Turkey - Second Agricultural Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 10454-TU Type: (PPR) Report No. 10454 RICE, E.B./ X31755 / T9 059/ OEI PROJECT PERFORMANCE AUDIT REPORT TURKEY SECOND AGRICULTURAL CREDIT PROJECT (LOAN 2318-TU) MARCH 23, 1992 Operations Evaluation Department 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 Name of Currency: Turkish Lira (TL) Rate of Exchange: Appraisal - May 1983 US$1.00 - TL 182 1984 - TL 367 1985 - TL 522 1986 - TL 674 1987 - TL 857 1988 (Completion) - TL 1400 ABBREVIATIONS ASAL - Agricultural Sector Adjustment Loan FSAL - Financial Sector Adjustment Loan IAEE - Igdir-Aksu-Eregli-Ercis Irrigation Project MAFRA - Ministry of Agriculture, Forestry and Rural Affairs PCR - Project Completion Report PPAR - Project Performance Audit Report PPF - Project Preparation Facility SACP - Second Agricultural Credit Project SAL - Structural Adjustment Loan SEE - State Economic Enterprise SPO - State Planning Organization TCZB - Turkiye Cumhuriyeti Ziraat Bankasi (Agricultural Bank of Turkey) WPI - Wholesale Price Index FISCAL YEAR OF BORROWER TCZB: January 1 - December 31 WEIGHTS AND MEASURES Metric System THE WORLD BANK FOR OFFICIAL USE ONLY Washington, D.C. 20433 U.S.A. Office of Director*General Operatons Evaluation March 23, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on TURKEY - Second Agricultural Credit Proiect (Loan 2318-TU) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Turkey: Second Agricultural Credit Project (Loan 2318-TU)" prepared by the Operations Evaluation Department. Attachment 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT TURKEY SECOND AGRICULTURAL CREDIT PROJECT (LOAN 2318-TU) TABLE OF CONTENTS Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i Basic Data . . . . . . . . . . . . . . . . .. . . . . . . . . . . . i Evaluation Summary . . . . . . . . . . . . . . . . . . . . . . . . . v I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. IMPLEMENTATION EXPERIENCE .... .. . . .. . . . . . . . . . 2 A. Implementation Schedule ................. 2 B. On-Farm Development ................... 3 C. Credit Components Linked to Special Government Schemes . . . . . . . . . . ...... 4 D. Igdir-Akeur-Eregli-Ercis (IAEE) Irrigation Scheme . .. .. . . . 5 E. Corum-Cankiri Component . . . . . . . . . . . .5 F. TCZB - Institutional Strengthening . . . . . . .6 G. Staff Training . . . . . . . . . . . . . . . . 6 H. Vehicles and Equipment . . . . . . . . . . . . .7 I. Study of Credit Cooperative System . . . . . . . 7 J. Agricultural Sector -Positive On-Lending Interest Rates * * * - . * * * * . . . . . 8 III. PROJECT OTCOE . . . . . . . . . . . . . . . . . . 9. . . . . 9 A.* Credit Program . . . . . . ** . . * 0 0 * * 9 B. Crop Production . . . . . . . . . . . . . . . . . 8 C. Institutional Strengthening . . . . . . . . . . . . . . . 10 D. Financial and Economic Benefits .99 9....9 .9. 10 E. Loan Recovery . * * . * . . . * . 9 . . . . 11 F. Substitution and Diversion of Credit Fu'ids at the Farm Level . . . . . . . . . . 11 G. Substitution of Funds at the TCZB Level . . . . . . . . . 12 IV. FINDINGS AND ISSUES . . . . . . . . . . . . . . . . . . . . . . 13 Annexes: 1. Production Data for 8 Project Provinces A. By Provices 1984 and 1988 . . . . . . . . . . . . . . . 15 B. By Crop: 1984 through 1988 ............. . .. 16 2. Letter from the Undersecretariat of Treasury and Foreign Trade 17 Map IBRD 170711 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. PRO.VCT PERFORMANCE AUDIT REPORT TURKEY SECOND AGRICULTURAL CREDIT PROJECT (LOAN 2318-TU) PREFACE This is a Project Performance Audit Report (PPAR) on the Turkey Second Agricultural Credit Project, involving a loan of US$150.4 million to the Turkiye Cumhuriyeti Ziraat Bankasi (Agricultural Bank of Turkey - TCZB). The objectives of the project were to increase agricultural production and raise farmere productivity and income by providing investment credit and working capital; to encourage TCZB institution building; and to address two sectoral issues, positive on-lending interest rates and the strengthening of credit cooperatives. More than 270,000 farmers were to be assisted. The loan, which was approved on June 27, 1983, was fully disbursed. The PPAR is based on the Project Completion Report (PCR), which was submitted to the Board on February 14, 1991, the Staff Appraisal Report (SAR), the President's Report, the loan documents, a study of project files, and on discussions with Bank staff. An OED mission visited Turkey in May, 1991 and di3cussed the effectiveness of the Bank's assistance and project execution with TCZB and other Government agencies. Their kind cooperation and valuable assistance in the preparation of this report is gratefully acknowledged. The PCR provides a good account and assessment of the project experience, and discusses the performance of the Bank and TCZB. The PPAR elaborates on particular aspects, such as the TCZB institutional strengthening and the difficulty of maintaining real positive on-lending rates. In accordance with standard OED procedures, copies of the draft PPAR were sent to the Government for comment. Its response dated February 19, 1992 is attached as Annex 2. PROJECT PERFORMANCE AUDIT REPORT TURKEY SECOND AGRICULTURAL CREDIT PROJECT (LOAN 2318-TU) Basic Data Sheet Appraisal Actual Estimate Economic Rate of Return (%) Medium and Long-Term Activities (Range) 14 - 38 17 - 71 Economic Benefit/Cost Ratios Short-Term Production Activities (Range) 1.7-3.2 1.3-3.5 Financial Rate of Return (%) Medium and Long-Term Activities (Range) 19 - 29 13 - 52 Financial Benefit/Cost Ratios Short-Term Production Activities (Range) 1.4-3.5 ?.4 Number of Loan Beneficiaries 271,000 200,000 ----------------------------------------------------------------------- Project Timetable (aonthlyear) Activity Date Actual Date Planned Identification 5/81 Preparation - 9/82 Appraisal 11/82 11/82 Loan Negotiations 5/83 5/83 Board Approval 7/83 6/83 Loan Effectiveness 9/83 4/84 Loan Closing 12/87 6/88 Loan Completion 6/88 12/88 ----------------------------------------------------------------------- - iv - Cumulative Estimated and Actual Disbursements (US$ million) FY84 FY85 FY86 FY87 FY88 FY89 Appraisal estimate 20.9 56.0 98.6 150.4 - - Actual 0.4 29.4 47.6 104.6 147.6 150.4 Actual as I of estimate 1 53 48 70 98 100 ------------------------------------------------------------------------------------------ Staff Inputs (veeks) FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 TOTAL Identification 8.0 1 . - - - - - - 8.0 Preparation 24.0 1 - - - - - - - 24.0 Appraisal - 34.0 . - - - - - - - 34.0 Negotiations - 2.0 - . . - - - - 2.0 Supervision - - 11.4 23.6 9.3 4.7 4.5 7.5 - 61.0 Other - __- 13.0 13.0 Total 32.0 36.0 11.4 23.6 9.3 4.7 4.5 7.5 13.0 142.0 1 Estimated. Figures of FY82 and FY83 are no longer in the Bank's computer. ------- ---------------------------------------------------------------------------------- - v - PROJECT PERFOMANCE AUDIT REPORT TURKEY SECONn AGRICULTURAL CREDIT PROJECT (LOAN 2318-TU) EVALUAT'.jff SUMMARY Intzodu 3. Despite delays, the component comprising a first-phase of institu- 1. The p..ec.t provided wedium and tional strengthening, which involved short-term credit throvah the Turkiye reorganization, decentralization of Cumhuriyeti Ziraat Ban. -ai (Agricul- operations, improved lending policies tural Bank of Turley - TCZB) in ten and procedures, and financial and selected provincer, 'r:lt for four management control and information Special Government Schemej, and funds systems, was completed satisfactorily. for the institutional stx 'ngthening of But success in achieving real positive TCZB. Two sectoral oblentives were on-lending interest rates in the agri- also addressed. Of the total loan of cultural sector by 1984, one of the US$ 150.4 million, US$149.1 million was sectoral objectives, proved to be