US embassy cable - 05MANAGUA2097

UNCLAS SECTION 01 OF 03 MANAGUA 002097 
 
SIPDIS 
 
AIDAC 
 
AID FOR PEBALAKRISHNAN/FRVIGIL/AMOUSHEY, DCHA/FFP/DP, 
RKAHN, LAC/CEN, AWAHAB, LAC/RSD 
 
E.O. 12958: N/A 
TAGS: EAID 
SUBJECT: USAID/NICARAGUA CONCURRENCE CABLE ON 
PROJECT CONCERN INTERNATIONAL (PCI) FY 2006 
DEVELOPMENT ASSISTANCE PROGRAM AMENDMENT 
 
Summary.  PCI submitted the second phase of the 
Development Assistance Program (DAP) amendment 
to USAID Nicaragua on March 28, 2005.  The 
first phase of the DAP amendments for Nicaragua 
incorporated the Coffee Relief Activity into 
the DAPs.  For the second phase, the partners 
are proposing programmatic adjustments to the 
DAPs including a request for a two year 
extension.  USAID Nicaragua concurs with PCI's 
request to extend the program until 2008 for 
the reasons listed below.  End Summary. 
 
1.  DAP extension and program adjustment for 
phase two of the DAP amendment.  With the 
results and recommendations from the Food Aid 
Program and Policy Assessment for Nicaragua, 
the credit component review and the Nicaragua 
Title II program mid-term evaluation, the Title 
II Cooperating Sponsors will make adjustments 
to the DAPs to target the most vulnerable 
groups through an efficient and effective 
program and extend the program until 2008 to 
coincide with USAID/Nicaragua's Country Plan 
and the Central America and Mexico Regional 
Strategy. 
 
2.  Program design and progress to date.  The 
Nicaraguan Title II food aid program focuses on 
increasing food availability, food access and 
food utilization.  The main components are to 
link small farmers to markets (Agriculture) and 
to improve maternal-child health and nutrition 
(Health).  There are four PVOs implementing the 
program in Nicaragua: ADRA, CRS, PCI, and SCF. 
All of them carry out both agricultural and 
health activities. 
 
2.1.  Agricultural activities focus on 
increasing the production of high-value, non- 
traditional crops, basic grains production, 
increasing higher levels of marketing and 
processing of products and promoting 
irrigation, storage, reforestation and soil and 
water conservation practices.  As of September 
2004, there were 892 farmers working with the 
agricultural team in new technological 
activities such as production of non- 
traditional crops using certified seeds, and 
irrigation systems. 
 
2.2.  Health activities focus on integrated 
management of common illnesses, improving 
prenatal and postpartum care and strengthening 
the relationship between target communities and 
the local government health facilities.  The 
number of beneficiaries under the MCH component 
for FY 2004 is 3,564. 
 
2.3.  The productive component of the DAP is 
helping to increase the competitiveness of 
smallholder farmers given the challenges and 
opportunities posed by the US-Central American 
Free Trade Agreement (CAFTA).  As the majority 
of problems facing smallholder producers lie in 
the marketing system, increasing the 
competitiveness of small holder farmers by 
linking smallholder production to market demand 
is essential preparation for CAFTA.  PCI has 
114 beneficiaries under this component who had 
sales that totaled US $ 297,442.60 in FY 2004. 
 
2.4.  The marketing component complements the 
agriculture activities by facilitating linkages 
between farmers and major national and 
international buyers. Furthermore, the Title II 
partners promote the formation of cooperatives 
so that the farmers sell at higher prices and 
volumes and to ensure sustainability once the 
DAPs come to an end.  Higher prices and income 
improve household food security by allowing 
beneficiaries to be able to buy their own food 
supplies. 
 
3.  Program extension.  The PCI DAP will 
consolidate efforts directed to increasing 
incomes and reducing the incidence of 
malnutrition in up to 6 municipalities in the 
Department of Jinotega.  In addition, it will 
aim at strengthening local capacities, reducing 
resilience to shocks and preparing small-scale 
farmers to compete in regional and 
international markets. 
 
3.1.  The DAP amendments for the Nicaraguan 
Title II programs include the following: 1)  A 
two-year extension in the program with 
additional funds (FY 2007-2008); 2) 
Improvements in the program to broaden their 
impact and ensure sustainability; 3) 202 (e) 
funds request; and 4) Development Assistance 
(DA) funds request in FY 06. 
 
3.2.  Regarding the DA funds request in FY 06, 
the Mission will modify the Title II partners 
Transfer Authorization (TA) to create a Hybrid 
TA.  The purpose is to enhance the agriculture 
and marketing components should a need arise to 
scale up efforts to assist small-scale farmers 
as a result of the passage of CAFTA.  The 
Mission is in favor of having a Hybrid TA 
because it will provide flexibility for the 
Mission to add DA funds to the DAP program in 
the remaining fiscal years.  This is subject to 
funds availability. 
 
