India - Mysore Agricultural Wholesale Markets Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 5081 PROJECT PERFORMANCE AUDIT REPORT INDIA KARNATAKA AGRICULTURAL WHOLESALE MARKETS PROJECT (CREDIT 378-IN) May 14, 1984 Operations Evaluation Departnent 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 ARC - Agricultural Refinance Corporation ARDC - Agricultural Refinance and Development Corporation DCA - Development Credit Agreement ERR - Economic Rate of Return GOI - Government of India GOK - Government of Karnataka IDA - International Development Association IDS - Institute of Development Studies NABARD - National Bank for Agriculture and Rural Development PCBs - Participating Commercial Banks PCR - Project Completion Report PPAM - Project Performance Audit Memorandum PWD - Public Works Department TPD - Town Planning Department RM - regulated markets RMCs - Regulated Market Committees SAR - Staff Appraisal Report SMD - State Marketing Department FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT INDIA KARNATAKA AGRICULTURAL WHOLESALE MARKETS PROJECT (CREDIT 378-IN) TABLE OF CONTENTS Page No. Preface ............................... ....... i Basic Data Sheet ................................................... 1... ii Highlights ............. ...................................... . . iii PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY ..................................... ....... 1 II. ISSUES ........................................ ......... 3 A. General . ............. ........... 3 B. A Comprehensive Approach to Marketing Needed ........ 3 C. The Marketing System ................................ 5 D. Delays in Construction ........................ ... 7 Annex I - Borrower Comments .......9.............................. 9 PROJECT COMPLETION REPORT I. Origin, Preparation and Appraisal of the Project ......... 23 II. Implementation .......................... ......... 25 III. Institutional Aspects ................. . .......... 33 IV. Economic Evaluation ......... ........................... 35 V. IDA Performance ......................... ............ 36 VI. Conclusions .............................. ............ 37 Annexes Ma> - IBRD 17277 (PCR) R 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 INDIA KARNATAKA AGRICULTURAL WHOLESALE MARKETS PROJECT (CREDIT 378-IN) PREFACE This is a performance audit of the Karnataka Agricultural Wholesale Markets Project in India, for which Credit 378-IN in the amount of US$8.0 million was approved in March 1973. The final disbursement was made on July 31, 1981 after an extension of the Closing Date. The audit consists of a memorandum prepared by the Operations Evaluation Department and a Project Completion Report (PCR) dated July 8, 1983. The PCR was prepared by the South Asia Regional Office on the basis of a PCR prepared by the Borrower and a country visit in April 1983. The audit memorandum is based on a review of the Appraisal Report (SAR No. 44a-IN) dated March 7, 1973, the President's Report (P-1200-IN) of March 15, 1973, the Credit/Project Agreements dated May 9, 1973, and the PCR. Correspondence with the Borrower and internal Bank memoranda contained in relevant Bank files have been reviewed and staff associated with the project have been interviewed. An OED mission visited Karnataka in November 1983. The mission held discussions with officials of the Ministries of Economic Affairs and Rural Development in Delhi as well as with the Government of Karnataka. A field trip to visit some project markets and to discuss their usefulness with merchants and producers was undertaken. The information obtained during that mission was used to test the validity of the conclusions of the PCR. It permitted also discussion of the auction system adopted and the importance of the Regulated Market Committees. A copy of the draft report was sent to the Borrower on January 12, 1984. The comments received have been taken into account or have been appro- priately footnoted while preparing this final version and are attached in Annex I to the PPAM. The audit finds that the PCR covers adequately the project's salient features, its accomplishments and shortcomings, and the PPAM gen- erally agrees with the conclusions. The issues discussed have been selected because of their importance for this as well as other Bank-assisted projects aiming at improved marketing. The valuable assistance provided by the Government, the agencies involved, and their staff, as well as the traders and farmers met during the preparation of this report is gratefully acknowledged.  - ii - PROJECT PERFORMANCE AUDIT REPORT INDIA KARNATAKA AGRICULTRUAL WHOLESALE MARKETS PROJECT (CREDIT 378-IN) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Estimate Estimated Actual Project Costs (US$ million) 11.9 16.1 Overrun (%)/a 42 Credit Amount (US$ million) 8.0 Disbursed - 8.0 Cancelled - 0.0 Repaid - - Date Board Approval 03/27/73 03/27/73 Credit Agreement Date 05/09/73 05/09/73 Date Effectiveness 09/07/73 09/07/73 Date Physical Components Completed 12/31/79 12/31/82 Proportion Completed by Above Date (%) 100 100 Proportion of Time Overrun (%) - 48 Closing Date 12/31/79 06/30/81/b Economic Rate of Return (%) 15 below 7 Number of Direct Beneficiaries CUMULATIVE DISBURSEMENTS FY75 FY76 FY77 FY78 FY79 FY80 FY81 Appraisal Estimate (US$ million) 0.5 1.4 3.6 6.1 8 - - Actual (US$ million) - 0.2 0.9 1.1 1.5 5.1 8 Actual as % of Estimate - 14 25 18 19 - - Date of final disbursement: MISSION DATA No. of Mandays Specializations Performance Types of Date Persons in Field Represented/c Rating/d Trend/e Problems/f Appraisal 05/72 5 135 Supervision 1 04/74 2 18 1,2 2 2 F,M Supervision 2 02/75 3 24 1,4,5 2 1 M,T,0 Supervision 3 06/76 3 27 1,2,3 3 2 M,T Supervision 4 07/77 2 16 1,2 3 1 M,T,0 Supervision 5 03/78 1 6 5 3 1 M,T Supervision 6 09/78 1 6 1 2 1 M,F,0 Supervision 7 05/79 2 12 1,4 2 1 F,0 Supervision 8 02/80 1 6 4 2 1 T,0 Supervision 9 12/80 1 5 4 2 1 T Total 255 OTHER PROJECT DATA Borrower: Government of India Executing Agency: Karnataka State Marketing Department Fiscal Year: April 1 - March 31 Name of Currency (Abbreviation) Rupee (Ra) Appraisal Year Average (1973): US$1.00 = Rs 8.00 Intervening Years Average (1974-80): US$1.00 - Rs 8.26 Completion Year Average (1981): US$1.00 = Rs 8.00 Follow-on Project none /a The investment costs in the appraisal report were based on estimated development costs of 30 markets. The project actually financed 65 markets (47 main markets and 18 sub-markets). /b One extension (12/10/79). /c 1 - Agricultural Economist; 2 = Agriculturist; 3 - Marketing Specialist; 4 = Financial Analyst; 5 - Economist. Td 1 - Problem-free or minor problems; 2 - Moderate problems; and 3 = major problems. Te 1 - Improving; and 2 = Stationary. 7? F - Financial; M - Managerial; T - Technical and 0 = Other.  - iii - PROJECT PERFORMANCE AUDIT REPORT INDIA KARNATAKA AGRICULTURAL WHOLESALE MARKETS PROJECT (CREDIT 378-IN) HIGHLIGHTS The Government of India considered development of regulated whole- sale markets aimed at increasing trade efficiency and reducing produce losses to be one of the key elements in its strategy to induce increased agricul- tural production. In order to promote this strategy State governments were encouraged to establish modern regulated markets under appropriate legisla- tion. The project was designed to provide these facilities in the Indian State of Karnataka. It provided credit: (i) for the establishment, expan- sion, and improvement of 30 market yards; and (ii) to market intermediaries for shops and godowns; as well as (iii) funds for training of staff and proj- ect evaluation. The project was successful in expanding the physical capacity of the regulated markets. A total of 47 markets and 18 sub-markets and 990 shops and godowns were constructed, well above the appraisal estimates. Due to difficulties in designing and appraising sub-projects as well as delays in construction, a three-year time overrun occurred. The expansion of project facilities was the main contributor to the 42% cost overrun. The project has contributed to relieving traffic congestions in the narrow streets of tradi- tional trading quarters, reduced losses due to previously inadequate storage facilities, and provided farmers with attractive and fair marketing. The economic rate of return, estimated at 15% at appraisal, is difficult to recalculate with sufficient accuracy due to the lack of specific data, but based on information available, is estimated below 7%. Other points of interest are: - maximization of benefits from a marketing project can only be obtained if all links in the marketing chain receive equal atten- tion (PPAM, paras. 12, 13, 17, 18; PCR, para. 45); - quantification of benefits from a marketing project is difficult and assumptions of savings due to reduced storage losses as well as improved transportation need more scrutiny in future appraisals of similar projects (PPAM, paras. 13-16; PCR, paras. 37-39); - the auction system adopted by the Karnataka markets provides incen- tives to farmers by offering better prices and fair treatment. It could serve as a model for other projects (PPAM, paras. 19-22); - the Regulated Market Committees are dynamic, financially well established groups which could take on additional responsibilities (PPAM, paras. 23, 24); and - more and timely supervision could have contributed to avoiding excessive delays during the project's early stages (PCR, paras. 41, 42, 46). b - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM INDIA KARNATAKA AGRICULTURAL WHOLESALE MARKETS PROJECT (CREDIT 378-IN) I. SUMMMARY1/ 1. India's emphasis on agricultural development has resulted in a significant growth of the sector. To maintain this trend, improvement of marketing facilities is essential. Traditional marketing systems often involve dispersed market yards, located in congested areas, frequently with inadequate storage facilities. Marketing practices in these yards often discriminate against farmers. Growing agricultural production, boosted by substantial investment in irrigation, has resulted in a rapid growth of marketable surpluses. Without improvement of marketing facilities, marketing costs would increase due to crowded market conditions and inadequate storage facilities. 2. For several decades, the Government of India (GOI) has encouraged State governments to pass Regulated Agricultural Markets Acts to regulate agricultural marketing. These Acts aim at: (a) improving the efficiency of the marketing process, including more efficient handling of products, introduction of grading of produce and reducing waste; and (b) ensuring fair trading practices and competitive prices. The development of centralized markets was conceived as permitting enforce- ment of the Acts. In Karnataka the Agriculture Produce Marketing (Regula- tion) Act was passed in 1966, establishing regulated markets (RM) in designated areas administered by Regulated Market Committees (RMCs) on which both traders and producers are represented. 3. Enlarging the capacity of wholesale markets and strengthening administrative control over wholesale operations has characterized implemen- tation of the Act. Since 1966, the Government of Karnataka (GOK) has given high priority to the establishment of a statewide network of over 200 regu- lated markets to handle the wholesale of all notified commodities. By 1971, 186 traditional markets were regulated by RMCs. GOK also gradually expanded the area and the number of notified commodities designated for RM, increas- ingly exercising control over transactions, with the intention to reduce abuse of farmers by commission agents, who normally sell the farmers' produce for a fee to wholesale traders. The role of the commission agents extends well beyond aggregating small produce lots; the agents are also a major 1/ Adapted from the PCR. - 2 - source of non-institutional credit. GOK recognizes the importance of the commission agents, and aims at regulating their operations and commissions while promoting fair trading practices, rather than curbing their activities. 4. The Karnataka Agricultural Wholesale Markets Project represents the Bank Group's second lending for agricultural markets in India. The project had similar objectives as the first (Bihar Agricultural Wholesale Markets Project, Credit 294-IN): the provision of efficient marketing facilities. 5. As originally appraised, the Karnataka Agricultural Wholesale Mar- kets Project would help finance about 30 new markets or improvements of existing markets, over a five-year period as part of the ongoing program of GOK to develop new agricultural wholesale markets in areas where traditional markets are congested and offer inadequate room for expansion. The State Marketing Department (SMD) would have principal responsibility for project implementation. RMCs, under the general guidance of SMD, would construct the buildings, access and internal roads, trading platforms, and utilities for market yards: borrowing the necessary funds from three Participating Commer- cial Banks (PCBs) to be refinanced by the Agricultural Refinance Corporation (ARC, later known as ARDC, and now as the National Bank for Agriculture and Rural Development (NABARD)). Market intermediaries would purchase or lease plots from the RMCs, and would borrow funds from the PCBs for the purpose of constructing shops and godowns. The project also provided for training of SMD personnel and for evaluation of project results by a qualified economic research institute. 6. Total project costs were estimated at US$11.9 million. The US$8.0 million Credit was signed on May 9, 1973, with the Closing Date expected by December 31, 1979. On December 10, 1979 the Credit Closing Date was extended to June 30, 1981. 