Bolivia - Second Beni Livestock Development Project

RETJURN TO REPorZTS ir r 1 1SKw REPOFZTH Frk FILE COPY RESTRICTED Report No. PA-24a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INTERIM SECOND BENI LIVESTOCK DEVELOPMENT PROJECT B OLIVIA November 17, 1969 Agriculture Projects Department  CURRENCY EQUIVALENTS US ') 1 Pesos $ 11.88 Peso $ 1 =US $ 0.08 Pesos $ 1,000,000 = US$ f 8X,175.00 WVEIGHlTS AflD }mASURES Metric System. 1 Kilogram (kg) = 2.20 Pounds 1 Netric Ton (m ton) = 0.98 Long Tons 1 Kilometer (lma) = 0.62 Miles 1 Hectare (ha) = 2.47 Acres 1 Square Kilometer (km2) = 0.39 Square M4iles GLOSSARY OF ABBREVATIONS BAB = Agricultural Bank of Bolivia IDB = Inter-American Development Bank  BOLIVIA INTERIM SECOND BENI LIVESTOCK DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS i.................................. ....... I. INTRODUCTION ............................................... 1 II. JUSTIFICATION OF INTERIM SECOND PROJECT .... ................ 1 III. PERFORMANCE UNDER CREDIT 107-BO ............................. 4 A. The Project Under Credit 107-BO ................ 4 B. Comparison of Forecast with Actual Performance . . 4 C. Project Progress ....................................... 5 D. Organization and Management ............ .. .............. T E. Impact of the First Credit ..... ........................ 8 IV. THE INTERIM BENI SECOND LIVESTOCK DEVELOPMENT PROJECT ...... 9 V. RECOMMENDATIONS ............................................. 11 This appraisal report was prepared by Messrs. J. Fransen, C. M. Chisholm, F. van Gigch and D. Sutherland. ANNEXES 1. Background to Project 107-BO 2. Progress of Credit 107-BO 3. Development of a Typical Ranch under 107-BO MAPS 1. Location of Sub-Borrowers under Credit 107-BO   BOLIVIA INTERIM SECOND BENI LIVESTOCK DEYELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. On May 26, 1967, IDA made a Credit (107-BO) of US$ 2.0 million to the Republic of Bolivia for a first stage Livestock Development Project. This First Project has progressed ahead of schedule and the Government of Bolivia is now requesting another Credit of US$ 1.4 million to assist in the financing of a Second Project to supplement Credit 1OT-BO. This would be an interim operation confined to the same project purposes and areas. The objective of the Second Project is to cover the financial gap of about 12 months between the full commitment of the First Credit 107-BO in Septem- ber 1969, and September 1970, when a more comprehensive Third Livestock Project, appraised in October/November 1969, could become effective. There is a continuing demand for long-term development credit to realize the potential for beef cattle production. There is also a growing domes- tic demand for beef and attractive export outlets, in neighboring deficit meat producing countries, are presently being developed. ii. The proposed IDA Credit would be used entirely for ranch de- velopment loans. The Agricultural Bank of Bolivia would provide addi- tional working capital funds. No additional IDA funds for technical services are needed. The estimated foreign exchange component amounts to about 22% of total Project cost, the same as under Credit 107-BO. The Credit would cover 61% of the total Project cost of about us$ 2.3 million. The balance would be provided by the Agricultural Bank of Bo- livia (21%), and ranchers (18%). Based upon the average size of ranch loans made under the First Credit, it is expected that about 110 addi- tional beef cattle ranches would be financed under the proposed Project. As under Credit 1OT-BO, investment on each ranch would be phased over a period of up to three years. iii. Project administration and procurement would continue as under Credit 107-BO. The Livestock Project Division of the Agricultural Bank of Bolivia, headed by an experienced Project Director, would continue to provide Technical Services to participating ranchers. The goods and ser- vices required for the Project would be procured through normal comrer- cial sources. iv. Expected additional benefits to participating ranchers and the economy are substantial, and proportionately comparable to those under ProJect 107-BO. Under the First Project, the financial rate of return to ranchers was estimated at 17% and 22%, depending on the type of opera- tion, and the economic rate of return at about 17%. It is estimated that similar rates of return would be achieved under the Interim Project. The  - ii - proposed Interim Project is suitable for an IDA Credit of US$ 1.4 million under the usual IDA terms and conditions. The Borrower would be the Gov- ernment of Bolivia who would bear the foreign exchange risk. The Credit would be channeled through a Project Revolving Fund, located in the Cen- tral Bank, to the Agricultural Bank of Bolivia who would on-lend the funds to Beni ranchers on the same terms and conditions provided under Credit 107-BO.  