Document or The World Bank, FOR OFFICIAL USE ONLY Report No. 5981 PROJECT PERFORMANCE AUDIT REPORT YUCOSLAVIA - SECOND AGRICULTURAL CREDIT PROJECT (LOAN 1477-YU) December 19, 1985 Operations Evaluation Department This document has a restricted distribution and ma% bt used by recipients onl6 in the performance of their official duties. Its contepts may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS BCO Basic Cooperative Organization BOAL Basic Organization of Associated Labor EMENA Europe, Middle East and North Africa Regional Office of the World Bank ERR Economic Rate of Return FRR Financial Rate of Return GDP Gross Domestic Product ICB International Competitive Bidding M&E Monitoring and Evaluation MDR More Developed Republic/Province OED Operations Evaluation Department of the World Bank PB Participating Bank PCR Project Completion Report PPAR Project Performance Audit Report SAL Structural Adjustment Loan VB Vojvodjanska Ranka wo= Work Organization FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT YUGOSLAVIA - SECOND AGRICULTURAL CREDIT PROJECT (LOAN 1477-YU) TABLE OF CONTENTS Page No. Preface ........................................................ i Basic Data Sheet ................ . ........................ it Evaluation Summary .......................................... ii PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT SUMMARY ........................................ I II. AUDIT FINDINGS .......................... 4 A. General ............................... 4 B. Problems and Constraints ........................... 4 C. Main Issues ................... .......... 9 D. Sustainability of Benefits ....................... 12 Annex I - Comments Received from Vojvodjanska Banka-Udruzena Banka ................................... .. ......... 13 PROJECT COMPLETION REPORT . I. Background ........................ 17 II. Project Formulation/Processing ................ 18 III. Project Implementation ................................. 21 IV. Operating and Financial Performance .................... 28 V. Financial and Economic Re-evaluation ................... 33 VI. Institutional Performance ............................. 35 VII. Bank's Performance ............................. 37 VIII. Conclusions ............................................ 38 Annexes 1-9 Map - IBRD 19002 PCR This document has a resticted distribution and may be used by recipients only in thn perfomance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - i - PROJECT PERFORMANCE AUDIT REPORT YUGOSLAVIA - SECOND AGRICULTURAL CREDIT PROJECT (LOAN 1477-YU) PREFACE This is a performance audit of the Second Agricultural Credit Project in Yugoslavia, for which Loan 1477-YU in the amount of US$75.0 million was approved in July 1977. The loan was closed on August 31, 1983, 26 months behind the original schedule. Final disbursement took place on March 19, 1984, at which time an unused balance of US$1.4 million was cancelled. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department (OED) and a project completion report (PCR) dated June 20, 1985. The PCR was prepared by the Bank's Europe, Middle East and North Africa Regional Office, based in part on a completion document submitted by the Borrower, Vojvodjanska Banka-Udruzena Banka. An OED mission visited Yugoslavia in May 1985. The mission held discussions with officials of the Borrower, Participating Banks, subborrowers in the social and individual sectors, and with staff in the field. The information obtained during the mission was used to test the validity of the analysis and conclusions of the PCR. The audit memorandum is based on these discussions, on interviews with Bank staff associated with the project, and on a review of the PCR, the Staff Appraisal Report (No. 1537a-YU) dated June 13, 1977, the President's Report (No. P-2115-YU) dated June 22, 1977, the Loan Agreement of July 29, 1977, correspondence with the Borrower, and internal Bank memoranda on project issues as contained in relevant Bank files. A copy of the draft report was sent to the Borrower on August 9, 1985. Comments received from Vojvodjanska Banka-Udruzena Banka are in Annex I and have been taken into account in finalizing the report. The audit finds the PCR comprehensive and accurate with respect to the project's principal achievements and shortcomings and has no reason to question its conclusions. The audit memorandum primarily deals with the implementation experience with procurement, training, and monitoring and evaluation; with aspects related to loan recovery, social sector subloan performance, and individual sector subborrowers; and highlights the issues of on-lending interest rates and of servicing the subborrower loan portfolio. The valuable assistance provided by Vojvodjanska Banka and local officials and staff is gratefully acknowledged. 酈’&―瓣!&&&!“〕巡‘〕!〕!&!1}{.〕l’嘴’州.!._ 〔洲”’〕!’州”‘汰’&&!〕〕‘:!!!,!絲}}!!!〕―。 三實呈I;喜暴―11―·。。····。。。。。·pl-‘日。I選l-I 優審二很露巨l莖”I―沌―_,,.,- :弄三•:三―涌―&l鸞江江總― 喜當鳥亂魯!I萬―一。。一。.。一~.一I蠻―._-_鳥畫― 蓄f邊,汗―霤―姿―屹亡―雜:,.。.。,:。:.;,齡膩― r要藝曆l『1._.―一’‘一”&&’乍al論審‘&&&&―聖參.1 日藝名l乞I之疋症一_乏必症疋-一區書I「亂”- “巒蒼―邑―&&&&’一”&&&&’肥―- “引‘!〞―- PROJECT PERFORMANCE AUDIT REPORT YUGOSLAVIA - SECOND AGRICULTURAL CREDIT PROJECT (LOAN 1477-YU) EVALUATION SUM14ARY Introduction The project was the second Bank-financed, nation-wide agricultural credit project in Yugoslavia. It made funds available through VojvodJanska Banka (VB) to Participating Banks (PB) in each Republic/ Province for credit to (a) the individual sector for investments to increase primary production, and (b) social sector enterprises for investments in processing facilities. Objectives The project supported the Government's objectives to increase agri- cultural production, place priority on lending to lesser developed Repub- lics/Provinces, and increase emphasis on channelling funds through Basic. Cooperative Organizations (BCOs) and Basic Organizations of Associated Labor (BOALs) to individual farmers associated with the social sector. The project was designed to address the constraints of this target group of individual farmers. IffElementation Experience Project objectives we=e generally achieved for those farmers who entered into production/marketing contracts with the social sector. Project costs in current dinars increased by 123% compared to the appraisal estimate, due primarily to delays in implementation and higher than expected domestic inflation; implementation took almost twice as long as expected at apprais- al. However, a 2Z cost savings in US dollars resulted from the dinar being devalued at a faster rate than domestic inflation. There w" a considerable difference between actual investment demand and that envisaged at appraisal. For example, about 80% of investment in the individual sector was undertaken in livestock farms compared to an estimated 60% at appraisal. There was less investment demand for vegetable production, land development and orchards than envisaged at appraisal. The subborrowers were the better-off farmers who were the long term cooperants with the social sector. About 88% of investment in the social sector was undertaken in fruit/vegetable and milk processing, and broiler production, compared to 66Z envisaged at appraisal. However, investments in milk collection stations, coldstores, grain dryers and meat processing facilities fell below expectations. These changes in investment demand were a response to shifts in relative prices and in planned production targets. - iv - Results The financial viability, particularly of pig fattening and broiler farms, is adversely affected by a greater increase in concentrate feed costs than the increase in livestock output prices. The financial and economic viability of fruit and vegetable and milk processing investments is marginal due to low rates of utilization stemming from shortages of raw material for which various neighboring facilities are competing, and shrinking disposable personal real income. About 28,700 subloans were made through BCOs/BOALs to individual farmers, compared to 16,800 estimated at appraisal. However, job creation in the social sector was less than envisaged at appraisal. While the project objective was primarily to meet the domestic consumption requirements, exports from the project were even lower than expected due to (i) inadequate marketing management in the social sector enterprises resulting in an inability to penetrate and compete in foreign markets, and (ii) export prices which were lower than domestic prices, which actually provided a disincentive to export. The weighted average economic rate of return (ERR) of the project is re-estimated at 16%, compared to the appraisal estimate of 22%. Sustainability The majority of operators, especially in the individual sector, are capable of operating the facilities that have been created under the project and of meeting expected production levels, given adequate general economic conditions. However, Government policies as well as other external factors such as effective domestic and foreign demand for incremental production are key determinants of the viability of the new investments. If there is no improvement in the conditions prevailing at the time of the audit mission, projected benefits will not be generated and the re-estimated ERR of 16% will not be realized. Findings and Lessons The project followed too closely the approval of the predecessor project (PPAM, paras. 12-13; PCR, para. 7.08). Data available in the Bank on agro-processing industries in Yugoslavia is inadequate (PPAM, paras. 17-20). Procurement problems were due to a weak effort on the part of the Borrower, and investors' unfamiliarity with procedures (PPAM, para. 21; PCR, paras. 3.14 and 6.04). On-lending interest rates were highly negative (PPAM, paras 29-32; PCR, para. 4.18). Preparation and supervision of subborrowers' loan portfolio by the Borrower and Participating Banks, and in some respects by the World Bank, was inadequate (PPAM, paras. 33-35; PCR, para. 3.04). Adequate attention by VB and the PBs should be given in future to the financial/economic performance of the investments and the subborrowers, particularly with respect to their debt/equity situation (PCR, para. 6.03), and VB, the PBs and Bank missions should review audited financial statements of social sector subborrowers. - v - An adequate analysis of the arrears situation and rescheduling of subloans of the PBs should be considered and used as a tool for financial management, especially in an inflationary environment and in case of poor financial performance of the subborrowers (PPAM, para. 25; PCR, paras. 6.05 and 8.06). Furthermore, scope for improvement exists in the measurement of benefits of credit projects, through a better designed monitoring and evaluation system (PPAM, paras. 26-28; PCR, paras. 3.12 and 8.05). Provisions should be made in future projects for training for the staff of VB and the PBs to enable them to achieve a better understanding of financial management procedures and techniques (PPAM, paras. 22-24; PCR, paras. 6.06 and 7.05). More attention also should be given to the staffing and technical capacities of the cooperatives (PCR, para. 8.07). Gaps in information on the profile of the individual farmers, both associated and nonassociated, should be filled and an assessment of the incentives available to these farmers should be made to enable an adequate focus on target groups, whereby both equity and efficiency objectives can be met (PPAM, paras. 14-16; PCR, paras. 7.01 and 8.07). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM YUGOSLAVIA - SECOND AGRICULTURAL CREDIT PROJECT (LOAN 1477-YU) I. PROJECT SUMMARY 1I 1. In the mid-1970s, Yugoslavia's agriculture sector accounted for 16% of social product, contributing 8% of total exports and employing 42% of the labor force. During the first half of the 1970s, the social product in agri- culture increased at an average annual rate of 2.7%; the respective average rates were 5.6% for the social sector and 1.9% for the individual sector. The major constraint to agricultural development was perceived to be lack of capital, and in addition in the individual sector of adequate extension services. 2. This was the seventh agricultural project receiving Bank support in Yugoslavia, and the second nation-wide pro ect, the first being the First Agricultural Credit Project (Loan 1129-YU). /The project was identified by the Yugoslav Government in 1975. Preparation was carried out in 1976 by Vojvodjanska Banka (VB) in cooperation with Participating Banks (PB) in other Republics/Provinces. At preparation there were difficulties in obtaining information normally required for the formulation of Bank projects. Apprais- al took place in late 1976, and a Loan (1477-YU) in the amount of US$75.0 million was approved in July 1977. The estimated project cost was US$231.0 million, with a foreign exchange component of 32%. The loan became effective in January 1978 and was closed in August 1983, 26 months later than expected. Final disbursement took place on March 19, 1984, at which time an unused balance of US$1.4 million was cancelled. 3. The objectives of the project were to increase production, improve product quality and raise productivity and income. Special emphasis was given to lending to the lesser developed Republics/Provinces and to small individual farmers. Investments for primary agricultural production were to be concentrated in the individual sector; in the social sector agroindustries directly stimulating private production were to be given priority. Specifi- cally, credit was to be made available to individual farmers for fruit and vegetable production; land development; and livestock production, including dairying, cattle and pig fattening, sheep rearing, and broiler production. Credit to the social sector was to support broiler production; processing industries for milk, meat and fruit and vegetables; and construction of grain dryers. Construction of facilities financed under the project was expected to be completed by December 1980. 1/ Adapted from the PCR. 2/ See PPAR for the Yugoslavia First Agricultural Credit Project, OED Report No. 5100, dated May 29, 1984. - 2 - 4. Physical implementation of the project was successful. However, the subsector investment mix deviated from appraisal expectations, with live- stock production receiving more funds than anticipated, and fruit and vege- table production and land development receiving less.3/ About 28,700 sub- loans were approved for individual farmers, compared to 16,800 estimated at appraisal.4/ In support of livestock production in the individual sector, the project financed construction of 8,730 buildings and the purchase of 12,720 heifers, 60,262 breeding ewes, 3,311 breeding gilts, 85,090 laying hens, and 3,269 beehives. Also financed were about 271 ha of mixed vege- tables, partly under greenhouses, 3,191 ha of orchards and vineyards, and 300 ha of land development. In the social sector, the project provided support for 5 grain dryers, 3 fruit and vegetable processing plants, 7 fruit and vegetable grading facilities, one cold store, 15 milk processing plants, 45 milk collection stations, 20 cooperative centers, 2 broiler farms and one meat processing plant. 5. -roject start-up difficulties included delays in hiring a consult- ant to assist in preparing monitoring and evaluation procedures which was a condition of loan effectiveness. Complications also arose from a nation-wide reorganization of the banking system in early 1978.5/ Implementation continued to be slow, and project completion was delayed by over three years, for an overall time overrun of 93%. Reasons for the delay included initial low interest in the individual sector, frequent changes in famers' decisions, lack of implementation targets and of adequate monitoring of investment performance, slow procurement progress, inflexibility in the allocation of loan proceeds by type of investment, flood and earthquake damage in one region, and adverse general economic circumstances. Actual project cost was USS226.6 million, or 2% less than expected due to the rapid devaluation of the dinar. In terms of local currency, implementation delays and high 3/ OPS correctly points out that the quality of appraisal of a project like this one should not be judged by how closely actual demand for loan funds was in line with appraisal projections; the audit's report of deviations from appraisal projections does not imply any such judge- ment. However, the audit is not sure what these deviations signify with respect to the flexibility of Yugoslav financial institutions in the face of shifting demand patterns for loan funds, exactly to what extent these shifts were caused by market forces or by Government policy deci- sions, and whether on balance resources were channeled to more or to less productive uses. 4/ While the Loan Agreement had defined an individual subborrower Rs an individual farmer borrowing through his own cooperative or through a social sector organization, or an individual farmer directly borrowing, in fact no funds were on-lent directly to the individual farmers. 5/ Borrower comments on implementation delays are in Annex I (points A and B); these include, inter alia, criticism of lengthy World Bank proced- ures. - 3 - domestic inflation resulted in a cost overrun of 123%. Of the Bank loan proceeds 60% were invested in the individual sector; 47% went to less developed Republics/Provinces. 6. The agricultural production impact of the project is uncertain as it depends on a number of variables which at present have an adverse effect on production. In the individual sector, the two factors with the severest impact have been input/output price disparities, and shortages of concentrate feed. Least affected by these factors have been sheep producers, followed by cattle fattening operations and dairy farms. Pig fattening operations on the other hand, have suffered the most, causing a significant number to cease production. But relatively good technical performance has been achieved by individual farmers in all subsectors, and production could be expected to increase if the obstacles were removed before farmers dispose of their stock and get too discouraged to resume full productive efforts once conditions have improved. Production in the social sector has been constrained by prob- lems afflicting agro-processing enterprises in general in Yugoslavia. These include shortages of raw material, insufficient market demand for their prod- ucts, an unfavorable price situation, and weaknesses in management. Poor capacity utilization and marginal financial performance have been the result. 7. The institutional performance under the project, while adequate in many respects, showed some persisting weaknesses. Among these was inadequate handling of procurement matters which was largely due to reluctance on the part of the Borrower and PBs to take responsibility for procurement deci- sions, unfamiliarity with procedures on the part of investors, and lack of local expertise. Supervision by the Borrower and Participating Banks of sub- borrowers also was not satisfactory. Monitoring systems for subborrovers' investment and operational performance, and for the banks' own loan port- folio, have been less than adequate. However, some of the aspects that have been identified as shortcomings under this project are standard practice in Yugoslavia and cannot be changed easily; others would benefit from increased efforts directed at staff training in the banks and agrokombinats. 