Zambia - Smallholder Dairy Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3574-ZA STAFF APPRAISAL REPORT ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT November 24, 1981 Eastern Africa Projects Department Southern Agriculture Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Zambian Kwacha (K) US$1.25 = K 1.00 US$1.00 = K 0.80 US$1,000 = K 800 WEIGHTS AND MEASURES 1 centimeter (cm) = 0.39 inches 1 meter (m) = 3.28 feet (ft) 1 kilometer = 0.62 miles 1 square meter (m2) = 10.76 sq. ft. 1 hectare (ha) = 10,000 m2 = 2.47 acres 1 kilogram (kg) = 2.204 pounds lb 1 metric ton (ton) = 1,000 kg = 2,204 lb I liter (1) = 0.26 US gallon = 2.1 pints GLOSSARY O:F ABBREVIATIONS AFC - Agricultural Finance Company CFC - Cattle Finance Company DOA - Department of Agriculture DPB - Dairy Produce Board DVTCS - Department of Vleterinary and Tsetse Control Services EPADP - Eastern Province Agricultural Development Project FTC - Farmer Training Center FAO/CP - FAO/World Bank Cooperative Program GRZ - Government of the Republic of Zambia MAWD - Ministry of Agriculture and Water Development NAMB - National Agricultural Marketing Board NBS - National Beef Scheme PMU - Project Management Unit RDC - Rural Development Corporation RMPS - Rural Milk Production Scheme SPADP - Southern Province Agricultural Development Project ZADL - Zambia Agricultural Development Limited ZADB - Zambia Agricultural Development Bank GOVERNMENT FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Table of Contents Page No. I. BACKGROUND A. The Project ......................................., 1 B. Economic Setting ................... . . .. . ................... 1 C. Agricultural Performance ..... ..................... 2 D. Livestock/Dairy Development Objectives and Strategy 4 E. Livestock/Dairy Services .......................... 4 F. Milk Marketing and Pricing Policy . ................ 7 G. Previous Bank Group Assistance .................... 9 II. EXECUTING AGENCIES A. Dairy Produce Board ...... 10 B. Cattle Finance Company ...... ...................... 10 C. Zambia Agricultural Development Limited ........... 11 III. THE PROJECT AREA A. Physical Description ... ...................... 11 B. Socio-Econosic Characteristics .................. 13 C. Livestock/Crop Production Systems ............... .. 14 IV. THE PROJECT A. General Description ......................... 15 B. Detailed Features ....... . . ................. .. . * ............ 17 C. Project Costs ......*..............*. ............. 24 D. Financing .................................. ............... 26 E. Procurement ........................... ............... 27 F. Disbursements ......... ...... .28 G. Accounts and Audit ..... 29 H. Environmental Impact .............. ........29 V. ORGANIZATION AND MANAGEMENT 29 VI. PRODUCTION 31 A. Smallholder Producers ............. . . ............ 31 B. Production Increases ....... ........................ 33 This report is based on the findings of an appraisal mission which visited Zambia in February 1981, consisting of J. Frankel, A. Klempin (IDA), and S. Gordin (Consultant). I This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (cont'd) Page No. VII. MARKETS AND PRICES A. Milk ................................................ 35 B. Beef ....................................... 36 VIII. FINANCIAL ANALYSIS A. Beneficiaries ........... . .. . . .. ............. ... . 37 B. DPB's Processing Opera,tions .... ................ 38 C. Government Cash Flow and Cost Recovery ........ 40 IX. ECONOMIC ANALYSIS . .................... . ......... . 41 X. AGREEMENTS REACHED AND RECOMMENDATION ............ 42 SUPPORTING CHARTS AND TABLES: Chart C-1, Implementation Schedule Chart C-2, Organizational Chart Table T-1, Estimated Schedlule of Disbursements Table T-2, Phasing of Project Costs Table T-2a, Livestock Extension Service Costs Table T-2b, Veterinary Service Costs Table T-2c, Group A & B FaLrmer Credit Requirements Table T-2d, Credit Service Costs Table T-2e, Chisamba Heifer Farm Costs Table T-2f, Milk Collection Service - Investment Costs Table T-2g, Milk Collection Service - Operating Costs Table T-2h, Project Management Unit Costs Table T-3a, On-Farm Investment (Type A) Table T-3b, Operating Costs (Type A) Table.T-3c, Cash Flow Projjection (Type A) Table T-3d, On-Farm Investment (Type B) Table T-3e, Operating Costs (Type B) Table T-3f, Value of Incremental Production (Type B) Table T-3g, Summary of Projected Production-All Proposed Milk Routes Table T-3h, Summary of Incremental Meat Production Table T-3i, Chisamba Heifer Breeding Farm Herd Projections Table T-3j, Total Value of Incremental Milk Production Table T-4, CFC: Project-Related Cash Flow Table T-5, ZADL: Cash Flow of Chisamba Farm Table T-6, DPB: Project-Related Cash Flow Table T-7, Government Cash Flow of the Project Table T-8, Calculation of Import Parity Prices of Milk and Beef Table T-9, Economic Costs and Benefits  Table of Contents (cont'd) Page No. TERMS OF REFERENCE Project Manager .......................................... 73 Financial Controller .................... ........... . ...... 74 Chisamba Ranch Manager ...................... ................. 76 Transport Manager ........... .............................. 77 MAPS: Map - IBRD 15775 - Milk Collection Routes - Kabwe District Map - IBRD 15776 - Milk Collection Routes - Mazabuka and Monze Districts Selected Documents and Data Available in the Project File Project Preparation Report   ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT I. BACKGROUND A. The Project 1.01 In October 1978, a project identification mission from the World Bank visited Zambia to assess the state of Zambian agriculture and to identify projects suitable for World Bank financing. Dairy development proposals from the Third National Development Plan (1979-83) were presented by Government for consideration by that mission. It was subsequently agreed that smallholder dairy development could be a suitable activity for World Bank assistance. It was proposed that this development should be aimed at satisfying demand for fresh milk in Lusaka and metropolitan areas of Central and Southern Province. The World Bank, in a letter to the Permanent Secretary of the Ministry of Agriculture and Water Development (MAWD), dated November 2, 1978, outlined the data required to permit full Project Identification. On completion of field surveys to prepare these data and following requests from the World Bank and Government, the FAO/World Bank Cooperative Program (FAO/CP) sent a mission to Zambia from September 5-28, 1979, to assist Government in completing identification of the Project. Following a detailed review of the Project Identification Report, both in the Bank and by the interested parties in Zambia, a further mission from FAO/CP visited Zambia from September 1-12, 1980, to assist in finalizing the Project concept, scope and components and in completing the Project Preparation Report (PR). The PR was completed in 1980 and the Project was appraised in February 1981. B. Economic Setting 1.02 Zambia is a land-locked country of some 750,000 square km and a population of 5.8 million people (1979). The predominance of copper mining and the relative unimportance of agriculture have made Zambia one of the most urbanized countries in Africa, with 40% of its population residing in either towns or cities. Population growth has increased from an average of 2.5% a year between 1963 and 1965 to over 3% since 1970. In urban areas and in the more developed Central and Copperbelt Provinces, population growth at 7% and 5% respectively per year since 1970 has been especially rapid. In contrast, other Provinces of Zambia have grown at only 1% per year because of substantial out-migration. 1.03 The agricultural sector's share of the gross national product (GNP) which was K361 (US$446) per capita in 1978, has grown by 3%, increasing its share from 11.5% to 16.5% of the total GNP. This increase is more a reflec- tion of the declining activity in the mining sector than of the strength of agriculture. During the period since independence, the mining sector has contributed on average 34% of GNP, 45% of Government revenue and 95% of export earnings, but by 1978, its share of GNP had fallen to 12%; Government revenues and export earnings had fallen accordingly with deficits registered since  - 2 - 1975. Major factors behind the deteriorating trade balance have been the declining earnings from copper and a 40% fall in terms of trade since 1965. Agricultural imports during this period have shown a steady increase, reaching a total of over K46.0 million in 1979. The value of dairy imports in 1977 was about K5.0 million, slightly higher than imports in 1970, but less than half those of 1974 when imports reached their highest level. The imports of meat products have also declined sharply in recent years. In 1977, imports were only K650,000, well down from the K9.5 million attained in 1972. C. Agricultural Performance General 1.04 The agricultural sector in Zambia is markedly dualistic. On the one hand, there is a relatively small modern sector of about 800 heavily-capitalized farmers (mainly of European origin) and a small number of state farms and ranches, all of which farm State Land on a leasehold basis along the line-of-rail. On the other hand, there are about 600,000 farm families on land held under traditional tenure, the majority of whom cultivate less than 2 ha using hand- or ox-cultivation and are oriented towards subsistence production. This extreme dualism has been modified in recent years by two developments. Firstly, a number of medium-scale Zambian farmers ("emergent farmers'),l/ also along the line-of-rail, have developed mechanized farms geared to the commercial market. Secondly, an increasing number of small farmers, particularly in the Southern, Central and Eastern Provinces, have begun to produce marketable crop surpluses. The Dairy Sub-Sector 1.05 Nowhere is the duality more evident than in the dairy sub-sector, where fewer than 40 commercial dairy farmers produce over 60% of the country's marketed fresh milk while a large number (100,000) of traditional cattle owners produce milk solely for domestic or village level consumption. Because of the numerous and scattered units comprising the traditional sector, accurate data on milk production are only available for marketed production from the commercial and State sectors and emergent farmers; output from the traditional sector can be only roughly estimated at between 25 and 30 million liters per annum. 1.06 The production of marketed milk in Zambia has been in continuous decline over the last 15 years and since 1974 this decline has been accelerating. Since 1964, the overall decline has been about 35%, with production falling from 15.0 mil:Lion liters to 10.4 million liters per year. During the first 10 years following Independence, output fell only about 8% but in the last five years, product:Lon has decreased by over 25%. Main reasons for this decline have been the steady reduction until recently in the number of cattle in commercial dairy herds as a result of inadequate producer prices as well as uncertainties over land tenure and the future of large-scale commercial farming. 1.07 Production of milk comes from four distinctive farm groups: Commercial, Emergent, Traditional, and (in relatively limited quantities) 1/ Farmers making the transition to commercial agriculture.  -3- State Farms. In 1964, there were about 120 commercial dairy farms located on State land along the line-of-rail. These farms produced all of the 15.0 million liters of marketed milk. By 1974, these numbers had been reduced to 40 and their milk production to 10.5 million liters; this has since declined to 5.5 million liters. The cattle on commercial dairy farms are of exotic European breeds, mostly Friesian. Productivity is high with annual yields ranging from 2,500 to 4,000 liters per animal and averaging about 3,000. However, there is considerable potential for increasing production both through increasing yield per cow and by increasing cattle numbers. Only a small area of the land available on these large-scale dairy units has been planted to improved pasture so that even within the same units there is a large potential for increasing carrying capacity.2/ 1.08 Emergent dairy farmers in Zambia are small in number and their milk production is only a very small proportion of the country's total output. Their creation was directly linked to two Government programs set up 10 years ago to increase milk production among traditional farmers; the Dairy Tenant Scheme and the Rural Milk Production Scheme (RMPS). The Dairy Tenant Schemes were set up with the intention of introducing sophisticated dairy technology to a group of specially trained farmers and the RMPS to traditional farmers. Since 1969, about 140 farmers on reserve and trust land have developed small-scale crossbred dairy units through participation in the RMPS. Participation in the RMPS has been restricted by a shortage of suitable cattle while budgetary constraints have prevented the few participants from receiving the services of a dependable milk collection system. Average milk yields remain low at about 730 liters per lactation. 1.09 It is difficult to obtain precise estimates of milk production in the traditional sector. It is estimated, however, that only about 50% of the cows that calve in the traditional herds are actually milked with the calves running freely with the herds and taking other available milk. With an assumed traditional herd size of 1.8 million head, of which 15-20% are cows with calves, the total milk production would be between 25-30 million liters. Milk yields of traditional cows are low, averaging no more than 2 liters per day at the peak of lactation, the duration of which is only four months (i.e., about 200 liters per lactation). The traditional sector thus produces the majority of the domestic milk supply, but this production derives from indigenous cattle herds and is highly seasonal. There are possibilities for increasing this production through improved animal health and simple management changes to improve nutrition. The low genetic capability of traditional cattle would nevertheless limit potential production to about 300 liters per lactation. This sector has extensive grazing areas and large crop residue feed resources which could be utilized much more effectively. However, in the absence of milk collection services, increased seasonal production would quickly exceed local requirements. 1.10 There are ten State dairy farms run by Zambia Agricultural Development Limited (ZADL). They form part of a milk production program which was initiated in 1968 and later assisted with finance from the World Bank (Loan 627-ZA). The farms presently have a herd size of 5,400 of which 1,660 are cows producing 4 million liters of milk a year. Farm results have been 2/ Land required to carry one Livestock Unit (LU), the equivalent of a mature cow.  - 4 - variable with some farms operating profitably while others are showing only marginal returns. The generally poor performance stems from a failure to develop the level of operational and managerial expertise required of a modern dairy farm stocked with European breedls. Steps are now being taken for the training of dairy farm managers at Palabana (para. 1.15) and additional management assistance is being provided to ZADL from bilateral sources. D. Livestock/Dairy Development Objectives and Strategy 1.11 Government policy towards livestock development in general and dairy development in particular has remained largely unchanged in recent years. Policy objectives since the laLte 1960's and early 1970's have been geared to production increases in the large-scale commercial and State farms, and the traditional/emergent groups. In terms of emphasis, it has been the State and traditional sectors which halve received greatest priority. The objectives outlined in the Third National Development Plan (TNDP) adhere fundamentally to past goals. The only noteworthy alterations are a slight de-emphasis on the State sector, a renewed interest in the potential of private commercial farms and an ever increasing priority for the traditional sector. Specifically, the TNDP aims alt establishing a sound foundation for the development of the dairy industry with increases in milk production of 40% by 1983. Attention will be directed towards increasing the number of market oriented emergent farmers in the traditional sector. Commercial farmers will be encouraged to increase production by regular producer price reviews. In the State sector, efforts will be aimed primarily at consolidation and improved efficiency; further expansion will be confined .to those areas where private initiative has not succeeded. E. Livestock/Dairy Services Extension Services 1.12 The responsibility for dairy development lies with MAWD. The Planning Unit (PU) of MAWD, Lusaka, is responsible for planning and advising on policy questions, the Department of Agriculture (DOA) within MAWD is responsible for implementation. Responsibility for extension services and central coordination lies with the DOA, in Lusaka. At the Provincial level, extension services are provided by the staff of the Provincial Office of the DOA who work with the district livestock officers and through the network of agricultural camps and stations to reach the farmers. Within the DOA, the dairy development unit is part of the Animal Husbandry Division, one of eight in the department. The unit is headed in Lusaka by a Senior Dairy Officer and at the Provincial level by a ProvinciaLl Dairy Officer. The existence of trained dairy officers at the district level depends on the area's requirements and the availability of budgetary allocations. Research 1.13 The Animal Husbandry Research Center at Mazabuka served as the center of livestock research for many years. Unfortunately for the industry, the station was closed down and its land diverted to sugar production several years ago. A satisfactory station for livestock research has not been established although there are plans to develop the station at Mochipapa near Choma. Nevertheless some excellent work was done at Mazabuka which can still  - 5 - effectively serve present requirements. It includes extensive research on the milk production potential of Friesian/indigenous crossbreeds; pasture improvement with the use of star grass in particular; performance tests with young bulls kept under extensive grazing conditions; and introductory work in the development of an A.I.3/ system mainly for commercial farmers. Prelimi- nary work on pasture improvement and fodder production has been started at Mochipapa and some work is also in progress at Mount Makulu Central Research Station. Credit Services 1.14 Institutional credit is available to commercial farmers for dairy development from the commercial banks. For emergent dairy farmers, the only institutional credit provided to date has been a small number of loans from the Agricultural Finance Company (AFC), a subsidiary of the Rural Development- Corporation (RDC). The AFC is mainly concerned with seasonal finance for crop production. The Cattle Finance Company (CFC), another subsidiary of the RDC, operates on a small scale providing loans for beef cattle production. Its operations have been generally well managed and loan recovery has been satisfactory to date. However, CFC's future is uncertain since GRZ plans to establish the Zambia Agricultural Development Bank (ZADB) in order to replace CFC and AFC, the two existing agricultural credit agencies. Legislation for the establishment of ZADB was passed in March 1979, but various preparatory activities need to be carried out before ZADB can become operational. The Eastern Province Agricultural Development Project provides funds for a comprehensive program of technical assistance to ZADB, with particular empha- sis on lending operations and procedures, program development, staff training, and organization and administration. Staff Training 1.15 The shortage of trained manpower has been one of the main cons- traints limiting agricultural development in Zambia. This problem is slowly being reduced but the relatively short period since Independence during which most of Zambia's educational institutions have been operating means that this constraint will continue for some time. Degree level courses in animal hus- bandry are given by the school of agricultural services of the University of Zambia, established in 1968. Annual intake is low and salaries offered by MAWD are not competitive with those offered by the parastatals and the private sector, two factors which strictly limit the availability of graduates for development work. At the Natural Resources Development College (NRDC), three- year diploma level courses are offered in animal husbandry for secondary school graduates and agricultural assistants who have shown outstanding ser- vice. Two-year certificate courses in general agriculture, including animal husbandry, are provided by the Zambia College of Agriculture at Monze in Southern Province and Mpika in Central Province. The DOA has Provincial farm training institutes at Kanchomba in Southern Province and at Palabana and Kembe in Central Province; the Palabana Institute is being converted into the Palabana Institute of Dairy Training with bilateral assistance and will serve as a national center for dairy training. 