7. The objective of the project was to improve the efficiency of agri- cultural wholesale markets in Karnataka through reducing time lost due to market congestion and handling and storage losses, improving product quality and reducing municipal expenditures. The project was part of the Government program to develop regulated markets throughout the State. It provided for development of 30 market centers distributed throughout the State of Karnataka. 8. Although completion of the project was delayed by 3 years, mainly due to difficulties encountered in designing and appraising sub-projects and delays in construction, the project contributed to the establishment of 47 main markets compared with 30 assumed at appraisal, and 18 sub-markets, and financed 990 shops and godowns compared to 500 estimated during appraisal. Total project cost at completion amounted to US$16.06 million, representing a cost overrun of 42% mainly due to the expansion of the project. Costs per market and shop were substantially below appraisal estimates. However, the project's primary objectives were only partly achieved, due to lower than expected benefits and delays in project implementation. - 3 - 9. Following its long-term social objective to regulate agricultural marketing to ensure fair trading practices and competitive prices, GOK expanded the number of markets funded under the project and by other sources beyond the number considered economically feasible during appraisal. This was facilitated by inadequate appraisal of sub-projects which resulted in the selection of some uneconomic markets. Traders were initially reluctant to relocate to new markets affecting market arrivals during the first years of operation. 10. Construction of markets also took more time than expected at appraisal. Because of the delays and due to no apparent signs of new markets alone offering adequate incentives to increase production and/or shifts to higher value crops and difficulties encountered in accurately quantifying benefits, the re-estimated Economic Rate of Return (ERR) could vary between close to zero and up to 7%, compared to 15% estimated at appraisal. However, the project has an attractive financial rate of return, RMCs have succeeded in generating substantial surpluses, and farmers having direct access to the markets appreciate higher prices obtainable and the elimination of weight cheating. II. ISSUES A. General 11. The project has already had considerable impact on the marketing of agricultural produce in Karnataka. It has succeeded in stimulating farmers' interest in taking on marketing responsibilities, in introducing a fairer marketing system, and in generating revenues. Some project aspects, like the auction system introduced or the Regulated Marketing Committee (RMC) approach, are so promising that they should provide models for other develop- ment projects. Despite the project's marginal rate of return it could make a significant contribution to development if investments in supporting market- ing activities had been or are likely to be forthcoming. B. A Comprehensive Approach to Marketing Needed 12. The wholesale markets are only one link in a marketing chain as found not only in India but in most other countries too. Farmers not living in the proximity of the wholesale markets are compelled to sell their produce to either middlemen who act as agents for larger traders or to traders ven- turing into remote villages. The middlemen or village traders then in turn sell to the wholesale merchants who again have to find outlets through exporters and/or wholesale-retail traders at urban consumption centers. 13. The Government of Karnataka had taken account of this marketing chain and the original project proposal included cooperative marketing facil- ities, cold storage, construction/improvements of rural roads to facilitate access to markets, etc. (PCR para. 1). However, the appraisal mission queried the economic justification of such a large, US$59 million project. As a matter of fact the economic viability of the smaller, recommended project became the major issue. The economic benefits of the project, as assumed by the appraisal2/ were expected to come from: (a) reduced congestion resulting in less waiting for transport equipment; (b) reduced net cost to municipalities of providing social over- heads; (c) reduced grain losses through use of heated air dryers; (d) reduced storage losses. In addition, it was expected that higher prices paid to farmers, a result of improved marketing efficiency, would lead to additional production. A 1% price increase to farmers would net incremental production worth Rs 4.8 mil- lion (US$.6 million - 1973 base) net of production costs. 14. During discussions with traders and farmers the audit mission found that most benefits considered by the appraisal did not materialize or were found overestimated. Traders voiced reservations about the magnitude of transport savings due to moving to new markets. They indicated that if sub- stantial time savings had occurred such savings would be reflected in reduced haulage costs which are nowhere in sight. The Government in its comments correctly states that during the periods following the harvests of the various produce brought to the market, traffic congestions in the narrow streets of the traditional trading quarters occurred and that savings in transport costs due to easier access to the new markets materialize. However, it should be borne in mind that substantial deliveries, especially of perishables, but also pulses, oilseeds, etc. take place spread over the year. The ERR for appraisal and/or the PCR will exaggerate the benefits if the total quantities delivered to the markets form the basis for calculating transport cost savings. 15. Traders also challenge the likely savings in storage losses. It was pointed out that grains constitute only a minor portion of the commodities traded at the markets. This is also substantiated in the Bank files when the nationalization of the grain trade was introduced and the jus- tification of the project questioned by Bank management. It was further men- tioned by the merchants that their margins could not support a 10%, or even as assumed by the appraisal and PCR a 7%, loss. Due to rapid turnovers, the size of the individual godowns is much too small, as well as the high 2/ SAR No. 44a-IN, p. 20, para. 6.02. - 5 - percentage of perishables traded, to permit long-term storage, consequently losses have always been kept to a minimum.3/ 16. With all the benefits assumed by the SAR and PCR challengable, what remains as a possible benefit of a marketing project is the incremental pro- duction to be brought about by better prices to farmers, providing them with incentives to increase output or to switch to higher value crops. In the case of this project the possibility was indicated in the appraisal, but not quantified and included in the ERR calculation. This omission was correct, because so far mainly farmers in the vicinity of the new markets are bene- fitting from better prices and as the Government in its comment correctly mentions are benefitting from improved bargaining positions. The majority is still compelled to sell to middlemen, itinerant traders, etc. Most farmers are also forced to sell immediately after the harvest, when prices are at lowest level, due to lack of storage facilities.4/ In the view of the Region commission agents are benefitting most from the new marketing arrangements. 17. In the audit's view what has been lacking was a comprehensive approach to improving the marketing system. By selecting only one link in the marketing chain the Bank was foregoing the possibility of enlarging the numbers of farmer beneficiaries, of providing needed incentives to stimulate increased output and thereby establishing a sound economic justification. As it stands the project has a most attractive financial rate of return but based on the facts mentioned in the preceding paragraphs at best a 7% ERR. The attractive financial rate of return has been brought about, to a large extent, by a substantial increase in marketing fees charged by the RMCs. There is no proof that efficient and cost conscious operation of the markets may have contributed to the high financial rate of return. During appraisal the Government of Karnataka (GOK) agreed with IDA to increase fees from .25 3/ The Government in its comments states that perishables constitute only 4% of the arrivals in the agricultural produce market. There seems to be a different interpretation of what commodities are perishables. Chickballapur-market throughput in 1982/83 had 105,400 q of onions/ potatoes, i.e., perishables, out of a total of 123,600 q (85%). Channarayapatna market throughput in 1982/83 had 12.7 million coconuts, and 4,061 heads of livestock, i.e., perishables compared with 33,405 q non-perishables (value of perishables Rs 16.1 million, non-perishables 4.9 million or 23%). The Region states that the quality of storage has improved and this would result in some, difficult to quantify, benefits. 4/ Without any exception all farmers interviewed by the audit mission indicated that improved marketing facilities alone would not induce them to increase production and/or switch to higher value crops. The audit can therefore not agree with the GOI's assumption that production will or has gone up by 1% as a consequence of the project. - 6 - to 1% of the value of the produce marketed. About three years later GOK instructed the RMCs to further increase their fees to 2% to counterbalance the effects of higher than expected operating costs and lower throughput of many markets and improve the financial position of most of the small mar- kets. The market fees are paid by the producers and represent a substantial cost factor, which under the project increased by 800%. 18. Certain lessons, however, have been learned by the Bank. Financing of village godowns is under active consideration. However, in discussions with project participants further needs were mentioned, especially cold stor- age, understandable in a region where vegetables, onions, chillies and pota- toes constitute a large share of marketing operations, as well as additional transport facilities. These investment requirements would merit further con- sideration. C. The Marketing System 19. Two aspects of the project deserve special attention: the system of auctioning the various commodities and the role of the Regulated Market Committees. Both are successful in improving marketing and could be intro- duced to other projects also in other countries. 20. The auction system consists of farmers or middlemen displaying their goods on the auction floors, i.e., concrete floors protected by corru- gated iron roofs. The wholesalers have adequate possibilities for inspecting the quality and appearance of the produce. If interested they place a note of interest in the displayed wares and on the copy of this note, which is placed in a locked box, they state their purchase offer. Since competition of wholesale traders is keen, prices offered are usually highly satisfactory to the sellers. Reaching fair prices is further assisted by excellent market intelligence: price ranges for all commodities are noted on blackboards next to the market entrance, offering interested sellers immediately an idea about the market situation. 21. From the farmers' point of view this auction system has the added advantage of protecting them against price "reconsiderations" since the buyer is obliged to adhere to his offer once he has written it down. In addition they indicate that there are no discussions about correct weights and measurements, since for the first time the relatively "weak" sellers have the possibility, in case of real or imagined unfairness, to appeal to the RMCs where they are well represented. The only disadvantage farmers see are that only few have direct access to these improved markets (see Section B above) and that more sub-markets and/or improved transportation would be needed. 22. The third advantage mentioned concerns the better and tighter fis- cal control of these markets. The RMCs have practically absolute control over sales and thereby the assessment of the full marketing fees. In addi- tion tax authorities also exercise proper control and taxation of the trad- ers. This fact alone explains the reluctance of traders to move from their previous uncontrollable trading places to the closely supervised new markets. - 7 - 23. Successful handling of these aspects is dependent on the efficiency of the RMCs. The mission, which visited a large number of markets and sub-markets, was impressed by the dynamism of the Committees and their leadership. The Government of Karnataka is aware of this development and is convinced that the RMCs could take on other responsibilities, provide ser- vices to farmers, etc., especially since they are backed financially by the revenue-generating wholesale market project. Some activities that could be expected would be in the field of organizing transport from remote villages to the markets, establishing village buying and storage centers, supplies of consumer goods, etc. 24. In the audit's view, it would be advisable to monitor further developments of these Committees. Dynamic farmer groups are a rare commodity in most developing countries. If they exist and flourish it would be worth- while to see how much the Bank could support their economic activities. D. Delays in Construction 25. The project experienced delays which are attributable to the late and insufficient deliveries of cement and steel for the construction program (PCR para. 26). Shortages of these materials are a well-known fact to the Bank and because of it most projects suffer time overruns, associated with cost increases/deferred benefits, that lead to lower than estimated ERRs. The audit found that the Bank has taken action to resolve this problem. A cement sector study was undertaken in 1980 and' a cement industry project appraised in 1981. However, it was found that the regulated prices were not conducive to the suggested investments and the project was no longer pursued. In the meantime a new cement price policy has been adopted by GOI and the Bank is considering a project aiming at efficiency improvements of existing cement plants. 