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N*ea rag ua
Ag riculture Public
Expenditure Review
June 2013
THE WORLD BANK
IBRD*IDA I  WORLDBANKGROUP


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Photo credit: World Bank, 2013


Contents
ACKNOWLEDGMENTS                   ....................................................... iX
ABBREVIATIONS        ............................................................ Xi
EXECUTIVE SUMMARY                ....................................................... 1
1 .Context                              ..................5...... ....................5
1.1. Introduction..................5....           ................5
1 .2. Economic performance of the agricultural sector..... ....... 6
1 .3. Agriculture and poverty alleviation ............      .......... 10
1 4. Agricultural public sector                ............................. 16
2. Evolution, Composition, and Sources of Support to Agriculture ............. 26
2.1. Overall public support to the agriculture sector....  ............ 26
2.2. Analysis of PRORURAL spending                  ..................  29
2.3. Evolution of source of financing for the agricultural sector...... 42
2.A. Conclusions and recommendations     .................    ....... 44
3. Targeting, efficiency and distributive impactsof
agricultural public spending                    .........................  48
3.1. Geographical targeting of agricultural spending       ............49
3.2. Poverty and productivity outcomes   .................    ..... 58
3.3. Distributive effects................................. 60
3.A. Conclusions and recommendations     .................     ..... 64
A. Special Focus: Forestry and Food Security Public Spending .............. 67
4.1. Aligning incentives in the forestry sector  .................. 67
4.2. Tackling food security and nutrition.......................79
5. Institutional Assessment of Public Spending
in the Agriculture Sector     .............................     ..... 102
5.1. Budget systems.       .............................       ....... 103
5.2. Financial management information systems.     ................ 113
5.3. Conclusions and recommendations     .................     .....11 8
REFERENCES.        ............................................................... 123
ANNEXES ................................................................ 129
Annex 1: Figures, tables and maps     ................    ............... 129
Annex 2: Quality of agricultural exports  ............................ 137
Annex 3: Productivity Constraints in Key Export Sectors..     .............. 140


Annex 4: Geographic analysis tool for prioritizing interventions ............... 144
Annex 5: Brief Technical Note: Efficiency Analysis
of PRORURAL Public Spending   ........................ ..... 149
Boxes
Box 1 .1: -The establishment of Citizen's Empowerment Cabinets ............ 23
Box 1.2: PRORURAL Mid-Term Evaluation  .................. ..... 25
Box 4.1: Budget allocations for forestry across Latin America ............... 71
Box 4.2: Innovations in beneficiary selection
for public transfers in agriculture  ....................... ..... 99
Box 5.1: The Medium-Term Budgeting Framework .................. 104
Box 5.2: Regional best practice-a case study
from Guatemala on results budgeting   ............  ............. 109
Box 5.3: Case study from INTA on proper accounting
and unitary cost estimations  .......................  ........ 112
Box 5.4: Case study from Chile on program reviews. ................ 113
Figures
Figure 1 .1 Labor Productivity by Sectors      ............9........9
Figure 1 .2: Employment trends by sector,
% of total employment, 2000-1 1  ............................... 11
Figure 1.3: Decomposition of Changes in Rural Poverty 2005-09............. 13
Figure 1.4: Changes in rural household income, 2005-09 . ........... 14
Figure 1.5: income Growth Incidence Curve, 2005-09 ..... ......... 14
Figure  1.6: Index of labor productivity by sectors .................. 16
Figure 1.7: Average Real Wages (2002=1 00) .................... 16
Figure 1.8: Public spending institutions in Nicaragua's
agriculture sector...................................... 21
Figure 2.1: Trends in overall public spending
to the agriculture sector (C$2005  millions) ..................... 27
Figure 2.2: Public spending on agriculture by use,
2002-1 1, C$2005 million..........................         28
Figure 2.3: Agriculture Orientation Index
of Public Spending, 2002-11               .............................. 29
Figure 2.4: Trends in PRORURAL spending as share of GDP,
agricultural GDP and total budget, 2002-11.......... .............. 30
Figure 2.5: Public spending in PRORURAL programs,
C$2005  millions, 2002-1 1                ..........................   32


Figure 2.6: Public spending by PRORURAL entities,
C$2005  millions, 2002-1 1               ..........................   32
Figure 2.7: Budget execution by PRORURAL
and central government, C$2005  million, 2002-1 1  . ............... 33
Figure 2.8: Public spending on agriculture by public
and private goods, C$2005 million, 2002-1 1 .................. 36
Figure 2.9: Trends in share (%) of PRORURAL spending
on public goods by institution, 2002-1 1     .................. 36
Figure 2.10: Change in functional composition of agricultural
public spending (PRORURAL)               .......................  38
Figure 2.11: Distribution of PRORURAL spending
by source of financing................................... 43
Figure 2.12: PRORURAL spending by source
of financing (2005 C$ million) ............................. 43
Figure 2.13: Official development aid to agriculture
by source of funds and recipient (public/private sector),
2007-11 (2005 C$ million)  ............................ 44
Figure 2.14: Official development aid to the agriculture
sector by source of financing (bilateral and multilateral)
to the public and private sectors, 2007-1 1 average  . .............. 45
Figure 3.1: PRORUAL Incluyente spending per producer
and per hectare, average over 2009-11  ................ ......52
Figure 3.2: Increases in spending per producer and adoption
of technologies by department, 2001-2011.......... .............. 59
Figure 3.3: Benefits incidence of the agriculture and livestock
programs, frequency of rural households, 2005 .... . ................. 61
Figure 3.4: Benefits incidence of the Bono Productivo
Alimentario, frequency of rural households, 2009.................... 61
Figure 3.5: Distribution of beneficiary households
by land ownership and welfare quintiles, 2009............ ..... 62
Figure 4.1: Agriculture Orientation Index for Forestry, 2002-1 1............. 72
Figure 4.2: Sources of funds, INAFOR, 2006-11 (left)
and 2005-09 (right) .................................... 72
Figure 4.3: Distribution of forestry sector revenues by type.. .......... 73
Figure 4.4: Expenditures in forest management
and conservation/restoration and reforestation in relation
to the respective approved areas/accomplished and burned.............76
Figure 4.5: Annual expenditure by forest area
and forest district, 2007-201 1 ............................. 77


Figure 4.6: Prevalence of hunger or undernourishment
in Latin America and the Caribbean (%) ..................... 80
Figure 4.7: Simulated effects of the food price crisis on poverty
in Nicaragua  (%  increase in poverty).......................  81
Figure 4.8: Food insecurity for by municipality 2007 (left)
2012 (right), darker red =more insecure  ................. ..... 82
Figure 4.9: Public spending in food security by ministries,
annual averages, 2005 C$ million.......................... 87
Figure 4.10: Food security in key ministries
(%  of ministry spending) 2002-11   ............   ............... 87
Figure 4.11: PRORURAL public spending on food security,
constant 2005 C$ million..........................         88
Figure 4.12: Share of external financing in PNA
budgets (%), 2002-1 1    .............................. ..... 89
Figure 4.13: Distribution of benefits of BPA recipients
by land ownership and consumption, 2009.................... 94
Figure  5.1: The  agriculture  sector's budget cycle........... ... ............ 103
Figure 5.2: PRORURAL and MHCP structures  ................ ..... 113
Maps
Map 3.1: Territories of PRORURAL Incluyente, 20 10-14  . ............. 50
Map 3.2: Four key areas and types of public investment suggested for
Nicaragua                         ........................................... 57
Map 2.2: Micro-regions by poverty, by farmers' profit
potential, and efficiency.................................. 145
Map 2.3: Categories of micro-regions for Nicaragua  ............... 146
Map 2.4: Four key areas and types of public investment
needed for Nicaragua     ............................. ...... 148
Tables
Table 1.1: Macroeconomic indicators and evolution
of the primary sector, 2002-1 1  ............................... 7
Table  1.2: Sectoral growth, 2006-11 .......................... 8
Table 1.3: TFP Growth in Agriculture, 1961-2007  ................. 9
Table 1.4: Shares of household income source by rural
welfare quintile, in percentages. ...................... ...... 12
Table 1.5: Growth Elasticities of poverty, 2001-09  ................. 13
Table 1.6: Poverty Headcounts by Main Source
of Labor Income of Household Head, 2005-2009  ................ 14


Table 2.1: Agricultural policy tools and  characteristics  . ............... 35
Table 2.2: Functional composition of PRORURAL
programs, 2002, 2007, 2011    ........................ ..... 39
Table 2.3: Economic Composition of PRORURAL Spending
by Institution, 2006-1 1 (%  of budget) ......................... 40
Table 2.4: PRORURAL expenditure ratios % .................. 41
Table 3.1: Territorial approach of PRORURAL Incluyente, 2010-14........... 50
Table 3.2: Farm level technical efficiency by department, 2009............. 53
Table 3.3: Correlation between per capita PRORURAL
expenditures (2008-09) and farm-level technical efficiency (2009) ........ 55
Table 3.4: Correlation between poverty and per capita
spending in 2005 and 2009                .......................  55
Table 3.5: Correlation of poverty change 2005-09
with average per capita spending 2005-09  .................... 58
Table 3.6: Different programs show different gender effects........... 64
Table 4.1: User Fees and Fiscal Incentives for forest
activities under Law  462  ................................. 69
Table 4.2: Functional composition of PNF, 2002, 2007, 2011..............74
Table 4.3: Economic Composition of INAFOR
Spending, 2006-1 1 (%  of budget) ........................... 74
Table 4.4: Nicaragua's strengths and weaknesses
on the Global Food Security Index.......................... 82
Table 4.5: Food and Nutrition Security and Sovereignty Programs...... 84
Table 4.6: Objectives and Results for PNA....................... 86
Table 4.7: Functional composition of PNA subprogram
(% of subprogram spending)               ......................... 88
Table 4.8: Functional composition of MAGFOR
and INTA  spending 2007, 2011 ... ......................... 90
Table 4.9: Cost-transfer ratios of food security programs, 2010-11 .......... 91
Table 4.10: Coverage and targeting of food security programs
in 2009, by poverty situation and consumption quintiles (%) ............. 91
Table 4.11: Coverage and targeting of food security programs
in 2009, by location and region (%) ........... ............. 93
Table 5.1: PRORURAL changes of program structure, 2002-11 (%)........... 110
Table 5.2: Number of times that the budget is modified
and number of budget lines that are involved in internal
budget modifications by entity............................. 111


vi
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Acknowledgments
A t the request of the Ministry of Agriculture and Forests (MAGFOR) and
the group of donors of the Plan Sectorial de Desarrollo Rural Incluyente
(or PRORURAL Incluyente), the World Bank has produced this Agriculture
Public Expenditure Review. This report is the product of a close collaboration and
constant consultative process with, on one hand, the four PRORURAL Incluyente
entities-MAGFOR, the Nicaraguan Institute of Agricultural Technology, the Rural
Development Institute, and the National Forestry Institute-and, on the other, the
Ministry of Finance and Public Credit (MHCP), the Central Bank of Nicaragua,
and the Nicaraguan Institute of Statistics. The team would like to thank the
representatives of these institutions for the information and inputs provided and
for always having received the Bank teams and consultants with open doors.
Special thanks go to Silvio Palacio, Director General of MAGFOR, and Nancy
Alvarado, Director of MHCP, for their leadership in this exercise. The team
would also like to thank the three donors that financed this report-the Canadian
International Development Agency, the Embassy of Finland, and the International
Fund for Agricultural Development-and for the guidance and comments their
representatives provided during the entire process.
This report was produced by a team from the World Bank, led by Eli Weiss
(Rural Development Economist and Task Team Leader), with John Nash (Lead
Economist) and Augusto Garcia (Senior Operations Officer). The data were
compiled by Jos6 Ram6n Laguna (Consultant), while the technical background
papers for the report were prepared by Professor Gustavo Anriquez (Consultant,
Pontificia Universidad Cat6lica de Chile), Jos6 Eduardo Gutierrez Ossio (Senior
Public Sector Specialist), Hans Thiel (Senior Forestry Officer, Food and Agriculture
Organization of the United Nations [FAO]), Jorge Ortega (Consultant, FAO), Ra6l
Fajardo (Consultant), and Alejandro Ara6z (Consultant). An additional paper,
financed by the Inter-American Development Bank, was written by Julio Castillo
O
Vargas, Hector Pefia, and Miguel Gomez of RUTA (a think tank).
Madhur Gautam (Lead Economist), Yuri Tanimichi Hoberg (Senior Economist),
and Robert Townsend (Senior Economist) from the World Bank, and John Scott
(Professor, Centro de Investigaci6n y Docencia Econ6micas, CIDE) suggested
improvements through peer review comments at various stages of preparation


of this report. Ethel Sennhauser, Laurent Msellati (Sector Manager, LCSAR), Ayat
Soliman (Sector Leader, LCSSD), C. Felipe Jaramillo (Country Director, LCC2C),
and Camille Lampart Nuamah (Country Manager, LCCNI) provided oversight for
the work, while Diego Arias, Willem Janssen, Svetlana Edmeades, Javier Baez,
and Stefano Pagiola provided further guidance. Logistical support was provided
by Erika Salamanca in Washington, DC, and by Linda Castillo in Managua.
LLJ
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Abbreviations
AOl          Agricultural orientation index
AOP          Annual operational plan
ATP          Agricultural Technology Project
BCN          Central Bank of Nicaragua
BPA          Bono Productivo Alimentario
ECLAC        United Nations Economic Commission for Latin America
and the Caribbean
ENABAS       National Food Trading Enterprise
FMIS         Financial management information system
FOMAV        Road Maintenance Fund
FUNIDES      Nicaraguan Foundation of Economic and Social Development
IADB         Inter-American Development Bank
IDR          Rural Development Institute
IFPRI        International Food Policy Research Institute
IMF          International Monetary Fund
INAFOR       National Forestry Institute
INIDE        Nicaraguan Institute of Statistics
INTA         Nicaraguan Institute of Agricultural Technology
LSMS         Living Standards Measurement Study
M&E          Monitoring and evaluation
MAGFOR       Ministry of Agriculture and Forests
MARENA       Ministry of Environment and Natural Resources
MEFCCA       Ministry of Family Economy, Communities,
Cooperatives and Associations
MEM          Ministry of Energy and Mines
MHCP         Ministry of Finance and Public Credit
MIFAM        Ministry of Family, Youth and Children
MINSA        Ministry of Health
MIT          Ministry of Transport and Infrastructure
MTBF         Medium-Term Budgeting Framework


Nitlap6n     Institute of Applied Research and Local
Development Promotion
OECD         Organisation for Economic Co-operation and Development
PAS          Agro-seed Program
PFM          Public financial management
PNA          National Food Program
PNAIR        National Rural Agro-Industry Program
PNF          National Forest Program
PMSAF        Financial System Administration Modernization Project
PNDH         National Plan for Human Development
PPA          Programa Productivo Agroalimentario
PRORURAL     Sector-wide rural development program
RAAN         Northern Atlantic Autonomous Region
RAAS         Southern Atlantic Autonomous Region
RUTA         Think tank on Sustainable Rural Development
in Central America
SIGFA        Financial Management Administration and Audit
System of MHCP
SINAPRED     National System for Prevention, Mitigation
and Alertness to Disasters
TE           Technical efficiency
TFP          Total factor productivity
Li
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Executive Summary
1. Context. Agriculture remains fundamental for Nicaragua from both a
macroeconomic and social view. It is the largest sector of the Nicaraguan
economy, and it remains the single biggest employer with around 30
percent of the labor force and including processed foods, like meat and
sugar, agriculture accounts for around 40 percent of total exports value.
Nicaragua appears to be gradually losing competitive edge of some
of its key agricultural exports within the most important export markets.
Agricultural total factor productivity of certain basic goods has been falling,
which could be attributed to some extent for the limited use of improved
technologies and the gaps in terms of the quality of its infrastructure and
logistics services even though there have been some progress in this regard.
In spite of these trends, Nicaragua has the potential to expand production
sustainably, on both the extensive and the intensive margins.
2.   PRORURAL is the sector-wide approach implemented by four government
agencies, established in 2005. Its launch coincided with important public
financial management reforms that improved budget processes. In 2008,
the policy framework shifted from a value-chain, export-oriented focus to a
more pro-poor and food security approach. PRORURAL is financed by a
combination of general public revenues, a Common Fund from development
partners, and other aligned donor-financed projects. Just under two-thirds of
the budget has been financed with external resources.
3.   Trends in public spending. Nicaragua has comparatively and
historically low public spending on agriculture, but spending on rural
development is higher, and it has been rising. This phenomenon appears to
be parallel with the acceleration in rural poverty reduction during 2005-09,
which was primarily based on pro-poor agricultural growth. The policy shift
toward food security during the last five years is fully reflected in spending
patterns, which also indicate a strong, albeit more tacit, policy shift toward
public spending on private goods. This has also been mirrored by the rise
of official development assistance (ODA) directly to the agricultural private
sector. There is relatively little detail data available about these programs in


the public sector, suggesting that they are not included as part of the overall
public spending planning process. Therefore, efforts should be made to
ensure that ODA programs channeled off-budget to the private sector can
be coordinated better with the public sector, align with country and sector
strategies and publicly report their development results. On the other hand,
Nicaragua has seen a smaller share of agricultural expenditures going to
public goods like R&D, natural resource management, animal and plant
health. Renewed attention to the delivery of these and other public goods
would generally benefit a broader swathe of producers and could help to
reverse the declining productivity in some agricultural products.
4.   Budget execution by PRORURAL institutions is lower than that of general
government, and particularly weak in the smaller institutions. Meanwhile
administrative costs, in particular personnel costs are high and rising across
all agencies. Therefore, it is recommended that future capacity building in
PRORURAL is carefully planned in each institution on the basis of a sound
human resource strategy, and in the aggregate with attention to fiscal
constraints. In general, the government should closely monitor the functional
and economic composition of the public spending in agriculture as another
lens to improving the efficiency of expenditures.
5.   Targeting. Ideally, a well-targeted spending program should be biased
in favor of those regions that have agricultural benefit potential, but are
lagging in efficiency and productivity. The territorial approach of PRORURAL
is focused at a variety of different geographic levels, but outcomes and
outputs are not tracked in a systematic way across geographic divisions.
Notwithstanding these limitations, we find that PRORURAL spending
tends to be higher where technical efficiency is lower. The returns on
improvements to extension are likely to be especially high, given the
findings of this report that many farmers are far from the technological
frontier. A geographic analysis and targeting methodology developed by
LLJ
IFPRI and applied recently to Nicaragua may prove useful in refining the
territorial approach of PRORURAL down to the municipal level. In terms
of distributive impacts, the review finds an increasing poverty focus of
agriculture programs over time but with each program showing large
Z <leakages to wealthier households.
It would be best practice, if explicit targeting strategies would be put in
place. It is recommendable that remaining tariff and non-tariff trade barriers
that increase domestic food prices should be re-evaluated. Several countries


have substituted price supports by decoupled payments that do not affect
prices and support certain public policy goals, such as environmental
sustainability.
6.   Forestry. Public spending on the forestry sector remains low in Nicaragua
in comparison to other countries in the region and in relation to the sector's
economic importance and environmental risks. The growing economic
potential from Nicaragua's tropical hardwoods will further raise these
risks if forest management is not improved rapidly. In this context, it is
recommended to (i) improve both levels and quality of spending on the
sector; but also to (ii) rationalize the incentive structure. The Government
should continue to mobilize external resources for forest management
(including from emerging climate funds) in the short term and consider
increasing general revenue funds over the medium term. This type of
neutral financing will be critical to support the improvements in enforcement
and producer services while the impact of user fees and other incentives
gradually take force.
7.   Food security. Nicaragua has made progress on reducing malnutrition and
establishing the main elements for food security. In 2009, the Government
reinforced its efforts by passing a law and establishing an umbrella program
for food security (SSAN), and added the objective of food sovereignty
aimed at promoting import substitution. PRORURAL food security programs
represented approximately 42 percent spending of this spending and a
very broad range of programs across several ministries and agencies was
established. Within PRORURAL, the main programming lines have been
governance and capacity building, food security, and food safety. However,
all the other program lines show large volatility from one period with some
programs disappearing and reappearing over time. For areas such as crop
management, seed production and product development which are likely
to see their structural impact only in the medium to long term, such large
fluctuations in available resources would limit their impact. Building a national
consensus on the direction some of these smaller, but crucial, programs may
help to maintain the strategic focus across political administrations and ensure
a steady flow of resources over longer periods of time
U
8.   Expenditure systems. The government's introduction of the Medium-Term
Expenditure Framework was a big step toward performance budgeting-
and away from program budgeting. But budget preparation has no common
guidelines for setting budget ceilings in advance, and most resources


are communicated to PRORURAL entities close to the annual deadline.
Budget revisions are not generally based on technical program reviews
that are virtually absent. It would be best practice, if MHCP and sectoral
entities tighten the link between planning and budgeting. For the financial
management information system, it is recommended that policy makers
use only one single information solution for public financial management
and ensure integration between M&E and budgeting systems. Off-budget
funding is hard to account for it in overall sectoral planning and all types
of ODA, including programs channeled off-budget to the private sector,
should report openly their development results.
LiJ
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1 . Context
1.1. Introduction
1.1. This review analyzes public spending in Nicaragua's agriculture
sector (which also includes livestock and forestry). It suggests
options for getting the most from each c6rdoba (C$) spent, for aligning
expenditures with the strategies and policies, and for improving planning
and budgeting processes.
1.2. The Government of Nicaragua and its development partners in
the sector-wide Plan Sectorial de Desarrollo Rural lncluyente-
PRORURAL Incluyente (hereafter referred to as PRORURAL)-
asked the World Bank to conduct the review. The aim was that
its results and recommendations could inform the new programming cycle
and improve strategic decision making on sector policies and financing. A
core group of the Ministry of Finance and Public Credit (MHCP), the public
entities from the agriculture sector, and the PRORURAL donor agencies,
contributed to the review's conceptualization, preparation, and discussion
as part of a capacity-building process.
1.3. The results and recommendations drawn from and complement
other pieces of analysis. The Government is updating the National Plan
for Human Development; the second mid-term evaluation of PRORURAL has
been carried out and the fourth National Agricultural Census has been
completed.
1.4. The  review   focuses  primarily   on  the  expenditures of
Nicaragua's PRORURAL's sector-wide program and its four
main implementing agencies: the Ministry of Agriculture and Forests
(MAGFOR); the National Forestry Institute (INAFOR); the Nicaraguan
0
Institute of Agricultural Technology (INTA); and the Rural Development     U
Institute (IDR).1 The review looks at public spending under PRORURAL during
1  The IDR was absorbed by the new Ministry of Family Economy, Communities, Cooperatives
and Associations in July 2012. Since this review analyzes 2002-11, the ministry has not been
included.


2002-201 1, but also reviews to some extend the broader context of rural
development spending, tax expenditures, non-budgetary price support, and
donor cooperation to the private sector in agriculture. Although a database
on public spending in the agriculture sector was established for 2002-11,
it was not possible to obtain a complete data series for the first four years.
Nicaragua's Financial Management Administration and Audit System
(SIGFA) of MHCP has been registering the central government's financial
operations in a transactional manner since 2002. But for the autonomous
and decentralized entities (that is, INAFOR, INTA, and IDR), which receive
budget transfers from the central government, the database exists only
since 2006. All figures in the review are in 2005 Nicaraguan c6rdobas
(2005 C$), unless otherwise indicated.
1.5. This review has five parts. The first presents the context, including
the economic performance of the agriculture sector and its link to poverty
reduction, as well as the agricultural public sector, including its policies,
programs, projects, and institutions and the sources of funding. The second
part is mostly descriptive analysis, looking at the evolution and sources
of public spending, classifying programs in various ways to provide an
overview of the scope and composition of spending. The third assesses
the targeting of agriculture public spending, both geographically and by
household to assess its distributional effects. The forth looks at two areas of
special focus: public spending in forestry and food security; and finally the
fifth looks into the institutional aspects of public spending, sector planning,
budgeting processes, and PRORURAL's monitoring and evaluation systems.
All chapters, except the first, offer recommendations and options for moving
forward.
1.2. Economic performance of the agricultural sector
1.6. Agriculture remains fundamental for Nicaragua from      both
a-
a macroeconomic view and a social view. It has accounted for
around 17 percent of national value added over the past decade (Table
1.1). It is the largest sector of the Nicaraguan economy in a standard nine-
sector classification, followed closely by manufacturing and by trade and
Z <hospitality. It remains the single biggest employer with around 30 percent
of the labor force and generates 20 percent of exports. Including processed
foods, like meat and sugar, agriculture then accounts for around 40 percent
of total exports.


Table 1 .1: Macroeconomic indicators and evolution of the primary sector, 2002-11
2002     2003     2004    2005     2006     2001    2008     2009     2010     2011
Agriculture value added as % of GDP  17.1  16.3  16.6  16.8   15.8     15.9     16.0     16.1    17.1     16.9
Growth in agriculture sector value  -0.3  1.9  5.7    4.6      2.5      5.5     4.4      -1.4     9.8     4.3
added, %
Share of agriculture in exports,%  29.1  27.2  26.2   23.9    25.2     23.5     25.6     23.1    21.7     19.4
Shore of agriculture and processed  47.1  44.6  43.2  40.7    42.8     43.4     45.0     45.3    44.4     41.1
food in exports,%
Rural population as% of total  44.8  44.6    44.3    44.1     43.8     43.5     43.3    43.0     42.7      -
population
Share of agriculture in employment'  -  29.3  29.0    27.7    28.8     26.6     26.9     27.6    31.4     30.8
Agricultural value added per worker,  -  30.2  31.9   33.3    31.4     35.0     35.1     35.5    27.6     21.2
constant 2000 $'000s
Source: Central Bank of Nicaragua, Nicaraguan Institute of Statistics, World Development Indicators, and FAOSTAT
- = not available; PPP = purchasing power parity.
1.7. Nicaragua's agriculture           sector is particularly        vulnerable      to
external shocks and natural disasters. Being a small open economy,
Nicaragua's agriculture sector has been buffeted in the last decade by
volatility in commodity prices in some key products. However, the sector is
also particularly vulnerable to climate events, owing in part to the frequency
of hurricanes and prolonged droughts, but also to poor infrastructure. Only
1.6 percent of agricultural land is irrigated2, and 13 percent of the roads
are paved. Changes to agricultural GDP (value added) during the last
decade show these inherent risks of the sector, with annual growth varying
widely.
1.8. Despite these vulnerabilities, the agriculture sector was Nicaragua's second-
largest contributor to overall growth behind manufacturing. Real GDP grew
on average 3.5 percent during 2006-11, while agricultural value added
grew at 3.9 percent.3 Agriculture contributed around one fifth of national
growth rates, in line with its share of value added.
X
0
U
2   Approximately 99,000 Ha, according to the IV CENAGRO database (2012)
3   Reflects recent GDP revisions published in September 2012.


Table 1.2: Sectoral growth, 2006-11
Share of GDP (    Average growth,   Contribution to growt
Agriculture, livestock, & forestry  17.5        3.9                0.68
Mining                        1.0               7.9                0.08
Manufacturing                 15.2              3.4                0.52
Public utilities              1.6               12.1               0.20
Construction                  5.4               -0.1               0.00
Trade and hospitality         14.9              2.7                0.39
Transportation & telecoms     6.8               8.3                0.56
Financial services            5.4               -4.6               -0.25
Real estate                   9.2               1.1                0.10
Personal services             13.0              3.3                0.43
Total private sector value added  89.8          3.2                2.90
Government services           10.2              4.9                0.50
Total                         100.0             3.4                3.40
Source: Anriquez (2012) using data from the Central Bank of Nicaragua.
a. Calculated as compound average growth: ([(3)/(2)]A(1/10)-1)*100. b. (1)*(4)/100.
1.9. However, this growth is not sustainable with the past
circumstances. High export commodity prices, the availability of
unoccupied land, and the reactivation of economy after a period of armed
conflict were the main forces for growth over the last two decades, but they
cannot be expected to deliver a sustained growth impulse indefinitely.
1.10. Meanwhile, Nicaragua             appears to      be   gradually    losing
competitive edge of its agricultural exports in selected list
of products and markets. The main agricultural export is coffee,
but peanuts, beans, and livestock are also important. Although these
exports have grown dramatically in the last decade, this growth has been
0De                    driven more by exogenous, demand side and environmental factors than
competitiveness. A sustained surge in a few non-traditional manufactured
z <and service exports has reduced agricultural exports from 59 percent
of the export basket in 1996-98 to 41 percent in 2010. In the same
decade, their relative quality levels (as measured by unit sales prices) of
Nicaragua's traditional exports to the U.S. markets was stagnant, with no
a                      major upgrades (except for lobsters), while most vegetables exported to


Europe lost relative quality and market share in the past decade. Annex
2 shows the relatively stable position of Nicaragua on the quality ladders
for a variety of agricultural exports between 2000-02 and 2006-08, while
Annex 3 showcases the productivity constraints that the three key export
sectors of beef, coffee and shrimp face.
1.11. ...and agricultural productivity measured as total factor
productivity has been falling. During 2000-07, Nicaragua saw
agricultural productivity decline in contrast to its regional benchmarks
(Table 1.3). Labor productivity saw a small increase through 2009, but
fell sharply in the last two years (Figure 1.1). Deininger and others (2011)
estimated the average productivity in various countries as a percentage of
potential yield, and concluded that Nicaragua has one of the lowest in the
region-above only Haiti and Honduras, and about the same as Bolivia.
Table 1.3: TFP Growth in                 Figure 1.1 Labor Productivity by Sectors
Agriculture, 2000-2007
25.00
Country            2000-0720.00
Nicaragua           -0.7
Honduras            4.1             15.00
El Salvador         1.2
Costa Rico          3.0
Guatemala           2.2             5.00
Ecuador             4.4                  2000 2001 2002 2003 2004 2005 2006 200 2008 2009 2010 2011
Mexico              2.9                    0  Total         i  Agriculture and fishing
Peru                3.7                      Manufacturing  0  Commerce
F  Construction
Source: Ludena 2010.        Source: Staff calculations for forthcoming World Bank Nicaragua Country
Economic Memorandum,
1. 12. The use of improved technologies in agriculture production
20.00
is still limited  even  though    there  have been     governmentI
0
efforts to reverse this trend. In 2011, only 5 percent of Nicaragua's              U
producers used certified seeds, 7 percent organic fertilizers, and 36 percent
fertilizers, while 15 percent of producers had access to credit, and 18
percent received some kind of technical assistance, while there are large
differences among department (Table A.1.1 in Annex 1).


