Uganda - Livestock Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3985 PROJECT PERFORMANCE AUDIT REPORT UGANDA: FIRST BEEF RANCHING DEVELOPMENT PROJECT (CREDIT 130-UG) June 21, 1982 Operations Ev1auation De-partment 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.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT UGANDA: FIRST BEEF RANCHING DEVELOPMENT PROJECT (Credit 130-UG) TABLE OF CONTENTS Page No. Preface ............................................................ i Basic Data Sheet ................................................... ii Highlights ......................................................... iii Annexes 1 - Comments from Ministry of Animal Industry and Fisheries .. . . . ..................... 0 . . . . ..... v 2 - Comments from Uganda Development Bank ............... vii 3 - Comments from Uganda Livestock Industries Ltd. ........*..... viii PROJECT COMPLETION REPORT Background ........... 0 ........................... . 1 Formulation .. . . .. . . . . . . . ...................... .. 3 Implementation ................... ...................... 6 Bank Performance .............. ...... ....... ..... 14 Conclusions . . ..I.................. . . . . . ....o......... 15 Annexes 1 - Project Cost and Financing .......................... ..... 18 2 - Project Incremental Livestock Production ..-................ 19 Mapy: IBRD 3038 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT PERFORMANCE AUDIT REPORT UGANDA: FIRST BEEF RANCHING DEVELOPMENT PROJECT (Credit 130-UG) PREFACE This is a performance audit report of Uganda Beef Ranching Develop- ment project, for which Credit 130-UG in the amount of US$3 million was approved on October 5, 1968. The final disbursement was made on March 18, 1974, and the credit closed on April 24, 1974, four months after appraisal expectation. The audit report consists of Highlights prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) prepared by the Eastern Africa Regional Office, dated March 12, 1982. The PCR was not written following credit closure as staff were unable to visit Uganda at that time. Visits were made in July 1981 and February 1982; the information obtained during these missions has been taken into account in the preparation of the PCR. Following its abbreviated procedure, OED has reviewed the Appraisal and President's Reports, the Credit Agreement, the minutes of the Board discussions and the PCR,. OED has discussed the project with Bank staff. On the basis of this limited review, OED agrees with the findings and general conclusions of the PCR. A copy of the draft report was sent to the Borrower on March 30, 1982. Comments received from the Ministry of Animal Industry and Fisheries, the Uganda Development Bank and Uganda Livestock Industries Ltd. are in the Annexes of the audit report. Suggested changes have been introduced or different views footnoted. Comments received from Uganda Livestock Industries, which enlarge upon project experience and impact, stand on their own since they are self explanatory with well documented cross-references.  - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET UGANDA: FIRST BEEF RANCHING DEVELOPMENT PROJECT (Credit 130-UG) KEY PROJECT DATA Actual or Actual as % Appraisal Estimated of Appraisal' Item Estimate Actual Estimate Project Cost (US$ million) 5.08 4.66 92 Credit Amount (US$ million) 3.00 3.15La 105 Date Board Approval 1968 10/05/68 - Date Effectiveness 01/69 01/21/69 - Date Physical Components Completed-/ 12/73 09/72 76 Proportion then completed (2) 100 92 - Closing Dat-/b 12/31/73 04/24/74 107 Economic Rate of Return (Z) 17 Not calculated/c Number of Direct Beneficiaries (year 73) approximately 50,000 - CUMULATIVE DISBURSEMENTS (US$ million) FY70 FY71 FY72 FY73 FY74 Appraisal Estimate 0.7 1.5 2.3 2.8 3.0 Actual 1.7 2.1 2.3 2.6 2.6 Actual as Z of Estimate 243 141 100 93 87 Date of Final Disbursement 03/18/74 Principal Repaid to March 31, 1982 0.13 million MISSION DATA Date No. of Mandays Specialization Performance Mission (Month/Year) Persons in Field Represented/d Rating Identification O./66 by ULI, GOU - - Preparation 05/66 by ADS, Nairobi - - Appraisal O/67 3 87 c,a,b Subtotal 3 87 Supervision I 10/68 1 3 b Good progress being made Supervision II 04/69 2 11 c,a Minor administrative and operational problems Supervision III 11/69 1 9 c Generally satisfactory progress Supervision IV 02/70 2 20 c,c Progress satisfactory Supervision V 09/70 2 16 b,c, On-lending two years ahead of schedule Supervision VI 02/71 3 n.a.L b,b,b Progress ahead of schedule Supervision VII 11/71 2 14 c,b Good progress Supervision VIII 05/72 2 14 c,b Good progress Subtotal 15 87 Total 18 174 OTHER PROJECT DATA Borrower Government of Uganda Executing Agency Bank of Uganda Project Unit Fiscal Year January 1 - December 31 Name of Currency (Abbreviation) Uganda Shilling (U Sh) and Pound (h) Currency Exchange Rate: Appraisal Year Average US$1.00 - 7.14 U Sh - 0.357 U 6 Interventng Years Average US$1.00 - 7.14 U Sh - 0.357 U h Completion Year Average US$1.00 - 7.14 U Sh - 0.357 U b Average at time of preparation of Project Completion Report (1981) US$1.00 - 80.0 U Sh = 4.0 U b Follow-on Project Name Second Beef Ranching Development Project Credit Number - Credit Amount (US$ million) 6.6 Date Board Approval Project was not presented to the Board of Executive Directors /a Includes 0.50 million exchange adjustment; 0.35 million was cancelled. /b Percentage in third column to be calculated from Board approval date. /c Due to lack of recorded data on private ranches and the civil disturbances during recent years, no attempt was made to calculate an economic rate of return for the project. For reasons noted on p. iii, however, the project was probably economically worthwhile. /d a = Agricultural credit specialist; b - Agricultural economist; c - Livestock specialist. T Two mission members hospitalizod following aircraft accident.  - iii - PROJECT PERFORMANCE AUDIT REPORT UGANDA: FIRST BEEF RANCHING DEVELOPMENT PROJECT (Credit 130-UG) HIGHLIGHTS The Beef Ranching Development Project (Credit 130-UG) was to be the start of a long-term development program designed to expand beef production quantitatively by utilizing extensive areas of natural grasslands recently cleared of tsetse fly and qualitatively in order to satisfy steadily rising domestic demand then being met by imports from Kenya. This program was in keeping with Government objectives toward the livestock sector: investment for the period 1967-72 was to be doubled from that of the previous plan with emphasis being given to disease control, improved stock routes and marketing. Under the project, medium-term credit was to be supplied to five large government ranches, one large cooperative ranch and fifty medium-size private ranches primarily for :he purchase of breeding cattle and feeder steers. The remaining 25% of project costs covered inputs for ranch infrastructure and the provision of technical services. Lending operations progressed rapidly, substantially ahead of schedule. Herd management was made simpler for newly established ranchers with the purchase of large numbers of heifers from Kenya uniform in age, type and stage of pregnancy. The technical package was very effective in reducing adult mortality on both the government and privately-held ranches, but less so in respect of the number of calves weaned. At full development in 1975 it was estimated that incremental production of 5,300 breeder heifers and 12,400 feeder steers p.a. exceeded appraisal estimates, the increase being attributed to the private ranches. The project was not designed to address equity issues. The PCR states that the number of individual ranchers or members of a cooperative who had some interest in the enterprises financed totalled about 50,000 (PCR para. 3.15). An unknown number of ranchers benefitted indirectly from the increased supply of breeder stock--whose small size had previously acted as a major constraint to increased livestock production. The project also successfully demonstrated that the small short horn zebu could be up- graded through management and cross-breeding with bigger breeds. The project was thus probably economically worthwhile; however, an economic rate of return could not be recalculated due to the unforeseen effects on the livestock sector of the unsettled economic and political climate (PCR para. 5.03), while much of the recorded data on project ranches was destroyed during the civil disturbances. The revised financial rate of return for Uganda Livestock Industries, which received 60% of total funds, is estimated at 12%. Until approximately 1975 ULI's performance was close to appraisal estimates of 17-20%; thereafter performance was affected by shortages of critical inputs and by the deteriorating civil conditions (PCR paras. 3.07-3.08). - iv - A Second Beef Ranching Development Project was appraised in February 1971 and a Credit for US$6.6 million negotiated in October 1971. This project was to continue the strategy adopted under the first project with greater emphasis toward small ranching operations. The project was not implemented for country reasons. The principal features of this project experience are that: (i) the high proportion of investment in livestock, rather than in ranch infrastruc- ture, together with the introduction of a successful technical package are considered the principal reasons for project success (PCR paras. 