Tanzania - Second Cashewnut Development Project

Document of m r p I I The World Banik FILE v FOR OFFICIAL USE ONLY Report No. 1868-TA TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT STAFF APPRAISAL REPORT April 26, 1978 This document has a restricted distributiun' and may be used' by recipient's only iF the perfo ib ee of their official duties. Its contents may not otherwise be discIosed WiAbutf Worhdi taifll autioiViatfin.  CURRENCY EQUIVALENTS Currency Unit = Tanzania Shilling (Tsh) Tsh 1.0 US$0.12 US$1.0 Tsh 8.30 WEIGHTS AND MEASURES Metric System 1 hectare (ha) = 10,000 m = 2.46 acres 1 kilometer (km) 2 0.62 miles 1 square kilometer (km ) = 0.39 sq. miles = 100 ha 1 kilogram (kg) = 2.20 pounds 1,000 kg = 1 metric ton = 0.98 long ton ABBREVIATIONS MOA = Ministry of Agriculture CNSL = Cashewnut Shell Liquid CATA = Cashewnut Authority of Tanzania MDB = Marketing Development Bureau of the Ministry of Agriculture CCM = Chama Cha Mapinduzi (Political Party) NBC = National Bank of Commerce FISCAL YEAR Government: July 1 - June 30 CATA October 1 - September 30  FOR OFFICIAL USE ONLY TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE AGRICULTURAL, RURAL AND INDUSTRIAL SECTORS .......... I A. The Agricultural and Rural Sector I.................. B. The Industrial Sector ....... ........................ . . . . 8 II. CASHEWNUT PRODUCTION, PROCESSING AND RESEARCH .... ....... 10 A. Cultivation, Harvesting and Products of Cashew Tree. 10 B. Raw Cashewnut Production in Tanzania . ....... ........ 11 General ......... ... 6. .**......... .......................... 11 Cashewnut Producing Areas .......................... 12 Production of Existing Trees ....................... 12 Plantation Program ................................. 12 Raw Nuts Grading and Extension Services ............ 13 Purchasing Arrangements and Transport .... .......... 14 C. Cashewnut Processing .. .... ..... ... ........... .. 14 Manual Cashewnut Processing .... o...o ......... 14 Principles of Cashewnut Processing ..... 15 Processing Coefficients .... o --. -... 16 Mechanical Processing in Tanzania ...... .. ...... 16 Do Cashew Research . . ....... . ... . ..... . ..... ,.. . 17 III. CASHEWNUT MARKETS AND PRICES . ........ ... .. ............ o.. 18 General ....... ,.- . ooo. 18 Trade in Cashewnut Kernels ....... o.. ..................... 19 Consumption ..60................................... .... ....... 20 Prices ...........o.o......... ..o.. 20 Trade in Raw Cashewnuts * * ..................... ....... .. 21 Cashewnut Shell Liquid (CNSL) ........................... 22 Producer Prices ........... . .. .. . .. . .. .. . .. . a * ........ ... . 22 IV. THE CASHEWNUT AUTHORITY OF TANZANIA ..o ....... 22 Organization and Management ... ......... ... 23 Financing ........ 23 Reports, Accounts and Audit ...o ......... 23 Financial Prospects ....... .................. ........ 23 Existing Factories ...................... ... .......... 24 Other CATA's Activities .. .................. .. **...... 24 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.  Table of Contents (Continued) Page No. V. THE FIRST CASHEWNUT DEVELOPMENT PROJECT .... ............. 25 A. Summary Project Description ........... .. ........... 25 A. Cashewnut Production ........................... 25 B. Staff Employment, Staff Training and Project Preparation .................................. 25 C. Rural Water Supply and Community Education Centers ...................................... 25 Project Cost ................................... 26 Project Construction ........................... 26 Research ........... ............................ 27 Financial Management ........................... 28 Monitoring .......... ........................... 28 Conclusion ......... ............................ 28 VI. THE PROJECT ....................... ...................... 29 A. General Description ................................ 29 B. Detailed Features .................................. 29 Factory Sites ...................................... 29 CNSL Storage Facilities ............................ 31 CNSL Tankers and Vehicles .......................... 31 Staff Housing ...................................... 31 Professional. Services .............................. 31 Envirorment and Occupational Health .... ............ 32 C. Organization and Management ........................ 33 Project Construction ............................... 33 Factory Operation .................................. 33 Monitoring .......................................... 33 D. Accounts and Audits ................................ 34 VII. PROJECT COSTS, FI]NANCING AND PROCUREMENT .... ............ 35 Capital Costs ............ 35 Operating Costs ......................................... 36 Financing ............ 36 Disbursements ............ 36 Procurement ............ 37 VIII. FINANCIAL EVALUATION .................................... 37 Basic Assumptions.37 Financial Projections.38 Farmers' Benefits.38 Government Cash Flow ............................... 39 Foreign Exchange Benefits .......................... 39  Table of Contents (Continued) Page No. IX. ECONOMIC EVALUATION ..................................... 39 A. Summary Economic Benefits and Justification ........ 39 B. Basic Assumptions .................................. 40 C. Sensivity Analysis ................................. 40 D. Uncertainties and Risks ............................ 41 E. External Effects of the Project .... ................ 42 X. AGREEMENTS AND RECOMMENDATIONS .......................... 42 Annex 1: Tables 1. CATA Purchases of Raw Nuts, 1969/70 to 1976/77 2. Rainfall and Cashewnut Growth Periods 3. Cashewtree Plantation Program: Allocation of Planted Areas 4. Cashewtree Plantation Program: Anticipated Yields 5. Cashewtree Plantation Program: Production 6. Summary of Tanzania's Cashewnut Processing Capacity 7. Supply of Raw Nuts and Processing Capacity 8. Exports of Cashewnut Kernels from Processing Countries 9. India's Margin on Raw Nut Processing 10. Kernels 320 Wholes Prices CIF New York 11. Raw Cashewnuts Production 12. Price Relationship between Tanzanian Mix and 320 Wholes 13. Projection of Kernel Prices 14. Economic Cost of Raw Nuts to Factories 15. Financial Cost of Raw Nuts to Factories 16. Financial Cost of Exporting Raw Nuts 17. Producer Prices for Cashewnuts 18. CATA Income Statements 19. CATA Balance Sheets 20. Comparative Estimate of First Project's Costs 21. Tankers Requirements for Transportation of CNSL 22. Project Costs Summary 23. Detailed Project Costs 24. Cost of Professional Services 25. Disbursement Schedule 26. Projected Income Statements for a Typical Project Factory 27. Consolidated Cash Flow Statements for the Project's Factories 28. Cash Flow Statements for CATA 29. Government Project Related Cash Flow 30. Foreign Exchange Earnings and Expenditures 31. Economic Rate of Return Calculation 32. Economic and Financial Rates of Return Sensitivity Analysis  Table of Contents (Continued) Annex 2: Selected Documents and Data Available in the Project File Charts: The Cashewnut Authority of Tanzania Implementation Schedule MAP This report is based on the Eindings of an appraisal mission which visited Tanzania in June/July 1977, consisting of Messrs. F. M. Patorni, A. Wilson (Bank) and J. Ohler (consultant). Mr. R. Lacroix (consultant) reviewed in September/October 1977 the technical and economic aspects of the main cur- rently available cashewnut processing methods. Mr. M. Coyaud (Bank) visited the Ministry of Water, Energy and Minerals in December 1977. Mr. P. Patel (Bank) reviewed in January 1978 Government's proposals for the siting of one factory in the Coast Region. Mr. F.M. Patorni (Bank) visited Tanzania in February 1978 to update the appraisal report.  I. THE AGRICULTURAL, RURAL AND INDUSTRIAL SECTORS A. AGRICULTURAL AND RURAL SECTOR Background 1.01 Tanzania has a total population of about 15.3 million (mid-1976), which is increasing at an annual rate of about 2.7 percent. Average per capita GNP for 1976 is estimated at US$180, and average per capita income in the rural areas is put at about US$70. The real growth rate of GDP of the economy averaged about 4.8 percent per annum over the period 1964-1975. Roughly 40 percent of GDP is derived from agriculture and related activities such as forestry with about half of this contribution coming from subsistence production. About 94 percent of the Tanzania population lives in the rural areas, and 90 perccent of the economically active population is engaged in agriculture. 1.02 Most agricultural production is from smallholdings using family labor. Large-scale agriculture is confined to a small number of private estates and state farms producing sisal, coffee, tea sugar, wheat, rice and livestock. Estate production has diminished in importance, and the state farm program remains small. Tanzania's national livestock herd, with a cattle population estimated at 10 million head, is grazed extensively over the 40 percent of the country which is free from tsetse fly infestation. It is largely managed along traditional lines. 1.03 About 70 percent of Tanzania's foreign exchange earnings from mer- chandise exports are accounted for by exports of unprocessed agricultural commodities, and a further 7 percent comes from exports of processed farm products. The major agricultural export commodities are cotton, coffee, sisal, cashewnuts, tea and tobacco. 1.04 The recent performance of the agricultural sector as been sluggish. Over the period 1967-1976, the average annual rate of growth of agricultural production was 2.8 percent, only slightly greater than the rate of population growth. From the late 1960's onward, food crop production failed to keep pace with population growth and, as a result, Tanzania became increasingly dependent on imports of maize, rice and wheat. The effects of this slow growth were exacerbated in 1973 and 1974 by the effects of a severe drought which resulted in poor harvests and the need for large imports of foodgrains. In 1975 and 1976, agricultural production recovered from the effects of the drought increasing in real terms by about 6.5 percent in 1975 and by a further 4.5 percent in 1976. Agricultural and Rural Development Strategy 1.05 The Goverrment has undertaken a comprehensive program to support the development of productive activities in the agricultural sector, in con- junction with efforts to achieve balanced regional growth and more equitable  income distribution. Within these objectives, Government is paying particular attention to achieving self-sufficiency in food production and to supporting these crops which represent sources of foreign exchange earnings. Greater emphasis is being placed on the production rather than the social aspects of rural development projects. In addition, Government has made substantial headway during the past decade in laying the foundations for a long-term program of rural development. Beginning in 1970, the Government launched a wide-ranging program to resettle the country's rural populations into villages. In 1972, it decentralized government administration to the regional and district levels in order to tailor development programs more closely to the needs of the new villages (paras. 1.07-1.09). In 1975, it instituted the Village and Ujamaa Villages Act, which laid down the legislative base and procedures for the newly created villages (paras 1.10-1.12). With the estab- lishment of new villages, the Government set ambitious targets to provide essential social services. Under a Universal Primary Education Program launched in 1974, close to 100 percent of all children of primary school age were enrolled in primary sclaool by the end of 1977. A program of village water supply was initiated in the same year with the objective of providing the entire rural population with an accessible supply of potable water by 199: so far, 36 percent of villages have water supply systems. A program has recently been launched to provide the full rural population with access to rudimentary health rare as soon as possible. 1.06 However, the rural populace has yet to experience the benefits of the Government's overall strategy. Real rural per capita incomes actually declined by 4 percent between 1969-1975 and represent only 43 percent of average urban incomes. The Government's social programs still affect only a small proportion of the total rural population. Although major institu- tional reforms have been made, the institutional structure in the rural sector is still in flux, and may require yet further change. In some respects (for example, changes in the input delivery system), excessive institutional change may have been partly responsible for the relatively poor performance of the agricultural sector. Rural Organization 1.07 In order to improve the quality of its programs and projects, to speed their execution and to encourage the mobilization of local resources, the Government, in 1972, adopted a decentralized administrative structure. Regional and District authorities were granted primary responsibility for the planning and implemental:ion of development activities within their jurisdictions, and were given a high degree of administrative autonomy. Tanzania is now divided in 21 Regions, containing a total of 80 Districts. The political head of each Rtegion is the Regional Commissioner, who has the rank of Cabinet Minister, and who is chairman of the Regional Develop- ment Committee, and a member of the country's National Assembly and of the National Executive Committee of Tanzania's only political party. Chama  Cha Mapinduzi 1/ (CCM). The political head at the District level is the Area Commissioner, who is the CCM District Secretary and Chairman of the District Development Council. All Regional and Area Commissioners are directly appointed by the President of Tanzania. 1.08 The Regional civil service is headed by the Regional Development Director (RDD), assisted by a Regional Planning Officer, and by the heads of the twelve Regional functional departments of the central ministries. 2/ The head of each of these departments reports directly to the RDD, who, in turn, is responsible to central Government through the Prime Minister's Office (PMO). At the District level, the administration is headed by the District Development Director (DDD), assisted by a District Planning Officer and the heads of the District functional departments, which are the same as those represented at the Regional level. The field-level staff of the central ministries are answerable to the DDD through the heads of their functional departments, but receive technical guidance from the functional staff at the Regional level and, through them, fron the central ministries. All civil servants within a Region are ultimately responsible to the RDD and, once appointed to a Region, can only be transferred with the consent of the RDD. 1.09 This decentralization of government authority has served to improve communications between the Government and the village and between the Party cadre and the civil service. Villages, in principle, have more opportunity to participate in the planning and implementation of the development programs which affect their future. The Party is more aware of individual village needs. The civil service operating at the district and regional levels has a more integrated approach to rural development than was possible through the central technical ministries. However, qualified manpower is insufficient to fill the many positions demanded by a decentralized government structure. Decentralization has not led to the anticipated levels of local participation in the planning process, which remains dominated by the central ministries. The division of responsibility between the central ministries, regional and district authorities and parastatals remains poorly defined, and bureaucratic tensions persist. Villagization 1.10 Since independence, the grouping of dispersed farm families into villages has been a key element of Government strategy for the rural areas, in order to facilitate the provision of infrastructure and services to the rural population, and to encourage self-reliance and a community approach to rural development. During 1974, the emphasis shifted from creating additional 1/ Roughly translatable from the Swahili as "the Party of the Revolution". 2/ Education, Health, Lands, Industry, Commerce, Natural Resources, Live- stock Development, Crop Development, Water, Public Works, Ujamaa and Cooperatives, and Culture.  - 4 - ujamaa 1/ villages (the ultimate goal of which was fully collectivized agri- cultural production) to forming "planned" of "development" villages, which place less stress on communal production, and more on "block farming" (in which each farmer cultivates his own plot within an overall block of land allocated to the village) and on individual holdings within the village framework. At the same time, the pace of villagization was considerably accelerated, not without some degree of disruption of production in some areas. At the present time, there are about 7,700 registered villages, containing over three-quarters of Tanzania s rural population. 1.11 The village is intended to act as the country's primary social, economic and political unit. Basic social services, including health facili- ties, classrooms and water supply systems, are to be located in each village. Economic services, including provision of credit, supply of inputs, organiza- tion of extension services and marketing of produce, are to be coordinated at village level. Economic infrastructure, such as storage godowns, process- ing equipment and small-scale industries, are to be village owned investments. The villages' legal status has now been spelled out in the Villages and Ujamaa Villages (Registration, Designation and Administration) Act of 1975. Each village of 250 families or more is registered and elects, through a Village Assembly, a Village Council. The Village Council has the power to allocate land and control its use, owns heavy agricultural machinery and other capital goods (except for livestock a,nd small farm tools which remain individual property), can borrow and is required to establish a capital fund, a reserve fund and a disposable fund. 1.12 It is too early to judge how effectively the villages will be able to meet their ambitious goals. Early performance has been mixed, with vil- lages in some regions demonstrating an impressive ability to mobilize local support for the construction of social infrastructure (such as schools) or productive infrastructure (such as village grain and input stores), whilst other villages have shown little ability to effectively mobilize local re- sources. Villagization has brought with it problems which are increasingly being felt in Tanzania. In some areas of high population density, villagiza- tion has led to overgrazing and depletion of soil fertility. In other areas, there are substantial diseconomies in that villagers must now travel further to cultivate fields, collect fuelwood and draw potable water. The Government has already acted (through 'Operation Correction' in 1976) to rectify the most serious cases of misallocation, but more attention to village siting and size is needed to overcome many of the existing problems of village settlements. Agricultural Marketing and Prices Parastatals 1.13 In 1976, the District and Regional Cooperative Unions, which formerly played an important role in agricultural marketing, were dissolved and their functions transferred to other national, regional and district organizations, 1/ "Ujamaa" is a Swahili word meaning "familyhood".  the most prominent of which are the various parastatal crop authorities. At present, there are separate parastatal institutions for coffee, cotton, sisal, tea, tobacco, cashew-nuts, pyrethrum, sugar, livestock and dairy products and foodgrains. Many of these parastatals have been established quite recently, or have taken over the functions of predecessor organizations. The general tendency has been for Government to enlarge the role and scope of these organizations, placing a severe strain on their manpower resources. 