Iraq - Grain Storage Project

DOCUMENT OF INTERNATIONAL BANK qOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEV"tONLASSO'IATION Not For Public Use Rzrt No. PA-150a APPRAISAL OF GRAIN STORAGE PROJECT IRAQ May 22, 1973 Regional Projects Department Europe, Middle East and North Africa Regional Office ITh roport wu pepaed for official us only by the Bank Group. It may not be publshed, quoted or cited widhut Batk Group authorization. The Bank Group does not accept responsibiity for the accuacy or completeneu of the report.  CURRENCY EQUIVALENTS US$1.00 a Iraqi Dinars (ID) 0.296 ID 1.00 - US$3.38 ID 1.00 - 1,000 file WEIGHTS AND MEASURES (METRIC SYSTEM) 1 hectare (ha) a 4 donums, or 2.47 acres 1 kilometer (Im) - 0.62 miles 1 squari kilometer (km ) - 100 hectares I mater (m) - 3.28 feet 1 kilogram (kg) - 2.21 pounds 1ton - 1,000 kg 1 hectoliter (hl) - 3.53 cubic feet FISCAL YEAR April 1 - March 31  IRAQ APPRAISAL OF GRAIN STORAGE PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ...................l-ii I. INTRODUCTION .......................... II. BACKGROUND ............................................ 2 A. General ............................. 2 B. Foodgrain Production Trends ................ 2 Production Constraints ............... 2 Production and Imports ............... 3 Consumption .................... 3 - Production Organization .. ................... 3 Foodgrain Wholesale Prices .............. 4 C. The Present Grain Marketing System .. ............. 4 Government Policies ................... ...... 4 Private Traders ............................. 5 Cooperative Societies . . 5 Flour Mills ................................. 6 The Grain Board ............................. 6 III. FUTURE TRENDS ......................................... 7 A. Production, Consumption and Imports .............. 7 Production .................... 7 Consumption .. .......... .... ................. 8 Imports ................. . . ................... 8 B. A Balanced Grain Marketing System ................ 8 Projected Storage Requirements .............. 9 Grain Standards and Grading ............ 9 IV. THE PROJECT ........................................... 10 A. Summary Description .......... o ........ 10 B. Detailed Features ...... ......................... 11 Terminal Silos ............ .. ............. 11 Gathering Silos ................. o.......... 11 Expansion of Existing Silos ............... .. 11 This report was prepared by Messrs. R. H. Frank and S. K. Bhatia (Bank), with contributions by Messrs. J. Bloom and B. Merghoub (Bank) and Messrs. A. Ackels, F. Adams, D. Anderson and P. Beard (Consultants). Mr. Thananart (Computing Services Department - Bank) assisted in the programming and running of the computerized grain storage model.  Table of Contents (Cont'd) Pagqe No. Expansion of Import Capacity ..... ........... 11 Common Features ....... ...................... 12 Engineering Consultants ..... ................ 12 - Automated Inventory Management System ....... 12 Grain Marketing and Pricing Study .... ....... 13 Training Program ....... ..................... 13 C. Construction Schedule ....... ..................... 13 D. Cost Estimates ......... .......................... 13 E. Financial Plan . .................................. 15 F. Procurement ........... ........................... 15 G. Disbursement .......... ........................... 17 V. ORGANIZATION AND MANAGEMENT ........................... 17 A. Grain Board Organization and Operation ........... 17 B. Project Management ............... ................ 18 C. Project Accounts ................ ................. 18 D. Project Evaluation ....... ........................ 19 VI. BENEFITS AND JUSTIFICATION ............................ 19 A. Financial Results ................................ 19 B. Economic Justification ........................... 19 Quantitative Benefits ..... .................. 19 Economic Rate of Return ..... ................ 21 Risk ........... ............................. 21 C. Wholesale Foodgrain Prices ....................... 22 D. Regional Income Distribution ..... ................ 23 VII. AGREEMENTS REACHED AND RECOM1ENDATION .... ............. 23 ANNEXES 1. Grain Production and Consumption 2. Grain Marketing and Pricing 3. Grain Storage Losses and Hazards 4. The Grain Board 5. Projection of Future Grain Production, Consumption and Marketable Quantity 6. Future Grain Marketing in Iraq 7. Determination of Storage Requirements of Grain Board 8. Present and Proposed Grading Standards 9. Detailed Description of Project Storage Facilities 10. General Terms of Reference for Supervising Engineers Ti. Grain Board Inventory Management System and Terms of Reference for Management Consultants  12. Grain Pricing and Marketing Study (Objectives and TOR) 13. Silo Personnel Training Program 14. Project Schedule 15. Silo Construction Cost Estimates 16. Estimated Disbursement Schedule 17. Financial Results and Economic Rate of Return Calculations MAP   APPRAISAL OF GRAIN STORAGE PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a project to increase and improve the grain storage and handling capability of the Iraqi Grain Board. Total project cost is estimated at US$92 million, towards which a Bank loan of US$40 million is proposed. The lack of efficient and adequate facilities in Iraq has result- ed in excessive marketing and handling costs, excessive internal and ocean transportation costs and grain storage losses. In addition, because of the lack of sufficient storage capability, the Grain Board has been unable to fulfill its role of lowering consumer and raising producer grain prices by reducing marketing costs. ii. The proposed project would provide for the construction of 14 new silos with a total capacity of 504,000 tons, expansion of four existing silos by a total of 36,000 tons and an increase in the capability of import transfer facilities including a 20,000-ton transfer terminal silo in the port of Um Qasr. The total project storage capacity, 560,000 tons, provided over the next six years, would allow the Grain Board to meet its projected 1980 storage re- quirements. To improve the Grain Board's overall operation, a mechanized inventory management system and a communication system would be installed. Consulting services to assist the Grain Board in the construction of the silos and the design and implementation of the inventory system would be part of the project. Key silo management and operational personnel would be thoroughly trained as part of the project before assuming their positions in the new silo facilities. In addition, the project would include a study of grain marketing and pricing and the implementation of an improved grain grad- ing system. iii. The silo construction works, with the possible exception of some equipment needed to expand three existing silos, costing about US$2.5 million, would be procured on the basis of international competitive bidding. The construction contracts would contain geographically grouped silo works with an average value of about US$10 million. International contractors are expect- ted to win the bids. iv. The Grain Board, a state organization, is well organized and its present silo facilities are well operated and maintained. Under the expanded operations resulting from the project, the Grain Board would be able to con- tinue to achieve a financial break-even buying and selling operation includ- ing repayment of its capital investments. Within the Grain Board, the Projects and Technical Departments, which are presently implementing grain storage and processing projects financed under bilateral agreements, would be expanded and assume responsibility for project implementation.  v. Government considers the Grain Storage Project a most important effort in its general plan to stimulate agriculture. Implementation of the project would result in reduction of grain handling and marketing costs, of internal transportation costs, of ocean shipping charges and grain storage losses. The increased farmgate prices which should result from the Grain Board's expanded marketing efforts are expected to increase wheat and barley production. The increased farmgate prices and production would principally benefit farmers in northern Iraq, a depressed region. The econo- mic rate of return of the project would be about 14%. Furthermore, the added storage capability would have the beneficial effect of allowing the Grain Board to keep sufficient reserve stocks located throughout the country to meet emergency demands of consumers. i. Satisfactory assurances have been obtained during negotiations and the project would be suitable for a Bank loan of US$40 million. The Borrower would be the Government of Iraq and the loan would be repayable over 25 years with a grace period of 6-3/4 years.  