Turkey - Fruit and Vegetable Export Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. 4265 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) December 30, 1982 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. ABBREVIATIONS CEU - Citrus Extension Unit CMO - Central Marketing Organization EEC - European Economic Community MEPA - Merkezi Pazarlama Anonim Ortakligi (Central Marketing Organization) MEYSEB - General Directorate of Fruit and Vegetable Export Development Projects MFER - Ministry of Foreign Economic Relations PU - Project Unit RMC - Regional Marketing Organization SEE - State Economic Enterprise SIEU - Seyhan Integrated Extension Unit SPO - State Planning Organization TCL - Turkish Cargo Lines TCZB - Agricultural Bank of Turkey TZ - Extension Service COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) - Turkish Lira (TL) Appraisal Year Average - 1971 Exchange Rate: US$1 = TL 14.917 Intervening Years Avera e - (1972-79) US$1 = TL 18.938 Completion Year Average !- 1980 US$1 = TL 76.405 Completion Report Year Average. - 1981 US$1 = TL 110.000 Fiscal Year of Borrower March 1 to the last day of February /1 Since January 1980, the rate is being adjusted for differential inflation between Turkey and its major trading partners. Effective May 1, 1981, the Central Bank of Turkey decided to adjust the Turkish Lira against foreign currencies on a daily basis in accordance with developments in international monetary markets. /2 End June 1981. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) TABLE OF CONTENTS Page No. Preface ............................................................ i Basic Data Sheet ................................................... ii Highlights ......................................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY ...................................... 1 II. MAIN ISSUES ........................................... 3 A. Project Organization and Market Interaction . 3 B. Utilization of Project Investments ............. 6 C. Citrus Development .................. ...... 6 D. Procurement ................................ 7 E. Project Benefits ............. ...... .... 8 F. Conclusions .................................. 8 Annexes: I - Turkey: The Fruit and Vegetable Processing Industry - Conclusions and Recommendations ....................... 11 II - Turkey: Marketing of Fresh Fruits and Vegetables - Summary of Conclusions and Recommendations ............ 14 IIL - Rate of Return Calculations .............................. 19 Attachment 1: Comments on Procurement Received from Ministry of Agriculture and Forestry ....................... 25 Attachment 2: Comments from the Agricultural Bank of Turkey ....... 28 PROJECT COMPLETION REPORT I. Background .................. ................ 31 II. Formulation ................................. 33 III. Project Implementation ................................... 36 IV. Project Impact on Citrus Production and Marketing ........ 47 V. Economic Rate of Return .......................... ........ 54 This decament has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (Continued) Page No. VI. Institutional Performance and Development ................ 56 VII. Special Issues ........................................... 61 VIII. Bank Performance ......................................... 64 IX. Conclusions ........................... 65 Annexes: 1 - Table 1: Physical Implementation of Project Components in Comparison with Appraisal Estimates ....... 67 2 - Table 1: Establishment of Citrus Orchards ............... 68 2 - Table 2: Number of Short-term Loans for Existing Orchards in Relation to Area of Orchard (Decare) ...... 69 2 - Table 3: Short-term Credit for Existing Citrus Orchards 70 3 - Number of Citrus Trees in the Project Area (1976-78) .................................... 71 4 - Table 1: Production and Disposal of Selected Citrus Fruits - Turkey: 1973-79 ...... 72 5 - Financial and Economic Performance ............. 73 5 - Roll-on/Roll-off Vessel Component: Financial Data Sheet .................. ...... 76 5 - Roll-on/Roll-off Vessel Component: Financial Cash Flow Statement ........ .... 77 5 - Transport Company Component: Financial Data Sheet ......................... 78 5 - Transport Company Component: Financial Cash Flow .......................... 79 5 - Citrus Orchard Component, Recurrent Establishment Expenses: Orange Orchard ....... 80 5 - Citrus Orchard Component, Operating Expenses at Full Development: Orange Orchard Established Under Project ........................ ........ 81 5 - Initial Establishment Expense: Orange Orchard.. 82 5 - Orange Orchard Component, Sales Revenues ....... 83 5 - Orange Orchard Component, Financial Cash Flow 84 5 - Packing House/Cold Storage Component: Financial Data Sheet ......................... 85 5 - Packing House/Cold Storage Component: Financial Cash Flow ........ ............ 87 Map IBRD 3344 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) PREFACE This is a performance audit of the Turkey Fruit and Vegetable Export Project, for which Loan 762-TU in the amount of US$10 million and Credit 257-TU in the amount of US$15 million was approved on June 10, 1971. The Loan and Credit was closed on June 30, 1979 after a delay of three years. The final disbursement was made on March 12, 1980. A Second Fruit and Vegetable Project was approved in April 1981. The audit consists of a memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated September 9, 1981. The PCR was prepared by the Europe, Middle East and North Africa Regional Office and is based, in part, on a completion report prepared by General Directorate of Fruit and Vegetable Export Development Projects (MEYSEB). The audit is based on a review of the Appraisal Report (No. PA-87a) dated May 26, 1971, the President's Report (P-948) of May 26, 1971, the Loan and Credit Agreements of June 22, 1971, and the PCR together with a review of correspondence with the Borrower and internal memoranda on project issues as contained in relevant Bank files, and interviews with Bank staff who have been associated with the project. An OED mission visited Turkey in August-September 1982 and held dis- cussions with Government officials who had been associated with the project and with project beneficiaries - industrialists and farmers. These dis- cussions and observations at project sites also contributed to the conclusions of the audit which are contained in the memorandum. The draft report was sent to the Borrower on November 1, 1982 for comments. Comments which were received separately on the issue of procure- ment, as well as comments on the draft report, appear as attachments to the audit memorandum. OED wishes to acknowledge the valuable assistance and information provided by the Government, especially by the staff of MEYSEB, and by a number of beneficiaries who granted extensive interviews and conducted tours of the investment sites, all of which contributed significantly to the devel- opment of this report. - ii - PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Actual as % of Expectations Current Estimate Appraisal Estimate Project Costs (US$ million) 44.0 58.4 133 Loan Amount (US$ million) 10.0 10.0 100 Credit Amount (US$ million) 15.0 15.0 100 Date Physical Components Completed 12/31/75 12/31/75 Proportion Completed by above Date (%) 63 100 Economic Rate of Return (%) about 27 about 8 Beneficiaries - 4,500 families PROJECT DATES Actual or Original Plan Revisions Estimated Actual First Mention in Files/Timetable - - 01/69 Government Application - 10/68 Negotiations 04/22-30/71 - 04/22-30/71 Board Approval 06/01/71 - 06/10/71 Credit/Loan Agreement Date 06/22/71 - 06/22/71 Project Agreement Date 06/22/71 - 06/22/71 Effectiveness Date 09/10/71 11/10/71, 02/10/72, 04/10/72, 06/09/72 05/19/72 Closing Date 06/30/76 06/30/77, 09/30/78 06/30/79 CUMULATIVE DISBURSEMENTS CY71 CY72 CY73 CY74 CY75 CY76 CY77 CY78 CY79 Appraisal Estimate (US$ million) 2.4 12.0 18.2 23.1 24.9 25.0 25.0 25.0 25.0 Actual (US$ million) - - 0.2 7.7 8.2 14.8 21.2 23.7 25.0 Actual as percentage of Estimate - - 1 33 33 59 85 95 100 Date of Final Disbursement: 03/80 MISSION DATA Sent Date No. of Staffweeka Specializations Performance Types of Mission b (Month/Year) Persons in Field/ Represented/b tin c Problems/d Identification SPO.L 10/79 n.a. n.a. Reconnaissance 07/69 3 1.5 Reconniassance 12/69 1 1.0 Preparation/f SPO/Gov't 02/70 5 17.5 Appraisal Bank 11/70 7 28.0 Appraisal Follow-up Bank 03/71 1 0.7 Total 48.7 Supervision I 11/71 2 4.0 a/i,a - - Supervision II 04/72 1 2.0 a - - Supervision IIA 12/72 1 2.0 a - - Supervision IVLh 08/73 2 4.0 - 3/2 M Supervision V 12/73 2 3.0 ae,a 3/1 M,T Supervision VI 05/74 4 8.0 a/i,a,ae,na 3/2 M,T Supervision VIL/i 07/74 1 2.0 na - M,T Supervision VIII 08/74 3 9.0 a,fe,na 2/1 M,T Supervision IX 03/75 3 4.5 a,ae,e 2/1 M,T Supervision X 11/75 2 4.5 (11) a,ae 2/1 M,P Supervision XI 06/76 3 4.5 (8) a/i,a,e 2/1 M,P Supervision XII 10/76 3 4.5 (16) fe,a,a/i 2/1 M Supervision XIII 02/77 3 4.8 (18) 2a,a/i 1/2 M Supervision XIV 04/77 1 0.3 (2) a/i - - Supervision XV 07/77 3 3.9 ae,a,fe 3/2 F,M Supervision XVI 03/78 2 1.4 a,ae - - (extension aspects) Supervision XVII 03/78 3 2.0 fe,a,ae 2/2 M,T Supervision XVIII 11/78 3 0.3 2fe,ae 2/2 F,M Supervision XIX 09/79 1 1.6 ae - - Supervision XX 10/79 1 3.9 (10) fe - F,M Supervision XXI 03/80 3 2.1 a,fe,a/i 2/1 F,P,M Total_A 72.3 Footnotes on following page. - iii - OTHER PROJECT DATA Borrower Government of Turkey Executing Agencies Project Unit (PU) Ministry of Foreign Economic Relations General Directorate of Fruit and Vegetable Export Development Projects Ministry of Agriculture (MEYSEB) Agricultural Bank of Turkey (TCZB) Follow-on Project Name Second Fruit and Vegetable Project Loan Number Loan 1967-TU Amount (US$ million) 40.0 Agreement Date 04/06/81 /a Field work only. Most of the supervision missions were combined with other missions. Staffdays related to supervision of Ln/Cr 762/257 are in brackets whenever it was possible to be determined. /b a = Agriculturist; a/i = Agro-Industries Specialist: e = Economist; fe = Financial Analyst/Economist; ae = Agricultural Economist; na = not available. /c 1 = Problem-free or minor problems; 2 = moderate problems; 3 = major problems. /d F = Financial; M = Managerial; P = Political; T = Technical; 0 = Other. Te State Planning Organization. /f Government, through SPO, was undertaking preparation work, prior to the Bank mission, using consultants services. /g Two short supervision missions in combination with other projects, each for about 4 days to finalize tender documents for the refrigerated tractor trailers. /h A special Bank mission of 3 staff members, particularly to deal with procurement problems of refrigerated tractor trailers (only memo on file). /i An extension consultant for implementing the proposed T&V extension system. /j A mission left headquarters in July 1980 with two sets of terms of reference, one for completion of Fruit and Vegetable Export Project and the second for appraisal of the Second Fruit and Vegetable Project pending resolution of project issues. The mission was able to resolve outstanding project issues and proceeded with appraisal; completion was postponed until the appraisal report was processed. - iv - PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) HIGHLIGHTS The project was intended as a first step in developing Turkey's fruit and vegetable processing industry to take advantage of markets in Western Europe for out-of-season produce. Marketing studies at appraisal concluded that Turkey's exports to European markets could be considerably expanded if the quality standards that these markets required could be sustained and a regular supply guaranteed. The project was to support the establishment of an integrated system for production and marketing ensuring that all the links between the farmer and the market would be joined. Provi- sion was made for cold storage and packing houses, export handling facilities, refrigerated trailers and trucks and two roll-on/roll-off ferries intended to provide twice-weekly service for perishable goods from the Port of Izmir to Italy. Changes were made during project implementation principally as a result of cost increases caused by delays in implementation during a period of rapid inflation. The project was completed four years later than estimated at appraisal largely because of the complexity of the project, the fact that no marketing organization was established, procurement difficulties and frequent Government reorganizations. Throughout this long implementation period, 21 supervision missions were mounted but were principally preoccupied with procurement, construction and disbursement problems. As a result, the central objective of the project, to ensure an integrated production and marketing system, received only secondary attention. This objective was the primary responsibility of a newly established central marketing organization which was abolished just prior to loan effectiveness following a change in Government. After dissolution of this organization, the Bank and Borrower assumed that responsibility could be left to fruit and vegetable exporters with little guidance on how this complex task, given the existence of well-organized competition from other countries, could be achieved. At completion, few of the anticipated improvements in the marketing structures had been attained while the ferry boats, refrigerated trailers and cold storage facilities have been used mainly for dried fruits, fish and meat rather than for fruits and vegetables. The economic rate of return was calculated at 8% on completion, compared to 27% at appraisal. Lessons of this project include: (i) without the large amount of supervision received by this project, procurement problems would have been greater and implementation delayed further. At the same time, however, super- vision missions should have insisted that a central marketing organization be 're-established; (ii) organization of marketing channels is as equally - v - important as removing production constraints and essential if the export of high quality fruits and vegetables is to be increased and sustained; (iii) none of the components were designed directly to increase vegetable exports; and (iv) consideration should have been given to markets other than Western Europe, where prices are comparable and imports are not subject to the same restrictions as prevail throughout EEC countries. Points of special interest concern: - the relatively large number of consultants employed provided good services and assisted implementation (PPAM, para. 9); -. the Borrower has been dissatisfied with the procurement requirements of the project. Consideration should be given to initiating a study to clarify and simplify procurement procedures where possible (PPAM, para. 27); and - a more systematic attempt is being made under the follow-on project to establish coordinated marketing structures but progress has been slow to date. Without more rapid action, the export potential of Turkey's fruit and vegetable producers will remain under-utilized (PPAM, para. 18). PROJECT PERFORMANCE AUDIT MEMORANDUM TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) I. SUMMARY- 1. The objective of the project was to expand Turkey's fruit and vegetable exports through increased citrus production and an improved (inte- grated) marketing infrastructure. It was expected to increase earnings of fruit and vegetable exports from US$20 million to US$50 million a year (1971 dollars) and to create new jobs for about 4,800 workers. The project included financing for two roll-on/roll-off ferry ships to provide twice weekly service from the Port of Izmir to Italy, 380 refrigerated trailers, 100 towing trucks, export handling facilities, packing houses and cold storage with a total capacity of 150,000 tons, box manufacturing plants, the development of 8,000 ha of citrus orchards, and 60 ha of citrus nurseries, which together would involve some 2,000 farms. The project also provided financing for (i) advi- sory services to the Project Unit and to subborrowers, (ii) citrus research, and (iii) a comprehensive credit survey. 2. The total cost of the project was estimated at US$44.0 million. Of this total, US$25.0 million would be financed by the Loan (US$10.0 million) and the Credit (US$15.0 million), US$8.2 by the Agricultural Bank of Turkey (TCZB), US$1.3 million by government agencies, and US$8.3 million by the beneficiaries. 3. A newly created Project Unit (PU) was to be responsible for execu- ting the project and be under a newly formed Ministry of Foreign Economic Relations (MFER). This Ministry was later abolished prior to Loan-Credit effectiveness. The PU was then placed under the Ministry of Commerce until June 23, 1973 when it was transferred to the Ministry of Agriculture where it was later elevated to a general directorate [General Directorate of Fruit and Vegetable Export Development Projects (MEYSEB)]. A Citrus Extension Unit (CEU) in the Ministry of Agriculture was established under the project to promote and assist in citrus development. This unit was later elevated to a regional directorate within MEYSEB. A training and visit system (T&V) was later established in CEU to implement the citrus extension aspects of the project, a component that was not part of the original project. 4. The effectiveness of the project was delayed eight months, mainly due to problems of hiring consultants. Subsequently, there followed protrac- ted problems in the procurement of transportation equipment, and materials for processing and marketing facilities. Only one ferry boat was ordered by 1/ Adapted from PCR. - 2 - 1976-77 and finally launched in 1978 (two were planned), 155 refrigerated .trailers and towing trucks were purchased and began operating in 1974. The number of refrigerated trailers purchased was 40% of the number envisaged at appraisal, but the number of towing trucks was 55% higher, see paragraph 1. Fourteen marketing facilities (packing, cold storage and box manufacturing) were completed and began operating during the 1977-78 season. Citrus develop- ment did not get underway until the introduction of the T&V extension system. The original closing date was extended three times and the completion of the project was delayed by over four years as a number of problems evolved. Most of the delay in completion may be attributed to the numerous Government reorganizations that took place during implementation, procurement problems, organization and management design, non-establishment of a central marketing organization, and to the general complexity of the project. 5. In addition to the changes in the project noted in paragraph 4, other changes in the project were made. The total number of cold storage and packing houses financed was increased from 11 to 14. The development of 8,000 ha of new citrus orchards did not materialize partly due to the lack of applied citrus research programs geared to solving citrus production problems and to maintenance of virus-free budwood mother trees, which prevented the provision of virus-free budlings to farmers; see also PCR, paras. 3.13 and 4.08. Investment credit was extended for the development of only 743 ha of citrus orchards compared with 8,000 ha estimated at appraisal; the funds saved were used to provide short-term maintenance and rehabilitation credit to owners of existing citrus orchards. 6. Total project cost amounted to US$58.4 million at completion, representing a 33% overrun. Cost of ferryboats almost doubled which caused the reduction in the number financed (the second was financed under the Agricultural Credit and Agro-Industries Project, Loan 1248-TU). Unit cost of marketing facilities more than doubled; as a result, final cost of this component was about 160 percent higher than envisaged. Expenditures for technical assistance was less than expected and those for on-farm citrus development (short-term credit)!/ were higher than estimated. Most of these cost increases were due to protracted delays in implementation in a period of high inflation, especially 1974-76. In terms of Turkish Lira, the cost overrun was about 100% and was due to higher than world-wide inflation in Turkey, together with devaluations of the Lira vis-a-vis the US dollar. 7. Because of the prolonged implementation period and problems of management and procurement, the project received a large amount of supervi- sion. Twenty-one supervision missions reviewed progress of the project. Without these missions, procurement problems would have been much greater and the project's implementation period much longer. Supervision was deficient in that it did not insist that the central marketing organization be re- established. This aspect of the project is discussed at length in a following section. 1/ Not part of the original project. - 3 - 8. The anticipated integration of production and marketing did not materialize, the project components did not provide an integrated system of production and marketing; a system that was expected to increase exports of fruits and vegetables through improved quality and increased handling effici- ency. The ferryboat, refrigerated trucks, and cold storage facilities have been used mainly for dried fruits, fish and meat rather than fresh fruits and vegetables. There is no information on whether the project has had the envisaged impact on export earnings. Non-fulfillment of the original project objectives was mainly due to the disbandment of the Central Marketing Organi- zation (MEPA) and the failure to replace it with another suitable organi- zation. The Government and the Bank have again recognized that organization of marketing channels together with increased and higher quality of production is essential for increasing and sustaining supplies of high quality fruits and vegetables, particularly for export. Consequently, the Second Fruit and Vegetable Project, which was approved in April 1981, provided for a removal of production constraints and establishment of regional marketing corporations and a central marketing organization. 