Document of FECOPYThe World Bank

FOR OFFICIAL USE ONLY - 0 ,-j -.

Report No. 312la-IND

STAFF APPRAISAL REPORT

INDONESIA

SECOND SEEDS PROJECT

November 9, 1981

Projects DepartmentEast Asia and Pacific Regional Office

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

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CURRENCY EQUIVALENTS

Currency Unit - Rupiah (Rp)

US$1.00 = Rp 625 (since November 1978)Rp 100 = US$0.16Rp 1 million = US$1,600

WEIGHTS AND MEASURES

1 kilogram (kg) = 1,000 grams = 2.205 pounds1 metric ton = 1,000 kg = 2,205 pounds = 0.98 long ton1 hectare (ha) = 10,000 square meters (sq m) = 2.47 acres1 meter (m) = 39.37 inches

ABBREVIATIONS

AARD - Agency for Agricultural Research and DevelopmentBAPPENAS - National Development Planning AgencyBIMAS - Mass Guidance for Self-Sufficiency in Foodstuffs

(short-term farm-input credit program)BPH - Brown Plant Hopper

BRI - Indonesian Peoples' Bank (Bank Rakyat Indonesia)BULOG - National Logistics Agency (Badan Umum Logistik)DGC - Directorate General of CooperativesDGFCA - Directorate General of Food Crops AgricultureDPD - Provincial Agricultural Service (Dinas Pertanian Daerah)FCRI - Food Crops Research InstituteGOI - Government of IndonesiaHYV - High Yielding Variety (of rice)ICB - International Competitive BiddingINMAS - Mass Intensification for Self-sufficiency in Foodstuffs

(farm-input program without credit)IPB - Bogor Agricultural Institute (Institut Pertanian Bogor)KUD - Village Cooperative (Kooperasi Unit Desa)m.c. - moisture content

MOA - Ministry of Agriculture

NSC - National Seeds Corporationp.a. - per annum

PPAR - Project Performance Audit Report (of Seeds I)PSF - Provincial Seed FarmPUSKUD - Central Cooperative (Pusat Kooperasi Unit Desa)Repelita III - Indonesia-s Third Five-Year Plan, April 1979 - March 1984SCCS - Seed Control and Certification ServiceSSP - Subdirectorate for Seed ProductionTOR - Terms of Reference

FOR OFFICIAL USE ONLY

GLOSSARY

Breeder seed - seed of high genetic purity, produced by a plant breederFoundation seed - progeny of breeder seed, multiplied under a plant

breeder's technical supervision, which meetscertification standards

Stock seed - progeny of foundation seed, which meets certificationstandards

Extension seed - progeny of stock seed for commercial sale to farmers,which meets certification standards

Certified seed - seed conforming to purity and quality standards;includes foundation, stock and extension seed

Regulated seed - seed failing to meet one or more standards for certifi-cation, but meeting standards for regulated seed

Nonregulated seed - seed failing to meet or be tested for the standards forextension or regulated seed

Commercial seed - seed for sale to farmers for production of a commercialcrop - includes extension, regulated and nonregulatedseed

Variety - a subdivision of a plant kind which is distinct, uniformand stable when reproduced

Palawija - secondary foodcrop grown in rotation with wetland rice;also refers to those crops when grown in upland areas

Roguing - weeding out of off-types and other varietiesGrain legumes - soybeans, groundnuts and mungbeans (in context of

project)Cereal grains - rice and maize (in context of project)

SUMMARY OF SEED CATEGORIES

Breeder seed }Foundation seed } Certified seedStock seed }Extension seed } }Regulated seed } Commercial seedNonregulated seed }

FISCAL YEARS

Government - April 1 - March 31

NSC, P.T. Pertani and Cooperatives - January 1 - December 31

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

I

INDONESIA

SECOND SEEDS PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

1. PROJECT AND AGRICULTURAL SECTOR BACKGROUND . . . . . . . . . . 1

Project Background .1.. . . . . . . . . . . . . . . . . . .Agricultural Sector Objectives . . . . . . . . . . . . . . .1Role and Performance .I.. . . . . . . . . . . . . . . . ..Food Crops.. ....... 2Perennial Crops .... . . . . . . . . . . . . . . . . . . 3Area Development and Transmigration . . . . . . . . . . . . 4Role of Government ... . . . . . . . . . . . . . . . . . . 4Bank Lending Strategy ... . . . . . . . . . . . . . . . . 5

2. FOODCROP SEED PRODUCTION IN INDONESIA . . . . . . . . . . . . 6

Overview .... . . . . . . . . . . . . . . . . . . . . . . 6Varietal Development . . . . . . . . . . . . . . . . . . . . 6Breeder, Foundation and Stock Seed . . . . . . . . . . . . . 7Commercial Seed (Extension, Regulated, and Nonregulated Seed) 7Marketing and Prices ... . . . . . . . . . . . . . . . . . 8Seed for Transmigrants . . . . . . . . . . . . . . . . . . . 9Shortcomings of the Seed Industry . . . . . . . . . . . . . 9

3. THE SEEDS I PROJECT . . . . . . . . . . . . . . . . . . . . . 10

General Description ... . . . . . . . . . . . . . . . . . 10Seed Production by NSC . . . . . . . . . . . . . . . . . . . 10Seed Control and Certification Service (SCCS) . . . . . . . 11Food Crops Research Institute (FCRI), Sukamandi . . . . . . 11PPAR Conclusions and Recommendations . . . . . . . . . . . . 11

4. THE PROJECT .13

Formulation . . . . . . . . . . . . . . . . . . . . . . . . 13Objectives .... . . . . . . . . . . . . 14General Description ... . . . . . . . . 14Scope .... . . . . . . . . . . . . . . . . . . . . . . . 15Detailed Features ... . . . . . . . . . . . . . . . . . . 16Phasing . . . . . . . . . . . . . . . . . . . . . . . . . . 21Cost Estimates .... . . . . . . . . . .. .... . 22Financing .... . . . . . . . . . . . . . . . . . . . . . 22Procurement . . . . . . . . . . . . . . . . . . . . . . . . 22Disbursement .... . . . . . . . . . . . . . . . . . . . . 24Accounts and Audit . . . . . . . . . . . . . . . . . . . . 24

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Page No.

5. PROJECT IMPLEMENTATION AND EXECUTING AGENCIES . . . . . . . . 25

Seeds Policy Formulation ... . . . ..... . . . . . . . 25Overall Seeds II Project Management . . . . . . . . . . . . 25Directorate General of Food Crops Agriculture (DGFCA) . . . 25National Seeds Corporation (NSC) . . . . . . . . . . . . . . 26P.T. Pertani . . . . . . . . . . . . . . . . . . . . . . . . 27Cooperatives .... . . . . . ...... . . . . . . . . . 28Food Crops Research Institutes (FCRIs) . . . . . . . . . . . 29Technical Assistance ... . . . . ...... . . . . . . . 29Contract Growers .... . . . . ...... . . . . . . . . 31Evaluation, Monitoring and Reporting . . . . . . . . . . . . 31Start-up Implementation Schedule . . . . . . . . . . . . . . 32

6. PRODUCTION AND TECHNOLOGY ... . . . . . . . . . . . . . . . 33

Seed Yields and Production ... . . . ... . . . . . . . 33Seasonal Cropping Patterns ... . . . ..... . . . . . . 34Seed Handling and Processing ... . . ..... . . . . . . 35Seed Storage .... . . . . . ...... . . . . . . . . . 35

7. MARKETS, PRICES, FINANCIAL ANALYSIS AND COST RECOVERY . . . . 36

Market for Project Seed .. 36Seed Prices .. 38Cost Recovery .. 39Marketing and Prices of Crops . . . . . . . . . . . . . . . 40Farm Incomes of Contract Seed Growers . . . . . . . . . . . 40NSC's Financial Status and Projections . . . . . . . . . . . 41

8. BENEFITS AND JUSTIFICATION .41

Project Benefits and Beneficiaries . . . . . . . . . . . . . 41Rate of Return Calculation .. 43Sensitivity Analysis .. 44Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Environmental Effects . . . . . . . . . . . . . . . . . . . 45

9. RECOMMENDATIONS ....................... 46

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Page No.

LIST OF TABLES IN MAIN REPORT

4.1 Project Cost Summary . . . . . . . . . . . . . . 236.1 Expected Seed Yields . . . . . . . . . . . . . . 336.2 Seed Area and Production Targets for Twelve Province . . . . 347.1 Estimated Annual BIMAS/INMAS Demand for Project Seed . . . . 367.2 Estimated Annual Transmigration Demand for Project Seed . . 377.3 Estimated Annual Total Demand for Project Seed . . . . . . . 387.4 Seed Production Costs . . . . . . . . .. . . . . . .... 398.1 Annual Incremental Project Benefits at Full Development . . 438.2 Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . 44

ANNEXES

1 - Project CostTable 1: Breeder Seed Storage CostsTable 2: Seed Production Supervision CostsTable 3: Investment Costs in Provincial Seed FarmsTable 4a: Investment Costs in New Seed Processing CentersTable 4b: Investment Costs in Existing NSC Seed Processing CentersTable 5: Cost of VehiclesTable 6: Incremental Working Capital RequirementsTable 7: Investment Costs for SCCS LaboratoriesTable 8: Incremental Operating Cost for SCCSTable 9a: Training Costs - IPB Diploma CourseTable 9b: Training Costs - In-ServiceTable 10: Technical Assistance CostsTable 11: Cost of Studies

2 - Proposed Allocation of Loan Proceeds3 - Estimated Schedule of Disbursements4 - Foodcrop Area and Production in Project Provinces, 19795 - Seed Certification and Regulation Standards

Table 1: Existing Field Standards for CertificationTable 2: Recommended Field Standards for CertificationTable 3: Existing Laboratory Standards for Certification or

RegulationTable 4: Recommended Laboratory Standards for Certification or

Regulation6 - Draft Terms of Reference for Consultants to DGFCA7 - Draft Rerms of Reference for Studies8 - Statements of Expenditure9 - Contract Growers' Farm Budgets

Table 1: Farmgate Prices for Inputs and OutputsTable 2: Contract Grower: 1 ha Wetland RiceTable 3: Contract Grower: I ha Dryland RiceTable 4: Contract Grower: 1 ha MaizeTable 5: Contract Grower: 1 ha SoybeanTable 6: Contract Grower: 1 ha GroundnutTable 7: Contract Grower: 1 ha Mungbean

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ANNEXES (continued)

10 - Economic AnalysisTable 1: Economic Prices for CropsTable 2: Economic CostsTable 3: Economic Benefits

11 - Selected Documents and Data in the Project File

CHARTS

21989 Primary GOI Agencies with Main Project Responsibilities

MAP

15173R Project Locations

This report is based on the findings of an appraisal mission composed ofMr. S. Ettinger, Mr. H. Matheson, Ms. V. Elliott (Bank) and Mr. E. Koller(consultant) which visited Indonesia in March/April 1980, and a followingvisit by Mr. Ettinger in February/March 1981.

INDONESIA

SECOND SEEDS PROJECT

1. PROJECT AND AGRICULTURAL SECTOR BACKGROUND

Project Background

1.01 The Government of Indonesia (GOI) has requested Bank assistancefor a project to expand the supply and improve the quality of seed of riceand some of the main secondary foodcrops (palawija) - maize, soybeans,groundnuts and mungbeans - to increase food availability and help approachfood self-sufficiency. The project would operate nationwide, with emphasison the major food-producing and key transmigrant-receiving provinces.It would grow and process some 27,000 tons of seed annually by 1987/88,enough to plant about 450,000 ha of rice and 325,000 ha of palawija. Theproject would also strengthen the National Seeds Corporation (NSC), P.T.Pertani, cooperatives and other agencies, build up domestic trainingcapability in the seeds subsector, and pave the way for larger cooperativeand private sector roles in seed processing.

1.02 The project was prepared by the IBRD/FAO Cooperative Program inMarch 1979, and reflects needs and priorities outlined in GOI's ThirdFive-Year Plan (Repelita III), April 1979-March 1984. It would be a follow-up to Seeds I (Cr. 246-IND, signed May 19, 1971, for $7.5 million), whichwas limited to rice seed production on Java (see Chapter 3).

Agricultural Sector Objectives

1.03 The Government's major objectives for the agricultural and ruralsector are to: (a) create productive employment to raise the incomes of therural poor; (b) increase domestic food supply to keep pace with risingdemand; (c) expand agricultural exports, particularly of smallholdertree crops; and (d) ensure productive, sustainable use of Indonesia's land,water and other natural resources.

Role and Performance

1.04 Nearly 16 million smallholder families grow subsistence and cashcrops on 16 million ha, while 1,800 estates occupying 2.2 million ha producemainly rubber, sugar, tea, palm oil, and tobacco. Despite a 4% p.a.average growth of production, agriculture-s share of GDP has declined from40% to 30% since 1968, while its share of exports dropped from 45% to 37%due to the increased value of oil exports. Nevertheless, agricultureprovides 80% of non-oil exports, and remains of overwhelming importance tothe great majority of Indonesians: nearly 80% of the population is rural,and agriculture is the major source of income for about two-thirds of ruralhouseholds and one-tenth of urban households.

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1.05 Employment. Agriculture's share of total employment decreasedfrom 69% in 1961 to 64% in September 1971, while in 1976 it ranged between66% in March (the main rice harvest) and 60% in October./I Nevertheless,agriculture remained by far the largest single source (with 42%) of newemployment during 1971-78. Outside Java, employment prospects in agricul-ture are quite promising, given the sustained increases in the smallholderarea due to land and irrigation development, including that under publiclysponsored and spontaneous transmigration. In Java, rehabilitation ofirrigation systems, which generated significant employment in the 1970s,should continue to provide additional construction and farm work.

Food Crops

1.06 Rice Production. Given its limited manpower and financialresources, GOI has concentrated on increasing the production of rice, thepreferred staple food of the great majority of Indonesians. Rice productionincreased rapidly (4.5% p.a.) over 1968-74, chiefly due to irrigationrehabilitation and the provision to irrigated rice growers of fertilizer andhigh-yielding variety (HYV) seed, financed largely through the BIMAS creditprogram. The growth rate slowed markedly to 1.7% p.a. over 1974-77, in thewake of severe declines in fertilizer usage (due to restrictions on privatesector fertilizer trade), successive seasons of untimely rainfall, andunprecedented attacks by pests and diseases, principally the brown planthopper (BPH) and associated viruses. Over 1977-80, rice production increasedby about 7% p.a., with better weather, improved and liberalized fertilizerdistribution, and nationwide Government distribution of recently-introducedBPH-resistant varieties, reaching almost 20 million tons in 1980.

1.07 Palawija Production. Over the past decade, output of secondaryfood crops grew more slowly, at an average of only 1.6% p.a., composed of a1.1% p.a. average decline in area (much of this land shifting to irrigatedrice) and a 2.7% p.a. increase in yield. Soybeans and groundnuts had fairlysteady production increases averaging 3.3% p.a. and 3.9% p.a. respectively,while maize and cassava output fluctuated widely, with no clear trend.

1.08 Demand-Supply Balance. These gains in food output did not keeppace with the 3.5-4.0% p.a. increase in demand due to rising population and

/1 In 1976, shares were 63% in March and 57% in October in Java, and 72%and 66%, respectively, elsewhere. The total drop in agriculturalemployment from March to October was 6.7 million. Precise estimation isdifficult due to the surveys' shifting definitions and seasonal timing.

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incomes. Indonesia became the world's largest rice importer, with annualimports averaging about 1.9 million tons in 1977-79. Simultaneously, wheatimports rose to 1-1.2 million tons p.a., cassava exports nearly disappeared,and soybean and maize imports began to grow. The "Indonesia Supply Prospectsfor Major Food Crops" (Report No. 2374-IND of March 3, 1979) concluded thateven with expanded irrigation, and improved technology, extension, creditand marketing, food production growth would not exceed 3.5% p.a., leaving abasic food deficit up to at least 1990, with an annual rice deficit alone of2-3 million tons.

1.09 Future Strategy. To keep rice imports at a reasonable fraction ofthe world rice trade, and to prevent a widening food production-consumptiongap, productivity and area of both rice and palawija must be increased. InJava, rice-cropping intensity and yields could be raised through water storageand groundwater projects, construction of tertiary irrigation and drainagesystems, and improving support services. The Other Islands have potential fornew irrigation systems, including tidal and swamp land. Palawija yields couldbe increased substantially by improved husbandry, including use of fertilizerand pesticides. GOI is giving increasing attention to research, credit, seedsand marketing for secondary crops.

Perennial Crops

1.10 Perennial crops occupy about a third of total cropped land (coconutsand rubber account for 80% of this), and generate some 43% of total nonoilexport revenue. Smallholders cultivate 80% of the rubber area and virtuallyall coconuts, coffee, cloves and pepper, whereas tea and oil palm are grownprimarily on estates. Despite recent higher world prices for Indonesia'smajor tree crop products, only oil palm has shown sustained large increases inproduction, due to investment by Government and private estates. With thelong immaturity of tree crops, static production levels are a symptom of pastlow prices and neglect, especially inadequate research and extension, andfailure to replant with higher-yielding varieties.

1.11 Smallholder Development. Efforts-to revitalize the smallholder treecrop sector have commenced on several fronts. Under the four Bank-financedNucleus Estates and Smallholders (NES) projects, Government estates plant andmaintain tree crops on previously undeveloped land for three years, usingfarmers selected to be settlers (including local landless families and trans-migrants) as employees, and thereafter provide the settlers with inputs,extension services, and processing facilities. Tree crops are also startingto play a major role in the transmigration program. In addition, GOI hasinitiated national programs to assist geographically concentrated groups ofexisting smallholders to plant rubber or coconuts themselves, with fairlyintensive support from project management units. This is the approach of the

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Bank-financed Smallholder Rubber Development and Smallholder CoconutDevelopment Projects. Given the vast area of overaged and low-yieldingsmallholder rubber and coconuts, the good market prospects and employmentpotential for these crops, and the Other Islands land availability andnatural comparative advantage in them, rapid expansion of smallholder treecrops, using all suitable approaches, is a high priority.

Area Development and Transmigration

1.12 Java. About 88 million people live in Java, at a density of665/sq km. The island, with 7% of Indonesia's land area, has 45% of thecropped area and 63% of the population. Java generally has higher fertilityand better infrastructure than the Other Islands; however, its cultivableland is almost fully utilized, and in some higher watersheds cultivationalready exceeds ecologically safe limits, contributing to increasingerosion, downstream flooding, and siltation of ports, dams, and irrigationcanals. GOI is preparing watershed development and integrated developmentprojects to address this problem. In addition, rural development programsdesigned to meet basic needs and to generate employment and production havebeen developed for certain critically poor areas of Java.

1.13 Other Islands. In the Other Islands, population density isgenerally low, and undeveloped land is available. An organized transmigrationprogram is important for regional and natural resource development there, aswell as for production of food and export crops, and creation of employmentand improved living conditions for landless Javanese. Unfortunately, thisprogram has long been hampered by overly ambitious targets and by weak,uncoordinated implementation. GOI reorganized the program in preparationfor Repelita III, by transferring most implementation responsibility fromthe Directorate General of Transmigration to the line agencies normallyresponsible for each sector. This measure needs to be complemented bycontinued attention to technical and policy issues including the (a) suit-ability of the land for food crops, (b) role of and organizational arrange-ments for tree crops, (c) methods of timber disposal, (d) appropriatetarget incomes and farm sizes, (e) extent of Government financial, market-ing and other services to settlers, (f) role of spontaneous migration, and(g) efficient means of resolving the claims of local inhabitants. TheTransmigration II Project (Loan 1707-IND and Credit 919-IND) is expected toaddress some of these issues.

Role of Government

1.14 While the private sector should be encouraged to expand its rolein agricultural input supply, marketing, and processing, Government bearsthe major responsibility for infrastructure, resource conservation, andother services. Despite marked improvements over the past decade, overlycentralized procedures, weak regional planning, and technical and managerial

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manpower constraints have impeded agricultural programs. GOI's concern forarea development has also increased the need to strengthen provincial andlocal planning. Future programs responsive to GOI's stated objectives willnecessarily be complex, requiring closely coordinated programs ofagricultural research, extension, input supply, credit, land development,transport, pricing policies and marketing. GOI must therefore continue tostrengthen its key rural development institutions, particularly through theeducation, recruitment, training and retention of technical manpower.

Bank Lending Strategy

1.15 GOI and the Bank generally agree on overall objectives and strate-gies for the rural sector. While views sometimes differ on the relativeemphasis to be given to different investments, and on the technical design ofsome projects, such differences are not impeding Bank operations generally,and are usually resolved by further analysis and dialogue.

1.16 Projects. Since the first of 15 irrigation projects was approvedin 1968, the Bank Group's agricultural lending has rapidly expanded toinclude estate and smallholder tree crops, fertilizer production anddistribution, sugar, livestock, fisheries, research, extension, training, riceseeds, swamp development, transmigration, integrated rural development, andresource survey and mapping. The Operations Evaluation Department's SectorOperations Review of Bank Group agricultural lending in Indonesia (Report No.2166, dated August 9, 1978) concluded that despite deficiencies in someprojects, the Bank's portfolio in Indonesian agriculture was "of overall goodquality and likely to contribute substantially to increased production."Within the context of GOI's agricultural objectives and priorities, asoutlined in Repelita III, future Bank lending is expected to focus on:

(a) a diversified irrigation, flood protection, drainage and swampreclamation program to intensify rice cropping on Java andextend water management in the Other Islands;

(b) watershed management to conserve soil and ensure long-termproductivity in the densely populated areas of Java;

(c) smallholder tree crop planting programs; and

(d) transmigration.

1.17 Sector Work. These projects will continue to be complemented byextensive sector work. Analyses of employment and income distribution,irrigation, agricultural support services, food crop production, the rubbersubsector, the edible oils market in Indonesia and the transmigration programhave improved the Bank's understanding of the sector's needs and of GOI'spolicies. Two reviews with particular long-term relevance to seedproduction, on food crops and the supply and requirements of technical andmanagerial manpower for agriculture, are underway.

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2. FOODCROP SEED PRODUCTION IN INDONESIA

Overview

2.01 Interest in foodcrop seed development in Indonesia rose rapidly inthe late 1960s, when wetland rice HYVs were introduced. Later, the plantingof large areas to a few varieties, and the introduction of year-roundcropping, helped lead to large-scale BPH infestation in the mid-1970s. Theneed for continuous breeding, selecting and multiplying of new HYVs, forpest resistance and other qualities, led to the establishment of a rice seedindustry. As rice farmers have become variety conscious, they have alsoincreasingly sought improved quality seed. Palawija seed has received muchless attention, because of the crops' smaller role in Indonesia, and becausefew suitable varieties with high yield potential have been available.

