Philippines - Second Grain Processing Project

r e Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5448-PH PROJECT COMPLETION REPORT OVERVIEW PHILIPPINES SECOND GRAIN P'ROCESSING PROJECT (LOAN 1269-PH) February 6, 1985 East Asia and Pacific Regional Office This docuineut bo a reticted disribution and my be used by recipients only In the performnce of their official dudes. Its tents may not otherwise be disclased without World Bank athoriztion.  CURRENCY EQUIVALENTS Name of Currency Peso (P) Currency Exchange Rate USDollars:Pesos Appraisal Year Average US$1:P7.5 Intervening Year Average US$1:P7.5 Completion Year Average US$1:Il.O WEIGHTS AND MEASURES METRIC SYSTEM 1 hectare (ha) 2.47 acres 1 kilometer (km) 0.62 miles 1 meter (m) 39.37 inches 1 kilogram (kg) 2.205 pound 1 cavan (paddy) 50 kg - 1 cavan (corn) 57 kg ABBREVIATIONS ACA - Agricultural Credit Administration ALD - Agricultural Loans Department (of DBP) ASD - Agricultural Supervision Department (of DBP) BAADs - Branches and Agencies Departments (of DBP) BAEcon - Bureau of Agricultural Economics CB - Central Bank of the Philippines COA - Commission on Audit DBP - Development Bank of the Philippines GOP - Government of the Philippines GPD - Grain Processing Division (of DBP) IRRI - International Rice Rese7ich Institute MOA - Ministry of Agriculture- /2 MAF - Ministry of Agriculture and FoodL- NAPHIRE - National Post Harvest Institute of Research and Extension NEDA - National Economic Devel7iment Authority NFA - National Food Authority/ NFAC - National Food and Agriculture Council NIA - National Irtigation Administration PCR - Project Completion Report PCRO - Project Completion Report Overview PNB - Philippine National Bank RCA - Rice and Corn Administration S /1 The former wieght of 44 kg for cavan is sometimes still used in the Philippines. /2 MOA was the predecessor of MAF. Executive Order No. 965 issued June 1984 renamed MOA as MAF, transferring to it certain agencies engaged in food- production. /3 National Food Authority was previously National Grains Authority.  FOR OMCIAL USE ONLY PHILIPPINES SECOND GRAIN PROCESSING PROJECT PROJECT COMPLETION REPORT OVERVIEW Table of Contents Page No. PREFACE. .............................. BASIC DATA SH.EET ........... . ............ HIGHLIGHTS .................. . ........ BANK OVERVIEW OF THE PROJECT COMPLETION REPORT: I. Introduction.............. . .1..... II. Project Objectives and Achievements....... . . 1 III. Project Financing .................. . .... G. P.. . 3 IV. Project Implementation.. . 4 V. Institutional Impact. . . ................. 5 VI. Financial and Economic Impact ............ 6 VII. Other Benefits.................... 7 VIII. Commodity Study Component ............. . 7 IX. Post Harvest Grain Loss Study Component ....... 8 X. Bank's Role During Project Implementation ...... 8 XI. Conclusion..................... . 10 ATTACHMENTS: Comments from the Borr'Gwer MAP: IBRD Map No. 12005, Phi-lippines: Second Grain Processing Project This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PREFACE This is a performance review of the Second Grain Processing Project in the Philippines, for which Loan 1269-PH of $11.5 million was approved on May 13, 1976. The loan was fully disbursed and closed on November 17, 1983- This report consists of only the Project Completion Report Overview (PCRO) prepared by the East Asia and Pacific Projects Department. The detailed Project Completion Report (PCR) which was prepared by the Development Bank of the Philippines (DBP) is available on request from the Operations Evaluation Department (OED). The Project has not been subject to audit by OED. Comments on the PCR from other agencies involved in project imple- mentation and the National Economic Development Authority (NEDA) are incor- porated in the final PCR which was submitted to the Bank in February 1984. Attachment III reproduces NEDA's comments sent to DBP on the draft PCR. Copies of the Bank-prepared PCRO were sent to the Borrower in October 1984. Comments received from NEDA have been incorporated and are reproduced as Attachments. DBP sent a telex stating that it was generally in agreement with the Overview, and therefore offered no further comments. A copy of the telex is also included as Attachment II. The data and analyses in the PCR provide an accurate presentation of the project's performance, and the PCRO, while it summarizes the project's salient features and performance, also discusses the Bank's role in project implementation.  - Li - PRoJYCT COMPLrTION REPORT Philtppin. - Crain Proc...inn 11 - Loan 1269-PH DASIC DATA SIIECT IEY PROJECT DATA AppraLsal Actual or Actual an X of expectation rurr.nt estimate appraisal estimate project -at (USs siulton) 28.5 39.8 /a :40 /a Lo- n/Credit arount (I2S5 aiIion) 11.5 I1.5 100 Date Board approval 0506f 05113/7b Date eff.ett-ven. 0l5t4/76 11/12/76 Date phystic1 components complet-d 06/30/RD 06/30/83 176 /b Proportion then coaplmt.d 12) I00 56 Lloing date 06/30/81 06130/83 141 /b Economic ratr of return (ZS 28 19 IC 9 F'1.inncLl1 raEe af return (1) 27 18 CUMULATIVE DSRtlRSEHFNTS FY77 FY78 7Y79 FY80 FY81 FY8N2 FY813 FYR4 ApEl ata esItiate (US$ ) n 0.1 3.3 7.1 10.9 31.1 13.1 5 3.5 11.5 .rt.. (MSs r) - - 0.3 1.8 N .2 a.3 11.1 3.5 At.tual as: of .at.awt. 0 0.0 4.2 16.S 15.7 72.7 96.5 00.0 Date .,f fI,aI. dl.burr aeo! 11/07/13 fISStION DATA Dat.t No. of !.n-wecks Specializatlios Performance Type of YIasoln (mo/yr) p_r.n. In field repre....t..d /d rating /e T-und If p-nbles,s Is Identification fh NiA N/A N/A N/A Prpr-tion /bh n5'7' 'I N/A NIA N7A Appr;I 1-1 05/7 5 42.0 /1 Suobtoal 5 ;2.0 .p.ro lr I.n 3 11/7i. 2 *.0 M N/A N/A I/A Superv"i-on 2 (01f7 Z 1.4 O.e N'A N/A NI/A Supervision 3 05/9 I/k _ 4.6 c,d.. 2 2 F,M S.pe"rv[Ion 4 I1/n /k I 1.2 c,d.e 3 ' F,Ho Superv,IIon 5 Ot-/81 _ 1 3.2 b I I F Superviiion F. 8/N81 /1 I 0.2 b N/A X!A N/A Supervtsion 7 "Wb/H2 1 2.H b I 2 Su.pe-Ii-inn 8 O9,'M2 *. I 0.6 b 1 2 Suprvto q83 - 3.0 i I 2 0 Subt.t.1 If 22.0 'n.. 71 64 o TDHER PROJE'CT DATA Borrower Cnv.rnment of th, Philippin a Ececuting .%enle. Ornelopsrnt Bank nF the Phillppin-. (ODP., 8inlstrv of Agrtculture (MOA) and Nrlonal PoPt-Hirreat Inatito tr for Rsarch *nd F.Ktenalon (NAPHIRE) Fj,I Y.-r of Fnrrwrr: .i-nuav I - D.c.be 31 ris.. of *,.rr..cv (abbreviatiten) ts(P) Apor.1-le1 r avcr.,ge 1170 US5100 - P 7.', lt ..rv.n Ig ve..r. averave 1980 USSI.00 7 7.5 lomaplet-on year a=vcrag_ 1983 USS$IOn - P l .I) Fo Iin-on proJ-ct: N..se _ A gricultura.l Credit Project Loon/credit nsh..r :iMot yet determined i.oot/credlt alnos ut (11SS .1lion): 100.0 * Dnte Hoord ppr .val N/A a Coat -cerr-n of 39' only In rhe credit corponent. Houver, there us an additional study costing 50.3 mlillon -dd an t.. th. project * AppraIsal AcrtulI Art..al' :ppral.Il --- million) -- ('1 DPP 28.2 1992 139 VX0A f. 0.3 N/A NAPHIRE 0.1 0.3 I00 -t;I '_15 39 3 140 /b Calculated In ronth* over the period from Board sppruval date. 7/ Calculated on A different basIs than the appraisal, thug not directly c.par.. A-i-t-... rF; in.dea b-nrfitt pr.vioun..1 not I-tclded in the appralsal -stimate /d n - vgrtcr lturItrI b - agricuitural - ecno- ist; c - financIal analyst d - c-e-'l I.- r . - rul- tural engineer /l I - problem-fre. or mtior problema; 2 - moderat. prblem..: and 1 - saor probl Tf I - iopr-ving; 2 - sc.tionary; I - deterlorating. F - fioanctAl; H1 managerial: T - technicai; P - political; and 0 - other. / i nhis in a follo.-on project to Grain Processing I and Storage Project (Loan 720-PH) -_d - - -en neitrer an IdentIfication nor a preappralsal mission. /1 Date of th. Bank receipt of D1P preparation report. E The mission spent ftiv weeks In the field plus another week of travel time. /k Because of thr delays In completing the Grain Processing I project (Ln. 720-PH). the actu.l I- nc:ug of CraIn' II -s also delayed. t the meantim emsions whieh supervised Ln. 721-PH la. devoted .om- time to Ln. 12b9-PH. on wh!ch there ws no oab actlon until Fr7Q. /1 Pa,ck-to-Offle- report; no supervision report -as issued. 