8. A major conceptual problem with all agricultural credit projects in Yugoslavia concerns on-lending interest rates. A provision for special stud- ies on this subject in this and the predecessor project did not produce use- ful results. Interest rates have been highly negative in real terms due to the high level of domestic inflation in the country. Subsidized credit to some extent counteracted farmers' unfavorable input/output prices but must be seen as representing a major element in Yugoslavia's pervasive price distortions. 9. Financial rates of return (FRRs) have been re-estimated at 14% for dairy farms, 23% for cattle fattening, 18% for sheep farms, and 13% for pig fattening. On average, these rates of return are about one-third lower than appraisal estimates. In the social sector, FRRs have been re-estimated at 10% for fruit and vegetable processing, and at negative levels for broiler production. 10. Economically, the project has fallen short of expectations with respect to generation of employment and of foreign exchange earnings. The re-estimated economic rate of return is 16%, compared with 22% estimated at appraisal. II. AUDIT FINDINGS A. General 11. An attractive feature of this project was the targeting of invest- ments according to sound development priorities. About 60% of the loan pro- ceeds (64% of total investments) were channeled to the individual sector, and 47% to less developed Republics/Provinces (PCR, para. 3.07). The number of loans to individual farmers exceeded appraisal estimates by 71%. Individual sector investments concentrated on directly productive endeavors, while support for the social sector was intended to focus on agro-processing and to be complementary to increases in individual sector output. The fact that there were some problems associated with pursuing the underlying objectives in practice, and some undetachievements as pointed out below, shoald not detract from the basically attractive concept of this project. B. Problems and Constraints 12. Timing of Project. There was some haste in getting the project prepared and approved; appraisal of this project occurred in the same year (1976) as effectiveness of the predecessor project (Loan 1129-YU), which was completed in 1980 (PCR, para. 7.08). Given the lack of information on and experience with a number of crucial aspects related to agricultural lending in Yugoslavia, and the slow start-up of the predecessor project, there would have been considerable scope for incorporating in this project lessons learned from the earlier project. For example, it later became apparent that there existed institutional problems in the banking system and structural and operational problems in the agrokombinats which are detrimental to project implementation as well as to the realization of benefits to be derived from project investments. There has also been a dearth of knowledge about indi- vidual sector farmers which has been shown under this project to raise the level of uncertainty in the Borrower's on-lending operations. However, spe- cial efforts are required to upgrade that knowledge, primarily by means of an effective monitoring and evaluation system. Since an M&E system was intro- duced only in this project covering both credit prciects, early approval of the second project was beneficial at least in this respect. 13. The timing of this project also was problematic in view of imple- mentation start-up coinciding with the reorganization of the Yugoslav banking system in January 1978. But that event could not have influenced Bank opera- Lional decisions as the Bank had no prior knowledge of it. Its taking place, and some adverse effects on the project, were only discovered by a May 1978 supervision mission. This is an example of the Bank being informed with - 5 - undue delay, arising from a reluctance in Yugoslavia to provide information which was encountered during preparation of this project as well as in connection with the predecessor and other projects. In the meantime, the Bank has become more insistent on obtaining timely information, and Yugoslav officials have become more accustvaed and responsive to the Bank's requirements. 14. Individual Sector Farmers. As stated earlier, individual sector farmers were intended to be and actually became major beneficiaries under this project. Such farmers were to receive credit as associate members of a social sector organization, or directly as private individuals. While the broad objectives of helping individual farmers were achieved under this proj- ect, a closer look at individual beneficiaries reveals that only associated farmers (cooperants), but no individual farmers, obtained credit directly from the banks. 15. More recent projects in Yugoslavia incorporate explicit provisions for direct on-lending to private individuals. But given the economic system and physical infrastructure in many parts of the country, private operators have no alternative sources of supply of inputs or outlets for their production. It remains to be seen, therefore, what the effects are of allowing cash purchases from public sources, as agreed under the Fertilizer Sector Loan (Loan 2410-YU of May 1984), or cash loan repayment, as provided under the Montenegro Regional Development Project (Loan 2467-YU of July 1984). The limited extra options provided to private farmers through these arrangements, and the extent to which they are made use of, need to be carefully monitored.6/ 16. The audit mission concentrated on private subborrowers and visited a fair number in several locations, all of whom were associated with agrokom- binats. Empirical evidence suggests that private beneficiaries under this project were better off than the average of private farmers, as measured by pre-project income levels and resource endowment. While such farmers are more easily drawn into modern agriculture than operators of smaller units in more remote locations, the poverty impact of the project is much less than the mere number of subborrowers might suggest. Moreover, several features were striking. Most of these farms represented mixed enterprises, with one principal family member (husband or wife) officially operating the farm and the other either being a wage earner in or retiree from some off-farm enterprise. Such arrangements contribute significantly to living standards and financial security of farm families. Another striking feature was the degree of dependence of such farmers on the agrokombinat they were associated with. This dependence varies to some extent by subsector but in the extreme 6/ The Borrower's views on credit arrangements concerning farmers in the individual sector are in Annex I (point C). The audit agrees that subborrowers should have an option as to the mode of loan repayment, provided the conditions for granting such loans are accepted as being fair by subborrowers. - 6 - the farmer virtually becomes an employee of the sponsoring agrokombinat. In pig fattening, for example, the agrokombinat supplies a participant with weaner pigs, feed, medicines and technical advice, all on credit, and determines the timing of the start and completion of the fattening cycle on an all-in-all-out basis. The fattened pigs go to the agrokombinat's slaughterhouse. All prices and costs are prescribed by the agrokombinat, where the accounts are kept. 17. Social Sector Subloans. Data provided in the PCR on social sector investments is scanty. Detailed information is included on the Kulpin fruit and vegetable processing plant, the Dukat dairy and the Glagovac broiler farm, which the PCR mission visited (PCR, paras. 4.11-4.17). A financial/ economic analysis is given for two of these enterprises (PCR, Annex 7). However, implementation experience and operating performance has not been reported for the other two fruit and vegetable processing plants and 14 dairies, the cold stores, meat processing plants, milk collection stations and cooperative centers, a winery and the five grain dryers. The principal reason for this information gap is inadequate M&E and project reporting. 18. The audit mission has encountered a perception in the Bank of duplication of processing facilities" and of "overinvestment" in the agro- industries sector in Yugoslavia. However, detailed data on established capacities, capacity utilization, financial performance, operating con- straints, etc. are lacking. Low capacity utilization, referred to in the PCR (para. 4.10), does not necessarily signify overinvestment, provided it is temporary and variable expenses can be met in the short run. Underutiliza- tion of plants can result as much from the policy environment as from over- investment, e.g., raw materials (such as milk) may flow into alternative channels because of controlled prices, processing may be restricted because of lack of spare parts or complementary ingredients, the demand for processed products may be depressed due to general austerity measures or ineffective marketing, etc. There may well be a real overcapacity at the regional or national levels, but it seems inappropriate to picture this project as con- tributing to t establishment of overcapacity in agro-processing without providing relevanL project and subsectoral data. 19. The audit mission visited several social sector facilities financed under this project. Grain dryers seen in Vojvodina are reported to have been operating satisfactorily. A dairy plant in Titograd was expanded as planned, but the extent of rehabilitation and expansion carried out proved subse- quently insufficient, especially in the receiving and cooling sections; old equipment is not completely compatible with new equipment, and maintenance has suffered due to lack of foreign exchange for spare parts. Also in Monte- negro, cooperative centers established under the project are well constructed and are being used. However, milk collection stations, built in 1983, were not yet in use as of May 1985 because of missing electricity and water con- nections. This mixed experience, if properly documented, would be fertile ground for practical lessons to be learned and applied in future investments in Yugoslavia. - 7 - 20. A major we.akness of social sector enterprise investments has been inadequate equity financing. The PCR points out that the average equity con- tribution by social sector subborrowers was 17% (range 13%-27%), compared with a Loan Agreement stipulation of 25% (PCR, para. 3.08). Excessive debt financing has been a major source of these subborrowers' financial diffi- culties. In a free market environment in other countries, the unavoidably resulting heavy debt service burden coupled with depressed product marketing prospects frequently generates bankruptcies. Unfavorable financing ratios often constitute overinvestments at the firm level from a financial point of view, i.e., the firm has been investing more than it can afford. There are indications that this kind of overextension by subborrowers has occurred under the project, but appropriate ratios vary among subsectors, and details necessary to form definite conclusions are lacking. 21. Procurement. Procurement problems posed an irritation throughout most of the project's implementation period (PCR, paras. 3.14 and 6.04). This being a repeater project, the continued existence of procurement prob- lems is disturbing. The lack of experience on the part of the investors, and to some extent of the PBs, should have been less than is implied in the PCR's assessment at this stage of cooperation between the Bank and Yugoslav borrow- ers. Furthermore, the lack of will on the part of the Borrower to face up to the investors, as alleged by some Bank staff, may in part explain the slow acquisition of procurement skills throughout the lending system. The Borrower's view, conveyed to the audit mission and repeated in the comments on an earlier draft of this report (Annex 1, point D), is that the problem has not been one with local staff, but rather with procedures and World Bank administration of these procedures (through supervision missions). The Borrower's perception is that the Bank has been "stricter" in matters of procurement in the credit projects than in regional projects and that the Bank's acceptance of local procurement procedures has not been uniform across the country. That aspect is seen as a source of friction between the Borrower and PBs. In the audit's view this is an essential aspect of good Bank-Borrower relations which deserves priority attention in on-going and future operations. 22. Training. The PCR recommends training within the context of insti- tution building for staff of VB, the PBs and investors in the areas of finan- cial management, financial monitoring of investments, procurement, and port- folio review and arrears analysis (PCR, paras. 6.06 and 8.08). The audit supports this recommendation. However, training in this respect is only a secondary requirement. Deficiencies as perceived by Bank staff primarily are attributable to characteristics of the system under which Yugoslav banks and * investors operate. Consequently, some structural and procedural changes would have to precede any major training efforts for these to be effective. * 23. One example concerns monitoring and portfolio analysis. Many Yugoslav ba-king institutions are to some extent owned, controlled or managed, directly or indirectly, by the same social sector enterprises that borrow from them; they are in a subordinate position vis-a-vis their borrowers. As such, there is an inherent aversion by the banks to supervise - 8 - and to monitor and evalute investment performance (i.e., undertake portfolio analysis) in the social sector. Monitoring, as a legitimate management function, is thus more appropriately undertaken by the investors. Portfolio analysis in the social sector has been of little interest to the banks because it is of little practical value to them; loans do not become callable in case of poor performance, and banks are hardly in a position to diepense advice to large agrokombinats. The functions and precise objectives of these activities must therefore be clarified and adapted to Yugoslav conditions before technical training of staff becomes meaningful. 24. Arrears analysis is another example. It is not so much lack of expertise as established procedure that has determined the type of accounts analysis routinely performed by lending institutions. It is not clear whether arrears in relation to loan maturity have the same significance in Yugoslavia as in private credit markets. An analysis of loan recovery prin- ciples and policies ought to precede staff training in technical aspects of financial accounting. Concerning the importance of principles and procedures of financial management and discipline there is no argument. However, the Bank's familiarity with these in Yugoslavia is limited, and it needs to be determined whether some basic shifts would improve the prospects of upgrading staff skills. A final concern is the mechanism for staff training. The audit's impression is that training efforts should not be organized and exe- cuted through a bank that is acting as a borrower and apex institution, as Vojvodjanska Banka in this project. The status of such a bank in the coun- try's financial system is not amenable to executing rigorous training efforts on a national scale.7/ 25. Loan Recovery. The audit received conflicting information on subborrowers' loan repayment performance under this project. The PCR exudes confidence about individual sector farmers' ability to repay their loans (PCR, para. 4.18). At the same time, the PCR highlights the need for improved loai arrears analysis (PCR, para. 6.05). The audit mission gained a favorable impression of the ability of most of the farmers visited to repay their loans. Indeed, some had repaid their loans prematurely. However, loan delinquency reportedly is a problem in some areas. The fact that no data have been furnished on such a vital matter is a serious shortcoming for a national credit project. 26. Monitoring and Evaluation (M&E). As there was no effective M&E under the first credit project, the Bank gave special emphasis to this aspect under the present project. Sections 3.04 (b) and 7.01 of the Loan Agreement specified as a condition of loan effectiveness that the Borrower had to acquire assistance for preparing monitoring procedures for this and the predecessor project. In accordance with this provision the Borrower engaged an agency located in Belgrade as a consultant to design and implement an M&E system. A Bank mission reviewed and agreed to the proposed system in July 7/ Regional staff advise that under the third credit project training is proposed to be organized by an agency outside the banking institutions. -9- 1978. The contract called for the preparation of an annual evaluation report for both credit projects. The first such report covered operations in 1978 and was issued in early 1980; subsequent reports were issued anrually. Bank supervision staff commented extensively on the first two annual evaluation reports. 27. In retrospect, the M&E performance under this project was less Chan * satisfactory in the sense that crucial project information was not generated and that there was no effective and timely feedback to key project entities such as the PBs. One reason for these shortcomings was related to the design - of the M&E system, which was too complex and unwieldy and unsuitable for project monitoring as a management tool. Bank staff reviewing the system's design failed to point out these defects, a tendency that has been observed in connection with other projects approved in the second half of the 1970s.8/ Monitoring was made more difficult by the fact that no implementation targets were specified at appraisal. 28. The M&E effort in this project also suffered because it was orga- nized external to the main project entities. The M&E agency acted as an information broker and as such was dependent on the cooperation of the banks. That cooperation never was very good and actually worsened during implementation, and monitoring performance declined over time. The main reasons for the banks' uncooperative attitude were that no useful results for the banks materialized, and that a strong perception developed that M&E was undertaken for the World Bank only. The main lesson from this experience is that monitoring activities should be shared by the Borrower, PBs and invest- ors, as appropriate, rather than undertaken by an external agency, and it should be clearly understood by borrower agencies that the World Bank is not intended to be the main beneficiary of project monitoring and evaluation. C. Main Issues 29. On-lending Interest Rates. Provisions in the Loan Agreements for interest rates payable by subborrowers were essentially the same for all three agricultural credit projects in Yugoslavia: proceeds of the Bank loans were to be onlent at an annual interest rate of 11% to all subborrowers in all three projects; subloans from local sources were to be made at not less than 5% per year to the individual sector and not less than 6% per year to the social sector in the second and third credit projects, compared with the customary local rates charged under the first project. Geographically uniform floor interest rates were thus introduced with the second credit project. Actual rates charged in the first and second credit projects were . 11% per year on the Bank portion of subloans; interest rates on funds from local sources ranged 3%-11% per year in the first and 5%-14% per year in the second credit project in the individual sector, and 3%-12% per year in the * first and 6%-18% per year in the second credit project in the social sector. 