Thailand - Livestock Development Project

Report No. 800-TH FILE COP Thailand r Appraisal of the Livestock Development Project October 28, 1975 East Asia & Pacific Projects Department Not for Public Use Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1.00 - Baht (B)19.8 B 1.00 - US$0.05 US$1 million * B 19.8 million B 1 million - US$50,505 METRIC EQUIVALENTS I Rai - 0.16 ha - 0.41 aC ABBREVIATIONS AI - Artificial Insemination BAAC - Bank for Agriculture and Agricultural Cooperatives DPO - Dairy Promotion Organization LDD - Livestock Development Department RTC - Royal Thai Government  -2- LIST OF ANNEXES 1. Cattle Marketing 2. The Dairy Industry Table 1: Status of Dairy Cooperatives 2: Imports of Dairy Products into Thailand 3: DPO - Milk Processing - September 1974 4: DPO - Balance Sheets October 1971 - September 1973 5: DPO - Monthly Cost Projections - Ultra - High Temperature Sterilizer 3. Pasture Development Program Table 1: Annual Stylo Seed Utilization 2: Summary of Investment Costs 3: Central Mobile Unit - Tha Phra - Operating Expenses 4: Project Field Development - Operating Expenses 5: Pasture Research Unit - Operating Appendix 1 4. Pasture Seed Production Table 1: Investment Costs 2: Chiengyven & Huoi Luong - Operating Expenses 3: Eight Forage Stations - Additional Operating Expenses 4: Other Species - Additional Operating Expenses 5: Tha Phra Treatment Storage & Distribution Unit - Operating Expenses 5. Development of Breeding Stations Table 1: Livestock Station Improvements 6. Artificial Insemination Table 1: Artificial Insemination Program 2: Investment Costs 3: Additional Staff Requirements 4: Projected Operating Costs 7. Vaccine Production and Disease Control Chart 1: Organization Table 1: Component Costs 8. Assistance to Dairy Industry Table 1: New Dairy Farm - Investment Costs 2: New Dairy Farm - Income & Expenditure Account 3: New Dairy Farm - Cash Flow 9. Technical Assistance Table 1: Component Costs  THAILAND APPRAISAL OF THE LIVESTOCK DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ........................... i-iii I. INTRODUCTION ............................ 1 II. BACKGROUND ........ ........................... ... 1 A. General .......................................... 1 B. Livestock ........................................ 2 III. PROJECT AREA ........................ 5 A. General ....................5.-.-.---.---........ - B. Livestock ........................................ 6 IV. PROJECT FORMULATION ................................ . 7 V. THE PROJECT ....... ........................ .. 8 Brief Description .............................. 8 Detailed Features ............. .. ................ 10 Project Costs ............... .. .................. 14 Project Financing ............................... 15 Procurement ...... ............ ................... 15 Disbursement ............... .. ................... 16 Accounts and Audit ............ .. ................ 16 VI. ORGANIZATION AND MANAGEMENT .......... .. .............. 17 A. Livestock Development Department ............... . 17 B. Office of the Under Secretary of State Ministry of Agriculture ............................. 20 C. Reporting Procedures ............................ 20 VII. YIELDS AND PRICES .................................... 20 VIII. BENEFITS AND JUSTIFICATION ........................... 21 IX. RECOIrENDATIONS ....... ........... .................... 23  -3- 10. Project Costs 11. Disbursements Table 1: Schedule of Disbursements 2: Proposed Allocation of Proceeds 3: Project Financing Summary 12. Project Organization Chart 1: Livestock Development Department 2: Project Organization 13. Operating Results Table 1: AI Program 2: Village Herd Projection - With Project 3: Village Herd Projection - Without Project 4: Village Herd Projection - Closing Herd Values 5: Intensive Area Development 14. Economic Evaluation MAP   THAILAND LIVESTOCK DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. The Government of Thailand has requested a Bank loan to assist in the financing of a Livestock Development Project, the primary purpose of which would be to increase the productivity and incomes of traditional vil- lage livestock owners in Northeast Thailand. On the basis of the findings presented in this report, a loan of US$5.0 million is recommended. ii. The agricultural sector accounts for 30% of Thailand's GDP, 70% of export earnings, and 75% of employment. The growth of agricultural pro- duction has averaged 5.5% per annum in the last decade, one of the highest growth rates among developing countries in Asia. However, growth has been attained primarily through the expansion of cultivated area, and with the rapid disappearance of reserves of arable land, future growth will depend increasingly on intensification of production. iii. Farm holdings in Thailand are small (averaging 3 ha with only 5% in excess of 10 ha). The income of agricultural workers is substantially less than those of other sectors, and within agriculture there are sig- nificant regional disparities. Average income per farm family in the North- east, for example, is US$331 per year, about 25% of that in the Central Region. iv. Livestock are essential to the traditional agriculture of Thailand. They provide the preponderance of draught power for farm operations and rural transport, are a major source of cash income, and serve as reserve capital to be drawn down in the event of crop failure. Virtually all holdings have at least one buffalo, and 70% of farms in the Northeast have cattle as well. Roughly 10% of the cattle and buffalo population are slaughtered annually for domestic consumption. Disease control and vaccine production are inadequate at present to deal with endemic infectious di- seases, and only the Southern Region has been declared a disease free zone for Foot-and-Mouth Disease. v. The Northeast Region, where the project would be concentrated, is characterized by low and declining soil fertility. Shifting cultivation is widely practised on rainfed lands, and large areas of fallow and scrub lands constitute the major source of animal feed. The introduction of tropical legumes would greatly enhance the nutritive value of this fodder and would curb the decline in soil fertility to a considerable extent. vi. The proposed project would increase the productivity and incomes primarily of traditional village livestock owners in 640 villages in the Northeast selected for intensive development. The project would have the following major components: the establishment of the legume Townsville stylo on about 83,000 ha of fallow and permanent grazing lands; an extensive  - ii - cross breeding program for beef and draught cattle through artificial in- semination and "loaned bull" programs; expanded vaccine production; ex- panded research and production facilities for the Livestock Development De- partment; measures to increase the supply of milk cows; and livestock-related training and technical assistance. vii. Project costs over the five-year implementation period would be $ 227 million (US$11.5 million). The Bank loan of US$5.0 million would fi- nance foreign exchange costs amounting to 44% of total project cost. The loan would be made to Government and would be repayable in 20 years including 5 years of grace. viii. Procurement would be conducted as follows: (a) international competitive bidding following Bank guidelines for machinery, equipment and vehicles (US$1.25 million); (b) bids would be invited from at least three countries free of foot and mouth disease for the purchase of cattle and frozen semen (US$1.9 million); (c) civil works contracts would be awarded on the basis of competitive bidding advertised locally in accordance with procedures satisfactory to the Bank (US$.75 million); (d) advisors would be internationally recruited and approved by the Bank (US$0.3 million); (e) terms of reference for the dairy study would be subject to Bank approval (US$0.08 million); (f) normal trade channels would be used to purchase a small portion of equipment (US$0.15 million) and small amounts of pasture seed should these become necessary; (g) government procedures would be applied to incremental operating costs (US$4.4 million); and (h) research grants and study tours would be authorized by the Director General of the Livestock Development Department (US$0.1 million). ix. The project would be executed by the Livestock Development Depart- ment (LDD) of the Ministry of Agriculture except for two small dairy com- ponents which would be undertaken by other responsible agencies. All LDD components for the Northeast would be supervised by a Project Manager located at Tha Phra, who would be directly responsible to the Director General of the Department. Field officers in the intensive development areas would be responsible to the technical officers of nearby breeding stations, and through them to the Project Manager. Research activities would be coordinated  - iii - with those of other departments through the inter-departmental management of the Northeast Agricultural Research Centre at Tha Phra. x. Quantified benefits in terms of additional livestock sales are expected to accrue to about 171,000 families with the following distribution: 95,000 families, average $ 1,800 per year (70% over present income); 40,000 families, % 650 per year (25% over present income; and, 36,000 families, $ 160 per year (6% over present income). xi. Other benefits from the project would include: (a) a 60% increase in vaccine production which, together with improved disease control measures arising from project studies, are expected to reduce mortality by at least 10-15%, and improve animal productivity; (b) strengthening of the Dairy Promotion Organization (DPO) and an improvement in extension assistance to co-operative dairy operations throughout Thailand. (About 30,000 crossbred dairy cows are expected to be added to the national dairy herd over an eight year period.); (c) research efforts, resulting in improved pasture management, crossbreeding, calving dates and supplemental feeding; and (d) initial work on buffalo should identify potential improve- ments in the productivity of buffalo which outnumber cattle 7:4 in Thailand. xii. The project produces positive and very attractive net economic benefits after year 2. However, this investment capitalizes on a number of costly infrastructure and research efforts such as the bilaterally fi- nanced central AI facilities (Netherlands) and pasture research (Australia and New Zealand). The projected 68% economic rate of return for quantified benefits and related costs must be viewed in this context. xiii. With the assurances obtained, this project would be suitable for a Bank loan of US$5.0 million.   I. INTRODUCTION 1.01 The Royal Thai Government has asked the Bank for assistance in the financing of a Livestock Development Project. A Bank Agricultural Sector Survey recommended a livestock project in 1971. The project was identified by a Bank reconnaissance/identification mission in early 1973, and prepared by a FAO/IBRD Cooperative Program mission which visited Thailand in September 1973. Subsequent updating and nodifications were undertaken by an inter- departmental working group of the Ministry of Agriculture with the assist- ance of the Bank's Resident Mission. 1.02 The proposed project would be the third Bank Group project in Northeast Thailand. Credit 461-TH, approved in February 1974, is an irri- gation improvement project covering about 42,000 ha. The credit also in- cludes a research program to develop improved methods of rainfed rice cul- tivation. The Northeast Rural Development Project to be presented for con- sideration by the Executive Directors in the current fiscal year would finance infrastructure improvements in the rural Northeast, including village access roads, potable water supply, village electrification, minor surface irrigation and agricultural extension. The project would also include a research program to develop improved methods of rainfed upland crop culti- vation. Cattle and buffalo are an integral part of agricultural production in the region and the proposed Livestock Development Project would complement the preceeding projects in addressing the needs of smallholder agriculture in the Northeast. 1.03 This report is based on the findings of an appraisal mission which visited Thailand in October/November 1974. The mission was composed of J. Brown, K. Arichandran, A. Cheema, (IBRD), P. Skerman, A. Robertson, E. Pitt, and R. Fenwick (Consultants). The mission also appraised the North- east Rainfed Upland Crop Project subsequently incorporated in the Northeast Rural Development Project. II. BACKGROUND A. GENERAL 2.01 Thailand has a total area of 51.4 million ha of which 10.9 million ha is under cultivation. The population of 39.7 million (mid-1973) is increasing at about 3.1% annually. In the past ten years, the economy has grown at a average real rate of more than 7% and output per capita has increased at over 4%. Agricultural Production 2.02 Thailand's economy is predominantly agricultural. This sector accounts for nearly 30% of GDP, 70% of export earnings (mainly rice, maize, kenaf, rubber and sugar), and about 75% of total employment. The growth rate of agricultural output has averaged 5.5% per year in the past decade  and is one of the highest among developing countries in Asia. Thailand is a net exporter of food, primarily rice of which 848,000 tons were exported in 1973. However, the contribution of agriculture to GDP declined from 40% in 1960 to 30% in 1970, and the growth in crop production, which accounts for about 72% of total agricultural production, has been primarily attribut- able to expanded area of cultivation, which grew at an average rate of 3.8% in the period 1960-1970. New areas suitable for cultivation are rapidly diminishing, and future growth will depend upon concerted efforts at inten- sification of agricultural activities. Farm Income Pattern 2.03 Almost 50% of agricultural holdings in Thailand are less than 2.4 ha and only 5% are ten ha or more. The size of holdings has increased slightly as indicated by the land-worker ratio (from 0.72 ha in 1960 to 0.9 ha per person in 1970). Large income disparities exist in Thailand mainly between urban and rural areas but also, within agriculture, among the four main regions of the country. In 1973, the GDP per worker in agriculture averaged about $ 4,300 (US$215) compared with $ 32,500 (US$1,620) for workers in other occupations. Farm income levels in 1970 (the latest year for which data is available) ranged from $ 7,154 (US$1,192) in the Central Region to $ 1,986 (US$331) in the Northeast. B. Livestock Present Livestock Situation 2.04 Although livestock account for only 13% of the gross value of agricultural production they are nevertheless an integral part of the rural economy, constituting a significant source of cash income for small farmers and a capital reserve on which to rely in the event of crop failure. Cattle and buffalo also account for the preponderance of rural draught power and hence are essential to the livelihood of most Thai farmers. In many regions where village cattle are grazed as a single unit, livestock are a focal point for village activities and contact with villagers through public sector livestock services provides an excellent entree for other public sector services to the rural community. However, slow growth in livestock production, about 2.5% per year, has resulted in a reduction of live cattle exports and domestic meat prices have risen sharply in recent years. The indigenous cattle are of Zebu origin with an average mature weight of about 350 kg. Local buffalos are of the swamp type weighing about 500 kg. at maturity and are used principally as draught animals. Virtually all farm holdings have at least one buffalo, while 60% of all holdings have 2-3 buffalos. About 70% of holdings have cattle, but only 30% have three or more head. Both cattle and buffalo populations are characterized by relatively low herd pro- ductivity. Annual weaning rates are about 45% for cattle and 33% for buffalo. This is primarily attributable to frequent feed stress, although inadequate animal health protection is also a significant factor.  - 3- Livestock Development Department 2.05 The Livestock Development Department engages in research and de- velopment activities intended to promote the growth of livestock production in Thailand. In addition, it is charged with disease control and the en- forcement of livestock marketing regulations. While authority is highly centralized in Bangkok, the department does maintain breeding and forage stations and Al centres throughout the country. Regional and provincial veterinarians oversee the disease detection and control programs and five mobile veterinary units are used to vaccinate cattle in the buffer zone protecting the Southern Region, which is a disease free zone for Foot and Mouth Disease (FMD). Infectious Disease 2.06 The following infectious diseases of livestock are relatively com- mon in most of Thailand: Foot-and-Mouth Disease, Haemorrhagic Septicaemia, Blackleg, Brucellosis, Fowl Cholera, Anthrax, Swine Fever, Newcastle Disease, Fowl Pox, and Infectious Bronchitis. As a result of inadequate detection and control programs the majority of outbreaks of these diseases go unre- ported. Nevertheless, reported deaths from Haemorrhagic Septicaemia alone average about 2,800 per year. Southern Thailand is free of Foot-and-Mouth Disease, but the disease is a major constraint on animal production elsewhere in Thailand. Bilateral aid has recently been received from the Government of Japan to increase FMD vaccine production by 60% to 1.6 million doses per year. Cattle Breeding 2.07 One of the most effective development programs of LDD has been the upgrading of local cattle in the Northeast by crossing with locally selected Brahman bulls. This program consists of more than 130 village farmers' groups, each with an average cattle herd size of about 100 head. The objective of the program is ultimately to upgrade the native cattle to Brahman in view of their superior draught and meat characteristics. Although farmer response has been very enthusiastic, progress will be slow without considerable increases in staff and resources for the program. Low Cost Pasture Improvement 2.08 Parallel with breed improvement there is a need to raise the nutritive value of local feedstuff, particularly during the dry season. Results from the Borabue Thai/New Zealand pasture station near Khon Kaen have shown that it is possible to grow high quality legume-based pastures capable of sustaining high levels of animal production at all times of the year. Perhaps the most important result from the station to date is to demonstrate that it is possible to improve the nutritive value of native forest grasslands by oversowing with the annual legume Stylosanthes humulis. With minimal amounts of phosphate and sulphur fertilizers the improvement is often dramatic. These findings confirm the experience in tropical Australia where these inputs are now the basis for low cost improvement  - 4 - in large areas climatically and ecologically similar to Northeast Thailand. There is little doubt that the widespread application of this simple technique in the region could have a dramatic effect on animal production. In addition (and more importantly) this legume could well prove to be a simple, low cost means of stabilizing and increasing production from the dryland cropping areas by including it as a fertility/soil texture building ley in a cropping rotation. Studies on this are being made at Khon Kaen University by an Australian Colombo Plan pasture/crop specialist working in collaboration with local farmers in a number of villages in the Khon Kaen area. This concept is gaining widespread acceptance by the village farmers but there is need for further studies in the area of soil improvement techniques using legumes. Depending on the results it could well be that this legume could be the means of improving long term agricultural pro- duction in the region in addition to its proven contribution to animal nutrition. Livestock Marketing 2.09 Government estimated the number of working animals in Thailand in 1970 (the latest census figures) at 2.6 million cattle and 3.5 million buffalo, with a working life of 5 years for cattle and 6 years for buffalo. While these are sufficient numbers to work more than the present area under cultivation, feed stress at critical work times does reduce the capacity of draught animals and jeopardize timely farm operations. Slaughter animals are generally a byproduct of workstock, and shortages of draught animals in the past resulted in introduction of age limits for slaughter animals which are still in effect. While slaughter estimates vary considerably, it appears that about 400,000 cattle and 600,000 buffaloes are slaughtered annually. Only about one third of this total is slaughtered in licensed abattoirs, the balance being slaughtered illegally. Licensed facilities are entirely inadequate to handle total slaughter requirements and are in most cases unhygienic. Effective improvement of slaughter facilities is closely tied to a number of policy and regulation issues. A committee has recently been established under the chairmanship of the Director General, LDD, to review the livestock laws and regulations, including disease control, pricing policy and export quotas. Annex 1 elaborates on meat marketing problems. Dairy Industry 2.10 Dairying in Thailand is based almost entirely on small, mixed farm herds of three to ten cows. A specialized dairy farming pattern based on 25 rai (4 ha) pasture farms has been introduced in a dairy colony at Muak Lak. The majority of dairy farmers belong to, and market through, a cooperative. The two largest dairies in Thailand are owned by a government agency (Dairy Promotion Organization) and a private company (Foremost) and the balance are almost entirely cooperative-owned. The fluid milk market is small, about 108 tons per day, but steady growth is evident. In addition, imports of dairy products, primarily powdered milk and butter oil have in- creased steadily (1972 dairy imports: 30,700 m.t., valued at US$24.2 million). Three government agencies are engaged in various dairy development activi- ties: Dairy Promotion Organization, Cooperatives Department, and LDD, and  there is a need to strengthen and coordinate their efforts. The dairy industry is further described in Annex 2. Prolected Growth of Livestock Production 2.11 The Third Plan (1972-1976) projected a growth rate of 3.4% per year for livestock production, slightly higher than the present rate of human population growth. This desirable target has not been achieved to date, and concerted development and research efforts will be required in the fields of genetic improvement, nutrition, disease control and manage- ment if it is to be realized in the near future. III. PROJECT AREA A. GENERAL 3.01 The Northeast Region is a distinct physiographic unit with an area of 170,000 sq. km. and a population of 12 million. Although the region accounts for one-third of the country's population and land area, its contribution to GDP is only 16%, and its per capita income is only 25% of that of the Central Region. Soils and Rainfall 3.02 The soils are generally acidic and low in organic matter, with a high sand content and low to moderate water holding capacity. They are generally low in nitrogen, phosphorus, potassium and sulphur and in many areas repeated cropping without the use of fertilizers has resulted in marked decline in soil fertility to such a level that further cropping is not economical. Average annual rainfall in the Northeast ranges from 1,100 millimeters in the western provinces to over 1,600 millimeters in the east- ern provinces bordering the Mekong River. Eightyfive percent of the rain- fall occurs from mid-May to mid-October. Total rainfall is adequate for wet season crops, but it is often poorly distributed in relation to crop water requirements. Drought periods of 10-15 days are common in July and August, and October rainfall is often insufficient for the maturing rice crop. Agricultural Pattern 3.03 Almost 80% of the cultivated area (total 3.5 million ha) in the Northeast is planted to paddy. Upland crops, including in order of impor- tance kenaf, corn, cassava, peanut and cotton, account for 18% of the area and the balance is primarily tobacco and sugarcane. As a result of poor soil fertility and the very limited use of chemical fertilizer, upland crop production is characterized by shifting cultivation, with substantial areas lying fallow for five years or longer at a time. In addition, inadequate or untimely rainfall frequently results in a significant proportion of paddy land lying idle. These areas are important sources of forage but the  -6- native plants which dominate in the regrowth are low in both productivity and nutritive value. Communications 3.04 The region is served by an excellent network of paved roads. Village access roads are a limiting factor in some areas although the North- east Rural Development Project which is expected to be considered by the Executive Directors for possible financing would help to remove this cons- traint. Agricultural Credit 3.05 The supply of credit in the Northeast has been slower to develop than elsewhere in Thailand. Only 15% of total credit to agriculture is provided by financial institutions. The balance is provided by money- lenders, relatives, neighbors and traders at exorbitant rates of interest, although some marketing and processing services may be provided at no additional expense. The Bank for Agriculture and Agricultural Cooperatives (BAAC), wholly-owned by government, provides 85% of institutional credit to agriculture, often through cooperatives or farmers' associations. As of December 31, 1973 outstanding loans by BAAC in the region totalled A273.1 million (US$13.8 million) which was 24% of their total loan portfolio on that date. Sixty seven percent was in short-term loans, the balance in medium-term loans. At present BAAC credit to livestock is limited to work animals and hogs for fattening. Indicative of BAAC's rapid growth is the fact that 31% of all credit extended from 1967 to 1973 was extended in that last year. To assist in BAAC's entry into the long-term credit market, a bilateral agreement has been reached with the New Zealand Government to pro- vide two credit advisors for a period of one year. B. Livestock Cattle and Buffalo in the Farming System 3.06 About 45% of Thailand's 4.7 million cattle and 47% of its 5.4 million buffalo are found in the Northeast. Even the smallest holdings normally have at least one buffalo, and 70% of all farm holdings have cat- tle. Only 30% have three or more cattle, and herds larger than ten are rare. Cattle and buffalo are the primary sources of draught power not only for cultivation but for transport as well. The village herd is generally managed as a unit. While ownership is distinct and animals usually graze in groups of five or ten, the herd is usually grazed in the same total area. Protection of private pasture for the exclusive use of the owner's livestock is very rare, and tends to be viewed as antisocial. In the wet season, live- stock are kept from the cropped areas, and common scrublands and fallow are the principal pasture areas. After the harvest, standing stubble and the growth on bunds and field margins are the important forage. Distinct periods of feed stress occur at the end of the wet season, prior to harvest, and  - 7 - toward the end of the dry season, when the total fodder stock is diminished and regrowth is negligible. Marketing 3.07 The primary market for cattle and buffalo is for draught purposes. Many communities in the Northeast are known throughout Thailand for the quality of their draught animals, and buyers travel to these villages to buy from individual farmers. Suppliers in the Northeast resist organized marketing on the grounds that prices are generally higher when purchases are made at the farm. Slaughter animals, officially those over specified age limits and of lesser draft value, are bought from farmers by butchers. Middlemen are only significant in the assembly of shipments for the large Bangkok market. Virtually all meat sales in the region are conducted in open air markets within hours of slaughter. Most slaughtering is done illegally, in part because of poor licensed facilities, in part to save fees charged by these facilities, but also in part to avoid inspection which would reveal that many animals do not comply with age restrictions. Price controls are generally ineffective, and are frequently adjusted to keep pace with market conditions. Dairy Industry in the Northeast 3.08 The major thrust of dairy development in Thailand has been at Muak Lak where the Thai Danish Dairy Farm was established in 1963. Its successor, the Dairy Promotion Organization now operates a 1,700 cow farm and a processing plant with a current throughput of 11 tons of fresh milk per day. A Land Settlement Department colony of 120 private farms (25 rai each) supplies a substantial share of the dairy's raw milk. DPO operates a farmers' training program and a frozen semen Al service using bulls selected from a Red Dane, Sindhi, native, cross-breeding program. DPO has within its staff an excellent level of technical expertise which could be used to great advantage in training the staff of other agencies engaged in dairy development elsewhere in Thailand. IV. PROJECT FORMULATION Priority of Livestock Development in the Northeast 4.01 Livestock development is a particularly effective means of improving the economic condition of large numbers of smallholders in Northeast Thailand: (a) Livestock contribute a major share of the cash income of farmers in the region, many of whom have land holdings too small to be viable with crop production alone. (b) With the rapid disappearance of new land for cropping, the intensification of agricultural production is becoming essential for economic growth, and livestock can play a  major role in this respect because of their ability to utilize land and plant resources which otherwise have little or no economic value. (c) The introduction of tropical legumes into natural pastures and fallow land serve to arrest the decline in soil fertility which has resulted in a dominant pattern of shifting culti- vation and which otherwise could not be overcome without costly applications of chemical fertilizer. (d) Day-to-day herd management absorbs underemployed family labour in an economically attractive activity. RTG places great emphasis on agricultural development in the Northeast and recognizes the importance of livestock in this respect. Its desire to proceed quickly with a livestock project in that region has been substantiated by the active role of officials in project preparation and the budgetary commitment already made to the initial year of activities that would be covered by the project. 