Bolivia - Beni Livestock Development Project

FILE COPY RESTRICTED Report No. TO- 585a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCMION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BENI LIVESTOCK DEVELOPMENT PROJECT BOLIVIA May 2, 1967 Projects Department  CURRENCY EQUIVALENTS US$ 1. 00 =Pesos $11.88 Peso $1. 00 =US $0.08 Pesos $1, 000, 000 =US $84, 175 WEIGHTS AND MEASURES Metric System  BOLIVIA BENI LIVESTOCK DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMMARY ------ I. INTRODUCTION ----------------------------------1------- II. BACKGROUND ---------------------------------------------- 1 A. General --------------------------------------------- 1 B. The Beef Cattle Sector ------------------------------ 1 C. Animal Health --------------------------------------- 2 D. Agricultural Services ------------------------------- 2 E. Government Policies on Livestock Development -------- 3 III. THE PROJECO --------------------------------------------- 3 A. The Project Area ------------------------------------ 3 B. Description of the Project -------------------------- 4 C. Cost Estimates -------------------------------------- 4 D. Proposed Financing ---------------------------------- 5 E. Disbursements --------------------------------------- 7 F. Operating Results ----------------------------------- 7 IV. ORGANIZATION AND MANAGEMENT ----------------------------- 7 A. Project Administration and Technical Services ------- 7 B. Lending Operations ---------------------------------- 8 C. Procurement ----------------------------------------- 9 D. Marketing ------------------------------------------- 9 V. BENEFITS AND JUSTIFICATION ------------------------------ 10 VI. CONCLUSIONS AND RECOMMENDATIONS ------------------------- 12 This appraisal report is based on the findings of a mission which visited Bolivia in August/September 1966. The mission was composed of Messrs. J. Fransen, J. Andreu, A. Dockx and M. Walden (IDA), and W. Allan (FAO).  -2- ANNEXES 1. Investment Costs for the Development of 200-Cow Beef Cattle Ranches 2. Project Administration Budget 3. Banco Agricola de Bolivia 4. Project Financial Statements Table 1: Central Bank Fund - Projected Receipts and Disbursements Table 2: BAB - Projected Receipts and Disbursements 5. Organizational Chart of the BAB Livestock Project Division 6. Development of 200-Cow Beef Cattle Ranches Table 1: Herd Development Projections Table 2: Sales Projections Table 3: Operating Expenses Projections Table 4: Financial Projections - Plan I Table 5: Financial Projections - Plan II 7. Benefits and Justification Table 1: Incremental Costs and Benefits - Plan I Table 2: Incremental Costs and Benefits - Plan II MAPS 1. General Project Location 2. Ecology of the Lowlands (Llanos) of Bolivia  BOLIVIA LIVESTOCK DEVELOPMENT PROJECT SUMMARY i. The Government of Bolivia has requested an IDA credit to help finance the first stage of a Livestock Development Program for the improve- ment of the beef cattle industry in the lowlands. Because of technical, economic and administrative limitations, a limited approach has been adopted for this first stage, involving only the Department of Beni. ii. The Project is directed mainly at investments basic to proper herd and pasture management such as fencing, stock handling and watering facili- ties, essential ranch constructions and stock management equipment. It would also include breeding cattle purchases. Technical services would be pro- vided to encourage the improvement of pastures and breeding stock. These improvements would permit an increase in herd productivity and total herd numbers, and lead to greater output. Short-term financing would also be provided to increase the effectiveness of development loans. It is expected that about 150 ranchers would participate in the Project. Each rancher would initially have a herd of about 600 head of cattle and would develop about 2,400 ha of land under the Project. Loans to ranchers would be repayable in twelve years, including four years of grace with interest at a maximum of 12 per cent. Investments on each ranch would be spread over three years. iii. The Project is estimated to cost a total of about US$ 4.0 million equivalent, of which US$ 2.7 million would be for ranch development, US$ 0.3 million for technical services, and US$ 1.0 million for complementary short- term financing. The foreign exchange component would be approximately US$ 0.9 million. The proposed IDA credit would be US$ 2.0 million, covering 50 per cent of the total Project cost. Thirty-six per cent would be provided by the Banco Agricola de Bolivia (BAB), including all short-term financing, and 14 per cent by the participating ranchers. iv. A special Livestock Project Division (LPD) would be established in BAB to administer the Project. The LPD would be headed by an expatriate Project Director who would be responsible for execution of the Project. He would be assisted by a small staff of Bolivian technicians. The LPD would be responsible for assisting ranchers in preparing ranch development plans, recommending these to the LPD loan committee, supervising execution of plans for which loans are made, and for providing technical services to ranchers. v. The Project is sound and economically justified. The proposed administrative arrangements are satisfactory. Expected benefits to both participating ranchers and to the national economy are adequate, and the Project would serve as the basis for future expansion of Bolivia's Live- stock Industry. The Project is suitable for an IDA credit of US$ 2.0 million. The borrower would be the Government of Bolivia, and the credit would be channelled through the Central Bank to BAB.  