Bolivia - Third Livestock Development Project

REORWITS NE | CIRCULATiNi6 COPT RESTRICTED ONE WEEKC | TO BE RETURNED TO REPORTS DESK This report was prepared for use within the Bank and its affilioted 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 The report may not be published nor may it be quoted as representing their views.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 THIRD LIVESTOCK DEVELOPMENT PROJECT BOLIVIA May 11, 1971 Agriculture Projects Department  CURRENCY EQUIVALENTS Us$ $ 1 = Pesos $ 11.88 Peso $ 1 = US $ 0.08 Pesos $ 1,000,000 = us$ $ 84,175.00 WEIGHTS AND MEASURES Metric System 1 Kilogram (kg) = 2.20 Pounds 1 Metric Ton (m ton) = 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 BAB = Agricultural Bank of Bolivia IDB = Inter-American Development Bank  BOLIVIA THIRD LIVESTOCK DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ................................. i-ii I. INTRODUCTION ............................................ 1 II. BACKGROUND .............................................. 1 A. General ............................................. 1 B. Agriculture ......................................... 2 C. Animal Health ....................................... 4 D. Agricultural Services and Credit .................... 4 E. Cattle Slaughtering and Meat Transport .... ...... 5 F. Performance Under Credits 107-BO and 171-BO .... ..... 6 III. THE THIRD LIVESTOCK DEVELOPMENT PROJECT ................. 7 A. Project Description ................................. 7 B. Detailed Features .................................. 9 C. Cost Estimates ...................................... 13 D. Proposed Financing .................................. 14 E. Procurement .......................................... 15 F. Organization and Management ......................... 16 G. Lending Operations .................................. 16 H. Disbursements .................................. 17 I. Auditing .......... .................................. 18 IV. MARKETS, PRICES, PRODUCER BENEFITS AND REVENUE GENERATION 18 V. ECONOMIC BENEFITS AND JUSTIFICATION ..................... 21 VI. RECOMMENDATIONS ......................................... 21 This report is based on the findings of an appraisal mission to Bolivia in November 1969 composed of Messrs. D. N. Sutherland, D. B. Argyle (IDA), W. Dunn, T. Kwon and E. Root (consultants).  -2- ANNEXES 1. Banco Agricola de Bolivia (BAB) Table 1 - Source of Funds Table 2 - Consolidated Balance Sheets - 1966 to 1970 Table 3 - Portfolio Distribution Table 4 - Description of External Lines of Credit Table 5 - Loans on Default - 1964-1970 Table 6 - Consolidated Profit and Loss - 1966-1970 2. Cattle Slaughtering, Meat Transport and Marketing 3. Beef Cattle Ranch Model: Table 1 - Projections of On-Ranch Investments Table 2 - Herd Development Projections Table 3 - Projection of Operating Costs Table 4 - Financial Projections 4. Sheep Cooperative and Medium Size Sheep Property Model: Table 1 - Projections of On-Property Investments Table 2 - Flock Development Projections Table 3 - Projection of Sales Table 4 - Projection of Operating Expenses Table 5 - Financial Projections 5. Sheep Sub-Cooperative Model: Table 1 - Projections of On-Property Investments Table 2 - Flock Development Projections Table 3 - Projection of Sales Table 4 - Projection of Operating Expenses Table 5 - Financial Projections 6. Project Administration and Technical Services Cost 7. Projected Sources and Application of Funds - Livestock Project Account (Central Bank) 8. Projected Sources and Application of Project Funds - BAB 9. Projected Sources and Application of Funds 1971-76 - BAB 10. Financial Rates of Return 11. Incremental Costs and Benefits and Economic Rate of Return MAP - Project Areas  BOLIVIA THIRD LIVESTOCK DEVELOPMENT PROJECr SUMMARY AND CONCLUSIONS i. The Government of Bolivia has requested an IDA Credit to enable it to continue its program of livestock development. The Project for which financing is sought would be the Third Livestock Development Project sup- ported by IDA in Bolivia. Credit 107-BO, signed in May 1967, and Credit 171-BO, signed in January 1970, provide funds for development loans to ap- proximately 260 beef cattle ranchers in the Beni Department of the tropical lowlands and for technical services to the participating ranchers. ii. The proposed Project would comprise two sub-projects, one con- cerned with beef and sheep ranch development and the other with cattle slaughtering and meat marketing. iii. The beef and sheep ranch development sub-project would provide for subloans through Banco Agricola de Bolivia (BAB) to finance development on cattle ranches in the tropical lowlands and sheep properties on the altiplano; while the cattle ranches would be individually owned most of the sheep proper- ties would be cooperatives of smallholder sheep owners. Technical services for administration of the Project would be provided through the Livestock Project Division (LPD) of BAB created under Project 107-BO. iv. The cattle