4.  Issues letters.  The issues letters were 
sent by FFP Washington so that the partners 
could clarify or respond to questions raised 
after the second phase of the DAP amendments 
were received. The letter sent to PCI included 
threshold and non threshold issues.  Threshold 
issues focused on the following topics: DA 
mission funding, Sustainability Plan for the 
Micro finance component, 202 (e) funding, ITSH 
funding, warehouse rent, Exit Strategy, FFW 
activities and detailed budget.  Non threshold 
issues focused on the following subjects: 
Gender strategy, Gender Methodology Diagnosis, 
Collection and Packaging centers sustainability 
strategy, 14 month bonus budget line item, 
outline of the budget of the monetization 
consortium. 
 
4.1.  Responses to threshold issues.  PCI's 
responses to USAID Mission and USAID Washington 
threshold issues are: PCI is requesting 
$250,000 in DA funds to strengthen the 
agricultural component; PCI revised the funding 
levels to meet FFP policy for 202 (e) funding; 
PCI took ITSH funding out of the budget; PCI 
provided an explanation on the reason they have 
a warehouse rent line item; PCI detailed how 
they will implement an exit strategy for both 
the Health and the agricultural components; PCI 
mentioned that they will continue working on 
road rehabilitation under their FFW component; 
and PCI provided a revised detailed budget. The 
Mission feels that the above mentioned issues 
were properly addressed by PCI. 
 
4.2.  Responses to non threshold issues.  PCI's 
responses to USAID Mission and USAID Washington 
non threshold issues are:  PCI stated that all 
the DAP partners have worked on gender issues 
and came up with a set of indicators; PCI will 
pay for a gender methodology diagnosis in order 
to have a full gender strategy; PCI will 
include the sustainability plan for the 
collection and packaging centers when they 
submit the micro credit sustainability plan; 
PCI explained that the Ministry of Labor states 
that the 14 month is part of the compensation 
that employees receive in Nicaragua once their 
contracts end.  All the other partners are 
required by law to budget for this item; and 
PCI outlined the amounts they are receiving for 
the administration of the monetization sales. 
The Mission feels that the above mentioned 
issues were properly addressed by PCI. 
 
5.  Micro credit sustainability plan.  Sixty 
days after the Transfer Authorization is 
signed, PCI and the other Title II partners 
will submit the micro credit sustainability 
plan. 
 
6.  Bellmon Certification.  The Bellmon 
Analysis was updated in January 2005.  The 
Mission Director certified that there will be 
adequate storage and transportation available 
in Nicaragua at the time of arrival of Title II 
commodities to prevent the spoilage or waste of 
these commodities.  The Mission Director also 
certified that the distribution or sale of 
these commodities in the case of Title II 
monetization will not result in a substantial 
disincentive to, or interfere with, domestic 
production or marketing in Nicaragua. 
 
7.  Usual Marketing Requirement (UMR).  The UMR 
for wheat products to Nicaragua has been 
established at 48,300 metric tons (MT) and the 
maximum for U.S. programming at 101,000 metric 
tons (MT).  Under the joint monetization 
arrangement, ADRA, CRS, PCI, and SCF currently 
plan to monetize a total of 27,050 Metric Tons 
(MT) of Northern Spring (NS) wheat in FY 2006 
to fund the activities proposed in their DAPs. 
 
8.  Cooperating Sponsors Capacity.  PCI has 
demonstrated adequate technical, financial and 
managerial capability to design, implement and 
monitor the FY 2002-2008 DAP.  The DAP explains 
how PCI's headquarters, international and 
regional personnel will adequately backstop 
PCI/Nicaragua during the implementation of the 
DAP. 
 
9.  Funding levels recommendation. 
USAID/Nicaragua recommends that the FY 
2002-2008 PCI Title II DAP be funded in FY 2006 
at the following levels (Tonnage and section 
202 (e) levels): 
 
Commodities are in Metric tons as requested in 
Lines 8 and 17 of the FY 2006 Annual Estimate 
of Requirements (AER) of the DAP. 
 
Commodity                Line 8    Line 17 
Corn Soy Blend (CSB)        731        970 
Vegetable Oil 4Lt.can       139        150 
Long grain rice             330        320 
Red beans, small            330        330 
Total Metric Tons         1,530      1,770 
NS Wheat (monetization)   6,650      6,650 
 
Section 202 (e) Level for FY 2006: US Dols 
180,237 
 
10.  Environmental Compliance Documentation: 
PCI submitted the following documents as part 
of the Environmental Appendix: Environmental 
Compliance Facesheet; Pesticide Evaluation 
Report and Safe Use Action Plan (PERSUAP); 
Title II Environmental Status Report Facesheet; 
and Environmental Monitoring Plan.  The Mission 
has reviewed and cleared this Environmental 
Appendix. 
 
11.  Host Country FFP Agreement.  The Mission 
Director certifies that PCI can satisfactorily 
operate a Title II program in Nicaragua in the 
absence of a host country Food for Peace 
Agreement.  The Mission Director also certifies 
that the commodities brought in under the Title 
II program for direct distribution will be free 
from duties and taxes, and the interests of the 
USG can adequately be looked after and 
protected. 
12.  USAID/Nicaragua has reviewed the PCI DAP 
amendment and finds it to be consistent with 
the food security needs of Nicaragua, 
USAID/Nicaragua development priorities, and 
USAID's Food Aid and Food Security Policy 
Paper.  The documentation satisfactorily 
reflects guidance from FFP on the submission of 
DAP Amendments. 
BRENNAN