Papua New Guinea - Smallholder Livestock Credit Project

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use fiepost No. PA-144a APPRAISAL OF SMALLHOLDER LIVESTOCK CREDIT PROJECT PAPUA NEW GUINEA October 16, 1972 Projects Department This report was prepared for official use only by the Bar.k Groi:p. It may not be published, quoted or cited without Bank Group authorazation. The Bank Group does not aceept responsibility for the a=acnLy or aomn*feteess of ftz report.  CURC EOEQUIVALYS US$1 - A$ 0.8392 A$ 1 - US$1.1916 A$'1 million - US$1,191,600 WEIGHTS AND !EASURES 1 acre (ac) - 0.45 hectares 1 ton - 2,240 poundse 1,020 kilogram 1 foot (ft) - 0.305.metres I mile - 5,280 feet - 1,610 metres -INITIALS AND ACRONYMS FNG - Papua New Guinea DASF - Department of Agriculture, Stock, and Fisheries PNGDB - Papua and New Guinea Development Bank EDO - Rural Development Officer ARDO - Assistant Rural Development Officer EDA - Rural Develqpment Assistant FISCAL YEAR (F) July 1 - June 30  PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT APPRAISAL REPORT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ................................. i-ii I. INTRODUCTION ........................................... 1 II. BACKGROUND ............................................. 1 A. General ........................................... 1 B. Agricultural Sector ............................... 2 C. Agricultural Services ............................. 5 D. Agricultural Credit ............................... 6 III. THE PROJECT ............................................ 7 A. General Description ............................... 7 B. Detailed Features ................................. 8 C. Cost Estimates and Financing ...................... 10 D. Procurement and Disbursements ..................... 12 IV. ORGANIZATION AND MANAGEMENT ............................ 13 A. Department of Agriculture, Stock, and Fisheries (DASF) ............................ 13 B. Papua and New Guinea Development Bank (PNGDB) ..... 14 C. Project Administration ............................ 16 V. PRODUCTION, MARKETING, PRICES AND PRODUCER BENEFITS 18 VI. BENEFITS AND JUSTIFICATION ............ .. ............... 22 VII. RECOMMENDATIONS ................... ..................... 23 SCHEDULE A - Operating Policies and Procedures SCHEDULE B - Training and Research Facilities This report is based on the findings of an appraisal mission to Papua New Guinea in January/February 1972, consisting of Messrs. M. J. Walden, J. R. Peberdy, S. J. Khoo, and R. Arrivillaga.  -2- ANNEXES 1. Agricultural Background Table 1 - Gross Domestic Product at Current Market Prices, 1965/66-1969/70 Table 2 - Area and Production of Principal Commercial Crops, 1965/66-1969/70 Table 3 - Imports, Exports and Trade Balance, 1966/67-1970/71 Table 4 - Exports: Total and by Major Commodities, 1966/67- 1970/71 2. Department of Agriculture, Stock, and Fisheries Table 1 - DASF Organization Chart Table 2 - Distribution of DASF Rural Development and Animal Industry Staff Table 3 - Project Coordinator Table 4 - DASF Staff, Housing and Equipment for the Project (Cumulative) Table 5 - Projected Output of Diploma and Certificate Staff 3. Training Table 1 - DASF Training Centers Table 2 - Capital and Operating Costs of Livestock Farmers Training Program Table 3 - In-Service Training Capital and Operating Costs for Four Existing Farmers Training Centers and New Buildings at Lae Table 4 - In-Service Training Annual Operating Costs for the Four Existing Farmers Training Centres and Lae 4. Animal Production Research Services Table 1 - Field Research Stations Table 2 - Proposed Staffing of Animal Industry Research Stations Table 3 - New Research Capital and Operating Costs 5. Papua and New Guinea Development Bank Schedule A - Lending Policy Table I - Balance Sheets Table 2 - Profit and Loss Accounts Table 3 - Analysis of Administrative Expenditure - Year Ended June 30, 1971 Table 4 - Loan and Investment Approvals Table 5 - Project Cash Flow Table 6 - Organization Chart  -3- 6. Beef Table 1 - Livestock Population and Area 1962 and 1971 Table 2 - Cattle Population and Ownership 1970-71 Table 3 - Projections for Livestock Population, Beef Production and Consumption Table 4 - Availability of Heifers Table 5 - Model - Beef Cattle Farm 15 Breeders, Herd Projection Table 6 - Model - Beef Cattle Farm 15 Breeders, Investment Projection Table 7 - Model - Beef Cattle Farm 15 Breeders, Sales and Operating Expenses Projection Table 8 - Model - Beef Cattle Farm 15 Breeders, Financial Projections 7. Pigs Table 1 - Imports of Pig Meat and Project Production Table 2 - Model - Pig Breeding/Fattening - 2 Sows Herd Projection Table 3 - Model - Pig Breeding/Fattening - 2 Sows Investment Projection Table 4 - Model - Pig Breeding/Fattening - 2 Sows Sales and Operating Expenses Projection Table 5 - Model - Pig Breeding/Fattening - 2 Sows Financial Projections 8. Poultry Table 1 - Poultry Consumption and Project Production Table 2 - Model - Broiler Production - Flock Projection Table 3 - Model - Broiler Production - 600 Broilers per Year Investment Projection Table 4 - Model - Broiler Production - 600 Broilers per Year Sales and Operating Expenses Projection Table 5 - Model - Broiler Production - 600 Broilers per Year Financial Projection Table 6 - Model - Egg Production - 100 Hen Capacity Flock Projection Table 7 - Model - Egg Production - 100 Hen Capacity Investment Projection Table 8 - Model - Egg Production - 100 Hen Capacity Sales and Operating Expenses Projection Table 9 - Model - Egg Production - 100 Hen Capacity Financial Projection 9. Details of Cost Estimates 10. Estimated Schedule of Disbursements 11. Financial Rates of Return 12. Economic Rates of Return Table 1 - Economic Rates of Return MAJ   PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a livestock credit project for the develop- ment of smallholder beef, pig and poultry enterprises in Papua New Guinea for which an IDA credit of US$5.0 million is proposed. This is equal to the estimated foreign exchange component of total project cost estimated at US$9.8 million. The Australian currency is also the currency of Papua New Guinea (PNG) as Australia's monetary system extends to the latter. Even though PNG's external trade is largely with Australia, all of PNG's export receipts and import payments are considered as foreign exchange for the purpose of the project. ii. The country covers 183,500 sq mi and has a wide variety of ecological conditions; 15% of the land is accounted for by some 600 islands. With 2.5 million people, it is lightly populated with ample unexploited land, timber and mineral resources as well as a substantial hydro-electric potential. Road communications are inadequate and although educational facilities are increasing, most of the population is illiterate. Agriculture has been the mainstay of the economy, and in 1969/70 contributed 56% of the gross domestic product and about 80% of exports. It employs about 90% of the labor force. There is a large subsistence sector, while the main commercial crops consist of some 900,000 acres of coconuts, cocoa, coffee and rubber, roughly half of which are owned by expatriates. Except for a million pigs which play an important role in social life, livestock has not, until recently been a significant feature of the agricultural sector. In the last five years (FY 1966-1970), the gross domestic product has grown by 10Z per annum. iii. Agriculture has considerable importance in the country's development program. Following the 1963 IBRD Economic Survey Mission recommendations, the government has given high priority to the development of the beef indus- try in order to achieve self sufficiency, help diversify agriculture, develop idle land, and increase smallholder participation in the monetary sector. Emphasis in the first stage has been to build a nucleus of breeding stock, and cattle numbers have increased from 24,000 to about 100,000 in the last eight years, about 85% of which are owned by expatriates. It is intended to maintain this growth rate and increase smallholder participation. The proposed project would materially assist in this. iv. This would be the third IDA credit for agriculture to Papua New Guinea. The first, in January, 1969 (PNG-137), was for US$1.5 million for oil palm development, and the second, in January, 1970 (PNG-175), US$5.0 million for further oil palm and coconut development, and the development of 150,000 acres of large cattle ranches. Both projects are proceeding well, although there has been a lack of demand for coconut development, and a reduction in the scope of the cattle sub-project due to difficulties in getting leases for new large expatriate ranches which would not affect the proposed project.  - ii - v. Over a period of three and a half years, the project would finance medium- and long-term farm investments totalling US$6.7 million on 870 beef (90%), 270 pig, and 120 broiler and layer poultry farms, and US$3.2 million for improving livestock extension, education, and research facilities in the Department of Agriculture, Stock, and Fisheries (DASF). Implementation of the project would be the responsibility of the DASF in conjunction with the Papua and New Guinea Development Bank (PNGDB). Both organizations are well staffed and competent, and the bank is in sound financial condition. PNGDB was opened in 1967 to provide lending facilities for industry, commerce and agriculture. Its lending emphasis has been increasingly towards small indigenous operations in the rural sector. PNGDB is res- ponsible for US$3.1 million of IDA funds under PNG-137 and PNG-175, and has carried out its duties under both projects satisfactorily. DASF staff provide the technical and field supervisory services for PNGDB, and under the proposed project, the number of these technical staff would be increased and farmer training facilities would be improved to train both farmers and DASF personnel in activities which are new to many. Research would be increased on problems affecting smallholder livestock development. With the extra personnel to be recruited under the project, the technical supporting services and administrative arrangements would be adequate to implement the project efficiently. vi. The project would be financed as follows: 51% by IDA through PNGDB, 28% by Government, 7% by PNGDB, and 14% by the sub-borrowers. PNGDB would finance up to 80% of the on-farm investments, sub-borrowers the remainder, and IDA would reimburse PNGDB 90% of its loans to sub-borrowers. The Government would finance the majority of the extension, education, and research facilities. The credit would be made available to the Adminis- tration (Government) of Papua New Guinea which would bear the foreign exchange risk, and on-lend the majority of the proceeds to PNGDB under a subsidiary loan agreement. The latter would on-lend to sub-borrowers at 7-3/4% (7-1/4% on sub-loans below A$ 3,000). Project loans would be committed over a three and a half year period, and IDA disbursements would extend over four years. PNGDB would have the funds for 15 years (including five years of grace), and pay a service charge of 1-1/4%. vii. The investment items are small and varied and unsuitable for bulk procurement through international competitive bidding. The country has well established importers and traders in the main towns who can supply the necessary inputs. In view of this, procurement would, therefore, be through normal commercial channels. viii. The financial rates of return for beef production would be 11%, pigs 25%, eggs 32%, and broilers 69%. The economic rate of return ranges from 16% to 33%. Provided that the necessary assurances can be obtained during negotiations, the project is suitable for a credit of US$5.0 million.  PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT I. INTRODUCTION 1.01 The Administration of Papua New Guinea (Government), through the Government of the Commonwealth of Australia, has requested an IDA credit to help finance the establishment of smallholder beef farms, and pig and poultry enterprises. The project would also assist in providing extension, training, and research services. 1.02 Since 1963, Bank economic missions have encouraged beef develop- ment, and in 1970, IDA approved the allocation of US$1.7 million, as part of a US$5.0 million credit (PNG-175), to help finance the development and stocking of 150,000 acres of large cattle ranches and the building of educational facilities to train livestock producers; the remainder went to further expansion of smallholder oil palm settlement and for planting and replanting existing coconut estates. This was the second IDA Credit to Papua New Guinea for agriculture, the first being a US$1.5 million credit for an oil palm settlement scheme in January 1969 (PNG-137). These projects are proceeding well although it is anticipated that the amounts under PNG-137 and PNG-175 that would not be used would be about US$305,000 and US$916,000 respectively. This is due to expenditures made on smallholder oil palm prior to effectiveness of PNG-137 being not eligible for reimbursement, a total lack of interest in the coconut sub-project, and a reduction in scope of the cattle sub-project because of difficulties in obtaining leases for new large expatriate ranches, which would not affect the proposed project. The Association has agreed in principle to the reallocation of the majority of the amounts for purposes similar to the original project and currently is awaiting Government's detailed proposals before making a final decision. 1.03 The proposed project was prepared by the government. This report is based on the findings of an appraisal mission to Papua New Guinea in January/February 1972, consisting of Messrs. M. J. Walden, J. R. Peberdy, S. J. Khoo, and R. Arrivillaga. II. BACKGROUND A. General 2.01 New Guinea, a U.N. Trust Territory, and Papua, an Australian dependency, are administered by Australia as a single political unit - Papua New Guinea. 1/ Australia is firmly committed to preparing the country for full internal self-government, to be followed eventually by independence. 2.02 Papua New Guinea lies north of Australia (see Map). It has a total area of about 183,500 sq mi of unusually varied terrain, including rugged 1/ This became the country's name on July 1, 1971, replacing its former name, Territory of Papua and New Guinea.  