THE INTERNATIONAL FUND
FOR AGRICULTURAL
DEVELOPMENT (IFAD)

BACKGROUND:

The International Fund for Agricultural Development (IFAD) is the first international institution established exclusively to provide additional resources for agricultural and rural development in developing countries and to channel those resources to the poorest rural populations in Africa, Near East and North Africa, Asia, and Latin America and the Caribbean that suffer from chronic hunger and malnutrition.

CREATION

IFAD was one of the major initiatives of the World Food Conference, held in Rome in 1974, following two years of negotiations. The agreement establishing the fund was adopted by 91 governments on 13 June 1976 and was opened for signature or ratification on 20 December 1976, following attainment of the target of us$1 billion in initial pledges. The agreement came into force on 30 November 1977.

PURPOSES

The objective of the fund is to mobilize additional resources to be made available on concessional terms to help developing countries improve their food production and nutrition. The fund is unique in that its projects are focused exclusively on agricultural development, concentrating on the poorest sections of the rural populations in developing countries. It deals with all aspects of agriculture, including crops, irrigation, agricultural credit, storage, livestock, and fisheries.

The UN Social Summit in Copenhagen agreed in 1995 that each member country would devise a program to halve the incidence of "dollar poverty" between 1995 and 2015. In 1996 OECD agreed to set their country-specific aid into the context of these national programs. Rural areas of developing countries contain over 75% of the world's dollar-poor. Therefore, policies for the reduction of rural poverty must make a large contribution if the poverty reduction target is to be achieved.

MEMBERSHIP

IFAD had a total of 164 member nations in 2006, compared with 91 at the time of its establishment. In February 1997, all member states were reclassified as follows: Category I (developed countries) were reclassified as List A countries; Category II (oil-exporting developing countries) reclassified as List B countries; and Category III (other developing countries) reclassified globally as List C Countries. In 2002 there were 23 List A countries, 12 List B countries, and 129 List C countries.

STRUCTURE

IFAD is a new kind of institution in the UN system. The governing bodies that supervise its operations reflect an innovative formula that brings together the interests of industrialized countries. As an action-oriented organization, the fund normally works by consensus rather than by voting. Originally there were 1,800 votes, distributed equally among each of the three categories (600). Under a new system, of the 1,800 votes, 790 are membership votes divided equally among all members. After subtracting the membership votes from the original 1,800 votes, the remaining 1,010 contribution votes are distributed among members in accordance with their paid share of cumulative convertible currency contributions. The 790 membership votes are redistributed each time a new member joins IFAD.

The three main organs are the Governing Council, the Executive Board, and the secretariat, headed by a president.

In 2002, IFAD's professional staffnumbered 134 and general service staffnumbered 181.

Governing Council

The highest governing body of the fund is the Governing Council, which meets once a year and on which all members are represented by a governor and an alternate governor. The council adopts the fund's budget, approves the applications of new members, and elects the president of the fund and members of the Executive Board.

Executive Board

The Executive Board, composed of 18 members and 18 alternates, oversees the operations of the fund, including its investments and work program. The board holds three sessions a year.

President and Secretariat

The president of the fund, elected for four years, is responsible for its management. He is chairman of the Executive Board and heads the secretariat. Lennard Båge of Sweden was elected in February 2001 and reelected for a second four-year term in February 2005. The fund's headquarters are located at 107, Via del Serafico 00142 Rome, Italy.

BUDGET

During 1996–97, IFAD developed a strategy to streamline budget formulation. An internal reorganization made a considerable contribution to cost-effectiveness, reducing administrative costs by over 23% during the period 1993–97 (while the loan volume over the same period increased by approximately 20%). The program of work for 2005 was us$500 million. As of 2005, IFAD had 192 ongoing programs and projects worth a total of us$6.1 billion.

ACTIVITIES

A. Loans and Resources

The first project loans were approved by IFAD's Executive Board in April 1978. At the end of the three-year period, 1978–80, the fund's cumulative commitments amounted to nearly us$900 million in loans and grants for some 70 of its developing member states.

For the period 1981–83, IFAD expanded its operational program. By 1983, IFAD's total financial commitments since April 1978 exceeded us$ 1.4 billion for projects and programs in some 80 member countries in Africa, Near East and North Africa, Asia, and Latin America and the Caribbean. By mid-1987, IFAD had extended loans totaling us$ 2.3 billion to 89 developing countries to finance 204 projects. From 1978 to 2002, IFAD financed 617 projects in 115 countries, committing us$ 7.7 billion in loans and us$ 31.9 billion in grants. These assisted 47 million rural poor households, equivalent to 257 million people. Loans were extended to lower income countries at highly concessional terms, repayable over 40 years, including a grace period of ten years and a 0.75% service charge per annum.