3.05, 3.13, 5.01); (ii) the high financial return which the project generated is consid- ered a major factor behind the low ratio of loan arrears (1.5%) on the initial loans; and (iii) strong government support technically, with the provision of effective services for livestock disease control and for demonstrating the technical package, and administratively, with the operation of an effective coordinating committee, contributed to project success.L/ The following points may be of particular interest: - The Bank's principal contribution to project success was the changes to project design introduced by the appraisal mission, which suc- cessfully identified capital as the limiting factor to increased livestock production. The Bank then acted as a catalyst both by facilitating the involvement of the private banks, for the first time, in lending to the livestock sector and by involving private ranches and cooperatives to broaden the impact of the project (PCR paras. 2.02; 2.07 et seq; 4.01; 5.04); - the grazing routines and pressures which caused Brachiaria species to replace less valuable grasses on project ranches should be investigated. Limited project experience suggests that grass species of the Brachiaria genus are amongst the most productive and drought resistant of grasses found in Uganda pastures (PCR para. 3.16); - the project contributed to institution-building particularly with the restructuring of ULI prior to project implementation (PCR paras. 2.05 and 4.01); and - many of the private ranches were located in Buganda where the land tenure system permitted ranchers to fence and to have sole use of the land. Security of tenure also enabled ranchers to invest profitably in pasture improvement (PCR paras. 3.13 and 5.01). 1/ OPS Staff note that the highly successful performance of the project is in sharp contrast to the experience of most other livestock projects in Africa, e.g. Madagascar Beef Cattle Development Project (OED report no. 1559), Tanzania Beef Ranching Development Project (0ED report no. 994), Zambia Livestock Development Project (OED report no. 1362) and Ghana Livestock Development Project (0ED report under preparation). ANNEX 1 PROJECT PERFORMANCE AUDIT REPORT UGANDA: FIRST BEEF RANCHING DEVELOPMENT PROJECT (Credit 130-UG) COMMENTS FROM MINISTRY OF ANIMAL INDUSTRY AND FISHERIES WORLDBANK 440098 61228 EXTERIOR SHIV S KAPUR DIRECTOR OPERATIONS EVALUATION DEPARTMENT THE WORLD BANK TELEX 440098 WORLD BANK WASHINGTON DC 02/06/82 PROJECT PERFORMANCE AUDIT REPORT ON UGANDA FIRST BEEF RANCHING PROJECT (CREDIT 130-UG) 176. COMMENTS: PARA. 3.07 REGARDING HIGHER MORTALITIES SINCE 1976 OTHER IMPORTANT REASONS WERE: (A) BREAKDOWN OF INFRASTRUCTURES AND LIMITED AVAILABILITY AND VERY COSTLY REPLACEMENT MATERIALS STOP (B) WATER SHORTAGE DUE TO SILTED VALLEY TANKS AND DAYS CMA BROKEN DOWN WATER PUMPS STOP BECAUSE OF (A) AND (B) ABOVE CMA CATTLE USED TO MOVE OUT OF THE DISEASE FREE AREAS STOP PARA. 3.21 THERE IS LACK OF BREEDING FEMALES ON THE MARKET IN EASTERN AFRICA STOP (A) TANZANIA IS WILLING TO SELL TO UGANDA BREEDING SHORT HORN ZEBU HEIFERS STOP (B) KENYA CAN STILL SELL SOME BREEDING BORAN CATTLE TO UGANDA STOP ONE OF THE LESSONS LEARNT FROM THE PROJECT WAS THAT THE SMALL SHORT HORN ZEBU COULD BE IMPROVED THROUGH MANAGEMENT AND CROSS-BREEDING WITH BIGGER BREEDS STOP HENCE SOURCE OF BREEDING FEMALES - vi - WON'T BE AN OBSTACLE IN REVITALIZING STOP RANCHING DEVELOPMENT ONLY OBSTACLE IS LIMITED FUNDS STOP PARA. 3.16 ENVIRONMENTAL CHANGE: (A) BRACHIARIA SPECIES REPLACED OTHER GRASSES BECAUSE THE SEED IS SPREAD THROUGH DUNG AND BRACHIARIA HAS AGGRESSIVE PROPERTIES STOP (B) THE REPORT SHOULD MENTION THE HIGH COST OF CONTROLLING ACACIA HOCKII AND SYMBOPOGON APHRONARIDUS EITHER BY USING CHEMICALS OR HAND LABOUR STOP THESE TWO SPECIES REDUCED THE STOCKING RATES ON SEVERAL RANCHES IN ANKOLE CMA ESPECIALLY STOP 1/ (C) UNCONTROLLED BUSH FIRES WERE STILL A MENACE ON RANCHES DURING THE DRY SEASON HENCE LIMIT STOCKING RATES STOP 2/ REGARDS DR K M KINANI==== PROTEIN KAMPALA==== 1/ Para. 3.16 (B): The Region points out that research undertaken prior to the project demonstrated that removing Acacia Hockii with chemicals and Cymbopogon Afronardus with hand weeding is economically worthwhile, since the increased carrying capacity enabled costs to be recovered in two to three years. 2/ Para. 3.16 (C): The Region was told that since most ranchers in Uganda grazed the perimeters of their ranches first, these natural firebreaks to a large extent contained potential damage from uncontrolled bush fires. - vii - ANNEX 2 COMMENTS FROM UGANDA DEVELOPMENT BANK UGANDA DEVELOPMENT BANK TEL. 30740 IPS BUILDING, 14, PARLIAMENT AVENUE, P. 0. Box 7210 KAMPALA. REF: L.130/2 17th May, 1982. Mr. Shiv S. Kapurg Director, Operations Evaluation Department, The World Bank, 1818 H. Street, N.W. Washington D.C., 2043 U.S.A. Dear Sir, WORLD BANK CREDIT 130-UG PROJECT COMPLETION REPORT I have gone thru the report and find that it is quite satisfactory and contends fairly well with our observations in the field. However, I want to make the following comments:- 1. (2.07) Participation of Commercial Banks Their role and experience in long term loans was not very satisfactory and thus caused difficulties in the administration of funds especially to several individual ranches, and the supervision of those loans. 2. (3.12) Importation of slaughter stock ceased due to scarcity of Foreign Exchange. 3. (3*19) Ring Storage Tank. Actually these were not taken so euch as stated. In fact right now the valley tanks are more widely used. 4, (3.12 & 5.03) Rehabilitation of Ranches Uganda has now got funds from African Development Bank to rehabilitato 80 ranches out of a total of about 400 which had been developed. Thus more funds are needed badly. Yours faithfully, UGANDA DEVELOPMENT BANK t.k. Lubowa AG. HEAD/LIVESTOCK DEPARTMENT - viii - ANNEX 3 UGANDA LIVESTOCK INDUSTRIES LIMITED Telegrams LIVESTOCK (A Subsidiary of Uganda Deviopment Corporation Ltd) Telephone 42268 COMENTS FROM UGANDA LIVESTOCK INDUSTRIES, LTD.. P. O. Box 4914, T42269 KAMPALA . UL/11 1st June 1982 hr. Shiv. S.Kapur, Director, Operations Evaluation Department, The World Bank, 1818 H Street N.W., Washington DC 20433, USA. Dear Mr, Kapur, RE: PROJECT AUDIT REPORT ON UGANDA FIRST BEEF RANCHING DEVELOPMENT PROJECT (CREDIT 130 - UG) I wish to thank you for your letter dated 30th farch 1982 in respect of the above. Kindly accept my apology for the delay in writing back and this was due to my lengthy absence from the office. I have read the first draft of the project performance audit report and it is satisfactory. I have, however, the following comments to make though they need not necessarily be reporduced in the final report:- Page 8. Para 3.06 - Agricultural Imact Although it is not possible to give supporting numerical data on developments outside the project areas, interest in beef cattle production along commercial lines quickly spread to all parts of the country whereever resources and security permitted. Privately owned ranches and farms carrying cattle populations ranging between 100 and 2000 head mushroomed up with the impact being greatest in the vicinity of the project areas. In a majority of cases emergent ranchers were more inclined to keeping improved types of cattle rather than the indigenous Ankole and Teso Zebu. Page 11, Para 3.12 At the time of the project appraisal in 1968 Uganda was also importing unimproved slaughter cattle from Tanzania. ...../2 - ix - ANNEX 3 UGANDA LIVESTOCK INDUSTRIES LIMITED Telegrams LIVESTOCK (A Subsidiary of Uganda Deelapont Corpration Lt) Telephone 42268 P. 0. Box 4914, 142269 K AM PA LA. brought in by Tanzanian Cattle Traders and almost all slaughtered in Kampala abattoirs. However, procurement from this source diindled in favour of the increasing local supplies of better quality fat stock and# ultimately ceased in early 1970s with the worsening country situation. Page 12, Para .3.16 - Environmental Change Suecessful establishment of beef cattle ranches and control of tsetse in tAose project areas formerly reclaimed from this pest helped to consolidate the fly-free barriers. This resulted in increased human habitation and agricultural utilisation of land in the project vicinity. Page 13. Para 3.17 - Training On Uganda Livestock Industries Limited ranches graduates from Farm Schools, (post-primary institutions offering a three-year course in the science and practicv of tropical agriculture), were found more adaptable to, and practical in carrying out, ranch operations compared to those from Veterinary training institutions who tended to concentrate largely on disease control. Page 13, Para .3.18 - Use of Consultants Uganda Livestock Industries Limited constructed one 250,000 gallon ring tank lined with a butyl sheet at Aswa in 1970 and it has proved the most successful type of reservoir to- date. Page 16 - Conclusion (7)(i) Uganda Livestock Industries Limited bought immature steers from Kenya because:- (a) The Company hadk acilities and was capable of handling procurement of such cattle without the risk of importing diseases with them. (b) They were much cheaper compared to the local immatures. Ankole type of feeder steers were especially very expensive and marginal in profitability. (c) The performance of feeder steers from Kenya was much superior to that of both Ankole type and Teso Zebu. However, this could have been partly due to the larger size of the Kenya cattle and the fact that once in Uganda they landed on -x-&ME UGANDA LIVESTOCK INDUSTRIES LIMITED Telegrams LIVESTOCK (A Subsidiary of Uganda Development Corporation Ltd) 142268 P. 0. Box 4914, Telephone 4226A 142269 KA M PALA . a comparatively higher plane of nutution. Yours faithfully, UGANDA LIVESTOCK INDUSTRIES LIMITED. ii. A. IGIEI. GENIiAL IANAGE1. iAI/jk. NA P-, V'Q& u7i - - xi - ANNEX 3 UGANDA EE-EF RANCHING DEVELOPMENT PROJECT PROJECT AREAS easts u ne1 m 5. *a-RSO 1.2 2. acZ Lu X . AM7 DUr. u r~U 01.0 ou /v ~ L ANGOi.. ( 1 OISMT EWS~ O -> 3 1 m n mmj Ltd.m in 1969 - '~ (6J0 0 .