1.13. ... and Nicaragua still faces a large gap in terms of the quality
of its infrastructure and logistics services that raise costs for its
agricultural producers, despite improvements in recent years.
Nicaragua ranks lowest in the region on the logistics performance index.
Although Nicaragua has the largest density of roadway per inhabitant in
the region, only 13 percent of roads (or 23 meters per km2 of roads) are
paved, which is lower than other countries in the regions. According to the
Ministry of Transportation and Infrastructure (MTI) estimated that less than 40
percent of the road network in 2011 was in good or very good condition,
and over 30 percent of roads become unusable during the six-month long
rainy season (May to October). Weaknesses in logistics services, including
trucking and customs also exacerbate the cost to agricultural producers of
getting their products to market or to export. Chaherli and Nash (2012)
estimate that Nicaraguan exports of agricultural products would increase
by almost 200 percent if the soft infrastructure improved to OECD levels.
They estimate that if just the "time to export" was reduced from 37 to 10
days, agricultural exports would grow by nearly half.
1.14. Nevertheless, Nicaragua has the potential to expand
production sustainably, on both the extensive and the intensive
margins (Deininger and others 2011). Among Latin American countries,
it has a ratio of cultivated land to suitable land (with good agricultural
potential not in forests or protected areas) that is the eighth lowest in the
region, similar to Brazil. It also has the third largest "yield gap" (between
actual and potential production) in the region.
1.3. Agriculture and poverty alleviation
1.15. Agriculture's socioeconomic importance in Nicaragua is
larger than its direct contribution to national income. The sector
is the single biggest employer, with more than 30 percent of the labor force,
O.
LU               much larger than the 15 percent average for the Latin America and the
Caribbean region. Agriculture is the main source of livelihood for roughly
8 in 10 rural households compared with 11 percent of urban households.
About 42 percent of the population lives in rural areas, and are highly
U-
Z <dependent on agricultural activities for subsistence and income generation.
I


Figure 1 .2: Employment trends by sector, % of total employment, 2000-1 1
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
"  Agriculture  U  Manufacturing
"  Construction  0  Commerce
Source: World Bank (2012)
1.16. Poverty in Nicaragua has a largely rural face and
malnutrition remains one of Nicaragua's key human
development challenges. The rural poverty headcount at 63 percent
in 2009 has generally been more than twice that over urban poverty (26
percent in 2009). The gap is even more for extreme poverty - one in six
rural households are extremely poor compared with one in twenty for urban
areas (). Although Nicaragua has seen undernourishment fall in the last
two decades from 55 percent in 1990-92 to 20 percent in 2010-12 (FAO),
these levels remain some of the highest in the region.
1.17. Agricultural income is vital for poor households and poverty
alleviation. Rural households receive 60 percent of their income from
agriculture, 27 percent from nonfarm activities, and 13 percent from
transfers. Agriculture has been a main source of job creation, helping to
keep Nicaragua's employment rates stable. But these jobs have been mainly
informal, low-skilled and low income. In 2010, 77 percent of persons
working in the sector were informal, higher than the national average of 71
percent (World Bank, 2013).
1.18. However, agricultural wage laborers were overrepresented
among the rural poor. Households whose main source of income comes
from agriculture (either employment or self-employment) have significantly
higher levels of poverty and extreme poverty. General poverty rates among
household with heads working in agriculture are almost three times higher


than households with heads working in non-agricultural activities. Table
1.4 shows that according to 2009 LSMS data, the poorest 20 percent of
rural households had 74 percent of their income from farm income (45
percent by own agricultural income and 29 percent by agricultural wages),
while they earned 14 percent from non-farm activities and 12 percent from
transfers.
Table 1.4: Shares of household income source
by rural welfare quintile, in percentages
Own agricultural  Agricultural  Fomicm   ofr  no e Tases Total household
income     wages                                    income
(1)       (2)     (1) +  (2)   (3)       (4)    (1+(2)+(3)+(4)
1      44.9      29.3      74.2       14.2      11.6       100
?    2      42.5      25.4      67.9       20.3      11.7       100
_2   3      41.9      18.1      60.1       26.9      13.0       100
1   4      37.6       18.1      55.7       32.2     12.1        100
5      31.4      11.2      42.6       44.2      13.2       100
Source: Anriquez (2012) using LSMS 2009.
Note: The first quintile represents the poorest 20 percent of the rural households, and the fifth quin-
tile the richest 20 percent.
1.19. During 2005-09, there was an acceleration in rural poverty
reduction, both on account of economic growth and higher
growth elasticities of poverty reduction. Rural poverty headcount
fell 7 percentage during 1993-98, but then stabilized remained essentially
constant from 2001 to 2005. Then during 2005-09, the country saw
another reduction in the rural poverty headcount of drop of 7 percent
points'. In fact, the decline in national poverty headcount during 2005-09
was largely driven by the reduction of rural poverty.
1.20. Decomposing rural poverty reduction during this period
confirms that consumption (or income) growth has been the
main engine behind poverty reduction in rural areas (see Figure
< .4                 1.3). Assuming the 2009 poverty line and income distribution were fixed
Z <                  at 2005 levels, the increase of rural income would have reduced poverty
by 10.5 percentage points. This effect is five times higher than the fall in
poverty from the distributional changes in rural incomes (2.1 percentage
4   In this note, poverty estimates are considered significant at the 10 percent level or lower.


points) and more than twice the "growth" effect experienced in urban
Nicaragua (4.8 percentage points). Income growth is also the main factor
driving the reduction in extreme poverty in rural Nicaragua. Finally, in
the latter period, both the growth elasticity of national poverty and the
agricultural growth elasticity of rural poverty increased sharply to levels
over 1.5 (see Table 1.5). An agricultural growth elasticity of rural poverty
of -1 .645 means that when the agricultural sector grew by 1 percent, rural
poverty fell drops by 1.645 percent).
Figure 1.3: Decomposition of Changes         Table 1.5: Growth Elasticities of poverty, 2001-09
in Rural Poverty 2005-09 5
Redis ribution  -2,10
Rei  ibto   -,0Growth elasticity of national    -0.485    0.117    -1.546
poverty
-10,50                                           Agculural growth elsciy of  -0.066  0.025  -1.645
rural poverty
Pov ry Line Effect    5,60
Source: World Bank 2008; Anpquez 2012.
17,00
15,00   -10,00   -5,00    0,00    5,00     10,00
1.2 1. The consumption growth experienced in rural areas is
matched by an increase in agricultural incomes mainly by
poor households. Figure 1 .4 illustrates the total changes in the different
types of rural income between 2005 and 2009, with on average higher
increases in agriculture self-employed income and agricultural wages than
non-agricultural incomes. There was a 12.6 percent increase in per capita
real wages for the rural poor. In addition, we can see from Figure 1.5,
that growth in incomes (above the horizontal lines) is concentrated in the
lower to middle quintiles of the income distribution indicating that poor
households were the main beneficiaries of this growth.
X
0
U
5   To identify the key driving force of the changes in poverty between 2005 and 2009, we
decomposed the data into three main components: (i) income growth, (ii) redistributional changes,
and (iii) the effect of adjusting the poverty line to reflect changes in prices and consumption
patterns (Table 5.4).


Figure 1.4: Changes in rural household income,             Figure 1.5: income Growth Incidence Curve,
2005-09                                                  2005-09
TOTAL INCOME CHANGE                        .          10    Total (years 2005 and 2009)
Agricultural Self- mployed                              7
AgriculturI Wages                                 4
Non-Agricultural Self- mployed
Non Agricultur il Wages
Renittances                                    -2
Oth Income                                     -5
-200    0    200     400    600    800            1  10   20   30  40   50  60   70   80  90   100
" Growth-incidence  N 95% confidence bouns
a Growth at median  i Growth in mean
" Mean growth rate
1.22. Poorer households with income from agriculture experienced
higher growth in their incomes between 2005 and 2009. During
this period, poorer households experienced higher income growth than
richer ones, which means that the economic growth was decidedly pro-poor
at national level. This is also true for rural areas, but the difference between
the expansion of the welfare level of poorer and wealthier households was
not as marked. Although households with main source of labor income in
agriculture (employed or self-employed) had poverty levels that are much
higher than households with income in non-agriculture activities, these
households experienced a larger drop in poverty between 2005 and 2009.
Table 1.6: Poverty Headcounts by Main Source of Labor Income of Household
Head, 2005-2009
a-                                     General Poverty                 Extreme Poverty
Ui                                2005       2009      Change     2005      2009      Change
CL               Main source of labor income
0                   Employed in agriculture     76.3       68.2      -8.1       38.3       28.1     -10.3
Self-employed in agriculture  12.2     63.7      -8.6       30.2       28.1       -2.1
U
z <                 Employed in non-agriculture  30.5      25.4      -5.2        5.9       2.6       -3.4
Self-employed in non-agriculture  30.1  27.5      -2.6       5.8       7.3        1.5
Source: Author's calculations based on EMNV 2005 and 2009.


1.23. Poverty is more severe in the center of the country and on
the Caribbean coast, despite their high economic potential,
particularly for agricultural and forest activities. But these areas,
especially the Northern Atlantic Autonomous Region (RAAN) and Nueva
Segovia, had some of the biggest percentage drops in poverty from 2005
to 2009 (Table A.1.2 in Annex 1). Other departments showing big drops
are Chinandega and Rivas, on the Pacific side. The worst performer was
Rio San Juan, which went firmly against the national trend.
1.24. Differences in poverty by gender are not large. Poverty rates
of female- and male-headed households are close, certainly
within the margin of error of the Living Standard Measurement
Study (LSMS) household survey (table A1.3 in Annex 1). This
is peculiar to Nicaragua, as many Latin American countries have female-
headed households with lower poverty rates, while in Sub-Saharan Africa
it is common for such households to have higher poverty rates (Vald6s and
others 2010). The larger drop in poverty among men could be driven by
differential employment gains between men and women in 2005-09.
1.25. Since 2009, there has been increase in agricultural
employment has been accompanied by a decline in labor
productivity and an eventual decline in real wages even
though there has been an increase in nominal wages during
the period 2009-20126. After declining gradually in the first part of the
millennium, the share of employment in agriculture rose rapidly so during
the global financial crisis in 2008-09 and has remained higher. Agriculture
exhibited relatively less volatility, contributing positively to GDP throughout
the crisis. For both men and women, the agriculture sector accounted for
roughly 46 percent of net job creation in this period. Relatedly, labor
productivity which was stagnant during 2000-09 has fallen dramatically
since then, owing mainly to the expansion of the labor force in agriculture.
Average real wages in agriculture, albeit the lowest wages among the
economic sectors also stagnated and began to fall.
X
0
U
6  Source: Web page from the Labor Ministry of Nicaragua. In 2009, the minimum wage for
agriculture was C$ 1,573 while in the 2012, it was C$ 2273.


Figure 1 .6: Index of labor productivity by sectors   Figure 1.7: Average Real Wages
(2 002=100)
25.00
105
20.00                                               100
90
15.00                                               850
80
10.00                                               85
70
5.00
2000 2001 2002 2003 2004 2005 2006 2001 2008 2009 2010 2011  60
2002 2003 2004 2005 2006 2001 2008 2009 2010 2011
m  Total         a  Agriculture and fishing                  *  General Average
H  Manufacturing  0 Commerce
"  Construction                                                Agiute
Source: Author's calculation using Central Bank data     Source: Ministry of Labor
1.26. The important role that the agricultural sector has played both
in economic growth and social welfare in Nicaragua has been
critical in shaping agricultural policy and public expenditures
over the last decade. Indeed, the fact that the sector provides a socio-
economic contribution that is larger than its direct contribution to national
explicitly advocates for a decided participation of the public sector in the
development of the sector - to accrue social returns which are larger than
private ones. Moreover, income profiles in Nicaragua highlight agriculture's
importance for the poor and stress its key role in any poverty alleviation
strategy. The next chapter looks at how the broad national policies for
agriculture have evolved and taken shape in the institutional framework.
~105
1 .4. Agricultural public sector
010
Lii
1.4.1. The sector-wide approach: PRORURAL lncluyente
1.27. The Nicaraguan government set its key plans for economic
development and poverty reduction in its National Plan for
z <             Human Development (Plan Nacionall de Desarrollo Humano, or
PNDH). The Plan, off icially approved in 2008, was updated in 2009 to adjust
for the global crisis and its expected effects on the national economy. Now
being updated again, it will guide the second term of the current government
for 2012-16. The main strategic themes of the PNDH revolve around:
S9


*  Promoting economic growth through implementing good
macroeconomic policies, increasing public and private investment,
and implementing strategies that improve access to international
markets;
*  Improving the quality of life and equity through the expansion of
education and health services and social protection programs;
*  Improving transparency and governance in public institutions,
including strengthening control mechanisms and audits;
*  Promoting environmental sustainability;
*  Reducing intraregional disparities by developing the autonomous
regions of the Caribbean coast.
1.28. Public spending in agriculture has been delivered mainly
through the sector-wide approach PRORURAL, established in
2005 and led by MAGFOR. Prepared in the context of the first National
Development Plan for 2005-09, PRORURAL pursued three objectives:
higher incomes and reduced poverty, higher and better employment, and
increased investment and exports. It was also intended to improve aid
coordination and to complement assistance from international agencies in
sustainable agriculture and forestry.
1.29. PRORURAL coincided with important public financial
management (PFM) reforms that improved budget processes,
including spending in agricultural programs. These reforms
reached a high point with the approval of the PFM Law 550 in August
2005, which set up a new regulatory framework for the PFM core systems of
budget, treasury, accounting, and public debt-and for the noncore systems
of procurement, human resources, public assets, and public investment.
And in accordance with international best practice, the introduction of a
Medium-Term Budgeting Framework was a good step in transitioning from
program budgeting to performance budgeting. (Further institutional aspects
of public spending are analyzed in chapter 5)
1.30. In 2008, the policy framework shifted from a value-chain,
export-oriented focus to a more pro-poor and food security
approach. Renamed PRORURAL Incluyente, the sector-wide program
U
was updated in 2008 to improve its targeting and alignment with the
new PNDH. It now comprises three major programs: the National Food
Program (PNA), the National Rural Agro-Industry Program (PNAIR), and
the National Forest Program. It also coordinates several donor roundtables
on specific themes, manages a monitoring and evaluation system (SISEVA),


and supports capacity building. It is linked to several commissions and
committees, which are the spaces for public-private dialogue with producer
organizations.
1.31. The development objective of PRORURAL is now to contribute
to the human development and human capital of rural families,
while using natural resources in a sustainable way. Specific
objectives are to: increase agricultural productivity of basic grains (maize,
beans, rice, and sorghum) and beef and dairy products; increase the value
added of primary agricultural production; ensure production, consumption,
and export of healthful food; promote conservation and sustainable use
of natural resources, as a way to mitigate climate change; improve the
access of rural women, youth, and indigenous and ethnic communities to
agricultural technology and services; promote income generation, as well
as the employment of rural families and indigenous and ethnic communities;
and improve access to rural finance, technical services, and agricultural
inputs.
1.32. The strategic pillars of PRORURAL Incluyente are focusing
on small and medium scale farmers. The sector-wide program
defined 10 strategic pillars to guide and organize the services provided
by sector institutions to producers in general, but prioritizing small and
medium farmers. They are: capacity development-public and private
sector; governance-policies and strategies; access to equipment, inputs,
and financial services; technological services-technical assistance,
research and extension services, local markets for technology; plant and
animal health services; agricultural and forest information services; support
to sustainable forest management; support to associations-groups of
producers, cooperatives, and communities; investments in conservation and
restoration of forest ecosystems; and promoting linkages with markets and
agroindustry processes.
LLJ
1.33. Evolution of the territorial approach in PRORURAL. The first
version of PRORURAL (2005) used biophysical and socioeconomic criteria
to define the target territories of the program. To reflect the new strategic
priorities, PRORURAL Incluyente (2008) introduced additional criteria to
Z <improve territorial targeting with the aim of harmonizing sector policies and
focusing national programs in accord with particular characteristics of the
territories. The new criteria to characterize the territories include: biophysical
characteristics; infrastructure available to support productive activities;
*


distribution of population and accessibility to basic services; traditional
productive activities in the area; distribution of productive activities in the
area; territorial distribution and typology of producers, as well as their
concentration; and distribution of extreme poverty per municipality.
1.34. Based on these criteria, PRORURAL Incluyente defined four
strategic zones (table 3.1 and map 3.1 in Chapter 3) and
proposed a whole set of development actions that would be
supported by public spending to help producers realize the
potential of their land, natural resources, technological base,
and production knowledge. The territorial approach also included
actions to promote environmental management as part of productive
activities. Beyond agriculture and forest institutions, PRORURAL Incluyente
proposed the social protection and infrastructure development activities
necessary to support productive activities becoming a driver of economic
dynamism and territorial development, although this cross-sectoral approach
would require greater coordination and public investment with other line
ministries outside PRORURAL.
1 .4.2. PRORURAL entities and agriculture related institutions
1.35. PRORURAL is implemented by four main agencies whose
responsibilities are described under Law 290. These include the
Ministry of Agriculture and Forestry (MAGFOR), which is the governing
institution of PRORURAL and three autonomous and decentralized agencies:
INTA, DR and INAFOR. INTA and INAFOR were originally decentralized
under MAGFOR, and DR was an independent entity under the Presidency.
In 2012, the Government created a new Ministry of Family, Cooperative,
Community, and Associative Economy (MEFCCA) which has absorbed IDR,
and will play a main role in PRORURAL. The institutions have the following
functions:
* The Ministry of Agriculture and Forestry (MAGFOR)
formulates public policies, plans, and strategies for sector
development; identifies and prioritizes the credit as well as the
0
technology technical assistance demands of agricultural and forestry   U
activities; formulates rural land policies and use of state-owned
rural land; formulates and leads agricultural sanitary system plans
and manages quarantine systems; proposes and coordinates with
the Ministry of Environment policies and programs to protect the


ecological system, focusing on water and soil conservation; proposes
the delimitation of areas where agriculture, forestry, and other
related activities can be established, working with the Ministry of
Environment; and issues phytosanitary certificates and permits.
Nicaragua Institute of Agricultural Technology (INTA)
is a decentralized agency under MAGFOR. It was established to
research, develop, adapt and transfer new agricultural technologies
to agricultural producers. In addition to housing the main public
R&D functions in agriculture, INTA provides the majority of extension
services in the sector. In terms of governance, the Minister of
Agriculture proposes, to the President of the Republic, candidates for
the INTA Council as well as its Director.
*  National Forestry Institute (INAFOR) is also a decentralized
agency under MAGFOR. It was established to promote, manage,
and regulate forest resources and to encourage reforestation. The
main flagship program of INAFOR is community forestry management
program mainly concentrated in indigenous territories. In terms
of governance, the President also appoints the INAFOR Director
based on a short list proposed by the Minister of Agriculture.
INAFOR policies are approved by the National Forestry Commission
(CONAFOR), which is also integrated with representatives of the
autonomous regions of the Atlantic Coast (RAAN and RAAS) and one
member from an environmental nongovernmental organization.
*  Institute for Rural Development (IDR) was created by Decree
No. 41-94 of 1994, ratified by Law 290 of 1998, as a formal entity
under the Presidency with autonomous technical and administrative
prerogatives. Originally established to promote rural development
through rural and agricultural infrastructure, under PRORURAL
Incluyente, IDR evolved to focus more on the development of small and
medium producers through promotion of agribusiness cooperatives
Lii                 and post-harvest facilities. In 2012, a reform to the Law 290 created
the MEFCCA, which absorbed IDR and other functions to promote the
development of cooperatives and small and medium-size enterprises.
MEFCCA is currently defining its operational roles and strategies, and
will be one of the institutions of PRORURAL, leading implementation of
programs formerly led by IDR.
1.36. Other institutions that have been involved in the
implementation of PRORURAL, but are not included in Law
290 include Banco Produzcamos, (to assume formerly FNI and Rural


Credit Fund) which was created through In Law 684 in May 2009 and the
National Food Trading Enterprise (ENABAS).
1.37. For some analysis the report uses "agriculture-related"
public expenditures, which include rural roads by the Ministry of
Transport (MIT), the Road Maintenance Fund (FOMAV), and municipalities;
rural electrification by the Ministry of Energy and Mines (MEM) and
municipalities; agriculture faculties by public universities, among others.
Figure 1 .8 helps understand the setup of the relevant institutions in sectoral
public spending and the terminology used in this review, where off-public
budget dialogue mechanisms are in forced in order to discuss issues related
to economic development. (See Box Table 1.1)
Figure 1 .8: Public spending institutions in Nicaragua's agriculture sector
Ministry of Finance and
Public Credit (MHCP)
Ministry of Agriculture and  National Forestry Institute  Nicaraguan Institute of
Forests (MAGFOR)       (INAFOR)               Agricultural Technology
(INTA)
PRORURAL                         Rural Development Institute
lncluyente                       (IDR)
Agricultural Faculties of                     Ministry of Infrastructure  Rural
Public Universities                           and Transport (MIT)      infrastructure
General Directorates of                       Road Maintenance Fund    expenditures
Tones and Customs                              (FOMAV)
Land Administration                           Ministry of Energy and
Institutions                                  Mines (MEM)
Banco Produzcamos                             Municipalities
MARENA
Other agriculture
ENABAS                  related publik
expenditures
0
U
1.4.3. PRORURAL programs and subprograms
1.38.PRORURAL comprises three major programs.
The National Food            Program       (PNA) (63 percent of total
PRORURAL funding during 2006-1 1) aims to increase primary


production of food, improve food security, and ensure the access of
the rural population to healthy food. This program is implemented
by MAGFOR and INTA and has four constituent parts, (i) Programa
Productivo Alimentario (PPA), (ii) Nutrition and Food Security Program
(Programa de Seguridad Alimentaria y Nutrition, PSAN) and (iii) the
Agro-Food Seed Program (Programa Agroalimentario de Semilla,
PAS), and (iv) the National Seed Program.
The PPA is one of the major programs of the Zero-Hunger Program
(Hambre Cero), the government's flagship program aimed at the
most vulnerable rural population, which also comprises education
(to promote preschool attendance and a school snack program) and
health (to increase vaccination, as follow-up to pregnant women,
breast-feeding, and nutrition) programs run by both the Ministry
of Education and the Ministry of Health. The PPA has been led by
MAGFOR but in 2012 it was transferred to the newly created Ministry
of Family Economy. The main programmatic instrument of PPA is the
Bono Productivo Alimentario (BPA), a combination of repayable in-
kind transfers of agricultural inputs (seeds, fertilizers, urea, cows, pigs,
hens, and materials, among others), which between 2008 and 2012
has worked with 100,000 women and their families. To complement
the transfers of BPA, the program also provides technical assistance
and training, supports value-added activities, promotes associativity
among women's groups, and trains them on financial management of
their small investments, credits, and savings for further capitalization
The National Rural Agro-Industry Program (PNAIR) (30
percent of total PRORURAL funding during 2006-11) supports the
generation of value added through post-harvest management,
processing, and commercialization in value chains. It is implemented
mainly by IDR, and partly by INTA. Originally this program included
a large allocation for rural roads and a smaller one for rural
electrification, but this was later transferred to the Ministry of Transport
and Infrastructure, and is analyzed below under the category of rural
infrastructure. Some of the main subprograms under PNAIR include:
* Rural Production Revitalization Program (2003-10),
z<                          financed investments in mainly rural roads and productive
capital of producer organizations and rural roads with resources
from IADB, and the Government of Taiwan, China and the
Government of Nicaragua.
* Production of Basic Grains Promotion Program


(ongoing) finances technology transfer for producer
organizations and infrastructure (mainly rural roads) and was
funded byJapan.
* Agricultural Development Fund (FONDEAGRO)
(2001-11) was a rural development program run by
MAGFOR that provided integrated financial and nonfinancial
agricultural services to around 20,000 families benefited, or
around 60 percent of the producer families in seven targeted
municipalities of Matagalpa and Jinotega.
The National Forest Program (PNF) (6 percent of total
PRORURAL funding during 2006-1 1) aims to promote sustainable
forest management among indigenous communities and small
producers while reducing deforestation and increasing forest exports
and forestry's share of GDP.
Box 1 .1: -The establishment of Citizen's Empowerment Cabinets~
In November 2007, the Government of Nicaragua issued
the "Presidential Decree No. 112-2007" with the purpose
of organizing and promoting an empowerment space to
guarantee the active involvement of citizens in the development
and execution of plans, policies, and governmental programs.
In this regard, a *Rural Development Cabinet" was created. Throughout the
years it has been transformed from a Production Cabinet to a Production,
Trade, and Export Cabinet.
Discussion tables are organized by economic subsectors, such as, dairy
goods, basic grains, coffee, poultry, horticulture products, meat, among
others. They are structured at national, departmental, and municipal level
and have periodic meetings during the year to discuss several issues,
such as, prices, production plans, and trade barriers. Currently, different
actors of the value chain are involved, such as producers, processors,
service providers, government entities, and in the future also consumers'
representatives will be represented.
The main achievements of this dialogue mechanism according to the
U
Government, has been the following: i) building consensus, ii) establishing
a dynamic and evolving communication channel between the private
sector and the government, and iii) including territorial stakeholders in the
discussion and execution of governmental plans.


1.4.4. PRORURAL funding
1.39.PRORURAL is financed by a combination of general public revenues, a
Common Fund from development partners, and other aligned donor-
financed projects. Just under two-thirds of the budget has been financed
with external resources. The evolution and composition of the source of
PRORURAL funds will be analyzed in chapter 2.
1.40. In 2005, the Common Fund was established as tool to
harmonizing donors and aligning cooperation resources to
PRORURAL.7 Since 2005, it has been supported by various cooperation
agencies, including those of Austria, Canada, Denmark, Finland, Norway,
Spain, Sweden, and Switzerland. The Fund operates as budget support
which the Government uses to provide complementary funding for the
PRORURAL programs and is executed solely according to Nicaragua's
systems and law. It has also provided a technical forum for broad
policy dialogue and sector planning between development partners
and Government for the agriculture sector. The Common Fund has been
instrumental in maintaining commitment of more than 20 different donor
agencies to PRORURAL programs, both donors who finance the Fund and
others that finance separate but aligned projects.
1.41. This high dependence on external funding is a major source
of vulnerability for public services in agriculture. Since 2008,
around the time of the global financial crisis, several bilateral donors have
withdrawn from Nicaragua. The decline in donor financing for agricultural
public expenditures has been accompanied by a rise in donor financing
directly to the agricultural private sector. This volume and different types of
off-budget funding has complicated overall sectoral planning.
a-
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7  The PRORURAL Common Fund was set up in March 2006 and, in addition to a group of donor
agencies, it consists of the Ministry of Foreign Relations, MHCP, the Technical Secretariat of the
A                Presidency, MAGFOR, and its attached institutions.


Box 1.2: PRORURAL Mid-Term Evaluation
A Mid-Term Evaluation of PRORURAL Incluyente (2010-14)
was undertaken in 2012 and rated implementation progress
satisfactory. It recognized that throughout strategic changes, PRORURAL
has been aligned with the PNDH; after six years of PRORURAL, Nicaragua
is one of the few countries committed to implement a sector-wide
approach. PRORURAL has learned from experiences and developed a
good sector strategy with clear value added. The report confirmed that the
three main programs of PRORURAL Incluyente are progressing toward its
goals, especially outputs, and that it has made important achievements on
improving conditions of the most vulnerable groups (poor rural families,
women, indigenous peoples, and ethnic groups) and on promoting
participation at territorial level.
The Mid-Term Evaluation made four recommendations: to improve
general understanding on the details of PRORURAL Incluyente among the
many stakeholders; to present evidence-based connections for PRORURAL's
outputs with higher level objectives and sector goals that contribute to the
PNDH in transforming the economy and improving living standards of rural
families; to put in place effective inter-institutional programmatic structures,
budgets, and annual operational plans; and to update the budget and
financial gaps of PRORURAL Incluyente for 2010-14, while reviewing
whether the budget thresholds for institutions are enough for the expected
results and goals, as well as preparing a robust strategy to close the
PRORURAL's financial gap.
X
0
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2. Evolution, Composition,
and Sources of Support to
Agriculture
2.1. Overall public support to the agriculture sector
2.1. Broadly speaking, Nicaragua has four types of public expenditures that
support the agricultural sector:
i). PRORURAL which finances goods and services in food security and
sovereignty,' agri-business, and forestry;
ii). agriculture-related spending which are expenditures on rural
infrastructure (roads and electrification) spread over a number of
ministries' and spending on agricultural universities; A broader
definition of agriculture-related spending would include public
expenditures on Nicaragua's land titling program, net expenditures on
rural credit provided by the state-owned Banco Produzcamos and its
predecessors, and public spending for ENABAS, the National Food
Trading Enterprise. However, these are not included in this review
owing to data limitations.
iii). development cooperation (ODA) for the agricultural private sector
(mostly off-budget); and
iv). implicit expenditures including tax incentives and exemptions in
various subsectors.
2.2. Public spending related to agriculture has been rising rapidly
in real terms over the past decade, but this increase has been
due to spending on rural infrastructure, while spending on
agriculture has been slightly decreasing (Figure 2.1). In fact, pure
Lii
public spending on the agriculture sector has been slowly decreasing in
real terms with the exception of 2007-08 when spending peaked due to
Hurricane Felix recovery and the introduction of the PPA (see para 2.9).
z<
8  PRORURAL only finances the productivity and production side of food security. Chapter 4 will
have a more holistic approach on public spending in food security, including education, health
and social protection.
9   For rural roads, the entities included are the Ministry of Transport (MIT), the Road Maintenance
Fund (FOMAV), and municipalities, while the entities for rural electrification are the Ministry of
Energy and Mines (MEM) and municipalities.


