Jamaica - Agricultural Credit Project

Document of The World Bank FIL COPY FOR OFFICIAL USE ONL RETU!R) TO ~rJPTS DE P TW Report No. 1898 ONE WEEK Project Performance Audit Report JAMAICA FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) February 10, 1978 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT Prior to December 23, 1971 US$1.00 - J$ 0.833 J$ 1.00 - US$1.20 From December 23, 1971 to May 1972 US$1.00 a J$ 0.769 J$ 1.00 - US$1.30 From May 1972 to early January 1973 floating with pound sterling As of end December 1972 US$1.00 - J$ 0.855 J$ 1.00 - US$1.17 From January 1973 to April 22, 1977 US$1.00 - J$ 0.909 J$ 1.00 - US$1.10 From April 22, 1977 basic rate 1/ US$1.00 - J$ 0.909 J$ 1.00 - US$1.10 special rate US$1.00 - J$ 1.25 J$ 1.00 - US$0.80 WEIGHTS AND MEASURES 1 pound (pb) o0.4536 kg 1 acre J 0.4047 ha 1 gallon - 4.535 ltr 1 short ton (2,000 1b) 907.2 kg 1 box (oranges) 80 lb 1 cwt. (100 lb) - 45.36 kg 1 quart (0.25 gallon) 1 1.14 ltr 1 coconut - unit (155 1b) 70.3 kg 1 short ton copra U150 units 1 chain = 20.12 m A. U. Animal Unit, computed by Jamaican method (cow with calf = 1 unit, and 1-year-olds and older 1 unit). ABBREVIATIONS ACB - Agricultural Credit Bank ADC - Agricultural Development Corporation CGA - Jamaica Citrus Growers Association CIB - Coconut Industry Board 1DB - Interamerican Development Bank JDB - Jamaica Development Bank MOA - Ministry of Agriculture and Fisheries (after 1972 Ministry of Agriculture) MOF - Ministry of Finance MORD - Ministry of Rural Land Development (after 1972 Ministry of Youth and Rural Development) PCB - Peoples Cooperative Bank PLL - Project Land Lease SIA - Sugar Industry Authority SSFDP - Self-Supporting Farmers Development Project 1/ The basic rate is applicable to the import of all essential goods, all government transactions and all transactions of the bauxite industry. In this report the conversion rate of J$ 1.00 to US$1.10 is still used. FOR OFFICIAL USE ONLY Project Performance Audit Report JAMAICA FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Table of Contents Page No. Preface Basic Data Sheet Highlights PROJECT PERFORMANCE AUDIT MEMORANDUM Summary of the PCR 1 OED Comments Introduction 4 Productivity Improvement 4 Loan Recovery 5 Coordination Committee 6 PROJECT COMPLETION REPORT I. Introduction Al II. Preparation and Appraisal A5 III. Implementation Al3 IV. Institutional Development and Borrowers' Performance A26 V. Agricultural and Social Impact A35 VI. Rates of Return A38 VII. Special Issues A40 VIII. Changes in Repeater Projects A40 IX. Bank Performance A41 X. Conclusions A43 Annexes 1 - 9 Map 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.  Project Performance Audit Report JAMAICA FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) PREFACE This is a report on an audit of performance under the Agricul- tural Credit Project, supported by a loan of US$3.7 million to the Jamaica Development Bank, guaranteed by Jamaica. The loan was signed in December 1970, became effective in June 1971, and closed in June 1976 with minor cancellations. Loan 1004-JM for a second agricultural credit project now under implementation was signed in June 1974; a third agricultural credit project was appraised in March 1976. The report consists of the Audit Memorandum and a Project Completion Report prepared by the Latin America and the Caribbean Regional Office in July 1977. Under OED's abbreviated auditing process, the Memo- randum is based on the PCR, a summary review of project supervision reports, the appraisal report and a few other relevant Bank documents, and discussions with Bank staff. The PCR adequately covers major project developments, in- cluding the shift in emphasis of the subcomponents which resulted in accele- rated livestock development and reduced investments in tree crops. The Audit Memorandum reviews the farm productivity aspects of the project, discusses the disadvantages of an inflexible policy on interest moratoria and questions the purpose and usefulness of the coordination committee.  PROJECT PERFORMANCE AUDIT BASIC DATA SHEET JAMAICA FIRST AGRICULTURAL CREDIT PROJECT (LOAN 719-JM) KEY PROJECT DATA Appraisal Item Expectation Actual Total Project Coast (US$ million) 8.0 7.3 L Underrun or Overrun (Z) 15 /2 Loan Amount (US$ million) 3.7d Disbursed )- 3.696 Cancelled 08/3W/77 0.004 Repaid to ) 0.4 Oustanding to )- 3.3 /2 Date Physical Components Completed 06/74 6/76 Proportion Completed by Above Date () 100 Proportion of Time Underrun or Overrun (%) - 66 Economic Rate of Return (%) 17 10 OTHER PROJECT DATA Original Item Plan Revisions Actual First Mention in Files or Timetable - 1965 Government's Application 10/69 Negotiations 11/19/70 11/19/70 Board Approval 12/15/70 12/22/70 Loan Agreement Date 4/01/71 06/71 Closing Date 12/31/7''- 10/07/76/ Borrower Jamaica Development Bank Executing Agency Jamaica Development Bank Fiscal Year of Borrowe 1/1 - 12/31 Follow-on Project NamL7 Second Agricultural Credit Project Loan Number 1004-JM Amount (US$ million) 5.5 Loan Agreement Date 06/13/74 MISSION DATA Sent Month, No. of No. of 9 Date of by Year Weeks L8 Persons Manweeks- Report Identification FAO/IBRD 5/69 n.a. 5 n.a. 8/69 Preparation FAO/IBRD 1-2/70 5 3 15.0 3/70 Preappraisal Bank 1-2/70 3 3 9.0 5/70 Appraisal Bank 6/70 3 4 12.0 12/70 Total Supervision I 10-11/71 1.5 2 2.5 11/23/71 Supervision II 5/72 1.5 1 1.5 06/12/72 Supervision III 1/73 1.5 2 2.5 01/26/73 Supervision IV 9/73 4.0 4 4.0 10/25/73 Supervision V 8/74 2.0 1 2.0 09/03/74 Supervision VI 3/75 2.0 1 2.0 04/18/75 Supervision VII 10-11/75 2.0 3 6.0 12/01/75 Supervision VIII JL. 3/76 3.0 5 4.0 04/05/76 Completion 12/76 11 1 1.5 07/15/77 Total 26.0 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Jamaican Dollar (J$) Tear: Appraisal Year Average (1970) Exchange Rate: US$1 - J$0.83 Intervening Years Average, U9$l - J$0.85 Completion Year Average (1976) US$1 = J$0.91 1/ At current rate of exchange - US$7.9 million at original rate of exchange. 2/ Project scaled down. 3/ Plus exchange adjustment of 0.1. 4/ Most recent month available. 5/ As shown in Loan Agreement. 6/ Final disbursement date. 7/ Continuation of project concerned. 8/ Number of 5-day weeks shown in the mission report plus travel time. 9/ Number of weeks times number of persons. Supervisions IV, V and VIII had multiple assignments.  Project Performance Audit Report JAMAICA FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) HIGHLIGHTS The audit reviews progress under the Agricultural Credit Project which was the first agricultural project financed by the Bank in Jamaica. It provided funds for large farmers' long-term investments in coconut and citrus plantations as well as expansion of beef and dairy operations, and for technical assistance to the Jamaican Development Bank (JDB). The project was effective in its objective of creating an insti- tution capable of becoming the nucleus for the future development and rationalization of agricultural credit in Jamaica. A second loan was made to the Jamaica Development Bank in June, 1974. However, the agri- cultural development targets of this first project were not achieved. Unforeseen inflationary cost escalations required scaling down the project: funds available were sufficient to finance only 113 farms instead of the expected 140 farms, and total acreage brought into production reached only 65% of the appraisal estimate. Per acre output remained static at a level considerably lower than expected. The project's economic return, which at appraisal was expected to approximate 17%, is now expected to approximate 10%. The following points may be of special interest: - project design's disregard of productivity improvements (PCR, paras. 1.11, 4.02, 4.11-4.12, 4.14) - emergence of a new group of medium sized farms (PCR, paras. 2.15, 2.17-2.19, 3.19, 4.14, 5.07, 9.06) - impact of high rate of arrears on financial viability of credit institutions (PCR, paras. 4.17, 4.20, 8.02) - ineffectiveness of project coordination committee (PCR, paras. 1.11, 2.13, 2.16, 3.34, 4.08).  Project Performance Audit Memorandum JAMAICA FIRST AGRICULTURAL CREDIT PROJECT (LOAN 719-JM) SUMMARY OF THE PCR 1. The project aimed at creating an efficient institution for providing long-term development credit to Jamaica's commercial farmers in order to bring unutilized lands under cultivation and to increase agricultural production. It was designed to assist, by providing funds for technical assistance, in establishing an agricultural department in the Jamaica Development Bank (JDB), which then had no experience in long-term lending in agriculture, and to participate in the financing of 140 subprojects. The total loan of US$3,700,000 was to finance 45% of the farm development costs, while JDB's contribution would be 35% and the farmers' at least 20%. The loan carried an interest rate of 7-1/4%, a grace period of five years, and a maturity of 16 years. JDB was to make subloans at an onlending rate of 8-3/4%, with varying grace and repay- ment periods, depending on the type of industry and enterprise, to individual commercial farmers for the extension of existing farms producing coconut, citrus, beef, and dairy products. The foreign exchange risk of the subloans was assumed by the Ministry of Finance. It was anticipated that 140 subloans would be made, with an average of J$ 36,430 (US$40,070), generating an incremental production value at full development of about J$ 3.5 million (US$4.2 million) per annum. The subloans are repayable in 10 to 15 years, with a grace period of three to seven years. 2. The origin of the project dates back to a Bank reconnaissance mission in 1965. In subsequent years various FAO/IBRD identification and preparation missions paved the way to this project, which is the first Bank project in Jamaica in the agricultural sector and also in agricultural credit. Since there was no national, comprehensive agricultural development plan to serve as an overall framework for the credit project, the mission had to rely on separate plans and the information of separate institutions, which were not fully coordinated. The situation of agricultural credit itself was under review, and Government planned to reorganize the Agricultural Credit Board and ,the People's Cooperative Banks, but a clear policy in this respect was not yet formulated at the time of appraisal. The Jamaican Development Bank was identified as the appropriate institution to handle development credits for agriculture, but it was a rather new institute and had almost no experience in this type of lending operations. Under these circumstances it was almost a matter of course that the appraisal mission adopted a cautious policy. The project scope was limited to four main agri- cultural categories (coconut, citrus, dairy, beef), and it was oriented to clients who were already in farming rather than to new entrants in the sector. In addition, high priority was given to institution building, and specifically to the organization of an agricultural department within the JDB. - 2 - 3. The on-lending rate, the foreign exchange risks, the subborrowers' capital share, the subsidization of farmers, the needs of small farmers and the lack of coordination between lending agencies were extensively dis- cussed during appraisal and negotiation. The subloans were basically projected for existing commerical enterprises, which were supposed to be in a position to raise part of the necessary funds to expand their farms, on available but unutilized lands. Therefore the Bank did not agree with JDB requests during the implementation period to extend the financing to project items as working capital and to grant a grace period in interest payment. The Bank did, however, agree with several other mid-course revisions such as intercropping, definition of farmers' contribution to project costs (with exclusion of land acquisition), reporting requirement and reallocation of funds to the various categories. 4. During the excecuting period 1970-76, significant structural, in- stitutional, and technological changes occurred. The Government, initially assuming a promotional role to revitalize agriculture, gradually took over a producer's role, promoting the development of cooperatives in agricultural production and actively becoming involved by regulating prices and wages and development and price subsidies, and expanding credit facilities. Despite all these measures, however, production of traditional crops such as sugar, banana, and tree crops products continued to decline, although production of food crops, receiving special Government support, increased by about 10% over a six-year period. Then the severe droughts of 1974/76 had a bad effect on some industries, particularly hurting the cattle farmers. Others, such as the poultry industry and the food crop and fruits and vegetable industries, expanded. In several cases subborrowers diversified their operations, giving more emphasis on short-term operations (broilers, banana, vegetables, custom services) in order to raise additional funds for the long-term part of their projects. Also, the traditional plantation production system gave way gradually to the emerging class of medium-sized farms using a mixed farming system. Here JDB contributed significantly in mitigating the adverse effects of changes in social structure and in supporting the development of new agricultural industries. 5. The late appointment of an agricultural economist delayed the date of effectiveness by two months. The start-up was rather slow due to unfamil- iarity of the program in the farming community, and disbursement was also below expectation due to the same reasons and the climatological setbacks. These factors combined caused a postponment of the closing date from December 31, 1974 to June 30, 1976. In total 113 loans were made with an average of J$ 53,630, or 47% above appraisal estimate. Taking into account an inflation of 60% between 1971 and 1974, the average size of subloans is quite acceptable. After reallocation of funds at the request of JDB in 1972 and 1973, emphasis of categories of sublending was shifted. 6. Beef received most of the funds, 47% (32% 1/) by value, with an average subloan of J$ 63,000 (J$ 38,000) for a rather limited average farm extension of 150 acres (300). The beef industry relied heavily on pasture irrigation, which caused increased investment costs and greater vulnerability to cost 1/ In parentheses the appraisal expectations. - 3 - increases. The dairy industry took up 22% of the subloans (12%) with an average subloan of J$ 45,000 (J$ 40,000) and an average farm extension of 150 acres (110). This industry developed remarkably well and close to expec- tations. The major constraint here is the lack of trained manpower. The loan figures for the citrus industry remained within the range of expectation, 18% of total allocations (20%), and an average subloan of J$ 42,000 (J$ 33,000), but the area of expansion, 50 acres, was half of what was expected (100 acres). The major problem in citrus is the financing of the nonproductive period. Established farmers could draw from existing sources of income, but new entrants had to rely heavily on intercropping or additional short-term enterprises, in several cases to the detriment of the citrus project. The increasing virulence of the lethal yellowing disease caused fundamental changes in the coconut industry. The change from the more robust Jamaica Tall to the resistent, but more exacting Malayan Dwarf variety requires better cultivation techniques and hence a change in farmers' mentality, which is usually a very slow process. Not surprisingly, therefore, the coconut share of subloans is small, 14% (35%, and the subloans are relatively substantial, J$ 64,000 (J$ 36,000) and the average project area of 200 acres, twice the expected (100 acres). In general, the coconut projects rely heavily on banana intercropping. 7. Measured by Bank appraisal expectations, the goals of productivity and profitability were not reached on the subborrowers' farms, but the project did support the expansion of cultivated area by 15,000 acres (23,000). At full development from 1984 onward the value of incremental production is estimated at J$ 4.4 million (J$ 3.4 million), which is a substantial increase above expectation due to a significant price increase of products. Apart from the physical on-farm developments, JDB developed its agricultural section into a vigorous agricultural projects department, which established a good relationship with the farming community, encouraged new initiatives in agricultural development, and supported a new generation of resident full-time farmers. In general this type of farmer showed the best results. The overall rate of return, estimated at 17% during appraisal, is expected to be around 10%. This low rate is already reflected in the difficulties with loan recovery. Although the total amount of arrears (with exclusion of arrears under 30 days) is about 4% of the total of this project loan portfolio, and relatively low, the loan recovery causes considerable concern. The average recovery ratio in agricultural projects in the last years (1974-76) was around 60-70%, but in 1977 it dropped sharply and this situation creates a major issue for JDB senior management, especially since profits of JDB are far below expectations. 8. In general, the project has been sound and correct in its recognition of the need for long-term credit in Jamaican agriculture. It emphasized produc- tion more than productivity, since it sought to bring unutilized or underutilized lands into cultivation. The project was also well absorbed by JDB, which imple- mented its institutional development satisfactorily. It is to the credit of JDB that it executed the project with great dedication under circumstances of rapid changes in the economic and social structure in Jamaica. The results of the first project were a basis for a second agricultural credit project in 1974 (Loan 1004-JM) and these together led to the appraisal of a third project in 1976. However, the success of future expansion of JDB's lending activities in agriculture will depend on whether JDB will be able to restore a satisfactory loan recovery and will succeed in promoting improved on-farm management levels. OED COMMENTS Introduction 9. Uncertainties about political and economic developments during project execution led to diminished interests of large landowners in further on-farm investments and to the emergence of a group of new farm- owners who joined the project. This group, consisting mainly of ex-farm managers and other farm employees, utilize units of less than 100 ac and account for 56% of all participants (PCR, paras. 3.19 and 5.07). With the change in the character of the participants the project addressed it- self to a group of entrepreneurs not counted among the country's wealthy but who assured the establishment of viable, commercially oriented family farms. The participation of "new farmers" had considerable influence on two issues which OED would like to discuss. Finally, we would like to raise a question about the usefulness of the coordination committees. Productivity Improvement 10. During appraisal it was assumed that evaluation of planned on- farm investments would be undertaken by JDB's technical staff, and that continued extension would be provided by Government or the technical ser- vices of the Citrus Growers Association and Coconut Industry Board. No substantial yield increases or other productivity improvements were fore- cast because participants were expected to have previous farming experience and to be among the more advanced in the country with respect to the use of technology. It was anticipated that economic and financial benefits would materialize exclusively from acreage expansion. Since acreage expansion did not take place at the rate assumed and per acre output remained static at a level considerably lower than projected (PCR, paras. 5.01-5.06), proj- ect benefits were reduced. The major shortcoming of the project's design was that it did not provide for sufficient strengthening of the extension services to maximize returns on the substantial on-farm investments and that increased production was expected to come from area expansion rather than through productivity improvements, and this is true with respect to the old farmers as well as the new farmers. 11. Bank projects have been frequently criticized for introducing tech- nical packages, to subsistence farmers, which were too sophisticated for their standard of farming. This project appears to have aimed too low in this regard. It was expected to deal with a relatively small group of large commercial farmers, who had at least some basic knowledge of modern farming methods. Although only scant data were available during appraisal, it should have been apparent that existing average yields on these farms were low and that there was scope for increasing productivity. This would have required better extension services. However, the technical staff of JDB was in no position to provide this service, for various reasons. - 5 - 12. First, their technical experience and expertise, at least during the first years of project execution, required strengthening. The weakness of the JDB service, aside from the lack of follow-up after investments, is reflected in the imperfect scrutiny of planned farm investments. Construction of buildings with no or questionable productive value was approved along with irrigation schemes of doubtful value (PCR, para. 3.28). Second, the limited number of JDB technical staff and their involvement in administra- tive work restricted contacts with farmers during the post-investment period. The PCR indicates (Annex 5, Table 14) that in 1976 JDB staff only made 149 visits (1.3 per farm) to discuss technical aspects, frequency totally inade- quate to permit meaningful exchanges on productivity improvements. The PCR stresses repeatedly (paras. 4.14 and 5.02) that farm management was a major weakness in the project. 13. It is 0ED's conclusion, judging from the project's poor produc- tivity performance, that provision of funds for medium and long term invest- ments on farms only dealt with one of the constraints to developing Jamaica's agriculture. Introduction of more productive cattle of exotic origin, higher yielding crop varieties, etc. will require continuous transfer of new tech- nologies to producers, even if they had previous farming experience, thus contributing to the elimination of another constraint to effective develop- ment, i.e., the technology gap. While there were valid reasons why it was not possible for JDB to provide the services necessary to fill this gap, their absence was the major cause of the shortfall in productivity improve- ments. Loan Recovery 14. The loan recovery situation gives another reason for concern. About 73% of loan/interest payments are in arrears, a total of 77 borrowers out of 113 are not meeting their obligations. Of these 77 defaulters, 62 are in arrears with interest payments alone (PCR, Annex 7, Table 4). During execution of the second agricultural credit project, it became apparent that JDB's inadequate appraisal procedures of subloans are a major factor affecting recovery rates. This poor record, however, also draws attention to the Bank's policy not to accept Jamaica's request for granting a period of grace on interest payments to participating farmers. 