ft E S. fT R ; Cr E Report No. TO-392a This report was prepared for use withini the. Bank and its affiliated organizations. They do not accept responsibility for its accuracy or comp!eteness. The report ma, not be published nor may it be quoted as representing their views. ___ TMTT1rPMATTC^AT J IAMT( PN TI1P MM!JTRTjCTTTCM% ANT) nVTXPTT NPMF.NT MTXT;RATTCnA' DTIV1 T CPMVNTT AqqC)OTATTON CAT1TLE DEVELOPM:ENT PROJECT PARAGUAY December 4, 1963 iiepartment of1 Teclnnc.ical Ovperations CURRENCY .EQUIVALENTS 1 'U. S. dollar = 126 Guarani aj 1 = U.S. $0. 008 c$ 1,000 = U.S. $7.-94 ¢ 1,000,000 = U.S. $7, 936. 50 P A R A G U A Y CATTLE DEVELOPMEDNT PROJECT TABLE OF CONTENTS Page No. SUVlYMARY *0 o e @ t * o * * *9O * > p * * 9 i iiiJ. I. INTRODUCCTION . . . . . . . . . . . . . . . . . . 1 II. BACKGROUND . . . . . . . . . . . * . . . . . . . . III. SCOPE AND NEED FOR CATTLE DEVELOP14NT 3 . . * 3 General .."... ,,,,........ 3 Present status and Production Methods..... .. )4 Potentials for Increasing Efficiencv ....... 5 IV* THE PROJECT . ,. . . . . . . . . . .. . . . . . 5 Gieneral . . .....................5 Description of Project.......,,*,....... 5 Cost Estna...... 7 Orgnnizati on and Managen-ent; = @ v; 9 Marketing.. .... ... tnnM *n ----------- *** Q 11 V. BENEFITS AND JIJSTIFICATION . . . . . . . . . . 14 Increased Ranch Production............... 14 Eco-no-ic^ Be-nefits.v--ee@*@@*- 1! 1. VIo CONCLUSIONS AN]) RPlYflflMivfTATTCTl? , . * . . . . 14 ANNEXES 1. Ranch Size Dis-bribution 3, Ranch Development Costs 4e Ire-Deve"LopmenrAt Productions St-at-ist-ics 5. Herd Development Program 6. EstiUmates of ProductionU Income and Operating Costs P A R A G IJ A Y CATTLE DEVELOPMENT PROJECT S U M M A R Y i. The GoverrLment of Paraguay has requested a development credit cf US&r3.6 milli.on to help finance a three-year phase of a cattle development program. The cost cf this phase which comprises loans to producers for ranch development, the importation of machinery for contractors to undertake earth tank sinking and the employment of f'oreign technical supervisory services is estimated at di 731 million (US85.8 million ecuivalent). The foreign exchange component is estimated at about USw2.7 million equivalent. ii. All Bank nmssion reports on Paraguay have stressed the importance of th. nt.tfl P . ndm.qftrv f.n t.hp nqti rnql P1rnonvni The nount-ry nsnnnorts he1f cattle variously estimated at 5-6 million head. Local consumption absorbs about two-thirds of the arnnual kill and the balance is nexprt+. mainly i. the form of corned canned beef, meat extract, hides, meat and bone meals and horn. Is ring the last wo years beef exports h a TJS' l10 million annuLially and have accounted for 30-50 per cent of the country's iii.LS Production ,,iet.h.ods. in us LIiUe Carte h.iLg luJY,y i n e ±L fficient M,Liainl.y UL,e to tIh absence of fencing, adequate water supplies and efficient facilities for stoc ha igD As a r 14- ann-ual1 t-u n-c"f is 'owv c' qotl sh.h ~L,L.r~ i~.IUJ.±1~, is resu L~U -.ULL .± L ). I± lb. IUW L...L LIU L±.L. -Lb 1., maturity is retardedc, and there is a lack of disease prevention and control. Ranch development programs under the pr-oject would be comfined to the provision of basic f'acilities such as fencing, water supplies, corrals, dips and similar stock handling requirements. Sucn programs wouid progres- sively increase annual production over a period of 12 years after invest- ment up to double its original level. iv. The borrower of the proposed credit would be the Government of Paraguay. T'he Central Bank would act as the agent for the Government in disbursement of the credit and the project would be administered by a coordinating Committee established within the Central Bank consisting of a senior representative of the Central Bank as chairman, a representative of the Nationa:L Development Bank (NDB) andi a technical livestock expert to be recruited. v. Technical services for the appraisal of ranch development plans, for supervision of expenditure of the approved loans for ranch development, and for investigations on the financial standing of loan applicants and on security offered by them, would be supjplied the Committee by the Technical Division and the Devrelopment Branch of the NDB. Disbursement of approved loans to ranchers and collection of repayments would also be undertaken on behalf of the Central Bank by the NDB which would retain annually from its collections a service charge of two per cent of the amount of loans outstanding as payment for the services suipplied by it to the Central Banlk. 44 vi. The management of the Central. Bank is competent. For purposes of bLJ.e projectb a i r s S t±- ± 'f IrIUer-.L_ WUUlU. Ub CtJOJ4IUeU D UIIp UL4a as 0 L JA ICr- sentative on the committee to administer the credit. The Technical DI-Vision aniu lAke DUevelopmeUInvranc of. le QIJD UuI iur.d lthe direction o competent officials and are experienced. in the appraisal and supervision of agricultural and stock loans. They should be capable of satisfactoril,y providing the services required of them by the Central Bank. vii. The project would cover development of about 150 ranches. Approximately 75-80 development programs could be formulated annually and each would take about one and a half to two years to execute. Disbursement of development loans therefore would spread over about three and a half years. As the present contracting force for developing water facilities is restricted, the project would includ.e its expansion through the financ- ing of two additional units for contrac.t tank sinking. viii. Loans in local currency for 80 per cent of the estimated cost of approved development programs would be made to ranchers for a term of 12 years including a grace period of 4 years and at an interest rate of 9 per cent. Loans to contractors for imported machinery would be at the same interest rate but the term would be shorter (3 to 5 years) and the borrower would carry the ex.change risk. The technical. livestock expert would be satisfactory to IDA and would be employed for the pe!riod of disbursement of the credit. ixo The development credit would cover the whole foreign exchange cost of machinery for contractors, and of the expenses of the foreign technical expert and 60 per cent of the cost of approved ranch development programs. The Government would provide 20 per cent of ranch development costs. Borrowers would be reauired to provide the remainder from their own resources. x. The interest collected on loans would be used fo-r payment of the Rervine charge o f th.e NMnR- thp sprvi Ge charge of TTA the costs of the Central Bank in administering the proje!ct and the balance (about 5 per cent) would provide some cushion naginst the foTeiagn echang riqLs on loans to ranchers. Irincipal. repayments would be used for relending to ranchers to c-ontinule cattle development. xi. The possihbility of providing assistanfce to Paraguay for catt. development has been under consideration for some years but the Bank indicat+ed +ha+ rel aation of rarketing controls in the direction of free marketing and the solution of other organizational problems was a pre- ,,n,4e .a+..4+~nn -AAr.