BOLIVIA INTERIM SECOND BENI LIVESTOCK DEVElOPMENT PROJECT I. INTRODUCTION 1.01 The Government of Bolivia is requesting an IDA Credit to as- sist in financing a Livestock Development Project which would be con- fined to the same project purposes and areas as the First Livestock De- velopment Project 1/ (Credit 107-BO). This would be an interim opera- tion pending a Third, more comprehensive, Livestock Development Credit which would not be ready for final IDA consideration before mid-1970. The Project financed with Credit 107-BO is a pilot beef cattle opera- tion for the Beni area of the Tropical Lowlands, designed to yield ex- perience in the development of the beef cattle sub-sector that could be used as a basis for further, more ambitious projects. The Credit was to be committed over a three-year period from the Effective Date (October 1, 1967) but was, in fact, fully committed in only 15 months from the commencement of lending (June, 1968), about one year ahead of schedule. The proposed Credit would cover the gap of about 12 months between total commitment of Credit 107-BO and effectiveness of the proposed Third Livestock Project. The appraisal report is based on the results of a visit to Bolivia by Mr. J. Fransen in July, 1969. II. JUSTIFICATION OF INTERIM SECOND PROJECT 2.01 A comprehensive livestock project for Bolivia was appraised in October/November, 1969. The project would provide funds for further beef development in the Beni and sheep development in the Altiplano. However, it is estimated that at least one year will pass before a Credit for it could become effective. Thus, with the full commitment of the 107-BO funds at September 30, 1969, lending to the livestock industry in Bolivia would come to a halt. This Interim Second Project is proposed in order to meet the continuing demand for ranch development financing, and to maintain the current momentum of lending and the Project administration network which has been especially developed in the Banco Agricola de Bo- livia (Agricultural Bank of Bolivia - BAB). 2.02 Expansion of the beef cattle industry has high priority in Bo- livia's economic development, and is a logical use of existing and poten- tial resources of the Tropical Lowlands areas of Bolivia. (See Annex 1 for further details of the background to the First Project, Bolivia's beef cattle sub-sector and a description of Credit 107-BO.) 1/ See appraisal Report Number TO-585a, dated May 2, 1967. Credit 107-BO was signed on May 26, 1967 and became effective October 1, 1967.  -2 - 2.03 To July 31, 1969, IDA and BAB had financed about US$ 1.8 mil- lion equivalent as ranch development loans to producers owning only about 15% of the total cattle population of about one million head in the Beni area of the Tropical Lowlands. If the standard of productivity of un- financed ranches in the Tropical Lowlands region is to be raised to the level of existing loan beneficiaries, the industry would need substantial further long-term credit and expanded technical and marketing services. There is a continuing strong demand for long-term credit and an unused capacity to absorb it on commercial lending terms. 2.04 The following table shows actual and estimated commitment of Project funds to July and September, 1969, respectively, and estimated demand to September, 1970. The difference between estimated commit- ments to September, 1970, and funds available initially indicates the quantity of funds needed to keep up the pace of on-ranch investment established under the First Project.  -3- Commitment and Balance of Funds to September. 1970 (US$ Million) Additional Funds Funds Available Commitments for Interim Category and Source Initially Actual Estimated Second of Funds 10/1/67 7/31/69 9/30/69 1/ 9/30/70 2/ Project 3/ Ranch Development IDA 1.820 4/ i.48o 1.820 3.220 1.400 BAB 0.330 0.260 0.330 0.580 0.250 Total Ranch Loans 2.150 1.740 2.150 3.800 L.650 Ranchers' Contribution 0.540 0.430 0.540 0.950 0.410 Total Ranch Development Costs 2.690 2.170 2.690 4.750 2.060 Balance IDA Funds 1.820 0.340 - (1.400) - (Credit 107-BO) Technical Services IDA o.180 4/ o.o64 0.087 0.180 - BAB 0.130 0.059 0.072 0.197 0.067 Total Technical Services 0.310 0.123 0.159 0.377 0.067 Balance IDA Funds 0.180 0.116 0.093 - - (Credit 107-BO) Working Ca-oital IDA - - - BAB 1.000 o.600 o.690 1.150 0.150 Total Working Capital 1.000 o.600 o.690 1.150 0.150 Total 4.ooo 2.893 3.539 6.277 2.277 1/ Estimates based on volume of new requests on hand. 2/ Based on a lending rate of approximately 30 loans approved per quarter at an average of US$ 14,000 equivalent per loan. 3/ Estimated Commitment to 9/30/70 minus funds available initially (10/1/67). 