Colombia - Integrated Rural Development Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. 1212-Co STAFF PROJECT REPORT COLOMBIA INTEGRATED RURAL DEVELOPMENT PROJECT November 12, 1976 Regional Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authoriztion.  CURRENCY EQUIVALENTS (at the time of appraisal and used in this report) Currency Unit = Colombian Peso (Col$) Col$ 1 = US$0.03030 Col$ 1,000 = US$30.30 Col$ 1,000,000 = US$30,303 WEIGHTS AND MEASURES Metric System GLOSSARY OF ABBREVIATIONS (see next page) GOVERNMENT OF COLOMBIA FISCAL YEAR January 1 to December 31  COLOMBIA FOR OFFICIAL USE ONLY INTEGRATED RURAL DEVELOPMENT PROJECT Glossary of Abbreviations BOR - Banco de la Republica Bank of the Republic (Central Bank) Caja Agraria - Caja de Credito Agrario, Industrial y Minero Agricultural, Industrial and Mining Credit Bank Caminales - Fondo Nacional de Caminos Vecinales National Fund for Rural Roads CECORA - Central de Cooperativas de la Reforma Agraria Ltda. Union of Agrarian Reform Cooperatives Ltd. CIDA - Canadian International Development Agency CONPES - Consejo Nacional de Politica Economica y Social National Council for Economic and Social Policy DANE - Departamento Administrativo National de Estadisticas National Administrative Department of Statistics DNP - Departamento Nacional de Planeacion National Department of Planning DRI - Programa de Desarrollo Rural Integrado Integrated Rural Development Program Electrificadora - Empresa Departamental de Electrificacion Departmental Power Company Subsidiary to ICEL FEDECAFE - Federacion Nacional de Cafeteros de Colombia National Federation of Coffee Growers of Colombia FFAP - Fondo Financiero Agropecuario - BOR Agricultural Financing Fund of BOR FNH - Fondo Nacional Hospitalario del Minsalud National Hospital Fund of Minsalud ICA - Instituto Colombiano Agropecuario Colombian Agricultural Institute ICBF - Institute Colombiano de Bienestar Familiar Colombian Institute for Family Welfare ICCE - Instituto Colombiano de Construcciones Escolares Colombian Institute for School Buildings ICEL - Instituto Colombiano de Energia Electrica Colombian Institute for Electrical Power IDB - Inter-american Development Bank IDEMA - Instituto de Mercadeo Agropecuario Institute of Agricultural Marketing INCORA - Instituto Colombiano de la Reforma Agraria Colombian Institute for Agrarian Reform INDERENA - Instituto de los Recursos Naturales Renovables y del Medio Ambiente Institute for Renewable Natural Resources and the Environment INAS - Instituto Nacional de Salud National Institute of Health IRDP - Integrated Rural Development Program 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.  - 2 - INAS - Instituto Nacional de Salud National Institute of Health IRDP - Integrated Rural Development Program Minagri - Ministerio de Agricultura y Ganaderia Ministry of Crops and Livestock Minsalud - Ministerio de Salud Publica Ministry of Public Health MOP - Ministerio de Obras Publicas Ministry of Public Works OPSA - Oficina de Planeamiento del Sector Agropecuario del Minagri Planning Office of the Agricultural Sector of Minagri PAN - Plan Nacional de Alimentacion y Nutricion National Food and Nutrition Plan SB - Superintendencia Bancaria National Superintendency of Banks SENA - Servicio Nacional de Aprendizaje National Apprenticeship Service UEA - Unidad de Estudios Agrarios del DNP Agricultural Studies Unit of DNP USAID - United States of America, Agency for International Development  COLOMBIA APPRAISAL OF AN INTEGRATED RURAL DEVELOPMENT PROJECT STAFF PROJECT REPORT Table of Contents Page No. INTRODUCTION AND SUMMARY ..... .......................... i THE RURAL SECTOR AND THE PROJECT AREAS ................. i A. The Rural Sector .................................. i B. The Project Areas ...... ........................... ii THE PROJECT ............................................ iv A. Project Concept ................. .. ................ iv B. Project Cost and Financial Arrangements ............ vi C. Market and Production Aspects .................. .. ix D. Implementation ...... ............................. ix E. Financial Analysis ............... ................. x F. Economic Analysis ...... ..................... x G. Conclusions, Loan Conditions and Recommendation .............................. xii I. THE RURAL SECTOR ....................................... 1 A. Introduction .................................. 1 B. The Rural Structure , ... I Land Tenure and Type of Farming .......1....... Land Distribution and Income Structure ....... 2 C. Production and Support Services .. ................. 3 Research and Technical Assistance ............ 3 Credit .. 4 Marketing ............................... 5 Agricultural Supplies ................. 6 D. Government Marketing and Price Policy ............. 6 E. Physical Infrastructure and Social Services ....... 7 Physical Infrastructure ............... 7 Social Services .............................. 7 F. Government Development Strategy .................. . 8 The National Development Plan 1975-78 ........ 8 The National Food and Nutrition Plan ......... 8 Integrated Rural Development Program ......... 9 This appraisal report is based on the findings of a mission which visited Colombia in February 1976 composed of J.A.N. Wallis, M.L. Agarwal, D.J.M. Babelon, C.K. Koch-Weser, H.E. Peirce, L.F. Revuelta, K.B. Ringskog, E.M. Vergara (Bank) and R.A. Crofts, G. Herrera, C.A. Plaza, G. Rioseco and J.E. Westerbeek (Consultants).  TABLE OF CONTENTS (Cont'd) Page No. II. THE INTEGRATED RURAL DEVELOPMENT PROGRAM .... ........... 11 A. The Program Areas ................................. 11 B. The Project Area .................................. 12 Small Farm Production and Production Support Services ................................... 12 Traditional Marketing Channels .... ........... 13 Cooperatives and Group Marketing .... ......... 13 Distribution and Agricultural Supplies ....... 14 Storage ...................................... 14 Transport .................................... 14 Social Infrastructure ........................ 14 Physical Infrastructure ...................... 15 III. THE EXECUTING AGENCIES ................................. 15 Caja de Credito Agrario, Industrial y Minero - Caja Agraria .................................. 15 Instituto Colombiano Agropecuario - ICA .... ....... 17 Instituto Nacional de los Recursos Naturales Renovables Renovables y del Medio Ambiente - INDERENA ...... 18 Central de Cooperativas de Reforma Agraria Ltda. - CECORA ........................................ 19 Servicio Nacional de Aprendizaje - SENA .... ....... 19 Instituto Colombiano de Construcciones Escolares - ICCE .......................................... 20 Ministerio de Salud Publica - Minsalud .... ........ 20 Instituto Nacional de Salud - INAS .... ............ 21 Fondo Nacional de Caminos Vecinales - Caminales ... 21 Instituto Colombiano de Energia Electrica - ICEL 22 IV. THE PROJECT ............................................ 22 A. Brief Description ................................. 22 B. Detailed Features ................................. 23 Project Management ........................... 23 Farm Operations and Development .... .......... 24 Marketing Operations and Development .... ..... 25 Production Support ........................... 26 Farm Advisory Service (ICA) .... ......... 26 Natural Resources Advisory Service (INDERENA) ............................ 27 Marketing Advisory Service .... .......... 28 Training ................................ 28 Social Services .............................. 29 Education ............................... 29 Health .................................. 29 Potable Water ........................... 30  TABLE OF CONTENTS (Cont'd) Page No. Infrastructure ............................... 30 Rural Roads ............................. 30 Electrification ......................... 30 C. Cost Estimates .................................... 31 D. Financing ......................................... 33 E. Procurement ....................................... 33 F. Disbursement ...................................... 35 G. Accounts and Auditing ............................. 37 V. ORGANIZATION AND MANAGEMENT ............................ 37 A. Introduction ...................................... 37 B. Project Management ................................ 38 Project Management and Coordination .... ...... 38 Project Administration ....................... 40 Project Execution ............................ 40 C. Lending Terms and Conditions ...................... 41 D. Implementation .................................... 44 Programming and Budgeting .................... 44 Monitoring and Reports ....................... 45 Evaluation ................................... 46 Supervision .................................. 46 VI. TECHNICAL COEFFICIENTS AND SPECIFICATIONS .... .......... 46 A. Farm Production ................................... 46 Farm Advisory Service ........................ 46 Natural Resources Advisory Service .... ....... 46 Farm Credit Operations ....................... 47 Crop Yields and Livestock Production Coefficients ........... 47 Marketing Advisory Service ................... 50 Training ..................................... 50 B. Social Services ................................... 50 Education .................................... 50 Health ....................................... 50 Potable Water ................................ 52 C. Infrastructure .................................... 52 Rural Roads .................................. 52 Electrification .............................. 53 D. Economic and Social Parameters .................... 53  TABLE OF CONTENTS (Cont'd) Page No. VII. PRODUCTION, DEMAND AND MARKETING ....................... 54 A. Production ........................................ 54 B. Demand ............................................ 57 C. Value of Incremental Production .... ............... 57 D. Marketable Surplus ................................ 58 VIII. FINANCIAL AND ECONOMIC ANALYSIS ........................ 58 A. Financial Analysis ................................ 58 Financial Return in Farm Models .... .......... 58 Beneficiaries' Contribution to Investment .... 62 Cost Recovery and Tariffs ..... ............... 62 Fiscal Burden ................................ 65 Project Cash Flow ............................ 67 B. Economic Analysis ................................. 69 Economic Justification and Social Benefits ... 69 Economic Rate of Return ...................... 70 Employment Effects ........................... 72 Environmental Impact ......................... 72 Constraints, Limitations and Risks .... ....... 72 IX. SUMMARY OF AGREEMENTS REACHED ON LOAN CONDITIONS ....... 73 TABLES 1.1 Socioeconomic Data and Indicators .10 4.1 Summary of Project Costs .32 4.2 Financing Plan by Project Components .34 4.3 Estimated Schedule of Disbursements .36 6.1 Crop Yields: Current and Projected .48 6.2 Livestock Production Coefficients: Current and Projected .49 6.3 Farmgate Prices (1976) .51 7.1 Projections of Incremental Annual Production of Crop Products .56 7.2 Projections of Incremental Annual Production of Livestock Products .56 8.1 Farm Models: Summary of Cultivated Area and Production by Activities .59/60 8.2 Farm Models: Net Incremental Benefits and Financial Rates of Return .61 8.3 Farm Models: Summary of Estimates of Current and Projected Farm and Per Capita Income .63 8.4 Farm Models: Financial Rates of Return and Sensitivity Analysis .64 8.5 Estimated Project Cash Flow .68  TABLE OF CONTENTS (Cont'd) Page No. CHART 5.1 Program and Project Organization ......... .............. 39 ANNEX Related Documents and Data Available in the Project File. MAPS IBRD - 12202 Colombia: Integrated Rural Development Project; Area 1 to 5 with climatic zones. IBRD - 12203 Colombia: Integrated Rural Development Project; Area 1. IBRD - 12204 Colombia: Integrated Rural Development Project; Area 2. IBRD - 12205 Colombia: Integrated Rural Development Project; Area 3.   COLOMBIA INTEGRATED RURAL DEVELOPMENT PROJECT INTRODUCTION AND SUMMARY THE RURAL SECTOR AND PROJECT AREAS A. The Rural Sector 1. The agricultural sector accounts for 37% of employment, 27% of GDP and 59% of the value of all exports. The rural population, defined as the people living outside centers with more than 2,500 inhabitants, is about 9 million, or 37% of the population of Colombia, which, in 1976, totalled about 24.5 million. The growth of agricultural output was on average 4.6% per annum from 1971 to 1975. Colombia is self-sufficient for most of its food requirements, but continues to require imports of wheat, cocoa, oilseeds, pulses, corn and barley. 2. The wide range of climatic conditions and the various forms of land tenure in Colombia have led to the development of several distinct types of farming. Cattle ranching predominates in the lowlands along the Caribbean coast, the lower part of the inter-Andean valleys and, increasingly, in the Orinoco and Amazon river basins to the East. Fairly intensive, modernized farms of medium and large size predominate in the upper reaches of the inter- Andean valleys. On the steep slopes rising from these main valleys, small and medium-sized farms produce a diversity of crop and livestock, but, with few exceptions, coffee is of overwhelming importance, and it has provided the resources which have financed the considerable development of the social ser- vices and infrastructure in this zone. Above the coffee zone, conditions are less favorable and these areas have not shared in the generally impressive development of the agricultural sector. 3. The unevenness in the distribution of land is an important character- istic of the rural sector. However, aggregated national statistics do not take into account differential land productivity; for example, they do not dis- tinguish between the economic value of extensive ranch land and intensive coffee land. In 1973, farmers with less than 20 ha (small farms) accounted for 83% of the number but only 13% of the area of farmland, while farms of over 50 ha (large farms) occupied 80% of the area, but represented only 8% of the number of farm units. Half the rural income is retained by 10% of the rural popula- tion, of which in 1975 63% had annual incomes below the relative poverty income level, as defined by the Bank (US$148 per capita in 1975). 4. Some 47% of the children of school age in rural areas do not attend school. Schools exist throughout most inhabited parts of the country but there are serious deficiencies in the number and training of teachers, the number of classrooms and their equipment. Adult literacy is about 65% in rural areas since there have been some fairly successful out-of-school literacy programs.  - ii - 5. Health services in rural areas are generally very poor and in towns the local hospitals are often poorly equipped and not fully utilized. Health statistics are particularly deficient; however, it is clear that in rural areas infant mortality is generally higher than the urban rate of 9.4 per thousand live births. Water-borne infections lead to a high propor- tion of illness and death in rural areas. 6. The country is fairly well served with main roads between Depart- ment (Provincial) capitals, but only 60% of the rural communities are linked by all-weather roads. About 35% of the rural population is linked to public electricity systems. About 4 million of the rural population live in hamlets or villages of between 50 and 2,500 inhabitants; of this group, 42% is linked to a potable water supply and 10% to a sewerage system. 7. Caja de Credito Agrario, Industrial y Minero (Caja Agraria) is the principal agricultural credit bank in Colombia and would have responsibility for administration of the project. It was initiated in 1931 as a part of a state-owned bank. In 1971, it was transformed into a mixed enterprise although the Government still retains 89% shareholding. Caja Agraria has had consider- able experience with lending to small-scale farmers and has participated successfully in two previous projects partially financed by the Bank. It has 25 regional and 805 branch offices, many of which also have outlets for seeds, fertilizers, and other farm requirements. Sales of farm inputs by Caja Agraria currently account for about half of all national sales of these products. At the end of 1974, loans to small-scale farmers accounted for about 60% of its loan portfolio or the equivalent of US$318 million. B. The Project Areas 8. The Bank project would cover three out of five geographic areas which have been identified for the initial phase of a national rural develop- ment program (Map IBRD 12202). The Canadian International Development Agency (CIDA) and the Inter-American Development Bank (IDB) have already approved loans to assist in the financing of the program in Areas 4 and 5, respectively. 9. The project areas (Areas 1, 2 and 3) include districts in which there is a high proportion of small-scale (under 20 ha) farmers and poverty. In the areas selected, the current level of farm productivity is low, but there are good potentialities for major increases using existing technology which is being adapted to local conditions by the Colombian Agricultural Institute (ICA) and incorporating improved varieties developed in collabora- tion with the International Center of Tropical Agriculture (CIAT). In none of the Bank project areas is the redistribution of land a prerequisite for project execution (see para 10), although it would be necessary in time to attempt to achieve a more equitable distribution. o0. All three project areas are located in the Andean highlands. Area I covers part of the Departments of Narino and Cauca adjoining the frontier with  - iii - Ecuador; Area 2 includes much of the Department of Cundinamarca and a small part of Tolima in the center of the country close to Bogota; and Area 3 is part of the Department of Antioquia, ncrth and east of Medellin. In 1973, the total population of these three areas was 2.6 million, of whom 1.8 million (69%) lived in rural areas on 204,000 farms covering 2.3 million ha of agricultural land. The project would be focused on the requirements of farmers with less than 20 ha, who number some 175,000 -- 86% of the total number -- and occupy 0.7 million ha of agricultural land -- 31% of all agri- cultural land. These farmers produce primarily cereals, pulses, potatoes and other starch crops and also maintain small numbers of livestock of various species. The target population would include about 1.1 million on farms and also poor, landless residents, giving a total of some 1.5 million persons with an average annual per capita income equivalent to about US$100. 11. A large number of official agencies is active in the rural areas. Generally, they are technically competent and well staffed. Nevertheless, the development of the rural areas of greatest poverty has been very slow. Contributory factors have been the attention previously devoted to assisting medium- and large-scale farmers, or producers of export crops; the strong vertical structure of each official entity with little authority delegated to the regions; budgetary uncertainties; and a lack of coordination between entities and between the national and local government authorities. In the past there has been little attempt by official agencies to discover the priorities perceived by the local communities, who therefore have not become involved in the process of development. However, there has been a growing official awareness of the needs of the poor in rural areas and a realization that their conditions of life could be improved. 12. In the project area, the average adult literacy rate is quite high (76%), although only 40% of children aged 7 to 14 years attend school. The number of schools in relation to the population is close to the national average of 7:10,000 population. The education standards are generally low and this contributes to the continuing migration to the towns of people ill prepared for urban life, and also holds back development in the rural areas. 