3/ Artificial insemination.  -6- Farmer Training Centers 1.16 The primary base of the DOA institutional training is the Farmer Training Center (FTC), located at the district level. There are three FTCs in the proposed Project area, one in each of the districts concerned: Monze, Mazabuka (being established) in Southern Province, and in Central Province at Kembe in Kabwe district. Each FTC is headed by an officer-in-charge, either an agricultural supervisor or a Senior Agricultural Assistant (SAA) who is assisted by one or more teachers. Courses are drawn up in consultation with farmers and comprise a wide variety of topics including animal husbandry. Animal Health Services 1.17 The Department of Veterinary and Tsetse Control Services (DVTCS) is responsible for all aspects of animal health and tsetse control throughout the country. The two branches are each headed by a Provincial officer responsible through the Provincial administration to the Director of DVTCS in Lusaka. The veterinary branch conducts routine disease control campaigns aimed at prevention of outbreaks of the major diseases. Tick-borne diseases are the most common in the area and pose a permanent threat to the introduction of exotic or crossbred stock. Trypanosomiasis and foot-and-mouth disease do not occur in the proposed area but there have been sporadic outbreaks of haemorrhagic septicaemia and regular vaccination is necessary in some areas. Liver fluke is a problem on the verges of flooded areas and brucellosis is thought to be a major contributor to the low reproduction rates. Internal parasites in young stock result in debility and vulnerability to other diseases. Input Supply 1.18 Input supply depots are well distributed within the Project areas. In Central Province, responsibility for the supply of general agricultural inputs lies with the National Agricultural Marketing Board (NAMB)4/. Its input supply network, which includes about 15 depots in the Project area, is not.presently handling the requisite inputs for improved dairy management, except for barbed wire. These items are purchaseable, however, from Government stores or private traders and are easily transported and stored. In Southern Province the Cooperative Marketing Union (SPCMU) has an adequate coverage of input supply depots in the two Districts which make up the Project area. The SPCMU tends to have a more developed input supply network than NAMB and a greater number of depots selling a wider range of inputs. The limited supply of crossbred heifers could be a serious constraint to dairy farm development since there are at present only two possible local sources for crossbred cattle. The first is Batoka Ranch, a heifer breeding farm managed by the Department of Agriculture and supported by the European Development Fund (EDF) which will produce its first crossbred cattle during 1981. The second is the Commercial Dairy Farmers, with whom an agreement could be reached to cross some of their older cows and heifers with suitable bulls to provide the Project with heifers. However, these two sources would not be sufficient to supply the needs of the Project. Therefore a third 4/ Most of NAMB's marketing responsibilities have been assigned to the Cooperative Unions, but its responsibility for the importation of supplies and fertilizer is continuing.  - 7 - source, the Chisamba farm now operated by ZADL for beef production, would be converted to a heifer breeding farm under the Project to provide an additional source to meet the required numbers. F. Milk Marketing and Pricing Policy 1.19 Almost all the marketed milk in Zambia is channelled through the Dairy Produce Board (DPB), a parastatal monopoly controlling the purchasing, processing and marketing of dairy products. The only marketing activities outside DPB's operations are small, though increasing, direct milk sales from commercial farms (para. 1.06), local sales from traditional herds, and the operation of the Zambezi Cooperative Dairy in Livingstone which is supplied and controlled by a small group of commercial farmers who cater for the milk demand of local tourist hotels, and Livingstone's urban population. 1.20 Of DPB's total milk sales, reconstituted milk has always accounted for the largest share since it was first produced by DPB in 1966. Sales of reconstituted milk reached a peak of almost 34.0 million liters in 1976, giving reconstituted milk a 76% share of DPB's total milk sales. Since then, there has been a sharp decline in production of reconstituted milk due to reduced imports and foreign exchange restrictions; these result from Government austerity measures rather than any conscious policy towards milk production. DPB's Sales of Milk ('000 liter) Milk 68/69 69/70 70 71 72 73 74 75 76 Fresh 10,000 10,438 11,070 13,079 12,902 13,707 12,043 11,342 11,100 Reconst. 13,638 18,441 18,661 21,288 22,297 21,731 25,056 31,304 32,400 Total 23,638 28,849 29,731 34,367 35,199 34,438 37,099 42,646 43,500 Milk 1977 1978 1979 1980 Fresh - 10,800 10,200 9,800 10,700 Reconst. 26,100 15,690 14,830 11,300 Total 36,900 25,890 24,630 22,000 1.21 The demand for milk increased sharply in 1966 following introduc- tion of the cheap milk policy. In an effort to increase the nutritional con- tent of the Zambian diet, the Government stimulated demand for milk by the provision of reconstituted milk, which was not only subsidized but was priced on the basis of low cost concessionally supplied ingredients from European Common Market countries. But even after the direct consumer subsidy was with- drawn in 1971, demand for milk has remained well ahead of supply; the steady migration from rural to urban areas, rising urban incomes, increasing use of breakfast food and availability of long-life milk in rural areas have all been contributing factors. With the decline in production of both fresh and recon-  - 8 - stituted milk since 1976, long waiting lines and widespread unavailability of milk at the retail level are clear indications of the unsatisfied demand. Most Zambian consumers, in traditional rural milk producing areas, sour their milk before consuming it, since reconstituted milk cannot always be satisfactorily soured, their preference is for fresh milk. Expatriates and the higher-income urban groups appear to be very willing to pay a premium for fresh milk because of taste preference. The urban middle- and lower-income groups are major consumers of reconstituted milk because of its lower price. 1.22 Retail milk price policy in Zambia has gone through three stages. The first period was up until 1965 when the price of fresh milk limited con- sumption to the high income groups. The second period began in 1965 with the introduction of a cheap milk policy for urban dwellers and ran until 1970. The lowering of the price of fresh milk at this time had an enormous effect on demand and led to the production of reconstituted milk to meet the demand. Throughout this period fresh and reconstituted milk sold for the same price. In 1970, differential pricing was introduced. Since then, fresh milk was sold at a premium ranging from 20% to 45% over the price of reconstituted milk. Retail Prices of Fresh and Reconstituted Milk (ngwee/liter) Milk 1971 72 73 74 7576 777879808181 1/ Fresh 14 17.50 17.50 22 :22 26 32 32 36 36 40 50 Reconst. 10.5 12.30 12.30 14 14 18 22 22 30 30 32 44 Note: Ngwee 100 = K 1.00 1/ A second increase in the retail price was approved July 13, 1981 to compensate for the July 1, 1981 increase in the farmgate price. 1.23 Retail prices as well as producer prices for fresh milk are controlled by Government. Responsibility for formulating pricing recommendations rests with MAWD, whose Planning Unit in collaboration with DOA, DPB and the Price Control Office carries out periodic reviews of the producer price, taking into account commercial farmers' production costs, and their needs for a fair return on investment, and financial implications for DPB. The producer price trend has gone through two stages since 1964. Until 1975, it increased a total of 52%, keeping pace with the wholesale price index; between 1975 and the present, it increased by 262%, and largely surpassed increases in the general price level as well as those on other major agricultural products. In the informal village market, prices for raw milk have been 20-40% higher than official producer prices. Fresh Milk Producer Price (ngwee/liter) 1981 1981 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 (Feb) (Jul) 1982 2/ 8.65 9.92 10.57 10.88 10.50 15 21 21 25 25 32 38 43 2/ Announced to take effect January 1982.  - 9 - G. Previous Bank Group Assistance 1.24 The Bank Group has made six loans (two for industrial forestry, one for livestock development and two for tobacco production and one for provincial agricultural development) and one credit (for coffee production). The livestock loan was cancelled in 1973 at GRZ request following extended delays in disbursements caused by pricing problems and poor management. The first forestry project was well executed, and completed a year ahead of schedule. The second industrial forestry project is proceeding at a satisfactory rate. The commercial tobacco farming project was completed, but did not meet its goal of successfully training and establishing Zambian commercial tobacco farmers and hence raising tobacco production. The family farming tobacco project has recently been completed, but has had only limited success because of major managerial problems and difficulties stemming from tobacco prices that were unattractive in relation to the price of other crops, particularly maize. The Coffee Project has started satisfactorily , although constrained by shortages of foreign exchange and GRZ funds. A second Livestock Project was prepared for Bank assistance in 1970, but was found unsuitable for Bank financing by the appraisal team because of technical and structural weaknesses in the Project design. The mixed farming development project was then prepared together with the Intensive Development Zone project, but both were withdrawn in 1975 by the Government largely because GRZ was reluctant to use Bank funds for these projects and there were doubts as to the ability of the executing agencies to implement them. Assistance to agriculture has also been provided through projects in other sectors. The Fourth Education Project, for example, has a major component to strengthen the training of extension staff and farmers, and a line of credit to the Development Bank of Zambia has financed the provision of medium and long-term financing to commercial farmers and to a firm of agricultural machinery manufacturers. 1.25 The Bank has also assisted GRZ in analyzing the problems of the rural and agricultural sector, through a sector survey in 1975, a review of agricultural pricing and marketing policy in 1978 and of agricultural credit in 1979. More recently, the Bank Staff carried out an Agricultural Recurrent Budgetary Study completed in September 1980. Provincial Agricultural Development Projects for Eastern (EPADP) and Southern Provinces have been appraised and the Eastern Province Project was approved by the Bank's Board in May 1981. The Southern Province Project was negotiated in September 1981. The latter Project includes complete upgrading of the Southern Province Veterinary and Animal Husbandry Services. This would provide direct support to the Monze and Mazabuka District livestock units involved in the Dairy Development Project. 1.26 Lessons learned from problems faced by other similar projects have guided the development of the structure of the Dairy Development project. Previous smallholder dairy schemes had failed largely because of the broad dispersal of the targetted producer groups and because of less than dependable milk pickup services. The project's pilot classification stems from concern over the number of farmers and the speed of interest developing in commercial dairying. To meet this concern the project area was concentrated within two adjoining Districts, both with a tradition of livestock ownership. Any future expansion of the producing area would be contingent upon the performance in  10 - the introductory region. By concentrating in a relatively small geographic area,it is expected that techncal support, credit and livestock health services, and a dependable milk pickup system could be efficiently and economically maintained. II. EXECUTING AGENCIES A. Dairy Produce Board 2.01 The Dairy Produce Board (DPB) is a parastatal monopoly controlling the buying, manufacture, preparation and marketing of dairy products in Zambia. It was established in 1964 as a replacement of the Federal Dairy Marketing Board. DPB operates two major milk processing plants: the Midlands factory in Lusaka and the Kitwe plant in the Copperbelt. The Midlands factory has a capacity of 12,000 liters per hour (l/hr) of which only a third was utilized during the last three years. The capacity of the Kitwe plant is 8,000 l/hr, and its utilization was about 60%. Both plants were established in the early seventies, at a time when DPB's milk output showed a steady increase due to increasing imports of ingredients for reconstituting milk (para. 1.20). Once foreign exchange restrictions reduced imports, DPB's total milk output started to decline rapidly, leading to substantial underutiliza- tion of procesing capacity, poorer sales performance, increase in unit costs, and reversal of DPB from a profit making firm in 1977 (K 265,000 after depre- ciation) to a loss-maker ever since (K 6i99,000 in 1978, K 903,000 in 1979, and, interim, K755,000 in 1980). Recent changes in GRZ policy towards parastatals and commodity pricing, along with DPB's plans for plant rehabilitation and cost control (Para 8.05), should reverse loss-making trend. 2.02 Despite cost increases, DPB's margin between producer price and wholesale price of fresh milk - the sum which must cover all collection, pro- cessing, and marketing costs - was kept constant at KO.09/1 from 1977-1980, and has been reduced to KO.06/1 in the 1981-price gazette5/. At 1979/1980 prices, DPB incurred a loss of approximately KO.10/1 as the differential between ex-plant cost and wholesale price. While in former years DPB was able to off-set losses in fresh milk sales by profits in reconstituted milk sales, its 1980 accounts show that the reconstitution line operates at about the break-even-point. Due to the shortage of packaging materials, lack of import- ed ingredients, and reductions in the imnportation of milk by-products, DPB's sales of other products (ice cream, lacto, milk biscuits, and various groce- ries) have also declined. These products used to provide DPB with a high pro- fit margin which could be used to subsidize losses in the milk processing sector. B. Cattle Finance Company 2.03 The Cattle Finance Company (CFC) is one of eleven subsidiaries under the Rural Development Company (RDC) which, in turn, falls under a larger holding company, the Zambia Industrial and Mining Corporation (ZIMCO). The General Manager of CFC is appointed by the Board of RDC. CFC pays RDC a management fee which is based on a variable assessment by RDC, and is used substantially as a device for redistributing income among RDC's subsidiaries 5/ Following the July 1, 1981 producer price increase, the retail price was advanced to K 0.50 increasing DPB's margin to K 0.12 liter.  11 - rather than as a charge for specific services rendered. While from 1974-1976 the fee was CFC's largest single expense item, ranging from K85,000 to K157,000, it declined from K50,000 in 1977 to K15,000 during the past three years. CFC's authorized capital is K3.0 million. 2.04 CFC provides credit to farmers for the breeding and fattening of beef cattle. Basic facilities are required as a condition for accepting applications. These include suitable paddocks, assured water supply, availa- ble year round grazing, and a dip tank or spray-race. CFC has been operating two livestock finance programs; one for members of the National Beef Scheme (NBS) and the other for commercial farmers. Loan amounts have a ceiling of K10,000 for NBS members and K20,000 for commercial farmers. Cattle are consi- dered the property of CFC until loans are repaid. Repayment periods of up to five years are given on bulls, cows or heifers and three years on steers. Loan recovery has been 75-85%. Operations are carried out through a main office in Lusaka and 10 widely scattered branches. A General Manager is based at the main office and supported by a controller and credit specialist. Each branch is headed by a field inspector with training in livestock management and is supported by some clerical staff. Staffing is minimal at all loca- tions. Typical branch staff numbers about four. To date CFC has made a total of only 455 loans for the purchase of 79,920 cattle. In 1979, CFC made a small profit of K14,648, for the first time since 1974. In former years, the high management fees assesed by the RDC holding company (para. 2.03) was a major cause for CFC's losses. Once the newly established Zambia Agricultural Development Bank (ZADB) becomes operational, it is expected that CFC will be absorbed by ZADB (para. 1.14). C. Zambia Agricultural Development Limited 2.05 The Zambia Cattle Development Limited (ZCDL) a subsidiary of RDC was set up in 1968 with financial assistance of the World Bank, however, ZCDL came under the umbrella of ZIMCO in January 1979, and ZCDL was changed to Zambia Agricultural Development Limited (ZADL) incorporating the former Zambia Farm Development Limited (ZFDL) and its remaining farms. At the time, development of seven ranches was being implemented with World Bank loans and six with Government resources. The dairy side of ZADL's activities was established with the intention of reducing the effect of Zambia's declining commercial dairy herd (para 1.05). ZADL is presently managing 14 beef ranches and 10 dairy farms; four of the beef ranches and six of the dairy farms have recently been acquired from Projects Division of MAWD. Central management of ZADL is located in Lusaka. Staff of both headquarters and farm level have been largely Zambian, but ZADL has experienced difficulty retaining qualified staff because of the more competitive salaries available from the private sector. This drain of qualified managerial personnel has had a serious negative effect on ranch management. ZADL's operation of the Chisamba beef ranch has been more successful than most other beef or dairy units. The ranch has produced a modest profit now for several years although the physical infrastructure of the ranch has run down since little if any of the ranch income has been used for building and fencing maintenance or for improved pasture development. ZADL has agreed to turn the operation of Chisamba over to the Project for a heifer breeding unit although it will retain ownership of the ranch (Para 4.14).  - 12 - III. THE PROJECT AREA A. Physical Description 3.01 The areas identified for the Project were considered the natural milkshed for Lusaka and nearby urban districts. They lie in two Provinces, Southern and Central, and three Districts, Mazabuka, Monze (Map IBRD 15776) and Kabwe (Map IBRD 15775). Areas selected in both Provinces are part of the Southern and Central Plateau lying at aLltitudes ranging between 1,000 and 1,450 m. The contour is generally flat, becoming more undulating in Chivuma with proximity to the escarpment. In Kabwe district, the areas are inter- spersed with a large number of dambos, low-lying meadows which are often flooded in the rainy season; these occur occur less frequently in Mazabuka and Monze, although villages in the Chalimbana and Kunenga areas are within reach of the Kafue flats. Soils on the Plateau in Kabwe district are predominantly sandveldt soils, light yellowish sands or loamy sands over permeable sub- soils. The upper valley soils of Mazabuka and Monze are heavier and range from sandy to heavy loams. Both soils are relatively easy to cultivate and with good management including application of fertilizer, good yields are possible for maize, sunflower, soyabean, groundnuts and cotton as well as excellent stands of improved pasture grasses. The dambo areas and the Kafue flats are of heavier soils, some of which are suitable for rice cultivation, but most are retained in native grasses for dry season grazing. Climate and Water Resources 3.02 The climate is generally favorable for annual crop production and perennial grasses with rainfall averaging 900 to 1,100 mm p.a. However, the seasonality of this rainfall with 80% of the total in the months of November, December and January limits the length of the cultivation season and consequently impose limits on the area that can be cultivated. Most families depend on oxen for cultivation and are able to crop about half of their designated crop area each season. Most: farmers in the selected areas depend on dug wells of up to 20 m depth for drinking water supplies. In general, groundwater in Kabwe district is available at a depth of less than 10 m, in sufficient quantities for stock watering. On the Plateau in Mazabuka and Monze, water is somewhat deeper but in all areas near to dambos and the Kafue flats the water level is close to the surface. The Project is traversed by several perennial streams. Land Use 3.03 Of the 200,000 ha falling within areas served by the Project, it is estimated that: (a) 80,000 ha are cropland, i.e, land which has been cleared and cultivated for crop produc- tion at some time withiin the last twenty years; (b) 75,000 ha are grazing ]Land, with native grasses and savanna and up to 30% tree cover, including about 10,000 ha of low land with the balance in forests, waste areas etc. None of the area is under threat from tsetse fly.  - 13 - Annual food crop production is the main agricultural activity and maize is the predominant crop, occupying roughly 70% of the cropped area. Other crops grown and the percentage share of the total area are: groundnuts 15%, sunflo- wer and soyabean 5%; cotton 5% and others, including vegetables, tobacco, sor- ghum and beans, 5%. Many farmers on reserve and trust land use fertilizer and for maize and most cash crops except groundnuts, the use of improved seeds is widespread. Infrastructure 3.04 All parts of the three Project areas are within 30 km of the main paved road which links Kabwe, Mazabuka and Monze with Lusaka (see maps No. 15775-6). In Kabwe district the proposed milk collection routes on the roads to Chivuna and Munega are considered to be all weather. In Monze, the collection route through Siakasenke, Siwiili, Chisekesi, Chikuni, Chiyobola and Namakube and back to Monze is all-weather. The road connecting Monze to Njola is also all-weather. The access road to the Chisamba ranch is in poor condition and would require improvement (gravel) to several sections totalling about 4 or 5 km to make the ranch accessible through the wet season. B. Socio-Economic Characteristics Land Tenure and Population 3.05 The entire Project area falls within reserve and trust lands, which are lands under customary use. Legal title on this land is vested statutorily in the President, who can in theory grant leases or occupancy rights. In fact, this power is qualified by the customary rights of various communities who use these lands. Arable land (designated crop land) is operated on an individual basis. The grazing of stock on the other hand is usually a communal operation; grazing rights, which apply not only to vacant land but also to fallow land held by individuals, are usually held in common by all members of a community.- 3.06 The Project area contains about 400 villages or concentrations of population having a total of 45,000 inhabitants in 7,500 families. Annual growth is less than 2% and the average family size ranges between 5.6 in Monze to 6.5 in Mazabuka. Women represent 54% of the total population and 57% of those are in the 20 to 40 age group. The average family of six members includes three adults and three children or youths, who together are able to contribute 3.5 adult units representing 85 work days per month. The population in Mazabuka and Monze districts is predominantly of the Tonga tribe who have a long tradition of cattle raising and are noted for their hard work and readiness to adopt improved practice. In Kabwe district several tribes are represented but also include many Tonga who have moved north to Kabwe district. Grazing Land and Cattle Ownership 3.07 Individual grazing lands are mostly confined to small plots around the dwellings and small areas of land unsuitable for crop production lying within the cropland area. Most grazing areas are communal, however, in Southern Province, with higher village concentrations and more intensive cropping, the grazing land available close to the villages is about 20-25 ha  - 14 - per family whereas in Kabwe district the average is over 30 ha. Considerable areas of grazing land have been enclosed with the consent of chiefs, village headmen and other users of these areas. Consent for the enclosure of additional areas is most easily obtained in areas where human and cattle population density is lowest. In the higher density areas where common grazing land might not be available for enclosure, farmers are prepared to enclose part of their unused crop land for development of improved pasture. Among the 7,000 families in the Project area, 5,000 to 6,000 families are thought to be cattle owners with a total of 80,000 head, including 30,000 breeding cows and 20,000 males for draft purposes. Except for about 400 head of dairy type crossbreds, all are of the Tonga breed, an indigenous Sanga Zebu type, well adapted to the conditions of the area. Comparative average herd sizes would be 20 for Mazabuka and Monze districts and 25 for Kabwe. C. Livestock/Crop Production Systems Traditional Practices 3.08 The traditional smallholder operates a closely integrated crop/livestock system and, although the ownership of cattle is important for prestige and as a means of saving, it is still more important as a source of draught power. Cattle feed mostly on unimproved grazing and unused crop areas, although the quality of feed on these areas is high early in the wet season and the stocking rates are usually low, the grasses become rank and unpalatable as the dry season progresses, and are eventually burned. Immediately following harvest, crop stubble and residues are grazed. Farmers with dambos or within reach of the Kafue flats graze their cattle on such areas during the dry season. In general, however, the cattle herd declines in weight and subsequent work and breeding performances are adversely affected. 3.09 Cattle are confined throughout the year in small night kraals which are usually unhygienic and muddy during the wet season. Mating is not controlled but the peak calving season occurs naturally at the beginning of the wet season., During the wet season some lactating cows are milked for family milk consumption, with small surpluses being sold in the villages at prices of KO.30 to KO.40 per liter. Performance is low under these conditions, with calving rate averaging about 45%, calf mortality above 20%, adult mortality 7%-and offtake about 5%. Only aged animals are sold and these weigh about 200 kg for females and 300 kg for spent draught animals. Mature native cows produce about 200 kg of milk during 120 days. Farmers participating in the Rural Milk Scheme have progressed to the point of having constructed fence, milking shelters, water supplies, and planting improved star grass pastures and plots of leucaena. They have purchased crossbred cattle and are providing better manaLgement and health care. Under these conditions, the calving rate has increased to about 65-70% and milk production averages about 730 liters per lactation, although some farmers are able to get up to 1,000 liters per lactation from the improved stock. Smallholder Milk Producers 3.10 There are about 100,000 families country-wide on reserve and trust- lands who produce small quantities of milk under traditional methods for their own use and for local sale. There is a potential for increasing this production by providing a market outlet for milk surplus to local requirements  - 15 - and also through better animal health and improved management to further increase the number of cows with live calves and to increase milk yield per lactation. The major constraint impeding the realization of this potential in areas adjacent to urban centers is the absence of an established milk market outlet and a dependable milk collection service. A significant part of this potential production can be expected to flow to the market together with the more intensive production which would come from improved crossbred cattle as the required market and services are established. Typical smallholder units in the proposed production area average about 12 to 15 ha of cropland, of which 5 to 6 ha are cultivated annually, and 6 to 10 ha are kept fallow for grazing natural grasses. The share of common land available to each family is 20 to 30 ha. The average farm unit has 20 to 25 head of cattle of which two to four are work oxen and six are mature cows. Total annual production including home consumption and sales consist of 7 tons of maize, 180 kg groundnuts, 250 kg of sunflower, vegetables for home use, about 350 kg of milk and one culled cow or one ox each year. The labor force is occupied 80% of the time with crop production mostly November through January and May through August, but is underutilized the remainder of the year. The net value of pro- duction is calculated to be about K1,200 or K200 per capita. Cattle contri- bute 30-40% of value of production. Crop production uses about 460 man/days annually returning K1.80 per day. Labor requirements for cattle are estimated at 150 man/days per year. Total available labor in the average family (para. 3.06) is about 1,000 man/days per annum, present demand represents about 60% (600 man/days) of available manpower. IV. THE PROJECT A. General Description Project Rationale and Objectives 4.01 Milk production for commercial sales in Zambia has been declining steadily over the past 10 years while demand has been steadily rising. Some of this gap has been offset by large imports of powder and butter oil to pro- duce reconstituted milk, however, GRZ's precarious trade balance has led to a reduction in the foreign exchange available to purchase the ingredients, dras- tically reducing the total milk supply(para. 1.20). The locally produced milk supply originates a-lmost exclusively from large commercial expatriate farmers with a smaller supply from state farms. There are no commercial sales by traditional smallholders (para. 1.05). The latter group represents the best potential in the long term to develop a milk supply which could have a signi- ficant impact on the country's overall milk production. The Project would develop a method by which traditional cattle owners can gradually move into successful milk production and sales. There are, however, a number of diffi- cult technical and traditional obstacles to overcome and there are certain risks which are inherent in a Project attempting to introduce a change in tra- ditional methods. It is for this reason that it should be regarded as a Pilot Project and would be structured so as to develop over a six year period in two phases. The second stage of development would depend upon the progress of the initial stage. It is expected that there could be an indication of such progress by Project Year Three when a mid-term review would evaluate farmer participation in the first phase in order to decide the modifications necessary for an effective second phase of the project. The Mazabuka/Monze districts would be developed first, with the Kabwe district to follow.  - - 16 - 4.02 The Project would, over a six year period, assist about 1,800 cattle owning families in three districts to make the transition to improved livestock management, and would thereby increase family incomes. This change would be achieved through a number of coordinated activities to be implemented in the Project area. These activities would include: establishment of milk collection services; intensification of extension and animal health services supported by relevant training; provision of production credit at terms suitable for dairy development; and provision of a source of crossbred dairy cattle. The Project would provide for a Project Management Unit (PMU) to be established within MAWD responsible for overall Project implementation and execution. MAWD's Planning Unit wouLd assign an evaluation officer to the PMU to assist in monitoring and evaluation of the Project. Specifically, the Project would finance the following components: (a) Farm Development The Project would support a program to increase domestic milk supply by assisting traditional smallholders to enter intoD milk production for sale on a regular basis. It wDuld provide for the services required to suppDrt dairy development, for the production of crossbred dairy cattle, and credit for smallholder purchase of production inputs. (b) Animal Husbandry Extension and Veterinary Services The Project would support intensification and improvement of these services in the proposed dis- tricts. Staff would receive specialized dairy training at the Palabana Dairy Training Center. The Project would provide for additional veterinary staff along with three expatriate volunteer veterinary officers, housing, equipment, and vehicles for AAs and VAs in the sub-centers which are not provided under the Southern Province Project (para. 1.24). (c) Smallholder Credit CFC would receive Project funds on-lent to them by Treasury to provide credit to participating dairy producers. Project funds would provide for an added office in Mazabuka if rental facilities are unavailable and additional staff, vehicles, office equipment and operating funds to administer and supervise Project borrowers. (d) Heifer Farm Development and Production To supplement the present limited supply of crossbred heifers, the Project would provide funds to improve and expand the Chisamba Ranch presently operated by Zambia Agricultural Development Ltd (ZADL) as a beef ranch. Production would be converted to breeding crossbred heifers. The Project would finance capital improvements to the ranch infrastructure, provide for a skilled ranch manager, vehicles, tractors and equipment, and staff housing.  - 17 - (e) Milk Collection Services The Dairy Produce Board (DPB) would establish a milk collection system to be financed with Project funds. The service would require construction of country milk depots for assembling farmer's production; two milk cooling centers with required equipment; and milk collection trucks suitable for the amount and the location of the milk to be carried. The Project would provide for a transport manager to supervise the entire collection scheme. Funds would also be provided for prompt repair of road "bad spots" on milk collection routes when in the judgment of the transport manager regular operation of collection services would be endangered. Follow up road maintenance activity would be coordinated with district road maintenance authorities. (f) A Project Management Unit (PMU), responsible for implementation and execution of the Project, would be established in Department of Agriculture of MAWD. The Project would provide for an internationally recruited project manager, financial controller and local supporting staff. B. Detailed Features Farm Development (Tables T 3a-3f) 4.03 It is expected that approximately 1,800 farmers would participate over the six-year period of the Project implementation. Of this group, a total of about 600 of the more progressive farmers (Type A) would borrow to develop small crossbred dairy units. Investments at farm level on each farm would include: one kilometer of fence for paddocks; a simple shed-type building for milking; feeding facilities; a small area of Leucaena 6/, and the purchase of basic dairy and animal health equipment. Project farmers would receive assistance in locating and constructing water wells from MAWD's regular rural water supply program on a grant basis. MAWD would be expected to provide, as a priority, the required assistance to type A farmers. The MAWD wells are cement lined, concrete sealed tops with hand pumps and it is accepted practice for farmers to contribute all the unskilled labor for the installation. In the second year of development, each farmer would purchase three crossbred heifers close to calving and one crossbred bull, then an additional two crossbred heifers the following year. The bull would also be used with the farmer's traditional herd, and it is expected that milk production from the traditional herd would also increase and be available for sale. It is estimated that 1,200 traditional farmers (Type B) in the same areas as the Type A progressive farmers, would take advantage of the improved extension and veterinary service and the milk collection system to begin selling milk produced by their local cattle. They would borrow for the purchase of crossbred bulls to upgrade their cattle and they would construct 6/ A palatable leguminous perennial low growing bushy tree.  - 18 - simple holding pens for milking and purchase hand/spray pumps for external parasite control. 4.04 The Project Management Unit (PMU) staff, assisted by field staff would organize a program to keep potential producers in the Project area informed of Project developments and of the opportunities to participate in commercial milk sales. The program would include identification and selection of Type A farmers. In order to keep milk collection costs at a minimum the criteria to be followed for selection of Type A farmers would include: (a) groupings of 8 to 10 farms located within 3 to 4 km of future collection points to be situated on all-weather roads; (b) farms with land available ior fencing improved pas- ture plots upon agreement with neighbors and/or headmen, or with land not needed for food crop cultivation; (c) creditworthiness and a demonstrated ability and readiness to adopt improved cattle management practices and an understanding of the need to use credit plus at least 20% of- their own cash for these purposes (a pre-preparation survey was conducted to identify these requirements); (d) in the first group, recogniLzed leaders in each area who are considered progressive by neighbors and could serve as demonstrators for later applicants. The traditional Type B farmer would need to satisfy (a) above but the remaining criteria would not be as necessary since it is expected that interest would build as a result of the activity and involvement of the A Group. Animal Husbandry Extension (Table T-2a 4.05 Responsibility for extension services to dairy farmers lies with the senior dairy officer (SDO) - Lusa]ca and the Provincial dairy officers (PDO) in Central and Southern Province. In addition, each of the districts has an animal husbandry officer (DAHO). The dairy development capability of the existing DOA extension service would be increased in the Project areas through the recruitment, training and posting of 14 additional AAs (Agricultural Assistants) to meet the intensive demand for extension assistance on Type A farms through to the sixth year of development. These AAs are available, and with specialized dairy training could become the nucleus team for future expansion of similar Projects in new areas. Assurance was obtained from GRZ that at least 12 AAs would be posted during Project year one. One dairy development officer wDuld be selected, trained and posted to each district. Each existing and new AA would be given three months initial training at Palabana (para. 1.15) and thereafter would receive regular training at sessions of two week duration as part of their ongoing training. A bicycle would be provided to each camp AA or Commodity Demonstrator (CD) in Kabwe districts, additional AAs and the District Dairy Officers (DDOs) would  - 19 - each be provided with a motorcycle. Three houses would be provided for the DDOs. 4.06 Dairy husbandry extension would be provided in Project areas as a specialized activity included in the range of services covered by the existing extension staff of the DOA. Assistance at farm level would be provided from the 22 existing agricultural camps in the Project area with additional staff to assist in the initial work load and strengthened subject matter specialization at the district level. It is expected that each AA or CD would eventually be advising four groups containing 60 to 80 farm families of whom 20 to 30 would be Type A farmers. In Southern Province, the DOA extension service would be strengthened and provided with vehicles through the Southern Province Agricultural Development Project being prepared for World Bank financing. The requirements for dairy development would be made to fit into the overall plan for the extension service by the addition of specialized dairy husbandry training in regular training sessions; and by the establishment of specialized courses for farmers at the Farmer Training Centers (FTCs). In the Central Province (Kabwe district) the strengthening of services specifically for dairy development would be carried out under the Project. Additional specialized staff would be trained and provided with appropriate vehicles. The increased service would