Document of i

The World Bank v1 t

FOR OFFICIAL USE ONLY

Report No. 2944-ME

STAFF APPRAISAL REPORT

SEVENTH AGRICULTURAL CREDIT PROJECT

MEXICO

May 28, 1980

Regional Projects DepartmentLatin Ametrica and the Caribbean Regional Offices

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

US$1 = Mex$23Mex$l = US$0.0435Mex$l million = US$43,500

WEIGHTS AND MEASURESMetric System

21 hectare (ha) 2 = 10,000 m = 2.47 acres

1 kilometer (km ) 2 = 0.62 miles1 square kilometer (km ) = 0.39 sq. miles = 100 ha1 kilogram (kg) = 2.20 pounds

1 liter (1) 3 = 0.26 gallons

1 cubic meter (m ) = 35 cubic feet1,000 kg = 1 nietric ton = 0.98 long ton

ABBREVIATIONS

ACF - Index of Average Cost of Funds to Multi-Purpose BanksANAGSA - National Crop and Livestock Insurance AgencyANDSA - National Warehouse AgencyBANRURAL - National Rural Credit Bank (BNCR)BANXICO - Bank of Mexico

CNC - National Smallholders ConfederationCNG - National Livestock Producers FederationCONASUPO - National Marketing CorporationDP - Division of ProgramingFEFA - Special Agricultural Credit Trust FundFEGA - Technical Assistance and Loan Guarantee Trust FundFICAR - Trust Funds for Credit in Irrigated AreasFINASA - National Sugar Finance AgencyFIRA - Agricultural Trust Funds in the Bank of Mexico (in the loan

documents FIRA is referred to as FONDO)FONAFE - National Ejido Development FundFONDO - Trust Fund for Crop, Livestock and Poultry CreditIDB - Inter-American Development BankNAFINSA - Nacional Financiera S.A.PIDER - Integrated Program for Rural DevelopmentSARH - Ministry of Agriculture and Water ResourcesSH y CP - Ministry of Finance and Public CreditSPP - Ministry of Programing and Budgeting

GOVERNMENT OF MEXICOFISCAL YEAR

January - December

FOR OFFICIAL USE ONLY

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

TABLE OF CONTENTS

Page No.

I. THE AGRICULTURAL SECTOR .................................. 1

A. Agriculture in the Economy 1B. Agroindustries Sector 5.. ... 5C. Fisheries 7... *.....*...... *........ .7

D. Marketing and Prices ............. ............. ..... 8E. Development Policies and Strategy .................. 8

II. AGRICULTURAL CREDIT .............. .... ....... . ... . 9

III. AGRICULTURAL TRUST FUNDS (FIRA) ......................... 15

IV. PERFORMANCE UNDER PREVIOUS AGRICULTURAL CREDIT PROJECTS . 22

V. THE PROJECT .................. .... 24

A. Introduction ..* ......... 24B. Project Objectives.......................... . 24C. Brief Description ..... 25D. Detailed Features . .. . ........ ......... .25

E. Total Investment Program .... 33F. Financing .......... ........... so ....... .... 35G. Procurement.......... 35H. Disbursements ...... . ..... 37

VI. PROJECT IMPLEMENTATION ............ .......... .. . ..... 38

A. Planning and Programing 38B. Operating Regulations and Procedures Manual .41C. Sublending Policies and Procedures 42D. Accounts and Auditing ................ 45

VII. PROJECT BENEFITS AND RISKS ........................... ... 46

A. Illustrative Investment Plans ....................... 46B. Project Benefits .... . ..................... I..... .* . 46C. Project Cash Flow ... ...... ...9.0 48

* DD. Project Risks ..........................0.4.-.- ...... 49

VIII. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION ...... 50

This report is based on the findings of an appraisal mission which visitedMexico during January/February 1980. The mission included N. Sharma,J. Intrator and H. Kim of the Bank, L. Posner, C. Percival, 0. Schulz,G. Kawatea, consultants and Ms. K. Conroy, research assistant.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World 13ank authorization.

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TABLE OF CONTENTS (Continued)

Page No.

ANNEXES

Annex 1. Credits for Agriculture through the Banking System andSources of Financing .................. . . . . .. . .. . . . .. . . ....... . 51

Annex 2.T.1 Principal Indicators of FIRA's Operations, 1971-1979 ....... 52T.2 Medium- and Long-Term Loans Rediscounted by FIRA, 1971-1979 53T.3 FIRA Rediscounts 1973-1979: Projections 1980-1983 ......... 54T.4 Comparative Statement of FEFA's Assets and Liabilities,

1973-1979 *........ ...... . ................. ...... 55

Annex 3. Project Financing ... ...... . . . . . . . ........................... ...... . 56

Annex 4. FEFA Receipts and Disbursements - Projected Cash Flow . 57

Annex 5. Illustrative Investment Plans ... o ....... ...... ...... 58T.1 Investment Plan Al - Rainfed Annual Crops Farm (180 ha)

Cash Flow Projection ..... ................*.., ...... 64T.2 Investment Plan A2 - Gravity Irrigated Annual Crops Farm

(200 ha) - Cash Flow Projection ........... ......... 65T.3 Investment Plan Bl - Dairy Production (23 ha) - Cash Flow

Projection ............................ 66T.4 Investment Plan B2 - Beef Production - Cash Flow Projection 67T.5 Investment Plan Cl - Small Inshore Fishermen Group - Cash

Flow Projection ................................................. 68T.6 Investment Plan C2 - Fruit Packing and Storage Plant -

Cash Flow Projection ..................... 69T.7 Investment Plan C3 - Grain Elevator - Cash Flow Projection 70

Annex 6. Selected Documents and Data Available in Project File 71

MAP IBRD 11789R1 - MEXICO - Seventh Agricultural Credit ProjectDistribution of FIRA Offices

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

I. THE AGRICULTURAL SECTOR

A. Agriculture in the Economy

1.01 Mexico's agricultural sector accounts for about 10% of the grossdomestic product, employs nearly 40% of the total labor force of 17 million,and represents more than 15% of the country's exports. During the last 15years; however, growth in agriculture has been sluggish and production hasnot kept pace with domestic demand. Its rate of growth declined from anaverage of 6% per annum between 1945 and 1955 to 4.4% annually from 1955to 1965, to less than 2% per annum since 1965. Throughout this period, thecountry's population has grown at an average annual rate of 3.2%, althoughmore recently it has shown signs of declining to 2.9%.

1.02 This reduced agricultural production, coupled with increasing internaldemand, resulted in large food imports and a steady deterioration of theagricultural trade balance, until it recovered in 1976, due to a sharp rise inworld coffee prices. Even though Mexico has maintained a positive agriculturaltrade balance, food imports have increased substantially during the lastdecade. Since 1970, corn, wheat, sorghum and powdered milk have been theprincipal food imports, accounting for over 3% of total imports. During thissame period, foreign exchange earnings from agricultural exports more thandoubled. Due to the more rapid growth in industrial and petroleum exportearnings, the share of agricultural commodities decreased from 23% of totalexports in 1970 to an estimated 15% in 1978. However, in dollar value, theyincreased from US$621.2 million in 1970 to US$1,800 million in 1979. Coffee,cotton, shrimp and fresh produce are the primary export items.

1.03 Although the agricultural sector is presently producing belowits potential, it could, with an appropriate policy and institutional frame-work and implementation of sound investment projects, become a more importantsource of employment and foreign exchange earnings.

Production Trend

1.04 Crops. Basic crops production (maize, rice, wheat, sugarcane andsoybean) has remained somewhat stagnant; total production has varied between44 and 49 million tons in the last five years. Although basic crops accountfor 75% of the cultivated area, the area devoted to these crops has declinedby 14% between 1970 and 1979. Maize is Mexico's most widely grown crop,accounting for about 8 million ha, or over half the country's cultivatedarea. Most of it is cultivated in the rainfed areas by small producers. In1979, imports of maize and wheat were estimated at 4.6 million tons. Bean,an important staple crop, is also grown by almost 80% of the low-incomeproducers. Almost 400,000 tons of beans are presently imported annually.Sugar production increased from 1.8 million tons in 1970 to 2.7 million tonsin 1978, but, due to increased domestic demand, exports have declined from about

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600,000 tons in 1970 to about 14,500 tons in 1979. Although the countryimported about 1 million tons of oilseeds in 1979, domestic production hasincreased from 1.7 million tons in 1978 to 2.2 million tons in 1979. Fruitsand vegetables account for almost 47% of total agricultural commodity exports.Total exports of agricultural products increased from 1.4 million tons in 1975to 2.6 million tons in 1978.

1.05 Beef. The total cattle population is estimated at about 31 millionfor 1979, and, since 1970, it has been growing at an annual rate of about 2%.In this same period, the carcass meat output increased by about 4% annually.The increase in productivity has been due partly to improvement in offtakerates and heavier carcass weights. The present level of meat consumptionin the country is about 12 kg per capita.

1.06 Beef production in Mexico is prevalent in: (a) the arid and semi-arid northern rangelands; (b) the wet tropics along the Gulf Coast; and (c)the dry tropics along the Pacific Coast. The northern rangelands are usedmainly for extensive cattle breeding with European breeds and with stockingrates ranging from 5 to 50 ha per animal unit. Income is derived primarilyfrom the sale of feeder cattle and cull cows. The area has traditionallysupplied the US market with feeder cattle (male weaners) and boneless beef.The dry and wet tropic zones produce beef almost exclusively for domesticconsumption from Zebu-type breeds. The wet tropics have developed into amajor area for cattle fattening and have become a principal source of supplyfor the Federal District. Presently, there is considerable transfer ofone- to two-year-old steers from the dry tropics to the wet tropics forfattening. Stocking rates in the wet tropics are 1 to 3 animal units perha because of the high initial fertility of the soil, abundant and welldistributed rainfall and the high quality of the pastures.

1.07 The volume of annual exports of live cattle and boneless beef tothe United States has fluctuated considerably, depending upon the exportprices and the export quotas. The latter is regulated by the Government andthe National Livestock Producers Federation (CNG) in an effort to ensureadequate beef supplies for the domestic market. Exports of feeder cattlehave averaged around 600,000 head annually since 1970 with peaks of nearlyone million head in 1972 and 1978 coinciding with high US beef meat prices.The 1979 export quota was fixed at 440,000 head in order to ensure reasonablesupplies of beef for the domestic market. Progress is now being made indeveloping grazing fattening systems to stimulate production. Boneless beefexports which have averaged around 25,000 tons since 1970 were reduced to10,000 tons in 1979 in order to increase supplies for the domestic market.To accelerate production for the domestic and export markets, the Governmentis now taking firm measures to increase credit funds for investment purposes,improve the technical assistance delivery system, and improve and expandmarketing and processing facilities.

1.08 Milk. In 1979, the national dairy herd was estimated at about 8.5million. Milk production was about 6.5 million tons, averaging 765 litersper cow. Nearly 70% of total production is from about 2.6 million dairy

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cows located predominantly in the central plateau temperate zone. About Imillion Holstein cows, in commercial herds, produce 56% of total milk production.Domestic production provides about 90% of the national consumption, while thebalance is imported as milk powder. Annual consumption averages about 100liters per capita.

1.09 The semi-stabled system of production is practiced mainly in thetemperate regions where pasture and crop production is entirely dependent uponseasonal rainfall. Herds are small and mostly family operatecd. This dairysystem is characterized by its dependence upon crop residues, particularlycorn stover, as a maintenance ration for about half of the year, with year-round supplementation with concentrates. Consequently, daily milk productionlevels generally range from 6 to 11 liters per cow. Milk production fromgrazing is confined principally to the tropical region, which is a major beefproducing area. Milk output averages around 3 liters per day for a 150-dayseasonal lactation.

1.10 Commercial herds of Holstein cows are raised under an intensivesystem involving housing of cattle and forages grown under irrigation in thearid, semi-arid, and temperate zones. Alfalfa is fed in the spring and summermonths and forage oats and corn silage in the winter. High levels of con-centrates are used throughout the year. Daily milk production ranges between10 and 15 liters per cow but costs of production are high because of highinfrastructure investment costs and the high costs of concentrate feeds.Demonstration farms have shown that costs can be lowered by as much as 30%by grazing herds on permanent pastures and this innovation is being slowlyadopted but there are still some applied research problems to be resolved.Attempts to promote commercial ejido dairy units of 100- to 1,000-cow herdsize during the last 10 years have been only partly successful since generallythere is an absence of the managerial skills required for efficient dairyoperation.

1.11 Pork. The swine population in 1979 was estimated at over 13million head and is increasing at an average annual rate of 2%. Hog meatproduction is at about 650,000 tons from an annual slaughter of almost 8.5million head. Nearly 70% of the swine population is located in the northeast,central and northern states. Commercial producers usually haLve a herd of morethan 80 sows. At current offtake rates, the industry is operating at about50% of its potential production.

1.12 The domestic market absorbs all the production, with annualconsumption of fresh pork averaging about 10 kg per capita. The high priceand shortage of beef has increased consumer demand for pork meat, indicatinggood prospects for increasing production.

Agricultural Development Trend

1.13 From 1945 to 1955, Mexico's agricultural sector experienced rapidgrowth, with substantial increases both in areas brought under cultivationand in crop yields. Total land under cultivation of the nation's five principal

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crops (corn, beans, cotton, wheat, and sorghum) increased from 7.2 million hain 1945 to 9.7 million ha in 1955, representing an annual increase of about3%. Also during this period, the Government financed the development oflarge irrigation schemes which brought some of the northwest region's mostfertile lands under cultivation. On average, 110,000 ha were brought underirrigation each year. With the introduction of improved technical packages,production yields rose markedly in cotton (5% per annum), wheat (4.5% perannum) and bean (4% per annum), with a less substantial productivity increasein maize (2% per annum). The combined effect of the increase in area andyield resulted in an annual production growth rate of 6%. During the nextdecade, 1955 to 1965, the growth rate of agricultural production slowed to4.4% per annum. There were several reasons for this decrease. First, theexpansion of lands brought under irrigation decreased to 65,000 ha per year.Second, the annual growth rate of new lands for cultivation of major cropsdropped to 1.8% (compared to 3% during the previous decade). Third, althoughthere were major yield increases in certain crops such as wheat (145%) andcotton (40%), their impact on overall production increases was minimal be-cause: (a) most of the new lands brought under cultivation were sown with cornand beans; and (b) the land under cotton cultivation decreased by 120,000 ha.Since 1965, there have been no significant increases in land brought undercultivation; in fact, between 1965 and 1975 there was an actual decline of 3%.It can be discerned from the agricultural growth pattern that for 25 yearsMexico relied on the construction of large-scale irrigation schemes, the exten-sion of cultivated lands, and some technological improvements to increase agri-cultural output.

1.14 As manifested in the deteriorating growth rate of production, theGovernment's overall strategy for agricultural development did not focus onthe potential of the total agricultural sector. In the past, the Government'spriority was primarily in large-scale irrigation schemes, which have becomeincreasingly expensive, while neglecting the vastly under-exploited potentialof the rainfed agricultural lands. About 90% of the Government's financialand technical resources for agriculture have been earmarked for the irrigateddistricts. In 1976, of the 15 to 20 million ha under cultivation, only5 million were under irrigation. Although the policy of promoting such irriga-tion schemes in sparsely populated areas was successful in producing 50% ofthe agricultural production, it left unsolved the basic problems of the 70% ofMexican farmers who cultivate rainfed lands; of these, 50 to 60% are subsis-tence farmers with less than 5 ha. Also, farmers with irrigated lands havealways had greater access to credit, modern technology, and inputs. This hasresulted in a marked dualism in Mexico's agricultural development. Further,the low productivity of the subsistence farmers has resulted in incomesinsufficient to cover basic family needs. This has forced farmers either toabandon agriculture totally and migrate principally to urban areas in searchof employment, or to seek part-time employment to supplement their farmearnings. Rural unemployment and underemployment rates remain high, withabout two-thirds of agricultural labor earning incomes below the minimumwage.

1.15 The Government's agriculture investment policies have changed notablyin recent years, first, by introducing the PIDER program, and, second, byestablishing in 1977 within the Ministry of Agriculture and Water Resources

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(SARH) the Directorate General of Rainfed Districts. Following the irrigationdistrict pattern, 124 rainfed districts were established, covering 70% ofthe country. The main objective of this new program is to reinforce exten-sion, research, credit and marketing services in these areas. An initialprogram, covering areas with adequate rainfall, is now being developed withthe support of the Bank.

Forestry

1.16 Mexico has about 21 million ha in commercial pine stands. In 1978,total wood production was 8.2 million m3, 2.1 million m3 of which was convertedto pulp. Between 1977 and 1978, timber production increased 13% but during thatsame period, pulpwood production stagnated. About 34.8% of wood production wason private property, 28% on ejido land, 8.8% in communities, and 0.6% onfederal and 0.1% on state land. The remaining 27.7% was produced throughconcessions on different land properties. In 1978, the total value of forestryproduction was US$1,030 million, representing 1.3% of GDP. In 1978 forestryimports, mostly pulp and paper products, were valued at US$258 million whileexports reached only US$65 million. At present, Mexico's forestry resourcesare extremely underutilized.

1.17 FIRA's lending program includes both short- and long-term credit forforestry development. Since 1978, credits have also been channelled throughthe new Trust Fund for the Development and Assistance of Agroindustry; 60% ofits credLits have been for forestry projects. To ensure a rapid development ofthe sector, Mexico needs increased financing of both short- and long-termcredits, complemented with appropriate technical and organizational know-howand training facilities.

B. Agroindustries Sector

1.18 Until the 1970s, the Mexican Government's agroindustrial policyfocused on import substitution. To promote this policy, the Governmentprovided various incentives, including preferential interest rates, technicalassistance programs, guaranteed low prices on the raw materials used by theagroindustries, and established infrastructure. Partly as a result of theGovernment's efforts, the agroindustrial sector experienced a rapid growthduring this period, increasing at an average annual rate of 10%. In 1979, itaccounted for 18% of the industrial sector's output, with 27% of the agro-

* industrial goods exported (valued at US$320 million). Presently, the agro-industry subsector employs about 740,000 persons, about 4.4% of the totallabor force.

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Government Strategy and Policies

1.19 Since 1960, there have been four principal trends in the agroin-dustrial subsector's development: a rapid increase in the production of non-food agroindustrial goods; an increase in the subsector's domination bymedium- and large-scale enterprises; an increase in foreign investment inthe subsector; and an increase in the capital-intensive types of operationin the subsector. To allay the negative impact of these trends, the presentadministration established a National Commission of Agroindustrial Developmentin 1979. The commission was given two principal responsibilities: to formulatea National Agroindustrial Development Plan and, subsequently, to coordinateactivities of the various public and private institutions involved in itsimplementation. Its principal objectives are to promote agroindustrieswhich would: (a) increase the production of basic processed agricultural,livestock and forestry goods; (b) emphasize labor-intensive production methods;(c) increase the incomes of ejidatarios, comuneros, and small farmers;(d) establish a solid productive agroindustrial base as an integral partof Mexico's rural development scheme and as a framework for maximumutilization of Mexico's human and natural resources; and (e) increase theproduction of agroindustrial goods for exports.

1.20 To obtain these objectives, the Government has introduced a seriesof fiscal incentives for the agroindustrial sector. Additionally, financingfor agroindustry investments is available from several trust funds, and FIRAhas provided as much as 20% of all agroindustrial credits since 1965.

FIRA's Involvement in the Agroindustrial Sector

1.21 FIRA established its agroindustrial program in 1965 and providesthree types of financing to the sector: it rediscounts long-term loans forthe establishment, expansion or modernization of agroindustries; it redis-counts short-term working capital credits, and it finances part of the cost ofthe feasibility studies which it conducts for its potential agroindustrialclients. Given FIRA's limited resources for short-term credit financing, mostof its working capital subloans are for long-term credit clients. The prin-cipal types of agroindustries financed by FIRA are: cold storage installationsfor fresh produce, fruit processing plants, grain drying and storage units,feed mills, vegetable dehydrating plants and milk pasteurizing and processingplants.

1.22 In 1979, FIRA discounted US$80.4 million of agroindustrial credits,mainly in the north and northwest regions of the country. This represented9% of FIRA's entire lending program. Of FIRA's total agroindustrial port-folio, only 3.3% of the subloans have been to low-income producers. In 1980,FIRA plans to increase its lending to agroindustries by 25%. Between 1981and 1983, FIRA's agroindustrial program is expected to represent 10%, 11%, and12%, respectively, of FIRA's total annual lending program. Over this period,the program expects to rediscount US$1,437 million of agroindustrial credits.It is estimated that this investment would generate about 98,000 jobs in thesubsector.

1.23 l3esides rapid expansion, FIRA has indicated that it plans to diversifyits lending program. The principal changes being introduced are promotionof greater participation by the small-scale producer in the agroindustrialsector; financing of small farm implements and agricultural machine service

enterprises; financing of ejido-owned forestry industries; financing of fishing

enterprises, particularly those owned by small-scale fisherme-; concentrationof an increased percentage of its lending in regions designated by the Governmentas priority zones for industrial development; and increased lending to low-incomeproducers, increasing from its present level of 3.3% of agroindustrial lending to 5%.

1.24 Under the Seventh Agricultural Credit Project, the Bank would support

these investments, and funds (US$42 million) would be made avaLilable for greaterparticipation by agricultural producers in agroindustrial activities.

C. Fisheries

1.25 Mexico has important fisheries resources, with a fishing zone thatcovers 2.9 million km2. The fisheries sector provides employnent for110,000 f-ishermen as well as full or part-time employment in relatedactivities for an additional 700,000 Mexicans. In 1978, 200,000 tons offish, valued at US$420 million, were caught in Mexican waters; over a thirdof this was exported.