4/ Amounts available after reallocation of originally unallocated amount of US$ 200,000 (US$ 170,000 to Ranch Development and US$ 30,000 to Technical Services).  2.05 Annex 2 shows the movement of ranch development funds provided by IDA under Credit 107-BO. Although there has been an increasing rate of commitment of funds during the first five quarters it is expected that future lending will level out at about a rate of 30 loans approved per quarter. 2.06 The quarterly commitment rate of the IDA component for ranch development loans is estimated at about US$ 345,000 under the Interim Project. This is similar to the disbursement rate of the first four quarters of Credit 107-BO. It would indicate the need for about US$ 1.4 million to fill the gap between September 30, 1969, when all funds under 107-BO were committed, and September 30, 1970, the target date set for the initiation of a broader livestock project. There are no major constraints to the effective utilization of the proposed IDA Cre- dit. There is an adequate supply of local and imported breeding cattle, continuing rancher demand and sufficient local currency contributions. III. PERFORMANCE UNDER CREDIT 107-BO A. The Project Under Credit 107-BO 3.01 The Project financed by Credit 107-BO was designed as a first stage project, confined to the Department of the Beni (see Map 1). The Credit provided funds for the partial development of about 150 establish- ed commercial ranchers to increase their herds and production (Annex 3 gives details of the development of a typical ranch under Credit 107-BO). It provided 85% of loan funds for long-term ranch development. The ba- lance was covered by BAB, which also provides short-term working capital. Technical services were also supplied to participating ranchers. The Project also included a country-wide survey of livestock and meat mar- keting and a land tenure survey. These surveys would provide informa- tion for the more comprehensive Third Project. B. Comparison of Forecast with Actual Performance 3.02 Investment in pasture improvement under Credit 107-BO was lower than predicted, although the proportion of this investment category had increased in later stages of the Credit. As regards livestock, the number of cattle acquired by participants was less than expected but the average price paid was about double that forecast. Higher prices were due princi- pally to the purchase of a significant proportion of higher priced imports from Brazil. The acquisition of a smaller number of cattle by beneficiaries was compensated, however, by higher retention rates. This was noticeable not only in respect of participants, who are eager to take advantage of  - 5 - their expanded capacity resulting from investment under the Project, but also of ranchers in the region at large, whose ranches are under-stocked 1/ and who wish to benefit from the favorable cattle production outlook for the region (para 3.13). Higher retention rates have decreased the supply of breeding cattle originating in the region and have driven up the price of breeding cattle. Imported cattle tend to be of better quality and thus more expensive than locally produced, even under previous conditions. The overall composition of predicted and actual investment is as follows: TOTAL ON-RANCH INVESTMENTS Forecast1/ Actual as of July 31, 1969 - Physical Amount % of Physical Amount % of INVESTMENT ITEMS Inputs (us$ 0ooo) Total Inputs (uS$'ooo) Total Fencing, (km.) 2,400 800.0 29.6 2,394 598.6 27.8 Corrals, (No.) 75 150.0 5.5 208 138.5 6.4 Water Facilities, (No.) 375 200.0 7.5 316 52.8 2.4 Construction, (No.) 150 325.0 12.0 318 317.5 14.7 Pasture Estab- lishment, (ha) 3,000 100.0 3.7 470 23.5 1.1 Light Equipment and Tools, (set) 150 75.0 2.8 220 66.1 3.1 Other - - - 63 42.3 2.0 Breeding Cattle, (No.) 16,650 1,050.0 38.9 6,107 916.1 42.5 Total - 2,700.0 100.0 - 2,155.4 100.0 1/ Includes ranchers' contribution 20%, IDA 68%, BAB 12%. C. Project Progress 3.03 From the outset, Project progress has been better than anticipated. Project lending has been at a pace well ahead of schedule throughout the five active quarters of the Credit. 1/ See appraisal report No. TO-585a, para 15.  -6- On-Ranch Development Loans 3.04 The demand for loans has been steady and at July 31, 1969, 140 loans, aggregating approximately US$ 1.7 million equivalent, had been ap- proved by BAB. The balance of loan funds was fully committed by Septem- ber 30, 1969. As there is a grace period of four years, there has been no repayment of principal. Quarterly Development Loan Approval 3.05 The distribution of ranch development loans by quarters as at July 31, 1969, was as follows: Average Loan Size Total Volume QUARTER Number per Ranch of Loans (us$ '000) (US$0ooo) 1 (July-Sept. 1968) 18 12.0 217.0 2 (Oct.