15. Early during project implementation the Bank had received a Jamaican request to approve a:grace period not only for capital repayments which was approved during negotiations, but also for interest. This was denied because the Bank assumed that political considerations were the dominant reason for repayment difficulties and that borrowers would have adequate funds available from their ongoing farming as well as outside non- farming activities. That assumption was of dubious merit because of the low production on project farms in the pre-project period. There is little information available in the appraisal report on pre-project output. However, based on acreage under production as well as output and operating costs for -6- project financed activities, as shown in the farm models of the appraisal report, net farm incomes ranged from J$240/year on coconut farms to J$5,500 on citrus estates. In addition, some farmers also pursued other business activities: the PCR estimates their non-farming incomes had reached about J$8,000-10,000/year (para. 5.10) in 1976. It can be assumed that these incomes reached only J$5,000-6,000 during the early project period, in dol- lars of that period. 16. Considering that the average size of loan was J$53,600, annual interest payments during the development period, when no returns from invest- ments would materialize, amounted on average to J$4,690, absorbing a size- able part of any annual income. The difficult liquidity situation of farmers was further aggravated by the fact that 56% were "new farmers" with little or no other incomes, farmers who had invested heavily in acquiring their holdings and who, like all other project participants, were obliged to finance 20% of project investments out of their own funds and shoulder annual operating costs. 17. From JDB's point of view, it was getting into a most uncomfort- able situation. On the one hand they were pressured by the Bank to take action against defaulters, speed up disbursements and apply for a second loan; on the other hand JDB staff could recognize the financial limitations of their clients and the impossibility to recover arrears even under the threat of court action. 18. It is now a fact that loan recoveries are deteriorating and that credit morale is declining. The Bank's refusal to allow an interest mora- torium did not help to uphold morale. The financial viability of an insti- tution built along sound organizational and technical lines is in jeopardy and it is difficult to see how this situation can be corrected in the future. Coordination Committees 19. Section 3.03 of the Guarantee Agreement stipulated a Coordination Committee, to be chaired by the Permanent Secretary of the Ministry of Agriculture and consisting of senior officers of the Ministries of Finance, Rural Land Development and JDB. The appraisal report and the Guarantee Agreement defined the role of the Committee to be to propose a scheme to "coordinate the agricultural credit programs of the ministries, agencies, and organizations involved in agricultural development in the context of the guarantor's policies and priorities for the development of the agricul- tural sector." The Committee met altogether four times, twice in 1971 and twice in 1972, and was never reconvened thereafter despite repeated urgings by the Bank. Thus the Government complied with the letter but not the spirit of the Guarantee Agreement on a committee, and no tangible results can be attributed to it. - 7 - 20. In all probability a Coordination Committee was unnecessary. Coordination of agricultural credit programs seemed to be an unimportant task at all times. Even the appraisal report itself considered JDB the sole source of long-term lending to commercial, large-scale farmers. Private banks were extending only short or medium term loans to this group. The Agricultural Credit Board (ACB) was the only other source of institu- tional credit for agriculture at the time of appraisal. However, ACB was concerned with making loans to small farmers, thus eliminating any possible conflict of interest with JDB. It is understandable that the Permanent Secretary and senior officers from other ministries did not find the time or consider it necessary to gather -- at least four times a year -- to discuss matters of little if any importance to project execution. 21. The Jamaican experience, with the conspicuous absence of mutually acceptable terms of reference for the Committee, suggests that the Bank's insistence on the coordinating committee by introducing a special covenant to the Loan Agreement and by urging resumption of its activities during supervision mission (PCR, para. 3.34) was at least in this case satisfying some routine rather than actual need. If the requisite number of annual meetings mentioned in the appraisal report had been included in the Agreement, a breach of covenant would have had to be recorded, even though the curtail- ment of meetings did in no way impede project execution. 22. OED does not wish to convey the view that coordinating committees are necessarily ineffective. But it will use the project's own subsequent experience to indicate under which circumstances these committees can be successful. In August 1976 the same committee, which had not met since 1972, was called upon to prepare a proposal on simplifying and synchronizing agri- cultural credit procedures in Jamaica (PCR, para. 3.34). This task was requested by the Bank mission which appraised the third agricultural credit project. At this stage the Government and the members of the Coordination Committee could recognize the importance of jointly studying the problem and accepted the assignment and submitted a report now under review by the Jamaican Economic Council. The lesson one could learn is that Bank insistence on establishment of coordinating committees should be restricted to cases where precise tasks can be identified, and where the Government agrees on the priority or importance of these tasks. Detailed terms of reference need to be prepared and discussed at the time of appraisal and their acceptance by the borrower has to be assured. Vague ideas that a need for project coordination may evolve at one stage during project execution are inadequate to support a request for establishing these committees.  JAMAICA FIRST AGRICULTURAL CREDIT PROJECT LOAN 719-JM PROJECT COMPLETION REPORT Table of Contents Page No. I. Introduction .................................. . . . A 1 Background .. . . . . .. .. . . * * e............................... A 1 Agricultural Sector ...........9.............. A 1 Agricultural Credit .......... *e.............. A 2 Produc tio n .............oe 6 .... . .... . ............o A 2 The Project ......... A 3 Origin of the Project ............................... A 4 II. Preparation and Appraisal .........o.......o.......... A 5 Project Formulation .. . *. . . . . . . . . . . . .. . . e . . ................. . A 5 Targets and Goals oo............... ......... ...... A 6 Appraisal ............A.................. ........... A 9 Nego tia tionsa ........................................... o o 6a o o All Other Issues ............... ...............***....... A12 Board Presentation ........ ..... .... ... o..o. o..... . A12 III. Implementation .................... . .......0 ..... . Al3 Effectiveness and Start-up .......................... A13 Mid-course Revisions .......................... A14 Project Design o....................0............... A14 Reallocation of Funds ........................... A16 Postponement of Closing Date .....oeo............. A16 Reporting Requirements ........................... A16 Progress of Lending Activities ........................ A18 Loan Distribution Per Category .................. A18 Repeater Loans ................... . * . . * . . . . . e A19 Size of Subloans ....... ............... ............... A19 -2- Page No. Acreage and Location of Subborrower Farms ... ......................... A 19 On-farm Physical Progress ..... ..................... A 20 Acreage of Subproject Area ....................... A 20 Subproject Planning ......o ..... ................. A 20 Planted Area and Herd Development ................ A 21 Procurement ...... . ........................ ....... A 21 Costs and Disbursements ......... ............ A 21 Cost Per Type of Activity ....................... A 23 Investment Costs .............. .................. A 23 Maintenance Costs o.......................... A 24 Disbursement ....... * .............. ..... A 24 Covenants in the Loan Agreement ............... A 24 Financial Covenants ....... . ............... A 24 Implementation of the Project ................... A 24 Covenants in the Guarantee Agreement ................. A 25 Coordination Committee ................. ... A 25 Additional Slaughterhouse Facilities ............ A 25 IV. Institutional Development and Borrowers' Performance .. A 26 Extension Work ...... .. ....... ........ .............. A 26 Relation to Other Agricultural Credit Institutions .... A 26 Self-Supporting Farmers Development Program (SSFDP) ... A 27 Other Agricultural Lending Activities of JDB .......... A27 Future Development in Agricultural Credit ............. A28 Efficiency of Agricultural Department ............ A28 Quality of Preparation and Appraisal ............ A29 Costs of Loan Processing ......................... A29 Management Services to Subborrowers ................... A30 Operating Results of JDB .............................. A30 Loan Recovery ............ . 0. ..... ....... ......... . A33 Consultants ...................... ...... ...... A33 Accounting and Reporting ............................. A34 Training .............. . . . . . . . . . . ........... A35 -3- Page No. V. Agricultural and Social Impact ....................... A 35 Incremental Output ....*........................ A 35 Technological Changes ............... ....... A 36 Type of Farmer-Clients ...........................A 37 Employment ....................................... A 38 Part-Time Farming ......o. oo o ooooo......... A 38 VI. Rates of Return s..............e....................... A 38 VII. Special Issues .... ....... .......................... A 40 VIII. Changes in Repeater Projects ...o........... ...... A 40 IX. Bank Performance ...................... . . ... A 41 X. Conclusions . . . . . .. . . . . . . . . . . 6. . . . . .. . . .. .. .. . . . . A 43 Annexes 11 I Results of Farm Survey- 2 Jamaica Development Bank - Statement of Policyl 3 JDB Agricultural Lending Activities Outside Bank Projects 4 Citrus Intercrop Conditions/l 5 Statistical Performance Data Table 1 - Subloan Distribution Table 2 - Repeater Loans Table 3 - Maturity of Subloan and Project Development Table 4 - Size of Subloans and Projects Table 5 - Types of Farms Table 6 - Location of Farms/l Table 7 - Project Implementation Table 8 - Cost Data Table 9 - Farm Inputs Table 10 - Production Table 11 - Productivity and Quality Table 12 - Preparation/Supervision Effectiveness 6 Loan Status and Development 7 Table I - Arrears Distribution Table 2 - Aging of Arrears Table 3 - Arrears and Collections 1974-76 Table 4 - Relation of Loans in Arrears to Age of Loans at January 31, 1976 8 Planning of New Slaughterhouse Facilities 9 Economic Rate of Return Table 1 - Economic Rate of Return Table 2 - Production /1 Deleted from PCR for the Audit Memorandum by OED.  I. INTRODUCTION Background Agricultural Sector 1.01 During the period 1970-76 significant structural, institutional, and technological changes have occurred. The decline of the traditional estate production induced the Government to assume a more active role in agricultural developments. The Government emphasized the necessity of intensive land util- ization, which led ultimately to the establishment of Project Land Lease (PLL) in 1973, the initiation of Food Farm Project, operated by the Government, and the authorization in 1974 of the Land Utilization and Development Committee to lower the limit of property investigation from 100 to 50 acres. The Government followed initially a promotional role, which evolved into a pro- ducer's role in those cases where the response of the private sector lagged behind the planning or the expectation. In 1972 the Government took over the Frome Monymusk Estate, and the Agricultural Development Corporation (ADC), initiated to develop the livestock industry, developed into a state enterprise, in charge of the cultivation of rice and of several other crops and the management of the agricultural ventures taken over from the bauxite companies. Through various agencies the Government also initiated large-scale banana, citrus, and cocoa growing. 1.02 Since 1970 the Government has interfered more actively in wage and price-setting, and introduced various subsidy schemes for agriculture. A minimum wage was prescribed in 1975 at J$ 20/week, price guarantees established for bananas (1975) and sugar (1974); prices adjusted for milk (1973, 1975), coconuts (1974, 1975), and citrus (1975), and a Farm Price Board installed. After a price-raise in 1973 the control of beef prices was suspended in 1975. Subsidy schemes were initiated for corn and onion cultivation (1973), fertil- izers (1974), hillside farming (1974), land development (1974), and interest subsidies for sugarcane improvement (1974/75). The subsidies for coconut replanting were raised twice (1974,1976). 1.03 Besides these measures of direct intervention, the Government took several measures of institutional character to support the planned develop- ments, based on the results of the Agricultural Sector Study carried out in July-September, 1973. The reorganization of the Ministry of Agriculture was prepared in 1974 and initiated mid-1976. The Cornwall Dairy Development Program was established in December 1974. The administration of the SSFDP (Self-supporting Small Farmers Development Program) was transferred to the JDB (April 1974). Since March 1973 the Government has controlled the import of food, animal feed, breeding stocks, and agricultural equipment and chem- icals, and is therfore in the position to set the pace of development in various enterprises, expecially those of the pig and poultry industry. The Government also gives indirect subsidy to farmers by absorbing deficits of the commodity boards or by subsidies to government agencies. These indirect subsidies are of some consideration, such as J$ 9 million to the Banana Board - A 2 - and J$ 7-10 million for the Sugar Industry Authority (SIA) in 1976. The subsidies to other boards, however, were reduced in 1976, and are at present of no great significance. The ADC, on the other hand, received a support of J$ 1.1 million for rice production. Agricultural Credit 1.04 Various credit programs were developed since 1970 besides those of the JDB. A coffee replanting scheme, financed with the help of a Japanese coffee loan of US$1 million was initiated (September 1973). The Banana Board intensified its credit activities for banana development by giving interest- free loans for fertilizers, material purchases, and replanting. The total amount of credit was about J$ 2,500,000/year in 1975. The SIA administered two ad hoc loans: J$ 1.8 million for liquidity purposes (1971) and J$ 3 million for replanting (1972, 1973). The repayment of these loans together with proceeds of the sugar stabilization fund, should provide the funds for the revolving loans, which give the cane farmer credit for replanting. In 1974 the Price Stabilization Fund and the Production Incentive Loan Fund pro- vided debt-free cane-producing farmers with interest-free advances for fer- tilizer purchases, repayable annually. The Commodity Boards of other crops also provide credit facilities to purchase agricultural equipment and chemicals. The total volume of the loans outside the sugar industry is relatively small. 1.05 The Government established in 1974 a tax incentive by a 75% reduc tion of land assessment vallue for fully utilized lands. Furthermore, the Government tried to involve the private bank sector in agricultural lending activities by creating a Guarantee Development Loan of J$ 10 million (September 1974) and by amending the Farm Loan Act of 1965 (in December 1974), which gave the commercial banks additional government guarantees. The response of the private sector, however, has not been encouraging. Internally, the JDB decided to widen its scope of agricultural lending in order to explore (June 1972) new areas of demand and to establish a basis for future borrowing. JDB thus anticipated correctly forthcoming developments. In its lending operation the JDB did not feel a significant competition from other lending agencies. On the contrary, JDB's activities tended to absorb these operations. It also extended its activities to areas where commercial banks or other agencies already had a legitimate part to fulfill, such as sugarcane cultivation, agro-industry, transportation, custom services to farmers, and marketing A.clear demarcation between JDB's promotional role and the service role of the banking system is not yet clearly drawn. Production 1.06 In spite of Government efforts to boost agricultural production, especially of food crops, in order to reduce the ever-increasing costs of food imports, the production results were not spectacular, and in the export sector, the decline continued instead of being reversed. Sugar production fell from 868,000 m. tons in 1970 to 355,000 m. tons in 1976. The banana production remained rather stable, although the exports fell from 125,000 m. tons in 1971 to about 77,000 m. tons in 1976. Also citrus production decreased in this period, from 2.8 million boxes to 2 million, and the copra production - A 3 - was heavily affected by the lethal yellowing disease and fell from about 17,000 s. tons in 1971 to 6,000 s. tons in 1976. Food crop and vegetable production rose by about 10%. Exports of condiment, vegetables, and non- traditional tropical fruits are promoted but there are no spectacular developments. 1.07 In the livestock sector, milk and meat output rose only about 1% per year on the average. Jamaica produces at present 20% of its milk re- quirements and 60% of its requirements for beef consumption. Goat and sheep supply are difficult to estimate since many animals are slaughtered under the tree, but imports of goat and mutton remain at a high level, notwithstanding the increased efforts to establish a sheep and goat industry on the island. After a rapid expansion in the sixties with a yearly growth rate of about 30%, the broiler industry still showed a yearly increase of 13%. This industry is well organized and can stand on its own feet. The egg industry is growing again, after a major disease setback in 1972, but is still in its early stages of development to become a self-contained efficient industry. The Project 1.08 The first agricultural credit project provided funds for JDB's first major agricultural credit program to about 140 commercial farmers for the expansion of their farms by about 23,000 acres in total of additional cultiv- ated land, at an estimated project cost of US$7.9 million. The Bank partic- ipated in the financing of this program by making a loan to JDB of US$3.7 million, at an interest rate of 7-1/4%, for 16 years, including a grace period of five years. This loan (the seventh to Jamaica) was the first one for agri- culture to Jamaica and it came about as a result of an FAO/IBRD mission in 1969 to Jamaica to explore the country's need for financial assistance in that sector. The loan was signed December 28, 1970 and became effective June 1, 1971. Subloans under the project were fully committed beginning 1975 and funds were almost fully disbursed by June 30, 1976. For technical reasons, JDB cancelled about US$3,789.99 of the loan on October 24, 1976. Full disburse- ment occurred in mid-1976. 1.09 The project provided for the first time long-term credit to existing commercial farmers for the expansion of their farms, and to new farmers with viable projects of 100 acres or more. It was anticipated that 140 subloans of about J$ 45,700 (US$54,840) would be made, on the average, generating an incremental production value at full development of about J$ 3.5 million (US$4.2 million) per annum. 1.10 Subloans assisted farmers to finance on-farm investments and improve- ments, including land preparation, machinery, equipment, planting material, livestock, and other agricultural inputs. Land purchases were not eligible. Beneficiaries contributed 20% of the estimated investment costs, and subloans bearing a fixed interest rate of 8.75% per annum, and are repayable in 10 to 15 years, with a grace period of three to seven years, according to the type of enterprise. The JDB generally assisted in preparing the farm plans and charged applicants a 0.5% evaluation fee. Farm plans envisaged an implementa- tion period of about two years, and the JDB charged beneficiaries a 0.5% per - A 4 - annum commitment fee on undrawn balances. The foreign exchange risk of the subloans was assumed by the Ministry of Finance, which therefore charged JDB a 0.1% annual fee. 1.11 The Jamaica Development Bank (JDB) was to provide adequate extension services to JDB subborrowers and participatiag coconut and citrus growers, while the Government was to see that sufficient additional slaughterhouse facilities were available to process the incremental beef production. It was also to establish and maintain a committee, consisting of representatives of the Ministries of Finance, Agriculture, and JDB, to coordinate credit programs of ministries, agencies, and organizations. The project also provided for the employment of an agricultural economist and a livestock specialist, both inter- nationally recruited, to assist JDB in the organization of the agricultural projects department. 