BOLIVIA LIVESTOCK DEVELOPMENT PROJECT I. INTRODUCTION 1. The Government of Bolivia has requested an IDA credit to help finance investments for the improvement of the beef cattle industry in the lowlands. The Project was prepared by an FAO/IBRD mission which visited Bolivia in July-August 1965, and the Project report was officially submitted by the Government to IDA in April 1966. This appraisal report is based on the findings of a mission which visited Bolivia in August-September, 1966. The mission was composed of Messrs. J. Fransen, J. Andreu, A. Dockx and M. Walden (IDA), and W. Allan (FAO). II. BACKGROUND A. General 2. Bolivia has an area of 1.1 million sq km and is completely land- locked. It may be divided into three geographical zones: the altiplano (highlands), the yungas (intermediate valleys) and the llanos (subtropical and tropical eastern lowlands). 3. Agriculture employs more than two-thirds of the total labor force of the estimated 3.7 million population, the greater part of which lives on subsistence holdings in the altiplano. Since 1952, when the government re- distributed land ownership in the altiplaiio, agricultural production has barely kept pace with population growth (1.7 per cent) and has declined from about one-third to one-fourth of GDP in the same period. More recently, however, the production of sugar, rice and cotton has increased appreciably in the lowlands, and the first two have reached levels of self sufficiency. The lowlands, representing 65 per cent of the total area of the country and containing only 15 per cent of the population, offer very good opportunities for beef cattle development. B. The Beef Cattle Sector 4. The cattle population of the lowlands is about 1.2 million head, or two-thirds of the national total, and is largely concentrated in the Department of Beni. Official sources estimate an extraction rate 1/ of 10 per cent for the lowlands. Annual production from the Beni Department alone averaged 6,500 MT of dressed beef from 1960 through 1965. This was roughly one-half of total national production. The relatively low average carcass weight has remained fairly constant at around 180 kg per head in the same period. 1/ Total number of cattle slaughtered annually expressed as a percentage of total cattle population.  5. Domestic per capita consumption has also remained stable at about six kg per year (the lowest in South America), although wide regional variations are apparent, e.g. La Paz and the tin mines consume three times more beef than the national average. Beef imports and exports have fluctu- ated markedly in the last five years, but their total value has remained very small. C. Animal Health 6. Animal health problems in the Beni reflect inadequate management, the absence of a field diagnostic service, and limited application of disease control measures. The most important diseases are Foot-and-Mouth Disease (FMD - Aftosa) and Paralytic Rabies, which could be controlled by routine vaccination programs. During negotiations assurances have been obtained that all cattle belonging to ranchers participating in the Project would be routinely vaccinated against FMD and Rabies. Other factors, such as low fertility rate, calf mortality caused by diseases of the newborn, and in- ternal parasites could be brought to acceptable levels through appropriate herd management. D. Agricultural Services 7. The agricultural services of Bolivia were built up as semi-inde- pendent organizations in the period following the agrarian revolution of 1952. They were incorporated in a reorganized Ministry of Agriculture in 1965. 8. The extension service's agents have little training in animal husbandry. Field veterinary services are mainly concerned with Rabies con- trol in the lowlands, and with an FMD campaign in the Department of Cocha- bamba, which is to be expanded to include the lowlands. Assurance for this has been obtained during negotiations. The Ministry of Agriculture plans to establish a field diagnostic service and a major vaccine production center in the lowlands, coupled with expanded field veterinary activities. 9. The School of Agriculture at Cochabamba is poorly equipped and staffed, as is the Veterinary School at Santa Cruz, but realistic efforts at reform are being made in the latter, where the present aim is to produce 20 graduates a year. An intermediate level of training is given at the six practical agricultural schools, which graduate about 100 students a year, most of whom go into the extension service. 10. There are two agricultural research centers concerned with cattle production. The Trinidad center in Beni has done some breeding work and has started to keep records recently. The Saavedra station of Santa Cruz is designing and testing systems of husbandry suited to the environment. 