26. One other factor which, in the audit's view, could have contributed to reduced construction time - and cost - would have been the preparation of standard godown/shop designs. The mission was struck by the fact that designs were different in all the markets visited. 27. On the positive side it should be noted that litigation for land acquisition - contrary to the Bihar experience,5/ - did not take place and no delays were experienced. Authorities pointed out that price negotiations for compensation were based on a willingness to compromise. As a result higher land prices were largely offset by avoiding undue construction delays which would have caused cost escalations. 5/ Bihar Agricultural Markets Project (Credit 294), OED Report No. 3490 of June 10, 1981.  -9 - D.O.No.2(1)/84-FB.VIII IMMEDIATE Annex I - Borrower Comments -qM qTzFTT Annex I f4 a t(N-IT Page 1 A.K. Pai Under Secretary grff T fTf PT Te. :3764 20 Governent of India (13harat Sarkar) Ministry of Finance (Vitta Mantralaya) Department of Economic Affairs (Arthik Karya Vibhag) ,ft/New Delhil9th Marchv 1984.* Dear Mr. Grimshaw, With reference to Letter dated 12 January, 1984 from Mr. Shiv S. Kapur, Director,Operations Evaluation Department(OED), Bank I am encLosing two copies ot our comments on PPAR re.Lating to Karnataka Agricu.tural Wholesale Markets Project (IDA Credit No.378-IN). 2. I sha.ll be grateful if a copy of the comments is passed on to Mr. Kapur for inclusion in the final PPAR. With kind regards, Yo sinoerely, (A.I. Pa.) Mr. Richard G. Grimshaw, Chief, AgricuLture Division, Resident Mission of World Bank in' India, 21. 'Jor Bagh, New Delhi, - 10 - Annex I Page 2 A NOTE ON THE IMPLEMENTATION OF THE MARKET DEVELOPMENT PROJECT OF KARNATAKA COMMENTS ON THE PROJECT PERFORMANCE AUDIT REPORT (PPAR) AND PROJECT COMPLETION REPORT (PCR) OF THE WORLD BANK Karnataka Agricultural Wholesale Markets Project (CREDIT 378-IN) was launched in September, 1973 with IDA assistance of 8.0 million dollars. The project was intended to develop 30 regulated markets at a total cost of 12 million dollars and was to be completed on 31.12.79. With the consent of the IDA, project completion period was extended upto 30.6.81. The total credit was drawn upto that date but a number of components of the projects were completed later. According to the agreement the project was taken as a line of a credit project with a lot of flexibility about the location of markets and increase or decrease of the facilities to be created depending upon the variation in costs. The IDA credit under the project was routed through ARC and 12 participating commercial banks (PCBs). The State Marketing Board of Karnataka was responsible for the execution of the project. At the completion of the project 47 markets and 18 sub-markets were developed at a cost of 16.0 million dollars. Number of shop-cum-godowns constructed in the project were increased to 990 from 500 originally envisaged. The project agreement (DCA) also provided for pre-investment, interim and post- investment studies of randomly selected markets by the Institute of Development Studies (IDS) of the University of Mysore. After the completion of the project the World Bank have got prepared a Project Completion Report (PCR) dated July 8, 1983 mainly based on the project completion report prepared by the Government of Karnataka (GOK) and a country visit by the experts of the World Bank. The Project Performance Audit Report (PPAR) has also been - 11 - Annex I Page 3 prepared by the Operations Evaluation Department of the World Bank. Our comments on some of the important observations contained in these two documents, namely, PCR and PPAR are given in the following paragrapi.s. 2. COMPREHENSIVE APPROACH TO MARKETING The audit has taken the view that the project is lacking in a comprehensive approach to improve the marketing system. Only one link in the marketing chain, namely, the agricultural produce markets, has been developed under the project. In fact the project initially posed to the World Bank by the Government of India (GOI) and the Government of Karnataka (GOK) was a comprehensive one including the development of roads, cold storages, livestock markets, cooperative marketing etc. These components were deleted on the basis of the appraisal of the project by the World Bank. 3. ECONOMIC EVALUATION The Project Completion Report (PCR) and Project Performance Audit Report (PPAR) have made a number of observations about the low Economic Rate of Return (ERR) realised under the project. The ERR of 7% has been computed in the PCR on the basis of following assumptions: (i) There has been a saving in the waiting time of trucks and bullock carts. A saving of one hour in case of trucks and half a day in case of bullock carts has been assumed; (ii) There has been a saving of 3% on the goods stored in the ship-cum-godowns over compara- tively long periods. It has been assumed that about 60% of the arrivals in the markets have been subjected to long term storage; (iii) Benefits from heated air drier have been ignored as they have not been used. On these assumptions the ERR works out to about 7% as against 15% envisaged under the project. It has been mentioned that sufficient data has - 12 - Annex I Page 4 not been generated for conducting a proper economic evaluation. It has, therefore, become necessary to estimate ERR on the basis of assumptions mentioned above. Three main reasons have been identified for less than anticipated ERR - (i) lower market arrivals; (ii) slow implementation resulting in time and cost over runs; and (iii) higher operating costs of market commodities. The PPAR have gone a step further to say that the ERR is almost zero. It has been pointed out by the audit that during their country visits, the traders have revealed that there was hardly any saving in transport time as such a time saving should have regulated in reduced haulage cost. It has been argued that 1.37 million load spread over 30 markets with 50 traders at 300 days average only 3 carts per day and trader. Similarly, 2,21,000 truck loads average less than 1 truck per day and trader. On the basis of their interviews with the traders the audit have also challenged the likely savings in storage losses. It has been pointed out that grains are only a minor part of the commodities traded at the markets. High percentages of commodities brought to the market are perishables which are not stored for any length of time. The losses, therefore, have not been reduced to any significant extent. The observations of the audit regarding reduction in waiting time of trucks and reduction in storage losses are based on the interviews with the traders. The calculations of average arrivals of bullock-carts and trucks per day and trader does not give the complete picture of the pattern of arrivals in the agricultural produce markets of the country. Most of these markets are seasonal. They may experience a heavy rush of arrivals in the main crop season while the arrivals may be very low after the crop season is over. In fact some of the evaluation studies conducted by the - 13 - Annex I Page 5 IDS, Mysore have indicated that there was a lot of congestion in these markets which has been eased by the construction of new market yards. It would also be un-realistic to expect that the reduction in waiting time would be noticed as a corresponding reduction in the haulage costs, which are increasing due to a number of factors like increase in capital costs, fuel costs etc. It is, therefore, very difficult to draw a conclusion from the prevailing haulage costs. In any case the reduction in waiting time would be a gain to the economy as a whole and would be absorbed in the overall freight structure prevailing in the market. There is absolutely no chance of such a saving being visible with specific reference to the haulage costs of agricultural produce brought in the markets. It may not also be correct to say that perishables constitute a very high percentage of arrivals in these markets. The GOK have pointed out that the perishables constitute only 4% of the arrivals in the agricul- tural produce markets. The evaluation studies of IDS, Mysore and sub-project proposals also do not indicate any significant proportion of perishables in these markets. The assumptions about saving in transport time and reduction in storage losses, therefore, appear to be realistic. It has been mentioned in the PPAR as well as in the PCR that the farmers have positively benefited by improvement brought out in the marketing system specially by the auction system introduced by the regulated market committees. It has protected them against arbitrary price reductions and incorrect weighment etc. Obviously this would lead to some incremental production. This has completely been ignored in the calculations of ERR on the ground that the system benefits only the farmers in the vicinity of the new markets. It is true that the quantification of the benefit on this - 14 - Annex I Page 6 account is a very difficult process specially when the production depends upon a large number of variables. In Bihar project, therefore, a simply- fying assumption has been made so that the production will go up by 1%. Some such assumptions may also be made for calculation of ERR in this proj- ect also. The GOK have informed that not only the farmers in the vicinity of the markets are benefited, but, a number of farmers bring their produce from long distances of 60-65 kilometers to take advantage of better marketing facilities. In addition to the increase in production, spurred by better marketing facilities, a number of social benefits like improvement in the bargaining position of farmers also accrue from the project. The PCR and PPAR acknowledges these benefits but it has not been found possible to quantify them for inclusion in the ERR. If the factors mentioned above are taken into consideration the ERR is likely to be much more than 7% computed in the PCR. 4. SUB-PROJECT DESIGN AND APPRAISAL The PCR has highlighted a number of inadequacies in the design and appraisal of sub-projects for individual markets taken up for development under the Karnataka market development project. It has been stated that at the level of State Marketing Department (SMD), PCB and ARC, there was lack of expertise in the field of technical and economic appraisals of the sub- projects. The increase in number of PCBs from 3 to 12 also militated against the creation of expertise in any of the PCBs. Most of the appraisals over- estimated the market arrivals and their future growth and the technical aspects of market yard constructions were not adequately assessed. In fact, there was hardly any economic analysis of the project. - 15 - Annex I Page 7 It is true that initially the SMD did not have the necessary expertise in technical and economic analysis. However, the GOK took steps to remedy the situation when the defects were pointed out to them. As per the advice of the interim appraisal missions, the SMD made up for the lack of an economic expert by taking an Indian consultant. The latter appraisals of the projects have definitely improved in engineering as well as economic aspects. Regarding the expertise at the level of ARC and PCBs, the NABARD have pointed out that ARC did have the expertise to appraise the sub-projects. In fact they organised a workshop to familiarise the SMD and the PCBs with techniques of appraisal. The PCBs are normally appraising a variety of technical projects. In almost every field they have experts who given some reorientation, can adopt to new fields of financing. Such reorienta- tion was provided to them by the workshop organised by the ARC and by constant inter-action with SMD and ARC. The NABARD have also explained that the number of PCBs was decided on the basis of various factors like the number of branches of a particular PCB in the different areas of the State, the enthusiasm of the different PCBs and the views of the GOK. However, as already mentioned, attempt was made by the ARC to ensure that all the PCBs acquire the expertise necessary for the appraisal of the sub-projects. NABARD feel that the increase in the number of PCBs did not affect the appraisal and financing of the sub- projects. Regarding the over-estimation of the market arrivals the NABARD have stated that these estimates were prepared by the ARC officers jointly with the representatives of the PCBs after detailed discussions with the - 16 - Annex I Page 8 concerned functionaries of the State Government and after taking into account such factors as existing pattern of land-holdings, cropping pattern, infra- structural facilities, crop-wise distribution of land, the productivity production of crops for a period of five years, etc. The marketable surplus from out of the actual production was estimated after taking into account the provision for increase in population (2.25% per annum) and standard consumption unit per day assumed at 13 oz comprising 10 oz cereals and 3 oz pulses. Based on these estimates of marketable surplus, the market arrivals were estimated giving due weightage to the specific commodites that were grown extensively in a particular area. The methodology was thus compact and rational. The main reason for low arrivals has probably been the reduction in production due to adverse weather conditions in the State. The ARC did not take up the economic appraisal of the project as its appraisals were confined mainly to the financial appraisal of individual regulated markets. However, economic aspects were discussed by them at the State level meetings with the concerned State Government Departments. They did not take up the technical appraisal as it was left to the engineering cell of the SMD. This was mainly done to avoid delay in the appraisal of the projects by the banks. 