eventually be absorbed into the Province-wide DOA extension organization. Housing where required would be constructed for DDOs. The Project would finance incremental operating costs associated with dairy development. The Project Manager would coordinate the Project administration and implementation activities with District Dairy officers and the District Advisory Committees (Para 5.01). He would also assist in the formulation of the design and the technical content of the several training programs. Veterinary Services (Table T-2b) 4.07 The danger of high mortality rates amongst crossbred cattle observ- ed in the RMPS has illustrated the need for intensified veterinary services in areas where crossbred dairy production is being developed. The Department of Veterinary and Tsetse Control Services (DVTCS) which would be responsible for providing services, would recruit, train and locate in the dairy project areas an additional six veterinary assistants (VAs) whose sole responsibility would be to provide support to Project participants. Farmers working with crossbred cattle for the first time will be confronted with some cattle disorders not previously experienced. Since rapid diagnosis and treatment will be essential for the early success of the Project, the six VAs would be supported by three veterinarian officers (VOs), two have been recruited and are now on the job, one located in each district center. These VOs are international volunteer veterinary graduates. The required VAs are presently available in adequate numbers. Assurances were obtained at negotiations that DVTCS would assign six veterinary assistants (VAs) to the Project area. 4.08 Each of the VAs and VOs would be provided with a motorcycle to per- mit the required mobility. In Southern Province the district veterinary offi- cers would be provided with vehicles through the Southern Province Agricultural Development Project, but in Kabwe district an additional motorcycle will be needed for the District Veterinary Officer (DVO). The DVO and volunteer VOs would live in the district centers where they would operate from the existing veterinary offices, but would be expected to find their own accomodation. VAs would live and work from the most central veterinary station in each area and  - 20 - would be provided with a standard house constructed as a Project cost. In Kabwe district, a refrigerator would be provided for each of these stations and sundry veterinary equipment, syringes, forceps, drenching guns, emasculators, calving and dehorning equipment would be provided for each additional VA and VO. The veterinary stations from where the VAs will operate would be provided each year with the chemicals, vaccines and pharmaceuticals required for prevention or treatment of the most important diseases. These are: tick-borne diseases, anthrax, haemorrhagic septicaemia, black quarter, brucellosis and internal parasites. All cattle would be vaccinated yearly against anthrax and black quarter, all female calves at eight months of age would be vaccinated with strain 19 against brucellosis. Vaccinations against haemorrhagic septicaemia and liver fluke would be carried out in susceptible areas as needed, and all cattle would be sprayed weekly against ticks. Calves would be treated on average three times against internal parasites. The cost of all materials used for veterinary service and treatment would be paid for by participating farmers who would have the option of purchasing directly from local suppliers. However, existing vaccination programs for anthrax, black quarter, haemorhagic septicemia and brucellosis would continue to be carried out under normal veterinary services. 4.09 The Provincial Veterinary Officer (PVO) together with the Project Manager and the District Veterinary Officer would be responsible jointly for planning and implementing the veterinary support program for Project farmers. At the district level, the program would be executed through the volunteer Veterinary Officer. They in turn, would constantly supervise the Project Veterinary Assistants (VA) in their districts. The VAs would make regular farm visits to Project participants for routine treatments, monitoring the animal health situation and would provide instruction to farmers in basic disease prevention practices. Complicated diagnosis and urgent treatments would be referred to the VOs. VOs and PVOs would prepare estimates of annual material requirements for the PMU. Training 4.10 The Project would provide for the costs of training for both the animal husbandry AAs and the Veterinary Department's VAs assigned to the Project area. Assurance was obtained from Government that the two services would coordinate and integrate the activities of their respective staff in the execution of the Project, and arrange for them to train jointly at the Palabana Dairy Training Center. This has particular importance because of the existing departmental separation of these critical support services. Palabana operations, staffing and facilities are financed by the Netherlands assistance agency. The training center's administration would structure a practical dairy smallholder short course for Project staff. Project funds would be provided for overseas training. Credit (Tables T2c-2d) 4.11 The CFC would operate the credit component from its present head- quarters in Lusaka through offices in Kabwe, Mazabuka and Monze. The senior credit officer/controller appointed by CFC would be responsible for Project lending on behalf of the General Manager. His staff in the field would check credit-worthiness and in collaboration with the DOA would prepare farm plans. Project participants with approved loans would be issued with local purchase  - 21 - orders for materials and livestock. These would be provided in-kind with CFC paying the suppliers and debiting the cost to the participant's account. Recovery of loans from Type A farms would be through deduction from monthly milk payments made by DPB. Recovery from Type B farms would be effected directly with CFC field officers visiting loanees twice annually; once following maize sales and once following peak milk sales in January. As a last resort CFC could repossess livestock. Credit requirements for individual farm families are calculated to be about K 2,800 (US$3,500) for the A Group and K 460 (US$575.00) for the B Group. The A Group would borrow over a three year period K 450 Year 1 for equipment, seed, etc.; K 1,750 Year 2 for three heifers and a bull; and K 600 Year 3 for two added heifers. Group B would borrow K 460 at the beginning of their development for a crossbred bull. Total project credit requirements have been estimated to be K 2.0 million (US$2.5 million) (Table T-2c). The Project would provide for incremental CFC staff for Project generated credit administration and supervision. Added staff would include a credit controller for Lusaka; field officers-one each for Monze and Kabwe; and establishment of an additional field office and staff in Mazabuka. The Project would provide for vehicles, office equipment, furniture and incremental operating costs. 4.12 Historically, CFC has operated with grant funds which it lent at 9-10%, but was in most years unable to operate at a profit (para. 2.04). CFC's current interest rate of 10% is not only too low to cover its cost of operations but is also negative in real terms. The maximum interest rate for all domestic lending currently imposed by the Bank of Zambia is 12%. Assurances were obtained that CFC shall at all times ensure that the spread between its borrowing and lending interest rates will generate sufficient revenues to cover its debts, operating costs and provide for a reserve for bad debts ard a reasonable profit. An on-lending rate of about 5% by GRZ to CFC, which is the same rate agreed upon under EPADP for funds on-lent to the cooperative unions would provide CFC a sufficient spread to cover all operating costs (Tables T-2d and T-4), interest payments to Treasury (Table T-4), and allows for a 2% provision for bad debts. This should be adequate considering the value of cattle as collateral, both those purchased under the Project and the farmer's traditional herd. The higher interest rate of 11% charged to Project participants -- AFC currently charges only 9% -- would also take into account the higher credit risk of a smallholder dairy pilot project, although it is assumed that the Type A farmer would be a more progressive farmer. To reduce the risk of mortality among the crossbred bulls to be purchased by type B farmers, the possibility of developing a workable insurance plan would be explored. All credit arrangements would be contingent on results of the establishment of ZADB (para. 1.14) which is being strengthened by technical assistance under the EPADP. Heifer Farm Development and Production (Table T-2e) 4.13 To supplement the existing supply of crossbred cattle, the 15,000 ha Chisamba Ranch of the ZADL would be developed for the production of Sahiwal or Afrikander x Holstein, crossbred heifers and bulls. Development would be aimed at increasing the ranch carrying capacity up to approximately 4,000 livestock units and producing annually 550 heifers mostly for sale to Project farmers. By the fifth year of the Project, farmers would require 1,000 in-calf heifers, 300 would be supplied from Batoka and 150 would be purchased from the commercial sector, leaving 550 to be provided from Chisamba Ranch.  - 22 - The Project would provide for the fol:Lowing infrastructural and operational development: (i) fencing the equivalent of about 90 km, to increase present paddock sub-divisions to accomodate increased cattle numbers and to utilize additional grazing areas; (ii) water supply, drilling two new boreholes, cleaning existing boreholes, renovating pumps, windmills, watering troughs and waterholes, and earthen dam improvement; (iii) tree clearing of about 4,000 ha, stump removal on 300 ha, and establishment of 250 ha of improved (stargrass) pasture; (iv) construction of one new dip tank and improvement of those existing and construction of two new handling yards; (v) purchase of a tractor and trailer, a truck, a four- wheel drive vehicle and two motorcycles; (vi) ranch buildings and ranch road improvements; and (vii) cattle purchase of 1,000 head of Afrikander or Sahiwal breeding cows to supplement the existing herd, and 90 highgrade Friesian bulls. 4.14 ZADL would retain ownership of the ranch but the operation and management of the unit would be turned over to the PMU. The Project would provide for an appropriately skilled ranch manager who would be responsible to the PMU. Assurances were obtained that a ranch manager with qualifications and experience and terms and conditions of employment agreeable to the Association be employed. It is expected that ranch generated income would provide for payment of all ranch operating costs which would include interest and amortization of-the ranch development loan extended to ZADL by Treasury and a ZADL overhead charge (Table T-51). In addition, ranch operating costs and capital replacements would be budLgeted annually by ranch management and any surplus income over these budgeted costs would accrue to ZADL. Incremental ranch operating costs attributable to Project expansion of production over the first three Project years would be considered developmental costs and would be included in capital cost financing. The Ranch Manager, who would be appointed after consultation with IDA, would have authority for all day-to-day management decisions and financial authority over an imprest account to cover the operating budget and responsibility for administrating and supervising capital improvements. Records and accounts for Chisamba Ranch would be kept separately from those of other ZADL ranches and would follow accounting and recording procedures to be agreed with the PMU, and IDA. Sales and transfers of livestock to and from Chisamba would be made only in accordance with the overall plan and as agreed with the Steering Committee. Delivery of heifers, bul:Ls and planting material (Star grass) from Chisamba would be coordinated with the Project Manager and executed by the  - 23 - ranch manager. The vehicles at Chisamba would also be used for delivery of heifers purchased from Batoka and from commercial farmers. The ranch account would receive payments from CFC for the agreed delivered price of heifers and for the transport of other inputs. Milk Collection Services (Tables T2f-2g and Maps Nos. 15775 - 15776). 4.15 The DPB would undertake to purchase all milk of acceptable quality- delivered to collection depots along the collection routes -- provided this milk is delivered in time. Milk suppliers in turn would undertake to sell to the DPB all milk in excess of that needed for family or local consumption. In the interest of time and cost saving, DPB would undertake to purchase milk at agreed collection points to be established as depots where eight or more sup- pliers would assemble their milk for testing, weighing and purchase. To minimize the cost involved,, the collection route would be selected according to the number of farmers likely to participate, the rate of development that could be expected and projections of the quantities of milk that would become available for purchase. Collection routes would be carefully planned, begin- ning with those routes having the greatest yearly milk marketing potential where services could be most easily developed, later extending into other routes. A mobile collection service may be used at the outset of the Project with permanent depots being established as centers of production develop. Despite these cost precautions, DPB would not break-even on the milk collection services until the eighth year because of the slow build-up of milk production, the limited scale of the pilot Project, and the long development period required for establishing a cost effective milk collection system. 4.16 The milk collection service would be operated, by agreement with suppliers, once daily at a specific time. The object in planning services would be for all milk to be cooled within four hours of milking time. Final planning of milk collection service would be carried out only during imple- mentation and development of the Project and constant review and revisions would probably be needed. The appraisal projections are based on preliminary surveys and can only provide the basis for calculating the investment and operating costs involved, their effect on the cash flow of DPB, and the factors to be considered in organizing the services. 4.17 To establish the collection, handling and transport system the Pro- ject would provide financing for the following: (i) as many as 25-30 milk collection depots by Project year six, consisting of a simple 10 m2 building and basic milk handling equipment; (ii) two milk cooling centers complete with equipment to weigh, test, cool and store milk along with facili- ties to maintain and wash equipment; (iii) vehicles and supplies required to operate the col- lection system would consist of a 1-ton pickup for the transportation manager, two 1-ton pickups, two 3-ton trucks, and three 5-ton trucks all for milk pickup; milk cans, testing equipment and measuring pails; and  - 24 - (iv) salaries and wages for incremental staff for the milk collection services, for the transport manager and for operating and maintenance costs for all collection vehicles. 4.18 Assurance was obtained during negotiations that the DPB, would employ a Milk Transport Manager, whose qualifications and experience shall be acceptable to the Association, who would coordinate with DPB's Area Manager and be responsible for milk collection from Project areas. He, together with the Project Manager, would plan each route; plan the establishment of milk cooling centers; order the necessary vehicles and plant; and be responsible for staff management. He would monitor the performance of each route; modifying and revising routes, vehicles, and staff allocations as found necessary. The existing laboraLtory supervisor at the Midlands plant would be responsible for milk testing. The existing clerical unit would calculate the 10-day milk quantities of each supplier and transmit these, with 10-day milk quality reports to the data processors. The data processors would prepare a monthly statement for each supplier under contract and would prepare a cheque for the net amount due to each, after making the agreed debt service deductions. A single cheque covering all deductions would be forwarded to CFC with a statement of the amount deducted from and paid by each supplier. The Transport Manager working with the Project Manager would decide where immediate attention to road "bad spots" would be necessary and local contractors would be employed for prompt road repair. There would be coordination with the District CouncLl road maintenance units who would be responsible for follow up maintenance and permanent road repair. Except for these emergency situations, maintenance should remain the responsibility of the District Council units. Maintaining a regular milk collection schedule should have the highest priority and the Transport Manager would use his authority and Project funds if this schedule is endangered by poor road conditions. It is expected that this would only be a problem during the height of the wet season, a period that seldom exceeds two to three weeks in a year. Project Management (Table T-2h) 4.19 The Project would provide for an internationally-recruited Project Manager, a Financial Controller and an Evaluation Officer to be seconded to the PMU by MAWD. The PMU would be supported by an appropriate secretarial staff with the required office equipment, furnishing and supplies. The Project would also finance two vehicles for the PMU. C. Project Costs 4.20 The total costs of the Project are estimated at K9.3 million (US$11.6 million), of which US$4.2 million (36%) represents the foreign exchange costs. The costs include about KO.14 million of taxes and duties. The Project provides for a total of 204 man months of technical assistance, 72 m/m each for a financial controller and a Project manager and 60 mIm for the ranch manager at an estimated cost of K1,OOO,OOO (US$1,250,000). This includes cost of salaries, fees, travel and housing. The average cost per m/m (for salaries, fees, etc) is estimated at K4,900 (US$6,100). The phasing of Project costs is given in Table T-2 and costs for  - 25 - each of the components are detailed in Tables T-2a through T-2h. Project costs are summarized below: Foreign Base Local Foreign Total Local Foreign Total Exchange Cost - - - K '000 - - - - -US$'000- - - % % On-Farm Development 1/ 437 131 568 547 163 710 23 8 Animal Husbandry Extension 394 70 464 493 87 580 15 6 Veterinary Services 141 55 196 176 69 245 28 3 Credit 2/ 1,873 498 2,371 2,342 622 2,964 21 34 Heifer Farm Development 511 952 1,463 639 1,159 1,828 65 21 Milk Collection Service 426 521 947 533 651 1,184 55 13 Project Management 483 567 1,050 604 709 1,313 54 15 Total Base Cost 4,265 2,794 7,059 5,334 3,490 8,824 39 100 Physical Contin- gencies 189 70 259 237 87 324 27 4 Price Contin- gencies 1,622 418 2,040 1,912 638 2,550 25 29 Total Project Costs 6,076 3,282 9,358 7,483 4,215 11,698 36 133 Total Cost Net of Taxes & Duties 5,936 3,282 9,218 7,307 4,215 11,522 36 131 1/ Kepresents farmers! contriDution ana GKZ grant for water weII construction - (Table T-2). 2/ CFC funds for farmer credit and services. Project costs have been estimated on the basis of January 1982 prices. Physical contingencies of 10% have been included on capital costs of vehicles and equipment, and on all construction works. Price contingencies have been included on the international component of vehicles, equipment, and internationally-recruited staff at annual rates of 9% in 1981, 8.5% in 1982, 7.5% in 1983-85, and 6% thereafter. Price contingencies on the local component have been included at an annual rate of 12% throughout the Project period. No price contingencies have been included on cattle purchases since it is assumed that the base price will prevail in all transactions between Chisamba Ranch and Project farmers. Price contingencies total about 29% of project baseline costs. 