IRAQ APPRAISAL OF GRAIN STORAGE PROJECr I. INTRODUCTION 1.01 The Government of Iraq has requested a Bank loan of US$40 million for a project which would form an integral part of a long-range program to expand and modernize the Grain Board's grain storage and marketing system. Grain marketing and storage in Iraq has been dominated by an inadequate and inefficient private trader system. Numerous marketing steps, storage losses due to deficient facilities and traders' speculative profits result in increased prices to consumers while, at the same time, producers' returns are diminished through the high interest rates of the trader credit system- and depressed prices at the time of harvest. The lower producer prices have frustrated Government's attempt to stimulate agricultural production. The additional storage facilities to be provided by the project would allow the state-owned Grain Board to become more active in the purchase, storage and supply of domestically produced wheat and barley and result in reduced marketing and handling costs, storage losses and internal transportation costs. The project would also improve the Grain Board's ability to receive, store and distribute the imports of wheat and barley that are projected for the foreseeable future. 1.02 Another project (Loan IRQ-878) in the agricultural sector, the Lower Khalis Irrigation Project to assist Government in increasing agricul- tural production, was approved by the Bank in January 1973 and Government has requested the Bank's assistance in guiding a comprehensive study of Iraq's land and water resources. 1.03 The need for additional modern storage facilities and an improved grain marketing system was identified during a Bank Economic Survey Mission in 1968. The Grain Storage Program feasibility report was prepared in 1971 by consulting firms, Iraq Consult (Iraq) and Scicon International (UK), in conformity with terms of reference prepared by the Bank. This report is based on the findings of an appraisal mission comprising Messrs. Frank and Bhatia (Bank), and Ackels, Adams, Anderson and Beard (Consultants), which visited Iraq in January-February 1972. Mr. Thananart (Computing Services Department, Bank) assisted in the prograunuing and running of the computerized grain storage model.  II. BACKGROUND A. General-/ 2 2.01 Iraq, with an area of about 435,000 km , has a population of approximately 10 million (3.2% annual growth rate) of which about 60% live in urban areas. Government is attempting to revitalize rural areas by introducing land reform and industrialization to reduce the present high migration to urban areas. GDP grew at about 5.4% per annum during 1966-69. Oil accounts for over 90% of exports and provides about 35% of national output. Per capita income (about US$329 in 1970) is low compared with that in other major oil-producing countries of the region. 2.02 Agriculture is the second largest economic sector, contributing about 20% to GDP and employing 55% of the labor force. During the last decade, agricultural production, particularly of wheat and barley, increased at only 5% per annum, compared with the planned target of 7.5%. This moderate growth rate contributed in part to the slowdown in general economic expansion during the 1960's. Foodstuffs comprised almost half of all consumer goods imported during the past five years. 2.03 The present national plan (1970-74) calls for domestic self- sufficiency in agricul'ural production, including wheat and barley. The plan has an allocation of ID 337 million (US$1,139 million) for development of the agricultural sector, including support for the Grain Storage Program. Government is concentrating its efforts on improving all basic agricultural inputs (farm machinery, fertilizers, seeds, extension service) in an attempt to increase productivity and organize the sector on a technically advanced basis in order to achieve a 7% rate of growth per year. B. Foodgrain Production Trends Production Constraints 2.04 Wheat and barley are the main cereal crops; rice is grown in very small quantity and is primarily imported to meet domestic demand. Mbst wheat and barley production (about 75%) is concentrated in the northeast, where irrigation is not possible and the scanty rainfall (about 400 mm) does not permit the application of high yielding seeds (Qexi-Pak) and fertilizer to increase the yield. In central and southern Iraq, improved technology could be applied to increase the yield, depending upon the availability of water which is at present limited. In addition, much of the land, especially south of Baghdad, is so saline that it can be used for cropping only in alternate years and even then yields are low; some of the soils in the region are of such 1' Further discussion of Iraq's economy is in Current Economic Position and Prospects of Iraq (IBRD Report No. EMA. 35a, August 1971).  - 3 - salinity that no crops at all can be grown. Other factors adversely affecting agricultural production are the lack of fertilizers, improved seeds and farm machinery; the lack of well-trained technical personnel for agricultural production cooperatives and the extension services, and the absence of an efficient marketing system and positive agricultural price policy. A detailed discussion of the agricultural situation is in Annex 1. Production and Imports 2.05 Production limitations have resulted in wide fluctuations in annual production and low productivity (Annex 1). For instance, wheat production varied from a low of 0.8 million tons in 1966 to a high of 1.2 million tons in 1968 and dropped again to about 0.5 million tons in 1971 when rainfall was poor and untimely. Barley production has been more stable, but nevertheless fluctuated between 0.7 million tons and 0.9 million tons in the last two years. Iraq imported about 0.4 million tons of wheat and barley in 1969 and 1970 and, because of the bad crop season in 1971, imports for both grains in 1971 totalled about 1.4 million tons (Annex 1). Although the magnitude of total foodgrains imported will decline, Iraq will remain a net importer of grains for the foreseeable future (para 3.03). Consumption 2.06 Consumption of wheat totalled about 1.4 million tons in 1971, giving an average annual per capita consumption of wheat of 122 kg, while barley consumption totalled about 1.1 million tons for an annual average of about 95 kg per capita. For direct human consumption, wheat is considered by all income groups to be the more desirable grain and as income increases, con- sumers readily switch to it from barley. Of the present barley consumption, 80 kg per capita in the urban areas is used for commercial purposes and this level is expected to increase with the development of the livestock industry. Production Organization 2.07 As a result of the Land Reform Law of 1958 (amended 1970), production organization is shifting from large private farms to small private farms and more recently to Government-organized agricultural production co- operatives. Any landowner possessing more than 200 ha of irrigated or 400 ha of non-irrigated land is subject to expropriation of the excess amount. The land so expropriated is then distributed to individual farmers in plots of 10 ha of irrigated land or 20 ha of non-irrigated land. As of January 1972 the Land Reform Program had been implemented in over half of the country's districts and completion of the Program is expected by 1973. Many of the farmers re- ceiving land have not had the means to farm their plots and rent their land to private grain traders on a share-crop basis (75% for the trader). Such traders have little interest in making any capital improvements or in applying innovations to increase the yield. Government is, therefore, attempting to organize farmers under production cooperatives, subject to the availability of trained managers and supervisors. Government provides financial and tech- nical assistance (tractors, combines, fertilizers, seeds, credit, trained supervisors and inspectors, etc.) to such cooperatives with the objective  -4- of improving agricultural production and raising the farmers' incomes. One of the most important types of support that Government provides to the cooperatives is credit. Private farmers who are not members of cooperatives can obtain only limited credit at 6% with mortgages from the Government Agricultural Bank and the effective rates of the traders are much higher. On the other hand, the cooperatives are completely financed by Government credit at a 3% interest rate and no mortgages. This availability of credit has freed the farmers in the cooperatives from the private traders (para 2.10) and is having a great impact on grain marketing channels. As of January 1972, about 800 production cooperatives had been established (Annex 1), occupying about 25% of the land expropriated so far. It is projected that about 30% of the total grain production (wheat and barley) in the country will originate from such cooperatives by 1976 and 40% by 1980. Foodgrain Wholesale Prices 2.08 At present the wholesale prices of domestically produced grain, particularly wheat, are much higher than international prices. For example, in 1972, the wholesale price in the private sector for wheat at Baghdad was about US$152 per ton, as compared with about US$81 per ton for wheat imported by the Grain Board. The high domestic prices of the private sector reflect, primarily, the high marketing cost (handling, distribution, etc.), including the middleman's profit. It is expected, however, that as a result of the project, wholesale prices for domestic grain will decline significantly (para 6.11). At present, the state-owned bakeries are heavily subsidized in order to supply brrad cheaply to the lower income groups (the price of a loaf of bread supplied by the state bakeries is ID 0.005, as compared with a cost price of ID 0.010). These bakeries market their bread to licensed dealers located in the poorer sections of the towns. C. The Present Grain Marketing System Government Policies 2.09 Government periodically issues lists for authorized buying and selling prices of foodgrains. However, as indicated earlier, until the advent of the cooperatives, Government had little opportunity to become an effective force since the grain trade is primarily in the hands of private traders who do not abide by the Government price guidelines. Moreover, in the past, Gov- ernment price policy has been aimed at safeguarding the interests of consumers and the interests of producers have been relegated to second place. An exam- ple of this is the fact that the prices of non-cereal agricultural crops have increased much faster than those for wheat and barley. In addition, Govern- ment provides no grain marketing information service. The lack of market entry opportunity and an information service, as well as the shortage of grain storage facilities, are the handicaps which Government must overcome in order to achieve a well-regulated marketing system. Government has now realized that it needs to reformulate its grain policies and a detailed discussion of this is presented in paragraphs 3.04 through 3.08.  -5- Private Traders 2.10 Of the total domestic marketed production of grain, about 1.3 million metric tons per year, about 90% is marketed by private traders. The most common grain marketing channel is as follows: farmers sell to siefs (large traders), who, in turn, sell to alawqis (medium-sized traders), who eventually sell to private flour mills or the Grain Board. In addition, grain often passes from the alawis to retail merchants to consumers, who then take their grain to private mills. There are about 1,000 private traders, of whom about 10% are siefs. Through family and business ties, the siefs have organized themselves into about 15 associations located throughout the country. These siefs possess a strong bargaining position in the market, since they not only purchase grain from individual farmers but also rent land from small farmers for sharecropping (para 2.07). They also frequently advance credit to farmers which is repaid by a portion of their share of the crop being withheld at very high effective interest rates. Thus, at present, these large traders virtually control the supply of grain available for marketing in the country, and their control results in imperfect com- petition. Market profit margins for siefs and alawis each average about ID 10 (US$33.80) per -ton, which is excessive,representing about 50% of the wholesale price. Also, the traders have been able to cause wide fluctuations in grain prices during a year's time (grain prices have varied by 150%) by acquiring excessive stocks of commodities at harvest time and hoarding them. At present, the principal customers for the private traders are the private flour mills. Annex 2 further discusses Iraq's grain marketing system. 2.11 The traders' individual operations and their storage, handling and distribution methods have remained out of date and inefficient. Most private storage facilities (estimated at 1.4 million metric tons for all grains) consist of open courtyards with partial or no protection from wind, rainfall, insects and rodents, and grain losses are high at about 8% (Annex 3). Moreover, these storage facilities are geared to the handling of bagged grain (100 kg) exclusively, resulting in high handling costs. The cost of each handling of bagged grain by the private sector is approximately US$6.0 per ton, compared with US$1.76 per ton for bulk handling by a modern silo. In addition, grain changes hands four or five times in moving from producer to consumer, with each transfer of ownership involving additional handling. The numerous steps naturally increase marketing costs. Obviously, the private traders in the existing grain marketing system are not equipped to efficiently handle the domestic productibn of wheat and barley. Cooperative Societies 2.12 Government aims to provide general-purpose storage units at each of the established cooperatives for the storage of grain, fertilizer and spare parts. As discussed in Annex 2, the cooperatives now have storage space for about 40,000 tons of bagged grain, their facilities consisting of 30 large warehouses (500 tons each) for regional cooperatives and 336 small stores (80 tons each) for local cooperatives. By 1974, an additional 70 large ware- houses for regional cooperatives will be completed and 500 local cooperatives will have a general-purpose storage unit. These storage units are designed  -6- only for short-term storage of bagged grain since the cooperatives plan to sell their marketable surplus at the time of harvest and rely on the Grain Board for long-term bulk storage of their consumption and seed stocks. Flour Mills 2.13 In Iraq, most consumers purchase wheat as flour rather than in the raw form. At present, there are 26 modern commercial flour mills in the private sector, with an estimated annual throughput of some 300,000 tons of wheat (Annex 2), and 1,000 private artisan stone mills of poor quality. The General Company of Flour Mills, a state corporation, owns four flour mills, with a total annual milling capacity of 230,000 tons (Annex 2), and four new mills, with a total annual milling capacity of about 240,000 tons, are on order and should be in operation by 1975. The flour mills have their own storage facilities for operational stocks of raw grain and for processed flour. Government is also in the process of constructing three feed mills, which will be owned and operated by the Government Poultry Company, and there are many small feed mills in the private sector. The Grain Board 2.14 A detailed discussion of the Grain Board's operations is in Annex 4. It is a state corporation primarily engaged in procuring, storing and distri- buting grain to the Government-owned flour mills, which, in turn, supply flour to state-owned bakeries (para 2.08). The level of the Grain Board's operation and maintenance compares favorably with that of efficient private operations in major grain producing countries. The Board is headed by a Director General and is divided into four departments: Commercial Affairs, Personnel and Finance, Technical, and Projects. It has 138 permanent staff members (both professional and nonprofessional) at its Baghdad headquarters. On balance, the income from domestic trading activities, import/export transactions and storage services has been sufficient to finance its operations and make pay- ments to Government for part financing of Grain Board capital investments. 