disbursed for credit, the remainder was short-lived, although the requiremont used for equipment, consultants and to maintain positive rates was also training. contained in two Structural Adjustment Loans and two Sectoral Adjustment 2. Due to high, unexpected annual Loans. The other sectoral objective, inflation from 1984 onwards the demand an evaluation of the agricultural for short-term credit was much greater cooperative credit system and prepara- than anticipated. TCZB responded by tion of an institutional cooperative linking short-term credit needs to more development program, was completed flexible farm plans and introducing satisfactorily, but has been only simpler collateral requirements. This partially implemented. was t Oone for medium-term borrowers and _&%sir demand fell. Some US$71 mil- Objectives and Setting lion was reallocated for slort-term sub-loans for on-farm development, 4. The objectives were to: including US$38 million (nearly 601) of that which was originally earmarked for * increase agricultural production and short-term loans under the Special raise farmers' productivity and Government Schemes. Overall, some income, 200,000 farmers received credit; the * encourage institution building total area harvested increased; and within TCZB through an agreed Action production and farm incomes rose. Plan for its reorganization, and - vi - 0 addreas sectoral issues of positive measures were not sufficient to on-lending interest rates and produce the results projected by the strengthening of credit coopera- Goverment or anticipated in their tives. discussions with the Bank. As a result of the failure to increase 5. The first Bank loan to TCZB, the rates and worsening inflation in 1991t Agricultural Credit and Agroindustries agricultural interest rates became Project (Loan 1248-TU), was completed increasingly negative in real terms. in 1984. The Second Agricultural Agreements on these rates undertaken Credit Project (SACP) has been followed under the SACP and the Structural by a Third Agricultural Credit Project Adjustment and Sectoral Adjustment (Loan 3090-TU), which was approved in Loans remain unfulfilled. For the 1989 and is still ongoing. other sectoral objective, improvement of the cooperative system, the Cooper- Implementation Experience ative System Study was completed but it has not been possible to implement 6. Although implementation was the Institutional Development Program, delayed by almost a year, due to late which was dropped from the Third loan effectiveness and TCZB's failure Agricultural Credit Project at TCZB/ to issue Project Credit Guidelines Goverment request. until mid-1985, disbursements picked up substantially by 1986/87 and the loan Result. was extended by only six months. The On-Farm Development Credit Program was 7. Some 200,000 farmers borrowed successfully implemented, dominated by under the project, either directly or short-term credit. However, the through cooperatives. The medium and Special Government Schemes disbursed long-term On-Farm Development program poorly, due to: delays in completion of suffered as a roo-alt of high annual irrigation works; over estimation of inflation and TCZB9s inability to credit demand; and, for two schemes, adjust to a rapidly changing economic some of the credit needs may have been environment. But seasonal credit disbursed from the project short-term demand boomed. The harvested area in On-Farm Development Credit category. the project provinces increased by an The TCZB institutional strengthening estimated 500,000 ha during the component suffered initial delays but project period, and production showed was successfully completed. Unfortu- substantial gains, particularly nately, the sectoral objective to cereals, pulses and oil seeds. For achieve real positive agricultural representative crops funded with interest rates was obtained only short-term production loans (wheat, briefly from August to December 1986, barley, lentils etc.) the indicative through a combination of interest rate financial benefit/cost ratios range increases and anti-inflationary from 1.3 to 2.4, and the economic policies. However, the lowest rates, benefit/cost ratios from 1.3 to 3.5. for livestock and fertilizer loans, The indicative financial rates of were reduced in 1987, an election year, return for investments requiring and became negative. When inflation medium and long term loans (dairying, accelerated in 1988 all interest rates beef fattening etc.) range from 131- to farmers became negative. Although 521, and the economic rates of return interest rates were increased in 1988 from 17%-711. Finally, the first and 1989, further anti-inflationary phase of TCZB institutional strength- - vii - ening has resulted in a stronger, more timetable (March 31, 1991) vas flexible institution well capable of agree for reaching real positive handling increased credit volume. interest rates. This date passed and the requita~ment has still not Sustainability been met, eight years after the SACP was approved. Nevertheless, 8. The SACP was followed by the the first phase of TCZB's Third Agricultural Credit Project, reorganization and strengthening which is assisting TCZB with ite short- has gone well. It has been term production credit and medium and protected from much of the damage long-term investment credit programs in that subsidized credit has caused 45 provinces. Agricultural Credit Co- to the viability of financial operatives are also being supported institutions in other countries. under this project, and the institu- Also, there is little evidence of tional strengthening of TCZB will significant credit substitution or continue. In addition, the Third Agri- di-ersion on the farms. In these cultural Credit Project Loan Agreement respects, the effects of the contains covenants continuing to seek negative rates have Leen less positive real interest rates, as well serious than anticipated. as other sectoral objectives. (b) The PCR concluded, correctly, that Findinas and Issues in countries where high inflation is a possibility, the project 9. Overall, the project was success- design should ensure that the ful. The objectives of increased agri- credit institution's appraisal and cultural productivity, farmer income lending procesaes can accomm(,date and the institutional strengthening of rapid price changes during sub- TCZB were substantially met, but the proje implementation, by sectoral objective of positive inter- indexing sub-loan tranches to est rates was not. The fact that an inflation. Otherwise the farmer important sectoral objective was not will not ba able to complete his achieved raises one issue and there are approved expenditure plan. two findings related to project design: (c) Indexing should also apply to the (a) Real positive agricultural inter- definition of incremental dis- est rates were not maintained bursements of short-term loans. In after 1986, despite the combina.- countries where high inflation is tion of two Structural Adjustmer. a possibility, these must be and two Sectoral Adjustment L defined as real rather than seeking this objective, in nominal additional disbursements tion to the SACP. The covenant compared with the previous year. was subsequently included in the Otherwise the Bank could be Third Agricultural Credit Project, disbursing its funds against but only after project processing TCZB's loss in the value of its was suspended until a revised outstanding loans. PROJECT PERFORMANCE AUDIT REPORT TURKEY SECOND AGRICULTURAL CREDIT PROJECT (LOAN 2318-TU) I. BACKGROUND 1.01 Over the last twenty years, Turkey's agricultural policy has moved from a major emphasis on self-sufficiency in food production - which was achieved with the help of subsidies on inputs, credit and producer prices - towards export grow.h, import liberalization, the removal of subsidies, and reliance on market forces. In the 1980's the Government, with Bank assistance, began to introduce policy reforms and to improve agricultural support services, including the credit delivery system. Bank support for policy reforms was provided through a series of Structural Adjustment Loans (SALs), Agricultura. Sector Adjustment Loans (ASALs), and Financial Sector Adjustment Loans (FSALe). The first Bank loan to Turkiye Cumhuriyeti Ziraat Bankasi (Agricultural Bank of Turkey, TCZB) - the Agricultural Credit and Agroindustries Project (Loan 1248-TU) - was approved in 1976 and completed in 198&. The Second Agricultural Credit Project (SACP) was formulated in response to a 1982 agriculture sector mission's findings that there was a need to double the existing volume of agricultural credit, in real terms, if agricultural production and export growth targets were to be .,alized. 