11. Medium and long-term agricultural credit, for which the demand is great, is available only from public sources, the most important of which is the Banco Agricola de Bolivia (BAB) an autonomous organization under the general direction of the Ministry of Agriculture. Besides lending from its  own resources, BAB has channelled funds from US AID, which is also assisting with reorganization and management, and the Interamerican Development Bank. Interest charged is 12 per cent per annum, and most loans are made for 12 years. During negotiations, it has been assured that BAB would initiate separate accounting of its commercial and subsidized operations. E. Government Policies on Livestock Development 12. The Government has recently emphasized in its policies the develop- ment of the beef and wool industries, and BAB is playing a major role in channelling funds to these sectors. The Government has also initiated an ambitious plan to reorganize the Ministry of Agriculture in an attempt to provide the ancillary services necessary for development of the livestock industry. The tax burden on livestock producers has always been kept small and movement of cattle within the country has remained free. Meat prices to the producers have remaained unregulated, but those to wfholesalers and retailers have been kept at the same level for the past five years in the main consumption centers (Para. 41). III. THE PROJECT A. The Project Area 13. The Project area is that part of the Beni which is predominantly grassland, and cornprises mainly the very extensive flood plains of the Mamore River and its tributaries. Its size is around 12 million ha, two million of which are in ranches (Map 1). 14. The climate is tropical with an annual rainfall averaging 1,@00 mm, of which sixty per cent occurs in January-April. The mean temperature is 260 centigrade. Soils are young alluvials, varying from sandy to clay loams, with clay subsoils or pan at a depth of one m or less in extended areas. The climax vegetation is high forest of many species, while grass- land predominates in the central floodplains (Map 2). The area lies at a general altitude of about 250 m above sea level and is very flat. Partial flooding occurs at the time of the summer runoffs. 15. In Bolivia, ranch size is usually expressed in terms of cattle numbers. In the Beni, approximately 40 per cent of all ranches have a herd size of between 400 and 1,000 head of cattle. A total of about 300 ranches are included in this size category. The typical ranch to be developed would initially have about 600 head of cattle and approximately 4,000 ha of pasture land, of which about 2,400 ha would be improved under the Project. The Beni ranches are extremely understocked, even when taking into account the extensive grazing production system followed in the area. Ranchers have the right to own five ha of land per head of cattle under the Agrarian Reform Law, but the process of title clarification is lengthy and makes it difficult to obtain credit. As a condition of the proposed IDA credit, a process for quick clarification of land titles to participating ranchers has been established by Government.  B. Description of the Project 16. In view of limited government experience and resources for this type of development and insufficient supply of breeding stock, the Pro jct would be restricted to the partial development of 150 commercial beef cattle ranches in the Department of Beni. The Beni has greater immediate potential for livestock development at higher returns than other lowlands regions and also has better developed marketing facilities. Project in- vestments and the proposed IDA credit would amount to US$ 4.0 million and US$ 2.0 million respectively. The Project would represent the first stage of a long-term livestock development program, directed primarily at improve- ment of beef cattle production in the lowlands. 17. Investments would be for fencing, corrals, water points, light equipment and tools, essential barns and housing, selected pasture improve- ment, purchase of breeding stock (limited to not more than 50 per cent of individual ranch development loans), working capital and technical services. The above investments would increase carrying capacity, permit a more effi- cient and fuller utilization of the pasture produced, and improve stock quality and performance. Due to the present understocked condition pre- vailing on most ranches, only about 60 per cent of each participating ranch would need to be developed under the Project to provide adequate pasture for existing and projected herd size. 18. As a complement to the Project, BAB will: (a) financially and technically assist in the development of about eight representative ranches in the Departments of Santa Cruz and Tarija; (b) conduct a land tenure survey in the lowlands; and (c) carry out a national beef and live cattle marketing study. The above activities would be undertaken under terms of reference to be agreed upon with IDA, and would help to provide the basis for a second stage of livestock development. C. Cost Estimates 19. The estimated total cost of the project is equivalent to US$ 4.0 million and is summarized in the following table:  -5- Total Dollar Foreign Exchange Investment Categories Cost Equivalent Component (Pesos '000) (UTh?5--'0 - '0-00) Ranch Development Fencing 9,600 800 256 Stock Handling Facilities 1,800 150 0 Stock TWatering Facilities 2,400 200 69 Stock Management Equipment 900 75 75 Constructions 3,900 325 95 Pasture Establishment 1,200 100 0 Breeding Stock 12,600 1,050 215 Total Ranch Development 32,400h 2,700 710 Technical Services 3,600 300 170 Short Term Financing 12,000 1,000 - Total Project Cost 48,000 4,000 880 Per Cent of Total Project Cost 100 100 22 20. Ranch development costs aggregate US$ 2.7 million or about 68 per cent of the total Project cost. Technical services account for US$ 0.3 million (7 per cent), and the balance of US$ 1.0 million (25 per cent) would be for complementary short term financing of ranch operating expenses. Due to the nature of the Project, which requires the provision of facilities basic to proper herd and pasture management, the foreign exchange component is only US$ 0.9 million, 22 per cent of total cost. 21. Estimates for on-ranch development costs are based on a representa- tive Beni ranch having 200 breeding cows (Annex 1). Ranch development would be initiated during each of the first three years of the Project. It is expected that 30, 50 and 70 ranches respectively would initiate development during the first three year period. Individual ranch development would also take three years. Therefore, Project implementation would require five years. Technical services estimates are projected for the five year development period (Annex 2), at the completion of which they are expected to remain constant and be financed by BAB from interest earnings received from partici- pating ranchers. Total short term credit requirements are projected from individual ranch average annual needs (Pesos 80,000) and as such reflect the average annual requirements. D. Proposed Financing 22. The total Project cost of US$ 4.0 million equivalent would be financed by the ranchers themselves, by DAB and by IDA as follows:  -6 - Ranchers BAB IDA Category (Amount) (T-) (Amount) (%) (Amount) ( 7 Total (US$ '000 Equivalent) Ranch Development 540 20 330 12 1,830 68 2,700 Technical Services - - 130 43 170 57 300 Short-Term Financing - - 1,000 100 - - 1,000 Total Project Cost 540 14 1,460 36 2,000 50 4,000 23. For on-ranch development, the owners would contribute an average of 20 per cent of the estimated costs in cash and/or kind, considered to be a reasonable contribution in view of their present financial position and ex- pected slow improvement during early development years (Para. 44). The remaining 80 per cent of the cost would be advanced to the ranchers as a loan from BAB. This has been assured during negotiations. It is envisaged that 85 per cent of the amount of such loans would be reimbursed from the proposed IDA credit (68 per cent of ranch development costs) and that BAB would contribute the balance of 15 per cent (12 per cent of ranch develop- ment costs) from its own financial resources; likewise considered to be a reasonable contribution in view of its very restricted availability of resources for long-term lending. The US$ 0.33 million required is BAB's present maximum availability of long-term funds for this Project (Annex 3). 24. The cost of technical services for the participating ranchers would be financed by the proposed IDA credit (57 per cent) and by BAB (43 per cent) during the first five years of the Project. These percentages roughly correspond to expected foreign exchange and local currency require- ments. These costs would be recovered from the interest payments received on ranch development loans and technical services would continue to be paid from this source. 25. Short-term credit is of great importance in this Project to meet the needs of ranchers, especially during the initial phase, growing out of their reduced cash flow during early development years and the necessity of financing fattening operations during years of surplus pasture production to bring about added liquidity and greater returns (Para. 44). BAB is the only source of short-term financing available to the participating ranchers charging reasonable interest rates (12 per cent). Although BAB is in a tight financial condition (Annex 3), it would be responsible for providing 100 per cent of the complementary short-term financing of ranch operating expenses. Assurance for this has been obtained during negotiations. This contribution would represent a major effort on its part, and as such is included as a component of total Project cost.  26. To ensure implementation, during the first three Project years, of the subprojects and studies referred to in Para. 18 they would be financed by interest free Qovernment advances. This has been assured during negotia- tions. These costs would later be recovered by Government from the net interest differential resulting during the first six years of the Project and accruing to a special Central Bank Fund (Para. 35). Any additional financing required would be provided by BAB from its own resources. E. Disbursements 27. BAB would submit to Central Bank documents verifying disbursements actually made under loans to the ranchers for eligible items of ranch develop- ment. IDA would reimburse Central Bank for 85 per cent of such loans upon receipt of its