Mexico - Third Livestock and Agricultural Development Project

RESTRICTED FILE COPY Report No. P--924 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. OF MEXICO WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR THE THIRD LIVESTOCK AND AGRICULTURAL DEVELOPMENT PROJECT April 29, 1971  CURRENCY EQUIVALENTS US$1 Mex$ 12.5 Mex$ 1 US$0.08 Mex$ 1 milli m = US$80,000  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECO1NMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINAMCIERA, S.A., OF MEXICO FOR A LIVESTOCK AND AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to $75 million to Nacional Financiera, S.A., to assist in financing a two-year program of credits for livestock and agricultural develop- ment in I1exico to be administered by the Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (FONDO), which is managed by the Bank of Mexico. The loan, which would be guaranteed by the United Mevican States, would be for a 20-year term, including rather over four years of grace, with interest at 7-1/4 percent. The loan would be used mainly to rediscount medium and long-term credits extended to farmers and agro-industrial enterprises by private credit institutions and the state-owned Banco Nacional Agropecuario (BNA). 2. The status of previous loans to Mexico is summarized in Annex I. An economic report on Mexico (CA-6a) was distributed to Executive Directors on December 7, 1970. An appraisal report on the proposed project (PA-82a) is being distributed separately. Country and loan and project data sheets are attached hereto as Annexes II and III. PART I - COUNTRY CONSIDERATIONS 3. Mexico has so far received $978.4 million in loans from the Bank, net of cancellations, and in terms of effective loans held by the Bank is now the Bank's largest borrower, although it may shortly be overtaken by Brazil. The undisbursed balance of effective loans at the end of March 1971 was $167.8 million. Over half of all lending to date has been for electric power, one quarter for transport and the remainder for irrigation and agriculture, including two previous loans similar to the one now proposed. The most recent loan, for highways, was signed in June 1970. No other loan will be presented to the Executive Directors during the current fiscal year, but substantial lending is being considered for FY72, including a further power loan and loans for tourism, industrial credit, railways and ports. The railway and port operations would be a sequel to the study of the transport sector which the Bank carried out at the Government's request last year. This study will be distributed to the Executive Directors in the near future.  -2- 4. Execution of Bank-financed projects in Mexico has been satisfactory on the whole. Bank lending has played an important role over a period of more than 20 years in strengthening the power sector and consolidating its management and finances. The one disappointing aspect of the Bankss association with the power sector has been the long delay in implementing the program for unification of frequencies in and around Mexico City, physical work on which is now to begin towards the end of 1971. Apart from power, there have been some delays in construction of highway and irrigation projects. In addition, the economic returns on one irrigation project in the north-east, financed under Loan 336-ME, are lower than expected as a result of the elimination of cotton production because of a price decline and problems of pest and disease control. 5. IFt's total commitments to Mexico had reached $30.5 million by March 31, 1971, consisting of $8.0 rillion of operational invest- ments and $22.5 million of standby and underwriting commitments in eight enterprises. From these commitments the Corporation still held $3.8 million on that date, consisting of $2.1 million in loans and $1.8 million in equity. IFC is considering several new projects in Mexico, including an investment in the production of newsprint from bagasse and a loan to Celanese Hexicana. 