1.12 In the following chapters many comparisons will be made between appraisal expectations and actual results. It should be noted, however, that the project was appraised under special circumstances. It was the Bank's first project in the agricultural sector in Jamaica, and also the first in agricultural credit. JDB was a rather new institution, with almost no experience in development lending for agriculture. The appraisal mission, therefore, had to make its projections on a very slender basis of experience and it is even surprising that they came close to the final results in many cases. Where, however, actual experience turns out to be far different from expectations, we should not overvalue its significance but consider these differences to be an indicaton for the degree of change that occurred during the implementation period. 1.13 It was, again, because of the limited previous experience, and the fact that term lending in the sector was itself new, that the appraisal mission adopted a very cautious approach of restricting the project scope. It was necessary to build up an agricultural department, which would take time of course. In this situation it was understandable that new problems should emerge in an early stage of project implementation, requiring response from the Bank, which was indeed forthcoming. It was also recognized at an early stage that agricultural credit should reach all farmers in Jamaica, and the question of small farmer credit was discussed at great length with Government, which at that time was formulating its future policy in relation to the small farmer's role (para 1.15). Therefore the appraisal mission had to follow also in this respect a policy of caution and to give high priority to institution building within the JDB. Origin of the Prolect 1.14 The dialogue between the Government of Jamaica and the Bank on agri- cultural projects dates back to 1965, when a Bank reconnaissance mission iden- tified as possible areas of Bank lending the improvement of land use, agricul- tural marketing, a Government machinery pool, and credit to small farmers. Later, in March 1966, an FAO/IBRD identification mission determined that Jamaica had a number of possible projects that could be prepared by Government staff, at least to an interim stage, and made specific recommendations on land settlement projects. During 1968, however, the Government became interested in - A 5 - supervised credit aimed at stimulating farmers to bring unutilized lands under cultivation and to promote the production of food crops, which could substitute for imports. Subsequently, in May 1969, an FAO/IBRD-CP mission identified two supervised agricultural credit projects, one for small and one for medium and large farmers. 1.15 The Bank was from the outset willing to consider both for financing, but the Government decided to approach the IDB on the small farmers' credit project since lending from its Special Operations Fund was on conditions (2% interest and 35-year term) significantly more favorable than the Bank's (7-1/4% and 16 years). The Bank was instead requested (October 1969) to help finance credit to commercial farmers on commercial terms and conditions. In January/ February 1970, an FAO/IBRD mission visited Jamaica to assist in defining the scope, form, and size of such a project, and a Bank preappraisal mission visited almost simultaneously to appraise the credit institutions of the country. The mission indicated that JDB was a suitable borrower, and its report formed the basis of appraisal in June 1970. II. PREPARATION AND APPRAISAL Project Formulation 2.01 As originally conceived, the large farmer project was to provide credit to farmers for expansion of beef, dairy, coconut, citrus, and banana farms. Under the banana component, 2,500 acres of highly productive bananas were to be established, mainly to help solve the marketing crisis of that commodity. The appraisal mission was of the opinion that the problem re- quired, besides credit to farmers, structural changes in the banana industry itself rather than greater production capacity, so this category was removed (para 2.10). Actually, marketing in general was a major constraint on com- mercial development of various crops with growth potential, such as vegetables, tropical fruits, and other food crops, and in spite of strong Government pressures to include them, such crops were also dropped. Vegetables and food crops were not included in the Preparation Report, which formed the basis of the appraisal mission. 2.02 Since JDB was starting in long-term agricultural lending, project preparation had to rely on data sources outside JDB, mainly the Coconut Industry Board (CIB), the Jamaica Citrus Growers Association (CGA), and the Agricultural Development Corporation (ADC). In addition, the appraisal mission had close contact with prospective clients of JDB for agricultural subprojects. However, the lack of experience in this type of operation in Jamaica was reflected in the relatively wide divergence in evaluation of development potential. JDB staff were pessimistic on beef and dairy develop- ments and considered coconut expansion marginal and citrus development an even chance, while large farmers were pessimistic in regard to citrus developments and counted on Government subsidies to coconut replanting rather than on commercial financing of new developments. The mission concluded that the best prospects existed in the dairy industry and that the others--beef, coconut, - A 6 - citrus--would have a fair rate of return, provided that the farmers were really dedicated to agriculture and would provide adequate management. Targets and Goals 2.03 Institutional Targets. Credit, mostly short term from the commer- cial banks for agriculture, was provided mainly by the two largest banks (Bank of Nova Scotia Ltd. and Barclays Bank Ltd.) in Jamaica and consisted mostly of revolving overdraft lending to sugar companies and large estates for their seasonal requirements. Credit to small farmers had been provided by Govern- ment grants to the Agricultural Credit Board (ACB), which, in turn, lent to the People's Cooperative Banks (PCBs). The long-term credit needed for devel- opment, however, had been very restricted. Government, aware of this gap in the credit system, made development lending to commercial farmers one of JDB's main responsibilities and requested that the Bank loan be made to JDB. In view of JDB's new role in agricultural lending, the strengthening of top management and the organization of an agricultural credit section in JDB thus became project targets and a condition of loan effectiveness was the appoint- ment of a deputy general manager and an agricultural economist and a livestock specialist--both internationally recruited--(paras 3.03 and 8.02 of the Loan Agreement). During appraisal, substantial agreement was reached on the statement of policies that set forth regulations and appraisal and supervision procedures, and inserted it in the Loan Agreement (Section 3.01) as the basis of conduct in its operations. The head of the Agricultural Credit Section, subsequently named the Agricultural Projects Department of the JDB, was also appointed during appraisal. 2.04 In order to ensure proper coordination between the various agricul- tural credit programs of the ministries, agencies, and organizations, the Government agreed to establish a coordinating committee consisting of the permanent secretary of the Ministry of Agriculture and Fisheries (MOA) and senior officials of the Ministries of Finance and Planning (MOF), Ministry of Rural Land Development (MORD) and JDB. The Committee's terms of reference called for it to review at least quarterly the Government programs for agri- culture to ensure that any program of agricultural credit was properly coor- dinated within the context of Government policies (para 3.03 of the Guarantee Agreement). 2.05 Development Targets. The development targets were mainly expressed in area cultivated, value of incremental production, incremental herd, and number of farms. The employment factor was considered to be unmeasurable and, consequently, only permanent employment as derived from the farm models was given. The mission did not foresee the introduction of improved cultivation techniques and therefore based its estimates on obtainable yield averages, which were generally accepted in Jamaica in that period. Overall project targets were: - A 7- Extension of cultivated area 23,150 acres Value of incremental production J$ 3.5 million Incremental herd 26,000 A.U. Number of farms 140 farms Increase in permanent employed labor in agriculture, about 1,000 laborers Full development to be achieved in about 10 years A breakdown of categories is as follows: -A 8 - JAMAICA Completion Report First Agricultural Credit Project (Loan 719-JM) Development Targets Area (acres) Total /1 Beef Dairy Cocos Citrus Total area cultivated land or improved grassland (1969) 332,000 250,000 /2 60,000 /2 95,000 /3 27,000 Extension under project 23,150 13,500 1,650 5,000 3,000 Extension as % of total 7.0 5.4 2.7 5.0 11.1 Production (annual) Average national production 14,500 s. 10 million 17,000 s. 3 million 1965-70 J$ 16.4 m /4 tons beef /5 imp.galmilk tons copra boxes Incremental production from 1,000 s. 600,000 " 5,500 " 1.3 project J$ 3.5 m tons beef Incremental production as % of national production 21 7 6 32 42 Number of Farms/Herd Total existing herd 350,000 290,000 60,000 - - Existing small farms /6 n.a. 36,300 n.a. 7,500 n.a. medium farms 3,200 1,700 200 900 400 /7 Total existing farms n.a. 38,000 n.a. 8,400 /8 20,000 79 Number of farms assisted under project 140 45 15 50 30 Incremental herd /10 26,000 23,950 2,050 - - Project farms as Y of existing large farms 4.4 2.7 5.5 5.5 7.5 Incremental herd as % of total herd 7.4 8.3 3.4 - - Employment /11 Number of labor permanently employed n.a. n.a. n.a. n.a. 3,000 /7 Seasonal peak employment 5,000 77 Employment increase under project /12 1,010 180 90 380 360 Yields Acre yields at full development - 250 lb 2,700 liter 6,000 nuts 300/550 boxes /13 Year of full development 2 2 8 10 /1 Total of 4 categories under the project. 72 Estimate based on stocking rate 1 AU/a for dairy, and 0.6 AU/a for beef. 7-3 Planted for copra production. 7 Estimate. Total livestock production value estimated at 3$ 19.1 million Dept. of Stat. 7T Carcass. 7 Under 25 acres. 77 Estimate based on 2% of total. 7 1972 estimate. 7 Members of Citrus Growers Association. 710 Derived from models expressed in AU 711 Appraisal mission considered it unmeasurable. 712 Permanent employment (basic wage J$ 2/day. 7F3 300 for oranges, 550 for grapefruit. - A 9 - 2.06 Targets for Subloans. In view of the comparatively high costs of agricultural lending, JDB decided to set a minimum of J$ 20,000 (US$24,000) on individual subloans, small borrowers at that time being catered for by the ACB, which had an upper limit of J$ 20,000. It was also agreed that applica- tions for subloans exceeding US$100,000 equivalent would be sent to the Bank for its prior approval. Appraisal 2.07 Sector Setting. Since there was no national, comprehensive agri- cultural development plan to serve as an overall framework for the credit project, the mission studied the separate rehabilitation or expansion plans of various types of enterprises and then limited the project categories to those crops or industries whose development could be furthered by long-term credit alone (para 2.01). The categories included had a growth potential: beef and dairy enterprises were to be expanded to substitute imports, coconut subprojects aimed to accelerate replanting with the disease-resistant Malayan Dwarf variety, and citrus planting were promoted to boost export and to im- prove the supplying to the canning and juice factories. 2.08 The issues raised and discussed during appraisal related to three main areas: the organization of JDB, subloan conditions, and the categories of lending operations. The appraisal mission paid much attention to the over- all management of JDB, since the loan portfolio, taken over from its pre- decessor, the Jamaica Development Finance Corporation (JDFC), contained three high-risk loans (amounting to US$492,000) and investments in two subsidiary companies, Jamaica Ceramics and the Hotel Corporation of Jamaica Ltd., which were unprofitable. Given this situation, and the need to man a new section in JDB's organization for its agricultural credit project, the appraisal mission sought to strengthen top management to formalize lending policies and reduce the risks. The Bank sought to include in the loan agreement a condi- tion that the Bank would approve key-personnel functions, but this was un- acceptable to JDB since it was taken to be an infringement of its independent status. The final decisions were then postponed until negotiations. 2.09 The on-lending rate, the foreign exchange risks, the subborrowers' capital share, the subsidization of farmers, and the lack of coordination between lending agencies were extensively discussed during appraisal (see para 3.34). The citrus growers in particular strongly opposed a lending rate of 8% to subborrowers in the belief that the citrus enterprise could not bear such a financial burden. In general, JDB feared that a high on-lending rate would jeopardize or at least slow down the whole project. However, preliminary calculations, based on data submitted by its own growers' association, indi- cated an adequate financial rate of return (18%) for a 100-acre citrus farm expansion. 1/ Also in the light of the existing portfolio risks and the contested level of profitability:of project subloans, it was felt that JDB could not assume an addititional foreign exchange risk by borrowing from the 1/ Actually the on-lending rate did not prove an obstacle during implemen- tation (see also Annex 7, IV). - A 10 - Bank in US dollar equivalents and on-lending in Jamaican dollars. Therefore, in spite of its view that the JDB should be a self-sustaining agency, Govern- ment agreed to take over the foreign exchange risk, charging JDB a 0.1%/annum fee. This agreement was reached on the assumption that JDB would create its own reserves for future borrowing operations. 2.10 The subloans were basically projected for existing commercial enter- prises, which were supposed to be in the position to raise part of the neces- sary funds to expand their farms. Therefore, the subborrowers' own participa- tion of 20% in the subproject costs did not become an issue at that point. Another matter was the existing Government subsidy and grants for replanting coconuts, which would exclude supplemental lending, refinanced by the Bank. The mission expressed its strong reservations about financing coconuts under the project, but, in the end, it was persuaded to include this category, providing that subloans would be used exclusively for expansion of coconut plantings which were not eligible for subsidy under the Government replanting scheme. 2.11 The Government sought to include all enterprises in need of devel- opment or redevelopment, or with growth potential, but the appraisal mission excluded those that would require structural changes as a prerequisite for effective credit operations, such as sugar and banana, to be financed under separate projects, and vegetables and food crops, which had marketing con- straints. Furthermore, the appraisal mission wished to limit the number of lending categories because of JDB's total lack of lending experience in the agricultural sector. The Government also proposed that development of the small livestock industry be financed. The pig industry was already being assisted by the IDB, and the mission felt that the structure of the poultry industry was too incipient. Other technical issues raised were the avail- ability of planting materials and breeding stock, inadequate slaughterhouse facilities, and the quality of pastureland management. The project also required additional breeding stock and in-calf heifers. Jamaica had a surplus of bulls but heifers were not generally available, expecially dairy heifers. Government did not discourage the import of cattle, but the price of imported heifers was considerably higher than that of local animals (J$ 430 against J$ 120). The appraisal mission had reservations as to large-scale imports, but considered in the project cost estimates the possible importation of 500 heifers. In regard to the availability of citrus and coconut planting material, it was assumed that there was probably enough at the time of apprais- al but that supplies might fall short in the future when development of such crops gained momentum (Chapter 5). Similarly, the slaughterhouse facilities did not pose an immediate problem, but would once the beef industry developed (para 3.35). Also, the fact that most slaughter cattle was grassfed led to the fear that grassland production might also become a problem (para 5.06). 2.12 The total value of agricultural production in 1970 (according to the Department of Statistics) was J$ 78.8 million, with annual incremental produc- tion representing about 4.5%. Incremental production of the enterprises con- templated under the project was expected to be about 21% of the national production. This was to be generated by a 7% increase of the area already - A 11 - cultivated under similar farming systems, while only 4.4% of the existing commercial farms were expected to benefit, which reflects the difference in productivity between medium and large commercial farms and the great number of small farmers. Many of those registered in the census of 1968/69 or at the commodity boards as beef, dairy, coconut, or citrus farmers did not in fact dedicate their energy primarily to these enterprises (paras 2.05 and 2.18). 2.13 Coordination between the ministries, Government departments, industry boards and associations, the ACB and JDB was deficient in spite of the work of the Coordinating Committee that was assigned to review at least quarterly the coordination between ongoing agricultural development and credit programs. The appraisal mission also experienced difficulties in promoting more cooperation between the various agencies in credit matters and technical matters, so the Bank included in the Loan Agreement (Section 3.05) the condi- tion that the JDB make proper arrangements for technical assistance with the Government and the CIB and CGA and in the Guarantee Agreement (Section 3.03) the condition that the Government establish and maintain an efficient Coor- dinating Committee for the agricultural credit and development programs. Negotiations 2.14 The problem areas identified during appraisal were again reviewed during negotiations. JDB agreed to nominate a deputy general manager to strengthen and to provide continuity in top management, and the Bank agreed that JDB would "consult" the Bank instead of seek its approval in future appointments of the head of the Agricultural Credit Section 1/ (Section 3.02 of the Loan Agreement). The JDB also stated that it would be more cautious in its lending policies and would improve the quality of its portfolio. The composition of the portfolio was not quantified nor were target levels of profitability established, but it was agreed that JDB would reduce its risks in both wholly owned subsidiaries, Jamaica Ceramics and the Hotel Corporation of Jamaica Ltd., that the portfolio of agricultural lending would increase, and that accounting procedures and performance would improve. In summary, these objectives were formulated in general terms in the "Statement of Policy," agreed upon during negotiations (copy is attached as Annex 2) and recorded in para 1.02(b) of the Loan Agreement. 2.15 The on-lending rate was set at 8-3/4% after lengthy deliberation. Also, the minimum for an individual agricultural loan was placed at J$ 20,000, double the loan floor for other JDB loans, the rationale for the higher floor being the policy of lending to commercial farmers, who had their own resources and were already cultivating farms. The underlying assumption was that these enterprises were intrinsically profitable, otherwise expansion would not be sought. The project was also deliberately designed to serve the larger com- mercial farmers, while credit for small farmers would be financed under an IDB project. The forthcoming IDB loan was considered to be a complementary 1/ Later renamed Manager of the Agricultural Projects Department. - A 12 - operation. In order to establish a clear distinction between the two proj- ects, it was agreed to set a minimum of J$ 20,000 for JDB loans, which was also the upper limit of ACB loans to small farmers. After organization of the agricultural section of JDB and reorganization of the People's Cooperative Banks (PCBs), the question of small-farmers credit could be reviewed with Bank's assistance, if requested. The first agricultural credit loan was open-ended. 2.16 Future developments in agricultural lending were discussed and the importance of the effective functioning of a coordination committee was parti- cularly stressed (para 3.34). Also, the subsidization of coconuts was again discussed and assurance was obtained that the project would finance only expan- sion of existing coconut plantings (para 5.03). Other Issues 2.17 The type of farmer and the type cf farming system, both emerging as important factors in future years, were not issues during appraisal of the first project (or even the second). It was almost a foregone conclusion that agricultural production increases should be accomplished by expanding existing farms. Preventing speculative land purchases or coverup enterprises was an issue, and the mission hoped to prevent such activities by focusing on existing farmers, who had agricultural experience and supposedly were seriously motiv- ated to expand agriculture while expanding their farms. 