Rural Development Project

$72,195,000Original Compact Project Amount
$68,264,510Total Disbursed

At the time of compact signing, an economic rate of return (ERR) was calculated for the FTDA and Farmer Access to Credit Activity. For the Farm to Market Roads Activity and the APGGF, a minimum ERR (hurdle rate) was set, noting that the specific projects had not yet been identified. Estimated benefits at time of signing come from original ERRs and correspond to the original $72,195,000 of project funds, where cost-benefit analysis was conducted.

At closeout, the ERR was only updated for the FTDA. Estimated benefits associated with the FTDA at the end of the compact correspond to $25 million of project funds.[[Note that the table below reflects MCC-calculated ERRs only; ERRs calculated by evaluators and other contractors are presented in the Evaluation Findings section.]]

	Estimated Economic Rate of Return over 20 years		Estimated beneficiaries over 20 years		Estimated net benefits over 20 years
	At the time of signing	At compact closure[[MCC seeks consistency across cost-benefit analysis (CBA) methodology. In 2010, MCC published generalized guidance for this purpose, and sector specific cost-benefit analysis guidelines are now under preparation. However, at the time of the Honduras Compact signing, CBA guidance had not been developed. As a result, CBA methodology between signing, revision, and closure may vary, making the ERRs potentially incompatible for direct comparison.]]	At the time of signing	At compact closure	At the time of signing	At compact closure
Farmer Training and Development Activity[[The ERR and net present value decreased at closure as a result of three shifts: increased costs slightly decreasing the overall project scope, new MCC Economic Analysis guidelines on calculation of benefits, and the largest impact came from the revised assumption that the spread of new farming practices only occurs during the compact, rather than continuing after the compact ends. The original assumption that farming practice impacts continue post-compact was seen as overly optimistic and unlikely to occur. The overall impact was an over 80 percent decrease in net benefits.]]	36.04%	14.6%[[Linked to $25 million expenditures on the activity, down from $30.3 million in the initial ERR.]]	357,401[[For overall project, not broken up by activity.]]	37,000[[Includes trained farmers and their families as beneficiaries.]]	$190,402,000	$19,600,000
Farmer Access to Credit Activity	36.04%	Not calculated[[At closeout, ERR limited to FTDA only due to data limitations.]]		Not calculated	$190,402,000	Not calculated
Farm to Market Roads Activity	14.77%	Not calculated		Not calculated	$2,302,000	Not calculated
Agricultural Public Goods Grant Facility Activity	12.59%	Not calculated		Not calculated	$1,029,088	Not calculated

ERRs are available on the MCC website. All ERRs were calculated at the time of compact signing.

Project Summary

The Rural Development Project sought to address low agricultural productivity by improving business skills, farm productivity, market access, and risk management practices of producers who operated small- and medium-size farms, with the objective of increasing incomes for the targeted farmers, their employees and their communities. It also sought to strengthen the capacity of horticultural production and trade enterprises by providing training and technical assistance, including financial support and extension services in commercial horticulture production and marketing. The Project included four activities:

Farmer Training and Development Activity (original budget: $27.41 million; amount disbursed: $26.6 million): This activity sought to improve the business skills, productivity, market access, and risk management practices of producers cultivating horticultural crops on small and medium farms. FTDA included on-going training and technical assistance, including financial support and extension services in commercial horticulture production and marketing, focused on the production and marketing of high value crops. The training followed a rigorous agriculture extension model in which agriculture technicians periodically visited each participating farmer to provide individual advice on production and marketing. This included the selection and leveraging of lead farmers to provide additional advice and share lessons learned among their peers.