certified statement of disbursements. This method is pro- posed since it wi6uld not be feasible to relate .IDA's participation directly to individual investment items of total expenditures incurred for ranch development. IDA would not anticipate any increase in this percentage, and any undisbursed balance resulting from savings in the amount allocated for technical services under the Credit would also be available for loans to ranchers. No reimbursement would be made by IDA for short-term loans. For the foreign exchange component of technical services, disbursements would be made against invoices. In all instances the above documents would need to be countersigned by the Project Director. Assurances were obtained during negotiations that BAB and the Central Bank will maintain separate accounts for the Livestock Development Project, and that these accounts and the supporting documentation will be audited at specified intervals by account- ants acceptable to IDA. F. Operating Results 28. The projected favorable financial implications for the Government and for BAB resulting from the Project are set forth in Annex 4, Tables 1 and 2. Sub-loan repayments from ranchers not required for administrative and technical services expenses and debt service would be relent by BAB to ranchers during the 16 year period that the resources of the Central Bank Fund are made exclusively available to BAB. Based upon 100 per cent re- coveries, annual relending during this period would increase the total volume of lending under the Project by about 85 million pesos IV. ORGANIZATION AND MANAGEMENT A. Project Administration and Technical Services 29. A Livestock Project Division (LPD) would be formed in BAB, before the Credit Agreement is signed, to administer the Project and to provide technical services to participating rarchers. It would consist of a project director, an administrative assistant, five field technicians and a loan committee (Annex 5). 30. The Project Director, to be appointed before the Credit Agreement becomes effective, would be recruited internationally. His selection and terms of service would be approved by IDA. He would: (a) be responsible  - 8 - for the execution of the Project; (b) have the authority to approve the selection, promotion, suspension or removal of LPD staff; (c' assist in the training of the technicians and outline their duties and res, onsibilities; (d) report to the President of BAB through its General Managf'; and (e) be ultimately responsible for promoting the Project, assisting ranchers in the preparation of individual development plans, approving and recommending these plans to the loan committee as the basis for lending and for supervising the execution of plans for which loans are made. 31. In the selection of the administrative assistant and the field technicians, preference would be given to veterinarians with experience in practical livestock production since more emphasis,at this stage of de- velopment, should be given to herd health and management practices than to agronomic improvements. Sufficient qualified staff are available since total requirement is small. Due to the inadequacy of the Ministry of Agri- culture's technical programs, most services would need to be provided to the participating ranchers by the LPD. 32. A Project loan committee will be created in the LPD before the signing of the Credit Agreement. It would ratify ranch development plans and would have the unrestricted authority to approve all loans recommended by the Project Director. The Committee would be composed of the BAB General Manager, BAB Credit Manager and the LPD Director. It would disapprove loan applications only on the basis of the prospective borrower's credit worthi- ness, which would be provisionally determined prior to preparation of the development plan. Financially and administratively BAB would process the approved loans through its Trinidad regional office. B. Lending Operations Policies 33. Loans to ranchers would be made on the basis of ranch development plans prepared by the LPD field technicians and approved by the Project Director. Participating ranchers would have a minimum initial breeding herd size of approximately 200 cows anr would be required to limit land develop- ment to an area sufficient only for a tripling of herd size during a twelve year period (approximately 60 per cent of each ranch, e.g. 2,h00 of 4,000 ha). Any ranch development loans greater than US$ 100,000 equivalent would require specific IDA approval. Increased real estate value resulting from ranch development investments would be included in the basis for the esti- mation of security requirements for loans. BAB would restrict its long-term beef cattle lending operation in the Beni to those of the Project during the IDA disbursement period. During negotiations, assurance has been obtained that BAB will adhere to the Project policies herewith outlined. Terms and Conditions 34. The Credit would be made on normal IDA terms to Government, which would assume the foreign exchange risk. Government would cause to be estab- lished an appropriate Central Bank Fund which would administer the proposed IDA credit. This has been assured during negotiations. The Fund would make the proceeds of the IDA credit available to BAB, in local currency, at an interest rate of four per cent for a term of 16 years including five years  - 9 - of grace. During this 16 year period, repayments not required for ID4 debt servicing would also be made annually available to BAB, on the same terms and conditions, for further lending under the Project. BAB would relend to participating ranchers at a maximum of 12 per cent interest (minimum of 10 per cent) for a term of 12 years including a four year grace period. 