1.02 The SACP, which was to continue efforts started under the Agricultural Credit and Agrolndustries Project, was prepared by TCZB, appraised in 1982 and approved in June, 1983. The loan became effective ten months later, in April, 1984, and closed in June, 1988 after a six month extension. A Third Agricultural Cradit Project (Loan 3090-TU), to consolidate the achievements of the SACP, was approved in June, 1989 and became effective five months later. The Third Agricultural Project was appraised in 19PS but processing was suspended until a revised timetable for reaching positive interest rates was agreed. 1.03 The SACP objectives w c- to: (a) increase agricultural production and raise farmers productivity and income; (b) further encourage TCZB institution building through an agreed Action Plan for its reorganizatiun and strengthening, and provision of staff training and equipment; (c) address two sectoral issues - regarding on-lending interest rates and strengthening of credit cooperatives - by Government agreement to: (i) achieve real positive on-lendini rates in the agricultural sector by end 1984, and (ii) arrange for a study to develop a 5-yaar plan for development of the credit cooperative system. The important sectoral objective, of achieving real positive on-lending interest rates by end 1984, was also included in the SAL IV and V loans (2321-TU and 2441-TU), approved in June, 1983 and June, 1984 respectively, and in the Second Agricultural Sector Adjustment Loan (2585-TU), which was approved in June, 1985. -2- 1.04 The SACP contained the following components: (a) On-Farm Development Medium-term loans for 6,500 farmers and short-term loans for 70,000 farmers in 10 selected provinces; (b) Second Crope Scheme Short-term loans to 60,000 farmers to grow a second crop in irrigated areas in 15 provincess (c) Fallow Reduction Scheme Short-term loans to 50,000 farmers to grow crops on fallow land in 12 provinces; (d) Irrigatton Scheme Short and medium-term loans to 25,000 farmers in areas covered by the Government's irrigation development scheme (Loan 2433-TU); (e) Corum-Cankiri Short-term loans to 60,000 farmers in areas covered by the Bank- assisted Corum-Cankiri Rural Development Project (Loan 1130-TU); and (f) Institutional Strengthening of TCZB Implementation of the Action Plan, staff training and vehicles and equipment. 1.05 Total estimated project costs were US$363.5 million with a Bank loan of US$150.4 million, the remainder being provided by TCZB (US$138 million) and farmers (US$75.1 million). Actual project costs totalled US$382.7 million, an increase of about 5 Z. In the short-term loan component, Bank disbursements were to be made against incremental TCZB onlending, but the Loan Agreement did not specify that it should be in real terms. II. IMPLEMENTATION EXPERIENCE A. Implementation Schedule 2.01 Ten months elapsed between loan approval and effectiveness, due primarily to conflicting legal opinions within the Government regarding the guarantee of foreign exchange losses on the loan to TCZB. This delay was compounded by TCZB's failure to issue guidelines for implementation of the credit component to branches in the project provinces until February, 1985, due to internal differences on the format and content of the guidelines. Despite these initial delays disbursements later accelerated and the loan was only extended by six months to June 30, 1988 and closed fully disbursed. -3- B. On-Farm Development 2.02 At appraisal, the On-Farm Development Component and the demand for medium-term and rhort-term credit was based on the assumption that inflation, which had peaked at more than 1002 in 1980, would be sharply reduced through the structural adjustment process started in 1980. In 1982 the wholesale price index (WPI) declined to 25Z and it was expected that further improvements would ensue. However, during implementation of the SACP (19,4-1988) annual inflation, as measured by the WPI, averaged 45%, with a high of 68% in 1988, instead of declining as expected. This, coupled with progress in reducing input subsidies through 1986, with improved farmer access to credit (more funding, introduction of flexible farm-plaiL based credit,1' and reduced collateral requirements) and with relatively low interest rates, compared to commercial loans, gave rise to an unprecedented deband for short-term credit. Conversely, many potential medium-term borrowers, concerned about rising inflation and uncertain whether the final loan amount would be adequate, decided not to borrow. TCZB did not or was unable to respond to medium-term borrowers by linking credit needs to farm-plan based credit, as it did for short-term borrowers, and TCZB branch managers did not have the authority to amend the medium-term investment models and provide additional loan funds. This does not appear to have been raised by Bank supervision missions, but, even ii it had, the Audit considers that the inflation factor and the general climate of uncertainty would have precluded any dramatic increase in medium-term borrowing. 2.03 As stated in the PCR, the On-Farm Development Program was successfully implemented. Short-term credit dominated the program, and some US$71 million was reallocated for short-term sub-loanc, of which US$20 million came from the On- Farm Development medium-term loan category, US$4.0 million from the vehicles and equipment category, and US$47 million from the' Special Government Schemes, including US$38 million from short-term c-adit categories, which disbursed poorly for several reasons. 2.04 During the initial Bank supervision mission the question was raised whether lending to credit cooperatives, which TCZB had included together with loans made directly to farmers for reimbursement under the Bank loan, was eligible for reimbursement, particularly as the credit cooperatives had not been appraised. Mention of the credit cooperatives was made in the SAR (under eligibility, in the on-lending terms and procedures section). However, the loan documents neither included nor excluded the credit cooperatives. Annex 2 to Schedule 2 of the Loan Agreement (Lending and Operating Policies and Procedures for Part A of the Project - Agricultural Credit) states; "applications for sub- loans will be reviewed and approved on the basis of the eligibility and credit worthiness criteria contained in the Credit Guidelines". In January, 1986, the Bank informed TCZB that there was an implied understanding that project funds could be channelled through credit cooperatives, provided the policies and frocedures in Annex 2 (Schedule 2) of the Loan Agreement were met, i.e. that they 11 A simple production plan showing crop type(a), area to be planted, input requiremente and expected production. -4- follow the Guidelines. This failed to register with TCZB which, six months later, wrote seeking clarification whether 1985 and 1986 loans to credit cooperatives were eligible for reimbursement. The Bank again confirmed that loans financed through the credit cooperatives were eligible for financing under the loan, provided production plans are made available for short-term loans and farm development plans for medium-term loans. 