5. TIME AND COST OVER-RUNS The PCR have pointed out that the time over-run for the different components of the project ranged from 17 to 32 months. This has resulted in cost over-run to the extent of 42%. The cost over-run has, of course, been partly due to the increase in the number of markets financed under the project. The main bottlenecks were the delay in supply of the construction materials like cement and steel which were scarce supplied at that time. The - 17 - ANNEX I Page 9 suggestion given in the PCR is very appropriate that probably a high level co-ordination committee consisting of all the concerned departments of the State Governments could have facilitated better co-ordination in respect of allocation of building materials and supervision of works. 6. INSTITUTIONAL ARRANGEMENTS It has been pointed out in the PCR that project implementation has definitely suffered due to lack of institutional support. The SMD did not have an adequately staffed engineering cell and an economic research wing to undertake technical and economic analysis of the sub-projects and to supervise construction in the market yards. It is true that initially SMD did not have its own engineering cell. They had to depend on the PWD and TPD for technical examination of projects and supervision of works. It is, however, mentioned in the PCR itself that gradually the SMD built up their own engineering staff and at the end of the project have a strong engineering cell capable of taking care of future market development schemes. PCR has, however, pointed out that the ability of SMD to analyse economic aspects of the project is still weak. During the operation of the project, SMD tried to make good the deficiency by employing an Indian consul- tant. They have also created a research and training wing in their Marketing Board. This wing has conducted a number of studies in the field of economic research and appear capable of taking up the analysis of economic aspects of the projects. What they probably need is some guidance in the new field of the economic analysis of market development projects. As mentioned later in this report, the GOI is trying to pool the experience of the States and expertise of the academic institutions to devise a methodology for economic evaluation of such projects. - 18 - ANNEX I Page 10 The necessary lessons have been drawn from this project and other market development programmes regarding the need for creating necessary administrative infrastructure and technical capability in the institution like SMDs and SMBs responsible for executing such projects. The GOI has been advising the State Governmentr to create such infra- structure and is trying to create a pool of expertise at the national level to provide necessary guidance to the States. The need for having project co-ordination committees at the state level and national level has also been recognized. 7. EVALUATION STUDIES The project agreement (DCA) provided for independent evaluation of 8 randomly selected markets by the Institute of Development Studies (IDS) of the University of Mysore. Pre-investment, interim and post- investment studies of markets were conducted. The PCR has commented that the studies have provided a detailed description of individual markets, but, lack in economic analysis. Since the IDS were studying the individual markets it would be difficult for them to evaluate the economic costs and benefits of the project as a whole. Their studies have pointed out that the marketing practices have improved and the farmers and traders have appreciated the marketing facilities provided in these markets. In the absence of any agreed methodology for conducting the evaluation studies it may be un-realistic to expect that the IDS would have been able to provide the desired analysis. 8. In conclusion the PCR has highlighted the difference of percep- tion between the GOK and IDA concerning the objectives of the project. - 19 - ANNEX I Page 11 it is said that efficiency considerations dominated IDA's desire to execute the project whil, GK's i: ;!=. ;uaa tz usc the project as a vehicle to execute its sLate-wide market yards construction programme in order to adequately control the marketing process and further its objectives concerning fair and equitable trading practices. While the social objectives of improving the lot of the farmer is a very important consideration for the GOK, increasing the marketing efficiency is con- sidered equally important by them. Even in the absence of detailed economic analysis it can be easily perceived that the two objectives are not mutually exclusive. 9. GENERAL OBSERVATIONS (i) In the PPAR as well as the PCR a great deal of emphasis has been laid on the economic analysis of the whole project as well as the sub-projects for individual markets. It has been pointed out that economic analysis becomes all the more important in case of the market development projects because of a great deal of difference in the finan- cial rate of return and the ERR. The PCBs and the SMI)s have acquired a good deal of expertise in the financial analysis of the projects and the sub-projects. This is so because the financial costs and benefits can easily be calculated. However, in case of economic analysis, many of the costs and benefits cannot be easily reduced to monetary values. As we have seen, it is very difficult to quantify the benefits like improving the bargaining position of farmers, provision of market intelligence service, creating market trans- parency etc. Even in case of more tangible benefits like increase in - 20 - ANNEX I Page 12 production, it may be extremely difficult to separately evaluate the effect of improving the marketing system, which is only one of the many variable affecting production. It appears that no suitable methodology has so far been evolved to evaluate all the economic benefits that can flow from an improved marketing system. The question was considered in the second National Workshop on Regulation and Management of Markets held at Jaipur from 2nd to 5th February, 1984 and Third National Workshop on Market Planning held at New Delhi from 11th to 14th February, 1984. Both the Workshops have recommended that a Committee may be constituted to evolve a suitable methodology for evaluating the impact of the regulation and development of agricultural produce markets. When a suitable methodology is evolved, it can be applied for the economic evaluation of the market development. (ii) It is well known that the agricultural development programmes in rural areas do not have an immediate impact. Studies conduct in ICRISAT in Hyderabad have revealed that in rural areas, even the impact of policies like enforcement or removal of movement restrictions on agri- cultural produce has a time-lag of two years. A market development proj- ect may justifiably be expected to have a longer gestation period. It is too early to assess the economic impact of the Karnataka Market Development Project which has been completed only by the end of 1982 or middle of June, 1983. A more realistic picture of project benefits will probably emerge if an economic evaluation is attempted by the end of June, 1985. - 21 - INDIA KARNATAKA MARKETS PROJECT (CR.378-IN) PROJECT COMPLETION REPORT July 8, 1983 South Asia Projects Department Agro-Industries and Credit Division  - 23 - I. ORIGIN, PREPARATION AND APPRAISAL OF THE PROJECT A. Identification and Preparation 1. This project, prepared by Karnataka State Department of Marketing was presented to IDA in March 1972. The project as prepared by SMD aimed at completing a major share of GOKs program of constructing 219 new regulated markets (RMs) to replace activities in traditional markets throughout the State, and included market facilities for 99 RMCs, including shops and godowns. In addition, the project was to include development of livestock markets, construction of rural roads and provision of cold storage and some cooperative marketing facilities. The project was to be completed in 10 years and was estimated to cost US$59 million. GOI's official request for IDA finance was received on April 1972, and the project was appraised by an IDA mission from May 21 to June 16, 1972. B. Appraisal 2. The appraisal team concluded that the project as prepared could not be justified on economic grounds. The mission considered a smaller project of about US$12 M feasible if it concentrated on areas which had the most potential for growth in market arrivals. The project as appraised consisted of the following: (i) credit to RMCs for establishment, expansion and improvement of 30 market yards; (ii) credit to market intermediaries for shops and godowns; and (iii) funds for training of staff and project evalua- tion. The mission recommended against including livestock markets, rural roads, cold storage and cooperative marketing facilities in the project because of their doubtful economic feasibility. The project included some grain drying equipment, although less than proposed by GOK. 3. The main issue which came up during appraisal was the economic viability of the project. The appraisal mission recognized that improvements in the efficiency of the marketing process would constitute the main benefits, and that improved fairness of the marketing process, though expected to be beneficial to the farmer and socially highly desirable, would have no impact on the economic rate of return. Lack of data on project benefits made it necessary to make extensive use of estimates, which during project implementation were to be carefully compared with actual benefits as part of a project financed evaluation study. It was envisaged that the study would also evaluate changes resulting from the project on such factors as farm gate and wholesale market prices, marketing costs and changes in storage and handling costs. 4. The appraisal report provided a list of items to be checked during each sub-project appraisal together with descriptions of "typical" market yard facilities. Selection of markets was to be based on projected growth of - 24 - arrivals, locations relative to other markets and transport, the extent of existing market congestion, and projected debt service capacity of the RMC. It was recognized that selection and appraisal of sub-projects would require substantial additional work and in-depth knowledge of marketing operations in the project area, and that improvement of efficiency of wholesale marketing would largely depend on the quality of the preparation and appraisal of sub-projects. However, minimum norms to be adhered to were not specified as was done in the Bihar project, except that the total number of market yards should not exceed 30; the minimum number of shops for each market was also not specified. 5. Between appraisal and negotiations, IDA was informed that the All-India Congress Committee had approved a resolution to nationalize the wholesale trade of wheat and rice. Although implementation at the State level was likely to take some time, it was expected that the measure would reduce the volume of arrivals at project markets, and have a negative impact on the willingness of market intermediaries to transfer their operations to the new markets. Rice and wheat constitute about 10% of arrivals at the Karnataka wholesale markets. It was, however, decided to proceed with the project despite the expected lower turnover at the markets after GOK indi- cated that it would not, for the time being, implement the policy, and after GOI and GOK officials had stated that no new agricultural marketing or trad- ing policies which might jeopardize the project would be implemented without consultation with IDA. 6. The mission recommended that the RMCs should sell or lease plots of land to market intermediaries, who would then borrow from PCBs to construct their own shops and godowns. Although this recommendation was at variance with arrangement in the Bihar project, where RMCs would own the land and could built shops and lease them out, the mission was convinced that the proposed system was acceptable to the traders, who had not objected to con- structing their own shops during previous market conversions. 7. Project benefits were assumed to be largely dependent upon market arrivals. The main benefit was taken to be the reduction of transport costs of market arrivals as a result of reduced congestion. Other quantified benefits included reduced storage losses due to improved storage practices and the use of heated air dryers. Reduced costs of social overheads were also expected; such benefits were linked to the total population in the market towns. 