1.14 The marketing system is usually characterized by lack of competi- tion, high marketing costs, poor service and slow payments to farmers. Many parastatals have been proven to be inefficient, with excessive overhead costs. Overall operational efficiency has not improved over the past decade, and may even have declined in some cases. These inefficiencies have resulted in increased trading margins, which in turn lead to higher consumer prices and/or lower producer prices. These problems have been exacerbated by the changes outlined above. While some parastatals have performed creditably, there is evidence of crops not being purchased and transported in a timely fashion, of delayed payments and of further increases in marketing costs. The Tanzanian Government is aware of these problems, and is taking steps to remedy the situation, which include the review by Standing Committee on Parastatal Organization (SCOPO) of the structure and managerial performance of parastatals, and recent dismissals of staff in parastatals that were over manned. Pricing Policy 1.15 The control of producer and wholesale prices of major crops in Tanzania is an important policy tool of Government. Almost all principal export crops are controlled, as are major food products (with the exception of such items as fruits, vegetables, eggs and fish). Responsibility for making price recommendations rests with the Ministry of Agriculture, with final decisions on pricing taken by the Economic Committee of Cabinet. Prior to 1974, Government downplayed the use of price incentives to en- courage increased production. Thus, for several years prior to 1974, most producer prices were held fixed despite increases in input costs. Since then, however, the Government has recognized the need to maintain farmer incentives by providing remunerative returns. During 1974, very substan- tial producer price increases were introduced and since then, producer prices have been reviewed annually, with further price increases announced to maintain farmers' production incentives. 1.16 Producer prices for a wide range of commodities, including maize, wheat, rice, tobacco, cotton and cashew nuts, are set on a uniform national (or 'pan-territorial') basis. The objective of this policy is to promote the development of the more remote regions by nullifying the effects of transport costs. This policy could have major disadvantages in the long- run, since it is likely to lead to sub-optimal allocation of production factors; this misallocation will be greater the more successful uniform pricing is in stimulating production in areas in which, otherwise, pro- duction would not be economic.  - 6 - 1.17 In recent years, Government has encouraged the use of inputs such as fertilizer and improved seed, through the subsidization of these inputs. Particularly in the case of fertilizer, distribution and use has often been indiscriminate, with little regard being paid to whether the use of fertil- izer on particular crops or particular soil types was agronomically and economically desirable. Much greater attention is now being given by Gov- ernment to ensuring that inputs, in particular fertilizer, are being dis- tributed for use only where such use is profitable, in terms of increased yields. In the case of fert:ilizer, which is priced on a pan-territorial basis, the level of subsidy has been progressively reduced from 100 percent of total cost in the 1973/74, and 1974/75 seasons, to 75 percent of cost in 1975/76 and 50 percent of cost in 1976/77 and 1977/78. However, at present world fertilizer prices, the subsidized price of fertilizer, reflecting the fact that the Tanzania Fertilizer Company (which produces the bulk of fer- tilizer used in Tanzania) is a high-cost producer, and that the present level of subsidy represents a subsidy to the factory, rather than to the agricultural sector. Agricultural Services Research 1.18 Agricultural research in Tanzania is undertaken by a variety of governmental agencies. The Ministry of Agriculture (MOA) is responsible for overall guidance of the national research effort, and operates a network of crop and livestock research stations. Tanzania's research system has several weaknesses. MOA has not been able to exercise effective control and, as a result, priorities have not always been firmly established, the regional emphasis has been unclear, and research resources have not been allocated in accordance with development priorities. There is a need for greater focus on improving knowledge about Tanzania's various agro-economic zones, and on improving the farming systems in these zones through a greater emphasis on field testing. The links beltween research and extension are weak, partly as a result of the Regions being responsible for extension, while MOA is in charge of research and training. 1.19 Agricultural research in Tanzania is increasingly becoming linked with the various international agricultural research institutes under the Consultative Group for International Agricultural Research (CGIAR), and is receiving additional support comes from bilateral agencies. IDA is intending to assist, as part of a proposed Agricultural Services Project, in strengthen- ing the ability of the Tanzarnian research system to carry out field testing, and in forgoing effective links with the agricultural extension services. The Tanzanian research system also receives support under the Tabora Rural Development Project (Cr 703-TA), and additional support would be provided under the proposed Mwanza/Shinyanga Rural Development Project.  -7- Extension 1.20 The agricultural extension service in Tanzania is staffed by about 100 graduates, 3,000 field officers, who have received some formal training, and by about 3,500 field assistants, many of whom have received no formal training. Of field level extension staff, about 54 percent are employed by MOA but under the day-to-day control of the region, with the remaining 46 percent employed by various crop parastatals. 1.21 As the research base is weak, extension agents have few proven technical packages to extend to the farmers. The training of field staff is grossly inadequate, and refresher courses are infrequent. Field staff are inadequately supervised, and receive limited logistic support. A review of the extension system has been underway in Tanzania for about two years, with MOA and the PMO holding differing views on how it should be reorganized. In order to assist in the development of an effective extension service, IDA has proposed to carry out jointly with the Government an initial survey of the needs of research and extension services in Tanzania, with the intention of following through to the preparation of a research and extension training component of a National Agricultural Services Project. Credit 1.22 Long, medium and short-term agricultural credit is provided by the Tanzanian Rural Development Bank (TRDB) which administers special funds on behalf of the Government, and which has been supported by the Bank Group as the major credit channel for those IDA funds disbursed for direct use by farmers. During the year ending 30th June 1977 (1976/77) TRDB made loans totalling Tsh. 77 million, of which Tsh. 33 million (43 percent) went to registered villages (mainly for seasonal inputs), and Tsh. 16 million (20 percent) went to parastatals, with the remainder split between cooperative societies, producer associations and District Development Corporations. Almost Tsh. 53 million (68 percent) of TRDB's lending in 1976/77 was for short-term finance of seasonal crop inputs. The remainder was medium and long-term credit, including Tsh. 15 million (19 percent) for livestock devel- opment and Tsh. 5 million (7 percent) for rural transport, with smaller amounts for small-scale industries, crop storage facilities, farm machinery and fisheries development. TRDB at present charges interest rates of 8.5 percent on short-term financing, and 7.5-8.5 percent on medium- and long-term credit. A project to further strengthen TRDB is currently being prepared with IDA assistance. Rural Transport Services 1.23 An adequate road transport system is needed to ensure the efficient movement of crops to market centres and railheads, and to support timely delivery of agricultural inputs to the farmers. Despite Government's efforts to upgrade the road network, which have been concentrateu on recent years on bitumenizing existing roads rather than building new ones, only about 10 percent of the 33,400 km of roads provide reliable, all weather service. The remainder are, in general, little more than earth tracks impassable in the  - 8 - .ainy season. The condition of the road network is generally poor, reflecting the lack of adequate maintenance due to shortages of equipment and qualified staff, institutional inefficiLencies and insufficient budgetary allocations. Rural roads are in especially poor condition. Current government action to address these problems includes the provision of staff training and equipment under the IDA-assisted Highway Maintenance Project (Credit 507-TA) and the Tabora Regional Development Project (Credit 703-TA) and the recently created Betterment and Maintenance Units, which are upgrading selected secondary roads in several regions. B.. INDUSTRIAL SECTOR 1.24 At independence Tanzania had an extremely limited industrial sector dominated by private firms. Three major features have characterized the sector since that time: rapid expansion, an impressive diversification in products produced, and a major shift in ownership from private to public hands. The contribution of manufacturing to GDP more than doubled by 1976 as the number of jobs in the industrial sector tripled. Furthermore, the limited range of products produced in 1961 has been significantly expanded as new plants producing a wide range of consumer goods and some intermediate and capital goods were completed. Finally, following the Arusha Declaration in 1967, the Government systematically transferred the control and ownership of the large private and foreign-owned industrial enterprises to publicly-owned parastatals. By 1974, the public sector accounted for about 50 percent of manufacturing value-added and employment. Presently, four ministries control 17 holding companies which have a total of 97 subsidiaries in various pro- ductive sectors. It must, however, be noted that the private sector still remains an important participant in industry (430 of 500 factories with over 10 employees are in private hands). Performance and Problems 1.25 Aggregate manufacturing production grew rapidly between the mid- sixties and the onset of the economic crisis in 1974. The average annual real growth of the manufacturing sector was 7.8 percent between 1964-75 compared to an average growth rate of 4.8 percent for total GDP. However, while this record of increasing output would seem to indicate satisfactory industrial performance, a detailed analysis of Tanzania's record in the manufacturing sector indicates that productivity has been low and output has been far less than warranted by the level of investment. 1.26 The problems underlying the suboptimal performance in the sector are many. At the macro level, the Government has not yet developed the administrative capability to monitor and coordinate effectively the opera- tions of the control systems which were instituted along with the increased public ownership of manufacturing enterprises. Important components of this control system include centra,lized decision-making on investments, detailed allocations of foreign exchange through import licensing, an extensive regime of price controls and rules of procedure operated by the National Pricing  - 9 - Commission, and wage-setting by the permanent Labor Tribunal and the Govern- ment. While the government feels these controls are needed to achieve its development goals, their effect has largely been to insulate public enter- prises from the discipline of market forces. At the micro level two addi- tional sets of problems operate. First, performance indicators consistent with the macro control systems and clear guidelines for evaluating perform- ance are still lacking. Managers and workers, therefore, have few motivating incentives in Tanzania. Second, there is a scarcity of trained managerial personnel and skilled labor, and most enterprises have to live with periodic shortages of other key inputs. 1.27 These issues have been raised in various Bank reports on the Tanzanian industrial sector. The Government is well aware of them and con- siderable discussions have taken place among Tanzanian economic and enter- prise managers on possible solutions. The Bank Group has participated in these discussions within the context of both general economic work and spe- cific projects in the industrial sector. These issues were a particular focus of the recent review of the Basic Economic Report in November 1977. While decisions on any major macro policy changes dealing with the incentive system for workers and managers, parastatal organizations and the price and import control systems will take time because of their importance and breadth, at the firm level a number of improvements have been made. These include staff retrenchment in overmanned parastatals, an eight percent limit on allowable increases in overhead costs of manufacturing firms which approach the National Price Commission for price increases and the hiring of a foreign consultant group to advise on operational/managerial improvements for the subsidiaries and associate firms of the major industrial holding company, the National Development Corporation (NDC). Specifically, as a result of the NDC sponsored efficiency studies, its operating companies have been able to improve their operations and correct problems in management, maintenance, inventory con- trol, excess receivables, unbalanced process lines, and worker skills. This approach could be repeated with success in additional parastatals. Basic Industrial Strategy and the Third Five-Year Plan 1.28 Future development of the sector will be based on the Basic Indus- trial Strategy (BIS) adopted in 1974 by the Government. The two main goals of this strategy are structural transformation and self-reliance and its main emphasis is on the use of domestic resources for domestic needs. This in- volves giving top priority in investment allocations to industries supplying (i) basic needs of food, shelter, health, education and transport, and (ii) producer goods which contribute to production of a wide range of industrial products. However, as it has emerged BIS will also permit expansion of export-oriented production, especially that based on domestic raw materials (for example cashew processing, sisal spinning, textile manufacture, and meat and leather processing). A potential problem with the BIS is that attempts to restructure the economy too quickly during this period of resource stringency may ultimately frustrate both growth and structural change. A too rapid ex- pansion of particular sectors may lead to excessive reliance on external finance, know-how and markets, and the massive investment coordination re- quired by the strategy may overburden the country's already weak planning  - 10 - capacity. Moreover, effective implementation of the strategy will require specific changes in the macro policy framework towards a protection and tariff structure which does not discriminate against backward linkage import substi- tution, discourage domestic production of capital goods, or confer high and widely varying effective rates of protection to the production of consumer goods. 1.29 Preliminary indications are that the Third Five-Year Plan under preparation (FY77-81) envisages an investment program of about Tsh 23 billion, of which about 21 percent will go to manufacturing. Projects with Bank group support earmarked for development/implementation under the Plan are the indus- trial estate at Morogoro, the cashewnut processing factories and the textile mill expansion at Mwanza. In addition, NDC is presently implementing five other major projects: a tannery, a bicycle plant, a farm implements factory, a detergents factory, and a pharmaceutical plant. A pulp and paper mill project and another textile plant are in advanced stages of preparation for Bank Group financing. II. CASHEW PRODUCTION, PROCESSING AND RESEARCH A. Cultivation, HarvestinR and Products of the Cashew Tree 2.01 The cashew tree, Anacardium occidentale L., is a native of Brazil, but was introduced by the Portuguese in the 1600's into Asia and Africa to prevent soil erosion. The tree, which is an evergreen, naturally grows up to 12 meters high and has a spread of 25 meters. It has an extensive root system, which helps it to tolerate a wide range of moisture levels and soil types, but prefers well-drained sandy loam or red soils, and an annual rainfall between about 35 and 120 inches (990-3050 mm). Cashew trees are most frequently found in coastal areas. 2.02 Most cashew trees start bearing fruit in the third or fourth year and are likely to increase their yield up to about twenty years until room and water and nutrient supply become limiting factors. They have a bearing life of over 30 years depending on growing conditions. The average yields of raw nuts of a mature tree under smallholder conditions is in the range of 7 to 11 kilos per annum but under favorable conditions yields may reach 15 to 20 kg. Where the trees are planted about 12 meters apart (70 trees per ha), which is considered to be the most productive spacing for mature trees in Tanzania, the average yield per hectare could be about 1,000 kg (i.e. 15 kg/tree) with large variations above or below this figure. However, cashew trees in Tanzania are more closely planted and are often intermixed with other trees either in small orchards or in the wild. This makes reference to a national acreage under cashews meaningless. 2.03 The cashew tree flowers for 2 or 3 months and the fruit matures about 2 months after the bloom. The raw cashewnut (the true fruit) forms first at the end of the fruit stalk (peduncle). Subsequently, the fruit stalk swells to form an 'apple' with the raw nut attached externally. Once  - 11 - picked, this apple will keep for only 24 hours, but the raw nuts keep for 12 months or more, if they are dried to reduce the moisture content to 9 percent or below, packed in gunny bags and stored in proper conditions. 2.04 The raw cashewnut is 1.5 - 4.0 cm long and kidney shaped. Its shell is about 3 mm thick, having a soft, leathery outer skin and a thin hard inner skin. Between the skins is a honeycomb structure, which contains a phenolic material, called cashewnut shell liquid (CNSL). Inside the shell is the kernel, wrapped in a thin brown skin, the testa, which contains tannin. The constituent parts of a raw nut make up about the following proportions by weight: the kernel is 25 to 30%, the shell liquid about 20 to 25%, the testa about 2% and the shell the balance. These figures vary considerably from year to year and region to region, and also between trees. Different methods of extracting the kernels from the raw nuts are described in section C below. 2.05 The marketed products of the cashew tree are kernels and CNSL. Kernels are consumed directly, mainly as roasted and salted nuts, or in con- fectionery and bakery products. CNSL is the only naturally occurring phenolic material entering into world trade. Over 90% of all imports are used in fric- tion materials. However, CNSL is of minor importance to the cashew processing industry, as sales value represents only about 3% of total sales value. The cashew apple can be used to manufacture jams, soft drinks and alcoholic drinks. However, in the main producing areas of East Africa and India little of the crop of apples is consumed. The testa is not exploited commercially. B. Raw Cashewnut Production in Tanzania General 2.06 Tanzania is the world's second cashewnut producer after Mozambique and produces an average 120,000 tons of raw nuts annually which represents about 30% of the total world's production of about 420,000 tons (Tables I and 11). Cashewnut product is the fifth export crop of Tanzania after coffee, cotton, tobacco and sisal, and accounted for about Tsh 210 million (US$25 million) in 1975/76 i.e. about 7% of the value of total agricultural exports of Tsh 3,000 million (US$360 million). 2.07 Raw cashewnuts are produced almost entirely by smallholders. The raw nuts collection starts at the end of the rainy season in June and ends in November (Table 2). It is estimated that about 400,000 farm families live in the cashew producing areas. Besides cashew trees, traditional food crops (cassava, sorghum, millet, maize) are grown and almost completely consumed by the growers. Cashew is the only significant source of cash and generates about 90% of the annual family cash income of about Tsh 400 (US$50).  - 12 - Cashewnut Producing Areas 2.08 Cashew trees producing areas are shown on the Map. Soils vary from sandy to red-sandy loams and red loams. The best cashew trees grow on the well drained upland red soils. The average annual rainfall varies between 600 and 1,500 mm depending on the region, the heaviest rainfall being along the coast. There are two weLl defined seasons, the dry season from mid-May to mid-November and the rainy season from mid-November to mid-May. Total rainfall and rainfall distribution in cashew growing areas vary considerably, resulting in varying yields from year to year. 2.09 There is no direct relationship between production and acreage, as trees are scattered over the producing areas, usually closely planted and intermixed with other trees, crops or bush. The spread of trees has been caused by planting as well as by seed thrown away by men and animals after consuming the apple. No information is available on the contribution to the spread of the trees made by purposeful plantings. Production of Existing Trees 2.10 About 70% of the raw cashewnuts are produced in the Southern regions, in the Districts of Mtwara, 1.indi, Newala, Nachingwea, Masasi, Songea, Tunduru and Kilwa (see Map). The remaining 30% are produced in the North, mostly in the Coast Region. Although annual production has varied from year to year by about 10% under and up to 20% above an average of 120,000 tons in the 69/70 - 76/77 period, the percentage contribution of the regions to the total production is about constant. CATA purchases of raw nuts during the period 69/70 - 76/77 are shown in Table 1. It is estimated that almost all produc- tion is purchased by CATA, very small quantities being locally consumed. 2.11 The future production of existing cashew trees is estimated to remain approximately at the current average of 120,000 tons annually. Pur- chases by CATA in 75/76 and 76/77 were about 10% lower than this average, mainly because adverse weather conditions affected both seasons. Table 2 shows the average monthly rainfall in the Southern cashew production areas and the growth cycle of the cashewnut. 2.12 The Government's villagization program might also have had an ad- verse effect on CATA's purchases in 74/75 and 75/76, since farmers were not allowed to walk further than 5 miles away from their new villages in these years, and could not collect the nuts at their old farms. This restriction was abolished in July 1976. Plantation Program 2.13 During the 1976/77 season, Government and CATA have initiated the implementation of a 150,000 ha plantation program. About 8,200 ha were planted during the 76/77 season and, acccording to Government's plans, the program would be completed within two years by 1978/79. In the present report a more conservative view was taken and it is assumed that the program would be carried out during the 5-year period 1977/78 - 1981/82. The allocation of  - 13 - planted areas by Districts, as currently planned by Government, is in Table 3. About 700 villages would be involved in the program. Anticipated yields are in Table 4. The development of the program's production is in Table 5. It is expected that at full development in 1992 the new plantations would produce about 100,000 tons of raw nuts annually, increasing the country's production by over 80% from 120,000 tons to 220,000 tons annually. As will be noted later (para 6.03), the processing facilities being financed under the Project are required even without this planting program. Raw Nuts Grading and Extension Services 2.14 At village level, two graders check the quality of the raw nuts during the purchasing season. About 1,400 graders are currently employed by the 700 cashewnut producing villages, and trained by CATA through seminars held about twice a year. These graders are paid by the villages which re- ceive from CATA a fee of Tsh 0.10/kg of raw nuts purchased. At division level (about 5 divisions per district), CATA employs two extension assistants per division, who control the graders' activities and assist in their training. CATA also employs in each district an extension and procurement manager who works in close collaboration with the extension staff of the Ministry of Agriculture, and, for each region, a regional manager. 2.15 The grading system described above departs from the organizational arrangements by which, until 1976/77, CATA was employing its own graders. Some of the 550 former CATA graders would be employed by the villages, the remainder would be employed in CATA's factories. As the consequences of the replacement of CATA graders by village graders can only be assessed through experience, no precise forecast of the future performance of graders can be made at present. Grading could deteriorate substantially, as this actually happened in 1972/73 when the now-defunct cooperative unions were made respon- sible for grading: the overall percentage of undergrade raw nuts was about 40%, compared to an average of 20% during the 69/70 - 75/76 period. It can reasonably be expected that CATA would wish to reappoint its own graders if raw cashewnut quality deteriorated because of the above change in the grading system. Assurances were obtained from the Government at credit negotiations that the cashewnut grading system followed during the 1977/1978 season would be reviewed no later than June 30, 1980, and if such review indicates that the new system is not satisfactory, CATA would be authorized to follow the 1976/ 1977 system or such other system satisfactory to the Association and CATA. 2.16 Extension services are provided by the Ministry of Agriculture and are organized on a regional, district and village basis. There is one re- gional agricultural officer per region, one district officer per district and one extension officer per village, in charge of extension for both agriculture and livestock. However, following Government's decision to appoint a village manager for each village in Tanzania, a tight staffing situation of the ex- tension services is likely to develop, because the majority of the village managers have been recruited from the agriculture and livestock extension service cadre. Raw cashewnut production, however, should not be very sensi- tive to the quality of the extension services.  - 14 - Purchasing Arrangements and Transport 2.17 During the purchasing season from October to February raw nuts are purchased daily in each village by a team comprising a cashier, a village representative and a grader. Procurement activities are conducted by twelve CATA's District Procurement Centers (branches) under the supervision of CATA's headquarters. Farmers are lpaid immediately on the basis of weight and grade (prices are discussed in Chapter III). A levy of Tsh 60 per ton, about 6% of the farmers' price, is also paid by CATA directly into each village's develop- ment fund. The raw nuts are stored in 80 kg bags in the village store, until they are collected by trucks and transported to CATA's main stores in Dar es Salaam and Mtwara (for direct export), or to factories (for processing). 2.18 Raw nuts are transported by trucks belonging to Regional Transport Companies, District Development Corporations and private owners, following annual tenders invited by CATA for the transportation of the year's harvest. Before 1976, Regional Cooperative Unions were also transporting a large portion of the harvest. Since the dissolution of the Regional cooperative Unions in 1976, CATA has been experiencing transport problems which resulted in delays in transporting raw nuts from villages to the main storage in Mtwara. 2.19 It is expected that transportation problems will be progressively alleviated through the reorganization of the trucking industry and the establishment of public transport companies, supported by IDA (Trucking Industry Rehabilitation and Improvement Project, Cr. 743-TA). To alleviate its transportation difficulties until the public transport companies operate efficiently in about 1980, CATA lodged an application in early 1977 with the State Motor Corporation for the purchase of a fleet of 70 lorries. The actual allocation to CATA was 8 lorries for calendar year 1977, and CATA is expected to receive further allocations for the following years until all 70 lorries are obtained. CATA considers these arrangements satisfactory; however the additional transport requirements of the processing project, being additional to those above, are being provided under the Project (para 6.11). C. Cashewnut Processing Manual Cashewnut Processing 2.20 Traditionally, extraction of the kernel from the shell of the cashew- nut has been a manual operation. The raw nut is roasted to make the shell brittle and to loosen the kernel from the inside of the shell. Most of the shell liquid is released and burnt when the raw nuts are roasted. The shell is cracked with a hammer. Once the kernel is removed from the shell, it is dried, the testa is peeled off and the kernel is graded and packed in 25 lb tins, from which the air is replaced with carbon dioxide.  - 15 - 2.21 Manual processing is carried out mainly in India, which processes by hand about 300,000 tons of raw nuts annually. The financial and economic viability of manual processing depends upon labor costs and efficiency. In Tanzania, nine manual processing units were established in rural areas since 1970 with a target processing capacity of 1,000 tons per unit. All these units have been operating at loss, and only two are still operating but are expected to be closed shortly. These unsatisfactory results are due to low labour productivity, low quality of production and high wages. Except for this small (and declining) proportion of raw nuts processed manually, Tanzania has traditionally exported most of its raw nuts to India. However, as de- tailed below, Tanzania has embarked on a program for mechanical processing within Tanzania. Principles of Mechanical Cashewnut Processing 2.22 For a long time, the shape of the raw cashewnut and the brittleness of the kernel defeated attempts at mechanized decortication. Some semi- mechanized processes were introduced in the 1960's and have been used into the 1970's but they still showed little labor saving over hand-shelling and outturned a high proportion of broken kernels. Few fully mechanized systems are commercially available at present, the most widely known being: (i) the Oltremare system (Italy), introduced in the mid-60's; (ii) the CASHCO system (Japan), introduced in 1970; (iii) the Sturtevant system (UK), first commercially manufactured in 1970. 2.23 The mechanical processing of cashewnuts consists of the following main steps: a) Sizing, required for accurate control of humidification and heat treatment. b) Humidification, to provide moisture which in the heat treatment will become steam and rupture the cellular material and release the CNSL from the shell. c) Heat treatment, usually in a hot bath of CNSL. d) Shelling. The methods of shelling differ with the equipment utilized (see following paragraph). Kernels are separated from the shell through series of pneumatic and/or vibrating devices. e) Drying of kernels. f) Peeling (removal of the testa) which is carried out manually or with mechanical aids.  - 16 - g) Sorting and grading. There are about 20 grades of kernels, depending on whether the kernel is broken or not, how it is broken, its size and color. This is done by hand and/or mechanical and electronic devices. h) Packing of kernels, in 25 lb tins in an atmosphere of carbon dioxyde to prevent future deterioraiation of the contents. 2.24 Three main processies are commercially available. The main difference between the three commercially available processes noted in para 2.22 is at the shelling stage of the process. The Oltremare process uses opposed blades between which the nuts are conveyed and cut open by a linear movement of the blades. The CASHCO process uases rotary blades. Under these two processes, the raw nut is levered open, after cutting by the blades. In the Sturtevant process, the roasted nuts are projected against fixed metal plates, thereby breaking the shell and releasing the kernel. The processes also differ by their labor requirements, preconditioning techniques and other engineering aspects. Processing Coefficients 2.25 Processing coefficLents vary according to the type of equipment utilized, the skill of the operators and the quality of the raw nuts. The two coefficients most representative of a factory's performance are: (i) the percentage of Icernels to raw nuts; this percentage usually varies between 20% and 25%; (ii) the ratio of whole/tbroken kernels; this ratio can vary widely, but is generally between 70/30 and 40/60. In India, under manual processing this coefficient has consistently been about 80/20 in the years 1972 to 1975. Other processing coefficients include the percentage of CNSL recovery, which is usually about 7% of the raw nut in weight, and ratios describing the pro- portions of various kernel grades in the finished product. These various coefficients are of particular importance when deciding on the optimum process for procurement under the project, since lower cost systems appear to have inferior coefficients. It is therefore important that these coefficients are taken into account, as well ais capital and operating costs (see paras 7.08 and 9.21), in the choice of the processing equipment. Mechanical Processing in Tanzania 2.26 There are two cashewnut processing factories currently in operation in Tanzania: (i) TANITA, in Dar es Salaam, with a processing capacity of 12,500 tons of raw nuts annually. This factory was established in 1965i and utilizes Italian (Oltremare) equipment.  - 17 - (ii) The Mtwara Cashew Company, in Mtwara, with a processing capacity of 8,000 tons of raw nuts annually. This factory was established in 1970 and utilizes Japanese (CASHCO) equipment. 2.27 Six new factories are currently under construction in Tanzania, five being financed by the Bank under the first Cashewnut Development Project (Loan 1014-TA) and one by the Bank of Sicily; all these factories will employ the Italian (Oltremare) process. Four further factories are currently planned, one may be proposed to the Bank of Sicily for financing, the other three being the object of the present report. 2.28 A summary of these factories is in Table 6 and their location is shown on the Map. Detailed schedules of the development of Tanzania's pro- duction and processing capacity are in Table 7. Total production capacity would reach 113,000 tons of raw nuts per annum in 1984, i.e. still marginally under the average production from existing trees, without provision for processing production from the plantation program. D. Cashew Research 2.29 No significant research on cashew which could benefit Tanzania is carried out anywhere in the world. In Tanzania, research was originally carried out at the Nachingwea Research Station. The main experiments carried out before 1968 and their results are described in detail in the appraisal report of the first Cashewnut Development Project (Report No. 397a-TA). In 1968 all cashew research was transferred to the Mtwara Research and Training Institute, a multi-purpose research station run by the Ministry of Agriculture. Since then, no intensive cashew research has taken place in Tanzania. At present, the Mtwara station is only involved in cashew seed production and in some research on cereals. The old Nachingwea station and the Chambezi station in the Bagamoyo District are also involved only in seed production. 2.30 Funds were included in the first Project financed by the Bank in 1974 (Loan 1014-TA) for the financing of staff and research equipment. How- ever, the research staff provided for under the Project was not recruited, except an expert who arrived in Tanzania in late 1977 to stay for one year and, the outline of a research program was only drawn by CATA in early 1977, about one year behind schedule. The Government's postponement of the research program was due to their expectation of a grant from the Italian Government to finance the research program. Government recognizes the need for cashew research which should be carried out mainly in the fields of variety selec- tion, breeding and pest and disease control to improve the overall quality of cashew nuts in the long-term, but it prefers to finance such research with grant or quasi-grant funds, rather than funds on Bank terms, such as financed the first Cashewnut Development Project.  - 18 - 2.31 The outline of the research program drawn up by CATA was appraised by the Italian Government in 1977, which is expected to finance a research program during the two years; 1978/79 and 1979/80. The proposed project includes the continuation of this program for four years. III. CASHEWNUT MARKETS AND PRICES General 3.01 Until the late 1950s, India was the largest producer of raw nuts and had developed a flourishing processing industry in the state of Kerala. After the development of the cashewnut industry in Africa, India lost its predominance in production but still remains the leading processor. Because of its efficiency and low cost, the Indian processing industry, which remained a hand industry, is still competitive and viable despite the governmental price subsidies granted to African processors and the extra freight charges borne by Indian processors. An advantage of the Indian processors is the turnout of a higher percentage of whole kernels, about 80 percent, as compared to the mechanical systems used in East Africa which only turn out about 40 to 70 percent whole kernels. 3.02 Apart from India, marketed production of raw cashewnuts is concen- trated mainly in East Africa and Brazil. Total annual world marketed pro- duction ranges between 400 and 500,000 m.t. (Table 11). Mozambique is the largest producer, with Tanzania, India, Brazil and Kenya following in that order. 3.03 Both in India and Brazil there has been significant expansion of plantations in recent years. In Brazil, in particular, where most of the production has in the past been from wild trees, very large organized plantations were set up under government supported policies in the late 1960s and early 1970s. Their output is expected to come on stream in the next few years and to be quite large 1/. In East Africa, on the contrary, the increase in commercial production of cashew-nuts resulted mainly from more intensive harvesting of existing trees stimulated by the higher prices received by the farmers, although Tanzania is now embarking on a village plantation program (para 2.13). 3.04 Hand processing never developed on a large scale in East Africa because wage rates were higher than in India. As a result, most East African raw cashewnuts were exported for processing to India until the early 1970s. With the development of mechanical processing the incentive to process the raw cashewnuts in the producing countries has grown, mainly because of potential increase in value added and export earnings. 1/ According to the US Agriculture Attache Report (BB-6024, July 14, 1976), production of unshelled nuts in the new organized cashew plantation will reach about 53,000 metric tons in 1980 and about 182,000 metric tons in 1988.  - 19 - 3.05 Development of the processing industry has been rapid particularly in Mozambique. Mechanical processing was introduced there in 1963. By 1973, about 70 percent of the total raw cashewnuts production (170,000 m.t.) was mechanically processed, the rest being exported raw. In Tanzania, the pro- cessing capacity reached about 20,000 m.t. a year in the early 1970s, but additional processing capacity is being built with World Bank and other financing (as detailed in para 2.27). In Brazil, processing capacity has grown sufficiently to absorb all the domestic crop, but the processes used are still for the most part crude and semi-mechanical. Trade in Cashew Kernels 3.06 Most of the processed cashewnuts are traded in the international market. Total trade ranged in recent years between 65,000 and 100,000 m.t. (Table 10). The decline in recent years is due to Mozambique shortfall in raw nuts marketed production, due to the disruption of its marketing system, which is expected to recover fully within a few years. Usually, processors sell to dealers in the importing countries, either directly or via a selling agent in the importing country. Dealers in turn sell to manufacturers, who process the cashewnut kernels and prepare them for retail sale. Most shipments to the USA (the largest importer) from India and Africa pass through the hands of four main agents in New York. 3.07 India is the main exporter of kernels, although her share of the market declined from 95 percent in 1962 to about 55 percent in 1972. The main reason for the Indian decline is the rise of East African and Brazilian exports. By 1972 Mozambique exported 26 percent of the world cashewnuts compared to 4 percent in 1962 and Brazil exported 6 percent compared to 1.1 percent in 1962 11. 