mountain ranges, and broad upland valleys at about 5,000 ft. Lowland areas are hot and humid, though the extensive highlands have cool temperatures. Most areas have an average annual rainfall of 80 to 90 in, but some exceed 200 in. 2.03 The total population is about 2.5 million, of which about 2% or 53,000 are expatriates, mainly Australians. The indigenous population, growing at about 2.5% annually, is basically Melanesian, although there are a few Negrito groups and some of Polynesian origin. There are many tribal groups broken down into clans and families. Social customs are diverse and some 700 languages/dialects exist, although Pidgin English is the main language of New Guinea, while Motu is used in Papua. Increasing efforts have been made in establishing primary schools and other educational facilities, but these are still quite limited. In 1971, an estimated 30% of the people with ages from 5 - 19 years were enrolled in schools. Most of the adults are illiterate. B. Agricultural Sector (Annex 1) 2.04 Lightly populated, (about 14 persons per sq mi), the country has ample unexploited land, timber, and mineral resources, as well as substantial hydroelectric power potential. Though economic development has been relatively rapid, it is in its early stages. Most people are still engaged mainly in subsistence production, primarily of local root foodcrops, often under a system of shifting cultivation. Increasing numbers, however, are participating in the production of cash crops for home consumption and sale. 2.05 The combined gross domestic product (GDP) of both the subsistence and monetary sectors grew significantly from an estimated A$ 375 million (US$447 million) in FY 1965/66 to A$ 547 million (US$652 million) in FY 1969/70, an average annual increase of about 10%. Overall per capita GDP was estimated at about A$ 220 in FY 1969/70. 2.06 Agricultural production for export continues to be the most important contributor to the monetary sector GDP, while Government and its agencies assume a key position in providing employment and a flow of investment expenditures. The transport, communications, and manufacturing bases are still small. 2.07 Though exports have increased significantly, the rapid economic expansion, the large initial import needs of the Bougainville copper mining project, rising incomes, and the high income levels of the expatriate population (per capita GDP of about A$ 5,000 or US$6,000 in FY 1970) have increased imports much faster than exports, so that the trade balance deficit has deteriorated significantly, from an estimated A$ 73 million (US$87 million) in FY 1967 to A$ 153 million (US$182 million) in FY 1971. During FY 1967-1970, imports of machinery, transport equipment, and mineral fuels largely for development purposes more than doubled from A$ 42 million (US$50 million) to A$ 89 million (US$106 million), while food imports, mainly the high valued foods such as meat, eggs, dairy products, fruits and vegetables, have also risen substantially from A$ 25 million (US$30 million) to A$ 37 million (US$44 million).  - 3 - 2.08 About 90% o' the population is dependent on agriculture, which accounted for 56% of GDP and contributed to about 80% of export receipts in FY 1969/70. Agricultural Structure 2.09 Of a total land area of approximately 115 million acres, about 29% is topographically suitable for agriculture, 55% is considered unsuitable for any commercial agricultural development, and 16% is not categorized because reliable data are not available. About 97% of the land is held under traditional land tenure systems, and 1% (one million acres) is held freehold or leasehold by expatriates for agricultural purposes. The remainder is owned by Government, settlement schemes, religious missions, and commercial operations (mainly expatriate). Legislation that permitted adjudication and registration of native land was introduced, but it did not prove practical (only a little was registered), so Government has now prepared three other bills that would encourage and make easier the registration of native land by groups, clans or individuals. These will be presented to the Legislative Assembly in the near future. 2.10 Coconut, cocoa, coffee, and rubber are the principal commercial crops grown by both indigenes and expatriates. The total planted area of these crops was nearly 900,000 acres in FY 1969/70, with coconut about 68%, cocoa 20%, coffee 8%, and rubber 4% of the total area. About half the crop area is owned by indigenes, and the remainder by expatriates. Other crops of minor but growing importance are tea, pyrethrum, passion fruit and oil palm for export, and peanuts, corn, sorghum, rice, fruits and vegetables, mainly for domestic consumption and sale. The average size of indigene holdings of the commercial crops varies from 0.13 acres for pyrethrum to 5.50 acres for oil palm, with the average for all commercial crops at 1.15 acres. Subsistence crops include taro, yams, sweet potato, bananas and sago. Livestock 2.11 Cattle are not native to the country and beef production on ranches operated by expatriates did not commence until after the Second World War. The first cattle raising ventures by smallholders were undertaken in the late 1950's, but have only recently gathered momentum, as farmers have begun to realize their potential. 2.12 As more than 10 million acres of land are suitable for cattle, a Bank Economic Mission in 1963 recommended that Government embark on a two- stage program to develop and expand the beef industry as quickly as possible. It suggested that, as a first stage, herds of breeding heifers be developed on the large pronerties. The second stage would involve distribution of surplus animals from these herds to smallholders. GovernDent undertook the program and, accordingly, most development has so far taken place on large expatriate holdings and on Government farms. 2.13 As these properties are becoming fully stocked, the second stage has now been reaches and surplus heifers are increasingly available for sale  - 4- to smallholders. There are now 14,500 cattle on smallholders' farms and further expansion of the national herd will take place mainly on these farms. The more progressive individuals and family groups are laying claim to the various areas of well-watered unused natural open grassland; using income from their cash crops and loans from the Papua and New Guinea Development Bank (PNGDB), they are fencing the land and establishing small breeding herds. PNGDB has greatly assisted in this development, and from 1968 through 1971 committed A$ 1.6 million (US$1.9 million) for smallholder beef loans. The proposed project would assist greatly in this development. 2.14 There are few disease problems, and a major Brucellosis eradication program has been so successful that only two ranches now remain in quarantine. Performance on large ranches has been good - steers are turned off in two and a half years, and beef cattle numbers have grown from 24,000 in 1962 to some 100,000 in 1971. 2.15 Over a million each of "native strain" pigs and poultry are kept by indigenes. There are two types of pig producers, the non-commercial smallholders who produce for the traditional market, and those who produce commercially for sale in consuming centers. Transactions in the former are essentially for social/ceremonial purposes, but there is a growing demand for pork as food, so that commercial pig raising by both expatriates and indigenes is increasing. Smallholders are now obtaining five piglets raised per litter and one and one-half litters per sow per annum on average. Although this is low when compared with normally accepted pig husbandry standards, it represents a considerable improvement on traditional methods. Smallholders find commercial pig raising profitable because of attractive prices, especially in village markets. 2.16 Commercial layer and broiler enterprises are in the early stages of development, but a few already in production show promise. The use of eggs in the local diet is increasing, and people in both rural and urban areas now provide a good demand for live chickens. 2.17 Government is encouraging the commercial production of pigs and poultry in order to help meet rising domestic demand and reduce imports while bringing indigene production into the cash economy. Agricultural Development Priorities 2.18 The heavy dependence of exports on a narrow range of agricultural commodities is indicated by the fact that coconut products, cocoa and coffee beans, and rubber account for more than two-thirds of total export receipts. In recent years, export receipts from these crops have at best been stagnant. 2.19 Increasing production and diversification of the agricultural sector is one of the main priorities under the current Development Plan (FY 1969-1973). Increases in the production of the minor crops mentioned earlier have been significant, and have accounted for a major share of the increase in export receipts in recent years. In view of the importance of expanding exports, increased efforts are needed to sustain export growth. With production and export of the traditional products facing unfavorable  prospects, a major effort is required to increase the production of import substitutes as well as of non-traditional export commodities. The proposed project would make an imnortant contribution to this effort. C. Agricultural Services Department of Agriculture, Stock, and Fisheries (Annex 2) 2.20 Agricultural policy is formulated and implemented by the Department of Agriculture, Stock, and Fisheries (DASF). DASF is well staffed, but despite vigorous training programs still depends heavily on expatriate personnel for efficient running, and local officers constitute only about 18% of the 500 higher grade staff. In the field, there are 400 degree, diploma, and certificate-trained agricultural and veterinary extension staff, giving a ratio of about one trained extension officer to 870 farmers which is considered reasonable. In addition, there are 970 Rural Development and Livestock Assistants who have not had formal training. This ratio of extension staff to farmers is necessitated by the considerable support DASF has to give smallholders (para 2.22). 2.21 With relatively few degree personnel coming forward and a yearly output of only 40 agricultural Diplomates from Vudal Agricultural Training College, DASF will be dependent on expatriates for some time to come, particularly as it has to compete for Vudal Diplomates with the commercial sector which increasingly attracts local graduates. The Popondetta Agricul- Liral College is turning out about 50 Certificate trained staff annually for DASF. Some in-service training of staff is being undertaken at a small Livestock Training Center at Lae and on some of the 22 Farmers Training Centers; three of the latter specialize in livestock training and were financed under the second IDA Credit (PNG-175). Improved livestock management in smallholder areas is new, and some of the techniques being advocated, as well as systems for the future are being tested. Currently DASF is under- taking livestock and pasture work at seven centers. DASF organizational and staffing details are provided in Annex 2, training and research facilities in Annexes 3 and 4. Agricultural Inputs and Marketing 2.22 Agricultural inputs are available from traders in the main towns and to a lesser extent in smaller ones; supplies in the latter are erratic as are supplies generally of products in small demand. Smallholder demand is not yet substantial, and traders are more used to dealing with advance orders from large farmers. There are several agricultural cooperatives but they deal mainly in the marketing of agricultural export produce. Because supplies of inputs to the smallholder sector are unreliable, DASF extension staff often assist small farmers to purchase their goods and encourage traders to maintain stocks. The Department negotiates the price and arranges for the purchase and movement of cattle (and other stock) from private ranches and its own properties to smallholder farms; it also helps the small farmer to sell his cattle.  2.23 All local-y produced beef sold in towns passes through one of the ^ x government or four privately owned small abattoirs, and prices are based _ direct negotiation between butcher and producer. A few cattle are slaugh:.-red in villages as are all smallholder pigs. D. Agricultural Credit Trading Bank System 2.24 The monetary and banking system of Papua New Guinea is part of Australia's. A branch of the Australian Reserve Bank fulfills many of the functions of a Territorial central bank, and commercial banking is undertaken by branches of four Australian trading banks. In general, they follow the same practices as in Australia and receive funds on current and term deposit account and lend short-term, usually on overdraft. They have provided some development finance to agriculture and other sectors, but not often for more than three years. Security requirements have been substantial, and lending has been restricted mainly to expatriates. The overdraft interest rate has been up to 8-1/4% per annum, although it is now 7-3/4%, following a 1/2% fall in February 1972 in the Australian Reserve Bank discount rate. 2.25 Total trading bank loans and advances have risen from A$ 8 million (US$9.5 million) in 1965 to A$ 30 million or US$35.7 million (excluding funding of a large mining venture), but agriculture's share has dropped, increasing only from A$ 2 million (US$2.4 million) to A$ 4 million (US$4.8 million), and most of this has been for expatriate operations. Other Credit Sources 2.26 There are about 300 savings and loan societies, which are effect- ively small cooperative banks, lending mostly for short-term. Their portfolio amounts to only A$ 640,000 (US$763,000), very little of which is in agricul- ture, but has been increasing rapidly, and more than doubled in the last three years. Government has recently formed an Investment Corporation to take up share capital in enterprises which it intends to hold for eventual disposal to indigenes. 2.27 On the Australian pattern, branches of Australian finance houses provide hire purchase and equipment finance facilities, not controlled by the Reserve Bank, with rates of interest ranging up to 19% per annum. There has been virtually no financing by money-lenders. Papua and New Guinea Development Bank (Annex 5) 2.28 Because the institutions described above do not adequately cover long-term indigenous or rural lending, the IBRD Economic Survey Mission to the Territory in 1963 recommended formation of a development finance company. This company was to provide long-term finance for all sectors, since the small size of the economy and staffing difficulties could not justify a multiplicity of sectoral financial institutions. Following these recommend- ations, the Government formed the Papua and New Guinea Development Bank  (PNGGDB) in 1965, and it commenced business in 1967. As it would be the lending channel under the proposed project, PNGDB is fully described in Chapter IV. III. THE PROJECT A. General Description 3.01 The Project would help finance medium- and long-term investments to increase smallholder beef, pig, and poultry production and to improve livestock extension, education, and research facilities in the Department of Agriculture, Stock, and Fisheries. DASF would be responsible for imple- mentation of the project in conjunction with PNGDB, which would receive IDA funds from GovernDment for on-lending to farmers. Loans to farmers would be made on the basis of farm plans and budgets prepared by DASF extension staff, who would also supervise their implementation. Main project areas are shown on the Map. 3.02 Illustrative farm sizes, and total investment cost for the various components are summarized as follows: Typical Investment Size of per Total omponent Enterprise Phasing of Loans Sub-borrower Investment ----year - (A$) (A$ '000) Lending Program * 1 2 3 Total ---number---- Beef Cattle Breeding/ Fattening 15 breeders 120 230 250 270 870 5,790 5,037 Pig Breeding/ Fattening 2 sows - 80 90 100 270 1,620 437 Poultry Layers 100 layers - 10 20 30 60 1,290 77 Broilers 50 per batch - 10 20 30 60 850 51 Subtotal 5,602 Technical Services Extension - - - - - - 1,829 Farmer Training - - - - - - - 291 In-Service Training - - - 226 Research - - - - - - - 315 Subtotal 2,661 Total 8,263 *Within 6 months before credit signature.  - 8 - B. Detailed Features Beef Cattle Breeding/Fattening 3.03 The project would finance the stocking of about 870 small beef breeding and fattening farms owned by individuals or groups. In the latter case, loans would be taken out in the names of up to three persons. Most project farms would be about 150 to 200 acres in size, large enough to take at least 15 to 20 breeders and their followers. Clan elders determine the ownership of land, and security of tenure of project farms would be provided by "Clan Land Agreements" signed by clan elders which give the individual permission to use the land during his lifetime; these agreements would be made before applications for loans are made. 3.04 MIost farm investments would be made in the first year, and would include a boundary fence, fencing to divide the land into four paddocks, yards, small tools, sufficient legume seed to undersow about one-third of the natural grassland in the first two years, and 15 heifers (12 to 18 months old), a bull, and nine steers (8 to 10 months old). Most projects would be established on open grassland and with a fresh water supply; in some cases, small wells costing about A$ 200 (US$240) may be required. Boundary fencing and corrals would be erected before cattle are provided, and where possible, the farmer would have attended a Farmer's Training Course. Revenue from steers purchased for fattening should be available in the second and third years, and the farms should be in full production by the sixth or seventh year. DASF would arrange for the movement of the cattle from ranches to the smallholdings. The rate of development is limited to the availability of heifers, and it is estimated that some 3,550 could be obtained in the first year, sufficient for 230 farms; numbers are expected to increase to 4,050 heifers in the third year, sufficient for 270 farms. An estimated 750 farms would be developed in the three years in areas where local demand and satisfactory marketing channels are assured. The average sub-loan is estimated to be about A$ 4,200 (US$5,000); further details are given in Annex 6. 3.05 The cattle disease Brucellosis is being eradicated by a rigorous veterinary program, including annual testing on large ranches, and there are now only two herds from which female cattle cannot be sold for breeding purposes. At negotiations, assurances were obtained that DASF would continue to maintain the utmost vigilance in preventing the spread of Brucellosis to other farms and that, if Brucellosis were found on any snallholder farm, the Government would consult with IDA on the eradication measures it proposed so that beef development would continue in a manner satisfactory to IDA. Pigs and Poultry 3.06 The project would help each of about 270 farmers finance the purchase of two or three crossbred sows and two fattening pigs and construc- tion of cheap pig shelters made of local materials which should last for up to eight years. Pig projects would be located in areas on which good crops of sweet potatoes can be grown, and the animals would be fed on these, mixed with protein concentrate. The average sub-loan would be about AS 890 (US$1,060); further details are shown in Annex 7.  - 9 3.07 Typical project poultry units would consist of 100 layers or the production of 600 broilers per year at the rate of 50 per month. The project would help finance investments on housing sheds (brooder, rearing, laying, feed), water tanks, cages, small equipment/tools, and chicks. About 60 loans would be made for each type of enterprise although, as some previous poultry investments have been unsuccessful, primarily because of poor supervision and poor quality of poultry feed, only 20 sub-borrowers would be financed initially, and further investment would depend on the satisfactory evaluation of these. The average sub-loan for broilers would be about A$ 610 (US$730), and for layers about A$ 890 (US$1,060); further details are shown in Annex 8. Extension 3.08 A significant part of project cost would derive from the expansion of DASF staff numbers necessary to implement the project. Details of this are set out in paragraph 4.19 and Annex 2. Training and Research 3.09 In order to continue the development of livestock training started with three Livestock Farmers Training Centers providing a total of 168 places under PNG-175, the project would finance the construction of one further such Center at Moitaka II with 48 places, and a 30-place In-Service Training Center for diploma and certificate-trained personnel at Lae. Investments would go into dormitories, messing facilities, offices, library, classrooms, transport, and equipment. In addition, the Government would continue to maintain courses at three existing Livestock Farmers Training Centers and would introduce livestock training in four General Farmers Training Centers. Details are set out in Annex 3. 3.10 Improved l-vestock management in smallholder areas is an innovation and more information relevant to smallholder livestock husbandry is required, including further testing of systems now being advocated and the development of improved systems for the future. Under the project, six existing research centers for beef and pigs would be strengthened and a new research center for poultry would be constructed at Bubia to replace the present temporary center at Lae. Three more graduates would be recruited making a total of eight working on livestock production problems. Research would be of a strictly applied nature, testing complete production systems for beef suitable for the different ecological zones, and emphasis in pig and poultry work would be given to nutrition and management aspects. In- vestments would consist of the construction of buildings for poultry research, staff housing, vehicles, and equipment. Details are set out in Annex 4. 3.11 Assurances were obtained at negotiations that the Government would set up training and research facilities as in Schedule B and maintain them for the period of disbursement of the Credit.  - 10 - C. Cost Estimates and Financing Pro-2ct Cost 3.12 Total project cost is estimated at US$9.8 million (A$ 8.3 million), of which US$5.0 million (A$ 4.2 million), or 51% represents the foreign exchange cost. 1/ The latter includes the value of local heifers since their retention for stocking in the project would reduce the amount of beef which would otherwise be available in the local market. The cost of importing beef to make up for the project heifers withdrawn from the local market would amount to about US$2.2 million. Cost estimates are summarized below: For- For- Foreign Category Local eign Total Local eign Total Exchanoe ----A$ 1000- uss'ooO--- Beef Cattle Breeding/ Fattening 2,215 2,824 5,039 2,640 3,365 6,005 56 Pig Breeding/Fattening 329 108 437 392 129 521 25 Poultry - Layers 46 31 77 55 37 92 40 - Broilers 31 20 51 37 23 60 38 Subtotal 2,621 2,983 5.604 3,124 3,554 6,678 53 Technical Services Extension 1,025 804 1,829 1,221 959 2,180 44 Farmer Training 187 104 291 223 124 347 36 In-Service Training 111 115 226 132 137 269 51 Research 134 181 315 160 215 375 57 Subtotal 1.457 1.204 2.661 1.736 1,435 3,171 45 Total Project Cost 4,078 4,187 8,265 4,860 4,989 9,849 51 Project cost estimates are based on present prices, including a 10% allowance for cost increases. Details of foreign exchange costs are shown in Annex 9. Financing 3.13 During negotiations, it was agreed that as PNGDB had recently increased the pace of its smallholder beef lending using its funds provided by the Government budget, and with increased technical support from DASF staff, a measure of retroactive finance from IDA would be appropriate. The project costs and financing estimates thertifore take into account smallholder beef lending from May 1, 1972 and associated costs of DAS? extension staff. Accordingly, beef disbursements by PNGDB after May 1, 1972 would be eligible for reimbursement by IDA provided that they conformed to the lending terms as set out in paragraph 4.16 and that such retroactive financing did not 1/ Australia's monetary system extends to Papua New Guinea (PNG). Even though PNG's external trade is largely with Australia, all of PNG's export receipts and import payments are considered as foreign exchange for the purpose of the project.  - 11 - exceed US$600,000. As shown in the following table, of the total Project cost (A$ 8.3 million or US$9.8 million), 14% would be financed by farmers (US1.4 million); the Government would finance 28% (US$2.8 million), PNGDB 7% (US$0.6 million), and IDA 51% (US$5.0 million), which would be equal to the foreign exchange component. Financing of the various project components would be as follows: Total % Govern- Project Foreign Farmers % ment PNGDB IDA Cost Exchange __________ __- -US $ 000_ Lending Program Beef Cattle Breeding/Fattening 1,201 (20) - 586 4,218 6,005 56 Pigs Breeding/Fattening 202 (39) - 40 279 521 25 Poultry - Layers 22 .(24) - 9 61 92 40 - Broilers 12 (20) - 6 42 60 38 Total Lending Program 1,437 - 641 4,600 6,678 53 Percentage of Lending Program 21% 10% 69% Technical Services - 2,771 - 400 3,171 45 Total Project Cost 1,437 2,771 641 5,000 9,849 51 Z Share 14% 28% 7% 51% 100% 3.14 Small farmers generally have few cash resources and their contribution to project costs would, therefore, consist mainly of own labor as well as some cash. Cash resources would come mainly from sales of farmers' cash crops. PNGDB would be reimbursed by IDA through the Government for 90X of sub-loans made. The IDA credit would be made on normal terms to the Government of Papua New Guinea and be guaranteed by the Commonwealth of Australia. As the Government provided funds to PNGDB which enabled it to increase its smallholder beef lending program in advance of Credit signature (para 3.13) US$600,000 would be retained by the Government by way of reimbursement of this amount. The Government would also retain the US$400,000 of IDA finance of a portion of its technical services costs. The Government would carry the foreign exchange risk on all of the IDA credit, and would make the remaining US$4.0 million of the proceeds available to PNGDB under a subsidiary loan agreement at 1-1/4% interest for a total period of 15 years, including five years of grace. The rate of 1-1/4% interest would be sufficient to cover the Government's foreign exchange risk and the cost of administering the IDA loan proceeds for use by PNGDB (para 4.09). PNGDB's administrative costs are high because of its substantial staff training program. The low interest charge of 1-1/4% to PNGDB would be essential to provide the necessary spread between its high administrative costs and current lending rates (para 4.11). Loans to farmers would be repayable over periods ranging from 4 to 12 years, including 1 to 4 years of grace (para  - 12 - h.18). Though the last repayments to PNGDB would be 15 years after the project starts, more than 90% of the repayments would have been made in 13 years. Together with the substantial net cash inflows, this *ould enable the :`GDB to repay the IDA credit over 15 years (Annex 5, Table 5). At negotiations, assurances were obtained on these points; the signature of a Subsidiary Loan Agreement between the Government and PNGDB would be a condition of effectiveness. 3.15 Overall, the level of IDA finance has been determined by the desirability of covering the project's estimated foreign exchange component subject to the farmers, the Government and PNGDB providing a reasonable proportion of project cost. D. Procurement and Disbursements Procurement 3.16 Normal international competitive bidding would not be suitable since the investment items to be financed from the IDA credit are small and varied and unsuitable for bulk procurement. Purchases would therefore be made through regular commercial channels. Different brands of fencing materials, tools, equipment, feeds and veterinary medicines can be obtained competitively in the main towns. There are no quantitive restrictions on imports of goods required for the project and no duties except on barbed wire, which carries a 35% duty. Two companies in Papua New Guinea manufacture barbed wire as part of the national industrialization program and their product sells for about 15% above the CIF price of competitive imports from Australia. As purchases of barbed wire under the project would amount to only about US$545,000 (A$ 457,000) it was considered inappropriate to seek assurances at negotiations that the duty on barbed wire be reduced to 15%. Cattle for farmers would be purchased from the large ranches in Papua New Guinea at prices negotiated between the ranches and DASF's livestock buyer. 