9. Despite the fact that it took some time in locating and scheduling the relatively large number of consultants envisaged for the project (10), consultant services provided were generally good. Consultants for the ferry- boat, marketing facilities, citrus extension, and research performed well and facilitated implementation. On the negative side, PU management was not satisfied with its technical consultants and the credit survey was completed but no final report was provided. 10. The PCR re-estimated economic rate of return to the total project is 31% compared with 27% estimated at appraisal. The PCR has estimated that the rates of return for each of the components are similar to appraisal estimates. However, some of these estimates are based on an inappropriate methodology and/or pricing..!/ The estimates are reviewed and new estimates are presented in a following section. II. MAIN ISSUES A. Project Organization and Market Integration 11. At the time of appraisal, it was reported (President-s Report, para. 7) that marketing studies had shown good prospects for increasing exports of fruits and vegetables to European markets, provided that Turkey-s exports could meet the quality standards of highly selective and competitive markets and be delivered at opportune times. 1/ These estimates were based on borrower's report in which pricing methods were unclear. 12. As pointed out in paragraph 1, the project was expected to provide for the improvement and integration of production, grading, packing, and marketing of fruits and vegetables, especially for sale in European markets. Investments in refrigerated trailers, tractors, and ferry ships represented a new concept in fresh fruit and vegetable marketing for Turkey: Fruits and vegetables were to be loaded on refrigerated trailers at the packing houses, towed to the port of Izmir where they were to be loaded onto the roll-on/roll- off ferry boats. The boats would transport the trailers to Italy where they were to be hitched to other tractors and then towed to their final destina- tions in Italy, Germany, Austria, the Netherlands and possibly other countries where markets could be found. The-trailers, after being emptied, were then to be loaded with other merchandise for Turkey, returned to the ports in Italy, reloaded on the ferry, and then transported to Turkey where they again were to be pulled by the tractor, purchased under the project, to the final delivery point. Because of the logistics involved, it was estimated that 100 tractors would serve the 380 refrigerated trailers at the Turkey end of the route. The integration of fruit and vegetable marketing was to be through a newly- established Central Marketing Organization (MEPA). However, the Loan Agree- ment did not include any outline or procedures on how MEPA was to function, other than to specify that two marketing consultants were to be hired. As already noted, MEPA was abolished with the change in government in 1971. 13. The project, as it developed, lacked an explicit organization required for scheduling and promoting of sales in the European markets where well-structured organizations of other Mediterranean countries were competing. After the dissolution of MEPA, the Bank and the Borrower apparently assumed that all components and activities for a well-integrated system would fall into place. The fruit and vegetable exporters were expected to determine which fruits and vegetables were to be exported (presumably through agents in Europe), to purchase, grade, and package them; and arrange for their transport to the final buyer in Europe. How these processors and packers were expected to accomplish this somewhat difficult task effectively, in the face of well- organized competition from other countries, is not clear. Many of the sub- borrowers were independent operators who lacked the resources needed to do a good job of selling in Europe. 14. At the project's closing, which was more than four years late, very little of the improvements expected in the marketing structures had been achieved. 15. Throughout this prolonged and somewhat strained implementation period, the project unit and the Bank were preoccupied with procurement, con- struction, and disbursement problems rather than ensuring that the project met its original objectives. This is partly understandable due to the newness of the PU and the procurement problems encountered, but not completely. The Bank did not insist that some coordinating structure be instituted to replace the dissolved MEPA long before the end of the project. The Bank has recognized this lack of coordination in the Second Fruit and Vegetable Project but, in the audit's opinion, it should have been recognized sooner. - 5 - 16. In the Second Fruit and Vegetable Project (see para. 8), another and more formalized attempt is being made to set up a coordinating and promotional structure, which is outlined in the following paragraphs. 17. The overall coordination of marketing of fruits and vegetables for export is to rest with the State Planning Organization (SPO); the main subor- dinate executing agencies are MEYSEB and TCZB. MEYSEB is responsible for coordinating the implementation of.technical services and the training compo- nent. TCZB, the executing agency for on-farm credit aspects, is assisted by MEYSEB and TZ (the extension service). TCZB extends subloans to bene- ficiaries, in accordance with rules and regulations which have been applied in other Bank-financed projects. In addition to overall coordination of the project, SPO is responsible for promoting the establishment of Regional Marketing Corporations (RMCs) and the Central Marketing Organization (CMO) through its.Exports Marketing Division. SPO is responsible for appointing a project coordinator whose duties include overall project coordination, the direct coordination of the implementation of the study and market plan compo- nent, and appointing staff marketing specialists who are to undertake the establishment and promotion of the overall marketing organization. 18. Four RMCs are to be established in Adana, Mersin, Antalya, Izmir and Bursa-Istanbul. It was anticipated that the CMO would be located in Istanbul. RMCs and the CMO were to be organized as private stock companies, owned partly by the Government (not more than 30%); the remaining stock would be held by exporters, who are expected to benefit from market intelligence and control, and improved quality of merchandised products forthcoming after full develop- ment of the system. However, at the time the audit mission, little had been done to establish this organization. The appointment of a director of CMO was still pending and no RMO had been chartered. The loan has been effective since August 1981. Some strong action will have to be taken by the Borrower or the production and exports of fruits and vegetables will remain as it is today and as it was when the First Fruit and Vegetable Export Project was approved in 1971, far below their potential. 19. In 1980, the Bank hired a consultant firm to undertake two studies of the Turkish fruit and vegetable export situation and its prospects. The summaries and conclusions of these two reports are reproduced as Annexes I and II to this Memorandum..!/ The reports had a significant influence on the design of the Second Fruit and Vegetable Project. Whether the ultimate effects of the reports will be positive relates to the comments made above and those which follow. 1/ Annex I, Turkey: Marketing of Fresh Fruits and Vegetables (with emphasis on institutional framework to promote exports), September 1980; and Annex II, Turkey: The Fruit and Vegetable Processing Industry, (a qualitative evaluation of its state of development, expectations about the prospects and major development constraints), September 1980. - 6- B. Utilization of Project Investments 20. Three packing houses and cold storage complexes were visited by the audit mission. All three facilities, for practical purposes, were empty and unused. While the citrus harvesting season was supposed to be just getting underway, the facilities did not appear to be prepared for any imminent fruit inflow. The consultant's report (Annex I) states that there was a large proportion of unused capacity in the industry, which supports the audit's observation. Further, the audit mission concluded (independently), as did the consultant, that lack of adequate management was the significant, if not the most significant, constraint on making the packing house and cold storage plants economically viable. None of the complexes visited by the audit were able to provide it with current financial information; and would not or could not provide a balance sheet for the past year. None had done an analysis or had any idea of what their their future market prospects might be. 21. As already noted, the tractor-refrigerated trailer units are being used to transport many kinds of products. The mission, however, was unable to observe any of these units in operation, although the mission was told that all 155 units are still in service. The roll-on/roll-off ferry haq not been used as expected and carries any merchandise that is available..17 All of these investments have been promoted by the Government by waiving tariffs on imported equipment. 22. The two transport, etc., companies visited by this mission are well managed and are using advantageously the equipment bought with project funds. In the mission's opinion, this is not true for the packing-cold storage complexes. In the light of the latter, any funds provided through the Second Fruit and Vegetable Project for working capital are not likely to solve what, in the mission's opinion, is the first order problem, management. It is commendable that management training is included in the Second Fruit and Vegetable Project (Loan 1967-TU). C. Citrus Development 23. As already noted, the project was expected to assist in planting 8,000 ha of citrus orchards and in establishing 60 ha of nurseries for citrus budlings (seedlings). In fact, only 743 ha were planted. Funds saved from the reduction in citrus orchard establishment were used to provide short-term credit for the rehabilitation of 8,570 ha of existing orchards which report- edly benefitted 4,500 farm families. 24. A reported 50 ha of citrus nurseries were planted. The audit mission was shown two of these - one near Adana and the other near Mersin. Neither of these areas visited was over 2 ha. The mission also was told that two virus-free seedling producers in the Adana area had gone out of business. The remaining nursery owner strongly complained about the price he received for seedlings, which, due to his participation in the project, was set by the 1/ See also consultant's report - Turkey: The Fruit and Vegetable Processing Industry, ibid, pages 30 and 33. Transport carried out by the trucking companies and ferry may be quite rational from a financial viewpoint. - 7 - Ministry of Agriculture. The mission was told that the e are about 18 other nurseries producing citrus seedlings in the Adana area.1/ 25. The Ministry of Agriculture has been supporting and encouraging citrus development in the Adana-Tarsus-Mersim area for some time. Develop- ments under the project indicate that these have not been well planned; otherwise, why would owners of citrus orchards need short-term credit to keep the orchards in condition until they reach the bearing age or to keep them in top bearing condition once they reach that stage? The latter point indicates either that orchards have not been sufficiently viable to generate the cash flow necessary to meet following year production expenses or that the orchards have been mismanaged. It is worth noting that the Second Fruit and Vegetable Project also provides funds for production credit. D. Procurement 26. The Borrower has been quite dissatistied with the procurement requirements of the project. The Borrower's perceptions of the procurement requirements and their effects on the project are reproduced in Attachment 1. However, attention is drawn to the fact that some procurement procedures such as preparation of documents, and credit worthiness and feasibility evaluations can proceed concurrently instead of consecutively as indicated by the Bor- rower's scenario. Thus, the time involved need not be as long as indicated. Further, the total days for the example is 330 instead of the 370 figure that is given in Attachment 1. 27. Although it was not clearly evident to the audit what all the contributing factors were to the procurement delays, including hiring of consultants, it is clear that some thought should be given to initiating 4 study to clarify and simplify procurement procedures whenever possible. 2i As has been demonstrated in other projects, procurement procedures are a cause of significant friction between the Bank and its borrowers as well as the cause of numerous and prolonged delays.3/ 1/ The mission also was told that many of these seedlings are not virus- free. 2/ Following the procedures outlined in recently issued OPN 4.02 "Procure- ment: checklist for appraisal" should help expedite the procurement pro- cess. Additional procedures for speeding up procurement might include: (i) standardizing tender documents for each country (or for specific types of projects if that it is not feasible); the Bank is now in the process of standardizing tender documents, and (ii) -sending a supervision mission that includes a procurement specialist to the country immediately after loan/credit approval to instruct project authorities on procurement procedures and assist in preparing tender documents, and also to approve tender documents on-site, thus eliminating delays caused by sending such documents to the Bank. 3/ See, for example, OED Reports: PPAR, Korea Seeds Project (Loan 942-KO), Report No. 3541, datecr 06/26/81; PPAR, Korea Integrated Agricultural Processing Project (Loan 994-KO), Report No. 3539, dated 06/30/81; PPAR, India Wheat Storage Project (Credit 267-IN), Report No. 3751, dated 12/31/81; PPAR, India Godavari Barrage Project (Credit 532-IN), Report No. 4000, dated 06/30/82, and An Interim Report on Procurement Issues in Bank-Financed Projects, Report No. 3557, dated July 15, 1981. -8- E. Project Benefits 28. The rates of return presented in the completion report involve a methodological error and some challengeable procedures. The methodological error is that investment cost and some operational expenses have not been converted to 1980 TL values, while all data from 1980 onward have been con- verted to 1980 TL terms. This procedure overstates the value of the ERRs. The inappropriate procedures included not taking into account overhead cost for tractor-trailer investments, assuming that land used for citrus orchards has no alternative use, and use of unrealistically high citrus prices. The audit has re-estimated the rates of return for the major components, taking into account these items. These ERRs, together with the appraisal and PCR estimates, are given below and the related benefit-cost streams are presented in Annex III. ERRs (%) Appraisal Estimate PCR Estimate Audit Estimate Orange Orchard 20 29 12 Ro-Ro Ferry 38 40 14 Packing House/ Cold Storage 34 36 Negative Trucking Company 35 34 18 Corrugated Box Factory --- 57./a Entire Project 27 31 8 /a Based on Borrower's data, adjusted for changes in value of TL. However, audit questions basic data including production coefficients and prices. F. Conclusions 29. The project has not achieved its objective of expanding Turkey's fruit and vegetable exports through increased citrus production and improved marketing infrastructure. At completion, seven packing houses, six cold storage plants, and one corrugated box factory were constructed, compared with five packing houses, four cold storage plants and two wooden box factories envisaged at appraisal. One hundred fifty-five sets of refrigerated trailers and tractors had been financed, compared with 380-100 combinations noted above. One ferry boat was constructed in place of two planned, although one was financed under the Agricultural Credit and Agro-Industries Project which followed. These transport facilities have not been utilized in the way expected. The tractors and trailers have been used to transport many kinds of products, includin those not requiring refrigeration. The same is true for the ferry boats-If The boxes produced by the corrugated paper box factory 1/ However, as noted before, this type of use may be financially rational at the present time. do not have the strength and durability required for long hauls to Europe..!/ Also, the appraisal report of the Second Fruit and Vegetable Project states (para. 2.32), "Performance of the transport and marketing components have been generally unsatisfactory." As implied in the previous sections, the audit agrees with this conclusion. Further, the credit study was not completed and citrus research was never carried out. Two unanswered questions*remain concerning the project: (i) while the project aimed to increase the exports of fruits and vegetables, why were none of the components designed to directly increase exports of vegetables; and (ii) while much of the exports of citrus go to Eastern European countries-where reported prices are comparable, why did the project only emphasize exports to Western and Central Europe and this in the light of well known EEC import restrictions?.V During project implemen- tation, markets in the Middle East became important outlets for exports of fruits and vegetables from Turkey. The Second Fruit and Vegetable Project is designed to exploit this potential. 1/ See consultant's report, Turkey: Marketing of Fresh Fruits and Vegetables, page 37, ibid; this report, page 9. 2/ Data supplied to mission by MEYSEB. -11 - ANNEX I Page 1 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) TURKEY: THE FRUIT AND VEGETABLE PROCESSING INDUSTRY CONCLUSIONS AND RECOMMENDATIONS!/ In the opinion of the mission, Turkey-s fruit and vegetable proces- sing industry is in a period of transition. From being merely independent processors of the overflow of the fresh market, producing traditional canned goods, the industry is becoming increasingly sophisticated, well developed and integrated backwards with its raw material source, the farmer. The latter integration, in particular, is the hallmark of a modern fruit and vegetable processing industry in the industrialized countries. The mission, thus, believes that Turkey's fruit and vegetable processing industry is more deve- loped than it is sometimes given credit for. Still, the industry has some way to go before the entire sector will become internationally competitive. Indicative for its early stage of development are: - a still limited product package; - a small number of companies relative to the size of the country and little diversification; - little or no in-house research and development work on either new products, technology or machinery. Factual information on the industry is unusually limited. The mission has researched all the common sources of such information, both in the public sector and with such private interest organizations as chambers of commerce, and the like. In view of this lack of information, the mission decided to visit and interview as many plants and institutions directly related to the industry, as was possible within the time constraints under which it operated. Main conclusions drawn from this field work are: - Plant and machinery are, almost with exception, of very high standards. The mechanization of product handling and in-plant transportation, though, is limited. - The bottleneck of limited availability of investment capital for the industry, perceived about 15 to 20 years ago, has been effec- tively eliminated through appropriate government action. As a 1/ From consultant's report Turkey: The Fruit and Vegetable Processing Industry (a qualitative evaluation of the state of development, expecta- tion about its prospects and major development constraints), September 1980. ANNEX I - 12 - Page 2 matter of fact, the balance may have tipped in the other direction, resulting in some over investment, witness the large portion of unused processing capacity. - With respect to what is stated in the previous paragraph and in view of the continued availability of funds for further capital investments, the mission has concluded that another investment component for agro-industries is not justified in the second fruit and vegetable project. Among the current bottlenecks for further development of the -industry, we feel, is foremost the very limited availability of managerial talent to run agro-industries in general and fruit and vegetable processing operations in particular. Three aspects of management have to be considered in this respect: management of the technical operations in the plant proper; business management of the company as a whole; and project preparation expertise, particularly in the public sector. - A serious constraint mentioned repeatedly by spokesmen in the industry is the unavailability of sufficient working capital. The mission feels that this is due, at least in part, to ignorance on the part of public sector and bank personnel about the real needs for working capital of this seasonal industry. The report contains, in Appendix 1, three cash flow models of typical fruit and vegetable processors in Turkey, simulating the financial requirements of these industries during each month of a typical year. The method of calculating working capital in these models may be suggested as one way to achieve an equitable estimate of real needs. - Marketing, particularly abroad, appears to be ad-hoc, upsophisti- cated and relatively underdeveloped. The cavalier attitude towards marketing on the part of some owners or major shareholders of plants has to give way to a more professional approach towards this most important function. - Input industries for processing, such as can and glassware manufac- turers appear to be satisfactory. The complaints most often heard are of excessive prices for cans and about heavy gauge tinplate used. The mission has made a limited number of suggestions with respect to agro-industries, in view of the a priori decision not to include an agro- industrial investment component in the second fruit and vegetable project. These suggestions are: - 13 - ANNEX I Page 3 - Promote and support the design and implementation of an agro- business curriculum at a leading business school in Turkey. Yearly costs of such a program have been tentatively estimated at a minimum of US$428,000 per year. - Introduce the calculations of working capital needs for agro- industries along the lines suggested in the models shown in Appendix 1. - Give some ad-hoc assistance with the development of more sophis- ticated marketing practices. Particularly, include marketing as a discipline in the curriculum for agri-business management suggested before. - 14 - ANNEX II Page 1 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) TURKEY: MARKETING OF FRESH FRUITS AND VEGETABLES SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS.!! I. Conclusions The markets of Western Europe, the Middle East and Eastern Europe have no need of Turkish fruits and vegetables except when normal suppliers are unable to meet demand. As a general statement, Turkish exporters are not interested in the need of export markets and make no serious attempt to promote sales of Turkish produce. The evolution of Turkish exports is the result of foreign importers coming to Turkey to buy instead of Turkish expor- ters going to the market place to sell. Quality standards are flouted by exporters and are not enforced by government officers, packaging is poor and produce is often rotten when it arrives in the market. Importers have no confidence that goods will arrive on time or according to specification, and consider doing business with Turkish exporters not worth the trouble. Conse- quently, little trouble or care is taken in handling and little interest shown in purchasing except at rock bottom prices. Not surprisingly, imports of fruits and vegetables from Turkey rarely rate a mention in the official foreign trade statistics of importing countries. Yet importers continue to import, consumers continue to buy and exporters still profit from the transactions. The reason is not difficult to find and contains in itself the key to Turkey's export survival: the quality of the product. Without exception all importers visited by the mission were agreed that the flavor, color, texture, aroma and variety of the produce is excellent. Indeed, the "product's" ability to survive under seriously adverse conditions is the guarantee of its recovery just as soon as the incompetence of the exporter, indifference of government agencies, and skepticism on the part of the importer are removed. Export recovery though, will not be forthcoming as long as Turkey lacks a blueprint for export development and a coordinating body, created by exporters themselves, to actively promote and sell Turkish produce of the right quality, in large quantities to the most profitable markets. 