Mexico - Fifth Agricultural and Livestock Credit Project

Report No. 961-ME Appraisal of Fifth Agricultural and Livestock Credit Project Mexico f\\E 00 January 29, 1976 Regional Projects Department Latin America and the Caribbean Regional Office Not for Public Use Document of the 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.  CURRENCY EQUTVATENTS US$1 = MeX$l 2.5 Mex$l 1 US$o.o8 Mex$l million = US$80,000 WEIGHTS AND MEASURES Metric %rstem 1 hectare (ha) = 10,000 m.2 = 2.47 acres 1 kilometer (kn) 2 0.62 mAls 1 square kilometer (km ) 0.39 sq. miles - 100 ha 1 kilogram (kg) = 2.20 pounda 1 liter (1) = 0.26 gallons 1,000 kg = 1 metric ton 0.98 long ton ABBREVIATIONS ALPRO - Alliance for Progress BANAGRO - Banco Nacional Agropecuario, S.A. BANCO AGRICOLA - Banco Nacional de Credito Agricola, S.A. BANCO EJIDAL - Banco Nacional de Credito Ejidal, S.A. de C.V. BANXICO - Banco de Mexico, S.A. BNCR - Banco Nacional de Credito Rural CIMMYT - International Center for Research of Corn and Wheat COCOSA - Coordinating Committee for the Agricultural Sector CONAFRUT - National Fruit Development Corporation CONASUPO - National Marketing Corporation FEFA - Fondo Especial para Financiamientos Agropecuarios FEGA - Fondo Especial de Asistencia Tecnica y Garantia FINAIR - Financiera Naciorial de Industria Rural FONASA - Financiera Nacional Azucarera FIRA - Fideicomisos Instituidos en el Banco de Mexico en relacion con la Agricultura FONAFE - Fondo Nacional de Fomento Ejidal FONDO - Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura GUANAMEX - Guanos y Fertilizantes de M4exico INIA - National Crop Research Institute INIP - National Livestock Research Institute LIPSP - Low Income Producers Sub-Project MIPSP - Medium Income Producers Sub-Project PLAMEPA - Plan de Mejoramiento Parcelarlo PNH - Plan Nacional Hideaulico PRONASE - Productora Nacional de SemiLlas SAG - Ministry of Agriculture SRH - Ministry of Water Resources SRA - Ministry of Agrarian Reform UNPASA - Sugar Producers' Organization GOVERNMENT OF MEXICO FISCAL YEAR January - December  FOR OFFICIAL USE ONLY MEXICO FIFTH AGRICULTURAL AND LIVESTOCK CREDIT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ..........-... i-i I. INTRODUCTION e................................. 1 II. AGRICULTURAL SECTOR ........ .. . . ....... ... .1 A. General .......... ......*......... 1 B. Supplies and Services .................... 3 C. Agricultural Credit ..................... 5 III. PERFORMANCE UNDER THE THIRD AND FOURTH PROJECTS 6 IV. THE PROJECT ......... ........ ....... 7 A. Brief Description . . .. . ..... . 7 B. Detailed Features . . ........................ 9 C. Cost Estimates . . 10 D. Financing ...12 E. Procurement ..... ........................... 13 F. Disbursements .......,** ....,....******* .... 13 G. Organization and Management .*.......... o... 14 H. Accounts and Auditing *......... .... 18 V. PRODUCTIONS MARKETS AND MARKETING, AND PRODUCER BENEFITS 18 A. Production . .18 B. Markets and Marketing .. . ... o..g 19 C. Producer Benefits .20 VI. ECONOMIC BENEFITS AND JUSTIFICATION ....... ....... 20 VII. AGREEMENTS REACHED AND RECOMMENDATION Z2 This appraisal report is based on the findings of a Mission which visited Mexico in May 1975 and was composed of (.G. Ramasubbu, D. Parbery, W. Ringlien, P. Scherer, and C. Wolffelt (IBRD), E. Cifuentes, K. Kriechhammer, and C. Percival (Consultants). 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.  TABLE OF CONTENTS (Cont'd) ANNEXES 1. The Agricultural Sector Table 1 - Supply and Demand Balaice of Key Agricultural Products Table 2 - Exports and Imports of Selected Agricultural Commodities Table 3 - Public Investment in Agriculture, by Function and by Agency Table 4 - Production, Exports and Imports of Selected Agricultural Commodities Table 5 - Profile of Government Activities in Agriculture Table 6 - Price Data on Major Basic Grains 2. Institutional Credit for Agriculture Table 1 - Analysis of Fourth Project Sub-loans Table 2 - Estimates of Income and Expenditure, 1970-1974 (FONDO and FEFA) Table 3 - Statements of Resources and Liabilities as at end of 1970-1974 (FONDO and FEFA) Table 4 - Projected Statement of Income and Expenses (FONDO and FEFA) Table 5 - Projected Statement of Resources and Liabilities (FONDO and FEFA) Table 6 - Jurisdiction and Headquarters of Regional Agricultural Banks Table 7 - Consolidated Balance Sheets of Banco Agricola, Banco Ejidal and Banco Agropeciario Systems Table 8 - Income and Expenditure Statements of Banco Agricola, Banco Ejidal and Banco Agropecuario