slaughtering and meat marketing sub-project would pro- vide for engagement of consultants by Government to prepare recommendations on a program for marketing increased cattle and beef output from the Project area. In addition it would provide finance for construction of new slaughter- houses and cold storage facilities, and for renovation of some of those al- ready existing and for training of up to six meat inspectors. v. Total cost of the Project is estimated to be US$11.0 million equivalent, comprising US$10.1 million for the beef ranch and sheep prop- erty development sub-project and US$0.9 million for the cattle slaughter- ing and meat marketing sub-project. The estimated foreign exchange component is US$6.8 million, or 62% of total Project cost. The proposed contribution from the IDA Credit would finance the foreign exchange component. vi. Proceeds of the IDA Credit would be on-lent to BAB at an in- terest rate of 7-1/4% per annum for 16 years including a five-year grace period. BAB would make sub-loans to cattle and sheep ranchers at 12% in- terest for 12 years including a four-year grace period. These sub-loans would be for purchase of breeding cattle or sheep and for on-ranch devel- opments such as fencing, water facilities, stock yards and pasture improve- ment. Technical services would be provided through the Livestock Project Division of BAB as under the two previous Projects. The IDA Credit would finance 85% of the cost of consultant services under the cattle slaughtering and meat marketing sub-project and up to 55% of cost of construction of new slaughterhouses or repairs to existing ones.  - ii - vii. The financial rate of return is estimated at 17% to cattle ranchers and 18-20% to sheep ranchers. The economic rate of return of the beef and sheep ranch development sub-project is estimated at 18%. By year 10, the Project is expected to increase annual production by approximately 10,400 m tons of beef, 1,450 m tons of mutton and 575 m tons of wool with an aggregate value of approximately US$6.8 million equivalent of which about US$5.5 would be earned from exports. viii. The Project is suitable for an IDA Credit of US$6.8 million. The Republic of Bolivia would be the Borrower and it would assume the foreign exchange risk.  BOLIVIA THIRD LIVESTOCK DEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Government of Bolivia has requested an IDA Credit to help finance the continuation of its program to develop the livestock industry. This was initially supported by IDA Credit 107-BO of US$2.0 million, signed in May 1967, which provided finance for development of the cattle industry in the Beni Department of the tropical lowlands. Under this Project funds were made available for subloans to ranchers and for technical services, administered through the Banco Agricola de Bolivia (BAB). A Second Credit of US$1.4 million (171-BO) was made by IDA in January 1970 to enable BAB to continue to finance ranch development while this more comprehensive third Project is under consideration. 1.02 The first Project was prepared by the FAO/IBRD Cooperative Program. The Interim Project was prepared within BAB under the direction of the Live- stock Project Director, after a visit by an IDA mission. The Third Project was also prepared under direction of the Livestock Project Director, with assistance of an IDA mission. 1.03 This report is based on the findings of an appraisal mission to Bolivia in November 1969 led by D.N. Sutherland (IDA) and composed of D.B. Argyle (IDA), W. Dunn, T. Kwon and E. Root (consultants), and brought up to date on information collected during supervision missions in September 1970 and January 1971. Negotiations were delayed by Government changes, by uncertainties related to the nationalization of oil properties and by Govern- ment consideration of livestock sectoral policies. II. BACKGROUND A. General 2.01 Bolivia, with an area of 1.1 million km2, has a population of about 4.9 million two-thirds of whom are dependent on agriculture, mostly on subsistence holdings. Per capita income is US$200 per annum, one of the lowest in Latin America. The rate of inflation has averaged about 4-1/2% per year since 1962. The exchange rate of b$ 11.88 to the US dollar has remained constant since 1959. 2.02 Bolivia is divided into three fairly distinct geographical zones: the altiplano or mountain highlands of 12,000 ft and above; the yungas or intermediate valleys; and the tropical and sub-tropical lowlands. There is relatively high pressure on land resources in the altiplano where two-thirds of the population live on one-third of the country's total area. By con- trast, population pressure is very low in the extensive area of the lowlands.  -2 - B. Agriculture General 2.03 While agriculture employs more than half of the work force, it pro- duces only one-fourth of the country's Gross Domestic Product (GDP). Agricul- tural production declined for some years following redistribution of land af- ter the 1952 revolution. However, there have been significant increases in production in recent years, particularly in sugar, rice and cotton in the Santa Cruz area of the lowlands. Beef production in the Beni Department has also increased significantly in recent years. 