6. Mexico has demonstrated a remarkable capacity for economic growth, GDP having increased over the past 20 years at an average rate of 6 or 7 percent a year. Since 1966, however, there has been a serious worsening of the balance of payments, with a current account deficit reaching around $850 million in 1970 as a result of rising imports and a slow-down in export expansion. This deficit has been partly financed in recent months by a large inflow of short-term private capital attracted by relatively high interest rates, but there has also been an upward trend in medium and long-term borrowing abroad by the public sector. Total public external debt (excluding maturities of less than one year) had risen by the end of 1970 to around $3.9 billion. The resulting debt service ratio (24 percent in 1970) is one of the highest amongst developing countries, although as a proportion of GDP both debt outstanding and debt service have remained more or less constant over the past six years. The rise in external indebted- ness has been linked with an insufficiency of public savings, and as the economic report points out, unless more is done to increase both domestic savings and exports, the growth of the economy will have to be slowed down in order to protect the balance of payments. At the same time, Mexico is confronted with difficult long-term problems arising from rapid population growth, sharp inequalities in the distribution of income and extensive poverty, especially in rural  -3- areas. Little up-to-date information is available on income distribution and employment, but approximately 40 percent of the population is engaged in agriculture, which generates only about 12 percent of GDP. 7. A new Mexican Administration, headed by President Luis Echeverria Alvarez, took office last December for a six-year period and has since been actively engaged in attacking the economic problems inherited from the previous Administration. One of the first acts of the new Administration was to introduce additional taxes estimated to yield the equivalent of $180 million in 1971 (0.6 percent of GNP), of which two-thirds would come from taxes on mineral waters and beer and the rest from changes in income tax, special import duties and taxes on manufactured tobacco and alcohol. Tax enforcement has been strengthened, and special measures have been taken to discourage contraband trade. Sugar prices have been raised so as to reduce the subsidy to consumers, and attention is now being concentrated on the possibilities for increasing prices charged by public enterprises, particularly petroleum prices, railway tariffs and water rates. An increase in power rates is also likely to be needed this year. 8. High priority is being given to phased programs for reorganizing the management, operations and finances of the railways and ports, broadly along the lines recommended by the Bank's transport mission. The Government is particularly concerned to reduce the operating deficit of the railways which reached over $100 million in 1970, mainly as a result of heavy losses on passenger operations, and required a further $100 million in government support to service past debts and meet new investment outlays. 9. Monetary and credit policies have been directed to restraining the expansion of credit and channelling more of the credit available to essential uses. The authorities have been concerned to prevent the inflow of "hot money" from abroad from leading to an excessive expansion of consumer demand and particularly demand for imports. The maximum rate of interest payable on deposits by "financieras" has been reduced from 11 percent to 10 percent,with a corresponding reduction in the average interest rates which they are allowed to charge, and the reserve requirements of commercial banks and "financieras" have been substan- tially increased. The Bank of Mexico has also been urging the private banks to provide credit on preferred terms for popular housing, to give more help to small businesses, to finance the purchase of shares by small and medium investors, to lend to students for higher education, and generally to broaden the distribution of credit in favor of groups and regions which have been largely neglected by the banking system in the past.  -4- 10. Exports have been made one of the top national priorities. Fiscal incentives for export have been extended through increased rebates of import duties and domestic taxes, an Institute of Foreign Trade has been established, and the Bank of Mexico is looking to the World Bank for assistance in creating a special fund to extend medium and long-term loans on preferred terms to finance the development of export industries. Particular emphasis has been placed on the need for increased production and exports of cotton, and a program has been initiated involving expanded credit, better crop insurance, a supply of cheap labor, the relaxation of restrictions on imports of certain chemicals and increased technical assistance for cotton growers. The promotion of tourism also continues to receive special attention from the Bank of Mexico which is developing new resort areas at Cancun on the coast of Yucatan (with assistance from the Inter-American Devel- opment Bank) and at Zihuatanejo on the Pacific coast, where a project is at present being appraised by the World Bank. 11. President Echeverria has been placing considerable emphasis in his speeches on the need for social reforms, improvements in rural conditions and the more equitable distribution of income. The Govern- ment has not yet, however, worked out specific measures for dealing with these problems. The whole public investment program is under review, and a new six-year program should be completed this summer, in detail for the first two years and in outline for the remaining four. Meanwhile, public investment has been cut back to protect the balance of payments, and 1971 and 1972 are seen as years of "consolidation" during which every effort will be made to hold down public expenditures, particularly those with a high foreign exchange component - if necessary, with some sacrifice of economic growth. There is a new emphasis on economy and efficiency in the public sector, and an effort is being made to coordinate economic policy decisions and to exercise closer control at the center over the activities of agencies such as the state petroleum enterprise, the Federal Power Commission, the Federal District and the M4inistry of Public Works. 12. One sphere of activity in which greater coordination and control are already evident is external borrowing. A committee on public borrowing has been set up consisting of the Director of Public Credit, a representative of the Bank of Mexico and the financial directors of the entities which have traditionally looked abroad for financing, and the Ministry of Finance is taking a much closer interest than in the past in the financing plans of these entities. To help meet their external financial requirements the Government has  -5- recently arranged a $100 million loan from a group of European, North American and Japanese banks; this will be for a term of eight years, including five years grace, wfith a variable rate of interest at 1-1/A percent above the rate for six months inter-bank money in London (the rate applicable. for the first six months is 7-1/2 percent). 13. A Bank economic mission now in Mexico is taking a fresh look at the country's economic prospects, its likely external financial requirements over the next few years and its capacity to service additional external debt. The energetic way in which the new Government has set about the tasks of increasing public savings and exmorts affords grounds for confidence that Mexico will succeed in maintaining a satisfactory rate of economic growth, while keeping its external debt within manageable proportions. Provided that the Government continues to follow sound policies with respect to internal resource mobilization and external debt management, I consider that the Bank would be justified in substantially increasing its lending to Mexico. The loan now under consideration, together with previous loans for power, highways and irrigation, should contribute towards a rising flow of Bank disbursements which have averaged just over $70 million a year during the past three fiscal years and are projected to increase well above $100 million a year in FY71 and FY72. PART II - THE PROJECT 14. The proposed livestock and agricultural development project is a continuation and elaboration of the projects previously financed under Loans 430-ME (for $25 million in 1965) and 610-ME (for $65 million in 1969). The first of these loans was fully disbursed by December 1968, ahead of schedule, and the second also has been disbursed more rapidly than foreseen at the time of the appraisal, with nearly all the money now committed and disbursements to date approximately 70 percent higher than projected. The objective of all three projects is to expand Mexico's livestock and agricultural production by: (a) increasing the flow of medium and long-term credit into agriculture; (b) encouraging private banks toward medium-term lending for agriculture, which they have traditionally shunned largely because of lack of experience; (c) expanding the processing of agricultural and livestock products; and (d) providing technical services to producers. An additional feature of the new project would be the financing of rural works and infrastructure designed to serve groups of small farmers and cattle owners.  -6- 15. Agriculture provides a livelihood for 40 percent of Mlexicols population and accounts for more than 50 percent of export earnings and almost 95 percent of domestic food consumption. Through improve- ments in agricultural methods and expansion of acreage under cultivation lMexico's agricultural output has almost doubled during the last 15 years. Continuing rapid increases in agricultural output are still needed, however, to meet domestic needs and for export. The nutritional intake of many Mexicans, particularly in rural areas, is still inadequate, especially in animal proteins. To the extent that the Government succeeds in alleviating poverty and bringing about a more equal distribution of income, the demand for food can be expected to rise quite rapidly. In addition, further increases in agricultural exports are required to help relieve the foreign exchange constraint on the growth of the economy. 16. The capital investment envisaged under the new project amounts to approximately $190 million, excluding working capital which would be financed from domestic sources. About 15 percent of the capital expenditures would be financed by farmers and ranchers (20 percent in the case of agro-industrialists), 16 percent by participating banks, 39 percent by the Bank and 30 percent by the FONDO; the latter's contribution would be provided by the Bank of Mexico (generally from the proceeds of "cattle bonds" which banks in the Federal District are required to purchase) and by the Government. Of the proposed loan of $75 million, it is presently estimated that $42.5 million would be used for livestock development, $18.5 million for annual crops, $6.0 million for perennial crops, $4.5 million for agro-industries, $2.0 million for infrastructure and $1.5 million for technical services. 17. The terms of loans to ultimate borrowers, and the terms on which these loans would be rediscounted by the FONDO, would vary with the size of the loans. For loans up to 250,000 pesos ($20,000) the interest rate would be 10 percent and for larger loans 10.5-11 percent, with a 1 percent appraisal fee in addition for loans to agro- industries exceeding 1,500,000 pesos. Rediscount rates would range from 7 to 8.5 percent, providing the participating banks with a 3 percent spread, except on loans in excess of 2,500,000 pesos, where the spread would be 2.5 percent. The proportion of loans eligible to be rediscounted would range from 90 percent on loans of less than 250,000 pesos by small banks down to 70 percent on loans in excess of 500,000 pesos. The rediscount structure, which has been slightly modified from the previous loan, is designed to encourage participating  -7- banks to put more of their own money into the project and to give priority to smaller loans, while still giving them adequate margins to cover all risks except the foreign exchange risk which is borne by the Government. 18. The average size of loan has in fact decreased from 185,300 pesos ($14,800) under the first project to 133,800 pesos ($10,700) under the second. Bank lending through the FONDO has nevertheless been intended to benefit mainly farms producing for the market, where the best prospects exist for increasing production in the medium term, rather than the subsistence farmers and ejidos (land reform communities). To some extent the FONDO is taking care of the needs of smaller farmers through a parallel credit program for which it has been obtaining external assistance on concessionary terms, initially from USAID and more recently from the Fund for Special Operations of the Inter-American Development Bank. The first IDB loan for this purpose, in an amount of $20 million, was approved in 1968 and a second, for $32 million, is now being negotia- ted. The interest rate on both loans is 3 percent, while the rate on sub-loans is being increased from 7 percent on the first project to 7.6 percent on the new one. The sub-loans under the IDB project are limited for the most part to borrowers with an annual gross income of not more than $8,000 equivalent, and there is a maximum of $12,000 equivalent for any one