+ An nf An,An ., + l,f Pa 1,..rnci.s c n Iequ.s t itsL Q coU .U i der,a+. of fUt I a -l - assis+n c . Follow a repor of a Bank mission to assist in revisingr the marketing system, a new decree wo . . ..A44 4 5v- AA_AA. b . s _ ~'J ± 1 A± ui D a.~j ., |~~~~~~~~~~~~~~~~~~~~~o Cs CJG_L G.W1',V'- V sGzGU st~vQ|VsV Ussw WVA JVU. Cl%D VL& I C" CLSUCXy de Carnes which previously had monopoly control of marketing. While there are reservalt.ions Cassto the exAent LI WLhIc.h. tUh neVW o izaLAtio.LUII mUtsV0 ultimate reouirements, the changes represent a substantial move in the dirUection o1.14. li.± -aLi.g eU Le± pI.icesI U a UI1Ud Uordi LIo inI UtII irUU.Ld-ty andU in providing incentives for investment in cattle development. Ranchers, previously disinclined to invest either in capital improvement in their properties or . ben ++er nagemen no; nrxo +o participat in development programs if credit on suitable terms and conditions such as _L.LJt: jJ. ..J;J e :%A U.LLn.L L. F.J.LV UJV _J .A 4 ALJ. .LIL1t; &.L ; Va.Lue of ±l L'd: LL ;: iLIUdsL kJ.L U JUU.LJL1 .LOU.L.LL11, JAL VL4 project is estimated to rise progressively to a maximum of 0 238 million in tLle Owtwe.L LfJ.1 y-ear follow-iLng _.1Veslt1mul,* TLLIe increased arnnu1a' opJert± dJ.gL±, expenses a.re estimated at V 42 millio:n and the net value of the increase in ~~I ~ ~ .4 ii ~~~ _ - ~ A 11 9£-- .LL.. 2 I -- --. 4 . anruir.-u production gat yi 1701J 1IrLiULI. Ji.L±LUW±Ul AV1- loit UfoVr the Vj)elop,1 period ofi 12 years following investment and computing annual net benefits over the liietime oE the project - 30 years - the average anunual ret-u-n to 'hii economy at farm prices would be about 14 per cent. xiii, The project would improve the competitiveness of Paraguayrs beef production and assist the country in expanding its exports. It is sound and economically justified and would be suitable for an IDA development credit of US$3.6 million. P A R h L _ U A YL CATTLE DEVELOPMENT PROJECT I. INTRODUCTION 1. The Government of Paraguay has requested assistance to finance a three year phase of a cattle development program. The cost of this phase, which comprises loans to producers for ranch development, the importation of machinery for contractors to undertake earth tank sinking, and the emplo;yment of foreign technical supervisory services, is estimated at 0 731 million (US$5.8 million equivalent). The foreign exchange component would be about US$2.7 million equivalent. 2. The credit sought is US$3.6 million equivalent. The borrower would be the Government of Paraguay. The Central Bank would act as agent for the Government in disbursement of the credit and the project would be administered by a Committee established within the Central Bank consisting of a representative of the Central Bank, a representative of the National Development Bank (NDB) and a foreign technical expert to be recruited. Under the supervision of this Committee, required technical services would be provided by NDB which would also undertake the disbursement of develo:oment loans to ranchers and the collection of loan repayments on behalf of the Central Bank. 3. Following discussions with the Paraguayan Government on cattle development dating back to 1959t Bank missions visited Paraguay in May and July 1963 to appraise the project. The foilowing report is based on the missionst findings and discussions with Paraguavan authorities. II. BACKCPOIND The po-ssbility of provirling assistance to Paramay for rattle development has been under consideration for some years. Commencing in 1959 neveral missions have visitPd the nnnntrv tn i"vP.-ti 2t this possibility but little progress was made primarily because of the unsatis- faForrmanytyears, cattle mark ettng hesbeen und er monoppolyconrlo an official organization, the Corporacion Paraguay de Carnes (COPACAR). As far back as l9592 th>e Bar.k indicated thatv rel^ation of marketing controls in the direction of free marketing was a prerequisite to its consideration of financial assistance for development of the industr. The Bank offered help in revising the marketing system. - 2 - 6. In consequence of the report of a special mission to this end (williams/Wilson report on Cattle Marketing and Price Controls, February 196.0) a new decree law for the reorganization of Copacar was enacted in 1961. While the Bank has reservations as to the extent to which the new organization meets ultimate requirements, the changes represent a substantial move in the direction desired and provide a climate in which financing of cattle develop- ment can be considered. 7. By 1961 too, a new National Development Bank (NDB) was established in Paraguay with financial and technical support of the Inter-American Development Bank (IDB). The NDB has included loan assistance to cattle ranchers as part of its activities. 8. F'or many years cattle ranchers had been disinclined to invest either in capital improvements in their properties or in better management practices. This attitude resulted from the unsatisfactory organization. and economic aspects of the industry. and is partly responsible for the very poor state of so many ranches. 