumes, increased farm incomes, and reduced costs in providing services to intended beneficiaries. This is consistent with the NSDP monitoring indicators, which include a mix of output and outcome indicators, including cultivated area, rice yield, rice production, irrigated area and rehabilitated rural roads (RGC, 2008). The analysis considers the impact of public expenditure on rice production, which is the main crop in Cambodia and serves as a good proxy for the whole agriculture sector. The choice of rice is justified on the following grounds: (a) it accounts for about 40 percent of crop value added in Cambodia: (b) it is a crop for which returns and farmer decisions are reasonably clear and well understood in Cambodia; and (c) it is a crop that has been a key focus of public spending on research, extension, and irrigation. 38 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW In this analysis, the quantification of the benefits from public spending are measured as changes in production volumes and in crop gross margins. The effects of public spending on production and crop margins are calculated using crop budgets. The effect of rainfall on production is estimated by assuming a best-fit linear relationship between rainfall and production. It is assumed that irrigation investments generate higher production and crop margins than extension in rainfed conditions. The benefits and production arising from dry season irrigation are higher than for wet season irrigation, reflecting the fact that wet season irrigation only involves a marginal increase in yields, whereas dry season irrigation makes a crop possible in areas where it would not otherwise be possible to grow a crop. The table also shows that the benefits associated with marketing of crops are relatively low compared with the benefits from reduced travel time. The national data shows that the average annual growth in rice production has been 436,000 tons per year from 2002 to 2009. Out of this about 166,000 tons can be attributed to the increase in cultivated area and conversion to irrigation, and 74,000 tons to the improvements in rainfall through the period. The remaining 196,000 tons was a result of increased yields not associated with irrigation, of which 68,000t can be attributed to increased fertilizer use. The remaining annual increase in yields of 128,000 tons was caused by adaptation of improved farming practices (Table 5.4). The contribution of extension to increased production is estimated at an average 32,000 tons per year. Public expenditure can be credited for the production from the increase in dry season irrigation (60,000 tons per year) and for the production from conversion from rainfed to wet season irrigation (28,000 tons per year). Public expenditures can be thus attributed to an average annual increase of 120,000 tons of production, which is about 28 percent of the total production increase. Table 5.4. Public Expenditure Contribution to Production Increase 2002–09 2002 2003 2004 2005 2006 2007 2008 2009 Average Total increase in production -277 889 -541 1,816 279 463 448 410 436 Dry season irrigation area 89 -32 65 107 27 66 66 94 60 Wet season irrigation area 8 20 13 27 71 35 26 21 28 Rainfed area -37 373 -293 397 88 16 27 53 78 Rainfall -367 467 -121 252 360 0 0 0 74 Improved practices: More fertilizer use 18 18 18 27 -8 18 -14 467 68 Other improved practices 11 44 -223 1,005 -260 327 344 -225 128 Total 29 61 -206 1,033 -268 345 330 242 196 Of which government Dry season irrigation area 89 -32 65 107 27 66 66 94 60 Wet season irrigation area 8 20 13 27 71 35 26 21 28 Extension 18 20 26 76 25 39 31 22 32 Total 115 8 105 210 123 140 123 137 120 as a % of total 28% Source: Study team calculations. Note: Increased production due to expansion of dry season irrigation and conversion of rainfed wet season to irrigation, is estimated from MOWRAM figures, assuming MAFF average yields for the period. Expansion of wet season rainfed area is taken from MAFF figures, assuming average yields for the period. The impact of improved weather since 2005 is calculated by linear correlation of total production with total rainfed. Because the correlation is not linear, this creates unrealistic annual results, but the average response is more reliable. Fertilizer impact is based on import figures and crop budgets for yield impact. The cost-benefit analysis (CBA) was carried out to estimate the net benefits generated by public expenditures. The key assumptions of the CBA are presented in Table 5.5. The CBA calculates benefit-cost ratios (BCRs), which present the discounted net benefits generated for every unit of expenditure incurred (i.e. present value of future steam of benefits and costs) based on prevailing market prices at a given year. The advantage of BCRs approach is that it can be applied to both capital and to recurrent expenditures, making it possible to compare infrastructure sectors with service delivery sectors. The BCRs are calculated using a discount rate of 6 percent. BCR of 1 indicates cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 39 Table 5.5. Key Assumptions in Cost-benefit Analysis Basis for Actual Basis for Potential General: Prices Market prices for the year apply to whole benefit stream Same Duration 20 years Same Discount rate 6% Same Extension: Farmer contacts 3 farmers per extension officer 5 farmers per extension officer Adoption rate 35% Same Wet season rice yields increase by 60%. For dry season, Yields and margins Same irrigation allows to produce additional crop. Cost per extension officer Actual costs, assuming $1,200 per extension officer Same Irrigation: Irrigated area as % of command area 70% of MOWRAM figure for new irrigated area 100% of MOWRAM figure Yields and margins Crop budgets verified against national figures Same Costs per hectare of command area Actual costs and MOWRAM area figures Same Operation and maintenance activity Annual maintenance cost $115 per ha. No maintenance, Full maintenance, no decline in benefit stream resulting in 10% loss of benefits per year Rural Roads: Km rehabilitated and maintained MRD figures Same Transport costs saved 30% savings on $0.75 /ton/km Same Time savings on travel 30% savings on 4 hours/day for 220 days Same Value of time saved 55% of market wage rate Same Costs per km rehab and maintenance Actual costs and MRD figures for km rehabilitated/ Same maintained Actual maintenance activity, with decline in benefits Maintenance activity MRD recommendations, no decline in benefit stream linked to maintenance gap Source: Study Team assumptions. that there is no net benefit from the expenditures (i.e. equivalent to NPV of zero). The BCR greater than 1 indicates positive net impact of public expenditures. The BCR above 2 is considered broadly as a good benchmark for the acceptable returns to public investments. Figure 5.2. While BCRs for agriculture and rural roads Figure 5.3. …they are still well below their potential investments have been rising… benefit cost ratio benefit cost ratio (2009) 4.0 6.0 5.0 3.0 4.0 2.0 3.0 2.0 1.0 1.0 0.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Extension Irrigation Rural Roads Extension Irrigation Rural Roads Actual Potential Source: Study team calculations. Note: BCRs were calculated as discounted net benefits generated for every unit of expenditure incurred, which includes both capital and recurrent expenditure. This makes it possible to compare infrastructure sectors, such as rural roads, with those delivering public services, such as extension. The BCRs were calculated for each year, based on actual trend of unit costs of a year and expected benefit stream valued at market prices. The bar chart compares the BCRs for each year to potential BCRs that would have been theoretically achieved if the performance of public expenditure had met its stated targets or if there would have been a balance between rehabilitation and maintenance expenditures. For example, BCR for extension is calculated by assuming the average actual diffusion rate of 3 farmers per extension worker per visit, while potential BCR was calculated by assuming average diffusion rate of 5 farmers per extension worker per visit, which is a target set by Department of Extension of MAFF . 40 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Since 2007, public expenditures on agricultural extension have resulted in attractive returns, while returns to irrigation investments have remained low (Figure 5.2). Performance of public expenditures in extension and irrigation was close to 1 from 2000 to 2006, suggesting that public spending generated little or no net benefit to Cambodia in that period. The poor performance of public spending on irrigation, even after the increase in prices since 2007, is puzzling. It may indicate disproportionate expenditure spending on rehabilitating irrigation schemes with poor or little maintenance operations. With a better targeting of public funds on better schemes it should be possible to significantly increase the returns from public expenditure in irrigation. Public expenditure on rural roads has given acceptable and steadily growing returns throughout the decade. The results would suggest that, if high current outputs and prices for agricultural products (i.e. rice) are sustained, public expenditure on extension and rural roads will continue to significant returns. However, there is room to increase the efficiency of public expenditures as returns on investments are still significantly below their potential (Figure 5.3). This is particularly relevant when maintaining high returns on public investments during periods of price declines of agricultural products. Agricultural Extension The Agriculture PER analysis shows that, until 2006, BCRs for extension were mostly around 1, which indicates the limited effectiveness of public spending. However, since 2007, the increase in international rice prices had a strong effect on crop margins. This has had a dramatic effect on the effectiveness of public expenditures, which makes returns to extension investments equally attractive to roads, peaking at a BCR of 3 in 2008. While the average total cost per farmer contacted by public extension officers in Cambodia has comparable to international norms, there has been rather significant gap between actual and potential BCRs over 2000–09 period—in other words 3 and 5 respectively. The quality of extension staff at district and provincial levels is generally good, but the effectiveness of extension spending has been limited by sub-optimal length and frequency of farmer visits to maintain/achieve desired knowledge diffusion and adoption rates, which may result from insufficient operating budgets. The results of the CBA are consistent with the evidence from various country specific studies, which show that public spending on extension can be a cost-effective means of generating greater economic returns to farmers (see Birkhaeuser et al, 1991). For example, in a meta-analysis of 292 research studies, median rates of return of 58 percent for extension advisory services investments have been found, which translates into BCR ration of about 6.5 using a 6 percent discount rate (Alston et al, 2000 and Dercon et al, 2008). Public spending on agricultural extension in Cambodia has potential to continue to generate high rates of return. While savings in costs, especially those associated with overheads, would have a positive effect on BCRs, the key variable that affects the performance of extension expenditures is the adoption rate per worker and the resulting increase in diffusion rates. As a benchmark for effectiveness, an extension worker in Cambodia would need to generate adoption of new practices worth about $1,500 per year in increased farm margins, assuming that this increase in farm margins is sustained. This can be achieved by a combination of extension measures, such as: (a) improving extensive messages (such as advice on planting times), which when assuming an increase in margins of about 10 percent (or about $15 per adopter), would require 100 new adopters per extension worker per year; and (b) intensive messages (such as the adoption of a comprehensive package of seeds and inputs), which when assuming an increase in margins of about 50 percent (or about $75 per adopter), would require only 20 new adopters per year. The number of adopters could be roughly similar to the number of farmers contacted with a diffusion rate of 3 and an cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 41 adoption rate of 35 percent. In areas of higher population densities and good agricultural potential, such as Tonle Sap region and Southeastern provinces, extension workers can expect even higher diffusion and adoption rates. For extension there are strong initial gains from adopting improved rice seeds and efficient fertilizer and pesticide use practices. Once these basic improvements have been adopted, there remains limited scope for further improvement. Most dry season irrigated cultivation in Cambodia already uses improved seeds and modern farm inputs. Further improvements in dry season yields are still possible, but they will be more modest than those achieved during the last decade. However, there is still a great scope to increase rice productivity in the wet season by improving seed varieties and expanding their use and associated techniques, and by improving water storage and management. There is also scope in both wet and dry season farming for advances in crop diversification. Therefore, in the foreseeable future, there seems little reason to expect the benefits from extension to diminish, provided that institutional efficiency will be gradually increased. Increasing long-term performance of public extension activities requires improvements in its institutional functionalities. The main issue related to current performance of DAE extension services is insufficient operating budgets which results shorter and less frequent than optimal visits to farmers to help increase knowledge and spur the adoption of more new technologies, but also broader institutional issues. Achieving better balance between operating costs and recurrent costs, coupled with broader institutional changes which devolve more MAFF budget resources and staff to provincial and district levels would go long way to deliver extension messages along extensive margins by reaching larger number of farmers. Harmonization of extension messages and delivery approaches between various service providers (government, NGOs, private sector), and elimination of conflicting messages, would also improve value of money for extension spending by all. Finally, better integration of agricultural research and extension delivery functions will ensure that public spending on development of new crop varieties, and information on research trials on fertilizer and soil management techniques for specific agro-ecological conditions will reach farmers quickly and in easily accessible format, providing a principal basis for intensification of extension messages. Irrigation The BCRs for irrigation have been close to 1 throughout 2000s, suggesting that irrigation remains a challenging sector for public expenditures. High priority given to irrigation may be based on expectations of impact that has not been achieved. The BCRs did not respond to increasing rice price trends since 2007 which effect was more than offset by increasing irrigation unit costs, although the latter still compare favorably with international norms. This is a major concern and MOWRAM needs to devote more attention to prioritizing its investment activities. The wide variability of BCRs by schemes shows that irrigation investments can be competitive even with current high level of unit costs if schemes were well selected and designed, fully implemented and properly maintained. The actual BCRs of irrigation investment are less than half of potential returns. The main reasons are incomplete rehabilitation and inadequate maintenance. It has been estimated that only about 70 percent of command area could be actually irrigated in Cambodia, and this has lot to do with lack rehabilitation of the whole irrigation areas as public spending has been mainly limited to headworks and primary canals to the neglect of secondary and tertiary canals, which contributed to low returns as many farmers are still not able to irrigate. The second reason for low effectiveness of irrigation is almost complete lack of funding for maintenance. The lack of maintenance work means that actual BCRs are about 2/3 of their potential levels (i.e. lack of proper maintenance 42 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Box 5.1. Example of Alternative Approach to Irrigation Infrastructure Investments Earth canals dominate canal distribution systems in Cambodia, which cause high losses of water, vulnerability to erosion and siltation and substantial land take. It is worth considering alternatives such as simple box-section concrete canals for the secondary distribution network illustrated in left photo above. While the construction of a concrete canal is much more expensive than construction of an earth canal (on the right), the size of canal needed is much smaller, causes less siltation and may not require large regulator and off-take structures, such as are commonly constructed on earth canals, so total capital costs may not be so much higher than for the earth canal option. Furthermore, water is used more efficiently by avoiding transmission losses while keeping maintenance costs low. have reduced benefits by up to 10 percent each year). In order to sustain the benefits of irrigation rehabilitation works, it is recommended that about 5 percent of the rehabilitation costs are devoted to maintenance in each subsequent year. This means that about one-third of total expenditure on irrigation should be devoted to maintenance. There is an opportunity to use new technologies and approached for irrigation investments, which reduce the need for costly maintenance works in future years (Box 5.1). While the government’s objective of engaging Farmer Water User Communities (FWUCs) in maintenance is valid in principle, this may take many decades to achieve. It is thus unrealistic to place full responsibility for maintenance on FWUCs, meaning that the optimum share of public funding to be devoted to maintenance is about one third. The comparison of BCRs with international experiences should be treated with caution, given the wide range of economic, social, and physical conditions and given Cambodia’s unusual circumstances in the wet season. Multilateral funding for irrigation projects generally requires internal rates of return (IRRs) of at least 15 percent, equivalent to a BCR of about 1.8 using a 6 percent discount rate. This provides a yardstick for international comparison which suggests that Cambodian irrigation investment has been roughly in line with international norms. Morales and Mongcopa (2008) reviewed experience with ADB funding for irrigation, based on 105 projects in 18 Asian countries. Proportion of these projects that were rated as successful at ex-post evaluation was only 55 percent. The study focused on 21 projects rated as successful, giving an average IRR of 32 percent at appraisal cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 43 and 18 percent at evaluation. The figures for partly successful or unsuccessful projects were 18 and 7 percent, respectively. The evaluation stressed the importance of good project design, extensive stakeholder consultation, flexible implementation and effective O&M. Project size had no impact on success, and the effect of cost over-runs was modest. The review of 192 World Bank irrigation projects around the world found that two-thirds of the projects were considered satisfactory, with an average IRR of 15 percent at the time of evaluation. Barker and Molle (2004) also demonstrated the sensitivity of irrigation to food prices, showing that, in Sri Lanka, the BCR of irrigation fell from around 3 in the 1970s to less than 1 from the mid-1980s. Jones found that cropping intensity, which is a proxy for the technical performance of the scheme, was also important and that larger irrigation projects were significantly more successful than smaller ones in all regions. The scope for introducing major new irrigation schemes in Cambodia is limited and MOWRAM expects to concentrate its resources on rehabilitating and improving existing schemes and expanding the coverage within these schemes. The analysis of benchmarks shows that rehabilitation of irrigation can be probably justified on economic and financial grounds if the cost per hectare of the additional land that is actually brought under irrigation will be less than $2,000 and if the irrigation schemes are maintained so that the irrigated area continues to be cultivated for at least 10 years. As the more efficient schemes have been probably already rehabilitated and improved maintenance on these schemes reduces the need for repeat rehabilitation, the costs per hectare of future investment are expected to continue to increase in the future. The wide range of BCRs indicated by the CISIS information suggests that this could have a substantial impact on the effectiveness of public expenditure on irrigation. It is therefore important that MOWRAM’s prioritization practices are technically sound from engineering, agricultural and economic perspectives. Rural Roads Expenditures on rural roads have resulted in the largest benefits in recent years, with BCRs higher than 2 since 2005 and reaching 3 in 2008 and 2009.12 This explains the high priority given to rural roads by communes, households, and politicians. The increase in rice productivity seems to be closely associated with a marked increase in the value of rural labor, and this has led to a large increase in the returns to rural roads, as people value time savings more highly. About 100-600km of rural roads have been rehabilitated (an average of about 1 percent each year) and 300-1,000km have benefited from periodic or routine maintenance (an average of about 2.3 percent each year). The BCRs of rural roads depend heavily on the level of maintenance efforts. In order to secure a full benefit stream for 20 years, the MRD estimate that the combined costs of routine and periodic maintenance should average about 9.5 percent of rehabilitation costs each year. This means that about 45 percent of total rural roads spending should go to maintenance. These conclusions are similar to those reached by Abrams (2004) and MRD (2004). If benefits were to fall by 10 percent a year without maintenance, then the BCR would be reduced to 60 percent of the potential level. The benchmark analysis shows that the rehabilitation or construction of rural roads is generally justified on economic grounds if the cost per beneficiary is less than about $250 and if the road is maintained so that the population has the benefit of the road for at least 10 years. This justification is based primarily on savings in travel time for those people using the road on a daily basis. 