-Dec. 1968) 31 11.5 357.0 3 (Jan.-march 1969) 31 10.6 328.0 4 (Apr.-June 1969) 50 14.1 704.0 5 (July only) 10 12.9 129.0 TOTAL 140 12.4 1,735.0 Loan size ranges from US$ 3,100 to US$ 98,000 equivalent. The overall aver- age is US$ 12,400 equivalent as compared with forecast of US$ 14,400 equiva- lent. The geographic distribution of loans has been confined to the Beni area, as planned. Source of Financing 3.06 At July 31, 1969, the total investment cost of 140 approved ranch plans was about US$ 2.2 million equivalent (para 2.04), financed approxima- tely as follows: IDA 68%, BAB 12%, and participating ranchers 20%. There has been no variation between forecast and actual contributions. Commitments and Disbursements by BAB 3.07 Total disbursement by BAB at July 31, 1969, was approximately US$ 1.2 million equivalent or about 57% of the amount allocated for ranch development. An additional 24% of the funds had been committed, leaving  - 7 - 19% uncommitted. This balance was fully committed by September 30, 1969 (para. 2.04). Although BAB disbursements to meet ranch development plans are projected over two to three year periods, it is expected that about 75% of each ranch investment program would be carried out in the first year of development. Thus, a substantial disbursement can be expected in 1969 and early 1970 for the 140 loans approved. D. Organization and Management Channeling of Loan Funds to the Agricultural Bank of Bolivia 3.08 The Borrower under Credit 107-BO is the Republic of Bolivia, which bears the foreign exchange risk. The effective date was October 1, 1967, and the closing date is June 30, 1972. The Credit carried standard IDA terms. The Central Bank acts as fiscal agent for the Borrower. The Gov- ernment has established at the Central Bank a Project Revolving Fund to make and receive payments connected with the Project. It channels funds to BAB at an interest rate of 4% for a term of 16 years including five years of grace. During this 16 year period, repayments, not required for servicing the Credit, would be re-lent to BAB, for further lending under the Project on the same terms and conditions. The Agricultural Bank of Bolivia (BAB) 3.09 The BAB, a Government owned development bank, is the executing agent for the Project. Its participation in the Project to July 31, 1969, is summarized as follows (which includes commitments to ranchers, contri- bution to technical services and working capital requirements of sub- borrowers): BAB's Contribution to 31/69 No. of % of Amount of Category Loans Category Contribution (us$ '000,000) On-ranch Investment 140 12 0.26 Technical Services 140 43 o.o6 Working Capital 140 100 o.60 TOTAL 140 - 0.92 BAB's participation is the same as that agreed during negotiations of Credit 107-BO.  - 8 - Lending Terms and Conditions to Sub-Borrowers 3.10 Loan terms to ranchers are 12 years including a grace period of 4 years. Interest charge is 12% per annum on outstanding balances. Loans are made only after the Project Director has approved ranch development plans, prepared by field technicians employed by the Livestock Project Division, established within BAB specifically to service Credit 107-BO. All loans are then submitted to the Project Loan Committee comprised of the General Mana- ger and Credit Manager of BAB and the Project Director, for final approval. Project Administration 3.11 The Project is coordinated by a Project Loan Committee (para 3.10). This committee meets when necessary, usually twice monthly at BAB headquar- ters in La Paz, to approve loans and review Project progress. 3.12 The original Project Director resigned after about one year in post, during which time he and BAB had established a basically sound proce- dure for loan evaluation and operation and had engaged and partially trained local technical field staff. These procedures and staff training were re- fined and improved by an acting Project Director seconded by the Bank from January to August, 1969, and lending operations proceed well ahead of sche- dule. A new permanent Project Director has recently been appointed by BAB in agreement with IDA and is expected to report to duty in Bolivia late in November, 1969. In order to avoid interruptions to the lending process, arrangements have been made for an Acting Project Director to be appointed for short periods prior to the arrival of the new Project Director. The Project Director reports to the President of BAB through the General Man- ager. As a member of the Loan committee he votes on all loan applications. A competent technical staff of five technicians, one of whom holds the po- sition of