loan. Under the IBRD projects there is no minimum specified either for sub-loans or for farmers' incomes, and approximately 80 percent of all sub-loans to date have been for amounts of $20,000 equivalent or less. 19. The Mexican authorities have not as yet developed an effective program for tackling the related problems of rural poverty and low productivity in subsistence agriculture, and the credit programs of the FONDO have never been directed to dealing with these problems to any significant extent. Nor has Mexico requested external financial assistance for projects specifically designed to attack these problems. However, the new Government has indicated its intention of concentrating more resources on stimulating agricultural production in the central plateau iwhere rural poverty is concentrated, and the Bank economic mission now in Mexico is exploring the possibili- ties for future IBRD assistance in this field.  -8- 20. The organization of the FONDO, which has been strengthened considerably under the first two projects, is reasonably well equipped to appraise and supervise projects and extend technical assistance. Some further organizational changes now proposed, particularly the establishment of five new regional offices, will help in adjusting the FONDO's structure and operations to the rapidly increasing lending volume and in strengthening the technical services available to farmers under the project. The number of technicians employed by, or approved by, the FOND0 is now approaching 700, as against 500 when the second loan was made. 21. In order to build up the permanent capital of the FOND0, the Government intends to provide the funds necessary to repay the principal on the proposed Bank loan, as under the two previous loans. The FONDO will use the difference between repayments it receives from participa- ting banlcs and the payments of interest and service charges on the Bank loan for further medium and long-term loans to farmers. 22. As under the previous loans for agricultural credit in Mexico, and as is common to most agricultural credit operations, purchase of the equipment financed under the proposed loan will be made by the beneficiaries themselves, who will individually buy quite small quantities of widely diversified products, both foreign and domesti- cally made, through local dealers and distributors. In these circumstances, formal international competitive bidding is not practicable. The Government has undertaken to issue promptly the necessary permits for the import of machinery and equipment required for the project. 23. The proposed loan would cover estimated foreign exchange costs of about $50 million and local costs of about $25 million, following the pattern of the previous agricultural credit operation which also covered a substantial element of local expenditure. In both loans the Bank's financing constitutes less than 40 percent of total project costs, exclusive of working capital. The fact that MIexico has a diversified industrial structure capable of supplying a large propor- tion of its requirements for capital goods, coupled with the high external debt service, results in a need for some local cost financing by international agencies to complement the Government's fiscal and balance of payments efforts. Bank loans in the power, highway and irrigation sectors have traditionally been tied to the foreign exchange costs of projects; in other sectors, where the import component of investment is generally low, I consider some local currency financing to be justified.  -9- 24. The project would have significant effects on national agricultural production and on exports, increasing production by an estimated $200 million a year at full development and exports by about $15 million a year after five years. The estimated rate of return to the economy is about 24 percent and the return on producers' incremental investments ranges from 21 to 32 percent. PART III - LEGAL INSTRUMENTS AND AUTHORITY 25. The draft Loan Agreement between the Bank and Nacional Financiera, S.A., the draft Guarantee Agreement between the United Mexican States and the Bank, the draft Project Agreement between the Bank and Banco de Mexico, S.A., the Report of the Committee provided for in Article III, Section 4 (iii), of the Articles of Agreement and a draft Resolution approving the proposed Loan, are being distributed to the Executive Directors separately. 