India - Second National Cooperative Development Corporation Project

Document of The World Bank FOR OFFICIAL USE ONLY Repor No. 8458 PROJECT COMPLETION REPORT INDIA SECOND NATIONAL COOPERATIVE DEVELOPMENT CORPORATION PROJECT (CREDIT 1146-IN) MARCH 15, 1990 Agriculture Operations Division Country Department IV Asia Regional Office las docment has a estifcted d a may be nsed by oup In1 {he I peronmme of thek ofkll &driets content may w oewise be dislosed bori W ank  ABBREVIATIONS AND ACRONYMS ACSTI - Agricultural Cooperative Society Training Institute AFCOP = Andhra Pradesh Cooperative Bank AP = Andhra Pradesh BISOMAUN - Bihar State Cooperative Marketing Union DA - Daily Allowance ERR = Internal Economic Rate of Return FCI = Food Corporation of India FRR = Financial Rate of Return GOI - Government of India HP Himachal Pradesh IDA = International Development Association MIS - Management Information System MP = Madhya Pradesh MT = Metric Tonne NCDC = National Cooperative Development Corporation NCDC I a National Cooperative Development Corporation Project NCDC I1 - The Second National Cooperative Development Corporation Project NPC = National Productivity Council OED - Operations Evaluation Department PAC Primary Agricultural Cooperative PACS Primary Agricultural Cooperative Society PACSFED - Uttar Pradesh Processing and Cold Storage Federation PAMS - Primary Agricultural Marketing Society PCC - Project Coordinating Committee PCF - Uttar Pradesh Cooperative Federation PCR Project Completion Report PCS Primary Cooperative Societies RBI Reserve lank of India RCC Reinfor-ed Cement Concrete RCM = Regional Cooperative Market SAR - Staff Appraisal Report SCB - State Cooperative Bank SCF - Standard Conversion Factor SCMD - State Cooperative Marketing Development Potatoe SCMF = State Cooperative Marketing Federation SDR = Standard Drawing Right SLDB State Land Development Bank SUC - Space Utilization Chart TA = Travel Allowance TOPIC - Training for Personnel in Cooperatives UP = Uttar Pradesh WB = West Bengal CONVERSION TABLE 1 quintal - 100 kgs 1 hectare (ha) - 2.47 acres 1 lakh - 100,000 10 lakhs - 1 million 1 crore - 10 million  FMR OfiCiaL VW ONLY THE WORLD OANK Washiton. DC 043 USA. 00k*eoft Okdcta.Csmwi Opm.wuuo &Aahati March 15, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECTs Project Completion Report on India Second National Cooperative Development Corporation Project (Credit 1146-INE Attached, for information, is a copy of a report entitled 'Project Completion Report on India$ Second National Ceoperative Development Corporation Project (Credit 1146-IN)t prepared by the Borrower with an Overview prepared by the Asia Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This doument hs a nstdted distdbutiond may be ed by uNCnts onl th pedoma of thdke ofcid dueL Its content may ot otbfwlse be diclsed wthout Wodd Bank aubdmtlon  FOR OFMCL USK ONLY -*QOJECT COMPLETION REPORT INDIA SECOND NATIONAL COOPERATIVE DEVELOPMENT CORPORATION PROJECT (CREDIT 1146-IN) Table of Contents Page No. Preface ................................... i Basic Data Sheet .............. ...................... . . Evaluation Sutmamry .. iv OVERVIEW vi Introduction ......vi Project Costs, Financing and Disbursements ....vI Project Implementation ......................................... vii Project Impact ...................... viii Institutional Performance ............ ............. .. .. ..... xii IDA Supervision ........... ................................... xii Lessons Learned ............... .. xiii I. Background ................................................... 1 Introduction ................... . . . ................ 1 Genesis of the Project ...................................... 1 Rationale of Rural and Marketing Godowns .... ................. 2 Specific Economic Criteria ........ *. . * * * * ............... ..... 3 Rationale of Cold Storage 3................................... 3 II. Project Fomulation ....................... .................... 5 Cooperative Storage Project ....... ......................... to 5 Project Components ........... . ..........................*...... 7 Financial Component ........ ........ .............. 7 Technical Component ..... ................................ 8 Implementation Organization see ... .99 * ............. ... ... ....... 8 Godowns Designs, Specifications and Procurement Procedures ... 9 Lending Terms ..* .........................*..*................ 9 Financing Pattern ........ ............ ........ 10 Procedure for Lending ......... 10 Project Coordination ................................... 11 Subproject Preparation and Appraisal ......................... 11 Training and Manpower ... *..........*.......... ........ 11 Monitoring and Evaluation ...................... ......... . 11 Financial Projections ......**........................... 12 This document has a restricted distribution and may be used by recipients ony in the petformance of theit official dutie Its contents may not otherwise be disclosed without World Bank authodzation.  Page No. Economic Rate of Return ...... ...................... ......... 12 Project Beneficiaries . ........................... ........... 13 Potato Storage-Cum-Marketing Cooperative Project .......... .... 13 Project Area . .*.. **. ***0 *****. * ........................ ; 14 Physical Component ...................... ............... 14 Marketing Component .......*...*................ .... ....... 14 Research and Development Component ........................... 15 Phasing of the Project .......................... ....... ...... 15 Project Cost .......... .................................. 15 Desig2 and Construction of Cold Storage ...... ................ 15 Procurement Procedures .... *........*....* ......... ........ 16 Manpower Requirements .................................. ... 16 Financial Viability .......................................... 16 Economic Rate of Return ........*............................. 17 Other Benefits ........................................... 18 Project Risks ........................................... 18 _III* IMPLEMENTATION .... ... . #.. o................... 19 Cooperative Storage Project .................. ...... ...... .. ... 19 Physical Progress ............... ......... .. ..... 19 Construction of Godowns ................. 20 Rural and Marketing Godowns .... ..... .. ...................... 21 Non-Availability of Technical Staff .......................... 23 Non-Availability of Construction Materials ... ................ 23 Lack of Response from ProcessionAl Contractors ............... 24 Other Problems ...........**..*............................ 25 Marketing Godowns .......................... ................. 26 Cost Escalation ....................... 26 Learning Experience ........*..*............................ 29 Implementation-Cold Storage .. ................................ 30 Physical Component .*........................................ 30 Marketing Component .* .... ........ 32 Research and Development Component ........................... 32 Cold Storages ..... ...... ...-........ ...... 32 Project Funding .......... ....... ........ ....... 35 Cold Storage Component .........................*......... 36 Total Project Cost o.o.. ..............o ................ 37 Disbursement of IDA Credit .................. ..*..* ... #*.*. 37 Project Monitoring of NCDC-II Project .................. o. 39 Institution Building ................. 39 Institution Building of NCDC ................................. 40 Training . ........................... .......... 40 Training of IB Category Staff ............................ 41 Mobile Guides .. .........$.*. .................... 42 Institution Building of Implementing Agencies in the States... 43 Organization and Methods Study .............................. 44 Efficiency in Operation ............................ 44  Page No. IV. IMPACT ASSESSMENT ............ ..................... 45 Methods of Impact Measurement ............................... 45 Impact Indicatocs ......... ........ 46 Marketing Godowns ....................... 46 Evaluation Studies ................ . 47 Methodology ...... . . .... 47 Godown Component ......... * ...... 47 Cold Storage Component ................ 47 Rural Godown ................ 48 Disbursement of Credit ................. 49 Distribution of Inputs ........... ..... 50 Distribution of Consumer Goods ................ 52 Marketing of Agricultural Produce ............................ 53 Index of Contribution .................... ............... 56 Other Financial Indicators *. * * * ........................ 56 Growth of Share Capital ..... .............................. 56 Growth of Working Capital ............. ................... 56 Deposit Mobilization ................................... 57 Employment Effect ............................ *..... * 57 Financial Viability ...................*............... 59 Financial Rate of Return ...***...*.**.. .................... 59 Repayment of Loans ......... .............................. 59 Economic Rate of Return .....*e............................. 61 Capacity Utilization of Rural Godowns ........................ 63 Impact of Rural Godowns on Farming Community ................. 64 Suggested Line of Action .................................... 65 Preparation of Utilization Plan .............................. 67 Marketing Godownas ............**........................... 67 First Order Impact ..... ..... ........ .... ....... ....... .. 68 Capacity Utilization ......................... 69 Operational Methodology .............. ........ .. ... ..... ... .. . 69 Business Turnover of State Marketing Federations ............. 70 PCMS Godowns in Maharashtra ............... . .. ..... ... ..... ... 71 Impact of PCMS Godowns ....****..*.....e... *............ 72 Capacity Utilization *..........*........*** ....... 72 Business Turnover ................................ ........*.. 73 Profitability ................ ...*....................... 73 PCMS/DOMS Godowns in Andhra Pradesh .......................... 74 Capacity Utilization ........................... 74 Business Turnover .....**...................... .. ..... .... 75 Profitability .......................... 75 Cold Storage Component .......*............................... 76 Rationale of Cold Storages ................ . ........ .. .. ..... . 77 Cold Storage Operation .... .. 79 Marketing and Rental Component ............................... 80 Financial Operation of the Cold Storages ..... ................ 81 Expenditure Analysis ...... ................................. 82 Financial Viability .........................."............. *.. 84  Page No. Management and Employment ........ ....... .................. 86 Comparison of SAR Projections and Results of Evaluation Study ............................8 Project Investment ........................................... 91 Operating Costs ........92 Cold Storage - Suggestions 93 V. CONCLUSIONS ............. ........ 101 Annexes 1 Technical and Developmental Staff Targeted and Actually Posted by the Implemented Agencies ....................... 105 2 Financial Indicators ...... ......................*....... 106 3 Membership ............................ 111 4 Disbursement of Credit ............ ......................... 113 5 Distribution of Fertilizers, Seeds and Pesticides .......... 117 6 Distribution of Consumer Goods ............................. 120 7 Percentage of Non-credit Turnover to Total Turnover ........ 123 8 Growth of Share Capital ........ .* ....................**. 124 9 Growth of Working Capital .. .................. ... .... ...... . 126 10 Deposit Mobilization by Ssmple Societies ...... ............. 128 11 Cash Flows .,.....,.*........ ... *.. 130 12 Financial Rates of Return ................ ... ....... 135 13 Economic Rate of Return ....* ...... 00...*. 141 14 Business Turnover ....................... 142 15 Actual and Projected Rental Rates ........................ 147 16 Model Scheme for Ice Plant and Debt Servicing ......0........ 148 MAP IBRD 15430R  INDIA SECOND RATIONAL COOPERATIVE DEVELOPMENT CORPORATION PROJECT tCREDIT 1146-IN) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Second National Cooperative Development Corporation Project (NCDC II) in India, for which Credit 1146-IN in the amount of SDR 101.8 million equivalent was made to the Goverment of India in February 1979 for onlending to NCDC. The credit was closed on June 30, 1987. It was fully disbursed and the last disbursement was April 1988. The PCR was prepared by NCDC, the executing agency. An ovevviw sumariztg fimportant observations and providing additional comments was prepared by the Asia Technical Staff - Agriculture, Asia Regional Office. This PCR was read by the Operations Evaluation Department (ORD). The draft PCR was sent to the Borrower on January 5, 1990, for comuents by February 23, 1990, but none were received.  M. - INDIA SECOND NATIONAL COOPERATIVE DEVELOPMENT CORPORATION PROJECT (CREDIT 1148-IN) PROJECT COWLETION REPORT BASIC DATA SHEET KEY PRIJECT DATA Appralal Actu l or Acturl s Estimate Es1 Etimt I of Totl P olt Cost (US d 24 1. Total Project Cost QRs) 2186 2868 l.U Eligible ,or IDA Ftnancing (USE m) 126 199 H.07 Eligible for IDA Financing (Rn. M 1969 1216 1.23 Credit Amount (US$ a) 126 109 .087 Date of Credit Agreement W7/21/81 Cloaing Date 06/80/8t7 96/3/87 Economlc Rate of Return (t) Godown Component 16 10- 28 Cold Storage a Marketing Component S4 8 s8 Combined Component 28 Financial Rate of Return (I) of Godown Component .17 12-.26 Number of Direct Se.iietarios (a) 8.2 6.4 1.09 CUiMULTIVE DT eURSEEENTS FY62 FY88 FY14 FY65 FY60 FY67 FY88 AppralIal Estimate (U. .) 3El a-.# 83^- 104 in- 126 13 F A= Iual (US$ m) 7.5 17.0 28 45.2 72.6 89.6 19 Actual as X of Estimate .82 6.84 6.84 0.48 0.60 0.72 6.87 Date of Final Dsbursoemet 94/19/60 STAFF VVM (Staff Weeks) F79 F FY61 FY82 FY68 fY84 FY8S FY86 FY87 FY88 Tot I Prappralsal .1 48.8 8.9 47.8 Appraisal 55.5 56.5 Nbeotlatio.i 6.9 6.9 Su"prvislon 8.4 9.8 9.9 12.8 0.8 26.5 16.9 11.8 1U9.6 Other 4.0 4.0 TOTAL .1 48.8 76.6 9.8 9.9 12.8 6.8 26.5 16.9 11.8 214.8  - III - MISSION DATA Date, macday (Month/ No. of In th Spclalzatione Performance Rating Type of Mission Sent Year) Persons Feld Sesresentod */ Sta*ue b/ Trond c/ Problem d/ Preparatlon' HQ 10/79 6 1e C,E,F,G,,$S - - - Appraisal HQ 10/0 7 24S C,E,F,G,U,S,T - - - Supervision 1 HQ 0/el 2 as C,! 1 2 1,0 Supervision 2 HQ 11-12/61 1 14 C,E 1 2 1,0 Supervision 8 HQ 6/82 2 21 F,U 2 2 1,0 Supervision 4 HQ 1/83 2 21 F,! 2 1 M,0 Supervision 5 HQ 19-11/68 2 16 E,U 2 2 M,0 Supervision 6 HQ 4-5/94 2 18 E,U 2 2 1,0 Supervision ? HQ 11/64 1 7 F 2 2 1,0 Supervision 8 HQ 6/85 2 21 E,I,U 2 2 1,0 Supervision 9 HQ 1/8 5 so E,F,I 2 2 F,M,0 Supervision 10 HQ 10/68 2 20 F,I 2 2 F,M,0 Supervloon 11 HQ 4/67 2 24 F,I 2 2 1,0 Supervision 12 HQ 11/87 a a8 E,F,I 2 2 1,0 Total Manda)ys 08e *Rovlw by IDA of project pr peration work done by COC. 9/ AuAgriculturlt; CuCooperatives Specialist; EnEconomist; FaPinancial Analyst; cEngineer; IwAgro-Induetry Specialist; Mllarketing Specialist; SuCold Storage Specialist; T=Tralningjanpower Specialist; UtAgric. Credit Specialist. y lsproblem-frw or minor problem; ftmoderate problem; Umajor problem. e/ leimproving; 2tationary / FaFinancial; 1=Management; TaTechnical; OnOther. OTHER PROJECT DATA Borrowr - Government of Indio Executing Ageacy - National Cooperative Development Corporation Fiscal Year of Borrower - April 1 - March 81 Follow-on Project - NCDC III Credit No. - 102-IN Credit Amount - US$220.0 m Board Approval - June 19, 1984 Nme of Currency - Indian Rupee (Re.) Appraisal yer avorage - US$1.00 * Re. 9.80 Intervening years' *verage - USS1.00 Re. 19.15 Completion yerns average - US$1.00 = Re. 13.40  - iv - INDIA SECOND NATIONAL COOPERATIVE DEVELOPMENT CORrORATION PROJECT (NCDC II) CREDIT 1146-IN PROJECT COMPLETION REPORT EVALUATION SUMMARY Overall, the project was a success, substantially achieving project objectives to improve services to farmers. Physical targets for rural and marketing godowns were exceeded by about 70% capacity, however, that for cold stores targeted were reduced by about 401. While project costs exceeded appraisal estimates including contingencies by 302, because of foreign exchange variations, the IDA credit (SDR 101.8M) was not fully *-ilized resulting in a cancellation of SDR 6.2M. Implementation Experience While the project began slowly it was completed on time. Delays were experienced in the early stages of implementation in the acquisition of sub-project sites, the engagement of technical staff and suitable contrac- tors. Materials and labor costs increased during the project period by an average of about 80Z, with some materials projected for preferential purchase (levy system) having to be purchased on the open market at higher prices. Participating agencies benefited from organizational reviews, the provision of vehicles to improve mobility for sub-project supervision, and engineering Instruments. The proposed trainlug pxogram was expanded to include infra- structure for training centers, trainers were trained, and a very effective mobile guide program introduced to provide on the Job training and consul- tancy to the primary level cooperatives (PACs). The very important marketing support component for the cold stores was not implemented. Results The rural godown component influenced the growth of the related PACs. Membership and equity grew by 20Z to 70% in the participating states, agricultural productivity for farmers concerned grew by 16% mainly because of increased fertilizer availability, and farmers income grew correspondingly. Additional employment for the construction stages grew as projected, but permanent employment associated with operations only grew about 20% of pro- jections as the majority of PACs financed were already operating in rented premises with existing staff. The godowns did not result in increased mar- keting activity by the PACs as they remained outside the already established cooperative marketing system. It is the general feeling that PACs already have sufficient responsibilities and would require more expertise and re- sources to become significantly involved in marketing. In the short term, their best role would be to work in cooperation with the marketing agencies, offering their excess godown space when available and to undertake agency functions. Studies indicated ERR ranging from 121 to 26X achieved, compared to 13% to 172 projected. Sub-loan recoveries averaged 88% of repayments due to date.  v Additional capacity of 2316m tons of marketing godowns w4* created, mainly to state marketing federations. As these godowns mainly represented a swall part of much larger operations it was dift4cult to indlIvidually assess their full impact. A review of capacity utilization showed a range from a low of 53% in Bihar to a high of 942 in Punjab. The profitability of State marketing federations tend to fluctuate widely from year to year and state to state mainly because of their role as procurement agents for government. Sustainability As mentioned above, the number of potato cold stores was decreased. It is believed that the majority of those financed will not be able to serv- ice their indebtedness without government support until some real changes (e.g. increase in rental rates, the introduction of marketing and diversifi- cation) are implemented. While investment cost almost doubled, rental rates varied at levels almost equal to those required at their expected lower in- vestment cost. At the same time farmers storing potatoes made profits suffi- cient to have supported the higher rates required. In addition, marketing opportunities were not pursued because of a lack of will, expertise and re- sources. Diversification to include other commodities is also necessary. Possibly the greatest weakness was the farmers lack of real identity in the ownership of these stores and in their planning and management. They were more perceived as a government fa4ility for the benefit of the farmers. While they were not financial successes they were economic successes as the farmers benefited financially, and storage losses and transportation costs reduced. ERR were estimated at 30X. NCDC, the executing agency, performed well and has shown much devel- opment during the project. Participating banks have improved their appraisal procedures and their support to PACs through the mobile guide program has been one of the main successes. Institutional development is being continued under the ongoing NCDC III project where outstanding weaknesses are being targeted. Findinas and Lessons Learned Lessons learned under this project ares (a) adequate planning will reduce implementation delays. Many actions should be initiated from when the project is under preparation and the date of 'effectiveness' shovld not be the starting off point; (b) for cooperatives to be effective, farmers must be involved from the planning stage in the management of the facility; it is important that they believe in their ownership and responsibility to the cooperative; (c) PACs will not be able to play a significant role in the short term in the storage and marketing of agricultural produce and should concen- trate on how they can work with marketing societies In a secondary role; and (d) IDA/Bank need to address the issue of the cooperative's role in India with particular reference -6o those cooperatives which operate more as government entities, with little or no farmer involvement and for which the commercial goal is not of prime importance.  - vi - INDIA SECOND NATIONAL COOPERATIm DEVELOPMENT CORPORATION PROJECT (NCDC II) CREDIT 1146 - IN PROJECT COMPLETION REPORT OVERVIEW 1. The attached Project Completion Report (PCR) on the NCDC II Project was prepared by the National Cooperative Development Corporation (NCDC), the project executing agency. The (Yerview, prepared by Asia Technical Department - Agriculture, susmarizes specific observations warranting special attention and points not fully covered by the attached PCR. INTRODUCTION 2. The Second National Cooperative Development Project (NCDC II) would extend support begun under the First Project (NCDC I) to cooperatives for the construction of godowns, adding finance for potato cold stores and related marketing facilities. The Project would support investments in nine participating states (Maharashtra, Punjab, Andhra Pradesh (AP), Himachal Pradesh (HP), Bihar, Uttar Pradesh (UP), West Bengal (WB), Haryana, and Madhya Pradesh (MP). The Project was appraised in October 1980, became efWective in October 1981 and was completed on time on January 31, 1988. It overlapped NCDC I wh.ch financed rural godowns in three states and which was completed in mid-1985, with the PCR completed in September 1986. NCDC I was considered a success having contributed to a substantially increased turnover of farm inputs, mainly fertilizer, and consumer goods. However, contrary to expectations, there was little use of the godowns for the storage and marketing of surplus farm produce. Also, the project brought out the need for an examination of the level of government's intervention affecting cooperatives and how it affected the overall administrative and business environment, and the need for greater commercial and managerial autonomy for profitable operations. 3. The Project would conform to GOI's cooperative policy to improve services to farmers, with the godowne facilitating the Primary Agricultural Cooperatives (PACs) in the provision of basic consumer goods, and in the convenient delivery of fertilizer and other farm inputs resulting in reduced storage losses and transportation costs. Also, the units would provide convenient delivery points for farmers produce and facilitate marketing. The cold storage component and related marketing component would improve the efficiency of marketing practices of potatoes, allowing the farmers to avoid glut prices at harvest time. Storage losses and transportation costs would also be reduced including that of seed potatoes. PROJECT COSTS, FINANCING AND DISBURSEMENTS 4. The attached table (Table 1) compares actual project costs with that estimated at appraisal showing an infreased cost of Rs 720m. However,  - vii - the IDA credit was not fully utilized as only $1d9m equal to SDR 95.7m was disbursed necessitating a cancellation of SDR 6.2m. This reflected the large variations in exchange rates during the life of the project. IDA financed 45X of project costs compared to 47? estimated at appraisal. As the table shows, physical targets for godowns were surpassed by about 13? reflecting an increr , demand for marketing godowns. However, the cold stores financed were reduced from 127 to 85. Also noticeable was the non - utilization of the marketing support services for cold stores. 5. But for the fact that the physical increase in godowns related to the larger marketing godowns at a lower cost per ton capacity, project costs would have been higher. Project cost suffered from material and labor costs increasing by about 8OZ during the project period, compared to a price contingency of 20? built into the project. In addition to the normal escalation of prices, estimates had anticipated the full use of government levy (preferential prices) for items such as cement and steel and as these became unavailable some were acquired on the open market at higher prices. The estimated physical contingency of 5? took care of site preparation cost required in some instances for which there was no provision in the costing. PROJECT IMPLEMENTATION 6. Project implementaLion began slowly, running at about 34? of target for the first three years. The coverage of the Project over nine states required the involvement of many more participating agencies than that of the previous project, many of which only began to identify suitable and available sites, the procurement of which was frequently time consuming with site preparation sometimes necessary before construction could begin, after the project became effective. Also, there were delays in the identification and arrangements for the technical staff needed, whether for permanent employment or for engagement on deputation. On average, planning by the implementing agencies for sub-projects implementation was inadequate. 7. As also noted under NCDC I, insufficient thought was given at project preparation and appraisal to the availability and engagement of contractors who on average showed less than anticipated response to tenders for rural godowns, due to their being individually small, scattered - sometimes in difficult locations, and an insufficiency in the related areas of the Class A contractors required. At NCDC's request IDA agreed to relax procurement procedures in extreme circumstances where contractor's response was not forthcoming, to allow PAC's to build their own godowns under the supervision of participating agencies' technical staff. This worked quite well. Contractors for the larger sized marketing godowns and the cold stores was a lesser problem than that for the rural godowns. For cold stores, GOI's decision to increase excise duty by 7? on refrigerated equipment contributed to their additional costs. In general, the delays to project implementation also contributed to the higher costs experienced on all components. 8. While the construction of godowns and cold stores followed traditional designs agreed at appraisal, IDA supervision missions observed that in comparison with other cold stores built by private traders and by some non- project cooperatives, designs of cold stores were inefficient with outdated  - viii - technology and with cumbersome handling procedures. A 4000 MT cold store only had an effective storage capacity of 3600 MT. 9. Under support services provided under the project, consultants were appointed in four states to carry out Organization and Management studies of weak participating agencies, resulting in recommendations for restructured staffing patterns, induction of technical staff, improved control and reporting systems and the identification of training needs. In addition, vehicles to improve staff mobility and engineering instruments were financed. Sub-project appraisals of rural godowns were mainly based on models of representative size godowns with the provision that the borrowing cooperatives were viable, viability more so based on its repayment record rather than on a business plan/projection of their specific future operations. Very little concern was sbown to determine the viability of the borrowing marketing federations, where the godowns financed only formed an insignificant part of their operations. 10. The proposed marketing support to develop marketing intelligence and to employ and train marketing specialist in support of the cold stores component was not implemented. It was not until January 1985 at a national workshop on potato marketing that the urgency for equipping the implementing cooperatives was fully recognized and a decision taken by the concerned states to take action. Marketing expertize is now being introduced in some states, with UP being in the forefront. Research and Development initiatives in support of cold stores operations were financed including a cold store based on gravity coolirg, a scientific preservation unit for jaggery, and the establishment of 60 small potato cool stores. 