13. The project areas lack an effective health service and there is widespread occurrence of avoidable or readily controllable diseases associated with impure water and unhygienic conditions. As the areas are generally at high altitudes, tropical diseases are not important. 35% of the rural com- munities are inaccessible by road and 57% of the rural population living in groups of 50 to 2,500 persons has no piped water and 78% has no sewerage system. 14. Agencies of Caja Agraria are located throughout the project area and agricultural supplies are generally available at the market towns. At present, the majority of small farmers dispose of their produce through intermediary traders who also provide extra-bank credit. There is wide- spread interest among farmers in obtaining more direct outlets to the final consumers but considerable skepticism concerning the formation of cooperative societies because of generally unsuccessful past experience.  - iv - PART IV: THE PROJECT A. Project Concept 15. The objective of the project would be to raise living standards in selected rural areas by increasing the productivity, output and incomes of farm families and by improving social services and facilities available to rural communities. Through the project, it would be intended to reduce disparities between rural and urban amenities while facilitating the transi- tion of some of the rural population to industrial and commercial activities. This would require not only raising formal educational standards of the rural population but also increasing its familiarity with marketing, credit, techni- cal and management skills which are required both for more intensive farm management and to obtain regular urban employment, above the level of un- skilled labor. The main emphasis of the project would be on providing super- vised credit to promote farm investments and thereby to raise farm production. Rural roads would be provided to areas with the highest agricultural potential while investments in education, health, water and electricity would be designed to spread these services more uniformly, while giving priority to communities showing greatest interest in farm development. 16. The project would be a component of the Integrated Rural Development Program (IRDP), which forms part of the National Food and Nutrition Plan. The IRDP would assist families with less than 20 ha to increase their farm produc- tivity by providing supervised credit for development, operational expenses and the improvement of marketing. With few exceptions, this category is com- posed of families among the poorest 50% of the population. Priority would be given to increasing the production of crop and livestock products of high nutritive value and to promoting better family health, nutrition and living conditions. 17. The other part of the National Food and Nutrition Plan would be the Nutrition Program for which Bank financing is being considered. This would consist of the provision of subsidized food of high nutritive value to pregnant and lactating women, and children under five years, and supporting investments in food processing and quality control, health and water supply services and education in nutrition. The proposed Second Agricultural Credit Project could contribute to financing the production and processing of the foods of high nutritive value required for the Nutrition Program. Detailed Features a. Supervised Credit 18. Over a period of five years Caja Agraria would provide sub-loans to some 40,000 borrowers -- 23% of the target group -- on the basis of integrated farm plans incorporating crops (other than coffee), livestock, minor farm structures and tree planting; from the third year of participation in the project, credit would also be made available to farmers for minor home improve- ments related to hygiene. Caja Agraria would also provide incremental working  v capital and medium- and long-term sub-loans to associations of producers for marketing. Sub-loans would be financed through a credit fund to be estab- lished within Caja Agraria. In total, over the whole of the project period, Caja Agraria would be required to provide the equivalent of US$23 million from its own funds for eligible sub-projects (Section 2.11 of draft Project Agree- ment). Because of its central role in the project, it would be important that the financial stability of Caja Agraria be assured. With this in mind, the Government has added $36 million to the resources of Caja Agraria during 1976 and has relieved the institution of all debt servicing responsibility for the whole IRDP (equivalent to a capital contribution of approximately $70 million over five years). In addition, assurances were obtained at negotiations that Caja Agraria would maintain at all times a liquidity ratio equal to or greater than unity (Section 4.03 draft Project Agreement). b. Production Support 19. The project would finance part of the cost of a Program Management Unit in the National Department of Planning (DNP) and an administration unit in Caja Agraria and new facilities and increased service capabilities for the following entities: (a) Instituto Colombiano (crop and livestock adaptation Agropecuario: ICA - (and demonstration; preparation (and supervision of farm plans (b) Instituto de los Recursos (tree nurseries; advice on tree Naturales Renovables y (planting and soil conservation del Medio Ambiente: INDERENA - (and minor soil conservation (works, including protection of (water sources (c) Central de Cooperativas de la - (Market Intelligence Unit; Reforma Agraria Ltda.: CECORA (marketing advisory service (d) Servicio Nacional de Aprendizaje: (staff training; publicity for SENA - (the project; training farmers (and staff of marketing groups c. Social Services 20. The project would promote more effective use of existing rural primary school facilities by providing classroom furniture -- 2,300 sets -- and 3,800 kits consisting of teaching aids and manuals. This component would be the responsibility of the Instituto Colombiano de Construcciones Escolares -- ICCE. 21. Rural Health Service teams would be formed over five years to pro- vide about 80% coverage of the rural population in the project areas. This would require the construction and equipping of 75 new health posts and im- provements to 26 existing facilities, 8 health centers and 17 local hospitals. Health staff would be trained and provided with medical aid kits and nutrition education kits. The construction of latrines in public places would also be  - vi - financed under this component of the project, which would be executed by Ministerio de Salud Publica (Minsalud). 22. The Instituto Nacional de Salud (INAS) would supervise the construc- tion, expansion or improvement and operation of 248 new piped water systems with individual house connections; 36 existing schemes would be extended and five old schemes provided with chlorination facilities. A total of 147,000 people would benefit from these works. d. Infrastructure 23. The Fondo Nacional de Caminos Vecinales (Caminales) would supervise the construction of 313 km of new rural roads and the improvement of 647 km of existing rural roads throughout the project areas. 24. In Area 1, the Instituto Colombiano de Energia Electrica (ICEL) would supervise 22 sub-projects to provide electric power to 14,335 families -- about 90,000 persons. No further electrification under the project is planned for Areas 2 and 3 since service levels there are already well above the national average for rural areas. B. Project Costs and Financial Arrangements Project Costs and Financing 25. Total project costs for a five-year period of investment are esti- mated to be US$131 million, including incremental seasonal credit and incre- mental working capital for produce marketing. It is estimated that the foreign exchange cost would be US$27.6 million, or 21% of the total. 26. A Bank loan of US$52 million is proposed to finance all foreign exchange costs and US$24.4 million of the local costs, and thus cover 40% of the total cost of the project. Project beneficiaries would be required to contribute US$11 million (19%) of farm and marketing development cost and US$2.1 million (4%) of the cost of other project components, while the re- maining project cost of US$65.9 million (50%) would be shared by SENA -- US$3.1 million (2%), Caja Agraria -- US$23 million (18%) and the Government -- US$39.8 million (30%). Further details are given in the table on the follow- ing page. 27. Local currency financing is recommended because of the importance the project would have within the overall Government attempt to promote the economic development of the poorest of the rural population within the project areas and because of the relatively low foreign exchange content which is characteristic of rural development projects. The cost sharing proportion which is proposed is necessary to give the Bank a meaningful role in the project. 28. Of the total Bank loan of US$52 million, US$26.8 million (52%) would be used to assist in financing sub-loans to farmers and marketing groups,  - vii - Project Costs, Firincing Plan and FstiTated fishursements Local Foreign Total ------- (US$ million) ------ Estimated Cost Project Management 3.2 0.5 3.7 Farm Operations and Development 44.0 10.0 54.0 Marketing Operations and Development 2.3 0.4 2.7 Production Support 18.2 2.6 20.8 Social Services 12.3 2.5 14.8 Infrastructure 8.9 4.7 13.6 Total Baseline Costs 88.9 20.7 109.6 Physical Contingencies 2.3 0.8 3.1 Price Contingencies 12.2 6.1 18.3 Total Project Cost 103.4 27.6 131.0 Percent of Total Cost 79 21 100 Financing Plan Bank 24.4 27.6 52.0 Government 1/ 65.9 - 65.9 Beneficiaries 13.1 - 13.1 Total Project Cost 103.4 27.6 131.0 Estimated Disbursements FY77 FY78 FY79 FY80 FY81 FY82 FY83 ------------------ (US$ million)------------------- Incremental 0.4 8.6 13.0 12.3 10.8 6.0 0.9 Cumulative 0.4 9.0 22.0 34.3 45.1 51.1 52.0 1/ Includes contribution of Caja Agraria (US$23.0 million) and SENA (US$3.1 million).  - viii - through a fund to be established in Caja Agraria. The relending interest rate, terms and grace periods are summarized in Annex III. 1/ To ensure that relend- ing rates reflect current economic conditions, the Bank obtained assurances at negotiation that it would annually review with the Government and Caja Agraria the terms and conditions of subloans to be made under the project. (Section 3.07 of Loan Agreement and Schedule 1 to the Project Agreement). Procurement 29. International competitive bidding, in accordance with Bank Guidelines on Procurement, would be required for orders of an estimated value of more than US$100,000 for the purchase of vehicles, water pumps and piping. Caja Agraria would consolidate the requirements of the participating entities and issue the calls for tenders. Domestic manufacturers would be granted a preferential margin in bid evaluation equal to the prevailing tariff, or 15% of the c.i.f. cost of imports, whichever is the lower. All other purchases of goods and services would be made in accordance with local competitive procedures accept- able to the Bank, with the exception of individual purchases by farmers where competitive bidding would be impractical. Procurement in such cases would be through regular commercial channels. See Annex III. 2/ Disbursement 30. The loan would be disbursed over a period of six years. See the table on the preceding page. Disbursement would be made according to the following percentages of expenditures certified by Caja Agraria: (a) Sub-loans for farm marketing 49% of amount disbursed operations and development (b) Vehicles and medical equipment 100% of foreign expenditures or 40% of ex-factory cost of locally manufactured goods (c) Cables and electrical equipment; 100% of foreign expenditures water pipes and pumps or 80% of ex-factory cost of locally manufactured goods (d) All other expenditures by Caja 36% Agraria and project entities Retroactive financing not exceeding US$500,000 is proposed for expenditures incurred from July 1, 1976 for initial staff training and orientation for project work, to initiate farming adaptation and demonstration units, the Natural Resources Advisory Service, the Marketing Advisory Service and engineering studies. 1/ Staff Project Report, para. 5.12. 2/ Staff Project Report, para. 4.28.  - ix - C. Market and Production Aspects 31. The incremental farm production which may be generated through the implementation of the proposed project would be locally significant and could make a small but useful contribution to the national food requirements by 1985. It is projected that by then the incremental production from farms receiving sub-loans under the project could amount to the following proportions of the national demand: cereals and other starch crops, 5%; non-centrifuged sugar, 4%; pulses, 6%; vegetables, 1%; and meat and milk, 2%. 32. The project would set out to blend improved methods into existing farming systems and practices. The farmers in the project areas are already well established and the existing management systems have been evolved over many centuries in the light of experience and in order to minimize risks to the farmers. More intensive farming practices could increase the economic risks to producers; the project would seek to reduce this problem through placing great emphasis on improving marketing channels organized by associa- tions of producers, which may take various forms including cooperative societies. D. Implementation 33. The overall policy for the National Integrated Rural Development Program is determined and supervised by the National Council for Economic and Social Policy (CONPES), a ministerial level body chaired by the President of the Republic. 34. Management and coordination would be carried out by a Program Manage- ment Unit, headed by a Director General in the National Department of Planning (DNP) responsible for the whole Integrated Rural Development Program, of which the proposed Bank project would form about 45%. The administration of the program would be carried out by the Department of Rural Development of Caja Agraria. 35. Caja Agraria would enter into subsidiary project agreements with each entity responsible for implementing a component of the project. These agreements would define the responsibilities of the respective executing agencies to execute their components of the project and would recognize the responsiblity of Caja Agraria to monitor the physical and financial progress of each component and report to DNP (Section 2.02 of draft Project Agreement). Caja Agraria would also consolidate the issuing and awarding of international tenders required for the project and transmit reimbursement applications from the participating entities through the Ministry of Finance and Public Credit to the Bank, which would disburse to the account of the Ministry in the Bank of the Republic. 36. A permanent Evaluation Group for the whole Integrated Rural Develop- ment Progam would be formed in DNP but would be financed outside the project (Section 3.03(a), of draft Loan Agreement).  x 37. There would be four levels of committees of participating entities for the project: community, municipal, departmental and national. The target population would be included in the community and municipal committees and would constitute 50% of the membership and provide the chairman for both committees. E. Financial Analysis 38. The financial rates of return of representative farms range between 33% and 91% and income levels would be substantially improved by the project. However, at full development it is projected that for about half of the representative farms, incomes would still be below the poverty level in Colombia (US$148 per capita, 1975). This assessment indicates the continuing need for the promotion of employment opportunities in rural areas. The Small-Scale Industry Project (Loan No. 1070-CO) and the proposed Second Agricultural Credit Project were appraised with this problem in mind and they are expected to assist in the creation of employment opportunities in the project area. 39. Beneficiaries' contribution to total project costs would amount to 10% of total costs. Seasonal credit for farm operations would require a contribution of 5% from the sub-borrower in the first year, increasing to 15% for the fourth year. Farm investment and market operations and development would require at least 15% contribution by beneficiaries. Communities are required to contribute 15% of the cost of potable water sub-projects and 10% of total investment costs for rural health posts and centers and electrifi- cation subprojects. At negotiations, assurances were obtained from the Government that tariffs for electricity and potable water supplied under the project would be maintained at levels sufficient to recover operating and maintenance costs, including depreciation. (Section 4.03 of draft Loan Agreement). 40. Through the implementation of the proposed project, the Government would be committed annually to finance additional current costs, rising to US$10 million by year 5. About US$8 million per year would continue to be necessary after the end of the five-year investment period proposed for the project. The largest individual cost would be for the operation and mainte- nance of the health services to be established within the project areas. In addition, the Government would bear the entire responsibility for servicing the proposed-Bank loan. F. Economic Analysis 41. At full development (Year 5), 23% of the small farmers in project areas are expected to have become incorporated into the supervised credit component of the project. At this stage it is anticipated that the incre- mental value (using 1975 international prices) of crops would be US$22.6  - xi - million and that of livestock, US$12.3 million. Increased production of various kinds of meat and non-centrifuged sugar should release additional amounts of beef and sugar for export and help the agricultural sector to continue to play a significant role in the growth of Colombia's foreign trade. At the same time, increased production of wheat and pulses would save foreign exchange by reducing the amount imported. The net annual foreign exchange savings of the project at full development would be US$15.4 million. The other commodities produced by the project are for domestic consumption only and would assist in meeting the increased demand resulting from higher per capita incomes and would contribute to improved nutritional standards. 42. The number of people benefitting directly and indirectly from the project would amount to approximately 1.5 million. Many of these would, for the first time, have access to advisory services, credit facilities, markets, training and education opportunities, health care and water and electricity delivery systems. 43. Given the emphasis of the project on providing credit and other services to farmers with less than 20 ha of land, it is anticipated that the project would improve the living standards of the rural poor and improve income distribution in the project areas. It is projected that at full development, 32% of the additional income generated under the project would accrue to families currently receiving annual incomes of less than the equivalent of US$29 per capita and 74% would be received by families now earning annually less than the equivalent of US$98 per capita. 44. The project's contribution to employment would stem mainly from the regular work generated at the farm level at full development and also from the opportunities generated during the investment period. At the farm level, the project would require, annually, an additional 1.3 million man- days of labor at full development, equivalent to 6,500 full-time jobs. Some 0.25 million man-days, or 20% of this labor, would be provided by members of farm families while the rest would be provided by hired labor. In addition, 0.68 million man-days (3,400 full-time jobs) would be generated by the other components of the project during the investment period. 