1.26 The majority of Mexico's fishermen work only the near-shorecoastal waters, leaving untouched the vast resources of the more distantcoastal waters and of the open sea. Government programs to promote thesector's development have principally worked with the fishing cooperatives.By Mexican law, only cooperatives may exploit the nine high value species:shrimp, lobster, sea tortoise, oysters, shark, abulone, clams, grouper andtotoaba. In 1941, the Government established the Bank of Cooperative Develop-ment, which was to meet the credit needs of these fishing cooperatives. Mostof the bank's credits were used to purchase the equipment necessary to catchshrimp in the more distant coastal waters.

1.27 Most of Mexico's large-scale fishing activities have been controlledby the parastatal company, Productos Pesqueros Mexicanos S.A. (PPM). PPM wascreated with the sole aim of improving the distribution and commercializationchannels from pier to marketplace. Since 1976, the Government has radicallychanged its orientation toward this sector. To begin with, it has establishedthe Department of Fisheries at the ministerial level and it is actively pro-moting private sector participation. It has also transformed the Bank ofCooperative Development into the Bank of Fisheries and Port D)evelopment(BANDER) and, in January 1980, allocated to this new bank an equity capitalof US$217.4 million to meet the increasing demand for credit from thefisheries sector.

1.28 In view of the scarcity of funds for investment purposes, FIRA isnow directing attention to the largely unexploited fisheries sector. Underthe proposed project, funds (US$8 million) would be made available to supportsmall cooperatives which are engaged in inshore coastal fishing as well asto promote deep water marine fishing for the domestic market.

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D. Marketing and Prices

1.29 Marketing arrangements for traditional export crops are betterorganized than those for crops sold domestically. Commercial farmersengaged in the export subsector generally enter into contractual arrange-ments with processors and exporters, with prices reflecting world marketconditions. Marketing constraints are severe in domestic agriculture, withmany small producers having access only to limited and localized markets.Additionally, the lack of adequate factor market and distribution systemshas somewhat restricted farmers' access to modern inputs. Further, problemsoccur because of the absence of timely marketing and price information, whichhas impaired small farmers' ability to make sound decisions. Storage facilitiesat the farm level are inadequate, and lack of transportation infrastructure inrural areas adversely affects marketing of surplus produce.

1.30 To overcome some of the above problems, the Government establishedthe National Marketing Corporation (CONASUPO) to regulate the price and supplyof basic food items. CONASUPO has become the principal purchasing agency forbasic grains and is the sole importer of grains and milk products. With about2,000 buying depots throughout the country, CONASUPO purchases grains andstores and transports them to the major consumption areas. CONASUPO alsoimplements the Government's price support policy of basic food commodities.The Government's price policy is geared to provide basic food to urban dwellersat low prices. However, since 1974, the farmgate prices of basic food cropsmore than doubled and current farmgate prices for major food items areclose to the adjusted international prices (para 6.19). In 1980, CONASUPOhas announced a support price increase of 20% for corn and wheat and 30% forbeans. Generally, support prices are set prior to the planting season andreflect (a) the cost of food in urban areas; (b) minimum wage rates in urbanand rural areas; (c) cost of fertilizer, fuel and electricity; and (d) incen-tives for producers. Milk and beef prices are controlled by the Ministry ofCommerce and Industry, and the annual exports of young steers are regulatedby the National Livestock Federation.

1.31 The Government is currently undertaking several studies relating towholesale and retail marketing and delivery systems and has created a marketingtrust fund to invest in a marketing project to upgrade rural and urban market-ing centers, primarily for perishable goods.

E. Development Policies and Strategy

1.32 The Government gives agriculture a high priority and recognizesthat prospects for increased production would depend on how effectively itcould rationalize its pertinent policies and agricultural development programto utilize more fully the country's resources. The current administrationhas undertaken a far-reaching administrative reform that will allow broaderand more effective Government action in the sector. The Government is nowfocusing on a balanced approach and emphasis is given to irrigated as wellas rainfed agriculture. The new emphasis on rainfed agriculture should leadto an increase in the productive potential of vast areas currently under-exploited and to a reversal of past trends toward larger income disparitiesbetween the modern and traditional subsectors.

1.33 The underlying tenets of the Government's development plan for

agriculture are (a) self-sufficiency in basic food production; (b) increasedproduction of export commodities; and (c) improved economic and social

conditions of the rural poor. In pursuit of these goals, the Government's

investment program focuses on agricultural diversification and includesprovision f-r opening and developing new areas; development of new and re-

habilitation of existing irrigation and drainage infrastructure; improvementof agriculture under rainfed conditions; promotion of multi-sectoral ruraldevelopment programs; and channeling of funds through the public and private

banking system to producers to stimulate private investment to augment produc-tion. In order to facilitate the above, the Government is improving itsnational and regional planning and programing and it plans also to invest in

agricultural research, extension and marketing. The Government is now consider-ing a new legislation aimed at inducing private investment and promoting

orderly development in the agricultural sector.

1.34 The Government's agricultural development strategy has to overcomea number of constraining factors relating to agricultural policies. Thepresent administration is critically reviewing policies concerning land

tenure, irrigation water law, interest rates, and support prices, and someattempts are now being made to alleviate problems emanating from the policies.

1.35 The Bank's agricultural lending program supports the Government'soverall strategy and focuses on the production, employment and income dis-tribution aspects of the agriculture and rural sector. As of 1979, about38% of the Bank's lending to Mexico was for agriculture and rural development.The Bank's agricultural lending program for Mexico has four goals: (a) toincrease productivity of presently cultivated lands through selected programsof irrigation rehabilitation and on-farm improvements; (b) to improve theproductivity of small farmers who receive the benefit of most Bank lendingthrough programs for rural development, rainfed agricultural development,bringing new areas under cultivation, and establishing irrigation and drain-age units; (c) to complement infrastructure investments with general supportservices, including provision of agricultural extension, marketing programsand medium- and long-term credit; and (d) to promote off-farmi employmentopportunities in rural areas through programs of agro- and rural-industries.Additionally, the Bank will continue discussions with Mexican authoritiesconcerning agricultural development policies.

II. AGRICULTURAL CREDIT

General

2.01 As of December 31, 1979, the total outstanding credit to agriculturewas est-imated at about US$4,870 million (Annex 1). Over the last three years,total institutional credit has increased at an average annual rate of about 10%

in real terms. The public sector accounts for over 80% of the outstandingfunds, t:he Agricultural Trust Funds (FIRA) and the National Rural Credit Bank(BANRURAL), providing 31% and 50%, respectively. At the end of 1980, the total

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outstanding credit is estimated at about US$6,300 million, an increase of 29%over that in 1979. Also, in 1980, FIRA will rediscount US$1,565 millioncompared to US$1,160 million in 1979. However, while funds from the publicsector have been increasing substantially, the private banks' share (fromtheir own resources) of the outstanding credit has decreased from 28% in 1975to 19% in 1979. Additionally, funds from private banks are usually channeledto commercial farmers for short-term purposes. About 55% of the funds redis-counted by FIRA is for short-term borrowing and the remaining 45% is formedium- and long-term investment purposes. Between 30% and 35% of FIRA fundshave been directed to the low-income producers. Likewise, BANRURAL predomi-nantly provides short-term loans to low-income producers (about 90% of itsclients are ejidatarios).

2.02 While no reliable information is available on non-institutional creditsources, a study undertaken by the National Smallholders Confederation (CNC) in1979 reported that non-institutional credit still remains the principal sourceof funds for about 70% of the ejidatarios.

2.03 Currently, there is a high demand for credit in agriculture, partlyaccelerated by the Government's expanded agricultural development program. How-ever, the total funds now available for agricultural lending are inadequate eventhough there is sufficient institutional capacity and an adequate credit deliverysystem to channel additional credit resources into the sector. Although noofficial data exist, various Government sources estimate that less than 30%(1.3 million) of farm families receive institutional credit. In 1980, FIRAapproved only 65% or US$1,565 million of the total credit requirements of theparticipating banks. Shortages of credit funds for medium- and long-term invest-ment purposes are also substantial. Less than 25% of BANRURAL's total lendingprogram of US$1,673 million in 1979 was for medium- and long-term investments.For the period 1980-82, FIRA has estimated the medium- and long-term investmentsat US$5,666 million; however, this total investment would benefit less than 20%of the farm families. To finance the above investment, FIRA would contribute60%, and the participating banks and the beneficiaries, 25% and 15%, respectively.FIRA would generate funds from its own resources and receive funds from theBank of Mexico; however, to meet fully the above financial commitment, FIRAwould have to mobilize additional resources from external sources. TheBank's participation under the proposed project would meet part of thisfinancial requirement and ensure successful implementation of FIRA's proposeddevelopment program.

2.04 Government policies are focused on increasing funds to financedevelopment investments in agriculture. The Government has also stimulateddevelopment of a strong technical capacity in the banking system to ensurethat funds are effectively utilized. Private banks are responding to thegrowth in demand by establishing or expanding agricultural credit depart-ments, and the Government, through the rainfed agricultural districts' program,is expanding the penetration of BANRURAL regional banks to new areas.

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Public Banks

2.05 National Rural Credit Bank (BANRURAL). BANRURAL was created in 1975through an amalgamation of three public sector agricultural credit institu-tions: the Banco Nacional de Credito Agricola, the Banco Nacional de CreditoEjidal and the Banco Nacional Agropecuario. BANRURAL was established atthe national level, with 12 regional banks under its control, and itcurrently accounts for 50% of the institutional lending to agriculture.The Federal Government is the majority shareholder in BANRURAL; the remain-ing shartes are held by the Bank of Mexico, the Nacional Financiera, theNational Crop and Livestock Insurance Company (ANAGSA), and the NationalWarehousie Agency (ANDSA). On December 31, 1978, fully paid-up capital andaccumulated reserves amounted to US$131 million, not including additionalreserves created by BANRURAL to cover overdue and other loans of doubtfulrecovery. BANRURAL holds the shares of the 12 regional banks, which, froma legal point of view, are independent companies. Additionally, BANRURALowns the majority share capital in two other banks (Banca Promex S.A. -55% and Banco Provincial de Sinaloa - 93%).

2.06 BANRURAL has its head office and three branch offices in Mexico Cityand the 12 regional banks have about 450 branches. The Board of Directorsof BANRURAL, chaired by the Secretary of the Ministry of Agriculture and WaterResources, consists of 13 members, eight of whom are nominated by variousGovernment departments. Representatives of the National Conifederation ofSmallholders and the National Farmers' Confederation are also members of theBoard. At the time of the merger, BANRURAL took over all the staff of thethree banks, and the total number of employees now is approximately 23,000.BANRURAIL's lending operations are financed from three main sources: (a) short-term credits from a large number of foreign commercial banks; (b) Governmentbudgetary allocation; and (c) medium- and long-term credits through FIRArediscouints and the Trust Fund for Credit in Irrigated Areas (FICAR). Allforeign borrowings are guaranteed by the Government, and, as of December 31,1978, amounted to about US$1,300 million. In recent years, the Governmentallocated about US$680 million annually to BANRURAL. The Government grantsinclude provisions that allow about 25% of the lending operations to beearmarked for social purposes and not be recovered. These grants have enabledBANRURAL to create considerable reserves, amounting to US$1,065 million.About one-third of the annual Government grant covers most of the bank'sadministrative and general expenses.

2.07 BANRURAL's main operation is short-term lending to organized groupsof low-income farmers, ejidos and individual smallholders to finance currentagricultural crop and livestock production. Total BANRURAL lending during1979 was about US$1,673 million (US$1,217 million for short-term production,US$391 million for medium- and long-term financing of investments, andUS$65 million for commercialization). Part of BANRURAL's medium- and long-terminvestment credits are rediscounted by FIRA (US$88 million in 1978 andUS$132 million during 1979). BANRURAL's lending program for 1980, as approvedby Government, totals US$2,430 million, US$1,913 million for short-term produc-tion credits, about US$478 million for medium- and long-term investment creditsand the remaining US$39 million for marketing. In 1980, FIRA plans to rediscount

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US$174 million of BANRURAL's medium- and long-term loans. While in 1979,BANRURAL's short-term credits for agricultural production reached about 1.1million beneficiaries and a cultivated area of about 3.8 million ha, itsgreatly increased lending program for 1980 is expected to reach 1.4 millionfarmers on 5.0 million ha. In short-term production credits, 93% of bene-ficiaries are ejidatarios and the remainder are smallholders and commercialfarmers. Eighty-three percent of BANRURAL's 1980 lending program for invest-ments would benefit ejidatarios and low-income farmers and the rest would helpcommercial producers.

2.08 BANRURAL management is making serious efforts to overcome weaknessesand deficiencies inherited from its predecessor institutions. Operationalprocedures for all banks in the system have been unified, thereby increasingcoordination and efficiency. Loan recuperation is gradually improving;collections in 1979 were about 80% of loans due (87% recuperation in irrigatedfarming, and 67% in rainfed areas). Improved reporting procedures on loanrecuperation have been introduced to enable management to undertake necessaryactions on a timely basis.

2.09 National Sugar Finance Agency (FINASA). FINASA is a Government-ownedfinancial institution and is solely responsible for providing all the short-and medium-term credit needs of the sugar industry (both cane producersand sugar mills), financing production credit, investments and marketing.FINASA also operates the Sugar Trust Fund, which lends and issues guaranteesto sugar mills unable to provide normally required collateral. It alsomanages the Sugar Price Stabilization Funds. FINASA's equity as ofDecember 31, 1978 was US$62 million and its principal source of financingis borrowings from foreign commercial banks. FINASA's outstanding loan port-folio on December 31, 1978 was US$1,242 million. Its total lending during1979 was US$787 million (US$139 million to sugarcane producers, US$235 millionto the sugar industry for current production and investments, and US$413million for the marketing of sugar). About US$37 million of FINASA's loansto sugarcane producers were rediscounted through FIRA during 1979.

2.10 Cane production is largely undertaken by ejidatarios and privatesmallholders. Total sugarcane cultivated in 1978 was 483,400 ha (441,360 hain 1977), of which 313,700 ha was cultivated by 94,500 ejidatarios and169,700 ha by 20,380 smallholders. All loans to cane producers, such asthose to be provided under the proposed project, are channeled through themills and, to the extent possible, are in kind (seeds, fertilizers, tractorservices). Until recently, FINASA had only two technicians authorizedby FIRA to evaluate and approve subloans, but FIRA is currently carrying outa special training program to significantly increase that number.

2.11 The National Crop and Livestock Insurance Company (ANAGSA). ANAGSAwas founded in 1961 as an autonomous Government agency and since 1976 it hasgreatly expanded its operations. ANAGSA provides crop insurance mainly formaize, sorghum, cotton, hemp and soya, while insurance for fruit plantationsand vegetables is still limited to very small areas. Insurance coverage islimited to the production costs, excluding farm labor cost. Insurance premiumsare paid both by producers as well as the Government. Also, ANAGSA provideslivestock insurance (currently over one million head) and life insurance forcredit beneficiaries.

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Private Banks

2.12 Until the establishment of the FONDO rediscounting facilities,private commercial banks were hesitant to undertake agricultural term lendingbecause of the short-term nature of the bulk of their resources, problems ofcollateral. their lack of familiarity with agriculture, and the high riskwhich is generally associated with farming. This situation has changedconsiderably during the last decade, mainly because of the increasing supportextended by FIRA in terms of funds, training of staff and other supportservices. Many private banks have been establishing and rapidly expandingtheir agricultural credit departments and hiring significant numbers ofagricultural technicians. FIRA has provided intensive training programsfor the banks' technicians and is gradually transferring the authority toevaluate and approve subloans to FIRA-authorized bank technicians. To date,private banks have 460 technicians authorized to approve subloans and someadditional 430 technicians in training who will eventually receive FIRAauthorization. These technicians are now authorized to approve medium- andlong-term subloans up to US$110,000 (Mex$2.5 million) each, and a few whohave received special authorization from FIRA may even approve subloansup to US$220,000 (Mex$5.0 million). Subloans exceeding these limits areevaluated in consultation with FIRA staff.

2.13 Lending operations by private banks are concentrated mainly oncommercial producers and agroindustries. The Bank of Mexico, in order toencourage bank lending to ejidatarios and low-income producers, has stipu-lated that 0.7% of total deposits of multi-purpose banks and 2% of depositsin commercial banks must be held in the form of agricultural loans tolow-income producers. Furthermore, this provision has been strengthenedby the additional services provided by the Technical Assistance and LoanGuarantese Trust Fund (FEGA) regarding guarantees and the reilmbursement fortechnical assistance activities provided by the banks. In spite of theseprovisions and incentives, private bank operations in the low-incomefarmer sector are increasing on a very modest scale.

2.14 Commercial banks have been making increased use of FIRA rediscountfacilities, with FIRA rediscounts amounting to 56% of the 1979 outstandingloan portfolio as compared to 29% in 1975. About 76 private and mixedcommercial banks, banking groups and multi-purpose banks participate inFIRA-lending operations. Total FIRA rediscounts through these banks during1978 were US$695.7 million (66% short-term and 34% medium-term) andUS$982.6 million in 1979 (56% short-term and 44% medium-term). The 1980rediscount program through the private banks is estimated at US$1,343 million(51% short-term and 49% medium-term rediscounts).

2.15 FIRA generally rediscounts to the participating banks 90% of theamounts of subloans. Only in exceptional cases, such as subloans exceedingUS$100,000 or large loans for agroindustries, are banks required to increasetheir participation in subloan financing to 20% to 30%. In view of thelarge dlemand for credit and its greatly increasing lending program for thecoming years, FIRA intends to substantially increase the banks' share insubloan financing. Under the proposed Seventh Credit Project, the 10%participation would be maintained for lending to low-income producers whilefor other categories of subloan beneficiaries the banks wouLd be required

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to increase their participation. FIRA would create a suitable interest ratestructure on rediscounts which would include incentives for increased bankfinancing, thus making it attractive to the private banks.

Interest Rate Structure

2.16 To date, the interest rate structure in agriculture has been changingmoderately. Nominal interest rates on medium- and long-term credits redis-counted by FIRA to the participating banks range between 11.0 and 13.5% forlow-income producers, 16% for other producers, and 17% for agroindustries.These rates are applicable under the Sixth Credit Project as well as allother FIRA rediscounts. Interest rates on short-term credit (which are notincluded in the Sixth Project) vary from 14% for low-income producers and16% for other producers to 16 to 17% for agroindustries. BANRURAL interestrates on medium- and long-term credits are equal to those of FIRA; however,rates on short-term subloans vary from 16% for ejidatarios to 18% forother beneficiaries.

2.17 The above rates are negative as inflation is now estimated atbetween 18 and 20% and below the market rates charged by the commercialbanks, which vary between 19.5 and 23%. Net interest rates on term deposits(from 3 to 12 months) for February 1980, averaged 18%. The average cost offunds (ACF) to the financial departments of multi-purpose banks, which is aweighted average of interest rates paid by banks and other financing insti-tutions on bonds, notes, and certificates of deposits, excluding checking andsavings accounts, averaged about 16.5% in 1979. The ACF rate is calculatedmonthly by the Bank of Mexico and averaged 18.8% for the first four months of1980. Since its inception, the ACF index has been readily accepted by thebanks as it adequately reflects the cost of funds, but now they are chargingsub-borrowers a spread of about two to five points over the index. TheGovernment has recently revised this index to make it more representativeof the cost of funds to Mexico's multi-purpose banks.

2.18 The Government is amenable to bringing about desirable changesin the interest rate structure relating to agriculture, and it is increasinglyfavoring the adoption of a variable interest rate system linked to the ACFindex for term lending operations. The Government's current thinking onthe interest rate structure is that:

(a) interest rates in agriculture should be compatible withthose of other sectors;

(b) interest rates structure should be adjusted periodically;

(c) interest rates in agriculture should be somewhat lowerthan the commercial rates (also allowing a small subsidyto low-income producers) in order to maintain a favorableinvestment climate; and

(d) interest rates adopted under FIRA should be used for allother agricultural credit programs such as the IntegratedProgram for Rural Development (PIDER), the Investment Programfor Rainfed Agriculture (PLANAT) and Tropical Agriculture.

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2.19 UJnder the proposed project, the interest rate structure would belinked to the ACF level, with provisions for periodic adjustment (para 6.16).Interest rate for the low-income producers would be below ACF, reflecting theGovernment"s policy of subsidizing this target group, while the rates for thecommercial farmers would vary above the ACF level. As the annual rate ofinflation iLs expected to decrease to the international levels by 1982, theprevailing rates should be positive in real terms.

III. AGRICULTURAL TRUST FUNDS (FIRA) I/

3.01 In order to stimulate lending to agriculture and induce greaterparticipation of the private banks and financial institutions to financecredit needs of farmers, the Government established FIRA within the Bank ofMexico. FIRA is the common name for a group of three trust funds: (a) theTrust Fund for Crop, Livestock and Poultry Credit (FONDO); (b) the SpecialAgricultural Credit Trust Fund (FEFA); and (c) the Technical Assistance andLoan Guarantee Trust Fund (FEGA). Detailed financial data on FIRA's operationis given in Annex 2.

Trust Fund for Crop, Livestock and Poultry Credit (FONDO)

3.02 The establishment in 1955 of FONDO as a trust fund in the Bank ofMexico was a landmark in the development of agricultural credilt in Mexico.By providing a combination of credit and technical assistance to the publicand private banks, the FONDO has contributed significantly to ithe growthof credit and to the improvement of the appraisal and supervision practices.

