Mexico - Rainfed Agricultural Development Project

Document of FILE COPy The World Bank FOR OFFICIAL USE ONLY Report No. P-2941-ME REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A RAINFED AGRICULTURAL DEVELOPMENT PROJECT December 30, 1980 This document has 2 resticted disribution and may be ued by reipients only in the performance of their oflcal duties. Its contents mny not otherwise be disciosed without World Bank authorizaton.  CURRENCY EQUIVALENTS Since September 1, 1976 the Mexican peso has been floating; it has fluctuated around Mex$ 22.60 to the US dollar since mid-1977. On December 16, 1980, the peso traded at 23.19 per US dollar. FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric System 2 1 hectare (ha) 5 10,000 m = 2.47 acres 1 kilometer (km) 2 = 0.62 miles 1 square kilometer (km ) = 0.39 sq. miles - 100 ha 1 kilogram (kg) = 2.2 pounds 1 liter (1) = 0.26 gallons 1,000 kg 1 metric ton = 0.98 long ton ABBREVIATIONS BANRURAL : National Rural Credit Bank CONASUPO : National Marketing Corporation for Basic Foods COPLAMAR : Commission for Marginal Areas DGCSA General Directorate for Soil and Water Conservation DGDUT : General Directorate of Rainfed Districts and Units DGPEA General Directorate for Production and Agricultural Extension DT : Rainfed District FERTIMEX Mexican Fertilizer Corporation FICAR Trust Fund for Credit in Irrigated Areas FICART Trust Fund for Credit in Irrigated and Rainfed Areas FIRA : Agricultural Trust Funds in the Bank of Mexico IDB Inter-American Development Bank INIA National Agricultural Research Institute INIF : National Forestry Research Institute INIP National Livestock Research Institute OHDR General Directorate for Hydraulic Works for Rural Development PEMEX : Mexican Petroleum Company PIDER : Integrated Program for Rural Development PLANAT National Program for Assistance to Rainfed Agriculture PRONASE National Seed Production Company SAHOP Secretariat of Human Settlements and Public Works SARH : Secretariat of Agriculture and Water Resources SMS : Subject Matter Specialist T and V Training and Visit Extension System TCC Technical Coordinating Committee  FOR OFFICIAL USE ONLY MEXICO RAINFED AGRICULTURAL DEVELOPMENT LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera, S.A. Guarantor: United Mexican States Beneficiaries: Secretariat of Agriculture and Water Resources (SARH) for the majority of project programming and execution; the Secretariat of Human Settlements and Public Works (SAHOP) for some feeder roads; the Agricultural Trust Funds in the Bank of Mexico (FIRA) and the Trust Fund for Credit in Irrigated and Rainfed Areas (FICART) for farm credit. Amount: US$280 million equivalent Terms: Payable in 15 years, including 3 years of grace, at an interest rate of 9.25 percent per annum. Relending Terms: Approximately US$108 million of the proposed loan would be loaned through FIRA and FICART to beneficiary farmers for farm invest- ments and working capital at interest rates ranging from 14 percent to 21 percent (para. 75). Project Description: The project would increase agricultural production in rainfed areas through execution of a program (a) to improve institutions for agricultural research, extension and training at the national and district level, and (b) to increase farm productivity in nine rainfed districts representative of different ecological zones in the country. The key element of the program is the establishment of an effective field-level extension system following the model of the training and visit (T and V ) system backstopped by coordinated field research. The project would establish the basis for subsequent intensive development in other rainfed districts. (i) At the national level, the project would include: (a) a research program to support activities undertaken at the district levels and to establish improved technologies for subsequent application in other rainfed districts; (b) training of research, extension, and soil and water conservation service technical staff; and (c) about 40 man-years of consulting services in extension, research, soil conservation, monitoring and evaluation. 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.  - ii - (ii) In the nine districts, the project would include the following: (a) a farm extension program following the general model of the T and V system; (b) production system research and on-farm testing of new technology in support of the extension program; (c) a soil and water conservation program, including terraces, contour furrows and small water storage reservoirs, covering approximately 65,000 ha and benefitting about 7,000 farmers; (d) a forestry program covering approximately 10,500 ha of pine plantations, 900 ha of on-farm woodlots, and 2,000 ha of windbreak trees. This program would involve about 1,000 farm families; (e) provision of short- and medium-term farm credit to 37,000 farmers to enable them to adopt the technical packages promoted by the extension service; and (f) a rural works program, including the construction or improvement of some 2,880 km of farm to market roads servicing some 80,000 farm families, small irrigation schemes serving 7,000 ha, and drainage works covering some 30,000 ha and benefitting about 2,000 farm families. About 92,000 families would receive significant benefits from the project; an additional 70,000 families would benefit to a lesser extent by adopting some features of the new farming technologies promoted by the extension service. The project has institutional and climatic risks. The develop- ment of the strong district management structure proposed under the project is essential to ensure effective coordination between the line agencies involved. The major climatic risk of drought would be reduced by adoption of improved farm technolo- gies. Overall, considering the capacity of Mexican technicians and the proposed organizational efforts under the project, the risks are acceptable and normal for this type of program.  - iii - Estimated Cost: -------US$ million---- Local Foreign Total I. NATIONAL-LEVEL SUPPORT 92 38 130 Planning and Administration 3 2 5 Extension Program 7 9 16 Research Program 77 22 99 Soil and Water Conservation 5 5 10 II. PROGRAMS IN 9 DISTRICTS 343 133 476 Planning and Administration 20 12 32 Extension 25 4 29 Research 34 4 38 Soil and Water Conservation 19 13 32 Roads 27 20 47 Irrigation and Drains 18 18 36 MIedium-term Credit 126 49 175 Short-term Credit 74 13 87 III. TOTAL BASE COST 435 171 606 IV. CONTINGENCIES 130 61 191 Physical 26 16 42 Price 104 45 149 V. TOTAL PROJECT COST 1/ 565 232 797 Financial Plan: US$ millions % Government 317 40 Bank 280 35 FICART and FIRA 180 20 Beneficiaries 20 5 TOTAL 797 100 Estimated --------------- US$ millions ----------------- Disbursements: Bank FY 1981 1982 1983 1984 1985 1986 1987 Annual 18 39 44 43 44 43 49 Cumulative 18 57 101 144 188 231 280 Economic Rate of Return: 21 percent Staff Appraisal Report: Report No. 3091-MLE, dated December 19, 1980. 1/ Project cost includes taxes and duties, which are insignificant as most of the equipment and farm inputs are exempt.   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPlENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A RAINFED AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to Nacional Financiera, S.A. with the Guarantee of United Mexican States for the equivalent of US$280 million to help finance a Rainfed Agricultural Development Project. The loan would be repaid over 15 years, including 3 years of grace with interest at 9.25 percent per annum. US$108 million of the proposed loan would be relent to farmers for investment and working capital. Loans would bear interest rates of between 14 percent per annum and 21 percent per annum depending on farmer's income and purpose of the loan (para. 75). PART I: THE ECONOMY 2. The Mexican economic situation and major issues of economic policy were analyzed in "Special Study of the Mexican Economy: Major Policy Issues and Prospects" (2307-ME), dated May 30, 1979. The most recent economic mission visited Mexico in February 1980 and is now completing its report. Country data sheets are attached as Annex I. 1/ Past Performance 3. For the three decades preceding the mid-seventies, Mexico was successful in achieving rapid economic growth while also maintaining stability in prices and the balance of payments. From 1940 to 1970, GDP growth exceeded 6 percent per year in real terms, inflation averaged less than 5 percent per year from the mid-1960s to 1972, and the dollar value of the peso, fixed in 1954, was maintained until 1976. The Government's economic role in this achievement was to carry out direct investments in infrastructure and in key industries such as power, steel and petroleum, while creating a stable regula- tory and institutional framework, as well as good profit prospects, to induce private sector growth. 4. This strategy produced considerable progress and better living standards for many Mexicans. However, the incomes of poor farmers and marginal urban dwellers, whose productivity was low and has not been increasing, have been lagging behind. There was, therefore, little reduction in contrasts within the Mexican economy. The land reform was largely implemented in the late thirties and while further land redistribution has continued, most of the peasants who received land could not significantly improve their economic status as the parcels of land allocated were small, the soil often quite arid and benefits from infrastructure, credit and technical assistance scant. Rapid population growth, which reached a peak of almost 3.5 percent per year by the mid-1970s, also made social equity difficult to achieve. Even MIexico's sustained economic growth was not sufficient to absorb the rapidly growing 1/ Very recent preliminary estimates for the 1980 balance of payments deficit as well as revised oil export targets for 1981 and 1982 are reflected in the Text but not in Annex I at this stage (see footnotes to pages 4 and 5 of Annex I).  - 2 - labor force in productive employment, and by the 1970s some 50 percent of the labor force was either relatively unproductive and poorly paid, or openly unemployed. 5. Policies to remedy this situation, undertaken in the first half of the seventies, were somewhat self-defeating. As a result, by the mid-1970s Mexico experienced increasing public sector deficits, inflation, large balance of payments deficits, capital flight and a marked slowdown in the real rate of growth of GDP, which dropped to 2 percent in 1976--the lowest rate experienced since the mid-thirties. On September 1, 1976 the authorities abandoned the fixed exchange rate and let the peso float. Following the devaluation by 80 percent, and a related plan of economic stabilization, Mexico obtained major support from the IMF. The new Government ratified a three-year extended facility agreement with the Fund shortly after taking office on December 1, 1976, and was generally successful in adhering to it. Recent and Current Situation 6. The present Administration which took over in December 1976 inherited a difficult situation. High inflation, large public sector deficits, increasing foreign indebtedness and lack of confidence in economic management indicated a need for economic stabilization. However, the situation also called for more expansionary policies; economic activity had slowed down, net private investment was virtually nil, and the gap between new job creation and growth of the labor force was increasing. Rich new petroleum discoveries and high world prices offered profitable investment opportunities in the petroleum sector; indeed, increased production for export of these products seemed by far the only way to meet a large part of Mexico's high debt service requirements in the coming years. 7. Faced with these conflicting needs and opportunities, the Mexican authorities adopted a mixed strategy aimed at reducing lower-priority public expenditures and increasing public revenues, while proceeding with petroleum and other high-priority investments. The objectives of the Government's program included control of inflation to be followed by a return to high rates of economic growth. Better management of public sector expenditures, tax reform, more rational pricing and cost control in public sector enter- prises, promotion of private savings, limiting wage increases to justifiable levels, and more effective cooperation with the private sector were important parts of the Government's economic strategy. 