2.15 The Grain Board currently operates eight modern storage silo facili- ties, with a total storage capacity of about 164,000 tons plus 78,000 tons in warehouse storage for bagged grain, mostly rice (Annex 4). These facilities are primarily used to store Government-procured grain, but they also store some grain (about 20% of the total storage capacity) for private farmers and traders on a fee basis. Each local silo is staffed with well trained and experienced personnel and each provides cleaning, storing, drying, weighing, fumigation and other services that a normal modern silo renders. Although wheat and barley are handled in bulk form within the silo facilities, the silos are not equipped for bulk loading or unloading of trucks and railcars, resulting in excess transportation and handling costs. The Grain Board's port silo at Basrah was designed chiefly for export and, during the high level of 1971 imports, shipping demurrage charges amounted to about ID 976,000 (US$3.3 million) in addition to excess handling costs and storage losses on the import shipment. In addition to the above silos, the Grain Board has under construction, with USSR bilateral assistance, 10 additional  - 7 - silos of 10,000 tons each for the storage of wheat and barley. The storage requirements for rice are being met by constructing, with East German bila- teral aid, seven new silos of 16,000 tons each, exclusively for the storage of rice to supplement the existing warehouses for bagged rice. 2.16 In bad crops years, the Grain Board has played an extremely import- ant role in grain marketing. Export-import trade is under its exclusive control and, during years of large imports, it supplies grain to both state- owned and private flour mills. In 1971 the Grain Board imported about 60% of total domestic consumption of wheat and barley (para 2.05). 2.17 However, in the area of domestic grain procurement, the Grain Board has not played a major role. In recent years, the Grain Board has procured only about 10% of the total grain sold directly by farmers, due in large measure to the control exercised by the private traders over the domestic sources of supply. However, with the increase in the number of Government- controlled and financed production cooperatives, which will rely on the Grain Board for marketing and storage services, the Grain Board will be able to increase its procurement of domestically produced grain (para 3.04). The relative inactivity of the Grain Board in domestic procurement has also been due to the lack of a clear mandate from Government. However, in May 1972, a decree was passed instructing the Grain Board to intensify its efforts to purchase local surpluses. Currently the Grain Board's most serious obstacle to increasing local purchases is the shortage of storage facilities. With the new storage facilities presently under construction, the Grain Board will be able to increase its procurement from 10% to about 15% of the marketed domestic production. III. FUTURE TRENDS A. Production, Consumption and Imports Production 3.01 It is expected that the present total land area under wheat and barley, about 3.0 million ha, will remain unchanged except in the north. This is in line with the recent policy adopted by Government, which aims to increase production by intensive rather than extensive farming. In the north, an additonal 100,000 ha is expected to come under wheat production over the next decade, since a state of peace now exists there between the Kurds and Government. In central and southern Iraq, no increase in the land area under wheat and barley is foreseen due to salinity and drainage problems (para 2.04). The yields of both, however, will increase in the north due to greater mechanization and in the center and south as a result of improved inputs and cultural practices. By 1980, gross wheat production is estimated to be about 1.5 million tons and gross barley production about 1.1 million tons (Annex 5, Tables 1 and 2).  -8- ConsumDtion 3.02 It is estimated that the population of Iraq will be about 13 million by 1980 (a growth rate of 3.3% per annum), of which about 58% and 42% will be in urban and rural areas, respectively (Annex 5, Tables 3 and 4). As a result of Government efforts to increase per capita income in the lower income group, and other socio-economic developments, it is estimated that the annual per capita consumption of wheat will increase, on average, from the present 122 kg to 130 kg per annum for a total of about 1.7 million tons by 1980. Within a few years, direct human consumption of barley will only occur in the rural areas and is expected to be 90 kg per capita per annum for a total of about 0.5 million tons by 1980. The commercial consumption of barley will increase from the present average of 80 kg per capita to about 95 kg per capita per annum (Annex 5, Table 6), for a total of about 0.7 million tons by 1980. Imports 3.03 Because of the variability of Iraq's wheat and barley production, alternative sets of projections of domestic production, based on d'fferent assumptions, were made both for wheat and barley for the purpose of sensi- tivity analysis. After deducting on-farm consumption (rural human consumption plus seed requirements, plus in-field losses) from the most likely projection of total production and assuming projected consumption levels, it is estimated that, by 1980, Iraq will be importing annually about 516,000 tons of wheat and about 234,000 tons of barley, totalling 750,000 tons, to balance domestic requirements (Annex 5). The level of 750,000 tons was used as the estimate of the average long-term of imports required by Iraq. B. A Balanced Grain Marketing System 3.04 Government has realized that it needs to participate directly in the grain marketing system so that it can moderate the impact of the private traders. With the construction of additional storage capacity Government will be in a position to purchase about 33% of marketed domestic production (Annex 6). This amount is expected to come from the Government-controlled and financed cooperatives, which will provide about 40% of the domestic pro- duction by 1980 (para 2.07). The increased participation of the Grain Board in the domestic grain trade would tend to eliminate the numerous steps in- volved In the present marketing system, and would result in increased effi- ciency and lower marketing costs. Government has also realized that grain marketing and pricing policies need careful formulation, and assistance in this direction would be provided through the project (para 4.10). 3.05 Although the private traders' present widespread powers will be reduced, they will continue to play a significant role in grain marketing. Grain Board purchases of 33% of the marketed domestic production would allow it to completely supply the Government flour mills, plus 10% of private  - 9 - mills, and, at the same time, have significant impact on producer prices. Private traders will be left with nearly 70% of the marketed domestic produc- tion but, because of the competition from the Grain Board, they will be forced to reduce their costs and profits to meet Government's producer and consumer prices. Projected Storage Requirements 3.06 As discussed in Annex 7, the Grain Board must have sufficient capacity to efficiently store and distribute: (a) grain imports; (b) about 33% of domestically marketed grain; and (c) consumption and seed stocks of cooperatives stored as a service. In determining the needed storage capa- city, the Grain Board's storage of emergency stocks was also taken into ac- count; Government is seeking to have reserve stocks equivalent to two months'consumption on hand at all times, which is a minimum level since the lead time for resupply to Iraq by imports, from time of order until arrival, is about three months. 