12 The CBA for rural roads does not include donor-funded projects due toa lack of information about outputs and unit costs. 44 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW With the gradual completion of the road reconstruction program and the increasing distances involved in sourcing laterite, the unit costs of rehabilitation and maintenance are expected to increase markedly. Switching to new technologies, such as moving from laterite surface to Double Bituminous Surface Treatment for road pavement, is also likely to increase the unit costs of rural roads, although it will also change the nature and frequency of maintenance requirements and may reduce total maintenance costs. There is little synthesis of international experience. Individual project evaluations provide a useful range of evidence. The ADB evaluation of the Laos Rural Access Roads Project reported an IRR of 11.8 percent (BCR of 1.5), while in Tajikistan the IRR for rural roads was 21.5 percent. In India, the National Planning Commission evaluated 21 projects in Rajasthan in 2006 and estimated the average IRR as 15.6 percent. Results of Sensitivity Analysis The sensitivity analysis shows that all BCRs are sensitive to the choice of discount rate. Increasing the discount rate from 6 percent to 10 percent will reduce all BCRs by 25 percent. However, increasing the discount rate will affect fewer investments that generate short-term benefits, such as extension, while it will reduce the attractiveness of infrastructure investments, especially expenditures for maintenance which are needed to sustain longer-term benefits. For extension expenditures, the BCRs are highly sensitive to number of farmers contacted, adoption rate and estimates of yield changes. For example, if extension services would achieve diffusion rate of 5 instead of 3 as assumed in the analysis, the BCRs would have been 67 percent higher. Similarly, if the adoption rates are 50 percent rather than 35 percent, the BCRs would have been 43 percent higher. The BCRs are inversely proportional to the unit costs of the extension service, such that 10 percent savings in unit costs result in a 10 per cent increase in BCR. For irrigation, the BCRs are directly proportional to the estimates of the proportion of irrigated areas from total command area. The data from individual BCRs shows high variability in this parameter, which could be as high as 50 percent from average estimates. The BCRs are also strongly affected by incremental yield assumptions. As expected, the BCRs are inversely proportional to costs per hectare and these are relatively unreliable, given the uncertainty about the portion of actual irrigated land. For rural roads, the BCRs are directly proportional to the estimates of the frequency of use of the roads and the reduction in time taken and in the costs of travel. These estimates are based on case study evidence and cannot be validated against national level data. The BCRs are also strongly influenced by the assumptions on ongoing maintenance activity. A lack of maintenance has a tendency to reduce benefits rapidly which means that BCR for rehabilitation without maintenance may not be able to reach acceptable levels. To validate the findings of CBBA a review of 14 case studies from Cambodia was undertaken, mainly comprising ex-post project evaluations. The review showed that the results of this analysis are well within the boundaries of BCRs reported in case studies in their magnitude. The range of BCRs for extension was 1.4 to 12; for irrigation 2 to 8; and 1 to 11 for rural roads. Some very high figures have been calculated, notably for extension activity, especially at a local scale. In some cases, this may have been because project overhead costs have not been included. Details of the case studies are provided in Annex G. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 45 Spatial Distribution of Benefits Figure 5.4. Range of BCRs for Communes, 2008 in percent of communes Spatial factors such as access to markets and 100 road infrastructure, agro-ecological zones, rural 90 population densities, and proximity to population 80 centers strongly influence the performance of 70 public spending. These spatial factors are important 60 to understand, as they point towards the profound 50 40 differences in rural areas with respect to economic 30 returns on public investments. Partly in response 20 to this diversity, different approaches are used for 10 government expenditures in different locations, making 0 it difficult to generalize about the optimal location of 0.0 1.0 2.0 3.0 4.0 5.0 6.0 BCR public expenditures. However, there are some general Extension Irrigation Roads patterns that could be expected to apply. Source: Study team calculations. Notes: BCRs are calculated using the same methodology as elsewhere in the PER and the data in the commune database. For extension, the benefits are estimated from commune database figures for actual yields compared with district averages, on the assumption that the improvement in yields achieved by the extension service has been proportional to the gap between actual Figure 5.4 presents the range of BCRs by their and potential. For irrigation, BCRs are based on the commune database figures on the cost of rehabilitation of irrigation schemes and the area irrigated. The extent to which irrigated area is dependent on rehabilitation is not clear and the relative figures are therefore of more interest than geographical location using data from the the absolute figures. For rural roads, the benefits are estimated from figures for population, and the costs are estimated by applying national average unit costs per km to the length of road requiring commune database. One should exercise caution rehabilitation and the status of rural roads. The data in the commune database are collected largely through the subjective response of key officials in the commune and the response rate from communes is patchy. While the data illustrate the range of circumstances, a dedicated research when interpreting these results as data from commune project would be required to use the database for more detailed analysis. database is prone to significant noise due to self reporting. As such, the analysis would focus on broader spatial trends rather than relative performance of communes. The analysis shows that the proportion of communes for which BCRs are less than 1 is about 50 percent for extension, and 25 percent for irrigation and rural roads. Between 85 and 95 percent of communes have BCRs of less than 6.0, for all agricultural interventions. The fact that majority of communes for which data is available seem concentrate in area of BCR for irrigation between 3.0 and 4.0 which may mask a large diversity of BCRs between geographical sites. This indicates that geographical targeting of public spending may be most important for irrigation investments. The aggregate spatial trends illustrate that there is a general tendency for returns to be highest in the so called “rice belt” which runs from North East provinces around Tonle Sap area to South Eastern provinces of Cambodia (see Annex H). However, the pattern is patchy due to missing, with large variations between neighboring communes, which could indicate data errors. The quality of data is not sufficient to allow any reliable spatial prioritization. However, it does show the importance of space in influencing returns to public spending. There are strong advantages from concentrating public expenditure on areas with highest agricultural potential. Irrigation is widely spread around the country, but its effectiveness is strongly influenced by its geographical location and level of funding. Annual expenditure on irrigation is generally concentrated in 20 to 40 schemes, which may benefit perhaps 100 communes. The number of roads rehabilitated by the MRD has risen to 34 per year in 2008– 2009, from about 15 roads per year in previous years, suggesting that between 50 and 70 communes are affected annually. Thus, public expenditure in irrigation and roads now reaches perhaps 5 percent of communes in any one year and has reached about 30 percent of communes over the last decade. The spending per commune on irrigation is normally between $200,000 and $500,000 while the spending per commune on rural roads is somewhat higher, including an allocation of all overhead costs. In addition, the CSF provides much smaller funds to each commune. 46 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Based on current patterns of spending, it will take 20 years before government expenditure on irrigation and rural roads reaches all irrigation schemes and rural roads in Cambodia, assuming that the schemes and roads that have been rehabilitated are not revisited during that time. Yet, there are strong arguments for accepting the concentration of expenditure. Firstly, wide variation in BCRs, if true, indicates the need to close geographical targeting of public expenditures. MAFF, MOWRAM, and the MRD all have experience in the geographical prioritization of public expenditure, often involving technical and economic analysis undertaken jointly with donors. These processes can be developed and improved further. Secondly, extension, irrigation and rural roads are strongly complementary and the total benefits generated are at least 20 percent higher if they are implemented in the same geographical location. For example, the field survey found that farmers in irrigation villages rate extension as significantly more useful than other farmers. D. The Impact of Public Expenditures on Economic Growth The impact of public expenditure on economic growth is estimated using the BCRs, which are based on crop margins, and adjusted for additional labor income. This is because economic growth is defined as value added, including profits and labor income. For extension, additional labor income is assumed as 30 to 40 percent of crop margins and for irrigation it is assumed about 25 percent of margins. For transport, the BCRs are based on reduced travel times and transport costs. It is thus reasonable to expect that the time released by quicker travel will be used to generate additional growth through other farm and non-farm activities. It is also assumed that market wage provides a reasonable estimate of the value that the time released will generate in the economy. Improved crop productivity and reduced transport costs will lead to a combination of increased farm-gate prices and reduced consumer prices. The increased farm prices directly contribute to agricultural GDP and the reduced consumer prices will benefit the rest of GDP by allowing consumers to increase consumption on other goods. The contribution of public expenditure to the growth of total GDP and for agricultural GDP was calculated based on BCRs for 2006 to 2009 (Table 5.7). Total public expenditure in extension, irrigation and rural roads, including both government and donor funding, was $118.5 million in 2008. Most of it was in the form of investment, which generated an increase in total value added of $30.2 million. It was estimated that about two thirds of total benefits are generated by rural roads, but these benefits are dominated by time savings only part of which lead to more agricultural growth. When adjusting to this, the total increase in agricultural value added was estimated at about $12 million. Table 5.7. Simulation Results for Growth due to Government and Donor Expenditures, 2008 Increase in total Increase in agricultural Expenditure ($ mn) Average BCR (2006–09) value added ($ mn) value added ($ mn) Extension 8.7 3.8 3.3 3.3 Irrigation 53.3 0.8 4.3 4.3 Rural roads 56.5 4 22.6 4.4 Total 118.5 30.2 12 Source: Study Team calculations using data on agricultural growth from the National Institute of Statistics. Simulations were carried out to explore the impact of allocation of public expenditure to agriculture versus other sectors on GDP growth. The analysis presents results of allocating $1million of public spending to either investments in non-agriculture sectors or investments in agriculture sector (Table 5.8). Three sets of scenarios were developed on various allocations of public expenditures to agriculture and non-agriculture investments, which are cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 47 based on relative performance of public expenditures in generating growth in agriculture and non-agriculture sectors, and on contribution of agriculture and non-agriculture sectors to government revenues. For each scenario, the analysis presents the NPV of incremental GDP growth. The base-case scenario assumptions aim to depict the situation in Cambodia in 2010. In this set of assumptions, BCRs for agriculture are higher than they were before 2007, but not as high as they could be potentially be if the efficiency and effectiveness of public expenditures were to improve (i.e. high-case scenario). For non-agriculture sectors, the differences in relative BCRs are based on differences in sectoral growth rates, although this does not necessarily reflect returns to public expenditures. It is assumed that the public revenue from agricultural growth is small (at 5 percent) and that it is obtained largely from VAT and from taxes on trade and related economic activities, rather than from agricultural production itself. It is assumed that the incremental revenue generated by the growth in agriculture and non-agriculture sectors is allocated to the same purposes as the original $1 million. It should be noted that the assumptions used in the analysis and the resulting changes in indicators are subjective estimates, which have not been validated statistically. The results should therefore be treated only as illustrative. Table 5.8. Net Present Value of Poverty Reduction and GDP Growth in Cambodia Policy scenarios Low Base High Assumptions: BCR of agriculture 1.5 2.0 2.5 BCR of non-agriculture sectors 3.0 2.5 2.0 Tax revenues from agriculture 3% 5% 7% Tax revenues from non-agriculture sectors 14% 12% 10% Results for Policy Scenarios ($ mill) NVP of additional GDP from $1 mill spent on: 100% invested in non-agriculture sectors 3.80 2.91 2.18 100% invested in agriculture 1.50 2.04 2.68 Source: Study Team calculations. The analysis shows that under the base-case scenario $1 million of public spending generates about $2 million worth of incremental GDP growth, while investing $1 million in higher growth (in non-agriculture) sectors generates GDP of $2.9 million. However, increasing BCR for agriculture investments under high scenario to 2.5 would generate $2.7 million of additional GDP growth from $1 million public investment in agriculture, compared to $2.2 million additional GDP growth from investment in non-agriculture sectors. Under the low-case scenario, the impact of public spending on GDP in agriculture sector is less than 40 percent of that for non-agriculture sectors. Under this scenario public investment in non-agriculture sectors would be more favorable than investment in agriculture. This set of assumptions would have typified the situation in many developing countries in the years up to 2007, and may explain the lack of public investments in agriculture back then. In the high-case scenario, agriculture generates higher BCRs than other sectors. This scenario confirms that if recent increase in world crop prices be sustained, and potential improvements in efficiency of public expenditure are achieved, then public expenditure in agriculture could become an important contributor to economic growth. This is particularly relevant in Cambodia where agriculture has demonstrated high growth potential. 48 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Summary Our analysis of effectiveness and efficiency explains the high priority given by the government to rural roads and the lower priority it has given to extension, at least in the past. It also validates the interest in increasing public expenditures on agriculture as a result of greater farm profitability in recent years. The high priority given to irrigation in the past seems to have been misplaced, given the problems with the performance of the sector. The government’s extension service plays a valuable role in assisting Cambodian farmers as a complement to private and NGO activity, and there are some valuable workers in the service. However, the kinds of information that it provides to farmers is sometimes not well matched to their needs, often because of a lack of resources. The effectiveness of donor spending on extension is limited by the stop-start nature of their funding. A more coordinated system of support is needed to increase continuity and build sustainable practices. Research results have often not found their way into mainstream extension practices in Cambodia, which could increase its effectiveness. Government and donor spending on both research and extension should be better coordinated. Research into the development of new crop varieties and farm management practices needs to include applied research to ensure that it meets the needs of farmers in their specific agro-ecological conditions and the need for agriculture to adapt to the changing environment, climate, and economic circumstances. Our analysis has shown that an incomplete pattern of rehabilitation of irrigation schemes is resulting in low returns to public investments. Limiting rehabilitation to headworks and primary canals is a very inefficient use of public resources, except in the rare circumstances when the private sector or the farming community has the capacity to complete the rehabilitation. Returns to expenditures on the maintenance of existing irrigation infrastructure will generally be higher than those on the construction of new schemes. The returns to rehabilitation on infrastructure that has been maintained are double those of rehabilitation on infrastructure that has not been maintained. In irrigation, the optimal share of total expenditure that should be devoted to maintenance is 33 percent. Official MOWRAM policy requires Farmer Water User Communities (FWUCs) to take responsibility for all maintenance. It will take a long time for these FWUCs to build up the necessary technical, institutional, and financial capacity to take full responsibility for the maintenance of irrigation schemes. Unless the government and donors provide funding for maintenance while FWUCs build this capacity, there will be few irrigations schemes on which rehabilitation will be justified. Therefore, there is a need for the government to fund maintenance in the interim before beginning a phased withdrawal to allow FWUCs to take over responsibility. Both the government and donors should pay more attention to the maintenance of rural roads. Current allocations for the maintenance of rural roads still fall short of the optimal share of total expenditure, which is about 45 per cent. It is expected that the costs of rehabilitation of rural roads will increase in coming years as a result of the growing shortage of laterite. There is a need to develop and pilot new techniques, such as moving from laterite surface to Double Bituminous Surface Treatment for road pavement, if recent progress in expanding rural access is to be sustained. Expenditures on research, extension, irrigation, and rural roads should be seen as complementary and will be more effective when concentrated in the same locations, preferably the best locations. Continued strong agricultural growth will have a dramatic effect on reducing poverty. However, concentrating public expenditures in cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 5. The Efficiency & Effectiveness of Expenditures in Agriculture, Irrigation, & Rural Road Sectors 49 high agriculture potential areas is unlikely to reduce nationwide inequities so the government should put in place complementary social protection programs to reduce inequities and poverty in less advantaged areas. In order to ensure that growth can be sustained at a high level similar to that achieved by many Southeast and East Asian economies in recent decades, the Cambodia government will also need to address some broader sectoral issues. These include the need to correct market failures (such as information and coordination externalities); to improve the business enabling environment; to remove barriers to accessing finance for agricultural investments, including the high cost of finance relative to economic returns in agriculture; and finally, to upgrade the level of technology. Continuing improvements in agriculture sector policy environment and more efficient collaboration between the government and donors, NGOs, and the private sector would increase the effectiveness of public spending in the agriculture sector. 