Mexico - Agricultural Marketing Project For Perishables

DoKmnent of The World Bank FOR OMCIAL USE ONLY tICROFICHE COPY F C:PC) Repwt No. 10209 Report No. 129- /T9p59/ OEDD' ALEGRE , 1 / 3.E5/TO9OD1 PROJECT COMPLETION REPORT MEXICO AGRICULTURAL MARKETING PROJECT (LOAN 2262-ME) DECEMBER 30, 1991 Agriculture Operations Division Country Department II Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents Currency Unit - Mexican peso (Mex$) US$1.00 - Mex$100 at appraisal (March 1983) US$1.00 - Mex$670 (July 1986) US$1.00 Mex$2,520 (August 1989) US$1.00 - Mex$2,970 (April 1991) Abbreviations CONASUPO - National Marketing Corporation for Basic Foods (Compaiiia Nacional de Subsistencias Populares) DICONA - Trust Fund for Credit in Irrigated and Rainfed Areas (Fideicomisos Instituidos en Relaci6n con la Agricultura y Riego) FIDEC - Trust Fund for Marketing Development (Fideicomisos Instituidos para a1 Desarrollo Comercial) FIRA - Agricultural Trust Funds of the Bank of Mexico (Fideicomisos Instituidos en Relaci6n con la Agricultura) FONEP - Trust Fund for Preinvestment Studies (Fideicomiso para Fondo de Pre-Inversi6n) GIRA - General Interest Rate Agreement NAFINSA - National Finance Company (Nacional Financiera, S.N.C.) SARH - Secretariat of Agriculture and Water Resources (Secretaria de Agricultura y Recursos Hidradlicos) SECOFI - Secretariat of Commerce and Industrial Development (Secretaria de Comercio y Fomento Industrial) SNIM - National Marketing Information Service (Servicio Nacional de Informaci6n de Mercados) SHCP - Secretaria de Hacienda y Cr6dito P6blico Fiscal Year of Borrower January 1 to December 31 Weights and Measures Metric System THE WORLD BANK FOR OFFICIAL USE ONLY Washington D.C 20433 U.S A. Office of Osreclr-QG-neral Operations Evaluation December 30, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on MEXICO Agricultural Marketing Project (Ln.2262-ME) Attached, for information, is a copy of a report entitled "Project Completion Report on Mexico: Agricultural Marketing Project (Loan 2262-ME)" prepared by the Latin America and the Caribbean Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.I FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT MEXICO AGRICULTURAL MARKETING PROJECT (LOAN 2262-ME) Table of Contents Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . i Evaluation Summary . . . . . . . . . . . . . . . . . . . . . . . . . iii PART I PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity . . . . . . . . . . . . . . . . . . . 1 2. Project Background . . . . . . . . . . . . . . . . . . 1 3. Project Objectives and Description . . . . . . . . . . 3 4. Project Design and Organization . . . . . . . . . . . . 3 5. Project Implementation . . . . . . . . . . . . . . . . 5 6. Project Results . . . . . . . . . . . . . . . . . . . . 9 7. Project Sustainability . . . . . . . . . . . . . . . . 11 8. Bank Performance . . . . . . . . . . . . . . . . . . . 12 9. Performance of the Main Executing Agency . . . . . . . 13 10. Project Relationships . . . . . . . . . . . . . . . . 13 11. Consulting Services . . . . . . . . . . . . . . . . . 13 12. Project Documentation and Data . . . . . . . . . . . . 14 13. Lessons Learned . . . . . . . . . . . . . . . . . . . 14 PART II PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 1. Introduction.... . . . . . ........... . . 16 2. FIDEC's Performance . . . . ......... . . . 16 3. FIRA and FICART's Performance...... . . . . . . . .17 4. Modernization of Food Marketing Sector . . . . . . . 18 5. Benefits of the World Bank Loan . . . . . . . . . . . . 19 6. Lessons Learned......... ....... . . . o. 20 PART III STATISTICAL INFORMATION 1. Related Bank Loans/Credits . . . . . . . . . . . . . . 23 2. Project Timetable .. . . . . . . . . . ...... . . 24 3a Cumulative Estimated and Actual Disbursements . . . . . 25 3b Disbursement by Main Executing Agencies . . ..... . 26 4 Project Costs . . ....... . . . . . . . . . . . . 27 5 Project Financing..... . . . . . . o .... . . .29 6 Allocation of Loan Proceeds..... . . . . . . . . . .30 7 Status of Covenants...... . . . . . . . . . . . . .31 8 Staff Inputs by Stage of Pro4ect Cycle . . . . . . . . 32 9 Physical Results Achieved by FIDEC's Subproject . . . . 33 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Page No. APPENDIX 1 Studies Undertaken for FIDEC . . . . . . . . . . . . 35 2 Illustrative Investment Plans (Tables 1-6) . . . . . . 37 3 Borrower Approval Letter of January 9, 1991 . . . . . . 43 MAP IBRD 16508 PROJECT COMPLETION REPORT MEXICO AGRICULTURAL MARKETING PROJECT (LOAN 2262-ME) PREFACE This is the Project Completion Report (PCR) for the first Agricultural Marketing Project for which Loan 2262-ME in the amount of US$115 million was approved in April 1983. The closing date of the loan originally scheduled for June of 1987, was extended three times. The loan closed on December 31, 1989, and all loan funds were disbursed as of October 1989. The Bank and FIDEC signed a new agreement, Loan 3141-ME on January 23, 1990 which finances the Second Agricultural Marketing Project and is being implemented satisfactorily. The PCR was prepared by a mission of the FAO/World Bank Cooperative Program (Preface, Evaluation Summary, Parts I and III). The Borrower had prepared an extensive Completion Report, a summary of which is contained as Part II of the report. This summary was approved by the Borrower by its letter of January 9, 1991. - iii - PROJECT COMPLETION REPORT MEXICO AGRICULTURAL MARKETING PROJECT (LOAN 2262-ME) EVALUATION SUMMARY Objectives 1. The project's objectives were in line with the Government's overall marketing development strategy at the time of appraisal in 1982 to: (a) expand and modernize marketing systems for perishables at the producer, wholesale and retail levels through the adoption of modern technology and improved marketing practices; (b) reduce post-harvest losses and marketing costs; (c) develop low- cost perishable food distribution systems for low-3ncome groups; (d) rationalize production and improve product quality; and (e) improve support services and institutional capabilities. 2. The major part of the project consisted in credit lines for marketing investments. Marketing investments to be supported inclu4ed, at the producer level, modernization and construction of assembling and collection centers, packing plants, storage and refrigeration facilities, and purchase of machinery, equipment and transport. At the wholesale and retail levels, funds were made available for the modernization and construction of warehouses and for upgrading or purchasing of equipment, storage and refrigeration facilities, transport, modernization of small retail stores as well as the construction of retail centers and the purchase of shops/stands within these centers. 3. The credit lines were to be administered through the banking system by existing Fideicomisos (trust funds). The main executing agency, FIDEC, was a newly established institution; the other two executing agencies, FICART and, in particular, FIRA, already had extensive experience in administering credit for on-farm development. 4. The project also was to support the establishment of a National Market Information system (SNIM), training programs for project staff, and special studies and technical services. The Second Agricultural Marketing Project has continued the support for SNIM's activities with Loan 3141-ME. This second operation has built on the experience gained with Loan 2262-ME and has been particularly effective in instituting a relationship of its own with commercial banks. - iv - Background 5. This loan was implemented at a time when Mexico was undergoing a severe economic crisis. The government was embarking on a program of radical macro- economic adjustments which included opening up the economy to foreign trade, removal of price controls in agricultural markets and the withdrawal from direct production and distribution of food products. With the opening of the Mexican economy to foreign trade, the need for better and more efficient distribution systems became specially important. Project Performance 6. Of particular relevance to the project was the high variability of inflation and real interest rates which discouraged long-term investment even as interest rates remained negative for a while. In 1986/87, for example, inflation soared to 150% while the cost of funds to the banks was around 105%. Real rates were highly variable in 1985-1986, became consistently positive from 1988 onwards and remained high in 1989 at at3ut 10% to 15%. The impact of a relatively small credit program directed to the promotion and modernization of the food distribution system is difficult to assess under this changing scenario. The main achievement of the project was to establish an organization capable of intermediating effectively long term funds to investments in food distribution systems, a sector until then relatively unfamiliar to banks. The ability to involve commercial banks in financial schemes for small retailers became evident in recent years when an increasing proportion of FIDEC's portfolio was placed in loans to small retailers. The project also contributed to the improvement of commercial project evaluation by banks and to the development of regional commercialization systems which compete effectively with established national firms. These achievements were possible after FIDEC went through a learning period to establish its administrative processes, particularly to set up proper information and disbursement systems. 7. FIDEC had problems reaching originally planned disbursement targets due principally to administrative inexperience, to the limited scope of its promotional efforts and funds relative to well established trust funds and to repeated changes in targeted ben,eficiaries. After a slow start, FIDEC's disbursement rate picked up a more sustained trend and accelerated in the latter years of the project. Disbursements varied considerably among the participating intermediaries. FICART, (a trust fund directed exclusively towards small farmers) showed the most irregular disbursement pattern. In three of the six project years FICART made no disbursements at all under the loan. FIRA, a trust fund directed in general towards assisting commercial farms, effected disbursements which declined sharply in 1985 and 1986 due to the availability of cheaper funds through alternative lines of credit, though from 1987 disbursements increased considerably. 8. The project had to undergo substantial modifications during implementation reflecting the need to adopt more flexible and wide ranging operating conditions and to adjust to the change in demand taking place after the appraisal. An important consequence was that original goals of reaching directly -v - mostly small scale vendors and producers could not be attained. This was evidenced in the failure to reach the targeted amount of subloans for this group which totalled some US$15 million, i.e. less than 40% of the original target, while subloans to wholesalers and retailers amply exceeded the original target. Another example, were short-term loans for working capital which were nct originally planned under the project, but were introduced in 1985 in response to demand and finally accounted for some US$15 million. 