4.02 The project described in the following chapters has been designed primarily to alleviate the following specific constraints on agricultural production in the Northeast: (a) low yields and nutritive value of natural grazing areas; (b) periods of feed stress resulting in reduced animal growth and draft capacity; (c) declining soil fertility as a result of continuous cultivation of soil-depleting crops; (d) genetic constraint on growth and size of native zebu cattle; and (e) widespread occurance of debilitating livestock diseases. V.. THE PROJECT Brief Description 5.01 The proposed project would increase the productivity and income primarily of farmers in 640 villages in the Northeast which have been selected for intensive pasture and livestock development under the project. Villages have been selected on the basis of farmer interest, suitability of available fallow and common grazing lands, scope for improvement of cattle herds through cross breeding and disease control, and proximity of breeding sta- tions that would be centres of technical assistance. 1/ In addition, the 1/ The list of areas selected for intensive development appears as Appendix I of Annex 3.  - 9 - project would provide for an expansion of existing national artificial insemination and disease control programs, increase the number of cross- bred milk cows and trained workers available for the nascent dairy industry, and provide a model to government for the extension of livestock services to other areas. 5.02 The project would consist of: - establishing the legume Townsville stylo on about 83,000 1/ ha of fallow and permanent grazing lands; - production of about 85 metric tons of forage seed annually on Northeast forage stations, of which 60 tons would be Townsville stylo; - expanded research and production facilities of five Livestock Development Department (LDD) breeding stations and two sub- stations in the Northeast; - expansion of the "loaned bull" program in the Northeast by 455 bulls at full development; - expansion of the national artificial insemination program to service 72,000 additional cows annually by the fifth year; - the import of about 300 Brahman bulls and about 600 Brahman cows for research and production at Northeast breeding stations and to meet the immediate needs of the loaned bull and AI programs; - the import of 144,000 doses of Brahman and Holstein-Friesian semen for the national Al program; - expanded vaccine production facilities serving the country as a whole; - training facilities for the Dairy Promotion Organization (DPO) to improve the caliber of assistance to dairying throughout the country; and - technical assistance, including advisors in pasture develop- ment, seed production and processing, livestock research, disease control, vaccine production and agricultural training, and study tours, assistance in the assessment of future dairy potential and the preparation of a dairy project. 1/ 64,700 ha within intensive development areas, the balance in support of other ongoing pasture development activities primarily in the Northeast.  - 10 - 5.03 The proposed project is based on pasture work of the Land Develop- ment Department and Khon Kaen University, and the proven superiority of, the farmer preference for, Brahman cross cattle. Ancillory services such as seed production, animal breeding and disease control have been provided by government agencies for some time, and the project would build on that experience. 5.04 The project would be executed by the LDD except for dairy training and project preparation which would be carried out by the DPO and the Office of the Under Secretary, Ministry of Agriculture, respectively. Within the LDD, individual project components would be implemented by staff of the respective technical divisions. All LDD components for the Northeast would be supervised by a Project Manager located at Tha Phra, who, together with Division Chiefs, would be directly responsible to the Director General of the Department. Field officers in the intensive development areas would be responsible to the technical officers of nearby breeding stations, and through them to the Project Manager. 5.05 While problems surrounding meat marketing would not pose a con- straint on development under this project, the long term growth of the subsector and the scope for future large scale investment will depend on a number of policy decisions by RTG, particularly with respect to disease control, age limits on slaughter cattle, domestic pricing policy, and export quotas. Assurances were received that a report of the interdepartmental committee reviewing these issues would be submitted to the Bank for information and discussion within 12 months of the date of signature of the proposed loan. Detailed Features 5.06 Pasture Development: Broadcast sowing of Townsville stylo has been proven as an effective low-cost means of improving significantly the quality of many types of grazing areas in the Northeast. While Townsville stylo responds well to phosphorus and sulphur fertilizer in the region, no fertilizer is required either for establishment or significant quality im- provement over native pasture. Seed innoculation is not required for nodule development. Under the project, seed would be distributed initially in intensive area villages, in adequate volumes for the sowing of 200 rai (33 ha) per village in the first year of participation and 400 rai (67 ha) per village in the third year of participation. Grazing practices are such that village cattle and buffalo are permitted to graze private as well as communally-owned lands. The benefits of improved forage on any one area therefore do not accrue entirely to the owner, and seed and sowing costs would not be charged to owners. Seed, at estimated production cost of $10 (US$0.5) per kg would be distributed free of charge and village farmers would, under supervision of Field Development Officers, perform sowing and the minimal management requirements for pasture establishment. Irre- spective of communal or private ownership, sites would be selected on the basis of heavy grazing pressure, freedom from extensive brush cover, ac- cessibility by village stock, and soil permiability and drainage. In keeping  - 11 - with village tradition, these areas would not be fenced. Close herd super- vision and some brush fencing are now adequate to keep cattle from paddy areas and would suffice to protect stands of stylo until, after several months, they could withstand heavy grazing. Although the species is very persistent in grazed areas, it will not become a serious weed of crops. It is intolerant of water logging and therefore poses no threat to rice; it is also intolerant of shade and will not compete well with rapidly growing upland crops. Provision would also be made for field trials using phosphorus and sulphur fertilizers on limited areas of Townsville Stylo, to assess the impact on nitrogen fixation. Details of pasture development appear in Annex 3. 5.07 Forage Seed Production: Present supplies of Townsville stylo are very limited in Thailand and elsewhere. The Land Development Department station at Borabu, the largest source of seed in Thailand, produced less than five tons this year compared with a peak project requirement of 60 tons per year. Under the project 2,000 rai (about 335 ha) would be put into Townsville stylo seed production on three LDD forage stations in the region. This area would meet project seed requirements. The demand for seed outside the project area is significant, and the future export potential is added assurance that all production from this area would be used after the initial project period. In addition, 900 rai (150 ha) would be developed for the production and testing of other pasture species, primarily legumes, which have undergone initial adaptation trials and been found suitable for further work or immediate distribution. 1/ Of particular interest is the legume Siratro (Macroptilium atropurpureum) which has been found to do well in mixed pastures with Paragrass (Brachiaria mutica), the most popular grass species in improved pastures of the region. A central seed processing and storage unit would be established at the project headquarters, Tha Phra. Details of the seed production component of the project appear in Annex 4. 5.08 Development of Breeding Stations: The facilities and staff of five of the breeding stations and two substations in the Northeast would be expanded for research and production purposes and to serve as technical service centres for the project's intensive development areas. An eighth station, Surin, would also serve as a research and technical service centre, but no additional facilities would be required. Details of this component including activities to be undertaken at each station and staffing require- ments are presented in Annex 5. Investments requiring Bank financing under the project would be undertaken in accordance with annual work plans approved by the Director General, LDD, in consultation with the Livestock Research Advisor and the Project Manager. Assurances were received that these plans, in sufficient detail to reflect the purpose and priority of station activities, would be submitted to the Bank for review and comment at least three months prior to the beginning of each fiscal year of the project period. 1/ To overcome seed shortages in the early years of the project, a portion of this area would also initially be planted to Townsville stylo.  - 12 - 5.09 Loan Bull Program: The LDD presently operates a "loaned bull" program whereby Brahman bulls are given to registered Farmers Groups to service members' cows. Bulls are inspected for health and management regularly and those returned to the department for health care or condi- tioning are kept in isolation from the LDD herds. Members pay reduced fees for the service of group bulls, typically half of the private rates which range from $ 100 - $ 200 (US$5-10). The project would expand this program to serve project villages which cannot be served by AI facilities in the near future, generally because of poor communication facilities. Over the project period, about 455 bulls would be added to the program. The Project Manager, acting on advice of the Animal Husbandry Officers at project breeding stations, would approve the loaning of each bulll. Monthly records of utilization, conception rates, and health would be kept for each bull. 5.10 Artificial Insemination Program: The national AI program of the LDD would be expanded by 23 Centres and 135 inseminators with initial con- centration in the intensive development areas. The semen collection centre at Tha Phra and the central laboratory and storage facilitity in Bangkok are being expanded and improved under bilateral financing by the Netherlands government. AI services to date have concentrated on dairy cattle, and project financing would meet the anticipated additional demand for Holstein- Friesian semen 1/. However rapid expansion is expected to occur with the increased availability of Brahman semen, and the majority of inseminations under the project are expected to be of this breed. The use of frozen semen has been selected by both DPO and LDD for future expansion of services. Con- version is now taking place, and all project investments would be for frozen semen services. Domestic supply of liquid nitrogen will be more than adequate, and a regular courier service would maintain the supply to all AI Centres and inseminators. Cows serviced by AI would increase from 8,000 at present to 80,000 in year five of the project (an increase of 1% of the total cow population per year). Assurances were received that a fee structure would be introduced for AI services which would be adequate to recover at least 50% of reasonable operating costs by year five of the project. The AI program is further described in Annex 6. 5.11 Import of Cattle and Semen: To support the expanded research and production programs of the breeding stations referred to in para 5.08, and to meet the short term requirement of the "loaned bull" and Al programs, cattle and semen imports would be required. About 600 cows and about 300 bulls of the Braham breed would be imported in lots of 150 or less in the first two years of the project. 