45. The economic rate of return is estimated at 22% for the productive components of the project (credit, technical assistance, rural road develop- ment and the project management unit), which account for 82% of total project costs. 46. The remaining components of the project -- education, health, potable water and electrification, which together account for 18% of total project costs -- were excluded from the economic analysis as no meaningful rate of return could be estimated. These components, though not contributing directly to the productive goals of the project, will help improve the living conditions of the low income stratum rural population. The project's activi- ties in these fields are designed to bring the level of these services in the rural areas closer to that prevailing in urban communities.  - xii - G. Conclusions, Loan Conditions and Recommendation Conclusions 47. The proposed project presents a coherent attack on the problem of rural poverty and deprivation in Colombia. The main emphasis would be on raising the level of farm productivity by combining the efforts of Government entities to this end, while providing adequate funds for credit. Most of the components of the project would intensify ongoing activities in a coordinated manner, but the natural resources and health service components would consti- tute innovative approaches in these fields. The project would provide experi- ence in concerted rural development activities within fairly limited but representative areas, which would be suitable for more widespread application. 48. The functioning of the market system and fluctuations in prices for farm products present the greatest uncertainties facing the project. The extent to which members of the target population will take part in the project will be strongly influenced by their assessment of the potential benefits and apparent risks of participation. These risks have been recognized during the preparation of the project, which consequently includes special emphasis on improving the competitive position of the target population. The market advisory service and market intelligence service would be particularly impor- tant since it is the Government's policy to limit its direct intervention in marketing and to encourage the interaction of demand and supply to determine prices. Finally, coordination and collaboration between executing agencies is expected to develop during the course of the project. To the extent that such integration among agencies fails to occur, project effectiveness would be dimi- nished, although the individual components of the project would still be of value to the communities. Loan Conditions 49. The draft Loan Agreement between the Republic of Colombia and the Bank, the draft Project Agreement between the Bank and Caja Agraria, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement, and the text of the draft resolution approving the proposed loan are being distributed to the Executive Directors separately. 50. Special conditions of the loan are listed in Section III of Annex IV. 1/ Special conditions of effectiveness of the loan would be that: (a) the subsidiary agreements between the Government and Caja Agraria, and Caja Agraria and ICA, INDERENA, CECORA and SENA, have been duly executed (Section 6.01(b) and (c) of the draft Loan Agree- ment); and (b) a Program Evaluation Group has been formed. (Section 6.01(d) of the draft Loan Agreement). 1/ Staff Project Report, para. 9.01.  - xiii - 51. In addition, a condition for disbursement for each loan category separately would be that the relevant subsidiary agreement between Caja Agraria and the participating entity (other than ICA, INDERENA, CECORA, and SENA) has been duly executed (paragraph 3 (b) of Schedule 1 to the draft Loan Agreement). 52. The proposed loan would comply with the Articles of Agreement of the Bank. Recommendation 53. With the assurances obtained at negotiations the proposed project would constitute a suitable basis for a loan to the Republic of Colombia for the equivalent of US$52 million to assist the financing of an integrated rural development project. The loan would have a term of 17 years including a grace period of 3-1/2 years, with interest at 8.7% per annum. November 12, 1976   COLOMBIA INTEGRATED RURAL DEVELOPMENT PROJECT I. THE RURAL SECTOR A. Introduction 1.01 Out of a total estimated population of about 24.5 million in 1976, nearly nine million, or 37%, live in rural areas, 1/ with some 85% of the rural families exclusively involved in farming. Rural population has been increasing only 0.5% per year between 1964 and 1973, compared with a 2.8% rate of growth for total population and 4.7% for urban areas. Table 1.1 pro- vides socio-economic indicators. The agricultural sector supports 37% of a total labor force of about seven million and, in 1975, contributed 27% of GDP and 59% of the value of all exports of goods and services. Except for wheat, cocoa, oilseeds, pulses and barley, Colombia is self-sufficient in food. In 1975, despite considerable Government efforts at diversification, coffee, grown in the Andes by small and medium farmers, still accounted for 62% of earnings from agricultural exports and 44% of the total merchandise export value. Other main export crops are sugar, cotton, rice and bananas. 1.02 From 1971 to 1975, agricultural output grew on average at 4.6% per annum in real terms. However, this good overall performance conceals impor- tant differences as most of the rural population live in conditions of poverty, where unemployment and under-employment are serious problems. The main reasons for this situation are: (a) poor distribution of land, associated with a high concentration of small farmers on the poorer and increasingly degraded soils of the Andean mountains; (b) the lack of coordinated production support services (research, extension, credit and marketing) adapted to their production systems and socio-economic conditions; and (c) inadequate physical infrastructure (roads and electricity) and social services (education and health). B. The Rural Structure Land Tenure and Type of Farming 1.03 An exceptional regional diversity in altitudes (from sea level to 5,800 m), soils and climates (from tropical to alpine) enables Colombia to 1/ Rural population is defined as the people living outside centers with more than 2,500 inhabitants.  produce a wide range of agricultural commodities. Out of a total area of 114 million ha, the agricultural census of 1970/71 showed that only 31 million ha were occupied by the existing 1.2 million farm units--7.7 million ha were cropped (2.1 million ha in seasonal crops, 2.3 million ha in permanent crops and 3.3 million ha in fallow); 17.5 million ha were in pastures; and 5.9 million ha were unused. 1.04 There are six main types of farming in Colombia: (a)- large-scale extensive ranching on the lowlands of the Caribbean and Andean valleys; 80% of the 22.5 million head of cattle in 1974 were found in those regions; (b) medium- and large-scale mechanized farming in the inter-Andean valleys, which has been expanding steadily and which mainly produces cotton, soybeans, oil palm and sugarcane; (c) small- and medium-scale farming at intermediate altitudes in the highlands, with coffee as the main cash crop; (d) organized resettlements of small farmers on land acquired and reclaimed by the Government, mainly in the Caribbean lowlands, but also in the Amazon basin; (e) spontaneous colonization of up to 1 million ha a year of tropical rainforest or in the Eastern Plains; and (f) high-altitude, small-scale farming (less than 20 ha) in the Andean highlands. In these densely populated areas, the average farm size is 4 ha. These farms are often on poor soil and steep slopes and produce mostly for family subsistence, although surpluses are marketed. Production diversification is a hedge against risk, and farming system characteristics are essentially low input, low risk and low output. Overgrazing and cropping steep slopes without soil conservation practices have resulted in substantial erosion. Insufficient technical assistance and lack of access to institu- tional credit and to markets are among the major obstacles to improvement. These farmers constitute the target group of this project. Land Distribution and Income Structure 1.05 The 1970/71 agricultural census showed that the largest 8% of farms (50 ha and above) accounted for 80% of the total farmland, while 60% of the number of farms occupied only 4% of all farmland in small holdings with less than 5 ha, of which 270,000 units had less than 1 ha. Some 83% of all farmers had less than 20 ha and operated only 13% of the farmland. In addition, 200,000 rural families dependent on agriculture were landless. The distribution of rural income is consequently very skewed, with half going to 10% of the rural  - 3 - population. In 1975, 63% had incomes below the relative poverty income level as defined by the Bank (US$148 per capita for 1975), including almost all farmers who held less than 20 ha. Rural unemployment and underemployment are estimated at an average of 20% of total available labor. The labor force is decreasing in the highlands due to a significant migration to cities. 1.06 Since 1961, the Colombian Institute for Agrarian Reform (INCORA) has been involved in programs of distribution of public land (4.1 million ha up to the end of 1974) and redistribution of unused private land (0.4 million ha) associated, to varying degrees, with investments in land reclamation and infrastructure and the provision of supervised credit and technical assistance. However, most of the land distributed so far has been assigned to families already occupying the land. INCORA's land titling activities are limited mostly to distributing to small-scale farmers titles on public land in colonization areas. C. Production and Support Services Research and Technical Assistance 1.07 The main institutions responsible for research and technical assis- tance are the Colombian Agricultural Institute (ICA) and the National Insti- tute for Natural Renewable Resources and the Environment (INDERENA). Other institutions involved in technical assistance or farmers' training are INCORA, the National Federation of Coffee Growers of Colombia (FEDECAFE), the National Apprenticeship Service (SENA) and the Departmental Secretariats of Agriculture. This multiplicity of entities involved in extension work and, hitherto, the lack of coordination among them, has seriously limited their efficiency. 1.08 ICA operates 12 experimental stations, five research centers and 24 diagnostic centers throughout the country. Its research efforts at first were not geared to small farmers' production systems and financial capabilities and, consequently, its extension services benefitted mainly large-scale farmers. Since 1971, however, this has changed and there has been a gradual reorientation toward the small farm sector. By 1975, ICA's Rural Development Division with 900 staff was providing technical assistance to about 50,000 small farm families in 21 rural development projects throughout the country. The Caja de Credito Agrario, Industrial y Minero (Caja Agraria) provides the necessary credit for production and harvesting costs and farm development. Although these efforts constitute a substantial improvement over past perfor- mance, the projects suffer from ICA's failure to coordinate its activities with those of other agencies operating in the same areas, the absence of a well-defined development program, and the problems associated with adapting technological recommendations to the small farmers' production system. A newly created support group within ICA is in charge of finding a way to handle the technology transfer.  -4- 1.09 INDERENA is in charge of research and technical assistance for forestry, fisheries and soil erosion control. Created in 1968, its achieve- ments in research are still limited, although it is currently involved in many studies and research programs, often with external financial assistance. Technical assistance in soil erosion control is successfully practiced in 12 special conservation districts, but assistance in tree planting is extended only to Caja Agraria's borrowers (22,000 ha in 12 years), very few of whom are small farmers. The shortage of resources and, until recently, restricted government backing, and the lack of coordination with ICA, have prevented INDERENA from providing an adequate advisory service for small farmers. 1.10 SENA is a semi-official institution which is quite efficiently organizing informal training programs for the rural population in basic literacy and arithmetic as well as in simple agricultural practices. It operates through 25 permanent centers and through the Rural Popular Vocational training component of its Mobile Rural Program for which there is now a great demand. The total number of trainees since the inception of the program (1967) to the end of 1974 was about 140,000. 1.11 INCORA has 20 projects of a supervised credit program in land reform areas. In 1975, this program reached 47,380 individual small farm families, and a further 13,008 were organized in 1,177 group farms. Technical assis- tance is provided by INCORA's own staff. 1.12 FEDECAFE is a producers' association with semi-official status which has for many years reinvested tax revenue from coffee exports in the develop- ment of rural infrastructure in coffee growing areas. It also provides technical assistance to some 40 multi-purpose cooperatives and finances farm diversification activities. 1.13 Departmental Secretariats of Agriculture are directly responsible to the Governors of the Departments. They provide technical assistance to farmers with less than 10 ha or those producing no more than 100 liters of milk per day. Their efficiency often is limited by the rapid rate of staff turn-over, and changes in political direction. Credit 1.14 At the beginning of 1975, the agricultural credit portfolio amounted to Col$ 15 billion, about 25% of the total outstanding institutional credit portfolio. It was shared by Caja Agraria, an official institution (40%), com- mercial banks (37%), semi-official Banco Ganadero (5%), INCORA (9%), and various others (10%). 1.15 In March 1973, the Government passed Law 5 ("Ley Quinta") to offset an expected decline in the availability of funds for agricultural lending. Under this law, commercial banks are currently (February 1976) required to  -5- invest at least 17% of their total lendings in 8% agrarian bonds issued by the Central Bank. These funds are then relent to agriculture through rediscount facilities arranged by the Fondo Financiero Agropecuario (FFAP). Law 5 has attracted more funds to agriculture but they have been insufficient to match inflation and the sector is still receiving a smaller share of total credit than the 30% provided during the period of 1968-70. 1.16 In May 1976 Caja Agraria revised its interest rates as follows: Interest Rate from Value of Total Assets of Borrower Previous Interest Rate May 1976 (%) (%) Under Col$ 100,000 14 14 Col$ 100,000 to Col$ 500,000 14 18 Over Col$ 500,000 15 18 In addition, almost invariably a 1% life insurance premium is charged on all loans and a further 1% charge for technical assistance is made on loans of over Col$ 150,000. Marketing 1.17 The domestic marketing system which serves the small farmer sub- sector is characterized by the limited quantities each farmer places on the market; the lack of on-farm storage; widespread indebtedness of farmers to traders; and farmers' generally weak bargaining position, particularly when they are obliged to sell immediately after the harvest to settle outstanding debts; high transport costs because of inaccessibility, poor roads and defi- cient road maintenance; and the large number of small traders at all stages, which results in many changes of ownership and much costly handling before the product reaches the wholesaler. There is a similar distribution network between the wholesaler and the consumer, dominated by family firms working on a relatively small turnover. The consequences of the traditional system as practiced in Colombia are that: (a) margins between producers and consumer prices average about 40% of the consumer price, more than half of which is accounted for between the wholesaler and the consumer; (b) sales by producers immediately after harvesting accentuate seasonal price fluctuations; (c) price differences from market to market are often greater than transport costs and reflect deficient market information; (d) purchases must be made on the basis of inspection since there are no accepted quality control standards; and  - 6 - (e) physical losses are high, estimated at 9% of the tonnage marketed, with 7% occurring during the wholesale market and retail distribution phases. This traditional system is bypassed by a few groups of specialized producers with access to working capital and storage facilities who channel graded produce directly to domestic consumers or to the export market. In the ex- port of coffee, FEDECAFE plays a key marketing role by ensuring quality standards and regulating prices to producers. Agricultural Supplies 1.18 A large number of individual traders sell farm inputs but Caja Agraria handles about half the total trade through its 438 outlets. In 1975 its sales volume totalled Col$ 1,700 million (US$51.5 million). In general, the distribution system is remarkably effective, although the recent liquidity problems have resulted in shortages of supplies at sales points when they were required. D. Government Marketing and Price Policy 1.19 Government policy is to keep direct market intervention to a mini- mum and to limit the role of the Agricultural Marketing Institute (IDEMA) to that of a price support agency. IDEMA has a total storage capacity of 316,000 tons of grain. Prices are fixed at six-month intervals at levels which cover production and harvesting costs and provide incentives to farmers to strive for higher productivity. These prices are uniform throughout the country with no allowance for transport costs, although for rice and beans there are quality differentials. Also they do not incorporate periodic increases to reflect the costs of storing. Consequently, when there is an excess supply, deliveries are often made to IDEMA immediately after the harvesting period. The strain thus placed on IDEMA's financial resources has frequently caused delays in payments, which, combined with rigorous quality requirements, has resulted often in farmers selling to private traders below the official price, thus reducing IDEMA's effectiveness as a price support agency. 1.20 The Government also wishes to encourage the growth of the Agricul- tural Exchange (Bolsa Agropecuaria), which was established in 1974 to provide an apex organization for the commercial grain marketing system. IDEI4A uses its services when it sells the stocks it acquires through its support buying operations. 1.21 So far, marketing improvements have consisted mainly of providing modern central market facilities for the main cities (Bogota, Cali and Medellin) and establishing special facilities such as cold stores for live- stock products. A survey commenced in 1975 by the Planning Office of the Ministry of Agriculture (OPSA), with USAID technical assistance, is reviewing all aspects of the marketing problem.  E. Physical Infrastructure and Social Services Physical Infrastructure 1.22 The topographic and climatic conditions of the country and the dis- tribution of villages and communities are a constraint to a fast and extensive road development program in the rural areas. Since 1962, a program of rural road construction has been developed through the National Fund for Rural Roads (FNCV) with the participation of communities in labor and construction mate- rials. This effort has been intensified since 1971 with the introduction of a "Pick and Shovel" program. Between 1962 and 1975, about 8,000 km of rural roads were completed, but 40% of rural centers still have no proper road con- nection and the bad condition of existing tracks usually does not meet the minimum requirements for proper marketing of agricultural production. 