Tunisia - Agricultural Credit Project

Loiq'A/ < FLr C~1PY RESTRICTED Report No. PA-79a 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 The report may not be published nor may it be quoted as representing their views.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 RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION AGRICULTURAL CREDIT PROJECT TUNISIA May 7, 1971 Agriculture Projects Department  CURRENCY EQUIVALENTS US$1 = D 0.525 D 1 - US$1.905 D 1,000 = US$1.905 D1,000,000 = US$1,905,000 WEIGHTS AND MEASURES Metric System ABBREVIATIONS BNT : Banque Nationale de Tunisie STIL : Societe Tunisienne de l'Industrie Laitiere BCT : Banque Centrale de Tunisie BIRH : Bureau d'Inventaire des Ressources Hydrauliques OMVVM: Office de Mise en Valeur de la Vallee de la Medjerda DLF : Development Loan Fund  TUNISIA AGRICULTURAL CREDIT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ......................... I. INTRODUCTION .................... .,., ...... II. BACKGROUND OF AGRICULTURE .. 2 III. THE PROJECT .. 4 A. Description .. 4 B. Detailed Features .. 5 C. Cost Estimate and Financing . . 7 D. Procurement and Disbursement . .10 E. Project Administration. 11 IV. BANQUE NATIONALE DE TUNISIE (BNT) .. 11 V. PRODUCTION, MARKETS, PRODUCER BENEFITS, AND REVENUE GENERATION.. 16 VI. BENEFITS AND JUSTIFICATION . 18 VII. RECOMMENDATIONS ..19 ANNEXES 1. GDP, Cereal Production, and Exports and Imports Table 1 Gross Domestic Product by Sectoral Origin Table 2 Cereal Production and Requirements Table 3 Agricultural Exports and Imports 2. Institutional Framework for Credit Table 1 Banking Law Requirements and Central Bank Regulations Table 2 Agricultural Loans, 1962-1969 Table 3 BNT's Yearly Agricultural Lending This report is based on the findings of a Bank/IDA appraisal mission to Tunisia in June/July 1970 composed of Messrs. H. von Oppenfeld and J. Gregor (Bank/IDA) and Messrs. A. Bonnier and M. Delavalle (consultants to the Bank/ IDA)..  - 2- 3. Banque Nationale de Tunisie (BNT) Table 1 Summarized Balance Sheets Table 2 Financial Analysis of Balance Sheets Table 3 Investment in Shares and Stocks Table 4 indebtedness of Farming Cooperatives Table 5 Project Cash Flow Table 6 Cash Flow Projections Table 7 Comparative and Forecast Operating Results Accounts Table 8 Projected Balance Sheets Table 9 Summary of Revenue and Expenses Appendix 1 Statement of Policy Appendix 2 Organization Chart Appendix 3 Terms of Reference for Farm Management Specialist 4. Grain Farm Mechanization Table I Basic Data and Financial Rate of Return 5. Dairy Farm Sub-project Table I Milk Received, Processed and Sold, by Principal Milk Products Societe Tunisienne de l'Industrie Laitiere (STIL) Table 2 Basic Data and Financial Rate of Return Table 3 Dairy Extension Service Appendix 1 Cropping Pattern for Irrigated Area 6. Date-Palm Development Sub-project Table 1 Date-Palm Development Cost Table 2 Basic Assumptions Table 3 Incremental Net Value and Financial Rates of Return Appendix 1 Societe Tunisienne de l'Industrie Laitiere (STIL) Table 1 STIL: Summarized Balance Sheets Table 2 STIL: Summarized Earnings Appendix 2 Groundwater Supply in Nefzaoua and Djerid Region Table 1 Cost of Borehole and Pumping - Nefzaoua Region Table 2 Investment and Operating Cost for Water Supply - Nefzaoua Region Table 3 Cost of Borehole - Djerid Region Table 4 Investment and Operating Cost for Water Supply - Djerid Region Appendix 3 Terms of Reference for Agricultural Expert 7. Estimated Schedule of Disbursement 8. Economic Rate of Return I4APS 1. Project Areas 2. Date-Palm Plantations  TUNISIA AGRICULTURAL CREDIT PROJECT SUMMARY AND CONCLUSIONS I. This report appraises an agricultural credit project for which a Bank loan of US$5.0 million equivalent and an IDA credit of US$3.0 million equivalent, a total of US$8.0 million equivalent, is proposed. The Project would support a three-year lending program for grain farm mechanization and dairy farm and date-palm development. Government would be the borrower of the IDA credit which it would on-lend to the Banque Nationale de Tunisie (BNT) while the Bank loan would be extended to BNT directly. BNT would be responsible for Project administration. This would be the second agricul- tural project the Bank/IDA has helped finance in Tunisia. ii. BNT, a multi-purpose bank established in 1959 and mainly owned by Government, is the major source of agricultural finance in Tunisia. It has used funds from its own sources -- share capital, reserves and deposits -- and has also been the agent for Government financing in agriculture. To implement the proposed Project, BNT