1/ From consultant's report, Turkey: Marketing of Fresh Fruits and Vege- tables (with emphasis on the instructional framework to promote exports), September 1980. - 15 - ANNEX II Page 2 II. General Recommendations It is believed that the greatest single contribution to gearing production to the development of continuous and successful exports of fruits and vegetables will be: - the creation of autonomous Regional Marketing Organizations that are backed up by the resources, skills and services of a Central Marketing Organization, and; - the design of a Strategic export Development Plan defining the objectives to be achieved by Regional Marketing Organizations at each stage in the chain of export activities, starting with the producer and ending with the consumer. The recommendations made imply the existence of these two proposals. III. Specific Recommendations (a) Export Markets Principal export markets should be the Middle East, Western Europe and the EEC, and Eastern Europe. A detailed study should be commissioned from an independent research organization into the potential of these markets including: - consumer and consumption characteristics, trends and preferences, - distribution patterns and probable changes, - purchasing and pricing practices and changes, - methods of increasing exports through improved performance in the market place. Long range export targets to be achieved by 1986 for each market should be as follows: US$'000 at Tons Current Prices Middle East 550,000 $ 170,000 Western Europe 180,000 65,000 Eastern Europe 135,000 60,000 875,000 $ 295,000 - 16 - ANNEX II Page 3 (b) Statistics It is recommended that an improved system of collecting export statistics be established in order to provide a reliable base from which to measure performance and trends and plan future strategies. (c) Marketing Organizations It is recommended that regional marketing organizations should be established immediately in four regions, namely in Mersin/Adana, Antalya, Izmir and Bursa/Istanbul. They would be serviced by a Central Marketing Organization located in Istanbul. The uentral Marketing Organization should be headed by a Chief Executive of international repute with a record of successful management of national fruit and vegetable marketing boards. The total costs to establish these marketing organizations is estimated at US$7,651,202 as follows: - Local Costs - Central Marketing Organization US$2,421,922 (in US$ equivalents) - Four Regions (consolidated) 2,498,424 Total $4,920,346 - Foreign Costs - Central Marketing Organization 2,051,730 - Four Regions 679,126 Total $2,730,856 Grand Total $7,651,202 (d) Road Transport Government's protective legislation resulting in the creation of a Turkish road transport monopoly, should be removed. Exporters should be free to negotiate with foreign and transit truck operators without constraint. All Turkish trucks carrying perishable produce in long hauls should be fitted with TACHOMETERS. Operators of refrigerated trucks should be held responsible for maintaining temperature records and for loss due to neglect of proper control. Truck operators should be penalized for extended delivery periods which cannot be reasonably accounted for. - 17 - ANNEX II Page 4 Regulations requiring one in ten trailers purchased to be of Turkish manufacture should be waived in the case of refrigerated trailers. The Central Marketing Organization should operate a fleet of appro- ximately 160 refrigerated tractor/trailers (20 tons) to be allocated to Regional Marketing Organizations according to their needs. (e) Sea Transport It is recommended that the Central Bank should be directed to honor its Payment Guarantees to shipowners requiring cash deposits in advance of chartering vessels. Feasibility studies should be carried out with respect to recommenda tions for the purchase of two 1,500 ton refrigerated ships for transport to North Western Europe, and two 500 ton refrigerated ships to service the Middle East and Gulf States. It is recommended that these vessels should be operated by the Central Marketing Organization for the benefit of the shareholder members, exclusively carrying fruits and vegetables. (f) Air Transport It is recommended that Adana airport should be rendered commercially operational to permit negotiations with air charter operators currently overflying Turkey to pick up cargos of fruit and vegetables destined for Europe on a regular basis at competitive rates. (g) Transport in General It is recommended that transport officers be appointed in each Regional Marketing Organization and in the Central Marketing Organization to negotiate contract hire terms with sea, road and air carriers for regular operations during the season. A transport consultant should be appointed to the Central Marketing Organization for three full years to provide on-the-job training for Transport Managers (CMO) and Transport executive (RMO). In addition to the above, fellowships for training overseas should be arranged for all transport personnel during the first year of operation. - 18 - ANNEX II Page 5 (h) Packaging, It is recommended that standards should be laid down to ensure that all export packaging of whatever materials is comparable with the best cartons and boxes in Western Europe. Delivery costs of locally manufactured cartons and boxes should be on a par with delivered costs of imported units of similar quality. In the meantime, the Central Marketing Organization should be free to import cartons and boxes in bulk from overseas suppliers for exclusive use by shareholder members of the Marketing Organization. Existing corrugated carton manufacturers should be permitted to import all materials and plant necessary for the manufacture of items to the prices and standards required in overseas markets. Feasibility studies should be carried out to establish the financial justification and credit facilities should be made available. A Packaging Consultant should conduct training seminars in each region and should provide specific advice to individual exporters during a six-week tour each year. (i) Cold Storage It is recommended that a cold storage consultant be assigned for 6 man months each year during the first three years of existence of the marke- ting organizations. A refrigeration engineering firm should inspect all installations to check condition and should report on standards of' care and maintenance. Suppliers of cold storage installations should provide selec- tive training, either in the overseas factory or on-the-job. (j) Quality Control and Quality Inspection It is recommended that copies of all documents issued in markets of destination repudiating, rejecting or restricting sale of the produce for whatever reason should be filed with the Central Marketing Organization for investigation. In the event that shipments were covered by official clearance certificates, the issuing body would be liable for payment of damages at least equal to the market value of the unsold produce. - 19 - ANNEX III Page 1 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) RATE OF RETURN CALCULATIONS Corrugated Box Factory 000,000 1980 TL 1976 1977 1978 1979 1980 1981 1982 1983 1984-89 1990 Cost: Investment 189.3 189.3 Operating Cost/a 761 739 836 1010 1176 1138 1138 920 Total Cost 189.3 189.3 761 739 836 1010 1176 1138 1138 920 Benefits: Operating Revenues 918 984 1148 1394 1641 1641 1641 1641 Net Benefits: -189.3 -189.3 157 245 312 384 465 503 503 721 ERR: 56.8% /a Includes additions to working capital 1978-82 and credit for working capital in 1990. - 20 - ANNEX III Page 2 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) RATE OF RETURN CALCULATIONS /a Packing and Cold Storage Component- 000,000 1980 TL 1976-77 1978 1979 1980 1981-89 Cost: Investment 184.0 Raw Material /a 37.1 86.5 121.3 121.3 Operating 36.8 84.0 120.0 120.0 Total Cost 73.9 170.5 241.3 241.3 Benefits Sales /b 43.1 100.2 143.2 143.2 Net Benefit: -184.0 -30.8 -70.3 -98.1 -98.1 ERR: Negative /a Assumes purchases of 9,700 T at TL 12,500 (in 1980). Price based on wholesale price Paris less tariff, commission and transport to Mersim. /b Assumes sales of 8,200 (gross purchases less calls) at TL 17,460. Lower price to produce to increase gross margin would reduce rate of return on citrus component. - 21 - ANNEX III Page 3 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) RATE OF RETURN CALCULATIONS Roll-On/Roll-Off Ferry 000,000 1980 TL 1972 1978 1979 1980 L981-97 Cost: 702 Investment Operating Cost 272 355 366 366 Total Cost 702 272 355 366 366 Benefit: Operating Revenue 347 450 475 475 Net Benefit: -702 75 95 109 109 ERR: 13.8% /a Assumes that ferry is operating at full capacity in 1980 with 43 round- trips per year - current operations (1982) are about 28 round-trips per year or about 65% of capacity. - 22 - ANNEX III Page 4 PROJECT PERFORMANCE AUDIT REPORT TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) RATE OF RETURN CALCULATIONS /a Trucking Company Component- 000 1980 TL 1974 1975 1976-84 Cost: Investment 67,000 Operating Expanese /b 67,188 67,188 Benefit: Trucking Tariff/C 82,250 82,250 Net Benefit -67,000 15,062 15,062 ERR: 18.1% /a For 10 tractors and trailers, assumes model operation, actual operation may be quite different in current practice. /b Assumes 10% overhead. /c Assumes 15 round-trips Munich to Mersim, 6,000 km. PROJECT PERFORMANCE AUDIT REPOR' TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) RATE OF RETURN CALCULATIONS Orange Orchard Component 2.5 ha 000 1980 TL 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988-99 Cost: Investment 203.1 Operating Cost * 56.0 69.4 155.5 99.4 215.0 258.4 328.5 418.5 519.3 582.3 602.5 632.5 646.4 Total Cost 259.1 69.4 155.5 99.4 215.0 258.4 328.5 418.5 519.3 582.3 602.5 632.5 646.4 Benefit: Sales RevenueLa 40.6 81.2 187.5 437.5 593.8 718.8 843.8 968.8 1067.5 1093.7 1156.3 With Project Net Benefits -259.1 -69.4 -114.9 -18.2 -27.5 179.1 265.3 300.3 324.5 386.5 465.0 461.2 509.9 Without Project Net Benefits/b 67.3 32.3 68.7 68.7 105.1 141.9 177.9 213.7 250.3 287.2 287.2 287.2 287.2 Incremental Net Benefits -326.4 -101.7 -183.6 -86.9 -136.6 37.2. 87.4 86.6 74.2 99.3 177.8 174.0 222.7 M z M M' ERR = 11.55% n /a Prices of oranges, 12,500 TL per ton. lb Source: PPAR Seyhan Irrigation Project Stage II, OED Report No. 2747 adjusted to 1980 TL. * Includes expense during development period. - 25 - ATTACHMENT 1 Page 1 PROJECT PERFORMANCE AUDIT MEMORANDUM TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) COMMENTS ON PROCUREMENT RECEIVED FROM THE MINISTRY OF AGRICULTURE AND FORESTRY HINISTRY of AGRICULTURE and FORESTRY General Directorate of Agricultural Affairs Department of Externally Financed Projects Necatibey Cad. No. 98/6 Ankara - TURKEY Tel 29 45 95 29 33 52 Telex 43216 Meys tr Cable MEYSEB eq. q9. 19 Dear Mr.Egbert, Enclosed are two notes as was promised to you by me and by Mr.Alakent. 1/ My note reflects my personal thoughts about the procurement methods used under the "Fruit and Vege- table Development Project". However, the points men- tioned are valid for other projects such as Agro- industries (1284 TU) project etc. Hoping the notes enclosed will be to your satisfac- tion, I send my best regards. Refik Qdlagan Department Chief 1/ Second note is technical in nature. Encl: 2 - 26 - ATTACHMENT 1 Page 2 NOTE ON PROCUREMENT METHODS For the machinery procurement of the marketing facilities (refrigerated trailers, tractors and machinery and equipment for the packing houses, cold storages and corrugated box fac- tory) completed under the " Fruit and Vegetable Export Develop- ment Project", international coipetitive bidding method was used, in accordance with the procurement guideliner of The World Bank. However, this method when consiUered with the other local and World Bank formalities, causes an import time of delay for the supply of machinery. Below is a schedule, showing the steps and days needed to complete each step and the total of days an investment can be completed following the application of an investor. Beginning from the date of application; - Review of application by MEYSEB : 10 days - TCZB credit worthiness investigation : 30 days - Evaluation of subborrower's feasibility report : 30 days - Translation and typing of evaluation report to English and sending to the World Bank : 40 days - Receiving World Bank's approval : 25 days - Preperation of Tender Documents : 30 days - Mailing of tender documents and receiving of bids : 90 days - Evaluation of bids and mailing the evaluation report to the Bank : 30 days - Receiving Banks approval : 25 days - Invitation to sign contract and signing of contract : 20 days TOTAL 370 days The above mentioned days are the most optimistic for each step and this total of 370 days in most cases goes up to 500 - 27 - ATTACHMENT 1 Page 3 After signing of the contract, you need at least another 3 months (this goes up to a year) for the manufacture, shipment, delivery and erection of the machinery. In this case, it is not possible to complete a plant before 1,5 years under send circumstances. This period normally goes up to 2-2,5 years. On the other hand, an investor who could supply his credit from other sources could complete his investment not more than a year. As we say in Turkish,"TIME IS CASH". To prevent financial and economic losses by speeding up such investments a more practical system should be identified. As you might know, TSKB (Turkish Industrial Development Bank) also lends money under the agreements they have signed with the World Bank. However, they have none of these formali- ties. They ask three proforme invoices from the investor and complete their evaluation upon receiving these there bids sub- mitted to them by the investor, and they decide on the system and make without any further approval of the World Bank. In countries like Turkey, completion of an investment in the shortest time is.an important factor, especially when you consider the"foreign exchange risk". So, these formalities for credit are an important obstacle for the implementation of project like "Fruit and Vegetable Export Development " or "Agroindustries" etc. - 28 - ATTACHMENT 2 PROJECT PERFORMANCE AUDIT MEMORANDUM TURKEY FRUIT AND VEGETABLE EXPORT PROJECT (LOAN 762-TU AND CREDIT 257-TU) COMMENTS FROM THE AGRICULTURAL BANK OF TURKEY 42703 ZBUM TR ZERBANKHEAD ANKARA December 16, 1982 INTBAFRAD WASHINGTON D.C ATTENTION TO: MR. SHIV S.KAPUR WE HAVE EXAMIND THE PROJECT PERFORMANCE AUDIT REPORT. SINCE WE HAVE FOUND THE REPORT SATISFACTORY WE HAVE NO COMENEE COMMENTS TO MAKE. REGARDS. 110 ZERBANKHEAD RAHMI ONEN MUMTAZ PEHLIVANLI GENERAL DIRECTOR ASST GENERAL TCZB DIRECTOR. TCZB D 42703 ZBUM TR 212202 0918 161282 01390057 0915 01890189 010 NNNN - 29 - TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT September 9, 1981 Agriculture Division 1 Europe, Middle East and North Africa Projects Department - 31 - TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT I. BACKGROUND 1.01 The fruit and vegetable project was designed to expand Turkey's fruit and vegetable exports through increased production and provision of necessary handling facilities. The project's objectives were to improve all sub-systems of the fruit and vegetable export and to alleviate export constraints by providing: (a) on-farm citrus development through the establishment of 8,000 ha of citrus orchards and about 60 ha of citrus nurseries in the provinces of Icel, Adana and Hatay; (b) the provision of an int-5--d refrigerated transport system to export markets through procurement of 385 refrigerated trailers (20-ton capacity), 100 towing units and two roll-on/roll-off ferry boats; (c) handling facilities through the establishment of five packing houses, four cold stores and two wooden box manufacturing plants with a total capacity of 150,000 tons; (d) supply of technical assistance to activate a national organization of exporters (MEPA); and (e) technical assistance to subborrowers, project unit (PU), citrus extension unit (CEU), training and carrying out an agricultural credit survey. 1.02 The project was considered to be one of Turkey's major undertakings in developing an effective fruit and vegetable export industry with the main objective of increasing the country's foreign exchange earnings. Provision of transport and handling facilities were envisaged as the primary investments needed to achieve the-aforementioned goals. In addition, the investment credit component to establish citrus nurseries and orchards were to provide the long-term development for citrus production which could be emulated in other fruits and vegetables with export potential. Implementation and coordination of the project components would be supported by specific technical assistance to and training programs for Turkish staff. Government would also upgrade and enforce export standards which would be in line with the current requirements of importing countries. - 32 - 1.03 The Seyhan Irrigation Projects (in the Adana Plain), which were being executed satisfactorily, envisaged that crop diversification would take place following the provision of irrigation and drainage facilities and the cultivation of high value crops, such as fruits and vegetables, would increase while cotton and wheat areas would decrease. Establishment of citrus orchards on about 5,000 ha out of 8,000 ha envisaged under the project would be within the Seyhan Irrigation Project area, with the remainder in-adjacent areas of the Adana Plain. Consequently, the Irrigation Rehabilitation and Completion Project included the improvement of irrigation facilities in the Silifke area (about 5,000 ha) and similar assumptions for crop diversification were also envisaged. The completion reports 1/ for both projects revealed that the expected crop diversification did not materialize mainly due to the lack of organized marketing and crop pricing policies. 1.04 To date, the Bank/IDA lending in Turkey has reached US$2,775 million through 64 projects. Agriculture accounts for 22% of funds lent, industry and DFCs for 35%, power for 13% with the rest (30%) for urban development, transportation, education and tourism. During the 1950's and 1960's Bank operations in Turkey were heavily oriented towards capital intensive investments but increased attention is now being paid to livestock development, rural development and farm support services, agricultural extension and credit and completion of high priority irrigation investments. 