Uruguay - Fifth Livestock Development Project

Document of FILE OPY The World Bank FOR OFFICIAL USE ONLY Report No. 4271 PROJECT COMPLETION REPORT URUGUAY LOAN 1166-UR FIFTH LIVESTOCK DEVELOPMENT PROJECT December 30, 1982 Regional Projects Department Latin America and the Caribbean Regional Office 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$1 = N$Ur 1.9 (1975) US$l = N$Ur 6.0 (1976-1978) US$1 = N$Ur 8.1 ( 1979) N$Ur 1,000 = US$167 (1976-1978) WEIGHTS AND MEASURES 1 hectare (ha) = 2.47 acres 1 kilogram (kg) = 2.20 pounds 1 liter (1) = 0.26 US gallons GLOSSARY OF ABBREVIATIONS BROU - Bank of the Republic East of the Uruguay River CREA - Regional Centers for Agricultural Trials DINACOSE - National Directorate for the Comptroller of Livestock FG - Livestock Fund IDB - Inter-American Development Bank INC - National Institute of Settlement 14AP - Ministry of Agriculture and Fisheries PLAN - Honorary Commission of the Livestock Plan SERPA - Economics and Recordkeeping Section of PLAN  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT URUGUAY LOAN 1166-UR FIFTH LIVESTOCK DEVELOPMENT PROJECT Table of Contents Page No. PREFACE i BASIC DATA SHEET ii-i HIGHLIGHTS iv I. INTRODUCTION 1 A. The Livestock Subsector 1 The World Beef Market Situation 1 Uruguay 2 B. Previous Bank-Financed Livestock Projects 3 II. FORMULATION OF THE PROJECT 4 A. Objectives 4 B. Pre-appraisal 5 C. Appraisal 5 D. Post-appraisal 6 E.. Questions by the Board 6 III. IMPLEMENTATION 7 A. Effectiveness and Start-up 7 B. Extensions and Reallocations 8 C. Covenants 9 D. Consultants' Performance 10 E. Project Cost and Financing 10 F. Physical Progress 11 IV. PROJECT IMPACT 13 A. Background 13 B. Data Source and Methodology Used 13 C. Farm Level Impact 14 V. RATES OF RETURN 15 A. Financial 15 B. Economic 17 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.   Page No. VI. INSTITUTIONAL DEVELOPMENT 17 A. PLAN 17 Background 17 Objectives 17 Management 17 New Actions 19 Monitoring and Evaluation 20 B. Private Advisory Service 21 C. Experiences with Small-scale Farmer Lending 22 Pre-project Situation 22 Farm Plans 22 Technical. Assistance 23 Credit Assistance 23 Farm Level Results 24 Lessons Learned 24 VII. BANK PERFORMANCE 25 ANNEXES 1. Published Reports Reviewed 27 2. Project Indicators: Table 1 - Basic Data on Subloans 28 Table 2 - Indexing of Subloans 29 Table 3 - Evolution of Areas Under Improved Pastures 30 Table 4 - Appraisal Projections and Actual Prices for Beef and Milk 31 Table 5a - Livestock Ranch: Farm Budget 32 Table 5b - Livestock Ranch: Cash Flow 33 Table 6 -.Livestock Ranch: Cash Flow 34 Table 7a - Livestock Ranch: Farm Budget 35 Table 7b - Dairy Farm: Farm Budget 36 Table 8 - Dairy Farm: Cash Flow 37 Table 9 - Evolution of Output Prices: 1975-1990 38 Table 10 - Evolution of Input Prices: 1975-1990 39 Table 11 - Livestock Ranch: Cropping Pattern 40 Table 12a- Livestock Ranch: Herd Development 41 Table 12b- Livestock Ranch: Outputs 42 Table 13 - Dairy Farm: Cropping Pattern 43 Table 14 - Dairy Farm: Herd Development 44 Table 15 - Aggregate Project Outputs 45 Table 16 - Farm Plans Prepared: 1976-1979 46 Table 17 - Farm Plans Financed: 1976-1979 47 Table 18 - Economic Rate of Return 48   Page No. 3. Analysis of PLAN's Farm Records: Table 1 - Physical Coefficients of Beef Ranches, 500-1,500 ha, 1972/73-1980/81 48 Table 2 - Financial Coefficients 'of Beef Ranches, 500-1500 ha, 1972/73-1980/81 49 Table 3 - Comparison of Physical Coefficients of Beef Ranches, by Type of Operation, 1972/73-1980/81 50 Table 4 - Meat Outputs and Improved Pastures, National Averages, 1970-1981. 51 ATTACHMENT: Government Comments CHART - Uruguay: Real Beef Prices and Beef Exports, 1965-1981. MAP - IBRD 11210(PCR)   PROJECT COMPLETION REPORT URUGUAY LOAN 1166-UR FIFTH LIVESTOCK DEVELOPMENT PROJECT PREFACE 1. This is the completion report of the Fifth Livestock Development Project for which Loan 1166-UR was approved on October 7, 1975 for US$17 million. The loan was closed on March 31, 1981, with no cancellations, and the last disbursement of previously committed funds was made on May 20, 1981. 2. This report is based on the loan documentation; correspondence and data included in project files maintained by the Project Unit and the Bank; results of a survey of sub-borrowers receiving credit in the four calendar years 1976-1979; and findings of a Bank mission that visited Uruguay in December 1981. Interviews were held with Bank staff who participated in appraisal and supervision missions, government personnel who were with the executing agency at appraisal and at completion, and producers. 