3.17 Technical services items would include expatriate and indigenous staff, buildings, and equipment and vehicles. The normal Government procedures for obtaining these items are acceptable to IDA. Advertisements for expatriate staff are made by the Public Service Board in Australian newspapers for diplomate level personnel, and in international scientific journals for some senior technical officer posts. The Public Works Depart- ment is responsible for the implementation of Government building programs, and local tenders are sought by the Supply and Tenders Committee for Capital Works (established under Ordinance). These may include 5uildings, particularli housing, for a number of different departments in an area. The Public Works Department does some building itself where suitable contracts cannot be arranged, usually in isolated locations. Recently, the Committee introduced a policy of encouraging indigenous builders on works below A$ 20,000. Vehicles would be purchased by the Supply and Tenders Committee who, in conjunction with the Department of Transport, calls for tenders yearly for Government's total requirements. These are advertised in newspapers in Papua New Guinea and Australia and also circulated to appropriate consuls and embassies. Tenders are considered from any manufacturer and the lowest  - 13 - evaluated bid accepted, account being taken of service facilities and availability of spare parts. All imports of Government vehicles from whatever source are exempt from duties. Disbursements 3.18 PNGDB disbursements to borrowers would be related to the phasing of investments and would be about one year for poultry and up to two years for pig and beef cattle sub-projects.. Since loan commitments would be over three and a half years, loan disbursements by PNGDB and IDA would be over four years (Annex 10). IDA would reimburse PNGDB 90% of all sub-loans disbursed under the project and disbursement for technical services would be made to Government for 100% of total costs of buildings, vehicles and equipment. Disbursement would be made against a certificate of expenditures, the documentation for which would be retained by PNGDB and DASF and be available for inspection by the Association during supervision missions. IV. ORGANIZATION AND MANAGEMENT 4.01 The Project would be carried out jointly by DASF and PNGDB, both of which are well staffed, mainly wsith Australian expatriates. PNGDB, as anticipated by the 1963 IBRD Economic Survey Mission, relies on the exten- sion staff af the Department of Agriculture, Stock, and Fisheries (DASF) in rural lending, and is assisted considerably by it in all aspects of small agricultural project preparation, appraisal, and supervision. PN0GDB does not duplicate agricultural staff available from DASF, although a number of its own staff members are experienced in agricultural lending. A very good working relationship has been established between DASF and PNGDB field staff, and regular meetings are held between the two organizations at Headquarters and Regional levels. 4.02 Under PNG-175, it was considered desirable for PNGDB to have the part-time services of a livestock consultant, to assist in lending for large ranches. This has worked well and the consultant has also assisted PNGDB in its smallholder livestock lending. Assurances were therefore obtained during negotiations, that PNGDB would continue to retain the services of a livestock consultant acceptable to IDA. A. Department of Agriculture, Stock, and Fisheries (DASF) 4.03 DASF has its headquarters in Port Moresby, and is headed by a Minister and Director. Its staff in 1971 numbered 2,586. Under a recent reorganization, formulation of policy and monitoring of progress is carried out by the Assistant Directors of two technical divisions at Headquarters - Scientific and Research, consisting of the Animal Industry, Agricultural Research and Education and Training; and Development and Planning, responsible for development planning, economic research, budgets, recruiting, and administrative needs. Field operations, and responsibility for the imple- mentation of policies and programs of all aspects of the Department's work,  - 14 - is delegated to four Regional Controllers, assisted by various technical specialists. Below these, District Rural Development Officers are in charge of services in their respective areas. 4.04 The Rural Development Officer and his team of Assistant Rural Development Officers and Rural Development Assistants are the main staff in contact with the fanmer. They are assisted by the Animal Industry Division, Livestock Officers, Assistant Livestock Officers, and Livestock Assistants. There are two extension officers, one for pigs and the other recently appointed for poultry, advising general extension staff. The extension service is using agricultural credit as a major tool in its work and, consequently, extension officers spend considerable time on loan work. For livestock loans, Rural Development Officers and their staffs are responsible for preparing farm plans, budgets, and loan applications, evaluating applicants, supervising progress, and reporting to PNGDB. B. Papua and New Guinea Development Bank (PNGDB) Organization 4.05 PNGDB, founded in 1965 as a body corporate, is headed by a Chairman and Managing Director and governed by a Board of 12, which includes four indigenes. Members are appointed by the Governor General of Australia, and includes public servants and private sector representatives from a range of fields, including several of considerable banking and financial experience. 4.06 PNGDB lends for the development of industry, commerce, and agriculture, to expatriates and indigenes. Its lending policies are governed partly by its Ordinance, but mostly by a lending policy adopted by its Board. The lending policy is shown as Annex 5, Schedule A. During negotiations, assurances were obtained that IDA would be consulted prior to any amendments to it. Under its Ordinance, PNGDB cannot lend for projects where finance is otherwise available. It must also direct its primary attention to the prospects of an enterprise's success rather than to security and pay particular attention to the advancement of indigenes and financing of their enterprises. 4.07 PNGDB's staff of 150 includes 60 expatriates, occupying senior and middle management positions, which reflects the paucity of trained indigenes. It runs a substantial training program, and believes that over the next few years, workload increases can be handled by additions of indigenous staff rather than increasing the number of expatriates. PNGDB maintains four branches and, depending from these, 10 agencies which give satisfactory country coverage for the present level of business. There is appropriate decentralization to branch managers and satisfactorv co=munication between head office and branches. Resources 4.08 Government has provided all PNGDB's capital of A$ 14.0 million (US$16.7 million). Excepting the portfolios of two Government-run schemes taken over by PNGDB in 1969, this has been by way of Budget allocations.  - 15 - 4.09 PNGDB's borrowings are small; the total amount possible from IDA under PNG-137 and PNG-175 is A$ 2.6 million (US$3.1 million) and at June 30, 1971, A$ 0.7 (US$0.8) million had been drawn down. Its present debt/equity ratio is 0.06:1. A recent loan from the Asian Development Bank Special Funds Resources provides US$4.5 million over the next several years to the Government at 3% per annum for on-lending to PNGDB at 3-1/2% per annum; the margin of 1/2 of 1% to Government is intendedl to cover administrative costs and the foreign exchange risk. The lending and on-lending terms are both for 15 years, including three years' grace. It is likely to be used mainly in the commercial and industrial sectors and would not be competitive with the proposed IDA credit; both applications were prepared at approximately the same time and PNGDB's future funds requirements are forecast to exceed both sources. Use of Resources 4.10 The majority of PNGDB's resources are invested in its loan and equity operations, totaling A$ 17.5 million (US$20.9 million). Currently, one-third of portfolio is in the rural sector, and the remainder is in indus- try and commerce. Major changes in PNGDB's lending between FY 1968 and FY 1971 have been considerable increases in approvals overall by number, and indigenous approvals, both by number and value. Associated with these has been a substantial increase by number and value of agricultural approvals. These follow from PNGDB's requirement to emphasize indigenous development (para 4.06). Between 1968 and 1971, total annual approvals increased from 500 for A$ 3.7 million (US$4.4 million) to 2,051 for A$ 4.4 million (US$5.2 million). Of these, indigene approvals rose from 422 for A$ 0.7 million (US$0.8 million) to 1,938 for A$ 2.4 million (US$2.9 million). Rural opera- tions increased from 408 for A$ 0.9 million (US$1.1 million) to 1,265 for A$ 2.1 million (US$2.5 million). All figures include equity as well as loan operations. Most PNGDB operations are loans, but it also holds equity and debentures of A$ 1.6 million (US$1.9 million) on which there has been little yield yet, although the investments are considered sound. Details of PNGDBts annual loan and equity approvals from FY 1968 are shown in Annex 5, Table 4. Financial Structure ind Results 4.11 Since it commenced operating in 1967, PNGDB incurred losses prin- cipally because its portfolio was small in the initial years, but also because of high training costs which it bears in full. Moreover, the geography also contributes to costs higher than usual. All expenses and bad debt provisions, excluding depreciation and loan interest payable, expressed as a percent of closing portfolio, are now between 5 and 6% per annum and are forecast to remain so for the next few years. PNGDB's losses have now diminished and profits are expected in FY 1972 and subsequent years (Annex 5, Table 2), because its portfolio has grown substantially, while its interest rates have increased and because of its financial structure, i.e., reliance on Government equity capital. 4.12 In general, bad debt experience has been good, and only A$ 900 (US$1,100) has been written off completely to date. However, an industrial equity investment of A$ 300,000 (US$357,000) made in the first year of  - 16 - operation has been completely written off. Overdues represent less than 5% of portfolio, and PNGDB's bad debt reserve at A$ 397,000 (US$473,000) is adequate when related to its experience. Interest Rate 4.13 PNGDB has several interest rates, ranging betweenaa preferential rate of 6-3/4% per annum for loans below A$ 3,000 (US$3,600) to indigenes, to 13% per annum for equipment finance loans to expatriates; the average rate is around 8-1/4%. They were significantly lower in FY 1968, between 4-3/4% and 9%, as PNGDB's board has been increasing interest rates overall, and faster than the trading banks, while narrowing the margin of preference to smaller indigenous borrowers. As PNGDB's loan agreements allow interest rate adjustments, increases have applied to both existing and new loans, although increases in the former are usually delayed somewhat. 4.14 In general, PNGDB's interest rate structure is reasonable ant' the gradual increases resulting from its board's regular review reflect a balanuced consideration of the various factors bearing upon PNGDB's borrower's require- ments and its own future soundness. Its major shortcoming is the differential interest rates charged on loans to indigenes-6-3/4Z for loans A$ 3,000 (US$3,600) and less and 7-3/4% for those over A$ 3,000. With regard to project loans, on beef sub-projects, the cash flow estimate (Annex 6, Table 8) indicates an interest rate significantly above 7-3/4% would give little in- centive to invest and would not allow a sufficient margin of cash inflow to cover sub-loan repayments within an acceptable period. In trying to attract a substantial number of participating smallholders into a new investment, it would be inadvisable to accompany this endeavor by a substantial interest rate increase well above the nearest comparable rate, that of the Australian trading banks. However, the rate on loans (below A$ 3,000) for the pig and poultry sub-projects remaining at 6-3/4% (about 11% of project lending), is unjustifiably low, when related to their expected financial returns of between 25% and 69% (para 5.11), and the cost of administering these smaller loans. Assurances were, therefore, obtained during negotiations that these loans under the project would bear a minimum interest rate of 7-1/4%. Accounts and Audit 4.15 PNGDB's accounting is satisfactory and its accounts are audited by the Commonwealth of Australia Auditor General's Office. The audit is carried out thoroughly and is usually completed by October following the financial year ended in June. Audit arrangements have been satisfactory under PNG-137 and PNG-175 and, during negotiations, assurances were received that PNGDB would continue to be audited by an independent auditor satisfactory to IDA. C. Project AdnLinistration Terms and Conditions of Project Lending 4.16 DASF would locate and screen potential sub-loan applicants before assisting in preparing a sub-loan application, including a detailed farm budget, for submission to the relevant PNGDB branch office. As PNGDB  - 17 - carries the credit risk, it would be free to reject or modify the application, although significant changes by PNGDB's own agricultural staff when receiving applications have been infrequent. All sub-loans would be appraised in terms of incremental returns and loan repayment capabilities. On beef farms, special attention would be paid to land tenure, size of enterprise, farmer training, timing of on-farm developments, legume establishment and marketing. Availability of feeds and marketing would be important criteria on pig and poultry farms. DASF staff would give close supervision during development and visit farms thereafter regularly during the full period of the sub-loans. Details of the lending terms and conditions are given in Schedule A. During negotiations, assurances were received from the Government and PNGDB that project appraisals and sub-loans would conform to the methods, criteria and terms set out in Schedule A. 4.17 When lending to smallholders, PNGDB usually cannot get a land mortgage, and instead it obtains a "clan land agreement", signed by the applicant's clan elders. This certifies he may have a piece of land for his lifetime and, while not constituting a legal title, it signifies a serious undertaking. While this would be satisfactory for project purposes, in order to strengthen the system of clan land agreements further, assurances were obtained at negotiations that the Government would ensure that any disputes were promptly referred to an appropriate tribunal. Sub-loan Periods 4.18 Cash flow forecasts of sub-borrowers (Annex 6, Table 8; Annex 7, Table 5; and Annex 8, Tables 5 and 9) indicate the following maximum grace and total periods would be suitable under the Project: Lending Categories Grace Period Total Period Beef 4 12 Pigs 2 5 Poultry: Layers 2 5 Broilers 1 4 Staffing 4.19 Within DASF, the project would be the responsibility of the Assistant Director in charge of the Animal Industry Division; he would have a Project Coordinator of senior rank in the service to assist him as set out in Annex 2, Table 3. At the Regional and District level, DASF field staff would have the responsibility for the development of project farms; regional and district project coordinators would be provided in the four regions and in six of the main districts. A Project Coordinator acceptable to IDA has been appointed. IDA also obtained assurances at negotiations that it would be consulted on any changes in the appointment of the Assistant Director in charge of the Animal Industry Division. The field services would be strengthened by 11 Rural Development Officers (diplomates), 25 Assistant Rural Development Officers (certificate-trained personnel), and 62 Rural Development Assistants (Annex 2, Table 4). The field staff would not be specifically detailed to the project but would become part of the general extension service. At negotiations, assurances were obtained that  - 18 - staff would be increased by not less than shown in Annex 2, Table 4, and be provided with housing, transport, and administrative services. V. PRODUCTION, MARKETING, PRICES AND PRODUCER BENEFITS Production 5.01 At full development, the Project's annual incremental production is estimated at 7,000 head of cattle, 4,000 pigs, 33,000 broilers and 109,000 dozen eggs as well as about 5,400 culled hens. Based on present demand for heifers, it is assumed that about 20% of the annual turnoff of cattle would be sold as heifers for breeding to farms outside the Project and the remaining 80% would be sold as steers and culled cows to local butchers! retailers. Marketing and Prices 5.02 Beef - The increase in production under the Project should be easily absorbed by domestic consumption requirements. Despite rising prices, domestic consumption of beef during the past five years has been increasing at about 5% a year, reaching an estimated 9,450 tons (carcass weight equivalent) in 1971, of which about 2,300 tons was accounted for by domestic production and the remaining 7,150 tons by imports, all from Australia. The rate of increase in consumption in recent years can be expected to continue during the 1970's, so that consumption demand would increase to an estimated 14,500 tons by 1980. The projected output of the country's beef development program, of which the Project is part, is 6,000 tons (carcass equivalent) by 1980. 