8/ See Built-in Project Monitoring and Evaluation: An Overview, OED, Report No. 5781, dated June 28, 1985. - 10 - Local interest rates charged thus averaged about 1.5 percentage points higher in the individual sector and 2.0 percentage points higher in the social sector in the second compared with the first credit project. In all credit projects, the foreign currency exchange risk was to be assumed by the subborrowers in the social sector, and by the Republics/Provinces for subloans in the individual sector. 30. The applicable interest rate structure under the agricultural credit projects has been highly negative in real terms, as can be deduced from the local inflation rates (measured by CPI): Percent Year annual increase 1976 11 1977 15 1978 14 1979 21 1980 30 1981 40 1982 33 1983 39 1984 55 The Bank has always considered this situation undesirable, while Yugoslav authorities until recently saw nothing wrong with it. The Bank's strategy had been to resolve this matter within the project context and through studies. Experience shows this strategy to have failed. The basis for discussion was broadened and the issue was raised to a higher level when domestic inflation accelerated in the early 1980s, and certain measures were agreed upon in connection with the first Structural Adjustment Loan (SAL I, Loan 2326-YU), approved in 1983. The key element in SAL I was that Yugoslav policy makers, at least implicitly, accepted interest rates as a mechanism for resource allocation in the economy; previously they maintained that interest rates played no such role in Yugoslavia.9/ 9/ OPS comment as follows: "The need for liberalization and greater trans- parency in Yugoslav financial markets is one of the core issues of the Bank's structural adjustment dialogue with the authorities. The struc- ture and functioning of financial and capital markets have been identi- fied in [the World Bank's country economic and sector work] as major contributing factors to the distortions in the Yugoslav economy and the current crisis in which it finds itself. In the absence of change in these sector issues, it is highly unlikely that individual project ope- rations can promote the development of financially viable, commercially prudent institutions which can mobilize and transfer financial resources to their most productive uses." - 11 - 31. The background on interest rates is described well in the PPAR (paras. 17-22) for the first credit project. Experience to date shows, how- ever, that an apparent policy change as reflected in the SAL I provisions has not been entirely and consistently put into practice. As a consequence com- plications had been encountered with an undisbursed portion of the third credit project. The root cause of these complications was the fact that neither the banks nor the subborrowers, especially in the individual sector, - had been accustomed to paying positive (or substantially less negative) real interest rates, and there was justified doubt about credit demand at these higher rates. The PCR perceives negative real interest rates as having con- stituted a counterbalance to an unfavorable agricultural price structure (PCR, para. 4.18). There is no doubt that this has in effect been so; it is less clear whether policy makers actually meant the system to work that way. A substantial change in interest rates without a compensating change in input/output prices would worsen the terms of trade of agricultural pro- ducers. Worsening terms of trade are likely to adversely affect agricultural production. An appropriate change in input/output prices, on the other hand, most likely would worsen domestic inflation. Either of these outcomes runs counter to the country's economic objectives. 32. Experience with the Yugoslav credit projects demonstrates that expectations of positive outcomes of a Bank/Borrower dialogue within the context of project operations are difficult to meet and should not play a major role in the initial project justification. Furthermore, attempting to resolve such basic issues as interest rate policies in a crisis situation, as has been the case in Yugoslavia over the past couple of years, is likely to accentuate major symptoms of the crisis in the short run. The conclusion is warranted, therefore, that the approach followed by the Bank concerning interest rates in the agricultural sector in Yugoslavia has in retrospect been less than optimal and has adversely affected the development of the agricultural sector. 33. Servicing the Subborrower Loan Portfolio. It was the responsi- bility of the Borrower and the PBs to establish an on-lending project pipe- line and to supervise subprojects. Performance in this respect has been poor (PCR, paras. 3.04 and 6.03). Procedures for approving subloans have been cumbersome (possibly acting as a non-price rationing system for scarce funds in a low-interest environment), supervision and monitoring have been inadequate, and the whole local effort in establishing the subloan portfolio under this project has been uninspiring. 34. World Bank supervision missions in some instances failed to iden- tify the problems or to assist in effecting changes; the main examples con- cern local banks' appraisal procedures and leniency regarding subborrowers' equity contribution. On supervision, there is a difference in attitude be- tween the Bank and Yugoslav lending lustitutions, with the latter considering subproject implementation as being subborrowers' exclusive responsibility and being less inclined to get involved than the Bank normally requires. - 12 - 35. As pointed out earlier (para. 23), some basic philosophical differ- ences on loan supervision rooted in the ownership structure of Yugoslav banks need to be resolved. The audit considers these differences as the principal reason for the Bank's lack of success in its considerable efforts to improve subloan supervision by VB and the PBs. One explanation given by the Bor- rower, namely that Government austerity measures (e.g., shortage of fuel and funds) interfered with supervision activities, in all likelihood has been more an aggravating factor than a major cause of poor supervision and moni- toring. It is relevant here to point out that formal subloan supervision by lenders is not a tradition in Europe - at least prior to accounts becoming delinquent. The technical performance of investments, including those receiving public subsidies, tends to be the concern of Government line agen- cies there rather than of the banks. D. Sustainability of Benefits 36. Economic uncertainties surrounding project investments in this case are very high. Government policies (i.e., prices, subsidies, interest rates, exchange rates, availability of materials, etc.) as well as other external factors such as effective domestic and foreign demand for incremental produc- tion are key determinants of the viability of the new investments. Some ope- rations, in the livestock sector (pig and broiler production), have already stopped while others have not yet reached satisfactory capacity utilization levels. There is little doubt that the majority of operators, especially in the individual sector, are capable of operating the facilities that have been created under the project and of meeting expected production levels, given adequate general economic conditions. There is no question, however, that if there is no improvement in the near future (3-4 years) in the conditions prevailing at the time of the audit mission, projected benefits will not be generated and the re-estimated ERR of 16% will not be realized. - 13 - Annex I Page 1 Coments Received from Volvodianska Banka Udruzena Banka ZC7 DiYSTO?90 t11204 DEnn Fm1DP* REF : TCPI MFT WIJT.!04 14129 VOJPA YU 15, 11.R5 NO 1677 INTERNATIONAl BANK FOR RFCP,'kU 1)"TION AND DEVELOPMENT ATT.MR.YMMATAN^IF: DIRECTOR OPFRATIONS FVAltLATION DEPARTMFNT WASHINiTON D.C. 20433 RE: PPAR SFCOND AGRICLIITIIRAI (:REIT PRO.JFCT (LOAN 3477 YLI) ALL PART(CITPATING BANKS HAVE REVIFME.Qt THE AFORESAID AUDIT REPORT AND JOINT COMMFNTS RFAJ' AS Fi IOWS A) FOR (NSUFFICIENTLY ACHIEVED RF:SL.TS UNDER THE PROJECTY IN ADDITION TO Sl'iJFCTIVF WFAKNFSSFS OF YUGOSLAV BANKS AND SUBORROWERSi A CRITiCA. OBSERVATION ON IBRD EFFICIENCY IS LACKING (TBRP FORMALISM AND LONG TIME WHICH FIAPSES FROM SUP- PROJECT APPRAISAL IINTEL DISBURSEMENT OF I.OAN PROCEEDS). B) RFORGANI7A1ION OF YTlGOSIAV BANKING SYSTFN OF JANUAkY 1979 DID NOr HAVE A SIGNIFICANT NEGATIVE IMPACT UN THE PROJECT. REA- SONS FOR I ANGTHY DFLAYS IN PROJECT IMPLEMENTATION I IF IN EVIDENT SUP.IWCTIVF AND OBJECTIVE WALKNESSES SUCH AS STATUS OF AGRICU- LTURE IN GENERAL, DELAYS IN RATIF[CATION OF GIJARANTFE WEAK ORGANI7ATIONt INADFQIATF STAFF TRAINING, INSUFFICIENT DISCIPIlNE IN )NYFSTMFNT IMPIFMFNTAT)ON ETC. C) IT IS A iROUJNOl.ESS CONCIAISTON THAT BECAUSE OF EXTENDING LOANS TO INDIVTDLIAI. PkDDUCERS THROUH SOCIAL SECTOR A SELECTION ACCORDING TO THEIR ASSoCIATE STATUS IS iING MADE TENDING TO ELIMINATF NON-ASSOCIATED INDIVIDUAL PRODIICFRS AND THUS EXCLUDING A VERY PRODUCTIVF SFMENT ( THE INDIVIDUA. SECTOR. POlICY OF INVESTING IN ENDIVIDUAL SECTOR OF AGRICULTURE CANNOT BE IMPI.kMFNTFD WITH SMALL-SIZEJI PRODUCTION AND SMALL MARKET PRODUCTION. WITH A SMALL-SIZE HOLDING AN INDIVIDUAL PRODUCER CAN HARDY APPFAR ON THE MARKET INDIViDUALLY. AN ACCESS TO MEMBFR- SHIP IN ANY COlLFCTIVE FARM/AGROCOMBINAT IS A PREVFLEBE OF EACH INDIVIDUAI PRODUCFR AND THE BANKS (PARTICULARLY FMPHASI7FD IN I..JUIJANSKA RANKA i.JUPI.JANA) ALSO APPROVF SUBLOANS TO NON-ASSOCIATED INDIVIDUAL PRODUCERS. DUE TO THIS RFASON WE DO NOT UNDFRSTAND 1BRD INSTSTENCE ON EXTENDING SUBLOANS WHICH WOULD BE REPAID IN CASH AND WE MOULD BE MORF IN FAVOUR THAT SUBBOROWERS THEMSELVES DECIDE WHAT REPAYMENT METHOD WOIL-D BE MORE FAVOURABLE TO THEM. ALl PARTICIPATING BANKS HAVE THEIR COMMENTS ON THE SECTION OF PPAR WAIG" DEALS WITH AFORESAID PROBLEMS AND 5NhNt5 **GPM THAI PAA 14 W ANENDFD AND PAM &- CONPEITLY LttT5MI - 14 - Annex I Page 2 D) 1RD ASSESMENT THAT PROCUREMENT PRODLEN IS A RESULT OF LACK -- -F-n+ W-O- PART-OF- - Fl F#DROM -F- UFRY-SERV4WB AND- ONE-IDWDr WE ARE OF THE OPINION THAT PROCUREMENT PRnCEDURE IS VERY SLOW AND INFFFICIENT SINCF IT APPtTES TO SMALL PROCUREMFNTS ALSO. W IBRD HAS NOT AL AYS FOIOWED PkOVS1ONS OF THE L OAN AGREFMENT, ALTHOUGH THIS RELArES TO LOAN 1801 YU TO A GREATER EXTENT. REGARDS, DUSAN ZIKIC VO.JVtIDJANSKA PANKA UDRU7FNA BANKA NOVI SAD 14129 YOJPA YU 015898 1003 151185 01710171 204 =11150718 AL1 RTD FRnM*OFDM NNNN - 15 - YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT June 20, 1985 Europe, Middle East and North Africa Region Projects Department .一/6一 メ乙、,2ぼ令多ルガ冷 ノノ - 17 - YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECI COHPLETIOV REPORT I. BACKGROUND 1.01 By mid-1977, the Bank had made 44 loans to Yugoslavia totalling about US$1,553 million, of which five were for agriculture and agroindustries totalling $229.0 million. The Agricultural Credit II Project (1477-YU) was the second nation-wide project in which the Bank participated, the first being the Agricultural Credit I Project (Loan 1129-YU). 1.02 During 1973-1976, the Yugoslav economy experienced an average annual growth rate of GDP of 5.8Z. Inflationary pressures were receding with the rate of increase of industrial producers' prices declining from 30% in 1974 to 6% in 1976. A surplus in the current account of the balance of payments was expected in 1976. Within this overall economic environment, the agricultural sector accounted for 16% of social product, contributing 8Z of total exports, and employed about 42% of the labor force. The social product in agriculture was increasing at an average annual rate of 2.7% during 1971-1975 with the social sector output increasing annually at 5.6%, and the individual sector output at 1.9Z-11 The Five Year Plan (1976-1980) considered the development of food processing industries essential to agricultural development, and the improvement of product quality. With rising standards of living, domestic demand was expected to shift increasingly to higher quality and processed foods. The major constraints to further agricultural development in the social sector were seen as the lack of capital to develop the scarce available land and to expand and modernize outdated processing facilities. The individual sector's major constraints were the lack of capital and credit facilities for on-farm mechanization, the purchase of better quality ivestock breeds and fertilizers, and inadequate extension services for farmers not participating in cooperative arrangements with the social sector. 1.03 The economic situation in recent years has been in sharp contrast to the situation in the mid-1970s. In 1982, GDP grew by only 0.2Z, and in 1983 was expected to decline by 1.3%. Domestic inflation had risen to 55% in 1984. Until recently, the deficit in the current account of the balance payments and the consequent curtailment of imports adversely affected the agricultural sector. The social product in agriculture fell from an average annual rate of 2.7% during 1971-75 to 1.9% during 1976-1980. Zero growth in agricultural social product was realized in 1983. In real terms, personal income payments per worker in the social sector declined each year since 1980, I/ The individual sector consists of those farmers who farm their own land as opposed to land owned and operated in the social sector, and who may or May not enter into production or marketing contracts with the social sector. However, the project beneficiaries referred to in this report are those farmers who have entered into production/marketing contracts with the social sector. - 18 - with an accumulated negative growth rate of more than 25% by the end of 1983. The constraint in the social sector is no longer insufficient processing capacity, but insufficient raw material availability, and management, marketing and financial inefficiencies. The constraints in the individual sector (para 1.01) continue, however, and stem from inadequate support for the sector. 1.04 The major issues raised in the Project Performance Audit Report of the First Agricultural Credit Project were (i) appraisal (particularly at the time of project start-up) and supervision of the subprojects by VB and the PBs was inadequate; (ii) investments in labor-intensive livestock operations in the social sector were uneconomic; (iii) farmers who did not enter into production/marketing contracts with the social sector were precluded from the benefits of the project, and (iv) monitoring and evaluation programs needed to be well-structured if project benefits were to be measured with an acceptable degree of accuracy. An important lesson learned from the First Agricultural Credit Project was that issues such as interest rates should be dealt with at macro-level rather than through project lending. It should be noted that by 1973 the Government had recognized the potential of the individual sector in achieving better resource utilization and more even income distribution, although in practice its support continued to be primarily limited to those farmers who entered into cooperative arrangements with the social sector. II. PROJECT FORMULATION/PROCESSING A. Identification/Preparation 2.01 The Yugoslav delegation to the Annual Meetings in September 1975 expressed interest in a repeater credit project which would give them flexibility in using the assistance provided by the Bank. The Bank responded that the Second Agricultural Credit Project could be appraised by the Bank in late calendar 1976, provided satisfactory progress was made in the First Agricultural Credit Project. 2.02 In July 1976, the Bank requested the Yugoslavs to initiate preparation of the project. It was pointed out to the Yugoslav Government that, in line with the Government's priorities, the bulk of the funds to be provided by the proposed loan would be distributed to the less developed regions, and the individual sector. Among other things, the Bank requested information on total capacities of food processing facilities by subsectors, the degree of capacity utilization in each subsector, future expansion plans, and a review of raw material availability and market for each processing facility proposed. The appraisal mission of the First Credit Project had been unable to get this information and the Bank emphasized that the inclusion of processing facilities under the Second Project would depend on the availability of such information, which was subsequently received by the Bank. 2.03 VB and the PBs expressed concern to the Bank about its extensive requests for information during project preparation. This concern pertained particularly to the information on the policies and procedures, and structure of the Yugoslav banks, as VB and the PBs stated that such information was not readily available. However, most of the information was provided to the Bank. In retrospect, it appears that the Bank's data requests were reasonable as our knowledge of the functioning of the associated and the basic banks, even today, is somewhat limited. - 19 - B. Appraisal 2.04 In November 1976, a 6-person appraisal mission visited Yugoslavia for about one month. As the preparation report submitted by the Borrower did not propose any specific subprojects for an agroindustrial component, the appraisal mission's task was, in addition to evaluating the institutional/ organizational aspects of the project, to determine more precisely with the representatives of each Republic/Province the project components and the corresponding lending program. The project objectives were: (a) to increase production, improve product quality and raise productivity and income, particularly on private farms; (b) to place priority on lending to the lesser developed Republics/Provinces; (c) to increase emphasis on channelling funds to small individual farmers; and (d) to integrate lending programs in the individual and the social sectors by concentrating financing of investments or primary agricultural production in the individual sector, and reserving the financing of the investments in the social sector to agroindustries directly stimulating private holding production. These objectives were in line with the Five-Year Plan (1976-1980) and tht Inter-Republican Agreement on the Long-Term Development Policy for Agriculture which set out the obJ_:z-c: ior the period 1973-1975. 2.05 Compared to the First Credit Project, which allocated 43% of the loan proceeds to the individual.sector and 272 to the less developed Republics/ Provinces, the Second Credit Project allocated 57% of the loan proceeds to the individual sector and 50% to the less developed Republics/Provinces. Further progress in these directions was made under the repeater project (Third Credit Project, Loan 1801-YU), where 70% of the loan proceeds were allocated to the individual sector and 51% to the less developed Republics/Provinces. 2.06 Investments financed under the project are: vegetable and fruit production, land development, dairy, cattle fattening, pig fattening, sheep breeding and fattening, and broiler farms in the individual sector; milk, meat, and fruit and vegetable processing and grain dryers in the social sector. These investments were agreed during the appraisal process and were a part of Yugoslavia's Agricultural Development Plan (1973-1975). 