11. The proposed training program for godown operations was implemented with IDA increasing its support to finance infrastructure for training centers. During the project period, NCDC developed the TOPIC program (Training for Personnel in Cooperatives) which program concentrated on the determination of training needs, the development of training programs, and the training of trainers. An important feature emanating from this program was the development of mobile guides, who after being trained were each given the responsibility as advisers/consultants to a designated group of PACs, providing on the spot training to PAC managers, officers and to the farmer members. PROJECT IMPACT 12. Rural Godowns - The impact of the rural godown component supported GOI's and IDA's position that a rural cooperative with a godown facility would be better suited to service tne needs of farmers than one without a godown. The requirement for a 5? contribution from PAC members for financing the godowns' cost resulted in an increase in membership and in the total equity participation of farmers in the PACs. Membership in PACs increased between 20X to 70? in the states concerned, and farm families expected to utilize the services of the godowns was estimated at 5.4m compared to 3.9m estimated at appraisal. As rural godowns were built, the convenient availability of farm inputs increased resulting in the increase usage of fertilizer which then becam the main trigger for increased credit. This increase was however, not  always consistent as rainfall conditions also have a large influence on the lise of inputs. A review of sample farmers showed productivity to have increased by about 162 because of the increased fertilizer usage, with a corresponding increase in farmers' income. An area of significant impact was the significant increase in trading of consumer goods by the PACs as more "fair price shops" were opened, and expansion achieved for existing shops as rented godowns were replaced by significantly improved facilities. Actual turnover was estimated to have nearly doubled that estimated at appraisal. While projected new employment was achieved during construction of godowns, employment generation was below appraisal expectations for the operating stage, only increasing by about 20X of expectation. The appraisal overlooked the fact that the majority of godowns financed were for existing PACs utilizing rented premises with existing credit business and staff. 13. As in NCDC I, the godownr did not increase the role of the PACs in the marketing of agricultural produce and they are not integrated in the cooperative marketing system. Marketing by PACs only amounted to about 132 of that estimated at appraisal. The procurement of most basic commodities through government price support programs are through the State Marketing Federations and their related District/Primary Marketing Societies. These organizations have their own purchasing arrangements and storage facilities and tend to feel that the PACs already have enough responsibilities with credit, handling of inputs and consumer goods, and would not be able to efficiently manage the more sophisticated aspects of marketing. The current tendency is for farmers to market their produce directly to these organizations and to the open market. It is true that for the PACs to undertake marketing in any large way, they would require much training and should only move into this direction slowly, preferably in partnership with the marketing federations to begin with, offering any excess storage capacity they have available. Also, marketing will involve the need for increased working capital to finance advances to farmers where necessary. 14. The FRR of the sample studied showed a range of 12Z to 26Z achieved, compared to 17? without manager's residence and 13Z with manager's residence projected. The ERR ranged from 16? to 282. However, the real test of viability will be for each PAC to be able to service its indebtedness on a timely basis and earning a reasonable return on their own equity. Indications were that most PACs will be able to achieve this by the end of the three years grace period with some weak ones taking longer. While it is early to obtain a clear picture on subloan recoveries as first payments are only now beginning to fall due for a few PACs under the project, recoveries are currently averaging 88? of demand. A recent review of subloan recoveries under the previous NCDC I shows similar recovery levels for two states but with Orissa only averaging 5? of demand. As a result, IDA and NCDC agreed that no further PACs in that state will be financed until recoveries rise above 55Z of demand. It is understood that this position is now being significantly improved. While the PACs themselves service their group indebtedness on a reasonable basis, recoveries of individual credit does not appear to have improved. Of course this project does not tackle this problem. Also noted was a significant increase in fund mobilization by PACs after they received godowns.  15. Through the expansion of the training component discussed in para.ll above and continued under NCDC III, the expanded training of PAC managers followed up by on the job training by mobile guides has been very successful. PACs are now paying much greater attention to the introduction of annual business plans, looking at possible opportunities for increased activities. They have already been able to obtain increased margins on fertilizer distribution more in line with that paid to private traders, and on consumer goods. Also, the more enterprising PACs are examining other areas of activities including the rent of agricultural implements, distribution of seeds, group transportation, and marketing where possible. Most important is for PACs to realize that the godowns belong to them as a group and that the godowns are not facilities of the government put there for their convenience. The membership needs to increase their involvement in all aspects from the construction of the godowns through to their operations. 16. Marketing Godowns - This component contributed to the significant increase in available storage space for State, District and Primary level marketing cooperatives, with the underlying contribution to reduced losses on inputs and agricultural products. and the reduced transportation costs allied to more convenient storage locations. The project added 2316m tons of storage, of which 1696m tons was for State level federations. It was impossible to separately quantify the full contribution of the godowns from the total operations of the marketing federations on a whole, as their performance was complicated by their role in the procurement of produce under government price support schemes, which schemes do not always provide an adequate margin for the federations. These marketing federations/societies prove to more of a government facility in both ownership and management than true cooperatives owned and managed by farmers with viability being of primary importance. In practice, the government's guarantee for subloan repayment seems to have been the primary aspect relied on, particularly in Bihar where the federation has consistently suffered losses. The PCR also shows that some marketing godowns, in UP and 4 in Haharashtra were given on rent to other cooperative organizations. 17. Taking the above into consideration, capacity utilization is the most reliable barometer to measure the impact of these investments. Capacity utilization for marketing federations have ranged from a low of 53Z in Bihar to 942 in Punjab with business turnover following this pattern. There was no reliable information showing the profitability of these federations. For the District/Primary societies, capacity utilization has also been low, however, turnover has been increasing and these societies are said to show profits. 18. Cold Stores - The PCR rightly concluded that this component helped to reduce potato losses, increased value added, sustained a larger area under potato cultivation, and marginally increased employment. While the investments proved to be economically successful (ERR of about 30X), the PCR also highlights the financial failures of cold stores as their current operations denote. Because of these failures the program was reduced from 127 cold stores to 85 which were in progress at the time of an interim review of the program by IDA and NCDC. A review of cold stores financed show that they have suffered losses in all three years of their operation and that they will not be able to service their indebtedness without government support and/or  - xi - with significant changes in their operations. The spirit of their operations so far has been that of a Government facility providing below cost rental rates, allowing the farmers to obtain the full benefit of value added. 19. The appraisal projected cold stores to be viable operations based on 1002 rental plus a fee for marketing services to its members and a margin to be earned on monies advanced to farmers. At sanctioning of the individual investments NCDC assumed a 50:50 mix of rental and marketing to be the more viable mix. Also, capacity utilization was projected at 902 in the beginning rising to 982 in three years. While capacity utilization did in,rease to nearly 902, it was only about S02 in the first year with Bihar at a low of 282. The most significant feature however, was the increased investment cost whereby cold stores cost was almost twice that projected with rental rates averaging close to that initially envisioned. But for WB, where the government contrary to its conmitment at negotiations restricted any movements to rates, rates were allowed to vary. However, rates did not vary significantly because of competition with other existing cold stores constructed earlier at much lower cost. IDA supervision mission felt that the restriction on rates increase Wa8 a wrong perception as there was a genuine shortage of storage space and competing cold stores limited the amount they would store on rental, preferring to buy and store for themselves for future trading. To prove this concept, supervision missions encouraged cold stores cooperatives to obtain marketing expertise and to begin trading for themselves. However, they did not obtain the necessary expertise and were not provided the necessary resources to advance the farmers or to buy for themselves. As mentioned in para. 10 the project component to provide marketing support had not been implemented. (Some marketing was carried out at three locations in WB at a loss because of their lack of expertise and guidance). As a result the cold stores mainly relied on rental income which averaged about Rs 240 MT (as estimated at appraisal), while the farmers made their own marketing arrangements with benefits ranging from Rs 250 MT to Rs 500 MT. 20. It is important to note that the Boards of these cold stores are mainly government nominated boards without elected representation and that staffing did not include any marketing personnel. While over 1000 families benefited from these investments the farmers had no incentive for their viability. The PCP. also observed that salaries paid to employees were significantly higher than that paid to cold stores operated by competing marketing societies. The PCR makes the case that cold storage capacity is still inadequate in many areas but accepts that much higher rentals would be necessary to make them viable. The experience of the Project shows that there need to be a mix of rental and marketing with the farmers involvement, special training in marketing with supporting market intelligence as was initially envisioned by the project, working capital for farmers advance, and very important, there should be diversification of the commodities to be stored avoiding complete reliance on potatoes. During drought periods there is no surplus potato to store. Recent IDA missions in meetings with state representatives have obtained a commitment for more diversification and improved management and training for cold storage operations, with some success already being seen.  - xii - The PCR has not mentioned any benefits derived from the Research and Development investments under the project (para. 10), and this aspect will be followed up under the ongoing NCDC III project. INSTITUTION4L PERFORMANCES 21. Participating implementing agencies have benefited from the consultants' reviews carried out and they have implemented most of the recommendations made. Unfortunately, the performance of the implementing agencies themselves are dependent on aspects outside the scope of this project as their main business is credit, and they are affected by the adequacy of margins and the approach to institutional credit in general. Overall credit recovery from individual farmers have not shown any real Improvement. This is currently the subject of a comprehensive review under the NABARD project. However, there is definite progress in their implementation of godown financing and the recovery of related subloans. The adoption of business plans/projections are progressively being introduced in subloan appraisals, and with the mobile guide program subloans are better monitored with practical consultancy being given. Greater emphasis is now being given in the appraisal of marketing godowns and the viability of Marketing Federations. Again, this is complicated by aspects outside the project as these federations assume roles on behalf of the government which tend to affect efficient commercial operations. Reporting procedures to NCDC on project implementation tend to emphasize the physical progress of projects with less said about the operational aspects of turnover, profitability, credit recovery etc. Through the help of NCDC the quality of these reports are progressively being improved. An area of weakness is the need to develop more meaningful planning and programming which would help to reduce implementation delays. Also, there is the need to quicken responsiveness and flexibility to resolve problems when they arise. This is of course difficult in a public sector environment. 22. NCDC has continued to strengthen its operations as begun under NCDC I, with more decentralization to its regional offices and closer contact to subproject operations. The benefits of its evaluation studies have been well demonstrated in the information and analysis included in the PCR. Of particular mention is the development of TOPIC and the progress under the mobile guide program. NCDC has complied with the covenants of the project and audited accounts and reports have been timely and of acceptable quality. IDA SUPERVISION 23. IDA supervision missions were regular averaging six monthly intervals with a fairly good continuity in supervision staffing. Supervision missions concentrated on key issues and were responsive to problems, recommending and supporting appropriate actions necessary for successful project implementation.  - xiii - LESSONS LEARNED 24. Adequate planning by implementing agencies would have reduced the construction delays and therefore project costs. The acquisition of land is a time consuming process particular where several small pieces are involved and this should have been more vigorously put in progress from project preparation and appraisal. There is a shortage of adequately qualified contractors and skilled labor in rural areas. A total reliance on levy materials and its related costs is dangerous as these materials are not always available when needed, resulting in delays and the need for some purchases on the open market at higher prices. 25. It is important that the farmer members are involved in their cooperatives from the planning stage through construction and operation if they are to have a feeling of identify and responsibility for its success or failure. They need to see Government as a partner in financing not as the provider of a facility for exploitation, as was evident in the cold stores program. Also, in agri-business marketing is a key factor, frequently ignored. It is much better to be market driven instead of being production driven in making the investment decision. 26. IDA support should only be given where commercial principles are dominant and Marketing Federations to be supported should be restricted to those allowed to operate as viable operations with adequate margins. Social responsibilities, where unavoidable, should be separately determined and financed. 27. In general, PACs will not be able to play a significant role in the storage and marketing of agricultural produce unless they upgrade their management capabilities and mobilize the necessary resources. In the short term they should concentrate on improving their ongoing operations of handling inputs, delivering and mobilizing credit, consumer goods and related activities. Where possible, they should work with the marketing societies and special commodity organizations (such as the ujlseeds Growers) in offering the use of available godown capacity.  - xiv - T bl*_ I Second National Cooperative Devolopeent Crporatioan (CC 11) Credit 1146-lN Project Cost huueay SAR Estaaates Actual Number Capacity Cost NudMr Capacity Cost 000 Tons Rs n 000 tons RAs 6adtrn Cmponent Rural godomns 7000 1052 744 331 1011 2240 larketing godons in95 65 3i 1611 2268 SBppwtinq invetnnts 6 6 7098 1917 1316 0942 3279 2246 Cold Storageobrnkting Component Cold Store 127 5S 05 65 326 593 hrketing facilities 2 Supporting investmets 2 1 127 508 609 95 326 594 echnical hdistacnl Training 6 9 Rarchaao Dev lopet a 9 14 to Total SasCst 1739 20 Physicallprice Contingencies 396 Total Cost 2135 288 US 4 Equivalent 27 244 DIA to fiance US *125.0 a (472) US t109.0 s 144U) SDR 101.3 a SDR 97 a Financing Cot ID IDA Rural and arieting godoens 2240 f4 42.6 Spporting invetunts 6 6 100 2246 960 Cold Stores 5*3 307 51.1 Narketing facilities Supporting invetmnts I 1 100 594 309 Tehncical AssistanceTraining 9 9 100 Rswch and Denelnt 9 0 - 39 9 100 Total 289 1276 44.6 UsS 109.0 e 90 95.7 ailliah  PROJECT COMPLETION REPORT INDIA SECOND NATIONAL COOPERATIVE DEVELOPMENT CORPORATION PR'OJECT (Credit 1146-IN) National Cooperative Development Corporation (Evaluation Division) Ministry of Agriculture Department of Agriculture & Cooperation 4, Sir Institutional Area, Hauz ehas, New Delhi-110016 February 29, 1988  3 3- INDIA SECOND NATIONAL COOPERATIVE DEVELOPMENT CORPORATION PROJECT (CREDIT 1146-IN) PROJECT COMPLETION REPORT I. Background Introduction 1.1 The successful formulation and latmching of NCDC-I in February 1979 spawned NCDC-II which aimed at extending the godown project to several othe: States and to finance construction of potato cold storage and marketing facility in the main potato producing States. The NCDC-II World Bank Cooperative Project was appraised in September-October 19b) became effective in October 1S81 and reached completion on Decembe.r 31, 1987. 1.2 The godown component of the project s-, formulated on the pattern of NCDC-I with the basic objectives of development of an integrated network of storage facility at the three levels with PACS' godowns at the village level, marketing societies' godowns at the mandi level and marketing federations' godowns at the State level in Punjab, Himachal Pradesh, Maharashtra, Bihar and Andhra Pradesh. Uttar Pradesh was also added after being transferred from NCDC-11I to NCDC-II. The godown facilities were designed to act as decentra- lized and coordinated service centers through performance of activity-mix consisting of provision of agricultural credit, storage and supply of fertili- zers and other farm inputs, procurement and marketing of agricultural output and supply of essential consumer goods. 1.3 The potato cold storage-cum-marketing component of the project covered six major potato producing States; Uttar Pradesh, West Bengal, Bihar, Punjab, Madhya Pradesh and Haryana. The project envisaged the creation of adequate cold storage capacity, establishment of marketing services and centralized technical services. The incorporation of storage, marketing and research and development in a single integrated project provided institutional mechanism to balance continuous demand of potato with discrere supply, cut down storage losses, increase the production of potatoes and protect the interest of farmers and consumers through scientific development, cold storage and marketing intervention. Genesis of the Proiect 1.4 The development of agriculture has been the main theme of India's Five Year Plan after independence. Agricultural seczor provides livelihood to 60X of the total working force, contributes nearly 40X of the net national product and accounts for 35Z of the country's exports. In the models of development of agriculture, the Five Year Plan recognized the cooperative sector as a balancing factor between the private and public sector. The advent of Plamxing with its toorings in democracy and socialism, the thrust on growth with social justice and adoption of socialistic pattern of society have added a new significant and positive role to cooperatives in supporting the  - 4 - farmer, the worker, the artisan, and the consumer. The democratic character of the movement combined with its federal structure in which an individual member of the primary society in a village could draw support from a national level cooperative organization, renders the movement an effective Instrument for decentralized planning and implementation of various economic activities by the people involved in these activities. Cooperatives offer a countervail- ing force against the exploitative propensities that develop in the economy, and thus protect and promote the interest of the weaker sections. It has been the deliberate policy of the GOI to foster and develop strong and viable cooperative nucleus in every village of the country radiating a vast network of services to the farmers. 1.5 There were 0.315 million cooperative societies in the country with a total membership of 145 million by the end of 1985-86. A wide range of economic activities have been organized on cooperative basis. These include rural credit, supply of inputs and services for agriculture, agro-based cottage and small industries, creation of economic infrastructure for process- ing, storage and marketing of agricultural and minor forest produce, animal husbandry, dairy and fisheries, construction labor, housing and public distri- bution system. Recent years have witnessed successful diversification of activities of cooperatives including fertilizer manufacture. 1.6 The total agricultural credit disbursed by the cooperatives increased from Rs 2,140 million in 1960-61 to nearly Rs 32,061 million in 1985-86. The value of agricultural produce marketed by cooperatives during 1985-86 was over RS 41,930 million as against RS 1,690 million in 1960-61. In the distribution of fertilizers, cooperatives have trossed the mark of 3.6 million tons of NPK during 1984-85 accounting for nearly 44Z of the distribution of fertilizers in the country. The cooperatives have emerged as a major sector in the sugar industry accounting for 59.1 of national production of sugar in 1985-86. In dairy program of 'Operational Flood', cooperatives are playing a significant role. The Indian Fanmers Cooperative Limited is the largest single producer of fertilizer in India and its contribution to the country's total production of nitrogenous and phosphatic fertilizer materials during the financial year 1985-86 was 10.71 and 24.61 respectively. Rationale of Rural and Marketing Godowns 1.7 The integration of credit, distribution of inputs and marketing of agricultural produce at the grass root level requires the development of viable, autonomous and self-reliant cooperative enclaves responsive to the needs of farmers. Cooperative storage has, therefore, become an essential infrastructural requirement and an integral part of multi-functional base level cooperative societies. 1.8 The marketing godowns have the same importance to the marketing societies and Apes federations as rural godowns to the village societies. The marketing of agricultural produce is a crucial link in the network of services required by the farmers. The marketing aspect does not tantamount to merely purchase and sale of goods but covers a large spectrum of services involved in bringing the goods from producers to consumers. The flow of agricultural output is discontinuous, being concentrated during certain periods whereas the consumption of agricultural produce is continuous necessitating stocking after  the harvest and releasing in a regulated manner throughout the year. The problems of the marketing are also compounded due to unequal economic conflict between the farmers and the traders. Cooperative marketing not only strengthens the position of the farmers vis-a-vis the traders but helps in the integration of marketing and productions. Strong and viable cooperative marketing societies can provide sufficient counteracting power to the farmers to compete with the traders. In the past, it has been experienced that lack of godowns has been one of the constraining factors inhibiting the growth of cooperative marketing in the country. Specific Economic Criteria 1.9 The cooperative storage godowns confer certain direct and indirect benefits to the society in general and the farmers in particular. Cooperative storage godowns are real, tangible and durable assets of the economy giving a long stream of benefits over the economic life of the godowns. They add to the nation's wealth and capital. Being instruments of production (services), they yield returns to the farmers in many forms, some of which are discussed below. It is a well known fact that substantial quantity of agricultural produce during post-harvest period is being wasted in the country due to lack of proper and scientific storage facilities. The quantity of loss of food- grains in unscientific storage is estimated at 6.5; which is reduced to 12 in proper storage. Moreover, unscientific storage results in qualitative deteri- oration of the produce which can be avoided with proper storc-t. 1.10 Another quantifiable benefit of storage godowns is savings in transport cost on account of bulk deliveries of inputs and bulk collection of farm produce. These benefits would result from a switch-over from the use of bullock carts used for small loads to the motor transport that would be justified by larger volumes. Storage godofns bring economies of scale resulting in reduction in overhead costs. Rural godowns at the village level and marketing godovus at the mandi and district level also enable the farmers to store their produce after the harvest and sell during the lean season at remunerative prices. This leads to redistribution of income from traders and middlemen to small and marginal farmers. Such redistribution of income subserves the goals of equity. The coope:ative storage facilities also perform the job of buffer stocking, i.e., of dampening the fluctuation in inter and intra-seasonal prices and ensuring better returns to the primary producers without adversely affpcting the interest of the consumers. 1.11 Thus, the economic rationale of cooperative storage godowns stems from the economies of scale, reduction in quantitative and qualitative losses, savings in transport cost, increase in real income of the farmers--all these will be instrumental in enabling the farmers to move to higher consumption frontier than would be possible in the absence of the storage facilities, Rationale of Cold Storage 1.12 Cold storages offer refrigerated storage facilities for commodities which are peLishable in nature such as potatoes, fruit and vegetable, eggs, etc. In case of some coimodities there is no substitute for cold storage. These commodities have to be stored and there is no trade-off between cold storage and other types of storage in the case of these commodities. Produc-  - 6 - tion of comodities like potatoes require to be kept in the cold storage is mostly discontinuous with specific period of sowing, harvesting and marketing, while consumption on the other hand is continuous throughout the season. Due to this imbalance between production and consumption, storage is essential to bring equilibrium in demand and supply throughout the year. It has been esti- mated that spoilage destroys, on an average, more than 252 of all potatoes which are not kept in the cold storage. In major potato proJucing states about sOa of the potatoes need to be kept in cold storage in order to save from spoilage. The cold storage reduces the losses from 25Z to 5 yielding net savings of 20Z. Cold storage increase the post harvest value of potatoes by preserving them so that they can be marketed during the off-season. The difference between harvest value of the potatoes and off-season value may be taken as value-added due to storage. The availability of cold storage facilities nearby to the farm houses also enable the farmers to grow their own seed potatoes and store them in the cold storage resulting in reduction of seed potatoes transport cost. 1.13 At the formulation of NCDC-II Project, the share of the cooperatives in the total cold storage capacity in the country was only around 5. To rectify sectoral imbalances and to help the producer members of the coopera- tives in storing and marketing of the potatoes, there had been a demand for comprehensive project in the cooperative sector.  -7- II. PROJECT FORMULATION 2.1 The Project was prepared by the NCDC in association with the State Governments and concerned cooperative organizations in the form of two Project Reports: 1. Cooperative Storage Project - NCDC-II 2, Potato Storage-Cum-Marketing Cooperative Project - NCDC-II. 2.2 These project reports were appraised by IDA Appraisal Mission which visited India in October 1980. On the basis of these two project reports, IDA Mission brought out 'Staff Appraisal Report, Second National Cooperative Development Project" on April 17, 1981. Cooperative Storage Project Demand Estimates 2.3 Demand for storage in the beneficiary States was worked out on the basis of actual production of main crops during 1976-77 and 1978-79 and the projections during 1982-83 and 1984-85, the actual and projected use of ferti- lizers (material), storage requirement, existing storage and storage shortage, cooperative marketing storage and village level cooperative godowns. The following table gives actual and projected data on the main parameters mentioned above.  --8 - S3COND NATIONAL COOPERATIVE DEVELOPMENT CORPORATION PROJECT AGRICULTURAL PRODUCTION, FERTILIZER USE AND STORAGE CAPACITY IN PROJECT STATES (1976-85) (Quantities in million tons) Actual Proiected 1976-77 1978-79 1982-83 1984-85 Production of Main Crops Maharashtra 13.50 15.90 17.50 18.50 Punjab 9.70 11.00 ;2.00 12.70 Andhra Pradesh 9.30 10.00 11.80 12.30 Bihar 9.90 10.10 10.80 11.10 Himachal Pradesh n.a. 1.10 1.20 1.30 Use of Fertilizers (material) Maharashtra 0.76 0.91 1.20 1.36 Punjab 1.27 1.44 1.87 2.09 Andhra Pradesh 0.93 1.24 1.97 2.45 Bihar 0.38 0.47 0.62 0.75 Himachal Pradesh n.a. 0.03 0.06 0.08 Estimated Storage/Transportation Requirement Maharashtra 4.35 5.13 5.73 6.09 Punjab 5.36 6.07 6.75 7.18 Andhra Pradesh 3.16 3.50 4.33 4.67 Bihar 2.13 2.21 2.41 2.52 Himachal Pradesh n.a. 0.24 0.27 0.31 Existing Storage and Storage gap plus CAP of 1979 Storage Shortage Maharashtra n.a. 1.80 3.65 3.98 Punjab n.a. 6.06 0.77 1.40 Andhra Pradesh n.a. 3.16 1.64 1.80 Bihar n.a. 1.60 0.96 1.05 Himachal Pradesh n.a. n.a. n.a. n.a. Cooperative Marketing Storage Projections Maharashtra n.a. 0.47 0.65 0.70 Punjab n.a. 1.33 1.57 1.73 Andhra Pradesh n.a. 0.48 0.49 0.50 Bihar n.a. 0.35 0.45 0.55 H4machal Pradesh n.a. 0.06 0.07 0.08 Village Level Cooperative Godowns Maharashtra n.a. 0.24 0.42 0.56 Punjab n.a. 0.27 0.51 0.67 Andhra Pradesh n.a. 0.08 0.26 0.38 Bihar n.a. 0.12 0.12 0.12 Himachal Pradesh n.a. 0.06 0.10 0.12  -9- Project Components Physical Component 2.4 The physical component of the project consisted of construction of 7,000 rural and 898 marketing godowns with a total storage capacity of 19.178 lakh tons in the project states of Andhra Pradesh, Bihar, Himachal Pradesh, Maharashtra and Punjab. The details of the program covered in the original project are given in the table below. COOPERATIVE GODOWN PROGRAM (Capacitys 000 tons) No. of Godowns Capacity St&te Rural Marketing Total Rural Marketing Total Andhra Pradesh 3,000 100 3,100 300.00 25.00 325.00 Bihar - 149 149 - 215.00 215.00 Himachal Pradesh 1,100 87 1,187 82.50 21.75 104.25 Maharashtra 1,350 413 1,763 203.00 270.50 473.50 Punjab 1,550 149 1,699 400.00 400.00 800.00 Total 7.000 898 7,898 985.50 932.25 1,917.75 2.5 The Project was deemed to have commenced with effect October 1, 1981. The year 1980-81 was treated as the pre-project year. Project had a time span of 5 years for completion from 1981-82 to 1985-86. The phasing of the godowns construction program from pre-project year 1980-81 onwards up to 1985-86 was also given in the SAR report. Financial Component 2.6 The cost of the project was assessed at Rs 1,410.52 million inclusive of technical assistance, supporting investment and physical and price contin- gencies. Statewise details of the project cost are given below:  - 10 - PROJECT COST (Re in crores) Andhra Himachal Cost components Pradesh Bihar Pradesh Maharashtra Punjab Total Cost of godowns Rural 22.470 - 6.482 18.495 26.905 74.352 Marketing 1.370 8.643 1.191 9.440 16.000 36.644 Subtotal 23.840 8.643 7.673 27.935 42.905 110.996 Technical assistance 0.065 0.024 0.021 0.076 0.117 0.303 Supporting investment 0.130 0.047 0.042 0.153 0.235 0.607 Base Cost 24.035 8.714 7.736 28.164 43.257 111.906 Physical contingencies 1.371 0.497 0.441 1.606 2.467 6.382 Price contingencies 4.889 1.773 1.574 5.729 8.799 22.764 Total Proiect Cost 30.295 10.984 9.751 35.499 54.523 141.052 2.7 The project made separate allocation for technical and supporting investment and also provided for physical contingencies of over 5 and price contingencies of over 202 over the base cost of the project. Technical Component 2.8 The project also embodied a technical component to help the partici- pating agencies develop their operations to meet the expanded tasks satisfac- torily. Technical assistance was provided for consultancy services to assist each of the banks in strengthening its long term finance department and setting up a new organization and method department. It also included the cost of reviewing the banks' staffing, accounting procedures and management information system with a view towards improving them by making suitable recommendations. In addition, provision was also made for purchase of vehicles to help the mobility of staff at various levels who would implement and monitor tne project. The technical assistance component also provided for supply of engineering instruments for the use of the technical staff of the Banks. Implementation Organization 2.9 As in the NCDC-I Project, NCDC would be the major project agency and would coordinate implementation activities of all participants in the project states. The State Cooperative Bank designated as the implementing agency in Andhra Pradesh; Bihar State Cooperative Marketing Union (BISCOMAUN) in Bihar;  - 11 - H.P. State Cooperative Bank for rural godowns, H.P. State Cooperative Marketing Federation for marketing godowas in Himachal Pradesh, Maharashtra State Land Development Bank for rural godowns and Maharashtra State Coopera- tive Marketing Federation for marketing godowns in Maharashtra; Punjab State Cooperative Bank for rural godowns and MARKFED for marketing godowns in Punjab. Godowns Desitns, Specifications and Procurement Procedures 2.10 According to SAR, buildings would be constructed to standard design of four capacities--S0, 100, 200 and 500 tons for use of PACS and 250 and 1,000 tons for RCMs and SCMF. Facilities provided for PACS would include storage space for fertilizers, separate from space for farm produce, space for consumer goods, storage dnd sales, societies office, drinking water supply, W.C. facilities, veranda, patio for meeting and parking yard. The storage space of PAC godowns was designed for bagged storage of foodgrains and ferti- lizers with adequate ventilation and space for workers to move about for handling. Roofing of godowns owned by PAC would be mainly of reinforced cement concrete (RCC). The project would involve relatively small expenditure at any one point of time incurred by several individual cooperatives. Contracts for godowns would be individually small and geographically well dispersed and would be let on local competitive bidding in accordance with procedures satisfactory to IDA. Lending Terms 2.11 The loan assistance to the implementing agencies for construction of godowne would be made available for a period of 15 years with a moratorium on repayment of principal amount and interest for the first three years. The loan and interest would be repayable in 12 equal annual installments commenc- ing from the fourth anniversary of the loan. Besides, there was also a provision for physical contingencies and price contingencies. Loan assistance was provided for purchase of vehicles, engineering instruments, appointment of consultants for O&M studies, appointment of engineering and general staff, research and development etc. 2.12 The rates of interest and the margins to the financial institutions were as followss  - 12- Borrowing Lending rate (Z) Margin rate (Z) la Government of India IDA funds -- -- 6.75 NKCDC 6.75 0.50 7.25 State Coop. Land Development Bank 7.25 2.25 9.50 Society 9.50 -- __ la 0.25X rebate will be admissible at all levels for timely repayment of loan. 2.13 The NCDC loan assistance for the program would be routed through the State Cooperative Bank except in the case of Maharashtra and Bihar. All loans to designated agencies would be given against State Government's guarantee. Financing Pattern 2.14 According to financing pattern of the NCDC-1I Cooperative Storage Project, NCDC would provide 75? of the cost of construction of godowns as loans. 50S will be provided to the participating banks and 25Z to State Governments for equity contribution. The State Governments would provide 201 of the cost of construction from state budgets and 5? would be provided by the beneficiary societies as their own contributions. Procedure for Lending 2.15 As soon as a subproject was recommended by the Registrar of Cooperative Societies and sanctioned by the implementing agency and the land was acquired by the society, the bank would release 50 loan in one lump-sum in favor of the selected societies as ways and means advances so that the construction was taken without delay. The balance of 50? loan assistance would be released as soon as the godown construction reached the plinth level and after the release of full share capital by the State Government. The State Government would also sanction and release the share capital (45Z) assistance to the societies soon after the Project was sanctioned. The entire loan assistance to the society would be kept with the implementing agency responsible for construction of the rural godowns. The implezenting agency would, imiediately after release of loan installment, request the NCDC for reimbursement of the assistance released to the selected societies. Similarly, the State Government would request the NCDC for reimbursement of the loan portion (25Z) of the share capital released to the societies.  - 13 - Prolect Coordination 2.16 A Project Coordination Committee (PCC) would be established in each of the Project States for coordination and monitoring purposes. The PCC would be headed by the Agricultural Production/Development Commissioner. The members of the PCC would include the State Registrar of Cooperative Societies, representatives from the participating banks and SCMF and officers of the Abricultural/Iorticulture Department. Subproiect Preparation and Appraisal 2.17 The subproject appraisal of the godowns would be carried out on the basis of detailed guidelines given by the World Bank. RCC's staff and bank's Development Officers would guide PAC Managers in preparing subproject proposals and loan applications. All subprojects would be appraised by the banks. All godowns of 1,000 tons and above capacities and first five godowns of each of other capacities would be subject to NCDC full appraisal and approval. All the subsequent subprojects appraised by the banks would be reviewed by the NCDC on a sample basis. The performance for subproject appli- cations for PAC, Marketing Societies and State Marketing Federations were prescribed. 2.18 Appraisal of SCBs/SLDBs would include a detailed review on technical, managerial and financial aspects and involve field investigation by its tech- nical and banking staff. The subproject appraisal would be based on criteria established in agreement between NCDC and IDA. Training and Manpower 2.19 The NCDC-II Cooperative Storage Project laid considerable emphasis on training and manpower development. According to SAR, effective education of society members and Committee members in cooperative affairs and services would improve the utilization of project-sponsored facilities. The major areas of responsibility would be to ensure that the job specific training is available to all personnel prior to assumption of their duties. It would also be essential that the task of overall project manpower provision and project education coordination be allocated to suitable State level units. Cooperative Training Centers located at Andhra Pradesh, Bihar, Himachal Pradesh, Maharashtra and Punjab would provide training for godowns managers. A modular course structure would be most appropriate for godowns staffing needs with courses offered in management and accounting, credit, supply of farm inputs, crop storage and marketing and consumer services. Monitoring and Evaluation 2.20 NCDC would have the overall responsibility for project monitoring and evaluation. The monitoring functions would be carried out by its Storage Division. At the State level, monitoring would be the responsibility of the SCBs/SLDBs. They would send the progress reports to NCDC and copies of all the reports to the Project Coordination Committee which would follow up and supervise implementation in the States. The SAR discussed practical monitoring arrangements on the basis of their operational efficiency during the implementation of NCDC-I Project.  - 14 - Financial Proiections 2.21 The SAR does not provide financial projections for godowns for the different participating states. For utilization purposes business models have been prepared of a typical PAC operating in a 100 ton rural godown and for SCMP investing in a 2,000 ton marketing godown. In the models the growth of operations of first six years is based on the observations of actual perfor- mance of existing societies with godowns. From year 7 onward the growth of activities is assumed to stabilize at an annual growth of 6-72. Based on the margins currently earned on different PAC activities, the FRR for the PACs investment would be 17S for a godown without managers' residence and about 132 with a manager's residence. The model of SCMF investing in 2,000 tons godown indicated a FRR of about 13S. 2.22 A sensitivity analysis was performed to ascertain which variables were most crucial for the success of the above investments. The test showed that overall the godown component was stable and generally insensitive to the moderately adverse assumptions. The financial viability was most sensitive to the volume of fertilizer sales and credit turnover, which may be reduced over 402 of the base cost without making the investment unacceptable at 122 oppor- tunity cost. A grouped sensitivity analysis indicated that a 102 change in any of the streams or their combinations would entail a change of only 1-2 percentage points in the FRR. 2.23 Cash flows were prepared for the three models described above. A typical PAC without manager's residence would become profitable from year 3 onwards and its annual cash flow would be negative until then, but the cumulative cash flow therefore would remain always positive and allow payment of interest on the project loan during this period. Comencement of loan repayment seems possible in years 4 to 5 justifying the proposed three years grace period. A PACS godown with Manager's residence would achieve a positive annual cash flow beginning in years 5 to 6. Economic Rate of Return 2.24 SAR works out Economic Rate of Return on the godown and cold storage components of the Project. In estimating economic values, Standard Conversion Factors (SCF) of 0.8 has been applied for domestic expenses and non-traded goods and service. To reflect the difference between international and domestic prices for steel and cement a conversion factor of 1.2 has been used for the cost of steel and 1.6 of cement. A shadow wage rate of 602 of market rates for unskilled labor and 802 for semi-skilled labor has been used to take into account the high rural unskilled; technical and administrative personnel are costed at market prices. The economic prices for trading goods are based on their border prices at the official exchange rate. The analysis is for a 20-year period which is the estimate of the productive lives of the principal assets created. 2.25 Two principal tangible benefits would accrue from the operation of the godowns. These benefits ares (a) Reduction of storage losses in farm inputs and produce that would occur otherwise in the absence of project facilities.  - 15 - (b) Savings in transport costs as a result of bulk deliveries of inputs and bulk collection of farm produce that project financed godowns will permit. 2.26 SAR estimates rediuction in storage losses at 22 of all the farm produce and fertilizer expected to be handled and savings in transport cost of about Rs 15 per ton. These benefits were included in the calculation of the economic rate of return for the godown component. The estimated cost and benefit streams in the godown component were estimated as follows: COSTS (Rs million) Years 1 2 3 4 5 6-20 Project investments 223.8 242.8 242.7 241.1 257.9 -- Incremental operating costs 16.5 22.3 28.9 36.1 43.3 36.6 Benefits Reduction in storage losses 20.2 45.3 72.5 103.9 137.4 200.0 Transport cost savings 7.4 16.0 26.0 37.0 48.9 71.0 Economic rate of return 16 percent 2.27 The sensitivity tests showed that the godown component was relatively insensitive to variations in the cost and benefit streams. The reduction in storage losses, which was the most sensitive parameter, could fall from the 2% assumed to 1.5S before this component would become unacceptable at 12? oppor- tunity cost of capital. In the grouped sensitivity analysis, a 10? variation in any of the stream or their meaningful combinations would cause only two percentage points change in the ERR. One year's lag in attaining all the projected benefits would result in a decline in the ERR from 16? to 13?. Proiect Beneficiaries 2.28 The project would primarily benefit the mertbers of participating PAC. About 3.2 million farm families are expected to utilize services of PAC godowns. A large percentage of the project participants would be part of the 482 of India's rural population that are considered by GOI to live below the poverty line. Potato Storape-Cum-Marketing Cooperative Proiect 2.29 The Potato Storage-cum-Marketing Cooperative Project was a part of Second National Cooperative Development Corporation Project which was posed to  - 16 - the World Bank for the purpose of financing the rural godoun project in several States and construction of Potato Cold Storage and Marketing Facilities in the main potato producing States of Bihar, Haryana, Madhya Pradesh, Punjab, Uttar Pradesh and West Bengal. Project Area 2.30 Six main potato growing States as already mentioned above were selected for construction of cold storages. These six States accounted for about 902 of the total production of potato in the country. Physical Component 4.31 The physical component of the Project consisted of construction of 127 cold storages of 4,000 tons capacity each. Statewise break-up of the number of cold storages along with capacity is given in the following table: PHYSICAL COMPONENT OF THE PROJECT Total Proaram S1. No. State No. Capacity lakh tons (i) Bihar 17 0.68 (ii) Haryana 7 0.28 (iii) Madhya Pradesh 4 0.16 UiV) Punjab 8 0.32 (v) Uttar Pradesh 69 2.76 (vi) West Bengal 22 0.88 Total 127 5.08 Marketing Com2onent 2.32 The Project provided that the SCKD would develop their own marketing mechanism under the project and establish offices and recruit specialized staff to gradually increase cooperative penetration in overall marketing of potatoes. Once the marketing cells of the SCMF have developed their marketing intelligence and have hired qualified staff to provide expert assistance and advice, PCS may also be able to enter direct marketing, although in the beginning the PCS cold stores would have rental activity as their primary function. NAFED, as the principal exporter of potato in the cooperative sector, would develop marketing intelligence services for the SCNF and carry out research and experiments in potato marketing. Sufficient funds would be provided under the project to finance establishment of the marketing offices with necessary ancillaries.  - 17 - Research and Development Component 2.33 Closely related to the cold storage component was the research and development component which would be promoted through the project. NCDC would provide loans from the total amount of Re 8 million to suitable organizations, one of which could be NAPED, for purposes which promoted experimental cold storage development and related activities. Each of these would be a subpro- ject, prepared separately, appraised by NCDC and reviewed by IDA. Phasing of the Proiect 2.34 The project envisaged the completion of proposed capacity over a time span of four years from 1981-82 to 1984-85; the year 1980-82 would be treated as pre-project year. Project Cost 2.35 The total project cost consisted of cost of construction of cold stores, cost of providing marketing facilities and supporting investments. research and development and physical and price contingencies. The break-up of the project cost is given belows STATEWISE PROJECT COST (Rs in crores) Base Physical Price Total state Cost Contingencies Contingencies Cost Bihar 8.21 0.42 1.02 9.64 Haryana 3.41 0.18 0.41 4.00 Madhya Pradesh 2.00 0.11 0.25 2.36 Punjab 3.88 0.20 0.47 4.55 Uttar Pradesh 33.06 1.65 4.00 38.71 West Bengal 10.65 0.54 1.28 12.48 Subtotal 61.21 3.10 7.43 71.74 Research and development assistance 0.80 0.80 Total Proiect Cost 72.54 Design and Construction of Cold Storages 2.36 The construction of cold storage building of 4,000 tons capacity, consisting of two 2,000 ton chambers was in accordance with the standard designs approved by NCDC in consultation with IDA. With the rising cost of steel, most of the stores under the project were designed to have an internal lattice of RCC beams and columns, with wooden slatted storage floors to take  - 18 - the potatoes and slated RCC or gangva)s. The cold storages were built with RCC flat roofs. Drawings and designs of cold storage buildings were sent to the participating states along with specification for refrigeration plant and insulation. Procurement Procedures 2.37 Since the contracts for cold storages were individually small and dispersed in time and place these were based on local competitive bidding advertised locally in accordance with the procedures satisfactory to NCDC and IDA. International bidding was not considered necessary. Contracts for cold storages are generally awarded in four parts--structural civil works, electrical installation, refrigeration plant, and insulation system. Standby generators required or cold storages in locations with erratic electric supply would be procared under local competitive bidding procedures. Contracts for plant and machinery would be awarded by a committee which would include a representative of NCDC. Manpower Requirements 2.38 over the duration of the project it was estimated that there would be a requirement of over 1,700 personnel to be recruited and trained to fill the posts of managers, accountants, marketing specialists, refrigeration mechanics and plant operators in the cold stores. Training would be accorded priority in project implementation and planned carefully in advance. Cold storage staff would receive training in three or four training colleges located in Haryana, Punjab, Uttar Pradesh, West Bengal and Bihar. Financial Viability 2.39 The financial viability has been evaluated for a 4,000 ton model of cold storage on the following assumptions: (a) Operations would start at 90o utilization and reach the level of 982 utilization by year 5. (b) The entire capacity would be used for rental at the rate of Rs 2401- per ton with one storage season. (c) 502 of customers would use marketing services offered by the cold stores for a fee of Rs 37.50 per ton. (d) The credit advances against the potatoes were estimated to be at Rs 150/- per ton providing 1X margin to the cold storage. 2.40 Based on the above assumptions the actual operating cost of cold storages the FPR of the cold storage marketing component of the Project was estimated at 21X. 2.41 The financial viability of the cold storage and marketing components was found stable and not likely to be seriously affected by moderate variation in costs. The changes in costs and benefits required to reduce the present value to zero at the 12? discount rate would have to be a fall in rental  19 - receipts by 66S or an increase in project investment costs of about 42Z. The project would remain viable even if the benefits were greatly reduced. The grouped Sensitivity Analysis indicated that with a 1OX change in any of the stream or their meaningful combination the FRR would remain within the 32 range of the base case. 2.42 The cold storage would have comfortable annual cash flow throughout the project period except the investment year. when payment of interest on the investments loans would require short term borrowing. Economic Rate of Return 2.43 The World Bank has identified two tangible benefits flowing from the operation of cold storage and marketing components of the project, Firstly the cold storage would reduce the spoilage losses on potatoes to only 5Z in the average season. They would enable farmers to keep their potatoes free from spoilage in the cold storage during peak season and sell them during lean season and earn profit Jn the shape of value added to the tune of Rs 6501- per ton. This was calculated by assuming that in the without project situation the average farmers would sell 75a of the surplus potatoes at the depressed post-harvest price, with the remaining 252 being spoiled; in the with project situation, 52 only would spoil and 952 would be sold at the premium price in the off-season. The second benefit to the farmers would be saving in seed transport cost. By using cold storage facility in the growing areas the farmers can preserve their own seed potatoes until sowing time. Local produc- tion and storage of seed potatoes would reduce transportation of seed potatoes primarily from Himachal Pradesh and yield an estimated benefit of about RS 0.50 per ton per km for the seed potato. 2.44 Cost and benefit system stresses on the basis of above assumptions are as followss Years 1 2 3 4 5-20 (Rs million) Costs Project investments 233.4 218.3 179.5 - - Incremental operating costs 36.0 61.0 88.0 88.0 88.0 Benefits Value added 25.0 121.9 219.0 315.9 315.9 Saving in seed transport cost 0.7 3.5 6.3 9.1 9.1 Economic Rate of Return 342  - 20 - 2.45 Sensitivity tests have shown that value added would have to be reduced to almost half of the figures employed before the economic rate of return for the cold storage component fall below the 122 opportunity cost of capital. A 102 reduction in benefits would reduce the economic rate of return to 291; a lag of one year in benefits to 272. Other Benefits 2.46 It was estimated that each cold storage would be manned by 8-9 people creating permanent employment for over 1,000 persons. Besides, it would give employment to a large number of casual workers for handling and sorting the agricultural produce. About 125,000 - 150,000 potatoes farm families are expected to utilize the new cold storage facilities. The potato growers' net benefits of storing and marketing through cooperatives were estimated to be Rs 150/- per ton for table potatoes and Rs 350/- seed potatoes. There would be additional benefits arising from the potatoes saved from rotting by preserving them in cold stores. An average potato growing member would receive benefits estimated at Rs 1,300-1,500 annually. Over 65t of the potato growing members who will be utilizing the services of the cold storage would belong to a category of small and marginal farmers having less than 5 hectares of unirrigated land or 2.5 hectares of irrigated land. 2.47 The cold storage and marketing components of the project would greatly reduce the risk associated with potato growing and the smaller farmers vho have been neglected by private cold storage owners would have opportunity to store their potato crop of only a few bags. 2.48 The establishment of cold storage would also give direct employment to the women. Women would be employed in the cold storage as potato sorters and graders. Some women will also obtain employment during the construction phase of the projeet. Project Risks 2.49 The Project has identified two possible risks. Firstly, there could be shortage of cement which would delay the implementation of the project and also result in cost escalation due to construction delays. In this event the number of cold stores that can actually be financed out of the project funds might be smaller than proposed in the project. Another risk may arise from the limited experience of the cooperative sector in managing potato cold stores.  - 21 - III. IMPLEMENTATION 3.1 The implementation phase of the World Bank NCDC II Project has been divided into two partss Part I details the achievements of the physical targets and expenditure on godown and cold storage components of the project and problems experienced during the process of implementation and Part II dwells on the institution building of the participating agencies. Cooperative Storage Proiect NCDC Policy Circular 3.2 NCDC issued a comprehensive policy circular to State Government Authorities, Implementation Agencies and other connected officials on February 6, 1981 incorporatiag major features of the NCDC-II World Bank Cooperative Storage Project and the operating procedures for the implementation of the Project. The circular defined the project period, indicated pattern of financing, and made guidelines for release of funds and for subprojct appraisal. The policy circular set in motion the process of project implementation of the Cooperative Storage Project. Physical Progress Revision of Proiect Targets 3.3 In the SAR, the physical component of the project consisted of construction of 7,000 rural and 898 marketing godowns with a total storage capacity of 19.178 lakh tons in the Project States of Andhra Pradesh, Bihar, Himachal Pradesh, Maharashtra and Punjab. The SAR targets the number of rural godowas and marketing godowns, their capacities were revised many times during the implementation of the project. With the transfer of U.P. from NCDC-III Project to NCDC-II Project, the net program sanctioned by the NCDC and adopted as targets stood at 7,331 rural and 1,611 marketing godowns with a capacity of 32.787 lakhs tons. The statewise implementation of the storage program is given below:  - 22 - SAR AND REVISED TARGETS OF RURAL AND MARKETING GODOWNS (Capacity in lakh tons) SAR Target Revised Target No. of godowns Total No. of godowns Total State Rural Marketing Capacity Rural Marketing Capacity Andhra Pradesh 3,000 100 3.250 2,831 100 3.5935 Bihar - 149 2.150 - 184 2.1500 Himachal Pradesh 1,100 87 1.042 733 86 0.7935 Maharashtra 1,350 413 4.735 936 415 7.3185 Punjab 1,550 149 8.000 1,234 361 10.1355 Uttar Pradesh (a) Marketing - - - - 419 5.7000 (b) Transferred from NCDC-III 1,597 46 3.096 1,597 46 3.096 to NCDC-1I Total 8,597 944 22.273 7,331 1,611 32.7870 Construction of Godowns 3.4 The construction phase of the Cooperative Storage Project in most of the Project states started in the 1981-82 and the respective State Cooperatives Banks were the agencies responsible for its implementation. However, in Bihar, since all the godowns proposed to be constructed under the project were to be allotted to Bihar State Cooperative Bank Marketing Union it was made an implementing agency. In Maharashtra, the State Cooperative Land Development Bank was identified as the implementing agency. In U.P., the construction of rural and marketing godowne was taken up in the year 1984-85. Cooperative storage program envisaged earlier under NCDC III in the state was also transferred to NCDC II. Yearvise number of godowns completed in the project states and capacity created may be seen from the table below.  - 23 - NO. OF GODOWNS AND CAPACITY CREATED Year Punjab UP Bihar AP Maharashtra HP Total 100.00 1981-82 No. - - 124 2 - 126 Cap. - 12.40 11.00 23.40 1982-83 No. 469 44 210 33 23 979 Cap. - 57.00 43.55 17.20 3.50 121.25 1983-84 No. 433 29 129 145 133 868 Cap. 432.10 46.00 14.05 22.00 7.50 522.15 1984-85 No. 299 350 29 429 254 211 1,572 Cap. 119.00 32.80 39.75 46.80 61.90 15.95 316.20 1985-86 No. 258 767 7 665 173 105 1975 Cap. 219.90 94.10 10.00 73.10 113.80 9.20 520.10 1986-87 No. 119 347 13 1,057 291 118 1,945 Cap. 3.82.40 64.30 19.50 152.50 174.60 9.35 602.65 1987-88 No. 2 71 2 65 69 135 344 Cap. 2.75 54.80 5.25 9.45 59.10 17.20 148.55 Total No. 1,580 1,535 123 2,879 967 725 7,809 Cap. 956.15 246.00 177.50 352.35 459.60 62.70 2,254.30 3.5 It would be seen from the table that by October/November 1987 7,809 rural and marketing godowns with total capacity of 22.543 lakh tons were completed. The remaining construction program is scheduled to be completed by project closing date. Rural and Marketing Godowns Problems During Implementation 3.6 The implementing agencies in the Project States faced two sets of problems. The first set of problems related to the completion of godowns according to phased yearwise schedules. These problems pertained to setting up of implementing agency, recruitment of technical and engineering staff, acquisition of land, tendering, arrangement of building materials, supervision, etc. The first set of problems led to delays and slippage in implementation. Once the delays occurred irrespective of the source of delay, the outcome was enhanced prices of inputs and cost escalation. Increase in cost could be considered a function of time in a country which is in the process of development and inflation has become the inevitable derivation of the process of development itself. Increase in prices of construction materials is the result of a large number of factors operating on the demand side at aggregate level. An implementing agency has no control over the prices of inputs. It should avoid delays and cost escalation would be minimized. These two sets of problems are dipcussed below:  - 24 - Availability of Land 3.7 In most of the project States considerable difficulties were encountered in finding suitable land for construction of rural godowns. In Himachal Pradesh, due to paucity of land in the hilly area, appropriate sites were not immediately available and considerable time was spent in arranging suitable sites in the area. Moreover, the land provided by the State Government was not even and required development before the layout was given to the contractors. Since in the cost estimates of the godowns, no provision was made for levelling of the sites, work was required to be done by the concerned societies within their own resources. Arranging the funds for the levelling work by the societies on their own delayed the construction of rural godowns in Himachal Pradesh. 3.8 In Andhra Pradesh the main problem in the construction of rural godowns in the beginning of project was acquisition of suitable sites. Due to rigid rules prevailing in the State, alienation of land by District Collector could not be done in time in many districts resulting in the delay in the implementation of the project. 3.9 In Punjab, lands offered by the societies in some cases were not suitable for economical construction within the sanctioned amount due to various factors like low lying areas, unapproachable land, land in the congested area in the village and plot of dimension less than that required as per drawing and specification. 3.10 In Maharashtra also Revenue Department in many cases was not able to make available land from the Gram Panchayat. The World Bank Mission which visited Maharashtra in November 1984 recommended that tenders should not be awarded for sites where physical possession has not been obtained. Accordingly, the Bank issued instructions to all the District Branch Managers to the effect that only such proposals where land was available and the possession of which was expected to be transferred to the beneficiary societies shortly should be sent to the Head Office for sanction. 3.11 Considerable problems were faced by the BISCOMAUN in Bihar in obtaining suitable sites for the construction of the godowns. In many places BISCOMAUN could not obtain clear titles for the land and Government land had to be arranged by issuing orders by the District Collectors for the transfer of land in favor of BISCOMAUN. Besides this, locations of various godowns were required to be shifted in view of the change in the business turnover at different locations and need to re-allocate the capacity in the tribal sub- plan areas. In the project formulation, it was stipulated that the land for the marketing godonns wvuld be available by the Government at Block Headquarters. However, State Government could not provide land and BISCOMAUN had to arrange private land at much higher cost. 3.12 In U.P. also, in some villages the land for the construction of rural godowns was not available easily. In many cases, construction was delayed.  - 25 - Non-Availability of Technical Staff 3.13 During the initial years of the implementation of the project, the implementing agencies experienced shortage of technical staff. Since the project was for a specific period, it was not possible to recruit entire staff on permanent basis. Andhra Pradesh Cooperative Bank (APCOB), the implementation agency for rural godowns, obtained officers on deputation to look after 2-3 districts each. However, the staff deputed were quite inadequate in number to tackle the works. The bank recruited 54 staff engineers and supervisors on contractual basis in different districts. Nevertheless, the recruitment of technical staff at different level took considerable time and delayed the implementation of the project. 3.14 In Himachal Pradesh, the administrative and engineering cell under project could not be set up earlier. The bank decided to obtain technical persons from different Departments. Many times the departments were not prepared to send the technical persons due to paucity of staff. Engineering and Administrative Cell could, therefore, function with full complement of staff only from 1983-84. 3.15 In Bihar also BISCOMAUN indicated that the Staff provided for in tne Staff Appraisal Report was highly inadequate particularly for the State in such a wide area with very bad communication conditions. BISCOMAUN recruited staff in excess of the Staff Appraisal estimates in order to provide effective supervision. 3.16 In Masharashtra the Bank could not recruit adequate staff to cope with the target of construction of rural and marketing godowns under the project. Even after 2X years of the project, the full complement of the staff required for the project was not in position. The Bank tried to tap all sources of engineering staff from the open market and through deputation of Government staff. The bank was still not able to recruit adequate staff. 3.17 In U.P. and Punjab, problem of recruitment and positioning of adequate staff was not felt acutely. Non-Availability of Construction Materials 3.18 The construction materials during the course of implementation of the project was not available in time and adequate quantity for the construction of godowns. 3.19 In Andhra Pradesh the APCOB and APSCMF faced various problems in obtaining the materials for construction such as cement, steel and bricks. In earlier stage of construction levy cement allotted by State Government was very just sufficient to completed 25t of the targeted works. The problem was later resolved by authorizing the use of non-levy cement to the extent of 50? of the requirements which was subsequently raised to 75? of the total requirement for construction. The godowns were to be constructed in villages. The bricks were not readily available in villages of Andhra Pradesh. In monsoon season also, the construction work was hampered. For doing the centering works to rural godowns slabs, the caserina posts beyond a length of 10 feet were also not readily available. Seasoned country wood was not  - 26 - available. As an alternative steel doors were used wherever such difficulties were faced. 3.20 In Bihar, BISCOMAUN initially faced the non-availability of adequate quantity of levy cement. Problem was, however, sorted out by authorizing the use of the open market cement to the extent there was shortfall in the availability of levy cement from State Government. 3.21 In Himachal Pradesh and neighboring States, there was a protracted strike by brick-kiln owners from February 1983 to December 1983, as such the works which were awarded in brick masonry could not progress. Shortage of bricks was also experienced even after the strike as the back-log of demand was to be met. Some of the works were also re-awarded in stone masonry, but considerable time was taken in the re-awarding of these works. Due to insufficiency of levy cement, non-levy cement was used which led to the increase in the cost of construction. 3.22 In U.P. the Implementation Agency resolved the problems of availability of sufficient quantity of cement and steel in time through use of non-levy cement and purchase of steel from open market. However, in some cases the work was delayed. Lack of Response from Professional Contractors 3.23 Lack of adequate response from professional contractors for tendering for rural godowns was recorded in most of the project States. Inadequacy of response from the professional contractors was mainly due to: (a) Low margin of profits on rural godowns as compared to construction of roads, irrigation works; (b) Difficult and interior locations of the godowns resulting in logistic problems; lc) Small and scattered nature of works; and (d) Insufficient availability of 'A' Class contractors. 3.24 In Andhra Pradesh due to reasons mentioned above, the implementing agency was constrained to encourage the local people only in taking up the contracts. These local contractors lacked the expertise and also the finan- cial resources. They were not able to follow drawings or specifications which resulted in delayed execution of works. 3.25 In Bihar, the implementing agency did not face any difficulties in attracting good response from the contractors for godowns of capacity of 1,000 tons and above. However, in the interior and tribal areas where the average size of the godowns was 500 tons only the response from contractors was not favorable and construction had to be completed by establishing District Local Construction Committees. Flexible strategies were adopted for construction of the godowns.  - 27 - 3.26 In Maharashtra, rural godowns proposed to be constructed under NCDC-II were earmarked at different scattered locations which were situated in wide distances over the vast areas. It was difficult for a few contractors to bid for the works and supervise the construction of the godowns. The response of the contractors was poor as the construction materials were required to be transported from considerable distances. Hence, the Bank entrusted the works in many cases to the societies. 3.27 In Himachal Pradesh, there was not enough competition amongst the contractors in tendering for the construction works particularly for rural godowns. Some of the contractors quoted very low raLes which were later found to be unworkable. Due to unworkability of these rates many contractors left their works after completing the construction up to plinth level. They preferred to forfeit the earnest money deposited. The contractors mostly registered in 'D' category came for taking the construction works. The finan- cial position of these contractors was not very sound wh!.ch staggered the construction for 10 to 12 months as against the stipulated period of the 4 to 5 months for rural godowns of 50 tons capacity. 3.28 Keeping in view the inadequate response from the contractors, the bank decided to award the works to the interested PACS under the supervision of its engineering staff. Other Problems 3.29 There were also specific problems pertaining to one or two project States which delayed the completion of the project. In Punjab, there was some delay in finalizing the implementation agency for rural godowns. Initially, MARKXPD was entrusted with the responsibility of the supervising the total construction program. Subsequently however, the State Cooperative Bank was appointed as the Implementing Agency responsible for supervising the construc- tion of rural godowns. Because of this change of program, construction of rural godowns in the first two years could not pick up. The problem in finalizing the agency also delayed the appointment of technical staff in the bank to supervise the construction work. 3.30 In Maharashtra in many subprojects, the construction of godowns was held up due to non-availability of funds with the concerned Rural and Primary Marketing Societies. As the works were awarded on higher cost, Societies had to meet the deficit amount from their own resources in addition to contribu- tion towards own payment. As the societies were unable to find resources, the further construction work could not proceed. However, the problem was solved after the revision of cost by NCDC applicable to subprojects of such societies. 3.31 In Himachal Pradesh, the weather problem hampered the construction program as many districts are covered with snow and construction work cannot be taken up for about 6-7 months in a year. In Himachal Pradesh, the Bank also experienced the problems of inadequate facilities of vehicles. The supervision expenses at 72 of the actual construction cost was found to be inadequate by Project States.  - 28 - Marketing Godownh 3.32 Unlike the construction of rural godowns, the implementation schedule of marketing godowns did not face any serious problem. In Andhra Pradesh, A.P. State Cooperative Marketing Federation did not face serious problems particularly with regard to personnel to manage the construction. With the help of their existing technical staff, the Marketing Federation was able to undertake the construction of all the 100 marketing godowns within the stipu- lated cost ceiling as approved by NCDC from time to time. In Maharashtra, the Federation also did not face any major difficulty during the construction phase of project. According to the Federation, almost in all the cases, the construction of godowns was completed within the stipulated time period. There was no difficulty in transportation of construction materials. Due to adequate staff provided for at the field level as well as headquarters level no administrative difficult was experienced. However, there were some diffi- culties in acquisition of plots required for the construction of marketing godowns. 3.33 In Himachal Pradesh also no major problem was faced during the construction of marketing godowns. 3.34 Similarly, in case of marketing gadowns in Punjab, MARRFED did not face any problem except the cost escalati m in implementing the construction program. Problems faced by BISCOMAUN ir construction of marketing godowns in Bihar have already been discussed. Cost Escalation 3.35 The project had provided for price and physical contingencies. However, the cost escalation of rural and marketing has been mainly due to price contingencies. 3.36 One of the major effects of delayed implementation of the godowas project has been escalation in the cost of construction materials like cement, steel, bricks, sand, lime and paint etc. and services of mason, blacksmith, carpenter, skilled and unskilled laborers. The cost escalation led to revision in NCDC approved cost of construction of godowns of various dimen- sions from time to time. The increase in the prices of construction materials varied marginally from State to State. The following table traces the behavior of representative prices of major construction materials from 1981-82 to 1987-88z  - 29 - DECRASE IN PRtICES OF CMONUCON MATRIALS (a Rupee) escription of S.No. ateriels 1981-52 1992-93 N8-"4 1064-8 190-90 1987 109748 1. Cmnt, (lovy per ton) etc. lncluding 00 s00 1,000 1,100 1,200 ,00 1,200 carrae to site 2. Steel materials per too 4,000 5,000 5,000 7,000 6,600 0,600 ,620 S. Bricks per 1,000 Non. 850 400 460 600 25 625 6560 4. Lim per Qntl. S2 50 66 so so 76 100 S. Ordinary building timber pevcum. 4,000 4,600 6,600 6,000 6,500 8,600 10,000 6. AC het per qm 50 48 52 64 70 70 70 7. Pints per liter 80 85 40 42 46 so 66 S. Sd per cuam 0 e6 96 96 100 100 120 3.37 Most of the rural and marketing godowms were constructed between 1981-82 and 1986-87. The data in the above table reveals that during this period prices of cement increased by 100?, steel by 70?, bricks by S0X, lime by 134?, timber by 1122, A.C. Sheets by 48S, Paints by 87?, sand by 25?. Besides, there was steep increase in the cost of services of mason, carpenter, blacksmith, skilled and unskilled laborers. The wages per day of mason, carpenter and blacksmith in Andhra Pradesh increased to over 83? between January 1982 and January 1986, between 100-125? in Himachal Pradesh, 78.6? to 96.2? in Bihar. The increase in other States was also similar. 3.38 The Increase in the cost of building materials as well as services led to increase in the cost of construction of godowns in the project States as shown in the next page. 3.39 The data in the table shown below reveals that there have been continuous cost escalation of the rural and marketing godowns of difference capacities. For instance, cost of a rural godown of 100 tons capacity with residence in Andhra Pradesh increased from Re 0.8310.90 lakh in 1981 to Rs 1.4111.71 lakhs in 1985. The cost of 1,000 tons capacity marketing godown in Bihar escalated from Rs 3.70 lakhs in 1981 to Rs 6.04/8.31 lakhs in 1987.  - 30 - ESCALATION TN THE COST OF CONSTRUCTION OF GODOWNS UNDER NCDC-II PROJECTS (Capacity: Tons) (Rs in Lakhs) State/ Godowns 1981 1982 1983 1984 1985 1986 1987 Punjab 100(WR) - 0.75 - - 0.99 - - 100(R) 0.83 0.97 - - - - - 200 1.11 1.25 - - 1.45 - - 500 2.17 2.50 - - 2.98 - - 1,000 3.55 3.55 - 3.55 5.08 - - Bihar 500 - - - - - 2.96 3.31/3.87 750 - _ _ _ - 4.72 5.0216.79 1,000 3.70 4.10/4.50 - - - 5.27 6.04/8.31 2,000 7.50 7.8018.00 - - - - 8.05/9.87 Andhra Pradesh 100(R) 0.8310.90 1.05/1.25 1.15/1.32 1.35/1.50 1.41/1.71 - - 100(WR) - - - - 1.05/1.33 - - 500 _ _ - 3.15 - - Himachal Pradesh 50(WR) - 0.60/0.91 } 0.94 } 0.70/0.91 } - 0.80 1.11 ) - 0.72/0.97 } 250 1.55 2.62 - 3.6 3.743 3.80/484 - - 500 - 4.06 - - 5.72 - - 1,000 3.7+45ZLa 5.75 - - - - - 2,000 7.00+45ZXa 9.40 - - - - - Maharashtra 100(R) 0.83 0.83 0.86/0.98 - 1.33/1.48 - - 200 1.11 1.26 1.33/1.44 - 1.42/1.57 - - 500 2.17 - 2.27 - 2.40/2.60 - - 1,000 3.70 4.50 5.90 - 6.1516.23 - - /a Depending upon the soil, foundation etc. R - Residence. WR - Without residence.  - 31 - Learning ExPerience 3.40 The Project States in the process of implementation of NCDC-II Cooperative Storage Project has received some diagnostic messages and lessons which can provide policy parameters for working out the construction phase of the cooperative storage project in the country. 3.41 The learning experience pertains to different aspects and phases of the implementation schedule of the project. Some of the important outcome of the NCDC-II Cooperative Storage Project are highlighted below: 3.42 There are three agencies which could be entrusted with the work of construction of godowns. The works could be completed by full time contractors or by the societies on Amani Basis or undertaken by Labor Cooperatives. According to the Implementing Agency of the project in A.P., the construction of godowas should be through contractors as there was no saving either in time or cost from other agencies employed for construction. 3.43 In Maharashtra, about 300 rural godowns were constructed by the beneficiary societies. In respect of marketing godowns. almost all godouns were completed through private contractors. According to the Implementing Agency in Maharashtra, although societies took longer time to get the godowns construction on Amani basis, it was fourd that the quality of godowne constructed by the societies was better than the quality of godowns construc- ted by the contractors. However, the societies are not equipped everywhere to undertake construction works. 3.44 Most of the Project States have been handicapped due to inability to recruit engineering and technical staff required for the completion of the rural and marketing godowns. Since the project was for only five years and timebound it was difficult to recruit persons on permanent basis. The experience of the implementing agencies has brought out that staffing of the technical persons is a difficult task unless the Implementing AGency is able to get series of projects one after the other. It is also difficult to get the technical persons on deputation from Allied Organizations. Under these circumstances, the Implementing Agencies may have to recruit or depute only skeleton staff and depend on some outside agencies like other retired engineers and tecbnical personnel for day to day supervision and inspection of the works. 3.45 Acquisition of land is time consuming process. The Implementing Agencies have emphasized that land free from dispute and litigation should be acquired to avoid delay in starting the construction. Relevant rules regarding alienation of land may be suitably modified or relaxed for making available on priority basis suitable Goverment land for construction of godowus. 3.46 Timely availability of construction materials in adequate quantity is essential element in any construction program. The Implementing Agencies have suggested that there should be advance planning for stocking of construction materials before the starting of the works in different locations so that the construction work is not hampered on account of non-availability of building materials. In some cases original designs and specifications may be adjusted  - 32 - to suit the local construction traditions to minimize the use of materials which are not locally available. 3.47 Implementation strategies have to be evolved in different project States in order to speed up the construction. It may be possible to chalk out a timewise and geographic plan, where all the godown. in a cluster of districts are constructed simultaneously, with extensive use of building materials available from factories located in those districts. In this implementation strategy, works are tendered for quantitatively large sections so that city-baced contractors could find it attractive to operate in the interior areas. Implementation-Cold Storage 3.48 Under the NCDC-II Project, 127 cold storages of 4,000 tons capacity each were envisaged to be set up in major potato producing states, namely, Uttar Pradesh, West Bengal, Madhya Pradesh, Haryana, Bihar and Punjab. The State Cooperative Marketing Federations in Bihar, Haryana, Madhya Pradesh and Punjab were designated as the Implementation Agencies for the construction of cold storages in their respective States. In Uttar Pradesh the construction of cold storages was allotted to Uttar Pradesh Cooperative Federation (PCF), Uttar Pradesh Processing and Cold Storage Federation (PACSFED), Uttar Pradesh Shram and Nirman Sahakari Snagh Ltd. (Laborfed) and State Cooperative Bank. In West Bengal, State Marketing Federation and State Land Development Banks Were responsible for the construction of the cold storages. Physical Component SAR and Revised Tarsets 3.49 The Project envisaged the construction of 127 cold storages of the total capacity of 5.08 lakh tons at a total cost of Rs 72.54 crores. The construction of cold storages was taken up in the year 1981-82. Punjab opted out of the project in view of the surplus cold storage capacity available in the State. Due to certain constraints which are spelled out in detall in the succeeding sections, the original SAR target of construction of 127 cold storages was scaled down to 103 cold storage units. The following table gives the SAR target, revised targets of 103 units and thereafter, 85 units.  - 33 - PHYSICAL TARGET OF COLD STORAGES (Capacity in Lakh tons) State SAR Target Revised Taraet tl) Revised Target (II) No. Capacity No. Capacity NO. Capacity Bihar 17 0.68 17 0.66 16 0.62 Uttar Pradesh 69 2.76 55 2.08 47 1.76 West Bengal 22 0.88 22 0.88 16 0.64 Haryana 7 0.28 5 0.20 3 0.12 Madhya Pradesh 4 0.16 4 0.14 3 0.12 Punjab 8 0.32 (Opted out of the Project) Total 127 5.08 103 3.96 85 3.26 3.50 NCDC has sanctioned a net program of 8S5 cold storages with a capacity of 3.26 lakh tons in five participating States of Bihar, Haryana, Madhya Pradesh, Uttar Pradesh and West Bengal. As against this 57 cold storages with a capacity of 2.18 lakh tons have been completed up to October 1987. Another 28 cold storages with a capacity of 1.08 baht tons are under construction, of which 12 are located in Bihar, 7 in Uttar Pradesh, 6 in West Bengal, 1 in Haryana and 2 in Madbya Pradesh. The following table gives State-wise sanctioned and completed cold storages up to October 30, 1987s SACMONED AND COWLETD COLD STORAOES Other Hnrsac Uedhb Predeb Uttar Pradesh West 8on I C.upratlv. Senn- Comple- Sen- Cowle- Sane- Cuple- Senc- Cople- Sanc- Couple- Year tioned ted tiome ted tioned ted tierad ted tioned ted 1901-f 8 - 2 - 2 - 24 - 6 - 18-2 10 - 1 - 1 - 20 6 6 - 19644 8 - - - - - a 4 8 2 1964 - 2 - - - - - 7 - - 1956 - 2 - - 1 - 7 - 6 10647 - - - 1 - - - 14 - B 17-uUp to - - - - 2 - - Oct. 1067 To. I 16 4 a 1 47 18 10 3.51 The reduction of target of cold storages from 127 to 103 was first on account of escalation in the expected cost of construction, and from 103 to 85 due to slow implementation and lack of financial viability of some of the cold storages on completion. By the end of October 1987, 57 cold storages were completed.  - 34 - Marketing Component 3.52 The first National workshop on Potato Marketing held in January 1985 discussed in detail various aspects of marketing operations and recognized the urgency of equipping the SCMFs with the independent potato marketing divisions ably manned by competent personnel at key positions, The NCDC has been encouraging the project States to expedite creation of indepeudent potato marketing divisions. The project states, in consultation with the NCDC have taken various steps to deploy professionals for cold stores. A common cadre of cold store managers has been created in U.?. which has the largest program. The project states have also been exposing their managers for training programs being organized by manual on the administrative, financial operational and maintenance aspects, which was commissioned by the NCDC, has been prepared by the National Productivity Council (NPC) based on field visits, in depth study of the present infrastructure and discussions with various key personnel of the cold stores in operation. A high level committee has also been constituted in U.P. to look into various aspects of potatoe marketing s0 as to ensure that cold storage program taken up under the Project is implemented successfully. NCDC is in constant touch with the implementing agencies of the State. Research and Development Component 3.53 The research and development component of the project is making steady progress. Following areas of Research and Development were identified and NCDC has sanctioned financial assistance for the establishment of: (a) A 4,000 ton cold storage at Barasat by West Bengal State Marketing Federation Ltd. based on gravity cooling system at an estimated block cost of Rs 7.8 million of which NCDC has sanctioned is 7.410 million. (b) A 1,000 ton capacity scientific preservation unit for Jaggery, capable of maintaining low relative humidity has been set up by District Cooperative Marketing Federation Ltd., Muzzaffarnagar, U.P. at an estimated block cost of Rs 1.35 million. NCDC has sanctioned and released the entire amount of RS 1.35 million. (c) NCDC has sanctioned RS 0.78 million under R&D Component to NAFED for establishment of 60 Cool-Stores for potatoes run on passive evapora- tive cooling for small potatoes stores of 10-20 tons capacity each. 3.54 In all NCDC has sanctioned RS 9.54 million under R&D of which Rs 4.53 million have been released by the end of January 1988. Cold Storages Problems in Implementation 3.55 The construction of cold storages in the Project States also suffered from many slippages. According to &AR, the entire process of implementation schedule from the land acquisition to final payment to contractor was envisaged to be completed in about 400 days. The pre-construction phase would  - 35 - end in about 80 days. The construction period of individual cold storages was estimated to be about 12-18 months. It was envisaged that the entire cold storage component including marketing and research component would be completed during the first three years of the project. 3.56 The review of the progress of the construction of cold storages in different States reveals that cold storage component of NCDC-II project also suffered un account of delays in construction as well as significant enhanced cost of construction per unit. 3.57 Delays in construction of cold storage were result of many factors- -procedural, financial, administrative and physical. According to World Bank Review Mission (May 1982), adequate preparations were not made in time by Project Implementing Agencies after the project was appraised. There was a time lag of 12-18 months in the implementation of the project States. 3.58 There were many causes of delays in the implementation of the cold storage program. The implementing agencies in the Project States were finalized by March 9, 1981. However, the Implementing Agencies working were not able to set up fully equipped engineering cell to oversee the construction of the cold storage. Initially experienced and qualified technical staff was not available. The field level staff was also inadequate during the initial years. 3.59 The implementing authorities encountered many difficulties in finding suitable and resourceful contractors necessitating retendering of works. The contractors were also hesitant to deal with new implementing agencies and in the initial years, the response generation from the contractors was slow and cautious. Cost Escalation 3.60 During the currency of the Project, there has been sharp upward move- ment in the prices of basic construction materials like cement, steel, bricks and other inputs used for the construction of cold storage. 3.61 The price behavior of the key construction inputs have already been given. Apart from price contingencies, there were other factors pertaining to certain specific cold storages particularly in Uttar Pradesh which contributed to the increase in the cost of construction. Some of the factors were as follows: (a) In case of some cold storages e.g. Tajpur, Jaunpur in Uttar Pradesh, the soil was found to be of lower bearing capacity which could not bear the load of 6-tier building structure. As such the design had to be modified and construction of the building of chambers had to be restricted to 4th tier leading to coverage of larger floor area. (b) The foundation depth had to be increased to 2.0 meters with consequent rise in the cost of construction. (c) The quantity of steel reinforcement varies by about 20 M.T. on the higher side due to overlaps and substitution.  - 36 - (d) The cost of plant and machinery also increased considerably because of increase in excise duty on refrigeration machinery. (e) Instead of barbed wire fencing, some cold storage in Bihar have gone for brick masonry boundary. 3.62 Increase in cost of construction materials resulted in steep increase in the cost of construction of Cold Storage as may be seen from the table below. REVISED BLOCK COST OF COLD STORAGE OF 4,000 TONS (Rs in lakhs) Pre-project Item year cost 1981 1982 1983 1984 1985 1986 1987 Land and 0.80 0.80 1.00 1.80 1.00 } development ) Building, racks, 23.10 23.20 24.50 34.00 37.00 ) 36.50 41.65 48.65 water supply drainage, fencing roads etc. Refrigeration 13.90 14.00 14.50 16.00 15.80 ) plant and I insulation ) 25.75 27.15 28.15 Electric feeder 1.75 2.40 2.80 6.00 6.00 } line, trans- former etc. Engineering 0.70 0.70 0.70 1.50 1.50 2.50 1.50 1.50 supervision Other fixed 0.20 0.20 0.20 0.20 0.20 ) assets } 2.75 2.70 2.70 Pre-operative 2.30 2.30 2.30 2.50 2.50 } expenses to be capitalized Margin money 4.00 4.00 4.00 6.00 6.00 6.00 6.00 6.00 for working capital Total 46.75 47.60la50.00 68.00 70.00 73.50 79.00 87.00 la Without generator.  - 37 - 3.63 It would be seen from the above table that the cost of construction which was assumed at Re 46.75 lakhs increased to Rs 87 lakhs in 1987-88. Prolect Fundina Godown Component 3.64 The project cost for NCDC-II Cooperative Storage Project for a period of five years for the construction of 7,331 rural and 1,611 marketing godowns, technical assistance, physical and price contingencies was estimated at Re 223.98 crores by the end of December 1987. The following table gives the cumulative financial assistance sanctioned, loan assistance released and total cost approved in the six Project States. CUMULATIVE FINANCIAL ASSISTANCE UP TO DECEMBER 31, 1987 (Rs in million) Loan assistance Loan assistance Total cost State sanctioned sanctioned approved Andhra Pradesh 303.9216 291.6520 405.2290 Bihar 80.0781 65.8360 106.7707 la _imachal Pradesh 79.2177 78.6534 105.6235 Maharashtra 267.3688 26k.6808 356.4887 La Punjab 161.1829 356.9322 481.5772 Uttar Pradesh 588.0799 588.0799 784.1065 Total 1,679.8490 1,645.8343 2,239.7956 La Provisional. 3.65 It would be seen from the above table that NCDC up to December 31, 1987 sanctioned Re 1,679.849 million of which Rs 1,645.8343 million was released. NCDC-I1 Cooperative Storage Project also embodied technical assis- tance component under which NCDC was to give financial assistance for the purchase of vehicle, engineering instruments and undertaking of O&M studies for improving the operational efficiency of the implementing agencies. The following table gives cumulative financial assistance under the technical component up to December 31, 1987.  - 38 - SUMMARY TABLE OF SANCTION AND RELEASES UP TO DECEMBER 31, 1987 NCDC-II TECHNICAL ASSISTANCE COMPONENT (STORAGE) (Rs in million) Assistance Capital sanctioned Amount cost as NCDC's released Head State approved share to SCB to SCBs Vehicle Andhra Pradesh 1.1589 0.8692 0.8526 Bihar 1.0636 0.7977 0.7977 Himachal Pradesh 0.9637 0.7228 0.7228 Maharashtra 1.4831 1.1124 1.1124 Punjab 2.1496 1.6122 1.6122 Total 6.8189 5.1143 5.0977 Engineering Andhra Pradesh 0.0144 0.0144 0.0144 instruments Punjab 3.2460 3.2460 3.2460 Himachal Pradesh 0.0177 0.0177 0.0177 Total 3.2781 3.2781 3.2781 O&M Andhra Pradesh 0.1800 0.1800 0.1800 Himachal Pradesh 0.2750 0.2750 0.2750 /a Punjab 0.2000 0.2000 0.2000 Total 0.6550 0.6550 0.6550 Grand Total 10.7520 9.0474 9.0308 la Half of this amount i.e. Rs 0.1375 million has been released as subsidy from the Corporation Fund. In addition to the above mentioned technical assistance, NCDC has purchased four 4-wheel vehicles for its project offices at a cost of Re 0.3345 million, making total approved cost under this head at Rs 11.0865 million. Total amount released under this head up to December 31, 1987 stood at Rs 9.3653 million. The financial assistance under the technical component is limited to 752 of the total approved cost in case of vehicles and lOOX of the approved cost in case of engineering instruments and O&M studies. Cold Storage Coemonent 3.66 The table indicates block cost, sanctioned and released amount under NCDC-I1 Cooperative Cold Storage Project in Project States up to December 31, 1987  - 39 - SANCTIONED, RELEASED AMOUNT UNDER NCDC-II COLD STORAGE PROJECT UP TO DECEMBER 12, 1987 (Rs in million) States Block cost Sanctioned Released A. Construction Components Bihar 127.120 95.340 93.7215 Haryana 22.250 16.687 15.6000 Madhya Pradesh 20.600 15.450 14.5800 Uttar Pradesh 303.870 227.902 225.8684 West Bengal 119.220 89.415 88.1295 Total 593.060 444.795 437.8994 B. Other Components 11.676 10.502 4.3983 Total 604.736 455.297 442.2977 Total Project Cost 3.67 The SAR estimated total project cost of storage and cold storage program under NCDC-I1 project at RS 2,136 million inclusive of supporting investment, technical assistance and physical and price contingencies with IDA component of 101.8 million SDRs. The approved block cost of both the programs including supporting investment and technical assistance stood at Rs 2,856 million. Disbursement of IDA Credit 3.68 Based on the expenditure incurred by NCDC by way of reimbursement of financial assistance to the project agencies under NCDC-II Project, the following year-wise claims vere filed by NCDC up to December 31, 1987:  - 40 - CLAIMS FILED AGAINST IDA CREDIT (Rs in Million) Year mount of Claims 1981-82 69.060 1982-83 94.309 1983-84 163.247 1984-85 157.811 1985-86 154.311 1986-87 219.331 1987-88 418.188 la Total 1,276.257 la Includes an amount of Rs 126.731 million claimed in respect of program transferred from NCDC-II to NCDC-II. 3.69 The financial status of NCDC-II Project by the end of December 1987 was as followss 1. Date of Credit Agreement (1146-IN) July 21, 1981 2. Credit closing date December 31, 1987 Rs SDRs 3. Total Credit as per Development Credit Agreement --- (million) --- (expressed in items of SDRs) 101.800 4. I. Withdrawals (i) Claims admitted by IDA 907.848 70.433 (up to application No. 36) (ii) Add transferred from NCDC-III 126.713 9.563 (application No. 41) not yet adjusted by IDA. (iii) Claims in pipeline 241.690 14.631 la (application No. 37 to 48 except 41) Grand Total 1,276.257 94.627 /a Calculated at the exchange rate of Rs 16.52 per SDR.  - 41 - Project Monitoring of NCDC-II Proiect 3.70 Under NCDC-II Project it was envisaged that the monitoring would be a continuous process beginning from the start-up of the project and continuing to the Post Construction Phase. All the constituents in the Project had a definite role in the monitoring of the project. NCDC Headquarters and its Regional Offices, Government of India through Ministry of Finance, beneficiary States through State level Coordination Committees, implementing agencies through separate project cells and returns to NCDC and World Bank through Supervision Missions have been closely monitoring the Cooperative Storage Project. 3.71 The NCDC reviewed the progress of the Project regularly by calling meetings and by way of visits to the Banks and field. Apart from the meetings, a system of information reporting was also developed. The participating banks submitted monthly and quarterly progress reports, Annual Work Program of the Project to NCDC and other agencies and the same were also made available to World Bank. On the basis of these reports and returns, future actionlschedules were drawn and corrective measures wherever necessary initiated. The State Cooperative Department created a separate cell to look after the progress of the Storage Project. The RCS and other concerned officials invariably reviewed the progress made under the project. In addition, State Level Coordination Committees in each project State were constituted to coordinate and resolve the problems of consttuction of godowns in their respective States. These Committees met at regular intervals to review the progress. 3.72 Main implementing agencies in each project State created a separate project cell headed by the project officers for execution and monitoring. This cell consisted of both Technical and general line officers with their functions clearly defined. Whereas the technical personnel were responsible for monitoring the execution of the construction program, the general line officers watched the overall progress, coordinated the project activities, and were also responsible for financial and other administrative duties. The mobility provided to the project cell by sanction of vehicles made timely monitoring possible and effective. 3.73 IDA Supervision Mission visited India at an average of six monthly intervals. They held discussions at the State levels and also made field visits. Their impressions and findings indicating the corrective measures were sent to the State Governments and the implementing agencies and followed up by the NCDC till the action was completed. Institution Building 3.74 Institution Building is an important aspect of the NCDC-II Godown Project. The rationale of strengthening the institutional infrastructure of the participating agencies is to make them grow into more effective and viable institutions for servicing the needs of the farmers in respect of agricultural inputs, consumer goods and marketing of surplus ag.icultural produce.  - 42 - Institution Building of NCDC 3.75 Institution Building of NCDC started with the implementation of World Bank Assisted NCDC-I Cooperative Storage Project when it was identified as the prime implementing agency for externally aided projects to assist, coordinate and monitor the activities of the participating agencies in the States at all phases of project implementation and maintain active liaison with State Governments and Government of India. 3.76 The major steps taken by NCDC to develop itself into an effective on- lending institution were as followss (a) Restructuring and staffing of various Divisions at Headquarters giving greater emphasis to investment appraisal, godown construction and monitoring. (b) Reorganizing and upgrading its regional offices into Zonal Offices to function as NCDC branches with adequate delegation of powers to the zonal managers. (c) Appointment of Project Officers at Zonal Offices especially to help the implementation of externally aided projects. (d) Formulation of Organization and Methods (O&M) department at the Headquarters. (e) Setting up of Evaluation and Statistics Division to assist the Corporation in making the periodic assessment of performance of the scheme/projects taken by NCDC in different States. (f) Setting up of the MIS Division with the facilities of an inhouse computer system (ECL System-4) for planning and monitoring of the multifarious activities of NCDC and to establish a centralized data base to meet the information needs of various Program Divisions. Training 3.77 The training of managers of the societies involved in setting up of the godowns under NCDC-II, originally, did not form part of the project. The NCDC, however, started 'Project TOPIC' (Training of personnel in cooperatives) covering the States where the NCDC-I, NCDC-I1 and EEC Rural Storage Projects were underway. The Project TOPIC was set up with the main objective of identifying training needs, design training programs, training the trainers and producing training materials for personnel working in cooperatives. However, on account of financial constraints and lack of infrastructural facilities like training colleges, training centers, and working funds, the impact of Project TOPIC was limited. 3.78 A detailed training plan was included under the NCDC-11 project, formulated on the lines similar to that already agreed for NCDC-III which envisaged to provide training to the Managers/Secretaries of PACs through the agriculture Coop. Training Institutes/designated coop. training colleges in each State. At the society level, intensive guidance and member education was envisaged through Mobile Guides.  - 43 - 3.79 The State-vise financial assistance sanctioned by the NCDC and the assistance released under the program up to January 31, 1988 is given belows (Re in lakhs) S.No. Name of the State Amount sanctioned Amount released 1. Andhra Pradesh 184.455 19.671 2. Himachal Pradesh 66.787 3.592 3. Maharashtra 77.380 9.935 La 4. Punjab 110.548 14.213 439.170 47.411 /a Includes an amount of Re 1.87 lakhs for renovation of the building of ACSTI. The amount has been given out of the provision of National Center. Training of 'B' Category Staff 3.80 This includes two types of societies viz. PACS and PAMS. The Managers/Secretaries of PACS trained at the Agriculture Cooperative Training Institutes set up in each State under the NCDC-II Project. For training of PAMS staff in Maharashtra only, the existing Cooperative Training College at Pure has been designated. The proposed faculty of the Pure Institute includes 1 principal and 4 instructors specialized in agricultural credit, management, agricultural marketing, storage, grading end warehousing, consumer distribu- tion, accounts and bookkeeping. Trainer's manual for training in Management of Operational Services for PACS was prepared by the National Center. The institute provides practical skill formation training through specialized courses. The duration of the course is one month. NCDC provides assistance towards tuition cost, TA/DA/boarding and lodging expenses and training material. The targets set out for 'B' category training and the achievements up to January 31, 1988 are as under:  - 44 - Target for training No. trained up to S.No. Name of the State of 'B' category staff January 1, 1988 1. Andhra Pradesh 1,401 407 2. Himachal Pradesh 793 56 3. Maharashtra 950 (332) 251 (116) 4. Punjab 1.195 400 4,339 1,114 Figures in bracket indicate the target and achievement of PAMS training program. Mobile Guides 3.81 'While the State Agriculture Cooperative Staff Training Institutes will provide institutional training for practical skill formation, the Mobile Guides act as advisers and guide not only to the managers of the Primary societies and the staff below them but also as general consultants to the non-official directors also. These mobile guides are given specialized training of three months duration at the National Center at New Delhi. This program includes classroom teaching as well as field attachment. 3.82 The number of mobile guides required for each state have been calcu- lated on 'Mobile Guides PACS Godowns' ratio of 125 in the first year and 1:25, 1s:O, 1s75 and 1slOO in the subsequent four years. The target and achievement are as unders No. of mobile guides No. of mobile Sl.No. Name of the State to be 'recruited guides recruited 1. Andhra Pradesh 79 37 2. Himachal Pradesh 22 19 3. Maharashtra 29 20 4. Punjab 50 32 180 108 The training of IC' Category staff would be conducted by the Mobile Guides.  - 45 - Institution Building of Implementing Agencies in the States Strengthening of Staff 3.83 Under NCDC-II Project, each implementing agency in the State was to set up a separate Special Loan Department to be responsible for Project Imple- mentation. These agencies were also to set up Engineering Divisions with sufficient technical staff for technical supervision of the construction work. The implementing agencies in the States have established the separate Special Loan Departments as envisaged in the project and appointed required technical persons at different levels. The appointment of technical staff by the imple- menting agencies in the project States was, however, made according to their requirements with a view to complete the project targets within the stipulated time and stipulated costs. In all project States viz. Maharashtra, U.P., Punjab, A.P. and H.P. more technical staff was recruited at the levels of Engineering Supervisors and Asstt. Engineers for effective supervision of the construction work. None of the project States, however, appointed site super- visors as envisaged in the project. In Maharashtra, the day to day monitoring of construction of godowns was handed over to societies themselves under the overall supervision of Junior Engineers of the bank. The State established District Monitoring and Evaluation Cowmittees under the chairmanship of Deputy Registrars of Cooperative Societies to undertake periodical review of matters like finalization of tender document, awards of tenders, supervision of actual construction work and supply of cement and other building materials. 3.84 In A.P., H.P. and Punjab the construction control committees were constituted at district level, comprising representatives from the PACs, State Cooperative Bank, the Central Cooperative Bank and Cooperative Department. These committees were provided with necessary technical guidelines regarding construction work and gave the feeling of involvement of the PACs management In the actual construction program. In A.P., on the recommendations of State level coordination committee special incentives were sanctioned to Assistant Registrars for looking after the project work such as preparation of subprojects, arrangement of godown-site, execution of tender documents and sorting out the other problems. The incentive scheme was subsequently revised and modified to include secretaries of PACS and other staff of cooperative department. A.P. also followed a geographically dispersed construction program to reduce the requirement of technical staff. 3.85 In Bihar, entire construction program was carried out by the Bihar State Cooperative Marketing Union which already had a technical cell. BISCOMAUN strengthened this cell with appointment of more technical personnel. Since the program consisted of construction of marketing godowns at block level and district levels only staff at base level such as site supervisors and others were envisaged and appointed. 3.86 In U.P., the U.P. State Cooperative Bans established the World Bank Project Division while implementing NCDC-I Storage Project in 1978-79. The Division had sufficient technical staff and experience for executing such type of projects. No further staff was, therefore, appointed in NCDC-II.  - 46 - Orianization and Methods Study 3.87 The implementing agencies in project States in Bihar, Punjab, H.P. and A.P. appointed consultants to undertake Organization & Methods study of their institutions. Consultants made various suggestions with regard to strengthening of their organization, staffing pattern, training and manpawer development, methods and procedures to be adopted with particular reference to long term lending and investment finance, new codified accounting system, introduction of new management information system and other operational issues. 3.88 However, in case of Maharashtra, a comprehensive study of Organization and Management of State Land Development Bank was undertaken by an Expert Group appointed by State Government and RBI in consultation with the World Bank in 1981. The terms of reference of this Expert Group were similar to the studies initiated under NCDC-II and no separate study was, therefore, necessary. Similarly, in U.P. the Organization and Methods study of the bank had already been undertaken by UPDESCO while implementing NCDC-I Project. Since NCDC-II was an extension of the earlier program, no separate study was called for. 3.89 The implementing agencies in all States had incorporated the sugges- tions given by the Consultants to streamline their operations. Their staffing pattern has been restructured with the induction of more technical staff, new reporting and control system based on a complete set of codified periodical returns have been adopted, monitoring, e valuation and planning cells have been set up, training needs have been identified and delegation of powers have been effected and rationalized to achieve the efficiency in their operations. Efficiency in Operation 3.90 The ultimate objective of Institution Building is to improve the operational efficiency of the organization. The important financial and operational indicators of the implementing agencies of the project States are given in Annex 2, Table 2 to 5. 3.91 Skills and expertise of the functionarJes at the level of PACS and marketing societies are being continuously upgraded to incorporate the new management culture required. The major gaps in the training have already been identified and have been incorporated in the new training courses. With the integration of training and institution building and its becoming an integral part of project itself the implementing agencies in the Project States have become more effective on-lending channels of funds for various developmental programs.  - 47 - IV. IMPACT ASSESSMENT 4.1 Impact evaluation of a program is a highly intricate task beset with many conceptual, analytical and operational problems. Impact evaluation covers a wide spectrum of effects which are directly or indirectly derivative of the deliberate intervention in the existing technical, economic, social, political and institutional set up. Methods of Impact Measurement 4.2 In quantifying the impact of rural godowns on the cooperative insti- tutions and on the farming community, 3 methods have been used, namely 'Before' and 'After' Method 'With' and 'Without' Method and 'Comparison of Actual with Projects' Method. 4.3 The first method quantifies the impact of the godown on the working of the society by comparing the movement of certain impact indicators, e.g., membership, credit disbursement, input distribution, distribution of consumer goods, share capital, income, expenditure and profitability, sale of agricul- tural produce, etc., before and after the operation of the induction of the rural godown in the working of the societies. High rate of inflation, abnorm- al drought or favorable weather condition, government policies, change of management, increase in margins are some of the factors which are likely to invalidate the before and after comparisons. Nevertheless, this method of impact quantification brings out the extent of non-credit turnover of the societies in the total turnover. The non-credit performance of the society could be attributed to the operation of the godown with the society. More- over, this method has another added advantage of comparing the performance of the same entity before and after intervention. The entity itself does not undergo any fundamental change in terms of geographical area, coverage of population, etc. 4.4 The comparison of societies with godowns with societies without go- downs is beset with many operational difficulties. In a district, most of the viable societies are covered under some Cooperative Storage SchemelProject. Only non-viable societies are left out. Thus the comparison will not be fully valid as the societies to whom godown are allotted and societies which are not given godowns differed in performance. Logically, the addition of godown to the viable society will enable it to perform non-credit functions. The societies without godown will have zero growth in its non-turnover business. Thus, the comparison becomes more lopsided. The third method quantifies the extent to which targets have been achieved in terms of credit and non-credit business turnover, income, expenditure and profitability. Use of an appro- priate deflator would make comparison more useful. 4.5 In the application of these three methods, it has been assumed that the rural godowns are deliberate intervention to improve upon the operational performance of the village and higher level of cooperative institutions. These cooperative economic entities perform certain well-defined functions which can be measured with the help of certain impact indicators.  - 48 - Impact Indicators 4.6 Different impact indicators have been designed to measure the impact of rural godowns. Rural godonn can impact at three inter-linked levels. The first is the direct impact or first-order impact which enables the society with rural godown to disburse short and medium-term credit and undertake supply of agro-inputs such as seeds, fertilizers, pesticides, agricultural implements, distribute essential commodities and other consumer articles in rural areas, act as procurement agency for higher level of cooperative insti- tutions, assist the farmers in getting remunerative prices for their agricul- tural produce by storing their produce and function as growth center for the entire catchment area of the society. 