Romania - Third Livestock Project

Document of The World Bank FOR OFFICIAL USE ONLY IL1 COPY Report No. 2602a-RO STAFF APPRAISAL REPORT LIVESTOCK III PROJECT ROMANIA September 24, 1979 Projects Department Europe, Middle East and North Africa Region 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 EQUIVALENTS Lei 18 = US$1 WEIGHTS AND MEASURES 1 hectare (ha) = 2.5 acres 1 kilogram (kg) - 2.2 pounds 1 kilometer (kIn) 0.6 mile 1 cubic meter (m3) = 1.3 cubic yards 1 sq meter (m2) = 1.2 square yards 1 ton (t) - 2,200 pounds ABBREVIATIONS BAFI = Bank for Agriculture and Food Industry CAP - Agricultural Production Cooperative Cc = Consumption Cooperative CRC = Credit Cooperative EC = European Economic Community IAS = State Agricultural Enterprise ICA/ICAP = Intercooperative Association ICB = International Competitive Bidding ICRA = District Food Wholesale Enterprise (Subordinate to MFIT) LW = Liveweight MAFI = Ministry of Agriculture and Food Industry MFIT = Ministry for Internal Trade AVICOLA = Poultry Central MIT = Meat Industrialization Trust NB = National Bank of Romania ROMANIAN FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY APPRAISAL OF LIVESTOCK III PROJECT ROMANIA Table of Contents Page No. I. INTRODUCTION . ........................ .. .............. 1 II. THE AGRICULTURAL SECTOR * *. ............................. 1 A. The Resource Base . ....... .......... .* ......... 1 B. Role in the Economy ............................. 3 C. Investment Program . .............. . . . ..........*.*** 4 D. Development Constraints and Issues . ............. 6 E. The Poultry Subsector ........................... 7 F. Support Services . ................... ... ........ . 10 G. Bank Assistance in Agriculture .................. 14 III. THE BANK FOR AGRICULTURE AND FOOD INDUSTRY ........... 16 A. Overview ........................................ 16 B. Fiscal Agency Operations ..... ................... 16 C. Financing Policies and Procedures .... ........... 17 D. Source of Funds ...... . ........................... 17 E. Financial Conditions .............................. 18 IV. THE PROJECT ............. ............................. 18 V. PROJECT COSTS AND FINANCING .......................... 20 A. Project Cost .................................................... 20 B. Project Financing ............................... 22 VI. DEMAND AND MARKETS ASPECTS .. .......................... 23 VII. TECHNOLOGY, RESEARCH AND PLANT LOCATION ............. . 26 VIII. PROJECT IMPLEMENTATION ............. .................. 29 A. Organization and Management .................... 29 B. Lending Policies and Procedures ................ * 29 C. On-Lending Terms ................................ 30 D. Procurement . ............ ....................... 31 E. Disbursements ........................ ............. 31 F. Accounts and Audit .............................. 32 G. Monitoring ...... .............. ................................. 32 H. Environmental Impact ............................ 33 I. Role Women ................. ..................... 33 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 diclsed without World Bank authorization.  Table of Contents (Continued) Page No. IX. PROJECT BENEFITS AND JUSTITICATION .................... 33 A. Production ....................................... 33 B. Markets and Prices .........................,.35 C. Financial Analysis ............................... 36 D. Economic Analysis ................................ 37 X. RECOMMENDATIONS ..................... 39 ANNEXES 1. Estimated Project Procurement 2. Table 1: Phasing of Project Investments Table 2: Estimated Schedule of Bank Disbursements Table 3: Phasing of Project Commitments 3. Investment Program Actual and Planned 4. Table 1: Chicken Meat Production in Select:ed Countries Table 2: Meat Per Capita Consumption for Selected Countries Table 3: Romania Poultry Production 1978-1985 Table 4: Romania Per Capita Consumption of Meat Table 5: Export of Meat Table 6: Income Elasticities for Demand of Selected Poducts Table 7: Protein Per Capita Per Day 5. Material Balance 6. Table 1: Financial and Economic Price Table 2: Economic Benefits and Costs 7. Table 1: IAS New Broiler Production Units Table 2: CAP New Broiler Production Units Table 3: LAS Broiler Breeding Farms Table 4: CAP Modernization Broiler Production Units Table 5: Poultry Processing Plants 8. Statement of Expenditures 9. Table of Contents Project Implementation File MAPS IBRD No. 14310 Socialist Republic of Romania Livestock III (Poultry) Project  APPRAISAL OF LIVESTOCK III PROJECT ROMANIA I. INTRODUCTION 1.01 The Government of the Socialist Republic of Romania has requested the Bank's assistance in financing an integrated Poultry (breeding, growing and slaughterhouse) project. The