1.23 Rural electrification is carried out through the rural development division of the Colombian Institute for Electrical Energy (ICEL). In early 1976, only 35% of the rural population was served by the public electrical supply system. The main constraint to a faster expansion is the lack of investment funds. 1.24. Financial limitations are also responsible for the insufficient coverage of the rural population by potable water supply and sewage systems, since they, respectively, serve only 42% and 10% of the rural population. A clean water supply, however, is an essential precondition to health improve- ments and therefore forms an important part of the project. Social Services 1.25 There is a marked imbalance between the provision of health services in the rural and urban areas. About 75% of all doctors and professional nurses and health facilities are in cities with more than 20,000. The present system fails to provide the rural population with preventive and simple curative health care and advice on nutrition. The Government is aware of this situa- tion and is emphasizing the construction of rural health posts and health centers, the training of community workers ("promotoras") at the village level for the most basic health services, and the provision of auxiliary nurses. 1.26 Better education is the first perceived need of the rural population, but only 53% of primary school age children (7 to 14 years) attend school, compared to the national and urban averages of 66% and 76%, respectively. Facilities, equipment and the academic level of teachers are generally inade- quate; 80% of rural schools offer only the first three grades, which limits opportunities of rural children for further education. Moreover, syllabuses, based on urban perspectives, have not yet been adapted to rural conditions.  -8- F. Government Development Strategy The National Development Plan 1975-78 1.27 The Government, which took office in August 1974, declared its inten- tion to increase the incomes and standard of living of the marginal sectors of the society, particularly by reducing the income gap between urban and rural areas and by improving nutrition, and to securing higher export earn- ings. The National Development Plan, 1975-78, is well in line with these overall objectives. For the first time, heavy emphasis on the industrial sector in the allocation of public resources is discarded on the ground that the manufacturing sector has now gained a sufficient momentum, and agriculture and the provision of rural infrastructure have been given first priority for public investment. The Government has previously blamed the low incomes of small-scale farmers on the lack of land so it has centered its efforts around land reclamation, settlement and colonization schemes. However, today, the thinking is that it is cheaper and more efficient to deal with the problem by promoting higher production from existing small farms by providing minimum technology packages and supporting services and basic infrastructure through the implementation of integrated rural development programs. In addition to raising the incomes of large numbers of small farmers, such activities also create rural employment but do not imply an indefinite commitment of public resources. Land redistribution will henceforth be carried out in response to local circumstances in areas with both a high pressure on land and unequal distribution, but is not regarded as the primary means for reducing rural poverty. 1.28 The modern agricultural sector receives attention in two respects-- as the main source of foreign exchange earnings and as a source of foodstuff not produced by the traditional sector but essential to the implementation of the National Food and Nutrition Plan. Additional credit resources and export incentives will be directed at products in which Colombia is believed to have a comparative advantage (particularly livestock products, cotton, rice, sugar, bananas, tobacco and flowers) on international markets. The National Food and Nutrition Plan 1.29 The National Food and Nutrition Plan (PAN) would be implemented through two programs: Nutrition and Integrated Rural Development. The Nutri- tion Program would comprise a set of integrated and mutually reinforcing actions in the field of processing, consumption and improved biological use of nutritious foods. This program is to be supported by UNDP and USAID and possibly by the Bank through a proposed Nutrition Loan and a proposed Second Agricultural Credit Loan which would finance the production of food required for the Nutrition Program such as wheat, rice, soybeans and milk. The Nutri- tion Program aims to improve the nutritional status of the poorest 50% of the population through two inter-related sub-programs;  (a) Food Intervention, directed towards the most vulnerable groups among the poorest 50%; pregnant and lactating women and children under five years of age. The use of food coupons is envisaged to subsidize the purchase of certain nutritious foods by the target group; and (b) Supporting Investments, including food processing, food quality control, preventive and simple curative health service, potable water supply and education in nutrition. Integrated Rural Development Program 1.30 The Integrated Rural Development Program (IRDP) is a comprehensive integrated program of assistance focussed on actual and perceived needs in regions where rural poverty is widespread. The IRDP areas will receive prior- ity for developing production-oriented programs for small farmers, associated with improvements to supporting and social services, and infrastructure. Every effort will be made to reach as many families as possible and to estab- lish a coordinated institutional structure which permits replication so that the needs of the entire rural sector could be progressively met. The proposed Bank project would form about half of the first phase of the IRDP, which is an integral part of the PAN. Increases in the productivity of farms in IRDP project areas is therefore essential not only to reduce their own poverty but also to improve the nutritional standard of the entire population. Socio- economic data and indicators are summarized in Table 1.1 and further informa- tion on the IRDP is given in Chapter II of this report.  - 10 - COLOMBIA INTEGRATED RURAL DEVELOPMENT PROJECT *Ocioeoonomc Data and Indicators All !RD Total Pro%ct Urban I/ Ryral 1/ Program Project Project Project Ar-a- National Areas Areas Areas Area 1 Area 2 Area 3 (1, 2 & 3 A. Posulation i. Total population (million, 1973) 22.5 13.7 8.8 4.43 1.01 0.80 0.74 2,55 2. Population density (pop/sq.km) 18.7 - 21.0 36.2 40.0 46.0 29.0 35.3 3. Annual population growth rate (7.) 2.8 4.7 0.5 n.a n.a (0.31) 0.7 n.a 4. Average family size 5.7 5.6 6.0 6.0 6.0 7.5 6.0 6.? 5. Rural population (1973) 8.8 - - 3.0 0.66 0.57 0.54 1.77 6. ', of total population (1973) 39 - - 65 65.2 71.5 73.2 69.5 7. Annual growth rate (b. of rural Pop.) 0.5 - - n.a n.a (0.76) 0.7) 8. Labor force (million, 1973) 6.8 4.6 3.8 2.06 0.47 0.27 0.26 1.0 9. in agriculture 37 - - 65 64 61 63 63 B. Agricultural Sector lO. Total area (million ha) 114.0 - - 10.97 2.28 1.01 1.44 4.73 11. Total agricultural land (million ha) 25.12 - - 5.48 1.08 0.70 0.49 2.27 12. Number of farms ('000 1970/71) 1,180 _ 1,180 491 103 43 58 204 13. Number of farms with less than 20 ha ('000. 1970/71) "small farms" 980 - 980 4141 92 39 49 175 14. 7. of total number of farms (13:12) 83 - 83 88 89 91 84 86 15. Agricultural land in farms with less than 20 ha (million ha) 3.38 - - 1.50 0.35 0.21 0.14 0.70 L6. 7. of total agricultural land (15:11) 13 - - 27 32 30 29 31 17. Number of IROP beneficiaries - - - 91,759 18,410 10,200 11,400 40,010 18. b of small farmers (17:13) - - - 21 20 26 23 23 19. Average per capica income of beneficiaries (1975 ColS) - - - n.a 2000 to 3500 3,000 3,800 n.a 20. Poverty income level - 1975 21. Average per capita income (Col$ 1975) 22. Rural unemiloyment rate (b) - - 20 2/ n.a 22 3/ 14 3/ 20 3/ 19 3/ C. Phvsical Infrastructure 23. Roads - 4. of rural centers connected n.a 100 60 61 60 70 45 65 24. Electricity - 7. of population served 72 96 35 .41 19 80 70 55 25. Potable water supply - 7. of agglomerated population served 4/ 67 75 42 n.a 51 46 31 43 26. S-werage 7. of agglomerated population serted 4/ 49 60 10 n.a 16 32 19 22 D. Social Services Health 2-, General mortality rate (per -..uusand) 9.4 n.a n.a n.a 5.9 to 7.2 7 to 9.1 10 to 13 5.9 to 13 29. infant mort. rate (per '000 live births) 78 n.a n.a n.a 93 to 142 43 to 66 74 to 149 91 to 140 29. Hospital beds per 10,000 20 n.a 8 n.a. 4.5 4.9 7.9 5.6 7. of occupancy 61 n.8. n.a. n.a 50 to 70 55 60 50 to 70 30. No. of doctors per 10,000 4.5 10 1.2 n.a 0.8 2.4 1.2 1_4 31. No. of graduate nurses per 10,000 1.0 n..a a n.a 0.08 0.32 C.26 O.19 32. No. of auxiliary ourses per 10,000 10 n.a n.a n.a 1.3 6.3 5.53.8 33. No. of health promoters per 10,000 1.6 n.a 1.6 n.a 1.8 2.2 1.6 1.9 Educat ian 34. Average adult literacy rate (8) 80 88 65 n.a 69 80 85 io 35. No. of primary schools per 10,000 pop. n.a n.a 7.0 7.0 9.1 5.5 3.8 6.6 36. '' of children 7-14 year-age not actending school 34 24 47 n.a 34 21 20 37. in rural areas - - 47 n.a 49 37 29 40 38. -! of children registering in first grade completing primary school n.a 65 8 n.a n.a n.a ..a 0.a 39. in rural areas - - 8.6 n.a 8.2 20.5 16.2 14.5 .i Urban population is defined as population living in centers with more than 2,500. 2/ Including under-employment. 2/ Nor including rural under-employment. Agglomerated population is the population living in centers with m.ore than 50 inhabitants. Total agglonerated population in 1973 amounted to 17.7 million, including 4 million living in rural areas. ..ne 16, 1976  - 11 - II. THE INTEGRATED RURAL DEVELOPMENT PROGRAM A. The Program Areas 2.01 Five areas have been identified for the first phase of the Inte- grated Rural Development Program (Map IBRD 12202). All have a high concen- tration of poor, small farmers whose productivity could be increased rapidly but where the limited availability of public funds has so far constrained development of their productive potential. They include the following districts: Area 1 Departments of Narino and Cauca, including Districts of Pasto, Ipiales, Mercaderes, Popayan; Area 2 Departments of Cundinamarca and Tolima, including Districts of Girardot (including six municipalites in Tolima), La Mesa, Fusagasuga, Facatativa, Caqueza; Area 3 Department of Antioquia, including Districts of Yarumal (including part of Norte de Medellin) and Rionegro; Area 4 Departments of Cordoba and Sucre, including Districts of Monteria, Sincelejo, and Tierra Alta; and Area 5 Departments of Boyaca and Santander, including Districts of Tunja, Tenza, Duitama, Soata, Chiquinquira, Malaga, Socorro, Guavata. The Bank would, under this project, be involved in the financing of the pro- gram in Areas 1, 2 and 3, the Canadian International Development Agency (CIDA) in Area 4, and the Inter-american Development Bank (IDB) in Area 5. The following figures highlight the relative importance of the program within the national context, and further details have been given in Table 1.1. No. of IRDP No. of Farms Less Credit Total (1973) Rural (1973) Agricultural Farms Than 20 ha Benefi- Population Population Land (1970/71) (1970/71) ciaries (million) (million) (million ha) The Project Areas (1, 2 and 3) 2.55 1.77 2.27 194,000 175,000 40,010 Area 4 (CIDA) 0.54 0.30 1.43 61,872 49,165 8,749 Area 5 (IDB) 1.34 0.93 1.78 235,591 216,722 43,000 Total IRDP Areas 4.43 3.00 5.48 491,463 440,887 91,759 Total Country 22.50 8.80 25.12 1,180,000 980,000 -  - 12 - 2.02 The 11 districts of Areas 1, 2 and 3 were selected from 61 economic districts (Colombia is divided in 72 economic districts for planning purposes) according to the following guidelines: (a) the district has a high population pressure and a large proportion of small farmers; (b) land redistribution is not a prerequisite for development; (c) the percentage of rural poor is high (this excludes most coffee- producing districts where small farmers are comparatively well off and already have good financing sources); (d) farm productivity is low, but with good prospects for improvement; and (e) a minimum of production-support infrastructure already exists, but there is a serious lack of social infrastructure. B. The Project Area 1/ 2.03 The main physical, social and economic data concerning the areas are provided in Table 1.1. The three areas to be included in the proposed Bank project are located in the densely populated parts of the Andean high- lands. In 1973, 69% of the total estimated population of 2.55 million in the project area was rural. The project areas are mainly within the temperate and cold climate zones (72%), only 19% being in the hot zone. Rainfall varies between and within the areas from 550 mm to 2,120 mm. A dry season generally occurs from January to March and, to a lesser extent, in July and August. The topography is predominantly mountainous, and soils are mainly of volcanic origin. Most of the soils are poor (categories III to V USDA) and erosion is serious, particularly in Area 1. Only 50% of the land area is used for agri- cultural purposes and of this about 47% is grassland. Small Farm Production and Production Support Services 2.04 Small farms constitute almost 90% of total farm units in the three areas, and are operated by approximately 175,000 families. The average size of a small farmer's holding is 4.3 ha. Eighty-six percent of these farmers are considered to be landowners, but it is estimated that only 10% hold titles. Agricultural land operated by small farmers amounts to about 695,000 ha, or 30% of the total--34% is grassland, supporting a dual-purpose cattle herd of 451,000. Fifty-six percent of the agricultural area is cropped (half in permanent crops) and 10% is fallow. A wide variety of crops is grown, with emphasis on maize, potatoes, beans, wheat (in Area 1), barley, cassava, 1/ Map number IBRD 12202.  - 13 - vegetables, sugarcane, plantain, and sisal. Mixed and relay inter-cropping is widespread, the main crop associations being maize/beans and potatoes/ maize/beans. Minor animal species (pigs, sheep, rabbits, poultry, guinea- pigs, and bees) make an important contribution to family nutrition and income. Productivity is generally low, mainly because of poor soils and scarcity of land, but inadequate soil preparation, inappropriate sowing dates, poor weed control, insufficient fertilization and poor seeds also are contri- buting factors. The lack of credit, technical assistance and a secure market for increased production are further constraints to increasing production. 2.05 Although loans to small farmers represent about 90% of Caja Agraria's portfolio (Caja Agraria is practically the only institutional source of agricultural credit in the areas), less than 30% of such farmers took out short-term loans from Caja Agraria in 1972. The expansion of credit in the past has been hampered by the lack of resources and repayment terms and guarantee requirements not entirely appropriate to this category of borrower. Technical assistance linked to credit was provided by ICA to only 1,537 small farms in 1975 through seven Rural Development Projects. In the same year, INCORA provided supervised credit to 120 group farms with a total membership of 1,375. Traditional Marketing Channels 2.06 In the three project areas, small farmers have limited marketable surpluses of a wide range of commodities. In Area 1, most commodities are sold at the local or regional market, and only where major surpluses arise (as in the case of potatoes, wheat and milk) are any sold outside the area. In Areas 2 and 3, however, major influences are exerted by the central markets of Bogota and Medellin, which draw off much of the farm production. Cooperatives and Group Marketing 2.07 In 1975 there were nine cooperatives with 4,445 members engaged in the marketing of agricultural products in the project areas but only five established by INCORA serve small farmers exclusively. All five have had a chequered history. Bad management, particularly in marketing produce, has resulted in serious losses and in two cases (Narino and Cundinamarca) the Central de Cooperatives de Reforma Agraria (CECORA) has had to take over. In February 1976 the position was as follows: (a) of the nominal membership of less than 4,000, little more than half were active; (b) the mainstay of the operation was input marketing (fertilizers and veterinary products) in competition with Caja Agraria; (c) output marketing was successful only when associated with processing plants operated by CECORA in Bogota and Palmira;  - 14 - (d) sales to non-members accounted for nearly 50% of total sales. This has increased turnover and reduced unit overheads but has reduced the cooperative character of the societies; and (e) on average an active member transacted about 15% of his business through the cooperative society. 2.08 The four non-INCORA cooperatives engaged in output marketing in the project areas serve all types of farmers and do not have any permanent links with CECORA. There are, in addition, some 120 group farms (Empresas Comuni- tarias) with a total membership of 1,375 established and supported by INCORA as part of its agrarian reform measures. Although operating as production cooperatives, they market most of their production through the private trade. Distribution of Agricultural Supplies 2.09 Caja Agraria has distribution outlets in over one-third of the 152 municipalities in the project areas, and, as elsewhere, is the major input supplier. Cooperatives generally obtain their supplies from CECORA or private distributors, but CECORA is reducing its fertilizer distribution operations. Storage 2.10 In the project areas, public storage capacity exceeds 80,000 tons, of which 29,000 tons are in silos owned by IDEMA and the General Warehousing Corporation (INAGRARIO). Additional storage is also available as cooperatives have been able to rent enough space to meet their needs. Transport 2.11 Lack of feeder roads and poor maintenance are major transport con- straints. However, as a result of the recent introduction of large trucks on the main highways, there is, at least for the time being, enough transport available for marketing the current farm production from the project areas. The current freight rate is Col$ 1/m ton/km (USi5/m ton/mile). Social Infrastructure 2.12 Health conditions are generally poor, with a high incidence of gastro-enteritis, amoebic dysentery, typhoid and dysentery, mainly provoked by impure water and lack of sewage facilities. Infant mortality is especially high. There is also a serious shortage of qualified auxiliary personnel and of health centers and health posts. Because of difficulty of access and an inadequate system of referral, occupancy in the hospitals is only 50 to 75%. 2.13 Forty percent of school-age, rural children in the three areas do not attend school. Of those registered in first grade, only 15% complete primary school. Area 1 has the worst record, with a percentage of attendance of only 50% and a drop-out rate of 92%. The number of fully trained teachers  - 15 - is inadequate to cope with existing classrooms, and furniture and teaching equipment are badly lacking. Physical Infrastructure 2.14 The road network in the project areas consists of 3,532 km of secon- dary and 540 km of rural roads. Although the three areas are connected to the three main cities, Bogota, Cali and Medellin, the network of rural roads is insufficiently dense considering the mountainous conditions and the disper- sion of the population. It is estimated that proper full coverage of the population in the three areas would require 20,736 km of new or improved rural roads. Presently, only 60% of rural centers are accessible by car in Area 1, 70% in Area 2 and 45% in Area 3, and only 60% of the existing network is satisfactorily maintained. 