7i= SPreslon update, 1souance of Form 590 only.  - iii - HIGHLIGHTS The project was designed to increase the supply of rice and corn in the Philippines in continuation of the first Crain Processing Project (Loan 720-PH). It proposed to do so by providing credit througlh DBP for construc- tion, rehabilitation and acquisition of milling, drying, storage and transport * facilities, tlhereby inducing increased production and reducing post-harvest grain losses. The project contributed to the much needed physical facilities of the country for grain processing and storage; however, recovery rate ;and use of installed capacity are below expectation (PCRO, para 16) accounting for subproject financial rates of return below appraisal estimates. Poor subloan recovery and high overhead have contributed to the adverse financial position of DBP. While this loan had been fully disbursed, factors extern.al to DBP's agricultural lending operations have caused DBP to stop all subproject lending including its lending for grain processing and storage. Although project impact on the economic condition of the country has not come up to the level expected during appraisal (PCRO, para. 17), the majority of the subborrowers are optimistic about prospects of their invest- ment (PCRO, para 25). One of the lessons learnt from this project further reinforces the findings of the audit mission for the First Crain Processing Project, Dn thc importance of adequate project planning and preparation. There were short- falls in three areas of project preparation for the Second Grain Processing Project. First, there was an overestimate on the forecast nf credit demand for grain processing and storage. Second, there was no anticipation of alternative sources of credit supply, i.e. an implicit tnderestimate of the forecast of credit supply. This was because there were funds made available from private non-institutional sources. Third, there was inadequate m;arket survey/research on potential sub-borrowers which resul ed in an underestimate of pre-operating expenses and working capital requirements. On the other hand, another lesson learnt from the First Grain Processing Project had been successfully applied in this Second Project. This lesson is to have flexibil- ity during implementation. Several amendments were made to the loan agreement * which successfully brought about accelerated subloan disbursements. The amcnd- ments included one that enabled expansion of end-uses and end-users as well as one that enabled financing of working capital and completed works started not more than a year from the date of the subloan applications. These amendmcnts directly addressed and corrected for preparation shortfall of insufficient provision for working capital and pre-operating expenses.  - I - PHIL I PPLNES SECOND GRAIN PROCESSING PROJECT (LOAN 1269-PH) Overview of the Project Completion Report Introduction 1. The ProjecL Completion Report (PCR) for the Second Grain Processing Project in the Philippines was prepared on behalf of the Government, by the Agricultural Supervision Department (ASD) of the Development Bank of the Philippines (DBP). Draft copies of the PCR were sent for review internally by DBP's departments involved in implementation of the project. the Agricultural Loans Dep:artment (ALD) arid the Branches and Agencies Departments (BAADs). The PCR was also reviewed by the co-implementing agencies of the non-credit compo- nents ot the project, the Ministry of Agriculture (MOA) and the National Post Harvest Institute of Research and Extension (NAPl1iRE), as well as the National Economic Development Authority (NEDA), and the National Food Authority (NFA). Review responses were incorporated in the finai report which was approved by DBP Board of Governors on January 18, 1984, and submitted to the Bank on February 6, 1984. seven (7) months after the closing of the loan on June 30. 1983. 