9. Coordination of the overall project was less than satisfactory due to differences in credit policies, scope, target populations and focus of the participating intermediaries, FIDEC, FICART and FIRA. 10. There are serious information gaps on the subloans financed, and particularly for FICART no records were available. However, information on the subloans financed by FIDEC suggests that rates of return on investments undertaken by beneficiaries were, in general, very high due partly to the fact that many projects consisted of add-ons to existing infrastructure and adoption of new improved technology. Participating banks report that arrears on project subloans were not more than 3%-4%. Sustainability 11. Both FIDEC and SNIM were significantly strengthened under the project. FIDEC after a slow start and in spite of certain weaknesses, mainly poor monitoring and evaluation systems, has established itself as an administratively competent and viable institution. It is now wellknown to the banking system and to large wholesalers, as well as to retailers in some regions. Similarly, SNIM has been established as an efficient market information system and the structures for more comprehensive support to the target group are in place. FIDEC is in a position now, that it will be able to handle coerations on a larger scale than during the past. Findings and Lessons Learned 12. Modernization of the food distribution sector in Mexico is a complex task to achieve solely through the action of a relatively small rediscount window, Deregulation and privatization of the entities in the sector currently underway and supported with the AGSAL II operation is likely to have a major impact in bringing it up to more advanced standards. 13. A major shortcoming of the project was lack of subloan information systems, which would have been useful for FIDEC in evaluating its programs and in steering in new directions. A special unit for loan monitoring was established only in 1990. 14. Many of the difficulties encountered during the project were inevitable because of continuous changes in the food distribution sector in Mexico, i.e. changes in the regulatory framework governing transport, progress towards free trade, privatization of the government parastatals involved in food marketing and - vi - reforms in the financial sector. FIDEC had to remain very flexible in defining its strategy and goals to be able to pace itself with these changing conditions. 15. With hindsight, lessons learned can be summarized as follows: (a) Project execution should have been entrusted to a single agency, in this case, FIDEC, in order to minimi. i problems of inter- institutional coordination; (b) Consistency of interest rates across different and often competing government funds is important. (c) Data gathering and ex-post evaluation capacity within FIDEC should have been significantly enhanced and a proper project monitoring unit should have been in place before effectiveness. (d) The objectives of FIDEC should have been understood earlier in a broader fashion to include modernization of all stages of the marketing chain, not direct assistance to farmers. According to this broader concept, schemes which induced commercial banks to operate with small retailers or individuals which had not been considered creditworthy constituted an effort to moderrize the sector. (e) Unless the government has in mind a very large increase in personnel and promotional budget, FIDEC has to leverage its activities by making maximum use of the banking system to reach its target population rather than aim for direct contact with final beneficiaries. It should also develop a support system for servicing enquiries at the various commercial bank branches throughout the country. (f) In order to achieve a more effective application of resources without burdening the line of credit with excessively complex and restrictive regulations, investment activities should have been prioritized on a regional basis and funds directed on a preferential basis towards areas or states (Guerrero and Oaxaca, for example) where food supply problems are particularly severe. (g) More resources should be dedicated to the training and remuneration of well qualified personnel within FIDEC. PROJECT COMPLETION REPORT MEXICO AGRICULTURAL MARKETING PROJECT (LOAN 2262-ME) PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Proiect Identity Project Name: Agricultural Marketing Project (Agricultural Marketing Project for Perishables was the name when presented to the Board; "Perishables" was dropped from the name later when the project was alloweI Lo finance the marketing of a broader category of food products) Loan Number: 2262-ME RVP Unit: Latin America and the Caribbean Country: Mexico Sector: Agriculture Subsector: Marketing 2. Project Background 1.01 The justification for intervention in the perishable food marketing system in Mexico was underpinned by the following considerations: (a) Mexico's population, estimated at about 70 million in 1980, had been growing at about 3% p.a. for three decades. This rapid increase in population had been accompanied by even more rapid urbanization. The urban population was estimated in 1980 at over 60% of the total, a figure that was expected to reach 75% by the year 2000. Approximately 50% of the population was concentrated in the five or six largest cities. Given that the urban population consumed in 1980 an estimated 75% of total national goods and services and that food production was fragmented and very widely dispersed, the food distribution system was exposed to increasingly severe pressure; (b) In spite of a modern sub-sector within the food marketing system, the bulk of food marketing was handled by the traditional sector, using technologies inappropriate for a mass urban market; (c) Firms in the food distribution sector generated about 12% of total employment and the sector comprised about 6.2% of GDP. (d) Although state intervention at the time was intensive in the grain and staples marketing sector (through the National Marketing Corporation for Basic Foods, CONASUPO), the marketing of perishables was exclusively in the hands of the private sector, which received virtually no government support and which, in the large majority of -2- cases, enjoyed only limited access to credit from commercial banks. In recent years, the marketing of all foods including grains is being gradually privatized along with a reduced role for CONASUPO, and other state agencies involved in the sector. (e) Consumption of perishables (in particular eggs, beef, fruit and vegetables) increased in the early 1980s at over 5% p.a., while consumption of maize and beans increased by only 1%-2% p.a. Relatively high income elasticities of demand for perishables indicated that modernization of the sector was urgent, since as incomes increased demand would outstrip the system's capacity to deliver; (f) At the time of project formulation retail margins were considered excessive in relation to value added. Producers received 25% to 30% of the consumer price for fruits and vegetables, while the retail margin accounted for 26% to 40% of the consumer price; and (g) Product handling and storage losses were thought to be unacceptably high, since some 90% of fruit and vegetables were sold as fresh produce, and assembly, storage, packaging and transportation facilities were generally rudimentary. 1.02 Government Actions in Relation to Marketing of Perishables. In the light of the above the Government took two main steps: (a) In 1979, a Presidential Commission, the Project Development and Coordination Group (CPD), was set up to prepare a long-term market development plan providing a framework for coordinated efforts by both the public and private sectors. Substantial public sector investments were to be made in a network of wholesale markets in major urban centers, with private sector wholesalers having the opportunity to buy or lease warehouse space; (b) In 1980, the Trust Fund for Marketing Development (FIDEC) was set up under the Bank of Mexico to provide a line of credit through the commercial banking system. The goal was to supply finance for the modernization of food marketing through private sector investments and to provide technical assistance and training in support of such investments. Both these measures were also meant to promote modernization of the sector with enhanced involvement of the private sector in food marketing. 1.03 Bank Experience in Related Projects. This was the first agricultural marketing project supported by the Bank in Mexico. However, the Bank had considerable experience in operating lines of credit for agricultural development through the Trust Fund System. The Trust Fund for Credit in Irrigated and Rainfed Areas (FICART) and, in particular, the Agricultural Trust Funds of the - 3 - Bank of Mexico (FIRA) had long experience as recipients of Bank loans in the operation of lines of credit for on-farm development. 3. Proiect Objectives and Description 1.04 Project Objectives. The main objectives of the project were to support: (a) expansion and modernization of perishable food marketing systems at the producer, wholesale and retail levels, including adoption of modern technology and improved marketing practices; (b) reduction of production losses and marketing costs; (c) development of low-cost food distribution systems for low income groups; (d) rationalization of production and improvement of product quality; and (e) improvement of support services and institutional capabilities. 1.05 Project Description. The project was primarily a credit program to support private sector investment in perishable food marketing. 1.06 Producer-Level Investment. A credit line was established making funds available for the improvement, modernization and construction of assembling facilities, collection centers, packing plants, storage and refrigeration, etc. as well as for the purchase of machinery, equipment and transport. 1.07 Wholesale and Retail-Level Investment. Funds were made available for the modernization and construction of warehouses and for upgrading and purchasing equipment, storage and refrigeration facilities and transport. At the retail level, modernization of small stores was to be funded, as well as the construction of retail centers in strategic locations and the purchase of shops/stands within these centers. An important credit outlet was to be voluntary chains and retailers buying groups. 1.08 National Market Information Service (SNIM). Under the project this service was to collect and disseminate daily information on prices of perishables in the principal central wholesale markets. 1.09 Training and Extension. Marketing training was to be provided under the project to project staff (FIDEC, SNIM, etc.) and to staff of participating banks. 1.10 Special Studies. Funds were provided to enable special studies in marketing, transportation and storage of perishables. 1.11 Technical Services. Finally, funds were provided for some 100 man- months of technical services to FIDEC and other participating institutions. 4. Project Design and Organization 1.12 Preparation of the project was carried out by the French Consultancy Company SCET-AGRI in March 1982. The Bank appraisal took place in May/June 1982 and the appraisal report was completed in March 1983. The project was approved by the Board in April of 1983. 