3.03 The FONDO was created to encourage the private banking systems toparticipate more actively in financing the credit needs of the agriculturalsector. T'he large differential margin between the lending rate to farmersand FONDO"s discount rate to the participating banks has permitted higherrates of return on the private banks' invested capital. The private banksbear the risk of lending and the responsibility for collection, but theirrisks are greatly reduced by the development of the FONDO's regional officesand staff,, which, in the past, carried out much of the technical analysisof prospective sub-borrowers and subprojects.

3.04 Initiated with Government funds, the FONDO originally restrictedits activ:Lties principally to short-term agricultural production credit tofinance annual crop production and upkeep of livestock herds. The FONDO'sresources were later augmented by loans from USAID and the Inter-AmericanDevelopment Bank (IDB), and it also began to discount longer term subloans forinvestments.

3.05 Since 1965, when FEFA was established, FONDO has redliscounted onlyshort-term credits for crop, livestock, and agroindustrial prcduction toprivate banks. During 1979, FONDO rediscounted US$546 million, its recupera-tion of rediscounts from banks was US$481 million, and its total outstandingrediscount portfolio at end-1979 was US$380 million. FONDO operations are

1/ FIRA is referred to as FONDO in the loan documents.

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financed by its equity, amounting to US$42 million at end-1979 and borrowingfrom the Bank of Mexico. In 1980, FONDO lending operations will amount toUS$860.8 million, an increase of 60% over 1979.

Special Agricultural Credit Trust Fund (FEFA)

3.06 The real movement into on-farm development lending occurred onlyafter 1965, when the second trust fund (FEFA) was established within FIRA.This fund was established to channel foreign loans, such as those from theBank, with corresponding counterpart funds in local currency, supplied bythe Bank of Mexico, for medium- and long-term lending to finance investmentsin agriculture, livestock, and agroindustries. During the first seven yearsof FEFA's operations, funds channeled through it for agricultural developmentwere on a very modest scale, and only in 1973 did its annual lending programsurpass US$50 million. The Bank played an important role in the growth ofFEFA. It was the execuLing agency of five Bank credit projects, the on-goingSixth Credit Project and of credit components in other Bank-financed projects,totalling US$664 million. The Fifth Credit Project, executed during 1977/78,and the Sixth Credit Project, which is now nearing completion, helped to trans-form FEFA into the most important lending institution for agricultural develop-ment in Mexico (Annex 2, Table 4). In addition to Bank loans, IDB loans, whichare now fully disbursed to FEFA, amount to US$164 million, and, in 1979,FEFA obtained a US$50 million medium-term loan from the Chase Manhattan Bankfor agroindustries.

3.07 FEFA rediscounts medium- and long-term loans for agriculturallivestock and agroindustries development to both the public and privatebanks. Total rediscounts during 1979 amounted to US$648 million, itsrecuperation was US$196 million and its total outstanding rediscount port-folio at end-1979 amounted to US$1,114 million. Government equity in FEFAhas been increasing steadily because the principal of external loans fromthe Bank and IDB is repaid by the Government and the local currency equiva-lent, deposited with the institution at the time of receipt of the externalloans, is accumulated in FEFA as additional equity. Total FEFA equity atend-1979 was US$555 million, an increase of 48% over 1978. FEFA's lendingprogram for 1980 is US$704 million, 30% of which FEFA expects to financethrough Bank loans, 40% from the recuperation of outstanding rediscounts andthe balance from various internal and external sources.

Technical Assistance and Loan Guarantee Trust Fund (FEGA)

3.08 FEGA was created in 1973 as a trust fund to defray to participatingbanks part of the cost of loan evaluation and technical assistance associatedwith lending operations to ejidatarios and other low-income farmers (up to 3%of the loan amount and, in special cases, up to 6%) and to issue guarantees toprivate banks for the recovery of loans to these beneficiaries. Since itscreation in 1973 and until December 31, 1979, FEGA issued guarantees amountingto US$301 million, while total FEGA payment on account of guarantees (up to80% of the subloan amount) were US$1 million during 1979 and US$1.2 million in1978. Technical assistance reimbursement during 1979 totalled US$6.5 million(US$0.8 million to BANRURAL, US$4.0 million to private banks) and US$1.7 millionto FIRA to cover part of its costs of training and demonstration centers. All

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payments Trade by FEGA on account of guarantees and for technical assistance,as well as, FEGA's administrative costs, are paid by the Government. The totalamount paiLd to FEGA by the Government since its establishment was US$33million. FEGA's approved budget for 1980 is US$16.6 million. Reimbursementfor technical assistance costs is estimated at US$9.1 million (US$1.3 millionfor BANRURAL, US$5.2 million for private banks and US$2.6 million for FIRA),and US$2.2 million is provided for the payment of guarantees to private banks.The balance (US$5.3 million) is earmarked for payments of interest on externalloans and for FEGA's administrative expenses.

Cost of Funds

3.09 The average cost of FONDO-FEFA resources was 4.3% in 1977, 4.5% in1978, and 5.6% in 1979. The increase in 1979 was due to: (a) the receipt ofa US$50 million loan from the Chase-Manhattan Bank which bears commercialinterest rates; and (b) the increase in the interest rate from 3% to 6%paid by FIRA to the Bank of Mexico on additional funds withdrawn during 1979.As of March 1, 1980, all Bank of Mexico funds allocated to FIRA bear aninterest rate of 8%, and FIRA estimates that for 1980 the average cost ofall its resources would be 8.75%. The total funds allocated to FIRA by theBank of Mexico up to end-1980 would amount to US$1,000 million. Interest onall external credits (except foreign exchange differences) is paid by FIRAon due daLtes, while repayment of principal and all foreign exchange differencesare paid by the Government. Overall, FIRA's financial position until end-1979 was sound due to: (a) the low cost of FIRA's external resources andborrowings from the Bank of Mexico; and (b) adequate differentials betweenthe cost of funds and the rediscount rates paid by the participating banks.By the end of 1979 the accumulated surplus and reserves of FONDO amounted toUS$38 million and of FEFA US$46 million. FIRA's financial position is expectedto remain sound and the higher rediscount rates which should become effectivein mid-1980 would enable FIRA to cover the increased cost of resources.

Assistance to Low-income Producers

3.10 FIRA has established a special program to aid low-income producers;almost 30% of FIRA's past lending program was channeled to this group. About35% of t'he 1980 lending program (US$1,565 million) is earmarked for the low-income producers. Additionally, FIRA has supported the low-income producersthrough externally financed projects. Under the Fourth Agricultural CreditProject (Loan 910-ME of June 1973), about 20% of that loan was allocated tolow-income farmers. This program was expanded under the Fifth AgriculturalCredit Project (Loan 1217-ME of March 1976) in which 47% of on-farm lendingwas allocated to low-income producers and continued in the Sixth AgriculturalCredit Project (Loan 1569-MIE), in which 33% of the loan was allocated to thisgroup. FIRA has also been an active participant in Mexico's Integrated Programfor Rural Development (PIDER), which would benefit some five million poor familiesin 100 micro-regions. The Bank has made two loans in support: of PIDER, totallingUS$230 million, of which US$57.5 million was allocated to agricultural creditthrough FIRA for low-income farmers and a third PIDER project is now beingappraised. Furthermore, US$11.3 million of the US$56 million loan for the TropicalAgricultural Development (Loan 1553-ME) has been allocated to credit through FIRA,primarily for low-income producers, and the Rainfed Agricultural DevelopmentProject, which has been appraised, would include a significant credit componentfor low--income producers. In addition, six loans (US$164 miLlion) from the IDBhave included credit through FIRA for low-income farmers.

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Recuperation of Rediscounts

3.11 FIRA rediscounts are collected automatically from the participatingbanks through their accounts with the Bank of Mexico, and FIRA has virtuallyno overdues. Periodic reports received from the participating private bankson overdue subloans rediscounted by FIRA show that they are below 1% of thetotal outstanding loan portfolio. On medium- and long-term loans made throughBANRURAL and rediscounted by FIRA, mainly to low-income producers and ejida-tarios, overdues are estimated at 10 to 12%.

FIRA's Medium-Term Investment Program (1980-82)

3.12 For the period 1980-82, FIRA would base its lending on an overallprogram equivalent to about US$12,054 million. Lending for short-term andfor medium- and long-term investments would amount to 53% and 47%, respectively,of the total investment. FIRA would contribute about 63% of the investmentfunds, and the remaining balance would be provided by the participating banks(22%) and the beneficiaries (15%).

3.13 The thrust of FIRA's program would be to augment basic food production,increase production of agricultural export commodities, and accelerate anddiversify agroindustry production. Almost 80% of the investment programwould focus on basic food production. FIRA's program is also designed toreduce regional imbalances in terms of development. Almost 56% of the medium-and long-term investment funds would be directed to the more depressed regions,mainly in the central and southern part of the country.

3.14 FIRA's detailed 1980 investment program has been approved by theTechnical Committee, the governing body of FIRA that sets priorities andpolicies and approves its financing and lending program. About 35% of theoverall lending program would focus on low-income producers.

3.15 FIRA's 1980-82 program is reasonable, inasmuch as it reflects theGovernment's priorities and is in keeping with institutional capabilities,including the participating banks. The proposed project would support almost20% of the medium- and long-term investments under the 1980-82 program.

Organization and Management

3.16 The Bank of Mexico is the trustee of the Government for the threetrust funds administered by FIRA. Two technical committees, one for FONDO-FEFA and the other for FEGA, are the governing bodies of the funds. Theseare composed of 10 members and each is headed by a senior official of theMinistry of Finance. Other members are the Secretary of SARH, representativesof the Bank of Mexico, Banco Nacional de Credito Exterior, ANAGSA, BANRURAL,the Mexican Banker's Association, and two members appointed by farmers'organizations. FIRA is managed by a Director, who is the Fiduciary Delegate,and is assisted by three Sub-Directors (technical services, marketing, andgeneral administration).

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Since its inception, FIRA has expanded its organization and has decentralized.It now has a central office in Mexico City, nine regional offices, 37 statestate off-ices and 90 local offices. The Bank of Mexico, as t-rustee, pro-vides FIIRA with the required staffing, office facilities and administrativeservices. FIRA's total staff presently numbers 1,263, of which 812 areprofessional and 451 are administrative. About 35% of FIRA's staff islocated at the central office. FIRA is now considering structural changesto strengthen its organizational set-up and to increase decentralization.

3.17 Training and Demonstration. In addition to its lending activitiesfor agricultural production and development, FIRA operates training anddemonstration farms engaged in applied agricultural research, production-oriented demonstrations and training activities. These are strategicallylocated in the zones of major present or potential production throughout thecountry and can be considered as an important complement to the Government'sresearch and extension services. FIRA also continuously maintains trainingcourses for its own and participating banks' agricultural technical staff.Additionally, FIRA complements the participating banks in providing technicalassistance to low-income producers, and its technical staff provides somesupport in preparing, evaluating and supervising the farm development. WhileFIRA has reasonable training and demonstration programs, additional resourcesare needed to expand these programs in order to improve technical services tofarmers.

3.18 FIRA's Planning and Programing. As FIRA's lending has grown immensely,it has evolved into a large and relatively autonomous agency for agriculturaldevelopment. In recognition of this, FIRA has set up a Division of Programing(DP), which is responsible for (a) FIRA's annual programing; (b) preparationof proposals for borrowing from international agencies; and 4(c) FIRA's analysisand diagnosis of the agricultural sector. During 1979, DP prepared FIRA'sfirst annual program and its medium-term plan. In late 1979, DP was reorganizedto improve its overall effectiveness.

3.19 FIRA's medium-term plan is based on projections from historical trendsof the size and composition of the lending program. The projected targets,by and Large, reflect Government policies and past trends toward increases inmedium- and long-term subloans, participation of low-income producers, andlending to agroindustries. DP's 1980 lending program provides an estimate ofthe size and composition of funds to be channeled into agriculture and isbased on inputs from the state and regional levels. For the preparation ofthe 1980 program, DP communicated the Government's national priorities toFIRA's field offices in early October 1979 with DP's projection of the nationaltargets for FIRA's lending but without specifying regional targets. FIRA'sstate- and agency-level representatives and specialists estimated the fundsthey could place in sound investments during the coming year, basedon consultations with their participating banks, important borrowers, andother Government agencies in the area. Further discussions resulted betweenDP and the regional agencies before the annual program was finalized. Eventu-ally, the final estimates provide the basis for contractual agreements betweenFIRA and the participating banks for subloans to be discounted through FIRA.

3.20 Most of the regions carry out their programing and adjustments atthe regional residency in consultation with the state residents and special-ists. In the northwest and southeast regional residencies, FIRA is experi-menting with a decentralized structure which locates the specialists at the

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state residency, leaving the regional residency with only a few coordinators.In all likelihood, the remaining seven regions will follow the same decen-tralization structure in the near future, providing greater roles to thestate-level agencies in the planning process.

3.21 The absence of sufficient economists at the state and regional levelshampers the quality of planning; investment programs are largely preparedby technicians. Also, inadequate staff at the central level reduces FIRA'sability to carry out effective studies and analyses. As a result, there hasbeen no detailed analysis on agricultural credit that would provide perspec-tive on the role of credit within the sectoral program. Sector diagnosisis mediocre and restricted to selected data collection. The establishmentof the planning and programing function at the division level does not provideDP with sufficient status to ensure access, influence and the ability toattract talented people.

3.22 FIRA is relatively autonomous. Financing for FONDO and FEFA lendingactivities is supported through funds from the Bank of Mexico, recuperationof previous loans and foreign borrowings. Interest earnings are sufficientto cover the cost of borrowed funds and FIRA's administrative and generalexpenditures. Only FEGA receives annual Government budgetary allocationsto cover the cost of technical assistance and the payment of guarantees.The "trust fund" status of FIRA insulates it from much of the normal politicaland bureaucratic pressures. FIRA's 1980 annual program was approved by itsTechnical Committee but the approval process was largely routine due to FIRA'ssuccess in placing funds for agriculture. FIRA has been remotely involved inplanning for the agricultural sector and has had minimal influence on sectorplanning despite its vast experience, substantial size and rapid growth inrecent years.

3.23 While FIRA is moving in the right direction in planning and programing,there is currently a pressing need to (a) upgrade the status of DP to a Unitfor planning and program analysis and hire additional economists at theregional and national level to strengthen FIRA's capabilities to carry outpertinent studies; (b) improve FIRA's analysis and diagnosis of agricultureand credit requirements and analysis of the development effects of FIRA-assistedprograms; and (c) improve coordination with other agencies involved in agricul-tural production and development.

3.24 FIRA recognizes the above and places high priority on planning andprograming to ensure (a) active and greater participation in agriculture sectorplanning and coordination, and (b) efficient allocation of its resources tosound investment programs. Consequently, it has agreed to take firm measuresunder the proposed project, focusing on the above, to revamp its planning andprograming mechanism.

3.25 Monitoring and Evaluation. The Monitoring and Evaluation Division ofFIRA, known as Division de Evaluacion de Sistemas e Informatica, developed froma professional staff of two in 1976 to one of 55 in February 1980. Althoughits original objective was limited to economic and financial impact analysisof FIRA's subloans, the division has expanded its scope to include internalsystems analysis, and, most recently, selective data collection on agriculturalproduction and credit. In December 1979, the division was reorganized intothree offices: the Office of Credit Impact Evaluation, the Office of InternalSystems Analysis and the Office of Information.

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3.26 The Office of Credit Impact Evaluation, with a central office staffof 15 and a field staff of 26, remains the principal focus of the division.A series of credit impact methodologies has been developed and tested, andthe most recently completed credit impact evaluation attempted to measuresubloan impact on farm systems. The study, which was conducted over a one-year period on a 155-subloan sample, illuminated the impact of variousinvestments on production and income, but it did have several shortcomings,principally the extremely small sample taken and improper classification ofsample units.

3.27 Based on experience with the above methodology, a new methodologyis presently being tested using a sample of 550 subloans. Once the re-sults of this trial are analyzed and the methodology improved accordingly,it will be applied to the rest of the principal farming activ:Lties. Thesub-borrowers in the sample will be interviewed monthly over a five-yearperiod. With the financial, technical and socio-economic data collected, FIRAwill be able to measure the adequacy of its technical services, the financialsuccess of its lending program, and the socio-economic impact of its presentcredits.

3.28 Although the Office of Internal Systems Evaluation was not formeduntil December 1979, the Monitoring and Evaluation Division had been conductingstudies in this area since 1977. The studies have focused on the evaluationof (a) the supervision of banks participating in its lending program,(b) efficiency of technical field staff, and (c) assessing by subloan typeand by borrower type the extent of recurrent financing.

3.29 The studies carried out by the Monitoring and Evaluation Divisionhave resulted in several significant changes in the institution; for example,a study of the state/regional office structure resulted in the initiationof a pilot project in two regions of Mexico to test means of decentralizingFIRA's decision-making to the state level and an analysis of the monthly stateoffice reporting system has resulted in its replacement with a more conciseformat, to be submitted by the regional offices on a quarterly basis. Thisnew format can also be stored in the computer.

3.30 The credit impact studies have also resulted in improvements in FIRA'sinvestment programs. For example, realizing the low profitability of small-scale dairy stables, FIRA initiated a series of field research programs todevelop a less expensive dairy package based on grazing rather than stablefeeding systems. This new system is now being used commercially by 14 ejidosin Tabasco.

3.31 The work of the Monitoring and Evaluation Division is important asit allows FIRA to ascertain the development impact of its len1ding, therebyproviding the data necessary for its preparation of sound annual investmentprograms. However, to reach these goals, the division needs to be strengthenedwith addlitional staff and facilities. The Seventh Credit would provide fundsfor such strengthening.

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IV. PERFORMANCE UNDER PREVIOUS AGRICULTURAL CREDIT PROJECTS

4.01 The Bank has to date financed six credit projects, totaling US$600million, to support lending for crop and livestock development. The firstproject (Loan 430-ME, US$25 million, effective October 1, 1965) provided funds formedium- and long-term on-farm investments to medium-sized and commercial farmersin the tropical zone, central plateau and northern Mexico. Subloans financed avariety of activities but largely livestock, annual crops and perennial crops,with a lesser amount for agroindustries. Some 5,500 on-farm subloans were made,80% of them for less than US$6,700, while 2% were in excess of US$80,000, thelatter group accounting for 23% of the amount lent. Livestock activitiesaccounted for 60% of the disbursements; annual crops, 19%; perennial crops, 5%;and agroindustries, 16%.

4.02 The favorable performance of FIRA under the firs. project encouragedthe Bank to process a second loan to maintain continuity. The second project(Loan 610-ME, US$65 million, effective September 19, 1969) continued theactivities initiated under the first loan and added a cattle developmentcomponent for southeastern Mexico. In this project, 11,651 subloans were made,averaging US$17,000 each: 85% averaged US$6,400 and only 1% were over US$80,000and accounted for about 10% of the funds. Livestock activities absorbed 61% ofthe funds disbursed; annual crops, 28%; perennial crops, 8%; and agroindustries,3%.

4.03 The third project (Loan 747-ME, US$75 million, effective September 1,1971) was fully disbursed in April 1974 and closed on September 30, 1975.In this project, 12,326 subloans were made; 81% were for less than US$20,000,averaging US$6,500, while 6% were in excess of US$80,000 and accounted for29% of the amount disbursed. Of the amounts lent, 58% were for livestockenterprises (four-fifths of these beef ranches), 24% for annual crops, 8%for perennial crops, 7% for agroindustries, and 3% for mixed farming enterprises.

4.04 The first three projects included an appreciable number of modest-sized subloans, and in the third project, an increasing number of ejidosparticipated. The fourth project (Loan 910-ME, US$110 million, effectiveOctober 24, 1973), while continuing to support the activities financed underthe previous projects, included a specific component directed to low-incomeproducers, totaling 20% of project subloans. Disbursements under the fourthproject were completed by December 31, 1975, one and one-half years ahead ofschedule. Overall, 10,881 subloans were made, averaging US$24,260. Of thetotal number of subloans, 1,910 went to low-income producers, averagingUS$19,140. Individual smallholders received 1,118 subloans, and groups (i.e.,ejidos, sociedades and grupos solidarios) received 792 loans. There were23,552 direct beneficiaries and the average subloan per beneficiary in thelow-income producers' category was US$1,552. Of the total amount lent underthe project, 54% was for livestock enterprises (two-thirds of this for beefranches), 24% for annual crop farms, 7% for perennial crops, 13% for agroi-ndustries and 2% unclassified.

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4.05 The fifth project (Loan 1217-ME, US$125 million, eff'ectiveAugust 28, 1976) continued to support FIRA's medium- and long--term lendingprograms. It was fully disbursed by February 1979, four months ahead ofappraisal estimates. In this loan, 40% of the total project investmentsand 48% of the loan amount was directed to low-income farmers, more than doublethe amount lent to these farmers under the previous Bank-financed agriculturalproject. About 6,900 subloans were made to farmers in the low-income categories(i.e., both individual farmers and groups of ejido farmers) and 10,740 subloanswere made to medium-income farmers. The average subloan size in the low-incomecategory was US$20,600, and there were 198,450 beneficiaries: 179,000 ejida-tarios arid 19,450 individual small-scale farmers. The total amount lent tothese low-income farmers was US$189.7 million and the average subloan size perbeneficiary was US$956. Some 16,240 medium-income farmers received subloans:2,140 ejidatarios and 14,100 individual farmers. The total amount lent to themedium-income farmers was US$177.7 million and the average su'bloan size wasUS$10,942. Of the total amount lent under the project, 37% was for livestockenterprises (two-thirds of these for beef ranches), 46% for annual crops, 6%for perennial crops, 9% for agroindustries and 2% unclassified.