9. However t,he picture has changed materially during the past 2 years, in consequence of the liberalization of cattle marketing in the direction of free enterprise and the establishment by the Government of a min7hnum basic price for cattle at a rrofitable level, 10_ Ah Pviripnp off rnrrRnt intprARt- a total of 77 loan applications for ranch improvement estimated to cost 0 2411 million have been processed on the hasis of apnproved developmlent program: by the NDR, Programs totpl i no / 170 million have been approved. From 5.0 to 60 per cent of this cost,, representinig the foreign exchange componi-ent, has been made available by IMP as loans repayable over five years with interest at 10 per cent. The wan v hci e Sonner-ne h1avro been reap- drew +^ Qi,vn?v r +hem h'n nr,e- vn>ron+ in +Jic: . ~ LI _S, L.s sA AA..f. *I.t ¼ v ^ t s the. . _ S £ ¼.s L..L, _ - case of smaller units, (on units below 5000 ha the NDB has provided up to 20 per cenl; of l-nn' currncy needs). 6 IA.A 1 av beer. +ake"n up, IL further 30 loan applications are in the process of examination. These will practuicallr coL.LJit l INDB f-1ds po-- bA-uy the .IDB T avalable fo finalr. ranch deve:Lopment. 110 As further evidence of the improvement in the investment climate, on e wag oma-Ia ^,etda, ave:ragi.3 of di 15 :--io ar-nl- 4ui; h past three years onI ranch improvement. It plans to continue this rate of ±nvestm'ent prvuUgIh cooicii situatiLon of the ±indusvx-y does not chdflge substantially. There is now little doubt that other ranchers are ready to participate in development programs if credit on suitable terms and conditionls is available. 12. It is claimed by the Rural.Association representing cattle ranchers and the NDJ3 that many tenitative applications have not been proceeded witn because of the exchange risk aspects and because of the inability of borrowers to provide the iarge proportion oI the development costs from private resources that has been required. All NDB loans for cattle development involve the rancher accepting the exchange risk. The possibility of devaluation of the Guarani because of economic pressures resulting from devaluation of the Argentine peso combined with special reluctance to accept exchange risks since only about 25 per cent of any rancheris output is exported have continued to make potential borrowers hesitate to accept :NDB assistance. Thus 11 ranchers have not taken up approved loans totaling V 27.0 million. Furthermore the repayment terms possible for loans granted from I3 funds are considered by prospective borrowers to be unsatisfactory for financing development whose benefits take several years to materialise. 13. The IDB financial suppoit to the NDB was designed for general operations and not specifically for cattle development for which the funis it could allocate were too small to make any considerable impact. Additionally it is not keen to become further involved in specialised aspects of agricultural development such as the Cattle Development project which requires specialised supervisory staff. The IDB has therefore expressed the view that it woulld welcome the entry of IDA into this field. III. SCDPE AND NEED FOR CATTLE DEVELOPMEfiT General l4. All Bank mission reports on Paraguay have stressed the importance of the cattle industry to the national economy. The country supports beef cattle variously estimated at 5-6 nillion head. Beef is a major item in the local diet (60 kilos per head per annum) so that local consumption absorbs about two-thirds of the annual kill. The balance is exported mainly in the form of corned canned beef, meat extract, hides, meat and bone meals and horn. During the last two years beef exoc)rts have averaged USt1O-12 million annually and have accounted for from 30-50 per cent of the country's export earnings. 15. By far the greater part of Paraguay is used for cattle raising. The Chaco zone of the west, accounnts for approxnmately 60 per cent of the total land area, and is used almost exclusively for cattle ranching. It is unlikely to be iiuaIle for nny other purpose for a verv lnng time. The Oriental zone of the east supports a little more than half of the cattle pnnni1qt.ionn annd simihr1xr no significntn. change ls llkel in the use of the specific lands concerned. 16. The number of cattle owners is recorded as approximately 150,000 but the great -ajor_iy of these own so few, head of stock that they cannot be considered in the category of ranchers. Approximately 1,500 ranchers own f4ro.. 500-_5f,000 h4a wi tih an average hInerd size. of f500 head, A 4urther 500A control properties ranging from 5,OO0O-50,0 ha in size carrying an average o-if 5,000" he-ad and accounting for appoxmael -- per 4 cetf 4the 4-4-l cattle population. With the 1,500) smaller units, they control 70 per cent of Ulte nationdi1 herdl (tLUItA 1)J* - 4_ Present Status of Production Methods 17. The production methods in use are highly inefficient. Many of the ranches are unfenced and cattle management is that of the "open range". Even where boundaries are fenced, cattle are grazed extensively in large mobs on native pastures either not subdivided at all or with but two to four fields. Insufficient waterholes in association with the absence of subdivision are responsible for very poor utilization of available pasture which is eithEr overgrazed or virtually unused on a large part of the ranches. Cattle have to walk too far from water to use availabLe feed fully. This problem is the more acute the larger the property and is especially characteristic of the Chaco zone. Few improved pastures exist and those that do represent an insignificant fraction of the property concerned. Facilities for handling cattle are often grossly inadequate. Almost all the more serious cattle diseases exist and their incidence is widespread, although the Chaco zone is relatively free from tick carried diseases. Even taking into account the limitations imposed by climate, which is subtropical, stock quality is unusually poor for a country where cattle production is the major industry. 18. Even the most elementary management procedures essential to reasonable efficiency must be based on adequate control of stock of different sex, age, and relationship0 This is imposSible under prevailing conditions. Inadequate handling facilities make control of disease virtually impossible. Stock quality cannot be improved by seLective breeding with no effective control of rnating. 