2.18 At the time of appraisal, agricultural production was still very much compartmentalized in estate-type operations and subsistence farming. The medium-sized farmer with a mixed farming system hardly existed, and Government had not yet emerged as the major landowner and agricultural employer. Conse- quently, the main agricultural producer who could rapidly expand production was the estate owner, the so-called "commercial farmer," or "large farmer" (paras 2.19 and 9.06). It was tacitly understood by all concerned that the beneficiary of this project would be an "individual" practicing commercial agriculture. Board Presentation 2.19 The discussions during Board presentation centered mainly on the need of a balanced approach in the Bank's lending for agricultural credit projects in Jamaica. It was recognized that the proposed project would serve a definite and restricted section of Jamaica's agriculture, and the opinion was expressed that in order to achieve balanced agricultural development, additional action would be required for small farmer credit and for major crops not included in this project. In this respect, the IDB projects for small farmers and small livestock farms were complementary to and essential for the Bank project. It was, however, clearly understood that if the IDB had not undertaken to finance a small farmers' credit project, the Bank would have been willing to consider it. In the matter of crops, certain ones were excluded from the lending categories in the belief that the Government would actively pursue separate projects in which they would be encouraged. - A 13 - 2.20 The diffusion of project benefits through the economy was discussed in the light of the growing desire to see that the Bank's assistance went to the poorer levels and the small farmers. In this respect, there was a notic- able need for further information about employment opportunities likely to be created by the project and the financing requirements of small farmers. III. IMPLEMENTATION Effectiveness and Start-up 3.01 The date of effectiveness was extended from April 1 to June 1, 1971, due to the late appointment by JDB of an agricultural economist. The first candidate for this post withdrew unexpectedly and JDB had to look for another one. The start-up of the program was rather slow for several reasons. The Agricultural Department operated initially with a skeleton staff and many problems had to be overcome to comply with subloan requirements. Also, farmers were reluctant to borrow at the relatively high costs or to accept the unaccustomed discipline imposed by a project loan. Furthermore, few investment incentives existed at that time and new farmers were discouraged by the 20% farmers' contribution and the fact that land acquisition was not financed under the project. Potential clientele being unattracted, JDB had to organize first an intensive promotional campaign. Only after the agricul- tural economist and livestock specialist (Section 3.03 of the Loan Agreement) had assumed their duties in August 1971, could JDB organize various seminars with citrus, coconut growers and livestock farmers in different regions of the island to explain the scope and procedures of the project. In spite of this experience of JDB, the farmers report in the farm survey that their first contact with the program was made via the news media and not by JDB (see Annex 7.1). 3.02 Initially, JDB clients complained about the heavy charges payable to lawyers for required legal documentation and JDB's insistence that a Registered Title be presented as security instead of a Common Law Title, which is sufficient for most other banks. These factors delayed disbursement and discouraged several prospective clients. Also, there was competition from commercial banks at first, but JDB loans had some substantial advantages such as longer terms, larger amounts, grace periods, and possibilities of land financing out of JDB local funds. The interest of the farmer community in JDB loans also increased considerably when the commercial interest rate rose above the 8% level. 3.03 The measures to provide investment incentives enacted by the Govern- ment before 1972 had little effect because no regulations were established to implement them. Investors therefore assumed a waiting attitude and only after tax exemptions and other measures were regulated and some controlled product prices were adjusted to a more realistic level did the number of loan applica- tions increase. - A 14 - Mid-course Revisions 3.04 Project Design. During the first year of implementation, JDB raised various questions, some new and some already discused during project prepara- tion and appraisal: (a) financing of land acquisition; (b) financing of capital investment costs to improve existing farm operations; (c) provision of working capital; (d) financing of new categories; (e) granting a grace period for interest; (f) clarification of costs eligible for project financing; (g) the borrowers' contribution to the subprojects; and (h) intercropping of citrus plantings. 3.05 Apart from the Bank's policy of generally not financing land acqui- sition, this project was designed to expand agriculture on available but unutilized lands of existing farms. Further, the land distribution in Jamaica was already considered to be skewed and providing loan facilities to commer- cial farmers for land acquisition would only have made it more uneven. The Bank would therefore not agree to finance land acquisition. Subsequently, JDB decided in June 1972 to provide to new entrants in agriculture, funds out of local currency resources for such acquisitions where they formed a small but integral part of a development program. This increased farmers' interest in JDB's programs (Annex 3). The Bank maintained also its position of not financing other categories until sufficient experience had been obtained in long-term agricultural lending and it could only lend for capital investment costs of existing farm operations that were part of an overall farm-expansion and development plan. JDB therefore also decided in June 1972 to finance, out of local currency resources, agricultural enterprises and projects other than those approved under the project. In the matter of working capital, both JDB and the Bank declined to provide such financing and this policy was followed except in exceptional hardship cases. At that point in time ample short-term financing from the local commercial banks was considered to be available. Since loan beneficiaries were to be farmers wishing to expand existing farms and therefore had mostly substantial existing incomes the Bank considered grace period for interest unjustified. 3.06 The farmers, reacting to the JDB's promotion efforts, were of the opinion that their stake in a subproject should encompass their investment in the purchase of land and other developments already made on the farm, and that, - A 15 - consequently, the additional margin money of 20% should not be insisted upon. JDB took these matters up with the Bank, suggesting that the 20% subborrowers' contribution should be reduced or that other alleviating measures should be taken, such as financing land purchases or allowing a grace period for inter- ests. The latter ideas had already been rejected by the Bank, and, besides, the Bank felt that 20% was not too high for borrowers whose projects often extended 200 to 300 acres and disposed of other financial resources or income (para 5.11, Annex 1). The Bank did, however, agree to include as borrowers contribution certain expenditures incurred from his own resources for purposes connected with the project. 3.07 Specifically, JDB was allowed (June 1972) to include in project costs: (a) investment expenditures undertaken by the subborrower from his own resources in the 12 months preceding the loan; (b) expenses on management and supervision during the unproductive period of the project or the nonbearing period of the crop; (c) incremental operating expenses arising from the project, if the cash flow showed a negative balance; and (d) the subborrower's outlay in related activities such as poultry and small livestock, provided it did not exceed 20% of the project cost after it is included. This formula worked well during the commitment period of the first project. 3.08 Citrus growers continuously looked for ways to strengthen their enterprises. Purestand citrus was envisaged in the appraisal model and JDB adhered to it. However, in June 1972, the Bank agreed to intercropping in citrus, provided that it would not affect the main citrus crop adversely. The Bank's conditions of accepting citrus intercropping were specified in detail as shown in Annex 4. 3.09 The inflation rate since project effectiveness has been: 1971 5.0% 1972 5.4% 1973 17.6% 1974 27.2% 1975 17.4% 1976 12.5% - A 16 - This has affected project costs significantly, since the greatest part of project implementation was realized in the period 1973-76. The inflation is reflected in the considerable increase in the cost of farm inputs (see com- parative list in Annex 5, Table 9): wages increased by about 150%, chemicals from 100 to 200%, machinery about 100%, and planting materials by 30 to luul. 3.10 Reallocation of Funds. Right from the beginning, JDB told the Bank that the allocation of funds was not in line with demand. However, in 1972, the Bank felt that it was too early to reallocate funds and wished to wait until the lending trend became more apparent. When the Jamaican dollar was devaluated from US$1.20 to US$1.10 in January 1973, the total amount of allocations in J dollars therefore increased. As of July 1973, the total allocation for beef and dairy had been committed, while those for citrus and coconut lagged behind. On the basis of intervening developments since the time of appraisal the Bank agreed to reallocate the loan funds accordingly. A further delay of reallocation could also cause an unnecessary delay in the lending program. On the same grounds, the Bank agreed to another reallocat- tion in December 1973 (see table on next page). It should be noted that during appraisal JDB's staff argued strongly for a very small component for dairy and beef lending versus a large component for citrus and coconut. The financing requirements for livestock in the Appraisal Report were the maximum that the mission could convince JDB at that time to allocate. 3.11 Postponement of Closing Date. At the original closing date of December 31, 1974, 69% of the loan had been disbursed. JDB had approved sub- loans in excess of the allocations, but the commitment rate remained low, and only 63% (J$ 3.5 million) had been disbursed. Consequently, the closing date was postponed until June 30, 1976. For detailed approval and disbursement data, see Annex 6. 3.12 Reporting Requirements. The JDB quarterly project progress reports to the Bank were produced on time and according to the agreed format. However, the contents of reports over the years became more and more statistical, with- out comment on important developments and failing to include important new chapters as they became appropriate such as status of loan recovery and on- farm results. 3.13 The loan status of the project was reported to the Bank in a separate set of forms prepared by the loan administration department. These forms relate disbursements and arrears in total amounts and in numbers, specified as to loan category. The Bank asked originally for a breakdown of arrears of up to six months, six to 12 months, 12 to 24 months, 24 to 30 months, and over 30 months, which created administrative problems for JDB, inter alia because they reported to IDB a breakdown of under 60 days, 60 to 180 days, 180+ days. At the request of JDB, the Bank accepted at the end of 1971 the following change: under 30 days, 30 to 60 days, 60 to 90 days, and 90+ days, with the provision that whenever there were overdues for over 90 days, a further breakdown would be given, as in the original form. Apparently it was assumed that arrears would not initially create a major problem. In reality, however, overdues of over 90 days were recorded at an early stage (end 1972) and continued to increase steadily. Neither JDB nor the Bank took steps to - A 17 - Allocation of Loan Funds Loan 719-JM (US$ million) Category At Appraisal June 1973 December 1973 Beef 1.10 1.50 1.60 Dairy 0.50 0.60 0.75 Citrus 0.70 0.70 0.70 Coconut 1.20 0.70 0.45 Subtotal 3.50 3.50 3.50 Technical Assistance 0.20 0.20 0.20 Total 3.70 3.70 3.70 Allocations for Subloans Loan 719-JM (J$ million) Beef 1.70 2.39 2.54 Dairy 0.60 0.95 1.20 Citrus 1.00 1.12 1.12 Coconut 1.80 1.12 0.72 Total 5.10 5.58 5.58 - A 18 - change the reporting format, but during negotiations of the proposed third agricultural credit loan in November 1976, it was mutually agreed that a change was needed. Now, with its computerized accounting system JDB can easily report a breakdown per category by the month up to six months, which providcz sufficient data to analyze the arrears situation meaningfully (Annex 7). Progress of Lending Activities 3.14 Lending operations started in June 1971, a half year late, and went slowly at first but picked up in 1973. By the end of 1974 JDB had overshot the market by about 20% in order to secure a full commitment by early 1975, which was in fact achieved. The loan was fully disbursed in June 1976 (for details, see Annex 6). Loan conditions did not post a major problem in the lending activities with the favorable grace period and long-term repayment conditions proving to be very attractive. The major complaints on the program centered on loan processing, disbursement, and expertise (Annex 1). It should be noted here that in the initial stages of this first project a wide gap existed be- tween the time of subloan approval by the JDB Board and the execution of legal documents, and also between the latter stage and first disbursement. These gaps caused the high average of 5 months between commitment and first dis- bursements (there were many cases of more than one year). The legal depart- ment of JDB worked on this problem and succeeded in reducing those delays involved in the process of securing the title as collateral for its loans. JDB staff also gradually learned to take such precautionary steps during subloan preparation in order to minimize the total loan processing period, and JDB established tight commitment charges in order to penalize clients for whom loans had been approved, but who did not draw for a long time. 3.15 Loan distribution did not follow the expected pattern (para 3.10 and Annex 5, Table 1). The appraisal mission expected the best results from dairy farming and was most concerned about citrus growing. Dairy loans indeed exceeded expectations but citrus remained at the estimated level, due more to the possibility of banana intercropping than the bright citrus prospects. Coconut loans remained far behind, since the increasing virulency of the lethal yellowing disease discouraged many a farmer, making the profitability of a new coconut plantation most questionable. The idea of bridging the long, immature, nonproductive period in tree crops by banana intercropping presented itself only in 1975. Beef subloans surpassed the appraisal estimates as a result of three big subloans to two livestock farmers and the Agricultural Development Corporation (totaling J$ 637,000). The percentage distribution was ultimately as shown below. Percentage of Funds Lent to Farmers Loan 719-JM (IBRD I Program) Appraisal Estimate Category December 1970 Actual June 1976 Beef 33.3 46.5 Dairy 11.8 22.4 Citrus 19.6 17.5 Coconut 35.3 13.6 Total 100.0 100.0 - A 19 - In many cases citrus and coconut were financed simultaneously by the same subloan with a substantial part invested in banana as the intercrop. Conse- quently, some subloans had more characteristics of banana subloans than tree crop subloans, with the additional advantage of liberal grace and maturity periods. 3.16 Repeater Loans. Some repeater subloans were given, mainly to ex- tend original subprojects. Only two were used for completion of the original subproject. Most were financed by funds from the Bank's Loan 1004-JM and Local Loan Funds. There is no specific pattern except that they were given mostly to subborrowers with larger farms and to the Livestock Development Corporation, a subsidiary of the Agricultural Development Corporation, which is a fully state-owned enterprise. The latter took four subloans before the Bank called JDB's attention (1974) to the fact that, while not totally ruling out such financing, Loan 719-JM was not intended to meet the credit needs of the public sector enterprises (for details, see Annex 5, Table 2). 3.17 Subloans were limited to a maximum period. Each category in Schedule IV of the Loan Agreement had a specific period for subloan maturity, and JDB remained well within these limits. The grace period granted to the farmers for tree crops was far shorter than envisaged at appraisal and the total maturity period remained two to three years below the allowed limit. This fact reflects optimistic appraisals by JDB of the subprojects, which were not justified afterwards. The implementation period was often extended on such subloans and, while the latest estimate of the full development period is for a longer period (Annex 5, Table 3), even these figures, derived from the JDB survey, remain, in the Bank's opinion, optimistic, especially in the light of the shortcomings of management, the repeated droughts, and the actual diffi- cult economic situation in Jamaica. This experience should in the future induce JDB to apply more conservative development periods in project planning. 3.18 Size of Subloans. The average subloan was J$ 53,630, compared with the appraisal estimate of J$ 36,430, which is quite acceptable, taking into account an inflation rate between 1971 and 1974 of about 60%. The loans, however, were spread over a wide range of subloan amounts, ranging from J$ 7,000 to J$ 285,000. Although small subloans were given to some commercial farmers, JDB generally observed the policy of maintaining a subloan floor of J$ 20,000. The big subloans went mostly to cattle ranchers and the smaller ones to the dairy industry. For details see Annex 5, Table 4. The wish to reach smaller farmers and the experience gained under the first project were reasons for the Bank to require that a certain percentage (33-1/3%) of sub- loans of not more than J$ 35,000 be made. In practice, however, there is no relationship between the size of the subloan and the size of the farm or economic strength of the farmer (Annex 5, Table 4). 3.19 Acreage and Location of Subborrower Farms. At appraisal it was estimated that most farms of prospective clients would be over 100 acres, but in fact, only 57% were (Annex 5, Table 4). There were many new farmers, who had to buy new land for their enterprises, sometimes borrowed heavily, sup- ported by JDB, which financed their land purchases out of local funds. The distribution of the farms over the island (Annex 5, Table 6) shows a heavy - A 20 - concentration (51%) in the main and traditional agricultural areas of Jamaica, St. Mary for citrus and coconut, and the St. Catherine, Clarendon plains for livestock, and despite JDB efforts to spread its activities island-wide, 51% of all its agricultural lending still remains in these traditional areas. On-farm Physical Progress 3.20 Acreage of Subproject Area. During appraisal, it was assumed that the loan would help existing enterprises extend their farms by 50 to 300 acres. However, due to implementation problems and a shift to more new farmers, the average subproject area was often smaller and the area planted less than projected, as shown below (Annex 5, Table 5). At Appraisal At Appraisal of Loan 719-JM of Subprolect Implemented Beef 300 270 150 Dairy 110 160 150 Citrus 100 80 50 Coconut 100 200 200 (For details, see Annex 5, Table 4.) The demand for smaller subprojects increased during implementation, possibly due to the activities of the Land Development and Utilization Committee, which was empowered to investigate all properties over 100 acres. When this limit was lowered to 50 acres in 1975, a farmer response was seen during implemen- tation of the second project (Loan 1004-JM), when the average subproject area was also reduced. 3.21 Subprolect Planning. Crop subprojects developed generally according to plan but those for livestock took, on average, a half year longer than expected (Annex 5, Table 3, 6, and 7). Allocation of funds also deviated con- siderably from appraisal estimates. In general, subborrowers invested more in land, machinery, and livestock, and less in crop or pasture development and maintenance than expected. 3.22 Citrus presents a case in itself. From the outset, citrus farmers were concerned about the profitability of citrus under prevailing circum- stances. When the price paid to banana growers rose from 2J to 6J in 1974/75, farmers reacted quickly by intercropping their orchards with bananas wherever possible. Even the citrus subsidies established for the 1975/76 crop could not stop this trend and, consequently, most citrus plantings can hardly de- velop amidst the bananas. As a result, these plantings will never be high producers and, in this respect, JDB did not comply with the Bank's require- ments (para 3.08 and Annex 4). JDB argued, however, that it could and would not try to dissuade farmers from seeking short-term improvement of their financial position, even at the expense of future farm developments. Under these circumstances, JDB should have tried to reformulate the project plans, if appropriate, but at least it should have reappraised the subloans involved. - A 21 - 3.23 Planted Area and Herd Development. Due to the reallocation of funds and the change in farm size distribution, the total extension planted under this project was about 15,000 acres instead of 23,150 acres as projected during appraisal. Also, the total number of cattle will be about 16,000 A.U., compared to an estimated 26,000 A.U. (Annex 5, Table 7). These are tentative figures, derived from appraisal model calculations and a 1976 farm survey, because no estimate is given in the Bank's appraisal report, and neither project plan- ning nor loan recordings quantify the herd increase. Admittedly, it is difficult to do but JDB should monitor this important indicator. JDB could also be instrumental in standardizing the system of expressing the total cattle herd increase for Jamaican circumstances, especially in the light of its substantial involvement in the cattle and dairy industry and later in poultry and small livestock. 