proposed project was first submitted to the Bank in 1977. However, it was felt that since the proposed technology (mechanized cage system) had only a limited operational experience and lacked data to support its viability, it could not be appraised. As a result, Govern- ment was advised that the project should be postponed for consideration at such time additional operational experience had been gained. In September 1978, a preparation mission visited Romania and examined the results obtained after an additional year of operating experience and made a comparative analysis of the mechanized cage system with the deep litter system. The mission concluded that the system is technically viable and has a comparative advantage over the existing floor system. The proposed project is based on a preparation report submitted to the Bank in February 1979 and the findings of an appraisal mission that visited Romania in March/April 1979 composed of Messrs. E.P. Schertz, P. Aklilu and J. Krasowski (Bank) and R. Arvidson (Consultant). II. THE AGRICULTURAL SECTOR A. The Resource Base 2.01 Romania has an area of 237,500 sq. km covering three distinct agro-climatic zones which have influenced the country's pattern of agricultural and livestock development. The Plains Zone, forming the grain belt of Romania is endowed with fertile soils (53% of arable and 18% of pasture and meadow land), contains accessible river flows which have been and can be developed for irrigation, and relatively developed infrastructure (roads and facilities). The Plains Zone stretches from the west along the Danube river, to the southern parts bordering with Bulgaria and southeastern parts bordering the Black Sea. In this zone intensive cattle and poultry development has taken place over the last decade. The Foothills Zone, is less productive and has limited agricultural activity. It contains about 28% of arable and 32% of the pasture and meadowland, mostly in small and fragmented farm holdings. The Mountain and Tableland Zone, covers the central and northern parts of Romania, and contains about 19% of arable and 50% of pasture and meadow lands. Romania's forest resources in the mountains and the uplands present a good potential for future exploitation. Selected agricultural data indicators are presented in Table 1.  -2- Table 1 APPRAISAL OF LIVESTOCK III PROJECT ROMANIA Selected Agricultural Data and Indicators 1960 1970 1977 Total Population (Mill.) 18.4 20.2 21.6 Rural (%) 66 5'3 56 Total Labour Force (Mill.) 9.60 9.90 10.22 Agricultural (%) 65 49 34 Total Land Area (Mill. ha.) 23.8 23.8 23.8 Agricultural 14.5 14.9 15.0 Arable 9.8 9.;7 9.8 Pasture 2.8 3.0 3.0 Other 2.9 2.2 2.2 Agricultural Land Holdings (%) State 26 1/ 30 2/ 30 Cooperatives 9 1/ 61 2/ 61 Individual 65 1/ 9 2/ 9 Fixed Assets (Mill. Lei) n.a. 48455 85392 State (%) n.a. 56 55 Cooperatives (%) n.a. 44 45 Arable Area Per Tractor (ha.) 222 91 71 Fertilizer Use (Kg. Per Arable ha.) State 34 123 158 Cooperatives n.a. 52 90 Crop Production Wheat State-Production ('000 tons) 715 799 1235 -Yield (ton/h3.) 1.8 2.0 3.5 Cooperatives-Production ('000 tons) n.a. 2504 5L22 -Yield (ton/ha.) n.a. 1.3 2.7 Maize State-Production ('000 tons) 625 1404 2056 -Yield (ton/ha.) 1.9 3.3 3.6 Cooperatives-Production n.a. 3839 5170 ('000 tons) -Yield (ton/ha.) n.a. 2.0 2.9 Livestock Production Meat ('000 tons LWT) State 127 364 647 Cooperative n.a. 313 612 Milk ('000 State 2003 6133 8285 Cooperatives n.a. 10873 15549 No. of State Farms :392 No. of Cooperatives n.a. 4626, 4415 Agricultural Exports (% of total) 36 27 19 AMricultural Product (Z of lational Income) 33 19 16 1/ Data shown for 1955 2/ Data shown for 1965  B. Role in the Economy 2.02 Agriculture plays an important role in the Romanian economy. In 1978, the share of agricultural output in the total social product was 13.4%; it engaged 32.6% of the labor force and accounted for about 20% of foreign exchange earnings. The sector is organized on the basis of: (a) social sector farm units composed of state, cooperative and intercooperative farms; and (b) individual farms. Product mix of agriculture sector has gradually changed from 65% crops and 35% livestock in 1960 to 56% crops and 44% live- stock in 1978. By 1983 the plan target is to reach 50% livestock production. This shift of production emphasis is due to: (a) government's desire to improve the quantity and quality of per capita consumption of meat; and (b) to increase foreign exchange earnings through export of beef, lamb and pork. Despite the sector's important role in the development of the Romanian economy, it has always been given secondary priority in the allocation of investment resources and introduction of new technologies. During the 1950's and early 1960's when government nationalized