2/ About 200 bulls would be used in the "loaned bull" program, and the balance of the cattle would go to selected breeding stations in the Northeast. Total annual semen requirements would be met from domestic sources after year 6, but about 144,000 doses of imported 1/ Red Dane and Red Dane Cross semen is provided by DPO and this would also be offered through the LDD AI service. 2/ See Annex 5, Appendix 2 for import specifications.  - 13 - semen would be required initially of which about 80,000 doses would be Holstein Friesian, and 64,000 doses Brahman. To avoid depletion of LDD purebred Brahman stock and to ensure that buyers financially able to import their own breeding stock do not benefit from LDD-cost assistance, assurances were received that except as the Bank shall otherwise agree no purebred Brahman stock purchased or produced under the project would be sold during the project period except those culled or castrated in the course of sound herd management. 5.12 Vaccine Production: Vaccine production facilities of the LDD would be expanded under the project to improve vaccine quality and to increase annual output by about 3.2 million doses as follows: Blackquarter, 20,000; Brucella abortus Strain 19, 150,000; Haemorrhagic septicaemia, 2 million; and Fowl Chlolera, 1 million. This would represent respective increases over present production of 50%, (no Brucella vaccine now produced), 115%, and 60%. 5.13 Assistance to the Dairy Industry: Preliminary analysis indicates that dairying is financially and economically attractive in Thailand. The proposed project would remove constraints to future development by (i) in- creasing the supply of good milk cows (see AI component); (ii) finance a feasibility study for a future dairy project, and (iii) strengthen the capacity of public sector agencies to assist dairy development. The Dairy Promotion Organization, successor to the Thai-Danish Dairy Farm, has bene- fited from more than ten years of Danish technical and financial assistance. It now possesses within its staff an excellent level of technical expertise in milk production and processing. DPO's commercial activities include the sale of milk and milk products as well as some cows and frozen semen. Under the project, training facilities would be provided to enable DPO to under- take training of staff of the Cooperative Promotion Department which assists cooperatives and their members in dairy activities. Improved technical competence on the part of government field staff would have immediate bene- fits for existing dairy farmers and processors and would be essential for future dairy development. To ensure the commercial viability of DPO and thereby safeguard its usefulness as a demonstration and training unit, assurances were received that the following measures would be taken by Govern- ment to strengthen DPO: (i) the appointment of a Deputy Director with both technical and commercial experience relevant to the work of DPO; (ii) the appointment of a qualified experienced accountant as Finance Manager; (iii) the implementation of a suitable accounting system, possibly with the assistance of the National Audit Council; (iv) the updating of all accounts, which would require the assistance of accountants employed on contract from outside DPO; and  - 14 - (v) the appointment of an experienced officer as Sales and Marketing Manager. 1/ 5.14 Technical Assistance: Six internationally-recruited advisors would be engaged for varying periods on terms and conditions acceptable to the Bank to assist in project execution in the following fields: Pasture Development (2 years); Pasture Seed Production and Processing (6 months); Livestock Research (2 years plus two annual 1-month tours); Disease Control (6 months); Vaccine Production (6 months), and Agricultural Training (3 months). Terms of reference for each position appear in Annex 9. Assur- ances were received that internationally recruited advisors would be selected from short lists approved by the Bank and appointed on terms and conditions acceptable to the Bank. In addition, funds would be provided for eight study tours by senior staff engaged in Al training, semen processing and storage, pasture research, livestock research, and disease control and 10 study tours by AI crentre chiefs. Study tours in Asia and/or Australia would be provided for the 16 Pasture and Livestock Development Officers, to be arranged in consultation with project advisors and the Resident Mission. Funds for the engagement of consultants to assist in the prepara- tion of a dairy project would also be included in the project. Terms of reference for the study would be subject to Bank approval. Details of technical assistance components appear in Annex 9. Project Costs 5.15 Total project cost over a five year period is estimated to be US$11.48 million of which foreign exchange costs would be US$5.00 million (44%). Since the approach used in this project would be to strengthen public sector services to the traditional livestock industry, incremental operating cost associated with project activities have been included in project costs (US$4.4 million). The total cost estimated includes a 10% physical contingency on all items except technical assistance and operating costs. All base cost estimates are in January 1975 prices. Expected price increases were derived by applying to project costs the following rates of annual price escalation: equipment, machinery and vehicles - 1975, 12%; 1976, 10%; 1977 and thereafter, 8%; other costs - 1975, 16%; 1976, 14%; 1977 and thereafter, 12%. Details of project costs appear in Annex 10, and respective technical annexes. A summary of project costs follows: 1/ Dairy components of the project are described in Annex 8.  - 15 - Project Cost Summary Local Foreign Total Local Foreign Total Foreign ----(Million Baht)-- ---(US$ Thousand)---- Exchange Seed Production 4.4 2.4 6.8 218 123 341 36 Development of Breeding Stations 31.8 37.5 69.3 1,609 1,891 3,500 54 Al Program 25.4 21.7 47.1 1,286 1,095 2,381 46 Intensive Area Development Staff /a 15.8 3.4 19.2 798 172 970 18 Vaccine Production 11.1 5.7 16.8 562 289 851 34 Dairy Training 0.3 0.1 0.4 13 7 20 36 Technical Assistance 1.1 8.2 9.3 55 415 470 88 Base Cost Estimate (1/75) 89.9 79.0 168.9 4,541 3,992 8,533 Physical Contingency 4.3 3.6 7.9 215 183 398 Price Contingency 34.1 16.4 50.5 1,724 825 2,549 TOTAL COST 128.3 99.0 227.3 6,480 5,000 11,480 44 /a Primary function: pasture deveitpment. Project Financing 5.16 The proposed Bank loan of US$5.0 million would finance the foreign exchange cost of the project. The local currency requirements of about $ 128 million (US$6.48 million) would be financed by Government through budgetary allocations to implementing agencies, primarily the Livestock Development Department. Procurement 5.17 Procurement of machinery, equipment and vehicles would be subject to international competitive bidding pursuant to Bank guidelines ($1.25 million) except for an estimated 10% of such purchases which would be small and not suitable for bulking in which case procurement would be conducted in accordance with normal Government procedures ($.15 million). For the  - 16 - purchase of cattle and frozen semen bids would be invited from at least three countries free of foot and mouth disease ($1.90 million). Civil works contracts would be awarded on the basis of competitive bidding advertised locally in accordance with local procedures satisfactory to the Bank ($.75 million). Foreign contractors would be eligible to bid. Internationally recruited advisors would be selected from short lists approved by the Bank, or at RTG's discretion, approved individually by the Bank ($.30 million). Terms of reference for the dairy study would be subject to Bank approval ($.08 million). Incremental operating costs would be controlled by normal government staffing and procurement procedures, as would the import of small quantities of pastures seed should this become necessary ($4.4 million). Research and study tours would require approval by the Director General, Livestock Development Department ($.08 million). Disbursement 5.18 Disbursements would be made at the rate of 100% of the c.i.f. cost of directly imported machinery, equipment, vehicles, cattle, frozen semen, and pasture seed, or the ex-factory price (net of taxes) of machinery, equip- ment and vehicles of locally manufactured, and at the rate of 65% of total expenditure for imported machinery, equipment and vehicles procured locally. Disbursement for the services of foreign advisors and consultants would equal 100% of the foreign exchange cost. 100% of the total cost of research and study tours would be disbursed against statement of expenditure certified by the Director General, LDD. 25% of the cost of buildings would be disbursed against invoice. Documentation for cost of research and study tours and incremental operating costs of field staff would be retained by the Borrower and available for inspection by the Bank during the course of a project supervision mission. Any funds remaining in the loan account upon completion of the project would be used to finance additional works and/or expansion of project activities after agreement between the Government and the Bank. A schedule of disbursements, together with a proposed allocation of the proceeds of the loan and a project financing summary appears as Annex 11. Accounts and Audit 5.19 Assurances were obtained from RTG that: (i) Separate project accounts would be kept by the Livestock Development Department, adequate to reflect the use of project funds for all components except dairy training and the dairy study; (ii) The Dairy Promotion Organization would keep separate accounts adequate to reflect the use of project funds for dairy training; and  - 17 - (iii) Summary accounts for LDD and DPO expenditures would be maintained by the Office of the Under Secretary, Ministry of Agriculture, together with records pertaining to the dairy study. Assurances were also obtained from RTG that project accounts would be audited annually by auditors acceptable to the Bank and that audited project accounts, together with the auditors report, would be submitted to the Bank within six months of close of each fiscal year. Credit Support of Project 5.20 Although onfarm lending is not included under the project, some credit may be required by larger farmers for fencing, pasture development, herd expansion etc. BAAC operates successfully in the project area and has sufficient funds to meet the above credit requirements. Assurances were received that BAAC would review the project's pasture improvement program annually and prepare, in consultation with the Director General, LDD, an annual credit support program, a copy of which would be supplied to the Bank for information and comment. VI. ORGANIZATION AND MANAGEMENT 6.01 All project components would be executed by the Livestock Develop- ment Department except the dairy training, for which the Dairy Promotion Organization would be responsible, and the dairy industry feasibility study/project preparation which would be carried out under the supervision of the Office of the Under Secretary, Ministry of Agriculture. Project management is detailed in Annex 12. A. Livestock Development Department 6.02 The Livestock Development Department, headed by a Director General, is organized into Divisions along technical lines (See Annex 12, Chart I). Breeding stations to be improved under the project are among those in the region operated by the Animal Breeding Division. Forage stations to be used for pasture seed production and research are operated by the Animal Nutrition and Forage Crop Division. Vaccine production would be the responsibility of the Animal Biological Products Division, and the AI program would be carried out by the Artificial Insemination Division. 6.03 Overall Project Management: Vaccine production, and artificial insemination components of the project represent expansions of ongoing national programs. It is therefore appropriate that overall project management be vested in the Director-General, LDD. Day-to-day management would be delegated to Division Chiefs, but the Director General would, consistent with established procedures, retain control of annual programs  - 18 - and budgets. Field development in the Northeast, including pastures, seed production, breeding station development and the "loaned bull" program would be supervised by a Regional Project Manager based at Tha Phra, who would be directly responsible to the Director General. Project organization is depicted in Chart 2. Organization for Intensive Development Areas 6.04 Field Development Officers (FDO): These officers would be the major and regular field link through whom project assistance would be channeled to farmers in the project area. Of the 60 FDOs to be required at full development, it is estimated that about 20 would be reassigned from elsewhere in LDD, and the balance would be recruited from outside the department. FDOs would have at least a diploma in agriculture and would receive 6 weeks training in pasture development and beef/draft animal husbandry. Additional training would be provided for FDOs required to act as AI inseminators in their territories. Officers would visit each project unit an average of twice a week, and travel allowances and individual trans- port would be provided to this end. 6.05 Technical Support: Breeding centres strategically located through- out the project area would have on staff a Pasture Development Officer (PDO) and a Livestock Development Officer (LDO). Each would have at least a bachelor's degree in agriculture and related experience, probably within the department, and it is expected that they would be recruited from within the deparment. In addition, they would receive 2-3 weeks orientation in project strategy and, as required, additional technical training of up to one month. Typically there would be 8-10 FDOs in the territory of any one breeding station, and PDOs and LDOs would be expected to provide technical backstopping for the field work of the officers in their territories. In addition, PDOs would establish and supervise pasture demonstrations, and LDOs would recommend beneficiary Farmers' Groups for the "loaned bull" program, regularly inspect bulls, and maintain records for the program. Difficult technical issues would be referred to the Senior Livestock Officer and the Senior Pasture Officer located at Tha Phra. Senior Officers would visit breeding stations regularly. Regional Project Unit 6.06 Tha Phra Breeding Station would be the regional headquarters for the project. It is ideally suited for this purpose, being central to the region, located on a major highway, and only several kilometers from Khon Kaen, the largest city of the region, offering the ammenities and services required to attract senior staff of good caliber. Project management would consist of a Regional Project Manager, a Senior Pasture Officer, a Senior Livestock Officer, and the Pasture Development and Livestock Research Advisors (internationally-recruited). In addition, a Central Mobile Unit for pasture development work would be based at Tha Phra, as would a Central Staff Training Unit and a Central Seed Processing and Storage Unit.  - 19 - 6.07 Regional Project Manager: This senior officer would be responsible to the Director General for the supervision of all project components within the region. It was a condition of negotiations that the Project Manager, having at least the rank of 6th P.C. be appointed and assurances were received that he would take up permanent residence at or near Tha Phra within 3 months of the date of loan signature. Assurances were also received that the Project Manager would prepare annual project work programs in cooperation with the Senior Pasture and Livestock Officers and that these would be submitted to the Director General for approval at least three months before the start of each fiscal year of the project period. In addition to field development, the Manager would oversee project research and production activities on breeding and forage stations. 6.08 Senior Livestock and Pasture Officers: These officers would have graduate degrees and extensive experience in related fields. They would supervise the work of FDO's and the Livestock and Pasture Development Officers on project stations and provide technical support. In addition they would supervise research and production within their respective subject areas on project stations. Duties are further described in Annex 12, paragraphs 8 and 9. Assurances were received that these officers would be appointed and would take up permanent residence at or near Tha Phra within 3 months of the date of loan signature. Research Coordination 6.09 Arrangements for planning and co-ordination of regional agricul- tural research, including lines of authority between departments in the Ministry of Agriculture are still the subject of discussion within the above Ministry. Assurances were received that the Regional Project Manager would represent LDD on the Regional Research Co-ordination Committee, the estab- lishment of which is under consideration by RTG. Training of Project Staff 6.10 The technology involved in initial field development under the project is not complex, and short refresher courses and orientation at Tha Phra would be adequate for FDO's. It is expected that this would be accom- plished in about six weeks. Curricula would be developed in cooperation with the Pasture Development and Livestock Research Advisors, who would also be expected to participate in the instruction. Annual 1-week seminars would be held for FDO's. The Seed Production and Processing Advisor would be expected to conduct short-course and on-the-job training of staff engaged in seed production. New inseminators for the AI program would receive 3-4 weeks formal training and then work with an experienced inseminator for about one month to gain practical experience. Training requirements in the area of disease control would be determined on the basis of the Advisor's report. The recommended staffing of project breeding station would require an increase of about 40 university trained officers over the project period. Reassignment of existing staff from administrative positions within LDD could meet about half of this requirement, and there are three universities  - 20 - in Thailand with agricultural faculties, graduates of which could be recruited for other positions. B. Office of the Under Secretary of State Ministry of Agriculture 6.11 Under Secretary's Department: The Under Secretary of State of the Ministry of Agriculture is charged with overseeing the activities of line departments within the Ministry and with carrying out activities outside the purview of those departments. Divisions of the Under Secretary's Department include Research Coordination (regional centres), Agricultural Relations, Agricultural Economics, Foreign Agriculture, and Agricultural Aviation. DPO is a wholly government owned corporation responsible to the Under-Secretary of State, and funds for training facilities under the project would be channelled through the budget of the Office of the Under-Secretary. The General Manager of DPO would direct execution of this component of the project. The dairy feasibility study/project preparation would be carried out under supervision of the Under Secretary or his designate within the department. C. Reporting Procedures 6.12 Quarterly progress reports would be prepared in the office of the Director General, LDD, for all components executed by that department, and by DPO for the training component. These would be assembled in the Office of the Under Secretary together with a progress statement of the dairy study, and combined quarterly progress reports would be submitted to the Bank not later than six weeks after the close of the reporting period. VII. YIELDS AND PRICES Yields 7.01 Pasture yields vary extensively in the region, depending on bota- nical composition, soil fertility, and the degree of scrub cover. Similarly, the dry matter yield increases as a result of the project will vary, but an average increase of 350 kg per rai (2,100 kg per ha) has been assumed. The conversion rate of this incremental feed would be higher than the present average on low quality forage species, and a rate of 20 Kg D.M. to 1 Kg liveweight gain has been used. Native zebu cattle achieve a mature weight of 350 Kg and F1 Brahman crosses are assumed to reach 450 Kg at maturity. Yields of Townsville stylo seed in the region have been known to exceed 50 Kg per rai (300 Kg per ha) on well fertilized and managed plots but, for purposes of this report, an average yield of 30 Kg per rai (180 Kg per ha) has been assumed. Calving rates on a national herd basis are about 45%, but herd management among owners of cross bred cattle is somewhat better, and would be  - 21 - further improved under the project. A weaning rate of 60% is assumed after two years. Subsequent deaths to maturity are taken as 4%. Prices 7.02 Prices for meat and native cattle and buffalo have been taken as those prevailing at the time of appraisal ($ 10/Kg for meat; % 2,000 for cattle; $ 4,000 for female buffalo, and $ 4,500 for male buffalo). Present prices for Brahman cattle are very high, as are prices for Brahman crosses. Prices used in the report reflect a scale of premiums for size and breed value over native prices, but are only 10-50% of prevailing prices. The use of lower prices is justified on the grounds of future supply increases and the diminished role of Brahman cattle as a status symbol. The sale of fodder is not a common practice in Thailand, and all project production has been converted to meat value rather than priced as fodder. VIII. BENEFITS AND JUSTIFICATION 8.01 The project would improve the yields and nutritive value of about 500,000 rai (83,000 ha) of fallow and permanent pasture areas and accelerate the genetic and health improvement of cattle, primarily for beef and draught purposes. Changes would be effected by the strengthening and expansion of public sector services to the livestock industry. At present these services, including disease control and AI, are provided free of charge in most cases and one innovation under the project would be the introduction of a fee structure for AI, the one service wherein benefits accrue directly to identifiable individuals. However, the balance of project costs would continue to be public sector outlays, and no additional cash expenses to livestock owners would result from their participation in the project. Quantified Benefits 8.02 Development Within Intensive Areas: Pasture development within intensive areas is assumed to be an essential prerequisite to overall herd improvements. It is further assumed that at present one half of the cattle in the average village are 50% Brahman crosses and that the project would only double the present rate of herd improvement. On this conservative basis, the project would result in an increase in the value of annual sales per village of % 20,100 (US$1,015) at year ten and the value of village herd would have increased by 28,300 (US$1,430) at that time. Over 640 project units, these figures would be 9 12.9 million (US$650,000) and 9 18.1 million (US$915,000), respectively. See Annex 13 Table 5. 1/ 1/ In addition, owners of buffalo would benefit from increased forage supply, resulting in more rapid growth and increased draught capacity.  - 22 - 8.03 Pasture Development Outside Intensive Areas: During the project period, about 110,000 rai (18,330 ha) would be broadcast sown with Townsville stylo. It is estimated that dry matter yields would increase by 350 Kg per rai in the third year after sowing. On the basis of assumptions presented in Annex 14, the value of this incremental forage production is estimated, at full development, to be $ 19.3 million (US$975,000) per year. However, it is estimated that only 10-20% of this value would be realized in the sale of slaughter cattle; the balance would be reflected in increased work capacity and selling price of draught cattle. 8.04 Cross Breeding Outside Intensive Areas: During the project period, artificial inseminations outside the intensive areas would be expected to increase from 8,000 cows per year to 73,000. Based on the estimated ratio of Holstein Friesian and Brahman inseminations in Annex 6, Table 1 and stated price assumptions, the market value of Fl crosses at full project development would be approximately B 147.5 million per year (US$7.4 million). 8.05 Quantified benefit streams and related costs are presented in Annex 14 Table 1. The project produces positive and very attractive net economic benefits after year 2. However, this investment capitalizes on a number of costly infrastructure and research efforts such as the bilaterally financed central AI facilities (Netherlands) and pasture research (Australia and New Zealand). The projected 68% economic rate of return for quantified benefits and related costs must be viewed in this context. Other Benefits 8.06 Vaccine Production and Disease Control: The project would result in a 60% increase in vaccine production for diseases affecting cattle. Together with improved disease control measures expected to result from the project study, it is reasonable to assume that this increase would reduce mortality by at least 10-15%. Significant improvements in productivity would also be realized among protected animals. 8.07 Dairy Industry: The financial performance of DPO would be signi- ficantly improved with the strengthening of its management. The use of DPO technical resources in the training of Cooperative Department staff would improve the extension assistance to cooperative dairy operations throughout Thailand. In addition, about 30,000 crossbred dairy cows would be added to the national dairy herd over an eight-year period. Financial evaluations of private dairying, while not involving project investment, would be used by BAAC in its assessment of a long-term lending program for private milk pro- duction, and the feasibility study/project preparation to be carried out under the project could result in financial assistance for a major dairy expansion. 8.08 Other Benefits: Several of the pasture species, other than Towns- ville stylo, would have immediate field application, particularly Siratro. In addition, research efforts directed at solutions to problems of the North- east livestock producers should result in improved recommendations in the fields of pasture management, cross-breeding, calving dates, and supplemental  - 23 - feeding, and initial work on buffalo should identify potential improvements in the productivity of buffalo which outnumber cattle 7:4 in Thailand. Distribution of Benefits 8.09 Quantified benefits in terms of additional livestock sales are expected to accrue to about 171,000 families with the following distribution: 95,000 families, average % 1,800 per year (70% over present income); 40,000 families, % 650 per year (25% over present income; and 36,000 families, E 160 per year (6% over present income). Environmental Impact 8.10 Townsville stylo is being introduced in the Northeast to increase carrying capacity of the land. However it will have the added advantages of supplementing the nitrogen requirements for crop production, reducing the tendency for over-grazing and thus will contribute to soil conservation. IX. RECOMMENDATIONS 9.01 During negotiations, agreement was reached on the following points: (a) A report of RTG's interdepartmental committee reviewing livestock laws and regulations would be submitted to the Bank for information and discussion within 12 months of the date of signature of the proposed loan (5.05); (b) A fee structure would be introduced for Al services which would be adequate to recover at least 50% of reasonable operating costs by year five of the project (5.10); and (c) BAAC would review the project's pasture improvement program annually and prepare, in consultation with the Director General, LDD, an annual credit support program, a copy of which would be supplied to the Bank for information and comment (5.20). 9.02 With the above assurances, the project is suitable for a Bank loan of US$5.0 million.   