Philippines - Second Livestock Development Project

Document of ~ COPY E yThe World Bank FOR OFFICIAL USE ONLY Report No. P-1776-PH REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE: REPUBLIC OF THE PHILIPPINES FOR A SECOND LIVESTOCK PROJECT March 4, 1976 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US $1.00 Pesos 7.50 Pesos 1,000 US $ 133.00 Pesos 1 million US $ 133,000 FISCAL YEAR In the Philippines the Fiscal Year covers the period July 1 to June 30.  FM OFFICIAL USE ONLY REPORT AND RECOMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND LIVESTOCK PROJECT THROUGH THE DEVELOPMENT BANK OF THE PHILIPPINES 1. I submit the Following report and recommendation on a proposed loan to the Republic of the Philippines for an equivalent of $20.5 million. The loan would have a term of 14-1/2 years, including 5-1/2 years of grace and an interest rate of 8.5 percent per annum. $19.8 million of the proceeds of the loan would be reLent to the Development Bank of the Philippines (DBP) on the same terms as those of the Bank loan for on-lending to specific live- stock enterprises. The balance would be used by the Government to help finance livestock research and a feed analysis laboratory. PART I - THE ECONOMY 1/ 2. The most recent Economic Report - "Current Economic Position and Prospects of the Philippines" (No. 568-PH of November 7, 1974) was circu- lated to the Executive D)irectors on November 11, 1974. A basic economic mission visited the Philippines in April/May 1975 and is now finalizing its report; the discussl'on below includes the findings of the mission. Annex I of this report contains country economic data. 3. During the 1900s, the economy grew in real terms at the rate of 5-6 percent per annum. However, the rate of growth was less than the level that might have been achieved if the considerable natural and human resources of the Philippines had been exploited more effectively. Moreover, the bene- fits of growth were not distributed widely and unemployment rose. Low levels of taxation resulted in inadequate public investment in necessary infrastruc- ture and social services. Relatively weak export performance, combined wi t'.. a failure to reduce the import dependence of domestic industry, resulted in a steady deterioraticn in the balance of payments position. 4. During '1970-72, the authorities adopted policies of monetary and fiscal restraint in order to lay a firm basis for future growth. With assistance from the Consultative Group, they succeeded in improving substan- tially the maturity structure of the external public debt. Real GNP during that period increased at about 5 percent a year. In 1972, following severe floods, the President began a series of social and economic reforms in the country including an agrarian reform program, tax reforms, and an adminis- trative reorganization. These programs are beginning to show results. 1/ The paragraphs in this part, except for paragraphs 13 and 14 which have been updated,are the same as those in the President's Report on the Industrial Investment Credit Project (Report No. P-1726-PH) dated December 3, 1975. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Dank authorization.  -2- 5. 'In 1973 there was a sharp increase in the level of economic acti- vity in the Philippines. This upsurge was led by the international commodity boom, which resulted in higher export incomes in the Philippines, a strong recovery in agricultural and industrial production for the domestic market and an expansion in public and private investment. The growth in real GNP doubled to 10 percent. 6. TLike most countries, the Philippines was profoundly affected by the tumultuous events in the world economy that began with the jump in the prices for food and petroleum in late 1973. With international trade the equivalent of almost half of its GNP, the Philippines proved quite vulner- able to the impact of world inflation, the increase in oil prices and the prolonged recession in the industrialized countries. This sequence of events has temporarily frustrated the Government's attempt to accelerate the rate of development, and in 1974 GNP increased by only about 6 percent in real terms. While adverse effects of the recession were cushioned some- what in 1974 by a modest improvement in the external terms of trade, the Philippines has been even more seriously affected in 1975 by the continued rise in import prices and reduced demand for Philippine exports. The real growth of GNP in 1975 is estimated to have been at about the 6 percent rate of the previous year. Improvement in the growth performance in 1976 can be expected only if recovery takes place in the economies of the Philippines' main trading partners. 