2.05 The Audit believes that there was only one, minor, adverse effect because of this misunderstanding - delayed loan disbursements related to 1985 and 1986 TCZB loans to credit cooperatives. No harm was done, and a lesson was learned. The Third Agricultural Credit k):oject required TCZB to conclude an agreement satisfactory to the Bank for the provision of project credit throngh the credit cooperatives, including project lending policies and procedures, the use of models and technical staff. C. Credit Components Linked to Special Government Schemes 2.06 Project support was provided for the Government's high priority land use intensification Second Crops Scheme to ensure better utilization of irrigated lands in 15 provinces in the Aegean, Mediterranean and Southeastern Anatolia Regions. Short-term loans were to be provided to some 60,000 farmers to grow maize, soybeans, peanuts, sesame, sunflower, sorghum or rice on 220,000 ha of irrigated land. Similarly, funding was provided for ebort-term loans to 50,000 farmers under the Government's Fallow Reduction Scheme to grow lentils, chickpeas and cow vetch on some 265,000 ha in 14 provinces in the Western, North-central and Southeastern Regions (see map). 2.07 Disbursements against short-term loan categories under the Second Crops Scheme and the Fallow Reduction Scheme were disappointing and US$30.5 million was reallocated from these categories to the On-Farm Development component for short- term loans. The PCR states that: "the major reasons for the shortfalls were possible overestimation of credit demand at appraisal; excessive credit security requirements; inadequate cooperation between TCZB and MAFRA at field level; and use of normal TCZB credit funds instead of project funds". Supervision missions commented that for the Second Crops Scheme some crops (eg.soybeans in the southeast) had proved to be inappropriate. Increased earnings from principal crops was also believed to enable some farmers to self-fund inputs for both schemes. 2.08 Credit security requirements under the Special Government Schemes were identical to those applied to all TCZB credit programs, but loan applications required certification by agricultural extension staff. In discussions with MAFRA the Audit was informed that there were a substantial number of applicants for both the Second Crop and Fallow Reduction Schemes. For example, in 1988 MAFRA proposed 37,000 farmer applicants to TCZB for Second Crops short-term credit and 20,000 farmer applicants for Fallow Reduction short-term credit, but a large number in both groups were rejected because they had existing overdue debt or because they could not meet TCZB collateral requirements. Although MAFRA officials felt that TCZB should have been more flexible on collateral requirements, they acknowledged that the credit worthiness criteria in the - 5 - MAPFRA/TCZB Protocol, which reflected TCZB credit worthiness requirements nationwide, was being fairly applied. While it is difficult to determine the extent to which non-project TCZB credit and short-term On-Farm Development project credit were useu for Second Crops and Fallow Reduction, TCZB officials consider that this probably occurred, particularly for lentil production. One contributory factor may have been the reluctance of TCZB Branch sta:f to obtain the approval of MAFRA staff for loans to be made under the Second Crop and Fallow Reduction Schemes, preferring to approve such loans directly under the short-term On-Farm Development program. The Audit considers that both schemes, particularly the Fallow Reduction Scheme, had a far greater impact than the nominal projc.!t- related disbursements suggest. The project in fact was financing these schemes indirectly. In Goverment's response to OED on the draft PPAR, it asks that MARA's contribution to project objectives through thee two schemes be recognized. D. Igdir-Akaur-Erexli-Ercis (IAEE) Irrixation Scheme 2.09 When the SACP was approved in June, 1983 it was expected that the IAEE Irrigation Project would be approved also, but riparian rights issues delayed approval until June, 1984. In addition to this delay implementation of the four sub-projects has been slow. Two of the sub-projects - Igdir and Aksur - were seriously affected by poor contractor performance, and budgetary shortfalls plagued the project periodically. Furthermore, the Kockipru dam (not financed by the Bank), which is to supply irrigation water to the Ercis sub-project, had serious foundation problems. A third extension of the IAEE loan closing date, to June 30, 1992, was recently agreed and a fourth and final extension may be considered. 2.10 The SACP IAEE sub-component was designed to meet the medium and short- term investment and production needs of some 25,000 farmers, specifically for orchard establishment, in areas covered by the IAEE Irrigation Project. The delays and difficulties outlined above seriously affected the credit program and only 10% of the US$32 million SACP provision of medium and short-term credit was used. As a result, US$11.6 million of the US$14.6 million Bank loan allocation for the SACP IAEE sub-component was reallocated for On-Farm Development short- term loans. E. Corum-Cankiri Component 2.11 When the SACP was approved in June, 1983 it was expected that medium and short-term credit under the then ongoing Corum-Cankiri Rural Development Project (Loan 1130-TU) would be fully utilized by the June 30, 1984 closing date. To continue the momentum achieved under the Corum-Cankiri Rural Development Project, provision was made in the SACP for further incremental short-term lending. The PPAR on the Corum-Cankiri Rural Development Project (Report No.6756 dated May 7, 1987) referred to the importance of credit, particularly seasonal credit, to the success of the project, which accounted for close to half the project costs. Initially, the lack of land titles hampered the supply of credit under the Corum-Cankiri Rural Development Project, but this was overcome by the establishment of credit cooperatives, through which 90% of the short-term credit -6 we channeled. Although the Corum-Cankiri Rural Development Project closed on June 30, 1984, as scheduled, only 52Z of the SACP appraisal estimate for short- term credit was disbursed under SACP's Corum-Cankiri component. This is assumed to have resulted from overestimation of incremental short-term credit demand at appraisal. As a result, US$4.7 million of the Bank loan was reallocated for short-term credit use under the On-Farm Development component. F. TCZB - Institutional Strengthening 2.12 At the core of this component was the Action Plan (for improvements in TCZB operations), which was the outcome of a major study funded under the earlier Agricultural Credit and Agroindustries Project, and of internal TCZB studies to improve its operations. The Action Plan actually consisted of 18 separate action plans - one for each of the TCZB directorates - covering (a) lending policies and procedures, (b) a financial planning system, (c) an annual and 5-year budgeting system, (d) a management information system, (e) an accounting system, (f) staff training, (g) decentralization of operations, and (h) organizational structure. Implementation of the Action Plan was to begin in mid-1983, but improvements in TCZB's organizational structure first required passage of legislation on State Economic Enterprise (SEE) reform and banking reform, both of which were expected in July, 1983. 