Tanzania - Second Livestock Development Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For PubLic Use Report No. 5la-TA APPRAISAL OF SECOND LIVESTOCK DEVELOPMENT PROJECT TANZANIA March 14, 1973 !riculture Projects Department astern Africa Regional Office This report was prepared for official use only by the Bank Group. It may not be pubLished, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS US$1.00 = Tanzania Shilling 7.14 (Tsh) Tsh 1.00 = US$0.14 WEIGHTS AND MEASURES Metric System 1 hectare (ha) = 10,000 m2 = 2.46 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) = 0.39 sq. miles - 100 ha I kilogram (kg) = 2.20 pounds 1 liter (1) = 0.26 gallons 1,000 kg = 1 metric ton = 0.98 long ton ABBREVIATIONS CBPP = Contagious Bovine Pleuropneumonia DDCs = District Development Corporations FMD = Foot-and-Mouth Disease NACO = National Agricultural Company, Ltd. NAFCO = National Agriculture and Food Corporation SIDA = Swedish International Development Authority TAC = Tanzania Audit Corporation TLMC = Tanzania Livestock Marketing Company TMPC = Tanzania Meat Processing Company TPL = Tanganyika Meat Packers, Ltd. TRDB = Tanzania Rural Development Bank FISCAL YEAR July 1 - June 30  TANZANIA SECOND LTVTFETOCK DFVEFLOPMTNT PPOJFCT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ...... ....................... i-ii I. INTRODUCTION ........................................ 1 II. BACKGROUND .2 A. General. 2 Climate ............ 2 Ponulation and Cross Domestic Product 2 B. The Agricultural Sector. 3 Contribution of Agriculture to the Economy. 3 Land Use. 3 Ujamaa Cooperatives. 3 Livestock. 4 Animal Healt'. 5 C. Marketing and Slaughterhouses ..... ........ 5 D. Government Services. 6 E. Agricultural Institutions and Credit ............ 7 F. First Livestock Development Project .... ......... S III. THE PROJECT .8 A. General Description. . B. Detailed Features. 9 Ranch Development. 9 Markets, Stock Routes, and Holding Grounds. 10 Meat Processing ..................... .. 11 Operating Expenses .12 Technical Services .12 C. Cost Estimates .13 D. Financing .15 E. Procurement .17 F. Disbursement .18 This report is based on the findings of an IDA appraisal mission to Tanzania in February-March 1972, composed of Messrs. M. Walshe, T. Hussain, N. Worker (IDA), and F. Abercrombie, C. Wolffelt, A. Valdez, C. Reining (Consultants).  TABLE OF CONTENTS - Continued Page No. IV. ORGANIZATION AND ?4MNAGENENT ......................... 18 Project Managenent .................................. 18 TRT)P ................................................ 19 NACO ................................................ 20 DDc and Other Ujamaa Cooperative Ranches .... ........ 20 Livestock Marketing ................................. 20 Meat Processing ..................................... 21 Accounts and Audit .................................. 22 V. PRODIJCTTON, MARKET PROSPECTS AND PRICES, AND PRODUCER BENEFITS ............................... 22 Production .......................................... 22 Market Prospects and Prices ......................... 24 Producer Benefits ................................... 24 Government Costs and Revenues . ....................... 24 VI. BENEFITS AND JUSTIFICATION .......................... 25 Value of Additional Output .......................... 25 Employment .......................................... 26 Income Distribution ................................. 26 VlI. AGREEMENTS REACHED AND RECOMMENDATIONS .... .......... 26  ANNEXES 1. Agriculture in the Economy 2. Social Implications of Cattle Ranch Development of Ujaraaa Cooperatives Appendix 1 - Ujamiaa Ranching Through Utilization of Existing Pasture and Residential Land: Nindo, Segara- Izava, and Nlasai 3. Livestock tarketing Company Table 1 - Weekly lIarkets Investment Costs Table 2 - Phasing of 1Markets Table 3 - Revenue and Operating Expense Projection Table 4 - New Stock Route Investment Costs Table 5 - Existing Stock Route Investment Costs Table 6 - New Holding Grounds Investment Costs Table 7 - Existing Holding Grounds Investment Costs Table 8 - Stock Routes and Holding Grounds Revernue and Operating Expense Projection Table 9 - TLMC Consolidated Investment Cost, Operating Cost and Revenue Table 10 - TLMC Consolidated Cash Flow Table 11 - TLMC Operating Expense Projection 4. Meat Processing Plants Mlodel: Sanitary Improvements for Canned ieat