1.13 The overall project concept was timely and appropriate but presented special challenges of definition of the sector and of the activities within the sector that were more deserving of financial support. This is evident in the diversity of areas covered by the special studies later carried out by FIDEC such as deregulation of transportation, design of master blueprints for building special distribution centers, prospects for exports of specific crops and so on. Project formulators did not have a well-tried methodology to draw upon and only had a scant data base. Some of the deficiencies in design which emerged during implementation can be ascribed to these facts. 1.14 Although the concept of supporting private sector investment in the perishable food marketing sector was new for both the Bank and the country, the procedural and organizational arrangements envisaged at design were well established in the Mexican context. Nacional Financiera (NAFINSA), a government financial agency designated as the borrower, maintained overall financial supervision of the project. Two of the three executing agencies, FIRA and FICART, charged with disbursing loan funds to commercial producers and groups of low income producers respectively, had extensive experience in channelling credit to these target groups.- FIDEC, although a newly established institution, was to be the main executing agency and was to rediscount subloans to wholesalqrs and retailers through commercial banks, according to similar procedures as employed by FIRA for several years. Coordination between these three executing agencies was to be effected by SECOFI, the Secretariat of Commerce and Industrial Development. 1.15 At the appraisal stage, the main perceived project risks were in the institutional support and coordination. FIDEC, founded in 1980, was a relatively new institution while FIRA and FICART were not only well known in their respective areas but were also much larger and had clear and well established procedures. 1.16 Problems encountered during implementation are referred to in Section 5. Many of these problems arose because of unforeseen changes at the macro- economic level. Others however, can be seen retrospectively as being related to shortcomings at the design stage. They can be summarized as follows: (a) An excessive number of subloan categories. There were three (ultimately four) categories of subloans and beneficiaries under the project, disbursable through three executing agencies for a total of fourteen sub-categories and each sub-category qualifying for different rates of interest. Greater simplicity of design in this respect would have facilitated implementation for both potential beneficiaries and participating banks; i1 FIRA and FICART are trust funds (Fideicomisos) set up under the Bank of Mexico to rediscount lines of credit through comnercial banks in the case of FIRA and through the Government Agricultural Development Bank, BANRURAL, in the case of FICART. - 5 - (b) the severe problems encountered in relation to interest rates on subloans, referred to in Section 5, could have been anticipated if more attention had been paid to the structure of interest rates offered by the different development funds and the commercial banks; (c) the Project was originally entitled "Agricultural Marketing Project for Perishables". The distinction made between perishable and non- perishable foodstuffs, did not take account of the non-specialized nature of much of the food marketing system in Mexico, particularly at the low-income and retail levels, and was hence unduly restrictivv. In response to this the project title was amended in July 1986 co "Agricultural Marketing Project for Foodstuffs", and the target group eligible for financing under the project was expanded; (d) it was envisaged that the project would assist FIDEC in (i) training and technical assistance; (ii) planning and programming; and (iii) a promotional program. Further, the project would also strengthen FIDEC's capabilities for gathering data on food supply and demand, performing subsector analyses, and identifying subprojects, preparing sound investment programs, and carrying out subproject technical and financial analyses. Few detailed proposals were made, however, outlining how these objectives might have been translated into reality. While FIDEC's institutional capacity was strengthened during the project, particularly in the areas of financial control and analysis, its promotional program proved insufficient, and its ability to perform subsectoral analysis or to provide technical as distinct from financial support remains limited. In particular, project design did not include explicit provision for monitoring and evaluation activities. This omission at the project design stage was not remedied during implementation and led to a major shortcoming in the project, namely the failure to generate and maintain an adequate data base which would permit better follow up of the investments financed and provide a basis for necessary adjustment of the program. 5. Prolect Implementation 1.17 Conceptualization of the project began in 1980 with the creation of FIDEC. Appraisal took place in early 1983, the project was approved in April 1983 and the loan became effective in February 1984 (Part III, Table 2). Delays between appraisal and effectiveness were related to the difficulties in completing interinstitutional arrangements between FICART, FIDEC and FIRA. The project was originally scheduled to be implemented in about two and a half years, closing in June of 1987. The project implementation period was perhaps optimistic and reflected the Bank's experience with other Mexican Trust Funds with whom it has been operating for many year. Due to the various and significant adjustments to project design during the processing of this operation and the effects that such adjustments had on loan commitments and disbursements, the closing date was extended three times, the last extension being December 1989, although all loan funds were expected to have been disbursed by October 1989. - 6 - 1.18 Planned and actual disbursements by year are shown in Part III, Table 3. It can be seen that the rate of actual disbursements was approximately 50% of that envisaged at appraisal, leading to a project of twice the planned duration. 1.19 The specific reasons for the lag in disbursements are summarized below: (a) The project was implemented at a time when Mexico was undergoing a severe economic crisis and when far-reaching macro-economic adjustments were being adopted. The variable and high inflation rates of 1986 through 1987 constituted a major diecouragement to private investment. The structure of interest rates was very distorted particularly before 1985. Government development funds competed against each other with negative rates during most of the eighties. Rates for FICART and FIRA were even lower than those prescribed under the project. This explains the eventual lack of interest to promote use of the resources provided by Loan 2262-ME after what appeared to be a promising lead when the loan began to disburse. (b) Even though by 1983 FIDEC had been in operation for three years, it came to being under adverse circumstances. It was 1located small budgetary appropriations by the Secretaria de Hacienda y Credito Publico (SHCP), and its goal and activities were not well understood. Work undertaken for preparati>n and subsequent implementation of the project prodded FIDEC to focus on defining further its long term strategy and goals. (c) The importance of promotional efforts to familiarize institutions and potential beneficiaries with a new credit facility were and possibly still are, vastly underestimated. (d) The wide variety of participants in the food distribution industry and marketing industry, i.e. commercial banks, food chains, transport companies, farmers, builders, small retailers, etc., adds considerable complexity to the efforts by FIDEC to define its information and control systems. (e) The other operating agencies, FIRA and, in particular, FICART, had erratic disbursement profiles. Project disbursements by FIRA, a trust fund specializing in medium sized commercial farms, declined sharply in the years 1985 to 1987, although they recovered significantly in 1988. In three of the six project years FICART made no disbursements at all. The main reasons underlying the poor disbursement performance of FIRA and FICART were: (i) availability of other sources of funds bearing lower interest rates. In particular, a credit line from the Bank and the Inter-American Development Bank to finance agro-industry investments, operated by FICART, overlapped with producer marketing investments, and charged an interest-rate which in - 7 - 1987 and 1988 was 10 to 15% below interest payable on subloans under Loan 2262-ME. Efforts to rationalize interest rates in the context of GIRA in 1985 only covered rates on Bank loans; and (ii) since principal repayments on all subloans were to be transferred to FIDEC exclusively as seed capital, there was little incentive for FIRA and FICART to participate in the project as enthusiastically as might have been desired. Both FICART and FIRA preferred to relend the proceeds of repayments on other funds. (d) As mentioned in para. 1.4.5 above, the categorization of types of subloans and beneficiaries was excessively complicated. A result of this was that participating banks were in some cases deterred from participating. 1.20 Proiect Costs. Estimated project costs at appraisal and actual costs as of October 1989 are shown in Table 5. Total project costs were estimated at appraisal at US$227 million. Actual costs are estimated at US$176.2 million. The poor subloan recording systems maintained during the early years of the project make figures inaccurate. Substantial amounts were committed under the project, but information as to their final allocation according to cost category will only be available as part of a data base which began to be compiled in 1989, and then only some projects financed with proceeds of Loan ME-2262 will be recorded there. The data base covers subprojects from Loan 2262-HE and the present Loan 3141-ME for FIDEC. The majority of subloans were medium-and long- term principally in infrastructure (73%) and working capital loans (22%) for retailers, wholesalers and producers. The remaining 5% was allocated to the financing of transport equipment. 1.21 Project costs were the best mission estimates, based on extrapolations from loan disbursements since project cost categories as recorded during implementation were not consistent with those established at appraisal. Although NAFINSA maintained adequate records of expenditure and withdrawals of loan proceeds, and FIDEC kept satisfactory financial accounts, prior to 1987, there was no systematic attempt to record total project costs as distinct from expenditures under the loan, and no attempt to distinguish between the local and foreign cost composition of expenditure. This illustrates both the inadequacy of the data systems supporting the project and the fact that, to a large extent, the loan was seen by executing agencies to be the project, rather than an instrument designed to support the project. 1.22 Proiect Financing. As can be seen in Part III, Table 5, while it was envisaged at appraisal that the contributions to total costs by the Government and the banking system, beneficiaries and IBRD would be 30%, 19% and 51% respectively, it is estimated at present that these contributions are 18%, 17% and 65%. In part as a reaction to competition from other development funds, FIDEC decreased the minimum contribution of commercial banks to encourage their participation. - 8 - 1.23 During most of the implementation of the project, FIDEC financed investments in higher and middle income states. It began operations in the Federal District and the north east. In 1986 it shifted its efforts to the Central states. FIDEC seemed to be poorly equipped to tap the poorer states particularly with long term funds since banks are more reluctant to become involved in lower income schemes. 