2.04 Agricultural imports are approximately US$25 million annually, the principal items being wheat, wool, dairy products and animal fats. Apart from increasing production to replace imports of some of these items -- particularly wool and wheat -- a major opportunity for increasing agricul- tural production lies in further development of the cattle industry in the extensive land area of the lowlands. In addition to an increasing market within Bolivia, there are good prospects for exporting beef to meat deficit areas in adjoining countries, mainly Peru and northern Chile and, on a small- er scale, north-western Brazil. The Livestock Sub-Sector 2.05 Climatic conditions differ markedly between the three geographic zones and this largely determines the type of agriculture practised and the distribution of livestock. Sheep production is virtually limited to the altiplano and the valleys. Dairy production is limited -_ concentrated around the larger population centers of La Paz, Cochabamba, Santa Cruz and Sucre, except for some production of cheese from beef nerds in the Beni and Santa Cruz Departments. In the Beni, beef ranching is practically the sole form of land use. It is also conducted on a lesser scale in the Santa Cruz and Chaco areas (see Map). Beef cattle are carried in very small herds in conjunction with sheep on the smallholdings of campesinos on the altiplano. Beef Cattle 2.06 There are no reliable statistics on numbers of beef cattle or num- bers of cattle ranches in the various departments of Bolivia. A study of marketing of meat and live cattle carried out in 1969 under the First IDA Livestock Project estimated total cattle population at approximately two million head with 820,000 head in the Beni Department, 430,000 in the Santa Cruz Department and 220,000 in the Chaco Department. The bulk of the re- maining cattle are on smallholdings in the altiplano, with limited numbers in the intermediate valleys. 2.07 Extraction, or offtake rate, of cattle is estimated to be about 10 to 11%, thus providing about 200,000 to 220,000 cattle for slaughter each year from the total national herd of about 2 million head. Average carcass weight of cattle slaughtered is about 160 to 170 kg, and total production  of carcass beef is in the range 32,000 to 36,000 m tons per year. Until the end of 1970, there was relatively little import or export of beef. Average per capita consumption is approximately 8 kg carcass beef per year, one of the lowest in South America. However, there are wide variations in consump- tion between different regions with relatively high levels in the larger cities. 2.08 For the Beni Department, production in 1968 was estimated at about 16,500 tons of carcass beef. At an average carcass weight of about 170 kg, this is equivalent to about 97,000 cattle, giving an extraction rate of nearly 12% from the estimated cattle population of 820,000. This is similar to the extraction rate for the beef cattle herds of Ecuador and Colombia. Some of the cattle sold for slaughter are steers purchased from Brazil for fattening. However, this is offset by the high retention rate of female cattle in herds in the Beni to build up herd numbers. 2.09 Both the Beni and the Santa Cruz Departments have great potential for increased beef production. This is true also, to a lesser extent, of the Chaco area where rainfall is a limiting factor. The Inter-American Develop- ment Bank (IDB) made a loan of US$5 million to Bolivia on April 21, 1970 to help finance a project, estimated to cost a total of about US$7 million, for development of the beef cattle industry in the Santa Cruz and Chaco area. While heavy land clearance expenditures must be incurred in the Santa Cruz Department, that area enjoys some advantages over the Beni Department; it has more fertile soils and it can produce beef carcasses of better quality; it also has better communications and tranport facilities. On the other hand, the Beni Department, with its very large areas of well-watered grass- lands, can produce beef at relatively low cost under the existing system of medium- to large-scale ranching. Because of this, further investment in beef production in the Beni is given high priority in order to capitalize on the available export markets in Peru and Chile. The Beni area is relatively sparsely-populated with no apparent land pressure. Stimulation of economic activity, based mainly on the natural grassland resources, should induce im- migration of population into the area. The Sheep Industry 2.10 The sheep population is estimated at about 7.2 million head, prac- tically all being run by peasant farmers (campesinos) in small flocks of 20 to 150 head on the altiplano or in the intermediate valleys. The standard of sheep husbandry generally is poor. Little attention is paid to such prac- tices as castration, docking, drenching to control parasites or selective breeding. All except a few flocks are composed of indigenous criollo sheep, which are very small and produce only a low yield of wool of inferior quality. 