2.07 The organizational arrangements were identical to those under the First Agricultural Credit Project. The Federal Coordination Committee which was established under the Agricultural Development Plan and had performed a coordination role with respect to the First Agricultural Credit Project, was to continue to perform its coordination role for the second credit project. Vojvodjanska Banka (VB) was the Borrower and apex bank for the project. Under the Second Agricultural Credit Project, the Project Operations Department in VB was to be strengthened through recruitment of a Procurement Specialist. One bank from each Republic/Province participated under the project, and VB functioned as a participating bank (PB) for the Province of Vojvodina. 2.08 TI-. appraisal mission outlined the criteria which were to be followed by the PBs for appraising subprojects. While the other appraisal criteria were generally applied, the following two criteria were not always closely monitored by either the PBs or the Bank: (i) enterprises borrowing for agroindustrial investments should have a satisfactory financial structure, especially an adequate debt/equity ratio of normally less than 3:1. If exceptions were allowed because of the financial/economic merit of the subproject, the enterprise was to enter into an agreement with a PB to increase its equity over a suitable period of time to an acceptable level; and (ii) appropriate consideration should be given to the choice of technology, with preference accorded to more labor-intensive techniques. - 20 - 2.09 Based on the appraisal mission's recommendations in the Issues Paper dated December 21, 1976, it was agreed in the decision meeting held on January 4, 1977 that some local cost financing would be justified given the emphasis in the project on channelling funds to the lesser developed Republics/Provinces and the target group of small private farmers. However, a firm decision on the increase in the loan amount was not made until April 22, 1977, when the Bank agreed to increase the loan amount from the initial $50.0 million to $75.0 million on the understanding that the Bosnia Rural Development Project, for which $30.0 million had been programmed for FY79, would be postponed to FY80. The project costs estimated by the appraisal mi sion, however, indicated that $75.0 million would be needed to cover the full foreign exchange requirements. It was also agreed to reduce the participation of the social sector in financing of their investment from 30% (under the First Credit Project) to 25% in -view of the limited liquidity of the Kombinats. On the issue of interest rates, it was agreed that the appraisal mission could proceed as per its recommendation, i.e. the Bank funds would be on-lent to subborrowers at an interest rate at least equal to 11% and, for local funds, a floor interest rate be determined. The interest rates were characterized by low levels and nonuniformity across the country and even within the same Republic or Province for similar types of investments. The proposal of floor interest rates was expected to result in at least uniform interest rates within each Republic for the proposed project, although lending for agriculture could occur outside of the project at different rates. It was further agreed that if the Bank's review of the interest rate study to be received in January 1977 (a requirement under the First Credit Project) and the subsequent dialogue with the Government led to different conclusions and/or recommendations on interest rates, these would be reflected in the package. The Bank weited for this interest rate study before proceeding to the Loan Committee with the Second Agricultural Credit Project. However, the study did not provide any basis for a change in the appraisal mission's recommendation of uniform floor interest rates (para 3.10). C. Negotiations 2.10 Negotiations started on May 23, 1977 and continued for about a week. The three major issues were: (a) Uniform Floor Interest Rates for Local Funds. The Bank proposed a floor interest rate of 6% for the less developed Republics/Provinces and 7% in the others. After considerable discussions, the Yugoslav delegation accepted for the first time the concept of uniform floor rates but asked that these be differentiated by the social and individual sectors rather than by region. It was finally agreed that, for local funds, a floor rate of 5% for lending to the individual sector and 6% for the social sector would be applied. It was also agreed that on or before December 1, 1977, an interest rate study (a follow-up to the study prepared under tne First Agricultural Credit Project), with terms of reference satisfactory to the Bank, would be initiated by the Yugoslav Association of Banks. (b) Commission on Bank Funds Disbursed by VB; The Bank proposed a 0.75% commission on Bank funds disbursed by VB. It was agreed that this be increased to 1% because of additional costs to VB which would result from the adoption of the monitoring and evaluation system. - 21 - (c) Allocation of Loan Proceeds to the Individual Sector: The Bank had expected that 67% of the proceeds would be allocated to the individual sector. The Yugoslav delegation maintained that the allocations worked out with the PBs on the basis of specific subproject proposals yielded a 57% distribution to the individual sector, and that any revision would necessitate a new round of discussion and would be time consuming. The Bank accepted the 57% distribution to the individual sector. (d) A further agreement was reached that VB would secure assistance in preparing a monitoring and evaluation system which would L.e applicable to both the First and the Second Agricultural Credit Projects. D. Board Presentation 2.11 The loan was approved by the Executive Directors an July 5, 1977. A Board member enquired if the terms of reference of the interest rate study commissioned under the First Credit Project had been approved by the Bank, and if the study was not satisfactory, then what assurance did the Bank have that the second study would be satisfactory. Bank staff responded that the terms of reference of the first study had been approved by the Bank, and that the second study would aim at an in-depth examination of the issues ra:.ed in the first study. Another question concerned procurement of items from foreign suppliers. The loan was signed on July 29, 1977. III. PROJECT IMPLEMENTATION A. Loan Effectiveness 3.01. The loan was expected to be effective by October 31, 1977. One of the conditions of effectiveness required the Borrower to secure all assistance satisfactory to the Bank for preparing monitoring and evaluation procedures. VB argued that the hiring of consultants was not required prior to the effectiveness of the ican. VB requested that the Bank accept (a) the agreed terms of refere-ice, (b) VB's letter proposing a timetable for hiring of consultants by February 1, 1978, and (c) VB's obligation to implement the monitoring and evaluation system by March 31, 1978 (Supplementary Letter No. 5) as sufficient evidence for meeting this condition of effectiveness. The Bank did not approve VB's request because the delay in effectiveness was not expected to slow down project implementation as no subprojects had been approved. Besides, the Bank wanted to maintain the pressure on the hiring of consultants, particularly in view of the importance attached by the Bank to the monitoring and evaluation system which was to be applicable to both the - First and Second Agricultural Credit Projects. The effectiveness date was therefore extended to January 31, 1978. By January 30, 1978, the Borrower had met all the conditions, and the loan was declared effective. B. Project Start-Up - 22 - 3.02. Project start-up was accompanied by a reorganization of all Yugoslav banks, according to the credit and banking law which became effective in January 1978.1/ The Bank supervision mission in May 1978 learned about this reorganization. The situation became particularly serious in Croatia, where the Participating Bank ceased to exist. The loan agreement was amended in June 1980, when the responsibilities of Udruzena Banka, Zagreb were transferred to Zagrebacka Banka, Zagreb in Croatia. The reorganization of the banks resulted in a slow start-up of the project. However, the more important reason for the slow start-up was the lack of advance identification and preparation of subprojects, particularly in the individual sector. This was compounded by the PBs'complex documentation requirements and procedures for the approval of the individual sector subprojects, and the insufficient staffing and technical capabilities of the cooperatives to prepare acceptable feasibility reports/farm plans for individual sector investments. C. Implementation 3.03. The quality of analysis in subproject appraisal reports was generally adequate, although it differed among the PBs. The general standard of construction and equipment in both individual and social sector subprojects is good. However, there were delays in project implementation. The various Bank missions indentified the following factors which contributed to delays in implementation: (a) initial low interest in the individual sector due to complex documentation requirements of the local banks; (b) slow procurement progress. PBs argued that this was due to the requirement of the Bank to procure under International Competitive Bidding (ICB) procedures for contracts exceeding the value of $100,000. This limit of $100,000 was considered to be too restrictive by the PBs. Frequently, delays in preparation of subprojects caused cost overruns, which resulted in lowest evaluated bids being higher than the engineers' cost estimates, and consequently in rebidding and further delays; (c) allocation of loan proceeds by specific types of investment was viewed by PBs as inflexible, which caused delays in approval of subloans, although the allocations were meant to be approximations and were to be treated flexibly, depending on the credit demand; I/ The Federal Banking Law established a three-tier organizational commercial banking structure consisting of internal banks, basic banks, and associated banks, and introducing new forms of specialized association such as banking consortia and self-management funds of associated labor. The internal bank is essentially a service organization established as a legal entity through a self-management agreement by two or more BOALs within a working organization. The basic bank is the only banking organization which carries out all kinds of credit and banking operations in Yugoslavia. An associated bank is established as a legal entity through a self-management agreement of two or more basic banks. Associated banks are formed mainly to concentrate resources for financing major investments and to carry out foreign business transactions on behalf of their member basic banks. - 23 - (d) implementation targets were not set, and there was little or no monitoring of actual performance. Inadequate supervision by the PBs and the basic banks was due to inadequate staff, training, and transport facilities and little planning and coordination amongst associated banks, basic banks, cooperatives and investors; (e) frequent changes in farmers' decisions, because of changes in relative price parities and changes in social sector investors' decisions because of their inability to come up with minimum equity contributions; (f) flood and earthquake damages in Montenegro; and (g) a macroeconomic stabilization program in 1980 which imposed import restrictions, making it difficult for investors to obtain import licenses; and credit ceiLings which created difficulties for the basic banks to come up with counterpart funds. 3.04. In retrospect, it appears that some of these problems could have been avoided if the Bank had more actively assisted VB and the PBs in simplifying the procedures for approving subloans to the individual sector, and in organizing intensive training on procurement procedures for investors and staff in the PBs. While the Bank and VB organized several seminars on procurement, no formal training was provided to either the staff of the PBs or the investors. Such a training program would have facilitated the task of VB and the PBs who were required by the investors to submit the bidding documents to the Bank, despite the PBs being aware of the inadequacies of the documents (para 6.04). The investors might have been a-re willing to make necessary revisions if they were acquainted with the procurement procedures of the Bank. The Project Operations Department in VB was strengthened by the recruitment of the procurement specialist. Each cf the PBs should also have recruited procurement specialists who could have assisted the investors in each Republic/Province. Bank missions have repeatedly stated the problem of inadequate supervision by the PBs and the basic banks. The Bank has however been unable to address this issue, because the Yugoslav banks do not recognize the importance of monitoring the physical, financial and operational performance of investments, once the loans are approved. Over the years, while some of the PBs have initiated supervision of the physical implementation of the investments, they have lacked training on how to undertake intensive supervision once the facilities are operational. - D. Costs and Financing 3.05. Project cost estimates at appraisal and actual cost estimates are compared below. Details are given in Annex 1. - 24 - Project Costs Cost Appraisal Overruns Investment Type Estimates /1 Actual (Savings) ---in million---- ----%---- Primary Production (Individual Sector) Vegetable 340 136 (60) Fruit 617 625 1 Equipment - 341 - Livestock 1,704 4,779 180 Land Development 90 14 (85) Subtotal 2,751 5,895 114 Agroindustries (Social Sector) Cold stores & Packing lines 218 259 19 Fruit & Vegetable Processing and Grading Lines 314 981 212 Milk Processing & Milk Collection Stations 511 1,482 190 Cooperative Centers 32 - Meat Processing 79 61 (23) Broiler Production & Processing 100 500 400 Winery 113 - - Grain Dryers 70 73 4 Subtotal 1,405 3,385 141 Total Project Cost 4,156 9,283 123 U.S.$ Equivalent (million) 2/ 231 227 (2) 1/ Includes contingencies. 2/ Appraisal Exchange Rate: US$ 1=Din = $18.00 The average annual exchange rates applicable to Bank disbursements during implementation years were: 1978 : $1 = Din 18.25 1979 : $1 = Din 18.79 1980 : $1 = Din 24.15 1981 : $1 = Din 35.51 1982 : $1 = Din 53.66 1983 : $1 = Din 86.57 1984 : $1 = Din 113.13 - 25 - 3.06 The total project cost in current Dinars increased by 123% compared to the appraisal estimate. This was due, inter alia, to delays in project implementation with 80% of the investment undertakt7 between 1981 and 1983 when domestic inflation ranged between 32% and 42-' , compared to the inflation rate of 13% in 1978 when the loan became effective. In addition, there was a considerable difference between actual investment demand and that envisaged at appraisal (para 4.01). However, a 2% cost savings in U.S. dollars resulted from devaluation of the Dinar at a faster rate than domestic inflation. 3.07 The Bank's emphasis on the individual sector consisting of farmers who entered into production/marketing contracts with the social sector was achieved with 64% of total investments in the individual sector, compared to the planned target of 66%. In terms of the Bank loan, 60% of the loan proceeds were invested in the individual sector, compared to 57% agreed during negotiations (Annex 2). Due to reallocation of Bank loan proceeds ($1.58 million) from Montenegro to Slovenia, the regional allocation of loan proceeds was in favor of the more developed Republics/Provinces (MDRs) (53% in MDRs, compared to 50% estimated at appraisal). 3.08 While the World Bank contributed 41% to the financing of subprojects in the social sector (as envisaged at appraisal), the domestic banks' contribution increased from 34% to 38% as they had to finance cost overruns. Social syctor subborrowers on an average contributed only 17% as their equity,27 compared to a minimum contribution of 25% stipulated in the Loan Agreement. This decline in the equity contribution was a result of the poor financial situation of the social sector enterprises (para 4.10 - 4.17). The weak equity base in turn further aggravated the poor financial situation of the enterprises. An additional 4% of financing was obtained through foreign credits, in:luding suppliers' credits (para 3.14). The distribution of financing in the individual sector was not available. However, most of the cost overruns in the individual sector were financed by an increased contribution from the subborrowerc. E. Intercst Rates 3.09 The interest rate on the Bank portion of subproject financing was 11%. The foreign exchange risk was carried by: (i) the social sector subborrowers with respect to their portion of subloans financed out of Bank loan proceeds, and (ii) the Republics/Provinces in the case of subloans to the individual farmers. The following interest rates were applied on the domestic resources loaned under the project: Interest Rates (% per annum) Individual Sector Social Sector Vojvodina 5 n.a. Serbia 8 - 11 8 - 14 Montenegro 6 - 6.5 6 - 6.5 Kosovo 5.5 6 Slovenia 5 - 14 6 - 18 Bosnia Herzegovina 8.5 - 10 8.5 - 10 Macedonia 6 - 9 6 - 7 Croatia 8 - 12 8 - 12 1/ Cost of living index. 2/ Equity contribution by social sector subborrowers ranged between 13% and 27%. - 26 - Interest rates on local funds for investments in agriculture varied between 5% and 14% for the individual sector, and between 6% and 18% for the social sector. The Loan Agreement signed in 1977 stipulated a minimum of 5% lending rate to individual sector subborrowers, and a minimum of 6% to social sector subborrowers in Dinar terms through the period of the loan. While the interest rates were higher in some Republics/Provinces than the floor lending interest rates stipulated in the Loan Agreement, they continued to be highly negative in real terms in view of domestic inflation ranging between 10% and 53% during the 1977-1983 period.!' F. Studies/Consultants 3.10 The interest rate study carried out under the First tgricultural Credit Project took the position that uniform, unsubsidized interest rates were not appropriate due to the socialist nature of the economic system in Yugoslavia. Despite the report's conclusions, the Bank made some progress under the Second Agricultural Credit Project by agreeing with the Yugoslavs on uniform floor lending rates for local funds. The Loan Agreement of the Second Credit Project stipulated carrying out another interest rate study. This study was initiated by the Association of Yugoslav Banks, and a partial report was received by the Bank in April 1979. The final report was not received until February 1980. In the meantime, the Third Agricultural Credit Project was approved in February 1980. The Loan Agreement for this project provides for the same on-lending interest rate terms as those in the Loan Agreement for the Second Credit Project. 3.11 The final report of the interest rate study received widespread review in the Bank. It, too, attempted to justify the prevailing interest rate regime. The consensus was that, while the sLudy did not fully meet the terms of reference originally specified in 1975, it met the borrower's commitment under the Second Agricultural Credit Project to complete the study and that further studies would serve no purpose. Over the years, the Bank agreed with the Yugoslavs under various projects in the agricultural sector to increase on-lending nominal interest rates on funds mobilized through the Yugoslav banking system. However, the rate of domestic inflation ranged between 27% and 55% from 1980 to 1984, and interest rates have remained negative in real terms.