2.02 Multiplication of certified rice seed (i.e. seed which meets estab-lished standards of varietal purity, germination, cleanliness and moisturecontent) in Indonesia generally goes through four generations. Breeder seed,produced by plant breeders at research stations, is multiplied successivelyinto foundation seed, stock seed and extension seed, with slightly lowerstandards for each generation (see paras. 2.05-2.06 and Annex 5). Seedwhich fails to qualify as extension seed /1 is called regulated seed if itmeets less rigorous standards. In addition, a great deal of untested,nonregulated seed is sold or traded, and farmers often keep part of theirown grain for planting. There is as yet no certification of palawija seed,as the varieties lack uniformity and distinctive plant characteristics whichcould be identified by field inspection. After release by researchstations, palawija seed is multiplied to produce grades of regulated seedcomparable to foundation, stock and extension seed.

Varietal Development

2.03 Development of rice and palawija varieties emphasizes diseaseand insect resistance, yield, eating quality., early maturity, and suit-ability to Indonesia's various ecological conditions. The Food CropsResearch Institutes (FCRIs - para. 5.17) test new strains in yield trialsunder varying climatic, soil, water and management conditions. Officialrelease of new varieties is by decree of the Minister of Agriculture on therecommendation of the National Seeds Board's (para. 5.01) Varietal ReleaseCommittee.

/1 Usually because (a) a different variety had been planted on the land theprevious season, or (b) extension instead of stock seed had been planted.

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2.04 Indonesia has been giving high priority to wetland rice breeding.HYVs cover about 65% of the wetland rice area, and BPH-resistant HYVs 85% ofthe HYV area. Of the 20 wetland HYVs now grown in Indonesia, about half werebred at the International Rice Research Institute (IRRI) in the Philippines,and the remainder at FCRIs, primarily Bogor and Sukamandi in West Java. Manypromising (unreleased) breeding lines exist, with varying resistance to BPHbiotypes I and II, tungro virus, gall midge and bacterial leaf blight, themain wetland rice pest and disease problems in Indonesia. As the wetland riceHYVs are not resistant to blast, the principal dryland rice disease problem,special dryland varieties are being developed. Few improved palawijavarieties have been released (since 1975, four varieties of groundnut, threeof maize, two of cassava, and one each of soybean, mungbean, and sweet potato)because of the relatively recent emphasis on such research, and the shortageof qualified breeders.

Breeder, Foundation and Stock Seed

2.05 Breeder Seed. The Subdirectorate of Seed Production (SSP -para. 5.03) in the Directorate General of Food Crops Agriculture (DGFCA)arranges with the Central FCRI for breeder seed production. Due to lack ofairconditioned facilities for long-term seed storage, the FCRIs have had tomaintain stocks of breeder seed by planting them each season.

2.06 Foundation and Stock Seed of Rice. Foundation and stock seed aregrown by a few Provincial Seed Farms (PSFs) of the Provincial AgriculturalServices (Dinas Pertanian Daerah - DPD), and by the National Seeds Corporation(NSC) at Sukamandi. Foundation seed production is under FCRIs' close tech-nical supervision (until 1979, FCRIs also grew the foundation seed). Ten HYVsare currently being multiplied in 13 provinces, with an annual planted area of18 ha for foundation seed and 700 ha for stock seed. The SSP plans andfinances foundation and some stock seed production, based on the DPDs' demandprojections. Excess breeder, foundation and stock seed are grown to ensureadequate supplies of varieties that may turn out to be in demand.

2.07 Palawija Seed Multiplication. Some PSFs also multiply released andother palawija varieties, but there is no centralized planning by the SSP, andmuch less quality control than for rice.

Commercial Seed (Extension, Regulated and Nonregulated Seed)

2.08 The final multiplication into commercial seed (i.e. seed sold forcrop production, rather than for further multiplication) was initially done

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primarily by PSFs. GOI policy now is to continue shifting commercial seedproduction away from the PSFs (leaving them to concentrate on foundation andstock seed, demonstration and training) to NSC, P.T. Pertani, cooperativesand private growers. Private rice seed growers generally purchase stock seed(if available) or extension seed from PSFs, and sell their output locally.Many began through GOI's Demonstration of Improved Seed (Dembul) Program,under which the DPDs distribute new rice HYVs to groups of selected farmers,who plant demonstration plots, and can sell the output as seed. Most commer-cial palawija seed, as well as non-HYV rice seed, is merely selected consump-tion grain, although PSFs and private growers produce small amounts speciallyfor seed.

2.09 Indonesia's annual planted area of HYV rice is some five million ha.Assuming farmers on average purchase seed every third planting (para. 7.01),and plant 30 kg/ha of seed, total HYV seed demand is some 50,000 tons. In1979/80, some 8,300 tons of rice extension seed were produced, of which about6,150 tons was by NSC, 1,400 tons by PSFs and 750 tons by private growers.Regulated rice seed output from PSFs and private growers (NSC may sell onlycertified seed) is about 2,000 tons p.a., and from P.T. Pertani, the GOI-owned agricultural trading company, now 5,800 tons. The remaining 65-70% ofthe total HYV seed is nonregulated, obtained either through commercialchannels or direct from other farmers.

Marketing and Prices

2.10 Market Channels for Rice Seed. NSC supplies seed to about 50 regis-tered private dealers and village cooperatives (KUDs), some of whom distributeit wholesale to small kiosks. P.T. Pertani also sells primarily via KUDs; atGOI's request, it sometimes purchases seed in one province for sale inanother. PSFs and private growers sell directly to farmers or throughdealers and KUDs.

2.11 Rice Seed Prices. The Ministry of Agriculture (MOA) sets only oneseed price: that of extension seed from NSC, retail. This price, Rp 210/kgsince July, 1980,/1 has remained between 165% and 220% of the price for con-sumption grain. MOA has kept the price well below NSC's cost of production(Table 7.4) to stimulate demand. The retail price for NSC seed largelydetermines the price for HYV seed of all qualities. Most provincial govern-ments sell PSF seed at the NSC price, and dealers find they can often selllower quality seed from private growers at the same price. The privatesector has therefore lacked incentive to upgrade the quality of its seed, andat these low prices usually cannot produce extension seed profitably.

2.12 Palawija Seed. Palawija seed is also retailed by P.T. Pertani(800 tons in 1980), private merchants, KUDs and PSFs. Prices vary widely,depending on seed quality, palawija prices, and supply/demand conditions.Crops purchased by small merchants at harvest time, when prices are low, are

/1 NSC has now proposed to increase it in Java to Rp 235/kg for commonvarieties, and Rp 250/kg for new varieties.

hand winnowed and then transported for seed to the area with the nextplanting season (generally between upland and lowland areas). Seedprices average about 40% above consumption grain prices, and are currently Rp100-170/kg for maize, Rp 250-400/kg for soybean and Rp 350-500/kg forgroundnut.

2.13 Credit. Although BIMAS credit is available for rice and palawijaseed, it is not used extensively because of the declining importance of theBIMAS program (only 23% of farmers purchasing inputs obtain BIMAS credit),and because the loans are often not made in time for purchase of seed, thefirst input needed.

Seed for Transmigrants

2.14 Transmigrants (see para. 7.03) have a special problem obtainingseed, as they have little seed of their own to start with, and there arefew PSFs or other seed growers near transmigration areas. GOI policy callsfor the DPDs to (a) supply a free initial seed package, which the DPDs maypurchase locally if available, or have P.T. Pertani bring from another pro-vince, (b) develop PSFs to produce stock seed in the transmigration provinces,and (c) organize contract growers of commercial seed. Due to poor interagencycoordination, inadequate budget provisions, and the limited implementationcapacity of DPDs in the transmigration areas, seed, particularly of palawija,has often been of inferior quality and delivered late, although the timelinessof supply has been improving. Transmigration areas also lack seed laboratoryand seed storage facilities. The seed marketing and distribution study(para. 4.24) would review the situation and make recommendations.

Shortcomings of the Seed Industry

2.15 Despite its success in developing, multiplying and distributingBPH-resistant rice varieties, Indonesia's seed industry still has manyshortcomings:

(a) palawija, dryland rice and the Other Islands have beenlargely neglected;

(b) there is inadequate processing and storage capacity;

(c) much seed marketing is inefficient, resulting in seed having to besold for consumption;

(d) low seed prices have discouraged the private and cooperative sectorsfrom upgrading seed quality; and

(e) there is a shortage of adequately trained and experienced personnel.

The Seeds II Project would attempt to address these problems.

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3. THE SEEDS I PROJECT

General Description

3.01 Seeds I, implemented from 1971-78,/i initiated a modern HYV riceseed industry in Java by establishing: (a) NSC, to own and operate a 2,450 hamechanized rice seed farm and a seed processing plant at Sukamandi (WestJava), and to manage seed districts where extension seed would be grown byfarmers, under contract to NSC, and processed and marketed by NSC; (b) theSeed Control and Certification Service (SCCS), to administer seed purity andquality standards; and (c) the Sukamandi FCRI, for research primarily onwetland rice.

3.02 Attention had been given during project preparation to improvingthe existing system of PSFs, or to basing the project primarily on contractgrowing, but the more centralized Sukamandi farm approach was chosen instead,to help ensure rapid development and high seed quality. An assurance waseven obtained that the existing seed streams (from the PSFs) would be phasedout as NSC seed became available. However, these streams have continued toflourish, producing seed of somewhat lower quality, but at much lower cost.

3.03 Overall, the project had a mixed record. It introduced highquality seed, and created the institutions for production and certificationof the seed. NSC played a major role in the rapid multiplication and dis-tribution of BPH-resistant varieties. Unfortunately, the difficultiesassociated with development and operation of the Sukamandi farm detractedsignificantly from the project's accomplishments.

Seed Production by NSC

3.04 Development of the Sukamandi farm has taken more than twice as longas planned,/2 and seed yields have averaged only 1.6 tons/ha (2.0 tons/ha ofdry grain, before cleaning), half the appraisal estimate. These difficultiesresulted from: (a) a project design based on unproven and inappropriate tech-nology; (b) poor implementation by NSC, whose top officials had background inneither seed production, estate operation, nor enterprise management; (c) poorland-development contractor performance; and (d) pest and disease problems,especially BPH and rats. Mechanized rice farming had never been done success-fully before on a large scale in Indonesia and should not have been undertakenat Sukamandi without a pilot project.

/1 See the Project Performance Audit Report (PPAR) of December 28, 1979.

/2 About 450 ha are still not fully developed. The Jatiluhur Authority haspromised to provide irrigation there over the next few years, and NSCis gradually levelling and bunding the land.

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3.05 Because of project cost overruns, only one of the three plannedseed districts (at Klaten, Central Java) was developed under the project.After some initial problems, it has proven much more successful than theSukamandi estate, with seed yields averaging 50% higher (2.4 tons/ha).

3.06 At project completion in 1978, total NSC seed production was only4,000 tons/year, compared to the target of 22,000 tons/year. NSC, intendedto be self-financing by June, 1978, was losing about $2 million/year due tohigh costs, low yields, and low sales prices (para. 2.11).

Seed Control and Certification Service (SCCS)

3.07 Prior to 1971, few provinces exercised any seed quality control.Under Seeds I, a National Seeds Law was passed, under which procedures andstandards for rice seed certification and marketing were set, based oninternational criteria, and SCCS was created within DGFCA to implement andenforce them. Seeds I established SCCS only in Java, but it now operates in13 provinces, and is becoming nationwide. For certified seed, SCCS inspectssample areas within each block three times to ensure varietal purity standardsare met, and then undertakes laboratory tests for germination, moisturecontent and cleanliness. In 1979, SCCS started laboratory testing of smallquantities of palawija, for regulated seed. SCCS, already a respected andefficient institution, has helped educate farmers on the value of seed ofcertified quality, and is solidly based to become a multi-crop service.

Food Crops Research Institute (FCRI), Sukamandi

3.08 FCRI Sukamandi, with 250 ha, was to become the center of riceresearch, to ensure a supply of HYVs to support the seed multipli-cation program. Problems in land development, drainage, and recruitingresearch specialists caused delays, but since 1975 FCRI Sukamandi has bredfour new HYVs with BPH resistance, and helped test other varieties.Research on palawija is just starting. Improvement of drainage andexpansion of laboratory facilities are being financed under the IrrigationXII (Loan 1645-IND) and Research I (Loan 1179-IND) Projects.

PPAR Conclusions and Recommendations

3.09 The Seeds I PPAR, written with Seeds II in mind, had three mainconclusions with important implications for NSC and Seeds II: that (a)contract growing is more efficient than mechanized rice estate production;(b) NSC needs considerable strengthening before being given additionalresponsibilities; and (c) tender documents should be prepared and marketingstudies carried out before appraisal.

3.10 NSC has acted already on item (a). It has expanded its contractgrowing system rapidly over the past two years at Klaten, eight sites in East

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Java (using processing facilities owned and operated by the DPD),/l andnear Sukamandi, so that contract growing now accounts for over half of NSC'soutput. About 400 ha of the Sukamandi estate is rented out to contractgrowers because NSC has only enough harvesting machinery for 1,200 ha of the2,000 ha developed (on average, 400 ha are fallow). This shift in emphasisaway from mechanized farming would continue under Seeds II. On the Sukamandifarm, seed grown by NSC has cost about Rp 60/kg more than comparable seed fromcontract growers. Eight of NSC's twelve combine harvesters will be uneconomicto maintain by 1982, and the rest by 1985. The combine-harvesters have highmaintenance and depreciation costs, frequently break down under the wet,clayey soil conditions, can be used only after the soil has dried out somewhat(often resulting in late harvesting), and spill more grain than human harves-ters. Agreement was therefore reached at negotiations that NSC would replaceno more than two combines. NSC would manage most of this 1,200 ha itself,contracting out the main operations (land preparation, transplanting, har-vest), and would compare the performance with contract growing, before decid-ing which system to expand at Sukamandi.

3.11 NSC's performance has improved since the PPAR. Its output has morethan doubled over the past two years, and NSC has shown initiative in search-ing out underutilized facilities of other agencies for drying, cleaning andstoring output of contract growers. The gradual reduction of mechanizedproduction at Sukamandi, and increases in the sales price of NSC seed (para.7.05), should put NSC on a sounder financial footing, thereby mitigating itsmanagement problems. In addition, two vacant NSC Directorships were filled inJanuary 1981, and Seeds II would finance consultancy and staff training forNSC, as well as require appointment of key NSC staff. Although poor NSCmanagement remains a project risk (para. 8.12), these measures are consideredsufficient to enable NSC to carry out its responsibilities under Seeds II.

3.12 Seeds II was not well enough defined before appraisal for tenderdocuments to be prepared. The project sites had not yet been finally selec-ted, and the proposed size, ownership and technology of the processing centers.needed to be confirmed. Furthermore, the PPAR recommendations went wellbeyond the normal Bank policy for relatively simple works such as thoseproposed under the project. Design standards for the processing centerbuildings and seed farms already exist, and preliminary specifications havebeen made for the processing equipment. A short-term consultant to finalizeequipment specifications is expected to begin work in December and the initialtender documents are expected to be issued by about February 1982. Themarketing studies done under Seeds I, as updated and amended by the Seeds IIpreparation and appraisal missions and the site selection study, indicateadequate demand for seed to justify the proposed project (paras. 7.02-7.04).A more detailed seed marketing study would be carried out under the project(para. 4.24).

/1 Eight processing centers were built by the East Java DPD, for useprimarily by KUDs. W4hen the latter proved unable to utilize the,lcilities, the DPD turned to NSC.

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4. THE PROJECT

Formulation

4.01 The Seeds II Project was conceived as a means of extending thecoverage of Seeds I to other crops and provinces, while correcting some ofthe shortcomings and avoiding the mistakes of its predecessor. In particu-lar, it would utilize existing PSFs and private growers instead of trying toreplace them, and would build upon NSC's success with contract growing.

4.02 The main issue during project preparation concerned the roles ofNSC, P.T. Pertani, cooperatives and the private sector in the project. NSC'sweaknesses had been pointed out in the Seeds I PPAR. Furthermore, GOI and theBank agreed that a greater private sector role in seed processing should besought, and dependence on state enterprises reduced wherever possible. Never-theless, it was felt that no private firm (a) would be likely soon to take therisks inherent in pioneering seed processing for new areas and new crops, or(b) had the size and expertise to rapidly multiply and distribute largequantities of seed of new varieties to meet pest/disease problems. Amonggovernment agencies, only NSC had sufficient experience and expertise in theseed industry, especially in organizing contract growers, processing seed andsupplying a far-flung marketing network, to be the main implementing agency.

4.03 After appraisal, significant components for P.T. Pertani and coop-eratives were added to the project. P.T. Pertani was brought in primarily toimprove the seed supply to transmigration areas, a role assigned it by GOI(para. 5.12). Furthermore, in provinces where the seed business alone isinsufficient to support branches of a specialized agency like NSC, P.T.Pertani can process and distribute seed economically because the overheadcosts are shared by its other activities. KUDs' involvement in the seedindustry have so far been limited primarily to marketing (para 5.15), as theyhave lacked the management, size and incentives for efficient seed processing.However, in accordance with present GOI policy for strengthening thecooperatives and expanding their activities, the project would include sixsmall KUD processing centers on a pilot basis; more could be added ifthe initial ones prosper. In addition, if they were found capable, centralcooperatives (PUSKUDs) in East and Central Java would own and operate up tothree of the larger processing centers.

4.04 A second set of issues were seed pricing and the financial arrange-ments between GOI and the seed processors (NSC, P.T. Pertani, and coopera-tives). The long-term goal would be for the latter to operate alongcommercial lines, setting their own seed prices (high enough to cover allcosts), and not depending on GOI subsidies. However, some (but decreasing)subsidization can be justified during the project period, to induce farmers touse more high quality seed, as the seed market is not well developed (exceptfor wetland rice seed on Java), and most farmers are not fully aware of thebenefits of better quality seed. On the other hand, seed prices should behigh enough to make investments in seed processing profitable for the private

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and cooperative sectors. Agreement was therefore reached on a phased increasein seed prices (para. 7.05). To reduce the need for direct subsidies, GOIwould pass on project investment funds to NSC and P.T Pertani as equity, andto cooperatives as subsidized loans. Although the private sector would needto earn a return on its investments, it should be able to compete with thestate enterprises and cooperatives because it could select the most profitableportions of the seed market, and would normally have lower overheads.

Objectives

4.05 The proposed project would increase the food supply and raise theincomes of small farmers by (a) improving the quality, reliability and avail-ability of rice and palawija seed, (b) strengthening NSC, P.T. Pertani, theSCCS, and selected cooperatives and PSFs, and (c) providing incentives for alarger private sector role in seed production and processing. The project ishighly interdependent with the two Bank-financed agricultural researchprojects (Ln 1179-IND and Ln 1840-IND/Cr 1014-IND), as the research institutes(FCRIs) would breed and test the new varieties. It also ties in with the twoagricultural extension projects (Ln 1267-IND and Cr 996-IND), because exten-sion workers would educate the farmers about the benefits of improved seed,and help the seed processors organize and supervise contract growers. Byimproving provision of seed to transmigrants, the project would support GOI'stransmigration program, including the Transmigration I (Ln 1318) and IIProjects.

General Description

4.06 The project would have the following components:

(a) air-conditioned storage for breeder seed at five FCRIs (para. 4.10);

(b) incremental operating expenses of FCRIs for supervision offoundation seed production and of DPDs for supervision of PSFs andprivate growers (para. 4.11);

(c) irrigation/drainage improvements, storage, and other civil worksfor about 40 PSFs, which would produce foundation and stock seed (ortheir equivalent) of rice and palawija (paras. 4.12-4.14);

(d) about 18 new medium-sized seed processing centers (9 for NSC, 6 forP.T. Pertani and 3 for either PUSKUDS or NSC), 6 new small centers(for KUDs), and equipment and facilities for 10 existing centersowned by NSC and the East Java DPD (paras. 4.15-4.16);

(e) vehicles for the various implementing agencies (para. 4.17);

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(f) incremental working capital for the PSFs and seed processors

(para. 4.18);

(g) equipment and incremental operating expenses for SCCS (para. 4.19);

(h) facilities and operating expenses for a diploma course in seedtechnology at the Bogor Agricultural Institute (Institut PertanianBogor - IPB), plus additional in-service training for staff of theimplementing agencies (paras. 4.20-4.21);

(i) technical assistance (para. 4.22); and

(j) studies of (i) seed marketing and distribution, (ii) the benefitsfrom using improved seed, (iii) seed treatment, (iv) project siteselection for years two-four, and (v) the potential private andcooperative sector roles in seed processing, plus pilot activitiesarising from this study (paras. 4.23-4.27).

Scope

4.07 Geographic Coverage. The project would finance facilities for SCCSand selected PSFs nationwide. Seed processing centers, however, would be onlyin provinces where expected demand justified it. NSC-s nine new processingcenters would be in provinces where it is already producing seed (East, Westand Central Java, and Yogyakarta) or has newly built processing centers (SouthSulawesi, and North and West Sumatra)./l P.T. Pertani-s six new processingcenters under the project would be in provinces where it is now active inseed marketing and simple processing (Bali and West Nusa Tenggara), or whichare major transmigration areas (Riau, Jambi, and South Kalimantan). The threePUSKUD and six KUD centers would be in Java, where cooperative management isstrongest. These twelve provinces which would get seed processing centersunder the project supply close to 90% of Indonesia's rice and palawija (Annex4). Where appropriate, they would also supply seed to neighboring provinces,especially for transmigrants. About two-thirds of the project seed would beproduced in Java.

4.08 Crop Coverage. The project would cover wetland and dryland rice,maize, soybeans, groundnuts and mungbeans./2 These crops provide about 68% oftotal calorie intake in Indonesia (rice 53%, palawija 15%), and 78% of totalprotein (rice 50%, palawija 28%). Extension of improved seed production topalawija will be more difficult than for rice, because (a) palawija breeding

/1 NSC has also built a seed processing center in Lampung, but no addi-tional ones are expected to be needed there. There would probably beone new center per province, except for about three in Central Java.

/2 Minor grains and pulses, like sorghum, cowpeas or longbeans, could behandled by the project as well, if warranted.