8. This approach succeeded in bringing inflation down to 17 and 18 percent in 1978 and 1979, respectively, as against an annual rate of almost 29 percent in 1977. The deficit in the current account of the balance of payments peaked at US$4.2 billion (or 5.3 percent of GDP) in 1975 and declined to US$1.9 billion (equivalent to 2.5 percent of GDP) in 1977. Favorable oil prospects and increasing capital inflows brought about a rapid increase in imports reflecting both decisive reduction in protectionism and the growing demand for capital and intermediate goods upon which the expansion of the economy depended. The current account deficit increased to US$2.6 billion (or 2.8 percent of GDP) in 1978 and further to an estimated US$4.6 billion (about 4.0 percent  - 3 - of GDP) in 1979. The public sector deficit peaked at about 9 percent of GDP in 1975 and declined to about 7 percent in 1979. Mfobilization of savings by the banking system has recovered at a strong pace. GDP growth was about 7 percent in 1978 and 8 percent in 1979 as compared to 2 percent in 1977. 9. The growth pace for 1980 has continued to be strong and is now estimated at 7.5 percent. The current account deficit of the balance of payments is expected to be much higher than anticipated, and due to continued expansion of imports (mostly capital and intermediate goods and foodstuff) is estimated to have reached US$6.0 billion (about 4 percent of GDP). Despite the substantial inflow of imported goods, including consumer goods, strict domestic credit restrictions, generally adequate lending rates, modest increases on real wages, coupled with substantial productivity increases, inflation has also been higher than anticipated, essentially as a result of expansionary policies with investments increasing at a rate of more than 15 percent a year in real terms. A shortage of essential consumer goods and construction materials, aggravated by the inadequacy of the transport system to handle distribution of domestically produced goods along with increasing imports, has further contributed to the price increases. The increase in the consumer price index in 1980 is estimated to have been around 28 percent. 10. Another threat to the efforts of the Government in controlling inflation may come from the wage area. The agreed increase in the minimum wage for 1980 was about 21 percent and came after three consecutive years of decline in real wages. The fact that in the course of 1980 inflation has increased more rapidly than the expected 20 percent, has caused serious concern among the trade unions. Bargaining of new wage contracts has been based on substantially higher percentage increases than the one implied in the minimum wage adjustment and the increase in the minimum wage for 1981 will likely assume as a basis an inflation rate for the year of at least 25 percent. 11. The Government will not have an easy task in maintaining price increases within acceptable limits during 1981. The need to expand public investment in the key infrastructure sectors and to maintain the present level of programs in the energy sector, leaves relatively little scope for signifi- cant adjustments in the size or structure of public expenditure. At the same time, the intention of the Government to implement much needed increases in prices of public goods like gasoline will imply a temporary push upwards to the price index. Economic Problems and Prospects 12. Mlexico has the organizational and natural resources necessary to attain her ambitious goals of rapid growth and alleviation of poverty. The acute short-run disequilibria that affected the country during the mid-70s have been brought under control; the new petroleum riches will greatly relax the financial constraints on growth. The proven oil and gas reserves are estimated at about 60 billion barrels. Exploitation of these reserves should allow Mexico to substantially increase production of crude oil and natural gas from the equivalent of about 1.2 million bbl/day in 1976. The recently stated goal of the Government is to reach a production level of about 3.0 million bbl/ day in 1981, and to more or less maintain it at a level that will accommodate  exports of 1.5 million bbl/day (compared to the 1.1 million bbl/day target up to September, 1980). The Mexican Government continues to indicate its unwillingness to exceed this limit for fear of increasingly becoming a classi- cal "oil producing country" with the economic and social tensions that would ensue. But even at this production level, the challenge for Mexico is how to mobilize its resources--its human skills, its institutions, and its experience-- to help resolve its long term development problems. The most serious of these relate to poverty, unemployment, inadequate growth of agricultural production in non-irrigated lands, and urban-regional imbalances. 13. Poverty: Mexicans have participated unevenly in the remarkable economic growth of the last several decades. According to preliminary esti- mates for 1977, at least 2.8 million households (25 percent of the total), had incomes of less than one-third the national average, of which at least 2.4 million (22 percent of the total) lived in absolute poverty. The root causes of this persistent problem are three: rapid population growth, past neglect of non-irrigated agriculture (where some two-thirds of the poor are principally employed), and slow absorption of labor in high-productivity jobs (mostly in industry). 14. The Government is acting on all three fronts. A family planning program, started in 1972, has already helped reduce population growth from 3.5 percent per year to an estimated 2.9 percent at the present time. The program is being further strengthened by the present administration, with the ambitious goal of reducing population growth to 2.5 percent per year by 1982 and to 1 percent by the year 2000. New approaches are also taking hold in regard to rainfed agriculture (see para. 17). On the employment front, new tax incentives have reduced the anti-employment bias and additional efforts to stimulate employment will have to be continued. The expected rapid growth of output should also create jobs more rapidly. In spite of this progress, however, the still rapid growth of population and the staggering increase of the labor force (at 3.7 percent p.a.) made unavoidable by the high percentage of young people in today's population, renders the eradication of absolute poverty a difficult goal to attain in the near future. The Government has under its consideration several types of subsidies for the poor. These could prove to be short-term palliatives which would preempt resources which would otherwise be available for investment in employment-creating activities or for improving educational or health standards of the poor on a more permanent basis. 15. Open and hidden unemployment, which are now respectively at 6-7 percent and 40 percent of the labor force, will remain major problems in the years to come. With the expected GDP growth rate of 8 percent p.a., the economy should be able to absorb the additional labor force, assuming no significant change in the participation rate (now at about 29 percent) and some increase in labor productivity. In absolute terms, however the present levels of underemployment and unemployment are likely to remain. 16. A National Employment Plan was published in early 1979. It calls for a number of measures to strengthen the so-called informal sector in both urban and rural areas. To increase the productivity of those employed outside the modern sector, and their employment opportunities, a major effort will be required in the area of vocational training. Technical assistance programs are also needed to stimulate more organized and structured forms of activities,  - 5 - especially in the services sector. While there is no doubt that the authorities are concerned about unemployment, and underemployment, and while the institu- tional structure to carry out some important programs already exists, a concen- trated effort will be required to take effective action and to make better use of human resources by substantially reducing the level of hidden and open unemployment. 17. In agriculture, crop and livestock production has shown inadequate growth since the mid-1960s, and, of late, demand has outstripped domestic supplies of grains. Faced with diminishing returns to expensive new large- scale irrigation works, as well as the continuing low productivity (and income per capita) in the non-irrigated ("rainfed") sector, the present administration has re-organized the parts of the Government that deal with agriculture in order to design and implement a new strategy. This strategy emphasizes increased production through a widespread program of development of foodstuff production. Greater emphasis is being placed on technical assistance, demonstration, and credit to develop the underutilized rainfed agricultural potential. Programs to rehabilitate existing irrigation serving nearly one million ha are underway. Small-scale irrigation development is being promoted. Construction of new large-scale irrigation units continues, but with a smaller proportion of budget resources than in the past. The banking system is being encouraged to provide greater support to agricultural production and processing programs. These initiatives should lead to an acceleration of production growth, more equal development opportunities for Mexico's farmers, and an improvement in the living conditions of the rural poor. 18. The main urban-regional problems are two-fold: (a) growing conges- tion, pollution, high-cost of services (especially water) and other manage- ment problems that stem from continued rapid growth of Mexico City (already the third most populous metropolitan area in the world moving rapidly to become the first) and other areas in the dry, densely populated central plateau, and (b) retarded development, poverty and great difficulty in pro- viding either better jobs or adequate public services for the one-third of all Mexicans who live in towns of less than 2,500 inhabitants. The present Government has taken many positive steps to confront these problems, including an administrative re-organization, elaboration of a comprehensive plan, and introduction of a strong package of incentives to promote growth in a few well-selected growth poles. 19. The expected high growth rate of the economy in the years to come is the country's strongest weapon with which to reduce poverty and unemployment. Industry has moved to the leading position and is expected to play a major role in expanding domestic production and exports. A National Industrial Development Plan was published last year and it reflects the preoccupation of the present administration with the long-term prospects of the industrial sector and their implications for employment. Industry has the potential for considerable expansion in many areas, including efficient import substitution in chemicals, petrochemicals and capital goods as well as exports of a variety of manufactured products. While most of the above industries are known for their capital intensity, they are expected to promote secondary industries with considerable employment opportunities. These will be enterprises producing secondary petrochemicals, finished plastic goods, metal parts and components for capital goods. Tourism export earnings are also expected to increase substantially.  - 6 - 20. The main problems for the M4exican economy in the years to come remain the reconciliation of a high growth rate with a relative price stability and a larger participation of the low income groups in the expanding wealth of the nation. The National Development Plan, published last April, marks the final step in the planning activities carried out by the present administration and places in a consistent framework the specific targets indicated in a number of sectoral plans prepared in the previous two years. In addition to presenting a macroeconomic picture of the development prospects, the National Development Plan dwells in great detail on the policies required to achieve the various economic and social targets. These policies are essentially sound but call for a major implementation effort on the part of the Administration. Growth with low inflation would pose difficult challenges of adjusting prices of public goods and services without undermining the existing consensus of the country, and improving income distribution would call for policies that encourage labor intensive technologies in industry and agriculture without slowing down modernization of the economy. 