Argentina - Agricultural Credit Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. 1918a-AR STAFF APPRAISAL REPORT ARGENTINA AGRICULTURAL CREDIT PROJECT April 25, 1978 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENT Conversion of Argentine pesos ($a) to US$ was made at the rate of $a 380 to US$1, which was the average exchange rate for the month of June 1977. WEIGHTS AND MEASURES Metric System 1 quintal (q) in Argentina = 100 kgs GLOSSARY OF ABBREVIATIONS AACREA Asociacion Argentina de CREAS - National Association of CREAS Groups BNA - Banco de la Nacion Argentina - State Bank of Argentina BPB - Banco de la Provincia de Buenos Aires - Provincial Government Bank of Buenos Aires CB - Banco Central - Central Bank CREA - Consorcio Regional de Experimentacion Agricola - Regional Agricultural Research Group FACA - Federacion Argentina de Cooperatives Agrarias - Argentine Federation of Agricultural Cooperatives INTA - Instituto Nacional de Tecnologia Agricola - National Institute of Agricultural Technololgy PB - Banco Participante - Participating Bank PC - Comision Administradora del Proyecto - Project Committee SAP - Secretaria Agricola Provincial - Provincial Secretariat for Agriculture SEAG - Secretaria de Estado de Agricultura y Ganaderia - State Secretariat for Agriculture and Livestock GOVERNMENT OF ARGENTINA FISCAL YEAR January 1 to December 31  F01 OfFIIAL USE ONLY ARGENTINA AGRICULTURAL CREDIT PROJECT Staff Appraisal Report Table of Contents Page No. I. THE AGRICULTURAL SECTOR ................................ 1 A. General Characteristics ............ ..1............. B. The Agricultural Sector in the Economy .. .......... 3 C. Agricultural Production and Marketing ............ . 4 D. Recent Government Policies and Strategy ........... 7 E. Bank's Previous Financing in the Sector ........... 9 II. THE BANKING SYSTEM AND AGRICULTURAL CREDIT .... ......... 12 A. Recent Financial Legislation ...................... 12 B. Structure of the Banking System ................... 13 C. Agricultural Credit ...... ......................... 14 III. MAIN PROJECT EXECUTING AGENCIES ............. ........... 15 A. Policy, Coordination and Supervision Agencies ..... 15 B. Technical Assistance Agencies ..................... 16 C. Credit Agencies ................................... 17 IV. THE PROJECT ............................................ 20 A. Introduction ................... ................... 20 B. Brief Description ........ ......................... 20 C. Detailed Features ....... .......................... 21 D. Project Cost ...................................... 26 E. Financing ......................................... 27 F. Procurement ...................................... 28 G. Disbursement ........ .............................. 28 This report is based on the findings of an appraisal mission which visited Argentina in October 1977. The mission comprised Messrs. J. Bazo, F. Miyanaga and D. Sutherland (Bank), and B. Bilbo and J. Link (Consultants). This docunent has a stricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not otherwise be diselosd without World Bank authorization.  Table of Contents (Continued) Page No. V. PROJECT IMPLEMENTATION ................................. 29 A. Organization and Management ....................... 29 B. Policies and Procedures Under the Lending Program . 30 C. Accounting and Auditing ........................... 32 D. Monitoring and Reporting .......................... 32 VI. TECHNICAL COEFFICIENTS AND PRICES ...................... 33 A. On-farm Development Component ..................... 33 B. Weed Control Component ............................ 33 C. Land Clearing Component ........................... 34 D. Prices ............................................ 35 VII. PROJECT PRODUCTION, DEMAND AND MARKETING .... ........... 36 A. Production ........................................ 36 B. Demand and Marketing .............................. 37 VIII. FINANCIAL ANALYSIS ................ .. ................... 38 A. Producer Benefits and Financial Rates of Return ... 38 B. Project Cash Flow ................................. 39 C. Project Cost Recovery ............................. 39 IX. ECONOMIC ANALYSIS ...... ............. ................... 41 A. Economic Benefits ................................. 41 B. Economic Rate of Return ........................... 42 C. Project Risk ...................................... 43 D. Impact on Environment ............................. 43 X. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION .... ... 45  Table of Contents (Continued) Page No. ANNEXES 1. Supporting Tables and Charts T. 1 - Commodities Exports .............................. 46 T. 2 - Cattle Population, Production, Beef Exports, and Domestic Consumption, 1965-76 .... .......... 47 T. 3 - Loans Issued by the Banking System in 1975 ....... 48 T. 4 - Agricultural and Sectoral Distribution of Outstanding Loans as of November 30, 1976 ...... 49 T. 5 - Balance Sheets of BNA as of December 31, 1974, 1975 and 1976 ...... ............................ 50 T. 6 - Statement of Income and Expenses of BNA, as of December 31, 1974, 1975, 1976 ................... 51 T. 7 - Model 1 - Buenos Aires, Livestock Farm, 300 ha 52 T. 8 - Model 2 - Buenos Aires, Livestock Farm, 650 ha 53 T. 9 - Model 3 - Buenos Aires, Crop/Livestock Farm, 365 ha .............................. 54 T. 10 - Model 4 - Entre Rios, Cattle Breeding Farm, 2,800 ha . .......................... 