7. Agricultural production has grown at an average rate of 3.2 percent per year during the 1970s, a period which has been affected by un- usually adverse weather conditions. Rice production increased by 25 percent in 1973-74, but due to serious damage by typhoons, it grew by only 1 percent in 1974-75, and the Government had to import 200,000 tons in the first half of 1975 to ensure adequate stocks. However, initial indications are that the outlook for rice production in 1975-76 is bright. The Government is giving the highest priority to increasing agricultural production and has initiated a number of programs designed to expand the use of fertilizer, irrigation and supervised credit. It has also intensified efforts to expand social services needed in rural areas, including rural electrification, health and family planning services as well as small-scale road and irri- gation projects. 8. Although progress has been slower than initially planned, the Government has moved ahead with its agrarian reform program for the nation's one million tenant farmers who grow rice and corn. By mid-1975, land trans- fer certificates had been issued to nearly 200,000 tenants and progress had been made on land valuations and the transfer of titles. The Government has raised the cash portion of the compensation package to landlords to reduce their resistance to land reform, but strong administrative efforts will be necessary to ensure continued progress in the implementation of the program. 9. Industry accounts for almost 30 percent of net domestic product, one-third of total fixed investment and 15 percent of total employment. Industrial production, which grew by 12 percent in 1973, was adversely  -3- affected'in 1974 by the world-wide economic slowdown and grew by only 3.6 percent in 1975. This decline is primarily a result'of depressed demand for Philippine exports on the part of the country's main trading partners and the concomitant slowdown in the rate of economic growth in the Philip- pines. Nonetheless, the long-term prospects for industrial growth are favorable because of the natural and human resource endowment of the Philip- pines and a very active private sector. 10. The Government has made significant progress in increasing public investment. The ratio of public investment to GNP is currently about 3 per- cent compared with 1.8 percent in FY72. The Government has also imple- mented a series of long needed tax reforms and improvements in tax adminis- tration. These reforms, aided by the increased economic activity, the boom in export incomes, and domestic inflation, resulted in a 36 percent increase in national government tax revenues in FY73, and an estimated 47 percent in FY74. As a result, the ratio of national government tax revenues to GNP has increased from an average of 9 percent in recent years to an estimated 12.3 percent in FY74. 11. 'In the latter part of 1973, inflation emerged as a major problem in the Philippines and in 1974 consumer prices rose by almost 40 percent. The rise was caused by the large increase in liquidity that came with the export boom in 1973-74, and by a number of cost-push factors, including the higher rate of world inflation. To deal with this problem, the Government adopted contractionary monetary and fiscal policies, and attempted to reduce the impact of inflation on consumers by subsidizing such essential goods as wheat, imported rice, and cooking oil. As a consequence of the Government's measures, the annual rate of inflation decreased to less than 20 percent at the end of 1974 and less than 10 percent in 1975. 12. The rapid inflation in 1974 exacerbated the decline in real wages which had begun in 1970. Overall, there was a decline of about 20 percent in real wages during 1974. In order to offset the deterioration of real wages in urban areas, thE Government increased the salaries of Government employees and directed private firms to grant emergency cost of living ad- justments to employees earning less than P 600 per month. Nevertheless real urban wage incomes declined and reduced the demand for manufactured products, which contributed to the poor performance of the manufacturing sector in 1974. The depression in the urban areas was partly offset by the improvement in rural incomes that stemmed from continued high prices for agricultural commodities. 13. On the external side, the Philippine balance of payments bene- fitted considerably from the international commodity price boom during 1973. High prices for the country's chief exports, including coconut products, sugar, copper and wood products resulted in a 70 percent boost in export earnings and a balance of payments surplus of about $670 million. Since mid-1974 the external trade position has deteriorated, due to the sharp increases in the prices of oil and other imports, less favorable prices for Philippine exports, and reduced volume of some exports resulting from  the recession in the economies of the Philipines' main trading partners. As a result, the overall balance of payments surplus fell to about $100 million in 1974, and a deficit of about $400 million was recorded in 1975. Inter- national reserves stood at about $1.1 billion at the end of 1975, the equiv- alent of three months imports. 