19. The net result is a low leve;L of efficienc:v The stonkinp rate is of the order of one beast (mixed age) per 3-7 ha. Effective calving peenrntae.s are lw andr averrnage iintein- 1n per c-ent of coiws of hrpdrlina aoe.- Because of dlepressecd growth, heifers do not breed before four years of age and rarely have mrore thn t+wo calves every four years. Calving tends to be spread over the year instead of being concentrated in spring months as iEs necessary for good growth<, Early calf mortality is high at about 6 per cent and continues high cluring the rearing period. Weaning does not take place before one year of age M.nA -11- are o .-n e+ a11+ froo+ -hen + hen ex+t f is born. Cows are slow to recover and to return to breeding condition. Growth rate of weaned ani mal s is slow, ki llable weights of 30rn-).00 ki;l os (live) not being reached until 4 to 6 years. Annual turn off is low, averaging fr.o, 10=l1") per- ceant of + he +o,+ he,-. Meat production per hectare is of the order of '; kilos dressed weight, About 60 per cent of the animals cows averagilng 300-320 kilos. Dressing percentages of the two types average 52L p er c rt d-U L 4 per cent respectivte:Ly. At sLautr a.ll c.t.L e are exceptionally lean, so that irrespective of other limitations to export as vA_ G _I n]k i sI __ sv| 1 _ ___1- - -- -44 A 4-- r- -- -TA fXrozen or ch illted bete'eXf Uth.vy CUa r OsAL% U1A oUnly to CUannin. BeUCa Us 1hig; gel and low fat content and since the whole carcass is available they are specially suited to this purpose an.d the canned product is of hIgh qualitye Potentials for Increasing Efiiciency 20. Lines of attack are clearcut. Improvement must be sought in the overall stocking rate, the effective calving percentage, the survival rate, the rate of growth, the dressing percentage and the percentage turn off. 21. Inprovement in stocking rate can come from more effective use of available native pasture through subdivision and water provision. Overall calving percentage can be improved by separate and better rearing of young female replacement stock to permit earlier and more reliable breeding, by controlled calving and by earlier weaning to encourage earlier return of cows to breeding condition. Survival rate irnprovement is geared to better disease and general managenment control as also is improvement in growth rate of growing steers. I)ressing percentage and sale percentage increases must follow better feed use through improved rnanagement. Stock quality improve- ment will follow as a natural consequence. 22. Even small improvements in each of these directions are capab].e of making substantial contributions to output. While their attainment would only be reached progressively over a period up to 12 years, it should not be difficult to increase the breeding herd and overall stocking rate by 50 per cent. to lift effective calving rate 1Dy 25 por cent, to increase killingy weights by 40-50 kg per head to 400-4:20 lcg (or 15 per cent) and to lift dressing percentage by two to three per cent (to increase the yield of rneat by 5 per cent). The proportion of the herd sold could readily be raised by 50 per cent (10-12 per cent tc 15-18 per cent). The combined effect of gains of these dimensions ultimately would be to increase total output per ranch by alproximately 120-150 per cent. 23. Phat such inereases are within the canacitv of averape managernent under the simple project proposed is indicated by the performance of a small number of ranches wNiere a similar developDment progrrnm has been in onpera-ion. In such cases, where management is above average, stocking rates have been lifted by lOO per c-enn to one beast per two to three hectares; calving per- centages have been raised 50 per cent to two calves per three years; weights at. ktillin have mlrov.dA to L.30 ,g avrage anrd the proportior of the to-tal herd turnedl off annually has been raised to 20 per cent. IV. THE PROJECT v eir, e - 2 - 24 The project is a three ye-r phase of a attle development program which includes tne extending of cr edit to producers for ranch developmehir, the import+ation. of mach.ery for cor.tract-ors to u.ndert+ake earth.A tank sik and the provision of technical supervisory services. Description of Project 25. The primitive state of the cattle industry limits any development programi at this stage to the provision of facilities basic to rational cattle management as the f irst step toward increasing efficiency. While a fewf ranches are reau'y 3or a more auvai-aeed program irnvolving iriproved artificiaal pastures and better quality sires, the vast majority are not. The project is thus a simple one involving the on-farm development of sucn basic facilities. These are: aO subdivision of the larger properties up to a minimum of 10-20 paddocks (of approximatel-y 1J0uu ha eaeh) to permidt adequate and separate control of the grazing management of young stock, bre&ding stock, and fattening stock; bo provision of associated water supplies (dams, waterholes, drinking pAaces, troughs, windmills, pumps, according to nenditions) to each new subdivision with the major objective of increasing the overall use of existing natural pastures; c, development of adequate stock handling facilities such as corrals, drafting races, crushes, dips or spray baths to permit management control of all classes of stock and to enable disease control by dipping, vaccination and treatment. 26. ]:n order to have maximum impact upon the national output, these improvements would be channelled in the direction of those ranches which are in the economic size range of about two to four thousand head of cattle. The project would cover approximately 15C) such ranches. Assuming a sample of 80 small ranches with 2000 head, 5( medium with 3000 head, and 20 large with 4000 head, this would cover approximately 30 per cent of all ranches over 5000 ha in size, and would involve approximately two million ha carrying about 400,000 head of cattle at the present time. Essentially the project should be regarded as a "pilot" one. which, if successful would provide a sound basis for extending development. Details of the development objectives for the three sizes of ranches are shown in Annex 2. 