50 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW 6. Climate Change and Public Expenditures Cambodia is situated between two global weather systems, which makes it vulnerable to the effects of climate change. There is some scientific evidence that climate changes will make northern and western parts of the country drier, with fewer floods and more droughts, while the opposite is expected to take place in the south and east. Agricultural growing seasons (reflecting the effect of a combination of rainfall and temperature on potential evapotranspiration) are expected to become markedly shorter in the next 50 years before returning to close to their current levels by 2080 (see Annex I for further analysis). This implies the need to adapt public expenditures in the agriculture sector to increase their effectiveness and efficiency in the future. In this chapter we evaluate the potential impact of various climate change parameters on agricultural production (particularly rice) in Cambodia and then we analyze the implications of various climate change scenarios for public expenditure patterns. A. The Impact of Climate Change on Agriculture The Royal Government of Cambodia (RGC) is in the final stages of preparing the Second National Communication (SNC) to the UN Framework Convention on Climate Change (UNFCCC). This includes a Vulnerability and Adaptation (V&A) Assessment that analyzes likely changes in temperature and rainfall and in growing seasons. The V&A projections of annual rainfall and temperature were made using the PRECIS model and fourteen Global Climate Models (GCMs) (Masutomi, 2009). These suggest that temperatures are likely to increase by about 2˚C by the end of the century. Changes in rainfall patterns are complex, because Cambodia is on the boundary between two global weather systems. The PRECIS analysis of past trends suggest there has been a general increase in total rainfall of about 2 mm per year, with the highest increases having been in the northwest during the wet season and in the southeast during the dry season. It should be noted that the northwest and southeast are the main rice-producing regions in Cambodia. The GCM analysis presents high and low emission scenarios. In general, the dry season is projected to get drier and the wet season wetter, especially after 2025. Rainfall is expected to increase most in the southeast, while the northwest may experience some decline. The wet season is projected to start later than it does now, especially in the low emissions scenario. According to the V&A projections, every additional 10mm of wet season total rainfall will add 6,500 tons (or about 0.1 percent) to rice production. The V&A modeling considers a range of agro-hydrological zones, and the assessment concludes that production in the south and east may increase by 1 percent over next 50 years, while the opposite may happen in the northern parts of the country. The effects of total rainfall on rice production are likely to be small. The potential impact of higher temperatures suggests that research and extension for farming practices that optimize soil and crop moisture (such as zero tillage) is expected to become more valuable in coming years. The changing temperature and rainfall patterns are expected to affect growing seasons. The V&A assessment analyzes rainfall patterns and shows that there have been considerable changes since 1960, but its projections suggest that changes will be less marked in the future. However, the combination of rainfall patterns and temperature will increase evapotranspiration which in turn is expected to have a significant impact on growing season. Under both scenarios, the average growing season for the majority of cultivated land is expected to decrease from seven months to five months. This effect will be moderated after 2050, when increased rainfall is expected to counteract the effect of higher temperatures. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 6. Climate Change and Public Expenditures 51 Furthermore, the PRECIS analysis for the V&A assessment suggests that there will be changes in the start and duration of the wet season, which will affect the length of the growing season. Since temperatures are sufficiently high at the end of the wet season to allow most crops to mature, there would only be a limited impact on crop production if the wet season started and finished later, especially if light-insensitive crop varieties were used. Therefore, the main effects of seasonality would be the loss of production that would occur if the wet season became shorter. The V&A analysis suggests that wet seasons could shorten by at least a month in many regions, although this effect might be reversed after 2050 in the low emissions scenario. However, the wet season will still be sufficiently long in most major crop growing regions to allow for one rice crop to be grown, especially if short maturing varieties are used. Thus, the main loss of production could come from the inability to grow a second crop. Currently, the late season crop typically accounts for about 25 percent of rice production in Cambodia and is also important for vegetable production. Much of this would be under threat from a shortened growing season, except where irrigation is available. Irrigation that is designed for an early end to the wet season gives returns up to twice as high as supplementary wet season irrigation and will become increasingly relevant as climate change progresses. Therefore, responding to changing seasonality must be the most important priority when adjusting public expenditures in agriculture to climate change. An analysis suggests that, as the climate changes, the south and east Cambodia will have more floods and fewer droughts, while the opposite will happen in the north and west (Endo et al, 2009). This is consistent with the V&A analysis on total rainfall. The frequency of drought days is likely to decrease by 25 percent in the northwest and increase by a similar amount in the southeast. Losses from drought and floods are variable and can be traumatic when they occur. However, only about 5.5 percent of total production has been lost to flood and drought in Cambodia in the last decade. If the frequency of extreme events and associated losses were to increase by 25 percent, then losses in production would be about 1.4 percent of total crop production, which could be worth about $20 million per year. The V&A analysis of past rainfall patterns that examined the duration of droughts showed that adopting crop varieties and farming practices that will enable crops to survive one additional day of drought would reduce average annual losses from drought from about 5.5 percent to about 5.0 percent of total production. This would be worth about $8 million for the economy, suggesting that public investments in research and extension for drought resilience is justified. The increasing frequency of droughts in the northwest, including the Tonle Sap region, suggests that investments in drought-bridging water storage should favor this region. B. Implications of Climate Change for Public Expenditures In theory, expected increases in rice production in south and southeast Cambodia and decreases in northern parts of the country should result in a shift in public expenditure in favor of the more productive areas. In particular, the importance of extension activities associated with water management and the scope for irrigation point to the need to increase public expenditures in these areas that would not reduce their effectiveness. However, as shown above, the changes involved in production are likely to be marginal. Instead, issues associated with flood and drought risk and changing seasonality are likely to have a more important effect on the optimal allocation of public expenditure in agriculture. In this section, we discuss these changes in turn. 52 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Research and Extension There are substantial benefits to be gained from the development of new crop varieties that are adapted to new climate conditions. The order of magnitude of these benefits can be illustrated by what would happen if public expenditures were support the development of varieties that would be able to survive one additional day of drought or flood. This would reduce average losses from drought from about 5.5 percent to about 5 percent of total crop production, which would be worth about $8 million if all farmers were able to benefit from these seeds. Given the current unit cost of developing crop varietals is about $1 million per varietal, the returns to developing more drought- and flood-resistant crop varieties could be high, provided they are widely adopted by farmers. However, in practice, it is likely that these varietals will only be adopted gradually. Increasing the efficiency of extension services can accelerate this process. Extension agents can also help farmers to adapt to climate change, particularly by changing their cultivation practices and cropping choices. Irrigation Returns to irrigation are expected to increase substantially as a result of the increased need to store water to protect against increased drought and flood frequency and a shorter wet season and growing period. The shortened rainy season is likely to be the feature of climate change that has the most significant impact on agriculture and on the performance of public expenditures on agriculture. If irrigation were used to ensure the survival of a crop during a shortened rainy season, the benefits of this would be about double the benefits of standard wet season supplementary irrigation. Rural Roads The marginal likely increase in the frequency of flood events will increase the need for major repairs and to designing rural roads to survive floods, which may add additional costs to rural road rehabilitation. However, it is expected that the effects of climate change factors on rural roads will be smaller than its effects on research, extension, and irrigation. Current priorities for climate change activities are defined in the National Adaptation Plan of Action (NAPA) and will soon be further elaborated for the Pilot Program for Climate Resilience (PPCR). The NAPA contains 16 non-health priorities, of which seven are associated with investments in agricultural water management. This is consistent with the analysis in this chapter, which stresses the importance of irrigation in preparing for climate change. The NAPA includes a priority on supporting integrated farming systems. However, it does not put a sufficiently high priority on funding research and extension on adapting crop varieties and practices. In a country like Cambodia where the pattern of climate change is both more mixed and more uncertain than in other countries, it is prudent that public expenditure priorities should focus on “low regret” investments that combine standard national planning goals with climate adaptation. These would be public investments that would result in “low regrets” or opportunity costs (such as the increased use of improved seeds and better farming techniques, including water and soil management) if the more negative climate change effects as currently projected do not materialize. Investing in increasing agricultural productivity would qualify as one such “low regret” option. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 6. Climate Change and Public Expenditures 53 Summary The net impact of climate change on agricultural production in Cambodia will be complex and is expected to vary considerably from one region to another. The strongest will probably be the reduced and more variable growing seasons, which will require farmers to invest in water storage and the development of new crop varieties and farming techniques that are more resilient to unpredictable growing seasons. This is expected to result in significant increases in returns to public expenditures on research and extension and in water storage and management. 54 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW 7. Conclusions and Policy Recommendations A. Agricultural Sector Growth and Public Spending Cambodia’s success in improving livelihoods and reducing poverty has been driven by strong economic growth. Agricultural sector growth has been lower than in other sectors, but it has been relatively robust and a key factor in the impressive reduction of poverty. Growth has been high despite of low levels of public spending as a percentage of GDP. Our analysis of the effectiveness of public spending has shown that more and especially better spending on agriculture or related infrastructure could lead to higher growth. The potential for high returns from agriculture sector is demonstrated by the increasing interest shown by private sector investors in agriculture in recent years. However, significantly more public investments in productive rural infrastructure and more public services will be needed to leverage more private sector investments in the sector and to reduce the risk and volatility facing farmers and commercial producers. Returns to investments in the agricultural sector are still limited by the under-provision of non-infrastructure types of public goods by the government, especially in two key areas—agricultural technology (generation, adaptation, and dissemination) and public regulatory capacity. Furthermore, sustaining high agricultural growth levels continues to depend on non-investment factors such as climate change. While weather and climate-related shocks have had a large impact on changes in agricultural GDP in Cambodia, targeted public investments in irrigation and drainage could have a significant impact in reducing such climate-induced volatility in agricultural yields and hence returns. The key is to ensure that investments are meaningful and efficient and tackle genuine constraints to agricultural production in a given location. When we looked at expenditure trends over last decade, a clear pattern of funding emerged, with donors concentrating mainly on MAFF and MOWRAM recurrent expenditure financing, while the government has funded MOWRAM capital investments and much of the MRD’s rural roads capital investment. In recent years, there have been some signs that the government is funding more maintenance expenditures, especially for rural roads. The overall pattern of funding is pragmatic but there are problems of aid dependency in the areas of agricultural research and extension. While increasing the budget allocation for capital spending on rural roads has generated positive agricultural and non-agricultural benefits, the high priority given to irrigation investments in the past seems to have been somewhat misplaced in light of the highly variable returns to these investments. The analysis presented in this report demonstrates that the performance of public expenditure, including both government and donor resources, in extension and irrigation was weak until 2007, after which improved economic conditions led to a period of higher returns. The performance of rural roads has tended to be stronger and more stable, although they have also been positively affected by improved rural incomes. There have been a number of problems with public expenditures that have limited their effectiveness and thus their performance. These include: (a) a lack of continuity in agricultural research; (b) poor coordination between research and extension; (c) a lack of continuity in funding the O&M costs of extension; (d) an excessive focus on rehabilitating primary irrigation infrastructure and a neglect of secondary and tertiary systems; (e) a lack of irrigation maintenance; (f) a lack of periodic and routine maintenance for rural roads; and (g) the slow pace in developing new technologies for rural roads to address the declining supplies of laterite. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 7. Conclusions and Policy Recommendations 55 B. Policy Options Available to the Government There is a case to be made in favor of more and better public expenditures for agriculture. Through much of the last decade, the BCRs for public expenditures in extension, irrigation, and rural roads have been below 2. It has therefore been difficult to justify increasing public expenditures for those sectors. The recent increases in agriculture prices, however, have boosted BCRs to levels which could justify increased government spending on agriculture. While increasing agricultural spending on public goods and services is desirable, we believe that there is little room to do this relative to GDP within the existing budget envelope in the short-term, unless offsetting reductions are made in other areas. Should such room be found, the prime candidates for increased allocations should be extension, irrigation, and rural roads. The recommendations in this chapter would therefore focus primarily on improving the overall efficiency and effectiveness of existing agriculture spending levels. We offer the following recommendations for improving the performance of public expenditures on agriculture, irrigation, and rural roads: i. Reallocate more budget resources on agricultural extension. Government funding for extension is low as a share of its agriculture budget and, as a result, these services are dependent on donor support. Public extension has potential to deliver high returns in Cambodia. There is an opportunity to significantly increase government by reallocating it from functional areas of lesser value for money. However, any spending increases, both from government and donors, should be accompanied by improvements of institutional functionality of MAFF extension systems and establishment of monitoring systems to measure the effectiveness of expenditures on these functions. Better harmonization of service delivery standards between various extension providers (government, NGOs and private sector) and elimination of conflicting messages would also improve the efficiency of extension spending for all. ii. Do not ignore funding for agricultural research. Analysis of efficiency of agricultural research spending in Cambodia was constrained by data limitations, but international evidence shows that agricultural research can have very high rates of return. While increased public spending for agricultural research is justified, it should come with institutional changes which clarify the specific functions of the country’s various research institutions and by consolidating laboratory capacities in various government units in order to reduce overlap and waste of resources. This can be done by establishing joint planning and evaluation systems by the government, donors and private sector to identify research needs and resource requirements. Technical expertise of donors could play an important role in building more effective research capacity in Cambodia. Better integration of national agricultural research institutions with extension services could further increase public spending efficiency on research, as well as extension. iii. Prepare for climate change. Related to two above recommendations, long-term efficiency of public spending on extension and research could be further improved by focussing more research efforts on development of new crop varietals and dissemination of knowledge on improved water storage and soil moisture preservation at farm-level—i.e. “low regret” investments that combine increased agricultural productivity with climate adaptation and mitigation against negative effects from reduced and more variable growing seasons. iv. Increase the effectiveness of irrigation investments. Public funding for new and rehabilitated irrigation schemes needs to be extended to secondary canals and associated infrastructure. The rehabilitation of tertiary canals using public funds is also justified provided that it includes arrangements the costs of operation and 56 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW maintenance to be recovered from the end users. There also a need for more selectivity in funding irrigation schemes. v. Increase the share of the budget designated for maintenance of irrigation and rural roads. In the case of irrigation, the optimal level of maintenance expenditure should be about 33 percent of total investment, and in the rural roads sector, an average of 45 percent is required for periodic and routine maintenance combined. This level of maintenance should ensure that the next major rehabilitation is not required for at least 10 years. vi. A longer-term measure to improve the efficiency of spending on rural roads would require investigation of economic viability of new road rehabilitation and maintenance technologies. New technologies to consider include the use of bamboo reinforced concrete (for busy roads) and engineered earth. The government could usefully invest in or create incentives for others to invest in promoting skills in these technologies. Table 7.1. Actual and Suggested Optimal Balance between Recurrent and Investment Expenditures (Million Riel) Irrigation Rural Roads Actual 2009 Optimal Actual 2009 Optimal Recurrent 31,352 79,137 25,503 99,562 Investment 208,459 158,275 195,747 121,687 Total 239,811 239,811 221,250 221,250 Source: Study Team calculations. Public Expenditure Planning and Management The key areas of weakness related to public spending in the three line ministries are: (i) the weak link between policies, programs, and the budget process; (ii) the duplication of programs, including unrealistic budget estimation without identified any sources of funding; and (iii) the lack of effective internal control in the procurement process. This weakness is compounded by duplication of programs and unrealistic budget estimations with no identified sources of funding. We make the following recommendations for improving government expenditure planning and man- agement: i. Use the BSPs within each ministry as the key policy and budget planning tool to allocate and manage all resources to the sectors. The government should consider using the BSPs as the central planning tool for the implementation of the Strategy for Agriculture and Water (SAW) and applying them to both domestically financed budget allocations and donor allocations. ii. Reinforce the annual budget process by requiring MAFF, MOWRAM, and the MRD to assign “hard” and enforceable budgets to each department through the BSPs. The current system of partial program budgets should be absorbed into this comprehensive approach. iii. Use the Treasury system to record expenditure on a departmental basis. This would require a more comprehensive financial reporting (currently called an expanded version of the TOFE) and greater devolution of responsibility for expenditures to budget entities. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 7. Conclusions and Policy Recommendations 57 iv. Introduce an annual review and planning process for the annual and medium-term budgets that includes both the government and its development partners that puts BSPs at the heart of the process and that integrates the SAW into government planning. The latter will require the coordination and integration of all the budget planning and management instruments that have been put in place by the government under the PFMRP. The donors, in consultation with the government, are preparing to map the way forward, and this should be done as a joint government/donor activity. 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Sophal C and Acharya S, 2002, Facing the Challenges of Rural Livelihoods: a Perspective from 9 Cambodian Villages. CDRI WP25. Sophal C, 2008, Impact of High Food Prices in Cambodia, CDRI Policy Brief. Sophal C, 2009, Costs and Benefits of Cross-Country Labour Migration in the GMS: Cambodia Country Study: CDRI WP44. Sophal C, Sothath N and Metta H, 2010, The Impact of the Economic Downturn on Households and Communities in Cambodia. Sovannara L, 2007, Youth Migration and Urbanisation in Cambodia, CDRI WP 36. Stevens J, 2006, CARDI Assistance Project PCR. Tong K, Khieng S and Phann D, 2009, Vulnerable Workers Survey in Phnom Penh, Kandal, Kompong Speu, Siem Reap and Battambang, CDR Vol. 13/3. Tong K, 2010, Agriculture as the Key Source of Growth: A Focus on Paddy & Rice Production. Presentation to the Cambodia Outlook Conference, March 2010. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex A: References 61 URS, 2010, Cambodia: Rural Investment and Local Governance Project (RILGP) Mid Term Review. Winter WH, 2009, Support for CARDI Finance and Human Resource Planning. CAVAC Preparation Report. World Bank/ADB, 2003, Integrated Fiduciary Assessment and Public Expenditure Review (IFAPER). World Bank, 2006, Water Management in Agriculture: Ten Years of World Bank Assistance, 1994–2004. Yu B and Fan S, 2009, Rice Production Responses in Cambodia, IFPRI Discussion Paper 00939. 62 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Annex B: Note on Data Sources  cquiring time series data for this analysis has been a challenge, and dealing with data needs for three ministries in A the current state of public finance management reform is complex and demanding. Time series data for recurrent expenditure by economic classification are readily available. However, budget and expenditure data on a functional basis are hard to find. A variety of sources have been used to build the data sets used in this study for the allocation and composition expenditure analysis of agriculture, irrigation and rural roads. They are: The TOFE (Tableau des Opérations Financières de l’Etat) tables of MEF for recurrent expenditure by economic classification:  the TOFE tables provide a time series of budget and expenditure data by ministry broken down by economic classification. The TOFE tables are compiled and issued by the Department of Economic and Public Finance Policy (DEPFP) of the Ministry of Economy and Finance (MEF), based on the expenditure records of the General Department of National Treasury (GDNT). GDNT is the body responsible for preparing Government’s consolidated expenditure accounts and financial reports. These tables were available for the analysis period 2000–09. However, a change in the budget classification introduced through a new Chart of Accounts in 2007 means that there is a discontinuity in the presentation by economic classification. Provincial expenditure, which was reported up to 2007, is not separated thereafter, when budgets are structured into a Non-Program and Program budget framework. Line-ministries’ data for recurrent expenditure by functional area: the Government Budget is structured by administrative unit (i.e. by ministry) and by economic classification (by Chapter and Article). But expenditure figures by functional area are not available from the standard budget expenditure reports. This is a particular limitation in the analysis of agriculture which has a large number of functional areas or subsectors. To enable the study to carry out a functional expenditure analysis of agricultural spending, a dedicated exercise was put in place with the assistance of the MAFF Department of Finance. The MAFF Department of Finance arranged for individual line departments to compile spending figures for two years, 2007–09. Based on these reports, a functional analysis of government expenditure (and ultimately of donor disbursement also) is then possible. Spending reports received from 23 budget units in MAFF were rationalized into eleven functional spending areas:  • Agronomy and land improvement • Agricultural machinery • Agricultural extension • Livestock and veterinary • Rubber production • Agro-industry • Agricultural research • Agricultural education and training • Forestry • Fisheries • Policy planning and management cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex B: Note on Data Sources 63  he aligning of more than 150 donor projects to the above functional areas was made by the PER team. In many T cases, it was evident even from the title of the project as to which area it should be located in. Project descriptions in the CDC data base also help. However, the classification of some projects is not straightforward. For example, projects which have training or capacity building objectives have been classified under Agricultural Education and Training, though in the MAFF budget this item is limited to training at the agricultural universities. Projects which relate to value chains, including input supply projects, have been classified under Agro-industry,  whereas the responsibilities of the department of that name are much narrower. Projects which are predominantly for extension have been allotted to the extension program though their resources may overlap with other technical areas such as agronomy and land improvement, or with livestock and veterinary. Large integrated projects pose a particular problem since they are comprised of components which serve a range of functional areas. Neither the DIC nor the CDC data bases provide a breakdown of project disbursements by components. Thus, in most cases, the disbursements for these projects have been disaggregated, based on information contained in project design or other donor documents available to the PER team. However, design documents provide an ex-ante presentation of cost allocations, and there is a degree of uncertainty about the actual expenditures. The assumptions regarding the allocation of individual project disbursements to the functional areas are indicated in the working tables at Annex C. For a small number of large projects, it has been possible to obtain information from donors on actual disbursements to different functional areas. MOWRAM’s Department of Finance  provided actual expenditure data on ministry wage and operation and maintenance budgets for 2007–09. MRD’s Departments of Finance and Rural Roads provided expenditure data on the rural roads department wage budget for 2009, and on the rural roads operation and maintenance budget for 2008 09. MEF’s DIC  provided records of domestically financed construction and equipment expenditure for the government financed capital budget. Records both at the aggregate ministry level and by individual project are available. The domestically financed capital budget has increased in importance in recent years, nearly quadrupling between 2004 and 2009. Along with national roads, rural roads and irrigation have been priority recipients, and together accounted for 75 percent of this source of funding in 2009. CDC and DIC provide data for donor project disbursements. The CDC data base provides a range of technical and cost and disbursement information on nearly all multilateral and bilateral, loan and grant, donor projects sponsored by the so-called traditional donors, and for one of the major new donors, the Republic of Korea. The Republic of China projects do not yet appear in the data base.  isbursement data disaggregated by project are available on the CDC data base only from 2007. Projected D disbursements are also available for many projects for 2010 12. Data input to the CDC system is the responsibility of donors. CDC holds training sessions with donor operatives to ensure that there is conformity across donor organizations, but there is no ex-post central quality assurance. As a result, there are occasional cases of inaccuracy in the data in terms of misclassification and duplications. The PER team reviewed each project on the CDC data base before including it into the PER data set for functional analysis.  or multilateral lending agency loan and grant projects, DIC maintains disbursement records. Since the DIC carries F out direct checks with donors on its disbursement figures, DIC records have been the preferred source for multilateral 64 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW projects for the years 2007 09. DIC records do not show projected disbursements for 2010 12. For bilateral projects, CDC figures have been used. The Ministry of Interior’s National Committee for the Management of Decentralization and De-concentration Reform (NCDD)  provided data on the Commune/Sanghat Funds (CSF), which channel significant volumes of resources to rural roads. NDCC has provided expenditure figures for 2002 09. Data reliability: the spending reports contained in the TOFE and DIC reports are considered to be reliable, because they are based on the actual payments passed and reported by the General Department of the National Treasury. The CDC data are subject to a degree of uncertainty because of the donor-input modality. There is no procedure for CDC to check all the data once they have been provided. Indeed, it would require a lot of resources to do so. The PER team found, however, that there was a reasonable degree of conformity between the DIC and CDC data for those projects which are reported on by both organizations. Overall, it is thought that the CDC data are probably accurate to within +/ 10 percent margin of error. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 65 Annex C: Integrated Agriculture, Irrigation and Rural Roads PER Data Set (Riels million, 2007–09)  2007 2008 2009 Exchange rate USD/Riel eop (EAP Brief Nov 09 update) 4,003 4,081 4,165 MINISTRY OF AGRICULTURE, FORESTRY AND FISHERIES (MAFF) AGRICULTURAL PRODUCTION SERVICES Agronomy and Land Improvement: Govt. 3,275 3,380 2,136 Agronomy and Land Improvement: Donors Agricultural Quality Improvement Project 4,123 1,995 1,040 Mine Action Cambodia 333 571 TA to Control Brown Plant Hopper and Associated Virus Diseases in Rice 130 122 Sanitary and Phyto-sanitary Action Plan Preparation 48 Development of Agriculture in Rural Cambodia 93 Green Garden 130 142 Poverty Reduction Among Subsistence Rice Farmers in Four Districts 717 783 Improving the Livelihoods of Poor Farmers in Southern Cambodia (alloc. 20%) 155 382 Tonle Sap Poverty Reduction and Smallholder Development - prov (alloc.15%) 158 125 Community Based Rural Development Project (alloc. 26%) 846 159 986 Rural Livelihoods Improvement Project (alloc. 30%) 1,975 1,500 Rural Poverty Reduction in Prey Veng and Svay Rieng (alloc. 10%) 1,429 1,070 669 Agronomy Subtotal: Donors 7,956 6,575 5,151 GOVT/TOTAL RATIO 29 34 29 Agricultural Machinery: Govt. 609 667 257 Agricultural Extension: Govt. 957 1,212 932 Ag. Extension: Donors CAAEP Ph II 11,012 Cambodia Radio Development Assistance Project 1,783 2,322 1,445 Cambodia Agricultural Value Chain Programme (alloc. 25%) 582 1,285 1,872 ADRA Harvest Project Implementation - NGO Coop. Agreements 3,837 3,544 2,259 CARE Australia IRDM Project - NGO Cooperation Agreements 5,023 5,829 5,123 Agricultural Sector Development Project (alloc. 80%) 2,293 3,444 5,431 Improving the Livelihoods of Poor Farmers in Southern Cambodia (alloc. 20%) 155 382 Tonle Sap Lowlands Rural Development (alloc. 25%) 312 Tonle Sap Poverty Reduction and Smallholder Development (alloc. 15%) 158 125 Tonle Sap Demonstrations for Productivity Enhancement Agricultural Development in Mine Affected Areas (alloc. 40%) 4,558 3,502 Support Project for Agricultural Development of Cambodia (alloc. 50%) 412 1,456 Rural Livelihoods Improvement Project (alloc. 40%) 2,634 2,000 Rural Poverty Reduction in Prey Veng and Svay Rieng (alloc. 5%) 715 535 334 Community Based Rural Development Project (alloc. 8%) 282 49 304 Regional Vegetable IPM Programme 900 Battambang Nurturing and Development Project 2,653 3,193 3,369 Community Development in Ramsar Protected Areas 174 Farmers CB in Ratanak Kiri 516 Socioeconomic Development Support in Prey Thom 273 603 580 Ag. Extension Subtotal:Donors 33,166 24,389 29,702 GOVT/TOTAL RATIO 3 5 3 66 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW 2007 2008 2009 Exchange rate USD/Riel eop (EAP Brief Nov 09 update) 4,003 4,081 4,165 Livestock and Veterinary: Govt. 2,503 3,495 6,168 Livestock and Veterinary: Donors SE Asia FMD Eradication Campaign - Regional 138 288 Smallholder Livestock Production Programme (SLPP) 3,022 5,522 5,106 Prevention and Control of HPAI with focus on smallholder livelihoods 1,027 407 778 Enivironmental Animal Health Management Initiative in SE Asia 408 Support to Smallholder Livestock Production 2,845 Support to Sericulture Rehabilitation 2,499 Community Based Rural Development Project (alloc. 8%) 282 49 304 Avian Flu Control and Preparedness (PHRD TF 56832) 1,265 899 Avian Flu Control and Preparedness (IDAH3610) 2,571 1,086 Avian Flu Control and Preparedness (MDTF 58146) 857 362 Livestock and Veterinary Subtotal: Donors 4,469 10,959 14,286 GOVT/TOTAL RATIO 36 24 30 Other Agricultural/Rural Support Services: Donors Community Based Agricultural Productivity Project MDTF for Natural Resources Management-L Programme, Cambodia Economic Growth Other Agricultural/Rural Support Services: Subtotal Donors 0 0 0 AGRICULTURAL PRODUCTION SERVICES: TOTAL GOVT 7,344 8,753 9,493 AGRICULTURAL PRODUCTION SERVICES: TOTAL DONORS 45,591 41,922 49,139 AGRICULTURAL PRODUCTION SERVICES: TOTAL GOVT AND DONORS 52,935 50,676 58,632 GOVT/TOTAL RATIO 14 17 16 RUBBER PRODUCTION SERVICES Cambodia Rubber Research Institute: Govt. 1,400 1,373 1,492 Rubber General Department: Govt. 442 492 66 Rubber Services: Donors Development of Smallholder Rubber Plantations: Interim Project 2,985 Transitional Project on Smallholder Plantation and Diversification 1,755 3,065 Support to Private Plantations to Develop Smallholder Plantations RUBBER SERVICES: SUBTOTAL DONORS 4,740 3,065 0 RUBBER SERVICES: SUBTOTAL GOVT. 1,842 1,865 1,558 RUBBER PRODUCTION SERVICES: TOTAL GOVT AND DONORS 6,582 4,930 1,558 GOVT/TOTAL RATIO 28 38 100 AGRO-INDUSTRY 317 514 372 Agro-Industry: Donors Feasibility Study on Establishing an Open Paddy Market 435 Agricultural Product Market Access Cambodia Agricultural Marketing Information Project 2,859 4,202 3,628 Cambodia Agricultural Value Chain Programme (alloc. 20%) 466 1,028 1,498 Formulation Assistance for the Agro-industry Strategy Development Plan Input Supply to Vulnerable Populations under Soaring Food Price Init. 789 24 Telefood (Micro Projects) 194 Rural Livelihoods Improvement Project (alloc.30%) 1,979 1,500 Grant Assistance to Underpriveliged Farmers 12,847 Grant Assistance to Underpriveliged Farmers (2KR) 10,511 AGRO-INDUSTRY: SUBTOTAL DONORS 3,760 31,355 6,843 AGRO-INDUSTRY: SUBTOTAL GOVT. 317 514 372 AGRO-INDUSTRY: TOTAL GOVT. AND DONORS 4,077 31,869 7,215 GOVT/TOTAL RATIO 8 2 5 cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex C: Integrated Agriculture, Irrigation and Rural Roads PER Data Set 67 2007 2008 2009 Exchange rate USD/Riel eop (EAP Brief Nov 09 update) 4,003 4,081 4,165 AGRICULTURAL RESEARCH CARDI Govt. 1,750 1,682 2,073 Ag. Research: Donors Tonle Sap Poverty Reduction and Smallholder Development (alloc. 5%) 53 42 CARDI Assistance Project 1,333 Water Resources Management Research Capacity Development 2,042 2,387 2,407 Support Project for Agricultural Development of Cambodia (alloc. 50%) 412 1,456 AG. RESEARCH SUBTOTAL: DONORS 3,375 2,852 3,905 AG. RESEARCH SUBTOTAL: GOVT. 1,750 1,682 2,073 AGRICULTURAL RESEARCH: TOTAL GOVT. AND DONORS 5,125 4,533 3,905 GOVT/TOTAL RATIO 34 37 53 AGRICULTURAL EDUCATION AND TRAINING Ag. Education and Training: Govt. Royal University of Agriculture 2,400 2,652 2,690 Kampong Cham Agri. School 1,338 1,481 1,685 Prek Leap National Agri. School 1,501 990 1,935 Ag. Education and Training: Donors Agricultural Sector Development Project (alloc. 20%) 573 861 1,358 Regional Sanitary and Phyto-Sanitary CB 458 Integrated Management of Natural Resources and Agric. Development MSc 715 698 CB for the Conservation of Plant Genetic Resources in Asia 105 Strengthening Agricultural Project Formulation and Design 293 906 614 Strengthening Sanitary and Phyto-Sanitary Services 339 696 CB for Quality Standard Control of Fertilisers and Pecticide 3,369 Technical Training in Japan 2007 and 2008 (allocation) 1,262 884 AG. EDUCATION AND TRAINING SUBTOTAL: DONORS 2,586 3,705 6,839 AG. EDUCATION AND TRAINING SUBTOTAL: GOVT. 5,239 5,124 6,310 AG. EDUCATION AND TRAINING: TOTAL GOVT. AND DONORS 7,826 8,829 13,149 GOVT/TOTAL RATIO 67 58 48 FORESTRY Forestry: Donors Promoting Community Foresty in Cambodia 2,155 992 Community Forestry Development in NW Cambodia 253 Linking Communities in SE Asia to Carbon Markets National Forest Programme Facility 41 417 Strengthening policy and capacities for REDD CB Project for the Forestry Sector Ph 2 3,138 3,244 3,369 Strengthening capacities of Forest Communities in NE Provinces 12 908 FORESTRY: SUBTOTAL DONORS 5,293 3,550 5,685 FORESTRY: SUBTOTAL GOVT. 8,495 8,868 6,242 FORESTRY TOTAL: GOVT. AND DONORS 13,788 12,418 11,927 GOVT/TOTAL RATIO 62 71 52 68 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW 2007 2008 2009 Exchange rate USD/Riel eop (EAP Brief Nov 09 update) 4,003 4,081 4,165 FISHERIES: Subtotal Govt. Fisheries General 4,288 6,772 3,013 Fisheries Research Station 257 200 0 Fisheries: Donors Sustainable Rice Fish Integration 348 344 297 CB for Community Fisheries Mgemnt 212 CB for Fish Quality Control 101 Regional Fisheries Livelihoods Programme 286 Freshwater Aquaculture Research and Ext. Project 4,440 4,046 3,369 Marine Aquaculture Centre Construction 7,841 MDTF for Natural Resources Management-L Programme, Cambodia 8,811 4,399 3,873 Prom and Devel of Sustainable Aquaculture Kratie and Stung Treng 1,409 Prom and Devel of Sustainable Aquaculture Ratanakiri and Mondulkiri 216 870 FISHERIES: SUBTOTAL DONORS 15,219 9,005 16,638 FISHERIES: SUBTOTAL GOVT. 4,544 6,972 3,013 FISHERIES TOTAL: GOVT. AND DONOR 19,764 15,977 16,638 GOVT/TOTAL RATIO 23 44 18 MAFF PLANNING AND MANAGEMENT Planning and Management: Govt. Central Ministry (Non PB only) - contains a residual 6,667 8,571 22,491 International Cooperation (established 07) 561 670 735 Planning and Statistics 44 97 130 Personnel and human resources (budget allocated only for 07) 107 Economic Land Consessions (M&E) 80 Legal Affairs 77 Planning and Management: Donors Policy and Institutional Reforms in the Agriculture Sector 361 583 Strengthen National Programme Budgeting for Agriculture 207 PFM TA for Rural Development (alloc. 