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is just starting to expand, (b) farmer willingness to invest in inputs forpalawija depends on the assurance of reasonable market prices (a major problemfor maize), and (c) as palawija seeds lose viability more quickly, efficientdistribution and marketing will be essential. Thus, while the potentialbenefits from improved palawija seed production are high (para. 8.04), so arethe risks, especially given the lack of experience with these seeds inIndonesia. The first objective would be to supply regulated seed of improvedvarieties, especially with good germination rates. Progression to certifiedextension seed would be aimed for by the end of the project./l The main foodcrops not included are those propagated vegetatively (cassava and sweetpotato), as these require special treatment to avoid transmission of diseases,and immediate transport to prevent spoilage, and would complicate projectimplementation considerably.

4.09 Seed Production Targets (paras. 7.01-7.05). By 1988 (see para.4.28) the supply of processed seed from NSC, P.T. Pertani and participatingcooperatives is targeted to reach 40% of the BIMAS/INMAS /2 market forwetland rice seed and 20% for dryland rice and palawija in thirteen provinces.The project would also supply about 60% of the initial seed packages fortransmigrants nationwide, and an equal amount of replacement seed fortransmigrants. Expected annual project output of 27,000 tons of extensionseed and regulated seed would be approximately one-half rice (includingdryland rice) and one half palawija. In the remaining provinces, improved andexpanded foundation and stock seed output would total some 150 tons, butfurther multiplication into commercial seed would be left to PSFs and privategrowers, without processing centers.

Detailed Features

4.10 Breeder Seed Storage ($0.1 million /3 - Annex 1, Table 1). Theproject would finance installation of temperature- and humidity-controlledstorage at FCRIs Bogor, Malang (East Java), Banjarmasin (South Kalimantan),Maros (South Sulawesi) and Sukarami (West Sumatra), for some 15 tons ofbreeder seed apiece./4 Prefabricated storage units would be imported. At70C and 50% humidity, seed would retain its viability for over five years.

/1 To maintain international standards, certification would only be doneonce it is possible to field test for varietal purity. Regulation canbe done by confirming the parentage of the seed and the field conditions.There is too much variation within existing palawija varieties inIndonesia for varietal purity to be easily measured.

/2 Farmers who purchase fertilizer and other agrochemicals, either on credit(BIMAS) or for cash (INMAS); they are the only likely purchasers of exten-sion or regulated seed.

/3 Base cost, excluding physical and price contingencies.

/4 The production cost of this breeder seed, once new varieties have beendeveloped, would be minimal, and is in the FCRIs regular research bud-get. Any excess storage space would be used for foundation seed.

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4.11 Supervision of Seed Production ($0.5 million - Annex 1, Table 2).

Teams from six FCRIs (the five listed in para. 4.10, plus Sukamandi) wouldvisit each PSF producing foundation seed two or three times each season, tosupervise field production and roguing (removal of other varieties), to ensurethat standards were met. The project would finance these teams' travel,subsistence, and honoraria over five years. The project would also financeDPD staff salaries and travel for supervising PSFs and private seed growers.

4.12 Investment in PSFs ($2.2 million - Annex 1, Table 3). GOI policycalls for one Central PSF each for rice and palawija crops, in every province,to produce foundation seed. As the area required for foundation seed is verysmall, they would produce stock seed as well, although this could also begrown, as necessary, by one or two Main PSFs in each province. DGFCA hasestablished reasonable standards for developing, equipping and staffingCentral and Main PSFs. Site selection consultants examined Central andMain PSFs proposed for the initial year of the project, and on the basis oftheir report, 25 PSFs were agreed at negotiations. At negotiations, anassurance was obtained that DGFCA would send to the Bank for comment byAugust 31 of each year, the list of PSFs proposed to be upgraded the follow-ing year, supported by site selection studies and investment plans. About 15PSFs are expected to be selected for upgrading in 1983, and few, if any,thereafter.

4.13 The project would finance only civil works for the PSFs - irri-gation/drainage improvements, drying floors, storage, workshops, staff hous-ing and other buildings. At negotiations, an assurance was obtained thatDGFCA would ensure the timely completion of its ongoing program of providingseed production and processing equipment (to meet its own standards) for allPSFs being upgraded under the project. Most of the imported equipment isbeing provided under bilateral Japanese (OECF) aid; the third grant for thiswas signed in January 1981. GOI itself is financing the local costs of theimports, as well as equipment being procured locally or from thirdcountries. About seven of the PSFs would handle significant amounts ofgroundnut and soybean foundation seed, and would be provided with airconditioning units to keep the storage temperature down to 18-200C and thehumidity around 50%, so that this seed could be kept up to 12-18 months.

4.14 To meet the extension seed targets in the 12 provinces, about130 ha would be needed for foundation seed production, and 1,230 ha forstock seed (Table 6.2). Groundnuts would require most of the land becauseof their low multiplication ratio. About half of the foundation and stockseed for wetland rice would be grown by PSFs, and the remainder by NSC atSukamandi, as NSC has good facilities and experience for this. All thefoundation-seed for the other crops would be grown on PSFs (or by NSC atSukamandi). The same would be true for stock seed of dryland rice, maizeand mungbeans. However, as the Main PSFs would not have enough suitableland to grow all the groundnut and soybean stock seed needed, this would bedone largely by private growers, on contract to NSC. The total PSF croppedarea needed for project extension seed would be some 300 ha. With full

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technical irrigation, the cropping intensity would be close to 200% andand about 170 ha would be adequate. An additional 100 ha would be upgradedfor other crops, field trials, stock seed to be sold to private growers, etc.

4.15 Processing Centers ($14.6 million - Annex 1, Tables 4a and 4b).The 18 medium-size processing centers to be built by NSC, P.T. Pertani andPUSKUDs would have capacities of 1-2,000 tons/year of seed each (compared to10,000 tons/year capacity at Sukamandi). Each would contain 2-3,000 sq mfor processing and storage, plus two staff houses. Bag driers with 40 tons/day capacity would be supplemented by an outdoor drying floor. There wouldbe seed cleaning machines (para. 6.09), threshers, seed treaters and baggingmachines. The processing machinery would be connected by conveyors andelevators, to ensure smooth seed flow. The six small KUD processing centerswould have very simple equipment with capacity of 100-200 tons/year. Sitesfor three NSC processing centers (two in Central Java and one in Yogyakarta)and one P.T. Pertani center (in West Nusa Tenggara) to be constructed in1982 /1 were agreed at negotiations based on site selection studies. Anassurance was obtained at negotiations that DGFCA would, by August 31 eachyear, send to the Bank for approval proposals for the processing centers tobe developed the following year, supported by site selection studies andinvestment plans.

4.16 Additional facilities would also be provided for existing centers.At Sukamandi, 4,000 sq m of fertilizer storage would be ugpraded for seedstorage, a 4,000 sq m drying floor would be added to reduce fuel consumptionand help cope with peak loads, and processing equipment would be procured todeal with small quantities of rice seed (so that several varieties/gradescould be processed simultaneously) and with palawija seed. At Klaten, 1,000sq m of seed storage would be added, along with a drying floor and minorequipment. Additional equipment for palawija seed and storage space wouldbe added to processing centers owned by the East Java DPD. At negotiations,an assurance was obtained that NSC would be allowed to operate these centersfor at least ten years, to help ensure that project investment in them isutilized adequately.

4.17 Vehicles ($2.6 million - Annex 1, Table 5). NSC would requiretrucks to carry the crops from its contract growers and the seed to itsdealers, four-wheel drive vehicles for its provincial production and market-ing managers, and motorcycles for its marketing staff and processing centerfield staff. P.T. Pertani and the cooperatives would also need vehicles fortheir processing centers. The SCCS and DPDs would need motorcycles fortheir field and seed inspectors, and four-wheel drive vehicles forprovincial supervisors. Sedans would be supplied for the consultants.

4.18 Incremental Working Capital ($6.4 million - Annex 1, Table 6).NSC, P.T. Pertani and the cooperatives would need working capital to financetheir grain purchases (from contract growers) and operating expenses, untilthey sell the seed. NSC and the PSFs would also need small amounts of work-ing capital for foundation and stock seed. Project costs include the

/1 A second P.T. Pertani center would be built in Bali in 1982 if asuitable site were found.

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average working capital needed at full development. This was based on sevenmonths between purchase from contract growers and income from sale for riceand maize, and four months for the other crops (para. 6.05), including anaverage of one month's credit from the processors to their dealers. Anassurance was obtained at negotiations that adequate working capital would beprovided to NSC, P.T. Pertani and the cooperatives. NSC and P.T. Pertaniwould be given equity for their average needs, and would borrow from BankRakyat Indonesia (BRI)/1 on a normal commercial basis for peak requirements.Cooperatives would get GOI-guaranteed loans from BRI, at subsidized ates, forworking capital. A major task of NSC, P.T. Pertani and cooperative managementwould be to schedule seed production and arrange marketing so as to keep downworking capital requirements.

4.19 Equipment and Incremental Operating Expenses for SCCS($0.6 million - Annex 1, Tables 7 and 8). The proposed project would morethan double the area and seed quantity SCCS would have to inspect, and woulddiversify its work into palawija. Existing SCCS laboratories (generally oneper province) would need more staff and equipment, and small laboratorieswould be established in other provinces. Additional staff would be providedfor field and market inspection as well. Project costs include theseincremental operating expenses over five years.

4.20 Training ($1.3 million - Annex 1, Tables 9a and 9b). Emphasis wouldbe on building up seed technology training capacity, including but not limitedto project requirements. The project would finance a 2-year diploma course atIPB in seed technology /2 for about 25 students per year to help meet the needfor senior seed production and certification staff in the project implementingagencies, the Directorates General of Forestry and Estates, and the privatesector. Shorter programs (6-12 months) would also be arranged for staff whocould not be made available for the full two years. Students would includerecent agricultural high school graduates, as well as existing employees beingtrained for more responsible positions (such as managers of processingcenters, PSFs, and SCCS provincial offices). IPB, in consultation with DGFCA,would select the students. Finance would be provided for buildings andutilities, teaching laboratories, processing equipment, storage, and operatingcosts, at a new IPB complex near Bogor, as well as for about seven man-yearsof graduate training overseas for the IPB teaching staff involved.

4.21 NSC, P.T. Pertani and the cooperatives would also need expandedtraining for junior staff and specialized personnel. An NSC training managerwould determine training needs, set up in-service courses at processing

/1 A GOI-owned commercial bank specializing in the agricultural sector,and involved in many Bank-financed projects. Working capital for the PSFswould come from GOI; revenue from sale of stock and foundation seed wouldall go to the provincial governments. GOI would guarantee the loans toNSC and P.T. Pertani, while the Cooperative Guarantee Fund (LJKK) wouldguarantee the cooperatives' loans.

/2 Which is now taught only as part of the degree program in agronomy.

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centers (during slack periods), and help select staff to be trained.Training on the operation and maintenance of seed processing equipment wouldbe conducted through contract by the equipment suppliers. SCCS would alsoexpand its on-the-job training program for seed inspectors and laboratorytechnicians, especially for palawija. Training of PSF and DPD staff would beplanned and undertaken by the Agency for Agricultural Education, Training andExtension in MOA. Brief study tours might be made, especially to Thailand, tolook at progress in palawija seed development. Project costs include all ofthese training programs. The project training consultant (para. 4.22) wouldhelp review the training requirements and programs for all agencies concerned.

4.22 Technical Assistance ($2.0 million - Annex 1, Table 10). About200 man-months of technical assistance would be provided to DGFCA and 50 man-months to IPB. The average man-month cost for consultants supplied by aninternational firm, including salary, costs, fees, international travel,housing and subsistence, is expected to be about $7,300. Total cost of$8,000/man-month also includes local travel and other expenses. The DGFCAconsultancy (para. 5.18), which would include overall strengthening of projectimplementing agencies, would be in (a) project management, (b) finance andmanagement information, (c) training, (d) seed marketing, (e) seedprocessing, and (f) seed production. The assistance to IPB would be tostart the diploma-level seeds course before the regular IPB staff returnedfrom overseas training (para. 4.20). At negotiations, an assurance wasobtained that consultants with qualifications and experience and on termsacceptable to the Bank, would be appointed by May 31, 1982, for DGFCA,and qualified instructors by June 30, 1983, for IPB.

4.23 Studies and Pilot Activities ($1.3 million - Annex 1, Table 11).The project would finance and DGFCA would supervise studies of (a) seedmarketing and distribution, (b) the benefits from using improved seed, (c)seed treatment, (d) project site selection for the latter years of implemen-tation, and (e) the potential private and cooperative sector roles in seedprocessing. Draft terms of reference are in Annex 7. At negotiations,agreement was reached that consultants to design and carry out or supervisestudies (b), (c) and (e) would be selected by DGFCA, with qualifications andexperience and on terms and conditions acceptable to the Bank, by December 31,1982, and that results of the five studies would be reviewed with the Bank.Study (a) would be designed and supervised by the marketing consultant, whilestudy (d) would be required for annual Bank approval of the following year sinvestment program (para. 4.15).

4.24 The seed marketing and distribution study would aim to determinethe existing patterns of seed supply, demand and movement, and farmers'willingness to pay more for better seed. It would help determine the paceat which GOI introduces economic pricing (para. 7.05), and the seedprocessors marketing strategy. In addition, it would examine the qualityand timeliness of seed packages supplied to transmigrants, and recommend anyimprovements necessary in the seed supply system to these areas.

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4.25 It is difficult to measure increased output due to better seedquality (as opposed to improved variety), because the impact of this factor issmall compared to that of other variables (weather, pest and disease attacks,fertilizer usage, varietal change). Controlled experiments are thereforeneeded, whereby random samples of certified, regulated and nonregulated seedare planted in adjacent plots and managed identically. Such research, whichwould be new in Indonesia, might also give farmers evidence of the benefits ofimproved seed. DPDs would carry out such experiments with FCRI technicalsupport, supplemented by laboratory analysis of the samples by SCCS to helpunderstand the reasons for any yield differences.

4.26 Seed treatment (coating with insecticides, fungicides or other chem-icals) can be effective against a variety of problems. While the FCRIs keeptrack of international research on seed treatment, and do some experiments oftheir own, Indonesia's seed industry is reaching the stage where commercialseed treatment may be feasible. The project would finance field trials of anumber of seed treatments at PSFs, with FCRI assistance.

4.27 Although private and cooperative sector seed processing have beenminimal to date, the introduction of economic seed pricing is expected to makethis more attractive. The study would interview a sample of both existing andpotential processors (seed dealers, grain millers, and large seed growers) todetermine their capabilities, interests and needs for producing certified orregulated seed. It would also examine the technical, managerial and financialcapability of the PUSKUDs in East and Central Java, and recommend whether andwhen they would be able to operate seed processing centers, and what organiza-tion arrangements would be desirable (e.g., role for KUDs, support from NSC).Funds would also be provided for pilot activities (e.g., credit, technicalassistance, training, marketing support) arising from the study's findings, tobe agreed between DGFCA and the Bank.

Phasing

4.28 Investments in PSFs would be primarily in years one and two, becauseof the lead time needed to multiply foundation and stock seed. The seedprocessing centers would be phased over four years. The main constraintson the pace of implementation are (a) recruitment and training of qualifiedstaff, and (b) development of marketing networks and of farmers' willingnessto purchase improved seed. Three centers for NSC and two for P.T. Pertaniare expected to be constructed in each of the first two years (1982 and 1983).The PUSKUD centers would be built in years three and four, and the six smallKUD centers in years two, three and four. Each center would reach fullcapacity around its third year of operation, so working capital requirementswould increase until project year seven. Project costs include incrementaloperating expenses for FCRI, DPDs, SCCS and training courses over five yearsto allow for a full year after the scheduled completion of investments.

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Cost Estimates

4.29 Total project cost (Table 4.1) is estimated at $50.0 million(Rp 31.3 billion), of which $17.3 million (35%) is foreign exchange. Unitcosts are in July 1981 prices, and were derived from data gathered duringappraisal in May 1980, updated for estimated inflation (18% p.a. local and9% p.a. foreign) until July 1981. Physical contingencies of 10% have beenadded for all investment items. Expected price increases amount to 47% oftotal base costs plus physical contingencies, assuming inflation rates of18% p.a. for local costs in calendar 1981, 14% p.a. in 1982 and 10% p.a.thereafter, and 9% p.a. for foreign exchange costs in 1981, 8.5% p.a. in1982, 7.5% p.a. in 1983-85 and 6% p.a. thereafter, and assuming thedisbursement schedule of Annex 3 (para. 4.34).

Financing

4.30 The proposed Bank loan of $15.0 million would be for the fullforeign exchange cost of the project, excluding vehicles (para. 4.32). Ofthe remaining $35.0 million, the investment and working capital forcooperatives, $5.7 million, would be GOI-guaranteed credit from BRI atsubsidized rates (now 6% p.a.), and $29.3 million would be financed by GOI.At negotiations, an assurance was obtained that Bank and GOI investmentfunds for NSC and P.T. Pertani would be passed on by GOI as equitycontributions, to reestablish NSC's and P.T. Pertani's equity bases andreduce the need for further subsidies, and for the cooperatives as creditsunder terms and conditions acceptable to the Bank.

Procurement

4.31 Seed processing, storage and laboratory equipment (8.4 million),/lwould be procured through international competitive bidding (ICB) inaccordance with Bank Guidelines. A preference equal to 15% of the c.i.f. costor the customs duty, whichever is lower, would be extended to local manufac-turers in the evaluation of bids. To promote standardization of equipment,obtain more competitive bids, and reduce the procurement burden and risk ofdelays, an assurance was obtained at negotiations that to the extentfeasible, all equipment for NSC, P.T. Pertani and PUSKUD processing centersfor the first two years would be in one contract,/2 and for the remaining twoyears in another.

4.32 Local procurement procedures would be used for: (a) buildings andother civil works ($17.3 million), which are not suitable for ICB because theyare scattered and involve relatively small amounts of financing spread overfour years, and for which local contractor capacity is adequate; (b) equipment

/1 Including price and physical contingencies.

/2 Contracts for certain items, such as mobile threshers or locally-madedriers, could be awarded separately, but the main processing/packagingline would need to be in a single contract.

Table 4.1: PROJECT COST SUMMARY

% of

Local Foreign Total Local Foreign Total % Foreign Base

(Rp billion) … ---- (US$ million)----- exchange cost

Investment

a. Breeder Seed Storage - 0.1 0.1 - 0.1 0.1 90 -

b. Provincial Seed Farms 1.0 0.4 1.4 1.6 0.6 2.2 25 7

c. Seed Processing Centers 4.6 4.6 9.2 7.3 7.3 14.6 50 46

d. Vehicles 0.6 1.0 1.6 1.0 1.6 2.6 60 8

e. Laboratory Equipment (SCCS) - 0.1 0.1 - 0.2 0.2 90 1

f. Training 0.6 0.2 0.8 0.9 0.4 1.3 30 4

g. Technical Assistance 0.4 0.8 1.2 0.7 1.3 2.0 65 6 1

h. Studies and Pilot Activities 0.4 0.4 0.8 0.7 0.6 1.3 45 4 s

Subtotal 7.6 7.6 15.2 12.2 12.1 24.3 50 77

Incremental Operating Costs(over 5 years)

a. Supervision of Seed Production 0.3 - 0.3 0.5 - 0.5 - 2

b. Seed Certification 0.3 - 0.3 0.4 - 0.4 - 1

Subtotal 0.6 - 0.6 0.9 - 0.9 - 3

Incremental Working Capital 4.0 - 4.0 6.4 - 6.4 - 20

Total Base Cost 12.2 7.6 19.8 19.5 12.1 31.6 38 100

Physical Contingencies 0.8 0.7 1.5 1.2 1.2 2.4 54 8

Expected Price Increases 7.5 2.5 10.0 12.0 4.0 16.0 25 50

Total Expected Project Cost 20.5 10.8 31.3 32.7 17.3 50.0 35 158

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and supplies contracts costing less than $50,000 equivalent each, up to anaggregate of $500,000; and (c) vehicles ($4.3 million), which are regarded as"reserved procurement," not eligible for financing or disbursement under theloan. Because of the scattered locations, a civil works contract would beawarded separately for each site, based on standard designs. At negotiationsan assurance was obtained that, to the extent feasible, civil works for eachsite would be grouped and procured under a single contract. The remainingcosts ($19.5 million) are for working capital, operating expenses, training,studies, and consultants.

4.33 Bidding documents for equipment contracts under ICB, and for civilworks for the first NSC, P.T. Pertani and PUSKUD processing centers, would bereviewed by the Bank before issuance.

Disbursement

4.34 Disbursements would be made at: (a) 20% for civil works contractsfor processing centers; (b) for equipment, 100% of the c.i.f. cost of directlyimported items, 95% of the ex-factory price of locally-manufactured items, and65% of expenditure on imported but locallyprocured items; and (c) 100% fortechnical assistance, training and studies. Disbursements would be madeagainst full documentation, except that statements of expenditure (Annex 8)would be used for operating expenses of training courses and for studies(excluding consultancy). No disbursements would be made for other operatingcosts, or working capital. The project allocation of loan proceeds is inAnnex 2. The estimated schedule of disbursements in Annex 3 is based on thedisbursement profiles of previous agricultural projects in the region.Disbursements are expected to be completed by June 30, 1989.

Accounts and Audit

4.35 An assurance was obtained during negotiations that (a) separateaccounts would be maintained to record all project transactions, (b) NSC's,P.T. Pertani's and participating cooperatives' overall financial statementswould be audited by independent auditors acceptable to the Bank, and (c) theseaudited accounts and the audit report would be submitted to the Bank withinnine months after the end of each fiscal year. The State Auditor, who wasused under Seeds I, is expected to do the auditing of NSC and P.T. Pertani.Audit arrangements for participating cooperatives would be reviewed by theBank and GOI.

4.36 The last year for which P.T. Pertani has audited accounts is 1975,although some progress has been made by the State Auditor on the 1976-78accounts. At negotiations an assurance was obtained that the audits ofP.T. Pertani's 1976-80 accounts would be completed by September 30, 1982. Asa condition of disbursement for the four P.T. Pertani processing centers tobe constructed in 1983 and thereafter, the Bank would have to be satisfied,on the basis of those audits, that P.T. Pertani could carry out its role inthe project satisfactorily.