Production at TPL - Dar es Salaam Table 1 - Investment Projection Table 2 - Sales and Operating Expenses Model: Mbeya Meat Processing Plant Table 3 - Investment Projection Table 4 - Sales and Operating Expenses Model: Shinyanga Meat Processing Plant Table 5 - Investment Projection Table 6 - Sales and Operating Expenses Model: Tanzania Meat Processing Company Table 7 - Investment and Operating Expense Projection Table 8 - Financial Projection Table 9 - Profit and Loss Projections  ANNEXES - Continued 5. Financial Institutions and Agricultural Credit Table 1 - Tanzania Rural Development Bank-Balance Sheets 6. Ranch Development Models Model: NACO and DDC Corporate Breeding/Fattening Ranch - 40,000 ha Table 1 - Herd Projection Table 2 - Investment Costs Table 3 - Sales and Operating Expense Projection Table 4 - Financial Projection Model: NACO Breeding Ranch (Dakawa) - 40,000 ha Table 5 - Herd Projection Table 6 - Investment Costs Table 7 - Sales and Operating Expense Projection Table 8 - Financial Projection Model: NACO Breeding/Fattening Ranch (Sumbwanga) - 32,000 ha Table 9 - Herd Projection Table 10 - Investment Costs Table 11 - Sales and Operating Expense Projection Table 12 - Financial Projection Model: NACO Breeding/Fattening Ranch (Usangu) - 40,000 ha Table 13 - Herd Projection Table 14 - Investment Costs Table 15 - Sales and Operating Expense Projection Table 16 - Financial Projection Model: Kitulo Plateau Ranch - 9,200 ha Table 17 - Herd and Flock Projection Table 18 - Investment Costs Table 19 - Sales and Operating Expense Projection Table 20 - Financial Projection Model: NACO Fattening Ranch (Malagarasi) - 40,000 ha Table 21 - Herd Projection Table 22 - Investment Costs Table 23 - Sales and Operating Expense Projection Table 24 - Financial Projection  ANNEXES - Continued Model: NACO Fattening Ranch (Mkata II) - 40,000 ha Table 25 - Herd Projection Table 26 - Investment Costs Table 27 - Sales and Operating Exp,ense Projection Table 28 - Financial Projection Model: Ujaama Breeding Ranch - 10,000 ha Table 29 - Herd Projection Table 30 - Investment Costs Table 31 - Sales and Operating Expense Projection Table 32 - Financial Projection Model: Masai Ujamaa Breeding Ranch - 4,000 ha Table 33 - Herd Projection Table 34 - Investment Costs Table 35 - Sales and Operating Expense Projection Table 36 - Financial Projection Tsetse Control and Land Development Unit Table 37 - Investment Costs Table 38 - Revenue and Operating Expenses 7. The National Agricultural Company, Ltd. (NACO) Table 1 - NACO Balance Sheet Table 2 - NACO Consolidated Cash Flow with Expansion Program Table 3 - NACO Consolidated Cash Flow without Phase II Table 4 - NACO Rate of Return on Expansion Program Appendix 1 - NACO Organization Chart 8. Preparation of the Third Livestock Development Project and Technical Services Table 1 - Project Management and Technical Services 9. Phasing of Investment Costs 10. Estimated Schedule of Disbursement of IDA Credit 11. TRDB Cash Flow from Project 12. Financial Rate of Return Table 1 - Ranches Table 2 - Marketing and Meat Processing Companies  ANNEXES - Continued 13. Economic Analysis Table 1 - Economic Rate of Return Table 2 - Sensitivity Analysis MAP Location of Project Rwxche4, Stock Routes and Holding Grounds Major Markets and Processing Plants  TANZANIA SECOND LIVESTOCK DEVELOPMENT PROJECT StTh4ARY AND CONCLUSIONS i. The Tanzania Government has placed high priority on agriculture and rural development in its Second Five Year Plan (1969-74). Livestock is one of the key subsectors and the proposed Project is in line with Government's plan for it. Under the plan emphasis is being placed on improving the live- stock marketing and distribution system, constructing slaughterhouses in the major cattle areas, and developing Ujamaa cooperative and parastatal ranches. The Project would increase beef Production bv developing ranches and by providing essential infrastructure, including markets, stock routes and hold- ing grounds, and meat nrocessing plants, the lack of which has reduced off- take in the large traditional herd to less than 3%. ii. The Project would he the second IDA credit for livestock develop- ment in Tanzania, the first having been made in 1968 for UJS1.3 million. Under that prolect, which is now progressing satisfactorily, cattle production is being increased on parastatal ranches