3.08 The regional distribution of world imports of cashewnut kernels has remained fairly constant over the years. North America's share of total imports ranges between 55-60 percent; Eastern Europe, including the USSR, imports about 25 percent; Western Europe imports about 10 percent; the remainder of imports is divided among a large number of countries. Follow- ing the rapid growth in their per capita income, imports of Japan, Hong Kong and Singapore have become significant. These three countries now account for about 4 percent of world imports. 3.09 Imports of cashewnut kernels have been growing at a relatively fast rate in most of the importing countries from the 1960s to the 1970s. The combined imports of the US and Canada have increased at a rate of about 4.0 percent per annum between 1960-62 and 1973-75. The Soviet Union increased its imports at a rate of about 13.7 percent per annum during the same period. Within Western Europe, the U.K., Germany and Holland are 1/ Since 1973, production of cashewnuts in Mozambique registered a setback caused by a combination of adverse weather conditions and changes in the organization structure of the industry. Statistics also became scarce.  - 20 - the main importers, though the import growth rate of Germany and Holland has been substantially faster than in the U.K. In Asia, Japan showed a fast growth rate in imports, and in the Pacific, Australia and New Zealand have continued to increase their imports at a rate of about 7.0 percent per annum. 3.10 Consumption: About 60% of cashewnut kernels are consumed as roasted and salted nuts, and the remainder in confectionary and in bakery products. Salted cashewnuts compete with other types of nuts, although other savory snacks can impinge on the market for salted cahsewnuts. Since the price of cashewnuts is substantially higher than the price of peanuts or other snacks, its strong demand growth is largely due to a marked preference of consumers for salted cashewnuts. Sales of cashewnuts normally reach their principal peak at Christmas with a lower peak at Easter. Increased consumption in the US, Western Europe and Japan has occurred despite rising cashewnut prices and has coincided with a rising income. Income elasticity of demand for cashewnuts in most of the developed countries is estimated in the range of 0.5 and 1.5, though in the U.K. and few other countries, the income elasticity is lower. 3.11 Cashewnuts are used in confectionary and baking simply as a sub- stitute for almonds or for other higher priced nut meals. The bland taste of cashewnuts is lost in chocolate and bakery products where they are used mainly to extend the nut texture without masking the primary flavor. Cashew- nuts are not widely used in the baking industry. They are not as suitable for cake decoration as almonds. As chopped nuts, they face competition with less expensive nuts such as peanuts and unblanched hazelnuts. Overall, the demand for cashewnuts in confectionary and baking fluctuates more than the demand for salted cashewnuts. Prices 3.12 Prices of cashewnut kernels 1/ in current terms have more than doubled in the past 13 years from about US$0.45/lb in 1963 (c.i.f. New York) to US$1.82/lb in 1976 and to an exceptionally high price of US$2.40/lb in 1977 due to shortage. Cashewnut retail prices are normally two or three times higher than those of peanuts. Therefore, variations of cashewnut prices over a narrow range do not induce substitution with other salted nuts. However, substitution on the basis of price between cashewnuts and other tree nuts is more likely in mixes where direct consumer preference is not so strong. 3.13 It is expected that until 1980 a worldwide shortage of cashewnuts will push market prices up. The walnuts and almonds industries in the US which have a strong impact on the world market, have been adversely affected by the droughts and have struck the main producing areas. As a result, prices of all types of nuts are on the rise and cashewnuts are affected mainly as a substitute. 1/ Grade 300-320 whole kernels in 25 pound tin c.i.f. New York.  - 21 - 3.14 There is, however, no known research on the cross price elasticities between cashewnuts and other types of nuts due to a limited time series. It will be highly speculative therefore, to determine whether prices of cashews will decline when an expected recovery of the nut industry comes about as expected in the following three or four years. Authoritative sources in the marketing of cashews believe that consumer behavior has been adjusted already and therefore prices will stay at a higher level than in the past despite the likelihood that prices of other types of nuts will decline. 3.15 As there is little reliable information on future world cashew production, statistical analysis of past prices would not result in a fully satisfactory forecast or prices. In the analyses included in the present report, it has been assumed that the price of kernels 320 wholes CIF New York will be at US$1.60/lb. This corresponds to a 12% increase over 1976 prices, in real terms which is considered realistic by CATA and cashew traders, as consumer behavior has been adjusted to the recent high prices of US$2.40/lb in 1977 (para 3.14). As shown at Table 13 the projected price for the Tanzanian mix in 1985 and thereafter, in 1978 terms, is Tsh 21,180 per ton. Trade in Raw Cashewnuts 3.16 Trade in raw cashewnuts has been virtually confined to imports by India of East African raw nuts and occasionally from West Africa and South East Asia. Despite the increase in processing capacity in Africa since the mid-1960s, India has been able to maintain the level of its imports of raw nuts at about 150,000 tons annually, because the growth of East African production of raw nuts out-stripped that of the domestic processing industry. Only in the case of Mozambique have raw nut exports to India actually fallen, but India has been able to compensate for it through higher imports from Tanzania and Kenya. 3.17 Prices. In Tanzania, CATA is the sole agency for the export of raw nuts. Raw nuts are mostly sold to the Cashew Corporation of India. Volume of sales and prices are negotiated annually at tripartite meetings of India, Tanzania and Mozambique representatives. As India is practically the sole outlet for raw cashewnuts, raw nut prices are not determined by a price parity between raw nuts and kernel prices, but rather by the bargaining power of the parties concerned. Although no price parity formula between kernels and raw nut prices has yet been agreed upon during negotiations between Tanzania and India, it may be presumed that the margin between kernel prices obtained by India and raw nut prices paid by India will be kept down to the lower levels of recent years as Tanzanian supply of raw nuts declines and India is obliged to offer competitive prices for the raw nuts. For the purpose of the finan- cial and economic analyses in this report, the future margin is assumed to be about 100% (the margin varied between 90% and 125% during the 1973-1976 period) (Table 9). With a projection of FOB prices for kernels for India of the equivalent of Tsh 24,460 at present exchange rates in 1978 terms, this implies a raw nut FOB Tanzania price of Tsh 2,800 per ton (in 1978 prices). The latter price coincides with the indication recently received from Tanzania that a parity probably acceptable by both Tanzania and India  - 22 - would be Tsh 17.50 per ton of raw nuts FOB per one US cent per lb of kernels 320 wholes CIF New York. With kernels 320 wholes at US$1.60 per lb CIF New York, this results in a raw nut FOB price of Tsh 2,800 per ton. This assump- tion of a relatively low margin to India for raw nut trade, although opti- mistic as regards to Tanzania's balance of payments, is conservative in regards to assessing the economic viability of this Project. Cashewnut Shell Liquid (CNS,J 3.18 CNSL is exported mainly to Japan and the USA for use in the auto- mobile and paint industries. Sales value of CNSL represents about 3% of total sales value. CNSL future price is estimated at Tsh 2,500/ton (US$300) FOB Tanzania in 1978 prices. Tb,is price is the same, in real terms, as in the past. Producer Prices 3.19 A review of producer prices is carried out annually by CATA and the Marketing Development Bureau (MDB) 1/ of the Ministry of Agriculture. Upon recommendations by the Ministry of Agriculture, the Economic Committee of Cabinet decides prices (para 1.15) for standard and undergrade nuts which prices are published before the harvest season. At present producer prices are computed on the basis of export prices of raw nuts (Table 16). Benefits are passed on directly to farmers, except small amounts (about 7% of net producer price) which go to a village fund (fund to finance village's in- vestments benefiting to the community) and a fund to improve feeder roads. The margin of about 20% of the export price is expected to cover CATA's debt service resulting from past commitments (construction of first phase proj- ect and other) and to provide funds in certain years for investment in the cashewnut industry (Table 30). Past producer prices are shown in Table 17. 3.20 The producer price setting mechanism used at present is satisfac- tory, as most cashewnuts are exported raw. However, at Project completion, Tanzania's cashew processing capacity will have reached such level that the redistribution of factories' benefits to farmers could have an impact on farmers' cash income, which is at present about Tsh 400 (US$50) annually, almost totally generated by raw cashewnut sales. The price setting mechanism should then be adjusted accordingly. A further discussion of this matter is at paras 8.16 and 8.17. IV. THE CASHEWNUT AUTHORITY OF TANZANIA 4.01 The Cashewnut Authority of Tanzania (CATA) was established by the Cashewnut Industry Act of 1973 (The Act). The Act which came into effective- ness in October 1973, gives CATA monopoly powers over all activities connected 1/ The MDB is an advisory body within the Ministry of Agriculture, respon- sible inter alia for the annual agricultural price review. MDB is assisted by an FAO/UNDP Project (S TAN 27).  - 23 - with the cashew industry. These powers are to be exercised subject to the overriding authority of the Minister of Agriculture. Until 1973, these functions were the responsibility of the National Agricultural Produce Board (NAPB) a parastatal organization whose existence was terminated in 1973 when its trading activities in cashewnuts, oilseeds and food crops were transferred to CATA, the General Agricultural Products Export Corporation and the National Milling Corporation respectively. Organization and Management 4.02 CATA's organization is summarized in the chart. The Directors of the Board are appointed by the Minister of Agriculture. At present, there are 16 directors, including representatives of the Ministry of Agriculture, the Ministry of Finance and Planning, and of the Regions and Districts within which CATA is operating. 4.03 The functions of the senior management staff in CATA shown in the chart are self-explanatory. The General Manager is appointed by the President; he is the chief executive officer of CATA with overall responsibility for the management and operations of CATA and for implementing the Project. Financing 4.04 Until now, CATA has been financed through Government grants, loans from Government and the Tanzania investment Bank for capital investments, and through the National Bank of Commerce for working capital. Reports, Accounts and Audit 4.05 The Act required the Board of Directors of CATA to file an annual report on its operations with the Minister of Agriculture within six months following the end of its financial year. CATA is also required by the Act to keep proper books and accounts and to prepare annual balance sheets and income and expenditure accounts which should be audited by the Tanzania Audit Corporation and sent with the audit report to the Minister within six months of the annual audit. The Minister is required to lay the accounts and audit report before the National Assembly as soon as practicable after the receipt thereof. 4.06 CATA's financial reporting, however, is weak and accounts have not been prepared on time since CATA was established in 1973 (para 5.08). It is expected that this situation will be remedied with the reinforcement of CATA's financial management to be undertaken under the proposed Project (para 6.15). 4.07 CATA's income statements and balance sheets for the years 73/74 and 74/75 are shown in Tables 18 and 19. Audited 1975/1976 accounts should be available by mid calendar 1978. Financial Prospects 4.08 CATA's consolidated cash flow (Table 28) is expected to remain positive. This question is further discussed at para. 8.03.  - 24 - Existing Factories 4.09 CATA is a majority shareholder in TANITA and in the Mtwara Cashew Company, the only two mechanized processing factories operating at present. TANITA's operating results have been variable, and the quality of its man- agement and factory operations could probably be improved significantly. The Management Information System being designed under the first Cashewnut Development Project should lead to better management (paras 8.08 and 8.09). Factory operation should benefit from professional services included in the first Cashewnut Development Project, which uses the same method of processing. In particular, the kernel whole to broken ratio, which is at present 60/40, could increase sensibly, since this ratio is 70/30 for a similar factory presently operating in Kenya which benefits from technical services. 4.10 The Mtwara Cashew Company (MCC) has incurred losses every year since it started operating in 1970. Its original equipment was a failure and was replaced in 1974 by a new design from its co-owner, Cashew Company Ltd., Tokyo. Other technical problems, as well as frequent power failures from the Mtwara town supply, contributed to the poor results of the factory. It is expected that the above problems will disappear, because the technical problems have been solved by the equipment manufacturer, and are progressively incorporated into the factory, and because CATA intends to purchase an independent power generator. The whole/broken ratio is at present about 45/55. This ratio is lower than at TANITA, because the Japanese process employed at MCC causes more kernel breakage than the Italian process, although it has a higher kernel outturn. 4.11 The Mbagala factory is a hand processing factory which will be closed shortly because it is not profitable. Its capacity is about 2,500 tons of raw nuts annually, and the whole/broken ratio is about 43/57. In 1976, the overall weighted average whole/broken ratio for the Tanzanian mix was 48/52. Other CATA's Activities 4.12 CATA carries out a few ancillary activities, such as the transporta- tion of fertilizers in the Mtwara region, and the operation of service stations in Mtwara. These activities have a marginal impact on CATA's finances. As the only major commercial institution in the area, CATA has also had under consideration the construction of an hotel in its headquarters' town of Mtwara, which does not offer suitable accomodations. However, it is not expected that CATA would finance or manage enterprises not directly connected with the cashewnut industry, without prior consultation with the Association.  - 25 - V. THE FIRST CASHEWNUT DEVELOPMENT PROJECT A. SUMMARY PROJECT DESCRIPTION 5.01 In May 1974, the Bank extended a Loan for US$21 million (Loan 1014-TA) to the Government of Tanzania to help finance a project for Cashewnut Development. When the Loan was signed, the project was expected to consist of the following parts: A. Cashewnut Production (1) The construction, installation and equipping of (i) five new cashew- nut processing factories to have an aggregate annual capacity to process about 40,000 tons of raw cashewnuts, and (ii) storage facilities at the port of Mtwara to store 700 tons of cashewnut shell liquid, and the provision of the services for four years of a Senior Manufacturer's Representative and for three years each of five Assistants to assist in carrying out the above part of the Project. (2) The construction and equipping of CATA headquarters at Mtwara, including the construction of staff houses and the provision of vehicles. (3) The establishment and maintenance of a road maintenance unit attached to each of the five factories for the purpose of maintaining farm access roads. (4) The carrying out of a cashewnut research program at the Mtwara Research and Training Center, and the establishment and operation of a cashewnut extension and grading service. B. Staff Employment, Staff Training and Project Preparation (1) The employment by CATA of (i) a Marketing Manager and a Financial Manager, each for a period of four years, and (ii) professional staff to carry out the research program mentioned above. (2) The provision of fellowships for Tanzanian research personnel, overseas management training courses for factory managers, and study tours and seminars. (3) The preparation by CATA of future cashewnut development projects in Tanzania. C. Rural Water Supply and Community Education Centers The carrying out by the Borrower of: (1) The construction and equipping of rural water supply facilities at seven locations in Tanzania to supply water to cashewnut farmers.  - 26 - (2) The construction of seven community education centers in the areas from where cashewnuts are being supplied to the five i-actories included in the Project. B. PROJECT HISTORY Project Cost 5.02 When bids were received and awarded for the supply and erection of processing machinery and the civil works relating to the project's five factories, headquarters, stores, etc., costs of these items turned out to be about 30 percent above the appraisal estimate, with buildings costs over twice the original estimate. The Tanzania Investment Bank (TIB), a develop- ment finance company supported by the Bank (Loan 1172-TA), agreed in December 1975 to a loan of US$1.1 million to help finance the buildings. This loan is met from the proceeds of the Bank Loan 1172-TA. TIB lent a further US$600,000 in 1977 to meet the total financing gap for buildings of US$1,750,000. 5.03 Nevertheless, the following Project components had to be excluded, with the Bank's approval: (i) the establishment of Community Education Centers in seven selected viLllages, (ii) the improvement of rural water supplies in seven selected villages, and (iii) the maintenance and upkeep of access roads to facilitate transportation of cashewnuts from the villages. The exclusion of these components is not expected to have any significant effect on the Project's financial and economic performance. Community Educa- tion Centers and water supplies were not directly related to cashewnut activi- ties. The maintenance of roads is carried out by the Ministry of Works under the supervision of the District Development Director. Standards are similar to those elsewhere in Tanzania. The works are financed through a levy on cashewnut purchases. Table 20 shows the revised estimate of project costs and their financing. Project Construction 5.04 Project's construction has been proceeding satisfactorily, with the exception of the arrangements for the water supply of the factories. The water supply difficulties were first identified in June 1976, when CATA esti- mated the costs of water developments at about US$570,000, compared to the appraisal estimate of about US$150,000. The Bank recommended that CATA liaise with the Mtwara District Administration to find out if savings could be achieved by coordinating activities with the Ministry of Water. In October 1976, the Bank was informed that the existing sources of water were insuffi- cient and that the lowest of- the proposals made by contractors would cost about US$1.26 million. However, the Bank found that the technical specifica- tions and conditions of contract were inadequate and that Bank's procurement procedures had not been followed. New bids were invited under ICB procedures at the end of 1976, and the lowest of the two bids received was at US$1.8 million. Upon the Bank's recommendation that CATA try to reduce this cost by discussing with the Ministry of Water the possibility of their participating  - 27 - in the works, the award of the contract was withheld until July 1977. As the discussions with the Ministry of Water yielded no results, the contract was awarded in July 1977 for an amount of US$1.6 million (the lowest bidder having revised his offer downwards). 