The first replenishment of IFAD resources was unanimously approved by the fund's Governing Council in January 1982. Member countries offered to provide contributions totaling us$ 1 billion for the period 1981–83, including us$ 620 million from List A (developed) countries, us$ 450 million from List B (oil exporting developing) countries, and us$ 32 million from List C (other developing) countries.

In 1986, the Governing Council agreed on a second replenishment of IFAD's resources totaling us$ 488 million, of which List A countries pledged us$ 276 million; List B countries, us$ 184 million; and List C countries, us$ 28 million. In 1990, the Governing Council agreed on a third replenishment. Member countries offered to provide contributions totaling us$ 567 million of which List A countries pledged us$ 378 million; List B countries, us$ 124 million, and List C countries, us$ 65 million. A fourth replenishment, totaling us$ 470 million, began in February 1997. Of this, us$ 419 million was pledged as of 9 December 1999. A fift h replenishment, totaling us$ 473 million, covered the period 2001–03. Over the IFAD V period, donor contributions covered 46% of IFAD's total resource needs, and the rest were met through reflows from past loans (49%) and investment income (5%). A seventh replenishment was being prepared in 2005.

B. Lending Policies and Operations

IFAD loan operations fall into two groups: projects initiated by the fund and projects cofinanced with other financial and development institutions. IFAD-initiated projects are those for which the fund has taken the lead in project identification and preparation and in mobilizing additional resources from other financial agencies where necessary.

Most of IFAD's assistance has been provided on highly concessional terms—loans repayable over 50 years with a 10-year grace period and an annual service charge of 1%. About one-quarter of

the loans are repayable over 20 years at 4% annual interest, while a few have been offered at 8% over 15–18 years. However, at its 17th session of January 1994, the Governing Council adopted a resolution which amended the lending terms and conditions for the first time since the fund's establishment.

In the future, those developing members countries having a Gross National Product (GNP) per capita of us$ 805 or less in 1992 prices, or which qualify for loans from the World Bank's "soft loan" agency, the International Development Association, will normally be eligible to receive loans from IFAD on highly concessional terms. Loans on highly concessional terms will be free of interest but will bear a service charge of 0.75% per annum and have a repayment period of 40 years, including a grace period of 10 years. The total amount of loans provided each year on highly concessional terms will be approximately two-thirds of the total lent annually by IFAD.

IFAD loans represent only a part of the total project costs; the governments concerned contribute a share. In most of its projects, IFAD has cooperated with the World Bank (IBRD and IDA); the African, Asian, Inter-American, and Islamic development banks; the Arab Fund for Economic and Social Development; the Central American Bank for Economic Integration; the World Food Programme; the EU; OPEC; and other multi-institutions.

IFAD, while seeking to preserve an appropriate balance in its regional allocations, also has attempted to respond to the special needs of the 74 low-income, food-deficit countries. Well over 80% of the fund's loans were channeled to these countries in the 1978–95 period. The regional shares of IFAD-supported projects approved between 1978–95 under both regular and special programs were: Africa (sub-Sahara), 41%; Asia and the Pacific, 26%; Latin America and the Caribbean, 16%; and Near East and North Africa, 16.4%.

In January 1986, IFAD, as the first international financial institution to respond to the socioeconomic crisis in sub-Saharan Africa, in the wake of the disastrous droughts and famines of 1983–85, launched the Special Programme for Sub-Saharan African Countries Affected by Drought and Desertification (SPA), with a target for resource mobilization of us$ 300 million. This target was outrun by contributions reaching us$ 322.8 million from five developing countries and the European Community.

The program aims to restore the productive capacity of small farmers, promote traditional food crops mainly grown by small-holders, and initiate small-scale water control schemes, in addition to recommending measures for environmental protection and providing assistance to governments in regard to policy.

By January 1993, a second phase of the program became effective. While it preserves the focus of the first phase, it extends its conceptual frame and operational scope. Specifically it carries environmental and soil conservation objectives from on-farm to off-farm (particularly in the common property resource domain), and addresses overall coping strategies of households and communities through economic diversification. New commitments in 2001 totaled us$ 405 million for 25 loans averaging us$ 16 million each.

In selecting an area of a country for assistance, IFAD determines whether the area is geographically or functionally isolated from the rest of the national economy; the extent to which its population has a lower average per capita income than the national average; the degree to which the area is food-deficient; whether it has relatively inadequate delivery systems and infrastructure in comparison with the rest of the country; and the proportion of poverty—for example, the proportion of landless—in comparison with other rural areas. In terms of impact, IFAD's projects, at full development, will help some 30 million poor rural households out of hunger and poverty.

C. Technical Assistance

IFAD provides grant financing for technical assistance in project preparation, institutional development, agricultural research, training, and other activities which support the fund's activities.