2.15 Rural electrification is particularly poor in Area 1 where only 19% of rural families have electricity--Areas 2 and 3 are much better served, with 80% and 70%, respectively. 2.16 An adequate supply of pure drinking water, which plays such an essential part in health conditions, is still lacking for around 50% of the rural families in Areas 1 and 3 and for 70% of those of Area 2. III. THE EXECUTING AGENCIES Caja de Credito Agrario, Industrial y Minero - Agricultural, Industrial and Mining Credit Bank (Caja Agraria) 3.01 Caja Agraria was set up in 1931 as an associated entity of the state- owned Banco Agricola Hipotecario. It changed its name in 1932, and again in 1933. In 1954, it was authorized to operate its own insurance section and then in 1955 it absorbed the Banco Agricola Hipotecario, together with the savings bank, Caja Colombiano de Ahorros. In 1971, Caja Agraria became a mixed enterprise although it remained under the general direction of the Minister of Agriculture and its principal shareholder is still the Government with 89.1% of the shares; other partners are local banks and public entities (3.4%), FEDECAFE (7.5%), and a few private individuals. The statutes of Caja Agraria enable it to: (a) grant credit for the development of crops, livestock, craft and other industries and mining; (b) import, purchase and distribute material, machinery and equipment principally for agriculture; (c) produce, store and process goods and products; (d) receive deposits;  - 16 - (e) issue bonds; (f) borrow from internal and external sources; (g) enjoy rediscount facilities at the Bank of the Republic (BOR); and (h) accept warrants secured on agricultural products. 3.02 Within the general policy guidelines laid down by the Minister of Agriculture, Caja Agraria has considerable operational autonomy and it is required to conduct its business on commercial lines as a self-sustaining entity. It has a Board of Directors, of which the Minister of Agriculture is chairman. The General Manager, who is appointed by the President of the Republic, directs seven Divisions through Deputy General Managers for Banking, Credit, Development, Farm Supplies, Finance, Legal Affairs and Administration. In addition, there is an Internal Audit Department whose head is appointed by BOR, and who reports directly to the Board of Directors of Caja Agraria. The Internal Audit Department employs about 320 people and operates through some 45 audit working groups. The head office of Caja Agraria is in Bogota and there is a nationwide network of 25 regional and 805 branch offices and 446 farm supplies depots; at the end of 1975 it employed a staff of almost 14,000. 3.03 Decree No. 1,320 of July 31, 1970, authorized the Government to pay the interest and amortization installments on Bank loans 448-CO and 651-CO, with a total loan value of US$35 million, and an IDB loan of US$12.1 million, but at the time of appraisal (February 1976), Caja Agraria was still servicing these three loans to the detriment of its overall financial position. However, in June 1976 the Government stated that in future it would assume this respon- sibility, as had originally been authorized in 1970. Under Law 33 of 1971, the Government undertook to increase the capital of Caja Agraria by Col$ (1971) 200 million a year for ten years commencing in 1971. Up to the end of 1975, Caja Agraria had received only Col$ 150 million but, during 1976, the Govern- ment assigned a further Col$ 701 million for this purpose and an additional sum of Col$ 500 million to permit the writing off of trading losses incurred on fertilizers during 1974 and 1975 (para 3.06). The National Development Plan for 1975-78 states that the Government will bear the external debt incurred for the whole IRDP and thus repayments by sub-borrowers to Caja Agraria are projected to improve the funds' flow of the institution by the equivalent of more than Col$ (1975) 2,400 million, and thereby the Government would be com- plying with its commitment under Law 33 of 1971. 3.04 The consolidated balance sheet, and profit and loss account approved by the Superintendency of Banks (SB) for the fiscal year ended December 27, 1974 did not demonstrate clearly the financial position of Caja Agraria, but examination of the underlying accounts has shown that at the end of 1974 the liquidity ratio was about 0.8 and the debt:equity ratio about 7:1. The accounts of Caja Agraria for the fiscal year ending December 29, 1975 approved by SB showed that there had been a loss of 21% of gross income in the consolidated operations of Caja Agraria during 1975 and that, although at the end of the year, the liquidity ratio had improved to 0.9, the debt: equity ratio had weakened to about 9:1. Subsequent to the balance sheet date, the Government allocated Col$ 1,201 million (US$36 million) to Caja Agraria to absorb the  - 17 - loss of Col$ 500 million (US$15 million) in fertilizer inventories and to increase its capital contribution (para 3.03). It is estimated that this contribution would have brought the debt: equity ratio at December 29, 1975 to about 5:1. Furthermore, by Decree No. 708 of 1976 the legal reserve for Caja Agraria was reduced by 50%. These measures are expected to improve the financial situation of Caja Agraria from 1977. An assurance from the Govern- ment was obtained at negotiations that Caja Agraria would seek to maintain a liquidity ratio equal to or greater than unity. 3.05 Between the end of 1972 and 1974, the total assets of Caja Agraria increased by 46.5% (Col$ 4,791 million) and in 1975 they rose by a further Col$ 2,355 (15.6%). The increase between 1972 and 1974 was accounted for mainly by the addition of Col$ 2,493 million (40%) to the loan portfolio (ex- cluding doubtful accounts) and a Col$ 2,042 million (670%) increase in stock on hand which was principally in the form of fertilizers (para 3.06). At the end of 1974, the portfolio included 492,000 loans valued at Col$ 9,106 million (US$318 million at Col$ 28.60 = US$1.00). Small-scale farmers accounted for 94% of the number and 59% of the value of the loans. Loan collection records since 1971 have shown a considerable improvement; the proportion by value of loans with overdue installments had dropped from 17.9% in 1971 to 10.9% of the loan portfolio at the end of 1975. The value of the installments overdue is not separately tabulated, but would appear to be considerably less than the above percentages suggest. 3.06 Caja Agraria accounts for nearly half of all national sales of farm inputs and is thus in a strong position to influence price levels. Preliminary figures for 1975 sales by Caja Agraria were Col$ 1,700 million (US$51.5 million) operating with a gross margin of 21% yielding a net profit of 2% without taking into account the major problem which arose concerning the large stock of fer- tilizers purchased internationally at the end of 1974 at peak world market prices. Up to June 30, 1975, the fertilizer was shown in the balance sheet as stock on hand at its cost of acquisition. Adjusted to current market prices, its balance sheet value was overstated by Col$ 282 million (US$8.6 million) at that date. By the end of 1976, it is considered likely that losses on this whole operation will be no less than Col$ 500 million or about US$15 million. 3.07 Caja Agraria is principally a bank; therefore, it is subject to inspection by the Superintendency of Banks which determines the general form of reporting required for annual examination and certification. This form of reporting is neither adequate nor appropriate for day-to-day management, con- trol or planning. It is particularly unsatisfactory in respect of the non- banking operations of Caja Agraria because it is not possible to determine readily the true cost of resources and services or the quality of performance of profit centers. Some restructuring of the accounting systems and proce- dures on management accounting is necessary to increase their value as a basis for better financial management and control, while still complying with the requirements of the Superintendency of Banks (para 4.33). Instituto Colombiano Agropecuario - Columbian Agricultural Institute (ICA) 3.08 In 1963, ICA was formed as an autonomous government institution re- sponsible for all research related to the agricultural sector. As a result of the administrative reorganizations of 1968 and 1976, ICA was brought more  - 18 - directly under the control of the Minister of Agriculture and is now responsi- ble for the farm advisory service, with particular emphasis on the smallholder subsector. Attention to the requirements of small-scale farmers has only been emphasized since about 1971; however, there is now a considerable number of ICA staff with first-hand experience of smallholder conditions and it would be these people who would head the extension drive, which would be a key ele- ment of the IRDP. 3.09 In 1976 ICA had nine regional offices controlling five research centers,-16 experimental and demonstration centers and a total of 21 rural development projects, including 49 rural development offices. Of its total staff of some 6,000, about 900 are engaged in providing technical assistance to small farmers. Shortages of finance have curtailed the activities of ICA, but recently the situation improved and in 1975 expenditures were covered by income (Col$ 714 million), of which 57% came from the national budget, 28% from charges for services to medium- and large-scale farmers, 7% from external sources, and 8% from farm operations and other activities. 3.10 Under the provisions of Law 5 of 1973, ICA should receive the 1% surcharge for technical assistance to small-scale farmers collected by the FFAP account of BOR on all rediscounted sub-loans made by intermediary banks to agricultural borrowers having assets exceeding Col$ 500,000 (US$15,000). Up to the end of 1975, the balance sheets of ICA record the receipt of only Col$ 255,000 from this source. At the end of the 1975, after writing off losses of Col$ 188 million, the capital account was reduced to Col$ 235 million (US$7 million) and the position could deteriorate further as ICA will commence repaying an IDB loan during 1976. Accounts are well maintained, up to date, and are regularly audited by the Comptroller General. 3.11 Stringent measures were introduced at the end of 1974 to reestablish the financial viability of ICA. Consequently, although ICA has sufficient experience and a suitable structure to carry out its responsibilities under the proposed project during the execution of the project, attention would have to be paid to maintaining the overall financial viability of the entity. In particular ICA could again slip into a serious financial condition unless revenue is received from the 1% surcharge on FFAP lending to medium- and large- scale farmers. Instituto Nacional de los Recursos Naturales Renovables y del Medio Ambiente - National Institute for Renewable National Resources and Environment (INDERENA) 3.12 INDERENA was established in 1968 as a dependency of the Ministry of Agriculture responsible for protecting, administering, and developing the natural resources of Colombia. So far it has been predominantly a licensing and control agency, but it has recently initiated forestry, soil conservation and fishery research. One of the objectives of the proposed IRDP would be to increase the capacity of INDERENA to promote forestry development and to collaborate with ICA in minimizing soil erosion. Appropriate conditions to ensure effective coordination would be included in the relevant Subsidiary Project Agreements (para 5.06). 3.13 INDERENA has a headquarters and six regional offices with a total staff of some 2,400, of whom 400 are professionals. About half the staff is  - 19 - engaged in work related to forest control and development, but, over the past 12 years, official technical assistance has been associated with planting of no more than 22,000 ha. INDERENA had an annual income of Col$ 175 million in 1974 of which 66% was from national budget appropriations and the balance from operating income. Accounting procedures have been considerably improved since changes were introduced in 1973, and the books are audited regularly by the Comptroller General. At negotiations, assurances were obtained that there would be no conflict of responsibilities between INDERENA and the newly created Colombian Institute of Hydrology, Metereology and Land Reclamation (HIMAT) to which some of the functions of INDERENA were delegated early in 1976. 3.14 INDERENA has the capacity to undertake the natural resources compo- nent of the proposed project. Central de Cooperativas de Reforma Agraria Ltda. - Union of Agrarian Reform Cooperatives Ltd. (CECORA) 3.15 CECORA was formed in 1968 by the Colombian Institute for Agrarian Reform (INCORA) to assist cooperative societies of beneficiaries of the agrarian reform program. INCORA retains specific powers under 20 of the 65 articles in the statutes of CECORA, but Articles 4 and 8 enable CECORA also to assist cooperatives outside INCORA areas. The General Manager of INCORA has approved the expansion of the scope of CECORA to permit it to play an important role in the IRDP. 3.16 There is a staff of about 200 under a General Manager responsible to a Board of Directors. In 1974 the main operations of CECORA, in terms of the percentage of total sales (Col$ 277 million), were farm supplies (mainly fertilizers), 71%; animal feedstuffs, 18%; crop produce sales, 10%; and sales of livestock, 1%. As in the case of Caja Agraria, fertilizers purchased in 1974 present a serious financial problem to CECORA. The remain- ing 1974 stocks are being refinanced by commercial banks which are pressing for payment, but sales at current prices would result in a trading loss of some Col$ 100 million (US$3 million). In view of the importance of CECORA to the IRDP, clarification would be sought concerning the financial condition of this institution. During negotiations an assurance was obtained from the Government that it would examine the financial status of CECORA and that a financial plan for 1977, acceptable to the Bank, would be proposed before finalizing and signing the Subsidiary Project Agreement between Caja Agraria and CECORA. 3.17 Records are well maintained and accounts are regularly audited by INCORA, which, in turn, is subject to audit by the Comptroller General. CECORA is now well organized and could be expanded to provide the market extension service proposed as part of the IRDP. Servicio Nacional de Aprendizaje - National Apprenticeship Service (SENA) 3.18 Formed in 1957, SENA is an autonomous agency of the Ministry of Labor and Social Security responsible for vocational and informal training. Since 1967 it has increased its activities in rural areas through the Programa Movil Rural (PMR) - Mobile Rural Program. This sets out initially to identify  - 20 - the training needs of small rural communities and then to provide appropriate instruction. Most of the courses are related to farm production, but train- ing in handcrafts is also provided. 3.19 SENA has its headquarters in Bogota, 17 regional offices, and a total staff of about 7,000. It runs 13 well equipped Agricultural Training Centers, which have a combined boarding capacity of 4,800 youths and 3,600 adults and in which 35,800 persons were trained in 1974. In addition, nearly 60,000 persons took courses, each of at least 70 hours, conducted under the PMR. 3.20 The bulk (92% in 1975) of its income is from payroll taxes levied at 2% for private enterprises and 1/2% for public entities. SENA is in a strong financial condition and maintains satisfactory accounts which are audited by the Comptroller General. It is well organized and fully able to execute the training component of the proposed IRDP. Instituto Colombiano de Construcciones Escolares - Colombian Institute for School Buildings (ICCE) 3.21 Decree 218 of 1969 set ou1t the responsibilities and structure of ICCE as a public institution attached to the Ministry of Education. It was intended to concentrate on the building and equipping of schools, but it also included a Pedagogical Department, which, in 1975, accounted for 56% of its annual budget. Early in 1976, however, this Department was transferred to the Ministry of Education to permit ICCE to concentrate on the major national program to construct and equip 32,000 classrooms. 3.22 At the headquarters in Bogota, there are Departments for construc- tion, equipment, administration and finance, which employ 60% of the staff of 860; the remainder are located in 26 regional offices. ICCE depends al- most entirely on Government funds to finance its operations. In 1975, its original budget was Col$ 750 million (US$22.7 million) but it was cut to Col$ 676 million (US$20.5 million) and of this for the 10 months to October 31, 1975, only 60% had been authorized for payment by the Ministry of Finance and only 46% actually transferred to ICCE by the Treasury. ICCE has the technical capacity to carry out its responsibilities under the IRDP. Ministerio de Salud Publica - Ministry of Public Health (Minsalud) 3.23 The functions and organization of Minsalud were redefined by Decree No. 121 of January 1976. The administrative structure is made up of 14 Directorates which have hitherto tended to lack coordination. The Directo- rate of Construction and Hospital Maintenance establishes building policy, but execution is controlled by Fondo Nacional Hospitalario - National Hospital Fund (FNH), which is regulated by Decree No. 687 of 1967 and has a separate account in the Administrative Division. The FNH disburses funds through the local sections of the Health Service which arrange for local bidding and the supervision of the construction and operation and maintenance of health faci- lities.  - 21 - 3.24 During negotiations assurances were obtained that, within Minsalud, a unit would be responsible for the execution of the health component of the project and that adequate provision would be made to finance the operational and maintenance costs of the project facilities. Instituto Nacional de Salud - National Institute of Health (INAS) 3.25 Decree 671 of 1975 defined the responsibilities of INAS, which are principally to provide, through its Basic Health (SBR) Division, potable water and sewerage systems to communities of less than 2,500 persons. INAS also has laboratories for food testing, vaccine production and research. The SBR Division has four regional offices which have full responsibilities for the selection, execution and supervision of local sub-projects. 3.26 INAS is financially dependent on appropriations from the national budget. In recent years, the amounts released to INAS have been less than approved in the budget and this has delayed the execution of projects financed in part by three USAID loans, totalling Col$ 261 million (US$7.9 million). INAS requires communities which are to benefit from projects to form water- supply management committees and contribute about 15% of total investment costs in cash or labor. A part of the balance is treated as a long-term (15 years) loan bearing 6% interest to be paid by the community through the monthly water rate into a sub-project account. This account is maintained by INAS to finance maintenance and additions to the sub-project. The accounts are satisfactorily maintained and audited by the Comptroller General. 