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5. PROJECT IMPLEMENTATION AND EXECUTING AGENCIES

Seeds Policy Formulation

5.01 In 1971, the National Seeds Board /1 was created to advise theMinister of Agriculture on seeds policy, coordinate the agencies concerned,evaluate new varieties for release, and propose seed certification standards.The policy making and coordination roles have in practice been left primarilyto DGFCA, and the full Board has seldom met. However, it has two well-func-tioning committees, on varietal release and seed certification, upon whoseadvice the Minister of Agriculture acts in those matters.

Overall Seeds II Project Management

5.02 DGFCA, NSC, P.T. Pertani, the Agency for Agricultural Research andDevelopment (AARD, for the FCRIs), the Directorate General of Cooperatives(DGC) and IPB would implement the project, with overall responsibility withthe Director General for Food Crops Agriculture. The Director of Productionin DGFCA has been named part-time Seeds II Project Manager. A small ProjectSecretariat in his office would plan, coordinate and supervise Seeds IIimplementation, including procurement, disbursement, monitoring, evaluationand reporting, and would liaise with representatives from the various imple-menting agencies. This Secretariat has been established, and a full-timeProject Secretary appointed to head it.

Directorate General of Food Crops Agriculture (DGFCA)

5.03 Subdirectorate of Seed Production. Within DGFCA's Directorate ofProduction, two subdirectorates deal with seeds: Seed Production (SSP) andthe SCCS (see Chart 21989). The former has so far concentrated primarily oncoordinating the production and distribution of rice foundation seed and, morerecently, stock seed, and would supervise and coordinate the PSFs role in theproposed project. Under the project, the SSP would determine the varietiesand quantities of foundation and stock seed to be produced, in closecoordination with the DPDs and other agencies concerned.

5.04 SCCS. SCCS's four sections deal with varietal evaluation,laboratory analysis, seed certification, and marketing control; the latter twooperate down to the district (kabupaten) level. SCCS also assists theDirectorates General of Forestry and Estates with laboratory inspection of

/1 Originally representing DGFCA, NSC, the FCRIs, Bank Indonesia, BAPPENAS,and the Ministries of Finance, Trade, Home Affairs and Cooperatives.The Directorates General of Estates and Forestry have since been added.

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seeds, such as tree species and cover crops. Under the project, overallSCCS technical staff would expand from about 100 to 220. SCCS is developingseed regulation/certification procedures and standards for palawija crops,assisted by USAID-financed consultancy from Mississippi State University.

5.05 Provincial Seed Farms, which come under the DPDs, vary widely infacilities, finance and management. Most investment costs of PSFs, as well asoperating costs for foundation and stock seed production, are funded by thecentral government, while the provinces finance salaries and commercial seedproduction, and receive all revenue from seed sale. At negotiations, anassurance was obtained that a duly qualified and experienced manager wouldbe employed at each participating PSF. This would mean at least a Level IIIcivil servant to manage each Central PSF, and an upper Level II civil servantfor each Main PSF.

National Seeds Corporation (NSC)

5.06 Management. NSC is a Perum, a Government corporation operatingunder the commercial code. It is responsible to the Minister of Agriculture,through the DGFCA on technical matters, through an Assistant to the Ministeron financial questions, and through both regarding management. NSC is runby a full-time Board of Directors, appointed by the President of Indonesiafor five-year terms, comprising a President-Director and Directors of Financeand Administration, Production and Processing, and Marketing. The latter twoDirectors were just appointed in January 1981, whereas the terms of the othertwo expire in August 1981. The Directors would relocate from Sukamandi toJakarta, because of NSC's wider coverage under Seeds II. The production,marketing and financial aspects of the project would be handled by therespective Directors, while the President-Director would remain responsiblefor NSC's overall operation.

5.07 Provincial Organization. Although NSC wishes ultimately to giveconsiderable autonomy to Provincial Managers, continued central directionwould be required during Seeds II. At present, Provincial Marketing Managersreport to the Marketing Director, and Seed Center Managers to the ProductionDirector. Under Seeds II, Regional Production Managers would be appointed tosupervise the Seed Center Managers. As now, the latter would have deputiesfor plant operation and for supervision of contract growers.

5.08 Staffing. NSC is overstaffed at the lower levels, and the conver-sion of most of the Sukamandi mechanized farm to contract growing wouldrelease about 175 staff, while only some 15 new positions would be required atSukamandi to supervise the new contract growers. About 200 people would beneeded for the nine project processing centers plus the four newly-builtones. Other additions would include, at full development, about 60 staff for

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marketing and 20 for the Regional Production Managers offices./l Becauseexisting NSC staff would be redeployed, the project would increase total NSCstrength from 700 to only about 800. An assurance was obtained atnegotiations that an internal auditor (as recommended in the PPAR), a trainingmanager, and a marketing planning officer would be hired by December 31, 1982.

5.09 Salaries. NSC staff salaries and benefits have been deterioratingin real terms since 1976, and are now below those of other state enterprises.GOI has been unwilling to raise NSC salaries because NSC is losing money;however, the resultant difficulties in recruiting and retaining qualifiedstaff ultimately harm NSC-s profitability. The situation in P.T. Pertani issimilar. At negotiations, an assurance was obtained that necessary steps,including salary adjustments, would be taken to enable NSC, P.T. Pertani andparticipating cooperatives to attract, recruit and retain suitably qualifiedand experienced staff.

5.10 Financial Position and Reimbursement for Losses. NSC has had heavylosses ($1.3 million in 1979) primarily because of low yields and high costson the Sukamandi farm, overstaffing, and the low seed price set by GOI.Measures to be taken during the project (seed price increases, conversion ofSukamandi farm to contract operations, and lower administrative costs per kgseed) are expected to correct this situation. GOI has been meeting NSC'slosses by an annual subsidy, fixed in advance on the basis of NSC's financialprojections. As the seed price has been below direct operating expenses, evenfor seed from contract growers, NSC has had a financial disincentive forexpanding output beyond its initial target. As seed yields exceededprojections in the March/April 1980 wet season harvest, NSC cut back itscontract growing area for the following season, to stay within its budget. Toprevent recurrence of such a situation, agreement were reached duringnegotiations that during the interim until NSC's seed prices were raised tocover full costs (para. 7.06), NSC would, for each crop, receive a fixedsubsidy per kg of seed sold whenever GOI set a seed price below NSC's costs.This unit subsidy would be set at the beginning of each year, and onlyadjusted later for changes outside of NSC-s control, so that NSC would haveincentive to keep its costs down and increase output in response to demand.The same system would apply to P.T. Pertani.

P.T. Pertani

5.11 Activities. P.T. Pertani is a GOI agricultural-input supply com-pany (Persero), headed by a three-man Board of Directors (President Director,Finance Director and Marketing Director). Its main income (now 58% of itsrevenue) is from fertilizer distribution. During the early 1970s, for avariety of reasons including its own managerial weaknesses, P.T. Pertanifailed to distribute in time much of its fertilizer stock. This led GOI to

/1 As the salaries of all these staff would be costed into the seed price(para. 7.06), the only provision for it in project costs is as part ofworking capital, to cover salary costs before seed sale.

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gradually reduce P.T. Pertani-s role in this activity, so that now it is onlyone of a number of distributors between P.T. PUSRI-s (the GOI-owned manu-facturer) depots and cooperative or private retailers. It also causedP.T. Pertani significant losses, and left it with underutilized storages. Asits second major activity (providing 29% of revenue), P.T Pertani is thenationwide distributor of pesticides for BIMAS/INMAS and other GOI programs.P.T. Pertani-s other significant activities are rice milling (8% of revenue),general trade (2.2%), seed marketing (1.6%) and sale of agricultural machinery(1.4%).

5.12 Seed Production and Distribution. Starting in 1977, P.T. Pertanihas often been asked by DGFCA and DPDs to procure, transport and deliverneeded seed not available locally, generally in conjunction with GOI develop-ment programs, especially transmigration. (P.T. Pertani has been used becauseof its network of staff and facilities already existing for fertilizer andpesticide distribution.) The experience of these P.T. Pertani efforts hasbeen mixed, as many were crash programs without adequate lead time, and P.T.Pertani has lacked specialized staff and facilities for seed handling. Morerecently, P.T. Pertani has begun pursuing the seed business on its own,especially in Bali and neighboring West Nusa Tenggara provinces, as part ofits diversification program, using a less developed version of the contractgrower system, and sun-drying and partially cleaning the seed, for sale asregulated seed.

5.13 Financial Position. P.T. Pertani has continued to face seriousfinancial problems since its heavy losses in the early 1970s, and has beenunable to pay off old debts to BRI. A 1979 GOI review team agreed that GOIwould pay off most of this debt, leaving P.T. Pertani to gradually pay off therest from profits. Profits, however, have remained quite low. P.T. Pertani-sfinancial situation has been complicated by a confusing accounting system, theabsence of audits (para. 4.36), and the shortage of qualified financial staff.The project financial consultant would help restructure P.T. Pertani'saccounting system and provide on-the-job training to its financial staff.

Cooperatives

5.14 Cooperatives in Indonesia have had a long and checkered history.In the past few years, however, GOI has undertaken a concerted effort tostrengthen the cooperative system, including the appointment of a JuniorMinister for Cooperatives, construction of cooperative warehouses, establish-ment of province-level cooperative service centers to assist KUDs, andtraining of cooperative staff.

5.15 KUDs. KUDs currently market about 50% of NSC seed, and almost allof P.T. Pertani's seed, except that for transmigration areas. Theirperformance has been mixed; on average, they have been less likely to pay NSCon time than have private dealers. GOI policy calls for cooperatives to playan increasing role supplying agricultural inputs and processing outputs. Theproject therefore includes a pilot program to give about six of the best KUDsin Java, selected by DGC with the agreement of DGFCA, small seed processingunits. Selection criteria would include management, seed marketingexperience, membership, financial status, and availability of technical

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support. Should their performance be satisfactory, more KUDs might beadded during the latter project years.

5.16 PUSKUDs. To support and assist KUDs, DGC is establishing aCentral Cooperative (PUSKUD) in each province, with the individual KUDsmembers of the PUSKUD. So far, the PUSKUDs main role has been as bulksuppliers of fertilizer to KUDs and of rice (from KUDs) to the NationalLogistics Agency (BULOG), but they are starting to undertake agro-processingas well. The PUSKUDs in East and Central Java are the most developed, andwould be the ones to participate in the project if they were technicallymanagerially and financially capable, after receiving technical assistanceand training under the project, as well as further assistance from DGC.At negotiations, an assurance were obtained that GOI would, by August 31,1983, complete that portion of the study on private and cooperative sectorroles in seed processing (para. 4.27) relating to PUSKUDs, and based on theresults, send to the Bank, for approval, proposals for the ownership,management and operation of the three seed processing centers for whichqualified PUSKUDs would have priority.

Food Crops Research Institutes (FCRIs)

5.17 The 1980 MOA reorganization created a Central FCRI in Bogor withinAARD, to supervise and coordinate the eight FCRIs. FCRIs would handle twoproject components: air-conditioned breeder seed storage, and technicalsupervision of foundation seed production. They would also assist in thestudies of yield increases due to seed quality and seed treatment. TheCentral FCRI would coordinate these activities, and channel funds from DGFCAto the FCRIs involved.

Technical Assistance

5.18 The project would place heavy demands on the implementing agencies,a number of which still suffer from financial and managerial weaknesses. Tosupply efficiently the necessary technical assistance, a team of sevenconsultants would be placed for two to three years in DGFCA, attached to theProject Secretariat, and would be seconded successively to the variousimplementing agencies. The consultants would be for:

(a) project management, especially:

(i) in DGFCA, to advise the Project Secretariat;

(ii) in NSC, to advise on planning, organizing and staffing forthe project, as well as overall NSC organization andpersonnel administration;

(iii) in DGC, to advise on the selection of cooperatives and onmeasures to strengthen their management; and

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(iv) in P.T. Pertani, to advise on organization for the project;

(b) finance and management information (two people), especially:

(i) in NSC, to help improve the accounting, managementinformation, internal control, and financial planningsystems, and to set up a means for determining the averagecost of NSC seed (para. 7.05);

(ii) in P.T. Pertani, to help revise the accounting system,strengthen overall financial management, prepare accounts tobe audited, and calculate seed production costs;

(iii) in DGFCA's SSP, to establish a nationwide seed production anddistribution data system; an

(iv) in DGC, to help set up project accounts for participatingcooperatives;

(c) training, to review the project-related training needs of allthe agencies concerned, and help design and select trainingprograms to meet them;

(d) marketing, especially:

(i) in NSC to assist in expanding the network of sales represen-tatives and developing the marketing strategy;

(ii) in DGC, to help review the overall performance and problemsof cooperatives in seed marketing; and

(iii) in DGFCA, to design and supervise the marketing study;

(e) seed processing, to help set up the new processing centers andestablish quality control measures, in (i) NSC, (ii) P.T.Pertani, (iii) PUSKUDs, (iv) KUDs, and (iv) Central and Main PSFs;and

(f) seed production, especially:

(i) in DGFCA, to advise Central and Main PSFs on technical aspectsof seed production, with particular attention to harvest andpost-harvest handling of palawija and;

(ii) in NSC, to examine the problems in shifting at Sukamandi fromcentral mechanized production to contract operations orcontract growing.

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Draft TORs are in Annex 6. The project would also include two man-years ofshort-term, more specialized assistance (e.g. on particular crops), to behired with the agreement of the Bank. The consultants should be from a singlefirm, for ease of management by DGFCA and to reduce the chance of conflictamong them, provided this can be done without sacrificing quality.

Contract Growers

5.19 Under the project, NSC's existing system of contract growers wouldbe extended to dryland rice, palawija crops, and other provinces, and wouldbe adopted by P.T. Pertani and the participating cooperatives as well.Contract growers would be selected, in groups, and their seed productionscheduled by the seed processors in consultation with the DPDs. Contractgrowers would:

(a) be within about 20-25 km of the processing centers, and in largeenough blocks for certification /1 and efficient supervision, withleader of the group selected as a "contact farmer" to help guideand organize the others, and serve when needed for communicationsbetween the farmers and seed processor;

(b) be progressive farmers with good crop yields, indicating suitableland, sound cultivation practices and the absence of serious pestdisease problems; and

(c) have harvest times such that output would be available when neededfor planting with not more than a few months' storage; this mightinvolve selecting contract growers with differing planting seasonsor transporting seed between districts/provinces.

Evaluation, Monitoring and Reporting

5.20 Monitoring and reporting would be the responsibility of the ProjectSecretariat, and would cover: (a) project physical implementation and cost;(b) seed prices and total sales; (c) seed quality from all sources, asmeasured by seed certification results; (d) the processors' overallproduction and financial performance; (e) the availability of adequatebreeder, foundation and stock seed; and (f) development of private sectorseed processing. These data would be used by DGFCA and the other agencies,and summarized in semi-annual reports to the Bank.

5.21 An evaluation officer in the Project Secretariat would coordinatethe study on benefits from seed quality, survey samples of project seedbuyers to learn if they have used less seed (para. 8.02), and try to deter-mine the extent to which the project is accelerating the distribution of newvarieties.

/1 SCCS requires at least 5 ha in some provinces, and 10 ha in others.

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Start-up Implementation Schedule

5.22 DGFCA has now employed a short-term consultant to help preparetechnical specifications for seed processing center equipment. Tenderdocuments are expected to be sent for Bank approval by January 1982, andissued the following month. Civil works construction would then take placeduring June-December, 1982, with the equipment installed towards the end ofthat period. Seed processing would start with the wet season harvest ofFebruary-April, 1983. Tendering and construction of civil works for the PSFsto be upgraded in the first year should be able to proceed on a slightlyfaster schedule, as standard designs would be used, and no expatriateconsultancy required. In early August, 1981, a short list of six firms wasinvited to submit proposals for the long-term project consultancy.Negotiations with the winning firm or firms is expected to commence byDecember, 1981, so that the May 31, 1982, deadline for appointment of theconsultants (para. 4.22) would be met.

5.23 GOI's FY82 budget includes provision for (a) the site selectionstudy ($140,000), short-term consultancy to prepare tender specifications($100,000), and start-up of the long-term consultancy ($250,000), all ofwhich would be reimbursed by the Bank; (b) transport and installation of theJapanese-supplied equipment for PSFs (Rp 300 million - para. 4.13); and(c) travel costs for Seeds II preparation (Rp 14 million). No further funds

would be needed in FY82.

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6. PRODUCTION AND TECHNOLOGY

Seed Yields and Production

6.01 Inputs. To maximize seed yields, PSFs and contract growers wouldneed adequate fertilization, good water management, careful weeding, andpest and disease control. Minimal fertilizer rates would be the generalBIMAS recommendations: 200 kg/ha urea and 100 kg/ha triple-superphosphate(TSP) for rice and maize, and 50 kg/ha urea /1 and 100 kg/ha TSP forsoybeans, groundnuts, and mungbeans. Assistance from the Soil ResearchInstitute would be sought to determine whether higher levels were advisablein some localities. One-two liter/ha of pesticide would also be required.Labor inputs would be the same as for regular crop production, plus about10 man-days/ha for field roguing to meet varietal purity standards.

6.02 Yields. Yields of foundation, stock and extension seed would varyby season and location; Table 6.1 shows the averages expected.

Table 6.1: EXPECTED SEED YIELDS

Seed rate Seed yield (tons/ha)(kg/ha) Dry grain (13% m.c.) Clean seed /a

Wetland rice 25 3.4 2.4Dryland rice 40 2.0 1.4Maize 25 1.8 1.3Soybean 35 1.2 0.8Groundnut (in shell) 120 1.6 1.1Mungbean 20 0.7 0.5

/a Assuming 10% of area rejected for seed, 10% weight loss due to furtherdrying and removal of inert matter, and 10% consumption grain separatedout by seed cleaner.

The estimated wetland rice yield is the present national average. Expectedyields for other crops are about 30% above present averages, because goodareas would be chosen, adequate inputs would be used (except for wetlandrice, most farmers use little fertilizer or agrochemicals), and higheryielding varieties would be grown. Foundation and stock seed would be ofreleased varieties, except for restricted pre-release planting in preparationfor rapid multiplication after official release.

/1 This might be reduced if further research in Indonesia develops suitablerhizobia (bacteria) inoculants to enhance these crops' nitrogen-fixing.

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6.03 Area and Production. At full development, the total seed areas andproduction for the twelve provinces would be as shown in Table 6.2.

Table 6.2: SEED AREA AND PRODUCTION TARGETS FOR TWELVE PROVINCES

Foundation seed /a Stock seed /b Extension seed /cha ton ha ton ha ton

Wetland rice 1.2 2.7 53 130 3,420 8,200Dryland rice 4.3 6.1 118 165 3,390 4,750Maize 1.7 2.3 70 90 3,080 4,000Soybean 11.8 9.7 206 165 3,940 3,150Groundnut (inshell) 108.2 119.0 762 840 5,820 6,400

Mungbean 1.1 0.6 22 22 880 440

Total 128.3 140.4 1,231 1,412 20,530 26,940

/a Assumes 100% excess production for wetland rice, and 40% forother crops, as not all varieties may be in demand.

/b Assumes 60% excess production for wetland rice, and 30% forother crops, including allowance for seed for private growers.

Ic Based on projected demand (paras. 7.01-7.04).

Seasonal Cropping Patterns

6.04 Optimal seasonal timing of seed production is important to(a) minimize the period needed for multiplication from breeder to extensionseed, (b) make maximal use of the PSFs' land, (c) minimize working capitalcosts and (d) ensure that the seed is planted while its viability is high.The Subdirectorate for Seed Production would be responsible for planning this.

6.05 Most wetland rice is planted in November/December, for the wetseason crop, with harvest in March/April. The dry season rice crop is usuallyplanted a month afterwards, and harvested in August/September. Seed from thelatter harvest can be planted the following wet season, and in the subsequentdry season as well if properly stored for seven to eight months. Longerstorage is necessary with seed harvested in March/April, as this normallycannot be ready for planting the following month. Dryland rice is plantedmostly in October and harvested February/March. Maize is grown mainly as a

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single crop in upland areas, with the peak harvest December/January. Seedstorage for both crops of seven to nine months is required. For soybeans andgroundnuts, three peak harvesting seasons in Java (April, July and Novemberfor soybeans; April, September and December for groundnuts) reflect differentplanting periods in dryland areas and in paddies, and lead to transfer of seedbetween dryland and wetland areas and among provinces. Soybeans and ground-nuts take three to four months until harvest. Mungbeans mature in two months,so they fit readily into dryland or wetland cropping systems.

Seed Handling and Processing

6.06 Proper crop handling in the field during and after harvest is essen-tial for good seed quality, especially for soybeans and groundnuts. Crophandling for seed may be different than for consumption, and must be adjustedto local circumstances (varieties, weather, distance from processing center).

6.07 The general steps at the processing centers would be threshing(unless done in the field), precleaning (to remove leaves, stems, dirt, etc.),drying, cleaning (to remove empty, broken or smaller seeds, as well as foreignmatter) and packing. Rice would be threshed and maize husked before beingprecleaned and dried. Soybeans and mungbeans would be removed from the podbefore cleaning, but groundnuts would be kept in the shell until ready toplant, to prevent seed damage during processing.

6.08 Drying is critical for seed production in the wet tropics. Afterharvest, the moisture content must be reduced rapidly, but without causingthermal injury, to 12-13% for cereal grains and about 10% for grain legumes,to avoid spoilage and loss of viability. The seed would be batch-dried insacks, to prevent mixing of varieties. Palawija seed would generally be par-tially dried, cleaned and then dried further, to minimize damage in cleaning.

6.09 The basic seed cleaning would be by an air-screen machine whichseparates materials of different size and density by aspiration, sieving andgrading. This would be followed by an indented cylinder for rice and by agravity separator for the other crops, for more accurate grading by size orspecific gravity. SCCS would inspect the processing centers periodically forstrict control of seed lot identity and cleanliness of equipment.

Seed Storage

6.10 The high humidity and temperature of the tropics can lead to rapidseed deterioration through loss of viability and vigor, and infestation bymolds and insects. Rice has relatively good storability, maize intermediate,and grain legumes poor. Storage facilities at the processing centers andPSFs would be well ventilated, with seed lots stacked to permit aeration,and designed to help keep out rodents and birds. Storage pests, such asweevils, would be fumigated against as required. Packing in sealed plasticbags would slow down moisture absorption. These measures would permit safestorage for up to nine months, in temperatures of 20-300C and relativehumidity of 50-60%, for rice or maize, and for three to four months forgrain legumes.