* f 0 - 0~~~ P ~~~' ( ~f t4 0N Ltd in 199  UGANDA BEEF RANCHING DEVELOPMENT PROJECT CREDIT - 130-UG PROJECT COMPLETION REPORT Eastern Africa Projects 'Department March 12, 1982 Northern Agriculture Division  UGANDA BEEF RANCHING DEVELOPMENT PROJECT - CREDIT 130-UG Project Completion Report Background 1.01 The Uganda economy depends mainly on agriculture which at the time of project formulation accounted for about 60% of GNP with the beef industry accounting for about 4 percent. Livestock imports at that time consisted mainly of higher quality beef from Kenya valued at about U Sh 195,000 in 1966, which accounted for 2.5 percent of total food imports. In the face of uncertain price prospects for Uganda's two principal exports, coffee and cotton, diversification of farm production was considered to be very important. 1.02 In 1952 the Uganda Development Corporation (UDC) was set up to take the initiative in developing all major sectors of the country's eco- nomy on commercial lines. During the 1960s UDC's annual net earnings aver- aged U Sh 1.0 million, representing a return of 7-15 percent of net assets. For each new enterprise it formed a subsidiary company, and in 1966 created the Uganda Livestock Industries (ULI) to develop and manage beef cattle and dairy enterprises. 1.03 Uganda's cattle population was estimated to be 3.6 million head in 1965; the majority grazing communal lands. Apart from the drier north- east district of Karamoja, where the majority of nomadic pastoralists are found, the country has an ideal climate for pasture and livestock production. During the period from 1950 to 1970 tsetse fly was cleared from extensive areas of land, thus opening up some of the best grazing land in the country which it was then conservatively estimated would carry a million head of cattle. ULI planned to exploit that opportunity and acquired leasehold rights to five parcels of land, totalling about 225,700 acres. In addition, the Government had provided technical advice, some financial support and the opportunity to get leasehold titles (49 to 99 years) to facilitate the development of about one hundred privately owned cattle ranches varying in size from about 3,000 to 10,000 acres each. A cooperative union mainly engaged in marketing of cotton and coffee produced by the union's primary cooperative societies, had started to develop a 38,000 acre ranch in western Uganda using profits made in crop processing and marketing. 1.04 In the traditional sector where local unimproved cattle were run mainly as an adjunct to cropping the number of calves weaned was about 40-50 per 100 breeding cows. Calf mortality and morbidity were, and still are, grossly affected by all cattle becoming infected with the protozoon disease East Coast Fever as calves. Recovered animals acquire immunity. Because of the heavy calf mortality, few surplus heifers are available from within Uganda to set up new breeding herds. In the early 1960s about 150,000 cattle went through local government supervised markets annually and a similar number were thought to have been sold privately or consumed by the subsistence sector. During that period, urban incomes were rising and Uganda was experiencing an increasing shortfall in the higher grades of beef, which was being met by imports of 8,000-10,000 slaughter cattle per - 2 - year from Kenya. Urban demand was expected to rise by 7-8 percent per annum requiring a doubling of meat imports over the next decade unless local production of better quality beef was encouraged. 1.05 From 1950 onwards Government had made good progress in the control of livestock diseases, particularly rinderpest and contagious bovine pleuropneumonia which had previously limited expansion and discouraged investment in the industry. Both those diseases were contained in the northeast of the country by barrier vaccination. Foot and mouth disease was and is endemic, but of lesser importance, and was controlled by quarantine measures. Vaccination because of its high cost was used only on a limited scale but was to be used on project ranches. Tick borne diseases, particularly East Coast Fever (ECF), were responsible for the greatest economic loss to bovines. The veterinary authorities had demonstrated that routine dipping of the entire cattle population of a ranch or area effectively prevents ECF infections. That technique was to be used on all project ranches and by its use herd offtake was increased two to three fold, leading to the stimulus which would ensure the success of the project. At the time the project was appraised in 1967 the Government was formulating a national tick eradiction scheme; while a good start was made on implementation of that scheme, it ceased during the 1970s when dipping fluid, which is an imported item, was not available. 1.06 The performance of the Department of Veterinary Services of the Ministry of Animal Industry, Game and Fisheries, was considered at project appraisal to have been impressive, both in administration of disease control measures including veterinary diagnostic and research services, and in demonstrating the technical and financial viability of developing land cleArpd of tqetse fly for commercial ranching. Government had established efficient units in cattle crossbreeding research, extensive and intensive pasture improvement and artifical insemination. It was active in encouraging marketing of livestock from the traditional sector, and assisted producers and private traders to prepare and market hides and skins. The Department of Water Development of the Ministry of Mineral and Water Resources had some capacity to assist the development of commercial ranching by siting and constructing dams, boreholes and valley tanks for livestock water supplies. In the preproject decade, Uganda was relatively well served by education and training facilities in the livestock subsector. The University of East Africa offered a degree course in Veterinary Science at Kabete, Kenya, and in Animal Production at Kampala, Uganda. The Veterinary Training Institute at Entebbe in Uganda conducted a two-year course to train veterinary assistants, the outstanding students continued for a third year leading to a diploma in Animal Husbandry. 1.07 While most of the agricultural credit available in Uganda had been used to finance marketing of cash crops, banks had begun to show an interest in providing loans for short-term crop production and longer-term livestock production. The Government recognized the important role for livestock development in diversifying agriculture and making good use of tsetse fly cleared land. Meat prices were free of government control and there were no taxes or quotas on export of meat. Imports of virtually all agricultural inputs were free of duty. In the beef cattle sector Government planned to increase its investment of U Sh 2 million made in 1964-66 to about U Sh 4.5 million in the period 1967-72. The bulk of that investment was made in expansion of tsetse fly clearing, controlling tick borne disease and expansion of ranching, mainly private ranching. - 3 - Investment was also made in improving stock routes and markeps, research on pasture improvement and bush control, and further development of on-ranch water supplies. 1.08 This report was prepared in December 1981/January 1982 after studying material in Bank files. A visit was paid to Uganda in July 1981 and, although the opportunity did not arise to visit the project area at that time, data was collected from UCB, UDB and ULI. During a brief earlier visit to Uganda, in January 1980, some ranchers (including ULI) who received credit under the project were visited in Ankole and Bunyoro but not at that time with a PCR in prospect. The draft PCR was discussed with the Permanent Secretary, Ministry of Animal Industry, the General Manager, ULI, the Acting Chief Agricultural Office, UDB, and the Credit Manager, UCB, in February 1982 and their comments incorporated as appropriate. Formulation 2.01 Early in 1966 representatives of UDC approached the IBRD Permanent Mission in Eastern Africa seeking financial backing, possibly from IFC, for expansion of UDC's commercial ranching operations. They further asked about the possibility that IBRD's affiliate in Nairobi, Agricultural Development Services (ADS), could provide assistance with preparing the project and particularly with assessing the technical and managerial problems involved. Following a report prepared by ADS with UDC assistance in the latter half of 1966, GOU formally made a loan application to IBRD on behalf of UDC on February 14, 1967. The proposed total investment in the proposed project was U £1.09 million made up of (1) existing ranch assets including value of stock, U £0.26 million, (2) additional UDC loan U £0.07 million, and (3) external loan U £0.76 million. The application to IBRD was for financing of the external loan of U 0.76 million (US$2.14 million). The ADS report presented a program for the development of ranching operations by UDC over a four-year period. Their ongoing operations on 58,000 acres which was partly developed, would be expanded to involve an additional 167,000 acres. At full development four ranches on 225,000 acres would carry 45,000 livestock units. That proposal included the purchase and importation of 6,000 heifers and 6,000 steers from Kenya, plus 6,500 heifers and 21,000 steers from Tanzania. 