Bolivia - Ingavi Rural Development Project

Report No. 936-80 FILE COpy 12 K Appraisal of Ingavi Rural Development Project Bolivia RET February 5, 1976 R;EPORTS *D ( Projects Department WITHIN Latin America and Caribbean Regional Office ONE I FOR OFFICIAL USE ONLY International Bank for Reconstruction and Development International Development Association 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.  CURRECY EQUIVALENTS US$1 = $b 20.00 $b 1.00 = US$0.O;5 $b 1 million = US$50,000 WEIGHTS AND MEASURES 1. hectare (ha) = 10,000 m2 - 2.47 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) - 0.39 sq. miles = 100 ha 1 kilogram (kg) 2.20 pounds 1,000 kilograms = 1 metric ton= 0.98 long ton 1 liter (1) = 0.26 gallons (US) = 0.22 gallons (Imperial) GLOSSARY OF ABBREVIATIONS BAB - Agricultural Bank of Bolivia BC - Central Bank BPC - Bolivian Power Company CCERDEPAZ - Department of La Paz Development Corporation DESEC - Center for Social and Economic Development GEOBOL - Geological Survey of Bolivia MACA - Ministry of Peasant Affairs and Agriculture MPSSP - Ministry of Social Security and Public Health PIL - Industrialized Milk Plant SNC - National Roads Service SNDC - National Community Development Service GOVERNMENT OF BOLIVIA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY BOLIVIA INGAVI RURAL DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-iii I. INTRODUCTION .......................................... 1 II. BACKGROUND ............................................ 1 A. General ..................... , ................ 1 B. Rural Sector ..................................... 2 C. Project Area ....... .............................. 4 III. THE PROJECT ......................... 5 A. Brief Description ...................... .... 5 B. Detailed Features ................................ 6 C. Cost Estimates ................................... 10 D. Financing .......... .............................. 11 E. Procurement ........ .............................. 12 F. Disbursement ........ ............................. 13 G. Organization and Management ...................... 13 H. Accounts and Auditing ......I ...................... 17 IV. PRODUCTION, MARKETING AND PRICES, AND PRODUCER BENEFITS 17 V. BENEFITS AND JUSTIFICATION ............................ 20 VI. AGREEMENTS REACHED AND RECOMMENDATION .... ............. 23 SCHEDULE A - Project Unit Guidelines SCHEDULE B - Consultants Terms of Reference SCHEDULE C - Lending Terms and Conditions SCHEDULE D - Implementation Schedule This report is based on the findings of an appraisal team which visited Bolivia in May 1975. Members of the team were Messrs. G. Luhman, and F. Lucca (LCPA1), W. Cuddihy and B. Kanchanalak (AGPOP), and C. Chisholm, W. Farnsworth, and J. Ticas (consultants). This doci4ment has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mny not othcrwise be disckbsed writhout World Batnk authorization.  TABLE OF CONTENTS (Cont'd) ANNEXES 1. Agriculture and Livestock Development Tables 1 to 8 - Model 1: Irrigated Development on Communally- Operated Land Tables 9 to 15 - Model 2: Rainfed Development on Communally-Operated Land Tables 16 to 18 - Model 3: Rainfed Development on Group of Individual Farms Tables 19 to 21 - Model 4: Marketing Development 2. Irrigation System Table 1 - Project Water Requirement Assessment Table 2 - Unit Investment and Current Cash Table 3 - Investment and Current Cash 3. Credit System 4. Technical Services Table 1 - Project Usnit Organization Table 2 - Investment Cash Cost 5. Road System Table 1 - Project Roads Table 2 - Investment and Current Cash Costs 6. Health System Table 1 - Investment Cash Cost 7. Water and Waste System Table 1 - Well and Pit Privy Unit Investment Cash Costs Table 2 - Investment and Current Cash Costs 8. Investment Cost Phasing 9. Estimated Schedule of Disbursements 10. Economic Analyses Table 1 - Economic Rate of Return MAP  BOLIVIA INGAVI RURAL DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a rural development project for which a Bank loan of US$9.5 million equivalent is proposed. The project would cover an area of about 800 km2, approximately 20 km southeast of La Paz. About 4,000 small farm families would benefit from on-farm investment (deep well irriga- tion systems, tractors, improved pasture and livestock facilities, and storage facilities), incremental production credit (for improved seeds, fertilizer, insecticides, and services), and technical assistance financed under the project, while most of the 10,000 families in the project area would benefit from improved roads (85 km), health facilities (including six health posts), and drinking water and waste facilities (4,000 shallow wells and 3,000 pit privies, respectively). The Project Unit, a semi-autonomous agency under the aegis of the Ministry of Peasant Affairs and Agriculture would implement the project. The Government would be the Borrower and would bear the foreign exchange risk. ii. The Bank Group has granted two loans and 10 credits to Bolivia for US$55.5 million and US$60.3 million equivalent, respectively. The largest portion of the financing, 55%, has been for transportation, with 25% for power, 15% for agriculture, and 5% for industry. Financing for agriculture has consisted of four credits: three for livestock, totalling US$10.2 million equivalent and one for agricultural credit of US$7.5 million equivalent. Some difficulty had been experienced in the execution of the Third Livestock Project (261-BO), but the situation has improved and the credit probably will be dis- bursed on schedule. Execution of the other