ANNEX 1 Page 1 THAILAND LIVESTOCK DEVELOPMENT PROJECT Cattle Marketing I. Demand for Cattle Apparent Beef Consumption 1. Slaughter cattle are generally a byproduct from draft stock. Approximately 400,000 cattle and 500,000 buffalo are slaughtered annually, although data on actual kill cannot be obtained because only about one third of the animals pass through licensed slaughter houses. Per capita beef consumption is estimated at about 5 Kg per year, roughly 40% of total meat consumption (pork 50%, poultry 10%). Regional consumption patterns and levels differ significantly. The consumption of meat in the Bangkok metropolitan area differs markedly from the rest of the country: total meat consumption per capita is estimated at approximately 20 Kg per year in Bangkok of which 13 Kg is beef. Significant volumes of meat are also imported from the United States, for military personnel, and from Australia and New Zealand. Draft Cattle 2. There is no organized market structure for draft animals. The Northeast supplies a significant number of animals annually to the rest of the country although exact figures are not available. Sales take place generally at the farm level, and suppliers are reluctant even to organize village level sales, maintaining that the present informal arrangements provide better prices. A premium of % 1,000 per animal is normally paid over meat prices for animals with draft potential, and trained teams of native cattle have brought as much as $ 12,000 during the past year, although i 6-7,000 is more representative. Buffalo command a premium over cattle because of their size advantage. Export Markets 3. The demand for export meat from Thailand has, until recently, been almost exclusively for live slaughter animals. The main market is Hong Kong followed by Singapore and Malaysia. Total exports in 1972 were 18,000 head of cattle and 24,500 head of buffalo of which 55% of cattle and 75% of buffalo went to Hong Kong. Only the Southern Region is certified disease-free, and cattle moving into the region must have vaccinations and  ANNEX 1 Page 2 a certificate or pass through one of the seven quarantine stations. Meat exports from Thailand, although limited, now show a rising trend as the Preserved Food Organization at Ban Pong has recently started exporting about 100 tons of cooked frozen meat per month. On an annual basis this represents 15,000 head of cattle. 2. Marketing of Slaughter Cattle 4. As indicated above, only about one third of total cattle killing is done in licensed slaughter houses. This is primarily due to the fact that many slaughtered animals are below the minimum slaughter age (cattle: 8 years male, 15 years female, buffalo: 15 years). Slaughtering charges of about i 50 per head, poor facilities, and the risk of inspection and carcass rejection are further disincentives. 5. There is very little processing or storage of meat. Cattle for local slaughter are bought directly from the farmer by the butcher. Slaughtering takes place during the early hours of the morning, and meat is offered in the market the same morning. There are six major assembly points for cattle shipments to Bangkok. Government Controls on Meat Marketing 6. Government controls on cattle exports, age of slaughter cattle, and meat prices were originally introduced to benefit the urban consumer and to ensure an adequate supply of draft power for agricultural production. The effectiveness and merit of these controls at present, particularly of meat prices and slaughter ages, is highly questionable. Price controls are not rigourously enforced, and are frequently adjusted in pace with pre- vailing market prices. Where ceilings do present a selling constraint, butchers merely increase the share of meat sold in the highest quality price bracket. Slaughter age limits are the major deterrent to the use of licensed slaughter houses, and have resulted in a large illegal slaughter- ing capacity which is widespread and efficient. Furthermore, to the extent that limits are respected, they preclude early culling and result in a national herd which is inefficient and in which genetic improvement requires significantly more time. 7. The Livestock Development Department is officially charged with tiic implementation of livestock laws and regulations, but it is inadequately equipped to do so. Livestock security is a serious problem in Thailand, and farmers always bed cattle under or adjacent to the house for this reason. While it is LDD which is responsible to prevent rustling. it's staff are not given powers of arrest and detention. As a result, rustling and slaughter of stolen cattle are common in many parts of the country, including the Northeast. This indiscriminate slaughter has resulted in  ANNEX 1 Page 3 the loss of some good breeding stock, but its control is closely linked withl the eilforcement of other regulations, some of which are not appropriate at the present time. 3. Review of Marketing Regulations 8. A committee has recently been established under the chairmanship of the Director General, LDD, to review all livestock laws and regulations. While the regulations described above do not threaten the success of the project, the long term development of the livestock industry would seem to require significant changes: I. A reduction, or preferably the elimination, of minimum age limits on slaughter cattle and buffalo would permit more efficient herd management and promote the use of licensed slaughterhouses. This latter, in turn would ensure the utilization of expanded slaughterhouse facilities with improved hygienic conditions and the development of a meat processing industry. The resultant decline in illegal slaughter would facilitate the exposure and control of rustling and slaughter of stolen cattle. II. Elimination of meat price controls would result in higher farm prices for cattle and permit market discrimination on quality, thereby encouraging improved livestock husbandry. III. The Livestock Development Department should be provided with the legal powers and the resources to carry out its mandate to enforce livestock regulations.  Page 1 THAILAND LIVESTOCK DEVELOPMENT PROJECT Dairy Industry Production 1. Dairying in Thailand is based almost entirely on small privately- owned herds of three to ten cows. Traditional producers stall feed their cows under or near the farm house, while a more modern pattern has been developed for a colony near Muak Lak in which individual farms of 25 rai are devoted entirely to pasture production. Concentrate feeding is comon practice although all concentrate ingredients are domestically produced by-products. Most milk producers belong to, and market through, a coop- erative. A status summary of the six major cooperatives appears as Table I to this Annex. Fresh milk production at present is about 31 tons per day exclusive of on-farm consumption. In addition, Foremost Co., Bangkok, re- constitutes imported powder to produce about 75 tons per day fresh milk equivalent. A summary of dairy imports in recent years appears as Table 2. Processing 2. Although the Dairy Promotion Organization plant at Muak Lak and the Bangkok plant of Foremost Co., processing 11 tons and 4 tons of fresh milk respectively per day, are the largest facilities, the majority of dairies are cooperatively owned. These are small, inefficient plants with a daily throughput of 1-2 tons per day. DPO has contracted for an ultra- high temperature sterilizer and two asceptic packagers which will have a throughput capacity of 28 tons per day and a break-even volume of about 10 tons per day which is expected by 1978. Markets 3. Currently the demand for fresh liquid milk is strong and is being supplied as follows:  ANNEX 2 Page 2 Bangkok Market Total Sales ton/day ton/day Fresh D.P.0. 8.2 11 Foremost - Raiburi Ayudhya 3 3 Chiang Mai - 1.4 Local small farmers 9 9 Ayudhya - 4 Nong Po 1.8 1.8 Ratchburi - 1.1 22.0 31.3 Recombined (Foremost) - 75 Canned (Imported) 1.7 Total 108 4. The apparent total market in Bangkok is 97 ton per day or 27.7 m ton liquid milk per day per million population which is within the range of other Asian cities (compare: 16.7 in Seoul, 35 in Rangoon). The Foremost Co. dominates the market which they have created since 1965. Their marketing capability is unequalled and they see no limit to demand in the long term. Many market areas are not yet covered because of inadequate distribution facilities (even in Bangkok). In the short term occasional milk surpluses appear and the very small units are then forced to sell milk at discount rates to the larger units. The industry will need diver- sified processing to ensure utilization of all raw milk production. 5. Because of its wide distribution network and its dominant market position, the Foremost Co. is able to absorb the occasional milk excesses which occur at both DPO and the cooperative dairies. Also milk of fair quality, but rejected by DPO, is acceptable to Foremost. In the past the industry has been too weak and fragmented to negotiate fair milk prices and therefore distrusts Foremost. This is changing with the increased strength of DPO. Furthermore, increases in the world trading prices of milk products means that importation of milk components is now less attract- ive than previously. This forces processors of recombined products to take an interest in the procurement of fresh milk. Current market prices:  ANNEX 2 Page 3 Equivalent Price/ Brand Package Price Liter DPO fresh 225 cc 2.50 B 11.1 B Foremost recombined 1/2 pt 2.75 B 11.62 B Imports 6. The FOB price of imported skim milk powder increased from $.25/lb in 1973 to $.48/lb in 1974 (92% increase). The actual material costs for recombined milk are influenced by the policies setting the duty charged on imports. These policies are established to satisfy the needs of supply for the recombination of sweetened condensed and evaporated milk markets. (The import of skim milk powder in 1973 was probably eight times higher than that required for the recombined liquid milk trade). Maximum prices are set for some recombined dairy products and during 1974 the increase of component prices forced the recombining companies to apply for product price increases. To partially offset this application Government agreed in July 1974 to reduce the basic import duty level from 25% to 2.5% there- by reducing component costs. This has not offset the trading price in- crease in skim milk powder. In efforts to cut their losses, companies have substituted cheaper vegetable oils for butterfat, are operating their plants well below capacity, and are vigorously pressing Government to increase product prices. 7. Economic justification for domestic milk production is based on the following preliminary comparison: /1 Cost of _...ebLic raw milk (FAS Dairy) 4 Cost of imported materials # 3.62 per kg reconstituted homogenized milk (cif prices) Less duty .25 3.37 Plus reconstitution .30 $ 3.67 $ 3.7/kg Adjusted for 20% foreign exchange premium $ 4.4/kg Present Functions of Public Sector Agencies 8. There are three government entities which are concerned with dairy development in Thailand: the Dairy Dairy Promotion Organization, the Cooperatives Department, and the Livestock Development Department. /1 Range of prices late 1974 $ 4.0 - 4.6/kg.  ANNEX 2 Page 4 The Dairy Promotion Organization (DPO) 9. DPO was established in 1971 to assume the assets and functions of the Thai-Danish Dairy Farm (TDDF) which had been set up in 1962 at Muak Lak as a demonstration dairy farm, cattle breeding center and training center. Farming operations have been developed very satisfactorily over the past 12 years. The dairy stock has been built up from 986 females (Red Sindhi, Jersey cross, Brown Swiss cross, Sahiwal and Thai native) to a present herd of 1,700 cows of which 520-560 are milking. Average annual milk production has varied from 1,428-2,354 kg per head since 1966. 1/ 10. DPO also has a processing unit with a present throughput of about 11 tons of fresh milk daily. The milk is supplied by DPOts own farm and by private farmers in the area, 120 of whom are its former trainees who have been settled on a Land Settlement Department colony adjacent to DPO. The quality standards observed at this unit are higher than those normally attained in tropical conditions, primarily as a result of twice daily collection of milk and careful training for milking personnel in the fundamentals of hygiene. In the absence of reliable accounting information the mission has estimated the processing results on the basis of data for September 1974. (See Tables 3 and 4 for financial statements). Control over losses of milk in the plant and leakages in plastic bags and a reduction of unsold output (19% in September 1974 2/) would improve the financial performance. DPO is expanding its processing operation 3/ and the mission estimates that the new facility would be profitable at about 10 tons fresh milk input per day. 11. DPO is managed by a full time Director who is responsible to a Board of Directors consisting of representatives of appropriate government departments. The present Managing Director is 58 years old and the retire- ment age in the Thai Civil Service is 60. Although there is provision for a Deputy Director, none has been appointed so far. 12. DPO has a competent technical staff, many of whom have been trained in Denmark. However, the Thai-Danish dairy farm was established as a technical demonstration unit, and neither its structure nor the experience of its management was adequate to deal with the commerical activities developed by the entity and this weakness continues to exist in DPO. Audits of the accounts prepared by DPO since its inception 1/ Trace element deficiencies have been identified as a significant problem at DPO. 2/ This position has already improved. 3/ By purchasing an ultra high temperature sterilizer and 2 asceptic packers having an effective throughput capacity of 28 tons per 14 hours of packing daily (see Table 5).  ANNEX 2 Page 5 In 1971 liad not been concluded at the time of the appraisal. Due mainly to) staff constraints, the accounts were in arrears and budgetary control had not been introduced. Credit control is also weak. Recommendations to overcome these weaknesses are presented as part of Annex 8 - Assistance to the Dairy Industry. 13. It is also essential that the role of DPO and its place in the dairy industry of Thailand should be defined by the Government of Thailand. Once this is agreed, then it would be advisable to set up a study of DPO in order to recommend a suitable scheme of reorganization to fit in with the required objective. Training and extension services carried out by DPO should be funded separately by the Government. 