3.24 At the beef and dairy farms there was also a shift from rainfed to irrigated enterprises, which meant that considerably greater amounts were in- vested in irrigation machinery and equipment. Procurement 3.25 Procurement was to be and has been through normal commercial chan- nels. In the case of cattle, since it was expected that probably not all the heifers required (1,000) would be readily available locally, provision was made to permit importations (para 2.10). However, the program relied on local purchases and the heavy emphasis on beef projects (50% above project planning) caused the demand for cattle to increase more rapidly than the supply, which pushed cattle prices about 60% above the appraisal estimate (Annex 5, Table 9). A similar thing happened with planting material, but neither situation posed a major problem or constraint to implementation. In some cases, however, plans were changed (paras 5.03 and 5.04). Costs and Disbursements 3.26 The average subloan was 47% above the Bank's appraisal estimate and the average subproject cost was 89% above estimate, mainly because of the in- clusion of land purchases. However, even if these are excluded, costs are still about 60% above the Bank's appraisal. The real costs are difficult to assess since very little has been accurately recorded on the farms, but, based on the best estimates, there is an average cost overrun of 15%, compared to the JDB subproject appraisal, with the highest in the beef industry (22%). Overruns in the other categories are acceptable. A breakdown per category is given below (see also Annex 5, Tables 1 and 4): - A 22 - Subloans and Prolect Costs Total Beef Dairy Citrus Coconut ---------------Js '000--------------- Costs Estimated at Bank Appraisal (Loan 719-JM) Average project costs 45.7 46.7 53.3 43.3 44.0 Average subloan 36.4 37.8 40.0 33.3 36.0 Subloan costs in % of project costs 80 81 75 77 82 Costs Estimated by JDB at the time of Appraisal of Subloans Average project costs 101.4 93.6 67.3 93.9 170.6 Average subloan 53.6 62.7 45.0 42.4 63.8 Subloan costs in % of project costs 53 67 67 45 37 Estimated project costs, Al excluding costs of purchase of land 85.7 88.0 60.5 77.9 116.0 Subloan costs in % of project costs without costs of land purchase 62 71 74 54 55 Actual Estimated development costs of subprojects (rounded off) J$ '000 98 107 65 89 120 Estimated overrun A1 of costs, as estimated by JDB: in % of net development costs 15 22 7 11 3 in J$ '000 13.0 19.0 5.5 11.0 3.5 /l Bank estimate based on figures of sample survey of farms. This overrun was no cause for additional Bank financing because the number of subloans was reduced proportionally from 140 to 113. The reason for the over- run lies mainly in price inflation, which was about 60% in the 1971-74 period, and the inclusion of more machinery and housing in the subproject plans than planned. The Bank realized that to maintain the momentum gained under the first project, additional funds would be required, and in 1974 it appraised a - A 23 - second agricultural credit project. This project proposed a bigger loan, US$5.5 million (versus US$3.7 million under the first project), but envisaged an equal average subloan of about US$36,000 since this project specifically focused on the medium-sized farm. For a breakdown of costs, see Annex 5,. Table 7. Cost per Type of Activity 3.27 After full commitment of the loan, JDB estimated investment items in comparison with the appraisal as follows: Appraisal Appraisal Estimate Estimate Subprojects Loan 719-JM 1974 1971 (%) (%) Land preparation, farm road construction, pastures 13.1 25.0 Crop establishment 21.3 - Fertilizer, pesticides, weed control - 12.8 Livestock and planting material 26.5 11.4 Fencing, corrals, water supply, storage, feed, veterinary (?) housing 14.6 22.5 Farm machinery and equipment 15.5 13.3 Machinery, operating costs, contracted labor 0.5 15.0 Legal 0.5 - Total 100.0 100.0 Crop establishment includes the costs of some land preparation and fertilizer, pesticides, and weed control. The legal and other loan costs were, in prac- tice, about 4.5% of the average subloan. This was an unexpected development for JDB and a cause for criticism by the subborrowers. In Annex 5, Table 7, another breakdown is given, including the costs of land acquisition. The specification on this page refers to the IBRD/JDB part of the loan. In the annex, the total loan, including the part financed out of local funds, is con- sidered, but total project costs, including the subborrowers' contribution, were to be analyzed, one would obtain again other figures. In any case, figures indicate that considerably more than expected was invested in land, machinery, and cattle. These data demonstrate the difficulty in obtaining meaningful comparable figures without proper farm records and administrative arrangements. 3.28 Investment costs per acre are given in Annex 5, Table 8. These figures, like all other actual figures, are to be considered with reserve due to the lack of reliable records. They are, however, the best estimate avail- able at this time. The costs in dairy show the most striking increase. Those for crops are well within appraisal estimates because these figures do not give any information about the quality of investment or established crops. In this respect, the supervision reports express considerable reserve. The fact - A 24 - that the average subloan is 60% above estimate and the average investment in crop and pasture remained at appraisal level indicates that the clients econ- omized in the agricultural part of their enterprises in order to offset the increased costs of machinery and materials and to compensate the extra costs of water supply and housing. In general, the quality of agronomic practices has not been improved commensurate with the amount of funds invested. 3.29 Maintenance costs have generally been below the appraisal level, in spite of a considerable increase in labor costs. For details see Annex 5, Table 11. In general the virtue of good maintenance is not valued very much and, in situations of limited cash flow, it is maintenance which is cut down first. With the exception of several outstandingly good enterprises, many farms appear to be clearly behind on their maintenance schedules during visits by supervision missions. This backlog could be redressed of course and it is only pointed out here that maintenance costs should be analyzed in conjunction with maintenance standards. 3.30 The subborrowers were not affected by the devaluation of the Jamaica dollar in January 1973. The foreign exchange risk was assumed by the Jamaica Government, and the interest rate was not affected since, in the loan agree- ment between JDB and subborrowers, a fixed rate was established. Under the follow-up loan (1004-JM), however, completely different conditions were estab- lished. The exchange risk was passed on to the subborrower and JDB had the right to adjust interest rates. Thus serious problems could occur in case of another significant devaluation of the Jamaica dollar. 3.31 Disbursements were initially very slow, and in 1975, rose only to a 70% level. The last disbursement was made in October 1976, more than two years after the original closing date (September 1974), the reasons being the three-month delay in the date of effectiveness, the delay in retaining the services of experts, and the considerable promotional efforts required to establish a good working relationship with the farming community (see para 3.01). The details of disbursement are given in Annex 6. Covenants in the Loan Agreement 3.32 Financial Covenants. The loan agreement allowed JDB a maximum debt/ equity ratio of 3/1, which was not to be exceeded unless the Bank agreed (Section 4.05). During 1976, however, the limit was surpassed but on December 31, 1976 the ratio fell again below 3:1. However, JDB management considers a four-to-one ratio appropriate, and consequently this question will be a subject of future discussion. 3.33 Implementation of the Project. The loan agreement called for the adequate staffing (Sections 3.01 through 3.03) of JDB and the Agricultural Projects Department. The Bank insisted that a deputy managing director be appointed to ensure continuity of management, but when the incumbent resigned in January 1973 he was not replaced. Instead JDB decided to reorganize its top management and create two new positions: director of operations and director of planning and research. In practice, the system worked well and provided adequate continuity. The Agricultural Section was renamed the Agricultural Projects Department shortly after loan effectiveness and its staff was gradually expanded in accordance with the increase of the loan portfolio. The consultant (Section 3.03 of the Loan Agreement) rendered - A 25 - excellent services during the organization of the agricultural department and his term was accordingly extended from two to five years. However, towards the end, his assistance was focused on the organization of the Self-Supporting Farmers Development Program (SSFDP) instead of on the administrative consol- idation of the Agricultural Department (para 4.15). Also, JDB arranged with the CIB and the CGA for the provision of technical assistance and extension to farmer clients, but the extension task was gradually taken over by JDB itself and the cooperation was reduced to personal contacts between officers (Section 3.05 of the Loan Agreement). In Schedule 4b(a) i, it is stated that the borrower shall include in its written agreements with participating farmers the right to require that the farmer maintain adequate records. How- ever, farmers paid little attention to the requirement and JDB did not press it. The almost total lack of farm data is a major constraint to the effec- tiveness of subloan supervision, the evaluation of on-farm development and of much-needed assistance in farm management. JDB claimed that farmers are un- willing and/or unable to keep meaningful records, but farm visits demonstrated that, in many cases, this did not appear to be correct. JDB now accepts this view and is willing to initiate a promotional effort to improve record-keeping by its clients. Covenants in the Guarantee Agreement 3.34 Coordination Committee. In Section 3.03, the Government undertook to maintain a coordination committee, consisting of the Permanent Secretary of the MOA and senior officials of the MOF, the MORD and JDB. Its respon- sibility was to coordinate agricultural credit programs of ministries, agencies and organizations involved in agricultural development. The committee met twice in 1971 to organize its working procedures and the system of coordina- tion and then held regular meetings in 1972 (January 11 and December 14), but thereafter, it ceased to function in spite of repeated urgings by the Bank during supervisions. The committee members contended that all necessary coordination could be achieved by personal communication, and that no time should be wasted with meetings. It is difficult to follow this line of thought, since the agricultural credit situation in Jamaica leaves much to be desired. During appraisal of the proposed third agricultural credit project, the issue was raised again and it was agreed that the agricultural credit committee, an interministerial body chaired by the Bank of Jamaica, should be reactivated. This was done and in August 1976 the committee prepared a proposal to rationalize agricultural credit in Jamaica. This proposal is now being considered by the Minister of Agriculture and, after agreement on a final text, the proposal will be sent to the Economic Council for comment. Only then can it be sent to the Cabinet for consideration. In sum, the concept of the coordinating committee did not work out at all, due to the absence of a generally accepted concept about future development of agricul- tural credit In Jamaica. Nevertheless, the fact that the matter was dealt with in the loan documents was reason enough to raise the point from time to time and ultimately to reactivate the agricultural credit committee (para 4.08). 3.35 Additional Slaughterhouse Facilities. The appraisal mission stressed the necessity for planning and constructing new slaughterhouse facilities to service the envisaged expansion of the beef industry and to upgrade the quality - A 26 - of the project, but little was done in the first year of the project by the Government. After repeated urging by the Bank, several plans were studied, but unfortunately, the matter was caught up in a conflict of interest between institutions and personalities. So little progress was made that the prepara- tion of definite and concrete plans was made a covenant of the guarantee agree- ment of the repeater loan, 1004-JM (Section 3.05). Government complied with the letter of the guarantee agreement, but not with the spirit because Jamaica still remains without adequate slaughterhouse facilities. The course of plan- ning and development is related in Annex 8. IV. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE 4.01 The first agricultural credit project had, in spite of its rather limited provision of US$200,000 for training and technical assistance, an important institution-building objective--the establishment of an institution that could provide the farming community with long-term development credit. JDB was selected to be this institution and it was to provide this service through an effective agricultural section to be created for the purpose. This section was set up and in a five-year period, it has grown to an 11-man Agricultural Department, which is regarded well by the farming community (Annex 1). Extension Work 4.02 The appraisal report considered that close cooperation between JDB and the MOA and the Commodity Boards was essential if farmers were to receive necessary technical assistance. A covenant (Section 3.05) was thus included in the Loan Agreement to guarantee such cooperation. This has been achieved on a personal basis, and JDB itself has assumed an extension role (Annex 1). JDB's extension work was again expanded when it took over SSFDP extension work in 1975 (paras 3.34 an 4.04). It also supplemented the weak extension service of the MOA and even of some Commodity Boards in order to serve its clients as well as it could. In the long run, however, JDB should transfer this expen- sive service to the Ministry of Agriculture or seek adequate compensation for it. During appraisal of the proposed third agricultural credit project, staff costs of the agricultural department were estimated at J$ 320 per effective day. Assuming 150 one-day visits per year for technical assistance, this puts an extra burden of about J$ 50,000 on JDB (Annex 5, Table 12). Relation to Other Credit Institutions 4.03 JDB, in its dynamic development, crossed the paths of other credit institutions servicing agriculture. Initially, the commercial banks were strong competitors, being the traditional lenders to commercial farmers. They offered competitive interest rates, but their credits were mostly short term, while JDB provided long-term loans, with a grace period (Annex 1). Then when the commercial banks' interest rates went above those of JDB, JDB itself rapidly became the major source of development credit for agri- culture for medium and large commercial farms. In some cases, small loans, - A 27 - however, went to relatively small farms (para 3.17), and, inevitably, there was a certain overlap between JDB and the SSFDP. Self-Supporting Farmers Development Program (SSFDP) 4.04 During identification, preparation, appraisal and, finally, board presentation, it was recognized that credit to small farmers would play a vital and complementary part in the total agricultural credit policy (paras 1.13 and 2.15). Government financed this credit line in 1970 through an IDB loan of US$9.2 million, the so-called Self-Supporting Farmers Development Program. The borrower was the Government, the executor was the Ministry of Rural Land Development, and the banking agent was the Agricultural Credit Board (ACB), under the Ministry of Agriculture and Fisheries. I/ The ACB lent primarily to the PCBs, which then re-lent to the farmers. This credit channel was rather complicated and the project encountered various problems, resulting in poor economic results. 4.05 When the Government requested IDB to make a repeater loan at the end of 1972, IDB felt that there was a need for change in project management and made the additional financing dependent on such a change. Govern- ment negotiated the management transfer with JDB, which agreed to administer the SSFDP on an agency basis. A new IDB loan was signed on September 1, 1973, and the transfer of management was realized as of April 1, 1974. The responsibility for providing extension to the farmers remained for the time being with the Ministry of Rural Land Development, but, as of May 1, 1975, JDB also assumed this responsibility because the separation of the credit and extension functions in a supervised credit program to small farmers appeared to be inefficient. As of the same date, JDB became fully responsible for the conduct of the program. 4.06 Since JDB had to put a major effort into reorganizing the SSFDP and into reducing the considerable amount of arrears, it has not benefited much from this work, either in economic terms or in institutional development. The administration fee barely covers JDB's costs of running the program, and the exchange of technical information between JDB and SSFDP is minimal. The branch offices of SSFDP are not staffed or organized to serve JDB clients and the program is run quite independently. However, under JDB's management, the basis has been laid for future integration and better coordination of agricultural credit. Other Agricultural Lending Activities of JDB 4.07 JDB not only extended its activities to smaller farms but also to other categories under programs financed by local funds and, in 1976, by funds from a loan of the Caribbean Developopment Bank (CDB). The latter was financed, in turn, by a Bank loan to the CDB. In Annex 3 details are given of these lending activities. This expansion of interest was the reason that in the follow-up loan (1004-JM) new categories were included--sheep and goats, mangos 1/ Afterwards renamed Ministry of Agriculture - A 28 - and avocados and agro-industrial projects--albeit with some doubts on the part of the consultant of the appraisal mission. In the proposed third project the range of enterprise was widened again. These developments illustrate that JDB has gradually evolved as the prominent development agp-- in agriculture. Besides the ADC, the Banana Board, the Coconut Industry Board, the Citrus Grower Association and the Cocoa Federation also turned to JDB for financial and managerial assistance. The Sugar Industry Authority (SIA) as an exception did not welcome JDB's role, and JDB's activities in this field practically stopped in 1974. Future Development in Agricultural Credit 4.08 Agricultural credit in Jamaica was very uncoordinated in 1970, which caused the Bank to press for an active Coordination Committee (paras 2.13 and 3.34). In August 1976 the Committee sent a draft proposal to the MOA proposing that agricultural lending be centered in JDB, provided that JDB would agree that its Agricultural Department would operate as an autonomous entity. Under this arrangement, the department would control lending activities of other agencies, either by absorbing the activities or handling them on an agency basis. Obviously, the Bank's credit projects have contributed to the creation of an institution capable of serving as a nucleus for further much needed rationalization of agricultural credit. However, it is difficult to say at this stage if the proposed development is the most appropriate one. It is, for instance, not clear how an autonomous entity could work within the exist- ing organization of JDB. 4.09 This development of JDB to a promiment place among agricultural credit institutions was achieved in an atmosphere of expansion and pioneerism. On one hand, it satisfied the need for development credit and supported a new emerging class of independent farmers with medium-sized farms and mixed enterprises, but, on the other hand, the work took so much of the time and energy of the available staff that there was no time left for consolidation, reflection, or evaluation of productivity and efficiency of its own agricul- tural investments or of the performance of the Agricultural Department of JDB itself. 4.10 The question of whether expansion should be continued or a policy of consolidation pursued can be answered only by looking at what has been achieved so far. To quantify its own degree of efficiency and to analyze its own operational performance, JDB has to evaluate the on-farm results of its clients. Unfortunately, however, the Agricultural Department has not yet developed a meaningful monitoring system of on-farm developments (para 4.25), and, due to the almost total lack of farm records, such an evaluation is difficult to undertake. In Chapter V, a best estimate will be given, based on the data submitted by JDB. 4.11 The efficiency of the Agricultural Department of JDB itself is also difficult to measure since there no time accounting or cost accounting has been practiced. In Annex 5, Table 12, some data are given that indicate that visits per client decreased (45%) at the time JDB's agricultural portfolio was expanding, while the increase of visits per staff member leveled off with - A 29 - the increasing workload, and therefore the productivity of the staff has to be increased in order to contain personnel costs within acceptable limits. Some of the problems to be solved can be identified, as for example: the supervi- sion staff is not satisfactorily briefed before first inspections, project files are cumbersome to use, project data are difficult to find, and there is little planning of or feedback from supervision. Fortunately operational staff is well enough prepared and with some effort, efficiency can be improved significantly if JDB cares to give more attention to its own organization. Along these lines, it should be noted that at the end of 1976 internal seminars on the lending cycle were held for the agricultural staff; the Bank's sugges- tions on cost accounting and separation of preparation and appraisal work were accepted; and project officers were assigned to special regions. 4.12 The quality of subloan preparation and appraisal bear the marks of the limited experience of the agricultural staff as a whole. In their special fields of interest, individual staff members do have quite often remarkable insight and experience, but such attributes need complementary training and experience to achieve a balanced approach to project evaluation. Although there is a great variabilty in ecology in Jamaica, standard budgets for different conditions are not available, in spite of the fact that there is enough informed expertise available in the country and in JDB to prepare them. The initial appraisal consists of a resources statement of the farm but there is no critical evaluation. The plan itself is more an estimate of the farm's development potential than a development guideline, and it is based on the farmer's intuition and the feeling of JDB's staff. Lacking a critical analysis, alternative plans or systems, let alone management solutions, cannot be examined. The individual subloan appraisals therefore fail to give a firm basis for future management decisions, and, in spite of the considerable time and costs invested in these appraisals, no use is made of them other than to justify the loan application. It should be remembered, however, that in the first two years the senior staff the JDB were indeed able to give considerable personal attention to individual loans and this might be a reason why JDB was somewhat slow to institutionalize the processes of appraisal and supervision. 