1.24 Disbursement by Categories. Part III, Table 6 (Allocation of Loan Proceeds) shows original and revised allocations and disbursements by categories. Alterations between planned and actual disbursements in ras of types of subloans are discussed in para. 1.6.1 below. Total disbursements under the line of credit finally exceeded the original target (US$110 million as against US$95.2 million). 1.25 National Market Information System (SNIM). SNIM was only established in 1984 and was not able to make use of the Bank loan until mid-1985. Insufficient counterpart funds constrained the operations of SNIM both by limiting access to proceeds of the Bank loan and by making it difficult to retain competent staff at the salary levels permitted by the Government. 1.26 Nevertheless, impressive steps were made towards establishment of a comprehensive food market information system. Before 1984 food price information was collected sporadically by the Ministry of Commerce and the Agricultural Economics Division of the Ministry of Agriculture, with no systematic attempt to disseminate information among interested parties. Now daily prices are collected from 9 wholesale markets in Mexico City and 8 other major cities on 45 fruits and vegetables (about 90% of the total by volume) and transmitted to the press, radio stations and a variety of producer groups. Meat price reporting has been established in Mexico City and is about to be extended nationally. Fish price reporting has been started in Mexico City on a pilot basis. The operation is equipped with modern data processing and transmiseion equipment through loan proceeds. Staff training both within Mexico and in the U.S.A. has been provided by USDA Market News Service, again under Bank funding. It is now planned to strengthen SNIM's capacity to provide in-depth, historical and ad hoc market analysis. Major operational difficulties remain: (a) the rapid staff turnover referred to above; and (b) the absence of official commodity grading systems. 1.27 Training. Training activities have not been staged as part of an overall training program or directed to build up expertise in very technical fields related to marketing such as packaging, refrigerated transportation, regulatory framework, etc.). The main thrust of training has been in the direction of project evaluation and FIDEC has today staff capable of assessing recurrent technical issues in project evaluations and have developed their own project appraisal methodology. 1.28 Apart from the training of SNIM personnel, the main training activities undertaken under the project have taken place within and by FIDEC. Training activities began in 1986 when some 20 FIDEC staff were taught to diploma level (8/9 months part-time) in project evaluation. This training was coordinated under a contract with the Technical Institute of the University of Mexico. Four - 9 - other staff took diplomas in finance in 1987. Two staff members are pursuing master's courses in information technology. Four staff members participated in short courses overseas (for example in post-harvest technology at the University of California, Davis). Training activities by FIDEC have been constrained by lack of personnel (two staff members) and its turnover. Several FIDEC staff moved to better-paid jobs in the private sector. These activities have only taken place since 1986 and have, in general, been limited to updating meetings with staff of participating banks and occasional seminars for traders held under the auspices of regional chambers of commerce. In spite of the limitations described above, FIDEC has managed to groip a staff which is considered to have the best knowledge of issues affecting the marketing and food industry in Mexico. 1.29 Studies. Between 1980 and 1988 some 23 studies were undertaken on FIDEC's behalf. They cover a very wide variety of subjects which reflects FIDEC's own difficultlte in defining the influence area of their activities. Studies proposed under the present Loan 3141-ME illustrate a more successful effort in linking in-house research to medium term goals. 6. Proiect Results Modification of Project Objectives 1.30 The project was signed in September of 1983 but began evidencing problems as early as April 1984. Increased uncertainty as to the course of the economy and recession influenced FIDEC to broaden the eligibility of subloan categories and undertake a more agressive promotion of its funds. In 1985 FIDEC's management decided to include non perishables in response to the demand for integrated product distribution facilities. Part III, Table 6 (Allocation of Loan Proceeds) shows how cost allocations were modified during implementation. Working capital loans were included which were not originally envisaged in the project as a means to incorporate smaller retailers and distributors. In spite of the authorization to grant short term loans, subloans for producers only totalled some US$15 million, less than 40% of the origInal target. On the other hand, subloans to wholesalers and retailers amply exceeded the original target. Short-term loans for working capital accounted for some US$15 million. 1.31 These modifications were made in response to perceived changes in the nature of the demand for credit for the sector. FIDEC found that it needed to offer a comprehensive package of long and short term finance in order to get the commercial bank's involvement in the scheme. The need for working capital has surfaced again with the on-going operation of Loan 3141-ME where amendments are being made to increase the allocations for working capital from 20% to 34.6%. Working capital was found to be even more important in the case of small retailers whose balance sheet structure shows a predominance of short term finance. Voluntary chains were not as successful as anticipated at the outset of the project. Difficulties in training and homogenizing operating systems among low income retailers discouraged investors from these kind of projects. 1.32 Failure to incorporate a higher proportion of food producers is attributable to the availability of cheaper alternative finance with other trust - 10 - funds (FICART and FIRA) which specialize in producers and have vast promotional resources. It now seems that expectations for FIDEC to compete with these other trust funds in the small and medium producer segments was unrealistic, given FIDEC's relatively small resource base and its wider scope of eligible activities. 1.33 Finan-ial Results. All indications suggest that investments undertaken by beneficiaries, were, in general, highly profitable; participating banks report that arrears on project subloans were not more than 3 to 4%. Cash flow projections for major marketing investments have been recalculated at 1981-88 prices for comparison with cash flow projections and financial analysis prepared at project appraisal. Details are given in Part III, Appendix 2, and are summarized here: Financial Results of Major Marketing Investments Estimated Estimated Financial Financial Rate of Rate of Return Return at Appraisal on Completion Item (1988 prices) (1988-89 prices) ---------- ------------------- %------------------ Complementary refrigerated storage for fruits and vegetables 18 54 Apple collection and cold storage center 44 67 Producers' distribution center 32 108 Renovation of a 1,000 m 2 wholesale warehouse 15 56 Construction of 2,000 M2 wholesale warehouse 20 45 Construction of a 220 a2 self-service store 31 53 Source: FIDEC In all cases the FRR as recalculated is considerably higher than at appraisal. Even allowing for a substantial margin of error, it is clear that these marketing investments were very profitable, especially when they were expansions on existing infrastructure. Although these rates do not fully represent FIDEC's portfolio they indicate that the subprojects were on average quite profitable. - 11 - 1.34 Impact. The project's impact is best seen in later years when much of the initial effort in setting up the systems and processes paid off and FIDEC had established itself among the banks as a specialized institution in the financing of food marketing. There has been no ex-post evaluation of subloans made by FIDEC. This effort will be undertaken under the present administration before the end of the year and will include all subloans made during 1989 and 1990 financed both under Loan 2262-ME and the present operation Loan 3141-ME. 1.35 With FIDEC providing under 1% of all credit to the marketing sector during the first three years of its implementation (1983-87), to define the project's impact by its contribution to funds in the sector is hardly an appropriate benchmark. It is clear, however, that in the economic climate prevailing during the initial project years, medium and long-term lending was severely constrained by lack of liquidity of the banking system, and that resources made available under the project, although relatively small in relation to the banking sector as a whole, contributed to easing somewhat these constraints. 1.36 Despite delays and project extensions, all loan funds were ultimately disbursed on eligible investments. The main criticism of this project is the underestimation of the time and resources needed to establish FIDEC as it is today: a specialized financial institution for food marketing with such a wide range of target beneficiaries and a sector that cuts across many areas of economic activity. Even now FIDEC spends a fair amount of resources focusing on: a) refining its strategy for promoting and implementing its program through the banks, and b) designing a marketing and technical assistance program for final beneficiaries. 1.37 A major shortcoming of the project was that no ex-post evaluation of the subloans was made. Until 1987, loan administration data was carried out manually and only this year was a data base considered a priority. 1.38 Not much information is available on the socio-economic characteristics of beneficiaries particularly those financed in the early stages of the project. In the case of FICART specifically no information whatsoever was available on the subloans. Because FICART has a relatively well defined clientele in rural areas the lack of information on the subloans is not as serious as it could be otherwise, but it illustrates the coordination problems and the lack of monitoring mechanisms in the first few years of the project. 7. Proiect Sustainability 1.39 Both FIDEC and SNIM were significantly strengthened under the project and their role is being consolidated with the ongoing project financed under Loan 3141-ME. In particular FIDEC has managed to set itself up as a competent and financially viable institution, capable of assisting banks in the development of initiatives to reach riskier segments such as small traders. FIDEC is also attempting to enter new areas such as financing the conversion of municipal markets to privately run entities. FIDEC is now well known to the banking system and to large wholesalers, as well as to retailers in some regions. In the food - 12 - retail sector in general, consisting of an estimated 350,000 outlets, FIDEC is still not well known. However, given its size and the existence of other larger well established government funds such as FIRA, it could make more sense for FIDEC to concentrate on limited segments of the marketing chain, for example small retailers and traders or municipal markets. 