14. The outlook for 1976 is for exports to increase by about 12 per- cent in real terms on the assumption that there will be some international economic recovery. Imports will need to grow by about 7 percent in real terms in order to maintain the growth of the economy. Due to a modest de- terioration of the terms of trade, the current account deficit may reach about $1.0 billion compared to $860 million in 1974. Medium and long term capital inflows are expected to finance most of this deficit, producing an overall balance of payments deficit of about $200 million. Such a deficit can be managed without serious pressure on reserves through utilization of IMF oil facility and by short-term foreign borrowing by the Central Bank. 15. The overall level of debt of the Philippines is expected to remain within reasonable limits, as the ratio of debt service payments to exports and non-factor services would average about 16-17 percent during the rest of this decade. At present, the Bank/IDA share in total debt outstanding is about 10 percent and its share in debt-service is about 4 percent. These shares are expected to increase somewhat in the years ahead. 16. Foreign assistance is expected to continue to be of major import- ance in helping to finance the larger investment expenditures which will be necessary for the country's development. In order to ensure that disbursement of external assistance reaches levels commensurate with the level of develop- ment expenditures which will be required during the latter part of the decade, total commitments will need to be maintained in real terms at least at the level of about $500 million which was achieved in 1974. The Consultative Group for the Philippines at its meeting in Paris on October 1, 1975, agreed that it would be reasonable for the Philippine Government to seek aid commit- ments of about $600 million during 1976. Growth Prospects 17. Despite the slowdown in the growth of the economy which is primarily a result of worldwide economic conditions, the Government remains committed to regaining the growth momentum which began in 1973 to provide for a con- tinued increase in incomes and employment. High priority must be accorded to expanding employment opportunities - in the short-term as well as the long-term - because unemployment and underemployment are still high, and the labor force continues to grow at 3 percent a year. 18. Priority must also be given to expanding food production for the domestic market, to expanding industrial export production and to accelerating development of local energy resources. The difficulties experienced during the last two years in importing sufficient quantities of food at reasonable prices, especially cereals, have increased the Government's resolve to  - 5 - achieve self-sufficiency in rice and corn as soon as possible. The Govern- ment rightly recognizes that the increased cost of petroleum and other imports cannot be financed indefinitely by borrowing abroad, and it is active- ly encouraging both local and foreign investors to expand the productive capacity of export industries and to undertake major new import-replacing investments. Because ii: will take time for these investments to have an impact on the balance of- payments, the Government is seeking increased support from the international financial community to help carry out its development program and to ease the adjustment to higher petroleum and other import prices. Because of the substantial easing of the external debt burden which has taken place in the last several years, the Philippines now has the capacity to borrow externally larger amounts of capital in support of its development program. 19. Given the likely availability of resources and the expected growth in various sectors, it is reasonable for the Government to plan for a longer term growth in GNP of about 7 percent a year in real terms. To achieve this objective, increased investments will be needed in a wide range of in- dustries. Public investments also need to be increased. A new public in- frastructure program is being prepared, and the Government is putting emphasis on developing nuclear and indigenous power sources and on irrigation, feeder roads and other projects to support increased food production. The Government has made considerable progress in recent years in building up the capacity of public sector agencies to prepare and execute projects. However, there will be a need for continued efforts to strengthen this aspect of administration. The ratio of public investment to GNP will need to rise from the present level of 3 percent to about 5 percent by 1980. To support the level of investment, the Government will need to intensify its tax efforts so that the ratio of national taxes to GNP rises from its present level of 11-12 percent to 14 percent by 1980. 