Ecuador - Second Agricultural Credit Project

Doaua3at of The World Bank FOX1 OMFCIAL USE ONLY ReputNo. 6143-EC STAFF APPRAISAL REPORT ECUADOR _IC AGRICULTURAL CREDIT W PROJECT August 15, 1986 Projects Department Latin America and the Caribbean Regional Office TIbi dseummt ha a rtom-ui dkmIbkwm5mad MaY be Oud by meclpmat only In the Pufwameew of their on"1 datiwl -on -n ma ad ehwh.. b disel wihot WON BOA a. th e.  CURRENCY EQUIVALE.NTS (July 1986) US$1 = 110.0 Sucres (SI ) S/ 1 - US$0.009 SI 1 million - US$9,091 In August 1986, the Government began to float the exchange rate. WEIGHTS AND MEASURES I hectare (ha) - 10,000 m2 - 2.47 acres I kilometer (km) - 1,000 m- .62 miles 1 kilogram (kg) - 2.2 pounds 1 metric ton (mt) - 1,000 kg - 2,200 pounds 1 quintal (q) - 100 pounds - 45.4 kg 1 liter (1) - 0.26 gallons GLOSSARY OF ACRONYMS BCE - B.nco Central del Ecuador (Central Bank of Ecuador) BEDE - Banco de Desarrollo del Ecuador (Ecuadorian Development Bank) BNF - Banco Nacional de Fomento (National Development Bank) CFN - Corporacion Financiera Nacional (National Finance Corporation) DPAs - Direcciones Provinciales Agropecuarias (Provincial Directorate) ENAC Empresa Nacional de Almacenamiento y Comercializacion (National Enterprise for Storage and Marketing) ENPROVIT - Empresa Nacional de Productos Vitales (National Enterprise for Essential Products) IERAC - Instituto Ecuatoriano de Reforma Agraria y Colonizacion (National Institute of Agrarian Reform and Colonization) INEC - Instituto Nacional de Estadisticas y Censos (National Institute of Statistics) INIAP - Instituto Nacional de Investigaciones Agropecuarias (National Agricultural Research Institute) MAG - Ministerio de Agricultura y Ganaderia (M!nistry of Agricultu--e and Livestock) PB - Private Banks or Financial Companies SEDRI - Secretaria de Desarrollo Rural Intcgral (Secretariat for Integrated Rural Development) GOVERNMENT OF ECUADOR FISCAL YEAR January - December  FOR OMCIAL USE ONLY ECUADOR AGRICULTURAL CREDIT II PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. LOAN AND PROJECT SUMMARY ...... ................................ 1 II. THE AGRICULTURAL SECTOR ...* .................................. 3 Agriculture in the Economy * ................................... 3 Agricultural Policy ........... ..... ......... ............... ... 3 Public Institutions in the Sector ............................. 4 The Financial System in Ecuador ........................... 4 The National Develop'uent Bank (BNF) ........................... 5 Past Experience with Bank Landing ............................. 5 III. THE PROJECT ................................................... 6 Origin and Rationale for Bank Involvement ..... ................ 6 Project Objectives and Description .......,...........*******.. 7 Project Exec,ition .................... ... .*................... 8 Lending Terms and Conditions ........ ............... ..... 8 Utilization of Loans to BNF ............. 9 BNF's Future Financial Performance 10 Project Costs and Financing ............................ ....... 10 Procurement ... * 10 Disbursements .. . 11 Accounting and Audits ... 11 Reporting ... 12 Financial and Economic Justification . . . 12 Project Risks .. ...... 12 IV. AGREEMENTS REACHED AND RECOMMENDATIONS ..................... 13 This report is based on findings of an appraisal mission which visited Ecuador from October 15 - November 1, 1985. The mission comprised Messrs. J. E. Fernandez, C. A. Plaza, and A. Guzman (Bank). This document has a restricted distribution and may be used by rcipients only in the performance of their official duties. Its contents may not otherwise be disclosd without Wotld Bank authorization.  TABLE OF CONTENTS (CONTINUED) Pagie No. ANNEXES 1. The National Development Bank (BNF) and Agricultural Credit .... 14 Tab';e 1 - iNF Financial Performance Indicators e...,9e-ee 19 Table 2 - BNF Income and Expenses e 20 Table 3 - BNF Fow of Funds *...0.. 0-e...e-.o.....,, 21 Table 4 - BNF Balance Sheet * 22 Table 5 - BNF Income and Expense Forecast e...e.,..e.e.e 23 Table 6 - BNF Flow of Funds Forecast *...e.-..-.o..,.. 24 Table 7 - BNF Balance Sheet Forecast ...ee-.e..e.