1.40 Similarly, SNIM has been established as an efficient market information service and has already set up the structures for a more comprehensive operation. Both dissemination and efficient exploitation of market data by users need significant improvement. It will inevitably take years for significant numbers of clients to learn to use such data effectively. SNIM is presently contemplating selling some of its services to the banks and is preparing a tariff system. The Government has decided to maintain both FIDEC and SNIM during a systematic effort to streamline its development banking and trust fund system supported under the Bank's 1989 Financial Sector Adjustment Loan. 8. Bank Performance 1.41 Deficiencies in project design were the result of: a) scant familiarity of the Bank with the food distribution sector in Mexico, b) the underestimation of the effects of a distorted interest rate structure on the pattern of demand for and utilization of project funds and c) underestimation of the complexities of coordinating three different agencies with different sets of incentives and strategies. The project was frequently in a situation where it was competing with cheaper government funds available to two of its own participating agencies, FIRA and FICART, in the case of small farmers, and with NAFINSA in other areas. The Bank's interest in including producers in this project was the main reason for bringing FIRA and FICART into the scheme. In retrospect, it appears that producers, the first link in the marketing chain, could have been better assisted by FIRA and that it might have been preferable to allow FIDEC to consolidate its operations and concentrate in a few but well defined promotional strategies. As stated in the Staff Appraisal Report, FIDEC had the responsibility "to review and coordinate the overall strategy for lending at the producer level". It was unrealistic to expect a new and small agency to oversee the lending strategy of other larger and well established government agencies. 1.42 The food distribution in Mexico has been changing rapidly over the past few years with the onset of deregulation, privatization of a number of parastarals involved in food distribution and storage. In addition, FIDEC's main delivery channels, the banking system, has staged profound reforms towards greater liberalization, particularly in interest rate management. All these changes forced FIDEC to adjust its course frequently. Early Bank supervision missions often found themselves questioning FIDEC's deviation of stated objectives and were sometimes perceived as insensitive to the changing nature of the environment that FIDEC had to operate in. In addition, the Bank's bias for favoring the earlier stages of the marketing process, namely producers, often was at odds with FIDEC's broader view of small retail sector and other types of investments. - 13 - 1.43 Bank supervision was perhaps overly concerned with interest rate issues due to the disbursement delays and did not pay sufficient attention to institutional matters such as the interagency coordination and the lack of information on aubloans. 1.44 With hindsight, lessons learned can be summarized as follows: (a) project execution should have been entrusted to a single agency, FIDEC, in order to minimize problems of inter-institutional coordination; (b) Rates of interest should have been consistent throughout the sector and across government development funds; even after the GIRA was put in place there were a number of rediscount lines that were priced below the corresponding GIRA rates for that category; and (c) FIDEC should not have been expected to be an additional source of finance for small and medium sized producers. 9. Performance of the Main Executing Agency 1.45 FIDEC's management lacked dynamism and resources, particularly in the early years, and the institution failed to project itself at the national level with the expected impact. Also, secondary executing agencies (FICART and FIRA), and in particular, FICART, failed to participate fully in the project with the required vigor. 1.46 Traditionally, in Mexico as elsewhere, agricultural development activity has been producer-oriented. It fell on project management not just to affirm but to convince sponsoring entities as well as some areas of government that investments in marketing would benefit producers and consumers as well as direct beneficiaries. This, so far, has not been achieved. 10. Proiect Relationships 1.47 By and large, relationships between Bank staff and the executing agencies (FIDEC, FIRA and FICART) were satisfactory. Similarly there was good cooperation between the Bank and the U.S. Department of Agriculture Market News Service, which provided technical assistance in setting up SNIM, was good. There was regular exchange of information, participation in joint missions and discussion of main issues. 11. Consulting Services 1.48 Technical Assistance. The short-term consultants appointed under this component generally performed satisfactorily. Greater prioritization of the fields with higher potential impact, i.e., small retailers vs. storage facilities, medium sized chains, etc. would have resulted in a more compact program for technical assistance. - 14 - 1.49 Special Studies. The material produced by these studies was generally of good quality and relevant to the project's implementation (see Part III, Appendix I). 12. Proiect Documentation and Data 1.50 There have been no major problems in complying with the legal agreements for project implementation. Several modifications were agreed between the borrower and the Bank. The Staff Appraisal Report and the Project Agreement generally provided an adequate framework for project implementation. The supervision reports and other relevant project documents available at the Bank were at times short on information for preparation of the PCR. 1.51 A major issue of this project was the lack of data with which to perform an ex post evaluation. Monitoring and evaluation systems should have received more attention from the outset. There is little data on the nature of the investments and even on simple aspects such as the number of loans approved and disbursed by category, in the supervision reports nor in the files of the executing agency. 13. Lessons Learned 1.52 The complexity and changing nature of food marketing subsystems in Mexico should have been better understood before establishing the objectives of the project financed with Loan ME-2262. These objectives were overly ambitious for a relatively small and new entity. The variety of players and issues affecting the food marketing sector should have been a strategic consideration and supported the decision to consolidate FIDEC as an intermediation channel with sound information and control systems. Later stages of the project could have expanded into more policy oriented directions. This was eventually accomplished and carried on in the next Loan 3141-ME. With this loan FIDEC has cemented good relations with the banks and has combined efforts with them to reach new geographic and business areas such as the financing of privatization of municipal markets. 1.53 Modernization in food marketing should be understood in a broader sense as a process whereby participants learn new skills and techniques for delivering their services. To assume that the process can be supported solely with directed credit for long term investments was a narrow view of the manner in which the service sector operates. According to this broader notion, the objective of modernization could be attained by inducing commercial banks to accept small retailers and transport agents which heretofore had utilized only the informal sector for their financial needs. In this manner, working capital should have been from the outset an acceptable part of the financing package if it made it more likely for banks to open their lending to these riskier clients. 1.54 The interest rate structure should have been consistent across government agencies. Mexico's financial sector is being liberalized and only government development funds maintain lending at lower than market rates. - 15 - However, even today there is competition between NAFINSA and FIDEC on interest rates for the same type of project and beneficiaries. 1.55 It takes a certain amount of time and experience for a second tier organization to be acknowledged in the banking community as a player in its chosen specialty and to reach a scale of operations from which it can have any perceivable impact on the sector. It seems unrealistic now to have expected FIDEC's actions to have an effect for example on the retail margins of foodstuffs in Mexico when even today it finances just 1% of total credit for this sector. - 16 - PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 1. Introduction 2.01 In 1983 FIDEC, FIRA, FICART and SNIM received a World Bank loan of US$115 million, Loan 2262-ME, for modernization of marketing of perishable products at the production, processing, wholesale an4 retail levels. The purpose of this report is to analyze the implementation of the project, evaluate the executing agencies' performance, particularly FIDEC, and draw the lessons learned through this operation. 2. FIDEC's Performance 2.02 FIDEC has used the World Bank loan resources satisfactorily and is now a recognized healthy financial institution with the necessary experience and capacity to lend to domestic business successfully. Early on, FIDEC experienced difficult situations, some of which could even have jeopardized its existence: (a) it failed to comply with the original loan disbursement schedule; (b) it modified the target business group (producers, small merchants, voluntary chains and purchase groups) and the types of goods it originally intended to support; (c) it did not achieve the expected coverage; and (d) its technical assistance services still fall short of the needs of banks and businesses. The fact that FIDEC has succeeded in disbursing Loan 2262-ME fully and reasonably is a tribute to the dynamism of its managemeat, but other problems still remain to be dealt with. 2.03 FIDEC came into being under extremely adverse conditions which made it difficult for the institution to properly comply with the Loan Agreement initially. Lack of knowledge of the sector and skepticism concerning the functions of marketing on the part of national authorities and the World Bank left FIDEC with very small negotiating power to set flexible and wide-ranging operating conditions to manage large volumes of financial resources. Conditions of this agreement were too constraining such as restrictive operating rules, complex interest rate structure, and incomplete definition of FIDEC's target group. In addition to these problems, macroeconomic instability restricted demand for credit and changed its composition. FIDEC knew the market was changing, but did not have the adequate sectoral knowledge to adapt its operations accordingly. Moreover, because of the adverse economic situation, it was difficult for FIDEC to recruit staff with marketing training and experience. These external factors were aggravated by FIDEC's conservative management style. FIDEC did not look for more flexible loan utilication conditions, limited its promotion work, and held back on training programs. In just a few years, what should have been a step-by-step learning process to establish FIDEC solidly in the financial and marketing sectors became a struggle for survival--a struggle for which FIDEC was ill-equipped. 