4.21 Project costs include incremental operating expenses of all services - animal husbandry extension, veterinary service, credit service, milk collection, and project administration - throughout the Project period, operating expenses of Chisamba Ranch during the three-year development period,  - 26 - and the salary of the Chisamba Ranch Manager for five years. Due to the pilot character of the Project, its small scale, and the long gestation period of a dairy project, the milk collection and credit service would only reach a self-supporting level after Project completion. Incremental annual recurrent costs for veterinary service and animal husbandry extension would total approximately K173,000 (US$0.2 million equivalent) by Project year 6. This amount should not represent an excessive increase in GRZ' normal recurrent budget, since most of the staff positions associated with the project are regular postings under MAWD's recurrent budget. D. Financing 4.22 The financing of Project costs, net of taxes and duties, would be as follows: US$ Million % IDA 7.5 65 Government of Zambia 3.4 30 Farmers 0.6 5 Total 11.5 100 The proposed IDA Credit of US$7.5 million would be on standard terms to the Government of Zambia and would cover all the foreign exchange costs of the Project (US$4.1 million) and 46% of local costs, or about 65% of total Project costs net of taxes and duties. Farmers would contribute US$0.6 million equivalent for on-farm investments (excluding farm labor value). Government of Zambia would provide the remaining US$3.4 million net of taxes and duties. The terms and conditions of this financing plan were agreed upon at negotiations. 4.23 IDA funds and GRZ contributions for the animal husbandry extension, veterinary service and Project management components (K2.4 million including contingencies), and. the road spot repair and farm water supply sub-components (K0.5 million including contingencies) would be channelled to the Permanent Secretary, MAWD, and would be subwarranted by him directly to district operational centers through an imprest fund controlled by the Project's financial staff. It is a condition of credit effectiveness that the funds required for these components would be deposited by GRZ in the Bank of Zambia under arrangements satisfactory to the Association, at the beginning of each. quarter, and that the initial amount has been deposited. IDA funds and GRZ contribution for the milk collection service (Kl.l million including contingencies) would be channelled by GRZ to DPB as a loan for 20 years at 11% including an eight-year grace period. IDA funds and GRZ contribution for the heifer farm (K1.8 million including contingencies) would be channelled byr GRZ to ZADL as a loan for 15 years at 11% including three years grace period. IDA funds and GRZ contribution for the farm credit and credit service (R:2.5 million including contingencies) would be channelled by GRZ to CFC as a loan (on conditions stated in para.  - 27 - 4.12). It is a condition for Credit effectiveness that GRZ would have executed subsidiary loan agreements acceptable to IDA with DPB, ZADL, and CFC respectively stipulating the conditions and terms for such loans. E. Procurement 4.24 Procurement under the Project would be in accordance with Bank/IDA guidelines. Specifically,7/ (a) orders for vehicles, spare parts, machinery, equipment and fences (US$0.8 million) would be bulked as far as practicable. Orders expected to cost US$100,000 and above would be procured by the PMU through international competitive bidding (ICB) from suppliers who maintain or agree to maintain an adequate after-sales service and inventory of spare parts; (b) orders for vehicles, machinery, equipment, and fences that cannot be bulked in packages of US$100,000 and above would be procured in accordance with existing local competitive bidding procedures which are satisfactory; (c) the purchases of cattle for Chisamba Ranch (US$0.6 million) would be from countries adjacent to Zambia with the type of cattle required and with health regulations acceptable to the Zambian livestock and veterinary services. Purchase would be made at regularly scheduled advertised public sales and to the extent this source would not provide the required supply, purchases would be from cattle owners following widely circulated advertising by Chisamba Ranch management of intention to purchase. (d) civil works, including the construction of buildings, installation of water supplies, road maintenance, Chisamba land clearing and pasture improvements (US$1.4 million) would be too small and scattered to attract international interest. Procurement would be by bidding or by force account, although foreign firms would be entitled to compete; (e) other goods required for dairy farm development would be obtained by the farmers through existing commercial channels; (f) the selection and employment of technical assistance staff (US$1.2 million) would be in accordance with procedures satisfactory to the Association. Draft tender documents for all contracts to cost in excess of US$100,000 would be submitted to IDA for approval before bid invitations are issued, and bid analysis and recommendations for award would be submitted to IDA for comments before contracts would be awarded. In the evaluation of bids for (a) above, bona fide domestic manufacturers would be awarded a preference of 15% or the existing rate of duty, whichever is lower. Assurances were obtained during negotiations that the procurement procedures outlined above would be followed. 7/ All figures in this paragraph exclude contingences.  - 28 - F. Disbursements 4.25 Disbursements of funds from the Credit would be on the following basis: (a) 70% of the cost of civil works (US$1.0 million); (b)i 100% of foreign expenditure and 80% of local expenditure for vehicles, spare parts, equipment and materials (US$0.7 million); (b)ii 100% of foreign expenditures and 80% of local expenditures for operating costs of vehicles, machinery, veterinary supplies and materials. (US$0.6 million); (c) 100% of foreign expenditures for technical assistance (US$1.2 million); (d) 100% of foreign expenditures for breeding stock required for Chisamba Ranch (US$0.6 million); (e) 80% of the credit requirements for loan for farm development disbursed by CFC to participating farmers (US$2.5 million); and (f) an unallocated amount representing contingencies on the above items and transferable to them as required (US$1.0 million). 4.26 Disbursements under (b)i, (b)ii foreign expenditures, (c) and (d) would be fully documented; any civil works under (a) not carried out by force account would also be fully documented. Disbursements against (e) would be on the basis of certificates of expenditure signed by the General Manager of CFC. Disbursements for expenditures under (a) by force account and against (b)ii local operating expenditures would be on the basis of certificates of expenditures signed by the Project Manager. Disbursements under (b)ii for local operating costs and (a) for civil works under force account will be made against certificates of Expenditure documentation for which is not submitted for review but is retained by the borrower and made available for inspection by the Association during the course of a Project supervision mission. Funds remaining in the Credit at Project completion would be cancelled, unless otherwise agreed by IDA. A schedule showing the estimated disbursements under the Project is at Table T-1. G. Accounts and Audit 4.27 Assurances were obtained during negotiations that separate accounts relating to expenditures under the Project would be kept by the PMU, ZADL, DPB and CFC, that these accounts would be audited by independent auditors acceptable to IDA, and that such audilted accounts would be submitted to IDA within six months of the end of each financial year. The auditors would specifically review and comment on the procedures used for control of disbursement against certificates of expenditure. Audited accounts for ZADL, DPB and CFC are normally produced within six months of the end of the financial year.  - 29 - H. Environmental Impact 4.28 The Project as structured would have a generally favorable impact on the environment. Project recommendation to participants to establish perennial grasses and leguminous tree plantings (leucaena) in their present crop rotations represent good conservation practices and would reduce the danger of soil erosion on smallholder farms. Pesticide use under the Project is confined to direct spraying on cattle to reduce the threat of tick-borne diseases and to the maintenance of proper acaracide solution in the existing dips. Pasture improvement, seeding permanent grasses, and rotational grazing to reduce overgrazing would be established as regular management practices on the Chisamba Ranch. In addition, several earthen dams would be constructed on the ranch to preserve water and to reduce rapid run off, always a serious erosion threat. V. ORGANIZATION AND MANAGEMENT 5.01 Overall responsibility for macro level policy planning and coordination among GRZ agencies and parastatals would rest with the Permanent Secretary (PS) of MAWD who would chair a high level Project Steering Committee (PSC). This Committee, which would meet at least every three months to review progress, discuss policy matters, resolve bottlenecks and endorse the decisions of the Project Management Unit, would include the directors of the DOA, the DVTCS, the MAWD Planning Unit; and representatives of CFC, DPB and ZADL. Each District would set up a District Advisory Committee made up of the PAO and the PVO representing the provinces; its DAO and the DVO; two typical Type A farmers; and a commercial dairy farmer (Chart 2). 5.02 The Project Management Unit (PMU) would be established in the DOA, and would report to the Director of Agriculture through the Senior Dairy Officer. The PMU would liaise with DVTCS and the Planning Unit and would be responsible for day-to-day project management and execution. It would consist of an internationally recruited Project Manager (PM) with background in livestock development, a similarly recruited Financial Controller and support staff to be seconded to the PMU by MAWD. It is a condition of credit effectiveness that the Project Manager whose qualifications and experience and terms and conditions of employment shall be satisfactory to the Association would have been employed over the life of the Project. Assurance was obtained at negotiations that the Financial Controller would be employed for the life of the Project under terms and conditions agreeable to the Association. The PMU would establish its administrative office in the Department of Agriculture of MAWD, however, the Project Manager would be based in a field office in Mazabuka in order to be in close contact with Project activity. He would also be resident in the Mazabuka area where suitable rented living quarters would be available. This dual arrangement would not create a problem since Lusaka and Mazabuka are only 110 km apart and on an excellent highway and communication between the two is easily maintained. The Project would provide for the PMU's operating costs. The responsibilities of the PMU would include: (a) to draw up annual and quarterly implementation schedules and budgets together with each of the participant agencies;  - 30 - (b) to prepare schedules of capital and recurrent inputs and to be responsible for ensuring their order and purchase; (c) to receive and handle requests from the implementing agencies concerning matters requiring urgent decisions and coordination; (d) to be responsible with the agencies concerned, for all technical aspects and to ensure that training programs are carried out; (e) to continuously monitor the physical and financial progress of the project prelparing quarterly progress reports for presentation to the Permanent Secretary and Steering Committee; and (f) to recommend modifications to the project as found necessary by the above monitoring. Monitoring and Evaluation 5.03 It is expected that the activities of the Planning Division of MAWD would be expanded and their general responsibilities in planning and evaluation broadened under the terms of the proposed revision and expansion of the Division to be financed by a bi-lateral donor. Under these circumstances the Planning Division would be able to assign a full time monitoring and evaluation officer to the PMU to monitor Project progress in order to evaluate the Project's rate of development. This exercise would be particularly important in view of the plan to develop the project in two phases with the decision to start a second phase conditioned upon the rate of progress achieved in the first phase (para. 4.01). Assurances were obtained at negotiations that not later than three years from the Project effectiveness date and prior to implementation of Phase II, the Borrower and the Association shall undertake a review to assess the progress achieved in carrying out Phase I of the Project. The evaluation offiLcer together with the PMU would be required to present a review of Project Progress which would provide the following information upon which a joJint decision on Phase II could be reached: (i) the number of smallholders who have qualified and obtained credit for dairy development under the Project; (ii) the pattern of milk production developing among project smallholders; and (iii) a overall analysis of the condition of the milk industry includiLng production, pricing, processing, marketing, and consumer demand. A decision to start a second phase would require Bank approval. After complet:Lon of the Project, GRZ would prepare and submit to IDA within six months of the completion of disbursements a Project Completion Report, analyzing the implementation of the Project and its impact in relation to its objectives. During negotiations, assurances were obtained to this effect.  - 31 - VI. PRODUCTION A. Smallholder Producers 6.01 The results of the farm survey conducted by MAWD indicate that at least 600 Type A (progressive group) and about 1,100 Type B (traditional group) farmers would participate in the milk production program. It is expected that carefully selected Type A farmers in the first phase area (Mazabuka and Monze) would participate starting with 100 in the first year and increasing progressively to 400 by year five (Table below). In the Kabwe area, if a second phase is approved, it is expected that about 70 Type A farmers would begin production by year four and would increase to 210 by year six. 6.02 Type B farmers are expected to develop an interest in commercial milk sales as they observe the production results of their Type A neighbors and the establishment of a milk collection system. This latter development has particular importance to the entire production area since all producers would have to be assured that a dependable outlet for their increased production is available before they could be expected to invest in production inputs. It is expected that up to 710 Type B producers in the Monze/Mazabuka area would be participating by Project year 5 and an additional 400 would join the Kabwe area. The following table summarizes the phasing in of Type A and B smallholders.  - 32 - Summary of Smallholder Participation in Milk Scheme Project Years 1 2 3 4 5 6 Producer Groups Route 3 - MAZABUKA Group A 30 70 120 160 160 160 Group B 20 830 170 230 230 Route 4 - MONZE Group A 40 90 150 150 150 150 Group B 40 120 230 310 310 Route 5 - MONZE Group A 30 70 90 90 90 90 Group B 20 150 110 170 170 Route 1 - KABWE Group A 40 90 150 Group B 60 170 280 280 Route 2 - KABWE Group A 30 60 60 Group B :30 80 120 120 Total 100 310 700 1,230 1,660 1,720 6.03 Type A farmers would change certain traditional cattle management practices in their handling of improved crossbred dairy cattle. Recommended practices would include cultivation and fertilization of at least 2 ha of improved pasture preferably star grass, a high yielding perennial now being grown successfully on commercial farms in the Project area, and also a plot of leucaena to provide a source of high protein feed. In addition, there would be dry-season supplemental feeding of maize stover, urea with sunflower or cotton cake. It is expected that crossbreeds would produce at least 600 liters during their first lactation and 800 liters in subsequent lactations. Crossbreeds, under similar conditions on RMPS farms, are producing 1,000 liters/lactation and as much as 1,200 liters has been produced in experimental work at the Mazabuka Research Center.8! 6.04 Type B farmers would improve their traditional methods by introducing crossbred bulls to sire improved dairy crossbreeds which would eventually result in increasing milk yields from the present level of 200-250 liters/lactation to about 400 liters. It is expected that their present management practices would gradually change as they observe the results of 8/ Increasing Milk Production with Friesian Cross - Indigenous Cows by Cruikshank, Hatakwati and Mjobu - Mazabuka Research Station, 1969.  - 33 - their more progressive (Group A) neighbors and it can safely be assumed that many Group B producers would develop into progressive dairy farmers in response to the marketing opportunities developed under the Project. The Project financed improved veterinary and extension services would provide continual management and health control support to all participating smallholders. B. Production Increases 6.05 Increases in both milk and meat production for Type A farmers would come from the establishment of their crossbred (five cows and a bull) herd and gradual improvement of their traditional herd. The latter averages about 25 animal units and would have the benefit of the use of the Friesian bull to upgrade the quality of the native milking cows. Milk production from a crossbred herd would reach about 3,700 liters per year by Project year 10. Sales of culled cows and males would average 3 or 4 head per year at a total value of K1,170. Incremental milk production for commercial sale as a result of Project support, from the same farmer's traditional herd, would reach about 300 liters per year. Incremental annual production at full development by a typical Type A farmer would total 4,000 liters of milk and about 1,400 kg (liveweight) of meat. It is assumed that meat production from the traditional 25 cow herd would increase as a result of improved animal health and veterinary support services provided under the Project. The following is a summary of a Type A farmer's production increases. Type A Farm Incremental Production Year of Development 5 10 Milk (liters) Crossbred Herd 2,550 3,700 Traditional Herd 290 300 Total 2,840 4,000 Meat (kg liveweight) Crossbred Herd 500 1,120 Traditional Herd 275 278 Total 825 1,398 6.06 By Project year 10 incremental milk production from a Type B farm as a result of Project activity would total 1,500 liters per year and incremental meat production would reach 570 kg liveweight per year. Total milk production would increase from 480 liters to 1,980 liters by Project year 10 and meat production from 496 kg (liveweight) to 1,067 kg per year. 6.07 Total incremental annual production by both Type A and B farmers resulting from Project financed support is summarized below:  - 34 - Total Project Incremental Production Per Year Year of Development 5 10 Product Milk (tons) Type A Farmers 1,370 2,350 Type B Farmers 366 1,454 Total 1,736 3,804 Meat (tons liveweight) Type A Farmers 268 747 Type B Farmers 144 545 Total 412 1,292 Annual incremental milk production for the entire proposed Project area, assuming Phase II would go forward, would reach 4074 tons (Table T-3g), at full development by Year 12. Total incremental meat production for the Project area would reach 1,394 tons liveweight at full development by Project year 12 (Table T-3h). Chisamba Ranch Production 6.08 Under the Project, the present beef producing operation would be converted to crossbreed heifer production. The beef type breeding bulls now on the ranch would be replaced by a group of Friesian bulls. The 1,350 Sahiwal Cross Afrikander breeding cows now on the ranch would be retained but would be closely culled to save the best dairy types. The Project would finance purchase from countries adjacent to Zambia of about 1,000 additional improved dairy type breeding heifers and improvement to the total ranch infrastructure (para. 4.13). The present herd of 2,300 AU would be built up to about 4,000 by year 7. The first group of 240 crossbreed heifers would be available for sale in Project year 4 and the number would increase annually thereafter and stabilize at 550 by year 10. Following the initial purchase of 1,000 breeders the production plan calls for purchase of 250 breeders each year to maintain the breeding herd and to permit the annual sale of at least 550 heifers. Augmenting the breeding herd in this manner rather than maintaining cow numbers from ranch heifers would prevent in-breeding and would keep up the quality of the in-calf heifers offered for sale to Project farmers. In addition to these heifers the ranch would produce for sale annually at full development 190 cul:L cows, 105 cull heifers, 160 crossbreed bull yearlings, 100 cull bulls, 375 two-year-old breeding bulls and six culled aged bulls representing a total values of K610,000.00 per annum. This represents about a 20% offtake which would be considered high by traditional standards but can be maintained by tlhe combination of the purchase of breeders noted above and proper ranch managemeant. If the ranch were to retain enough  35 - breeding age heifers to maintain the herd cow population after normal culling the offtake would be 14%. Therefore the 20%, which appears excessive, is a result of the sale of all two to three-year-old heifers and the annual purchase of 250 breeders. Coefficients projected are for a 65% calving rate for the first three years improving to a 70% calving rate, 5% calf mortality, 3% adult mortaiity except for 5% breeding bull mortality (Table T-3i). Good management should be able to attain these levels and projecting a 70% calving rate allows for improvement over this goal. VII. MARKETS AND PRICES A. Milk Market Demand 7.01 Incremental milk production would be marketed through the DPB milk collection service established under the Project. The DPB would, by agreement with Project farmers undertake to purchase all milk of acceptable quality delivered to collection depots along the proposed collection routes. The milk of the Monze and Mazabuka areas would be processed at the Mazabuka plant which DPB plans to install with DANIDA assistance in 1981. The milk of the Kabwe area would be processed in Lusaka where the existing capacity is adequate for the production increases of the entire Project area (para. 2.01) in case the installation of the Mazabuka plant would be delayed for any reason. 