4.13 The costs of loan processing are also a matter of interest. Based on available data, the following estimate was made: Initial meeting 0.5 days First farm visits and project formulation 1.0 days Follow-up visit and preparation of farm plan 2.5 days Appraisal of farm plan 1.0 days Revisit to farmer to explain plan and cash flow 1.0 days Final completion of loan processing 1.0 days Time input of professional staff 7.0 days - A 30 - At an average cost of J$ 320 per effective day, JDB invests about J$ 2,000 per loan, or 4% of the average loan size, 1/ justifiable only for the bigger loans. In the long run, the task of project preparation will have to be carried out by large or commercial farmers themselves and the work must be standardized for smaller farmers. JDB realizes that much remains to be done and has agreed to accept technical assistance in this area under the proposed third project. Management Services to Subborrowers 4.14 Another sensitive point is the quality of management on subborrowers' farms. At the end of 1975 and during 1976, the Bank and JDB discussed this matter extensively and agreed that farm management was a major weakness in both credit projects. However, the fact that the JDB staff itself has no clear concept about the requirements of good management is illustrated by results of the survey of staff opinions of subprojects under Loan 719-JM -- farm management was rated excellent in 4% of the cases and good in 30%. Apparently good management was in many instances confused with more or less successful implementation of farm plans. In the Bank's opinion, maintenance of meaningful farm records represents the first step toward improved farm management, but, unfortunately, not until the beginning of 1977 did JDB accept the idea of encouraging its clients more actively to do so. 4.15 JDB accepted the assistance of the consultant in agricultural credit (para 4.22) right from the beginning and valued his contribution in organizing the Agricultural Department. At that point, it became clear that technical assistance in farm management would be useful and JDB accepted this concept also. It also recognizes in a way that it should consolidate, but it is basically more attracted by vigorous and exciting expansion than by the more methodical and detailed work of consolidation and productivity improve- ment. Operating Results 4.16 The operating results of JDB demonstrate clearly the need for consolidation. A summary of the balance sheets and profit and loss accounts over the period 1971-75 are given below and compared with appraisal estimates (page 38 and 39). One sees a very strong expansion but with disappointing results. The debt/equity ratio went up from 1:1 in 1970 to 3:1 in 1975. During 1976, it surpassed temporarily the 3:1 limit (see para 3.32). In 1976 long-term lending was partially financed by short-term borrowing and this may create a problem if not redressed in time. 4.17 Profits are disappointingly low. In March 1976, a profit of J$ 780,000 appeared in the provisional balance sheet 1975, but it was reduced to J$ 90,032 by increasing the provision for losses needed to write off bad 1/ Real costs are higher. Not included here are clerical personnel costs, administrative costs, or JDB overheads. JAMAICA Completion Report - First Agricultural Credit Project Condensed Balance Sheets (J$ '000) /1 /2 Assets -- 1971-- ---1972----- - -1973----- ---1975---- Appraisal.Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Investment in development enterprises (mostly loans) 15,984 8,809 23,559 15,100 30,591 24,852 37,691 45,393 44,198 72,721 Investment in subsidiaries 5,799 5,411 5,637 5,591 5,467 5,814 5,288 1,367 5,099 1,364 Other investments net of depreciation 273 332 269 420 54 750 37 1,777 23 2,888 Current assets 2,389 3,515 2,035 2,331 2,435 1,035 1,361 2,038 1,008 5,091 Total assets 24,445 18,067 31,500 23,442 38,547 32,451 44,377 50,575 50,328 82,064 Liabilities and Capital Long-term liabilities Government loans 2,000 4,106 2,000 4,187 4,000 4,187 4,000 13,191 3,867 31,961 Other loans 12,034 4,642 16,618 6,646 20,899 12,958 25,619 17,650 30,169 25,972 Total long-term loans 14,034 8,748 18,618 10,833 24,899 17,145 29,619 30,841 34,036 57,933 Current liabilities 75 477 75 1,387 75 629 75 1,323 75 2,087 Total liabilities 14,109 9,225 18,693 12,220 24,974 17,774 29,694 32,164 34,111 60,020 Share capital 8,000 8,000 10,000 10,000 10,000 12,917 10,000 16,017 10,000 18,917 Reserves and retained earnings 2,336 842 2,807 1,222 3,573 1,760 4,683 2,394 6,217 3,127 Total capital and reserves 10,336 8,842 12,807 11,222 13,573 14,677 14,683 18,411 16,217 22,044 Total capital and liabilities 24,445 18,067 31,500 23,442 38,547 32,451 44,377 50,575 50,328 82,064 /1 Appraisal figures of December 1970; actual figures as of December 31 of each year, according to the annual report. 7_ The 1974 figures were restated in the 1975 annual report. JAMAICA Completion Report - First Agricultural Credit Project Condensed Income and Expense Sheets (J$ '000) /1 ----1971----- ----1972-- ----1973--- ---1974---- ---1975-- Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Revenues from development enterpriese, interest + commitment fees, other income Housing enterprises 11 38 8 22 6 5 4 174 4 1,020 Industrial enterprises 860 583 1,106 774 1,348 1,312 1,603 1,722 1,853 2,416 Tourism 642 147 897 233 1,146 354 1,390 584 1,628 712 Agriculture 84 28 221 91 406 232 598 533 771 973 Subtotal 1,597 796 2,232 1,120 2,906 1,903 3,595 3,013 4,256 5,121 Less related interest expenses and commitment fees 868 581 1,127 638 1,417 913 1,729 1,748 1,920 3,073 1 Gross income from develop- ment enterprises 729 215 1,105 482 1,489 990 1,866 1,265 2,336 2,048 Income from subsidiaries - 247 - 271 - 322 - 273 - 51 Other income 45 162 51 188 15 89 15 151 - 607 Total revenues 774 624 1,156 941 1,504 1,401 1,881 1,689 2,336 2,706 Expenses Salaries/personnel costs 310 432 494 656 934 Other operative expenses 173 178 247. 344 352 Depreciation 21 32 37 49 73 Total administrative expenses 530 504 671 642 719 778 757 1,049 788 1,359 Other expenses - - - - - - - - - - Provision for losses 175 31 208 302 221 500 245 550 260 1,257 Total expenses 705 535 879 944 940 1,278 1,002 1,599 1,048 2,616 Net income 69 89 277 (3) 564 123 879 90 1,288 90 Transfer to reserves 22 - 31 22 31 Retained earnings 67 92 68 59 1/ Appraisal figures of December 1970; actual figures as of December 31 of each year, according to annual report. - A 33 - loans. This could be done again for 1976, for which a possible profit of J$ 610,000 is shown but for which there is also a considerable amount of written off loans and loans under legal process (as of September 1976, about J$ 700,000 for agricultural loans). 4.18 Reserves are very limited in the light of all of JDB's commitments, and it is not likely that they will be increased sufficiently to allow it to independelty assume exchange risks on its borrowing operations on the inter- national loan market, which was the original target of the Jamaican Government. 4.19 In summary, JDB has developed into a major development institution in Jamaica, but it is not yet self-contained and self-supporting development agency and, without external financing, it might face a critical situation in the future. However, on the basis of its record so far, it deserves continued support to reach a status of self-sufficiency, provided it accepts further strengthening of its administrative procedures. Loan Recovery 4.20 The loan recovery situation requires separate mention (Annexes 6 and 7). The total arrears ratio (outstanding arrears: loan portfolio x 100), gradually climbed from 1.0% to 6.4% over the years and, in the Bank's opinion, is too high. Even excluding the arrears under 30 days, the ratio is still about 3.9%. JDB is not too worried because it believes that, under the adverse circumstances of the severe drought in the years 1973/74 and 1976, the farmers did remarkably well. However, taking into account a recovery ratio of only 60-70% over the last few years, it is to be feared that JDB will have to face an increasing number of unrecoverable loans. JDB has not yet formulated its policy on how to solve this problem, other than writing off some bad loans, but the matter will certainly be a major issue for JDB senior manage- ment in the near future. It should be noted here that at the end of 1976 a shift from long-overdue arrears to 0-90 days overdue payments was recorded and that JDB nominated a special officer to control long-overdue arrears. After completion of this draft in early 1977, major changes in the economic situation in Jamaica took place, ultimately resulting in the adoption by the Government of a Production Plan and the establishment of a two-tier exchange rate system, which in fact reflected the depreciation of the Jamaican dollar by about 37.5%. At the moment it is difficult to foresee how the depreciation utimately will affect the first agricultural credit project. In practice, however, loan recovery has already worsened to such an extent that the Bank will have to discuss this matter separately with JDB in conjunction with the second credit project. In short, the major management issue mentioned in this paragraph does already exist. Consultants 4.21 The Loan Agreement (Section 3.03) required JDB to employ an agri- cultural economist and a livestock specialist, both internationally recruited. Therefore, in August 1971, an economist from India and a livestock specialist from Jamaica reported for duty. The livestock specialist was promoted to head the Agricultural Department of JDB and was replaced in June 1972 by another - A 34 - Jamaican livestock research officer from the Bodles Research Institute. Although he was supposed to replace a consultant post, he was nominated and acted as a regular line officer of JDB's Agricultural Department. In practice, therefore, the economist was the only consultant serving during project implementation. He was originally employed for a two-year period, but his contract was extended twice, once for two years and once for one year, until August 1976. In June 1974 a Jamaican economist was nomi- nated to understudy the consultant so that continuity would be assured. 4.22 During his five-year assignment period, Mr. Dass gave JDB effective assistance, first in organizing the Agricultural Department and developing its lending and supervising operations, and later in organizing the SSFDP, which JDB administers for the Government on an agency basis. Mr. Dass was most competent and left his mark. Unfortunately, JDB did not heed all of his good advice, and his proposals on how to monitor the subloans disappeared in the files of the Agricultural Department. With the appointment of an under- study, the consultant restricted his advice more and more to banking matters and less to the administration of the Agricultural Department. Finally, he concentrated his efforts almost exclusively on the SSFDP, on which he, it must be said, again left his mark. In hindsight, it would probably have been better if the consultant had dedicated all his efforts to the Agricultural Department in setting up a monitoring system. Also, the understudy apparently wants to emulate the consultant and will replace him at the SSFDP, causing an ill-timed vacancy in the Agricultural Department of JDB itself. Accounting and Reporting 4.23 Accounting procedures developed parallel with the development of the Agricultural Department and the loan portfolio. Initially, the agricul- tural section was small and its costs formed part of JDB's overall administ- rative costs. Gradually, however, costs increased to the J$ 300,000 level in 1976, and now warrant separate cost accounting. At the request of the Bank, the JDB has agreed to install such a system. 4.24 The Agricultural Department has started to monitor its lending activities internally and now prepares a monthly summary report on agricul- tural loans. Unfortunately, its loan data are not consistent with those of the loan administration department, and JDB plans to examine the possibilities of improving the efficiency and consistency of loan recording in 1977. 4.25 The monitoring of subborrowers' farm performance is not systematic- ally organized. Initially, the senior staff officers could follow and analyze progress based on personal experience gained during appraisal and farm visits, but, with the growth of the organization and the lending programs, this per- sonal knowledge has to be replaced by a more formalized system. The process has not started yet, mainly because the discipline of systematic reporting is little developed, but there is a consensus as to the virtues and value of such a system, and continued Bank guidance could have a positive effect. - A 35 - 4.26 Since no meaningful farm records exist, the monitoring function is considerably hampered. Evaluation of individual clients requires an expensive and time-consuming farm analysis, and JDB staff is still not yet prepared for such a task. Given the importance of good farm records, JDB should give an intensive promotion activity the highest priority. In the proposed third agricultural project, there is provision to retain the services of consultants who would assist JDB in developing farm records that are appropriate to Jamaican circumstances and in organizing a monitoring system. 4.27 The annual and audit reports were regularly and timely received, with the exception of the report for fiscal year 1976. This audit is com- pleted, but the auditors report is delayed pending a Government's decision concerning the accounting of a special industry development fund. Training 4.28 Two experts engaged to assist JDB in the development of its agricul- tural lending operations and in the organization of its Agricultural Depart- ment were expected to provide on-the-job training for the agricultural staff. To a degree they did so but most of their time was taken up by operational tasks. The need for further training was felt at an early stage and, conse- quently, the follow-up project made specific provisions for staff training in Jamaica or abroad. Some staff members of the Agricultural Department attended the EDI courses in Washington, but, in general, the training focused exclusively on the technical aspects of agricultural development. Although Dr. Whittaker, the manager of the Agricultural Department, joined the Bank staff in Washington (1972) and participated in a Bank appraisal mission, there is still an urgent need for training of other staff in financial and admin- istrative matters. V. AGRICULTURAL AND SOCIAL IMPACT Incremental Output 5.01 The lack of precise farm records makes it difficult to assess total incremental output but the estimate shown in Annex 5, Table 10 gives a fair impression. Except for dairy products, performance has been far below expec- tations because of the smaller areas planted and lower productivity achieved. However, the total value shows an increase because of the increased prices, as shown below: - A 36 - Value of Incremental Production at full Production At Appraisal Actual Total Value Total Value Unit Incremental Unit Incremental Farmgate Production Farmgate Production Unit Price J$ from 1982 Price J$ from 1984 J$ 000 J$ 000 Coconut unit 2.25 9.80 s. ton copra 152.75 840 605.50 910 Citrus boxes 1.40 j 1,820 2.50 /l 1,500 Beef lb 0.22 440 0.55 330 Milk quart 0.12 /2 320 0.32 j 1,620 Total 3,420 4,360 /l Average farmgate price. /2 Average farmgate price of liquid and processed milk. The incremental rates of production for beef and dairy are also difficult to determine since they are based on the potential production of herds belonging to JDB clients. These herds are bought from nonclients so there are both a shift and an increase. In addition, the figures collected in the survey are not always clear in relation to the age of the herd. The appraisal figure of the herd increase, expressed in AU, was set at about 26,000 head of cattle, derived from the model calculations, but the actual increase is estimated at about 16,000 AU. The quality of the herd of course cannot be expressed in figures, but the general impression is that it has not improved during the implementation period of the project. Several drought periods also affected the herd adversely. Technological Changes 5.02 The value of inputs and outputs changed drastically during the course of the project, as shown in Annex 5, Tables 8 and 9, which requires skillful farm management if proper adjustments are to be made. Unfortunately, management has been the weakest point in most subprojects. In general, the farmers have resorted to short-term solutions such as planting bananas on citrus farms, starting a poultry or pig enterprise, operating as a tractor contractor for the sugar industry or Government Food Farms, cutting down on maintenance, and reducing the scale of operations. These changes have been guided by personal experience, opinion, or were merely an effort to take advantage of offered credits. The technical problems of each category are discussed below. - A 37 - 5.03 On the coconut farms, the best lands are now heavily intercropped with bananas, which have become the main crop. Traditionally, coconut was extensively cultivated, but the lethal-yellowing-resistant Malayan Dwarf requires good husbandry to produce well. The new variety of Malpan, a hybrid between the Malayan Dwarf and the Panama Tall, has the sturdiness of the Jamaican Tall and an acceptable level of diseases resistance, but planting material is in short supply and cultivating requirements are not yet tested. In short, to be successful nowadays in coconut cultivation, a farmer has to undergo a change in mentality, which is usually a very slow process, coconut cultivation is likely to stagnate for some time. Not all coconut subprojects relate to farm expansion, and, as such, the provision made during negotiation was not observed (para 2.11). Citrus farms are also beset by many problems, such as increasing costs, lack of supply of planting material, and stagnant prices. Only recently has the local market picked up an increasing amount of produce for better prices. 5.04 The dairy industry has developed remarkably in scale and there is potential for further growth but there are not enough trained and motivated dairy farmers to realize this potential. The subborrowers who have started dairy projects without proper training or dedication have achieved very poor results, while the traditional dairy farmer has also not improved his performance. JDB might consider promoting in conjunction with Government a training course for dairy farmers, especially with respect to farm management, to develop this potentially good lending field. 5.05 Beef industry development has relied heavily on irrigation, and not much progress has been made in improving pasture management and silage. These enterprises have been seriously affected by the recent droughts and their future is imperiled by ever-increasing irrigation costs. JDB should there- fore attempt to revitalize the interest of the cattle industry in rainfed systems and breeding enterprises (para 2.10). 5.06 Apart from these general problems, there have been many local or farm-specific problems which JDB has tried to help solve but with limited success (Annex 1). The reason probably is the general resistance to change. The farm survey shows that 50% of the clients have not implemented any tech- nological changes and those that have done so have confined themselves mainly to planting techniques and pasture improvement. Farm management improvement- was cited in regard to only 10% of the farms surveyed. Type of Clients 5.07 A new type of agricultural credit client for programs supported by Bank and JDB funds has emerged during execution of the project. Plantation owners seeking credit for expansion have retreated into the background and new farmers seeking to establish their own enterprises have come forward. These clients include businessmen looking for integrated investment, skilled employees anxious to become independent, or young men wishing to start an agricultural operation. All of them form a new class of medium-sized inde- pendent farmer with mixed enterprise farms (Annex 5, Table 5). In general, - A 38 - farms run by resident owners have showed the best results, and for this reason the Bank has proposed that special favorable conditions be provided to encour- age similar subprojects under the third credit project. 5.08 An interesting point is the fact that about 40% of all subborrowers were below 40 years of age at the time of loan commitment, I/ averaging about 35 years (varying between 28 and 38). The 60% above 40 years averaged 49 (varying between 42 and 60). Whether the participation of this rather young type of farmer indicates a trend could be established by collecting similar data on other loan programs. Employment 5.09 Employment is not accurately recorded but it is estimated that the project provided close to the 1,000 extra jobs estimated. This is based on labor costs and not on personnel registered on payrolls, so a greater number of individuals could be involved. Part-time Farming 5.10 Many investors are reluctant to rely exclusively on the farm enter- prise and they prefer part-time farming or farming with an employed manager or overseer. The farm survey indicated that about 75% of the clients had additional income from other professional activities, averaging about J$ 8,000 to J$ 10,000 per year (Annex 1). It is difficult to assess how much nonagri- cultural income was reinvested in agriculture. 5.11 There is no clear indication of substitution of funds, and if such substitution occurred, it could well be inferior to the amount reinvested from nonagricultural income. A more vivid concern of JDB is that farmers or investors, disposing of extra cash income, used these funds for the wrong projects in agriculture. VI. RATES OF RETURN 6.01 Exact calculation of rates of return is not feasible due to the lack of reliable farm records. However, even with more reliable data, compari- son with appraisal estimates would be of limited value because many subprojects were new farms, made mid-course changes, or preferred mixed enterprises. Also, cost inflation and various drastic changes in farmgate prices of the products created completely different circumstances than those expected and assumed. Annex 9 presents a summary of the financial rates of return under the various subprojects. I/ Between 1971-74. - A 39 - 6.02 Estimated rates of return compared with those at appraisal are: 1970 1977 Appraisal Estimate Coconut 16 10-15 Citrus 18 15-20 Beef 16 below 10 Dairy 22 15-20 It should be noted that the results obtained on coconut and citrus farms were to a great extent favorably influenced by banana cultivation. In fact, such farms developed more as banana plantations, with coconut and citrus as long- term targets. These figures must of course be considered with great caution and are applicable only to farms under reasonably good management. The over- all average rate of return probably is around 10%. 