Figure 2.1: Trends in overall public spending
to the agriculture sector (C$2005 millions)
2000
1500
1000
500
0
2002   2003  2004   2005   2006   2007  2008   2009   2010  2011
m PRORURAL
m Agriculture related spending
Source: MHCP; authors' elaboration.
Note: Earlier IDR expenditures on rural roads and electrification have been subtracted from PRORU-
RAL totals in order to have a consistent series over time.
2.3. Meanwhile, both spending on agricultural universities and tax
expenditures are on the rise. (These data are only available since
2007.) Agricultural faculties of public universities have received gradually
increasing allocations over the last three years in line with Nicaragua's
constitutional mandate to provide 6 percent of public sector budget for to
public universities in general. Meanwhile, tax expenditures in agriculture
- mainly tax exemptions and import duty exonerations - have been rising
in real terms. These including exemptions from tariffs for certain imports
are a growing part of public spending in the sector (Figure 2.2). In 2011,
tax expenditures reached over C$300 million in nominal terms an increase
of 86 percent since 2009. This rise has been mainly due to an increase
in imports favored by greater availability of external financing from
commercial banks to input suppliers, as well as by a recovery in remittances
and foreign investment since the global financial crisis. The sector has also
0
faced higher prices of imported fertilizers, chemicals, and petroleum, as
well as more imports of agricultural machinery, during this period.
O
03


Figure 2.2: Public spending on agriculture by use, 2002-11, C$2005 million
1200,0
1000,0
*a    800,0
600,0
-2    400,0
200,0
PRORURAL       Rural     ODA to private  Agriculture  Implicit
Infraestructure  sector    universities  expenditure
a 2002 m 2003 M 2004 * 2005 m 2006 m 2007 m 2008 M 2009 m 2010  2011
Source: MHCP; authors' elaboration.
Note: Earlier IDR expenditures on rural roads and electrification have been subtracted from
PRORURAL totals in order to have a consistent series over time. ODA to agricultural private sector
is only available since 2007, agriculture university spending is only available since 2004, and tax
expenditures are only available since 2009.
Agricultural Orientation Index (AOl) of Public Expenditures
2.4. The contribution of agriculture to the economy is around seven
times the sector's budget allocation. One way to evaluate the levels
of public sector support to look at the agricultural orientation index (AOl),
which measures the ratio of agricultural spending in public budgets, to
share of agricultural GDP in national value added. A measure greater than
1 indicates that the country spends proportionately more on agriculture
than its importance in the economy, and vice versa.10 It is important to
mention that the AOl only analyzes the importance of agriculture in the
economy and in total spending but does not say anything on whether the
countries spend efficiently, achieve higher productivity, or reduce poverty.
C
0..
LU            2.5. Historically, Nicaragua's AOl for rural spending was on par
with the Latin American average, while the AOl for agriculture
spending was much lower and was falling over time. Two
databases can help benchmark Nicaragua's AOl against that of other
z                    countries in Latin America and the Caribbean: the FAO     database on
rural public spending in Latin America, with data for 1985-2001, and
the ECLAC database on agricultural public spending in Central American
10 Agriculture Spending as % of Total Public Spending Agriculture GDP as % of Total GDP


countries, the Dominican Republic, and Mexico, with data for 1980-2006.
Table A1.4 in Annex 1 shows the AOIs of these two above mentioned
databases.
2.6. However, in the last decade, AOl has tracked expenditure
levels, rising for rural development spending but have
continued to fall for agriculture-specific spending as measured
by PRORURAL only. In 2011, the AOl was 0.62 for rural public
spending, and was 0.21 for agriculture (PRORURAL).
Figure 2.3: Agriculture Orientation Index of Public Spending, 2002-11
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0,0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
m PRORURAL
" Rural spending
U
Source: MHCP; authors' elaboration.                                  0
Note: Earlier IDR expenditures on rural roads and electrification have been subtracted from PRORU-
L-
RAL totals in order to have a consistent series over time. Rural spending includes PRORURAL, rural
infrastructure and agricultural universities.
0
2.2. Analysis of PRORURAL spending
0
2.7. Over the last decade PRORURAL spending has declined in
real terms and also lost share in the total budget, GDP, and
agricultural GDP partly explained by a reduction in external
funding by some development partners (Figure 2.4). It is also                           0
notable that during 2009, when the country was hit by the financial crisis,
an economic contraction and necessary fiscal adjustments, the budget for
agriculture sector fell disproportionately.


Figure 2.4: Trends in PRORURAL spending as share of GDP, agricultural GDP
and total budget, 2002-11
1%
6%
5%
4%
3%
2%
1%
0%
2002  2003  2004  2005  2006  2007  2008  2009  2010  2011
PRORURAL spending as share of
a GDP
M Agriculture GDP
" Total Budgest
Source: MHCP and INAFOR; authors' elaboration.
Note: Earlier IDR expenditures on rural roads and electrification have been subtracted from PRORU-
RAL totals in order to have a consistent series over time.
2.8. The first PRORURAL 2005-09 was meant to provide a significant
boost to agricultural public spending, but ultimately spending
continued along at the historical levels. The estimated cost of this
first stage of PRORURAL in 2005-09 was $41 1.5 million. Average annual
spending was to be $82.3 million-almost twice the historical average
budget. Ultimately, actual spending was $41 .3 million a year, that is,
similar to previous trends. Problems in execution included lack of a clear
and prioritized rural strategy to guide public investments-and inadequate
donor coordination (Budinich 2004; Wiggins and others 2007; World
Bank 2008a).
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2.9. Then PRORURAL spending peaked in 2007-08 owing mainly
to Hurricane Felix recovery and the introduction of the
Programa Productivo Atimentario (PPA). In September 2007,
Nicaragua was hit by Hurricane Felix, a Category 5 storm, which affecting
nearly 200,000 people. Agriculture and fisheries - the primary income
for coastal communities in the affected region - were heavily impacted.
Subsequent donor support and reconstruction efforts were directed primarily
to the rural sector to help farmers recover production, yielding a spike in


agriculture spending. In 2007, the Government launched the PPA with the
start of exceptionally large flows of bilateral support from Venezuela oil
cooperation. These off-budget flows were complemented by a significant
increase in public expenditures from MAGFOR's budget primarily and
then by flows from a range of development partners." (This program is
discussed further in Chapter 4).
2.10. Since 2009, PRORURAL spending has returned to historical
levels, but continued to decline as a share of agricultural and
national GDP. Combined with the improvements in sector performance
both in terms of economic growth and export levels, and with the
acceleration in rural poverty reduction, this may suggest an increasing
efficiency of agricultural public expenditure. However, it must be evaluated
in conjunction with the overall spending on rural development including
infrastructure and ODA to the private sector, as well as on sector outcome in
terms of production and productivity. On the social side, it will be important
to disaggregate rural poverty reduction into the growth and redistributive
elements, but also look at rural labor market outcomes to evaluate the
contribution of agriculture public spending (see chapters 3 and 4).
2.2.1. PRORURAL program and institutional spending
2.11. As noted above, PRORURAL has three main programs
aimed at food security and sovereignty (PNA), agro-industrial
5)
development (PNAIR) and forestry (PNF). Although each of these
a
programs have some elements that are executed by several of the four main
institutions MAGFOR, IDR, INTA and INAFOR, the levels of expenditure for
MAGFOR, IDR, and INAFOR generally track those for PNA, PNAIR and
PNF, respectively (see Figure 2.5 and Figure 2.6 below). However, there
are some notable differences which we will outline below.
0
2.12. Reflecting  the policy   shift towards food    security and
0
O-
sovereignty in 2007, PNA now      represents the largest (73
O
percent) share of PRORURAL and has been gradually rising
over time. Historically, the government had allocated similar levels of
funding to PNA and PNAIR. But after 2006, more emphasis was given to
the PNA, which rose from around 50 percent to almost three-quarters of
PRORURAL in 2011 (Figure 2.5). The PNA saw a large increase in 2006-
11 European Union, InterAmerican Development Bank, FIDA, and the Governments of Austria and
Tawian, China.


08 was due to the greater availability of external resources in response to
Hurricane Felix. MAGFOR also saw its spending grow from around C$300
million in 2002 to C$400 million in 2011, with a spike to nearly C$650
million between those years representing the Hurricane Felix recovery
and the introduction of the PPA. INTA, the other implementing agency of
the PNA saw its expenditure fall slightly over the period, due mainly to a
decrease in external funds.
2.13. Meanwhile, PNAIR spending has fallen dramatically from
around half of PRORURAL spending in 2002-06, to 22 percent
in 2011. The decline is due in part to a refocus on agro-industry and
reassignment of rural infrastructure and rural credit spending to other
ministries and institutions, but also to a decline in external resources. DR is
the PRORURAL institution most dependent on external resources, averaging
85 percent of its budget.
2.14. PNF has remained low in terms of spending priorities, but
somewhat more stable. INAFOR however, has seen a steady decline
in its external funding and consequently is overall spending since 2007.
(See Chapter 4 for a fuller discussion on forestry spending).
Figure 2.5: Public spending in PRORURAL  Figure 2.6: Public spending by PRORURAL entities,
programs, C$2005 millions, 2002-11               C$2005 millions, 2002-11
m PNA                                  U MAFGOR       a INTA
" PNAIR                                0 IDR          N INAFOR
" PNF
1.000                                         700
600
800
500
2              600                                         400
300
W          400
X                                                          200
Lii
200                                          100
z<
Source: MHCP; authors' elaboration.


2.15. PRORURAL budget execution12 has been generally lower at
77 percent than the 96 percent average for the government as
whole. On average, the government entities increased their execution over
the last decade, reaching 96 percent in 2011 (Figure 2.7). The agricultural
entities, which were below the government average since 2002, gradually
improved their execution, reaching 90 percent in 2008. However, a sharp
drop to 70 percent in 2009 was only partially recovered, reaching 77
percent in 2011. While MAGFOR and INAFOR have good execution
rates at around 90 percent, INTA and IDR spent less than 60 percent of
their modified budget in 2011. The stronger implementing agencies are
INAFOR, which had 100 percent execution in 2006-10, and MAGFOR,
which recovered from its 2009 drop to 92 percent execution in 2011.
INTA with an execution rate of 56 percent and IDR with 59 percent have
struggled to achieve a good rhythm of implementation.
Figure 2.7: Budget execution by PRORURAL and central government,
C$2005 million, 2002-1 1
Central Government                                       PRORURAL
25.000                                               1.600
1.400
20.000                                              1.200
15.000                                               1.000
800
10.000                                                600                                                          0
O
400
5.000
200
" Approved                                          N Approved
a  Modified                                         a  Modified 0
" Executed                                          U Executed
0
Source: MHCP; authors' elaboration.
12 This analysis presents results reported from the individual SIGFA systems run by the individual
agencies as opposed to those presented in the national SIGFA. Discrepancies between the two
generally result from end of year transfers and reallocations used to balance the general central
government accounts. As such, whereas overall central government execution rates as reported
by the national SIGFA are high, the individual SIGFAs describe more accurately the execution
performance of the individual agencies. These parallel systems are expected to be consolidated
under the ongoing public financial management reforms and upgrade of the FMIS.


2.2.2. Composition of public spending
2.16. Agriculture public spending can be classified in three
types of support- general services, direct support and price
interventions. General services benefit the sector in a collective manner
and can be classified as public goods; they can be agricultural public
services, such as agricultural research or plant and animal health, or rural
infrastructure. Direct support is essentially the provision of private goods to
individuals, mostly as subsidies or payments, but also extension services
among others. Tax exemptions would be included in direct support, as they
benefit individual producers. Price interventions are not generally a part of
public spending because it is financed by consumers who pay the difference
between domestic and border prices, while producers benefit from the
artificially higher prices. Direct support and general services are public
spending through central and regional governments paid by taxpayers
whereas price supports are generally paid by the final consumers.
2.17. Spending on public goods is generally a more cost-effective
way of supporting sector development. Table 2.1 outlines the
different characteristics of each spending policy tool. General services have
the least distortion, high coverage and economic impact owing to the non-
excludable and non-rival nature of goods and services provided. Moreover
these are goods and services which tend to be underprovided when left to
private agents. Direct support, on the other hand, has mixed results, with
low coverage, medium to high distortion, and medium impacts. However, in
almost all countries worldwide, agriculture public expenditures also include
spending on private goods. In Latin America higher agricultural public
spending on private goods has been seen to weaken rural development
and agricultural growth (Anriquez 2007; L6pez and Galinato 2007).
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Table 2.1: Agricultural policy tools and characteristics
Caegr       Geeatedfre nce  betweenSureDstrin                       oeagrdutv
Price support  GeeaedfeecsbtenConsumers                  High       Low        Low
domestic and border prices
*  Payments for production per  Individual, with
unit/area
*  Subsidies for inputs  direct impact
Direct support  *  Capital formation: irrigation,  in the  gross
(private goods)  credit          producer income         Medium /high  [ow     Medium
*  Form  services: pest control,
agricultural extension
*  Tax exemptions                 Taxpayers through
central and
Agriculture public services       regional
*  Plant and animal health        government
*  Agricultural research
*  Information systems
Geerlic s *  Land tifting      Collective              None       High       High
(public goods)
Rural public infrastructure
*  Rural roads
*  Rural electrification
Source: author's elaboration, partially drawn from IADB (2012).
2.18. During 2002-11, Nicaragua has seen a dramatic increase in
pure agriculture public spending on private goods, which is in
U
some measure aligned with the government's new approach.
Figure 2.8 shows spending on private goods tripling between 2002 and
O
2011. Although spending on public goods has seen a commensurate rise,
this reflects increases in rural infrastructure as opposed to spending on
agriculture-specific public goods. The latter has remained very small in
relation to spending on private goods.
2.19. The spending in public goods within PRORURAL, has been
quite low, less than 20 percent on average over the last
decade. Figure 2.9 illustrates that spending in public goods in MAGFOR
has dropped significantly over the latter years, while public goods spending
in the IDR, INTA and INAFOR increased. These low and relatively stable
shares in public goods spending appear as a result of two diverging trends.
The drop in public goods spending in the MAGFOR happens at the same
time as the budget gets dominated by the growing PPA which we discuss in
further detail below.


Figure 2.8: Public spending on agriculture by public and private goods,
C$2005 million, 2002-1 1
2500
2000
1500
1000
500
0
2002  2003  2004  2005   2006  2007  2008  2009  2010  2011
m Private goods
a Public goods
" Public goods, excluding rural infra
Figure 2.9: Trends in share (%) of PRORURAL spending on public goods by
institution, 2002-1 1
45
40
35
30
25
20
15
10
5
0
2002  2003  2004  2005   2006  2007  2008  2009  2010  2011
m IMAGFOR
m INTA IDR INAFOR
m PRORURAL
Source: Anriquez, 2011
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2.20. International experience generally has shown that the
larger the share of the public budget spent on public goods,
the greater the positive impact of a given amount of spending
0 <                 (L6pez 2004 and Anriquez 2006) Anriquez (2012) carried out original
research on the impact of public spending on total factor productivity (TFP),
using a sample of 16 Latin America and Caribbean countries, from 1985
to 2001. The technical details and the results are in the background study
(The important findings of this analysis are that public spending generally


has a positive impact on TFP; but consistent with other studies cited, a
higher share of this spending on private goods means lower effectiveness
in increasing TFP)."
2.2.3. Functional composition
2.21. Since 2006 and mostly from 2009 on, progress has been
made in PRORURAL's budget classification system, but
weaknesses in tracking expenditures and outputs continues
to limit Government's ability to monitor efficiency. Until 2006,
widespread misclassification of expenditures according to functional
categories makes it difficult to track and analyze trends in functional
composition. Nevertheless, with the ongoing budget and public financial
management reforms government-wide, it makes it easier to look at more
recent trends and current compositions. Figure 2.10 illustrates how difficult
it was to classify some program spending that fell into multiple categories,14
which is why the largest part (46 percent) of spending was allocated to
"other expenditures" in 2002-04. In 2009-11, however, only 5 percent
remained in this category. The large increase of administrative costs is
due mainly to this process, representing 35 percent in the second period.
Nevertheless, given the already low levels of public spending in agriculture,
a strong effort to reduce these over time could yield more effective and
efficient spending all around.
U
2.22. Research spending remains very low and agricultural inputs
have risen sharply, the latter mainly due to the much greater
importance given to BPA and the Agro-seed Program (PAS). In
2009-11, spending on inputs was eight times those for research. Given
U
the evidence on the high rate of return of research and extension, it is
(0
recommended to give more importance to them. The productive development
category's decrease is due to large cuts in the IDR budget.
0
0
0
13 The analysis also indicated that this effect of spending on TFP differs across countries in the
sample, and Nicaragua in this period had a below average response of TFP to spending.
However, this says nothing about the effectiveness of spending in years past 2001.
14 Definition of functional composition is described in Table A. 1.7. in Annex 1 .


Figure 2.10: Change in functional composition
of agricultural public spending (PRORURAL)
2002-04                               2009-11
9%    9%                          5% 3% 2%  1%
7%                   14%             7%
35%
511
4%
3%
20%
*  Administration   U  Extension Services  N  Inputs
*  Animal and Plant Health  a  Natural Ressource Management  N  Other expenditures
*  Productive Development  0  Research   a  Institutional Strengthening
Source: MHCP; authors elaboration.
2.23. The policy shift in PRORURAL from production toward food
security is evident in spending patterns both at the aggregate
and program levels. Table 2.2 shows the distribution of each program
spending across subprograms and functions for three years 2002, 2007
and 2011. In PNA, the shift from capacity building and production toward
food security is evident starting in 2007. In PNAIR, the majority of the
program has shifted from "productive" in 2002, to value chains in 2007 to
governance in 2011. Similarly, PNF has experienced a large shift between
"reforestation and restoration" toward "governance and institution building"
and back again. Such large shifts in a relatively short space of time call into
question the policy stability under which these programs are operating and
their subsequent effectiveness in delivering on medium and long term goals.
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I


Table 2.2: Functional composition of PRORURAL programs, 2002, 2007, 2011
% of program spending)                       2002      2001       2011
Governance and capacity building             55.7      28.3       29.6
Integrated crop management                   2.4       12.8        7.7
Production monitoring                         -          -         1.3
Seed Production                              0.6        5.7        1.1
Productive Development                       9.6         -
Food Safety                                  17.8       14.7      17.0
Food Security                                13.9      38.5       40.6
Value chains                                 16.4       72.2      21.0
Governance                                   0.8        0.5       60.8
Productive Development                       77.4       27.3      15.1
Commercial promotion                         5.4         -
Human talent                                  -          -         3.0
Development of industry and trade             -         2.6
Knowledge generation and management           -         4.0        6.8
Governance and institutionalization           1.8       54.8      45.6
Forest management and conservation           23.2       33.1      21.4
Reforestation and forest restoration         75.0       5.6       26.2
u
Source: MHCP; authors' elaboration.
0
L-
2.2.4. Economic composition of PRORURAL spending
2.24.    In 2011, 30 percent of PRORURAL spending was capital, 70
percent current. There were large differences among institutions, ranging
from 4 percent for INAFOR, 10 percent for INTA, 30 percent for MAGFOR,
and 49 percent for IDR. The accounting data indicate a substantial increase
E
in the current expenditures of the autonomous institutions - IDR, INTA, and
INAFOR-and a shift toward capital expenditures for MAGFOR. While
initial changes may have stemmed from            a reclassification of resources
under the Government budget reforms, the latter values are more robust.
MAGFOR's spike is a result of redirecting almost half its budget to PPA
under which the transferred assets (mostly livestock) are considered durable
and therefore are classified as capital spending.
S


Table 2.3: Economic Composition of PRORURAL Spending by Institution,
2006-1 1 (% of budget)
2006        2007       2008        2009       2010       2011
IDR
Capital       56%        65%         60%        68%        68%        49%
Current      44%         35%         40%        32%        32%        51%
INAFOR
Capital       18%        18%         17%        13%         1%         4%
Current      82%         82%         83%        87%        99%        96%
INTA
Capital       4%         4%          13%         8%         1%        10%
Current      96%         96%         87%        92%        99%        90%
MAFGOR
Capital       30%        61%         48%        23%        33%        30%
Current      70%         39%         52%        77%        67%        70%
Capital       39%        54%         45%        33%        36%        30%
Current       61%        46%         55%        67%        64%        70%
2.25. There is no unique optimal balance between the two in
agriculture. The balance varies across countries and depends on
sectoral priorities and institutional and programmatic objectives. A general
interpretation of capital spending is that it represents investments-and
current expenditures the costs of delivering them. In this light, low capital
spending would be seen as inefficient underinvestment. On the other hand,
Devarajan, Swaroop, and Zou (1996) argue that capital expenditures
normally considered productive could become relatively unproductive, if
there is an excess due to decreasing marginal return on capital invested.
z<
I


Table 2.4: PRORURAL expenditure ratios (%)
Recurrent                    28.0      41.0
Development                  72.0      59.0
Current                      40.2      10.4
Capital                      59.8      29.6
Wages                        13.9      33.5
Operations & Maintenance      1.7      8.9
Source: Gutierrez y Laguna 2012 (Annex 1)
2.26. Personnel costs which have risen from 14 to 20 percent of
PRORURAL budgets during 2002-11 (see Table 2.4) and should
be closely monitored alongside the efforts to build institutional
capacity in PRORURAL. MAGFOR has seen its personnel costs rise from
18 to 26 percent of its total spending, while IDR has seen an increase from
15 to 20 percent. INTA and INAFOR which, given their mandates have
traditionally had a higher share of spending on personnel, have also seen a
rapid increase from 44 to 58 percent and from 58 to 64 percent respectively.
These costs can also explain a good part of the high administrative costs
discussed in para 2.21. The increases in personnel costs should be closely
U
monitored as part of a broader effort to ensure efficiency in PRORURAL
spending. The demands for further capacity building in PRORURAL needs
O
to be carefully planned in each institution on the basis of a sound human
resource strategy, and in the aggregate with attention to fiscal constraints.
2.27. Operations and maintenance costs have increased from 2
to 9 percent (see Table 2.4). Meanwhile, the increase in maintenance
costs suggests closer attention to ensuring good returns on the investment
spending incurred during the earlier years.
O
0
2.28. Capital spending saw     lower execution than the approved
0
or modified budget, a problem that various countries experience. Once
expenditures were accrued, they were considered executed. Two main
factors affected the execution of capital more than current expenditure: (i)
the need to prepare the procurement documents (for instance, the bidding
documents) and to fit in the legal time that the different steps should fulfill;
and (ii) the need to deal with the procurement processes that multilateral


organizations require, even when agencies lack institutional capacity.
This situation became more complicated when budget modifications were
approved mid-year because of the tighter calendar to complete the processes.
2.29. PRORURAL entities focused on preparing current expenditures
to keep the entities running, leaving capital expenditures for
the next budget modification. This led to a disconnect between current
and capital budget preparation. Within the agriculture sector, each entity
is responsible for preparing its budget-capital and current. On the capital
budget, entities include external funds when the multilateral organizations
and bilateral cooperation financial agreements are signed off. In budget
terms this comes up through the budget modifications, usually every August,
though 2009 had two due to the global financial crisis. For PRORURAL
entities, the Common Fund has been financing the capital budget as well as
some current spending.
2.30. Since capital spending depends heavily on donors and
external funds, incorporating it into the budget takes time. But
before entities can include external funds in the capital budget, they have
to follow the regulations in Law 550 and the public investment system. The
regulations are to ensure macro stability and to maximize the economic
and social returns of public investments. This mostly becomes an issue when
a new credit/loan needs to be included into the budget that has already
been approved. For instance if a credit/loan is approved by a board of a
multilateral in March, the executing agency needs to wait until the Ministry
of Finance (MOF) can modify the budget to start executing. To prevent this,
the MOF is alerting entities, which are negotiating credits, that as soon as
they can provide strong evidence that the credit will proceed, they should
include an indicative figure into the proposed budget for the next fiscal year.
2.3. Evolution of source of financing for the agricultural sector
O.
Ui
2.31. PRORURAL is highly, but decreasingly dependent on external
funds. As described in chapter 1, PRORURAL is financed by a combination
of general public revenues, a Common Fund from development partners,
and other aligned donor-financed projects. The budget financed by external
resources has declined gradually from 75 percent in 2004 to 59 percent
in 2011 (Figure 2.11). Meanwhile, the share of national funds in sector
budget increased from 25 percent to 41 percent in the same period. The
different institutions have varying levels of dependency on external funds


ranging from 76 percent for IDR (in 2011), to 61 percent for INAFOR,
60 percent for MAGFOR, and 32 percent for INTA. Their evaluations are
illustrated more in detail in figure Al .8 in Annex 1. During 2006-11, the
Common Fund accounted for an average of 22 percent of external funding
and for 15 percent of total funding (Figure 2.12).
Figure 2.11: Distribution of PRORURAL    Figure 2.12: PRORURAL spending by source of
spending by source of financing               financing (2005 C$ million)
100%                                     1.200
80%                                     1.000
800
60%
600
40
400
20&                                      200
0%                                        0
C C C   C> C= C= C C=                 C=  C=  C=  C=  C=  CD  C=  C=
C     C=  C= C= C C= C C=             C=  C=  C=  C=  C=  CD  C=  C=  C> C=
"  External Funding                        U  Domestic Funds
"  Domestic Funding                        a  Other External Funds
N Common Fund
Source: MHCP
Source: MHCP and MAGFOR; Arafz 2012
u
O
2.32. The structure of official development assistance (ODA) to
L-
the agriculture sector has changed in recent years (Figure 2.13).
The historically largest ODA category-from bilateral donors to the public
U
sector-has decreased, while that to the private sector has increased its
0
share. The sector has seen some traditional bilateral donors phasing out in
recent years. In 2010 and 2011, bilateral ODA to the private sector was
the largest category on average (37 percent), followed by bilateral ODA to
the public sector (35 percent) and multilateral aid to the public sector (26
percent). Multilateral funds to the private sector in agriculture accounted for
just 2 percent.                                                                 0


Figure 2.13: Official development aid to agriculture by source of funds and
recipient (public/private sector), 2007-1 1 (2005 C$ million)
1.200                                        1.600
1.000                                        1.400
1.200
800                                         1.000
600                                          800
400                                          600
400
200                                          200
0
2007   2008    2009   2010   2011        2007    2008   2009   2010    2011
m  Public Sector             a  Private S. / Multilateral  E  Public S. / Multilateral
"  Private Sector            a  Private S. / Bilateral  a  Public S. / Bilateral
Source: Central Bank of Nicaragua, MINREX, MAGFOR; Ara6z 2012.
2.33. Off-budget funding is a problem because it is hard to
account for it in overall sectoral planning. Figure 2.14 showcases
the most important bilateral and multilateral donors to the agricultural
public sector and the bilateral agencies that channeled funds off-budget
through the private sector. These flows represent not only the Venezuela oil
cooperation, but also the US Millennium Challenge Account, and lines of
credit for microfinance. The volume and different types of off-budget funding
has complicated overall sectoral planning, monitoring and evaluation.
2.34. Almost half of the funds of the PPA came from treasury, and
the rest of a mixture of external funds, led by Venezuela and
IADB. Table A.1 .9 in Annex 1 illustrates the detailed source of funds for
U? PRORURAL's flagship program.
2.4. Conclusions and recommendations
Lii
2.35. Nicaragua has comparatively and historically low public
spending on agriculture but spending on rural development
more broadly is high and has been rising. Although the first
PRORURAL was meant to provide a significant boost to agricultural spending,
over time PRORURAL spending has been generally stable in real terms, and
lately declining as a share of agricultural GDP and the central government
budget. Given the sector's relatively positive performance in terms of
growth and exports, this could suggest either an increasing efficiency or


Figure 2.14: Official development aid to the agriculture sector
by source of financing (bilateral and multilateral) to the public
and private sectors, 2007-1 1 average
Public sector, average C$140 million a year  Private sector, average ($326 million a year
2%                       M USA               2%2% 1% 1%
2%    8%                   * IDB              2%     I% 1%
2%  \0n                      U  Finland      6%  \                       Venezuela
3%                          U Sweden                           40%     U
3%                           0 IFAD       10%                         U  EU
4%                             Japan                                     Sweden
0  Switzerland                           a  Holand
6%                      14%   * WB/IFC                                   Spain
1  Norway    15%                         M  Norway
7%                             Denmark                               M  Austria
8%             11%      M FAO                                    U Italy
10%               0  Austria              21%                 Canada
EU
Others
Source: Central Bank of Nicaragua, MINREX, MAGFOR; Ara6z 2012.
a declining relevancy of public agricultural spending to sector outcomes.
However, in the face of declining labor productivity and competitiveness
of Nicaragua's agricultural exports in some goods within key markets, it
argues demonstrably for more attention to the quality of public spending.
2.36. The stated policy shift toward food security and away
from agro-industry/exports during the last five years is fully
reflected in spending patterns. In 2007, the adoption of PRORURAL                0L
Incluyente was matched by strong shift in spending from activities focused
on agro-industrial development toward those on food security. While this
appears to have supported the progress in food security and against
malnutrition (which will be discussed further in Chapter 0.), there was also
a demonstrable change in the orientation of public agriculture spending.
0
2.37. Spending patterns also indicate a strong, albeit more tacit,
0
policy shift toward public spending on private goods. These
O
private goods include inputs and services provided directly to smaller            I
producers as part of the main food security program. (However, as we shall
see in Chapter 3 and 4, some of these resources end up in the hands of larger
and higher income producers). In turn, Nicaragua has seen a smaller share
of agricultural expenditures going to public goods like R&D, natural resource
management, animal and plant health. Renewed attention to the delivery of


these and other public goods would generally benefit a broader swathe of
producers and could help to reverse the declining productivity in the sector.
2.38. The shift of public spending toward private goods has also
been mirrored by the rise of official development assistance
(ODA) directly to the agricultural private sector. These programs
range from Venezuela cooperation through ALBA-CARUNA, to the US
Millennium Challenge Corporation programs to a rise in International
Financial Corporation investments in agribusiness. There is relatively little
detail available about these programs in the public sector, suggesting
that they are not included as part of the overall public spending planning
process. Efforts should be made to ensure that ODA programs channeled
off-budget to the private sector coordinate their development work better
with the public sector, align with country and sector strategies and publicly
report their development results.
2.39. The increased orientation of spending on direct support for
private producers (of all sizes) has been somewhat compensated
by the rise of public spending on rural infrastructure. The
rapid increase in rural infrastructure spending appears to coincide with
the acceleration in rural poverty reduction during 2005-09, which was
primarily based on pro-poor agricultural growth. During this period, there
was an acceleration in rural poverty reduction, both on account of economic
growth and higher growth elasticities of poverty reduction. Agricultural
growth was able to over proportionally decrease rural poverty.
2.40. The balances between public and private goods provision,
agriculture versus rural spending more generally and rise of
official development assistance directly to the private sector
call for much greater coordination both on a strategic and
policy front, in the territories and across agricultural products.
Chapter 3 will discuss targeting of public expenditures and review outcomes
LLJ
by territory and by producer welfare and propose some refinements that
can help to lay a basis for more effective coordination.
2.41. The high dependence on external resources is reflected in
S<the large fluctuations in subprogram budgets over relatively
short periods of time. This suggests that a kind of instability in the policy
and program environment that makes it difficult for individual programs to
achieve medium and long term goals. Chapter 4 will look at the evolution
and results of the specific programs in forestry and food security.