26. The Loan, Guarantee and Project Agreements generally conform to the patterns of previous agreements in Mexico, particu- larly those for the first and second agricultural credit loans. 27. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART IV - RECOMMENDATION 28. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by J. Burke Knapp Attachments Washington, D.C. April 29, 1971  Annex I MEXICO: SUMMARY OF BANK LOANS AND IFC INVESTMENTS AT MARCH 31, 1971 A. Bank Loans Loan Year Borrower Purpose Amount Undisbursed MUS$ millions) 1949 Loans fully disbursed (less 1965 cancellations) 560.6 336-ME 1963 Nacional Financiera,S.A. Irrigation 12.5 1.8 01-ME 1965 Caminos y Puentes Federales Toll 32.0 1.8 de Ingresos and Nacional Transport Financiera,S.A.(NAFIN) 540-ME 1966 Nacional Financiera, S.A. Irrigation 19.0 4.1 527-ME 1968 Nacional Financiera,S.A. Irrigation 25.0 22.2 528-NE 1968 Nacional Financiera,S.A. Roads 27.5 10.8 544-ME 1968 Comision Federal de Power 90.0 5.8 Electricidad and NAFIN 610-ME 1969 Nacional Financiera,S.A. Agriculture 65.0 21.0 659-ME 1970 Comision Federal de Power 125.0 78.6 Electricidad and NAFIN 695-ME 1970 Nacional Financiera,S.A. Roads 21.8 21.7 Total (less cancellations) 97 Of which has been repaid to Bank and others 205.0 Total now outstanding 773.4 Amount sold: 49.3 Of which has been repaid: 45.8 3.5 Total now held by Bank 769.9 Total undisbursed - B. IFC Investments Original Year Company Purpose Commitment a/ 1958/9 Industrias Perfect Circle,S.A.* Industrial Equipment 800,000 1958 Bristol de Mexico* A/C Engine Overhaul 520,000 1961 Acero Solar, S. A.* Twist Drills 280,000 1962/5/6/8 Comp.Fundidora Fierro y Acero Steel 23,741,411 Monterrey 1963 Tubos de Acero de Mexico Seamless Steel Pipes 1,000,000 1963 Quimica del Rey, S. A.* Sodium Sulphate 750,000 1964/6 Industria del Hierro, S. A. Const. Equipment 1,961,569 1970 MJinera del Norte, S. A. Iron Ore Mining 1,500,000 Total IFC's Commitments 30,552,980 Less: Cancellations 524,321 3-0,028,659 Amounts sold 24,91h,889 Net IFC's Commitments 5,113,770 Less: Repayments 1,263,998 Total held by IFC 3,5h9,772 a None of which is presently undisbursed. NOTE: Investments which have been fully cancelled, terminated, written off, sold, redeemed or repaid are indicated with an asterisk.  Annex II Page 1 of 3 MEXICO: COUNTRY DATA SHEET Area: 2 million square kilometers Population: 50 million (1970) I. ECONOMIC INDICATORS Calendar Years 1960 1968 1969 1970 GDP in current prices (Mex$ billion) 151 338 374 403 Per capita (Us$) 334 572 612 645 Real growth rates (percent) - 8.1 7.2 7.7 Structure of GDP (percent) Agriculture, livestock, forestry, 15.9 12.5 11.8 - fisheries Mining 1.5 1.0 1.0 - Industry (including petroleum and petrochemicals) 20.4 23.9 24,1 - Construction 6.2 7.0 7.1 - Power 1.0 1.6 1.8 - Commerce 31.1 31L8 32.2 - General services 20.5 19.5 19.3 - Other 3.4 2.7 2.7 - Money supply (percent change) - 13.0 10,8 8.8 Prices (percent change) GDP deflator 2.14 3.2 4.0 Mexico City wholesale index 1.-9 2.6 - Public finances (Mex$ billion) Federal Government: current revenues 11,0 26.7 30.2 3401 current expenditures 7,7 21.6 24.4 27.3 current surplus 3.3 5el -579 Federal District (Mexico City): Current surplus O08 1,6 1.6 l7 Decentralized public sector agencies: current surplus 3.6 5.14 6.1 604 Total public sector current surplus 7o7 12.1 1356 1070 a/ Preliminary,  Annex II_ Page 2 of 3 Calendar Years a/ 1960 1968 1969 1970- Public finances (cont.) Capital revenues - 0.7 0.2 Ol1 Publio investment 11L2 23.1 26.9 28.6 Net domestic borrowing 1.7 7.4 8.4 9.4 Net external borrowing 118 33o 4.7 41o Total borrowing 3.T 10.4 13.1 Public investment financed out of non-borrowed resources (percent) 69 55 51 53 Balance of payments (million US$) Exports of goods and non-factor services 1,330 2,453 2,714 2,846 Imports of goods and non-factor services -1,481 -2p648 -2.839 -3 048 Balance before factor income payments - 151 - 195 - 125 - 202 Factor income payments (net) - 160 - 545 - 576 - 645 Balance on current account - 311 - 740 - 701 - 847 Private direct investment (net) - 38 227 249 295 Gross public sector borrowing for investment b 317 751 860 880 Amortization of public sector debts c/ - 172 - 479 - 462 - 560 Other capital flows (net), errors and omissions and changes in reserves 204 241 54 232 Public medium- and long-term debt (niillion US$) Total outstanding (end of period, including undisbursed) 842 3,198 3,511 _ Debt service: Interest 44 144 151 196 Amortization 172 479 462 485 d/ Total service 216 623 613 681 Debt service ratio (percent of exports of goods and non-factor services) 16.2 25.4 22.6 23.5 a/ Preliminary. / Public sector accounts figures. c/ IBRD debt statistics data for 1960, 1968 and 1969; 1970 figure is Mexican public sector aceounts figure, which exceeds Bank projections because it may include roll-overs of less than one year debts, d/ Bank Economic Mission estimate.  