2.13 In fact, the SEE decree was not passed until June, 1984, and the banking decree until May, 1985. Although TCZB was on schedule for some Action Plan targets, others, most notably TCZB's own reorganization and its decentralization program, were delayed by more than one year. Bank supervision missions began to express concern that this major component would not be completed by the closing date. In late 1986, during appraisal of the Third Agricultural Credit Project, revised targets were agreed for TCZB to complete the bulk of the 1983 Action Plan. By late 1987 the decentralization program was largely completed, 5 year budgeting had been introduced, computerization of TCZB accounts was underway, and training program improvements had begun. In 1988, the year in which the SACP loan was closed, TCZB's own reorganization took place, thus completing, in large part, the TCZB institutional strengthening component funded under the SACP. Based on Bank supervision and other reports, and Audit discussions and observations, we conclude the SACP TCZB institutional strengthening component was completed satisfactorily, despite the initial delays. Under the Third Agricultural Credit Project, TCZB is continuing to receive Bank support for institutional development. In addition, TCZB is affected by provisions agreed undnr the financial sector adjustment loans concerning financial strengthening of the banking system, including improved auditing and the introduction of regulations in accord with international standards. Neither the SACP nor the audiL cover these issues. G. Staff Training 2.14 The SACP provided US$0.4 million to send 130 management level administrative and technical staff for short training courses in developed countries during the period 1983-1985. Project implementation did not begin in earnest until 1985 but, for reasons which are not clear, all training under the - 7 - SACP component took place in 1987. Out of a total of 88 staff (who collectively exhausted the Bank loan allocation) 77 went to the UK for 1-4 week courses on lending procedures, banking, management accounting and information systems etc, and 11 went to the USA, 1 for three monthe, the remainder for 2 week courses. H. Vehicles and Equipment 2.15 The SACP included provision for 81 vehicles (74 armored trucks and 7 minibuses) and some equipment. The Bank agreed that the minibuses could be procured under limited international bidding, in view of the relatively small amount involved, although ICB was stipulated in the Loan Agreement. For armored vehicles the Bank agreed, in August, 1983, to tests for both small and large armored trucks supplied by the same lowest bidder. Later, TCZB requested reimbursement for 10 small and 5 large armored vehicles, but the latter were to be purchased from a source other than the lowest bidder who had provided the test vehicles. The files then fall silent until early 1988 when TCZB requested a third reallocation of loan proceeds, including unspent funds for armored vehicles which were reportedly not needed. The Audit confirmed that 27 armored vehicles had been purchased during the project period, compared with the target of 74, but that another 62 armored vehicles had been purchased during the four year period 1988 - 1991. Thus, the explanation in the PCR that the Bank refused to modify Bank procurement requirements, and that TCZB's request for loan reallocation was based on a reduction in armored vehicle requirements during the period, is largely correct. The funds reallocated from the vehicles and equipment loan category went to On-Farm Development, short-term lending, as did virtually all other reallocated loan funds. I. Study of Credit Cooperative System 2.16 Under the SACP the Government agreed to fund a Study of the Credit Cooperative System, using the Project Preparation Facility (PPF). The objectives of the Study were to: (a) evaluate the performance of the agricultural credit cooperative system; (b) propose a 5 year development plan; and (c) examine the feasibility of credit cooperatives playing a wider role in financial intermediation. Government agreed to appoint a steering committee by November 30, 1983, to employ suitably qualified and experienced consultants by March 31, 1984 and to carry out the Study, the final report being due March 31, 1985. It vas hoped that the Study would lead to a possible future project for Bank financing. 2.17 The PPF (US$400,000), which was completely separate from the SACP, was approved in February, 1984, when it was agreed that the steering committee appointment deadline should be deferred until July 31, 1984, and the employment of consultants to September 30, 1984. The State Planning Organization (SPO) assumed primary responsibility for the Study in early 1985 and submitted a short list, letter of invitation and a draft contract for the Study to the Bank in April, 1985. However, agreeing on these documents with the SPO took six months, and the invitation was not issued until mid-November, 1985. The consultants contract was signed in June, 1986, and the Study was completed in December, 1986, some 21 monthe behind schedule. This was mainly due to delays in Government -8- delibe- ions over the appointment of the lead agency for the Study, and Bank/SPO exchanges regarding the selection of consultants, contract documents etc. The Study recommended that a tecihinical assistance component to implement an institutional development plan for the cooperatives should be incorporated in the Third Agricultural Credit Project, which was endorsed by the Bank. Unfortunately, the component had to be dropped when TCZB refused to accept the risk for on-lending to cooperatives for technical assistance. This vas regrettable, but the Third Agricultural Credit Project, which is providing incremental short-term production credit and medium and long-term investment credit to cooperatives which meet established viability criteria, is nevertheless an appropriate next step. J. Agricultural Sectog - Positive On-Lending Interest Rates 2.18 Although the SJWP required the Government to achieve real positive on- lending interest rates by end-1984, the objective was pursued in addition through the Agricultural Sector Adjustment Loan, the Fourth and Fifth Structural Adjustment Loans, and the First Financial Sector Adjustment Loan. An effort was made to keep all the agreements consistent. A reflection of this is a September, 1985 amendment to the SACP Supplemental letter on interest rates, changing the target date for achievement of positive on-lending interest rates from end-1984 to end-1986 in accordance with an agreement reached during SAL V tranche discussions in May, 1985. 2.19 The positive on-lending interest rate covenant was met from August through December, 1986 through a combination of interest rate increases and anti- inflationary policies. In 1987, an election year, livestock and fertilizer interest rates were reduced to 22% but were expected by the Government to remain positive, assuming continued progress in reducing inflation. Although there were post-election increases in interest rates in 1988 (by 7-11% to range from 29- 45%), these increases did not keep pace with inflation and positive on-lending interest rates were not achieved. 