- Under SAL I, the Bank attempted for the first time to address the interest rate issue at the macro-level, rather than through project lending (para 1.04). Under the SAL I Letter of Development Policy dated May 25, 1983, the Government proposed to establish a floor on-lending rate for new loans from domestic commercial bank resources. This tloor interest rate was to be Lb%, introduced as of January 1, 1984, and was to be adjusted in line with the previous year's inflation rate to reach positive real levels within three to five years depending on the priority of the activity concerned. In the context of the agricultural sector the Federal Government, in a letter to the Bank dated May 6, 1983, proposed to establish the 18% floor rate as of January 1, 1984 on agricultural subloans to the 1/ Index tor industrial producers' prices on a December to December basis. Retail price inflation has historically been 5% and 7% above the industrial producer price inflation. - 27 - individual sector from both Bank and domestic resources, with the adjustments to positive real levels consistent with the SAL formula. The interest rate adjustments on loans from domestic resources have been made in line with the SAL letter. However, with respect to Bank funds on-lent to the individual sector under the ongoing projects, with the exception of the Serbia Regional Development Project (Loan 2307-YU) the interest rates range between 11% and 18%, rather than the 25% rate which was to have been applied as of May 1, . 1984, and the 1985 rate of 31% as of April 1, 1985. 3.12 In the course of preparing the Project Completion Report for the . First Agricultural Credit Project, the Bank became aware of the limitations of the monitoring and evaluation (M&E) carried out for the project. These limitations included (i) inadequate sample size; (ii) lack of analysis of without-project situations and (iii) use of incorrect deflators for doing constant analysis. A Monitoring and Evaluation Specialist from the Bank subsequently visited Yugoslavia. The specialist concluded that an appropriate sample size might total 1,000 but that such a size could not be reasonably requested and that a compromise sample of 300 could be used, to give a better representation of the farmer beneficirries than was then being done. He also concluded that it was too late to introduce revised sampling procedures in the Second Credit Project. While the small sample continues to provide an imprecise estimate of the benefits of the project, an attempt has been made by the local consultant engaged in M&E under the Second Credit Project to evaluate the without-project situation, even if new information may be incomplete due to inability to obtain information on early project years which are required to measure with- and without-project trends. G. Procurement 3.13 International Competitive Bidding (ICB) procedures were followed for procurement of equipment for grain dryers, fruit and vegetable processing, fruit and vegetable grading and packing, and milk processing. The Bank approved; (i) international shopping for procurement of equipment for some of the milk collection stations and cooperative centers, and (ii) limited international tendering, instead of ICB, for the procurement of equipment for a meat processing facility. The Bank also exempted a broiler farm from the award of a single contract, as it was not integrated with a slaughter facility as envisaged at appraisal. 3.14 Various procurement problems in the course of project implementation are attributable to lack of experience on the part of the PBs and the investors in carrying out procurement procedures as required by the Bank. * There were certain irregularities in procedures and misunderstandings between bidders and investors. In the case of dairy plants in Croatia, foreign exchange requirements for contracts awarded under ICB exceeded the amount of . Bank funds allocated to Croatia. It was the responsibility of the Borrower or the PB to arrange for additional foreign exchange. The delivery of equipment was therefore held up until the PB in Croatia and the subborrowers could arrange for this additional foreign exchange. The inability of some of the PBs and the basic banks (because of credit ceilings) and the investors to come up with the counterpart funds to cover cost overruns, led to delays in procurement of equipment even against signed contracts. These problems were compounded by delays in obtaining import licenses. There was also a case when the new dairy at Bihac was damaged by hurricane winds. This facility is still not completed. - 28 - 3.15 The borrower cited procurement delays due to circumstances arising from the effects of the stabilization program and import restrictions as a major reason for requesting a second extension of the loan closing date. The postponement of the closing date enabled the Bank to extend its agreements to reimburse for letters of credit opened before the loan closing date, but with later delivery of equipment. H. Loan Amendments/Covenants 3.16 The Loan Agreement was amended to enable the Bank to finance (a) 1002 of foreign expenditures; (b) 50% of disbursements effected by PBs to the individual sector subborrowers on account of local expenditures, instead of 35% stipulated in the original Loan Agreement, and (c) 65% of disbursements effected by PBs to the social sector subborrowers instead of the stipulated 55%. Further amendments were made to allow (a) reallocation of loan proceeds from the social to the individual sector, in view of changes in credit demand (para 3.07) and (b) reallocation from Investiciona Banka, Titograd to Ljubljanska Banka, Ljubljana in view of the limited capacity of Hontenegro to absorb the loan proceeds, particularly in the individual sector. 3.17 The borrower complied with the loan covenants satisfactorily. While the appraisal criteria for the selection of investments were generally followed by the PBs, the undeilying assumptions-particularly of prices, markets and raw material availability-turned out to be optimistic in view of the deteriorating economic situation. However, the Bank and the PBs could have more closely monitored some of the appraisal criteria of the subprojects in the social sector (para 2.08), and the requirement of the minimum equity contribution of the social sector subborrowers (para 3.08). I. Disbursements 3.18 Loan disbursements took about three years longer than projected at appraisal. However, it should be noted that appraisal forecasts were optimistic. Disbursements under the project have been in line with the disbursement profiles for the Yugoslav agricultural sector, which indicate about a six-year disbursement period. The appraisal forecast of disbursements in the first year of project implementation also erred on the optimistic side. Compared to the disbursement estimate of $18.0 million by end FY79, only $4.0 million was disbursed. The appraisal forecasts did not allow for the initial slow identification of subprojects, particularly in the individual sector, by VB and the PBs. Although the loan closing date was extended twice--from June 30, 1981 to December 31, 1982 and then to August 31, 1983--disbursements were made until March 19, 1984 to settle outstanding withdrawals. Quarterly estimated and actual disbursements are given in Annex 6. The Bank cancelled the undisbursed balance of US$1.4 million from the loan amount. IV. OPERATING AND FINANCIAL PERFORMANCE A. Pattern of Investment Demand 4.01 As in the case of the First Agricultural Credi- Project, there was considerable difference between actual investment demand and that envisaged at appraisal. Some investments exceeded expectations; others fell short and investments were made in activities not envisaged at appraisal. For example, in the individual sector there was a strong investment demand for livestock - 29 - buildings, heifers, breeding ewes and plastic green houses, while there was less demand for vegetable production, land development and orchards than envisaged at appraisal. There was some credit demand for laying hens, breeding gilts and beehives, although not projected at appraisal. Similarly, in the social sector, investments in dairy plants, fruit and vegetable processing facilities, and broiler production exceeded expectations by a considerable margin. However, investments in milk collection stations, cold stores, grain dryers and meat processing facilities fell below expectations (see Annex III for details). These changes in investment demand were a response to shifts in relative prices and in planned production targets. B. Individual Sector1l 4.02 About 80% of the investment in the individual sector was in livestock production. 4.03 Dairy Farms. A majority of dairy farmers are engaged in cattle fattening as well. Such a mix of investment activities enables farmers to diversify their risks, particularly in view of price uncertainties. Investment in buildings was about twice that expected, with 60% of investment on an average dairy farm going to buildings compared to the projected 26%-31%. Investment in milking machines on the average farm surveyed is less than 1% of total investment compared to the projected 5%. Average milk production per cow on participating farms reached about 3,400 liters per annum in the third year of dairy farm development, which is about 20% above expectations. However, in the northern Republics/Provinces, the average cow herd size is only about 4 dairy cows/farm compared to the projected 10 dairy cows/farm (Annex 4). 4.04 Farmers have maintained marginal viability in dairy production by feeding lower quantities of high-priced concentrate (which was in short supply) and increased amounts of agroindustrial by-products such as wheat bran and fodder beet pulp, on-farm produced forages, and grazing on communal pastures. They also operate on a small scale with much of the labor being done by the family, which reduces the direct cost of labor. 4.05 Cattle Fattening. While cattle prices (liveweight) increased from Din 37.6/kg in 1980 to Din 206.7/kg in 1983 (450%), milk prices (including subsidies) increased to only $20.9/liter from Din 6.5/liter (222%) during the same period. Farmers have therefore not increased the number of cows as rapidly as expected but have turned to greater beef production by taking young stock to relatively heavy slaughter weights. 4.06 Pig Fattening. The average number of pigs decreased from 48 per farm in 1982 to 31 per farm in 1983, compared to a projected herd size of 100 pigs per farm at appraisal (Annex 4). This decline in the number of pigs was mainly due to shortages of concentrate feed. Most of the fattening operations are in the nature of service, whereby the farmers obtain pigs and feed from the social sector and are paid per kilogram of weight gain. A number of social sector organizations abandoned cooperation with individual farmers because they were either unable to make adequate quantities of feed available to the farmers, or could not afford the high costs of feed. As a result, several pig fattening facilities are either underutilized or unutilized. 1/ Farmers who entered into production/r.arketing contracts with the sociai sector. - 30 - 4.07 Sheep Farms. Annual milk and wool production per eve is higher than projected at appraisal (Annex 4). The major sources of fodder for sheep are the communal and social pastures. Farmers are required to make payments for grazing these pastures. Apart from the grazing charge and the conservation of some hay, no other operating costs axe involved. The profitability of sheep farming is therefore high. 4.08 Characteristics worth noting about individual sector subborrowers are: (i) farmers investing in dairy, sheep and pig production own larger areas of cultivated land (6.5 - 10 ha), compared to the average holding size of 3.7 ha; (ii) 65% of farm households surveyed have steady jobs outside the farms (mixed households). This indicates that subborrowers under the project are better off farmers who are primarily the long-term cooperants with the social sector. The Government's policy is to integrate individual farmers into the socialized system, which in turn limits the availability of credit and inputs through formal institutions primarily to those individual farmers who are associated with the social sector. Credit is available to these associated farmers through the social sector organizations and the cooperatives (which act as on lending organizations on behalf of the banks) in the form of inputs, and loans are repaid in kind. In theory, in all the Republics/Provinces, farmers do have the option of repaying loans in cash; but, in practice, the production/marketing contracts generally specify the amounts of produce the farmers have to market to the cooperatives during the period of loan repayment. In a few Republics/Provinces, the basic banks lend directly to the individual farmers and these loans are received and repaid by the farmers in cash, albeit in very small amounts. However, the Bank loan proceeds were not on-lent through the basic banks directly to the individual farmers under the project. 4.09 For the first time, under the Fertilizer Sector Loan (approved by the Board on May 8, 1984), the Government agreed that 80% of incremental fertilizer would be earmarked for sale through trading agencies to the farmers who would pay for it in cash. Also, under the Montenegro Regional Development Project (Loan 2467-YU), a portion of loan proceeds has been allocated for on-lending to individual farmers who repay loans in cash and not in produce. C. Social Sector 4.10 About 88% of investment in the social sector was undertaken in three types of facilities: vegetable and fruit processing, milk processing, and broiler production. These facilities faced the common problems with which the entire processing sector had to cope in recent years. These problems stemmed from (a) shortages of raw material which did not allow the achievement of a sound rate of utilization. Intense competition for scarce raw material caused increases in raw material prices which was sufficient incentive for the farmers to sell to other clients, or caused the processing facilities to renegotiate higher prices for raw material; (b) increased disparity between output and input prices which was evident in an extreme form in the social sector broiler farm. The output price was controlled and concentrate feed costs increased so much that, by the beginning of 1985, the farm could not cover even its variable costs; (c) a consistent decrease in purchasing power in the market contributed to a decline in the sales level and the rate of utilization; (d) low export prices relative to domestic prices and costs of production; and (e) lack of understanding of financial management principles and procedures by plant management. - A1 - 4.11 Fruit and Vegetable Processing (Kulpin). This investment was undertaken to almost double the annual plant capacity from 13,400 tons to 23,400 tons, mainly focussing on processing of fruits. The facility obtained a low rate of utilization in 1984 (49.4%). The plan for 1985 is based on achieving a 68.4% rate of utilization. However, given the current economic situation in the country, the shrinking purchasing power in the domestic market, and the shortage of raw materials for which various processing - facilities in the relevant vicinity are competing, this plan seems overoptimistic. In 1984, the rate of utilization of the new product lines (47.8%) was almost equal to the rate of utilization of the old product lines - (50.7%). Gross revenue in current prices in 1983 was the same as in 1982, which reflected a decline of about 25% in real terms. While sales in 1984 increased by 17% in real terms compared with 1983, due to a reduced gross margin and an increase in other costs, the meager profit in 1983 changed to a substantial loss in 1984, which was about 18% of the revenue in 1984. 4.12 The facility has not succeeded in exporting its products because of lack of ability to penetrate and compete in foreign markets. The emphasis is still placed on production and overcoming production bottlenecks. In 1984 only 4% of its revenue was generated from export sales. Export selling prices, however, were very low and on the average accounted for only 60% of domestic prices. This provided a disincentive to the investor to export. 4.13 Milk Processing (Dukat). Incremental investment was aimed at either increasing the capacity of existing lines or creating an initial capacity to prodLee higher value-added products such as cheese, coffee cream, etc. In order to make efficient use of its recently purchased equipment, milk intake had to be increased proportionally. However, annual milk intake in the period 1981-84 fell significantly below what it had been in 1980. In 1984, the annual intake was about 15% less than that achieved in 1980. 4.14 While prices of output such as pasteurized milk were controlled until the end of 1984, fresh milk prices reflected the high competition apparently caused by the low rate of utilization ot the dairy plants in the vicinity of Zagreb. This contributed to the increased disparity between purchased fresh milk and output prices. In contrast to the expectation that the cost of milk as a percentage of total sales would decrease, in order to obtain adequate margins that could justify the incremental investments, the cost of purchased milk increased from 51% of total sales in 1981 to 58% in 1984. Packaging material cost as a percentage of sales decreased significantly in 1984 compared to 1983; the cost in 1984 declined only slightly when compared with its 1981 equivalent. These two costs accounted for 741 of total revenue in 1984 compared to only 68% in 1981, although there was a slight decrease when compared to 1983 (76.6%). Given the high income elasticity of demand for some of the new products and the shrinking disposable personal real income in the domestic market, it is very likely that only a marginal increase in the plant's gross margin and profitability, if any, would be achieved in 1985. 4.15 No accurate data on the phasing of the investments under this subproject were submitted to the Bank. Also these investm2nts, financed partially by Bank loan proceeds, accounted for only a small share of the plant's total assets. While no data were available on revenue and operating -32- costs which were associated with these investments, they clearly accounted for only a],mall share of the consolidated income and expenditures of the dairy plant.- Consequently, no financial or economic rates of return were calculated. 4.16 Broiler Farm (Glagovac). The poor financial results of the farm are due to a large increase in the cost of concentrate feed (305%) compared to a 113% increase in the broiler selling price between 1982 and February 1985. Consequently, concentrate feed costs, which accounted for about 332 of the output price in 1982, increased to about 60% in 1984. 4.17 The acute price disparity between concentrate feed costs and broiler selling prices, combined with the recently shrinking demand in the domestic market, caused a shutdown of this broiler farm in January 1985. The management if the farm expressed doubts during the mission's visit in February 1985, as to whether production will be restarted, unless the disparity between input and output prices is drastically changed. D. Subborrowers' Debt Service 4.18 Subborrowers in the individual sector, even those with reletively low financial rates of return on their inves ients, were found to be capable of servicing their debts (Annexes 7 and 8).