21. Mexico's public and publicly guaranteed debt service ratio has been increasing over the recent past and peaked above 60 percent in 1979. This high ratio reflects the still relatively low level of exports relative to GNP and the high proportion of Mexican borrowing from commercial banks; the ratio of external public debt to GNP is average for middle-income countries. The public debt service ratio is expected to decline to around 30 percent in the early 1980s, not only as a result of rapid increases in petroleum exports but also because some of the debt contracted on the least favorable terms has been prepaid. Debt service on Bank loans amounted to about 2.9 percent of public debt service in 1978; this ratio is projected to remain about the same during the early and mid-1980s. The Bank currently holds about 6.1 percent of Mexico's total medium and long-term public debt, and this ratio is not likely to change significantly over the next few years. Mexico is creditworthy for borrowing on conventional terms. PART II - BANK GROUP OPERATIONS IN MEXICO 1/ Bank Operations 22. As of October 31, 1980, Mexico had received 66 loans from the Bank amounting to US$4,243.9 million net of cancellations and terminations; of these, 38 loans totalling US$1,870.4 million were fully disbursed. The Bank presently holds US$3,582.5 million of which US$1,554.7 million have not yet been disbursed. Some 43 percent of Bank lending has been for agriculture and rural development (24 loans for US$1,864.4 million), 17 percent for power (12 loans for US$704.8 million), 16 percent for transportation (13 loans for US$666.7 million), and 18 percent for industry (10 loans for US$747.5 million); the remaining 6 percent has been for water supply (US$130 million), tourism 1/ This section is substantially unchanged from the President's Report for the Fourth Railway Project, Report No. P-2918-ME of November 26, 1980.  (US$114 million), and urban development (US$16.5 million) projects. Annex II contains a summary statement of Bank loans as of October 31, 1980 and notes on the execution of ongoing projects. 23. Implementation of most Bank-financed projects was delayed during the period of economic difficulties in the mid-1970s and during the period of adjustment and stabilization that followed the September 1976 devaluation of the peso. Since then, the Government has taken important actions to accelerate implementation of the projects. Adequate budget financing has been provided. Projects which had important structural constraints were modified and rephased to account for changed circumstances. The Government and Bank officials have periodically met to review project implementation, and greater attention in Mexico has been focused on monitoring project implementation and disbursements. As a result of these measures, implementation is proceeding satisfactorily on most of the Bank-assisted projects and plans have been formulated to strengthen execution of those projects where improvement is still needed. The effective- ness of these actions is reflected in disbursement totals. In FY78 US$91 million was disbursed to Mexico, in FY79 disbursements totalled US$233 million and in FY80 disbursements further increased to US$404 million, or 38 percent of the undisbursed balance at the beginning of the year. IFC Operations 24. As or October 31, 1980, IFC had made investment commitments in 22 companies in Mexico, for a total of US$535.2 million, of which US$393.8 million had been sold, repaid or cancelled. A summary statement of IFC investments is presented in Annex II. Bank Strategy 25. The main objectives of Bank lending in Mexico have been to: (i) support policies and programs leading to a wider distribution of the benefits of economic growth; (ii) help finance projects that make directly or indirectly, significant contributions to output and employment; (iii) help reduce Mexico's urban-regional imbalances; and (iv) help clear bottlenecks preventing more rapid growth. The Bank is preferentially supporting projects of high social priority that help the rural or urban poor, projects that promote higher levels of employment and production and those that help to decentralize economic activity. Also, through the recently approved railway project and a possible project to train technical personnel for industry, the Bank would assist to alleviate some of the key constraints to the growth process in the country. 26. Because of the difficult structural problems of Mexico's agricul- ture and the sector's crucial importance to the country's further development, the Bank has made agriculture the leading sector for its lending. The Bank's agricultural lending program for Mexico has four goals: first, to increase productivity of presently cultivated lands through selected programs of irri- gation and on-farm improvements; second, to improve the productivity of small farmers through programs for (a) rural development, (b) rainfed agricultural development, and (c) bringing new areas in the humid tropics under cultivation;  - 8 - third, to complement infrastructure investments with general support services including agricultural extension and marketing programs and provision of medium-term credit; and fourth, to promote employment opportunities in rural areas through programs of agro- and rural-industries. The Bank has made thirteen loans in FY74-80 totalling US$1,497 million for irrigation, rural development and agriculture, agro-industries and livestock credit programs. Several projects for water control, irrigation, integrated rural development and support services are in preparation; a third PIDER integrated rural development project is expected to be ready for presentation to the Executive Directors in the coming months. 27. Past Bank lending for industry has been aimed at (a) assisting the Government's efforts to reduce the balance of payments deficit, (b) decentralizing industrial activities away from the major and increasingly congested urban areas, and (c) promoting greater employment in the sector by supporting medium- and small-scale industry. A steel project which the Bank helped structure and finance is now operating in a previously under- developed area on the west coast of Mexico (Lazaro Cardenas) and the city in which it is located is developing into a new growth pole. The fertilizer sector has been strengthened by two Bank assisted projects which the state-owned fertilizer company (FERTIMEX) is carrying out. Loans for projects to promote the development of small- and medium-scale industrial enterprises and to support an industrial equipment fund (FONEI) were approved by the Executive Directors in FYs78-79; they offer support to the private sector at a time of rapid expansion. A second small and medium scale industries project was approved by the Executive Directors in June 1980. The Executive Directors also approved in May 1980 a project for the mining sector, which up to now has received insufficient resources from the financial system. Two capital goods industry projects are under discussion for possible Bank support; their aim would be to assist the transfer of high technology to Mexico so that employment might be increased in the engineering subsector, strengthening the base for manufac- turing industry. 28. As regards infrastructure, the Bank's operations have been focused on investments in key areas of the country as well as on institutional reforms and sector policies aiming, inter alia, at suitable pricing mechanisms to help generate additional resources for investment financing. The Airports Development Project (FY74) was designed to support the Government's policy of regional integration; the Third Railway Project (FY76) supported improve- ments of institutional aspects and financial management of the sector. The Mexico City (FY73) and Medium Cities (FY76) Water Supply projects have been instrumental in the establishment of specialized institutions for efficient provision of drinking water and in the pricing of water at levels more closely related to costs. A Highway Sector Project was approved by the Executive Directors in FY79. A loan for a Medium-Size Cities Water Supply Project was approved by the Executive Directors in November 1980. 29. The Government and the Bank have long recognized the regional economic disparities prevailing in Mexico. In June 1976 the Government enacted a law of human settlements to provide a new institutional framework to deal with the pressing problems of over-concentration of economic activi- ties in the larger metropolitan areas. The Government has adopted a National  - 9 - Urban Development Plan that spells out its regional development priorities in operational terms, and several projects are now being prepared to meet the needs for basic urban services for poor families and to provide key regional infrastructure in selected priority cities. One such project, to assist in the development of the Lazaro Cardenas conurbation area on the West Coast, was approved by the Executive Directors in FY78, and a second project for oil producing southeastern Mexico is being negotiated. 30. The Government has under its consideration a program to construct three industrial ports with a view to promoting economic development away from the central highlands and along the Pacific Coast (at Lazaro Cardenas) and the Gulf of Mexico (at Altamira and Ostiones). The Bank is examining the possi- bilities of providing technical assistance through a project preparation loan and would be assisting in preparation of an urban development project at Altamira. The Economic Development Institute (EDI) is assisting CECADE (a similar institute under the Ministry of Programming and Budgeting) in training Government staff in several aspects of project preparation, monitoring and evaluation. A course on urban and regional development has recently been concluded and several for agriculture, rural development, agro-industries and project evaluation are programmed for the near-term. 31. The Inter-American Development Bank (IDB) is the second largest source of multilateral aid to Mexico. The IDB has made loans totaling US$2,148 million to December 31, 1979. Over sixty percent of this lending has gone for agricultural and rural development projects, and the balance for transportation, industry, and tourism infrastructure. In 1979, the IDB approved five loans totaling US$251 million for industrial credit, irrigation, human resources, highways and export promotion projects. The IDB and the Bank have worked in parallel on several projects; most recently the IDB and the Bank have each made loans for the National Program for Small-Scale Agricultural Infrastructure, the Integrated Program for Rural Development (PIDER), agricultural and livestock credit, small- and medium-scale indus- tries, and hotel development. The International Fund for Agricultural Development (IFAD) has approved a loan of US$22 million for a rural develop- ment project in the state of Oaxaca which was appraised and is being super- vised by the Bank's staff. PART III - RAINFED AGRICULTURE IN MEXICO Background 32. Mexico has a land area of 197 million ha, of which only about 30 mil- lion are considered potentially cultivable. Another 78 million ha are classi- fied as range land and 44 million ha are considered suitable for forestry. Of the potential arable land, only 15 million ha are presently cropped, including about 5 million ha under irrigation.  - 10 - 33. Despite increasing urbanization, agriculture employs about 39 percent of Mexico's labor force, providing a livelihood for some 4 million families, of which 1.3 million are landless. The majority of this labor force is engaged in activities with very low productivity, and about two-thirds have earnings below the minimum wage. 34. The agricultural sector accounts for about 9 percent of Mexico's gross domestic product and 15 percent of the country's exports. Despite the growing grain and milk imports of recent years, the external trade balance in agricultural products has remained positive. In 1979, agricultural exports amounted to US$2.3 billion, or about 24 percent of total merchandise exports, while agricultural imports totalled US$0.8 billion, about 6 percent of merchan- dise imports. 35. Historically, the major increase in agricultural output in Mexico has taken place in irrigated lands. Between 1945 and 1955 the area harvested under irrigation went up from 1.6 million ha to 3.5 million ha and the pro- duction increased at an annual rate of 6 percent. The rate of expansion of irrigation facilities slowed down after 1955, and the output growth declined to 4.4 percent per annum in the period through 1965 and to 2 percent per annum since. Over the past three decades, nearly 90 percent of public expenditures in the agricultural sector have taken place in the irrigated areas. 