2.04 Nevertheless, FIDEC stayed in business, adjusted to market demand, grew, and moderated its aspirations to mold a specific domestic commercial structure. FIDEC developed because it emphasized the modernization of commerce - 17 - in general rather than specific support for producers and small traders. This is understandable because there are actually few producers that can be turned into efficient marketers and conditions do not appear to exist yet for the integration of small traders into the modern system. When it took over in 1985, FIDEC's new management played an important role in adjusting to market demand--a demand marked by a relatively higher proportion of working capital, larger projects (wholesale markets and commercial centers), a greater proportion of self-service shops, and greater attention to the northern part of the country. FIDEC also expanded project coverage from perishables to food products in general, modified the operating rules, and publicized FIDEC's activities. Yet, while adapting to demand conditions FIDEC did not abandon the idea of supporting the expansion of basic goods and services and ensured that the benefits of the loan were not concentrated on high-income consumers. 2.05 More recently, FIDEC's new management that took over in 1989, has sustained a dynamic disbursement rate, but also began to emphasize FIDEC's technical side. The concern for greater technical strength is evident in three areas: (a) greater precision and clarity concerning FIDEC's goals and how to achieve them, contained in the idea of commercial schemes; (b) clearer and more flexible operating rules; (c) implementation of more ambitious operational mechanisms (commercial credit cards, guarantees program, etc.), and (d) decentralization based on clear institutional rules and mechanisms. The stated focus of FIDEC's operations is that growth should be more qualitative than quantitative, but the actual implementation of the measures proposed by the new management remains to be seen. 3. FIRA and FICART's Performance 2.06 FIRA and FICART disbursed a smaller proportion of the loan than expected. FIRA disbursed US$18.9 million while FICART only disbursed US$3.8 million. The original purpose of having FIRA and FICART participate was to make their experience and financing circuits available to FIDEC. Moreover, they were involved with farmers and the project was being introduced in areas within their competence. However, their participation created certain difficulties. Because FIDEC was specifically empowered to operate at the producer level, functions tended to overlap when farmers received marketing financing. This is because FIRA and FICART's area of competence is defined in terms of the credit subject, i.e., the producer, while FIDEC's field of action is defined in terms of the function to be supported, i.e., marketing, regardless of who performs it. This has caused agencies to compete instead of complementing each other. In addition, the fact that FIDEC was just starting up whereas FIRA and FICART already had a long experience put FIDEC at a further operational disadvantage. 2.07 The overlap created between FIDEC and FIRA and FICART is not surprising. Although the latter two funds were included to speed up disbursement of the loan and provide assistance to FIDEC in view of their greater financial- market experience, the agreement did not include any incentives for their collaboration. FIRA and FICART possessed resources they could lend at below the project interest rates, and gave p iority to the use of these resources rather than those available under Loan 2262-ME They actually perceived FIDEC as - 18 - encroaching on their market to the detriment of their own loan placement, and there was no incentive for them to systematically transmit their experience to FIDEC and enhance its impact. Since all the trust funds were operating in the context of a contracing economy, competition tended to prevail over cooperation. 4. Modernization of Food Marketing Sector 2.08 Mexico's food marketing sector has greatly modernized during the period of the World Bank Loan. FIDEC has certainly contributed to that progress, although the extent of its contribution could not be precisely measured. The major benefits of modernization, helped by the FIDEC financing, may be summarized as follows: (a) There have been five times more projects of commercial centers and self-service stores as retail and wholesale markets. FIDEC has promoted modernization through action directed at the modern sector rather than through conversion of the traditional sector. This has meant promoting more direct marketing and the results in terms of reduced margins indicate that benefits have accrued to consumers and producers. However, these benefits have to be weighed in light of the type of consumers that have benefitted most. Although the supermarket continues to be the favorite choice of medium- and high-income consumers, this does not necessarily mean that the benefits have been captured mainly by the well-off. Use of supermarkets by low-income consumers has been slowly increasing, with the result that they have captured some of the benefit of FIDEC financing. FIDEC's continued policy has been to support establishments where food products represent a larger proportion of the business. These are not the ones preferred by the high-income groups, since food accounts for a relatively small proportion of their expenditure and these groups prefer shops that offer a wider variety of goods. In fact, those who have benefitted the most are the medium-income groups who have had a wider choice of products, more competitive prices, and an easier access to purchase outlets. No adequate statistics or case-by-case monitoring records exist, but these results were visible in the projects that were visited. (b) The impact of FIDEC projects on wholesalers and producers is important because the scope of these operations is regional. Despite the start- up problems encountered by wholesale markets, these facilities are beginning to provide more competition in their zone of influence and are gradually beginning to increase their market penetration. This impact will soon be enhanced by the important role that SNIM is playing in making transactions more transparent. (c) Since the projects showed a higher than expected average rate of return, and that interest rates charged were positive, it follows that FIDEC contributed to the implementation of projects that were financially successful. From that point of view, good use has been made of the loan. Although it may not necessarily have produced a - 19 - different result, appraisal of social benefits should have been undertaken because it would have taken distributive aspects into consideration. Also, if the financing had been more decentralized, its economic impact would have been enhanced. (d) During FIDEC's peak disbursement period, real borrowing interest rates in the financial sector were of the order of 10%. The investment projects had to obtain a higher rate than that with funds that were difficult to obtain because of the macroeconomic constraints. The projects examined generated rates of return higher than the reference rate. It can therefore be stated that net earnings accrued in a period when other investments were encountering difficulties. 5. Benefits of the World Bank Loan 2.09 The foregoing arguments provide only limited justification for the loan. The specific projects undoubtedly benefitted consumers and producers and the marketing changes testify to greater modernity and efficiency in the commercial sector. However, changes are not always directly attributable to FIDEC. Actually, the strongest benefit of the loan has been the experience gained in successful financing of projects with a significant economic and social impact. 2.10 The loan made it possible to: (a) identify the possibilities for promoting modernization of the traditional business sector through integration with wholesalers; (b) determine the structure of credit demand in the faster-growing and more modern sectors; (c) learn the limitations in getting producers to market their own products; (d) form the necessary minimum physical and human resource base to publicize the financing possibilities and attract, appraise and process applications with financial success; FIDEC has built up a sound capital base and its staff have been exposed to a significant learning process in relation to operational questions; (e) develop the necessary basic skills to determine the economic impact of projects with potential for financial success; (f) identify the most common and important problems that arise in implementing marketing projects; (g) identify the sector's major technical assistance needs; - 20 - (h) establish a basic network for disseminating financial information and exchange experience on successful projects with a view to improving the commercial sector; (i) develop the necessary infrastructure and institutional capacity to program the promotion of future changes in the business sector. 2.11 FIDEC is a unique institution in its category. The experience it has accumulated can serve not only as an important tool for improving itb future performance, but also as an example to guide business development efforts in other countries. The complexity of the business sector far outstrips the few efforts that have been made to understand it. To-combine financial skill with marketing knowledge and integrate it into balanced modernization of the sector is a major undertaking. FIDEC has made significant progress toward this objective, and the problems it has faced are understandable difficulties rather than insurmountable obstacles. The best results of this project are yet to come. But without the efforts accomplished so far they would not have been conceivable. 