operated hy the NaLtional Agriculture Company (NACO). Three other credits have also been extended to Tanzania for agricultural development - USS5 million was Drovided in 1965 for agricultural credit; US$9 million in 1970 for flue-cured tobacco; and US$10.8 million in 1972 for smallholder tea. The first of these which is fully disbursed ex- perienced difficulties due to weakness in the credit institution, since re- organized, the second is now progressing satisfactorily though development is behind schedule, and the third only recently became effective. iii. The Project would develop 11 parastatal (NACO) ranches, four District DeveloDment Corporation ranches, snonsored by district councils and 22 Ujamaa cooperative ranches; develop three large livestock markets, 10 medium-size markets, and 20 small markets and remodel 104 small existing markets; develop 2,300 km of new stock routes and improve 2,200 km of existing stock routes, and establish four new holding grounds and improve 23 existing ones; reconstruct one meat processing plant and build two new ones; and pro- vide technical services and training, and future project preparation work. iv. Project cost is estimated at US$24.7 million and covers a five- year period, from 1973 to 1978. The IDA credit of US$18.5 million would finance foreign exchange costs of USS11.3 million and aboul: half of local currency costs at US$7.2 million. Government would on-lend funds under the IDA credit to the Tanzania Rural Development Bank (TRDB) for a term of 20 years, including a grace period of five years, with interest charged at 4% per annum, the rate obtaining under previous IDA lending through TRDB. TRDB would be the lending channel for loans to Project beneficiaries. On-lending terLs would not exceed 12 years with a grace period of six years for ranch development loans and 3 years for meat processing and livestock marketing. Interest on all loans would be charged at 8-1/2% D.a. Funds for technical services and machinery for the Government Tsetse Control Unit would remain with Government.  - ii - v. A Project Management uTnit would be estahlished in the Ministry of Agriculture to coordinate and supervise Project implementation and would incltide a Project Manager, an economist, and a range management water specialist. The Project Manager would be responsible to a policy committee chaired by the Principal Secretary, Ministry of Agriculture, and, since the Project comprises a number of components both geographically and organiza- tionally dispersed, an executive committee would be formed to ensure coor- dination and implementation of works. The Project Manager would be its chairman. vi. International competitive bidding would be used for the construc- tion of two meat Drocessing plants by turn-key contracts - about US$4.1 million; remodelling of one meat processing plant - about ITS$ 0.6million; for procurement of all heavy equipment and machinery for the tsetse control unit and for tractors and machinerv used on ranches - about US$3 million; and on all contracts exceeding US$30,000. Existing commercial channels would be used for purchase of a broad range of miscellaneous items, and cattle would be purchased locally. vii. The estimated financial rate of return to the beneficiaries' incremental investments would range from 147 to 26%, while the rate of re- turn to the Tanzanian economy is estimated at 35%. The Project at maturity is expected to increase annual beef production by about 10,000 no tons from Project ranches, and the stock routes, holding grounds, and the marketing component would increase marketed offtake from the traditional herd hy about 11,000 m tons. The increase in foreign exchange sales at full development is estimated at USS6 million annually. Newz jobs would be created for about 2,500 people, and about 700 families would participate in the ujamaa ranch cooperatives. viii. Apart from Ujamna ranches, the Project would be channelled through Government owned comnanies and therefore most of its benefits would accrue to Government as profit and tax revenues. The Project will directly benefit the small cattle owners on: Mamaa ranches and wage employees on ranches, meat processing plants and in livestock marketing. In addition, the livestock marketing and meat processing components would provide significant benefits to traditional cattle producers on a countrywide basis. ix. The Project is suitable for an IDA Credit of US$18.5 million. Government would be the Borrower and would bear the foreign exchange risk.  