7.02 Presently, DPB cannot satisfy demand for fresh and/or recombined milk. Estimates from 1974 9/ indicate that per capita consumption of fluid milk in the urban and township areas was 20.4 liters per year and in the rural areas 2.4 liters per year. The per capita figures for the rural areas, being an average for the whole country, do not reflect the differences between traditional milk consuming areas and those areas where milk has not been consumed in the past and where it remains largely unavailable today. On the basis of modest increases in per capita consumption between 1974 and 1990 - from 20.4 liter to 23.2 liter in the urban and township areas, and from 2.4 liter to 3.1 liter in rural areas - total demand for fluid milk is projected to reach 91 million liters by 1990. This demand level would require a quadrupling of present supply. While that level of output may be possible within the potential of Zambia's existing production capacity it is improbable that it will be achieved; it is more likely that the current situation would continue with marketed milk satisfying less than half of estimated demand, unless Government completely removes import restrictions on ingredients for reconstituted milk. This is highly unlikely, but in any case demand for fresh milk would continue to exceed supply well into the future because of the strong preference a substantial number of consumers have for fresh milk. Milk Pricing 7.03 Producer prices are set by Government on the basis of milk production costs on commercial farms (para. 1.23). Since costs on the Project's smallholder farms would be considerably lower, producer prices are sufficiently attractive for Project participants. Even at the modest yield 9/ FAO Perspective Study of Agricultural Development for Zambia. Food Demand and Nutrition, Rome 1976.  - 36 - projection of 800 liters per lactation, the current producer pricel/ of KO.38/1 would offer a high financial return (para. 8.03). In the past, Government announcement of the new prices lagged far behind the actual data review and, hence, rendered obsolete the production cost assumptions, thus frustrating the dairy farmers and making farm budgeting and herd planning difficult. Assurances were obtained that GRZ would annually review and adjust milk prices as deemed necessary taking into account the cost of production to farmers to determine whether producer incentives are adequate and that GRZ and the Association from time to time would consult on pricing policy. 7.04 In international trade, dairy product stocks declined in 1980, mainly as a result of substantial import increases of the USSR. In the EEC, the world's largest milk producer and exporter, intervention stocks of skim milk powder were only 0.2 million tons in mid-1980 as compared to 0.9 million tons at the middle of 1978. At the same time, international prices rose. For the first time since 1973/74, skim milk powder prices again reached US$1,000 per ton f.o.b., twice the new minimum export price established under GATT International Dairy Arrangement. Also international prices for butter oil, the second important ingredient of reconstituted milk, strengthened during 1980. As of October 1980, GATT raised the minimum export price of butter oil to US$1,200 per ton while market prices were at that time almost twice as high. For 1981, world milk output is forecast to grow somewhat faster than in 1980 thanks to an increase of dairy cows and a still unbroken upward trend in yields per cow in the developed market economies. By contrast, the expansion in demand for dairy products may slow down, epecially in the deficit developing countries, owing to the recent sharp increases in international prices. For the purpose of the Project analysis, 1980-prices have, therefore, been reduced by 10% in real terms and kept constant over the life of the Project (Table T-8). B. Beef 7.05 Incremental carcass meat production, which would represent less than 5% of present marketed supply, would be readily absorbed on the local market. Most cattle for slaughter would be marketed through commercial channels (private butchers) who have adequate capacity for the additional slaughter and meat processing. Prior to 1976 (FAO, op cit), annual marketed consumption of fresh beef was 6.9 kg per capita. In 1976 imports were suspended with a corresponding decline in supply. MAWD estimated that, between 1976 and 1978, numbers of cattle slaughtered annualy averaged 110,000 head, corresponding to an annual consumption of 4.1 kg per capita. Consequently, the present supply of fresh meat cannot meet the demand and this situation cannot be expected to changie significantly in the foreseeable future. 7.06 Official producer livestoc]k prices ranging from KO.9 to K1.1 kg per kg liveweight are equivalent to prices currently paid by private sector butchers. In the economic analysis, the beef price has been based on the import parity price, amounting to K1.40/kg liveweight (Table T-8). 10/ As of July 1, 1981, GRZ has announced an increase in the producer price to K 0.38/liter and a further increase scheduled for January 1, 1982 to K 0.43. The July 1 increase to producers was accompanied by an increase to K 0.50/liter for retail sales.  - 37 - VIII. FINANCIAL ANALYSIS A. Beneficiaries 8.01 The direct beneficiaries of the investments in the Project would be 1,700 to 1,800 smallholder participating farmers representing approximately 11,000 inhabitantsll/ of the three districts. The Project area population is estimated to be about 45,000 thus the Project would have a direct impact on close to 25% of the area's population. It is expected that a part of the increased milk and meat production would remain in the area providing a source of animal protein year round not presently available to all rural and small town dwellers. Incremental Farm Income 8.02 Individual farm operators expected to participate in the Project have been separated into two categories: Type A, progressive farmers, and Type B, traditional farmers; the number of farms in each group are shown in para. 6.02. Type A Farms 8.03 Type A farmers would derive incremental income from their five cows-one bull crossbreeding operations along with a related increase from their traditional herds. All income from the crossbreed herd is considered incremental since the herd would be established as a result of Project support. A typical Type A farmer would increase his net annual income from K436 to K1,089 by Project year 5 and by Project year 9 the first year following debt repayment his net incremental return would reach K2,027 (Table T-3c). It is estimated that the added crossbreed herd with its feeding and maintenance requirements would require an additional 153 man/days per year of family labor (Table T-3b). At full development the increaed income would provide for a return of K13.24 per day for the incremental labor. The Type A farmer's annual total production would return a gross of K3,478 from the sales of both milk and meat. His annual operating costs not including labor would increase from K20 to K861 at full development. Type B Farms 8.04 Approximately 1,100 to 1,200 Type B farms are expected to be selling milk by Project year 10. The purchase of a crossbred bull, fencing material, and a bucket-type spray pump, totalling K578.00 would be the only cash outlay required over normal operating expenses. However, the intensive extension, training and veterinary support program would assist this group in improving their traditional animal husbandry and health care practices. Establishing their improved practices would increase operating expenses from the minimal K20.00 per year traditionally spent for vaccinations to K155.00 per year for supplementary dry season bull feed, parasite control, vaccinations, and for maintenance of equipment (Table T-3e). The typical Type B farmer's net annual incremental return would reach K323 by Project year 5 and at full development K804 (Table T-3f). The improved practices and establishing a regular milking routine would increase man/days of labor by 70 11/ Estimating 6 people to a family.  38 - days. The benefits for incremental liabor from incremental returns would reach K11.48 per day by Project year 10. Gross yearly value at full developmenL would be K752 for milk and K1,021 for meat totalling K1,773 per Type B farm. The total value of all Project farmers' incremental production of meat and milk at full development is summarized below: Incremental Value of Project Production -----Year 5---- ---Year 10---- Amount Value Amount Value ton K'OO0 ton K'O0O Type A Farmers Milk 1,370 520 2,350 893 Meat 268 268 747 747 Type B Farmers Milk 366 140 1,454 551 Meat 144 144 545 545 Total Milk 1,736 660 3,804 1,445 Total Meat 412 412 1,292 1,292 Total Value of All Groups 1,072 2,737 B. DPB's Processing Operations 8.05 DPB has been operating at a loss for the past three years, after an early history of profitable operations. Although their overall financial position is not serious, continued losses in the absence of a recovery program could cause the situation to deteriorate to such an extent that it could damage DPB's ability to perform its functions for the dairy industry, including the milk- collection services to be carried out by DPB under the Project. DPB's losses have mainly been caused by Government policies on foreign exchange rationing for the importation of ingredients for reconstituted milk, on pricing of both reconstituted and fresh milk and by reduced milk plant efficiency caused by the reduction of throughput. At the peak of imports of ingredients for reconstituted milk, in 1976, DPB processed a total of 43.5 million liters of milk, 76% in reconstituted form (para. 1.20). DPB's Midland (Lusaka) plant processing capacity is about 40 million liters per annum, in 1979 actual total throughput was 22.0 million liters of which 11.0 million was fresh milk. DPB has reported a surge in fresh milk production since the February 1981 farmgate price increase and is predicting at least a 2 million liter rise in local production for this year. The July 1, 1981 price increase will be an added incentive for local production. Most production increases will come from farmers who formerly sold their milk on the black market but now that farmgaite prices exceed black market prices it is more attractive to sell to DPB. There is also an indication that GRZ may ease foreign exchange restrictions. DPB has received import licensing for K 3.1 million for the first half of 1981 for reconstituted milk ingredients.  - 39 - Despite these positive development total plant throughput will not exceed 40% of capacity and additional measures should be taken to restore DPB to a profitable level. 8.06 During 1979/80, DPB made a loss of approximately K 0.10/liter on fresh milk sold (para. 2.02) because of the reduced margin between the producer price and resale price. The recent (July 1) increase in the resale price from K 0.38/liter to K 0.50/liter has doubled DPB's margin for both fresh and reconstituted milk. The new resale price schedule also includes increased margins for smaller containers and milk by-products. The table below compares producer and retail prices before and after July 1, 1981. Prices - July ' 81 Previous Prices Farmgate Retail Farmgate Retail (Kwacha) Fresh Milk (liter) 0.38 0.50 0.32 0.38 Reconstituted (liter) - 0.40 - 0.30 Chocolate Milk (liter) - 0.30 - 0.22 Lacto (liter) - 0.42 _ 0.22 These price changes should correct some of DPB's major financial problems, however, DPB's financial performance has also been affected by several operational inefficiencies. With the steady reduction in plant throughput there had not been a related reduction in work force due to the objections of the factory workers union. DPB has recently reported that an agreement has been worked out with the union which will permit a reduction in the work force over a period of time. It was agreed that there would be no replacement of staff leaving through normal attrition and retirement. To date under this agreement the work force has been reduced from 1,030 to 800. DPB has also taken steps to improve in-plant operating efficiency. With Swedish bilateral assistance plant operations are being modernized and the UHT milk/Tetra-pak processing lines are being replaced with locally produced glass bottles and lower cost sachet containers. Tetra-pak machines which turn out the most expensive milk container and have the further disadvantage of requiring expensive imported packaging material, are being removed, seven from the Midlands and five from the Kitwe plants. These machines had been leased and removing them will eliminate the annual leasing charge along with a throughput royalty. The plant's refrigeration facilities are going to be rehabilitated and restored to efficient levels under a bilateral agreement with DANIDA who are also providing for training of plant management and operations personnel. DPB management is confident that the combination of realistic pricing, improved labor efficiency, and plant modernization will restore the parastatal to a profit-making level. It is apparent from these developments that GRZ is implementing their announced policy of elimination of food/parastatal subsidies and providing parastatals the opportunity to develop profitable operations. Mazabuka Milk Plant 8.07 With the assistnce of DANIDA, a 10,000 liter/day dairy plant will be installed at Mazabuka with the capacity to pasteurize and pack in low cost half liter plastic sachets. Once it becomes fully operative (installation is  - 40 - planned for 1981), it would reduce collection and marketing costs of milk produced and sold in the southern areas. At present DPB transports milk from commercial dairy farmers in the Mazabuka/Monze area to Lusaka and then transports about 6,000 liters daily of processed and packaged milk back to Mazabuka for sales in that Region. There is a potential consumer demand for at least 12,000 liters daily in the Monze/Mazabuka area which is not being met at present. The proposed plant at Mazabuka will depend primarily on the smallholder production expected from the Project. Transporting smallholder production directly to the Mazabuka plant will eliminate the cooling center originally proposed, where smallholder milk was to be consolidated, cooled, and shipped onward by tanker to Lusaka for processing. Until smallholder production develops, a portion of the large commercial farmer's production will be diverted to Mazabuka to satisfy local demand for pasteurized milk. The Netherlands Government has also agreed to provide DPB with a Production Manager; a qualified candidate has been identified and is expected to take up his post in mid-1981. C. Government Cash Flow and Cost Recovery 8.08 The effects, in current price terms, of the Project on Government's cash flow are given in Table T-7. Sources of funds would consist of IDA Credit disbursements and loan repayments by CFC, ZADL and DPB. Uses of funds would be for the loans to CFC, ZADL and DPB, technical services provided by MAWD, public roads and water works, and payment of the IDA Service Charge. 8.09 The Project would not increase directly generated revenue to GRZ, as there are no taxes or cesses levied on farm production, However, it is likely that there would be a marked increase in spending by Project beneficiaries on consumer goods, many of which are taxed. As a result it is expected that revenues from indirect taxation would increase, although quantification of this is not possible. Project beneficiaries would pay prices which would reflect full costs of all credit, livestock, equipment, seed and chemicals. Under present GRZ policy which subsidizes fertilizer below import parity, cost recovery on fertilizer would be approximately 60%. In view of GRZ's current financial constraints, it is expected that subsidy levels would be gradually reduced and cost recovery rates on fertilizer raised to approximately 80% by the end of 1983. The Project would involve the development of services (most notably, livestock extension and veterinary services) which would require long-term commitment by GRZ to provision of staff and operating resources. Under the proposed financing plan for the Project (paras. 4.22-4.23) GRZ would have to bear the recurrent costs of the livestock extension and veterinary services from Project start onwards; therefore, the problem of transferring recurrent cost financing from the Credit account to the annual budget towards the end of the Project period would not arise for this Project. The incremental annual recurrent costs of livestock extension and veterinary services would be about K72,000 in PY 6 (in 1980 prices); this represents about 0.3% of the 1980 MAWD recurrent budget (excluding subsidies). IX. ECONOMIC ANALYSIS 9.01 Although the Project's major objective is to develop a low-cost milk production strategy on traditional farms in a pilot phase before a major production project would be undertaken, an economic rate of return has,  - 41 - nevertheless, been calculated; not so much as a criterion of the Project's justification but as an indicator of its potential for this type of dairy development. Ignoring the trial nature of a number of approaches recommended for the Project, and its conservative estimate of implementation pace and of benefits, costs of all components and only direct benefits have been quantified in the economic analysis. Both costs and benefits have been shadow-priced on the basis of a foreign exchange rate of KO.98 = US$1.00. Economic Benefits 9.02 The major quantifiable benefits of the Project would be the incremental production of milk and beef from smallholder farms (para. 6.05 - 6.07), and the supply of breeding heifers and bulls from Chisamba above the immediate needs of the Project. Milk has been valued at the border price of reconstituted milk, and beef at its import parity price (Table T-8). Breeding stock has been treated as a non-traded good, and has been valued at its market price. 9.03 In valuing milk at the price of reconstituted milk without adding a premium for consumers' preference for fresh milk, benefits may be underestimated. It is however, extremely difficult to quantify assumptions about the Zambian milk consumers' willingness to pay a premium for fresh milk over reconstituted milk since both products have always been scarce, and availability more than differential prices dictated the choice (para. 1.21). 