2.02 The Bank Appraisal Mission visited Uganda in May/June 1967. That mission concluded that the GOU request, as it involved only development of a Government parastatal ranching enterprise, would have a limited impact on the country's economy and on the beef industry as a whole. Therefore, during appraisal, the project was enlarged and broadened to include the commercial sector. However, Uganda Livestock Industries (ULI), UDC's wholly owned subsidiary, was assigned the key role of building up breeding herds of improved cattle in order to provide surplus breeding heifers and feeder steers for sale to private ranchers. Most significantly during appraisal discussions were held with officials of both private and public banks to explore additional sources of finance, and to provide a suitable system for making and servicing loans to ranching enterprises. While the banks expressed a willingness to participate in the Project with IDA, such would be a new experience for them. Their involvement was finally secured but only after protracted negotiations with them and with GOU. 2.03 The ap-,raisal mission proposed that the project finance investments in on-ranch roads, firebreaks, fencing, water supplies, stock handling and animal health control facilities, ranch buildings, breeding stock and an initial procurement of feeder steers for fattening. Five large ULI ranches, one large cooperative union ranch and 50 medium-size commercial ranches would participate. The IDA Credit would be channelled through the Uganda Commercial Bank (UCB) with private commercial banks participating in the financing operations. Together with their own funds, these banks would provide long-term loans of 10-12 years for ranching development. The main changes in project design which the appraisal mission made were (1) to broaden the project to include the 50 medium-size commercial ranches and the large cooperative union ranch, (2) to redesign the ULI new investment so as to increase the proportion of that investment which would be made in livestock relative to ranch infrastructure and facilities and (3) to involve the Uganda banks in the investment. These changes were profound and resulted in a larger and better balanced investment in the industry. The increase in the proportion of investment in livestock in ULI ranches mentioned above was crucial to bringing ULI into profit. The planned capital investments in each and all enterprises exceeded 80% into animals (including feeder steers) and that planning is believed to be one of several most critical judgements which led to the success of the project as a whole. 2.04 The coordinating body for the Project would be a Project Committee composed of one representative each from the Department of Veterinary Services, the Department of Agriculture, the Ministry of Commerce and Industry, the Ministry of Mineral and Water Resources, the Bank of Uganda, the Uganda Commercial Bank and the Uganda Bankers Association. The formulation of this body emerged as a result of broadening the scope of the Project during appraisal. Similarly, a small technical services unit headed by an internationally recruited Project Director to assist borrowers in preparing development plans and supervising disbursements to borrowers was seen to be necessary at that time and provided for within project financing. The enlarged project was estimated to cost about U £1.82 million (US$5.1 million) of which U £1.68 million would be for ranch development and U £0.14 million for technical services. The IDA Credit of US$3.0 million would finance approximately 60 percent of total project cost, corresponding roughly to estimated foreign exchange costs. The balance would be provided by participating banks (20 percent) and ranching enterprises (20 percent). 2.05 Following project appraisal, negotiations took place between IDA, GOU and UDC, concerning restructuring of ULI management and financial status; and secondly, between IDA, GOU and the Uganda banks concerning the role of the Bank of Uganda and UCB, and the allocation of accruing interest and loan security. Preproject, the administrative and corporate structure of ULI was unsatisfactory to IDA, in that it was a holding company with each of four ranches incorporated separately. Each ranch company had its separate board of directors and the general manager of ULI had no direct line of control to the individual ranch managers. Operating costs for labor and management overhead were very high. ULI's debt/equity ratio was 5:1 and unacceptable to IDA as a basis for developing the company. UDC restructed ULI so that it became a single corporate body with all operations coming under single direction. Furthermore, ULI's balance sheet as at June 30, 1968, was restructured so as to (a) write off U £245,000 of accumulated debt; (b) inject further equity of U £150,000; and (c) revalue fixed assets and livestock to bring them in line with realisable values. - 5 - These measures resulted in the company having an acceptable debt/equity ratio of 1:1. The adjustments were a condition of project effectiveness agreed to at project negotiations and duly carried out to IDA's satisfaction without causing any delay to project implementation. 2.06 Negotiations conducted between IDA, Government and the banks were primarily occasioned by the commercial banks' (Barclays, National and Grindlays, and Standard) concern with security of loans to be made to private ranchers. Such ranchers were not able to provide acceptable collateral either by way of land leases, which were not freely saleable as they reverted to Government for reallocation on falling vacant, or by use of a chattel mortgage. The main realizable asset on ranches would be cattle and while a lien could be taken on livestock, under Uganda law such a lien would refer to specific animals and not to a herd or flock. Consequently, as particular animals are frequently traded those specified in any lien would, within a few years, have been sold off the property and be of no value to a mortgagor. It was agreed at credit negotiations in Washington that the terms under which commercial banks would participate to provide about U £0.36 million ($1.0 million) would be as follows: 2.07 Terms of Participation by Commercial Banks. It was agreed that the end-users of the loans, the ranching enterprises, should uniformly get the money at an interest rate of 8% per annum for periods ranging from 10 to 12 years including 4 years grace, and these terms on which the commercial banks would contribute about $1.0 million to the financing of the proposed project, were agreed at project negotiation. The commercial banks had hitherto only provided short-term financing of depositor funds and were unfamiliar with the type of medium-term financing of livestock development envisaged in the Project. They, therefore, required suitable safeguards by way of additional security, accelerated initial repayments, prior claims in case of defaults and an adequate service fee. The method of their participation and detailed terms covering security, interest rates, repayment schedules, defaults, service fees and guarantees were agreed upon as follows: (i) The commercial banks would participate in the financing of the proposed project as Agents of the Uganda Commercial Bank (UCB). The Principal-to-Agent relationships were set out in Administration Agreements between the UCB and each of the participating commercial banks, which were Barclays Bank DCO, National and Grindlays Bank, and Standard Bank Limited and their respective Overseas Development Corporations. In addition, the UCB would directly finance some of the private ranching enterprises under the Project. (ii) Both for loans to the five ULI ranches and to the private ranching enterprises; the commercial banks provided 25 percent of the individual loans from their own resources, obtaining 75 percent as Agents from UCB. (IDA funds were relent by Government to UCB under the Subsidiary Loan Agreement.) (iii) In the case of loans to the five ULI ranches, for the 25 percent portion provided by the commercial banks from their own resources, the security was guaranteed by the Uganda - 6 - Development Corporation Limited (UDC), supported by first equitable mortagages over the ranches. The interest rate charged was 8-1/2% for the 25 percent portion and 7-3/4% for the 75 percent portion of the loan resulting in a blended rate of 8% per annum for the total loan. A once-for-all commitment fee of 1% was charged on the commercial banks' 25 percent portion of the