1.05 A follow-up Second Fruit and Vegetable Project was appraised in June/July 1980, approved by the Bank's Executive Directors on March 31, 1981, and signed on April 6, 1981. The principal objective of the Second Project is to capitalize on Turkey's identified export potential in fruits and vegetables by raising the production level of selected fruits and vegetables and establishing effective export marketing channels, thus generating foreign exchange needed to alleviate the country's present economic problems. The project is designed to go beyond the objectives of the First Project--which concentrated on citrus production in three provinces and provision of transport, processing and packing facilities--b) developing the production of selected fruits and vegetables in ten provinces, through the improvement of existing orchards and vegetable farms and the establishment of new ones using cultivars with high export potential. The project also goes beyond the First Project in providing foi an effective fruit and vegetable export marketing organization, rooted in the private sector, which is expected to overcome the historical export constraints, particularly in transportation, market intelligence and reliable supply of high quality produce. 1/ Seyhan Irrigation Project Stage II Completion Report (April 1979) and Irrigation Rehabilitation and Completion Project (October 20, 1980). - 33 - II. FORMULATION Preparation, Appraisal and Agreement 2.01 In October 1968, the Government of Turkey, through SPO, expressed interest in obtaining the Bank's financial support for a proposed Fruit and Vegetable Export Project. The Government commissioned two main feasibility studies which formed the basis for the preparation of this project; these reports were: (a) BASICO (GMBH), Feasibility Studies on the Turkish Fresh Fruit and Vegetable Export Promotion, Frankfurt/Main, Project 68860/1 (1969) and (b) Turkish Engineering, Consulting and Contracting Company (TUMAS), Market and Transportation Study on Fresh Fruit, Vegetable, Meat and Fish Exports, Ankara July 1970. In addition, other studies by the Economist Intelligence Unit (EIU) of UK and Delmonte of U.S.A. were used in preparation. Two Bank reconnaissance missions in July and December of 1969 followed by a Bank preparation mission in February 1970 led to project appraisal in November 1970. 2.02 Although early discussions DeTween the Government, the Bank and Dther agencies (International Executive Service Corps (IESC) and the kgribusiness Council, Inc. of New York) centered around processing of fruits and vegetables, the Bank decided in December 1969 to leave the processing aspects to be financed through the private sector and possibly Ln cooperation with IFC. Subsequently, the approved effort dealt with the provision of cold storage,.packing, transportation, investment credit, seeds and establishment of citrus nurseries and orchards primarily for export development. 2.03 In connection with the planning for fruit and vegetable levelopment, SPO has set up a Public Transport Company (FRINTAS, Ankara) equipped with 130 refrigerated trucks for transport of fresh produce to Europe which began operations in the spring of 1969. The Government also encouraged the creation of four private joint stock companies in Adana (CUKUNAM), Mersin (TUDAS), Izmir (EGEMIS) and Bursa (MARTAS) for fruit and vegetable collection, packing and grading. The four handling companies, FRINTAS (Government owned) and an Ankara apple cooperative were encouraged :o combine their marketing efforts and create a corporation to be known as :he International Marketing Corporation (ITC) which was later referred to as MEPA. The said corporation was formed in late October 1970 with nine stockholding members and TL 1.6 million capital, of which 25% was paid. Z.04 The project was appraised in October/November 1970 and as agreed luring negotiations included the following components: (a) Transportation - Credit to transport companies for two ferryboats, 385 refrigerated trailers and 100 towing units (44% of total investment); - 34 - (b) Export handling facilities - Credit to private companies for five packing houses, four cold storage and two wooden box manufacturing plants (11%); (c) On-farm citrus development - Credit to about 2,000 farmers for establishment of about 8,000 ha of citrus orchards and for about 60 ha of nurseries (38%); and (d) -echnicai assistance - Finance to provide technical advisory services to subborwers, citrus research, and a comprehensive agricultural credit survey (7%). 2.05 During negotiations, which took place in April 1971, it was agreed that the Government would: (a) promulgate an Export Regime requiring that all exports of fresh fruit and vegetables go through packinghouses approved by the Ministry of Commerce no later than January 1, 1975, and that inspection programs be established to enforce quality standards for products and packaging as set out by OECD and the importing countries; (b) permit free importation of seeds and budwood recommended by the Project Unit and that only virus-free certified budwood would be used in project plantings; (c) appoint consultants, mutually acceptable to Government and Bank/IDA, under terms of reference approved by Bank/IDA, and no subloans would be approved until the necessary feasibility studies had been prepared and reviewed; (d) establish the citrus budwood propagation farm and submit the research program to be approved by the Project Unit's Technical Advisor for Plantations and Production; and (e) establish the Special Operational Fund (SOF) in the Agricultural Bank of Turkey (TCZB) to be used for project purposes and that withdrawals from such fund would be made only by the Director of the Project Unit or his designated representative. 2.06 During negotiations, assurances were obtained from TCZB on the following principal points: (a) no orders would be placed for the ferryboats until the port authorities at Koper or Trieste confirm their willingness to make the necessary operating arrangements for the proposed ferryboats and until the Bank/IDA had approved the subborrower and its management and overseas arrangements; and - 35 - (b) subloans for transport and export handling facilities would be technically approved by the PU and would be made under criteria specified, ana all subloans over US$250,000 would be approved by Bank/IDA. 2.07 Condition of Effectiveness of the loan/credit were: (a) a subsidiary loan agreement satisfactory to Bank/IDA had been executed; (b) the,Project Unit (PU) had been set up and the Project Director and two Technical Advisors, mutually acceptable to Government and Bank/IDA, had been appointed on terms and conditions satisfactory to Bank/IDA; (c) the Citrus Extension Unit (CEU) had been established and that the Director, mutually acceptable to Government and Bank/IDA, had been appointed on terms and conditions satisfactory to Bank/IDA; and (d) consultants mutually acceptable to Government and Bank/IDA had been appointed to undertake the survey of agricultural credit facilities, institutions and policies. 2.08 A Bank Loan of US$10 million and an IDA Credit of US$15 million were approved by the Board on June 10, 1971. The Loan and Credit Agreements were signed on June 22, 1971, and became effective on May 19, 1972. Project Organization 2.09 The project was to be mainly implemented by a Fruit and Vegetable Export Unit (PU) established within the newly created Ministry of Foreign Economic Relations (MFER). PU would provide technical services to subborrowers for transport and export handlings components and would coordinate fruit and vegetable exports with other Government entities. As for citrus establishment, a new Citrus Extension Unit (CEU) would be formed under the Ministry of Agriculture to provide technical services for citrus establishment in project areas excluding the Seyhan Irrigation Project area in the Adana plain. The project envisaged that 8,000 haof new citrus orchards would be established in the project area of which 5,000 ha would be established in the Seyhan area with technical services from the Seyhan Integrated Extension Unit (SIEU). Applied citrus research would be carried out by the Mersin (Alata) and Antalya citrus research institutes. Credit would be channelled through TCZB and the credit survey would be carried out by consultants to MFER. - 36 - III. PROJECT IMPLEMENIATION Effectiveness and Start-up 3.01 The project became effective on May 19, 1972, after considerable delay in meeting the conditions of effectiveness stated in para'. 2.07. The original date of effectiveness of September 10, 1971, was optimistic to permit meeting all the effectiveness conditions. The main delay' was in appointing the PU director, technical advisors and consultants to undertake the credit survey, since the subsidiary loan agreement between the-Borrower and TCZB was signed on September 8, 1971. A change of Government took place in December 1971, prior to project effectiveness, and MFER was abolished and the PU was transferred to the Ministry of Commerce which was not actively involved in formulating the project. Although the Director for the PU was selected and approved by the Bank, official Government decrees for establishing the PU and CEU were not forwarded in time to the Bank. Consequently, project implementation from the start was one year behind schedule. 3.02 During appraisal the PU was envisaged to be under the State Planning Organization (SPO) but, after negotiations and the formation of the new Ministry of Foreign Economic Relations in March 1971, project implementation was vested with the said Ministry. Board presentation, originally scheduled for June 1, 1971, was postponed because the Turkish negotiators proposed that the foreign exchange risk be borne by subborrowers and not by the Government as planned during appraisal. However, the Government reconsidered its position and assumed the foreign exchange risk as originally planned. SPO's enthusiasm for implementing the project decreased with the new management following Government change and transfer of PU to the Ministry of Commerce. Moreover, each of the Ministries of Agriculture and Village Affairs wanted to have the CEU in their respective Ministry, but finally the Government decided to place CEU in the Ministry of Agriculture. With frequent Bank missions and continuous discussions with Government officials, conditions to meet timely project effectiveness were finally met following appoinment of the two advisors to the PU on a two-year contract. 3.03 Budget allocations for the PU operations were not available for some time. The PU advisors arrived in Turkey about July 1973 and were assigned office space-in a different area than the PU Director. Transportation was not provided to the PU from the Government and the project proceeds did not include vehicles for the PU operations. However, the Bank approved provision of vehicles to the PU from the Loan proceeds. Physical implementation kdetails in Annex 1 Table 1) 3.04 Transportation. Although the transportation system envisaged during appraisal consisting of two ferry boats, 100 towing units and 385 refrigerated trailers was to be procured and to operate as one system, PU - 37 - concentrated on procurement of the towing units and trailers as subborrowers were identified. Procurement of ferryboats was postponed until firm applications from qualified subborrowers could be submitted and the December 1972 Bank supervision mission predicted a delay of 2-3 years in their procurement. The decision to procure the first group of towing units and trailers on 1:1 basis was taken with Bank's concurrence on June 29, 1973, ,to'.increase the purchased units to 155. In the meantime, the Government 'procured from its own funds about 125 towing units and refrigerated trailers under supplier's credit on more favorable terms to users than could be provided under the project. An Italian line commissioned a weekly ferry service (modified roll-on/roll-off) between Bierut, Famagusta, Mersin, Izmir, Piraeus and Trieste. The aforementioned developments necessitated reassessment of the ferryboat size and.services, although it did not affect demand for refrigerated trucks. 3.05 Final evaluation of bids for towing units and refrigerated trailers took place on June 19, 1973. The PU's bid evaluation for procuring 155 towing units and a similar number of refrigerated trailers (20 ton capacity) was approved by the Bank on June 29, 1973. All contracts for the 155 towing units and refrigerated trailers were signed on January 16, 1974, and all the units were.delivered in Turkey by January 1975. 3.06 With regard to the ferryboats, no firm applications from prospective subborrowers were received,until September 11, 1974, when Turkish Cargo Lines (TCL) and the PU forwarded to the Bank a feasibility study for two ferryboats. TCL was identified during appraisal as one of the prospective subborrowers but for a period of four years they did not express serious interest. Consequently, the envisaged system of transport combining refrigerated trailers and the ferryboats did not materialize and costs of ferryboats nearly doubled. Their exclusive use for transporting fruits and vegetables have not yet materialized as exports did not develop as projected during appraisal. Consequently the boats are being used to transport other goods as well as fruit and vegetables. 3.07 The ferryboat component was finally evaluated in November 1974 during the appraisal of an agricultural credit and agro-industries project (Loan 1248-TU) with TCZB as the borrower. Detailed procurement procedures and timetables were established for TCL and PU to follow. The consultants report recommended financing of two used or newly constructed ferryboats. The Bank finally agreed to build one boat under the project (Ln/Cr 762/257) and the other from Loan 1248. Bid offers were opened on July 19, 1976, and final selection of two twin screw roll-on/roll-off newly constructed ferryboatswas made on September 21, 1976. The contract between TCL'and the supplier was signed on October 1, 1976, and Bank approved their procurement on November 3, 1976, with delivery by August 1977. The roll-on/roll-off ferryboats commenced their first trip in January 1978 from Mersin with stops in Izmir and Venice and final destination in Trieste. Contracts for auxillary equipment for the ferryboats were finalized on SeptemDer 22, 1977, for 5 terminal tractors, on January 4, 1978, for 250 roll trailers (25 tons) and 16 roll trailers (40 tons) and on January 18, 1978, for two fork lifts each with 32 tons lifting capacity. - 38 - 3.08 The implementaion of the transportation component was considerably delayed when compared with appraisal estimates (3 years for towing units and trailers and 6 years for the ferryboats) and the envisaged mode of transportation during appraisal did not materialize. The delay could be attributed to a multitude of interacting factors which caused the delay in implementing the whole project, i.e. (a) delay in effectiveness; (b) changes in Government, project organization and management; (c) underestimation of the timetable for the procurement process in addition to unfamiliarity of the PU manangement with procurement guidelines which prompted the Bank to check all the crucial steps in procurement and to clear most of the documents; and (d) delay in obtaining positive expression of interest from TCL to the ferryboats. 3.09 Vehicles for the PU, consultants and extension staff were not included in the project. It was subsequently agreed to provide vehicles as follows: three vehicles were procured in August 1972, 3 vehicles and 30 motorcycles in November 1975, 5 vehicles in February 1977 and 30 motorcycles in April 1978. The vehicles provided needed mobility for project staff, particularly for the extension service. 3.10 Marketing Facilities. Subborrowers' interest in obtaining subloans for marketing facilities was evident after announcing the availability of project funds. However, the issue was to find qualified ones who could prepare technically and economically sound feasibility studies. The transportation technical advisor to the PU helped in that respect but PU efforts were strengthened considerably after signing an agreement with Agrostruct consulting firm in March 1974 for preparation of tender documents, specifications, bid evaluation and supervision. An eight month delay in preparing tender documents occurred when PU changed management in August 1974 and the new director insisted on redrafting them. 3.11 Selection of the first subborrowers (after obtaining Bank's concurrence) for three cold stores and two packing houses was finalized in June 1974. Technical and economic aspects of appraising subloans were carried out by PU and credit worthiness by TCZB. However, there was duplication in the process which delayed procurement. By the middle of 1975, feasibility studies for 14 marketing facilities were approved by the Bank. The first facility (corrugated carton box manufacturing plant) started operation in April 1977 and the last in November of the same year. In April 1977 a fire broke out in two cold storage facilities, fortunately both were insured. All the facilities except one cold store operated during the 1977-1978 season. 3.12 A total of 14 marketing facilities which consisted of 6 cold storage, 7 packing houses and 1 corrugated box manufacturing plant were established under the project. The appraisal report envisaged establishment of a total of 11 facilities consisting of 5 packing houses, 4 cold storage, and two wooden box manufacturing plants. The planned packing capacity, at appraisal, was 20 tons/hr but a total of 80 tons/hr of capacity was installed. Similarly 18,000 tons of cold storage were planned - 39 - but 28,000 tons of capacity were constructed. Due to the change in demand for box manufacturing, one carton box manufacturing plant was installed with an annual capacity of 30 million boxes instead of two wooden box manufacturing plants envisaged during appraisal which were estimated to produce 3 million boxes annually. Due to frequent power shortages, the Bank approved, in August 1977, financing standby generators for the marketing facilities. However, this did not resolve capacity utilization and operational problems. 3.13 Citrus Establishment (Details in Annex 2, Tables 1, 2 and 3). This component was the last to be implemented, although the appraisal report envisaged its implementation during the first year (1972). A total of 50 ha of citrus nurseries were established under the project, compared to 60 ha estimated during appraisal, with the first subloan for 30 ha being approved by the Bank in September 1973. By that time it was evident that establishment of new orchards would lag behind appraisal estimates due to several factors: (a) lack of adequate seedlings let alone virus free ones when the virus free program was at a preliminary stage and at the research level which could have been forseen at appraisal; (b) lack of virus free budwood mother trees and although the Government agreed to import them on a commercial basis, this did not take place; (c) overestimated appraisal figures; (d) organizational problems due to placing CEU under the Ministry of Agriculture while the PU was under the Ministry of Commerce and credit aspects using project funds with TCZB in addition to TOPRAKSU which was involved in land development; (e) lack of qualified staff in general, and extension in particular, lack of facilities to implement envisaged programs and underestimation of manpower requirements to undertake them; (f) absence of citrus marketing policies and coordination with production planning; and (g) lack of cooperation between CEU and SIEU where 5,000 ha were to be established in the Seyhan area. 3.14 Some of the aforementioned problems were resolved and the credit protocal between PU and TCZB was signed on October 17, 1975. However, loans for citrus establishment resumed only in June 1976, and only 743 ha of new citrus orchards were established under the project compared with 8,000 ha envisaged during appraisal. 3.15 The project did not provide for short-term credit to existing citrus orchards at the time because the Bank credit policy .did not permit this. The need for this type of credit was apparent and the Bank authorized financing citrus rehabilitation in September 1974. However, the PU and TCZB did not put it in a working protocal until October 1975 and instructions,to TCZB branches were issued later still in June 1976, i.e. two years from approval which is indicative of the bureaucratic delay in starting this component. A total of 8,570 ha and about 4,500 farm families benefitted from extending short-term credit to existing citrus orchards during 3 years (1977-1979) which-resulted in raising production in these established orchards by 25% to 30% in three years and citrus extension activities covered about 20,000 ha in the project area. - 40 - 3.16 Technical Assistance. Employment of consultants was one of the conditions of effectiveness for the Loan/Credit to undertake the credit survey and for transportation and plantation aspects. The initial agreement for the appointment of two technical advisors to the PU director was signed on April 5, 1972, but the final contract was signed on June 1, 1972. Likewise, three consultants for the credit survey were appointed and the Loan/Credit was declared effective on May 19, 1972. Other consultants for evaluating the ferryboat, marketing facilities, and implementing citrus extension activities were employed by the project. Their employment was crucial to processing the components and their implementation in spite of some problems in some cases with PU (paras. 3.29, 7.05 and 7.06). Consultants for MEPA, the Central Marketing Organization, were never recruited as MEPA was not activated. Procurement 3.17 Transportation. Towing units, refrigerated trailers and ferryboats were procured by the PU according to international competitive bidding (ICB) procedures and Bank guidelines. Initiation for procuring the ferryboats was done by the PU, thereafter TCL with the help of consultants completed the procurement process. Detailed procurement procedures were spelled out in Schedule 2 of the Project Agreement and were implemented by the PU with the Bank's close supervision and timely follow-up. The process of procuring towing units and trailers started with prequalification of potential suppliers in October 1972, about 6 months after effectiveness and about 3 months from the arrival of the technical advisor to the PU for transportation. At the-time, PU management were inexperienced in ICB procurement procedures which necessitated Bank's close monitoring, review and clearance of the PU actions. The fact that PU was a newly created agency with newly assembled staff and their lack of experience in ICB procedures contributed to the delay in procurement and the extra effort required irom the Bank. However, close supervision of procurement procedures by the Bank proved to be valuable when one of the bidders for the refrigerated trailers served a summons on the Bank on August 22, 1973, with September 11, 1973, as the date for the Bank's response which was extended to October 11, 1973. The company accused the Bank of interfering in the procurement process by not approving them as the sole supplier for the 155 refrigerated trailers. The company did not take into consideration the subborrowers's selection of the said trailers. The final evaluation revealed that 90 refrigerated trailers would be ordered from the said compay, subsequently they withdrew their claim against the Bank on October 4, 1973. 