3.07 The above demands for storage, together with the dynamic factors of grain storage and distribution (harvest period, import scheduling, con- sumption rates and internal transportation), were translated into a linear programming computer model to indicate the size and location of additional silo facilities required by the Grain Board (Annex 7). The model analysis, after substantial sensitivity testing, indicated a peak storage requirement during and immediately following the harvest period of 908,000 tons by 1980. In addition, anal sis indicated that, in order to efficiently handle the pro- jected imports, he handling capacity at Basrah port silo must be increased and a transfer terminal silo with 20,000 ton capacity must be built at the port of Um Qasr. Thus, the total storage demand by 1980 will be 928,000 tons. Taking into account the Grain Board's 18 silo facilities (264,000 tons), all Grain Board warehouse storage (78,000 tons) and Government mill storage capac- ity (26,000 tons), the Grain Board storage deficit will be at least 560,000 tons by 1980. 3.08 The model analysis further indicated that to minimize construction, operating and transportation costs, the deficit storage projected should be provided by expanding four of the Grain Board's present silos and construct- ing fifteen new ones for a total additional capacity of 560,000 tons, including the 20,000 ton terminal silo at Um Qasr. The proposed location and size of each of the individual silos are given in Annex 7 and indicated on the map. Grain Standards and Grading 3.09 Iraq does not have well-defined grain standards or a uniform grading system. The Grain Board has developed some grading standards for its domestic grain purchase contracts, but they lack sufficient detail. Well-defined grain standards would provide a more definitive basis for a system of Government  - 10 - price guidelines, applicable in all parts of the country and to grain in all conditions, and would also eliminate the necessity of preserving owner ident- ity on grain stocks that the Grain Board stores as a service, which in the past has resulted in inefficient use of the large bulk silo bins. A proposed system of grain standards is given in Annex 8. It was agreed during negotia- tions that the Grain Board would devise a system of grain standards and grad- ing, mutually satisfactory to the Bank and the Grain Board, and implement such a system during project execution. IV. THE PROJECT A. Summary Description 4.01 The proposed project forms part of a long range program to expand and improve the Grain Board's handling and storage system in order to: (a) reduce storage losses; (b) reduce handling and marketing costs; (c) reduce_ internal and external transportation costs; and (d) enable the Grain Board to be a more active participant in the domestic grain trade in order to stimulate domestic grain production through higher producer prices. 4.02 The total storage capacity provided by the project facilities would be 560,000 tons and would be provided through: (a) the construction and equipping of 11 terminal silos, with a total capacity of about 468,000 tons; (b) the construction and equipping of three gathering silos, with a total capacity of 36,000 tons; (c) the construction and equipping of four silo expansions, with a total capacity of 36,000 tons; and (d) the construction and equipping of a 20,000-ton transfer terminal silo at the port of Um Oasr. The project would also include the employment of engineering consultants by the Grain Board to assist in the design and construction supervision of the silos; technical assistance and equipment necessary to build mechanized inven- tory control and communications systems; the employment of economic consultants to undertake a comprehensive study on grain pricing and marketing; and a train- ing program for key silo management and operational personnel.  - 11 - B. Detailed Features Terminal Silos 4.03 Terminal-type silos would be constructed at sites where a high storage capacity and a variety of handling services are required. The basic terminal silo would be 20,000 tons unit; higher capacities required at certain sites would be provided by annexing storage units of 5,000 tons each. The basic grain handling rate of the terminal silos would be 150 tons/hr and each would have the capability to load and unload grain in bagged and bulk form from the transport modes serving the respective sites. Terminal- type silos would be constructed at: Shikan, Sinjar., Shirgat, Tuz, Baghdad, Telafar, Baquba, Sulaimaniya, Khanakin and Hilla. The silos would range in capacity from 20,000 to 85,000 tons with a total capacity of 468,000 tons. Gathering Silos 4.04 Compared to terminal-type silos, the smaller gathering-type silos are of a more simple design and, because of reduced machinery, have a lower construction and operating unit cost. The basic size of the gathering silos would be 8,000 tons; higher capacities required at certain sites would be provided by annexing storages units of 4,000 tons each. The basic handling rate of the silos would be 100 tons/hr and each would have the capability to load and unload grain in bagged and bulk form from the transport modes serving the respective sites. Gathering-type silos would be constructed at Suwaira, Diwaniya and Duhok. The silos would have individual capacities ranging from 8,000 to 16,000 tons for a total of 36,000 tons. Expansion of Existing Silos 4.05 Four of the existing silos require expansion of storage capacity and increases in grain handling speeds. The silos at Amara, Erbil, Kut and Hilla would be expanded by a total of about 36,000 tons of storage capacity. The handling capacity of silos at Mosul, Erbil and Hilla would be increased from about 66 tons/hr to about 150 tons/hr. In addition, five existing silos would be modified to permit bulk loading and unloading of trucks and railcars. Expansion of Import Capacity 4.06 The Grain Board's capacity to handle imports would be expanded by the construction of a transfer terminal silo at the port of Um Qasr and an expansion of the import handling capacity at the Basrah port silo. The terminal transfer silo to be built at Um Qasr would have a surge storage capacity of about 20,000 tons and a bulk discharge capacity of about 600 tons/hr for rapid discharge of import shipments on ocean freighters or tankers. The Um Qasr transfer facility would have the capability to unload from ships  - 12 - and transfer grain directly to barges, railcars or trucks, or alternatively store the unloaded grain in the storage bins `or future loading. The bulk handling import system at the Basrah port silo, which was originally built primarily for export, would be expanded from about 120 tons/hr to about 600 tons/hr. Common Features 4.07 The storage bins of all silos would be poured reinforced concrete constructed by the slip form method. Silo foundations would be pile-supported, depending on soil investigations at each site. All silos would contain grain cleaners, and silos in the central and southern parts of the country would contain driers as well. More detailed descriptions of each type of silo and suggested silo site layouts appear in Annex 9. Engineering Consultants 4.03 A qualified engineering consultant firm would be appointed to conduct soil and site investigations, prepare detailed designs for the silo structures and mechanical-electrical equipment layout, and prepare tender and contract- documents. During the construction period, the firm would provide on-site inspectors to ensure that civil works construction and mechanical-electrical equipment installations conform to contract specifications. Although there are several Iraqi engineering consultant firms which are qualified to perform part of the above task, all would need to be supplemented with foreign experts or an association with an overseas firm would have to be established. Assurances were obtained during negotiations that engineering consultants acceptable to the Bank would be appointed on terms and conditions acceptable to the Bank within four months of the signing of the loan. The Grain Board has already asked for proposals from engineering consultant firms, on the basis of the generai terms of reference presented in Annex 10. Mechanized Inventory Management System 4.09 To assist in the management of the Grain Board's expanded operations, a mechanized inventory control system would be designed and implemented and a sunporting communications system with communication terminals at all silo sites would be installed. Management consultants would be employed to recom- mend an inventory control system on the basis of a detailed feasibility study. It is expected that such a study would recommend a computer-based control system, and the cost estimate for this element of the project is based upon this projection. The alternative to the computer-based system would be a lower cost manual system employing calculating machines. However, such a system would not allow for the transportation-minimized grain movement schedul- ing, via linear programming, the savings from which are estimated to be far greater than the cost of the computer-based system. More details on the Grain Board's requirements for improved inventory management are given in paragraph 5.01, and general terms of reference for the management consultants and an outline of the proposed study are in Annex 11.  - 13 - Grain Marketing and Pricing Study 4.10 Qualified economic consultants would be appointed to conduct a detailed study of grain marketing and pricing and propose a policy framework. The need for this study is discussed in paragraph 5.02, and an outline for it and general terms of reference for the economic consultants appear in Annex 12. Training Program 4.11 Personnel who would manage and operate the new silo facilities would be given comprehensive training before they assumed their positions. The training would include "in-house" training, equipment suppliers' training, silo management courses to be given in Iraq by international experts and specialized foreign training for key personnel. Additional details on the proposed training program are given in paragraph 5.03 and Annex 13. C. Construction Schedule 4.12 The project facilities would be constructed over a four-year period following an 18-month period for design, engineering and contractor selection as shown in the schedule in Annex 14. Assurances were obtained during negotia- tions that land for five silo sites would be obtained within three months of loan effectiveness and all remaining land required for the project would be obtained within six months thereafter. D. Cost Estimates 4.13 The total project cost is estimated at ID 27.3 million (US$92.4) of which the foreign exchange component is 48%, or ID 13 million (US$44 mil- lion). The foreign exchange cost includes the cost of imported equipment, the cost of foreign personnel required for silo construction and equipment installation, the cost of foreign consultants, the foreign costs of training, and the foreign exchange cost of materials used in local construction works. Detailed cost estimates are presented in Annexes 11, 12, 13 and 15, and are summarized as follows:  - 14 - Foreign Foreign Foreign Local Axchange Total Local Exchange Total Exchange X -----(ID millions) - -----TUS$ millions)-- I Silos Terminal silos 6.55 5.40 11. 95 22.12 18.24 40.36 45 Gathering silos o.84 o.85 1.69 2.86 2.86 5.72 50 Extensions to existing silos 1.00 1.6 206 3.39 3.59 6.98 51 import facilities 1.11 0.82 1.93 3.76 2.76 6.52 42 Sub-total 9.50 8.13 17.63 32-13 27.45 59.58 46 II EnvineeringJ Consiiltants 0.67 0.57 1.24 2.25 1.92 4.17 46 III Yiechanized Inventory Control Consultants 0.11 0.32 0.43 0.36 1.07 1.43 75 2;quipment 0.03 Q.26 0,29 0.09 0.91 1.00 91 Sub-total 0.14 Q5 0,72? 0.45 1.98 2.43 82 IV, Grain Pricing and Marketing Study 0,04 Q.0O 0.12 0.15 0.25 0.40 63 V Training 0.01 0.02 0.03 0.03 0.07 0.10 70 PrQject Sub-Total 10.36 9.38 19.74 35-01 31.67 66.68 4d VI 2ontingencies Physical (total 14.5A,) 1.I0 1.36 2.86, 5.06 4.59 9.67 48 Price (total 21>) 2.49 2.25 4.74 8.L2 7.61 16.03 48 TOTAL PROJ&C'T 3UST 14.35 12.99 27?34 46.51 437 5j 92.36 46  - 15 - 4.14 Cost estimates for imported items are based on 1972 manufacturers' prices, adjusted for currency realignments through March 1973. A physical contingency of 15% is allowed on the silo construction works and engineering consultants to cover the cost of alternate civil works designs and mechanical- electrical layouts; a 10% physical contingency allowance is included for the management and economic consultancy services, inventory control system and training program. A 21% total price contingency is included for expected price inflation of 5% per annum on both local and foreign cost items, includ- ing physical contingencies. E. Financial Plan 4.15 The project would be financed as follows: USS Millions ID Millions Equivalent % of Total- IBRD Loan 11.8 40.0 43 Government of Iraq 15.5 52.4 57 Total 27.3 92.4 100 The proposed Bank loan of US$40 million wouldofinance 43% of the project's cost and Government would provide the additional financing (US$52.4 million) required for the project. The Bank loan would be made to Government for a term of 25 years, with 6-3/4 years' grace and at an interest rate of 7-1/4% p.a. In accordance with Iraq's Planning Laws, the Grain Board would receive the total project financing (US$92.4 million) from Government through the National Development Plan Fund. The Grain Board would make annual payments to the Fund equivalent to 20% of net profits until the total project financ- ing is repaid. During negotiations, it was agreed that the Grain Board would forward to the Bank for review the annual construction schedule, annual ex- penditure estimates and documentation indicating the budgetary allocation in the National Development Fund to meet the project expenditures. F. Procurement 4.16 Procurement of the silo works would be undertaken by the Grain Board, assisted by the engineering consultants. The construction contracts for the proposed new silos would be awarded on the basis of international competitive bidding in accordance with Bank guidelines. However, in the con- struction of three of the silo expansions and in the expansion of the handling capacity at the Kut, Baghdad, and Basrah silos, the final engineering design  - 16 - may Cictate such close integration with existing mechanical-electrical systems that procurement of the needed equipment by international competitive bidding would not be appropriate. In such instances, the Grain Board, with prior approval of the Bank, would procure the mechanical-electrical equipment di- rectly from the supplier, and the associated equipment installation and ancillary civil works would be included in the silo construction works and procured through international competitive bidding. The estimated cost of the mechanical-electrical installations that could be exempt from international competitive bidding is ID 740,000 (US$2.5 million). The existing mechanical- electrical systems have been supplied by companies located in Bank member countries or Switzerland. 4.17 The silo works would be grouped geographicalUy into construction contracts, each containing three to four silo works. The total value of each contract would be about ID 3.0 million (US$10 million), without contingencies. Each construction contract would include both performing civil works and providing mechanical-electrical equipment, with the possible exceptions of the equipment for silo expansions mentioned in paragraph 4.16. Based on experience in previous silo construction projects, the combining of civil-- works and mechanical-electrical installations avoids the inherent difficulties of coordination between two independent contractors. 4.18 Procurement of all works or goods exceeding US$100,000 would be through international competitive bidding according to the Bank's guidelines. Procurement of works or goods costing less than US$100,000 would be made by the Grain Board on the basis of local competitive bidding procedures, and a summary of bids or quotations, an analysis report and a brief justi- fication of the contract award would be sent to the Bank at the time the award is made. Procurement of consultant services required for the project would be made according to the Bank's guidelines. Minor services or "off the shelf" items costing less than US$5,000 would be procured directly; the total of such direct procurement would be limited to US$100,000. 4.19 For all works or goods to be procured through international competitive bidding, the Grain Board, with the assistance of the consultants, would prepare the specifications and tender documents, which would be submitted to the Bank for review and comment before issue. The Bank would also comment on the evaluation of bids and recommendation for award. In the event that Government did not make the award to the lowest evaluated bidder, the Bank would not reimburse any expenditure under the contract, and the corresponding amount of the loan would be cancelled. 