Systems Table 9 - Overdues of Public Agricultural Banks Table 10 - Balance Sheets FY 1972-1974 and February 28, 1975 (FINASA) Table 11 - Statement of Income ancl Expenditure 1972-1974 (FINASA) 3. Summary Estimates of Cost of Investments 4. Estimated FONDO Project Receipts and Disbursements 5. Estimated Schedule of Disbursements 6. Financial Rate of Return 7. Economic Rates of Return  TABLE OF CONTENTS (Cont'd) MAP IBRD No. 11789 - Distribution of FONDO Offices by Region IBRD No. 11800 - Jurisdiction of the Regional Banks ADDENDUM - Physical and Financial Projections for Sub-projects 1/ Available upon request from the Agriculture Division 2-B, Regional Projects Department, Latin America and Caribbean Regional Office   MEXICO APPRAISAL OF FIFTH AGRICULTURAL AND LIVESTOCK CREDIT PROJECT SUMMARY AND CONCLUSIONS i. Agricultural production in Mexico grew at an annual average of about 5% over nearly three decades from about 1940 but, since the later 1960s, the sector has lost impetus and growth rates have fallen below those of domestic demand. The present Administration has given priority attention to the sector in an attempt to achieve the twin objectives of increasing production to reach self-sufficiency in basic grains and improving the situation of the rural poor. Notable elements of its effort are: (a) new legislation in the area of land reform and irrigation aiming at higher productivity and more equitable distri- bution of ensuing benefits; (b) reform and strengthening of the agricultural support services - technical and organizational assistance, research, market- ing and credit in particular; (c) institutionalization of coordinating and planning mechanisms among Government agencies; (d) implementation of integrat- ed rural development programs; (e) the adoption of a price support program for basic grains; and (f) a three-fold increase in the public budget for agricul- ture since 1970. While the Government has taken comprehensive and far-reaching steps, it will require continuing efforts and adjustments, as for example, in further strengthening extension services and tackling problems of rainfed agriculture, to make the public agricultural policies fully effective and to restore the earlier dynamism of Mexican agriculture. It is proposed to pursue various sectoral policy issues with the Government in periodic discussions on the developments in the agricultural sector and the role the Bank might play in it. ii. The proposed fifth loan for agricultural and livestock credit to the Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (FONDO) 1/ would provide significant support to the Government's endeavors to stimulate the agricultural sector and insure a more equitable distribution of the benefits of its growth. Like the four previous loans, it would finance investments for the development of crops and livestock and for the establish- ment of agro-industries. The share of the Low-Income Producers Sub-project (LIPSP), introduced on a modest basis under the Fourth Project, would account for the major share of on-farm investment under the Fifth. The project would also support field demonstrations, farmer and staff training, monitoring and pilot schemes. Total project cost would be US$413 million equivalent. The proposed loan of US$125 million, or 30% of the total project cost, would finance the entire foreign exchange costs. 1/ The "FONDO" is used to refer not only to this special fund with the Bank of Mexico but also to the common organization for the administration of the Group of trust funds, which include Fondo Especial para Financiea- mientos Agropecuarios (FEFA) and Fondo Especial de Assistencia Tecnica y Garantia para Creditos Agropecuarios (FEGA).  - ii - iii. As in previous projects, FONDO would be responsible for project implementation. FONDO was established in 1955 by the Government to provide credit in conjunction with technical assistance and has since then developed into a sound and efficient organization. It is expected that FONDO's financ- ing and promotional functions will now increasingly extend to the small farm- er sector and help tackle issues likely to arise in the development of farmers' organizations, coordination of credit with input supplies, marketing and other services. Though initially only private banks were supported by the FONDO, access to Bank-financed rediscounting facilities was extended to the Govern- ment-owned Banco Agropecuario system in 1965, and subsequently, to the other two public banking systems of Banco Agricola and Banco Ejidal to help in