2.11 Wool production is estimated at about 4.2 million kg per year, about half of which is used by the local manufacturing industry and the remainder by cottage industries. There are a number of small- to medium- size textile plants in La Paz. In 1968, in addition to using local wool production, the country imported about US$1.1 million worth of higher quality greasy wool and wool products.  - 4 - 2.12 The number of sheep slaughtered in 1968 was estimated to be 400,000 head, equivalent to approximately 3,330 m tons of mutton, but this is prob- ably a low estimate. There is a strong demand for mutton and the present price to the farmer is equivalent to approximately b$ 3.50 (US$0.28 equiva- lent) per kg liveweight, which is higher than the price for beef. 2.13 While there is considerable scope on the altiplano to improve pro- ductivity of the sheep flocks, the implementation of a program for this pur- pose must take cognizance of the traditional system of communal land use with fairly strict controls over grazing rights. Apart from a limited number of individually-owned sheep ranches of medium size, improvement of the sheep in- dustry can best be organized through the extension of credit and technical services to cooperatives and sub-cooperatives involving a number of small- holders with grazing rights over a certain area of land. Government policy also supports this objective. The Project proposal in the report would in- clude an initial element of support to this industry (see para 3.01) utilizing some of the experience gained under USAID technical assistance. Since this would be a new feature of external support for livestock development, the initial phase included in this Project is limited in scope. Provided this approach proves successful further support may be indicated. C. Animal Health 2.14 A number of strains of foot and mouth disease occur in Bolivian cattle herds. Other diseases are paralytic rabies and brucellosis and regular vaccination is required to control them. Preliminary investigations indicate an iodine deficiency in cattle, at least in so,. 1arts of the Beni. It is not known how much effect other mineral deficiencies and infestations with internal parasites have on cattle performance. Cattle ticks occur but they do not present a serious problem. Despite che presence of these dis- ease conditions, mortality and sickness rates in cattle are not high in the Beni. 2.15 While internal parasites are a major disease problem of sheep on the altiplano, effects of infestation can be reduced by regular anti-para- sitic drenching and by improved management. Malnutrition is also fairly common in sheep as a result of overgrazing of pastures. Experience on a number of sheep ranches and cooperatives indicates that improved breeds of sheep can be run successfully on the altiplano, given a reasonable level of management. D. Agricultural Services and Credit 2.16 The Ministry of Agriculture is responsible for agricultural and livestock extension services, veterinary services, agricultural research and regulatory services such as meat inspection and control of serious disease outbreaks. It receives assistance from a number of external aid  - 5 - sources -- USAID, UNDP/FAO, UK Ministry of Overseas Development, West German Technical Aid and the US Peace Corps. Despite this the services provided to the livestock industry by the Ministry are inadequate. For this reason, provision has been made in each of the IDA livestock Proj- ects for a relatively large technical services component. 2.17 Medium- and long-term agricultural credit has been available in reasonable amounts only from public sources; the most important of which is Banco Agricola de Bolivia (BAB), an autonomous organization under the general guidance of the Ministry of Agriculture (see Annex 1). The Central Bank through its commercial banking department has also supplied some long- term credit, but much less than BAB. 2.18 The usual cost of borrowing from banks is 30-40% per annum includ- ing 15% interest, a tax of 9% and 3% contribution for social security. De- velopment banks are able to lend at lower rates (12% in BAB's case) without tax. The minimum interest payable on saving accounts is 10% and while most companies are forced to maintain low interest balances in the banks, it is difficult for the commercial banks to invest in agriculture at interest rates that are competitive with BAB. BAB has been the major source of agricultural lending. It has a wide network of branches, an experienced staff, and has disbursed IDA Credits 107-BO and 171-BO in a satisfactory manner. It is the logical organization for disbursing the funds under the proposed Credit. E. Cattle Slaughtering and Meat Transport 2.19 Slaughtering of cattle and transport and marketing of meat are generally