35. The Government would credit the Central Bank Fund with interest- free advances to cover disbursements to BAB, and for purposes of the sub- projects and studies referred to in Para. 18. The Fund would replenish its resources from the proposed IDA credit and from interest and capital re- payments paid by BAB. In making the resources of the Fund available to BAB, Government would not charge more than four per cent per annum as coverage for the IDA service charge, advances to the Fund, and any Central Bank administrative costs resulting from the Project. The capital repayments received from BAB not required for IDA debt servicing and the net interest differential resulting after payment of service charges to IDA, would be used to recover the interest-free Government advances made for financing the subprojects and special studies mentioned in Para. 18 and for additional lending under the Project during a 16 year period. Following the initial 16 year period, Government would make these resources available, through the Fund, to BAB and other institutions for further financing of livestock development. Assurance for this has been obtained during negotiations. 36. BAB's net operating profit, resulting after recovery of admini- strative and technical services expenses from the interest payments paid by the participating ranchers, and rancher capital repayments not required for debt servicing to the Central Bank Fund would be relent to ranchers under the Project for the same purpose and on similar terms and conditions. Interest charge to the ranchers during the relending period would be agreed upon with IDA, but would not be less than ten nor more than twelve per cent. This has been assured during negotiations. C. Procurement 37. The goods and services required for ranch development would be purchased by the individual rancher through normal commercial channels. Due to the nature of the Project most on-ranch inputs are locally produced, and the small size of the Project avoids major supply problems. Both these on- ranch inputs and the equipment required for technical services are available through local suppliers and representatives of foreign firms, of which there are sufficient numbers to provide adequate competition in the supply of the goods required. A very small number of improved sires would be imported and limited numbers of sires and breeding females would be locally procured. All purchases of livestock required for the Project would be subject to the approval of the Project Director with respect to quality, source and animal health standards. International competitive bidding would not be appropriate for livestock procurement since animals adapted to the environment, of the type and quality required, can best be obtained from countries adjacent to the lowlands. D. Marketing 38. In the Beni, most of the 35 small slaughterhouses are owned and operated by beef wholesalers. The principal system of beef transport to La Paz and the mines during the past 20 years has been by air. Slaughterhouses  - 10 - are, therefore, located adjacent to landing strips. Due to a lack of cold storage facilities in most of the Beni slaughterhouses the carcasses must be transported within a few hours following slaughter. 39. Air transport handles more than 50 per cent of Bolivia's total beef transport. The service is principally provided by one public and five pri- vate companies, which contract trips with wholesalers. The average payload of the C-46 and B-17 planes is approximately 6.5 tons. The main problem confronting the air transport industry at present is the lack of financing for long-term expansion. As far as the Project is concerned, however, air transport would satisfy the needs of the next decade. A study is being financed by UNDP to investigate the possibilities of road, railroad, river and air transport for the whole country, and a request has already been pre- sented to US AID by the Aeronautics Council for funds to build three paved airstrips in the main beef producing centers of the Beni. 40. The producers usually sell their cattle to the wholesalers placed at the slaughterhouses in the Beni. They are paid on a carcass weight basis. The wholesaler is responsible for the slaughter and transport of beef to the main consuming centers of La Paz and the mines. Upon arrival in La Paz, the meat is usually sold directly to the retailers for immediate resale to con- sumers. However, a total cold storage capacity of 250 MT is available in La Paz, which is sufficient for a ten day supply. Beef for export must also be transported to La Paz. 41. The price paid to producers is unregulated and has been steadily increasing from 2.0/pesos/kg to 4.2/pesos/kg of dressed weight (period 1960 to 1966). The wholesale and retail prices have been frozen since 1962 at 5.5 and 6.8 pesos per kg respectively. Average air transport cost per kg of beef is 1.1 pesos. The wholesaler is the hardest hit by this situation, since retail prices are in reality higher. For any second stage project, there is a need to progressively liberalize domestic beef prices starting with the higher value cuts. Export prices to Peru, Chile and isolated zones of Western Brazil are 40 to 100 per cent higher, and demand is high (the Arequipa and Lima markets alone could readily absorb up to four times their present level of purchases in Bolivia, which represents a potential annual demand of approximately 8,000 MT dressed weight). 