Assistant Project Director, are assigned to the Livestock Project Division and work full-time under the Project Director. In addition to the preparation of ranch development plans, the technical staff devotes con- siderable time to screening project inquiries, supervision of approved loans, veterinary control and advice to sub-borrowers, and to the promotional and educational aspects of the Project. This arrangement works well and the technical services are appreciated by the ranchers. Current arrangements for Project administration and technical staff numbers are adequate for the needs of the Interim Second Project. E. Impact of the First Credit 3.13 The Project is too new to measure financial and economic gains, but physical progress has been good and the administration and management are effective. When the First Credit was made, IDA estimated that the Project would yield an average annual net return to the economy of Bolivia of about 17%. Results and current market prospects indicate this target will be met. In August, 1969, the Livestock Producers Association of the Beni and COMIBOL (the State mining monopoly) signed a three year agreement  - 9 - whereby the latter would purchase beef from the Association at a price of about 4.50 pesos/kg carcass weight. This agreement provides the producers of the Beni with a firm long-range market at prices about 15% above those envisaged during appraisal of the First Project. This price increase com- pensates for the increase in investment costs associated with higher prices for breeding cattle (para 3.02). 3.14 The 140 ranchers participating to date owned together about 145,000 head of cattle before the beginning of the Project. This is approximately 15% of the estimated cattle population in the Department of the Beni. Projec- tions over the 12 year life of the loans, indicate a doubling of cattle num- bers belonging to sub-borrowers and a two-fold increase in output at the end of the 12 year period. The First Project is thus expected to result in the annual incremental production of 8,400 m ton carcass weight per annum, valued at about US$ 2.7 million. Livestock and Meat Marketing Survey 3.15 A livestock and meat marketing survey has been organized by BAB, as required by the Credit Agreement of 107-BO. The purpose of the survey is to evaluate whether demand and infrastructure are sufficient to absorb additional production from a third stage project and from the livestock project currently under consideration by the Inter-American Development Bank (IDB) for the regions of Santa Cruz, Tarija and Chuquisaca. A study group, made up of qualified experts from USAID, British Mission to Boli- via and a qualified Bolivian cattleman, assumed responsibility for the im- plementation and conduct of this survey. The report of the survey was made available to BAB and IDA in mid-October 1969. Land Tenure Survey 3.16 In accordance with the Credit Agreement of 107-BO a land tenure survey is being undertaken by BAB, through an experienced team of the Uni- versity of Wisconsin. Data are being collected throughout the Department of the Beni and adjoining areas, which will assist in the implemenation of the proposed Third Credit. This survey is progressing well and preliminary reports should be available by the end of 1969. IV. THE INTERIM SECOND BENI LIVESTOCK DEVELOPMENT PROJECT 4.01 The Second Livestock Development Credit would supplement Credit 107-BO and would be restricted to the same project purposes and areas. The total cost of the Interim Project is estimated at about US$ 2.3 million. Benefits and costs are expected to be similar and proportional to those of the First Project. An IDA Credit of US$ 1.4 million would provide 68% of ranch development financing. The balance would be provided by BAB (12%) and ranchers (20%). Additional funds would not be needed for technical services, since the Borrower has requested that US$ 30,000 of the unallocated category of Credit 1OT-BO (US$ 200,000) be reallocated to technical services and the  - 10 - balance to the on-ranch development category. This would provide for all expected costs under technical services, including a reasonable contingency allowance. In addition, the costs associated with the employment of the Project Director are to be shared with IDB since he would also assist BAB with the execution of a project to be partially financed by that institu- tion. To meet the working capital requirements of sub-borrovers under the Interim Second Project, BAB would supplement the funds remaining under the First Project with the equivalent of about US$150,000. 4.02 The Project estimated foreign exchange component amounts to 22% of total cost, the same as under Credit 107-BO. Thus about 66% of the pro- posed Credit would finance local currency expenditures. 