2.20 The Third Agricultural Credit Project, approved in mid-1989, is now the main vehicle for achieving the positive on-lending interest rate objective. This loan required: (1) the weighted average interest rate of short-term and investment loans to farmers and sales cooperatives, and for agro-industry loans, to be brought to positive real levels by March 31, 1990; (2) all agricultural interest rates to be set at positive levels in real terms by March 31, 1991; and (3) agricultural interest rates to be set at levels which would allow TCZB to cover all costs, plus a reasonable profit, by December 31, 1991. The Audit reviewed the last two supervision reports and confirmed that: item (1) above was met in 1990; and that item (2) above was not met by March 31, 1991, though Government has been considering interest rate increases and other measures to meet the requirements of the covenant. However, due to recent increases in inflation and failure to increase interest rates further, all on-lending rates to farmers (which range from 34-552) are now negative. Item (3) above was not due for review until end-1291 but, clearly, much depended on progress (if any) made under item (2). - 9 - III. PROJECT OUTCOME A. Credit Program 3.01 Despite the substantial switch to short-term credit, and the reduced demand for medium and long-term credit, the credit program was fully utilized and helped to increase agricultural production in the ten project provinces included under the main components of the project. B. Crop Production 3.02 The PCR compares key physical appraisal targets with achievements during implementation, which show a one hundred percent increase in cereal production but shortfalls in pulses, industrial crops and vegetables. As project related production data was not available the Audit examined the annual production figures, by province, which are compiled by the MAFRA Advisory Council for Research, Planning and Coordination. The production data for 5 groups of annual crops in 8 of the 10 project provinces for the years 1984 through 1988 were reviewed to assess the impact of the short-term on-farm development component, much of which was provided for cereal production, and of the Second Crop and Fallow Reduction Schemes. Those data, extrapolated to provide actual/estimated production figures for the 10 project provinces, are compared with the appraisal estimates in the following table. For details see anneces 1-A and 1-B. Actual SAR Crop 1984 1988 Increase (+) Decrease (-) Tons m Tons m Tons m % Tons m Cereals 6.36 7.38 + 1.02 +16 +0.54 Pulses 0.63 1.20 + 0.57 +90 +0.32 Industrial 1.86 1.71 - 0.15 -08 +0.46 Oil Seeds 0.18 0.28 + 0.10 +60 - Vegetables 0.35 0.39 + 0.04 +12 +0.33 3.03 On the basis of the provincial data, incremental cereal production was nearly 100Z over the appraisal incremental estimate (as stated in the PCR) and pulse production was 78% higher, but industrial crops and vegetable production was well below appraisal expectations. During the 5 year period 1984 - 1988 the total cultivated area of the ten project provinces increased by an estimated 500,000 ha - about 10%. Of the ten project provinces, nine were involved in one or both of the Second Crop and Fallow Reduction Schemes. Sesame and sunflower production, two of the crops proposed under the Second Crops Scheme, posted - 10 - substantial gains between 1984 and 1988. Similarly, chick peas and lentile, the main crops proposed under the Fallow Reduction Scheme, increased dramatically, although short-term on-farm development credit was also used for lentil production. In summary, the short-term on-farm development component, much increased by loan reallocations from short, medium and long-term development credit components and other sources, appears to have had a substantial impact in the 10 project provinces, both in cultivated area and increased production. C. Institutional Strengthening 3.04 Despite initial delays, the agreed Action Plan for strengthening TCZB was completed satisfactorily, including the 1988/1989 internal reorganization which merged a number of separate departments handling farm lending into one Agricultural Credit Department. The most important changes, which played a major role in the timely and successful implementation of the credit program, centered around decentralization of authority to Regions and Branches, the introduction of investment models, and improved budgeting and cost control procedures. This formed an excellent basis for further Bank institutional strengthening assistance under the Third Agricultural Credit Project. Although the Credit Cooperative Study was completed satisfactorily, plans to incorporate a technical assistance component in the Third Agricultural Credit Project were dropped when TCZB refused to accept the risk for on-lending to cooperatives for technical assistance. Staff training oveeseas under the SACP was implemented successfully, although the number of beneficiaries was only two-thirds of the appraisal estimate. D. Financial and Economic Benefits 3.05 More than 70% of the Bank loan credit component was disbursed against short-term production loans, the remainder for medium-term loans. The incomes of most participating farmers improved under the project except, of course, in drought years. For representative crops funded with short-term production loans (wheat, barley, maize, lentils, vegetables, oilseeds etc.) the indicative financial benefit/cost ratios range from 1.3 to 2.4 and the economic benefit/cost ratios from 1.3 to 3.5. The indicative financial rates of return for a variety of medium and long-term farm activities (eg broiler production, dairying, beef fattening, sheep breeding etc) ranges from 13% - 52%, and the economic rates of return from 172 - 71%. These returns to both short-term and medium and long-term on-farm development credit are based on TCZB farm models prepared for the Third Agricultural Credit Project in 1986. 3.06 TCZB's overall financial position also improved under the project, with substantial increases in real terms in both the agricultural and commercial lending categories. Annual net income has increased and TCZB's net worth doubled in real terms in the five year period ending in 1988. Issues concerning improved regulations for the banking system and measures TCZB should take in response to new regulations introduced subsequently were not covered in the SACP nor reviewed in the audit. - 11 - E. Loan Recovery 3.07 Loan collection ratios, defined as the ratio of principal and interest collected to principal and interest overdue at the beginning of the year and falling due during the year, are not separately available for loans made under the project. The categories which include project loans show an average collection rate, for short-term and medium-term loans combined, of 73% over the five year period 1984-1988. The Audit also examined the loan collection ratios for the years 1988 t,trough 1990 for the ten project provinces earmarked for short-term and medium-term on-farm development credit and found an average loan collection ratio of 87% in 1988, 772 in 1989 and 762 in 1990. Drought conditions in 1989 and part of 1990 affected loan recoveries in those years. The recovery percentages refer to debt net of amounts rescheduled for hazards such as drought. 3.08 But these loan collection ratios do not tell the whole story. TCZB operates a well supervised system for loan recovery which involves a one year "administrative period" from the time a loan falls overdue. During this period the concerned TCZB Branch works closely with the farmer to try and resolve the problem. If the loan remains overdue when the administrative period is over the so-called "legal period" commences, during which time legal measures are taken to recover the overdue amount. Additional interest of 15% p.a. is charged by TCZB from the beginning of the administrative period. During discussions with TCZB Head Office staff and Branch Managers, the Audit learned that the majority of overdue loans are recovered during the administrative period, and that most of the overdue loans which enter the legal period are repaid within two years. This can be attributed to a number of factors: (1) the extensive TCZB branch system (over 1300 nationwide), which ensures a close working relationship between the borrcver and the Branch Manager and his staff; (2) the administrative/legal loan recovery procedures outlined above; and (3) borrower attitudes, which seem strongly geared to repay debt, reflecting a combination of social and religious principles. F. Substitution and Diversion of Credit Funds at the Farm Level 3.09 Substitution of credit funds, particularly for short-term credit, is a