3.27 The operational and administrative capacity of INAS is satisfac- tory and it would be fully capable of executing the proposed component of the IRDP with little or no increase in staff or recurrent expenditure. Fondo Nacional de Caminos Vecinales - National Fund for Rural Roads (Caminales) 3.28 Caminales is a dependent agency of the Ministry of Public works and Communications which began operations in 1962. It is responsible for the construction, improvement and maintenance of roads of local importance to integrate remote areas with the more developed zones and to serve as feeder roads for the national network of main roads. 3.29 At the end of 1975 the headquarters in Bogota had 30 technical and 127 administrative staff, while an additional 212 technical and 176 administ- rative personnel were working from 25 regional offices. Between 1962 and 1975 Caminales promoted the construction of about 8,000 km of rural roads. In recent years some of these roads have been built using almost all manual labor through the "Pick and Shovel" program; however, declining budgetary allocations seriously limited the extent of the actions to improve rural roads. 3.30 Caminales is almost entirely dependent on the national budget from which it has received a declining allocation: Col$ 750 million in 1973 down  - 22 - to Col$ 485 million (US$14.7 million) in 1975, and only Col$ 460 million is expected in 1976. The accounts are satisfactorily maintained and regularly audited by the Comptroller General, and Caminales has the necessary technical and administrative capacity to execute the rural road component. Instituto Colombiano de Energia Electrica - Colombian Institute for Electrical Power (ICEL) 3.31 Decree-Law 3,175 of 1968 increased the control exercised by the Ministry of Power and Mines over ICEL, which is an autonomous public entity formed in 1946. ICEL is responsible for planning and design at the national level and supervises the activities of subsidiary power companies (Electrifi- cadoras) in each Department which carry out the production, transmission and sale of electrical power. 3.32 The ICEL headquarters in Bogota includes a Planning Office for Rural Electrification (OPER), which would be responsible for the detailed supervision of this component of the project. The national budget provides 90% of ICEL's financial resources and, in 1975, it received Col$ 1,800 million (US$54.5 million), of which 15% was devoted to current costs and the remainder to in- vestment, including debt servicing. Its accounts are satisfactorily maintained and regularly audited by the Comptroller General. 3.33 ICEL has the experience and technical capacity to supervise and regulate the "Electrificadoras" in Narino and Cauca, which would execute the rural electrification component of the project that is restricted to Area 1. IV. THE PROJECT A. Brief Description 4.01 The objective of the project would be to raise living standards in selected rural areas by increasing the incomes of farm families and by improv- ing social services and facilities available to rural communities. Through the project, it would be intended to reduce disparities between rural and urban amenities while facilitating the transition of some of the rural popula- tion to industrial and commercial activities. This would require not only raising formal educational standards of the rural population but also increas- ing its familiarity with marketing, credit, technical and management skills which are required both for more intensive farm management and to obtain regular urban employment, above the level of unskilled labor. The main emphasis of the project would be on investments to raise farm production and to improve support services. Rural roads would be provided to areas with the highest agricultural potential while investments in education, health,  - 23 - water and electricity would be provided to spread these services more uni- formly, while giving priority to communities showing greatest interest in farm development. 4.02 The National Planning Department (DNP) would be responsible for the overall programming and coordination of the project, the Rural Development Department of Caja Agraria would administer and monitor the project, and specialized agencies would execute the individual components of the project (Chart 5.1). Sub-loans would be provided to some 40,000 sub-borrowers by the Department of Credit of Caja Agraria on the basis of farm plans prepared with the assistance of ICA and INDERENA staff. These plans would be for inte- grated operations incorporating crops (other than coffee which is not finance- able in Bank projects), livestock, minor farm structures and tree planting; from the third year of the project; credit would also be available to success- ful participants for minor home improvements related to hygiene. Farm manage- ment adaptation and demonstration units would be established and maintained by ICA. INDERENA would set up and run forest tree nurseries in each district and also design, and assist in the construction of, minor civil works to prevent soil erosion and to conserve water. A market advisory service would be formed by CECORA, which would also assist groups of producers to obtain sub-loans from Caja Agraria to finance the construction and operation of associative marketing enterprises. Training for project staff and farmers would be provided by SENA. 4.03 The proposed project would also finance furniture and equipment to be bought by ICCE for rural primary schools and the construction and equip- ment by Minisalud of health posts and centers, and some local hospitals would be modernized; staff training for rural health and nutrition activities would also be financed under the project. Piped water supply systems would be constructed by INAS and rural roads would be constructed by Caminales in the areas of highest production potential. In the Departments of Cauca and Narino (Area 1) rural electrification schemes would carried out under the supervision of ICEL. B. Detailed Features Project Management 4.04 A Program Management Unit under a Director General has been set up in the National Planning Department (DNP) to coordinate and control the entire IRDP under Decree 1269/June 1976. The Unit would require office equipment and salaries for 20 staff posts, plus operating costs for five years; the proposed Bank project would incorporate 45% of these costs as being attributable to Areas 1, 2 and 3. A Direction and Coordination Group has been formed in the Unit to link DNP headquarters and the program areas. DNP representatives are to be stationed in eight of the nine Departments in which the IRDP will be implemented; the small part of Tolima in Area 2 would be administered with Cundinamarca (para 2.01). In addition, an Evaluation Group is to be formed to continuously assess the performance and impact of the overall program. An assurance was obtained from the Government at negotiations that the IRDP  - 24 - Evaluation Group would be organized and maintained for at least 10 years from the date of loan effectiveness. The cost of the Evaluation Group is estimated at about Col$ 30 million (US$0.9 million) over the five-year investment period of the project. The Government would assume full financial responsibility for the Evaluation Group. The establishment of the Evaluation Group would be a condi- tion of effectiveness. 4.05 Administration and Monitoring Units have been formed in the Rural Development Department of the Caja Agraria. The Rural Development Department would require 70 additional staff for the three project areas as follows: Existing Staff Staff Requirement Project Management Available by Year 3 Additional Staff Professional 17 29 12 Assistant 7 50 43 Secretarial 0 15 15 Total 24 94 70 The total project cost would include 45% of the cost of the additional equip- ment required for the headquarters units and the full cost of vehicles, equipment, and, for five years, the salaries and operational costs of the additional personnel required by the Rural Development Department of Caja Agraria for the project in Areas 1, 2 and 3. Farm Operations and Development 4.06 The Credit Department of Caja Agraria would administer sub-loans to finance crop and livestock development, production and harvesting expenses of participating farmers. Conditions of eligibility to participate in the project would be: (a) gross capital assets per farmer and spouse of less than Col$ 500,000 (US$15,000); (b) total area of land available for use by the sub-borrower, less than 20 ha; (c) not less than 70% of the family income to be derived from farming and local activities; and (d) the presentation of an integrated farm operation and development plan prepared with the assistance of ICA staff and, if appropriate, INDERENA staff. 4.07 The Credit Department of Caja Agraria would administer the credit program and make sub-loans to eligible farmers for the following purposes:  - 25 - (a) seasonal farm operational expenses for crop production and cattle management; (b) medium-term investments for semi-permanent crops such as plantains and cassava and for minor livestock species, for example, swine, poultry, rabbits and guinea-pigs. Medium- term sub-loans also would be made for on-farm stores and home improvements; and (c) long-term investment for cattle development, principally for milk production, and for tree planting. 4.08 By the end of the investment period of the project (Year 5) it is projected that the following enterprises would be included within the farm programs of 40,000 small-scale farmers: Crops and Trees Livestock ha Units Barley and wheat 6,900 Grassland improvement ha 34,700 Corn 23,800 Pasture establishment ha 3,200 Corn interplanted with Fencing km 12,800 other crops 14,300 Waterpoint no. 9,000 Beans, peas and peanuts 4.500 Salt licks no. 9,000 Cassava 4,800 Dairy equipment sets 3,200 Potatoes 8,400 In-calf heifers no. 17,400 Vegetables including tomatoes 2,100 Sugarcane 17,500 Construction for: Plantains 8,200 Sisal 1,300 Swine no. 4,400 Fruit-trees and other Sheep no. 1,000 perennial crops 4,900 Poultry no. 4,500 Forest trees 7,600 Rabbits no. 500 Guinea-pigs no. 500 Bee Swarms no. 700 Marketing Operations and Development 4.09 Caja Agraria would also administer sub-loans for groups of eligible farmers associated for the purpose of produce marketing. Groups of producers for marketing, including cooperatives and other forms of association, are to be encouraged by SENA, while CECORA would be responsible for assisting in the preparation of market operating and development plans to be presented to Caja Agraria with each sub-loan application. Sub-loans would be made for the following purposes: (a) working capital for marketing groups; (b) medium-term investments in trucks; and  - 26 - (c) long-term investments in produce collection centers and local, short-term produce stores. Production Support 4.10 Farm Advisory Service (ICA). The proposed project would finance vehicles (97 4-wheel drive, 392 motorcycles and three mobile visual aid units), 54 horses, office furniture and equipment, and, for five years, the salaries and operational expenses of the additional staff required for the project. -A Farm Advisory Service manager responsible for the activities of all professional and sub-professional field agents would be assigned to each project area. The proposed number of field agents is related to the expected number of eligible farmers who would require farm credit in each year of the project (para 6.01). All Farms Number of Farmers Expected to Percent of under 20 ha Participate in the Project All Farms Farm Size in Areas Area I Area 2 Area 3 Total under 20 ha under 5 ha 124,000 11,100 6,100 6,800 24,000 19 5 ha to under 10 ha 32,000 5,500 3,100 3,400 12,000 28 10 ha to under 20 ha 19,000 1,800 1,000 1,200 4,000 21 Total 175,000 18,400 10,200 11,400 40,000 23 4.11 The Farm Advisory Service would extend the ongoing program (paras 1.08 and 2.05) throughout the project areas. Current, traditional farm systems have been reviewed and, through the proposed project, the Farm Advisory Service would promote discrete changes to these systems to take advantage of the avail- ability of new crop varieties and improved crop and livestock management practices. High priority would be given to introducing individual integrated farm plans, including the production of foodstuffs richer in proteins, vitamins and minerals than are raised using the current farm systems. Farm practice Adaptation Units would be used to verify the technical and economic feasibility of the changes to be proposed; Demonstration Units would be used to disseminate more widely the farming systems proved on the Adaptation Units. The number of field agents would be sufficient to allow for the close supervision of up to 354 Adaptation Units and up to 445 livestock and 900 crop Demonstration Units to be established under the project. The number of staff required at full development is given as follows:  - 27 - Additional Staff Requirement Staff Required Farm Advisory Service Existing Staff in Year 5 for the Project Area Manager 0 3 3 District Director 7 11 4 Professionals 22 99 77 Sub-professionals 58 480 422 Administrative staff 19 19 0 Total 106 612 506 4.12 Natural Resources Advisory Service (INDERENA). The five existing forest tree nurseries in the project areas would be expanded and a further four established. The project would finance these development costs and four vehicles which would be used to deliver seedlings to convenient collection points not more than 2 km from the planting sites. The project would also finance the operating costs of the nine nurseries for five years to the extent necessary to produce the 6.2 million seedlings a year required for the project, and the project would finance the salaries and operating costs of one addition- al INDERENA forester for each area and a total of 18 sub-professional forestry assistants and three administrative personnel. Investment costs would include three 4-wheel drive vehicles, 18 motorcycles, and survey instruments. Unit Area 1 Area 2 Area 3 Total Tree Nurseries No. 4 3 2 9 Maximum Annual Seedling Requirement Million 2.8 1.7 1.7 6.2 Total Five-Year Planting Program ha 3,500 2,000 2,100 7,600 Tree planting (6,600 ha) would be promoted by INDERENA on about 10,600 indi- vidual small farms within 20 km of its nurseries. In addition, about 1,000 ha of trees would be planted by communities around some 250 water sources in collaboration with INAS, but under the technical supervision of INDERENA. 4.13 Soil conservation studies, technical assistance and minor civil works for soil conservation would be carried out by INDERENA in Areas 1 and 2, based on experience already gained in Area 3. Initially, in Areas - and 2 a total of 45 representative test valleys would be selected for the local  - 28 - adaptation of known conservation practices such as cut-off and drainage ditches, contour terraces, gully control measures and minor stream regula- tion works. The project would provide, for the three areas, vehicles (17 4- wheel drive and 15 motorcycles) and equipment for INDERENA staff, three crawler tractors with equipment, and three trucks. It would also finance for five years the salaries and operating costs of 14 professional and 26 assist- ant personnel. The Subsidiary Project Agreement would require that INDERENA make arrangements, for the servicing and maintenance of vehicles and equipment to be provided under the project. 4.14 Marketing Advisory Service. CECORA would provide daily price inform- ation to each of the 11 District headquarters in the three project areas as well as to other Areas in the IRDP. A special program unit would be formed in the CECORA headquarters to be responsible for the Market Intelligence Service (para 1.17c) and the field operations of CECORA staff working in project areas assisting associative marketing groups. The project would include 45% of the investment costs and operating costs for five years; 55% of the central costs have been assigned to the parallel projects to be financed in part by CIDA and IDB. An application for technical assistance on marketing has been submitted by the Government to UNDP. An assurance was obtained at negotiations that before the end of 1977, CECORA would obtain technical assistance, satisfactory to the Bank, on marketing agricultural output from the IRDP areas. 4.15 Training. The central administration of this component would be through an IRDP unit at SENA headquarters consisting of a Chief, three specialist training officers and a statistical clerk to maintain a central record of courses for monitoring purposes. Of the total operating costs of this program unit, 45% would be attributed to the proposed Bank project. In addition, the project would provide vehicles (62 4-wheel drive and three 45-passenger buses) and audio-visual equipment for the mobile units of SENA, and include the operational expenses for training staff, groups of farmers and individuals. Based on detailed records maintained by SENA for 1974 and 1975 it is estimated that in mid-1976 the average cost per course would be as follows: Col$ In-service staff courses 2,850 per course Groups in rural communities 28,580 per group Special courses in rural communities 1,500 per farmer 4.16 Initially SENA would conduct courses for senior and other staff of all the entities taking part in the IRDP to explain the concepts and operations of the project. A total of 100 courses of two to five days are proposed for some 4,100 participants. It is recommended that these courses should be started in 1976 and therefore the associated expenses should be recognized for retroactive financing (para 4.27). During the five years of the proposed project, SENA would run special courses in farm management,  - 29 - credit operations, the organization of groups, administration, accounting and management of cooperatives and other forms of marketing association. Over the five-year period of the project, 417 courses of an average of seven days are scheduled for about 13,000 trainees, including the initial staff induction courses mentioned above. 4.17 The mobile units of SENA would conduct a total of some 1,300 intro- ductory meetings in the rural communities to explain the objectives and opportunities available under the project. These initial assemblies would be followed up with about 2,500 courses for common interest groups, and special- ized, single topic instruction would be provided for a total of 40,000 farmers over the five years of the project, in two- or three-day courses to be conduc- ted within the communities, mainly in the field. Social Services 4.18 Education. The project would finance the purchase of furniture for 2,300 existing classrooms which have already been constructed, plus 3,800 teaching aid kits. The proposed number of kits is approximately the same as the number of schools in the project areas. 4.19 Health. The project would provide within five years, 80% health service coverage in the rural localities of Areas 1, 2 and 3, through the con- struction and equipping of 75 new health posts and the restructuring and im- provement of 26 existing health posts, eight health centers and 17 local hospitals. A total of 246 posts and centers would be established and each would be the focus for a health team of about six health visitors (promotoras) and two health auxiliaries. The project would finance the purchase of 64 4-wheel drive ambulances and 2,000 medical kits and 246 nutrition education kits for the health auxiliaries and "promotoras". In addition, the project would finance the cost of health and nutrition training for a total of 1,500 health visitors and 500 health auxiliaries. During negotiations assurances were obtained that Minsalud, in collaboration with other appropriate agencies, would prepare and implement specialized rural health care training for staff, including physicians, and that a communications system, satisfactory to the Bank, would be established and operated among all health posts, centers, ambulances and hospitals in the project areas. 4.20 The project would also provide up to half the cost of construction of latrines built by communities at local markets, schools or other public places. Farm development sub-loans could, under certain circumstances, include the cost of materials for the construction of latrines at the indi- vidual homesteads (para 4.07 (b)).  - 30 - 4.21 Potable Water. Under the supervision of INAS, 248 water supply systems would be constructed, expanded or improved, benefitting about 147,000 rural residents in the three project areas. The systems would be fed mainly by gravity and each would serve an average of about 100 households by indi- vidual connections. Area Area Area Forms of Investment Unit 1 2 3 Total New potable water systems No. 75 57 75 207 Potable water network extensions No. 26 10 - 36 Chlorination installations No. 3 2 - 5 Total 104 69 75 248 Infrastructure 4.22 Rural Roads. Caminales would plan and supervise the construction of 312.5 km of new rural roads, and the improvement of 646.5 km of existing rural roads over a period of four years. The works would be carried out as part of the "Pick and Shovel" program, but conventional methods using contracted heavy equipment would be used for earthworks in difficult terrain and for laying gravel pavements. Further details are as follows: Area Area Area Category of Investment Unit 1 2 3 Total Final studies km 53 28 53 134 Excavation km 129 84 100 313 Culverts km 316 197 160 673 Pavement km 321 219 154 694 Other improvements to existing tracks km 216 44 28 288 4.23 Electrification. ICEL would supervise, through its planning office, OPER, 22 electrification sub-projects benefitting 14,335 families in the rural areas of the Departments of Narino and Cauca which comprise Area 1 of the project. The investments would be scheduled to be completed in three years, since the studies are already well advanced. For bidding and construc- tion purposes, 11 sub-projects have been prepared for each Department; each sub-project covers from one to six municipalities. No investment is proposed in Areas 2 and 3.  - 31 - Area 1 Category of Investment Narino Cauca Total Transmission line (km) 34.5 kV 13.0 13.0 13.2 kV 307.3 12.7 320.0 Distribution circuits (km) Primary - 13.2 kV - 251.6 251.6 Primary - others 103.4 34.4 137.8 Secondary - 201.8 228.9 439.7 Sub-transmission Sub-station (no.) - 1 1 Additional transforming capacity 34.5 kV to 13.2 kV (kVa) - 2,000.0 2,000.0 Transformers 13.2 kV to 110-220 V (no.) 222 211 433 Additional transforming capacity 13.2 kV to 110 or 220 (kVa) 7,037 3,708 10,745 House connections (no.) 9,216 5,119 14,335 C. Cost Estimates 4.24 The total cost of the project is estimated at US$131 million, in- cluding provision of US$68.1 million for incremental production credit and working capital. for marketing; US$27.6 million, or 21%, represents foreign exchange costs of the project. Baseline costs have been calculated as of mid-1976. Physical contingencies, ranging between 5% and 15%, have been allowed for each component except credit operations, producing a weighted average physical contingency of 2.8% of total baseline costs. Price contin- gencies have been computed separately for local and foreign costs. Local price contingencies have then been adjusted to take into account the effects of currency changes expected during the project period; on this basis the price contingency represents 16.7% of baseline costs (Table 4.1).  - 32 - Table 4.1 COLOMBIA INTEGRATED RURAL DEVELOPMENT PROJECT Summary of Project Costs Percent Percent of Foreign Baseline Local Foreign Total Local Foreign Total Exchange Cost ----Col Tmillions --------- -------USS millions-------- Project Management 107.3 14.8 122.1 3.2 0.5 3.7 14 3.3 Farm Operations and Development Seasonal , 657.3 208.1 865.4 19.9 6.3 26.2 - 23.9 Medium-term Investmeno 445.9 79.3 525.2 13.5 2.4 15.9 _ 14.5 Long-term Investments 350.1 42.9 393-0 10.6 1j3 1 9_ 10.9 Sub-total .453.3 330.3 1,783.6 44.0 10.0 54.c 19 49.3 Marketing Operations and Development Working Capital 66.0 . 0.0 66.0 2.0 0.0 2.0 - 1.8 Medium-term Investments 2.8 11.4 14.2 0.1 0.3 0.4 - 0.4 Long-cerm Investments 6.6 0.7 7.3 0.2 0.1 0.3 _ 0.3 Sub-cotal 75.4 12.1 87.5 2.3 0.4 2.7 14 2.5 Production Support Farm Advisory Service 239.6 37.6 277.2 7.2 1.2 8.4 - 7.7 Natural Resources Advisory Service 141.9 16.5 158.4 4.3 0.5 4.8 - 4.4 Marketing Advisory Service 77.9 4.6 82.5 2.3 0.2 2.5 - 2.3 rraining 145.8 22.5 168.3 4.4 0.7 5.1 _ 4.6 Sub-total 605.2 81.2 686.4 18.2 2.6 20.8 12 19.0 Social Services Education 83.2 9.2 92.4 2.5 0.3 2.8 - 2.6 Mealth 92.0 40.0 132.0 2.8 1.2 4.0 - 3.6 Potable Water 232.3 31.7 264.0 7.0 1.0 8.0 - 7.3 Sub-total 407.5 80.9 488.4 12.3 2.5 14.8 17 13.5 Infrastructure Rural Roads 155.8 115.6 271.4 4.7 3.5 8.2 - 7.5 Electrification 136.6 40.0 176.6 4.2 1.2 5.4 - 4.9 Sub-total 292.4 155.6 448.0 8.9 4.7 13.6 35 12.4 Total Baseline Costs 2,941.1 67L.9 361.9 88.9 20.7 i09.6 19 100.0 Contingencies Physical - - - 2.3 0.8 3.1 - Price - - _ 12.2 6.1 18-_ Sub-total - - - 14.5 6.9 21.4 - Total Project Cost 103.4 27. 6 131.0 21 119.5 July 15, 1976  - 33 - D. Financing 4.25 The financing of the five-year project would be shared in the amounts and proportions shown in Table 4.2. The proposed Bank loan of US$52 million would be to the Republic of Colombia at the Bank lending rate current at the time of loan approval and would be for 17 years, including 3-1/2 years of grace. The Government of Colombia would bear the foreign exchange risk. The loan would finance the 21% foreign exchange costs of the project (US$27.6 million) and a further 19% for local currency expenditures (US$24.4 million). Local currency financing is recommended because of the importance the project would have within the overall Government attempt to promote the economic devel- opment of the poorest of the rural population within the project areas, and because of the relatively low foreign exchange content which is characteristic of rural development projects. The cost sharing proportion which is proposed is necessary to give the Bank a meaningful role in the project, particularly in view of the fact that in Area 5 of the IRDP the IDB will be providing 60% of project costs. 4.26 The project beneficiaries would be required to finance 10% (US$13.1 million) of total project costs. Cost recovery is considered further in para- graphs 8.04 to 8.07. The Government would be responsible for 50% (US$65.9 million) of total project costs. Of the latter amount, SENA would provide US$3.1 and US$23.0 million would be required for additional credit operations to be carried out by Caja Agraria for the project but this amount would be available for relending as the sub-loans were repaid; the non-recoverable cost to the Government of investment and incremental expenditures over the five years of the proposed project would therefore be US$39.8 million. 4.27 Retroactive financing not exceeding US$500,000 is proposed for ex- penditures incurred from July 1, 1976 for initial staff training and orienta- tion for project work (para 4.16), to initiate farming Adaptation and Demon- stration Units (para 4.11), the Natural Resources Advisory Service (para 4.12), the Marketing Advisory Service for the project (para 4.14) and engineering studies for the potable water, rural roads and electrification components. These initial activities are necessary to enable the project to evolve as rapidly as is planned after the date of loan effectiveness. E. Procurement 4.28 International competitive bidding, in accordance with Bank Guide- lines on Procurement, would be required for orders estimated to cost more than US$100,000 for vehicles for official use, estimated to total US$4.9 million; and water pumps and piping, estimated to total US$1.0 million. Caja Agraria would consolidate the requirements of the participating agencies for these categories and issue international calls for tenders. Domestic  COLOMBIA INTEGRATED RURAL DEVELOPMENT PROJECT Financing Plan by Pro3ect Components (IIS$ Mll on) Beneficiaries Government Bank Total Component Local and Total Local and Total Local Foreign Total Local Forenin Total Amomst 2 Amount 1! Amount 3 Amount % Amount 1. AMount I Amount % Amount 7, Project ManaLement 2.2 60 1.0 27 0.5 13 1.5 40 3.2 87 0.5 13 3.7 100 Farm Operations and Development 10.8 20 21.611 40 11.6 21 10.0 19 21.6 40 44.0 81 10.0 19 54.0 100 Marketing Operations and Developmnt 0.2 6 1.41/ 54 0.7 26 0.4 14 1.1 40 2.3 86 0.4 14 2.7 100 Production Support Farm Advisory Service 5.0 60 2.2 26 1.2 14 3.4 40 7.2 86 1.2 14 8.4 100 Natural Resources Advisory Service 2.9 60 1.4 29 0.5 11 1.9 40 4.3 89 0.5 11 4.8 100 Marketing Advisory Service 1.5 60 0.8 34 0.2 6 1.0 40 2.3 94 0.2 6 2.5 100 Training 3.12/ 60 1.3 26 0.7 14 2.0 40 4.4 86 0.7 14 5.1 100 Social Services Edtication 1.7 60 0.8 30 0.3 10 1.1 40 2.5 90 0.3 10 2.8 100 Health 0.4 10 2.0 50 0.4 10 1.2 30 1.6 40 2.6 70 1.2 30 4.0 100 Potable Water 1.2 15 3.6 45 2.2 28 1.0 12 3.2 40 7.0 88 1.0 12 8.0 100 Infrastructure Rural Roads 4.7 57 - _ 3.5 43 3.5 43 4.7 57 3.5 43 8.2 100 Electrification 0.5 10 2.8 50 0.9 17 1.2 23 2.1 40 4.2 77 1.2 23 5.4 100 Contirgencies net of devaluation 13.4 63 1.1 5 6.9 32 8.0 37 t4.5 68 6.9 32 21.4 100 Total 13.1 10 65.9 50 24.4 19 27.6 21 52.0 40 103.4 79 27.6 21 131.0 100 1/ Caja Agraria resources. 2/ SiNA resources. September 28, 1976  - 35 - manufacturers would be granted a preferential margin in bid evaluation equal to the prevailing tariff, or 15% of the c.i.f. cost of imports, whichever is lower. Much of the project would be concerned with training and extension services which would involve only minor construction and the purchase of small amounts of equipment. Farmers would purchase their requirements of fertilizer, seeds, small farm equipment and other inputs of their choice through existing commercial channels of which the agricultural merchandise department of Caja Agraria would be the most important distribution agency. A wide range of international manufacturers is represented in Colombia and, for the items required for the project, competition is satisfactory and servicing and spare parts are generally available. Construction of health posts and centers, potable water systems, rural roads and electrification would be small sub-projects widely dispersed geographically, and would therefore be carried out by self-help, force account or local competitive bidding procedures which are acceptable to the Bank. F. Disbursement 4.29 The loan would be disbursed over a period of six years, as is shown in Table 4.3. The closing date for the loan would be December 31, 1982. The Program Administration Unit of the Rural Development Department of Caja Agraria would be responsible for verifying the physical and financial evolution of the project through its Section for Monitoring and Control. 4.30 The Bank would disburse the following proportions of disbursements and expenditures certified by Caja Agraria: (a) Sub-loans for farm and marketing operations and development 49% of amount disbursed (b) Vehicles and medical equipment 100% of foreign expenditures or 40% of ex-factory cost of loca'lly manufactured goods (c) Cables and electrical equipment; 100% of foreign expenditures water pipes and pumps or 80% of ex-factory cost of locally manufactured goods (d) All other expenditures by Caja Agraria and project entities 36% 4.31 The Bank would reimburse for sub-loan disbursements against state- ments of expenditure prepared by Caja Agraria. Disbursement for foreign expen- ditures, locally procured imported items and all other project expenditures would be in accordance with normal Bank procedures. The full documentation would not be submitted for review by the Bank but it would be retained by Caja Agraria and made available for inspection by the Bank during the course of project supervision missions. Retroactive financing not exceeding US$500,000 is proposed for expenditures incurred from July 1, 1976 for purposes listed in paragraph 4.27. Any balance left in the loan account after completion of the project could, with Bank approval, be used for investments of a similar nature  - 36 - Table 4.3 C OLCBIA INTEGRATED RUJRAL DEVELOPMENT PROJECT Estimated Schedule of Disbursements Cumulative Disbursements Fiscal Year and Quarter at End of Quarter 1976/77 June 30, 1977 400 1977/7B September 30, 1977 2,300 December 31, 1977 4,300 Mareh 31, 1978 6,500 June 30, 1978 9,000 1978/79 September 30, 1978 11,800 December 31, 1978 15,000 March 31, 1979 18,200 June 30, 1979 223000 1979/80 September 30, 1979 25,500 December 31, 1979 28,300 March 31, 1980 31,400 June 30, 1980 34,300 1980/81 September 30, 1980 37,000 December 31, 1980 39,700 March 31, 1981 42,400 June 30, 1981 45,100 1981/82 September 30, 1981 47,300 December 31, 1981 48,900 March 31, 1982 50,000 June 30, 1982 51,100 1982/83 September 30, 1982 52,000 Sources mission estimates. July 14, 1976  - 37 - and for comparable purposes to promote rural development. At negotiations, an assurance was obtained that the funds derived from the proposed loan would continue to be used for rural development credit purposes, after the conclu- sion of the implementation period, for the life of the project. G. Accounts and Auditing 4.32 Each of the participating agencies, including Caja Agraria, would maintain in its accounting records separate and uniform project accounts. These would be subject to annual examination according to generally accepted auditing standards by independent auditors acceptable to the Bank. The audit reports would express an opinion on the fairness with which each project account presented the financial position, results of operations and changes in the financial position, in conformity with generally accepted accounting prin- ciples applied on a consistent basis. The Comptroller General's office, which operates in an independent manner, would continue to carry out external audits of all participating agencies except Caja Agraria, the accounts of which are examined by the Superintendency of Banks. During negotiations an assurance was obtained that within four months of the close of each fiscal year, the Borrower would provide the Bank with audited project accounts of Caja Agraria and each of the participating agencies. 4.33 Since 1972, the financial reporting procedures and system of Caja Agraria have been modified to conform with banking legislation and the require- ments of the Superintendency of Banks. The reports which are examined and certified by the Superintendency of Banks do not analyze the financial posi- tion by lines of business (para 3.07). Therefore, during negotiations an assurance was obtained that a technical review, acceptable to the Bank, would be conducted of the existing accounting procedures, information systems and management controls of Caja Agraria. The results of the technical review, recommendations for improvements and a program for their implementation would be submitted to the Bank within six months of effectiveness and no later than the second fiscal year from effectiveness any modifications to the procedures and systems would be implemented. 4.34 Subsidiary Project Agreements (para 5.06) would include a require- ment that each participating entity would establish procedures acceptable to the Bank for the maintenance of separate, comparable project accounts; con- sistent standards for the allocation of approved current expenditures to the project accounts; and annual audits by independent auditors, acceptable to the Bank within four months of the close of each financial year. V. ORGANIZATION AND MANAGEMENT A. Introduction 5.01 The IRDP organization structure has been designed to ensure that the capacities of a large number of semi-autonomous, highly centralized  - 38 - agencies can be utilized without fundamentally changing their established methods of operation. Most of these agencies were created in the administ- rative reform of 1968 as dependencies of various ministries, but because of the degree of independence they enjoyed, it became increasingly difficult to coordinate their actions, On January 26, 1976, the Minister of Agriculture was given sufficient power (Decree 133) over entities dependent on his Ministry to regain full control of their plans and activities, and similar changes have also taken place in other ministries. The IRDP Program, by the nature of its broad requirements, complements this trend by bringing together official entities with responsibilities for promoting development in rural areas. 5.02 Other official intentions are to promote regional development by encouraging decentralization and to encourage the greater involvement of the public in development decisions. This policy is given practical expression in the Program's organizational structure by the four-tiered level of partic- ipatory bodies at national, departmental, municipal and community levels. At negotiations, an assurance was obtained that the Government would initiate and operate thereafter, a system of national, departmental, municipal and community committees, satisfactory to the Bank, to give advice to the Project Management Unit with regard to the management, coordination and integration of the project activities at the national, departmental, municipal and community levels., Participation by all members of each community would be encouraged to prevent the relatively well off from becoming self-appointed spokesmen for the rural communities. These natural leaders can contribute a valuable dynamism to local activities, but they often override the wishes of the poorest members of their community. The Government is fully aware of the overriding importance of involving the target population, at the community and municipal levels, in reviewing official development proposals and proposing modifications to the plans in the light of local experience and current needs as recognized by the communities. Various procedures for organizing local participation were initiated in 1975 in selected localities in Areas 1 and 5 (IDB) of the IRDP; the systems are being further evolved in 1976. 