2.42. Finally, sector entities should reduce administrative costs
and increase their budget execution rates as a first step to
advocating for more resources. Budget execution by PRORURAL
institutions is lower than that of general government, and particularly weak
in the smaller institutions. Meanwhile administrative costs, in particular
personnel costs are high and rising across all agencies. In particular,
future capacity building in PRORURAL needs to be carefully planned in
each institution on the basis of a sound human resource strategy, and
in the aggregate with attention to fiscal constraints. In general, it is
recommended that the government closely monitors the functional and
economic composition of the public spending in agriculture as another lens
to improving the efficiency and expenditures.
U
oY
O
O-
O-
O-
O
O
O
-o
U
O
O


3. Targeting, efficiency and
distributive impacts of agricultural
public spending
3.1. This chapter looks at the some measures of the effectiveness of
agricultural spending in Nicaragua. In general, the role of agricultural
public expenditures is to solve those market failures that hinder the optimal
use of agricultural resources (natural and otherwise) for production and
income generation. Nicaragua today has no state-owned agricultural
producers, however the state is involved in research and development,
some post-harvest processing, marketing and distribution services, and
credit. As such, the main focus of public spending on agriculture is to help
the lagging private sector, from patio producers to large exporters, improve
their productivity, increase value added and incomes.
3.2. Empirical research across countries has confirmed the intuitive
expectation that higher public expenditure in rural areas
is strongly associated with higher rural growth (Anriquez
2006).15 But the volume of spending is not all that matters. The impact on
growth and poverty reduction of a given amount of public spending is very
much determined by how, on what, and where it is spent-in short, on the
quality of spending decisions (L6pez 2004; Gordillo, Ortega, and Wagner
2004).
3.3. However, the emphasis given to strategy formulation and
planning in Nicaragua is not matched by an equal ability to
track spending outcomes. Any robust evaluation of the effectiveness
of public spending should be able to link expenditures with outputs and
outcomes. However, this review has found that, although institutions
Lii
in Nicaragua's agricultural sector regularly monitor their outputs, e.g.
numbers of beneficiaries, volume of in-kind transfers or technical assistance
delivered, systematic tracking of expenditures against outcomes is very
limited. The result is that PRORURAL decision-makers are limited in their
Z <ability to monitor programs and make adjustments on a regular basis, as
15 Much of the analysis in this chapter is based on a background paper by Professor Gustavo
Anriquez of the Pontificia Universidad Cat6lica de Chile. Information on the forestry sector is
drawn from the background paper by Hans Thiel of the FAO, and information on food security
comes from a paper by Jorge Ortega of FAO.


per the sector strategic priorities in terms of beneficiaries, target population,
priority areas, and strategic options to help materialize the economic
potential of those territories. Chapter 5 goes into more detail on the budget
practices and how these can be improved over time to ensure a more robust
monitoring of public expenditures in this sector.
3.4. Given these limitations in the data, this chapter focuses on
the geographic targeting, sector outcomes, and distributional
aspects of agriculture public spending. First, the chapter assesses
how the territorial approach of PRORURAL materializes in actual spending
patterns. Second it will relate this spending to poverty reduction and
productivity outcomes. Finally, the chapter looks at the distributional aspects
of agriculture and rural development programs, that is, whether the benefits
reach more needy producers and households.
3.1. Geographical targeting of agricultural spending
3.5. Evolution of the territorial approach in PRORURAL. The first
version of PRORURAL (2005) used biophysical and socioeconomic criteria
to define the target territories. PRORURAL Incluyente (2008) introduced
additional criteria to improve territorial targeting with the aim of harmonizing
sector policies and focusing national programs in accord with particular
characteristics of the territories. The expanded criteria include: biophysical  L-
characteristics; infrastructure available to support productive activities;
distribution of population and accessibility to basic services; traditional
productive activities in the area; distribution of productive activities in the
area; territorial distribution and typology of producers, as well as their
concentration; and distribution of extreme poverty per municipality. Based
on these criteria, PRORURAL Incluyente defined four strategic zones (Table
3.1) and proposed a set of development actions for each zone.
U


Map 3.1: Territories of PRORURAL Incluyente, 2010-14
Source: MAGFOR 2009
Table 3.1: Territorial approach of PRORURAL Incluyente, 2010-14
Characteristics of territory  Location                  Main development acions proposed by PRO RURAL Incluyente
Productive activities        Environmental protection     Social protection
High economic dynamism     Leon                         Promote associativity of small  Preserve the quality of soils,  Provide targeted social
and high impact on territorial  Quezalguaque            producers                    forests, and water resources  protection programs
development                Chinandega                   Stimulate intensification and  Regulate the use of pestcides  Provide hasic services
Posoltega                    diversification of agriculture  Promote crop rotation,    Promote literacy programs and
Chichigalpa                  Develop agroindustry hosed en  reforestation, collection of rein  housing programs
El Viejo                     products with high demand in  meter fur irrigation
Mosayo                       markets
Granada                      Promote technical educatio
Carazo                       oriented toward local needs of
Parts of Managua and Rivas   agriculture
Jalapa, Esteli, and Sebaco
High economic dynamism     Nueva Segovia                Promote value chains of      Regulate the agricultural    Provide targeted social
and low impact in territorial  Madriz                   hasic grains, dairy products,  frontier promote agro forestry  protection programs
development                Esteli                       vegetahles, fruits, cocoa, roots  systems, reforestation, high-  Provide hasic services
Matagalpa                    and tuhers, and coffee       value forest plantations     Promote literacy programs and
CL                                              Jinotega                      Provide BPA for capitalizaion of  Improve processing techniques  housing programs
0RN                                                                              small farmers                of dairy products, coffee farms,  Provide Bonn do Pao for rural
Boaco                        Promote alternaive crops with  and slaughterhouses       workers
Chontales                    market potential (exotic fruits,
zRAS                                                                             species, flowers)
Rio San Juan                 Improve rural roads networks
Nueva Guinea                 and milk collecting and
San Miguelito                processing facilities
San (arlos
El Castillo
Prmtgsoitvt                                                                    fsal      Peev     h  ult   fsis        rvd    agtdsca


Characteristics of territory  Location                       Main development actions proposed by PRORUIRAL Incluyente
Productive activitfies          Environmental protedtion       Social protection
Low economic dynamism        Dry areas of Esteli, Madriz,    Develop agricultural programs  Promote refarestatiaa and       Provide targeted social
with natural restrictions     Nueva Segovia, Leon,           adapted ta the conditions and   natural regeneration af forest  protection programs
to agricultural and forest    Chinandega, Motagalpa          facused on the potential of the  areas                         Provide basic services
activities                   Jinotega                        dry corridor, combined with                                    Promote literacy pragrams and
Somotillo                       small irrigation systems                                      housiag programs
Villanueva                      Promote agroforestry, soil                                     Provide Bena de Patio for rural
San Francisco Libre            improvement                                                    markers
aipitapa                        Promotion of plantations of
fruits with market potential
(avocado, citrus fruits,
tamarind, mango)
Promote nonfarm economic
activites
LoT economic dynamism         Protected areas                Promote agriculture            Promote territorial planning    Provide targeted social
and high potential far       Areas under forest management   diversification with local species  in cordinaon with regional  protection programs
conservation of natural       Coastal areas of RAAN and      Rehabilitate forest coverage    autonomous governments         Provide basic services
resources and forest          RAAS                           Enhance indigenous community    Support sustainable forest     Literacy and education
development                  Alto Coco and Bocay             forestry                        management                     programs in local languages
Develop small scale fisheries  Implement carbon sequestration  Housing programs
Promote cultivation and        Implement payment for           Support to improve food
industrialization of oil palm  environmental services          production for the families,
and rubber                                                     in harmony with local forest
ecosystems
U
3.6. Despite the detailed territorial targeting of PRORURAL,
outcomes are not tracked at the municipal level. Ideally we
would like to compare spending in each municipality, and compare it with
productivity and welfare indicators at the municipality level. Unfortunately
none    of these indicators can be reconstructed with a suitable level of precision
at the municipality level -the             spending database reveals that spending                       is not
accurately tracked over the beneficiary municipalities. As such, the analysis
below of correlations between spending, technical efficiency, poverty levels
and    poverty     reduction      is limited     to the departmental level16.
3.7. Similarly, welfare indicators, like poverty and per capita
spending, cannot be calculated with precision for individual
municipalities. The ILSMS household survey was designed to be
representative at the department level in 2005, but in 2009, the survey
sampling framework is not representative at the department level, only at
16 The review computed per capita spending by MAGFOR; and PRORURAL spending (by all four
institutions covered in this study) for all departments and separately for the sample excluding
Managua, since the spending there is artificially inflated by the administrative budget of the
headquarters of the rural institutions.


the macro regions (Managua, Atlantic, Pacific, and Center) and urban-
rural area level (INEC 2006; INIDE 2011). This means that the precision of
an estimator like poverty at the department level is less than +/- 5 percent
in 2009. Acknowledging this very large caveat, we still calculate welfare
indicators at the department level, but note that small differences in poverty
levels between departments should not be considered significant. A new
poverty map computed using the 2009 data has recently become available
and should eventually be used to reexamine these results.
Figure 3.1: PRORUAL Incluyente spending per producer and per hectare,
average over 2009-1 1
4.000                                              350
3.500                                              300
3.000    -
250  E
2.500
200
2.000
150
1.500
1.000
500                                               50
0                                                0
"  Spending per ag area (per mz)
"  Spending per producer
Source: MHCP and INIDE (IV CENAGRO).
3.8. There are very large variations in spending per producer and
hectare across departments. Half of PRORURAL's spending is multi-
departmental, one quarter goes to the central level in Managua, and one
quarter is spent across departments, but with large differences among them.
Spending per producer went from C$437 (in constant 2005 cordobas) per
producer in Rio San Juan, the department with the highest poverty rates to
C$3,675 in Chontales. Spending by hectare of agricultural land ranged
from C$19 per hectare in Rio San Juan to C$310 in Esteli (see Figure 3.1).


3.9. First, this review   investigated whether spending is targeted to
areas where technical efficiency is low.17 The department averages
are shown in Table 3.2 for all producing households, and for those classified
as farms (not including the very small "patio producers"). Ideally, a well-
targeted spending program should be biased in favor of those regions that
are lagging in efficiency and productivity, in which case the correlation
between spending and technical efficiency should be negative.
3.10. There is wide variability in efficiency, and a low average
technical efficiency-36 percent for all farming households,
and 54 percent for larger farms. This would suggest that large
improvements in productivity may not require creation of new technologies
and practices. Rather, they can likely be obtained by helping farmers adopt
best practices, by making widely available the production frontier available
today through extension, training, and technology dissemination. Below we
look at how spending may be correlated with the adoption of some of these
techniques by department (see para 3.15).
Table 3.2: Farm level technical efficiency by department, 2009
Department         TE of all households   TE of forms
u
Mean      Rank      Mean       Rank
0
Nueva Segovia      0.514      13       0.548        1
Jinatega           0.567      16        0.570      12
Madriz             0.507      12       0.560        8
Esteli             0.503      11       0.570        9                               0
Chinandega         0.386      4        0.477        4
Le6n               0.416      7        0.544        6
Motagalpa          0.493      10       0.570       11
Boaco              0.489      9        0.583       14
Managua            0.246      1        0.454        1
17 This was done by estimating a measure of farm-level technical efficiency (TE) using data from
the 2009 LSMS household survey; calculating average technical efficiency of producers in
each department; and then testing for correlations between average TE and public spending
across departments. Two measures of correlation are calculated-the Pearson correlation (most
appropriate if there is a specific functional relationship between variables) and the Spearman
rank order correlation (a more appropriate statistic to indicate a relationship between two
variables if their relationship does not have a functional form).


Department         TE of all households  TE of farms
Mean     Rank       Mean      Rank
Masaya             0.291      2       0.460       3
Chontales          0.340      3       0.633       17
Granada            0.399      5       0.505       5
Carazo             0.411      6       0.458       2
Rivas              0.470     8        0.570       10
Rio San Juan       0.547     15       0.598       15
RAAN               0.572     17       0.580       13
RAAS               0.542     14       0.605       16
Source: Anriquez 2012, based on LSMS 2009.
Note: Per capita spending as total over 2008 and 2009 per rural inhabitant,
expressed in 2005 C$. TE refers to average individual farm efficiency by department.
3.11. PRORURAL spending tends to be higher where technical
efficiency is lower, but the correlations are not statistically
significant. Table 3.3 reports two simple correlations between per capita
PRORURAL spending by department (using population as the denominator)
and the average technical efficiency of farms, and larger farms. These
estimates are presented including and excluding Managua, which is an
outlier due to the fact that much of the spending classified for Managua as
a department is for administrative expenses in the capitol. They are also
presented for MAGFOR which largely represents the PNA program that
embodies most of the producer supports like extension, technical assistance,
input transfers and subsidies, and for PRORURAL as a whole which includes
programs aimed at agro-industrial development and forestry management.
The correlation estimates are negative in most cases, but only statistically
significant for all farms when we include Managua, suggesting a weak
Ui                 targeting of spending to those departments were technical efficiency is
lower.
z<


Table 3.3: Correlation between per capita PRORURAL expenditures (2008-09)
and farm-level technical efficiency (2009)
Correlation   Per capita rural public spending  Including Managua   Exdluding Managua
Estimates     (2008-09)                 TE oll forms  TE larger forms  TE all forms  TE large farms
MAGFOR pc Exp.            -0.553**    -0.427*      -0.062       0.055
Pearson
PRORURAL pc Exp.          -0.581**     -0.393      -0.239       0.148
MAGFOR pc Exp.             -0.333      -0.240      -0.200      -0.088
Spearman rank
PRORURAL pc Exp.           -0.351      -0.083      -0.221       0.100
Source: Anriquez 2012.
Note: Significance, * p < 0.10, ** p < 0.05, *** p < 0.01. PRORURAL spending includes budgets
of MAGFOR, INAFOR, IDR, and INTA.
3.12. Per capita spending by MAGFOR was positively coordinated
with poverty levels in 2005, while PRORURAL spending was
negatively correlated with poverty levels in 2009. Table 3.4
presents similar correlations indicators between per capita spending and
poverty levels in order to assess whether PRORURAL spending was targeted
to those regions with higher poverty rates. Per capita spending during
2004-05 is related to poverty levels in 2005, and again for expenditures
during 2008-09 and poverty levels in 2009. As before, we also calculate
these statistics excluding Managua. Per capita spending in 2004-05 by
MAGFOR was positively and significantly correlated with poverty/ extreme
poverty levels in 2005 when Managua is excluded. Conversely, the
correlation coefficients in 2009 are generally negative and with higher
0
significance for PRORURAL spending than for MAGFOR only.
Table 3.4: Correlation between poverty and per capita spending
in 2005 and 2009
0
Al| regions (2005)       Exd. Managua (2005)
Correlation  Per capita rural public spending  Poverty  Extreme povert  Poverty  Extreme poverty
Estimates    (2004-05)
MAGIFOR pc Exp.           -0.369       -0.059       0.458*      0.641***
PRORURAL pc Exp.          -0.323       -0.051       0.092        0.234
MAGIFOR pc Exp.           0.213        0.424*       0.456*      0.641***
Spearman rank
PRORURAL pc Exp.          -0.115        0.159       0.062        0.306


Al| regions (2009) Excl. Managua (2009)
Correlation  Per capita rural public spending  Povert  Extreme poverty  Poverty  Extreme poverty
Estimates   (2008-09)
MAGFOR pc Exp.          -0.479*      -0.310      -0.026       0.221
Pearson
PRORURAL pc Exp.       -0.575**     -0.421*     -0.585**    -0.561**
MAGFOR pc Exp.           -0.309      0.003       -0.171       0.177
Spearman rank
PRORURAL pc Exp.        -0.439*     -0.525**     -0.327     -0.462*
Source: Anriquez 2012.
Note: Significance, * p < 0.10, ** p < 0.05, *** p < 0.01. PRORURAL spending
includes budgets of MAGFOR, INAFOR, IDR, and INTA.
3.13. A geographic analysis and targeting methodology developed
by IFPRI and applied recently to Nicaragua'8 may prove useful
in refining the territorial approach of PRORURAL. This analysis
characterizes micro-regions along four dimensions: poverty, agricultural
potential, average farm efficiency, and market access. This tool, which uses
an econometrically rigorous stochastic profit frontier estimation approach,
also allows policy makers to prioritize investments in agriculture and rural
areas and to target intervention-agricultural extension, for example-to
optimize agricultural potential in a given territory or municipality, as part of
a broader optimization of overall agricultural public spending. This tool can
be particularly useful to help refine the current territorial plan of PRORURAL
investments, based on four large areas, to a lower level of planning and
monitoring based on similar variables. Annex 4 describes this tool more
into detail.
a-
LU
z<
18 (IFPRI; Torero and Haven 2012)


Map 3.2: Four key areas and types of public investment suggested for Nicaragua
Areas of high poverty with low potential for agriculture and  Areas of high poverty but with high potential for agriculture.
significant number of microclimates. Mostly basic staples  Key policies in these areas should focus in identifying and
subsistence agriculture. Key policies should focus on short  resolving major bottlenecks to better use the quality of the
term targeted assistance as the use of conditional cash      land and optimize its potential.
transfers, school feeding, and so on.
_0
Areas of low poverty rates with significant potential and  Areas with moderate poverty rates and low potential and
high efficiency. Given their high performance these regions  medium and high efficiency. Despite high efficiency, agri-
could be used to learn and replicate from them.  cultural potential is low, resulting in high poverty. Policies in
these areas should focus on nonfarm activities as a way to
increase household income.
Source: Torero and Haven 2012.


3.2. Poverty and productivity outcomes
3.14. The review also examined the correlation between per
capita spending during 2005-09 by and poverty reduction or
the change in poverty levels. Beyond targeting, this review seeks
to examine whether those departments which received greater spending
levels between 2005-09, also say higher poverty reduction. Table 3.5
presents similar correlation indicators for the same groupings as above.
Note that while none of the estimates are statistically significant, all but one
are negative, suggesting a weak relationship between more spending and
deeper poverty reduction over time.
Table 3.5: Correlation of poverty change 2005-09 with average per capita
spending 2005-09
Al| regions          Excl. Managua
Correlation  Per capita rural public  Poverty  Extreme povert  Poverty  Extreme poverty
Estimates   spending
MAGFOR pc Exp.      0.027      -0.082     -0.179     -0.195
Pearson
PRORURAL pc Exp.    -0.099     -0.158     -0.425     -0.287
MAGFOR pc Exp.      -0.248     -0.157     -0.327     -0.165
Spearman rank
PRORURAL pc Exp.    -0.189     -0.289     -0.285     -0.306
Source: Anriquez 2012 using LSMS 2005 and 2009.
Note: Significance, * p < 0.10, ** p < 0.05, *** p < 0.01.
3.15. Relationship between improvements in spending per capita
and the adoption of technologies appears to be weakly
positive, except for use of fertilizers. Figure 3.2 presents some
simple scatter plots of increases in spending per producer between 2002
and 2011, and the improvements in adoption of certain technologies by
department as measured by the change in the percentage of producers
using a given technology between the agricultural censuses of 2001 and
a                    2011. Points in the upper-right quadrant indicate departments in which
there was an increase in both spending per producer and as well in the
- 0
Z <                  use of technologies. The relationships are quite weak but generally positive
(as indicated by the trend lines) suggesting an association between higher
spending and higher adoption. However, in the case of fertilizer it is
negative, albeit also quite weak. In general this suggests again that the
*


efficiency of the spending in terms of long term impact can be improved
significantly.
Figure 3.2: Increases in spending per producer and adoption of technologies
by department, 2001-201 1
(a) Agricultural training & / tech. assistance              (b) Improved seeds
1.500                                              1.500
0                      1.000                       0              0      1.000
*                        500                          *                    500
*                                                                     0 *  *
0 0-500                                                              -500
0                           0             -1.000                              0 *            -1.000
0                       -1.500                    0                        -1.500
-2.000                                             -2.000
0             -2.500                                             -2.500
-3.000                                             -3.000
-80    -60   -40    -20   0     20    40    60        -15    -10     -5    0      5     10     15
(c) Fertilizer                                      (d) Irrigation
1.500                                              1.500
01.000
0   0                     1.000                     *   0                    1.000
*                        500                           *                   500
______     _   _  _   _      0                                                  0
0                                          0
-500                                               -500
-1.000                                        *    -1.000
0                                      -1.500                                            -1.500
-2.000                                             -2.000                 L
0
-2.500                                             -2.500
-3.000                                             -3.000
-80    -60   -40    -20   0     20    40    60        -10       -5         0         5         10
O
Source: Laguna, 2013.
Note: The x-axis measures change in percentage of farmers in each department using the stated
technology between 2001 and 2011 using data from the both Agricultural Censuses. The y-axis
measures the increase/decrease in spending per producer for each department between 2002 and
2011 in constant 2005 cordobas.
3.16. The above analysis suggests that while the territorial
approach of PRORURAL has allowed focusing individual
programs to specific types of regions, there is significant room
for improvement. A cursory review of the various programs inside
PRORURAL show clear territorial focus in their design, but when aggregated
the spending analysis above shows only weak targeting according to
different needs, low productivity, high poverty etc. Better classification
of expenditures both by department, or even better municipality, and for


the various programming lines of the territorial approach will be needed
to have more definitive results. Such classification would allow for better
monitoring of the direction of expenditures, their impact and the relative
efficiency of the programs.
3.3. Distributive effects
3.17. This section of the review examines household level targeting
of the agriculture programs as measured in 2009 using results
of LSMS household surveys. The LSMS surveyed households about
the benefits they received from specific government programs, and the
analysis below tabulates the proportion of beneficiaries in each quintile of
the population, with quintiles measured by various indicators of well-being,
viz, land holdings, consumption levels, and gender.
3.18. Agriculture and livestock programs" in 2005 tended to
favor larger landowners, but were evenly distributed across
rural welfare quintiles. Figure 3.3 shows the frequency of rural
households that reported receiving benefits by land ownership and rural
income. Benefits are fairly evenly distributed by size of landholdings (with
the exception of households with no land) and per capita consumption,
suggesting that these programs are not targeted to either poorer households
nor to those with less land. For the land ownership, quintiles 2 and 3 are
merged as they are all patio producers with an undeclared amount of land
less than a quarter of a manzana (0.18 ha).
3.19. In 2009, the Bono Productivo Alimentario participation was
dominated by landless households but with larger leakages
to larger landowners, and wealthier households. Figure 3.4
shows the distribution of BPA program participants by land ownership and
welfare (consumption) quintiles and the distribution of rural BPA participants
by welfare. The numbers show that the majority of the participants were
LLJ
from landless households, but there was substantial leakage to the larger
landholders.
z<
-0)
19 In the 2005 ILSMS, households were asked about their participation in programs that promote
agriculture, namely land titling assistance programs, agricultural and livestock support programs,
and MAGFOR rural credit programs. The prevalence of titling programs in rural areas was
very low, and for credit programs was almost negligible, making it hard to derive any robust
correlations with socioeconomic characteristics.


Figure 3.3: Benefits incidence of the agriculture and livestock programs,
frequency of rural households, 2005
Frequency (HHs)                             Frequency (HHs)
5000                                         4000
4000                                         3000     T
3000                                         2000             T      t
02000
2000
1000                                         1000
0                                            0
1      2       3       4      5              1      2       3      4       5
Agricultural Land Owned Quintiles                Rural Welfare Quinfiles
" Agricultural and Livestock Programs        0 Agricultural and Livestock Programs
" erhi/erlo                                  0 erhi/erlo
Source: Anriquez (2012), based on LSMS 2005 data.
Note: Red lines indicate 95 percent confidence interval for each bar. Average land owned by each
quintile was 0, 0.18, 4.7, and 77.9 hectares, respectively. For rural welfare, average annual per
capita consumption for each quintile in current c6rdobas was: C$3,376, C$5,694, C$8,171,
C$12,089, and C$26,418.
Figure 3.4: Benefits incidence of the Bono Productivo Alimentario, frequency of
rural households, 2009
Frequency (HHs)                              Frequency (HHs)
20000                                         12000
25000     t                                   10000                            TL
8000T                   T
10000                                          8
6000
5000                                          4000
0
0-                                         2000
1      2       3       4      5               1      2       3      4       5
Agricultural Land Owned Quintiles                Rural Welfare Quintiles
a Bono Productivo Alimentario                 a Bono Productive Alimenatrio
H erhi/erdo                                   M erhi/erlo
Source: Anriquez (2012), based on LSMS 2009 data.
Note: Red lines indicate 95 percent confidence interval for each bar. Average land owned by each
quintile was 0, 0.18, 4.7, and 77.9 hectares, respectively. For rural welfare, average annual per
capita consumption for each quintile in current c6rdobas was: C$3,376, C$5,694, C$8,171,
C$12,089, and C$26,418.


Figure 3.5: Distribution of beneficiary households
by land ownership and welfare quintiles, 2009
Rural credit                             Sales by ENABAS                               Land titding
Frequency (HHs)                            Frequency (HHs)                             Frequency (HHs)
4000                                      20000     T                                   4000
3000                                      25000                                         3000-
2000                                      100                                           2000    T
1000                                                                                   -1000
0                                       5000
-1000 -                                        0                                        -00-_____________
1     2      3     4      5                1      2     3      4     5                  1     2     3      4     5
Agricultural Land Owned Quintiles          Agricultural Land Owned Quintiles            Agricultural Land Owned Quintiles
a Rural Credit                             a Sales in ENABAS                            m Land Titling
a erhi/erlo                                a erhi/erlo                                  a erhi/erlo
Frequency (HHs)                            Frequency (HHs)                             Frequency (HHs)
4000                                       5000                                         8000                        T
3000                               T       4000                                         6000
200 TT3000                                                                   4000T
1000
0          O                            2000          ht                            2000
-1000 -1000                                                                                0
1     2      3     4      5                1      2     3      4     5                  1     2     3      4     5
Welfare Quinfiles                          Welfare Quintiles                            Welfare Quinfiles
M Rural Credit                             a Sales in ENABAS                            M Land Titling
a erhi/erlo                                a erhi/erlo                                  a erhi/erlo
Frequency (HHs)                            Frequency (HHs)                             Frequency (HHs)
4000                                       2000                                         4000                        T
3000                                       1500                  T      T     T         3000
2000 -                                      002000
121000 -1000
0-                            5000
-                  -1000                                          0                                        -1000
LLJ
1                                  2      3     4      5                1      2     3     4      5                  1     2     3      4     5
Rural Welfare Quintiles                    Rural Welfare Quintiles                      Rural Welfare Quintiles
m Rural Credit                             a Sales in ENABAS                            m Land Titling
M erhi/erlo                                U erhi/erlo                                  M erhi/erlo
U-a
Source: Anriquez (2012), based on LSMS 2009 data.
Note: For agricultural land holdings, only rural households are considered. Average land owned by quintile was 0, 0.59, 1.97,
6.9, and 54.6 hectares. For welfare quintiles, all households are considered and average annual per capita consumption for
each quintile in current c6rdobas was: C$5,784, C$9,460, C$1 3,209, C$1 8,483, and C$37,623. For rural welfare quintiles,
only rural households are considered and average annual per capita consumption for each quintile in current c6rdobas was:
C$4,673, C$7,298, C$9,673, C$1 2,925, and C$22,345. Red caps indicate 95 percent confidence interval for each bar.
S


3.20. The 2009 LSMS covered participation a wider range of
programs, including ENABAS sales, government-provided
rural credit and land titling programs which are analyzed here
(see Figure 3.5). Rural credit programs were clearly targeted to households
with larger, but not the largest, land holdings. This resonates with the
collateral requirements that apply for prudential reasons. However, it does
suggest that these rural credit programs were supplementing access in more
traditional, albeit underserved market segments, rather than creating new
avenues for poor families to access credit. Land titling programs on the
other hand were available to all land holders except those with the largest
holdings. Meanwhile ENABAS appears to be targeted toward landless but
in general wealthier households.
3.21. Finally we look at the gender incidence of PRORURAL and
other rural programs. The analysis of technical efficiency uncovered
some important gender differences. Farms led by women are less productive;
and among larger farms, farms led by women are less technically efficient
on average. Various reasons could explain this gap, including that
technologies are generally better adapted to male farmers, or that male
farmers may receive more and better extension and education. The gender
literature highlights that time constraints, which are gender specific, can
explain these productivity differentials: women may have a double or triple
burden of farming, household tending, and childbearing. These constraints
might explain both less effective time in the field and difficulties in accessing
extension and other public services. These results call the attention of policy
makers and practitioners in the way they deal and interact with women
farmers.
3.22. In 2009, land titling programs and ENABAS sales had a
positive gender bias among the poor, which was not found
in rural credit programs nor the Bono Productivo Atimentario.
To analyze potential gender effects of spending, the review used the
household survey data to calculate the benefits received by male- and
by female-headed households, and to compare this with the distribution
of households in the population. If the percentage of female-headed
households among program beneficiaries is larger than in the population
we would conclude that the program is biased toward such households,
that is, it has a positive gender bias. This analysis was done for both poor
and non-poor households. Table 3.6 shows that in 2009, female-headed
households were underrepresented among non-poor beneficiaries of the


Bono Productivo Alimentario. By contrast, among poor households, there
was a strong positive gender bias towards female-headed households in
the land titling program and among ENABAS users. However, it appears
that credit programs showed a strong bias against women.
Table 3.6: Different programs show different gender effects
Poor households              Non-poor households
(1)       (2)     (2)- (1)    (1)       (2)     (2) - (1)
Female  % FHI within          Female  % FHH within
headed %  beneficiaries  Difference  headed %  benefidiaries  Difference
Bono Productivo Alimentario  29.9  27.3  -2.60     36.6      27.3     -9.30**
Sales to ENABAS      29.9      40.9    11.00***    36.6      38.8      2.24*
Propertytitling      29.9      54.0    24.11 ***   36.6      35.1      -1.45
Rural credit         29.9      13.4     -16.4*     36.6      32.8     -3.82
Source: Anriquez (2012), based on LSMS 2009 data.
Note: Significance, * p < 0.10, ** p < 0.05, *** p < 0.01.
FHH = female-headed households.
3.4. Conclusions and recommendations
3.23. Ideally, a well-targeted spending program should be biased
in favor of those regions that are lagging in efficiency and
productivity. Nicaragua has both large variations in technical efficiency
across producers, as well as large variations in spending per producer
and hectare across departments. While this may reflect the detailed
territorial targeting of PRORURAL, it is not clear that these variations are in
fact deliberate. For one, the territorial approach of PRORURAL is focused
at a variety of different geographic levels. Then, outcomes and even
outputs are not tracked in a systematic way across geographic divisions.
Ui
Similarly, welfare indicators, like poverty and per capita spending, cannot
be calculated with precision at the municipal level, nor in 2009 at the
j0 department level.
3.24. Notwithstanding these limitations, we find that PRORURAL
spending tends to be higher where technical efficiency is lower,
but the correlations are not statistically significant. Low average
technical efficiency suggests that large improvements in productivity may
not require creation of new technologies and practices, but rather the


effective dissemination and adoption of existing best practices. The returns
on improvements to extension are likely to be especially high, given the
findings of this report that so many farmers are so far from the technological
frontier. Indeed, we find a positive relationship between spending, poverty
reduction and the adoption of new technologies at the departmental.
However, these relationships are very weak and point to the need for more
explicit targets in terms of spending outcomes across Nicaragua.
3.25. A geographic analysis and targeting methodology
developed by IFPRI and applied recently to Nicaragua20 and
a new poverty map for 2009 may prove useful in refining
the territorial approach of PRORURAL down to the municipal
level. However, this should be accompanied by reforms to ensure that
all administrative data for the various programs and programming lines
are collected in a uniform way at the municipal level to allow for in time
monitoring of spending outputs. Meanwhile survey data such as the
next editions of the LSMS and the recent Agricultural Census provide an
independent view on spending outcomes. Both these sources of data would
combine with new expenditure reports from SIGFA and its forthcoming
upgrade to allow a robust monitoring and evaluation.
3.26. In terms of distributive      impacts, the    review  finds an
increasing poverty focus of agriculture programs over time
but with each program showing large leakages to wealthier
households. Agriculture and livestock programs21 in 2005 tended to
favor larger landowners whereas in 2009, the Bono Productivo Alimentario
participation was dominated by landless households but with large
leakages to wealthier households. Rural credit programs were clearly
targeted to households with larger holdings whereas land titling programs
were available to all land holders except those with the largest holdings.
ENABAS appears to be targeted toward landless but in general wealthier
households. Gender incidence was mixed. In 2009, land titling programs
U
and ENABAS sales had a positive gender bias among the poor, which was
not found in rural credit programs nor the Bono Productivo Alimentario.
20 (IFPRI; Torero and Haven 2012)
21 In the 2005 LSMS, households were asked about their participation in programs that promote
agriculture, namely land titling assistance programs, agricultural and livestock support programs,
and MAGFOR rural credit programs. The prevalence of titling programs in rural areas was
very low, and for credit programs was almost negligible, making it hard to derive any robust
correlations with socioeconomic characteristics.