3.18 With the delay in procurement of the ferryboats, the estimated number of 100 towing units and 385 refrigerated trailers was changed to 1:1 basis with the Bank's approval in December 1972. The Bank approved in June 1973 PU's evaluation and request to order 155 towing units and a similar number of refrigerated trailers and contracts were signed between suppliers and subborrowers on January 1974 with estimated delivery by August 31, 1974. However, actual delivery commenced in January 1975 and all units were operational by April 1975. - 41 - 3.19 As for the ferryboats, their initial procurement was undertaken by the PU but TCL and consultants continued the procurement process with close supervision,by the Bank. Detailed procurement procedures based on ICB were clearly spelled out in the Agricultural Credit and Agroindustries Project documents (Loan 1248) with modification for procurring used or newly constructed ferryboats. 3.20 PU requested in January 1974 decreasing subborrowers equity from 20% to 5% and lowering interest rates from 8.4% and mentioned that these are the main reasons for subborrowers' reluctance to show i-terest in the ferryboats but the Bank did not agree to the PU's proposal. The two ferryboats were procured at the same time as twin vessels, although one of them was financed from Ln/Cr 762/257-TU and the other from Loan 1248. There was no oustanding issues in their procurement and both vessels started operations in January 1978. The Bank capitalized on available staff expertise in the Transportation Department who were consulted in the procurement process. 3.21 With regard to the procurement of ancillary equipment (forklifts, terminal tractors and roll-on/roll-off trailers) tender documents were submitted to the bank in April 1977 and were approved in early May 1977. By August 1977, TCL received and evaluated the bids and informed the Bank that "final negotiations and evaluations ..." were carried out by TCL and gave the name and amount of the successful bidder. The Bank objected to the procurement of the trailers and informed TCL that it did not follow the Bank procurement guidelines of August 1969 (applicable to Ln/Cr 762/257) by (a) not supplying the Bank with evaluation report and (b) negotiating after bid opening. The Bank and TCL exchanged a series of cables and documents to clarify the issues and finally on February 9, 1977, the Bank advised TCL that the Bank had no objection to awarding the contract to the lowest bidder. 3.22 Procurement problems mentioned above point to the fact that training of the borrower's staff in procurement matters is indispensible for timely implementation of project components. This is now being done through procurement seminars in Turkey for Turkish staff of all agencies connected with implementation of Bank assisted projects. In addition, close supervision by the Bank is required, particularly when new aRencies assume procurement responsibilities. 3.23 Marketing Facilities. The project documents stipulated that the marketing facilities should be procured according to ICB procedures. The appraisal report stated that "Because of the integrated nature of the export handling facilities, each such facility would be procured through a single contract, including civil works, and the supply, installation, and trial running of equipment." Schedule 2 of the project agreeement para. 3 did not spell this out clearly but stated "Wherever practicable, be bulked so as to facilitate international competition" and para. 4 used the term all contracts without seperate reference to equipment and civil works. The PU, in April 1975, requested the Bank to approve local contractors for the - 42 - civil works components of the marketing facilities. The Bank cabled on May 2, 1975: "Although local contractors may be successfull bidders, civil tender request must follow loan agreement and be advertised ICB in accordance with Bank guidelines. Therefore one set of instructions to bidders required and should be similar to one furnished for supply and installation of equipment." All successful bidders for civil works were local contractors and international companies won the equipment bids. A consulting firm helped PU and the subborrowers in preparing tender documents, specifications, evaluation of bids and supervised construction. In one case, during November 1975, only one responsive bid for civil works was received and bid amount was considered too high by the PU and the subborrower. Both requested the Bank to approve awarding the bid to another firm with a lower offer but who was not included in prequalification. The Bank refused and insisted on rebidding. PU followed the Bank's advice and on January 9, 1976, the procedure resulted in 5 responsive bids with a lower price than the previous bid. The two month delay did not affect having the facility ready for the 1977-1978 production season. In one case (June 17, 1974) the Bank agreed to utilize an existing building with some modifications to fit the imported machinery. 3.24 On-farm Citrus Development. Nursey stocks, fencing, fertilizers, pesticides and other farm inputs were locally procured since they were readily available through local commercial channels. Their procurement was over a long period. 3.25 Technical Assistance. PU followed Bank guidelines on procurement of consulting services. Consultants for ferryboat and marketing facilities components were hired in time but PU was late in hiring consultants for citrus development. Performance of the Borrower, Subborrowers, Consultants, Contractors and Suppliers 3.26 The Borrowers; The main issues regarding the Government's performance are: (a) delay in establishing PU and CEU due to changes in the Government; (b) weak coordination among implementing agencies and inadequate commitment of TCZB and the Ministry of Agriculture to the project during its early years of implementation, particularly when PU was still in the Ministry of Commerce ; (c) failure to provide adequate support to the CEU ; (d) failure to submit audit reports (para. 6.15); (e) under- estimation of requirements of the working capital particularly for the marketing facilities and TCZB's reluctance to extend adequate financing; and (f) frequent delays in timely payment of consultants. Low salary scales of the civil servants contributed to the resignation of some of the trained subject matter specialists and foremen which constituted a loss to the project but not to the economy of the country. 3.27 Subborrowers. TCL and other subborrowers complained of the lengthy procurement procedures as some of them favored certain brands of machinery. However, they accepted ICB guidelines and the rationale for - 43 - BanK's procedures when it was explained to them. They complained also of having to please two masters, i.e. PU and TCZB, which resulted in wasting time during the subloan approval process. This has been corrected in the second project, where TCZB is solely responsible. 3.28 Suppliers and Contractors lobbied heavily with the subborrowers, particularly during the selection of refrigerated trailers and towing units. One of the suppliers for the marketing facilities complained to the Bank when informed that he had to stop shipping the equipment because of delays in issuing the import permits through the PU. The Bank alerted PU to this and the problem was resolved. 3.29 Consultants for the PU management, credit survey, ferryboat procurement and operation, marketing facilities, citrus research and extension and preparation of the Second Fruit and Vegetable Project (Loan 1967-TU) were engaged using project funds. Consultants to the PU management in its early years, 1972-74, complained bitterly about their treatment from the project director, particularly the citrus plantation advisor who admitted not being able to contribute to the project's implementation during his two year assignment. Disputes over pay between consultants and PU surfaced at the end of each consultant's assignment. In some cases the Bank assisted in the settlement of such disputes. Costs 3.30 Final project costs totalled US$58.388 million exceeding appraisal estimates of US$44 million by 33%. However, expressed in domestic currency, cost overrun was about 101%, with actual costs totalling TL 1,328 million compared with appraisal estimate of TL 660 million. This cost overrun does not reflect the fact that appraisal cost estimates for the ferryboats were for two and only one ferryboat was financed under the project while the other was financed under Loan 1248. If the cost of the second ferryboat had been charged against this loan, the total cost would have risen to US$67.888 million, exceeding the original estimate by 54.3%. Cost overrun for the ferryboats, the marketing facilities was more than 100% since their procurement started after 1974, a year of worldwide rise in inflation. The discrepancy between local and foreign cost overrun figures reflects high local inflation relative to international levels and the corresponding successive devaluation of the Turkish Lira from US$1 equalling TL 15 in May 1971 to TL 36.4 in 1979 (year of closing date). 44 - 3.31 A comparison of final costs with appraisal estimates is summarized below: Comparison of Total Project Costs Li Appraisal Final % Dif- Appraisal Final % Dif- Component Estimate Cost ference Estimate Cost ference ------- TL million ------- ------ US$ million----- Transportation Ferryboat and ancillary equipment /2 123.000 136.518 +11 8.200 7.781 -5 Refrigerated trailers 112.500) 7.500 4.205 -56 Towing Units 27.000) 102.881 -16.4 1.800 3.200 +78 Subtotal 262.500 239.399 -8.8 17.500 15.186 -3 Export Handling Facilities Packing houses 25.500 173.236 +579 1.700 Cold storages 32.400) 2.160 Box manufacture 9.000) 66.038 +121 0.600 +263 Subtotal 66.900 239.274 +320 4.460 11.716 +163 On-farm Citrus Development Planting and maintenance 217.500 40.980 -50 14.500 Nurseries 7.500 16.243 +117 0.500 Short-term citrus credit and working capital for marketing facilities - 755.927 - - Subtotal 225.000 813.150 +361 15.000 29.700 +98 Technical Assistance Project Unit 7.500) 0.500 Consultants 7.500) 16.951 +13 0.500 Citrus Extension Unit 7.500) 0.500 Research and Propagation 7.500) 19.50 +4 0.500 Credit Survey 3.750) 0.250 Subtotal 33.750 36.451 +8 2.250 1.786 -21 Total 588.150 1328.274 Contingencies Price (9%) 53.100 3.540 Physical (3%) 18.750 1.250 Subtotal 71.850 4.790 TOTAL PROJECT COST 660.000 1328.274 +101 44.000 58.388 +33 /l Final costs as reported in Borrower's completion report. /2 Ferryboats appraisal estimates were for two while final cost is for one only, as the second was financed under Loan 1248-TU. - 45 - The cost overrun for the on-farm citrus development was in nurseries establishment, and expansion of project scope to provide for the short-term credit for.existing citrus orchards and short-term credit for working capital of marketing facilities (only from TCZB and subborrowers' resources) which were not included during appraisal but later introduced in 1975 and in 1978 respectively. Disbursements 3.32 Actual disbursements lagged considerably behind appraisal estimates mainly due to delays in:.(a) date of effectiveness; (b) procurement.of transportation and marketing facilities components; (c) establishment of citrus orchards; and (d) project's closing date. Estimated and actual-annual cumulative disbursements were as follows: Cumulative Disbursements Actual Calendar Appraisal Estimate Actual as % of Year Cr 257 Ln 762 Total Cr 257 Ln 762 Total Estimate ------------------- US$ million-------------------- 1971 2.399 - 2.399 - - - 1972 12.002 - 12.002 - - - - 1973 15.000 3.193 18.193 0.200 - 0.200 1 1974 - 8.079 23.079 7.700 - 7.700 33 1975 - 9.913/1 24.913 8.200 - 8.200 33 1976 - 10.000 25.000 12.900 1.900 14.800 59 1977 - - - 14.700 6.500 21.200 85 1978 - - - 14.900 8.800 23.700 95 1979 - - - 15.000 10.000 25.000 100 /1 Typographical error in Annex 11 of Appraisal Report, total adds to US9. 13 instead of US10 million, disbursements should originally have been completed by September 30, 1975. - 46 - 3.33 The loan credit proceeds were reallocated among different categories five times during project implementation. Final disbursements when compared with appraisal estimates were as follows: Amount Appraisal Actual Allocation Disbursements Actual as % Category 6/22/71 3/20/80 of Estimates ------ US$ million ------ -----% 1. Transportation Equipment (a) Ferryboats 8.200 7.80 95 (b) Trailers and towing units 9.300 7.41 80 2. Packing Houses, Box Manufacturing Plant and Cold Storage Facilities 1.630 5.14 315 (a) Machinery and equipment - 4.55 (b) Civil works - 0.59 3. Subloans for Un-farm Citrus Orchards and Nurseries 2.250 2.90 129 4. Technical Assistance 1.095 1.75 160 (a) Parts A, D, and E of the project - 1.15 (b) Parts B and F of the project - 0.16 5. Extension Services, Reseatch Programs and Citrus Propagation Farm - 0.44 6. Unallocated 2.525 - Total 25.000 25.00 3.32 Reallocation took place to accommodate increased.number and cost of the marketing facilities which essentially absorbed most of the unallocated and savings from Category 1. Actual disbursements for ferryboats were for one as the other was financed under Loan 1248, while appraisal estimates were for two ferryboats. The increase in subloans for citrus development was due to introducing short-term credit for existing orchards. The increase in technical assistance was due to providing 4 man-years of consultancy work to the CEU which was not envisaged at appraisal and the increased cost in providing technical assistance for procurement and supervision of the marketing facilities. - 47 - IV. PROJECI IMPACT ON CITRUS PRODUCTION AND MARKETING Monitoring and Evaluation 4.01 The project did not provide specifically for monitoring and evaluation as it was expected that this would be provided through the reporting requirements. The project unit relied on their frequent up-to-date correspondence, mostly in procurement matters, to inform the Bank with progress achieved in project implementation. The Bank received from TCZB quarterly reports on lending activities but not on a regular basis. MEYSEB and TCL as the subborrower for the ferryboats, forwarded to the Bank in October 1979 a report on their operation. Neither MEYSEB nor TCZB provided adequate supervision after procurement of towing units and refrigerated trailers and the operation of the marketing facilities. Supervision missions frequently requested up-to-date information on performance of the components and their financial status but none were received. The consequences of this shortcoming became particularly evident at the time of the completion report writing, both for the Bank and for the Turkish Government. Discrepancies and inadequacies in data were evident and in many cases these could only be resolved through the use of best estimates. Production Impact 4.02 Research. The project did not include a specific technical assistance component for citrus research, particularly for the establishment of a virus indexing program leading ultimately to the commercial production of virus free budlings. The appraisal report provided only US$145,000 in foreign exchange out of US$0.5 million for research and propagation, mainly for the importation of virus-free budwood and the establishment of a budwood mother tree program. The project relied on the Alata Research Station and the Antalya Citrus Research Station to implement the program under PU's supervision. PU imported virus-free buowood for the budwood mother tree program and the orchard was established at Alata Research Station (near Mersin) in 1973. Similarly, a screening program for Tristeza virus was initiated at the Antalya Citrus Research Station. Developing these programs from merely research programs to a commercial level for virus indexing and provision of virus-free budwood to nurseries in the project area did not take place and nurserymen continued to use visual observation in selecting budwood mother trees. Moreover, records for the production and fruit characteristics of the budwood mother trees were not kept. Therefore, the provision in the Credit Agreement Section 4.05 (ii) "ensure that only virus free certified budwood is used in carrying out Part B of the project" was only implemented in the establishment of the propagation farm through importation of certified budwood, but not in ensuring its continuous freedom from virus diseases through an indexing program. With the employment of the citrus consultant in November 1978, he embarked on establishing an improved budling program using the nucellar approach in production of citrus seedlings. Equipment - 48 - was bought and the building was erected at Alata Research Station but follow up ceased after his departure and the resignation of four experienced SMS in June 1980. Equipment for soil and leaf analysis was imported and a laboratory was established at Alata Research Station in 1978 but no tangible results were obtained using the equipment to determine citrus fertilizer needs in the proiect area. 4.03 Extension. CEU was established under the General Directorate of Agricultural Affairs of the Ministry of Agriculture. PU, at the time, was under the Ministry of .Commerce and coordination between PU and the Director of the Alata Research Station was ineffective and became counter productive with the neutralization of the Plantation technical advisor to the PU. The extension program and citrus establishment were practically nonfunctional until the Bank, in June 1974, suggested introducing the training and visit system (T&V) of extension which was first introduced successfully in the neighboring Seyhan Irrigation Project area. An expatriate citrus consultant to establish the T&V system arrived in the project area in November 1974 for an initial period of two years, which was extended for one year until November 1977. The consultant was housed in the Alata Research Station but did not accomplish much until the PU was transferred from the Ministry of Commerce to the Ministry of Agriculture on June 23, 1975. CEU was attached directly to the PU and established its quarters in rented facilities at Mersin. The consultant in cooperation with CEU staff started working actively in the project area by visiting villages and farmers to survey citrus production and particularly to select foremen to implement extension programs at the village level. Training of SMS and foremen started and the CEU activities gained momentum which was strengthened by implementing the citrus credit programs, particularly the short-term credit -for existing orchards in June 1976. 4.04 The citrus extension program progressed well and farmers were receptive to the staff recommendations. Lack of applied proven citrus research recommendations under Turkish conditions hampered SMS and foremen in their extension efforts who resorted to using experiences from similar areas in developed countries. The need for building a solid applied citrus research program geared to solving farmers' problems became apparent and was included in the second project. The total number of citrus extension staff reached 107 with 26 SMS and 81 foremen in addition to the supporting staff. They followed the T&V system closely even after the departure of the citrus consultant. Their activities in the fall and the spring were tied heavily to preparing citrus credit applications and coordination with TCZB staff. Mobility of the consultant and the staff decreased during the last year of project implementation due to fuel shortages and lack of operating budget, thus leading to decreased benefits from the citrus consultant. On January 3, 1980, a change in the cabinet took place and unfortunately staff changes filtered down to the SMS level. Most of the trained regional directors and SMS staff were replaced and some foremen resigned which reduced MEYSEB's efficiency in citrus extension. MEYSEB's new management undertook (during the appraisal of the second project) to rectify the situation. - 49 - 4.05 CEU staff assisted subborrowers in establishing three nurseries with a total area of 50 ha, establishing 743 ha of citrus orchards, extending short-term credit for citrus rehabilitation to 8,500 ha and covering about 20,000 ha or about 75% of the project's citrus growing area. The success of the T&V.system prompted its replication in the second project to cover seven additional provinces by using foremen in three provinces (Antalya, Mugla and Izmir) and using agricultural technicians in the other four (Bursa, Amasya, Tokat and Kayseri). Currently, in July 1981, the Ministry of Agriculture is reorganizing all directorates with the aim of consolidating them and combining research and extension.efforts under one directorate. 