loans. Repayment would be over a period of 12 years with a four-year grace period, annual repayments of principal commencing in the fifth year. (iv) In the case of loans to the private ranching enterprises, the security for the 25 percent portion provided by the commercial banks was a mortgage over the title deeds to ranches and a chattel mortgage over livestock and loose assets. The interest rate was 8% per annum for the total loan with a once-for-all commitment fee of 1% on the 25 percent portion of the loan. Repayment would be over ten years with a four-year grace period, but the annual installments in the fifth and sixth years would be shared equally between the 25 and the 75 percent portions of the ranch development loans. Thereafter, repayments would be shared pro rata to the balances outstanding over the life of such loans. (v) In the event of foreclosure due to default by a ranching enterprise on the repayment of the ranch development loan or any other reason, the proceeds from the realisation of the security would be applied first to clearing the outstanding balance of the Agent's 25 percent portion of the ranch development loan and thereafter to the Principal's 75 percent portion of such loans. (vi) Service Fees: UCB as Principal would pay to the commercial banks as Agents a service fee of 1% per annum on the 75 percent portion of the ranch development loans made to the ULI ranches, and 1.5% per annum on the 75 percent portion of the ranch development loans made to the other ranching enterprises. (vii) The Government (a) guaranteed the repayment by the ranching enterprises of the 75 percent portion of the ranch development loans, and (b) caused the UDC to guarantee the repayment by the ULI ranches of the 25 percent portion of the ranch development loans made to them. Implementation 3.01 The Project was signed October 5, 1968, and declared effective January 21, 1969. The Project provided US$3.793 million (Uganda Shilling 27.08 million) as credit for ranch development. These ranch loans were provided by US$2.845 million from the IDA Credit and the equivalent of US$0.948 million from commercial banks. Ranchers would also invest the eauivalent of US$0.947 million. The projected phasing of loans at appraisal over the five years of the project indicated that loans totalling US$933,000 would be made in year one; USS900,000 in year two; US$1,104,000 in year three; US$667,000 in year four; and US$190,000 in year five. Foreseen loan investments were US$2,113,000 to Uganda Livestock Industries and US$1,680,000 to private ranchers. Private ranchers included one large ranch of 38,000 acres belonging to Bunyoro Growers Cooperative Union and about 50 small ranches of 3,000 to 10,000 acres belonging to individuals, partnerships or small cooperative groups. - 7 - 3.02 The status of loan approval and disbursement at February 28, 1970 (17 months after project signing and 13 months after the project became effective), was as follows: Loans Approved Value of Loans Approved by Amount Participating Disbursed Type of Borrower No. Banks (US$ Equiv.) (US$ Equiv.) Uganda Livestock Industries 1 2,114,333 1,602,789 Bunyoro Cooperative Union 1 179,272 90,238 Small Ranchers 17 386,064 125,350 Total 2,679,669 1,318,377 Loan applications pending on 2-28-70 were from ten small rancher applicants for a total of US$208,123. Loans approved by 2-28-70 thus amounted to 71 percent of the financing available for loans. By 5-31-71, 2-1/2 years into the project, 42 ranch loans approved by banks totalled the equivalent of US$3,144,713 of which the banks had disbursed US$2,801,476. By 7-30-72 small rancher loans approved totalled 54 (50 foreseen at appraisal) and together with the ULI loan and the Bunyoro Cooperative Union Loan the total value of loans approved was U Sh 26,040,200 equivalent to about US$3,732,380. Disbursements to borrowers totalled U Sh 25,241,860 on that date. Additionally, the participating commercial banks had granted overdraft loans to the project ranch enterprises totalling about US$ 450,000. Thus between 1969 and 1972 the project generated the equivalent of about US$1.3 million from commercial banks into the beef cattle subsector. No additional loans were approved under the project after April 1972. When the credit was closed 4-22-74, disbursements under Category A long-term loans for ranching development were US$2,640,315.57, under Category B, Technical Services, were US$11,506.89 and the amount of US$348,477.54 was canceLled. 3.03 The DCA speciEied the Credit Closing Date as 12-31-73 and GOU's request for an extension was refused on the grounds that the project had been materially completed in the first half of 1972. Most loans (33) were granted for 8-10 years 'ut varied from 3 years to 10 years with grace periods of 1 to 4 years. When the loan portfolio was examined in 1981, one loan had never been utilized (US$15,400), the repayment records on six loans had been lost when local bank records were destroyed during the war in 1978. The total value of those six loans was equivalent to US$100,140 (U Sh 715,000). Local knowledge suggests that the record of repayment on those loans would be at least as good as that on other loans under the project. Of the remaining 49 loans made under the project, one was a loan equivalent to US$2,212,325 to ULI and one a loan equivalent to US$224,000 to Bunyoro Growers Cooperative Union, the balance of US$1,062,868 was to 43 private ranchers. ULI and Bunyoro Growers Cooperative Union have repaid their loans, a total of US$48,952 (U Sh 349,518) is in arrears on the accounts of seven ranchers. All other loans were repaid. Arrears represent 1.5 percent of' the total funds approved under the 49 loans with complete records. The Uganda Commercial Bank is confident that some of the -8- arrears owed by the seven small ranchers will be recovered. The original 54 small ranchers (3,000-10,000 acres) were made up of 32 individual ranchers, 12 small cooperatives and 10 small ranching companies. Establishment of Revolving Fund 3.04 The DCA (Section 4.4) required the Borrower to use the proceeds of repayments of the Credit received from UCB under the Subsidiary Loan Agreement and which were not currently required to service the Credit, for the purpose of beef ranching development for a period of 16 years from the date of the DCA (10-05-68) and for Agricultural Development thereafter. Furthermore, in a side letter to the legal agreements also dated 10-05-68, it was agreed between IDA and UCB that a revolving livestock account would be established in UCB for the purpose of fulfilling this covenant. Such a fund on 6-30-81 contained 16 loan accounts at eight branches of the UCB, two branches of Grindlays Bank (U) Ltd. and one branch of Barclays Bank (U) Ltd. The sum of the value of the 16 loans granted amounted to U Sh 6,131,000. Eight of these 16 loan repayments were in arrears, the majority of defaulters having been grossly affected by country instability at some time since they commenced ranch development. 3.05 Farm investments approved under the project including investments funded by banks and borrowers were for (a) ranch roads and firebreaks U Sh 227,480; fencing, U Sh 1,024,000; water supplies, U Sh 2,265,608; stock handling and Animal Health control facilities, U Sh 465,750; equipment, U Sh 262,350; ranch buildings, U Sh 366,053; breeding stock, U Sh 17,569,250; feeder steer, U Sh 7,319,390. The investment in the directly productive components, i.e., cattle represents 84 percent of total investment. The projected investment in those components at appraisal was 82 percent. The insistence of bank appraisal and supervision staff, and independently the Project Director, that a very high proportion of investments were in cattle was an important factor in the success of the enterprises financed, and therefore the project. Agricultural Impact 3.06 At appraisal four ranches of 45,000 acres each for cattle breeding were foreseen to be developed by ULI. The model indicated total ranch populations of 13,310 head would be developed by year seven with offtakes of 3,118 head per annum. ULI developed four such ranches whose average population during the five years, 1974 through 1978, was 9,453 with an average annual offtake of 2,008 head of cattle or 21.2 percent. From 1973 to 1976 the Ministry of Animal Resources stipulated the prices which ULI could charge for breeding heifers, breeding bulls and slaughter steers. Net sales from year seven were foreseen to realize U Sh 5.2 million. For the years 1974 through 1978 sales realized U Sh 6.7 million; 8.6 million; 11.5 million; 12.0 million; 13.5 million. The GDP deflater index averaged 8.7% p.a. from 1968 to 1973 and 32.5% from 1973 to 1978. Data on ULI's operating expenses and trading profit after meeting loan service charges and depreciation was as follows: - 9 - Uganda Livestock Industries Operating Expenses and Trading Profits 1968 to 1980 (U Sh) Year operating Expenses Trading Profit 1968 4,228,499 - 3,091,192 1969 4,321,008 - 2,126,029 1970 5,546,945 - 2,399,749 1971 5,955,944 - 635,353 1972 5,249,433 + 1,365,185 1973 5,012,116 + 1,048,648 1974 5,329,360 + 1,340,560 1975 5,467,264 + 3,243,941 1976 6,823,812 + 4,632,151 1977 9,177,656 + 2,845,686 1978 10,827,954 + 1,261,633 1979 10,247,144 + 3,205,352 1980 12,054,078 + 687,382 ULI's Manager recorded that the Company's book herd valuation at 12-31-78 amounting to U Sh 16,797,360 was about 45 percent below market values. Appraisal estimated a herd value of U Sh 21,071,600 at full development. 