strong possibility when interest rates are subsidized. While difficult to control, TCZB maintains that the dense TCZB branch network, and the constant interaction with farmers, precludes substitution of credit funds in large part. Checks on the borroyers financial status are reportedly made by TCZB at the time of each credit application, but this is difficult as very few farmers maintain bank accounts with TCZB (or any other bank) and most farmers repay TCZB loans in cash at harvest time. The Audit sensed that substitution of short-term credit may occur, particularly when inflation rates are high, but that the volume is small. Substitution of medium and long-term credit seems far less likely, in view of the collateral and. other security requirements, and TCZB's tight loan approval and supervisory procedures. Diversion of credit funds (if any) is believed to be small also, particularly for investment credit. For example, loans for tractors require the borrower to purchase directly from the manufacturer, not through a local dealer. Tractor loans are only available every five years, and credit is not granted if the farmer sells the tractor early. All - 12 - investment credit is supervised, including visits by independent TCZB inspectors. Diversion of short-term credit is easier (eg sale of fertilizer or other inpute to other farmers) but again, the TCZB branch system, and the close relationship between TCZB branch staff and farmers, is believed to keep such diversion to a minimum. G. Substitution of Funds at the TCZB Level 3.10 The PPAR on the Third Livestock Project (OED Report no.6559) referred to the reallocation of loan funds from medium and long-term activities to short- term needs, primarily livestock fattening. This action, tv addition to providing the solution to a disbursement problem rather than addres. ; constraints facing the livestock sector, resulted in substitution of funds at e TCZB level and low demand for loans from the General Directorate of Livestock Development. Under the Fourth and Fifth Livestock Projects (PPAR Report no.9140) the issue reappeared when short-term fattening loans (excluded at the time of appraisal because credit lines already existed through TCZB) were reintroduced because the cost of imported dairy cows was prohibitive, and annual inflation was high. The issue raised in this case was that those short-term project loans may have served largely as a substitute for TCZB own-funds for livestock fattening, which would represent a transfer to the institutional banking system in the agricultural sector and not incremental on-farm activity. The Region informed the Audit that prior analysis had showed that a shift to realistic exchange rates, and reduced barriers to livestock exports, had indeed moved farmer incentives from milk to meat production and that the increase in demand for short-term livestock fattening was genuine. However, in view of the substantial reallocation of medium and long-term funds for short-term use under the SACP, the discussions in the Third, Fourth and Fifth Livestock Project audits raise questions about whether there was any substitution of funds at the TCZB level under the SACP, and about the extent of the analysis, if any, carried out by the Bank under the Second Agricultural Credit Project when the switch was made to short-term development loans from medium and long-term loan categories. 3.11 The SACP, unlike the Livestock Projects, was designed to support TCZB's overall credit program in 10 provinces, and Special Government Schemes in 26 provinces. Under these circumstances movement between different credit categories, depending on demand, was to be expected. The combination of high inflation, which was not anticipated at appraisal; the availability of unlimited farm production-plan based credit; and TCZB's inability to respond to medium-term borrowers by linking credit needs to farm-plan based needs, sharply increased the relative demand for short-term credit. The Bank does not appear to have carried out a specific analysis of the changing demand for short-term credit, and the corresponding funding needs. But the Audit noted that successive supervision missions reviewed the increasing short-term credit demand (and the reduced demand for medium and long-term credit), and recommended appropriate Bank loan reallocations. One factor which could encourage substitution of funds at the TCZB level is TCZB's periodic cash flow problems, one of the main causes being late payment of overdue amounts under loans made to the agricultural sales cooperatives. Despite a Government assurance, obtained under the SACP, to compensate TCZB for losses on loans made to sales cooperatives, this was not done - 13 - until late 1989 under the Third Agricultural Credit Project. This, and late payment of other Government obligations, affect TCZB's liquidity, diverting deposits which could otherwise be used for agricultural credit programs. Thus, although there is no direct evidence of substitution of funds at the TCZB level, it could be argued that some Bank loan funds may have been used indirectly in this way due to periodic TCZB cash flow problems. IV. FINDINGS AND ISSUES 4.01 This was a successful project, in large part, despite the fact that an important sectoral objective - to achieve real positive on-lending rates in the agricultural sector - was not obtained. The most important component was the institutional strengthening of TCZB, which involved some major reorganization proposals and delegation of authority to speed up farmer loan processing and disbursements. During the project period TCZB completed a substantial agenda in this regard which, in turn, contributed to the successful implementation of an enlarged credit program. The institutional changes were not without delays, some of which were internal, but the job was done. With the first-phase TCZB institutional improvements completed, the second-phase is now taking place under the ongoing Third Agricultural Credit Project. This involves: (a) adoption by TCZB of a policy statement; (b) completion of its reorganization and decentralization programs; (c) refinement of lending policies and procedures; (d) strengthening of financial management; and (e) personnel development. Financial restructuring - another key element of TCZB's reform program - is also to be undertaken in the context of overall financial sector reforms supported by a Second Financial Sector Adjustment Loan from the Bank. 4.02 The On-Farm Development Credit Program was implemented successfully, although there was an unprecedented demand for short-term credit at the expense of medium and long-term credit. After some initial difficulties TCZB was able to link short-term credit needs to farm plans - essential in times of high inflation - and to simplify security requirements (eg joint venture liability) to keep pace with demand. This was not done for medium and long-term loans, and borrowers, already concerned about riding inflation levels, could not be sure whether their final loan amounts would be sufficient. As stated in the PCR the following project design lesson, approved in nominal rather than real terms, has been learned. In countries where high inflation is a possibility, the project design should ensure that the credit institution's appraisal and lending processes can accommodate rapid price changes during sub-project implementation by indexing sub-loan tranches to inflation. This may have been difficult, however, in view of the fact that TCZB was undergoing major reorganization throughout the project period; but, with hindsight, the project design should have taken the need for flexibility into account. Neither was the possibility of high inflation taken into account when defining incremental disbursements of short-term loans, which were based on actual instead of real additioTal disbursements compared with the previous year. This project design lesson was learned also and the Third Agricultural Credit Project contains an appropriate - 14 - real annual increase formula for short-term credit disbursements. Nevertheless, the production and area development increases achieved under the project (see paragraph 3.02) reflect the incremental benefits achieved under the short-term on-farm development component. And analysis in the Third Agricultural Credit Project shows that short-term agricultural loans in real financial terms increased substantially between 1985 and 1987. 