42. Cheese has been traditionally produced on a small scale throughout the Beni. The expected production increases would be rather small and would be marketed mainly in Trinidad, Santa Cruz, La Paz and the mines. V. BENEFITS AND JUSTIFICATION 43. The benefits to participating ranchers from investments made under the Project are projected in Annex 6, Tables 1 through 5. The estimates are based on a representative 200-cow beef cattle ranch in the Beni. Expected results per ranch at various stages of development are summarized below:  - 11 - 1' After After Total 4,000 Ha Ranch-/ Before Five Complete 2 Per Cent Development Years Development- Increase3/ Total Herd, Head 580 1,030 1,680 190 Output, Head 60 80 340 460 Net Profit, '000 Pesos 4/ 40 40 160 300 Net Profit, '000 Pesos ;/ 40 120 160 300 Herd Value, '000 Pesos 260 410 820 220 1/ Average Incremental Investment Cost of 216,000 pesos per ranch. 2/ 12 years. 3/ Comparing Before and After Development. IT Plan I (see-Para. 44). 5/ Plan II (see Para. 44). 44. As these projections show, the net profit per ranch would increase by 300 per cent after twelve years, when intended development is completed. Participating ranchers would experience a reduction in current incom,e during early development years due to the retention of heifers previously scld. Herd development, however, would not progress as rapidly as carrying capa- city is increased by the concentrated three-year investment program and improved ranch management. Since most ranchers would also require an addi- tional annual income to meet previous debt service, they would most likely engage in the fattening of locally purchased feeder cattle during years two through six of development. The introduction of a fattening operation, under Plan II, during these years of surplus pasture production, permits a fuller and more efficient utilization of investment benefits and greater returns, especially to the more progressive entrepreneurs, tripling net income by the sixth year as compared to Plan I (both Plans I and II are identical otherwise - Annex 6, Tables 1 through 5). The purchase of feeder cattle for fattening would be financed by BAB as part of the complementary short term financing (Para. 25). h . The effect of the proposed on-ranch investments and technical services would result in an increased output 1/ of more than 400 per cent after a 12-year development period. This would be brought about by an in- crease of approximately 20 per cent in weaning rate, a reduction of five per cent in adult mortality, an improvement in stocking rate, a slight in- crease in slaughter weight and a reduction in slaughter age (Annex 6, Table 1). The combined effect would result in a doubling of the extraction rate. Total herd numbers would have increased almost two-fold upon com- pletion of the 12-year development period. In addition, cheese sales would be increased temporarily to provide added liquidity and higher returns to participating ranchers. 1/ Total number of cattle slaughtered plus those sold for breeding stock expressed as a percentage of total herd numbers.  - 12 - 46. The net increase in total beef production at the twelfth year of development is estimated to be 8,400 MT carcass weight per annum, valued at about US$ 2.7 million at domestic prices to the producer. Assuming that half of the increase in beef production would be exported, the Project's annual gross contribution to Bolivia's foreign exchange earnings would be US$ 4.2 million equivalent at prevailing prices.. 47. Based on the cash flow projections (Annex 7, Tables 1 and 2), the financial return to the participating ranchers would be about 19 per cent for Plan I and about 25 per cent for Plan II. For these calculations it has been assumed that the maximum lifetime of the individual ranch development plan would be 20 years and that all investments other than livestock would have no residual value at the end of that period. Under these assumptions, the internal rate of return of the entire Project to the economy of Bolivia would be approximately 17 per cent for Plan I and 22 per cent for Plan II. 48. In addition to these direct production effects, the economy would gain from the demonstration of proper ranch management techniques. The pro- posed technical services would assist in developing standards for the future expansion of the industry, and BAB's technical staff would also be strengthened and its administrative procedures improved. The Project would made a sub- stantial contribution to the long-term development of the beef industry of Bolivia. VI. CONCLUSIONS AND RECOMiENDATIONS 49. The Project is the first stage of a livestock development scheme which is aimed principally at the expansion and improvement of the lowlands beef cattle industry of Bolivia. The demand for investment funds is great, and satisfactory returns would result for participating ranchers. 