4.20 There are no preferential tariff agreements between Iraq and other member countries that would affect evaluation of bids, and there are no domestic manufacturers of silo mechanical-electrical equipment, computers and communications equipment. Additionally, Iraqi civil works contractors have not had experience in large-scale slip-form works. During negotiations, assurances were obtained that the procurement procedures contained in para- graphs 4.16 through 4.19 would be followed.  - 17 - G. Disbursement 4.21 The foreign exchange component of mechanical-electrical works stated in each contract awarded to foreign bidders would be eligible for reimbursement under the loan. The Bank would reimburse 30% of civil works expenditur-es and 75% of expenditures for equipment procured locally; these percentages represent the estimated foreign exchange component in each case. Disbursement would be made against applications for foreign currency payments to contractors or suppliers for mobilization advances, progress payments or completed work on approved contracts as certified by the engineering consult- ants and checked by the Grain Board. 4.22 Payments made in foreign currency for the services of the engineer- ing consultants would be eligible for reimbursement, provided that payments were made in accordance with a contract satisfactory to the Bank. A schedule of estimated quarterly disbursement for the proposed loan appears in Annex 16. V. ORGANIZATION AND MANAGEMENT A. Grain Board Organization and Operation 5.01 The Grain Board's basic organization and operation provide a sound framework for expansion in order to implement the project and subsequently operate the new project facilities. However, several improvements in the present operation are necessary in order to ensure that the Grain Board can operate the expanded grain storage and marketing system with increased effi- ciency. In order to achieve transport and handling cost minimization, the Grain Board requires an improved inter-silo communication system and a mecha- nized inventory management system (para 4.09). The public telephone service, even between the silos in the large cities, Baghdad, Mosul, and Basrah, is irregular and of poor quality. Additionally, the increased grain volume which would be handled by the Grain Board would place an added burden on the already slow manual inventory control system, and the increased grain movements would urgently require the application of mechanized inventory management techniques that could minimize transport and handling costs. During negotiations, it was agreed that consultants would study and design a mechanized inventory control system according to terms of reference mutually acceptable to the Bank and the Grain Board, and the resulting inventory and communication systems would be implemented during the execution of the project. 5.02 The proposed project storage facilities would provide the physical capacity which is required by the Grain Board to become a more active participant in the domestic purchase and sale of grain. However, the Grain Board needs assistance in establishing guidelines that would stabilize all marketing, public and private, and produce the desired effects on producer  - 18 - and consumer prices (para 4.10). Although the parent organization to the Grain Board, the State Organization for Grains and Enterprises (Annex 4), employs economists, the Grain Board has none on its own staff. As a result, the Market Research Division of the Grain Board's Commercial Affairs Depart- ment is ill-equipped to provide the necessary marketing research and fore- casting needed. Therefore, in order to strengthen grain marketing decisions, two qualified and experienced economists would be hired by the Grain Board firm. The Grain Board would have a grain pricing and marketing study under- taken on terms of reference mutually acceptable to the Bank and the Grain Board. Agreement to this effect was reached during negotiations. 5.03 To ensure that the new silo facilities would be staffed by capable managers and operators, the Grain Board would undertake a comprehensive train- ing program for key personnel (para 4.11). On-the-job training would be given to the personnel in the present silo facilities and two four-week courses annually for managers would be given in Iraq by international grain storage and handling experts. Specialized training abroad would be given to silo personnel responsible for grain grading and sanitation. In addition, the suppliers of the mechanical-electrical equipment for the proposed silos would be required to provide training in the operation and maintenance of the equip- ment they provide. During negotiations, agreement was reached that a train- ing program for the staffs of the new silos, mutually acceptable to the Bank and the Grain Board, would be executed by the Grain Board. B. Project Management 5.04 Within the Grain Board, the Projects Department would be responsible for construction of project facilities. This department is headed and staffed by qualified engineers and is currently implementing two bilateral aid projects providing grain storage facilities (para 2.15). The basic organization and operation of this department are satisfactory for managing construction of the proposed project facilities and need only to be expanded by the addition of qualified staff. Agreement was reached during negotiations that four qual- ified and experienced engineers would be added to the Projects Department within one year of the signing of the loan. 5.05 The Technical Department would have responsibility for general project administration, the design and implementation of the inventory management system, the silo staff training program and the price and market- ing study. C. Project Accounts 5.06 At present, all Grain Board accounts are audited by an independent chartered accountant firm as well as reviewed by Government's Central Inspec- tion Authority. In the near future, the Grain Board will be audited annually by the State Central Organization for Audit. The Grain Board would establish  - 19 - and maintain separate accounts for all project expenditures. Assurances were obtained during negotiations that the Grain Board's accounts would be satis- factorily audited and that audited annual financial statements of the Grain Board would be sent to the Bank within six months of the close of each Iraqi fiscal year. D. Project Evaluation 5.07 The Grain Board's Market Research Division, which would be expanded by two economists and work jointly with the economic consultants (para 5.02), would be responsible for evaluating the benefits expected under the project. In particular, the Market Research Division would collect information monthly on wheat and barley production by cooperatives, farmgate and wholesale grain prices, grain storage losses, transportation demurrage charges and relative tonnage of grain handled in bulk versus bagged form. This monthly infor- mation would be evaluated and an annual report on the project benefits, similar in scope to the discussion in Chapter VI of this report, would be prepared. Assurances were obtained during negotiations that the annual report on project benefits would be sent to the Bank. VI. BENEFITS AND JUSTIFICATION A. Financial Results 6.01 Under the expanded operation resulting from implementation of the project, the Grain Board would be able to continue to achieve its objective of a financially viable grain storage and marketing organization. A pro- jected cash flow for the Grain Board indicates that the expanded operation would produce an annual net profit, before depreciation and interest, of about ID 2.0 million (US$6.7 million). This amount would be sufficient to repay the project financing of ID 27.3 million (US$92.4 million) in 30 years (Annex 17). During negotiations, Government agreed that the Grain Board would pursue a general operating policy of generating sufficient revenues to cover operating expenses, taxes, maintenance, depreciation and debt service. It was also agreed that when Government grain marketing decisions did not allow the Grain Board to generate sufficient revenues, Government would provide the funds required for a balanced operating budget. B. Economic Justification Quantitative Benefits 6.02 The proposed expansion and modernization of the Grain Board's storage facilities would benefit the economy by about US$11 million per  - 20 - year at full Lavelopment (the eighth year after conmencement of the project), duie to reduct'o.ns in grain losses, handling, marketing and internal and external transportation costs. A brief explanation of each of these benefits is given below and detailed discussion and calculations are presented in Annex 17. 