6.03 The economic rate of return calculated in 1977 (Annex 9, page 4) still has to rely on numerous assumptions, because there are no records of the yearly planted or developed area, progress of cultivation, herd develop- ment, production or costs related to the subproject area. Since the average project costs are about 180% of the average subloan, the investment costs were determined by multiplying the subloan disbursement by 1.8. The calculation of operating costs is based on generally accepted unit costs of production, since no records are available. The costs were corrected for fertilizer sub- sidies (30%) and taxes (10%) of investment goods and imported materials; and for overrated wages (50%) of unskilled labor. The details are given on pages 5-7 of Annex 9. 6.04 The economic rate of return using the basic exchange rate of J$ 1 - US$1.10 (in force at December 31, 1976) is 7.85%. Since production could increase significantly after 1976, and after depreciation of the J$ in April 1977, the rate of return was also calculated with the new or special exchange rate of J$ 1 - US$0.80. This rate of return is 10%. Both rates are far below expectations. Again, it should be noted that these figures are estimative and should be considered with great caution. However, it does indicate that the level of productivity of the average farm is too low. 6.05 Farmers are mostly aware of the low level of returns. Some of them accept the situation as it is because they are farmers by tradition or because they consider a farm a safe investment in uncertain times. Others did improve the farm productivity by applying more intensive cultivation techniques or diversification in short-term profitable enterprises, such as bananas, vege- tables, and small livestock. Such developments bear greater risks, but those clients, full-time farmers, who managed their farms efficiently, obtained satisfactory results. If the average level of management were to improve, the rates of return could be brought up to the envisaged levels. - A 40 - VII. SPECIAL ISSUES 7.01 Periodic droughts have had a bad effect on the results of various subprojects, but especially on beef and dairy subprojects. The impression is that when subprojects were appraised, no allowance was made for such natural disasters in spite of detailed historical records indicating the distinct possibility that they could occur. Water is now becoming an expen- sive commodity but JDB has not considered its real costs (often subsidized) when analyzing the long-term viability of projects based on irrigation compo- nents. In consideration of the situation, JDB should promote in conjunction with the appropriate 1nstitutions and ministries any effort to rationalize irrigation development in Jamaica. 7.02 Government policies have also had a clear impact on the project. Price increases for milk and beef definitely boosted development of these industries. Also, the Land Utilization and Development Committee (LUDC), which was authorized to investigate properties over 50 acres in size to determine their productive utilization, induced many landowners to consider a develop- ment plan. Operation GROW has had both positive and negative effects. Under this plan, Government food farms and Project Land Lease have hired some farmers to work as contractors for land preparation, thus providing more profitable use of their farm machinery. However, other farmers, speculating on future development of these Government projects, have bought machinery in the hope that they, too, would be able to obtain contracts. Then when the Food Farm Program was subsequently terminated, many have had to seek employment elsewhere for their expensive machinery. 7.03 Since 1975 the overall economic situation in Jamaica has deterio- rated, due to falling world market prices for its export commodities, disappointing production, rising production costs, and a slump in the tourist industry. This has, in turn, created a insecurity in the investment climate, which, in agriculture, was compounded by the official policy of land reform and the Government's emergence as a major landowner and employer. This all had a clear impact on the second agricultural credit project (Loan 1004-JM) and some on the first project (Loan 719-JM), which, by the end of 1974, was already fully committed but not yet implemented. The disburse- ment rate slowed down in 1975 and at the closing date of June 30, 1976 (already postponed by 18 months), US$200,000 remained undisbursed. An extra two months was required to complete all project implementation and to disburse this amount, and in October JDB still had to cancel about US$4,000 of the loan. VIII. CHANGES IN REPEATER PROJECTS 8.01 Various shortcomings in the first projects were dealt with in the follow-up project, the second agricultural credit project (Loan 1004-JM), by: - A 41 - (a) including banana as a citrus intercrop and broadening categories to mango and avocado, sheep and goats, and agro-industries; (b) encouraging participation of the medium-sized farmers, by requiring that one third of the subloans made be for less than J$ 35,000, reducing the farmers' contribution in special cases to 10%, and increasing the total lending potential; (c) requiring Government action in the slaughterhouse installation; and (d) increasing the total loan amount. 8.02 These changes reflected the expansionist drive of JDB. In the proposed third agricultural project, this approach is continued by a further increase in loan amount and by dropping the lending subcategories. The loan is expected to finance subprojects in livestock, crops, and agro-industry, but it is left to JDB to channel funds appropriately to meet the development needs of Jamaican agriculture. However, qualitative changes are called for. The project urges a more aggressive loan recovery policy by introducing a system of penalty interest rates for overdue payments, and it seems more active attention to the major development constraint--farm management. The staff of JDB itself is not sufficiently trained yet in this field, but, in the light of its past record of mastering new fields, it certainly will overcome this weakness when JDB decides to initiate a major drive to provide management services to its clients. This will be the major challenge ahead. IX. BANK PERFORMANCE 9.01 From the very beginning, Bank and JDB personnel have enjoyed good working relationships although they were weakened to some degree when continuity of project officers was interrupted by changing Bank assignments. Supervision missions, have however, flagged at an early date, the issues that subsequently became critical, such as monitoring, subloan recovery, and management, even though it took considerable time to bring these points to a level of consciousness within JDB that concrete steps could be discussed. It is very possible that the same project officer visiting more frequently could have accelerated this process. 9.02 The organization of JDB was clearly improved with the assistance of the consultants and the stimulus of Bank personnel, but the motivation and drive of JDB personnel must be credited for most of the gains. The on-lending conditions have remained an issue throughout the second and the proposed third credit project, and the Bank and JDB have also continued to disagree on the most appropriate and economically justifiable lending terms. JDB sees its role primarily as a development agency that administers lending programs designed to give an incentive to prospective investors in agriculture. Such an incentive in JDB's opinion is a favorable interest rate, besides an appro- priate grace and maturity period and client services such as technical and - A 42 - managerial assistance. The Bank, on the other hand, has aimed at eventual self-sufficiency of JDB and expecting it to give high priority to protecting its funds against monetary, inflationary and other risks, and to create its own minimum reserves. These differences in concept were resolved in various ways: for Loan 719-JM, Government guaranteed the risks, for Loan 1004-JM, the risk was passed on to the subborrower, and for the proposed third loan, a variable interest rate is being tied to the prime rate, established by the banking community. 9.03 The issue of the lending categories was solved in time by develop- ments in Jamaica agriculture, which became more diversified in terms of farming systems, interests, and social structure. The compartmentalized structure of 1970, when the credit projects started, has almost disappeared, and, in a sense, the issue of categories has been replaced by the issue of farming systems, but the change is not traceable in the development of the three credit projects or in the supervision reports. It is, however, in- directly reflected in the emphasis placed on farm management, whereas good farm management is a prerequisite to a determination of the most appropriate system to be used under the variable ecological conditions in Jamaica. 9.04 Project design appears to be sound and correct in its recognition of the need for long-term credit in agriculture and a strengthening of JDB's organization. However, the underlying assumption that agriculture would continue to be divided between an export-oriented plantation sector and a subsistence oriented small farmer community has lost its validity since the appeal of a successful credit program under which many people could establish new enterprises (Annex 1) was underestimated. Also, the rather rapid emergence of a more varied economic and social structure made the limitation on lending categories untenable. In addition, there was some inconsistency in the fact that the project excluded for marketing reasons banana and vegetables as a category but accepted them as intercrop which in the end also has to be marketed. These crops, requiring shorter-term financing, were thus financed by long-term credit when coconut and citrus were treated as an additional crop instead of a main crop. 9.05 The subloan appraisal models seem to be realistic in their assump- tions, except for the level of management and labor productivity. However, it can be argued that JDB should not make loans to badly managed enterprises. On the other hand, it is development which trains farm managers and produces managerial skills, which are in short supply in Jamaica. The answer to this, again, is effective farm management services temporarily provided by JDB but which must eventually be provided by independent private consultants and be assisted by a competent Government extension service. 9.06 A question that remains is a clear definition of small, medium, and large farmers and of the term "commercial farmers." At the time of appraisal, commercial farmers were large and small farmers were mostly subsistence farmers. The problem was revealed because in the loan documents the medium- sized farmer is sometimes classified with the commercial group and sometimes with the small or smaller farmers which deserve special support. At present - A 43 - more and more farmers produce for the markets, and some, though small in size, are very successful, while some large farmers are clearly in trouble. It is to be expected that shortly all farmers in Jamaica will produce for the market and will be commercial farmers, and their classification into small and large farmers will depend more on the turnover than on the size of their farms. X. CONCLUSIONS 10.01 The full impact of the project in physical, financial, and economic terms is difficult to assess but in institutional development terms, judgment is easier. When one visits JDB and reviews its growth, one cannot but conclude that substantial progress has been made. Also, when a client's farm is visited, one sees important physical developments and senses in general an atmosphere of motivated activity. If the project aimed at creating a credit institution capable of activating long-term agricultural progress and develop- ment in Jamaica, then the project is a success. Whether what was achieved was worth the cost or whether the money invested could have brought better results is open to discussion. There is, in any case, no doubt that there was a positive impact that justifies follow-up projects, albeit on different conditions and adjusted to changed circumstances, applying lessons of experi- ence. 10.02 Institutional development within JDB was satisfactorily implemented. The Agricultural Department expanded rapidly and established a fruitful rela- tionship with the farming community. It was in fact so successful that it used its own funds to extend lending activities beyond the categories financed under the project and assumed an important new role in administering the small-farmer credit operation of the Self-Supporting Farmers Development Pro- gram for the Government. It also partially filled the gap in the provision of effective agricultural extension by supplying technical assistance to its clients to ensure as far as possible the success of the projects it financed. Thus it became a very prominent credit institution in agriculture in Jamaica. Although not specifically stated in the loan documents, the ultimate scope of the project was oriented to the overall and balanced development of agricul- tural credit in Jamaica. It was to serve as a catalyzing element in agricul- tural development and in the rationalization of agricultural credit. JDB did in fact stimulate agriculture and it may well become Jamaica's central lending institution for agricultural development. However, it is difficult to say now whether this is the best solution for rationalizing agricultural credit in Jamaica. 10.03 JDB's own operational results were, however, less spectacular. It has not yet become a self-sustaining bank, being primarily and predominantly oriented to development and relying fully on external financing. The debt/ equity ratio rose continuously, which in itself did not give reason for con- cern, but in combination with its very low profitability and disappointing loan recovery rate, a problem could well be in the making. -A 44 - 10.04 On-farm developments under the project remained about 40% below appraisal estimates. Cost overruns ran about 10%, and the average subproject costs were about 60% above appraisal level, but, in the light of the inflation rate during the implementation period, this is acceptable. The appraisal concepts were realistic under good managerial circumstances, but these were often lacking, and JDB did not recognize the fact until a late stage. By that time, correction could only be made slowly because of the almost total lack of meaningful farm records. The overall rate of return, estimated at 17% during appraisal, is difficult to calculate due to the lack of exact information, although, based on available data, it is expected to be around 10%. The final distribution of subloans did not follow the envisaged pattern due to unforeseen economic and social changes. At the time of appraisal, agriculture was still dominated by the mainly single-enterprise plantation system, but during implementation, many plantations phased out and a younger group of farmers, establishing new mixed enterprises of smaller acreage, emerged. Due to this development, the loan funds were rellocated twice, giving more emphasis on livetock farms. It is to JDB's credit that it assisted this type of farmer and farm system, which might well become the basis for revi- talization of agriculture in Jamaica. While total incremental production remained below expectation in physical terms, its value increased by about 30%, due to a steep increase in local market prices, and the project did provide the expected increase in employment opportunities. 10.05 The project was well designed and sufficiently assimilated by JDB, and it served as the take-off point of the follow-up project (Loan 1004-JM). It was difficult if not impossible to foresee at the time of appraisal the changes which took place in subsequent years. It would have been helpful if, during implementation, a few sample subprojects had been selected, which could have been jointly monitored in more detail by JDB and by the supervision missions in order to measure progress and to refine standards to be applied in lending operations. Since the first project merged into the second project, and a third one is under negotiation, it will not be necessary to continue supervision of 719-JM. The action now required is to call JDB's attention to the necessary consolidation of its agricultural loan portfolio, the improvement of its efficiency, and the promotion of better farm-management techniques on client-farms. 10.06 In the case of future follow-up projects (third loan), a more reg- ular JDB-Bank contact, focusing on specific priority issues, would be helpful to improve the record of JDB's Agricultural Department, which is already good in Jamaica. One of these priority issues is the availability of meaningful farm records, which should give JDB the opportunity to analyze accurately what really happens on the farms of its clients, with the objective of plan- ning its future lending programs with more precision, and to guarantee therefore the minimal required returns on its investments. At present, JDB relies too much on the experience and relations of its personnel with farmers and it has not yet developed institutional know-how. 10.07 Suing up the results of the First Agricultural Credit Project, it was effective in creating an institution capable of becoming the nucleus for future development and rationalization of agricultural credit in Jamaica, but - A 45 - it did not achieve the physical targets of agricultural development. Although the project was in this respect not as effective as hoped, it did have a catalytic effect on agricultural developments such as small livestock, food crops, fruits, vegetables, and small agro-industry. Quantification of this impact is difficult due to the absence of reliable farm records. Although efficiency certainly requires improvement and the economic results were dimin- ished by several severe droughts, the project brought 15,000 acres hitherto uncultivated land back into production, provoked intense interest in commer- cial farming, and helped to develop a broader basis for Jamaican agriculture. The short- and medium-term results of the project may fall short of its expectations, but in its long-term effect it achieved its goal of developing Jamaican agriculture through better credit services.  JAMAICA ANNEX 3 COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) JDB Agricultural Lending Activities Outside Bank Projects 1/ (J$ '000) Category Dec. 12, '72 Dec. 12, '73 Dec. 12,'74 Dec. 12, '75 Dec. 12, '76 Land acquisition IBRD 1 266 807 1,359 1,359 1,359 Land acquisition IBRD 2 - - (243) (570) 582 Land acquisition (local only) 172 263 362 363 Agricultural machinery 48 53 183 383 Sugarcane 118 139 145 145 Pigs 74 154 314 512 Poultry 310 817 1,678 2,843 Cattle 430 11 25 25 162 Sheep and goats 105 128 128 201 Rabbits - - 26 59 Banana 58 121 138 371 Vegetables 32 332 657 1,215 Orchard 5 20 640 Pineapple 84 84 84 Horticulture 579 876 901 Refinancing 34 180 236 277 Operating expenses 81 81 98 103 Food crop 10 10 10 108 Agro-industry - - - 103 329 Fishing - - - 50 243 Dairy - - - - 248 Total 696 1,865 4,588 7,065 11,130 1/ Financed by local funds and since 1976 also partially by a CDB loan. The figures are cumulative. Source: Agricultural Department, JDB. Progress reports.  ANNEX 5 JAMAICA COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Statistical Performance Data These statistics were dervied from dispersed data, prepared at dif- ferent moments by various independently working individuals. Due to these and other factors, the statistical and survey data should be interpreted with caution. We note below the main problems of data collection. (a) The farms of the subborrowers do not have reliable sur- veyor's maps. The acreage data therefore have to be considered with some reserve. (b) The almost total lack of proper farm records made it impossible to report exact implementation or result data. The figures of the farm survey also rely on estimates, albeit the most recent and the best. (c) JDB does not yet have a monitoring system which auto- matically supplies loan and subproject data. Much of the information had to be drawn from files, which were not arranged along the proper lines. This leads to many errors. (d) The Agricultural Department and the Loan Administration Department maintained separate forms and files, which were not reconciled. (e) Subloans were often made for various categories at the time, without allocating special loan portions for each. The breakdown per category therefore had to rely on estimates or classification according to the main category. (f) The farm survey covered 50% of all farms of the bene- ficiaries. This sample is considered to reflect the actual situation in a meaningful manner. The survey technique and results, however, are not very refined.  JAMAICA ANNEX 5 Table 1 COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Subloan Distribution Type of Subloaa After /2 Category At Appraisal Reallocation Oct.16, 1973 Actual Number US$ million 1. Number US$ million Number US$ million Beef 45 1.98 45 2.80 45 2.82 Dairy 15 0.87 15 1.32 30 1.35 Citrus 30 1.23 30 1.23 25 1.06 Coconut 50 2.11 50 0.79 13 0.83 Total /3 140 6.14 140 6.14 113 6.06 Number J$ million Number J$ million Number J$ million Beef 45 1.70 45 2.54 45 2.56 Dairy 15 0.60 15 1.20 30 1.23 Citrus 30 1.00 30 1.12 25 0.96 Coconut 50 1.80 50 0.72 13 0.75 Total 140 5.1 140 5.58 113 5.50 /1 1970 dollars. J$ 1.00 f US$1.20 or US$1.00 = J$ 0.83. 