- A major factor which contributed to the capacity of the subborrowers to service their debts was and continues to be the negative real interest rate paid by the ultimate subborrower (Annex 10). However, it appears that the social sector broiler farm had difficulties in servicing its debts because of acute imparities in concentrate feed costs and broiler selling prices, which resulted in the closing down of the broiler farm. The fruit and vegetable processing facility has a tight net cash flow, reflecting negative cash flows in the first four years after the investment period, the low rate of utilization, a shrinking gross margin and the linking of a part of its debt service to dollar equivalents. However, in later years cash fl ow has been positive, leading to a total net positive accumulated cash flow - The subborrowers in the social sector are the BOALs, WOs or the Kombinats, and subprojects financed under the loan are only a part of their Lotal investments. However, as the completion mission could not obtain the financial statements of the subborrovers, cash flows have been estimated only for the investments financed under the project. I/ The completion mission reviewed the financial statements for 1983. However, the mission could not obtain copies of balance sheets, income statements and sources and applications of funds for tr. period 1981-1984 for the three social sector subprojects visited. 2/ The assumptions underlying the debt service calculatio s in Annexes 7 and 8 are as follows: (a) investors' equity contribution = 202 of investment costs; (b) loan = 80% of investment cost, of which 50% is Bank loan and remaining 50% is loan from domestic resources; (c) Bank loan proceeds are on-lent at 11% interest rate with the foreign exchange risk assumed by the RepublicslProvinces in the case of the individual sector subborrowers, but borne by the social sector subborrowers; (d) domestic resources are on-lent at interest rates of 6% until 1982, 18% in 1983, 25% in 1984, 31% in 1985 and 35% in 1986. 3/ While the loan agreement stipulated a minimum equity contribution of 25% by the social sector subborrowers, in practice their equity contribution averaged only 17%. Therefore, the equity contribution has been assumed to be 20% of investment coats. However, investors with a lower equity base would experience difficulties in servicing their debts. - 33 - V. FINANCIAL AND ECONOMIC RE-EVALUATION 5.01 The financial and economic rates of return have been estimated for major types of investments financed under the project. Omission of some of the project components is not expected to result in any major deviations from the estimated benefits of the project. However, as the OED Report noted (Annual Review of Project Performance Audit Results dated Septembe] 16, 1983), - there are problems relating to measuring the benefits of a credit project. These problems include accounting for project overhead costs, estimation of the "without project" situation, and reliance on a sample which may not be . representative in view of the wide dispersion and heterogeneity of the individual farm beneficiaries. 5.02 The FRRs are based on actual investment and operating costs and revenues generated, and projected operating costs and benefits have been recalculated. Details on costs, revenues, and cash flows are presented in Annexes 7 and 8. All costs and benefits are expressed in constant 1984 prices. The re-estimated FRRs for subprojects are compared below with the appraisal estimates. Financial Rates of Return (%) Subproject Appraisal Estimate PCR Mission Estimates Individual Sector Dairy Farms 24 14 /a Cattle Fattening 27 23 Sheep Farms 19 - 23 /b 18 Pig Fattening 37 13 Social Sector Broiler Production 20 - 12 /c Fruit & Vegetable Processing 14 10 /d a/ FRR for dairy/beef farms, as majority of dairy farms are engaged in cattle fattening as well. b/ FRR of 19% for sheep breeding and 23% for sheep fattening. However, the same farmers are engaged in both activities. c/ Broiler farm, which does not include processing as envisaged at appraisal. d/ Assumed a higher rate of utilization of new product lines than in the past, and the implementation of the new price law (effective January 1, 1985) which eliminates the price control on output. The table indicates that the re-estimated financial rates of return for all sub;rojects are lower than the appraisal estimates. The dairy farms achieved a 14% rate of return by diversifying their activities into cattle fattening and replacing high cost concentrate feed with cheaper fodder. There was a greater increase in cattle prices (450%) than in milk prices (222%), while the increase in feed costs for both operations was about the same. The acute shortage of soyabean meal and fishmeal caused by foreign exchange constraints led to shortages and significant increases in the cost of high protein feed, which is required in the case of pig and broiler production. As a result, several social sector organizations abandoned cooperation -ith individual - 34 - farmers, and the pig fattening facilities are therefore underutilized. In the case of broiler production (social sector),1/ the negative 12% rate of return is due to a 305% increase in the cost of concentrate feed, compared to only a 113% increase in the selling price of broilers which were under control between 1982 and February 1985. Similar financial results can also be assumed for broiler production in the individual sector. Economic Impact 5.03 Production. Due to the wide range and type of location of subprojects financed under the project, and the limitations of the monitoring and evaluation system (para 3.12), incorplete or no information was available for incremental production for the project as a whole. Partial information which is evailable in the monitoring ard evaluation report indicates a 117% increase in the average annual income2' of individual farmers. 5.04 Beneficiaries/Employment. About 28,700 subloans were made through BCOs/BOALs to individual farmers, compared to 16,800 estimated at appraisal. Further, at appraisal it was expected that 4,200 incremental man/years would be generated from investments in the social sector annually. The data on 39 subprojects provided by the borrower indicates that 426 permanent new jobs and 204 seasonal jobs were created in the social sector. Job creation in the social sector has been less than envisaged at appraisal. In .iew of the subsidized interest rates which provided an incentive to use capital intensive technology, it is not surprising that the employment impact was less than envisaged at appraisal. 5.05 Foreign Exchange Effect. Most of the incremental production due to the project has been used to satisfy domestic consumption requirements. At appraisal, it was expected that, while the project would concentrate on the domestic market, it would over its lifetime generate about $210 million in foreign exchange through increased exports ($10.5 million per annum). Partial data, available for the sociil sector only, indicates that there were some exports from three fruit ar.,; vegetable processing facilities, two milk processing facilities and one coldstore amountin to about 7,300 tons and valued at about Din 988 million ($6.4 million).3! Most of these exports, as was evident in the case of the fruit and vegetable processing facility at Kulpin, were at export prices below domestic prices and costs of production. 5.06 Economic Analysis. The economic rate of return (ERR) was calculated on the basis of quantifiable economic costs and benefits generated. Costs and benefits based on representative investments are described in Annexes 7 and 8. Economic prices for beef, maize, soyabean meal and concentrate feed have been based on World Bank's historical and forecast prices (in constant 1984 prices). Sheep meat prices have been assumed to move parallel to beef prices, and the pig and broiler prices to move in parity with concentrate feed costs. Prices of fruits and vegetables have been based on the average unit value of Yugoslav exports. The economic price of milk has been obtained by reducing 1/ Broiler farm in Glagovac, Kosovo would have a FRR of -5% if the rate of utilization reaches 60%. During the mission's visit the farm was shut down and only about a 30% rate of utilization -as assumed to be achieved if and when production restarted. 2/ In 1983 constant prices. 3/ At average annual exchange rate prevailing in 1984. - 35- the appropriate subsidy. Economic prices of nontradeables have been estimated using a set of .ionversion factors. Shadow wage rates have been used for family labor for investments in the individual sector, and for unskilled hired labor in the social sector. As at appraisal, family labor has not been costed as operating expenses because there were unused labor capacities on individual farms in the without-project situation. 5.07 The ERR for livestock investments, with the exception of cattle fattening, are higher than the FRR (Annexes 7 and 8). In the case of cattle fattening, the higher FRR is due to the inflated financial prices of cattle which were about 45% higher than the economic price of cattle in 1984, while the feed costs were only about 15% higher than the economic cost of feed. However, for all other livestock investments, higher financial feed costs relative to the economic cost of feed without a corresponding increase in domestic output prices resulted in lower FRRs. This distortion in feed costs appears in an extreme for' in the broiler farm (social sector). The costs of concentrate feed (for broiler production) soared to such a high level (para 5.02) that it was about 135% of its economic price in 1984, while the financial price of broilers was only 77% of the economic price. Therefore, an investment activity which is economically justifiable (ERR of 13%) was temporarily stopped because the financial prices are so distorted that they do not allow the enterprise to cover its variable costs. The weighted average ERR of the project is re-estimated at 16% compared to a 22% appraisal estimate. However, as noted.in para 5.01, due to deficiencies in the measurement of benefits of a nation-wide credit project, the ERR should not be interpreted as a precise measure of the economic viability of the project. VI. INSTITUTIONAL PERFORMANCE 6.01 Under the First Agricultural Credit Project, the borrower carried out a comprehensive reorganization to improve its efficiency, and a training program to improve its knowledge and that of the other PBs in appraisal and lending procedures used by the Bank in agricultural credit projects. Several seminars were held on appraisal techniques, Bank procurement procedures, and the Bank's withdrawal and disbursement procedures. 6.02 However, as noted in the PCR of the First Agricultural Credit Project, the borrower and the PBs did not provide adequate supervision to on-going projects after subloan approval. Over the years, through collaboration with the Bank in implamenting the project, the borrower and the PBs have improved their institutional performance in supervising subloans and in reporting on progress made in project implementation. However, the borrower and the PBs now require further training to equip them to cope with . the changing economic environment, which is adversely affecting the financial situtation of the associated and the basic banks, and the operztional and financial performance of the subborrowers. Some of the shortcomi.igs in the . performance of the borrower and the PBs which have become apparent in recent years are discussed below. 6.03 Supervision. The performance of the borrower and the PBs in monitoring investments was clearly focussed on the physical implementation of investments. Virtually no attention was given to the operational, financial and economic performance of investments and subborrowers. This probably stemmed from the fact that, in Yugoslavia, more emphasis is generally placed on investments and physical performance, and production than on the economic and financial justification of investments. This situation was aggravated by recent changes in the economic environment in which a large number of - 36 - investors in the social sector found themselves facing financial difficulties, as they were unable to reach the previously estimated levels for sales and rate of utilization. These problems were compounded by the relaxed financial management and overborrowing by the investors despite their weak equity base. VB and the PBs should closely monitor some of the Bank reporting requirements such as loan repayments with respect to each investment subproject. The lack of understanding of the principles of financial management, procedures and techniques prevented project staff in VB and the PBs from playing a major role in reviewing, analyzing and providing guidance to many of the subborrowers who are currently facing an urgent need to overcome severe difficulties. These difficulties arose from a high rate of inflation, increased costs of capital in both nominal and real terms, difficulties in export markets and the continuing decline of the purchasing power in the domestic market, which further compounded the problems of a low rate of utilization and low sales levels. As the commodity markets of the economy have recently been "opened up" through elimination of most of the price controls, this adjustment period calls for a thorough review of the subborrowers' loan portfolios. These portfolio reviews will assist in putting the agroindustries subsector on a sounder footing, and assist VB and the PBs in providing adequate guidance to the subborrowers. 6.04 Procurement. The borrower had to handle many complex procurement matters during project implementation. The borrower's performance in resolving procurement matters was less than satisfactory, mainly due to its tendency fo send inadequately prepared documents to the Bank, thereby passing on the procurement issues to the Bank. The borrower and the PBs did not always devote adequate time and attention to verifying bidding documents and trying to resolve some of the procurement matters through providing guidance to the investors. The borrower should have assumed more responsibility in procurement matters, as some of these could have been resolved on the spot and saved time and resources spent by the Bank, the borrower, the PBs and potential investors. Apparently, it was not always the lack of adequate knowledge of Bank procurement procedures, but the lack of will on the part of the borrower to ensure that procurement was handled in line with Bank requirements. 6.05 Arrears in the Borrower's and PBs' Loan Portfolio. It is important that an analysis of the arrears situation per sector and per sources of financing should in future become an integral part of the reporting requirements of the borrower and the PBs. The arrears should be measured against the relevant scheduled maturities and not simply against the total loan portfolio. This is particularly important in view of high inflation in Yugoslavia, long grace periods for subloans, and the long-term nature of the lending and loan portfolio of the PBs. 6.06 Training. Training is a necessary tool for upgrading the skills of the staff of the project units in VB and the PBs, so that staff can better handle the issues discussed above, namely (i) financial principles, procedures and discipline, including the financial monitoring of investments; (ii) procurement, and (iii) debt repayment management, arrears analysis and review of loan portfolios. - 37 - VII. BANK'S PERFORMANCE 7.01 The Bank's agreement with the Government's objective of priority lending to the less developed Republics/Provinces and the individual sector was signifiLan'. However, it appears that in future, if poverty alleviation is one of the objectives of Government and Bank lending, greater impact could be achieved by earmarking loan proceeds for specific target groups within Republics and Provinces. While under the project the individual sector encompassed only those farmers who are associated with the social sector, this group of farmers is fairly heterogeneous. Moreover, there is another segment of the individual sector for which partial information is available indicating that it comprises 1.1 to 1.2 million farm families (of 2.6 million farm families in Yugoslavia), controls about 45% of arable land, but chooses not to associate with the social sector. This group of farmers has only limited access to formal institutions providing credit and inputs. However, for the Government and the Bank to identify a specific target group, more information is required on the profile of the individual farmers, both associated and nonassociated. While the Government's policy is to integrate individual farmers into the socialized system, it is important to evaluate the existing set of incentives which induce some farmers to associate and become market-oriented, while being inadequate to others. The report prepared by the Yugoslav Government Commission on Stabilization recognizes the need for reforms to the incentives structure to foster association between the individual and the social sectors. In addition, the Bank should continue to provide assistance to the PBs and the basic banks in simplifying procedures for direct lending to individual farmers who repay loans in cash and not in produce, as was recently agreed under the Montenegro Regional Development Project (para 4.09). It might also be worthwhile for the Bank to start focusing on the staffing and technical capacities of the cooperatives, which the Bank has not done so far. 7.02 The Bank and the Yugoslavs have been engaged in policy dialogue on reforms in the financial system. However, progress in these reforms has been protracted due to high inflation in Yugoslavia and recessionary conditions in the world. Moreover, the Yugoslav system assigned a limited role to interest rates in resource allocation. It is important that, in future, the role of interest rates be reviewed in a broader context of the investment decision-making process in Yugoslavia. However, under this project, tne Yugoslavs accepted for the first time the concept of floor on-lending interest rates. This was important because, at the time uf project preparation, interest rates in Yugoslavia were characterized by low levels and nonuniformity across the country, and even within the same Republic or - Province for similar types of investments. 7.03 The concept and design of the project was virtually the same as for - the First Agricultural Credit Project. Considering that the First Credit Project became effective on February 12, 1976, and had a very slow start (because of the problems involving the application of project appraisal methodology required under the project), the launching of preparation of th... Second Credit Project in July 1976 and its appraisal in November 1976 was too early to allow any improvements in the concept/design of the project. However, one of the lessons learned from other Bank-financed projects was applied to this project, namely the recognition of comparative advantage of the individual and social sectors. Under this projec , primary production was limited to the individual sector in which it has a comparative advantage, with - 38 - only one exception-namely, the broiler farm (in Kosovo) which is in the social sector. There were other lessons that the Bank could have learned, particularly the impact of institution building initiated under the First Agricultural Credit Project, and the consequent implementation capabilities of VB and the PBs. However, the Bank did not have time to asses these impacts as the project was appraised in the same year in which the First Agricultural Credit Project became effective. 