27. A technical livestock expert satisfactory to the Association would be engaged by the Government to supervise the administration of the project. Developmental plans would be prepared for approved ranches; and loans of up to 80 per cent of the estimated cost of the works would be made. The owner would hr reqnired to sinnly in c-ash or kind t.hp remnining 20 npr cent. this being the maximum proportion it is consicdered the average rancher could provide from his oun resources- The development woiuld be supervised and technical advice on stock and sanitation management-would be provided. 28. Some fencing and building of corrals would be done by the owners and their staff as part of their 20 peracent contribution of cost and some would be contracted. Water provision would be carried out by experienced contractors, The existing contracting force for tarX s-nkin (t.er o contractors operating in this field) would need expansion to approximately double its present capacity. Provisi.on is made in the proje^t for the import of heavy machinery for this purpose. 29. Formulation of individual farm programs would be spread over two years. Since it is doubtful whether loccl admiistrative facilities cculd prepare more than 70 to 80 farm programs annually, and their implementation would tMake at least two years, the project woul'd spread over about three and one-half ye!ars. -7- Cost Estimates Yn. The estimated cost of development for each class of ranch is set out in Annex 3. These estimates have been derived from examination of records of the NDB in operating cattle development loans. They have been checked against contractor prices and the costs incurred by Liebigs, one of the larger foreign meat packing and ranch owning companies in Paraguay, which has been actively engaged in a similar development program over the past three years on 13 ranches. 31. The cost estimate of the project is as follows:- (million Guarani) Ranch Development Local Foreign Total Currency Exchange Fencing 260 130 390 Water dams and tanks 45.5 107 152.5 Drinking yards 17.5 41 58.5 Corrals 45 45 Dips and baths 27 18 45 Total Ranch Development 395.0 296 1ZI' 691.0 Machinery for Contractors . 27J 27 Technical Services and transport - 13O V 13.0 Grand Total 395.P 336.0 731.0 US$ equivalent (millions) 3.1 2,7 5.8 3° Fencingacort fori +-he g-reater paort. of +i the -An dee opm- r-cs.- The length required will vary with the stage of development of each farm, its size and location. Farms in the Oriental zone will probably require approximately 40 per cent less fencing than those in the Chaco. The lack Of relliable sta ti-stics , ra Paraguay tr.mal it ir.nrnsill t o forecas+ requre - me:t+s with accuracy. The cost per kilometer is affected mainly by the lab6r charge which, on. a n cont+ract basis am0.ounts too A per cen'f + the +ot,a when the labor cost of cutting fencing timber is al1bwod for; Most ranz4hes have sufficientv fencing tim.ber on te4- property bu' require labor for it cutting. The cost used in estimating is an average figure derived frot the souces men'ioned in, para 30 he foeg.exch-rge contentV. of feningLir :t approximateLy 33 per cent. 33.e Stock water will be provided by building dams to collect run-off in the Orientl zone and bUy excavating water ho'es or taUnks irn u t urheCao zone. Costs are similar anld based on the ruling contract price per m3 (50 %) and an - o - average size unit of' 5,000 m3. One unit is allowed for each two subdivisions. The cost of associated drinking yards :Is similarly derived. These will be excavated timberlinecd access sites to (lams in the Chaco and troughs in the Oriental zone served by pumps or wells, On the basis of the foreign exchange component in the earth moving costs determined for the Paraguayan highway project the foreign exchange component of water development costs will be approximately 70 per cent. 34. Corrals will be built by cont;ract labor from materials, excepting hardware, existing on the property. Spray baths have been charged at the imported cost plus erection by contract labor and dips at contract prices. The foreign exchange content of corrals and dips is negligible (ironware and cement only) and that of baths approximately 80 per cent. 35. Contractorts machinery would consist of a crawler tractor with bulldozer and carryall, an agricultura:L tractor for haulage, a 4 or 5 ton. trailer, a four-wheel drive truck and a small mobile workshop. Based on current quotations, a medium powered pLant would cost us615,ooo equivalent and a high powered plant about US147.(000. The project provides for the importation and utilization of one mecdium and one high powered unit. 36. Provision is made for the sa:lary and expenses of a qualified f_ P-'rrn tecrdninnl expert t.o bh Pmnlnupd nver the three nand a half year period of disbursement of the credit and for the purchase of vehicles for g7roundt- ±.r~n.'pnrn ovf t.echni ral staff. 37. The proposed mA credit ofP S3.6 , o w cover the forein exchange costs of contractors' machinery, technical services and transport _aL nd An p r-r uet o.FL t1h cost of ; rn-11 evelloamen.t A1 | h^e h; ) h CX-'- '-V ^ .±t W. J.L V ~ U ' .,iJO U V L I. 044t,4 '... V W.L.J.ItL±± 394 VJ5A C4L{ flA 'UflV IA6SS iS.6iJ than the estimated foreign exchange cost of ranch development programs, foreign finr,in 4of - thiorer would ';e .eurdunder -'evailng con"iton.- 38. Ranchers pro-vide n cash, labor or MLaterials 20 per cent of the cost of the developmiental programs. This proportion is reasonable in relation to te resources avail_ble tV t1hem. 39. The remaining 20 per- cent of the cost of developmental programs would be advanced to ranchers from local currency funds provided by the Central Bank from its collections of amounts owing to the Government owned Bank of Paraguay which is in liquidation. 40. The amount of outstanding loans due to the Bank of Paraguay when it ceased business totaled -J l.6 billion. A review of these loans indicated that some X 700 million were collectible, g 200 million were probably collectible in part, and g 700 million were uncollectible. The Central Bank is undertaking collection on behalf of the Government. Some X 120 million have been collected to date and paid to the capital account of the NDB. The NDB is entitled to select additional securities from the portfolio of the Bank of Paraguay to the value of 0 :380 million for collection. As much of the balance of the portfolio as is practicable will be collected by the Central Bank. Its collections are currently running at the rate of about 0 80 million annually and appear to provide the source of sufficient local - 9 - currency r^un(is for the public contribution towards the cost of the project. In addition, the Government would undertake that local currency funds required for the project would be made available promptly as needed. 