33%) 2,749 Tonle Sap Poverty Reduction and Smallholder Development (alloc. 5%) 53 42 Agricultural Policy Support Under the Soaring Food Prices Initiative 167 1,086 Pro-Poor Policy Formulation, Dialogue and Implementation 169 FAO-IFAD Collaborative Assistance on Pro-poor Policy Formulation 68 New Agricultural Programme Development 1,256 810 320 Cambodia Agricultural Value Chain Programme (alloc.15%) 349 771 1,123 Rural Livelihoods Improvement Project (alloc.10%) 660 500 Support to Agriculture Sector Policies 720 1,047 2,758 TA Support to Agriculture and Water Sector Policies 602 489 411 Japn Overseas Cooperation Programme in 2007 and 2008 Technical Cooperation by Experts 2009 2,751 Activities to Promote Efficiency of TC in 2007, 2008 and 2009 310 184 413 Promoting Climate Resilient Water Management and Agriculture 11 PLANNING AND MANAGEMENT: SUBTOTAL DONORS 3,805 7,514 9,639 PLANNING AND MANAGEMENT: SUBTOTAL GOVT. 7,459 9,338 23,433 MAFF PLANNING AND ADMINISTRATION: TOTAL GOVT. AND DONORS 11,264 16,853 33,072 GOVT/TOTAL RATIO 66 55 71 RECURRENT CENTRAL MAFF: GOVT. 36,990 43,116 52,494 RECURRENT PROVINCE MAFF: GOVT. 20,665 22,705 27,678 TOTAL MAFF RECURRENT 57,655 65,821 80,172 CAPITAL MAFF: GOVT. 5,462 5,699 3,638 TOTAL MAFF: GOVT. RECURRENT AND CAPITAL 63,117 71,520 83,810 TOTAL DONOR AGRICULTURE 84,369 102,968 98,687 TOTAL GOVT. AND DONORS 147,486 174,489 182,497 GOVT/TOTAL RATIO AGRICULTURE % 43 41 46 cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex C: Integrated Agriculture, Irrigation and Rural Roads PER Data Set 69 2007 2008 2009 Exchange rate USD/Riel eop (EAP Brief Nov 09 update) 4,003 4,081 4,165 Total MAFF Recurrent (R Mill.) Source: TOFE 57,606 65,823 78,192 MAFF Ministry/NonPB from 2007 (R Mill.) 48,010 56,051 64,233 MAFF Provinces/PB from 2007 (R Mill.) 9,596 9,772 13,959 Share Province/PB (from 2007) - of Total MAFF % 16,7 14,8 17,9 IRRIGATION RECURRENT MOWRAM GOVT. TOFE 20,427 25,861 31,352 CAPITAL MOWRAM (Domestically Financed) (Source: TOFE) 74,508 114,593 148,691 TOTAL MOWRAM: GOVT RECURRENT AND CAPITAL 94,935 140,454 180,043 Irrigation: Donors Integrated Development in Battambang in Support of SPFS 1,960 Stung Chinit Irrigation and Rural Infrastructure 6,309 5,762 Northwest Irrigation Sector Project 3,047 3,440 13,573 Flood and Drought Risk Management and Mitigation Water Resources Management Sector Development Preparation 885 1,016 616 Water Resources Management Sector Development Tonle Sap Lowlands Rural Development (alloc.10%) 541 PFM TA for Rural Development (alloc. 33%) 2,749 Cambodia Agricultural Value Chain Programme (alloc.40%) 931 2,056 2,995 ECOSORN 1,069 7,063 2,750 Strengthening Participatory Irrigation Management 189 602 421 Northwest Irrigation Sector Project 2,784 3,717 4,932 Rehabilitation of Prey Nup Polder, Phase 3 2,252 995 Stung Chinit Irrigation Scheme Rehabilitation 2,375 1,102 Water Resources Management Sector Project Community Based Rural Development Project (alloc. 16%) 564 98 607 Rehabilitation of Kandal Stung Irrigation System 1,571 268 Rehabilitation of Thnol Bot Irrigation System 567 Prek Thnot River Basin Agricultural Development Study 3,178 2,089 Technical Service Centre for Irrigation Ph II 753 4,577 3,369 The Basin Wide Irrigation and Drainage Master Plan Study 2,487 3,982 3,369 The Improvement of Agricultural River Basin Management 3,369 JICA/KOICA Joint Programme for Irrigation System Rehabilitation 417 Improvement of Roleang Chrey Headworks 643 Improvement of Roleang Chrey Headworks - Detailed Design 842 Rehabilitation of Boeung Veam Irrigation System Rehabilitation of Kbal Tonsoung Irrigation System 346 Rehabilitation of Portasu Irrigation System 347 Rehabilitation of Potawa Irrigation System Rehabilitation of Thanal Chan Reservoir 345 Rehabilitation of Toul Kou Irrigation System 322 Rehabilitation of Bos Leave Irrigation System 342 Technical Training in Japan 2007 and 2008 (allocation) 1,262 884 Technical Cooperation by Experts 2009 2,751 Krang Ponley Water Resources Development 21,365 5,689 JICA/KOICA Joint Programme for Irrigation System Rehabilitation 833 Irrigation System Construction in Batheay District 6,248 Community Self Reliance and Flood Risk Reduction 539 460 PFM for Rural Development (assumed allocation 33%) 2,749 Tonle Sap Poverty Reduction and Smallholder Development (alloc.10%) 105 83 Rural Poverty Reduction in Prey Veng and Svay Rieng (alloc. 15%) 2,144 1,605 1,003 Promoting Climate-Resilient Water Management and Agriculture (alloc. 25%) 11 Battambang Dam IRRIGATION SUBTOTAL: DONORS 33,570 64,975 59,768 IRRIGATION TOTAL: GOVT. AND DONORS 128,505 205,429 239,811 GOVT/TOTAL RATIO IRRIGATION % 74 68 75 70 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW 2007 2008 2009 Exchange rate USD/Riel eop (EAP Brief Nov 09 update) 4,003 4,081 4,165 RURAL ROADS RECURRENT MRD GOVT. TOFE 34,754 45,243 63,758 RECURRENT FOR RURAL ROADS (estimate 40% of total MRD) 13,902 18,097 25,503 CAPITAL MRD (Domestically Financed) (Source: TOFE) 53,253 108,111 87,559 TOTAL RURAL ROADS: GOVT RECURRENT AND CAPITAL (MRD) 67,155 126,208 113,062 Commune Funds C/SF (MOI) Spent on Rural Roads 44,810 47,726 59,345 TOTAL RURAL ROADS: GOVT (MRD) AND C/SF 111,965 173,934 172,407 Tonle Sap Sustainable Livelihoods (alloc. 20%) 271 1,479 5,992 Tonle Sap Lowlands Rural Development (alloc.10%) 541 Northwest Development Project 22,853 21,752 Tonle Sap Poverty Reduction and Smallholder Development (alloc. 10%) 105 83 Provincial Rural Infrastructure Project 6,281 1,761 1,710 PFM TA for Rural Development (alloc.15%) 1,250 ECOSORN 2,027 2,545 9,929 Rural Poverty Reduction in Prey Veng and Svay Rieng (alloc. 15%) 2,144 1,605 1,003 Community Based Rural Development Project (alloc. 4%) 141 24 152 Flood Damage Repair of Rural Roads 236 Rural Infrastructure Programme RIP II Rural Infrastructure Programme Siem Rip and Kampong Thom RIP I 12,762 Tertiary Road Improvement Programme TRIP II 32 Tertiary Road Improvement Programme TRIP III 719 Tertiary Road Improvement Programme TRIP IV 24,331 11,413 3,469 People in Crisis 16,685 11,597 11,952 RURAL ROADS SUBTOTAL: DONORS 75,720 52,282 48,843 TOTAL RURAL ROADS: GOVT (MRD) AND C/SF AND DONORS 187,685 226,215 221,250 GOVT/TOTAL RATIO RURAL ROADS % 60 77 78 cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 71 Annex D: Recurrent Budget by Economic Classification, 2000–06 (Riels mn.) 2000 2001 2002 2003 2004 2005 2006 Avge. MAFF Ministry % Ch 10: Salaries 3,618 2,290 5,461 4,567 4,585 6,183 7,032 Ch 11:Operating Costs 9,004 7,778 7,193 5,971 6,700 8,956 10,500 Ch 12: Subsidies to Provinces 4,846 4,899 7,681 8,000 Ch 13: Specific Programme Activities 2,105 5,844 6,064 6,259 7,430 10,000 Ch 30: Economic Interventions 285 3,989 4,424 600 816 600 700 Ch 31: Social Interventions 71 51 46 54 49 84 100 Ch 32: International Organisations 368 966 312 378 332 259 450 Subtotal 13,345 17,179 23,281 22,480 23,640 31,193 36,782 Provinces Ch 10: Salaries 3,555 3,348 5,028 4,941 4,901 4,587 5,265 Ch 11:Operating Costs 4,060 6,980 7,846 8,312 7,851 8,189 10,418 Ch 30: Economic Interventions 2,340 2,825 3,335 3,087 2,762 2,917 4,000 Ch 31: Social Interventions 113 136 162 203 214 224 370 Subtotal 10,069 13,289 16,372 16,544 15,728 15,917 20,053 Total 23,415 30,468 39,652 39,024 39,368 47,109 56,835 Ministry and Provinces Ch 10: Salaries 7,173 5,638 10,489 9,508 9,487 10,771 12,297 24 Ch 11:Operating Costs 13,064 14,758 15,039 14,283 14,551 17,145 20,918 41 Ch 12: Subsidies to Provinces 4,846 4,899 7,681 8,000 6 Ch 13: Specific Programme Activities 2,105 5,844 6,064 6,259 7,430 10,000 12 Ch 30: Economic Interventions 2,625 6,814 7,760 3,687 3,578 3,517 4,700 12 Ch 31: Social Interventions 184 186 208 257 263 307 470 1 Ch 32: International Organisations 368 966 312 378 332 259 450 1 Total Ministry and Provinces 23,415 30,468 39,652 39,024 39,368 47,109 56,835 98 MOWRAM Ch 10: Salaries 687 777 1,126 1,334 1,324 1,612 2,016 Ch 11:Operating Costs 4,286 5,637 7,918 8,910 9,617 8,195 9,043 Ch 30: Economic Interventions Ch 31: Social Interventions 9 8 5 6 12 11 19 Ch 32: International Organisations 119 142 407 107 81 40 40 Subtotal 5,101 6,564 9,456 10,358 11,034 9,858 11,118 Provinces Ch 10: Salaries 496 524 763 836 799 942 1,171 Ch 11:Operating Costs 584 1,156 731 1,701 1,457 1,972 2,831 Ch 30: Economic Interventions 496 884 913 984 929 3,625 Ch 31: Social Interventions 18 24 26 35 32 45 44 Subtotal 1,098 2,200 2,405 3,486 3,271 3,887 7,671 Total 6,199 8,764 11,861 13,844 14,305 13,745 18,789 Ministry and Provinces Ch 10: Salaries 1,183 1,301 1,889 2,171 2,123 2,554 3,187 17 Ch 11:Operating Costs 4,870 6,793 8,649 10,611 11,073 10,167 11,874 74 Ch 30: Economic Interventions 496 884 913 984 929 3,625 8 Ch 31: Social Interventions 27 32 32 42 44 56 63 0 Ch 32: International Organisations 119 142 407 107 81 40 40 1 Total Ministry and Provinces 6,199 8,764 11,861 13,844 14,305 13,745 18,789 100 72 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW 2000 2001 2002 2003 2004 2005 2006 Avge. MRD Ch 10: Salaries 483 498 998 1,079 1,124 1,716 2,090 Ch 11:Operating Costs 3,031 3,987 4,314 2,731 2,354 4,712 3,864 Ch 13: Specific Programme Activities 2,191 5,500 5,256 5,517 6,347 11,747 Ch 30: Economic Interventions Ch 31: Social Interventions 4 7 7 8 6 15 30 Ch 32: International Organisations Subtotal 3,518 6,682 10,819 9,073 9,001 12,791 17,732 Provinces Ch 10: Salaries 934 914 1,478 1,579 1,586 1,855 2,272 Ch 11:Operating Costs 2,989 4,719 5,925 6,104 5,897 7,343 9,867 Ch 30: Economic Interventions Ch 31: Social Interventions 109 127 174 145 142 156 143 Subtotal 4,032 5,760 7,577 7,828 7,626 9,353 12,282 Total 7,550 12,442 18,395 16,901 16,627 22,144 30,014 Ministry and Provinces Ch 10: Salaries 1,418 1,412 2,476 2,658 2,710 3,571 4,362 15 Ch 11:Operating Costs 6,019 8,705 10,239 8,835 8,251 12,055 13,732 58 Ch 13: Specific Programme Activities 2,191 5,500 5,256 5,517 6,347 11,747 26 Ch 30: Economic Interventions 0 Ch 31: Social Interventions 113 134 181 153 149 171 174 1 Ch 32: International Organisations Total Ministry and Provinces 7,550 12,442 18,395 16,901 16,627 22,144 30,014 100 cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 73 Annex E: Recurrent Budget Analysis by Economic Classification, 2007–08 (Riels mn.) 2007 % Share 2008 % Share Ave. MAFF Total Non Budget and Budget Programming Ch 60: Purchases 13,873 24 15,209 23 24 Ch 61: External services 6,165 11 7,289 11 11 Ch 62: Other services 8,472 15 9,396 14 14 Ch 64: Personnel charges 14,973 26 22,126 34 30 Ch 65: Subsidy and Social assistants 14,099 24 11,719 18 21 Ch 63: Tax and Excise 74 0 85 0 0 Total 57,655 100 65,823 100 100 MOWRAM Ch 60: Purchases 7,299 36 10,888 42 39 Ch 61: External services 3,759 18 3,792 15 17 Ch 62: Other services 1,571 8 1,716 7 7 Ch 64: Personnel charges 3,619 18 4,453 17 18 Ch 65: Subsidy and Social assistants 4,116 20 4,896 19 20 Ch 63: Tax and Excise 0 0 57 0 0 Total 20,364 100 25,801 100 100 MRD Non Budget and Budget Programming Ch 60: Purchases 6,753 19 5,915 13 16 Ch 61: External services 17,448 50 26,982 60 55 Ch 62: Other services 5,196 15 5,797 13 14 Ch 64: Personnel charges 5,323 15 6,513 14 15 Ch 65: Subsidy and Social assistants 0 0 0 0 0 Ch 63: Tax and Excise 34 0 36 0 0 Total 34,754 100 45,243 100 100 74 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Annex F: Beneficiary Perception Survey Introduction  he Beneficiary Perception Survey was conducted as part of the PER Review. The survey was expected to provide T evidence of the impact of public spending (both Government and donors) for agricultural extension, irrigation (large and small scale) and rural roads. The field survey was undertaken between 22nd February and 2nd March 2010. The survey was intended to supplement the data from secondary sources and from case studies.  he survey focused on the effectiveness of public interventions, relying mainly on farmer perceptions. In particular, T the survey intended to assess the effects that agricultural extension, irrigation and rural roads have had on agricultural production and local livelihoods. The survey does not aim to collect evidence of the coverage of Government activity, which is more effectively done in CSES and MOPS. N  ine villages across Cambodia were chosen for the Table F.1. Sample Villages survey. Three villages were selected to focus on each Public Intervention on Extension type of intervention (extension, irrigation, and rural 1 Vegetable Koh Toch Kandal roads). Each village was selected to represent a variety 2 Dry season Chuntul Maek Takeo 3 Wet season Samreth Kampong Speu of characteristics of villages in Cambodia such as wet- Public Intervention on Irrigation season rice, dry season rice, cash crop, and remote 4 Flood control Voiyeav Kampong Thom ethnic villages. The selection of particular villages was 5 Small scale Trang Battambang done through consultation with and suggestions from 6 Reservoir Damnak Kanseng Pursat Public Intervention on Rural Roads the relevant functional authorities at the provincial and 7 Rice surplus Angkal Prey Veng district levels. The sample villages were supposed to 8 Cash crops Choim Tamao Koeut Kampong Cham be among villages that performed best in their own 9 Remote ethnic Puchrey Chang Modulkiri characteristics: extension, irrigation, and rural roads. Source: PER survey. Table F.1. summarizes the sample villages in the survey.  he survey collected data from three types of respondents in each village: key informants of the village, farmers (farm T households), and laborers. Different semi-structured questionnaires were used for each type of respondent. Work in each village started with one group interview/meeting with 4-6 key informants. Then, thirty farm households were interviewed and five laborers were selected among the sample farm households whose members were laborers for further interview to assess the impacts of public intervention on local demand for labor.  he selection of the thirty sample farm households from each village was done differently for extension, irrigation, T and rural road villages. In rural road villages, the sample farm households were randomly selected among all village households while farm households in village irrigation were also selected randomly, but only among the village households that had access to irrigation systems. The method in the latter case was employed because the survey aimed to examine the benefits of irrigation, while the data on coverage of (or access to) irrigation among village households could be collected from the interviews with the village’s key informants. In the case of extension villages, the sample selection targeted the households that were contacted by the extension service. However, because the number of contact farmers was usually 20-30 per village, some non-contact farmers were included in the sample. The main focus of the interviews was on the questions associated with the selected intervention type, but all respondents were also asked a subset of questions on other types of intervention. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex F: Beneficiary Perception Survey 75 Extension Services Figure F.1. Coverage of Extension Services % of interviewed farm households  overage of extension services. Although three C 120 villages were in particular selected to represent the type 100 of public intervention in agricultural extension, all six 93 97 92 90 80 other villages also reported having received extension services. Among all surveyed farm households, 60 71 53 percent had received agricultural extension advice. 53 40 47 The percentage of farm households having received 41 extension advice was highest in three villages (extension 20 villages) that were particularly chosen to represent 0 public intervention in extension. 71 percent of the Total Extension villages Irrigation villages Rural road villages households interviewed in these villages reported that Aware of Learned Source: PER Survey of farmer perception in 9 villages (February–March, 2010) they attended the extension training. The figure should in any case be unsurprising since the selection of the households in these three villages was deliberately targeted on those receiving the extension courses provided to the village. While the survey aimed to interview 30 households per village, it tried as much as possible to cover those farm households receiving extension services. H  owever, while the method of selecting farm households in other villages for interview was different to that in the extension villages, the percentage of farm households having received extension advice still appears high: 41 percent in rural road villages and 47 percent in irrigation villages. While the figure in irrigation villages could be influenced by the selection of households that in particular benefited from the irrigation scheme, the statistic in rural road villages should be more representative given the random selection of farm households in those villages. However, the coverage of extension services at 41 percent of the households in rural road villages could be the result of extension programs provided by many different actors (i.e. the government, donor projects, and NGOs), rather than a single service provider. T  he extension service further reaches untrained farmers. Its coverage can be understood through the range of awareness of extension advice. The survey indicates that 93 percent of the surveyed households were aware of extension advice. The proportion of households who were aware of extension advice was highest in irrigation villages (97 percent, which is about twice the farm households that directly attended the extension training). However, the coverage appears slightly less in extension villages (92 percent).  armers are becoming aware of extension advice through multiple sources. The first major source is other farmers— F i.e. 61 percent of the interviewed households were aware of extension advice through this source. Other major sources of extension advice are government extension workers, NGOs, and radios/TVs. Notably, farmers also become aware of extension advice from ‘merchants/traders’. The extension advice from this source reaches 20 percent of the surveyed households.  he extension service from the Government and NGOs has larger coverage in extension villages and to some extent T in rural road villages. In extension villages, 58 percent of the households become aware of extension advice from the Government extension workers and 52 percent have heard of it from NGOs. In irrigation villages, more farmers tend to become aware of extension advice from other farmers/friends and radios/TVs. Unlike in extension villages, extension advice from merchants/traders plays a more significant role—i.e. some 41 percent of farmer households 76 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Figure F.2. Sources of Extension Advice % of households receiving extension advice 80 70 60 50 40 30 20 10 0 friends/farmers radio/TV NGOs projects extension workers commune councils merchants/traders other Extension Irrigation Source: PER Survey of farmer perception in 9 villages (February–March, 2010). Table F.2. Types of Extension Advice that Farmers Received % of households Extension Irrigation Rural roads Vill. 1 Vill. 2 Vill. 3 Vill. 4 Vill. 5 Vill. 6 Vill. 7 Vill. 8 Vill. 9 Total 1 Rice farming 26 95 100 85 86 100 85 0 13 71 2 Cash crop 26 0 19 38 50 20 10 0 25 20 3 Vegetable 100 25 71 62 50 13 5 22 25 45 4 Livestock 0 40 33 69 50 60 40 78 75 43 5 Fertiliser application 74 90 95 69 79 67 55 11 0 68 6 SRI 0 80 86 31 43 80 30 0 0 43 7 Water management 43 70 71 38 50 47 40 0 0 46 8 Pest management 83 75 86 54 71 67 65 11 0 65 9 Organic farming 22 40 43 31 7 20 10 0 0 22 10 Compost making 57 70 95 77 79 67 30 11 0 59 11 Post harvest 74 0 5 0 29 27 10 0 0 20 12 Other 35 50 57 23 29 40 15 0 0 32 Source: PER Survey of farmer perception in 9 villages (February–March, 2010). in irrigation villages become aware of extension messages from merchants/traders. This implies that availability of irrigation encourages interaction between farmers and merchants/traders on agricultural extension.  he extension messages that farmers have learned are largely in the forms of rice production, application of fertilizers, T pest management/control, and compost making. Among farmers directly learning from extension advice, 71 percent reported having learned rice production techniques, while the share of households receiving extension advice on application of fertilizers, pest management/control, and compost making ranges from 59-68 percent. About 43- 46 percent of households attending extension courses have learned vegetable cultivation, livestock raising, water management, and SRI. The coverage of extension services on cash crop production, organic farming, and post harvest techniques is lowest, at about 20-22 percent of extension participants. Impact of extension services. The adoption rate among farm households that were receiving extension services appears high, but they only managed to apply some parts of the extension package they learned. About 67 percent of farm households partially applied what they learned from the extension courses into their actual farming practices. Full adoption is very low (about 6 percent) and found only in two of the extension villages. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex F: Beneficiary Perception Survey 77  mong those having received extension advice, about 27 percent did not apply even part of the extension package A they received. They did not apply the extension advice because a lack of working capital and agricultural inputs were their major constraints. Other reasons were because the adoption extension advice requires extra labor. Lack of water availability to supply farmland also constrains farmers from adopting the techniques. Some farmers explained that they did not apply the extension advice because they did not understand it or sometimes because they did not believe in the extension advice. T  he partial adoption is most commonly observed and the rate is highest in irrigation villages (87 percent), followed by extension villages (67 percent, excluding 14 percent of full adoption). This implies that the adoption rate of the extension services is likely supported by the existence of the irrigation system. Though the adoption rate in irrigation villages is not far higher than that in extension villages, it is because those extension villages are also characterised by the availability of irrigation systems. Nevertheless, the adoption rate is far lower in villages that have no irrigation such as Puchrey Chang village (Mondulkiri) or in villages where irrigation is limited such as Choim Tamao village (Kampong Cham) while in villages with better availability of water supply from irrigation the adoption rate is even up to 93 percent in Damnak Kanseng village (Pursat), though much adoption is only partial. T  able F.3 presents data on adoption rates for extension advice and perceptions of its usefulness. The table demonstrates that extension advice works better in extension villages than in other villages, which again confirms the supporting role of the irrigation schemes to the effectiveness of the extension service. Though they only partially adopted the advice, none of farmers in irrigation villages found the extension service useless, 26 percent viewed extension advice as very useful, and the rest have benefited in some degree from their adoption of the extension advice. Table F3. Adoption of the Extension Service and its Usefulness Contact Adoption Rate (%) Usefulness of Extension (%) Mean Effect on Rate (%) Score Yield (% Partially Fully 1 2 3 4 change) Overall 53 66.7 6.3 6 38 42 14 2.6 30.7 Extension villages 71.1 67.1 14.3 13 34 50 3 2.4 24.7 1 Koh Toch 76.7 77.8 0 11 37 44 8 2.5 16.7 2 Chuntul Maek 66.7 52.4 28.6 10 33 56 0 2.5 30.9 3 Sameth 70 68.2 18.2 16 33 49 2 2.4 24.9 Irrigation villages 46.7 86.7 .. .. 33 40 26 2.9 39.6 4 Voiyeav 43.3 68.8 0 0 60 27 13 2.5 27.4 5 Trang 46.7 100 0 0 32 42 26 2.9 33.4 6 Damnak Kanseng 50 93.3 0 0 20 47 33 3.1 55.4 Rural Road villages 41.1 45.5 .. 1 65 24 10 2.4 23.8 7 Angkal 66.7 60 0 0 60 27 12 2.5 23.8 8 Choim Tamao Keut 30 36.4 0 9 82 9 0 2 .. 9 Puchrey Chang 26.7 30.8 0 0 100 0 0 2 .. Source: PER Survey of farmer perception in 9 villages (February–March, 2010). Note: The contact rate refers to the proportion of the households that are aware of extension messages. the adoption rate refers to the proportion of household that adopt extension messages, either fully or partially. The usefulness score is a subjective score with 1= not useful and 4 = very useful. T  he farmers in extension villages also value the usefulness of the extension advice in their farming practices, but the degree of its usefulness is less compared to that in the irrigation villages. As extension villages also have irrigation and water, the lower degree of usefulness may on one hand be due to different types of extension services and could on the other hand be explained by the fact that irrigation systems in these villages have long been in existence well before the introduction of the extension service. These to some extent reduce the perception of farmers on the usefulness of the extension adoption. 78 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW  igure F.3 presents the impact of extension advice on F Figure F.3. Effect of Extension on Yield Reported by Farmers agricultural yields. In average, exposure to extension % yield increase services increased yields about 30 percent. The increase 45 of yields was highest in irrigation villages, which saw a 40 40 yield gain of about 40 percent. The increase is not simply 35 30 the single effect of the extension with support from 31 25 irrigation, but also relates to other unreported factors 25 24 20 such as fertilizers, land preparation, and weeding that 15 would also contribute to yield increase. 10 5  he effect of extension on yields indicates that farms T 0 that partially adopted extension advice produce higher Total Extension villages Irrigation villages Rural road villages increases in yield, compared to farms with full adoption Source: PER Survey of farmer perception in 9 villages (February–March, 2010) of the extension advice. The comparison shows that partial adoption increases yield by 31 percent while full adoption produces only 23 percent higher yield. This could be explained by fact that adaptation of extension messages is very farmer specific and depends on specific farm conditions. This further supports the argument that extension services would need to provide customized messages which responds more closely to farmer demand, rather than one size fits all advise.  hile gaining less yield compared to farms partially adopting the extension advice, farms with full adoption are likely W to benefit more from lower production costs and reduced pest infestation. The survey shows that farmers fully adopting the extension advice reported their satisfaction from lower costs. However, it does not necessary explain the net benefit of both types of adoption. Main issues. Figure F.4 below illustrates the views Figure F.4. Main Problems with Extension Services collected from nine villages in the survey concerning Reported by Farmers % of contact farmers problems with the extension service. About two thirds of the respondents said that the training by the extension other 7 service was difficult to understand and about half of too much training 8 them found the training was insufficient. Furthermore, too little training 51 about 40 percent of the respondents complained that the extension service lacked experiments or field difficult to understand 66 demonstrations for farmers. This means that in many lack of experiment 39 cases the extension services may have tended to deliver no experienced extension 11 theoretical messages, rather than more demand driven unskilled extension workers 13 advise which is being complemented with field trials to demonstrate and optimize the advise to farmers. 0 20 40 60 80 Source: PER Survey of farmer perception in 9 villages (February–March, 2010) Irrigation Access to irrigation system. All villages among both irrigation and extension villages have access to some forms of water sources and irrigation structures such as reservoirs, rivers or streams, ground water, canals, and pumps. In rural road villages, Angkal village (in Prey Veng) has access to an irrigation system, Puchrey Chang (a remote ethnic cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex F: Beneficiary Perception Survey 79 village in Mondulkiri) has no access to any type of irrigation, while Choim Tamao (Kampong Cham) has access to a traditional small stream that could be used for supplementary irrigation in the wet season and also for irrigating some dry season rice. Table F.4. Access to and Use of Water Sources in Surveyed Villages Koh Toch Chuntul Maek Sam-reth Voi-yeav Trang Damnak Kanseng Ang-kal Choim Tamao Keut Puchrey Chang Water sources (other than rains) and irrigation system Reservoir yes yes yes yes yes Groundwater yes Canals/small stream yes yes yes yes yes yes yes Recession Pump/pumping station yes yes yes yes yes Lake/pond yes yes River/stream yes yes Use of water sources and irrigation system Wet season rice yes yes yes yes yes yes yes yes Dry season rice yes yes yes yes yes yes yes Early wet season rice yes yes yes yes Recession farming yes Cash crops yes yes yes yes yes yes yes Vegetable yes yes yes yes yes Other yes yes Source: PER Survey of farmer perception in 9 villages (February–March, 2010). n irrigation villages, the irrigation systems are mainly used as supplementary irrigation in the wet season and for I farm production in early wet season and dry season. Some farm households in these villages are able to plant two crops per years. Farm households in Voiyeav village (Kampong Thom) and in Damnak Kanseng village (Pursat) use the irrigation for wet and dry season rice production while farmers in Trang village (Battambang) use the irrigation system for wet and early wet season rice cultivation.  espite the presence of an irrigation system, access to water in the dry season appears limited in all three irrigation D villages. About 30 percent (58 households) and 30 percent (40 households) respectively of the village households in Voiyeav and Damnak Kanseng engage in dry season rice farming. In Voiyeav village, about 60 percent of Figure F.5. Percentage of Village Households Having Access households could use water from the irrigation for to Water from Irrigation Systems 35 some production of fruit trees and home gardening around their yards. About 20 percent (70 households) 30 30 30 of the households in Trang village could participate in 25 20 early wet season cropping. 20 15  wo of the extension villages, Koh Toch (Kandal) and T Samreth (Kampong Speu), have access to river/stream 10 water. All village households have access to these 5 water sources through their individual private pumps. 0 Farm households in these two villages use water for Voiyeav Trang Damnak Kanseng vegetable cultivation. According to key informants in Irrigation villages Source: PER Survey of farmer perception in 9 villages (February–March, 2010) both villages, all village households practice vegetable 80 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW farming using pumps as a means for irrigation. On top of vegetable production, Samreth village in particular uses the stream water for a greater variety of uses which include wet season rice, early wet season, and dry season rice. Impact of irrigation investments. Since irrigation is used for supplementary supply of agricultural water in the wet season, especially in the time of drought, the availability of water through irrigation systems is meant to protect loss of agricultural outputs. Also, availability of water should in theory encourage farmers to improve their land and water management, and adopt new farming techniques. This will eventually have an effect on agricultural yields. Furthermore, access to irrigation systems should prepare farmers to increase the number of croppings on their land. T  able F.5 illustrates the behaviour of farmers in managing their farms in relation to access to irrigation and the impact on yield. In response to drought, farmers in irrigation and extension villages tend to make use of the water sources, either immediately when there is drought, or wait for some time before starting to use the water source. This behaviour of farmers toward water use is only commonly observed in villages where availability and access to water are not a constraint. F  armers in rural road villages behave differently. A majority (58 percent) of them have no choice other than waiting for the rainfall when facing drought in the wet season. In particular, all farmers in Puchrey Chan village (Mondulkiri) are fully dependent on rainfall. This is because they have no or limited access to the water source. For example, only 20 percent of the interviewed households in Angkal village (Prey Veng) could access water from the village irrigation system. T  able F.5 reveals that 99 percent of the interviewed households in irrigation villages, in particular those who have access to irrigation system, were able to improve their land in the last two years. About 50 70 percent of the surveyed households in other villages improved their farmland, except Koh Toch (7 percent) and Puchrey Chang (33 percent) villages. Table F.5. Land and Water Management % of households Access to irrigation/ Strategy in drought conditions Land improvement in water source use water sources fully dependant past two years right away on rains Total 83 71.1 19.3 64.4 Extension villages 100 100 0.0 36.7 1 Koh Toch 100 100 0.0 6.7 2 Chuntul Maek 100 100 0.0 50 3 Sameth 100 100 0.0 53.3 Irrigation villages 100 91.1 0.0 98.9 4 Voiyeav 100 100 0.0 100 5 Trang 100 100 0.0 100 6 Damnak Kanseng 100 73.3 0.0 96.7 Rural Road villages 50 22.2 57.8 57.8 7 Angkal 70 20 43.3 76.7 8 Choim Tamao Keut 80 46.7 30 63.3 9 Puchrey Chang 0.0 0.0 100 33.3 Source: PER Survey of farmer perception in 9 villages (February–March, 2010). cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex F: Beneficiary Perception Survey 81 n terms of the effect on yields as reported by the farm householdss it is observed that farms in irrigation villages I gain the highest yield increase, which is on average 44 percent higher than before the existence of the irrigation. The increase in farm yields in rural road villages is not much different from that in the extension villages where the average yield increase is 33 percent. Table F.5 would help to explain the effect of land improvement on farm yield in rural road villages as offset of yield gain in extension villages that are likely determined by farm access to water. However, this yield increase is basically farmers’ perception on effect of public intervention and is subject to many other factors such as seeds and other inputs that are not controlled in this survey. I n addition to its supplementary use to irrigate farms in the wet season, the availability of irrigation schemes assists farmers to double their crops on their land. In irrigation villages, almost all of the households having access to the irrigation scheme have been able to double their crops since the existence of the irrigation scheme. In the case of Damnak Kanseng (Pursat) some households are even trying a third crop to test the capacity of water supply. Farmers in the villages expressed their willingness to farm a third crop, but complain about the limited capacity of water supply and also the lack of secondary and tertiary canals.  he farmers’ ability to increase the number of crops appears lower in rural road villages (22 percent) and extension T villages (27 percent). However, this is unsurprising since it reflects a lower coverage of irrigation in rural road villages. For Koh Toch village, all farmers practice vegetable cultivation and have been traditionally dependent on pumping water from the river. Therefore, farmers do not report changes in terms of increasing the number of crops on their land. In Samreth village, although farmers have access to river water (without reservoir) through pumps, the rehabilitation of the reservoir allows 27% of the village households to increase their number of crops while the rest also benefit from easier access to reservoir water. T  able F.6 contains a number of factors that the survey tried to understand from the perception of farmers on the level of influence that each factor may have had on yield. Of all surveyed households, 73 percent reported that the yield of their agricultural production had increased (100 percent in irrigation villages, 73 percent in extension villages, and 47 percent in rural road villages). Table F.6 presents perceptions of farmers experience yield increases concerning factor causing the increases. Table F.6. Farmer Perception on Factors Influencing Yield of Agricultural Production perception of effect* on yield Mean No Factors influencing yield 1 2 3 4 Score* % of households 1 Irrigation/water management 4 9 29 58 3.4 2 Pest control 4 24 49 24 3.0 3 Chemical fertiliser 1 33 42 23 2.9 Strong effect 4 Weather/rainfall 0 35 46 20 2.9 No effect 5 Other 0 27 56 18 2.9 6 Seeds 1 40 51 9 2.7 7 Organic fertiliser/compost 8 32 45 15 2.7 8 Land improvement 0 42 44 14 2.7 9 Farmer skills/techniques 1 54 35 11 2.6 Source: PER Survey of farmer perception in 9 villages (February–March, 2010). Note: * 1 = no effect, 4 = strong effect  he effect of the irrigation and water management appears more significant compared to other factors, followed by T pest control, chemical fertiliser, and good weather/rainfall. 58 percent of the respondent households find irrigation 82 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW and water management has had strong effect on yield of agricultural production. All other factors also have an effect on yield. The degree of effect that other factors contribute to yield increase looks fairly good.  bout 23 percent of farmers reported that the their agricultural production yields have not improved. About 44 percent A of them explained that pest infection was the major cause of no yield increase and 26 percent indicated drought as the factor. Furthermore, farmers in Choim Tamao Keut (Kampong Cham) and Puchrey Chang (Mondulkiri) in the north-eastern Cambodia found that too much rain undermined their cash crop and rice production, or even destroyed their farm crops. Main issues. According to the reports from respondent households, farmers in Koh Toch and Samreth villages did not notice any significant problems or challenges in relation to irrigation in their villages. Both villages are located on the bank of the river, and thus access the river water for their farm production by using pumps. All households in both villages practice vegetable cultivation, but Samreth also use river water for rice farming, while Koh Toch does not. Farmers in Puchrey Chang did not report problems associated with irrigation because there is no irrigation in existence in the village.  s reported by farmers, major problems with irrigation and water management include lack of water in the irrigation A system, lack of distribution canals, both secondary and tertiary canals, and lack of water diversion systems. Lack of water in the system is pointed out by 85 percent of the respondents, followed by lack of distribution system (48 percent) and lack of water diversion system (39 percent). This implies that while the functioning of the supplementary canals (secondary and tertiary canals) is limited, or even absent in some cases, water is still undersupplied to the main canals. Table F.7. Main Problems Associated with Irrigation System % of households Problems Koh Toch Chuntul Maek Samreth Voiyeav Trang Damnak Kanseng Ang-kal Choim Tamao Keut Puchrey Chang Total 1 Lack water n/a 100 n/a 45 93 82 96 83 n/a 85 2 Poor water management n/a 27 n/a 35 44 43 44 17 n/a 36 3 Discrimination of water use/access n/a 3 n/a 5 0 4 0 0 n/a 2 4 Lack of maintenance n/a 27 n/a 30 22 11 44 17 n/a 25 5 In-cooperative villagers n/a 17 n/a 10 7 14 17 0 n/a 12 6 Lack funding support n/a 33 n/a 5 11 7 26 0 n/a 16 7 Lack labour n/a 7 n/a 0 0 0 13 0 n/a 4 8 Lack distribution channels n/a 7 n/a 70 52 96 35 17 n/a 48 9 Lack water diversion system n/a 0 n/a 90 44 57 26 17 n/a 39 # Other n/a 0 n/a 0 33 21 22 8 n/a 15 Source: PER Survey of farmer perception in 9 villages (February–March, 2010).  armers reported also problems related to the management of water and maintenance. Both poor management of F water and lack of maintenance are likely to be explained by the lack or non-existence of management committees or particular responsible agencies. As reported by key informants in the villages, the existence of FWUC is not common in these study villages. Only one village (Trang) in Battambang province had an established FWUC and it tends to work well in collecting and managing the water user fees as well as taking responsibility over the operation and maintenance of the irrigation system. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex F: Beneficiary Perception Survey 83 Rural roads Coverage. Among nine villages selected for the survey, rural roads have been improved in eight villages. Koh Toch is the only village whose roads have never been rehabilitated in the past 10 years. Most roads in the study villages were last improved 2-3 years ago. Most of the responses from the surveyed households indicate that the road improvement was mainly financed by CSFs and by Government. Very few households find NGOs or private sector as source of finance. Impact of rural road investments. All respondents in the survey agreed that rural road improvement does have a positive effect on local livelihoods. Based on farmers’ perceptions, the degree of effect of rural road improvement in irrigation villages is higher than in extension and rural road villages. About 60 percent of the respondents in irrigation villages feel that road rehabilitation has improved the livelihood of people in the village a lot.  able F.8 presents the types of benefits that rural road improvements have brought about. According to farmers’ T perceptions, the degree of impact of rural road improvement is high in terms of reducing transportation times, increasing the number of journeys/amount of traffic on the road, generating more economic activities in the villages, allowing more representation of traders to the village, and also improving access to local hospitals and schools. Better access to local hospitals and schools is rated higher than other benefits of rural road improvement. People also perceived that road improvements help reduce the cost of transportation, but the degree of impact was perceived to be relatively low. About 25 percent of the respondents reported that road improvements have not reduced transportation costs significantly. This is because the benefits from improved roads have been offset by increase in fuel prices that have caused transportation cost to increase. Table F.8. Benefits of Rural Road Improvement degree of effect* Mean Benefits 1 2 3 4 Score* % of households 1 Easier to get to hospitals/schools, ... 