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7. MARKETS, PRICES, FINANCIAL ANALYSIS AND COST RECOVERY

Market for Project Seed

7.01 Farmers may retain seed from their own crop, barter for or purchaseseed from neighbors, or buy it commercially. Farmers generally purchaseseed because: (a) they wish to change varieties, especially to higheryielding or pest-resistant strains; (b) they have sold their entire standingcrop; (c) the time between harvest and planting is too long for successfulseed storage; or (d) it is easier than preparing and storing the seedthemselves. In addition, the DPDs advise farmers not to replant progeny ofthe same seed for more than three plantings, because varietal purity maydecline due to admixture during planting, harvesting, drying or storing.

7.02 BIMAS/INMAS. The main regular market for seed produced underthe project would be BIMAS/INMAS farmers, as they purchase inputs. NSC nowsupplies 20% of the BIMAS/INMAS market on Java for wetland rice. By 1988,NSC, P.T. Pertani and project cooperatives would aim to supply 40% of theBIMAS/INMAS market for wetland rice and 20% for the other crops in thetwelve provinces. Table 7.1 summarizes the projections:

Table 7.1: ESTIMATED ANNUAL BIMAS/INMAS DEMAND FOR PROJECT SEED

Wetland Dryland Ground- Mung-rice rice Maize Soybean nut bean Total

BIMAS/INMAS area in 1980(12 provinces) (ha -000) 5,580 210 1,175 430 210 60 7,665

BIMAS/INMAS area in1988 /a (ha 000) 7,060 265 1,485 540 270 80 9,700

Percent buying any seed(see para. 8.05) (%) 35 35 40 75 80 75 -

Area buying seed (ha 000) 2,470 95 600 405 215 60 3,845

Seed rate (kg/ha) 25 40 25 35 120 20 -

Total seed demand (ton) 61,800 3,750 15,000 14,200 25,900 1,200 121,850

Demand for NSC, }P.T. Pertani and } (%) 40 20 20 20 20 20 -cooperatives seed } (ton) 24,700 750 3,000 2,850 5,200 240 36,740

/a Assuming 3% p.a. growth, due entirely to INMAS expansion.

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7.03 Transmigrants. Transmigrant families receive up to one ha of foodcrop land apiece, on which dryland rice is planted each year, followed by amixture of palawija crops. Although P.T. Pertani would be the main supplierof transmigration seed packages, DPDs would be free to invite any potentialsuppliers to tender for the contracts, provided they could meet the seedquantity, quality and timeliness requirements. After the initial seedpackage, the area is supposed to produce its own seed; however, there islikely to be continued need for seed from outside, because of local failuresin production or storage, or the introduction of new varieties. A roughestimate is that this would double the demand for seed from outside. Basedon the Transmigration II farm model, and assuming that 80-85,000 familiesper year transmigrated by 1988 (in 1980, 62,000 families were moved), andthat Seeds II supplied 60% of this market (DPDs obtaining unprocessed seedlocally for the remainder), the annual need for project seed by 1988 wouldbe as follows (Table 7.2):

Table 7.2: ESTIMATED ANNUAL TRANSMIGRATION DEMAND FOR PROJECT SEED

Drylandrice Maize Soybean Groundnut Mungbean Total

Area/family (ha) 1.0 0.4 0.1 0.1 0.1 1.7

Area supplied byproject(ha 000) /a 100 40 10 10 10 170

Seed rate (kg/ha) 40 25 30 120 20 _

Quantity supplied(ton) 4,000 1,000 300 1,200 200 6,750

/a 50,000 seed packages for new transmigrants; 50,000 replacement packages.

7.04 Total. The combined demand for Seeds II output, at full develop-ment, is estimated as follows in Table 7.3.

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Table 7.3: ESTIMATED ANNUAL TOTAL DEMAND FOR PROJECT SEED(tons)

Wetland Dryland Ground- Mung-rice rice Maize Soybean nut bean Total

BIMAS/INMAS 24,700 750 3,000 2,850 5,200 240 36,740Transmigrants - 4,000 1,000 300 1,200 200 6,750Less NSC outputwithoutSeeds II (16,500)/a - - - - - (16,500)

Total demand forproject seed 8,200 4,750 4,000 3,150 6,400 440 26,940

/a NSC's annual production is now about 10,000 tons. The shift to contractoperations at Sukamandi and the development of a further 400 ha therefor seed production would increase NSC's output by about 3,500tons/annum. The new processing centers in North and West Sumatra andSouth Sulawesi would have a further 1,000 tons/year capacity each.

Seed Prices

7.05 GOI has kept the price of NSC rice seed (now Rp 210/kg retail) belowthe cost of production /1 to encourage demand (para. 2.11), and covered NSC'sresulting financial losses by an annual equity contribution (para. 7.11). Atnegotiations, assurances were obtained that (a) NSC rice seed prices on Javawould be increased annually in real terms so that as soon as feasible and notlater than 1986 their revenue would cover at least their costs, except forreturn on investment, and by 1988 would provide at least a 10% return on pro-ject investment as well, and (b) for rice seed outside Java and for palawijaseed, for which the markets are much less developed, NSC and P.T. Pertani seedprices would be increased periodically so that as soon as feasible theirrevenues would cover their costs, excluding return on investment./2 Table 7.4shows the cost breakdown for seed production. The marketing study, along withthe demand response to initial price increases, would help determine howquickly these prices could be achieved. NSC and P.T. Pertani, as commercialenterprises, should also be allowed flexibility in their seed prices (e.g., torespond to differences in grain prices or transport costs between provinces).The cooperatives would set their own prices, but would normally follow NSCGslead.

/1 Rp 210/kg covers direct production and marketing costs for seed fromcontract growers, but not depreciation, administration, or interest onworking capital; these items now total Rp 50/kg.

/2 A 10% return on investment would require an additional Rp 25/kg seedprice increase.

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Table 7.4: SEED PRODUCTION COSTS /a

Rice Maize Soybean Groundnut Mungbean--------- (Rp/kg, June 1981 prices) -------

Farmgate price of grain /b 120 100 275 400 330Premium to growers (10%) 12 10 28 40 33Cost per kg grain 132 110 303 440 363Cost per kg seed /c 165 138 378 550 454Less: Consumption grain sold (12) (10) (28) (40) (33)Direct processing cost 38 38 38 38 38Direct marketing cost 20 30 40 40 40Depreciation /d 24 24 24 24 24Management and admin. /e 12 12 12 12 12Total cost - wholesale 245 230 465 625 535Dealers' margin 20 25 40 40 40Total cost - retail 265 255 505 665 575Total cost (retail) plus 10%

return on investment 290 280 530 690 600

/a Based on NSC costs; P.T. Pertani costs are likely to be somewhat lowerbecause overheads could be shared by other activities.

/b Dry grain; maize, soybean and mungbean shelled, groundnut unshelled.

/c Assuming 10% weight loss due to further drying and removal of inertmatter, and 10% of grain separated out in cleaning, for consumption.

/d 20 years for buildings, 10 years for equipment, 5 years for vehicles.

/e Currently Rp 30/kg seed, but expected to drop as NSC output rises.

Cost Recovery

7.06 Sale of seed is expected to provide only 30-40% cost recovery.Cost recovery is not important for the proposed project because: (a) mostbeneficiaries would be near or below the critical income level; (b) projectbenefits would be widely dispersed and quite small (average $20/ year) forany single family; and (c) some subsidization may be justified to inducemore farmers to adopt the improved technology, and thus help achievenational food self-sufficiency.

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Marketing and Prices of Crops

7.07 Indonesia's rice imports are expected to remain about 2 milliontons annually for the next decade. Incremental production from project seedwould therefore easily be absorbed locally. The same is true of soybeans,of which Indonesia now imports some 175,000 tons annually, primarily forlocal processing into cake or curd. There is limited growth potential formaize as a food grain, because it is generally considered inferior to rice,and there are only some 70,000 tons p.a. of imports to be substituted for.The poultry feed industry around Jakarta, and the corn meal, flour and oilmills in East Java, together use at least 300,000 tons of maize per year.The growth of these industries, which should continue as long as per capitaincome keeps rising, would be the key to absorbing incremental maize produc-tion, as production costs make Indonesia's maize uncompetitive for export.Indonesia is self-sufficient in groundnuts and mungbeans. Incrementaloutput would be absorbed by the growth of local demand. Demand for palawijacrops as a group is expected to grow at about 3.5% p.a. over the 1980s./l

7.08 BULOG, the national food procurement agency, stabilizes producerand consumer prices for rice. It procures 2-5% of rice output mostly viacooperatives, and imports the equivalent of about 10%. BULOG now purchasesabout 1% of the total production of the four project palawija crops, tosupport prices and encourage production, and also imports soybeans andmaize. BULOG's support prices for these crops are somewhat below averagefarmgate prices,/2 so it only buys when prices are depressed. Market pricesfor the grain legumes have stayed within reasonable limits, but maize pricesfluctuate widely.

Farm Incomes of Contract Seed Growers

7.09 Contract growers would increase their incomes from the area usedfor seed by 18-30% because they would get both a 10% price premium for thecrop, and higher yields from using stock seed. The additional labor forroguing would be offset by the reduced labor for drying (which would be doneby the seed processors). Other inputs and labor requirements would be thesame as for consumption grain production. Average holdings range from0.5 ha in Java to 1.5 ha in Sumatra; a farmer could grow seeds on all orpart of his holding. Crop budgets are in Annex 9.

/1 "Indonesia: Supply Prospects for Major Food Crops," Report No. 2374-INDMarch 3, 1979.

/2 The support and average farmgate prices as of November 1980 were asfollows (in Rp/kg): maize 95 and 100; soybean 240 and 275; groundnut390 and 400; and mungbean 290 and 330.

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8. BENEFITS AND JUSTIFICATION

Project Benefits and Beneficiaries

8.01 The project would improve the availability, quality and reliabilityof seed of high yielding and pest/disease resistant varieties of rice, maize,groundnut, soybean and mungbean. The 27,000 tons of extension seed producedannually under the project at full development would be sufficient to plantsome 330,000 ha/year of wetland rice, 120,000 ha/year of dryland rice,160,000 ha/year of maize, and 165,000 ha/year of grain legumes. Food cropholdings in Indonesia average about 0.5 ha of wetland, or 1.0 ha of dryland.Assuming that half the grain legume seed (but little of the maize) would beplanted in wetlands in rotation with project rice seed, about one millionfamilies would purchase project seed in any given year. About 60% of thefamilies would be below the absolute poverty line. In addition, some20,000 families would benefit from being contract growers (Annex 9).

8.02 Rice. Farmers who plant certified or regulated rice seed producedby the project would receive the following benefits:

(a) higher germination percentage - due to more prompt drying (whenharvest is during a rainy or cloudy period), more thorough removalof empty and broken grains, and proper storage. Guarantee of goodgermination permits farmers to sow nurseries with only about25 kg/ha of seed instead of the average 30 kg/ha, and obtainsufficient seedlings for transplanting, without loss of yield;

(b) higher varietal purity - because the contract growers used stockseed, rogued their fields and did not plant on land where adifferent variety had been grown the previous season. Varietalpurity assures more uniform growth and ripening of the grain, asthe maturation period may differ by variety. Furthermore, othervarieties may have undesirable characteristics (e.g. lower yields,more susceptibility to BPH, or less suitability to the particularenvironment). Certified seed averages about 98% varietal purity,other seed probably 90-93%. Assuming that the other varietiesyield 20-25% less, the higher varietal purity means a 1-2% higheroverall yield; and

(c) more vigorous growth - because the seed processing removes lighterand smaller grains, which would germinate but have lower yields.These generally account for about 10% of the grain beforecleaning; assuming their yield would be 10-20% less than thefull-size seed, the seed processing raises total yield by 1-2%.The prompt drying and better storage would also increase theplants' vigor, probably accounting for a further 1% yieldincrease.

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8.03 The estimated 3-5% higher yield due to varietal purity and more

vigorous growth is based mainly on the theoretical arguments above, as thereis no reliable empirical evidence on this in Indonesia, and littleelsewhere. (The seed quality benefits study would attempt to fill thisgap.) However, similar or higher yield increases have been assumed in otherseeds projects, and virtually all seeds programs in both advanced and lessdeveloped countries include both seed processing and measures to ensurevarietal purity.

8.04 Palawija. Palawija farmers would also benefit from factors (a),(b) /1 and (c) above. The percentage gains would generally be higher thanthose from rice, because of the much lower quality of palawija seed nowavailable. Furthermore, as the palawija are sown directly (instead of beingtransplanted like rice), high seed rates are now required to overcome lowgermination rates. Finally, the project would significantly increase theoverall availability of seed of suitable varieties of palawija (a reasonableseed multiplication system is already in place for rice). However, thislast benefit for palawija is difficult to quantify because it depends uponthe rate of development of new varieties, those varieties yield benefits,and the degree to which the project would accelerate their distribution tofarmers.

8.05 The rice and maize farmers would on average keep part of theirharvest as seed for two more crops. They would continue to benefit fromhigher varietal purity, but not from higher germination rates or morevigorous growth (which depend upon seed processing). Few of the soybean,groundnut or mungbean growers would keep their own seed, as the seed wouldlose viability between crops.

8.06 Incremental Output, Foreign Exchange Effects and Impact on FoodAvailability. Annual incremental food production at full development,assuming yield increases of 4% for rice (the middle of the 3-5% rangeestimated above) and 8% for palawija the first year, and 20% and 15% ofthese benefits from rice and maize the following two years (para. 8.05),would be as shown in Table 8.1. Indonesia is a net rice, maize and soybeanimporter, and self-sufficient in groundnuts and mungbeans. Most of theincremental project output would therefore save foreign exchange, althoughsome would increase food consumption instead, with nutritional benefitsespecially from the protein-rich grain legumes.

/1 In the initial years, some of the seed processed would be from selectedgrain rather than pure lines, until enough of the latter was available.

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Table 8.1: ANNUAL INCREMENTAL PROJECT BENEFITS AT FULL DEVELOPMENT

Gross value ofIncremental Economic incrementaloutput farmgate price /a output

Crop (tons) (Rp/1l:F) i$itcn) $ million)

Rice 63,200 170 272 17.2Maize 24,300 127 203 4.9Soybean 7,200 232 371 2.7Groundnut 5,300 232 371 2.0Mungbean 900 300 480 0.4

Total 100,900 27.2

/a Average of 1980 and 1990, expressed in constant 1980 prices; seeAnnex 11, Table 1.

8.07 Employment Effects. Approximately 450 permanent jobs would bedirectly created by the project in the agencies concerned, and about6,000 man-years of construction labor would be employed duringimplementation. Incremental employment in crop harvesting, due to thehigher yields, would be equivalent to some 4,000 full-time jobs.

8.08 Long-Run Benefits from Seed Industry Development. By building upthe seed industry, the project would permit other advances in agriculturaltechnology in Indonesia. For example, hybrid maize varieties can achievemuch higher yield than the open-pollinated maize grown in Indonesia. But ashybrid maize growers must purchase seed each season, these varieties cannotbe introduced until an efficient maize seed multiplication and distributionsystem exists. Similarly, introduction of seed treatment (para. 6.10)requires a marketing system that assures that the treated seed will be soldfor seed. A strengthened seed industry is also an important support forthe transmigration program, and would provide a base for expanding intoother types of seeds, such as vegetables for home gardens. Finally,development of institutions and facilities for seed multiplication providesinsurance against pest and disease attacks, as it helps accelerate thedistribution of resistant varieties.

Rate of Return Calculation

8.09 Benefits. The economic benefit of the project is incremental foodoutput over the 20-year expected lifetime of the processing centers (themain project investment). Rice, maize, groundnut and soybean prices used in

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the rate of return calculation are based on 1990 world market price projec-tions (Annex 10, Table 1). For rice, maize, and soybeans, the import-parityprice was used; for groundnuts, the export-parity price. As mungbeans are nota major traded commodity, the price is based on projected soybean prices.Although initial production is expected to come about 18 months after themain investments in processing centers, a 24-month gap was used to allow forpossible delays.

8.10 Costs. All project costs for the 12 provinces have been includedin the calculation. The value of equipment being supplied to project PSFs(para. 4.13) has also been costed, as have been incremental operating costs(the difference between the costs of producing project seed and nonregulatedseed) and costs of harvesting and drying the incremental output./l Financialprices for these are adequate approximations to economic prices. A standardconversion factor of 1.0 has been used, as the official exchange rate ofUS$1.00 = Rp 625 is estimated to reflect the value to the economy of foreignexchange. The estimated economic rate of return is 39%. The economic costand benefit streams are in Annex 10.

Sensitivity Analysis

8.11 Cross-over values for yield increases, investment cost, and thepercentage of output that was purchased for seed (instead of for consumption),based on a 10% opportunity cost of capital, would be as follows:

Table 8.2: SENSITIVITY ANALYSIS

Appraisal Cross-over PercentageVariable value value change /a

Combined yield increase rice/palawija (%) 4%/8% 1.7%/3.5% -58%Investment cost (Rp billion) 16.0 68.8 +330%Proportion of output sold as seed (%) 100% 37% -63%

/a The percentage change which reduces the net present value to zero.

Increases in investment cost or drops in seed sales of the magnitudes inthis table are very unlikely. Although the yield increases of 4% for riceand 8% for palawija are only rough estimates, the actual increases areunlikely to be so low as to endanger project viability. A delay of one yearin project benefits would reduce the rate of return from 39% to 30%.

/1 The value of land used for seed growing is included in the processors'purchase price of stock and extension seed.

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Risks

8.12 NSC Management. The NSC management's inexperience contributed tothe problems of Seeds I, and Seeds II would extend NSC's responsibilityconsiderably. To help strengthen NSC, the project provides training,consultancy, additional staff and any necxssary increases in NSC's salarystructure. Furthermore, two new NSC Directors have recently beenapppointed. Finally, sharply curtailing NSC's mechanized farming atSukamandi, and putting NSC on a commercial footing, would reduce some of thebiggest problems it has faced, and provide more incentive for efficientmanagement. In view of these measures, it is expected that NSC managementcould handle its role in the proposed project.

8.13 New Palawija Varieties. The second project risk is that the FCRIswould fail to develop adequate new palawija varieties to induce farmerinterest in purchasing better seed, or to achieve the full benefits of thepalawija portion of the project. The considerable investment in the FCRIsunder the two agricultural research projects, including the training of anumber of palawija breeders, reduces this risk to an acceptable level.Furthermore most project facilities would be flexible enough that they couldbe used for whichever crops were in greatest demand.

8.14 Demand for Project Seed. A third risk is that NSC, P.T. Pertani,cooperatives and the DPDs would fail to convince enough farmers of thebenefits of paying for certified or regulated seed if it is priced to recoverfull costs (para. 7.06). NSC's own marketing has recently been strengthenedby the appointment of a Marketing Director. And the DPDs, which are beingstrengthened under the two agricultural extension projects, are expected tocontinue to demonstrate and promote better seed, especially as they are beinginvolved in Seeds II. As certified seed half pays for itself through a lowerseed rate, before even considering the higher yields, and seed is a relativelyminor cost for farmers (comprising only about 10% of the BIMAS package),effective extension work should minimize the risk of price resistance. As afinal protection against over-investment, the processing center would bephased over four years. If experience over the next two years, including theresults of the marketing study, raises serious doubts about seed demand, thelast one or two years- investments could be curtailed or re-directed.

Environmental Effects

8.15 The project would have no adverse environmental effects. In fact,the multiplication of crop varieties resistant to various pests and diseaseswould tend to reduce the need for applying agrochemicals to the crops.Chemicals used in seed treatment would be relatively non-toxic to animal life,and at the small quantities applied would have no adverse effects. Treatedseed would be colored to ensure it is not eaten, and any unsold for seedpurposes would be destroyed by the processor.

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9. RECOMMENDATIONS

9.01 Assurances were obtained at negotiations that:

(a) NSC would replace no more than two combine harvesters at Sukamandi(para. 3.10);

(b) DGFCA would, by August 31, of each year, send to the Bank forcomment the list of PSFs proposed to be upgraded the followingyear, supported by site selection studies and investment plans(para. 4.12);

(c) DGFCA would ensure the timely completion of its ongoing programof providing seed production and processing equipment to all PSFsbeing upgraded under the project (para. 4.13);

(d) DGFCA would send to the Bank by August 31 of each year, forapproval, proposals for the seed processing centers to bedeveloped the following year, supported by site selection studiesand investment plans (para. 4.15);

(e) NSC would be allowed to operate the processing centers owned bythe East Java DPD for at least ten years (para. 4.16);

(f) adequate working capital for the project would be provided to NSC,P.T. Pertani and participating cooperatives (para. 4.18);

(g) consultants for DGFCA on (i) project management, (ii) finance andmanagement information, (iii) training, (iv) seed marketing, (v)seed processing and (vi) seed production, with qualifications andexperience and on terms and conditions acceptable to the Bank,would be appointed by May 31, 1982 (para. 4.22);

(h) instructors for IPB, to teach seed technology courses, with quali-fications and experience and on terms and conditions acceptableto the Bank, would be appointed by June 30, 1983 (para. 4.22);

(i) consultants to design and carry out or supervise studies of (i)the potential private and cooperative sector roles in seedprocessing, (ii) the benefits from improved seed and (iii) seedtreatment, would be selected, with qualification and experienceand on terms and conditions acceptable to the Bank, by December 31,1982; results of the five studies (these three plus seed marketing/distribution and site selection) would be reviewed with the Bank(para. 4.23);

(j) Bank and GOI investment funds for NSC and P.T. Pertani would bepassed on by GOI as equity contributions, and for the cooperativesas credits under terms and conditions acceptable to the Bank

(para. 4.30);

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(k) to the extent feasible, all equipment for NSC, P.T. Pertani andPUSKUD processing centers for the first two years would be in onecontract, and for the remaining two years in another (para. 4.31);

(1) to the extent feasible, civil works for each site would begrouped and procured under a single contract (para. 4.33);

(m) (i) separate accounts would be maintained to record all projecttransactions, (ii) NSC's, P.T. Pertani-s and participating cooper-atives overall financial statements would be audited by independentauditors acceptable to the Bank and (iii) these audited accounts andthe audit report would be submitted to the Bank within nine monthsafter the end of each financial year (para. 4.35);

(n) audits of P.T. Pertani's 1976-80 accounts would be completed bySeptember 30, 1982 (para. 4.36);

(o) a duly qualified and experienced manager would be employed at eachparticipating PSF (para. 5.05);

(p) NSC would hire an internal auditor, a training manager and amarketing planning officer, by December 31, 1982 (para. 5.08);

(q) necessary steps, including salary adjustments, would be taken toenable NSC, P.T. Pertani and participating cooperatives toattract, recruit and retain suitably qualified and experiencedstaff (para. 5.09);

(r) in the interim before the full price increases in (t) below, NSCand P.T. Pertani would, for each crop, receive a fixed subsidy perkg whenever GOI set a seed price below their production cost(para. 5.10);

(s) GOI would, by August 31, 1983, complete that portion of the studyon private and cooperative sector roles in seed processing relat-ing to PUSKUDs, and, based on the results, send to the Bank, forapproval, proposals for the ownership, management and operationof the three seed processing centers for which qualified PUSKUDswould have priority (para. 5.16); and

(t) (i) NSC rice seed prices on Java would be increased annually inreal terms so that as soon as feasible and not later than 1986their revenue would cover at least their costs, except for returnon investment, and by 1988 would provide at least a 10% return oninvestment as well; and (ii) for rice outside Java and forpalawija, NSC and P.T. Pertani seed prices would be increasedperiodically so that as soon as feasible their revenues wouldcover their costs, excluding return on investment (para. 7.05).