TANZANIA SECOND LIP1ESTOCK DEVELOPMFNT PROJECT I. INTRODUCTION 1.01 The Government of Tanzania has placed high Driority on agriculture and rural develonment in its Second Five-Year Plan (1969-74): Its goals include the organization of rural economic activity on socialist lines, both through Ujamaa 1/ cooperatives and the expansion of other cooperative acti- vity, to bring about social change to be achieved through a planned program for expansion of crons and livestock based on disseminationi of modern agri- cultural techniques. To these ends, Government is giving priority to the expansion of rural credit, in part through the creation of a regional devel- ODment fund, development of cooperatives, and the formation of District Development Councils (DDC's). The Tanzania Rural Development Bank (TRDB) is giving priority to projects submitted by Uiamaa cooperaitives, other cooneratives, and DDC's and the programs for rural water supplies and rural housing imnrovement will continue to give priority to Ujamaa villages. Livestock (particularly beef ranching) is one of the key suib-sectors to be developed because of its potential for expansion. 1.02 As part of its plan, Government has requested assistance in financing a second stage of its livestock development program, begun under an IDA assisted project in 1968. Under the project, which is on-going and orogressing satisfactorily, five large scale National Agricultural Company (NACO) ranches are being developed. Government's original request comprised continued NACO support and substantial development of Iljanaa and ranches sponsored by the DDC's together with a Foot and Mouth Disease (FMD) vaccine production plant, and marketing and processing facilities. During and following appraisal, the Government reduced the emphasis on Ujamaa ranches while the appraisal mission found that further reductions to this and the DDC ranches were prudent in the light of inadequate experience with this type of development and could not find justification for FMD vaccine manufacturing. The Project now proposed would continue to support NACO and would influence production on a broader basis by including marketing and processing facilities and limited provision for Ujamaa cooperative and DDC ranches. 1.03 The proposed IDA credit would be the fifth for the agriculture sec- tor in Tanzania: US$5 million was provided in 1966 for agricultural credit and is fully disbursed; it experienced difficulties due mainly to weakness in the credit institution, since reorganized, although the project was tech- nically sound; US$1.3 million was provided in 1968 for livestock development and is progressing satisfactorilv (para 2.25); US$9 million was provided in 1970 for a flue-cured tobacco project which after some organizational dif- ficulties is now progressing satisfactorily; and USS10.8 million provided in March 1972 for smallholder tea became effective only recently. 1/ JUjamaa is a Swahili word meaning "familyhood".  1.04 The proposed Project was vrepared bv the Ministry of Agriculture, with assistance from the staff of the Permanent MAission for Eastern Africa and international consultants. This report is based on the findings of an IDA appraisal mission to Tanzania in February-March 1972, composed of Messrs. Walshe, Hussain, and Wiorker (IDA) and Abercrombie, Valdes, Wolffelt, and Mrs. Reining (Consultants). II. BACKGROUND A. General 2.01 Tanzania extends from the Indian Ocean to its western boundaries with Zaire, Rwanda, and Burundi (Map). Zanzibar, lying 30 miles off the coast, is part of the Repuiblic. 2The total area of mainland Tanzania is 361,800 square miles (937,000 km ), including 20,650 square miles (53,500 km-) of inland water, and, except for a narrowB strip of land along its 550-mile (900 km) coastline, lies at an altitude of over 300 m. A large part of the country is a plateau of about 1,300 m, xith mountainous areas rising to about 3,000 m on its southern and northeastern borders. Climate 2.02 Tanzania has a tropical equatorial climate, with a wide range of climatic and ecological conditions due to the different altitudes and the location relative to the ocean and inland lakes. Mfean daily temperatures range between 22