3.07 On ULI ranches post weaning mortality was forecast as 4 percent per annum from year four. During the years 1970 to 1975 it averaged 2.5 percent; from 1976 to 1979 6.1 percent; and in 1980, 27.7percent. The higher mortalities were caused by shortage of acaricides from 1976 re- sulting in catastrophic mortality in 1980 and again in 1981. ULI's weaning percentage for 1970 to 1979 averaged 66 percent. A foreseen benefit from the project was the sale of breeding heifers from improved breeding stock to developing private ranchers. It was estimated that at full development ULI could sell about 125 breeding heifers per year per 1,000 breeding cows in their ranch. During the years 1976 through 1978 ULI sold 6,137 breeding heifers or 162 per 1,000 breeding cows per year. However, during that period, ULI breeding herds fell by 2,150 females so that if 2,150 addi-tional heifers had been drafted into ULI herds and not sold, the balance of breeding heifers sold would have been only 105 per thousand cows. ULI's annual total sales of cattle preproject numbered about 1,700 head compared to 8,000-10,000 per annum from 1970 onwards. The indicated financial rate of return to investment under the project by ULI is 12%. The appraisal estimate for the large breeding ranch was 20%. ULI's performance was close to appraisal forecasts up to 1975 but subsequently fell due to increasing mortality and losses suffered during the unsettled period in the late 1970s. 3.08 It has not been possible to collect data on production parameters on private ranches in recent years. Performance of the small private ranches (the 50 ranches of 3,000 acres plus) were ahead of performance on ULI during the project implementation stage. For example, when ULI's weaning percentage was about 60 in 1970 the small private ranches were reported to have an average weaning percentage close to 75. Similarly, post weaning mortality on private ranches was less than ULIs in the majority of cases, many ranches getting down to I to 2 percent per annum. Mortality on both ULI and private ranches increased markedly from about 1976 onwards as supplies of acaricide dried up. This continues to be a - 10 - problem as if dips fall below strength or cattle are not dipped or sprayed with absolute regularity deaths from East Coast Fever start to occur very quickly in these entirely susceptible populations. Trypanosomiasis also caused mortality in ULI ranches in Bunyoro as some tsetse fly reinfestation took place after 1974. 3.09 It has been possible to follow the course of development on the Bunyoro Cooperative Union Ranch only sketchily. A large part of their loan remained in arrears until January 1982 when it was paid. After reaching a peak ranch population of 7,440 in 1972, the ranch population had fallen to 2,300 cattle by January 1980. The Union Chairman reported that most of the Union's records were lost during and after the troubles in 1978. The Union suffered losses by looting to the value of about 22 million shillings at that time. Nevertheless, the Chairman maintained very strongly that, until 1977 when acaricides became unavailable, the ranch opet-ations were very successful and profitable. He went so far as to state that profits made from ranching enabled the Union to continue its crop ma.keting operations long after it would have had to close down had the ranch operation not been contributing heavily to the Union's total budget. The Union developed another ranch near Hoima in the early 1970s but cattle on that ranch were all lost or looted by 1980. Bunyoro Growers Cooperative Union Trading Results 1974-1976 (U Sh) Year Crop Profit 1974-75 Cotton - 578,336 Tobacco + 516,186 Coffee - 470,728 Transport - 599,082 Ranching + 1,371,196 1975-76 Cotton No operations Tobacco + 298,959 Coffee + 477,601 Transport - 285,323 Ranching + 4,877,080 The large profit in 1975-76 from ranching is partly accounted for by revaluation of the herd to current prices. As losses on crop processing continued, the Union was forced to sell cattle to provide money to continue its crop processing and marketing operations. By 1980 the herd was b'dly managed and experiencing heavy losses from theft and disease. The management had been unable to maintain boreholes or to purchase acaricide because neither spare parts nor acaricide were obtainable in the country. - 11 - 3.10 Incremental production from all the project ranches at full development in 1975 is estimated to have been about 9,200 steers, 5,300 heifers and 3,200 cull cows per annum. This is slightly more than was foreseen at appraisal due to private ranchers having achieved better production parameters and ULI's production being then very close to that foreseen at appraisal. It is not possible to say how much of this increase in production would have occurred without the project but it can be said that without capital for investment from some source very little, if any, of the incremental production would have occurred. 3.11 Insignificant amounts of canned meat have been exported from the Soroti Canning Factory of Uganda Meat Packers from time to time. The Uganda Development Corporation investigated the Zaire market several times in the last fifteen years and found a strong demand. However, no slaughter cattle or beef have been exported from Uganda. 3.12 At the time of project appraisal in 1968 Uganda imported 8-10,000 cattle per year from Kenya for immediate slaughter to provide best grade beef and substantial quantities of chilled beef came from Kenya from the Kampala market. The demand for all classes of beef was then expected to rise by about 4 percent per annum and the demand for higher grades by about 8 percent. Imports of slaughter stock from Kenya ceased in the early 1970s but it is difficult to say whether that was due to increased supplies of better beef produced in Uganda, or to a decrease in availability of meat in Kenya or to Uganda's lack of foreign exchange. Development of Uganda's commercial beef sector was started by construction of the Ankole/Masaka Ranching scheme and associated pasture and cattle breeding research in the 1960s. This project used the techniques evolved in Ankole/Masaka to expand the country's development of 3-4,000 acre ranches to about 120 units. The work continued, some of it using private capital alone, so that by the late 1970s some 400 such ranches were built and in various stages of herd development. By that tine, ranching on the Ankole/Masaka model had spread into north and west Buganda (Mengo, Baruli and Singo counties) into Toro, Acholi and Bunyoro in contiguous groups of ranches, and by isolated developments into other areas of the country. Groups of ranches were built by GOU in areas cleared of tsetse fly. About 7 million acres of bush was cleared of tsetse infestation in Uganda between 1950 and 1970. Much of that land was unoccupied, had good pasture and adequate or abundant rainfall. Technological Change 3.13 A major factor which contributed to the success of ranching in Uganda from about 1965 was the greatly reduced calf mortality and hence improved offtake compared to traditional cattle raising, which fenced ranching facilitated. Ranchers in GOU schemes were given land leases, in Buganda some land was held freehold and indigenous individuals could obtain leases if they could show they had resources to develop land for whatever purpose. In ranching, these systems of land tenure enabled ranchers to fence and have sole use of their land. By so doing, they could dip or spray cattle and eliminate the protozoon disease East Coast Fever. That - 12 - disease accounts for most of the 20-25% mortality which occurs in cattle kept under traditional communal husbandry. Additionally, East Coast Fever also slows growth rate in that percentage of the calf population which survives the disease under traditional systems. The impact of tick eradication is, therefore, dramatic and obvious to all participating owners. Furthermore, freehold or leasehold land tenure enabled farmers to profitably invest in pasture improvement as they would be the sole beneficiaries of that investment. Research at the pasture research unit at Muko in Ankole had demonstrated a technique for pasture improvement and bush control which resulted in 20-30 percent increase in land carrying capacity very quickly. Ranchers adopting that technique were able to recover their investment in pasture improvement (which was practically permanent) in two years from profits on the increased number of feeder steers their ranch would carry. There was, therefore, strong financial incentive to ranch and to improve pasture. 