20. The Governmernt's ambitious development program will continue to require foreign resources in addition to the capital which would become available for the financing of the foreign exchange component of develop- ment projects. Some financing of local costs is justified, especially for projects of economic and social importance which need limited amounts of foreign exchange. PART II - BANK GROUP OPERATIONS IN THE PHILIPPINES 21. The Philippines has received 32 Bank loans and three IDA credits totalling $791.2 million, net of cancellations. About 36 percent of the Bank/IDA lending, $293 million, has been for infrastructure projects in power, transportation, and water supply and $38 million has been for popu- lation and education. Of the remainder about $216 million has been for agriculture and about $250 million for industry. There has been a marked improvement in the way Bank financed projects in the Philippines have been executed in the last three years, compared with experience in the 1960s, whien shortages of peso counterpart funds combined with poor administration  to cause serious problems. All these projects are now going reasonably well. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of January 31, 1976 and notes on the execution of on-going projects. 22. The Bank's lending program has been designed to continue to support the Philippine development effort with its particular emphasis on agriculture and infrastructure. Shortages of domestic revenues led to low investment for these purposes in the past. The last three years have seen major changes which have helped to overcome these constraints and both the ambitious Philippine development program and the Bank's lending program have been designed to make good past neglect and to meet future needs. Commit- ments in FY74 amounted to $165.1 million, and in FY75 $208 million compared to an average of about $30 million a year in the preceding five years. 23. Two loans, one of $42 million for the Magat River Multipurpose Project and one of $75 million for the Industrial Investment Credit Project, have already been approved by the Executive Directors in FY76. In addition to this project and the proposed Third Education Project, other loans for fisheries, grain storage, urban development and irrigation may be ready for Board consideration in FY76. 24. IFC has made commitments in the Philippines totalling $76.2 million for investments in 13 companies in the fields of development bank- ing, power, telecommunications, ceramic tiles, paper, petroleum products, nickel mining and refining, chemicals and synthetic fibers. Of these investments, as of January 31, 1976, $18.9 million had been sold, $0.4 million cancelled and $3.4 million repaid, leaving a net portfolio of $53.5 million. On the same date all commitments were fully disbursed. Preliminary proposals have been received for an aluminum smelter and other projects in the pulp and paper, dinnerware, metal alloys and ship- building fields. PART III - THE LIVESTOCK SECTOR 25. The performance of the agricultural sector is crucial, since prob- lems of poverty and income distribution are particularly acute in the rural areas. Of the 15 million people in the bottom 40 percent of the income scale, 12 million live in the rural areas. The Government is attempting to deal with the problems by undertaking agrarian reform, increasing institutional support to agriculture to raise productivity of the small farmers and by encouraging diversification. Development of the livestock sub-sector is important in the effort to diversify agricultural production and to raise the incomes of small farmers. Currently, the livestock sub-sector contributes about 18 percent of totaL agricultural output and about 5 percent of gross domestic product. 26. The per capita intake of meat products has not increased sig- nificantly over the past decade, and in recent years may even have decreased as a result of relatively high meat prices. Although demand has in part  - 7 - shifted to cheaper fish 1:roduc-ts, prices of these, products have also in- creased substantially so that the total consumption of both meat and fish has decreased since 1970. With the projected recovery in the growth of urban incomes, demand for livestock products could grow at about 6 per- cent a year in the future. Most of the demand over the next decade will probably continue to be i:or pork and poultry meat, although the relative importance of beef will continue to increase. To limit the extent to which this anticipated growth :in demand for livestock products is met by imports, to facilitate price stab-ilization for livestock products and to increase small farmer incomes, the Government has been putting. special emphasis on livestock development. 27. The major const:raints on the growth of the livestock industry in the past have-been the lack of long-term credit, inadequate livestock extension services and the lack of higher quality feeds. In order to help in alleviating these problems, the Government requested the Bank in 1970 to finance a first livestock project and the proposed loan is expected to continue the support provided, under Loan 823-PH to meet the requirements of a growing livestock industry. 