9.04 The major unquantifiable benefit of the Project would result from its pilot role in increasing milk production. While the milk supply from state and commercial farms has stagnated for many years (para. 1.06), and rural as well as settlement milk production schemes have been unpromising, the Project's choice of traditional smallholder as a target group and of a low-cost development strategy may finally provide a sound basis for the rational development of the dairy industry. Economic Costs 9.05 All capital costs, net of identifiable taxes but including 10% physical contingencies, and incremental recurrent project costs have been included in the economic analysis of the Project. Incremental farm labor has been shadow-priced at 50% of the prevailing minimum agricultural wage rate to reflect the general under-employment in the Project area even at the time of peak agricultural labor requirement. Results of the Economic Analysis 9.06 The internal economic rate of return (IERR) of the Project has been calculated over a Project life of 20 years (Table T-9) giving a rate of 17%. The IERR is equally sensitive to changes in cost and benefit assumptions. A 10% reduction of benefits or a 10% increase of costs would both reduce the IERR to 14%; a combined increase of costs by 10% and reduction of benefits by 10% would reduce the IERR to 11%. If benefits were lagged by one year, the IERR would be reduced to 13%. The switching values show that costs would have to increase by about 37% or benefits fall by 32% in order for the net present value to drop below zero at a discount rate of 12%. It is unlikely that costs would increase sufficiently to make this an uneconomic project and steps have  - 42 - been taken to minimize the probability that benefits would fall by as much as 30% (see Para. 9.07 below). Risks 9.07 The major risk to the Project is that farmers would be unable to realize the projected technical parameters. Although the estimates are conservative, they require a certain level of farmers' readiness to change traditional livestock management pattern, and of effectivenes of extension and milk collection services. Once a poor technical performance makes modern milk production a financially unattractive enterprise for farmers, it would also jeopardize the Project's objective of piloting traditional smallholders into increasing milk supplies. A careful selection of participating farmers, the concentration of Project management on one area during a first phase, and the relatively small scale of the Projec:t are measures designed to minimize the risk of poor technical performance. There is also an area of doubt as to the rate of acceptance and the number of appropriate smallholders who would participate in the scheme. For the collection system planned under the Project to become financially viable there would have to be a certain volume of milk available for sale. The Dairy Development section of the MAWD has conducted an intensive survey of potential producers in the proposed Project area and has identified an adequate number of interested smallholders. There has been follow-up meetings with the farmers to keep them informed of progress and it was evident during field visits that a broad base of farmer interest and desire does indeed exist. The two recent farmgate milk price increases provide an attractive production incentive, as does the prospect of a year round cash flow from milk sales. X. AGREEMENTS REACHED AND RECOMMENDATION 10.01 Assurances were obtained at negotiations that: (a) not later than three years from the date of effectiveness and prior to the implementation of Phase II, the Borrower and the Association shall (a) jointly undertake a review to assess the progress achieved in carrying out Phase I of the Project which shall inter alia examine the following: (i) the number of smallholder who have qualified and obtained credit for dairy development; (ii) the pattern of milk production developing among project smallholders; and (iii) an overall analysis of the condition of the milk industry including production, pricing, processing, marketing, and consumer demand, and (b) on the basis of the above mentioned review the Borrower and the Association shall determine whether to proceed with the implementation of Phase II (Para. 4.01). (b) MAWD/DOA and DVTCs assign respectively, not less than 12 AAs and 6 Vs to the dairy production areas during Project year one (Paras. 4.05 and 4.07); (c) GRZ would require the DOA and DVTCs to coordinate and integrate their respective project-related activities (including staff training) in the execution of the Project (Para. 4.10);  - 43 - (d) CFC shall at all times ensure that the spread between its borrowing and lending interest rates will generate sufficient revenues to cover its debts, operating costs, and provide a reserve for bad debts and a reasonable profit (Para. 4.12); (e) a ranch manager with suitable qualifications and experience; and on terms and conditions of employment agreeable to the Association be employed to manage the Chisamba Ranch (Para. 4.14); (f) DPB would employ a milk transport manager whose qualifications and experience shall be acceptable to the Association (Para. 4.18); (g) that the financing of Project costs would be as stated (Paras.4.22-4.23); (h) that standard World Bank procurement procedures as stated in the SAR would be followed (Para. 4.24); (i) that separate accounts relating to expenditures under the Project would be kept by PMU, ZADL, DPB and CFC and that these accounts would be audited by independent auditors acceptable to IDA and that said audits be submitted to IDA within six months of the end of each financial year (Para. 4.27); (j) that MAWD would establish a PMU in the DOA, and would employ a Financial Controller under terms and conditions of employment agreeable to the Association (Para. 5.02); (k) that GRZ would prepare and submit to IDA, within six months of the completion of disbursements, a Project Completion Report (Para. 5.03); (1) in order to maintain adequate milk production incentives to farmers and a profitable margin on resale prices of milk to DPB, the Borrower shall annually review and adjust milk prices taking into account the cost of production, processing and distribution and shall from time to time exchange views on its milk pricing policy with the-Associaton (Para. 7.03). 10.02 It would be a condition of credit effectiveness: (a) that GRZ would have executed subsidiary loan agreements acceptable to IDA with DPB, ZADL and CFC respectively stipulating the conditions and terms for such loans (Para. 4.23); (b) that the funds required for animal husbandry extensions, veterinary services, project management, road repairs, and farm water supply would be deposited by GRZ in an imprest account in the Bank of Zambia under arrangements satisfactory to the Association at the beginning of each quarter, and that the initial amount has been deposited (Para. 4.23); (c) that a Project manager would be employed under terms and conditions agreeable to the Association (Para. 5.02).  - 44 - 10.03 It would be a condition of disbursement against the funds for Phase II that the Association has been satisfied with the results of the mid-term review (Para. 4.01); 10.04 The proposed Project constitutes a suitable basis for an IDA credit of US$7.5 million on standard terms to GRZ.  - 45 - ZAMBIA Chart C-1 SMALLHOLDER DAIRY DEVELOPMENT PROJECT Implementation Schedule 1982 1983 1984 1985 1986 1987 1_2-3 4 1_2-3-4 _-2-3 4 1_2-3 4 1_2 3 4 1 234 On-Farm Development Buildings and Fences Pasture Improvement Equipment Livestock Delivery Shallow Well Construction Animal Husbandry Extension Staff Houses Motorcycles Equipment Veterinary Services Staff Houses Mo tarcycles Credit Farm Credit Staff Vehicles Of fice Equipment Heifer Farm Development Civil Works Pasture Improvement Machinery and Equipment Cattle Purchase Technical Assistance Milk Collection Service Buildings Equipment Vehicles Road Spot Repair Project Management Vehicles Technical Assistance June 7, 1981  - 46 - ZAMBIA Chart C-2 SMALLHOLDER DAIRY DEVELOPMENT PROJECT ORGANIZATIONAL CHART ______________.___- Permanent Secretary I MAWD Project Steering Committee .Director of Agriculture Planning Unit l ~~~DA O Budget and t ~~~CA HO Evaluation II I District Project Management Advisory ------ Unit ---------- Committee sDitrict ------------------- Administration DAO/DVO Agricultural Agriculturalr Agricultural Stations Stations [ Stations Ari Agri. 17kgri. Agri. Agri. Agri. Camps camps camps camps camps camps T R A D) I T I O N A L F A R M E R S  - 47 - Table T-1 ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Estimated Schedule of Disbursements 1/ (Us$'000) Bank Group Quarterly Cumulative and Quarter Disbursement Disbursement FY 82 Q3 Q4 FY 83 Ql 150 150 Q2 200 350 Q3 200 550 Q4 200 750 FY 84 Ql 250 1,000 Q2 300 1,300 Q3 300 1,600 Q4 300 1,900 FY 85 Ql 400 2,300 Q2 400 2,700 Q3 400 3,100 Q4 400 3,500 FY 86 Ql 300 3,800 Q2 300 4,100 Q3 300 4,400 Q4 300 4,700 FY 87 Q1 300 5,000 Q2 300 5,300 Q3 400 5,700 Q4 400 6,100 FY 88 Ql 400 6,500 QQi M88 9:,88 Q4 300 7,500 1/ This schedule assumes that the credit would become effective in January 1982. 2/ Quarter of effectiveness.  - 48 - Table T-2 ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Phasing of Project Cost (K'OOO) Project Year Total 1 2 3 4 5 6 Base Cost On-Farm Development Farm Contribution 15.2 41.3 86.5 99.5 90.0 67.5 400.0 Government Water Supply Grant 27.5 35.7 35.7 30.2 22.0 16.5 167.6 Sub-Total 42.7 77.0 122.2 129.7 112.0 84.0 567.6 Animal Husbandry Extension Capital Costs 88.5 4.5 40.7 11.6 - - 145.3 Operating Costs 44.5 43.9 44.5 55.7 65.2 65.2 319.0 Sub-Total 133.0 48.4 85.2 67.3 65.2 65.2 464.3 Veterinary Services Capital Costs 32.9 30.8 - 26.2 - - 89.9 Operating Costs 7.6 11.5 12.2 24.7 24.7 25.2 105.9 Sub-Total 40.5 42.3 12.2 50.9 24.7 25.2 195.8 Credit Farm Credit 45.0 270.3 424.2 516.0 481.1 309.2 2,045.8 Service Capital Costs 10.4 3.5 - 3.0 - - 16.9 Service Operating Costs 32.1 47.7 47.7 60.8 60.8 60.8 309.9 Sub-Total 87.5 321.5 471.9 579.8 541.9 370.0 2,372.6 Heifer Farm Development Capital Costs 514.4 442.7 378.2 - - - 1,335.3 Operating Costs - - - 64.0 64.0 - 128.0 Sub-Total 514.4 442.7 378.2 64.0 64.0 - 1,463.3 Milk Collection Service Capital Costs - 51.2 9.0 106.5 74.0 167.9 408.6 Operating Costs 4.0 42.0 46.3 80.6 101.7 133.4 408.0 Road Spot Repair - 10.0 25.0 25.0 40.0 30.0 130.0 Sub-Total 4.0 103.2 80.3 212.1 215.7 331.3 946.6 Project Management Capital Costs 38.0 - - - - - 38.0 Operating Costs 164.6 167.1 168.6 170.6 170.6 170.6 1,012.1 Sub-Total 202.6 167.1 168.6 170.6 170.6 170.6 1,050.1 Total Base Costs 1,024.7 1,202.2 1,318.6 1,274.4 1,194.1 1,046.3 7,060.3 May 27,1981  - 49 - ZAMBIA Table T-2a Smallholder Dairy Development Project Livestock Extension Services Costs Total Unit 1 2 3 4 5 6 Foreign No. of Cost ----------- Years of Project ----------- Total Exchange Units K K'OOO K'000 K'OOO K'OOO K'OOO K'000 K'OOO % I. CAPITAL COSTS 1. Civil Works Houses - New 1/ 3 39,000 78.0 - 39.0 - - - 117.0 20 Houses - Repair 2/ 8 560 - - 1.7 2.8 - - 4.5 10 2. Vehicles & Equipment Motorcycles 3/ 15 1,500 10.5 4.5 - 7.5 - - 22.5 90 Bicycles 4/ 8 160 - - - 1.3 - - 1.3 90 Total Capital Costs 88.5 4.5 40.7 11.6 - - 145.3 34 II.OPERATING COSTS 1. Salaries & Wages DDOs 5/ 3 5,000 10.0 10.0 10.0 15.0 15.0 15.0 75.0 - AAs 67 14 2,500 25.0 25.0 25.0 25.0 37.5 37.5 175.0 - 2. Vehicle Operating Costs Motorcycles 7/ 15 600 4.2 6.0 6.0 9.0 9.0 9.0 43.2 55 Bicycles 8/ 8 24/PA - - - 0.2 0.2 0.2 0.6 - 3. Staff Training Initial 9/ 39 150/ea. 3.0 0.6 - 3.0 - - 6.6 - 4. Building Maintenance 10/ 3 1,170/ea. 2.3 2.3 3.5 3.5 3.5 3.5 18.6 20 Total Operating Costs 44.5 43.9 44.5 55.7 65.2 65.2 319.0 6 Total Base Costs 133.0 48.4 85.2 67.3 65.2 65.2 464.3 15 1/ Housing, type 313, for three district dairy officers. 2/ House repairs for permanent AAs in Kabwe Rural. 3/ Motorcycles for DDOs and for supplementary AAs without housing. The cost icludes 25% for spare parts. Kabwe area Year 4 startup. 4/ Bicycles for permanent AAs in Kabwe Rural district, begin Year 4. 5/ The DDQs in eagh district woul4_be the level of an agricultural supervisor w t a aegree from SKUC. 6/ AM would be dip1o2a holders fr an oricultural College. A housing allowance is included in the salary supplementary AAS. 7/ Motorcycles: 5,000 km annually at K 0.12 per km. 8/ An allowance of K2 per months would be provided to bicycle users for maintenance. S/ Training for a three month period at Palabana for 36 project MAs and three DDOs. Cost K50 per month per person for board and transport. 10/Cost of upkeep at 3% of construction costs for three houses built for DDos. May 29, 1981  - 50 - ZAMBIA Table T-2b Smallholder Da*iry Development Project Veterinary Service Costs Total Unit 1 2 3 4 5 6 Foreign No. of Cost ----------- Years of Project ----------- Total Exchange Units K K'000 K'000 K'000 K'000 K'000 K'000 K'O00 % I. CAPITAL COSTS 1. Civil Works Houses 1/ 5 14,500 29.0 29.0 - 14.5 - - 72.5 20 2. Vehicles & Equipment Motorcycles 2/ 8 1,500 3.0 - - 9.0 - - 12.0 90 Refrigerators (Drugs) 3/ 2 900 - - - 1.8 - - 1.8 90 Veterinary Equipment 8 450 0.9 1.8 - 0.9 - - 3.6 90 Total Capital Costs 32.9 30.8 - 26.2 - - 89.9 32 II.OPERATING COSTS 1. Salaries & Wages VAs 5 2,500 5.0 7.5 7.5 12.5 12.5 12.5 57.5 - 2. Vehicles Motorcycle Operations 4/ 8 1,200 2.4 2.4 2.4 9.6 9.6 9.6 36.0 55 3. Other Operating Costs Expendables 5/ 9 100 0.2 0.6 0.6 0.9 0.9 0.9 4.1 90 Building Maintenance 6/ - - 1.0 1.7 1.7 2.2 1.7 8.3 20 Total Operating Costs 7.6 11.5 12.2 .24.7 24.7 25.2 105.9 18 Total Base Costs 40.5 42.3 12.2 50.9 14.7 24.7 195.8 25 1/ Housing, Type 302 for five Veterinary Assistants. 2/ Motorcycles will be provided for each veterinary station in Kabwe Rural as well as the district veterinary officer. Purchase price includes 25% for spare parts. 3/ Refrigerators will be provided for each of the veterinary stations in Kabwe Rural from where project VAs operate. 4/ Motorcycles: 10,000 km/year at KO.12/km 5/ Expendables, syringes, needles, etc. KIOO per VA and VO per year. 6/ Cost of maintenance at 3% of construction costs. June 1, 1981  - 51 - ZAMBIA Table T- 2c SMALLHOLDER DAIRY DEVELOPMENT PROJECT Group A & B Farmer Credit Requirements Years of Project Post-Project Years Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Years 8-12 Farmers Farmers Farmers Farmers Farmers Farmers Farmers Farmers No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount K'OOO Kt'OOO K'OOO K'OOO 1T,OOO K'OOO K'OOO 000 Collection Areas Route 3 - Mazabuka Groups A Farmers I/ 30 13.5 30 52.5 30 18.0 - - - - - - - - - - - - 40 18.0 40 70.0 40 24.0 - - - - - - - - - - - - 50 22.5 50 87.5 50 30.0 - - - - - - - _ - 40 18.0 40 70.0 40 24.0 - - Total Group A Farmers 13.5 70.5 110.5 129.5 100.0 24.0 Groups B Farmers 2/ - - 20 9.2 60 27.6 90 41.4 60 27.6 - - - Total Groups A & B 13.5 79.7 138.1 170.9 127.6 24.0 Route 4 - Monze Group A Farmers 40 18.0 40 70.0 40. 24.0 - - - - - - - - - 50 22.5 50 87.5 50 30.0 - - - - - - - - - - 60 27.0 50 105.0 50 36.0 - - - - - - Total Group A Farmers 18.0 92.5 138.5 135.0 36.6 Group B Farmers - - 40 18.4 80 36.8 110 50.6 80 36.8 - - - Total Groups A & B 18.0 110.9 175.3 185.6 72.8 - - - Route 5 - Monze Group A Farmers 30 13.5 30 52.5 30 18.0 - - - - - - - - - 40 18.0 40 70.0 40 24.0 - - - - - - - - - - - - 20 9.0 20 35.0 20 12.0 - - - Total Group A Farmers 13.5 70.5 97.0 59.0 12.0 Group B Farmers - - 20 9.2 30 13.8 60 27.6 60 27.6 - Total Groups A & B 13.5 79.7 110.8 86.6 39.6 Route 1 - Kabwe Group A Farmers - - - - - - 40 18.0 40 70.0 40 24.0 - - - - - - - - - 50 22.5 50 87.5 50 30.0 - - - - - - - - - - - - 60 27.0 60 105.0 60 36.0 Total Group A Farmers _ - - 18.0 92.5 138.5 135.0 36.0 Group B Farmers - - - - - 60 27.6 110 50.6 110 50.6 Total Groups A & B - - - 45.6 143.1 189.1 135.0 36.0 Route 2 - Kabwe Groups A Farmers - - - - - - 30 13.5 30 52.5 30 18.0 - - - - - - - - - - - - 30 13.5 30 52.5 30 18.0 - - Total Group A Farmers - - _ 13.5 66.0 70.5 18.0 Group B Farmers - - - - - - 30 13.8 50 32.0 40 25.6 - - - Total Groups A & B - - - 27.3 98.0 96.1 36.0 Total Credit Requirement by Year 45.0 270.3 424.2 516.0 481.1 309.2 171.0 36.0 Overall Requirement over Project Period 2,045.8 1/ Group A Farmers will require credit for three successive years: Year 1 - K 450; Year 2 - K 1,750; Year 3 - K 600. 2/ Group B farmers will require credit for the first year only for K 460. June 5, 1981  - 52 - ZAMBIA Table T-2d SMALLHOLDER DAIRY DEVELOPMENT PROJECT Credit Service Costs Foreign Total No. Unit Cost Project Years Total Exchange of Units K 1 2 3 4 5 6 K % A. Capital Costs Pick-up 1 7,400 1/ 7,400 _ - - _ _ 7,400 90 Motorcycles 4 1,500 t/ 1,500 1,500 - 3,000 _ 6,000 90 Office Equipment 2/ - - 1,500 2,000 - - - - 3,500 60 Total Capital Costs 10,400 3,500 - 3,000 - - 16,900 84 B. Operating Costs Sta Credit Controller 1 6,900 6,900 6,900 6,900 6,900 6,900 6,900 41,400 - Field Officers 3 4,000 4,000 8,000 8,000 12,000 12,000 12,000 56,000 - Clerical Staff 3 1,600 1,600 4,800 4,800 4,800 4,800 4,800 25,600 - Driver 1 1,220 1,220 1,220 1,220 1,220 1,220 1,220 7,320 - Housing Allowance 5 - 3/ 1,248 1,776 1,776 1,776 1,776 1,776 10,128 - Subsistence Allowance 5 - / 1,416 1,728 1,728 2,040 2,040 2,040 10,992 - House Rental 3 3,00 3,000 6,000 6,000 9,000 9,000 9,000 42,000 - Vehicles Pick-up 1 5,200 5/ 5,200 5,200 5,200 5,200 5,200 5,200 31,200 55 Motorcycles 4 960 8/ 960 1,920 1,920 3,840 3,840 3,840 16,320 55 Office Rental 2 3,600 - 3,600 3,600 7,200 7,200 7,200 28,800 - Office Expenses 7/ - - 600 600 600 900 900 900 4,500 50 Management Overheads 8/ _ - 6,000 6,000 6,000 6,000 6,000 6,000 36,000 - Total Operating Costs 32,144 47,744 47,744 60,876 60,876 60,876 310,260 9 Total Base Costs 48,844 51,544 47,744 64,478 60,876 60,876 327,160 13 I/ Includes 25% of purchase price for spare parts. T/ A typewriter and calculator for each office, and office furniture for Mazabuka. 3/ K 70 per month for the Credit Controller, K 22 for clerical staff, and K 12 for the driver. 4/ Combined subsistence and meAl allowance. K 18 per night for Credit Controller K 13 for Field Officer, and K 10 for Driver. 5/ 20,000 km/year at K 0.26. 6/ Kilometer allowance K 0.12 for 8,000 km/year. 7/ Includes miscellaneous. 8/ Contribution to CFC overheads. July 27, 1981  - 53 - ZAISBA Table T-2e Sal1holder Dairy Developenct Project Chisamba Heifer Breeding Farm Costs Total Unit 1 2 3 4 5 6 Foreign No. of Cont ---------- Years of Project ---------- Total Exchange Units i 1'000 K'000 X'000 X'000 X'000 K'000 10'00 I. CAPITAL COSTS 1. Civil Works House - VA 1 11,000 11.0 - - - - - 11.0 20 Houses - Laborers 10 2,800 14.0 14.0 - - - - 28.0 20 Workshop 1 2,800 2.8 - - - - - 2.8 20 Road Improvesent 1/ 5ke 6,000 15,0 15.0 - - - - 30.0 30 Borehole & Reservoir 2/ 1 11,000 11.0 - - - - - 11.0 25 Clean Boraholes 3/ 3 1,500 3.0 1.5 - - - - 4.5 - Repair Reservoirs 4/ 5 3,000 6.0 9.0 - - - - 15.0 20 Pu=ps and Piping 57 4 6,000 12.0 12.0 - - - - 24.0 90 Spare Pomps 6/ 2 1,000 2.0 - - - - - 2.0 60 Windmills 7/ 2 5,000 5.0 5.0 - - - - 10.0 90 Watering Througho 8/ 10 400 2.0 2.0 - - - - 4.0 - Waterhole Construction 9/ 10 800 4.0 4.0 - - - - 8.0 - Fence Construction 1O/ 90km 660 20.0 20.0 20.0 - - - 60.0 65 Handling Unit 11/ 1 15,000 - 15.0 - - - - 15.0 20 Repair Handling Unit 11/ 2 5,000 5.0 5.0 - - - - 10.0 - Dipping Tank 11/ 1 6,000 - 6.0 - - - - 6.0 20 Land Clearing 12/ 3,500 ha 10/ho 10.0 10.0 15.0 - - - 35.0 - Posture Inprovement 13/ 250 ha 360/ha 18.0 36.0 36.0 - - - 90.0 50 2. 60-70 HP Trantor 1 15,000 15.0 - - - - - 15.0 90 Tractor Trailer 1 5,500 5.5 - - - - - 5.5 90 9-Too Track 1 35,000 35.0 - - - - - 35.0 90 4-Wheel Drive Pickup 1 15,000 15.0 - - - - - 15.0 90 Motorbikes 2 1,000 2.0 - - - - - 2.0 90 Plow & Harrow I ea. 6,500 6.5 - - - - - 6.5 90 Spare Parts 141 - - 10.4 - - - - - 10.4 90 3. Cattln Purchase Hoifero (1,000) 15/ head 400 120.0 140.0 140.0 - - - 400.0 90 Boils (90) 15/ head 800 48.o 12.0 12.0 - _ - 72.0 9O Toure Capitol Costs 398.2 306.5 223.0 - - - 927.7 69 II.Incre=ental Operating Costs 1. Salaries & Wages 16/ Ranch Manager 1 60,000 60.0 60.0 60.0 60.0 60.0 - 300.0 67 Veterinary Assistant 1 4,000 4.0 4.0 4.0 4.0 4.0 - 20.0 - 2. Vehicle Operating Costa 17/ hP Tractor-8O Tpa per hr. 6.0 4.8 4.8 4.8 - - - 14.4 55 1-Truck (9 ton)-10,000 k= per kn 0.40 4.0 4.0 4.0 - - - 12.0 55 1-460 Pick op 20,000 kn per km 0.35 7.0 7.0 7.0 - - - 21.0 55 2-Motorbikes 10,000 kn per km 0.12 2.4 2.4 2.4 - - - 7.2 55 3. Other Operating Costa Posture PertiIiat. per ha 40.0 2.0 6.0 10.0 - - - 18.0 80 Aninal Heaith 18/ per AU 10.0 1.0 5.0 13.0 - - - 19.0 80 Cattlefeed (cons) 19/ per AU 9.0 24.0 32.0 36.0 - - - 92.0 50 Boll Feed 19/ per AU 20.0 1.0 1.0 2.0 - - - 4.0 50 Maintetance(bhilding fence, water) 20/ - - - 4.0 6.0 - - - 10.0 20 ZADL Overhead 217 p... 6,000 6.0 6.0 6.0 - - - 18.0 Total Operating Costs 116.2 136.2 155.2 64.0 64.0 - 535.6 58 Total Base Costs 514,4 442.7 378.2 64.0 64.0 1,463.3 65 1/ Five kn of ranch access road. 2/ Ranch would require one new borehole with 35,000 liter reservoir. 3/ Three existing bhreholes now producing poorly Would be pomped out and cleaned whIch shauld restore original flow. 4/ Existing reservoirn requiore cleaini.g and repair. 5/ Replaceseat of exinting poops and reticulation systems and providing fur one additional pu=ping system. Each requires 200 m of polythene pipe and 3,000 a of 38 an pip. at X 2.75 and K 1.90 per meter respectivaly. 6/ Repair of two of the pumps to be repIced by new ones, these would be used as spare for energencios. 7/ Windmill installations on two existing boreholes. 8/ Troughs to be built in new paddocks and to he added to existing paddocks. 9/ Use of the two rivers that flon through the ranch by diverting flow into adjoiing paddocks. 1O/ Repair of existing fence and fence for additional paddocks and handling units. 11/ Construct an additinnal handling unit to acconodate the increase in cattle, repair existing units and add a dip tank. 12/ Clearance of eacessive tree cover no improve natural gross areas. 13/ Establish 250 ha of star grass over a three year period at cost of K 360 ha; for fertilizar t 36/ha; plant naterial X 10/ha; sOd bosh clearing, land preparation and planting K 314/ha. 14/ Spare parts for all new vehicles e 20% of original coats. 