3.14 Data on operating costs of the 3,000 acre participating ranch units and the Bunyoro Cooperative Union are not available. Beef and slaughter stock prices rose steadily from project appraisal until the mid-1970s when they increased very rapdily as did all food prices at that time due to a steep rise in the country's rate of inflation. Fat stock prices at appraisal was about U Sh 1.60 per kg liveweight and had risen to Ug Sh 2.10 per kg by 1972. Equity Issues 3.15 The project was not designed to address equity issues in that medium to large scale ranching is unlikely to benefit large numbers of producers although the increased availability of meat may well result in that product being available to many more people than without the project. Of the 54 private 3,000-acre ranching units who received loans under the project, 32 were individuals, 12 were cooperatives and 10 were small ranching companies. The Bunyoro Cooperative Union had twelve societies each with about 2,500 members so that the total number of people who had some interest in the enterprises financed (excluding ULI which had about 55% of funds) was about 50,000. However, the extent of their financial interest varies very widely. In retrospect, ULI made a major contribution to ranch development by making available heifers in large uniform lots for sale to ranchers entering subsequently developed GOU ranching schemes. The original commercial ranchers starting in the 1960s could buy such lots from Kenya, but they were not available in Kenya after 1970. Environmental Change 3.16 One unexpected secondary effect of significance is the improvement in pasture species brought about by ranching operations on 3,000 acre leased properties. This change which has occurred over a 10-15 year period, most noticeably in Ankole has been the replacement of the species Themeda trianda with Brachiaria species. The same trend was also observed on ULI ranches especially in the Aswa valley. The Brachiaria species are much better grazing species able to withstand periodic droughts and heavy grazing, and providing muc better nutrition over the year. Consequently, ranches originally designed to carry about 750 cattle are now carrying 1,100 to 1,200 without any sign of overstocking whatsover. The reason why this species replacement took place is not very clear but it - 13 - seems to have been at least in part the result of heavy but quickly rotated cattle densities and :he absence of grass fires. As it is such a beneficial change, it is worthy of detailed study by researchers. Training 3.17 Animal Production courses in Australia were organized by the project in 1971 and 1972. These courses were set up by a consultant firm to meet the special training needs of the senior project staff. Some staff of the Ministry of Animal Resources also attended. The courses were designed to provide training in commercial beef production and particularly to demonstrate commercial practice in the use of credit for beef production in Australia. Participants also visited research institutions concerned with ranching, land use, pasture development and water conservation. A short period was spent working on extensive cattle raising properties. Participants found the courses were strenuous, but very rewarding and instructive. In all, eighteen staff from Uganda took part in the three courses in Australia. Use of Consultants 3.18 At appraisal, GOU agreed to the appointment of an internationally recruited project director acceptable to IDA. In fact, GOU nominated and IDA accepted an expatriate then in service with the Ministry of Animal Resources who had long experience in Uganda. He was the prime mover in development of the Ankole/Masaka ranching scheme. He served as Project Director from late 1963 until August 1972 and was outstandingly successful throughout. 3.19 The project used about four weeks of consultant time from an Australian consultant to advise on livestock drinking water collection and storage. Ring storage tanks built to that consultant's design were put on some ranches and are reported to have been successful but no quantitative data to measure that success is available. The ring tank design, if successful enables water to be stored with 1/3 to 2/3 reduction in earth moving costs compared to conventional valley tanks previously used in Uganda ranches. Follow-up Project 3.20 A second Beef Ranching Development project was prepared in 1970 by GOU, appraised by IDA in February/March 1971, and a credit negotiated in October 1971. The project was to provide: (a) ranch infrastructure development including construction of perimeter fencing, basic water storage and stock handling facilities and feeder roads. (b) credit and technical services to-- (i) about 140 medium size breeding/fattening ranches; (ii) one large (50,000 ha) steer fattening ranch; (iii) about 30 small mixed farms. - 14 - (c) training for ranch managers, technicians and foremen. (d) consultant services to help government reorganize livestock and meat marketing, and to prepare further livestock development projects. Total project cost was estimated at $13.4 million which included an IDA credit of $6.6 million. 3.21 The second project was to be a piggy back operation using the same project administrative unit as the first project. However, the second project was never implemented for country reasons. The first project implementation unit moved to the Uganda Development Bank (UDB) in 1973. When UDB was established by GOU in 1972, it was intended that a major part of its portfolio would be lending to the agricultural sector including development credit to farmers. UDB granted 29 loans for agriculture during 1980 of which six were for ranching. The ranching loans totalled U Sh 7,882,133 and were for similar inputs to the first IDA project. GOU is anxious to revitalize ranching development but one main obstacle to doing so would be the present lack of breeding females on the market in eastern Africa. ULI could not be expected to have surplus heifers in less than 4-5 years. Bank Performance 4.01 The most important influence bank personnel had on the project was at appraisal. During the time the appraisal mission was in Uganda, major changes to project design were suggested by the mission and concurred with by GOU at least in outline. At that time, the scope of the project was enlarged to include not only the development of parastatal ranching but also the the provision of credit and technical services to about 50 medium size private ranching enterprises on holdings of 3,000 to 10,000 acres and one ranch of 38,000 acres owned by a cooperative union. Bank appraisal staff required the parent holding company (the Uganda Development Corporation) of the parastatal, Uganda Livestock Industries (ULI), to restructure ULI, firstly, so as to facilitate single management direction of its five ranches located in four well spaced districts of Uganda and secondly, to write off operating losses incurred preproject and bring the company's debt/equity ratio to a level which would not jeopardize subsequent development. Similarly, it was at appraisal that involvement of the private commercial banks was first discussed and the terms under which their participation could occur were initially suggested. Everyone concerned with the project, and particularly bank staff, worked hard and long to ensure that the Uganda Commercial Bank and the private commercial banks should take part meaningfully for the first time in providing credit for ranching. A bonus resulting from that work was the short-term credits of about $0.5 million equivalent provided to borrowers by the private commercial banks during implementation in addition to their commitments under the project. 4.02 In planning the investment strategy at appraisal which was necessary to transform ULI into a profit-making company, the bank staff directed a higher proportion of the new investment into livestock, which with good management would appreciate, and less into ranch infrastructure which would incur depreciation. That policy was taken even a stage further - 15 - by the project Director during implementation. Similarly, in planning private ranch investmen:s, the proportion of new investment into cattle was kept above 80 percent on practically all units. 4.03 The appraisal mission also saw the need for ULI to reduce operating expenditure including effecting a big reduction in its number of employees relative to the numbers of cattle carried. The appraisal report proposed the appointment of a project coordinating committee composed of one representative each of the Department of Veterinary Services and Animal Industry, Department of Agriculture, the Ministry of Commerce and Industry, the Ministry of Mineral and Water Resources, the Bank of Uganda, the Uganda Commercial Bank and the Uganda Bankers Association. The Project Director acted as Executive Secretary to the Committee. This body proved very supportive to the project. 