4.06 Establishment of citrus nurseries and orchards. Three nurseries were established, one in 1973 with 30 ha area and the other two in 1976 with 10 ha each with a total of 50 ha out of 60 ha envisaged under the project. Their planned production at full development was to produce about 332,000 budlings annually. Their reported production was 113,000 budlings or 34% of their production capcity. Whether these numbers are the total production and sale figures or the total sold only to subborrowers under KEYSEB's supervision is not clear. One of the conditions for extending credit to the nurseries was that they sell budlings to the farmers who will establish new orchards using project funds at a specific price to be agreed annually with MEYSEB. The nurserymen reported to the Bank's supervision missions that MEYSEB was rigid in adjusting prices to meet their increased operating costs due to inflation. This agreed price was in effect until the subloan is repaid. Therefore, it is believed that budlings were sold at the prevailing market price (150 TL/budling), which was more than MEYSEB's agreed price (about 100 TL/budling). In appraising the second project, this point was taken into consideration and budlings will be sold at prevailing market prices. 4.07 With regard to establishment of orchards, appraisal estimates were overly optimistic to assume that a total of 8,000 ha would be planted in four years starting from the first year of project implementation. Establishment of citrus orchards did not take off until June 1976 after concluding a protocol between MEYSEB and TCZB in October 1975 to organize citrus credit in the project area using project funds. Budlings available from technical schools and the Alata Research Station would not have been sufficient to planting 8,000 ha assuming that nurseries established under the project would produce budlings four years later. Figures for bearing and nonbearing trees in the three provinces (Annex 3 Table 1) during 1976-78 are stagnant and may indicate the farmers' lack of interest in establishing new citrus orchards. Therefore, the shortage of available budlings might not have been a main factor in planting only 743 ha of citrus orchards from 1976-79 as claimed by MEYSEB. Another important factor is citrus marketing and its price structure is the relationship to cotton and wheat and other crops. Moreover, citrus being a perennial crop ties the land for a long time and without any income during the first 4-5 years of development unless intercropped with vegetables. The envisaged citrus expansion in the Seyhan area of 5,000 ha did not materialize and - 50 - ibout 62 ha of lemons were planted in the Silifke area, without MEYSEB's ,upervision, in the area of the Irrigation Rehabilitation and Completion ?roject (Credit 281-TU). Bank supervision missions predicted the shortfall .n the production of certified citrus budlings and establishment of )rchards early in January 1974. Implementation of the citrus production :omponent was delayed due to: (a) PU's organizational problems; (b) )reoccupation of all parties with procurement matters for the refrigerated :railers and the marketing facilities; and (c) lack of coordination between agencies involved in citrus research, extension and credit. f.08 Short-term credit for citrus rehabilitation. This component was iot originally included in the appraisal report as the Bank's agricultural :redit policies at the time did not include lending for short-term credit. Che use of trained SMS and foremen coupled with provision of short-term :redit were the main prerequisites for achieving the realized success in :itrus extension. Bank's management authorized expenditures under this :omponent from the Bank's funds in October 1975 and the credit protocol )etween TCZB and PU was signed during the same month, although its .mplementation started in June 1976. The credit protocol was revised in January 1977 and again in January 1979 to adjust credit amounts to the actual costs of rehabilitation and to permit increased disbursements for imall farmers who own 1-10 dekares (0.1-1 ha) to receive 50% of their innual operating costs, 40% for owners of 11-20 dekares, 25% for owners of 1-100 dekares and no short-term credit for large farmers who own more than. LOO dekares. TCZB's security regulations were relaxed to permit using joint liability instead of land security as collateral. Investment credit Eor nurseries was reduced from a minimum of 300 decares to 50 dekares limit and for citrus establishment from a minimum of 30 dekares to 10 dekares Limit. The Bank also agreed to finance 50% of the disbursements for ihort-term citrus credit. ".09 The supervision of citrus credit activities by CEU's staff resulted in implementing sound recommendations that led to: (a) regulation >f irrigation practices according to citrus requirements which saved water, iecreased level of water table in the soil and incidence of root diseases; (b) integration of biological pest control measures with the use of )esticides; (c) introduction of improved pruning techniques and harvesting nethods; and (d) better cultural practices. Adoption of the improved ?ractices, as reported by MEYSEB, generally resulted in citrus yields reaching 37 tons/ha in about 8,570 ha of citrus orchards which received mxtension and short-term credit compared to 23 tons/ha in areas which did iot receive extension and credit from the project. Although the emphasis )f the credit program focused on small farmers (about 50% of all farmers who received short-term credit), the production benefits from their farm area may not be as great as from large farmers orchards. The short-term :itrus credit was also extended to areas under TCZB's supervision only (without MEYSEB) in Tarsus, Silifke, Central Adana, Central Mersin and Erdemli. Credit demand was about half when compared with areas supervised )y MEYSEB which is indicative of the value of SMS and foremen in generating lemand for credit which when combined with effective extension lead to Lmproving citrus production. - 51 - Marketing Impact 4.10 Marketing Organization. The project did not include a specific marketing organization component as the Government established a Central Marketing Organization (MEPA) in October 1970. Consulting services for two marketing specialists for one year and by one for the third year to assist in MEPA's organizational aspects were provided under the project. With the change of Government in late 1971, SPO's drive to activate MEPA subsided and it was shelved. The major shareholders operated independently. Hence, the allocated technical assistance for marketing was not engaged. Neither the Government nor the Bank pressed for organization of marketing aspects during project implementation but both realized that it should be an integral part of the second project (Loan 1967). The envisaged integration between citrus production, marketing facilities, transportation and marketing organization did not result and each component operated in isolation of the other. 4.11 Citrus production and exports (Annex 4, Table 1). Turkey ranks ninth in citrus world production and fourth in the Mediterranean area after Italy, Spain and Israel. In terms of growth rate in the six year period of 1971/72-1976/77, Turkey, at 41%, was exceeded only by Tunisia (54%). During the same period, production from other competing countries declined 1% in Isreal and 7% in Morocco. Presently, the Turkish domestic market absorbs about 87% of the crop and annual per capita consumption for citrus is high (13.2 kg in 1979 for oranges), approximately the same as in the U.S.A. With the continuing trend of more disposable income, higher domestic consumption should be expected in the coming years. Turkey's present rate of population growth is about 2.5% which means that in the next 30 years the population will double. To satisfy domestic requirements at the present rate, there will have to be doubling of citrus production by the year 2010. Moreover, during the same period roughly about 3% of the old trees would be replaced annually with new ones. With regard to citrus exports, only 30-46% of BASICO and TUMAS consultants' projections made in 1970 for 1975 were actually obtained. Citrus exports fluctuate annually, in fact orange exports declined from 22,825 tons in 1973 to 14,288 tons in 1979. Lemon exports stagnated between 1973-76 with 78,000 tons in 1973 and the same figure for 1979, which jumped to 119,000 tons in 1980. On the other hand, grapefruit and mandarine exports nearly doubled during the same period due to having an established market in Austria and West Germany. This clearly shows that lack of the transportation and marketing facilities (hardware) may not be the limiting factor for improving exports but marketing organization and management (software) are crucial to increased and sustained exports. 4.12 Transportation. The envisaged new mode of transportation, at appraisal, between ferryboats and refrigerated trailers did not materialize as the towing units and trailers were procured first, followed three years later by the ferryboats. Regarding towing units and refrigerated trailers, the appraisal report predicted that the number of units might be changed during implementation, and that happened resulting in the purchase of 155 - 52 - towing units, 65 van type refrigerated semitrailers and 90 refrigerated containers with trailers. The 155 units were distributed among 15 qualified subborrowers. Training courses for drivers were offered on operation and maintenance of the units which were operating by mid 1975. Management was a key factor in their utilization. Some companies considered each unit as a profit making center with the driver and his helper a part of the scheme.and these were very successful in maintaining their units. In other cases the drivers were careless and would turn off the refrigeration units which spoiled the cargo or have frequent stopovers leading to delayed arrival of consignments, loss of premium prices or spoilage of the whole,shipment. The latter ones were mostly converted to conventional carriers for other goods and dried fruits. TCZB and PU did not supervise the units after operating commenced. TCZB was content as long as subborrowers were repaying their loans and PU, who did not have enough staff to follow up on the units activities, was busy in procuring the marketing facilities and activating citrus extension and credit. Therefore, most of the above-mentioned conclusions were based on interviews with some subborrowers during supervision missions. Regarding their utilization, subborrowers reported about 100% capacity utilization in the second year of operation (1976) and that the units were not idle due to the lack of demand for transportation. Few problems developed regarding their maintenance as most of them were maintained abroad during their trips. There was no available data on amounts of fresh fruits and vegetables transported using units procured with project funds. Therefore their impact on fruit and vegetable exports can not be assessed. 4.13 The need for the ferryboats was justified during appraisal as a cheaper mode of transportation when compared with road transport. The latter used to experience problems and delays of 3-4 days to cross the Bosphorus by ferry prior to the construction of the Bosphorus bridge, which was completed in 1974. This did not resolve road transportation problems as the Bulgarian borders were sometimes closed for fear of cholera. This caused serious problems to shippers. In September 1974, TCL and PU submitted a feasibility study to the Bank taking into consideration cost overrun of ferryboats (nearly doubled) since appraisal and using the multipurpose concept in shipping rather than restricting it to transporting fresh fruits and vegetables. Additional studies were requested by the Bank and evaluation of the ferryboats was carried out during the appraisal of the Agricultural Credit and Agroindustries Project (Loan 1248) in mid 1975. The appraisal mission recommended that a combined fresh fruit/general cargo operation was feasible and two newly constructed twin roll-on/roll-off ferryboats were procured in 1976 which started operation in January 1978. 4.14 The two ferryboats reportedly operated at 59% capacity during their first year of operation in 1978. Reported advantages of using the ferryboats over trucks were: (a) shorter time, 6-7 days compared to 10 days -by road for Mersin-Munich; (b) resting of drivers; (c) decrease in the rate of road accidents; (d) decreased wearing of trucks, tires, maintenance and fuel; and (e) cheaper rates for shippers than by road. These - 53 - advantages, however, did not attract exporters of perishables to use the ferryboats because of: (a) frequent changes in the ships' sailing schedule (47% on schedule out of 57 trips for the two vessels during 1979); (b) fear of breakdown of the ferryboat and loss of perishable cargo, while on the road it coulo be transferred or salvaged; (c) delay in loading and unloading; (d) increased red tape and bureaucracy for processing formalities at the ports; and (e) collection of a 5% port levy under the "sQuay Dues Act", an ad valorem dock duty on goods (sea cargo as well as goods shipped on road or roll trailers in roll-on/roll-off ships) unloaded in Turkish ports. There is apparently no comparable charge on goods entering Turkey via road or railroad. The Bank asked the Government to remove this levy to attract more shippers to use the ferryboats, but there was no response. Moveover, TCL marketing efforts to promote the use of ferryboats for transporting fruit and vegetables needs further improvement. Therefore their contribution to increased exports of fruits and vegetables is nearly nil, as most of the goods shipped were cotton, hides, dried fruits, etc. 4.15 Marketing facilities. All marketing facilities started operating in September 1977 except one cold store which had suffered a fire earlier in the year. All facilities faced a critical shortage of working capital, particularly for pellets, boxes and other packing materials and of the estimated TL 200 million needed, TCZB approved in 1978 short-term loans of about TL 160 million with the remainder provided from the subborrowers' own resources. A total of five packing plants (each 20 tons/hr capacity) for citrus and one for apples worked at 30% capacity during the 1977-78 season. The decreased capacity utilization was due to the shortage of working capital, power and fuel shortages and the lack of packing equipment. Subsequently, standby generators were financed under the project but this did not increase capacity utilization. The seven cold storage facilities with a total capacity of 5,000 tons operated at 100%, mostly for meat, fish, poultry and other goods. The corrugated box manufacturing plant operated at 56% capacity in 1978-79 and reached 60% in 1979-80. The fluting paper was supplied irregularly by SEKA (Paper State Economic Enterprise), thus leading to reduced production. Exporters also complained that the plant did not honor its committments regarding quantities and prices agreed upon. The boxes were reported to deteriorate when exposed to high relative humidities under cold storage conditions. Furthermore, most of the production was used for chocolate and biscuit boxes which are more profitable. Thus the marketing facilities' contribution to citrus exports appears to be marginal except for the packing houses which helped improve the quality of packed produce. As for citrus standards, the Turkish Government promulgated Law No. 34 of February 1973 which was forwarded to the Bank at the end of February 1974 in fulfillment of Section 4.03 (i) of the Credit Agreement. Promulgation of standards is a different matter from their enforcement. Packing house operators adhered to the standards but according to their judgement and the market destination. - 54 - V. ECONOMIC RATE OF RETURN Financial and Economic Rates of Return 5.01 Past and expected financial and economic performance were examined for the four major project components, i.e. (a) roll-on/roll-off vessel; (b) trucking company; (c) packing house/cold storage plant; and (d) orange orchard. The economic rate of return of the entire project was also estimated. In a number of instances, emunerated below, the data supplied by MEYSEB were reviewed or adjusted to bring these data to perceived reality. In this context the revised performance indicators should be regarded as having an indicative value only, particularly for the citrus orchard establishment cash flow table, as orchards established in 1976-77 have not started normal production yet and data are more or less a revised appraisal estimate. The financial and economic rates of return of the various project components are as follows: Appraisal Estimate Completion Estimate FRR /1 ERR FRR ERR ------------------- %---------- A. Roll-on/Roll-off Vessel 17 38 20 40 B. Trucking Company 32 35 31 34 C. Packing House/Cold Storage Plant 21 34 25 36 D. Establishment of Orange Orchard 20 20 29 29 E. Entire Project 27 31 /1 FRR = Financial Rate of Return; and ERR = Economic Rate of Return. To arrive at the ERR, the FRR's were adjusted by deleting taxes, adding costs of technical services, and for the ferryboat adding back the rate reductions to users (Details in Annex 5). - 55 - Citrus Yields 5.02 No attempt was made to quantify benefits from citrus extension and provision of short-term credit to existing citrus orchards as it was not included in the appraisal report, besides systematic data for yields, costs and revenue were not collected by MEYSEB. Average production of all citrus orchards at appraisal without the project was estimated at 20 tons/ha. Following are 1980 yield figures for producing citrus orchards with and without short-term credit and extension: Comparison of the Yields of Producing Citrus Orchards With and Without Credit and Extension Services (1980) (tons/ha) Oranges Mandarins Lemons Grapefruit Wash- Industrial Clementine Inter- All Provinces ington Varieties and others Satsuma donato Others Varieties Mersin With 32.00 34.00 25.60 33.00 22.00 30.00 44.00 Without 23.00 25.00 20.00 25.00 16.00 22.00 35.00 Adana With 25.00 28.50 31.00 34.00 42.00 39.00 40.00 Without 20.00 22.80 24.80 27.50 33.60 31.20 32.00 Dortyol With 35.00 40.00 25.00 30.00 25.00 30.00 40.00 Without 27.50 30.00 20.00 24.00 20.00 25.00 35.00 As indicated by the table, the yield of orchards which benefitted from project credit and extension services averaged about 27% higher than the yield of those orchards which did not benefit from project short-term credit and extension services. Source: MEYSEB's records, 1981 The 1980 results summarized above clearly indicate the potential in increasing yield levels of existing citrus orchards when sound extension recommendations, timely credit and efficient marketing become available to the farmers. 5.03 With planting a total of 8,000 ha, the appraisal report estimated that about 275,000 tons of citrus would be produced at full development (10-14 years) with an average yield of 34 tons/ha. The 743 ha established under the project with continued extension and available credit and average annual yield of 40 tons/ha could produce about 30,000 tons of citrus annually. Coupled with incremental yield from the 8,570 ha of established citrus receiving short-term credit of about 60,000 tons, gives an estimated total annual production of about 90,000 tons. - 56 - VI. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT Project Implementation 6.01 Project implementation was entrusted to a newly created Project Unit (PU), under the recently formed Ministry of Foreign Economic Relations (MFE) in April 1971. In addition, a new citrus extension unit (CEU) was created within the Ministry of Agriculture to implement citrus extension activities and to liaise with Seyhan Integrated Extension Unit (SIEU) in the Seyhan area and TCZB in establishing 8,000 ha of citrus orchards in the project area. The PU was strengthened with two technical advisors in transportation and plantations. Such an arrangement was formulated in order to speed up project implementation, however, coordination among all these entities was essential to achieve that goal. Although coordination between various Government agencies has long been identified by the Bank as a weakness in the Turkish agricultural sector, the project organization did not resolve the problem. 