4.03 Although the analysis of the performance under Credit 107-BO reveals that there have been variations between projected and actual input prices (para 3.02) and between projected and actual beef prices (para 3.13), they have tended to compensate each other and consequently it is expected that rates of return estimated for the First Project will be met. Under the First Pro3ect, the financial rate of return to ranches was estimated at 17% and 22%, depending on the type of operation, and the economic rate of return at about 17%. Producers benefiting from the proposed Credit would be of similar type, located in the same region, and subject to simi- lar conditions as those under Credit 107-BO. It is therefore estimated that the financial and economic rates of return estimated for the First Project are valid for the proposed Interim Project. 4.04 The Credit would be made on normal IDA terms to Government, who would bear the foreign exchange risk. As under Credit 107-BO, the Central Bank would act as fiscal agent for the Borrower in channeling credit funds to BAB (para 3.08). The Government, through the Project Revolving Fund es- tablished in the Central Bank for the servicing of Credit 107-BO, would make the proceeds of the IDA Credit available to BAB in local currency, at an interest rate of 4% for a term of 16 years, including five years of grace. During this 16 year period, repayments not required for IDA debt servicing would also be made available annually to BAB ou the same terms and condi- tions for further lending under the Project. BAB would on-lend to partici- pating ranchers at 12% per annum for a term of 12 years, including a four year grace period. Disbursements 4.05 The purpose of this Interim Project is to prevent a halt in lend- ing operations to livestock producers in the Beni between September 30, 1969, and September, 1970, when funds from a third project may become available (para 2.01). By September 30, 1969, BAB had approved ranch development loans equal to the funds in this category under Credit 107-BO. However, BAB dis- burses development loans to ranchers in tranches over two to three years and withdraws funds from IDA only after actual disbursements to ranchers have taken place. Therefore there remains a substantial balance in Credit 107-BO  - 11 - after September 30, 1969. BAB would continue to withdraw from Credit 1OT-BO, even in respect of new loans made after September 30, 1969, until the rele- vant category in that Credit is fully disbursed, and then would plan to draw on the proposed new Credit which at that time would have become effective. Satisfactory arrangements have been made to provide the services of an Acting Project Director, as required, to prevent an interruption in lending pending the arrival of the new Project Director (para 3.12). 4.o6 As under Credit 107-BO, IDA would reimburse Government 85% of eligible ranch development loans, upon receipt of certified statements of disbursement. V. RECOMMENDATIONS 5.01 Progress under Credit 107-BO has been better than anticipated. All funds available for on-ranch development loans have been committed. Credit demand by ranchers continues to be strong. It is too early to measure precisely the financial and economic effects of Credit 107-BO but, from ranch inspections and rancher responses, there is every reason to be- lieve that the favorable returns estimated at appraisal will be obtained. Therefore, to fill the gap of approximately 12 months between full commit- ment of Credit 107-BO funds (September 1969) and effectiveness of a Third Project (about September, 1970), a Second Credit of US$ 1.4 million would be appropriate. 5.02 The assurances and covenants of Credit 107-BO would be continued in this Second Livestock Development Credit to Bolivia insofar as they are applicable.   ANNEX 1 BOLIVIA INTERIM SECOND BENI LIVESTOCK DEVELOPMENT PROJECT 1/ BACKGROUND TO PROJECT 107-BO- A. General 1. Bolivia has an area of 1.1 million km2 and is completely land- locked. It may be divided into three geographical zones: the altiplano (highlands), the yungas (intermediate valleys) and the llanos (subtropi- cal and tropical eastern lowlands). 