72 And after first proposed reallocation in June 15, 1973, and devaluation of J$ in January 1973 to J$ 1 = US$1.10 or US$1.00 = J$ 0.909. /3 Technical assistance of US$200,000, 100% financed by IBRD. ANNEX 5 Table 2 JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Repeater Loans Number of Number of Amount of Repeater Beneficiaries Repeater Loans J$ '000 Loans Average Total In % of Total Approved Subloan Amount t. Repeater loans financed with funds from: Loan 719-JM for supplement of original project - - - - for extension of previous project 7 7 40 280 for projects in other categories - - - - Loan 1004-JM for supplement of original project 1 1 30 30 6 for extension of previous project 7 10 30 300 63 for projects in other categories 2 3 50 150 31 Local Funds for supplement of original project - - - - - for extension of previous project 7 7 35 245 73 for projects in other categories 3 3 30 90 27 Total 27 31 35 1,085 II. Repeater loans as to category: Beef 6 7 50 350 12.5 Dairy 6 9 25 225 16.7 Coconut 5 5 40 200 24.1 Citrus 4 4 35 140 13.2 Other categories developed on subproject site (such as poultry, custom services) 6 6 40 240 Total 27 31 35 1,085 ANNEX 5 Table 3 JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Maturity of Subloan and Project Development Maturity (IBRD Loan 719-JM: 5 years grace, 16 years maturity including grace period) At Appraisal Actual Grace Maturity including Grace Maturity including Period grace period Period grace period Coconut interplanted 4 15 2.9 12.0 Coconut rehabilitated 6 15 Citrus 7 15 3.5 12.6 Beef 5 12 3.6 11.0 Dairy 3 10 2.6 8.4 Implementation Implementation period Period of full development of subproject (years) (years)( At appraisal Actual At appraisal Estimate of subproject of subproject 1976 Coconut 2.0 2.0 8.0 9.0 Citrus 2.0 2.0 8.0 9.0 Beef 2.2 3.0 4.5 6.5 Dairy 2.0 2.5 2.5 4.0 JAMAICA COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Size of Subloans and Projects Total Beef Dairy Citrus Coconut At Appraisal Actual Actual Actual Actual Actual Amount of Subloans (J$ '000) No. % No. % No. % No. % No. % No. % 0 - 20 0 0 9 8 2 4 5 16 2 8 - - 20 - 50 140 1/ 100 56 50 18 43 17 51 17 85 4 33 50 - 100 - - 36 31 16 38 11 33 4 16.5 5 42 100 - 150 - - 6 5 2 5 - - 1 0.5 3 25 over 150 - - 4 4 4 9 - - - - - - Total 140 100 111 100 42 100 33 100 24 100 12 100 Average subloan J$ '000 36,430 53,630 62,670 45,000 42,400 63,850 Average subloan J$ '000 at appraisal 36,430 - 37,780 40,000 33,300 36,000 Average estimated project costs 45,710 101,420 93,600 67,350 93,900 170,630 Acreage of Farm 1/ 0 - 20 0 0 - - - - - - - - - - 20 - 50 ) 10 9 - - 7 20 3 12.5 - - 50 - 100 ) 19 17 5 12 8 25 6 25 - - 100 - 500 110 79 63 57 30 70 15 45 12 50 6 50 over 500 - - 19 17 7 18 3 10 3 12.5 6 50 Average acres n.a. 330 460 260 170 360 Acreage of Subproject Area 0 - 20 0 0 - 1 - - - - - 5 - - 20 - 50 0 0 - 12 - - - 8 - 25 - - 50 - 100 30 21 - 27 - 24 - 32 - 50 - 20 100 - 500 110 79 - 56 - 68 - 46 - 20 - 80 over 500 - - - 4 - 8 - 4 - - - - ex Average acres at appraisal 165 - 300 110 100 100 1k Average acres projected at subloan appraisal 165 175 270 160 80 200 Average acreage implemented (estimate) - 150 150 50 200 1/ Fifteen subloans between 35 and 50. ANNEX 5 Table 5 JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Types of Farms At appraisal Actual Comparative mid-1976 mid-1976 figures Number % Number % for Ln.1004-JM 1/ Types of Farms mono enterprise 140 100 72 64 56 mixed enterprise - - 41 36 44 Types of Subprojects new farm - - 63 56 66 extension of existing 140 100 50 44 33 farm or enterprise Types of Management non-resident owner and - - 40 35 17 appointed overseer with appointed manager n.a. n.a. 19 17 10 full-time resident n.a. n.a. 54 48 73 owner manager 1/ Second Agricultural Credit Project.  ANNEX 5 Table 7 JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Project Implementation Implementation of Subprojects Actual At Full Area Planted (acres) At Appraisal Sept.1976 Development Coconuts total 5,000 2,400 with banana intercrop - 2,000 Citrus total 3,000 1,200 with intercrop - 1,200 Pastures for beef cattle 13,500 6,300 for dairy cattle 1,650 4,950 Other crops as part of farm plans - 150 TOTAL 23,150 15,000 15,000 1/ 130 acres cola, coffee, vegetables, pineapples At Appraisal At 9/30/75 At Full Development Head of Cattle per farm Total per farm per farm Total Beef cattle 2 years and over 325 15,625 160 370 12,150 under 2 years 290 13,050 ) ) Dairy cattle milling cows 117 1,755 - - 2 years and older 155 2,325 ) 140 115 4,600 under 2 years 135 2,025 ) 100 3,000 Number of other livestock - - 2 4 enterprises as part of farm plans Allocation of Investment on the Farm (in percent) Intercrop or fenc- Infrastruc- Main crop es, corrals, ture + or pasture water supply, Cattle machinery Land Total cattle At Appraisal (1970) Coconut/banana 50 38 - 12 - 100 Citrus 88 - - 12 - 100 -Beef 44 25 19 12 - 100 Dairy 19 16 12 53 - 100 Actual (1971-75) Coconut/banana 28 27 - 13 32 100 Citrus 44 23 - 16 17 100 Beef 18 7 36 33 6 100 Dairy 8 7 32 43 10 100 ANNEX 5 Table 8 JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Cost Data Investments J$/acre Bank In Sub- 7/31/74 Appr. project Appr. Estimate Sept.1976 Costs/acre coconuts with intercrop 428 398 232 330 coconuts only - - - 70 citrus with intercrop 408 378 402 430 pastureland beef 115 143 206 115 " dairy 226 448 291 600 1/ Costs/milking cows 340 600 n.a. 800 1/ Pasture only - 70. Production - Unit Costs Appraisal Actual Year Year Farm- Farm- Product Units 5 3/ 15 3/ gate Price Costs gate Price Coconut J$/unit 5.80 1.70 2.25 9.80 Bananas Jcts/lb n.a. n.a. 1.67 6.00 Beef Jets/lb 22 13 20-24 50-55 Milk processors Jcts/qt 6.60 5.00 10 28 3/ 32 condensory t 28 23 Fresh retail " 42 Orange Jets/box 250 50 60 2/ 131 2/ Grapefruit " 250 30 50 2/ 117 f/ Local market orange " 140 250 Export fresh orange " - - Local market grapefruit 120 Export fresh grapefruit 70 120 2/ Price for processing citrus fruits. 3/ Without amortization. Maintenance Costs At Appraisal Actual Beef J$/acre pasture n.a. 40 Dairy " " n.a. 40 Coconut " + intercrop n.a. 158 Citrus " + intercrop n.a. 310 ANNEX 5 Table 9 JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Farm Inputs At Appraisal Actual Farm Inputs (J$) Dec. 1970 June 76 Increase % Wages: Legal Minimum Wage n.a. 20/week Basic Wage Unskilled (labor 2.-/day 500/year 1,400/year 180 at appraisal) Milker, trained 700/year 2,100 185 Tractor Driver - skilled labor 700/year 2,100 200 Overseer/Foreman 1,500/year 2,600 73 Appointed Manager 3,000/year 6,000 1/ 100 Harvesting bananas, cutting alone/100 stems 0.50 98 100 Harvesting coconuts, reaping 100 nuts, 0.50 husking, carrying Harvesting oranges/box 0.08 0.20 150 grapefruit export fresh fruit 0.10 0.16 60 processing 0.06 0.12 100 Fences per chain all in (3 strand) 6 12.00 100 Electricity Kwh 6.6 3/ Milker Unit - installed 4,385 5,663 30 Milking Parlor (average size) 2,000 2,370 50 Road Construction per chain 31 150 400 Tractor 43-47 HP 2,700 7,600 180 Brush Cutter 550 1,200 127 Light Disk Harrow 620 1,000 61 Wheel Tractor hour costs, transport + trailer 1.87 2/ " " land preparation 1.77 2/ 3-3.50 100 Crawler acre rate, land preparation 60-80 60-80 - Concentrate lb grain 0.30 0.40 33 Dieldrin 3/40 gal 16 70 Slugbait 0.80/lb 1 25 Fertilizer compound 3.80/cwt 10.50 200 SA 2.30/cwt 6.15 167 Planting material placed at farm: citrus plants 0.15/each 0.20 33 banana suckers/seeds 0.05/each 0.10 100 dwarf seedlings 0.15/each 0.24 60 Bulls 500(800) 4/ 900 80 Heifers 1 year local beefcattle 156 250 60 Incalf Heifer local (ADC) milking cow 240(300) 4/ 400 67 1/ 6,000 is minimum. Salary depends on responsibility range. 2/ Including depreciation. Without: respectively 1.40 and 1.30. 3/ Taken from Government farm. Rates vary widely according to rating schedules. 4/ JDB appraisal estimate. JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Production Estimated Incremental Production National Production In % of National At Full Development Production Average Estimate Actual Category Unit 1965-1970 1976 1976 At Appraisal Estimate At Appraisal Actual Coconut s.ton of 1/ 17,000 6,000 Insignif- 5,500 1,500 32 25 copra icant Citrus '000 boxes 3,000 2,000 " 1,300 300 42 15 Beef s.ton beef 14,500 14,000 n.a. 1,000 600 7 43 (carcass) Beef Head of 60,000 90,000 cattle Milk '000 Imp. 10,000 11,000 700 600 1,200 6 12 gallons Bananas l.ton (1970-1975) 265,000 2/ 250,000 2/ 10,000 3/ - - - - 1/ One short ton of copra is 50 units or 155 lbs or 110 nuts. 2/ Including production for local market and homestead consumption. 3/ 4% of national production. O La ANNEX 5 Table 11 JAMAICA COMPLETION REPORT - FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Productivity and Quality Productivity Annual Figures At 1/l/77(about yr.5)1/ At Full Development Actual Appraisal Actual Appraisal Estimate Prod. Year Prod. Year Coconut units/ac 22.7 5-10 55 1980 30-50 1984 Banana intercrop tons/ac 1.5 3 - - - 2/ - Citrus oranges/ boxes 50.0 - 300 1983 240 1984 grapefruits " 50.0 - 550 1983 n.a. Banana intercrop tons/ac - 3 - - - - Beef lb l.u/ac 200.0 100-150 250 1979 200 Stocking rate AU/acre 1.0 0.4 1 Average weight/head sold lb 800.0 700 800 1977 700 Average weight gain lb/day - 1.5 - - - Dairy Milk qt/cow/day 10.0 6 10 1977 8 1980 Milk qt/cow/yr 2,400.0 1,400 2,400 1977 2,000 1980 Stocking Rate AU/acre 1.0 1.3 1 Others 1/ Due to project delays the year 1973 is considered year 1 for the purpose of this table. 2/ Banana will be maintained until year 7 or 8. 3/ Per lactation day. Labor Productivity At Appraisal Actual Beef man-year per 100 head cattle 0.6 2-4 Dairy man-year per 100 head cattle 2.0 4-5 Coconut man-year per 100 acre planted n.a. n.a. Citrus man-year per 100 acre planted n.a. n.a. Quality At Appraisal Actual Beef DaRiry Beef Dairy Livestock: calving % 65-85 80-90 75-80 60-70 weaning % 60-80 75-85 n.a. n.a. mortality % cows ) 2 2 )4 4-5 mortality % calves ) ) cow culling 3/ 10-18 10-18 n.a. n.a. fat content milk n.a. n.a. n.a. lb feed/gallon milk 2-1/2 n.a. n.a. Banana % exportable n.a. n.a. Citrus orange grapefruit orange grapefruit % fresh fruit export 0 25 ) % locally sold 75 0 ) n.a. n.a. % processed 25 75 ) Coconut nuts/unit n.a. n.a. 3/ The range indicated increasing rates from year 1 to year 5. ANNEX 5 Table 12 JAMAICA COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Preparation/Supervision Effectiveness 1971 1972 1973 1974 1975 1976 I. Staff of Agricultural Dept. 4 1/ 6 7 10 11 13 Loans approved 24 25 99 121 Existing clients 146 199 426 Prospective clients 25 2/ 30 2/ 40 3/ Total visits made by staff of Agricultural Dept. 28 97 504 560 2/ 750 3/ Visits with financial aspects 154 282 428 527 Visits with technical aspects 62 57 65 149 Visits for program formulation 165 67 75 3/ Visits made per staff member 7 16 50 51 58 Visits made per client 2.9 2.4 1.6 (existing and prospective) II. Loans prepared per technical officer 30 Technical assistance visit per technical officer 17 Supervision visits per super- visor 107 Loans handled per field officer (technical officers and supervisors) 50 III. Estimated costs of operating J$ 320 field officer in 1975 per effective day Estimated costs without JDB overheads per hour J$ 40 Estimated costs without JDB overheads per available day J$ 130 1/ Only fully effective in last quarter. 2/ Estimate JDB. 3/ Estimate Bank. JAMAICA ANNEX 6 COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Loan Status and Development Accumulated Disbursements (US$ '000) Loan Recoveries (quarterly figures) Actual Dis- Principal & IBRD bursement Loans Accumulated Amounts (J$ '000) Interest Interest Fiscal year Total Dis- Appraisal as % of Loans Under Approved Loans Arrears Recovery /5 Extension /6 Ratio a Recovery 5 Ratio of and Ouarter burseement Estimate Appraisal Consideration by JDB Cancellation Disbursements Repayments Outstanding Principal Interest % % Arrears % of Arrears Amount N2 Amount N2 Amount N2 Amount N2 Amount N2 197071 June 30 nil 185 - 1,638 247 na. - - 57 - 7 1 - - - - - 1971/72 September 30 40 370 10.8 833 778 13 - - 122 - 122 4 - - 2 - - - - - 0.2 December 31 127 555 22.8 616 1,139 20 285 /2 5 311 - 311 7 - - 3 - - - - 39 1.0 March 31 267 740 36.0 530 1,253 20 285 5 358 22 337 7 - - 3 - - - - 60 0.9 June 30 287 925 31.0 692 1,500 25 285 5 490 22 468 10 - - 4 - - - - 66 0-8 1972/73 September 30 412 1,295 31.8 1,334 1,900 29 285 5 604 22 583 14 - - 8 - - - - 44 1.4 December 31 412 1,665 24.7 1,048 2,649 30 357 7 906 22 906 18 - - 17 5 - - - 19 1 9 March 31 799 2,035 39.2 1,466 3,070 49 507 8 1,247 22 1,247 23 - - 23 15 - - - 40 1.8 June 30 1,104 2,405 45.9 1,412 3,680 64 554 9 1,668, 22 1,646 37 - - 39 20 - - - 22 2 3 1973/74 September 30 1,284 2,775 46.2 935 4,390 77 641 12 1,932 22 1,910 46 - - 37 22 - - - 50 1 9 December 31 1,284 3,145 40.8 1,270 4,670 86 774 15 2,237 22 2,215 58 - - 47 33 - - - 42 2 1 March 31 1,624 3,330 48.7 1,907 4,970 96 864 16 2,611 23 2,588 70 15 4 61 44 8 - - 36 2.9 June 30 1,891 3,515 53.7 1,049 5,640 108 1,126 22 3,026 50 2,976 84 13 3 75 54 67 - 0.4 38 3.0 1974/75 September 30 2,138 3,700 59.4 384 6,060 114 1,259 25 3,504 71 3,433 93 18 3 95 66 54 - 0.5 29 3.3 December 31 2,529 - 68.4 112 6,180 115 1,300 26 3,862 104 3,758 97 28 6 118 75 54 - 0.8 33 3 9 March 31 2,876 - 77.7 - 6,050 113 1,387 28 4,365 129 4,236 107 30 8 143 80 36 21 0.7 31 4 1 June 30 2,900 - 78.4 - 5,970 113 1,467 32 /3 4,589 240 4,349 105 20 8 161 91 85 - 0 5 32 4.2 1975/76 September 30 3,060 - 82.7 - 5,940 113 1,495 33 /4 4,697 244 4,453 105 41 14 198 99 9 - 0.9 24 5.4 December 31 3,127 - 84.5 - 5,910 113 1,528 34 /4 4,805 360 4,445 104 36 13 199 94 76 - 0.8 34 5.3 March 31 3,200 - 86.5 - 5,880 113 1,558 35 /4 5,028 370 4,658 106 38 13 224 96 21 7 0 8 25 5.6 June 30 3,500 - 94.6 - 5,523 - 1,915 /8 - 5,434 372 5,062 106 44 17 234 95 4 - 0 9 29 5.5 1976/77 September 30 3,696 - 99.9 /1 - . - - - - 3,523 373 5,150 106 58 22 270 102 3 - 1.1 22 6.4 December 31 -- -- . - - - - - - - - - - - - - - - - /1 An amount of US$3,789.99 was cancelled by JDB on October 15, 1976. 72 Exact amount not available. Proportional amount estimated. /3 Four part cancellations included. 4 One part cancellation included. /5 Amount recovered x 100 Past due and fallen due during quarter /6 Amount extension granted x 100 Past due and fallen due during quarter disbursed /7 (outstanding arrears:l0an portfolio) x 100 of Loan 719-JM. 18 As of June 30, all outstanding subloan commitments were cancelled.  ANNEX 7 Table 2 JAMAICA COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Aging of Arrears (J$ '000) Principal ----------Principal + Interest (days)------ Date Balance 0-30 31-90 90+ 121-180 over 180 Total Dec. 31, 71 337 3 3 - - - 3 " ",72 906 - - 17 17 ", 73 2,215 8 8 17 47 ", 74 3,758 36 36 68 146 ", 75 4,445 60 60 133 235 30 - 120 Sept. 30, 76 5,150 149 72 53 54 328 1/ -------------------%-=--------------------- Dec. 31, 71 - - 100 - - - 100 72 - - - 100 - - 100 " ",73 - 47 17 36 - - 100 " ",74 - 29 25 46 - - 100 " ",75 - 18 26 56 - - 100 30 - 120 Sept. 30, 76 - 45 22 16 17 100 1/ Percentage related to Loan 719-JM only. ANNEX 7 Table 3 JAMAICA COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Arrears and Collections 1974-76 /1 (J$ '000) Year 1974 Principal Interest Total 1. Overdues at beginning of year 0 46.8 46.8 2. Installments falling due during year 108.8 249.2 358.0 3. Collections during year 80.4 178.0 258.4 4. Arrears at end of year 28.4 118.0 146.4 5. Total portfolio end of year 3,758.2 3,758.2 6. Arrears to total portfolio: 4 t 5 3.9% 7. Recovery ratio: 3 t (1 + 2) 73.9+ 60.1% 63.8% Year 1975 1. Overdues at beginning of year 28.4 118.0 146.4 2. Installments falling due during year 278.8 384.3 663.1 3. Collections during year 256.0 303.6 559.6 4. Arrears at end of year 51.2 /2 198.7 249.9 5. Total portfolio end of year 4,444.5 4,444.5 6. Arrears to total portfolio: 4 t 5 5.6% 7. Recovery ratio: 3 t (1 + 2) 83.3% 60.4% 69.2% Year 1976 1. Overdues at beginning of year 51.2 198.7 249.9 2. Installments falling due during year 233.7 646.1 879.8 3. Collections during year 167.1 488.6 655.7 4. Arrears at end of year 70.2 294.4 364.6 5. Total portfolio at end of year 9,840.7 - 9,840.7 6. Arrears to total portfolio: 4 t 5 - - 3.7% 7. Recovery ratio: 3 t (1 + 2) 58.7 55.7 58.1 1/ Loans 719-JM and 1004-JM. f/ Includes 15.0 of extensions. Source: JDB. ANNEX 7 Table 4 JAMAICA COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT Relation of Loans in Arrears to Age of Loans at January 31, 1976 First Second Non- IBRD IBRD IBRD Four-Five Years Old Project Project Loans Total Number of loans made effective 7 - 4 11 Number of loans in arrears: Principal only 1 - 1 Interest only 1 - 1 Principal and interest 2 2 Total in arrears 2 - 2 4 Percent-total in arrears t total effective 28 - 50 36 Three-Four Years Old Number of loans made effective 13 - 10 23 Number of loans in arrears: Principal only 2 - 2 Interest only 5 4 9 Principal and interest 4 1 5 Total in arrears 11 - 5 16 Percent-total in arrears t total effective 85 - 50 70 Two-Three Years Old Number of loans made effective 38 - 33 71 Number of loans in arrears: Principal only 2 6 8 Interest only 22 7 29 Principal and interest 5 8 13 Total in arrears 29 - 21 50 Percent-total in arrears t total effective 76 - 64 70 One-Two Years Old Number of loans made effective 44 14 42 100 Number of loans in arrears: Principal only - 1 2 3 Interest only 33 7 18 58 Principal and interest 1 2 6 9 Total in arrears 34 10 26 70 Percent-total in arrears t total effective 77 71 62 70 Less Than One Year Old Number of loans made effective 5 68 28 101 Minus loans less than four months old 1 26 8 35 Balance: Number of loans for which arrears are possible 4 42 20 66 Number of loans in arrears: Principal only - - - - Interest only 1 27 8 36 Principal and interest - 1 2 3 Total 1 28 10 39 Percent-total in arrears to total possible 25 67 50 59 ANNEX 7 Table 4 page 2 First Second Non- IBRD IBRD IBRD All Loans Project Project Loans Total Number of loans made effective 107 82 117 306 Minus loans less than four months old 1 26 8 35 Balance: Number of loans for which arrears are possible 106 56 109 271 Number of loans in arrears: Principal only 5 1 8 14 Interest only 62 34 37 133 Principal and interest 10 3 19 32 Total 77 38 64 179 Percent-total in arrears to total possible 73 68 59 66 ANNEX 9 Page 1 JAMAICA COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Economic Rate of Return 1. Economic cost and benefits have been determined on financed costs and prices prevailing at the end of 1976 (Annex 5) corrected for subsidy (fertilizer 30% of wholesale price), tax elements (10%) and for overrated wages (-50%). The economic price for banana was estimated at 3.51 per lb. 2. The investment costs were calculated by multiplying the subloan disbursements by a factor of 1.8, which reflects the relation between the average project costs and the average subloan amount. The following correc- tion factors were used: tools (equipment (0.90), fertilizers (1.40), labor (0.50), and land preparation (1.35)). These factors led to the correction factors of the various crops: Coconut (14% of all investments) 1.07 Citrus (18% of all investments) 0.98 Beef (46% of all investments) 1.02 Dairy (22% of all investments) 0.96 The weighted average of all investments is 1,006 and therefore no extra correction was needed. The investment figures are given in Table I of this annex. 3. The operating costs are estimated on the following basis: (a) Cost prices (i) Banana. Very efficient farmers' production costs are 3-41 per lb. In the project there are less favorable situations. Estimated cost level 5J per lb. Part is imputed to main crop of coconut or citrus, and therefore calculated with 4J per lb level. Cost price calculated per lb exported produce. (ii) Dairy. The survey indicated a cost of production of 28J per qt. (iii) Beef. In rainfed areas maximum 150 lb/acre/year. Calculated with an average of 401 per lb unit cost live- weight, as an average of areas under different conditions. ANNEX 9 Page 2 (iv) Coconut. Production average 50 units/acre. Production costs in model about J$ 4.80/unit. In these subprojects, with less favorable circumstances, calculated with J$ 5/ unit. (v) Citrus. Average guaranteed price in 1976 was about J$ 1.30/ box, which was hardly remunerative to the average farmer. Calculated with cost price of J$ 1.30/box. (b) Correction factors Basic Rate Special Rate Correction Correction Weighing Factor Item Factor Factor Citrus Coconut Banana Milk Beef Fertilizers 1.40 1.68 20 30 40 20 20 Tools/materials 0.90 1.08 10 10 10 30 20 Labor 0.50 0.50 40 40 30 20 20 Others 1.00 1.00 30 20 20 30 40 Average weighted basic rate 0.87 0.91 1.00 1.00 0.96 special rate 0.94 1.02 1.13 1.06 1.05 The operation costs are mentioned in Table 4. 4. The production estimate is based on the total estimated acreage developed (Annex 5, Table 7) and the period required for full development, as recorded in the farm survey. These periods are: dairy, 4 years; beef, 6 years; coconut, 11 years; citrus, 9 years. For farmgate prices see Annex 5, Table 8. The understanding correction factors for the value of production were used: For Basic Rate For Special Rate Dairy 1.00 1.00 Beef 1.00 1.00 Coconut 1.00 1.40 Citrus 1.00 1.10 Banana - Export 0.60 1.00 - Local 0.60 0.60 (The economic price of banana is estimated at 3.51 per lb.) 5. The cost and benefit stream are given in Table 1, and the production estimates in Table 2. ANNEX 9 JAMAICA Table 1 COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Economic Rate of Return (J$ '000) Using basic rate J$ 1 = US$1.10 Using special rate J$ 1 = US$0.80 Year Invest- Operating Value of Net Invest- Operating Value of Net ment Costs Production Benefit ment Costs Production Benefit 1971 560 - - (570) 560 - - (560) 1972 1,070 - - (1,070) 1,070 - - (1,070) 1973 2,390 358 461 (2,287) 2,390 382 461 (2,311) 1974 2,920 1,090 1,358 (2,652) 2,920 1,170 1,456 (2,634) 1975 1,700 1,636 1,959 (1,377) 1,700 1,774 2,251 (1,223) 1976 1,290 2,134 2,561 (863) 1,290 2,326 3,087 (529) 1977 - 2,329 2,894 565 - 2,538 3,402 864 1978 - 2,569 3,246 677 - 2,796 3,768 972 1979 - 2,893 3,667 774 - 3,141 4,207 1,066 1980 - 3,234 4,127 893 - 3,505 4,696 1,191 1981 - 3,208 4,166 958 - 3,468 4,682 1,214 1982 - 3,188 4,159 971 - 3,448 4,621 1,173 1983 - 3,295 4,332 1,037 - 3,565 4,835 1,270 1984 - 3,191 4,306 1,115 - 3,449 4,754 1,305 1985 - 3,248 4,404 1,156 - 3,512 4,891 1,379 1986 - 3,145 4,358 1,213 - 3,395 4,788 1,393 1987 - 3,167 4,407 1,240 - 3,420 4,859 1,439 1988 - 3,007 4,227 1,220 - 3,240 4,581 1,341 1989 - 3,007 4,227 1,220 - 3,240 4,581 1,341 1990 - 3,007 11,877 1/ 8,870 - 3,240 12,231 1/ 8,991 Rate of Return = 7.85% Rate of Return = 10% 1/ Including rest value. ANNEX 9 JAMAICA Table 2 COMPLETION REPORT--FIRST AGRICULTURAL CREDIT PROJECT (Loan 719-JM) Production Year Milk Beef Coconut Citrus Banana Citrus '000 qt cwt s. ton 000 '000 s. ton Intercrop 1/ liveweight copra boxes export local 1971 - - - - - - 1972 - - - - - -- 1973 800 3,000 - - - - 40 1974 2,400 6,000 - 10 2 1 60 1975 2,800 9,000 - 20 6 1 60 1976 3,200 11,000 - 50 10 2 40 1977 3,600 13,000 30 100 10 2 20 1978 4,000 15,000 60 150 10 2 20 1979 4,800 16,000 100 200 10 2 10 1980 5,600 17,000 200 250 10 2 10 1981 5,600 18,000 400 270 8 2 - 1982 5,600 19,000 600 280 6 1 - 1983 5,600 20,000 800 290 6 1 - 1984 5,600 20,000 1,000 300 4 1 - 1985 5,600 20,000 1,200 300 4 1 - 1986 5,600 20,000 1,400 300 2 1 - 1987 5,600 20,000 1,500 300 2 1 - 1988 5,600 20,000 1,500 300 - - 1989 5,600 20,000 1,500 300 - - 1990 5,600 20,000 1,500 300 - - 1/ Value estimated in J$ '000. iLT-R E CAR/O WA N S ,MONTEGkO MYN GUATEMALA Ai T N NNVE T ~ ~ ~ z = E C_AW Y-.0 GrA Ml E F, Nj N J A M A l C A NTI KINGSTON S - AGRICULTURAL CREDNT PROJECT r AI.T MAJR R-ALi MJRBE AESl- SECONDR RLOAS ® EMAO A RAILROADS ABATT' R -i c C R0 MIL COLLECTING STATION 0000ONU1 MILlO PASTEURINGO PLANTO 0 we0 N Næ 76 1 rroo0 77o 3rr 7 50'055'005 0