36. Rainfed agriculture, while accounting for about two-thirds of the cropped area and providing livelihood to 87 percent of all farmers, contributes less than 50 percent of the value of agricultural output. Low productivity in the non-irrigated croplands has contributed to glaring rural poverty, massive rural underemployment and heavy migration to urban areas. The reasons for this low productivity in rainfed zones are clear. Most farmers use traditional methods of cultivation; few regularly use fertilizers and improved seeds, and intensive farm practices are by and large nonexistent. Services to modernize the rainfed sector have been lacking. The agricultural extension staff is weak and thinly spread. Few farmers receive direct technical assistance, and the quality of extension service is poor. Extension is not properly supported with applied research. Contact between the extension service and research agencies has been inadequate, and while research on rainfed crops has expanded during the past four years, there is still only limited field testing to assure the appropriateness of recommendations for specific ecological zones. Technical programs are generally not linked with adequate credit to enable farmers to purchase the required inputs. In the rainfed areas only 8 percent of the farmers presently use institutional credit; since they have little marketable surplus, they are poor credit risks and in the absence of credit and improved technology they remain subsistence farmers. Rural infrastructure, particularly roads, is inadequate making market access difficult and costly. With a combination of these factors, many farmers have neither the incentive nor the capability to increase their productivity.  - 11 - 37. The low productivity of rainfed zones is in sharp contrast with the potential of these areas. About 7 million ha (two-thirds of the rainfed lands cultivated) have good soils and adequate and reliable rainfall 1/ to support intensive cropping using known technologies. Most of this land is now planted in maize with an average yield of only 1.4 tons per ha; with adoption of modern farming methods, it is possible to increase production two- or three-fold without any real risk of depleting the land resources. Similar potential exists for increasing production of other crops. A significant potential also exists for expanding the area under rainfed agriculture. The Government has estimated that with suitable incentives, the area devoted to intensive rainfed cropping could be doubled to about 20 million ha. The challenge is to develop a strategy and programs to exploit the agricultural potential of these areas more fully; the project under consideration is an important step in that direction. Government Policies and Programs 38. The present Administration has expressed a strong commitment to expand agricultural production and increase rural employment; this commitment is reflected in the balanced strategy that the Government is now pursuing (para. 17). This strategy has three important elements: (i) Rainfed Agriculture. Cropped area would be increased and a major effort launched to increase significantly the productivity of rainfed lands through application of improved technology supported by applied research, extension services, credit and remunerative producer prices for basic grains. (ii) Irrigation. The irrigated area would be doubled to 10 million ha by the year 2000. Efficiency of water use and intensity of cropping would be improved in areas now under irrigation. (iii) Basic Needs. Three major programs are being implemented to secure the basic needs -- nutrition, health, education -- of the rural population. The program of the Commission for Marginal Areas (COPLAMAR) is being expanded to provide infrastructure support and public services (such as health, water, schools, and food distribu- tion) to the rural communities in marginally productive areas. Through the national Integrated Program for Rural Development (PIDER), the Government complements production-oriented agricultural and agro-industrial development programs with a basic needs-oriented package of services; this program is directed at villages with population between 300 and 3,000 and grouped in micro-regions with identified production potential. Most recently, in 1980, the Government announced a Food Development Plan (SAM) which, among other objectives, would promote production of basic food crops and provide priority attention to the serious nutritional deficiencies in target zones of the country. 1/ Over 700 mm annually with 80 percent reliability.  - 12 - Development of Rainfed Agriculture 39. The Administration has taken several steps to develop rainfed agriculture. In 1976, the Secretariat of Water Resources was merged with the Secretariat of Agriculture, forming a new Secretariat of Agriculture and Water Resources (SARH), and consolidating responsibility for the agricultural sector under one cabinet agency. Within SARH, the General Directorate of Rainfed Districts and Units (DGDUT) was created to promote rainfed agricultural development. DGDUT has established 124 rainfed agricultural districts (DT's) covering 70 percent of the area of the country and has instituted the National Program for Assistance to Rainfed Areas (PLANAT). The proposed project would support PLANAT activities and is designed to strengthen the national institutional base for promotion of modern rainfed agriculture and to utilize effectively existing institutional and technical capabilities beginning with intensive development in 9 rainfed agricultural districts. The project would be the basis for further expansion of the program. The project is simple in its concept; it aims at delivering tested technological packages to the farmers and helping them adopt low-cost investments with substantial impact on agricultural productivity. Because of the traditional inertia and weak- ness of rural development administration in the rainfed croplands, a major effort would be needed to improve the capabilities and organization of the agencies providing services to the rainfed areas. The Rainfed Districts Program 40. General. The Government's program to promote modern intensive farming in rainfed zones centers on the 124 newly created Rainfed Districts. The rainfed district program will strengthen and coordinate the activities of the approximately 20 line agencies with responsibility for various aspects of agricultural development in the rainfed zones; it aims at ensuring con- sistency of technical approach, eliminating gaps or overlaps in responsi- bilities or physical coverage. It would provide for farmers' participation in planning and execution of development activities in the district. 41. The District. Districts are chosen so as to be as uniform in agri- cultural and climatological conditions as possible and to have a total farm population of around 250,000 each. The district is divided into 8-10 units of 6,000 to 10,000 ha based on municipal boundaries, and each unit is further divided into two to four zones. The DT, with its well-defined geographical focus and consistency of ecology is the basic local structure for planning and executing the Government's rainfed agricultural development program. 42. Each DT is headed by a District Chief who is the Executive Officer of the District Executive Committee. The Executive Committee consists of representatives of farmers and all government agencies participating in agricultural development in the district. A Chief of Operations and several Program Officers report to the District Chief (Annex IV) . The Chief of Operations is responsible for extension, farm demonstration, soil and water conservation, and other operational programs within the district. Operational staff report through unit and zone chiefs to the chief of operations. Program Officers provide technical direction and support to operational staff. Depend- ing on the agricultural pattern, program offices for agriculture, forestry,  - 13 - livestock, and water resources could be located in a district. Program officers are responsible for subject matter specialists (SMS) who work closely with zone and unit staff and field-level agricultural research teams. SARH is increasing the number of SMS in each district. 43. At the national level, the General Directorate of Rainfed Districts and Units (DGDUT) in the Subsecretariat of Agriculture and Operations of SARH would be responsible for DT program planning, budgeting, and coordina- tion. A Technical Coordination Committee (TCC), chaired by the General Director of DGDUT, has been formed in SARH and includes representatives of all of the SARH line agencies involved in rainfed agricultural development. 1/ The TCC has central level responsibility for establishing program priorities. Rainfed Agricultural Development Services 44. Extension. SARR's General Directorate of Agricultural Production and Extension (DGPEA) is responsible for farm extension. DGPEA has about 8,700 technians of which around 2,500 have at least a bachelor's degree. Coverage of the extension service varies considerably, but is generally weaker in rainfed zones than elsewhere for four reasons: - insufficient training and dearth of subject matter specialists to back up extension agents; - staff too thinly spread, without adequate transportation, and therefore infrequent contact with farmers; - weak link between research and extension; and - inadequate budget support, received too late in the fields for effective use within the crop season. The project attempts to help overcome these deficiencies. The ratio of extension staff (adequately trained) to farm families in the PLANAT districts would double -- from 1:1,000 to 1:500. Extension work would follow the model of the training and visit system in the project districts so as to: provide frequent and regular contact between farmers and extension agents; have extension workers concentrate on farmers who have accepted a development plan; and attempt to reach a wider number of farmers through demonstrations. The cooperation between extension agents and field research workers would be strengthened. 1/ In addition to DGDUT, they are: the General Directorates of Production and Extension (DGPEA), Soil and Water Conservation (DCGSA), and Hydraulic Works for Rural Development (OHDR); and the National Institutes for Agricultural Investigation (INIA), Livestock Investigation (INIP), and Forestry Investigation (INIF).  - 14 - 45. Research. Crop, livestock, and forestry research are conducted by SARH's National Institutes for Agricultural, Livestock and Forestry Research (INIA, INIP, and INIF, respectively). The three institutes have a total of 85 experiment stations and a professional staff of around 1,300. INIA is the largest of the three and conducts multidisciplinary production system research with a significant degree of field testing in farmers' fields. Similar approaches are now being followed by INIP and INIF. However, each institution needs further strengthening such as: (a) expansion and upgrading of technical staff; (b) increased decentralization and expansion of experiment station networks; (c) expanded on-farm verification and demonstration programs; and (d) increased coordination with extension agents and subject matter specialists. 46. Soil and Water Conservation. Soil and Water Conservation efforts have generally been limited to control in areas of severe erosion. Little attention has been devoted to the agricultural impact of such programs. To be effective, the conservation program must be redirected to emphasize programs on cropped lands threatened with damage from erosion. The program would be integrated with the forestry and farm extension programs to ensure effective- ness. Construction of small storage reservoirs for supplemental irrigation and livestock watering would be increased to support the extension services' efforts in increasing farm productivity. 47. Forestry. Forestry management is inadequate to exploit Mexico's forest resources vested in the rural communities. Exploitation is haphazard and usually not coordinated with reforestation programs. Efforts to improve this are underway, and SARH is broadening forestry programs for erosion control in areas rapidly becoming denuded and for firewood production. 48. Small Irrigation and Drainage. Mexico has a well developed service for the construction and operation of small irrigation and drainage works. Supplemental irrigation works reduce the risks associated with rainfed cropping and, in some cases, enable a second, dry season crop to be grown. Drainage works, necessary in the humid tropic lowlands, would reduce losses due to flooding and would enable additional land to be opened to cultivation. 49. Feeder Roads. Improvement and expansion of the rural road network is necessary for reliable contact with markets. Mexico's Secretariat of Human Settlements and Public Works (SAHOP) is experienced in the design, construction, and maintenance of rural roads. SAHOP working closely with SARH would extend road access to areas with productive potential. 50. Credit. Total institutional credit for agriculture in Mexico has increased dramatically in recent years. At the end of 1970, Mexican banks had US$1.4 billion outstanding in agricultural loans; this increased to US$3.7 billion by the end of 1978 and is expected to reach US$6.3 billion by the end of 1980. In spite of this impressive growth, fewer than one-third of Mexico's farmers have access to institutional credit and in rainfed areas only 8 percent of the farmers use institutional credit.  - 15 - 51. Credit is an important element for the successful development of intensive rainfed agriculture. Medium-term credit is needed to finance estab- lishment of perennial crops, to purchase breeding cattle, and to acquire implements. Short-term credit is needed for purchase of fertilizer, chemicals, and improved seeds, and for hiring of labor. Under the PLANAT program, credit would be integrated with the agricultural development services, and availability of farm credit and its effective use would be ensured. 52. The extension service promotes adoption of improved agricultural practices and new farm technologies. Technicians of financial institutions would be working closely with the extension staff to ensure adequate credit support for application of the new technologies. Under PLANAT, representatives of agricultural credit agencies would be members of each District Executive Committee. The bank credit technicians would visit each Unit headquarter on a fixed schedule and work with extension technicians in preparing production programs to be supported with credit. 53. Farm loans would be made by commercial banks and the public National Rural Credit Bank (BANRURAL). Commercial banks have a limited presence in rainfed areas and are expected to provide only about 10 percent of the farm credit under PLANAT. However, successful implementation of PLANAT's program could encourage a larger presence of commercial banking activities in the DTs. BANRURAL, the largest bank in Mexico, has a network of over 400 branches and is in a position to provide improved coverage in the rainfed areas. Total BANRURAL lending during 1979 was about US$1,673 million (US$1,217 million as short-term credit, US$391 million as medium- and long-term credit, and US$65 million for commercialization); the majority of BANRURAL's clients are low- income small farmers and ejidatarios. 1/ In addition to farm lending, the Government uses BANRURAL to channel grants made for social purposes. BANRURAL's lending operations are financed from three main sources: (a) short-term credits from a large number of foreign commercial banks; (b) Government budget- ary allocation; and (c) rediscounts with various trust funds. 54. The Government would finance farm lending under PLANAT through two trust funds. One is the Agricultural Trust Funds in the Bank of Mexico (FIRA), for which seven loans have been made over the last 15 years. 2/ Commercial bank loans would be eligible for rediscount by FIRA. The other is a trust fund under BANRURAL. Its loans would be rediscounted through FICAR, a trust fund established some ten years ago to operate primarily in irrigated areas. Following the Government's policy not to create new trust funds, FICAR is being renamed FICART (Trust Fund for Credit to Irrigated and Rainfed Areas) to reflect the fund's new functions to service credit in both irrigated and rainfed areas. FICAR has been the beneficiary of two loans from the IDB and has established a record of sound banking operations. The headquarters staff of FICAR was recently strengthened and a new director, with experience in FIRA, BANRURAL and DGDUT, appointed in anticipation of the formation of FICART. The trust fund mechanism has two clear advantages: 1/ Ejidatarios are members of an ejido, a form of group land tenure based on usufruct. 2/ The most recent of which was presented in Report P-2836-ME dated June 9, 1980.  - 16 - (i) Separate accounts are maintained for credit provided under special programs for both accounting and monitoring purposes, helping to isolate project credit flows from the non-credit activities undertaken by the banks; and (ii) Supervision of lending is centralized and focuses on the objectives of the project. Supply of Inputs 55. Fertilizer. In terms of both value and bulk, fertilizers are the most important purchased input needed to increase agricultural production. The Government-owned Mexican Petroleum Company (PEMEX) and Mexican Fertilizer Corporation (FERTIMEX) are expanding production of raw materials as well as manufacture and distribution of fertilizer. Two Bank-financed projects are assisting expansion of production capacity to meet expected increases in demand for phosphatic and nitrogenous fertilizers through the early 1980s. Few farmers in rainfed districts use fertilizers presently; the extension program would promote fertilizer use. 56. Seeds. Most farmers in rainfed areas use untreated creole seeds. Although the National Seed Production Company (PRONASE) and major international firms sell seeds in Mexico, few commercial varieties are optimized for rainfed farming, and there are few sales outlets in most DTs. Under PLANAT, DT staff would cooperate with seed suppliers to expand the use of proven improved varieties. Extension agents would help farmers select appropriate seeds and would provide mobile seed treatment facilities. Marketing, Storage, and Guaranteed Prices 57. Agricultural output in Mexico is marketed largely through private channels, with floor prices provided by the National Marketing Corporation for Basic Foods (CONASUPO) in the case of basic grains. CONASUPO administers (a) the farm support price system and produce purchasing centers; (b) grain storage; (c) state retail distribution outlets for food stuffs; and (d) several major agroindustries. The guaranteed prices are set before the planting period so as to influence farmer's planting decisions. Present guaranteed prices are in line with world prices except for maize, which is about 30 per- cent above as part of a government policy to achieve self sufficiency in maize production. Bank Experience in Previous Agricultural Projects 58. As indicated in Part II, agriculture has accounted for nearly half of Bank lending to Mexico. A considerable amount of experience gained under those projects was applied in the design and preparation of the proposed rainfed agricultural development project. The importance of farm extension has been underscored in the Operations Evaluations reports on irrigation projects. Recent Bank assisted projects--the Bajo Rio Bravo (Ln. 1111-ME), Papaloapan Rural Development (Ln. 1053-ME), and Tropical Agricultural Development (Ln. 1558-ME)--have components for improving the extension system.  - 17 - Experience under the agricultural credit projects as summarized in the Project Performance Audit Report on the Fourth Livestock and Agricultural Development Project (SecM9-522 dated July 3, 1979) has also influenced the proposed project. The following five findings of that PPAR are especially relevant to the proposed project: (a) It is desirable to disaggregate global credit programs into projects with more sharply focused goals, such as introduction of new farm technologies. (b) The linkage of research, demonstration, and extension with credit can significantly improve farm profits. (c) Weaknesses in the national extension and research programs resulted in a lack of suitable farm technologies for support under the project. (d) The project demonstrated a viable means of coiinnercial and public bank lending to small farmers supported by the technical and financial expertise of FIRA. (e) Interest rates to participating banks were low and did not provide FIRA the desired level of profitablility for subloans to low-income farmers. Under the proposed project, extension, demonstration, and research programs of SARH would be dramatically strengthened. Credit would be a complementary instrument to assist farmers' adoption of new technologies. Technicians of credit institutions would be relieved of the need to provide extension services. They would be responsible for loan evaluation and credit supervision instead, and would *work closely with SARH extension teams. FIRA's experience with farmer organization, training, program management, and credit systems that was gained under the small-farmer lending program has influenced the design of the rain- fed districts' operational program. Finally, interest rates have been raised from 7.6 percent for the low-income beneficiaries for the project audited in the above report to a minimum of 14 percent under the proposed project. PART IV - THE PROJECT Background 59. A staff appraisal report entitled "Rainfed Agricultural Development Project" No. 3091-ME dated December 19, 1980 is being circulated to the Executive Directors. The proposed project would be the first phase of the Government's plan to accelerate agricultural development in the largely neglected rainfed areas. It was prepared by DGDUT staff, the field staff of the nine selected rainfed districts, and representatives of participating line agencies, in close collaboration with the Bank, over a period of more than two years. Nego- tiations took place in Washington, D.C. in December 1980. The Mexican negotiating team was headed by Lic. Pedro Galicia. A supplementary project data sheet is provided in Annex III.  - 18 - Project Objectives and Description 60. The project would support the National Program for Assistance to Rainfed Areas (PLANAT). The project has two principal objectives: (a) to strengthen the national institutional base for developing rainfed agriculture; and (b) to increase agricultural production in nine rainfed districts (DTs) representative of the problems and potential of rainfed agriculture in the country. The project would balance the need to strengthen the fundamental elements of the national rainfed district program with the need to gain field experience before extending the intensive programs nationwide. It is expected that this project would provide the basis for a sound agricultural development program for rainfed areas of Mexico. 61. Each of the nine districts included in the project (Map IBRD 14946) has been chosen considering its particular circumstances such as cropping pattern, agricultural potential, institutional aspects, degree of need for new technologies, socio-economic status of beneficiaries, and representative- ness of the zone, in order to ensure replicability of results while gaining experience in a reasonable cross-section of conditions. Five of the disticts (Cholula, Puebla; Chilpancingo, Guerrero; Morelia, Michoacan; Zapopan, Jalisco; and Jalpa, Zacatecas) are in the heavily populated central plateau, and the other four districts (Martinez de la Torre and Coatzacoalcos, Veracruz and Cardenas and Villahermosa, Tabasco) are in the humid tropics where land is greatly underutilized and demand for agricultural products is growing rapidly due to petroleum and industrial development. Project Description 62. The project, in the nine districts, would include the following: (a) a farm extension program following the general pattern of the training and visit system; (b) production systems research and on-farm testing of new technology in support of the extension program; (c) a soil and water conservation program, including various types of terraces, contour furrows and small water storage reservoirs, covering approximately 65,000 ha and benefitting about 7,000 farmers; (d) a forestry program covering approximately 10,500 ha of pine plantations, 900 ha of on-farm woodlots, and 2,000 ha of windbreak trees, benefitting about 1,000 farm families; (e) provision of short- and medium-term farm credit to 37,000 farmers to enable them to adopt the technical packages promoted by the extension service; and  - 19 - (f) a rural works program, including the construction or improve- Tnent of some 2,880 km of farm to market roads servicing some 80,000 farm families, 7,000 ha of small irrigation schemes, and drainage works covering some 30,000 ha servicing about 2,000 farm families. 63. In addition to the district programs, the project would provide support at the national level for: (a) a research program to support activities undertaken at the district level in the project and to establish improved technologies for subsequent application in other districts; (b) training of research, extension, and soil and water conser- vation service technical staff (675 man-years at the MS level and 100 man-years at the PhD level); (c) field training--three regional training and information centers would be established by the extension service and INIF would establish two forestry training centers; and (d) specialized consultant services in extension, research, soil conservation, monitoring and evaluation--about 40 man-years. Project Implementation 64. The project would be carried out over five years. SARH would be responsible for project implementation, except for credit and a part of the rural roads component which would be the responsibility of FICART and FIRA (for credit) and SAPOP (for roads). DGDTJT would appoint a subdirector as PLATIAT program coordinator. Farm Extension 65. The DT organization offers a sound framework for a comprehensive and effective extension service. Although extension quality and coverage have been improved under the PT umbrella, mainly because technicians are allocated to specific geographical work areas where they also live, the training and organization aspects require further improvement. The proposed project would improve the extension system by decentralizing staff and intensifying coverage; the ratio of zone staff to farmers would double --from 1:1,000 to 1:500. Fxtension work would generally fit the model of the training and visit system in all nine districts so as to: (a) provide regular and frequent contact between farmers and extension agents; (b) have extension workers concentrate on Contact Farmers who have accepted a development plan, and attempt to reach a wider number of farmers through demonstrations; and (c) ensure regular extension staff contact with subject matter specialists and research staff to improve the quality of technical recormendations. SARF has placed extension coordinators in each of the nine project districts to oversee the strengthening of the extension system. The coordinators would report to the District Chief of Operations.  - 20 - 66. Additional support for extension services is provided by specialist technicians of the Subsecretariats of Forestry and Livestock. Each of these Subsecretariats would also operate special programs such as veterinary labora- tories and disease control and nurseries. Home Extension 67. Extension staff in each district include trained home extension agents who promote improvement of family incomes and welfare through several innovative programs. The work of these agents centers on vegetable and fruit gardens and small animal raising around the farmers' homes to be main- tained by wives and children. Increasing the productivity of these traditional activities would have a direct impact on family nutrition and provide some marketable surplus. The home extension staff would provide assistance not only in production, but in related problems of health and sanitation, nutrition and food preparation. They would also promote community services available from other institutions, such as basic literacy training and childhood vaccin- ation programs, which also have an impact on farm productivity. Under the proposed project, at least one family extension worker would be hired and trained for each unit. This program would lead to greater participation of women in productive activities in the project districts. Research 68. Although much of the basic technology for the packages mentioned above already exists, considerable farmer-field level research is needed to establish the most productive farming systems for specific areas. The research program supported by the project would therefore emphasize support to the extension service. The program would perform local field research and trials, on a cooperative basis with farmers and extension agents, to prove and demonstrate farming systems. Complementary production oriented research would also be conducted at regional stations and headquarters of the national research institutes. The project would strengthen the link between research and extension to ensure that the extension workers promote proven and tested farming practices and that the research services respond to the problems faced by farmers. 69. PLANAT would finance training at the MS and PhD level for the institutes' staff. Field research in the nine districts would be expanded. Such research would be the responsibility of a series of mobile field research teams that would operate out of the INIA, INIP, or INIF regional centers. Complementary production oriented research would also be conducted at regional research stations and headquarters of the institutes. The program would perform local field research and trials, on a cooperative basis with farmers and extension agents, to prove and demonstrate farming systems. Regular meetings would be scheduled between the research and extension staff to review research findings and to discuss farm production problems identified by the extension agents, and more formal training courses for extension staff would be periodically conducted by SMS and research staff. All of these actions would serve the farmer by providing the extension agent with thorough up-to- date technical knowledge acquired in the district and by keeping field research oriented to the actual technical problems and constraints faced by farmers in the district.  - 21 - Soil and Water Conservation 70. Conservation programs in the nine districts would be strengthened and expanded. Most importantly, the programs would emphasize the link between production and soil and water conservation, a consideration largely ignored at present as resources are concentrated on those areas with greatest erosion problem regardless of their agricultural potential. Conservation programs would be closely coordinated with extension services. The project would also expand programs for land inventories and soil potential mapping, field level studies of soil erosion, soil textures, chemical composition, and nutrient levels, and water harvesting. Approximately 65,000 ha in the nine districts would directly benefit from improved soil and water conservation practices. Forestry 71. The main component of the forestry program would be the establish- ment of 10,500 ha of pine forest plantations on sites where natural regenera- tion is not possible because of over-grazing and erosion. In addition, two new programs would be introduced: the establishment of 900 ha of on-farm firewood lots and the establishment of 2,000 ha of windbreak/forage trees. Small-Scale Irrigation and Drainage 72. Works for small-scale irrigation serving 7,000 ha and drainage serving 30,000 ha would be carried out by SARH. The Government requires beneficiaries of irrigation works to contribute at least one-third of project investment cost as well as to pay the entire cost of operation and mainte- nance. To ensure a productive impact in the proposed project, the Government would support irrigation sub-projects with an economic rate of return of at least 15 percent. Assurances were obtained at negotiations that for each sub-project, average investment per family would not exceed US$10,000 (draft Guarantee Agreement, Section 3.09). Feeder Roads 73. To ensure adequate market access in the nine DTs, nearly 3,000 km of feeder roads would be constructed or improved. Road construction would be the responsibility of SARH and SAHOP. All roads would be constructed according to SAHOP's design standards which are acceptable to the Bank. Credit 74. Many farmers who wish to adopt the technical packages to be promoted by the extension service will need short-term credit to purchase seeds and fertilizers, rent machinery, and pay other production expenses. Those farmers who purchase breeding livestock, machinery and equipment, or establish or renovate tree crops would generally need medium-term credit to finance their development programs. Under the project, the number of farmers in the nine DTs using credit is expected to double, and the credit delivery system would be strengthened to provide better support to the farm development program (para 52). To facilitate the flow of credit, each district has established a Credit Programming Committee to identify credit needs for the district and guarantee compatibility of lending proposals with district development activities.  - 22 - 75. As explained in paras 50-54, the proposed loan would partially finance subloans made by commercial banks and BANRURAL to project beneficiaries. Short- and medium-term loans made by commercial banks would be rediscounted by FIRA and short- and medium-term loans made by BANRURAL would be rediscounted by FICART under the same terms and conditions as other credit programs in Mexico financed by the Bank (draft Project Agreements, Schedule 1, para 5). In July, the Government raised interest rates on agricultural loans to a level comparable to loans charged to industrial borrowers. Minimum interest rates for medium-term loans currently range from 14 percent for loans to low income farmers borrowing for the first time to 21 percent for higher income farmers (draft Project Agreement, Schedule 1, para 4); interest rates on new loans are adjusted annually to reflect changes in the 12 month average cost of borrowed funds to Mexican Banks (draft Project Agreements, Schedule 1, para 8). Short-term interest rates would be no less than 15.5 percent for group borrowers (normally ejidatarios, 1/ comuneros 2/ and small holders, who because of their low incomes are poor credit risks as individual borrowers and therefore obliged to form groups, jointly and severally responsible for loan servicing) and not less than 19 percent for others (draft Project Agreements, Schedule 1, para 10). Assurances were obtained that short-term interest rates would be reviewed annually with the Bank (draft Project Agreements, Schedule 1, para 11). National Level Program 76. In addition to the specific district development programs, the project would strengthen institutions participating in rainfed agriculture development at regional and national levels. Provision would be made to draw on the experience of successful extension projects financed by the Bank in other countries by providing funds for: (a) in-country training courses on the training and visit methodology, assisted by consultants experienced in this methodology; and (b) visits by Mexican technicians to other countries. About 75 percent of the institution-building support would be for the three research institutes: INIA, INIP and INIF. This has two functions: to provide in-depth research support at the regional level for the applied research programs in the nine districts, and to build a technology base for additional rainfed districts to be considered for a second phase PLANAT project. It consists largely of the recruitment and training of staff for field level teams for 40 more rainfed districts in the case of INIA and a blend of staff and research infrastructure for field level teams and regional center support for such teams in the case of INIF and INIP. The training component provides for 478 man-years of overseas fellowships, 340 man-years of local fellowships, about 1,900 man-months of short term in-service training, and 486 man-months of specialist consultant time. Many of the consultants would be recruited locally and the cost per man-month would vary between US$6,000 and US$10,000 depending on the level of specialist experience. 1/ Ejidatarios are members of an ejido, a form of group land tenure based on usufruct. 2/ Comuneros are a remnant of an ancient Aztec custom, where the entire indigenous community owns and exploits the land; these are generally small groups in the remote areas.  - 23 - Monitoring and Evaluation 77. DGDUT through its PLANAT office would be responsible for monitoring and evaluation of the activities in the nine project districts and of the national support activities financed under the project. For these purposes, the PLANAT prcj,zt office has set up a special monitoring and evaluation group. In collaboration with the participating agencies, this group would establish and manage an information system for: (a) reporting physical progress of project activities; (b) evaluating the impact of these activities on an ongoing basis; and (c) identifying shortcomings in performance in a timely manner. Since the central objective of the PLANAT program is to increase production under rainfed conditions, major focus would be placed on measuring changes in crop and livestock output under the project and to relate these changes to the various components that would comprise the assistance packages to farmers. The semi-annual reports to the Bank would include the findings and recommendations of the monitoring and evaluation unit. In addition, the Bank would receive a copy of the unit's annual report to DGDUT management in which its accomplishments in relation to its tasks for the year are outlined. The PLANAT office would also prepare a completion report which would include, in addition to physical achievements, an evaluation of project impact. In support of improvements in monitoring and evaluation, the project would finance 60 man-months of consultants services and purchase of data processing equipment. Project Cost and Finance 78. The project is estimated to cost US$797 million of which US$232 million would be in foreign exchange. A breakdown of project cost by compo- nent is included in the loan and project summary. The proposed Bank loan would finance 35 percent of project cost, equivalent to the estimated foreign exchange cost of the project, plus 8 percent of local costs. A small portion of local cost financing is justified so that the Bank may maintain overall a significant participation in this project which has a lower foreign exchange component than most other agricultural development projects financed by the Bank in Mexico. The balance of project cost would be financed by the Government (40 percent) and by the beneficiaries using credit through FICART and FIRA (20 percent) and their own resources (5 percent). To ensure prompt initiation of the project, recruitment and training of extension, research, and project unit staff have started as has preparation of bidding documents for selected equipment and civil works at the district and unit levels. Retroactive finance of up to US$6 million is proposed to cover eligible expenditures after August 1, 1980. 