5.05 In February 1978, the project's completion schedule showed an average delay of about five months in the completion of the factories: Training and Commissioning Commence Full Operation Commence Factories Appraisal Est. Feb. 78 Est. Appraisal Est. Feb. 78 Est. Lindi Factory May 77 April 78 Sept. 77 Aug. 78 (10,000 tons) Mtama Factory July 77 May 78 Oct. 77 Sept. 78 (5,000 tons) Nachingwea Fact. June 78 June 78 Sept. 78 Sept. 78 (5,000 tons) Masasi Factory April 78 Sept. 78 Aug. 78 Jan. 79 (10,000 tons) Newala Factory Feb. 79 Jan. 79 June 79 May 79 (10,000 tons) Other Mtwara Workshops not applicable May 76 July 77 CNSL Depot not applicable June 77 July 78 CATA Headquarters not applicable Feb. 77 April 78 Extension and Grading 5.06 According to CATA, cashewnut extension and grading services have been operating satisfactorily. The percentages of undergrade raw nuts to the total purchases (Table 1) tend to show that the proportion of undergrade nuts was kept down to reasonable limits since 1973/74. No claims for reim- bursement (25% of local expenditures were to be financed under the loan) have been received by the Bank for this component, as Government prefers financing these expenditures from their own funds rather than from borrowings from the Bank. Research 5.07 The Project Agreement required that, no later than December 31, 1975, or such other date as the Bank and CATA may agree CATA submit to the Bank for review a draft of the research program. The research staff pro- vided for under the Project was not recruited, except an expert who arrived in Tanzania in late 1977 to stay for one year. The Government's postponement  - 28 - of the research program was due to their expectation, which materialized, of a grant from the Italian Government to finance the research program (see paras. 2.29 to 2.31). Financial Management 5.08 The post of Finance Director provided for under the project has never been filled satisfactorily. CATA's financial reporting is weak, accounts are not prepared on time, the auditor's reports which have been received by the Bank (FY73/74 and 74/75) highlighted poor accounting practices, and comprehensive financial projections are not available. The auditor's report qualifications mainly refer to poor accounting practices, resulting into unreliable records. A study for the design of a management information system was made by the firm Coopers and Lybrand and financed under the first project (Amendment No. 2 of the Loan Agreement, August 1977). The consultant's report was completed in December 1977. It is intended that funds be included in the second project for the implementation of this management information system, and for the services of a qualified finance director. The recruitment of the finance director would be a condition of credit effectiveness (para. 6.15). Monitoring 5.09 The appointment of qualified officials or organization to monitor all the project's activities, and to prepare annual reports thereof, was a requirement of the Loan Agreement. However, as none of the factories being constructed in the first phase are yet in operation, no formal appointment has taken place as CATA has been quite capable of monitoring its present activi- ties. With the introduction of the management information system noted in para. 5.08, CATA should be able to monitor its expanded activities without further external assistance. Conclusion 5.10 The physical execution of the project, which is expected to be com- pleted in March 1979 is, overall, satisfactory. The unsatisfactory aspects of financial reporting and research are not affecting the immediate project's performance, and are expected to be rectified shortly.  - 29 - VI. THE PROJECT A. General Description 6.01 The Project was conceived by Government as a follow-up to the first Cashewnut Development Project Financed by the Bank (see Ch. V). The Project would after about three years (1978/79 - 1980/81) increase cashewnut process- ing capacity by 30,000 tons annually through the establishment of new factories. The Project would include: (a) the establishment of three cashewnut processing factories each with the capacity of processing 10,000 tons of raw cashewnuts annually; (b) the extension of port storage facilities of Cashewnut Shell Liquid (CNSL), a by-product of cashewnut processing, by 750 tons; (c) the procurement of factory vehicles and tankers to trans- port CNSL; (d) the construction of staff houses for two factories; (e) professional services for engineering, supervision of construction, operation of the factories and training of personnel, financial management, the implementation of a management information system, the strengthening of CATA's cashewnut research program and the carrying out of a study to determine occupational health hazards in cashewnut factories. 6.02 The Project would be implemented and managed by the Cashewnut Authority of Tanzania (CATA), a public institution established in 1973 to conduct all activities connected with the cashew industry (see Ch. IV), which is the entity managing the first Cashewnut Development Project. B. Detailed Features Factory Sites 6.03 The Project would provide one factory of 10,000 tons capacity of raw nuts in Kibaha in the Coast Region and two factories of 10,000 tons capacity of raw nuts each, in Newala and Mtwara respectively, in the Mtwara Region. The capacity of 10,000 tons of raw nuts corresponds to a standard factory size. Information on the Map and at Table 7 show that total processing capacity is expected to remain below the raw cashewnut production, even if the new plant- ing program (para 2.13) is excluded. However, it would be imprudent to embark  - 30 - on further expansion of cashewnut processing facilities other than those planned at present (Table 6) until the actual results of the planting program have shown that there would be a safe margin between total processing capacity and expected production. The Government shares these concerns and would keep the Association continuously informed of any plans for expansion through the regular quarterly progress reports submitted to the Association. 6.04 Kibaha Site: The factory would be established in the vicinity of Kibaha, in the Coast Region (about 20 miles west of Dar es Salaam on the Dar es Salaam-Morogoro Road). Kibaha is a new town which is being planned as the capital of the Coast Region. The land use plan was prepared by a firm of consultants and has been approved by Government. A preliminary review of this plan by the Bank's Urban Projects Department indicated that it was deficient in certain aspects and recommended informally Government that they review it particularly to take account of the likelihood of major industries being attracted -- the present plan only provides for small scale industry. 6.05 However, the site chosen for the cashewnut factory is some 3 km west of the new town, on reasonably level site, which is not in conflict with the present or any expected revised plan. Supply of power and water would not cause problems as the main electricity transmission lines and the water supply mains to Dar es Salaam run close to the area. An adequate labor force would be available from neighboring villages, and communications with Dar es Salaam are good, so that the factory labor supply is not dependent on the rate of actual development of the new town itself. 6.06 Newala Site: The Newala factory would process cashewnuts produced mainly in the Newala District of the Mtwara Region. The factory would be constructed on a reasonably level site at approximately 200 m from where one of the first project's factories is being constructed. The site is on a main road about 3 km from Newala. Labor for the proposed factory and for the factory under construction would come from Newala and neighboring villages. 6.07 The water supply system being constructed under the first Project for the factory in Newala would be sufficient to supply water to the second factory proposed under the present report. Water would be pumped from a source about 20 km from the factory through an existing 17 km long pipeline at present unutilized and a 3 km long new pipe. The additional costs for the new factory mainly consist of an increase in the pumping capacity. However, adequate physical contingencies were added to this cost, to provide for un- foreseen requirements and to take into account the possible need of replacing whole or part of the existing 17 km pipeline by new pipes. Power for the factory would be generated internally. 6.08 Mtwara Site: The Mtwara factory would process cashewnuts produced mainly in the Mtwara District (Mtwara Region). The factory would be built in the area owned by CATA and where their present headquarters and main cashewnut stores are situated. The site is level and well situated. Because of the availability of existing raw nut storage, which will be underutilized when the first project's factories come into production, it would not be necessary to build raw nut storage for the new factory. Workers would come from Mtwara.  - 31 - The water supply to Mtwara township is erratic, not due to lack of water, but due to inadequate electricity supply. The Project would include about three days water storage at the factory and a diesel generator for the factory. CNSL Storage Facilities 6.09 The Project would provide for the expansion of Cashewnut Shell Liquid (CNSL) storage facilities being built in Mtwara under the first project. This would include a storage tank, pumps and piping. The storage tank would have capacity of 750 tons allowing for an annual throughput of about 3,000 tons. With the storage capacity also of 750 tons now under con- struction, total annual throughput in Mtwara would be about 6,000 tons of CNSL. This would cover the requirements of the cashew processing industry in Southern Tanzania. Adequate storage facilities are available in Dar es Salaam for the CNSL production of the Coast Region. CNSL_Tankers and Vehicles 6.10 In order to transport the CNSL from the factories to the port storage facilities the Project would include the procurement of 6 tankers. One tanker would be utilized for the Coast and Dar es Salaam regions, and 5 tankers in the South. The calculation of tankers' requirements is at Table 21. These tankers would transport almost all Tanzania's CNSL pro- duction of about 8,000 tons annually, the exception being the Mtwara factory (proposed under the Project) which would be directly connected by pipe to the main storage. At present, CNSL is transported in drums, which is a dangerous and inefficient method. Because no accurate estimate of the effi- ciency of tankers operations in Tanzania is available, a physical contingency of 30%, which could allow for two further tankers, was included in the cost estimate. 6.11 Each of the three proposed factories would also be provided with two 7-ton lorries to transport the finished product, kernels, and materials such as empty tins and gunny bags, and three 4-wheeldrive vehicles. Staff Housing 6.12 The Kibaha and Newala factories would each be provided with seven houses for managerial staff (Manager, Administration and Personel Manager, Chief Accountant, Processing Manager, Factory Engineer, Procurement Manager and Technical Assistant), and with ten low cost houses for other semi-skilled staff. Professional Services 6.13 The Project would provide for consultancy for engineering of civil works and supervision of Project construction, as in the first project. Negotiations between CATA and its consultant employed for the first project are well advanced, and Government gave assurances at credit negotiations that the consultants would be employed no later than June 30, 1978.  - 32 - 6.14 Technical and management services would be provided to CATA by the equipment manufacturer or by a team of consultants for the operation of the factories and the training of factory personnel. These services would be provided for a period of about four years after initiation of processing. Assurances were obtained from the Government at credit negotiations that (i) by June 30, 1979 CATA would submit to the Association for its review and approval the detailed description of the training program for the staff to be employed in the Project's factories, and that (ii) CATA would employ no later than the beginning of the assembly of equipment and for a period of at least four years thereafter qualified and experienced technical and management experts on terms and conditions satisfactory to the Association. 6.15 The Project would provide for the services of a finance director and of a chief engineer both for a period of three years. The appointment of the finance director would be a condition of credit effectiveness, and CATA has already taken positive steps to recruit such person. Assurances were obtained from the Government at credit negotiations that (i) until June 30, 1983, the position of Finance Director for CATA would be filled by a person with qualifications, experience and terms and conditions of employment satis- factory to the Association, and (ii) no later than June 30, 1979, and until at least June 30, 1983, CATA rould employ a qualified and experienced Chief Engineer on terms and conditions satisfactory to the Association. 6.16 The Project wouldL also provide for consultancy services for the implementation of the Management Information System designed under the first project by a firm of consultants. The consultant would also provide asistance in training CATA's finance and accounting staff. As the consultants would not be in charge of carrying out CATA's day-to-day financial management work, but would provide guidance and supervision, their work would be intermittent. A total of 2 man-years, spread over a 3-year period would be provided under the Project. Government indicated at credit negotiations that the contracts for these services are expected to be finalized soon and gave assurances that the consultants would be employed no later than June 30, 1978. Environment and Occupational Health 6.17 The Project would be implemented with due regard to the environment and to occupational health. Inside the factory the main potential problems could be caused by dust, CNSL fumes, and fire hazards. Outside, the factory would release gaseous and liquid effluents and smokes, originating mainly from the burning of cashewnut shells, cooling water, used water after the washing of cashewnuts which would contain earth-dust and traces of CNSL, and organic sewage. 6.18 Contact of the skin with CNSL is a health hazard. It penetrates the skin which results in shedding of the upper layer, much as in severe sunburns. It is possible that CNSL compounds, absorbed through the skin, find their way to other parts of the body, As health consequences of exposure to CNSL and CNSL fumes are not clearly perceived at present, the Project would include a study to determine occupational health hazards in the cashewnut industry and to formulate criteria for monitoring such hazards. Assurances were  - 33 - obtained from the Government at credit negotiations that such study would be carried out by December 31, 1979 and that its recommendations would be imple- mented, as appropriate, in consultation with the Association. 6.19 The Project's environmental and health aspects have been reviewed by the Bank's Office of Environmental and Health Affairs, which consider that the project is environmentally sound and that the measures taken in the field of health are sufficient. C. Organization and Management 6.20 CATA would have overall responsibility for carrying out the Project. A detailed description of CATA is at Chapter IV. Project Construction 6.21 Project construction would be carried out by private contractors under the supervision of a consulting engineer to CATA and of CATA's engineer- ing department (para. 6.13). This arrangement was made for the construction of the first project and is satisfactory. Factory Operations 6.22 All project factories would be fully owned and operated by CATA as self-accounting branches. Each factory would employ about 900 persons, of whom about 700 would be women. The manager of each factory would be respon- sible to CATA's Director of Factory Operations and Development (see CATA's organization chart). Assurances were obtained from Government at credit negotiations that, until June 30, 1983, CATA would inform the Association on any appointments to the positions of Project factory managers sufficiently in advance of such appointments so as to allow the Association time to comment thereon. The factories would be operated by Tanzanian staff who would be advised on technical matters by a team of consultants from the equipment manufacturers firm or from an independent firm of consultants for a period of about four years (para. 6.14). Factory operations would be supervised and coordinated from CATA's headquarters in Mtwara by the General Manager and his staff. In particular, CATA's headquarters would directly carry out the following: (i) purchasing, transporting and distributing raw nuts to fac- tories, (ii) collecting CNSL, (iii) providing short-term financing of working capital, (iv) marketing of cashew kernels, and (v) monitoring of factories' performance and output quality. Monitoring 6.23 As noted in para. 5.09, CATA would be responsible for Project monitoring and also for the preparation of a Project Completion Report.  - 34 - D. Accounts and Audit 6.24 CATA's financial reporting is weak, accounts are not prepared on time, and the auditor's reports which have been received by the Bank (FY73/74 and 74/75) highlighted poor accounting practices (para. 5.08). It is expected that this situation would be remedied with the reinforcement of CATA's finan- cial management to be undertaken under the Project (paras 6.15 and 6.16). Accounts for factories would be kept separately for each factory. Assurances were obtained during credit negotiations that CATA would maintain a separate account for the Project. 6.25 CATA's accounts are presently audited by the Tanzania Audit Cor- poration which audits all parastatal institutions in Tanzania and which is acceptable to the Association. Assurances were obtained during negotiations that CATA's accounts would continue to be audited by independent auditors acceptable to the Association and that CATA would send the audited accounts to the Association no later than six months after the end of CATA's fiscal year. VII. PROJECT COSTS, FINANCING AND PROCUREMENT Capital Costs 7.01 Total Project costs are estimated at Tsh 301.8 (US$36.3 million), the foreign exchange component of which is about Tsh 240.4 million (US$28.8 million) or about 80%. This estimate includes working capital requirements of about Tsh 18.3 million (US$2.2 million). As goods imported under the Project would be imported free of taxes and duties, the above cost estimates include only negligible amounts of taxes corresponding to sales taxes on locally procured goods. 7.02 All estimates are based on actual bids for civil works and equip- ment (para. 7.08), which account for about 80% of the Project cost (excluding working capital) and on prices expected in July 1978. Nevertheless, physical contingencies of 5% have been added to civil works and equipment covered by these bids. In addition, 20% physical contingencies have been provided for water supply and 30% for numbers of vehicles and tankers. Bids received for civil works and equipment include price adjustment clauses allowing for a maximum escalation of 5% and 2% of the bid price respectively. An average inflation rate of about 7.5% per annum was used for the items not covered in the above bids. The net effects are physical and price contingencies each amounting to about 7% of base cost. 7.03 Details of the Project costs are presented in Tables 22 to 24, and are summarized below:  Local Foreign Total Local Foreign Total Foreign Base Exchange Cost -------Tsh Million ----- -----US$ Million ------() (%) Civil Works 37.4 63.7 101.1 4.5 7.7 12.2 63 40 Equipment and Vehicles 4.4 84.4 88.8 0.5 10.2 10.7 95 35 Water 2.2 8.6 10.8 0.3 1.0 1.3 80 5 Professional Services 3.5 46.1 49.6 0.5 5.5 6.0 93 20 TOTAL BASE COST 47.5 202.8 250.3 5.8 24.4 30.2 81 100 Physical Contingencies 3.2 13.0 16.2 0.4 1.5 1.9 81 7 Price Contingencies 3.4 13.6 17.0 0.4 1.6 2.0 81 7 TOTAL COST 54.1 229.4 283.5 6.6 27.5 34.1 81 114 Working Capital 7.3 11.0 18.3 0.9 1.3 2.2 60 GRAND TOTAL 61.4 240.4 301.8 7.5 28.8 36.3 80  - 36 - Operating Costs 7.04 Current operations would require bank overdrafts up to a maximum, at the end of each semester of about Tsh 6 million (US$0.7 million) in 1980 (the first year of factories operations) prices for each of the three pro- posed factories. This includes half of the expected annual expenses for production and administration. Funds required for the purchasing of raw cashewnuts, however, are not included because no additional expenses would be incurred by CATA as raw nuts are at present purchased for export. CATA is currently authorized by the Ministry of Agriculture to overdraft its account at the National Bank of Commerce (NBC) by a maximum of Tsh 200 mil- lion. In practice, CATA's current overdrafts, which finance purchasing of raw nuts from farmers, do not go over about Tsh 160 million. It is not expected that CATA will havie difficulties in extending its overdraft facili- ties to about Tsh 240 million (in 1981/82), in order to cover its additional requirement of about Tsh 80 million for the starting of 10 new factories, including the three Project factories. Financing 7.05 The Project would be financed as shown below: Tsh Million US$ Million _ IDA 229.4 27.5 76 Government 54.1 6.6 18 Subtotal 283.5 34.1 94 NBC (Working Capital) 18.3 2.2 6 Total 301.8 36.3 100 7.06 The Government would relend to CATA fifty percent of the Credit and fifty percent of the other Eunds required for the Project. This loan would be repaid over 15 years inclusive of five years of grace, with a rate of interest of 10% per annum. The other fifty percent of the funds required for the Project would be made available to CATA as equity. A condition to the effec- tiveness of the Credit is that a Subsidiary Loan Agreement has been entered into between the Government and CATA under terms and conditions satisfactory to the Association. Disbursements 7.07 The proceeds of the Credit would be disbursed to cover 100% of the foreign expenditures for alL the project's components as follows: (a) civil works and water supply facilities: 65% of total expenditures; (b) equipment and vehiLcles: 100% of foreign expenditures; (c) technical assistance: 100% of foreign expenditures.  - 37 - All disbursements would be against contracts and would be fully documented. The credit would be disbursed over a period of six years. The disbursement schedule is shown at Table 25. Procurement 7.08 Because of uncertainty on the project cost for equipment and civil works, and because the type of equipment which would be purchased would deter- mine the processing coefficients (para 2.25) and the economic and financial performance of the Project, it was decided after the return of the appraisal mission that bids for equipment and civil works should be invited through international competitive bidding, in accordance with Bank Group guidelines, and should be received and evaluated before credit negotiations. Bids for civil works have been received by CATA, all from foreign contractors. So as not to delay the Project, contracts for civil works amounting to a total of about US$14 million were awarded in April 1978 because construction time is longer than delivery time for the equipment. Retroactive financing require- ments would amount to about US$2.5 million. Bids for equipment amounting to about US$11 million have been evaluated, and it is expected that award would be made to the CASHCO (Japanese) manufacturer shortly after signing of the credit. 7.09 Contracts for the purchase of other goods would be bulked as far as possible and orders for goods of US$100,000 or more would be procured through international competitive bidding in accordance with Bank Group Guidelines. Orders for less than US$100,000, amounting to a total of less than US$100,000 would be procured with existing Government procedures, which are satisfactory. Engineering, construction supervision, and other professional services would be retained by CATA following Bank Group guidelines. VIII. FINANCIAL EVALUATION A. Forecasts of Factory Operations Basic Assumptions 8.01 The assumptions regarding project capital costs and financing are at paras. 7.01 through 7.05. Recurrent costs and processing coefficients are based on actual operating conditions of the CASHCO factory in Mtwara. In view of the technical improvements introduced by the CASHCO company, these assump- tions might be conservative. It was assumed that factories would operate at 95% capacity, as this has been the case historically in Tanzania. 8.02 The selling price of cashewnut kernels, the finished product, was based on a projected price of 320 wholes 1/ of US$/lb 1.60 CIF New York, in 1/ Standard grade used to quote cashewnut kernels prices. There are 320 whole (i.e. unbroken) kernels in a pound of cashew kernels of such grade.  - 38 - 1978 prices, adjusted to prices FOB Tanzania (para 3.15). The FOB price of raw cashewnuts was taken at Tsh 2,800 per ton (para 3.17). Producer prices were kept at their 1978 level (para 3.19). Financial Projections 8.03 Projected Income Statements and Cash Flow Statements for the Project factories are at Tables 26 and 27. Although the factories' net income would be negative during the first two years of operations, their cash flow would each year be positive. The Project's impact on CATA's cash flow (Table 28), including Project components not directly related to the factories' operations (part of management services and agricultural research), would also be positive each year. 8.04 The financial rate of return of the factories would be 12% before taxes, and 4% after taxes in constant 1978 terms. Sensitivity analyses are in Table 32. Farmers Benefits 8.05 Assurances were obtained from Government at negotiations for the first Cashewnut Development Project (Loan 1014-TA) that, within two years after the date of the Loan Agreement (i.e. by June, 1976), the Borrower would establish and thereafter maintain a pricing structure for cashewnuts based on the grading of such nuts and closely relating world prices to farm gate prices less appropriate processing and marketing costs (Section 4.02 of Loan Agreement). Government's pricing structure described in para 3.19 follows closely the spirit of the Loan Agreement. However, processing costs are not at present included in the pricing structure, because the factories being built under the first Project are not yet in operation. To ensure that farmers would share in the benefits of the Project, assurances were obtained from Government at the negotiations of the proposed credit that Government would continue to maintain a pricing structure based on, inter alia, the grading of such nuts and closely relating farm gate prices (less appropriate processing and marketing costs) to appropriate world prices. 8.06 At full development of all CATA's currently planned factories in 1984/1985, and at the present level of producer prices, CATA's net annual cash flow before taxes would be about Tsh 140 million (in 1978 prices) of which 95% would be provided by the factories' operations. About 20% of this Tsh 140 million correspond to depreciation and will most likely be reinvested in the cashewnut industry. The balance of about Tsh 110 million corresponds to an overall surplus of about Tsh 920 per ton of raw nuts purchased from the producer. Of this Tsh 920, about Tsh 520 represents the surpluses which CATA would have been expected to earn even without any factories, the remaining Tsh 400 being due to the factories (including the three to be built under the Project). If all this surplus were distributed to smallholders in the form of increased producer prices, these prices would rise by 80% from an average of Tsh 1,120/ton to Tsh 2,040/ton (in 1978 prices), raising the average  - 39 - family income from about Tsh 400 to Tsh 720 annually. However, such increases could only be paid when most of the crop is processed through the factories, rather than exported as raw nuts. The above price increase represents the maximum increase which could be granted to farmers, since, at this price level, CATA's would show no profits, and no funds would be available to Govern- ment in the form of taxes. It is therefore expected that the actual increase in farmer's revenues will be somewhat lower than stated above. Purely as an illustration, if half of the possible eventual increase in prices to farmers took place, and making reasonable assumptions about the relative impacts of the Project factories and the other CATA factories, the Project would have the effect of raising the incomes of all 400,000 cashewnut farmers by Tsh 50 per ton (half of a 25% increase of Tsh 400 per annum), i.e. Tsh 20 per farmer annually. 8.07 Another way of looking at the input of CATA's factories operations on smallholders is the better protection against fluctuations in world prices of cashewnuts. At present, those prices could drop by some 18% without it being essential to lower the prices to the farmers, while still leaving CATA in a financially solvent position. With all the factories in full operation, this margin would be increased to about 30%. As it is considered highly unlikely that world prices will drop by this amount, there should be little or no risk to farmers failing to harvest their nuts. Government Cash Flow 8.08 The Government cash flow is in Table 29. The Government cash flow would be negative during the three years of Project's construction and the cumulated deficit would reach a maximum of about Tsh 74 million (US$9 million) in current terms. Thereafter, the cash flow would be positive; the cumulative cash flow would become positive during the third year of factories' operations, in Project Year 6. Foreign Exchange Benefits 8.09 The Project's impact on Government's foreign exchange earnings is in Table 30. There would be a foreign exchange deficit during the first two years, reaching a maximum of Tsh 4.7 million (US$0.6 million), of which over 60% correspond to operating costs and foregone revenues from raw nuts exports during the first six months of factories' operation, the remaining 40% corresponding to the IDA service charge. At full development in Project Year 7, the net annual foreign exchange earnings would be about US$7 million in 1978 terms. IX. ECONOMIC EVALUATION A. Summary Economic Benefits and Justification 9.01 The Project would support Government's high priority given to cashew- nut processing under the Third Five Year Plan. The Project would increase  - 40 - cashewnut processing capacity in Tanzania by 30,000 tons of rawnuts, which would otherwise be exportetd unprocessed, thus increasing Tanzania's net foreign exchange earnings by about US$7 million equivalent annually (in 1978 prices) when factories would have reached their maximum capacity in 1984/85. The project would provide employment to about 3,000 workers, of which two- thirds would be women. CaLpital investment 1/ per job created would be about US$9,000 (in mid 1978 prices) and falls within the range characteristic of modern medium scale industries 2/. As noted in paras. 8.06 and 8.07, the Project is expected to contribute to increases of farmer's income, affecting all 400,000 cashewnut producers. 9.02 The basic economtic rate of return (ERR) would be about 16%. Foreign exchange and labor were shadow priced.3/ If foreign exchange and labor were not shadow priced, the ERR would decrease by about 4 percentage points, of which 3 percentage points are accounted for by the shadow pricing of foreign exchange. B. Basic Assumptions 9.03 The economic life of the project is assumed to be 25 years. The rate of return analysis includes all expenditures for capital investments replacements and operation and maintenance costs directly related to the operation of the factories. 9.04 Assumptions on capital and recurrent costs are at paras 7.01, 7.02 and 8.01. Costs do not include price contingencies, taxes and duties. Physical contingencies, however, are included in the calculation of the rates of return. 9.05 Assumptions regarding kernel and raw nuts prices are at paras. 3.15 and 3.17 respectively. Costs and benefits streams used for the calculation of the rates of return are shown in Table 31. The summary of the sensitivity analysis is in Table 32. C. Sensitivity Analysis Changes of Prices 9.06 A decrease of kernel prices of 10% during the entire project life, with an accompanying decrease of the export price of raw nuts, would reduce 1/ Net of price contingencies, working capital and interest during construction. 2/ The cost per job created of the Tanzania-Morogoro Industrial Complex (Loans 1385 and 1386 'CA) calculated on the same basis, is about US$12,500. 3/ Shadow foreign exchange rate Tsh 12.0/US$1.0, compared to current rate of Tsh 8.3/US$1.0. Wages shadow rated at 75% of their actual price.  - 41 - the ERR by 2.5 percentage points from 16% to 13.5%. If kernel prices were 25% lower than expected during the entire project life, the ERR would be 10%. 9.07 About 70% of the project's recurrent costs correspond to the cost of raw nuts, the price of which is relatively uncertain (para 9.11). For each 10% increase (decrease) of the export price of raw nuts, the ERR would decrease (increase) by about 2.5 percentage points. Capacity Level of Factories' Operations 9.08 It was assumed in this report that the factories would operate at 95% of capacity, as this has been the case historically in Tanzania. For each 10% decrease in the factories' throughput during the entire project life (this corresponds to about 1,000 tons of raw nuts per factory), the ERR would decrease by about two percentage points. Delay in Factories' Start Up 9.09 A delay of one year in the realization of benefits, with an accom- panying delay of variable production costs, and no delay in capital and fixed costs, would reduce the ERR by half of a percentage point from 16% to 15.5%. Capital Costs 9.10 The capital cost estimates are based on actual bids (para 7.08), and it is not expected that project cost will materially differ from these estimates. An increase of 10% of capital costs, however, would decrease the ERR from 16% to 15%. D. Uncertainties and Risks Uncertainties 9.11 Most raw cashew nuts produced in Tanzania, if not locally pro- cessed, are exported to India. The export price of raw cashew is negotiated each year, and, in the absence of a world market, prices cannot be forecasted with reasonable certainty. As noted in para 3.17, raw cashew prices are not determined by a price parity between raw nuts and kernel prices, but rather by the bargaining powers of the virtually sole purchaser of raw nuts (India) and of the few remaining producers who do not process their own cashew (mainly Tanzania). These relative bargaining powers are, of course, directly affected by Tanzania's decision to process an increasingly large share of its own cashew crop. This factor makes the economic analysis of the project particu- larly difficult. However, the principal price assumption (para 3.17) used for the economic analysis for raw nuts - FOB price of Tsh 2,800 per ton - implies a relatively low margin for India. It is probable that Tanzania would receive only about Tsh 2,500 per ton for its raw nuts if it had not decided to process domestically all its production. If raw nuts were valued at Tsh 2,500 per ton the ERR would be about 18%, and the FRR 14%.  - 42 - Risks 9.12 Technical risks regarding plant design and operations and risks of substantial delays of construction can be considered low since (i) substantial experience is being gained during the construction of the first project, (ii) the projection of factory performance is based on actual coefficients observed at the CASHCO factory in Tanzania (Mtwara), and (iii) the project provides for training of factory personnel. 9.13 The commercial risks are considered relatively high given the range of uncertainty of prices of cashew kernels. It should be considered unlikely that cashew kernel prices would fall from the expected US$1.60/lb to below US$1.30/lb, or rise above US$1.90/lb. This would result in the ERR within the 11% - 20% range. 9.14 Managerial risks are minimized through the provision of technical and management services outlined earlier. Also, the fact that the three factories would be operated independently mitigates the risk of unsatisfactory factory management. E. External Effects of the Project 9.15 At present Tanzania exports most of its raw nuts to India. Tan- zania's average production is 120,000 tons annually, of which about 20,000 tons are processed domestically. The balance of 100,000 tons is exported to India (80,000 tons) and other countries. India's imports of raw nuts from Tanzania represent about half of its total rawnut imports. 9.16 The development of mechanical processing in Africa will ultimately result in the disappearance of raw cashew trade between Africa and India. The Government of India has, for several years, been aware of these devel- opments, and its current plans provide for raising raw nuts production in India by 150,000 tons annually after about 10 years (the Government of India has undertaken the preparation of a paper outlining a possible cashewnut de- velopment project which may be suitable for IDA financing). To the extent that India is able to step-up domestic production, the proposed Tanzanian project, which would contribute to a reduction in raw nuts exports of about 30,000 tons, would not have a significant impact on the cashewnut processing industry in India. X. AGREEMENTS AND RECOMMENDATIONS 10.01 The following are conditions of credit effectiveness: (a) that the position of Finance Director for CATA has been filled by a person whose qualifications, experience and terms and conditions of employment are satisfactory to the Association (para 6.15);  - 43 - (b) that a subsidiary Loan Agreement has been entered into between the Government and CATA under terms and conditions satisfactory to the Association (para 7.06). 10.02 Assurances were obtained from the Government and CATA at credit negotiations that: (a) the cashewnut grading system followed during the 1977/78 season would be reviewed no later than two years from the date of the credit agreement and from time to time there- after, and if such review indicates that the new system is not satisfactory, CATA would be authorized to follow the 1976/1977 system or such other system satisfactory to the Association and CATA (para 2.15); (b) consultants for engineering of civil works and supervision of Project construction would be employed no later than June 30, 1978 (para 6.13); (c) by June 30, 1979, CATA would submit to the Association for its review and approval the detailed description of the training program for the staff to be employed in the Project's factories (para 6.14); (d) until June 30, 1983, the position of Finance Director for CATA would be filled by a person with qualifications, experience and terms and conditions of employment satisfactory to the Association (para 6.15); (e) no later than June 30, 1979, and until at least June 30, 1983, CATA would employ a qualified and experienced Chief Engineer on terms and conditions satisfactory to the Association (para 6.15); (f) consultants to implement a Management Information System and to train CATA's finance and accounting staff would be employed not later than June 30, 1978 (para 6.16); (g) Government would carry out, or cause to be carried out, by December 31, 1979, a study to determine health hazards in its cashewnut industry and to formulate criteria for monitoring such hazards, and thereafter, in consultation with the Association, would implement, as appropriate, the recommendations of such study (para 6.18); (h) CATA would inform the Association on any appointments to the positions of Project Factory Managers suffi- ciently in advance of such appointments so as to allow the Association time to comment thereon (para 6.22);  - 44 - (i) CATA would maintain a separate account for the Project (para 6.24). CATA's accounts would continue to be audited by independent auditors acceptable to the Association, and the audited accounts would be sent to the Association no later than six months after the end of CATA's fiscal year (para 6.25); (j) Government would continue to maintain a pricing structure of raw c:ashewnuts based on, inter alia, the grading of such nuts and closely relating farm gate prices (less appropriate processing and marketing costs) to appropriate world prices (para 8.05). 10.04 Based on the above assurances and conditions the proposed Project is suitable for an IDA Crediit of US$27.5 million, on standard terms.  TANZANIA SECOND CASHEWNUT DEVELOPKENT PROJECT Table 1 CATA Purchase of Raw Nuts, 1969/70 to 1976/77 (Ton '000) 69/70 70/71 71/72 72/73 73/74 74/75 75/76 76/77 I. Northern Regions Coast Region 29 31 34 30 39 30 29 29 Other Regions l/ 1 3 4 4 6 5 4 5 Total 30 34 38 34 45 35 33 34 II. Southern Regions Zone I I/ 42 42 43 47 54 41 38 39 Zone II 3/ 28 27 33 33 31 31 25 28 Zone III 4/ 11 10 12 12 15 -11 10 9 Total 81 79 Al 92 100 83 73 76 TOTAL 111 113 126 126 145 118 106 110 ~~~~~~-= : Undergrade Raw Nuts (x) 4 18 20 39 10 12 19 12 1/ Tanga, Morogoro, Mbeya, Moshi, Iringa. 2/ Corresponds to CATA zones A, F, G, H, I which include the districts of Mtwara, Lindi (pare), and Nevala. 