6. Lessons Learned 2.12 The following are some of the lessons that emerge from FIDEC's experience with the project: (a) Even though the ultimate objective is to improve the condition of producers and medium-and low-income consumers, this should not as a rule lead to farmers marketing their produce through direct contact with consumers. Given proper support, the merchant, as a specialized trading agent, can transmit the improvements in efficiency of transactions to both groups. Insufficient account was taken of this factor in the agreement with the World Bank, which shows a bias against merchants on the part of the Bank and weakness on the part of FIDEC in defending its own position. (b) To have a significant impact on marketing, FIDEC should continue to finance the modern sector. However, it must define the relative importance of this strategy and that of modernizing the traditional sector. Because of the limited success in the development of voluntary chains and the lack of clarity as to who are the beneficiaries in large projects, FIDEC should increase its support to modern intermediate-sized businesses. Traditional business with a better chance for modernization are independent grocery stores and self-service shops. Perhaps FIDEC could act as loan guarantor. More importantly, FIDEC should provide technical assistance and publicize the opportunities that it offers. This would mean: (i) streamlining the procedures for intermediate-sized establishments, defined in terms not only of sale area but also of predominance of basic foodstuffs in their product lines, and (ii) taking greater care in defining markets and appraising large-scale projects, particularly those that involve, directly or indirectly, non-food products. These measures would strengthen FIDEC's operations, disseminate the benefits more widely, - 21 - stimulate business modernization, and help resolve the problem of duality in the sector (i.e coexistence of modern and traditional marketing agents) on the basis of businesses located on the borderline between the modern and traditional sectors. (c) FIDEC's operating rules need to be made more adaptable to macro economic changes that are difficult to foresee. FIDEC's operations committee and the first-tier banks need to have wider loan-approval powers. The regional delegations should expand their loan appraisal and approval responsibilities in close collaboration with first-tier banks. This would make FIDEC's operations more flexible by stimulating the first-tier banks to devote more staff to the commercial sector. Automatic credit lines to first-tier banks should be expanded. (d) FIDEC needs to create incentives to attract personnel trained on the job and to retain experienced staff who receive additional training. FIDEC has made an enormous investment in its staff, principally through on-the-job training and experience. There is, however, the risk that this investment may be lost because of lack of staff mobility and incentives. The incentives for FIDEC personnel have been cut sharply because the Bank of Mexico, as part of its efforts to improve public sector finances, has pursued severe salary containment policies. There are few incentives for extra effort as the allowance system is tied more to length of service than to other factors. Not only has this aggravated FIDEC's staff recruitment problem, but FIDEC faces the threat of losing some of its staff skilled in dealing with the commercial sector. This danger applies particularly to the regional delegations and to highly trained staff. There is also the need to strengthen the technical needs of FIDEC staff. Individual abilities and skills that are available do not always match FIDEC's requirements. To support projects that stress the social impact, the anticipation of changes in the domestic commercial sector and the design of policies tailored to them, and provide intensive and large- scale technical assistance to commercial banks and borrowers, FIDEC will need a larger effort on the part of its staff. It is therefore important that incentive policies be reviewed and additional training provided. (e) Given the degree of specialization of its operations, FIDEC will need to contract consultants from time to time. However, FIDEC should better program its support needs. It should be more careful in selecting consultants and preparing terms of reference. This is especially important given the limited availability of good consultants as confirmed by FIDEC's experience. (f) FIDEC needs to strengthen its ability to identify potentially modernizable markets whose benefits can be widely disseminated. It should also perform a social appraisal of the corresponding projects. FIDEC has demonstratei that financing of the business sector can - 22 - generate benefits to producers and consumers in general, but has not been able to pinpoint the types of consumers or producers that benefit most. It is possible that in a number of cases FIDEC has channeled resources to businesses that had ready access to other sources and to consumers who were not those most in need of marketing alternatives. (g) FIDEC needs to broaden its support to wholesalers and producers. For producers it needs to define a field of action that does not overlap with the activities of other funds such as FIRA anO FICART. FIDEC could play a significant role in the financing of storage and transportation equipment of producers who bring their products to purchasing centers, wholesalers and retailers. Concerning wholesalers, greater attention should be devoted to market studies and legal aspects to ensure faster implementation of subprojects. (h) In the interest of greater market penetration and for reasons of equity, financing of the commercial sector should not be restricted to perishables. Basic food products in general should be eligible for support. This would broaden the reach of FIDEC's financing and extend its benefits to more low-income consumers. (i) FIDEC is a financially successful organization which has adapted its objectives to changing market conditions. Subprojects have been financially successful, and many of them have also had a significant social impact. Yet, on balance, there was not enough focus on the social impact of subprojects. - 23 - PART III: STATISTICAL INFORMATION Table 1: Related Bank Loans/Credits Loan No. Purpose Status Comments Project Title Loan 2454-HE A continuation of the Completed Loan fully disbursed Agricultural Credit FIRA credit program managed Closing Date 9/88 by 12/85. VIII by FIRA consisting of short-, medium- and long-term subloans for development of crops, livestock and agro- industry. Loan 2610-ME A credit program for Completed Agricultural Credit low-income farmers to Closing Date 3/87 FICART raise agricultural productivity with a view to increasing food production and real firm income. Loan 2837-HE As above Effective 8/87 Includes provision Agricultural Credit Expected completion: for agro-industry FIRA/FICART Summer 1989. investment by producers. - 24 - Table 2: Proiect Timetable Date Date Date Item Planned Revised Actual Preparation - - 8/81 Appraisal Mission 5/6/82 - 5/6/82 Loan/Negotiations 11/82 - 2/83 Board Approval 4/83 - 4/83 Loan Signature - - 9/25/83 Loan Effectiveness 12/27/86 - 2/14/84 Loan Closing 6/87 6/88;6/89;12/89 12/89 - 25 - Table 3a: Cumulative Estimated and Actual Disbursements (US$ million) FY 1984 1985 1986 1987 1988 Oct.89 Appraisal estimate 13.5 51.0 99.0 115.0 - - Actual 7.7 22.9 42.5 58.3 84.0 115 Actual as 2 of estimate 57 45 43 51 - - Date of final disbursement 3 November 1989 - 26 - Table 3b: Disbursement by Main Executing Agencies (US$ million) FY 1984 1985 1986 1987 1988 1989 1990 Total FIDEC 3.2 11.0 17.3 13.1 19.9 12.5 13.4 90.4 FIRA 3.7 2.7 1.6 2.7 5.9 2.3 1.0 19.9 FICART - 1.4 0.7 - - 1.7 - 3.8 Front End Fee 0.9 - - - - - - 0.9 Total 7.8 15.1 19.6 15.8 25.8 16.8 14.4 115 - 27 - Table 4: Prolect Costs (Appraisal Estimate) Appraisal Estimate Local Foreign Total --------- US$ million ----- 1. Productive Investment Medium and long-term investment (a) Producer level 56 30 86 (b) Wholesale and retail level 69 37 106 Short-term subloans Subtotal 125 67 192 2. Productive Support National marketing information system 1.5 1.5 3.0 3. Institutional Support Planning and programming 0.2 0.1 0.3 Promotion program 0.3 0.1 0.4 Training and technical assistance 0.2 0.1 0.3 Subtotal 0.7 0.3 1.0 4. Special Studies 0.5 1.0 1.5 5. Technical Services 0.3 0.7 1.0 6. Investment Cost (baseline) 128 70.5 198.5 7. Price Contingencies 17.8 9.8 27.6 8. Total Investment Cost 145.8 80.3 226.1 9. Front-end Fee - 0.9 0.9 10. Total Financing Required 145.8 81.2 227.0 - 28 - Table 4: Proiect Costs and Financing (Cont'd) Appraisal Estimate Local Foreign Total Lb ------- US$ million ----- Actual Costs /a 1. Productive Investment (a) Producers (except low-income groups) 25.4 (b) Wholesalers and retailers (except for voluntary chains) 115.4 (c) Groups of low-income producers and /e voluntary chains 7.9 Short-term subloans (working capital) /d 24.7 Subtotal 173.4 2. Productive Support ) / 1.2 3. Institutional Support) 4. Special Studies ) /a 0.7 5. Technical Services ) 6. - 7. - 8. Total Investment Cost 175.3 9. Front-end Fee 0.9 10. Total Cost 176.2 Ia As of December 1990. Lb Since over 97 percent of project cost were in the form of subloans it is not possible to estimate the proportion of local and foreign costs. /e This category was not considered separately in the appraisal estimate of project costs although it can be seen from Table 7 that it was originally envisaged that loans to this group would total US$8.7 million. /d This category was introduced during implementation in response to high demand. Le Categories 2, 3, 4 and 5 were treated jointly in project statements of account. - 29 - Table 5: Project Financing Source of Funds Planned % Revised Actual /a % (APR Report) Government/Banking system 68 30 n.a. 31.6 18 Beneficiaries 44 19 n.a. 29.6 17 IBRD 115 51 n.a. 115.0 65 Total 227 100 n.a. 176.2 100 ./a At July 10, 1989. - 30 - Table 6: Allocation of Loan Proceeds (Disbursement by Category) (US$ million) Original Revised Revised Actual Allocation 3/85 11/88 10/89 1. Subloans for Part A of the Project, except to groups of low-income producers (Producers) 40 30 20 24.4 2. Subloans for Part B of the Project, except for voluntary chains (wholesalers and retailers) 50 35 51 68.1 3. Subloans for groups of low-income producers and voluntary chains 5.2 5.2 5.2 4.8 4. Short-term subloans for Parts A and B of the Project (working capital) - 25 19 14.8 5. Equipment and materials for Parts C,D,F and G of the Project (National Market Information System) FIDEC institutional strengthening (training and studies) 3 3 3 0.9 6. Technical services for Parts C,D,E,F, and G of the Project (as above) 2.3 2.3 2.3 1.1 7. Front-end fee 0.9 0.9 0.9 0.9 8. Initial deposit in special account 10 10 10 n.a. 9. Unallocated 3.6 3.6 3.6 n.a. 10. Total 115.0 115.0 115.0 115.7 - 31 - Table 7: Status of Covenants Guarantee Agreement Description of Condition Present Status Financial BXPA 4.01 BANXICO to present annual audit In compliance. Covenant report of FIDEC and FIRA. BRPA 4.02 BANRURAL to present annual audit In compliance. report of FICART. GA 3.05 Special Account to be audited In compliance. each fiscal year. Special LA /a Sch 1 Interest rates on marketing In compliance. projects to comply with GIRA. BXPA 2.06(a) BANXICO at the request of Bank, Semi-annual reports have to exchange views with regard to been sent but have not progress of project. been fully satisfactory. BRPA BANKRURAL, at the request of Bank, Semi-annual reports have to exchange views with regard to been sent, but have not progress of project. been fully satisfactory. Notes GA - Guarantee Agreement LA = Loan Agreement BXPA - BANXICO Project Agreement BRPA - BANRURAL Project Agreement /a As amended by August 28, 1984 letter signed by Bank and Government. - 32 - Table 8: Staff Inputs by Staite of Proiect Cycle A. In staffweeks Stage of Planned Final Project Cycle HQs/Field HQs/Field Through appraisal n.a. 90.3 Appraisal-Board Appraisal n.a. 3.7 Board Appraisal-Effectiveness n.a. n.a. Supervision n.a. 31.0 B. Missions No. of Man/days Specializations Performance Type of Mission Date Persons in Field Represented La Rating ProblemsLb Supervision 10/83 1 10 a 1 - 4/83 1 7 b 2 FM 4/84 1 6 b 2 FM 8/84 1 4 b 2 FM 2/85 1 12 b 3 F 11/85 1 7 b 4 F 3/86 1 7 b - - 6/86 1 10 b 3 - 1/87 2 32 b+c 2 - 9/87 2 38 b+a 2 - 2/88 2 12 b+a - - 6/88 1 5 b 2 - 6/89 1 7 b 2 - Total 155 /a a - Agriculturalist; b Credit Expert; c - Financial Analyst Ak F - Financial; M - Management - 33 - Table 9: Some Physical Results Achieved by FIDEC's Subproiects Item 984 1985 1986 1987 1988 Total Transport units 18 62 53 108 68 309 Commercial centers 7 12 25 15 23 82 Retail markets 0 2 4 3 2 11 Self-service stores 7 6 11 13 18 55 Shope 103 513 656 636 438 2,346 Warehouses 7 268 474 495 682 1,926 Cold stores 10 13 15 24 21 83 Sales area (M2) 13,000 29,800 82,400 37,900 82,300 245,400 Storage area (m2) 7,500 14,700 68,920 16,702 70,774 178,596 Part-time jobs 600 1,485 3,280 2,400 1,510 9,275 Full-time jobs 500 1,350 3,040 3,031 2,306 10,227 - 35 - APPENDIX 1 Page 1 of 2 Studies Undertaken for FIDEC SCET-AGRI FIDESA, 1982. Proyecto de Desarrollo de la Comercializacion de Frutas, Hortalizas, Carne y Huevo. 