3.27. However, these varied results on beneficiary incidence
suggest that there is scope for major improvements in the
targeting of agriculture and rural development programs.
It is recommended that explicit targeting strategies are put in place that
take into account trade-offs between delivery costs and leakages for each
program and between programs that focus on similar beneficiary groups.
Clear eligibility criteria, which target those most in need and which are
in line with the objective of the programs, are crucial, but also continuous
monitoring to minimize leakages to ineligible beneficiaries. Strengthening
and harmonizing the administrative data collected on beneficiaries across
the various programs will help PRORURAL decision makers find ways to
achieve greater efficiency. Finally, the government should ensure continuity
in the use of the periodic LSMS to monitor program participation as an
independent source of information on beneficiary incidence.
LLJ
z<
AG


4. Special Focus: Forestry and
Food Security Public Spending
4.1. This chapter includes two areas of special focus, which were requested
by the Government of Nicaragua and the group of donors of PRORURAL:
public spending on forestry and on food security.
4.1. Aligning incentives in the forestry sector
4.2. Approximately 30 percent of Nicaragua's area is covered by
forests. Of that share, 98 percent are natural forests and only 2 percent
are forest plantations. A third of the natural forests are within protected
areas, and 80 percent are on the Caribbean coast within the management
of the Autonomous Regions. Almost half the forests are in the possession
of indigenous communities, while 35 percent are held by private owners.
4.3. ... yet the forestry sector contributes only 1 percent of GDP.
Silviculture has occupied 1.2 percent of GDP in 2006 and has remained
relatively stable since. However, wood products have been declining as a
share of industrial production from 3.8 percent in 2006 to 2.1 percent in
2012.
U
4.4. The economic potential for the forestry sector is expanding
rapidly. After declining steadily from US$18 million in 2002 to US$5
million in 2009, exports of wood products (including sawed wood) have    Q)
increased sharply through 2011 to reach US$12 million. In 2012, this
increase was moderated a bit with exports of US$1 1 million. Meanwhile,
Foreign Direct Investments (FDI) in the forestry sector has grown almost
seven-fold during 2008-10, albeit from a low base. Global consumption of
tropical hardwood products is expected to remain stable, while the supply
of tropical hardwoods has been declining over time and it is estimate that
current plantation establishment efforts will only partly meet demand in the
future.
4.5. Deforestation and forest degradation represent the leading
environmental problem in Nicaragua. Annual deforestation rate is


calculated around 76,000 Ha/year22. The country has lost more than 20
percent of its forest cover since 1990, mainly the result of (i) clearing for
agriculture and cattle grazing, (ii) forest fires, (iii) environmental emergencies
due to natural disasters (hurricanes, mud slides, flooding, drought, forest
plagues), and (iv) logging, both legal and illegal. The continued expansion
of low-productivity, slash-and-burn systems across the agricultural frontier
eastward the country - the place of the largest forests and protected areas - is
increased by social pressure over natural resources by poor families without
land, and settlers' invasions of indigenous territories and protected areas.
Nearly two million hectares are being overused by farming activities across
the country. In terms of potential use or land use change, it is estimated that
agriculture has seized approximately 40 percent of forest soils.
4.6. In addition, Nicaragua has high costs of legally produced
wood compared to other Latin American countries. There is
a large variance among the administration of user rights and the levels
of forest fees in Latin America. However, the cost of a legally produced
cubic meter of wood in Nicaragua is about $20 (Del Gatto and others
2006) compared with $13-16 in Ecuador, Guatemala, Mexico, and Peru.
The combination of lower economic returns caused by competition from
illegal exploitation, privately administered users rights (that diverge from
public policy) and high transaction costs for licensing and forest approval
processes creates high opportunity cost of sustainable forest management,
and in turn contributes to deforestation and forest degradation.
Forestry institutions and programs
4.7. The National Forest Program     (PNF) was established to promote
sustainable forest management among indigenous communities and small
producers while reducing deforestation and increasing forest exports and
forestry's share of GDP. The Forestry Law 462 of 2003 established INAFOR
with responsibility for forest resource management outside protected areas,
and the Ministry of Environment and Natural Resources (MARENA) for
forests within protected areas. Forest regulation and sustainable forest
management activities in the two Autonomous Regions of the Caribbean
Z <Coast (RAAN and RAAS) are undertaken by INAFOR and MARENA in
close coordination with the Offices for Natural Resource Management
22 Nicaragua (Reduced Emissions from Deforestation and Forest Degradation): REDD Readiness
Preparation Proposal prepared by the Ministry of Environment and Natural Resources (MARENA,
March 2013).


at both Regional Autonomous Governments. INAFOR also manages the
National Forest Development Fund (FONADEFO), an autonomous body
created to manage incentives and assign financial resources to small
projects. FONADEFO is funded by a portion of fees and fines collected by
INAFOR out of forest activities in areas other than the Autonomous Regions,
as well as by donor projects. Also, INAFOR established and supervises a
national system of forest regency that is run by certified regents (independent
foresters) who are responsible for preparing and overseeing sustainable
forest management plans. The Forestry Law also established the various
fiscal incentives for the sector including tax exemptions for individuals
and companies that invest in forest plantations or public institutions that
buy goods made with certified wood. Law 585 establishes rules for the
commercial use, including exports, of certain wood species and different
requirement for processing.
4.8. As shown in Table 4.1 below, there is a broad set of fiscal
incentives to forest activities, especially in the field of forest
plantations. Their effectiveness, however, is questioned by the fact that,
between 2003-2009, only US$160,000 in exemptions were approved,
and only 14,000 Ha of reforested lands benefited from this fiscal framework
under Law 46523. Several sources in the forest sector point at low institutional
capacity to enforce this aspects of the Law, and a number of bureaucratic
measures that prevent forest investors to take advantage of the incentives.
Also, it is recommended to reconsider the validity of incentives (10 year
after the Law was approved) and count the period starting from the first
year of investment.
U
Table 4.1: Fiscal Incentives for forest activities under Law 462
0
-o
Type              Description0
Fiscal incentive or  Exemption of 50 percent of the Municipal Tax on sales, and 50 percent of the Income Tax
exemption         over forest plantations established during the first 10 years of the Low
Fiscal incentive or  Exemption of the property tax of the areas with forest plantations or under forest
exemption         management, during the first 10 years of the Law
Fiscal incentive or  Recognize as an expense in the Financial Report subject to Income Tax calculations, the 50
exemption         percent of the total amount invested in establishing forest plantations
23 Thiel, Hans (September, 2012): Public spending in the forest sector of Nicaragua


Type             Description
Fiscal incentive or  Exemption of payments for introduction to the country of any imported machinery,
exemption        equipment, and accessories required to improve technologies in timber processing, excluding
saw mills.
Price incentive  Public institutions to prioritize in their procurement, acquisition of goods that were elaborated
with Wood that holds forest certification by INAFOR. Overpricing of up to 5 percent is allowed
i compared with other bidders.
Fiscal incentive or  Exemption of up to 100 percent of Income Tax for persons or firms when the amount is
exemption        allocated to promote reforestation or creation of forest plantations.
Note that fiscal incentives established in the Forestry Law 462 will expire in October, 2013
4.9. There is little evidence to suggest that the logging ban law
(Law 585, June 2006) has reduced the high deforestation rate
or the illegal use of forestry resources. In 2006, the Government
established the ban for 10 years on new permits for logging mahogany,
royal cedar, bombox (pochote), pine, ceiba, and mangrove, which are all
considered endangered. The military have been engaged to enforce the
ban and police known smuggling routes, however, there is little evidence
about its success. Enforcement and monitoring of government approved
logging is weak and it is estimated that about half the timber trade is illegal.
4.10. The Community Forestry Program, the National Reforestation
Crusade, and the prevention of forest fires are the best-
performing components of the PNF, according to the Mid-term
Evaluation of PRORURAL incluyente. INAFOR reports approximately
80,000 Ha of reforested areas since 2010; more than 23,000 Ha are
under Forest Management Plans, and some 35,000 Ha are being managed
under Forest Use Plans (for areas affected by recent Hurricanes). In close
collaboration with private producers, INAFOR has collected some 6,000
kg of certified forest seeds and has helped produce more than 30 million
a-
of saplings for the National Reforestation Crusade which mobilized some
477,000 students. In addition to this, approximately 37,000 families
participate in the Community Forestry Program. A noticeable outcome of
INAFOR's approach to involve as many institutional and local players in its
Z <activities is the sharp reduction in forest fires which decreased from 13,000
Ha in 2010, to 2,200 Ha in 2012.
I


Trends in funding and overall spending
4.11. Public spending in the forestry sector is lower per unit of
forested area in Nicaragua than in other Central American
countries. According to FAO's Global Forest Resources Assessment 2010,
for Central America the average is $7.31 per hectare of forest, against
Nicaragua's $1 .10. Costa Rica, with more than a decade of payments for
environmental services to forest owners, reports the highest value ($14.60
per hectare) followed by Guatemala which also operates a major program
of forestry incentives at $4. 10 per hectare. Other countries in Latin America
have adopted different means of ensuring adequate public resources for
this sector (see Box 4.1).
Box 4.1: Budget allocations for forestry across Latin America
In Honduras, the national forest authority, National Institute of Forest
Conservation and Development, Protected Areas, and Wildlife, was
created in 2008 an independent, decentralized entity with broad technical,
administrative, and financial powers. The institute has two major sources
of funding: the Forest Reinvestment and Plantation Development Fund
which must equal 1 percent of general budget revenues; and the Fund for
Protected Area Management and Wildlife, established through an initial
public contribution of about $3 million.
In Argentina, Law 26.331 created the National Program for Protection
of Native Forests, with an annual budget of no less than 0.3 percent of the
U
national budget and fed by 2 percent of the total export tax of primary and
secondary products from agriculture, livestock and forestry.
U
In Costa Rica, Law 7575 established financial and institutional
mechanisms to make possible the payment for environmental services for       0
forest conservation. Since the law was enacted in 1997, the Ministry of
Finance has channeled $133 million through FONAFIFO, 86 percent of
it for protecting natural forests. Almost 60 percent of these resources were
generated nationally through payments of environmental services and
excise taxes of hydrocarbons), while the other 40 percent was contributed
by external donors.
4.12. In Nicaragua, forestry's share of total public spending has
fallen in the last 10 years from 1.3 percent to 1.0 percent.
Through 2005, INAFOR spending depended mainly on the Treasury. An


increase in public spending in 2007-08 reflects large donations received
in response to Hurricane Felix in September 2007. From 2009, INAFOR
spending declined, mostly caused by decreased treasury resources. The
AOl for the forestry sector average 0.25 for 2006-1 1 and compares with
0.28 for agriculture during that period.
Figure 4.1: Agriculture Orientation Index for Forestry, 2002-1 1
0,70
0,60
0,50
0,40
0,30
0,20
0,10
0,00
2002   2003  2004   2005  2006   2007   2008  2009   2010  2011
m PRORURAL
m Rural spending
W Forestry
Source: BCN and author's calcuations.
Figure 4.2: Sources of funds, INAFOR, 2006-11 (left) and 2005-09 (right)
100%                                              100%
80%                                               80%
60%                                               60%
40%
40
0- 20%
20%                                               20&
L0%i
0%
2006   2007    2008   2009   2010    2011                1
M Forest revenues       0 External donations
0                     U External loans         M Transfers from Treasury            0 External Funding
z <re                                                                                     Domestic Funding
Source: Statistical newsletter INAFOR 2009; Thiel 2012.


4.13. Nicaragua has seen a significant shift in the sources of
public funding for the forestry sector from neutral to non-
neutral financing. External cooperation has averaged around 60 of
sector financing since 2002 but with large fluctuations. Donations peaked
in 2008 in response to Hurricane Felix in 2007 but returned to more stable
values thereafter. Meanwhile, INAFOR's allocations from the treasury
declined over 2006-1 1 but have been partly replaced by forest revenues
which rose from zero to 15 percent over the same period.
4.14. The larger share of resources raised from user fees and
charges versus general revenues and donor cooperation has
important implications for sector expenditure management.
User fees and charges are meant to influence producer behavior, but if
the associated public services (enforcement, certification services, R&D,
and technical assistance) are not adequately financed, the result may be
perverse incentives for producers and forest outcomes. Figure 4.3 shows
the distribution of forestry sector revenues. Given the high share of illegal
logging in Nicaragua, the small share of fines to user rights and auction fees
suggests that enforcement is relatively weak. As stated above, competition
in the marketplace from illegally-extracted wood products further raises the
opportunity cost for those producers that are complying with the law and
paying the required fees and charges.
4.15. A weakly enforced ban combined with increasing user fees
and charges may simple be raising rather than lowering the
incentive for producers to remain in the black market. Thiel
(2012) suggests that the collection of user fees and other costs for legally
producing timber affects mainly small landowners, communities and
CI)
operators. More broadly, users cite cumbersome procedures and very long
0
waiting times for permits as a larger disincentive to be legal than their costs.
Figure 4.3: Distribution of forestry sector revenues by type
11%
4%U
0  Fines
12%    4                    Others
S  User rights
4 1   0   73%     * Auctions
Source: INAFOR; Thiel 2012


4.1.1. Efficiency and distribution of public spending
4.16. Over the last decade, INAFOR has concentrated spending
primarily on conservation and reforestation, but in the last
five years it has shifted significant resources to "governance
and institution building". Table 4.2 shows a shift from less than 2
percent of spending on the latter in 2002, to around 46 percent in 2011.
This could suggest that enforcement is receiving more attention but without
precise and improved accounting for the various functions of INAFOR it is
difficult to draw such a conclusion firmly.
Table 4.2: Functional composition of PNF, 2002, 2007, 2011
(% of program spending)             2002    2001     2011
Forestry industry and trade development      2.6
Forestry knowledge generation and mtg  -     4.0     6.8
Governance and institutional strengthening  1.8  54.8  45.6
Forest management and conservation  23.2    33.1     21.4
Reforestation and forest restoration  75.0   5.6     26.2
Source: MHCP and INAFOR; Thiel 2012.
4.17. Meanwhile, INAFOR has also experienced a significant
reduction in capital spending similar to PRORURAL in general,
partly due to changes in accounting practices. Table 4.3 shows
the decline in capital spending from 18 percent to 4 percent of INAFOR
spending from 2006-11. Personnel costs continue to dominate spending
and have risen from 44 to 58 percent of INAFOR's budget during 200611.
-
- Table 4.3: Economic Composition of INAFOR Spending, 2006-1 1 (% of budget)
LLJ
<CL                        2006       2007       2008       2009     2010       2011
Capital      18%        18%       17%        13%       1%        4%
Current      82%       82%        83%        87%       99%       96%
4.18. Despite suffering from a lack of resources, the Nicaraguan
Forest Institute (INAFOR) continues coordination with
other institutions and stakeholders to improve program


implementation, transparency and reduce corruption. INAFOR
activities are improving forest governance in the territories, bringing many
key stakeholders to the newly created Groups of Forest Governance
(GOFOs) where the main issues are discussed and public programs are
presented. These local platforms have proven an effective means to improve
coordination with local authorities and other local players. Although many
challenges remain, it is worth mentioning the first step towards a custody
chain of the wood that is extracted under forest management plans and the
tracking of illegal logging in coordination with municipal, indigenous, police
and military authorities. Regarding local dialogue on promoting sustainable
forest management practices, the GOFOs platforms, such as the RAAN
Consultative Forest Committee, are an effective channel used by INAFOR.
As demonstrated in the case of community forestry, reduction of forest fires,
and the National Reforestation Crusade, the broader engagement of a
number of local players has been a key element and a success factor of
INAFOR's work in a context of limited resources. With the end of the legal
period for forest incentives under the Law 465 in October 2013, the sector
will have the opportunity to review and adjust the administrative burden of
the current incentives regime. Also, a review and adjustment of the forest
ban should be considered on the basis of different socio-economic studies
per territories and types of forest species. In addition to this, MARENA
and INAFOR are currently leading a country level effort to prepare a
National Strategy on Avoided Deforestation (ENDE) which would include
the particular country strategy on reduced emissions from deforestation and
forest degradation (REDD+). The ENDE will be based on a sound analysis
of the causes of deforestation and of the strategic options to reduce it based
on past lessons and a review of the public policies and productive models
that are influencing the deforestation rate.
0
-o
4.19. The impact to date of spending on sector conservation/
reforestation outcomes seems marginal. While the share to
reforestation has been rising, in the last few years, the rate of reforestation has
remained static at around 15,000 ha per year. Meanwhile, the government
has granted only US$163,000 in exemptions and incentives during 2007-
11 resulting in the reforestation of only 13,000 ha and around 20,000 ha
of certified plantations and natural forests. Likewise, public spending on
forest management for conservation has been on the rise since 2008, but
the areas under forest management plants has generally been declining.


Figure 4.4: Expenditures in forest management and conservation/restoration
and reforestation in relation to the respective approved areas/accomplished
and burned
(Thousands of USD) - bars                                ho
1.600                                                            50000
1.400                                                            45000
40000
1.200
35000
1.000                                                            30000
800 -25000
600 -                                                           20000
15000
10000
200 -1                                                         5000
000
0     2007        2008        2009        2010        2011     0
m  Spending in Forest Management Conservation  i  Area under Forest Management Plans
"  Expenditure in Reforestation  U  Area Reforested
a FONADEF spending
Source: INAFOR Annual Report 2011, FONADEFO; Thiel 2012.
4.20. Payments for extraction are distributed among communities
and the treasury. MAGFOR periodically sets the payment per cubic
meter of extracted round wood from natural forests. The current payment
is 6 percent of the selling price, of which 35 percent goes directly to the
municipalities where the wood is extracted, 50 percent to the FONADEFO,
and the remaining 15 percent to the Treasury. In the Autonomous Regions,
these payments are evenly divided between the indigenous community
where the resource is extracted, the municipality, the regional council or
regional government, and the national treasury. While this distribution
Lii
appears equitable and in line with decentralization principles, because
the resources are so small it may also be diluting potential impact overall if
coordination is not effective and if each stakeholder group has to invest a
minimum in fixed costs.
4.21. In terms of territorial distribution however, per ha spending
appears relatively equal across regions except for the smallest
districts (in terms of forest cover) where fixed costs dominate (see Figure 4.5).


Eighty percent of forestry spending cannot be assigned to a geographic
forestry district, while the other 20 percent analyzed by spending per
forested hectare are relatively similar across forest districts.
Figure 4.5: Annual expenditure by forest area and forest district, 2007-2011
1.600                                                                               4,0
1.400                                                                         *     3,5
1.200                                                                               3,0
1.000                                                                               2,5
800                                                                                2,0
600                                                                                15
400                                                                                1,0
200                                                                                0,5
0                                                                                 0,0
Distritos ly II  Distrito IX  Distrito VIII  Distrito X  Distrito III  Distrito V  Distrito IV  Distrito VII
(RMAN)    (RAAS)  (Matagalpa,  (Rio San Juan)  (Nueva  (Rivas, Corazo,  (Chinandego,  (Chontales,
Jinotego)         Segovia, Esteli,  Granada)  Leon)  Boaco)
Madriz)
" Forest area (in thousands ha)
" Annual spending (USD/ha)
Source: INAFOR; Thiel 2012.
4.1.2. Conclusions and recommendations
4.22. Public spending on the forestry sector remains comparatively
low  in Nicaragua, both in comparison to other countries in the
U
region, but also in relation to the sector's economic importance,
0
and to the environmental risks. The growing economic potential from
Nicaragua's tropical hardwoods (rightly called precious woods) will further
raise these risks if forest management is not improved rapidly. These risks
are also amplified by the fact that much of these hardwoods are located in
regions of the country with the highest levels of poverty and that are on its
productive frontier for other agricultural activities like cattle farming. Finally,
Nicaragua's extraction regime is relatively costly both in terms of user fees
and bureaucracy. These combine to create a perfect storm that has yielded
deforestations rates of around 76,000 Ha per year and a timber extraction
sector that is estimated to be half illegal.


4.23. In this context, it is recommended to (i) improve both
levels and quality of spending on the sector; but also to (ii)
rationalize the incentive structure. Public spending on forestry has
been heavily dependent on general revenues and donor financing in the
past. In recent years, the move toward more own revenues is positive.
Still, the revenues collected for user rights looks to be too low relative to
the resource requirements and skills needed to promote sustainable forest
management. However, if these public services (enforcement, certification
etc) are not provided effectively in tandem, the incentive for legal extraction
will continue to deteriorate. Higher fees combined weak enforcement, and
cumbersome bureaucracy will continue to increase the incentives for illegal
logging rather than deter it. In addition, it appears that forest user fees are
distributed too thinly across the required stakeholders to maximize impact
on forest management, particularly in the Autonomous Regions where there
are four levels of government each with its own share.
4.24. INAFOR has increased its share of spending on governance
and institution building in recent years. However, current accounting
practices do not allow to fully disaggregate into resources for administration,
enforcement, etc. INAFOR has also increased spending on conservation
and restoration, but the impact to date is small and uncorrelated with levels
of spending.
4.25.The following are some recommendations to improve the quality of public
spending on forestry sector.
4.26. Improve the current accounting practices in line with SIGFA
so that efficiency of expenditures can be monitored more
carefully. To do this the planning processes for INAFOR and forestry
institutions needs to be aligned with budget practices in SIGFA. This is
particularly critical to evaluate the costs of delivering effective enforcement
C
and public services in forest management. For example, until the accounting
LLJ
practices are improved it will be impossible to tell whether the distributions
of forest user fees are in fact being distributed too thinly and to propose
more efficient methods for coordination and consolidation.
Z <4.27. Consider increasing general revenue funds and continue to
mobilize external resources for forest management. This type of
neutral financing will be critical to support the improvements in enforcement
and producer services while the impact of user fees and other incentives
a                 gradually take force. Nicaragua has the opportunity to access several


emerging international climate funds. These can help to supplement scarce
general revenue resources in the short to medium term. However, given the
economic and social potential of the forestry sector, Nicaragua should also
consider increasing the share of public resources to this forest management
over the medium term.
4.28. Concentrate public spending in the short run on improving
the effectiveness of enforcement tools, better trained people,
enhanced territorial governance, and severely punish
predatory and illegal exploitation. Weak enforcement creates a
whole host of perverse incentives in the sector and reduces the effectiveness
of all other public interventions to promote sustainable management - for
the private sector and at the community levels. Ensuring adequate spending
on enforcement, and monitoring the impact should be a first priority for
future expenditure policy decisions in this sector.
4.29. Evaluate and rationalize the incentive structure. The complex-
and at times internally inconsistent-incentive structure for private investors
needs to be holistically evaluated and rationalized. The negative incentives
of charges, auctions, and fines should be reviewed to ensure that public
resources are put to their highest-value use through a transparent system
of pricing, and fines openly administered to reflect the degree of violation.
Incentives should be designed to encourage activities that produce positive
environmental or economic externalities in the most efficient way possible
(which as a general principle argues against ad hoc exemptions and
exonerations) and should impose a minimal bureaucratic burden.
4.30. Increase public capacity to accompany incentives. The law
U
establishes a wide range of incentives and tax exemptions for forestry,
but they are not supported by the needed skills and resources of public
management. Public institutions should have additional resources and
capacities to make these incentives more viable in a framework that
produces an attractive investment climate.
O
0
4.2. Tackling food security and nutrition                                          u
4.31. In 2006, Nicaragua shifted the focus of its agricultural
spending toward food security and sovereignty. This shift
involved three main emphases - (i) food production, (ii) food distribution to
vulnerable groups; and (iii) market interventions to foster import substitution
and reduce price volatility. It also included improvements to food security


and safety services, and a broader program of nutrition education. The shift
was epitomized by the introduction of a new flagship program PPA aimed
to "capitalize" poor households to improve subsistence agriculture, a large
school-feeding program, and new food aid and food for work programs.
4.2.1. Food security and nutrition: Where does Nicaragua stand?
4.32. From 1995-2006, Nicaragua had halved its levels of
hunger or undernourishment (Figure 4.6) with the sharpest drop (19
percentage points) in Latin American, but it still suffered more than three
times the regional average. In addition, there remained however large
disparities across regions from Rivas and Managua at just over 10 percent,
to Jinotega at just under 40 percent.
Figure 4.6: Prevalence of hunger or undernourishment
in Latin America and the Caribbean (%)
60
50
40
30
20
10
07
0  1995-1997
m  2006-2008
Source: FAO; Ortega 2012.
C
LLJ
4.33. Then, between early 2006 and 2008 global food prices
increased dramatically, by an annual average of 23 percent.
After the second half of 2008, Nicaragua continued to experience amongst
the highest food price increases in the Latin American region. Global trends
in food prices were compounded by natural disasters in Nicaragua that
dramatically affected domestic food production.


4.34. The food price crisis affected the poor disproportionately and
is estimated to have slowed poverty reduction over the period.
In Nicaragua's rural areas, two-thirds of the poor's income is devoted to food
(Cranfield and others, 2007), while the urban extreme poor have limited
alternative food sources. It is estimated that without the food price crises in
2008-09, rural poverty in Nicaragua could have declined by a further 1
to 4 percentage points. Figure 4.7 reports the results of simulations of three
different price increases including a 10 percent rise in the price of basic
foods, actual changes between 2005-07 and between first quarter 2006
and first quarter 2008. In Nicaragua, 90 percent of households (in 2009)
were net consumers of food. As a result 91 percent were worse off as a result
of the increase in food prices, and only 9 percent could have been said to
have benefited from the higher prices (Robles and Torero, 2010).
Figure 4.7: Simulated effects of the food price crisis on poverty in Nicaragua
(% increase in poverty).
12  -10.5
1010
81  -
6 -                                           5.5
4.2                      4.2
4 -
2.5  2                           2.2
2  -   1.4
U
0                                                                              -
Simulation 1      Simulation 2      Simulation 3
" Urban
0
" Total0
Note: "Simulation 1"= 10 percent increases in the prices of wheat, rice, dairy products, maize,
sugar, beef and poultry; "Simulation 2" = actual changes between 2005 and 2007 in the prices of
wheat, rice, dairy products, maize and poultry; "Simulation 3" = real change between the first quarter
2006 and the first quarter of 2008 in observed consumer prices of rice, corn, bread, wheat-based
items, and other grains, beans, roots, vegetables and fruits; meat, fish, and dairy; and other food.
U
Source: Ivanic and Martin, 2008 (simulations 1 and 2); Robles and Torero, 2010 (simulation 3)
4.35. Nevertheless, between 2007 and 2012, Nicaragua appears
to have continued to make progress on improving its food
security. Figure 4.8 shows the distribution of food security as measured
*


by the World Food Program across municipalities for 2007 and 2012. A
generally lighter map indicates improvements mainly in the Central and
Pacific regions, but also in selected municipalities in the Autonomous regions.
Figure 4.8: Food insecurity for by municipality 2007 (left) 2012 (right),
darker red =more insecure
---             --- --
1U%~
L 4"a-
Source: World Food Program (Nicaragua Country Program 2008-12, 2013-18)
4.36. Then in 2012, Nicaragua was rated as a "moderate
performer," on the Economist Intelligence Unit's Global Food
Security Index, 69th among 105 countries globally and the
lowest in in Latin America. Nicaragua scored well on nutritional
standards, food safety, import tariffs, stability of production and access to
financing. The main weaknesses are reported in in agricultural infrastructure,
micronutrient availability and public expenditure on agricultural R&D
(Table 4.4).
-o
Table 4.4: Nicaragua's strengths and weaknesses
a-
on the Global Food Security Index
CL
Nutritional standards                                    100.0
U-
Z <                 Food safety                                              90.1
Agricultural import tariffs                              85.0
Volatility of agricultural production                    78.0
Access to financing for farmers                          75.0


Moderte (25-75)
Proportion of population under global poverty line      66.1
Diet diversification                                    50.9
Food consumption as a share of household expenditure    41.2
Sufficiency of supply                                   39.8
Political stability risk                                27.8
Protein quality                                         27.3
Presence of food safety net programs                    25.0
Weaknesses (ess than 25)
Agricultural infrastructure                                20.4
Micronutrient availability                                 17.0
Public expenditure on agricultural R&D                     12.5
Gross domestic product per capita                          4.8
Source: Economist Intelligence Unit 2012.
4.2.2. Food security programs
4.37. In 2009, a new Food and Nutrition Security and Sovereignty
Law (SSAN 693) was approved. The law embodied a number of
objectives on food security, nutrition and food sovereignty, at different levels
of specificity: (i) improve domestic food production with an emphasis on
promoting small enterprises; (ii) alleviate poverty and hunger by improving
access to employment and productive resources; (iii) raise access to safe,
healthy and culturally acceptable food; (iv) establish education in good
nutritional and environmental practices; (v) reduce micronutrient and
0
protein-energy deficiencies; (vi) guarantee food safety and standards; (vii)
promote inter-sectoral and inter-institutional coordination.
4.38. The Government introduced a very wide range of programs
and   institutional arrangements, which           also  created   some
challenges for coordination. The Law 693 provided the Government
with a strong mandate, making it easier to channel budgetary resources
to these objectives. It also raised the importance of food and nutrition
security in international cooperation. This program was to be implemented
by MAGFOR, the Ministry of Health (MINSA), the Ministry of Education
*


(MIDED), and MARENA.24. However, the wide number of program and
institutions involved in implementing different aspects of the program
brought deep challenges in terms of coordination, monitoring of outputs,
and evaluation of impact.
Table 4.5: Food and Nutrition Security and Sovereignty Programs
Public institution      Programs
PRORURAL, (MAGFOR,      PNA of PRORURAL: strategic pillar of food security, which includes the following programs:
IDR, INTA, INAFOR)      *   Programo Productivo Alimentario
* Programa Alimento Semillo (PAS) (now called Cristiano Solidiario or CRISSOL)
* Food and Nutrition Security Program (PSAN)
PNAIR: productive pillar that aims to increase production of PAS beneficiaries.
MINED                   *   Integral School Nutrition Program (PINE)
*   Food and Nutritional Programs (different actions)
MARENA                  *  Actions of protection and management of naturol resources (particularly water resources)
MINSA                   *   Health and Nutrition Community Action Program (PROCOSAN)
*   Integrated Support Systems in Local Health Core (SILA)
* Health and Nutrition Primary Care (PMSS)
* Vaccines and other Promotion, Prevention, Education and Communication in Health Programs
MIFAMILIA               *   Comprehensive Child Care Program(PAININ)
SINAPRED                *   Planning, coordination, prevention and repair oriented to food and nutrition security
PRESIDENCIA             *   Executive Secretariat of SESSAN
Source: Ortega 2012.
4.39. Within PRORURAL, the Programa Nacional de Alimentos
(PNA) was established with three subprograms:
* Productive Food Program (Programa Productivo
Alimentario, PPA), the Government's flagship food security
program      which is also referred to as the "Bono Productivo", provided
an initial set of productive assets to around 100,000 households
during 2007-1 1. Earlier iterations of the package of assets included
livestock, which were later expanded to an offering of a larger
number of different packages.
z<
24 The Ministry of Family, Youth and Children (MIFAM), the National System for Prevention,
Mitigation and Alertness to Disasters (SINAPRED) and the Executive Secretariat of SESSAN,
under the Presidency of the Republic, are not explicitly mentioned in the Law but are included in
A                           this review.