4.7 The second-order impact would measure the incremental change in agri- cultural production as a result of first order impact. To use production change as surrogate for all other changes due to rural godowns is rather tempting. However, production change will not satisfy the tests of reliabi- lity and validity. Agricultural production in India is resultant of a large number of endogenous and exogenous factors like adequate and timely rainfall, farmers' expectation regarding prices, in addition to availability of inputs and use of modern agricultural practices. Disaggregation of a large number of factors into two separate categories derived from the use of rural godowns and non-rural godowns is difficult. 4.8 The third-order impact measures the changes in the incomes of the ultimate beneficiaries as a result of rural godowns. The assessment of third- order impact suffers from the same difficulties as the first order impact. Marketint Godowns 4.9 In case of marketing godowns, it is difficult to separate the perfor- mance of the Federation from the performance of marketing godowns which have been allotted to them. The mid-1985 IDA Review Mission which carried out the review of the NCDC I, II and III Projects supported the following variables for evaluating the perform- ance of the marketing godowns, as follows: (a) Turnover - quantum and value of major business items. (b) Utilization of capacity - suitably defined and broken down by commo- dity stored. (c) Storage losses in project godowns. (d) Storage losses in non-project godowns in the area. (e) Profitability of godown operations - by commodity handled. 4.10 In consonance with the parameters of evaluation of marketing godowns suggested by IDA, the impact studies combine technical concept of capacity utilization usually defined with inventory-turnover ratio in order to opera- tionalise the economics of godowns. The reduction in storage losses in  - 49 - project godowns as compared to the non-project godowns is difficult to quan- tify as before the construction of compact and large sized godowns under NCDC- II, FederPtion had been operating a large number of small hired godowns in the vicinity of the newly constructed large godown. The economics of scale have been secured by the Federation on account of reduction in cost of loading and unloading of the stocks in different small godowne apart from reduction in storage losses which cannot be estimated with precision except under con- trolled conditions. Thus, the straight comparison of project godown with non- project godown is not !ully valid. Evaluation Studies 4.11 In order to quantify the impact of NCDC-II Project on the beneficiary cooperative institutions as well as the farming community, the Evaluation Division of the Corporation has completed evaluation studies of rural and marketing godowns and cold storages completed under NCDC-II Project in all the project States. Evaluation studies have been completed in line with the key parameters specified in SAR. Methodology Godown Component 4.12 For undertaking impact and evaluation studies of cooperative storage component of NCDC-II, representative districts in consultation with State Governments were selected. The selected districts reflected the diversified agro-climatic and economic conditions prevailing in the project States. In every project State, at least one developed district, one underdeveloped district and one hilly (wherever applicable) district was inc-luded in the sample. All the rural godowns in the selected districts which were completed up to June 30, 1984 were included in the analysis. In two States viz. Maharashtra and Andhra Pradesh, the working of PACS without godowns was studied in order to have a comparative picture of the operational economics of PACS with and without godowns. In case of marketing godowns, all the godowns in the State irrespective of the district which were completed up to a cut-off date were included in the completed sample. To assess the impact of the go- downs on farming community, a cross-section of farmers attached to each of the sampled societies was selected. Detailed instruments of observations were prepared for study, separately for the farmers, PACS, RCMS and State Coopera- tive Marketing Federations. Information on key areas of operation of the godowns was collected by the field staff of the Evaluation Division of the Corporation. Cold Storage Component 4.13 In accordance with the recommendation of the IDA Mission, micro studies on 15 cold storages completed and in operation for at least one season were commissioned in U.P. (10), West Bengal (3) and Bihar (2). Data was col- lected by the field staff of the Evaluation Division of the Corporation in structured proformae on operational and efficiency parameters, and financial and economic viability.  - 50 - Rural Godowns Membership 4.14 The sample societies in the Project States have been able to add sizeable number of new members after the allotment of godowns under the NCDC-II Project. Reference Table No. 1 and 2 in Annex 4. The average member- ship per sample society has recorded significant increase in all the project States. Taking two years of comparison, 1979-80 and 1985-86, the average membership per society in Andhra Pradesh increased from 538 to 936, Maharashtra from 367 to 438, Himachal Pradesh from 255 to 314, Punjab from 414 to 504, and U.P. from 853 in 1982-83 to 952 in 1986-87. The details of aver- age membership given in Annex 4 also reveals that there is a significant dif- ference between average membership of society with godown and without godown. For instance, in Andhra Pradesh the average membership of a society with go- down during 1985-86 was 936 as compared to the average membership per society without godown at 670. In Maharashtra, the comparative figures were 438 and 210. The empirical evidence has demonstrated that a society with godown is in a better position to service the needs of the farmers and attract more members as compared to the society without godown. In fact the strength of the society should be measured by its membership. The SAR had estimated that about 3.2 million farm families were expected to utilize the services of PACS godowns. Assuming that revised net program sanctioned by NCDC would be fully achieved and taking average membership of sampled societies in Project States during 1985-86, the following table quantifies the total membership in the Project Statest TOTAL MEMBERSHIP IN PROJECTS STATES Membership Total (Families) Total Membership State Societies Per Sample Society (Families) Andhra Pradesh 2,831 936 2,649,816 Maharashtra 936 438 409,968 Himachal Pradesh 733 314 230,162 Punjab 1,234 504 621,936 Total 5,734 - 3,911,882 Uttar Pradesh 1,597 952 1,520,344 Grand Total 7.331 5,432,226 4.15 It would be seen from the above table that the estimated farm fam- ilies which are likely to be benefited from NCDC-II Project in four benefi- ciary States project is likely to be 3.91 million. Adding the farm families likely to be benefitted in U.P. the total farm families expected to utilize the services of PACS in five Project States has been estimated at 5.43 mil- lion.  - 51 - Disbursement of Credit 4.16 The induction of rural godowns of the sampled societies in the project States has an expansionary effect on the credit creation. The data in Table 1 of Annex 4brings that in all the project States, the credit disburse- ment by sample societies after the project year was substantially higher than the credit disbursement during the pre-project years. However, except in Maharashtra and Himachal Pradesh, the actual credit disbursement has fallen short of the projected credit disbursement as envisaged in the loan applications of the sample societies due to varying effects of drought in the States. The actual credit disbursement during 1985-86 when all the sample societies were in operation was of the order of Rs 192.5 million as against the projected credit turnover of Rs 235.9 millions (reference Table 2 of Annex 4). 4.17 The average credit disbursed per sample society increased from Rs 0.30 million in Andhra Pradesh in 1979-80 to Rs 0.49 million in 1983-84 then declined due to successive drought years. In Maharashtra, the average credit disbursed per sample society increased from Rs 0.27 million in 1979-80 to Rs 0.77 million in 1985-86; in Himachal Pradesh, it increased from Rs 0.06 million to Rs 0.12 million, Punjab from Rs 0.76 million to Rs 1.37 millions during the same period. A comparison of societies with and without rural godown in Table 3 of Annex 4, shows that in Andhra Pradesh and Maharashtra that average disbursement of credit of a sample society with godown is signif- icantly higher than that of a society without godown. For instance, in 1985-86, the average disbursement per society with godown in Andhra Pradesh was Rs 0.35 million as against average disbursement of a society without godown at Rs 0.23 million. 4.18 SAR has envisaged incremental credit creation of the order of Rs 1,750 million by the end of the project period in the beneficiary so- cieties. Taking incremental credit equal to highest credit achieved during any of the postproject years minus credit disbursed during the year preceding the project year, and further assuming that net program sanctioned by NCDC would be fully implemented, the incremental credit creation by project socie- ties under NCDC-II project would be as followrs  - 52 - INCREMENTAL CREDIT (Rs in lakhs) Incremental Total estimated credit per Total No. of incremental State sample society societies turnover Andhra Pradesh 0.11 2,831 311.41 Maharashtra 0.42 936 393.12 Himachal Pradesh 0.04 733 29.32 Punjab 0.67 1,234 826.78 Total 5,734 1,560.63 Uttar Pradesh 0.05 1,597 79.85 Grand Total- 7,331 1,640.48 4.19 It may be mentioned that SAR target of incremental cred4t disburse- ment of Rs 1,750 million was based on completion of 7,000 rural godowns against realized target of 5,734 rural godowns. According to SAR, the projected incremental credit disbursement per beneficiary would work out Rs 0.25 million as against realized credit disbursement of Rs 0.27 million. Distribution of Inputs 4.20 Distribution of inputs like fertilizers, insecticides/pesticides, seeds etc., is related to availability of adequate irrigational facilities. The country has been in the grip of drought for the last three years. The use of inputs has been adversely affected in all states especially those states which depend on rainfall for irrigation. Rural godowns are basic infrastruc- tural facilities for making easy availability of fertilizers. They can meet the demand for inputs but they cannot create demand for them. Data on distri- bution of fertilizers by sample societies is given in Table 1 of Annex 6. Data reveals that post-project consumption of fertilizers has been higher than the pre-project consumption in all project states. The increase in distribu- tion of fertilizers by sample societies was more pronounced in Maharashtra and Punjab, erratic in Andhra Pradesh and consistent in Uttar Pradesh and Himachal Pradesh. The distribution of fertilizers in Andhra Pradesh by sample socie- ties increased from Rs 4.86 millions (Preproject year) to Rs 9.17 millions in 1983-84 and thereafter staged some decline to Rs 8.41 millions in 1984-85 and Rs 6.75 millions in 1985-86. In Maharashtra, the distribution of fertilizers by sample societies increased from Rs 11.41 millions in the preproject year to Rs 23.88 millions in 1984-85 and declined to Rs 20.82 million in 1985-86. In Himachal Pradesh, the distribution of fertilizers also registered increase from Rs 1.59 million during preproject year to Rs 1.90 millions in 1984-85 then declined to Rs 1.80 million during 1985-86. In Punjab, there has been significant increase in the distribution of fertilizers from Rs 65.01 million during preproject year to Rs 91.55 millions during 1985-86. In U.P. there has  - 53 - been continuous increase in the distribution of fertilizers from preproject year onwards from Re 7.58 millions to Rs 8.87 million during 1986-87. 4.21 The comparison of actual and projected turnover of fertilizers given in Table 2 in Annex 6 shows that on the whole projected data has been higher than the actual figure due to reasons given above, except in Maharashtra whereas the projected distribution of fertilizers has been close to the actual distribution. In Andhra Pradesh the projected distribution of fertilizers by sample societies was significantly lower than the realized distribution of fertilizers. According to SAR, the incremental turnover of fertilizers was expected to be Rs 2,890 millions. The actual turnover of fertilizers worked out on the basis of methodology given above was estimated as follows: ESTIMATED DISTRIBUTION OF FERTILIZERS BY SOCIETIES UNDER NCDC-II (Rs in million) Estimated value of Sate No. of Societies Fertilizer Distribution Andhra Pradesh 2,831 383.67 MNharashtra 936 573.12 Himachal Pradesh 733 29.63 Punjab 1,234 1,313.64 Bihar - 236.62 Total 5.734 2,536.68 Uttar Pradesh 1,597 295.11 Grand Total 7,331 2,831.79 4.22 In the above table Bihar has been included as one of the project States as in this State BISCOMAUN directly distributes fertilizers, pesti- cides/insecticides seeds to the farmers. The estimated value of distribution through marketing godowns allotted to BISCOMAUN under NCDC-II have been worked out on the basis of total capacity of godowns completed under NCDC-11 to total owned capacity of BISCONAUN. It may be mentioned that realized turnover of target at Re 2,536.68 millions is lower than the estimated turnover of Rs 2,890 millions due to reduced number of rural completed godowns and drought conditions in the beneficiary States etc. However, the average turnover per sample society works out to Re 0.4129 million of fertilizers projected in the SAR. 4.23 Distribution of seeds, pesticides/insecticides is not a regular feature of most of the PACS in India. There are certain problems regarding tvailability of quality seeds, shelf life of pesticides/insecticides and a large number of varieties of pesticides/insecticides required by the farmers which PACS are unable to store, resulting in lower off-take of these items by the farmers. Some of the societies in the Project States have been  - 54 - distributing seeds and pesticideslinsecticides, details of which are given in Table 3 of Annex 5. It would be seen from the data given in the table that on the whole, post-project distribution of these inputs wac higher than the preproject distribution of inputs. Nevertheless, the value of distribution of three inputs did not form significant portion of the total turnover of the societies. According to SAR, the incremental business turnover at primary level units in seeds and pesticides would be Rs 410 millions. The following table gives estimates of the business turnover of societies covered under NCDC-II in seeds and pesticides. ESTIHATED DISTRIBUTION OF SEEDS AND INSECTICIDES/PESTICIDES BY SOCIETIES UNDER NCDC-II (Rs in lakhs) State No. of Societies Estimated Value Andhra Pradesh 2,831 46.56 Maharashtra 936 41.76 Himachal Pradesh 733 101.37 Punjab 1,234 8.32 Bihar - 8.90 Total 5,734 206.91 Uttar Pradesh 1,597 1.66 Grand Total 7.331 208.57 4.24 It would be seen from the above table that the incremental turnover of the societies covered under NCDC-I1 has been estimated at Rs 206.91 millions which is almost 50% of the incremental turnover projected in SAR. Addition of U.P. to be beneficiary States etc. does not make much difference. Distribution of Consumer Goods 4.25 Rural Consumer Scheme forms an integral part of the Consumer Cooperative Hovement in the country. The very idea behind the Consumer Cooperative Movement is distribution of essential consumer goods to the common man at reasonable prices. Distribution of consumer goods in rural areas is three tier system - the State Consumer Federations at the Apex level, wholesale consumer stores and marketing societies at the middle level, primary stores, PACS/FSS/LAMPS as retail distribution agencies to the consumers. 4.26 The achievement of the PACS in the distribution of consumer goods in the Project States has been significant as the consumer goods sold by the PACS are essential items which are not affected, to a large extent, by droughts. Tables 1 to 3 in Annex 6 give details of the turnover of consumer goods by sample societies before and after allotment of godowns under NCDC-II, actual and projected turnover of consumer goods, and turnover of consumer goods in  - 55 - Andhra Pradesh and Maharashtra of sample societies with godowns and without godowns. It may be mentioned that even societies without regular godowns distribute consumer goods within the space available to them. By and large, as the data reveals that there has been continuous upward trend in the value of consumer goods distributed by some societies. There has been some fluctuations in the value of distribution of consumer goods in Punjab due to disturbed conditions. The value of consumer goods distributed in Andhra Pradesh increased from Rs 1.46 millions in the preproject year to Rs 10.55 million in 1985-86, Maharashtra from Rs 4.59 millions to Rs 6.78 millions, Himachal Pradesh from Rs 6.53 millions to Rs 9.83 millions, in U.P. from Rs 5.14 millions to Rs 6.1 millions. 4.27 Comparison of actual and projected turnover of consumer goods by sample societies in project States reveals that actual turnover of consumer goods has been higher than the projected turnover in Maharashtra and Himachal Pradesh, and lower in Andhra Pradesh, Punjab and U.P. The average turnover of consumer goods per sample society with or without godown indicates that the society with a godown is in a better position to store and display a large number of consumer items as compared to the society without godown. The turnover in consumer goods of society with godown has been higher than the turnover of society without godown. For instance, in Andhra Pradesh the turnover of a society with godown was of the order of Rs 0.14 million as compared to the turnover of a society without godown at Rs 0.081 million. SAR has projected turnover of Rs 420 millions as a result of implementation of NCDC-II Project in the Project States. The following estimates give approxi- mate turnover of the societies which would be operating with godowns under NCDC-II in the Project States. ESTIMATED DISTRIBUTION OF CONSUMER GOODS BY SOCIETIES UNDER NCDC-II (Rs in million) State No. of Societies Estimated Value Andhra Pradesh 2,831 392.99 Maharashtra 936 162.72 Himachal Pradesh 733 153.31 Punjab 1,234 93.41 Total 5,734 802.43 Uttar Pradesh 1,597 201.95 Grand Total 7,331 1,004.38 Marketing of Agricultural Produce 4.28 Marketing of agricultural produce of the farmers by PACS has not been fully incorporated into the agricultural Cooperative Marketing System in the country due to various reasons. The cooperative marketing is a three tier  - 56 - system in the country Primary Agricultural Marketing Societies at the block level, District Cooperative Marketing Societies at District level and State Marketing Federation at the State level. The Primary Agricultural Marketing Societies operate at assembling centers or regulated markets and procure the agricultural produce both under price support operation and under commercial purposes directly from the farmers. In some cases, the Primary Agricultural Marketing Societies are weak and are unable to operate without the support of the State Marketing Federation. There has been no permanent linkage between PACS and Primary Marketing Societies for the marketing of agricultural produce from the farmers. 4.29 In Punjab, it has been stated by the State authority that PACS are already overburdened with multiple functions viz. disbursement of credit, distribution of inputs, distribution of consumer goods etc. It would be very difficult for PACS to perform the function of procurement of agricultural produce of the farmers effectively and efficiently. Moreover, in Punjab MARKFED has opened offices at the mandi level which purchase agricultural produce directly from the farmers. In Punjab, most of the farmers generate large agricultural surplus which makes it economically viable for individual farmers to have their own marketing arrangements including transportation to regulated markets and dealing directly with the purchase agencies. In Himachal Pradesh, agricultural surplus consists of mainly potatoes some of which is absorbed by the Federation through its own offices. In Andhra Pradesh, some of the PACS undertake the procurement of agricultural produce of their own or as agents of the marketing societies but they are very few in number. 4.30 In Maharashtra, sugarcane, cotton millets and oilseeds are major crops in which the substantial surpluses are generated. All these crops are marketed in the state with the established line of marketing institutions in which PACS do not play a major role. For procurement of sugarcane, sugar factories have their own arrangement and they procure sugarcane directly from the farmers through assembling centers established by them at convenient places from where cane is transported to the mills. In case of cotton there is monopoly procurement scheme of Cotton Growers' Federation which acts as single procurement agent throughout the State operating at mandi level and procuring cotton directly from the farmers. The farmers also prefer to sell their cotton directly to the Federation instead of routing through the PACS as the prices paid by the federation are fixed and farmers are not able to take advantage of the fluctuation in the prices by storing in the PACS' godowns during the peak season and selling during the lean season. The State has also established an Oilseed Growers' Federation which has its own institutional arrangements for purchase of oilseeds at district, Mandi and village levels. The involvement of PACS in Maharashtra has so far remained restricted to procurement of paddy, wheat, millets under price support operation. Even in case of these comodities PACS has been functioning only in the surplus areas. 4.31 In U.P. agricultural surpluses are generated in case of sugarcane, wheat and oilseeds. Oilseeds' Federation purchase mainly for its own process- ing units under price support operations and commercial purposes. In this process, it does not involve PACs or marketing societies. For sugar mills, the farmers directly transport sugarcane to the sugar mills. For other agricultural produce such as wheat and paddy, Federation has involved primary  - 57 - agricultural societies and also cooperative primary marketing societies for purchase of wheat and paddy under price support operations. The involvement of PACS in procurement of these crops has, therefore, been to some extent in the surplus areas of Western U.P. for paddy. The following table gives agricultural produce marketed by sample PACS in the Project State. VALUE OF AGRICULTURAL PRODUCE MARKETED BY SAMPLE SOCIETIES (Rs in million) Year A.P. Maharashtra U.P. 1982-83 0.420 - 4.69 1983-84 0.570 0.008 5.43 1984-85 0.066 5.630 5.45 1985-86 0.080 0.680 3.28 1986-87 - - 5.33 4.32 It would be revealed from the above table that procurement of agri- cultural produce by sample PACS has been erratic except in U.P. and no trend can be established. SAR has estimated incremental turnover in farm produce at 2,700 million. It is not clear from SAR whether this turnover includes only the turnover of the PACS or also the turnover of the primary marketing socie- ties operating at mandi level. IF the SAR projection pertains only to the turnover of agricultural produce by PACS the estimates appear to be on the high side. The following table gives the turnover of all the beneficiary societies in the Project States. ESTIMATED MARRETING OF AGRICULTURAL PRODUCE BY SOCIETIES UNDER NCDC-II (Rs in million) Value of State No. of Societies Agricultural Produce Andhra Pradesh 2,831 21.23 Maharashtra 936 135.12 Bihar - 24.58 Total 3.767 180.93 Uttar Pradesh 1,597 181.32 Grand Total 5.364 362.25  - 58 - Index of Contribution 4.33 Percentage of non-credit business turnover to total turnover can be equated with the contribution of rural godowns in the operation of PACS. A society without godown can mainly disburse credit whereas a society with godown can undertake non-credit business like distribution of inputs sale of consumer goods, marketing of agricultural produce. etc. The table in Annex 8 gives percentage of non-credit business turnover to total turnover of the sample societies in the project states. During 1985-86, the non-credit busi- ness turnover accounted for 40.7Z of the total turnover in Andhra Pradesh, 49.22 in Maharashtra, 67.5 in Himachal Pradesh, 41.4Z in Punjab, and 632 in U.P. (during 1986-87). Other Financial Indicators Growth of Share Capital 4.34 Growth of share capital is an important variable of the working of the society as it indicates the involvement of the members at the grass root level. The growth of share capital of sample societies in the Project States is given in Table 1, in Annex 8. It would be seen from the table that the selected societies in the Project States have been able to increase their share capital considerably as a result of allotment of rural godowns. The total share capital of sample societies in Andhra Pradesh has increased from Rs 4.67 millions in 1979-80 to Re 7.65 millions in 1985186, Maharashtra from Rs 3.52 millions to Rs 10.13 millions, Himachal Pradesh from Re 1.21 millions to Rs 2.92 millions, Punjab from Rs 8.59 millions to Rs 20.58 millions and U.P. from Rs 3.38 millions to Rs 4.58 millions (1986-87). Table 2 in Annex 8 brings out comparison between share capital per sample society with and with- out godown in Andhra Pradesh and Maharashtra. It would be seen from the table that a society with godown is able to attract more members and consequently more share capital as compared to society without godown. For instance, during 1985-86 in Andhra Pradesh share capital per sample society with godown was Re 1 million as compared to Re 0.55 million of a sample society without godown. In Maharashtra, the share capital of a sample society with godown was Re 0.26 million as compared to Re 0.07 million of a sample society without godown. Growth of Working Capital 4.35 The working capital is essential for growth and health of the PACS. The shortage of working capital handicaps the societies in increasing business turnover and undertaking diversification. Growth of working capital of sample societies in the Project States is given in Table 1 of Annex 9.. It would be seen from the table that the sample societies have been able to increase their working capital year after year consistently. Working c.apital per sample society with and without godown reveals that society with godown would have definite advantage over the society without godown. During 1985-86, the working capital of a sample society in Andhra Pradesh was Rs 0.82 million as compared to working capital of Rs 0.39 million of a sample society without godown. (Reference Table 2 of Annex 8).  - 59 - Deroslt Mobilization 4.36 One of the long term effects of induction of rural godowne in the working of PACS would be increase in the deposit mobilization of the societies from members as well as non-members. Table 1 given in Annex 8 gives deposit mobilization of sample societies In project states. It would be seen from the table that over the years societies have been able to increase deposit mobili- zation from Rs 0.52 million in 1979-80 to Rs 1.57 millions in 1985-86 in Andhra Pradesh, from Rs 0.032 millions to Rs 0.122 millionsa in Maharashtra, from Rs 1.57 millions in Rs 3.05 millions in Himachal Pradesh, from Rs 5.89 millions to Rs 14.39 millions in Punjab and from Rs 0.53 million in 1982-83 to Rs 0.62 millions in 1986-87 in U.P. A comparison of deposit mobilization per sample society with and without godown reveals that deposit mobilization by a society with godown has been significantly higher than the deposit mobilization of a society without godown. Thus, deposit mobilization of a sample society with godown was about 5.3 times the deposit mobilization of a sample society without godown in Maharashtra. (Reference Table 2 of Annex 2). Employment Effect 4.37 The IDA Staff Appraisal Report on the working of NCDC-11 Cooperative Storage Project has quantified the impact of the project on the creation of employment as a result of enhancement business operation of the societies as follows: Employees Numbers Managers/Secretaries 7,000 Storekeeper/Assistants 7,500 Watchmen/Peon 3,860 Total 18,360 4.38 The above table shows that IDA has assumed that once construction was completed, each participating PACs would need a minimum of one PACs Manager, 1.07 Storekeepers/Assistants, 0.55 other staff. This would be the direct impact of the Project on the employment creation at the grass root level institutions. In estimating the mrn-year requirements of the PACs, IDA has assumed that all the PACs which would be allotted rural godownh would either be new ones or would not be having any staff before the allotment of the godowns. This assumption is not correct. Most of the societies with or without godown8 employ one full time paid Secretary/Manager to manage the credit business of the societies. In addition, if the Society had been operating in hired godown it would be employing also Storekeeperlwatebman. Most of the societies were operating in hired godowns before they were allotted rural godowas under NCDC-II Cooperative Storage Project. These societies in a large number of cases did not require any additional staff to manage their business. In case of other societies which were only undertaking credit business, additional staff was required only at the level of salesman and accountant. In many societies, jobs of salesman and accountant are being done by one person. The following table gives employment effect of Project on sample societies in Project State.  - 60 - EMPLOYMENT EFFECTS ON SAMPLE SOCIETIES IN PROJECT STATES Salesman State Secretary & others Total A.P. Pre-Project Year 1980-81 76 63 139 Post Project Year 1985-86 76 99 175 Z change - 57.1 25.9 Maharashtra Pre-Project Year 1981-82 39 72 111 Post Project Year 1985-86 39 100 139 Z change - 38.9 25.2 H.P. Pre-Project Year 1982-83 47 27 74 Post Project Year 1985-86 47 50 97 2 change - 85.2 31.1 Punjab Pre-Project Year 1979-80 86 213 299 Post Project Year 1985-86 86 254 340 3 change - 19.2 13.7 U.P. Pre-Project Year 1983-84 48 35 83 Post Project Year 1986-87 48 52 100 3 change - 48.6 20.5 Total Pre-Project Year 296 410 706 Post Project Year 296 555 851 Z change - 35.4 20.5 4.39 It would be seen from the table that there has been no effect of the Project on the employment of Managers/Secretaries. The total number of Secretaries/Managers during pre-project year remained the same during the post-project period. Employment effect has only been mainly in case of sales- man, accountant and others. In Andhra Pradesh, Salesmen/other have increased by 57.1Z, in Maharashtra 38.9Z, Himachal Pradesh 85.2Z, Punjab 19.2?, U.P. 48.6?. On the whole, the impact of rural godowns has been on the order of 20.5Z. In Maharashtra and Andhra Pradesh, whsre the study was undertaken of the societies operating without godowns, during the period under reference there was addition of one salesman both in Andhra Pradesh and Maharashtra raising the strength of the total staff from 20 to 21 in Mbharashtra and 11 to 20 in Andhra Pradesh, thus, recording growth of 5? in Maharashtra, and 9.1? in Andhra Pradesh.  - 61 - Financial Viability 4.40 Fifty percent of the total investment on the construction of rural godowns have been given to the beneficiary societies in the shape ,f loan at 9.5Z rate of interest. Every beneficiary society after a three year moratorium period on payment of principal and Interest will have to discharge financial liability in 12 years from 4th year onward to 15th year. PACS needs to generate sufficient cash flow over the economic life of the rural godowns so that they are able to pay their principal and interest within the stipulated period and also, after providing depreciation, show positive net cash flow in their balance sheets. 4.41 Financial viability of sample societies has been worked out taking into account extra financial burden on the beneficiary societies to pay principal and interest on the loan component of the godowns. Tables 1 to 5 in Annex 11 give cash flow of sample societies which indicates that sample societies as a group would be in a position to service debt obligations from the 4th year of the operation of the godowns. However, there would be some societies which due to weak financial positions may have to take extra efforts to service the debt obligations. Financial Rate of Return 4.42 The SAR has quantified the financial rate of return (FRR) for a typical PAC using a 100 ton rural godown at 172 for the godown without manager's residence, and about 132 for godowns with Manager's residence. Table 1 in Annex 12 gives the FRR of the project investment on the basis of the sample socieites. The summary table indicating the financial rate of return in the Project States is given belows FINANCIAL RATE OF RETURN FRR (percent) Maharashtra 15.539 Andhra Pradesh 12.044 Himachal Pradesh 14.103 Punjab 26.914 Uttar Pradesh 12.033 All project states 17.804 Repayment of Loans 4.43 The following table depicts the status of the repayment of loan coWponent under NCDC-II Project from PACs, PCMs and Federations in the Project states%  - 62 - RECOVERY PERFORMANCE OF PROJECT LOAN UNDER WORLD BANRK-I STORAGE PROJECT (Amount Re in lakhs) Quarter Cumulative Cumulative Percentage of State ending demand recovery recovery Andhra Pradesh Sept. 1987 (a) PACS 50.04 35.75 71.44 (b) PCMS 4.54 2.58 56.83 Total 54.58 38.33 70.23 Mihar June 1987 MARXFED 64.09 64.09 100.00 fimachal Pradesh Sept. 1987 (a) PACS 0.05 0.06 100.0 (b) PCHS - - - (c) MARXPED 3.50 3.12 89.14 Total 3.55 3.17 89.30 Punjab June 1987 (a) PACS 107.29 91.92 85.67 (b) MARRPED 60.43 60.43 100.00 Total 167.72 152.35 90.84 Maharashtra June 1987 (a) PACS 16.29 10.85 66.61 (b) PCMS 7.16 5.24 73.18 (C) MARKFED 13.07 13.07 100.00 Total 36.52 29.16 79.85 Grand Total 326.46 287.10 87.94 It would been seen from the above table that 1OOX recovery has been achieved from Marketing Federation in Bihar, PACS in Himachal Pradesh, Marketing Federations in Punjab and Maharashtra. The percentage of recovery has been low in Maharashtra in case of PACS and PC14S in Andhra Pradesh and moderate to satisfactory from PACS in Andhra Pradesh, PCMS in Maharashtra. Due to severe drought, almost all the States have been affected adversely although intensity and breath differ from state to state. The recovery is likely to pick up sharply during 1988-89.  - 63 - Economic Rate of Return 4.44 According to SAR the induction of rural godowns in the working of the PACS would result in two tangible benefits, viz. reduction in storage losses and savings in transport costs. The Evaluation Team interviewed a large number of farmers, PACS Managers in order to find basis for quantifying the reduction in storage losses and savings in transport cost. Discussions with the farmers and Secretaries of the societies revealed that reduction in storage losses occurs at the society level, as well as the farmer's level. The society is able to reduce storage losses as a result of storage in more modern project facilities. The farmers are able to purchase smaller quanti- ties of inputs and other items at a time with the result that the change of storage losses are reduced at their residences. The availability of inputs and consumer goods in the vicinity of their farm houses has enabled the farmers to make more frequent trips to societies' godowns and purchase smaller lots of inputs and consumer goods at a time. Savings in transport costs occurs as farmers are able to purchase inputs and large number of essential items from the societies instead of purchasing these items from Mandi. The total reduction in storage losses and savings in tranoport cost of the sample societies in the selected districts of the Project States is given below. AVERAGE REDUCTION IN STORAGE LOSSES AND SAVINGS IN TRANSPORT COSTS (Percentage) Reduction in Savings in Total economic State District storage losses transport costs benefits Maharashtra Jalgaon 2.75 2.26 5.01 Sangli 2.35 1.66 4.01 Chanderpur 3.31 1.36 4.67 Latur 2.50 1.51 4.01 Andhra Pradesh Vest Godavari 2.50 1.62 4.12 Warangal 2.75 1.86 4.61 Chittoor 3.50 2.12 5.62 Himachal Pradesh Shimla 2.63 1.58 4.21 Sirmour 2.25 1.55 3.80 Bilaspur 2.75 1.38 4.13 Hamirpur 2.25 1.36 3.61 Punjab Patiala 1.65 1.12 2.77 Bhatinda 2.00 1.30 3.30 Jalandhar 1.50 1.25 2.75 Uttar Pradesh Aligarh 2.20 0.91 3.11 Gonda 2.35 1.09 3.44 Deoria 2.30 1.16 3.46 Tehri 1.65 1.44 3.09  - 64 - 4.45 The benefits have been worked out on the basis of above estimates in the calculation of economic rate of return fcr the rural godowns component of NCDC-II instead of using estimates given in SAR. In the calculation of economic investment cost, SAR has applied a standard conversion factor of 0.8 to domestic expenses and non-traded goods and services, 1.2 for price of steel and 1.6 for that of cement. A shadow rate of 60? of market rates for unskilied laborers ad 802 for semi-skilled laborers has been used to take into account hhb level of rural unemployment and under-employment in Project States. Bowever, in the calculation of shadow investment, in the Evaluation Studies cement prices have been computed with conversion factor of 1.2 instead of 1.6 as given in the SAR. Due to partial decontrol of cement the prices of both levy and non-levy cement have increased sharply over the years, the difference between international and domestic price has been considerably narrowed down. The actual cost of construction of rural godowns has been bifurcated into cost of different categories of construction materials and services such as steel, cement, skilled and unskilled labor etc. The esti- mated cost of land, cement, steel, unskilled, skilled laborers etc. for different capacities of godowns viz. 50. '30, 200, 500 tons of godowns has been converted into economic costs by use of conversion factors. The economic costs have been calculated net of taxes at 6? on materials. 4.46 The incremental operating costs includes cost on salaries/establish- ment in the proportion of non-credit business turnover to total turnover of the sample societies, 2? of the shadow investment cost as cost of maintaining additional staff at the implementing agencies level, Re 100 per PACS per annum at NCDC level, 1.5? cost of shadow investment for maintenance and other over- heads. The operating cost also includes the cost of mobile guides and training of B&C category of staff. The salaries/establishment costs have been given SCF of 1.0. Costs and benefits have been projected from the last year operation for uhich the data is available to the 20th year of operation on the basis of feasible rate of growth and also informed judgement about the devel- opment of cooperative sector in the Project States. 4.47 In Andhra Pradesh, Primary Agricultural Cooperative Societies have recently been reorganized under the new integrated single window delivery system to make them truly multi-functional. Each reorganized PACS now cover 10,000 to 20,000 population and a gross cropped area of approximately 4,000 hectares in a compact area of 5 to 10 villages to provide an eventual business potential of Re 3 to 5 millions to be reached in a period of two or three years. Under this reorganization, Primary Cooperative Marketing Societies also would either be amalgamated with the PACs or liquidated. As a result of this reoganization, the business turnover of the PACS in the first two years is expected to more than double. Keeping this in view, the benefits have been projected to grow by 50? per annum in the 6th and 7th year and thereafter annually at the rate of 20? to stabilize in the 10th year. In Maharashtra, the existing turnover of the sample PAC is reasonably high. The benefits have, therefore, been assumed to grow at a modest rate of 10? per annum and to stabilize in 9th year. In H.P., the existing turnover of the PACs particularly with regard to agricultural inputs is quite low. However, fertilizers in the State are now distributed at subsidized rates and the cooperatives virtually have monopoly in the distribution of fertilizers. The total turnover of PACs, particularly with regard to agricultural inputs is, therefore, expected to increase significantly. Increase in sales of consumer  - 65 - articles is also expected to be significant. Benefits have, therefore, been assumed to grow at the rate of 202 from 4th year onwards to stabilize in the 10th year. In Punjab, though the existing turnover of sample PACS is quite high, it can be further increased significantly as the potential is very vast. To further improve the competitive position of PACS so that they can carve out a sizeable share in the incremental inputs demand, State Government has recently issued guidelines enhancing the margins of PACS for all kinds of fertilizers. It has, therefore, been assumed that the benefits would record an annual increase of 15? from 6th year onwards and would stabilize in the 10th year. In Uttar Pradesh, the existing turnover of the sample PACS is quite low. To increase the input sales of the PACs, the State has recently introduced a direct delivery fertilizer distribution system which has increased the margins of PACs and has improved the supply position. With the introduction of new system, all PACS are expected to substantially enlarge their fertilizer sales. Procurement of agricultural produce and sale of consumer articles are also expected to record significant increases. Keeping this in view, the benefits have been assumed to grow at the rate of 252 per annum from the 4th to 6th year and 202 thereafter to stabilize in the 10th year. Table 1 in Annex 13 gives details of the economic rate of return in the Project States. The following table gives a seumary of the economic rate of returns ECONOMIC RATE OF RETURN (Percentage) State ERR 1. Maharashtra 28.519 2. Andhra Pradesh 15.198 3. Punjab 21.222 4. Himachal Pradesh 21.134 5. Uttar Pradesh 15.746 6. Group as a whole 19.474 Capacity Utilization of Rural Godowns 4.48 In the evaluation of rural godowns constructed under NCDC-I Cooperative Storage Project, the capacity utilization was quantified on the basis of norms adopted by the Central Warehousing Corporation and it was measured in terms of storage space created and utilized in terms of wheat. For this purpose, a standard bag of wheat occupying 6 sq ft of space and weighing one quintal is taken as standard of reference. The space occupied by other commodities is converted into wheat equivalent by using standard conversion ratios. The concept of capacity utilization used in the Evaluation of NCDC-I Cooperative Storage Project had certain limitations. The rural godowne are of the nature of infrastructural facilities required for servicing the needs of the farmers for fertilizers, pesticides, seeds, consumer goods, procurement of agricultural produce and credit disbursement. Thus, the rural godowns are designed to cater to the non-credit requirements of the farming  - 66 - community. The capacity utilization of rural godowns cannot be equated with the concept of capacity utilization used in large warehouses. In the course of discussion with the IDA Mission, it was suggested by the Mission that the NCDC should introduce more relevant conceptis of capacity utilization which would reflect the utilization of godowns at grass root level. The World Bank Mission suggested that the non-credit turnover zf the PACS may be converted into wheat equivalent and turnover-storage ratio may be computed for quantifying the utilization of rural godowns. 4.49 In accordance with the concept of capacity utilization suggested by IDA, the non-credit turnover of the sample societies has been converted into wheat and turnover-storage ratios have been calculated. The following table gives turnover of storage ratios of the sample societies during the years of operation. It would be seen from the following table that capacity utilization in term of Turnover-Storage capacity ratio has been positive except in Andhra Pradesh where the ratio has been below. TURNOVER-STORAGE RATIOS State 1982-83 1983-84 1984-85 1985-86 1986-87 Maharashtra 1.62 2.19 2.93 2.25 - Andhra Pradesh 0.70 1.28 1.11 1.09 - Himachal Pradesh - 1.78 2.16 2.48 - P-unjab 1.86 2.17 1.99 - Uttar Pradesh - - 1.00 1.72 2.02 Impact of Rural Godowns on Farming Coummuit 4.50 2,211 farmers were interviewed, in the Project States of Himachal Pradesh (408), Andhra Pradesh (705), Punjab (410), Maharashtra (366), Uttar Pradesh (322) for quantifying the !mpact of rural godowns on the production and income of the farming community. Apart from theoretical and conceptual difficulties of impact measurement, there are certain operational difficulties which limit the application of impact measurement of rural godowns on the farming community. It was not possible to take a scientific random sample of the farmers due to absence of list of the population and farm households, as it would have been time-consuming too. The farmers were also not willing to part with information regarding increase in income, production etc. There was also a problem of recall lapses as the pre-project in some States pertained to 1981-82. It may be mentioned that the samples in the Project States were limited to the members who availed facilities with the societies. Some of the results derived from the data aret (a) Comparison of the loans borrowed by the sample farmers during pre- project and post-project period reveals that loans received by the sample farmers from the PACS has increased by 25.s5 as compared to an increase of only 1.8? in case of loans taken from the money lenders.  - 67 - (b) Increase in the borrowers by the farmers from the PACS together with availability of fertilizers at appropriate time resulted in improvement of off-take of fertilizers by the sample farmers from 557 tons in the pre-project year to 900.53 tons in the post project period (c) With the introduction of godowns, most of the societies obtained licenses for Fair Price Shops and started distributing controlled as well as non-controlled items. PACs now use up 25Z of the expenditure in consumer goods by the farmers which average about R 494 per month. (d) The farming community have also gained as a result of reduction in storage losses of inputs and consumer goods. There has also been savings in their transportation cost as a result of the availability of these items nearer to their farm houses. (e) Taking the change in agricultural production has been taken as proxy and surrogate for measuring the second order impact of rural godowne indicate that agricultural production of the sample farmers has recounted an increase of 16.63Z average. The increase in the produc- tion in different states has ranged from 29.92 in Maharashtra to 9.582 in UP. 4.51 The income of the sample farmers on average has also increased from Rs 6.590/ in the pre-project period to Rs 7,6801- in the post-project period in real terms. This assessment is based on the responses of the sample farmers. 4.52 The farmers also identified the following areas in order of importance where they would like the PACs to intervenet (a) Sale of more items of consumer goods (1,569); (b) Marketing of agricultural produce (1,513); (c) Sale and hiring of agricultural implements (1,186); (d) Storage facility for surplus agricultural (1,093) produce; (e) Sale of cattle-feed (976); (f) Sale of seedslpesticides (774); (g) Timely availability of agricultural requisites (237). SuaRested Line of Action 4.53 The prioritization of the services provided by PACS to the farmers tabulated above should be treated as blue-print for effecting improvement in the working of grass root level societies. It has been reported by the societies that the margins currently available on distribution of consumer goods are not attractive; the assortment of goods provided to the farmers is  - 68 - not adequate; the supply lines from the lead to link societies are not firmly established, the margin money is insufficient to meet the enhanced require- ments of the farmers; rate of interest is high as compared to the margins received by the societies. Action on the points is being taken and need to be taken by the concerned authorities. 4.54 In the sphere of procurement and marketing of agricultural produce, the relation of the PACS with the farming community for marketing purposes could be of three types. The PACS may arrange for the transportation of the surplus agricultural produce of the members through trucks to the regulated market or to the godowns of the marketing societies instead of individual farmers transporting the same through separate arrangements. This would result in savings in transport cost as suggested by IDA. The societies premises can serve as the assembling place for the surplus agricultural produce of the farmers or society can hire trucks which can load the farmers' produce it different convenient points. The society may arrange for storage of the farmers produce at the regulated market if need be offer its marketing facilities in cooperation with the marketing societies so that the farmers get renumerative prices for their agricultural produce. Alternatively, farmers can bring their surplus agricultural produce to the PACS godowns and societies can advance pledge loan on such produce delivered. This scheme would be of particular interest to farmers who require some urgent cash immediately after harvest. PACS can, therefore, provide 70 to 80Z of the total value of produce at the time of delivery and adjust the remaining 20 to 302 after the disposal of produce based on the actual price realized. In the third type of relation- ship, the PACS can purchase the agricultural produce from farmers on outright basis either as the agents of marketing federation or on their own account. 4.55 The establishment of any of these relationships would, however, depend on the support which the Primary Agricultural Credit Societies would get from Primary Cooperative Marketing Societies and State Federation. For ensuring optimum utilization of rural godowns, it would be necessary that the marketing societies clearly follow the idea of making PACS as profit centers. The Apex Cooperative Societies should enroll PAC$ as their agents for procure- ment of all types of agricultural produce. The commodity specific marketing societies should also enroll PACS as their collectionlprocurement agents wherever possible. The involvement of PACS in the procurement of agricultural produce should be total and should cover all parts of the state and all com- modities. Commodity and area specific strategy should be adopted for maximum procurement and optimum utilization of the infrastructural base created at the base level. This system of having PACS as exclusive collection centers or procurement agents would not only be cost effective but would also be in the interest of the cooperative structure. This system would improve the vertical linkages of the Primary Societies with Apex Cooperative Federations which would be firm, durable and financially profitable to all. Member-Society relations at the base would also improve as it would be in the interest of farmers. It has now been clearly recognized that only by strengthening the PACs at the base level, cooperatives would emerge as an effective alternative marketinR channel benefitting both the producers and the consumers.  - 69 - Preparation of Utilization Plan 4.56 The rural godowns allotted to cooperative societies should be finan- cially profitable propositions on self-supporting basis to the societies. The societies, operating vith the rural godowns should, therefore, prepare a monthwise space utilization chart (SUC) indicating the agricultural commodi- ties, inputs and consumer goods which would be stored for meeting the require- ments. The chart should clearly indicate the quantity to be stored on the account of the farmers and other institutional agencies in each month. It should not be difficult for the society to estimate monthwise expenditure on operation of godown and work out the income and rental that would be required to achieve the breakeven point. The optimum utilization of rural godowns and the strategy to be adopted for the same was also discussed with officers of RCS, State Cooperative Banks, Marketing Societies, Federation and the Primary Agricultural Cooperative Societies in the Project States. During the discussions, following other measures were suggested for improving the utilization of rural godowns. (a) Encouraging the storage of agricultural produce of the farmers in rural godowns ani introduction of pledge loan scheme on such stores. (b) Utilization of godowns for warehousing purposes for storage of fertilizers, seeds and other produce. (c) To rent out the godowns to public and cooperative agencies for procurement of agricultural produce both under price support opera- tion as agents of State Government and on outright basis. (d) To provide the godowne for opening the purchase centers on rent. (e) Achieve diversification of the PACS activities by covering sale of agricultural implements, diesel, controlled cement, cattlefeed and other essential consumer articles. (f) To encourage farmers to use rural godown for keeping their foodgrains for seeds and for self consumption purposes. 4.57 With the issue of new guidelines for sharing of margins for fertilizers in different States, the long felt need of PACS with regard to the financial viability of fertilizer distribution has by and large been met. The new scheme has already become operational in the States of U.P., Punjab, Andhra Pradesh, and Bihar. The fertilizers sales should, therefore, increase substantially as the PACS would now be able to compete with private traders more effectively. Marketing Godowns 4.58 The assessment of the impact of the marketing godowns on the opera- tions of the State Marketing Federations and other marketing societies is difficult. The casual relationships between the marketing godowne and other observable parameters at marketing societies' federations' level is complex and tenuous due to problems in disaggregation of the contribution of the marketing godowns from the total physical and financial performance of the federations and marketing societies.  - 70 - First Order Impact 4.59 The first order impact of the marketing godowns would consist of addition to storage space of federations and marketing societies to facilitate their general business activities. The NCDC-II Cooperative Storage project have added or would be adding 2.316 million tons of additional owned storage capacity to the State Cooperative Marketing Federations in the states of Bihar, Uttar Pralesh, Punjab, Maharashtra and Himachal Pradesh, Primary/ District Cooperative Marketing Societivs in Andhra Pradesh and Maharashtra, sugar cooperatives in Punjab and Uttar Pradesh State Cooperative Consumers Federation in Uttar Pradesh. Of the 2.316 million tons of additional storage created under the project, 1.696 million tons would be for State Cooperative Marketing Federations 0.498 million tons for Primary/District marketing societies and 0.121 for other marketing cooperatives. The marketing godowns to the Federations would provide them with the basic infrastructure to store more inputs like fertilizers, seeds, pesticides, agricultural outputs, agri- cultural raw materials for processing and consumer articles. The total addi- tional owned storage capacity that would be created by the project and the total storage capacity that would be available to Federations in project states would be as follows: INCREASE IN THE OWNED STORAGE CAPACITY WITH STATE COOPERATIVE MARKETING FEDERATIONS ('000 tons) Total owned Owned storage Capacity storage capacity prior created under capacity after Organization/State to NCDC-II NCDC-II NCDC-II Biscomaun (Bihar) 64.00 215.00 279.00 P.C.F. (Uttar Pradesh) 188.75 658.00 846.75 Markefed (Maharashtra) 63.90 119.00 182.90 Himfed (Himachal Pradesh) 0.25 42.65 42.90 Markfed (Punjab) 454.00 661.45 1,115.45 Total 770.90 1,696.10 2,467.00 4.60 The benefits derived from the marketing godowne by the federations would clearly depend upon the extent of utilization of the storage capacity created under the Project. Capacity utilization of marketing godowns may be taken as the most important empirical indicator for quantifying the first order impact of these godowns. The Evaluation Studies conducted by NCDC has provided data on operations of seven marketing godowns with PCF in U.P., seven marketing godowns with MARRPED, Maharashtra, 45 marketing godowns with Biscomaun, Bihar, 19 marketing godowns with MARRPED Punjab and 22 marketing godowna with HDMPED H.P. These Federations' godowne were completed by June 30. 1984 (June 30, 1985 in case of U.P.) and were covered for the valuation studies. However, all the godowns in U.P. and four godowns in  - 71 - Maharashtra were given on the rent by the Federations to other cooperative organizations. The capacity utilization of the remaining godowns has been estimated. Cavacity Utilization 4.61 Capacity utilization of space is a two-dimensional concept volumetric and gravimetric. The volumetric concept expresses capacity utilization in terms of storage space created and utilized, the gravimetric concept expresses the capacity of godowns in terms of tonnage. Generally, the concept of capa- city of a godown is considered volumetric and it is translated into gravi- metric in relation to a particular commodity. The capacity of a given size of godown varies from commodity to commodity as the same tonnage of all the commodities cannot be stored in a given storage. To obviate the difficulties of comparing capacities for different commodities in the same godown, it is convenient to express the capacity of a godown in terms of a single commodity, say, wheat, as has been done in case of godowns constructed under the Project. For this purpose, a standard bag of wheat occupying 6 sq ft (0.75 sq meters) of space and weighing one quintal is taken as the standard of reference. The capacity of any godown can be converted in comparison to the standard bags of wheat that could be stored in the godown. Operational Methodology 4.62 The following methodology has been used in estimating the extent of the capacity utilization of Federations' godowne constructed under NCDC-II Projects (a) Month-wise data on maximum stock, minimum stock and average stock of different commodities stored in godowns have been collected. (b) All the commodities, viz. fertilizers, sugar, rice etc. stored in godowne have been converted into wheat by using standard conversion ratios. (c) Godown-wise mAximum, minimum and average capacity utilization have been computed. (d) Godown-wise capacity utilization has been aggregated into overall capacity utilization for the state as a whole. The table below gives the capacity utilization of marketing godowns allotted to federations in the project states.  - 72 - CAPACITY UTILIZATION (in percent) 1983-84 1984-85 1985-86 Max. Min. Avg. Max. Min. Avg. Max. Min. Avg. Bihar 39.85 31.73 35.79 33.19 26.46 29.82 55.48 50.97 53.22 Punjab - - - 100.00 69.00 84.50 100.00 88.00 94.00 Maharashtra - - - 84.50 59.40 72.00 64.60 51.90 58.30 H.P. - - - 71.97 44.88 58.42 97.75 67.75 82.75 4.63 The percentage capacity utilization of the federation godowns in Punjab has been higher than the capacity utilization in H.P., Mabarashtra and Bihar. The percentage utilization has increased in 1985-86 as compared to 1984-85 in Bihar, H.P. and Punjab. The decline in percentage capacity utili- zation in Maharashtra in 1985-86 as compared to 1984-85 was reported to be due to drought conditions prevailing in the state which reduced the demand for fertilizers. The drought conditions also affected the procurement of agricul- tural produce under price support and open market as the market arrivals were limited and prices generally ruled higher. Business Turnover of State Marketing Federations 4.64 The marketing federations are the apex organization of cooperative marketing societies and mostly perform the following functions: 1. Supply, storage and distribution of agricultural inputs to the farmers for boosting farm production. 2. Marketing of farm produce for ensuring the most remunerative prices to the farmers. 3. Processing of agricultural produce and inputs for bringing the trading and manufacturing gains to the farmers. 4. Distribution of essential consumer articles to ensure the quality products at reasonable prices. 4.65 The following summary table gives the annual turnover of the State Cooperative Marketing Federations in the beneficiary states. Detailed Infor- mation is given in Tables 1 to 5 in Annex 14.  - 73 - BUSINESS TURNOVER OF STATE COOPERATIVE MARXETING FEDERATIONS (Rs in millions) Year Punjab H.P. Maharashtra Bihar U.P. 1981-82 - 84.69 1,596.54 608.99 4,144.80 1982-83 3,894.65 93.50 1,329.85 652.60 4,571.80 1983-84 4,029.21 127.36 1,193.35 608.04 5,159.58 1984-85 4,630.49 135.87 1,548.16 561.32 5,424.20 1985-86 5,960.47 183.49 1,758.93 468.93 5,765.10 1986-87 6,090.00 230.00 1,527.86 n.a. 5,478.50 4.66 It would be seen from above that the State Cooperative Marketing Federations in Punjab and B.P. have recorded continuous increase in the turn- over. The Marketing Federations in Maharashtra and U.P. have recorded contin- uous increase in turnover up tc 1984-85. Turnover in 1985-86 of these Federations has declined because of the drought conditions prevailing in these states. In Bihar, the business turnover of the Biscomaun has declined from 1982-83 onwards. However, the union has been under reorganization which has only recently been completed. Business turnover in 1986-87 is expected to be significantly larger than the turnover level achieved in 1985-86. While analyzing the total turnover, no attempt has, however, been made to establish co-relations between availability of storage space and expansion in business activities. The table below gives the annual profitiloss of the Marketing Federations from 1981-82 onwards. However, no attempt has been made to quantify the effect of marketing godowns on profitability of the federations. PROFITILOSS OF STATE COOP. MARRETING FEDERATIONS (Rs in millions) Year Punjab H.P. Maharashtra Bihar U.P. 1981-82 (-) 83.50 0.87 6.87 2.59 11.66 1982-83 (-) 84.96 0.93 2.16 (-) 150.52 10.41 1983-84 5-) 55.24 0.31 1.46 (-) 114.05 7.10 1984-85 (-) 72.46 ( ) 0.67 2.73 (-) 114.06 C-) 48.60 1985-86 11.99 C-) 2.45 3.96 C-) 177.13 9.90 1986-87 104.17 4.57 4.71 n.a. n.a. PCMS Godowns in Maharashtra 4.67 Primary Cooperative Marketing Societies (PCMS) have been organized In Maharashtra at the Block level. Besides, these general purpose marketing societies, commodity specific marketing societies have also been organized to deal with specific commodities such as cotton, oilseeds, etc. The total  - 74 - number of these societies is 672 and they have a membership of 0.53 million. Broad dimensions of the business turnover of these societies may be seen from belows WsINS rROER OF PCM IN MAHARASHTRA (Re In millIons) Activity 1980-81 1981-42 1982-8 193-844 194-65 19S8-8U 1980-87 (Estmate) Agielulturel produce 06.2 951.3 1,712.0 1,659.2 1,589.0 8,060.2 S,500.0 Agrleilturl Inputs (a) FertilIIers 881.0 1,120.1 1,510.8 1,009.6 1,120.7 1,221.1 1,200.0 (b) Seeda 88.8 98.5 121.4 162.6 156.2 117.6 180.0 (e) Postcliesn 47.4 86.2 47.9 50.3 88.8 88. La (d) Agric. Implement. 41.2 84.4 80.5 89.0 81.4 lo / Consumer goods 794.2 764.2 769.8 824.6 614.1 97.7 1,010.0 other. 110.6 99.8 122.4 142.9 106.0 808.2 280.0 Total Bualnes urnor 2.929.4 8.100.0 4.815.1 8.880.? S.86L.7 56.87.8 0l200.0 / Ineluded In others. 4.68 It would be seen from the above that main business of PCMS has been the procurement of agricultural produce and distribution of agricultural requisites. These two activities together have accounted for over 70? of the total business turnover of PCMS. Impact of PCMS Godowns 4.69 A sample of 10 marketing godowns with total storage capacity of 2,900 tons in operation with eight PCMS were selected for the impact assessment. These godowns were completed before June 30, 1984. As a result of induction of project godowns in the working of sample PCMS, the total storage capacity available with them has increased from 7,200 tons in 1979-80 to 12,250 tons in 1985-86 NCDC-II godowns accounted for 36? of the total storage capacity avail- able with these societies in 1985-86. Capacity Utilization 4.70 The capacity utilization of sample PCMS godowns has been worked out on similar lines to that of Federations' godowns already discussed. Capacity utilization has, however, been worked out in respect of five godowne with total capacity of 1,000 tons in operation with four PCMS only, as the remain- ing godowns were given on rent to State Warehousing Corporation and cotton growers Federation. The yearwise masimum, minimum and average capacity utili- zation of these godowns for 1984-85 and 1985-86 may be seen from the table below:  - 75 - CAPACITY UTILIZATION OF SAMPLES PCMS (in percent) Year Maximum Minimum Average 1984-85 68.00 31.85 49.92 1985-86 72.90 35.45 54.17 Business Turnover 4.71 The following table gives the broad dimensions of the business turnover of sample PCMS: ACTUAL BUSINESS TURNOVER OF SAMPLES PCMS IN MABARASHTRA (Rs in millions) Agricultural Agricultural Consumer Miscellaneous Year produce inputs goods and others Total 1979-80 9.43 30.84 35.65 9.11 85.03 1980-81 16.06 55.10 47.95 19.60 138.71 1981-82 15.01 51.83 43.55 13.78 124.17 1982-83 21.19 44.58 40.48 12.97 119.22 1983-84 21.05 63.65 43.62 12.19 140.51 1984-85 22.92 58.07 43.88 10.84 135.71 1985-86 11.79 59.46 40.88 15.36 126.51 Profitability 4.72 The following table gives income, expenditure and profitiloss of eight sample PCMS as shown in their balance sheets;  - 76 - INCOME, EXPENDITURE AID PROFITILOSS OF SAMPLBD PCMS IN MABAEASUThA (Rs in '000) Year Income Expenditure Profit/Loss 1979-80 5,919 5,321 598 1980-81 6,815 6,501 314 1981-82 7,302 7,068 234 1982-83 7,380 7,104 276 1983-84 8,439 8.821 (-)382 1984-85 9,031 8,724 307 1985-86 10,016 9,609 407 4.73 The perusal of above data brings Ohrt that the sample PCNS as a grosnp have been earning continuous profits all these years except during 1983-84. In 1983-84, sample PCMS sustained losses despite their record turnover due to lower realized margins on their various business activities and higher over- head expenses. PCMS/DOMS Godowns in Andhra Pradesh 4.74 In Andhra Pradesh, prior to the reorganization of Cooperative credit and marketing structure, there were 22 District and 392 Primary Cooperative Marketing Societies. However, with reorganization the Cooperative marketing structure has become a two tier one and erstwhile PCM have either been amalgamated with PACS/DOMS or have been liquidated. Under NCDC-II Project, 100 marketing godowus of 250 tons capacity each were constructed for the erstwhile PC$S. For assessment of impact of these godonns on the working of PCMS, 22 godowns in operation vith 12 PCHSIVOMS reported to have been completed before June 30, 1984 were selected. During the evaluation study, it was observed that five godowns in operation with four societies have been rented out to other cooperative organization. Assessment of impact of the marketing godowns has, therefore, been restricted to 17 godowns in operation with 8 PCMS/DOMS. As a result of induction of godowns in the working of sample PCNSIDOMS, the total storage capacity available with them has increased from 6,820 tons in 1979-80 to 17,970 tons in 1985-86. The owned storage capacity with these societies has also increased from 4,320 tons in 1979-80 to 11,620 tons in 1985-86. NCDC-II godowne accounted for 242 of the total storage capacity available with these societies in 1985-86. Capacity Utilization 4.75 The capacity utilization of sample PCMS/DONS godowns has been worked out on the simtlar lines to that of Federations" godowns already discussed. The maximu, minimum and average capacity utilization of these godowns in 1983-84, 1984-85 and 1985-86 may be seen from belows  - 77 - CAPACITY UTILIZATION OP SAMPLE PCMSIDOMS GODOiNS (Percent) Year Maximum Mlnimum Average 1983-84 88.29 33.55 60.92 1984-85 e9.98 48.94 69.46 1985-86 55.60 29.96 42.78 4.76 It would be observed from the above data that the average capacity utilization has declined in 1985-86 as compared to 1983-84 and 1984-85. The decline in the percentage capacity utilization was mainly due to the proposed reorganization of cooperative credit and marketing structure which was initiated during that year. Business Turnover 4.77 The following table gives the broad dimensions of business turnover of sample PCMSIDOM$. BUSINSS TURNOVER OF SAMPLE PClIDOMS (Rs in millions) Agricultural Agricultural Consumer goods Year produce requisites and others Total 1979-80 3.98 13.87 6.25 24.10 1980-81 5.09 17.25 10.86 33.20 1981-82 5.01 16.02 15.22 36.25 1982-83 3.51 24.13 22.87 50.51 1983-84 7.04 15.69 52.53 75.26 1984-85 9.70 15.16 86.02 110.88 1985-86 8.02 16.98 76.01 101.01 ProfitabilitY 4.78 The following table gives income, expenditure and profit/loss of sample PCMSIDCMS as shown in their balance sheetss  - 78 - PROFITABILITY OF SAMPLE PCNSIDCMS (Rs in '000) Year Income Expenditure Profit/Loss 1979-80 1,148 1,111 37 1980-81 1,410 1,547 (-)137 1981-82 :,845 1,475 370 1982-83 2,346 2,138 208 1983-84 3,907 2,493 1,414 1984-85 2,841 2,754 87 1985-86 3,142 2,958 184 4.79 The perusal of above data brings out that the sample PCMS/DCMS have been earning continuous profits all these years except 1980-81. These so- cieties earned a record profit of Rs. 1.414 million in 1983-84. The decline in profits subsequently has been due to decline in the realized margins on their various business activities and higher overhead expenses. Cold Storage Component 4.80 In order to quantify the impact of cold storage in the beneficiary states, case studies of 15 cold storages; in West Bengal (3), Bihar (2), and Uttar Pradesh (10) were prepared starting from the rationale of setting up of the cold storages in a particular area on the basis of financial viability, economic and social benefits, assumptions of appraisal reports, actual and projected financial parameters etc. The results obtained from micro studies were scrutinized in order to pinpoint major areas of concern, suggest line of action and most feasible growth path in the economic environment under which these cold storages are/would be operating. The following table gives loca- tions of the cold storages, ownership, total capacity, year of completion and block cost.  - 79 - PARTICULARS OF SAMPLE COLD STORAGES (Rs in millions) Location of the Capacity Year of cold storage Ownership tons completion Cost West Bengal Memari BENFED 4,000 1985 6.75 Tarkeswar PCMS 4,000 1986 7.07 Nadia FSS 4,000 1985 7.37 Bihar Saharsa BISCOMAUN 4,000 1986 7.15 Forbesganj 4,000 1985 7.79 Uttar Pradesh Kopaganj PCF 4,000 1982 4.46 Pratapgarh 4,000 1982 4.46 Soraun 4,000 1982 4.46 Jaswantnagar Marketing Society 2,000 1986 3.73 Jahangirabad District Cooperative 2,000 1985 3.41 Federation Sikandarabad District Cooperative 4,000 1985 6.98 Federation Anola Marketing Society 4,000 1985 6.49 Sabungodam Marketing Society 4,000 1986 7.35 Kharkhoda a 4,000 1985 6.00 Vashi (Bombay) PCF 4,000 1987 9.20 Total 92.67 4.81 The sample of 15 cold storages included in the study covered cold storages operated by marketing federations like BENFED of West Bengal, PCF of Uttar Pradesh, BISCOMAUN of Bihar, Dot. Cooperative Federations (Dist. level Society) and Primary Marketing Societies. All the storages except two had capacity of 4,000 tons each. Of 15 cold storages, 3 cold storages were com- pleted in 1982 and 7 in 1985, 4 in 1986 and 1 in 1987. Thus sample was fairly representative of types of agencies operating the cold storage, year of com- pletion and number of project states. Rationale of Cold Storages 4.82 All the above cold storages and even those which have not been brought within the ambit of the study were set up on the basis of certain arguments and facts. Generally the genesis of setting of the cold storages were as follows:  - 80 - (a) The total production of potatoes within the area of operation of the proposed cold storage unit was significantly higher than that of the cold storage capacity available within the area. There was scope for creation of additional cold storage capacity in the cooperative sector. (b) The Federation/Society had already acquired suitable site for cons- truction of cold storage which was very near to the availability of infrastructures like high-voltage electric grid, railway station, main road, markets etc. (c) The farmers of the areas were not able to get remunerative prices for potatoes and setting up of cold storage would enable them to store their surplus potatoes in the cold storage during the peak period and sell the same during lean season. (d) The cold storage would also reduce storage losses, increase value- added of potatoes, create more employment and increase potato produc- tion. (e) The operation of the cold storage would be financially viable, com- mercially profitable and economically and socially useful to the members. 4.83 These cold storages were appraised by Technical Appraisal Teams. The main premises, arguments, assumptions on which these cold storages were sanc- tioned were as tollows: (a) The Society/Federation would undertake marketing of potatoes in their own account which would be at least in the ratio of 50:50 of the potato stored. (b) Assumptions were a)^o made on minimum storage charges and net market- ing margin accruing to the Society/Federation. (c) Income from the operation of the cold storage was estimated on the basis of (a) IOOZ rental, (b) 752 rental and 25Z marketing of potato, and (c) 50 rental and 502 marketing. The inference was drawn that the most profitable combination will be 5OS marketing and 502 rental. (d) Depreciation was calculated on the block cost at the rate of 10 in case of plant and machinery, 5? in case of building, racks and insul- ation. Interest on block cost was taken at 10 per annum on 60S of the block cost. Interest on bank borrowing was worked at 15? per annum on the amount required for marketing of potato for average of eight months. It was assumed that bank would be able to provide 60? of the amount required on hypothecation and balance would be met from the margin money. 4.84 The cash flow for each cold storage showed that if the cold storage worked at 502 rental and 50 marketing, the cash accruals would be sufficient to pay back the loan bstallment after meeting Interest burden and other oper- ational expenses but not depreciation cost. The unit ceased to be financially viable if it was utilized 1002 and 75? on rental basis.  - 81. - Cold Storage Operation 4.85 The total cold storage capacity of 15 sample cold storages was 56,000 tons of which 54,000 tons was completed by the end of 1986-87. One cold storage, i.e., Saharsa in Bihar was still to complete one chamber of 2,000 tons by the end of 1986-87. In all other states, the total target capacity was created. The following table gives capacity of the sample cold storages by the end of 1984-85, 1985-86, 1986-87 and capacity utilization for the corresponding years. CAPACITY CREATED AND CAPACITY UTILIZED BY THE SAMPLE COLD STORAGE UNITS (Percentage) Name of the Capacity (000 tons) Capacity Utilization Cold Storage Unit 1984-85 1985-86 1986-87 1984-85 1985-86 1986-87 West Bengal Kemari 4 4 4 56.38 48.80 97.50 Tarkeswar - 2 4 - 55.95 91.14 Nadia 4 4 4 27.40 42.35 87.45 Total West Bengal 8 10 12 41.89 47.65 92.03 Bihar Saharesa - 2 2 - 18.5 43.76 Forbesganj 4 4 4 2.44 2.53 19.73 Total Bihar 4 6 6 2.44 7.85 27.74 Uttar Pradesh Kopaganj 4 4 4 69.15 60.00 93.77 Pratapgarh 4 4 4 85.77 62.02 89.00 Soraun 4 4 4 93.75 70.75 96.75 Jasvantnagar - - 2 - - 92.50 Jahangirabad 2 2 2 53.80 38.10 100.00 Sikandarabad 4 4 4 17.15 11.75 74.22 Anola - 4 4 - 18.87 87.70 Sabungodam - - 4 - - 69.75 Kharkhoda 2 2 4 90.00 16.25 90.00 Vashi (Bombay) - - 4 - - (a)82.93 for potato la (b)77.92 other commodities Total Uttar Pradesh 20 24 36 67.55 41.76 86.71 Total of All the three States 32 40 54 52.99 38.15 81.34 La It was not included in the calculation of average capacity utilization.  - 82 - 4.86 The capacity utilization of the sample cold storages reveals that in West Bengal, capacity utilization has recorded significant increase during 1986-87 as compared to capacity utilization during 1984-85 and 1985-86. All the three sample cold storages have registered the capacity utilization above 90? during 1986-87. In Bihar, the capacity utilizatLom of both the sample cold storages has not been satisfactory so far due to problems of management and insufficient contact with the farmers etc. In Uttar Pradesh, the capacity utilization of all the sample cold storages during 1986-87 has been satisfac- tory. The cold storage at Vashi in Bombay is able to store multiple commodi- ties and achieve better capacity utilization in respect of potato, as well as other coumodities. Due to a steep fall in the production of potato during 1985-86, the capacity utilization of the sample cold storages has declined from 52.92 during 1984-85 to 38.15? during 1985-86. The Year 1986-87 wit- nessed a bumper potato crop; the capacity utilization of all the cold storages including cold storages set up in Bihar increased significantly. Marketing and Rental Component 4.87 Almost all the cold storages were sanctioned on the assumption that each of the cold storages would undertake marketing of potatoes to the tune of 502 of the total potatoes stored in the cold storages. Gross marketing margin excluding rental were assumed which was significantly higher than the actual and projected rental rate of the cold storages. Of the 15 sample cold stor- ages, only three cf those operating in West Bengal undertook some marketing of potato. The following table gives the marketing component of three cold stor- ages in West Bengals M-MKEI CWONENt uantity: Tons For For For cold Total marketing Percentage Total marketing Percntage Total marketing Percentage torage storoge purpose share storage purpoe share storage purpos share Tarke_r - - - 1,119 - - 8,645.5 81.6 2.2 Wadli 1,098 572 52.2 1,64 242 14.8 8,497.0 18.6 0.4 Memar 2,255 1,459 94.7 1,951 1,72? 68.5 8358.0 1,980.0 50.9 To," I LiA1 L2,01 60.0 4.784 1.889 41.8 11.041.1 2.0.2 18.0 4.88 It would be seen from the above table that cold storage at Tarkeswar marketed 81.6 tons constituting 2.2? of the total potatoes stored in the cold storage. The marketing component in case of Nadia cold storage was 52.2? during 1984-85 which declined to 14.32 during 1985-86 and further to 0.4Z during 1986-87. Benfed which is operating Memari Cold Storage marketed 64.7Z of the total potatoes stored during 1985-86, 88.52 during 1985-86 and 50.9? during 1986-87. On the whole, in case of these three units the potatoes stored for marketing purposes constituted 60.6S of the total potato stored during 1984-85, 41.3? during 1985-86 and 18.8? during 1986-87. The financial  - 83 - results of the operation of cold storages for marketing purposes are given in the next section. Financial Operation of the Cold Storages 4.89 Income of the cold storage is derived from two sources viz. rental and other charges and net trading margin. The expenditure on the operation of cold storage consists of variable expenses like electricity and captive power, loading and unloading, interest on working capital and fixed expenses viz. salary/establishment, maintenance/repairs, insurance, interest on block capital, depreciation and others. The classification of expenditure into fixed and variable is to some extent arbitrary. For instance, expenditure on electricity is both fixed expenditure as well as variable expenditure as some minimum charges ass levied irrespective of the quantum of electricity used. The following table gives unit-wise actual and projected income during 1984-85, 1985-86 and 1986-87s ACTUAL AND PROJECTED INCOME (Rs. in lakhs) 1984-85 1985-86 1986-87 Cold storage Actual Projected Actual Projected Actual Projected west Bengal Tarkeswar - - 3.08 1'.36 10.49 12.78 Nadia 2.53 12.78 4.35 14.20 9.06 14.20 Memari 6.22 11.36 5.99 12.78 11.77 14.20 Total 8.75 24.14 13.42 38.34 31.32 41.18 Bihar Saharsa - - 0.97 12.00 2.57 13.50 Forbesganj 0.24 12.00 0.27 13.50 2.53 15.00 Total 0.24 12.00 1.24 25.50 5.10 28.50 Uttar Pradesh Uopaganj 6.64 13.80 6.48 13.80 10.13 13.80 Pratapgarh 6.52 13.80 6.70 13.80 9.61 13.80 Soraun 10.12 13.80 7.64 13.80 10.45 13.80 Jaswantnagar - - - - 4.33 6.90 Jahangirabad 2.40 5.52 1.60 6.21 4.60 6.90 Sikandarabad 1.44 11.04 1.08 12.42 7.72 13.80 Anola - - 1.95 12.42 8.07 13.80 Sabungodam - - - - 7.12 11.04 Xharkhoda 3.43 11.04 0.75 12.42 8.28 13.80 Vashi (Bombay) - - - - 18.15 28.90 Total 30.55 69.00 26.20 84.87 88.46 136.54 Grand Total 39.54 103.72 40.86 147.29 124.88 206.22  - 84 - 4.90 The Appraisal Report has assumed certain rental rates per ton and removal of ceiling. In almost all the states ceilings were removed and rental rates were allowed to settle on the basis of free play of demand and supply forces. A table giving actual and projected rental rates in the Project States is given in Table 1 in Annex 15. Expenditure Analysis 4.91 The following table gives the actual and projected expenditure of the 15 sample cold storages during 1984-85, 1985-86 and 1986-87. ACTUAL AND PROJECTED EXPENDITURE OF SAMPLE COLD STORAGE (Rs in lakhs) Name of the 1984-85 1985-86 1986-87 (estimated) Cold Storage Actual Projected Actual Projected Actual Projected West Benaal Memari 12.32 12.17 11.50 12.53 15.59 12.93 Tarkeswar - - 8.88 12.57 12.58 13.66 Nadia 10.17 13.51 11.11 13.23 13.64 13.27 Total West Bengal 22.49 25.68 31.49 38.23 41.71 39.86 Bihar Saharsa - - 10.74 13.44 12.32 13.67 Forbesganj 9.50 13.01 10.21 13.19 10.42 13.03 Total Bihar 9.50 13.01 20.95 26.64 22.74 26.70 Uttar Pradesh Kopaganj 9.68 10.89 10.40 10.78 11.66 10.67 Pratapgarh 12.15 10.89 12.24 10.78 12.39 10.67 Soraun 10.91 10.89 10.82 10.78 11.01 10.67 Jaswantnagar - - - - 6.80 7.27 Jahangirabad 6.24 6.81 6.90 7.29 7.46 7.80 Sikandarabad 7.74 11.74 8.31 11.76 11.11 12.52 Anola 0 0 9.68 12.98 12.19 13.59 Sabungodam - - - - 15.31 14.19 mharkhoda 9.45 11.84 9.88 12.36 14.07 12.77 Vashi (Bombay) - - - - 17.01 18.06 Total Uttar Pradesh 56.18 63.06 68.23 76.73 119.01 118.11 Total 88.17 101.75 120.67 141.59 183.46 184.67  - 85 - 4.92 The Projected expenditure differs from the actual expenditure because of decreased expenditure in electricity, salary and establishments and hand- ling of potatoes. There is no difference between actual and projected expend- iture on interest and depreciation as both the items are derived ones. There are four items of expenditure which constitute near 901 of the total expend- iture. These items are expenditure on electricity, interest, depreciation and establishment. The following table gives the percentage of these four items to total expenditure during 1986-87. PERCENTAGE TO TOTAL EXPENDITURE, 1986-87 (Percentage) Neme of the Electricity & Salary/ Interest on Cold Storage Captive Power Establishment block capital Depreciation West Bengal Memari 31.23 10.00 20.85 20.59 Tarkeewar 22.44 5.45 29.65 29.41 Nadia 30.42 4.40 29.47 24.05 Total West Bengal 28.34 6.81 26.30 24.36 Bihar Saharsa 15.91 13.72 29.87 29.46 Forbesganj 18.04 7.77 28.79 34.26 Total Bihar 16.89 10.55 29.38 31.66 Uttar Pradesh Kopaganj 39.54 15.44 22.98 13.12 Pratapgarh 37.93 16.95 21.63 12.35 Boraun 36.33 15.53 24.34 13.90 Jaswantuagar 27.50 9.11 26.91 31.15 Jahangirabad 30.83 14.07 26.41 19.57 Sikandarabad 28.35 9.00 26.10 28.44 Anols 30.51 5.25 30.43 26.41 Sabungodam 35.14 2.68 26.19 26.45 Kharkhoda 43.99 4.12 21.61 20.04 Vashi (Bombay) 32.92 9.40 21.93 27.04 Total Uttar Pradesh 34.04 9.67 24.56 21.89 Grand Total 30.62 9.12 25.55 23.73 4.93 It would be seen from the above table that on the whole, expenditure on electricity and captive power, interest on block capital and depreciation constitute 23-302 each of the total expenditure on the operation of the cold storages. There are certain inter cold storages variation due to difference  - 86 - in cost of construction accounting for difference in interest on block capital and depreciation, difference in electricity rates resulting in different expenditure on electricity and difference in total number of staff employed and their salaries level explaining any difference in percentage share of balariesJestablishment to the total expenditure. Moreover, those cold storage which operate one chamber would have higher percentage of fixed expenditure to total expenditure as compared to cold storage which operate both chambers. Expenditure on salaries/establishment, interest on block capital and deprecia- tion could be taken as fixed expenditure which do not vary with the scale of operation of the cold storages whereas the expenditure on electricity and captive power is to a large extent variable factor which moves in discrete units when a cold storage starts utilizing second chamber. Expenditure on electricity would remain the same even though capacity utilization remains negligible. Financial Viability 4.94 Profitability of the 15 sample cold storages has been measured on the basis of standard accounting procedure in two stages. In the first stage, actual and projected profitability has been worked. Three variants of profit- ability have been used, namely (a) profits as the difference between total income and expenditure. Expenditure includes expenditure on depreciation and payment of interest; (b) cash accrua'ls consisting of depreciation and profit in order to quantity the cash losses of the sample cold storages; and (c) to- tal cash accruals compriging of profits plus depreciation plus interest. In the second stage, the financial ability of the sample cold storages to dis- charge debt obligation of principal and interest has been worked on the basis of certain assumptions. In this section, first stage has been dealt with (Annex 16, Tables 1-14). The following table gives actual and projected income and expenditure of 15 sample societies from 1984-85 to 1986-87: ACTUAL AND PROJECTED INCOME AND EXPENDITURE (Rs. in lakhs) Actual Proiected Year Income Expenditure Profit/Loss Income Expenditure Profit/Loss 1984-85 39.54 88.17 (-)48.63 103.72 101.75 1.97 1985-86 40.86 120.67 (-)79.81 147.29 141.59 5.70 1986-87 124.88 183.46 (-)58.58 206.22 164.67 21.55 4.95 The financial results of the sample cold storages reveals that during all the three years of operation, the cold storages as a group have suffered losses as against the projected profits during the period. The macro picture depicted in the above table does not reveal the financial results of operation of individual sample cold storages. The following table gives profit and loss, cash accruals - 1 (Profit + Depreciation) and cash accrual - 2 (Profit + Depreciation + Interest).  - 87 - (Re. in lakhs) Nme of the 1984-65 Acturl 1906-86 Actual 1687 Actual Cold Storage Profits Accrual-i Acerual-2 Profit Accrunl-I Accrual-2 Proflt Accrual-i Accruat-2 Yarl (-).1 -2.8 .0.1 -5.6 -2.0 +0.7 -a8' -0.6 +2.6 Tarkwr - - - -5.6 -2.1 .0.6 -2.0 *1.7 .5.4 Ndia (s)7.6 -8.7 -0.7 -.8 -8.2 +0.1 -4.6 -1.8 +2.7 Totll West Sen-L0 (18.7 -6.0 -06 -7.8 1.4 -10.4 -0.2 +10.7 Sahara - - - -9.8 -5.9 -2.6 -9.8 -6.1 -2.4 Forbsani -9.8 -I.1 -26 -9.9 -6.1 -8.1 -7.9 -4.8 -1.8 Total Bihar -9.8 -5.1 -2.6 -19. -12.0 -5.7 -17.7 -10.4 -8.7 Utter Pradesh Kopaganj -8.0 -1.8 *1.4 -8.9 -2.8 40.4 -1.5 0 +2.7 Pratpparh -5.8 -8.9 -1.2 -6.5 -8.9 -1.2 -2.8 -1.2 +1.4 Sore. -0.8 40.9 .*8. -8.2 -1.6 +1.1 -0.6 .0.9 +3.6 Jasuanteagar - - - - - - -2.5 -0.4 +1.4 S8kanderabod -6.8 -2.6 -0.7 -7.2 -8.8 -1.8 -8.4 -0.2 +2.7 Anola - - - -7.7 -4.8 -1.1 -4.1 -0.9 +2.6 Sebugod.. - -