4.03 The Credit Components linked to Special Government Schemes appeared to fare poorly, compared to the On-Farm Development Credit Component, at least on the basis of disbursements. However, based on provincial production data, there is some evidence that two of the schemes, the Second Crops Scheme and the Fallow Reduction Scheme, did better than nominal project disburments to these components indicate, probably because they were funded also under the short-term On-Farm Development component, other TCZB credit programs, and from farmers own resources. The other two Special Government Schemes, the Irrigation and Corum- Cankiri Schemes, were affected by substantial delays in irrigation works and over-estimation of demand at appraisal, respectively. 4.04 The project did not succeed in its sectoral objective to raise preferential on-lending interest rates to a positive level by end-1984 (or the revised later date), and maintain them there, or to adjust the interest rates periodically to take account of the rate of inflation. After achieving positive interest rates in 1986, Government introduced subsidized interest rates for livestock and fertilizer loans in 1907, an election year. Despite post-election increases in interest rates, inflation increased dramatically in 1987 and 1988 and interest rates remained negative. The interest rate covenant was in the ASAL, FSAL and SAL IV and V loans also. When the Bank learned of interest rate reductions in violation of SACP and other loans, processing of the Third Agricultural Credit Project was suspended until a revised timetable for reaching positive interest rates was agreed. Unfortunately, the agr9ed revised date, March 31, 1991, has passed and the requirement remains unmet. Government is considering interest rate increases and other measures to remedy the situation, in conjunction with Bank staff, but Turkey is now suffering increased economic problems due to the Gulf war. 4.05 The Bank now finds itself, eight years after the SACP was approved and several Structural and Sectoral Adjuttment loans in the interim, with the positive interest covenant unfulfilled. Nevertheless, the first phase of TCZB's reorganization and strengthening has gone well. It has been protected from much of the damage that subsidized credit has caused to the viability of financial institutions in other countries. Also, there is little evidence of significant credit substitution or diversion on the farms. In these respects, the effects of the negative rates have been less serious than anticipated.1' 11 The Region points out that, while not investigated by the audit, concern has been expressed by the Bank about the other undesirable effects of negative agricultural interest rates, including credit rationing, higher Government budgetary contributions (at a time when budgetary deficits are leading to high inflation), provision of subsidies only to farmers meeting TCZB collateral requirements, and TCZB profitability and liquidity problems. PROJECT PEREURNAECB AUDIT REPORT TURET SECORD AGRICULTURAL CREDIT PROJECT (IMAN 2318-MU MRODUCTION DATA TOR 8 PROJECT PROVINCES - BY PROVINCE: 1984 AND 1988 (tons '000) Provinces Cereals L Pulses Industrial it Oil Seed. ' Vegetables 2' 1984 1988 (+)(-) 1984 1988 (+) (-) 1984 1988 (+) (-) 1984 1988 (+) (-) 1984 1988 (+) (-) Ankara 2,120 2,240 + 120 57 87 + 30 552 498 - 54 17 27 + 10 70 58 - 12 Burduri' 257 273 + 16 16 31 4 15 253 226 - 27 2 2 - 55 53 - 2 Denli 395 418 + 23 34 35 + 1 247 225 - 22 27 48 + 21 36 33 - 3 Diyarbakiri V 1 671 755 + 84 118 236 + 118 14 21 + 7 24 39 + 15 26 60 +34 Isparta 138 197 + 59 18 47 + 29 f 75 - 10 2 1 - 1 36 29 -7 Kutahya 329 462 + 133 17 29 + 12 9 271 - 31 6 7 + 1 46 61 + 15 Hardia 350 390 + 40 110 191 + 81 9 11 + 2 15 18 + 3 11 8 - 3 SalturfaIt Z 825 1,169 + 344 133 301 + 168 23 39 + 16 50 82 4 32 2 6 + 4 Tota 5,085 5,904 + 819 503 957 + 454 1,485 1,366 - 119 143 224 + 81 282 308 + 26 Pdmarily wheat and barley, plu rye, oats and naize. Chick pass, lentil., dry beans, cow vetch. t Primarily sugar beet, plus tobacco and cotton. Soy bean, snomer, sesame. II Potatoes, dry onions, etc. Includes fallow reduction scheme. Includes second crop scheme. V For extrapolAtion of weighted prodution figures for 10 project provinces, see the table in para. 3.02, ain report. PROJECT PERYOCEARCE AUDIT WMOR TURKE SECOND AGRICULTURAL CREDIT PROJECT (LOAN 2318-TU) PRODUCTION DATA FOR 8 PROJECT PROVINCES - B! CROP: 1984 THROUi8 1988 (tons '000) 1984 1985 1986 1987 1988 Cereals Wheat 3495 3455 3810 3325 3936 Barley 1503 1697 1565 1326 1889 Other 86 142 92 219 80 Total 5084 5294 5467 4870 5905 Pulses Lentil 357 416 564 489 688 Cow vetch 34 42 39 46 52 Chick peas 91 113 171 179 193 Other 21 23 20 26 25 Total 503 594 794 740 958 Induasrial Crops Sugar beet 1384 1309 1163 1516 1215 Other 102 93 165 128 151 Total 1486 1402 1328 1644 1366 Oil Seeds Cotton 94 101 112 145 151 Suanflower 25 48 59 58 43 Other 25 21 23 19 30 Total 144 170 194 222 224 Vegetables Potatoes 145 166 159 140 163 Dry onion 118 111 117 115 136 Other 18 14 9 9 9 Total 281 291 285 264 308 - 17 - ANNEX 2 THE REPUBLIC OF TURKEY PRIME MINISTRY THE UNDERSECRETARIAT OF TREASURY AND FOREIGN TRADE Ref: DEI-IV-2-77 20.02.92 8405 Ankara, 19 FEB 1092 Mr. Graham Donaldson Division Chief Agriculture and Human Development Division The World Bank Washington, D.C. U.S.A. Ref: Second Agricultural Credit Project (Ln: 2318-TU) Project Performance Audit Report Dear Mr. DONALDSON, With regard to the referred Audit Report, we would like to point out that the report has been found satisfactory by the participating organizations. The points cited give a clear picture of the performance of the Project. However, the following changes may be made to reflect the situation more realistically during the implementation period. 1. The contribution of TCZB to the Project cost is US $ 138 million not US $ 38 million as indicated in the third page, clause 1.05. 2. The Ministry of Agriculture and Rural Affairs (MARA) states that its role in the Project is undervalued. The Ministry had made considerable contribution to the successfull implementation of second crop production and therefore reduction of fallow land in the Project region. We would like to emphasize that findings of the report is a valuable source to enrich the participating institutions' capacity for better utilization of other World Bank financed projects of similar scope. Best regards. 1 ,OSlet rsneta.lS of F-149- Economic BS lRD 17071R -S FORMER SINOPAnT OET UNION (jc- KASTAMONL o "f". M, U ,S U -i~z .,----_, ( SAMSUMu ISTANSUL - - / -*- --r4*<*'- 1?' * OM 5>." 9O AS. TEKIDAE .eURDU K 0 C A E L / kÜÜ"A N E Rå yZ U R UM<M U 40' TAKAT - CANAKKALE BUSSA B11LtCl ·-ANKAR RK ALE \ \ISLAM BALIKESK ESKISEHIR TUNCFLI Mus t ® REP. em gA'NKARA - VAN OF 2>1IRAN MALATYA AFYONJv NEVSEHIR ~ KAYSERs - ' A K HAKKAR[ v' nu . g N GD AD yMARDS *ISARTA KONYA - AYDN DE diZL~ URFA-~ ** ) TR E 9 T U R K E Y ANTALYA APPRAISAL OF SECOND AGRICULTLRAL Ji *9 SYRIAN ARAB REPUBLIC CREDIT PROJECT PROJECT AREA AND COMPONENTS AREJ UNDER SUr PROJET NO. OF PROVNCES UNDER THE SCHEME NATiONAL CAPITAL CORUMCANKIFRI 2 PROVINCE OJNDARES FALLOW REDUCT2N 14 INTERNATiONAL BOUNDARIES sECOND) CROP SCHEME S 40 10 1161 RRIGATION COMPLTIDN 4 KILOMETEAS AREAS~~~~eAA LIDAP99C2N A CEI