28. The first loan of $7.5 million, made in 1972 was for: (a) a program of livestock development in specified areas, carried out by the Development Bank of the Philippines. (DBP); it was assigned to provide assistance to some 1,450 small and medium size pig, poultry and integra- ted coconut/beef cattle farms, 25 hill beef cattle ranches, and 3 slaugh- terhouses; and (b) technical services for DBP.and livestock research. After a slow start, caused largely by delay in recruitment of technical advisors, the project is now progressing satisfactorily, and all farm/ ranch funds have been committed. Other Bank assistance over the years for livestock development in the Philippines has been provided through two Rural Credit Projects (Loans 607-PH and 1010-PH), administered by the Central Bank of the Philipines and carried out by the rural banks; about 8 percent of funds under Loan 607-PH and 6 percent so far under Loan 1010-PH have been onlent to livestock farmers, mainly for pig and poultry development. PART IV - THE PROJECT Description of the Project 29. The proposed project would: a) continue to assist the Philippines to increase domestic production of livestock products by providing funds to DBP for onlending to l:Lvestock producers particularly for smallholder pig and poultry operations; b') improve the technical services provided to DBP's sub-borrowers; c) provide for applied research and trials on specific live- stock production problems and assist with the establishment of a feed quality control system; d) assist the country to upgrade municipal slaughterhouses which need to be rehabilitated and improved to meet hig.her standards. Spe- cifically, the proposed project would help finance about 1,850 pig farms, 460 poultry farms, 200 small-scale beef cattle farms, 440 integrated coconut cat- tle farms (where coconut and cattle are developed within the same farms), 60  - 8 - hill beef farms (beef cattle development on hilly pastureland), 10 municipal slaughterhouses, and supporting technical services, training and research. The loan would finance fixed investment costs and incremental working capital for both farm development and slaughterhouses. 30. The project was prepared by DBP. A Bank mission appraised the project in April/May 1975 and negotiations were held in January, 1976. The leader of the Government negotiating team was Ambassador Eduardo Z. Romualdez. The Appraisal Report (No.1070-PH) on the proposed project is being circulated separately to the Executive Directors. Annex III provides a loan and project summary. Major Objectives of the Project 31. The project would support Government objectives of increasing livestock production by helping alleviate existing constraints through the provision of credit, better research and extension and a system for improving animal feeds. In designing the project, attention has been given to meeting the needs of smaller farmers and the rural poor, and it is estimated that about 80 percent of the direct and indirect beneficiaries of the project presently have per capita income of less than $140. The component for development of backyard cattle farms (maintaining a few heads of beef or dairy cattle on small farm plots) has considerable potential for increasing the production and incomes of small farmers. Project Execution 32. As in the first project, the credit component of this project will be executed by DBP, a wholly Government-owned development bank which operates in all sectors of the economy. A thorough analysis of DBP's overall capabilities and financial position was provided in the President's Report for the Second Industrial Investment Credit Project (See R75-239) reviewed by the Executive Directors at a meeting on December 16, 1975. Over the years, DBP has administered a number of Bank assisted projects in the industrial, shipping and agricultural (grain processing and storage, fishing and live- stock) sectors and the implementation of these projects has been satisfatory. The Livestock and Poultry Group, within the Agricultural Projects Department of DBP, would have the responsibility for implementing the proposed project. The feed quality control and research components would be the responsibility of the Bureau of Animal Industry (BAI) in the Department of Agriculture. The Project Area 33. Under the First Project, it was agreed to limit sub-loans to specific areas of the country (Central and Southern Luzon, North and South Mindanao and Mindoro and Masbate islands) to ensure that DBP would have the capacity to process and service sub-loans. However, DBP's loans processing and supervision capabilities have improved as more branches and agencies have been opened; therefore, this limitation under the First Project has been relaxed and will be removed under the proposed project (Para B.1 of Schedule 5 to the Loan Agreement).  - 9 - Training, Technical Services and Research 34. The Livestock and Poultry Group of DBP was established under the First Livestock Pro;ject and has since grown in strength and expertise. However, DBP does need l:o improve further its capacity to provide technical services to livestock sub-borowers, undertake promotional work and conduct monitoring programs. To assist and train DBP's field staff in these matters, it would continue to employ a cattle production specialist and would engage a farm monitoring special:ist (Section 3.04 of the Loan Agreement). DBP would also continue to conducl: a program to ensure that an adequate number of its staff are trained to carry out its livestock development program (Part B of Schedule 2 to the Loan ligreement). 35. To support the livestock development program, the Government would employ four short term specialists to undertake research in the areas of pig and poultry nutriticin, the use of by-products by ruminants and backyard cattle production systemis. To supplement and back up the work of the short term consultants, the Government would make arrangements to carry out a program of applied research on pig and poultry nutrition under terms of reference acceptable to the Bank and shall assist in financing the execution of this program with a grant of not less than the equivalent of $150,000 (Section 3.07 of the Loan Agreement). The research conducted under the project is expected to niake an important contribution towards improving feed products which have in the past been a constraint on increasing livestock production. In addition, the Government would establish an effective feed quality control system, including construction and equipping of a feed quality analysis laboratory. 36. Since 1973, DBP has had an agreement with the BAI to coordinate their work in the development of livestock production. Under this agree- ment, DBP provides borrowers with technical assistance and advisory ser- vices for planning, budgeting and marketing and BAI provides animal husbandry and veterinary technical services upon the request of DBP. However, this agreement is not very effective because BAI technicians do not normally assist in the early stages of sub-project preparation and therefore there is little incentive for them to get involved at a later stage of enterprise developmernt. Since DBP cannot be expected to provide full livestock extension services from its own resources, it would, under the project, renegotiate with BAI and implement a new agreement which would provide for BAI technicians to be involved in sub-loan projects from the outset. The conclusion of the revised agreement between BAI an, DBP would be a condition of effectiveness of the loan (Sections 3.06 and 5.01(B) of the Loan Agreement). Project Cost and Financi,a 37. The total cost of the project is estimated at $41.3 million equi- valent, of which $12.4 million would be in foreign exchange. The Bank loan of $20.5 million would finance about 50 perent of total costs, including the foreign exchange component and $8.1 million of the local cost requirements. It would have a term of L4-1/2 years, including 5-1/2 years of grace. The Government would relend $19.8 million of the loan to DBP on the same terms as  - 10 - that of the Bank loan, and would assume the foreign exchange risk. As a condition of effectiveness, a subsiary loan agreement would be entered into between the Government and DBP (Section 5.01(a) of the Loan Agreement). The balance of the loan ($0.7 million) would be used by the Government to finance the cost of the four short term research consultants and related research equipment and supplies and equipment and material for the feed quality control laboratory. 38. DBP would on-lend the Bank funds to private sub-borrowers and municipalities (for slaughterhouses). Most sub-borrowers would contribute about 10 percent to the cost of their projects, but the major sub-borrowers and municipalities would contribute a minimum of 25 percent. The aggregate amount of loan proceeds used for farm sub-loans to major borrowers (sub-loans exceeding $100,000) would be limited to a total of $3 million of Bank funds. Of this amount, not more than $500,000 would be for large poultry and piggery subprojects; leaving the balance of $2.5 million for large sub-projects for cattle development (Para 4(b) and (c) of Schedule 1 to the Loan Agreement). Interest rates of sub-loans would be in accordance with DBP's interest rate policy which provides for 12 percent per annum for small loans of less than P5,000 and other loans fully secured by land, and 14 percent for all other loans. In addition, large sub-borrowers would pay a one-time 2 percent service fee. The sub-loans would generally have repayment periods of 8 to 13 years, including grace periods of 2 to 5 years, depending on the nature of the sub-project. The Government has recently raised the existing ceilings on lending rates in the Philippines to 17 percent for short term lending and 19 percent for long term lending. DBP is now actively considering the implica- tions of this change for its own interest policies and has agreed to keep the Bank informed of its plans. 