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9.02 The Bank being satisfied, on the basis of the audits of P.T.Pertani's 1976-80 accounts, that P.T. Pertani could carry out its role inthe project satisfactorily, would be a condition of disbursement for the P.T.Pertani processing centers to be constructed in 1983 and thereafter (para.4.36).

9.03 With the above assurances, documentation and conditions, theproject would be suitable for a Bank loan of $15.0 million. The Borrowerwould be the Republic of Indonesia.

ANNEX 1Table 1

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INDONESIA

SEEDS II PROJECT

Breeder Seed Storage /a Costs (FCRIs)(Rp'000)

Unit cost Total cost

Cold storeroom /b 9,375 46,875

Dehumidifier /c 1,575 7,875

Spare parts /d 1,095 5,475

Freight /e 5,420 27,100

Total 17,465 87,325

/a Installation at 5 FCRIs, all in FY83.

/b Prebuilt low temperature storeroom with refrigeration system,capacity 15 tons of seed.

/c Desiccant-type dehumidifier.

/d 10% of equipment costs.

/e 45% of equipment costs for export crating, shipping and localtransportation.

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Table 2

INDONESIA

SEEDS II PROJECT

Seed Production Supervision Costs(Rp '000)

FY83 FY84 FY85 FY86 FY87 Total

FOUNDATION SEED (FCRIs)

Staff Allowances

Honoraria /a 4,500 4,500 4,500 4,500 4,500 22,500Subsistence /b 1,000 2,200 2,200 4,500 4,500 14,400

Travel Expenses

Air /c 500 500 1,000 1,000 1,000 4,000Road 7d 3,600 3,600 7,500 7,500 7,500 29,700

Subtotal 9,600 10,800 15,200 17,500 17,500 70,600

STOCK AND EXTENSION SEED (DPDs)

Staff salaries /e 15,000 21,000 27,000 33,300 33,300 129,600Travel expenses 3,000 4,200 5,400 6,700 6,700 26,000

Subtotal 18,000 25,200 32,400 40,000 40,000 155,600

Total 27,600 36,000 47,600 57,500 57,500 226,200

/a 15 senior FCRI specialists at Rp 25,000/month.

/b Based on 25 sites at full development; 12 man-days/site/year, Rp 15,000per diem allowance.

/c Padang/North Sumatera and Jakarta/Lampung, each 6 visits/year at Rp 50,000from Year 3; also includes provision for senior staff air travel.

/d Average Rp 15,000/day for 25 sites at full development.

/e 40 staff to supervise PSFs (1 apiece), 24 staff to supervise seed growers(1 per processing center), at Rp 520,000 apiece.

-51 -

ANNEX 1Table 3

INDONESIA

SEEDS II PROJECT

Investment Costs in Provincial Seed Farms(Rp'000,000)

Arable Landarea improve- Drying Seed Other Staff Offi- Work Miscel-

Seed farm (ha) ment floor storage storage housing ces sheds laneous Total

Central JavaKalinyamat 14.9 10.5 4.5 24.0 2.4 13.5 3.0 12.0 4.0 73.9Winong I 5.4 3.2 2.4 12.0 9.0 14.5 - - - 41.1Winong II 6.5 4.9 3.0 18.0 8.0 12.0 2.2 - 2.0 50.1Tegalgondo 6.5 - 3.2 12.5 - - - 16.0 5.2 36.9Banyodono /a 9.5 3.0 3.0 21.0 2.4 8.0 4.0 9.0 - 50.4Humo /a 7.3 5.0 3.0 15.0 3.6 8.0 6.0 12.0 - 52.6

YogyakartaWonocatur 7.1 6.1 - 13.5 0.9 6.0 8.6 - 1.9 37.0Wijilan 9.5 18.9 1.3 21.0 - 10.8 3.4 - - 55.4

East JavaSejati 10.2 0.6 1.7 12.0 - 2.5 3.0 16.0 - 35.8Blawerejo 15.1 13.6 - 24.0 - 20.0 - 12.0 3.0 72.6Mardirahardjo 6.5 - 2.0 50.0 - 20.0 - 24.0 - 96.0Arjasa /a 4.8 - - 10.0 - - - 9.6 - 19.6Budimurni /a 6.0 5.0 - 10.0 - - - 9.6 - 24.6

Sukun /a 10.0 - - - - - - 12.0 - 12.0Mulyoagung /a 5.5 - 3.0 - - - - 9.6 - 12.6

South KalimantanBinuang 103.5 8.0 2.5 12.0 - 8.0 - 12.0 2.0 44.5

South SulawesiMaros 10.0 18.9 - - - - - - - 18.9Batukaropa 51.6 14.8 3.6 7.5 - - 16.0 2.0 43.9

North SumatraMurni 18.1 9.5 - - - - - 12.0 10.0 31.5Tanjung Selamat 16.0 5.0 - - - 8.0 6.0 12.0 1.5 32.5

West SumatraSungai Dareh 17.2 - - - - - - - - -Padang Lawas 12.0 - - - - - - - - -

LampungTegineneng 8.2 - 1.5 - - - - 8.0 1.5 11.0Way Jepara 9.5 - 1.5 - - - - 8.0 - 9.5

West Nusa TenggaraPuyung 10.3 3.4 3.2 9.0 - - - 12.0 - 27.6Paninjauan 10.0 - - - - - - - - -

Total - 26 PSFs 366.2 130.4 39.4 271.5 26.3 131.3 36.2 221.8 33.1 890.0

Total - 40 PSFs 200.0 60.0 420.0 40.0 200.0 55.0 340.0 50.0 1,365.0

/a Alternative sites proposed in site selection study but not yet finally chosen by GOI.

-52-

ANNEX ITable

4a

INDONESIA

SEEDS II PROJECT

Investment Costs in New Seed Processing Centers(Rp million)

Cost percenter FY83 FY84 FY85 FY86 Total

Medium Size Centers (NSC, P.T. Pertani /a andPUSKUDs) (5 centers) (4 centers) (5 centers) (4 centers) (18 centers)

Site (2 ha)Land purchase 15.0 270.0Development 5.0 90.0

Subtotal 20.0 100.0 80.0 100.0 80.0 360.0

Buildings and FacilitiesDrying floor (1,000 sq m) 10.0 180.0Drying shed, threshing shed (1,000 sq m) 70.0 1,260.0Processing building (300 sq m) 30.0 540.0Seed storage warehouse (800 sq m) 72.0 1,296.0Office, workshop, lab, etc. 38.0 684.0Staff housing (2 people x 100 sq m) 20.0 360.0

Subtotal 240.0 1,200.0 960.0 1,200.0 960.0 4,320.0

Crop Handling/Processing EquipmentThreshers (4 ton/hr) 6.3 113.4Dryer units (made locally - 40 ton/day) 6.3 113.4Air sieve cleaner (2.5-3 ton/hr) 12.5 225.0Gravity Separator (2-2.5 ton/hr) 5.6 100.8Seed treater (5-8 ton/hr) 2.5 45.0Packaging system - cloth bags 4.4 79.2Packaging system - small plastic bags 7.5 135.0Bag closer 0.7 12.6Conveyors/elevators 12.2 219.6Accessories /c 8.5 153.0Surge bins, fuel tanks (made locally) 2.9 52.2Diesel generator (75 kVA; 10 centers) 15.6 280.8Workshop tools, lab equipment 4.4 79.2Miscellaneous 3.1 55.8Spare parts (10% of equipment cost) 8.0 144.0Freight (45% of imported items) 39.6 712.8Installation (15% of equipment cost) 12.0 216.0

Subtotal 152.1 760.5 608.4 760.5 608.4 2,737.8

Additional Facilities - Maize (6 centers) (2 centers) (2 centers) (2 centers)Drying shed and bins 30.4 - 182.4Sheller 2.5 - 15.0Conveyors 7.6 - 45.6Spare parts (10% of equipment cost) 1.0 - 6.0Freight and installation 5.5 - 33.0

Subtotal 47.0 94.0 94.0 94.0 - 282.0

Additional Facilities - Groundnut (6 centers) (2 centers) (2 centers) (2 centers)Cleaner 4.4 - 26.3Conveyors 2.0 - 12.0Spare parts (10% of equipment cost) 0.6 - 3.8Freight and installation 3.1 - 18.9

Subtotal 10.2 - 20.3 20.4 20.3 61.0

New Cooperative Processing Centers - - (2 centers) (2 centers) (2 centers) (6 centers)

Building and FacilitiesSite development 2.0 - 12.0Drying floor (150 sq m) 1.5 - 9.0Processing/drying shed (100 sq m) 6.0 - 36.0Storage (120 sq m) 12.0 - 72.0

Subtotal 21.5 - 43.0 43.0 43.0 129.0

Processing EquipmentMechanical dryer (2 tons/day) 4.0 - 24.0Seed cleaner (0.5 tons/hr) 8.0 - 48.0Accessories and spare parts 3.0 - 18.0Generator (10-12 KVA) 6.0 - 36.0Thresher 1.0 - 6.0Freight and installation 9.0 - 54.0

Subtotal 31.0 - 62.0 62.0 62.0 186.0

Grand Total - 2,154.5 1,867.7 2,279.9 1,773.7 8,075.8

/a P.T. Pertani centers in transmigration provinces and West Nusa Tenggara might be somewhat smaller and less-fullyequipped.

-53 - ANNEX 1Table 4b

INDONESIA

SEEDS II PROJECT

Investment Costs in Existing NSC Seed Processing Centers(Rp-000,000)

FY83 FY84 FY85 FY86 Total

Sukamandi (West Java)Buildings and FacilitiesDrying floor (4,000 sq m) 40.0 - - - 40.0Upgrading seed storage (4,000 sq m) 120.0 - - - 120.0

Subtotal 160.0 - - - 160.0

EquipmentBag dryers (2 x 1 ton/hr) 24.0 - - - 24.0Air screen cleaners (2) 25.0 - - - 25.0Indented cylinders (2) 16.0 - - - 16.0Gravity separators (2) 11.0 - - 11.0Threshers/shellers (4) 8.0 - - - 8.0Spiral separator for soybeans 6.0 - - - 6.0Packaging equipment 4.0 - - - 4.0Accessories 13.0 - - - 13.0Forklift 6.0 - - - 6.0Miscellaneous 5.0 - - - 5.0Spare parts (10% of equipment cost) 11.0 - - - 11.0Freight (45% of imported items) 45.0 - - - 45.0Installation (15% of equipment cost) 16.0 - - - 16.0

Subtotal 180.0 - - - 180.0

Klaten (Central Java)Buildings and FacilitiesDrying floor (1,000 sq m) 10.0 - - - 10.0New seed storage (1,000 sq m) 100.0 - - _ 100.0

Subtotal 110.0 - - - 110.0

EquipmentProcessing equipment 25.0 - - - 25.0Freight and installation 10.0 - - - 10.0

Subtotal 35.0 - - - 35.0

Eight DPD-Owned Centers (East Java)Buildings and Facilities /aDrying floors 10.0 10.0 10.0 10.0 40.0Seed storage, etc. 70.0 70.0 70.0 70.0 280.0

Subtotal 80.0 80.0 80.0 80.0 320.0

EquipmentProcessing equipment 50.0 50.0 50.0 50.0 200.0Freight and installation 20.0 20.0 20.0 20.0 80.0

Subtotal 70.0 70.0 70.0 70.0 280.0

Total 635.0 150.0 150.0 150.0 1,085.0

/a Two centers in each year.

- 54 - ANNEX ITable 5

INDONESIA

SEEDS II PROJECT

Cost of Vehicles

P.T. Consul- Unit TotalDPDs NSC Pertani Coops SCCS tants Total cost cost------------------- (Number) ----------------- ---- (Rp'000) ---

Motorcycles(100 cc)/a 178 48 12 12 102 - 352 600 211,200

Pickups(1 ton)/b - 24 12 12 - - 48 5,900 283,200

Trucks(3-5 ton)/c - 50 24 12 - - 86 10,000 860,000

Station wagons(4-wheeldrive)/d - 15 - - 10 - 37 5,900 218,300

Sedans - - - - - 7 7 8,000 56,000

Total 1,628,700

/a Motorcyles - NSC marketing and sales promotion staff; staff supervising pur-chases from seed growers for processing centers; PSF extension staff assist-ing supervision of seed production by seed growers; SCCS field inspectors(80) and seed inspectors (22); DPD Kabupaten staff.

/b Pickups - two per medium processing center, one per small, plus six forexisting NSC center.

/c Trucks - 4 x 5-ton trucks for NSC interprovincial transport in Java; 4 x3-ton trucks for each processing center for local transportation (seed col-lection, delivery, supplies, etc.), and one each for 10 existing centers.

/d Station wagons - NSC provincial production and marketing supervisors; SCCSprovincial seed certification/quality control supervisors; DPD Provincialstaff.

Phasing of Costs(Rp'000)

FY83 FY84 FY85 FY86 Total cost

Motorcycles 66,000 54,000 48,000 43,200 211,200

Pickups 82,600 82,600 59,000 59,000 283,200

Trucks 250,000 250,000 200,000 160,000 860,000

Station wagons 7,700 106,200 77,700 18,700 218,300

Sedans 56,000 - - - 56,000

Total 472,300 492,800 382,700 279,900 1,628,700

ANNEX 155 - Table 6

INDONESIA

SEEDS II PROJECT

Incremental Working Capital Requirements

Working Production Period Avg. workingcapital at full working capitalper kg development capital required(Rp) (ton/year) required (Rp million)

Extension Seed

Rice 205 12,950 7 mo. 1,550Maize 180 4,000 7 mo. 420Soybeans 410 3,150 4 mo. 430Groundnuts 570 6,400 4 mo. 1,220Mungbeans 470 440 4 mo. 70

Subtotal 26,940 3,690

Foundation and Stock Seed

Rice 230 300 7 mo. 40Maize 220 90 7 mo. 10Soybeans 450 175 4 mo. 25Groundnuts 620 960 4 mo. 200Mungbeans 520 25 4 mo. 5

Subtotal 1,550 280

Total 28,490 3,970

Phasing of Cost (Rp million)

FY84 FY85 FY86 FY87 FY88 FY89

Total 500 1,250 2,250 3,250 3,750 3,970Incremental 500 750 1,000 1,000 500 220

ANNEX 1- 56 - Table 7

INDONESIA

SEEDS II PROJECT

Investment Costs for SCCS Laboratories(Rp'OOO)

FY83 FY84 FY85 FY86 Total

Instruments and analyticalequipment /a 40,000 22,500 - - 62,500

Heating/cooling equipmentand furnishings /b 15,000 15,000 - - 30,000

Supplies /c 12,500 - 10,000 10,000 32,500

Total 67,500 37,500 10,000 10,000 125,000

/a Microscopes, moisture testers, balances, scales, germinators, blowers,dividers, etc.

/b Ovens, refrigerators, air conditioners, cupboards, benches, etc.

/c Desiccators, calculators, seed driers, petri dishes, hand lenses, materials,etc.

-57 - ANNEX 1Table 8

INDONESIA

SEEDS II PROJECT

Incremental Operating Costs for SCCS(Rp'000)

No. Annual ----------- Fiscal Years ------------by salary 1983 1984 1985 1986 1987 Total

1987

Staff SalariesField inspectors 77 625 6,250 15,625 28,125 40,625 48,125Seed analysts 9 625 1,875 3,750 5,625 5,625 5,625Laboratory assistants 9 520 1,560 3,120 4,680 4,680 4,680Seed inspectors 22 520 2,080 4,160 6,240 8,320 11,440

Subtotal 11,765 26,655 44,670 59,250 69,870 212,210

Rate/year

TravelProvincial supervisors 9 300 2,700 2,700 2,700 2,700 2,700Field inspectors 77 180 1,800 4,500 8,100 11,700 13,860Seed inspectors 22 180 720 1,440 2,160 2,880 3,960

Subtotal 5,220 8,640 12,960 17,280 20,520 64,620

Total 16,985 35,295 57,630 76,530 90,390 276,830

ANNEX 1

Table 9a

INDONESIA

SEEDS II PROJECT

Training Costs - IPB Diploma Course(Rp'000)

FY83 FY84 FY85 FY86 FY87 Total

Civil WorksMain building 65,000 - - _ - 65,000Students' dormitories 55,250 - - - - 55,250Processing unit 27,800 - - - - 27,800

Campus 40,000 - - - - 40,000Power, water installation 10,000 - - - - 10,000Field production area 2,400 - - - - 2,400

Subtotal 200,450 - - - - 200,450

Machinery and EquipmentCrop handling and drying - 7,400 - - - 7,400Processing - 27,500 - - - 27,500

Air conditioned storage - 750 - - - 750Lab seed testing - 9,000 - - - 9,000

Power installation - 5,000 - - - 5,000Farm machinery - 7,700 - - - 7,700

Subtotal - 57,350 - - - 57,350

Overseas Fellowships for IPB Staffpostgraduate course 22,500 22,500 7,500 - - 52,500

Short courses 10,000 10,000 10,000 - - 30,000

Subtotal 32,500 32,500 17,500 - - 82,500

Operating Costs (25 students/course)Teaching staff - - 3,820 6,920 6,920 17,660

Secretarial staff - - 1,200 1,200 1,200 3,600

Practical courses - - 10,400 26,200 26,200 62,800

Student expenses - - 14,750 29,500 29,500 73,750

Seed production and processing - - 3,525 3,525 3,525 10,575

Subtotal - - 33,695 67,345 67,345 168,385

Total 232,950 89,850 51,195 67,345 67,345 508,685

ANNEX 1- 59 - Table 9b

INDONESIA

SEEDS II PROJECT

Training Costs - In-Service(Rp'000)

FY83 FY84 FY85 FY86 FY87 Total

NSCManagers/Asst. Managers (20 people) 3,450 3,450 - - - 6,900Marketing staff (45) - 4,370 4,370 4,370 - 13,110Technical staff (60) 7,240 7,240 7,240 7,240 - 28,960On-the-job training (60) - 2,100 - 2,100 - 4,200

Subtotal 10,690 17,160 11,610 13,710 - 53,170

SCCSSupervisors (20) 3,450 3,450 - - - 6,900Field inspectors (80) 9,140 9,140 9,140 9,140 - 36,560Seed analysis (10) 5,440 - - - - 5,440Quality control inspectors,

lab. technicians (30) 4,420 4,420 - - - 8,840On-the-job training (20) 9,000 - - - - 9,000

- Subtotal 31,450 17,010 9,140 9,140 - 66,740

PSFsManagers (30) 4,650 4,650 - - - 9,300Processing supervisors (30) 7,340 7,340 - - - 14,680Field assistants technicians (60) 7,240 14,480 7,240 - - 28,960On-the-job training (60) - 4,200 - - - 4,200

Subtotal 19,230 30,670 7,240 - - 57,140

P.T. PertaniManagers/Asst. Managers (10) - 3,450 - - - 3,450Marketing staff (15) - 4,370 - - - 4,370Technical staff (30) 7,240 - 7,240 - - 14,480On-the-job training (30) - - 2,100 - - 2,100

Subtotal 7,240 7,820 9,340 - - 24,400

CooperativesManagers/Asst. Managers (10) - - 3,450 - - 3,450Marketing staff (15) - - 4,370 - - 4,370Technical staff (30) - 7,240 - 7,240 - 14,480On-the-job training (30) - - - 2,100 - 2,100

Subtotal - 7,240 7,820 9,340 - 24,400

DPDsProvincial level (15) - 7,340 - - - 7,340Kabupaten level (150) 9,300 9,300 9,300 9,300 9,300 46,500

Subtotal 9,300 16,640 9,300 9,300 9,300 53,840

Study Tours (10 people)Travel - 1,750 - 1,750 - -Subsistence - 2,250 - 2,250 - -

Subtotal - 4,000 - 4,000 - -

Training by Equipment SuppliersBreeder seed storage 4,570 - - - - 4,570Processing centers 27,375 - - - - 27,375

Subtotal 31,945 - - - - 31,945

Total 109,855 100,540 54,450 45,490 9,300 319,635

- 60 - ANNEX 1Table 10

INDONESIA

SEEDS II PROJECT

Technical Assistance Costs

($)

Cost perman-month Total cost

Consultants - 250 man-months /a

Foreign Exchange CostsBasic salary 2,600 650,000Social benefits 700 175,000Overseas allowances 500 125,000International travel 500 125,000Mobilization and miscellaneous 200 50,000Firm's overheads 1,000 250,000

Subtotal 5,500 1,375,000

Local CostsHousing and utilities 1,500 375,000Car operation /b 300 75,000Other internal travel /b 300 75,000Per diem 300 75,000Miscellaneous /b 100 25,000

Subtotal 2,500 625,000

Total 8,000 2,000,000

Phasing of Expenditures

FY83 FY84 FY85 FY86 Total…------------- -( $ O 000) - ---- …_-___

DGFCA 480 560 320 240 1,600IPB 160 160 80 - 400

Total 640 720 400 240 2,000

/a 200 man-months for DGFCA, 50 man-months for IPB.

/b Not included in calculation of $7,300 man-month cost.