carried out under primitive conditions in Bolivia. There is no official system of meat inspection or supervision of premises for sanitary conditions. There has been some investment in medium-sized slaughterhouses but it appears to have been badly planned. The modern, well-designed Los Andes plant near the El Alto airport for La Paz, lies idle while slaughter of cattle and sheep is carried on under most unhygienic conditions in the badly designed La Paz municipal plant. A large plant was constructed at Cameare in the Beni in the early 1950's but it has operated only to a limited extent. A modern plant (Todos Santos) was constructed several years ago about 80 km from Santa Cruz for slaughter of pigs but it also is idle. There was inadequate investigation of the supply of cattle and pigs for slaughter and of the demand for beef and pork output before construction of the Los Andes, Cameare and Todos Santos plants was undertaken. 2.20 In the Beni, cattle are slaughtered at about 43 widely scattered establishments owned by ranchers, municipalities and meat wholesalers. Most of them are without cold storage facilities and of very primitive design, comprising no more than a cement floor (some lack even this) and a roof. Because of lack of road or rail communications within the Beni and between the Beni and the altiplano, the cattle industry is completely dependent on air transport for marketing of beef and is likely to remain so for some years  - 6 - to come. Airstrips are adjacent to all slaughtering establishments and slaughtering is carried out when marketing of a plane-load of beef has been arranged. 2.21 There are six private air transport operators engaged regularly in meat transport operations between the Beni and the altiplano with a fleet of about 18 aircraft, including one DC-6, two Convairs and ten C-46's. The fleet has a capacity in excess of the demand for transport of beef and cattle but there are periodic breakdowns in service due to poor serviceability of aircraft. This in turn is due to owners' lack of finance for essential re- pairs and maintenance. 2.22 Despite the shortcomings of the present system of cattle slaugh- tering and beef transport, it has provided an essential service to the Beni cattle industry. In 1968, some 15,700 m tons of beef were supplied from the Beni to the altiplano by this system. This represents a trade worth approximately b$ 100 million (US$8.0 million) per year. The system of slaugh- tering at their own premises has been established by ranchers because there has been no alternate means. Most would probably close such establishments if they could market their cattle through central slaughterhouses at rea- sonable prices. Cattle slaughtering and meat marketing are discussed in more detail in Annex 2. F. Performance Under Credits 107-BO and 171-BO The Projects 2.23 IDA Credit 107-BO provided financing for development of approxi- mately 150 cattle ranches in the Beni Department and for establishment of a Livestock Project Division (LPD) within BAB to provide technical services for the Project, including preparation of ranch development plans and super- vision of approved ranch sub-loans. Sixty-eight percent of long term ranch investment was financed by the IDA Credit, 12% by BAB and 20% by ranchers. In addition, BAB provided short-term loans to ranchers from its own re- sources for purchase of steers for fattening in the early years of the Proj- ect. Funds from the IDA Credit were made available to BAB through a Project Revolving Fund at the Central Bank at an interest rate of 4% per annum for a period of 16 years including 5 years grace. Subloans to ranchers by BAB were to be at an interest rate not exceeding 12% per annum for a period of 12 years including 4 years grace. Under the Project, BAB was to carry out a survey of live cattle and meat marketing to be financed by the Government and a survey of land tenure in the lowlands. BAB was also to make loans from its own resources to eight representative ranchers in the Santa Cruz and Tarija Departments. 2.24 IDA Credit 171-BO of US$1.4 million for an Interim Second Livestock Development Project provides for approximately 100 subloans to ranchers in the Beni on terms and conditions identical to those of Credit 107-BO (para  - 7 - 2.22). As under Credit 107-BO, funds are provided to BAB for Project pur- poses at a 4% interest rate for 16 years including 5 years of grace. Performance 2.25 Progress under the Projects has been more rapid than anticipated. BAB established the LPD soon after the Credit became effective and efficient procedures were quickly established for preparation of ranch development plans and for approving and supervising sub-loans. By early October 1969, 160 subloans to ranchers had been approved, committing all the funds pro- vided in Credit 107-BO for this purpose, 12 months ahead of forecast. All funds for on-lending to ranchers were disbursed from the Credit by the third quarter of 1970. 