The criteria for farmer selection included (i) demonstrated ability to produce agricultural products, commitment to accept recommendations given by the technical outreach specialists,[[As part of the recruitment process, technicians would make inexpensive but labor intensive recommendations to see if potential clients would implement them prior to formally enrolling them in the program.]] and agreement to allow proper monitoring (e.g. tracking pre-agreed components of their business plans); (ii) legal right to cultivate between one and 50 hectares of land with reliable access to sufficient quality water and appropriate soils, climate and other conditions; (iii) capacity to provide labor and minimum investment; (iv) basic education sufficient to absorb training; (v) willingness to adhere to record keeping requirements, both to adhere to buyer and market certification requirements and to enable verification of costs of production, net income, and labor usage; (vi) willingness to adhere to negotiated group marketing contracts; (vii) willingness to collaborate with other farmers (e.g. allow farm to be used as a demonstration plot); and (viii) capacity to understand and willingness to employ environmentally sustainable agricultural practices (e.g. proper soil conservation, integrated pest management and cultivation), including proper selection, use, storage, and disposal of fertilizers, pesticides, herbicides, and fungicides. The training excluded farmers cultivating in fragile areas and farmers who had already received similar training from other providers.

As indicated above, in order to participate in the program farmers originally needed legal access to at least one hectare of land available to transition from basic grains such as corn and beans to high value agriculture like vegetables to achieve a minimum net income of $2,000 per year per hectare. After the first year of implementation, the land plot size criterion was revised to require a minimum of .20 hectares. This allowed the program to reach smaller farmers, some of whom were hesitant to transition larger portions of their land to a new crop.

At the end of the compact, more than 7,000 farmers participated in training and technical assistance activities. By 2010, more than 6,000 of these farmers were harvesting high-value horticulture crops on more than 9,000 hectares, with more than 16,000 business plans prepared by farmers with assistance from the program.

Farmer Access to Credit Activity (original budget: $13.77 million; amount disbursed: $12.8 million): This activity aimed to improve access to credit for farmers by working with various types of credit providers, including microfinance institutions, agricultural input providers, and horticultural wholesalers. Technical assistance was provided to credit providers to increase the availability of credit for rural financial institutions for lending and improve the environment for asset-based lending to farmers. Technical assistance to strengthen credit risk analysis, develop new financial products more appropriate for small famers, and support institutional and administrative strengthening was provided to more than 20 wholesale and retail financial institutions and eight agricultural dealers and input distributors. In addition, a credit facility was established that lent to credit providers to incentivize them to adopt the innovations being suggested by the technical assistance. The intervention promoted the participation of Honduran lenders in the rural sector, agriculture input dealers in commercial credit, and the supply of credit and other financial products to farmers and horticultural borrowers.

The initial intent of the program was to disburse $6 million in loans. However, as a result of the positive performance of the lending program reflows were re-lent; by the end of the compact, participating lenders disbursed $12 million in loans to more than 5,400 farmers, agribusinesses, and other producers and vendors in the horticulture industry. These loans made it possible for farmers to purchase equipment, seeds and tools, expand their production, and increase their farm profits.

In addition, the compact funded a grant to support the GoH in drafting a new Secured Transaction Law, develop the accompanying movable property registry system, and train its future users. Accessing credit in Honduras has been a challenge for those without real property or other real estate assets that banks required as collateral. The new law improved access to credit for small- and medium-sized business owners and non-land owners, including farmers and women entrepreneurs, by expanding their options for collateral beyond real estate to include moveable property, such as equipment, shop inventory, future crops, tractors, supply contracts, and sewing machines. The new registry began operations in January 2011 and is managed by the Chamber of Commerce and Industry in Tegucigalpa. About 13,000 new registries of collateral are made by creditors each year.

Farm to Market Roads Activity (original budget: $21.5 million; amount disbursed: $20.1 million): This activity originally aimed to improve rural communities’ and farmers’ access to markets and social services through the construction and improvement of approximately 1,500 km of rural roads. The application process required the road to have an ERR of 12 percent and environmental assessments acceptable to MCA–H and MCC. The road work also had to be completed no later than four months before the end of the compact.

The original target of 1,500 km of road was based on the assumption that only light maintenance would be performed on the selected roads. However, MCC and MCA-H subsequently agreed to maintain the ERR and other requirements but reduce the number of kilometers in order to include more substantial improvements to drainage, including culverts, box bridges and other features. This and higher than anticipated bid prices, led to the reduction of implemented road segments to approximately 495 km across 23 road segments. A key highlight of this activity was the participation of beneficiary municipalities through in-kind and/or cash contribution, of up to 10 percent of the estimated cost of the construction works.