4.06 The Sixth Agricultural Credit Project continued Bank support of FIRA'slong- and medium-term lending program. It was approved June 1978 and becameeffective in January 1979. Implementation proceeded far ahead of appraisalexpectations and, by March 1980, funds were fully committed, with Bank dis-bursements from the loan account amounting to US$130.0 million, or 65% ofthe total. Total project cost is estimated at US$627 million, 25% of which isdestined for low-income farmers; 61% for medium-income and commercial farmers;10% for agroindustrial development; and 3.5% for technical assistance, training,and demonstration farms. By December 1979, FIRA had rediscounted 11,500 subloansworth US$306.0 million with funds provided by the Sixth Credit. This included1,240 subloans worth US$36.0 million to low-income producers; 10,000 subloansworth US$250 million to commercial farmers; and 260 subloans worth US$20.0million for agroindustrial development. On a sectoral basis, 60% of the invest-ments went for crop production, 33% for livestock production, and 7% for agro-industrial development.

4.07 The Bank has completed audit reports on the first four agriculturalloans tco FIRA, and a completion report on the fifth loan is IIow being prepared.The Bank: has stressed increased lending to low-income producers, increasedemphasis on crop rather than livestock production, and less emphasis on modelsand more emphasis on sector orientation in loan preparation. Altogether, theagricultural loan series has absorbed US$600 million of Bank funds, makingthe program one of the largest in the Bank's agricultural portfolio.

4.08 FIRA's performance throughout the 1970s has been impressive. As aninstitution, it has grown rapidly; trained many high quality technicians forits own as well as private and public bank staffs' and established technical

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assistance systems and demonstration centers which have benefitted farmersthroughout Mexico. Due to the slow start-up of its Monitoring and EvaluationDivision, FIRA does not yet have in-depth development impact studies of itslending program. Nevertheless, FIRA's rediscount program has undeniably in-creased private and public bank lending to the agricultural sector, therebycomplementing the Mexican Government's programs to increase agriculturalproduction. And, with its increased lending to the country's low-incomeproducers, FIRA has directly addressed the difficult development issue ofdistribution of the benefits of production increases within the agriculturalsector.

V. THE PROJECT

A. Introduction

5.01 The Government of Mexico has requested Bank assistance in financingthe Seventh Agricultural Credit Project to support the Government's overalldevelopment programs for agriculture to promote export growth, reduce thecountry's dependence on imported foodstuff and alleviate poverty and under-employment in the farming sector. The proposed project would be a contin-uation of Bank assistance to FIRA's lending program, which has receivedfinancing under six Bank loans, and would help finance a wide range of in-vestments in crops, livestock, fisheries and agroindustry development through-out the country. The thrust of the proposed project would be toward increasingagricultural production and productivity and in institution building. Incontrast to the on-going Sixth Credit Project, the proposed project wouldinclude an additional category for medium-income producers and would designateabout 15% of the total program for their use. Also, under the Sixth CreditProject, only 25% of the total project costs was allocated for low-incomeproducers but under the proposed project 50% would be earmarked for suchsub-borrowers. The preparation report for the proposed project was compiledby FIRA staff and submitted to the Bank in January 1980. A list of studiesand working papers relating to the project is given in Annex 6.

B. Project Objectives

5.02 The objectives of the proposed project would be to:

(a) support the Government's agricultural diversification program,including expansion and development of fisheries and agroindustries,and increase low- and medium-income farmer participation;

(b) strengthen FIRA's planning and programing capabilities andprovide an institutional framework for efficient allocationof financial resources through private and public lending agencies;

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(c) induce private commercial banks to increase participation inagriculture through FIRA's rediscounting facility and strengtheneach agency's subloan evaluation and supervision capabilitiesand technical services;

(d) irtensify training for the technical staff of FIRA as well asfor those of participating banks;

(e) establish an operating regulations and procedures manual tostandardize the participating banks' lending under FIRA;

(f) strengthen FIRA's monitoring and evaluation capabilities and database system; and

(g) introduce a more flexible interest rate structure for agriculturalfinancing under FIRA.

C. Brief Description

5.03 The proposed loan would support part of FIRA's projected lending pro-gram over a two-and-a-half-year period to cover the foreign exchange costs ofFIRA-financed subprojects and institutional improvements (paraL 5.38). Subloansto individual farmers, farmer groups, and cooperatives would be based on tech-nically and economically sound development plans for a wide array of activities,including crops, livestock, fisheries and agroindustries. Given the widerange of types of sub-borrowers and variations in regional conditions andagricultural activities, subloans would vary considerably. F-[RA would focuson development-oriented medium- and long-term investments, placing emphasison selection of sub-borrowers in terms of development potential and on transferof appropriate technology to farmers.

5.04 About 63% of the total lending program would be for annual andperennial crops; 32% for livestock; and 5% for agroindustries and fisheries.Further, about 50% of the total program would be directed to low-incomeproducers, 15% to medium-income producers, and 28% to other commercial producers.

5.05 As under the on-going Sixth Credit Project, FIRA would be responsiblefor projeact execution. Funds would be channeled through some 90 private andpublic lending agencies, utilizing the existing credit delivery system. Formu-lation, esvaluation and approval, and supervision of investment developmentplans would be carried out primarily by FIRA-approved participating banktechnicians, with logistical support from FIRA staff.

D. Detailed Features

Crops Lending Program

5.06 Lending for crop production would be for annual as well as perennialcrops under rainfed and irrigated conditions.

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5.07 Rainfed Annual Crops. Funds would be made available for on-farminvestments in the traditional farming systems to increase productivity ofbasic food crops, mainly maize and beans. Investments would include landclearing and preparation, upgrading of soils, storage facilities, machineryand equipment. Subloan beneficiaries would be primarily ejidatarios orgroups of smallholders and medium-income producers with farms mainly in therange of about 50 to 300 ha. Investments on an average farm of 160 ha insemi-arid and temperate areas would amount to about US$21,800, with an averageof 16 families per subloan. Likewise, investments on an average farm of 200 hain the tropic areas are estimated at about US$28,700, with an average of 40families per subloan. At full development (by year 5), yields of maizeand beans are expected to increase from the present levels of 1.7 tons/haand 0.6 ton/ha to 2.2 tons/ha and 0.9 ton/ha, respectively. Other importantannual crops that would be financed in the rainfed tropic areas are rice andsoybean. Rice yield would increase from the present level of 2.2 tons/ha toto 2.7 tons/ha in a period of five years, while soybean yield would increasefrom 0.8 ton/ha to 1.2 tons/ha in a period of four years.

5.08 Gravity-Irrigated Annual Crops. Major focus would be given to thenorthern region of the country, which includes a large number of medium-incomeproducers and ejidatarios who are in the process of moving into irrigatedagriculture. Improvements would allow a significant increase in the areadesignated for higher value crops and more intensive use of cropland; croppingintensity, on the average would increase to over 125%. Investments on anaverage farm of 200 ha are estimated at about US$47,800, with an average of15 families per subloan. Investments would include on-farm irrigation anddrainage infrastructure, land levelling, machinery and equipment, farm buildingsand storage facilities. Yields of wheat, sorghum, beans and soybeans wouldincrease from the present levels of 3.8 tons/ha, 5.0 tons/ha, 1.2 tons/haand 2.0 tons/ha to 4.2 tons/ha, 5.8 tons/ha, 1.6 tons/ha, and 2.4 tons/ha,respectively, at full development (year 4).

5.09 Tubewell-Irrigated Annual Crops. This type of farming is predominantin the arid and semi-arid areas of the northwest and subloan beneficiaries wouldbe commercial farmers as well as ejidos or groups of small landowners whoparticipate in small-scale irrigation operations. Beneficiaries would be inareas in which the Government has already financed infrastructure for thedevelopment of ground-water resources. SARH is expected to drill 1,000 tube-wells over the next three years in areas of low-income producers. Subloanswould cover investments of about US$73,900 per farm of 260 ha, with an averageof 14 families, and would finance land improvement and preparation, powerinstallation, well equipment, on-farm irrigation, buildings and agricul-tural machinery. Development investments would emphasize higher value cropssuch as wheat, sorghum, soybean, safflower and cotton, and would increasethe average cropping intensity to 125%. Yields of wheat, sorghum, andsoybeans would reach similar levels to those projected for improved productionunder gravity-irrigated areas. Other crops, such as sesame, safflower andcotton would reach yield levels of 0.9 ton/ha, 1.5 tons/ha, 3.0 tons/ha,respectively, at full development (year 5).

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5.10 Irrigated Orchards. In the arid and semi-arid areas, irrigatedannual crops are to some extent replaced with orchards because of higherreturn and lower irrigation water requirements. Grapes and wa,lnuts would bethe principal crops. Average investment on a farm of 50 ha for land preparationand planting materials of industrial grapes is estimated at about US$240,900in eight years, with an average of 10 families participating. Grape yieldswould begin in the third year with about 5 tons/ha and at ful]L development(year 8) would increase to between 15 and 20 tons/ha.

5.11 The project would also finance the rehabilitation of deciduousfruits such as apples, peaches, pears and olives. About 100,000 ha of theseorchards are in production in the north, northwest, and central part ofthe country. Average rehabilitation investment per farm of 50 ha would beUS$114,000 and would include elimination of old trees, replanting, pruning,control of pests and diseases, acquisition of farm machinery, and building ofbarns and installation of water supply system. Yields are expected to doublefrom 6 tons/ha to 12 tons/ha in about four years. Under a group system, theaverage r,umber of beneficiaries would be 10 families per subloan.

5.12 Funds would also be provided to finance small-scale operations for theestablishment of new orchards of pecans, pistachios, almonds and date palmsin the north, northwest and Baja California. The average investment on a farmof 50 ha is estimated at about US$168,200 over a five-year period, with anaverage of 10 families per subloan. Subloans would finance land improvementand preparation, on-farm irrigation systems, buildings, and machinery and equip-ment. Actditionally, planting materials, agricultural chemicals, fertilizers,and hirect labor associated with the start-up period would also be financed.Farming systems would vary between 20 ha and 80 ha, and, at full development(about 15 years), yields would reach 2 tons/ha for pecans, which would be theprincipal crop.

5.13 In tropical areas where there is irrigation, the project would alsofinance lhe establishment of tropical fruits such as maranon, mango, grapefruit,and African palm. The investment for an average farm of 100 ha with 20beneficiaries participating is estimated at about US$137,600 over a four-yearperiod. Subloans would finance preparation and improvement cf land, andplanting materials, agricultural chemicals, and fertilizer associated in thestart-up period.

5.14 Rainfed Orchards. Emphasis would be given to the humid tropics wherethere is a high demand for investment funds among small-scale individualfarmers with an average of 1 to 5 ha of farm land to rehabilitate existingplantations of tropical fruit trees (coconut, cocoa, and citrus) in orderto increase production to their potential levels. There are about 150,000ha of coconuts in the states of Tabasco, Guerrero, Colima and Michoacan;64,000 ha of cocoa in Tabasco and Chiapas; and 215,000 ha of citrus, mainlyoranges, in these areas. Subloans would finance the cost of replacing partof the existing plantation; investment items in the initial period wouldinclude land improvement and preparation, unproductive tree removal, plantingmaterials, fertilizers, agricultural chemicals, and hired labor.

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5.15 Export Crops. Coffee, the principal export crop occupies about375,000 ha mostly in the high areas of the South Pacific Coast (Chiapas,Oaxaca, and Guerrero) and in the state of Veracruz. Investment would be madeavailable to rehabilitate 17,100 ha of existing plantations to increaseproduction. Subloans would finance the cost to provide better shade trees,replanting materials, elimination of unproductive plants, fertilizer, agri-cultural chemicals, and equipment. Coffee yields are expected to rise fromthe present level of 1.7 tons/ha to 4.0 tons/ha at full development (year 6).

5.16 There are 450,000 ha of sugarcane in Mexico, with the states ofVeracruz and Jalisco the main growing areas. About 300,000 persons are in thesugar industry. Investment funds would be made available to commercial farmersand ejidos to increase the area of sugarcane in rainfed as well as in irrigatedareas. It is estimated that, for new plantations in rainfed areas, the in-vestment would be about US$12,800 per ha, and in irrigated areas, aboutUS$14,000 per ha. Subloans would finance farm machinery and equipment andland preparation and improvement. Under project conditions, cane yields wouldincrease from 45 tons/ha to 70 tons/ha in rainfed areas and from 60 tons/hato 90 tons/ha in irrigated areas.

5.17 Subloans would also be provided for vegetable production. Tomatoesand melons are the principal export crop, and presently, it is estimated thatabout 140,000 ha are under export vegetable cultivation. Subloans wouldfinance land improvement, on-farm irrigation systems, farm buildings andstorage facilities, nurseries and greenhouses, and machinery and equipment.

Livestock Lending Program

5.18 Based mainly on previous lending patterns, about 50% of sublendingfor livestock would be for beef production, 20% for dual-purpose production(meat and milk), 20% for dairy production and 10% for small animals. Asthere is a wide range of ecological regions and type of borrower, therewould be considerable variation in the size of the subloans as well as in theinvestment packages financed.

5.19 Beef Production. Investment items would include land clearing, estab-lishment and renovation of pastures and fences; improvement of cattle handlingfacilities, water supplies, and farm buildings; and the purchase of farm machineryand breeding stock. In the northern semi-arid region, output would consist offeeder steers and boneless beef from cull cows. Participating banks would provideshort-term credits for fattening more feeder steers through both feedlot and FIRA-developed grazing systems in order to increase the supply of meat to the domesticmarket. Ranches in the dry tropic Pacific region have limited fattening capacity,and a high proportion of their steers are sold for fattening to the Gulf Coastregion, which is being developed as the major source of quality beef for thedomestic market. New areas would be developed out of forest land and the carry-ing capacity of existing farms would be increased by sowing improved pasturespecies. Investment per ranch is estimated at around US$44,000, with an

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average of 17 beneficiaries per subloan. Farms would range from an averageof 4,000 ha in the northern semi-arid region to 125 ha in the humid tropics.It is estimated that the proposed investments at full development wouldresult in. improved carrying capacities, ranging from an increase ofaround 15% for the northern area to around 40% for the humid tropics, andincreases 4in weaning rate from 60% to 65%.

5.20 Dual-Purpose Production. Emphasis would be given to financingmore milk production in the Gulf Coast and humid tropic zone lby promotingdual-purpose cattle (Swiss Cebu and Holstein Cebu crossbreds) systems ofproduction. Input costs are low as animals are grazed on tropical grasslandwithout concentrate supplements. The dual-purpose farm is virtually the onlymeans of supplying fluid milk to tropical urban areas. The rapid influx ofpopulation and rising incomes in the State of Tabasco have created a seriousdeficiency in milk supply there. In more remote areas, milk from dual-purpose cows would be used to produce cheese on the farm for sale. Invest-ment items would be similar to those proposed under the beef productionprogram (para 5.19). Investment per ranch is estimated to average aboutUS$36,000, with 10 beneficiaries per ranch. Participating farms would averagearound 100 ha and it is estimated that at full development there would beincreases in carrying capacity of over 30%, improvements in weaning ratefrom 60 to 65%, and in milk production from 450 to 700 liters per cow.

5.21 Milk Production. The project would give increased emphasis toinvestment in dairy production. Over 90% of the subloans would be used forincreasing the size of existing commercial dairy farms concentrated in theirrigated arid, semi-arid and temperate zones of Mexico. Investments wouldinclude alfalfa and/or perennial grass establishment, expansion and improve-ment of existing buildings, water supplies, irrigation, milking and coolingequipment, agricultural machinery and the purchase of in-calf Holstein heifers.Most of the investments would go into the traditional system of milk productionin which feed is harvested and fed to confined animals; however, where possible,grazing on perennial pastures would be promoted in order to encourage farmersto gradually adopt FIRA-promoted lower cost methods of milk production.Because many of these farms have a limited area of land on whiich to expandfeed production, herd expansion is generally associated with increased relianceon purchased feed. Rearing of heifer calves for herd replacements is now aprofitable enterprise and would be promoted, particularly among low-incomefarmers. Average investment is estimated at around US$45,000 per farm withan average of five beneficiaries per subloan. It is estimated that, at fulldevelopmtent, the calving rate would be raised from 70% to 75% and milk produc-tion per cow increased from 3,600 liters to 4,000 liters.

5.22 Other Livestock. Small animals are an important part of the investmentprogram in other livestock. The major investments in this category would con-tinue to be for swine and poultry production, but investments would be made forproductiLon of sheep and goat. Investment in swine production would be for bothcombined and separated breeding and fattening operations, predominantly basedon purchased feed. The majority of the subloans are expected to continue to bein the "Bajio" (central plateau) region which has easy access to the grainmarkets and the main consumption centers. Investment in swine production

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would average about US$39,000, with four beneficiaries per subloan. The in-vestments would be mainly in buildings for the different classes of livestock,feed storage, water and drainage facilities and purchase of breeding stock.Mainly through an increase in the annual farrowing rate from 1.7 to 1.8 litersper year, the total number of pigs sold per sow per year is estimated toincrease from 13 to over 15 by year 2 of development.

Agroindustries

5.23 One of the underlying tenets of FIRA's lending program is to increasethe participation of small- and medium-scale producers. Under the proposedproject, it is expected that about 144 subloans would be extended to small-and medium-scale enterprises. Of the total agroindustries program (US$40million excluding contingency), about US$4.8 million would be utilized forforestry industries; US$3 million for agricultural implement and service indus-tries; US$6.9 million for slaughterhouses; US$6.3 million for fruit and vegetablepacking and processing plants; US$4.8 million for milk pasteurizing plants; US$4.8million for grain storage facilities; US$4.2 million for feed mills; and US$3.7million for fishmeal plants. About 60% of total lending would be for moderniza-tion or expansion of existing enterprises, and about 40% would be to establishnew industries. FIRA's rediscounts of subloans would be for investment purposesonly to cover costs of such capital items as engineering design, sitepreparation, buildings, storage facilities, utilities installations, machineryand equipment, specialized transport and fishing vessels.

5.24 Slaughterhouses. Lending for slaughterhouses and by-productprocessing plants would account for about 12% of total funds designated foragroindustries. Funds for investments in slaughterhouses would be directedprimarily to producer groups, while subloans for by-product processingfacilities (bloodmeal, bonemeal, tallow) would be promoted among existingenterprises. Investment costs would include slaughter and chilling plantsand machinery and equipment; total investments for new enterprises would rangebetween US$1.1 million and US$1.9 million and for renovation of existingplants, between US$0.7 million and US$1.2 million. Development of small- andmedium-scale specialized meat product plants would be emphasized throughmarketing and technical assistance. The average investment cost for suchenterprises is estimated at US$0.5 million. Beneficiaries per subprojectwould average between 150 and 200, depending on the size of operation andproducer associations.

5.25 Fruit and Vegetable Packing and Processing Plant. In addition tothe traditional growing areas, crop gathering centers in areas of newlydeveloping fruit and vegetable production would be emphasized among small-and medium-scale producer groups. Investment costs would range from US$0.35million for a simple packing shed with grading and selection lines, conveyors,and related utilities and services, to US$0.7 million for a large-scalefacility complete with refrigerated storage. These enterprises would belabor-intensive and would require minimal managerial and technical personnel.Each subproject would have about 30 to 50 beneficiaries.

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5.26 G_rain Elevators. Currently, there is an acute shortage of grainstorage capacity, particularly in the northeast region because of expandinggrain production, and FIRA is promoting construction of such facilities amongproducer groups (200 to 300 producers per group) throughout the country. Thehigh capacity grain elevators require investment of about US$1.0 million forelevators, related construction, drying machinery, equipment ard utilities.Funds would also be available for the establishment of on-farm silo systemsamong producers and producer groups.

5.27 Feed Mills. FIRA is accelerating its efforts to promote small-scaleproducer-owned and operated feed mills in strategic locations. There ispresently a high demand for feed mill subprojects because of the surging costof mixed feed for livestock and poultry. Experience indicates that membersof producer-owned mills obtain feeds at prices generally 10% beLow the currentcommercial rates. Investment costs of civil works, utilities, machinery andequipment would amount to about US$0.4 million.

5.28 Milk Pasteurization Plants. FIRA is promoting establishment ofsmall-scale pasteurizing plants in outlying areas which account for a largenumber of small-scale dairy producers who do not have easy access to proces-sing plants. Establishment of such plants would ensure steady milk suppliesin large consuming centers. Investment cost for a turnkey pasteurizing plantwould amount to about US$0.35 million, and each subproject would have 40 to50 producers.

5.29 Sawmills. A large proportion of the rich forest reserves belong toejidos but a few have successfully exploited their resources. FIRA isproviding sawmills and forest products industries among ejidos in cooperationwith local governments and PIDER, which are providing infrastructure support.SARH is also providing technical assistance in silviculture practice, whileFIRA technicians are providing technical assistance in organizaLtion andmanagement, operations, marketing, and financial and legal aspects. Further,to induce investments in forestry, FEGA would provide loan guarantees as wellas reimbursements to banks for technical assistance outlays. Average invest-ments in sawmills would amount to US$1.0 million, with an average participationof 50 to 80 members in each ejido.

5.30 Agricultural Implements and Service Enterprises. There is a greatdemand in the rural areas for equipment repair and maintenance workshops.There is aLlso a strong market for simple tools and accessories, which arefabricated locally by these shops. About 7% of the agroindustry funding hasbeen earmarked for this subsector which could meet an essential need. Atypical subloan of US$0.2 million would finance a shop building; heavy powerlines; and metal working machinery such as drills, presses, lathes, andcutting machinery and accessories. Beneficiaries, on average, would numberfrom 5 to 20 per subloan, all of whom would likely be skilled craftsmen.