2.26 The ranch development plans drawn up for subloans have followed fairly closely the models prepared in the appraisal report of the Project. However, initial herd size has been somewhat larger with a median of about 800 compared to 600 in the report model. In consequence, ranchers have not needed to purchase as many additional breeding cattle as forecast and the overall average loan has been about US$13,500 compared to US$14,500 for the model. The appraisal mission for this Project inspected improvements and cattle financed under the First Project on a number of ranches and was satis- fied they were up to the standard required. 2.27 The live cattle and meat marketing survey required under the First IDA Credit was completed in September, 1969. The survey of land tenure in the lowlands was carried out by a team from the University of Wisconsin. Its report has been received by BAB but has not been transmitted to IDA yet. Satisfactory procedures have been established for granting land titles to participating ranchers. Loans to the eight representative ranchers in the Santa Cruz and Tarija Departments have been made. 2.28 To the end of 1970, a total of 232 loans to cattle ranchers had been approved by BAB under the two Projects. In late 1970, the Federation of Ranchers of the Beni made representations to the Government for easing terms of repayment of subloans under the Project. The LPD in February-March 1971 reviewed in detail the position of 100 participating ranchers who had sought deferment of interest payment. The review indicated that only 24 of these ranchers needed financial assistance in the form of deferment of in- terest payments for 3-6 months due primarily to delays in marketing of cattle. It also indicated that, in general, the assistance made under the first two Projects had led to substantial increases in herd numbers which will enable ranchers to earn much higher incomes in the future. III. THE THIRD LIVESTOCK DEVELOPMENT PROJECT A. Project Description 3.01 The Project has two basic objectives:  - 8 - (a) The proposed additional lending for the development of the beef cattle industry in the Beni would help to achieve the objectives of increased exports which are crucial to the continued growth of the economy. The new production would take place on areas of natural grasslands which have been historically underutilized. Furthermore, this development would require very little Government expenditure for infra- structure, such as roads, and for recurrent expenditures for services, thus sparing Government's limited resources. (b) At the same time that the export objectives are pursued as described above, the proposed Project would provide for a modest import substitution program through increased pro- duction and upgrading of wool to supply the local wool tex- tile manufacturing and cottage industries. Moreover, it would provide an increase in supply of mutton which is the principal form of intake of animal protein for the bulk of the population. This sheep development program, in contrast to the beef production program, would mainly assist small- holders and would achieve an important social objective in providing additional income to over 3,000 families on exist- ing smallholdings in the economically depressed highlands. 3.02 The Project would comprise two sub-projects as follows: (a) Beef and Sheep Ranch Development Sub-Project, providing for: (i) further subloans for on-ranch development ln arproximately 250 ranches in the Beni and adjoining area-; (ii) subloans to approximately 150 sheep property owners in the altiplano for property developre.:L and purchase of improved sheep; these would be made to approximately 100 sub-coop- eratives and 35 cooperatives of smallholder sheep owners and to about 17 medium size privately owned properties; and (iii) technical services in relation to both sheep and cattle property development. (b) Cattle Slaughtering and Meat Marketing Sub-Project, providing for: (i) employment of consultants to make detailed recommendations in respect to Government meat policies; establishment of an adequate meat grading and inspection service; construc- tion of additional slaughterhouses and creation of adequate transport and other marketing facilities; (ii) finance for construction of new slaughterhouses and cold storage facilities and for renovation of existing ones and for training up to six meat inspectors, dependent on further consideration by IDA on receipt of the report of consultants.  - 9 - B. Detailed Features Beef and Sheep Ranch Development Sub-Project 3.03 Beef Ranch Development. This part of the sub-project would con- tinue the program of lending for beef ranch development initiated under Credit 107-BO and extended under the Interim Second Credit 171-BO. It is envisaged that approximately 210 ranch subloans would be made in the Beni Department, 25 in Iturralde Province and Pando Departments, 10 in Alto Beni Province and 5 in Chapare Province (see Map). 