project has been reasonably satis- factory. iii. Bolivia's gross domestic product (GDP) has increased at 6% per year since 1971, but per capita income at US$302 (1974) is still among the lowest in the hemisphere. Moreover, the major stimulus to growth has been in the modern sector: agricultural production for export and hydrocarbon extraction and refining. Distribution of the income is very skewed, with the lowest 40% of the population receiving only 13% of national income. This poorest segment consists largely of small farmers and agricultural laborers engaged in subsistence agriculture in the altiplano. The Govern- ment recently has taken measures to improve the economic performance of the country, but substantial external assistance will be required to support its efforts. iv. The farmers in the project area are largely representative of producers throughout the altiplano. They have an average of 6 ha each on which they plant potatoes for home consumption and sale and forage crops (barley and oats), which are fed to a few cows and some sheep. The land is tilled with steel-pointed wooden plows drawn by oxen and is fertilized with animal manure. The use of improved seeds, chemical fertilizers, and insecti- cides is limited. The average family income is about US$345, of which about  - ii - US$75 is in cash. Most of the previous efforts to develop the altiplano have been based on a sectoral approach and have been mostly unsuccessful. The pro- posed project seeks to combine substantial increases in yields and income (which would more than double) with investments in productive infrastructure (roads and storage facilities) and also investments in health, drinking water, and waste facilities that would have a direct impact on the quality of life of the target population. In addition, efforts would be directed toward groups of farmers rather than individuals. This integrated approach, based on group activities, is expected to achieve positive results, which eluded previous efforts. v. Total cost of the project would be about US$12.9 million equivalent of which the Bank would finance US$9.5 million, or 74%; Government, US$3.3 million or 25%; and beneficiaries, US$0.1 million, or 1%. In addition to the financial contribution, beneficiaries would make a substantial labor contri- bution valued at US$3.4 million. Bank financing would cover the foreign exchange costs (US$5.1 million, or 40% of project cost) and 56% of the local currency costs (US$4.4 million, or 34% of project cost). The consultant services of the technical services component of the project (US$0.9 million) were originally to be financed by UNDP and the Government; however, due to UNDP's recent financial difficulties, the consultant services would now be financed jointly by the Bank (US$0.5 million) and the Government (US$0.4 million). Should UNDP funds for financing consultant services become available during the 1977-80 period, then the corresponding amounts in the Bank loan would be cancelled. vi. The Project Unit would have direct responsibility for the on-farm investment and working capital components of the project. It would provide technical assistance to farmer groups on agriculture and livestock practices, operation and maintenance of facilities, and preparation and implementation of farm development plans. It would also grant subloans to farmer groups in support of the farm development plans in cooperation with the Agricultural Bank (BAB) acting as financial agent, responsible for processing loan appli- cations and disbursing funds on the recommendation of the Project Unit. The National Roads Service (SNC) would implement the roads component and the Ministry of Social Security and Public Health (MPSSP), the health, drinking water, and waste components, under agreements with the Project Unit. vii. Procurement of most farm inputs would be made by farmer groups through normal commercial channels because the size and timing of individual purchases would not be suitable for international competitive bidding (ICB). However, the tractors would be purchased through local competitive bidding, and the irrigation equipment and materials would be purchased through inter- national competitive bidding (ICB), in accordance with Bank guidelines. The irrigation wells would be installed by the Geological Survey of Bolivia (GEOBOL) under the supervision of the Project Unit. Roads would be con- structed by SNC and water supply wells and privies by MPSSP by force account with the assistance of project beneficiaries. Construction of simple adobe buildings and other facilities would be undertaken by project beneficiaries under the supervision of the National Community Development Service (SNDC).  - iii - viii. The financial rate of return for farmers has been estimated to vary from 20 to 200%, while the economic rate of return to the country would be about 15%. ix. During negotiations appropriate assurances were obtained that provide a suitable basis for a Bank loan of US$9.5 million for 25 years, including a seven-year grace period.   BOLIVIA INGAVI RURAL DEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Government of Bolivia has requested a Bank loan to help finance a rural development project in the altiplano near La Paz which would have a substantial impact on the income and standard of living of the small farmlers in the project area and serve as a model for other rural development efforts in the altiplano. The proposed project was prepared by the Government with the assistance of the FAO/IBRD Cooperative Programme. 