39. Under DBP's lending procedures, sub-loans of less than P50,000 ($6,670) would be approved by branch managers subject to confirmation by DBP Board. DBP would use the standard sub-loan agreement approved by the Bank for the First Livestock Project and would not materially change this form without prior approval of the Bank (Para B.?, Schedule 5 to the Loan Agreement). All subloans for slaughterhouse construction and all subloans which exceed the equivalent of $200,000 will be made after approval of the Bank (Para B.6, Schedule 5 to the Loan Agreement). Procurement 40. Equipment and materials for farm development ($35.6 million), as under the First Livestock Project, would be procured by farmers from local suppliers. There are generally adequate commercial outlets for the main inputs to permit sub-borrowers to obtain supplies at competitive prices. The scattered location and phasing over several years of the farm sub-loan projects and the diversity of equipment and supplies required makes bulk purchase of inputs impractical. Some of the local suppliers are sub- sidiaries or associate companies of international firms. Slaughterhouse contracts (totalling about $1.9 million) would not be suitable for inter- national bidding and would therefore be awarded after local advertisement in accordance with the Bank Guidelines. These contracts are small, widely  - 11 - scattered geographically and construction would be phased over the project implementation period. There is adequate local fabrication and construction capability and competition to ensure that the relatively simple slaughter- houses proposed can be procured efficiently. Contracts for technical services (about $0.2 million) may be financed under bilateral aid but will otherwise be awarded according to standard Bank procedures. The vehicles and equipment ($160,000) required for administering the project and for technical services would be procured locally by DBP, using its normal procurement procedures which are satisfactory. Bulk international procurement of vehicles and equipment required by DBP to carry out the project is not warranted because requirements are phased over several years and the lot sizes are too small to be attractive to international bidders. Equipment and materials for feed quality control ($0.4 million) would be procured following international competitive bidding in accordance with Bank Group Guidelines. Disbursement 41. The proposed Bank loan would help finance DBP's sub-loan commit- ments over the next three years and the loan would be disbursed over about 5-1/2 years. The Bank would reimburse, against appropriate documents, 50 percent of medium and long term loans granted by DBP to project benefi- ciaries for pig, poultry, backyard cattle, dairy and slaughterhouses and 55 percent for coconut beef and hill beef loans; 100 percent of the Foreign exchange costs or 60 percent of the local costs of technical experts; 100 percent of the c.i.f. cost of imported materials and equipment, 100 percent of the ex-fatory cost of goods produced in the Philippines or 60 percent of the total cost of imported items procured within the country. Since the project would support DBP's ongoing livestock program and the proceeds of the First Livestock Loan was fully committed at the end of 1975, it is proposed that the proposed loan finance retroactively up to $1.5 million of costs incurred under DBP's livestock lending program after December 31, 1975. Benefits and Justification 42. The proposed project would contribute to Government's objective of increasing the production of meat, eggs and milk, help stabilize the prices for these products and encourage development of small-scale livestock production by poorer farmers. Furthermore, the project would continue the institution building role begun under the First Project by strengthening the Livestock and Poultry Group of DBP and the DBP branches and by involving the Bureau of Animal Industry in the project more directly in support of DBP's lending program. Incremental net income to the 3,050 farm families participating in the project would average $2,210 per annum at full develop- ment with a range from $410 to $6,300. The present incomes of these families cover a wide range, but it is estimated that about 1,300 farm families with an annual income of less than $800 per annum would benefit from the project. 