would develop a small, appropriately staffed unit, headed by a qualified and experienced farm management specialist. Technical assistance in establishing this post and others under the Project would be provided in the proposed loan/credit. Although BNT is a mature institution, its financial situation was not entirely satisfactory and some corrective measures were needed before the Project is presented to the Board. iii. From Tunisia's independence in 1956 until 1969, Government's policy was to increase and diversify agricultural production through cooperatives, wherever possible. The Bank/IDA's first agricultural project (484/99-TUN), approved in 1967, was in line with this policy. In January 1969, however, attempts to extend cooperatives to cover all arable land met with such opposition from private farmers and disillusioned cooperative members that Government reversed its policies and is now determined to encourage and support individual farmers. For the period 1965-1969, the total value of agricultural output has declined in real terms by 22%, while the overall economy has expanded. Its contribution to GDP has declined from 23% in 1965 to 16% in 1969. To some extent, this deterioration has been due to adverse weather but more significant has been the poor performance, in general, of production cooperatives and the lack of confidence of private farmers. Notwithstanding, agriculture is important to the Tunisian economy, accounting for a quarter of total exports and employing half of the working population. iv. The proposed Project is designed to finance individual farmers for the production of grain and dairy products in Northern Tunisia. In addition, it would support date-palm production development in southern Tunisia by lending through BNT to the Societe Tunisienne de l'Industrie Laitiere (STIL). The Project would increase production of wheat for import substitution, dates for export, and milk for local consumption. Investments would be mainly in tractors and combines, livestock, tubewells, and land  - ii - improvement. Annual net foreign exchange earnings at full development are estimated at US$8 million. v. Total Project cost would amount to US$15 million equivalent. Sub-borrowers would contribute about 30% and BNT about 17%. The proposed loan and credit, equivalent to about 53% of total Project cost, would finance the estimated foreign exchange component. Sub-borrowers would be charged 8% per annum interest. Government would bear the foreign exchange risk and on-lend IDA funds at 1% for 15 years, including five years of grace. vi. The range of items to be financed under the Project is varied and most of it unsuitable for bulk procurement. With regard to agricultural machinery and pumpsets, a number of foreign firms are represented through local dealers, supplies are adequate, and prices competitive. Procurement would, therefore, be through normal commercial channels. However, contracts for large deep well drilling amounting to about US$400.000 would be awarded on the basis of international competitive bidding. vii. The financial rates of return on individual sub-projects are esti- mated to range between 14% and 26%. The overall economic rate of return is estimated at about 22%. Appropriate assurances were obtained during negotia- tions. The Project is suitable for a Bank loan of US$5.0 million for a term of 15 years, including a five-year grace period, and for an IDA credit of US$3 million on IDA's standard terms.  AGRIC}lLTURAL CREDIT PROJECT I. INTRODUCTION l.0l In 1967 Tunisia received a Bank loan of US$12 million and an IDA credit of US$6 million for the development of agricultural production cooperatives. Implementation of the L ro p ect was substantially affected by changes in agricultural policies during 1969. Ir. January of that year Government announced a greatly accelerated coOperativ;t development that went far beyond agreement reached with Bank/IDA, but, afte-z opposition by private farmers as well as cooperative menbers and in recognitii;n of the strain which such a policy put on scarce human and finaincial resources, drastically re- vised this policy in September 1969. At that time, a law was enacted that stipulated that, henceforth, state farms, cooperatives, and private farmers would coexist. This had the effect of removing cooperatives from the central role they had been expected to play in Tunisia's development. The change in the basic situation instigated a review by a Bank/IDA mission in October 1969, which, in turn, led to a reduction of its loan/credit from US$18 mil- lion to US$9.2 million. The change in the project was