-61 - ANNEX 1

Table 11

INDONESIA

SEEDS II PROJECT

Cost of Studies

Consultancy Consultancy Other Totalman-months cost /a costs cost

…-------- $' 000…

Seed marketing and distribution 10 70 130 200Private and cooperativesector processing 10 70 80 150

Benefits from seed quality 6 42 108 150Seed treatment 6 42 78 120Site selection (years 2-4) 30 90 110 200Pilot activities - - 500 500

Total 62 314 1,006 1,320

Phasing of Expenditures

FY83 FY84 FY85 FY86 Total…~~~~$ '000…

Seed miarketing and distribution 100 100 - - 200Private and cooperative

sector processing 75 75 - - 150Benefits from seed quality 45 35 35 35 150Seed treatment 35 25 25 35 120Site selection 100 50 50 200Pilot activities - - 150 350 500

Total 355 285 260 420 1,320

/a At $7,000/man-month, average of local and foreign consultants, except$3,000/man-month (local) for site selection.

- 62 - ANNEX 2

INDONESIA

SEEDS II PROJECT

Proposed Allocation of Loan Proceeds

LoanCost /a proceeds Disbursement---- ($ million) -- rate

(current prices) (%)

I. Civil Works 15.7 2.5

Processsing centers 12.6 2.5 20IPB classrooms 0.3 - -PSFs 2.8 - -

II. Equipment 8.1 5.3

Processing Centers 7.6 4.9 /bIPB 0.1 0.1 7SCCS 0.2 0.2 /bFCRIs 0.2 0.1 7

III. Other 22.9 5.8

Training courses and fellowships 1.2 1.2 100Technical Assistance 2.7 2.7 100Studies and pilot activities 1.9 1.9 100FCRI, DPD and SCCS operating costs 1.5 - -

Working capital 11.7Vehicles 3.9 -

IV. Unallocated - Physical 3.3 1.4Contingencies

V. Total 50.0 15.0

/a Includes price contingencies.

/b 100% of the c.i.f. cost of directly imported items, 95% of the ex-factoryprice of locally manufactured items, and 65% of expenditure on importedbut locally-procured items.

- 63 - ANNEX 3

INDONESIA

SEEDS II PROJECT

Estimated Schedule of Disbursements

CumulativeBank Fiscal Year disbursementsand Semester ($ million)

FY82Second 0.2

FY83First 1.0Second 2.0

FY84First 3.0Second 4.2

FY85First 5.5Second 6.7

FY86First 8.0Second 9.2

FY87First 10.5Second 11.7

FY88First 13.0Second 14.0

FY89First 14.5Second 15.0

INDONESIA

SEEDS II PROJECT

Foodcrop Area & Production in Project Provinces, 1979 /a

Wetland rice Dryland rice Maize Soybean Groundnut MungbeanArea Production Area Production Area Production Area Production Area Production Area Production

('000 ha) ('000 tons)/b ('000 ha) ('000 tons)/b ('000 ha) ('000 tons)/c ('000 ha) ('000 tons)/c ('000 ha) ('000 tons)/c ('000 ha) ('000 tons)/c

West Java 1,708 5,712 98 149 70 97 25 18 69 63 12 10Central Java 1,247 4,193 81 113 582 777 171 139 107 98 16 7East Java 1,338 5,298 60 88 1,099 1,482 375 363 154 127 52 24Yogyakarta 98 374 16 10 43 53 49 40 32 22 0.9 0.2South Sulawesi 555 1,646 32 42 239 239 21 11 37 30 46 28North Sumatra 434 1,369 110 179 39 51 10 9 12 13 4 3West Sumatra 258 879 16 22 6 8 1 1 5 5 1 1Riau 87 197 46 49 6 6 - - I 1 2 1Jambi 135 347 26 31 2 2 - - 1 1 0.2 0.1 eHali 166 604 10 12 59 78 11 10 13 14 3 2West Nusa Tenggara 184 522 15 19 20 22 47 42 6 6 22 7S. Kalimantan 270 620 28 35 5 4 0.6 0.4 6 5 0.4 0.3

Total ProjectProvinces 6,480 21,763 538 799 2,170 2,877 711 633 443 385 159 83

Other Provinces 1,182 3,056 648 732 405 438 53 41 46 33 33 17

Total Indonesia 7,663 24,819 1,186 ],531 2,575 3,305 764 674 489 418 192 0O0

Project Provincesas % of TotalIndonesia 85% 88% 45% 52% 84% 87% 93% 94% 91% 92% 83% 83%

/a Provisional figures./b Dry paddy./c Dry shelled.7T 1978 data.

ANNEX 5- 65- Table 1

INDONESIA

SEEDS II PROJECT

Existing Field Standards for Certification

Breeder Foundation Stock Extensionseed seed seed seed

Rice

Isolation distance (m) 3 3 3 3

Off-type (%) 0 0.1 0.3 0.5

Other varieties (%) 0 0.1 0.3 0.5

Noxious weed 0 0 0 0

Seed-borne disease 0 0 0 0

Soybean

Isolation distance (m) 8 8 8 8

Other varieties 0 0.1 0.2 0.5

Noxious weed 0 0 0 0

;laize (hybrid) Inbred Single cross Double cross

Isolation distance (m) 400 400 200

Off-type (%) 0.1 0.1 0.2

Doubtful off-type (%) 2.0 with 5% 2.0 2.0receptive silk (male parent) (male parent)

Parent off-type (%) 0.1 0.2

Doubtful parent off-type (%) 2.0 2.0

66 - ANNEX 5Table 2

INDONESIA

SEEDS II PROJECT

Recommended Field Standards for Certification

Breeder Foundation Stock Extensionseed seed seed seed

RiceIsolation distance (m) (min.) 3 3 3 3Other varieties (% max.) /a 0 0.05 0.2 0.3

Maize (open-pollinated)Isolation distance (m) (ain.) 400 400 400 400Other varieties and off-typesPlants (% max.) 0 0.02 0.05 0.1Ears (max.) 1 kernel/ 1 kernel/ 1 kernel/ 1 kernel/

20 ears 10 ears 5 ears 2 ears

SoybeanIsolation distance (m) (min.) 3 3 3 3Other varieties (% max.) /a 0 0.1 0.2 0.4

GroundnutIsolation distance (m) (min.) 3 3 3 3

Other varieties (% max.) /a 0 0 0.1 0.2

MungbeanIsolation distance (m) (min.) 3 3 3 3Other varieties (% max.) /a 0 0.1 0.2 0.4

/a Does not include variants which are characteristic of the variety, e.g.off-types that are described in the varietal description and occur withpredictable frequency.

ANNEX 5

- 67- Table 3

INDONESIA

SEEDS II PROJECT

Existing Laboratory Standards for Certification or Regulation

Breeder Foundation Stock Extension Regulatedseed seed seed seed seed

Rice

Purity (7) 98 98 98 98 95Germiaation (A) - 80 80 80 60Other crops seeds includingother varieties (% max.) 0 0 0 4/kg -

Inert Maater (%) 2 2 2 2 - -Noxious weed (%) 0.05 0.05 0.05 0.1 2Moisture content (x.) 13 13 13 13 -

Soybean

Purity (X) 99 99 98 98 95Germination (X) - 80 80 80 60Other crops seeds includingother varieties (X max.) 0 0.1 0.2 0.5 -

Inert matter (X) 1 1 2 2 -

Noxious weed (,)0 0 0 0 2doisture content (X) -14 14 14 14 -

Maize (hybrid) Inbred Single cross Double cross Regulated

Purity (Z) 98 98 98 95Germination () - 90 90 60Other crops seeds includingother varieties (X max.) 0 0.2 0.2 -

Inert matter (%) 1 1 1 -Noxious weed (%) 0 0 0 2Moisture content (%) 12 12 12 -

-68- ANNEX 5Table 4

INDONESIA

SEEDS II PROJECT

Recommended Laboratory Standards for Certification or Regulation

Breeder Foundation Stock Extension Regulatedseed seed seed seed seed

RicePurity (% min.) 98 98 98 97 95Germination (% min.) (80) 80 80 80 60Other varieties (A max.) 0 0.05 0.2 0.3 0.5Inert matter (% max.) 2 2 2 3 5Moisture content (% max.) 13 13 13 13 13

Maize (Open-pollinated)Purity (, min.) 98 98 98 97 95Germination (% min.) (90) 90 90 80 60Other varieties (% max.) 0.05 0.1 0.2 0.5 1.0Inert matter (/% max.) 2 2 2 3 5MIoisture content (% max.) 12 12 12 12 12

SoybeanPurity (% min.) 98 98 97 97 95Germination (% min.) (80) 80 80 70 60other varieties ('a max.) 0 0.1 0.2 0.4 1.0Inert matter (% max.) 2 2 3 3 5Hoisture content (7 max.) 12 12 12 12 12

GroundnutPurity (% min.) 97 97 97 97 95Germination (% min.) (80) 80 80 75 70Other varieties (% max.) 0 0 0.1 0.2 0.5Inert matter (% max.) 3 3 3 3 5Moisture content (% max.) 10 10 10 10 10

MungbeanPurity (% min.) 98 98 97 97 95Germination (% min.) (80) 80 80 70 60Other varieties (% max.) 0 0.1 0.2 0.4 1.0Inert matter (% max.) 2 2 3 3 5Moisture content (Z max.) 12 12 12 12 12

ANNEX 6

- 69 - Page 1

INDONESIA

SEEDS II PROJECT

Draft Terms of Reference for Consultants to DGFCA

General

1. The consultants would be concerned both with the implementation ofthe Seeds II Project, and with the overall strengthening of the implementingagencies. Provision of on-the-job training staff would be a major responsi-bility of each advisor. The consultants would all be based in Jakarta, butwould be expected to travel frequently to the project areas. One consultant- preferably the Project Management Advisor - would serve as team leader,and would handle administrative arrangements for the team. The team wouldcontain seven long-term advisors, on: (a) project management, (b) financeand management information (two people), (c) training, (d) marketing, (e)seed processing and storage, and (f) seed production. Each would beappointed for two years, extendable by agreement between DGFCA and the con-sultants. Preferably the consultants should be from a single firm, providedthis can be done without sacrificing quality. The consultants would belocated in DGFCA, attached to the Project Secretariat, but would be secondedfor extensive periods to NSC, P.T. Pertani, and DGC. The schedule would beworked out beforehand on a six-monthly basis by the Project Secretariat, inconsultation with the various agencies. Approximate periods with eachagency are given below.

2. Project Management Advisor

(a) DGFCA - 6 months - to advise the Project Coordination Unit ona wide range of its activities, including:

(i) coordination of schedules, especially between the PSFsand the seed processors;

(ii) joint procurement of equipment;

(iii) monitoring of project physical progress; and

(iv) reporting to DGFCA and the Bank.

(b) NSC - 12 months - to advise and assist NSC's President Directorand Director of Finance and Administration in the administrationof NSC's commercial operations, including the following:

(i) organization NSC for Seeds II implementation, especiallythe division of responsibility between headquarters and theprovinces, and the functioning of the Seeds II Project Unit;

- 70 -ANNEX 6Page 2

(ii) NSC's personnel system, including criteria for staffevaluation and promotion;

(iii) staffing levels and salary structure;

(iv) the system for organization and supervision of contractgrowers;

(v) determination of the number of new processing centers NSCcould satisfactorily staff and manage the following year;

(vi) in conjunction with the Financial Advisor, design of themanagement information system; and

(vii) alternative methods of operation for the Sukamandi seedfarm.

(c) DGC - 4 months - to advise DGC and participating corporations on:

(i) selection of participating cooperatives;

(ii) measures to strengthen those cooperatives- management;

(iii) ways to support participating cooperatives (from DGC,PUSKUDs, or Cooperative Service Centers);

(iv) organization changes in participating cooperatives; and

(v) scale of seed processing that participating cooperativescould adequately manage.

(d) P.T. Pertani - 2 months - to advise the Board of Directors ongeneral project implementation matters, including:

(i) organizational responsibilities for Seeds II implementation;

(ii) organization of contract growers; and

(iii) in conjunction with the Financial Advisor, improvement ofthe management information system.

Qualifications: A university degree in agriculture, engineering, economics,business or finance, and at least 10 years experience in business managementor public administration, preferably with agro-industrial activities indeveloping countries.

-71- ANNEX 6Page 3

3. Financial Advisors (two people)

(a) DGFCA - 6 months - to assist the Project Secretariat insetting up project accounts, including a system for statementsof expenditure in support of disbursement requests for studiesand training, and to assist the Subdirectorate of Seed Productionin establishing a nationwide seed production and distributiondata system, for rice and palawija, covering:

(i) area and quality of seed, by type and variety, plantedand harvested on all PSFs;

(ii) amount of stock seed or equivalent distributed to DEMBUL,private seed growers, cooperatives, etc.;

(iii) on a sample basis, seed harvest and sales by DEMBUL,private seed growers and cooperatives;

(iv) NSC and P.T. Pertani seed production;

(v) seed prices; and

(vi) inter-provincial seed movement.

(b) NSC - 18 months - to advise and assist NSC's Director of Financeand Administration in improving NSC's overall financial system,especially to meet the new responsibilities of Seeds II, withparticular attention to:

(i) internal control, including the establishment of aninternal audit and the overall adequacy of NSC'saccounting system;

(ii) in conjunction with the Project Management Advisor,design of the management information system;

(iii) financial aspects of procurement;

(iv) preparation and GOI clearance of annual budgets;

(v) disbursement requests to the Bank;

(vi) the financial implications of alternative methods ofoperating the Sukamandi seed farm;

(vii) long range financial planning; and

- 72 -

ANNEX 6page 4

(viii) calculation of NSC's costs of production, as a basisfor determination of the seed sales price and/or the GOIsubsidy.

(c) P.T. Pertani - 20 months - to assist and advise the Directorof Finance on:

(i) revision of the accounting system, especially to produceconsolidated accounts;

(ii) preparation of accounts to be audited, including forprevious years;

(iii) overall strengthening of financial management, includingon-the-job training of P.T. Pertani financial staff;

(iv) in conjunction with the Project Management Advisor,improvement of the management information system;

(v) financial aspects of procurement; and

(vi) calculation of P.T. Pertani's costs for seed production.

(d) DGC - 4 months - to help set up accounts for participatingcooperatives seed production activities.

Qualifications: A university degree in business or accounting, membershipof a recognized professional accountancy institute (e.g., Institute ofChartered Accountants or Certified Public Accountants), and at least 7 years'experience in financial and management accounting, including internal audit,budgetary control, costing and procurement, including experience indeveloping countries.

4. Training Advisor

(a) NSC - 6 months - to review the overall training needs andexisting training programs for NSC staff, and recommendtraining programs;

(b) P.T. Pertani - 2 months - to review the training needs forstaff engaged in seed production and distribution, andrecorimend training programs;

(c) DGC - 4 months - to review the training needs and existingtraining programs for all staff in the participatingcooperatives and for staff involved in seed marketingnationwide;

- 73 - ANNEX 6Page 5

(d) DGFCA - 6 months - to review the training needs and existingtraining programs for staff in the Subdirectorate of SeedProduction, the SCCS, and PSFs nationwide, and in the privatesector seed industry;

(e) Agency for Agriculture Education, Training and Extension -3 months - to review the training programs given in seedproduction and certification, and to propose any necessaryimprovements; and

(f) IPB - 3 mcnths - to review the extent to which IPB's seedindustry training meets the needs of the seeds industry, andassist in designing the project-financed courses.

Qualifications: A university graduate with substantial training in educa-tion, and at least 7 years- experience in designing and implementingtraining programs, especially for agro-industries in developing countries.

5. Marketing Advisor

(a) NSC - 8 months - to advise NSC's Director of Marketing onways to strengthen NSC-s overall marketing system, especiallyto cope with the projected increase in sales volume and theintroduction of additional crops and provinces, and in partic-ular, to review and advise upon:

(i) the location and staffing of district and provincialmarketing offices;

(ii) additional seed transportation and storage facilities ineach district, where required, and whether each should bepurchased or leased;

(iii) a sales promotion strategy that would include use ofexhibits and demonstration plots, cooperation withprovincial extension services, advertising, andpoint-of-sale promotion;

(iv) terms and conitions for seed dealers, including commis-sions, credit terms, and responsibility for return ofexpired seed;

(v) the training needs of marketing staff;

(vi) a system whereby marketing staff would make and useshort-term local demand projections on a continuous basis;and

ANNEX 6- 74 - Page 6

(vii) the amount of each type of seed that NSC could sell atvarious prices.

(b) DGC - 6 months - to review the overall performance, problemsand needs of cooperatives in seed marketing, including:

(i) availability, need for and use of credit;

(ii) storage and transport facilities;

(iii) financial and inventory control;

(iv) trained staff; and

(v) competition.

(c) P.T. Pertani - 2 months - to advise the Director of Marketingon seed marketing; and

(d) DGFCA - 8 months - to design and supervise the seed marketingand distribution study.

Qualifications: A university graduate and marketing specialist with at least7 years' experience preferably in agro-industries, market research, marketingmethods, sales promotion, distribution, staff training and organization ofmarketing.

6. Seed Processing and Storage Advisor

(a) NSC - 10 months - to provide technical advice and assistanceto NSC's Director of Production on the installation and operationof NSC's new seed processing centers. Specifically, he wouldadvise and assist in:

(i) supervision of the installation of machinery and equipmentat new seed processing centers, and ensuring that theequipment performance is satisfactory;

(ii) examination of the investment needs of existing processingcenters;

(iii) organization of operations and establishing quality controlmeasures at seed processing centers, including receiving,drying, threshing and shelling, cleaning, packaging andstorage;

(iv) planning and implementation of in-service and on-the-jobtraining programs for managers and technical staff at seedprocessing centers;

(v) the technical aspects of procurement;

ANNEX 6- 75 - Page 7

(vi) coordination of and technical guidance in problem-solvingactivities in the field of seed processing and storage; and

(vii) determination of any seed treatment required.

(b) P.T. Pertani - 6 months - to provide to P.T. Pertani similartechnical support as to NSC on its new seed processing centers;

(c) DGC - 5 months

(i) to provide similar technical support to participatingcooperatives; and

(ii) to prepare bid specifications for the KUD processing centers.

(d) DGFCA - 3 months - to provide similar technical support toCentral and Main PSFs.

Qualifications: He would have a university degree or equivalent inmechanical or production engineering, with at least 7 years' experience,including at least 3 years experience in the operation of small seedprocessing units, preferably under tropical conditions.

7. Seed Production Advisor

(a) DGFCA - 18 months - responsible to the Head of the Directorateof Production in DGFCA for technical advice and assistance onseed production at PSFs and by contract seed growers.Specifically, he would advise and assist in:

(i) identification of proper cultural and field managementtechniques for the production of foundation seed and stockseed, particularly for secondary crops grown in the project;

(ii) determination of practical guidelines and methods forharvesting and post-harvest handling of seed crops;

(iii) in-service training of PSF managers and staff in crophandling techniques suited to the facilities available; and

(iv) review of the technical advice to farmers to change seedevery three plantings.

(b) NSC - 6 months - (i) to examine the problems involved, andpropose solutions, in shifting from mechanized production tothe use of contract growers at Sukamandi; and (ii) to adviseon seed quality control requirements and harvest/post-harvesthandling of seed crops by contract growers.

Qualifications: He would be a universty graduate agriculturalist with atleast 7 years' practical experience in the field production and handling ofseed crops of tropical cereals and legume grains.

-76 - ANNEX 7Page 1

INDONESIA

SEEDS II PROJECT

Draft Terms of Reference for Studies

Seed Marketing and Distribution

Objectives: To

(a) determine the quality, existing sources of supply, marketingchannels, wastage, time between harvest and planting, geographicmovement and prices of rice and palawija seed;

(b) find out what seed purchasers are interested in, how much theyknow and how they get information about seed availability andquality, and how much they are willing to pay for improved seed;

(c) estimate the total potential market for improved seed of eachcrop;

(d) compare the performance in seed marketing of KUDs and privatedealers;

(e) recommend the pace at which economic seed prices are introducedfor the various crops and provinces;

(f) recommend seed marketing strategies for NSC, P.T. Pertani andKIIDs; and

(g) determine whether transmigrants are now receiving seed ofsuitable quality in a timely fashion, and, if not, what changesshould be made.

Methodology:

(a) From DPDs, seed growers associations, local authorities, etc.,obtain complete lists of seed producers in selected districts.

(b) Interview a sample of the seed growers.

(c) Interview a sample of farmers, include both seed purchasers andnon-purchasers.

(d) Purchase and inspect samples of seed from dealers.

(e) Discuss with NSC, P.T. Pertani, KUDs and DPDs their role in anddifficulties with seed marketing.

(f) Visit transmigration areas, and inquire of farmers and localofficials concerning seed supply.

-77 - ANNEX 7Page 2

Potential Private and Cooperative Sector Roles in Seed Processing

Objectives: To:

(a) determine the extent to which the private and cooperative sectors

currently process seed, their methods, constraints, benefits andneeds;

(b) determine the extent to which other private and cooperativeentities (e.g., seed dealers, grain millers, large seed growers)are capable of and interested in processing seed to meet

certification standards, and what their constraints and needs are;

(c) propose steps to assist private and cooperative entities toundertake, expand or upgrade their seed production (e.g., training,technical assistance, credit, marketing assistance, organizationinto groups);

(d) design pilot activities to implement (c) above.

Methodology:

(a) Compile a list of private/cooperative seed growers, seed dealers,and grain millers (this could be done in cooperation with theseed marketing study) in selected districts.

(b) Compile a complete list of private/cooperative seed processors inIndonesia.

(c) Interview a sample of (a) and (b).

(d) Examine the technical and financial feasibility of small seedprocessing units suitable for small private or cooperativeprocessors.

Benefits from Improved Seed

Objectives: To measure the percentage increase in yields resultingfrom improved seed quality, for rice and palawija crops, and to determinethe reasons for that increase.

Methodology:

(a) Purchase samples of certified, regulated and nonregulated seed ofeach main variety of rice and palawija crops. To help ensurecomparability and randomness, they should be obtained from arandom sample of farmers, shortly before planting time.

-78- ANNEX 7Page 3

(b) Before planting, remove a portion of each seed sample forlaboratory inspection by SCCS. The examination should includegermination rate, time of germination, average seed size anddensity, and variation in seed size and density.

(c) Plant the seed on adjacent plots on a number of PSFs. The PSFstaff should manage them identically, and should not know whichseed is which.

(d) Harvest and accurately weigh the crops, checking also for otherdifferences (uniformity, maturity period, etc.).