1.02 To date the Bank has made two loans and IDA has granted 10 credits to Bolivia for totals of US$55.5 million and US$60.3 million equivalent, net of cancellations, respectively. The largest portion of the financing, 55%, has been for transportation, with 25% for power, 15% for agriculture, and 5% for industry. Financing for agriculture has consisted of four credits: three for livestock, totalling US$10.2 million equivalent, and one for agricultural credit of US$7.5 million equivalent. Some difficulty had been experienced in the execution of the Third Livestock Project (261-BO), but the situation has improved and the credit probably will be disbursed on schedule. Execution of the other projects has been reasonably satisfactory. II. BACKGROUND A. General 2.01 Bolivia's economic and financial posture has improved somewhat during the last four years. Real GDP increased by 6% annually during 1971-73, compared with a 3.4% average for the 1968-70 period. Following a similar trend, per capita GNP increased from US$197 in 1973 to US$302 in 1974; however, it remains one of the lowest in the hemisphere. Although GDP growth declined to about 5% in 1974, significant gains in terms of trade resulting from rising petroleum and mineral prices have contributed to the expansion of consumption and investment and to substantial improvement in public finances and balance of payments. This favorable trend in the economy has, however, been accompanied by lagging growth rates in traditional activities such as domestic agriculture, mining, and manufacturing of consumer goods; low employment growth; inadequate infrastructure; and high incidence of poverty in rural areas. 2.02 In 1975, Bolivia's population was estimated to be 5.5 million, 70% of which lives in rural areas. The altiplano and the valleys, which jointly account for about 30% of the national territory, contain about 84% of the rural population. At the current annual rate of population growth (2.7%) it is expected that, by 1980, population will rise to 6.5 million, with rural areas accounting for 68%. The labor force in 1974 was 2.5 million, with the  -2- annual rate of increase exceeding employment growth. Migration from rural areas is occurring at an increasing rate, but the limited capacity of the non-rural sector to absorb the rapid increase in labor resources argues for vigorous policies to expand employment opportunities in the rural sector. 2.03 Income distribution remains skewed in Bolivia. Disparity is reflected in the fact that the lower 40% of the population account for only 13% of the total income, compared to the 36% of the national income enjoyed by the top 5% of the population. The poorest segment consists largely of small farmers and agricultural laborers engaged in subsistence agriculture in the altiplano. 2.04 The Government is distinctly aware of the major obstacles to develop- ment, and has consequently recently taken measures designed to improve the economic performance of the country. While the Government has directed its efforts towards mobilization of domestic resources and preparation of a devel- opment program for Bolivia, the successful implementation of this program is contingent upon the availability of substantial external assistance. B. Rural Sector 2.05 Agriculture, which is the principal livelihood of the rural popula- tion, accounts for 217% of GDP and 65% of total employment. The decline in agriculture's share of GDP from 30% in 1962 to 21% in 1974 may be attributed in part to the more rapid economic growth of non-agricultural sectors. The rate of growth in agriculture during the 1968-74 period was estimated to be 3.9%, as compared to 4.8% for the rest of the economy. Agriculture's exports in 1974, mainly cotton, coffee, sugar and beef, amounted to US$56 million, or about 9% of the total export value. In addition to generating foreign ex- change, agriculture provides about 70% of domestic agricultural and food requirements. Food imports in 1973, mainly wheat, flour, fats, edible oils and dairy products, accounted for about 80% of total agricultural imports of US$42 million. 2.06 Bolivia's rural sector consists mainly of small farmers living under subsistence conditions. The high incidence of poverty can be linked directly to the small-farm sector which is plagued by low productivity, a traditional technological base, underemployed resources, and a disproportion- ately small share of the agricultural growth and development. Over 85% of the small-farm population is concentrated in the relatively poor physical environ- ment of the altiplano and the intermediate valleys, areas characterized by a high man/land ratio. The small-farm sector produces about two-thirds of the domestic food supply and provides some form of productive employment for about 65% of the rural inhabitants. 2.07 In contrast, the farmers and ranchers of the modern agricultural subsector, which is confined to the Santa Cruz and Beni regions, have large farm holdings and enjoy substantial financial support from central and local governments as well as from the private sector. Modern techniques are used, especially in the mechanized production of cotton and sugarcane in Santa Cruz.  -3 - Mioreover, marketing arrangements, processing industries, and services are better developed. 