8. In order to ensure that RMCs under the project would be able to cover their operating costs and debt service, the appraisal mission also recom- mended that the market fee charged by the RMCs be increased from 0.3 to 1.0% of the value of products traded. - 25 - C. Negotiations 9. Credit negotiations were held in Washington from February 12 to 20, 1973. During negotiations, the Indian delegation wanted to enlarge the scope of the project from 30 markets as proposed in the appraisal report to 50. IDA staff, however, maintained that the project scope should not be extended beyond appraisal recommendations, as available data indicated that investment in a larger number of markets would reduce the volume of arrivals of individual markets and would be of doubtful economic viability. Both parties finally agreed that the number of markets would not be specified in the Development Credit Agreement (DCA) so as to permit greater flexibility to GOK in project implementation and that the SAR would not make any reference to individual markets. 10. The draft DCA specified the execution of each refinance agreement between ARC and each PCB to be a Condition of Effectiveness. The Association agreed to drop this requirement as it was felt that the agreements would not be concluded until up to one year following the signing of the Credit. Instead, execution of refinance agreements was made a condition of disburse- ment. 11. The following actions were agreed as Conditions of Effectiveness: (a) the completion of a Subsidiary Credit Agreement satisfactory to IDA between GOI and ARC; and (b) SMD to have obtained the service of at least one engineer, one architect and an economist with experience and qualifications acceptable to IDA. It was agreed that the raising of the market fee to 1% of the value of market arrivals would be a Condition of Board Presentation. 12. The board approved the project on March 27, 1973 and the Development Credit, Project and Karnataka Agreements were signed on May 9, 1973. 13. The project was declared effective on September 7, 1973 after all Conditions of Effectiveness had been met. II. IMPLEMENTATION A. Introduction 14. The project was successful in expanding the physical capacity of the regulated markets. Under the project, 47 markets and 18 sub-markets were set up against an appraisal estimate of 30 markets, while 990 shops and godowns were financed under the project compared to about 500 estimated at appraisal. However, the economic objective of the project, i.e. to improve the efficiency of agricultural marketing, was only partially attained. The - 26 - current estimate of the project's Economic Rate of Return (ERR) is 7% as compared to the appraisal estimate of 15%. This disappointing economic performance could be attributed to the following factors: (i) Project implementation was substantially delayed; most facilities were not physically completed and operations did not start until after the Credit Closing Date. (ii) Market arrivals at many markets, after completion of construction, were less than anticipated at appraisal. One reason was that many traders ini- tially refused to move to the new markets and the number of traders after opening of the markets was less than the optimum number required, par- ticularly at smaller markets. The second factor which reduced market arrivals below those anticipated was the rapid increase of the total number of market yards. Since 1976, GOK received about Rs 37 million in grant funds from GOI for construction of additional wholesale market yards, and developed 40 main markets and 29 sub-markets in addition to the 65 financed under the project. The program continues, aiming at developing GOK's original target of over 200 yards. The proliferation of market yards has reduced arrivals at individual market yards, particularly from outside market yard areas. During appraisal, estimated arrivals at the proposed 30 project market yards amounted to 1.26 million MT, estimated arrivals at 49 operating project markets for the 1982/83 season, totalled 1.12 million MT. The extend of the influence of the nationalization of the trade of wheat and rice on market arrivals is uncertain, but with progressive implementation of the Act some reduction, particularly in rice growing areas, appears likely. (iii) The new markets did not sufficiently improve the efficiency of the marketing process to the extend hoped for. Particularly at the early stage of project implementation, markets were mostly constructed according to traditional designs, while improved efficiency features were only gradually introduced. The negative impact of the above factors on the ERR was somewhat reduced by the estimated higher than anticipated benefits from the shops and godowns, which have been effective in reducing storage losses. B. Summary of Project Performance 15. Sub-project Design and Appraisal. Inadequate design and appraisal of sub-projects have been an important reason for the project's low rate of return. When the project started, SMD had insufficient experience in design- ing market yards or in preparation and implementation of related sub-projects. The appraisal mission placed great emphasis on strengthening of SMD's engineering cell. According to the appraisal report SMD was to receive engineers and architects from PMD and TPD and also appoint an engineer, architect and economist with adequate experience to manage sub-project preparation and design. Although SMD succeeded in attracting a growing number of engineers and architects, they were mainly junior, and had little experience in market yard design: particularly in the early stages of project implementation the number of professional experienced staff was insufficient to handle SMD's workload. The senior engineer and architect engaged by SMD had experience in market design, but had inadequate knowledge of modern and efficient wholesale market design and layout. The Economic - 27 - Adviser engaged by SMD, unfortunately, had no experience in the design and economic analysis of agricultural marketing projects. In addition, SMD tried to secure additional economic assistance for its sub-project preparation activities, but was only partially successful. As a result, SMD's financial cash flow analysis of the proposed market yards during the first years of the project was weak and market designs did not deviate much from established patterns. As many yards were actually designed by RMCs assisted by junior SMD engineers in the field, virtually no technological improvements were initially introduced. More important, SMD's decisions for selection and design of market yards were not based on an economic analysis of costs and benefits. 16. The weaknesses in SMD's market yard designs could have been rectified by detailed and sound appraisal, but PCB staff engaged in appraisal knew little if anything more about the technical aspects of market design and relied heavily on the analysis and designs prepared by SMD 1/. The SAR assumed that three PCBs would handle all sub-project financing. During the start-up of the project however, GOK and ARC decided to use 12 banks, each financing between one and seven yards. This arrangement effectively prevented PCB staff from acquiring detailed knowledge and experience in market yard financing 2/. IDA raised no objections to the proposed increase of the number of PCBs, in part because ARC was to assist each PCB in apprais- ing its first market sub-project. In addition, ARC conducted workshops dealing with sub-project appraisal and assisted PCBs in improving sub-project appraisal standards. However, these efforts were insufficient to adequately improve the quality of appraisals of sub-projects. ARC's appraisal of individual market yards appears to have been inadequate in three areas: (i) appraisals overestimated the level of market arrivals and their future growth, (ii) most early appraisals inadequately assessed the technical aspects of market yard construction; and (iii) appraisals confined themselves to cash flow analysis, and paid no attention to economic aspects. In addi- tion, appraisals were limited to individual regulated markets, and did not take into account that they were part of a State wide program of market development, in which development of markets influenced the level and growth of market arrivals at other markets. 1/ The Government in its comments states that steps to remedy the situation were taken. Following a Bank recommendation an Indian consultant was employed to make up for the lack of economic expertise. His appraisals of projects have definitely improved engineering as well as economic aspects. 2/ The Government stresses the fact that the number of PCBs depended on their enthusiasm to participate, their number of branches and the GOK's views. - 28 - 17. The deficiencies in the sub-project preparation and appraisal process were recognized early during project implementation. IDA action particularly focussed on improving technical designs. No attempt was made to have ARC review the economic merits of sub-projects 1/. Instead, IDA repeatedly urged SMD to strengthen its ability to conduct economic analysis. The first IDA supervision mission of March 1974 reported inadequate economic analysis of sub-projects by SMD, overly optimistic estimates of future market arrivals, and the lack of interest by most PCBs, except one, to develop expertise in market yard financing. The second IDA mission, almost one year later, reported little progress in SMD's performance and suggested that a consultant be hired to provide the specialist technical and economic knowledge necessary to improve SMD's preparation and design capabilities. However, no action was taken by SMD. The third mission, in June 1976, reported that 31 markets had been appraised by PCB's of which ARC had sanctioned 22. Market yard con- struction had started at 11 markets. The mission reported no progress on sub-project preparation and appraisal quality and proposed that all markets for which tenders had not been let should be re-appraised, so that: (i) seasonal requirements of market arrivals could be more carefully estimated; (ii) market site conditions could be ascertained; and (iii) special require- ments of important commodities to be marketed could be incorporated. GOK objected strongly to re-appraisal of all markets, pointing to the substantial project implementation delays which had already occurred by then, but finally agreed that 11 markets would be re-appraised and appointed an Indian consult- ant to assist them. The consultant, a marketing specialist from the State Bank of India (SBI) in Bihar, had gained wide experience in appraisal of markets under the Bihar project, where all markets were appraised and financed by SBI. SMD again objected to the suggestion of the next IDA mis- sion of March 1978 to have the consultant re-appraise the 25 markets which by then had been appraised and were under construction. IDA then recommended SMD to review ongoing construction in conjunction with a team of experts engaged by IDA. Agreement was to be reached in the field on what possible changes could be made to maximize the potential for achieving the efficiency objectives envisaged under the project. Markets were reviewed later that year, and subsequent missions reported that designs had improved, par- ticularly of those which had been reviewed by the consultant and had been appraised after 1977. However, the appraisals still lacked an economic 1/ Government comments point out that ARC did have expertise to appraise sub-projects. In fact they organized a workshop to familiarize the SMD and the PCBs with techniques of appraisal. - 29 - analysis, many market yard arrival estimates remained unrealistic 1/ and, as a result, uneconomic markets were not screened out in the appraisal process. In addition, marketing efficiency improvements were less than could have been achieved had markets been properly designed in the first place. 18. Movement of Traders to the New Markets and Construction of Shops and Godowns. The reluctance of traders and other market intermediaries to transfer their operations from the old to the new markets posed difficulties. A related issue concerns whether sufficient shops and godowns were constructed to ensure efficient use of the markets. 19. When GOK decided to increase the number of RMCs to be financed under the project from 30 to 47 (which included financing for 18 sub-markets) it assumed that the number of shops financed would increase proportionally from about 500 to 990. As PCBs initially proved reluctant to increase total financing for shops, IDA recommended that PCBs should provide finance to about 50% of the market intermediaries who had bought or leased sites in the new market yards, so that a reasonable number of shops would be financed in each market. 20. In 1976, it became apparent that many traders were reluctant to invest in the new shops. IDA cash flow estimates at that time indicated that benefits to market intermediaries for closing his existing shop and moving to the new markets would be negligible in many cases and that high volumes of business in the new location would be required to break even. In 1976, only Rs 1.2 M out of Rs 27.8 sanctioned had been disbursed for shops. To attract more traders to the market, GOI and GOK proposed in 1977, that the Develop- ment Credit Agreement (DCA) be amended to reduce the minimum down payment for PCB financed shops from 25% to 10% of the investment costs. RMCs were to provide a loan of 15% to the intermediaries to make up the difference. In addition, RMCs were to be allowed to construct shops and godowns themselves, to be leased or hire purchased to traders. In 1980, SMD reduced the rent of the shops it leased from 12% per year of the capital cost of the building to 7% to attract more traders. 