3. The report focuses on the following issues not covered in the evaluations of preceding projects: institution-building efforts, success of the small-scale farmer lending activities begun in this project, and project impact at the farm level. Local staff have been most cooperative in providing data for this report, but the lack of a continuous monitoring and evaluation system has restricted its quantity and quality. Thus, only information considered reliable has been used.  I  - ii - PROJECT COMPLETION REPORT BASIC DATA SHEET KEY PROJECT DATA Actual or Actual as % Appraisal Estimated of Appraisal Estimate Actual Estimate Project Costs (US$ million) 32.7 30.4 93 Loan Amount (US$ million) 17.0 17.0 100 Date Board Approval 8/5/75 10/7/75 - Date Effectiveness 2/17/76 2/13/76 - Date Physical Components Completedl/ 12/77 8/30/79 162 Proportion then completed (%) 100 100 - Closing Date L/ 6/30/78 3/31/81 188 Economic Rate of Return (%) 18 17 94 Financial Rate of Return (%) 16-22 20-24 - Number of Direct Beneficiaries 5,225 5,222 100 CUMULATIVE DISBURSEMENTS FY76 FY77 FY78 FY79 FY80 FY81 Appraisal estimate (US$ million) 0.1 8.5 17.0 Actual (US$ million) 0.0 4.7 7.4 10.1 15.5 17.0 Actual as % of estimate 0 55 44 59 91 100 Date of final disbursement 5/20/81 Principal repaid to (2/28/82) (US$1.4 million) 1/ Calculated from dates of Board approval.  MISSION DATA Perfor- Types No. of Mandays Specialization mance Prob- Mission Date Persons in Field Represented 1/ Rating 2/ Trend3/ lems 4/ (Mo./yr.) Preappraisal 1/74 2 16 c,f - - - Appraisal 5/74 4 19 c,c,d,b - - - Postappraisal 4/75 4 11 b,c _ __ Subtotal Supervision 1 12/75 1 10 c 1 - Supervision 2 5/76 1 6 c 1 - - Supervision 3 2/77 1 10 c 1 2 - Supervision 4 8/77 2 10 c,e 2 2 O,P Supervision 5 3/78 1 5 c _2 3 F,O Supervision 6 10/78 1 5 c 2 1 F,P Supervision 7 7/79 1 15 d 2 1 M,P,T Supervision 8 4/80 1 10 d 2 2 P,M,T Supervision 9 12/80 1 1 d 2 2 M,T,P Supervision 10 5/81 1 9 d 2 2 T,P Completion 12/81 2 12 b,d 2 2 - Subtotal 1/ a=agriculturist; b=agricultural economist; c=financial analyst; d=livestock specialist; e=young professional; f=banking specialist. 2/ l=problem-free or minor problems; 2=moderate problems; and 3=major problems. 3/ =iimproving; 2=stationary; and 3=deteriorating. 4/ F=financial; M-managerial; T=technical; P=political; and O=other. OTHER PROJECT DATA Borrower Government of Uruguay Executive Agency Honorary Commission of Livestock Plan (PLAN) Fiscal Year Borrower: January 1-December 31 Name of Currency Uruguayan peso prior to 1976, New Uruguayan peso up to the present (N$Ur) Current Exchange Rate: Appraisal Year Average (1975) US$1.00 = 1.9 (Old peso 1,940 US$1) Intervening Years Average (1976-78) US$1.00 = 6.0 Completion Year Average (1979) US$1.00 = 8.1 Follow-on Project: Name Agricultural Development Project Loan No. 1831-UR Loan Amount (US$ million) 24 Date Board Approval 4/15/80  - iv - PROJECT COMPLETION REPORT URUGUAY LOAN 1166-UR FIFTH LIVESTOCK DEVELOPMENT PROJECT Highlights The project continued efforts begun in 1961 to develop beef cattle, dairy, sheep and pork production focusing on the spread of improved pastures (improved grass-legume seeds in association with phosphatic fertilizer) to improve herd nutrition and increase productivity. Other complementary ranch infrastructure, machinery, breeding stock and intensive technical assistance were provided. A small-scale farmer pilot component became operational under this project and was successful. Indexing, albeit with an imperfect index, was applied to all subloans. The major deviation from appraisal expectations was a four-year disbursement period instead of a two-year period, the consequence of the international crisis of 1973 and the beef sector crisis beginning in 1974 (para 1.07). Otherwise, the project performed overall as appraised in cost (US$33 million), beneficiaries reached (5,200) and economic profitability (about 17%). Fewer beef/sheep ranches than expected were financed, but this was compensated by a larger number of dairy loans, a trend reflecting the relative stability of the small but growing dairy sector. Government fulfilled all loan covenants. The following points may be of special interest: - real meat prices received by farmers were some 15 to 20% below expectations but were partially compensated by higher on-farm technical coefficients and cost reductions (paras 4.05-5.02); - the semi-autonomous technical assistance unit of the project (PLAN) was administratively affected by the crisis of the livestock subsector but it managed to increase and diversify services to project and non-project farmers (para 6.08-6.14 and 6.19-6.21); and - pilot activities with small-scale producers showed the complexity of dealing with these groups in Uruguay and the need for further actions with this type of producers (paras 6.22-6.30).   - 1 - I. INTRODUCTION A. The Livestock Subsector The World Beef Market Situation 1.01 World oversupply of beef occurred in the mid-1970s (especially 1974-76), when beef production cycles peaked simultaneously in all the major producing regions. Likewise, the liquidation phase of the cattle cycle in the mid-1970s occurred simultaneously in North America, South America and Oceania. Expansion of EEC beef production in 1975 coincided with heavy slaughterings in other parts of the world, bringing about surpluses, increased stocks, restrictive trade policies and a sharp drop in international prices. With the downturn in world production in 1978/79, beef prices increased sharply in 1979 and 1980. 1.02 World beef production is projected to increase at a long-term rate of 1.8% a year --to about 60 million tons by 1990. The developing countries' share of this world production is projected to increase slightly to about 30% by 1990, from the 25% prevailing in the mid-1970s. 1.03 Over 90% of world beef is consumed domestically. The remainder is traded internationally with neighboring countries or with countries in the northern hemisphere. Sanitary regulations (e.g., foot-and-mouth disease regulations) have kept South American fresh, chilled, and frozen (uncooked) beef from entering the North American and Japanese markets, while bone-in beef from South America is not permitted in the EEC. Developing country exporters have responded by diversifying markets to South Africa, Southern Europe and the Middle East. 1.04 While beef prices vary according to quality and from country to country, market forces create parallel movements among them, with fairly well-known leads and lags. Internationally traded beef prices fluctuate more widely in the traditional exporting countries than do domestic prices in importing countries (largely because changes in overall world demand for beef have a major effect on the prices of the relatively small amount of beef traded in world markets). The world indicator price fluctuated quite widely in the 1970s, dropping from an unprecedented high of US214 c/kg in 1973 (all data are given in 1977 constant US dollars) to 68 c/kg in 1975, reflecting the overproduction and trade restrictions referred to earlier. The low price levels continued until 1979 and 1980 when prices almost doubled (to 125 c and 128 c/kg, respectively). Real prices eased up a bit in 1981 and should follow a downward trend until 1990, when a recovery is once again forecast (147 c/kg). Australian prices are expected to increase faster (and their level to be higher) in the short term than Argentine and Uruguayan prices. This is likely because all Argentine and Uruguayan fresh, chilled and frozen (uncooked) beef is barred from the major Northern hemisphere markets. In the long run, the two price series are projected to run parallel to each other.  -2- Uruguayl/ 1.05 The agricultural sector has played a role in Uruguayan economic development which far transcends its comparatively modest direct contribution to domestic output and employment. Between 1976 and 1980, nearly one out of every five workers was employed in primary agricultural activities, which accounted for roughly one-eighth of total output. Unlike most developing countries, value added per worker in Uruguayan agriculture (US$7,000 in 1980) is almost equal to that in industry or in services. Beef alone has traditionally accounted for two-thirds of the total value of agricultural production and for one-fourth of the country's total exports. Total GDP growth has averaged 0.7% between 1971-75 and 5.2% between 1976-80 compared with agriculture's -0.9% and 1.2%, respectively, in the same periods. Growth rates of beef output averaged 5.8% in 1970/71, 4.8% in 1972/73, -3.9% in 1974/75, -4.2% in 1976/77, and returned to earlier peaks with 5.9% in 1979/80. 1.06 Uruguay's unusually good conditions for livestock production have been historically neutralized by instability in sectoral policies, which, in many cases, have actually accentuated the impact of world instability referred to above. Official wavering between stimulating cattle production and beef exports and protecting the interests of consumers and the meat packing industry led to the need for continual manipulation of exchange rates, subsidies, pricing policies, tariffs, taxes and production controls in an often vain attempt to reconcile goals. 