financing the LIPSP. Under the Fifth Project, FONDO would deal with the private banks and the following public banks: FINASA (the national institution for financing the sugar industry), and Banco Nacional de Credito Rural. The Banco Nacional de Credito Rural and its 12 affiliated regional banks were recently established through the consolidation of the existing public banks to promote the most economical use of staff and branch network and qualitative improvements in operational policies and procedures. iv. Beginning with a loan of US$25 million in 1965, the Bank has so far made four loans for a total of US$275 million to the FONDO for livestock and agricultural credit, including agro-industries. The Fourth loan was fully disbursed by October 1975, well ahead of its closing date, as were the three earlier loans. Financing of low income producers was introduced only in the Bank's Fourth project, though FONDO had been long associated with small farmer financing under the ALPRO (Alliance for Progress) program, financed initially by two USAID loans and two subsequent IDB loans. v. As in previous projects, all sub-loans would be based on FONDO- supervised appraisal of the technical and financial viability of on-farm investments to be financed. The rate of interest charged on LIPSP loans would be raised from 7.6% to 9%, though the old rate would be retained for application to sub-borrowers who have not had earlier access to institutional credit and whose annual income is less than 250 times the legal daily minimum wage in the area. The lending rates and discounts for the Medium Income Producers' Sub-project (MIPSP) were raised twice during the Fourth Project and the present structure would be adopted in the Fifth Project. The on-lending rates would range from 11.5% to 14.5%, as compared with a range of 10% to 12% agreed initially under the Fourth Project. For the first time, sub-loans under MIPSP would be subject to a maximum limit of US$200,000 per beneficiary. vi. The sub-borrowers under MIPSP and those for agro-industries would contribute 20% of the cost of the investment to be financed under the project. Of the low income producers, the poorer category would contribute a minimum of 3% and the others, 5%; their contribution could be in the form of labor and materials.  - ili - vii. As in the four earlier projects, normal commercial channels would be suitable for procurement. There is keen competition among equipment dealers and the large number of manufacturers in Mexico, most of whom are under manu- facturing franchise from international firms. However, at least three quota- tions would be obtained in the procurement of machinery and equipment for agro-industries when the cost of an individual item exceeds US$150,000. To ensure sufficient competition, FONDO would be required to compile a represen- tive list of foreign and domestic suppliers of machinery and equipment and circulate it among sub-borrowers and, further, to advertise locally and notify embassies of Bank member countries which manufacture agro-industrial equipment and Switzerland of the main industries likely to be financed and the kind of equipment likely to be needed. viii. The Fifth Project is expected to lead to significant increases in the production of basic grains, sugarcane, fruit, milk and beef, for which ready markets exist. ix. The financial rates of return to the on-farm and agro-industrial investments are estimated to range from 14% to 30% and the economic rates of return from 20% to 42%. x. With appropriate assurances, the Fifth Project would be suitable for a Bank loan of US$125 million for 20 years, including a four-year grace period. The borrower would be the Nacional Financiera and the Government would assume the foreign exchange risk.   MEXICO APPRAISAL OF FIFTH AGRICULTURAL AND LIVESTOCK CREDIT PROJECT I. INTRODUCTION 1.01 The Government of Mexico has requested the Bank to assist in financ- ing an agricultural credit project under which medium- and long-term loans would be made to producers for increasing crop and livestock production and expanding the capability for processing such produce. The proposed fifth loan of US$125 million would be made on Government guarantee, to Nacional Financiera (NAFINSA), which would on-lend the proceeds to the Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (FONDO). The FONDO represents a group of trust funds established by the Government within the Bank of Mexico for agricultural development. The FOND)O, in turn, would pass the funds on to farmers by rediscounting