(e) FCRI staff should supervise the experiments throughout. A seniorFCRI official might serve as the consultant to DGCA for designingthe study as well.

Seed Treatment

Objective: To determine the feasibility and effectiveness of a varietyof seed treatments in controlling insect, fungus and other seed problems.

Methodology: In consultation with the FCRIs, the most promising seedtreatment techniques available would be tried out. Plantings would be bothon farmer's fields, to determine the practical difficulties, if any, and ascontrolled experiments (along the lines of the "Benefits from Improved Seed"study) on PSFs.

-79- ANNEX 8

INDONESIA

SEEDS II PROJECT

Statements of Expenditure

1. Statements of expenditure would be used for (a) operating expendi-tures of seeds training given at IPB, the Agency for Agricultural Education,Training and Extension, or other local training centers ($0.8 million,including all contingencies), and (b) studies, excluding consultancy costs($0.7 million). The disbursements would be based on training and studiesalready undertaken, as certified in disbursement requests prepared by DGFCA.

2. For training, disbursement requests would specify the location,content and duration of each course, and the names and positions of alltrainees. For studies, the requests would spell out the tasks undertaken.The Project Coordination Unit in DGFCA would monitor these activities, pre-pare the disbursement requests, and keep accounts in a way that permitted theBank to check that the reported amounts had actually been disbursed. Withthe assistance of the consultant on finance, the unit should be able tocarry out its responsibilities in this regard. All financial records insupport of these statements of expenditure would be retained until one yearafter the closing date, and would be audited by independent auditorsacceptable to the Bank.

- 80 - ANNEX 9

Page 1

INDONESIA

SEEDS II PROJECT

Contract Growers' Farm Budgets

1. Contract growers would agree to grow seed, instead of consumptiongrain, on a specified area, thus leaving their overall cropping pattern andother farm activities unaffected. The effects of the project are thereforeshown, in Tables 2 through 7, by partial budgets for each crop for one seasonfor one hectare. The basis of comparison is one hectare of the same cropgrown for sale as consumption grain. The area devoted to seed growing wouldactually average about one half hectare for lowland rice, and one hectare forthe other crops. A large proportion of contract growers would grow two cropsper year. To facilitate supervision of the seed growers, farms would begrouped to form contiguous blocks of approximately 10 ha or more.

Labor

2. It has been assumed that, on average, a farm family could providethree family workers per day for 25 days per month, and that hired laborwould be required only for half the person-days needed for planting and forharvesting, which must each be completed within a few days. For groundnutsand mungbeans, which take 50 person-days to harvest, two-thirds of the laborfor harvesting would be hired. A wage rate of Rp 600/day, which is an approx-imate weighted average for Java and the Other Islands, has been used. A teamof bullocks with driver would be hired for land preparation, for aboutRp 1,200/day. The value of all labor, including family members, is shown inthe farm budgets, but only the cost of hired labour is included in the totalcash outflow and in net income.

Inputs and Yields

3. The financial prices of farm inputs are shown in Table 1. The pre-sent subsidized prices for fertilizer and agro-chemicals, which are expectedto be maintained indefinitely by the GOI, have been used. The prices forstock seed are those that would be implemented under the project. Most con-tract growers would be farmers who already use an improved input package.The only difference assumed in the farm budgets is that contract growerswould plant stock seed whereas non-seed growers would use certified extensionseed for rice and selected grain for other crops. The stock seed, whichwould be provided on credit to contract growers, would give an estimatedyield increment, compared with extension seed, of 4% for rice and 8% forother crops. In addition, the seed rate would be lower for all crops exceptlowland rice, for which there is no significant saving by using stock seed.

- 81 - ANNEX 9Page 2

Debt Service

4. Debt service has been calculated at 1% per month for six months onthe standard BIMAS credit package for each crop.

Land Tax

5. Collection of the land tax, (IPEDA) is irregular and less than 50%of the farmers pay any land tax in a given year. Although the tax assess-ments are supposed to represent 7% of the value of wetland rice productionand 5% of the value of dryland crop production, these rates are not fullyapplied. On the basis of local evidence, 3.5% of the value of wetland riceproduction and 2.5% of the value of dryland crop production have been used.

Income

6. The financial prices assumed for each crop are shown in Table 1.In each case, grain grown for seed would receive a 10% premium above theprice for consumption grain. The price for consumption rice is the stan-dard BULOG buying price (for 14% moisture content and 3% inert material).Prices for other crops are average current market prices. As a result ofusing stock seed and of obtaining a 10% premium, contract seed growers wouldobtain the following increments in income each season.

Size of farm Income ('000 Rp) ------ %(ha) Without project With project increase

Wetland rice 0.5 109 129 18Dryland rice 1 129 156 21Maize 1 107 139 30Soyabean 1 163 205 26Groundnut 1 335 427 27Mung bean 1 203 256 26

ANNEX 9- 82 - Table 1

INDONESIA

SEEDS II PROJECT

Farmgate Prices for Inputs and Outputs

1. Farmgate Financial Prices of Farm InputsWetland & dryland rice extension seed 210 Rp/kgWetland & dryland rice stock seed 275 Rp/kg

Maize commercial seed 150 Rp/kgMaize "stock seed" 250 Rp/kg

Soybean commercial seed 350 Rp/kgSoybean "stock seed" 500 Rp/kg

Groundnut commercial seed 475 Rp/kgGroundnut "stock seed" 650 Rp/kg

Mungbean commercial seed 350 Rp/kgMungbean "stock seed" 500 Rp/kg

Urea 70 Rp/kgTSP 70 Rp/kgPesticide 1,250 Rp/literRodenticide (zinc phosphide) 2,300 Rp/kg

Animal teams (pair of animals and driver) 1,200 Rp/dayHired labor 600 Rp/day

2. Farmgate Prices Received for CropsWetland & dryland rice for consumption 105 Rp/kgWetland & dryland rice for seed 115 Rp/kg

Maize for consumption 90 Rp/kgMaize for seed 100 Rp/kg

Soybean for consumption 250 Rp/kgSoybean for seed 275 Rp/kg

Groundnut for consumption 350 Rp/kgGroundnut for seed 385 Rp/kg

Mungbean for consumption 300 Rp/kgMungbean for seed 330 Rp/kg

ANNEX 983 - Table 2

INDONESIA

SEEDS II PROJECT

Contract Grower: 1 ha Wetland Rice

Without project With projectUnits Rupiah Units Rupiah

InputsSeed (kg) 25 5,250 25 6,875Urea (kg) 200 14,000 200 14,000TSP (kg) 100 7,000 100 7,000Pesticide (1) 2 2,500 2 2,500Rodenticide (kg) 0.5 1,650 0.5 1,650

Total Inputs 30,400 32,025

Labor (person-days)Land prep'n - (animal-days) 15 18,000 15 18,000Planting 35 21,000 35 21,000Weeding 40 24,000 40 24,000Fertilizing & spraying 14 8,400 14 8,400Roguing - - 18 10,800Harvesting 40 24,000 40 24,000Drying & threshing 15 9,000 - -

Total labor, including animal 159 [104,4001 162 [106,2001of which hired labor, incl. animal 52 40,200 52 40,200

Other CostsLand tax 10,804 12,075Debt service 3,060 3,157

Total Cash Outflow 84,464 87,457(incl. hired labor only)

Yield (kg dry paddy) 2,880 3,000Price per kg 105 115

Gross Income 302,400 345,000

Net Income 217,936 257,543

ANNEX 9- 84 - Table 3

INDONESIA

SEEDS II PROJECT

Contract Grower: 1 ha Dryland Rice

Without project With projectUnits Rupiah Units Rupiah

InputsSeed (kg) 50 10,500 40 11,000Urea (kg) 200 14,000 200 14,000TSP (kg) 100 7,000 100 7,000Pesticide (1) 2 2,500 2 2,500Rodenticide (kg) .5 1,650 .5 1,650

Total Inputs 35,650 36,150

Labor (person-days)Land prep'n - (animal-days) 15 18,000 15 18,000Planting 10 6,000 10 6,000Weeding 40 24,000 40 24,000Fertilizing & spraying 5 3,000 5 3,000Roguing - - 18 10,800Harvesting 30 18,000 30 18,000Drying & threshing 15 9,000 - -

Total labor, including animal 115 [78,000] 118 [79,8001of which hired labor, incl. animal 35 30,000 52 30,000

Other CostsLand tax 4,987 5,750Debt service 2,362 2,422

Total Cash Outflow 73,000 74,322(incl. hired labor only)

Yield (kg dry paddy) 1,920 2,000Price per kg 105 115

Gross Income 201,600 230,000

Net Income 128,600 155,678

ANNEX 9- 85- Table 4

INDONESIA

SEEDS II PROJECT

Contract Grower: 1 ha Maize

Without project With projectUnits Rupiah Units Rupiah

InputsSeed (kg) 35 5,250 25 6,250Urea (kg) 200 14,000 200 14,000TSP (kg) 100 7,000 100 7,000Pesticide (1) 1 1,250 1 1,250

Total Inputs 27,250 28,500

Labor (person-days)Land prep'n - (animal-days) 14 16,800 14 16,800Planting 20 12,000 20 12,000Weeding 15 9,000 15 9,000Fertilizing & spraying 5 3,000 5 3,000Roguing - - 10 6,000Harvesting 10 6,000 10 6,000Husking 10 6,000 10 6,000Drying & shelling 15 9,000 - -

Total labor, including animal 89 [61,8001 84 [58,8001of which hired labor, incl. animal 29 25,800 29 25,800

Other CostsLand tax 4,050 5,000Debt service 1,942 2,002

Total Cash Outflow(incl. hired labor only) 59,042 61,302

Yield (kg dry unshelled) 1,840 2,000Price per kg 90 100

Gross Income 165,600 200,000

Net Income 106,558 138,698

- 86 ANNEX 9Table 5

INDONESIA

SEEDS II PROJECT

Contract Grower: 1 ha Soybean

Without project With projectUnits Rupiah Units Rupiah

InputsSeed (kg) 45 15,750 35 17,500Urea (kg) 50 3,500 50 3,500TSP (kg) 100 7,000 100 7,000Pesticide (1) 1 1,250 1 1,250

Total Inputs 27,500 29,250

Labor (person-days)Land prep'n - (animal-days) 14 16,800 14 16,800Planting 20 12,000 20 12,000Weeding 35 21,000 35 21,000Fertilizing & spraying 5 3,000 5 3,000Roguing - - 10 6,000Harvesting 30 18,000 30 18,000Drying & threshing 15 9,000 - -Stripping -- 5 3,000

Total labor, including animal 119 [79,800] 119 [79,800]of which hired labor, incl. animal 39 31,800 39 31,800

Other CostsLand tax 5,625 6,875Debt service 2,290 2,395

Total Cash Outflow 67,215 70,320(incl. hired labor only)

Yield (kg, dry) 920 1,000Price per kg 250 275

Gross Income 230,000 275,000

Net Income 162,785 204,680

ANNEX 9- 87 - Table 6

INDONESIA

SEEDS II PROJECT

Contract Grower: 1 ha Groundnut

Without project With projectUnits Rupiah Units Rupiah

InputsSeed (kg) 160 76,000 120 78,000Urea (kg) 50 3,500 50 3,500TSP (kg) 100 7,000 100 7,000Pesticide (1) 1 1,250 1 1,250

Total Inputs 87,750 89,750

Labor (person-days)Land prep'n - (animal-days) 14 16,800 14 16,800Planting 20 12,000 20 12,000Weeding 35 21,000 35 21,000Fertilizing & spraying 5 3,000 5 3,000Roguing - - 10 6,000Harvesting 50 30,000 50 30,000Drying & stripping 15 9,000 - -Stripping -- 5 3,000

Total labor, including animal 139 [91,800] 134 [91,8001of which hired labor, incl. animal 49 42,800 49 42,800

Other CostsLand tax 11,812 14,437Debt service 3,388 3,508

Total Cash Outflow 145,750 150,495(incl. hired labor only)

Yield (kg, dry in shell) 1,380 1,500Price per kg 350 385

Gross Income 483,000 577,500

Net Income 335,250 427,005

ANNEX 9- 88 - Table 7

INDONESIA

SEEDS II PROJECT

Contract Grower: 1 ha Mungbean

Without project With projectUnits Rupiah Units Rupiah

InputsSeed (kg) 30 10,500 20 10,000Urea (kg) 50 3,500 50 3,500TSP (kg) 100 7,000 100 7,000Pesticide (1) 1 1,250 1 1,250

Total Inputs 22,250 21,750

Labor (person-days)Land prep'n - (animal-days) 14 16,800 14 16,800Planting 20 12,000 20 12,000Weeding 35 21,000 35 21,000Fertilizing & spraying 5 3,000 5 3,000Roguing - 10 6,000Harvesting 50 30,000 50 30,000Drying 15 9,000 - -

Total labor, including animal 139 [91,8001 134 [88,800]of which hired labor, incl. animal 49 42,800 49 42,800

Other CostsLand tax 6,750 8,250Debt service 1,348 1,348

Total Cash Outflow 73,148 74,148(incl. hired labor only)

Yield (kg, dry) 920 1,000Price per kg 300 330

Gross Income 276,000 330,000

Net Income 202,852 255,852

-89 - ANNEX 10-89- ~~~~~~~Tablel1

INDONESIA

SEEDS II PROJECT

Economic Prices for Crops(Constant 1980 dollars) /a

1980 1990Rp/kg lb US$/ton Rp/kg US$/ton

RiceExport price, Thai, 5% broken,

f.o.b. Bangkok 290 464 344 551Indonesian import price /c 261 418 310 496Plus freight and insurance 13 20 13 20Price at Indonesian Port 274 438 323 516Plus port handling 4 6 4 6Plus transport to wholesaler 6 10 6 10Price at Wholesaler 284 454 333 532Less transort, mill to wholesaler 5 8 5 8Ex-Mill Price 279 446 328 524Paddy equivalent /d 176 284 206 330Less milling costs (less value of

byproducts) 4 6 4 6Less transport, farm to mill 8 13 8 13Less dealer's margin 8 13 9 15Farm-Gate Price 156 252 185 296

MaizeExport price, f.o.b. Gulf ports 107 172 122 196Plus ocean freight and insurance 19 30 19 30Price at Indonesian Port 126 202 141 226Plus port handling 4 6 4 6Plus transport to wholesaler 6 10 6 10Price at Wholesaler 136 218 151 242Less transport, farm to

wholesalers 8 13 8 13Less dealer's margin 8 13 9 13Farm-Gate Price 120 192 134 216

SoybeansExport price, c.i.f. Rotterdam 187 300 262 420Plus ocean freight and insurance 16 25 16 25Price at Indonesian Port 203 325 278 445Plus port handling 4 6 4 6Plus transport to wholesaler 6 10 6 10Price at Wholesaler 213 341 288 461Less transport, farm to

wholesalers 8 13 8 13Less dealer-s margin 10 16 12 20Farm-Gate Price 195 312 268 428

GroundnutsExport price, c.i.f. Europe,

shelled 333 533 407 652Less ocean freight and insurance 16 25 16 25Price at Indonesian Port 317 508 391 627Less port handling 4 6 4 6Less transport to wholesaler 6 10 6 10Price at Wholesaler 307 492 381 611Convert to unshelled /e 230 369 284 458Less transport, farm towholesalers 8 13 8 13

Less dealer-s margin 15 24 18 30Farm-Gate Price 207 332 258 415

/a Import parity price for rice, maize and soybeans; export parity price forgroundnuts.

/b US$1.00 = Rp 625/c World price of 25% broken quality rice imported by Indonesia = 90% world

price for 5% broken./d 63% milling ratio./e 75% of shelled value.

_ 90 - ANNEX 10Table 2

INDONESIA

SEEDS II PROJECT

Economic Costs(Rp million)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Years Years Years

7-10 11-14 15-22

Investment Costs /a - - -

Breeder seed storage 87 - - - - - - - -PSFs /b 870 255 - - - - - -

Seed processing centers /c 2,155 1,868 2,280 1,774 - - - 1,100 -Vehicles /d 472 492 382 280 - 350 350 350 350Laboratory equipment 68 38 10 10 - - - - -Training 343 186 106 109 77 - - -

Technical assistance 400 450 250 150 - - - -

Studies /e 222 178 69 44 - - - - -Physical contingencies (10%) 462 347 310 237 7 25 25 145 25PSF equipment 560 560 - - - - - - -

Total Investment Costs 5,639 4,374 3,407 2,604 84 375 375 1,595 375

Incremental Operating CostsNSC, P.T. Pertani and CooperativesGross incremental

operating costs 1,022 2,554 4,597 6,641 7,662 8,200 8,200Less: "Saved" operating

costs /f 769 1,914 3,083 4,455 5,140 5,500 5,500Net incremental operating

costs 253 640 1,514 2,186 2,522 2,700 2,700

SCCS 17 35 58 77 90 90 90 90 90ECRI 10 11 15 18 18 18 18 18 18DPDs 18 25 32 40 40 40 40 40 40

Total Operating Costs 45 71 358 775 1,662 2,334 2,670 2,848 2,848

Total Costs 5,684 4,445 3,765 3,379 1,746 2,709 3,045 4,445 3,223

/a From Annex 1./b For 12 provinces./c Excludes upgrading of existing processing centers; in years 11-14, equipment replaced.

/d Vehicles replaced every 5 years; average annual replacement figure used.Te Excludes pilot activities./f Economic cost of seed production displaced by project seed.

ANNEX 1091 - Table 3

INDONESIA

SEEDS II PROJECT

Economic Benefits (Value of Incremental Production)

Year 3/a Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10-22

Wetland RiceArea planted (ha '000) 40 100 185 265 310 33 33 33Incremental Production (t) /b 4,800 13,000 25,000 38,000 47,000 52,000 53,000 53,500Value of incrementalproduction (million Rp) /c 815 2,210 4,250 6,460 8,000 8,840 9,000 9,100

Dryland RiceArea planted (ha '000) 15 35 65 95 110 120 120 120Incremental Production (t) /b 900 2,300 4,450 6,800 8,300 9,400 9,600 9,700Value of incremental

production (million Rp) /c 150 390 750 1,155 1,410 1,600 1,630 1,650

MaizeArea planted (ha '000) 20 50 90 130 150 160 160 160Incremental Production (t) /b 2,200 6,000 11,500 19,400 21,200 23,500 24,000 24,300Value of incremental

production (million Rp) /c 280 760 1,460 2,460 2,690 2,980 3,050 3,090

SoybeansArea planted (ha '000) 10 25 50 70 85 90 90 90Incremental Production (t) 800 2,000 4,000 5,600 6,800 7,200 7,200 7,200Value of incrementalproduction (million Rp) /c 190 460 930 1,300 1,580 1,670 1,670 1,670

GroundnutsArea planted (ha '000) 5 15 30 40 50 53 53 53Incremental Production (t) 500 1,500 3,000 4,000 5,000 5,300 5,300 5,300Value of incrementalproduction (million Rp) /c 120 350 700 930 1,160 1,230 1,230 1,230

MungbeansArea planted (ha '000) 3 7 12 18 20 22 22 22Incremental Production (t) 120 280 480 920 800 880 880 880Value of incrementalproduction (million Rp) /c 35 90 160 230 260 270 270 270

Total benefits: Rice 965 2,600 5,000 7,615 9,410 10,440 10,630 10,750

Total benefits: Palawija 625 1,660 3,250 4,920 5,690 6,150 6,220 6,260

Total benefits 1,590 4,260 8,250 12,535 15,100 16,590 16,850 17,010

/a Benefits actually scheduled to start 18 months after main investments; have used 24 months to allow for delays.

/b For rice and maize includes incremental production from two generations of seed saved from project seed.Yield increment falls to 20% in 1st generation, 15% in 2nd (para. 8.01). Baseline yields used are 3.0 tons/hafor wetland rice, 1.5 tons/ha for dryland rice, 1.4 tons/ha for maize, 1.0 ton/ha for soybeans, 1.25 tons/hafor groundnuts, and 0.5 tons/ha for mungbeans. Yield increases assumed are 4% for rice and 8% for palawija.

/c Valued at average of 1980 and 1990 economic farm-gate prices in 1980 constant rupiah (see Annex 10 Table 1).

-92- ANNEX 11Page 1

INDONESIA

SEEDS II PROJECT

Selected Documents and Data in the Project File

A. General Reports and Studies Relating to the Agricultural Sector

Al. World Bank: Commodity Price Forecasts - January 1980.

A2. World Bank: Indonesia, Supply Prospects for Major Food Crops -

March 1979.

B. Staff Appraisal Reports for Related Indonesia Projects

Bl. The Agricultural Research and Extension Project, Report No. 646a-IND. April 1975.

B2 The National Food Crops Extension Project, Report No. 1105a -IND. May 1976.

B3. The Transmigration II Project, Report No. 2349b-IND. May 1979.

B4. The National Agricultural Extension II Project, Report No. 2711a-IND. February 1980.

B5. The National Agricultural Research Project, Report No. 2805-IND.April 1980.

C. Reports and Working Papers Relating Directly to this Project

Cl. Project Performance Audit Report, Indonesia Seeds Project. ReportNo. 2800. December 1979.

C2. FAO/World Bank Cooperative Program Preparation Mission Report:Indonesia, Seeds II Project, March 1979.

C3. Consultants (Delouche/Jones) Preappraisal Mission Reports onSeeds II Project. September 1979.

C4. Subdirectorate of Seed Development (Directorate of Crop Protection,DGFCA): Report on Pelita II. 1979.

- 93 - ANNEX 11page 2

C5. National Seeds Corporation Report on Visits to Provinces in Java andOther Islands Concerned with Seeds II Project. January 1980.

C6. Consultant's (GITEC) Report: Technical Aspects of Seed Processing andStorage, Seeds II Project. May 1980.

C7. Supporting Working Papers for Project Costs.

- 94 -

INDONESIA -SEEDS 11 PROJECTPRIMARY GOI AGENCIES WITH PROJECT RESPONSIBILITIES

Ministry of Agriculture (MOA) Provincial Governments

Minister Governor

Agency for Agricultural Research Directorate General of Foodand Development lAARD) Crops Agriculture (DGFCA)

Head Director General

Central Food Crops Directorate of Production Provincial g ricutural Research Institute DrcoaefPouto _ied11rjctService (DPD)_

Director Director Inspector

Food Crops Research Seed Control and Sub-directorate of ProductionInstitute (FCRI) Certification Service (SCCS) Seed Production (SSP) Section

Director Sub-director Sub-director Section Head

Provincial Seed a

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