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5.31 Fisheries. Presently, funds from institutional sources for investmentin fisheries are scarce. However, under the proposed project, FIRA would havea modest program (US$8 million excluding contingency) to promote fisheriesdevelopment and meet credit needs.

5.32 An integrated investment program (encompassing small boats or launcheswith outboard engines, fishing equipment, ice storage facilities, andrefrigerated trucks) would be promoted among low-income, in-shore fishermen.This simple low-cost (US$70,000) package would enable small, low-income fisher-men groups (average of 30 families) to increase their incomes through directsales of fresh fish in major consumption centers. For larger fishermen groupsand established cooperatives which supply export markets, funds would beprovided for vessels and equipment, fillet plants and freezing and ice plants.A composite investment package consisting of the aforementioned items wouldamount to about US$0.4 million. Additionally, subloans would be made forin-shore shellfish farms and commercial inland fish farmers to increaseproduction for the domestic market.

5.33 Investment cost for a standardized fishmeal plant would be aboutUS$1.0 million. Items to be financed would be civil works, which wouldinclude the plant building and an auxiliary utility warehouse; a smallunloading dock; power substation; conveyors; tubes; pumps; and transportvehicles. Beneficiaries of the subproject would average between 20 and 30.

Training, Demonstration and Technical Assistance

5.34 Under the proposed project, FIRA's training programs would be expandedto intensify training of its staff, technical staff of participating banks, andfarmers. Additionally, the project would make provision for selected FIRAstaff to be trained abroad in technical fields. The training would includetwo-year scholarships for post-graduate degrees where staff expertise re-quires strengthening. FIRA's training program would focus on agriculturalfinance, farm management, subloan appraisal, low-cost technology and improvedfarming systems, and technical aspects relating to crop and livestock activi-ties. To facilitate training for farmers, new demonstration centers for cropsand livestock would be established in strategic locations, and selectedexisting centers would be expanded. Under the project, the number of livestockdemonstration farms would be increased from 33 to 49 centers, with emphasis onforage production and heifer rearing. Likewise, in agriculture, the number ofdemonstration farms would increase from 20 to 47. Most of the new centerswould focus on improving yields and profitability of basic rainfed crops. Theproject would also include five training centers, two for tropical dairyproduction and three for rainfed crop production. Investments would includecivil works, land improvement and development, crop and forage establishment,agricultural machinery and equipment, and livestock. Additionally, the projectwould provide for short-term consultants equivalent to 10 man-months to assistwith training.

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5.35 Cechnical assistance would continue to be provided to the low- and

medium-income farmers by FIRA and the technical staff of the participatingbanks. Sinice FIRA has significantly increased its lending program for low-income producers, the importance of technical assistance has been heightened.Through FEGA, FIRA would reimburse, as under previous projects, participatingbanks for p-rt of the cost of providing technical assistance (equivalent to3X to 6% of outstanding subloan balance) to such farmers.

Data Base System and Monitoring

5.36 In order to improve FIRA's data base management system and improveits monitoring capabilities, the project would provide for facilities, equip-ment, additional qualified staff, and consultant services to assist FIRA inthese areas. The data base system would be strengthened in order to improve(a) timely availability of quality data to various user groups in FIRA'smanagement, and (b) FIRA's internal control of its lending program. Theprincipal source of input for the data would be from the technical evaluationand disbursement documents prepared in the field. The data base would identifytypes of sub-borrower by economic activities and regions, and for each subloanthere would be information on the investments to be financed, income andoperating statement and cash flow situation. Additionally, the disbursementlevels under each subloan would be recorded, and the data base would allowidentification of repeater subloans.

Planning and Programing

5.37 Under the project, FIRA's planning and programing set-up would bestrengthened. Provision would be made for additional personnel and consultantservices (paras 6.02 to 6.10).

E. Total Investment Program

5.38 FIRA has proposed for the project a total investment: program estimatedat US$1,179 million, of which about US$325 million, or 28%, represents theforeign exchange component. The proposed investment program represents about21% of FIRA's overall medium- and long-term investment program, amounting toabout US$5.7 billion for the 1980-82 period, which is based on FIRA's pastexperience, national and regional priorities, FIRA's sectoral developmentstrategy, credit delivery capabilities, and credit absorptive capacity at thefarm level.

5.39 Project costs include no allowances for import duties, since thegovernment's policy exempts agricultural equipment and materials from importduties. Base cost estimates are evaluated at mid-1980 prices and incorporateallowances for domestic and international inflation, amounting to about 31%of the total cost. Domestic price escalation is estimated at 18% per annumbased on recent inflation rates. The contingency for international inflation,which is estimated at 10.5%, 9.0% and 8.0% per annum for 1980, 1981 and1982, respectively, has been based on Bank guidelines for internationalprice increases (dated January 7, 1980).

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5.40 The consultant costs would amount to US$400,000, with direct cost(salaries, allowance, travel and overhead) estimated at US$10,000 per man-month.Project costs are summarized below:

Total Investment Program

TotalLocal Foreign Total Investment Cost FE--------US$ million…------ ----------…-----

I. Productive Investment

A. Low-Income ProducersCrops 226 88 314 28Livestock 94 42 136 31

Subtotal 320 130 450 50 29

B. Medium-Income ProducersCrops 63 25 88 28Livestock 32 15 47 31

Subtotal 95 40 135 15 30

C. Other ProducersCrops 106 45 151 30Livestock 69 32 101 32

Subtotal 175 77 252 28 31

D. Agroindustries 22 18 40 4 45

E. Fisheries 4 4 8 1 45

II. Productive Support

A. Monitoring and Evaluation (0.4) 30B. Training (6.3) 30C. Demonstration (6.3) 35D. Planning and Programing (1.6) 5E. Consultant Services (0.4) 90

Subtotal 10 5 15 2 33

III. Project Cost (Baseline) 626 274 900 100 30

IV. Price Contingency 228 51 279 31 18

V. Total Project Cost 854 325 1,179 131 28

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F. Financing

5.41 The proposed Bank loan of US$325 million equivalent, amounting toabout 28% of the project cost, would cover the entire foreign exchange cost(US$325 million). Financing from FIRA, participating banks, and the benefi-ciaries would amount to 42%, 15%, and 15%, respectively (see table overleafand Annex 3).

5.42 The proposed loan would be made to the Nacional Financiera S.A.(NAFINSA), a Government agency designated to borrow from the Bank, at standardterms for Mexico and the Government would assume the foreign exchange risk.As under the Sixth Credit Project, NAFINSA would transfer the proceeds of theloan to FIRA on the same terms and conditions as those governirng the Bank loanto NAFINSA, including a service charge expected to be one-eighth of 1% of Bankloan disbursements. About US$15 million (excluding contingency) of the totalprogram is earmarked for the productive support component (training, monitoringand evaluation, demonstration, planning and programing, and consultant services).Local counterpart funds (US$10.1 million, excluding contingency) for theproductive support component would be provided through the budgetary resourcesof the Government, which would be obligated to repay the principal amount ofthe loan and the interest and other charges relating to the productive supportcomponent. FIRA would have the obligation to pay the principal amount ofthe loan, interest and other charges on the amount of the loan channeled toit. Assurances to this effect were obtained at negotiations. The closing

date for disbursements would be March 1984.

G. Procurement

5.43 Bulk purchasing under ICB would not be feasible, since theagricultural lending activities would be implemented over a two-and-one-half-year period, be widely distributed geographically, cover a variety of farm/ranchinvestment activities, and involve a large number of sub-borrowers. An adequateselection of machinery, tractors and other agricultural equipment and inputs isavailable to sub-borrowers through local and international suppliers and permitscan be obtained to import machinery and tractors in horsepower ranges that arenot available in Mexico. Tractors up to 125 hp are manufactured in Mexicounder franchises from five major international firms, and adequate competitionand satisfactory service and maintenance facilities are assured by the rangeof choice offered and the extensive network of dealers. As in earlier projects,FIRA would require sub-borrowers to obtain quotations from several sources ofsupply, whenever practicable, for goods, civil works and imports of breedinglivestock to be financed under subloans. Equipment for the demonstration andtechnical assistance programs would be procured through FIRA's ordinaryprocedures, which are acceptable to the Bank. The services of consultants tobe financed under the project would be arranged in consultation with the Bank.

Project Financing(US$ millions)

Total Lending Participating Total ProjectSub-borrowers Program Banks FIRA IBRD Cost

Amount Amount * Amount % Amount % Amount % Amount %

I. PRODUCTIVE INVESTMENT

A. Low-Income Producersi) Crops 37.0 9 374.3 37.4 9 204.9 50 132.0 32 411.3 100ii) Livestock 16.0 9 162.1 16.2 9 88.9 50 57.0 32 178.1 100

Subtotal 53.0 9 536.4 53.6 9 293.8 50 189.0 32 589.4 100

B. Medium-Income Producersi) Crops 17.3 15 98.0 19.6 17 47.4 41 31.0 27 115.3 100ii) Livestock 9.3 15 52.4 10.5 17 25.9 41 16.0 27 61.7 100

Subtotal 26.6 15 150.4 30.1 17 73.3 41 47.0 27 177.0 100

C. Other Producersi) Crops 53.4 27 144.4 43.3 22 60.1 30 41.0 21 197.8 100ii) Livestock 35.7 27 b/ 96.6 29.0 22 39.6 30 28.0 21 132.3 100

Subtotal 89.1 27 - 241.0 72.3 22 99.7 30 69.0 21 330.1 100

D. Agro-industries andFisheries 12.6 20 50.3 15.1 24 21.2 34 14.0 22 62.9 100

II. PRODUCTIVE SUPPORT - - - - - 13.6 67 6.0 33 19.6 100

Total Cost 181.3 15 978.1 171.1 15 501.6 42 325.0 28 1,179.0 100

a/ Beneficiaries who receive institutional credit for the first time would make a minimum contribution of 5%and account for about 20% of project cost for this sub-category.

Contribution by other low-income beneficiaries would average 10% and account for 80% of project cost for thissub-categorv.

b/ Beneficiaries whose net annual income does not exceed 2,000 times the daily minimum rural wage would make aminimum contribution of 20% and account for 30% of project cost for this sub-category.

Contribution by other beneficiaries would average 30% and account for 70% of project cost for this sub-category.

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5.44 Machinery and equipment for agro-industries would be purchased byprivate producers or groups of producers. FIRA would make available toprospective sub-borrowers a list of suppliers of agro-industrial machinery,including in it those from Bank member countries and Switzerland, as well astheir agents or representatives in Mexico. FIRA would apply suitable procedures,either dir ectly or through the financial intermediaries, to ensure that goodsand services procured, using project financing, are competitive in quality andprice and are appropriate for the needs of the sub-borrower's enterprise.After the proposed loan is signed, FIRA would advertise locally and notifyall embassies in Mexico of Bank member countries that manufacture agro-industrial. equipment, and Switzerland, of the details of the agro-industries'component of the project, giving broad particulars of the types of machinerylikely to be required. Assurances on these points were obtained duringnegotiations.

H. Disbursements

5.45 All project subloans would be committed during two-and-one-half-years and proceeds of the Bank loan would be disbursed over approximatelythree-and-one-half years. The Bank would reimburse FIRA for (a) 40% of itsrediscounts of disbursed project subloans for low-income producers, medium-income producers, other commercial producers, agroindustries and fisheries;and (b) 33% for its eligible expenditures for the productive support component(training and demonstration centers programs, monitoring and evaluation, database system, and planning and programing). Disbursements for the lendingprogram and civil works for the demonstration program would be made againstcorresporLding certificates of expenditures and summary supporting documentationas required by the Bank. All additional relevant documentation would beretained by FIRA and be available for inspection by the Bank during the courseof project supervision missions. Disbursements against statement of expendi-tures under FIRA loans have been generally satisfactory. The estimatedschedule of disbursements by the Bank, shown overleaf, assumes that the dateof effectiveness of the proposed loan would be October 1980.

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Estimated Schedule of Disbursements

Disbursed During Cumulative DisbursementsFiscal Year and Quarter Quarter at End of Quarter

----------------US$million-----------------------

1981December 31, 1980 15 15March 31, 1981 25 40June 30, 1981 30 70

1982September 30, 1981 25 95December 31, 1981 30 125March 31, 1982 30 155June 30, 1982 30 185

1983September 30, 1982 30 215December 31, 1982 30 245March 31, 1983 25 270June 30, 1983 20 290

1984September 30, 1983 15 305December 31, 1983 10 315March 31, 1984 10 325

VI. PROJECT IMPLEMENTATION

6.01 As under the on-going Sixth Credit Project, the proposed projectwould he carried out by FIRA, which administers FONDO, FEFA and FEGA (paras3.02 to 3.08). FIRA has established a good reputation for its organizationand technical competence in term credit, but there is need for some institu-tional improvements. The proposed project would address this need by strengthen-ing its planning and programing and compiling operating regulations andprocedures mannuals.

A. Planning and Programing

6.02 Since FIRA's lending program is growing dramatically, steps are nowbeing taken to streamline and strengthen its planning and programing capabili-ties (paras 3.18 to 3.24) in order to ensure (a) active and greater participationin national agriculture planning and coordination, and (b) efficient allocationof its financial resources.

6.03 For the proposed project, FIRA is planning to upgrade (a) the status ofthe Division of Programing (DP) created in December 1979; (b) improve FIRA's

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analysis and diagnosis of agriculture and credit requirements and analysis ofthe development effects of FIRA-assisted subprojects; (c) improve coordinationwith other agencies involved in agriculture; and (d) employ additional economistsat the regional and national level to strengthen FIRA's capabilities to carryout pertinent studies and to plan and prepare sound investment programs.

6.04 The principal functions of DP would be, inter alia, to:

(a) prepare the annual investment program and medium-termplan for FIRA's lending;

(b) maintain coordination with key agencies such as SPP, SARHand BANRURAL relating to credit activities and developmentplan for agriculture;

(c) analyze credit, focusing on demand and supply aspects, anddetermine short- and long-term credit requirements byagricultural activities throughout the country;

(d) identify opportunities for sound lending and analyze creditneeds of potentially viable farming operations with improvedtechnology;

(e) analyze the development implications of FIRA's lendingpolicies and procedures;

(f) provide direction on development impact analyses of FIRA-assisted subprojects;

(g) prepare documents for FIRA borrowing from internationalagencies and other financial institutions in MIexico andabroad; and

(h) prepare internal reports and follow up on the operationsduring the year compared to the annual programs originallyprepared.

6.05 DP would consist of the Office of Sector Analysis aLnd Diagnosis,Office of Programing, and the Office of International Development Projects.The head of DP besides directing day-to-day activities would coordinate andmanage the preparation of the annual programs and the medium--term plans. Hewould set quality standards and procedures for preparing short- and medium-termlending programs and would advise FIRA's Director on trends and developmentsin FIRA's operations compared to approved plans, programs, policies andprocedures, and events of special significance. Furthermore, he would adviseon changes in external environment that are likely to signif:icantly affectFIRA's current and future operations and would represent FIRA in dealing withother organizations regarding collaborative planning, programing and creditanalysis.

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6.06 FIRA would hire additional staff to enable DP to carry out itsfunctions expeditiously. At the central level, five senior economists and twoless experienced economic analysts would be employed. Additionally, 10 econo-mists would be hired for FIRA's regional residency offices. These economistswould support the national credit analysis, diagnosis of the development

effects, and special studies directed from the central office. Their primarytask, however, would be to improve analyses at the regional, state, anddistrict levels that would provide the underpinning for FIRA's annual andmedium-term programs. DP would also be supported by specialists in planning

and agricultural finance, contracted for an equivalent of 12 months. As underthe Sixth Project, FIRA would employ consultant services in consultation withthe Bank.

6.07 DP would integrate FIRA's current planning at the central andregional level. Based on present experience, FIRA would continue its decentral-ization program, providing greater responsibilities to the state-level agenciesin the planning process. To enhance FIRA's knowledge of the sector, DP wouldcollect relevant data and information on agriculture from other agencies and

evaluate the agricultural situation, taking into account the production andmarketing prospects and constraints. For the preparation of the annual invest-ment programs and the medium-term plans, DP would provide direction andguidelines to the regional and state agencies and communicate to these agencies

the Government's national, regional and sectoral priorities in terms ofproduction and support to the low-income producers. The state and regional

offices would provide most of the input for the preparation of FIRA's overallinvestment programs. Each region's lending program would be predicated on(a) FIRA's initial projections of national and regional lending targets

by agricultural activities; and (b) credit demand analysis at the state andregional level and identification of sound investment subprojects. In thepreparation of key data at the state and regional level, coordination would beactively maintained with the participating banks, important sub-borrowers, andother local public agencies.

6.08 DP's credit analysis would focus on the demand as well as supplyaspects and would take into account results of past operations. It would

coordinate and actively seek pertinent information on the credit situation

throughout the country from various agencies (Bank of Mexico, SARH, SPP,BANRURAL, and the Association of Mexican Bankers) involved in agriculture. Its

analysis would take into account the Government's national and regional prior-ities in terms of production and agricultural emphasis, and, moreover, it wouldfocus on identifying credit needs of potentially viable farming operations andof farming systems with improved technological packages.

6.09 DP would also be responsible for analyzing the development impli-cations of its lending policies and procedures. The results of this analysiswould be used to influence its lending programs and policies, procedures and

operations in order to bring about a desirable pattern of growth and develop-ment. Also, the results would indicate to what extent development is in

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keeping wilth the Government's overall strategy and priorities for agricultureand the rural sector. DP would provide direction on development impactanalysis, and the Division of Impact Evaluation and Information would carryout detailed socio-economic analyses of FIRA-assisted subprojects. DP wouldalso analyze important investment opportunities and determine the scope offinancing these investments.

6.10 At the central level, FIRA would maintain close liaison with theprincipal agencies (SARH, Ministry of Programing and Budgeting (SPP) andBANRURAL), which are directly involved in planning and development of agri-culture. DP would elicit pertinent data and information relatLng to agri-culture from these agencies and would sustain continuous dialogue on the needsand priorities of the sector and the direction and focus of the Government'soverall investment program. With its vast experience in engendering growthin agriculture, FIRA would participate actively with SARH and SPP in theformulation of the national strategy and development plan for agriculture.FIRA's detailed analysis of the credit situation and requirements throughoutthe country would provide valuable input in determining the agriculturaldevelopment. FIRA's annual lending program and medium-term plan would bereviewed by SPP each year before it goes to FIRA's Technical Committee forapproval. This would facilitate good coordination and communication betweenFIRA and SPP, and moreover, it would ensure SPP's support of FIRA's initiativesand expanded role in agriculture.

B. Operating Regulations and Procedures Manual

6.11 FIRA has agreed to compile operating regulations and proceduresmanuals to provide direction and guidelines to FIRA field offices andparticipating banks for lending to farmers. The main subjects whichwould be included in manuals are:

(a) various lending programs eligible for FIRA rediscournts andtheir objectives;

(b) responsibilities and procedures for credit promotion,identification, preparation of farm development plans,methodology for subloan evaluation and appraisal, economicand financial criteria, investment criteria by activityfor the various lending programs, and subloan approvalauthority;

(c) lending policies and procedures, definitions of beneficiaries,subloan eligibility criteria, sub-borrower contributions,interest and rediscount rates, and lending terms and condi-tions;

(d) line of credit agreements with participating banks, rediscountprocedures, accounting and reporting requirements and pro-cedures;

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(e) guidelines and procedures for providing technical assistanceto beneficiaries and for obtaining FEGA guarantees; and

(f) criteria for hiring technicians and training requirements.

6.12 During negotiations, the Bank reviewed FIRA's progress inpreparing the manuals on operating regulations and procedures.

C. Sublending Policies and Procedures

Beneficiary Categories.

6.13. In the proposed project, beneficiaries would be classified intothree categories: low-income producers, medium-income producers, andother producers. A beneficiary is considered a low-income producer ifhis principal income is derived from farming and if his family's total netannual earnings, including income from other sources, are less than 1,000times the relevant regional minimum daily rural wage. Likewise, a medium-income producer is one whose total earnings are between 1,000 and 1,500 timesthe relevant regional minimum daily rural wage and whose farm is locatedin a rainfed district. Other producers would be classified into two sub-categories: (a) those whose family's total net annual earnings do not exceed2,000 times the relevant regional minimum rural wage and are not included inthe low-income and medium-income categories; and (b) all other beneficiaries.Minimum daily rural wages are established annually by the Government for 111regions of the country and, for 1980, these range from US$3.91 in the pooreststates up to a maximum of US$7.39 in the northern border states; the unweightednational average minimum daily rural wage is US$5.65 as compared to US$4.35during 1979.

6.14 The above definition of low-income producer was utilized under theFourth; Fifth and Sixth Credit Projects; in the PIDER I and II Rural Develop-ment Projects; and in the Tropical Agriculture Development Project; itembraces about 80% of the rural population, and, together with the additionalnew category of medium-income producers, it would include about 85% of therural population. Of the Bank loan (US$325 million), US$189 million would bereimbursed to FIRA for low-income producer subloan rediscounts.

Subloan Appraisal and Supervision.