1.07 The conditions prevailing in the four project years of Loan 1166-UR (1976-79) are summarized below. The dominant policy objective from 1974 to 1977 was to assist the financially indebted and Government-owned meat packing plants within a macro-economic environment that featured a world oil crisis; a domestic balance of payments crisis and sharp recession; closing by the EEC of the meat import market; and a sharp decline in world beef prices. The policy actions taken in this period include removal of export taxes and import duties on machinery, an increase in land tax, imposition of state marketing controls to increase meat packing margins, sharp reduction in fertilizer subsidies, and minidevaluation of exchange rates. As a net result, the producer sector entered a crisis, declines occurred in producer investment and in the demand for technical assistance, and meat packing industry's losses decreased. In August 1978, the Government began to announce a series of major reforms in its agricultural policies, mainly affecting the livestock subsector. The dominant policy objectives from 1978 to 1981 were to increase the role of market forces in the livestock sector, increase exports, stabilize consumer prices, and keep assisting the meat packing plants. Overall environment can be described as featuring a sharp rise in world beef prices through 1980, a strong domestic economic recovery, and high and fluctuating inflation rates. The policy actions taken were 1/ This section highlights a detailed analysis of the livestock sector included in Economic Memorandum of Uruguay, Report 3252-UR, March 1982.  -3- many, such as: (a) ending formal beef marketing and price and production controls; (b) imposing spot bans on exports and internal marketing; (c) increasing official beef stocks and supply intervention; (d) slowing down preannounced devaluations; (e) reducing land taxes; (f) reducing fertilizer subsidies and other tariffs in inputs; (g) financially bailing out producers; (h) giving tax rebates on beef exports; and (i) awarding conditional authorization for live cattle exports. This variety of measures, often changing within months to correct earlier contradictory measures, resulted in the following: real producer prices rose sharply and then declined; the financial indebtedness of producers grew; beef exports declined sharply, then increased; meat packing margins deteriorated, then improved; and the budgetary cost of short-term relief measures grew (see Chart 1). 1.08 At present, the producer sector is reluctant to undertake major long-term investments because of past governmental policies in what basically is a sector that needs a long response time, requiring stable policies. Producers also felt that resources would continue to be withdrawn from livestock and invested in other sectors. 1.09 A second and basic factor affecting Uruguay's profitability in the livestock sector is the meat processing and exporting subsector. Adding to the organizational complexity of the subsector internationally and to the perishable nature of the product, there is the historical passivity of export promotion in Uruguay. The new markets opening up will demand a continuous flow of high-quality meat, a requirement that, in general, is not met by Uruguay's industry. Although recent efforts have been made in Uruguay to consult and exchange information with other meat exporting countries, the development of specialty cuts, deboned meat and meat derivatives is only in the beginning stage. Beginning in September 1981, the National Meat Institute, with participation of the producer sector, has negotiated important exports to the Middle East. B. Previous Bank-Financed Livestock Projects2/ 1.10 Previous to Loan 1166-UR, the Bank made six loans to Uruguay's agricultural sector amounting to US$58.2 million to help finance four livestock development projects in support of the National Livestock Development Program launched by the Government in July 1957. The main objective of those projects was to increase beef production and exports through: (a) introduction of technological improvements in livestock production; (b) institution building; and (c) improvement of sector and economic policies. 1.11 Loan 245-UR for US$7 million was signed in 1959 to finance the First Livestock Development Project, implemented between 1961 and 1965. Proceeds were used essentially to demonstrate methods of pasture improvement on a large sample of farms. Loan 407-UR for US$12.7 million was made in 1965 to finance the Second Livestock Development Project, benefiting a large number of commercial farms. The implementation of the first and second projects was behind schedule. 2/ The published reports and audits on earlier projects are listed in Annex 1.  -4- 1.12 The Third Livestock Development Project, started in 1971, was financed by Loan 698-UR (US$6.3 million) and a supplementary loan, 773-UR, for US$4.0 million. It supported the continuation of the livestock program for one year while the Government resolved certain sector policy issues, especially in the meat packing industry, and restored ranchers'confidence sufficiently to encourage them to invest. The project (consisting of two loans) provided for the financing of ranch improvements aimed at increasing the carrying capacity of farms and the production of beef and wool; technical and consultant services; equipment and technical services; and the machinery necessary to grow, harvest, and process quality legume and grass seed. It also provided funds to help the Government improve meat inspection hygiene and processing services to raise the quality of exports. 1.13 The Fourth Project, started in 1972, was financed in two stages: Loan 816-UR (US$11.2 million), which financed operation in 1972 but actually covered operations for both 1972 and 1973, and Loan 940-UR (US$13.5 million), which was intended to finance 1974 operations but in fact financed 1974 and 1975 activities. The main reasons why this project covered a longer period than anticipated were, first, repeated devaluations of the peso following appraisal, which reduced dollar disbursements, and, second, delays by the Central Bank in claiming reimbursements from the Bank, thereby further reducing dollar disbursements due to changes in exchange rates between the time subloans were granted and the time disbursements were actually made. 1.14 The second stage was essentially completed when the Fifth Project was signed in November 1975. The Fifth Livestock Development Project was financed through Loan 1166-UR (US$17 million) and covered operations for the originally intended two years (1976 and 1977), plus two more (1978 and 1979). II. FORMULATION OF THE PROJECT A. Objectives 2.01 The Fifth Livestock Development Project was designed to continue assistance to Uruguay's national livestock development program by providing medium- and long-term credit to beef cattle and sheep ranchers, dairy farmers, pork producers and machinery contractors. As in earlier projects, the beneficiaries of colonization schemes sponsored by the National Institute of Settlement (INC) were eligible to participate with the approval of the Institute. The project included the financing of technical services, training and demonstrations. 2.02 The project's objectives were to expand beef and milk production so as to enable Uruguay to increase meat exports, to substitute domestically produced dairy products for imports, and help the Government to improve sector policies. The strategy used for meeting project objectives was to: (a) step up pasture production through use of phosphatic fertilizer and better seeds; (b) improve ranch and farm management by constructing fences, water points, and cattle handling facilities; and (c) initiate product diversification on small-scale farm holdings.  -5- 2.03 As in previous projects, funds were to be channeled through a Livestock Fund (FG) in the Central Bank to the Bank of Republic (BROU) for making on-farm development loans based on farm plans and technical evaluations made by the Honorary Commission of the Livestock Plan (PLAN), the institution which was also to provide the technical services. B. Pre-appraisal 2.04 As the second stage of the Fourth Project (Loan 816-UR) had been approved on October 23, 1973 and disbursement of that US$13.5 million loan was expected to be completed by end of 1974, a mission visited Uruguay from January 10 to 26, 1974 to pre-appraise the fifth loan. The quick follow-up was to avoid disrupting livestock lending to Uruguay since the extremely critical political situation in the country and the Bank's own reorganization effects caused operations with Uruguay to be slow and often delayed. 2.05 Only two main issues were identified at the pre-appraisal stage: (a) slow disbursements due to indexation of farm loans; and (b) the need to include small-scale farmer lending in the program. The pre-appraisal mission studied the small farmer crop subsector and concluded that lending to that sector posed many problems not solvable through livestock lending. Instead, the mission identified a possible small-scale farmer lending operation within the livestock sector in the form of lending for dairy (a relatively small-scale farmer activity in Uruguay) and lending to colonization settlers. C. Appraisal 2.06 An appraisal mission visited Uruguay between April 28 and May 20, 1974. The goals of the loan were similar to those of previous projects but a credit component to machinery contractors was introduced; lending to farmers in two-year tranches according to farm plans was suggested; and the mission insisted on liberalizing duties and eliminating rebates affecting meat and its inputs. Due to hyper-inflation in Uruguay and the depressed meat sector worldwide (the Common Market was closed to meat imports in September 1974), disbursements of the fourth loan in dollar terms slowed down significantly. 