55 T. 11 - Model 5 - La Pampa, Livestock/Crop Farm, 500 ha.. 56 T. 12 - Model 6 - Corrientes, Cattle/Sheep Farm, 2,540 ha 57 T. 13 - Model 7 - Johnson Grass Control, Crop Farm, 100 ha 58 T. 14 - Model 8 - Johnson Grass Control, Crop/Cattle Farm, 170 ha ....59 T. 15 - Model 9 - Bermuda Grass Control, Crop/Cattle Farm, 275 ha .............. 60 T. 16 - Model 10 - Custom Hired Operation Farm, 350 ha 61 T. 17 - Model 11 - Farmer/Contractor, Tractor Owner Farm, 2,000 ha .62 T. 18 - Phasing of Investments and Contingency Calculations 63 T. 19 - Main Investment Items and Estimated Costs 64 Chart 1- Organization Chart of BNA .65 2. List of Selected Documents and Data Available in the Project File .66 MAP IBRD No. 13337 - Project Areas - Location of BNA and INTA Offices   I. THE AGRICULTURAL SECTOR A. General Characteristics 1.01 Over 200 million ha, or 75% of the total area of Argentina, are under agricultural production. Some 140 million ha are covered with natural pastures supporting a cattle herd that, since 1969, has fluctuated between 48 million and 56 million head and a sheep flock of the order of 35 million head. About 33 million ha are under crops, mainly wheat, corn, sorghum and oilseeds, and some 50 million ha are under forests. The country has a variety of climatic conditions ranging from subtropical to cold, but lies mostly in the temperate zone. Rainfall is adequate and often abundant in the eastern part of the country, but diminishes rapidly from east to west. Annual rainfall averages 1,000 mm in the eastern part of the province of Buenos Aires and decreases to some 500 mm in its western part. On the basis of rainfall, the country is divided into four general zones extended in parallel from north to south and known as the humid, semihumid, semiarid and arid zones. Within these four general zones, the country is divided into several geo-economic regions on the basis of topography, soils, temperatures and other criteria. The main ones and most relevant to the project area are the Pampean, the northeast and the northwest regions. Main Agricultural Regions 1.02 The Pampean (prairie) region, stretching in a rough semicircle about 500 km from the city of Buenos Aires, comprises some 40 million ha of the most productive land in the world. It is located in the humid and the semihumid zones. This region includes the province of Buenos Aires and parts of the provinces of Entre Rios, Santa Fe, Cordoba and the La Pampa. The predominance of deep black, friable chernozem soils and other excellent ecological conditions for cereals, oilseeds and livestock make it the most important region, accounting for 60% of the country's population (26 million). The area supports some 175,000 farms, or 30% of the total number of farms in the country. The main agricultural activities are production of corn, wheat and livestock products. With respect to corn and wheat, the region contributes about 60 and 50%, respectively, of the planted area in the country and about 70 and 60% of the total production. It also supports about 50% of the country's cattle and hogs and about 35% of its sheep herd. 1.03 In the northwest of the country lies a humid belt extending in a north-south direction through the provinces of Jujuy, Salta, Tucuman and Santiago del Estero. This region is devoted primarily to intensive cropping and is important for subtropical products such as cotton, sugarcane, tobacco, rice, tea and citrus fruits, although sorghum and soybeans are of increasing importance. Substantial areas of the farms located there are covered by forests, which, to a great extent, have already been depleted of their valu- able wood but are now being cleared entirely to expand the cropping area.  1.04 Another important region in the country is the northeast, which comprises the province of Chaco and parts of Misiones, Formosa and Corrientes provinces. This is a subtropical area, with high temperatures during most of the year and rainfall ranging from 1,600 mm in the east to 500 mm in the west. As in the northwest region, much of the area is under forest from which a substantial part of the valuable hardwoods has already been extracted. How- ever, since the soils are fertile, they also are being cleared to expand the farming area, mainly to plant sorghum, sunflower, soybeans, and cotton. Though the region is not important for livestock, some cattle of Cebu (Brahman) strains are pastured in the area. Land tenure 1.05 The abundance of land and particularly of highly fertile soils on the one hand and the low population density on the other place Argentine agriculture in an especially favorable position in which the land availability has neither constrained agricultural development nor led to highly skewed income distribution in this sector. In fact, rural poverty is exceptional and restricted to a few pockets in the Northern provinces of Mendoza, Chaco, Corrientes and Formosa. About 72% of the total land area is privately owned and the balance belongs to the federal or the provincial governments. The 1969 census indicated that there were some 550,000 farms in Argentina, the average size being 375 ha, with 33 ha of crop land, 264 ha under pasture and 78 ha under forest or other uses. The land tenure pattern is characterized by a wide range of farm sizes and different types of operations. The distribution of farms (1969) according to size is given in the following table: Farms Area in Farms Pampas Other Total Pampas Other Total Farm Size Region regions Region regions