14. Cooperatives Department (CD) Officially, the CD is expected to concentrate on production of milk, leaving processing to DPO and private enterprise. But the department does assist five cooperative owned dairies and has been the channel for Danish and German technical and financial assistance to dairying outside Muak Lak. Despite its demonstrated concern for dairy farmers, the CD does not possess adequate expertise within its staff to carry on or expand its advisory services to producers and process- ors. 15. Livestock Development Department (LDD) With the creation of DPO and the development of cooperative dairying, LDD has tended to neglect research and development for the dairy industry. A small production herd is kept at Tab Kwong with daily shipments being made to the nearby Muak Lak plant, and cows with some milking potential are to be found on most other stations. But the department does not conduct any substantive work on dairy cattle at the present time, and its staff have been divorced from any formal training they may have received.  THAILAND LIVESTOCK DEVELOPMENT PROJECT STATUS OF DAIRY COOPERATIVES Ayuthya Nakon Prathom Chieng mai Ra.buri Nongpo Muaklak No. of members 260 26 120 340 435 120 No. of supplies 110 15 90 290 180 120 Milk supply: 1974 950 kg/day 200 1800 3900 2000 11161 Previous 170=1500 171=700 '71=3000 kg/day Order of '72/3=4ooo establishment 1st, 1968 2nd, 1971 5th, 1974 3rd, 1973 4th, 1973 Other Danish assistance Danish assistance German assistance. Danish assistance Controlled by Associated w/DPO. for bldg. & plant, for bldg. & plant, Comittee Royal value 1M.B. value 1,000,000 B. Patronage. Milk payout 4.25 Milk payout 4.25 Milk payout 4B/1. Danish Aid now Av. milk price 4.55 B/1 expected. B/1. establishing B/kg. Supply exceeds new plant, 2000 sales. lphr HTST. 50% of milk sold 50% of milk sold Av. milk price The Coop operates a to Foremost. to Foremost. 4.21 B/kg. service store and milk payments from 80 kg/day sold DPO are routed through locally. it. 6% sold locally. Selling pasteur- 300 kg/day sold ized milk in plas- to Nongpo plant. tic bags at B2.50/ 225cc. 8% pasteurized Has IFCT loan of & sold Bangkok. 18,000,000, 11% effectively/10 yrs Balance to a va- which includes riety of buyers. D.Kr.860,000 for April 7, 1975 rebuilding.  THAILAND LIVESTOCK DEVELOPMENT PROJECT THE DAIRY INDUSTRY IN THAILAND IMPORTS OF DAIRY PRODUTS INTO THAILAND 1965 and 1969-1973 1965 1969 1970 1971 1972 1973 m.t. miIL$ m.t. miIL0 m.t. miILY m.t. miILO mot. miILj m.t. milLg Whole milk and cream sterilized or pasteurized 2,688 24.1 5,593 52.1 5,471 45.6 1,735 16.4 2,039 27.7 615 9.5 Skimmed milk, sterilized or pasteurized 8,533 48.8 971 5.8 2,466 12.7 767 4.8 106 1.0 Condensed milk and cream 35,866 280.9 12,437 99.8 8,762 80.0 1,579 15.6 226 3.0 953 15.0 Skimmed milk powder 2,029 14.0 20,544 117.0 19,006 93.2 20,463 138.2 17,267 189.5 26,362 230.5 Whole milk and cream powder, incl. powdered milk for infants 2,278 50.5 5,276 93.1 4,429 41.2 4,289 91.2 5,675 157.3 5,362 147.4 Other milk, dry block, powder n.a. n.a. n.a. n.a. 3,420 26.4 1,636 23.8 1,860 23.1 4,366 53.0 Butterfat 558 13.4 7,327 96.9 6,193 76.8 7,003 121.5 2,852 60.1 2,205 48.0 Butter 261 6.1 496 7.7 484 7.8 374 7.2 239 6.9 188 5.3 Ghee 127 3.1 436 5.9 45 .8 1,140 8.4 233 4.7 288 5.6 Cheese 76 2.0 187 4.0 186 4.0 298 4.6 150 4.4 180 6.1 Other milk products - 54.1 - 110.4 n.a. n.a. n.a. n.a. n.a. n.a. - - Total Value 497.0 592.7 438.5 431.7 477.7 520.4 Source: Department of Customs, Bangkok Estimated fresh milk equivalent 1/ 160,000 310,000 300,000 286,000 230,000 315,000 (tons) 1/ Fresh milk equivalents: whole and skimmed milk =1 condensed milk = 3 milk powder, butterfat, butter, ghee = 8 cheese = 9 CD April 7, 1975  ANNEX 2 THAILAND Table 3 LIVESTOCK DEVELOPMENT PROJECT Dairy Promotion Organization Estimate of Financial Viability of DPO Milk Processing Enterprise (for the month of September 1 974) Cost Item Basis Cost (Baht) 1. Materials a) Milk Milk received x 4.55 B/kg 1,951,950 b) Sugar Sugar used x 4.50 B/kg 13,027 c) Packages (Carton & plastic bags used x unit cost) + 1% loss 388,891 Total 2,353,868 2. Oloerati,onal a) Labor Actual staff x av. wage each grade 54,477 b) Fuel Actual useage x cost 24,057 c) Power Estimate 18,000 d) Water Estimate 6,000 e) Repairs & maintenance 4% on investment bldg. & plant 13,340 Total 116,141 3. Overheads a) Depreciation Plant 15% pa C.V. bldg. 5% pa C.V. 58,350 Sales 32,500 Total 90,850 4. Products a) Yoghurt Estimate cost of production 38,422 b) Cream Package cost only 8,381 Total h6,803 Total at factory door 2,607,662 Transport to Market 15,000 2,622,662 5. Sales Cost a) Petrol, oil Actual from records 13,142 b) Salaries Actual from records 29,000 c) Bldg. rental Actual from records 9,500 d) Phone Estimate 500 e) Vehicle repairs 5% of capital value 16,250 cost of Sales 68,392 Total cost to wholesale point 2,691,054 Income Sales income, all products 2,663.147 April 7, 1975 Operating loss 27,907   ANNEX 2 Table , THAILAlND IIVESTOCK DEVELOPMENT PROJECT Dairy Promotion Organization Monthly Cost Projection for Operation of Ultra-High Temperature Sterilizer Two packers operating five hours produce 12.6 tons product daily. Milk 1,701,000 Packages 537,200 Power, fuel, supplies, labor 295,000 Repairs and maintenance 53,200 Transport 15,000 Sales 34,000 Advertisement 30,000 Package Losses 8,000 Total operating costs 2,673,400 Depreciation/Equipment (15%) 105,830 /Building (5%) 1,700 107,530 Other overheads - say 2% on sales 69,54o Total overhead (excluding interest on equipment loan) 2,850,h70 Sales revenue (wholesale) 3,477,ooo Profit 626,530 Percentage of profit or sales = 18% NOTES: 1. Sales revenue permits 5% losses and allows for retail price 10% above that of pasteurized milk. 2. Package costs 0.44 B/500 ml pack and 0.29 B/200 ml pack + paper import duty 50% + 1n9 package losses. Both machines operate five hours. Cost variation with size not estimated because actual packer contract not available. April 7, 1975  ANNEX 3 Page 1 THAILAND LIVESTOCK DEVELOPMENT PROJECT Pasture Development Program Present Situation 1. Bovine production in Northeast Thailand is severely limited by tite forage availability and quality in the existing grasslands, and tropical pasture legumes are essential for any large-scale development. Total avail- ability cannot be significantly increased without an improvement in soil fertility, the use of well adapted improved forage species, or a combina- tion of both. Overcoming one of the major soil deficiencies, that of nitrogen, with the use of artificial fertilizers would be extremely costly at present prices, and the ability of legumes to fix atmospheric nitrogen must be exploited. 2. The permanent native pastures are dominated by the Graaminea, including species of Chrysopogon, Eragrostics, Heteropogon, Brachiaria, Paspalum, Dactyloctenium, and Arundinaria. While most of these are well adapted to survive under heavy grazing pressure, they are relatively unproductive on the poor soils of the region. Of the native/naturalized legumes, Alysicarpus vaginalis and Desmodium triflorum are outstanding for their persistence and spread throughout the region; but although both are very useful, they are not highly productive. Considerations for a Pasture Development Strategy 3. For the selection of suitable species for pasture improvement in tiie Northeast, a number of factors should be considered. 4. There is no part of the Northeast which is climatically unsuited to some kind of pasture improvement. The area lies between 150 and 180N, at an average altitude of about 200 m, and with rainfall ranging from 600 to 1,500 mm. The long dry season suggests that self-regenerating annual l_gume might have an advantage in survival, but well adopted perennials could be more useful in the early-wet and early-dry seasons. 5. In the future, regional soil-testing will determine the number and extent of deficient elements in the northeast soils, and indicate those deficiencies which might be corrected economically; sulphur is one such possibility. However, general fertilizer application cannot be considered at this time (single superphosphate and potash retail at more than US$300 per ton with other fertilizer prices correspondingly high). The species  ANNEX 3 Page 2 selected must be capable of worthwhile production levels on poor soils and particularly low phosphorus soils. Since eventually the disemination and extension program at the village level must depend on a large number of officers who will not be pasture experts the species should be adapted to a wide range of soils within Northeast. 6. Establishment costs must be very low, and ease of establishment over a range of conditions is of critical importance. This does not preclude presowing treatments such as burning or heavy grazing, but does preclude convential and expensive land preparation techniques. 7. To be widely accepted and successful, the species must not require any radical modification of present management practice, in which continuous and heavy grazing is normal. Fortunately tropical legume species generally respond better to continuous than to rotational grazing. 8. It is almost imperative that the species need be sown only once, which requires partly good judgment at the time of sowing, but also a persistent species. In the project area, most farmers have had no prior experience with pasture improvement, and it would be difficult to promote a species or a concept if it has previously failed. In this context the selection of a good and reliable species for promotion is critical. 9. There must be no possibility of the introduced species becoming a serious weed of crops. 10. Although the regional average stocking rate on communally grazed land has been put at about 0.3 animals per ha the majority of cattle are grazed on much more heavily stocked land. Where there is a high proportion of land under cultivation, the stocking rate fluctuates markedly, with the greatest stress occuring in the wet season and productivity under extreme wet season grazing pressure is a major criterion. (In other areas, the ability to produce quality feed to supplement the mature native grasses or crop stubbles may assume more importance.) 11. Selected species must be adapted to survive under continued close grazing. In areas where fires occur commonly, such as in the open diptero- carp forests, tolerance to dry-season burning is an important attribute. 12. In the harsh Northeast environment, survival may be as important as potential productivity, and it may be an advantage to survival that species be relatively unpalatable at some growth stage. 13. Species with specific rhizobial requirements present difficulties in a large dissemination project, where there are problems in maintaining the inoculum and a risk of ineffective inoculation.  ANNEX 3 Page 3 14. The species must have good seed production characteristics. It sliould set sufficient seed under field grazing conditions to increase in denisity, to spread from the initial sowing site, and to ensure long term survival. Also, because of the huge quantities of seed required for a large oversowing program, and the inevitably high cost of imported seed, potential seed production of the species within Thailand is an important selection criterion. Townsville Stylo 15. Townsville stylo (Stylosanthes humilis) is the best adapted pasture legume species with which a regional program could be started immediately. An annual (sometimes biennial) it has already proved itself to be well suited to the relatively dry Northeast climate. It avoids the dry season stress because of its annual habit, but plants are also quite tolerant of dry conditions. Townsville stylo is suited to the poor, acid soils of the region, and is remarkably efficient in the extraction of soil phosphorus from low-phosphorus soils. Freely drained, light textured soils are generally preferred. However, it will produce well on a range of soils and has been found satisfactory on some heavy soils and on soils with a tight surface structure. 16. The species may be established by oversowing, without cultivation or inputs of fertilizer, into areas where competing vegetation is controlled by grazing or other means. Generally, it will establish most readily where stock are most concentrated, and in the short term, overgrazing may be advantageous. In similar areas of Northern Australian, where stocking rates are usually much lower than in the Northeast, Townsville stylo has established very readily in heavily grazed areas, such as around watering points, but rathier less readily where competing grasses are not controlled by grazing. It is normal practice for cattle owners to concentrate stock on the area to be sown, and to graze it heavily before and after sowing to control grass growth and facilitate spread. Such management is generally unnecessary in the Northeast, where overall grazing pressure is sufficient to check grass growtih; but it may be successfully employed in the open dipterocrop forest areas of the Northeast, where unchecked Arundinaria spp. (13amboo grass) is a vigorous competitor. 17. Under continued close defoliation, the plant habit is modified, and the stems spread along the ground, affording some protection from grazing. Adequate seed is set for regeneration the following year, even under quite severe conditions of moisture stress, low soil fertility, and heavy grazing. Because of a proportion of hard seed, germination occurs over a long period, and there is little risk of completely losing a stand if a severe dry period follows early germinating rains. Dry season burning is not a great hazard to regeneration because much of the seed is unaffected. is. The seed yielding ability under good conditions equips the species well for use in the project. Seed yields of over 600 kg/ha have been  ANNEX 3 Page 4 recorded in Australia, and yields of 200 kg/ha are common in the Northeast, wlhere the reliably dry December-January period is convenient for seed harvesting. Seed collection need not be sophisticated, and hand methods suitable for small areas can be used. 19. Although the species is very persistent in grazed areas, it will not become a serious weed of crops. It is relatively intolerant of water logging, and poses no threat to rice; it is also intolerant of shade, and will not complete well with rapidly growing upland crops. Established stands are easily ploughed in. In fact, in Northern Australia, nitrogen fixed by the legume is sometimes exploited by a subsequent crop of sorghum. Such practice has a definite application in the Northeast where the cost of nitrogen fertilizer is so high. Townsville stylo is not specific in its rhizobial requirements, and modulates freely in soils of the region. How- ever, the contribution of nitrogen to the soil in a particular area will be minimal where grazing pressure is heavy and stock are housed at night. 