2.07 The two main questions at this stage were: (a) whether the Fifth Project should cover a one-year or a two-year lending program, and (b) whether funds for financing fertilizer imports should be paid directly to importers or by disbursements through the farmer lending mechanism. In retrospect, the Bank made good decisions. First, on institutional and farm-level grounds, a two-year loan rationalized subloan preparation at PLAN's level and standardized on-lending terms facing the farmer. With the passage of time, prospective livestock borrowers became familiar with Bank-related lending (its terms, supervision, bookkeeping and the like), distinguished between it and normal credit lines offered by BROU, and felt comfortable with Bank procedures. Second, the decision to finance fertilizer through on-lending served to eliminate stockpiling and waste and liberated PLAN from its unwanted role as manager of physical inputs.  -6 - D. Post-appraisal 2.08 When the economic situation improved in Uruguay and internationally at the beginning of 1975, and it was observed that on-farm credit commitments were expected to be completed by end-1975, a post-appraisal mission visited Uruguay in April 1975 to update project calculations. Uruguay's economic policy had moved towards liberalization with removal of fertilizer subsidies, sharply reduced beef export taxes, and adoption of a flexible exchange rate. 2.09 Two issues were raised at this stage, as well as during negotiations. The first one involved the exchange rate to be used in calculating Bank disbursements. To ameliorate effects of the slowdown in Bank disbursements and the loss of foreign exchange to Uruguay, Government requested that Bank disbursements be calculated at the average monthly exchange rate prevailing when BROU disbursed the subloans, instead of at the exchange rate prevailing when the reimbursement claim was processed in Washington. This formula was accepted reluctantly by the Bank, but the arrangement became more common in later years in countries experiencing frequent devaluations. It worked very smoothly in Uruguay by reducing exchange rate uncertainties between farm plan preparation and Bank disbursements. The second issue concerned subsidies to fertilizer imports. In this matter, the Bank maintained a strong posture and obtained an agreement that such subsidies were not to be reintroduced by Government unless prior approval was obtained from the Bank. This policy measure was adhered to during the duration of the project. 2.10 The sectoral theme then guiding the Bank's approach to agricultural lending under the project can be summarized as follows: (a) increase livestock and crop production through intensive land use; (b) give institutional support to the extension service system serving the livestock sector; and (c) encourage the Government to follow price, credit and foreign exchange policies that closely reflect market prices. The Bank acknowledged the depressed state of the sector and supported the loan with the goal of promoting change through economic dialogue. E. Questions by the Board 2.11 The queries raised by the Board before and during loan presentation have been grouped in the following main headings. Technical Director and Senior Economist Appointments. 2.12 The Technical Director and Senior Economist for the project were to be internationally-recruited with very detailed terms of reference. The Board requested justification for the requirement that the posts be filled by expatriates in light of PLAN's existence since 1959, but it was pointed out that the Government had requested the clause to ensure appointment of well qualified staff to those two important positions. The posts have remained key in PLAN's operations (see para 6.17).  -7- Large vs. Small-scale Farmers 2.13 The Board's concerns dealt with the large size of farm area held by prospective sub-borrowers and the small amount of loan funds going to small-scale farmers. Uruguay is a unique case in that about 80% of commodity exports are livestock based and most land can only be grazed; therefore, export policy often overrides equity considerations. Income inequalities arising from ownership of agricultural land exist but are not as pronounced as in most other economies. Given human and financial constraints affecting agriculture's public sector and the project's experience in designing technological packages for small-scale farmers, the above emphasis on productive aspects can be understood. During the project's life (1976-79), PLAN worked successfully with small-scale farmers and the image of PLAN staff improved in this respect. A follow-up project (Loan 1831-UR) deals with small-scale farmers more thoroughly. Meat Processing and Diversification of Bank Lending. 