15/ Improved open heifers and bulls to upgrade qoality of crossbreeds, imported from S.A. and Zimbabwe. 16/ Incremental staff to be added to existing ranch staff. 17/ Vehicles to be added to extsting ranch vehicles and tractors. 11/ Animal bealth progra, in place, Project financing for increased animal units. 19/ Feeding practices to be introduced with transfer of farn to heifer breeding. 'M/ Calculated at 3% f installation costs. T1/ For accounting and other head offic- services. July 27, 1981  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Milk Collection Service Investment Costs Foreign Total No. Unit Cost Project Years Total Exchange Item of Units K 1 2 3 4 5 6 K % A. Milk Collecting Depots Building 1/ 25 5,000 - - - 30,000 30,000 65,000 125,000 30 Equipment - 1,520 - 9,120 9,120 19,760 38,000 90 B. Cooling Centers 2/ 2 Building 1/ - 12,000 - - - - 12,000 12,000 24,000 60 Equipment - 18,420 - - - - 18,420 18,420 36,840 90 C. Milk Collecting Equipment Milk Cans 700 45 - 4,500 9,000 9,000 4,500 4,500 31,500 90 Pails, Strainers Sets 3/ 10 130 - 1,040 - 260 - - 1,300 90 Milk Testing Sets 3/ - 10 150 - 750 - 750 - - 1,500 90 Office Equipment Sets 3/ 10 80 - 400 - 400 - - 800 60 D. Vehicles 1 ton Pick up (manager) 1 7,400 4/ - 7,400 - - - - 7,400 90 1 ton Pick up (milk collection) 2 8,700 f/ - 17,400 - - 17,400 90 3 ton Truck 2 19,700 / - 19,700 - 19,700 39,400 90 5 ton Truck 3 28,500 - _ 57,000 _ 28,500 5/ 85,500 90 Total Base Capital Costs - 51,190 9,000 106,530 74,040 167,880 408,640 67 1/ Including costs of water and electricity installation. 2/ An alternative possibility would be to install 5 milk cooling depots. 3/ Needed for the mobile collecting system; sets needed for milk depots are part of depot equipment price. 4/ Includes 25% of purchase price for spare parts. 5/ An alternative possibility would be to mount an available milk tank on a 9 ton truck. June 7, 1981  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Milk Collecting Service Operating Costs Foreign Total No. Unit Cost Project Years Total Exchange Item of Units K 1 2 3 4 5 6 K x Salaries and Allowances Milk Transport Manager 1 10,000 4,000 10,000 10,000 10,000 10,000 10,000 54,000 - Drivers 7 1,400 - 4,200 4,200 7,000 7,000 9,800 32,200 - Milk Attendants 28 1,200 - 4,800 4,800 14,000 21,600 33,600 79,200 - Cooling Center Supervisors 2 2,500 - - - - 2,500 5,000 7,500 - Cooling Center Assistants 2 1,200 - - - - 1,200 2,400 3,600 - Laboratory Technician 1 2,000 - 1,000 1,000 2,000 2,000 2,000 8,000 - Clerical Assistant 2 1,200 - 1,000 1,200 2,000 2,400 2,400 9,000 - Vehicles 8 K170/1,000 1/ - 19,700 23,000 37,300 40,800 44,200 165,000 55 Others Materials (cleaning, testing) - - - 300 300 1,500 3,000 6,200 11,300 50 Electricity - - - - - - 1,600 3,200 4,800 50 Maintenance - - - - 1,200 3,400 6,000 10,600 50 Road Maintenance 2/ - - - 10,000 25,000 25,000 40,000 30,000 130,000 40 Data Processing - - - 400 600 2,400 3,000 4,000 8,600 20 Miscellaneous - - - 400 600 1,800 2,200 3,600 10,400 50 Total Base Operating Costs 4,000 52,000 71,300 105,600 141,700 163,400 538,000 26 1/ Repair and maintenance would be carried out in DPB's workshop, the costs estimated for vehicle operation are, therefore, lower than the kilometer allowance provided for the other project services. 2/ Fund for spot repairs. June 7, 1981  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Project Management Unit Costs Foreign Total No. Unit Cost Project Years Total Exchange of Units K 1 2 3 4 5 6 K _ A. Capital Costs FWD Pick-up 1 19,500 1/ 19,500 - - - - - 19,500 90 Station Wagon 1 13,000 1/ 13,000 - - - - - 13,000 90 Office Equipment - 5,500 - - - - - 5,500 60 Total Capital Costs 38,000 - - - - - 38,000 86 B. Operating Costs Staff Project Manager 1 66,000 2/ 66,000 66,000 66.000 66,000 663000 66,000 396,000 67 Financial Controller 1 52,000 2/ 52,000 52,000 52,000 52,000 52,000 52,000 312,000 67 Clerical Staff 4 2,800 11,200 11,200 11,200 11,200 11,200 11,200 67,200 - Evaluation Officer 1 6,900 6,900 6,900 6,900 6,900 6,900 6,900 41,400 - Driver 2 1,220 2,440 2,440 2,440 2,440 2,440 2,440 14,640 - Housing Allowance 7 - 3/ 2,184 2,184 2,184 2,184 2,184 2,184 13,104 - Subsistence Allowance 4 - 4/ 3,900 3,900 3,900 3,900 3,900 3,900 23,400 - Vehicles FWD Pick-up 1 7,000 5/ 7,000 7,000 7,000 7,000 7,000 7,000 42,000 55 Station Wagon 1 3,450 6/ 3,450 3,450 3,450 3,450 3,450 3,450 20,700 55 Office Rental 1 3,600 3,600 3,600 3,600 3,600 3,600 3,600 21,600 - Office Expenses - - 7/ 6,000 8,500 10,000 12,000 12,000 12,000 60,500 50 Total Operating Costs 164,674 167,174 168,674 170,674 170,674 170,674 1,012,544 53 Total Base Costs 202,674 167,174 168,674 170,674 170,674 170,674 1,050,544 54 1/ Includes 25% of purchase price for spare parts. 2/ Includes return fares, home leave travel, local travel, and house rental. 3/ K 70 per month for the Evaluation Officer, K 22 for clerical staff, and K 12 for a Driver. 4/ Combined subsistence and meal allowance. K 18 per night for the Evaluation Officer, t K 13 for clerical staff, and K 10 for a Driver. 5/ 20,000 km/year at K 0.35. 6/ 15,000 km/year at K 0.23. 7/ Includes miscellaneous stationery, research/evaluation allowances, and computer service charges. June 7, 1981  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT On-Farm Investment (Type A Farm Model) No. of Items Unit Units Unit Cost Year 1 Year 2 Year 3 Year 4 Total F.E. % ---------------------------------------------K-----------------------------_- Farm Investments Fences 1/ km 1 432 432 - -- 432 86 Buildings 2/ unit 1 115 115 -- -- -- 115 -- Pasture Improvement 3/ unit 1 285 55 97 88 44 285 94 Family Labor 4/ manday 170 1 122 43 4 1 170 -- Equipment Bucket pump unit 1 34 - 34 - -- 34 90 Miscellaneous unit 1 34 -- 34 -- -- 34 50 Livestock Heifers head 5 450 -- 1,350 900 - 2,250 -- Bulls head 1 450 -- 450 -- -- 450 -- Total Base Costs 724 2,008 992 45 3,770 18 1/ Fences includes subdivision into paddocks. 2/ Buildings include milking shed, calf shed and crush pen. 3/ Includes pasture planting for 2 ha of cynodon SP. and 0.06 ha of Leucaena and maintenance for 2 years. 4/ Family labor costed at K 1 per work day includes: 44 work days per km for fencing; 10 work days for buildings; 18 work days for water supply; 98 work days for pasture improvement. m May 28, 1981 0  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Operating Costs (Type A Farm Model) Without Project Project Years Items Situation 1 2 3 4 5 6 7 8 9-20 - ________________--------------------- K ------------- --------- - ---- Maintenance of Equipment - - 50 50 50 50 50 50 50 50 Maintenance of Pastures - - - - 45 88 88 88 88 88 Stock Feed - - 160 240 240 268 304 304 360 360 Animal Health 10 58 164 230 250 270 290 290 335 335 Sundry 10 ii 17 22 22 22 22 22 28 28 Replacement 1/ - - - - - - - - - Total Base Costs 20 69 391 542 607 698 754 754 861 861 Incremental Family Labor Labor (man/day) for: Establish & Maintenance of Equipment and Fences - 15 9 9 9 9 9 9 9 9 Establish & Maintenance of Pasture - 10 10 4 4 4 4 4 4 4 Animal Husbandry - 38 90 110 130 135 140 140 140 140 Total Labor Days 63 109 123 143 148 153 153 153 153 1/ The bucket pump has to be replaced in the 12th year. June 7, 1981  -9 Table T-3c ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Cash Flow Projection of Type A Farm Without Years of Project Project Items Situation 1 2 3 4 5 6 7 8 9 10 11-20 ---------------------------------- K ----------------------------------------------- Cash Inflow Gross Value of Production Milk 118 118 802 1,222 1,102 1,202 1,382 1,522 1,652 1,632 1,632 1,632 Meat 338 669 675 1,073 1,047 1,055 1,215 1,254 1,694 1,806 1,806 1,806 Total Value of Gross 456 787 1,477 2,295 2,149 2,257 2,597 2,776 3,346 3,438 3,438 3,438 Long Term Loan - 450 1,750 600 - - - - - - - - Farmer's Contribution - 207 240 383 40 - - - - - - - Total Cash Inflow 456 1,444 3,467 3,278 2 18 9 2,257 2,776 3,346 3,438 3,438 3,438 Cash Outflow Investment Costs - 724 2,009 992 45 - - - - - - - Operating Costs 20 69 391 542 607 698 754 754 861 861 861 861 Total Cash Outflow 20 793 2,400 1,534 652 698 754 754 861 861 861 861 Net Value before Debt Service 436 651 1,067 1,744 1,537 1,559 1,843 2022 2,485 2577 2X577 Debt Service Loan Amortization 1/ - - - 350 200 200 450 650 950 - - - Interest on Long Term Loan - - 54 264 336 294 270 246 192 114 114 - - Total Debt Service - 54 264 686 494 470 696 842 1,064 114 - - Cash Flow after Debt Service 436 597 803 1,058 1,043 1,089 1,147 1180 1,421 2,463 2,577 2,577 Incremental Cash Flow after Debt Service - 161 367 622 607 653 711 744 985 2,027 2,141 2,141 Incremental Family Labor (man/day) - 63 109 123 143 148 153 153 153 153 153 153 Incremental Benefit per Incremental Working Day (K per man/day) - 2.56 3.36 5.05 4.24 4.41 4.65 4.86 6.43 13.24 14.00 14.00 1/ Interest @ 12%. August 19, 1981  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT On-Farm Investment (Type B Farm Model) No. of Items Unit Units Unit Cost Year 1 Year 2 Year 3 Total F.E. % ----------------------------------K------------------------------------- Farm Investments Fences km 0.17 386 66 -- -- 66 86 Buildings 1/ unit 1 20 20 -- -- 20 -- Family labor 2/ manday 12 1 12 -- 12 -- Equipment Bucket pump set 1 30 30 -- 30 90 Livestock Bulls head 1 450 450 -- 450 - Total Base Costs 578 -- -- 578 15 1/ Buildings include a small calf shelter and a crush pen. H 2/ Family labor costed at Kl per work day includes 7 work days for fencing and 5 work days for buildings. June 3, 1981  SMALLHOLDER DAIRY DEVELOPMENT PROJECT Operating Costs (Type B Farm Model) (K) Without Project Project Years Items Situation 1 2 3 4 5 6 7 8 9 10 11 12-20 Maintenance of Equipment - - 7 7 7 7 7 7 7 7 7 7 7 Stock Feed - - 29 29 29 29 29 29 29 29 29 29 29 Animal Health @ K3.2/LU 10 10 86 89 90 91 93 93 93 93 93 93 93 Sundry 10 10 17 20 21 21 26 26 26 26 26 26 26 Replacementl/ - - - - - - - - - . - Total Base Costs 20 20 139 145 147 148 155 155 155 155 155 189 155 Incremental Family Labor (man/day) for: -Maintenance of Equipment - - 5 5 5 5 5 5 5 5 5 5 5 - Animal Husbandry - 40 56 60 65 65 65 65 65 65 65 65 65 Total Labor Days 40 60 65 70 70 70 70 70 70 70 70 70 - F3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- 1/ The bucket pump has to be replaced in the year 11. July 27, 1981  - 62 - Table T-3f ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Value of Incremental Production - Type B Farm (25-30 head) (K) Year 1 2 3 4 5 6 7 8 9 10 11 1. Without Project Gross Value of Production Milk 182 182 182 182 182 182 182 182 182 182 182 Meat 457 595 652 652 652 652 652 652 652 652 652 Total Gross Value 639 777 834 834 834 834 834 834 834 834 834 Production Costs 2/ 20 20 20 20 20 20 20 20 20 20 20 Net Return 619 757 814 814 814 814 814 814 814 814 814 2. With Project Gross Value of Production Milk 182 182 308 430 456 600 665 703 722 752 752 Meat 457 595 652 711 867 998 1,021 1,021 1,021 1,021 1,021 Total Gross Sales 639 777 960 1,141 1,323 1,598 1,686 1,724 1,743 1,773 1,773 Operating Costs 2/ 20 139 145 147 148 155 155 155 155 155 155 Interest on Loan -/ - 62 60 53 38 20 - - - - - Total Production Costs 20 201 205 200 186 175 155 155 155 155 155 Net Return 619 576 755 941 1,137 1,423 1,531 1,569 1,588 1,618 1,618 3. Incremental Net Return With Project - (181) (59) 127 323 609 717 755 774 804 804 Incremental Value Milk - - 126 248 274 418 483 521 540 570 570 Incremental Value Meat - - - 59 215 346 369 369 369 369 369 4. Incremental Value of Gross Sales - - 126 307 489 764 852 890 909 939 939 5. Incremental Family Labor - Man/days - 40 60 65 70 70 70 70 70 70 70 Increased Benefit for Increase Labor (K per man/day) - - - 1.95 4.61 8.70 10.24 10.78 11.05 11.48 11.48 1/ Milk sales to local markets and neighbors at K .38/kilo. 2/ From Table T-3e. 3/ Incremental sales (from improved cows) to DPB at K .38/kilo. 4/ Long-term loan for K 460 for crossbred bull and stirrup pump. Interest at 12% over 6 years with first year's interest capitalized. 5/ From Table T-3e. August 19, 1981  4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. ZAMBIA SMALLHOLDER DAIRY DRVEI,OPRINT PROJECT OS.-r of P-oletRd Prod-tEfon - All Proooo...d Milk Routes (Toss of Milk) Year 1 Year 2 Y-a 3 Ts- 4 Year 5 Tou 6 Te-r 7 Ts- 8 Y-or 9 Ya 1_0 Y 11 Ya 12Yer1 10/82-9/83 10183-9/84 10/84-9185 170/85-9/86 10/86-9/87 10/87-9/88 10/88-9/89 10/89-9/90 10/90-9/91 10/91-9/92 10/92-9/93 10/93-9/94 10y/!9!4-91/93 Pond. Prod. Prod. ho.d. food. Fo-d. Prod. Pond. Prod. P-od. Pr-d. Prod. P-od. Parn-r (To..) Fann- (T...) Pase (Tn) Pase. (on)Fur (T(Ton.)Pon- FTns .are (T-n) PFrse (T...) rumor _(Tons) Pasr(- n) Fms- -Ton) FPrse (To) Parser. (T-n ROUTE 3 -MAZABRKA G-op A - - 30 54 70 153 120 267 160 377 160 417 160 444 160 501 160 549 160 380 160 592 160 592 160 592 G-np A -T diti ... I Hrd - - - - - - 0 - 19 - 34 - 45 - 45 - 45 - 45 - 45 - 45 - 45 G-op 0 C - - 20 7j. 80 ...33. 170 A...8... 230 1.41 230 1.0(s 230 7.2A. 230 .282 230 306. 2,30 326 2.30 312&. 210 32h.. S.b-Tsta1 54..j.. 160 3 ..08. 479.. .594... 6.&f3... _.2aa_. -3 .OL -83..-I2 R100TR 4 - IMDNZE Gr-p A - - 40 72 90 190 150 335 150 281 150 388 100 442 150 498 150 537 150 555 150 555 110 553 150 555 -op A.- e-diti ... I Hrd - - - - - - 10 - 10 - 32 - 42 42 - 42 - 42 - 42 - 42 - 42 G-op B& C - - - 40 13j. 120 5..2i.. 230 117.... 310 .2800 310 .267. 310 -222. 310 _..380.. 310 411 310 430 310 -46-5 310 465 Sub-Tot.1 72 711 397 5_16 620 751 867 959 1,000 1.035 1.062 1.062 G-op A - - 30 54 70 153 90) 213 90 224 90 240 90 274 90 307 90 327 90 333 90 333 90 333 90 333 Grop A T-uditiCo..lIlHd - - - - - - 6 - 11 - 19 - 25 - 25 - 25 - 25 - 25 - 25 - 25 Grop B &C - - 20 7 50 23 110 __4 180 104 100 141 100 172 180 205 180 222 100 237 180 255 180 2355 Sob-Total1 54 160 242 289 363 440 504 557 388 595 613 615 Grop A - - - 40 72 90 198 150 353 150 381 150 388 150 442 150 498 150 537 150 553 130 155 Gr-p A T-aditi-1nalOrd - - - - - - 10 - 18 - 32 - 42 - 42 - 42 - 42 - 42 Graps & C - 60 20 170 75 290 151 280 217 280 272 280 331 280 359 280 3287 280 409 280 420 Sob-Total.1 92 273 496 610 692 815 900 966 1,000 1,017 Grasp A - - - - 30 54', 60 135 60 150 60 147 60 168 60 192 60 213 60 222 60 222 60 222 Groo p A - Traditia...l Herd - . - - 2' - 7 - 13 - 17 - 17 - 17 - 17 - 17 - 17 - 17 Grap B & C - 30 10 00 37 120 60j 120 95 120 120 120 143 120 153 120 167 120 176 120 180 Sob-Tot.1 - - - 66 1_79 231 259 305 353 385 406 415 419 TOTALS - All Roots. - 100 180 310 531 770 .105 1310 1.736 1,730 2,_304 1,730 2,749 1, 730 3,156 ,730 3,359 1,730 3.804 1,730 3961 1730 4,078 1,730 &J7 Sub-Tbt.1 Group A - 100 180 230 504 430 967 538 1 _7 610 168 610 1,835 610 2,023 610 2.218 610 2,350 610 2.398 610 2 410 610 a 397 Sob-Total Grop B & - - - 80 27 940 138 760W 6 1,120 0Y 1,12 l T :30135 ,V 1,34 1 2 T5 1,120 I.567 TT20 T~ ,, ~7 M-hn 5, 1981  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Summary of Annual Incremental Meat Production Yr.1 Yr.2 Yr.3 Yr.4 Yr.5 Yr.6 Yr.7 Yr.8 Yr.9 Yr.10 Yr.ll Yr.12 Yr.13 Route 3 - MAZABUKA Type A Herds (tons meat liveweight) - - 9 23 94 109 122 137 174 201 220 225 225 Type B Herds ( " " ") - - _ 8 34 76 109 115 115 115 115 115 115 Route 4 - MONZE Type A Herds (" " ") - - 12 30 94 110 111 150 177 204 210 210 210 4 Type B Herds (" " ") - - - 16 52 104 150 160 160 160 160 160 160 Route 5 - MONZE Type A Herds ( " ") - - 9 24 59 61 75 93 113 124 126 126 126 Type B Herds(""") - - - 8 22 49 83 90 90 90 90 90 90 Route 1 - KABWE Type A Herds (" " ") - - - - 12 31 94 110 111 150 177 204 210 Type B Herds (i " ") - - - - 24 74 113 120 120 120 120 120 120 Route 2 - KABWE Type A Herds(""") - - - - 9 21 41 46 54 68 81 84 84 b Type B Herds (""") - - - - 12 35 56 60 60 60 60 60 60 a Total All Meat Production d (Tons meat liveweight) - - 30 109 412 670 954 1,081 1,174 1,292 1,359 1,394 1,400 April 14, 1981  -*5- 3a61*~~~~~~~~~~~~~~~~b 5-38 Qh6-f. 8.18fr 0o-ein 8 086061.- Ye,r 8 RK- kMI 0.e * - h 5 YAkL.& 3*- 7 T- a 74.- 9 0.- 10 I... 2'1r17-0 0, lard 1.350 1.387 1.416 0,680 1.940 2.148 2.133 00*4 1.807 I 083 7836 8.065 0,063 0017.oaOr 2~~ ~ ~~~~ ~~~30 403 2764+300 2508 350 1796.330 2`4+.108 71+.2008 +200 +0200 +0o 50 .0305030 +050 Oroal 1.580~~~~~~~~Io 1.800 2.030 0.230 0,469 2,432 2.604 024" 2,037 20.03 0,025 0.00, 2,005 OntO. ~~~ ~~~ ~~~ ~ ~~45 54 62 07 7 74 72 09 62 60 00 60 60 1,12, ~~~~ ~~~~ ~~~~140 070 308 023 247 243 28. 350 I., 1'001 190 130 Tot.1 2~~~~~~~~~1307 1.476 1480 1.940 2140" 2,133 2.244 1, Th 1.063 1.763 1,165 106 '67 0*1f-r 2-3Yr Old +0 o.ro ~~~~ ~~~~ ~~~330 34 208 205 614 710 822 700 '70 724 034 6156~ 0*e86. 10 F~~~~ ~ ~ ~ ~ ~~ ~ ~~~ 12 I 68 220 24 03 22 ~ 00 CoIls - 2~ ~ ~~~ ~~~ ~~~~ ~~~ ~~2 II 20 233 208 I6 166 130 27 0403 105 0.e --Bod.. - - - - 239 44 7032 600 575 575 500 330 550 Corel ~~~~ ~~~~ ~~~320 276 200 179 20* 71 ------ AL8O.r. 1-2 _Yr. OQ8 Or ~. 330 237 211 033 742 .21 016 808 746 6174 73675 6117 -h4. 12 76 102 5 20 24 02 00 0 000 0+0.1 315 0~~~~~~~~~~~~~~_30 25 614 72 706 700 77 704 654 655 6 53 6531 Oer8r .-r - 82 44 1,333 1,561 1,728 1,016 1,083 1,370 1.419 1.420 1.420 1,400 1,I00 -h88. 40 22 670 86 86 84 00171 00 10 0 T-81 740 422 1.266 1.83 1,642 1,6~3I 1 .30 1 492 1,34 1,330 1,550 1,330 7 33 8.1.. 1-2 Yrs 010 Or HerO ~~~~ ~~~~ ~~~330 221 211 633 741 021 083 AN0 746 674 075 615 605 54.86. 10 6 8 ~ ~~~~~~ ~ ~ 19 22 23 23 24 000000 0,17* p.r sal. 708~~~~~~~D 215 205 110 222 304 300 788 2 34 264 207 260 160 OT-l 222 - 5 04 *97 492 492 490 490 0 4940 4400 400 8l.22 2-3 On 014 OR .e. 320 -.- 534 497 49I 490 490 490 490 40040 e.e.4. 20 - - . ~~~ ~~~~~~~~~~~ ~ ~~~~~ ~ ~ ~ ~~~~~~14 14 14 05 15151 5 75 WI8 'r0.* . - -I- - I0D 1I810 1I 1 00 1I810 10 0 Sold - 5411. 310 --.390 385 378 375 303 375 35 5 75 305 84I~~~~~~~~~~~d ~~~95 95 95 53 60 78 72 72 '2 2 72 712' Purchaee. ~~~ ~~~ ~~ ~ ~~15 19 60 13 0031 10 0DI 10101 10 onIOeI.r,r. 010~~~~~~l 114 155 '0 82 01 82 82 I' a2 92 82 0 54*34. ~ ~ ~ ~ ~ ~ ~ ~ ~~~~5 6 834 4 4 4 4 4 4 4 4 8411.PorSel. 8~ ~ ~~~ ~~ ~~0 1II9 - - 56 0 6 6866 0.-e 95 95 351 67 70 72 2 72 20772 - 72 70 jut,,Ua,1i& 2,300 8.806 3.173 3,394 4,46& 44320 4,i 4,oD 3,900 3,900 3.930 9 003.0 ~~8 8418.4 0*8~~~~~~~~ 270 308 223 247 245 288 352008 1902000 5468.r. 2-3 Or. 8411. ~ ~ ~~- 32 2320 13 10s6o6 78028 0 125 2488.. 2-3 I0 r.do- 23 44 6 32 800 595 5's 550 050 553 00**8- Ir 80 2I O.D8 222 324 308 286 234 164 103 19 180 8400 2-5 02*1 801 310 - -10 10I0 0 0 0 0 0 0 5411. 2.3 Or- &r-d-r- - 39 083 3780 3705 . 325 3775 375, 3'S 365 la" Z,11. 4I1.8 10 1S 92 --386 6 6 uOrsop.s.O ~~~ ~~~ ~~ ~~65 63 GS 08 00 0 78 70 ye 70 20 78 70 8a88*IIoyM+1t*5 3 3 3 . 3 3 ~ ~3 3 3 0 3 3 3 00t200811 5 5 3I 5 5 5 5 5 las ~~~~ ~~~~330 36 95.0 008.0 28.0 87.0. 108. 123. 78. 06.0 87.0 67.0 67.0 bl*or 2-3 0. 320 - 10. 7.D. 49. 5802.0 53.0 52.2 41.2 27. 34. 34.2 _hte02 2* 50 23 64.00 51710- 08. 560 06.3 05,0 73.0 59.00 61. 67.0 40:.0 40.0 82*2-3 r 383 22 - 2. 38.0 38.0 38.0 080 0003.03. 3 0. 54.42411* ~~~~~388 00 4.0 08.0 - - 1.0 2.0 2.0 20 0.0 2.0 2. 2.0 346-2,6.1 28401.) 231 163 194 112 250 2 59 248 280 227 008 175 181 191 0-*.n bIIer 2-3 ra450 - - - -180 2.0 284.0 200239. 139.0 259.0 259.0 239.0 0.*be .lIs 2-3 -r 430 - --17. 7. 27. 180690 268.0 109. 268069.2 MUALWU-L~~~~- 131 863 19* 122 304 6321 .22 26 --2 ,,U .12 A  - 66 - Table T-3j ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT Total Value of Annual Incremental Milk Production (K '000) Year 1 2 3 4 5 6 7 8 9 10 11 12-20 Route 3 - Mazabuka Group A Crossbreed Herds - 21 58 101 143 158 169 190 209 220 225 225 Group A - Traditional Herds - - - 3 7 13 17 17 17 17 17 17 Group B Herds - - 3 1.3 32 54 74 92 107 116 124 124 Sub-Total Route 3 - 21 61 127 182 225 260 299 333 353 366 366 Route 4 - Monze Group A Crossbreed Herds - 27 75 127 107 147 168 189 204 211 211 211 Group A - Traditional Herds - - - 4 7 12 16 16 16 16 16 16 Group B Herds - - 5 20 44 76 101 124 144 156 166 177 Sub-Total Route 4 - 27 80 151 158 235 285 329 364 383 393 404 Route 5 - Monze Group A Crossbreed Herds - 21 58 81 85 91 104 117 124 127 127 127 Group A - Traditional Herds - - - 2 4 7 10 10 10 10 10 10 Group B Herds - - 3 9 21 40 54 63 78 84 90 97 Sub-Total Route 5 - 21 61 92 110 138 168 190 212 221 227 234 Route 1 - Kabwe Group A Crossbreed Herds - - - 27 75 127 145 147 168 189 204 211 Group A - Traditional Herds - - - - - 4 7 12 16 16 16 16 Group B Herds - - - 8 29 57 82 103 126 136 147 155 Sub-Total Route 1 - - - 35 104 188 234 262 310 341 367 382 Route 2 - Kabwe Group A Crossbred Herds - - - 21 51 57 56 64 73 81 84 84 Group A - Traditional Herds - - - 1 3 5 6 6 6 6 6 6 Group B Herds - - - 4 14 26 36 46 54 59 63 68 Sub- Total Route 2 - - - 26 68 88 98 116 133 146 153 158 GRAND TOTAL ALL MILK - 69 202 431 622 874 1,045 1,196 1,352 1,444 1,506 1,544 August 19, 1981  ZAMBIA SMALLHOLDER DAIRY DEVELOPMENT PROJECT CFC: Project Related Cash Flow Project Year Post-Project Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14-20 (1982) (1983) (_1984) (1985) (_1986) (1987) ----------- - -- In curretK,0 /--------- ---------------- ----------- In cosat18K'00 ----------------------- ---- - -