0 10.8 38.8 50.4 3.4 2 Less time for transportation 0 13.8 50.4 35.8 3.2 Strong effect No effect 3 More traders 1.7 23.3 50 25 3 4 More traffic/journeys 1.3 24.6 45.4 28.8 3 5 More economic activity 0 29.6 46.3 24.2 2.9 6 Cheaper transportation costs 25.8 31.7 30 12.5 2.3 Source: PER Survey of farmer perception in 9 villages (February–March, 2010). Note: * 1 = no effect, 4 = strong effect A  s better road conditions facilitate more arrival of traders to the village, almost all respondents agreed that more traders coming to the village creates more competition and that this has enabled villagers to negotiate better prices. About 16 percent of respondents find more arrival of traders helps farmers a lot to in getting better prices for their agricultural products.  able F.9 illustrates the benefits of rural road improvement as perceived by villagers in quantity measures, in terms T of time and cost per journey. In general, people in all surveyed villages experienced shorter travel time, compared to the time before the road improvement. Farmers spend a less time travelling the same distance since the road was rehabilitated. In travelling by motorbike to the nearest market from the village, villagers spent on average just half the time they used to before the road was rehabilitated. Among all surveyed villages, the reduction of travelling time ranges between 40-60 percent when the road is upgraded. 84 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Table F.9. Time and cost of transportation before and after road improvement % change Time per travel Cost per travel Cost per travel by motorbikes by motodup by cars/lorries Total -54.4 -15.3 -41.3 Extension villages -46.9 5.5 100.0 1 Koh Toch n/a n/a n/a 2 Chuntul Maek -44.5 8.9 100.0 3 Sameth -49.4 2.1 .. Irrigation villages -54.9 -25.0 -16.4 4 Voiyeav -52.2 12.1 -16.4 5 Trang -60.0 -35.3 .. 6 Damnak Kanseng -52.5 -52.6 .. Rural Road villages -58.8 -18.0 -55.1 7 Angkal -52.4 -12.8 .. 8 Choim Tamao Keut -63.3 0.7 -57.1 9 Puchrey Chang -60.5 -44.1 -55.0 Source: PER Survey of farmer perception in 9 villages (February–March, 2010).  verall, the cost of travel/ transportation was also reduced. Unlike the case with travelling time, not all villages O experienced a similar cost reduction. While villagers in Damnak Kanseng village (Pursat) and in Puchrey Chang village (Mondulkiri) find the cost per journey by motodup to their nearest market is reduced about 50 percent, farmers in Choim Tamao Keut village (Kampong Cham) and Samreth village (Kampong Speu) see almost no difference between travel cost before and after road improvement. In some villages, farmers even reported higher costs of transportation since the road rehabilitation. However, people explain that the higher cost of transportation is explained by the increased price of fuel despite the road improvement. Main issues. As discussed above, the improvement of rural roads yields a number of benefits to local villagers and these benefits improve peoples’ livelihoods. Despite this, villagers also observed some problems associated with road rehabilitation. The main problems from the viewpoint of villagers include poor quality of road, for example, because of a very thin gravel layer. About 80 percent of the respondents agreed that quality of the road rehabilitation is still limited and about 38 percent of the respondents were concerned about the lack of ongoing maintenance of the road. I n relation to the concern over the maintenance of the road, villagers indicated that the roads are continually damaged by overloaded trucks. Better roads encourage more traffic. Respondents also stated that rains further speed up the deterioration of the road, especially during the wet season.  oor road quality and speedy deterioration of road quality determine the sustainability of the road and the benefits P that people enjoy. When asked whether the benefits of road improvement will be sustainable, fewer than half of the respondents are optimistic that the benefits will stay with them. Only 30 percent of the respondents in irrigation villages agreed that roads would be destroyed even more quickly in these villages. In some cases, people do not believe that the benefits from road improvement will last longer. Only 17 percent and 3 percent respectively of the respondents in Puchrey Chang and Chuntul Maek villages think that the road will continue to benefit villagers. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex F: Beneficiary Perception Survey 85 Conclusions  nalysing farmer perceptions on public interventions (in particular, the extension services, irrigation, and rural roads), A it is suggested that all three types of intervention do have positive impacts in improving the livelihoods of rural farmers and tend to complement each other though rural road improvement is rated highest according to farmers’ perceptions. Besides their impacts on farm production and price, extension, irrigation, and rural road improvement are noted to have generated more jobs in the community, and thus extend the positive impacts to employment and wages of local labourers who are among the landless and land-poor households. F  armers find extension helps increase their farm yields by about 20 percent, which increases household incomes. Although yields increase in irrigation villages appears higher (40 percent), it represents the combined effect of both extension and irrigation, which means irrigation adds value to the gain from extension and vice versa. The combination of the effect of extension and irrigation on yield would mean farmers could earn about 20-40 percent higher incomes from their farm products per crop, if the price of farm products was held constant. However, this is subject to the variation of production costs. The evidence suggests that while farmers may have to pay fees for water from irrigation, farmer perceptions suggest that adopting extension advice does not necessarily increase farm production costs.  armers also rate highly the benefits from rural road improvement. Road rehabilitation tends to add further value F to extension services and irrigation. Besides reducing travel time and costs, road improvement facilitates more economic activities and allows more traders to come to the village. Farmers perceived that the arrival of more traders to their village helped them to negotiate better prices for their farm products. 86 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Annex G: Review of Past Studies on the Performance of Public Expenditures in Cambodia T  able G.1 presents examples of various CBA analysis of extension, irrigation and rural roads sectors from Cambodia. Some very high figures have been calculated, notably for extension activity and especially when this takes place at a local scale. In some cases, these probably do reflect actual performance, especially where well focused, and efficiently run programs generate direct benefits. In other cases, the high BCRs may have been achieved by ignoring the overhead costs involved in managing programs and projects. Irrigation BCRs are also highly variable and are strongly affected by the design of the schemes being rehabilitated. Table G.1. Past Estimates of IRR and BCR in Cambodia Source IRR BCR Comments Research ACIL 2006 31-67% 4.0-10.0 AQIP Final Activity Completion Report, whole project 31%, seeds 39%, post harvest 43%, vegetables 67% Extension RLIP Appraisal in isolated areas (Kratie, Preah Vihear and Ratanakiri), for seeds, IFAD 2009 11% 1.6 fertiliser and water management Abrams 2008 19% 2.9 Ex-post evaluation of DFID support for Seila and NCDD Ex-post evaluation of nationwide Seila support 2002-06: agronomy (21%) and Abrams 2009 21-84% 3.0-12.0 livestock (84%) CAAEP II Activity Completion Report, nationwide, based on DAE Routine Activity GRM 2006 8-63% 1.4-10.0 Monitoring data IDE 2008 67% 11 Ex-post self-evaluation of private extension services Irrigation Feasibility Study for CWRSMP in Seam Reap, Kampong Thom and Banteay ADB 2008 14-20% 2.1-3.0 Meanchey Abrams (pers. comm. 2010) 20% Proposed target for CBAPP projects in all rural infrastructure IFAD 2009 44-55% 5.5-8.0 TSPRSDP Appraisal for Banteay Meanchay, Seam Reap, Kampong Thom and Kampong Cham mixed support for local infrastructure, production, livelihoods Rural Roads Abrams research on Seila programme gives IRR of 25% with maintenance, 6% Abrams 2003 (unpublished research) 6-25% 1.0-3.7 without Abrams 2008 25% 3.7 Ex-post evaluation of DFID support for Seila and NCDD Ex post evaluation of CSF 2003 Seila funding, 10 roads in 5 provinces - average MRD 2004 -7-74% 1.1-11.5 33% with maintenance, 25% without RILGP MTR suggesting IRRs of 25%-40% if maintained, but much lower and URS 2010 25-40% 2.8-5.0 possible <12% if not SEACAP final report: IRR 35% with maintenance and 18% without, depending on Intech 2006 18-35% 2.7-5.0 traffic. Paving needs >50 veh/day Source: ???. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 87 Annex H: Geographical Variation in Effectiveness  ase studies and project documents suggest that there is a wide variation in the performance of public expenditure in C different locations in Cambodia, reflecting the physical potential, the social and economic conditions and the degree of spatial amenities. Partly in response to this diversity, the Government could use different approaches on their expenditures in different locations. There are some general patterns that could be expected to apply. (a) Extension is likely to be most effective in areas where existing crop yields have not yet achieved their full  potential. The potential would ideally be calculated from soil quality and from the availability of land and water, which could be calculated from soil and land use maps. The gap between actual and potential yields is likely to be higher in high potential areas, simply because potential yields are higher. However, this is a simplification as there are also extension messages that are designed for more extensive rainfed production, which can also provide good returns if existing yields are very low. Figure H.1. Illustrative Variation in BCR for Extension: 2007 Source: ???. Note: White cells have incomplete data. The BCR methodology is applied to each commune, using data from the commune database for current yields and soil quality. BCRs are high for communes in which the actual yields are well below the potential indicated by the soil quality. 88 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW (b) For irrigation, the BCR is dictated primarily by whether there are good sites for irrigation. Whilst some good sites  for new irrigation will exist, the highest returns are normally provided when existing schemes are rehabilitated. An illustration of the potential variation in irrigation performance is given by the data in the commune database on the actual and potentially irrigable areas for each commune, combined with information on actual yields for irrigated and non-irrigated cultivation. (c) For rural roads, the performance of public expenditure is affected by the length of rural roads, the current state  of the roads, the population served and the level of agricultural production. A commune with relatively short lengths of road currently in poor condition, with high population and good economic potential will have the highest BCRs for rural roads.  igures H.1 to H.3 present illustrative maps of the geographical variation in BCRs for the main types of public F expenditure, based on the commune database and using the principles described above. Figure H.2. Illustrative Variation in BCR for Irrigation: 2007 Source: ???. Note: White cells have incomplete data. Returns to irrigation are based on the figures in the Commune Database for the total area and actually cultivated area for the wet and dry season and for the actual yields achieved on irrigated land for the wet and dry season. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex H: Geographical Variation in Effectiveness 89 Figure H.3. Illustrative Variation in BCR for Rural Roads: 2007 Source: ???. Note: White cells have incomplete data. National average unit costs for rehabilitation are applied to the figures in the Commune Database for the length of roads. The benefits are calculated for the improvement in road status that will be generated by rehabilitation, by the population served, the distance travelled and the level of production that will be marketed from the commune. No account has been taken of distance to laterite source, which would tend to favour communes in the West and North.  he figures above should be treated as illustrative. The preliminary indication from the figures suggests that there T seems to be a relatively higher concentration of potential spatial benefits for extension expenditures in the Northwest (including Tonle Sap region. For irrigation, the spatial variation seems to suggest that the highest potential returns on irrigation expenditures comes from main rice growing areas in Northwest (Tonle Sap region) and Southwest (i.e. the “rice belt”). This result makes an intuitive sense as rice is a main focus of irrigation investments. For rural roads, the potential is again scattered across much of the country, reflecting the wide variation in circumstances, although the maps seem to support the assumption that returns to road investments are highest in areas of high agriculture potential and high population densities (with some outlying areas in Northeastern Cambodia). The maps suggest that, in view of the scattered range of circumstances, Government prioritisation should focus on establishing procedures that assess the returns to each individual intervention rather than on attempting to establish regional priorities. 90 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Annex I: Climate Change and Public Expenditures The Royal Government of Cambodia (RGC) is in the final stages of preparing the Second National Communication  (SNC) to the UN Framework Convention on Climate Change (UNFCCC). The SNC includes a Vulnerability and Adaptation (V&A) Assessment. The Climate Change Department in the Ministry of Environment has conducted a substantial analysis of climate change projections as part of the preparation of the V&A for Cambodia. This has included compilation of past data and analysis using the PRECIS model and analysis of 14 Global Climate Models (GCMs) (Masutomi 2009). The results of this analysis are discussed in turn. Average Temperatures. Historical trends show that Figure I.1. Historical Trends in Cambodian Temperature: temperatures in Cambodia have increased by about 1˚C O C, 1960–99 Average temperature since 1960 and will increase by at least 2˚C by the end 32 of the century, based on the PRECIS extrapolations, as shown in Figure I.1. The PRECIS analysis has been 31 verified against actual data and the correlation is strong, with an R2 of 0.85. 30 29 Total Rainfall. For rainfall, there is wide geographical variation in past trends and projections. Both the 28 PRECIS and GCM analysis have been done on 100km grid squares. The results of the PRECIS analysis are 27 1970–99 1990–2019 2010–39 2030–59 2050–79 2070–99 presented in Figure I.2, which shows the dry season 1960–89 1980–2009 2000–29 2020–49 2040–69 2060–89 Decadal quarters in the top two maps and the wet season in Sources: V&A for Second National Communication, Climate Change Department and Dr Rizaldi the bottom two maps. For the dry season, rainfall has Boer. Note: Calculations based on use of the PRECIS model – see precis.metoffice.com tended to decrease in most parts of the country, except for parts of the South and East. Reductions have typically been by about 2 mm/yr. In the wet season, there has been some tendency for rainfall to increase across most parts of the country, typically by 1 or 2 mm/yr, although parts of the Southwest have had a decline in rainfall in the later wet season. T  he GCM projections have used a high emissions scenario (SRESA2) and low emissions scenario (SRESB1). The rainfall projections for each scenario are presented in Figures I.3 and I.4, showing the seasons across and the periods down the array. Red colouring indicates that most GCM models predict a decrease in rainfall and blue colouring indicates that most models predict an increase. Key conclusions are:  •  under the high emissions scenario, dry season rainfall will probably decrease and wet season rainfall increase in all periods; •  the probabilities of change for dry season are higher than for wet season; •  the wet season may start later; and •  with the low emissions scenario, trends are similar but with lower probabilities, except that wet season rainfall may decrease from 2050. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex I: Climate Change and Public Expenditures 91 Figure I.2. Historical Trends in Rainfall for Different Quarters: mm, 1960–2000 Sources: V&A for Second National Communication, Climate Change Department and Dr Rizaldi Boer. Note: Data are derived from the PRECIS model – see precis.metoffice.com. Each graph presents the average annual change in rainfall (in mm/yr) from 1960 to 2000 for one quarter. Clockwise from the top left, the quarters are Dec/Jan/Feb, Mar/Apr/May, Jun/Jul/Aug and Sep/Oct/Nov. The scale is presented on the left, with orange to red colours denoting reductions and green to blue denoting increase. The x and y axis are the geographic grid for the national map. 92 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Figure I.3. GCM Rainfall, by Season – Low Emissions Scenario: mm/yr 2025/2050/2080 All models predict rainfall will decrease Sources: V&A for Second National Communication, Climate Change Department and Dr Rizaldi Boer. Note: Projections of average annual change in rainfall (mm/yr) derived from synthesis of 14 Global Climate Change Models. The top row presents projections for 2025, the middle row for 2050 and the bottom row for 2080. The first column is for Dec/Jan/Feb, the second for Mar/Apr/May, the third for Jun/Jul/Aug and the final column for Sep/Oct/Nov. Red colouring indicates that most GCM models predict a decrease in rainfall and blue colouring indicates that most models predict an increase. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex I: Climate Change and Public Expenditures 93 Figure I.4. GCM Rainfall by season – High Emissions Scenario: mm/yr 2025/2050/2080 All models predict rainfall will decrease Sources: V&A for Second National Communication, Climate Change Department and Dr Rizaldi Boer. Note: Projections of average annual change in rainfall (mm/yr) derived from synthesis of 14 Global Climate Change Models. The top row presents projections for 2025, the middle row for 2050 and the bottom row for 2080. The first column is for Dec/Jan/Feb, the second for Mar/Apr/May, the third for Jun/Jul/Aug and the final column for Sep/Oct/Nov. Red colouring indicates that most GCM models predict a decrease in rainfall and blue colouring indicates that most models predict an increase. 94 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Seasonality. The V&A analysis defines 7 rainfall patterns and considers how these have changed since 1960 and will change by 2099. Figure I.5 shows the projections for the high emissions scenario. The figure suggests that there will be a trend towards substantially heavier rainfall in the wet season in the Northeastern Cambodia, but with less change in the Western and Southern parts of the country. Figure I.5. Changes in Seasonality of Rainfall: 1960–2099 Sources: V&A for Second National Communication, Climate Change Department and Dr Rizaldi Boer. Note: Each colour presents a different pattern, as described in the line charts, bottom right, which presents average monthly rainfall in mm for each pattern. Each graph presents the dominant patterns of seasonality.  he V&A analysis also includes some indication of seasonality of soil moisture balance, after taking into account the T combined effects of rainfall and temperature. These suggest that the growing period (as determined by soil moisture) will shorten in 2025 and 2050, but will then lengthen, as shown in Figure I.6. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex I: Climate Change and Public Expenditures 95 Flood and Drought Frequency. The V&A analysis Figure I.6. Impact of Low and High Scenarios on Growing does not consider trends in the frequency of drought Season: season length in months 2025–80 Agriculture lands, area in million ha and flood risk. However, estimates of this can be 4.00 derived by combining an analysis of changes in the intensity of rainfall with the V&A analysis on changes 3.00 in total rainfall. Estimates of rainfall intensity can be 2.00 taken from Endo et al. (2009), who examined 50 years of historical data from SE Asia (see Figure I.7). The 1.00 analysis suggests that south and east will have more 0.00 Baseline B1-2025 B1-2050 B1-2080 A2-2025 A2-2050 A2-2080 floods and less droughts, whilst the opposite applies to 3.01 0.16 0.07 2.30 0.25 0.07 3.85 the north and west. 0.72 2.39 2.41 0.00 1.59 2.45 0.00 0.11 0.00 0.00 1.68 0.00 0.00 0.13  rought days are defined as days in the wet season D 0.14 1.43 1.50 0.00 0.00 2.14 1.45 7 months 5 months 3 months 2 months when there has been no rain for at least 14 days. An Sourcea: V&A for Second National Communication, Climate Change Department and Dr Rizaldi Boer. analysis of past daily rainfall patterns at Pursat, going Note: The chart and data present the area of cultivated land that has growing seasons of the specified length. The chart above presents the data in the cells beneath, with the first (blue) column presenting the area that has a 7 month growing season, the second (red) column giving the area back to 1912, gives average annual rainfall of 1,332 mm, with 5 month growing season etc. The first column present the current (baseline) situation. The next three columns (labelled B1), present the B1 scenario for the three years concerned and the average rainy days per year of 106 and average number final three columns present the situation for the A2 scenario. Cells highlighted in yellow show the cells with largest areas. of drought days of 8. The analysis suggests that an increase of 1 drought day is caused by a reduction in annual rainfall of 40 mm and by having 5 fewer rainy days. Thus, if total wet season rainfall were to increase by 2mm per year, the frequency of drought would decrease by 12.5 percent (i.e. 1 drought day per year) after a period of 20 years. Figure I.7. Trends in Heavy Rain Days (left) and Consecutive Dry Days (right): confidence in direction of change, 1912–2008 Source: Endo et al 2009. Note: The left graph presents historical trends in rainfall concentration, measured as the number of days with more than 50mm rain. The right graph presents historical trends in drought, measured as the number of consecutive dry days. Blue dots present an increase and red dots present a decrease. The size of the dot is proportional to the percentage change over the period mean. Solid dots are significant at the 5% level. Impact on agricultural productivity. The V&A uses historical climate and rice production statistics to estimate that every additional 10 mm of wet season total rainfall adds 6,500 tons (or about 0.1 percent) to rice production. This is used to calibrate the Decision Support System for Agro-technology Transfer (DSSAT) model so that the impact of changes in rainfall can be simulated. The analysis was undertaken in 9 rice growing areas, where the required 96 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW soil information was available. With total rainfall increasing by between 1 and 2 mm/year in the South and East, production in these areas may increase by 1 percent over 50 years as a result of the increasing rainfall pattern. In the North, rainfall may decrease by a similar amount, resulting in an equivalent reduction. The net effect of total rainfall changes on rice production is therefore likely to be small.  he impact of changes in flood and drought frequency may be more important than changes in total rainfall, in view T of the opportunities for public expenditure to support the development of new varieties and increased water storage to deal with this increased variability. The analysis of flood and drought days suggests that, over 50 years, drought days may decrease by about 25 percent in the South of the country, with the opposite trends in the North. L  osses from drought and flood vary greatly, but have been about 5.5 percent of total production over the last decade, equivalent to about 400,000 tons per year, with a total value of about $80 million. If losses were proportional to the number of drought and flood days, then this could increase by 25 percent, or $20 million over the next 25 years. Reducing these losses already provides opportunities for public expenditure and these opportunities will be increased as a result of the increased frequency of flood and drought events. T  he PRECIS analysis for the V&A also allows an exploration of the changes in seasonality of rainfall. The analysis suggests that there will be changes in the start and duration of the wet season. Because temperatures are sufficiently high at the end of the wet season to allow most crops to mature, there would be limited impact on crop production if the wet season started and finished later, especially if light-insensitive varieties are used. Therefore, the main effects of seasonality are the loss of production that would occur if the wet season became shorter. The V&A analysis suggests that wet seasons could shorten by at least a month in many regions, although this effect could be reversed after 2050 in the low emissions scenario. n most crop growing regions, the wet season will still be sufficiently long to allow for one rice crop to be grown, I especially if short maturing varieties are used. Thus, the main loss of production would come from the inability to double crop. In 2007, late wet season rice was grown on over 500,000 ha, or about 25 percent of total rice area with total value of $200 million. Much of this would be under threat from a shortened growing season. In addition, a large part of the vegetable crop is grown as a second wet season crop and this would also be greatly affected by a reduced wet season. There are therefore strong benefits to be gained by breeding and extension for shorter growing varieties and for investment in water storage that will allow crops to mature beyond the end of the rainy season. Implications for public expenditures. In theory, the production changes due to climate change are marginal. There are substantial additional benefits to be gained from production of new crop varieties that are adapted to new climate conditions. The order of magnitude of these benefits can be illustrated by considering the implications of crop varieties that are able to withstand an additional week of dry period during the growing season. If varieties could be developed that were able to survive one additional day of drought or flood, they would reduce average losses from drought from about 5.5 percent to about 5.0 percent of total production, which would be worth a total of about $8 million if all farmers were able to benefit from the seeds. Given the current unit cost of varietal development of about $1 million, the BCRs for improving the drought and flood resilience are high, provided that widespread adoption takes place. I n practice, much of the benefits of improved drought and flood resilience will come from a gradual diffusion of adoption. However, the extension services can accelerate this process. They can also generate substantial additional benefits associated with helping farmers adapt to climate change, especially through changes in cultivation practices and cropping choices. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex I: Climate Change and Public Expenditures 97  eturns to irrigation are also likely to increase as a result of the increased importance of storing water to protect R against increased drought and flood frequency and a shortened wet season growing period. If irrigation water were used to ensure the survival of a crop during a shortened rainy season the benefits from that irrigation water would be about twice the benefits gained from standard wet season supplementary irrigation. T  he marginal increase in frequency of flood events will increase the frequency of major repairs and the importance of designing rural roads to survive floods, which may add some additional costs to rural road rehabilitation. However, the effects of these factors on the overall benefits of rural roads will be small, compared to the effects on research, extension and irrigation. Current climate change priorities. Current priorities Table I.1. NAPA Priorities for climate change activities are defined in the NAPA 1a Rehabilitation of Multiple Use Reservoir in Takeo and will soon be further elaborated for the Pilot Program 1b Rehabilitation of Multiple Use Dams in Takeo and Kampong Speu for Climate Resilience (PPCR). Table I.1 lists the priority 1c Community and Household Water Supply in Coastal Provinces 2a Flood Protection Dykes projects defined in the NAPA and shows that 7 of the 2b Rehabilitation of Upper Mekong and Provincial Waterways 16 non-health priorities are associated with investments 2c Rehabilitation of Multiple Use Canals in Kampot in agricultural water management. This is consistent 3a Vegetation Planting for Flood and Windstorm Protection with the analysis in this chapter, which stresses the 3b Strengthening Community Disaster Preparedness 3c Water Gates and Culverts Construction importance of irrigation in preparing for climate change. 3d Safe Water Supply for Rural Communities The NAPA priorities give less weight to extension, 3e Small Scale Aquaculture Ponds although priority 3f, on Integrated Farming, does 3f Household Integrated Farming address extension needs in a pilot manner. There is no 3g Rehabilitation of Coastal Protection Infrastructure 4a Community Irrigation Systems recognition of the potential importance of research to 4b Community Mangrove Restoration and Sustainable NRM produce new varieties that are more drought and flood 4c Community-Based Soil Conservation in Koh Kong resilient, whilst also being short duration. Projects of Plus 4 health projects related to biopesticides, health centres and malaria this type are included in NAPAs in other countries and Source: NAPA. this appears to be a gap in the Cambodian NAPA. C  urrent expenditure patterns are determined by a complex political and economic process. This process is driven by a range of objectives, including the reduction of poverty and promotion of growth. Adaptation to climate change will require some adjustment of expenditure allocation, but the proportion of expenditure that needs to be switched to activities that promote adaptation depends on national circumstances. n a country like Cambodia, where the pattern of climate change is both more mixed and more uncertain than in I some countries, it is common to argue that expenditure priorities should go to ‘low regret’ options that combine standard national goals with adaptation, thus leading to low regrets if climate change projections will not materialize as projected. The low regret policy recognises the possibility that adjustments in favour of climate change expenditure could be too great.  o date, climate change activities have focused on the definition of specific projects under the NAPA and the PPCR, T rather than on potential adjustments in expenditure patterns. Realignment of capital expenditure can be achieved through dedicated financing of projects that have some climate change motivation. Donor funding procedures are already in place to ensure that part of donor funding is sensitive to climate change needs. Government financed development expenditure is driven by strong political and economic concerns. These are focused on importance of immediate economic growth, as a means of generating the resources that could be used for more sustainable 98 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW environmental management in the future. These priorities include a relatively high importance for irrigation, which will be consistent with climate change adaptation. The low priority assigned to research and extension, however, is not consistent.  he budget processes for recurrent spending also need to take into account the implications of climate change. T In particular, climate change will increase the importance of funding routine research and extension activities and irrigation maintenance. The PER analysis provides some guidelines on the target performance that NAPA activities should be expected to  achieve. In particular, it suggests that activities associated with research and extension should be able to achieve BCRs of over 3.0. Those involved in irrigation should achieve BCRs of similar levels, especially when they are focused on providing protection from possible crop losses as a result of an early end to the wet season. Rural roads are largely unaffected by climate change and do not feature in NAPA proposals. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW 99 Annex J: A Proposed Outline for a Possible Approach towards Developing Agriculture Sector SWAp  ector Wide Approaches (SWAps) have been used in a number of countries as a way of providing greater Government S ownership, strengthening policy dialogue between donors and the Government, with resulting changes in policy environment, improving coordination within the donor community, thereby reducing transaction costs, and ensuring better continuity of funding.  ull SWAps involve donors providing funds, alongside Government funding, for a whole sector, against a coherent and F agreed policy framework, and a set of common implementation arrangements. In order to maximise local ownership, funds are ideally channelled through the Government budget, relying on Government procedures for expenditure approval and reporting. SWAps are normally implemented against a costed work program, including targets and performance indicators and donors often base some disbursements on achievement of key targets or milestones in the work program. nternationally, the SWAp modality has worked quite well in social sectors (i.e. health and education), including I Cambodia, where the public services provided tend to be relatively homogeneous (and pure public goods) and largely under Government control.  he Cambodian experience of the education sector SWAp has revealed two important lessons. First, effective, T coherent and agreed policy and strategy framework can provide the instrument for Government and donors to work more effectively together. Secondly, the donor community is still concerned with fiduciary risk and is not ready at this stage to move to a full SWAp with resources being channelled and managed entirely through the Government budget system. In the education sector SWAp, only one donor, the EU, has engaged in providing sector budget support as part of its engagement in the SWAp, and the majority of resources continue to be channelled through parallel arrangements including a basket fund. SWA  ps tend to work less well in agriculture, which is private sector by its nature and involves a large heterogeneity in its functionality, which put it often outside Government and donor control (i.e. relationship between public expenditures and sector growth rates). The institutional framework is more complicated, with value chain functions (production, input supply, distribution and trade), which is being carried out by the private sector. In this case, the private sector is more critical than the public sector in terms of the overall functioning of the sector. A  ll the signs are that a full SWAp, including the use of Government financial management arrangements, is unlikely to be possible in any sector in Cambodia until the general improvements in PFM reforms, including reporting and accounting procedures that allow departmental spending to be properly monitored, are more deeply embedded. Whilst PFM reform procedures are leading to improvements, there is still a long way to go before donors can be persuaded to have their resources fully managed through Government systems. I n the case of agriculture and irrigation, it would also be unrealistic to expect a SWAp to be put in place in the foreseeable future. However, some of the benefits of SWAps could be achieved through developing a partial SWAp in one or more priority functional areas, especially in ones which are more public goods in their nature. These could be supported by a Joint Fund (sometimes known as a pool or basket fund), financed by willing donors, and managed 100 THE AGRICULTURE, IRRIGATION, AND RURAL ROADS SECTORS: PUBLIC EXPENDITURE REVIEW Table J.1. An Outline of a Possible Partial SWAp for Agricultural Research and Extension, and Irrigation Research and Extension Irrigation Efficiency Wider Objectives • farmer adoption of improved farming practices • increased area of irrigation • improve consistency and effectiveness of national extension • improve the share of irrigation expenditure being spent on service secondary and tertiary rehabilitation and on maintenance Specific Objectives • improve continuity and effectiveness of research • integration of research & extension • $1mn in Y1, rising to $2mn/year from Y2, if government funding • $2mn in Y1 rising by $2mn each year Funding increases • additional $0.5mn/year for TA pool Period • 5 years extendable • 5 years extendable Milestones • a comprehensive and coherent medium term policy and • a comprehensive and coherent medium term policy and strategic strategic plan for research and exten¬sion is jointly agreed by plan for irrigation maintenance is jointly agreed by Government Government and DPs and DPs • work programs and costed annual operational plans for • work programs and costed annual operational plans listing CARDI, Department of Extension and other technical support schemes, target areas, targets and indicators, outline IRRs, departments including activities, targets and indicators put in FWUC status, and costs place • MOU signed by partners to govern systems and procedures Y1 and all years • MOU signed by partners to govern systems and procedures for joint planning, management, monitoring and review, and for joint planning, management, monitoring and review, and budgeting for the work programs and plans budgeting for the work programs and plans • progress report on actual area irrigated, ex-post IRRs and FWUC • targets for farmers contacted & adopted status • targets for new crop varieties developed • schemes entered in CISIS • progress reports on activities & targets • end-of-year joint review • end-of-year joint review • national extension approach • study of remote sensing data on actual irrigated area Year 2 • supply of foundation seed up 10% and improved seed up 25% • end-of-year joint review • end-of-year joint review • reduce unit costs by 5% • share of total spending on secondary and tertiary rehabilitation • supply of foundation seed up 10% and improved seed up 25% up 10% Year 3 • share on maintenance up 5% • end-of-year joint review • end-of-year joint review • 10% reduction in donor funding share • 10% reduction in donor funding, with half the balance taken up Year 4 • end-of-year joint review by FWUCs • end-of-year joint review • 10% reduction in donor funding share • 10% reduction in donor funding, with half the balance taken up Year 5 • end-of-year joint review by FWUCs • end-of-year joint review • dependency on donor funding • dependency on donors for secondary & tertiary irrigation and Risks • inability to sustain incentives maintenance • competition between departments Source: ???. jointly by Government and development partners, which would allow for a joint Government/donor funding release mechanism, but would allow donors to retain some control of financial approval, reporting and review. A  partial SWAp supported by a Joint Fund should provide many of the benefits of ownership, coordination and continuity that are provided by a SWAp, and would help prepare for the possibility of a full SWAp later. At present, sectors where a partial SWAp could be appropriate and feasible are research and extension, and perhaps also irrigation (from the point of improved efficiency of public spending). This PER shows that agricultural extension has been already heavily supported by the donor community in recent years, and there may be a scope for improved efficiency from better coordination of donor spending, as well as coordination of work between Government extension services and donor funded projects. cambodia: INTEGRATED FIDUCIARY ASSESSMENT AND PUBLIC EXPENDITURE REVIEW Annex J: A Proposed Outline for a Possible Approach towards Developing Agriculture Sector SWAp 101  he objectives and activities of the partial SWAp should be guided by the SAW. Table J.1 provides an outline of the T key features for a potential partial SWAp operation in the areas of research and extension and irrigation efficiency. The details of the design of a partial agriculture sector SWAp, would need to be worked out through a dedicated exercise. The context for a SWAp is currently quite complex as the PFM reforms move forward, at a deliberate but rather slow pace. It would be thus important to fully understand the shape, pace and progress of PFM reforms (particularly for policy and budget planning, program budgeting and the use of BSPs, procurement, financial reporting, monitoring and audit) which would impinge on the design of a SWAp activity.