7 tomos y Resumen. Cook L., Roberto, 1984. The Mexican Dry Grocery Subsector: Strategies Supporting the Establishment of Voluntary Food Chaina PLAMARTE, S.A. de C.V. Julio, 1986. Analisis Comparativo del Costo Estimado de las Perdidas en el Transporte de Perecederos Respecto al Costo de Cambios en la Tecnología Utilizada en el Transporte. 4 Tomos y Resumen. Servicios de Consultoria. Octubre, 1986. Identificacion y Analisis de los Eslabonamientos en la Comercializacion de Productos Perecederos para la Exportacion. 3 Tomos y Anexos. COMINSA Julio, 1986. Identificacion y Analisis de Impacto de las Políticas y Regulacion del Sector Transport que afectan la Comercializacion de Productos Perecederos para la Exportacion. 3 Tomos y Resumen. Desarrollo y Tecnología Consultores, S.C. Agosto, 1986. Estimacion de la Demanda de Credito de FIDEC 1986-1988. 2 Tomos y Resumen. IMBT A.C. 1986, 1987. Varios Trabajos: - Diagnostico de la Situacion Actual del Abasto (Produccion e Infraestructura) de Productos Pesqueros en el País y por Estados con Litorales (18 trabajos). - Integracion de Anteproyectos para Instalaciones de Centros de Acopio en Diferentes Municipios: Sn. Vicente Rosamorada. Nay.; Chahuites, Oax.; Huehuetan, Chis.; San Martin Texmelucan, Pue.; Apatzingan, Mich.; Nativitas y San Mateo Tepetitla, Tlax.; Lerdo, Dpo. - Bases Technicas para el Tratamiento, Normalizacion y Almacenamiento de Productos Pesqueros: Langostino y Camaron; Sardina; Quijon y Almeja; Atun, Jurel; Mojarra y Tilapia; Caracol; Pulpo; Abulon; Langosta; Jaiba; Caron; Huachinango; Mero, Rubín y Robulo; Sierra; Lisa y Bagre; Corvina. - 36 - APPENDIX 1 Page 2 of 2 - Bases Tecnicas para el Tratamiento y Normalizacion de Fiuras y Verduras: Mango, Limon, Manzana, Durazno, Pera, Ciruela, Chabacano, Naranja, Melon, Mandarina, Lima, Toronja, Aguacate, Ajo, Papa, Cebulla, Tomate, Pepino, Chile, Calabacita, Zanahoria, Rabano, Rabanito, Esparrago, Espinaca, Acelga, Brocolí, Chicharo, Ejote, Berenjena, Chayote, Lechuga, Col y Coliflor. - Estudios Tecnico-Economicos y Financieros de Centros de Sacrificio de Productos Pecuarios con Diferentes Capacidades; Ovi-caprino (50,200 y 500 cabezas); Porcino (30,100 y 500 cabezas); Bovino (10,000 y 300 cabezas); Aves (9,000 y 36,000 aves). - Diagnostico de la Situacion Actual del Abasto de Productos Carnicos en el Pais. De Robina, R. Mayo 1987. Evaluacion de la Efectividad de la Accion del Fondo en el Programa de Apoyo a la Comercializacion de Alimentos. Desarrollo Dirigido SOMEX. 1987. Programa de Nuevas Instalaciones para Acopio y Comercializacion de la Manzana en el Estado de Chihuahua. 3 Tomos. Trujillo, V. Alberto. Julio 1987. Evaluacion de en torno Demografico, Social y Comercial en la Centrales de Abasto de Torreon, Villahermosa y Ecatepec. Shwedel, Kenneth y Jorge Gonzalez Arce. Noviembre de 1987. Expansion and Modernization Strategies for Food Marketing Analysis, Evaluation and Projection. Trujillo, V. Alberto. Febrero 1988. Un Viaje de Prospeccion a la Region Central de Veracruz. Gonzales Arce, J. 1988. El mercadeo de articulos de Consumo en la frontera norte del pais. Problemas y oportunidades (en proceso). Colegio en la Frontera Norte, 1988. Analisis socioeconomico y comportamiento de la actividad comercial en la frontera norte. Shwedel K. 1985. Comercializacion Agropecuaria, Exportaciones y Agroindustria. Gonzalez, Hector. 1988. Comercialization de Productos Pesqueros. (En proceso). - 37 - APPENDIX 2 Table I COMPLEMENTARY REFRIGERATED STORAGE FRUITS AND VEGETABLES Cash Flow Proiections /a (Mex$ millions) Before -------------- with project ---------------- Project 1 2 3-10 11 12-19 20 Cash Inflow Revenues /b 0 3,800 4,200 4,200 4,200 4,200 Total Inflow 0 0 3,800 4,200 4,200 4,200 4,200 Cash Outflow Operating Costs 0 3,600 3,600 3,600 3,600 3,600 Investment Ic 776 211 :et Income Before Financing -776 200 540 329 540 618 Medium-term loan /c 621 Owner's contribution L 155 Debt service 279 384 384 Total Outflow 0 1,055 384 384 0 0 0 Net Income After Financing 0 -589 -184 156 329 540 618 Financial Rate of Return = 53.89 a In constant prices. Includes residual value of investment in year-20, prices of 1988 used due to abnormality. Lc For nine years including one year grace on principal, at an interest rate of 35 percent. d Twenty percent of investment cost. e Replacement of equipment included in year-i1. ource: FIDEC, Programacion y Analisis. APPLE COLLECTION AND COLD STORAGE CENTER Cash Flow Proiections /a (Mex$ millions) Before ---------------------------------- with project------------------------------------ Project 1 2-4 5 6 7-10 11 12-15 16 17-19 20 Cash Inflow Revenues /6 0 2,300 2,300 2,300 2,300 2,300 2,300 2,300 2,300 2,367 Total Inflow 0 0 2,300 2,300 2,300 2,300 2,300 2,300 2,300 2,300 2,36/ Cash Outflow Co Operating Costs 0 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1 Investment e 670 40 160 40 Net Income Before Financing -670 450 450 410 450 290 450 410 450 517 Medium-term loan /c 536 Owner's contribution Id 234 Debt service 193 366 Total Outflow 0 963 366 0 0 0 0 0 0 0 0 Net Income After Financing 0 -561 84 450 410 450 290 450 410 450 517 Financial Rate of Return a 67.15 a In constant prices. b Includes residual value of investment in year-20, prices of 1988 used due to abnormality in 1989. c For three years including one year grace on principal, at an interest rate of 35 percent. Interest capitalized during construction, 80 percent financing assumed. d Twenty percent of investment cost. e Replacement of equipment included in years 6, 11 and 16. Cash Flow Proiections ]a (Hex$ millions) Before --------------------------- with project-------------------------- Project 1 2 3-6 7-11 12 13-19 20 Cash Inflow Revenues lb 0 62,900 93,180 93,180 93,180 93,180 93,586 Total Inflow 0 0 62,900 93,180 93,180 93,180 93,180 93,586 Cash Outflow Operating Costs 0 59,800 88,690 88,690 88,690 88,690 88,690 8 Investment is 2,700 1,558 663 Net Income Before Financing -2,700 1,542 4,490 4,490 3,827 4,490 4,896 Medium-term loan f_ 2,160 1,247 Owner's contribution 1d 540 311 Debt service 778 2,218 2,218 Total Outflow 0 3,478 3,776 2,218 0 0 0 0 Net Income After Financing 0 -1,858 260 2,272 4,490 3,827 4,490 4,896 Financial Rate of Return - 108.15 La In constant prices. j Includes residual value of investment in year-20, prices of 1988 used due to abnormality in 1989. Lc For five years including one year grace on principal, at an interest rate of 35 percent. Interest capitalized during construction, 80 percent financing assumed. Ld Twenty percent of investment cost. /e Replacement of equipment included in year 11. Source: FIDEC, Programacion y Analisis RENOVATION OF A 1,000 SO2 WHOLESALE WAREHOUSE Cash Flow Projections /a (MexS millions) Before ----------------------------------- with project Project 1 2 3 4 5 6 7-10 11 12-15 16 17-19 20 Cash Inflow Revenues /b 140 140 200 220 250 290 320 320 320 320 320 320 370 Total Inflow 140 140 200 220 250 290 320 320 320 320 320 320 370 Cash Outflow Investment /e 550 50 150 50 Net Income Before Financing 140 -410 200 220 250 290 270 320 170 320 270 320 370 e Medium-term Loan /c 480 Owner's contribution /d 70 Debt service 144 144 144 189 189 189 189 Total Outflow 140 694 144 189 189 189 189 189 0 0 0 0 Net Income After Financing 0 -144 56 31 61 101 81 131 170 320 270 320 370 Financial Rate of Return = 56.39 /a In constant prices. /b Includes residual value of investment in year-20, based n 5 percent of sales. /C For 10 years including two years of grace on repayment of principal, at an interest rate of 35 percent. /d Twenty percent of investment cost. /g Replacement of equipment included in years 6, 11 and 16. Source: FIDEC, Programacion y Analisis CONSTRUCTION OF A 2,000 SG WHOLESALE UAREHOUSE Cash Flow Projections / (MexS millions) Before ----------------------------------- with project ----------------------------------------- Project 1 2 3 4 5 6 7-9 10 11 12-15 16 17-19 20 Cash Inflow Revenues Lb 440 520 600 670 740 740 740 740 740 740 740 818 Total Inflow 0 0 440 520 600 670 740 740 740 740 740 740 740 898 Cash Outflow Investment l 1,230 80 180 80 Met Income Before Financing 0 -1,230 440 520 600 670 740 740 740 740 740 740 740 898 Medium-term loan Z 984 Owner's contribution /d 236 Debt service 354 527 527 527 527 527 527 Total Outflow 0 1,574 527 527 527 527 527 527 0 0 0 0 0 Net Income After Financing 0 -836 -87 -7 73 143 133 213 740 560 740 660 740 898 Financial Rate of Return = 45.01 /a In constant prices. L Includes sale of inventories and residual value of investment in year-20, based on 5 percent of sales. & For eight years including one year grace on principal, at an interest rate of 35 percent, with interest capitalized. L Twenty percent of investment cost. e Replacement of equipment included in years 6, 11 and 16. Source: FIDEC, Programacion y Anatisis (D Z [Q CONSTRUCTION OF A 220 SQ' SELF-SERVICE STORE Cash Flow Proiections /a (Mex$ millions) Before ---------------------------with project-------------------------- Project 1 2 3 4 5-10 11 12-19 20 Cash Inflow Revenues Lb 48 55 58 62 67 67 67 112 Total Inflow 0 48 55 58 62 67 67 67 112 Cash Outflow Investment /g 160 50 Net Income Before Financing -112 55 58 62 67 17 67 112 Medium-term loan le 128 Owner's contribution /d 32 Debt service 48 48 48 48 48 Total Outflow 0 208 48 48 48 48 0 0 0 Net Income After Financing 0 -64 7 10 14 19 17 67 112 Financial Rate of Return - 53.37 La In constant prices. Lb Includes sale of inventories and residual value of investment in year-20, based on 9 percent of sales. le For 10 yeare with no year of grace, at an interest rate of 35 percent. W Id Twenty percent of investment cost. le Replacement of equipment included in year 11. Source: Programacion y Analisis - 43 - APPENDIX 3 Page 1 of 2 TRANSLATION CEC-035-1-90 DEPARTMENT OF MULTILATERAL FINANCE NAFIN January 9, 1991 Mr. VAHRAM NERCISSIANTZ Agriculture Division World Bank 1818 H. Street, N.W. Washington, D.C. 20433 U.S.A. This letter is in reference to the Agricultural Marketing Project, Loan No.2262-ME. I would like to inform you that, having reviewed the draft of the Project Completion Report, we have no further observations to make. Nevertheless, we want to point out that the opinion expressed in Part II of the Report are those of the consultant firm that prepared it. Furthermore, and as you already know, many of those earlier observations have been accommodated and, as reported by recent supervision missions, the principal recommendations have been incorporated in execution of the second project during 1990. Sincerely, Lic. Jos6 Garcia Torres Manager - 44 - APPENDIX 3 Page 2 of 2 cc: Dr. Alejandro Villa Issa Director General FIDEC Ejército Nacional No.180 -- Piso 5 México, D.F. Lic. Antonio Cervera Sandoval Director Organismos Financieros Internacionales S.H.C.P. Palacio Nacional Edificio 4, Piso 4 México, D.F. Lic. Arturo Galán de la Barreda International Director - NAFIN Lic. Jorge Delgado Benitez Sub-Director Organismos Financieros Internationales Lic. Timoteo Harris Representative - NAFIN Washington, D.C. Lic. Jorge A. Munoz Cuevas Project Secretary - NAFIN JGTIJMC/ MAP SECTION -［…