3.04 As in the first two Projects, subloans to ranchers would provide financial assistance for purchase of additional breeding cattle and for con- struction of property improvements such as fencing, water facilities, cor- rals, barns and housing and some pasture improvement and purchase of tools and equipment. 3.05 The Alto Beni, Iturralde, Pando and Chapare areas are of higher topography than the Beni and all include areas suitable for pasture improve- ment. Because of the need for land clearing and pasture establishment, costs of establishing beef ranches in these areas will be higher than those in the Beni. However, improved pastures would be suitable for fattening cattle and these areas have the advantage of better transport access to markets in La Paz and Cochabamba and to potential markets in adjoining areas of Peru and Brazil. Thus in addition to normal breeding operations ranches in these areas could play an increasingly important role in fattening a percentage of steers from the Beni to supply better quality meat for the higher income groups in these markets. Development of a limited number of ranches under the Project could lead to development on a more extensive scale in these areas in the future. 3.06 The Project would increase beef production on the ranches of sub- borrowers in three ways: first, by increasing the size of breeding herds on pastures that are at present greatly understocked; second, by improving the standard of cattle through introduction of better bulls of the Zebu breed; and finally, by providing technical services to help ranchers improve their management and raise productivity. The illustrative model for a beef ranch of 4,000 ha (Annex 3) shows an increase from a herd of 810 cattle, with annual offtake of 103 head (13%), to a herd of 1,595 cattle with offtake of 272 head (18%). The increase in carcass beef production per herd would be 230%, from 17,500 kg to 58,000 kg per annum. Herd sizes of potential borrowers are likely to vary substantially, ranging from about 150 head up to as many as 5,000 head on a small number of ranches. 3.07 Sheep Ranch Development. Long term subloans to three classes of sheep producers on the altiplano are proposed: approximately 100 sheep sub- cooperatives, 35 sheep cooperatives and 17 medium sized individually owned ranches. This part of the sub-project aims to increase mutton and wool pro- duction on participating properties by replacing the existing criollo sheep, with improved breeds such as Corriedale, Targai, Rambouillet and Junin. Con-  - 10 - currently with introduction of these improved sheep breeds, property improve- ments and improved management will need to be initiated. A significant area of each property will be sown to improved pastures since the improved breeds of sheep are about twice as large and require about twice as much feed per head as criollo sheep. 3.08 A typical sheep cooperative would have a membership of approximately 45 families, with a total of about 4,300 criollo sheep before development on about 2,000 ha (Annex 4). Under the Project, finance would be provided for purchase of rams and a nucleus flock of ewes of improved breeds; machinery and other inputs to improve pastures; and a limited amount of fencing, water facilities, sheep yards, shearing sheds and plant, tools and equipment. At full development in the ninth year, flock numbers would reach approximately 5,300, all of which would be virtually pure bred of an improved breed. 3.09 A typical sub-cooperative (a precursor of a sheep cooperative) would have 19 to 25 members, owning about 1,150 criollo sheep on 400 ha be- fore development and building up to 1,450 head of improved breed by the ninth year (Annex 5). Inputs financed by the Project would be the same as for cooperatives except that purchase of machinery for pasture improvement would not be included. These smaller holdings would have ploughing done by con- tract for pasture improvement. 3.10 The typical medium sized privately owned ranch would have an area and initial flock size similar to that of the sheep cooperative. Inputs financed on these properties would be the same as those financed for develop- ment of cooperatives, and similar increases in flock size and production are expected. 3.11 Technical Services. The provision of technical services for Proj- ect administration and execution would be continued through the LPD of BAB, as under Credit 107-BO and Credit 171-BO (Annex 6). The present Project Di- rector took up duty in January 1970 and it is proposed that he also act as Director of this Project. BAB would continue to employ a qualified and ex- perienced Project Director on terms mnd conditions acceptable to IDA and maintain adequate staff in the LPD to administer and execute the Project. 