-..- 25 Table 8 - BNF Financing Plan (SI Billions) .............. 26 Table 9 - BNF Financing Plan (%) *.oo...eee...e.oe...ee- 26 Chart 1 - BNF Organization Chart e.,.....,o,...e...e..e 27 2* Resource Mobilization ............................. 28 Table I - Saving Mobilization Cost Table ....... ..0..... 31 3. Institutional Strengthening .....* ..*.*... 32 Table 1 - Institutional Strengthening Cost Table e9ee.ese-*e 38 4. Illustrative Investment Plans, Financial and Economic Justification .,,**...-...*,........** 39 Table 1 - Model 10 hai Sierra, Farm Financial Analysis ...... 41 Table 2 - Model 40 ha Dairy Farm, Sierra, Farm Financial Analysis .......e........e,e.... 42 Table 3 - Mod3l 100 ha Crop-Livestock Farm, Sierra, Farm Financial Analysis e.....ee-..-.,....e,..ee 43 Table 4 - 20 ha Crop Farm, Coast, Farm Financial Analysis . 44 Table 5 - 200 ha Crop-Livestock Farm, Coast Region, Farm Financial Analysis ...,....,,oo,e.....,,.o 45 Table 6 - 50 ha Crop-Livestock Farm, Amazon Region, Farm Financial Analysis ..................... 46 5. Subsidiary Loan Agreement *. oe....... ....******....**. 47 6. Project Costs, Financing, Disbursements .....e..e....,...... 48 Table I - Project Cost Summary ee....oo.o.o.oe....... 48 Table 2 - Project Financing Plan o...e,ee.eoc....eee.oo.e 49 Table 3 - Disbursements e*.....ee.e.o.eeeo.e.oooooos 50 Table 4 - Estimated Schedule of Disbursements .............. 51 7. List of Selected Documents and Data Available in the Project File .........,...o,,.,e.o .o040e06040 52 MAP: IBRD 19508  ECUADOR AGRICULTURAL CREDIT II PROJECT I. LOAN AND PROJECT SUhMARY Borrower: The Republic of Ecuador. Beneficiaries: National Development Bank (BNF) and participating private banks (PB). The ultimate beneficiaries would be about 5,000 crop/livestock farmers receiving project subloans. Amount: US$48 million. Terms: Repayment in 17 years, including 4 years of grace, at the standard variable interest rate. Relending Terms: The Borrower, through tte Central Bank of Ecuador (BCE) would make available to BNF, a publicly owned agricultural creeit bank, and private banks the equivalent in sucres of the proceeds of the loan. BNF and private banks would relend to project sub-borrowers at market rates of interest with repayment terms cf up to 12 years, including a grace period of up to 4 years. BNF would be permitted to earn an initial spread of 8% p.a. and PB a spread of 5% p.a., over BCE's flexible onlending rate. The revenue from the difference between the onlending rate and the Bank's lending rate would be used by BCE to cover the foreign exchange risk on the Bank loan; however, any shortfall would be made up by the Government, which would assume the foreign exchange risk. BNF, through its existing agricultural credit infrastructure, would facilitate the participation of commercial private banks. Project The project's main objectives would be to: (a) expand Obiectives: production especially of exportable products aad increase farmers' profitability through on-farm investmepis; (b) strengthen BNF's operating efficiency and enhance its domestic resource mobilization capacity; and (c) stimulate private bank participation in agricultural lending. Project The project would include: (a) medium- to long-term Description: lending to finance on-farm investments for livestock and crop production and marketing infrastructure at the farm level; and (b) a program to strengthen BNF's and PB's operational efficiency in relation to their agricultural lending and BNF's domestic resource mobilization.  Proect It ts expected that the project would cause an increase Benefits: in production of a range of products leading to signi- fics-t foreign exchange earnings/savings. There would also e intangible beneflts resulting from instltutS.._31 stren%thening, and increased farm employment estliated at 1.7 million incremental worker/days, Including income increase for 5,000 farm families of which about 40X would be small-scale farmers. Project The main risk is the sustainability of the macroeconomic Risks: adjustment program through which the Government is reactivating agriculture. The WaIinIstration has to date