43. At full development (Year 11), the project would generate some 5,800 permanent jobs and indirectly a large number of jobs in the production of feedstuffs, transportation and marketing. It would result in net foreign exchange savings of $17 million a year at full development. Social benefits  - 12 - of the project would be substantial, since about 80 percent of direct and indirect beneficiaries are within the target rural poverty group witlh a per capita income of less than $140. The economic rate of return is estimated to be 25 percent. Sensitivity analyses indicate that even under a number of adverse assumptions, the rate of return would not fall below 13 percent. PART V - LEGAL INSTRUMENTS AND AUTHORITY 44. The draft Loan Agreement between the Republic of the Philippines and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank and the text of a draft resolution approving the proposed loan are being distributed separately to the Executive Directors. The loan would not become ef- fective until a subsidiary loan agreement is concluded between the Govern- ment and DBP and until a revised technical assistance agreement has been concluded between the Bureau of Animal Industry and DBP. The draft Agree- ment conforms to the normal pattern for loans for livestock projects. 45. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 46. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by: J. Burke Knapp Attachments March L,,176  Annex I Page 1 of 3 pops. WUIIU DATA - PHI LIPPINES 300,000 1el 231".OLKLlion (mid-1972).. Frh farbaln SOCIAL JDMDCATORS 00PER COPITA US$ (ATLA BASrS /I 160 L 220 /5220 /b 370 /b 310 /b DEUCGRAPHIC EFM;Uth rate (per thousand) .L5 ~ 1.3 38 &_ 2 Crude death rate (par th.sustam.) .12/c 10 a~ 13 Lg.d 8 Infant mortality rate (per thisisnd live births) ..80 8090 h L.fe .cpctancy at birth (yeavs) 51l /f 58 0 59 L556 Gross repoduction rt. .2 3.3 3.22625 FOpolation goeth rot. - urbav 2/i.j 5 45. Age structure (percent) 10-11. 4.64 h42 15-61, 51 55 45 65 and a,er 333 3 kge d pendency ratio A. 1.7 0 9 ~ 0.9 0.8 0.8 7s fo-n-,.. dependency rZtio A, 17 1.5 1.1 1'.1 1.1, Urban Popuhlaton as peroent of total 30 /j 32 ~ 2 9A ~ 11L Faily2 plamsings V. of acceptorg umlagtive (ttooa.) _,I.0 259 1.891. 1 4 wo. of users (% of married moemsn) *.8 10 8.2 &9 2M MM". forms (thousands) 9,100 12,300 16,500 11.,5oo /, 10,500 /b Percentage eMployed in agriccitore 61 51 81 67 h b Pirnosotg u-employed 7 7/gb *. 1. I DISTRINUTIUS Firceot of national inoose r.*oived by higbest 5% 29 /5, t 25 /0,i 17 /t. 3 2 Lq, v 15 /c Peroant of national incomes r.owived by highest 20% 56 7sF17 51.4 146 60 /7iL 37 percent of national incom. rec.,ived by law..t 20% 5 /t . 7 La;u 3 se 10/. Fercest of national icmoe, reo.,ived by loamet 4.0% 1/. 2 k 17t. 10 21. o MIMShITI FL"AND OWNRV_ Fownedsytopl0%of ovners....* 53 28 % cooned by smallest 10% of owo,rs ... .0.9 2 5'O M MAinpe sician ..9,100 /o 7,970 2,220 2,210 Fopulatico par nursing parson 15,390 / ~ 6,650 1,880 A 1, 760 population per hospital bed 1,180 /aa 850 oba 850 1.90 1,920 Fir capita calorie supply as % of requirmenta / 83 85 105 110 103 Zo Fir capita protein supply, oa gisprdy ~ 11 . 27 6 5 Of which, animal and pulse 19 ~- 22 /bk 17 /so 27 ~a 19 at Death rate 1-i. ye.re / 9/.p f.1 duse primary schcol enrollment ratio 91 112 4a.a 80 /a ill lob01 Adjusted secondary schoo1 anrolment ratio 76 1.5 /ab 13 ~j 28 Li1 Years of ithooling provided, firsft and second level 10 10 12 13 12 V cational onr1oilet cc % of sec. achool enrollment ii10 /ah...i 12 Lgab. 11. 15 / A=ullitsracy rate % *.72 70 lo 55 91 HDUSDJG = Itae o. of Parsons, per coon (urban) ... .1.9 2.7 Percent of occupied urdts wltho,t piped water 860 in 66 /..61. /w 80 / Access to electricity (as % of 1otal population) 017 /a-o 23 1 7 1.1 5o Percent of tural populati.m colitected to electricity 6. 13 18 30 00NSU4PTON G Ycirsper 1000 population 22 1.6/ 83 107 /b 128c Passeonge cars par 1000 popula.M.- 3 8/ 7 o /p 27b Electric Pacer cornsuepti.o (khN p.c.) 000 255 7b 169 717 301b 392 b~ Newsprint consumption p.c. kg pur year 1.3L 1.7 7- 1.5 2.2 ~ 3.7 L Noteas Figures refer either to the latest periods or to account of eniror`uoen_t; al epertuebody weigbre, and the latest years. latest periods r.fwr in principle to, diatributioc, by age and sezl of national POPulation.. the Years 1956-60 or 1966-70; the l,,teet year in Prim / Proatin atanda-da (requiremeents) for all o0ountriso anetab- ciple to 1960 and 1970. Iished by USDA. Ecnomlo Research Service provide far a ainteu /I The Per Capita OJNF estimate is .t ne-ket prices for allowance of 60 geams of total protein per daLy, am 20 gins of yearo other than 1960, calcua.ted by the same con-ersion animal cnd pulase protein, of which 10 grams shoul.d ho anilec technique as the 19,72 Wor1d Ban) Atlas. protein. Theee standards are somewbat Imeer thsan t.hose of 75 /2 Average number of daughters per woman of reproductivs pass of total protein and 23 grams of anima protein as an age. average fcr the world, proposed by ?AO in the Third tlbrld Fond Pj bpulatiin growth rates are for the decades ending in Surve. 1960 ond 1970. 7Same studies have suggested that crude death ratee of dLildreo /A, Ratio of Population under 15 ant 65 and over to popu1a- agma 1 through 4a eq be used as a first approxisatlmo index of lion of oges 15-61. for age depei.tdncy ratio and tn labor ac.bsutrition. force of zege 15-61. for ec..no.in dependency retic. P