1/ This would still leave a sizeable deficit of about 8,500 tons to be met by Imports. 5.03 Existing abattoirs have adequate slaughter capacity to meet present needs, though refrigerated room capacity for storage in the rural areas is presently inadequate (para 5.06). As part of its beef development program, including the promotion of hygiene and meat consumption, the Government, through DASF, is now considering plans to build cheaper abattoirs for use in villages to be owned and operated by local councils. 5.04 Prices are geared to import prices and are determined by butchers negotiating directly with ranchers and smallholders. In the case of the latter, DASF officers often act on their behalf. The import prices of beef on a carcass weight equivalent is currently averaging A$ 0.33 (US$0.39) a lb. Ranchers who supply meat on contract receive A$ 0.27 (US$0.32) to 1/ Under the country's beef development program, the national herd is projected to reach 300,000 head by 1980. Based on a present turnoff of 15% (10% for slaughter and 5% for additions to stock), about 6,000 tons of carcass equivalent would be available for consumption, assuming the individual carcass weight to average some 450 lb. Even if the turnoff for consumption should increase to 15%, the estimated output of 9,000 tons would still be far short of domestic consumption requirements.  - 19 - A$ 0.32 (US$0.38) a lb for their steers and A$ 0.24 (US$0.29) a lb for their cull cows. Extension staff of DASF try to keep butchers informed of the likely supply of smallholder cattle which are taken to the nearest abattoir for slaughter. Smallholders have been receiving A$ 0.27 (USSO.32) to A$ 0.29 (US$0.35) a lb for steers not on contract and A$ 0.24 (US$0.29) a lb for cull cows. Since Project lending is for smallholders, current prices of A$ 0.27 for steers and A$ 0.24 for cull cows received by them have been used in estimating the financial rate of return. 5.05 The country is effectively divided into a number of separate pro- duction areas which normally supply markets in the nearby towns which can be reached by road. Communications between these production areas, is by sea or air, and special arrangements have to be made, if meat is to be transported between them. Depending on the rate of increase of local meat demand in a particular production area and the rate of smallholder develop- ment, it is possible that during the implementation of the project, local surpluses in some areas could develop, even though overall domestic production was insufficient to meet the country's needs. Where small local surpluses have occurred occasionally in the past, no difficulties were experienced in obtaining transport facilities to ship the surpluses to deficit areas. In the case of smallholders, arrangements for transport were made by the DASF officers. 5.06 Overall, as there is likely to be a substantial excess of demand over domestic production, and prices are expected to remain firm or rise, the Project's market and price prospects should be very favorable. However, assurances were obtained during negotiations, that DASF would endeavor to ensure that during the period of the sub-loans, all beef sub-borrowers can sell their stock at prices similar to those being received by other producers for the same grade of meat, and where necessary, adequate transport and storage facilities would be provided to enable beef from areas of surplus to be moved to areas of shortage. 5.07 Pigs and Poultry - Domestic production of pork has increasingly fallen short of consumption demand, and the widening deficit is reflected in the steady increase in imports of pork and prepared pig meats, such as canned pork, ham and bacon, in recent years. Imports of fresh frozen pork increased from 232 tons in 1967 to an estimated 460 tons in 1971. During the same period, prepared pig meat imports rose from 237 tons to about 317 tons. The incremental annual production under the Project, estimated at 250 tons (carcass equivalent) at full development, would be readily absorbed by the domestic market and would help reduce import needs. 5.08 The demand for poultry meat and eggs has likewise been increasing faster than domestic availabilities and this is also reflected in the significant import increases. Thus, imports of fresh/frozen poultry rose from 484 tons in 1967 to an estimated 1,600 tons in 1971. The 33,000 broilers and 5,400 culled hens (totalling about 51 tons) to be produced annually under the Project would represent only a small part of current imports of fresh/ frozen poultry meat. In the case of eggs, the annual increment of 109,000 dozen under the Project would help reduce imports which in 1971 amounted to about 273,000 dozen.  - 20 - 5.09 As in the case of beef, producer prices for pigs result from negotiations between buyers (butchers/retailers) and producers, and are also geared to import prices. Current producer prices for carcass equivalent range from A$ 0.45 (US$0.54) to A$ 0.55 (US$0.66) per lb compared with import prices averaging about A$ 0.51 (US$0.61) per lb. An average producer price of A$ 0.50 (US$0.60) has been used in estimating the financial rate of return. 5.10 Producer prices for eggs currently fetch about A$ 0.65 (US$0.77) compared with an import price of A$ 0.60 (US$0.71) per dozen. The quality of the imported eggs is generally inferior to that of the domestically produced product. Smallholder producers are able to sell all their available culled hens as well as broilers live, to indigenous consumers for about A$ 2.00 (US2.40) per bird, because of strong taste preference for live birds as well as inadequate distribution facilities, particularly refrigeration, required to handle dressed/frozen poultry. Indigenous consumers also generally do not have access to refrigerators. For these reasons, the lower price for imported frozen poultry meat (consumed essentially by the expatriate community) does not appear to affect the price of live birds. In view of this, and because smallholder production would not be viable if based on the lower price for frozen broiler imports (A$ 0.42 or US$0.50 a lb), project production would therefore be only for sale as live birds. Producer Benefits 5.11 On the basis of farm model calculations, the financial rates of return on all Project investments would be 11% for beef, 25% for pigs, 69% for broilers and 32% for egg production (Annex 11). For these returns family labor has been included in production costs at an imputed value of A$ 1.00 per day which is the wage it might receive if it obtained employment. The four enterprises should not be regarded comparatively since each fits a particular farming situation. With the possible exception of pigs where labor use is high the income from these enterprises can be regarded as incremental to the farmers present subsistence and cash crop income. On the basis of investment costs, output and price assumptions detailed in the farm models, incremental incomes after debt service are estimated to be as follows:  - 21 - Poultry Farm Model Beef Pi,es Broilers La)!ers Farm Size 15 breeders 2 breeders 600 per year 100 Full Development Year 20 8 8 8 ------------------------------------------------- Development Cost 5,260 1,470 700 1,170 Annual Average for Project period: Gross Income 904 980 1,043 1,216 Production Cost /1 151 468 695 738 Net Income 753 512 348 478 Debt Service (Principal and Interest) 35 133 89 136 Net Income After Debt Service /1 718 379 259 342 Family Labor 147 229 56 128 Value of Herd/Flock 3,600 500 100 100 /1 Family labor included. These returns should provide sufficient incentive to prospective investors; in the case of beef, there is added incentive through the increase in the farmer's capital assets arising from the increase in the value of stock and land which the project brings. The net incomes of farmers under the project would be below the taxable level and consequently would not be liable to income tax payments. PNGDB adopts a varying debt repayment schedule according to the cash surplus anticipated for each year shown in the farm budgets pre- pared by DASF staff for prospective investors. This method of repayment has been satisfactory for lending where significant variances in cash flow are expected to arise from year to year as in small scale livestock enterprises. PNGDB would however, require a faster repayment schedule if earnings outside the project become available (Annex 5, para 16). 5.12 Though beef has the lowest financial rate of return, the sub-project is likely to be safer in that it would involve less risks when compared to the pig and poultry sub-projects. Although the latter have significantly higher rates of return they are as indicated in the sensitivitv analysis below (para 5.13 and Annex 11), subject to much greater risks. Thus, unlike beef, the pig and poultry sub-projects are particularly sensitive to relatively small changes in output prices as well as input costs, such as feed. Moreover, comnercial raising of pigs and poultry being new enterprises would tend to be beset with greater uncertainties regarding the expected efficiencies of production performances due to the unfamiliarity, of production technologies by producers new to such enterprises. Furthermore, world market prospect for beef during the 1970s is expected to be bouyant.  - 22 - 5.13 The sensitivity of the base financial rates of return shown above has been tested against changes in output prices, investment costs, feed costs, as well as a decline in sweet potato yield, and an increase in the steer fattening period, and the returns ranged from 10% to 51% (Annex 11). 5.14 If the imputed cost of family labor is excluded from Project cost, the rates of return would be 16% for beef, 79% for pigs, over 100% for broilers and 69% for eggs. VI. BENEFITS AND JUSTIFICATION 6.01 The increase in Project output, particularly beef, would add substantially to current livestock production. In the case of beef, by far the largest component of the Project, incremental production at full development would amount to about one-half of present annual production. Still, output from the Project would only be able to meet part of the current import needs for these products. During the whole of the Project's life, the foreign exchange value, based on current import prices, for the import substitutes produced under the Project would total an estimated A$ 19 million (US$22.6 million). With foreign exchange components of the investment and production costs amounting to about A$ 6 million (US$7.1 million), the net foreign exchange savings would thus total an estimated A$ 13 million (US$15.5 million). 6.02 The economic benefits and costs of the Project are set out in Annex 12. Smallholder cattle are usually slaughtered in DASF abattoirs. The slaughter fee charged is A$ 3 (US$3.60) per animal whereas the actual cost is about A$ 10 (US$11.90); the difference would constitute a subsidy. Projections to 1980 show that world import demand for beef would continue to rise faster than export availabilities so that there would be an uptrend in beef prices. Making appropriate adjustments for the slaughter subsidy and based on projected world market prices for beef adjusted for Papua New Guinea, current import prices for pigs and eggs, and estimated prices (10% lower than current producer prices) for broilers, the economic rates of return for the Project (excluding the cost of technical services) have been estimated at 16% for beef, 25% for pigs, 16% for eggs and 33% for broiler production. The corresponding figures would be 18%, 53%, 48% and 45% respectively, if project labor is priced at A$ 0.60 (US$0.70) a day instead of A$ 1.00 (US$1.20 the prevailing wage rate for hired labor) used in the models. Project labor is essentially supplied by the family or clan and many of the latter are known to be willing to hire out their labor for a daily wage of between A$ 0.50-0.60 (US$0.60-0.70). Based on a daily labor cost of A$ 0.60 and including the cost of technical services (livestock and extension services), the economic rate of return to the project as a whole is estimated at 14%. The rate of return would be 19% if cost of technical services is excluded. 6.03 The Project's beef component would bring into productive use about 130,000 acres of presently idle land. The Project would provide some 230,000 man-days of on-farm employment a year, following full development. The additional full time jobs generated would be about 900. Some additional employment would also result directly from the technical services to be  - 23 - financed by the Project, and indirectly from the expected expansion in feedgrain production and marketing facilities (para 6.04). 6.04 In addition to directly helping diversify agricultural production, the Project would through its demand for pig and poultry feeds, stimulate the production of feedgrains, such as sorghum, corn and soybeans. Marketing facilities (particularly abattoirs) would also be increased and improved as a result of the Project. The acquisition of new farming methods by the indigene farmers, as well as their increasing participation in the market economy, would be added benefits. 