participating banks' sub-loans. The Bank has made four loans to Mexico for agricultural credit, all of which iave been fully disbursed ahead of schedule. II. AGRICULTURAL SECTOR A. General 2.01 Agriculture has been a dynamic element of Mexico's economy and achieved a growth rate of about 5% p.a. over nearly three decades from about 1940. Howevsr, since the late 1960s, growth rates have fallen below those of domestic demand, the agricultural export surplus has been reduced, and the sector's contribution to GDP fell from 15.9% in 1960 to 10.1% in 1974. Never- theless, agriculture still provides the main source of income to nearly 40% of the population and accounts for about 40% of the total commodity exports. 2.02 Of Mexico's total land area of 200 million ha, about 35 million ha are considered potential crop land, out of which only about 14.5 million ha are harvested. About 4.3 million ha are irrigated, and, with their diversi- fied cultivation pattern, account for nearly 50% of the total agricultural production. Except for sugarcane and coffee, rainfed agriculture produces mainly basic grains, notably maize and beans, the principal elements in the Mexican diet.  -2- 2.03 Of the families dependent on agriculture, 1.5 million are ejidatarios, 1/ 1.2 million are families of private landholders and 1.3 mil- lion are landless families whose number is increasing as a result of the annual rural population growth rate of 2%. The distribution of agricultural production and income is skewed following the pattern of land tenure. The top 10% of the rural population claims about half the rural income while half the population receives only a fifth of the income. 2.04 The Government has undertaken a multi-pronged effort to step up production and expand rural employment opportunities and social services (Annex 1). It has enacted a new agrarian reform law to consolidate and carry forward earlier legislation and to develop the ejido into an inte- grated production unit, and a federal water law to rationalize water manage- ment. Several measures have also been taken to improve policy formulation and implementation, such as the creation of a national coordinating commission for agriculture (COCOSA); the preparation of a national water plan (PNH), with which the Bank has been actively associated; and the merger of the three public agricultural banks into one system (para. 2.14). Among the important new programs are the integrated rural development projects, partly Bank- financed; the drive of Compania Nacional de Subsistencias Populares (CONA-SUPO) to serve small farmers through a rural stores network; and the implementation of a price support program for basic grains production (para. 2.08). All these efforts and expanded research, extension and other services were made possible by a substantial increase in Government expenditures in agriculture, whose share in public investment rose from 11% in 1970 to 19% in 1975. 2.05 A large part of the Government expenditures is directed to expanding irrigation. During 1971-74, 284,000 ha were brought under irrigation, more than double the achievement in the previous five year period, while another 200,000 ha were rehabilitated. During 1977-82 the PNH proposes to put an additional 933,000 ha under new irrigation/drainage. However, in view of the increasingly costly nature of large-scale irrigation projects, the Govern- ment may have to reorient its sectoral investment strategy to expand cropping and livestock activities in rainfed areas such as the Tropical Gulf Coast region. As for other aids to production, the number of farmers attended by the extension services of the Ministry of Agriculture (SAG) increased between 1971 and 1974 from 202,000 to 369,000 and the area covered from 859,000 ha to 2,875,000; still, however, only 14% of the 2.7 million farmers and 20% of the 14.5 million ha harvested are served. Public credit has also expanded rapidly, but only 24% of the area harvested is yet covered. Fertilizer use has expanded to become relatively generalized in irrigated areas, but its use is not yet very common in rainfed agriculture. Efforts to increase the flow of inputs and raise the technological level of agriculture, however, take 1/ The ejido is basically a group of families with joint and inalienable tenure rights to land. The head of such a family is called an ejidatario.  -3- time to translate into production increases. Agricultural production remained virtually stagnant during 1970-74, partly because of bad weather conditions, but recent improvements in the coordination and consistency of sectoral poli- cies and programs and their effective implementation, if successful, should help restore the sectoral growth rate to the earlier levels of 4 to 5% per annum. Various sectoral policy issues set out in Annexes 1 and 2 would be pursued with the Government in periodic discussions proposed for reviewing the developments in the sector and the role the Bank might play in it. B. Supplies and Services Inputs 2.06 Mexico is well equipped to meet the input requirements of its agri- cultural production programs and is likely to be self-sufficient shortly in nitrogeneous fertilizers, pesticides, tractors and farm machinery. The supply of certified seeds has presented some problems but PRONASE, the Government seed production company, is making efforts to improve the situation. Retail- ing arrangements for inputs have concentrated in the past on commercial farmers in irrigated areas but lately the needs of small farmers are also being met, mainly through the public agricultural banks. > Marketin& 2.07 Marketing arrangements for commercial agriculture are generally satisfactory and the margins of intermediaries are reasonable. In some areas, however, the producers are handicapped by the lack of processing and storage facilities or the monopoly position of the existing processing units. Various agro-industrial units have, therefore, been set up by producer groups with FONDO financing under Bank-assisted projects. Small farmers sometimes depend on the same private source for inputs, credit, and marketing services or they lack the infrastructure for handling their marketable surplus; they are, however, being helped increasingly by public agricultural banks and the CONASUPO which also operates a country-wide storage and warehousing system and retail outlets for consumer goods and agricultural inputs (para. 2.04). 2.08 In order to redress the unfavorable terms of trade faced by agri- cultural producers in recent years, the Government is implementing a vigo- rous price support program to encourage the production of basic foodgrains and oilseeds. CONASUPO operates this program, purchasing varying proportions of national production, managing imports of basic foodstuffs and running an extensive urban retail distribution system. Irrigated agriculture has so far shown a better production response to incentive prices than rainfed agriculture dominated by small farmers, and still handicapped by institutional weaknesses which are being gradually overcome. While the price support prog- ram is providing a stimulus to investment and hence to demand for credit, its production promotion objective requires to be reconciled with other conside- rations such as the stability of urban prices of foodstuffs, and the  -4- alignment of the country's production pattern to its international compara- tive advantage. Education, Research and Extension 2.09 There has been a significant increase in the last few years in the agricultural education facilities in Mexico, and sizable further expansion is proposed. There is, however, likely to be a shortage for some time at the postgraduate, graduate and sub-professional "agronomos" levels. A man- power study is indicated to determine the personnel requirements in the agri- cultural sector and the likely supply, with more precision, as well as the steps for bridging anticipated gaps. The Bank is presently exploring the possibilities of supporting an education project which would, inter alia, address itself to this problem. 2.10 While agricultural research in Mexico has made major contributions to the "Green Revolution" in the breeding of high-yielding grain varieties, it has been largely concentrated on commercial farming in irrigated areas. Over the last three years, the Government has substantially increased its financial support and, further, started to orient research to rainfed agri- culture and hitherto relatively unexploited areas such as the tropical Gulf Coast, for which Bank support under a separate project is being considered. The National Institute for Agricultural Research (INIA) has shifted emphasis to forage, legumes, and basic grains, which are crucial for the country's future agricultural growth, decentralized its operations so as to align them to regional needs, and upgraded the quality of its staff. The National Ins- titute for Livestock Research (INIP) is seeking a similar orientation but needs more funds and better coordination with INIA. 2.11 Agricultural extension is operated by various official and private