4l. Disbursement of the IDA development credit would be directly against documents in respect of importatiorns of contractors' machinery, vehicles for transport and payments for technical services. Disbursements for ranch development would be on the basis of a percentage of the amounts loaned for this purpose. 42. Thef Central Bank would provide the NDB with funds as needed for disbursements of loans to ranchers for 130 per cent of the cost of approved developmentaL progranms. The Central Bank would obtain reimbursement from the IDA deveLopment credit of 60 per cenlt of the cost of these programs, cr in other words 75 per cent of the amount disbursed by the NDB to borrowers. Interest and repaymrent instalments on the loans collected by NDB, less the NDB service charge of two per cent per annum on the amount of loans out- standing. would be remitted to the Central Bank. From these payments, the Central Bank would recoup its costs of administering the project (expected to be less than one and a half per cent) and meet the service charge on the IDA development credit. It would use the balance not currently required to renav the credit; as a revnlving fund to continue the cattle development progr-im A rnargin of about 4-3/4 per cent between the interest rate charged to horrowers and the total ervinie charge would provide some cushion apainst the foreign exchange risk borne by the Government. 43. Development; loans to ranchers would be for a term of 12 years in- cluding a grace period of 1 years bt-h .r.+erest at the rte of 9 percent per annum and with the Government carrying the exchange risk. Limited sources for long-te+nn,. develor.,4-ent loanns ex-1Dst n;r Pa y +tIh prera.t time. Loans for short-term requirements carry interest rates of 12 per cen+ -_w-rds Thne te..,.s 4and- LJiitL.-i.f 4h1 -- oe -------Al oans under the project would be satisfactory and not disruptive of existing patterns, 44. Loans to contractors for the CO.I.F cost of imported machinery would Luue Ifor a shLUrt U.L U.Ll - 3) UV 5 yes.Li - at 7 per, c,tIU andA Uth borroe would be required to carry the foreign exchange risk on his loan. Organization and Management 45. The project would be administered on behalf of the Government by the Central iBank, operating through a coordinating committee established within the Central Bank. The committee would consist of a senior represent- ative of the Central Bank as chairman, a representative of the I'wB and the! technical livestock expert to be employed under the project. The Committee would be the authorized body to approve loans to ranchers for developmental works and loans to contractors for machinery imports for dam building and tank sinking, 46. The NDB, through its Technical Division, would supply technical services, supervised by the technical livestock expert, to investigate and report to the Committee on ranch development programs submitted for financing and to supervise the expenditure of approved loans. The Development Branch - :L0 - of tne hvB would obtain and suDmit detEais Of tne f inanciai standing O0 applicants for loans, would investigate! security offered and would obtain mortgages in. the nam.e of the Central Bank. Disbursement of approved loans to ranchers and collection of repayments would also be undertaken on behalf of the Central Bank by the 1OB who woul.d annually retain from its collections a service charge of two per cent on the! amount of loans outstanding in payment for its technical and banking services. 47, The Central Bank of Paraguay is a government-owned and operated institution forming the apex of the pyramid of financial institutions in that country. In practice it is largely limited in its activities to financ- ing the requirements of the Government and of state economic enterprises. The Board of the bank consist of five members, all of whom, including the president, are nominated and appointed by the Executive Power with the consent of the Council of state. They are required to have competency in banking and economic matters and to hold no conflicting interests or position. The current management of the Central Bank is strong and sound. For purposes of the project it would appoint a senior member of its staff as its representative on the coordinati.ng committee. 48. The National Development Bank was established by the Government in 1961 as a. successor to the Bank of Paraguay whose cumulative unsuccessful operations resulted in its liquidation. The general purpose of the NDB is the intensive development of the econonv by promoting and financing programs and projects of development in agriculture, industry and commerce. Its main field of activity is short and medium term credit to commercial farmers. Commercial banking and credit operations uith small farmers and industrialists are segregated from other operations. The M\B has a large deeree of autonomy in its operations but the Government is committed to make good arn losses frnm nredit onerationn wvi th Tsmall f.;rmprs and irirbnitrinliqt-. The hanklq external organization comprises 29 branches and 38 agencies. 49. The Board of the NDB, consisting of 8 members, is appointed by the Government and is drau-m, from both t.he pub ,ic a nd private sczto cluding four members representing Ministries or agencies of the Government. Alocal representatiera of +he Ter+.vAmeric_n Developrmnr+ BanLk -.hih has extended a loan to NDB, strengthens the organization as technical consultant. The staff consists of 120 personnel selected on merit from the 1,000 employees of the defunct Bank of Paraguay. As a result the level of -4 ,i sl ral-on routine -- --eas sat4--.4fator b,ut because ofP its only recent establishment, the bank's capabilit:ies for the exclusive direction of major projects iLs as -et --.prve a14ho--l^. its record lo 'ale 4s not -npr 4,i-ng CL U 1J1 V-1 C1LLV V .1 Lk. tAJJ.. A U.0U .Lo 1L'. U LJ.JJ± JLILLO.LLiI, 0.