6.05 It is becoming increasingly necessary to be able to judge more precisely the financial and economic benefits which actually result from a project. Consequently, an assurance was obtained at negotiations that DASF would establish a mechanism for monitoring and evaluating the financial and economic benefits resulting from the project. VII. RECOMMENDATIONS 7.01 During negotiations, the principal assurances obtained were that: (i) the Government would set up training and research facilities as in Schedule B and maintain them for the period of the Credit's disbursement (para 3.11); and (ii) project appraisals and sub-loans would conform to the methods, criteria and terms set out in Schedule A (para 4.16). 7.02 A condition of credit effectiveness would be the signature of a Subsidiary Loan Agreement between the Government and PNGDB (para 3.14). 7.03 Subject to these conditions, the Project is suitable for an IDA credit of US$5.0 million. October 16, 1972   SCHEDULE A Page 1 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Operating Policies and Procedures 1. All Sub-loans shall be appraised in terms of incremental returns and particular attention shall be given to the repayment capacity of the Borrower. 2. All Sub-loans up to A$3,000 shall bear a minimum interest rate of 7-1/4% p.a., and all Sub-loans in excess of A$3,000 shall bear a minimum interest rate of 7-3/4% p.a. 3. Farmers shall contribute not less than 20% of each sub-project cost, by way of cash and/or labor. 4. The following maximum grace and total periods shall apply for Sub- loans: Lending Categories Grace Period Total Period Beef 4 12 Pigs 2 5 Poultry: Layers 2 5 Broilers 1 4 Shorter grace periods may be prescribed if consistent with Borrower's ability to repay. 5. Sub-loans for beef cattle development involving clan land shall only be made where the applicant has obtained a written clan-land usage agreement giving him permission to use the land during the term of the Sub-loan and for an adequate period thereafter. 6. Initially the number of Sub-loans for development of poultry shall be limited to twenty, and further lending for poultry development shall only be carried out after the results achieved from such initial development have been evaluated. 7. DASF staff shall assist applicants in preparing farm plans and budgets, shall appraise sub-projects, provide close supervision during develop- ment thereof and shall visit farms thereafter regularly until the Sub-loans are repaid; 8. Sub-loans shall be made only to such farmers who are in areas where saticfpctory marketing channels (including slaughter facilities) shall exist.  SCHEDULE A Page 2 9. Prior to bringing beef cattle provided for under the Sub-loan on the farm the farmer shall have installed boundary fencing and yards thereon. 10. Wherever possible, prior to receiving beef cattle provided for under the sub-loan, the beef cattle farmer or such farmer's herder shall have attended a Farmer's Training Course. 11. As a general rule some legumes shall be established in the first year on each beef farm covered under the Project to provide seed or planting material for extending grass legume pastures in the following years. 12. Sub-loans for beef cattle development shlall be made so as to ensure that thie farms hanve not lens than 15 breedsrn except in except(tioal cas's. I l. Sub lonuai r.,. pil davpcliLtuatiut all t! bc mtdLc otly to uuchl tarmers 4 de Llt areas whlzrd good yields of iwee-t potato or other suitdaLe bulk feeds can be obtained and where adequate supplies of such feeds and supplemeutarv feeds are available. 14. In connection with the Sub-loans for pig development: the farmer shall (i) build houses for pigs before bringing them cn his farm; (ii) when the pigs come on the farm, have yielding sweet potatoes or other suitable bulk feeds and have a supply of protein supplement sufficient for not less than one month (the Sub-loan will finance the protein requirements until the farmer is able to purchase the same from the sale of his pigs); and (iii) have labor and land sufficient to grow sweet potato or other feeds required by him. 15. Sub-loans for poultry development shall be made only after examination and approval thereof by DASF's poultry husbandry adviser; and 16. Sub-loans for poultry development shall be made only to such farmers as are located in areas where adequate supplies of good quality poultry fecd are available. October 10, 1972  SCHEDULE B Page 1 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Training and Research Facilities A. Farmer Training 1. Livestock Farmers' Training Center The Government will construct, equip, and staff a Livestock Farmers' Training Center at Moitaka II (Launakalana) near Port Moresby, with a capacity of 48 places to train farmers or junior DASF staff per course. 2. Existing Livestock Farmers' Training Centers The Government will continue the livestock courses currently given at the centers at Baiyer River (72 places), Erap (48 places), and Urimo (48 places). B. In-Service Training 1. In-Service Livestock Training Center The Government will construct, equip, and staff an In-Service Training Center with 30 places at Lae to train diploma and certificate holders of the staff of DASF. 2. Regional In-Service Training Centers The Government will employ one additional staff member (of Assistant Rural Development Officer or Livestock Assistant grade) for attachment to each of the four regional in-service training centers. C. Research 1. The Government will strengthen Animal Industry Research Stations so that professional and management staff members will be as set forth below:  SCHEDULE B Page 2 Number of Professional and Management Category Station Staff Beef cattle Erap 6 Urlimo 2 Bena Bena 3 Baiyer River 2 Moitaka 2 Pigs Goroka 4 Poultry Bubia 3 2. Research will be of a strictly applied nature and emphasis will be placed in testing production systems for beef suitable for smallholders in the different major ecological zones. Emphasis in pig and poultry work will be given to nutrition and management aspects for improving production under conditions similar to those of the smallholders. 3. The Government will construct new poultry research facilities and will provide housing for expanded staff and minor necessary items of equipment at all locations. October 10, 1972  ANNEX 1 Page 1 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Agricultural Background 1. New Guinea, a U.N. Trust Territory, and Papua, an Australian dependency, are administered by Australia as a single political and economic unit - Papua New Guinea, which became the national name of the country on July 1, 1971, replacing its former designation, Territory of Papua and New Guinea. Australia is firmly committed to preparing the country for full internal self-government to be followed by eventual national independence. Papua New Guinea lies just south of the Equator and north of the Torres Straight, which separates it from Australia by about 100 miles (see Map), and comprises the eastern portion of the large island of New Guinea and the neighboring islands of New Britain, New Ireland, Bougainville, and Manus, as well as numerous smaller islands. 2. Papua New Guinea has a total area of about 183,500 sq mi. It is an area of unusual variety, with rugged mountain ranges, many high peaks reaching over 15,000 ft, and broad upland valleys at elevations of 5,000- 6,000 ft. The coastal regions are rather narrow and contain large areas of swampland at the deltas of the major rivers. As the country lies wholly within the tropics with its northern islands almost bordering the Equator, the lowland areas are generally hot and humid, though the extensive highland areas have cool temperatures. Most areas have an average annual rainfall of 80-90 in, wlhile in some it exceeds 200 in. 3. basically Melanesian, although there are some Negrito groups and some of Polynesian origin, the indi-enous population, or indigenes, belong to many tribal groups with diverse social customs and languages/dialects. There are some 700 languages/dialects spoken but Pidgin English - a mixture of English, German, French, and various local words - is the main language of New Guinea while Motu is used in Papua. The Government usually publishes its announcements in English, Pidgin English, and Motu. Though increasing efforts have been made in establishing primary schools and other educational facilities, these are quite limited and most of the indigene adults are illiterate. The total population was 2.5 million in mid-1971, some 53,000 of wnich are non-indigenes, mainly Australian. The indigene population has been growing at about 2.5% annually in recent years, and about 40% lives in the highlands. 4. Lightly populated with about 14 persons per sq mi, the country has ample unexploited land, timber, and mineral resources, as well as substantial hydro-electric power potential. Though economic development has been relatively rapid, it is in its early stages and most of the indigenes are still engaged mainly in subsistence production, primarily of local root food crops, often under a system of shifting cultivation. Increasing numbers,  ANNEX 1 Page 2 however, are participating in the production of cash crops for home consumption and for sale. Thus, as shown in Table 1, combined gross domestic product (GDP) of both the subsistence and monetised or monetary sectors rose significantly, from an estimated A$ 375 million in fiscal year 1965/66 to A$ 547 million in 1969/70, an average annual rate of increase of about 10%, with the share of the subsistence sector declining from 53 to 42%. At the same time, the share of the monetary sector increased from 47 to 58% of total GDP, reflecting continuing monetisation of the economy. Per capita GDP was estimated at about A$ 220 in fiscal-1969/70. About 90% of the population is dependent on agriculture, which accounted for 56% of GDP in 1969/70. 5. In the monetary sector GDP, agricultural production for export continues to be the basic and most important activity, while the operations of Government and its agencies assume a key position in the provision of employment and flow of investment expenditures. The manufacturing, transport and communications base is still small and concentrated mainly in the principal urban areas. The growing manufacturing sector has so far largely been processing primary products for export. 6. Coconut, cocoa, coffee, and rubber are the principal commercial crops grown by both indigenes and non-indigenes. Coconut and cocoa areas are concentrated in the coastal lowlands, rubber in the lowlands of Papua and tea in the highlands of New Guinea. Total planted area of these four crops was nearly 900,000 ac in fiscal 1969/70, with coconut accounting for some 68%, cocoa 20%, coffee 8%, and rubber 4%. Indigene and non-indigene cultivators each own about half of the total acreage under these crops. The relative importance of indigene vis-a-vis non-indigene ownership share of the individual crop acreages is shown in Table 2. Other cultivated crops of minor but growing importance are tea, pyrethrum, passion fruit, and oil palm for export, and peanuts, corn, sorghum, rice, fruits, and vegetables mainly for home consumption and sales in the domestic market. The average size of indigene holdings of the commercial crops varies from 0.13 acres for pyrethrum to 5.5 acres for oil palm, with the average for all commercial crops at 1.15 acres. Subsistence crops include taro, yams, sweet potato, bananas and sago. In addition, the emphasis on development of the livestock industry, particularly beef cattle, which was recommended by the first IBRD Economic Survey Mission in 1963, has made significant progress with financial assistance from IBRD. Beef cattle numbers increased from about 24,000 in 1962 to about 100,000 by 1971, with increasing participation by indigenes. Details of the development of the livestock industry are treated in Annex 6. Fisheries development and exploitation of the vast timber resources on a large scale have also made significant advances in recent years. 7. Papua New Guinea exports increased from A$ 53 million in fiscal 1966/67 to A$ 102 million in 1970/71. As in the case of many less developed countries, exports can play a strategic role in economic development in that the available foreign exchange receipts is often the kev factor deter- mining the increasing volume of imports required to sustain the momentum of economic growth. Though exports showed a creditable rate of expansion, it is, in absolute terms, much less than the increase in imports, which rose from A$ 126 million to A$ 255 million during the same period. The deficit  ANNEX 1 Page 3 in the trade balance consequently increased from A$ 73 million to A$ 153 million (Table 3).1/ These deficits have been covered mainly by grants from the Australian Government and, to a lesser extent, by private capital inflows. The fast rising and large imports can be attributed to a concomitant expansion in aggregate demand generated by the rapid development of the monetary sector. Thus, during 1966/67 to 1969/70, annual imports of machinery, transport equipment, and mineral fuels largely for development purposes more than doubled from A$ 42 million to A$ 89 million. This was largely the result of the substantial initial import requirements of the Bougainville cop- per mining project. As a result of the high per capita incomes of the non- indigenes (estimated at about A$ 5,000 in 1970), imports of foodstuffs, mainly of the high valued foods such as meat, eggs, dairy products, fruits and vegetables, most of which could not be met from local sources, have been increasing substantially from A$ 25 million to A$ 37 million during the same period. Meat (including meat products) and egg imports alone accounted for A$ 6.7 million and A$ 9.5 million, respectively. Substantial opportunities therefore exist for local production to replace these imports which come mainly from Australia. 8. Agricultural exports constituted until recently about 80% of the total exports of Papua New Guinea. There is a heavy dependence of exports on a narrow range of commodities with coconut products, cocoa and coffee beans, and rubber accounting for about two-thirds of total export receipts. In recent years, export receipts from these crops have at best been stagnant (Table 4). This has been due not only to declining world prices but also to stagnating production, despite some increases in acreage. Except for coffee, the yields of these crops, which are markedly lower than in many other producing countries, have even shown a tendency to decline (Table 2). Disease, the prevalence of old unproductive trees and low yielding varieties, as well as poor husbandry are the primary causes for the low yields obtained. Measures that would increase significantly the productivity of these crops are therefore imperacive to stimulate production so that the country can remain competitive in world markets, especially during periods of low prices. As it is and in the absence of these measures, production would tend to remain depressed, unless prices rise significantly. 