4.04 The role of Bank supervision missions was to monitor progress. No significant change to the policy and strategy agreed at appraisal were required during implementation. Supervision missions immediately following project start up helped the project streamline withdrawal procedures. The Bank was not able to supervise the project after May 1972 due to country reasons. By mid-1972 the Project Director believed all funds available under Category 1 for loan financing were committed. However, when the project was closed, US$0.25 million remained in Category 1. This unused sum arose mainly from exchange adjustments. The Bank declined a request by GOU for extension of the credit on the grounds that the project was very largely completed one year ahead of the closing date. Procurement 4.05 By far the biggest procurement item was cattle. About 40,000 cattle as foreseen at appraisal were purchased, the great majority from Kenya. These purchases were made through normal trade channels which existed preproject. The transportation of cattle by railway and by truck was conducted efficiently, less than 0.01 percent of animals being lost in transit. The appraisal report required the purchase of fencing wire, tractors and vehicles by ULI to be by international competitive bidding. No evidence was found that ICB was followed, but no evidence was found that project funds were used to finance fencing wire, tractors or vehicles for ULI ranches. The reasons for requiring ICB for procurement of those items by ULI are not clear as the total sum foreseen at appraisal for all those items was only about US$63,200. Conclusions 5.01 Although the project was signed in October 1968 and closed in April 1974, the effective operational period by the project implementation unit (which was located at that time in the Bank of Uganda) was only until September 1972. By then the project had allocated all the funds available for ranch credit. The project was by that time very successful; disbursements were ahead of schedule and a repeater project was in the pipe line. Beef prices had risen in line with modest local inflation. Production parameters of private ranchers' cattle were better than foreseen at appraisal with weaning percentage 5-10 percent higher and mortality of growing and adult stock 2-3 percent lower than forecast. Mortality on ULI ranches was also below forecasts by a similar figure but their weaning - 16 - percentage was taking longer than expected to reach a satisfactory figure. It had improved from preproject but had only reached 60-65 percent by 1972. The last supervision mission (May 1972) reported that cattle numbers of all Project ranch cattle populations had increased from about 36,000 to 80,000 in line with appraisal estimates. The quality of fat steers produced on project ranches was high and in demand by local and city butchers who visited ranches regularly paying up to U Sh 1.00 (US$0.14) per pound liveweight compared with U Sh 0.75 for steers from the traditional sector. Losses from East Coast fever and foot and mouth desease had been virtually eliminated from project ranches and there had been a rapid grading up of herds through use of Boran breeding stock. This success was attributed to: (1) Good land suitable for ranching was held on secure tenure. (2) The ranching technical package, by reducing calf mortality drastically, made production from a given number of breeding cows much greater than under the traditional system. (3) ULI's financial structure, management and investment program were restructured towards early profitable operation. (4) The project was implemented after well conducted research into cattle breeding and pasture improvement had produced usable results. At least in southwestern Uganda ranching operations led to increasing weights for age of steers and ranch carrying capacity. (5) Use of land cleared of tsetse fly for ranching on the Ankole/Masaka model led to better species of grass replacing less productive ones. That change was neither foreseen nor planned. (6) Ranch development planning and implementation adhered strictly to the axiom of investing mainly in cattle with infrastructure pared to absolute essentials. (7) At the start of project implementation when ULI and private ranches had to buy large numbers of both breeding cattle and feeder steers, some large-scale ranchers in Kenya were anxious to sell in-calf and bulling Boran heifers. Being able to buy fairly large mobs of good quality heifers uniform in type, age and stage of pregnancy made herd management for newly established ranchers much simpler. ULI also bought immature steers from Kenya's Northern Frontier province. They did well with ULI but smaller ranchers preferred Uganda bred feeder steers because uniformity was less important, they did not carry breeding diseases and they were cheap in Uganda, whereas breeding females were expensive. Feeder steers bought from the traditional sector in Uganda made dramatic growth when put on tick-free ranches with no stomach worm population. (8) The Ministry of Animal Resources had well trained staff by the time ranching developed in Uganda. These included professional veterinarians and animal production specialists and supporting staff at diploma and certificate level. - 17 - 5.02 Less information is available concerning the period following implementation. About 1975-76 one major problem which arose was the non-availability of dipping fluid. All project cattle by that time were susceptible to East Coast fever and unless dipped in the correct strength dipping fluid twice weekly would soon die. Ranchers went to extreme lengths to get dipping fluid when it became unavailable through official channels, but about 10 percent of the project ranch population was lost at that time. Some ranches including the Bunyoro Cooperative Union lost higher percentages, the variation in mortality being partly dependent on the amount of contact with adjacent infected herds. 5.03 During and following the military and civil disturbances of 1978, ranchers lost cattle by theft and disease in varying numbers. At that time, U LI lost about 2,500 cattle, Bunyoro Growers Cooperative Union, about 1,500 and individual ranchers varying numbers from nil to their whole ranch population. ULI (and no doubt other ranchers) tried to maintain their breeding herds, prefering to sacrifice steers of all ages to looters. ULI were fairly successful in preventing looting of females but because of lack of steers to provide cash flow have had to sell more heifers than was desirable in order to service their loan. This caused a drop of about 25 percent in their numbers of breeding cows but now they have completed loan repayments in 1981, they will be able to rebuild to full breeding herds within two to three years. Bunyoro Growers Cooperative Union will not be able to do that without financial help as their ranch cattle population has fallen so low that breeding herds would take inordinately long to build up by natural increase to achieve optimum ranch densities. Their ranch management had also deteriorated to an unsatisfactory level in 1980. While data is not available concerning status of individual ranchers, from the evidence of the UCB's loan portfolio most ranchers have continued to do well, but a few have been grossly affected by the country situation. Because of the paucity of recorded data on project private ranches and the unusual effects on the livestock industry of the unsettled political and economic climate in recent years, no attempt has been made to calculate an economic rate of return for the project. 5.04 Of particular interest is the use which the project made of private banks to provide a proportion of the investment capital. As this is a topical subject, this report has spelled out in some detail the structure and mechanism which the project constructed to do this. The security and spread of interest between participants is also itemized precisely. What cannot be measured is the confidence which bankers felt in the farming community, and in the technical competence of government's support services. That confidence was essential, but without the idea of involving the banks, nothing would have been done in that regard.  UGANDA BEEF RANCHING DEVELOPMENT PROJECT - CREDIT 130-UG Project Completion Report Project Cost and Financing (in US$) Appraisal Estimate Actual Estimate Actual Total Total US$ Total US$ as % of Components Local Foreign Equivalent Local Foreign Equivalent Appraisal Total Ranch Development Physical Inputs 490 350 840 705 84 Breeding Cattle 505 1,745 2,250 2,689 120 1 Feeder Steers 900 750 1,650 ,121 68 O Subtotal 1,895 2,845 4,740 4,515 95 Technical Services 190 155 345 141 41 Total 2,085 3,000 5,085 4,656 92 Financing: a/ Bank/IDA: IDA 3,000 2,651 88 &/ Borrower: GOU 190 130 68 c/ Beneficiary: Ranchers 947 991 105 / Co-financer: Commercial Banks 948 884* 93* Total 5,085 4,656 92 * Additionally commercial banks provided short-term loan credit to borrowers of about 0.5 million dollars equivalent. • 19 - ANNEX 2 NU mAret~ r D~EWOMNT POJECT - CUPIT 13-0 projtc Conela~e ~ttort Project IGcrmantal Liveccoek Prodntiou (for u.I laches only) Pr-Itprect (Appralal Year-19f8) Larmst Avallable ynar (Cear 1979) TPpe of Liveso k Hard D tathi gales Pri#e Valse Herd Deaths Sales Preca Valu (le.) (No.) ('000) (M) (1 '0) (se.) (le.) ('000) () ( '000) 1. Without Pro ject ~eeIng stock: PaIe 4,000) mala 146) ) (by age group) 8,116 1.72 78 133 ) Calvug al ) SIfal Producion 60 ) 2. with Projacc (199) (appralal estiimare) §reading stock: reuale 18,400 Ma 620) ) 1,440 (by age group) 14,224 ) 12.47 60 754 Calving att* mm£ Prodeten 75 3. tho ject (acemal or aesmtådatu) ardinug stlock: lemala 12,800 ) malm 553 ) 8.49 104 887 )2,815 Othear: (by age group) 23,206) Calvin lata Keat Produccion 68 4. EStimated Incrmental (2 minuus 1) 621 5. Utual Incrametal (3 ~ms 2) 754 All sales calculatad at pre-projeet prices. DIfferace in unit price caumed bY differencen in ags wbe gteerg @old. UGANDA BEEF RANCHING DEVELOPMENT PROJECT PROJEGT AREAS S U D A N PHOLC 2\C -- .- :astac-r sou: A--/ fI <) ) P, k\ I, SLSV>,A G SU N - c. roj8oo ) 0 T uS-FTD O - 00 O 4ANG t- ~ GU l 1U 6AFR I" n0 - --l- .- .. - ' .lND TA2- )0 R-W N D A- ) vO A?% 'EPEMER[( 104KE v1CT RI Aloto rn-- i Ar N\ R W-,JN 11,1MLEø t9,