~~m TiL-e Technical DiLviLsior. ofL 114JI was estab_lishedV "in early 1962C to untlertake appraisal and supervision of agricultural and stock loans. It consists of'b 9 7ec lLiical officers who adLre: O-W eAptrieduIU an l .1pe1 i their duties, The number would be increased for purposes of the project. The procedures under which they operate ar;e soundly based though somewhat cumbersome. The foreign technical expert would advise and assist this staff in extensiorn services to borrowers on stock management and sanitation techniques. The Division would be a suitable medium for the appraisal and direction of ranch developmental programs. - Ul -. 51 LThe Development Branch of NDB is under the direction of an Penpr;i PnPed cpnnhlb le ffir nial_ A revrirq.T (-r ;t. ivrrp+t. nr.in + nrii- cates that it could satisfactorily carly out the responsibilities allotted i+ n+Vund_r the project p-o poals. 52. ~~Su.ppli-1es of' P fen.n w-r -he iron truhig pip4 ng -d othe I*'~~ JU.kJFJ..J.L UL .5. A - 1 WVVLJ. U, t .LA4 J .L UUV~WA11J..LAr. J._Lq..LJE5 ~1 WV materials required for ranch developmerLt are available from more than one duozen fi r-,-s estuabli sh1 ed in Plaraguay . _L, - ewe them,, mport4 fro 6- 4f t.h U.IUi.L LiID V .±1~L L dL c" %UCLY WLIIU, V~LWU l uil1IL .LAILJ9I.J. il£. Jl UL VAA 'LI main countries manufacturing these commodities. Borrowers would be free tuo procure theirl UrUU.L ,-A,t uJJUJr.der L.±VIIl pLli fUrour uti V. ofthi:.LL choice. Importation of heavy machinery- would be restricted to makes for wILIchM eflfc.cient . ; aLerflb bluVJ;d.U spare pbs fac.LUtie hIave~ ubeei tvUa±." in Paraguay. At present only two firms - Caterpillar and International Harvester - fulfill This requirement. It is doubtful if the quantity of business available in Paraguay would justify the establishment of additional firms in thi.s field. Improvement in importation procedures has recently been effected by the Government followi.ng a survey conducted with foreign technical assistance. Importers informed the mission that the situation is now satisfactory. The Government would. undertake that materials required to implement the project would continue. to be permitted to be imported freely. Marketing 53. Prior to 1961, cattle movement and marketing and cattle and meat pricing policies were rigorously controlled by Copacar which was established by Law Decree No. 2810 of March 6, 194iL. While nominally a cooperative, Copacar became in practice, as a result; of Government appointment of the directorate, the medium through which CGovernment policy was implemented. The objective of the policy was to provide ample cheap supplies of meat for the populace of Asuncion and the arny. The restrictive practices adopted, however, had. the effect of discouraging investment and led to general stagnation in the industry. 54. As a result of the Bank's recommendations, the Government reviewed the condition of the industry and enacted amendments to Decree Law No. 2810 aimed at improving the situation. Under the new law No. 710 of July 25, 1961, the Copacar directorate was altered to consist of four producers selected by the Government from a p.anel. submitted by the Rural Association (an association of cattle owners) and two members representing the Ministry of Agriculture. One of the producer representatives was appointed Presi- dent of the directorate by the Government. The present Droducer reDre- sentatives were not selected precisely in accordance with the provisions of this decree law but Rural Association spokesmen intimated to the Bank mission that the Association was satisfied. with the directorate and the manner in which it was oDeratine. The Government would undertake that when the new directorate is appointed EIs required by law in December 1963, selection would be made in accordance with decree law no. 710. .- 12 - 55. Since the appointment of the! new directorate there has been a considerable relaxation in the regulatory policies of Copacar. However, its powers remain substantially unaltered under the new decree law except that its monopoly right to the Asuncion market and the right to impose supply quotas on ranches are removed. The improved conditions in the industry result therefore more from a change in the interpretation and administration of the nowers vested in Conacar rather than from any radical reduction of these powers. 56. In practice, cattle and meat marketing has been ccnm-iderahly liberalised in the Oriental (eastern) zoe.r T\Tr restriftirn cn ca--le move- ment and no quotas on deliveries are set and producers are permitted to sell to any buyer. As a result most sales are to the free enterprise market and to export processors. In the Chaco (western) zone, however, producers are not all owed the c freedm As a rel-+ o pf' ,acar -:- +ion to ensure that it can guarantee supplies to the armx and Asuncion pj;pulace, movement of cattle from +he Caoico.rlebyp^t Thpoderhene ca only elect either to sell all of his output to the exp.rters or 60 per cent to Copacand thUL-e boalance tuo thL'e free ent-erpri4se marketoreptrs 57 . -oaa -a -broe -t plc- -of- fP-4ng r.eat prices fn-avc;r ofC .,I 9 '.)JJjJC.,OX.± i.LCXCO C.k.JOLIUUiIUU ±UO VJ.UL±kL0J 04.L L A±iIL11 11k-d.u J.A 1 .Lk .~V-4 .4 setting a minimum price level for the domestic market, which is at present d ' L er k~i .loU livewe±gigh for standard weights plus p±rJ-.iums up to -L-, 1. er kilo for cattle of heavier weights. 