9. In the case of coffee, acreage and output have shown significant increases (Table 2). Papua New Guinea coffee exports to Australia for domestic consumption are not subject to export quota restrictions under the International Coffee Agreement as the latter treats the two countries as a single importing country. However, the large areas of coffee planted in recent years in Papua New Guinea can be expected to raise production to levels exceeding the consumption requirements of both countries. Already, present production levels are sufficient to meet consumption requirements so that the expected surplus would be subject to export restrictions under the 1/ As imports are valued on an f.o.b. basis, the trade deficits are accordingly understated. Thus, the deficits on the trade and services account showed an increase from A$ 101 million to A$ 160 million. About 55% of imports were from Australia in recent years.  ANNEX 1 Page 4 International Coffee Agreement. This, in turn, would likely slow down future expansion in coffee production. 10. Diversification into other commercial crops and livestock would help reduce the heavy reliance on the main crops as well as add significantly to agricultural production and exports. This broadening of the agricultural base has been taking place in recent years with the development of tea, pyrethrum, passion fruit, oil palm, peanuts, foodgrains, other crops, and livestock, especially beef cattle. For example, the planting of oil palms only began in 1967, and two IDA Credits (PNG-137 and PNG-175) provided finan- cial assistance in 1969 and 1970 to help plant 12,400 ac. In fact, these as yet minor crops have accounted for a significant share of the increase in export receipts in recent years. However, to sustain the momentum in the grovth of agricultural exports as well as slow down increases in food imports, would require that efforts on agricultural diversification be intensified, especially if the rather poor prospects confronting the major export crops continue to prevail. The proposed credit project for livestock would consequently contribute to these efforts by reducin3 the import needs of livestock products. It would continue the livestock development program financed by an earlier IDA credit PNG-175. 11. Increasing production and diversification of the agricultural sector is one of the main development priorities under the current Develop- ment Plan (fiscal 1968/69 - 1972/73). Despite some significant achievements in diversification mentioned earlier, the actual results achieved so far have generally fallen short of the goals envisaged for the agricultural development program under the Plan. The major constraints to a more rapid rate of agricultural development continue to be the widespread low levels of education and consequent shortage of skills as well as the shortage of capital among the indigenes, adverse price movements in world markets that adversely affected the prospects for some of the crops concerned, disputes over land ownership and high marketing costs, mainly because of poor transport arising from the difficult terrain and inadequate network of roads, many of which are of poor standard. Generally inadequate and poor marketing facili- ties also add to high marketing costs. Accordingly, measures to alleviate these major constraints, particularly those that would accelerate the output of skilled persons through provision of appropriate education and training facilities, and road construction, would be basic to any program aimed at rapid development of agriculture as well as other sectors of the economy. Accelerated output of skilled indigenes would be important to all sectors as is indicated in Annexes 2 and 5, and it is necessary to enable increasing participation by indigenes in economic activities as well as in the public services in order to help the country stand on its own feet economically. October 10, 1972  PAPUA NEW GUINEA SMALT,U..PTiP TTrTF-T(X CPED3T PR'J1CT Gross Domestic Product at Current Market Prices, 1965/66 - 1969/70(a) 1965/66 1966/67 1967/68 1968/69 1969/70 A MillMilln Million IT Million Ir M Hlion I A$ illion I: Monetary Sector Product 174.5 47 201.1 49 231.1 52 262.1 54 315.5 58 Non-Market Primary Production and Subsistence Income 2oo.7 207.2 5 215.1 48 t2E 46 231.9 42 Total Economy 375.2 100 _0. 100 44k6.2 100 486.5 100 547.4 100 Source: Office of Programming and Coordination, Port Moresby, Papua New Guinea (a) Fiscal Year: July 1 - June 30 m.i October 5, 1972  ANNEX 1 Table 2 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Area and Production of Principal Comsmercial Crops, 1965/66-1969/70 1965/66 1966/67 1967/68 1968/69 1969/70 C O C O N U T S Area (ac): Indigenous Owned 292,615 305,630 344,540 348,742 335,414 Non-Indigenous Owned 264.391 269,127 270,176 271.623 271.831 Total: 557,006 574,757 614,716 6206365 607,245 Production (Copra in lg tons) 127,200 115,663 125,380 132,916 127,393 Average Yieldsin lb per Mature Acre 733 631 630 645 631 C o C O A Area (ac): Indigenous Owned 35,915 3E,075 39,569 44,285 46,724 Non-Indigenous Owned 122.226 126,147 129,706 133.235 132,003 Total: 158.141 164,222 1 1 178.727 Production (Dry Beans in Ig tons) 18,558 20,092 26,638 23,967 22,540 Average Yields in lb per Mature Acre 404 378 461 392 376 C O F F E E Area (ac): Indigenous Owned 41,590 46,613 47,691 49,666 59,195 Non-Indigenous Owned 13,415 14,365 14,817 14,685 15,037 Total: 55.005 62,508 64, 351 74,232 Production (Green Beans in Ig tons) 10,665 15,477 14,310 21,139 27,063 Average Yields in lb per Mature Acre 803 856 712 959 1,051 R U 3 B E R Area (ac): Indigenous Owned 1,538 2,617 3,404 4,222 5,494 Non-Indigenous Owned 35,417 37.043 35.878 33,964 33,958 Total: 36.955 39.660 __45 Production (Dry Rubber in Ig tons) 5,363 5,461 5,724 5,876 5,397 Average Yields in lb per Macure Acre 474 462 468 497 443 Source: Crop Statistics 1965/66-1969/70, Dept. of Agriculture, Stock and Fisheries, Papua New Guinea. Rural Industries, Bureau of Statistics, Papua New Guinea. July 7, 1972  PAPUA NFEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Imports, Exports and Trade Balance. 1966/67 - 1970/71(a) (in A$ Million) 1966/67 1967/68 1968/69 1969/70 1970/71 1. Imports (f.o.b.) 126.00 145.30 i50.46 213.10 254.60 2. Exports (f.o.b.) 53.22 70.25 75.24 93.50 101.90 3. Balance of Trade -72.78 -75.05 -75.22 -119.60 -152.70 Source: Bureau of Statistics, Papua New Guinea (a) Fiscal Year: July 1 - June 30 October 5, 1972  PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Exports: Total and by Major Commodities, 1966/67 - 1970/71(a) 1966/67 1967/68 1968/69 1969/70 A$ Million X A$ Milon . Million j A$ Million L A$ Millon . Coconut Products(b) 15.83 30 21.35 30 22.16 29 20.96 22 24.11 2!, Coffee Beans 10.21 19 14.32 20 15-53 21 20.18 22 20.57 20 Cocoa Beans 9.55 18 11.79 17 16.06 21 15.55 17 13.64 Ui Timber, Plywood & Veneer 4.43 8 5.09 7 4.80 7 6.48 7 9.14 9 Rubber 2.48 5 1.96 3 2.28 3 2.80 3 2.30 2 Other Produce 10.72 20 1574 14 123 27.59 29 32.17 32 Total Exports 53.22 100 70.25 100 IL.2o 100 io6 100 101.93 10) Source: Bureau of Statistics, Papua New Guinea p ff (a) Fiscal Year: July 1 - June 30 (b) Copra, coconut oil, dessicated coconut, copra oil cake and pellets H October 5, 1912  ANNEX 2 Page 1 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Department of Agriculture, Stock, and Fisheries A. Present Organization and Operations Organization of Department of Agriculture, Stock, and Fisheries 1. As a result of constitutional changes introduced during 1970, the Ministerial Member for the Department of Agriculture, Stock and Fisheries (DASF) now exercises final powers in relation to a wide range of agricultural, stock, and fisheries functions. Although there are no formal ministries as yet, DASF service staff has become increasingly involved in the prepara- tion of policy advice, parliamentary questions, and public statements associated with increasing autonomy. In July 1971, DASF was reorganized to meet the needs of a rapidly changing constitutional situation and to achieve greater efficiency. Execution of the planned reorganization has just commenced and key posts are at present being filled. The Department is divided into three major spheres of operation - two at Headquarters concerned with policy and the other, field operations, responsible for implementation. The Director will nave two First Assistant Directors (posts to be filled) to exercise control over the two major lines of policy and program activity at Headquarters. One will direct the Scientific and Research Services Division, which will include the Assistant Directors in charge of the Animal Industry, Agricultural Research, and Education and Training Branches of the Department, while the other will direct the Development and Planning Division, which will include the three Assistant Directors responsible for development planning and economic research, budgets, recruitment and adminis- trative needs. The principal feature of the reorganization is that the technical heads of the six branches in headquarters will devote their time mainly to policy formulation, planning, review, and evaluation and be less directly involved in the actual carrying out of programs. 2. Field operations and responsibility for the implementation of policies and programs on all aspects of the Department's work are assigned to four Regional Controllers reporting to the Director. They will be assisted by various technical specialists and have a major say in policy formulation as it affects their regions. District Rural Development Officers will direct work at the district level, the object being to provide a unified extension service to the farmer, with the specialist services coordinated to supply training, research, and other assistance necessary for successful farm development. 3. WThile the Regional Controller will be in full control over the programs in his region, he will not cut across lines of professional authority; for example, Veterinary Officers will still be responsible for  ANNEX 2 Page 2 all matters related to their special field. There is constant contact between section heads in Headquarters and staff of their own disciplines in the field and the Regional Control'lers. Table 1 illustrates the new departmental organization. Animal Indus try Branch Organizations 4. The Animal Industry Branch is responsible for animal health and the development of the animal industry. The Assistant Director (Animal Industry) controls all Veterinary Officers and supporting staff engaged in veterinary services, veterinary research, animal quarantine and animal disease control, meat inspections, and abattoir licensing. Regional Con- trollers are fully informed of policy changes and consulted as necessary. The Regional Veterinary Officers are responsible to the Regional Controllers for advice on planning, organization, and control of livestock development. They ensure that programs receive technical supervision and carry out development tasks as instructed by the Regional Controller; development work is delegated to the Regional Livestock Officers. 5. The Senior Veterinary Officer (Training) who is responsible to the Chief Veterinary Officer (Services) in Headquarters, controls the policy and management of the in-service training school at Lae and provides technical supervision of the Livestock Farmers' Training Centers. All Livestock Farmers' Training Centers come under the Regional Veterinary Officers, through the Station Management Committees. 6. All senior field research staff are administratively responsible to the Regional Veterinary Officer for the implementation of research programs, but technical supervision is assigned to the Chief Animal Produc- tion Officer. Regional Veterinary Officers and Controllers are consulted on any proposed change in research policy. 7. There is now one pig extension officer and one poultry extension officer working in the field advising staff on particular problems. These advisers are attached to the pig and poultry research sections and are directly responsible to their research section head when they are working in the same region. When they are working in another region, they are responsible to the Regional Veterinary Officer of that region. 8. Posting and transfer of staff in regions is handled by the Assistant Director (Animal Husbandry) after consultation with Regional Veterinary Officers and Regional Controllers. Existing buildings and transport remain under the control of the Regional Veterinary Officers but future requirements will be processed through Regional Controllers, as will all estimates and requests for funds from regions. Staff 9. DASF staff numbers increased from 403 in 1961 to 2,586 in 1971. :4 There are 515 staff classed as first division staff (Assistant Directors down to grade 1 diploma level officers), but as of December 31, 1971, only  ANNEX 2 Page 3 92 of these were local officers. The heavy dependence on expatriate personnel, particularly from Australia, is reflected in the fact that 365 of first division staff, are on contract or temporary terms of service. The Government is doing as much as possible to train local staff at all levels but, with only a small number of students taking agricultural degrees overseas and an output of only about 40 people per year from the diploma training school at Vudal, the Department will depend heavily on expatriates for many more years if the pace of agricultural development is to be maintained. Expatriate personnel receive an overseas allowance in addition to basic pay, as well as the usual passage, education, and housing benefits. 10. In view of impending self-government, terms of compensation and future terms of service are under consideration. Staff stability and future expatriate recruitment will greatly depend on how well the Territory negotiates the next few years, but success is likely to hinge as much on security as on terms of service although the latter will undoubtedly be important. Extension Services 11. The main staff members having direct contact with the farmers include the Rural Development Officer (RDO), who normally has a diploma in Agriculture, and his team of Assistant Rural Development Officers (ARDO-- two-year certificate in Agriculture) and Rural Development Assistants (RDA--without formal training). They are assisted by staff of the Animal Industry Division, Livestock Officers (LO--diploma in Agriculture), Assistant Live- stock Officers (ALO-certificate in Agriculture), and Livestock Assistants (LA), who also work closely with the farmer. The quality and enthusiasm of the trained staff is apparent, but there are problems associated with short- term contract expatriates and the inevitable inexperience of newly trained local personnel. 