79. Government budget allocations are usually not released until after the beginning of the year, and this results in a shortage of resources and services during an agriculturally critical time in rainfed areas. To ensure that the budgeted funds are available in a timely fashion, the Government has decided to establish a revolving fund to finance PLANAT operations during the early part of each year. The fund would be replenished from the budget of the agencies drawing upon it.  - 24 - Disbursement 80. The project would be executed over a five year period and the Loan disbursed through FY87. During the grace period of the Loan, the Bank would disburse at 45 percent of eligible expenditures. The disbursement percentage would be decreased thereafter so as to result in an overall average partici- pation by the Bank of 35 percent. Procurement 81. Civil works would total US$125 million. Works would be scattered over the project area, and individual contracts would not be large enough to attract foreign bidders. Mexico's construction industry is experienced and capable of executing works at costs competitive with international levels. Contracts for construction of civil works would be procured follow- ing local procedures satisfactory to the Bank. To encourage competition, at least 60 percent of civil works would be constructed under contracts having an estimated value of US$350,000 or more and let under local compet- itive bidding. Because of the number of small works included in the project, executed by several agencies, a substantial portion (up to 40 percent) of civil works contracts are expected to be let in contracts of less than US$350,000 each, using the Government's ordinary procedures. In most cases, these contracts would be subject to local competitive bidding. Force account would be used in some cases where the Government agencies have an established and demonstrated capability, particularly construction of feeder roads and drilling of wells. In cases where bidder interest is low because of the isolation and small size of project works, negotiated contracts would be allowed. Experience under previous projects has shown these practices to be reasonable and efficient. 82. Materials and equipment, including operation and maintenance equipment, chemical reagents, farm, scientific, office, and information and documentation equipment and vehicles, would cost about US$41 million. These goods would be purchased by several agencies in small quantities in accordance with implementation requirements. Where feasible, contracts for the pur- chase of materials and equipment shall be grouped into packages of at least US$350,000 equivalent and procured through international competitive bidding. Smaller contracts could be procured through local competitive bidding or local shopping in accordance with the Government's ordinary procedures which are satisfactory to the Bank. Tractors and equipment for on-farm development, valued at about US$21 million would be purchased directly by the farmers from local suppliers, considering local availability of spare parts and service. There are a sufficient number of suppliers of such goods representing both domestic and international manufacturers to ensure adequate choice and competitive prices. Because of the competitiveness of local suppliers and the strong representation of international manufacturers through Mexican firms, it is expected that most contracts would be awarded to Mexican bidders. Bidding documents would be kept in the PLANAT office and made available for Bank review on request. Procurement arrangements are set forth in Schedule 2 to the draft Guarantee Agreement.  - 25 - Project Impact 83. The project would offer extension packages supported by credit to about 37,000 farm families in the nine participating DTs who presently do not receive credit. About 80 percent of these farm families have annual incomes of less than US$1,500 (i.e., less than US$300 per capita), which is below the relative poverty level. Their incomes are expected to increase sub- stantially as a result of the project, on average tripling over 12 years. 84. Some 55,000 farmers out of the estimated total of 275,000 farmers in the project districts are now regularly using credit and would also benefit from improved extension services as a result of the project. Average family incomes of half of these farmers are below the relative poverty line, and about 90 percent of these farmers have average family incomes below US$2,500. District services would be available to all farmers in the district; it is expected that 70,000 farmers, while not using credit, would adopt some fea- tures of the technologies being promoted by the extension services. However, they would benefit to a lesser extent than the 92,000 farmers using credit and adopting the complete technical packages. These 70,000 farmers repre- sent a target group group for subsequent phases of PLANAT; they are people who for a variety of reasons including their outlying location, lack of resources, and perception of risk of adopting new technology, will require a longer time to develop their farms. 85. The rural roads proposed under the project would also be of sig- nificant benefit to 80,000 farm families located within their area of influ- ence. In most instances, farmers would, for the first time, have ready and assured access to markets, losses due to transport spoilage would be reduced and it would be possible to guarantee a regular supply of farm inputs. These roads will also have social benefits to all families in their areas of influences. 86. About 60 percent of the farm families in the nine districts would benefit from one or more of the directly productive components of the project. At full development in 12 years, the project is expected to result in annual incremental production of 180,000 tons of basic crops and feed grains (corn, beans, wheat, rice, chickpea, soybeans and sorghum); 14,000 tons of cacao, coffee, and coconut; 240,000 tons of fruits and vegetables (mostly banana and citrus); 124,000 tons of alfalfa; 17,000 tons of beef and pork; and 62 million liters of milk. Economic Rate of Return 87. The project's economic rate of return is estimated at 21 percent, calculated on the basis of the benefits derived from the investment plans adopted and carried out by some 37,000 families which will participate in the credit program as well as 55,000 additional families benefiting fully from the rest of the components of the project. The rate of return has been calculated on the basis of 83 percent of total project cost for which benefits were quantifiable; 50 percent of the district-level road component and 75 percent of all national-level investments were not included. With the exception of Villahermosa and Cardenas districts, the opportunity cost of  - 26 - labor was estimated to be 50 percent of the equivalent market wage for unskilled labor on the grounds that there is considerable surplus family labor at the farm level with very limited possibilities for off-farm work. In the case of Villahermosa and Cardenas, the family wage rate was considered equal to the mark-et wage level because of the high demand for labor from PEMEX's oil activities in the area. 88. Sensitivity Analysis. The economic rate of return would be in the range of 19 percent to 18 percent with assumptions of: (a) 10 percent to 20 percent cost overruns of components; and (b) decrease in the benefits by 10 percent to 20 percent. The main factors that could delay project benefits are adverse weather and deficiencies in organization. These factors would influence not only a few individual parameters but would have an overall impact on all crop and livestock benefits. Thus a switching value test on the assumption of delays in reaching full development of all incremental production was performed. A delay of about 2-1/2 years would make the economic rate of return equal to the opportunity cost of capital. Project Risks 89. The main risks associated with the project are institutional and climatic. Regarding institutional aspects, the major problem would be to ensure effective coordination between the various line agencies involved in project execution. In this context the development of a strong decisive district organizational structure would be a vital element. The most serious climatic risk would be drought, particularly in the plateau and mountain districts in areas where supplementary irrigation is not generally available. However, under the project it is expected that this risk would be reduced by adopting better conservation and farming practices. Environmental Impact 90. The project is expected to have beneficial effects on the environment. Soil and water conservation and forestry programs would reduce erosion losses in the project districts and would serve as a prototype for more extensive and effective conservation programs. The improved farm practices promoted under the project would ensure development appropriate to the capacity of the land so as to maintain its productivity and safe application of agro-chemicals. PART V - LEGAL INSTRUMENTS AND AUTHORITY 91. The draft Loan Agreement between the Bank and Nacional Financiera, S.A., the draft Guarantee Agreement between United Mexican States and the Bank, the draft Project Agreement between Banco de Mexico, S.A. and the Bank, the draft Project Agreement between Banco Nacional de Credito Rural, S.A. and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately.  - 27 - 92. Special features of the draft Loan, Guarantee, and First and Second Project Agreements are refered to in the text and listed in Section III of Annex III. 93. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 94. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments December 30, 1980  - 28 - raxa I TABLE 3A M EXICO - SOCIAL INDICATORS DATA SHEET MEXICO hFFFRENCE GFROIPS (WEICHTEE AVC.ACEFS LAND AREA (THOUSAND SO. KM._) -MOST RECENT ESt IMATE)-_ __ TOTAL 1972.5 AGR ICULTURAL 977.2 MOST RECENT MIDDLE INCOME t!TnlLF INCOMF 1960 /b 1970 lb ESTIMATE /b LATIN AMERICA & CARIBBfA ERURnpF GNP PER CAPITA (US$) 400.0 750.0 1590.0 1562.9 2749.5 ENERGY CONSUIMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 770.0 1047.0 13P4.0 1055.9 164i.4 POPULATION AND VITAL STAISTICS POPULATION, HID-YEAR (MlLLIONS) 36.4 50.3 65.4 URBAN POPELATION (PERCENT OF TOTAI.) 51.0 59.0 65.2 63.b 51.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 116.0 STATIONARY POPULATION (MILLIONS) 205. 0 YEAR STATIONARY POPULATION 1S REACHED 2075 POPULATION DENSITY PER SQ. W-. IN.0 26.0 33.0 78.1 77.2 PER SQ. PO. AGRICULTURAL LAND 36.0 52.0 67.0 81. 7 129. 5 POPULATION ACE STRUCTURE (PERCENT) 0-14 yRS. 45.6 46.5 45.6 41.4 30.6 15-64 YRS. 51. 0 50. 0 50.9 54. 7 61.1 65 YRS. AND ABOVE 3.4 3. 5 3. 5 3.9 P. 2 POPULATION GR0wTH RATE (PERCENT) TOTAL 3.1 3. 3 3. 3 2. 7 1.6 URBAN 5.0 4.8 4.6 4.1 3.3 CRUDE NIRTH PATE (PER TIHOUSAND) 45.0 42.0 38.0 31.8 22. P CRUDE DEATH RATE (PER THOUSAND) 12.0 9. 0 N. 0 8. 9 S. 9 GROSS REPRODUCTION PATE 3. 2 3. 1 3.0 2.5 1.5 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 25.1 845.7 USERS (PERCENT OF MARRIED WOMEN) .. ., 21.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 97.0 100.0 101.0 106.9 113.1 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREHENTS) 110.0 112.0 114.0 107.4 125.3 PROTEINS (GRAIS PER DAY) 65.0 66.0 66.0 65.6 91.0 OF WHICH ANIMAL AND PULSE 27.0 27. 0 27. O 33. 7 50.6 CHILD (ACES 1-4) MORTALITY RATE 14.0 9.8 6.0 8.4 4.3 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 58.0 62.4 65.0 63.1 67.F INFANT MORTALITY RATE (PER THOUSAND) 78.0 74.0 60.0 66.5 55.9 ACCESS TO SArE WATER (PERCENT OF POPULATION) TOTAL .. 54.0 62.0 65. 9 iRBAN 71.0 70. 80.4 RURAL .. 29.0 49.0 44.0 ACCESS TO EXCRETA DISOPSAI (PERCENT OF POPULATION) TOTAL .. .. .. 62.3 URBAN .. .. .. 79.4 RURAL .. 13.0 14.0 29.6 POPULATION PER PHYSICIAN 1700.0 1481.0 1P15.0 1849. 2 030. I POPULATION PER NURSING PERSON .. 1613.0 1398.0 122 7.2 q25.h POPULATION PER HOSPITAL BeD TOTAL 617.0 831.0 851.0 480.3 27q.7 URBAN .. 549.0 70 B. 0 RURAL .. 1289.0 1077.0 ADMISSIONS PER HOSPITAL BED .. .. .. .. 17. r HOUSING AVERAGE SIZL OF HOUSEHOLD TOTAL 5. 4 5. 7 URBAN 3. 7 ,.7 RURAL 5.2 5.2. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2. 9 2. 5 .. . U'RBAN 2. 6 2. 2 RURAL 3. 4 3.2 ACCESS TU ELECTRICITY (PEREENT OF DWELLINCS) TOTAL . 59.0 LRBAN .. 80. 7 RURAL .. 