6.15 Subloans would be made by participating public and private banks onthe basis of sound development plans appraised by bank technicians. Based onpast experience, the overall quality of subloan appraisal is good, and FIRA istaking steps through its training program to improve it further. In keepingwith its policy of decentralization, and given the progress made by partici-pating banks in increasing and improving their technical staffs, FIRA isgradually delegating subloan approval authority to FIRA-approved bank techni-cians. Under present FIRA procedures bank technicians have the authority toapprove medium- and long-term subloans not exceeding US$110,000 (Mex$2,500,000),and subloans above this limit are appraised in consultation with FIRA technicians

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at the state or regional level. However,a small number of bank technicians (31as of December 31, 1979) has already obtained FIRA authorization to approve,on their own, subloans up to US$220,000 (Mex$5,000,000). The total number ofFIRA-approved loan technicans in participating banks on Decemaber 21, 1979, was1,080 and an additional 1,280 technicians are receiving in-house training,working under the supervision of FIRA and bank staff. FIRA's OperatingRegulations and Procedures Manual would serve as a useful guide, primarily tothe large number of FIRA and bank technicians involved in FIRA's lending,guarantee and technical assistance activities.

6.16 The banks would meet a set of eligibility criteria, established byFIRA and acceptable to the Bank, in order to participate in the project.Participating banks would grant subloans for on-farm investments and invest-ments in agroindustries, including fisheries. The sublending terms andconditions would be as follows:

Beneficiary Minimum Beneficiary Maximum Annual Redis- MinimumCategory Contribution (% of Percentage count Rates to Annual Interest

cost of project of Subloan Participating Rates onfinanced) Rediscounted Banks Subloans

1. Low-income Beneficiaries

(a) those whoreceiveinstitutionalcredit forthe firsttime 5 90 10.50 14.00

(b) otherlow-incomebeneficiaries 5 90 11.75 15.50

2. Medium-income Bene-ficiaries in rainfeddistricts 10 80 13.50 17.00

3. Other Beneficiaries

(a) whose netannual. familyincome doesnot exceed2,000 timesthe daily min-imum rural wage 20 70 14.25 18.00

(b) all otherbeneficiaries 20 70 19.00 21.00

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Any subloan made to an agroindustrial or fisheries enterprise would bearan interest rate on the subloan and a rediscount rate to the participatingbank 0.5% higher than the rates shown in the table for the respectivecategory of beneficiaries who own the enterprise. FIRA would lower theyearly rediscount rates to participating banks whenever it would rediscountto the participating bank less than the maximum percentage of a subloan. TheGovernment has agreed to adopt a variable interest rate structure linked tothe ACF index for lending operations by FIRA. Interest rates on subloanswould be adjusted periodically, but at least once a year, and the revisedinterest rates would be applied to new subloans made after the date of adjust-ment. Minimum sub-borrower contribution to the investment costs would be 5%for low-income producers, 10% for medium-income producers and 20% for otherbeneficiaries. In the case of low-income producers, contributions to invest-ment costs could be in kind (labor and/or materials) or in financial resources.The repayment period for subloans would be based on expected cash flowsand would range from 3 to 15 years (including grace period of up to threeyears). Repayment schedules for the participating banks to FIRA wouldbe in line with those of the sub-borrowers. No subloan would be made to asub-borrower for on-farm investment if the amount of the proposed subloan,together with the aggregate amount outstanding under previous FIRA-financedsubloans by such a sub-borrower, exceeded US$217,000 (Mex$5,000,000). Thisamount would be adjusted if the sub-borrower is a group of farmers.

6.17 Under the Fifth and Sixth Projects, FIRA was required to obtain priorBank approval for project subloans in excess of US$800,000 (Mex$18.4 million),and this US$800,000 equivalent free limit, which also applies to individualsubloans resulting from group activity, would continue to apply in the SeventhProject. Assurances were obtained during negotiations that subloans wouldbe made to beneficiaries according to the lending procedures, terms andconditions outlined above.

Financial and Economic Criteria

6.18 For each subloan, the participating banks would prepare a financialplan, including a farm budget, an income and operating expense statement, anda financial cash flow and impute a financial rate of return based on FIRA'sguidelines. The Operating Regulations and Procedures Manual would includedetailed procedures for the participating banks. Subloan approval would bebased on the technical and financial viability of the proposed developmentplans. The financial rate of return of approved subloans would be equal to atleast the opportunity cost of capital (average cost of funds - ACF). However,approval of subloans would also take into account the type of development thatis being promoted and the needs and opportunities of beneficiaries.

6.19 Additionally, since the proposed project is viewed as sector lending,FIRA would ensure economic soundness of subloans. Since calculation of theeconomic rates of return of all subloans is impractical, FIRA would calculateonly those for selected investment subprojects that represented typicalsubprojects in each category of principal activities. The calculated economicrate of return would yield a rate at least equal to the opportunity cost ofcapital. Under the present pricing system and market conditions, in which

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input subsidies and import-export duties are negligible, and where in mostcases producer prices are compatible with world market prices, nIo significantdifferences are expected between financial and economic rates of return. Theresults of the economic analysis would be made available to the supervisionmissions or other Bank missions upon request and an assurance to this effectwas obtained during negotiations.

Consultant Services

6.20 In addition to the consultant services required for FIRA's planningand programing (para 6.06), a total of 28 man-months of consultant serviceswould be included under the project to support the training and demonstrationprograms, and to assist FIRA in strengthening its monitoring andl data basesystem. About 10 man-months would be used to recruit agricultural specialistsunder training and demonstration programs relating to forage an,d seed produc-tion for forages, oilseed crops and basic food crop production, layout ofagriculture and livestock demonstration farms, and establishment of orchards.Further, about 18 man-months would be utilized by FIRA's Monitoring Divisionand by the Computer Services Division to improve the quality of the data basesystems. As under the Sixth Project, FIRA would employ consultant servicesin consultation with the Bank.

Reporting Requirements

6.21 Quarterly progress reports summarizing project performance, subloandisbursemenits by categories (beneficiaries, principal activities, and subloansize) and FIRA rediscounts would be submitted to the Bank no later than 60days after the end of each quarter. Detailed reports, which would includesubproject costs, subloan commitments and disbursements by categories; lendingby activities and regions; type and number of beneficiaries; baLnk participationin subloan financing; and FIRA rediscount and investment breakdown of subloansby activities, would be prepared semiannually and submitted to the Bank no laterthan three months after the end of each six-month period. FIRA would alsosend the Bank annually (a) a summary of reports submitted to it by the parti-cipating banks, showing overdue payments on outstanding subloans; (b) asummary statement of changes in its own staffing on an overall and regionalbasis; (c) a statement on the progress of its training programs and a summaryof the activities carried out on its demonstration farms; (d) a review of thescope and effectiveness of the technical assistance activities to low- andmedium-income producers financed through FEGA; (e) and the status of technicalstaffing in participating banks. Within 12 months of the closLng date of theBank loan, FIRA would submit a Project Completion Report prepared in accordancewith Bank guidelines. Assurances on the above were obtained at negotiations.

D. Accounts and AuditinR

6.22 The accounting system of FIRA trust funds, FONDO, FEFA, and FEGA, issatisfactory. FIRA would maintain separate project records, as establishedfor the preceding project (Loan 1569-ME). FIRA accounts have been auditedduring recent years by Alonso Ochoa Ravize, a reputable Mexican auditing firm,

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and all audit reports on FIRA's accounts have been unqualified. In addition,the Bank of Mexico's internal audit department periodically reviews FIRA'sfinancial activities and accounts. An audit, satisfactory to the Bank, wouldbe made of the accounts and financial statements of FONDO, FEFA, and FEGAfor each fiscal year, in accordance with sound auditing principles consistentlyapplied, by independent and qualified auditors appointed by SH y CP and theBank of Mexico. Certified copies of the statements audited, together with thereport of the auditors, would be submitted to the Bank no later than fourmonths after the close of each fiscal year. Adequate accounts and recordswould also be maintai*Xed within all the participating banks so as to identifyall transactions pertaining to FIRA rediscounted subloans, and Bank supervisionmissions would have access to such accounts and any other documents pertainingto lending operations within the project. Assurances on these points wereobtained during negotiations.

VII. PROJECT BENEFITS AND RISKS

A. Illustrative Investment Plans

7.01 Subloans to individual farmers, farmer groups and cooperatives wouldbe made for a wide range of activities for crops and livestock under variedecological conditions throughout the country and for fisheries and agro-industries. Consequently, subloan amounts would vary considerably by bene-ficiary categories and principal activities. Subloans would be based on soundfinancial and economic development plans and follow FIRA's financial and economiccriteria. The financial rates of return would be calculated for investmentsubprojects. Based on FIRA's past experience, seven investment plans havebeen selected to demonstrate the development effects of investment programs,each showing the investment mix, development concept, technical change, andfinancial and economic results. These illustrative plans, together with thesupporting tables, would be utilized by FIRA to strengthen its financial andeconomic analyses. Table 7.01 summarizes the financial and economic results ofeach investment plan; details are given in Annex 5. As shown in Table 7.01,beneficiaries' income from the activities to be financed under the project wouldincrease significantly, providing sufficient incentive to farmers to partici-pate in the investment program.

B. Project Benefits

7.02 Based on FIRA's past experience, it is projected that about 140,000families, or about 770,000 persons would benefit directly from the project.Secondary benefits, although non-quantifiable, would also accrue from trans-portation, processing, marketing and agricultural services activities. Atfull development, it is estimated that, based on previous experience, incre-mental production of basic crops (maize, beans, wheat and soybeans) wouldincrease by 1.2 million m tons annually; cotton, sorghum and safflower by 180,000 mtons; milk by 90 million liters; and beef and pork by 100,000 m tons. The incre-mental production of these basic food products alone would amount to a foreign

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

Investment Plans - Summary of Results

Financial EconomicRates of Rates of

Investment Cost Net Cash Flow Return Return 2/Number Without With

1/ of Sub-loan Borrower's Investment InvestmentInvestment Plans - Families Amount Contribution Total Loan Loan

__________---------- US$ '000 -------------------- -------- % ----------

Al Rainfed Annual Crops Farm (180 ha) 7 21.1 1.1 22.2 3.4 12.0 34 42

A2 Gravity Irrigated Annual CropsFarms (200 ha) 10 45.4 2.4 47.8 8.1 25.6 41 over 100

Bl Dairy Farm (23 ha) 5 34.3 8.6 42.8 3.4 19.1 28 29

B2 Beef Ranch (200 ha) 10 24.6 6.1 30.7 9.9 26.3 22 21 7

Cl Small In-shore Fishermen Group 15 55.9 14.0 69.9 0 19.0 29 over 100

C2 Fruit Packing and Storage Plant 50 560.9 139.1 700.0 0 187.0 28 33

C3 Grain Storage Plant 200 791.3 195.7 987.0 0 265.2 27 28

1/ The various investment subprojects could also be undertaken by independent entrepreneurs.

2/ Economic rates of return are higher than the financial rates in most cases because (a) border prices are close to thedomestic producer prices; (b) shadow wage rate is lower than the interest rate; (c) home consumption isincluded as benefits; (d) taxes and insurance are treated as transfer payments and are therefore excluded;and (e) overhead costs relating to project administration and technical assistance are not included in theanalysis.

- 48 -

exchange savings of about US$177 million annually in 1979 prices. Increasedproduction of export crops, mainly coffee, cotton and vegetables, wouldcontribute significantly toward foreign exchange earnings, and, likewise,incremental production in fisheries and agroindustries would generate foreignexchange savings. The post-period analysis, which would be carried out byFIRA's Planning and Programing Unit and the Monitoring Division, would indicatemore precisely the overall impact of the various investments on production,employment and income.

7.03 As indicated in Table 7.01, net cash income of beneficiaries would in-crease considerably. Most investment plans or subprojects are expected tohave financial rates of return in the range of 20% to 40%. By allocating 65%of the total project costs, or US$766 million, to low- and medium-incomeproducers, the Government strengthens its efforts to increase employment andimprove income distribution among the rural poor.

7.04 The project would have substantial impact on institution building.Strengthening FIRA's planning and programing capabilities would ensure itsgreater participation in national agriculture planning and coordination, andadditionally, would allow preparation of sound annual investment programsand medium-term plans, thus ensuring an efficient allocation of FIRA'sfinancial resources. Compilation of an Operating Regulations and ProceduresManual by FIRA would provide better direction and guidelines to its fieldoffices and participating banks for lending to farmers. Improvements in thedata base system would assist FIRA in managerial decisions and would facilitateinternal control of its operations. Support to the Monitoring and EvaluationUnit would increase its capabilities to carry out detailed socio-economicanalysis of subprojects and analysis of the development implications of FIRA'slending programs and procedures. Expansion of the training and demonstrationprograms would ensure transfer of appropriate technological packages tofarmers and improvements in the quality of technical services provided tofarmers. Moreover, training of FIRA's staff and the staffs of the partici-pating banks would improve subproject appraisal analysis.

7.05 Finally, adoption of a variable interest rate system linked to theACF index and provision for periodic adjustments, taking into account the costof funds would: (a) standardize interest rates in FIRA's lending operations;and (b) ensure efficient allocation of resources in the agricultural sector.

C. Project Cash Flow

7.06 Total project subloan rediscounts are estimated at US$807 million,of which the proposed Bank loan would finance 40%, while the remaining 60%(US$488 million) would emanate from FEFA's own resources. FEFA's currentprojections show that, during 1980-82, it would recuperate US$1,470 millionfrom its outstanding medium- and long-term rediscount portfolio, thus enablingFEFA to provide the counterpart funds required for the project and to par-ticipate in other investment lending programs. FEFA would be able to withdrawits participation from the project account during the fourth to eighth year ofthe project and utilize these funds for relending.

- 49 -

7.07 The cost of the Bank loan is estimated at 8.7% per annum, assuming

a Bank interest rate of 8.25%, plus a 0.75% commitment fee and a 0.125%commission paid by FIRA to NAFINSA. FEFA's technical, administrative and

general expenses are estimated at 3.5% on the outstanding balances of redis-

counted subloans and the weighted average rediscount rate to participatingbanks was estimated at 13.3%. Therefore, the interest collected on rediscountswould fully cover FEFA's cost of its own resources (8.75% p.a.), the proposed

Bank loan and all of FEFA's project-related expenses. Additionally, therewould be a gradual build-up of additional net income estimated at US$120million derived from relending rollover loan funds during the period between

recuperation of subloan rediscounts and the due dates for repayment of the

Loan.

7.08 Total financing by participating banks would amount to aboutUS$171.1 million, about 17% of the total project lending program. Theaverage proposed margins (para 6.16) would give the participating banks asatisfactory return on their equity and incentive to participate in theproject. In addition, private banks would be able to obtain, without charge,FEGA's guarantee of up to 80% of subloans to low-income producers and up to

60% of subloans to medium-income producers, and partial reimbursement oftheir technical assistance expenses incurred in lending to thiese beneficiaries.The FEFA cash flow is presented in Annex 4.

7.09 The loan would be repaid by FIRA and the Government would, throughits budgetary resources, bear the foreign exchange risk. Additionally, theGovernment would allocate to FIRA about US$20.7 million during project imple-mentation for the productive support component of the project.

D. Project Risks

7.10 Since FIRA is a reasonably efficient and mature institution, theproject presents no special risk in terms of the technical and financial sound-ness of various investment programs that would be financed under the project.The succeBss of the project in meeting its underlying objectives would dependon the soundness and effectiveness of FIRA's annual investment programs andon the dievelopment impact analyses of its previous investment programs. Withthe measures undertaken in the project to strengthen FIRA's planning and pro-graming, and development impact analyses capabilities, FIRA should be able to

plan and prepare viable investment programs which would be development-oriented in order to maximize their impact on production, employment andincome. The successful implementation of the lending program for the low-income producers would require firm commitment and intensive effort by FIRAand the participating banks. Through improvements in the training anddemonstrations programs, FIRA would place special emphasis on, low-incomeproducers and would ensure adequate technical services to sub-borrowers.With its interest rates and discount structure, coupled with the FEGAguarantee system, FIRA would induce greater participation by private banks.

- 50 -

VIII. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION

8.01 During negotiations, assurances were obtained from the Governmentthat it would provide FIRA with the necessary funds to carry out the produc-tive support component, and be responsible for the payment of interest andother charges in respect of the Bank loan proceeds used by FIRA for thispurpose (para 5.42).

8.02 Assurances were obtained at negotiations from FIRA that:

(a) procurement under the project would be as outlined in paragraphs5.43 and 5.44;

(b) subloans would be made according to the lending procedures,terms, and conditions outlined in paragraph 6.16;

(c) the results of the economic analysis to be performed byFIRA on selected investment subprojects that representtypical subprojects in each category of principal activitieswould be made available to Bank missions upon request(para 6.19);

(d) reporting requirements as outlined in paragraph 6.21;

(e) auditing would be performed as described in paragraph 6.22.

8.03 With the above assurances, the proposed project is suitable for aBank loan of US$325 million on standard terms and conditions.

May 28, 1980

MEXICO

SEVENTI AGRICTLTIRAL CREDIT PROJECT

Credits for Agriculture through the Banking System and Sources of Financing

(Mex$ Millions)

Sources of Financing

Total for Private Banks FIRA 2/ Public Banks 3/

Year all Banks 1/ Amount % Amount X Amount %

1965 10,375 2,654 25.6 527 5.0 7,200 69.4

197rl 17,71n 6,018 34.0 2,056 11.6 9,636 54.4

1975 38,178 10,671 28.0 6,603 17.3 20,904 54.7

1976 44,R00 11,568 25.8 9,466 21.1 23,766 53.0

1977 63,745 14,488 22.7 14,439 22.7 34,818 54.6

1978 84,857 18,935 22.3 23,361 27.5 42,561 50.2

1979 4/ 112,000 21,00 19.1 34,366 30.7 56,234 50.2

198n 5/ 145,onn 27,678 19.0 47,630 32.8 69,907 48.2

1/ Outstanding balance on December 31.

2/ On December 31, 1978, 287 of FIRA's loan portfolio was with public banks and 72% with the private banks. x

3/ Banrural and FINASA. 7igures shown are based on net amounts of loans shown in Banrural balance sheets.

Actually Banrural's share in agricultural bank credit is considerably higher and on December 31, 1978 was

a.b.out .. . X

''Esti.-.te'

Ir Proiectnd

Fources Indicadores fcon6riic&.^* - Banco de MexicoiJivisiOi uie Finanzas - FInA

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

Principal Indicators of FIRA's Operations, 1971-1979

(Mex$ Millions)

1971 1972 1973 1974 1975 1976 1977 1978 1979-'

1. Total Assets 3,105.8 3,538.1 4,160.9 7,226.7 8,627.9 11,747.3 17,681.2 26,972.0 38,152.4

2. Total Rediscounts during year 1,513.1 1,518.0 2,388.9 4,019.2 4,507.9 6,960.9 11,170.9 18,519.4 26,658.8

3. Rediscount Portfolio at year end 2,394.2 2,594.0 3,422.4 5,070.8

6,603.5 9,465.7 14,438.9 23,360.6 34,366.1Short-term loans 442.7 421.6 696.0 1,281.3 1,369.4 2,216.6 3,884.1 7,685.5 8,751.4Medium and long-term loans 1,951.5 2,172.4 2,726.0 3,789.5 5,234.1 7,249.1 10,554.8 15,675.1 25,614.7

4. Number of Participating Financial 21Institutions in FIRA lending operations 142 147 165 150 156 155 156 89- 89

Private Banks and Financieras 135 137 154 138 142 141 146 76 76Public Banks 7 10 11 12 14 14 10 13 13

5. Number of Sub-loan Beneficiaries (includ-ing both short and long-term loans):Low-income Producers 20,132 22,532 37,100 77,159 82,180 91,688 94,388 74,771 137,200Commercial Producers 6,462 8,124 9,536 13,885 18,923 32,332 43,326 112,307 93,440

Total 26,594 30,656 46,636 91,044 101,103 124,020 137,614 187,078 230,640

6. Number of FIRA technical staff 378 402 457 604 670 715 727 755 812

1/ Unaudited.

2/ Number of participating financial institutions, as compared to previous years has not decreased; during the last two years largebanking groups and multi-purpose banks were formed through mergers.

Source: FIRA Kr

-53- ANNEX 2

Iable 2

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

Medium. and Long-Term Loans Rediscounted by FIRA

1971 - 1979

(Mex$ Millions)

Low-Income Producers Commercial Producers

Year Total Amount Percentage Amcount Percentage

1971 866.7 552.3 63.7 314.4 36.3

1972 825.7 436.0 52.8 389.6 47.2

1973 1,212.7 744.6 61.4 468.1 38.6

1974 1,931.1 1,133.5 58.7 797.6 41.3

1975 2,462.9 1,363.6 55.4 1,099.3 44.6

1976 3,434.7 1,700.1 49.5 1,734.6 50.5

1977 5,034.0 2,554.8 50.8 2,479.2 49.2

1978 7,969.4 2,054.2 25.8 5,9L5.2 74.2

1/1979 14,092.7- 3,942.7 28.0 10,150.0 72.0

Source: FIRA

1/ Estimated

-54-

ANNEX 2Table 3

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

FIRA REDISCOUNTS 1973 - 1979

PROJECTIONS 1980 - 1983

(Mex$ Millions)

Medium and TotalYear Short-term Long-term Rediscounts

1973 1,176.3 1,212.6 2,388.9

1974 2,088.1 1,931.1 4,019.2

1975 2,045.0 2,462.9 4,507.9

1976 3,526.2 3,434.7 6,960.9

1977 6,136.9 5,034.0 11,170.9

1978 10,550.0 7,696.4 18,519.4

1979 12,566.1 14,092.7 26,658.8

19801/ 19,800.0 16,200.0 36,000.0

2/1981-: 29,550.0 25,170.0 54,720.0

1982-?2/ 44,085.0 39,090.0 83,175.0

1983V/ 65,740.0 60,685.0 126,425.0

1/ Approved Lending Program

2/ FIRA Projections

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

Comparative Statement of FEFA's Assets and Liabilities 1973-1979

(MexS Millions)

Change from Change from Change from Change from Change from /Change from

1973 1974 1973 1975 1974 1976 1975 1977 1976 1978 1977 1979a/ 1978

ASSETS

Investments in Government

Securities 316,6 461.0 144.4 434.2 (26.8) 520.8 86.6 639.1 118.3 617.2 (21.9) 183.8 (433.4)

Medium and long-term loans and

rediscounts 2,605.9 3,677.9 1,072.0 5,147.5 1,469.6 7,186.4 2,038.9 10,509.9 3,323.5 16,112.2 5,602.3 25,615.8 9,503.6

Miscellaneous Assets 177.3 831.4 654.1 895.8 64.4 875.9 (19.9) 1,635.0 759.1 1,834.5 199.5 1,967.8 133.3

Total Assets 3*099.8 4,970.3 1,870. 775 1 77.5 8,583.1 2,105.6 12,784.0 4,200.9 18,563.9- 5,779.9 27,767.4 9,203.5

+ 60.3X + 30.3% + 32.5% -+ 48.91 + 45.Z2. + 49.6%.