2. The project is a continuation of the First Rice Processing and Storage Project (Loan 720-PH) which was approved by the Board on January 26, 1971, and became effective on May 10, 1971, and for which a PCR was circulated on November 1. 1982. The Bank has made a total of 17 lines of credit to DBP since 1971. of which eight (8) have been for industrial investment, eight (8) for agricultural investments, and one (1) for inter-island shipping. Within the Bank. responsibility for broad institutional and financial supervision of DBP is assigned to lhe Industrial Development and Finance (AEPID) Divis on, with participation of the Philippines Agriculture (AEPA2) Division as warran- ted. Agricultural supervision activities, thus, center solely on DBP's agri- culLural lending and reltLed supporting operations. This PCR focuses on DBP's leniding Ifor the Second Grain Processing Storage Project analyzing project- related impact oDl DBIP and the Philippines economy. E'roject Objuctives and Achievements 3. Thle purpos.- of the projc:t was Lo increase the supply of rice and corn in Lhe Philippines by: a) providing the needed milling. drying, storage and transport zacilities: b) inducin2 increased production in areas then without ade'qua.e proce:;sing tacilitie:;: and c) reducing post-harvest grain losses. The. proiect. prepared by DBP. was appraised in August/September 1975. Nenotiations took place in April 1976. Board approval was in May 1976, and the pro ct becam.' e2ecti:e on November 12. 1976. 4. Th. projoect was *xpecl:-d to finance about 155 rice and corn mills and a.1soc:aLted m-chanicai .ind ;ular driers. warehouses. trucks, and ancillary cquipment. 'n actualitv. DBP t.nanced a tota' a 340 subprojects, with the numher u: r c. mills iI nanced ar excoedintg the estimate. and the number of corn mil!s inanced ar 90 of the est_imate. Table I summarizes and compares appraisal and actuai number and investment amount of subprojects financed by DBP.  Table 1: APPRAISAL VS. ACTUAL SUBPROJECT FINANCED BY DBP (Amounts in P million) Actual/ Capacity Appraisal Actual appraisal (Z) (input/hr) Number Amt./a Number Amount Number Amount Rice Mills Up to 1/2 ton 34 8.4 31 6.2 91 73 Over 1/2 ton to 1 ton 68 84.0 167 39.7 246 47 Over 1 ton 33 72.9 75 102.1 227 140 Subtotal 135 165.3 273 148.0 202 90 Corn Mill' Up to I ton 14 17.9 15 2.6 107 14 Over 1 ton 6 28.6 2 6.9 33 24 Subtotal 20 46.5 17 9.5 85 20 Feed Mills - - 8 20.0 N/A N/A Others Rice and corn mills combined - - 7 13.1 N/A N/A Support to existing mills - - 35 103.2 N/A N/A SubtotaL - - 42 116.3 N/A N/A Total 155 211.8 340 293.8 219 139 /a Including price contingencies of P 50.7 million. 5. Although the number of subprojects far exceeded appraisal estimate, total related investments were below estimate. This was because relatively few subprojects put up all the physical facilities prescribed in the appraisal models, resulting in a smaller than anticipated average subproject size. Table 2 shows average cost of rice mills and corn mills at 44% and 24Z of their respective estimated costs at appraisal.  - 3 - Table 2: APPRAISAL VS. ACTUAL AVERAGE COST OF SUBPROJECTS Capacity Appraisal Actual Actual/appraisal (input/hr) (P'00O) (p'o00) (W) Rice Mill Up to 1/2 ton 248 200 81 Over 1/2 ton to 1 ton 1,235 238 19 Over I ton 2,207 1,361 62 Average 1.224 542 44 Corn Mill Up to I ton 1,279 171 13 Over I ton 4,769 3,444 72 Average 2,32b 556 24 Feed Mill - 2.499 N/A Others Rice and corn mills combined - 1,880 N/A Support to existinig mills - 2,948 N/A Average - 2.769 N/A Total Average 1.366 865 63 6. Geographical locations of subprojects were as expected ut appraisal. Of total rice mill subprojects, 49% were in l.;zon, 5Z in Visayas, and 36% in Mindanao. Most of the corn mills (82%) were in Mindanno. Project Financing 7. The sharing of subproject financing was substantially ditterent trom appraisal estimate. Table 3 compares appraisal and actuaL subproject financ- ing. Total costs of the credit component exceeded appraisal estimate by 39: because DBP financed a larger number of subprojects than was expected at appraisal. Subborrowers had to finance 31Z of total costs, instead of the estimated 17Z. This is because the appraisal mission did not take into account pre-operating expenses nor made sufficient provision for working capital in its estimate of subproject costs. The expenses shortfall were ultimately provided by the subborrowers. thereby substantially increasing their financing share. Moreover. project subborrowers whose ubloan collateral was deemed deficient (per DBP lending guidelines) had to put up more equity than otherwise required.  - 4 - Tat-le 3: APPRAISAL VS. ACTUAL SUBPF.OJECT FINANCINC Actual / Appraisal Actual appraisal Amount Share Amount Share Amount (P mn) () (P mln) (t) in % Subborrowers 36.7 17 90.8 31 247 Cofinancinit ot ithpro ectsi/A - - 17.0 b N/A DBP 91.8 43 97.2 33 lot) IBRD 83.3 40 88.7 30 Loh Total 211.8 lCD -93.8 100 119 PNB r( -inancs'd with Elp P 17 m i Ion on NFA wnrehoust' s;uhjro pct. P'roi jict Impi *mo-nr rat ion 8. D)l .av in nc-got-.at icnq of the subsidiarv loan .arr-ement hetw-vn the, Philippine Cove'rnm,-iat and DBP ca.u;ed the pro jct to become ettectivyt a month late. on November 12. 197b. However. it was not until Julv 1, 1977. seven tionths l.ater. j'icn tunds trom the First Rice Process:nat and StoraRe Yro ject (Loan 720-PHl) had biren !ullv committed. that DBP finallv began to commit subloans under this proiect. Consequentlv. disbursements which were to start :n the last quarter ot FY77 did not start unt:i one and one-halt years l.iter in the s-rcond quir c-r of FY79. ). lTh- I'CR falit% r he- 1.-nk (par.a '.!. on pa*r 11 of the PCR) tor h.lv:: n; .ilppra i;d The' pro jecu t} .toon co th.at it bec.am' rtferti ye pr zror tfl tul ;unmm;mt-nt ot Iliw pri-'-di'dn. projicct. Notwithst'anding :he i"CR' cl.im. Ba.nk ricord'; ':h;w *hat :n .1av 1975 whon the prol -ct was appr.ii fd. DM' 'nde xp. iI *-x; -d t undc rom m: h.- t i r!;t pro j-r It to h.av bIE.'n ! Si I I crfhIMI I .-1i hy rtanu 0 . 197b s.r t ur (4) months before cr htduled el tect vr-ns-- of I h ;sri-':. - ! n I Iow uip pro -rct I : w.-. a: * hat t iin. .'ppropria-t. t hat .'n a-ppr.i .al. hb itiunche-d i*mmdiatel v :o that cubpro iec! tunding7 would not I) - .nLi'rrupl vd. Subt;u'nt lv* h.'r. were se-eral dliv:. .and hi' pr-ce.din proI 1. oan 720-ilt be.camli uilv committIed . vs--r 1a ;n .une i977. *;'-n (7) rnr;n' '-; a rter *hic t 1i OW-Up pro ]ec! had become .-: :':e. The FiC! shows a con:us:on between fiscal and caiend.tr v,'ar'. Ur :ke *he 1.ink s tiscal ye.ar. the Ohi ippines' fIscal year :s the same i1s .he z.ai"ndar year. 'here.tore. where.as the- PCR c'aims *ha.t ;nitial dicburse- m-n~ rl s-w.re . xpected :n the last -iuarrsr 11 :497. h. .tppr.t;.ul actu.tilv .i;'.-rned *h:; t-h be the 'asr -iutirter vt FY.7 .'r S' r: -;:n. 977. O(-) -n.-r r74 .4and Octvber ::475 Stuporr:;i on I ; r * *r !.onn 720-Pi. RK c.- : s cei n r a ..C St 3ragr '- h-- h.-h *-sI ima-d d .; vinI ti-ns-nLnt ot h-: .' t- iln.30. 197fw.  10. Onces -.I art .'d. ihe- prO l-i'c was .- I-;o -;ILW I o di hlatarse hbecause ot wa-w nk i1.-mand tcar 1)111' Tsaa I w rn-.. *EIam-pt r - a omp-I ci er. t roam -;upr' Ii- r- ' credi r h!c w.-Il Ia go.-n.-vral app..rt-h.-n; i(m on a i ovt- rnlhm ul p riCL cOEW rcil ,t riC t aind corl. M.arvcver. 1 illP S a n;::a 11 !IY j.Asckage (p;aara 1) jasar -; as lirvw Iis.aral,a rat I anan cine g or ata-.-,.t t*r-; wt.su ar- I vplzrai 1 v -1.i1 I- i l i-iiad. All h -., ri-I I.-c-I shcrt lial 2 % .dijria. pr )t'r I 1err,-.parali mta .mnad ap;-ra a . - V.- -rori I.;l I'; IIr n th iri-- irs-;i: a c ) tM-rs t ama: :I m rat c-dtta *i-misaid I or gr.raaa lror-as ;-;!;ilg -and ii ciraRt-:. (Ia) mntlc-r--.1 cimlt! :an uo al i,-rnal iv- ,.oiriC-% ol cresdiI -*Lijjaplv: ;and (iii0) Ilark )u -i.-r rII-. maa I.ek.-? r%--.e.arch IIt paaa [ i-taliral -.aIl-tjirriawa-r-. 'c-rn.It-tilSlla I it I..; .-,4 I m-i a 1t I .I mne-uit prm a I .- I I hli- itlcaat1 rv. I I - Alt,-EA ..-. -rd .tatin-aaelmc-ia -1,I I ItIllI- I;1 ari-im -til 'la a clhI II(- I tade--. :uta * ;-~pl-.a'-:i 'I .-1 *