3 Corresponds to CATA zones C, D, J, K, L, which include the districts of Tunduru, Nachingwea, Masasi and Songea. _/ Corresponds to CATA zones B and E which include the districts of Kilwa and Lindi (part). December 20, 1977  Table 2 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT RainfaLl and Cashewnut Growth Periods / Month J F M A M J J A S 0 N D Average Rainfall (mm) 2 200 170 180 135 30 6 4 4 8 12 40 140 Rainfall (1975) 2/ - 89 98 - 217 - - - 28 - 107 120 Rainfall (1976) 3/ 227 264 219 77 77 32 - - - 24 - - Growth Periods: Flowering Fruit Set/Ripening l _I Harvest 1/ For Southern regions, which produce about 70% of Tanzania's cashewnuts. 2/ For the period 1931-1960. Source: Mtwara Regional Integrated Development Plan 1975-1980, Finnconsult. 3/ Nachingwea research station.  Table 3 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Cashewtree Plantation Program: Allocation of Planted Areas Region District Area (ha) Coast and Other Bagamoyo Northern Regions Mizizima Kisarawe Rufiji Kibaha 62,600 Mtwara Mtwara Newala Masasi 17,500 Lindi Lindi Kilwa Nachingwea Liwale 46,000 Ruvuma Tunduru Songeo Mbinga 12,500 Morogoro Mahenge Ifakara Morogoro Kilosa 6,250 Nbeya/Iringa Kyela Mbozi Ludewa 3,125 Total 147,975 ha (150,000) Source: CATA  Table 4 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Cashewtree Plantation Program: Anticipated Yields Age of Tree 1/ Yield (kg/tree) Yield (kg/ha) 2/ 1 2 3 4 0.5 35 5 2.5 175 6 4.0 280 7 5.5 385 8 6.5 455 9 7.5 525 10 8.5 595 11 9.5 665 1/ Seeds are planted from January to March. Age of tree is counted from the date the seed is planted. 2/ Trees are spaced 12 meters apart. There are 70 trees per ha. August 4, 1977  TANZANIA SECOND CASEWNIUT DEVZLOENT FROJECT Cashewtree Plantation Program: Production (Ton '000) Year of Area 91/92 Plantation 1/ Planted (ha) 78/79 79/80 80/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 & thereafter 76/77 8,000 2/ - 0.3 1.4 2.2 3.1 3.6 4.2 4.8 5.3 5.3 5.3 5.3 5.3 5.3 77/78 22,000 - - 0.8 3.8 6.2 8.5 10.0 11.6 13.1 14.6 14.6 14.6 14.6 14.6 78/79 30,000 - - - 1.0 5.3 8.4 11.2 13.7 15.8 17.9 20.0 20.0 20.0 20.0 79/80 30,000 - - - - 1.0 5.3 8.4 11.2 13.7 15.8 17.9 20.0 20.0 20.0 80/81 30,000 - - - - - 1.0 5.3 8.4 11.2 13.7 15.8 17.9 20.0 20.0 81/82 30,000 - - - - - - 1.0 5.3 8.4 11.2 13.7 15.8 17.9 20.0 Total production (for 150,000 ha) - 0.3 2.2 7.0 15.6 26.8 40.1 55.0 67.5 78.5 87.3 93.6 97.8 99.9 Allocation by Region 3/ Coast and other Northern Regions _ 0.1 0.9 2.9 6.6 11.3 16.8 23.1 28.4 33.0 36.7 39.3 41.1 42.0 Southern Regions _ 0.2 1.3 4.1 9.0 15.5 23.3 31.9 39.1 45.5 50.6 54.3 56.7 57.9 1/ Trees are planted Erom January to March. 2/ Actual. n 3/ Production is allocated proportionately to areas shown at Table 3. i.e. Coast and other Northern Regions 42I of total and Southern Regiona 58% of total. September 2. 1977  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Summary of Tanzania's Cashewnut Processing Capacity Expected Factory Production at First Year Equipment Name Full Capacity(ton) of Operation Used Observation TA>.ZT^. 12,,00 uperatilng italianI TANITA II 12,500 78/79 Italian Financed by Bank of Sicily,under construction Kibaha 10,000 81/82 Undetermined Financing requested from IDA ,under the Project Mtwara CashcO Co. 8,000 Operating Japanese Mftwara 10,000 81/82 Undetermined Financing requested from IDA ,under the Project Lindi 10,000 78/79 Italian Financed by Bank, Loan 1014-TA ,under construction Mtarn. 5,000 77/78 Italian Financed by Bank, Loan 1014-TA ,under construction Ne-wala I 10,000 78/79 Italian Financed by Bank, Loan 1014-TA ,under construction Newala II 10,000 81/82 Undetermined Financing requested from IDA ,under the Project Masasi 10,000 78/79 Italian Financed by Bank, Loan 1014-TA ,under construction Nachingwea 5,000 77/78 Italian Financed by Bank, Loan 1014-TA ,under construction Tunduru 10,000 81/82 Italian Planned, Financed by Bank of Sicily Total Capacity 113,000 August 18, 1977 X I-  TANZAN7LA SECOND CASH5RCUT DhTL0JIPI PLOIECT Satla a, R.. Outs *nd Procet.S.in C- eltt (70 '000) A Mrg. 91/9 8rod,ot1o,, 76/77 77/78 78/79 79/80 80/81 81/82 82/83 83/84 64,'5 -d 70/71-76177 7hereLcer_ 1. NartItern Recians Coas.t R8.g., , 31 29 31 31 31 31 31 31 31 3i 31 Other R.oni.- 1 4 5 4 4 4 4 4 4 4 _ 0..- '10211D82 - - 1.0 3.0 6.5 11.5 17 42 local Produ,tion 35 34 35 35 35 86 38 41.5 46.5 52 77 PtoC.l nL C-D5CitV T0-C,. I F..tOry 12 12.5 12.5 12.5 12 .5 12 .5 12 .5 12 .5 12.5 70011.0 11 Pent..,, _/ _ 8.0 10.0 12.5 12 5 12 5 12.5 12.5 12 5 12 5 I/ISha _/ - - - 7.5 8.5 9.5 10.0 10.4 P-1 c-s-ine CanaitY [2.5 20.5 22.6 25.0 25.0 32.5 33.5 34.5 35.0 35 . .4a-lc-be r-r E.-oL 21 5 14.5 12.5 10.0 11.0 5.5 5 .0 a 2.0 17.0 0 11. So,.1hern Rent,,,. ft.d-ct [08 Produetio Zoo. 1 6L/ 45 39 45 45 45 45 45 45 45 45 45 Zon. II L 30 28 30 30 30 30 30 30 30 30 Z.n III1 10 9 10 10 10 10 10 10 10 10 S.C Plec0lnr'sn -- - - 1.5 4 9 15.5 23.5 38 7.t.1 Production 85 76 5 85 85 86.5 90 94 *00.5 108.5 143 Procorsulo Ceneoll,, Lt,dl F-to y/ - 5.0 9.0 10.0 10.0 10.0 10.0 10.0 10.O 10.0 Mowac- C..h.. Co. 8 0 . 0 8.0 8 0 8.0 s.0 8.0 s.0 8.0 8.0 --v0.0 F ctory 2/ - - - - - 7.5 8.5 9.5 10.0 10.0 MC. Fe.toy 2 - '.5 4.0 5.0 5.0 50 1.0 5.8 5.0 5 No.-.. I Factory 2/ - - 6.0 9.0 10.0 10.0 10.0 10.0 10.0 10.0 Ne_.l. 11 FPeto0y 5/ - - - - 7.5 8.5 9.5 10.0 10.0 M...1 Ft 0C-y 2/ - - 7.5 8.5 9.5 100 10 .0 10.0 10.0 10.0 N.ohign-. FPetory 2/ - 1.5 4.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 T7nduru F.t.oy _ - - - 7.5 8.5 9.5 10.0 10.0 10.0 10.0 Tot.l Pr-o e60n Ce peet, 8 0 16.0 3 2 5 75.0 77U.0 7.3 78.0 Aewileble lor 0.ewrt 68 69 46.5 32 30 17.5 19 23.5 30.5 65 Et.iting T.... 120 110 120 120 120 120 120 120 120 120 120 N- Plestings _ - _ 16 _ T.t.1 120 110 120 120 120 122 127 136 147 160 220 FPe ....si C.peeLty not pplie-ble 20.5 36.5 61 78 a1 1OS 106.5 111.5 113 113 R- Nutc. A*vdlbl. f.. Ueport -"- 89.5 63.5 59 42 41 23 27 35.5 47.5 107 11 TS.e, 8 breg.r.. ).y.. hi, 1erteg. V Fo Teb l. S S rsuded tn neatest 500 t-e.. / ti.ting f-t-r. Ud 0.r fon ierCe.tnoe lieenod by the enk .( SieiLY. Cwtr,Ctle f TotSduru feetery i espetted to t.rt in ..1end-r 1977. P. Prp.. d .ed the pree.nt prnj et. W Distrit. of MW-r. pert .f Liedi, d N eI. V Ditti t: n2f Tsnduru. N-ehinEge. esei *d Sor... /l Oietnte .t Kil . *nd p frt nt Lidi. 9/ 0.d0. oCeetetine e.D.t the first C-ebh t Dov ln_nt PeFrot- , finscen d by the . 10/ TSld ..um Cill b. cepted bfore greens, r et.s thee lnetl pCo OtiCe dOt. ill be p ledIely he. n e.- not av_1lhble De.e.ber 20, 1977  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Export of Cashewnut Kernels from Processing Countries (t0)Q m,t,) 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 Brazil 0.6 1.1 1.1 0.7 1.8 1.5 3.3 5.1 6.5 4.6 7 3e 6.0 7.6 11.4 10.0 Kenya - - 0.1 0.2 0.1 0.2 0.2 0.2 0.1 0.2 0.1 0.2 0.1 0.2 1.6 Tanzania - - 0.1 0.1 0.6 1.4 1.4 2.4 2.9 4.0 2.9 3.7 4,1 4.0 6.1 Mozambique 1.9 2.7 3.5 4.0 5.7 8.1 11.3 12.8 14.7 20.4 27.2 4.0 8, 0. 8.P/ 8.0 - India A 48.6 51.0 55.7 51 3 50.1 51.0 63.7 60.6 50.3 60.4 66.3 52,3 65,0 53.6 46.0 Total 51.1 54.8 60.5 56.2 58.3 62.2 79.8 81.1 74.5 89.5 103.3 66.2 84.8 77.2 71.7 al Actual Figures un"tro-n. A 'rndtictioni of 8,000 metric tons of kernels has been assumed [1 Twelve months from April of the year shown to March of the following year. Totals may not equal the sum of their constituent items, due to rounding of figures. Source: National Trade Statistics; Gill and Duffus Landover Ltd., Edible Nuts Statistics December 1976. H a. tJ.  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT India's Margin on Raw Nut Processing - Actual Prices in Current Terms Projected for 1985 and thereafte 1972 1973 1974 1975 1976 1976 Terms 1978 Terms Kernels Exported (ton '000) 66.3 52.3 65.0 53.6 46.0 Value of Kernels FOB India(Rs million) 688.2 744.3 1,181.4 961.3 920.0 Average Kernel Price FOB India(Rs/ton) 10,380 14,231 18,175 17,935 20,000 Average Kernel Price FOB India(Tsh/ton) 9,265 12,545 16,020 14,930 18,650 20,900 24,460 Average Raw Nut Price FOB Tanzania(Tsh/ton) 1,330 1,280 1,720 1,820 1,980 2,400 2,800 Margin per Ton of Raw Nuts(%)-/ 60 125 114 89 117 101 101 1/ Source: India Monthly Statistics of Foreign Trade. Twelve months from April of the year shown to March of the following year 2/ For comparison purpose with prices obtained in Tanzania. Exchange rates used are as follows: 72 73 74 75 76 Tsh/US $ 7.14 7.14 7.14 7.41 8.30 Rs/US $ 8.0 8.1 8.1 8.9 8.9 3/ Assuming a kernel to raw nut outturn of 23%. The margin would cover transportation and processing costs and profits. Margin (X) 100 x (Kernel Price x 23% - Raw Nut Price)/Raw Nut Price. H PZ S  Table 10 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Kernels 320 Wholes Prices CIF New York (US $flb) 1972 1973 1974 1975 1976 January 0.73 0.74 1.28 1.10 1,05 February 0.72 0.81 1.22 1.12 1.12 March 0.74 0.82 1.18 1,13 1.16 April 0.75 0.86 1.20 1.28 1.18 May 0.75 0.94 1.28 1.22 1.18 June 0.78 1.15 1.30 1,13 1.20 July 0.77 1.20 1.22 1.10 1.25 August 0.75 1.20 1.15 1.15 1.28 September 0.73 1.13 1.10 1.12 1.29 October 0.74 1.10 1.10 1.06 1.28 November 0.73 1.06 1.10 1.03 1.30 December 0.72 1.12 1.06 1.05 1,40 Average 1/ 0.74 1.01 1.18 1.12 1.22 1/ Not weighted by corresponding tonnage. Source: US Department of Commerce January 6, 1978  TANZANIA Table 11 SECOND CASHEWNUT DEVELOPMENT PROJECT Raw Cashewnut Production (t000 m.t.) Year Brazil Mozambique Tanzania Kenya India Total 1963 22 133 43 5 66 269 1964 16 142 57 5 14 294 1965 22 119 65 8 67 281 1966 22 106 75 6 59 268 1967 26 97 78 9 72 282 1968 29 189 87 9 68 382 1969 29 132 94 10 68 333 1970 26 138 92 24 58 338 1971 16 156 116 11 90 388 1972 40 201 127 16 77 461 1973 25 167 128 11 65 e 396 1974 35 180 145 22 75 e 457 1975 37 9go 120 25 105 e477 e = estimate Source: Tropical Product Institute, The Market for Cashew-Nut Kernels and Cashew-Nut Shell Liquid, Gill and Duffus Edible Nut Market Reports, various issues.  TANZANIA Table 12 SECOND CASHEWNUT DEVELOPMENT PROJECT Price Relationship between Processing Mix and 320 Wholes Expected Price Relationship Kernel Grade Outturn (%) (320 grade . lOC) 220 1 105 320 30 100 450 1 95 T. Wholes 12 95 D. Wholes 6 75 50 48 Butts 2 70 Splits 15 75 Large Pieces 20 65 Small Pieces ) Baby Bits ) Dessert P. .13 50 Baby P. 50 32 Total Kernels 100 80 March 23, 1978  Table 13 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Projection of Kernel Prices Actual Projected for 1985 and Thereafter 1976 1976 Terms 1978 Terms Average Price 320 Wholes CIF New York (US$/lb) 1.22 1.37 1.60 Less: Quality Adjustment 1/ 0.06 9.07 0.08 Less: Freight and Insurance 0.10 0.10 0.12 Average Price 320 Wholes FOB Tanzania (US$/lb) 1.06 1.20 1.40 Average Price 320 Wholes FOB Tanzania (Tsh/ton) 2/ 19,355 22,060 25,830 Price Project Mix FOB Tanzania (Tsh/ton) 3/ 14,862 17,648 20,664 1/ On average cashew kernels processed in Africa command prices about 5% lower than prices for India processed kernels. The latter weight heavily in the statistics yielding average New York prices, since India processes over 60% of world cashewnuts. 2/ Ton 1.0 = lb 2,200; exchange rates: US$ 1.0 = Tsh 8.30 in 1976 and thereafter. 3/ In 1976, the average price of the Tanzanian mix was only 77% of the 320 wholes price, because the weighted average of the whole/broken ratio was only 48/52. TANITA output was 60/40, the output at the Mtwara Cashew Co. was 44/56 and the output at the Mbagala hand processing factory was 43/57. The whole/broken ratio of the new factories is expected to be 50/50, and the resulting average mix price would be 80% of the 320 wholes price (see Table 12). March 23, 1978  Table 14 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Economic Costs of Raw Nuts to Factories 1/ (Tsh/ton) Foreign Exchan8e Foreign Exchange Shadow Rated 2 Not Shadow Rated Raw nuts, F.O.B. Mtwara/Dar es Salaam 4,025 2,800 Less: F.O.B. Charges - 100 100 Less: Transport to Factory (Average) 100 100 Economic Cost to Factory 3,825 2,600 1/ In mid-1978 prices. 2/ Foreign exchange costs valued at US$ 1.0 = Tsh 12.0 (official exchange rate US$ 1.0 = Tsh 8.30). 3/ No price parity formula between kernel and raw nut prices has yet been arrived at during negotiations between Tanzania and India, but there are indications that an acceptable parity would be Tsh 17.50 per ton of raw nuts per one US cent per lb of kernel, 320 whole, CIF New York. 4/ Mostly handling. Export taxes are not taken into account because they represent a transfer within the economy. March 23, 1978  Table 15 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Financial Cost of Raw Nuts to Factories 11 (Tsh/Ton) Standard Under Grade Grade Producer Price 1,150 1,000 Transport to Factory 2/ 200 200 Bags and Twine 130 130 Procurement Administration 190 130 Village Levy 60 60 Sub-total 1,730 1,520 Crop Insurance3/ 3 2 Cash Insurance 4/ 2 2 Bank Interest _! 58 53 Head OffIce Administration 120 120 Feeder Roads Fund 20 20 Sub-total 203 197 Total Cost to Factory 1,933 1,717 Average Cost to Factory N Tsh/ton 1,900. 1/ Expected 1978/79 costs. 2/ Average Tsh 200 per ton for transportation within a district. 3/ About 0.15% of value of crop. 4/ About 0.1% of cash handled. 5/ 6.5% for about 6 months. 6/ Based on historical data, showing that an average 20% of nuts are undergrade. Source: CATA July 25, 1977  Table 16 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Financial Costs of Exporting Raw Nuts (Tsh/Ton) Standard Under Grade Grade Producer Price 1,150 1,000 Transport 200 200 Bags and Twine 130 130 Procurement Administration 190 130 Village Levy 60 60 Sub-Total 1,730 1,520 Insurances and Interest 62 57 Head Office Administration 121 121 Handling and Miscellaneous 76 76 Branch Costs 190 130 Feeder Roads Fund 20 20 Sub-Total 469 404 F.O.B. Charges 105 105 Export Tax 1/ 130 120 Sub-Total 135 125 Total Cost 2,334 2,049 Average Cost Tsh/ton 2,280 F.O.B. Export Price Tsh/ton 2,800 Less: Average Cost 2,280 CATA Margin 520 1/ Half of this tax goes into the Cashewnut Industry Fund, for investments in the cashewnut industry. 2/ Based on 20% of nuts undergrade.  TANZANI) SECOND CASHEWNUT DEVELOPMENT PROJECT Producer Prices for Cashewnuts (Tsh per ton) 1972/1973 1973/1974 1974/1975 1975/1976 1976/1977 1977/1978 Standard Grade 950 950 1,050 1,050 1,100 1,150 1/ Under Grade 750 750 950 950 950 1,000 1/ Std.Gr/Under Gr. Ratio 60/40 90/10 90/10 80/20 80/20 l/ 80/20 Average Producer Price 870 930 1,040 1,030 1,070 1,120 1/ Expected 2/ Average for Tanzania August 25, 1977 I-  TANZA IU Table I18 SECOM S CASHEWN ltT DEVELOFM ENT FROJECT CATA ^ Income Scatemenets - (Tsh Million) 1973/1974 1974/1975 (a) Sales Ravenue 2/ Export Sales 171.7 189.6 Local Sales 17.2 25.7 Toral Sales 188.9 215.3 (b) Cost of Sales urchases 175.6 159.0 Opening Stock less Closing Stock (35.3) 0.9 Labour 0.9 0.3 Agents' Rnunrratiofn 1.2 0.9 Development Levy - Faeder Roads 7.1 5.9 Other - 0.9 Total Cost of Sales 149.5 167.9 c) Cross Sales (a-b) 39.4 b7. 6 (d) Operating Expenses 1. .1.dniistrativc Expenses. Salaries and Benefits: HO 1.4 1.8 3ranches 2.7 3, Other Administrative Expenses 2.1 3.2 Sub-total 6.2 8.7 2. Sellinz and Distributiofn F.O. t Cha ges 3.6 5.0 Export Tax 10.2 17.7 Miscellaneous 0.4 0.9 Sub-total 14.2 23.6 3. AiscellaneouS Gunny Bags 1.0 0.5 Other 0.5 0.1 Sub-total 1.5 0.6 Total Operating Expensa 21.9 32,9 (e) Finsncial Expenses 1. Bank Interest Sub-total 3.4 4.1 2. Other Insurancees 0.4 0.7 Shrinkage of Stocks 1.7 1.6 Depreciation 1.0 1 '3 Provisions 1 D MiscUllaeoue Charges 0.1 0.3 Sub-total 4.1 3.9 Total Financial Expenses 7.5 S.0 (f) let Profit (Loss) 3efore S ndries and Bad Debts 9.9 6.4 (g) Bad Debts _ g (h) Sundry Income 1.2 1_1 (i) Net Inoe (Loss) 3efor Taxes 11.1 1.5 (j) Taxes 5.0 0.8 (k) N et Inco (Loss) A fter Taxcs 6.1 0.8 1/ For the years ending Septmber 30th. / Export sales mainlY to India - Local sales to domescic processing factories. ,Tar.ua-v 10, 1978  Table 19 TANZANIA Page 1 SECOND CASHEWNUT DEVELOPMENT PROJECT CATA Balance Sheets as of September 30th: Assets A (Tsh Million) 1973/1974 1974/1975 ASSETS 1. Current Assets Stocks 2/ 34.7 48.5 Debtors and Prepayments 19.8 44.3 Guarantee Deposit with NBC / - 3.6 Cash - 0.1 Total Current-Assets 54.5 96.4 2. Fixed Assets Fixed Assets ( 11.0 Capital Work in Progress/ (11.8 10.9 less: Accumulated Depreciation 5/ 1.1 2.4 Net Fixed Assets 10.7 19.5 3. Investments_/ 13.2 Other Assets Loans Advanced 1.0 51.4 Goodwill 2.9 - Total Other Assets 3.9 51.4 1/ Columns may not exactly add up due to rounding. 2/ Raw nuts, kernels, packing materials, work-in-progress. 3/ Amount paid to the National Bank of Commerce to secure-guarantee from them for a loan from Banco di Scicilia, to finance the construction of Tanita II factory. 4/ Mtwara Staff Houses and Rest House, Kilva Store House, Staff Houses and offices, Factories at Lindi, Masasi and Mtamza. 5/ Straight-line basis: buildings over 25 years, plant and machinery 5 years, vehicles 3 years, furniture and small equipment 6 years, small tools 2 years. Capital work-in-Progress is not depreciated. 6/ TANITA factory and other minor investments. 7/ Loans advanced to contractors and sub-contractors in the Fir-st Cashewnut Development Project in 1975. December 20, 1977  -Table 19 TANZANIA Page 2 SECOND CASHEWNUT DEVELOPMENT PROJECT CATA Balance Sheets as of September 30th: Liabilities and Equity - 1973/1974 1974/1975 LLABILITIES 1 Current Liabilities Creditors and Accruals 4.9 25.3 N.A.P.B. 2/ 26.8 26.8 Bank Overdraft 26.8 53.6 Taxation Provision 5.0 0.8 Current Maturities, Long-Term Debt - - Total Current Liabilities 63.5 106.5 2. Long-Term Debt World Bank, First Project - 51.5 Total Long-term Debt - 51.5 less: Current Maturities - - Net Long-term Debt - 51.5 3. Reserves Development Reserve 3/ - 5.5 Total Reserves - 5.5 4. Equity Shares 3.0 15.2 4/ Accumulated Profits 6.1 5.0 Total Equity 9.1 20.2 5. Difference in Books (3.5) (3.2) TOTAL LIABILITIES AND EQUITY 69.1 180.5 I/ Columns may not exactly add up due to rounding. 2/ This liability was taken over the NatLonal Agricultural Produce Board to be shared between CATA, the National Milling Corporation and the General Agricultural Products Corporation in proportion to net assets acquired as a result of the break-up of NAPB. The liability was still in NAPB account in 73/74 and 74/75. 3/ Amounts retained to be utilized for the develop-ent of feeder roads to cashewnut producing areas. b/ TANITA and Mtvara Cashew Co. factories. September 2, 1977  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Comparative Estimates of First Proiect's Costs (US$ Million) APPRAISAL ESTIMATE (May 1974) LATEST ESTIMATE (Nov.1975) Financed by: Financed by: Total Cost Bank CATA/Govt. Total Cost Bank CATA/Govt. T.I.B. 27 Factory Development: Machinery 6.8 5.5 1.3 10.1 10.1 - - Factories Buildings 2.3 1.8 0.5 ) Other Buildings 1.5 1.3 0'2 ) 15.1 9.1 4.1 1.9 Equipment and vehicles 0.8 0.7 0.1 ) Working Capital 2.7 2.2 0.5 2.7 _ 2.7 Sub-Total 14.1 11.5 2.6 27.9 19.2 6.8 1.9 Community Education Centers 0.9 0.8 0.1 - - - - Technical Services 3/ 0.5 0.5 - 1.4 1.4 - Salaries 4 2.9 0.4 2.5 2.9 0.4 2.5 Rural Water Supplies 1.0 - 1.0 - - - Unallocated 10.9 7.8 3.1 TOTAL 30.3 21.0 9.3 32.2 21.0 9.3 1.9 1/ It is expected that the next supervision mission will make a new estimate. The 1975 estimate was made after contracts for equipment and civil works were received, and the Loan Agreement amended to reflect the new allocation of Bank funds into disbursement categories. 2/ Tanzania Investment Bank, a Development Finance Company. TIB loan to CATA ib met from the proceeds of Loan 1172-TA. 3/ Marketing Manager and Financial Manager of CATA for four years, 3 research staff, fellowshipsand training courses, preparation of Phase II Project. 4/ Extension and grading officers, national staff for research and CATA headquarters-Bank contribution correspond to 25X of the salaries of extension and grading staff. November 4, 1977 a r~ 0~ ID. a 0Io  Table 21 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Tankers Requirements for Transportation of CNSL Average No. Raw Nuts CNSL of Round Trips Production Output No. of No. of Tankers Factory per day Capacity(tons) (tons)L/ Tankers-Days Required 3/ TANITA 2 12,500 875 90 ) TANITA II 2 12,500 875 90 ) Kibaha 2 10,000 700 70 ) Mtwara 9Wshco 2 8,000 560 56 ) Mtwara - - 10,000 700 - ) Lindi 2/3 10,000 700 210 ) Mtamna 2/3 5,000 350 105 ) Newala I 2/3 10,000 700 210 ) Newala II 2/3 10,000 700 210 ) 5 Masasi 2/3 10,000 700 210 ) Nachingwea 2/3 5,000 350 105 ) Tunduru 1/3 10,000 700 420 ) 1/ 7% of production capacity. 2/ 5-ton tankers. 