6.02 A cabinet change took place late in 1971, prior to project effectiveness, and MFER was abolished and the PU was transferred to the Ministry of Commerce on January 21, 1972, until June 23, 1975, when it was finally transferred to the Ministry of Agriculture. With the cabinet change at end of 1971, staff changes in SPO and other line ministries took place and SPO drive behind implementing the project as an integrated project slowed down. In the meantime the central marketing organization (MEPA) was shelved and regional production companies (MEPA's major stockholders) operated independently. Since then project implementation focused on procurement of transportation and marketing facilities while citrus research, extension and credit lagged behind until reactivated in 1975-76, coinciding with transferring of the PU from the Ministry of Commerce to the Ministry of Agriculture. Later CEU was placed under the PU's supervision instead of the General Directorate of Agricultural Affairs. PU was elevated to General Directorate Status in December 1976 and was named the General Directorate of Fruit and Vegetable Export Development Projects (MEYSEB). CEU was named as a regional directorate with headquarters in Mersin (Icel province) instead of Alata and another branch in Dortyol (Hatay Province). The Adana office was opened in May 1980 after project completion. The aforementioned changes undoubtedly slowed project implementation, although the project director changed only once in August 1974 and stayed until his retirement which coincided with project completion. The Bank's agricultural divisions were reorganized twice, in September 1972 and in July 1977, without disruption in project's supervision and adequate staff continuity. - 57 - 6.03 Training of PU staff in evaluation of agroindustries subproject was strengthened and the staff gained a lot of experience during project implementation and working with agroindustries consultants. MEYSEB proved itself as a dynamic organization with experienced staff in agroindustries evaluation and citrus extension. Coordination problems between TCZB and MEYSEB occurred regarding the implementation of the marketing facilities component, while the relation was constructive and effective in extending citrus credit. The reason for entrusting MEYSEB with technical and economic evaluation of agroindustries was its willingness and enthusiasm to implement the project while TCZB, at the time, was not receptive to the Bank's ideas of upgrading its evaluation procedures. Another cabinet change took place in November 1979 and most of the trained MEYSEB staff were replaced with a new team which diluted their acquired capabilities and this showed up in the quality of MEYSEB's draft completion report. Currently (July 1981), the Ministry of Agriculture is consolidating research and extension activities in one directorate. TCZB and Credit Aspects 6.04 The agricultural credit survey. One of the conditions of effectiveness for the project was to appoint consultants to undertake an agricultural credit survey. In September 1972, three specialists arrived in Turkey to commission the study which was launched by October 1972 under the guidance of the Ministry of Commerce after abolishing MFER. In March 1973, the three consultants left and TCZB, which is a SEE under the Ministry of Commerce's supervision, requested the Bank to employ Turkish consultants and the Bank concured. By August 1973 TCZB, on instructions from the Ministry of Commerce, released the consultants and the interim report scheduled to be finalized in November 1973 was not completed. Frequent enquires by the Bank produced no results and in September 1974 the Bank's supervision mission reported that no further work had been done by TCZB. At the same time, PU agreed to engage a credit specialist to help TCZB in preparing the agricultural credit and agroindustries project (Loan 1248-TU). In this context, a credit study was included under the Seyhan Irrigation Project Stage II (Ln/Cr 587/143-TU appraised in June 1967) but was never executed and was later dropped on the account of including it in the Fruit and Vegetable Export Project. 6.05 Citrus credit. Provision of credit for the establishment of citrus nurseries and orchards moved very slowly and it was realized that appraisal estimates were not going to be attained. In the meantime, introducing the T&V extension system in 1974-75, when coupled with the signature of the citrus protocol between TCZB and PU in October 1975, provided an impetus to citrus credit activities particularly by including short-term credit for existing orchards. The protocol was amended in January 1977 and January 1979 to provide investment credit for orchards less than one ha, nurseries of five ha area extending up to 50% of credit requirements for farmers owning orchards between 0.1-1 ha and relaxing collateral requirements for investment credit to small farmers. In addition, investment and operating costs were updated annually and amounts - 58 - of credit were adjusted accordingly. Provision of citrus credit, particularly short-term credit, showed to the farmers that TCZB and MEYSEB were seriously interested in improving production in general and helping small farmers in particular. It also demonstrated the value of extending timely credit when combined with sound extension recommendations and adequate supervision. 5.06 Investment credit for transportation and marketing facilities noved at a slow pace due to the time it required to evaluate the technical and economical feasibility of subprojects and credit worthiness of subborrowers. Once the subloans were approved there were no problems in disbursements. In September 1977, the Bank alerted the Government and TCZB to the shortage in the provision of working capital to the marketing facilities and estimated that about US$11 million were needed to operate them at full capacity. In April 1978, TCZB estimated that working capital needs were TL 200 and provided qualified subborrowers with TL 160 m. 6.07 Special Operational Fund. In accordance with Section 4.03 of the Project Agreement, TCZB established and maintained a Special Operational Fund (SOF) at the rate of one half of one percent per annum to supplement the PU's operating expenses. TCZB calculated its contribution to SOF on the IBRD funds used in the subloans and not on the entire subloan including ICZB's own resources which was called for in the project documents. TCZB finally, in January 1980, wrote to the Bank that they acted in good faith in calculating the SOF on IBRD funds only and undertook to calculate it on the entire subloans in on-going projects. Thus the contribution on the entire subloan-did not apply to the project. The following table shows the SOF accounts: Year Amounts Received MEYSEB's Expenses/! -----------------------TL ----------------------- 1972 377,500 1973 - 295,000 1974 12,501 400,000 1975 467,917 308,000 1976 2,376,239 1,971,000 1977 2,187,742 1,189,244 1978 3,050,380 1,503,062 1979 6,607,542 876,730 1980 311,100 1,100,000 Total 10,013,421 8,022,536 /1 1972 and 1973 expenses were advanced by TCZB. The SOF was used for MEYSEB's staff per diem expenses, translators and short-term local consultants. It is not used for operating expenses, e.g. fuel, as these should be provided from the general budget. SOF will be continued for the Second Fruit and Vegetable Project but with an annual rate of 1% on the total subloans extended by TCZB. - 59 - 6.08 Lending Terms. Schedule 1 of the Credit Agreement and other documents accordingly, were revised five times to allow reallocation between categories. The most important amendments to Schedule 1 following Government's request were: (a) to change disbursements in Category IV Technical Assistance from 100% of foreign expenditures to 100% of total expenditures which the Bank approved in September 1974. This permitted financing of local consultants from the Loan/Credit proceeds and extend consulting services to other parts of the project, also Category V was created for extension services, research programs and citrus propagation farm. Unallocated became Category VI; (b) to increase the percentage of subloan disbursements for on-farm citrus development to be covered by Bank financing from 20% to 50%, also to finance short-term credit for existing citrus orchards which the Bank approved in October 1975; and (c) to provide 100% of foreign exchange expenditures for machinery and equipmenL under Category II and 10% of local expenditures for civil works which was approved by the Bank on June 24, 1976. 6.09 The aforementioned changes were instrumental in procuring needed machinery and equipment. Moreover, it strengthened the extension impact on citrus production and established MEYSEB as a leading agency in citrus extension. 6.10 Subloan repayments. TCZB reported in July 1981 that 1980 repayments were 100% for towing units and refrigerated trailers, 66% for ferryboats, 64% for packing houses and box manufacturing plants, 61.5% for cold stores, 77% for citrus establishment, and 80% for short-term citrus credit. TCL assumed the foreign exchange risk for the ferryboat component. The project's impact on interest rates could not be assessed since this is geared to the country's economic situation. Research 6.11 Although funds for research programs were included in Category V of the Credit Agreement, the project's impact on citrus research was minimal. Citrus activities were mainly geared to extension and credit and did not concentrate on research until later when the leaf soil analysis laboratory was established in the Alata Research Station. In 1978-79, the citrus consultant initiated the nucellar propagation program for citrus seedlings. Contacts with Cukurova University and the Antalya Research Stations were maintained but not with defined programs to produce virus free budlings. Continuity of applied research recommendations geared to resolving farmers problems was not attained and the T&V system was handicapped in this respect. Measures to strengthen the applied horticultural research are included in the Second Project. - 60 - raining 1.12 The project had a profound impact on training MEYSEB's staff in groindustries evaluation, citrus production technology and citrus xtension. One engineer attended the EDI agroindustries course while nother attended the rural development course and visited citrus production treas in Arizona and California, U.S.A. Another two SMS spent 2.5 months .n citrus production areas in California, Arizona and Florida and one SMS Lttended an eleven day extension conference in the Philippines from March .3-24, 1977, plus one week in India to gain more experience with the T&V xtension system. Six staff including one foreman visited citrus >roduction areas in Israel for 15 days in May 1978. As for training in .urkey, SMS and the extension consultants conducted regularly one month :raining courses for the foremen each year plus one day of training every :wo weeks. The training programs benefitted the staff, raised their moralE knd resulted in satisfactory implementation of citrus extension. ,xtension ..13 Developments that led to introducing the T&V system has been liscussed in Section IV. The CEU was created as an offshoot unit to be tdopted by the Ministry of Agriculture which has its own extension service ,Teknik Ziraat). Furthermore, other agencies involved in extension did not lake CEU seriously and did not coordinate their programs with CEU until PU ras transferred to the Ministry of Agriculture and CEU became a regional Lirectorate under MEYSEB. Timely provision of short-term credit by TCZB in ooperation with MEYSEB greatly assisted the extension system. Farmers iere enthusiastic about the extension program and appreciated efforts by :he extension staff. >.14 Continuity of MEYSEB's success in delivering sound recommendation lepended on dedicated staff, suitable incentives, adequate transportation, tvailability of citrus technology applicable to Turkish conditions and ipplied research geared to solving farmers' problems and full cooperation .rom TCZB and other Government agencies. In the last year of project .mplementation the extension momentum achieved earlier slowed down due to :he negative effect of the previously mentioned factors and measures were formulated to rectify them under the Second project where the T&V system tould be expanded to include ten provinces with six of them using foremen is extension agents and four other provinces using technicians. iccounting and Auditing ).15 MEYSEB's accounts were audited by the office of the inspection :ommittee, Ministry of Agriculture. Audit statements were usually Einalized in the spring and were received regularly from MEYSEB in the last :wo years. On the other hand, TCZB forwarded to the Bank, prior to 1976, ;ome provisional statements which have never been submitted on a regular >asis. In October 1979, a Bank mission to study the auditing aspects for igricultural projects recommended approval of TCZB's audit statements by - 61 - :he Sworn Bank Examiners, which is an independent unit in the Ministry of finance. The mission also recommended approval of audit statements for itate Economic Enterprises (SEEs) accounts by the Supreme Auditing Board ,an independent unit under the office of the Prime Minister) and the line linistries accounts by the Ministry of Finance Inspectors. The auditing roblems and implementation of the audit covenants is not a problem of roject management but of general Government procedures and is experienced Ln all agricultural projects. Presently the Bank is closely following up 3n the implementation of auditing covenants and new guidelines are being Eormulated. keporting 5.16 Legally the Bank did not require the Borrower to send regular progress reports or prepare a project completion report but MEYSEB relied 3n informing the Bank through regular correspondence and prepared a :ompletion report which was submitted to a Bank mission in July 1980. Frequent supervision missions by the Bank were effective in guiding project nanagement to better implementation of the project components. However, the need for technical and financial reports of operating transportation aquipment and marketing facilities were frequently requested by the Bank and when provided by MEYSEB they were of poor quality due to the lack of systematic data collection. Reports provided by the consultants on their assignments were comprehensive, particularly for the ferryboats and citrus axtension. VII. SPECIAL ISSUES Enfrastructure for Transportation and Marketing Facilities 7.01 Prior to project implementation, modern packing houses, cold storage and box manufacturing facilities were not adequate to process produce for export. Fruits and vegetables were mostly packed in the field ising abundant labor but with the increased sophistication in packing :echnology, Turkish competitors, e.g. Israel, Spain and Morocco adopted ip-to-date methods and equipment in packing their produce which attracted :onsumers to known specific brand names as this is usually synonymous with Ldentified quality. The provision of ferryboats, towing units and refrigerated trailers and marketing facilities, under the project, gave rurkey an opportunity to catch up with modern packing and transportation nethods. The promulgation of Turkish fruit and vegetable standards in accordance with OECD requirements was also an important step in securing Eoreign markets' confidence in the Turkish produce. However, the physical Lmplementation of these facilities was not efficiently managed, resulting Ln low capacity utilization and continuation of the ad hoc marketing arrangements. Moreover, Turkey's dependency on outside sources for most of Lts energy needs and its current economic problems aggravated the - 62 - situation. One lesson to be learned from this is while it may be easy to finance and procure equipment, Turkish subborrowers had problems in operating the equipment at efficient levels and subsequently marketing their produce. Therefore financing of management training (software) is considered as crucial in attaining project objectives as provision of funds for procurement of equipment (hardware). Further provision of working capital for the said facilities was critical to their economic viability, hence it was included as a component in the Second Fruit and Vegetable Project to complement efforts by the envisaged marketing organizations in the second project. Integration of Project Components 7.02 The project, as appraised, assumed that coordination of the components would occur smoothly. It also created a new entity PU under a newly formed Ministry (MFER) while another new CEU was added to the Ministry of Agriculture. Moreover, the Ministry of Commerce, SPO and TCZB were involved. The PU and CEU staff were drawn from different agencies and the Director did not have direct authority over all his staff, particularly in implementing citrus development. Such organization in addition to frequent changes in the Government and staff did not permit adequate staff continuity and failed to achieve the envisaged integration between project components. Neither organization of marketing channels nor activation of MEPA materialized during project implementation, thus continuing the independent ad hoc citrus marketing arrangements. 7.03 On the other hand, the transfer of the PU to the Ministry of Agriculture and then attaching CEU to it provided one line of authority which was, fortunately, coupled with the presence of an energetic director and dedicated staff. PU and CEU formed promising nuclei for agroindustries' evaluation and citrus extension. Thus creating them and combining them under MEYSEB's umbrella was a correct move to achieve project implementation which is recognized by the Government. This prompted the Government to include in its pipeline of agricultural programs, research and extension projects and extending the T&V system with modifications to the Corum-Cankiri Project (Loan 1130-TU), the Second Fruit and Vegetable Project (Loan 1967) and the recently appraised Erzurum Rural Development Project (May 1981). Interest of Implementing Agencies and Continuity 7.04 Project implementation went through several cycles of enthusiasm for its implementation which coincided mainly with changes in the Government and PU's staff. The Ministry of Commerce did not provide active support to the PU in the form of office space and transportation. The PU director was in one building and his technical advisors were housed in a far different one. The PU urgently requested the Bank to provide vehicles (not originally included in the project) for staff mobility and the Bank concurred. CEU also was not provided with vehicles but when put under MEYSEB's jurisdiction motor vehicles and motorcycles were purchased. TCZB - 63 - was not interested, at the time, in undertaking the credit survey and never finalized the report. Credit aspects achieved a momentum after being coordinated with citrus extension activities in 1976 near the original closing date for the project. SPO was only active during project preparation and fulfilling conditions of effectiveness. Considering staff changes in other agencies, MEYSEB's General and regional extension directorates in Ankara, Mersin and Dortyol did not change in the last four years of project implementation and this was a contributing factor to the success of the dedicated extension staff in gaining farmers' confidence. Use of Consultants 7.05 The overall use of consultant services was adequate and essential to project implementation. Consultant services for the ferryboat and marketing facilities components from the feasibility stage to their procurement and operation were indispensible to implementing these components. Timely supervision, constructive guidance and quick response on .the Bank's part contributed to effective implementation of these components. Both citrus consultants were effective in establishing the T&V extension system, staff training and providing technical back up for the SMS. Disputes over pay, time served, delay in payment arose in the case of consultants to the ferryboat, marketing facilities, credit and citrus extension consultant. The fuel shortage, 1978-79, decreased staff mobility, particularly the extension staff and the consultant. 7.06 On the other hand as an example of mismanagement, the appointment of two technical advisors for two years to the PU was one of the conditions of effectiveness. Both were hired through a consulting firm which did not give them adequate support. One of them, the transportation advisor,-was partially involved by the PU director in procuring refrigerated trailers and towing units. The second one, the plantation advisor, was not able to contribute anything to citrus development and stated in his memorandum of March 8, 1974, "For the nearly two years I have been employed as a project advisor, I have not been sought for any help or advice." This is clearly an example of how funds and use of consultants could be wasted. However, this was an extreme case during project implementation. Replication 7.07 A Second Fruit and Vegetable Project with emphasis on marketing organization, credit, applied horticultural research, extension, training and conducting horticultural subsector studies was signed on April 6, 1981, thus complementing the infrastructure implemented under the first project and expanding area of coverage to 10 provinces using the T&V extension system. Organization of the marketing aspects and their integration with production and credit is a maior feature of the second Droiect. - 64 - VIII. BANK PERFORMANCE Project Justification and Objectives 8.01 The Government and the Bank have always considered the development of the fruit and vegetable subsector as a very important source of foreign exchange earnings. Moreover, the agricultural sector survey highlighted the need to increase fruit and vegetable production to --;.sfy the expected growth in domestic demand which was accepted by Government. Therefore, the project was consistent with the Turkish Government's development objectives and the Bank's strategy at the time it was appraised. The second project is a continuation of that strategy with an emphasis on foreign exchange earnings through increased and sustained exports. Project Components 8.02 The Bank played an important and constructive role in scheduling and defining this project, taking into account the Government's implementation capacity. This was particularly evident in the procurement process for the ferryboats and the marketing facilities component. Continued reformulation of the extension and credit, although late, resulted in achieving notable progress in citrus'extension. The importance of the integrated marketing-production chainlink was realized by the Government and the Bank, which was never pursued during project implementation partly due to its complicated organizational aspects. Improved capacity utilization of the export infrastructure implemented under the project, e.g. transportation and marketing facilities in addition to the country's horticultural resources, would be analyzed and coordinated under the second project. 