LIABILITIES

Advances from BANXICO 587.5 1,528.3 940.8 2,100.0 571.7 3,600.0 1,500.0 5,750.0 2,150.0 7,852.0 2,102.0 11,850.0 3,998.0

Other Liabilities 63.5 146.3 82.8 234.0 87.7 348.8 114.8 417.2 68.4 2,083.5 1.666.3 3,150.5 1,067,0

Subtotal Liabilities _ 651.0 1,674.6 1,023.6 2,334.0 659.4 3X948.8 1,614.8 6X167 2 218.4 9,9355 3,768.3 15,QQQ.5 5,065.0

+ 157.2% + 39.3% + 69.2% + 56.1'b. + 61.117. + 51.07.

Trust Liabilities and Government

Equity

Special Fund 130.7 173.0 42.3 267.4 94.4 382.7 115.3 527.2 144.5 703.9 176.7

IBRD loan funds 1,816.3 2,508.1 691.8 3,281.9 773.8 3,219.7 (62.2) 4,550.8 1,331.1 5,583.0 1,032.2 } 11,905.9 3,366.8

IDB loan funds 499.1 610.2 111.1 580.7 (29.5) 1,007.4 426.7 1,493.6 486.2 2,252.2 758.6

Accumulated Net Income 2.7 4.4 1.7 13.5 _ 9.1 24.5 11.0 45.2 20.7 89.3 44.1 861.0 771.7

Total Government Equity 2A448.8 3,295.7 846.9 4,143.5 847.8 4A634.3 490.8 6A616.8 1 982 5 8,628.4 2.011.6 12,766.9 4,138.5

+ 34.5% + 25.7% + 11.8% * / + 30. + 48./.

Total Liabilities and Government .

Equity 3,099.8 4,970.3 +1,870.5 6,477.5 +1,507.2 8,583.1 +2,105.6 12,784.0 4,200.9 18,563.9 5,779.9 27,767.4 9,203.5 A

a/ Preliminary figures - unaudited

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

Project Financing(US$ millions)

Total Lending Participating Total ProjectSub-borrowers Program Banks FIRA IBRD Cost

Amount % Amount Amount % Amount % Amount % Amount

I - PRODUCTIVE INVESTMENT

A. Low-Income Beneficiaries 53.0 9 a' 536.4 53.6 9 293.8 50 189.0 32 589.4 100

B. Medium-Income Beneficiaries 26.6 15 150.4 30.1 17 73.3 41 47.0 27 177.0 100

C. Other Beneficiaries 89.1 27 -/ 241.0 72.3 22 99.7 30 69.0 21 330.1 100

D. Agro-industries andFisheries 12.6 20 50.3 15.1 24 21.2 34 14.0 22 62.9 100 0

II - PRODUCTIVE SUPPORT - - - - - 13.6 67 6.0 33 19.6 100

Total Cost 181.3 15 978.1 171.1 15 501.6 42 325.0 28 1,179.0 100

a/ Beneficiaries who receive institutional credit for the first time would make a minimum contribution of 5% andaccount for about 20% of project cost for this sub-category.

Contribution bv other low-income beneficiaries would average 10% and account for 80% of project cost for thissub-category.

b/ Beneficiaries whose net annual income does not exceed 2,000 times the daily minimum rural wage would make a minimumcontribution of 20% and account for 30% of project cost for this sub-category.

Contribution by other beneficiaries would average 30% and account for 70% of project cost for this sub-category.

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

FEFA Receipts -nd Disbursesents - Projected Cash Flow

Doting the Life of the Proposed Loan(USS millton)

--------- - ----- … Year ---------…-------

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Totals

R E C E I P T S:

1. Borrowings: Withdrawals fronWorld Bank Loan 2/ 95.0 120.0 90.0 20.0 325.0

2. FEFA's Own Resources 205.0 190.0 50.0 445.0

3. Recuperation of Rediacounts:a) Principal 26.8 60.9 102.2 131.6 155.0 147.0 112.0 52.3 19.2 807.0

b) interest 3/ 19.2 58.0 89.0 100.4 95.7 82.1 64.6 44.0 24.4 9.5 2.6 589.5

4. Go-ernment Reimbur-ement 4/ _ 5.2 6.2 9.3 20.7

Total Expected Receipts 319.2 373.2 262.0 190.6 197.9 2T37 219. 191.0 1.2,1r

D I S B U R S E M E N T S:

5. Rediscounted SubIoans 5/a) For Los-income Producers 125.0. 170.0 137.2 50.6 482.8

b) FPr Medium-income Producers 45.0 50.0 25.3 120.3

c) FPr other Beneficiaries 110.0 58.7 168.7

d) FPr Agro-industries and 10.0 13.0 12.2 35.2

Fisheries6. Training, Demonstretion, and

Technical Assistance 5.0 6.0 8.6 19,6

7. Direct Espenses:a) Interest and Commitmn-t Charge

on World Bask Loan §/ 6.1 14.2 22.0 27.2 25.6 23.5 21.4 19.3 17.1 15.0 12.9 10.8 8.7 6.6 4.5 2.4 0.5 237.8

b) Interest on FEFA. ownResoprces 7/ 9.0 26.2 36.8 38.9 35.4 26.7 17.9 4.8 195.7

c) FEFA Administrative andCeseral Espenses 8/ 5.0 15.2 23.5 27.4 25.2 21.6 17.0 11.6 6.4 2.5 0.7 156.1

8. Repayoent of Principal -World Bank Loan 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 325.0

Totul Expected Disbursements 315.1 353.3 65 144.1 111.2 96.8 81.3 60.7 45 2.5 38.6 35.8 33.7 31.6 29.5 27.4 25.5 i.741.2

C AS N H A L A N C E:

9. Excres of Yearly Receipts overDi.b.-ae-ests 4.1 19.9 (3.6) 4G.5 86.7 116.9 138.3 130.3 87.9 19.3 (16.8) (35.8) (33.7) (31.6) (29.5) (27.4) (25.5) 446.0

10. Withdrawal of FEFA Resources 9/ (40.0) (100.0 (100.0) (150.0) (55.0) (445.0)

11. Cpualative Cash Balance atYear's End 10/ 4.1 24.0 20.4 26.9 13.6 30.5 18.8 94.1 182.0 201.3 184.5 148.7 115.0 83.4 53.9 26.5 1.0 1.0

1/ Every 12 mosths fron World Bask Loan effectiveness. 6/ Includes NAFINSA service charge of 1/8%. on balance of loan outstanding.

j/ A time lag of three months Is assumed between FEFA rediscount disbursements and World Bank 7/ 8.757. p.a. - average coat of FEFA resources.

Loan withdrawal. 8/ FEFA administrative exp-ese- astimated at 3.5% on sto.ts-ding balances of rediscpunted loans.

3/ Average rediscount rate of 13.31 p.s. 9/ Withdrawal from Project Account of FEFA's own resources (see item 2).

4; A time lag of one year is assumed between FEFA disbursement and Government reimhurseien. 10/ The projected annual cash balasoe would be used for new rediscount- to par-ticipting backs.

5/ Projected for initial operations only (secludes relending of fonds - see footnote 10). Intereat on such relending of funds Sio st shn in this statemt ad is estiet at

US$120 ollli,fter dedction of FEPA'5 adiistrati- sepe-ee.

May 23, 1980

- 58 -

ANNEX 5Page 1 of 6

Illustrative Investment Plans

Investment Plan Al: Rainfed Annual Crops Farm (180 ha)

1. This plan represents a typical group farming system in the rainfedareas of the central states in temperate regions. The enterprise is assumedto be owned by an ejido of seven families (about 40 persons). Under presentconditions, about 88% of the cropland is planted in maize and beans. Thedevelopment program calls for an expansion of the cultivable area from 140 hato 180 ha over a four-year period, increasing at a rate of 10 ha annually.Productivity of maize and beans would increase through better land prepara-tion, control of pests and diseases, use of fertilizer, weed control, andimproved cultivation practices.

2. Total investment cost is estimated at about US$22,200 of which landimprovement comprises 21%; buildings and installation, 3%; and machinery andequipment, 71%. Land improvement includes clearing and leveling of 15 ha andconstruction work consists of improving barns and machine sheds for storageof farm inputs. Machinery and equipment includes a tractor (60 hp) equippedwith a set of implements, which would permit clearing of new land as well asallow efficient and timely land preparation and cultivation. In the plan, itis assumed that 50% of the annual operational costs are financed under ashort-term loan and the sub-borrower contributes 5% of the investment cost.Additionally, crops are insured against losses attributed to adverse climaticconditions.

3. The proposed development plan is expected to increase the croppingintensity from 100% to 129%; however, the cropping pattern would remain thesame. Yields of maize and beans would increase from the present levels of1.7 tons/ha and 0.6 ton/ha to 2.2 tons/ha and 0.9 ton/ha, respectively,at full development. Labor requirement is expected to increase from 2,080man-days annually to 2,215 man-days per annum at full development. Likewise,farm income is expected to increase substantially. Net cash income wouldincrease from US$3,400 (without project conditions) to US$12,000 at fulldevelopment (year 8). The financial rate of return is estimated at 34%and the economic rate of return at 42%.

Investment Plan A2: Gravity-Irrigated Annual Crops Farm (200 ha)

4. This investment plan depicts improvement in a group farming system(10 families), producing mainly grains and oilseed in the arid and semi-aridirrigated regions of the northwest. The production plan includes expansionof the cropped area from 175 ha to 200 ha, introduction of high value crops,on-farm improvements and improved farming practices.

- 59 -

ANNEX 5Page 2 of 6

5. Investment cost is estimated at US$47,800, of which land improvementcomprises 14%; building and installations, 43%; and machinery and equipment,38%. On-farm improvement includes land clearing, leveling, sulbsoiling, andimprovement of farm buildings and installations (barn, shed, and water supplyfacility). Additionally, the plan allows for the purchase of al tractor (60 hp),including implements in order to ensure timely land preparation and cultivation.

6. The development plan is estimated to increase the cropping intensityfrom 100% to 114% and the cropping pattern includes wheat as a new crop. Highcosts of production, low prices, and a greater quantity of water requirementshave decreased cultivation of maize under irrigated conditions in these areas.Consequently, wheat is now increasingly replacing maize. Under improvedconditions, yields of wheat, sorghum, beans and soybeans would increase fromthe present levels of 3.8 tons/ha, 5.0 tons/ha, 1.2 tons/ha, and 2.0 tons/hato 4.2 tons/ha, 5.8 tons/ha, 1.6 tons/ha and 2.4 tons/ha, respectively, byfull deve:Lopment (year 4). Total labor requirements are expected to increasefrom the present level of 1,705 to 2,578 man-days. Net cash income wouldincrease substantially from US$8,100 under the present situation to aboutUS$25,600 at full development (year 8). The financial rate of return isestimated at 41% and the economic rate of return at over 100%.

Investment Plan Bl: Dairy Farm (23 ha)

7. The dairy investment plan is predicated on existing commercial dairyfarming systems, which are common in the arid, semi-arid and temperate regionsof Mexico where commercial dairying is dependent upon irrigated forages as afeed base. It represents the traditional system of milk production in whichcows and replacement animals are confined to stables or yards and fed harvestedforages. Green alfalfa is fed during the spring and summer, and maize isgrown and stored in pits for feeding during the winter. Additional winterfeed is obtained from autumn-sown oats. As these farms have a limited areaon which to expand, it is usually necessary to purchase a certain proportionof the forages required in the form of alfalfa hay as well as concentratefoodstuffs. Over 90% of the investment loan would be utilized for increasingthe size of the unit.

8. As an illustration, this plan is for a 17-ha dairy unit 1/ stocked with45 Holstein cows and replacement heifers. Infrastructure includes corrals, cowbarn, milking parlor and milking equipment. Total long-term investment overa three-year period is estimated at about US$43,000, of which livestockcomprises 46%; constructions, 14%; machinery and equipment, 17%; and forageestablishment, 18%. Construction items include improvements and extensionsto the milking parlor, water supply channels, water troughs, corrals andfences. Investment in machinery and equipment includes expansion and improve-ment of imilking equipment, milk cooling equipment and water pump, as well asexpenditures on tractor, agricultural equipment and farm vehicle. Short-termworking capital would be needed annually, amounting to about one-twelfth of theannual operating costs.

1/ This could be owned by an individual or an ejido consisting of 10 families.

- 60 -ANNEX 5Page 3 of 6

9. In the development program, the irrigated area would be increasedfrom 17 ha to 23 ha to expand forage production. By improved managementpractices such as better seed bed preparation and correct fertilizer usage,the dry matter yields of forage crops would increase for alfalfa from 11.9to 15.0 tons/ha and maize from 6.9 to 8.5 tons/ha. In addition, grazed annualryegrass is substituted for harvested oats in order to increase feeding valueand lift dry matter yield from 5.0 tons/ha for oats to 6.5 tons/ha for annualryegrass. A further innovation would be the sowing in each of the threeinvestment years of 1 ha of permanent pasture to be utilized by grazing inorder to introduce a lower cost method of milk production. By these methods,the proportion of farm-produced forages would increase from 72% at the presentlevel to 86% at full development (year 5). Through the investment in 12in-calf heifers and retention of herd-born heifers, the herd would increasefrom 45 cows (56 AU) before development to 60 cows (80 AU) with the project(year 3). Further increases and improvements are expected as follows:calving rate would increase from 70% to 75%; calf mortality would decline from16% to 12% (in year 4), adult mortality would be reduced from 3% to 2% (inyear 4); milk production per cow would increase from 3,600 liters to 4,000liters (in year 5); and total milk production would rise from 162,000 litersto 240,000 liters (in year 5). Under present conditions, two permanent workersare employed and about 560 man-days of part-time labor are required annually;under project conditions, total manpower would increase to three permanentworkers and 685 man-days of part-time labor.

10. Without project, the net cash income is US$3,400, which representsonly 8% of sales. With the improved plan, at full development (year 6),the net cash income would increase to US$27,400, representing 11% of sales.Over the same period, the value of the herd would increase by US$31,636, oralmost 60% of its initial value. The financial rate of return is estimatedat 28% and the economic rate of return at 29%. The cash flow analysisindicates that the subloan would require a grace period of four years and loanrepayment period of six years.

Investment Plan B2: Beef Ranch (200 ha)

11. The investment plan illustrates the prevailing system for beefproduction in the main breeding and fattening areas in the humid tropicalGulf region. In this region, new farming areas are being expanded, utilizingforest land as well as increasing the carrying capacity of existing farms bysowing improved pasture species. The region also fattens a considerable numberof cattle which migrate from the dry tropics, mainly from the Pacific region.The beef production investment includes an expansion of the pasture area from175 ha to 200 ha over a two-year period as well as increasing the existingcarrying capacity by better weed control and subdivisional fencing in order toincrease pasture utilization. In the first two years of the project, 25 ha ofnew pasture are to be developed out of forest land.

12. Based on the above, total investment is estimated at US$30,700, ofwhich livestock comprises 45%; constructions, 30%; machinery and equipment,3%; and pasture establishment, 18%. Constructions include subdivisionalfencing, cattle handling facilities, and water facilities.

- 61 -

ANNEX 5Page 4 of 6

Machinery and equipment consists of a sprayer to be used for controllingexternal parasites and weeds and a water pump. Pasture establishment involvesclearing forest land and sowing it with African star grass. Working capitalin the initial year would finance 100% of the purchase price of- fatteningsteers and 50% of annual operating costs.

13. The development program is estimated to improve pasture feed qualityand to increase the carrying capacity from the current level of 1.3 AU/ha to1.7 AU/ha (year 3). To utilize the increased carrying capacity, the herdsize would increase from 110 breeding cows (219 AU) to 160 cows (340 AU)through the purchase of 20 in-calf heifers and by the retention of ranch-bornheifers (year 6). In order to utilize excess carrying capacity in theinitial stages (project years 1 to 4), steers would be purchased annually forfattening.. Improvement in animal health services and better herd managementand grading are expected to improve production performance of the herd. Underimproved conditions, the weaning rate would rise from 60% to 65% (year 5);weaner mortality would decline from 10% to 6% (year 5); adult mortality wouldbe reduced from 4% to 2% (year 3); beef carcass per breeding cow would increasefrom 86 k,g to 120 kg; and total annual beef production would increase from 9.4tons to 19.3 tons. It is assumed that the farming system continues to employtwo permanent workers as under present conditions; however, te-mporary laborwould increase from 1,050 man-days annually from the present level to 1,430man-days at full development.

14. Without investment, the net cash income is estimatedl at US$9,900,representing 47% of ranch sales. At full development (year 9), net cash incomewould increase to US$18,400, amounting to 60% of sales. During the same period,the value of the herd would increase by US$72,700, or more than 70% of itspre-development value. The subloan reflects a grace period ofE five years anda repayment period of seven years. The financial rate of return is estimatedat 22%, aLnd the economic rate at 21%.

Investment Plan Cl: Small Inshore Fishermen Group

15. This investment plan consists of a simple low-cost package that wouldprovide adequate fishing equipment and small fishing boats that would enablelow-income fishermen groups to increase production for local markets. Thisillustraitive plan is based on a representative 15-family ejido, which wouldgenerate its own labor requirements. Without project conditions, assume thatthe group rents boats, including gear, from intermediaries who take a substan-tial portion of the catch as payment. In this case, the group rents threeboats, w'hich allows each family only a subsistence income.

16. The investment package includes 10 fiberglass launches of 7.9 mlength, each equipped with a 50-hp outboard motor. Local firms are now con-structing launches and manufacturing fishing ge2ar and accessories, but motorsare being imported. A cold storage room (;4 m ) for the catch and a generalpurpose fish receiving-clearing room (32 m ) would be constructed. Addition-ally, a refrigerated truck would be financed to enable the group to take itscatch to, the local or regional markets. Total investment cost is estimated atUS$69,900.

- 62 -

ANNEX 5Page 5 of 6

17. The 10 small boats with 30-man crew would allow each family tomaintain full-time employment in fishing and have a steady cash income. Theboats would be utilized on an average of 184 days per year, depending onweather conditions and the spawning seasons of different species. About 20%of the investment cost would be contributed by the beneficiaries. The loanis expected to be fully repaid by the sixth year of the project. In the firstyear of the project, US$42,300 in short-term working capital would be required;subsequently, operating costs would be self-financed. Net cash balance wouldincrease rapidly to US$19,000 by year 7. The financial rate of return isestimated at 29% and the economic rate at over 100%. These high rates wouldbe realized because: (a) the group would have 10 completely equipped boatswhich would be manned by 30 fishermen so that each family would be able tofish an average of 184 days per year; (b) production would soar since 10 boatswould be used instead of only three and incremental benefits would be high ina relatively short gestation period.

Investment Plan C2: Fruit Packing and Storage Plant

18. This investment plan consists of an apple packing and processingplant financed by an association of producers in a major fruit producing area.With proper grading, packing and transport of the fresh fruit, producerrevenues would be enhanced substantially. Apples would be stored for periodsof up to six months with little deterioration in quality. The processingplant would purchase from members and non-members apples at US$521 per tonand, upon processing, sell for an average of US$913 per ton. With the proces-sing plant, the growers must now dispose of their produce quickly during theharvest season, thus receiving relatively lower prices.

19. 2 The investment consists of civil works, a syall refrigerated storage(2,400 m ), a selection and packing2facility (1,200 m ) and materials andequipment storage facility (2,200 m ), the latter for boxes and packagingmaterials. Fruit storage capacity would be 2,400 tons. Total investment costwould be about US$700,000. Short-term working capital of US$547,800 andUS$426,100 would be required in the second and third years of the project,respectively, and would decline to an average annual level of US$187,000 inensuing years. Participants would contribute 20% of the investment cost.

20. At full development, 25 workers would be required for the six-monthoperation period for a total of 150 man-months. In addition, two maintenancecrew and five administrative-supervisory personnel would be employed for sixmonths and a professional manager would be hired on a year-round basis. Duringthe subloan repayment period, the net cash income would be US$37,000 annuallyand after debt service, annual net cash income would increase to US$187,000.The financial rate of return is estimated at 28%, and the economic rate at 33%.

- 63 -

ANNEX 5Page 6 of 6

Investment Plan C3: Grain Storage Plant

21. This subproject concept envisions a modest-scale mechanical storageinstallation (capacity of 38,000 tons) in a grain producing area. This scheme

would be supported by a producer group (over 200 members), but non-memberswould also be able to utilize the facilities at normal fees. During the peakharvesting season, crop losses range from 20% up to 50%; thus, the investment

in these facilities would reduce these crop losses.