large scale farm enterprises and organized small individual farms into cooperatives, investment was concen- trated on the state-owned farms (IAS) to ensure adequate supply of food and fiber to meet the domestic requirements. Hence, technological innovations, trained manpower, mechanical services were confined largely to the state farms. However, subsequent recognition of the production potential of the cooperative farm sector has resulted in the infusion of capital investments (primarily irrigation facilities) and technical services in this sector. Consequently, productivity in the cooperative sector has increased gradually but still remains substantially below that of the state sector. Wheat and maize yields in the state farm sector are about 25% higher than those in the cooperative farm sector which is a direct reflection of low level of mechani- zation (1 tractor for 100 ha), inadequate fertilizer use (100 kg per ha as compared to 177 kg in the state farm sector in 1978) and poorer land. 2.03 Agriculture's importance is further evidenced by being a primary source of raw material to supply the agroindustries. With rising per capita incomes and urbanization, consumers demand includes an increasing proportion of processed agricultural and livestock products. Except in individual free markets, animals are slaughtered in slaughterhouses. In the poultry sub- sector in particular where the individual sector accounts for 60% of total broiler production, broilers are sold live and are slaughtered at home. 2.04 The growth of the agricultural sector has also meant the emergence of an indispensable source of foreign exchange (about 20% of total exports in 1978). Over the last decade, the sector has a positive trade balance export- ing more than it is importing thus contributing to the economy's foreign exchange treasury. The budgetary foreign exchange allocation for the develop- ment of agriculture has been less than the sector's foreign exchange earnings. However, the nature of planning in Romania provides a priority to the develop- ment of industrial sector which deprives agriculture needed foreign exchange.  - 4 - C. Investment Program 2.05 In Romania national development plan guidelines are first estab- lished by the State Planning Committee and approved by the Council of Ministers and finally decreed by the General Assembly. On the basis of these guidelines, specific production targets and investment requirements are prepared at the enterprise level and are coordinated by the District People's Council. These draft plans are transmitted to the Ministry of Agriculture and Food Industry (MAFI) which is responsible for the preparation of a con- solidated and coordinated investment program for the entire agricultural sector. Finally, MAFI's proposal is submitted to the State Planning Committee for presentation to and final approval by the Council of Ministers. Such plans are long-term (15 years), medium-term (5 years) and annual. In 1975, the Party Congress approved the Sixth Five Year Plan for 1976-1980 which was set within a longer term perspective covering 1976-1990. 2.06 The planned production targets for 1976-1980 are generally ambitious compared with the actual achievements during the 1971-1975 plan period. Planned growth rates (volume) for selected crops are shown below: Actual Planned 1970-1975 1976-80 =--- Percent Per Annum -- Maize 7.1 6.2-8.6 Soybeans 19.0 19.7-29.2 Sunflower -0.6 5.6-8.3 Despite government's stated commitment to: (a) increase fertilizer use from 95 kg per ha of arable land in 1975 to 280 kg per ha in 1980; (b) expand irri- gation and drainage facilities; (c) channel investment resources into the cooperative sector to raise productivity; and (d) introduce high yielding and disease resistant seed varieties and upgrading of cultural practices, the growth rates most likely to be achieved during 1976-80 would be the lower figures in the projected range. This pessimism arises from the following considerations: (a) actual growth rates for energy grains in the recent past are far below the projected rates; (b) budgetary and other constriaints to expand irrigation and drainage facilities; (c) the introduction of improved seeds and other cultural practices will only achieve optimum yields after a minimum of 3-4 years; and (d) the disparity between cooperative and state farm sectors is significant so that to reach a global fertilizer application of 280 kg per ha and availability of other inputs would mi-n; a massive allo- cation of resources for the distribution of fertilizers. Dr- n 1.9 production of wheat, maize, soybeans and sunflower, or,laz.' arn vLneuc-7. were the lowest since the beginning of the Sixth K'ua pei.ie. mi Lipt it was believed that poor weather conditions (cold winterm heav; r