21. The new arrangements proved successful. As of July 1977, SMD had sanctioned 891 shops and godowns in 36 markets, of which about 425 were to be built by RMCs, 250 financed with a PCB loan as provided for in the amended 1/ The GOI states that estimates of market arrivals were prepared by the ARC officers jointly with the representatives of the PCBs after detailed discussions with government officials and after taking into account existing patterns of land-holdings, cropping pattern, infrastructure, crop acreages, productivity, etc. for a 5-year period. - 30 - DCA, while the remaining shops were expected to be financed by the traders themselves. However, as of 1981 only 639 shops had been completed, partly because some RMCs experienced financial difficulties. With the introduction of the 2% market fee (para 31), those financial problems were quickly solved and early in 1983, 967 project financed shops were operating or an average of 15 shops per market. Estimates of actual demand for shops vary for each market. In some markets, in particular livestock markets, virtually no shops were constructed, while at 20 other markets an average of 44 shops were constructed funded by other sources. 1/ Five of these markets actually constructed about 100 shops each in addition to project financed shops. Early 1983, a total of 1,879 shops were operating in project markets or an average of 32 per market. V 22. Several factors influenced the initial unwillingness of traders to move: uncertainty about the time required for the new markets to become effective, the high costs of moving to the new location, and most likely, their unwillingness to accept the high level of RMC control over their trad- ing operations, including collection of market fees and taxes. Initially, the reluctance of the traders to move was clearly underestimated, and insuf- ficient incentives were provided to induce traders to invest in new facilities. Later, when the DCA was amended, the response was better. However, the number of shops constructed, particularly in many smaller markets, was still well below what would have been desirable and negatively influenced initial market arrivals at newly opened markets. However, once markets operated satisfactorily, traders became eager to hire purchase addi- tional shops and in the last year of project implementation the number of shops increased substantially, particularly at larger yards. 23. Number of Markets Financed Under the Project. The total number of yards to be financed under the project was not specified in the appraisal report, to allow GOK to implement it as a line of credit type project, so that if actual costs were to differ substantially from appraisal estimates, more or fewer markets would be financed. During start-up of the project, GOK and ARC decided to expand the number of RMCs to be financed from about 30 to 47; a first phase of 25 RMCs, most of which would be improvement and develop- ment of new exisiting markets which had already been established prior to Credit Effectiveness, and second and third phases of about 11 RMCs which would involve entirely new markets. It was agreed that: (i) many of the markets in the first phase already had some basic facilities, and would require minimal additional investment, and (ii) RMCs would be able to finance a substantial larger share of the market yard costs made possible by the 1/ Mostly financed by traders themselves, RMCs and banks outside the project. 2/ Not including livestock markets. - 31 - increase in market fees from 0.3% to 1% of sales. Subsequently, larger markets particularly were accumulating substantial surpluses. It was expected that a larger number of markets could be financed despite heavy inflation in construction costs (18% in 1974/75 and 1975/76). In all 47 RMC sub-projects were financed, comprising 47 main markets and 18 sub-markets. At the Credit Closing Date (June 30, 1981), 30 main markets and four sub-markets were completed. As of April 1983, 61 markets had been completed, while trade had shifted to 56 markets. 24. The increase in the number of markets did create financing problems, particularly for the smaller RMCs. When in 1977 it was agreed that RMCs would be allowed to construct shops and godowns to be leased out, it was estimated that only 10 RMCs would be able to provide the 25% down payment for market infrastructure and shops and godowns from their own surpluses; 4 would be able to provide a down payment if the contribution toward market infrastructure costs were reduced to 5%, while the rest had no financial surplus at all. Some RMCs had spent substantial sums on non essential market infrastructure, thereby reducing their financial resources. In 1978, SMD approved supplemental loans to 30 RMCs of which the proceeds were tied to completion of works. In addition, funds from stronger RMCs were loaned to weaker RMCs. Nevertheless, many RMCs remained short of funds and could not afford to substantially expand financing of the number of shops or godowns. This changed in 1982, when SMD was permitted by GOK to increase RMC market fees from 1% to 2% of the value of market arrivals. Since then, most RMC have generated surpluses. The financial position of RMCs improved so dramatically that many accellerated repayment of their financial obligations to the banks and were able to expand financial provisions for shops. Although IDA expressed concern about the significant increase of the number of markets and the financial implications for RMCs, it made no attempt to limit the total number. IDA agreement during negotiations to be flexible on the number of markets to be constructed made it virtually impossible to impose such limitation at a later stage. 25. Delays in Construction. The construction period for each market envisaged in the appraisal report was optimistic. Average actual construc- tion time of the yards is unknown, but estimates are available for individual components of markets. The average time overrun for infrastructure works was 23 months and 17 months for shops and godowns. Miscellaneous works took up to 32 months more than planned. 26. Several factors were responsible for the slow progress in construc- tion. Acquisition of construction materials, particularly cement and steel, created delays. As a result of the delay in the supply of construction materials, construction costs rose significantly, and this forced some con- tractors to cancel work and taken legal action against SMD. Cement and steel shortages affected construction progress at various degrees, but particularly the later stages of project implementation. As these shortages were known to be prevalent in India, careful planning could have avoided some delays. - 32 - However, SMD had difficulty managing the large number of relatively small and dispersed works, and appeared unable to stockpile cement or steel to any significant degree. Allocation amounts were usually too low and only in 1980 was the project allotted its final cement quota of 15,000 tons. 27. Land litigation did not much affect construction progress as most markets with land acquisition problems were disqualified for financing. 28. SMD's management performance concerning execution of the works also contributed to initial delays. Not only were plans for infrastructural works frequently revised (partly as a result of inadequate preparation and sub- sequent re-appraisal), but the internal approval process for individual sub-projects was lengthy and cumbersome, and supervision of implementation by SMD staff, particularly in the early years of implementation, appears to have been inadequate. There was no provision for a Project Coordinating Committee (PCC), which could have facilitated better coordination of the allocation of building materials and supervision of works. 29. Evaluation Study. The evaluation study to be carried out under the project was entrusted to the Institute of Development Studies (IDS) of the University of Mysore. The study was completed in February 1983. It com- prised separate pre-investment, interim and post-investment studies of eight randomly selected markets. The studies provide a detailed description of agriculture and marketing practices at individual markets, but lack analysis of economic costs and benefits of the yards in terms of transport cost savings, reduced storage losses and incremental market operating costs 1/. They also fail to adequately analyse the basic questions of the State markets development program i.e.: (i) what is the optimium size of the State wide program in terms of cost effectiveness and control over the marketing process; and (ii) what is the impact of increasing control of RMCs and increasing market fees on marketing practices, trader margins and producer and consumer prices. IDA did comment on the pre and interim investment studies, urging GOK to concentrate on the above issues. The post-investment study was completed after Credit Completion, and copies of the final reports were not made available to IDA until April 1983, well after GOK's project completion report had been finalized and submitted to IDA. In retrospect, it might have been unrealistic to assume that IDS could have addressed the basic issues of the project and the sector on the basis of a sample of eight yards. On the other hand, the virtual absence of a discussion concerning these 1/ The GOI comments that because IDS was studying individual markets it would be difficult for it to evaluate the economic costs and benefits of the project as a whole. In the absence of any agreed methodology for conducting the evaluation studies it would have been unrealistic to expect IDS to provide the desired analysis. - 33 - issues might point to an inherent difficulty of IDS questioning long standing and politically sensitive GOK policies. 30. Costs and Disbursement. The final cost estimate for the project is US$16.lM (Rs 128 M) a 42% cost increase over the US$11.9 M (Rs 95 M) estimated at appraisal. The cost increase is mainly due to the substantial expansion of the project to 65 markets and 990 shops and godowns. Due to the expansion in project scope and significant variation in the amount of work carried out in each market, it is difficult to calculate the exact amount of cost overruns or to ascertain proportionally how the increase can be attributed to different contributing factors. A savings of Rs 20 M would have been realized if the project had been limited to 30 markets as initially appraised. The cost increases have been financed as follows: RMCs Rs 43.5 M Market Intermediaries 1/ (Rs 12.2 M) NABARD Rs 0.4 M PCB Rs 2.3 M GOK (Rs 0.2 M) Rs 33.8 M 31. For the construction of the 65 markets, ARC anticipated and sanc- tioned Rs 115 M, the final project cost estimate shows total project costs of Rs 128 M, or an increase of 11%. Cost escalation was particularly severe in construction costs for water supply and internal roads which increased 35% and 45%, respectively compared with ARC sanctions. 32. Implementation delays substantially reduced disbursement in the early years of the project. There were no problems with the arrangements for processing of the disbursement claims. The project was fully disbursed on July 31, 1981, two years after the date estimated at appraisal. III. INSTITUTIONAL ASPECTS 33. Institutional Design. Project implementation depended on action that had to be taken by several organizations: SMD, ARC, PCBs, RMCs, PWD, TPD, and the market intermediaries. The actual role of some of these organiza- tions differed from that assumed during appraisal. When the project started, SMD decided to build up its own engineering and design capabilities instead of relying on assistance from staff from PWD and TPD. It established its own 1/ Since RMCs constructed most shops, the market intermediaries contribution dropped compared to appraisal estimates. - 34 - engineering cell, not illogical in view of the sometimes difficult inter- agency coordination in India. However, in its eagerness to expand its staff, it concentrated recruitment on young engineers inexperienced in design of agricultural markets, also because relatively few senior economists and engineers in India have experience in market design and analysis. SMD started to develop its engineering cell in 1973, hiring engineers on deputa- tion from PWD. However, the substantial increase in the number of sub-projects to be prepared, and, later, the number of revisions to be made, put a constant pressure on SMD staff and forced SMD to continue expanding the engineering cell; in 1976, SMD tripled its engineering staff. During the later years, demands for coordination and supervision increased while SMD started design of non-project financed markets. At no time during early project implementation did SMD have fully adequate engineering support staff available and this has had a negative effect on project implementation. When in 1977 SMD finally hired an external consultant to assist in project design, following repeated requests from IDA, 25 markets were already appraised, and improvements in sub-project design were largely limited to subsequent markets. With his help, SMD developed at the end of the project implementa- tion period an adequately experienced engineering cell, able to handle SMDs future market construction program. However, SMDs' ability to analyse the economic aspects of market yard development remained weak 1/. 