7.04 Bank supervision missions focussed adequately on the technical, procurement, physical implementation and disbursement aspects of the project. However, Bank missions did not always closely monitor if the PBs were rigorously following some of the criteria outlined for appraisal of the subprojects, particularly the criteria related to an adequate financial structure of the subborrowers as evidenced by a satisfactory debt to equity ratio. The duplication of processing facilities has been a more serious problem under the credit projects than under other projects because, in a large number of subprojects, the Bank financed only lines of equipment for which detailed feasibility reports were not required. For instance, in Croatia alone the Bank participated in partial financing of nine dairy plants. 7.05 The Bank's impact on institution building has been marginal. Only in recent years has the changing economic environment made the local banks and investors recognize the importance of economic evaluation and financial discipline. The advance training program (para 6.06) to assist VB and the PBs in coping with the changing economic realities, could only be a step in the right direction. The Bank should have realistic expectations on what can be achieved through such training programs. The Yugoslav banks are controlled by the investors. Consequently, there are limitations to the extent that sound banking practices can be achieved by the PBs in regard to the decision-making process of evaluating investments, authorizing their financing and monitoring their performance. VIII. CONCLUSIONS A. Lessons Learned 8.01 Some of the lessons learned are described below. 8.02 The Yugoslav authorities at the Federal level have begun to recognize the importance of the gradual attainment of positive real interest rates, although at the time of project preparation their position was that interest rates do not play a significant role in a socialist economy. The borrower and the PBs are adjusting the on-lending interest rates on domestic resources in accordance with the Letter of Development Policy furnished under SAL I. However, witL respect to Bank funds on-lent to the individual sector, the interest rate adjustments are not yet consistent with the SAL formula (para 3.11). 8.03 The Bank and the Yugoslavs have recognized the inherent comparative advantage of the individual sector, particularly in the case of labor intensive livestock operations. The individual sector, by using family labor and by providing additional employment for underemployed farm workers, can obtain higher marginal financial returns than the social sector. In addition, the small livestock enterprises in the individual sector can also obtain cheaper fodder by using crop by-products such as maize stalks and grazing on communal pastures at little cost. - 39 - 8.04 The Bank and some of the PBs have recognized some of the weaknesses of the agroindustrial enterprises, such as organizational inefficiencies; poor financial structure; lack of financial controls; and inadequate marketing skills, particularly in export marketing. These weaknesses have been compounded by duplication of facilities which are competing for the same raw material and markets, in the face of shrinking sources of raw material supplies and a shrinking domestic market. The Bank has developed proposals on how to address these issues in Bosnia-Herzegovina. Similar exercises are proposed for Macedonia, Montenegro and Serbia. 8.05 The Bank has initiated improvements in monitoring and evaluation systems (para 3.12), particularly in nation-wide credit projects where heterogeneous and widely dispersed project beneficiaries need to be adequately represented in a sample. The Bank should continue to focus on improving monitoring and evaluation programs to provide an adequate measurement of the benefits of credit projects, and thereby an appropriate design for future credit projects. 8.06 The Bank, VB and the PBs should continue to monitor more closely the appraisal criteria and reporting requirements, particularly those related to the financial structure of social sector enterprises (generation of sufficient cash flow, adequate debt/equity ratios, and loan repayment by subborrowers). The Loan Agreement required social sector subborrowers (BOALs, WOs, or Kombinats) to have their accounts and financial statements audited for each fiscal year and submitted to the borrower or the PBs. However, as the completion mission could not obtain copivs of these statements, cash flows have been estimated only for the investments financed under the project. In future, ie Bank should request that VB and the PBs submit the financial statements of social sector subborrowers on a regular basis. B. Outstanding Issues 8.07 In future lending operations where poverty alleviation is an objective, the Bank and the Government should focus on specific target groups. However, for the Bank and the Government to identify such target groups, more information would be required on the profile of individual farmers, both associated and nonassociated. Despite the apparent benefits of access to technical know-how, credits, inputs and markets through the process of association, the farmers in some Republics/Provinces have been reluctant to associate. According to the information available on this group of individual farmers, they control about 45% of arable land and, because of their limited access to formal institutions providing credit and inputs, their potential is not fully tapped. An assessment of the range of incentives available to the farmers and their effectiveness needs to be made in order to develop mechanisms which can enhance associ.ion between the individual and social sectors. In the meantime, the Bank and the Government should continue to (i) provide assistance to the PBs and basic banks in simplifying procedures for direct lending to individual farmers who repay loans in cash instead of produce, as was recently agreed under the Montenegro Regional Development Project, and (ii) make inputs available to the individual farmers who would have the iption of paying for them in cash, as agreed under the Fertilizer Sector Loan. In future projects, the Bank and the Government may also agree to focus on staffing, capabilities, and training requirements for the cooperatives which act as the on-lending organizations on behalf of the PBs and basic banks, and have an important role to play in the gamut of issues related to association between the individual and social sectors. - 40 - 8.08 The Bank should give adequate attention to training which is an important component of institution building. The PBs and the investors will be unable to cope with the changing economic environment, unless their skills are upgraded. In particular, they need an adequate understanding of (i) the principles and procedures of financial management and discipline; (ii) relevance of financial monitoring of investments; (iii) procurement abpects; and (iv) debt repayment management, arrears analysis and review of loan portfolios. The borrower and the PBs should assume more responsibility in procurement matters and in supervising the financial/economic performance of investments so that they can give more guidance to the investors. -41- Annex 1 Page 1 ~rrr ig .. 115"* 4.' R PRJ'T Cq"F! rc r. r*!r': ACTUAL PROJECT COSTS ,N hi .1!1 19 1979 1980 1 It l'S INVESTMENT TYPES PERIMARY PPODUCTION (INDIVIDUAL SECTOR) VEGETABLE 2.7 %.8 19.6 36.5 33.1 34.1 0.4 136.3 ORCHARDS 5.C 21.0 f2.0 70.2 70.9 72.9 0.9 291.7 VINIYARDS 6.7 2.0 47.9 S'.2 20.9 83.2 2.0 33.9 EQUIPMENT 6.8 24.5 49.0 91.3 82.8 85.2 1.0 340.I LIVESTOCK 95.6 344.1 :t88.2 1280.8 1161.3 11y4.8 14.3 4779.2 LAND DEVELOPMENT 0.3 1.0 2.0 3.8 3.5 3.6 0.0 14.2 SUB-TOTAL 117.9 424-4 848.9 1579.8 1432.5 1473.7 17.7 5894.? AGROINDUSTRIES (SOCIAL SEC7OR) COLD STORES I PACKING LINES 2.9 15.0 8.3 71.8 68.7 88.6 3.9 259.1 FRUIT AND VEGETABLE PROCESSIC P.Artl 10.4 55.T 10.:: .'57.0 255.4 329.7 14.5 963.9 FRUIT GRADERS 0.2 1.0 2. _ 28 4. 6.0 0.3 17.4 MILK PROCESSING PLANTS 15.7 82.7 45.6 395.1 378.0 4:. 21-4 1426.4 MILK COLLECTION STATIONS 0.6 3.2 1.8 15.4 14.) 19.0 0.8 55.6 COOPERATIVE CENTESS 0.4 1.9 1.0 8.9 8.5 11.0 0.5 32.2 MEAT PROCESSING PLANTS 0.7 3.5 1.9 1 . it.: 20.8 0.9 60.9 BROILER PRODUCTION AND PROCESSING PLANT 5.5 29.0 :6.S 138.5 132.5 171.0 7.5 500.0 BRAIN DRYERS 0.8 4.., 2.3 20.2 19.3 24.9 1.1 72.8 SUB-TOTAL 37.3 196.5 108.4 938.6 897.9 1158.8 50.8 33H8.3 TOTAL PROJECT COST 155.2 621.0 957.3 2519.4 2330.4 2632.5 68.5 9283.2 2 of Total Investment 1.7 6.7 10.3 27.1 25.1 28.4 0.7 - 42 - Annex 1 Page 2 VILCSL Au T iRf-I-2 i - RG. TT P(3 ACTUAL DROJECT r35 US li 0N%1 :78 1979 9 19S1 1982 1983 j2; TOTAL : INUESTMENT TYPES PERIMARY PRODUCTION 'INDIVIUAL SECTOR) VEGETAPLE .0 1.0 0.6 0.4 0.0 3 ORCHARDS 0.3 2. 1.7 J 1.3 0.8 0.0 7.5 VINIYARDS 1j.4 1.3 2.0 2. 1.5 1.0 0.0 8.6 EQUIPMENT 0.4 1.3 2.0 2.å 1.5 3.0 0.0 1.9 LIVESTOCK 5.2 18.3 28.E 36.1 21.6 13.8 0.1 123.7 LAND DEVELOPMENT 0.0 0.1 0.1 0.1 0.1 0.0 0.0 0.4 SUB-TOTAL 6. 2.6 35.1 44.5 26.7 17.0 0.2 152 .65 AGECINDUSTRIES (SOCIAL SECTOPI COLD STORES AND PACKING LIES 1.2 0.8 9.3 2.0 1.3 1.0 0.0 5.7 FRUIT AND VEGETABLE PROCESSNG ntAdTC . 1.0 1.3 7.5 4.8 3.8 0.1 21.0 FRUIT GRADERS 0.' 9.1 9-0 2.; 0.1 1.1 0.0 0.4 MiLK PROCESSING PLANTS 0.9 4.4 1.0 11.1 7.0 0.2 311 nILK COLLECTION STATION 0.0 0.2 0.1 0.4 0.3 0.2 0.0 1.2 CO9PERATIVE CENTESS 0.0 9.1 0. 0.5 0.2 0.1 0.0 0.7 MEAT PROCESSING PLANTS 9.0 0.2 9.1 0.5 0.1 0.2 .Q 1.3 BROILER PRODUCTION AND PROCEESI'in PLANT 9.3 1. 0.7 3.9 2.5 2.0 0.1 10.9 CRAIN IRYEPS '.n 9.Q 0.1 0.6 0.4 0.3 0.0 1.6 S0-TOTAL 2.0 10.5 4.5 26.4 16.7 13.4 0.4 74.0 TOTAL PROJECT COST 8.5 33. 39.6 70.9 43.4 30.4 0.6 226.6 - 43 - A~u 2 m= 0w= E la 1 Fe~a~: M~ Aaac & A~~. itiUzig~ vo) HMtis~m .- 1.0 .0 0~ 2.2 1.27 - 0.7 0.43 1.0 0.26 lem m470-1 V~aynI 0.5 m0 0.6 - - - - - 0.5 0.59 1.5 1.35 1.0 1.02 - - Lød DrAdo - - L.2 - - - 0.2 0.15 - - - - - - - - Li~3.7 6.11 3.1 6.49 5.1 7.21 1.6 3.23 4.7 5.34 3.9 3.07 2.2 2.n1 2.2 1.29 E~ - - - - - - - - - - - 1.36 - L»2 - - %~16.2 6.19 6.1 UDæ 7.3 aM4 1.8 3-M8 7.2 6.N9 6.4 5.93 5.2 5.2 2.6 1.29 (1.6 42 - - - - - Pa~ .0 3.07 - - - - 0.8 .0 2.0 2 -25 1.5 0.2 - ~iSd~ - - - - - 2.96 - - . . . . . . - - 4 Dg-1 ) 0-3 - - - 4.7 - - - - - - - - 0.43 - - ~aiu- - 60 - - - - - 1.2 - 0.3 - 0.1 0.26 - 0.21 Leiy p3mu - .1 0.6 3.88 0.8 1.31 0.6 0.60 1.1 3.2 0.8 3 1.1 2.73 1.1 0.65 ir" ~i% - - - - - - - - - 2~ 4.7311 - - - - itPyers . - - - - - - 1.2 - - - 0.6 .W Pmin y 2 3 - - - - . 0 - 2 . - 2.6 - - - CMsompmotiw - - - - - - - - - - - - - 0.17 Sub~ 4.6 49 4.6 3- 5-5 4-2 1.4 -m 5.5 5.53 4.9 .73 3.8 3.0 1.9 1.43 Miy 1n.8 10.6 10.7 10.68 12.8 12.3 3.2 4.70 12.7 12.42 U. 10.66 9.0 2.3 4.5 2.72 Fnt5.5 1.97 3 Mq lø 5.3 1.21 23 V~nPn-rd- 4.1 2.9 73 ~~ Defo 1.4 0.15 11 Live~od 26.5 35.47 13i Equn - 2.62 - 4.65 e.40 55 5 Pit 5>u~1.6 1.42 39 te P.i% 7.2 6.12 85 old St~ .1 2.96 G~fi & ~ Tmi Lix kr Fruit & Veg.) . 0.3 68 WIk Co1jacciæ Stmtiæ 5.6 0.4 a mliry Pi~~t 6.1 12.50 205 a~i1 P -wuir 2.3 4.73 206 Lwt Dt=mair4n 1.8 0.0 22 F~ FZr&Cr 2.6 - - Cod iw ca~ - 0.17 - 1s75.0 73. 9 1/ Brir Fe~ YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-VU Proinet Comalation Report Physical Canacities@ Achieved and Planned Bosnia Total Total Percentage Tyne of Investment UniA Volvadina Saeia Mantenear Kosay ShloniA Her2sovania Macedonia CrAti AchievSd EJAM L -Achteved, Individual Sector Livestock Production Buildings No. 2.989 1.762 324 981 628 1,063 104 879 8,730 6,750 129 Purchase of in-calf Heiters No. 1,798 1,519 523 3.558 144 3,715 821 642 12,720 11.200 114 Purch&se of breeding owes No. G,130 5,516 4,550 - - 17,817 26,999 250 60,262 31,000 194 Purchase of breeding gilts No. 2.130 1,111 - - - - 70 - 3,311 - - Purchase of laying hens No. 24,660 - - - - 5.000 - 55.450 85,090 - - Purchase of beehives No. 2,769 - - - - - 500 - 3,269 - - Vegetable Production Mixed Vegetable ha - - - - - 30 125 38 193 2,220 9 Plastic Greenhouses ha - 0.1 - 33 - 10.6 34.8 - 78.5 40 196 Fruit Production Orchards ha 2 1.224 - - - 470.5 184 - 1,880.5 5,000 38 Vineyards ha 6.3 - - 450 - 280 574 - 1,310.3 1,400 94 Land Development ha - - * - 300 - - - 300 5.500 5 Doc 30342/P 27 130 ; Bosnia Total Total % Type of Investment unilt Voivdina Serba Montenear Koso1o Slovnia Hareovoania Hacedonia CratiA Achielad Planned Achlid Social Sector Grain Dryers No./tons per hour 5/130 - - - - - - - 5/130 7/210 62 Veg. & Fruit No./tons Processing per year 1/23,400 - - - 1/10,000 1/6.000 - - 3/39,400 9/27.800 142 Vegetable and No./tons Fruit Graders per year - - - - - - 7/8,a50 - 7/8.850 2/25,000 35 Cold Stores No./tons - 1/6.000 - - - - - - 1/6,000 3/10.500 57 Milk Processinal No/Mil liters per year - 1/18.0 1/14.7 - 1/18.2 2/32.2 1/18.2 9/361,5 15/463 17/48 965 Milk Collection No./liters Stations - 9/15,000 - - - 36/57,700 - 41/72.700 1.443/721.500 10 Cooperative No. liters Centers per day - 20/12,500 - - - - - 20/12,500 - - Broiler No/Mil birds Production per year - - - 2/4.3 - - - - 2/4.3 LZ 1/2.5 172 * meat PiocessingLA NO./tons per year - 1/747 - - - - - 1/747 7/2.400 31 1/ Investment in new dairies (2), and in expansion and modernization (13). Total capacities in terms of milk intake of the dairies are indicated, although the Bank has financed only additional lines of equipment which are not necessarily associated with an expansion of capacities. I/ Social sector broiler farm I/ Slaughterhouse Doc 30342/p 28 Annex 4 Page 1 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Technical Coefficients (Individual Sector) 1980 /1 1981 1982 1983 I. Herd Size (No. of head) (a) Dairy Cows Projected /2 4.0 8.0 8.8 10.0 Actual 2.0 4.0 4.3 3.8 (b) Feeder Steers Projected - 50.0 100.0 - Actual 18.9 20.9 51.9 54.9 (c) Fattened Pigs Projected - 100.0 - - Actual 11.7 79.9 48.1 31.0 (d) Breeding Ewes Projected 100.0 100.0 140.0 142.0 Actual - 78.0 141.0 146.0 II. Fertility (Z) (a) Calves Born Projected 80.0 80.0 80.0 - Actual 80.0 80.0 79.0 89.0 (b) Lambs Born Projected 85.0 85.,0 85.0 90.0 Actual - 89.0 80.0 92.0 III. Mortality (W (a) Calves Projected - - - - Actual - 10.0 5.0 3.0 (b) Lambs Projected 10.0 10.0 9.0 9.0 Actual - - 4.0 5.0 IV. Milk Production (liters) (a) MiliCowYear Pro,ected 2,200 2,200 2,500 2,800 Actual - 3,158 3,162 3,437 (b) Milk/Ewe/Year (liters) Projected - - 25 35 Actual - - 45 40 V. Wool Production Per Ewe (kg) Projected - - 1.5 - Actual - - 2.3 2.6 1/ Without Project 2/ In developed Republics/Provinces - "North" model in SAR. - 47 - Annex 4 Capacity Utilization (Social Sector) Cap. Util1zatzan ND. of Plannbd Capacity as Percent of Investment Type Facilities Unit Anmal Capacity Utilization Planned Capacity Fruit & Veg. Processing 3 tons 39,400 23,371 59.3 Vegetable Graders 7 tons 8,850 5,184 58.6 Dairy Plants 12 mil liters 462.5 330.6 71.5 Milk Collection Stations and Cooperative Centers 8 nIL liters 26.8 1/ 70.6 Coldstore 1 tons 26,400 22,400 84.8 Grain Dryers 5 tons 201,456 129,436 64.2 Slauhiterhuse 1 tons 747 324 43.3 Broiler Farm 2 mil birds 4.28 1.274 29.8 1/ Data is available only for six of the eight plants for which planned amual capacity uas 16.8 million liters and uLilization accounted for 11.8 million liters. Doc. 30347 p 61 - 48- " ..nex 5 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Prices: Financial and Economic (constant 1984 prices in Din) Outputs/Inputs Financial /1 Economic /2 A. Tradeables (i) Individual Sector Milk: Cows (liter) 25.9 - 32.2 18.6 - 24.2 Cattle (l.v./kg) 150.5 - 291.4 232.0 - 233.0 Pigs (1.v./kg) 186.3 - 203.8 231.0 - 191.0 /3 Sheep (l.w./kg) 208.8 - 317.6 335.4 - 302.0 Milk: Sheep (liter) 52.4 - 60.3 - Wool (kg) 153.4 - 343.7 - Concentrate Feed Dairy Cows (kg) 20.2 - 35.9 32.3 - 30.9 Cattle Fattening (kg) 20.3 - 41.4 32.3 - 30.9 Pig Fattening (kg). 20.3 - 24.5 32.3 - 30.9 Sheep (kg) 42.9 - 37.1 30.1 - 30.9 14 (ii) Social Sector Broiler (l.w./kg) 319.1 - 237.5 288 - 263 /4 Concentrate Feed (kg) 43.1 - 60.9 37.6 - 38.6 /4 Peaches (kg) 48 54 /5 Pears (kg) 49 15 7 Tomatoes (kg) 15 - Apples (kg) 20 B. Non-Tradeables Standard conversion factor .93 - .75 Consumption conversion factor .93 - .75 Investment couversion factor .86 - .70 Civil works .80 - .65 Equipment .91 - .74 Labor: Family labor 0.57 Unskilled hired labor 0.64 Skilled hired labor 1.00 l/ Range of prices in 1980 and 1984. Assumed 1984 prices to be prevailing in 1990. 2/ Range of prices in 1980 and 1990 3/ 1981 and 1990 4/ 1982 and 1990 5/ 1984 Doc 3034Z/ p 62 - 49 - Annex 6 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Cumulative Disbursements - Aepraisal 6 Actual (US$ Million) LBRD Fiscal Appraisal Actual as Percent of Year and Quar.er Estimate Actual Appraisal Estimate 1978 067-30778 0.5 1979 o9735778 3.0 12/31/78 7.0 - - 03/31/79 11.5 2.1 18 06/30/79 18.0 4.0 22 1980 0975779 26.0 5.6 22 12/31/79 34.0 6.5 19 03/31/80 42.5 7.6 18 06/30/80 54.0 10.7 20 1981 09/30/80 61.0 10.9 18 12/31/80 68.5 13.0 19 03/31/81 75.0 17.9 24 06/30/81 - 21.6 29 1982 o9736781 - 26.0 35 12/31/81 - 33.6 45 03/31/82 - 39.0 52 06/30/82 - 43.1 57 1983 09/30/82 - 47.2 63 12/31/82 - 54.3 72 03/31/83 - 67.5 90 06/30/83 - 70.5 94 1984 037T1784 - 73.6 98 Doc 3034Z/ p63 50 . Annex 7 Table a Page 1 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Financial Analysis of Dairy/Farm Individual Sector (000 Din - Constant 1984 Prices) 1980 1981 tgg2 3683 1984 -1999 GROSS REVENUE H,lLK - 363 4 377.2 416.0 385.5 LIVESTOCK - 325.6 355.3 393 7 359 2 MANURE - 48.0 52.5 28.8 43.1 TOTAL GROSS REVENUE 740 0 785 0 538.5 787 8 OPERTMING COSTS CONCENTRATE FFED 292 6 25 2 266 3 279 5 FODDER - 302. 6 484 8 280 3 289 2 [AXE 8 CONIRIBUTION - t8 0 19 8 37 I 18.3 OHER COSIS - 337 54 3 75. 1 71 0 TOAL OPERATING COSTS - 496.9 584. 1 638.8 658.0 INVESTMENT COS0S IVESTOC K 358 0 - - - - BUIIDINGS 373.2 - . - LABOR 93 2 - - - EQUIPHENT 146.3 - - - - TIllt INVESTMENT COSTS 770. 7 - - - - NI ENfUT PROJECT 37.6 37 6 37.6 37 6 37.6 NET REVENUE -508 3 205 5 163.3 162 I 92.2 April i8. 1985 37:09 Internat Rates of Return of Net Streams NET REVENUE 13 92Z Present Value of Streams at 12 00? NET REVENUE 70.02 SNITCHING VALUES AT 12? APPRAISAL SWITCHING PERCENTAGE STREAM VALUE VALUE CHANGE B. 10TFF 5. 173 16 5. 103. 14 -1 352 C.OPTBIF 4.134 16 4.204.18 1.69? C- INVBFF 688. 13 7S. 14 10 !8? C. PROBF F 280. 85 350. 87 24. 93? TOTAL COSIS 5. -3. 14 5. 173. 16 1 37% - 51 - Annex 7 Table a Page 2 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Economic Analysis of Dairy/Farm Individual Sector (000 Din - Constant 1984 Prices) 1980 1981 1982 1983 1984-1999 GROSS REVENUE "ILK - 272 6 282 9 312.0 289.1 LIVESTOCK - 292 5 214.2 311.0 287.4 MANURE - 33.6 394 21.6 32.3 TOTIAL GROSS REVENUE - 598 6 606.5 644.6 608. 8 OPERATING COSTS CONCENTRATE FEED - 242.9 19.2 269.0 240.4 FODDER - 71.8 3636 210.2 216.9 IAXEX AND CONTRIBUTI1111 - - - - OTHER COSTS - 55.6 40.? 56.3 53.3 TOTAL OPERATING COSTS - 373.3 423.5 535.5 510.5 INVESINEN COSTS LIVESTOCK 140.6 - - - - 8ul.DINGS 298 6 - - - LABOR 53. I - - - - EQUIPMENT 133. - - - - TOTAL INVESTHENT COSTS 525.4 - - II THOUT PROJECT 35.0 26. 3 28. 2 28. 2 28. 2 NET REVENIE -660.4 199.0 154 8 50.9 70. 1 April 18. 1955 17:09 Internal Raes of Return of Net Stream MET REVENUE 13.46Z Present Value of Streams at 12.002 NET REVENUE 41.28 SWITCHIING VALULS AI 121 APPRAISAL SITCHING PERCENTAGE STREAM VALUE VALUE CHANGE B IOIFE 4.016.88 3.975.60 - 1. 03E C. OPT8FE 3.201-99 3.243. 