3/ Based on 300 working days per year. 4/ Would be linked to main storage lby a pipe. November 28, 1977  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Project Costs Summary / (Tsh Million) Foreign 0 1 2 3 4 5 6 Total Exchange Civil Works 31.1 47.3 22.7 - - - - 101.1 63 Equipment - 48.1 30.2 7.2 - - 85.5 95 Water Development 7.8 3.0 - - - 10.8 80 Vehicles and Tankers 0.8 1.7 0.8 - - - 3.3 95 Professional Services - 9.1 12.2 9.5 7.2 7.2 4.4 49.6 93 TOTAL BASE COST 31.1 113.1 69.8 17.5 7.2 7.2 4.4 250.3 81 Physical Contingencies - 7.3 6.1 1.5 0.5 0.5 0.3 16.2 81 Price Contingencies - 4.8 4.0 2.4 1.8 2.4 1.6 17.0 81 TOTAL COST 31.1 125.2 79.9 21.4 9.5 10.1 6.3 283.5 81 1/ Derived from Table 23. H  Table 23 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Detailed Prolect Costs 1! (Tah Million) Foreign 0 1 2 3 4 5 6 Total Exchange t A. KIAAHA COMPLEX Civil Works 2/ 9.5 13.9 5.3 - - - - 28.7 70 Processing Equipment 3/ - 19.2 8.1 1.3 _- - 28.6 95 Water Development - 2.6 1.0 - - - 3.6 80 Vehicles 4/ - - 0.3 - - - - 0.3 95 Sub-total 9.5 35.7 14.7 1.3 - - - 61.2 82 B. MTWARA COMPLEX Civil Works 11.2 17.7 5.8 - - - - 34.7 70 Processing Equipment - - 16.0 10.6 1.3 - - - 27.9 97 Water Development - 2.6 1.0 - - - - 3.6 80 Vehicles Al - - 0.3 - - - - 0.3 95 Sub-total 11.2 36.3 17.7 1.3 _ - - 66.5 82 C. NEWALA COMPLEX Civil Works 2 10.4 15.7 11.6 - - - - 37.7 51 Processing Equipment - - 12.9 11.5 4.6 - - - 29.0 94 Water Development - 2.6 1.0 - - - - 3.6 80 Vehicles IV - - 0.3 - - - - 0.3 95 Sub-total 10.4 31.2 24.4 4.6 - _ _ 70.6 70 D. TANKERS 5/ - 0.8 0.8 0.8 - - - 2.4 95 E. PROFESSIONAL SERVICES 6/ _ 9.1 12.2 9.5 7.2 7.2 4.4 49.6 93 Total Base Cost 31.1 113.1 69.8 17.5 7.2 7.2 4.4 250.3 81 Physical Contingencie7 7/ - 7.3 6.1 1.5 0.5 0.5 0.3 16.2 81 Price Contingencies 8 - 4.8 4.0 2.4 1.8 2.4 1.6 17.0 81 Total Cost 31.1 125.2 79.9 21.4 9.5 10.1 6.3 283.5 81 1/ Costs extracted from bid document, excluding taxes and duties. Contracts are fixed price contracts. Year 0 corresponds to fiscal year starting July 1, 1977. 2/ Tsh 1.6 million have been added to the civil work component of the factories in Yibaha and Newala to cover the cost of one senior staff house and 10 semi-skilled houses which were not included in the bids for civil works. Although contracts for civil works include water development, the latter costs are shown here as a separate item. Contract price includes provision for cost escalation of Tsh 1.8 million for each factory which is deducted to obtain base cost and added back into price contingencies. 3/ Contract price includes provision for price escalation of Tsh 0.6 million for each factory which is deducted to obtain base cost and added back into price contingencies. 4/ Two seven-ton lorries at Tsh 150,000 to transport tins and finished product. Three utility vehicles are included in the contracts for processing equipment. 5/ To transport CNSL. Tankers requirments are in Table 21. Tankers are required from year 1 because they would be seed for the existing factories. Two tankers at Tah 400,000 would be purchased each year, except if bulking of orders results in price reduction. 6/ From Table 24. 7/ Civil works and equipment: 5%; vehicles and tankers 30%; professional services: 101 (except research and supervision of construction); water development: 20X plui Tsh 400,000 to cover possible need of constructing additional pipeline to the Newala factory. Year 0 corresponds to initial payment to contractors and is not subject to contingencies. 8/ Civil works contracts (including water development) include provision for cost escalation of Tsh 1.8 million for each factory. Equipment contracts include a provision of Tsh 0.6 million for each factory. In addition to the above amounts, price contingencies were applied to vehicles and taskers and to the physical contingency of equipment contracts at 7% for 1978, 6.5% for 1979 and 6% thereafter. On professional services and on the physical contingency component of civil works, the rates of 8% for 1978, 7.5% for 1979, and 7% afterwards were used.  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Cost of Professional Services 1/ (Tsh Million) Foreign 1 2 3 4 5 6 Total Exchange A. SUPERVISION OF CONSTRUCTION 2/ 6.2 6.2 0.4 - - - 12.8 87 B. OTHER PROFESSIONAL SERVICES Factory Operation: Coordinator 3/ - 1.3 1.3 1.3 1.3 1.3 6.5 95 Kibaha - 1.3 1.3 1.3 1.3 - 5.2 95 Mtwara - 1.0 1.3 1.3 1.3 0.3 5.2 95 Newala - 0.5 1.3 1.3 1.3 0.8 5.2 95 Sub-Total - 4.1 5.2 5.2 5.2 2.4 22.1 95 Finance Director 4t 0.7 0.7 0.7 - - - 2.1 95 Engineering Adviser 4/ 0.7 0.7 0.7 - - - 2.1 95 Management Information System 5/ 0.5 0.5 0.5 - - - 1.5 95 Agricultural Research - - 2.0 2.0 2.0 2.0 8.0 95 Health Study 1.0 - - - - - 1.0 95 Sub-Total 2.9 6.0 9.1 7.2 7.2 4.4 36.8 95 TOTAL 9.1 12.2 9.5 7.2 7.2 4.4 49.6 93 1/ In mid-1978 prices. Year 1 corresponds to fiscal year starting July 1, 1978. 2/ Would be a fixed price contract for the amount shown. 3/ One for each factory, and one coordinator, all starting work at the beginning of machinery installation and staying during four years. Average cost at $80,000 per man-year. 4/ Three years, starting year 1 at $80,000 per year. 5/ Two man-year at $80,000 spred over a thre-year period. F 6/To complement the present research program from year 3 to 6. About 16 man-year r at $60,000.  Table 25 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Disbursement Schedule -/ (US$ Million) IDA Fiscal Year Quarterly Cumulative Disbursements and Quarter Disbursements at End of Quarter 1978/79 September 30, 1978 - - December 31, 1978 2.4 2.4 March 31, 1979 2.2 4.6 June 30, 1979 - 4.6 1979/80 September 30, 1979 2.6 7.2 December 31, 1979 2.6 9.8 March 31, 1980 2.6 12.4 June 30, 1980 2.6 15.0 1980/81 September 30, 1980 1.9 16.9 December 31, 1980 1.9 18.8 March 31, 1981 1.9 20.7 June 30, 1981 1.9 22.6 1981/82 September 30, 1981 0.5 23.1 December 31, 1981 0.5 23.6 March 31, 1982 0.5 24.1 June 30, 1982 0.5 24.6 1982/83 September 30, 1982 0.4 25.0 December 31, 1982 0.4 25.4 March 31, 1983 0.3 25.7 June 30, 1983 0.3 26.0 1983/84 September 30, 1983 0.3 26.3 December 31, 1983 0.3 26.6 March 31, 1984 0.3 26.9 June 30, 1984 0.3 27.2 1984/85 September 30, 1984 0.3. 27.5 1/ A 9 months lag between physical investments and disbursements by the Association is assumed. Disbursements in 1978/79 correspond to advance payments to contractors and equipment suppliers. March 23, 1978  Table 26 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Projected Income Statements for a Typical Project Factory - (Tsh Million) 16 and 1 2 3 4 5 6 - 15 Thereafter (a) Sales Revenue Raw Nuts Processed (ton 2/ - - 7,500 8,500 9,500 9,500 9,500 Kernels Pro e(ton) - 1,800 2,040 2,280 2,280 2,280 CNSL (ton) y - - 525 595 665 665 665 Kernel Sale 5/ - - 18.6 39.7 44.7 47.1 47.1 CNSL Sales - - 0.6 1.3 1.5 1.6 1.6 Total Sales _ - 19.2 41.0 46.2 48.7 48.7 (b) Operating Expenses Raw Nuts - - - 14.2 16.1 18.1 18.1 18.1 Salaries and Wages 8/ - - 6.2 6.2 6.2 6.2 6.2 Other Operating Costs 9/ - - 3.1 3.3 3.6 3.6 3.6 Interest an bank overdraft 1-1 - - 0.3 0.3 0.3 0.3 0.3 Total Operating Expenses - - 23.8 25.9 28.2 28.2 28.2 (c) Operating Income (Loss) - - (4.6) 15.1 18.0 20.5 20.5 (d) Depreciation 11/ - - 4.8 4.8 4.8 4.8 4.8 Net Income Before - - (9.4) 10.3 13.2 15.7 15.7 Interest and Taxes Interest on Long-Term Loans / - - - - 6.6-0.7 - Net Income Before Taxes - - (9.4) 10.3 13.2 9.1-15.0 15.7 I/ It mid-1978 constant prices. Year 1 corresponds to the first year of construction. 2/ Factories would operate at 95% of capacity at full development. 3/ Assuming an average kernel outturn of 24% in weight. 4/ Assuming a CNSL outturn of 7% of raw nuts in weight. 5/ Average kernel price Tsh 20,664. See Table 13. Revenues are accounted for 6 months after the purchase of raw nuts. 6/ Average price US$ 300 per ton FOB (Tsh 2,400 per ton). 7/ Raw nuts into factory cost Tsh 1,900 per ton (Table 15). 8/ Based on actual operations of Cashco factory in Tanzania. 9/ Power, fuel, replacements and maintenance, packing materials and miscellaneous. Packing materials represent about 65% of these costs. 10/ At 11% interest rate with 6 months turnover. Maximum overdraft is Tsh 5 million. Interest on bank overdraft to purchase raw nuts is accounted for in the price of raw nuts. 11/ Straight line. Depreciation periods: civil works and water development 25 years, equipment 15 years, vehicles 5 years, professional services 10 years. Investment costs are averaged for the three factories and were extracted from Table 23. 12/ Half of the funds for factory construction and factory staff training are passed on to CATA as equity. The other half is onlent at 10% interest rate, 15 years repayment period including 5 years of grace during which interest is capitalized.  TANZANIA SECOND CASPEWNUT DEVELOPMENT PROJECT Consolidated Cash Flow Statements for the Project's Factories (Tsh Million) 1 2 3 4 5 6 7 8 9 10 20 I. Kibaha Factory Operating Income (Loss) - ( 2.6) 6.1 20.3 25.5 29.3 31.4 33.3 33.3 33.3 33.3 Depreciation - ( 2.4) ( 4.8) ( 4.8) (4.8) (4.8) (4.8) (4.8) (4.8) (4.8) (4.8) Interest on Long-Term Loans - - - - (3.3) (6.3) (5.6) (5.0) (4.3) (3.7) - Net Income Before Taxes - ( 4.8) 1.3 15.5 17.4 18.2 21.0 23.5 24.2 24.8 28.5 Loan Repayments - - - - (3.3) (6.5) (6.5) (6.5) (6.5) (6.5) - Mtw.,-ara Pactory Operating Income (Loss) - ( 1.2) 0.3 19.9 24.6 29.3 31.4 33.3 33.3 33.3 33.3 Depreciation - ( 1.2) ( 4.8) ( 4.8) (4.8) (4.8) (4.8) (4.8) (4.8) (4.8) (4.8) Interest on Long-Term Loans - - - - (1.7) (6.4) (5.8) (5.1) (4.5) (3.8) - Net Income Before Taxes - ( 2.4) ( 4.5) 15.1 18.1 18.1 20.8 23.4 24.0 24.7 28.5 Loan Repayments -- - - (1.6) (6.5) (6.5) (6.5) (6.5) (6.5) - III. Kibaha Factory Operating Income (Loss) - - ( 4.0) 12.5 22.8 28.3 31.4 33.3 33.3 33.3 33.3 Depreciation - - ( 3.6) (4.8) (4.8) (4.8) (4.8) (4.8) (4.8) (4.8) (4.8) Interest on Long-Term Loans - - - - - (5.0) (6.1) (5.5) (4.8) (4.2) - Net Income Before Taxes - - ( 7.6) 7.7 18.0 18.5 20.5 23.0 23.7 24.3 28.5 Loan Repayments - - - - - (4.9) (6.5) (6.5) (6.5) (6.5) - IV. Conuolidated Net Income Before Taxes - ( 7.2) (10.8) 38.3 53.5 54.8 62.3 69.9 71.9 73.8 85.5 Taxes - 3.6 5.4 (19.1) (26.7) (27.4) (31.2) (34.9) (35.9) (36.9) (42.7) Net Income After Taxes - ( 7.2) (10.8) 19.2 26.8 27.4 31.1 35.0 36.0 36.9 42.8 Depreciation - 3.6 13.2 14.4 14.4 14.4 14.4 14.4 14.4 14.4 14.4 Loan Repayments - - - - (4.9) (17.9) (19.5) (19.5) (19.5) (19.5) - Initial Working Capital - 4.5 12.3 1.5 - - - - - Net Factories Cash Flow - 4.5 20.8 35.1 36.3 23.9 26.0 29.9 30.9 31.8 57.2 1/ In current prices. Projections are based on July 1978 prices, and an inflation rate of 7.57. in 78/79, 77. from 79/80 to 85/86, and thereafter. Year 1 corresponds to financial year beginning July 1, 1978. This Table is derived from Table 26 and the implementation schedule. April 18, 1978  Table 28 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Cash Flow Statements for CATA V (Tsh Willion) 0 1 2 3 4 5 6 7 8 9 10 20 A. WITHOUT PROJECT (a) Raw Nut Exports: Exports (ton OO0).V 85 62 53 44 43 41 41 40 40 40 40 40 Margin 3J 44.2 32.2 29.6 26.4 27.5 28.2 30.0 31.4 33.2 33.2 33.2 33.2 (b) Factories' Income 4/: Income before Interest and Taxes 5 21.3 (18.4) (7.2) 63.0 64.1 112.1 129.4 140.9 151.2 151.2 151.2 151.2 Less: Interest -i (8.6) (9.4) (10.1) (0.1) (10.1) (8.9) (7) (6.3) (5.0) (3.8) (2.5) - Sub-Total 12.7 (27.8) (17.3) 52.9 54.0 103.2 122.0 134.6 146.2 147.4 148.7 151.2 (c) Net Income before Taxes 56.9 4.4 12.3 79.3 81.5 131.4 152.0 166.0 179.4 180.6 181.9 184.4 Taxes 28.4 2.2 6.1 39.6 40.7 65.7 76.0 83.0 89.7 90.3 90.9 92.2 Net Income after Taxes 28.5 2.2 6.2 39.7 40.8 65.7 76.0 83.0 89.7 90.3 91.0 92.2 (d) Depreciation 3.0 9.1 22.4 25.6 29.9 32.3 32.3 32.3 32.3 32.3 32.3 32.3 (e) Principal Repayments (3.6) (8.2) (9.3) (10.0) (16.3) (16.4) (16.4) (16.4) (15.8) (14.7) (14.0) - Net Cash Flow 27.9 3.1 19.3 55.3 54.4 81.6 91.9 98.9 106.2 107.9 109.3 124.5 B. PROJECT CASH FLOW (a) Factories' Cash Flow V - - 4.5 20.8 35.1 36.3 23.9 26.0 29.9 30.9 31.8 57.2 (b) Revenue Foregone on Raw Nuts Exports 7/ - - (1.5) (6.1) (7.9) (9.2) (10.2) (11.2) (11.8) (11.8) (11.8) (11.8) (c) Other Loans 8/- - - - - - (7.9) (7.7) (7.5) (7.1) (6.9) - ProJect Cash Flow - _ - 3.0 14.7 27.2 27.1 5.8 7.1 10.6 12.0 13.1 45.4 C. CATA CASH FLOW WITH PROJECT 27.9 3.1 22.3 70.0 81.6 108.7 97.7 106.0 116.8 119.9 122.4 169.9 1/ In current prices. Projections are based on July 1978 prices, and an inflation rate of 7.5% 78/79, 7% from 79/80 to 85/86, and zero thereafter. Tear 1 corresponds to financial year baginning July 1, 1978. 2/ Not taking into account the planting programme, and assuming all CATA's factories operate at 95% of capacity. 3/ Tsh 520 per ton (see Table 16) in July 1978 prices. 4/ Excluding the factories proposed under the Project. 5/ Information provided by CATA. Interest on long-term loans from the Treasury (20 years, 8-1/2%), the Tanzania Investment Bank (15 years, 10%), the Bank of Sicily (15 years, 7%), and the Export-Import Bank of Japan (13 years, 6-1/2%). 6/ From Table 27. 7/ Tsh 520 per ton in July 1978 prices, less 50% to take into account the decrease in taxes due to lower income. 8/ Interest and principal repayments for 50% of the funds passed on to CATA to financed technical assistance not benefiting the Project factories directly. Half of interest payments are offset by tax effect. April 18, 1978  Table 29 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Government Project Related Cash Flow-l (Tsh Million) 1 2 3 4 5 6 7 8 9 10 20 SOURCES OF FUNDS Factories' Operation: Increase (Decrease) in Tax Revenues 2/ - (3.6) (5.4) 19.1 26.7 27.4 31.2 34.9 35.9 36.9 42.7 Tax on Margin on Raw Nuts Exports 3IF - (1.5) (6.1) (7.9) (9.2) (10.2) (11.2) (11.8) (11.8) (11.8) (11.8) Export Tax on Raw Nuts Foregone 4/ -__ (0.4) (1.5) (2.0) (2.2) ( 2.5) ( 2.7) ( 2.9) ( 2.9) ( 2.9) ( 2.9) Sub-Total - (5.5) (13.0) 9.2 15.3 14.7 17.3 20.2 21.2 22.2 28.0 Revenues from Loans to CATA: Loans for Factories 2/ Interest Payments - - - - 5.0 17.7 17.5 15.6 13.6 11.7 - Principal Repayments - - - - 4.9 17.9 19.5 19.5 19.5 19.5 - Other Loans 5 Interest Payments - - - - - 2.6 2.4 2.2 1.8 1.6 - Principal Repayments - - - - - 5.3 5.3 5.3 5.3 5.3 - Sub-Total - - - - 9.9 43.5 44.7 42.6 40.2 38.1 - External Financing: IDA Credit 124.0 62.4 19.0 8.8 9.4 5.8 - - - - - TOTAL SOURCES OF FUNDS 124.3 56.9 6.0 18.0 34.6 64.0 62.0 62.8 61.4 60.3 28.0 APPLICATION OF FUNDS Project Implementation 6/ 156.3 79.9 21.4 9.5 10.1 6.3 - - - - - External Debt Service: IDA Service Charge 0.5 1.2 1.5 1.6 1.6 1.7 1.7 1.7 1.7 1.7 1.5 Repayments to IDA - - - - - - - - - 2.3 6.9 TOTAL APPLICATION OF FUNDS 156.9 81.1 22.9 11.1 11.7 8.0 1.7 1.7 1.7 4.0 8.4 Net Cash Flow before CATA's Surplus (32.9) (24.2) (16.9) 6.9 22.9 56.0 60.3 61.1 59.7 56.3 19.6 Consolidated CATA/Govt. Cash Flow -7/ (32.9) (21.2) ( 2.2) 34.1 50.0 61.8 67.4 71.7 71.7 69.4 65.0 I/ In current prices. Projections are based on July 1978 prices, and an inflation rate of 7.5% in 78/79, 7% from 79/80 to 85/86, ard zero thereafter. Year 1 corresponds to financial year beginning July 1, 1978. 2/ From Table 27. 3/ 50% of Tsh 520 per ton in July 1978 prices. 4/ About Tsh 63 per ton of raw nuts in July 1978 prices (Table 16). 5/ See Table 28, line B (c) and footnote 8. 6/ From Table 22. 7/ CATA's project surplus is in Table 28. April 18, 1978  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Foreign Exchange Earnings and Expenditures - (Tsh Million) 1 2 3 4 5 6 7 8 9 10 20 Sale of Factories' Production - 15.5 79.6 149.3 183.7 205.1 220.6 233.8 233.8 233.8 233.8 Less: Operating Costs and Replacements - 1.5 6.1 7.7 8.6 9.1 9.8 10.4 10.4 10.4 10.4 Raw Nuts Sales Foregone 1/ 16.9 68.8 89.5 104.5 112.5 120.5 127.7 127.7 127.7 127.7 Net F.E. Earnings (Losses) Before Debt Service - ( 2.9) 4.7 52.1 70.6 83.5 90.3 95.7 95.7 95.7 95.7 Less: IDA Credit Debt Service 0.6 1.2 1.5 1.6 1.6 1.7 1.7 1.7 1.7 4.0 8.4 Net F.E. Earnings (Losses) (0.6) ( 4.1) 3.2 50.5 69.0 81.8 88.6 94.0 94.0 91.7 87.3 1/ In current prices. Projections are based on July 1978 prices, and an inflation rate of 7.57 78/79, 7% from 79/80 to 85/86, and zero thereafter. Year 1 corresponds to financial year beginning July 1,1978. 2/ Based on export price of Tsh 2,800 per ton. April 10, 1978  TANZANI4 Table 31 SECOND CASEiEWNUT DEVELOPIENT PROJECT Economic Rate of Return Calculation (Tsh Million) Cost and Benefics Stream - No Shadow Pricing Derivation bf Shadow Prices 4/ 1 2 3 4 5 6 7 -25 Foreign Echsnge x Fa-tor Capital Costs 1/ 143.8 73.8 15.0 5.9 5.9 2.8 _ 80 1.36 Operating Costs: 2/ Raw Nuts 3/ Kibaha - 9.7 20.8 23.4 24.7 24.7 24.7 Mtwara - 4.9 20.2 22.7 24.7 24.7 24.7 Newala - - 14.6 21.5 24.1 24.7 24.7 Total Raw Nuts - 14.6 55.6 67.6 73.5 74.1 74.1 _ 1.47 5/ Salaries and Wages 2 Kibaha - 3.1 6.2 6.2 6.2 6.2 6.2 Mtwara - 1.5 6.2 6.2 6.2 6.2 6.2 Newala - - 4.7 6.2 6.2 6.2 6.2 Total Salaries and Wages - 4.6 17.1 18.6 18.6 18.6 18.6 - 0.75 Other Operating Costs 2V Kibah- - 1.5 3.2 3.4 3.6 3.6 3.6 Mtwara - 0.8 3.2 3.5 3.6 3.6 3.6 Newala - - 2.4 3.5 3.6 3.6 3.6 Total Other - 2.3 8.8 10.4 10.8 10.8 10.8 60 1.28 Sales 2 Kibaha - 9.6 30.1 43.6 47.5 48.7 48.7 Mtwara - 4.8 24.6 42.3 46.8 48.7 48.7 Newala - - L4.4 35.6 44.9 48.1 48.7 Total Sales - 14.4 49.1 121.5 139.2 145.5 146.1 100 1.45 1/ Fro= Table 23, including physical contingencies. Investment in CNSL tankers and part of the professional services (finance director, engineering adviser, management information system) will benefit all factories operated by CATA. Only 272 of these costs has been lloted to the project (ratio of the project processing capacity to the total proceasing capacity). 2/ Based on Table 26 phased according to the implementation scheduLe. 3/ Based on export price of Tsh 2,800 per ton FOB (Table 14), i.e. Tsh 2,600 per ton into factory. 4/ Costs and benefits streams with the use of shadow prices are derived from costs and benefits streams without shadow pricing by shadow pricing the foreign exchange component of the streams, using the exchange rate US$ 1.0 . Tsh 12.0 (official erchange rate is US$ 1. - Tsh 8.30. The economic cost of rsw nuts is calculated in Table 14. Labor is shadow priced at 753 of its actual value. 5/ See Tsble 14. April 3, 1978  Table 32 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Economic and Financial 1/ Rates of Return Sensitivity Analysis Hypothesis ERR (%) FRR (%) 1. Base estimate (factories operating at 95% of maximum capacity) 16 12 2. Factories operating at 80% of maximum capacity 13 9 3. Factories operating at 70% of maximum capacity 11 6.5 4. Change in sales due to a change of kernel prices, with an accompanying change in raw nuts prices: - decrease of 10% 13.5 9.5 - decrease of 20% 11.5 7.0 - increase of 10% 18 14 - increase of 20% 20 16 5. Change in raw nut export price, without an accompanying change in kernel prices: - decrease of 10% 18 14 - decrease of 20% 20.5 16.5 - increase of 10% 13 9 - increase of 20% 10.5 6.5 6. Delay of one year in commencing the factories' operation 15.5 10.5 7. Increase of 10% of Capital Costs 15 11 1/ Before Taxes in constant 1978 terms.  ANNEX 2 TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT Selected Documents and Data Available in the Project File A. Selected Reports and Studies on the Sector or Sub-Sector Al. CASHEW PROCESSING, Evaluation of mechanical processing methods, equipment suppliers and operational plants. A2. Price Policy Recommendations for the 1977/78 Agricultural Price Review, five volumes, Marketing Development Bureau, Dar es Salaam, July 1976. B. Selected Reports and Studies Relating to the Project Bl. Proposal for a Second Phase Cashewnut Development Project, Ministry of Agriculture, Tanzania, October 1976. B2. Coast Region Hieadquarters, Kibaha New Urban Area, Norman and Dawbarn, Architects Consulting Engineers, Town Planners.  TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT THE CASHEWNUT AUTHORITY OF TANZANIA 80ARO OF DIRECTORS GENERAL MANAGER INTERNAL AUDITORl DIRECTOR OF DIRECTOR OF DIRECTOR OF CROP DIRECTOR OF MANPOWER FACTORtY DEVELOPMENT MARKETING DIRECTOR OF DEVELOPMENT OPERATIONS AND AND PLANNING FINANCE AND AND PROCUREMENT ADMINISTRATION DEVELOPMENT ZONAL CASHEW ~CROP ZNLPANN Z ENll CAHPROCUREMENT ZNLPANNIN PUBLIC MANPOWER ADMINIS- FACTR MANAGR DEVELOPMENT ADMANAGER MANDE EXOT OEAINHE (NORTHERN) AND RESEARCH RANSSOUTHERN) NAGER ACCOUNTANT ACCOUNTANT RELATION DEVELOPMENT TRATIVE ZONE MANAGER TRANSPO"T RESEARCH MANAGER MANAGER MANAGER MANAGER 4NGINEER MAANAGER ZONE RESAEARC WoOd BanE - 17944   TANZANIA SECOND CASHEWNUT DEVELOPMENT PROJECT IMPLEMENTATION SCHEDULE 1978 1979 1980 1981 1"| I2 3 4 1 2 3 4 1 2 3 4 1 2 CONTRACT WORKS CIVILWORKS AWARD COMMENCE KIBAHA AI~IId CONSTRUCTION KIBAHA - -_ UTO MOBI LIZATiON I I ~~~~~~CONSTRUCTION MTWARA I W A _ -_ MOBILIZATION CONSTRUCTION NEWALA mrFP eA ~ MOBILIZATION EQUIPMENT MANUFACTURING AND DELIVERY INSTALLATION TESTING K I BA H A 1 2 IIa .MANUFACTURING AND DELIVERY INSTALLATION TESTING MTWARA I I II MANUFACTURING AND DELIVERY INSTALLATION TESTING NEWALA I 7 ] w i World Bank -18330   IBRD 13096 K F KENYA~~~~~~~~~~~U8COFTNZNA AFzLCA SECO-ND CASNENTDVLfMN RJC TAN OA~MTW-ARA ro erty D A Bukinno 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~(12,500) hni~rr,erio- n I 131,1500 AO -,6`~~qddp97074ybyCATA 9 U ft tj N y a lilCu n g u ~ ~~~ ~~~~~~~~Mo n d u l i M o b- P y r