agencies, the largest being SAG whose services have been expanded five-fold since 1970 and strengthened through budget increases, improved salary scales, and various operational measures (Annex 1). Extension for farmers in the public irrigation districts is largely provided by the Ministry of Hydraulic Resources (SRH). Further, over the years, FONDO has supported term lending with technical assistance, building up its own cadre of competent staff and training about 1,000 technicians of private and public banks. The public agricultural banking system (which alone employs about 1,800 technicians) and SAG have recently entered into an agreement under which the SAG staff would work with banks in support of credit operations. 2.12 Various extension strategies are being adopted in Mexico. One of these is to operate through groups of 10 to 30 farmers, with field trials being arranged on their own plots. For working with the indigenous popula- tion, the support of individual promoters and institutions from within those communities is being enlisted. Experimental programs are being conducted, which provide for a group of ejidos to organize their production activities as an agro-business complex with a technically qualified production manager. Despite considerable progress in agricultural extension, deficiencies remain such as administrative delays, high staff turnover, limited use of modern communication techniques, and inadequate farmer participation. While man- power and financial constraints set limits to extended farmer coverage, the  immediate need is to improve the quality of the field work of existing ex- tensionists and coordination with other services and supplies. C. Agricultural Credit 2.13 Institutional credit for agriculture in Mexico has expanded in the last few years as a result of various attempts to strengthen and improve public agricultural banks and to provide incentives to private banks (Annex 2). By setting up rediscounting facilities for banks in combination with techni- cal assistance provided through its field offices (Map 11789), the FONDO group of trust funds 1/ has helped demonstrate the viability of technically supervised on-farm investment. FONDO has been in charge of the USAID-financed program for financing small farmers and short-term rediscounting operations, while the Bank and IDB-assisted projects have been the responsibility of FEFA 1/. The FONDO/FEFA organization has also helped train bank staff and has organized demonstrations and studies on farmers' practical problems. Thanks to the FONDO's efforts and the assistance available from FEGA 1/ in employing staff for technical assistance to low income producers (LIPs), com- mercial banks are also actively involved in financing on-farm investment. 2.14 Banco Agricola, Banco Ejidal, and Banco Agropecuario, together with the affiliated regional banks, have all increased their operations during the last five years, loans advanced rising from M$ 5.8 million in 1970 to M$ 13.0 million in 1975. Banco Agropecuario has been relatively sound in financial and administrative terms, in comparison with Banco Ejidal and Banco Agricola which had been handicapped by inadequate technical staff and loan collection problems but have recently begun to show improvement. All these banks are now being consolidated into a new system with a national level institution known as the Banco Nacional de Credito Rural (BNCR) and 12 regional banks affiliated to it (Annex 2 and Map 11800). Through this merger and the new agricultural credit law recently ratified by the Congress, the Government is endeavoring to expand the supply of credit to LIPs, avoid duplication of bran- ches and staff, and bring about a qualitative improvement in operations through lending based on project appraisal, staff training and streamlined procedures. The banks also need to make efforts to improve loan collections and to mobilize rural savings. 2.15 Credit for LIPs, especially ejidatarios, is being channelled, by preference, through increasingly large groups, in line with the policy of gradually making ejidos efficient economic units. While this should help reduce costs of extension and credit supervision, the major task is to orga- nize group activity so as to ensure sound management, maximize farmer parti- cipation and coordinate technical assistance, input supplies and marketing. 1/ Includes, in addition to the FONDO, Fondo Especial para Financiamentos Agropecuarios (FEFA) and Fondo Especial de Assistencia Tecnica y Garantia para Creditos Agropecuarios (FEGA).  -6- Collaborative action to this end is being organized among the agencies involved. III. PERFORMANCE UNDER THE THIRD AND FOURTH PROJECTS 3.01 Sub-loans are granted by participating banks under Bank-financed projects and refinanced by the FONDO only if they are based on farm plans approved by authorized technicians. In the Fourth Project a distinct alloca- tion was made for the first time for loans to LIPs defined as ejidatarios or other small farmers who are in legal possession of their land or plots, whose main source of income is derived from farming and whose net annual family income does not exceed 1,000 times the daily minimum rural wage for the region. 1/ 3.02 Compared to a uniform on-lending rate of 10% under the First Pro- ject, the Fourth has seven loan size categories with rates ranging from 11.5% to 14.5%, and a special rate of 7.6% for the LIPs. FONDO's discounting rates take into account its own costs and the need to allow the participating banks sufficient margins to cover their expenses and risks and to encourage smaller sub-loans. The banks' margins now range from 1.75% to 2.75%. The propor- tion of sub-loans discounted by the FONDO, which was uniformly 90% in the First Project, ranged in the Fourth Project between 70% and 90%, depending on loan size. 3.03 Sub-loans under the Fourth Project were fewer and, on the average, larger than expected at appraisal, principally because investment costs went up, but, also, particularly in the case of LIPs, because there were more group loans, and groups were larger than anticipated. While there were some sub-loans to associations of commercial farmer ;, group lending, mainly through societies of ejidatarios, accounted for the bulk of the Low Income Producers Sub-project (LIPSP) sub-loans. 3.04 Data gathered by the FONDO on results at the farm level from a limited sample of Third Project sub-borrowers indicate more intensive land use, improvement in productivity in respect of beef and certain annual and perennial crops, and a doubling of the average labor use per farm, despite an increase in mechanization in some instances. On balance, the survey points to a significant impact of the credit and technical assistance provided under the project. 1/ This minimum, fixed by the National Commission for Minimum Salaries, varies between regions and ranges between M$ 25.10 (US$2.00) to M$ 67.00 (US$5.36).  -7- IV. THE PROJECT A. Brief Description 4.01 The Fifth Agricultural and Livestock Credit Project (Fifth Project) provides for long-term investment in livestock and crop production and agro- industries and includes funds for training, demonstrations and monitoring. The project aims to (a) increase Mexico's agricultural production so as to help meet domestic food requirements and improve its agricultural trade surplus, and (b) raise the productivity and income of small farmers. 4.02 As in the Fourth Project, financing of on-farm investment would consist of two sub-projects: (a) Low Income Producers' Sub-project (LIPSP) and (b) Medium Income Producers' Sub-project (MIPSP). Public agricultural banks, the Financiera Nacional Azucarera (FINASA) 1/, and private credit institutions would participate in both, which would be country-wide. LIPSP would continue the on-going program for ejidatarios and small farmers who would be defined as in the Fourth Project (para 3.01), while MIPSP would finance other farmers. 4.03 In line with the Government policy of promoting joint economic acti- vity among ejidatarios, illustrative farm models were drawn up for such units and used to derive the probable pattern and size of investments under the Project. The Government's price support policies, the credit requirements emerging from other Bank-supported projects, the official objective of finan- cing the investment needs of small farmers through institutional credit, and the likely improvement in the absorptive capacity of the public agricultural banking system following its reorganization, are among the factors expected to lead to a substantial demAnd for investment credit. The proposed lending pro- gram can be summarized as follows: 1/ The national institution for financing cane farmers and the sugar industry.  A. On-fnrn Investment 1/ Percentage F - j'. Averagvr Invest- of total '.o. of Estimated Nunher of mneat per Sub- 2/ Lending ULJy !. Sub-loans loan T.'.- Pro7rani Ye-ar i Year 2 '? fal (USia)J 030 I'.llion '000 LIPSP - Annual Crops 815 1,222 2,037 27 68.o 21.6 19.3 Perennial Crops 81 121 202 36 9.5 3.0 1.9 Sugarcane 206 310 516 28 19.8 6.3 5.2 Dairy 5