Mexico - Livestock and Agricultural Development Project

RETIJRN TO REPORTS DESK CIRCULATING 4PY RESTRICTED WOITHWN T BE RETURNED TO REPORTS DESK Report No. PA-80 ONE- WEE This report was prepared for use within the Bank and its affiliated organizations. They dci 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 The report may not be published nor may it be quoted as representing their views.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 RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION LIVESTOCK AND AGRICULTURAL DEVELOPMENT PROJECT MEXICO May 6, 1969 Agriculture Projects Department  CURRENCY EQUIVALENTS US $1 Pesos $12.50 Pesos $1 = US $ 0.08 Pesos $1,000,000 = US $80,000 WEIGHTS AND MEASURES Metric System 1 Kilogram (kg) = 2.20 Pounds 1 Metric Ton (t) = 0.98 Long Tons 1 Kilometer (km) = 0.62 Miles 1 Hectare (ha) = 2.47 Acres 1 Square Kilometer (km2) = 0.39 Square Miles GLOSSARY OF ABBREVIATIONS BANAGROS = Banco Nacional Agropecuario BANXICO = Banco de Mexico FONDO = Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura  MEXICO LIVESTOCK AND AGRICULTURAL DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SU124ARY ..1.. ............................ . i T. INTRODUCTION. ................ 1 II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. General. 1 B. The Agricultural Sector. 1 III. ANiALYSIS OF TiE PERFORMANCE OF LOAN 430-iMIE . . . . . . . . . . . 5 A. The Project Under Loan 430-ME . . . . . . . . . . . . . . . 5 B. Organization and Management. 6 C. Conclusions. 8 IV. THE PROJECT. 8 A. Countrywide Sub-Project . . . . . . . . . . . . . . . . . . 9 B. Southeastern Sub-Project . . . . . . . . . . . . . . . . . . 12 C. Cost Estimates and Financing .13 D. Organization and Management . . . . . . . . . . . . . . . . 15 V. BENEFITS AND JUSTIFICATION .19 VI. CONCLUSIONS AND RECOMIENDATIONS . . . . . . . . . . . . . . . . 20 This appraisal report was prepared by Messrs. J. Fransen, M. J. McGarry and R. ERossi.  -2- ANNEXES 1. The Role of the Banking System in the Financing of Agriculture and Livestock 2. The Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura 3. Analysis of Performance under Loan 430-ME 4. Breakdown of the Investment Categories and the Foreign Exchange Component 5. Phasing of the Lending Program 6. Estimates of the Proposed Investment Program Table 1 - Livestock - Countrywide Sub-Project Table 2 - Annual Crops - Countrywide Sub-Project Table 3 - Perennia. Crops - Countrywide Sub-Project Table 4 - Agro-Industries - Countrywide Sub-Project Table 5 - Cattle - Southeastern Sub-Project Table 6 - Technical Service Costs Combined for both Sub-Projects 7. Summary of the Proposed Total Project Cost S. Proposed Organizational Chart for the Southeastern Sub-Project 9. The FOliDO's Projected Receipts and Disbursements Relating to the Project 10. Projected Physical Impact 11. Finanvial and Economic Rates of Return Appendix 1 - Financial Rates of Return by Enterprises Appendix 2 - Financial Rates of Return by Major Enterprises Appendix 3 - Economi& Rates of Return NiAPS 1. Countrywide Sub-Project: Ecologically Homogeneous and Land Use Regions 2. Southeastern Sub-Project: General Sub-Project Location  MEXICO LIVESTOCK AND AGRICULTURAL DEVELOPMEINT PROJECT 9JMMARY i. The Government of Mexico has requested a loan from the IBRD to help finance a Livestock and Agricultural Department Project. Approximately 75% of the total Project cost is for livestock development. Project-related tech- nical services would be included. The Project would consist of two sub-pro- jects. ii. The Countrywide Livestock and Agricultural Development Sub-Project, which is essentially a continuation of Loan 430-ME made in December 1965, accounts for '55% of the total Project;cost. It would provide loans on a countrywide basis to commercial producers for: (a) livestock development (except for cattle in the Southeastern Sub-Project Area); (b) annual crop de- velopment; (c) perennial crop development; and (d) certain types of agro- industries. iii. The Southeastern Cattle Development Sub-Project accounts for 45% of the total Project cost. It would consist of loans for the development of commercial cattle ranches in the southeastern Wet Tropical region of Mexico. iv. The borrower, as under r1oan 430-ME, would be the Nacional Financiera The Project would be administered by the Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura, a Trust Fund of the Banco de Mexico. It would operate through the private banking system and the public Banco Nacional Agropecuario chain, under a rediscounting program. v. The Loan would help to finance investments of approximately US$200 million equivalent over a five-year period. The Project would include working capital requirements of about US$24 million equivalent annually, to be pro- vided by Mexican sources. Development loans by the participating banks would be committed within three years, but some on-ranch loan disbursements, and thus the IBRD disbursements, would be over about five years. Financing would be borne approximately as follows: producers, 20%; participating banks, 16%; the FONDO, 32%; and IBRD, 32%. vi. The Project is sound and economically justified. Subject to obtain- ing certain assurances during negotiations, the Project is suitable for a loan of US$65 million repayable over 20 years including five years of grace.   MEXICO LIVESTOCK AND AGRICULTURAL DEVELOPMENT PROJECT I. INTRODUCTION 1.0L, The Government of Mexico has requested a loan to help finance in- ves-tments on commercial farms and ranches and for related agro-industries and technical services. Because a large part of the Project is essentially a continuation of Loan 430-ME made in December 1965,1/ a review of the perform- anceB under that Loan is included in this report. The appraisal report is based on the findings of a nLission which visited Mexico in September/October 1968. The mission was composed of Messrs. J. Fransen, C. E. Eugenio, R. Rossi, F. van Gigch and M. J. McGarry (IBRD); and L. E. Peterson (Consultant Agro- Industries). II. BACKGROUND A. General 2 2.01 Mexico, with a land area of approximately 2.0 million km , has a variety of climatic and ecological conditions: hot, humid tropics along the Gulf and lower Pacific Coasts; temperate tropics in the bordering mountain areas; seasonally wet and dry conditions in the temperate central plateau; and semiarid to arid region in the west and north where climate varies princi- pally according to altitude. These extremes permit a wide variety of general crops, tree crops and livestock, and contrasting production practices. Total population reached 46.0 million in 1968 and is presently growing at an annual rate of 3.5%. Between 1950 and 1966 GNP at constant prices grew at an annual rate of 6.2%. Per capita GNP, approximately US$560 equivalent in 1968, is relatively high on the Latin American scale. B. The Agricultural Secto2/ 2.02 Agriculture accounts for over 50% of Mexico's export earnings and about 95% of domestic food consumption. While agriculture's share of GNP has fallen from 23% in 1950 to about 17% in 1966, mainly because of the dynamic growth of industry, half of the population is still engaged in agriculture. Over the past 15 years or so production has grown at about 4% per year. Mexico 1/ See Appraisal Report Number TO-489a, dated August 27, 1965. 2/ Includes livestock, forestry and fisheries. For a general description of the agricultural sector see Bank Report WH-137a dated July 13, 1964; also Bank Report WH-164b Volume IV-Annex VII dated October 26, 1966.  - 2 - has considerable resources suitable for the raising of livestock and this en- terprise accounts for aboult 35