2. Agriculture employs more than two-thirds of the total labor force of the estimated 3.7 million population, the greater part of which lives on subsistence holdings in the altiplano. Since 1952, when the government re- distributed land ownership in the altiplano, agricultural production has barely kept pace with population growth (1.7%) and has declined from about one-third to one-fourth of GDP in the same period. More recently, however, the production of sugar, rice and cotton has increased appreciably in the lowlands, and the first two have reached levels of self sufficiency. The lowlands, representing 65% of the total area of the country and containing only 15% of the population, offer very good opportunities for beef cattle development. B. The Beef Cattle Sub-Sector 3. The cattle population of the lowlands is about 1.2 million head, or two-thirds of the national total, and is largely concentrated in the Department of Beni. Official sources estimate an extraction rate 2/ of 10% for the lowlands. Annual production from the Beni De- partment alone averaged 6,500 m ton of dressed beef from 1960 through 1965. This was roughly one-half of the total national production. The relatively low average carcass weight has remained fairly constant at around 180 kg per head in the same period. 1/ Excerpts from Appraisal Report Number TO-585a, dated May 2, 1967. 2/ Total number of cattle slaughtered annually expressed as a per- centage of total cattle population.  ANNEX 1 Page 2 4. Domestic per capita consumption has also remained stable at about six kg per year (the lowest in South America), although wide re- gional variations are apparent, e.g. La Paz and the tin mines consume three times more beef than the national average. Beef imports and ex- ports have fluctuated markedly in the last five years, but their total value has remained very small. C. Animal Health 5. Animal health problems in the Beni reflect inadequate man- agement, the absence of a field diagnostic service, and limited appli- cation of disease control measures. The most important diseases are Foot-and-Mouth Disease (FMD - Aftosa) and Paralytic Rabies, which could be controlled by routine vaccination programs. During negotiations as- surances have been obtained that all cattle belonging to ranchers par- ticipating in the Project would be routinely vaccinated against FMD and Rabies. Other factors, such as low fertility rate, calf mortality caused by dieseases of the newborn, and internal parasites could be brought to acceptable levels through appropriate herd management. D. Agricultural Services 6. The agricultural services of Bolivia were built up as semi- independent organizations in the period following the agrarian revolu- tion of 1952. They were incorporated in a reorganized Ministry of Agri- culture in 1965. 7. The extension service's agents have little training in animal husbandry. Field veterinary services are mainly concerned with Rabies control in the lowlands, and with an FMD campaign in the Department of Cochabamba, which is to be expanded to include the lowlands. Assurance for this has been obtained during negotiations. The Ministry of Agri- culture plans to establish a field diagnostic service and a major vac- cine production center in the lowlands, coupled with expanded field veterinary activities. 8. The School of Agriculture at Cochabamba is poorly equipped and staffed, as is the Veterinary School at Santa Cruz, but realistic efforts at reform are being made in the latter, where the present aim is to produce 20 graduates a year. An intermediate level of training is given at the six practical agricultural schools, which graduate a- bout 100 students a year, most of whom go into the extension service. 9. There are two agricultural research centers concerned with cattle production. The Trinidad center in Beni has done some breeding work and has started to keep records recently. The Saavedra station of Santa Cruz is designing and testing systems of husbandry suited to the environment.  ANNEX 1 Page 3 10. Medium and long-term agricultural credit, for which the de- mand is great, is available only from public sources, the most impor- tant of which is the Banco Agricola de Bolivia (BAB), an autonomous organization under the general direction of the Ministry of Agriculture. Besides lending from its own resources, BAB has channelled funds from USAID, which is also assisting with reorganization and management, and the Interamerican Development Bank. Interest charged is 12% per an- num, and most loans are made for 12 years. During negotiations, it has been assured that BAB would initiate separate accounting of its commercial and subsidized operations. E. Government Policies on Livestock DevloPment 11. The Government has recently emphasized in its policies the development of the beef and wool industries, and BAB is playing a major role in channelling funds to these sectors. The Government has also initiated an ambitious plan to reorganize the Ministry of Agriculture in an attempt to provide the ancillary services necessary for develop- ment of the livestock industry. The tax burden on livestock producers has always been kept small and movement of cattle within the country has remained free. Meat prices to the producers have remained unregu- lated, but those to wholesalers and retailers have been kept at the same level for the past five years in the main consumption centers. F. The Sect Area 12. The Project area is that part of the Beni which is predomi- nantly grassland, and comprises mainly the very extensive flood plains of the Mamore River and its tributaries. Its size is around 12 million ha, two million of which are in ranches. 