5.03 The proposed project organization would be fitted into the organiza- tional framework of the IRDP set up for administrative and operational purposes by Decrees No. 1,268 and 1,269 in June 1976. It would be clearly definable as a project at the departmental level where the Regional IRD Project Coordi- nator would be in charge of day-to-day management. The three main elements of the management system for the Program and the project are management and co- ordination, administration, and the execution of the components (Chart 5.1). B. Project Management Project Management and Coordination 5.04 The overall policy for the national IRDP would be determined by the National Council for Economic and Social Policy (CONPES), a cabinet level body, which includes all ministers responsible for the entities participating in the IRDP, as well as the Chief of the National Planning Department (DNP). The latter would be responsible for the management of the IRDP, which would  - 39 - Chart 5.1 COLOMBIA INTEGRATED RURAL DEVELOPMENT PROJECT Program and Project Organization | Presidttert rpf thet Rieputbic National Council for Nationat DAeprwtmtent of Planning F Economic and Social Policy Direclor Generail Integrated Rural Development Program National Integrated | I | Rural Development Di,ection and Coordination Group Program Evaluation GrouP IProgram Committee___ _Joint National Integrated Rural ._ Development Program Caja Agraria Secretariat Department cf Rtural Deveiopment Program Administration and Monitoring Including Permanent Representation of. Heads of All The Executing Agencies Executing Agencies _ Ceie Agraria ICCE Department of Credit Education Departmentai I ncluding Integrated Regional ICA Minsslud Rural Development Managers of All Farm AdvisoryService Health Prolect Committees Enecuting Agencies =liz. I1\IDERENA Natural Resources INAS Municipal Includ ng Advisory Service Potable Water Integrated Profess onal Rural Development Officers of Relevant Project Committees Executing Agencies CECORA Caeminales h4arketing Advisory Service Rural Roads Community Including Integrated Technical 5ACL Rura Development Officers of Relevant SENA ICEL Project Committees Execating Agencies Training Electrificagion July 23,1976 World Bank-16629  - 40 - be carried out through a Director General of the IRDP who would be engaged exclusively in this work. This Unit would be responsible for all budgeting, programming and coordinating activities required for the IRDP and would have a permanent representative on each departmental IRD Project Commitee, who would be responsible for ensuring the effective coordination at the local level of all entities taking part in the project. The IRDP Unit would, along with the Department of Rural Development of Caja Agraria, constitute the secretariat for the National IRDP Committee. Project Administration 5.05 Caja Agraria would administer the project on behalf of DNP through its Department of Rural Development in accordance with an agreement to be entered into between the Government and Caja Agraria. It would be a condition of effectiveness that the Bank had received a signed and authorized copy of this agreement. The Department of Rural Development would: (a) assist the IRDP unit of DNP to provide the secretariat for the National IRDP Committee; (b) provide the secretariat for Departmental IRD Project Committees and the chairmen of Municipal and Community IRD Project Committees; (c) inspect and report on the physical and financial progress of each component of the project; (d) consolidate the issuing and awarding of tenders for inter- national purchases required for the project; and (e) submit to the Bank reimbursement applications on behalf of all participating entities, including the Credit Department of Caja Agraria. Project Execution 5.06 In order to ensure that the participating agencies would carry out their assigned tasks for the project, Caja Agraria would enter into Subsidiary Project Agreements with each of them for the full five years of the project. If these Agreements were also to cover program operations in Area 4 (CIDA) or Area 5 (IDB), it would be necessary to distinguish clearly matters relating to Areas 1, 2 and 3, which would be covered by the proposed Bank project. Detailed annual programs of work and budgets would be appended to the Subsidiary Project Agreement prior to the beginning of each financial year. The Agreements would define responsibilities of the participating agency to: (a) carry out its part of the annually approved IRD project with the funds allocated for this purpose; (b) specify the actions to be involved; (c) provide staff and services in the amounts and of the quality required for the project;  - 41 - (d) comply with procurement procedures previously agreed to with external lenders (para 4.28); (e) comply with disbursement procedures laid down by Caja Agraria (para 4.29); (f) maintain uniform separate project accounts (para 4.32); (g) submit information to Caja Agraria in accordance with the monitoring and evaluation system adopted for the project (para 5.16); and (h) collaborate with the inspection staff of Caja Agraria. 5.07 Caja Agraria would undertake to reimburse the executing agency a specified percentage of its approved expenditure under the project in accord- ance with procedures that comply with the requirements of the Ministry of Finance and Public Credit and the external lenders. A separate Subsidiary Project Agreement, or an additional section to the standard agreement, would be necessary for ICA, INDERENA and CECORA to cover their participation with Caja Agraria in the operation of the farm and marketing credit component of the project. The Subsidiary Project Agreeements with ICA and INDERENA would establish, among other points, their respective responsibilities for soil conservation research, advice and works (para 3.12). A condition of effective- ness would be that the Bank had received copies of signed Subsidiary Project Agreements between Caja Agraria and ICA, INDERENA, CECORA and SENA which had been approved by the National Integrated Rural Development Committee, and a condition of disbursement of each component separately would be that the Bank had received a copy of the relevant Subsidiary Project Agreement between Caja Agraria and the participating entity which had also been approved by the National Integrated Rural Development Committee. C. Lending Terms and Conditions 5.08 Caja Agraria would not require land as collateral for sub-loans. Sub-borrowers would instead be identified with specific plots of land for which they had full user rights, but they would be required not to mortgage or to sell any of their fixed assets or land without the prior agreement of Caja Agraria. Sub-loans would be made on the basis of technically sound farm plans which would include seasonal, semi-permanent and permanent crops (except coffee), livestock and tree growing and associated equipment and investment costs, including on-farm storage facilities. Fish ponds would not be included because the technical and economic feasibility of small-scale fish farming has not yet been satisfactorily established. Special attention would be given to developments which would improve family nutrition and health; therefore, project beneficiaries who had successfully completed two years in the credit program would be permitted to include in their farm plans the cost of materials for minor home improvements directly related to sanitation and health.  - 42 - 5.09 Short-term credit would be granted partially to finance the seasonal costs related to the productive process. Sub-borrowers would be required to contribute at least the following proportions to the seasonal costs of farm operations: first-time sub-borrower under the project 5% second- and third-time sub-borrower under the project 10% fourth-time and subsequent borrowing under the project 15% For medium- and long-term sub-loans, the sub-borrower would contribute at least 15% of the total cost of the investment. Medium-term credit would finance the investment costs of permanent or semi-permanent crops (sugarcane, plantains, fruits, etc.), small livestock species, and minor home improvements. Long-term credit would finance the costs related to dairy investment, including on-farm infrastructure, pasture establishment and improvement, purchase of equipment and dairy stock, some permanent crops and forestry. 5.10 Grace and repayment periods would be flexible, within the limits shown below, to allow for the different types of farming in the project area. Similarly, credit amortization would be annual or on a semester basis, depend- ing of the income stream of the farm plan to be financed. Forestry credit could be capitalized, and amortization of the sub-loan could be made in one or two payments, depending on the species of trees to be planted and the farm investment plan. 5.11 Within one year of loan signing, and annually thereafter during the commitment period, the Bank would review with the Government and Caja Agraria the sub-loan terms and conditions, taking into consideration relevant changes which may have occurred in the national economic situation. An assurance on this point was obtained during negotiations. 5.12 The proposed lending terms and conditions would be as follows: (a) small-scale farmers with gross assets (including assets of the spouse) not exceeding the equivalent of US$3,000; not less than 15% per annum on outstanding principal, inclusive of 1% life insurance premium; (b) small-scale farmers with gross assets (including assets of the spouse) of the equivalent of more than US$3,000, but less than the equivalent of US$15,000; not less than 19% per annum on outstanding principal, inclusive of 1% life insurance premium; (c) a small-scale farmer would not be entitled to borrow under sub-loans in excess of an amount aggregating the equivalent  - 43 - of US$9,000; groups of small-scale farmers would be entitled to borrow under sub-loans up to an amount aggregating the equivalent of US$9,000 multiplied by the number of members of the group; and (d) a marketing association including at least 75% of its members eligible as small-scale farmers (para 4.06) would pay not less than 18% per annum on outstanding principal and would be entitled to borrow under sub-loans up to an amount aggregating the equiva- lent of US$150,000. The periods of the sub-loans and the minimum contributions of sub-borrowers would be according to the following schedule:  - 44 - Minimum Maximum Term Contribution of Grace Sub-borrower Period Total Years --- Short term - up to one year a) Seasonal credit for crop 1st year 5% Nil 1 and livestock production 2nd and 3rd year 10% 4th year 15% b) Working capital for marketing farm products 15% Nil 1 Medium term - one to six years a) Investment costs of semi-permanent crops and small livestock species 15% 2 6 b) Home improvements related to health and hygiene requirements 15% 2 3 c) Trucks for transporting farm inputs and production 15% 2 5 Long term - over six years a) Investment costs for permanent crops, pasture improvement, farm infrastructure and equipment and purchase of dairy cattle 15% 4 12 b) Investment costs for tree planting and establishment 15% 9 18 c) Farm produce collection centers and short-term stores 15% 3 10 D. Implementation Programming and Budgeting 5.13 DNP would prepare annual detailed investment proposals based on field surveys carried out in 1975 and submissions of the participating entities. As the project develops, the annual proposals would also take into account the initial experience gained. Twelve months before the start of each financial year, DNP would distribute the draft proposals through the Departmental and Municipal IRD Project Committees to the Committees at community level. Three months would be allowed for the review of the DNP suggestions, and modifica- tions may be proposed, provided they are well justified and remain within the financial allocation for each component.  - 45 - 5.14 During April the joint DNP - Caja Agraria Secretariat of the National IRDP Committee would revise the program for the following financial year, taking into consideration the comments received from the IRD Project Com- mittees in the field. In May the National IRDP Committee would consider the budget and, when it has been approved, it would be transmitted to the Ministry of Finance for incorporation into the national budget, which must be presented to Congress by July 20. The National IRDP Committee would refer to CONPES for decisions on any matters of new policy or on which it was not able to reach a decision. The national budget is usually approved by October; the Secretariat of the National IRDP Committee would then advise the lower level committees of the detailed program of operations for the financial year commencing January 1 next. Monitoring and Reports 5.15 Overall Program control would be the responsibility of DNP; however, Caja Agraria would undertake the detailed supervision of all project compon- ents through monitoring systems to be established separately with each partici- pating entity and which would be specified in the Subsidiary Project Agree- ments to be made between Caja Agraria and each participating agency. Caja Agraria IRD project staff in the field would report to the Chairman of the Departmental IRD Project Committee. DNP headquarters would authorize the Ministry of Finance and Public Credit to release funds from the approved budget to the head offices of the participating entities and at the same time advise the DNP and Caja Agraria Departmental representatives accordingly. Any delay in the transmittal of funds from the headquarters to field offices would be noted by the project monitoring staff of Caja Agraria and reported to DNP headquarters, which would immediately investigate the causes for the delay. 5.16 Each participating entity would have full autonomy to carry out its responsibilities under the project, and existing satisfactory systems of inter- nal supervision and control would be maintained. However, Caja Agraria would have full access to matters relating to the project and would require regular reports on the physical and financial progress of each project component. 5.17 The Control Division of the IRDP Unit of Caja Agraria would collate quarterly reports to be sent to the Bank, and half yearly reports for the National IRDP Committee. It would also provide much of the statistical data required for evaluating the project (para 5.19). 5.18 The current accounting and auditing procedures within Caja Agraria do not facilitate the use of its accounts and records as aids for better management (para 4.33). Changes are necessary, but they can only be intro- duced gradually in such a large and complex entity. During the course of the project Caja Agraria would develop a system of data handling and analysis to improve the control the management has over the various activities of Caja Agraria, including the Rural Development Department.  - 46 - Evaluation 5.19 An IRDP Evaluation Group would be set up to carry out a continuing assessment of the program. The evaluation of the proposed Bank project would be initiated at its outset and should be continued for at least five years beyond the investment phase of five years. At first, the main objective would be to use early experience to make improvements in the project as well as to prepare a sound foundation for similar activities in other parts of Colombia. As the project develops it would be necessary to measure the impact of the project on the standard of living of the target population - the poorest 50% of the rural inhabitants. Further details of the monitoring and evaluation system are to be developed by the Colombian authorities. Presentation to the Bank of an acceptable scheme and plan of operations for the evaluation of the IRDP would be a condition of effectiveness. Supervision 5.20 Supervision by the Bank would require a considerable input of staff time (25 man-weeks/year) and careful scheduling to ensure that Bank missions visit Colombia in May when the budget for the following year would be final- ized, and in October, when it is expected that an evaluation of the work of the previous year would be available. VI. TECHNICAL COEFFICIENTS AND SPECIFICATIONS A. Farm Production Farm Advisory Service 6.01 During the first two years of the project, each field agent of ICA would attend 50 farms or groups of adjoining farms operated in common; the number to be attended would be raised to 75 in Year 3 and 100 from Year 4 on. Initially there would be one professional for each five field agents, but from Year 3 the ratio would be 1:7. Natural Resources Advisory Service 6.02 For the tree planting scheme, the staffing of INDERENA has been calculated on the following basis. During the first two years, two visits a year would be made to each participating farmer, and each sub-professional forestry assistant would spend, on average, 120 days per year making farm visits to about three farms a day. The following coefficients have been used in calculating the production and use of wood:  - 4I - Pines Eucalyptus for all for fuelwood for all Purposes only purposes Trees per ha 2,560 2,000 2,500 % Replanting 20 20 20 Rotation Period (years) 15 8 12 Mean Annual Growth (m3 solid including thinnings) 15 17 17 Annual Fuelwood Consumption per family (i3) 5.5 4.0 4.0 Farm Credit Operations 6.03 The following rate of incorporation of small-scale farmers into the credit operations has been used as a basis for the calculation of requirements for staff, credit and inputs and for the projections of output, training, and marketing under the project: Project Year _ Units 1 2 3 4 5 Small-scale farmers annual entry into project No. 4,250 6,300 8,600 10,550 10,300 accumulated No. 4,250 10,550 19,150 29,700 40,000 Area farmed /1 by project participants annual entry ha 17,100 29,000 37,750 46,100 45,250 accumulated ha 17,100 46,100 83,850 129,950 175,200 /1 excluding forest. Crop Yields and Livestock Production Coefficients 6.04 Current and projected crop yields are shown in Table 6.1 and live- stock production coefficients are given in Table 6.2. The current values are based on detailed surveys carried out by ICA in each of the project areas during 1974 and 1975. These yields and coefficients vary significantly be- tween project areas and are below the national average values for all Colombian farms for the period 1970 to 1974. The projected yields and production co- efficients for the fifth year of participation in the project by a sub-borrower are approximately 70% of the values actually obtained between 1971 and 1975 on individual small farms in the project areas receiving credit from Caja Agraria and technical assistance from ICA (para 2.05); in 1975 there were  - 48 - Tble 6.1 N5,E17TED MM. l Dwl r PRJWET Crop Yield: Current *nd Pno1ctel4 N.tional -w 0 Project Average *ad vithout Year. eith Protect 'rodue" Area 1970-74 4roiec 1 2 3 4 5 ( ereals Btrley 1,672 1 - 1,100 1,300 1,400 1,650 1,800 1,900 2 _ - 1,100 1,200 1,200 1,400 1,800 'I8rll3 _ . _. - - - - 1 1,299 850 900 1,000 1,200 1,500 1,00 2 - 1,000 1,100 1,300 1,500 1,700 1,900 3 - 800 1,100 1,300 1,600 2,000 2,400 WI,rol L,207 - - - - - - I - 1,000 1,000 12100 1,300 1,500 1,700 2 - - 1,O00 l,DOO 1,200 1,300 1,500 3eans 610 - - - - - - I - 605 650 700 800 900 1,000 2 - 550 600 700 800 800 800 3 - 350 400 400 500 500 600 P--et 1,4353.1 Pe - ts700 500 800 850 900 1,000 2 _ _ _ _ _ 3 _ _ _ _ _ Lima Beans 2 - 800 900 1,800 1,100 1,200 1,400 I _ 600 650 700 000 900 1,000 2 - 230 800 iOO 1,000 1,000 1,200 3 _ _ Stasch Crops Cas<ava 8,000 2 o- 5000 5,500 6,000 2,000 1,500 13,00 - 6,150 6,500 7,500 8,500 0,(00 17,000 3 _ _ 6,500 7,500 8,500 10,000 17,0(10 Placcalin 5,000 - - --- 7- 3,500 3,700 3.900 4,200 4,400 5,20(1 C-- _ 4,00 4,500 5,000 6,000 7,000 0,000 3 - 5,000 6,500 7,000 7,500 0,000 9,0(0 pocerees 10,100 - - - - I - 9,100 10,000 L1,000 12,000 13,500 15,0011 2 - 9,000 10,000 11,000 12,500 14,000 16,()00 1 - 9,500 13,000 L4, 000 15,000 17,100( 18,000 Othec Crocs 7 - 5,000 5,000 5,500 6,500 7,500 8,0O(1 3 _ _ _ _ _ - 800 900 1,000 1,100 1,2U0 1,00 2 - 800 900 1,000 1,100 1,200 1,41(0 3 - 400 500 700 800 ),000 1,1011 sugar Cane 2,600 - - - 3 - - (non-cecLri(lugal sItar) I - L,570 1,650 2,250 2,250 3,2(00 3,1()10 9 - 1,800 1,870 2,250 2,250 1,00(1 3,0011 3 - 1,950 2,020 2,250 2,470 2,720 3,75(1 TomatOeSpe s 2 - lb,505 20,000 21.001) 22,000 23,000 25,U0(1 3 _ _ _ 0ege tables - - - I - 5,500 5,500 6,000 6,500 7,000 8,000 2 - 5,750 6,000 7,000 8,000 9,500 11,000 3 _ 7,000 7,000 8,000 9,500 11,000 1,000 [nter-cro-ppng Area I aed Btans Corn - 500 rOll 700 800 900 1,0100 or Beant 300 310 350 400 450 5(10 Area 2 Core cod Bo-ns core _ 600 600 700 800 1,00() 1,20(0 Beans _ 300 300 300 400 400 400 Potatoes tdr P -ota-os 8,000 8,500 9,500 10,500 11,000 12,000 Peas _ 500 50 600 700 800 900 Peo..a.. ae~d B..n. Pelatos - 7,000 8,000 9,000 11,000 13,000 15,000 Bean- 300 300 300 400 400 4011 Are 3 Core and Be.as Corn _ 800 900 1,000 1,200 1,500 1,d00 Bears - 400 400 400 500 500 500 Ceocr0 n Poateroes and Beant Corn C d600 7W ' 800 1,000 1,200 1,400 Potatoes - 9,000 9,500 10,000 11,000 (2,500 14,000 Beant - 400 400 400 500 500 500 Corn and Cebb.ec Core - 500 U10 700 800 900 1,000 Cabbage - 4,000 4,500 5,000 5,000 6,000 7,000 C.-rn a0d Aorcacha Core - 600 7V0 800 1,000 1,200 14,(000 2/ 1974 tnly. Jw1 is, 1976  INTMSRMATED RURAL DrTIC!M1,TT PROiEET Livestock Production Coefficients: Current and Projected Climatic Zone Unit Cold Temperate Hot Without With Without wish Without With Project Project Project Proje ct Project Prjc Year 5 Year 5 Year 5 Pasture Carrying Capacity AU/ha 1.1 1.9 0.8 1.5 0.6 1.0 Dual Purpose Cattle Annual Milk Pr-duc-iili I/CoN 520 600 365 400 340 380 2/ha 468 900 219 460 153 266 Annual Liveweight Production kg/ha 74 192 50 153 36 90 Calving 7. 50 60 49 57 45 58 Mortality - adults 7* 4 3 4 3 4 4 calves 7. 8 5 8 5 10 6 Culling 7. 4 17 4 12 1 2 Liveweight - Calves 9-12 months kg 140 120 Imnatures 1-2 years kg - - 440 Cull cows kg 460 450 270, L. With Sheep Unit All Areas Pigs Without Project Sheep Lnit___ All______ Areas Lnit All Areas Chickens Unit Project Year 5 Lambing