27 1.292 C. INVBFE 55B 43 599.71 7.392 C. PROBFE 235. I8 256.47 I9 195 TOTAL COSTS 3.975.60 4.016.88 1.045 - 52 - Annex 7 Table a Page 3 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT CO1PLETIOIN REPORT Cash Flow Statement Dairy/Farm Individual Sector (000 Din - Constant 1984 Prices) 1980 1981 1982 1983 1984 1985 1986 1987 1988-1999 CASH INFLOU INCREENTAL REVENEW - 740.0 785.0 838.5 787.9 787.8 787.8 787.8 787.8 LONG - TERN LOAN 616.6 - - - - - - - - INVESTERS CONTRIBUTION 154.1 - - - - - - - - TOTAL CASH INFLON 770.7 740.0 785.0 838.5 787.8 787.8 787.8 787.8 787.8 CASH OUTFLOW INCREMNTAL OPERATIN6 COSTS -37.6 459.3 546.5 601.2 620.4 620.4 620.4 620.4 620.4 INUESTHENT COSTS 770.7 - - - - - - - DEBT SERVIrE PRINCIPAL IR FdNDS - 31.5 23.5 17.0 11.1 7.7 5.9 4.7 - INTEREST IM FUNDS - 24.2 15.5 9.4 4.9 2.5 1.3 0.5 - PRINCIPAL LOCAL FUNDS - 31.5 23.5 17.0 11.1 7.7 5.9 4.7 - INTEREST LOCAL FUNDS - 13.2 8.5 15.3 11.1 7.1 4.1 1.7 - SUB - TOTAL DEBT SERVICE - 100.3 70.9 58.7 38.2 25.0 17.2 11.6 - TOTAL CASH OUTFLO 770.7 597.2 655.0 697.5 696.2 83.0 675.2 669.6 658.0 MET CASH FLON - 142.8 130.0 141.0 91.6 104.8 112.6 118.2 129.8 - 53 - Annex 7 Table b Page 1 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Financial Analysis of Cattle Fattening Individual Sector (000 Din - Constant 1984 Prices) 1980 1981 1982 983 1999 GROSS REVENUE CATILE : HEIGHT GAIN - 1871.4 5203 8 7669 1 OPERATING COSTS CONCENTRAIE FEED - 1417 5 865.2 t31a.8 FODDER - 136 0 332 1 512. 1 TAXER AND CONTRIBUTIONS - 30 0 24.3 27 4 FEEDER STEERS - SOS 4 1657. 0 4588. 1 OTHER COSIS - 124 0 11. I 76 6 0TaOt OPERATING COSTS - 7516 9 2996 7 6523 0 INVESTMENT COSTS BUDINGS 1661 6 259 7 - - IABOR 415.2 65 1 - - EQUIPENT 413 5 54 9 - TOTAL INVESTENT COSTS 2490.4 389 7 - MI THOU PROJECT 245. 2 245. 2 245. 2 745 2 NET REVENUE -2715. 6 - 1280. 4 1961. 9 37 9 April 16. 195 17-09 Internal Rates of Return of Net Streams NET REVENUE 23 581 Present Value of Streams at 12 002 NEI REVENUE 2. 599. 98 SITCHtNG VALUES A1 121 APPRAISAt SWITCHING PERCENTAGE STREAM VALUE VAlUE CHaNGE B IOTCFF 44.161.21 41.561 23 5.892 C OPTCFF 37. 195 48 39.795 45 6.99% C INVCFF 2.534 24 5. 134 22 102 591 C.PROCFF 1.831 S 4.431. 49 141 961 TOAL COSTS 41.561.23 44.161 21 6 26% NPV P 121 T 2. 600 IRR T 23.62 CERR z 132 - 54 - Annex 7 Table b Page 2 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Economic Analysis of Cattle Fattening Individual Sector (000 Din - Constant 1984 Prices) 1980 1981 1952 1983 194M-1989 1990- 1999 GROSS REVENUE CATTLE M WEIGIIT GAIN - 1927.5 3746.7 5613.0 5305 5 5613.0 OPERATING COSTS CONCENTRATE FEED - 1176 5 657 5 1147 4 1147 4 989. I FODDER - 95.2 249.1 384 I 384. I 384, lAEl AND CONTRIBUTIONS - - - FEEDER STEERS - 833.7 1193 0 3349 3 3165 8 3349.3 OTHER CDSTS - 93.0 8 6 57 5 57.5 57 5 TDTAL OPERATING COSTS - 2198.4 2388.2 4938.2 4754.7 4779 9 INVESINENT COSTS BUILDINGS 1329 3 155 8 - - - - LABOR 236. 7 37 I - - - EQUIPHENT 376. 4 389 - - - - TOTAL INVESINENI COSTS 1942.3 231.9 - - - - MI IOI PROJECT 226 0 171.6 183.9 183.9 183.9 183.9 MEI REVENUE -2170.4 -674.4 1374.6 490 9 366.9 649.2 April 18. 1985 17:09 Internal Rates of Return of Net Streams NET REVENUE 17. 872 Present Value of Streams at 12 001 NET REVENUE 954.73 SWITCING VALUES AT 122 APPRAISAL SilCHING PIRCENIAGE SIREA VALUE VAIUE CHANGE 8.IDTCFE 31.844 58 30.889.85 3 00? C. OPTCFE 27. 567.53 28.522. 26 3.461 C. INVCFE 1.919.06 2. 873 78 49. 752 C. PROCIE 1.403. 26 2. 357.99 68. 04? TOTAL COSTS 30.889 85 31.644.58 3.09? NPV P 12% = 954 7 IRR = 37 9 CERR 12.55 - 55 - Annex 7 Table-b Page 3 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COI LETION REPORT Cash Flow Statement o4 Cattle Fattening Individu: Sector (000 Din - ConsLant 1984 Prices) 1980 1981 1982 1983 1984 1985 1986 1987 198B 1989 1990-1999 CASH INFLOU INCREMENTAL REVENUE - 1871.4 5203.8 7689.1 7689.1 7689.1 7689.1 7689.1 7689.1 7689.1 7689.1 LON - TEM LOAN 1992.3 311.8 - - - - - - - INUESTORS CUNTRIMTION 498.1 77.9 - - TOTAL CASH INFLWV 2490.4 2261.1 5203.8 7689.1 7689.1 7689.1 7689.1 7689.1 7689.1 7689.1 7689.1 CASH OUTFLOW INCEENTAL OPERATING COSTS -245.2 2271.7 2751.5 6277.8 6277.8 6277.8 6277.8 6277.9 6277.8 6277.8 6277.8 INUESTHENT COSTS 2490.4 389.7 - - - - - - - - - DEBT SERVICE PRINCIPAL IDRD FUNDS - - 75.9 63.6 415 28.7 22.0 - 17.6 17.6 2.4 - PRINCIPAL LOCAL FUS - - 75.9 63.6 41.5 28.7 22.0 17.6 17.6 2.4 - INTEREST ISD FUNDS - 78.3 67.6 42.9 23.5 13.0 7.6 4.1 2.2 0.3 - INTEREST LOCAL FUNDS - 42.7 36,8 70.2 53.3 36.7 24.2 13.2 7.0 0.8 - SB - TOTAL DEBT SERVICE - 121.0 256.1 240.3 159.9 107.1 75.9 52.6 44.5 5.9 - TOTAL CASH OUTFLON 2490.4 3027.6 3252.8 6763.3 6682.9 6630.1 6598.9 6575.6 6567.5 6528.9 6523.0 NET CASH FLM - -766.5 1951.0 925.8 1006.2 1059.0 1090.2 1113.5 1121.6 1160.2 1166.1 - 56- Annex 7 Table-c Page 1 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT CONPLETION REPORT Financial Analysis of Pig Fattening Individual Sector (000 Din - Constant 1984 Prices) 1980 1g81 1982 1983 1999 GROSS REVENUE PIGS : NEIGHI GAIN - 1136 9 2649.2 1075.8 SONS : NEIGHI GAIN - 12 6 3.4 50.3 PIGLETS: HEIGHT GAIN - 44 0 228 9 88.5 NANURE - 39.1 42 6 44 5 TOTAL GROSS REVENUE - 1232 6 2924.3 1259.I OPERATING COSTS FEED - 521 4 1035 5 630 3 tAXEX AND CONTRIBUT IONS - 13.4 19.4 27.4 OTHER COSTS - 8I. 105. I 55.2 TOTAL OPERATING COSTS - 616.5 1160.0 912.9 INVESINENT COSTS BUILDINGS 1000.0 - - - LABOR 250 0 - - - EQUIPMENT 5.6 - - - TOTAL INVESTMENT COSTS 1255. 6 - - MITHOUT PROJECT 316.0 316.0 316 0 316.0 NET REVENUE -1571.6 300.1 1448.3 30 2 April 16. 1985 17:09 Internal Rates of Return of Net Streams NET REVENUE 12. 631 Present Value of Streams at 12. 002 NEI REVENUE i9 94 SWITCHING VALUES Al 122 APPRAISAL SWITCHING PERCENTAGE STREAM VALUE VALUE CHANGE B. TOTPFF 9.444.11 9.424. 77 -0. 211 C.0PTPFF 5.943.36 5.963.30 0.342 C. INVPFF 1.121.07 1.141.01 1.782 C.PROPFF 2.360. 34 2.360.28 0.841 TOTAL COSTS 9.424.77 9.444.71 0.212 NPV I 122 = 19.9 - 57 - Annex 7 Table c Page 2 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Economic Analysis of Pig Fattening Individual Sector (000 Din - Constant 1984 Prices) Is8 198 1982 1983-1989 1990 -1999 GROSS REVENUE PIGS : WEIGHI GAIN - 986 4 2251.8 N14.4 914.4 SONS: NEIGHT GAIN - 16 7 2.9 42.6 42.8 PIGLETS: HEIGT GAIN - 37.4 194.6 75 2 75.2 NANURE - 37 4 194.6 75 2 75.2 TOTAL GROSS REVENUE - 1051.9 2643. 8 1107.6 I 07. 6 OPERATING COSIS IEED - 432.8 787 0 838.6 714. I 1ATEX AND CONTRIBJilOlS - - - - - OTHER CUSTS - 61.3 78.8 41.4 41.4 TOTAL OPERATING COSTS - 494.0 865.8 880.0 755.5 INVESTHENT COSTS BUILDINGS 800.0 - - - - 1ABOR 142.5 - - - - EQUIPMENT 5. I - - - - TOTAL INVESTIENT COSTS 947.6 - - - - WITiOUT PROJECT 293.9 221.2 237.0 237.0 237.0 NET REVENUE -1241.5 336.6 1541.0 -9.4 115. 2 -- - -- - - -- - - -- - - -- - - -- - - -- - - -- ------------------ April IS, 1985 17:09 Internal Rates oF Return of Net Streams NET REVENUE 27.322 Present Value of Streams at 12.00? NET REVENUE 435. 86 SITCHING VALUES AT 122 APPRAISAL SWITCHING PERCENTAGE STREAM VALUE VALUE CHANGE . TOTPFE 8.333. 45 7.897.56 -5.235 C.OPTPFE 5.243.05 5.678.93 8.3tz C. INVPFE 346.07 1.281.95 51.52S C. PRDPE 1, 08. 45 2.244.33 24. 10 TOTAL COSTS 7.897.56 3.333.45 5.52n NPV 0 12 = 435. 9 Annex 7 58 - Table c Page 3 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Cash FLow Statement of Pig Fattening Individual Sector (000 Din - Constant 1984 Prices) 1980 1981 1982 1983 1984 1985 1986 1987 1988-1999 CASH INFLOV INCREMENTAL REVENEUE - 1232.6 2924.3 1259.1 1259.1 1259.1 1259.1 1259.1 1259.1 LONG - TERM LOAN 1004.5 - - - - - - - - INVESTORS CONTRIBUTION 251.1 - - - - - - - - TOTAL CASH INFLO 1255.6 1232.6 2924.3 1259.1 1259.1 1259.1 1259.1 1259.1 1259.1 CASH OUTFLOH INCREMENTAL OPERATING COSTS -316.0 300.5 844.0 596.9 596.9 596.9 596.9 596.9 596.9 INVESHIENT COSTS 1255.6 - - - - - - - - DEBT SERUICE PRINCIPAL IBRD FUWDS - 51.2 38.2 27.7 18.1 12.5 9.6 7.7 - PRINCIPAL LOCAL FUNDS - 51.2 38.2 27.7 18.1 12.5 9.6 7.7 - INTEREST IBRB FUNDS - 39.5 25.2 15.2 8.0 4.1 2.1 0.8 - INTEREST LOCAL FLDS - 21.5 13.8 24.9 18.1 11.6 6.7 2.7 - SUB - TOTAL DEBT SERVICE - 163.5 115.5 95.6 62.3 40.7 28.1 18.9 - TOTAL CASH OUTFLOi 1255.6 780.0 1275.5 1008.5 975.2 953.6 941.0 931,8 912.9 NET CASH FLOV - 452.6 1648.8 250.6 283.9 305.5 318.1 327.3 346.2 Annex 7 Page 1 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Financial Analysis of Sheep/Farm Individual Sector (000 Din - Constant 1984 Prices) 1981 1982 1983 1984-7000 GROSS REVENUE MILK - 352 8 353 9 353.2 WOOL - 122 5 130.6 126.5 LIVESTOCK - 870.2 1265.7 1068.0 MANURE - 57.5 41 9 49.8 IAL GROSS REVENUE 1403 0 1792.0 1597.5 OPERATINC COSTS CONCENTRATE FEED 377 7 406 4 392 I FODDER 277 4 487.7 352 5 TAKEI AND CONIRIBUtT0N - 28 3 23 2 25 5 OTHER COSTS t16 5 152 I 134 3 TOTAL OPERATING COSTS - 800.0 1059 4 934 7 INVESTMENT COSTS LIVESTOCK 524.0 - - - BUILDINGS 548 0 - - - LABOR 137. I - - EQUIPMENT 28.6 - - - 1OTAL INVESTMENT COSTS 1237 7 - - WITHOUT PROJECT 362 4 362. 4 362 4 362.4 NE7 REVENUE 1600 1 240 6 360 2 300 4 April 18. 1985 17,09 Internal Rates of Return of Net Streams NI REVENUE 17-861 Present Value of Streams at 12 002 NET REVENUE 541.84 SWITCHING VALUES AT 172 APPRASAIt SWITCHING PERCENTAGE STREAM VALUE VALUE CHANGE 8. I15FF 1o 489.48 9.947 65 -5. 17% C OPTSIFF 6. 35.63 6.677. 47 8.832 C.INVSFF I.105 09 1.646.93 49.03? C.PROSFF 2.706.93 3.248.76 20.02? TOTAL COSTS 9.947.65 10.489.48 5.452 - 60 - Annex 7 Table d Page 2 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Economic Analysis of Sheep/Farm Individual Sector (000 Din - Constant 1984 Prices) 1981 1982 1983 1984-1989 1990-2000 GROSS REVENUE HILK - 247.0 265.4 264.9 254.9 NOL 85.5 98.0 94.9 94 9 LIVESOCK - 818.0 1189.8 950 5 1014.6 ANIUE - 43. 1 31.4 37.4 37.4 TOTAL GROSS REVENUE - 1193.8 t584 5 3347.6 1411 7 OPERATING COSTS CONCENTRATE FEED - 264 4 398.3 380. 3 325. 4 F0DDER - 208 I 365. 8 286.9 286 9 WAXEX AND CONTRIBUIION - - - DOIER COSTS - 87.5 114. 1 100.7 100.7 TOTAL SPERATING COSTS - 559.9 878.1 767.9 713.0 INVESINENT COSTS LIVESTOCK 749.3 - - - - BUILDINGS 328.8 - - - - LAB80 78. 1 - - - EQUIPMEIT 17.2 - - - - TOTAL INVESTMENT COSTS 1173.4 - - - - NITHOUIT PROJECT 253.7 271.8 271.8 271.8 271.8 NET REVENUE -1427. I 362. 1 434.6 307.9 426. 9 Apr II 18. 1985 17: 09 Internal Rates of Return of Nat Streams NET REVENUE 24.71z Present value of Streams at 12.002 NEI REVENUE 1. 138.90 SWITDIlNG VALUES AT 122 APPRAISAL SITCHING PERCENTAGE STREAM VALUE VALUE CHANGE B.ISFE 9.046.06 7.907. 16 -12.59% C.OPTSFE 4.845.44 5.984.34 23.501 C INVSFE 1.047. 70 2. 186.51 108. 702 C.PROSFE 2.014.02 3.152.92 56.552 TOTAL COSTS 7.907. 16 9.046.06 14.402 -61 - Annex 7 Table d Page 3 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Cash Flow Statement of Sheep/Farm Individual Sector (000 Din - Constant 1984 Prices) 1981 1982 1983 1984 1985 1986 1987 1988 1989-2000 CASH INFLOW INCREENTAL REUENEUE - 1403.0 1792.0 1597.5 1597.5 1597.5 1597.5 1597.5 1597.5 LONG - TERN LOAN 990.2 - - - - - - - - INVESTORS CONTRIBUTION 247.5 - - - - - - - - TOTAL CASH INFLOW 1237.7 1403.0 1792.0 1597.5 1597.5 1597.5 1597.5 1597.5 1597.5 CASH OUTFLOW INCRENENTAL OPERATING COSTS -362.4 437.6 707.0 572.3 572.3 572.3 572.3 572.3 572.3 INVESTHENT COSTS 1237.7 - - - - - - - - DEBT SERVICE PRINCIPAL IBRD FUNDS - 50.5 37.7 27.3 17.9 12.3 9.5 7.6 - PRINCIPAL LOCAL FUNDS - 50.5 37.7 27.3 17.9 12.3 9.5 7.6 - INTEREST IBRB FUNDS - 38.9 24.9 15.0 7.9 4.1 2.1 0.8 - INTEREST LOCAL FUNDS - 21.2 40.7 34.1 22.1 12.9 6.6 2.7 - SUB - TOTAL DEBT SERVICE - 161.2 141.0 103.8 65.7 41.6 27.7 18.6 - TOTAL CASH OUTFLOW 1237.7 961.2 1210.4 1038.5 1000.4 976.3 962.4 '3.3 934.7 MET CASH FLOW - 441.8 581.6 559.0 597.1 621.2 635.1 644.2 662.8 - 62 - Annex 8 Table a Page 1 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Financial Analysis of Broiler Farm Social Sector (000 Din - Constant 1984 Prices) 1979 1980 1981 1982 1983 1984 1985 1986- 1998 GROSS REVENUE - - - 54810.0 71307 0 125400 0 156750.0 188100.0 OPERATING COSTS CONCENTRATE FEED - - - 18525 0 28450 0 57182.0 71478.0 85774 0 LABOR - 3027.0 7835.0 14500.0 17400. 0 20358.0 OTItER COSTS - - 29432.0 22783.0 478t5.0 58577.0 69120.0 TOTAL OPERATING COSTS - - - 51034.0 59068.0 119500 0 147455.0 t75252.0 INVESTNENT COSTS CIVIL WOK 50752.0 335976 0 266105.0 20693.0 - 27720.0 - - EQUIPMENI - 64856 0 32857.0 - - 16001.0 - OTHER INVESINENT COSTS - 21400-0 17780.0 - - - - TOTaL INVESTMENT COSS 50252.0 422232.0 316742 0 20693.0 - 43721 0 - - NEI REVENUE -50252.0 -422232. 0 316742.0 -1617.0 12239.0 -37821.0 9295.0 12848.0 April I8. 1985 17:09 Internal Rates of Return of Net Streams NET REV:NUE -12 072 Present Value of Streams at 12 002 ME REVENUE -588.350.09 SWICHING VALUES AT 12% APPRAISAL SlTiNG PERCFNIAGE STREAM VALUE VALUE CHANGE B TOIBSF 756. 291 28 1.344.641 36 77 792 C. OPIBSF 702. 420. 64 114. 070.76 -83. 7652 C INVBSF 642.220.52 53.870.43 -91 612 TOTAL COSTS 1.344.641.35 756.291.28 -43.762 MPtVP 122 = -588.350 1 IRR -12. 12 CERR 5. 12 -63 - Annex 8 Table a YUGOSIAVIA Page 2 SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Economic Analysis of Broiler Farm Social Sector (000 Din - Constant 1984 Prices) 1979 1980 1981 1982 1983 1984 1985 1986-1990 1g 1-1998 GROSS REVENUE - 49329.0 75585.4 161766.0 202207.5 242649.0 208791.0 OPERATING COSTS CONCENTRATE FEES - 16116.8 19346.0 42314.7 45031. I 54037. 6 54037.6 taAmR - - - 1937.3 5014.4 9280.0 11136.0 13021. 1 13029.1 OTHER COSTS - - - 12..5 87037.3 35862.5 43932.8 51840.0 51840.0 TOTAL OPERATING COSTS - - - 40165.5 41447.7 87458.2 1000.9 118906.7 118306.7 INVESTNENT COSTS CIVIL MORK 40201. 6 201585.6 172968.3 13450.5 - 18018.0 - - - EquIPNENT - 389 13. 6 24314.2 - - - - - OTHER INVESTIENT COSTS - 18404.0 10668.0 - - - - - - TOTAL INVESTMENT COSTS 40201.6 258903.2 207950.4 13450.5 - 18018.0 - - NET REVENUE -4020. 6 -258903.2 -207950.4 -4287.0 34137.8 56289.8 80207.6 123742-3 89884.3 April IS. 1985 17:09 Internal Ratis of Paturn of Net Streams NET REVENUE 12. 58? Present Value of Streams at 12.00Z MET REVElUE 17.432.35 SWITCHING VALUES 8t 121 APPPAISAL SNITCHING PERCENTAGE STREAl VALUE VALUE CHANGE S. TOTBSE 909.553.53 892. 121. 18 -1.922 C OPIBSE 484. 139.35 501.571.To 3. 602 C. IRVBSE 407.981.82 425. 414. 18 4 27 TOTAL COSTS 892.121. 18 909.553.53 1.95? RPf W 125 = 17.432.4 IRR 12.65 CEAR 12.31 - 64 - Annex 8 Table b Page 1 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Financial Analysis of Fruit & Vegetable Processing Social Sector (000 Din - Constant 1984 Prices) 1982 1983 1984 1985-2000 2001 GROSS REVENUE - - 822.0 997.0 1040.0 OPER:TING COSTS RAM MAIERIALS - - 253.0 306.0 306.0 WRAPPING MATERIALS - - 225.0 273.0 273.0 LABOR - - 81.0 81.0 11.0 TAKES 8N0 COITRIBUTION - - 41.0 50.0 50.0 OTHER COSTS - - 171.0 207.0 207.0 TOTAL OPERATING 00515 - - 771.0 917 0 917.0 INVESTMENT COSTS CIVIL MORK 228.0 42.0 - - - E4UiPIIEN 272.0 49.0 - - CUSTOM DUIT 102.0 18.0 - - - PERMANENT MORNING CAPITAL 11.0 32.0 - - - TOTAL INVESTMENT COSTS 613.0 141.0 - - - MITHOUT PROJECT - - -20.0 -20.0 -20.0 NET REVENUE -613.0 -141.0 71.0 100.0 143.0 April 16. 1985 17:09 Internal Rates of Return of Net Streams NET REVENUE 9. 772 Present Value of Streams at 12.00% NET REVENUE -97. 97 SMIlCHING VALUES Al 122 APPRAISAL SHITCHING PERCENTAGE STREAM VALUE VALUE CHANGE B. TOTFYF 5.641.95 5.739. 92 1.74% C.OPTFVF 5.195.78 5.097.85 -1.892 C.INVFVF 659 73 561.76 -14.85Z C.PROFVF -115.59 -213.56 84.765 TOTAL COSTS 5.739.92 5.641 95 -1.711 UPV U 121 = -9B IRR 9. 81 CERR 11 .75 -65 - Annex 8 Table b Page 2 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU I PROJECT CONPLETION REPORT Economic Analysis of Fruit 6 Vegetables Social Sector (000 Din - Constant 1984 Prices) 3982 1983 1984 1985-2000 2003 GROSS REVENUE - - 698 7 147. r 84.0 OPERATING COSTS RAN MATERIALS - - 280 8 339.7 339.7 MAAPPING MATERIALS - - IB. 8 204.3 204.8 LABOR - - 68.9 68.9 68.9 FAXES AND CONTRIBUTION - - - - - OTHER COSTS - - 128.3 155.3 155 3 TOIAL OPERA ING COSTS - - 646. 7 768.5 768.5 INVESTMENT COSTS CIVIL WORK 348.2 27 3 - - - EQUIPMENT 201.3 36.3 - - - CUSTOM DUT - - - - - PERMANENT HORKING CAPITAL 7.7 22.4 - - TOTAL INVESTMENT COSTS 357 2 86.0 - - - MITHOU PROJECT - - -15.0 -15 0 -15.0 NET REVENUE -357. 2 -38.0 67.0 93.9 130.5 April t18, 1985 17:09 Internal Rates of Return of Net Stream NET REVENUE 16.84Z Present Value of Streams at 12.002 NET REVENUE o40. I SWITCHING VALUES AT t% APPRAISAL SNITCHING PERCENTAGE STREAR VALUE VALUE CHANGE 8. TOIFVE 4.795 66 4.655. 55 -2. 921 C. OPTFVE 4. 354. 80 4. 494. 91 3. 222 C.INVFVE 387.44 527.54 36.I62 C. POFVE -86.69 53.42 -161.62Z TOTAL COSTS 4.655.55 4.795.65 3.011 NPV ( 121 = 140. 1 IRR = 16.85 CERA = 12.51 Annex 8 - 66 -able - Page 3 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COPLETION REPORT Cash Flow Statement of Fruit & Vegetables Social Sector (000 Din - Constant 1984 Prices) 1982 1983 1994 1995 1981 197 1 19 1990 1991 1992-2000 2001 CASH INLM INREENTAL RESEIEE - - 822.0 997.0 997.0 997.0 997.0 997.0 997.0 997.0 997.0 1040.0 LON - TERN LOMN 490.4 112.8 - - - - - - - - - - INESTORS CMTRI NTIM 122.6 29.2 - - - - - - - - TOTAL CASH INFLOM 613.0 141.0 822.0 997.0 997.0 997.0 997.0 997.0 997.0 997.0 997.0 1M40.0 CASH OTFLW INCREIENTAL OPERATIM COSTS - - 791.0 937.0 937.0 937.0 937.0 937.0 937.0 937.0 937.0 937.0 INVESTIENT COSTS 613.0 141.0 - - - - - - - - - - BEMT SERVICE PRINCIPAL IM FUDS - - 43.1 43.1 43.1 43.1 43.1 43.1 43.1 - - - PRINCIPAL LOCAL FUNS - - 19.4 17.3 11.3 7.8 6.0 4.8 4.9 0.9 - - INTEREST IMD FUS - 27.0 33.2 28.4 23.7 19.0 14.2 9.5 4.7 - - - INTEREST LOCAL FtUS - 10.9 10.0 19.2 14.6 10.1 6.7 3.7 2.0 0.3 - - SUB - TOTAL DET SERVICE - 37.9 105.6 10B.0 92.7 79.9 70.0 61.0 54.6 1.2 - - TOTAL CASH RTFLOW 613.0 178.9 876.6 1025.0 1009.7 996.9 987.0 978.0 971.6 918.2 917.0 917.0 IET CASH FLMV - -37.9 -54.6 -28.0 -12.7 0.1 10.0 19.0 25.4 78.8 80.0 123.0 - 67 - Annex 9 YUGOSLAVIA SECOND AGRICULTURAL CREDIT PROJECT Loan 1477-YU PROJECT COMPLETION REPORT Extent of Subsidy in a Subloan The following hypothetical example indicates the extent of subsidy involved in a subloan to an individual farmer. The assumptions are (a) a subloan of Din 1,000, with 50% of the loan from domestic resources and 50% from Bank loan proceeds; (b) a repayment period of 5 years, with a one year grace period; (c) an interest rate of 11% on Bank loan proceeds, with the foreign exchange risk borne by the Republic/Province; (d) interest rates of 6% until 1982, 18% in 1983, 25% in 1984, 31% in 1985 and 35% in 1986 on domestic funds. The terms of lending in this example are assumed to be similar to those in the subloans under the project. Hypothetical Example (in Dinars) 1980 1981 1982 1983 1984 1985 Subloan Bank funds 500 Domestic funds 500 Sub total 1,000 Principal payments 200 200 200 200 200 Interest on Bank funds (fixed) 55 44 33 22 11 Interest on domestic funds (variable) 30 24 54 50 31 Sub total (repayments) (in nominal terms) 285 268 287 272 242 Deflators (CPI)(1980=100) 1.40 1.88 2.59 3.96 5.74 Repayments in real terms 204 142 111 69 42 If the cost of capital is assumed to be zero percent in real terms, total repayments of principal and interest in terms of 1980 constant prices amount to Din 568, which is about 57% of the subloan. This implies a subsidy element of about 43% of the subloan. i. A U S TRI A H U N C L u BL JANA ...d TRESTE Pwl,co~å •sir L.R. No SBao haLAn 0 D..srb .' +, -B .0 S N I A H E z ,. SECOND AGRICULTURAL CREDIT PROJECT S"M SOCIALSECR 0.1 * Coopera centers 9 Grain dryers o Fruit and vegetable processing 0 Fruit and vegetable graders (J Milk collection stations A Mik processing E Meat processing o Broiler farms V Cold store INDIIUALSECTOR: • Sub-projects (approximate locations) Ar . . .Railways European Highways Other Class 1 Highways . . . . t Airports • Ports Boundaries of Republics and Autonomous Provinces ~M aS ~Mi - -- Intemational Boundaries »WSo~.AC~r IBRD 19002(PCR AUSTRIA j HUNGARY R Y -. ROMANIA Y U G 0 S L A V I A R O M A Nl A LDANA - }GREECE DDoA am 4d.. tiU C~ • BULGARIA ~qr Or SUN El8A MO0 N T E N G . . ALB A NlA . MA t)N a... newo G R EECE rOF JUNE 1985