34. The appraisal process of PCBs and ARC might have been of a higher quality if IDA had insisted on using only three PCBs, as agreed during appraisal. The role of the PCBs could have been further strengthened if IDA had stipulated that they receive adequate technical assistance to create experienced appraisal teams. In addition, IDA, after having agreed to implementation of the project as a line of credit, and considering its con- cern about the economic impact of the project should have insisted that ARC develop a capability to review the economic viability of the sub-projects, and develop practical standards to evaluate sub-project proposals. 35. Project Coordination. Coordination of the project largely rested with SMD. Particularly during construction, a PCC could have assisted in coordination of works and monitoring of project progress. 36. Staff Training. SMD gave high priority to training of market secretaries and other staff. Staff training far exceeded appraisal estimates. SMD set up two special staff training institutes, in which a total of 384 people received training, more than three times appraisal 1/ The GOI thinks that to strengthen economic evaluation some guidance in the field of economic analysis of market development projects is needed. Efforts are underway to pool the experience of the States and expertise of the academic institutions to devise a methodology for economic evalua- tion of such projects. - 35 - estimates. SMD also provided training to RMC accountants in double entry accounting, which was successfully introduced by RMCs in 1978. Although the quality of staff training might have been less than desirable during the first years of the project because some lecturers had limited experience in modern market yard management techniques, quality improved gradually. IV. ECONOMIC EVALUATION 37. At appraisal, the estimated economic rate of return (ERR) for the entire project was about 15%. The main benefit was to accrue from savings in transportation costs since the turn around time required of trucks and bul- lock carts was estimated to be less than what it would be without the project (i.e. at traditional markets). The net benefits were assumed to be equiv- alent to one hour per truckload, and one half day per cartload. Other expected benefits included savings in storage losses (3% of goods stored in longer terms storage), and improved grain prices as a result of heated air dryers (a 10% increase after drying). In addition, it was assumed that the costs of social overhead (security, road repairs, sanitation) would drop 1% for an equal volume of marketed produce. 38. Because the evaluation studies did not provide adequate data on project benefits, some assumptions had to be made in the economic analysis prepared for this report concerning project costs and benefits which differ from those made at appraisal 1/. Slightly higher savings have been assumed for grain storage losses, viz., the assumed percentage of agriculture produce stored for longer periods has been increased from 40 to 60%. This higher percentage is based on current SMD experience, and reflects the extensive use traders make of shops and godowns for long term storage. During appraisal, it was assumed that the operating costs of RMCs would not increase; in prac- tice, operating costs increased by an average of 20% and these incremental costs have been included in the ERR calculation. Benefits from heated air dryers and reductions in social overhead costs have been ignored since heated air dryers are not being used, and no evidence exists that social overhead costs have been reduced. No changes have been made in the assumptions con- cerning savings in transporation costs; no data or other evidence is avail- able to challenge the assumptions. Savings in transportation costs are apparent at the large markets; at smaller markets some savings might not have 1/ The GOI states in its comments that even in case of more tangible benefits like increase in production, it may be extremely difficult to separately evaluate the effect of improving the marketing system, which is only one of the many variables affecting production. In their view no suitable methodology has so far evolved to evaluate all economic benefits that can flow from an improved marketing system. Due to the long gesta- tion period of marketing projects a more realistic picture of project benefits will probably emerge in later years. - 36 - been realized, however. Furthermore, no benefits have been claimed with respect to livestock markets; no data are available to substantiate quantifi- able benefits for these markets. 39. The recomputed project economic rate of return is about 7%. The reduction in the ERR from the one estimated at appraisal is mainly due to: (i) lower market arrivals; (ii) slow implementation resulting in delays in benefits; and (iii) the higher operating costs of RMC's. The reduced benefits have been compensated for in part by higher savings in storage losses than were assumed during appraisal. The following tests were per- formed to determine the projects' sensitivity to changes in basic assump- tions. Assumptions ERR% Base 7.2 Savings in grain storage losses 5% 9.7 Savings in grain storage losses 1% 4.3 Transport savings 10% less 6.4 Transport savings 30% less 4.5 All benefits decreased by 20% 4.5 Given the sensitivity of the project to changes in the assumptions with respect to transport cost savings and the uncertainty with respect to these savings at smaller markets, the ERR might well be slightly lower than 7%. V. IDA PERFORMANCE 40. IDA's performance was largely satisfactory despite the problems the project encountered. All concerned in India emphasize that implementation delays largely occurred prior to IDA insistence on re-appraisal of some of the markets, and that the design improvements introduced by the consultants and the assistance provided by visiting IDA missions had been highly benefi- cial, and instrumental in upgrading the quality of the engineering units of SMD. 41. In retrospect, it appears that IDA missions should have visited the project more frequently during the initial four years of the project. Bank supervision missions were widely spaced until 1977. The first supervision mission visit was almost one year after Credit signing and seven months after Credit Effectiveness. For four years supervision missions were limited to one a year, and the second and third mission were 16 months apart, by which time the project was well behind schedule, and the weaknesses in appraisal of sub-projects had become apparent. Staff continuity was achieved only after the third supervision mission in 1976. Supervision timing and lack of con- tinuity in the earlier stages were affected by the reorganization of the Asia Regional office in 1974. More frequent supervision might have assisted ARC - 37 - in strengthening its economic analysis of sub-projects, and might have alerted IDA at an earlier stage of the necessity to strengthen appraisal procedures, and reduced the need for re-appraisals. IDA was ultimately successful in its efforts to have SMD improve technical market designs, but too late to have SMD improve all project markets or the quality of its economic analysis. 42. IDA's acquiescence during negotiations to GOK implementing the project as a line of credit showed IDA's flexibility, but because during implementation effective economic appraisal was lacking it resulted in financing of some markets with a low rate of return. With hindsight, it seems that IDA should have made economic appraisal by ARC mandatory, and provide ARC with technical assistance to develop suitable methods for economic appraisal of markets. A more favorable ERR might have resulted if, in addition, the project had been more frequently supervised during start-up, which might have improved work planning and reduced construction delays, while incentives for traders to relocate might have been adjusted earlier. 43. IDA generally responded quickly to GOI requests as is evidenced by IDA's approval of the amendment of the Development Credit Agreement which made it possible for RMCs to construct shops and godowns which could be obtained by market intermediaries through an hire - purchase arrangement. IDA approved the amendment August 1, 1977 following GOI's official request dated July 20, 1981, which arrived in Washington on July 25. The amendment had been discussed between GOI, GOK and IDA in India on July 13. VI. CONCLUSIONS 44. The objectives of the project were to achieve efficiency improvements in the marketing process by introducing new and expanding the capacity of existing market yards and to assure fair trading practices. The project has been successful in establishing and expanding new market yards well beyond the number assumed during appraisal. Although the total number of shops and godowns financed under the project might have been less than desirable, the Credit succeeded in financing almost double the amount of shops envisaged at appraisal, thereby adding almost 64,500 tons of privately owned storage capacity. The project has also been instrumental in creating a strong engineering department in SMD, able to adequately handle the design of future market yard development programs. 45. The project's unsatisfactory ERR was caused by several factors; most directly by inadequate economic analysis of sub-projects, delays in construc- tion and higher operating costs. More fundamental, however, appears the difference of perception between GOK and IDA concerning the objectives of the project. Efficiency considerations dominated IDA's desire to execute the project, while GOK's main aim was to use the project as a vehicle to execute its State-wide market yards construction program, in order to adequately - 38 - control the marketing process and to further its social objectives concerning fair and equitable trading practices. Although important, GOK's efficiency considerations were clearly secondary to these social equity objectives. Unfortunately, the project evaluation study fails to analyse whether the two above positions are compatible or mutually exclusive i.e., whether a project alternative would have been feasible which would provide an adequate ERR while retaining the social benefits perceived under the present solution. 46. Project planning and implementation were not without problems. Several aspects could perhaps have been approached in a more timely or realistic manner, thereby eliminating some of the problems. Regular and timely supervision might have avoided excessive delays during the early stages of the project. Particularly, timely intervention by IDA to ensure adequate economic appraisal of sub-projects and satisfactory evaluation of the projects' impact on marketing of agricultural commodities might have avoided investment in uneconomic markets and provided GOK with a framework for future development of its market yards program. Clearer and stricter guidelines for appraisal of sub-projects might have avoided some investment in uneconomical components or increased investment in components which were beneficial, like shops and godowns. Shortages of cement and steel, and inadequate construction supervision contributed to market yard construction delays. Since these shortages of materials have been prevalent in India, careful planning, perhaps through a PCC, might have helped resolve some of the procurement problems, and facilitated better coordination of construction supervision. 47. The main lesson learned from this project is: GOK and IDA had dif- ferent ranking in priority goals and since economic evaluation of projects is not normally carried out in line of credit projects, introduction of such evaluation (because of substantial differences between the financial and economic analysis) would have required more careful preparation and close attention in the project preparation and appraisal process. In this project, if suitable appraisal procedures had been specified in advance, the project might have been completed more promptly, and some of the uneconomic invest- ments might not have been made. ANNEX 1 Table 1 - 39 - INDIA KARNATAKA AGRICULTURAL MARKETS PROJECT PROJECT COMPLETION REPORT Project Costs Appraisal Estimates Revised Estimates Item (Rs Millions) ( Million) (Rs Million) $ Million) Infrastructure 32.70 4.09 64.89 8.11 Shop-cum-Godown 37.40 4.68 62.94 7.87 Training and Evaluation 0.60 .08 0.60 0.08 Contingencies - Physical 4.60 .57 - Price 19.54 2.44 - - Total Project Cost-" 94.84 11.86 128.43 16.06 1/ Estimated project cost increase are due to both the expansion in the scope of project from 30 to 65 (47 main markets and 18 sub-markets) and also to cost escalation. ANNEX 1 Table 2 - 40 - INDIA KARNATAKA AGRICULTURAL NHOLESALE MARKET PROJECT PROJECT COMPLETION REPORT Infrastructure and Shop-cum-Godown Coate (Ra Million) Markets Infrastructure ihop-Cum-Godown Total Sanction Cost Sanction Cost Sanction Cost Actual by NABARD Overrun Actual by NABARD Overrun Actual by NABARD Overriin 1. Ballahongal 1.08 1.15 (0.07) 1.27 1.27 0.00 2.36 2.43 (0.O/) 2. Bangalore 2.81 2.62 0.19 7.10 6.95 0.15 9.91 9.57 0.3. 