8.03 The cost overrun in foreign exchange was not large, except for the ferryboats when two were envisaged to be procured under the project and funds were enough for one only. The Government contribution for local costs in short-term citrus credit was not anticipated during appraisal and was larger than expected. The appraisal assumption of establishing 8,000 ha of citrus orchards in four years was not realistic taking into consideration the state of citrus technology at the time, particularly the development of virus free budlings. Timely project implementation based on realistic estimates is crucial to the project's success, particularly during increased worldwide inflation. Project Administration 8.04 The project was adequately prepared and the Bank's appraisal was based on relatively good knowledge of the horticultural subsector. However, a better understanding of the implementing agencies, e.g. Minitries of Commerce and Agriculture and TCZB, was needed. The openness and receptivity of some of these agencies, except SPO, to the Bank's - 65 - involvement in the agricultural sector was ambivalent. The Bank's reorganization of agricultural divisions did not appear to affect staff continuity as two staff members continued to be involved with the project. The only drawback of the organization was the absence of an agroindustries specialist within the division, although ferryboats, towing units and refrigerated trailers and marketing facilities were in operation at the time. Since July 1977, only one agroindustries consultant was involved (February and June 1980 missions). Most of the supervision missions were combined with supervising Loan 1248 which experienced problems in implementing its agroindustries component and getting TCZB to launch the study of its management and operations. The Bank's completion report was postponed until the appraisal report of the Second Fruit and Vegetable Project was processed, which was signed on April 6, 1981. IX. CONCLUSIONS 9.01 The Government's and the Bank's strategy for the horticultural subsector were partially met by implementing the project. The project succeeded in meeting partly the lack of marketing infrastructure, e.g. transportation and marketing facilities to handle production at the time. It was felt that provision of these facilities would improve Turkish exports of fruits and vegetables but this did not prove true as the envisaged marketing organization, not part of the project, did not materialize. 9.02 The project did not receive the full commitment of the implementing agencies and changes in project organization resulted in delaying implementation. TCZB's procrastination in implementing the agricultural credit survey resulted in the Bank's giving up on the study and an earlier one under Seyhan Irrigation II. 9.03 The rate of return anticipated at appraisal for the project components is expected to be approximated, although this would depend on increased capacity utilization of the marketing facilities and ferryboats and provision of adequate agricultural extension services. Although the Bank placed considerable emphasis on provision of farmer support services and availibility of virus free citrus budlings, no definite measures were taken during project implementation to alleviate the problem. The introduction of the T&V extension system resulted in establishing an effective extension service, however, it could have been made more so if more detailed planning on linking it with research was undertaken. The integration of extension activities of CEU with the Seyhan Project did not take place. 9.04 The shortcomings in implementing the project and the production and marketing constraints were taken into consideration during preparation and appraisal of the Second project which addressed production and - 66 - marketing problems to streamline the chainlink between them which should lead to sustained and increased exports. The responsibility of successful marketing has been vested with the private sector with initial Government support. Again, timely coordination between Government agencies and the private sector would be crucial for achieving the envisaged integration of production and marketing. - 67 - Annex 1 Table 1 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT Physical Implementation of Project Components in Comparison with Appraisal Estimates Appraisal Component Estimate Actual Capacity Transportation Ferryboat purchasement Required Capacity 2 1 50 Towing Units 100 155 155 Refrigerated Trailer 385 155 40 Export Facilities Packing houses Oranges, lemons, grapefruits 20 ton/h 80 ton/h 400 Satsumas 20 ton/h 10 ton/h 50 Grapes 30 ton/h - Apples - 20 ton/h - Storage Facilities Cold Storage 18,000 tons 28,000 tons 158 Pre-cooling 100,000 tons 86,000 tons 86 Frozen storage - 750 tons - Degreening - 97,000 tons - Box Factory 3,000,000 30,000,000 1,000 Development of Citrus Production Orchard Establishment 8,100 ha 743,ha 9 Nursery Establishment 60 ha 50 ha 83 Operation and Maintenance Credit 8,570 ha - Extension Service 20,000 ha Source: MEYSEB's draft completion report, July 1980. Annex 2 Table 1 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT Ra-%'c',ment of Citrus Orchards (ha) Kind of Citrus Orange Lemon Mandarir Grapefruit Total Appraisal Estimates 1972 130 180 160 100 570 1973 380 520 490 290 1,680 1974 500 100 640 390 2,230 1975 790 1,100 1,010 620 3,520 1976 - - - - - 1977 - - - - - 1978 - - - - - 1979 - - - - - Total 1,800 2,500 21,400 8,000 Actual 1972 - - - - - 1973 - - 1.35 5.25 6.6 1974 2.0 17.4 4.2 14.8 38.4 1975 - 33.4 3.5 - 36.9 1976 32.9 99.3 42.7 3.0 177.9 1977 26.3 52.0 43.8 - 122.1 1978 53.0 29.8 23.2 5.0 111.0 1979 123.0 82.0 41.1 24.0 250.1 Total 237.1 293.9 159.8 52.05 743 - 69 - Annex 2 Table 2 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT Number of Short-term Loans for Existing Orchards in Relation to Area of Orchard (Decare) /1 Orchard Numbers of Loans Size 1977 1978 1979 Total (dekare) 1-10 510 744 1,046 2,300 11-20 244 323 472 1,039 21-100 243 373 534 1,150 Total 997 1,440 2,052 4,489/2 /1 1 dekare = 0.1 ha. /2 A total of 14 loans were extended in 1976 but were not classified. Source: MEYSEB Completion Report "Fruits and Vegetables I" - 70 - Annex 2 Table 3 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT Short-term Credit for Existing Citrus Orchards (Area in ha) Amount of Years No. of Loans Area TL/ha Credit (000) TL 1976 14 17 22,117 376 1977 997 1,917 12,560 24,079 1978 1,440 2,994 15,545 46,542 1979 2,052 3,659 25,310 92,610 Total 4,503 8,587 163,607 - 71 - Annex 3 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT Number of Citrus Trees in the Project Area (1976-1978) (000's) Crop Grapefruit Lemons Mandarin Oranges Sour Oranges Adana 1976 Bearing 30 91 451 1,058 175 Nonbearing 0.318 15 11 61 23 1977 Bearing 19 101 241 1,060 159 Nonbearing 1.7 9.96 15.15 65.06 22.93 1978 Bearing 20 98 183 1,047 147 Nonbearing .72 15.17 22.87 61.68 22.23 Hat ay 1976 Bearing 57 93 188 2,062 23 Nonbearing 4.6 10.25 12.3 27.1 97 1977 Bearing 73 84 187 2,208 23 Nonbearing 5.05 16.65 15.3 62.65 239.86 1978 Bearing 87 106 196 2,253 24 Nonbearing 1.06 19.45 23.00 31.75 222.74 Icel 1976 Bearing 76 1,870 378 1,726 55 Nonbearing 4.98 254.9 16.75 37.7 4.5 1977 Bearing 80 2,151 442 1,822 57 Nonbearing 11.39 280.7 32.8 86.0 6.7 1978 Bearing 90 2,337 453 1,846 54 Nonbearing 27.6 301.2 45.7 66.8 24.0 Source: State Institute of Statistics, Agricultural Structure and Production 1976-1978. Annex 4 Table 1 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT Production and Disposal of Selected Citrus Fruits - Turkey: 1973-1979 Domestic Per Capita /1 Year Production Loss Exports Consumption Consumption ---------------------(tons) --------------------- (kg/person) Oranges 1973 470,000 47,000 22,825 400,175 10.5 1974 500,000 50,000 13,165 436,835 11.5 1975 540,000 54,000 10,715 475,285 11.9 1976 545,000 54,500 21,364 469,136 11.4 1977 587,000 58,700 27,146 501,154 11.9 1978 656,000 65,600 11,704 578,696 13.4 1979 660,000 66,000 14,288 579,712 13.2 Mandarins 1973 84,000 8,400 8,370 67,230 1.8 1974 112,000 11,200 18,419 82,381 2.1 1975 105,000 10,500 22,911 71,589 1.8 1977 146,000 14,600 27,629 103,771 2.5 1978 150,000 15,000 32,448 102,552 2.4 1979 150,000 15,000 31,790 103,210 2.3 Lemons 1973 122,000 12,200 78,364 31,436 0.8 1974 265,000 26,500 73,287 165,213 4.2 1975 290,000 29,000 65,468 195,532 4.9 1976 277,500 27,750 98,761 150,989 3.7 1977 280,000 28,000 76,990 175,010 4.2 1978 243,000 24,300 86,680 132,020 3.0 1979 270,000 27,000 78,261 164,739 3.7 Grapefruit 1973 7,000 700 3,751 2,549 0.07 1974 12,000 1,200 5,581 5,219 0.13 1975 12,500 1,250 16,143 4,893 0.12 1976 13,000 1,300 6,726 4,974 0.11 1977 12,000 1,200 7,105 3,695 0.09 1978 20,000 2,000 9,131 8,869 0.2 ,178 11,822 0.3 - 73 - Annex 5 Page 1 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT Financial and Economic Performance 1. Past and expected fi---- 'I and economic performance of four major project components was examined, i.e.: (1) Roll-on/Roll-off Vessel; (2) Trucking Company; (3) Packing House/Cold Storage Plant; (4) Orange Orchard. 2. In a number of instances, enumerated below, the data supplied by the local project authorities were reviewed or adjusted with the purpose of bringing these data.closer to perceived reality. Nevertheless, it is prudent to see no great precision in the revised performance indicators and to regard these as having indicative value only. Especially, the citrus orchard cash flow table, for obvious reasons, is little more than a revised appraisal estimate. 3. The financial and economic rates of return of the various project components are as follows: Appraisal Report Completion Report FRR ERR FRR ERR ----------------- %--------- A) Roll-on/Roll-off Vessel 17 38 20 40 B) Trucking Company 32 35 31 34 C) Packing House/Cold Storage Plant 21 34 25 36 D) Orange Orchard 20 20 29 29 E) Entire Project 27 31 - 74 - Annex 5 Page 2 4. To arrive at the economic rate of return, the financial rates of return were adjusted by deleting taxes, adding costs of technical services, and for the ferry, adding back the rate reductions to users. 5. The following adjustments were made in the data supplied by the local project authorities. A. Roll-on/Roll-off Vessel (i) The number of trips was reduced from 43 trips/year to 32 trips (25% reduction) to reflect a closer link of round trips with the agricultural season; (ii) The charges per truck were reduced from 85,000 TL to 69,500 TL (18% reduction) to better reflect average conditions; (iii) The number of trucks per trip was reduced from 65 to 60 to better reflect average conditions; (iv) The vessel's operating expenses were adjusted for the smaller number of round trips per year. B. Trucking Company (i) The cost of a towing unit and a refrigerated trailer in 1979 was estimated at 5.86 million TL, compared to an original cost of 805,400 TL (1975), and an estimated cost of 6.8 million TL (1980). C. Packing House/Cold Storage Plant (i) Domestic sales prices and expert sales prices of oranges were reduced from 25,000 TL/ton and 32,000 TL/ton to 20,000 TL/ton and 25,000 TL/ton respectively, to better reflect average conditions. (ii) Packing revenues were reduced from TL 120 to TL 100 for a case; (iii) Cold storage hire charges were reduced from TL 5,000/ton to TL 4,000/ton; - 75 - Annex 5 Page 3 (iv) Pre-cooling hire charges were reduced from TL 2,500/ton to TL 2,000/ton; (v) The original citrus purchase cost estimates did not account for rejects. Adjustment was made in citrus purchase expenses by allowing for 15% rejects; (vi) The purchase price for citrus was increased from TL 10,000/ton to TL 15,000/ton to better reflect average conditions. D. Orange Orchard In the case of the orange orchard component, a shadow rate of labor cost, at 75% of the market rate, was used to reflect the existence of surplus labor in the project area. - 76 - Annex 5 Page 4 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT PROJECT COMPLETION REPORT Roll-on/Roll-off Vessel Component Financial Data Sheet Revenues -. Ferryboats started operations in 1978 at 60% of what is expected for 1981 and subsequent years to be full capacity. - Average number of trips per year 32 - Average number of trucks per trip = 2 x 60 = 120 - Average charge per truck per trip.= 69,500 TL - Revenue = 120 trucks x 32 trips x 69,500 TL = 267.0 million TL - Salvage Value: in year 20 at 10% of investment cost Operating Expenses (per year) TL Million - Personnel; 23 persons at TL 480,000/year 11.0 - Repair & Maintenance; at 3% of investment 4.1 - Insurance: at 2% of investment 2.7 - Fuel, main engines: 5,160 hrs/year x 7,800 BHP x 0.16 kg x 21 TL/kg 135.2 - Fuel, generator; 10,965 hrs/year x 675 BHP x 0.16 kg x 21 TL/kg 24.8 - Oil; at 7% of fuel expenditure 15.4 - Loading and unloading 17.0 - General Expenses; overhead costs 18.8 Total 229.0 Investment - Cost of vessel is 136.5 million TL; useful life is 20 years. TURKEY FRUIT AND VEGETABLE EXPORT PROJECT PROJECT COKPLETLON REPORT Roll-an/Roll-off Vessel Component Financial Cash-Flow Statement (TL million) 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986-93 1994-96 1997 Cash Inflows Revenues - 160.2 213.6 240.3 267.0 267.0 267.0 267.0 267.0 267.0 267.0 267.0 Salvage Values - - - - - - - - - - - 13.7 Total - 160.2 213.6 240.3 267.0 267.0 267.0 267.0 267.0 267.0 267.0 280.7 Cash Outflows Operating Expenses - 150.8 201.9 208.2 229.0 229.0 229.0 229.0 229.0 229.0 229.0 229.0 Investment 136.5 - - - - - - - - - - - Total 136.5 150.8 201.9 208.2 229.0 229.0 229.0 229.0 229.0 229.0 229.0 229.0 N~t lionefic Before Financing (136.5) 9.4 11.7 32.1 38.0 38.0 38.0 38.0 38.0 38.0 38.0 51.7 Long-term Credit 109.2 - - - - - - - - - - - Principal - - - 8.4 8.4 8.4 8.4 8.4 8.4 8.4 - - Interest - 9.2 9.2 9.2 8.5 7.8 7.0 6.4 5.6 15.2 - - Total 109.2 9.2 9.2 17.6 16.9 16.2 15.4 14.8 14.0 23.6 - - Net Benefit After Financing (27.3) 0.2 2.5 14.5 19.1 21.8 22.6 23.2 24.0 25.6 38.0 51.7 Taxes at 43: - 0.1 1.1 6.2 8.2 9.4 9.7 10.0 10.3 11.0 16.3 22.2 Net Senefit After Taxes Lnd Finincing (27.3) 0.1 1.4 8.3 10.9 12.4 . 12.9 13.2 13.7 14.6 21.7 29.5 FRR: To All Resources: 20.3% To Equity After Financing: 39.6% To Equity After Financing and Taxes: 27.72 ERR: 43% May 1981 (D (D x M' - 78 - Annex 5 Page 6 1URKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT Transport Company Component Financial Data Sheet Average number of trips per year: 15 Distance travelled/trip: 6,000 km Revenues 1,000 TL Charges from Mersin to Munich 250 Charges from Munich to Mersin 300 Charges for one round trip 550 For 10 vehicles/year 82,500 Replacement value: after 7 years at 10% of investment cost Operating Expenses Expenses per round trip per truck. 000 TL Drivers' salary 48.0 Fixed Expenditure 11.3 Country transit charges 183.0 Insurance 22.5 Repair & maintenance 51.3 Fuel & oil /1 71.2 Tires 15.0 Amortization /2 7.7 Total (per vehicle) 414.8 Total (10 vehicles/year) 62,100.0 /1 Fuel consumption = 6,000 km/round trip x 0.5 lt/km = 3,000 lt at 21 TL = 63,000 TL. Oil at 13% of fruit consumption cost. /2 Amortization = Cost of tractor and trailer (TL 5.9 million) over 6 years or 90 trips. TURKEY FRUIT AND VEGETABLE EXPORT PROJECT COMPLETION REPORT Transport Company Component. Financial Cash Flow (TL'OOO; constant prices) 1975 1976 1977 1978 1979 1980 Inflows Revenues 40,000 82,500 82,500 82,500 82,500 82,500 Salvage Values - - - - - - Total 40,000 82,500 82,500 82,500 82,500 88,860 Outflows Operating Expenses 31,500 62,100 62,100 62,100 62,100 62,100 Investment 58,600 - - - - - Total 90,100 62,100 62,100 62,100 62,100 62,100 Net Benefit Before Financing (50,100) 20,400 20,400 20,400 20,400 26,260 Medium-term Credit 6,137 Principal - 1,227 1,227 1,227 1,227 1,229 Interest - 614 ] 614 491 368 368 Total 6,137 1,841 1,841 1,718 1,595 1,597 Net Benefit After Financing (43,963) 18,559 18,559 19,909 18,805 24,663 Taxes at 43% 7,980 7,980 8,561 8,086 10,605 Net Benefit After Taxes and Financing (43,963) 10,579 10,579 11,348 10,719 14,058 FRR: To All Resources: 31% To Equity After Financing: 34% To Equity After Financing and Taxes: 9&. ERR: 31% May 1981 TURKEY FR'IT AND VECETABKE EXPORT PROJECT PROJET COMPLETION REPORT Citrus Orchard Component Recurrent EAtablishment Expnses: Orange Orchard (I da.) (TL/da.) Year 1 Year 2 Year 3 Lorai Units Cost Units Cost Units Cost Cost Fertilizers (kg) - Manure - - - - 1,000.00 2,500 2,500 - Nitrogenous fertilizers 12.00 66 24.00 132 36.00 198 396 - Phosphate fertilizers 3.00 30 7.00 70 10.50 105 205 - Potash - Subtotal 96 202 2.803 3.101 Herbicides and Pesticides (kg) - White oil 0.75 66 1.50 132. 3.00 264 462 - Copper sulphate 0.12 1 0.25 1 0.38 2 4 - Lime 0.25 2 0.50 4 0.75 6 12 - Chlorobenzylace - - 0.10 35 0.20 70 105 - Insecticide 0.05 18 0.10 35 0.20 70 123 - Hydrolyzed protein - - - - Subtotal 87 207 412 706 Irrication Fee 50 50 50 150 Subtotal 50 50 5 150 Crop Culture - Machine ronral Tilling 900 900- 900 2.700 Loading S transparc of harvest - - 100 100 - Labor Opening of vater courses 150 150 150 450 Opening of inlets & drains (hra) - - 4 200 5 250 450 Hoeing (hrs) 6 300 7 350 8 400 1.050 Pruniag (hra) 1 75 1.5 112 2 ISO 337 Kinuring (hrs) - - - - 4 200 200 Fertilization (hrs) 1.5 75 2 100 2.5 125 300 Watering (hrs) 6 338 6 338 6 338 1,014 WLedin (bra) 2 1LL 2 112 3 169 393 Past 6 disease control (hrs) 1 56 1 56 2 112 224 M, Harvesting 6 sorting (hrs) - - - 2 6C 60 0 0 Subcotal 2.006 2.313 2.954 7,278 m 00 TOTAL 2.239 2.777 6.219 11,235 Source: MEYSru May 1981 - 81 - Annex 5 Page 9 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT PROJECT COMPLETION REPORT Citrus Orchard Component Operating Expenses at Full Development: range Orchard Establised Under Project (25 da.) Item Cost Fertilizers and Chemicals Manure 62.5 Chemical fertilizers 61.5 Herbicides 22.9 Pesticides 74.9 Fungicides/disease control 58.1 Subtotal 279.9 Irrigation Fee 1.2 Subtotal 1.2 Farm Labor Irrigation 15.0 Cultivation 10.0 Pruning 120.0 Fertilization 20.0 Disease & pest control- 70.0 Harvesting & sorting 43.7 Subtotal 278.7 Machine Rental and Other Tilling 7.5 Loading & transport of harvest 75.4 Subtotal 82.5 TOTAL 646.4 Source: MEYSEB - 82 - Annex 5 Page 10 TURKEY FRUIT AND VEGEABLE EXPORT PROJECT PROJECT COMPLETION REPORT Initial Establishment Expense: Orange Orchard (1 da.) (TL) Item Cost/da. (25 budlings/da.) Land Preparation (machine rental) 1. Deep tilling 300 2. Harrowing 200 3. Levelling 150 Subtotal 650 Planting 1. Labor - Marking 75 - Opening pits 275, - Manuring & fertilization 75 - Filling pits 75 - Planting 200 - Opening of irrigation inlets & drains 250 - Initial watering Y0 - Affixing props 150 Subtotal--Labor 1,150 2. Planting material/other inputs - Budlings 3,750 - Transport of budlings 250 - Farm manure 1,875 - Superphosphate 125 - Props 200 - Packing paper 75 - String 50 Subtotal--Other 6,325 Subtotal 7,475 TOTAL 8,125 Source: MEYSEB - 83 - Annex 5 Page 11 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT PROJECT COMPLETION REPORT Orange Orchard Component Sales Revenues Sales Revenues: Farmgate price of TL 12,500/ton Yield Progression Year Yield(kg/da.) Year Yield (kg/da.) 1 8 2,350 2 - 9 2,700 3 130 10 3,100 4 260 11 3,400 5 600 12 3,500 6 1,400 13 3,700 7 1,900 14-25 3,700 Source: MEYSEB TURKEY FRUIT AND VEGETABLE EXPORT PROJECT PROJECT COMPLETION REPORT Orange Orchard Component (25 da.) Fin3ncial Cash Fow (TL '000; constant prices) ----------------------- ------------------ Years ------- 1 2 3 4 5 6 7 8 9 10 11 12 13-25 Inficus Salus Revenues - - 40.6 81.2 187.5 437.5 593.8 718.8 843.8 968.8 1,062.5 1,093.7 1,156.3 Outflows Operating Expenses 56.0 69.4 155.5 99.4 215.0 258.4 328.5 418.5 519.3 582.3 602.5 632.5 Investment 203.1 - - - - - - - - - - rOTAL 259.1 69.4 114.9 18.2 27.5 328.5 418.5 51.3 582.3 602.5 632.5 646.4 Net Benefit Before Financing (Z59.1) (69.4) Long-term Credit 188.1 55.5 121.1 79.5 172.0 - - - - - - - - Principal - - - - - - - 61.6 123.3 184.9 246.5 - - Interest 30.1 39.0 58.4 71.1 98.6 98.6 98.6 98.6 88.7 69.0 89.4 - - TOTAL 158.0 16.5 62.7 8.4 73.4 98.6 98.6 160.2 212.0 253.9 285.9 - - Net Benefit After Financing (101.1) (53.0) (52.2) (9.8) 45.9 80.5 166.7 140.1' 112.6 132.6 174.1 461.0 509.9 OD Taxzs at 43% - - - - 19.7 34.6 71.7 60.2 48.4 57.0 74.9 L98.0 219.2 Net Benefit After Taxes and Financing (101.1) (53.0) (52.2) (9.8) 26.2 45.9 95.0 79.9 64.2 75.6 99.2 Z63.0 290.7 7RR: To All Resources: 29% To Equity After Financing: 35% To Equity After Financing and Taxes: 24% ERR: 29t My 1981 t31b - 85 - Annex 5 Page 13 TURKEY FRUIT AND VEGETABLE EXPORT PROJECT PROJECT COMPLETION REPORT Packing House/Cold Storage Component Financial Data Sheet For the purpose of analysis, a typical facility was considered, consisting of a cold storage plant of 5,000 tons capacity and a packing house with throughput of 20 tons/ha. Capacity Utilized by Firm - Packing House: 8,400 tons and 8,400 tons on hire basis - Cold Storage Plant: 7,500 tons - Degreening Plant: 2,500 tons. Revenues TL million Packing Plant (Firm) - Domestic rates: 2,100 tons at TL 20,000 42.0 - Export Sales: 6,300 tons at TL 25,000 157.5 Packing Plant (Hire) - Charges: 560,000 cases at TL 100 56.0- Cold Storage (Hire) - Charges: 3,750 tons at TL 4,000 15.0 Degreening (Hire) - Charges: 2,500 tons at TL 1,000 2.5 Pre-cooling charges (Hire) - Charges: 4,500 tons at TL 2,000 9.0 Total 282.0 - 86 - Annex 5 Page 14 Operating Expenses TL million Citrus purchase: 9,660 tons/l at TL 15,000 144.9 Cases: 11.2 million at TL 30 33.6 Other packing material 17.1 Permanent Personnel 6.5 Temporary Personnel 4.5 Electricity, Water, Fuel 25.0 Insurances 2.5 Sales Expenses 30.0 Repair & maintenance 0.6 General Expenses 3.8 Amortization 2.5 Total 271.0 /1 15% rejects. TURKEY FRUIT AND VEGETABLE EXPORT PROJECT PROJECT COMPLETION REPORT Packing Nouse/Cold Storage Component Financial Cash Flow (TL million. constant prices) Years 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988-89 Revenues - 84.6 197.4 282.0 282.0 282.0 282.0 282.0 282.0 282.0 282.0 282.0 SaIVaSe values - --- TOD-,. - 84.6 197.4 282.0 282.0 282.0 282.0 282.0 282.0 82.0 282.0 282.0 Oparating Expenses - 81.3 189.7 271.0 271.0 271.0 271.0 271.0 271.0 271.0 271.0 271.0 Inve.scmat ~ 32.1 - - -------- MAL (3c2.1) -WT-i T8iY 271.0 271.0 271.0 271.0 271.0 271.0 271.0 271.0 271.0 Not Benefit Before Financing (32.1) 3.3 7.7 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 Lonig-La aCredit 23.7 - - - - - - - - - principal - - - 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 -4 Incerest - 2.3 2.3 2.3 2.0 1.8 1.6 1.4 1.1 0.9 0.7 0.6 Short-ceru Credit 3.1 - - - - - - - - - Principal - 0.8 0.8 0.8 0.8 - Interest- 0.2 0.2 0.2 0.1 - - -- TOTAL 2683.3 3.3 5.7 5.3 4.2 4.0 3.8 3.5 3.3 3.1 3.0 X4t 3enefic After Financing (5.3) - 4.4 5.3 5.7 6.8 7.0 7.2 7.5 7.7 7.9 8.0 Taxes at 43- 1.9 2.3 2.5 3.0 3.1 3.2 3.3 3.4 3.5 Ket H,aefit After Taxes and 4.5 Financing (5.3) (-) 2.5 3.0 3.2 3.9 4 4.1 4.3 4.4 4.5 FRR: To All Resourceas: 252 To Equity Afcer Financing: 63; To Equity After Vinancing and Taxes: 42% ERR: 36Z May 1981 Un Ln 꽉