*  Food Security and Nutrition Program (PSAN) includes program
of food aimed to help poor households that depend on degraded
natural resources for their food security to shift to more sustainable
livelihoods. Under the WFP program 2008-12, food aid was provided
to around 30,000 people per year in the form of food for work and
food for training to stimulate reforestation, soil and water conservation
in areas of extreme vulnerability Nueva Segovia and Madriz. In the
new iteration, beneficiaries are selected on criteria developed with the
local partners and committees and are intended to be mainly food-
insecure households, landless families, families headed by women
and subsistence farmers with less than 1 ha of land.25
*  The Agro-Seeds Program (Programa Alimento Semilla,
PAS) was established in 2007, to distribute certified seeds to small
farmers in targeted areas. The program distributes a technological
package of certified seeds, fertilizers, and training and technical
assistance to qualified beneficiaries as credit from a revolving fund.
The inputs are valued at market-prices and are reimbursed with in-kind
or in cash at the end of the agricultural cycle. This program has been
implemented both by MAGFOR and DR (as part of the PNAIR).
4.40. Some progress has been made on most of the targets set
out in the PNA, but these fall far short of the goals that were
set in 2008. Table 4.6 lays out the very ambitious objectives of PNA
that were set out quantitatively in terms of employment, production, family
benefits and poverty in general. While there has been progress in terms of
most of the stated goals, it has been much more tempered than originally
anticipated. Agriculture value added and exports have grown somewhat
faster during 2006-12 than 2002-05. But value added for domestic
production has fallen and food imports (whose decline could be used to
0
measure import substitution broadly) have grown. In terms of production
volumes, basic grains and poultry have grown a bit faster in 2006-12 than
in the previous period, while volumes of meat slaughtered has declined
faster. The most dramatic increase in production was in eggs. Relatedly, job
growth and poverty reduction have improved but also at more modest pace      2
than was intended.
25 From WFP, community organizations, local governments and non-governmental organizations
will provide tools, seeds, fertilizers and technical assistance. Participants will receive a family
ration of cereals, beans and vegetable oil for 60 days that will provide 65 percent of the average
daily wage.


Table 4.6: Objectives and Results for PNA
Targets incuded in PNA 2008                                2002-05                                   2006-12
300,000 more direct, new and permanent employees           (hanges in methodology in 2010 do not allow a consistent series
300,000 more indirect employees                            2001-09 18,900 new jobs 2010-11 50,500 new jobs
Increase production by 80% in  Growth in                   (2002-05)                                 (2006-12)
value or US$500-600 million/yr  *  Agri value added        *   4.4% per year or 14% in total         *   2.7% per year or 17% in total
in value added                *   o/w for dom cons         *   2.0% per year, or 6.2% in total       *  -0.5%   per year, or -2.8%  in total
Increase production by 80% in  Growth in volumes of:
volume                        *   basic grains             *   2.7% per year or 14.0% in total       *  2.5% per year or 16.0% in total
*   meat slaughtered         *  -0.2% per year or -0.6% in total       *  -0.7% per year or -4.4% in total
*   poultry                  *   5.7% per year or 24.9% in total       *  4.1% per year or 27.3% in total
*   eggs                     *   -5.6%  per year or -1.4%   in total   *  2.9%   per year or 18.8%   in total
Export growth: US$400m/yr     Growth in agricultural exports  Average $52 million per year           Average $73 million per year
($208 million total)                      ($440 million total)
Increase in efficient import  Growth of food imports                                                 Average $36 million per year
substitution of US$200m/yr                                                                           ($181 million total)
At least I million people lifted out of poverty            Marginal increase in poverty between 2001-05  230,000 people moved out of poverty between
2005-09.
At least 350,000 beneficiary households per year           No data available.                        On average 115,000 per year, excluding
emergency benefit recipients of PSAN
Source: PRORURAL PNA (2008), BCN
4.2.3. Public spending in food security
4.41. In line with the shift in strategy, public spending on food
security increased significantly during the 2008-09 food price
crises and has remained relatively high since (Figure 4.9).
Between 2002-05, and 2006-09, spending on food security across the
public sector increased by around 43 percent. That amount has declined
only slightly in recent years. The main increases are due to an expansion
both in PRORURAL and in school feeding programs in MINED and MIFAN.
It should     be   noted     that these     spending       aggregates do          not include      the
Ui
operations of the National Food Trading Company, ENABAS.
U
z<0
*
S.


Figure 4.9: Public spending in food security by    Figure 4.10: Food security in key ministries
ministries, annual averages, 2005 C$ million           (% of ministry spending) 2002-11
600                                            40
500
400
300                                            20
200                                            10
0                                              0
2002-2005   2006-2009   2010-2011              PRORURAL  MIFAMIIA  MINED  MINSA  SINAPRED
" SESSAN        * MIFAM                                  * 2002-2005
" SINAPRED      N PRORURAL                               0 2006-2009
" MINSA         N MINED                                  0 2010-2011
Source: MHCP; Ortega 2012
4.42. PRORURAL has implemented approximately 42 percent
of total public spending on food security. The remainder was
increasingly dominated by the MINED and MIFAM programs in the
education sector which combined account for 55 percent of the food security
spending.26(For these ministries, food security spending also represents an
increasing share of budgets. In particular, MIFAN moved from spending
8 percent of its budget on food security in 2002-05 to almost 40 percent
in 2010-11. While PRORURAL food security rose to around 32 percent of                  -
40~
total spending (see Figure 4.10).
4.43. PRORURAL spending on food security spiked during 2006-
09 but      has  fallen significantly in real terms since then. The
introduction of the PPA in 2007 and 2008 was accompanied by a surge in
0
the seeds program under PNAIR which has since closed. o        d
U
26 For MARENA, it was not possible to identify the activities related to food security in the
information on public spending. For two of the identified programs of MINSA, only portions of it
were considered related to food security: comprehensive support to SILAI and vaccinations. For
SINAPRED, only some of the expenditure categories were included.
u


Figure 4.11: PRORURAL public spending on food security, constant 2005
C$ million
350
300
250
200
150
100
50
0
2002-2005    2006-2009    2010-2011
m PAS-PNAIR       m PAS
" PSAN            N PPA
Source: MHCP and MAGFOR; Ortega 2012.
4.44. Large fluctuations in the resources allocated to the various
PNA programming lines may have limited the impact of
individual programs over time. The share of spending on "governance
and capacity building" declined from 58 to 30 percent during 2002-1 1,
and while that on "food security" increased from 20 to 42 percent. The only
programming line that has seen a stable share of financing has been "food
safety" at around 17 percent.
Table 4.7: Functional composition of PNA subprogram
(% of subprogram spending)
2002-05    2006-09     2010-11
&                          Cattle forming                       0.0         -         2.0
Governance and capacity building    58.1       28.3        30.6
Integrated crop management          0.6        13.6        6.6
Lii
Production monitoring                -          -          0.6
CL                          Production planning                  -         0.1         -
Seed production                      0.9        5.0        1.8
z <                           Product development                  4.0         -          -
Food safety                         16.2       18.1        16.8
Food security                       20.2       34.9        41.5
* *
0 0


4.45. Whether these shift owe to changes in national strategic
direction or changes in the focus of donor financing, they
are likely to be limiting the long term impact of the smaller
program lines over time. Figure 4.12 below shows that MAGFOR
has maintained a steady 60 percent share of its financing from external
funds, while INTA has seen more volatility over time. The share of external
financing in INTA's budget has fallen from an average of around 50 percent
during 2002-08 to just over 30 percent in 2011. Meanwhile, apart from
the gradual increase in food security which has been the explicit policy
direction of the PRORURAL Incluyente, all the other program lines show
large volatility from one period to the next (see Table 2.2). Such areas as
crop management, seed production and product development are likely to
have an impact only in the medium to long term but if the programs are cut
short from one year to the next, such large fluctuations would limit overall
outcomes over time. Building a national consensus on the direction some of
these smaller, but crucial, programs may help to maintain the strategic focus
across political administrations and budget periods.
Figure 4.12: Share of external financing in PNA budgets (%), 2002-1 1
MAGFOR                             INTA
100%                              100%
80%    - -   -    -   -   -   -   80%
60%                              60%
U
0%    I0%
C=  C C C C=C                 C> CD CD CD C= CDC-
C C C> C C  C  C= C= C=            C= C C C= C= C= C= C=
"  External Funding               N  External Funding             C
"  Domestic Funding               0  Domestic Funding
4.46. The economic composition of PNA spending across MAGFOR2
and INTA stayed relatively stable during 2006-11. MAGFOR                 U
spent approximately 70 percent on current spending and INTA 90 percent.
However, while the structure of spending in INTA has remained relatively
stable, MAGFOR has seen a significant increase in personnel costs from 18
to 26 percent of its budget and in current transfers from 1 to 11 percent,
during 2007-2011.
*0


Table 4.8: Functional composition of MAGFOR and INTA
spending 2007, 2011
INTA                                         2001        2011
BIENES DE USO                                 4%          3%
MATERIALES Y SUMINISTROS                     15%          11%
SERVICIOS NO PERSONALES                      22%          13%
SERVICIOS PERSONALES                         58%          64%
TRANSFERENCIAS CORRIENTES                     1%          2%
TRANSFERENCIAS DE CAPITAL                     0%          7%
MiFGOR
BIENES DE USO                                2%           2%
MATERIALES Y SUMINISTROS                     12%          9%
SERVICIOS NO PERSONALES                       9%          24%
SERVICIOS PERSONALES                         18%          26%
TRANSFERENCIAS CORRIENTES                     1%          11%
TRANSFERENCIAS DE CAPITAL                    59%          28%
4.47.... and the cost of delivering transfers to food security
beneficiaries has improved over time. Table 4.9 shows the ratio
of delivery costs to actual transfers to beneficiaries in the three PRORURAL
food security programs and PINE. These delivery costs are estimated from
operational and administrative costs specific to delivering transfers to
individual beneficiaries.27 It is interesting to note that PINE, PSAN and PAS
have all achieved less than 10 centavos costs per cordoba of delivery, while
the transfers of the flagship program remains much more expensive to deliver.
One consideration for the future would be to measure the relative efficiency
in not just delivering transfers, but in achieving the outcomes of freeing
households from food security over time. (For more detail see Annex 5).
U-
z<
27 The computation includes both direct transfers, as well as goods and services provided to
individual beneficiaries. Although the ratio is simple to compute, the construction of the costs
requires a detailed examination of expenditure lines to assign these expenditures. Annex includes
a detailed list of how each expenditure line was assigned to costs or transfers.


Table 4.9: Cost-transfer ratios of food security programs, 2010-11
2002-2005  2006-2009   2010-2011
Food security    0.34        0.16       0.14
PPA               -          0.21       0.23
PSAN              -          0.11       0.08
PAS              0.02        0.20       0.05
PINE             0.23        0.18       0.09
Source: Laguna 2012.
4.48. Coverage and targeting measure how food security programs
that targeted specific beneficiary groups have contributed to
poverty reduction. We present two measures - coverage which is the
percentage of the target population that benefits from a program at a given
time; and targeting refers to the proportion of beneficiaries of any program
that belong to the target population. The analysis uses the household survey
from the LSMS in 2009, which included questions on whether a household
participated in a given program, in this case the PPA (described in para
4.40), the School Lunch Program (PINE), and the Comprehensive Child
Care Program (PAININ) which was only at the stage of a pilot in 2009.
4.49. PPA had low coverage and was only loosely targeted toward
the extreme poor, while PINE had much better coverage but
was less well targeted. We do not report coverage for the PAININ
since it was only a one-year pilot at the time of the survey. In 2009, PPA
reached only 7 percent of the extreme poor households and 5 percent
of the non-poor households with benefits (see Table 4.10). Leakages to
more well off families were high with a significant number of the actual
beneficiaries (38.3 percent) being in the non-poor households, and just over
one fifth (21 .1 percent) in the top two consumption quintiles. The Integrated
School Nutrition Program (PINE) had high coverage, with around one-third
of the poor and one-third of extremely poor households reporting receiving
benefits.
4.50.The PAININ pilot was even less progressive than the other two programs
with 44 percent of the beneficiaries in non-poor households, and around
32 percent in the top two consumption quintiles.


Table 4.10: Coverage and targeting of food security programs in 2009, by
poverty situation and consumption quintiles (%)
PPA               PINE               PAININ Pilot
Population groups
Coverage  Targeting  Coverage  Targeting  Targeting
Poverty situation
Extreme poor        6.6      25.1      35.5     17.8     28.6
Poor                5.1      36.6      37.4     35.1     26.7
Not poor            2.6      38.3      23.6     46.5     44.7
Per capita expenditure quintile
1 (poorest quintile)  6.6    34.5     37.3      25.6     28.6
2                   4.7      24.6      36.9     25.2     26.7
3                   3.8       19.8     35.5     24.3     11.9
4                   3.3       17.0     23.8     16.3     15.8
5 (richest quintile)  0.8    4.1       12.5     8.6      17.0
Source: Ortega (2012), based on LSMS 2009
Note: Coverage is the percentage of each poverty group or income quintile that receives benefits
from the program; targeting (focus) is the percentage of overall program beneficiary households that
belong to the poverty group or fall into the numbered consumption quintiles.
4.51. Hypothetically, PPA could have reached more than a quarter
(26 percent) of the extreme poor or just under one fifth (19
percent) of the first quintile with similar resources if it had
achieved perfect targeting. As a hypothetical exercise, we compute
what the coverage of extremely poor households would have been if all
the beneficiaries in this category, i.e. 100 percent targeting i.e. all of the
beneficiaries being either extremely poor or in the first quintile. However,
in the case of PPA the benefits were conditioned on having access to some
-o
agricultural land. If we proposed perfect targeting of the poor households
(i.e. neither extreme poor, nor the non-poor), then with perfect targeting,
coverage could have been increased to just under 13 percent with similar
resources. Recall that there are more poor (27 percent), than extreme poor
households (14.6 percent of all households) in Nicaragua.
U-o
4.52. PINE achieved good coverage due to its large size, but with
less focused targeting. In 2009 PINE appears to have had more than
1.5 million beneficiaries, compared with the estimated 841,000 extreme


poor and 1.6 million poor.28 By design, coverage was high since the
program targeted public schools only and in poor areas, but the design
also allowed for large leakages to non-poor households because school
lunches are provided to all the students in the school regardless of means.
For example, if one had perfect targeting in the PINE program theoretically
it would be possible to cover all percent of the extreme poor in Nicaragua
and non-trivial share of poor households as well. However, the trade- off
between the cost of selecting which students in a given school (some students
and not others) and reaching more schools, versus the could be quite high
compared to the leakages to less poor households. Recall that PINE remains
a quite efficient program in terms of costs of delivering transfers to the
beneficiaries (para 4.48).
Table 4.11: Coverage and targeting of food security programs in 2009,
by location and region (%)
PPA                PINE               PAININ Pilot
Population groups
Coverage  Targeting  Coverage  Targeting  Torgetinlg
Urban                0.5       7.3      21.5      41.9      49.9
Rural                8.3       92.7     39.4      58.1      50.1
Managua              1.0       6.6       18.8     15.6      17.9
Pacific-Urban        0.4       1.8      20.5      12.3     8.7
Pacific-Rural        7.1       23.2     34.1      13.7      9.0
Central-Urban        0.0       0.0      23.4      10.0      7.9                               U
Central-Rural        8.9       44.1     40.5      26.9      19.9
U
Atlanfic-Urbon       1.9       2.4      36.1      6.0       16.6
Atl6ntic-Rural       8.3       21.2     45.7      15.5      20.0                              8
Source: Ortega (2012), based on LSMS 2009                                      0
Note: Coverage is the percentage of each poverty group or income quintile that receives benefits
from the program; targeting (focus) is the percentage of overall program beneficiary households that  0
belong to the poverty group or fall into the numbered consumption quintiles.
u
u
4.53. Targeting       the  PPA    by   land   ownership     is associated     witha
more resources in absolute terms being spent on households
28 This is also a reminder that when considering targeting figures they should be evaluated in
comparison to the underlying population distribution, e.g, in Nicaragua there were estimated
14.6, 27.9 and 57.5 percent households that were extremely poor, (just) poor, and non-poor in
2009.


in the richest quintile. Until now we have considered distribution of
beneficiaries without considering how much value each received. Since
the 2009 LSMS survey asked households to evaluate the benefits of BPA,
we can plot the distribution of benefit values. Figure 4.13 shows average
benefits received by households in different population groups. By size of
land holdings (a), the program was focused on the bottom three quintiles.
When we look at welfare quintiles, however, both for all households (b) and
for rural households only (c), the average benefits received were largely the
same regardless of the levels of consumption of the households. However,
when we look at total benefits, the result shows that a much higher share
of the aggregate expenditures on PPA benefits reaching the fifth richest
quintile. In other words, the largest share of expenditures on PPA benefits
appears to be provided to the richest households.
Figure 4.13: Distribution of benefits of BPA recipients
by land ownership and consumption, 2009
Average Benefits of the BPA per HH (($)    Average Benefits of the BPA per HH (C$)
2000                                       2500
2000
1500
1000
1000                                       1300
50050
1     2      3     4      5                1      2     3      4     5
Agricultural Land Owned Quintiles                Welfare Quintiles
a  Value of Benefits                       a  Value of Benefits
"  erhi/erlo                               a  erhi/erlo
Average Benefits of the BPA per HH (C$)  1otal Benefits of HH within the Quintiles (Mill.  $)
1500                                         90
100                                                     80
CL500                                                    0
50
0                                          40
1      2     3     4      5                1      2     3      4     5
Z <                              Rural Welfare Quinfiles                    Rural Welfare Quintiles
" Value of Benefits
" erhi/erlo
Source: Anriquez (2012), based on LSMS 2009 data.


4.54. Explicit targeting strategies that take into account trade-offs
between delivery costs and leakages, and between programs
that could reach similar beneficiaries, should be put in place
and monitored and evaluated more frequently. The above analysis
suggests that there is a lot of scope for increasing the impact of food security
spending by strengthening targeting methods, especially given the strong
emphasis on direct transfers as part of Nicaragua's food security strategy.
All of these main programs have had substantial adjustments since 2009 so
it is likely that these results have changed. A recent update of the municipal
level poverty map (last one is in 2005) is now available for the 2009 data
and could help to refine these results, match them more closely against
actual expenditures. In addition, future editions of household surveys should
continue to measure the benefits incidence and impact of these flagship
food security programs. In additional they can help to evaluate the tradeoffs
between spending on the different programs, such as the PINE and PPA,
and help the authorities to see where to allocate the marginal dollar of
public expenditure. Over time, a continuous monitoring and evaluation
will help reduce the cost of the ideal targeting: means-based targeting that
would assure more precision in the selection of the most needy households.
4.2.4. Food sovereignty and food price supports.
4.55. The third prong of Nicaragua's SSAN program are a range
of market interventions market interventions to reduce
price volatility and foster import substitution. These include the
operations of the National Food Trading Enterprise (ENABAS), a variety
of price supports implemented mainly through product specific tariffs and
U
interventions by the Ministry of Development, Industry and Commerce
(MIFIC). The objective of ENABAS is the creation of an alternative
distribution network to "prevent the domestic market from raising prices
above the cost of production" and to increase production of basic food
stuffs by small holders 29. With its 3,817 trading posts across 103
municipalities, and broad range of post-harvest services to micro and small
producers, ENABAS represents an important policy intervention in the area     U
of food security and sovereignty. However, data is not readily available on
its expenditures.30 Interventions by MIFIC are generally ad hoc and have
29 http://www.enabas.gob.ni/
30 The last monthly report available on the ENABAS website is dated July 2010, and the last
investment plan was for 2008


generally been used during times of exceptional price volatility. However,
there is also little information readily available on the precise scope of these
policy interventions. As such, the following analysis compares results from
various studies undertaken for evaluating price supports and looking at the
impact of international food price trends in Nicaragua.
4.56. Price wedges as a means of support for producers appear
to be much more important than public expenditures on direct
transfers of goods and services in Nicaragua. Castillo Vargas,
Gomez, and Pefia (2012), using an OECD methodology,31 compute an
estimate agricultural producer support which combines public expenditures
on goods and services which are provided directly to producers, and an
estimate of price supports based on the differential between domestic
and international prices on specific products. They argue that the price
differential represents the impact of explicit tariff and non-tariff barriers
that insulate domestic producers from competition from imports, and can
also create disincentives for exporting. Their report estimates that these
"price supports" - which they find concentrated in rice, pork, corn, sugar
and chicken - amount to around 9 times the level of support provided to
producers through agricultural public expenditure.
4.57. However, an alternative view suggests that the same price
differentials may be caused by the very weak competition in
the domestic market structure of most the agriculture supply
chains. Berthelon, Kruger and Saavedra (2007) 32 review similar price
differentials between domestic wholesale prices and border prices on
various agricultural products during 1991-2004. For the main tradables,
maize and rice NRAs were positive while sorghum and soyabean had
negative rates. In several products they relate these NRAs to explicit trade
policies, market power held by domestic processors, and/or international
price volatility. Later, in study that examined international food price
a-
transmission to domestic markets in Nicaragua and Honduras, Arias, De
31 RUTA/IADB study of the support/taxation of agricultural producers and food consumers in
Nicaragua looks at all the support given to producers in various ways, including direct support
z <from the government budget, implicit support from trade policies (import tariffs and nontariff
barriers) that insulate producers from competition from imports, or export taxes and controls,
as well as general support measures, including provision of public goods. It did this using a
standard methodology, which the OECD applies to each member country every year. (The results
are published in the annual publication Agricultural Policy Monitoring and Evaluation.)
32 Berthelon M., Kruger D. and D. Saavedra, Distortions to Agricultural Incentives in Nicaragua,
World Bank Agricultural Distortions Working Paper 18, December 2007.


Franco and (2011) 33 find that in the short term (one month) the price
transmission from international to domestic prices was low or nonexistent
in most food products in Nicaragua. Not even after 45 months was price
transmission complete. For beans, in particular, high price transmission
was only observed over the long term. The only product that presented
rapid price transmission was coffee. Their analysis also suggests that such
differentials may be caused by very weak competition in the domestic
market structure of most the agriculture supply chains. With the notable
exception of beans, a few companies appeared to own the majority share
of most food markets, both to purchase and export agricultural products
and to import and sell food domestically.
4.58. Whether caused by trade policies or lack of domestic
competition along agricultural value chains, these price
differentials when positive (i.e. higher local prices) are paid by
consumers. Often, there are explicit trade-offs between food sovereignty
and food security. While price supports benefit producers and stimulate
production of selected products, they cost consumers and disproportionately
the poor. Nicaraguan consumers, including the poor who are not captured
under some transfer programs, pay higher domestic prices of staples such
as rice, pork, corn, sugar, and chicken that are available in international
markets. For poorer households that spend more of their income on food,
this is critical. In addition, price supports benefit producers in a regressive
way - bigger producers benefit more.
4.59. Price distortions can also lead to inefficient allocations of
private and public investment. Because these policies artificially
raise prices of low-value products in which Nicaragua may not have
comparative advantage (that is, in which it cannot produce as efficiently
0
as other countries), they encourage producers to use land and resources
to produce items that would be cheaper to import, rather than items of
greater economic value. In addition, to the extent that decisions on public
investments (e.g., infrastructure and research priorities) reflect demands of
u
producers, these decisions will be biased in favor of these products as well.
U
u
33 Arias D. and De Franco, M. Integrating Central America and International Food Markets; An
Analysis of Food Price Transmission in Honduras and Nicaragua, World Bank, LCSSD Occasional
Paper Series on Food Prices, #75643 (2011)


4.2.5. Conclusions and recommendations
4.60. Nicaragua has made progress on reducing malnutrition and
establishing the main elements for food security. In 2009, the
Government reinforced its efforts by passing a law and establishing an
umbrella program for food security (SSAN), and added the objective of
food sovereignty aimed at promoting import substitution. The three main
prongs of the SSAN strategy are (i) food production, (ii) food distribution to
vulnerable groups; and (iii) market interventions to foster import substitution
and reduce price volatility. A very broad range of programs across several
ministries and agencies was established, with very ambitious objectives
ranging from production and value added to employment, poverty
reduction. Some progress has been made on most of the targets set, but
these fall far short of the goals earlier.
4.61. Public spending on food security increased significantly
during the 2008-09 food price crises with an expansion
both in PRORURAL and in school feeding programs, and has
remained relatively high since. PRORURAL food security programs
represented approximately 42 percent spending of this spending - it also
spiked during 2006-09 but has fallen significantly in real terms since then.
4.62. Within PRORURAL, the main programming lines have been
governance and capacity building, food security, and food
safety. However, all the other program lines show large volatility from
one period with some programs disappearing and reappearing over
time. For areas such as crop management, seed production and product
development which are likely to see their structural impact only in the
medium to long term, such large fluctuations in available resources would
limit their impact. Building a national consensus on the direction some of
these smaller, but crucial, programs may help to maintain the strategic
focus across political administrations and ensure a steady flow of resources
LLJ
over longer periods of time.
4.63. The predominance of direct transfers (of food or productive
assets) in Nicaragua's food security programs means that
z < effective targeting is an important element of expenditure
efficiency. There were on average over 1 million beneficiaries during
2007-1 1, if one includes school feed programs and around 150,000 for
PRORURAL. Despite significant increases in personnel costs in MAGFOR
and INTA, the unit costs of delivering food security transfers appears to have


improved over time as the number of beneficiaries has grown (suggesting
some economies of scale) but there remains much scope for improvement
in targeting.
4.64. Explicit targeting strategies should be put in place that take
into account trade-offs between delivery costs and leakages
for each program and between programs that focus on similar
beneficiary groups. Clear eligibility criteria, which target those most in
need and which are in line with the objective of the programs, are crucial, but
also continuous monitoring to minimize leakages to ineligible beneficiaries.
Box 4.2 illustrates two methods - random and competitive selection of
beneficiaries - which may be used. The implementation of these targeting
strategies should monitored and evaluated more frequently. The recently
completed agricultural census and 2009 municipal-level poverty map and
the upcoming new LSMS provide good opportunities for evaluating not only
the adjustments in targeting made in recent years, but also the impact that
long term impact that the transfers have had on their beneficiaries.
Box 4.2: Innovations in beneficiary selection for public transfers in agriculture
The Agricultural Technology Transfer Project (PACTA) in the Dominican
Republic used random selection of beneficiaries from the pool of
applicants to promote transparency and demonstrate equal opportunity.
The applicants themselves choose to participate in the "lottery." Such
random selection of beneficiaries, in the face of limited resources, has
U
been implemented in Nicaragua under the Atencion Pilot in 2006.
The Small Farmer Vulnerability Reduction Project in Grenada selects
beneficiaries on a competitive basis. It applies transparent eligibility   Q)
and  selection  criteria. If the  applicant meets the  eligibility  criteria  (for
example, must be registered at the Ministry of Agriculture, between half an
acre and 12 acres of cultivated land; owner of land or long term lease),
a selection committee-confirmed by representatives of the Ministry of
Agriculture, the producer organizations and an independent farmer-ranks
the beneficiaries by strictly following the selection criteria (farm investments
undertaken in last few years; attended training on regular basis; female    a
and youth).
St


4.65. Nicaragua also implements several market interventions
under the rubric of "food sovereignty" aimed at reducing price
volatility and fostering import substitution. Large differentials
between domestic and international food prices suggest some intervention
or market power -either public or private - that could be negatively
impacting consumers and creating perverse production incentives. There
is little information readily available on the main activities to allow for a
careful analysis of expenditures. To guide the expenditure policy choices in
a world where high price volatility is the "new norm", a more explicit review
of the trade-offs between food sovereignty and food security interventions,
including those of ENABAS and MIFIC, is needed.
4.66. Food security can be enhanced through increased rural non-
agricultural incomes by fostering the private sector. An example
would be to replace in-kind benefits of subsidies with vouchers redeemable
at input distributors through normal market channels. Input providers would
be certified by the Project and programs should constantly be opened for
new businesses to participate.
4.67. The authorities should re-evaluate the remaining tariff and
non-tariff trade barriers that increase domestic food prices.
Internationally, there is a trend toward decoupled payments, which do
not influence prices but allow producers and consumers to base their
decisions on market price signals. They also avoid the implicit food tax on
the poor. Such programs in Mexico and Turkey have multiplier effects-
farmer incomes increased by multiples of the payments. Even so, decoupled
payments should be only a transition measure, to be later eliminated, as
they benefits disproportionately large producers.
4.68. Several countries have      substituted  price  supports by
decoupled payments that do not affect prices and support
certain public policygoals, such as environmental sustainability.
LLJ
For example, Nicaragua is already facing the changes in its agricultural
production frontier as a result of climate change. The two programs outline
in Box X illustrate methods already combine food security transfers with
promotion of environmental services, environmentally friendly farming
Z <practices and climate smart agriculture by supporting farmers to modernize
water and irrigation techniques; zero grazing; pasture conservation;
introduction of new tree species; improved and organic inputs; water-
catchment systems; rustic greenhouses; and post-harvest management
II


techniques. In the European Union and the United States, certain programs
require beneficiaries to adopt good environmental practices as a condition
of participation.
4.69. Another model aiming directly at agricultural producers is the
payment scheme to encourage silvopastoral cattle production
in Colombia. This program has been in place for several years, and
an evaluation found it to be effective in encouraging forestation-with the
collateral benefits that brings with it-while increasing carrying capacity
of pastures and raising producers' profits. Beyond encouraging production
of public goods, like environmental protection, programs on payments for
environmental services have a fiscal advantage over traditional subsidies:
they can be used temporarily to cover farmers' initial investment costs and
opportunity costs (while trees mature, for example), then phased out as
farmers begin to realize higher profitability.
4.70. Finally, there is a need to strengthen the general strategy
formulation and coordination within the SSAN to ensure
synergies across the wide range of programs and institutions.
The Executive Secretariat could become a more proactive coordinating
actor and help to rationalize overlaps and competition between programs.
O
C/)
U
Qo
0
0
-o
O
O
O
O
U


5. Institutional Assessment of Public
Spending in the Agriculture Sector
5.1. The performance of public financial management (PFM)
systems is critical to ensuring public policy effectiveness. PFM
systems seek to fulfill strategic objectives through the interactions of systems,
institutions, and practices, with three main objectives: to promote strategic
priorities; to ensure fiscal discipline; and to deliver value for money. Sound
PFM systems help countries manage their public resources to achieve key
strategic goals. The political process determines how resources are allocated
within the overall budget and how ministries and agencies decide to spend
them, subject to control and accountability mechanisms. For Nicaragua's
agriculture sector, the institutional context in which the PFM systems operate
influences the quality of the public expenditures. The existing public policies,
regulations, institutional capabilities, information systems, and practices
determine the way the budget is prepared and executed in the sector.
5.2. This chapter analyzes institutional aspects. It highlights recent
progress, the reforms undertaken, and how PFM Law No. 550 and the
establishment of PRORURAL helped move planning and budgeting processes
from parallel planning to a standard process for all PRORURAL entities.
After looking at how PFM works in Nicaragua, it analyzes the disconnect
between planning and budgeting processes; how the agriculture sector
could advance toward results-based budgeting and improve the quality of
program budgeting; how to enhance budget program structures; and the
performance of systems for financial management information, as well as
program M&E.
LLJ
5.3. The review looked so far mainly at the execution of funds in the
budget cycle. This chapter focuses on the other four steps: preparation,
formulation, approval, and, to some extent, auditing (Figure 5.1).
I


Figure 5.1: The agriculture sector's budget cycle
Source: Authors.
5.1. Budget systems
5.1.1. Recent reforms: from parallel planning to a standard processes
5.4. Over the past decade the government has undertaken
important reforms in PFM. With support from donors-the World Bank
among them-these reforms have led to the passage of a modern legal
framework, which includes a Medium-Term Budgeting Framework (MTBF)
and a results-based management approach; rollout of an information
system for improving PFM system performance, the Integrated Financial
Management, Administration and Audit System (SIGFA); introduction of the
single-till principle, compared with the single treasury account; introduction
of Technical Standards Internal Control for the public sector, in line with
international practice; passage of the Access to Information Act; formulation
of the Financial System Administration Modernization Project (PMSAF);
improvement of the State Administrative Contracting System; passage of a
new Procurement and Contracting Act; and passage of the General Public
Debt Act, which eliminated the discretion that public institutions formerly
had to gain access to financing.
5.5. Nicaragua's recent PFM reforms culminated with the approval
of PFM Law No. 550 in August 2005. This law set up a new regulatory
framework for the PFM core systems of budget, treasury, accounting, and
public debt and for the noncore systems of procurement, human resources,
public assets, and public investment. The roles of core and noncore systems
are to improve links between strategic development goals and budget
processes.