50. The Project is sound and is suitable for an IDA credit of us$ 2.0 million. The borrower would be the Government of Bolivia and the Central Bank would act as its financial agent in channelling the credit to BAB, which would make long-term development loans to participating ranchers. The Government would bear the exchange risk and the Central Bank would pay, for Government, the IDA service charge. The LPD established in BAB would adiinister the Project. 51. During negotiations, assurances were obtained that: (a) The Government will: (i) assure that the FID control program would be expanded to include the Project area (Para. 8);  - 13 - (ii) establish a process for the quick clarification of land titles to participating ranchers prior to signing the Credit Agreement (Para. 15); and (iii) establish an appropriate Central Bank Fund (Para. 34) adequate for reimbursing promptly to BAB the portion of sub-loans to ranchers which would be reimbursed from the proposed IDA credit. In making the resources of the Fund available to BAB for a 16 year period Government would not charge more than four per cent per annum as coverage for the IDA service charge, advances to the Fund, and any Central Bank administrative costs resulting from the Project. The capital repayments received from BAB not required for IDA debt servicing and the net interest differential resulting after payment of service charges to IDA, would be used to recover the interest free Govern- ment advances made for financing the subprojects and special studies mentioned in Para. 18 and for additional lending under the Project during a 16 year period. Following the initial 16 year period, Government would make these resources available through the Fund, to BAB and other institutions for further financing of livestock development (Para. 35). (b) The Banco Agricola de Bolivia will: (i) assure that all cattle entering into the Project would be routinely vaccinated against FMD and Rabies (Para. 6); (ii) initiate accounting procedures acceptable to the Association (Para. 11); (iii) limit the purchase of breeding stock to not more than 50 per cent of the amount of any individual ranch development loan under the Project (Para. 17); (iv) as a complement to the Project and on terms of reference to be agreed upon with IDA, financially and technically assist in the development of representative ranches in Santa Cruz and Tarija, conduct a land tenure survey in the lowlands, and carry out a national beef and live cattle marketing survey (Para. 18); (v) make available for lending to ranchers as promptly as necessary local currency funds averaging 80 per cent of the cost of approved ranch development plans (Para. 23); (vi) finance the administrative and technical services expenses resulting from the Project with interest earnings (Para. 24);  - 14i - (vii) provide the short-term financing requirements of the participating ranchers (Para. 25); (viii) establish and maintain separate accounts for the Livestock Development Project and arrange for auditing these accounts by accountants, and at intervals, acceptable to IDA (Para. 27); (ix) establish, before the signing of the Credit Agreement, the LPD which would administer the Project (Para. 29), including a Project loan committee which would have un- restricted authority to approve all loan requests under the Pro.ject, subject, however, to the limitations of Para. 51(b)(xi) Para. 32); (x) appoint, before the Credit Agreement becomes effective, a Project Director acceptable to IDA and define his duties, responsibilities and authorities in a manner satisfactory to IDA (Para. 30); (xi) make sub-loans to participating ranchers only on the basis of ranch development plans approved by the Project Director, obtain specific IDA approval on all individual ranch de- velopment sub-loans larger than US$ 100,000 equivalent, and restrict its long-term beef cattle lending operations in the Beni to those of the Project during the IDA dis- bursement period (Para. 33); (xii) agree with IDA upon the terms and conditions of the initial livestock development loans to participating ranchers (Para. 34); annually relend to ranchers, for the same pur- pose and on similar terms and conditions (interest charge to ranchers would not be less than 10 nor more than 12 per cent), the surplus collections resulting during the 16 year Project period (Para. 36); and (xiii) make all purchases of livestock required for the project subject to approval of the Project Director with respect to quality, source and animal health standards (Para. 37). May 2, 1967  BOLT _e>aVI LIESTit. DVELOPME PROJEC INVEST1 T COSTS" THE EVEtOMM OF 2004-0 BFMW CATTLE RANCHES ON-RANCH NVT1fN PRMCT IONS Average Average Total Cost for 150 Ranches Units Cost Foreign INVESTMENT ITEMS Unit Per Per Total Dollar Eche Cost Ranch Ranch Cost E alent (PEsOS ) (PESOS) (PESOS (000) ((US$ 7 000) Fencing, Km. 4,000 16 64,000 9,600 800 32 256 Stock Handling Facilities, No. 24,000