2.14 The Board queried the lack of diversification of past agricultural lending to Uruguay. As with the case of the large- vs. small-scale farmer considerations, export policy demanded priority for livestock development. Lending to the meat packing sector was about to be undertaken by the Inter-American Development Bank, while the Bank was considering a loan for small labor-intensive industries. No precise judgment can be made, but, in retrospect, the situation was such that the Bank could not follow up with a diversified agricultural project as planned two years later due to policy changes in Uruguay, changes which occurred after the project had been appraised and negotiated. The IDB loan to the meat packing sector was partially successful but not followed up by similar lending, and the then partially nationalized meat .packing industry floundered and all Government plants were offered for sale in 1978. III. IMPLEMENTATION 3.01 The major deviation in Loan 1166-UR from appraisal expectations is a four-year disbursement period instead of a two-year period. There were no significant changes'in its operation and arrangements, which simply followed earlier practices. Salient execution parameters are discussed below. A. Effectiveness and Start-up 3.02 The loan was signed on October 15, 1975, and the project became effective on February 13, 1976, four days earlier than envisaged. The only condition of effectiveness was that the Government enter into a subsidiary loan agreement with BROU (Section 3.03(d) of L.A.). A major change therein was that credit disbursements repayable by the Bank to Government would be computed at the exchange rate prevailing when BROU made its subloan disbursement (Schedule 1, para 8 of the Loan Agreement and para 2.09). 3.03 At the beginning of the 1976 credit campaign, PLAN departed from earlier practices by preparing a farm plan analysis based on longer term horizons (investments of up to three-year tranches and disbursements of up to four years, as needed in each individual analysis). Also, the traditional  May 30 closing date for a credit campaign was removed, permitting farmers to begin operations any time during the year. These measures proved to be welcome to all parties because: (a) the longer term plan removed uncertainty with regard to the direction of a farmer's operation; (b) lending calculations were simplified in later stages while providing benchmarks for updating farm plans; and (c) friction between the staff of PLAN and staff of BROU declined as more data for decision-making were put in writing. It is not too surprising that such measures were not put in place earlier considering that, beginning with the Fifth Project, lending changed in character. In fact, during the appraisal process, there was an implied change in attitude by the Bank toward more project lending and less toward annual program-type operations. B. Extensions and Reallocations 3.04 The two-year project was intended to close on June 30, 1978, but in June 1978, Government requested an extension of almost two years. Disbursements at that point were only 44% of appraisal estimates. The Bank approved a one-year extension instead of two, with the hope that policy changes could be best encouraged by keeping extension periods short. It is difficult to say what impact this attitude had vis-a-vis the sectoral situation then prevailing, but, in August 1978, a new set of policy measures was announced which liberalized the sector a great deal. 3.05 By mid-1979 (when only 60% of funds were disbursed but almost all were completely committed), a second extension was approved (to September 1980), with a reallocation of the unallocated category, mostly to the on-farm credit component after projections were carried out to ascertain disbursement demands in all categories. 3.06 By September 1980, the credit component was almost fully disbursed and a third extension was approved (to March 1981), with final adjustments in categories to allow for purchase of vehicles and provision of some delayed training (see table below). The reallocations did not affect project performance and were carried out routinely.  - 9 - Reallocations and Disbursements Category Allocated Disbursed