5.6. The MTBF is a planning instrument that seeks to improve the
links among government policies, priorities, and actions on
the availability and use of public resources looking toward a
medium-term horizon. Today, more than 70 public entities use the MTBF
as a reference framework when preparing their budgets, for the coming
year and three years after that, with indicators for institutional and-in
some cases-sectoral outputs and results. The MTBF was picked up from
the PFM reform agenda as a focus area for donors' technical assistance.
Recognized as good regional practice, it has motivated neighboring
countries to request that Nicaragua share it (Box 5.1).
Box 5.1: The Medium-Term Budgeting Framework
The Medium-Term Budgeting Framework (MTBF) was
introduced by the Public Financial Management Law No. 550
of August 2005. This law establishes that the MTBF should frame budget
preparation by including nonbinding income and expenditure projections
for the three following years. Adoption of the MTBF is mandatory for all
public sector entities. Three ministries of the central government kicked
off implementation in 2006 (the education, infrastructure, and health
ministries). Also, the MHCP information technology office rolled out the
MTBF module as part of SIGFA, enabling more than 67 public entities to
use the MTBF today.
MTBF implementation forms part of continuous PFM
modernization from the mid-1990s. The majority of stakeholders
supported the MTBF as a means of fostering expenditure discipline and
getting better results from priority programs. But in practice, the MTBF
represented a huge challenge to public entities lacking knowledge in
preparing the budget with medium-term budget outcomes and constraints..
The MTBF covers four years, including the budget year,
and is updated annually. Out-year ceilings are not binding and can
be adjusted as macroeconomic assumptions and perspectives change.
Although the presentation of categories of spending is fairly aggregated,
no categories of spending are excluded from the review and adjustment
under the MTBF. There is also consistency between the MTBF and the
public investment program: SIGFA enables sectors and MHCP to review
progress on budget execution and to monitor results measured by a set of
indicators. Thus, the MTBF can be modified in parallel to mid-year budget
modifications.


Since the MTBF is fairly new, MHCP has been playing the lead
role in its preparation. This involves a series of meetings where MHCP
informs spending agencies about macroeconomic and fiscal constraints
for upcoming years and about ceilings. MHCP's Economic Affairs Analysis
Office is responsible for revenue forecasting, which is fully consistent
with International Monetary Fund projections as well as with those of the
Central Bank of Nicaragua. The same office prepares the macro-fiscal
framework, which forms part of the MTBF official documentation that is
submitted to the National Assembly and that accompanies the draft annual
budget law. Once the National Assembly approves the budget law, MHCP
publishes the budget, including the medium-term macro-fiscal targets. This
information is available to the general public through the MHCP website.
The MTBF has been effective in enabling sectors to work
under medium-term macro-fiscal constraints, and it has
helped MHCP in moderating sectors' expectations about future
resource availability. Further consolidation of the MTBF will require
that sectors plan better and adjust their program structure to their priorities
and program results. Three public expenditure reviews were carried out
in 2006-08-on the education, health, and infrastructure sectors-to vet
the implementation quality of the General Budget of the Republic in the
framework of the MTBF. The reviews highlighted the weak ownership of the
MTBF on the sectors' side as the main cause for not improving the quality
of planning and review of programs and priorities.
The learning-by-doing approach to the MTBF rollout has
enabled sectors to gradually improve the quality of their
MTBFs. Nevertheless -and according to independent evaluations-
sectors' planning capabilities remain the main issue in linking planning
and budgeting more effectively. For instance, decisions on MTBF indicators
were difficult because some strategic plans include indicators that cannot
be picked up for the MTBF preparation. The lack of information on factors
that affect program and services costs prevents public entities from costing
their programs in unitary cost terms, thus affecting the links between budget
preparation and expected results measured by critical indicators.
5.7. A standard planning process for PRORURAL entities supports
MTBF implementation and consolidation. Until a few years ago
there were parallel planning processes, in which each institution had
its own system, but progress has been made and PRORURAL Incluyente


has achieved a standard planning process. Used at the four PRORURAL
entities, it covers all activities and results of its three national programs. The
Nicaraguan agriculture sector began to use the MTBF through MAGFOR
in 2007 and the autonomous entities a year later. Likewise, in formulating
the MTBF for the agriculture sector, the Medium-Term Budget Framework
establishes spending limits for the medium term. However, according to
Law No. 550, the budget ceilings for the three years following any given
year are only referential, and thus not binding. Based on the MTBF, the
agriculture sector formulates its budgets for consolidation at the MHCP level
and subsequent passage by the National Assembly.
5.1.2. Connection between planning and budget preparation
5.8. PRORURAL entities go through planning and budgeting cycles
every year, but they are poorly integrated with SIGFA. The
planning processes summarized in the annual operational plans (AOPs)
are based on PRORURAL Incluyente components, and the SIGFA budgeting
program structure is based on a list of programs and entities. The SIGFA
program structure included a list of 37 programs in 2011, while by
definition PRORURAL only has three (Table A1.10 in Annex 1). Although
its subcomponents are more closely correlated with SIGFA, they do not
match perfectly, and in some cases are impossible to associate with SIGFA
programs. In addition, the PRORURAL AOPs have stated activities that have
never been budgeted, such as the production plan and production M&E.
Also on the AOP side, the names of subcomponents are different from the
names of programs stated in the budget. MHCP and PRORURAL entities
have revised the budget program structure with the intention to match the
approaches, which partly explains why the budget program structure of
PRORURAL has been changing, especially since 2009. Still, they need to
be more closely aligned to get more intertemporal consistency of the MTBF
indicators.
LLJ
5.9. The difference in approaches between SIGFA and PRORURAL
AOPs, has affected links between planning and budget
preparation. Indeed, different concepts have influenced the quality of
Z <budget program structuring, as MHCP and sectors have to agree on basic
concepts. In the agriculture sector, planning and defining goals and quantifiable
indicators are based on the PRORURAL Incluyente logical framework. These
efforts are reflected in the preparation of a single PRORURAL AOP, which in
ge                 theory rests on the foundation budget formulation process.


5.10. Beyond the efforts to find common standards and practices, planning and
budgeting require more thoroughgoing reform of the public sector. This is
because the PRORURAL AOP and the budgets at PRORURAL autonomous
entities are, in practice, divorced from each other, since the AOP is based
on program results, while budgeting is based on program outputs.
5.11. Prorural entities formulate and execute their budget to a
degree without considering the regulatory framework. MHCP
has in place a complete and understandable regulatory framework for
formulating the budget, in particular the MTBF, in accord with international
best practice. MHCP has been improving the MTBF since 2006 by pilot
programs and specialized technical assistance, to link sector strategic goals
and objectives with budgeting processes. The framework includes detailed
guidelines on how the sectors must adjust budget preparation to strategic
objectives by formulating physical results indicators. The guidelines are
expected to reflect the public policy results foreseen and expressed in the
planning and budgeting program structure.
5.12. Budgeting and planning operate "the wrong way round"-
first allocating a budget, then planning, which is inconsistent
with the methodological guidelines of MHCP. Once the sectors know
the ceiling has been determined, they begin to prepare the corresponding
AOP, meaning that until 2008 MHCP requested the sectors to send in a
demand for budget preparation, so they would have enough time to apply
the guidelines in the MTBF. But this practice was discontinued because the
sectors demanded resources above the final ceilings, returning the process
to the starting point.
5.13. Although the budget calendar intends the central
government budget to start in early June, in practice sectors
start preparing the budget around early September. This is
when MHCP communicates the final ceilings for the next year's budget.
Table A. 1 .11 in Annex 1 presents the activities of the budget calendar
preparation in theory; in reality one can interpret Month 1 as June through
mid-October. It analyzes the actions that are not executed and the ones
partly executed.
5.14. The delay in communicating definitive ceilings for budget
formulation by MHCP to PRORURAL entities in early September
complicates budgeting. This leaves only a short time for the sectors to
link planning and budgeting and causes the sectors to formulate budgets


based on items of expenditure to ensure the proper functioning of entities
and their budgets. While the sectors should have until the end of the month
to prepare their budgets, based on the announced ceilings, in practice the
SIGFA-FORM module is available for loading the budget for only eight
days. This means the sectors have less than a month to prepare the budget
and allocate budget item lines by expenditure item. Put otherwise, it is
practically impossible to review the results of the programs and subprograms
as an input for preparing the budget.
5.15. Due to the tight calendar, the focus is on keeping programs
running rather than focusing on results through a program
review, which would ensure high-quality expenditure. Budget
preparation thus ends up being a political debate within the entities. In the
agriculture sector, not even common standards are used to ensure effective
bridges between planning and budgeting. These bridges should be
constructed based on the MTBF of MHCP and on M&E systems. However,
the MTBF has been only partly applied.
5.1.3. Quality of program budgeting
5.16. A high quality of program budgeting is critical to ensure
the quality of expenditures and the efficient delivery of
products and services. The program budgeting approach intends
to allocate resources to determine program categories to public entities
in charge, with the objective of improving service delivery effectively
and efficiently. Consequently, the program approach facilitates budget
preparation, execution, control, and evaluation in physical and financial
terms. The approach helps public entities link their strategic planning to
the medium-term budget by pursuing results. With limited resources, the
allocation implies a prioritization of activities considered strategic, and thus
they receive preferential treatment by the program approach. In this sense
O.
Ji               the program approach enables public entities to explore alternatives for
achieving the primary objectives using the resources available.
5.17. The PRORURAL governance and institutional capabilities
program, which includes all the "central activities," represented
45 percent of the total budget in 2011, well above regional
best practice. Central activities are associated with the overall production
process, and are usually associated with activities that support the delivery
of goods and services. These activities are associated with overheads that
as


central or headquarters offices incur. This means that the sector program
structure cannot entirely distinguish activities and costs that might be critical
inputs to delivering a product or service. In this situation, the sector might
confront challenges to vet particular program results because some key
inputs are mixed in a common budget category of central activities, which
represent a significant portion of the program structure. In Guatemala for
instance, where program budgeting might be considered regional best
practice, central activities are on average no more than 20 percent of the
total budget (Box 5.2).
Box 5.2: Regional best practice-a case study
from Guatemala on results budgeting
Since 2008 the Ministry of Finance, with support from the European
Commission, has run a pilot program to improve results-budgeting
processes. Within those processes a critical step has been to review the
program structure of the education, interior, and health ministries.
Results of the reviews are mixed, but the health sector deserves mention.
In that sector, even though public policy was promoting a preventive rather
than curative approach, the latter received more funds from the budget.
To address this issue, the program review created two separate programs
for both models, which facilitated the Ministry of Health in allocating
more resources to preventive activities. In addition, the sector adopted
medium-term results indicators such as the Millennium Development Goal
for maternal and child mortality.
One of the lessons is that even though there was internal resistance to
the program reviews, the political will to make the public policy objectives
more consistent with the budget allocations suggests that implementing a
results-budgeting approach is possible.
5.18. PRORURAL entities experience frequent modifications in their
budget and in the names of their programs and subprograms.
This indicates that there are weaknesses in results-based program
budgeting, as well as low levels of ownership of the MTBF and associated
indicators. Because there is not much detail in the items of expenditure
budgeted for activities, it is relatively easy to make changes. Further, the
weak linkage between the preparation of the AOPs and the budget is
reflected in a programmatic structure different in each process. This means
that the codes and description of activities in the AOP and the budget vary,   a


although this does not necessarily imply a review of program contents,
following best practices. MAGFOR had a more stable use of standards to
operate its program structure because it was less keen on changing names
to programs, subprograms, activities, and codes, unlike the other entities
(Table 5.1). At a minimum, the entities should clarify the reasons why they
change these elements so much.
Table 5.1: PRORURAL changes of program structure, 2002-11 (%)
Change                  MAGFOR      IDR     INTA     INAFOR    FONADEFO
Program name             20.0      37.5     50.0      33.3       0.0
Program code             18.4      30.0     33.3      27.8       0.0
Subprogram name           6.9      40.0      0.0      32.0       0.0
Subprogram code           2.3      17.2      0.0      32.0       0.0
Activity names           45.6      81.7     60.7      56.0       20.0
Activity code             3.0      21.9     15.2      11.0       0.0
Source: Gutierrez Ossio (2012), based on Ministry of Agriculture and Forests information.
Note: Table reflects the number of times a name of a program has changed against the total number
of programs in a year.
5.19. Although the PRORURAL budget structure is kept unchanged
within a year, the entities have a strong tendency to make
internal budget modifications. This means that once the budget is
approved by the National Assembly and they are ready to spend, they
reallocate the budget lines many times (Table 5.2). This might be because,
even though a program review exists, entities tend to switch the original
allocations that were supposed to support the results of the program
review. It is not clear why the programs decided to modify their budget
by reallocating funds among lines. This might imply that inertial budgeting
a-
preparation is the rule.
z<
I


Table 5.2: Number of times that the budget is modified and number of budget
lines that are involved in internal budget modifications by entity
Budget modificaions        Budget line involved in budget modifications
Year    MAGFOR    IDR    INAFOR    INTA   MAGFOR    IDR     INAFOR   INTA
2006     297      91      29       38      2,117    711     358      161
2007     439      92      34       25     2,631     763     386      442
2008     398     166      28       249     2,262   1,178    293      703
2009     565     253      31       253     2,639   1,548    352      383
2010     723      191     38       407     2,949   1,629    470     2,084
2011     503     194       4       73      2,579   1,160    474     2,024
Source: Gutierrez Ossio (2012), based on Ministry of Agriculture and Forests information.
5.1.4. Unitary costs and capital budgeting
5.20. No effective delivery of goods or services will occur without
unitary cost practice, which measures the actual cost of
providing a service or a program, including variable and fixed
costs. The regulations and guidelines promoted by MHCP are in line with
best practice, but the above tables show that unitary cost practices, which
support program budget preparation, are absent. If the PRORURAL entities
had followed these practices, the significant internal budget reallocation
should not have happened, as the inputs required to produce a good or
service would not have been incorporated in the production function due
to lack of resources, and thus there would have been no effective delivery
of goods or services. As tools and methodologies to enable planning units
to cost activities are lacking, the country and the agricultural sector need
to think about new practices (common standards), tools (international
accounting rules), methodologies (standardized approaches), systems
(technology), and training (increase staff capacity).
5.21. Indirect costs are rarely incorporated in total unitary costs.
This means that only direct costs of activities, such as consulting costs and
inputs, are included but not indirect costs, such as salaries and utilities.
Direct costs are included in the central expenditures category (i.e.,
expenditures that cannot be allocated to programs). In addition, SIGFA
follows cash- rather than accrual-based budgeting, which means that costs
that do not require cash, such as depreciation, are not properly accounted


for-including in the budget estimates. Therefore, some facilities are not
properly maintained, affecting the quality of services. Box 5.3illustrates
the importance of proper accounting and the critical role of unitary cost
estimations at INTA.
Box 5.3: Case study from INTA on proper accounting
and unitary cost estimations
INTA provides technical assistance to small farmers to improve productivity.
It uses facilities, laboratories and land to test the results of improved seeds.
However, INTA cannot incorporate in the total cost function the opportunity
costs of the land and the facilities' depreciation. And SIGFA and SIAF are
not fully equipped to support INTA's intentions.
Thus the budgeting process does not allow entities to properly estimate
costs. As a consequence, service delivery will be affected, because INTA's
facilities will gradually deteriorate.
5.1.5. Budget program structures
5.22. As seen above, Nicaragua suffers from an inconsistent
program structure. A different programmatic structure for budgeting
exists for PRORURAL and the one that has to be delivered to MHCP based
on its requirements (Figure 5.2). To date it has not been possible to make
the two structures compatible in terms of information technology. The budget
data introduced in the integrated planning system at PRORURAL institutions
are in essence estimates, as the user moves down the hierarchic structure.
This leads to difficulties regarding implementation and somewhat different
numbers appear, depending on whether these have been calculated by the
planning or by the budgeting unit.
-0
5.1.6. Program review in budget preparation
5.23. The lack of program reviews affects the quality of
expenditures. As a general recommendation the sector entities might
start reviewing their program structure to match it with the MTBF guidelines.
z<
Of course those revisions should assume an educated guess to facilitate
both the program review and budget preparation. Chile offers a useful
example, where program reviews are led by the Ministry of Planning (Box
5.4). This example should alleviate the concern of PRORURAL entities that


Figure 5.2: PRORURAL and MHCP structures
PRORURAL structure  -     MCP structure
F--
Source: Fajardo 2012.
to be reviewed is tantamount to being canceled, and shauld motivate them
to undertake this type of review.
Box 5.4: Case study from Chile on program reviews
Chile's public sector has a long tradition of reviewing results attained by
programs in the budget. The review is led by the Ministry of Planning and
involves academic institutions and consulting firms. The ministry selects a
set of programs to assess whether they are achieving the results stated by
public policies.
The reviews show that most programs are aligned with policies'
objectives. Only a few have been canceled, the rest are reformulated. The
exercise is beneficial because it allows the sector and external evaluators
to assess the quality of expenditures.
5.2. Financial management information systems
5.2.1. SIGFA
5.24. Financial management information systems (FMISs) support
government    financial processes and     transactions  in  an
automated way. They also remove the annual budget process from some
of the influence of political interests and of institutions. In addition, FMISs
help governments produce reports on the financial situation of the public
sector to facilitate decisions on and accountability of public resources.


Nicaragua's FMIS is SIGFA. The current version was developed in 2001
and has since been expanded and complemented with multiple functions
and applications with the support of the World Bank and other donors.
MHCP launched SIGFA-AUTONOMO in 2005, a standalone application
to support decentralized entities in executing the budget.
5.25. MHCP has installed and maintained SIGFA to formulate
and execute the central budget, keep record of all financial
transactions in the central government, and produce financial
statements and reports to support accountability functions in
government. SIGFA supports core government financial management
functions in the central government, and challenges and opportunities
have been identified to update and consolidate PFM and accountability
systems in the country. Nevertheless, in part due to technology constraints,
the system faces limits on the service it can provide in different areas of the
government's administrative and financial management cycle.
5.26. SIGFA could gain in efficiency, effectiveness, and accuracy
thanks to a new PFM project. Indeed MHCP, with the Bank and
other donors, is implementing a new PFM project to modernize the public
finances management- PMSAF. The system should more closely integrate
other related processes including current human resource, procurement,
asset, revenue, and debt-management systems into a fully interoperable
Government Resource Planning-type application . Likewise, using updated
technology, the system could gain by reaching the spending-unit level to
capture relevant data where and when each transaction occurs, and thus
speed up consolidation, facilitate budget execution and control, and secure
data consistency and accuracy. However, the new approach is still under
construction, and it is expected that only by 2014 will budget preparation
be carried out through the new solution.
O.
5.2.2. Parallel FMIS
5.27. Because SIGFA      has weaknesses consolidating financial
information, especially for the autonomous entities, sectors
are using parallel systems. Indeed, the agencies use the SIAF for the
book entries of transactions, particularly for Common Fund donors. This
34 Many countries are now moving to the adaptation of a type of integrated Enterprise Resource
Planning system to modernize their FMIS tools to facilitate and automate budget formulation
and execution, while improving financial management's internal controls, reporting, and
A accountability.


duplicates the registration of transactions and makes it more complicated
for entities in the sector to carry out their monitoring and follow-up tasks.
The SIGFA systems, in turn, are used mainly in budget formulation through
the SIGFA-FORM module, with accounting through SIGFA-Central and
SIGFA-AUTONOMO.
5.28. The parallel systems are apparently due to PRORURAL donor
requirements. Due to the high dependence on external resources,
the PRORURAL entities decided rationally on picking up other financial
systems to produce reports and account for expenditures. SIAF registers
the programming and implementation of Common Fund resources and
produces reports that meet donor requirements. The entities are expected
to deal with two financial systems that are not integrated, wasting time and
resources as these databases must be kept up to date, a task not carried
out consistently.
5.2.3. Accounting and reporting capacities
5.29. SIGFA struggles to produce reports in a user-friendly manner,
which complicates efforts of decision makers to evaluate
spending quality (although SIGFA incorporates information
to enable decision makers, donors, and the general public
to audit PRORURAL expenditures.) When the Comptroller's Office
(Contraloria General de la Republica) performed the annual budget audits
it found limitations of the internal control mechanisms mainly because staff
did not update information in SIGFA. This implied discrepancies between
SIGFA and parallel systems. The position of the Comptroller's Office was
that because of Law No. 550, the official means to support the audit should
be SIGFA.
5.2.4. Budget execution of FMIS
5.30. There is a lack of appropriate information recording for
committed, accrued, and paid expenditures. From the sectors'
O
perspective, the budget is executed when expenditure is accrued, meaning
that the service has been provided or a good has been delivered. Once the
service or product has been delivered and invoices have been submitted, the
information is uploaded onto SIGFA. Although the system can register when a
commitment or accrual is made, in practice expenditure stages are registered
only when paid, preventing the Treasury from forecasting cash-flow needs.


5.2.5. Monitoring
5.31. There is a lack of connection among PFM and sector
monitoring systems. Systematic processes for review and evaluation of
programs and results are lacking, and MHCP's methodological guidelines
are not applied in their entirety in formulating the budget in the MTBF
framework.
5.32. Four PRORURAL entities have introduced the SISEVA
monitoring system, an important tool for planning and
monitoring actions, results, and impacts. It is a sectoral system that
allows for planning, implementing, monitoring, evaluating, and learning as
regards institutional management of all public institutions in the sector. A
first version was developed in 2006, and it has since gradually improved.
As an information technology, the SISEVA application started operating in
2010. SISEVA brings together a large number of indicators, which are used
depending on the objective of M&E. There are indicators for inputs, outputs,
results, and impacts. The SISEVA application is compatible with the different
planning and monitoring systems at government level and with new projects
from PRORURAL.
5.33. A major problem of SISEVA is that a description of the
monitoring process exists, but it is not known to what extent
it is implemented. There is also concern with reporting physical
advance in strictly quantitative terms. Follow-up to the budget is not
realistic, as data are registered based on estimates made by territorial
representatives, rather than accounting documents. To some degree SISEVA
is capable of supporting a system based on the performance of a budget
allocation, though it is not exempt from constraints due to divergences in
the programmatic structure between SISEVA and MHCR It is recommended
to strengthen capacities of staff using SISEVA, specifically regarding
proper management of the monitoring system, making adequate analyses
LL
and using these as management tools. It is necessary to further integrate
PRORURAL and MHCP programmatic approaches.
5.34. The SIGRUN monitoring system allows the Secretariat of
z < the Presidency to monitor the commitments assumed by each
institution, but duplicates work. There exists a demand for system
outputs, both on the part of the institutions involved, which use these to
monitor and evaluate plans and programs under their responsibility, as
well as by other public agencies (MHCP) and SIGRUN. Its objective is to


monitor outputs and results to which the public institutions have committed
themselves. There is ample overlap between indicators in SIGRUN and
SISEVA, and the planning units transfer information from the latter to the
former, duplicating work. SIGRUN operates with a "stoplight system" that
allows the Secretariat of the Presidency to monitor the commitments assumed
by each institution and exerts pressure if an institution fails to comply. Sector
institutions do not use SIGRUN results, and react only to demands placed
on them by the Secretariat when outputs or results are delayed.
5.35. SISEVA introduces a participatory dimension known as
"Assessment Synthesis," which incorporates the viewpoints of
different actors involved in information analysis. This mechanism
is known as the "Evaluation Room" and can be set up at managerial and
territorial levels. The idea of evaluation rooms is very good, and several such
exercises have taken place. However, to optimize results it is necessary to
set up many of them, accompanied by training of participants. Monitoring
is still done mainly by sector institutions and is not done in a sufficiently
participatory manner.
5.2.6. Ex-post evaluation
5.36. Evaluation processes in the sector are incipient and of low
quality. While self-evaluation reports are generated annually, their quality
is poor.15 It is therefore not yet possible to speak of a sectoral evaluation
U
system, but the improvement at SISEVA appears to be leading to better
results evaluation. Still, there is clearly a long way to go.
5.37. Some of the major problems are:
OL
Absence of evaluation of AOPs for allocating resources.
In theory at the outset of each planning cycle, an evaluation of the
preceding AOP should take place, allowing the evaluation's results
to be used in allocating resources in the new AOP. However, due
to serious weaknesses in the analytical processes of M&E it is very
likely that the feedback process still does not function adequately.
This obstacle can be overcome by training staff and by technical
assistance.
35 To date only two external evaluations of PRORURAL have taken place-the Mid-Term Evaluations
(see Section 2.1). However, they did not entirely satisfy either the donors or participating
institutions.


* Lack of analytical studies of program impacts. No analytical
studies on impacts of public spending in the sector have been made,
except for evaluations made by projects and programs implemented
separately within the sector. Also, no efficiency analyses are being
made with the objective of generating a better quality/price ratio. It is
recommended to strengthen the capacity of staff in planning units on
aspects related to evaluation to ensure that the outputs of SISEVA are
put to their best use.
* Accountability toward donors, not to the general public.
Accounting efforts are addressed mainly to donors rather than
the population or other parts of society. The institutions lack clear
guidelines regarding accountability. This general orientation needs to
be changed.
5.3. Conclusions and recommendations
5.38. The institutional aspects are critical to ensuring high-quality
public expenditures, and over the past decade the government
has undertaken important reforms. In accord with international best
practice, the introduction of the MTBF was a good step in transitioning
from program to performance budgeting. Until a few years ago there were
parallel planning processes, in which each institution had its own system,
but progress has been made and PRORURAL Incluyente has achieved a
standard planning process.
5.39. Although the government has much progress, it has a long
way to catch up with regional best practice, which need
underlies the following conclusions and recommendations.
5.40. Improve budget planning. Beyond the fundamental need to
homogenize, or at least make compatible, the two budget structures of
SIGFA and PRORURAL AOPs (allowing data to be exported), there is room
for improvement in each of the three phases of preparation, formulation,
and approval:
* Preparation. Definitive budget ceilings are based mainly on
historical records, and there are no common guidelines for setting
Z <definitive budget ceilings in advance. Usually the budget ceilings do
not allow for much margin of maneuver, given that most resources
go to staff and are communicated to sectors only close to critical
deadlines. Budget constraints mean that the scope for preparing the
*
*                   budget effectively at this stage is limited.


It is recommended that MHCP establishes common guidelines to
all institutions on how to set budget ceilings, based on previously
established criteria, and analyze the possibility of increasing the
margin of maneuver so units in the field can set priorities based on
allocated resources. It is understood that the definition of budget
priorities will come from the operational and strategic sector plans.
* Formulation. Participation by other actors is limited in budget
planning. Delays feature in recording the AOP and budget in SISEVA,
helping to render budget formulation inertial, and budget revisions
based on program reviews are largely absent.
It would be best practice to encourage more participation,
particularly by beneficiary farmers, and there should be more training
for staff. Authorities at the institutions should be more demanding on
deadlines. MHCP and the sector should start reviewing the program
budget structure to streamline the links between the planning and
budgeting processes.
* Approval. Consultation and approval are too short to be truly
effective. Moreover, the information approved is not shared with
other actors at SISEVA level. The budget generated by SISEVA has a
structure other than that approved by the administrative area.
5.41. Enhance the connection between planning and budgeting.
Links between planning and budgeting are still weak in the
agriculture sector even though PRORURAL provides a strategic
vision and there is a sound MTBF methodology.
* Improve budget ceiling management. The first reason for
the disconnect between planning and budgeting has been the late
communication of definitive budget ceilings to allow the sector to plan
and prepare the budget properly.
The country should therefore explore ways in which it can inform
the various sectors on budget ceilings and do so in advance, as set
forth in the MTBF guidelines presented in early June each year. It
is necessary to analyze MHCP's capacity to prepare forecasts on
future income with the International Monetary Fund, the entity best
positioned to provide the technical assistance the country needs to
reach this objective. Without advancing the date at which budgets
are communicated, it is very hard for a country to consolidate and
anchor results-based budgeting, despite efforts to modernize PFM, for
instance through PMSAF, which receives support from the European
Commission, Inter-American Development Bank, and World Bank.