3.12 Technical services in connection with subloans to beef ranchers in the Beni and adjoining Departments would be administered through BAB's regional office at Trinidad. Staff of the LPD at that center would comprise one regional sub-project director, eight technicians, two veterinarians, one pilot and auxiliary staff. Technical services in connection with subloans to sheep property owners would be provided through LPD staff at BAB's re- gional office at Oruro. Staff would comprise one regional sub-project di- rector, one sheep husbandry expert, five technicians, one veterinarian and auxiliary staff. Cattle Slaughtering and Meat Marketing Sub-Project 3.13 In 1970, for the first time, there was a surplus, estimated at about 1,500 tons of beef, in the availability of cattle for slaughter in the  - 11 - Beni, above the demand for beef on internal markets in Bolivia. There has been an increase in the supply of cattle for slaughter in recent years, and one of the major contributing factors has been a fairly large-scale introduc- tion of steers for fattening, many of them coming from western Brazil. Over the past 12 months, the prices of cattle have risen sharply in Brazil and the sale of steers to Bolivia has practically ceased. In 1971, there will still be a flow of steers for slaughter as a result of earlier purchases. Thereafter, there will be an increasing supply of cattle for slaughter result- ing from investments made under the first two livestock development Projects. 3.14 Increasing demand for beef has resulted in marked increases in cat- tle and beef prices in most parts of South America during 1970. As a result of the deteriorating supply situation, Peru and Chile, both meat importing countries, have sought to purchase beef from the Beni. A contract was signed in March 1971 by the Federation of Ranchers of the Beni to sell 18,000 steers on the hoof for slaughter to importing agents in Lima over six months. At the same time representatives of the Chilean Government were in Bolivia en- deavoring to negotiate a contract for sale of carcass beef from the Beni and the Santa Cruz regions to northern Chile. Prices in Peru and northern Chile are much higher than the internal prices in Bolivia. However, in the case of the contract for sale to Lima, the price received f.o.b. in the Beni will be a little higher than the price for sales to La Paz. The sellers in Bolivia are not in a strong negotiating position at present because of their lack of a marketing organization and of modern slaughtering and cold storage facili- ties. 3.15 Demand for meat will certainly grow over the next ten years in Peru and northern Chile. Bolivia -- and the Beni and adjoining areas in particular -- is well situated to supply beef to both markets. The invest- ments made under the first two Projects and those proposed under this Proj- ect will result in increased production to supply these export markets. However, to establish a regular export trade on a sound footing, certain other measures will have to be taken with regard to marketing organization, provision of slaughtering and cold storage facilities, establishment of a meat inspection service of satisfactory standard, improvements in the air transport system, removal of restrictions on export of beef and of cattle for slaughter and the adoption of a meat pricing policy by the Government to provide for differential prices for different grades and qualities of beef, in place of the present policy which provides one price for all grades and qualities. 3.16 An amount of about US$100,000 would be provided under the Project to engage consultants to formulate recommendations on a program to develop facilities and organization for cattle slaughtering, beef marketing and transport to enable Bolivia to enter the export trade. The work of the con- sultants would cover the requirements of modern cattle slaughtering and beef storage facilities needed to handle increased beef output for the internal and external markets; establishment of a meat inspection service and a system of meat grading; policy measures to be adopted by the Government to encourage export of beef and provide producers with incentives to increase production; measures needed to provide a satisfactory system for transport of beef both  - 12 - internally and to export markets in Peru, northern Chile and Brazil. They would provide estimates of costs of construction of any proposed new slaughter- house and cold storage facilities and repairs to existing ones; they would also provide a projected cash flow for operation of new slaughtering facili- ties. The consultants engaged, the individual specialists and the terms of reference for their study would be subject to IDA approval. The report of the consultants is to be submitted to IDA within 12 months of the date of effectiveness. 3.17 There is at present one well-designed slaughterhouse in the Beni, at the Espiritu ranch, with cold storage space for about 8,000 kg of beef. The owners of this ranch are considering increasing the cold storage capacity to 15,000 kg. The Corporacion Boliviano de Fomento (CBF) has a large well-designed slaughterhouse with cold storage chambers on its ranch at Reyes but it is in need of repairs to bring it up to a suitable standard to handle beef for export. These plants could participate in the export trade but as they are intended essentially to handle offtake of their on