IMPORTANCE OF PREPARATION AND APPRAISAL AS IMPORTANT COMPONENTS OF THE PROJECT CYCLE

INTRODUCTION Project preparation and appraisal are clearly not the only aspects of agricultural development or planning. Identifying national agricultural development objectives, selecting priority areas for investment, designing effective price policies, and mobilizing resources are all critical. But for most agricultural development activities, careful project preparation and appraisal in advance of expenditure is, if not absolutely essential, at least the best available means to ensure efficient and economic use of capital funds and to increase the chances of implementation on schedule. Unless projects are carefully prepared in substantial detail, inefficient or even wasteful expenditure is almost sure to result. PREPARATION AND APPRAISAL PHASE Feasibility study is the key component of project preparation and a technical working document for project appraisal. A feasibility study therefore needs to be authentic, accurate and comprehensive. As such, when well implemented, the feasibility study should:
(i) (ii) (iii) (iv)

Establish that the project is consistent with the predetermined needs, and is the most suitable technical and financial solution to meet these needs; Recommend how the project should be structured and designed; Provide information about all costs during the project life cycle; Identify the impact of the project on the environment and population and, if necessary, devise a resettlement plan, including compensation and management programs; Develop a project-specific land acquisition plan; Document all stakeholder consultations undertaken for the project; Develop a financial model with key investment ratios, and the capability of running scenario and sensitivity analyses; Identify all significant risks associated with the project, and recommend their allocation and mitigation; Assess whether or not the project is affordable to the Government and/or the end users of the services in terms of direct and contingent fiscal obligations; Establish the economic justification for the project; Prepare a project management plan for the subsequent development phases; and

(v) (vi) (vii) (viii) (ix) (x) (xi)

(xii)

Draft documentation for the procurement of the private party during the transaction execution phase.

Preparing helps understanding projects challenges through collection of information relatives to all aspects that together determine how remunerative or beneficial a proposed investment will be. Project preparation and appraisal can be divided into six aspects: technical, institutionalorganizational-managerial, social, commercial, financial, and economic. An evaluation of these aspects will allow the researchers or analyst to address the feasibility study satisfactorily. Thus, the importance of preparation and appraisal is given as follows: 1. Institutional-organizational-managerial importance The sociocultural patterns and institutions of those the project will serve must be considered. An appraisal of these aspects will help address some questions such as: (a) Does the project design take into account the customs and culture of the farmers who will participate? (b) Will the project involve disruption of the ways in which farmers are accustomed to working? (c) If it does, what provisions are made to help them shift to new patterns? (d) What communication systems exist to bring farmers new information and teach them new skills? (e) Changing customary procedures is usually slow. Has enough time been allowed for farmers to accept the new procedures, or is the project plan overly optimistic about rates of acceptance? (f) What will be the arrangements for land tenure? (g) What size holding will be encouraged? (h) Does the project incorporate local institutions and use them to further the project? (i) Does the project have sufficient authority to keep its accounts in order and to make disbursements promptly? Etc. 2. Social importance A scrutiny of the social aspect will help examine carefully the broader social implications of proposed investments. In the past, the introduction of high-yielding seed varieties and fertilizers, coupled with the easy availability of tractors, has led to displacement of tenant farmers and has forced them into the ranks of the urban unemployed. A series of questions could be asked in this regard. (a) Can the project be designed to minimize such effects, or be accompanied by policy changes that will? (b) . In some areas the introduction of mechanical equipment or of cash crops has deprived women of work they needed to support their children. Will a proposed project have such an adverse effect on the income of working women and their families? Etc.

3. Commercial importance On the output side, careful gathering and appraisal of information will help analyze whether the proposed market for the project's production is essential to ensure that there will be an effective demand at a remunerative price. The following questions can therefore surface: (a) (b) (c) (d) (e) (f) Where will the products be sold? Is the market large enough to absorb the new production without affecting the price? If the price is likely to be affected, by how much? Will the project still be financially viable at the new price? What share of the total market will the proposed project supply? Are there suitable facilities for handling the new production? Etc.

4. Financial importance In agricultural projects the participants include farmers, private sector firms, public corporations, project agencies, and perhaps the national treasury. For each of these, separate budgets must be prepared. On the basis of these budgets, judgments are formed about the project's financial efficiency, incentives, creditworthiness, and liquidity. A major objective of the financial analysis of farms is to judge how much farm families participating in the project will have to live on. (a) What will be the probable change in farm income? (b) What will be the timing of this change? (c) How likely price changes or fluctuations that could affect farm income are severely enough that farmers will refuse to run the risk of participating in the project? (d) What will be the effect of subsidy arrangements on farm income, and what changes in government policy might affect the income earned by farmers? (e) Will new subsidies be needed to provide sufficient incentive for the project to proceed? (f) Will they have capital for expanding facilities? (g) Will they have the working capital needed to carry inventories of farm supplies or stocks of processed goods awaiting sale? Etc. 5. Economic importance The economic aspects of project preparation and appraisal require a determination of the likelihood that a proposed project will contribute significantly to the development of the total economy and that its contribution will be great enough to justify using the scarce resources it will need The financial and economic analyses are thus complementary-the financial analysis takes the viewpoint of the individual participants and the economic analysis that of the society. The techniques of economic analysis will help identify those projects that make the greatest contribution to national income.

6. Technical importance The technical analysis will examine the possible technical relations in a proposed agricultural project: the soils in the region of the project and their potential for agricultural development; the availability of water, both natural (rainfall, and its distribution) and supplied (the possibilities for developing irrigation, with its associated drainage works); the crop varieties and livestock species suited to the area; the production supplies and their availability; the potential and desirability of mechanization; and pests endemic in the area and the kinds of control that will be needed. On the basis of these and similar considerations, the technical analysis will determine the potential yields in the project area, the coefficients of production, potential cropping patterns, and the possibilities for multiple cropping. The technical analysis will also examine the marketing and storage facilities required for the successful operation of the project, and the processing systems that will be needed.

CONCLUSION In regards of all that has been said, it is evidently revealed that project preparation and appraisal play a central role in a project life cycle. It allows to see whether it is worthwhile investing or carry on with the project highlighted in the course of the identification phase by looking the overall costs and benefits of the project both at the individual and national level

References
Gittinger, J.P (1994).Economic Analysis of Agricultural Projects. Second Edition: The John Hopkins University Press, Baltimore and London. Pg505. Reddy, S.S and P.R.Ram (1996).Agricultural Finance and Management. Oxford and IBH Publishing Co.PVT.LTD, New Delhi. Pg 256. Reddy, S.S , P.R.Ram,T.V.N.Sastry and I.B.Devi (2004).Agricultural Economics. Oxford and IBH Publishing Co.PVT.LTD, New Delhi.Pg 646.

DEPARTMENT OF AGRICULTURAL ECONOMICS AND RURAL SOCIOLOGY, FACULTY OF AGRICULTURE, AHMADU BELLO UNIVERSITY, ZARIA SESSION 2011-2012

COURSE: AGRICULTURAL PROJECT ANALYSIS

ASSIGNMENT 1: DISCUSS PROJECT PREPARATION AND APPRAISAL AS IMPORTANT COMPONENTS OF THE PROJECT CYCLE.

PREPARED BY: BALA MOHAMMED-MSC/AGRIC/5717/2011-2012 SIEWE FRANCOIS-MSC/AGRIC/5174/ 2011-2012 ADO YAKUBU-MSC/AGRIC//2011-2012

SUMMITTED TO PROF. M.A.SANNI ON NOVEMBER 2012