* Adopt a common set of core standards. Even though a broad
common strategic approach exists to plan and execute PRORURAL,
at operational level the planning and budgeting processes are not
aligned with the standards set by the MTBF. This has produced a
disconnect between planning and budgeting, which should be aligned
to ensure the achievement of strategic sector goals.
Hence MHCP and the sector should agree on a common approach
to align the planning with the budgeting process. In principle both
should be able to agree on basic matters such as a common set
of standards to codify the operational plans' activities in the same
manner as the budget activities are agreed. It might be conducive
to initiate a program review and harmonize the terminology
of PRORURAL components into programs in the budget. Once
harmonization is completed, MHCP and the sector should initiate a
revision of the activities, subprograms, and programs to improve their
content and, thus, the quality of expenditures.
5.42. Improve the quality of program budgeting.
* Undertake a program review of the budget structure.
Such a review is needed because of the lack of common approaches
and standards to harmonize operational processes. The PRORURAL
description and codification of components and subcomponents are
results oriented. But the budget program structure is based on the
delivery of services and products. Because the required inputs differ,
so do the codification, names, and content of the activities.
* Sharpen the focus on capital expenditures during budget
planning. Capital expenditures have had a lower execution rate
than current expenditures. In budget planning, PRORURAL entities had
a tendency to focus on preparing the current expenditures to keep the
entities running and left the capital expenditures for the next budget
modification. Since capital expenditures depend heavily on donor and
external funds, incorporating capital expenditures in the budget takes
time. This affects current expenditures and the sustainability of the
programs and projects.
Incorporate sources of financing currently off budget.
Z <MHCP and sector entities must make progress on incorporating
sources of finance currently off budget to the budget, so as to
maximize PRORURAL resources using a results-based approach.
Improve the estimate of unitary costs and capital


budgeting. The regulations and guidelines of MHCP are best
practice to measure the actual cost of providing a service or a
program, but there is a lack of tools and methodologies to enable the
planning units to cost activities. Also, costs that do not require cash,
such as deprecation, are not properly registered. Thus the country
and sector need to think about new practices (common standards),
tools (international accounting rules), methodologies (standardized
approaches), systems (technology), and training (increase the capacity
of staff).
*  Start with program reviews to improve the quality of
spending. It is necessary to establish a framework of incentives
which guarantees to sector entities that program reviews do not
necessarily imply a reduction in their resources. As a general
recommendation the sector entities might start reviewing their program
structure to match with the MTBF guidelines. Of course those revisions
should assume an educated guess to facilitate both the program
review and budget preparation.
5.43. Improve FMIS.
*  Use only one single information solution for PFM. The
sector has been using more than one information system to assess
the budget's quality: it uses SIGFA to execute the budget, and other
Q)
systems to report to donors on the use of resources.
For this reason MHCP should take advantage of the ongoing            U
PMSAF project. This would ensure the new informatics solution
provides the executing units with accounting software, as per
international standards and practices, and that it is fully integrated to
the entire budgeting process, from formulation and execution to the
accounting stage. Moreover, PMSAF should train the staff involved,
including the planning units at PRORURAL entities, so that they are in
a position to make unit cost estimates using the accounting module
of the new financial administration system. Further, MHCP should
establish a process of dialogue with donors to explain the additional
or different functions of the new information technology solution, so
that they are willing to promote its use, too.
* Produce integrated financial reports. The weak reporting
capabilities of the information systems challenge management in
getting accurate and useful information. Fortunately, Nicaragua
is modernizing its FMIS through PMSAF. PMSAF opens a huge


opportunity for the country to address some of the issues indicated
here. It can provide a single integrated solution to manage both the
financial and the administrative processes, so that the sector can stop
using parallel information systems.
* Improve information recording for committed, accrued
and paid expenditures. Expenditures are registered in SIGFA
only when paid, although for the sector the budget is executed when
the service has been provided or the good delivered. PMSAF should
address this issue to help the Treasury to plan the cash needs in
advance.
5.44. Improve program M&E.
* Undertake an effective integration between the M&E
and the budgeting systems, and use a single M&E
information solution. Although the sector has rolled out a sound
M&E system (SISEVA), it is still confronting challenges to fully exploit
its capabilities. As with budgeting processes, the M&E activities use
more than one information solution, causing duplication of tasks and
consuming a huge amount of staff time. In addition, SISEVA is not
properly exploited in the sense that some critical financial information
is not timely, so management does not get an accurate picture of
progress toward physical goals.
*  Improve the analytical capabilities of staff in planning
and budgeting. The evaluation processes have large potential
to be done better-improving the quality of spending, starting with
evaluating annual operational plans before allocating new resources,
or elaborating studies on impacts of public spending in the sector.
Moreover, the analytical capabilities of planning and budgeting staff
should be strengthened to improve the quality of interpretation of
reports coming from the information systems.
0 Improve program reviews, to assess whether the
Lii
budgeted programs have been delivering the expected
outcomes. Independent evidence-based impact evaluations
should be conducted for all large current programs, including Bono
Productivo Alimentario.
z<


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Annexes
Annex 1: Figures, tables and maps
Figure A I I : Percentage of producers using fertilizers and certified seeds,
receiving technical assistance, and having access to credit, by departments,
2011
60%
50%
40%
30%
20%
10%
0%
JE                                                               L2
CID
"  Fertilizers        Sa  Cr6dit
"  (ertified seeds    0  Organic fertilizers
" Technical Assistance
Source: IV CENAGRO (2012); Elaboration by authors.


Table A. 1.2: Regional distribution of poverty, 2005 and 2009
Share of                     Contribution to                 Contribution to
 tpopulation   Poverty rate  national poverty  Pover  rate  notional poverty
Managua                24.5            20.9            10.6           22.5            12.8
Masaya                  5.7            37.2            4.4            32.3             5.4
Rivas                   3              52.5            3.3            35.1             1.8
Chontales               3.2            41.6            2.8            36.3             2.1
Granada                 3              44.1            2.8            38.3             4.5
Chinandega              7.3            56.6            8.5             42              6.5
Carazo                  3.3            39.8            2.7             43              5.4
Le6n                    6.9            52.5            7.5            43.9             5.7
Esteli                  3.9            51.5            4.2            44.6             4.4
Boaco                   3              51.6            3.2            47.6             4.5
Nueva Segovia           4.1            71.2             6             48.2             3.9
RAAN                    6.1            70.8            8.9            54.2             7.4
RMS                     6               59             1.4            54.5             7.9
Matagalpa               9.1            65.9            12.4           58.4             9.7
Madriz                  2.5            70.3            3.6            58.6             3.8
Jinatega                6.5            69.3            9.4            73.3             9.4
Rio San Juan            1.9            61.5            2.4            74.1             4.8
Source: LSMS 2005 and 2009; Anriquez 2012.
Note: The 2005 survey sampling was designed to allow representativity at the department level, but
the 2009 survey design did not contemplate representativity at this level. Therefore, small differ-
ences across time should be evaluated with care, as well as small differences across regions in the
2                                                          2009 survey.
RAAN = Northern Atlantic Autonomous Region; RAAS = Southern Atlantic Autonomous Region.
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Table A1.3: Gender and poverty
Population           Population           Population          Population
Poverty    Share     Poverty    shrare   Poverty    shore     Poverty    shore  I   Urban      Rural
Female-headed household  31.7      37.9      69.8       19.0      27.3       40.5      63.4      22.9      -13.8      -9.2
Mole-headed household    30.4      62.1      70.4       81.0      26.4       59.5      63.3       77.1     -13.2     -10.1
Females                 29.9       52.7      70.6       48.7      26.4       52.6      64.3      48.5      -11.8      -8.9
Males                    32.0      47.3      70.1       51.3      27.3       47.4      62.5       51.5     -14.7     -10.8
Source: Anriquez (2012), using LSMS 2005 and 2009.
Table A1 .4: The AOl in Latin American countries
Rural public spending (FAO)                        Agriculture public spending (ECLAC)
Country            1985-89       1990-94       1995-2001           1980-89       1990-99       2000-03       2004-06
Mexico               1.59          1.42           1.38               2.06          1.58          0.80          0.75
Dominican Republic   1.13          1.30           0.69               0.69          1.18          0.68          0.74
Panama               0.69          0.40           0.60               0.46          0.28          0.30          0.32
Guatemala            0.17          0.14           0.12               0.16          0.19          0.27          0.23
Honduras             0.16          0.11           0.16               1.14          0.33          0.31          0.22
Nicaragua                          0.32           0.35               0.39          0.17          0.16          0.15
El Salvador                                                          0.49          0.23          0.15          0.13
Costa Rica           1.50          1.22           0.46               1.34          0.74          0.11          0.08
Brazil               0.45          0.66           0.52
Ecuador              0.22          0.33           0.41
Peru                 0.13          0.48           0.35
Uruguay              0.17          0.22           0.27
Argentina            0.22          0.28           0.21
Paraguay             0.14          0.19           0.19
Venezuela            0.68          0.45           0.19
Chile                              0.13           0.14


Rural public spending (FAO)                              Agriculture public spending (ECLAC)
Country              1985-89         1990-94        1995-2001              1980-89        1990-99         2000-03        2004-06
Bolivia                0.33            0.07             0.13
Jamaica                0.38            0.19             0.10
Colombia                                          0.04
Average            0.55           0.47            0.34                  0.84            0.59            0.35           0.33
Source: FAO and ECLAC; authors' calculations.
Table A.1 .5: Definition of Functional Composition
Research                 Service ceaters for breediag, R&D, labomtories.
Exteasian                Family support, faod assistance, praductive assistance model, development, promotion, services to
support productian.
Inputs                   Agicalturol inputs, production bonus, seeds, seed production.
Animal and plant health  Detectian of residues, goad agricaltural practices, phytosanitary and veterinary diagnastics, pest
eradication, inspection and control of imports and farms, registration of pesticides and fertilizers,
disease prevention, epidemiological surveillance nd campaigas.
Productive development   Rural development sustainable agriculture, production promotion, productive rural revival program,
capacity building.
Natural resources        Developing agroforestry and silvopastoral grazing, watershed management, INAFOR, green
management               municipalities.
Administration           Management coordination, planning, regional offices, monitoring and evaluation, policy,
management services, legal services, finance.
Rural roads              Study design and rehabilitation of roads, construction of roads, bridges, docks, drainage, repair,
construction supervision.
Rural electricity        Solar systems, construction of distribution systems, wind systems, small hydropower to small
communities.
Capacity building        Design, construction, equipment, rehabilitation and expansion of laboratory animal and plant health,
strengthening operations, institutional training, information systems, strengthening Public Investment
System SNIP, rural youth program.
a.                  Other costs              Social economic development local development industry development.
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Figure A. 1 .6: Agricultural public expenditures by source of funding, 2002-11
(2005 C$ million)
MAGFOR                                                        INTA
100%                                                        100%
80%                                                         80%
60%                                                         60%
40%                                                         40%
20%                                                         20%
a  Domestic Funding                                         a  Domestic Funding
IDR                                                      INAFOR
100%                                                       100%
0%                                                         0%
H  External Funding                                        M   External Funding
H  Domestic Funding                                         0  Domestic Funding
Source: MHCP; authors' elaboration.
Table A.1.7: Source of funds of the PPA, 2007-2011
Financing source                                     Amount (millions)
Treasury                                                  625.2
IFADvia FUNICA (Nicaraguan Foundation)                    28.7
European Union                                            32.1
China Taiwan                                              79.6
Venezuela (CARUNA)                                        316.4
IADB (APAGRO)                                             220.1
Austria (APAGRO)                                          13.3<
Interational Fund for Agricultural Development            35.6
Total execution of all sources                           1,351.1
Source: MAGFOR.


Table A1.8: Links between the PRORURAL AOPs
and the SIGFA program structure, 2011
PRORURAL A0 structure                                                     SIGFA program structure
Component                Subcomponent
code        Component     code           Subcomponent                      P
1           PNA           1.1            Production plan,
1           PNA           1.2            Production ME,
1           PNA           1.3            Food safety                      Food and nutritional security
1           PNA           1.4            Health and safety                Agrosanitary services, food safety, animal health and livestock breeding, plant
health, plant health and seeds, phytosonitary surveillance
1           PNA           1.5           Governance and capacity building  Core activifies
1           PNA           1.6           Integrated crop management        Integrated crop management with emphasis on climate change
1           PNA           1.7            Livestock                        Innovation in livestock, generation, and transfer of technology in major and
minor livestock
1           PNA           1.8            Seed production                  Production of basic seeds and registered seed production and biotechnology;
seed ogro-food program
2           PNAIR         2.1            Governance                       (ore activities
2           PNAIR         2.2            Human talent                      -
2           PNAIR         2.3           Association strengthening          -
2           PNAIR         2.4            Value chains                      -
2           PNAIR         2.5            Technological development        Promotion of rural agrotechnology
2           PNAIR         2.6            Product quality                   -
2           PNAIR         2.7           Trade promotion                    -
2           PNAIR         2.8            Productive development            -
3           PNF           3.1            Forest governance and institutional  (ore activities
3           PNF           3.2            Forest management and conservation  Development and forest conservation
3           PNF           3.3            Reforestation and forest restoration  Regulation of forest resource management
a-
3            PNF          3.4           Industry development and forestry  -
u                                                            trade
0..                  3            PNF          3.5            Forest knowledge generation and   Genetic improvement of forest resources
management
Source: Gutierrez Ossio (2012), based on MAGFOR information.
a. Without budget resources.
- = not available or cannot be compared.


Table A.1.9: Budget calendar according to the MTBF guidelines
1    Macroeconomic forecasting    (B
2    Budget policy formulation    OAE/budget office
3    Budget policy approval       Minister of Finance
4    Formal request for budget needs  MHCP
5    Training to execution units on  Budget/public
budget demand                investment/lT offices
6    Demand formulation and       Sectors
submission
7    Program structure review     Sectors/budget and public
investment
8    Needs review and consolidation  Budget and public
investment
9    Presentation to the economic  MHCP
cabinet about the budget
policy, sector demands, budget
allocations, and ceilings
10   Presentation to the president  MHCP
about the budget policy, sector
demands, budget allocations,
and ceilings
11   Budget policy and ceiling    Office of the Presidency
approval
12   Communication to sectors of  MH(P
the budget policy and definitive
ceilings
13   Review and definition of the  Sectors/budget office
enties' indicators
14   Draft of budget proposal     Sectors
by sector's entities with
consultations and participation
of citizens
15   Submission of the draft budget  Sectors
and the MTBF
16   Review and consolidation of the  Budget and public
draft budget proposals       investment
17   Review and consolidation of the  Budget and tax offices
income budget by funds sources


18  Integration and consolidation  Budget and debt office
of the public debt situation and
sustainability analysis
19  Integration and consolidation of  Budget office
the draft budget law
20   Presentation to the economic  MHCP
cabinet the Draft Budget and
METF
21   Presentation to the president the  MHCP
draft budget and METF
22   Adjustments and approval of the  Office of the Presidency
draft budget Law
23   Print out and submission to  MHCP/budget office
the National Assembly of the
draft budget law and the MTBF
ottached
Non-executed actions
Executed actions untimely
Executed actions on time
Source: Gutierrez Ossio 2012.
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Annex 2: Quality of agricultural exports
The following charts show the relative quality ladders in the U.S. market as
measured by the average unit prices received for countries' exports of a particular
product to that market. Countries are ranked by unit values standardized by the
90th percentile value. The arrows indicate Nicaragua's position in these quality
ladder for exports between 2000-02 and again between 2006-08. The 6-digit
HS codes for each product follow: coffee (09011 1), processed meat (020230),
gold (710812), sugar (170111), fresh meat (020130), groundnuts (120220),
beans (071333), shrimps (030613).
Figure: Relative Quality Ladders for Nicaragua agricultural Exports
(2000-02 and 2006-08)
Rank


oald                             Guld
a. - -
1    2:   ID    D    M      D    1L    2    2 0    4
Sugar                             Spår
2Kos2=0                           2 p- 27,
Rank
FretenMeal                        Fresh Meai
N ul                                   d
0 z                        15     0    2     d    6     0    '3
.0
NLut                              Nials
i
z<01 ,s
iiRank


Geans                                  Bear
7 7~
Sh   pShrirnp
Rank
Source: Author's Caiculation using BACI data.
139l


Annex 3: Productivity Constraints in Key Export Sectors
Box 5.5 Main Productivity Constraints in Key Export Sectors:
Beef, Coffee and Shrimp Case Studies
Beef
Livestock represents one of the most important economic and exporting
sectors in Nicaragua. In 2011, exports of bovine meat reached USD$431
million. The meat value chain involves more than 100,000 jobs, comprised
mainly of small ranchers in rural areas, workers at municipal and industrial
slaughterhouses, and butchers in shops around the country. Ranching has
been practiced traditionally under an extensive model. Cattle provide the
basis for double-purpose businesses-milk and meat. For small producers,
the first one provides the cash flow for small ranches and the second one
is used for capital creation/investments.
Slaughterhouses dominate exports. In 2011, the top four facilities
accounted for approximately 93 percent of the sector's total export value,
including the two main tariff lines of frozen boneless bovine meat and
fresh boneless bovine meat. The first tariff line mainly involves shipments
to Venezuela and United States;36 the second centers on exports to El
Salvador and Puerto Rico.
Key issues hinder productivity at the farm level. One involves genetics
and animal health. Pregnancy rates are relatively low while death rates at
birth are high. In addition, the fattening rate of livestock (kilograms/day) is
relatively low, especially during the dry season when pasture availability
decreases substantially. Small ranchers face additional logistics challenges
linked to unpaved and temporary roads, which slow delivery and impact
weight losses during transit.
For slaughterhouses, electricity costs and regulatory instability are
important challenges at the processing and export stages. Electricity
costs are a factor because of the need for refrigeration. Exporting plants
LL
must comply with food-safety measures and certification, which change
frequently. However, the biggest challenge for the industry and especially
for beef exporting companies is developing a tracking system, which will
allow slaughterhouses to certify quality and meet standard for trading with
European countries.
A              36  Source: authors calculations based on information from Nicaraguan customs, 2012.


Coffee
Coffee represents one of the most important economic sectors in the
Nicaraguan economy, not only as a source of export value but also as
a generator of employment, both permanent and temporary.37 In 2011,
coffee exports reached USD$426 million, ranking second among export
products.38 Nicaragua has approximately 40,000 coffee producers.39
Productivity is still a major concern, ranging between 0.16 to 0.32 metric
tons per acre.40 This is much lower than local regional competitors (Costa
Rica, Guatemala, and Honduras) and international leaders (Colombia,
Brazil, and Vietnam). A few exporters4' with access to international buyers,
technology, and financing dominate the export business. They hold greater
market power than small and micro producers. In 2011, the top three
exporting companies sold 45,810 metric tons, or about 53 percent of the
country's total production.
Several factors are associated with low productivity levels, especially
among small producers. These include: (i) limited access to finance for the
medium to long term;42 (ii) low adoption of best agricultural practices/
technology;43 and (iii) high input costs (fertilizers). Access to medium- and
long-term finance has direct impacts on the timing of coffee planting.
Credit-constrained producers have to maintain old, low-productive
plants. Delayed implementation of "good" agricultural practices not only
affects coffee quality/productivity, but it could also become a barrier to
access to international markets. Many markets are starting to require
quality certification. Micro and small producers continue to implement
old practices, such as field preparation (inadequate plot density, lack of
soil analysis, use of low-yield coffee varieties) and inappropriate plant-
nutrition techniques (fertilization mostly). In addition, many micro and small
producers do not apply state-of-the-art infrastructure to develop an efficient
wet process. This technology is critical to reducing quality-standard risks
37 It employed in average 311,031 workers during 2008-10. Source: Central Bank of Nicaragua.
38 This represented around 1.9 million of bags.
39 Source: Nicaraguan Coffee Council.
40 Source: Central Bank of Nicaragua. The bag contains 100 pounds.
41 In 2011, 40 exporters traded at least USD $1 million dollars. Source: Centro de Tramites de las
Exportaciones.
42 Among the typical reasons are: (i) lack of property land titles, (ii) presentation of inadequate
guarantees, (iii) lack of a specific financial instrument.
43 One of the key causes is the fact the international price of coffee is very volatile. In 2000-10,
the U.S. index price ranged from a minimum of USD$77 to a maximum of USD$203 per bag.
Source: International Coffee Organization. Therefore, small producers do not want to take more
economic risks without having certain fair-market access conditions.


for coffee beans. Finally, exporters face unnecessary delays in obtaining
sanitary certifications from the Ministry of Agriculture and Forestry. For
instance, it takes at least two days to get physical certification by a
competent authority, even though an exporter can execute this procedure
online.
Shrimp
In the past decade, Nicaragua followed the worldwide trend in shrimp and
fisheries, with capture production declining 33 percent while the value of
shrimp farming increasing 179 percent.44 This sector's export value made
it important to the economy. In 2011, shrimp farming exports reached
USD$95.43 million, ranking among the Top 10 products. The sector
generates around 13,000 jobs.45 The main production zone is located
within the Estero Real Natural Reserve in Chinandega. Most of the 104
small- and medium-sized cooperativas and a couple of large exporting
companies are located in this area. The sector's productivity varies with
technology-artisanal, semi-extensive and extensive. Semi-extensive is the
most common, with a yield range from 0.7 to 1.2 tons per hectare per
harvest per year. However, yields drop to 0.2 tons per hectare per harvest
for the artisanal method.
Exporters are mostly vertically integrated firms. In 2011, the top
four exporting groups and companies accounted for approximately 73
percent of the total farm-raised shrimp export value. Nicaraguan exports
are concentrated in three main countries-the United States, Spain, and
Taiwan, which represented around 70 percent of export value in 2011.
Similarly, exporting firms limit themselves to a few buyer countries. For
instance, Sahlman Seafoods sold around 82 percent of its production to
two main markets-France and Spain. However, some diversification has
been achieved as the number of destinations increased from 10 countries in
2002 to 16 in 2011. Among them, Taiwan and Mexico are now important
Lii             destinations for Nicaragua's exports, probably because of the signing of
free- trade agreements.
The sector's biggest challenge involves better control over diseases and
quality standards, mainly in micro and small producers and cooperatives.
These hatcheries continue to use artisanal practices, which affect
productivity levels as well as biodiversity (because capture comes from
44 Source: Author's calculations based on information from Centro de Tramites de las Exportaciones
de Nicaragua (CETREX).
A              45 Source: Ren6 Escoto, La Codena de Camar6n de Cultivo en Nicaragua, 2011.


the diminishing natural habitats). The main constraints are: limited access
to markets and the finance46 required for adoption of new technology. In
addition, the habitat where the shrimp farms are located has less natural
nutrients and more sediment, further eroding productivity. In medium and
large shrimp farms, the most important threats are the lack of competition
among feed providers (there is only one in the country-Cargill).
Most exporting plants must comply with food-safety measures imposed
by buying countries and clients. This implies a need for control mechanisms
to be certified with Hazard Analysis Critical Control Points (HACCP). 47
This certification creates an entry barrier to small and medium producers
because it requires both hard and soft investments. Formal relations among
private firms within the national boundaries lag because small suppliers
in most cases do not meet quality and food-safety standards. Thus, these
relationships are on a spot basis, informal, and uncertain.
46 There are some key causes. First, small providers do not have formal relations with their clients.
Second, "land concession" cannot be used as collateral. Third, most of financial-service providers
do not have knowledge about shrimp farming
47 This certification requires having pre-requisites in place, including good manufacturing practices
and standard operating procedures.                                                      A


Annex 4: Geographic analysis tool for prioritizing interventions
This review suggests using an innovative geographic analysis
to identify areas with the potential to improve productivity. This
subsection is based a World Bank paper from the International Food Policy
Research Institute (IFPRI; Torero and Haven 2012). The analysis characterizes
micro-regions along four dimensions: poverty, agricultural potential, average
farm efficiency, and market access. This tool, which uses an econometrically
rigorous stochastic profit frontier estimation approach, allows policy makers to
prioritize investments in agriculture and rural areas and to target intervention-
agricultural extension, for example-to optimize agricultural potential in a given
territory or municipality, as part of a broader optimization of overall agricultural
public spending. This tool can be particularly useful to bring the current territorial
approach of PRORURAL investments, based on four large areas, to a lower level
of planning and monitoring based on similar variables.
This World Bank review divides Nicaragua into micro-regions
by characteristics, problems, and potential for development, using
mapping technology and a range of data. This typology is based on
climate and topography, production, access to roads and markets, off-farm
job opportunities, population density, gender distribution and the presence of
institutions (formal and informal) such as credit providers. To estimate the efficiency
and profit potential of local farmers, the analysis includes biophysical data on
the geography and a detailed geo-referenced household survey. Combining this
data with other information such as poverty maps, the approach can diagnose
the needs and potential solutions for the various micro-regions (map 2.2).
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Map 2.2: Micro-regions by poverty, by farmers' profit potential, and efficiency
Source: Torero and Haven 2012.
The micro-regions can then be classified by mixing potential
and efficiency with poverty. For example, identified areas with high
poverty combined with low productive potential, independently of their level of
efficiency (red cell), conditional cash transfers and/or nutritional programs could
be recommended, at least in the short term (table 2.2). However, if those
areas were of medium-high potential (green cells), production strategies with
(if necessary) nutritional programs could be promoted, according to their
efficiency.
Table 2.2: Example of a three-dimensional classification
Micro-Regions                            Poverty             Potential           Efficiency
I     Critical, lacking agricultural potential  High               Low                 High-Medium-Low
Medium priority, no agricultural opportunities  Medium       Low                 High-Medium-Low
Low priority                             Low                 Low                 High-Medium-Low
I     High prioty                              High                Medium-High        High-Medium-Low
Medium priority, with agricultural opportunities  Medium     Medium-High         Medium-Low
Low priority, with agricultural opportunities  Low           Medium-High         Medium-Low
High performance                         Low                 Medium-High         High
Source: Torero and Haven 2012.


Map 2.3: Categories of micro-regions for Nicaragua
riteal w iouI agnculurli  potenoilt
P.Iarim  prunly without agricu[Tumiopportunithas
Low pri
Lih priority
Merum prionly with agrncultrol opportunit s
Low prrrr w th agriculloral opportunites
High portomance
High pMfCitnCyo, high efficiency, high poueity
Protected area
Lakes
Municipal boundares
Source: Torero and Haven 2012.
With this typology, policy makers can geographically target
areas with different interventions. Areas with high poverty and high
potential, but with inefficiencies may be high priority micro-regions, where
appropriate policies can reduce these inefficiencies in production. The study
suggests that areas with low potential of the land could reduce poverty through
rural nonagricultural interventions like rural labor development and, in the short
a-
term, with safety net programs (figure 2.2).
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Figure 2.2: Prioritizing interventions based
on agricultural potential and malnutrition
Prioritize agricultural  (ash transfer in the
development interventions  short-run; Agricultural
development in the long-run
Prioritize non-agricultural  (ash transfer in the
interventions (rural labor  short-run; Non-agricultural
8     development)         development in the long-run
Poverty
Source: Torero and Haven 2012.
Adding a model that maps accessibility to the above
characteristics allows analysts to identify areas that could develop
quickly if properly connected, and others where access is not the
main bottleneck. The accessibility map is obtained by "geo layers" of altitude,
water bodies, roads, and land use (figure 2.3), revealing four key areas and
types of public investment needed for Nicaragua (map 2.4).
Figure 2.3: Accessibility map
Data
Geo Layers
Source: Torero and Haven 2012.


Map 2.4: Four key areas and types of public investment needed for Nicaragua
AN
Areas of high poverty with low potential for agriculture Areas of high poverty but with high potential for agricu-
and significant number of microclimates. Mostly basic ture. Key policies in these areas should focus in identifying
staples subsistence agriculture. Key policies should focus and resolving major bottlenecks to better use the quality of
on short term targeted assistance as the use of conditional   the land and optimize its potential.
cash transfers, school feeding, and so on.
-1kA
&Areas of owg povertyrae with siniin potential andltr Areas wf ithdr poverty ate andh lowh potential andul
zan< higficny Gnumer highrfomae Mothebsc re-e meu anphgeficienc Desite iho ficiienyig
stapes ubsstene aricltue. Ky plices soulfous ind theselin ara o houtlecus  o frmtvtiese  ase qalt way
on sort erm argeed asistnce s thuseofcnditonalto iancrease ousehold in oet.
cas tanfer, c  ore:Torr and  Have 2012
0W
-
<CL
Ares o lw pvety ats wthsignificant potential and  Areas with moderate poverty rates and low potential and
Z <high efficiency. Given their high performance these re-              medium and high efficiency. Despite high efficiency, agri-
gions could be used to learn and replicate from them,  cultural potential is low, resulting in high poverty. Policies
in these areas should focus on nonfarm activities as a way
to increase household income.
Source: Torero and Haven 2012.


Annex 5: Brief Technical Note: Efficiency Analysis
of PRORURAL Public Spending
Public spending is the main social development policy tool. It is expected that the
execution of the spending is effective, i.e. that it complies with the objectives and
suggested results, and/or efficient, i.e. maximize the results with the available
resources or minimize the costs by achieving certain results.
One indicator used to measure the efficiency of public spending is the cost-
transfer rate (CTR), which measures the cost to transfer one unit of resources to a
beneficiary. The interpretation of CTR is the following:
CTR < 1: the expenditure is efficient
CTR > 1 the expenditure is inefficient
The ideal is to have a CTR below 1, and Lo ideal es tener una TCT menor a 1,
and the smaller the valuet, the more efficient the spending. Spending more
efficiently does not mean that this is still effective, as this requires impact evaluation
studies and then cost-benefit or cost-effectiveness analysis. However, execute an
efficient spending can help to improve the impact of spending.
Cald6s et al., (2004) derive a formula to calculate a the CTR baed on the
impact o transfers base don a social welfare function. The proposed formula is:
TCT=   C
T+E
Where:
C= are the operational and administrative costs
T= are the direct transfers to the beneficiaries in cash or in kind (ej.
vouchers, inputs)
E= are other transfers (services and spending) that reduce the costs to
the beneficiaries (training, technical assistance, information, etc.)
The formula is very simple, but the complexity is to identify the components
within the execution of public spending. In the case of PRORURAL a review was
conducted of the lines that make up the spending object of the Public Expenditure
Database. These rows were allocated to each of the three components of CTR as
shown in Table 1.
This allocation is preliminary, requiring validation by the program coordinators
of PRORURAL and by the Budget Planning and Control Units. With this exception,
there was a first estimate for total spending in PRORURAL and spending on Food
Security (Figure 1). In general, there is a worsening in efficiency between 2006-
2009 and 2010-2011, exceeding unity in the latter period. In comparative terms
the efficiency of spending on food security worsened more in the last period.


Table 1: Object of expenditure items assigned
to the cost-transfer rate components
Cost-Transfer Rate Components (CTR)
Subject of spending       Operational and Administrative Costs  )irect Transfers  Indirect Transfers
( C                             (T)                     (E)
100. Personal services    All                             None                    None
200. Non personal services  All except four that were classfied  None             241, 243, 244 y 249
as E
300. Materials and supplies  All except 21 that were classified  311, 312, 313, 314,  None
as I                            315, 316, 317, 319,
322, 323, 325, 329,
344, 345, 363, 364,
365, 384, 385, 394,
396
400. Fixed assets         All except four that were classified  None              421, 422, 433 y 451
as E
500. Current transfers    511, 512, 513, 514, 519, 581,   532 y 539               571, 572, 574 y 579
599
600. Capital transfers    694 - Losses on foreign exchange  All except one that were  None
transactions                    classified as C
References
Cald6s, N. D. Coady, and J. A. Maluccio. 2004. The cost of poverty alleviation
transfer programs: a comparative analysis of three programas in Latin
America. Food Consumption and Nutrition Division,International Food
Policy Research Institute. February 2004. http://www.ifpri.org/sites/
default/files/publications/fcndp1 74.pdf
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