12. There are 401 trnine(l ann(i 973 utitrainedI (witlhout fornal trainiing) staff, clas8ed as `ield staff, s2rving an estimated 347,400 farmers, a ratio of one trained field nan to 870 farmers. The service functions satisfactorily, but the distribution of field staff is not even, as can be seen in Table 2. DASF Field Staff 1971 Rural Development Staff No. Animal Industry Staff No. Rural Development Officers (RDO) 204 Veterinary Officers (VO) 17 Assistant Rural Development Officers (ARDO) 111 Livestock Officers (LO) 34 Rural Development Assistant Livestock Officers (ALO) 35 Assistants (RDA) 830 Livestock Assistant (LA) 143 1,145 229  ANNEX 2 Page 4 DASF and Agricultural Credit Activities 13. There is close cooperation between the extension service and the Papua and New Guinea Development Bank (PNGDB); in fact extension officers act as agents for PNGDB. However, since the service is using agricultural credit as a major tool in its extension work, consequently, many extension officers spend considerable time on loan work. For livestock loans, RDOs and their staff are responsible for the following activities: (a) the technical side of the loan; (b) preparing the farm plan and budget; (c) helping an applicant prepare loan application; (d) evaluating the managerial ability of the applicant and his creditworthiness; (e) helping the applicant procure stock and materials; (f) ensuring that the farmer keeps to the development program; and (g) preparing supervision reports for PNGDB. B. Smallholder Livestock Credit Project DASF Project Implementation and Organization 14. The project would be implemented by the District Rural Development extension staff supported by the field staff of the Animal Industry Division. At DASF Headquarters, responsibility for the project would rest with the Chief of the Animal Industry Division, who would be assisted by a full-time senior officer functioning as project coordinator (terms of reference, Table 3). Working with him would be the Livestock Officer who is now coordinating PNG-175 operations in Headquarters. At Regional level, the Regional Controller would maintain overall responsibility, but the day-to-day operations would be directed by the Regional Livestock Officer; an extra livestock officer would be posted to each of the Regional Headquarters to provide the manpower necessary to ensure proper project coordination; provision of services, training facilities, supply of inputs, organization of turnoff and marketing development. The project would also require six Field Supervisors, sub-diploma level, in each of the District Headquarters where the number of project farms warrant it, namely in Port Moresby, Lae, Goroka, Mount Hagen, Mendi and Wewak.  ANNEX 2 Page 5 Project Livestock and Extension Services 15. No extra livestock staff are needed beyond those mentioned in paragraph 14 and those necessary to increase staff at training facilities. More Rural Development extension staff would be required, however, because of the particular circumstances of the present agricultural situation. The cattle industry is now entering a critical phase, with prospects of rapid expansion and movement of cattle into the hands of completely inexperienced smallholder cattle owners. When the present smallholder cattle population growth and future movements outside the project are taken into account, the present staff will have a major task apart from the project which, together with the other increases, could raise the number of smallholder cattle from 14,000 to 55,000 in five years. Furthermore, much of this expansion would take place in seven or eight districts, in which some officer staff already spend up to 90% of their time on livestock projects. Livestock, however, is as yet only a small part of the total agricultural scene and the need to diversify and improve crop husbandry is equally pressing. Constitutional changes could bring temporary instability into the agricultural sector since newly trained local staff would have to be absorbed; good local men would probably leave for opportunities in commerce and expatriate staff would be unsettled. The success of the project and loan repayment would therefore depend on reasonable management over a period of 10 years and the margin between success and failure is not great. The rewards of a successful project, however, should be considerable, with the rapid expansion of livestock numbers that is almost certain to take place over the next 20 years. Basis for Proposed Staff Increase 16. The extra extension services are estimated on the basis of a team approach designed to meet the various stages of development. In the first two years, it is proposed to use a heavy concentration of effort on project farms, with a ratic of one RDO o-: ARDO to 20 and 40 families in the first and second years, assisted by one RDA for every 10 farms. This high ratio of staffing is based on a number of factors: (a) farmers initially would be scattered within a district and much travelling would be involved; (b) accommodation for field staff on field trips would be very limited so that most of the time they would have to move out from a central point; (c) time would be lost in the rains (it is intended to build houses in the most concentrated development areas, but farms would already be in the program before the staff houses are constructed); (d) DASF Rural Development staff would be undertaking the functions of extension staff, loan officers, and livestock staff; (e) in the initial stage, applicants would have to be carefully sifted (perhaps only one in six would be acceptable); (f) the completion of loan applications would be tedious with the checking of land and the various assets and activities of the applicant (and his supporters in the case of group ownership); (g) although farmers would go to courses, careful explanation and checks would have to be made on the progress of farm developments; (h) in the first few weeks after cattle had been delivered, frequent visits would be needed; (i) confidence would need to be built up between Rural Development staff and the farmer; (j) the RDO would have to spend time with his new and inexperienced ARDOs and untrained  ANNEX 2 Page 6 RDAs; (k) routine work habits on smallholder farms are still to be developed and RDAs would have to help farmers erect their fences and corrals properly over the first three-month development phase; (1) because of extensive management, cattle off many of the ranches are often lively and a period of intensive handling is required, since the farmer has probably never handled anything bigger than his tame pig the RDA would have to give the farmer the necessary confidence; (m) farmers will have to be assisted in selling their cattle, especially at the end of the second year when the first steers should be ready for sale and first major repayments to PNGDB must be made; and (n) although not directly part of the project, extension staff would inevitably be asked to give advice on other aspects of the farmers' operations; this would be encouraged and as the project farm develops it is hoped that extension staff would be able to persuade the farmer to develop other parts of his land. 17. In the third and fourth years of development, the rate of staffing for a project farm would drop to 90 farmers per trained staff and in the fifth and sixth years, to 150 per trained staff. By this time the beef enterprise should be getting into full production and development, except possibly for planting some areas with legumes. At this time, consideration might be given to increasing the number of farms per extension officer and reduing the number of untrained personnel. Project Staff Needs 18. Staffing levels for the project are given in the following table. They can be compared with FAO recomendations for a minimum of one trained extension officer per 500 farmers or 300 loan farmers; or with a smallholder tea project which may have one RDO per 500 farmers and one ARDO for 75 farmers, building up to 200 farmers; or with a rural development project involving loans where the technical and loan extension staff ratio is one trained staff to 100 farmers, building up to 200 farmers. In all these cases, however, farmers and staff are likely to have a longer history of education behind them, probably fewer tribal differences, and a familiarity with the crops being developed, besides which the plots may be more contiguous. Project Staffing over Period of Loan ~~-- Year-- - ---------- --- Phase Development Consolidation Maintenance 1 2 3-4 5-6 7-12 Farms per RDO 60 160 360 600 1,000 Farms per ARDO 30 50 120 200 250 Farms per trained staff 20 40 90 150 200 Farms per untrained field staff 10 25 90 150 250 19. Each RDO and his team would have a clerical assistant and typist .to deal with the loan documents and other correspondence dealing with farm 4 development. The RDO would have a four-wheel drive vehicle and the ARDOs would have motor bikes. RDAs would have their own bicycles or be transferred  ANNEX 2 Page 7 from place to place by vehicles. Houses would be supplied for each RDO and ARDO and one house for every two RDAs and administrative staff (para 16). 20. Manpower requirements are given in Table 4. The project coordinator and RDO expatriates wouid be advertised in Australia and Papua New Guinea. Bearing in mind other departmental localization needs, the local trained staff budgeted would be available in the phasing given. Table 5 gives expected output of new diplomate and certificate personnel. Costs 21. The combined cost of the project supervision, livestock services and extension over the four-year disbursement period would be A$ 1.8 million (US$2.2 million). These costs compare -with the 1970/71 budget of DASF, which amounts to A$ 8.66 million (US$10.32 million), while the Animal Industry budget would be A$ 1.46 million (US$1.75 million). October 10, 1972   PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT DEPARTMENT OF AGRICULTURE, STOCK AND FISHERIES ORGANIZATION CHART DIRECTOR Fi rst Assistant Dirrctor Developrmrent & Administration Division S & technical Dies D Assistan D,,e,to, Assicta,t Director Assistant Director Fotir Regional Controllers A D Managempent Services Rural Economics Programs Paa Regionimal Industry Research & Surveys Ag ictr Zranch aind Com- Odity and Policy New Guinea Mainland Regio n Branch n S r ves A Research 8ranch R anrch New Guinea Highlands Region Education Brauch - - New Guinea Islands Region I. I I I A ._ I I __ I : ~~~~~~~~~~~~~~~~~~~~~~~~~~ARw .DO *1g4L inAs I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I I~~~~~~~~~~c I~~~~~~~~~~~~~ Admninistration |Livestock Training |I of heald exitension and Research, Centers| l~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r - nl District Ruiral Development OllicersI _3-1 M a Cr ich ari M arketing i e V r A gri cult rl I C olleges A-ea e wtensiofl eams and Sta{f | | ~~~Farmner Traininig Centers | F arinlers 5)u MarrIr 91 197? _ol _ln tu8I2R  PAPUA NEW GUINEA SMALLIIOLDER LIVESI'OCK CREDIT PROJECT DisL,i,.Lio., of DASi Kura! DevelopimienIt arii Animal Induscry Staff No. of No. of DAS Staff No. of Area Smaliholder Rural Developmenit Animal Indtistry PNGDB All PNGDB loans (1970-71) 1/ REGION/District (sg mi) Population Farmiers RDO ARDO RDA VO&AP0 LO ALO LA Staff (No.) (A $'000) PAPUA Central 12,670 142,152 11,746 24 16 78 9 7 4 40 101 201 620.5 Gulf 15,360 67,237 10,370 5 4 22 - - - - - 36 14.4 Milne Bay 7,820 104,874 19,733 4 8 54 - 1 1 4 1 63 70.9 Northern Highilands 8,120 53,606 9,507 13 8 45 - 1 - - 2 50 72.7 Southerin Ilighlands 6,800 195,147 3,997 14 4 56 - 1 2 4 1 35 113.3 Western Highlands 37,700 65,503 2,417 3 6 40 - - - 2 1 27 13.7 NEW GUINEA IIICIIIANDS Chimbu 2,260 180,345 55,597 5 2 30 - 1 1 4 - 29 93.1 Eastern Hlighlands 4,628 220.239 59,160 12 6 40 4 5 7 10 2 141 618.3 Western Highlands 9,600 314,067 45,288 22 5 48 1 1 4 26 9 110 277.3 NEW GUINEA MAINIAND East Sepik 16,879 191,613 20,727 10 6 44 - 2 2 9 1 85 117.2 Madanig 10,800 159,996 15,403 10 7 50 - 1 2 3 2 50 75.8 Morobe 12,845 241,161 30,348 14 5 96 3 9 9 30 11 129 717.5 West Sepik 14,119 96,404 6,185 5 3 17 - I - I - 14 61.5 NEW GUINEA ISLANDS Bougainville 3,475 74,000 13,659 13 8 65 - I - 2 1 153 211.3 East New Britaini 7,425 96,021 11,352 21 7 34 - 2 3 8 15 304 370.4 Manua 800 23,540 959 3 1 20 - - - - - 26 8.2 New Ireland 3,800 49,964 18,819 8 7 21 - 1 - - 1 151 104.7 West New Britaini 2/ 7,150 49.381 12,168 18 8 70 - - - - 2 444 682.3 TOIAl. 182.251 2 325,250 347 435 204 111 830 17 34 35 143 150 2 048 4 .243.1 Extension Staff under the ?roject 11 25 62 1 7 - - - z 1/ Includes all loans to all Sectors. X x 2/ Includes oil palm settlement scheme. Souirce: DASF, January 1972. March 20, 1972  ANNEX 2 Table 3 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Project Coordinator 1. The Project Coordinator will require a degree in Veterinary Science or Agricultural Science or equivalent qualifications, with appropriate experience in the implementation of livestock development and a sound know- ledge of technical and economic aspects of livestock production and animal health. 2. Within the framework of DASF and PNGDB organizational and adminis- trative procedures, the Project Coordinator's role will include: (i) coordinating, through appropriate channels, the supply of inputs necessary for the implementation of the project, and the marketing of farm products; (ii) planning and supervising the collection of physical and financial performance data relative to the Project; (iii) regular assessment of the progress of the Project consistent with the Borrower's and the Association's reporting procedures; and (iv) assessment of the progress and performance of ancillary industries and operations necessary for the Project. October 10, 1972  ANNEX 2 Table 4 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT DASF Staff. Housing and Equipment for the Project (Cumulative) --Year---- 1 2 3 4 Project Coordination Project Coordinator 1 1 1 1 Livestock Officers ? 1 1 1 Typist 1 1 1 1 Clerk 1 1 1 1 Special Livestock Services Regional Livestock Officers 4 4 4 4 Field Supervisors (District Coordinators) 6 6 6 6 Extension Services Rural Development Officers 6 9 11 5 Assistant Rural Development Officers 12 20 25 15 Rural Development Assistants 34 52 62 26 Typist 6 9 11 5 Clerical Assistant 6 9 11 5 New Houses and Furniture 41 23 14 - New Office Stores 6 3 2 - Vehicles New Four-wheel Drive 22 8 5 - New Motor Bikes 6 3 2 - October 10, 1972  ANNEX 2 Table 5 PAPUA NEW GUINEA SMALLHOLDER LIVESTOCK CREDIT PROJECT Projected Output of Diploma and Certificate Staff ----- -- Yea -----