20. In some areas in Northern Australia, the wet-season dominance of Townsville stylo results in bare ground, susceptible to erosion, in the late dry season/early wet season. This bare ground is not expected to occur in the Northeast, except where the existing sward is very sparse, and in these areas the erosion hazard would not be increased. Generally the persistent Chrysopogon, Heteropogon etc. will remain. Where roadside sowing is involved, the increased grazing pressure will be transient, and rapid spread to adjacent areas will prevent the deterioration of the road shoulder from increased dry-season grazing. Rice paddy bunds are already very heavily grazed and the persistent grass species there will not disappear with the introduction of the legume. 21. Townsville stylo has the great advantage of having been success- fully sown already in many parts of the Northeast. Its biggest disadvantage is limited production in the early wet and early dry seasons, when an adapted perennial could perform better. However, most perennial species could not persist under the heavy dry season grazing. As better varieties become available, and are tested under village conditions in the Northeast, they could be fitted into the pasture development program. Other valuable legumes, such as Siratro, Perennial stylo, and Leucaena leucocophala, have a definite but more restricted application. Program Implementation 22. The areas for improvement would be selected by the Senior Pasture Officer, assisted by departmental staff from the particular breeding station, Changwat, and Amphur offices, and with prior recourse to aerial photographs. The village would be regarded as the unit for development, but the program would be quite flexible, and other units, such as the Tambon, could be used where this is more convenient. The major criteria for selection of villages for improvement within the defined project area would be:  ANNEX 3 Page 5 (a) interest of local farmers; (b) suitability of land type and available area; and (c) complimentarity with animal breeding and disease control programs. 23. The planning and initial extension work for each area would be undertaken during the dry season prior to development, and the village chief, or pooyaibahn, would assist in the organization of meetings and of the labor force for seed distribution. All seed would be available at the Changwat stations for distribution before the beginning of the wet season, and a concerted effort would aim at completing sowing before the end of July, but preferably immediately prior to the wet season -- seed harvesting ants are not a problem, and the early wet season is generally a time of peak labour demand for cultivation. In the first year of an average site development, about 200 rai of heavily grazed land would be sown. The suggested mean sowing rate would be 0.5 kg per rai, but the distribution of total seed allocated to each site could vary. There would be no use of fertilizer and no additional fencing. By the end of the second season, the stand is expected to be sufficiently dense, and the potential benefits obvious enough to inspire local interest in the next stage of development. At the beginning of the third season, a further 400 rai would be sown. Most sowing would be on communally grazed private or public land. Farmers sowing within fenced areas would be obliged to return the same amount of seed to the project subsequently. Total fenced area would not exceed 30% of the sown area in a village; fenced area of any one farmer would not exceed 10% of total area sown. 24. Seed would be provided free of charge for the first two seasons, and subsequently a nominal charge would be considered, depending on assess- ment of the possible difficulties involved, and the extent to which a charge would provide a constraint to the rate of development. Credit for cultivation or fertilizer would not be provided by the project. However, where individuals so wish to develop a pasture more intensively, or by using other species, advice and small quantities of seed would be provided. Phasing of Development 25. In the first year about 40 villages would be improved. At full development about 150 new sites would be sown each year, and 150 third- season sites, within the area controlled by the improved breeding stations. Excess seed and technical assistance would be provided outside of this controlled area, through other stations and agencies. In addition, seed would be distributed to the Livestock Department Breeding and Sub-Stations, and to the Forage Crop Stations. The projected seed distribution is shown in Table 1. 26. The areas improved first would be the heavily grazed open land in public and private areas, including roadsides, land exhausted by  ANNEX 3 Page 6 croppitig, paddy bunds, and other waste areas. The improvement of a large portion of the available grazing area relatively quickly would distribute graziag pressure more evenly and is thus preferable to protecting smaller improved areas by fencing. Sowing a communal grazing area at a moderate seeding rate, and allowing for subsequent increase in density is similarly preferable to sowing a fraction of the area at a correspondingly much higher seeding rate. Invasion of grasses and other weeds will not be a problem under the heavy grazing pressure. Paddy bunds may occupy 5-10% of the total paddy area and legume establishment would provide a valuable on site supplement to the low-protein rice stubble during the dry season. 27. Yields will vary greatly, mostly within the range 500-3,000 kg/ha/ year, and maximum density will generally be attained in the second or third year. Spread of seed to adjacent areas will depend on stock movements and the seed yield. Once established, the species will maintain itself, and will not require specific attention. Staffing and Promotion 28. Field development under the project, including pasture development, would be based on the use of Field Development Officers (FDO) to establish and maintain contact with farmers in the intensive areas. Responsibilities, qualifications and training of FDO's is discussed in Annex 12. Each FDO would have an area of about 10 villages. Direction and technical support for the pasture program would be provided to FDO's by Pasture Development Officers, to be located at each project breeding station. These Pasture Development Officers would be the principal liaison between FDO's, pasture researchers, and the Central Mobile Unit which would be based at Tha Phra and provide training and promotion services for the pasture program. Pasture Development Officers would also supervise demonstrations and dis- tribute pasture seed. A Senior Pasture Officer with counterpart Pasture Development Seed Production and Storage Advisors would be assigned to the Project Management office to oversee the seed production, field development and training under the pasture component of the project. 29. In each selected village a meetingisemInar would be arranged during the dry season to explain the concept of pasture improvement and nsethod to be used, and to prepare an approximate development plan for the area. At the time of sowing, the 7illage group would assemble again for final instructions on the distribution of seed. It would be essential that initial exposure of village groups to the project be carefully executed, and this would be done with the assistance of the Central Mobile Unit from TFaa Pra, at least in key villages. Subsequent day-to-day extension would be lhandled by FDO's. Problems would be referred to the Pasture Development Officer and through him, if necesary, to the Unit. The areas would be visited at regular intervals by Pasture Development Officers to monitor progress and to assist with any individual problems. At least four times each year the staff involved with seed distribution would meet for a short seminar at Tha Phra.  ANNEX 3 Page 7 30. The Central Mobile Unit would be equipped with generator, film and slide projectors, a public address system, and simple hand-out literature on Pasture Development and improved species. The preparation of such literature would be an important function of the Central Unit. It would be necessary to avoid training programs on the Breeding Stations which used the pasture type and pasture management on the stations as demonstrations of what could be achieved in the average village. The station pastures should be regarded only as an introduction of the pasture species except where specific demonstration areas are maintained. During all pasture promotional work, it will be critical to be realistic about the nature of the development and the expected benefits. The low cost program will be well accepted by farmers, with sound extension; but diffi- culties will arise if the nature and extent of the benefits are overstated. Staff Training 31. A Central Training Unit, based at Tha Phra would be responsible for the training of all field workers. This important unit would comprise two local staff with a demonstrated ability in extension, and would be under the supervision of the Senior Pasture Officer. The Pasture Develop- meat Advisor would also be expected to devote a major share of his time to this unit in the first two years. Initially the unit would familiarize key personnel from the selected Breeding Stations, using short seminars and field trips, with the objectives of the project and the concept of low-cost pasture improvement. Four to six week courses for FDO's would also be introduced in the first six months of the project. Subsequently the Unit would organize orientation courses at each of the Breeding Stations, for the staff operating from those stations. In this connection, it would be imperative to establish demonstration areas immediately in villages near the stations. The Unit would liase closely with Khon Kaen University, The Land Development Department and the Northeast Agricultural Research Centre for the organization of joint seminars of interest to various groups.  THAILAND LIVESTOCK DEVELOPMENT PROJECT Pasture Development Program Annual Stylo Seed Utilization Year 1 Year 2 Year 3 Year 4 Year 5 rai kg rai kg rai kg rai kg rai kg SEED PRODUCTION Area Harvested for Seed 1'500 2,000 2,000 2,000 2,000 Harvested Seed--Pods 2/ 10,000 45,000 60,000 60,000 60,000 Incremental Area for Seed 1/ 1,500 - - _ _ Seed Requirement 3/ 4,500 - - _ _ OVERSOWING ON GOVERNMENT STATIONS Breeding Stations (Six) 4/ 600 2,400 Seed Requirement 5/ 600 2,400 - _ _ Forage Stations (Eight) 80 80 _ Seed Requirement 200 300 - Lamphya Klang 6/ 200 15,000 5,000 Seed Requirement 100 7,500 2,500 _ INTENSIVE AREAS No. of New Project Units 40 150 150 150 150 Incremental Area New Units Ae 8,000 30,000 30,000 30,000 30,000 Third Year Development 8/ - - 16,000 60,000 60,000 Total Incremental Ares 8,000 30,000 46,000 90,000 90,000 Seed Requirement 9/ 4,000 15,000 23,000 45,000 45,000 OTHER AREAS Area 20,000 30,000 30,000 30,000 Seed Requirement 10,000 15,000 15,000 15,000 Seed Reserve 600 4,800 19,500 - - 1/ At Chiengyuen and Huoi Luong. 5/ Seeding rate 1 kg/rai. 2/ Assume 20 kg/rai in 1st year, 30 kg/rai in subsequent years. 6/ Seeding rate 0.5 kg/rai. 3/ Seeding rate 3 kg/rai for seed production. 7/ 200 rai/unit. X 4/ Excluding Lamphya Klang. 9/ 400 rai/unit. 9/ 0.5 kg/rai. April 7, 1975  ANNEX 3 Table 2 THAILAND LIVESTOCK DEVELOPMENT PROJECT PASTURE DEVELOPMENT PROGRAM Summary of Investment Costs % Foreign Local Foreign Total Exchange Seed Production_/ Seedbed development 58,500 6,500 65,ooo 10 Buildings 6,400 1,600 8,000 20 Vehicles and equipment 2,150 19,350 21,500 90 1/ Seed Processing and Storageo- Buildings 12,600 3,150 15,750 20 Vehicles and equipment 4,660 41,940 46,600 90 Central Mobile Unit2/ Buildings 7,400 1,850 9,250 20 Vehicles and equipment 1,110 9,990 11,100 90 Extension materials 1,200 10,800 12,000 90 Pasture research 26,400 6,600 33,000 20 Subtotal 120,420 101,780 222,200 Physical Contingency 9,402 9,518 18,920 (10% excl. grant) TOTAL BASE COST ESTIMATE 129,822 111,298 241,120 1/ See Annex 4 Table 1 for details 2/ Two houses l140,000; office space, p45,000; mini bus, 0100,000, pick-up, 080,000; office equipment, g20,000; extension equipment, p22,000 April 7, 1975  ANNEY 3 Table 3 THAILAND LIVESTOCK DEVELOPMENT PROJECT Central Mobile Unit - Tha Phra Operating Expeenses --- Thousand Baht --------------- Project Year 1 2 3 4 5 Salaries Two Pasture Development Promotionr OfficersJi 82 86 90 94 98 Per Diem?. 15 15 15 15 15 Casual Labor2 24 21t 24 24 1 Vehicle Fuel & Mantenance Van & Pick up ' 66 66 66 66 66 Equipment Maintenance 6 6 6 6 6 Media Costs Film, Tapes end Leaflets 42 17 17 17 17 Sub-total before depreciation 235 214 218 222 226 Dhepreciation Structures6/ 12 12 12 12 12 Vehiclesi/ 36 36 36 36 36 Equipment8/ 4 4 4 14 4 Total Operating Expenses 287 266 270 2714 278 (US$ '000: 14.5 13.4 13.6 13.8 14.o 3] 03O,400/month for each officer - increases due to increments. 2/ 0100/day for 150 days. 3/ Typing, translation, assistance with media preparation. v 60,000 km i@ 1.1 per km. i/ 15% of cost. S/ 6% per year. 7/ 20% per year. 8/ 15% per year. April 7, 1975  ANNEX 3 T."ble 4 THAILIAD LIVESTOCK DEVELOPMENT PROJECT Pro.ject Field Development Operating Expenses Field Development Officers and Development Staff on Stations -------------- Thousand Baht - Project Year 1 2 3 4 Salaries & Wages Chief Development Officersi./ 480 492 504 528 Assistant Development Officrs2/ 264 270 276 282 288 Field Developjnent Officers3/ 550 794 1,325 1,330 1,33) Clerk/Typists4/ 168 174 180 186 1 7) Per Diemi7/ Chiefs 36 36 36 30 i, Assistants 27 27 27 27 7 Field Develop ent Officers 675 675 675 675 G Rent Allowance6 90 0 Vehicle Fuel & Maintenance7/ Pick ups 132 132 132 132 132 Motorcycles 161 203 293 293 2S9 Sub-total before depreciation 2,556 2,693 3,598 3,639 3,68C0 (US$ '000: 129.1 136.0 181.7 183.8 185.9) Depreciation: Structures 6% 97 97 97 97 97 lehicles 20% 126 126 126 126 126 Total Operating Expenses 2,773 2,916 3,821 3,862 3,903 (US$ '000: 140.1 147.3 193.0 195.1 1/?.]) 1/ One chief each for pasture & livestock in each of the 6 stations - commencing salary 140,000 per annum - total 12. 2/ Onc asst. chief each for pasture & livestock in each of the 6 stations - commencin~, salary $22,000 per annum - total 12. 3/ Ten field development officers per station - commencing salary $22,000 per annum - total 60; first year 25, second year 36 and third year on wards 60. / Two clerk/typists per station. :/ Chiefs 30 days @ $100; asst. chiefs 30 days @ $75; field development officers - 150 days