Annex II Page 3 of 3 II. SOCIAL INDICATORS Calendar Years 1950 1960 1965 1970 Population growth rate % per year 2.88 3.37 3.51 3142 Urban population growth rate % per year 4.70 5.00 5.70 - Highest quintile income a/ as % total 60 62 b/ 60 c/ n.a, income Lowest quintile income a/ as % total 6 5 b/ 3 c/ n.a. income Primary school enrollment % school age 47 58 66 d/ n.a, population Literacy rate % adult population 56 62 79 n.a. n.a.: not available. a/ Monthly famnily income (money and kind)e b/ 19570 c/ 1963. d/ One-third of the age group only receives more than 1 or 2 years schooling.  Annex III Page 1 of 2 LOAN AND PROJECT DATA SHEET I, LOAN SUMMARY Borrower: Nacional Financiera, S.A. Beneficiary: Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (FONDO). Guarantor: United Mexican States Amount: US$75 million equivalent. The proposed loan wouild fully cover the Projectts estimated foreign exchange component plus almest 18 percent of its local cost requirements, Terms and Conditions: Payable in 20 years with 4 years of grace at 7 1/ percent interest per annum. Rollover of loan pro- ceeds would be used for technically directed medium- and long-term investments as those envisaged under the Project. Disbursement Period: 4 years, estimated at US$26 million the first year, US$36 million the second, US$12 million the third, and US$1 million the fourth. IL, PROJECT DATA Brief Description: Continuation of the technically-directed livestock and agriculture development program of FONDO, hereto- fore assisted by Loans 430-ME for US$25 million (in 1965)and 610-ME for US$65 million (in 1969). Pro- duction-oriented studies in crops and livestock would be undertaken and technical service-to producers would be intensified. Estimated Cost: (US$ Millions) Component Local Foreign Total Livestock 88.0 22.0 110.0 Annual Crops 31.0 17.0 48.0 Perennial Crops 12.0 3.5 155 Agro-industries 6.o 6.o 12.0 Rural Works & Infrastruc- ture 400 0.5 4e5 Total Investment Program 141.0 49.0 190.0 Training & Technical Serv- ices 1.5 1.0 2o5 Total Project Cost 1h2.5 50.o 192.5  Annex III Page 2 of 2 Financing:. Sources Local Foreign Total 1BRD Loan 25.0 50.0 75.G Local Sources: Sub-bor- 75.0 ;^owers 29.0 - 2c.0 Participating Banks 30.5 - 30.5 FONDO 58.0 _ 58.o Total Project Cost 3142.5 50.0 192.5 Relending Teras to Participating Banks: At variable rates designed to per- mit more fund contribution by participating credit institutions. Relending Terms to Producers: At variable rates biassed in favor of pro- ducers operating on a small scale. Procurement: As under Loans 430-I'E and 61C-14E, through normnal commercial channels. Rate of Return on Producers' Investmzlents: Estimated at 21 percent to 32 percent. Economic Rate oo Return: Estimated at 24 percent Consultant Services: (1) Suitably qualified and experienced consultant to help FONDO set up the mechanism for collecting data on individual project results and to assist, initially, in analyzing such data. (2) Consultants, generally local, to evaluate and/or supervise agro- industry projects for FONDO.  MUXANU MEXICO THIRD LIVESTOCK AND AGROCULTURE DEVELOPMENT PROJECT 9~*-.- L G \r.-*_ti.kIdNG DEVELOPMENT AREAS ADMINWSTRATIVE REGIONS & FiELD OFICES OF THE FONDO H I 1RMOSI7 N4. S. A. 0.. CHIHUAHUA Cd. OBREGO L.MOCHIS -? j~~~~~~~~~~~~ TAMOROS t TORREON MNTERRE GULF OF MEXICO 1 'A' --WR ~~~~~~~~~~~~~f 41 _:;',. <CUA N LoX Z ACAT ECAS Ci ~ ~ ~~ ~~& )f CEAAMRIDA LEGEND \ GUADAtAJAt,~J <_& _HU_Ao1 (CAMPECHE \ 7' LEGEND 0-mu _ O \ -~~~~~~~~~C MOREt--- } / t ARID AND SEMI-ARID AREA tCCIMA S VERACRUZ I TEMPERATE AREA \' PUEBLA DRY TROPICS AREA f~~4{~1RT WET TROPICS AREA FI (NOT USED AGRICULTURALLY MOUNTAINS, FOREST) 0 GTUXTLA RE jHON URAS . ; r l /~~~~~~~~~~~~~~~~~~~~~~~~~~~~ GUTIERREZ , PROPOSED REGIONAL BOUNDARIES o FIELD OFFICES o\ (GUATEMALA ,/ F2] PROPOSED REGIONAL OFFICES A HONDURAS 0 I1O 200 300 400 O MEXICO D.P. L KILOMETERS /EL . FEBRUARY 1971 BSALVADOR D