2P.0  - 29 - Page 2 TABLE 3A MEXICO - SOCIAI INDICATORS DATA SIIEET MEXICO REFERENCE GROUPS (WEIGUTED AVERACES - MOST RECENT ESTIMATE) - MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEIAN EUROPE EDUCATION ADJUSIED LNRCO172ENT RATIOi PRIMARY: fOTAL 80.0 104.0 116.0 99.7 105.9 IALE 82.0 107.0 119.6 101.0 109.3 rDiAL}. 77.0 102.0 114.0 99.4 103.0 SECONDARY: TOTAL 11.0 22.0 39.0 34.4 64.0 MIALE 14.0 27.0 42.0 33.5 71.1 FEHtALE 8.0 17.0 36.0 34.7 56.9 VOCATIONAL ENROL. (I OF SECONDARY) 24.0 24.0 .. 38.2 28. 8 PUPIL-TEAC}iER RATIO PRLMARY 44.0 46.0 46.0 30.5 29.4 SECONDARY 13.0 14.0 17.0 14.5 26.1 ADULT LITERACY RATE (PERCENT) 65.0 74.0 76.0 76.3 CONSIFPTION PASSENGER CARS PER THOUSAND POPULATION 14.0 24.0 42.4 43.0 84.6 RADIO RECEIVERS PER THOUSAND POPULATION 91.0 278.0 306.0 245.3 192.2 TV RECEIVERS PER THOUSAND POPULATION 18.0 60.0 85.0 84.2 11P.5 NEWSPAFER ("DAILY CENERAL INTEREST') CIRCULATION PER THOUSAND POPtULATION 79.0 .. .. 63. 3 93. 0 CINEMA ANINUAL ATTENDANCE PER CAPITA 10.0 5.0 4. 2 .. 5. 7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 10993.0 14493.5 18951.2 FE14ALE (PERCENT) 15.2 17.4 19.0 22.2 30.4 AGRICULTURE (PERCENT) 55. 1 45.0 39.0 37. 1 37. 1 INDUSTRY (PERCLNTI 19.5 23.0 26.0 23.5 29.3 PARTICIPATION RATE (PERCENT) TOTAL 30.2 28.8 28. 8 31.5 40. 9 MALL 51.1 47.4 46.8 48.9 55.9 FE14ALL 9.2 10.1 10. 7 14.0 26. ? ECONOMIC DEPENDENCY RATIO 1. 6 1.7 1.7 1.4 1. 0 INCOTEG DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOIUSEHOLDS .. .. HICHESf 20 PERCENT OF HOUSEHOLDS 61. I/c 60. 7 57. 7 LOWEST 20 PERCENT CF HOUSEHOLDS 3. 4/c 3.3 2.9 LOWEST 40 PERCENT CF HOUSEHOLDS 9. 8/c 9.9 9.9 POVERTY TARGET GROUPS ESTOtATED ABSOLlTE FOVERTY INCOME LEVEL (US5 PER CAPTTA) URBAN .. .. 270.0 RURAL .. .. 216.0 190.P ESTIMA;ED RELATIV'E POVERTY INCOME LEVEL (.SS PER CAPITA) URBAN .. .. 332.0 474.0 RLRAL .. .. 332.0 332.5 385.8 FSTLHATLD PlATiON BELOW ABSOLUTE POVERTY INCUME LEVEL (PERCENT) URBAN .. .. RL!CAL .. .. . .. . P. I ol a lae U appLicable. NOTES F-, r>cp a.ereges for each indicator are population-weighted arithmetic means. Coverage of coEntries armOg2 rtc indi.!ators depends ott availability of data and is not uniform. 'b LClnss -r.rvino roced, d/t5 (or 1960 refer rt. any yeaz between 1959 and 1961; for 1970, between 1969 atl :971]; aod for M.ost Recent Estimate. between 1974 ar,n 1978. /c 963. Mos-t ceent estimate ct GNP Per capita is for 1979, all other drta are as of April, 1980. October, 1980  - 30 - Page 3 bo~ Aitlh-u-h ab "dat are drown S onoace --elly judged rho most ourhorkatto- end reliable, it should also ho noted that they soy ot be inter- earlcatc cocc,l,e hc_oto of rho lack o aoda-dloo dafoijtl-t end concpts iced to diffne-nt oureenis olecing rho dote. The data .te aeon-... rhcf-u, oofc tc rsoele cdoe of -agnirode, todicato -erda, and oharaterioe co-l maJor d iffer...... te enrone. Thecoeoo roiser()as acne.c.unrc.group.o rtho colle-t c...oty sod (2)1 aroccY grasP nith tnoe threeg ooete h onr ru of shecchcc counry (exept fr "Caital Srylca011 Eparatt-" 9-op chor "Middle Inoose North dAnfc ad Middle East" is chosen becss of trngr u.slcc,Loscl cftlres. n rn efreso ..group dare theeareo era p Iplsto- seighted afith-soto ment. foI hoitrsd sheen only abena lean hal!f of coo otore rgopbode o rut odosor Joc re oraoRf nsrreaamng the todro.t.ee idiepends nor esleii o .ura etc Is ca atior, iacla mat he neer-l-d to-1i re ...g erge- of o- ne i_t_ea to crarhee Tb- e -ser geear only soefu1lj in _openingte s ofcolodlc.ero scarleaes g the -tounY end e-f--oc croups.. t - :152 uRic ttsaasead~~~~~~~~~~~~~~~~~~~~~~C sIc.) -Ppnilatton ear. .Pdioatdaist - f Poplton dIvided by nunbe no p1rertato phy- 3fric -curd - sicsat of ugriouIlcora -r- -sd I-spo..rlly or pnonenly Pnnlction Pe_ Nlr. log Pora- Pe palstion dieided by nubhr of pnaretioim cautac-, erkor cod acten ...rd.nt ct lefelo;197 tcr. axl ed femal gn-d-to.n.r.e.. pentesinc cacaos ad seals ran ounce. IlN -- lI'P pccata0 ..a r urn maket pee,i . al- P..eio r Iaete1e- -- d toa.ara.sdnsa-Pplc nma. cas 9cc 1 IJ-kAA unhIn,.sed nuret) dvedbthicepnvearber of heepite1 bede calse la tco cne-li- method aWorld Sc ca f9749 boom); 1960, aviel n alrad;db print genera sadapriidhstaene- J9bL, -sd 1979 dar.- hahilitia pnobten. . gdspr tate ens. -dtebliaheent pemnpyiteff aod iNERCY aafepIat PER CAPITA t.salcoscptiou upcosnrui yeo (col byatet oa hyioda. Etatblisb-ets prenidiag prinoipsily ...stedis1 ..d ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~c roer anot -Imlded. MRel heepitels, hesia, inulodo health and neditat ond lgolue poteloxa,uotsrl jossod Iydec-, -ocl- end gnrenleo- an asti peinesoly staffed by a phyimian (baa by rediest.. asistant, uriccp) I hifarumnf coo oqueclot pr cpirolh 197, od1 9f oseUchge t.)wso niEc ia-ptient aor.edatioo end poevide dato. aitted esoge of tid'isal faeilities. For statietica1 parposee urbsn hospi- POPUUTIIN AND VITAL STATISTICS ~~~~~~~talc isclsdo flOe prienipa1 g-1ea sad spentalsed hospitals, arid nra..l .1 t.., id-Y.r (illi... . IfJ,ly1; 160, 970,..d 978 hoopitojs leastI or nura hospitals sod ndinal sad atermity -ntere. ToalPpuaic,lt-ea n2lou)- uofJly1 16, 90,cdH9S dinisaer eriat Bd-1 ealsnBcxiaeleo- o rdicare data. t1 -.I b.1 .. ...io onn hospitals divided by the otbhe of beds. dIffret otuitioc of cehb rea ny efc np-ebility of data OSN 11960, 1970, cnd 1978 dora. As Seties of Hes--ehe1d (roesoa ee howe.ihldl etl une n ma- PPocletUa Pcictco -C -tpp]ti p t.....b..dI190 A h.sehe:hld ...sit.of at a anep of fadividus ohs.sar living qoartoro Popuatin i ner fIsT- trret ppoicuoxprooatontcrehond o 19f ad Ithem s -eals. A hoender or lodgee say or say sot be ieloded in cclpopuletior by sic end sc and thoir ertlity and fetlity r-t-o the . bosheld fo sa iete pspoee P-cjrctio prsetoes- foe ea tolt run copleof three len..xesum Av-rscs aebor of ess orrs tota.1 sra,ad cral1 - Aner.g. er log iif n.oPeone-y tr birth Icor..asiu oith ccntey's per capI'ta imses ban of per-os per nos is all srhes, sod rera1 ...eupid neseenn..Iel 1ho-, xcd fasslo life opcrcc tohilieget77. po . The oe dwllg..repeoti-ly. Dwellings eoleda o oe e t -stost-e sod Inetilifty cocrdlog to ut-- 1-1e cud Pos family planing pttirf enc.. Rcs no.Pi tpsntniivia.s.fdolie) oa.shs rdrea df_ccxtryi nbnnine Io ftheenu.c.. onono sreiy Tonvontonal d-Ieliag with e1ectetitiy ilivngqatn speo-oungn co ietlity -rodo for pccjcotie puytsnfttl ubn In ua relig epciey Ireticore ospuottoc o to ottioxary popoletiot thec in n groeth since. ftt1 b- - - 1 gr.pt l the Motth ernt is equeltothe deeth rtot, and cIs the eg ..r.nnc- EDUATIONo ma. ... o--cot Ths. Is achi-d only after f-rtilicy rete decline tO Adlusted LEsrl tasnMte th -cla et local of a.tt co r-pr-d-cian rat, ohon Iac g...nctie Prlsaroshl I*ed, l sand female - frs.. tstal, male and sl ofc th oyeo irsaii Ifecoh. pjthe h . st -irtancy opfono sine waslni. esrell t of 'al ages at the eracy leve as percentages of reeatn nerihc t...an0the huntsho rbtr I poetd ceuteitc iacppito prlesry chtsee-age pspultia..s; srslly i-lsdas hbildraagd 61 in- th yae111 -o h oao eline of frrtilityra1.tcton pler- years bun djasntd fsr different leogthe of priescy sduoetion.; tr const .T PPIt. .r~.g h .. h.~.i t level. - :osotrise withisnivarsa .eda.atiem asroleet say arced li percet .i.ac . anttncry .. hcoeio irecd-thpoeectotcufyplnu since eas ppil are halos or ahsve the sf1i.ia1 sohoel sge. F..tire bx..it her mabe...oedarv sohol - real.eclfso 'feele - Cntasd asl shov; soresdory Pent. in. -. Mid-yee popolatlon Per square kilc..uero (100 - -oee) at prsdngor4votee,o teah f t pri-i d tiserotns n Poe no. ho ori-jltor1 laud - Computed as b..o. for egriroltae1l.fed ....5ly~ or 12 t17 yeeos sf cgs; noevepoodeoansresac ga..orally -1y. -l.d.d. ...1 i.-tit-ti...~~~~awulded Ponolution Anc Str--rtpoa foret) - Child-c (0-l4 y-ann, nookiog-oge (11- VI'incue ehanl Voaril, ae pog .n whioboeaetdp 64 yese), sod retteed (65 yee_ end Ice) on mno-cetec- at std-yee IIIo- deony o usdeprt-h teef snedar ie grshttspttteais.. latian; 1969, 1970, end 1978 aa PpoIat-nch.r rtio -or r . ad sagnada - Tonsi tndeets --1o1ld in 1Pocleo boot1-h ions, (corcear) - rtu - Asnuel ilthwe Iec f tota old- primary and ..e.ndary level divided by senhre of ot ..h-r in the ferpplooef o 90i. 196_6 0-~,70, ead 1970-f S. _srrospondde _eal.. IPoealt1ia lr-th iRt (Pncrott - hco-8Anns -Ieo-thrtn of urln Popa- Adolt liten...y arri. (epirebt) - Literate adins .Ish to reed sod write) letonofo 191-6. 96070 end' l9~70_ anpocostage of ttal Melt pepalatto aged iS your sod Ieer Crude Birthiifete fert Arxd ..A.o Ilice~ bioth Per thnones.d of cid-oy-o pooaios; 1960, 1979. and 1978 dote. CONSuWTION Crade Deeti fete (-o thoosuod) - buse.d doatho Pec thoased of old-pee P......e lee (esp tsoosed osraatis) - .. asogor cons c-poise eator ouatol1960, 1970, sad 1978 dats. tensotgls tha neight p.rir.-; sa1ldes ash1l...e., hearses. ..d cross Reproduction, ixeAescaIs. xabo of dxubseeon 'I,fberi silIr-y vahiele.. to o lrProdutiv ctd' if shoepornrspentcerii_c-ire- mRcdla F-ci-rcs (ret thossand pprlettor) - All types of roiosfred etiy crt nsyfo-yea Ioro neding 0016,17,ad1). bodat ognrI pablin per thoseend of popolsaton; -ulae ani- family Plutac-Acceotocsdooe (Aunudl - I .a.nal co Ine c ocptoco nsdJrcevrsi ce.ntre sod in yese ohn rnoietrotiot of nadia now of birch-coorcl dooiceuandre ccspics of nettool faullo plociof Pr...a. can in ff-c; dnsfor rerot years say not he -parblo sisee nes f hild-beaing ago (15-i44 ye...) h.c sobinth--ctr-1 d-cic- to TV tooocR- rtissd ousin Mrator rhodett al c.cl ansi wan age grop. go...n-1 pablie par theasead pepaletiso; e..eldos eiond TV r-eiv-rs FOOD AND NLrTRITION in ~~~~~~~~~~...t cotnise end is years whoa esgient-tie of TM sets -a tat effort. Ind.. of Pdond rndsctioo poeCye 71-1969-fl-ill) -loden If Per 0151p05 anoe ine of "dsilp earlitretas or"doies ntdOlub p-od-ru of ni toa.dcoacdities P Prdnutio encao ned and fee end ieaten denond pri-riary to resending ge..... Iarm. Iisceidered is on c-ed-r year hesin. C-osditie-c.v.. priocry goods (r.g. sancc-t-x- ro be "daily" if it appear at leas.t loan ti-saweo..k Ieta f osger) which -eo edble x-d c.ntoieotrritent (e.g. coffee end Tie.ocaAtsdmear setoeTa-snd nthnnbrf tae exluded). Aggregte rdcico ahoocyishsdO ihn oddra the er mldo disost e-niea aetiosu . .vcg prod.ce pric enight; 19h1-h5, 1970, sod 1979 data, sod nbil' smite. Per capita ppnlo of uslorie (pret trgice-te) Coepoted fr.r eucey squle-let of net food snepliet cvuilxble in co.otey peP cc.pine LARic FORCE Pee day. Ae-ilblo sopplies coprise: d.s.ti productIon,,iports los Totai lbrPes(thousands) - toe-go-lly -cti- persons. ino1ading noporte, end changes in stock. Net naplto esoldoanima feed, seat, _Ioe febroe F.enesmlydhnoldigoeos,rdne,e quntiie undin fond processing, sad loose in distribution. Rsqoir- - niiia5i vnnacotis r o npcbi;16,17 n sen cet. -dE estimatod by PAt, base d us plyiogs osda for nora ti 98 data.i i -rl;160 90 ciyedhealth c...tidetiueng ecsna r --osure body Zchtcltt .i..... prcn) inslu f Pror .e pnotage If Iu lbor torus. cud ecdistrihation of populton1 n olown 1 ooetforcate ot Aeclur enen -'Lao forn_ in frtg forestry thantg sod tosel i-ve; 1561-6 1, 197. u 1977 data, fishingu p-nnotrag of ttel labor force; 1960. 1970'and 1978 deta. Per aptn aeoly f Trtoi (ross cor dud) - P,otein otn ofM cPit. Isdostry mcot ao oc inmsa,n tune.mnafeetariog on aply If food per day. Ne supya odI eie soo.f- adennily ao u us ecsgeo oe oor furr 9i q ormesfeei oune sulwtdh OAyoi fforcinmon197 nd1978r dare pulseprotix, i bih 10grat shold ff.di hod animalD prt-id. f hos stn- anviycsnea ptda toa, maeo,~ en tol. abrfrea sosaelcrtu bseo 9gatc o pro "It",so 79 Pre- of..t' tsmlpoeoa oaeooieteoed rpndLya 1 nteTxe.ecrue of. totaL,r male cad femls, poaltif t llsgI eepemivly Ifel P 6o Sooey 11-l iytfi andi 197 data. 1g.. I-i. 1960,- 1970, ad199dt.Tecr0i'spnlpuertsmfotg Per apitatooteu euter iro cotei undrI.n.- Perein arns re instwaredtnonIee Chil (cos 1cf hirehtoy Suto ro thonsd) -n. a a dI Tha.po tlctad-c bet !ttotal labr? fere.td tt1,.I, d .Ibrf ag rop-1yastocIdre in1 cIft-age proup;ion noo d23lo toi. Ifc-cc o .. -. f- -I , 1-..:Pt- telan daotasioed iro lIf tablet; _ 1960, 1979 sdh19ff1data 1970c scCcllTdt175d. h. , L-,tt:i:i.r :l.i Lie itpcoa tgrl eua nng number o - P-t.an inle-oma cII. o f oaohod an uls 2960, 19f cod 1978pr data.-5,90 97 t.-d- Ri Ghlun nocae fete Rint t roa huod) - benuel .3oc 1 p,, cc-, 1 so.an toerff 17 uaups . or no tIpar- yhoono lin births.. ini'nrc bhioa onre Iooe evl--P;er n ic) araIodsrd uc _t d.t d-i-dace (fecen oif rtcblan196) -97 toal ur97, dm ca crnertlcoetnii tn os lvlbo ha ita Naslr o popla)tocl,aebe, udesul)etc ossonole ccot t tae - ftunaI-Pi -.uequr dIe. bth plus . seote anin-food reqirements ishnot H sAceT ucylyfi--lodo?treated.u-fs-esto0s orn-tretedlw_utc0ouputsct W[I'd _ ItlO taua io coet- tisl -b- tid -.'Nrrs... I-aho coott ci IfonItgI urban soson.Fi 1 o olduycuaoIeiosnf .a.c -AaxAocnePaei Ioe Lee I.e, re t) -ura Itf'.. _t ".b .1. , tin ~ ~ ~ ~ ~ ~~ ~o nd nt o pop L -t 1 atnud no)oees"uslaepa" non asceccoenda. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ r,,- 1-