3. Belguam 3.51 3.13 0.38 1.51 1.42 0.10 5.02 4.55 0.4* 4. Bellary 0.86 0.86 0.00 2.27 2.27 0.00 3.13 3.13 0.01 5. Bidar 1.39 1.20 0.20 0.47 0.50 (.03) 1.86 1.70 0.16 6. Byadgi 1.31 1.14 0.17 0.51 0.45 0.06 1.83 1.60 0.23 7. Challakere 1.14 0.99 0.15 0.35 0.27 0.08 1.49 1.27 0.22 8. Channarayapatna 0.43 0.41 0.02 0.54 0.54 0.00 0.97 0.95 0.02 9. Chintamani 0.68 0.64 0.05 1.03 1.03 0.00 1.72 1.67 0.05 10. Dharwad 0.91 0.88 0.03 0.52 0.60 (.08) 1.43 1.48 (0.06) 11. Cadag 3.25 2.94 0.31 2.92 3.08 (0.15) 6.17 6.02 0.16 12. Gangavathl 1.40 1.22 0.19 0.46 0.49 (0.03) 1.86 1.70 0.16 13. Karatagt (SM) 0.32 0.30 0.02 - - - 0.32 0.30 0.02 14. Cokak 2.05 2.14 (0.10) 1.32 1.25 0.07 3.37 3.39 (0.03) 15. Mudalgi (SM) 0.62 0.53 0.10 1.42 1.35 0.08 2.05 1.88 0.17 16. Culbarga (MM) 2.62 2.01 0.61 2.69 2.64 0.05 5.31 4.65 0.66 17. Gulbarga (LM) 0.57 0.57 0.00 - - - 0.57 0.57 0.00 18. Hassan 0.53 0.60 (0.07) 1.11 1.13 (0.03) 1.63 1.73 (0.10) 19. Haveri (MM) 0.89 0.74 0.14 0.68 0.74 (0.06) 1.57 1.49 0.08 20. Haveri (LK) 0.39 0.33 0.06 - - - 0.39 0.33 0.06 21. Gutal (LSM) 0.27 0.20 0.07 - - - 0.27 0.20 0.07 22. Houpet 0.83 0.72 0.12 1.31 1.12 0.19 2.14 1.83 0.31 23. Kampli (SM) 0.50 0.50 0.00 - - - 0.50 0.50 0.00 24. Kollegal 1.36 1.17 0.19 0.49 0.48 0.01 1.84 1.65 .20 25. Madhugiri 1.02 1.09 (0.06) 1.40 1.36 0.05 2.43 2.44 (0.01) 26. Mysore 1.76 1.73 0.02 1.95 1.76 0.19 3.71 3.49 0.22 27. Sager 1.36 1.04 0.32 3.36 2.53 0.82 4.72 3.58 1.14 28. Sankeuhwar 0.48 0.40 0.08 0.04 0.04 0.00 0.52 0.44 0.08 29. Sankeshwar (LM) 0.24 0.22 0.02 - - - 0.24 0.22 0.02 30. Hukerl (LSM) 0.09 0.08 0.01 - - - 0.09 0.08 0.01 31. Soundattie 1.12 1.09 0.03 0.86 1.04 (0.18) 1.97 2.13 (0.15) 32. Shimaga 2.68 2.23 0.45 4.16 3.97 0.19 6.84 6.21 0.63 33. Sirei 0.95 0.72 0.23 1.97 1.96 0.01 2.92 2.68 0.23 34. Mundagod (SM) 0.45 0.43 0.02 - - - 0.45 0.43 0.02 35. Annigeri 0.60 0.56 0.04 0.19 0.21 (0.02) 0.79 0.77 0.02 36. Jamkhandi (MM) 1.06 0.51 0.55 - - - 1.06 0.51 0.55 37. Jamkhandi (LM) 0.29 0.20 0.08 - - - 0.29 0.20 0.08 38. Mahalingapur (SM) 0.75 0.60 0.15 0.58 0.58 0.00 1.33 1.17 0.15 39. Mudhol (SM) 0.34 0.34 0.00 0.31 0.30 0.01 0.65 0.64 0.01 40. Koppel 1.18 1.03 0.14 0.86 0.86 0.00 2.03 1.89 0.14 41. Kunigal 0.80 0.81 (0.01) 0.64 0.61 0.03 1.44 1.42 0.02 42. Mangalore/Coondapur 1.70 1.48 0.22 1.28 1.17 0.10 2.97 2.66 0.32 43. Pattur 1.33 1.18 0.16 1.38 1.27 0.11 2.72 2.44 0.27 44. idAipI 2.00 1.77 0.79 I.qA 1.Rl 0.16 1.9q L.4 0.45 45. Mulbagal 1.11 0.84 0.26 0.69 0.60 0.08 1.79 1.44 0.35 46. Ramdurge 1.14 0.74 0.40 0.26 0.24 0.02 1.40 0.98 0.42 47. Katkol (SM) - - - 0.40 0.26 0.13 0.40 0.26 0.13 48. Sindhnoor 2.21 1.29 0.91 0.51 0.46 0.05 2.72 1.75 0.96 49. Siriguppa 0.84 0.70 0.14 0.98 0.90 0.08 1.82 1.60 0.22 50. Tarikere 0.84 0.70 0.14 0.38 0.36 0.02 1.22 1.05 0.17 51. Yadgiri 2.45 1.78 0.66 1.66 1.10 0.56 4.11 2.89 1.22 52. Hubli/Khalghatgi (SM) 1.10 0.89 0.21 0.55 0.52 0.03 1.65 1.41 0.24 53. Mandya/Khadabhalli (SM) 1.18 0.99 0.19 0.40 0.30 0.10 1.58 1.29 0.29 54. Kiruvagal (LSM) 0.53 0.34 1.92 - - - 0.53 0.34 0.19 55. K.R. Pet (SM) 0.40 0.30 0.10 0.40 0.30 0.10 0.80 0.60 0.20 56. Tumkur/Akkirapura (SM) 0.46 0.51 (0.05) - - - 0.46 0.51 (0.05) 57. Athani (MM) 0.12 0.10 0.02 - - - 0.12 0.10 0.02 58. Kagawad (SM) 0.34 0.33 0.02 - - - 0.34 0.33 0.02 59. Chickballapur 0.68 0.65 0.03 1.43 1.43 0.00 2.11 2.08 0.03 60. H.B. Hallie 0.20 0.20 0.00 1.40 1.10 0.28 1.57 1.30 0.27 61. Holenarasipur 0.31 0.31 0.00 0.48 0.48 0.00 0.78 0.78 0.00 62. Kadur 0.26 0.23 0.02 1.30 1.14 0.15 1.56 1.38 0.18 63. Manvi 0.24 0.22 0.02 1.38 1.10 0.28 1.62 1.32 0.30 64. Nargund 0.58 0.54 0.04 0.70 0.70 0.00 1.28 1.24 0.04 65. Shahapur - 1.11 1.10 0.01 1.11 1.10 0.01 64.89 56.10 8.79 62.94 59.16 3.77 127.83 115.26 12.57 Percent Cost Overrun 15.68% 6.38 10.91 1/ Figures do not add up due to rounding. 2/ Almost all markete construction programs have been generally completed, in six markets however some small works are still under execution, expenditures on these unfinished works have been estimated at Re 306,000 and at Re 350,000 for infrastructure and shop-cum-godowns respectively. These estimated expenditures have been added to the actual cost figures. Source: Karnataka State Marketing Department. -41 - ANNEX 2 INDIA KARNATAKA AGRICULTURAL MARKET PROJECT Economic Reevaluation Introduction 1. The economic reevaluation has been calculated in 1982 constant Rupees. No changes have been made except as detailed below. Investment cost have been based on the actual costs of construction of infrastructural facilities at 65 main-and sub-markets and 70% of construction cost of 1,879 shop-cum-godowns of which 990 have been financed by IDA. Arrival of notified commodities in Karnataka markets increased from 70 million MT in 1971/72 to 150 million MT in 1981/82. It has been assumed that 30% of the storage capacity would have been constructed in the 'without' project situation, but without the improved design features introduced by the project, storage losses would not improve. Savings in storage losses are therefore based on the total amount of storage constructed in project markets. Market Arrivals 2. In the SAR, market arrivals had been estimated to grow by 4.5% per year for the first five years, 3% during the next five and 1.5% thereafter. In view of the substantial increase in the number of markets developed out- side the project in Karnataka, a modest 2% annual growth of market arrivals has been assumed. Reduced Storage Losses 3. Most market intermediaries (MIs) experience storage shortages and have to store their goods in sub-standard rented or owned facilities in the old markets. To minimize storage losses, MIs use new shop-cum-godowns at full capacity for longer storage purposes. It has been assumed that 60% of the shop-cum-godowns capacity would be used for long-term storage, compared to 40% assumed during appraisal. Reduced Cost of Social Overhead and Reduced Losses Through Use of Heated Air Dryers 4. These two benefits have been ignored. Some sun-drying is practiced in the new markets but no heated air dryers are effectively operating. There is no evidence that the project has reduced social overhead costs. ANNEX 2 - 42 - INDIA KARNATAKA AGRICULTURAL MARKET PROJECT COMPLETION REPORT Capacity of Shop-cum-Godown of Each Market and Actual Market Throughput in 1982 Value of Shop-Cum-Codown Price Ag. Com. Market Number Capacity (n) Total Ca f Product Saved Per Mr Saved Thrug h ut Market 2/ Under7IDA Other Under IDA Othur M76 RT Per Year (MT) r0 ) ( M 1. Bailahongal T 2 1,15-0 2,650 3.8 68.40 3,300 226 14.6 2. Bangalore 51 97 4,900 9, '00 14.6 262.80 1,400 368 322.8 3. Belgaum 27 125 1,350 12,500 13.9 249.30 1,300 324 66.5 4. Bellary 33 100 2,475 2,000 4.5 80.55 2,400 193 29.1 5. Bider 5 71 250 7,100 7.9 132.30 2,600 344 24.5 6. Byadgi 8 49 400 4,900 5.3 95.40 3,500 334 15.0 7. Challakere 4 50 200 2,500 2.7 48.60 2,900 141 46.0 8. Channarayapatra 17 - 340 - 0.3 6.12 1,700 10 10.3 9. Chintamani 29 4 720 160 0.9 5.84 2,650 42 6.0 10. Dharwad 13 47 700 2,350 3.0 54.90 2,370 130 27.0 11. Gadag 28 51 2,400 5,100 7.5 135.00 2,400 324 59.7 12. Gangavathi 7 98 350 4,900 5.3 94.50 1,800 170 62.2 13. Karatagi (SM) - - - - - - - - - 14. Gokak 25 - 2,500 - 2.5 45.00 3,150 142 20.1 15. Madalgi (SM) 26 - 2,700 - 2.7 48.60 3,150 153 - 16. Gulbarga (MM) 25 100 3,750 10,000 13.8 247.50 3,050 755 33.0 17. Gulburga (LM) - - - - - - - - 18. Hassan 34 - 1,360 - 1.4 24.48 1,925 47 10.9 19. Haveri (MM) 17 - 850 - 0.9 15.30 3,000 46 9.3 20. Haveri (LM) - - - - - - - - - 21. Gutal (LSM) - - - - - - - - - 22. Haepet 15 2 1,125 100 1.2 22.05 2,240 49 9.8 23. Kampli (SM) - - - - - - - - - 24. Kollegal 15 - 540 - 0.5 9.72 1,920 19 30.1 25. Madhagiri 30 1 1,500 50 1.6 27.90 2,000 56 14.0 26. Mysore 48 - 1,440 - 1.4 25.92 1,600 41 55.4 27. Sager 22 2 3,000 100 3.1 55.80 7,460 416 7.0 28. Sankeshwar 1 20 30 400 0.4 7.74 2,000 15 1.0 29. Sankeshwar (LM) - - - - - - - - - 30. Hukeri (LSM) - - - - - - - - - 31. Soundatti 19 - 950 - 1.0 17.10 4,450 76 24.0 32. Shimoga 51 - 5,100 - 5.1 91.80 9,250 849 13.0 33. Sirei 30 5 2,400 500 2.9 52.20 8,425 440 9.8 34. Mundagod (SM) - - - - - - - - - 35. Annigeri 4 - 160 - 0.2 2.88 1,800 5 1.0 36. Jamkhandi (MM) - 4 - 400 0.4 7.20 1,600 12 30.7 37. Jamkhandi (LM) - - - - - - - - - 38. Mahalingapur (SM) 12 4 360 200 0.6 10.08 1,600 16 - 39. Mudhal (SM) 9 - 270 - 0.3 4.86 1,600 8 - 40. Koppel 20 - 1,000 - 1.0 18.00 1,550 28 7.8 41. Kunigal 11 - 550 - 0.6 9.90 1,750 17 5.7 42. Mangalore/Coondapur (MM) 21 - 1,050 - 1.1 18.90 5,00 94 22.0 43. Putter (SM) 28 - 1,400 - 1.4 25.20 5,000 126 - 44. Udaipi (SM) 30 - 1,500 - 1.5 27.00 5,000 135 - 45. Mulbagal 19 - 570 - 0.5 10.26 2,000 20 3.0 46. Ramdurge 7 6 280 180 0.5 8.28 2,150 18 10.7 47. Katkol (SM) 8 - 320 - 0.3 5.76 2,150 12 - 48. Sindhnoor 6 - 600 - 0.6 10.80 1,850 20 18.3 49. Siriguppa 15 - 1,500 - 1.5 27.00 3,030 82 5.6 50. Tarikere 13 - 520 - 0.5 9.36 1,670 16 7.8 51. Yadgiri 32 - 1,600 - 1.6 28.80 1,530 44 8.5 52. Hubli/Khalghatgi (SM) 10 - 400 - 0.4 7.20 3,000 22 2.0 53. Mandyu/Khadabhalli (SM) 10 - 300 - 0.3 5.40 1,500 8 22.0 54. Kiruvagul (LSM) - - - - - - - - - 55. K.R. Pet (SM) 8 - 300 - 0.3 5.40 1,500 8 - 56. Tumkur/Akkirampura (LSM) - - - - - - - - - 57. Athani (MM) - - - - - - - - 4.3 58. Kagavad (SM) - - - - - - - - - 59. Chickballapur 26 - 1,950 - 2.0 35.10 1,500 53 9.9 60. H.B. Hallie 20 - 1,500 - 1.5 27.00 2,200 59 6.2 61. Holenarasipur 10 - 500 - 0.5 9.00 3,000 27 5.0 62. Kadur 14 - 1,400 - 1.4 25.20 3,000 76 12.0 63. Manvi 20 - 1,500 - 1.5 27.00 1,100 30 15.3 64. Nargund 14 - 1,050 - 1.1 18.90 6,600 125 5.3 65. Shahapur 20 - 1 500 - 1.5 27.00 1,800 49 4.5 990 889 64,560 65,790 1 3 / 2,346.30 - 6,820 1,128.7 1/ Figures do not add up due to rounding. 2/ Abbreviations: MM - Main-market SM - Sub-market LM - Livestock main-market LSM - Livestock sub-market 3/ Market throughput for the sub-market is included in the main market figures. Source: Karnataka State Marketing Department - 43 - ANNEX 2 Table 2 INDIA KARNATAKA AGRICULTURAL MARKET PROJECT PROJECT COMPLETION REPORT Operating Characteristics of Truck Used in Hauling Agricultural Produce 1/ Initial Cost of Truck Rs 230,000 Average Load 7 tons Annual Output (distance) 61,600 Km Useful Life of Vehicle 9.5 years Normal Running Speed 40 Km/hr Variable Cost (Paise) per Km 2/ Maintenance and Tires and Tubes 28 Fuel 50 Total 78 Calculation of Net Value of Incremental Hour Revenue (40 Km at Rs 2/Km) 80.0 Variable Cost (40 Km at Rs 0.78/Km) 31.2 Total 48.8 1/ From the Project Appraisal Report, with cost updated to March 30, 1983. Cost represents estimate of economic costs. 2/ One Paise = Rs 0.01 A~E 2 L974~~~TM 145 17 17 1 PalET 41 PiTi ±201 ormi tsr, of -etorn0' te003.0.or 3f (00 '00>1 397 375 hi £117 £18 £909 £930 £40 £30 £983 £48 335 34 £-48' .£00 £984 £.94 139£ £992 £993 3994 3995 il6_ £480 193 999 200 24£ 004 20303 3. CO£tO C1;1L Wot.., T-t.in4 ..d . 2 339 7,260 33,5 9.833 2,712 29,264 2.137 36,624 20,446 - - - 2,100 6,400 7,400 1400 - - - 200 6,40 1.430 1400 7,400 - - .. Operatlng Cost lOcrement.l to roet24 630 1,2~ 1,64 R.2f,2 ,66 46%0 .23 1,m7 .. 1,79 J2O 3.80 4902 1,4~ 1,979 2,018 3,059 2,~ 4 2,'85 2,22e 2,273 2,319 2M oU00 320 m0 420 240 mo 79 7W 5 30 2u 20 21. 210 100 210 210 230 10 210 234 030 030 2 230 20 ZI0 230 330 210 l. __ttait. Lorry and Sollack fort Ttm Sooed b utoRedu C j-tton4 i - - - - - 2,397 4,395 6,790 30.930 11,20 33,43£ £3.400 33 32,233 1 3 2 32,94 33.132 £3.394 33,642 3.934 34.224 £4.498 £4,289 n,G 3.30* 15 l4 U,008 16.308 £6.63 -oduced St1oe.m.mm 3_6. 4 4,820 5 20 6.8m 4,82> 4,20 6.0w ,2 6- 6,80 45,2b 6, 6.420 4.60 6,52 6,30 4,32 *.o 269 IIT. %ot B~tef1t Strem (73,29) (7,3<1,(57 (9,953M29,952M27.87£324,£82) (5,83) (4,261 16.10 16.41 k464 G6h4 10.872 9,827 £0,039 7M 0 47,477 1£.102 18.132 12,367 11.404 1l46 19.299 19.552 19.811 20.076 20,345 20639 20,00 Mt. of 7-2ur 3/ 413 coot. and ttafitt. orre >0 3982 7o04300t 84, cos prtor to £980 003 iflted by 1.ad300 ri. £nde tor Gre0s Dameto 09p00al form3t0o <390103 3 04>. T'o *.tWO, recot30i oaloes * 10jUnir ff7.320o 'arer <SC0> .f 03 ktit I omn ppi£d to dotIc empoames andI 0on-trded good7 sh1 b,ttm.i 2/ Calculated 00 the basis of fio.ootal imeestm0n e00 0.tstled lo n 3. ?o63 £ 5T0l. , ft.r ddrctim dtt« t-t.., 1~ot pr-e1.g ~2.2ld 4Atort.eo .000 0£ 602 of ct- timaIal casta, ad .0in9 . o1rloo fact-r of .6 torot of t-bl -e ref300t tt. 2317.re0ce between internatioool tor de00eto pri0e. totd 00003 h==e -t 4044 20sa£tr03 mit 000 eatof fism oofe 3n0.e lnd before the1 prloet £aceptie4. 3/ Contoary to ther .ppra3o0] aapolot the 330. saf regq.rlmen and M4O' .taff rlstedl emptodtt.re tocreame nre oh.a. 202 30 the>t ~_3-t -t3M>.. - ~211 1/ Aa.us.d tt 601 0f *shop-cua-50000cap.cit7 unuld he o2d for logtr9r *>arW and -mari of.0334 0<00ed 900940 facilIttO, Storflo b ose. oroj4 be redesd fr00 30Z 3. ther old orkeo. £0 >1 30 tho ob= s-r.o'to <for doosohooe Toble £3. 74 76 78° PAKISTAN BANGA[ES N D I ABRM S nouha bee tan Bnndoy ofBn dor • o Bdr Bomb°ayB r 18- A,rao Dada! he O...a,o see t SRI LANKAN Gulborga THIS MAP HAS BEEN PREPARED FOR THE PROJECT •Gulbarga o Hyderchod COMPLETION REPORT OF THE KARNATAKA AGRICULTURAL WHOLESALE MARKETS PROJECT IT 1S BASED ON BRD) 15928, NOVEMBER 1981 FINAUIZEID PROJECT To Bomay ..INFORMATION HAS BEEN BROUGHT UP TO DATE \ .aJamkhand Yad rt B/1 pU Shahapur ',5 KARNATAKA AGRICULTURAL -nWHOLIESALE MARKETS PROJECT eRaihur GSP Location of Project Financed /eg. gomdurg ManvI. Wholesale Mar ket s'' guam ..R A IC H U H MART SEndhnoorI S "IINorgund Sh INp k-I h-.ii KANAAK AGRiCUiURA GOA lharmaW• Main Markets Giip OA DharwaMarniger S DharwadAnnge Ko po Ga'ngavahi 0 Sub Markers ubb, -'0 k \n National Highways o D H WA D Bellary ToMadras Selected Primary Roads NOR TH HB. llis -- Railroad Karwar R0 District Capitals A| State Copital . By \.) -- District Boundaries . T D-P -- State Boundaries S*. .. ,..CH/TR DURGA: Sagor Chiträdurga Challoke eUM - - International Boundaries SHIM A G Shimaga Sh,maga IA Taodhugi ANDHRA PRADESH Kadur T-UMKU KOTARK/ Chickballapur SChikmagalur f Tum r k- lbagat To Madras Mangalore«11 Kumigai oKolar. Mangolore Hassan* A a s s a galore GB.ba ore 0nara ANDYA AG/R o 40 6512 y7To Solem 74rr . Mand0a Arahlan Mercara ..\ TAMIL NADU \COORG Mysore Mysore Sea - NKollegal MYSORC E ,.. Bp 12 Kilometers K ER A LA ··- 74° 76° o Ca ic t 78° 80°M