13. The climate is tropical with an annual rainfall averaging 1,800 mm, of which 60% occurs in January-April. The mean temperature is 260 centigrade. Soils are young alluvials, varying from sandy to clay loams, with clay subsoils or pan at a depth of one m or less in extended areas. The climax vegetation is high forest of many species, while grassland predominates in the central floodplains. The area lies at a general altitude of about 250 m above sea level and is very flat. Partial flooding occurs at the time of the summer runoffs. 14. In Bolivia, ranch size is usually expressed in terms of cattle numbers. In the Beni, approximately 40% of all ranches have a herd size of between 400 and 1,000 head of cattle. A total of about 300 ranches are included in this size category. The typical ranch to be developed would initially have about 600 head of cattle and approximately 4,000 ha of pasture land, of which about 2,400 ha would be improved under the Project. The Beni ranches are extremely understocked, even when taking  ANNEX 1 Page 4 into account the extensive grazing production system followed in the area. Ranchers have the right to own five ha of land per head of cattle under the Agrarian Reform Law, but the process of title clarification is lengthy and makes it difficult to obtain credit. As a condition of the proposed IDA credit, a process for quick clarification of land titles to participating ranchers has been established by Government. G. Description of the Project 15. In view of limited government experience and resources for this type of development and insufficient supply of breeding stock, the Project would be restricted to the partial development of 150 com- mercial beef cattle ranches in the Department of Beni. The Beni has greater immediate potential for livestock development at higher re- turns than other lowlands regions and also has better developed mar- keting facilities. Project investments and the proposed IDA credit would amount to US$ 4.0 million and US$ 2.0 million respectively. The Project would represent the first stage of a long-term livestock development program, directed primarily at improvement of beef cattle production in the lowlands. 16. Investments would be for fencing, corrals, water points, light equipment and tools, essential barns and housing, selected pas- ture improvement, purchase of breeding stock (limited to not more than 50% of individual ranch development loans), working capital and tech- nical services. The above investments would increase carrying capacity, permit a more efficient and fuller utilization of the pasture produced, and improve stock quality and performance. Due to the present under- stocked condition prevailing on most ranches, only about 60% of each participating ranch would need to be developed under the Project to provide adequate pasture for existing and projected herd size. 17. As a complement to the Project, BAB will: (a) financially and technically assist in the development of about eight representa- tive ranches in the Departments of Santa Cruz and Tarija; (b) conduct a land tenure survey in the lowlands; and (c) carry out a national beef and live cattle marketing study. The above activities would be under- taken under terms of reference to be agreed upon with IDA, and would help to provide the basis for a second stage of livestock development. September 17, 1969  BOLIVIA: INTERIM SECOND BENI LIVESTOCK DEVELOPMENT PROJECT PROGRESS OF CREDIT 107-BO (IDA RANCH DEVELOPMENT FUNDS) 3.0 180 2.5 150 co 2.0 120 z Er I - < 12CUMULATIV E LOAN a)= l s APPROVALS \ .- m z ~~~~~~~~~ _ ^ ~~~~~~~~~~~~~(Right Scale) ,.r 1.5 90Q L 5^, 1.366 ,-9 O ii_.. . BALANCE OF FUNDS_ - X ~~~~~~(Left Scale) _. < 1.0 60 0.5 .. ...^^,04430 ,0' ... % CUMULATIVE COM MITMENTS 30 (Left Scale) 0 ... * * m *0__ _ _ __ _ _ _ _ _ _ _ _ _ _ _ 6-30-1968 9-30-1968 12-31-1968 3-31-1969 6-30-1969 9-30-1969 z z x IBRD-4550   BOLFIIA INTERPT SECOND BENI LIVESTOCK DEVELOPMETJT PROJECT DEVELOPNENT OF A TYPICAL RANCH IND ER 107 - BO 1/ ON-RANCH INVESTIENT PROJECTIONS Average Average Total Cost for 10 Ranches Units Cost Foreign INVESTMENT ITEMS Unit Per Per Total Dollar Exchange Cost Ranch Ranch Cost Equivalent Component (PES03) (No.) (PESOS) (PESOS 1000) (1$ '00) (j) (US$ '000) Fencing, km 4,000 16 64,ooo 9,600 800 32 256 Stock Handling Facilities, No. 24,000