Agricultural Public Goods Grant Facility Activity (original budget: $8 million; amount disbursed: $8.8 million): This activity promoted agricultural innovation through the adaptation of global technological advances to local Honduran conditions. The grant facility funded public goods (e.g. research and development, water resource management, and market information) or quasi-public goods (e.g. off-farm infrastructure, sanitary and phytosanitary activities) in amounts between $100,000 and $1 million per grant.

Applicants underwent a rigorous and transparent evaluation process that included workshops to detail competition requirements, and the submission of a short initial concept paper. Only those that met the eligibility criteria were invited to refine their concept and submit an application.

Grant eligibility criteria included:

Being legally registered and recognized as a non-profit entity under the laws of the Republic of Honduras or a government body.
Being financially responsible and able to demonstrate funding from sources other than MCA-H.
Completing the eligibility portion of the concept paper and cooperating with interviews and site visits by the MCA-H or MCC staff, if requested.
Willingness to establish a bank account registered with the Ministry of Finance’s Integrated Financial Management System.

MCA-H launched two rounds of grants competitions. Ultimately, fifteen grants were awarded to support the adaptation of global technological advances in agriculture. Zamorano University received one of these grants for the EAP-Zamorano Value Added Project (PVA). This project trained 60 agro-industrial entrepreneurs on how to improve their products and make them more competitive. Additional grants were awarded to projects in irrigation, biological pest control research and potato production research. For example, one of the grants helped fund the construction and equipping of the high-tech laboratory of the Honduran Coffee Institute, which was working on reproducing high quality coffee hybrids that were more resistant to plagues and had higher yields.

Key performance indicators and outputs at compact end date

Key Performance Indicators[[Please see the M&E Plan for additional information and definitions of the indicators.]]	Baseline	End of Compact Target	Closeout Value	Percent Compact Target Satisfied
Farmer Training and Development Activity
Total number of recruited farmers receiving technical assistance	0	8,255	7,264	88%
Number of program farmers harvesting high-value horticulture crops	0	6,000	6,029	100.5%
Number of hectares harvesting high-value horticulture crops	0	8,400	9,287	110.6%
Number of business plans prepared by program farmers with assistance from the implementing entity	0	6,960	16,119	231.6%
Access to Credit
Number of farmers, agribusiness, and other producers and vendors in the horticulture industry receiving loans, including Program Farmers (cumulative to date)	0	5,400	5,428	101%
Value of loans disbursed to farmers, agribusiness, and other producers and vendors in the horticulture industry, including Program Farmers (cumulative to date) (Trust Fund) / (Million USD)	0	6	12	200%
Agricultural Public Goods and Grant Facility
Numbers of hectares under irrigation	0	203	400	197%
Number of farmers connected to the community irrigation system	0	392	967	247%
Number of new products developed as part of the Value-Added Grant	0	30	30	100%
Farm to Market Roads
Rural Roads Kilometers of Roads Upgraded	0	499	495	99%

Evaluation Findings

For the Rural Development Project, the FTDA was independently evaluated in one performance evaluation and the Farm to Market Roads Activity was evaluated alongside the other roads investments in the Transportation Project (see below for additional details). As described in the Lessons Learned section, each of these evaluations contributed to MCC learning in the sectors, as detailed in the “Impact Evaluations of Agriculture Projects” (2012) and “Lessons from MCC’s Investments in Roads” (2017) publications in MCC’s Principles into Practice series. The Farmer Access to Credit Activity was not included in the original evaluation plan and the AGPPF was only assessed through an ERR analysis.[[This gap in evaluation coverage was identified in 2013 and MCC M&E management determined the benefit of designing and implementing an independent evaluation of these two activities would not outweigh the costs.]]