'Et is the price charged to the army. Mu- --. n. -Z -- it uZ - I-t Tne export Lndustry paid more than this price in 1961 a;du 196bc buu less in 1963 due to price fluc.tuations in the world markets The local frEe enterprise market pays at present from , 2 to y, 4 per kilo above the minimum rate. Copacar no longer fixes wholesale or retail prices. The private sector has been given freedom in reta:il selling but Copacar attempts to hold retail prices at reasonable levels by the prices set in its owm retail shops. TheB price of cattle to producers has increased substantially uncder the new arrangements0 58. During 1'362/63, Copacar's activity in the total market has declined considerably relative to past operations. Apart from 0,000 head supplied to the arny, its purchases have amounted to only 45,000 or 712 per cent of the total kill, 59. (,opacar levies a contribution -towards its share capital of , 4O per head for every beast slaughtered for local or export trade. It is planning to build a modern slaughterhouse to replace the obsolete unit lnow controlled by the army to hand.e the whole kill for Asuncion and the arrny. An ancilla:ry objective is to reduce hazards to human health by supervised meat in=pection, and to ensure out-of-season supplies by cold storage. This development could lead to controlled marketing again unless the facilities so provided are made available to private operatorFsO However, under the new law determining its activities Copacar is ded:icated to the prin iple of free competition and is required to be transfoymed into a privately controlled entity at the end of an unspecified transition period. 60. The Government would unclertake that no alteration in the exercise of existing regulations or imposition. of new restrictions on the industrv that could jeopardise the success of the project would be sanctioned. - 13 - 61. Owing to its geographical position, type of cattle and incidence of foot and mouth disease, Paraguay is unlikely to develop a frozen or chilled beef exDort trade in the foreseeable future. Increased cattle output above domestic consumption requirements must therefore continue to be sold as corned canned beef. 62. Data on international trade and prices of corned beef are limited. Total trade appears to be about 100,000 tons per year with the United King- dom (5n0nOn to 60jo000tonS) and the Unitte States (40,000 to 50000 tons) as the major importers. Argentina is the largest producer, supplying over 4iO per cent of +.iTT United Kingdom trade and 60 per cent of the United Sta1-es trade. Paraguay now supplies about 10 per cent of each market. Australia, Brazil Jand Ke.-ja a^ccount for most olf. thIe balL.ce.J Recertly. Jrr cour.t3ie have increased output particularly to the United Kingdom to which they ~J . A~ p~-. '.,~IIU .1.11 J,7'.'J. ky0..1C.CU ~U V L o_. J L. lk~'-A L.~ IU ..LI I .~ ;z~T~4 ~n .; *n n1 _. .; 1 + * i4 4A4 * 4-_ +> corned beef from Paraguay at its present cost of 37 to 39 US cents per pound LSqU*e com-fpet-itive relatLive 'o o'Uh'er IatL -z-rlrcu supplie -n -_highly, _, iLs quiLte UiJ,±±~£±bV ~u ~iar .LLI J[-±UF dII.0C10JJPLL-- LI L ±~Ii.Lr1k.Y competitive relative to those from African sources. It is not possible to forecast the effect on price oI a substantial increase in exports from Paraguay. If the national turn off of cattle increased over twelve years as a result oI the project Dy 50 per cent, tne quantity avalilale Lor export would approxirmate 27,000 tons as against the current 9,000 tons. This would represent an increase of' 18 per cent in the present supply on the major int;ernational market. However, as previously noted, the Para- guayan product is of high quality and this combined with the reduction in production costs that could be expected to result from the project, should enable Paraguayan exports to at least maintain their competitiveness. 64. There are three export packing companies operating in Paraguay, one of which is a local cooperative and two foreign owned. Together they have processed an average of 146,000 head of cattle annually over the last 5 years. The two foreign owned companies have invested in extensive moderni- sation of buildings and plants during the past two years. The locally owned company, though in re!asonable shape, could benefit from capital improvementt. 65. The export industry faced certain difficulties following the increase in cattle prices to their present level. These difficulties arose from a) the short ope!rating season of 6 months; b) quota limitations on kill so that costs could not be reduced by increased output for which capacity was available; and c) a heavy burden of taxation which had averaged US$lC per head slaughtered over the previous 5 years and US3,l for 1962. Following representations, the Paraguayan Government has now given the taxation relief the companies requested. This has permitted them to retain their competitive position while paying producers a price fluctuating around the minimum price of Copacar, which is at present g 14 net; per kilo liveweight. The mission was advised that the position is now satisfactory. The gradual increase in the number of cattle available for slaughter which would result from the project, would permit a progressive exnatnsion of the export quota and a consequent extension of the operating season. - 1)4 - V1 BENEFITS AND JUSTIFICATION Increased Ranch Pro,duction 66. Ranch development and improved stock management and sanitation resulting from the project would increase annual stock turn off both auantitivelv and aualitivelv. Higher calving rates. decreased mortality, greater carrying ca-pacity, and earlier turn off at increased weights could be expected. Production statistics for ranches under current management techniques are given in Annex 4. The proposed program of herd development is eiven in Annex 5W 67. Estimates of ure-development. and post development production income and operating costs for small, medium and large ranches are detailed in Annpx 6. These show that twelve vears after develonment. income would increase by V 1.22 million, 0 1.83 million and 0 2.45 million for the small, medium and lnroe ranchps resPAntively while rresPondinPg increnses in operating costs would be V 0.25 million, 0 0.29 million, and 1 0.40 million. The totnl value of increased production frnm the 150 rnnches included i n the project would approximate 0 238 million and total operating costs would increase by about d 42 million. The increased returns would only be obtained progressively, reaching the target figure in the twelfth year. They do not include the value of the additional stock bred aand retained over this period to build up the breeding herd to the appropriate size. Calculations , ndiicate t1h.at bo.rrow,..,ers sho ,ld be abl to meet t+he nm-ortisation. of their loans following the grace period of four years, from the increase in their E;~ iL0 J LIconor-4c BDE-iePnf4ts 00. ±I1 ~ Uit VdUCLt: J.L JLIUL-cdAjLL UlilUa.LL . PI-UUUILU.±L1 WOU..L 'L4b5 6P, The gros U