6.03 Reduction in Grain Storage Losses. At present about 8% (by weight) of the grain in private storages is lost due to poor and outdated facilities. The comparable weight loss rate for grain passing through the Grain Board storage and distribution system is only 2%. It is expected that the Grain Board would handle about 1.4 million tons of grain annually (both imports and domestically produced quantities), of which about 880,000 tons (60%) would be stored in project facilities. Without the project facilities, the domes- tically produced quantities would have been stored in the inadequate facilities of the private traders and the imports in mounds in the port area. Assuming a storage loss reduction on domestic quantities of only 3 percentage points and 2 percentage points on imports, the project facilities would result in annual savings of 22,000 tons of grain. Of the grain saved, wheat and barley would represent 64% and 36%, respectively, of the total volume. Applying price rates (cif Iraq) of US$72 per ton for wheat and US$55 per ton for barley, a total saving of US$1.4 million per year would be achieved. 6.04 Reduction in Marketing Costs. It is projected that the Grain Board would be in a position by 1980 to procure about 413,000 tons of grain annually from domestic sources, of which about 248,000 tons would be handled and stored directly by the project facilities. Without the project, this volume would be marketed in the following manner: farmers to siefs to alawis to private flour mills. The direct marketing cost excluding profit margin of a sief and an alawi operation is about US$9.59 and US$14.53 per ton per marketing, re- spectively. The total direct marketing cost for an operation involving both siefs and alawis would therefore average about US$24.12 per ton for bagged grain. Contrary to this, the Grain Board's marketing cost (including over- heads and other operating costs) would be about US$6.16 per ton for bulk and US$7.21 for bagged grain. This reduction in marketing costs would result in a net benefit of about US$4.0 million per year. 6.05 Savings Due to Bulk Handling. The provision of bulk loading and shipping facilities at the new and existing silos, including the Basrah port silo, would replace the present practice of largely handling grain in bagged form. On the net volume expected to be affected by the project facilities, of which 90% and 10% would be in bulk (US$1.76 per ton per handling) and bagged (US$2.06 per ton per handling) form, respectively, the net savings would amount to about US$1.0 million annually. 6.06 Reduction in Internal Transportation Costs. The bulk loading and unloading facilities would also result in a more efficient use of trucks. It is estimated that, with the project, handling of the required tonnage would involve waiting times for trucks of about 4,000 hours, while in the absence of the project, trucks would have a waiting time of about 700,000 hours. To convert these savings into numbers of trucks for moving the proj-  - 21 - ected grain flow, it was assumed that in Iraq a truck has an annual utility of about 4,800 hours per year. This results in a saving of about 150 trucks, which would hlave been imported and the related fixed annual costs incurred; the total annual cost of these vehicles is about US$684,000. In addition to the transportation savings due to reduced waiting time, savings in transporta- tion would result from monthly movement schedules prepared by the automated inventory management system which would insure that shipments are directed to where they are needed over the shortest route. 6.07 Reduction in Ocean Shipping Cost. The improvement of handling facilities at the Basrah port silo and the construction of a transfer silo at Um Qasr for lightering ships would reduce the average ship waiting and unloading time from 39 days per ship under present conditions to 5.2 days per ship under the project. The average time allowed for each ship for waiting and unloading before incurring demurrage charge (US$2,000 per day) is 10 days. Hence, under the project, there would be no demurrage charges, resulting in an annual saving of about US$2.5 million from 42 ships per year expected to arrive at Basrah with the import requirements of 750,000 tons (para 3.03). 6.08 Increase in Production. With the completion of the project, the Grain Board's 33% participation in the domestic grain trade with higher pro- ducer prices would begin to have a favorable impact on production. The price elasticity of production in the north (for wheat and barley), based on simple regression, with relative price alone as the determining variable, was found to be 0.9. For the purpose of the calculation, an increase of only 1l% in farmgate prices has been assumed. Under this assumption, there would be an incremental 39,000 tons of wheat and 29,000 tons of barley produced in the north by 1980. Applying price rates of US$72 per ton for wheat and US$55 per ton for barley, a net benefit, after deducting farmers production costs, of about US$1.8 million per year would be achieved under the above conservative assumptions. Economic Rate of Return 6.09 A 14% rate of return is expected to accrue to the economy from the project investment, including physical contingencies and applying a 25% reduc- tion in cost of labor saved in the streamlined marketing and bulk handling operations (Annex 17). By increasing the cost of the project by 15% without increasing value of benefits, the rate of return would be 12%. The rate of return of the project with labor savings at full cost would be 16%. All these returns are satisfactory, particularly in view of the nature of the project - an infrastructure project required for an efficient grain marketing system. Risk 6.10 There is not a high degree of risk that the project would not provide the economic benefits that have been estimated. The majority of the benefits (reduction in storage losses, handling costs and transportation costs) would  - 22 - be achieved by channelling more grain through improved types of handling and storage, most of which are now provided by the Grain Board but on a limited scale. Most of the increased volume of grain that would be handled by the Grain Board would consist of the increased imports which Iraq will require for the foreseeable future to supplement domestic production. The additional increase in the volume of grain projected to be handled by the Grain Board and the related benefits in reduced marketing costs will result from the Grain Board becoming a more active participant in domestic grain trade. Since the Government-controlled and financed cooperatives are projected to be providing at least 40% of the domestic grain by 1980, the Grain Board, which will be procuring grain directly from the cooperatives, should not have difficulty in procuring 33% of the marketed domestic production. Government is committed to stimulating the agriculture sector by providing credit and the required inputs at low cost and, at the same time, ensuring higher producer prices without increasing consumer prices. Even if cooperatives do not develop as well or as quickly as projected, Government will be including private farmers in its efforts to stimulate agricultural production. Thus, the Grain Board would have an opportunity to increase its domestic purchases from either the coope- ratives or the private farmers and the projected increase from the present level of 10% of the marketed domestic production to 33% is feasible. C. 1Wholesale Foodgrain Prices 6.11 As a result of the efficiencies in storage, transport and marketing, it is estimated that the prices received by farmers in the cooperative societies could increase by 14% and that wholesale prices for domestic wheat channelled through the Grain Board would become more competitive with imports, as indicated in the following table: Without the With the Proposed Pro,iect Proposed Project