For both the FTDA independent evaluation and the APGGF ERR analysis, the MCC Management Responses summarize MCC’s concerns with the quality of the methods used for analysis. Given these concerns, MCC limits the conclusions it can draw from these reports with regard to the impact of the activities. To mitigate similar issues for future evaluations, MCC instituted the Evaluation Management and Review Process in 2013. Turning these lessons into action was documented in “Learning from Evaluations at the Millennium Challenge Corporation” by Sturdy, Aquino and Molyneaux (2014).

Farmer Training and Development Activity(FTDA)

Status of the evaluation
Component	Completion date
Endline Report	10/01/2012

Evaluation Questions: The independent evaluation was designed to answer the following questions:

Did the FTDA intervention increase cultivation of horticultural crops?
Did the FTDA intervention increase household income?
Did the FTDA intervention increase employment on farms?

Evaluation Findings: The evaluator reported that this was originally an impact evaluation using randomized rollout methodology that failed after multiple attempts to replicate the implementers’ process for location and farmer selection. It is now classified as a performance evaluation. The evaluation estimated net income change from horticultural crops was on average $600 higher for program participants than for non-participants. Input expenditures on these crops increased more than they did for basic crops, implying a higher level of activity in cultivation of high value crops among program farmers. The results suggest a corresponding decline among program farmers in income from basic crops, as might be expected with changing crop mix; however, this decline was not statistically significant. The evaluation did not detect a positive effect on the proportion of farmers growing horticultural crops. This could be because the implementer primarily chose as program participants farmers who showed a proven ability to grow horticultural crops. It is likely that incremental increases in income from horticultural crops came from increased production among farmers already growing horticultural crops and not from farmers who switched over for the first time. Even though there was an increase in income from horticultural crops, there was no corresponding statistically significant increase in net household income or household expenditures/consumption, as might have been expected. However, as stated above, MCC has concerns with the quality of the methods used for analysis and therefore limits the conclusions it can draw from these reports.

Agricultural Public Goods and Grant Facility (APGGF)

Status of the evaluation
Component	Completion date
Endline Report	10/31/2010

Evaluation Questions: This was not an independent evaluation, but a cost-benefit analysis to produce an ERR for a sub-sample of projects which concluded or had registered a considerable level of progress as of July 2010. For purposes of the analysis, the projects were classified in three types: i) Irrigation (10 possible projects – 3 of which were selected for ERR analysis); ii) Value Added Project (1 project – the EAP-Zamorano); and iii) Research and technology (4 projects). Regarding the research projects, since the progress as of July 2010 for these projects covered mainly the laboratories’ set-up activities and the creation of the biological items and basic genetic material required in the project, the ERRs were calculated maintaining the assumption and goals originally proposed by the project designers, adjusting only the start-up times for the beneficiaries’ incorporation. It is worth noting that the measured impact actually represents an intermediate measurement, since the ERR is calculated based on the expected impact of the projects after 10 and 15 years of being implemented.

Analysis Findings: Based on the cost-benefit analysis, the average estimated economic profitability for irrigation projects was 35.2 percent. For the EAP-Zamorano Value Added Project (PVA), the businesses targeted belonged to a myriad of production categories, including grains and seeds, wines and beverages, canned and bottled products, dairy products, sweets, snacks, honey, and others. The average income of these businesses before the PVA ranged from US$ 16,508 in the category of pastries and baked goods to $207,418 in businesses dedicated to fruit and vegetable post-harvesting. Overall, the project reached an average increase of $8,113 in businesses’ income, which represents an 11.3 percent increase over the average of $72,024 that businesses registered before PVA. This general increase is slightly higher than the goal of 10 percent envisioned in the project design. The analysis produced an estimated ERR of 27.4 percent for 10 years. This rate was strongly influenced by the larger number of medium-sized businesses involved in the project. For the research projects, analysis estimated ERRs from 21-74.4 percent. An estimate of the ERR for all projects reviewed in the cost-benefit analysis was generated weighing the partial re-estimated rates by the amounts supported by MCA-H for such projects. This resulted in a weighted ERR of 38 percent.