2.08 Regional imbalances appear to be pronounced in Bolivia's case, largely because of the disparities in growth potentials, level and pattern of agricultural development, and the extent to which each region has attracted resources and governmental support. An inherent problem affecting agricul- tural growth is the existence of a structural imbalance between population and natural resources in Bolivia's three main geographic regions: (a) the cold, dry and largely barren altiplano, which comprises 28% of the country's culti- vated land and accounts for about 42% of the rural population while contri- buting only 18% of the agricultural GDP; (b) the temperate and humid valleys, which include 38% of the cultivated land, 42% of the rural population, and 34% of the agricultural GDP; and (c) the tropical and sub-tropical lowlands, which have 35% of the cultivated land, 16% of the population, and 48% of the agricultural GDP. Traditional agriculture is concentrated in the altiplano and the intermediate valleys, while the rapidly developing crops (which include cotton, sugarcane, rice and oilseeds) and beef production have been developed spontaneously by private enterprise in the central and northern lowlands, respectively. 2.09 Agricultural production is further deterred by stagnant technology and low factor productivity, limited skilled manpower, inadequate factor and product markets, and lack of access to agricultural credit, especially long- term credit to finance agricultural infrastructure and agricultural inputs, by a very large segment of producers. The problem is further compounded by the lack of viable farmer organizations, adequate infrastructure, and support- ing services. In addition, political and economic instability, lack of insti- tutional coordination, and the absence of an integrated approach to rural development have made it difficult to successfully assist the Government in its efforts to develop agriculture, particularly in the altiplano. 2.10 Bolivia's efforts to ameliorate rural, social, and economic condi- tions will be vastly influenced by economic dualism in the rural sector, i.e., large farm operators and a preponderance of small-scale farmers, each with different needs and problems. There is evidence that productivity and the living standards of the rural poor can be improved considerably, provided the Government takes a number of essential measures consisting of (a) prepa- ration and execution of investment programs and establishment of a proper institutional framework to execute such programs in the altiplano and valleys; (b) channeling adequate credit and technical assistance to small farmers in support of such programs; (c) organization of small landholders into coopera- tives or other functional groups; and (d) research to develop appropriate crop varieties for the climatic conditions of the altiplano and valleys. 2.11 Although the Government does not have a rural development program nor a clear-cut policy for rural development, the present administration is well aware of the need to adopt such measures and, with external assistance, has recently begun to channel more financial and human resources to small farmers. The Government has also taken steps to reform pertinent institutions  -4- and to improve sector management capabilities. In early 1974, the Ministries of Agriculture and Peasant Affairs were merged. A special office to coordinate all the development activities on the altiplano has been established with the assistance of the UNDP. Preparation of capital investment projects in the altiplano are now being carried out by IDB. IDB is planning assistance in the field of agricultural research. Likewise, USAID is now considering the possibility of providing technical assistance for the improvement of the Ministry's effectiveness in the formulation of policies, sector planning, and coordination and supervision of investment programs. It is also providing technical and financial assistance to the National Community Development Services (SNDC) to expand its role beyond its present involvement in infra- structure projects only. A reorganization study for the Agricultural Bank of Bolivia (BAB) aimed at improving the efficiency of this institution will be financed under Credit 261-BO. Support from external agencies is designed to improve planning, coordination and supervision of development programs to benefit the rural poor in the altiplano and valleys. 2.12 The rural development effort in the project area is intended to bring about needed relief in a region characterized by low productivity and high incidence of poverty. The project proposes a gradual development scheme which would organize farmers into larger production units and introduce simple technical innovations in agricultural practices with the support of technical assistance and credit. From a long-run viewpoint, the project is an initial step toward the organization of human resources, capital formation, and increase of factor productivity in Bolivia's depressed rural areas. C. Project Area 2.13 The project area is located in the altiplano at about 4,000 m alti- tude, some 20 km southe2st of La Paz (Annex 1, Map IBRD 11737). It covers an area of about 800 km , primarily in the eastern part of the Ingavi Province but also partly in the southern part of Los Andes Province. Viacha, the capital of Ingavi Province, is situated approximately in the center of the project area. The plain is mostly uniform land with a gentle slope (about 2%), although some of it is slightly rolling and is broken by a few small hills. Mountain ranges are located to the east and west of the area. Average annual precipitation is about 500 mm, about 60% of which falls from December to February; however, precipitation can vary widely from month to month. Hail storms, which occur from December to February, cause total crop loss about one year in 10. Average temperatures vary from 10