22. Investment funds would finance a 38,000-ton grain storage complex,including grain drying equipment, power installation, and loading and

unloading facilities for trucks. Total investment cost is esiimated at

US$987,000. Civil works would include the warehouse (5,250 m ), office,laboratory, facilities for trucks, and a power substation. Machinery wouldconsist of conveyor equipment, a ventilator system and scales. Additionally,a pickup truck would be provided, together with a mobile laboratory forsampling grain. The facility would handle a volume of 57,000 tons annuallyof sorghum, maize, soybeans and wheat over a 10-month period. The producerswould form, a board of directors to manage the enterprise, but responsibilityfor actual operation would be delegated to a professional manager supportedby a small staff (two administrative staff and a two-man maintenance crew).During the operational period, 16 workers would be hired.

23. The net earning of the complex would amount to US$41,800 duringthe first eight years. Revenues would permit repayment of the investment loan(year 8). A short-term working capital loan, amounting to about US$222,000,would be required in the first year of operation. The financial rate ofreturn is estimated at 27% and the economic rate at 28%.

April 11, 1980

M E X I C O

SEVENTH AGRICULTURAL CREDI'r PROJECT

INViSTMENT PLAN Al -- RAINFED ANNUAL COPS FARM (180 ha)

Caeh.Flow Proiection

(Mex$ '000)

0 1 2 3 4 5 6 7 8 10 15 20

(I) CASH INFLOW:I GROSS VALUE OF PRODUC'TION 805.9 924-3 1052.4 1166.4 1284.6 1362.6 1362.6 1362.6 1362.6 1362.6 1362.6 1362.62 INVESTMENT LOAN (95%. of 6) 0 484.3 0 0 0 0 0 0 0 0 0 03 FARMERS CONTRIBUTION( 5 7 of 6) 0 25.5 0 0 '0 0 0 0 0 0 0 04 SHORT-TERM LOAN (59% of 7) 347.8 376.8 419.7 457.5 492.9 520.4 520.4 571.4 520.4 520.4 520.4 520.45 TOTAL INFLOW (1+2+3+4) [153-7 1810.9 1472.1 1623.9 1777.5 1882.9 1882.9 1934.0 1882.9 1882.9 1882.9 1882.9

(II) CASH OUTFLOW:

6 INVESTMENT COST 0 509.8 0 0 0 0 0 0 0 0 0 07 OFERATING COSr 695.5 753.6 839.3 915.0 985.7 1040.7 1040.7 1142.7 1040.7 1040.7 1040.7 1040.78 TOTAL. COST (6+7) 695.5 1263.4 839.3 915.0 985.7 1040.7 1040.7 1142.7 1040.7 1040.7 1040.7 1040.7

9 NE'T CASH FLOW (5-8) 458.2 547.5 632.8 708.9 791.8 842.3 842.3 791.2 842.3 842.3 842.3 842.3

DEBT SERVICES:10F PRINCIPAL PAYMENT 0 0 67.7 79.9 94.3 111.2 131.2 0 0 0 0 011 INVESTMENT LOAN INTEREST 0 43.6 87.2 75.0 60.6 43.6 23.6 0 0 0 0 0:12 SHORT 'T'ERM LOAN INTEREST 31.3 33.9 37.8 41.2 44.4 46.8 46.8 51.4 46.8 46.8 46.8 46.8:13 SHORT-T. LOAN PRINCIPAL PMT. 347.8 376.8 419.7 457.5 492.9 520.4 520,4 571.4 520.4 520.4 520.4 520.4

:14 TOT'AL DEBT SERVICE(SUM1O-13) 379.0 454.3 612.3 653.5 692.1 722.1 722.1 622.8 567.2 567.2 567,2 567.2

:15 CASH BALANCE (9-14) 79.1 93.2 20.5 55.4 99.7 120.2 120.2 168.5 275.1 275.1 275.1 275.1

…-- - - - - -- - - - - - - - - - - - -- - --- - - - - - - -- - - - - - - ---- - - - -- - - - - - - - - - - - - - - - - - - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ,. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

M E X I C O

SEVENTH AORICULTURAL CREDIT PROJECT

INvESTmENT PLAN A2 -- GRAVITY IRIGATED ANNUAL CROPS FARM (200 ha)

Cash Flow Projection

(14ex$ I000)

-------------------------------------- ---------------------- YEAR--------------------

0 1 2 3 4 5 6 7 a 10 15 20

(I) CASH INFLOW:1 GROSS VALUE OF PRODUCTION 1917.8 2338.0 2459.9 2581.9 2660.8 2660.8 2660.8 2660.8 2660.8 2660.- 2660.8 2660.8

2 INVESTMENT LOAN (957. of 6) 0 1045.0 0 0 0 0 0 0 0 0 0 0

3 FARMERS CONTRIBUTION C 5. of 6) 0 55,0 0 0 0 0 0 0 0 0 0 0

4 SHORT-TERM LOAN (50/. of 7) 828.3 918.0 942.6 967.1 991.8 991.8 991.8 1101.7 991.8 991.8 991.8 991.8

5 TOTAL INFLOW (1+2+3+4) 2746.1 4356.0 3402.4 3549.0 3652.5 3652.5 3652.5 3762.6 3652.5 3652.5 3652.5 3652.5

(II) CASH OUTFLOW:

6 INVESTMENT COST 0 1100.0 0 0 0 0 0 0 0 0 0 0

7 OPERATING COST 1656.7 1835.9 18S5.1 1934.1 1983.5 1983.5 1983-5 2203.5 1983.5 1983-5 1983.5 1983.5

S TOTAL COST (6+7) 1656.7 2935.9 1885.1 1934.1 1983.5 1983.5 1983.5 2203.5 1983.5 1983.5 1983.5 1983.5

9 NET CASH FLOW (5-8) 1089.4 1420.0 1517.4 1614.9 1669.1 1669.1 1669.1 1559.0 1669.1 1669.1 1669.1 1669.1

DEBT SERVICES:10 PRINCIPAL PAYMENT 0 0 146.1 172.4 203.4 240.0 283.2 0 0 0 0 0

11 INVESTMENT LOAN INTEREST O 94.1 188.1 161.8 130.8 914.2 51-0 0 0 0 0 0

12 SHORT TERM LOAN INTEREST 74.6 82.6 84.8 87.0 89.3 89.3 89.3 99.2 89.3 89.3 89.3 89.3

13 SHORT-T. LOAN PRINCIPAL PMT. 828.3 918.0 942.6 967.1 991.8 991.8 991.8 1101.7 991.8 991.8 991.8 991.8

14 TOTAL DEBT SERVICE(SUM10-13) 902,9 1094.6 136i.5 1388.3 1415.2 1415.2 1415.2 1200.9 1081.0 1081.0 1081.0 1081.0

15 CASH BALANCE (9-14) 186.5 325.4 155.8 226.6 253.9 253.9 253.9 358.1 588.0 588.0 588.0 588.0

- - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

MEXICO

SEVENTH AGRICUJLTURAL CREDIT PROJECT

INVESTMENT PLAN B1 -- DAIRY PRODUCTION (23 ha)

Cash Flow PloactionMex$ ' 000)

0 1 2 3 4 5 6 7 8 9 15 20

(i) ('a5h Inflow:

1 Gross Value of Production 980.6 1,074.8 1,121.9 1,210.6 1,390.6 1,550.6 1,575.6 1,575.6 1,575.6 1,575.6 1,575.6 1,575.62 Investment Loan (807. of 6) 0 722.1 33.1 33.1 0 0 0 0 0 0 0 03 Farmers Contribution (207. of 6) 0 180.5 8.3 8.3 0 0 0 0 0 0 0 04 Short-Term Loan (part of 7) 74.1 75.7 75.9 80.9 90.9 97.0 93.7 93.7 93.7 93.7 93.7 93.75 Total Inflow (1+2+3+4) 1,054.7 2,053.1 1,239.2 1,332.9 1,481.5 1,647.6 1,669.3 1,669.3 1,669.3 1,669.3 1,669.3 1,669.3

(ii) Cash Outflow:

6 Investment Cost 0 902.6 41.4 41.4 0 0 0 0 0 0 0 07 Operating Cost 888.8 908.7 910.2 970.7 1,090.8 1,164.4 1,124.8 1,124.8 1,124.8 1,124.8 1,124.8 1,124.88 Total Cost (6+7) 888.8 1,811.3 951.6 1,012.1 1,090.8 1,164.4 1,124.8 1,124.8 1,124.8 1,124.8 1,124.8 1,124.8

9 Net Cash Flow (5-8) 165.9 241.8 287.5 320.8 390.7 483.2 544.5 544.5 544.5 544.5 544.5 544.5

Debt Services

10 Principal Payment 0 0 0 0 60.0 100.0 150.0 150.0 150.0 178.3 0 011 Investment Loan Interest 0 65.0 133.0 138.9 141.9 131.1 113.1 86.1 59.1 32.1 0 012 Short-Term Loan Interest 13.3 13.6 13.7 16.4 17.5 16.9 16.9 16.9 16.9 16.9 16.9 16.913 Short-Term Loan Principal Payment 74.1 75.7 75.9 80.9 90.9 97.0 93.7 93.7 93.7 93.7 93.7 93.7

14 Total Debt Service (Sum 10-13) 87.4 161.1 222.6 934.4 309.2 345.6 373.7 346.7 319.7 321.0 110.6 110.6 en

15 Cash Balance (9-14) 78.5 80.7 64.9 86.4 81.5 137.6 170.8 197.8 224.8 223.5 437.9 433.9

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

INVESTMENT PLAN B2 -- BEEF PRODUCTION

Caoh Flow Projection

O 1 2 3 4 5 6 7 8 9 10 11-20

(i) Cash Inflow:

I Gross Value of Production 480.4 559.1 760.2 843.6 713.1 783.8 884.4 942.1 987.9 1,011.7 1,011.7 1,011.7

2 Investment Loan (80n. of 6) 0 438.9 126.4 0 0 0 0 0 0 0 0 0

3 Farmers Contribution (207. of 6) 0 109.7 31.6 0 0 0 0 0 0 0 0 0

4 Short-Term Loan (part of 7) 120.9 239.2 365.4 423.1 269.4 193.0 193.9 194.5 194.8 194.8 194.8 194.8

5 Total. Inflow (1+2+3+4) 601.3 1,344.9 1,283.6 1,266.7 982.5 976.8 1,078.3 1,136.6 1,182.7 1,206.5 1,206.5 1,206.5 ,

(ii) Cash Outflow:

6 Investment Cost 0 548.6 158.0 0 0 0 0 0 0 0 0 0

7 operating Cost 241.8 401.3 538.2 615.3 461.7 385.9 387.8 389.0 389.6 389.6 389.6 389.6

8 Total Cost (6+7) 241.8 949.9 696.2 615.3 461.7 385.9 387.8 389.0 389.6 389.6 389.6 389.6

9 Net Cash Flow (5-8) 359.5 395.0 587.4 651.4 520.8 590.9 690.5 747.6 793.1 816.9 816.9 816.9

Debt Services:

10 Principal Payment 0 0 0 0 0 79.0 93.2 110.0 129.8 153.3 0 0

11 Investment Loan Interest 0 39.5 90.4 101.8 101.8 101.8 87.5 70.7 50.9 27.6 0 0

12 Short-Term Loan Interest 10.9 21.5 32.9 38.1 24.2 17.4 17.5 17.5 17.5 17.5 17.5 17.5

13 Short-Term Loan Principal Payment 120.9 239.2 365.4 423.1 269.4 193.0 193.9 194.5 194.8 194.8 194.8 194.8

14 Total Debt Service (Sum 10-13) 131.8 300.2 488.7 563.0 395.4 391.2 392.1 392.7 393.0 393.2 212.3 212.3

15 Cash Balance (9-14) 227.7 94.8 98.7 88.4 125.4 199.7 298.4 354.9 400.1 423.7 604.6 604.6

M E X I C O

SEVFNTH AGRICULTURAL CREDIT PROJECT

INVSST4EfT PLAN Cl -- SI1L INSHCPSI FISHERMEN GtOUP

Cah Flow ection(KeiS '000)

--------------------------------------- _------------------------YEAR ----------------------------------------------

0 1 2 3 4 5 6 7 8 10 15 20---------------.------------------------------- _-_----------------------------------------------------------------------------------

(1) CASH XNF1OW:I GROSS VALUE OF FRODUCTION 954.0 1789.0 2983.0 2983.0 2983.0 2983,0 29B3,0 2983.0 2983.0 2983.0 2983.0 2983.02 1lJVFSTMENT IOAN- (8QC% OF 6)1/ 97.6 1286.4 0 0 0 0 0 0 0 0 0i Fiishermen Contribution (207! of 6) J 24.4 321.6 0 0 0 0 0 0 0 0 0 04 SHORT-TERM LOAN (PART OF 7) 751.0 973.0 0 0 0 0 0 0 0 0 0 05 IOTAL INFLOW (1+2+3+4) 1827.0 4370.0 2983.0 2983,0 2983.0 2983.0 2983.0 2983.0 2983.0 2983.0 2983.0 2983.0

(II) CASH OUTfLOW:

6 INVESTMENT COST 122.0 1608.0 0 0 0 0 0 0 0 0 0 07 OPERATING COSTI/ 751.0 973.0 1718,0 1718.0 l7JR.0 2113,0 2063.0 1718.0 1718.0 1788.0 1823.0 1858.08 TOTAL. COST (6+7) 873.0 2581.0 1718.0 171R.0 17t8.0 2113.0 2063.0 1718.0 1718.0 1788.0 1923.0 1858.0

9 NET CASH FlAiW (5-8) 954.0 J789.0 1265.0 1265.0 1265.0 R70.0 920.0 1265.0 1265.0 1195.0 1160.0 1125.0

DERTr SFRVICES:10 FPINCIPAL PAYMENT 0 13.4 192,2 228.7 272.2 323.9 353.5 0 0 0 0 011 INVESTMENT LOAN INTEEST 9.3 140.8 260.4 223.9 180.4 128.7 67.2 0 0 0 0 012 SHORT TERM LOAN JNTEREST 142.7 184.9 0 0 0 0 0 0 0 0 0 013 SHnRT-T. LOAN PRINCIPFAL PMT. 751.0 973.0 0 0 0 0 0 0 0 0 0 O

14 TOTAL DE8T SERVICE(SUM1O-13) 903.0 1312.0 452,6 452.6 452.6 452.6 420.7 0 0 0 0 0

15 Fiehorman's Remuneration 4/ 51.0 450.0 800.0 800,0 000.0 400.0 480.0 826.0 828.0 628.0 828.0 828.0 *

16 Cash Balance (9-14) 0 27.0 12.4 12.4 12.4 17.4 19.3 437.0 437.0 367.0 332.0 297.0

S/ 80% of investoent costs at 19t for five yearj.2/ 20% of investment costs.3/ Include replacesent of outboard motors every four yearsi one launch in year 5, two in year 10 and three in year 15 and four in year 20; refrigerated

truck every six years.4/ Regular xemaneration instead of dividing the dtlty catch, calculated at the mini-um rural ugae sx$5l0 per day x 184 fishing days x 30 fisheremn at

full developenpt.

M E X I C O

SEVENTH AGRICULTURAL CREDIi PRFll..lCT

INVESTMENT PLAN C2 -- FRUIT PACKING AND STORAGE PLANT

Cash Flow Projection(Mex$ million)

-------------------------------------------------------------- YEAR----------------------------------------------------------------

0 1 2 3 4 5 6 7 8 10 15 20

(I) 1CASH [NFl nw:

l GROSS VALUE OF PKODUCTLOlN 0 0 18.1 18.1 18.1 18.1 18.1 18.1 18.1 18.1 18.1 18.1

2 TNVESTMENT LOAN (80CR OF 6)1/ 0 6.4 6.5 0 0 0 0 0 0 0 0 0

3 FARMERS CONTRIRUITTN (207. of 6) 2/ 0 1.6 1.6 0 0 0 0 0 0 0 0 0

4 SHORT-TERM LOAN (PART OF 7) 0 0 12.6 9.8 11.3 11.9 11.9 13.1 11.6 8.4 9.2 9.2

i 10TAL TNFLOW 1+2+344) 0 8.0 38.8 27.9 29.4 30.0 30.0 31.2 29.7 26.; 27.3 27.3

(IT) CASH OUTFLOW: I

6 INVESTMI-NI COST 0 8.0 8.1 0 0 0 0 0 0 0 0 0

7 OFFRATING COST2/ 0 0 12.0 12.( 12.3 12.4 1 i, 13.6 12./ 12.7 13.3 13.1

8 1llTAL COST (6+7) 0 8.0 20.1 1 .() 12.3 12.4 12.3 13.6 12.7 12.! 13.3 13.1

S NET CASH FLOW (5-8) 0 0 18.7 15.9 17.1 17.6 17.7 17.6 17.0 13.8 14.0 14.2

DEBT qERVICES:10 PRINCIFAL PAYMENT 0 0 .9 1.9 2.3 2.7 3.3 1.8 0 0 0 0

ll INVESTMIN T LOAN INTFREST 0 .6 1.8 2.3 1.9 1.5 1.0 .3 0 0 0 0

12 SHORT TERM LOAN INTERESr 0 0 1.2 .9 1.1 1.1 1.1 1.2 1.1 .8 .9 .9

13 SHORT-T. LOAN F'RINCIPAL FMT. 0 0 12.6 9.8 11.3 11.9 11.9 13.1 11.6 8.4 9.2 9.2

14 TOTAL DFPT SERVICF(SUM1O-13) O .6 16.5 tl.0 16.6 17.2 17.3 16. 12.7 9.2 10.t 1O.1 Q15 CASH BALANCE (9-14) 0 -. 6 2.2 1.0 .5 .4 .5 1.1 4.3 4.6 3.9 4.1

_/ 807 of investment costs at 197 for five years.2/ 20% of investment costs.3/ Includes vehicle replacement in project years 7, 12 and 17, and machinery and equipment parts inventory.

M E X I C O

SEVENtH AGRICULTURAL CREDIT PROJFCT

INVESTHfT ?AN C3 -- GRAIN ELEVATOR

Cash Flov Proiection(Mex$ million)

-- -- --YEAR--------

0 1 2 3 4 5 6 8 10 15 20

(I) CASH INFLOW:1 GROSS VALUE OF PRODUCTION 0 0 10.8 10.8 10.F 10.8 10.8 10.8 10.8 10.8 10.8 10.82 INVESTMENT LOAN (80. OF A) I/ 0 18.2 0 0 0 0 0 0 0 0 0 03 FARMERS CONTRIBUTION(20%. of 6) 2/ 0 4.5 0 0 0 0 0 0 0 0 0 04 SHORT-TERM LOAN (PART OF 7) 0 0 5.1 L-.7 2.5 3.5 3.6 3.4 3.4 0 0 05 IOTAL INFLOW (1+2+3+4) 0 22.7 15.9 12 . 13.3 14.3 14.4 14.2 14.2 10.8 10.8 10.8

(T r, ) CASH OtlTFI OW:

6 INVESTMENT COST 0 22.7 0 0 0 0 0 0 0 0 0 07 OFFRATING COST3/ 0 0 3,4 3.7 4,5 4,7 4.5 4.5 4.5 4 .7 5.0 5.38 TOTAL COST (6+7) 0 22.7 3.4 3.7 4.5 4.7 4.5 4.5 4.5 4.7 5.0 5.3

9 NET CtASH FLOW (S-8 0 0 12.5 8.8 8.8 9.6 9.9 9.7 9.7 6.1 5.8 5.5

DEBT SFRVICES:10 PkINCIFAL FAYMENT O0 t.5 1.7 2.1 2.4 2.9 3,5 4.1 0 0 0I1 TNVESTMENT LOAN INTEREST 0 1.7 3.5 3.2 2.8 2.5 2.0 1.4 .8 0 0 012 SHORT TERM LOAN INTEREST 0 0 .5 .2 .2 .3 .3 .3 .3 0 0 013 SHORT-.T. v-OAN FRINCIPAL FlMT. 0 0 5.1 1.7 2.5 3.S 3.6 3.4 3.4 0 0 0

14 TOlAL DEBT SERVICE(SUM1O-13) 0 1.7 10.5 6.7 7.6 8.8 8.9 8.7 8.7 0 0 0

15 CASH BALANCE (9-14) 0 -1.7 2.0 2.0 1.2 .9 1.1 1.1 1.1 6.1 5.8 5.5

1/ 807 of investment costs at 197 for seven years.2/ 207. of investment costs.3/ Includes vehicle replacement in project years 5, 10, 15 and 20, and machinery and equipment parts inveatory.

- 71 -

ANNEX 6

MEXICO

SEVENTH AGRICULTURAL CREDIT PROJECT

Selected Documents and DataAvailable in the Project File

A. On the Economy and Financial System

A.1 Informacion Economica - various issues; published by Bankof Mexico

A.2 Informe Anual 1978 - Annual Report of Bank of Mexico

A.3 Nacional Financiera S.A., Annual Report 1978

B. On FIRA

B.]. FIRA, Organization Chart

B.2 FIRA, Annual Report 1978

B.:3 FIRA, Annual Statistics 1978

B.4 FONDO, Audited Financial Statements 1978

B.5 FEFA, Audited Financial Statements 1978

B.6 FEGA, Audited Financial Statements 1978

C. BANRURAL - FINASA

C.1 BANRURAL, Audited Financial Statements 1978

C.2 FINASA, Annual Report 1978

C.3 National Commission for the Sugar Industry, Sugar Statistics 1979

D. Seventh Agricultural Credit Project

D.1 FIRA, Septima Solicitud de Prestamo al BIRF, January 1980, andsupporting documentation

D.2 Background data for illustrative investment plans

D.3 Background data on cost of productive support component

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